09 2015 barclays_presentation_final (1)

09 2015 barclays_presentation_final (1)

• 1.
  InfraREIT, Inc. Corporate Update September2015
• 2.
  Safe Harbor 2 Forward LookingStatements This presentation contains “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 identify 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. This presentation also contains forward-looking statements that have previously been publicly disclosed by the Company. These previously disclosed forward-looking statements should not be deemed reaffirmed or updated by their inclusion in this presentation. The Company’s actual results, performance or achievements could differ materially from those expressed or implied by any forward- looking statements made in connection with this presentation. 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 capital expenditures the Company expects will not materialize for a variety of reasons, including as a result of lower oil and gas drilling and related midstream and service company activities in the Permian Basin relative to the Company's current expectations; the Company’s ability to acquire electric transmission and distribution assets (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 conditions 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 permitted 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 real estate investment trust (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. Forward-looking statements speak only as of the date made and reaffirmed, 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 ability 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 cash available for distribution (CAD), funds from operations (FFO) 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.
• 3.
  Introduction to InfraREIT 3 High-growth company focused on owning electric transmission and distribution (T&D) infrastructure assets in the U.S., with an emphasis on the Texas market and the Southwest  Unique opportunity to invest in a rapidly expanding, dividend-focused business  Significant growth opportunities in InfraREIT’s current service territories that is expected to facilitate double-digit growth in Cash Available for Distribution, complemented by a robust pipeline of development projects and potential acquisition opportunities  Experienced management team  Closely aligned with Hunt Consolidated, Inc. (Hunt), InfraREIT’s development partner and long-term investor
• 4.
  Investment Highlights 4 Attractive Asset Portfolio ~$1.1 bn in regulated electric T&D assets (rate base)  Transmission assets currently comprise ~75% of rate base Stable Cash Flow  100% of revenue driven by regulated asset base  REIT revenue governed by multi-year leases Strong Track Record  Increased rate base from $60 mm in 2009 to ~$1.1 bn in 2Q 2015  Successfully developed 300 miles and 4 substations of CREZ transmission system  Closed acquisitions and completed rate case under REIT structure Constructive Regulatory Environment  Constructive T&D regulatory framework in Texas  Texas regulation supportive of REIT structure  Interim rate filings minimize regulatory lag Efficient Structure  REIT structure enables structurally advantages cash generation  Hunt is highly aligned with shareholders High-Growth Opportunities  10% - 15% cumulative annual growth rate in dividends per share for 2015 – 2018  Footprint Projects expected to achieve lower half of range  Robust pipeline of ROFO projects, other T&D projects from Hunt and 3rd party acquisitions  Expect 2015 CAD per share between $1.07 and $1.12; quarterly dividend for remainder of 2015 of $0.225 per share
• 5.
  Hunt Consolidated: AProven Energy Developer 5  Founded in 1934, the Hunt Oil Company and Hunt Consolidated, Inc. (a diversified holding company managed by the Ray L. Hunt family) are actively engaged in the energy and infrastructure businesses throughout the world  Hunt has a long history of entrepreneurial activity and a successful track record in developing and constructing large complex projects, such as the Texas CREZ project  Hunt has successfully partnered with large multinationals, international partners and governments, and has a presence in 14 countries around the world
• 6.
  Strategic Sponsor withLong-Term Alignment 6 Through its ownership and its agreements as manager (Hunt Manager) and developer (Hunt Developer), Hunt is highly aligned with InfraREIT shareholders  Hunt owns approximately 25.2% of InfraREIT(common stock and operating units) as of June 30, 2015  Lock-up agreements in respect of common stock and operating units  Incentive distribution feature in the management agreement  Hunt is required to offer specific development projects (ROFO Projects) to InfraREIT Hunt intends for InfraREIT to be the primary owner of Hunt’s future T&D development projects
• 7.
  Attractive Asset Profile 7 Dallas Austin SanAntonio Houston El Paso Amarillo Texas Stanton Celeste Brady McAllen Railroad DC Tie Service Territory Panhandle Transmission Railroad DC Tie Panhandle Transmission  ~75% of rate base  ~ 620 miles  Transmission Operations Center  Railroad DC Tie with Mexico (300 MW) Distribution  ~25% of rate base  ~10,500 miles  Over 50,000 electric delivery points
• 8.
  Constructive Regulatory Environment 8 ERCOT Texas has its own electrical grid managed by the Electric Reliability Council of Texas (ERCOT)  Electric utilities are subject to regulation by the Public Utility Commission of Texas (PUCT)  Transmission revenue requirement can be updated through a rate case or an interim Transmission Cost of Service (TCOS) filing (twice per year)  Distribution rates are typically updated through a rate case  State government and regulators focused on further enabling the growth of the Texas economy by providing reliable and inexpensive electric service  REIT structure approved by the PUCT in 2008 2014 Rate Case Settlement: 9.7% allowed ROE and 55% debt / 45% equity
• 9.
  $60 $1,100 2009 Q2 2015 ProvenResults & Track Record 9 25% 75% Distribution Transmission 2014 Rate Base The CREZ Project, capital expenditures and acquisitions have enabled us to significantly grow our business, with a heavy focus on Transmission Rate Base $ millions
• 10.
  Disciplined, Multifaceted Pursuitof Growth 10 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 • Value enhancing 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
• 11.
  Economic Drivers ofFootprint Growth 11  Renewable Energy Development and Interconnection in the Panhandle and South Plains (CREZ Project)  Connects high-potential renewables zones to the North and Central Texas load pockets  The Golden Spread Electric Coop Interconnection (ROFO Project) connects to Panhandle Transmission Lines  Economic Expansion in West Texas  Investment required to ensure reliability and meet identified customer requirements  Regional electricity usage has grown rapidly; significant unmet needs  Economic and Population Growth in South Texas  Strong population growth in the Rio Grande Valley and expanding economic activity on both sides of the Texas and Mexico border  Track record and relationships in South Texas contributed to Cross Valley Transmission Line (ROFO Project) opportunity Source: ERCOT, US Census Bureau, Texas State Data Center
• 12.
  Pipeline of DevelopmentProjects 12 ROFO Project (1) Estimated (2) Project Cost Expected 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 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. (2) The Company publicly disclosed this information previously and is not updating it or reaffirming it as of August 7, 2015. NM TX AZ NV CA M E X I C O NV CA OK TX AZ NM 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 Southline Transmission Project Verde Transmission Project Cross Valley Transmission Line Golden Spread Electric Coop (GSEC) Interconnection Lubbock Power & Light Interconnection
• 13.
  ROFO Project Update Asof September 10, 2015 ROFO Project State Status Golden Spread Interconnection TX • CCN (Certificate of Convenience & Necessity) received • Structural installation and wire stringing underway • Bids for major components have been received • Expected completion in late Q1 or early Q2 2016 Cross Valley Transmission TX • CCN received • Structural installation underway • Bids for major components have been received • Expected completion in late Q2 or Q3 2016 Southline AZ, NM • Draft EIS (Environmental Impact Statement) published in April 2014 • Achieved Phase 3 status in WECC (Western Electricity Coordinating Council) ratings process in March 2015 • Filed FERC (Federal Energy Regulatory Commission) PDO (Petition for Declaratory Order) in May 2015 Verde NM • Easement agreements reached with three Native American Pueblos 13
• 14.
  Governance & Management 14 BoardStructure  9 total members, 6 independent Related Party Transactions  Requires majority approval by the independent board members (i.e., ROFO Project acquisitions) Management (Hunt Manager)  CEO, CFO and General Counsel are officers of InfraREIT and Hunt Manager  Responsible for the day-to-day business and legal activities of InfraREIT  Annual base fee is equal to $13.1 million as of April 1, 2015 through March 31, 2016, and 1.50% of total book equity as of the previous year thereafter  Capped at $30 mm per year  Incentive fee is 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 Management Agreement (Hunt Manager)
• 15.
  Structure Mechanics 15 SDTS (2) Shareholders InfraREIT(1) Hunt and Hunt Family Sharyland Utilities Customers T&D Services Cash Rent 1 2 3 4  Ownership (3)  Hunt Manager  Hunt Developer 100% Interest (1) Represents InfraREIT public entity, InfraREIT Partners, LP (Operating Partnership) and Transmission and Distribution Company, L.L.C. (TDC). (2) Represents Sharyland Distribution & Transmission Services, L.L.C. (SDTS) and subsidiaries. (3) Represents Hunt Transmission Services, L.L.C. (limited partner of the Operating Partnership & shareholder of InfraREIT) Conducted business as a REIT since 2010  SDTS (2) owns the T&D assets and leases them to Sharyland  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 the Company distributes 1 2 3 4 Lease
• 16.
  Financing Strategy 16 Focus on Regulated T&D Opportunities MaintainStrong 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 SDTS  Maintain significant liquidity to support capex plan and financial flexibility
• 17.
  Investment Highlights 17 Attractive Asset Portfolio ~$1.1 bn in regulated electric T&D assets (rate base)  Transmission assets currently comprise ~75% of rate base Stable Cash Flow  100% of revenue driven by regulated asset base  REIT revenue governed by multi-year leases Strong Track Record  Increased rate base from $60 mm in 2009 to ~$1.1 bn in 2Q 2015  Successfully developed 300 miles and 4 substations of CREZ transmission system  Closed acquisitions and completed rate case under REIT structure Constructive Regulatory Environment  Constructive T&D regulatory framework in Texas  Texas regulation supportive of REIT structure  Interim rate filings minimize regulatory lag Efficient Structure  REIT structure enables structurally advantages cash generation  Hunt is highly aligned with shareholders High-Growth Opportunities  10% - 15% cumulative annual growth rate in dividends per share for 2015 – 2018  Footprint Projects expected to achieve lower half of range  Robust pipeline of ROFO projects, other T&D projects from Hunt and 3rd party acquisitions  Expect 2015 CAD per share between $1.07 and $1.12; quarterly dividend for remainder of 2015 of $0.225 per share
• 18.
  Appendix
• 19.
  Lease Mechanics Lease Terms InfraREIT is obligated to fund capex for Footprint Projects  New assets are 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 InfraREIT with approximately 97% of the projected regulated return on rate base investment attributable to InfraREIT’s assets Sharyland  Sharyland recovers operating and maintenance (O&M) costs and a portion of the return on InfraREIT’s rate base 19
• 20.
  Building InfraREIT’s IncomeStatement Lease Revenue Less: Corporate SG&A Less: Depreciation Operating Income Less: Interest Expense Less: Income Tax Expense Net Income A B C D E 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 InfraREIT’s assets InfraREIT consolidated interest expense As a REIT, corporate taxes applied to net taxable income, less deduction for dividends paid 20
• 21.
  InfraREIT Cash AvailableFor Distribution Q2 2015 vs. Q2 2014 CAD grew by 10% over Q2 2014, reflecting growth in adjusted EBITDA $ thousands Q2 2015 Q2 2014 Increase/(Decrease) $ % Net income $ 8,843 $ 5,513 Depreciation 9,671 8,366 FFO 18,514 13,879 Non-cash reorganization structuring fee — — Percentage rent adjustment 6,095 6,729 Base rent adjustment 3,068 3,548 Amortization of deferred financing costs 912 830 Reorganization expenses — — Non-cash equity compensation 185 120 Other income, net (847) (172) Capital expenditures to maintain net assets (9,671) (8,366) Cash Available For Distribution (CAD) $ 18,256 $ 16,568 $ 1,688 10% Shares outstanding (as of 6/30/2015) 60,594 CAD Per Share $ 0.30 21
• 22.
  InfraREIT Cash AvailableFor Distribution June YTD 2015 vs. June YTD 2014 CAD grew by 25% over June YTD 2014, reflecting growth in adjusted EBITDA $ thousands YTD 2015 YTD 2014 Increase/(Decrease) $ % Net (loss) income $ (27,030) $ 10,505 Depreciation 19,179 16,827 FFO (7,851) 27,332 Non-cash reorganization structuring fee 44,897 — Percentage rent adjustment 12,559 13,056 Base rent adjustment 5,131 3,984 Amortization of deferred financing costs 1,824 1,659 Reorganization expenses 333 — Non-cash equity compensation 308 120 Other income, net (1,473) (39) Capital expenditures to maintain net assets (19,179) (16,827) Cash Available For Distribution (CAD) $ 36,549 $ 29,285 $ 7,264 25% Shares outstanding (as of 6/30/2015) 60,594 CAD Per Share $ 0.60 22
• 23.
  Debt Obligations &Available Liquidity Long-Term Debt (rate / maturity) ($ millions) Outstanding As of June 30, 2015 TDC - Senior Secured Notes (8.50% / Dec. 30, 2020) $ 19.4 SDTS - Senior Secured Notes (6.47% / Sep. 30, 2030) 103.7 SDTS - Senior Secured Notes (7.25% / Dec. 30, 2029) 45.4 SP - Senior Secured Credit Facility (2.44% (1) / Jun. 20, 2018) (2) 391.7 SP - Senior Secured Notes (5.04% / Jun. 20, 2018) (2) 60.0 Total (3) $ 620.2 Liquidity Facilities ($ millions) Total Amount Outstanding As of June 30, 2015 Available InfraREIT Partners Revolver $ 75.0 $ — $ 75.0 SDTS Revolver 250.0 — 250.0 Total $ 325.0 $ — $ 325.0 Cash (as of June 30, 2015) 50.5 Total Available Liquidity $ 375.5 (1) Interest based on LIBOR at June 30, 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 23