Exhibit 99.2
Unaudited Consolidated Pro Forma Financial Statements
Effective as of November 9, 2017, Sharyland Distribution & Transmission Services, L.L.C. (SDTS), which is the regulated subsidiary of InfraREIT, Inc. (InfraREIT or Company), exchanged $401 million of net assets for $383 million of net transmission assets owned by Oncor Electric Delivery Company LLC (Oncor). Additionally, SDTS acquired a $17 million regulatory liability from Oncor and Oncor assumed a $4 million regulatory liability from SDTS. This transaction resulted in net cash to SDTS of $18 million from Oncor. Collectively, this transaction is referred to as the “asset exchange transaction.” In connection with the closing of the asset exchange transaction, effective November 9, 2017, SDTS and its sole tenant, Sharyland Utilities, L.P. (Sharyland), amended certain of their lease agreements to remove the assets that were transferred to Oncor and place under lease the assets that were acquired from Oncor.
In accordance with the Agreement and Plan of Merger, dated July 21, 2017, among SDTS, Sharyland, Oncor and certain other parties thereto, the asset exchange transaction is subject to customary adjustments for a 45-day period after the closing of the transaction. Differences between these preliminary amounts and the final amounts may occur, but these differences are not expected to have a material impact on the accompanying unaudited consolidated pro forma financial statements or the Company’s future results of operations and financial position.
The unaudited consolidated pro forma financial statements have been derived from and should be read in conjunction with the historical consolidated financial statements and the related notes included in InfraREIT’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the U.S. Securities and Exchange Commission (SEC) on February 28, 2017 (2016 Form 10-K) and InfraREIT’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2017 filed with the SEC on November 2, 2017 (2017 Form 10-Q).
The unaudited consolidated pro forma financial information of InfraREIT has been prepared by treating the asset exchange transaction with Oncor as a nonmonetary asset exchange for accounting purposes. The unaudited consolidated pro forma balance sheet as of September 30, 2017 assumes that the asset exchange transaction was completed on September 30, 2017. The unaudited consolidated pro forma income statements for the year ended December 31, 2016 and nine months ended September 30, 2017 give effect to the asset exchange transaction as if it had been completed as of January 1, 2016. The unaudited consolidated pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the Company’s actual results of operations or financial condition had the asset exchange transaction been completed on the dates described above, nor is it necessarily indicative of the Company’s results of operations in future periods of the future financial position of the assets and operations. The financial information should be read in conjunction with the accompanying notes to the unaudited consolidated pro forma financial information.
The pro forma financial information presented reflects events directly attributable to the asset exchange transaction and certain assumptions the Company believes are reasonable. The pro forma adjustments are based on currently available information and certain estimates and assumptions. Therefore, actual adjustments may differ from the pro forma adjustments. However, management believes the pro forma assumptions provide a reasonable basis for presenting significant effects of the asset exchange transaction as contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited consolidated pro forma financial statements.
The unaudited consolidated pro forma financial statements and accompanying notes have been prepared in conformity with generally accepted accounting principles in the United States of America which are consistent with those principles used in the historical consolidated financial statements and the related notes included in the 2016 Form 10-K and the 2017 Form 10-Q.
1
InfraREIT, Inc.
Consolidated Pro Forma Balance Sheet
As of September 30, 2017
(In thousands)
(Unaudited)
| | | | | | | | | | | | |
| | | InfraREIT, Inc.
Historical | | | Asset
Exchange | | | Pro Forma | |
Assets | | | | | | | | | | | | |
Current Assets | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 4,186 | | | $ | 17,936 | (1) | | $ | 22,122 | |
Restricted cash | | | 1,682 | | | | — | | | | 1,682 | |
Due from affiliates | | | 28,518 | | | | — | | | | 28,518 | |
Inventory | | | 7,181 | | | | (148 | )(1) | | | 7,033 | |
Prepaids and other current assets | | | 753 | | | | — | | | | 753 | |
| | | | | | | | | | | | |
Total current assets | | | 42,320 | | | | 17,788 | | | | 60,108 | |
Electric Plant, net | | | 1,752,645 | | | | (401,109 | )(1) | | | 1,747,665 | |
| | | | | | | 383,321 | (1) | | | | |
| | | | | | | (3,732 | )(2) | | | | |
| | | | | | | 16,540 | (3) | | | | |
Goodwill | | | 138,384 | | | | — | | | | 138,384 | |
Other Assets | | | 35,378 | | | | — | | | | 35,378 | |
| | | | | | | | | | | | |
Total Assets | | $ | 1,968,727 | | | $ | 12,808 | | | $ | 1,981,535 | |
| | | | | | | | | | | | |
| | | |
Liabilities and Equity | | | | | | | | | | | | |
Current Liabilities | | | | | | | | | | | | |
Accounts payable and accrued liabilities | | $ | 32,052 | | | $ | — | | | $ | 32,052 | |
Short-term borrowings | | | 35,000 | | | | — | | | | 35,000 | |
Current portion of long-term debt | | | 67,632 | | | | — | | | | 67,632 | |
Dividends and distributions payable | | | 15,169 | | | | — | | | | 15,169 | |
Accrued taxes | | | 5,288 | | | | — | | | | 5,288 | |
| | | | | | | | | | | | |
Total current liabilities | | | 155,141 | | | | — | | | | 155,141 | |
Long-Term Debt, Less Deferred Financing Costs | | | 843,884 | | | | — | | | | 843,884 | |
Regulatory Liability | | | 28,486 | | | | (3,732 | )(2) | | | 41,294 | |
| | | | | | | 16,540 | (3) | | | | |
| | | | | | | | | | | | |
Total liabilities | | | 1,027,511 | | | | 12,808 | | | | 1,040,319 | |
| | | |
Commitments and Contingencies | | | | | | | | | | | | |
Equity | | | | | | | | | | | | |
Common stock, $0.01 par value; 450,000,000 shares authorized; 43,778,490 issued and outstanding | | | 438 | | | | — | | | | 438 | |
Additional paid-in capital | | | 706,337 | | | | — | | | | 706,337 | |
Accumulated deficit | | | (20,494 | ) | | | — | | | | (20,494 | ) |
| | | | | | | | | | | | |
Total InfraREIT, Inc. equity | | | 686,281 | | | | — | | | | 686,281 | |
Noncontrolling interest | | | 254,935 | | | | — | | | | 254,935 | |
| | | | | | | | | | | | |
Total equity | | | 941,216 | | | | — | | | | 941,216 | |
| | | | | | | | | | | | |
Total Liabilities and Equity | | $ | 1,968,727 | | | $ | 12,808 | | | $ | 1,981,535 | |
| | | | | | | | | | | | |
See accompanying notes to the unaudited pro forma consolidated financial statements.
2
InfraREIT, Inc.
Consolidated Pro Forma Statement of Operations
Nine Months Ended September 30, 2017
(In thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | |
| | | InfraREIT, Inc.
Historical | | | Adjustments
| | | Pro Forma | |
Lease revenue | | | | | | | | | | | | |
Base rent | | $ | 122,382 | | | $ | (30,814 | )(4) | | $ | 124,691 | |
| | | | | | | 33,123 | (5) | | | | |
Percentage rent | | | 9,282 | | | | (3,499 | )(4) | | | 5,783 | |
| | | | | | | — | (5) | | | | |
| | | | | | | | | | | | |
Total lease revenue | | | 131,664 | | | | (1,190 | ) | | | 130,474 | |
| | | |
Operating costs and expenses | | | | | | | | | | | | |
General and administrative expense | | | 19,565 | | | | — | | | | 19,565 | |
Depreciation | | | 38,997 | | | | (14,064 | )(6) | | | 32,269 | |
| | | | | | | 7,336 | (7) | | | | |
| | | | | | | | | | | | |
Total operating costs and expenses | | | 58,562 | | | | (6,728 | ) | | | 51,834 | |
| | | | | | | | | | | | |
Income from operations | | | 73,102 | | | | 5,538 | | | | 78,640 | |
| | | | | | | | | | | | |
Other (expense) income | | | | | | | | | | | | |
Interest expense, net | | | (30,196 | ) | | | (273 | )(8) | | | (30,469 | ) |
Other income (expense), net | | | 351 | | | | (25 | )(8) | | | 326 | |
| | | | | | | | | | | | |
Total other expense | | | (29,845 | ) | | | (298 | ) | | | (30,143 | ) |
| | | | | | | | | | | | |
Income before income taxes | | | 43,257 | | | | 5,240 | | | | 48,497 | |
Income tax expense (benefit) | | | 873 | | | | (3 | )(9) | | | 870 | |
| | | | | | | | | | | | |
Net income | | | 42,384 | | | | 5,243 | | | | 47,627 | |
Less: Net income attributable to noncontrollinginterest | | | 11,797 | | | | 1,459 | (10) | | | 13,256 | |
| | | | | | | | | | | | |
Net income attributable to InfraREIT, Inc. | | $ | 30,587 | | | $ | 3,784 | | | $ | 34,371 | |
| | | | | | | | | | | | |
Net income attributable to InfraREIT, Inc.common stockholders per share: | | | | | | | | | | | | |
Basic | | $ | 0.70 | | | $ | 0.09 | | | $ | 0.79 | |
| | | | | | | | | | | | |
Diluted | | $ | 0.70 | | | $ | 0.09 | | | $ | 0.79 | |
| | | | | | | | | | | | |
Cash dividends declared per common share | | $ | 0.50 | | | $ | — | | | $ | 0.50 | |
| | | | | | | | | | | | |
See accompanying notes to the unaudited pro forma consolidated financial statements.
3
InfraREIT, Inc.
Consolidated Pro Forma Statement of Operations
Year Ended December 31, 2016
(In thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | |
| | | InfraREIT, Inc.
Historical | | | Adjustments | | | Pro Forma | |
Lease revenue | | | | | | | | | | | | |
Base rent | | $ | 145,030 | | | $ | (34,555 | )(11) | | $ | 154,639 | |
| | | | | | | 44,164 | (12) | | | | |
Percentage rent | | | 27,069 | | | | (9,383 | )(11) | | | 17,686 | |
| | | | | | | — | (12) | | | | |
| | | | | | | | | | | | |
Total lease revenue | | | 172,099 | | | | 226 | | | | 172,325 | |
| | | |
Operating costs and expenses | | | | | | | | | | | | |
General and administrative expense | | | 21,852 | | | | — | | | | 21,852 | |
Depreciation | | | 46,704 | | | | (18,755 | )(13) | | | 37,731 | |
| | | | | | | 9,782 | (14) | | | | |
| | | | | | | | | | | | |
Total operating costs and expenses | | | 68,556 | | | | (8,973 | ) | | | 59,583 | |
| | | | | | | | | | | | |
Income from operations | | | 103,543 | | | | 9,199 | | | | 112,742 | |
| | | | | | | | | | | | |
| | | |
Other (expense) income | | | | | | | | | | | | |
Interest expense, net | | | (36,920 | ) | | | (708 | )(15) | | | (37,628 | ) |
Other income (expense), net | | | 3,781 | | | | (833 | )(15) | | | 2,948 | |
| | | | | | | | | | | | |
Total other expense | | | (33,139 | ) | | | (1,541 | ) | | | (34,680 | ) |
| | | | | | | | | | | | |
Income before income taxes | | | 70,404 | | | | 7,658 | | | | 78,062 | |
Income tax expense | | | 1,103 | | | | 1 | (16) | | | 1,104 | |
| | | | | | | | | | | | |
Net income | | | 69,301 | | | | 7,657 | | | | 76,958 | |
Less: Net income attributable to noncontrollinginterest | | | 19,347 | | | | 2,130 | (17) | | | 21,477 | |
| | | | | | | | | | | | |
Net income attributable to InfraREIT, Inc. | | $ | 49,954 | | | $ | 5,527 | | | $ | 55,481 | |
| | | | | | | | | | | | |
Net income attributable to InfraREIT, Inc.common stockholders per share: | | | | | | | | | | | | |
Basic | | $ | 1.14 | | | $ | 0.13 | | | $ | 1.27 | |
| | | | | | | | | | | | |
Diluted | | $ | 1.14 | | | $ | 0.13 | | | $ | 1.27 | |
| | | | | | | | | | | | |
Cash dividends declared per common share | | $ | 1.00 | | | $ | — | | | $ | 1.00 | |
| | | | | | | | | | | | |
See accompanying notes to the unaudited pro forma consolidated financial statements.
4
InfraREIT, Inc.
Notes to Unaudited Pro Forma Consolidated Financial Statements
| A. | Adjustments to the Pro Forma Consolidated Balance Sheet |
The adjustments to the pro forma consolidated balance sheet as of September 30, 2017 are as follows:
| | (1) | Reflects the $401 million of net assets SDTS exchanged for $383 million of Oncor’s transmission assets and $18 million of cash pursuant to the asset exchange transaction as described below. |
| | | | |
| (in thousands) | | | |
Net assets transferred to Oncor | | | | |
Gross transmission plant | | $ | 2,675 | |
Gross distribution plant | | | 498,447 | |
Gross general plant | | | 13,011 | |
Construction work in progress | | | 22,699 | |
| | | | |
Total electric plant | | | 536,832 | |
Accumulated depreciation | | | (135,723 | ) |
| | | | |
Electric plant, net | | | 401,109 | |
Inventory | | | 148 | |
| | | | |
Total assets | | $ | 401,257 | |
| | | | |
| |
Net transmission assets acquired from Oncor | | | | |
Gross transmission plant | | $ | 432,592 | |
Construction work in progress | | | 47 | |
| | | | |
Total transmission plant | | | 432,639 | |
Accumulated depreciation | | | (49,318 | ) |
| | | | |
Transmission plant, net | | $ | 383,321 | |
| | | | |
| | (2) | Reflects the adjustment to the regulatory liability for the portion related to the assets being transferred to Oncor. |
| | (3) | Reflects the adjustment to the regulatory liability for the portion related to the transmission assets being acquired from Oncor. |
| B. | Adjustments to the Pro Forma Consolidated Statement of Operations for the Nine Months Ended September 30, 2017 |
The adjustments to the pro forma consolidated statement of operations for the nine months ended September 30, 2017 are as follows:
| | (4) | Reflects the elimination of base and percentage rent revenue associated with the assets transferred to Oncor. |
| | (5) | Reflects the recognition of base rent revenue for the transmission assets acquired from Oncor. There is no percentage rent revenue recognized for the transmission assets. |
| | (6) | Reflects the elimination of the deprecation expense related to the assets transferred to Oncor. |
| | (7) | Reflects depreciation expense associated with the transmission assets acquired from Oncor. |
| | (8) | Reflects the reduction in the allowance for funds used during construction (AFUDC) on debt and AFUDC on other funds associated with the construction work in progress (CWIP) assumed by Oncor related to assets under construction. |
| | (9) | Represents the margin tax effect on revenue related to the removal of the assets that were transferred to Oncor as well as the transmission assets acquired from Oncor. |
| | (10) | Reflects the effect of the pro forma adjustments on net income between InfraREIT, Inc. and the noncontrolling interest. There was no change in ownership of the outstanding partnership units (OP Units) of InfraREIT Partners, LP (Operating Partnership) as of September 30, 2017 at which time InfraREIT held 72.2% and Hunt Consolidated, Inc. affiliates, current or former employees and members of InfraREIT’s board of directors held the other 27.8% of the outstanding OP Units. |
5
| C. | Adjustments to the Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2016 |
The adjustments to the pro forma consolidated statement of operations for the year ended December 31, 2016 are as follows:
| | (11) | Reflects the elimination of base and percentage rent revenue associated with the assets transferred to Oncor. |
| | (12) | Reflects the recognition of base rent revenue for the transmission assets acquired from Oncor. There is no percentage rent revenue recognized for the transmission assets. |
| | (13) | Reflects the elimination of depreciation expense related to the assets transferred to Oncor. |
| | (14) | Reflects depreciation expense associated with the transmission assets acquired from Oncor. |
| | (15) | Reflects the reduction for both AFUDC debt and AFUDC on other funds associated with the CWIP assumed by Oncor related to the assets under construction. |
| | (16) | Represents the margin tax effect on the revenue related to the removal of the assets that were transferred to Oncor as well as the transmission assets acquired from Oncor. |
| | (17) | Reflects the effect of the pro forma adjustments on net income between InfraREIT, Inc. and the noncontrolling interest. There was no change in ownership of the OP Units of the Operating Partnership as of December 31, 2016 at which time InfraREIT held 72.2% and Hunt Consolidated, Inc. affiliates, current or former employees and members of InfraREIT’s board of directors held the other 27.8% of the outstanding OP Units. |
6
