InfraREIT, Inc. (NYSE:HIFR) Files An 8-K Results of Operations and Financial Condition

InfraREIT, Inc. (NYSE:HIFR) Files An 8-K Results of Operations and Financial Condition
Item 2.02. Results of Operations and Financial Condition.

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As previously announced, Brant Meleski, Chief Financial Officer of InfraREIT, Inc. (“InfraREIT” and, together with its subsidiaries, the “Company”), will be participating in the 4th Annual Evercore ISI Utility CEO Conference on January 11-12, 2018. A copy of the Company’s presentation for this conference is furnished as Exhibit 99.1 to this Current Report on Form 8-K. In accordance with General Instruction B.2 of Form 8-K, the information set forth in this Item 2.02 shall be deemed to be furnished and shall not be deemed to be “filed” for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

InfraREIT is providing the following update with respect to the recently enacted legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Cuts and Jobs Act”).

The Tax Cuts and Jobs Act includes a reduction in the highest marginal U.S. federal corporate income tax rate (“corporate tax rate”) from 35% to 21%, effective for taxable years beginning on or after January1, 2018. The Company derives revenues by leasing its transmission and distribution assets to its sole tenant, Sharyland Utilities, L.P. (“Sharyland”). Currently, Sharyland’s revenue requirement assumes its recovery in rates of an income tax allowance at the 35% corporate tax rate, and the Company’s leases with Sharyland reflect this assumption.

At this time, it is uncertain how and when Sharyland’s rates or financial statements will reflect an income tax allowance at the lower corporate tax rate or other potential impacts of the Tax Cuts and Jobs Act. Sharyland and Sharyland Distribution& Transmission Services, L.L.C. (“SDTS”), InfraREIT’s regulated subsidiary, are required to file their next rate case by July1, 2020, and the leases with respect to the majority of the Company’s assets are scheduled to expire at the end of 2020. When Sharyland’s rates are revised or its financial statements are impacted by incorporating an income tax allowance at the lower 21% corporate tax rate, the Company expects that lease payments for future assets placed in service will reflect that change, which would result in a reduction, relative to the existing lease terms, in the amount of lease revenue the Company receives per dollar of assets. Additionally, if the lower income tax allowance is reflected in Sharyland’s rates or financial results prior to the expiration of the current leases, InfraREIT expects Sharyland to request a reduction in the existing lease payments to reflect that change. Accordingly, the reduction in the corporate tax rate from 35% to 21% in the Tax Cuts and Jobs Act could, over time, have the effect of decreasing the relative economic benefits of owning utility assets in a real estate investment trust (“REIT”) structure, as compared to a traditional C-corporation structure.

The Tax Cuts and Jobs Act also includes provisions that reduce the tax rates applicable to individuals and that treat dividends paid to REIT shareholders as income eligible for the new 20% deduction for business income earned from passthrough entities. These changes will have the effect of reducing the maximum income tax rate applicable to REIT dividends paid to individual REIT shareholders from 39.6% to 29.6%. These provisions are set to expire after 2025.

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The Company is continuing to evaluate these and other potential impacts of the Tax Cuts and Jobs Act. In consideration of the significant impact of the change in the corporate tax rate, as well as the other potential impacts of the new legislation, InfraREIT is continuing to review its REIT election and the existing lessor-lessee relationship with Sharyland, including consideration of whether InfraREIT should terminate its REIT status and instead opt for a traditional C-corporation structure (a “De-REIT transaction”). Any such De-REIT transaction alternatives may involve one or more of the following: combining Sharyland with SDTS, terminating the leases between SDTS and Sharyland, terminating the Company’s operating partnership, and/or other negotiations with Hunt Consolidated, Inc. and its affiliates (collectively, “Hunt”), including terminating or renegotiating the Company’s management agreement, terminating or renegotiating the development agreement with Hunt, and engaging in related negotiations. InfraREIT has not set a specific timeline for completing this review.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws. These statements give the current expectations of InfraREIT’s management. 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 report include the Company’s expectations regarding the impact of the Tax Cuts and Jobs Act and statements regarding a potential De-REIT transaction. Forward-looking statements can be affected by assumptions used or known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed and actual results may differ materially and adversely from those reflected in the forward-looking statements. Factors that could cause actual results to differ materially from those indicated in the forward-looking statements include, among others, the risks and uncertainties described in InfraREIT’s filings with the U.S. Securities and Exchange Commission.

Any forward-looking statement made by InfraREIT 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. 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.

Item 2.02. Financial Statements and Exhibits.

In accordance with General Instruction B.2 of Form 8-K, the information set forth in the attached exhibit is deemed to be furnished and shall not be deemed to be “filed” for purposes of Section18 of the Exchange Act.

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InfraREIT, Inc. Exhibit
EX-99.1 2 d522995dex991.htm EX-99.1 EX-99.1 2018 Evercore ISI Utility CEO Conference January 11,…
To view the full exhibit click here

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.

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