InfraREIT - 1Q2015 Results & Supplemental Information

InfraREIT, Inc.Q1 2015 Results & Supplemental Information

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Forward Looking Statements

These presentations contain “forward-looking statements” about the business, financial performance, contracts, leases and prospects of InfraREIT, Inc. (the

“Company”). Words such as “could,” “will,” “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “guidance,” “outlook,” “target,” “expect,” “intend,” “plan,”

“estimate,” “anticipate,” “believe,” “project,” “budget,” “potential” or “continue” and similar expressions are used to ident ify forward-looking statements, although not all

forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions

about future events and are based on currently available information as to the outcome and timing of future events. The Company’s actual results, performance or

achievements could differ materially from those expressed or implied by such statements. The Company’s capabilities or performance, stockholder value as well as

any other statements that are not historical facts in this presentation are forward-looking statements that involve certain risks and uncertainties, many of which are

difficult to predict and beyond the Company’s control. Factors that could cause actual results to differ materially from the results contemplated by such forward-looking

statements include, without limitation, risks that the projects the Company expects will not materialize for a variety of reasons, including as a result of more significant

reductions, relative to current expectations, in oil and gas drilling and related midstream and service company activities in the Permian Basin due to lower oil and gas

prices; the Company’s ability to acquire T&D assets on terms that are accretive to stockholders; the Company’s current reliance on its tenant for all of the Company’s

revenues and, as a result, the Company’s dependency on its tenant’s solvency and financial and operating performance; defaults on or non-renewal or early

termination of leases by the Company’s tenant; risks related to future lease negotiations; changes in the regulated rates the tenants of the Company’s assets may

charge their customers; the completion of the Company’s capital expenditure projects on time and on budget; competitive condi tions for the development and

acquisition of T&D assets; insufficient cash available to meet distribution requirements; the price and availability of debt and equity financing; the Company’s level of

indebtedness or debt service obligations; changes in governmental policies or regulations with respect to the Company’s permi tted capital structure, acquisitions and

dispositions of assets, recovery of investments and the Company’s authorized rate of return; weather conditions and other natural phenomena; the effects of existing

and future tax and other laws and governmental regulations; the Company’s failure to qualify or maintain its status as a REIT; availability of qualified personnel; the

termination of the Company’s management agreement or development agreement or the loss of the services of the Company’s manager or the loss of access to the

development function of the Company’s developer; the effects of future litigation; changes in the tax laws applicable to REITs; adverse economic developments in the

electric power industry; and changes in general business and economic conditions, particularly in Texas. When considering forward-looking statements, you should

keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included in the Company’s filings with the Securities and

Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary

materially from those indicated. This presentation speaks only as of the date hereof, and the Company disclaims any obligation to update or revise any forward-

looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Non-GAAP Legend

This presentation contains certain financial measures that are not recognized under generally accepted accounting principles (GAAP). These non-GAAP measures

are presented because InfraREIT’s management believes they help investors understand InfraREIT’s business, performance and ab ility to earn and distribute cash to

its stockholders by providing perspectives not immediately apparent from net income. These measures are also measures frequently used by securities analysts,

investors and other interested parties. The presentation of CAD, EBITDA, Adjusted EBITDA, FFO and AFFO in this presentation are not intended to be considered in

isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. In addition, InfraREIT’s method of

calculating these measures may be different from methods used by other companies, and, accordingly, may not be comparable to similar measures as calculated by

other companies that do not use the same methodology as InfraREIT. Reconciliations of these measures to their most directly comparable GAAP measures are

included in the Schedules 1-3 to this presentation.

2

Q1 2015 Highlights

Successfully completed Initial Public Offering (IPO) and began trading on the

New York Stock Exchange on January 30, 2015

Strong Q1 performance, in line with expectations

Strong growth relative to last year in revenue, adjusted EBITDA, and cash available

for distribution (CAD)

Progress on major ROFO projects

Construction proceeding for the Golden Spread Electric Cooperative Interconnection

and the Cross Valley Transmission Line

Southline achieved Phase 3 status in the WECC Ratings Process with an “Accepted

Rating” and filed for a FERC declaratory order

Financial objectives on track

Expect 2015 CAD per share of $1.07; quarterly dividend for remainder of 2015 of

$0.225 per share

10%-15% cumulative annual growth rate in CAD per share for 2015-18

3

HIFR Q1 Performance Summary$ millions

4

Strong Q1 performance, in line with expectations

Cash Available for Distribution

$12.7

$18.3

Q1 2014 Q1 2015

+44%

Lease Revenue

$24.8

$29.4

Q1 2014 Q1 2015

+19%

Adjusted EBITDA

$28.2

$34.4

Q1 2014 Q1 2015

+22%

HIFR Adjusted EBITDA – Q1 2015 vs Q1 2014

5

Q1 15 adjusted EBITDA exceeded Q1 14 adjusted EBITDA by 22%, reflecting strong

growth in lease revenue

Q1 2015 Q1 2014

Increase/(Decrease)

$ %

Lease Revenue $ 29,372 $ 24,837

G&A Expense (48,733) (3,412)

Other Income (Expense) 626 (133)

EBITDA (18,735) 21,292

Non-cash reorganization structuring fee 44,897

Effect of percentage rent 6,464 6,327

Effect of straight-line rent 2,063 436

Reorganization expenses 333

Other (income) expense, net (626) 133

Adjusted EBITDA $ 34,396 $ 28,188 $6,208 22%

HIFR Cash Available For Distribution –

Q1 2015 vs Q1 2014

6

CAD grew by 44% over Q1 2014, reflecting the strong growth in adjusted EBITDA

Q1 2015 Q1 2014

Increase/(Decrease)

$ %

Net income (loss) attributable to InfraREIT, Inc. $ (26,873) $ 3,845

Net income (loss) attributable to noncontrolling interest (9,000) 1,147

Depreciation 9,508 8,461

FFO (26,365) 13,453

Non-cash reorganization structuring fee 44,897

Effect of percentage rent 6,464 6,327

Effect of straight-line rent 2,063 436

Amortization of deferred financing cost 912 829

Reorganization expenses 333

Non-cash equity compensation 123

Other (income) expense, net (626) 133

Capital expenditures to maintain net assets (9,508) (8,461)

Cash Available For Distribution (CAD) $ 18,293 $ 12,717 $ 5,576 44%

Shares outstanding (as of 3/31/2015) 60,594

CAD per share $ 0.30

Debt Obligations & Available Liquidity

7

Long-Term Debt (rate / maturity)

($ millions)

Outstanding

As of Mar. 31, 2015

TDC - Senior Secured Notes (8.50% / Dec. 30, 2020) $ 19.7

SDTS - Senior Secured Notes (6.47% / Sep. 30, 2030) 104.6

SDTS - Senior Secured Notes (7.25% / Dec. 30, 2029) 45.9

SP - Senior Secured Credit Facility (2.43%1 / Jun. 20, 2018)2 394.8

SP - Senior Secured Notes (5.04% / Jun. 20, 2018)2 60.0

Total3

$ 625.0

Liquidity Facilities

($ millions)

Total

Amount

Outstanding

As of Mar. 31Available

InfraREIT Partners Revolver $ 75.0 $ 0.0 $ 75.0

SDTS Revolver 250.0 0.0 250.0

Total $ 325.0 $ 0.0 $ 325.0

Cash (as of Mar. 31, 2015) 86.5

Total Available Liquidity $ 411.5

(1) Interest based on LIBOR at Mar. 31, 2015, plus an applicable margin

(2) Sharyland Projects (SP) debt used to fund construction of our CREZ Transmission assets

(3) The sum of the Long-Term Debt Total may not equal due to rounding

Financing Strategy

8

Focus on Regulated

T&D Opportunities

Maintain Strong Balance Sheet

Grow Dividends

Sign long-term leases

that reflect regulated

rate structure

Minimize regulatory

lag with prudent rate

case / TCOS filings

80% - 85% long-term

CAD payout ratio

Construct Footprint

Projects

Acquire ROFO Projects

Acquire Other Hunt

Development Projects

Opportunistically

acquire other T&D

assets

Target consolidated credit metrics of 60% Debt / Capitalization and 12% AFFO / Debt

Maintain 55% Debt / Capitalization at regulated subsidiary

Maintain significant liquidity to support capex plan and financial flexibility

Disciplined, Multifaceted Pursuit of Growth

9

Footprint Projects

(Funded by InfraREIT)

Hunt Development

team members

have an average of

15 years’ industry

experience

ROFO Projects

Growth Strategy Growth Drivers

• Population and economic growth across Texas

• Energy-driven economic expansion

• Generator interconnections to Panhandle

Transmission assets

• Specific Hunt T&D projects under construction

or in development

• Cross Valley transmission line and Golden

Spread interconnection have approved CCNs

and are under construction

• Accretive M&A Transactions that build on:

• Hunt’s industry relationships and

reputation

• Expertise with REIT structure

• Future T&D projects developed and constructed

by Hunt

• Primarily focused on Texas and the Southwest

Other Hunt

Development Projects

Acquire other T&D assets

from third parties

HIFR Q1 Footprint Project Capital Expenditures$ millions

10(1) Footprint projects are transmission or distribution projects primarily situated within our distribution service territory, or that

physically hang from our existing transmission assets.

Footprint capital expenditures are in line with expectations

Q1 2015 Footprint Project Capital Expenditures (1)

$31.1

$23.6

$54.7

Distribution

Transmission

2015-17 Footprint Project Capital Expenditure Plan

2015 2016 2017

Distribution 110 105 85

Transmission 135 165 160

Total $ 240-250 $ 265-275 $ 240-250

Pipeline of Development Projects

11

NV

CA

OK

TX

AZNM

MEXICO

Additional U.S. –

Mexico DC Ties

Additional South Texas

Transmission / Generation

Interconnections

Import capacity from

New Mexico and

Arizona to California

PJM and MISO

interconnection

ERCOT

Southeast

Loop

Transmission

Line

South Plains

Reinforcement

NM

TX

AZ

NV

CA

M E X I C O

ROFO

Project1

Estimated

Project CostExpected

Completion Status

GSEC Inter-

connection$80-$100mm 2016

Under

construction

Cross

Valley Line $160-$185mm 2016

Under

construction

Southline $700-$800mm --Draft EIS

Published

Verde $60-$80mm --In

development

Southline

Transmission

Project

Verde Transmission

Project

Cross Valley

Transmission Line

Golden Spread

Electric Coop

(GSEC)

Interconnection

Lubbock Power & Light

Interconnection

Under Construction Other ROFO Additional Development Opportunities

(1) ROFO projects are identified projects that are being developed by Hunt Consolidated, Inc. and its affiliates with respect to which

InfraREIT has a right of first offer.

ROFO Project UpdateAs of May 13, 2015

12

ROFO Project State Estimated Costs1 Status

Golden Spread

InterconnectionTX

$80-100 mm

(incl. financing)

• CCN received; under construction

• Bids for major components have been

received; total costs lower than prior estimate

• Expected completion in late Q1 or early Q2

2016

Cross Valley

TransmissionTX

$160-185 mm

(incl. financing)

• CCN received; under construction

• Expected completion in late Q2 or Q3 2016

Southline AZ, NM$700-800 mm

(excl. financing)

• Draft EIS Published in April 2014

• Achieved Phase 3 status in WECC Ratings

Process in March 2015

• Filed FERC PDO in May 2015

Verde NM$60-80 mm

(excl. financing)

• Easement agreements reached with three

Native American Pueblos

(1) Cost estimates are preliminary estimates, and include estimated financing costs for the Golden Spread Interconnection (GSEC) and Cross

Valley Transmission Line (CV). For Southline, Verde, and other development projects other than GSEC and CV, Hunt may opt to partner

with other parties in the development of projects depending on their scope, location and cost.

Robust CAD & Dividend Growth Targets

13

Targeting a 10% - 15% CAGR of CAD /

share from 2015-18

Expect to achieve the lower half of

the range based on Footprint

Projects

Ability to exceed the midpoint of

the range through acquisitions of

Cross Valley Line and GSEC

Interconnection

Ability to achieve the top of the

range through additional Footprint

Projects or acquisitions

Cash Available for Distribution (CAD) per Share $ millions

$1.07

0.002015E 2018E

($/S

ha

re)

1

10%+

15%

CAD/Share

CAGR

(1) Based upon a total of 43,565,495 common shares and 60,593,728 OP units outstanding as of 3/31/2015.

Questions

14

Appendix

15

SDTS(2)

Structure Mechanics

16

SDTS owns our T&D assets and

leases them to Sharyland Utilities

Sharyland collects rate-regulated

revenue from other utilities and retail

electric providers

Sharyland makes regular lease

payments to SDTS

InfraREIT receives a tax deduction

equal to the amount of dividends we

distribute

1

2

3

4

Shareholders

InfraREIT(1)

Hunt and

Hunt Family

Sharyland

Utilities

Customers

T&D Services Cash

Lease

Rent

1

2

3

4 Ownership(3)

Hunt Manager

Hunt Developer

100% Interest

(1) Represents InfraREIT public entity, the operating partnership and TDC.

(2) Represents SDTS and subsidiaries.

(3) Represents Hunt Transmission Services, L.L.C. (limited partner of the operating partnership & shareholder of InfraREIT, Inc.)

Conducted business as a REIT since 2010

Board Structure

Management

Related Party

Transactions

Management

Agreement

9 total members, 6 independent

CEO, CFO and GC are officers of InfraREIT and Hunt Manager

Require majority approval by the independent board members

(i.e. ROFO Project acquisitions)

Hunt Manager responsible for day-to-day business and legal

activities of InfraREIT

Annual base fee equal to $13.1 million for April 1, 2015 through

March 31, 2016, and 1.50% of total equity as of the previous year

thereafter

Capped at $30 mm per year

Incentive fee equal to 20% of dividends per share in excess of

the Threshold Distribution Amount (120% of initial dividend)

payable quarterly

2015 Dividend per share: $0.225

Threshold Dividend: $0.270

Governance & Management

17

Lease Mechanics

18

Lease Terms

InfraREIT obligated to fund capex

for Footprint Projects

New assets added to leases

through supplements

Lease renewals apply the same

methodology but are updated for

new rate case information

Approximately 80% - 90% of rent

is a fixed amount – paid monthly

Approximately 10% - 20% of rent

is variable based on a percentage

of Sharyland’s gross revenue less

adjustments – paid quarterly

Lease Objectives

InfraREIT

Rent payments intended to

provide us with approximately 97%

of the projected regulated return

on rate base investment

attributable to our assets

Sharyland

Sharyland recovers O&M costs

and a portion of the return on our

rate base

Building Our Income Statement

19

Lease Revenue

Less: Corporate SG&A

Less: Depreciation

Operating Income

Less: Interest Expense

Less: Income Tax Expense

Net Income

A

B

C

D

E

Approximately 97% of regulated return on rate base

(traditional utility model)

Primarily management fee, public company costs and

professional fees at InfraREIT

PUCT-approved depreciation rates on our assets

InfraREIT consolidated interest expense

As a REIT, corporate taxes applied to net taxable income,

less deduction for dividends paid

A

B

C

D

E

Reg G Reconciliation

20

Schedule 1:

Explanation and Reconciliation of CAD

21

CAD

The Company’s definition of CAD includes a deduction of the portion of capital expenditures needed to maintain its net assets. This

amount is equal to the depreciation expense within the applicable period. The portion of the capital expenditures in excess of depreciation,

which the Company refers to as growth capital expenditures, will increase its net assets. CAD also includes various other adjustments from

net income, as outlined below and described in more detail on Schedule 2 and 3.

The following sets forth a reconciliation of net income (loss) attributable to InfraREIT to CAD:

Three Months Ended

March 31,

(In thousands) 2015 2014

Net (loss) income attributable to InfraREIT, Inc.(1) $ (26,873 ) $ 3,845

Net (loss) income attributable to noncontrolling interest (9,000 ) 1,147


FFO (26,365 ) 13,453

Non-cash reorganization structuring fee 44,897 —

Effect of percentage rent(2) 6,464 6,327

Effect of straight-line rent(1) 2,063 436

Amortization of deferred financing cost 912 829

Reorganization expenses 333 —

Non-cash equity compensation 123 —

Other (income) expense, net(3) (626 ) 133

Capital expenditures to maintain net assets (9,508 ) (8,461 )

CAD $ 18,293 $ 12,717

Shares outstanding (mm of shares) 60.6 (4) 45.5 (5)

CAD per share $ 0.30 $ 0.28

Post-IPO CAD payout ratio 74.5% (6) N/A

Schedule 1:

Explanation and Reconciliation of CAD

22

(1) Net (loss) income of InfraREIT reflects the impact of straight-line rents as follows: $(2.1) million and $(0.4) million for the

three months ended March 31, 2015 and 2014, respectively. This impact relates to the difference between the timing of

cash based rent payments made under the Company’s leases and when the Company recognizes base rent revenue

under GAAP. The Company recognizes base rent on a straight-line basis over the applicable term of the lease

commencing when the related assets are placed in service, which is frequently different than the period in which the cash

rent becomes due.

(2) Represents the amount of percentage rent owed to the Company related to the first quarter of 2015, which is owed on or

before May 15, 2015, and the amount paid to the Company in May 2014 with respect to the first quarter of 2014. Although

the Company receives percentage rent payments related to the first quarter of 2015, it does not recognize lease revenue

related to these percentage rent payments until its tenant’s annual gross revenues exceed minimum thresholds in the

leases.

(3) Includes allowance for funds used during construction (AFUDC) on equity of $0.5 million for each of the three months

ended March 31, 2015 and 2014.

(4) Calculated based on outstanding shares of 60.6 million as of March 31, 2015, which consists of 43.6 million outstanding

shares of common stock of InfraREIT, Inc. and 17.0 million outstanding OP Units held by the limited partners of the

Operating Partnership as of March 31, 2015. Net (loss) attributable to InfraREIT, Inc. common shareholders per share was

calculated based on 41.2 million weighted average shares outstanding during the first quarter of 2015, which excludes any

OP Units and is calculated on a weighted average basis.

(5) Calculated based on outstanding shares of 45.5 million as of March 31, 2014, which consists of 35.1 million outstanding

shares of common stock of InfraREIT, Inc. and 10.4 million outstanding OP Units held by the limited partners of the

Operating Partnership as of March 31, 2014. Net income attributable to InfraREIT, Inc. common shareholders per share

was calculated based on 35.1 million outstanding during the first quarter of 2014, which excludes any OP Units and is

calculated on a weighted average basis.

(6) Reflects the post-IPO distribution of $8.5 million (based on a pro-rata calculation from the IPO date) divided by the post-

IPO CAD of $11.4 million (based on a pro-rata calculation from the IPO date).

Schedule 2:

Explanation and Reconciliation of EBITDA and Adjusted EBITDA

23

EBITDA and Adjusted EBITDA

InfraREIT defines EBITDA as net income (loss) before any reduction as a result of net income (loss) attributable to noncontrolling

interest and before interest expense, net; income tax expense; depreciation and amortization. Adjusted EBITDA is defined as EBITDA

adjusted in a manner the Company believes is appropriate to show its core operational performance, including: (a) non-cash

reorganization structuring fee, (b) effect of percentage rent, (c) effect of straight-line rent, (d) reorganization expenses, and (e) other

income (expense), net.

The following table sets forth a reconciliation of net income (loss) attributable to InfraREIT to EBITDA and Adjusted EBITDA:

Three Months Ended

March 31,


Net (loss) income attributable to InfraREIT, Inc.(1) $ (26,873) $ 3,845

Net (loss) income attributable to noncontrolling interest (9,000) 1,147

Interest expense, net 7,422 7,681

Income tax expense 208 158


EBITDA (18,735) 21,292





Other (income) expense, net(3) (626) 133

Adjusted EBITDA 34,396 $ 28,188

(1) See footnote (1) on Schedule 1 on Explanation and Reconciliation of CAD



Schedule 3:

Explanation and Reconciliation of FFO and AFFO

24

FFO and AFFO

The National Association of Real Estate Investment Trusts (NAREIT) defines FFO as net income (computed in accordance with GAAP),

excluding gains and losses from sales of property (net) and impairments of depreciated real estate, plus real estate depreciation and

amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures.

Applying the NAREIT definition to the Company’s consolidated financial statements, which is the basis for the FFO presented in the press

release and the reconciliation below, results in FFO representing net (loss) income before any reduction as a result of net (loss) income

attributable to noncontrolling interest, depreciation, impairment of assets and gain (loss) on sale of assets. FFO does not represent cash

generated from operations as defined by GAAP and it is not indicative of cash available to fund all cash needs, including distributions.

AFFO is defined as FFO adjusted in a manner the Company believes is appropriate to show its core operational performance, including:

(a) non-cash reorganization structuring fee, (b) effect of percentage rent, (c) effect of straight-line rent, (d) reorganization expenses, and (e)

other income (expense), net.

The following table sets forth a reconciliation of net income (loss) attributable to InfraREIT to FFO and AFFO:

Three Months Ended

March 31,


Net (loss) income attributable to InfraREIT, Inc. (1) $ (26,873) $ 3,845

Net (loss) income attributable to noncontrolling interest (9,000) 1,147


FFO (26,365) 13,453





Other (income) expense, net(3) (626) 133

AFFO $ 26,766 $ 20,349




InfraREIT - 1Q2015 Results & Supplemental Information

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Transcript of InfraREIT - 1Q2015 Results & Supplemental Information