InfraREIT Reports Fourth Quarter 2015 and Full Year 2015 Results

InfraREIT, Inc.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share amounts)

Three Months Ended December 31,

Years Ended December 31,

2015

2014

2015

2014

(Unaudited)

Lease revenue

Base rent

$

35,586

$

30,347

$

125,669

$

106,746

Percentage rent

15,335

14,697

25,534

27,669

Total lease revenue

50,921

45,044

151,203

134,415

Operating costs and expenses

General and administrative expense

5,641

5,786

64,606

18,625

Depreciation

10,773

9,255

40,211

35,080

Total operating costs and expenses

16,414

15,041

104,817

53,705

Income from operations

34,507

30,003

46,386

80,710

Other (expense) income

Interest expense, net

(7,470)

(8,377)

(28,554)

(32,741)

Other income (expense), net

868

(17,569)

3,048

(17,236)

Total other expense

(6,602)

(25,946)

(25,506)

(49,977)

Income before income taxes

27,905

4,057

20,880

30,733

Income tax expense

374

297

949

953

Net income

27,531

3,760

19,931

29,780

Less: Net income attributable to noncontrolling interest

7,725

836

6,664

6,882

Net income attributable to InfraREIT, Inc.

$

19,806

$

2,924

$

13,267

$

22,898

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

Basic

$

0.45

$

0.08

$

0.31

$

0.65

Diluted

$

0.45

$

0.08

$

0.31

$

0.65

Cash dividends declared per common share

$

0.225

$

—

$

1.075

$

—

Weighted average common shares outstanding (basic shares)

43,565

35,053

42,983

35,053

Redemption of operating partnership units

—

—

—

—

Weighted average dilutive shares outstanding (diluted shares)

43,565

35,053

42,983

35,053

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

$

7,725

$

836

$

6,664

$

6,882

Redemption of operating partnership units

17,028

10,675

16,232

10,578

InfraREIT, Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

December 31,

2015

2014

Assets

Current Assets

Cash and cash equivalents

$

9,471

$

15,612

Restricted cash

1,682

1,682

Due from affiliates

31,172

27,822

Inventory

6,731

7,393

Assets held for sale

—

41,211

Prepaids and other current assets

560

4,897

Total current assets

49,616

98,617

Electric Plant, net

1,434,531

1,227,146

Goodwill

138,384

138,384

Other Assets

41,140

40,467

Total Assets

$

1,663,671

$

1,504,614

Liabilities and Equity

Current Liabilities

Accounts payable and accrued liabilities

$

22,943

$

25,295

Short-term borrowings

54,000

219,000

Current portion of long-term debt

7,423

19,234

Dividends and distributions payable

13,634

14,130

Contingent consideration

—

27,378

Accrued taxes

3,312

2,359

Total current liabilities

101,312

307,396

Long-Term Debt

617,466

610,522

Regulatory Liability

10,625

1,242

Total liabilities

729,403

919,160

Commitments and Contingencies

Equity

Members' capital - 35,053,186 shares issued and outstanding as of December 31, 2014

—

440,387

Common stock, $0.01 par value; 450,000,000 shares authorized; 43,565,495 issued and outstanding as of December 31, 2015

436

—

Additional paid-in capital

702,213

—

Accumulated deficit

(24,526)

—

Accumulated other comprehensive income

—

—

Total InfraREIT, Inc. equity

678,123

440,387

Noncontrolling interest

256,145

145,067

Total equity

934,268

585,454

Total Liabilities and Equity

$

1,663,671

$

1,504,614

InfraREIT, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Years Ended December 31,

2015

2014

2013

Cash flows from operating activities

Net income

$

19,931

$

29,780

$

42,410

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

Depreciation

40,211

35,080

20,024

Amortization of deferred financing costs

3,241

4,383

3,588

Allowance for funds used during construction - equity

(3,048)

(1,106)

(21,655)

Change in fair value of contingent consideration

—

18,357

841

Reorganization structuring fee

44,897

—

—

Realized gain on sale of marketable securities

(66)

—

—

Equity based compensation

678

120

—

Changes in assets and liabilities:

Due from affiliates

(3,350)

(7,275)

(17,436)

Inventory

662

(816)

(4,414)

Prepaids and other current assets

(6)

(3,370)

(1,388)

Accounts payable and accrued liabilities

2,644

7,347

(649)

Net cash provided by operating activities

105,794

82,500

21,321

Cash flows from investing activities

Additions to electric plant

(239,157)

(210,791)

(390,283)

Proceeds from sale of assets

41,211

—

—

Sale of marketable securities

1,065

—

—

Cash paid to InfraREIT, L.L.C. investors in the merger, net of cash assumed

(172,400)

—

—

Net cash used in investing activities

(369,281)

(210,791)

(390,283)

Cash flows from financing activities

Net proceeds from issuance of common stock upon initial public offering

493,722

—

—

Members' contributions

—

—

136,886

Noncontrolling interest contributions

—

—

2,256

Proceeds from short-term borrowings

87,000

354,000

85,000

Repayments of short-term borrowings

(253,000)

(210,000)

(15,000)

Proceeds from borrowings of long-term debt

400,000

11,000

173,000

Repayments of long-term debt

(404,867)

(13,934)

(8,178)

Net change in restricted cash

—

(1)

—

Deferred financing costs

(3,914)

(4,908)

(1,523)

Dividends and distributions paid

(61,595)

—

(12,175)

Net cash provided by financing activities

257,346

136,157

360,266

Net (decrease) increase in cash and cash equivalents

(6,141)

7,866

(8,696)

Cash and cash equivalents at beginning of year

15,612

7,746

16,442

Cash and cash equivalents at end of year

$

9,471

$

15,612

$

7,746

Non-GAAP Measures

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, 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) an 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 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:

Three Months Ended December 31, 2015

Three Months Ended December 31, 2014

(In thousands, except share amounts, unaudited)

Amount

Per Share ⁽³⁾

Amount

Per Share ⁽⁴⁾

Net income attributable to InfraREIT, Inc.

$

19,806

$

0.45

$

2,924

$

0.08

Net income attributable to noncontrolling interest

7,725

0.45

836

0.08

Net income

27,531

0.45

3,760

0.08

Non-cash reorganization structuring fee

—

—

—

—

Reorganization expenses

—

—

921

0.02

Contingent consideration

—

—

17,247

0.38

Percentage rent adjustment ⁽¹⁾

(9,768)

(0.16)

(8,899)

(0.19)

Base rent adjustment ⁽²⁾

1,069

0.02

1,767

0.04

Non-GAAP net income

$

18,832

$

0.31

$

14,796

$

0.32

Year Ended December 31, 2015

Year Ended December 31, 2014

(In thousands, except share amounts, unaudited)

Amount

Per Share ⁽⁵⁾

Amount

Per Share ⁽⁶⁾

Net income attributable to InfraREIT, Inc.

$

13,267

$

0.31

$

22,898

$

0.65

Net income attributable to noncontrolling interest

6,664

0.41

6,882

0.65

Net income

19,931

0.34

29,780

0.65

Non-cash reorganization structuring fee

44,897

0.76

—

—

Reorganization expenses

333

—

1,729

0.04

Contingent consideration

—

—

18,357

0.40

Percentage rent adjustment ⁽¹⁾

—

—

—

—

Base rent adjustment ⁽²⁾

6,538

0.11

6,688

0.15

Non-GAAP net income

$

71,699

$

1.21

$

56,554

$

1.24

1)

Represents the difference between the amount of percentage rent payments and the amounts 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 percentage rent payments until the tenant's annual gross revenues exceed minimum specified breakpoints in the leases.

2)

This adjustment relates to the difference between the timing of cash based rent payments made under the Company's leases and when the Company recognizes base rent revenue under GAAP.  The Company recognizes base rent on a straight-line basis over the applicable term of the lease commencing when the related assets are placed in service, which is frequently different than the period in which the cash rent becomes due.

3)

The weighted average common shares outstanding of 43.6 million was used to calculate net income attributable to InfraREIT, Inc. common stockholders 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.

4)

The weighted average shares outstanding of 35.1 million was used to calculate net income attributable to InfraREIT, Inc. shareholders per diluted share. The weighted average redeemable partnership units outstanding of 10.6 million was used to calculate net income attributable to noncontrolling interest per share. The combination of the weighted average shares and redeemable partnership units outstanding of 45.7 million was used for the remainder of the per share calculations.

5)

The weighted average common shares outstanding of 43.0 million was used to calculate net income attributable to InfraREIT, Inc. common stockholders per diluted share. The weighted average redeemable partnership units outstanding of 16.2 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 59.2 million was used for the remainder of the per share calculations.

6)

The weighted average shares outstanding of 35.1 million was used to calculate net income attributable to InfraREIT, Inc. shareholders per diluted share. The weighted average redeemable partnership units outstanding of 10.5 million was used to calculate net income attributable to noncontrolling interest per share. The combination of the weighted average shares and redeemable partnership units outstanding of 45.6 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 which 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.  Also included in CAD are 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:

Three Months Ended December 31,

Years Ended December 31,

(In thousands, except share amounts, unaudited)

2015

2014

2015

2014

Net income

$

27,531

$

3,760

$

19,931

$

29,780

Depreciation

10,773

9,255

40,211

35,080

Non-cash reorganization structuring fee

—

—

44,897

—

Percentage rent adjustment ⁽¹⁾

(9,768)

(8,899)

—

—

Base rent adjustment ⁽²⁾

1,069

1,767

6,538

6,688

Amortization of deferred financing costs

805

1,190

3,241

4,383

Reorganization expenses

—

921

333

1,729

Non-cash equity compensation

185

—

678

120

Other (income) expense, net ⁽³⁾

(868)

17,569

(3,048)

17,236

Capital expenditures to maintain net assets

(10,773)

(9,255)

(40,211)

(35,080)

CAD

$

18,954

$

16,308

$

72,570

$

59,936

Shares outstanding (mm of shares)

60.6

⁽⁴⁾

45.7

⁽⁵⁾

60.6

⁽⁶⁾

45.7

⁽⁷⁾

CAD per share

$

0.31

$

0.36

$

1.20

$

1.31

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)

Includes allowance for funds used during construction (AFUDC) on equity of $0.9 million and $(0.3) million for the three months ended December 31, 2015 and 2014, respectively, and $3.0 million and $1.1 million for the years ended December 31, 2015 and 2014, respectively.

4)

Consists of 43.6 million outstanding common shares of InfraREIT and 17.0 million outstanding units representing limited partnership interests (OP Units) held by the limited partners of InfraREIT Partners, LP (Operating Partnership) as of December 31, 2015.

5)

Consists of 35.1 million outstanding shares of InfraREIT and 10.6 million outstanding OP Units held by the limited partners of the Operating Partnership as of December 31, 2014.

6)

Consists of 43.6 million outstanding common shares of InfraREIT and 17.0 million outstanding OP Units held by the limited partners of the Operating Partnership as of December 31, 2015.

7)

Consists of 35.1 million outstanding shares of InfraREIT and 10.6 million outstanding OP Units held by the limited partners of the Operating Partnership as of December 31, 2014.

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) adding back the non-cash reorganization structuring fee, (b) an 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:

Three Months Ended December 31,

Years Ended December 31,

(In thousands, unaudited)

2015

2014

2015

2014

Net income

$

27,531

$

3,760

$

19,931

$

29,780

Interest expense, net

7,470

8,377

28,554

32,741

Income tax expense

374

297

949

953

Depreciation

10,773

9,255

40,211

35,080

EBITDA

46,148

21,689

89,645

98,554

Non-cash reorganization structuring fee

—

—

44,897

—

Percentage rent adjustment ⁽¹⁾

(9,768)

(8,899)

—

—

Base rent adjustment ⁽²⁾

1,069

1,767

6,538

6,688

Reorganization expenses

—

921

333

1,729

Other (income) expense, net ⁽³⁾

(868)

17,569

(3,048)

17,236

Adjusted EBITDA

$

36,581

$

33,047

$

138,365

$

124,207

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 reconciliation below, results in FFO representing net (loss) income 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) an 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 FFO and AFFO:

Three Months Ended December 31,

Years Ended December 31,

(In thousands, unaudited)

2015

2014

2015

2014

Net income

$

27,531

$

3,760

$

19,931

$

29,780

Depreciation

10,773

9,255

40,211

35,080

FFO

38,304

13,015

60,142

64,860

Non-cash reorganization structuring fee

—

—

44,897

—

Percentage rent adjustment ⁽¹⁾

(9,768)

(8,899)

—

—

Base rent adjustment ⁽²⁾

1,069

1,767

6,538

6,688

Reorganization expenses

—

921

333

1,729

Other (income) expense, net ⁽³⁾

(868)

17,569

(3,048)

17,236

AFFO

$

28,737

$

24,373

$

108,862

$

90,513

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