InfraREIT, Inc. (NYSE:HIFR) Files An 8-K Entry into a Material Definitive Agreement

ME Staff 8-k

8 years ago

InfraREIT, Inc. (NYSE:HIFR) Files An 8-K Entry into a Material Definitive Agreement

Item1.01.

Entry into a Material Definitive Agreement.

On December31, 2016, Sharyland Distribution Transmission
Services, L.L.C. (SDTS), which is a subsidiary of InfraREIT, Inc.
(InfraREIT and, together with its subsidiaries, the Company),
amended and restated its lease supplements with Sharyland
Utilities, L.P. (Sharyland) (other than the lease supplement with
respect to the Stanton Transmission Loop Lease) to establish the
rent under its existing leases after giving effect to the capital
expenditures that the parties expect to place in service during
2017. The foregoing description of the amended and restated lease
supplements is qualified in its entirety by reference to the
complete text of the amended and restated lease supplements,
copies of which are filed as Exhibits 10.1, 10.2, 10.3 and 10.4
to this Current Report on Form 8-K and are incorporated herein by
reference. For a description of the Companys lease supplements
generally, see the caption Lease Supplements under Our Revenue
Model and Leases included under Item 1., Business in InfraREITs
Annual Report on Form 10-K that was filed with the Securities and
Exchange Commission (the Commission) on March3, 2016. As
described below and as part of SDTSs amended rate case filing,
SDTS and Sharyland have proposed to replace their five existing
lease agreements and related supplements with two leases, one for
transmission assets and one for distribution assets.

As more fully described in the section entitled Transactions with
Related Persons included in InfraREITs definitive proxy statement
filed with the Commission on March15, 2016, which section is
incorporated herein by reference, Sharyland is privately-owned by
Hunter L. Hunt and other members of the family of Ray L. Hunt and
is controlled by Hunter L. Hunt. Ray L. Hunt and Hunter L. Hunt
indirectly control Hunt Consolidated, Inc., which is deemed to be
a beneficial owner of more than 5% of InfraREITs common stock and
indirectly owns the Companys external manager. Hunter L. Hunt
also serves as one of InfraREITs directors.

Item8.01.

Other Events.

On December30, 2016, SDTS and Sharyland filed an amended rate
case application and rate filing packages with the Public Utility
Commission of Texas (PUCT). The filing requests PUCT approval of
a tariff setting forth the rent rates that SDTS will charge
Sharyland under the leases between Sharyland and SDTS for the
transmission and distribution assets owned by SDTS and also
includes a request for the PUCT to issue SDTS its own certificate
of convenience and necessity. SDTS and Sharyland have requested
the following rate case metrics:

Allowed return on equity of 10%;

Maintaining the current capital structure of 55% debt and 45%
equity; and

A reduction in cost of debt to 4.97%, down from 6.73%.

Consistent with the preliminary order issued by the PUCT in
October 2016, SDTS and Sharyland have proposed to replace their
five existing lease agreements with two leases, one for
transmission assets and one for distribution assets. Each of the
leases, if approved by the PUCT, will become effective upon the
conclusion of the rate case and will continue for a term of four
years. The new leases will incorporate by reference the terms and
conditions contained in the SDTS tariff and will be subject to
the authority of the PUCT. Sharyland will continue to have
operational control over the leased assets and will remain
primarily responsible for regulatory compliance and reporting
requirements related to the leased assets, on behalf of and with
the cooperation of SDTS.

The proposed lease payments under the two new leases are designed
to comply with the true lease requirement and other tax rules
applicable to real estate investment trusts by providing
Sharyland with approximately 3% of the projected regulated return
on rate base that SDTS would have been entitled to earn if it
owned and operated the assets rather than leasing them to
Sharyland. The proposed lease payments will include both base
rent and percentage rent as established by the PUCT. Base rent
under the leases is a fixed amount, payable monthly, and
percentage rent will be an annual amount equal to a percentage
(the percentage rent rate) of gross revenues collected by
Sharyland during the year (subject to certain adjustments
described in the leases) in excess of the applicable annual
percentage rent breakpoint. The transmission lease will have a
single annual percentage rent breakpoint and percentage rent
rate, while the distribution lease will have two annual
percentage rent breakpoints, the initial annual breakpoint and
the secondary annual breakpoint, and two percentage rent rates,
the initial percentage rent rate and the secondary percentage
rent rate. Sharyland will owe percentage rent under the
distribution lease at the initial percentage rent rate on the
portion of Sharylands gross revenues that is in excess of the
initial annual breakpoint but does not exceed the secondary
annual breakpoint. Sharyland will also owe percentage rent under
the distribution lease at the secondary percentage rent rate on
its gross revenues that is in excess of the secondary annual
breakpoint.

As proposed in the SDTS tariff, based on the SDTS rate base as of
the 2015 test year, Sharyland will pay rent to SDTS at the
following rates:


	TransmissionLease	Distribution Lease
Monthly Base Rent	$8,270,255	$3,247,770
Percentage Rent Rate(s)	35%	Initial:15.4% Secondary:39.9%
Annual Percentage Rent Breakpoint(s)	$99,243,065	Initial:$38,973,241 Secondary:$102,247,190

As proposed in the rate case filing package, lease payments under
the transmission lease will be updated upon the effectiveness of
the rate case to give effect to interim transmission cost of
service filings that have been approved after the test year. The
base rent payments will also be updated through interim
transmission cost of service and distribution cost recovery
factor filings with the PUCT. These updates will replace the
current rent supplements and validation process in the Companys
existing lease structure.

The rate case filing also references a transition payment
agreement (the Transition Payment Agreement) between unregulated
owners of SDTS and Sharyland that represents a proposed solution
for allocating the growth in Sharylands distribution revenues
after the test year between the unregulated owners, in order to
provide the Company the opportunity to realize revenue growth
between rate cases similar to other utilities. The Transition
Payment Agreement has not yet been negotiated; however, the
Company expects the payments under the Transition Payment
Agreement to be based on a variety of factors, including
Sharylands distribution revenue growth and the amount of SDTSs
and Sharylands distribution assets placed in service.

The ultimate timing and outcome of the rate case is uncertain,
although the Company currently expects it to be completed during
2017.

Forward-Looking Statements

This report contains forward-looking statements within the
meaning of the federal securities laws. These statements state
the current expectations or intentions of the Company regarding
future events, which, by their nature, involve known and unknown
risks and uncertainties. Factors that could cause actual results
to differ materially from those contemplated above include, among
others, risks and uncertainties related to the outcome of the
rate case and other risks and uncertainties discussed from time
to time in the Companys filings with the Commission. Any
forward-looking statement made by the Company in this report is
based only on information currently available to the Company and
speaks only as of the date on which it is made. The Company
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.

Item9.01.

Financial Statements and Exhibits.

(d)

Exhibits.


EXHIBIT NUMBER				DESCRIPTION

10.1				Eleventh Amended and Restated Rent Supplement (McAllen Lease), dated December 31, 2016, between Sharyland Distribution Transmission Services, L.L.C. and Sharyland Utilities, L.P.

10.2				Eleventh Amended and Restated Rent Supplement (Stanton/Brady/Celeste Lease), dated December 31, 2016, between Sharyland Distribution Transmission Services, L.L.C. and Sharyland Utilities, L.P.

10.3				Ninth Amended and Restated Rent Supplement (CREZ Lease), dated December 31, 2016, between Sharyland Distribution Transmission Services, L.L.C. and Sharyland Utilities, L.P.

10.4				Sixth Amended and Restated Rent Supplement (ERCOT Transmission Lease), dated December 31, 2016, between Sharyland Distribution Transmission Services, L.L.C. and Sharyland Utilities, L.P.

About InfraREIT, Inc. (NYSE:HIFR)
InfraREIT, Inc. is a real estate investment trust. The Company owns electric transmission and distribution (T&D) assets in Texas. Its segment is rate-regulated electric T&D assets. The Company’s T&D assets are located in the Texas Panhandle near Amarillo; the Permian Basin in and around Stanton, Central Texas; around Brady, Northeast Texas; in and around Celeste, and South Texas near McAllen. Its assets include competitive renewable energy zones (CREZ) assets, which include approximately 300 miles of 350 kilovolts (kV) transmission lines and designated collection stations; S/B/C assets, which include approximately 12,300 miles of overhead distribution lines and underground distribution lines, transmission lines and substations; McAllen assets; Stanton Transmission Loop assets, which include approximately 350 miles of 140 kV transmission lines and connected substations, and Electric Reliability Council of Texas (ERCOT) Transmission assets. It is managed by Hunt Utility Services, LLC. InfraREIT, Inc. (NYSE:HIFR) Recent Trading Information
InfraREIT, Inc. (NYSE:HIFR) closed its last trading session 00.00 at 17.91 with 118,773 shares trading hands.