A new real estate investment trust is about to hit the market: InfraREIT will make its debut as a publicly traded company on Friday. It's an interesting entity not only because of its offbeat niche in the REIT space, but also because of developments in the utility sector in its region. Let's open the books a little and take a closer look at this firm.
A powerful firm
InfraREIT essentially comprises the electric transmission and distribution assets of the Hunt family, a clan that originally amassed its wealth in the oil industry. It's a spinoff of Sharyland Utilities, a Hunt-founded power producer that serves communities in central and northern Texas. Sharyland leases these assets from InfraREIT.
InfraREIT has more than 50,000 electricity delivery points, roughly 620 miles of transmission lines, and around 10,500 miles of distribution lines. About 75% of the REIT's rate base consists of transmission, with distribution taking the remainder.
In terms of financial performance, the company is well in the black: In the first nine months of 2014, its total revenue came in at $89 million, with attributable net income landing at $19 million. As with any REIT, much of this firm's bottom line will be handed out to shareholders in the form of dividends. In its latest Securities and Exchange Commission filing, InfraREIT says it anticipates paying a "consistent and growing cash dividend that is sustainable on a long-term basis."
The InfraREIT IPO comes at an interesting time for the region's electricity market. Last April, Energy Future Holdings, a large power utility based in Dallas, filed for bankruptcy. As part of the attempt to restructure its finances, the firm proposed to sell off a prized asset: its subsidiary Oncor, owner of the largest distribution and transmission network in Texas.
The Hunts (via their firm Hunt Consolidated) were very much interested in acquiring Oncor. With a partner, they crafted an offer for the subsidiary in a transaction that would take effect once the firm exits bankruptcy. That try, apparently, couldn't compete with a subsequent massive bid from NextEra Energy (NYSE:NEE) to the tune of $18 billion.
Last November, the judge in the bankruptcy proceeding delayed a planned auction for Oncor due to concerns that the process was moving too quickly. This delay didn't last long -- in mid-January, he gave Energy Future Holdings the green light for the auction. The deadline for opening bids has been set for March 2.
Might InfraREIT become some sort of player in the tussle for Oncor? The timing of the former's IPO is certainly close to the latest court ruling. Further, InfraREIT's president and CEO is David Campbell, who not long ago was a longtime executive at Energy Future Holdings and its predecessor TXU, at one point serving as the former's CFO.
Because of its asset profile, InfraREIT isn't the typical REIT. As such, it might be a good play for investors looking for something offbeat to complement their holdings in this asset class. Meanwhile, the looming Oncor sale is an intriguing development that might affect or involve InfraREIT. It will be interesting to watch how the situation plays out.
On Friday, 20 million shares of InfraREIT are to go on sale priced between $19 and $21 per share. Bank of America (NYSE:BAC) Merrill Lynch and Citigroup (NYSE:C) are the lead underwriters of the issue. InfraREIT will trade on the NYSE under the ticker symbol HIFR.