InfraREIT: An Innovative Way to Finance Infrastructure Investment June 2015

Transcription

1 InfraREIT: An Innovative Way to Finance Infrastructure Investment June 2015

2 The Elevator Speech: An Advantaged Financing Vehicle for an Industry in Transition The Opportunity in Electric Infrastructure Change in the utility industry inevitably takes time, but there is no doubt that a fundamental transformation is underway Coal, simple cycle gas, and nuclear retirements; renewables expansion; distributed generation and smart grid Innovation in all areas of the value chain will be critical for a costeffective transformation The REIT Solution The REIT provides an advantaged financing vehicle for infrastructure investments REITs established by Congress to create access for investors to large-scale investments in real properties and related dividend streams (while mitigating double taxation) The Analogue 10+ years ago, this meeting might have focused on an innovative structure called an MLP as an innovative financing vehicle for the pipeline industry Today, MLPs for pipelines are the established model 1

3 Discussion Topics Company Overview What Is A Transmission & Distribution REIT? InfraREIT History And Business Strategy Q&A 2

4 Introduction to InfraREIT InfraREIT (NYSE ticker: HIFR) owns electric transmission & distribution infrastructure assets, with a focus on the Texas market and the Southwest 3 InfraREIT s current asset base centered in the Texas Panhandle, West Texas, and South Texas InfraREIT is an externally-managed REIT InfraREIT has no employees; management services are provided by Hunt Utility Services (a subsidiary of Hunt Consolidated) under a Management Agreement Hunt Consolidated is also InfraREIT s largest equity holder InfraREIT s Board is controlled by independent Directors As of June 23 rd market close, HIFR total equity market value of $2.0 bn and total enterprise value of $2.6 bn

5 InfraREIT s Asset Profile Transmission ~75% of our rate base ~ 620 miles Transmission Operations Center Railroad DC Tie with Mexico (300 MW) Panhandle Amarillo Stanton Dallas Celeste Distribution ~25% of our rate base ~10,500 miles Over 50,000 electric delivery points El Paso Texas Brady Austin Houston San Antonio McAllen Service Territory Panhandle Transmission Railroad DC Tie Railroad DC Tie 4

6 InfraREIT (NYSE: HIFR) Ownership Breakdown 100% = 60,593,728 common shares/units (1) Hunt 25% Public Stockholders 38% Founding Investors: John Hancock Marubeni OP Trust TIAA-CREF Other Investors (2) 37% 5 1) This reflects the breakdown of common shares assuming that all InfraREIT Partners, LP (the operating partnership) units have been exchanged, one-for-one, for common shares, as of March 31, ) Includes shares and units held by the Founding Investors, Directors, and current and former employees.

7 Discussion Topics Company Overview What Is A Transmission & Distribution REIT? InfraREIT History And Business Strategy Q&A 6

8 Real Estate Investment Trust (REIT) 7 First created by Congress in 1960 Treated as a C-Corporation by the IRS Formed to own income-producing real property Allows average taxpayers access to large-scale real-estate projects and a source of steady income while mitigating double taxation Over 50 million Americans own REIT shares (directly or indirectly) A REIT must distribute at least 90% of its taxable income to shareholders Distributions are deductible for tax purposes Will pay tax on the amount of taxable income not distributed Form of dividend includes different options, including cash, consent, and stock dividends At least 75% of the REIT's gross income must consist of rent, mortgage interest, and real property gains; at least 75% of the value of the REIT's assets must consist of real estate and cash

9 Asset Classes Eligible For REIT Ownership Traditional and specialty REITS Offices, apartments, warehouses, shopping centers Hotels, healthcare centers, billboards Mortgage/residential and commercial finance Infrastructure REITs Cell towers Bridges and roads Electric transmission and distribution Gas transmission Gas storage Water, marinas, offshore platforms 8

10 InfraREIT and Sharyland How We Operate The Lessor InfraREIT Owns the real property Finance, Treasury, Tax, Investor Relations, Corporate M&A The Lessee Sharyland Operates the system Operations, Construction, Customer Interactions, Regulatory 9 Control and management of the Lessor and Lessee are separated; the relationship is governed by lease and contractual terms

11 InfraREIT Functions (The Lessor) Owns the Real Property (transmission and distribution power lines, poles, conductors, transformers, meters collectively, the T&D Assets ) Leases the T&D Assets to Sharyland Utilities Arranges the equity and debt financing for T&D assets and funding for new construction, upgrades and replacements Manages the interface with InfraREIT s Board of Directors Oversees InfraREIT s SEC filings and interactions with public shareholders 10

12 Sharyland Utilities Functions (The Lessee) Employs all of the people needed to operate the transmission and distribution utility Leases the Real Property Owns the personal property Trucks Tools Computers Office Equipment Holds the regulatory authorization granted by the Public Utility Commission of Texas to operate the utility called the Certificate of Convenience and Necessity (CCN) Sharyland is 100% owned by members of the Hunt family 11

13 Sharyland Utilities Functions (continued) 12 Operates the system as a whole Maintains and repairs the system Constructs new facilities, including upgrades to and replacements of existing facilities Performs connections/disconnections Interacts with regulatory bodies and typical utility counterparties PUCT ERCOT Texas Reliability Entity Other Utilities Municipalities within service territory NERC Manages insurance, property tax, state taxes and franchise taxes Manages all regulatory compliance FERC REPs Service Providers Customers Generators

14 Discussion Topics Company Overview What Is A Transmission & Distribution REIT? InfraREIT History And Business Strategy Q&A 13

15 InfraREIT s Innovative and Distinctive History A 15 year journey from an Onion Field to $1.1 bn of Rate Base 14 Hunt established Sharyland in the first greenfield U.S. utility since the 1960s Private Letter Ruling approving the InfraREIT structure in June 2007 Railroad DC Tie completed in October 2007 CREZ project participation approved in March 2009 Cap Rock acquisition in July 2010 EIAA (legacy entity to InfraREIT) formed in November 2010 with an initial commitment of more than $2 bn of equity capital Began operation of a new Transmission Operations Center in April 2013 Energized CREZ project transmission lines and substations in 2013 Completed transition of Stanton Service Territory from SPP to ERCOT in December 2013 Railroad DC Tie Expansion completed July 2014 Completed IPO in January 2015

16 Has Driven >80% Annual Growth Since 2009 Rate Base $ millions 1,000 $1, Rate Base Distribution Transmission % 75% $ YE InfraREIT has grown rapidly over the past five years 15

17 InfraREIT Q Highlights Successfully completed Initial Public Offering and began trading on the New York Stock Exchange on January 30, 2015 Strong Q1 performance, in line with expectations Strong growth relative to last year in revenue, adjusted EBITDA, and CAD Progress on major ROFO projects Construction proceeding for the Golden Spread Electric Cooperative Interconnection and the Cross Valley Transmission Line Southline achieved Phase 3 status in the WECC Ratings Process with an Accepted Rating and filed for a FERC declaratory order Company reaffirmed prior guidance when it announced Q1 results: 2015 CAD per share of $1.07; quarterly dividend for remainder of 2015 of $0.225 per share 10%-15% cumulative annual growth rate in CAD per share for Note: For a reconciliation of non-gaap measures to their most directly comparable GAAP measures, please see Schedules 1-3 included with the Company s Q Earnings Press Release and Q Results & Supplemental Information posted to the Company s website (Infrareitinc.com) on May 13, 2015.

18 InfraREIT Q1 Performance Summary $ millions Lease Revenue Adjusted EBITDA $24.8 $ % $28.2 $ % Q Q Q Q Cash Available for Distribution $18.3 $ % Q Q Strong Q1 performance, in line with expectations 17 Note: For a reconciliation of non-gaap measures to their most directly comparable GAAP measures, please see Schedules 1-3 included with the Company s Q Earnings Press Release and Q Results & Supplemental Information posted to the Company s website (Infrareitinc.com) on May 13, 2015.

19 Disciplined, Multifaceted Pursuit of Growth Growth Strategy Growth Drivers Footprint Projects (Funded by InfraREIT) Population and economic growth across Texas Energy-driven economic expansion Generator interconnections to Panhandle Transmission assets Hunt Development team members have an average of 15 years industry experience ROFO Projects Other Hunt Development Projects Specific Hunt T&D projects under construction or in development Cross Valley and Golden Spread Interconnection have approved CCNs and are under construction Future T&D projects developed and constructed by Hunt Primarily focused on Texas and the Southwest Acquire other T&D assets from third parties Accretive M&A Transactions that build on: Hunt s industry relationships and reputation Expertise with REIT structure 18

20 Economic Drivers of Footprint Growth 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 ERCOT reports 6,266 MW of new capacity in the Panhandle that has signed generation interconnection requests The GSEC Interconnection (ROFO Project) connects to Panhandle Transmission Lines Economic Expansion in West Texas Investment required to ensure reliability and meet identified customer requirements Midland County population grew by 30.6% between and is projected to grow by 16.4% between Regional electricity usage has grown rapidly; significant unmet needs Economic and Population Growth in South Texas Sharyland s McAllen service area and Railroad DC Tie benefit from 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 19 Source: ERCOT, US Census Bureau, Texas State Data Center

21 Robust Pipeline of Development Projects Southline Transmission Project Verde Transmission Project Lubbock Power & Light Interconnection PJM and MISO interconnection CA NV AZ NM CA NV Golden Spread Electric Coop (GSEC) Interconnection M E X I C O TX AZ NM OK South Plains Reinforcement Import capacity from New Mexico and Arizona to California MEXICO Additional U.S. Mexico DC Ties TX ERCOT Southeast Loop Transmission Line ROFO (1) Project Cross Valley Line Estimated (2) Project Cost Expected Completion $160-$185mm 2016 Status Under construction Additional South Texas Transmission / Generation Interconnections Cross Valley Transmission Line GSEC Interconnection $100-$120mm 2016 Under construction Southline $700-$800mm -- Draft EIS Published Under Construction Other ROFO Additional Development Opportunities Verde $60-$80mm -- In development 20 (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 on May 13, 2015, and is not updating or reaffirming it.

22 Robust Growth Targets (1) Cash Available for Distribution (CAD) per Share $ millions ($/Share) $ E 2018E CAD/Share CAGR 15% 10%+ Targeting a 10% - 15% CAGR of CAD / share from Expect to achieve the lower half of the range based on Footprint Projects Ability to exceed the midpoint of the range through acquisitions of Cross Valley Line and GSEC Interconnection Ability to achieve the top of the range through additional Footprint Projects or acquisitions 21 (1) The Company publicly disclosed this information previously and is not updating it or reaffirming it in this presentation. (2) Based upon a total of 43,565,495 common shares and 60,593,728 OP units outstanding as of 3/31/2015.

23 InfraREIT Highlights Attractive Asset Portfolio Stable Cash Flow Strong Track Record Constructive Regulatory Environment Efficient Structure ~$1.1 bn in regulated electric T&D assets (rate base) Transmission assets currently comprise ~75% of rate base 100% of revenue driven by regulated asset base REIT revenue governed by multi-year leases Increased rate base from $60 mm in 2009 to ~$1.1 bn in 2014 Successfully developed 300 miles and 4 substations of CREZ transmission system Closed acquisitions and completed rate case under REIT structure Constructive T&D regulatory framework in Texas Texas regulation supportive of REIT structure Ability to do interim rate filings minimizes regulatory lag REIT structure enables structurally advantaged cash generation Hunt is highly aligned with shareholders 22 High-Growth Opportunities Company has indicated that Footprint Projects are expected to enable >10% CAD / share CAGR through 2018 Robust pipeline of right of first offer (ROFO) projects, other T&D projects from Hunt and 3 rd party acquisitions Company has targeted CAD / share CAGR of 10% - 15% through 2018

24 Discussion Topics Company Overview What Is A Transmission & Distribution REIT? InfraREIT History And Business Strategy Q&A 23

25 24 Thank You