2016 INTERACTIVE ANNUAL REPORT

InfraREIT Reports Second Quarter 2017 and Year-to-Date Results

August 2, 2017

DALLAS, Aug. 2, 2017 /PRNewswire/ -- InfraREIT, Inc. (NYSE: HIFR) ("InfraREIT" or the "Company") today reported financial results for the second quarter and first half of 2017 and provided the Company's financial outlook.

InfraREIT, Inc. Logo. (PRNewsFoto/InfraREIT, Inc.)

InfraREIT reported the following second quarter 2017 financial highlights:

  • Net income was $10.1 million
  • Net income attributable to InfraREIT, Inc. common stockholders per share was $0.17 per share
  • Non-GAAP metrics no longer include an adjustment for percentage rent
    • Non-GAAP earnings per share ("Non-GAAP EPS") was $0.20 per share
    • Cash available for distribution ("CAD") was $13.6 million
    • Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") was $35.8 million
  • Quarterly dividend declared of $0.25 per share of common stock, $1.00 per share annualized
  • InfraREIT's subsidiary, Sharyland Distribution & Transmission Services, L.L.C. ("SDTS"), closed a $200 million senior secured term loan

Guidance:

  • Transmission capital expenditures range of $185 million to $315 million for the period of 2017 through 2019
  • Expect to maintain the Company's current quarterly cash dividend of $0.25 per share, or $1.00 per share annualized, through 2017

Recent events:

  • On July 21, 2017, SDTS signed an agreement regarding the proposed dismissal of the pending rate case of SDTS and its tenant, Sharyland Utilities, L.P. ("Sharyland").  In connection with the proposed dismissal, SDTS also signed a definitive agreement ("Definitive Agreement") with Oncor Electric Delivery Company LLC ("Oncor") to exchange SDTS's retail distribution assets for a group of Oncor's transmission assets located in west and central Texas.

"We maintained our solid performance in the second quarter, while investing $39 million in capital expenditures to support the infrastructure needs of Texas," said David A. Campbell, Chief Executive Officer of InfraREIT.  "Our proposed rate case resolution and asset exchange transaction, announced last week, further strengthens our outlook and provides additional clarity to our investors.  When completed, the transaction will allow InfraREIT to focus on an electric utility transmission strategy," added Campbell.

Second Quarter 2017 Results
Lease revenue, consisting only of base rent, increased 20 percent to $40.4 million for the three months ended June 30, 2017, compared to $33.8 million of base rent for the same period in 2016.  There was no percentage rent recognized during the second quarter 2017 or 2016 as Sharyland's year-to-date adjusted gross revenue did not exceed the annual specified breakpoints under the Company's leases.  The Company anticipates that revenue will grow over the year with little to no percentage rent recognized in the first and second quarters of each year and with the largest amounts recognized during the third and fourth quarters of each year.

Net income was $10.1 million in the second quarter 2017, compared to net income of $9.2 million in the second quarter 2016.  Net income attributable to InfraREIT, Inc. common stockholders was $0.17 per share during the second quarter 2017 compared to $0.15 per share during the same period in 2016.

The Company is adjusting its non-GAAP performance measures as of June 30, 2017 to exclude the adjustment for percentage rent previously reported by the Company.  Historically, the percentage rent adjustment reflected a quarterly, not annual, adjustment for the difference between the amount of percentage rent payments the Company expected to receive with respect to the applicable period and the amount of percentage rent the Company recognized under generally accepted accounting principles ("GAAP") during the period.  Accordingly, all non-GAAP performance measures for periods previously presented have been adjusted to remove the effects of the percentage rent adjustment for the respective period.  In addition, this quarter, the Company added an adjustment for the transaction costs related to the proposed exchange transaction with Oncor.

Non-GAAP EPS was $0.20 per share for both the second quarter 2017 and 2016.  CAD was $13.6 million for the second quarter of 2017 compared to $12.2 million for the second quarter 2016, representing an increase of $1.4 million, or 11 percent.  Adjusted EBITDA was $35.8 million for the second quarter 2017, an increase of 13 percent, compared to $31.8 million for the same period in 2016.  Funds from Operations ("FFO") was $23.1 million for the second quarter 2017, compared to $20.6 million from the same period in 2016, representing an increase of 12 percent.  For the second quarter 2017, FFO on an adjusted basis ("AFFO") was $25.4 million, compared to $22.4 million for the same period in 2016, representing an increase of 13 percent.

First Half 2017 Performance
Lease revenue, consisting only of base rent, increased 19 percent to $80.0 million for the six months ended June 30, 2017, compared to $67.5 million of base rent for the first half of 2016.  There was no percentage rent recognized during the first half of 2017 or 2016 as Sharyland's year-to-date adjusted gross revenue did not exceed the annual specified breakpoints under the Company's leases.  The Company anticipates that revenue will grow over the year with little to no percentage rent recognized in the first and second quarters of each year and with the largest amounts recognized during the third and fourth quarters of each year.

Net income was $21.1 million in the first half of 2017, compared to net income of $18.0 million in the first half of 2016.  Net income attributable to InfraREIT, Inc. common stockholders was $0.35 per share during the first half of 2017 compared to $0.30 per share during the same period in 2016.

Non-GAAP EPS was $0.40 per share for both the first half of 2017 and 2016.  CAD was $26.7 million for the first half of 2017 compared to $24.6 million for the first half of 2016, an increase of 9 percent.  Adjusted EBITDA was $70.4 million for the first half of 2017, an increase of 12 percent, compared to $62.9 million for the same period in 2016.  FFO was $46.8 million for the first half of 2017, compared to $40.4 million from the same period in 2016, representing an increase of 16 percent.  For the first half of 2017, AFFO was $50.0 million, compared to $44.5 million for the same period in 2016, representing an increase of 12 percent.

Liquidity and Capital Resources
As of June 30, 2017, the Company had $9.7 million of unrestricted cash and cash equivalents and $325.0 million of unused capacity under its revolving credit facilities.

Outlook and Guidance
Assuming the completion of the exchange transaction during the fourth quarter of 2017, the Company estimates transmission footprint capital expenditures in the following ranges over the next three years: $130 million to $160 million for 2017; $45 million to $95 million for 2018; and $10 million to $60 million for 2019.  The Company estimates distribution footprint capital expenditure forecast for the calendar year 2017 in the range of $35 million to $60 million, which is consistent with its previous forecasted amounts.

InfraREIT expects to maintain the Company's current quarterly cash dividend of $0.25 per share, or $1.00 per share annualized, through 2017.

The Company's consolidated debt profile continues to target debt as a percentage of total capitalization at or below 60 percent and AFFO-to-debt of at least 12 percent.

InfraREIT's strategy will continue to focus on owning regulated assets with long lives, low operating risks and stable cash flows consistent with the characteristics of its current portfolio.

The guidance provided above constitutes forward-looking statements, which are based on current economic conditions and estimates, and the Company does not include other potential impacts, such as changes in accounting or unusual items.  Supplemental information relating to the Company's financial outlook is posted in the Investor Relations section of the Company's Web site at www.InfraREITInc.com.

Rate Case Update
On December 30, 2016, SDTS and Sharyland filed an amended rate case application and rate filing packages with the Public Utility Commission of Texas ("PUCT") under Docket No. 45414 ("Rate Case").  On July 21, 2017, Sharyland and SDTS entered into an agreement with certain parties to the Rate Case, which, if approved by the PUCT, will result in the dismissal of the Rate Case.  Once the Rate Case is dismissed, SDTS and Sharyland will continue operating under their existing regulatory structure, and the current regulatory parameters will remain in place until the next rate case.  Sharyland and SDTS will be required to file a new rate case in the calendar year 2020 with a test year ending December 31, 2019.

Supplemental information relating to the Rate Case can be found at www.InfraREITInc.com under the "Investor Relations/Rate Regulation" section as well as "About InfraREIT/Sharyland Utilities-Our Tenant" section of the Company's Web site.  InfraREIT will post updates to these sections of the Company's Web site as new information becomes available.

Transaction Details
Under the Definitive Agreement, SDTS will exchange approximately $400 million of distribution assets for approximately $380 million of transmission assets located in west and central Texas and approximately $20 million in cash from Oncor.  Sharyland will lease these assets from SDTS and operate them under an amended certificate of convenience and necessity.  Upon closing, SDTS will continue to own and lease to Sharyland certain substations related to its distribution assets but Sharyland will exit the retail distribution business.

Approvals and Closing Conditions
The effectiveness of the Rate Case dismissal and the closing of the exchange transaction are dependent upon each other and will be subject to a number of closing conditions, including approval by the PUCT of: the exchange transaction, the Rate Case dismissal and Oncor's rate case settlement, in each case on terms consistent with those proposed by the relevant parties.  Under the Definitive Agreement, SDTS, Sharyland and Oncor are required to file a joint Sale-Transfer-Merger application ("STM") with the PUCT no later than August 4, 2017.  Key parties to the Rate Case also support the exchange transaction and are requesting that the PUCT approve the STM.  The closing of the exchange transaction is also contingent upon Oncor's parent company obtaining consent of the U.S. Bankruptcy Court for the District of Delaware and SDTS obtaining certain consents from its lenders, as well as other customary closing conditions.  The exchange transaction is expected to close in the fourth quarter of 2017.

Dividends and Distributions
On June 2, 2017, InfraREIT's board of directors declared cash distributions and dividends of $0.25 per unit and share, respectively, to unitholders and stockholders of record on June 30, 2017.  The cash distributions and dividends were paid on July 20, 2017.

Senior Secured Term Loan
On June 5, 2017, SDTS closed a new $200 million senior secured term loan credit facility ("2017 Term Loan").  The 2017 Term Loan will mature on June 5, 2020.  The pricing of the term loan is LIBOR plus 125 basis points for LIBOR-based loans or a base rate plus 25 basis points for base-rate loans, at SDTS's discretion.  Canadian Imperial Bank of Commerce, New York Branch serves as the administrative agent for the facility.

Hunt Project Quarterly Updates
InfraREIT's quarterly "Hunt Project Updates" can be found on the Company's Web site (www.InfraREITInc.com) under the "Hunt Transmission-Our Developer" and "Investor Relations" sections and in the "Q2 2017 Results & Supplemental Information" presentation posted on the Company's Web site.

Conference Call and Webcast
As previously announced, management will host a teleconference call on August 2, 2017, at 10 a.m. U.S. Central Time (11 a.m. U.S. Eastern Time).  David A. Campbell, Chief Executive Officer, and Brant Meleski, Chief Financial Officer, will discuss InfraREIT's results and financial outlook.

Investors and analysts are invited to participate in the call by phone at 1-855-560-2576, or internationally at 1-412-542-4162 (access code: 10098423) or via the Internet at www.InfraREITInc.com.  A replay of the call will be available on the Company's Web site or by phone at 1-877-344-7529, or internationally at 1-412-317-0088 (access code: 10098423), for a seven-day period following the call.

Non-GAAP Measures
This press release contains certain financial measures that are not recognized under GAAP.  In particular, InfraREIT uses Non-GAAP EPS, CAD, EBITDA, Adjusted EBITDA, FFO and AFFO as important supplemental measures of the Company's operating performance.  For example, management uses the CAD measurement when recommending dividends to its board of directors.  The Company also presents non-GAAP performance measures 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.  InfraREIT's management believes that each of these different classes of investors focuses on different types of metrics in their evaluation of InfraREIT.  For instance, many utility investors focus on earnings per share and management believes the Company's presentation of Non-GAAP EPS enables a better comparison to other utilities.  InfraREIT's management believes it is appropriate to calculate and provide these measures in order to be responsive to these investors.  Reporting on these measures in InfraREIT's public disclosures also ensures that this information is available to all of InfraREIT's investors.  The non-GAAP measures presented in this press release 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 to this press release.

About InfraREIT, Inc.
InfraREIT is a real estate investment trust that is engaged in owning and leasing rate-regulated electric transmission and distribution assets in the state of Texas.  The Company is externally managed by Hunt Utility Services, LLC, an affiliate of Hunt Consolidated, Inc. (a diversified holding company based in Dallas, Texas, and managed by the Ray L. Hunt family).  The Company's shares are traded on the New York Stock Exchange under the symbol "HIFR."  Additional information on InfraREIT is available at www.InfraREITInc.com.

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the federal securities laws.  These statements give InfraREIT management's current expectations and include projections of results of operations or financial condition or forecasts of future events.  Words such as "could," "will," "may," "assume," "forecast," "strategy," "guidance," "outlook," "target," "expect," "intend," "plan," "estimate," "anticipate," "believe" or "project" and similar expressions are used to identify forward-looking statements.  Without limiting the generality of the foregoing, forward-looking statements contained in this press release include InfraREIT's expectations regarding anticipated financial and operational performance, including projected or forecasted financial results, distributions to stockholders, capital expenditures, AFFO-to-debt ratios, capitalization matters and other forecasted metrics as well as the dismissal of the Rate Case and the closing of the exchange transaction with Oncor.  The assumptions and estimates underlying the forward-looking statements included in this press release are inherently uncertain and, though considered reasonable by InfraREIT's management team as of the date of its preparation, are subject to a wide variety of significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those contained in this press release.  Risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements include, among others, the following: (a) the inability to complete the exchange transaction or achieve the dismissal of the Rate Case due to the failure to obtain required approvals or other unsatisfied closing conditions; (b) the incurrence of unexpected liabilities or failures to achieve the expected benefits of the exchange transaction; (c) the amount of available investment to grow the Company's rate base; (d) 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, the Company's authorized rate of return and other regulatory parameters; (e) the Company's current reliance on its tenant for all of its revenues and, as a result, its dependence on the tenant's solvency and financial and operating performance; (f) the effects of existing and future tax and other laws and governmental regulations; (g) the Company's failure to qualify or maintain its status as a REIT or changes in the tax laws applicable to REITs; and (h) insufficient cash available to meet distribution requirements.  These and other applicable uncertainties, factors and risks are described more fully in the Company's filings with the U. S. Securities and Exchange Commission.  For the above reasons, there can be no assurance that any forward-looking statements included herein will prove to be indicative of the Company's future performance or that actual results will not differ materially from those presented.  In no event should the inclusion of forecasted financial information in this press release be regarded as a representation by any person that the results contained in the forecasted financial information will be achieved.

Any forward-looking statement made by the Company in this press release is based only on information currently available to InfraREIT and speaks only as of the date on which it is made.  InfraREIT undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable law.

 

InfraREIT, Inc.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share amounts)

(Unaudited)










Three Months Ended June 30,



Six Months Ended June 30,




2017



2016



2017



2016


Lease revenue

















Base rent


$

40,422



$

33,785



$

80,046



$

67,450


Percentage rent













Total lease revenue



40,422




33,785




80,046




67,450


Operating costs and expenses

















General and administrative expense



6,866




4,980




12,847




10,525


Depreciation



12,982




11,410




25,669




22,484


Total operating costs and expenses



19,848




16,390




38,516




33,009


Income from operations



20,574




17,395




41,530




34,441


Other (expense) income

















Interest expense, net



(10,141)




(9,055)




(19,839)




(17,897)


Other income, net



17




1,137




20




1,896


Total other expense



(10,124)




(7,918)




(19,819)




(16,001)


Income before income taxes



10,450




9,477




21,711




18,440


Income tax expense



321




293




565




479


Net income



10,129




9,184




21,146




17,961


Less: Net income attributable to noncontrolling interest



2,821




2,576




5,889




5,038


Net income attributable to InfraREIT, Inc.


$

7,308



$

6,608



$

15,257



$

12,923


Net income attributable to InfraREIT, Inc. common stockholders per share:

















Basic


$

0.17



$

0.15



$

0.35



$

0.30


Diluted


$

0.17



$

0.15



$

0.35



$

0.30


Cash dividends declared per common share


$

0.25



$

0.25



$

0.50



$

0.50


Weighted average common shares outstanding (basic shares)



43,778




43,576




43,776




43,573


Redemption of operating partnership units













Weighted average dilutive shares outstanding (diluted shares)



43,778




43,576




43,776




43,573


Due to the anti-dilutive effect, the computation of diluted earnings per share does not reflect the following adjustments:

















Net income attributable to noncontrolling interest


$

2,821



$

2,576



$

5,889



$

5,038


Redemption of operating partnership units



16,897




17,058




16,899




17,057


 

InfraREIT, Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)




June 30, 2017



December 31, 2016




(Unaudited)






Assets









Current Assets









Cash and cash equivalents


$

9,662



$

17,612


Restricted cash



1,682




1,682


Due from affiliates



27,327




32,554


Inventory



7,172




7,276


Prepaids and other current assets



1,022




726


Total current assets



46,865




59,850


Electric Plant, net



1,710,420




1,640,820


Goodwill



138,384




138,384


Other Assets



36,433




37,646


Total Assets


$

1,932,102



$

1,876,700


Liabilities and Equity









Current Liabilities









Accounts payable and accrued liabilities


$

38,367



$

37,372


Short-term borrowings






137,500


Current portion of long-term debt



67,527




7,849


Dividends and distributions payable



15,169




15,161


Accrued taxes



4,980




4,415


Total current liabilities



126,043




202,297


Long-Term Debt, Less Deferred Financing Costs



845,957




709,488


Regulatory Liability



25,098




21,004


Total liabilities



997,098




932,789


Commitments and Contingencies









Equity









Common stock, $0.01 par value; 450,000,000 shares authorized; 43,778,490 and 43,772,283 issued and outstanding as of June 30, 2017 and December 31, 2016, respectively



438




438


Additional paid-in capital



705,955




705,845


Accumulated deficit



(24,874)




(18,243)


Total InfraREIT, Inc. equity



681,519




688,040


Noncontrolling interest



253,485




255,871


Total equity



935,004




943,911


Total Liabilities and Equity


$

1,932,102



$

1,876,700


 

InfraREIT, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)




Six Months Ended June 30,




2017



2016


Cash flows from operating activities









Net income


$

21,146



$

17,961


Adjustments to reconcile net income to net cash provided by operating activities:









Depreciation



25,669




22,484


Amortization of deferred financing costs



2,030




2,007


Allowance for funds used during construction - other funds






(1,896)


Equity based compensation



285




520


Changes in assets and liabilities:









Due from affiliates



5,227




6,572


Inventory



104




83


Prepaids and other current assets



(296)




(490)


Accounts payable and accrued liabilities



1,986




13,308


Net cash provided by operating activities



56,151




60,549


Cash flows from investing activities









Additions to electric plant



(91,601)




(120,615)


Net cash used in investing activities



(91,601)




(120,615)


Cash flows from financing activities









Proceeds from short-term borrowings



65,500




50,500


Repayments of short-term borrowings



(203,000)




(56,000)


Proceeds from borrowings of long-term debt



200,000




100,000


Repayments of long-term debt



(3,869)




(3,660)


Deferred financing costs



(801)




(649)


Dividends and distributions paid



(30,330)




(28,790)


Net cash provided by financing activities



27,500




61,401


Net (decrease) increase in cash and cash equivalents



(7,950)




1,335


Cash and cash equivalents at beginning of period



17,612




9,471


Cash and cash equivalents at end of period


$

9,662



$

10,806


 

Changes to Non-GAAP Measures
The Company is adjusting its non-GAAP performance measures as of June 30, 2017 to exclude the adjustment for percentage rent previously reported by the Company.  Historically, the percentage rent adjustment reflected a quarterly, not annual, adjustment for the difference between the amount of percentage rent payments the Company expected to receive with respect to the applicable period and the amount of percentage rent the Company recognized under GAAP during the period.  Accordingly, all non-GAAP performance measures for periods previously presented have been adjusted to remove the effects of the percentage rent adjustment for the respective period.  In addition, this quarter, the Company added an adjustment for the transaction costs related to the proposed exchange transaction with Oncor.

Schedule 1
InfraREIT, Inc.
Explanation and Reconciliation of Non-GAAP EPS

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, which includes 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 and an adjustment for the transaction costs related to the proposed exchange transaction with Oncor.  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 tables set forth a reconciliation of net income attributable to InfraREIT, Inc. per diluted share to Non-GAAP EPS:



Three Months Ended June 30, 2017



Three Months Ended June 30, 2016


(In thousands, except per share amounts, unaudited)


Amount



Per Share (3)



Amount



Per Share (4)


Net income attributable to InfraREIT, Inc.


$

7,308



$

0.17



$

6,608



$

0.15


Net income attributable to noncontrolling interest



2,821




0.17




2,576




0.15


Net income



10,129




0.17




9,184




0.15


Base rent adjustment (1)



342







2,963




0.05


Transaction costs (2)



1,937




0.03








Non-GAAP net income


$

12,408



$

0.20



$

12,147



$

0.20


 



Six Months Ended June 30, 2017



Six Months Ended June 30, 2016


(In thousands, except per share amounts, unaudited)


Amount



Per Share (3)



Amount



Per Share (4)


Net income attributable to InfraREIT, Inc.


$

15,257



$

0.35



$

12,923



$

0.30


Net income attributable to noncontrolling interest



5,889




0.35




5,038




0.30


Net income



21,146




0.35




17,961




0.30


Base rent adjustment (1)



1,299




0.02




5,998




0.10


Transaction costs (2)



1,937




0.03








Non-GAAP net income


$

24,382



$

0.40



$

23,959



$

0.40




(1)

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 base rent becomes due.

(2)

This adjustment reflects the transaction costs related to the proposed exchange transaction with Oncor. These costs are exclusive of the Company's routine business operations or typical rate case costs and have been excluded to present additional insights on InfraREIT's core operations.

(3)

The weighted average common shares outstanding of 43.8 million was used to calculate net income attributable to InfraREIT, Inc. per diluted share.  The weighted average redeemable partnership units outstanding of 16.9 million was used to calculate net income attributable to noncontrolling interest per share.  The combination of the weighted average common shares and redeemable partnership units outstanding of 60.7 million was used for the remainder of the per share calculations.

(4)

The weighted average common shares outstanding of 43.6 million was used to calculate net income attributable to InfraREIT, Inc. per diluted share.  The weighted average redeemable partnership units outstanding of 17.0 million was used to calculate net income attributable to noncontrolling interest per share.  The combination of the weighted average common shares and redeemable partnership units outstanding of 60.6 million was used for the remainder of the per share calculations.

 

Schedule 2
InfraREIT, Inc.
Explanation and Reconciliation of CAD

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 table sets forth a reconciliation of net income to CAD:



Three Months Ended June 30,



Six Months Ended June 30,


(In thousands, unaudited)


2017



2016



2017




2016


Net income


$

10,129



$

9,184



$

21,146




$

17,961


Depreciation



12,982




11,410




25,669





22,484


Base rent adjustment (1)



342




2,963




1,299





5,998


Amortization of deferred financing costs



1,026




1,004




2,030





2,007


Non-cash equity compensation



145




228




285





520


Transaction costs (2)



1,937







1,937






Other income, net (3)



(17)




(1,137)




(20)





(1,896)


Capital expenditures to maintain net assets



(12,982)




(11,410)




(25,669)





(22,484)


CAD


$

13,562



$

12,242



$

26,677




$

24,590




(1)

See footnote (1) on Schedule 1 on Explanation and Reconciliation on Non-GAAP EPS

(2)

See footnote (2) 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 $1.9 million for the three and six months ended June 30, 2016. There were no AFUDC on other funds recorded during the three and six months ended June 30, 2017.

 

Schedule 3
InfraREIT, Inc.
Explanation and Reconciliation of EBITDA and Adjusted EBITDA

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) 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; (b) an adjustment for the transaction costs related to the proposed exchange transaction with Oncor; and (c) adjusting for other income (expense), net.

The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA:



Three Months Ended June 30,



Six Months Ended June 30,


(In thousands, unaudited)


2017



2016



2017



2016


Net income


$

10,129



$

9,184



$

21,146



$

17,961


Interest expense, net



10,141




9,055




19,839




17,897


Income tax expense



321




293




565




479


Depreciation



12,982




11,410




25,669




22,484


EBITDA



33,573




29,942




67,219




58,821


Base rent adjustment (1)



342




2,963




1,299




5,998


Transaction costs (2)



1,937







1,937





Other income, net (3)



(17)




(1,137)




(20)




(1,896)


Adjusted EBITDA


$

35,835



$

31,768



$

70,435



$

62,923




(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

 

Schedule 4
InfraREIT, Inc.
Explanation and Reconciliation of FFO and AFFO

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 this press release 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) 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; (b) an adjustment for the transaction costs related to the proposed exchange transaction with Oncor; and (c) adjusting for other income (expense), net.

The following table sets forth a reconciliation of net income to FFO and AFFO:



Three Months Ended June 30,



Six Months Ended June 30,


(In thousands, unaudited)


2017



2016



2017



2016


Net income


$

10,129



$

9,184



$

21,146



$

17,961


Depreciation



12,982




11,410




25,669




22,484


FFO



23,111




20,594




46,815




40,445


Base rent adjustment (1)



342




2,963




1,299




5,998


Transaction costs (2)



1,937







1,937





Other income, net (3)



(17)




(1,137)




(20)




(1,896)


AFFO


$

25,373



$

22,420



$

50,031



$

44,547




(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

 

For additional information, contact:

For Investors:

Brook Wootton


Vice President, Investor Relations


InfraREIT, Inc.


214-855-6748



For Media:

Jeanne Phillips


Senior Vice President, Corporate Affairs & International Relations


Hunt Consolidated, Inc.


214-978-8534

 

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SOURCE InfraREIT, Inc.

The information provided on these pages includes forward-looking statements, which are subject to known and unknown risks and uncertainties that could cause actual results to differ materially. We refer you to the discussion of risk factors that could affect future results and performance in our most recent prospectus and other SEC filings. InfraREIT, Inc. assumes no obligation to update any forward-looking statements made here as a result of new information or future events or developments.

InfraREIT, Inc. makes no claims concerning the accuracy of the information provided on these pages, and will not be held liable for any use of this information. Note: Historical and current stock price performance data is not necessarily indicative of future performance.