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2 q2016 earnings_ppt_final
- 1. InfraREIT, Inc. Q2 2016Results & Supplemental Information August 3, 2016
- 2. Safe Harbor Forward LookingStatements 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 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. 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, decisions by regulators or changes in governmental policies or regulations with respect to the Company’s organizational structure, lease arrangements, capitalization, acquisitions and dispositions of assets, recovery of investments, authorized rate of return and other regulatory parameters; the Company’s current reliance on its tenant for all of its revenues and, as a result, the Company’s dependency on its tenant’s solvency and financial and operating performance; risks that the capital expenditures the Company expects will not materialize for a variety of reasons; risks related to future lease negotiations or non-renewal of leases with the Company’s tenant; insufficient cash available to meet distribution requirements; the Company’s ability to make strategic acquisitions that add to its rate base; the price and availability of debt and equity financing; the Company’s level of indebtedness or debt service obligations; cyber breaches, weather conditions or 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) or changes in the tax laws applicable to REITs; the termination of the Company’s management agreement or the loss of the services of the Company’s manager or other qualified personnel; and adverse economic developments in the electric power industry or in business conditions generally, 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 U.S. 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). InfraREIT’s management uses non- GAAP measures as important supplemental measures of its operating performance. For example, management uses the cash available for distribution (CAD) measurement when recommending dividends to its Board of Directors. These non-GAAP measures are also presented because 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. InfraREIT has a diverse set of investors, including investors that primarily focus on utilities, yieldcos, MLPs or REITs. Management believes that each of these different classes of investors focus on different types of metrics in their evaluation of InfraREIT. For instance, many utility investors focus on EPS and management believes its presentation of non-GAAP earnings per share (Non-GAAP EPS) enables a better comparison to other utilities. Management believes it is appropriate to calculate and provide these measures in order to be responsive to these investors. Including the reporting on these measures in InfraREIT’s public disclosures also ensures that this information is available to all of InfraREIT’s investors. The presentation of Non-GAAP EPS; CAD; net income (loss) before interest expense, net, income tax expense, depreciation and amortization (EBITDA); Adjusted EBITDA; funds from operations (FFO); and adjusted FFO (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 Schedules 1-5 to this presentation. 2
- 3. Q2 2016 PerformanceSummary $ millions, except per share amounts 3 Strong growth in lease revenue and adjusted EBITDA, in line with expectations. CAD and non- GAAP EPS also in line with expectations, reflecting impact of higher interest expense and higher depreciation Cash Available for Distribution $18.3 $18.3 Q2 2015 Q2 2016 Lease Revenue $29.5 $33.8 Q2 2015 Q2 2016 +15% Non-GAAP EPS $0.30 $0.30 Q2 2015 Q2 2016 Adjusted EBITDA $33.9 $37.8 Q2 2015 Q2 2016 +12%
- 4. June YTD 2016Performance Summary $ millions, except per share amounts 4 Strong YTD 2016 performance, in line with expectations Cash Available for Distribution $36.5 $37.6 YTD 2015 YTD 2016 +3% Lease Revenue $58.8 $67.5 YTD 2015 YTD 2016 +15% Non-GAAP EPS (1) $0.62 $0.61 YTD 2015 YTD 2016 Adjusted EBITDA $68.3 $76.0 YTD 2015 YTD 2016 +11% -2% (1) Non-GAAP EPS for the six months ended June 30, 2016 was based on 60.6 million weighted average shares outstanding compared to 57.8 million weighted average shares outstanding during the same period of 2015.
- 5. Summary Income Statement Q22016 vs. Q2 2015 5 Net income increased in Q2 2016 based on an increase in lease revenue, offset by increased depreciation and interest expense ($ thousands) Q2 2016 Q2 2015 % Change Lease revenue $ 33,785 $ 29,458 15% G&A expense (4,980) (4,728) — Depreciation (11,410) (9,671) 18% Income from operations 17,395 15,059 — Interest expense, net (9,055) (6,939) 32% Other income, net 1,137 847 — Income tax expense (293) (124) — Net income $ 9,184 $ 8,843 4%
- 6. Summary Income Statement JuneYTD 2016 vs. June YTD 2015 6 Net income increased YTD 2016 based on an increase in lease revenue and non-recurrence of IPO related expenses, partially offset by increased depreciation and interest expense ($ thousands) YTD 2016 YTD 2015 % Change Lease revenue $ 67,450 $ 58,830 15% G&A expense (10,525) (53,461) — Depreciation (22,484) (19,179) 17% Income (loss) from operations 34,441 (13,810) — Interest expense, net (17,897) (14,361) 24% Other income, net 1,896 1,473 — Income tax expense (479) (332) — Net income (loss) $ 17,961 $ (27,030) —
- 7. Non-GAAP EPS Q2 2016vs. Q2 2015 7 Non-GAAP EPS was flat, reflecting net income drivers ($ thousands, except per share amounts) Q2 2016 Amount Per Share Q2 2015 Amount Per Share Net income attributable to InfraREIT, Inc. $ 6,608 $ 0.15 $ 6,362 $ 0.15 Net income attributable to noncontrolling interest 2,576 0.15 2,481 0.15 Net income 9,184 0.15 8,843 0.15 Non-cash reorganization structuring fee — — — — Reorganization expenses — — — — Percentage rent adjustment 6,046 0.10 6,095 0.10 Base rent adjustment 2,963 0.05 3,068 0.05 Non-GAAP net income (1) $ 18,193 $ 0.30 $ 18,006 $ 0.30 (1) Non-GAAP EPS for the quarter ended June 30, 2016 and 2015 was based on 60.6 million weighted average shares outstanding.
- 8. Non-GAAP EPS June YTD2016 vs. June YTD 2015 8 Non-GAAP EPS decreased 2%, reflecting net income drivers and higher weighted average shares outstanding during 2016 due to the timing of our IPO ($ thousands, except per share amounts) YTD 2016 Amount Per Share YTD 2015 Amount Per Share Net income (loss) attributable to InfraREIT, Inc. $ 12,923 $ 0.30 $ (20,511) $ (0.48) Net income (loss) attributable to noncontrolling interest 5,038 0.30 (6,519) (0.42) Net income (loss) 17,961 0.30 (27,030) (0.47) Non-cash reorganization structuring fee — — 44,897 0.78 Reorganization expenses — — 333 — Percentage rent adjustment 13,036 0.21 12,559 0.22 Base rent adjustment 5,998 0.10 5,131 0.09 Non-GAAP net income (1) $ 36,995 $ 0.61 $ 35,890 $ 0.62 (1) Non-GAAP EPS for the six months ended June 30, 2016 was based on 60.6 million weighted average shares outstanding compared to 57.8 million weighted average shares outstanding during the same period of 2015.
- 9. Cash Available ForDistribution Q2 2016 vs. Q2 2015 9 CAD was flat for the quarter, in line with expectations ($ thousands, except share amounts) Q2 2016 Q2 2015 Increase $ % Net income $ 9,184 $ 8,843 Depreciation 11,410 9,671 Non-cash reorganization structuring fee — — Percentage rent adjustment 6,046 6,095 Base rent adjustment 2,963 3,068 Amortization of deferred financing costs 1,004 912 Reorganization expenses — — Non-cash equity compensation 228 185 Other income, net (1,137) (847) Capital expenditures to maintain net assets (11,410) (9,671) Cash Available For Distribution (CAD) $ 18,288 $ 18,256 $ 32 — Shares (in millions) 60.6 (1) 60.6 (2) CAD Per Share $ 0.30 $ 0.30 (1) Weighted average shares outstanding during the quarter ended June 30, 2016 (2) Shares outstanding at June 30, 2015
- 10. Cash Available ForDistribution June YTD 2016 vs. June YTD 2015 10 YTD 2016 CAD grew by 3% over YTD 2015, reflecting growth in lease revenue ($ thousands, except share amounts) YTD 2016 YTD 2015 Increase $ % Net income (loss) $ 17,961 $ (27,030) Depreciation 22,484 19,179 Non-cash reorganization structuring fee — 44,897 Percentage rent adjustment 13,036 12,559 Base rent adjustment 5,998 5,131 Amortization of deferred financing costs 2,007 1,824 Reorganization expenses — 333 Non-cash equity compensation 520 308 Other income, net (1,896) (1,473) Capital expenditures to maintain net assets (22,484) (19,179) Cash Available For Distribution (CAD) $ 37,626 $ 36,549 $ 1,077 3% Shares (in millions) 60.6 (1) 60.6 (2) CAD Per Share $ 0.62 $ 0.60 (1) Weighted average shares outstanding during the six months ended June 30, 2016 (2) Shares outstanding at June 30, 2015
- 11. Debt Obligations andAvailable Liquidity $ millions 11 Long-Term Debt (rate / maturity) Outstanding As of June 30, 2016 TDC – Senior Secured Notes (8.50% / December 30, 2020) $ 18.1 SDTS – Senior Secured Notes (5.04% / June 20, 2018) 60.0 SDTS – Senior Secured Notes, Series A (3.86% / December 3, 2025) 400.0 SDTS – Senior Secured Notes, Series B (3.86% / January 16, 2026) 100.0 SDTS – Senior Secured Notes (7.25% / December 30, 2029) 43.6 SDTS – Senior Secured Notes (6.47% / September 30, 2030) 99.5 Total $ 721.2 Liquidity Facilities Amount Outstanding As of June 30, 2016 Available InfraREIT Partners Revolver $ 75.0 $ — $ 75.0 SDTS Revolver 250.0 48.5 201.5 Total $ 325.0 $ 48.5 $ 276.5 Cash (as of June 30, 2016) 10.8 Total Available Liquidity $ 287.3
- 12. Growth and FinancingStrategy 12 Focus on Regulated T&D Opportunities Maintain Strong Financial Profile Grow Dividends ► Sign multi-year leases that reflect regulated rate structure ► Minimize regulatory lag with prudent rate case / TCOS filings ► 80% - 90% long-term CAD payout ratio ► Construct Footprint Projects ► Acquire Hunt projects ► Opportunistically acquire T&D assets ► Maintain significant liquidity to support capex plan and financial flexibility ► Maintain 55% debt to capitalization at our regulated subsidiary, SDTS ► Target consolidated credit metrics of 60% debt to capitalization and 12% AFFO to debt
- 13. Q2 2016 Highlights Solid Q2 2016 performance; in line with expectations Increase in revenue and Adjusted EBITDA $63.3 million of capital expenditures (accrual basis) First Annual Shareholders Meeting Approved election of three Class I directors Ratified selection of Ernst & Young LLP Hunt Projects update Cross Valley transmission line project • Placed in service in June 2016 and owned by Sharyland Southline Transmission project • Record of Decision issued April 2016 • Open solicitation process closed June 30, 2016; submissions currently under review 13
- 14. Filed withthe PUCT on April 29, 2016 under Docket No. 45414 Requested allowed regulatory returns 10.0% return on equity 4.97% cost of debt 55% debt / 45% equity capital structure Consolidation of tariffs and cost-based rate setting Significant capital expenditures to update and modernize infrastructure and support 15% annual load growth in West Texas from 2011 to 2015 PUCT requested briefing on certain “threshold” legal and policy issues related to the Company’s structure Rate case schedule deferred until issuance of Preliminary Order PUCT expected to discuss Draft Preliminary Order later this month Sharyland’s Rate Case 14
- 15. Reaffirming FY2016 guidance metrics based on footprint capital expenditures CAD per share range $1.15 - $1.25 Non-GAAP EPS range $1.15 - $1.25 Dividends per share $1.00 Estimate for footprint capital expenditures for 2016 – 2018 in the range of $590 million - $740 million Widened the range in 2017 and 2018 due to increased levels of uncertainty related to customer and load growth associated with current oil prices Projected three-year compound annual growth rate (CAGR) range of dividends per share of 8% - 10% from 2015 through 2018 Targeted payout ratio of 80% - 90% of CAD Assumes and is subject to continuity in lease treatment and a range of regulatory outcomes that are consistent with the rates requested in Sharyland’s April rate case filing Forward Outlook 15
- 16. 2016E - 2018EFootprint Capital Expenditures (1) $ millions 16 (1) Footprint Projects are transmission or distribution projects primarily situated within our distribution service territory, or that physically hang from our existing transmission assets Forecast range of $590 million - $740 million for 2016 – 2018 2016 2017 2018 Base Distribution $80 - $85 $80 - $95 $60 - $90 Base Transmission $120 - $125 $60 - $80 $45 - $85 Base Footprint Capex $200 - $210 $140 - $175 $105 - $175 Synchronous Condensers $10 - $15 $45 - $50 $25 - $35 Second Circuit $10 - $15 $50 - $55 $5 - $10 Total Footprint Capex $220 - $240 $235 - $280 $135 - $220
- 17. Pipeline of HuntProjects 17 NV CA OK TX AZ NM MEXICO Additional U.S. – Mexico DC Ties Additional South Texas Transmission / Generation Interconnections South Plains Reinforcement Southline Transmission Project Verde Transmission Project Cross Valley Transmission Line Golden Spread Electric Cooperative (GSEC) Interconnection Lubbock Power & Light Interconnection Under Development Operational; Owned by Sharyland Utilities, L.P.
- 18.
- 19. Schedule 1: Reconciliation ofNon-GAAP EPS Q2 2016 vs. Q2 2015 19 Non-GAAP EPS InfraREIT defines non-GAAP net income as net income (loss) adjusted in a manner the Company believes is appropriate to show its core operational performance, including: (a) adding back the non-cash reorganization structuring fee, (b) adding back the reorganization expense related to the Company’s IPO and related reorganization transactions, (c) adding back the expense related to the contingent consideration issued as deemed capital credits, (d) a quarterly, not annual, adjustment for the difference between the amount of percentage rent payments that the Company expects to receive with respect to the applicable period and the amount of percentage rent the Company recognizes under GAAP during the period and (e) an adjustment for the difference between the amount of base rent payments that the Company receives with respect to the applicable period and the amount of straight-line base rent recognized under GAAP. The Company defines Non-GAAP EPS as non-GAAP net income (loss) divided by the weighted average shares outstanding calculated in the manner described in the footnotes below. The following table sets forth a reconciliation of net income attributable to InfraREIT, Inc. per diluted share to Non-GAAP EPS per share for the three months ended June 30, 2016 and 2015: ($ thousands, except per share amounts) Q2 2016 Amount Per Share (3) Q2 2015 Amount Per Share (3) Net income attributable to InfraREIT, Inc. $ 6,608 $ 0.15 $ 6,362 $ 0.15 Net income attributable to noncontrolling interest 2,576 0.15 2,481 0.15 Net income 9,184 0.15 8,843 0.15 Non-cash reorganization structuring fee — — — — Reorganization expenses — — — — Percentage rent adjustment (1) 6,046 0.10 6,095 0.10 Base rent adjustment (2) 2,963 0.05 3,068 0.05 Non-GAAP net income $ 18,193 $ 0.30 $ 18,006 $ 0.30
- 20. Schedule 1: Reconciliation ofNon-GAAP EPS June YTD 2016 vs. June YTD 2015 20 Non-GAAP EPS The following table sets forth a reconciliation of net income (loss) attributable to InfraREIT, Inc. per diluted share to Non-GAAP EPS per share for the six months ended June 30, 2016 and 2015: ($ thousands, except per share amounts) YTD 2016 Amount Per Share (3) YTD 2015 Amount Per Share (4) Net income (loss) attributable to InfraREIT, Inc. $ 12,923 $ 0.30 $ (20,511) $ (0.48) Net income (loss) attributable to noncontrolling interest 5,038 0.30 (6,519) (0.42) Net income (loss) 17,961 0.30 (27,030) (0.47) Non-cash reorganization structuring fee — — 44,897 0.78 Reorganization expenses — — 333 — Percentage rent adjustment (1) 13,036 0.21 12,559 0.22 Base rent adjustment (2) 5,998 0.10 5,131 0.09 Non-GAAP net income $ 36,995 $ 0.61 $ 35,890 $ 0.62
- 21. Schedule 1: Reconciliation ofNon-GAAP EPS (1) Represents the difference between the amount of percentage rent payments and the amount recognized during the applicable period, if any. Although the Company receives percentage rent payments related to each quarter, it does not recognize lease revenue related to these percentage rent payments until the Company’s tenant’s annual gross revenues exceed minimum specified annual breakpoints under the leases. (2) This adjustment relates to the difference between the timing of cash base 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. (3) The weighted average common shares outstanding during the applicable periods of 43.6 million was used to calculate net income attributable to InfraREIT, Inc. per diluted share. The weighted average redeemable partnership units outstanding during the applicable periods of 17.0 million was used to calculate the net income attributable to noncontrolling interest per share. The combination of the weighted average common shares and redeemable partnership units outstanding during the applicable periods of 60.6 million was used for the remainder of the per share calculations. (4) The weighted average shares outstanding of 42.4 million was used to calculate net loss attributable to InfraREIT, Inc. per diluted share. The weighted average redeemable partnership units outstanding of 15.4 million was used to calculate the net loss attributable to noncontrolling interest per share. The combination of the weighted average shares and redeemable partnership units outstanding of 57.8 million was used for the remainder of the per share calculations. 21
- 22. Schedule 2: Explanation andReconciliation of CAD Q2 2016 vs. Q2 2015 22 CAD The Company defines CAD in a manner that it believes is appropriate to show its core operational performance, which includes a deduction of the portion of capital expenditures needed to maintain its net assets. This deduction equals 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 the Company’s net assets. The CAD calculation also includes various other adjustments from net income, as outlined below and described in more detail on Schedules 1, 3 and 4. The following sets forth a reconciliation of net income to CAD for the three months ended June 30, 2016 and 2015: ($ thousands, except share amounts) Q2 2016 Q2 2015 Net income $ 9,184 $ 8,843 Depreciation 11,410 9,671 Non-cash reorganization structuring fee — — Percentage rent adjustment (1) 6,046 6,095 Base rent adjustment (2) 2,963 3,068 Amortization of deferred financing costs 1,004 912 Reorganization expenses — — Non-cash equity compensation 228 185 Other income, net (3) (1,137) (847) Capital expenditures to maintain net assets (11,410) (9,671) CAD $ 18,288 $ 18,256 Shares (mm of shares) (4) 60.6 (5) 60.6 (6) CAD Per Share $ 0.30 $ 0.30
- 23. Schedule 2: Explanation andReconciliation of CAD June YTD 2016 vs. June YTD 2015 23 CAD The following sets forth a reconciliation of net income (loss) to CAD for the six months ended June 30, 2016 and 2015: ($ thousands, except share amounts) YTD 2016 YTD 2015 Net income (loss) $ 17,961 $ (27,030) Depreciation 22,484 19,179 Non-cash reorganization structuring fee — 44,897 Percentage rent adjustment (1) 13,036 12,559 Base rent adjustment (2) 5,998 5,131 Amortization of deferred financing costs 2,007 1,824 Reorganization expenses — 333 Non-cash equity compensation 520 308 Other income, net (3) (1,896) (1,473) Capital expenditures to maintain net assets (22,484) (19,179) CAD $ 37,626 $ 36,549 Shares (mm of shares) (4) 60.6 (7) 60.6 (6) CAD Per Share $ 0.62 $ 0.60
- 24. Schedule 2: Explanation andReconciliation of CAD 24 (1) See footnote (1) on Schedule 1 on Explanation and Reconciliation on Non-GAAP EPS (2) See footnote (1) on Schedule 1 on Explanation and Reconciliation on Non-GAAP EPS (3) Includes allowance for funds used during construction (AFUDC) on other funds of $1.1 million and $0.9 million for the three months ended June 30, 2016 and 2015, respectively, and $1.9 million and $1.5 million for the six months ended June 30, 2016 and 2015, respectively. (4) Beginning with the quarter ended March 31, 2016, the Company changed its methodology for calculating the share amount from an outstanding share amount at the end of the respective time period to the weighted average shares outstanding during the respective time period to be consistent with the Company’s other per share calculations. Calculations for the periods ended prior to March 31, 2016 will continue using the shares outstanding at the end of the respective time period. (5) Consists of 43.6 million weighted average common shares outstanding and 17.0 million weighted average redeemable partnership units outstanding for the three months ended June 30, 2016. (6) Consists of 43.6 million outstanding shares and 17.0 million redeemable partnership units outstanding as of June 30, 2015. (7) Consists of 43.6 million weighted average common shares outstanding and 17.0 million weighted average redeemable partnership units outstanding for the six months ended June 30, 2016.
- 25. Schedule 3: Explanation andReconciliation of EBITDA and Adjusted EBITDA Q2 2016 vs. Q2 2015 25 EBITDA and Adjusted EBITDA InfraREIT defines EBITDA as net income (loss) 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) adding back the non-cash reorganization structuring fee, (b) a quarterly, not annual, adjustment for the difference between the amount of percentage rent payments that the Company expects to receive with respect to the applicable period and the amount of percentage rent the Company recognizes under GAAP during the period, (c) an adjustment for the difference between the amount of base rent payments that the Company receives with respect to the applicable period and the amount of straight-line base rent recognized under GAAP, (d) adding back the reorganization expense related to the Company’s IPO and related reorganization transactions and (e) adjusting for other income (expense), net. The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA for the three months ended June 30, 2016 and 2015: ($ thousands) Q2 2016 Q2 2015 Net income $ 9,184 $ 8,843 Interest expense, net 9,055 6,939 Income tax expense 293 124 Depreciation 11,410 9,671 EBITDA 29,942 25,577 Non-cash reorganization structuring fee — — Percentage rent adjustment (1) 6,046 6,095 Base rent adjustment (2) 2,963 3,068 Reorganization expenses — — Other income, net (3) (1,137) (847) Adjusted EBITDA $ 37,814 $ 33,893 (1) See footnote (1) on Schedule 1 on Explanation and Reconciliation of Non-GAAP EPS (2) See footnote (2) on Schedule 1 on Explanation and Reconciliation of Non-GAAP EPS (3) See footnote (3) on Schedule 2 on Explanation and Reconciliation of CAD
- 26. Schedule 3: Explanation andReconciliation of EBITDA and Adjusted EBITDA June YTD 2016 vs. June YTD 2015 26 EBITDA and Adjusted EBITDA The following table sets forth a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the six months ended June 30, 2016 and 2015: ($ thousands) YTD 2016 YTD 2015 Net income (loss) $ 17,961 $ (27,030) Interest expense, net 17,897 14,361 Income tax expense 479 332 Depreciation 22,484 19,179 EBITDA 58,821 6,842 Non-cash reorganization structuring fee — 44,897 Percentage rent adjustment (1) 13,036 12,559 Base rent adjustment (2) 5,998 5,131 Reorganization expenses — 333 Other income, net (3) (1,896) (1,473) Adjusted EBITDA $ 75,959 $ 68,289 (1) See footnote (1) on Schedule 1 on Explanation and Reconciliation of Non-GAAP EPS (2) See footnote (2) on Schedule 1 on Explanation and Reconciliation of Non-GAAP EPS (3) See footnote (3) on Schedule 2 on Explanation and Reconciliation of CAD
- 27. Schedule 4: Explanation ofFFO and AFFO 27 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 and the reconciliations below, results in FFO representing net income (loss) before 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) adding back the non-cash reorganization structuring fee, (b) a quarterly, not annual, adjustment for the difference between the amount of percentage rent payments that the Company expects to receive with respect to the applicable period and the amount of percentage rent the Company recognizes under GAAP during the period, (c) an adjustment for the difference between the amount of base rent payments that the Company receives with respect to the applicable period and the amount of straight-line base rent recognized under GAAP, (d) adding back the reorganization expense related to the Company’s IPO and related reorganization transactions and (e) adjusting for other income (expense), net.
- 28. Schedule 4: Reconciliation ofFFO and AFFO Q2 2016 vs. Q2 2015 28 FFO and AFFO The following table sets forth a reconciliation of net income to FFO and AFFO for the three months ended June 30, 2016 and 2015: ($ thousands) Q2 2016 Q2 2015 Net income $ 9,184 $ 8,843 Depreciation 11,410 9,671 FFO 20,594 18,514 Non-cash reorganization structuring fee — — Percentage rent adjustment (1) 6,046 6,095 Base rent adjustment (2) 2,963 3,068 Reorganization expenses — — Other income, net (3) (1,137) (847) AFFO $ 28,466 $ 26,830 (1) See footnote (1) on Schedule 1 on Explanation and Reconciliation of Non-GAAP EPS (2) See footnote (2) on Schedule 1 on Explanation and Reconciliation of Non-GAAP EPS (3) See footnote (3) on Schedule 2 on Explanation and Reconciliation of CAD
- 29. Schedule 4: Reconciliation ofFFO and AFFO June YTD 2016 vs. June YTD 2015 29 FFO and AFFO The following table sets forth a reconciliation of net income (loss) to FFO and AFFO for the six months ended June 30, 2016 and 2015: ($ thousands) YTD 2016 YTD 2015 Net income (loss) $ 17,961 $ (27,030) Depreciation 22,484 19,179 FFO 40,445 (7,851) Non-cash reorganization structuring fee — 44,897 Percentage rent adjustment (1) 13,036 12,559 Base rent adjustment (2) 5,998 5,131 Reorganization expenses — 333 Other income, net (3) (1,896) (1,473) AFFO $ 57,583 $ 53,596 (1) See footnote (1) on Schedule 1 on Explanation and Reconciliation of Non-GAAP EPS (2) See footnote (2) on Schedule 1 on Explanation and Reconciliation of Non-GAAP EPS (3) See footnote (3) on Schedule 2 on Explanation and Reconciliation of CAD
- 30. Schedule 5: Forecasted Guidancefor 2016 Reconciliation of GAAP to Non-GAAP 30 Forecasted Guidance for 2016 The Company provides yearly guidance for the supplemental financial measures it uses in evaluating the Company’s operating performance. These metrics include Non-GAAP EPS and CAD per share. The financial measures help the Company and investors better understand the Company’s business, performance and ability to earn and distribute cash to stockholders by providing perspectives not immediately apparent from net income. The following table sets forth a reconciliation of the forecasted GAAP net income attributable to InfraREIT, Inc. per share to Non- GAAP EPS per share and CAD per share for the year ending December 31, 2016: (per share amounts) Low High Net income attributable to InfraREIT, Inc. $ 1.02 $ 1.12 Net income attributable to noncontrolling interest 1.02 1.12 Net income 1.02 1.12 Base rent adjustment 0.13 0.13 Non-GAAP net income 1.15 1.25 Depreciation 0.81 0.81 Amortization of deferred financing costs 0.03 0.03 Non-cash equity compensation 0.01 0.01 Other income, net (0.04) (0.04) Capital expenditures to maintain net assets (0.81) (0.81) CAD $ 1.15 $ 1.25
- 31.
- 32. Attractive Asset Profile Transmission ►~75% of our rate base is transmission ► ~848 circuit miles of transmission lines ► Transmission Operations Center ► Railroad DC Tie with Mexico (300 MW) Distribution ► ~25% of our rate base is distribution ► ~35,300 circuit miles of overhead distribution lines ► ~4,600 circuit miles of underground distribution lines ► ~54,000 electric delivery points As of December 31, 2015 32
- 33. Hunt Projects As ofAugust 3, 2016 33 Project State Estimated Costs (1) Status Golden Spread TX Net Plant $90 mm • In service • Owned by Sharyland (2); Hunt expects to offer the project to InfraREIT in the future Cross Valley TX Cost of Completion $165 mm - $175 mm (incl. financing costs) • In service (June 2016) • Owned by Sharyland (2); Hunt expects to offer the project to InfraREIT in the future Southline AZ NM ~ $800 mm (excl. financing costs) • Achieved Phase 3 status in WECC ratings process in 2015 • FERC granted a Petition for Declaratory Order in 2015 • Bureau of Land Management and Western issued Record of Decision in April 2016 • Open solicitation process closed June 30, 2016; submissions are currently under review by SU FERC (2) Verde NM $60 mm - $80 mm (excl. financing costs) • Easement agreements reached with three Native American Pueblos (1) Includes estimated financing costs for the Cross Valley Project. For the Southline and Verde Projects, Hunt may opt to partner with other parties in the development of projects depending on their scope, location and cost. (2) Sharyland Utilities, L.P. and SU FERC, L.L.C. are privately-owned by Hunter L. Hunt and other members of the Ray L. Hunt family, and are managed by Hunter L. Hunt
- 34. Disciplined, Multifaceted Pursuitof Growth 34 Footprint Projects (Funded by InfraREIT) Hunt Development team members are experienced T&D planners Hunt Projects Growth Strategy Growth Drivers • Population and economic growth across Texas • Energy-driven economic expansion • Generator interconnections to Panhandle Transmission assets • Hunt T&D projects that are operational, under construction or under development • Future T&D projects developed and constructed by Hunt • Primarily focused on Texas and the Southwest • Value enhancing M&A Transactions that build on: • Hunt’s industry relationships and reputation • Expertise with REIT structure Acquire other T&D assets from third parties
- 35. SDTS (2) Structure Mechanics 35 SDTS owns our 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 pays dividends to stockholders 1 2 3 4 Shareholders InfraREIT (1) 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, Inc., InfraREIT Partners, LP (Operating Partnership) and Transmission and Distribution Company, L.L.C. (TDC) (2) Represents Sharyland Distribution & Transmission Services, L.L.C. (SDTS) (3) Represents Hunt Transmission Services, L.L.C. (limited partner of the Operating Partnership, shareholder of InfraREIT and Hunt Developer) Conducted business as a REIT since 2010 Hunt Consolidated, Inc.
- 36. Board Structure Management Related Party Transactions Management Agreement 9 total members, 6 independent CEO, CFO and General Counsel are officers of InfraREIT and Hunt Manager Require majority approval by the independent board members (i.e. Hunt project acquisitions) Responsible for the day-to-day business and legal activities of InfraREIT Annual base fee equal to $14.0 million for April 1, 2016 through March 31, 2017 representing 1.50% of total book equity as of year end 2015 Capped at $30 million per year Incentive fee equal to 20% of quarterly dividends per share in excess of the threshold distribution amount payable quarterly 2016 dividend per share: $0.25 Threshold dividend: $0.27 Governance and Management 36
- 37. Lease Mechanics 37 Lease Objectives InfraREIT ►Rent payments intended to provide InfraREIT with approximately 97% of the projected regulated return on rate base 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 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