10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number: 001-36822

InfraREIT, Inc.

(Exact name of Registrant as specified in its charter)

Maryland	75-2952822
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
1807 Ross Avenue, 4th Floor, Dallas, Texas	75201
(Address of Principal Executive Offices)	(Zip Code)

(214) 855-6700

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Class	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  o    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  o    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x  (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  o    No  x

As of June 30, 2015, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of Common Stock held by non-affiliates of the registrant was $685.4 million based on the last sales price on June 30, 2015 on the New York Stock Exchange of $28.36 for the registrant’s Common Stock.

As of February 29, 2016, 43,570,230 shares of common stock were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the registrant’s 2016 Annual Meeting of Stockholders to be held May 18, 2016 are incorporated in Part III of this Annual Report on Form 10-K.

InfraREIT, Inc.

INDEX

		Page
Glossary of Terms		3
Forward-Looking Statements		5
Explanatory Note		6
PART I
Item 1.	Business	7
Item 1A.	Risk Factors	22
Item 1B.	Unresolved Staff Comments	40
Item 2.	Properties	40
Item 3.	Legal Proceedings	40
Item 4.	Mine Safety Disclosures	41
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases	41
Item 6.	Selected Financial Data	43
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	62
Item 8.	Financial Statements and Supplementary Data	62
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosures	63
Item 9A.	Controls and Procedures	63
Item 9B.	Other Information	63
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	64
Item 11.	Executive Compensation	64
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	64
Item 13.	Certain Relationships and Related Transactions, and Director Independence	64
Item 14.	Principal Accounting Fees and Services	64
PART IV
Item 15.	Exhibits, Financial Statement Schedules	65
Signatures		69

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GLOSSARY OF TERMS

This glossary highlights some of the industry terms that we use in this Annual Report on Form 10-K and is not a complete list of all of the defined terms used herein.

Abbreviation	Term
AFUDC	allowance for funds used during construction
CREZ	competitive renewable energy zones, as defined by a 2005 Texas law establishing the Texas renewable energy program
CWIP	construction work in progress
DC Tie	high-voltage direct current interconnection necessary to provide for electricity flow between asynchronous electric grids in North America
DCRF filing	a distribution cost recovery factor filing with the Public Utility Commission of Texas that a distribution service provider is permitted to make to update distribution tariffs to reflect recent capital expenditures, among other matters
distribution	that portion of a power delivery network consisting of an interconnected group of electric distribution lines, towers, poles, substations, transformers and associated assets over which electric power is distributed from points within the transmission network to end use consumers
DSP	a distribution service provider, i.e., a utility operating within the Electric Reliability Council of Texas territory that owns and operates electric distribution facilities, or other participants in the Electric Reliability Council of Texas territory that collect and remit payments on behalf of a distribution service provider
electric utilities	DSPs, transmission service providers, transmission and distribution service providers, municipalities, cooperatives and others defined as “electric utilities” by the Public Utility Commission of Texas
ERCOT	Electric Reliability Council of Texas
ERCOT 4CP	the average of ERCOT coincident peak demand for the months of June, July, August and September, excluding the portion of coincident peak demand attributable to wholesale storage load (during 2015, ERCOT 4CP was approximately 66,036 megawatts)
FERC	Federal Energy Regulatory Commission
Footprint Projects	transmission or distribution projects primarily situated within our distribution service territory, or that physically hang from our existing transmission assets, such as the addition of another circuit to our existing transmission lines, or that are physically located within one of our substations; Footprint Projects do not include the addition of a new substation on our existing transmission lines or generation interconnects to our existing transmission lines, unless the addition or interconnection occurred within our distribution service territory
kV	kilovolt
kW	kilowatt
kWh	kilowatt-hour
MW	megawatts
PUCT	Public Utility Commission of Texas
rate base	calculated as our gross electric plant in service under generally accepted accounting principles, which is the aggregate amount of our total cash expenditures used to construct such assets plus AFUDC, less accumulated depreciation, and adjusted for accumulated deferred income taxes
REP	retail electric provider, which are the companies that sell electricity to Texas customers
revenue requirement	a transmission and distribution service provider’s revenue requirement is equal to its targeted total costs, including operating and maintenance costs, return on rate base and taxes
ROFO Projects	identified projects that are being developed by Hunt Consolidated, Inc. and its affiliates with respect to which we have a right of first offer
service territory	a designated area in which a utility is required or has the right to supply electric service to ultimate customers under a regulated utility structure

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Abbreviation	Term
T&D	electric transmission and distribution
T&D assets	rate-regulated electric transmission and distribution assets such as power lines, substations, transmission towers, distribution poles, transformers and related property and assets
TCOS filing	an interim transmission cost of service filing with the PUCT that a transmission service provider is permitted to make up to twice per year to update its transmission cost of service, and therefore its transmission tariff, to reflect recent capital expenditures, among other matters; an interim TCOS filing establishes transmission cost of service until the next rate case or interim TCOS filing
TDSP	transmission and distribution service provider, i.e., a utility operating within the ERCOT territory that owns and operates both electric transmission and distribution facilities
transmission	that portion of a power delivery network consisting of an interconnected group of electric transmission lines, towers, poles, switchyards, substations, transformers and associated assets over which electric power is transmitted between points of supply or generation and distribution
TSP	a transmission service provider, i.e., a utility operating within the ERCOT territory that owns and operates electric transmission facilities

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FORWARD-LOOKING STATEMENTS

Some of the information in this Annual Report on Form 10-K may contain forward-looking statements. Forward-looking statements give InfraREIT, Inc.’s (“we” or “Company”) current expectations, contain projections of results of operations or financial condition or forecasts of future events. Words such as “could,” “will,” “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential” or “continue” and similar expressions are used to identify forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this document include our expectations regarding our strategies, objectives, growth and anticipated financial and operational performance, including guidance regarding our capital expenditures, expected lease payments, infrastructure programs, estimated cash flow projections and estimated distributions to our stockholders. Forward-looking statements can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, when considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this document. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

· decisions by regulators or changes in governmental policies or regulations with respect to our permitted capital structure, acquisitions and dispositions of assets, recovery of investments and our authorized rate of return;

· our current reliance on our tenant for all of our revenues and, as a result, our dependency on our tenant’s solvency and financial and operating performance;

· risks that the capital expenditures we expect will not materialize for a variety of reasons;

· risks related to future lease negotiations or non-renewal of leases with our tenant;

· insufficient cash available to meet distribution requirements;

· our ability to make strategic acquisitions that add to our rate base, including through acquisition of ROFO Projects from Hunt Consolidated, Inc. and its affiliates;

· the price and availability of debt and equity financing;

· our level of indebtedness or debt service obligations;

· cyber breaches, weather conditions or other natural phenomena;

· the effects of existing and future tax and other laws and governmental regulations;

· our failure to qualify or maintain our status as a real estate investment trust (REIT) or changes in the tax laws applicable to REITs;

· the termination of our management agreement or the loss of the services of Hunt Utility Services, LLC or other qualified personnel;

· adverse economic developments in the electric power industry or in business conditions generally, particularly in Texas, and;

· certain factors discussed elsewhere in this Annual Report on Form 10-K.

Forward-looking statements speak only as of the date on which they are made. While we may update these statements from time to time, we are not required to do so other than pursuant to applicable laws. For a further discussion of these and other factors that could impact our future results and performance, see Part I, Item 1A., Risk Factors.

5

EXPLANATORY NOTE

The registrant is a Maryland corporation named InfraREIT, Inc. Before our initial public offering (IPO), which closed on February 4, 2015, substantially all of our business and assets were owned, directly or indirectly, by InfraREIT, L.L.C., a Delaware limited liability company. On February 4, 2015, immediately following the consummation of our IPO, InfraREIT, L.L.C. was merged with and into InfraREIT, Inc. (Merger), with InfraREIT, Inc. as the surviving company. InfraREIT, Inc.’s operating results before the Merger primarily reflected costs related to obtaining a private letter ruling from the Internal Revenue Service and accounting services. As a result, this Annual Report on Form 10-K presents the operating results of InfraREIT, L.L.C. for years ended December 31, 2014 and 2013 and the InfraREIT, L.L.C. balance sheet as of December 31, 2014. Our operating results for the year ended December 31, 2015 reflect the operations of InfraREIT, L.L.C. prior to the effectiveness of the Merger, and the operations of InfraREIT, Inc. for the period from the Merger through December 31, 2015, and our balance sheet as of December 31, 2015 is the balance sheet of InfraREIT, Inc.

As used in this Annual Report on Form 10-K, unless the context requires otherwise or except as otherwise noted, the words “Company,” “InfraREIT,” “we,” “our” and “us” refer to InfraREIT, L.L.C., before giving effect to the Merger, and InfraREIT, Inc., after giving effect to the Merger, as the context requires, and also refer to the registrant’s subsidiaries, including InfraREIT Partners, LP (Operating Partnership or InfraREIT LP), a Delaware limited partnership. Hunt Consolidated, Inc. (HCI) and its subsidiaries (collectively, Hunt) includes Hunt Utility Services, LLC (Hunt Manager) and Hunt Transmission Services, L.L.C (Hunt Developer). References to the “InfraREIT, L.L.C. board of directors” refer to the board of directors of InfraREIT, L.L.C. prior to the Merger. References to our “board of directors,” our “board” or our “directors” refer to the current board of directors of InfraREIT, Inc. Our tenant is Sharyland Utilities, L.P. (Sharyland). Unless otherwise indicated or the context requires, all information in this Annual Report on Form 10-K gives effect to a 1 for 0.938550 reverse split of the shares of InfraREIT, L.L.C. and a concurrent 1 for 0.938550 reverse split of the units representing limited partnership interests in our Operating Partnership, which we effected on January 29, 2015.

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PART I

Item 1. Business

Company Overview

We are an externally managed REIT that owns T&D assets in Texas. We believe we are well positioned to take advantage of favorable trends in the T&D sector, including the replacement of aging assets and construction of new assets to address growing energy demand. We believe our structure and focus on Texas and the southwestern United States, where we can leverage a proven track record of identifying, developing, constructing and acquiring critical infrastructure assets, provide us with a competitive advantage to execute our growth strategy.

We lease our T&D assets to Sharyland, a Texas based regulated electric utility, pursuant to leases between our subsidiary, Sharyland Distribution & Transmission Services, L.L.C. (SDTS), and Sharyland that require Sharyland to make lease payments to us once our assets are placed in service. To support these lease payments, Sharyland delivers electric service and collects revenues directly from REPs and DSPs, which pay rates approved by the PUCT.

We have grown rapidly over the last several years, with our rate base increasing from approximately $60 million as of December 31, 2009 to approximately $1.2 billion as of December 31, 2015. We expect that organic growth as well as potential acquisitions of T&D assets from Hunt, Sharyland and third parties will allow us to achieve continued growth in our rate base, which is calculated as our gross electric plant in service under accounting principles generally accepted in the United States of America (U.S. GAAP) less accumulated depreciation and adjusted for accumulated deferred income taxes.

We intend to target a payout ratio of 80-90% of our annual cash available for distribution through regular quarterly cash dividends. On March 2, 2016, our board of directors declared a quarterly cash dividend of $0.25 per share of common stock, or $1.00 per share on an annualized basis. Our 2015 quarterly dividend was $0.225 per share, or $0.90 per share on an annualized basis. We believe that as we grow our rate base we will also be able to increase our cash available for distribution and, as a result, increase our distribution per share. Our ability to grow our rate base, cash available for distribution and dividends per share is subject to a number of risks and uncertainties described under Item 1A., Risk Factors.

Our business originated in the late 1990s when members of the Hunt family founded Sharyland, the first investor owned utility created in the United States since the 1960s. In 2007, we obtained a private letter ruling from the Internal Revenue Service (IRS) confirming that our T&D assets could constitute real estate assets under applicable REIT rules. In 2008, the PUCT approved a restructuring that allowed us to utilize our REIT structure. In 2010, InfraREIT, L.L.C. was formed as a REIT, holding all of its assets through the Operating Partnership. We completed our IPO on February 4, 2015, issuing 23,000,000 shares of our common stock at a price of $23.00 per share resulting in gross proceeds of $529.0 million. In connection with the closing of our IPO, we consummated certain reorganization transactions, including the Merger, as a result of which, among other things, InfraREIT, Inc. became the general partner of the Operating Partnership. Hunt Manager manages our day-to-day business, subject to oversight from our board of directors.

InfraREIT, Inc. was formed as a Delaware corporation in 2001 and converted into a Maryland corporation on September 29, 2014. We conduct our business through a traditional umbrella partnership REIT (UPREIT) in which our properties are owned by our Operating Partnership or direct and indirect subsidiaries of our Operating Partnership. All of our assets are held by and all of our business activities are conducted through the Operating Partnership, either directly or through its subsidiaries. InfraREIT is the sole general partner of our Operating Partnership and owns approximately 71.9% of the limited partnership units (OP Units) as of February 29, 2016. The remaining OP Units are held by the Operating Partnership’s limited partners, including Hunt affiliates. Subject to the terms of the partnership agreement, OP Units held by the limited partners may be redeemed for cash or, at our option, exchanged for shares of our common stock on a one-for-one basis.

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Our T&D Assets

Our 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. Our T&D assets consist of approximately 53,000 electricity delivery points, approximately 665 miles of transmission lines, approximately 12,300 miles of distribution lines, 48 substations and a 300 MW high-voltage DC Tie between Texas and Mexico (Railroad DC Tie). The following map shows the location and breakdown of our T&D assets as of December 31, 2015:

The following table is a summary description of our T&D assets as of December 31, 2015:

Asset Name	Location of Assets	Description of Assets
CREZ assets	Texas Panhandle	Approximately 300 miles of 345 kV transmission lines and designated collection stations
S/B/C assets	In and around Stanton, Brady and Celeste, Texas	Approximately 12,300 miles of overhead distribution lines and underground distribution lines; transmission lines and substations
McAllen assets	Primarily South Texas	Railroad DC Tie; transmission operations center; approximately 15 miles of 138 kV transmission lines; distribution lines and substations
Stanton Transmission Loop assets	Near Stanton, Texas	Approximately 350 miles of 138 kV transmission lines and connected substations
ERCOT Transmission assets	Texas Panhandle	Substations in the Panhandle; additional ERCOT transmission assets may be added in the future

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Business Strategy

Focus on T&D assets. We intend to focus on investing in T&D assets with long lives, low operating risks and stable cash flows consistent with the characteristics of our current portfolio. We believe that by focusing on this asset class and leveraging our industry knowledge we will be positioned to maximize our strategic opportunities and overall financial performance.

Pursue sustainable dividend per share growth. We believe our platform will enable us to grow our rate base over time and, as a result, increase the amount of distributions we make to our stockholders. To achieve this growth, we will pursue the following:

· Grow rate base by investing in Footprint Projects. We expect to make significant capital expenditures in Footprint Projects, driven primarily by investments to improve reliability, meet customer requirements and support oil and gas activities in our Stanton territory in the Permian Basin and interconnections to our CREZ assets.

· Acquire T&D assets. Hunt Developer has agreed to offer ROFO Projects to us prior to their completion. For a description of our development agreement with Hunt Developer and of the ROFO Projects, see the caption Our Relationship with Hunt below. Hunt has informed us that it intends for us to be the primary owner of its T&D development projects as those projects are completed and placed in service. Additionally, we intend to leverage relationships that we, Sharyland and Hunt maintain in the energy industry to pursue additional third-party acquisition opportunities.

Focus on Texas and southwestern United States initially. We are primarily focused on two main markets, Texas and the southwestern United States, where we believe the electric transmission sector will continue to grow significantly. This also allows us to leverage our existing relationships and a proven track record of identifying, developing, constructing and acquiring critical infrastructure assets. Substantially all of the ROFO Projects are located in Texas or the southwestern United States. Over time, we may expand our focus to other jurisdictions with favorable regulatory and growth characteristics.

Maintain a strong financial profile. We intend to maintain a balanced capital structure that enables us to increase our dividend over time and serve the long-term interests of our stockholders. Our financing policies will seek an optimal capital structure through various capital formation alternatives to minimize interest rate and refinancing risks and position us to pay stable and growing long-term dividends and maximize value.

Competitive Strengths

Our assets generate stable cash flows. We generate revenue by leasing T&D assets to Sharyland. Sharyland’s lease payments to us are largely comprised of fixed base rent, with the remaining lease payments to us derived from a percentage of Sharyland’s gross revenue in excess of annual specified breakpoints. Sharyland receives revenues from DSPs and REPs, which pay Sharyland PUCT approved rates. The PUCT approved rates are designed to allow the applicable utility to recover costs associated with maintaining and operating the assets and earn a return on invested capital. Through our leases, which include mechanisms for supplemental rent as we grow our rate base, we expect to benefit from the stability of Sharyland’s rate-regulated revenue stream. See the caption Our Revenue Model and Leases below.

We own T&D assets in high growth areas. Our assets in the Stanton territory serve a region atop the Permian Basin, an area which has experienced rapid economic growth over the recent past due primarily to oil and gas activities. With the significant decline in oil prices since the fall of 2014, the pace of economic growth in the Permian Basin has abated, though oil and gas companies continue to make investments in the region. Our latest capital expenditure plan reflects our estimates of what will be required to serve identified customer needs and system requirements as well as expected future growth. These estimates may change and actual results may vary depending in part on the economic circumstances in West Texas. Our transmission assets in the Texas Panhandle are located in one of the most attractive wind corridors in the country and, we believe, will continue to benefit from expanding wind power generation investment. Our McAllen territory is located in one of the most rapidly growing population areas of Texas and benefits from its border with Mexico, where we have expanded power interconnection facilities through a long standing relationship with Comisión Federal de Electricidad (CFE), which operates the Mexican national electric grid.

The ability to update transmission rates through interim TCOS filings, combined with Sharyland’s current distribution customer and load growth, reduces the frequency with which we file rate cases. A significant amount of Sharyland’s expected 2016-2018 capital expenditures are for transmission assets. Like other utilities in Texas, Sharyland is able to minimize regulatory lag through interim TCOS filings. See the caption Our Revenue Model and Leases below. With respect to capital expenditures for distribution assets, Sharyland’s revenues, and its lease payments to us, will grow to the extent capital expenditures are made to support new customers and/or existing customers increase their electricity usage. We believe this growth will enable us to invest in our Footprint Projects and receive increased lease payments from Sharyland without the need for Sharyland to file rate cases as frequently as utilities in slower growth areas.

9

We benefit from our strong ties to and our alignment with Hunt. Hunt, and members of the Hunt family, own and control Hunt Manager, Sharyland and Hunt Developer. As of February 29, 2016, Hunt’s ownership, if all of our outstanding OP Units were exchanged for shares of our common stock, represents more than 25% of our outstanding equity. A significant portion of Hunt’s equity in us remains subject to the long-term lock-up agreement entered into at the time of our IPO. The incentive payment under our management agreement with Hunt Manager is linked to our financial performance, requiring payment only if our quarterly distributions exceed $0.27 per share.

Sharyland has a proven development, construction and operating history. Since Sharyland began operations in 1999, it has successfully developed, constructed and operated several T&D projects, including the transmission assets in the CREZ area of the Texas Panhandle (CREZ Project) and Railroad DC Tie, and successfully integrated and improved the operations of Cap Rock Holding Corporation (Cap Rock) following our acquisition of it in 2010. Sharyland completed the CREZ Project in November 2013 within the original timeframe outlined by the PUCT and under budget. Sharyland also developed the Golden Spread Project and Cross Valley Project, which are currently under construction and are ROFO Projects under our development agreement with Hunt Developer. The Golden Spread Project was offered to us for purchase in November 2015, and the Cross Valley Project was offered to us for purchase in February 2016. As of the date of this Annual Report on Form 10-K, negotiations are in progress for both projects.

We have rights to Hunt’s T&D projects. Our development agreement with Hunt Developer requires Hunt to offer all ROFO Projects to us prior to their completion. Hunt and Sharyland are responsible for Sharyland’s growth from a start-up operation to a utility that operates approximately $1.2 billion in rate base as of December 31, 2015.

Hunt originated, and Hunt Manager and Hunt have expertise in applying, the REIT structure to regulated T&D assets. Over the last ten years, Hunt and Sharyland gained significant experience applying the REIT structure to a high-growth, regulated T&D business. Furthermore, in 2010, Hunt and Sharyland successfully acquired and integrated the Cap Rock T&D assets and operations directly into our REIT structure. Hunt’s team also successfully sourced, structured and negotiated on our behalf debt and equity financing arrangements to fund our organic growth, construction projects and Cap Rock acquisition. We believe Hunt and Hunt Manager’s knowledge and experience gives us a competitive advantage in analyzing the complexities associated with our expected rate base growth, executing on development and acquisition opportunities within a REIT structure, obtaining regulatory approvals and structuring lease agreements with tenants.

Our REIT structure provides us with long-term cash distribution advantages. We believe our REIT structure positions us well to pay enhanced cash dividends to our stockholders over the long term as compared with utilities. Additionally, we expect to fund estimated capital expenditures for Footprint Projects through the end of 2018 without raising proceeds from additional equity offerings. See Liquidity and Capital Resources in Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations for a description of our liquidity and target credit metrics.

Our Relationship with Hunt

We have various agreements with Hunt, Hunt Developer, Hunt Manager and Sharyland. The following chart illustrates our relationships and alignment with each of these entities as of February 29, 2016.

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Lock-Up Agreement

We have entered into a lock-up agreement with Hunt, pursuant to which Hunt has agreed not to transfer or sell an aggregate of 13,471,978 of the shares of our common stock and OP Units that it currently owns. After February 4, 2018, this lock-up will continue to apply to an aggregate of approximately 8,419,987 shares of our common stock and OP Units until February 4, 2020, at which time all transfer restrictions will expire. As of February 29, 2016, Hunt is the record holder of 3,176,878 shares of our common stock and 13,663,095 OP Units. Hunt’s lock-up agreement with us will terminate upon the termination or non-renewal of the management agreement and development agreement. In addition, Hunt has informed us that it currently intends to hold a substantial portion of its equity in us for the foreseeable future.

Hunt’s Development Projects

Development Agreement

Our development agreement with Hunt Developer and Sharyland provides us with a right of first offer to acquire the ROFO Projects, which consist solely of T&D projects that Hunt is developing or constructing. The development agreement also gives us the exclusive right to continue to fund the development and construction of Footprint Projects. Hunt has informed us that it intends to fund the development and construction of the ROFO Projects through new development companies in which certain of our pre-IPO investors have the opportunity to invest capital. Additionally, Hunt may develop other T&D projects that do not currently constitute ROFO Projects under the development agreement, and may opt to partner with other parties in the development of other T&D projects depending on their scope, location and cost. Hunt has informed us that it intends for us to be the primary owner of all of Hunt’s T&D development projects as those projects are completed and placed in service. However, there can be no assurances that any non-ROFO projects will be completed and offered to us or, if completed and offered to us, that the price and other terms of the acquisition of such projects can be negotiated on terms acceptable to us.

Under the terms of the development agreement, Hunt has the obligation to offer the ROFO Projects to us prior to the project being energized. Hunt’s offer of a ROFO Project will commence a 75-day negotiation period; however, in certain circumstances, the parties may agree to extend the negotiation period past 75 days. Following this period, if we are unable to reach an agreement on the terms of such purchase, Hunt may transfer the ROFO Project to a third-party, but only on terms and conditions generally no more favorable than those offered to us.

The Conflicts Committee of our board of directors will evaluate any potential ROFO Project acquisition and determine if the project is in our best interest based on the negotiated terms. The purchase price for any ROFO Project will be negotiated based on a number of factors, such as the cash flow and rate base for the assets, market conditions, potential for incremental Footprint Projects, whether the assets are subject to a lease with Sharyland or another tenant, the terms of any such lease and the regulatory return we expect the assets will earn. Sharyland and Hunt Developer are each parties to our development agreement. However, the agreement, by its terms, applies to activities by all Hunt affiliates. As such, when discussing the development agreement, we use the term “Hunt” to refer to Hunt Developer, Sharyland and other affiliates of HCI. The development agreement is coterminous with the management agreement, and our rights under the development agreement will expire effective upon the termination of the management agreement.

Development Team

Our development agreement provides us with continued access to the Hunt Developer and Sharyland development teams. Hunt Developer’s active and experienced T&D project development team members have experience with ERCOT, the Southwest Power Pool, the California ISO, Western Electricity Coordinating Council (WECC) and CFE, which enables them to identify and pursue T&D opportunities across the southwestern United States. This team has an extensive track record of successfully pursuing a variety of projects, including greenfield development, acquisitions, partnering with municipalities and cooperatives and cross border activity. Our access to these development pipelines position us to capitalize on growth opportunities beyond our Footprint Projects.

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ROFO Projects

Our development agreement provides us with a right of first offer to acquire ROFO Projects that Hunt is currently developing or constructing, including the following:

ROFO Project	Description	Status
Golden Spread Project	Approximately 50 mile transmission line connecting one of Golden Spread Electric Coop’s (GSEC) gas-fired generation facilities to our CREZ transmission line. Total estimated construction cost (including financing costs) of $80 million to $100 million.	·   Certificate of convenience and necessity (CCN) received ·   Major components continue to arrive and construction is proceeding as planned ·   Expected completion in late Q1 or early Q2 2016 ·   Our Conflicts Committee received an offer for the purchase of the Golden Spread Project. Negotiations are in progress.
Cross Valley Project	Approximately 50 mile transmission line in South Texas near the Mexican border. Total estimated construction cost (including financing costs) of $160 million to $185 million.	·   CCN received ·   Major components continue to arrive and construction is proceeding as planned ·   Expected completion in late Q2 or early Q3 2016 ·   Our Conflicts Committee received an offer for the purchase of the Cross Valley Project. Negotiations are in progress.
Southline Transmission Project	Approximately 240 miles of new transmission lines and upgrades of approximately 120 miles of existing transmission lines in southern New Mexico and southern Arizona. Current estimated construction cost (excluding financing costs) of approximately $800 million.	·   Final Environmental Impact Statement issued in November 2015 ·   Achieved Phase 3 status in WECC ratings process in March 2015 ·   FERC granted a Petition for Declaratory Order in September 2015 ·   Open solicitation process anticipated to begin during the first half of 2016
Verde Transmission Project	Approximately 30 mile transmission line in northern New Mexico. Current estimated construction cost (excluding financing costs) of $60 million to $80 million.	·   Easement agreements reached with three Native American Pueblos

Other ROFO and Development Projects

In addition to the construction and development activity related to the projects above, Hunt and Sharyland are also evaluating and developing various projects in ERCOT and other regions of the United States. Such ROFO Projects include proposals to reinforce the existing transmission grid in the Panhandle and South Plains region as new wind generators connect to the transmission grid and to develop additional high-voltage DC Ties along the Texas and southwestern United States border with Mexico.

Hunt and Sharyland are also developing a number of projects that are not included in the ROFO Projects list. A typical example involves initiatives in South Texas to develop new transmission lines to enhance grid reliability and enable generation interconnections. For any non-ROFO Projects, Hunt has informed us that it intends for us to be the primary owner of Hunt’s T&D development projects as those projects are completed and placed in service. However, there can be no assurances that any of the non-ROFO Projects will be completed and offered to us or, if completed and offered to us, that the price and other terms of the acquisition of such projects can be negotiated on terms acceptable to us.

Management Agreement

We are parties to a management agreement with Hunt Manager pursuant to which Hunt Manager manages our day-to-day business, subject to oversight from our board of directors.

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Compensation

The following table summarizes the fees and expense reimbursements that we pay to Hunt Manager pursuant to the management agreement:

Compensation	Description
Base Fee	Effective April 1, 2016, the annual base fee will increase from $13.1 million to $14.0 million through April 1, 2017. The base fee for each twelve month period beginning on April 1 thereafter will equal 1.5% of our total equity (including noncontrolling interest).
Incentive Payment	We pay Hunt Manager an incentive payment, payable quarterly, equal to 20% of the quarterly distributions per OP Unit (inclusive of the incentive payment) in excess of $0.27 per OP Unit per quarter.
Reimbursement of Expenses	We reimburse Hunt Manager for all third-party expenses incurred on our behalf or otherwise in connection with the operation of our business, other than expenses, such as compensation expenses related to Hunt Manager’s personnel that are identified in the management agreement as the exclusive responsibility of Hunt Manager.
Termination Fee	If we exercise our right not to renew the management agreement at the end of the then current term, we will be required to pay Hunt Manager a termination fee, in cash or equity, at our election, in an amount equal to three times the most recent annualized base management fee and incentive payment amount.

Term

The term of the management agreement expires December 31, 2019, and will automatically renew for successive five year terms unless a majority of our independent directors decides to terminate the agreement. If a majority of our independent directors decides to terminate the agreement, we must give Hunt Manager notice of the termination at least one year in advance of the scheduled termination date and pay Hunt Manager the termination fee described above. We also have the right to terminate the management agreement at any time for cause (as defined in the management agreement), and Hunt Manager may terminate the agreement at any time upon 365 days’ prior notice to us, provided that Hunt Manager may not terminate the agreement effective before December 31, 2019. If we terminate for cause or Hunt Manager terminates, the termination fee would not be owed to Hunt Manager.

Hunt Disclosure Regarding Potential Business Combination

Hunt, through an entity called Ovation, is part of a consortium of investors that is seeking to acquire Oncor Electric Delivery Company LLC (Oncor). On June 8, 2015, Hunt filed with the U.S. Securities and Exchange Commission (SEC) an amendment to its Schedule 13D with respect to its ownership in us. The amendment disclosed that Hunt had determined that it was appropriate at that time to commence discussions with an independent committee of our board of directors regarding a possible business combination involving Ovation and us that may be carried out if the consortium’s acquisition of Oncor is completed. The amendment also indicated that such a business combination could take the form of a merger or other transaction or series of transactions involving Ovation and us such that the combined company and its subsidiaries would ultimately own both our existing assets and all or a substantial portion of Oncor’s T&D assets. Any business combination with Ovation would require the approval of the Conflicts Committee of our board of directors. As noted in HCI’s amendment, there can be no assurance that an agreement regarding a business combination transaction on terms acceptable to the parties will ever be reached.

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Our Revenue Model and Leases

We lease our T&D assets to Sharyland, which makes lease payments to us consisting of base rent and percentage rent. To support its lease payments to us, Sharyland delivers electric service and collects revenues directly from DSPs and REPs, which pay PUCT approved rates. Under the terms of our leases, Sharyland is responsible for the maintenance and operation of our assets, payment of all property related expenses associated with our assets, including repairs, maintenance, insurance and taxes (other than income taxes) and construction of Footprint Projects. Sharyland is also responsible for regulatory compliance and reporting requirements related to our assets. As our rate base increases through Footprint Projects, ROFO Projects or other acquisitions, we generally expect our lease revenue to increase.

Rent Revenue

Leases

We lease all of our T&D assets to Sharyland under the following separate leases:

McAllen Lease. T&D assets located in South Texas, including our Railroad DC Tie and our transmission operation centers in Amarillo, Texas that currently expires on December 31, 2019.

S/B/C Lease. T&D assets located in and around Stanton, Brady and Celeste, Texas, other than our 138 kV transmission loop which is described below, that currently expires on December 31, 2017.

CREZ Lease. All of our CREZ assets that currently expires on December 31, 2020.

Stanton Transmission Loop Lease. Our 138 kV transmission line that loops around our Stanton, Texas territory in the Permian Basin that currently expires on December 31, 2021.

ERCOT Transmission Lease. A small portion of our assets in the Texas Panhandle that currently expires on December 31, 2022.

The table below provides a summary of lease revenue and certain other information with respect to our leases (dollar amounts in thousands):

Lease	Lease Expiration Date	Net Effective Rent (1)		Percentage of Net Effective Rent (2)			Total Electric Plant, net (3)		Percentage of Total Electric Plant, net (4)
CREZ Lease	12/31/2020	$	72,935		48.2	%	$	638,939		48.7	%
S/B/C Lease	12/31/2017		57,072		37.8	%		466,438		35.5	%
McAllen Lease	12/31/2019		14,218		9.4	%		133,083		10.1	%
Stanton Transmission Loop Lease	12/31/2021		4,422		2.9	%		34,263		2.6	%
ERCOT Transmission Lease	12/31/2022		2,556		1.7	%		40,206		3.1	%
		$	151,203		100.0	%	$	1,312,929		100.0	%

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(1) Consists of lease revenue under the lease for the year ended December 31, 2015, determined on a straight-line basis under U.S. GAAP. See Revenue Recognition under the caption Summary of Significant Accounting Policies and Estimates in Item II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(2) Calculated as lease revenue for the applicable lease for the year ended December 31, 2015 divided by the total lease revenue for all leases.

(3) Consists of plant in service, net for the applicable lease as of December 31, 2015.

(4) Calculated as the electric plant, net for the applicable lease divided by the total electric plant, net for all leases as of December 31, 2015.

Rental Rates

All of our current revenue is comprised of rental payments from Sharyland under lease supplements that were negotiated at various times between 2010 and 2016. Lease supplements are exhibits to our leases that include the economics of the lease obligations that Sharyland owes us. Historically, we and Sharyland have negotiated rent payments intended to provide us with approximately 97% of the projected regulated return on rate base investment attributable to our assets that we and Sharyland would receive if we were a fully-integrated utility. See the caption Regulatory Recovery under Factors Expected to Affect Our Operating Results and Financial Condition included in Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations. We and Sharyland have negotiated these rental rates based on the premise that we, as the owner of regulated T&D assets, should receive most of the regulated return on our invested capital, while leaving Sharyland with a portion of the return that gives it the opportunity to operate prudently and remain financially stable. Our leases require us to continue to negotiate rent payments in the future in a manner similar to this historical negotiation.

Actual revenue and expenses incurred by Sharyland will be different from those expected at the time of negotiation. As a result, we and Sharyland may earn more or less than originally projected. Our leases prohibit both parties from adjusting for the effect of differences between Sharyland’s actual and projected results.

Sharyland generally makes lease payments to us that consist of base rent and percentage rent. The percentage rent is based on an agreed percentage of Sharyland’s annual gross revenues, as defined in our leases, in excess of annual specified breakpoints, which are at least equal to the base rent under each lease. Because our existing rate base will decrease over time as our T&D assets depreciate, revenue under our leases will decrease over time unless we add to our existing rate base by making additional capital expenditures to offset the decreases in the rent resulting from depreciation. The weighted average annual depreciation rate of our assets as of December 31, 2015 was 2.79%. We negotiated our current leases, except our Stanton Transmission Loop Lease, to provide for base rent to comprise approximately 80-90% of the total expected rent. All of our leases have a percentage rent component except for the Stanton Transmission Loop Lease.

Operation of Our T&D Assets

The leases require that Sharyland operate the T&D assets in a reasonable and prudent manner in accordance with PUCT guidelines and applicable law. Sharyland must obtain and maintain any licenses, permits or other approvals required by applicable law to operate the T&D assets under the leases.

Expenditures

Whether a particular expenditure is characterized as a Footprint Project, which we are required to fund, or a repair, which Sharyland is required to fund, depends on its characterization based on our capitalization policies following standard utility practices under U.S. GAAP. We fund expenditures relating to Footprint Projects, which are capitalized and increase our net electric plant. Sharyland funds expenditures relating to repairs of our existing T&D assets and expenses such costs.

Sharyland is required to provide a capital expenditure budget on a rolling three year basis that sets forth anticipated capital expenditures related to Footprint Projects. Because Sharyland is obligated to pay us rent with respect to our capital expenditures, and because of our strong working relationship with Sharyland and its history as a prudent and responsible operating utility, we do not expect that Sharyland will require us to fund capital expenditures unless Sharyland believes those expenditures are prudent and will be included in our rate base.

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Lease Renewals

We expect to renew our leases with Sharyland prior to expiration. Our leases provide that we and Sharyland negotiate lease terms based on our historical negotiations and the return that utilities in Texas are allowed to earn at the time of the negotiation. We generally expect that renewal terms will be at least five years; however, different extension and renewal terms will be considered. For example, the S/B/C Lease was renewed in December 2015 with only a two year extension because we and Sharyland determined a two year renewal was in our mutual interest based on a variety of factors, including the expectation that Sharyland will file a rate case with the PUCT in 2016. Our leases currently expire at various times between December 31, 2017 and December 31, 2022.

If either we or Sharyland do not wish to renew a lease, or we cannot agree to new lease terms, we expect that our rent negotiations with a new third-party tenant would be based on the rate base of the assets subject to the expired lease and the rate of return expected at the time a new lease is negotiated, among other factors. Our conflict of interest policy requires that the Conflicts Committee of our board of directors approve any lease renewal.

Lease Supplements

Our leases provide that as the completion of Footprint Projects increases our rate base, we and Sharyland will negotiate amended and restated lease supplements that will update the scheduled rent payments to include additional rent payments to us on this incremental rate base. The negotiation of amended and restated lease supplements relates only to the revenue we expect to be generated from the incremental rate base subject to the negotiation and does not impact the portion of the scheduled lease payments previously negotiated with respect to assets that are already in service. However, various factors could cause Sharyland’s expected lease payments on incremental rate base to be different than its lease payments to us on our existing rate base. For instance, if a rate case was finalized since the last lease or lease supplement, the new lease supplement would use regulatory assumptions from the most recent rate case for incremental rate base. Also, our leases provide that either party can negotiate for economics that differ from our existing leases based on appropriate factors that our leases do not specifically list.

Additionally, the amended and restated lease supplement process allows us to address and update a number of other matters under our leases, such as updating the amount of revenue attributable to Sharyland’s capital expenditures and related matters. Because we frequently prepare amended and restated supplements based on the expectations we and Sharyland have regarding various matters, including expected capital expenditures, we have a mechanism, which we refer to as a validation, that we use to amend previously negotiated supplements in order to reflect the difference between the expected capital expenditures and the actual capital expenditures that were placed in service, placed in service dates, TCOS filing dates and related matters. For instance, in March 2016, we executed amended lease supplements with Sharyland in connection with a validation of the amount and timing of the 2015 placed in service capital expenditures. In no event will we use the validation process to account for differences between the expected and actual return on capital expenditures. If we and Sharyland are unable to agree on a rent supplement or a validation, the leases obligate us to submit the dispute to binding arbitration.

Generally, we expect to enter into amended and restated lease supplements related to capital expenditures in advance of the year in which the related assets are placed in service. For instance, in late 2015, we entered into amended and restated lease supplements that memorialized Sharyland’s obligation to pay us rent on the capital expenditures we expect for 2016. As 2016 progresses, if the amount of expected placed in service capital expenditures, placed in service dates or TCOS filing dates differ from expectations, either Sharyland or we may request a rent validation in order to adjust rent obligations to reflect the difference between actual and expected capital expenditure amounts and placed in service or updated rate filing effective dates. Our leases do not require that we follow this exact timeline and process; therefore, we may determine, with Sharyland, that an alternate process is more efficient.

Lease Expiration

If either we or Sharyland do not wish to renew a lease, we expect that our rent negotiations with a new third-party tenant would be based on the rate base of the assets subject to the expired lease and the rate of return expected at the time a new lease is negotiated, among other factors. In any event, because our T&D assets are rate-regulated and necessary for the transmission and distribution of electricity, we expect that they will continue to generate tariff revenue. As a result, we believe we will be able to identify a qualified tenant to operate our T&D assets who will be able to make lease payments to us based on the tariff revenue our assets generate. Before we can lease our T&D assets subject to the expiring lease to a new tenant, we and Sharyland must obtain PUCT approval for the transfer of the related operating licenses. Sharyland is required under the leases to use commercially reasonable efforts to obtain these approvals as soon as is reasonably practicable. Until we obtain those approvals, Sharyland will continue to operate our T&D assets and pay us rent. If it takes longer than 12 months to obtain these approvals, rent payments will be adjusted to 80% of the amounts otherwise due, if the failure to obtain the approval is a result of our failure to reasonably pursue the approval, and will be adjusted to 105% of the amounts otherwise due, if the failure to obtain the approval is the result of Sharyland’s failure to reasonably pursue the approvals. We also have the right to buy, from Sharyland, any equipment or property that Sharyland uses in connection with the lease, for a price equal to the greater of 110% of book value or fair market value, as mutually agreed by Sharyland and us.

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Events of Default

Under our leases, a default will be deemed to occur upon certain events, including (1) the failure of Sharyland to pay rent, after applicable cure periods, (2) certain events of bankruptcy or insolvency with respect to Sharyland, (3) Sharyland’s breach of a representation or warranty in a lease in a material manner, (4) Sharyland’s breach of a covenant in a lease in a material manner or (5) a final judgment for the payment of cash in excess of $1,000,000 is rendered against Sharyland and is not bonded, stayed pending appeal or discharged within 60 days.

Remedies Upon a Default

Upon a default under a lease, we may, at our option, exercise the following remedies: (1) subject to PUCT approval, terminate the applicable lease agreement upon notice to Sharyland and recover any damages to which we are entitled under applicable law, (2) subject to PUCT approval, terminate Sharyland’s right to use our T&D assets and recover any damages to which we are entitled under applicable law and (3) take reasonable action to cure Sharyland’s default at Sharyland’s expense.

Financial Covenants

Sharyland is subject to certain covenants under our leases that prohibit Sharyland from incurring indebtedness in excess of certain thresholds and otherwise obligating Sharyland to comply with certain of our covenants relating to Sharyland under our debt agreements.

Assignment and Subletting

Sharyland may not assign or otherwise transfer or sublet any of our T&D assets under the leases without our prior written consent and the approval of the PUCT or other applicable governmental authority.

Indemnification

Sharyland is required to defend, indemnify and hold us harmless from and against any and all claims, obligations, liabilities, damages and costs and expenses arising from any act or omission of Sharyland with respect to (1) the operation of the T&D assets, (2) damage to the T&D assets, (3) physical injuries or death (including in connection with the operation of the T&D assets), (4) any breach of any representation or warranty or covenant or (5) any negligence, recklessness or intentional misconduct of Sharyland.

Rate Base Growth

We intend to add to our rate base through capital expenditures for Footprint Projects and acquisitions of T&D assets.

For Footprint Projects, we generally fund all of the capital expenditures during the development or construction phase of a project, and these expenditures increase our rate base when they are placed in service. Around the time the assets are placed in service, we will work with Sharyland to negotiate an amended and restated supplement to our leases. Sharyland also may make a regulatory filing to update its rates to reflect the additional rate base.

When we acquire ROFO Projects or other T&D assets from Hunt, we would expect to assume any then-effective lease that is already negotiated with Sharyland or another tenant with respect to those T&D assets, or negotiate a new or updated lease, and we will work with Sharyland or another tenant to update existing rates, as appropriate, for the addition to our rate base.

Prior to closing an acquisition from a third-party, we will work with Sharyland, or another tenant, to pursue the addition of new leases and updating of existing rates, as appropriate, for the addition to our rate base.

Our Tenant

Overview

Our tenant, Sharyland, has been a regulated utility since 1999 and currently serves approximately 53,000 electricity delivery points in 29 counties throughout Texas. Sharyland is responsible for construction management, operation and maintenance of our T&D assets and regulatory oversight and compliance. See Our Revenue Model and Leases above and Financial Information Related to Our Tenant under Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Our Relationship with Sharyland

One of the primary objectives of a utility REIT structure is to provide for efficient access to capital markets to fund infrastructure additions while positioning a qualified utility to operate and control the infrastructure assets. We believe the REIT structure we established with Sharyland meets this objective.

A REIT is required to generate a substantial portion of its income from REIT qualified assets and through qualified income streams, which include lease payments from third-party tenants. As a result, we have structured ownership of our T&D assets through a lessor/lessee structure, with Sharyland acting as the tenant under each of our leases. Sharyland, as lessee, has control of and is responsible for operating and maintaining our T&D assets. We are a passive owner of our T&D assets, with no operational control over those assets. We have memorialized Sharyland’s operational control primarily through the leases. However, the PUCT order approving our structure also requires that Sharyland maintain operational control of SDTS as the managing member. Under the PUCT order and the SDTS company agreement, we are not able to remove Sharyland as managing member without prior PUCT permission. We have negative control rights over SDTS that passive owners would expect, such as the right to approve renewals of the leases or any new leases, sales or dispositions of assets, debt issuances and annual budgets, subject to some exceptions. To the extent that day-to-day operations of SDTS involve matters primarily related to passive ownership of the assets, such as capital sourcing, financing, cash management and investor relations, Sharyland has delegated those responsibilities and authorities to InfraREIT pursuant to a delegation agreement.

The leases assume that Sharyland, as lessee, should earn a regulated return to compensate it for the capital it has invested and for the risks that it is taking as the tenant under the lease. Sharyland bears the risks under the leases that most utilities face, such as changes in regulatory policy, changes in regulated rates, change in usage and demand, credit risk of counterparties, increases in operating expenses and increases in taxes. Many of these risks may ultimately lead to lower revenue, or increased costs, which would affect Sharyland’s ability to fulfill its lease obligations or its willingness to enter into new leases or renewals of existing leases under similar economic terms. We believe that Sharyland is incentivized to operate the assets in accordance with good utility practice to ensure that it is able to continue to lease the assets and be a utility in good standing with the PUCT. As a public utility, Sharyland’s practices, cost structure and its investments are subject to review by the PUCT, and Sharyland understands that we expect a regulated return on the investments we make in our T&D assets; therefore, we believe Sharyland is incentivized to only incur costs and investments that are reasonable and necessary, while also honoring obligations to customers.

The leases also assume that, as lessor and owner of the T&D assets, we should receive a regulated return on the capital we invested in our T&D assets. The combined return that we and Sharyland receive should be comparable to the return that other integrated T&D utilities receive. As part of our negative control rights in the SDTS company agreement, we have the right to approve the annual financial plan of SDTS and any leases between Sharyland and SDTS. We intend to negotiate the leases to ensure that we receive our expected regulated return, keeping in mind that Sharyland has to be willing to enter into the lease. Thus, we expect both parties will negotiate the leases based in part upon the current and expected economic, regulatory and capital market environments. We believe it is in each party’s best interest to negotiate leases that are expected to result in beneficial economic outcomes. To the extent that conditions change, we believe both parties are incentivized to negotiate long-term solutions.

Separation of Utility Functions

Pursuant to our leases, the SDTS company agreement and the delegation agreement, we have separated, between Sharyland and InfraREIT, the functionality that is typically combined under one commonly owned group in an integrated utility. Through Hunt Manager, we are generally responsible for debt and equity financing, capital markets planning, investor relations, tax administration and accounting for the substantial portion of the combined utility’s assets and liabilities. Sharyland is responsible for operating, repairing and maintaining the T&D assets; planning new T&D projects; handling customer complaints; managing regulatory matters and relationships with various regulatory bodies; handling community relations matters; accounting for substantially all of the combined utility’s operations and maintenance costs; ensuring that the T&D assets and the combined utility’s operations comply with applicable environmental, safety and other laws applicable to operations; working with us to forecast the combined utility’s capital needs; construction management; and all other matters related to the operation of the combined utility. Although Sharyland generally manages regulatory relationships, our consent is required to settle rate cases or to otherwise change rates materially outside of a rate case, unless the rate change is made pursuant to a TCOS or DCRF filing. Since we separated these functions in 2010, Hunt Manager and Sharyland have developed expertise in ensuring that the relationship functions properly and that electricity is effectively and efficiently provided in a safe and reliable manner to Sharyland’s customers.

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Competition

The market for acquiring and developing electric infrastructure assets is highly competitive and fragmented, and we have seen an increase in both the amount of and different types of investors in these assets over the last several years. Many fully integrated utility companies, public and private funds, commercial financing companies and foreign investors pursue the types of investments that we compete for in the U.S. electric infrastructure sector. Recent active investors include companies such as Edison International, Consolidated Edison, Inc., ITC Holdings Corp. and Eversource Energy. Within Texas, namely ERCOT, we and Sharyland compete to develop transmission projects with municipally owned electric utilities, such as Austin Energy and CPS Energy; electric cooperatives, such as South Texas Electric Cooperative; private developers; and other TDSPs, such as American Electric Power, CenterPoint Energy, Texas New Mexico Power (PNM Resources) and Oncor. Oncor is currently the subject of a change of control proceeding with the PUCT, pursuant to which Hunt and a consortium of investors intend to acquire Oncor and restructure it into a REIT (referred to as Ovation) that would be externally managed by Hunt Manager and would lease its assets to an affiliate of Sharyland. We expect to continue to compete with Oncor regardless of whether the acquisition is completed.

Sharyland also is subject to customer conservation and energy efficiency activities, and research and development activities by third parties are ongoing to improve existing and alternative technologies to produce electricity, including advancements related to self-generation and distributed energy technologies such as gas turbines, fuel cells, microturbines, photovoltaic (solar) cells and concentrated solar thermal devices. It is possible that advances in these or other technologies could result in a reduction of demand for Sharyland’s T&D services, but these have not been a significant factor to date. Furthermore, in small portions of our service territories, existing and potential customers have a choice between Sharyland and other utilities and may choose the other utility over Sharyland.

Customers

We lease all of our T&D assets to Sharyland, which supports its lease payments to us by collecting transmission revenue from other electric utilities and distribution revenue from REPs.

Regulatory Environment

In the United States, electric infrastructure assets are generally owned by utilities that are subject to regulation by various federal, state and local agencies. State regulatory commissions generally establish utility rates based on a traditional cost of service basis, providing for the timely recovery of prudently incurred costs and the opportunity to earn a reasonable rate of return on invested capital, subject to review and approval through periodic regulatory proceedings.

Federal Regulation

The FERC regulates transmission and wholesale sales of electricity in interstate commerce; reviews mergers and acquisitions, direct and indirect transfers of jurisdictional assets, issuance of debt or securities and corporate transactions by electricity companies; and reviews siting applications for electric transmission projects under limited circumstances. The FERC also protects the reliability of the high voltage interstate transmission system through mandatory reliability standards. Pursuant to the Federal Power Act, the FERC is responsible for ensuring that the rates, terms and conditions of electric transmission service and wholesale sale of electric energy are “just and reasonable” and “not unduly discriminatory or preferential.” The Energy Policy Act of 2005 directed the FERC to develop incentive based rate treatments for transmission of electric energy in interstate commerce, including incentive rates of return on equity for new investment by public utilities and full recovery of prudently incurred costs. Although currently none of our T&D assets are regulated by the FERC, we were subject to FERC regulation with respect to some of our T&D assets in the past and the FERC approved our structure of leasing T&D assets to Sharyland in connection with the Cap Rock acquisition in 2010.

Regulation in Our Territories

T&D services provided wholly within ERCOT are not subject to traditional rate regulation by the FERC. All of our T&D assets are located in ERCOT within Texas.

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The PUCT regulates “electric utilities” and TDSPs under the Public Utility Regulatory Act, including approving rates for T&D service, setting reliability and safety standards and ensuring that the TDSP does not discriminate in its treatment of customers, REPs and generators in the delivery of electricity. TDSPs are comprised of DSPs, which generally own and operate electric distribution systems, and TSPs, which generally own and operate electric transmission systems. Both SDTS and Sharyland are “electric utilities” subject to regulation by the PUCT. Sharyland is also subject to regulation by the PUCT as both a TSP and DSP, as is the case with other investor owned utilities (IOUs) that own T&D assets in Texas. Rates are established through rate case proceedings, which occur periodically and are typically initiated by the utility or the PUCT, on its own motion or on complaint by an affected stakeholder, to ensure that rates remain just and reasonable. When we refer to a “rate case” or a “rate proceeding,” we are referring to these formal proceedings before the PUCT, and not to interim TCOS filings or DCRF filings, which are described below. Rates are determined by the electric utility’s cost of rendering service to the public during a historical test year, adjusted for known and measurable changes, in addition to a reasonable return on invested capital.

Sharyland makes all regulatory filings, in which our T&D assets are included, with the PUCT. Per the terms of the leases, we have the right to request that Sharyland file a rate case proceeding. Sharyland also may determine to initiate a rate case proceeding; however, under the terms of the SDTS company agreement, our consent is required before Sharyland can settle any such proceeding. The T&D rates for Sharyland are based on the combined financial statements of Sharyland and SDTS. In other words, the lease obligations that Sharyland owes us are disregarded in the PUCT’s evaluation of matters related to the utility, and the audited books and records of Sharyland and SDTS are used to prepare a combined rate filing. As our tenant and the operator of the electric system, Sharyland holds the CCN for all of our T&D assets.

TSP Rates

In ERCOT, TSPs generate revenue primarily by charging all DSPs within ERCOT for the TSP’s cost of service, or revenue requirement. ERCOT DSPs pay TSPs annual amounts, typically billed to the DSP monthly, based on the DSP’s pro rata share, during the prior year, of the aggregate ERCOT 4CP, excluding the portion of coincident peak demand attributable to wholesale storage load. Each TSP files a tariff for transmission service to establish its rates, calculated as the TSP’s commission approved transmission cost of service, or revenue requirement, divided by the aggregate ERCOT 4CP during the prior year. Therefore, the monthly transmission service charge to be paid by each DSP is the product of each TSP’s monthly rate as specified in its tariff and the DSP’s previous year’s share of the aggregate ERCOT 4CP.

The transmission revenue that ERCOT TSPs generate has not varied significantly within any given year, except when the TSP has updated its revenue requirement through an interim TCOS filing, described in the next paragraph, or a rate proceeding. Transmission revenue can vary from year to year if ERCOT 4CP increases or decreases. In addition, revenue is subject to theoretical variability based on the credit worthiness of DSPs in Texas, but generally this has not significantly affected transmission revenue for TSPs, as no DSP has become subject to a bankruptcy or insolvency proceeding since deregulation of the Texas electricity market in 2002.

A TSP can update its transmission rates up to two times per year through interim TCOS filings. In an interim TCOS filing, the TSP updates its revenue requirement to reflect changes in in-service net transmission assets, the effect of depreciation and any update to ERCOT 4CP and property taxes, among other matters. The TSP is not permitted in these filings to update its revenue requirement to reflect any changes in its operations and maintenance charges, which can be updated only through a full rate proceeding with the PUCT. If a TSP’s application is materially sufficient and there are no intervenors that challenge the update, generally the TSP’s transmission rates will be updated within 60 days of the date of the interim TCOS filing. After this update, the TSP will be permitted to update the monthly invoices that the TSP sends to ERCOT DSPs to reflect the adjusted transmission rates. The updates of the rates pursuant to an interim TCOS filing will be subject to review in the next rate case filing for the TSP.

DSP Rates

DSP revenue is subject to more variability than TSP revenue. Distribution rates, or tariffs, are determined in the DSP’s most recent rate proceeding. Typically, tariffs are assigned to different classes of retail customers in a rate case, which classes generally include residential, commercial and industrial customers. The tariff typically includes a per kWh charge and a flat customer charge for residential customers, and may include a per kWh, a per kW and a flat customer charge for other customer classes. Because of the per kWh charge, generally there is more variability in a DSP’s revenue than there is in a TSP’s revenue. DSPs collect revenue by charging REPs, which are the entities that interface with and bill the end users. The REPs are permitted to pass on to end users the distribution charges REPs pay to the DSPs.

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A DSP can update its distribution rates no more than once a year through a DCRF filing. A TDSP such as Sharyland may only make a DCRF filing between April 1 and April 8 in any given year. Additionally, a DSP can only change its rates pursuant to a DCRF filing no more than four times between rate proceedings and may not make a DCRF filing while a rate proceeding is pending. In a DCRF filing, the DSP updates its amount of invested capital for its distribution facilities and certain associated costs. The DSP is not permitted in a DCRF filing to update changes in its operations and maintenance expenses. If a DSP’s application is not materially deficient and there are no intervenors that challenge the filing, generally the DSPs distribution rates will be updated on September 1 of the year in which the DCRF filing was made (unless the DSP can show good cause for the rates to be updated as of another date). Sharyland has not historically used DCRF filings to update its distribution rates.

Rate Case

In January 2014, the PUCT approved a rate case filed by Sharyland applicable to all of our T&D assets other than our distribution assets in McAllen, Texas, providing for a capital structure consisting of 55% debt and 45% equity, a return on equity of 9.70% and a return on invested capital of 8.06% in calculating rates. The new rates became effective May 1, 2014. Sharyland is required to file its next rate case on or before April 30, 2016.

Environmental Matters

Our tenant’s day-to-day operations are subject to a wide range of environmental laws and regulations across a broad number of jurisdictions, including laws and regulations that impose limitations on the discharge of pollutants into the environment, establish standards for the management, treatment, storage, transportation and disposal of hazardous materials and solid and hazardous wastes, and impose obligations to investigate and remediate contamination in certain circumstances. We rely on our tenant for the compliance of our T&D assets with such laws and regulations. Under the terms of our leases, our tenant is required to indemnify us if we incur damages as a result of its failure to comply with any such law or regulation.

These laws and regulations also generally require that governmental permits and approvals be obtained before construction and during operation of T&D assets. As construction manager of our T&D projects, we also rely on our tenant for compliance with such permits and approvals, and our tenant is required to indemnify us if they fail to obtain or comply with any permit or approval in accordance with the terms of our leases.

We currently do not believe that we have any material environmental liabilities.

Insurance

Our leases require our tenant to carry liability and casualty insurance on our properties covering certain hazards with specific policy limits set forth in the lease agreements. However, there may not be adequate insurance to cover the associated costs of repair or reconstruction, or insurance may not be available at commercially reasonable rates or, for some events, at all. For instance, Sharyland has not been able to obtain property insurance coverage for a substantial portion of our T&D assets on commercially reasonable terms. As a result, we have amended the requirements under our leases that Sharyland obtain such insurance. In this respect, we and Sharyland are self-insured for a substantial portion of our T&D assets. In the event remediating any damage or loss is considered a repair under the applicable lease, our tenant is responsible for the cost of repairing or replacing such damage or loss whether or not covered by insurance. On the other hand, in the event remediating any damage or loss is considered a Footprint Project under the lease, we will be responsible for payment of any insurance deductible, as well as for any such damage or loss not covered by insurance. We believe that our T&D assets are covered by adequate insurance, including those T&D assets for which our tenant is self-insured.

Seasonality

Even though Sharyland’s revenue is subject to seasonality, due to our lease revenue structure, no material portion of our business is affected by seasonality. See Summary of Critical Accounting Policies and Estimates in Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations.

JOBS Act

As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act).

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An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (Sarbanes-Oxley Act). We may take advantage of this provision until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (Securities Act), which fifth anniversary will occur in 2020. However, if certain events occur prior to the end of such five year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three year period, we will cease to be an emerging growth company prior to the end of such five year period.

Furthermore, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have elected to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies that are not emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

To the extent that we utilize certain provisions available to us as an emerging growth company, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

Employees

We have no employees. We are externally managed by Hunt Manager. All of our officers are employees of Hunt Manager. Pursuant to the terms of our management agreement, Hunt Manager provides for our day-to-day management, subject to oversight by our board of directors. In exchange for these management services, we pay a management fee to Hunt Manager. In the event Hunt Manager was unable to provide these services to us, we would be required to provide such services ourselves or obtain such services from other sources.

Financial Information About Industry Segments

We have one reportable segment consisting of rate-regulated electric T&D assets. We internally evaluate all of our T&D assets as one industry segment, and, accordingly, we do not report segment information.

Available Information

Our Internet address is www.InfraREITInc.com. The information contained on our website or that can be accessed through our website does not constitute part of this Annual Report on Form 10-K. A print copy of this Annual Report on Form 10-K will be provided without charge upon written request to Investor Relations at InfraREIT, Inc., 1807 Ross Avenue, 4^th Floor, Dallas, Texas, 75201. A direct link to our filings with the SEC is available on our website under the Investor Relations tab. Also available on our website are copies of our Corporate Governance Guidelines; Audit Committee Charter; Compensation, Nominating and Corporate Governance Committee Charter; Conflicts Committee Charter; and Code of Business Conduct and Ethics, all of which will be provided without charge upon written request to Investor Relations at the above address. Our Code of Business Conduct and Ethics applies to all of our officers and directors, including our principal executive officer, principal financial officer and principal accounting officer, as well as employees of Hunt Manager. Our common stock is traded on the New York Stock Exchange under the trading symbol “HIFR.”

Item 1A. Risk Factors

Risks Related to Our Business

Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may materially and adversely affect our business, financial condition, results of operations, cash flows and ability to pay dividends. You should carefully consider these risks together with all of the other information included in this Annual Report on Form 10-K, including the financial statements and related notes, when deciding to invest in us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If any of the followings risks were to actually occur, our business, financial condition or results of operations could be materially and adversely affected.

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Our T&D assets and our tenant’s operations are subject to governmental regulation and oversight that could adversely impact our expected returns and operating results.

Both Sharyland and SDTS, our subsidiary, are regulated by the PUCT, and decisions by the PUCT, including in some circumstances in which we are not involved directly as a party, can directly impact our business. Although rate regulation is premised on the timely recovery of prudently incurred costs and the opportunity to earn a reasonable rate of return on invested capital, there is no assurance that the PUCT will determine that all of our rate base can be recovered through Sharyland’s rates, or that the PUCT will not otherwise make regulatory determinations that adversely affect our T&D assets or Sharyland’s operations. The PUCT could, among other things, determine that certain capital expenditures should not be included in our tenant’s rates, or the PUCT could challenge other regulatory judgments, such as those related to affiliate charges, operations and maintenance expenses, tax elections, rate case expenses, regulatory assets and other matters. Sharyland is required to file its next rate case on or before April 30, 2016. The outcome of Sharyland’s rate case is uncertain. Recent events, including complaints from ratepayers in Sharyland’s service territory regarding Sharyland’s delivery rates, have placed Sharyland under heightened scrutiny and may affect the outcome of the rate case. Any such adverse determinations by the PUCT could adversely affect the amount of percentage rent we receive as well as Sharyland’s ability to meet its obligations to pay us rent pursuant to the leases. Such determinations are likely to affect the rental rates to which Sharyland will agree upon any extension or renewal of a lease or the negotiation of an amended lease supplement. Furthermore, if the PUCT made a determination that adversely affected our rate base, and as a result, Sharyland was unable to meet its rent obligations and we terminated the related lease, it is unlikely that the replacement tenant would be willing to pay us rent for anything other than the PUCT approved rate base amount. Also, if the PUCT makes a determination that adversely affects the amount of our rate base, we may need to take accounting charges that impair our assets, which could further adversely affect our results of operations and financial condition.

In addition, compliance with U.S federal, state and local laws and regulations, including laws and regulations related to regulatory, environmental and human health and safety matters may cause us or our tenant to incur significant additional costs, and failure to comply with these requirements could result in the shutdown of the non-complying assets and the imposition of liens, fines and/or civil or criminal liability. Utility operations may also be affected by legislative and regulatory changes, as well as changes to market design, market rules, tariffs and cost allocation by ERCOT, the PUCT or FERC. We cannot predict what effect any such changes in the regulatory environment will have on us or Sharyland’s operations.

Because all of our lease revenues are currently generated by lease payments from Sharyland, our business, financial condition, results of operations and cash flows are dependent on Sharyland’s financial and operating performance.

Our tenant’s ability to make lease payments to us under our leases is subject to its ability to generate cash flows or raise additional capital sufficient to support its obligations. During the year ended December 31, 2015, Sharyland sustained a net loss of $2.3 million on a U.S. GAAP basis, and its management reported net loss for that period was $5.1 million. For a discussion of our tenant’s management reported net loss and a reconciliation to net loss, see Financial Information Related to Our Tenant under Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations. If Sharyland continues to operate at a loss, and if it is unable to obtain debt or equity capital to fund its cash needs, its financial condition and liquidity may continue to suffer. Our tenant’s liquidity and operating results may also be negatively impacted if its expenses increase rapidly, including for reasons outside of its control, before it is able to file and complete a full rate proceeding with the PUCT in order to recover the higher operation and maintenance expense in its rates. Our anticipated growth in rate base during the next few years will exacerbate this risk, making it more likely that our tenant’s expenses will increase before it may increase its rates through a rate proceeding.

If our tenant experiences declines in its financial and operating performance or liquidity constraints, it may request discounts or deferrals on its lease payments to us or seek to terminate its leases with us. Depending on such requests, we may be incented to find solutions to these requests, which could involve us agreeing to the tenant’s requested lease payment discounts or deferrals. Further, if Sharyland is unable, as a result of financial or other constraints, to fund emergency or other costs for which it would otherwise be responsible under the leases and pursuant to its obligations as a regulated utility, we may determine that it is appropriate to provide financial assistance to Sharyland in order to position it to satisfy its obligations. Any such determination regarding potential financial assistance and the reimbursement mechanism would require the approval of the Conflicts Committee of our board of directors. Sharyland’s financial condition and performance may also affect the rent payments it is willing to negotiate with us regarding future capital expenditures and, upon expiration of any lease, any renewal rent payments.

In extraordinary circumstances, our tenant may become insolvent or seek bankruptcy relief. Depending upon the sufficiency of assets available to pay claims, a rejection of the leases in bankruptcy or an insolvency of Sharyland could ultimately preclude full collection of sums due to us under our lease agreements with our tenant and could place the financial burden for any of our tenant’s accrued obligations under the leases, such as costs for repairs, maintenance, and ad valorem or property taxes, on us without any corresponding ability on our part to either transfer the obligation for these costs to a new tenant, recoup these costs from third parties or otherwise avoid paying these costs. To the extent any such events occur, our financial condition and results of operations would be adversely affected.

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Our business model and growth strategy depend on our ability to grow our rate base and lease revenue.

We will not be able to materially increase our lease revenue unless the rate base of our T&D assets grows. We expect to increase our rate base by funding Footprint Projects and acquiring ROFO Projects and other T&D assets from Hunt or third parties. Our ability to grow our rate base and revenues in the manner we expect depends on Footprint Projects meeting or exceeding our capital expenditure budgets, Hunt’s ability to develop and construct ROFO Projects and our ability to acquire ROFO Projects or other T&D assets from Hunt or third parties on acceptable terms. There are a number of factors that could impact the amount of available investment in Footprint Projects and ROFO Projects, including the number of and capital needs associated with requests by electricity generators to connect to our transmission facilities; population, economic and load growth in our territories, in particular in our territory located in the Permian Basin, where growth may be adversely affected by the impact of lower oil and gas prices on economic activity in the region; and Hunt Developer’s ability to develop and complete ROFO Projects. If our forecasts regarding capital needs associated with our growth strategy prove to be inaccurate and capital needs are less than budgeted, or if we are unable to negotiate for the acquisition of ROFO Projects in line with estimates or on terms acceptable to the Conflicts Committee of our board of directors, our growth would be less than we expect, which could affect our financial condition, results of operations and our ability to make distributions to our stockholders.

The ongoing PUCT change of control proceeding involving Hunt and Oncor could affect Sharyland, the regulatory treatment of our structure and other regulatory outcomes.

Hunt, through an entity called Ovation, is part of a consortium of investors that is seeking to acquire Oncor in connection with the Energy Future Holdings Corp. (EFH) bankruptcy. The bankruptcy and related regulatory change of control proceeding with the PUCT is ongoing and currently expected to conclude in March 2016. As part of the Oncor regulatory change of control process, the PUCT is considering various aspects of the REIT structure proposed in that transaction, which is similar to the REIT structure we have established with Sharyland. For example, in determining an electric utility’s tariff, part of the cost of service is an income tax allowance (ITA). In Texas, the PUCT first determines the appropriate investment return on equity for the utility and then grosses up the return on equity to cover the taxes imposed on the utility’s income. The PUCT’s provision of an ITA for a C corporation is well established. Although we believe that the question of whether a pass-through entity is allowed to recover an ITA in its cost of service is a matter of settled law in Texas, it is possible that this could change, or the amount of that ITA could be changed. The PUCT is also considering whether lease payments in the Ovation REIT structure are a tariff that is explicitly subject to regulation by the PUCT. If the PUCT were to regulate rent payments as a tariff, then, in some circumstances, the PUCT could have the authority to change those lease payments, including by lowering them. While neither we nor Sharyland are a party to the Oncor change of control proceeding, any resolution of these issues in that proceeding, in potential future rulemakings on these issues or in the consideration of these issues in rate cases for other investor owned utilities in Texas, could affect the PUCT’s consideration of related issues in Sharyland’s 2016 rate case or in future rate cases.

The results of our negotiation of future rent payments under our leases and our ability to renew our leases upon their expiration, or to identify new tenants under our leases, will affect our operating results and financial condition.

We have not yet negotiated lease payments with respect to substantially all of the capital expenditures that we expect to fund during the next several years. Although our existing leases provide that our historical agreements with our tenant will serve as the basis for new rent payments, there is no assurance that future negotiations of new or amended lease supplements will result in lease payments that are higher than or comparable to the lease payments we expect under our current leases and lease supplements.

Furthermore, our leases expire at various times between December 31, 2017 and December 31, 2022. Although we and Sharyland have been able to negotiate several new leases and lease extensions in the last several years, there is no assurance that we and Sharyland will be able to renew our leases on acceptable terms upon their expiration. We also have the right to terminate our leases upon Sharyland’s breach, subject in some circumstances to applicable cure periods. However, terminating the leases, or entering into new leases with a different tenant following expiration of our leases with Sharyland, would be complex and costly for a variety of reasons, including the fact that Sharyland cannot cease being the operator of our T&D assets without first acquiring any necessary regulatory approvals from the PUCT and other regulatory bodies, which we may not be able to obtain. Any new tenant would need to be a qualified and reputable operator of T&D assets with the wherewithal and capability of acting as our tenant and, if leasing a significant portion of our assets, would need to agree to timely provide us with their financial statements for us to include in the periodic reports we file under the Securities Exchange Act of 1934, as amended (Exchange Act). There is no assurance that we would be able to identify a tenant that meets these criteria efficiently or at all, or that if we are able to identify such tenant, we would receive lease terms from such new tenant that are as favorable as the existing lease terms with Sharyland.

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We may not be able to make cash distributions to holders of our common stock comparable to our current or targeted annualized distribution rate or achieve our projected payout ratio of cash available for distribution to holders of our common stock.

We intend to continue to make regular quarterly cash distributions to holders of our common stock. The amount of our cash available for distribution principally depends upon the amount of cash we generate from our operations, which may fluctuate from quarter to quarter based on, among other things:

· lease payments actually received;

· the level and timing of capital expenditures we make;

· our other expenses and working capital needs;

· our debt service requirements and restrictions contained in the agreements governing our indebtedness;

· our ability to borrow funds and access capital markets; and

· other business risks affecting our cash levels.

As a result of all these factors, we cannot guarantee that we will have sufficient cash generated from operations to pay a specific level of cash distributions to holders of our common stock.

Because of the lessor/lessee structure, if our tenant’s revenue increases in the future, our lease revenue will not increase as quickly as it would if we were operating as an integrated utility, and there may be significant lag time between the time we make capital expenditures and when we begin receiving rent with respect to such expenditures.

All of our revenues come from lease payments from our tenant. The lease payments for our capital expenditures have been, or will be, negotiated in advance of the time the applicable assets are placed in service. If market conditions change, e.g., market changes occur that could increase our tenant’s rate of return, and our tenant completes a rate case that allows it to realize a greater rate of return than what was originally anticipated, we would not be able to force our tenant to renegotiate the leases to reflect the effect of the higher rate of return. Because percentage rent is based on our tenant’s revenues, we would share some of the benefit of the increase in our tenant’s rates, but our revenue may not increase to the same extent as our peers’ revenue increases in those circumstances or if we were operating as an integrated utility.

Our tenant’s obligation to pay rent in respect of capital expenditures we fund does not begin until the assets related to such capital expenditures are placed in service, and, with respect to capital expenditures for some of our expected transmission capital expenditures, we have agreed to a rent holiday that extends until a TCOS filing related to such capital expenditures is effective. Sharyland is permitted to make only two TCOS filings per year. Accordingly, the lag time between the time that we fund capital expenditures with respect to a project and when we begin receiving lease revenue on the related assets can be lengthy. Although we will earn AFUDC on the amounts we have expended on capital expenditures that have not yet been placed in service, this accrual does not represent cash earnings, nor does it apply to assets that have been placed in service, but have not yet begun generating revenue. Because a significant portion of the growth we expect over the next several years relates to multi-year Footprint Projects, this lag will apply to a significant portion of our capital expenditures.

Our structure and the terms of our leases with our tenant limit our control over SDTS and our T&D assets.

Sharyland, as the managing member of our subsidiary, SDTS, has the exclusive power and authority on behalf of SDTS to manage, control, administer and operate the properties, business and affairs of SDTS in accordance with the limited liability company agreement governing SDTS, subject to a variety of negative control rights in favor of our wholly owned subsidiary Transmission and Distribution Company, L.L.C. (TDC) and a delegation agreement with us. TDC owns substantially all of the economic interests in SDTS. Specifically, although our consent is generally required before SDTS may engage in any material action, Sharyland has the right, subject to certain limitations, to cause SDTS to raise equity capital through the admission of additional members without our consent if necessary to fund improvements to our T&D assets that are required by a regulatory authority. As a result of this arrangement, our management and board of directors is limited in their ability to exert control over SDTS and our T&D assets, and Sharyland may exercise its rights in a manner that may dilute our economic interest in our T&D assets. This arrangement also complicates any decision by our board of directors not to renew or terminate our leases with our tenant.

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In addition, under the terms of our leases, our tenant is responsible for, and fulfills, substantially all of the operational functions that, in an integrated utility, would be controlled and directed by the owner of the T&D assets. These functions include managing all of the regulatory matters associated with our T&D assets, including determining whether the capital expenditures we fund are reasonable and necessary; complying with regulatory, environmental and safety matters; and interfacing with various regulatory bodies, as well as other operational matters such as repairing and maintaining the T&D assets leased from us, planning new T&D projects, forecasting capital expenditures, handling customer billing and complaints, handling community relations matters, accounting for substantially all of the utility’s operations and maintenance costs, cybersecurity, construction management, handling environmental and regulatory matters (including maintaining various regulatory certifications) and all other matters related to the operation of the utility. While we have influence over the manner in which our tenant provides these functions pursuant to the terms of our leases and through Hunt Manager’s working relationship with Sharyland, we do not control our tenant and, as a result, do not have the same level of control as a similarly situated owner of T&D assets in an integrated utility. As a result, even if we believe that our T&D assets are not being operated efficiently or effectively, we may not be able to require our tenant to change the way it operates them and our financial condition and results of operations may be adversely affected.

Our growth depends in part on our ability to make strategic acquisitions that add to our rate base, including through the acquisition of ROFO Projects, but there is no guarantee that we will be able to initiate or complete any of these investments or, if completed, that the investment will result in the benefits anticipated.

We have a right of first offer with respect to ROFO Projects during the term of the development agreement with Hunt Developer. We also expect that Hunt will pursue additional development opportunities for other T&D projects and will offer us the opportunity to acquire such projects in the future, although it is under no obligation to do so. However, there is no guarantee that the ROFO Projects or any other projects that Hunt Developer may offer to us will be attractive to us at the time we receive an offer from Hunt Developer, or that we will be able to agree with Hunt and any other owners of the applicable project on terms that are acceptable to us.

Additionally, the lessor/lessee structure poses a number of challenges to our ability to acquire additional T&D assets, including the potential for greater regulatory scrutiny by regulatory agencies in jurisdictions that may be unfamiliar with our REIT structure, structuring complexities in identifying and separating any assets that are not REIT qualifying assets (nonqualifying assets) from the qualifying assets either by assigning them to our tenant or holding them through a taxable REIT subsidiary and the necessity to identify a tenant and negotiate favorable rent and other terms. As a result of these and other challenges, some sellers may prefer other potential buyers even in situations where we have agreed to pay comparable consideration. Our inability to acquire additional REIT qualifying T&D assets, from either Hunt Developer or third parties, would limit our ability to execute on our growth strategy and would adversely affect our results of operations.

If we are successful in completing future acquisitions, results may vary from our expectations due to such items as higher than expected interest costs on new debt or lower than expected share prices for new equity issuance or integrating the acquired assets may also result in unforeseen operating difficulties and expenditures. Accordingly, the anticipated benefits from our future acquisitions may not materialize.

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We rely on third parties to manage aspects of our growth, including the construction of our T&D assets, and our inability to find qualified third-party providers or the failure of third parties to provide timely and quality services would have an adverse impact on our ability to grow.

A substantial portion of the growth that we expect in our asset base is comprised of construction projects in Texas. We do not have internal operational or construction expertise and, therefore, we rely on third parties to manage the construction of our T&D assets. To date, our tenant has managed the planning and construction of our projects, but, in some circumstances, our tenant also relies on third-party contractors to complete these projects. As a result, we are particularly susceptible to risks generally applicable to construction projects, including:

· the ability to obtain labor or materials on favorable terms or at all;

· the ability to obtain rights-of-way on a timely basis;

· equipment, engineering and design failure;

· labor strikes;

· adverse weather conditions;

· the ability to obtain necessary operating permits in a timely manner;

· legal challenges;

· delays due to funding that is not yet secured by third parties;

· changes in applicable law or regulations;

· adverse interpretation or enforcement of permit conditions, laws and regulations by courts or the permitting agencies;

· other governmental actions; and

· events in the global economy.

Many of these risks, if they materialize, could adversely affect the timing of expected revenues from those projects, since we do not begin to recognize revenues under our leases with respect to Footprint Projects until the related assets are placed in service or included in an effective rate updated filing, such as a TCOS filing, and also could subject Sharyland or us to fines and penalties for failure to complete projects on the agreed upon schedule.

Utilities, including our tenant, are subject to adverse publicity and reputational risks, which make them vulnerable to negative customer perception and could lead to increased regulatory oversight or other sanctions.

Utility companies, including our tenant, are important to transmitting and distributing electricity that is critical to end use customers and as a result have been the subject of public criticism focused on the reliability of their distribution services and speed with which they are able to respond to outages caused by storm damage or other events. Adverse publicity of this nature may render legislatures, public service commissions and other regulatory authorities and government officials less likely to view utilities such as our tenant in a favorable light and may cause it to be susceptible to less favorable legislative and regulatory outcomes or increased regulatory oversight. Unfavorable regulatory outcomes can include more stringent laws and regulations governing our tenant’s operations, such as reliability and customer service quality standards or vegetation management requirements, as well as fines, penalties or other sanctions or requirements. The imposition of any of the foregoing would likely increase the compliance costs borne by our tenant, and could have a material negative impact on our tenant’s business, results of operations, cash flow and financial condition, which in turn could negatively impact its ability to make lease payments to us.

Cyber breaches could negatively impact our business, assets and our tenant’s operations.

Cyber intrusions targeting our information systems could impair our ability to properly manage our data, networks, systems and programs. In addition, we rely on our tenant for the cybersecurity relating to its operations, breaches of which could lead to the release of certain confidential customer or critical operating information. While we and Sharyland have implemented measures designed to prevent cyberattacks and mitigate their effects should they occur, the systems may be vulnerable to unauthorized access and cyber intrusions. If any such an intrusion were to occur, our business, assets and results of operation may be adversely affected.

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We expect to raise funds regularly from the capital markets in order to meet the significant capital expenditures and acquisition costs we expect in the future and to pay and grow ourcash distributions.

We expect to raise equity and debt capital from public markets in the future to support our growth. As a result, our financial condition and liquidity will be adversely affected if market conditions prevent us from obtaining financing on favorable terms or at all. Adverse business developments or market disruptions could increase the cost of financing or prevent us from accessing the capital markets on the schedule or timeline we expect or at all. The dilution associated with issuing equity at unfavorable prices could adversely affect the expected rate of growth of our distributions per share, cash available for distribution per share, net income attributable to InfraREIT, Inc. per share and other per share metrics. In some scenarios, if debt or equity capital were unavailable on any terms, we may not be able to pay and grow our cash distributions, pay cash distributions of 90% of our taxable income or fund capital expenditures for Footprint Projects under the leases.

If we fail to maintain an effective system of internal controls, we may not be able to report our financial results timely and accurately or prevent fraud, which would likely have a negative impact on the market price of our common stock.

We are subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act. Section 404 requires management to annually assess the effectiveness of our internal controls over financial reporting. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected, and, if we experience a material weakness or significant deficiency in internal controls, there can be no assurance that we will be able to remediate any such weakness or deficiency in a timely manner or maintain all of the controls necessary to remain in compliance. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud.

For so long as we qualify as an “emerging growth company” (which could be until December 31, 2020), our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal controls over financial reporting, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. As a result, investor confidence in us and the market price of our common stock may be adversely affected.

In addition, we are required to include Sharyland’s financial statements in the periodic reports we file under the Exchange Act. However, our management does not prepare Sharyland’s financial statements, and neither our board of directors nor our management has any oversight over the preparation of those financial statements or over Sharyland’s internal control over financial reporting. If Sharyland is unable to timely provide us with its financial statements, or if Sharyland’s internal controls fail to prevent or detect a misstatement in its financial statements, we may be unable to file our periodic reports within the timeframe required by the Exchange Act and there can be no assurance regarding the accuracy or completeness of Sharyland’s financial statements included therein, which could result in certain penalties imposed by the SEC and could negatively impact our ability to access the capital markets or to comply with our obligations under our registration rights agreement.

Changes in technology or increased conservation efforts could adversely affect our business.

Research and development activities are ongoing to improve existing and alternative technologies to produce electricity, including advancements related to self-generation and distributed energy technologies such as gas turbines, fuel cells, microturbines, photovoltaic (solar) cells and concentrated solar thermal devices. It is possible that advances in these or other technologies will reduce the costs of electricity production from these technologies to a level that will enable these technologies to compete effectively with traditional generation plants. Self-generation itself may exacerbate these trends by reducing the pool of customers, subject to certain regulatory limits, from whom fixed costs are recovered, while potentially increasing costs of system modifications that may be needed to integrate the systemic effects of self-generation. To the extent self-generation facilities become a more cost effective option for certain customers, T&D investment opportunities generally may decrease, adversely affecting our growth plans, and our tenant’s financial and operating performance may be adversely impacted, which in turn would decrease the amount of percentage rent our tenant owes us and may lead it to request discounts or deferrals on its lease payments to us or seek to terminate its leases with us. Such trends could also affect the rental rates to which our tenant will agree upon any extension or renewal of the lease or that a replacement tenant would be willing to pay us if we chose not to renew the leases. Decreases in the amount of lease revenue received from our tenant would adversely affect our business, financial condition, results of operations and cash flows.

Also, electricity demand could be reduced by increased conservation efforts, advances in technology or federal and state government incentives or mandates in support of energy efficiency, which could likewise reduce the relative value of our T&D assets. Effective energy conservation by our customers could result in reduced energy demand, or significantly slow the growth in demand.

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We have a significant amount of indebtedness that is subject to covenants with which we must comply, which may limit our operational flexibility. We rely on our tenant to comply with some of the covenants under our credit arrangements.

We have a significant amount of indebtedness, which means that a material portion of our lease revenue will be dedicated to the payment of interest on our indebtedness, thereby reducing the funds available for working capital and capital expenditures and impacting our flexibility to react to changing business and economic conditions. Additionally, the agreements governing our indebtedness contain various covenants applicable to us and Sharyland, including restrictions on distributions or modifications to certain terms of our leases, as well as covenants that require us to maintain specified financial ratios and satisfy financial condition tests. In addition, our T&D assets are collateral under our secured financings. Furthermore, our debt arrangements require our tenant to deliver certain financial statements and reports, maintain its licenses and permits, deliver certain required notices, operate and maintain our T&D assets and maintain proper books of records and account in conformity with U.S. GAAP and include events of default triggered by (1) a bankruptcy by our tenant, (2) any judgment being entered against our tenant for payment of money in excess of $2 million, (3) a default by our tenant with respect to any of its indebtedness in excess of $2 million or any other default by our tenant with respect to any of its indebtedness that could lead to a material adverse effect (as defined in the applicable debt agreements) and (4) in some cases, a default by our tenant under our leases that could lead to a material adverse effect (as defined in the applicable debt agreements). Our debt agreements also limit our tenant’s ability to incur indebtedness, subject to some exceptions. We have reflected, and our tenant has agreed to, these covenants in our leases. Our ability to continue to borrow is subject to continued compliance with these and other covenants by our tenant and us, and failure to comply with these covenants could cause a default under our credit facilities, which could require us to repay the related debt with capital from other sources, all of which would adversely affect our financial condition and results of operations.

Our T&D assets and our tenant’s operations may be affected by hazards associated with electricity transmission and distribution and other events for which our tenant’s and/or our property insurance may not provide adequate coverage.

Our T&D assets and our tenant’s operations are subject to hazards associated with electricity transmission and distribution, including explosions, fires, inclement weather, natural disasters, mechanical failure, unscheduled downtime, equipment interruptions, remediation, discharges or releases of toxic or hazardous substances and other environmental risks. These hazards can cause severe damage to or destruction of property and equipment and may result in suspension of operations and the imposition of civil or criminal penalties. However, we and Sharyland are self-insured for a substantial portion of our T&D assets, and there may not be adequate insurance to cover the associated costs of repair or reconstruction. Although it is possible that our capital expenditures to fund these remediation costs could be recoverable in our tenant’s rates, recovery of the related expenditures could be delayed or denied, in which case our rent revenues or our tenant’s financial condition, cash flows and revenues would be adversely affected.

If we are unable to protect our rights to the land under our towers, lines and substations, it could adversely affect our business and operating results.

Our T&D real property interests include fee interests, easements, licenses and rights-of-way. A loss of any or all of these interests at a particular tower site may interfere with our tenant’s operations and ability to generate lease revenues from our T&D assets. In addition, any such loss could result in a default under our credit facilities, which could distract our management team, damage our relationship with our lenders and result in the acceleration of our indebtedness. We generally rely on our tenant for title work related to our real property acquisitions. If we and our tenant are unable to protect our real property rights related to our T&D assets, our results of operation and financial condition may be adversely affected.

We have a significant goodwill balance related to the acquisition of Cap Rock and our formation transactions, both of which occurred in 2010. A determination that goodwill is impaired could result in a significant non-cash charge to earnings.

Our goodwill balance at December 31, 2015 is $138.4 million, of which $83.4 million is attributable to our acquisition of Cap Rock and $55.0 million is attributable to InfraREIT, L.L.C.’s formation transactions in 2010. An impairment charge must be recorded under U.S. GAAP to the extent that the implied fair value of goodwill is less than the carrying value of goodwill, as shown on our Consolidated Balance Sheets. We are required to test goodwill for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that may result in an interim impairment test include a decline in our stock price causing market capitalization to fall below book value, an adverse change in business conditions or an adverse regulatory action. If we were to determine that our goodwill is impaired, we would be required to reduce our goodwill balance by the amount of the impairment and record a corresponding non-cash charge to earnings. Depending on the amount of the impairment, an impairment determination could have a material adverse effect on our financial condition and results of operations, but would not have an impact on our cash flow.

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As a holding company with no operations of our own, we will depend on distributions from our subsidiaries to meet our payment obligations and make distributions to our stockholders.

We derive all of our operating income from, and hold all of our assets through, our subsidiaries. As a result, we depend on distributions from our subsidiaries in order to meet our payment obligations and make distributions to our stockholders. However, our subsidiaries generally have no obligation to distribute cash to us. Provisions of applicable law, contractual restrictions, covenants or claims of a subsidiary’s creditors may limit our subsidiaries’ ability to make payments or other distributions to us.

Risks Related to Related Party Transactions and Conflicts of Interest

Hunt’s ownership and control of Hunt Manager and its current and prior relationships with our Chief Executive Officer and other officers and with three members of our board of directors give rise to conflicts of interest.

Our business originated in the Hunt organization, and Hunt Manager, our external manager, is a subsidiary of Hunt. All of our officers, including our President and Chief Executive Officer, David A. Campbell, are employees of Hunt Manager. Hunt controls the compensation of all our officers, including Mr. Campbell, and Hunt Manager’s employees enjoy various employee perquisites and access associated with being a Hunt employee. Hunt Manager has granted, and may in the future grant, compensation or awards generally to our officers, including Mr. Campbell, that are based upon the performance of Hunt Manager, Hunt Developer, Sharyland and Hunt generally. As a result, Mr. Campbell and our other officers and other employees of Hunt Manager may benefit from the consideration paid by us under the management agreement and from any economic benefit that Hunt or Sharyland receives from the sale of ROFO Projects to us pursuant to the development agreement or from the performance of Sharyland. Consequently, Mr. Campbell, our other officers and other employees of Hunt Manager may consider the interests of these Hunt affiliates in any negotiations and may be incentivized to focus on ROFO Projects and divert attention from Footprint Projects. The duties owed to us by our officers, including Mr. Campbell, and Mr. Campbell’s duties to us as a director, may conflict with duties to, and pecuniary interests in, Hunt Manager, Hunt Developer, Sharyland and Hunt generally. Therefore, the negotiations and agreements between us, our subsidiaries or our Operating Partnership, on the one hand, and these entities and their affiliates, on the other hand, may not solely reflect the interests of our stockholders.

W. Kirk Baker, who is the Chairman of our board of directors, was the President and Chief Executive Officer of Hunt Manager until August 2014, was a senior officer in the HCI organization until July 2012, and received compensation and other benefits from Hunt and its affiliates during these time periods. Hunt and Mr. Baker have informed us that Mr. Baker continues to receive, and may in the future receive, various perquisites and incentive compensation from Hunt, including incentive compensation based on profits that Hunt may generate from the sale of ROFO Projects to us and payments that we make to Hunt Manager. Mr. Baker currently is Managing Partner of Captra Capital, an investment firm in which Mr. Baker and Hunt are currently the primary investors, and Hunt has funded and may continue to fund the operating overhead of Captra Capital’s manager, Captra Holdings, an entity that currently provides compensation and other benefits to Mr. Baker. Mr. Baker’s duties to us as a director may conflict with his duties to, and pecuniary interest in, Captra Capital, Captra Holdings, Hunt Manager, Hunt Developer and Sharyland. As a result, Mr. Baker may consider the interests of Hunt Manager, Hunt Developer, Sharyland and Hunt generally in any negotiation between us and one of those entities and may benefit from the consideration we pay Hunt Manager under the management agreement, from any economic benefit that Hunt or Sharyland receives from the sale of ROFO Projects to us pursuant to the development agreement and from the performance of Sharyland. Therefore, the negotiations and agreements between us, our subsidiaries or our Operating Partnership and these entities and their affiliates may not solely reflect the interests of our stockholders.

Hunter L. Hunt, who is a member of our board of directors, directly or indirectly has a significant economic interest in, and controls, Hunt Manager, Hunt Developer and Sharyland. Accordingly, Mr. Hunt will benefit from the consideration paid to Hunt Manager under the management agreement, from any economic benefit that Hunt or Sharyland receives from the sale of ROFO Projects to us pursuant to the development agreement and from the performance of Sharyland under the leases. Mr. Hunt’s duties to us as a director may conflict with his duties to, and pecuniary interest in, Hunt Manager, Hunt Developer, Sharyland and Hunt generally in any negotiation between us and one of those entities and may benefit from the consideration we pay Hunt Manager under the management agreement, from any economic benefit that Hunt or Sharyland receives from the sale of ROFO Projects to us pursuant to the development agreement and from the performance of Sharyland.

Although we intend to operate and manage our business for the benefit of our stockholders, there is a risk that actual or perceived conflicts of interest could affect the manner in which we treat Hunt as a limited partner in the Operating Partnership or how we manage our relationships with Hunt Manager, Hunt Developer and Sharyland under the management agreement, the development agreement and our leases. If we were to terminate any of our leases with Sharyland, we would lose the benefit of the relationship that we have cultivated with Sharyland and could damage our relationship with Hunt. Further, if we were to terminate the management agreement with Hunt Manager, we would no longer have the benefits associated with our development agreement with Hunt Developer, since the development agreement automatically expires upon the termination of the management agreement. These complications and costs could adversely affect our results of operations, financial condition and relationship with regulators and ratepayers.

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There are limited contractual or legal restrictions on Hunt’s ability to compete with us.

Our leases prohibit Sharyland from funding Footprint Projects unless we have breached our obligation to do so, and our development agreement with Hunt Developer prohibits Hunt and its affiliates from owning or funding Footprint Projects. In addition, Hunt has granted us a right of first offer on ROFO Projects. However, Hunt is free to pursue the development and construction of other T&D projects and may compete directly with us for the acquisition of other T&D assets and businesses, including within Texas. Additionally, as permitted by the Maryland General Corporation Law (MGCL), our charter contains provisions that permit our directors and officers, and their affiliates (including individuals serving in such capacities who are also directors, officers and/or employees of Hunt and its affiliates), to compete with us, own any investments or engage in any business activities, including investments and business activities that are similar to our current or proposed investments or business activities, without any obligation to present any such business opportunity to us unless the opportunity is expressly offered to such person in his or her capacity as our director or officer.

We are dependent on Hunt Manager and its executive officers and key personnel, who provide services to us through the management agreement. We may not find a suitable replacement for Hunt Manager if the management agreement is terminated or for these executive officers and key personnel if any of them leave Hunt Manager or otherwise become unavailable to us, and there is no contractual requirement that our executive officers and key personnel allocate a specific amount of time and attention to our business.

We are externally advised and managed by Hunt Manager, and all members of our senior management are employees of Hunt Manager. Pursuant to our management agreement, Hunt Manager is obligated to supply us with all of our senior management team. Subject to the direction of our board of directors, Hunt Manager has significant discretion regarding the implementation of our investment and operating policies and strategies. Accordingly, our success depends significantly upon the experience, skill, resources, relationships and contacts of the executive officers and key personnel of Hunt Manager. The executive officers and key personnel of Hunt Manager have extensive knowledge of our business and industry. If any executive officer or key person of Hunt Manager leaves Hunt Manager or otherwise becomes unavailable to manage our business, our performance could be adversely impacted. If our management agreement with Hunt Manager were to terminate, we would have to replace our entire management team. It could be very difficult and time and resource intensive to identify and retain a new management team that has all of the characteristics that we depend upon with our current management team. Accordingly, a termination of our management agreement with Hunt Manager could have a material adverse effect on our business. Furthermore, our management agreement with Hunt Manager does not specify a fixed amount of time that David A. Campbell, our President and Chief Executive Officer, or other officers and employees who work on our behalf, are to spend managing our business. Accordingly, the InfraREIT officers and directors and personnel of Hunt Manager may dedicate a large share of their time and efforts to the pursuit of and management of other businesses, which may adversely affect their ability to devote their time to our business.

The pursuit and potential acquisition of Oncor by Hunt and other investors creates conflicts of interest.

If Hunt and the consortium’s acquisition of Oncor is completed in accordance with the terms of publicly disclosed drafts of Ovation’s governing documents, Hunt Manager would serve as manager of Ovation and Oncor, and Mr. Hunter L. Hunt, a member of our board of directors, would, through his affiliation with Hunt, beneficially own a significant interest in Ovation. Ovation’s initial tenant would be owned by Sharyland’s owners, which are Hunt affiliates, and controlled by Mr. Hunter L. Hunt. Mr. Baker, the Chairman of our board of directors, is currently a member of the board of managers of Ovation and would be a member of its board of directors if Ovation’s acquisition of Oncor is completed. Mr. Campbell, our Chief Executive Officer and President, is the President and Chief Executive Officer of Ovation, is a member of the board of managers of Ovation and would be a member of its board of directors if Ovation’s acquisition of Oncor is completed. Other InfraREIT officers, and Hunt Manager employees who help manage our business, have been and may be involved in Ovation’s proposed acquisition of Oncor and in its business if such acquisition is completed, and some of these individuals may serve as officers of Ovation. Hunt Manager or Ovation may grant compensation or awards to these individuals that are based upon the performance of Ovation. Furthermore, the duties that Messrs. Baker, Campbell and Hunt owe to us as directors may conflict with the duties they owe, in the case of Mr. Baker, as a director of Ovation; in the case of Mr. Campbell, as an officer and director of Ovation; and, in the case of Mr. Hunt, as an officer of Ovation’s tenant. The duties owed to us by our officers who are also officers of Ovation, including Mr. Campbell, may conflict with duties that such officers owe to Ovation. Our management agreement with Hunt Manager does not specify a fixed amount of time that Mr. Campbell, or other officers and employees who work on our behalf, are to spend managing our business. Accordingly, the InfraREIT officers and directors and other personnel of Hunt Manager may dedicate a large share of their time and efforts to the pursuit of the acquisition of Oncor and, if such acquisition is completed, to Ovation’s business, which may adversely affect their ability to devote their time to our business.

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Additionally, we compete with Oncor for T&D projects in Texas, and we expect to continue to compete with Oncor regardless of whether the acquisition is completed. Although Hunt has informed us that it intends for us to be the primary owner of all of Hunt’s T&D development projects as those projects are completed and placed in service, if the acquisition of Oncor is completed, or if Hunt were to acquire another utility that owns T&D assets in the future, Hunt would not be contractually restricted from directing future development and acquisition opportunities to the tenant of the Oncor assets in the Ovation REIT structure or the other utility. Our management agreement with Hunt Manager provides that Hunt Manager will provide advice and assistance with respect to acquisition or investment opportunities, but does not prohibit Hunt Manager from providing similar services to other entities. Furthermore, the financial incentives that Hunt and members of our board of directors and management may have in Ovation, and the duties that certain of our officers and directors could owe to Ovation, could affect actions taken with respect to these opportunities by these officers and directors. In addition, if both InfraREIT and Ovation are simultaneously pursuing the same acquisition or investment opportunity, certain Hunt Manager officers and employees may be required to recuse themselves from the discussions as a result of their conflict, which may affect our ability to pursue and execute on those opportunities. The approval of the Conflicts Committee of our board of directors is required for significant acquisitions, divestitures or mergers and for transactions that involve conflicts of interest with our executive officers, board members or significant beneficial owners.

The initial term of our management agreement with Hunt Manager expires on December 31, 2019, and termination of the management agreement would eliminate our rights to Hunt Developer’s development projects and could harm our relationship with our tenant. Additionally, Hunt Manager’s interests and incentives relating to our business may differ from our long-term best interests.

The initial term of the management agreement will expire on December 31, 2019. The management agreement will automatically extend for additional five year terms, unless we decide to terminate it pursuant to its terms. We will also have the right to terminate the management agreement at any time for cause, and Hunt Manager may terminate the agreement at any time upon 365 days’ prior notice to us, provided that Hunt Manager may not exercise this right in a manner that results in the management agreement terminating before December 31, 2019. Any termination of the management agreement would end Hunt Manager’s obligation to provide us with the executive officers and key personnel upon whom we rely for the operation of our business and, unless we terminate for cause, would also terminate our rights to ROFO Projects under the development agreement. In addition, we are required to pay Hunt a termination fee equal to three times the most recent annualized base management and incentive payment if we terminate the agreement for any reason other than cause. Further, any termination of our relationships with Hunt Manager and Hunt Developer may negatively impact our relationship with Sharyland, including Sharyland’s willingness to renew our leases or to negotiate lease supplements on terms that are favorable to us. Termination of or failure to renew our leases could result in a default under the agreements governing our indebtedness. Additionally, because the base fee payable to Hunt Manager under the management agreement is calculated by reference to our total equity and the incentive payment payable to Hunt Manager is calculated as a percentage of the per OP Unit distributions to the Operating Partnership’s unitholders in excess of a threshold amount ($0.27 per quarter), Hunt Manager may be motivated to grow total equity or make Operating Partnership distributions in a manner that is not in our long-term best interests or in the best interests of our other stockholders.

Hunt Manager’s liability is limited under the management agreement, and we have agreed to indemnify Hunt Manager against certain liabilities. As a result, we could experience poor performance or losses for which Hunt Manager would not be liable.

Pursuant to the management agreement, Hunt Manager will not assume any responsibility other than to render the services called for thereunder and will not be responsible for any action of our board of directors in following or declining to follow its advice or recommendations. Hunt Manager maintains a contractual as opposed to a fiduciary relationship with us. Under the terms of the management agreement, Hunt Manager, its officers, members and personnel, any person controlling or controlled by Hunt Manager and any person providing sub-advisory services to Hunt Manager will not be liable to us, any subsidiary of ours, our directors, our stockholders or any subsidiary’s stockholders or partners for acts or omissions performed in accordance with and pursuant to the management agreement, except those resulting from acts constituting gross negligence, willful misconduct, bad faith or reckless disregard of Hunt Manager’s duties under the management agreement. In addition, we have agreed to indemnify Hunt Manager and each of its officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authority granted by the management agreement, except where attributable to gross negligence, willful misconduct, bad faith or reckless disregard of such person’s duties under the management agreement. As a result, we could experience poor performance or losses for which Hunt Manager would not be liable.

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The management agreement, the development agreement and our leases were not negotiated on an arm’s-length basis and may not be as favorable to us as if they had been negotiated with unaffiliated third parties.

The initial terms of our management agreement with Hunt Manager, the development agreement with Hunt Developer and our leases with Sharyland were negotiated between related parties and before our independent directors were elected, and their terms, including the consideration payable to Hunt Manager and lease payments to us, may not be as favorable to us as if they had been negotiated with unaffiliated third parties.

The terms of these agreements and leases may not solely reflect our best interest and may be overly favorable to the other party to such agreements and leases, including in terms of the substantial compensation to be paid to these parties under these agreements. Further, we may choose not to enforce, or to enforce less vigorously, our rights under the management agreement, the development agreement or our leases, as applicable, because of our desire to maintain our ongoing relationships with Hunt and Sharyland.

Risks Related to REIT Qualification and Federal Income Tax Laws

Qualifying as a REIT involves technical and complex provisions of the Internal Revenue Code of 1986, as amended (the Code), and our failure to qualify or remain qualified as a REIT would cause us to owe U.S. federal income tax, which would negatively impact our results of operations and reduce the amount of cash available for distribution to our stockholders.

InfraREIT, L.L.C. elected to be taxed as a REIT under the Code commencing with the taxable year ended December 31, 2010, and we will elect to be taxed as a REIT commencing with the taxable year ended December 31, 2015. We believe that InfraREIT, L.L.C. was organized and operated in a manner that allowed it to qualify for taxation as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2010. We further believe that InfraREIT, Inc. has been organized and operated in a manner that enables it to qualify as a REIT for U.S. federal income tax purposes commencing with its taxable year ending December 31, 2015, and will continue to be organized and operated in this manner. The U.S. federal income tax laws governing REITs are complex and require us to meet, on an ongoing basis, various tests regarding the nature and diversification of our assets and income, the ownership of our outstanding shares and the amount of our distributions. Even a technical or inadvertent violation could jeopardize our REIT qualification.

We are one of only a few REITs engaged in owning and leasing T&D assets or similar assets. There is little or no guidance in the tax law regarding the qualification of T&D assets as real estate assets and the rent therefrom as qualifying rental income under the REIT asset and income tests. We hold a private letter ruling from the IRS that provides that T&D systems qualify as real estate assets and the rent therefrom generally constitutes qualifying rental income. We are entitled to rely upon that ruling for those assets that fit within the scope of the rulings only to the extent that (1) we have the legal and contractual rights described therein and are considered to be the same taxpayer as, or are treated for tax purposes as the successor to, the taxpayer that obtained the ruling, (2) we did not misstate or omit in the ruling request a relevant fact and (3) we continue to operate in the future in accordance with the relevant facts described in such request. No assurance can be given that we will always be able to operate in the future in accordance with the relevant facts described in such request. If we were not able to treat the T&D assets as real estate assets and/or the rent therefrom as qualifying rental income for purposes of applying the REIT asset or income tests, we might fail to qualify as a REIT.

In addition, our compliance with the REIT income and quarterly asset requirements depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis in accordance with existing REIT regulations and rules and interpretations thereof. Furthermore, judicial and administrative interpretations of the U.S. federal income tax laws governing REIT qualification are limited, and new IRS guidance, legislation, court decisions or other administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT or adversely change the tax treatment of a REIT. Thus, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations and the possibility of future changes in our circumstances or the rules applicable to REITs, no assurance can be given that we will qualify as a REIT for any particular year, and we could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation. In addition, if any of our REIT subsidiaries fail to qualify as a REIT, such failure could result in our loss of REIT status.

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If we fail to qualify as a REIT in any taxable year, unless we were eligible for certain statutory relief provisions:

· we would not be allowed a deduction for distributions to our stockholders in computing our taxable income and would be required to pay U.S. federal income tax on our taxable income at corporate income tax rates;

· we also could be liable for alternative minimum tax and increased state and local taxes;

· we would be liable for interest and possible penalties for failure to make any required estimated tax payments in a year in which the failure occurred;

· we no longer would be required to distribute substantially all of our taxable income to our stockholders; and

· we could not re-elect to be taxed as a REIT for four taxable years following the year in which we failed to qualify as a REIT.

In such a case, any such corporate tax liability could be substantial and would reduce our net income and cash available for distributions to stockholders, among other things. In addition, we might need to borrow money or sell assets in order to pay any corporate tax liability. As a result of all these factors, our failure to qualify as a REIT also could impair our ability to expand our business and raise capital, and could materially and adversely affect our results of operations and financial condition and the trading price of our common stock.

Even if we qualify as a REIT, we may face tax liabilities that reduce our cash flow.

Even if we qualify for taxation as a REIT, we may be liable for certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, a 100% penalty tax on gain if we sell property as a dealer, alternative minimum tax, tax on income from some activities conducted as a result of a foreclosure and state or local income, franchise, property and transfer taxes, including mortgage recording taxes. In addition, although we do not currently own any taxable REIT subsidiaries, if we were to acquire or form a taxable REIT subsidiary, it would be subject to U.S. federal, state and local corporate income or franchise taxes. In order to meet the REIT qualification requirements, or to avoid the imposition of the 100% tax penalty that applies to certain gains if we sell property as a dealer to customers in the ordinary course of business, we may hold some of our assets through taxable REIT subsidiaries. Any taxes paid by such taxable REIT subsidiary would decrease the cash available for distribution to our stockholders. In addition, as discussed more fully below, we may incur a 100% excise tax on transactions with a taxable REIT subsidiary if they are not conducted on an arm’s length basis.

If our Operating Partnership fails to qualify as a partnership for U.S. federal income tax purposes, we would cease to qualify as a REIT and suffer other adverse consequences.

We believe that our Operating Partnership is and will continue to be treated as a partnership for U.S. federal income tax purposes. As a partnership, our Operating Partnership is not subject to federal income tax on its income. Instead, for U.S. federal income tax purposes, each of its partners, including us, are allocated, and may be required to pay tax with respect to, such partner’s share of the Operating Partnership’s income. We cannot guarantee that the IRS will not challenge the status of our Operating Partnership or any other subsidiary partnership in which we own an interest as a partnership or disregarded entity for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating our Operating Partnership or certain subsidiary partnerships as an entity taxable as a corporation for U.S. federal income tax purposes, we would fail to meet the applicable REIT gross income tests and certain of the asset tests applicable to REITs and, accordingly, we would likely cease to qualify as a REIT. Also, the failure of our Operating Partnership or certain subsidiary partnerships to qualify as a partnership or disregarded entity could cause the applicable entity to become subject to federal corporate income tax, which would adversely affect our results of operations and significantly reduce the amount of cash the Operating Partnership has available for distribution to its partners, including us.

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If InfraREIT, L.L.C. is determined to have failed to qualify as a REIT for any reason or if we acquire C corporations in the future, we may inherit material tax liabilities and other tax attributes from InfraREIT, L.L.C. or such acquired corporations, and we may be required to distribute earnings and profits.

The formation of a partnership unrelated to InfraREIT in 2011 between a Hunt affiliate and an affiliate of Marubeni Corporation (Marubeni) triggered certain provisions in InfraREIT, L.L.C.’s limited liability company agreement designed to protect against rent received from Sharyland being deemed to be rent from a related party which could have caused InfraREIT, L.L.C. to fail to qualify as a REIT. As a result of the application of these provisions, shares held by Marubeni that would have resulted in Marubeni holding in excess of 9.8% of the total number of outstanding shares of InfraREIT, L.L.C. were automatically transferred to Westwood Trust, as trustee of a trust for the benefit of a charitable beneficiary. If these provisions were deemed to be ineffective, InfraREIT, L.L.C. would not have met the REIT requirements and, as a result, would have been taxed as a C corporation. If InfraREIT, L.L.C. is deemed to have failed to meet the REIT requirements as a result of the 2011 transaction or otherwise, we would be liable for the taxes InfraREIT, L.L.C. would have been required to pay, which could have an adverse effect on our financial condition and results of operations.

In addition, we have previously acquired, and from time to time we may acquire, C corporations or assets of C corporations in transactions in which the basis of the corporations’ assets in our hands is determined by reference to the basis of the assets in the hands of the acquired corporations, or carry-over basis transactions. In this regard, in 2010, we acquired Cap Rock in a transaction that was treated as a carry-over basis transaction.

In the case of assets we acquire from a C corporation in a carry-over basis transaction, including the assets of InfraREIT, L.L.C. if it failed to meet the REIT requirements prior to the Merger, that are deemed to have been taxed as a C corporation, if we dispose of any such asset in a taxable transaction (including by deed in lieu of foreclosure) during the five year period beginning on the date of the carry-over basis transaction, then we will be required to pay tax at the highest regular corporate tax rate on the gain recognized to the extent of the excess of (1) the fair market value of the asset over (2) our adjusted tax basis in the asset, in each case determined as of the date of the carry-over basis transaction. Any taxes we pay as a result of such gain would reduce the amount available for distribution to our stockholders. The imposition of such tax may require us to forgo an otherwise attractive disposition of any assets we acquire from a C corporation in a carry-over basis transaction, and as a result may reduce the liquidity of our portfolio of investments. In addition, in such a carry-over basis transaction, we will succeed to any tax liabilities and earnings and profits of the acquired C corporation. To qualify as a REIT, we must distribute any non-REIT earnings and profits by the close of the taxable year in which such transaction occurs. If the IRS were to determine that we acquired non-REIT earnings and profits from a corporation that we failed to distribute prior to the end of the taxable year in which the carry-over basis transaction occurred, we could avoid disqualification as a REIT by paying a “deficiency dividend.” Under these procedures, we generally would be required to distribute any such non-REIT earnings and profits to our stockholders within 90 days of the determination and pay a statutory interest charge at a specified rate to the IRS. Such a distribution would be in addition to the distribution of REIT taxable income necessary to satisfy the REIT distribution requirement and may require that we borrow funds to make the distribution even if the prevailing market conditions are not favorable for borrowings. In addition, payment of the statutory interest charge could materially and adversely affect us.

If InfraREIT, L.L.C. failed to qualify as a REIT and we are considered a “successor” to InfraREIT, L.L.C. under applicable income tax regulations, we may be ineligible to elect REIT status for the four taxable years following the year in which InfraREIT, L.L.C. ceased to qualify as a REIT. However, we would be considered a “successor” for these purposes only if, among other requirements, persons who own, directly or indirectly, 50% or more in value of our shares at any time during the taxable year owned, directly or indirectly, 50% or more in value of the shares of InfraREIT, L.L.C. during the first year in which it ceased to qualify as a REIT. We believe that we would not be a considered a “successor” to InfraREIT, L.L.C. for purposes of such provisions.

The IRS may treat sale-leaseback transactions as loans, which could jeopardize our REIT status or require us to make an unexpected distribution.

The IRS may take the position that specific sale-leaseback transactions that we treat as leases are not true leases for U.S. federal income tax purposes but are, instead, financing arrangements or loans. If a sale-leaseback transaction were so re-characterized, we might fail to satisfy the REIT asset tests, the income tests or distribution requirements and consequently lose our REIT status effective with the year of re-characterization. The primary risk relates to our loss of previously incurred depreciation expenses, which could affect the calculation of our REIT taxable income and could (unless we were able to take other mitigating steps or were eligible for certain statutory relief provisions) cause us to fail the REIT distribution test that requires a REIT to distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In this circumstance, we may elect to distribute an additional dividend of the increased taxable income so we do not fail the REIT distribution test. This distribution would be paid to all stockholders at the time of declaration rather than the stockholders existing in the taxable year affected by the re-characterization.

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Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

The current maximum U.S. federal income tax rate for certain qualified dividends payable to U.S. stockholders that are individuals, trusts and estates is 20%, or 23.8% including investment taxes on investment income applicable to certain stockholders under the Patient Protection and Affordable Care Act (PPACA). Dividends payable by REITs are generally not eligible for the reduced rates and therefore may be subject to a 39.6%, or 43.4% including PPACA investment taxes, maximum U.S. federal income tax rate on ordinary income. Although the reduced U.S. federal income tax rate applicable to dividend income from regular corporate dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including the per share trading price of our common stock. States may also choose to tax investment and dividend income at higher rates than ordinary income, and to the extent more states do so, then such taxes may further reduce the attractiveness of REITs from an investment standpoint. Any future changes in the federal, state or local income tax laws regarding the taxation of dividends payable to stockholders could also impact the attractiveness of REITs from an investment standpoint.

Complying with REIT requirements may affect our profitability and may force us to liquidate or forgo otherwise attractive investments.

To qualify as a REIT we must continually satisfy tests concerning, among other things, the nature and diversification of our assets, sources of our income and amounts we distribute to our stockholders. We may be required to liquidate or forgo otherwise attractive investments in order to satisfy the asset and income tests or to qualify under certain statutory relief provisions. From time to time, we may generate taxable income greater than our cash flow as a result of difference in timing between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible capital expenditures, the creation of reserves or required debt amortization payments. If we do not have other funds available in these situations, we may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. As a result, having to comply with the distribution requirement and to avoid corporate income tax and the 4% excise tax in any particular year could cause us to sell assets in adverse market conditions, issue equity or incur debt on unfavorable terms or distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt. These alternatives could increase our costs or reduce the value of our equity. Accordingly, satisfying the REIT requirements could hinder our ability to grow, which could adversely affect the value of our stock, or could cause holders of our stock to incur tax liabilities in excess of cash distributions.

Legislative or other actions affecting REITs could have a negative effect on us.

The rules dealing with federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive application, could materially and adversely affect our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. New legislation, new income tax regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT or the income tax consequences of such qualification.

Complying with REIT requirements may limit our ability to hedge effectively.

The REIT provisions of the Code may limit our ability to hedge our assets and operations. Under these provisions, any income that we generate from transactions intended to hedge our interest rate exposure will be excluded from gross income for purposes of the gross income tests if the instrument hedges interest rate risk on liabilities used to carry or acquire real estate assets, or certain other specified types of risk, and such instrument is properly identified under applicable income tax regulations. Income from hedging transactions that do not meet these requirements will generally constitute nonqualifying income. As a result of these rules, we may have to limit our use of hedging techniques that might otherwise be advantageous or implement those hedges through a taxable REIT subsidiary, which would be liable for tax on gains and for which we would not receive any tax benefit for losses, except to the extent they were carried forward to offset future taxable income of the taxable REIT subsidiary.

Liquidation of our assets may jeopardize our REIT qualification.

If we are compelled to liquidate our assets to repay obligations to our lenders, we may be unable to comply with the requirements relating to our assets and our sources of income, thereby jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as inventory or property held primarily for sale to customers in the ordinary course of business.

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Although we do not currently own a taxable REIT subsidiary, if we were to acquire one, our ownership of that taxable REIT subsidiary would be subject to certain restrictions, and we would be required to pay a 100% penalty tax on certain income or deductions if our transactions with our taxable REIT subsidiary was not conducted on arm’s length terms.

We may form or hold an interest in taxable REIT subsidiaries in the future. A taxable REIT subsidiary is a corporation, other than a REIT, in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a taxable REIT subsidiary. If a taxable REIT subsidiary owns more than 35% of the total voting power or value of the outstanding securities of another corporation, such other corporation will also be treated as a taxable REIT subsidiary. Other than some activities relating to lodging and health care facilities, a taxable REIT subsidiary may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A taxable REIT subsidiary is subject to federal income tax as a regular C corporation. In addition, a 100% excise tax will be imposed on certain transactions between a taxable REIT subsidiary and its parent REIT that are not conducted on an arm’s length basis.

A REIT’s ownership of securities of a taxable REIT subsidiary is not subject to the 5% or 10% asset tests applicable to REITs. Not more than 25% (20% for taxable years beginning after December 31, 2017) of the value of our total assets may be represented by securities of taxable REIT subsidiaries. We anticipate that the aggregate value of the stock and securities of any taxable REIT subsidiaries and other nonqualifying assets that we own will be less than 20% of the value of our total assets, and we will monitor the value such ownership of taxable REIT subsidiaries to ensure compliance with applicable ownership limitations. In addition, we intend to structure our transactions with any taxable REIT subsidiaries that we may acquire to ensure that the transactions are entered into on arm’s length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that, if we were to acquire a taxable REIT subsidiary, that we will be able to comply with the above limitation or to avoid application of the 100% excise tax discussed above.

Risks Related to Ownership of Our Common Stock

The market price and trading volume of shares of our common stock may fluctuate significantly.

The market price of our common stock may be highly volatile and subject to wide fluctuations. Our financial performance, governmental regulatory action, tax laws, interest rates and market conditions in general could have a significant impact on the future market price of our common stock. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. If the market price of our common stock declines significantly, and you choose to sell your shares, you may receive a lower price than the amount you paid or you may not be able to sell your shares at all.

Some of the factors that could negatively affect our share price or result in fluctuations in the price of our stock include:

· the value and timing of our quarterly distributions;

· sales of common stock by our pre-IPO investors or market perceptions that these sales may occur;

· changes in the rates our tenant can charge its customers;

· our operating performance and deviations from funds from operations, adjusted funds from operations, capital needs or earnings estimates;

· the termination of or failure to renew a lease with Sharyland;

· changes in the laws applicable to REITs and legislative or regulatory developments that affect us or our industry; and

· other factors described in these Risk Factors or elsewhere in this Annual Report on Form 10-K.

Future sales of shares of our common stock (or securities redeemable for shares of our common stock), or the perception that such sales might occur, may cause you to incur significant dilution and may depress the price of our shares.

We expect to raise equity and debt capital from public markets in the future to support our growth and the distributions we are required to make to our stockholders. Future issuances of shares of our common stock, the availability of shares of our common stock for resale in the open market and the perception that these issuances or resales may occur may cause you to suffer significant dilution in your ownership of our common stock and could decrease the market price per share of our common stock. Any sales by us or stockholders of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, may cause the market price of our shares to decline.

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Subject to the terms of our Operating Partnership’s partnership agreement, OP Units in our Operating Partnership held by limited partners may be redeemed for cash or, at our election, shares of our common stock. If we choose to satisfy this redemption right through issuance of shares of our common stock, it could result in the issuance of a large number of new shares of our common stock. In addition, certain of our pre-IPO investors, including Hunt, are parties to a registration rights agreement with us. Pursuant to this agreement, we intend to filea shelf registration statement that registers for resale under the Securities Act an aggregate of 22,192,899 shares of our common stock, including certain shares that may be issued upon the redemption of outstanding OP Units. We also have the obligation, in 2018 and 2020, to register additional shares of common stock beneficially owned by Hunt as Hunt’s lock-up obligations with respect to those shares expire. Registration of the resale of these shares of our common stock facilitates their sale into the public market. If any or all of these holders cause a large number of their shares to be sold in the public market, or if investors believe that these sales could occur, such sales and beliefs could reduce the trading price of our common stock and could impede our ability to raise future capital.

Future offerings of debt, which would be senior to our common stock upon liquidation, and/or preferred equity securities, which may be senior to our common stock for purposes of distributions or upon liquidation, may adversely affect the market price of our stock.

In the future, we may attempt to increase our capital resources and fund capital needs by making additional offerings of debt or preferred equity securities. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both. Holders of our common stock are not entitled to preemptive rights or other protections against dilution. Our preferred stock, if issued, could have a preference on liquidating distributions or a preference on distribution payments that could limit our ability to make distributions to the holders of our common stock in amounts anticipated or at all. Since our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock and diluting their stock holdings in us.

Risks Related to Our Organization and Structure

Certain provisions of Maryland law and our charter and bylaws could inhibit changes in control, preventing our stockholders from realizing a potential premium over the market price of our stock in a proposed acquisition.

Certain provisions of the MGCL may have the effect of inhibiting or deterring a third-party from making a proposal to acquire us or impeding a change of control under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then current market price of such shares, including:

· “Business Combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of ours who, at any time within the two year period immediately prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of our then outstanding voting stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose special stockholder voting requirements and special appraisal rights on these combinations; and

· “Control Share” provisions that provide that holders of “control shares” of InfraREIT (defined as shares which, when aggregated with other voting shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights with respect to such shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

As permitted by the MGCL, we have elected, by resolution of our board of directors, to exempt from the business combination provisions of the MGCL any business combination between us and any other person that is first approved by our board of directors (including a majority of our directors who are not affiliates or associates of such person), and our bylaws contain a provision exempting any and all acquisitions of our stock from the control share provisions of the MGCL. However, our board of directors may by resolution elect to repeal the exemption from the business combination provisions of the MGCL and may by amendment to our bylaws opt in to the control share provisions of the MGCL at any time in the future.

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Certain provisions of the MGCL permit our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain corporate governance provisions. Our charter contains a provision whereby we elect to be subject to the provisions of Title 3, Subtitle 8 of the MGCL relating to the filling of vacancies on our board of directors. In addition, through provisions in our charter and bylaws unrelated to Subtitle 8, we already (1) have a board of directors that is classified in three classes serving staggered three year terms, (2) require a two-thirds vote for the removal of any director from the board of directors, which removal must be for cause, (3) vest in the board of directors the exclusive power to fix the number of directorships, subject to limitations set forth in our charter and bylaws and (4) require, unless called by the chairman of our board of directors, our lead director, if any, our chief executive officer, our president or our board of directors, the request of stockholders entitled to cast not less than a majority of all votes entitled to be cast on a matter at such meeting to call a stockholder requested special meeting to consider and vote on any matter that may properly be considered at a meeting of stockholders. These provisions may have the effect of limiting or precluding a third-party from making an unsolicited acquisition proposal for us or of delaying, deferring or preventing a change in control of us under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then current market price.

In addition, the advance notice provisions of our bylaws could delay, defer or prevent a transaction or a change of control of our company that might involve a premium price for holders of our common stock or otherwise be in their best interest.

Our external management structure and our relationships with and dependence on Hunt and its affiliates could prevent a change in control.

Our relationships with Hunt Manager, Hunt Developer and Sharyland are interrelated. Accordingly, conflicts of interest may arise between us and Sharyland when negotiating our leases or in Sharyland’s operation of the T&D assets under our leases. In addition, the development agreement with Hunt Developer expires automatically upon termination of the management agreement, regardless of whether the management agreement is terminated by us or by Hunt Manager (unless we terminate for cause), meaning that the termination of our relationship with Hunt Manager as our external manager would terminate our right of first offer with respect to ROFO Projects. Further, any negative change in our relationships with Hunt Manager, Hunt Developer or Sharyland could negatively impact the other relationships. The existence of and our dependence on these relationships, and the perceived impact that a change in control may have on them, may have the effect of limiting or precluding a third-party from making an unsolicited acquisition proposal for us, even if such a transaction would otherwise be in the best interests of our stockholders.

In addition, we are required to pay Hunt a termination fee equal to three times the most recent annualized base management and incentive payment if we terminate the management agreement for any reason other than cause. Except in cases of for cause termination, we are only allowed to exercise this termination right on or before December 31, 2018, to be effective December 31, 2019. The payment of a termination fee, and the limited time period in which the termination right may be exercised, may discourage the acquisition of us by any third-party that does not want to continue the relationship with Hunt Manager.

Our charter contains restrictions on the ownership and transfer of our stock that may delay, defer or prevent a change of control transaction.

Our charter, subject to certain exceptions, authorizes our board of directors to take such actions as it determines are advisable to preserve our qualification as a REIT. Our charter also prohibits, among other things, the beneficial or constructive ownership by any person (which includes any “group” as defined by Section 13(d)(3) of the Exchange Act) of more than 9.8% in value or number of shares, whichever is more restrictive, of the aggregate of the outstanding shares of our common stock or more than 9.8% in value of the aggregate of the outstanding shares of all classes or series of our capital stock, in each case excluding any shares that are not treated as outstanding for federal income tax purposes. Our board of directors, in its sole and absolute discretion, may exempt a person, prospectively or retroactively, from these ownership limits if certain conditions are satisfied. The restrictions on ownership and transfer of our stock may:

· discourage a tender offer or other transactions or a change in management or control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interests; or

· result in the transfer of shares acquired in excess of the restrictions to a trust for the benefit of a charitable beneficiary and, as a result, the forfeiture by the acquirer of the benefits of owning the additional shares.

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Our structure as an UPREIT may give rise to conflicts of interest.

Our directors and officers have duties under Maryland law to us. At the same time, we have fiduciary duties, as general partner, to our Operating Partnership and to its limited partners under Delaware law. Our duties as the general partner of the Operating Partnership may come into conflict with the duties of our directors and officers to us. Although our Operating Partnership’s partnership agreement generally limits our liability for our acts or omissions in our capacity as the general partner of the Operating Partnership, provided we acted in good faith, Delaware law is not settled on these types of modifications to fiduciary duties, and we have not obtained an opinion of counsel as to the validity or enforceability of such provisions.

We may structure acquisitions of assets in exchange for OP Units on terms that could limit our liquidity or our flexibility.

We may acquire assets by issuing OP Units in exchange for an asset owner contributing assets to our Operating Partnership. If we enter into such transactions, in order to induce the contributors of such assets to accept OP Units, rather than cash, in exchange for their assets, it may be necessary for us to provide them additional incentives. For instance, our Operating Partnership’s partnership agreement provides that any holder of OP Units may exchange such units for cash equal to the value of an equivalent number of shares of our common stock or, at our option, for shares of our common stock on a one-for-one basis. Finally, in order to allow a contributor of assets to defer taxable gain on the contribution of assets to our Operating Partnership, we might agree not to sell a contributed asset for a defined period of time or until the contributor exchanged the contributor’s units for cash or shares. Such an agreement would prevent us from selling those assets, even if market conditions made such a sale favorable to us.

Our authorized but unissued shares of common and preferred stock may prevent a change in our control.

Our charter authorizes our board of directors to issue additional authorized but unissued shares of common or preferred stock. In addition, our board of directors may, without stockholder approval, amend our charter to increase the aggregate number of our authorized shares of stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of directors may establish a class or series of shares of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for our shares of common stock or otherwise be in the best interests of our stockholders.

Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our board of directors.

Our board of directors is classified into three classes, and our charter provides that, subject to the rights of holders of any class or series of preferred stock, a director may be removed only for cause (as defined in our charter) and then only by the affirmative vote of holders of shares entitled to cast at least two-thirds of all the votes entitled to be cast generally in the election of directors. Further, our charter and bylaws provide that, except as may be provided by our board of directors in setting the terms of any class or series of stock under the provisions of Title 3, Subtitle 8 of the MGCL, any and all vacancies on our board of directors shall be filled only by the affirmative vote of a majority of the remaining directors in office, even if less than a quorum, for the full term of the class of directors in which the vacancy occurred. These requirements prevent stockholders from removing directors except for cause and with a substantial affirmative vote and from replacing directors with their own nominees and may prevent a change in control of our company that is in the best interests of our stockholders.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

See Our T&D Assets in Item 1., Business for a description of our properties.

Item 3. Legal Proceedings

We are not party to any legal proceedings other than legal proceedings in the ordinary course of our business. We do not believe the resolution of these proceedings, individually or in the aggregate, will have a material impact on our business, financial condition or results of operations, liquidity and cash flows.

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Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Our common stock began trading on the NYSE under the symbol “HIFR” on January 30, 2015. Prior to that date, there was no public trading market for our common stock. Since our common stock was not traded during 2014, there are no high and low sales price per share of common stock for 2014. The following table sets forth the range of daily high and low prices per share of common stock and dividends declared per share of common stock for the periods indicated:

Year Ended December 31, 2015	High		Low		Dividends
First quarter	$	29.68	$	25.83	$	0.140
Second quarter		34.19		28.20		0.225
Third quarter		34.47		23.11		0.225
Fourth quarter		25.21		17.84		0.225

As of February 29, 2016, there were 116 holders of record of our common stock. The closing price of our common stock on February 29, 2016 was $21.12.

As a REIT, the Code generally requires that we distribute annually at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding any net capital gains) to our stockholders and imposes tax on any taxable income retained by us, including capital gains. We expect our dividends to exceed our taxable income for the foreseeable future. On March 2, 2016, our board of directors declared a dividend of $0.25 per share of common stock, or $1.00 per share on an annualized basis, payable on April 21, 2016 to holders of record as of March 31, 2016. Our board of directors also authorized our Operating Partnership to make a distribution of $0.25 per OP Unit to the partners in our Operating Partnership, which includes affiliates of Hunt.

For a description of restrictions on our subsidiaries’ ability to make distributions to us, which impacts our ability to pay dividends to our stockholders, see Note 8, Borrowings Under Credit Facilities and Note 9, Long-Term Debt in the Notes to the Consolidated Financial Statements beginning on page F-1. However, we do not expect these limitations to adversely affect our ability to make the dividend payments we are projecting.

Securities Authorized for Issuance Under Equity Compensation Plans

Prior to the consummation of our IPO, the InfraREIT, Inc. 2015 Equity Incentive Plan (2015 Equity Incentive Plan) and the InfraREIT, Inc. Non-Qualified Employee Stock Purchase Plan (ESPP) were adopted by our pre-IPO board of directors and approved by a wholly owned subsidiary of HCI, which was our sole stockholder at the time. We currently intend to utilize the 2015 Equity Incentive Plan to compensate our non-executive directors for their service on our board of directors. As of December 31, 2015, no shares have been purchased or offered for purchase under the ESPP. The following table sets forth certain information regarding such plans as of December 31, 2015:

	(a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights			(b) Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights		(c) Number of Securities Remaining Available for Future Issuances Under Equity Compensation Plans Excluding Securities Reflected in Column (a)
Equity compensation plans approved by stockholders:
2015 Equity Incentive Plan (1)		28,000	(2) (3)	N/A	(2)		347,000	(3)
ESPP (1)		—		N/A			250,000
Total equity compensation plans approved by stockholders		28,000					597,000
Equity compensation plans not approved by stockholders		—		N/A			—
Total		28,000		N/A			597,000

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(1) For more information about the 2015 Equity Incentive Plan and the ESPP, see Note 20, Share-Based Compensation in the Notes to the Consolidated Financial Statements beginning on page F-1.

(2) Represents 28,000 long-term incentive units (LTIP Units), all of which are vested, that are convertible into common units, which may be presented to the Operating Partnership for redemption and acquired by us for shares of our common stock. Because there is no exercise price associated with the LTIP Units, there is no weighted average exercise price presented.

(3) On January 4, 2016, we granted an aggregate of 4,735 shares of our common stock and 29,722 LTIP Units to members of our board of directors, other than David A. Campbell and Hunter L. Hunt.

Performance Graph

The following graph shows our cumulative total stockholder return for the period beginning January 30, 2015, the date our stock began trading on the NYSE, and ending on December 31, 2015. The graph also shows the cumulative total returns of the Russell 2000 Index, in which we are included, and the Edison Electric Institute (EEI) Index.

The comparison below assumed $100 was invested on January 30, 2015 in our common stock and in each index shown and assumes that all dividends are reinvested. Our stock performance shown in the following graph is not indicative of future stock price performance.

COMPARISON OF CUMULATIVE RETURN FROM JANUARY 30 THROUGH DECEMBER 31, 2015

AMONG INFRAREIT, INC, THE RUSSELL 2000 INDEX AND THE EEI INDEX

This graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Form 10-K into any filing under the Securities Act or Exchange Act, except to the extent that we specifically incorporate this information by reference therein, and shall not otherwise be deemed filed under such either the Securities Act or the Exchange Act.

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The EEI Index is a non-traded index that measures total shareholder return for the 46 U.S. shareholder owned electric utilities and is comprised of the following as of December 31, 2015:

Company Name	Ticker Symbol	Company Name	Ticker Symbol
ALLETE, Inc.	ALE	MGE Energy Inc.	MGEE
Alliant Energy Corporation	LNT	NextEra Energy, Inc.	NEE
Ameren Corporation	AEE	NiSource Inc.	NI
American Electric Power Co., Inc.	AEP	Northwestern Corporation	NWE
Avista Corp.	AVA	OGE Energy Corp.	OGE
Black Hills Corporation	BKH	Otter Tail Corporation	OTTR
CenterPoint Energy, Inc.	CNP	Pepco Holdings, Inc.	POM
Cleco Corporation	CNL	PG&E Corporation	PCG
CMS Energy Corp.	CMS	Pinnacle West Capital Corporation	PNW
Consolidated Edison, Inc.	ED	PNM Resources, Inc.	PNM
Dominion Resources, Inc.	D	Portland General Electric Company	POR
DTE Energy Company	DTE	PPL Corporation	PPL
Duke Energy Corporation	DUK	Public Service Enterprise Group Inc.	PEG
Edison International	EIX	SCANA Corp.	SCG
El Paso Electric Co.	EE	Sempra Energy	SRE
Entergy Corporation	ETR	Southern Company	SO
Eversource Energy	ES	TECO Energy, Inc.	TE
Exelon Corporation	EXC	The Empire District Electric Company	EDE
FirstEnergy Corp.	FE	Unitil Corp.	UTL
Great Plains Energy Incorporated	GXP	Vectren Corporation	VVC
Hawaiian Electric Industries Inc.	HE	WEC Energy Group, Inc.	WEC
IdaCorp, Inc.	IDA	Westar Energy, Inc.	WR
MDU Resources Group Inc.	MDU	Xcel Energy Inc.	XEL

Item 6. Selected Financial Data

Because InfraREIT, Inc.’s historical financial operating results primarily reflect costs related to a Private Letter Ruling from the Internal Revenue Services in 2006 and accounting services in 2014, we present the historical financial information of InfraREIT, L.L.C for the years ended December 31, 2014 and 2013 and the InfraREIT, L.L.C. balance sheet as of December 31, 2014. Our operating results for the year ended December 31, 2015 reflect the operations of InfraREIT, L.L.C. prior to the effectiveness of the Merger, and the operations of InfraREIT, Inc. for the period from the Merger through December 31, 2015, and our balance sheet as of December 31, 2015 is the balance sheet of InfraREIT, Inc.

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The following table shows our selected financial information. This table should be read in conjunction with Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes thereto included in this Annual Report on Form 10-K beginning on page F-1.

Operating Information

	Years Ended December 31,
(In thousands, except share amounts)	2015			2014			2013
Lease revenue
Base rent	$	125,669		$	106,746		$	57,979
Percentage rent		25,534			27,669			15,214
Total lease revenue		151,203			134,415			73,193
Operating costs and expenses
General and administrative expense		64,606			18,625			13,691
Depreciation		40,211			35,080			20,024
Total operating costs and expenses		104,817			53,705			33,715
Income from operations		46,386			80,710			39,478
Other (expense) income
Interest expense, net		(28,554	)		(32,741	)		(17,384	)
Other income (expense), net		3,048			(17,236	)		20,932
Total other (expense) income		(25,506	)		(49,977	)		3,548
Income before income taxes		20,880			30,733			43,026
Income tax expense		949			953			616
Net income		19,931			29,780			42,410
Less: Net income attributable to noncontrolling interest		6,664			6,882			10,288
Net income attributable to InfraREIT, Inc.	$	13,267		$	22,898		$	32,122
Net income attributable to InfraREIT, Inc.    common stockholders per share:
Basic	$	0.31		$	0.65		$	1.07
Diluted	$	0.31		$	0.65		$	1.07

Other Information

	Years Ended December 31,
(In thousands, except share amounts)	2015			2014			2013
Cash dividends declared per common share (1)	$	1.075		$	0.310		$	—
Cash flows provided by operating activities		105,794			82,500			21,321
Cash flows used in investing activities		(369,281	)		(210,791	)		(390,283	)
Cash flows provided by financing activities		257,346			136,157			360,266
Non-GAAP EPS per share (2) (3)		1.21			1.24			1.07
CAD  (2) (3)		72,570			59,936			23,715
CAD per share (2) (3)		1.20			1.31			0.52
EBITDA (2) (3)		89,645			98,554			80,434
Adjusted EBITDA (2) (3)		138,365			124,207			58,151
FFO (2) (3)		60,142			64,860			62,434
AFFO (2) (3)		108,862			90,513			40,151

(1) Calculated based on dividends declared in period regardless of period paid.

(2) Unaudited.

(3) For a discussion of Non-GAAP earnings per share (Non-GAAP EPS); cash available for distribution (CAD); CAD per share; earnings before interest, taxes, depreciation and amortization (EBITDA); Adjusted EBITDA; funds from operations (FFO); and adjusted FFO (AFFO) and a reconciliation to their nearest U.S. GAAP counterparts, see Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles included in Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Balance Sheet

	December 31,
(In thousands)	2015		2014
Electric plant, net	$	1,434,531	$	1,227,146
Cash and cash equivalents		9,471		15,612
Total assets		1,663,671		1,504,614
Short-term borrowings and current portion of long-term debt		61,423		238,234
Long-term debt		617,466		610,522
Other liabilities		50,514		70,404
Total liabilities		729,403		919,160
Total InfraREIT, Inc. equity		678,123		440,387
Noncontrolling interest		256,145		145,067
Total equity		934,268		585,454
Total equity and liabilities		1,663,671		1,504,614

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This item contains a discussion of our business, including a general overview of our properties, results of operations, liquidity and capital resources and quantitative and qualitative disclosures about market risk. Before our IPO, which closed on February 4, 2015, substantially all of our business and assets were owned, directly or indirectly, by InfraREIT, L.L.C. On February 4, 2015, immediately following the consummation of our IPO, the Merger occurred with InfraREIT, Inc. as the surviving company. InfraREIT, Inc.’s operating results before the Merger primarily reflected costs related to obtaining a private letter ruling from the IRS and accounting services. As a result, this Annual Report on Form 10-K presents the operating results of InfraREIT, L.L.C. for the years ended December 31, 2014 and 2013 and the InfraREIT, L.L.C. balance sheet as of December 31, 2014. Our operating results for the year ended December 31, 2015 reflect the operations of InfraREIT, L.L.C. prior to the effectiveness of the Merger, and the operations of InfraREIT, Inc. for the period from the Merger through December 31, 2015.

The following discussion should be read in conjunction with the consolidated financial statements and related notes beginning on page F-1. This Item 7 contains “forward-looking” statements that involve risks and uncertainties. See Forward-Looking Statements at the beginning of this Annual Report on Form 10-K.

Overview

We own rate-regulated electric T&D assets in Texas as part of a dividend growth oriented REIT. Our 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. We have grown rapidly over the last several years, with our rate base increasing from approximately $60 million as of December 31, 2009 to $1.2 billion as of December 31, 2015. We expect that organic growth as well as potential acquisitions of T&D assets from Hunt, Sharyland and third parties will allow us to achieve continued growth in our rate base, which is calculated as our gross electric plant in service under U.S. GAAP less accumulated depreciation and adjusted for accumulated deferred income taxes. For additional information on our assets, see the caption Our T&D Assets in Part I, Item 1., Business.

We are externally managed by Hunt Manager. All of our executive officers are employees of Hunt Manager. We expect to benefit from the experience, skill, resources, relationships and contacts of the executive officers and key personnel of Hunt Manager. Pursuant to our management agreement with Hunt Manager, Hunt Manager provides for our day-to-day management, subject to the oversight of our board of directors. In exchange for these management services, we pay a management fee to Hunt Manager.

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Our Business Model

We lease our T&D assets to our tenant, Sharyland, a Texas-based utility regulated by the PUCT. To support its lease payments to us, Sharyland delivers electric service and collects revenues directly from DSPs and REPs, which pay PUCT approved rates. Under the terms of our leases, Sharyland is responsible for the operation of our assets, all property related expenses associated with our assets, including repairs, maintenance, insurance and taxes (other than income and REIT excise taxes), construction management and regulatory oversight and compliance. Our development agreement with Hunt Developer and our leases provide that we will own and fund the development and construction of Footprint Projects. We generally fund all the capital expenditures for our Footprint Projects during the construction or development phase of a project, and these expenditures increase our rate base when the related assets are placed in service. Hunt Developer has agreed to give us a right of first offer on certain ROFO Projects. We do not fund capital expenditures associated with ROFO Projects. Instead, Hunt is obligated to offer ROFO Projects to us at least 90 days before they are energized, giving us an opportunity to acquire ROFO Projects at a purchase price negotiated by Hunt and the Conflicts Committee of our board of directors, which is comprised of six independent members of our board of directors. We expect that any negotiated price would be based on a number of factors, including, the cash flow and rate base for the assets, market conditions, potential for incremental Footprint Projects, whether the lease terms have been negotiated with Sharyland or another tenant and the regulatory return we expect the assets will earn.

Significant Components of Our Results of Operations

Lease Revenue

All of our revenue consists of rental payments from Sharyland under our leases. Sharyland makes scheduled lease payments to us that consist of base rent, which is a fixed amount, and percentage rent, which is based on an agreed percentage of Sharyland’s gross revenue, as defined in the leases, earned through the PUCT approved rates charged to its customers. We recognize base rent under these leases on a straight-line basis over the applicable term. We recognize percentage rent under these leases once the gross revenue earned by Sharyland on the leased assets exceeds the annual specified breakpoints established in our leases. Because these annual specified breakpoints must be met before we can recognize any percentage revenue, we anticipate our revenue will grow over the year with little to no percentage rent recognized during the first and second quarters of each year and with the larger amounts recognized during the third and fourth quarters of each year.

Operating Expenses

General and Administrative

Our general and administrative expenses for the years ended December 31, 2015 and 2014 include management fees to Hunt Manager as well as costs we incurred directly, such as professional services costs and direct reimbursement of third-party costs paid to outside service providers. Our general and administrative expenses for the year ended December 31, 2013 included all costs incurred on our behalf by Hunt Manager, including compensation expenses, overhead costs related to the lease of our office space and software license fees.

The general and administrative expenses we incurred directly increased significantly during 2015 compared to 2014, primarily as a result of a $44.9 million expense in connection with the issuance by InfraREIT, Inc. of common stock to Hunt-InfraREIT, L.L.C. (Hunt-InfraREIT), a subsidiary of HCI, as a non-cash reorganization advisory fee in the first quarter of 2015. Upon the consummation of our IPO, we became a public company and began paying director compensation, stock exchange listing fees, transfer agent costs and other expenses, such as legal and audit costs related to filings with the SEC, which we did not incur as a private company in 2014 or 2013. Additionally, effective April 1, 2015, our management fee increased from $10.0 million annually to $13.1 million annually through March 31, 2016. Effective April 1, 2016, our management fee will increase to $14.0 million annually through March 31, 2017. This base fee and each base fee going forward for the twelve month period beginning on each April 1 thereafter will equal 1.5% of our total equity (including noncontrolling interest) as of December 31 of the immediately preceding year subject to a $30.0 million cap, unless a greater amount is approved by a majority of our independent directors (or a committee comprised solely of independent directors).

Depreciation

Depreciation expenses consist primarily of depreciation of electric plant using the straight-line method of accounting based on rates established in our tenant’s most recent rate case. We begin to recognize depreciation on our assets when they are placed in service, which reduces our rate base in those assets.

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Other Items of Income or Expense

AFUDC is a non-cash accounting accrual that increases our CWIP balance. AFUDC rates are determined based on electric plant instructions found in the FERC regulations; AFUDC does not represent cash generated from operations. Once our T&D assets are placed in service, we stop accruing AFUDC on those assets.

Interest Expense, net

Interest expense, net is comprised of interest expense associated with our outstanding borrowings, increased or decreased by realized gains or losses on our cash flow hedging instruments, increased by amortization of deferred financing costs and decreased by the portion of AFUDC that relates to our cost of borrowed funds (AFUDC on borrowed funds).

Other Income (Expense), net

Other income (expense), net is comprised of AFUDC that relates to the cost of our equity (AFUDC on other funds). In 2014, the AFUDC on other funds was offset by $18.4 million of expenses we incurred related to a change in fair value of the Operating Partnership’s contingent consideration owed to Hunt-InfraREIT pursuant to the provisions of the Operating Partnership’s partnership agreement. See Contingent Consideration and Deemed Capital Contributions below for additional information regarding this contingent consideration.

Factors Expected To Affect Our Operating Results and Financial Condition

Our results of operations and financial condition will be affected by numerous factors, many of which are beyond our control. The key factors we expect to impact our results of operations and financial condition include our lease revenues, the amount of additional capital expenditures we make to fund Footprint Projects and the acquisition cost of any ROFO Projects we acquire.

Lease Revenues

Our revenue is derived from rent received from Sharyland, which is comprised of base rent, which is a fixed amount, and percentage rent, which is based on an agreed to percentage of Sharyland’s gross revenue, as defined in the leases, earned through the PUCT approved rates charged to its customers. Our negotiations of both base and percentage rent with Sharyland depend on the amount of rate base that is up for renewal or subject to a new lease. Because our existing rate base will decrease over time as our T&D assets are depreciated, the base rent under our leases with respect to a significant portion of our assets will also decrease over time as our assets are depreciated. As a result, rent under our leases will decrease over time, which would have a negative impact on our revenue, unless we add to our existing rate base by making additional capital expenditures and supplementing our leases to increase the rent owed to us in an amount sufficient to offset the decreases in the base rent resulting from depreciation of existing assets. Additionally, as a result of the percentage rent component of our leases, our revenue will vary based on Sharyland’s revenue. However, because the percentage rent under our leases for the future periods covered by our lease supplements ranges from 23% to 32% of Sharyland’s annual gross revenue in excess of annual specified breakpoints, our revenue does not vary as significantly as it would if we were an integrated utility.

Our lease revenue has increased over each of the last several years, and we expect our lease revenue to continue to increase in 2016 compared to 2015 as a result of lease revenue generated from the assets we placed in service during 2015 and the assets we expect to place in service during 2016.

Regulatory Recovery

Sharyland charges rates for its T&D services that are approved by the PUCT. With respect to transmission services, Sharyland charges all DSPs for its cost of service, or revenue requirement, as set forth in its most recent rate case. DSPs pay Sharyland a monthly amount based on each DSP’s pro rata share, during the prior year, of the ERCOT 4CP. With respect to distribution services, Sharyland charges REPs rates that are based upon tariffs approved in its most recent rate case. The tariff typically includes a per kWh charge and a flat customer charge for residential customers, and may include a per kWh, a per kW and a flat customer charge for other customer classes. Sharyland may update its rates through a full rate proceeding with the PUCT. Additionally, Sharyland may update its transmission rates up to two times per year through interim TCOS filings and its distribution rates no more than once a year through a DCRF filing. Sharyland agreed to a rate case settlement related to substantially all of our assets other than our distribution assets in McAllen, Texas that was approved by the PUCT on January 23, 2014 with an effective date of May 1, 2014. As a result of the rate case, Sharyland is entitled to earn a return on equity of 9.70% and a return on invested capital of 8.06% in calculating rates, assuming a capital structure consisting of 55% debt and 45% equity. Sharyland is required to file its next rate case on or before April 30, 2016, which will be based upon the test year ending December 31, 2015. Recent events, including complaints from ratepayers in Sharyland’s service territory regarding Sharyland’s delivery rates, have placed Sharyland under heightened scrutiny and may affect the outcome of the rate case. The PUCT’s determination on various matters related to the REIT structure in the Oncor change of control proceeding could also affect the consideration of similar matters in the Sharyland rate case.

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Capital Expenditures

Generally, we expect to enter into amended and restated lease supplements related to capital expenditures in advance of the year in which we expect the related assets to be placed in service. For instance, in late 2015, we entered into amended and restated lease supplements that memorialized Sharyland’s obligation to pay us rent on the capital expenditures we expect to place in service during 2016. As 2016 progresses, if the amount of expected placed in service capital expenditures, or the related placed in service or rate filing effective dates, differ from expectations, either Sharyland or we may request a rent validation in order to adjust rent obligations to true up the difference between actual and expected capital expenditure amounts and placed in service or rate filing effective dates. Our leases do not require that we follow this exact timeline and process, and we may determine, together with Sharyland, that an alternate process is more efficient.

InfraREIT, Inc. Results of Operations

	Years Ended December 31,
(In thousands)	2015			2014			2013
Lease revenue
Base rent	$	125,669		$	106,746		$	57,979
Percentage rent		25,534			27,669			15,214
Total lease revenue		151,203			134,415			73,193
Operating costs and expenses
General and administrative expense		64,606			18,625			13,691
Depreciation		40,211			35,080			20,024
Total operating costs and expenses		104,817			53,705			33,715
Income from operations		46,386			80,710			39,478
Other (expense) income
Interest expense, net		(28,554	)		(32,741	)		(17,384	)
Other income (expense), net		3,048			(17,236	)		20,932
Total other expense		(25,506	)		(49,977	)		3,548
Income before income taxes		20,880			30,733			43,026
Income tax expense		949			953			616
Net income		19,931			29,780			42,410
Less: Net income attributable to noncontrolling interest		6,664			6,882			10,288
Net income attributable InfraREIT, Inc.	$	13,267		$	22,898		$	32,122

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Lease revenue — Lease revenue was $151.2 million and $134.4 million for the years ended December 31, 2015 and 2014, respectively, representing an increase of $16.8 million, or 12.5%. Base rent was $125.7 million, or 83.1% of total revenue, and $106.7 million, or 79.4% of total revenue, for the years ended December 31, 2015 and 2014, respectively, representing an increase of $19.0 million, or 17.8%. The increase in base rent was driven by the addition of assets under lease. Percentage rent was $25.5 million, or 16.9% of total revenue, and $27.7 million, or 20.6% of total revenue, for the years ended December 31, 2015 and 2014, respectively, representing a decrease of $2.2 million, or 7.9%. Although Sharyland’s gross revenue increased in 2015 compared to 2014, our percentage rent decreased due to higher annual specified breakpoints and lower percentage rates in our leases during 2015 compared to 2014. See Note 19, Leases in the Notes to the Consolidated Financial Statements beginning on page F-1 for additional information.

General and administrative expense — General and administrative expense was $64.6 million and $18.6 million for the years ended December 31, 2015 and 2014, respectively, representing an increase of $46.0 million. The increase in general and administrative expense was primarily driven by a $44.9 million expense in connection with the issuance by InfraREIT, Inc. of common stock to Hunt-InfraREIT as a non-cash reorganization advisory fee in the first quarter of 2015, $2.3 million of increased management fees owed to Hunt Manager under our management agreement, an increase in insurance services of $1.2 million and $0.6 million of increased stock compensation expense, partially offset by a decrease in professional service fees of $3.2 million primarily related to legal, audit and tax services.

Depreciation — Depreciation expense was $40.2 million and $35.1 million for the years ended December 31, 2015 and 2014, respectively, representing an increase of $5.1 million, or 14.5%. The increase in depreciation expense was due to additional assets placed in service during 2015 and 2014.

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Interest expense, net — Interest expense, net was $28.6 million and $32.7 million during the years ended December 31, 2015 and 2014, respectively, representing a decrease of $4.1 million, or 12.5%. The decrease in interest expense, net was due to lower interest expense related to our debt which is primarily due to the payoff of our revolving credit facilities in February 2015as a result of our IPO and lower borrowings on our revolving credit facilities during 2015 as compared to 2014. See Note 8, Borrowings Under Credit Facilities in the Notes to the Consolidated Financial Statements beginning on page F-1 for additional information.

Other income (expense), net — Other income, net was $3.0 million during the year ended December 31, 2015 as compared to other expense, net of $17.2 million for the year ended December 31, 2014 which represents an increase in income of $20.2 million. The increase in other income, net was driven by an increase in AFUDC on other funds of $1.9 million resulting from higher CWIP balances and applicable rates during 2015 and the elimination of our Operating Partnership’s contingent consideration obligation to Hunt-InfraREIT, for which we incurred $18.4 million of expense during the year ended December 31, 2014. See Note 11, Contingent Consideration in the Notes to the Consolidated Financial Statements beginning on page F-1 for additional information.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Lease revenue — Lease revenue was $134.4 million for the year ended December 31, 2014 compared to $73.2 million for the year ended December 31, 2013, an increase of $61.2 million, or 83.6%. Base rent contributed $106.7 million, or 79.4% of total revenue, for the year ended December 31, 2014 compared to $58.0 million, or 79.2% of the total revenue, for the year ended December 31, 2013. The increase in base rent was driven by the addition of assets under lease. Percentage rent was $27.7 million, or 20.6% of total revenue, for the year ended December 31, 2014, compared to $15.2 million, or 20.8% of total revenue, during the year ended December 31, 2013. The increase in percentage rent was due to Sharyland recognizing more revenue above the annual specified breakpoints during 2014 as compared to 2013. See Note 19, Leases in the Notes to the Consolidated Financial Statements beginning on page F-1 for additional information.

General and administrative expense — General and administrative expenses were $18.6 million and $13.7 million for the year ended December 31, 2014 and 2013, respectively, an increase of $4.9 million, or 35.8%. The increase in general and administrative expense was driven by an increase in professional services of $6.0 million, primarily related to legal, audit and tax services to prepare the Company for our IPO, which closed on February 4, 2015. The increase in professional services during 2014 was partially offset by the management fee paid to Hunt Manager during 2014 being lower than the allocated manager costs reflected in 2013. Historically, our general and administrative expenses included all costs incurred on our behalf by Hunt Manager, including compensation expenses, overhead costs related to the lease of our office space and software license fees. On June 24, 2014, InfraREIT, L.L.C.’s board of directors agreed to increase the annual management fee from $2.5 million to $10.0 million effective January 1, 2014. As a result, our general and administrative expenses for the year ended December 31, 2014 did not include costs incurred by our external manager during that period but did include management fees paid to Hunt Manager as well as additional costs we incurred directly, such as professional services costs and direct reimbursement of third-party costs paid to outside service providers. As a result of the increased management fee, we incurred costs associated with management fees of $10.0 million during the year ended December 31, 2014.

Depreciation — Depreciation expense was $35.1 million for the year ended December 31, 2014 compared to $20.0 million for the year ended December 31, 2013, an increase of $15.1 million, or 75.5%. The increase in depreciation expense was due to additional assets being placed in service, primarily driven by a full year of depreciation on our CREZ assets that were placed in service throughout 2013.

Interest expense, net — Interest expense, net was $32.7 million during the year ended December 31, 2014 compared to $17.4 million for the year ended December 31, 2013, an increase of $15.3 million, or 87.9%. The increase in interest expense, net was due to lower AFUDC on borrowed funds of $10.9 million during the year ended December 31, 2014 compared to the same period in 2013, resulting from our lower CWIP balances throughout 2014 after our CREZ assets were placed in service throughout 2013. Additionally, the remaining increase in interest expense of $4.4 million during the year ended December 31, 2014, compared to the same period in 2013, was primarily a result of higher debt balances. See Note 8, Borrowings Under Credit Facilities in the Notes to the Consolidated Financial Statements beginning on page F-1 for additional information.

Other income (expense), net — Other expense, net was $17.2 million during the year ended December 31, 2014 compared to other income, net of $20.9 million for the year ended December 31, 2013, a decrease of $38.1 million, or 182.3%. The decrease in other income, net was driven by a decline in AFUDC on other funds of $20.6 million to $1.1 million for the year ended December 31, 2014 compared to $21.7 million in 2013. The decrease of AFUDC on other funds resulted from our lower CWIP balances after our CREZ assets were placed in service throughout 2013. Other income, net also included $18.4 million of expense related to a change in fair value of the Operating Partnership’s contingent consideration owed to Hunt-InfraREIT pursuant to the provisions of the Operating Partnership’s partnership agreement during the year ended December 31, 2014 as compared to $0.8 million for the year ended December 31, 2013. See Note 11, Contingent Consideration in the Notes to the Consolidated Financial Statements beginning on page F-1 for additional information.

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Liquidity and Capital Resources

As of December 31, 2015, we had $9.5 million of unrestricted cash and cash equivalents. We use our cash on hand primarily for the payment of capital expenditures, operating expenses, debt service payments and dividend payments. As of December 31, 2015, we also had $1.7 million of restricted cash and $271.0 million of unused capacity under our revolving credit facilities.

We use our cash flows from operations and borrowings under our credit facilities to fund current obligations, projected working capital requirements, maturities of long-term debt, budgeted capital spending and the payment of dividends in accordance with REIT requirements of the U.S. federal income tax laws and our distribution policy. We expect that we will be able to fund estimated capital expenditures associated with Footprint Projects through the end of 2018 without raising proceeds from additional equity offerings. However, if (1) we purchase one or more ROFO Projects or other non-Footprint Projects, (2) debt capital is unavailable on favorable terms or at all at a time when we would choose to access debt capital markets, (3) the capital expenditure requirements of our business are different than expectations, (4) our credit metrics are weaker than our expectations, (5) the cash flows from operations do not meet our current estimates or (6) any other unexpected factors, such as capitalization or other requirements imposed by the PUCT, were to impact our liquidity and cash position, we may seek to raise proceeds from the equity markets at an earlier time.

Under the terms of our leases, Sharyland provides a capital expenditure forecast on a rolling three year basis that sets forth anticipated capital expenditures related to our T&D assets. We fund Footprint Projects related to our T&D assets as we and Sharyland determine such Footprint Projects are required pursuant to the terms of our leases. To the extent we fund such Footprint Projects, Sharyland is required to lease the assets related to such Footprint Projects.

Management expects the future operating cash flows, along with access to financial markets, will be sufficient to meet any future operating requirements and capital investment forecasted opportunities. If our ability to access the capital markets is restricted or if debt or equity capital were unavailable on favorable terms or at all at a time when we would like, or need, to access those markets, our ability to fund capital expenditures under our leases or to comply with the REIT distribution rules could be adversely affected.

Capital Expenditures

Our total capital expenditures for the years ended December 31, 2015, 2014 and 2013 were $239.2 million, $210.8 million and $390.3 million, respectively. Although our development agreement was not effective until the consummation of our IPO and we had not historically categorized projects as Footprint Projects, our capital expenditures for the years ended December 31, 2014 and 2013 include expenditures of $34.9 million and $4.7 million, respectively, on projects that were transferred on January 15, 2015 for cash of $41.2 million to Hunt or one of its affiliates and designated as ROFO Projects under our development agreement. The purchase price of $41.2 million equaled the rate base of the transferred assets plus reimbursement of out of pocket expenses associated with the formation of related special purpose entities and the Cross Valley Project financing.

On an accrual basis, capital expenditures for the years ended December 31, 2015, 2014 and 2013 were $230.4 million, $188.5 million and $368.8 million, respectively. Capital expenditures on an accrual basis differ from our total capital expenditures and cash for additions to electric plant on the Consolidated Statements of Cash Flows due in part to differences in construction costs incurred during the period versus cash paid during the period.

We expect to have significant future capital expenditures as a result of the customer growth in Sharyland’s service territory. The table below shows the estimated aggregate capital expenditures we expect to make on Footprint Projects during 2016 through 2018. We intend to fund these capital expenditures with a mix of debt and cash flows from operations. Our three year capital expenditures forecast reflects estimates of the requirements to improve the reliability of our existing system and meet the identified and expected requirements of customers, reflecting the historical and estimated future growth in our service territories. The wider range for the forecasts in 2017 and 2018 relative to 2016 reflect uncertainties relating to system needs and customer requirements in our West Texas service territory in particular.

		Years Ended December 31,
(In millions)		2016		2017		2018
Total estimated Footprint Projects capital expenditures	$	220-240	$	250-280	$	170-220

Our expectation is based upon a variety of assumptions, including load growth, Sharyland’s and our past experience, reliability needs and historical precedent. Although we believe these assumptions and estimates underlying the forecast to be reasonable as of the date of this report, they are inherently uncertain and subject to a wide variety of significant business, economic and competitive risks and uncertainties that could cause the amount and timing of our capital expenditures to differ materially from our current expectations. See Forward-Looking Statements at the beginning of this Annual Report on Form 10-K.

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In November 2015, the Conflicts Committee of our board of directors received an offer for the purchase of the Golden Spread Project, which is an approximately 50 mile transmission line connecting one of GSEC’s gas-fired generation facilities to our CREZ transmission line and is one of the ROFO Projects under our development agreement with Hunt Developer. Additionally, in February 2016, the Conflicts Committee of our board of directors received an offer for the purchase of the Cross Valley Project, which is an approximately 50 mile transmission line in South Texas near the Mexican border and is also one of the ROFO Projects under our development agreement with Hunt Developer. As of the date of this Annual Report on Form 10-K, negotiations are in progress for both projects. Assuming the Conflicts Committee of our board of directors approves the purchase of these two ROFP Projects in 2016, and given their size, we would expect to issue equity to fund a portion of these acquisitions.

Dividends and Distributions

We intend to target a payout ratio of 80-90% of our annual cash available for distribution through regular quarterly cash dividends. Our 2015 quarterly dividend rate was $0.225 per share, or $0.90 per share on an annualized basis. On March 2, 2016, our board of directors declared a dividend of $0.25 per share of common stock, or $1.00 per share on an annualized basis, payable on April 21, 2016 to holders of record as of March 31, 2016. Our board of directors also authorized our Operating Partnership to make a distribution of $0.25 per OP Unit to the partners in our Operating Partnership, which includes affiliates of Hunt.

We paid a total of $61.6 million and $12.2 million in dividends or distributions during the years ended December 31, 2015 and 2013, respectively. We did not pay any dividends or distributions during the year ended December 31, 2014.

Credit Arrangements

We have two revolving credit facilities and senior secured notes. During 2015, we also had a term loan that we repaid in full on December 3, 2015. See Note 8, Borrowings Under Credit Facilities and Note 9, Long-Term Debt in the Notes to the Consolidated Financial Statements beginning on page F-1 for additional information.

Operating Partnership Revolving Credit Facility

In 2014, our Operating Partnership entered into a $75.0 million revolving credit facility led by Bank of America, N.A., as administrative agent, with up to $15.0 million available for issuance of letters of credit and a maturity date of December 10, 2019. The revolving credit facility is secured by substantially all of the assets of the Operating Partnership. In addition, InfraREIT, Inc. and TDC, a subsidiary of the Operating Partnership, guarantee the revolving credit facility, and the TDC guarantee is secured by the assets of, and the Operating Partnership’s equity interest in, TDC on materially the same basis as with TDC’s senior secured notes described below.

The credit agreement requires the Operating Partnership to comply with coverage ratios on a consolidated basis and contains affirmative and negative covenants, including, limitations on additional debt, liens, investments, mergers, acquisitions, dispositions or entry into any line of business other than the business of the transmission and distribution of electric power and the provision of ancillary services and certain restrictions on the payment of dividends. The credit agreement also contains restrictions on the amount of Sharyland’s indebtedness and other restrictions on, and covenants applicable to, Sharyland. The revolving credit facility is subject to customary events of default. If an event of default occurs or is continuing, the lenders may accelerate amounts due under the revolving credit facility (except in the case of a bankruptcy event of default, in which case such amounts will automatically become due and payable).

There were no outstanding borrowings or letters of credit under the revolving credit facility at December 31, 2015, and there was $75.0 million of borrowing capacity available. At December 31, 2014, $57.0 million of borrowings were outstanding at a 2.66% interest rate and no letters of credit were outstanding, with $18.0 million of remaining borrowing capacity under this revolving credit facility. As of December 31, 2015 and 2014, the Operating Partnership was in compliance with all debt covenants under the credit agreement.

SDTS Revolving Credit Facility

SDTS is party to a revolving credit facility, led by Royal Bank of Canada, as administrative agent. Originally established in 2013, the credit facility permits SDTS to borrow up to $250.0 million on a revolving basis. Up to $25.0 million of the revolving credit facility is available for issuance of letters of credit, and up to $5.0 million of the revolving credit facility is available for swingline loans. The revolving credit facility matures on December 10, 2019 and is secured by SDTS’s T&D assets, our leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s various senior secured note obligations described below.

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The SDTS revolving credit facility is subject to customary events of default. If an event of default occurs and is continuing, the lenders may accelerate amounts due under the SDTS revolving credit facility (except in the case of a bankruptcy event of default, in which case such amounts will automatically become due and payable).

At December 31, 2015, SDTS had $54.0 million of borrowings outstanding at a weighted average interest rate of 2.05%, no letters of credit outstanding and $196.0 million of borrowing capacity available. At December 31, 2014, SDTS had $162.0 million of borrowings outstanding at a 1.91% interest rate with no letters of credit outstanding and $88.0 million of remaining borrowing capacity under this revolving credit facility. As of December 31, 2015 and 2014, SDTS was in compliance with all debt covenants under the credit agreement.

In January 2016, proceeds from the issuance of the new SDTS Senior Secured Notes, Series B were used to repay the outstanding balance on the SDTS revolving credit facility. See the caption Senior Secured Notes below for additional information.

CREZ Construction Loan

In 2011, Sharyland Projects, LLC (SPLLC), at the time one of our subsidiaries, entered into a construction term loan agreement syndicated by a group of international banks, and issued $60.0 million in fixed rate notes to The Prudential Insurance Company of America and affiliates (Fixed Rate Notes). In 2014, the construction term loan was converted into a term loan with a balance of $407.0 million.

The carrying amount of the term loan at December 31, 2014 was $397.8 million with an interest rate of 2.42%. On December 3, 2015, the outstanding principal and interest on the term loan were paid in full from the proceeds from the SDTS Senior Secured Notes, Series A. Also on December 3, 2015, the Fixed Rate Notes were assumed by SDTS in connection with the merger of SPLLC into SDTS. The $60.0 million Fixed Rate Notes accrue interest at 5.04% per annum and mature on June 20, 2018 with interest paid quarterly. The Fixed Rate Notes do not provide for any principal payments. The carrying amount of the Fixed Rate Notes was $60.0 million at December 31, 2015 and 2014. The Fixed Rate Notes are secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s revolving credit facility described above, and as SDTS’s 2009 Notes, 2010 Notes, Series A Notes and Series B Notes described below.

The credit agreement governing the Fixed Rate Notes contains certain default triggers, including: failure to maintain compliance with financial and other covenants contained in the agreements, limitations on liens, investments and the incurrence of additional indebtedness. SDTS was in compliance with all debt covenants for the Fixed Rate Notes as of December 31, 2015. SPLLC was in compliance with all debt covenants for the term loan and Fixed Rate Notes as of December 31, 2014.

Senior Secured Notes

In 2009, SDTS issued $53.5 million aggregate principal amount of 7.25% per annum senior secured notes to The Prudential Insurance Company of America and affiliates (2009 Notes), which mature on December 30, 2029. Principal and interest on these senior secured notes are payable quarterly. As of December 31, 2015, $44.5 million of principal was outstanding under these senior secured notes. In connection with the acquisition of Cap Rock in July 2010, our subsidiaries entered into several different debt arrangements, including $110.0 million aggregate principal amount of 6.47% per annum senior secured notes SDTS issued to The Prudential Insurance Company of America (2010 Notes), which mature on September 30, 2030. Principal and interest on these senior secured notes are payable quarterly. As of December 31, 2015, $101.6 million of principal was outstanding under these senior secured notes.

On September 28, 2015, SDTS amended its 2009 Notes and 2010 Notes and related collateral agreements in order to, among other things, modify the collateral requirements. The 2009 Notes and 2010 Notes are secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s revolving credit facility described above, and as SDTS’s Series A Notes, Series B Notes and Fixed Rate Notes.

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On December 3, 2015, SDTS issued $400.0 million in 10 year senior secured notes, series A (Series A Notes), due December 3, 2025, and on January 14, 2016 issued an additional $100.0 million in 10 year senior secured notes, series B (Series B Notes), due January 14, 2026. These senior secured notes were issued through a private placement conducted pursuant to Section 4(a)(2) of the Securities Act and will bear interest at a rate of 3.86% per annum, payable semi-annually. The Series A Notes will be due in full on December 3, 2025 with outstanding accrued interest payable each June and December. The Series B Notes will be due in full on January 14, 2026 with outstanding accrued interest payable each January and July. As of December 31, 2015, $400.0 million of principal was outstanding under the Series A Notes. The Series A Notes and Series B Notes are secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s revolving credit facility described above, and as SDTS’s 2009 Notes, 2010 Notes and Fixed Rate Notes. The proceeds from the Series A Notes were used to repay the SPLLC term loan, and the proceeds from the Series B Notes were used to repay our outstanding balances on the SDTS revolving credit facility and for general operating purposes.

In connection with the acquisition of Cap Rock, TDC issued $25.0 million aggregate principal amount of 8.50% per annum senior secured notes to The Prudential Insurance Company of America and affiliates, which mature on December 30, 2020. Principal and interest on these senior secured notes are payable quarterly and these senior secured notes are collateralized by the equity interests of TDC and certain accounts of TDC. As of December 31, 2015, $18.8 million of principal was outstanding under these senior secured notes.

SDTS and TDC are entitled to prepay amounts outstanding under their senior secured notes, subject to a prepayment penalty equal to the excess of the discounted value of the remaining scheduled payments with respect to such notes over the amount of the prepaid notes.

The agreements governing the senior secured notes contain certain default triggers, including: failure to maintain compliance with financial and other covenants contained in the agreements, limitations on liens, investments and the incurrence of additional indebtedness. As of December 31, 2015 and 2014, SDTS and TDC were in compliance with all covenants under the applicable agreements.

The foregoing descriptions of our credit agreements are only summaries. For a complete description, refer to the credit documents which are incorporated by reference as filed exhibits to this Annual Report on Form 10-K.

Cash Flows

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Cash flows from operating activities — Net cash provided by operating activities was $105.8 million and $82.5 million during the years ended December 31, 2015 and 2014, respectively. The increase in net cash provided by operating activities related primarily to higher lease revenue during the year ended December 31, 2015 compared to the same period of 2014, combined with less cash used by working capital changes during the 2015 period compared to the 2014 period.

Cash flows from investing activities — Net cash used in investing activities was $369.3 million and $210.8 million during the years ended December 31, 2015 and 2014, respectively. The increase related to our use of cash during 2015 was attributable to higher additions to our net plant in 2015 compared to 2014 and to our use of $172.4 million of IPO proceeds as cash consideration in the Merger, partially offset by our receipt of cash proceeds of $41.2 million in the first quarter of 2015 from the sale of the Cross Valley Project and Golden Spread Project to a Hunt affiliate and our sale of marketable securities for cash of $1.1 million in the first quarter of 2015.

Cash flows from financing activities — Net cash provided by financing activities was $257.3 million and $136.2 million during the years ended December 31, 2015 and 2014, respectively. The increase related primarily to our receipt of net cash proceeds of $493.7 million from our IPO during the first quarter of 2015, partially offset by the payment of dividends and distributions of $61.6 million throughout 2015. During 2015, we had borrowings of $487.0 million and repayments of borrowings of $657.9 million compared to borrowings of $365.0 million and repayments of borrowings of $223.9 million during 2014.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Cash flows from operating activities — Net cash provided by operating activities was $82.5 million and $21.3 million during the years ended December 31, 2014 and 2013, respectively. In addition to working capital changes during the periods presented, our increase in cash rent payments was the primary driver of the change in cash flows from operating activities.

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Cash flows from investing activities — Net cash used in investing activities was $210.8 million and $390.3 million during the years ended December 31, 2014 and 2013, respectively. The net cash used in investing activities was driven by our capital expenditures related to construction of our T&D assets.

Cash flows from financing activities — Net cash provided by financing activities was $136.2 million and $360.3 million during the years ended December 31, 2014 and 2013, respectively. Cash provided by financing activities was driven by borrowings of $365.0 million and $258.0 million during the years ended December 31, 2014 and 2013, respectively. Additionally, cash provided by financing activities included members’ contributions of $136.9 million during the year ended December 31, 2013. Cash provided by financing activities was partially offset by cash used in financing activities, including dividends paid and distributions to noncontrolling interest of $12.2 million during the year ended December 31, 2013. Cash provided by financing activities also included repayments of borrowings of $223.9 million and $23.2 million during the years ended December 31, 2014 and 2013, respectively.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of December 31, 2015 and 2014.

Contingent Consideration and Deemed Capital Contributions

Contingent Consideration

In connection with our acquisition of our Operating Partnership in 2010, we agreed to contingent consideration in the form of future deemed capital credits in the amount of up to $82.5 million to Hunt-InfraREIT. The capital account credits, which were generated pro rata with our cash expenditures on our CREZ Project up to $737.0 million, were issued to Hunt-InfraREIT in the form of Class A OP Units at the agreed upon deemed issue price of $10.65 per unit on the first day of each quarter following the actual expenditures. The future deemed capital credits were determined to be contingent consideration and were assessed a fair value of $78.6 million at the date of acquisition and included as a component of long-term liabilities on the Consolidated Balance Sheets.

As of December 31, 2014, the Operating Partnership had issued, as described above, approximately 6.7 million of Class A OP Units to Hunt-InfraREIT. During the first quarter of 2015, the following transactions occurred:

· On January 1, 2015, the Operating Partnership issued 53,246 Class A OP Units to Hunt-InfraREIT.

· On February 4, 2015, in connection with the Reorganization, InfraREIT LP issued Hunt-InfraREIT 983,418 common units in full settlement of the Operating Partnership’s contingent consideration obligation.

We recognized $18.4 million and $0.8 million as expense due to changes in fair value of our contingent consideration in accordance with the acquisition agreement during the years ended December 31, 2014 and 2013, respectively. This expense was recorded as part of other (expense) income, net on the Consolidated Statements of Operations. There was no expense recorded during the year ended December 31, 2015 related to our contingent consideration. As of December 31, 2014, $27.4 million was recorded as a current liability in the form of contingent consideration on the Consolidated Balance Sheets. As of December 31, 2015, no such liability was recorded, as the contingent consideration was fully settled.

Deemed Capital Credits

In connection with the organization of InfraREIT, L.L.C. in November 2010, the Operating Partnership agreed to issue deemed capital credits and Class A OP Units to Hunt-InfraREIT with respect to certain development projects. The amount of the capital account credits the Operating Partnership was required to issue equaled 5% of our capital expenditures on these projects, including AFUDC. The number of Class A OP Units the Operating Partnership was required to issue equaled the amount of the capital account credit divided by $10.65. During the year ended December 31, 2014, the Operating Partnership issued approximately 104,763 Class A OP Units, and on January 1, 2015 the Operating Partnership issued an additional 17,600 Class A OP Units to Hunt-InfraREIT. We recorded these capital account credits as asset acquisition costs included as part of the capital project in our CWIP balance. The capital account credits earned as of December 31, 2014 represent 5% of the estimated capital expenditures and AFUDC related to the expansion of our Railroad DC Tie. Following the consummation of our IPO, we no longer have the obligation to issue these deemed capital credits or related equity.

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Contractual Obligations

The table below summaries our contractual obligations and other commitments as of December 31, 2015.

(In thousands)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Long-term debt - principal	$	624,889	$	7,423	$	76,154	$	30,605	$	510,707
Long-term debt - interest		252,406		29,667		56,114		49,514		117,111
Revolving credit facilities - debt		54,000		54,000		—		—		—
Revolving credit facilities - interest (1)		43		43		—		—		—
Management fee (2)		55,829		13,787		28,028		14,014		—
Total	$	987,167	$	104,920	$	160,296	$	94,133	$	627,818

(1) Interest for floating rate based on LIBOR as of December 31, 2015 plus an applicable margin.

(2) The management fee for the less than one year period is based on the current fee of $13.1 million and the annual amount of $14.0 million for April 1, 2016 through March 31, 2017. The remaining time periods are estimated based on the annual base fee of $14.0 million for April 1, 2016 to March 31, 2017. However, it does not include any incentive payments that may be owed to Hunt Manager.

Summary of Critical Accounting Policies and Estimates

The selection and application of accounting policies is an important process that has developed as our business activities have evolved and as the accounting rules have developed. Accounting rules generally do not involve a selection among alternatives, but involve an implementation and interpretation of existing rules, and the use of judgment regarding the specific set of circumstances existing in our business. Compliance with the rules necessarily involves reducing a number of very subjective judgments to a quantifiable accounting entry or valuation. We endeavor to properly comply with all applicable rules on or before their adoption, and we believe the proper implementation and consistent application of the accounting rules are critical. Our most significant accounting policies are discussed below. See Note 1, Description of Business and Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements beginning on page F-1 for further detail on our accounting policies.

Regulatory

For regulatory purposes, including regulatory reporting, our T&D assets and the operations of our tenant are viewed on a combined basis. As a result, regulatory principles applicable to the utility industry also apply to us. The financial statements reflect regulatory assets and liabilities under cost based rate regulation in accordance with accounting standards related to the effect of certain types of regulation. Regulatory decisions can have an impact on the recovery of costs, the rate earned on invested capital and the timing and amount of assets to be recovered by rates.

We capitalize AFUDC during the construction period of our T&D assets, and our lease agreements with Sharyland rely on FERC definitions and policies regarding capitalization of expenses to define the term Footprint Projects, which are the amounts we are obligated to fund pursuant to our leases. The amounts we fund for these Footprint Projects include allocations of Sharyland employees’ time, including overhead allocations consistent with FERC policies and U.S. GAAP.

Electric Plant, net

Electric plant is stated at the original cost of acquisition or construction, which includes the cost of contracted services, direct labor, materials, acquisition adjustments and overhead items. In accordance with the FERC uniform system of accounts guidance, we capitalize AFUDC, which represents the approximate cost of debt and equity to finance plant under construction. AFUDC on borrowed funds is classified on our Consolidated Statements of Operations as a reduction of our interest expense, while AFUDC on other funds is classified as other income. AFUDC rates are determined based on electric plant instructions found in the FERC regulations.

Depreciation of property, plant and equipment is calculated on a straight-line basis over the estimated service lives of the properties based on depreciation rates approved by the PUCT. As is common in the industry, depreciation expense is recorded using composite depreciation rates that reflect blended estimates of the lives of major asset groups as compared to depreciation expense calculated on a component asset-by-asset basis. Depreciation rates include plant removal costs as a component of depreciation expense, consistent with regulatory treatment. Actual removal costs incurred are charged to accumulated depreciation. When accrued removal costs exceed incurred removal costs, the difference is reclassified as a regulatory liability to retire assets in the future.

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Whether a particular expenditure is characterized as a Footprint Project, which we are required to fund, or a repair, which Sharyland is required to fund, depends on its characterization based on our capitalization policies following standard utility practices under U.S. GAAP. We fund expenditures relating to Footprint Projects, which are capitalized and increase our net electric plant. Sharyland funds expenditures relating to repairs of our existing T&D assets and expenses such costs.

Goodwill

Goodwill represents the excess of costs of an acquired business over the fair value of the assets acquired, less the amount of liabilities assumed. Goodwill is not amortized and is tested for impairment annually or more frequently if events or changes in circumstances arise. As of December 31, 2015 and 2014, we had $138.4 million in goodwill recorded on our Consolidated Balance Sheets, of which $83.4 million related to the acquisition of Cap Rock and $55.0 million related to InfraREIT, L.L.C.’s formation transactions, each of which occurred in 2010. These amounts are not reflected as goodwill for federal income tax purposes.

Business Combinations

As the acquirer of a business, we recognize and measure in our financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree, measured at their fair values as of the acquisition date. We recognize contingent consideration arrangements at their acquisition date fair values with subsequent changes in fair value reflected in earnings. Significant estimates and management assumptions are used to determine the fair value of business combinations and the accounting for contingent consideration.

Income Taxes

InfraREIT, L.L.C. elected to be treated as a REIT under Sections 856 through 860 of the Code, commencing with the taxable year ended December 31, 2010 and InfraREIT, Inc. will elect to be taxed as a REIT commencing with the taxable year ending December 31, 2015. We believe that we have been organized and operate, and InfraREIT, L.L.C. was organized and operated, in a manner that allowed InfraREIT, L.L.C. to qualify for taxation as a REIT for U.S. federal income tax purposes commencing with its 2010 taxable year and through the consummation of the Merger, and allows us to qualify as a REIT for federal income tax purposes commencing with the 2015 taxable year, and we intend to continue operating in such a manner. To maintain our qualification as a REIT, we are required to annually distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, and meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided that we qualify for taxation as a REIT, we generally will receive a deduction for dividends paid to our stockholders for U.S. federal income tax purposes which will reduce our taxable income. We are still liable for state and local income and franchise taxes and to federal income and excise tax on our undistributed income. If we fail to qualify as a REIT in any taxable year and are unable to avail ourselves of certain savings provisions set forth in the Code, all of our taxable income would be subject to federal income tax at regular corporate rates, including any applicable alternative minimum tax. Unless entitled to relief under specific statutory provisions, we would be ineligible to elect to be treated as a REIT for the four taxable years following the year for which we lose our qualification. It is not possible to state whether in all circumstances we would be entitled to this statutory relief.

Revenue Recognition

Our lease revenue consists of annual base rent and percentage rent based upon a percentage of the revenue Sharyland generates on our leased T&D assets in excess of an annual specified breakpoint. Applicable guidance provides that we recognize lease revenue over the term of lease agreements with Sharyland. Applying this principle, we recognize the base rent amounts that were in effect at the time the original leases were executed over the term of the applicable lease on a straight-line basis. Our leases require that we and Sharyland supplement the base rent amounts, and the percentages that are used to calculate percentage rent, if the amount of capital expenditures we have funded that are placed in service exceeds base amounts set forth in the lease. We recognize the increases to base rent related to these incremental capital expenditures on a straight-line basis over the lease term. We recognize percentage rent under the leases at such time as the revenue earned by Sharyland on the leased assets exceeds the annual specified breakpoint for the applicable lease.

Deferred Financing Costs and Other Regulatory Assets

Amortization of deferred financing costs associated with TDC’s debt issuance is computed using the straight-line method over the life of the loan, which approximates the effective interest method. Amortization of deferred financing costs associated with the debt of SDTS, and previously SPLLC, is computed using the straight-line method over the life of the loan in accordance with the applicable regulatory guidance.

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Deferred costs recoverable in future years of $23.8 million at December 31, 2015 and 2014 represent operating costs incurred from inception of Sharyland through December 31, 2007. We have determined that these costs are probable of recovery through future rates based on orders of the PUCT in Sharyland’s prior rate cases and regulatory precedent.

Derivative Instruments

We use derivatives to hedge against changes in cash flows related to interest rate risk (cash flow hedging instrument). We record all derivatives on our Consolidated Balance Sheets at fair value. We determine the fair value of the cash flow hedging instrument based on the difference between the cash flow hedging instrument’s fixed contract price and the underlying market price at the determination date. The asset or liability related to the cash flow hedging instrument is recorded on our Consolidated Balance Sheets at its fair value.

We record unrealized gains and losses on the effective cash flow hedging instrument as components of accumulated other comprehensive income. We record realized gains and losses on the cash flow hedging instrument as adjustments to interest expense, net. Settlements of derivatives are included within operating activities on our Consolidated Statements of Cash Flows. Any ineffectiveness in the cash flow hedging instrument would be recorded as an adjustment to interest expense in the current period.

Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles

We use certain financial measures that are not recognized under U.S. GAAP. The non-GAAP financial measures used in this report include Non-GAAP earnings per share (Non-GAAP EPS); cash available for distribution (CAD); earnings before interest, taxes, depreciation and amortization (EBITDA); EBITDA as adjusted in the manner described below (Adjusted EBITDA); funds from operations (FFO) and FFO adjusted in the manner described below (AFFO). We derive these measures as follows to appropriately show our core operational performance:

· We define non-GAAP net income as net income adjusted in a manner we believe is appropriate to show our core operational performance, including:

· adding back the non-cash reorganization structuring fee;

· adding back the reorganization expense related to our IPO and related reorganization transactions;

· adding back the expense related to the contingent consideration issued as deemed capital credits;

· a quarterly, not annual, adjustment for the difference between the amount of percentage rent payments we expect to receive with respect to the applicable period and the amount of percentage rent we recognize under U.S. GAAP during the period; and

· an adjustment for the difference between the amount of base rent payments that we receive with respect to the applicable period and the amount of straight-line base rent recognized under U.S. GAAP.

· We define Non-GAAP EPS as non-GAAP net income divided by the weighted average shares outstanding calculated in the manner described in the footnotes in the Non-GAAP EPS reconciliation tables below.

· We define CAD in a manner which includes a deduction of the portion of capital expenditures needed to maintain our net assets which equals depreciation expense within the applicable period. The portion of capital expenditures in excess of depreciation, which we refer to as growth capital expenditures, will increase net assets. The CAD calculation also includes adjustments for the amortization of deferred financing costs and stock compensation expense along with various other adjustments from net income that are consistent with the adjustments made to Non-GAAP EPS, FFO or EBITDA, which are more fully explained above and below.

· We define EBITDA as net income before interest expense, net; income tax expense; depreciation and amortization.

· Adjusted EBITDA is defined as EBITDA adjusted for certain items, such as:

· adding back the non-cash reorganization structuring fee;

· a quarterly, not annual, adjustment for the difference between the amount of percentage rent payments we expect to receive with respect to the applicable period and the amount of percentage rent we recognize under U.S. GAAP during the period;

· an adjustment for the difference between the amount of base rent payments we receive with respect to the applicable period and the amount of straight-line base rent recognized under U.S. GAAP;

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· adding back the reorganization expense related to our IPO and related reorganization transactions; and

· adjusting for other income (expense), net.

· The National Association of Real Estate Investment Trusts (NAREIT) defines FFO as net income (computed in accordance with U.S. 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 our consolidated financial statements results in FFO representing net income before depreciation, impairment of assets and gain (loss) on sale of assets. FFO does not represent cash generated from operations as defined by U.S. GAAP and it is not indicative of cash available to fund all cash needs, including distributions.

· AFFO is FFO adjusted for the same items that are used to adjust net income for Adjusted EBITDA.

Our management uses Non-GAAP EPS, CAD, EBITDA, Adjusted EBITDA, FFO and AFFO as important supplemental measures of our operating performance. These non-GAAP performance measures are presented because we believe these non-GAAP measures help investors understand our business, performance and ability to earn and distribute cash to our stockholders by providing perspectives not immediately apparent from net income. These measures are frequently used by securities analysts, investors and other interested parties in the evaluations of utilities, yieldcos and REITs. The presentation of Non-GAAP EPS, CAD, EBITDA, Adjusted EBITDA, FFO and AFFO are not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.

We offer these measures to assist the users of our financial statements in assessing our operating performance under U.S. GAAP, but these measures are non-GAAP measures and should not be considered measures of liquidity, alternatives to net income or indicators of any other performance measure determined in accordance with U.S. GAAP, nor are they indicative of funds available to fund our cash needs, including capital expenditures, make payments on our indebtedness or make distributions. Our method of calculating these measures may be different from methods used by other companies and, accordingly, may not be comparable to similar measures as calculated by other companies that do not use our same methodology. Investors should not rely on these measures as a substitute for any U.S. GAAP measure, including net income, cash flows provided by operating activities or revenues.

Non-GAAP EPS was $1.21 per share for the year ended December 31, 2015 compared to $1.24 per share for the year ended December 31, 2014, representing a decrease of 2.4%. For the year ended December 31, 2015, CAD was $72.6 million, or $1.20 per share, compared to $59.9 million, or $1.31 per share, for the year ended December 31, 2014. CAD per share was based on 60.6 million shares outstanding at December 31, 2015 as compared to 45.7 million shares outstanding at December 31, 2014. Adjusted EBITDA was $138.4 million for the year ended December 31, 2015 compared to $124.2 million for the year ended December 31, 2014, representing an increase of 11.4%. For the year ended December 31, 2015, AFFO was $108.9 million compared to $90.5 million in the same period in 2014, representing an increase of 20.3%.

Non-GAAP EPS was $1.24 per share for the year ended December 31, 2014 compared to $1.07 per share for the year ended December 31, 2013, representing an increase of 15.9%. For the year ended December 31, 2014, CAD was $59.9 million, or $1.31 per share, compared to $23.7 million, or $0.52 per share, for the year ended December 31, 2013. CAD per share was based on 45.7 million shares outstanding at December 31, 2014 as compared to 45.3 million shares outstanding at December 31, 2013. Adjusted EBITDA was $124.2 million for the year ended December 31, 2014 compared to $58.2 million for the year ended December 31, 2013, representing an increase of 113.4%. For the year ended December 31, 2014, AFFO was $90.5 million compared to $40.2 million in the same period in 2013, representing an increase of 125.1%.

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Non-GAAP EPS

The following sets forth a reconciliation of net income attributable to InfraREIT, Inc. per diluted share to Non-GAAP EPS per share:

	Year Ended December 31, 2015
(In thousands, except share amounts)	Amount			Per Share (2)
Net income attributable to InfraREIT, Inc.	$	13,267		$	0.31
Net income attributable to noncontrolling interest		6,664			0.41
Net income		19,931			0.34
Non-cash reorganization structuring fee		44,897			0.76
Reorganization expenses		333			—
Contingent consideration		—			—
Base rent adjustment (1)		6,538			0.11
Non-GAAP net income	$	71,699		$	1.21
	Year Ended December 31, 2014
(In thousands, except share amounts)	Amount			Per Share (3)
Net income attributable to InfraREIT, Inc.	$	22,898		$	0.65
Net income attributable to noncontrolling interest		6,882			0.65
Net income		29,780			0.65
Non-cash reorganization structuring fee		—			—
Reorganization expenses		1,729			0.04
Contingent consideration		18,357			0.40
Base rent adjustment (1)		6,688			0.15
Non-GAAP net income	$	56,554		$	1.24
	Year Ended December 31, 2013
(In thousands, except share amounts)	Amount			Per Share (4)
Net income attributable to InfraREIT, Inc.	$	32,122		$	1.07
Net income attributable to noncontrolling interest		10,288			1.12
Net income		42,410			1.09
Non-cash reorganization structuring fee		—			—
Reorganization expenses		—			—
Contingent consideration		841			0.02
Base rent adjustment (1)		(1,351	)		(0.04	)
Non-GAAP net income	$	41,900		$	1.07

(1) This adjustment relates to the difference between the timing of cash based rent payments made under our leases and when we recognize base rent revenue under U.S. GAAP. We recognize 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.

(2) 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 the 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.

(3) 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 the 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.

(4) The weighted average shares outstanding of 29.9 million was used to calculate net income attributable to InfraREIT, Inc. shareholders per diluted share. The weighted average redeemable partnership units outstanding of 9.2 million was used to calculate the net income attributable to noncontrolling interest per share. The combination of the weighted average shares and redeemable partnership units outstanding of 39.1 million was used for the remainder of the per share calculations.

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CAD

The following sets forth a reconciliation of net income to CAD:

	Years Ended December 31,
(In thousands, except share amounts)	2015				2014				2013
Net income	$	19,931			$	29,780			$	42,410
Depreciation		40,211				35,080				20,024
Non-cash reorganization structuring fee		44,897				—				—
Base rent adjustment (1)		6,538				6,688				(1,351	)
Amortization of deferred financing costs		3,241				4,383				3,588
Reorganization expenses		333				1,729				—
Non-cash equity compensation		678				120				—
Other (income) expense, net (2)		(3,048	)			17,236				(20,932	)
Capital expenditures to maintain net assets		(40,211	)			(35,080	)			(20,024	)
CAD	$	72,570			$	59,936			$	23,715
Shares outstanding (mm of shares)		60.6		(3)		45.7		(4)		45.3		(5)
CAD per share	$	1.20			$	1.31			$	0.52

(1) See footnote (1) to the reconciliation of Non-GAAP EPS above.

(2) Includes AFUDC on equity of $3.0 million, $1.1 million and $21.7 million for the years ended December 31, 2015, 2014 and 2013, respectively.

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

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

(5) Consists of 35.1 million outstanding shares and 10.2 million outstanding OP Units held by the limited partners of the Operating Partnership as of December 31, 2013.

EBITDA and Adjusted EBITDA

The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA:

	Years Ended December 31,
(In thousands)	2015			2014		2013
Net income	$	19,931		$	29,780	$	42,410
Interest expense, net		28,554			32,741		17,384
Income tax expense		949			953		616
Depreciation		40,211			35,080		20,024
EBITDA		89,645			98,554		80,434
Non-cash reorganization structuring fee		44,897			—		—
Base rent adjustment (1)		6,538			6,688		(1,351	)
Reorganization expenses		333			1,729		—
Other (income) expense, net (2)		(3,048	)		17,236		(20,932	)
Adjusted EBITDA	$	138,365		$	124,207	$	58,151

(1) See footnote (1) to the reconciliation of Non-GAAP EPS above.

(2) See footnote (2) to the reconciliation of CAD above.

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FFO

The following table sets forth a reconciliation of net income to FFO and AFFO:

	Years Ended December 31,
(In thousands)	2015			2014		2013
Net income	$	19,931		$	29,780	$	42,410
Depreciation		40,211			35,080		20,024
FFO		60,142			64,860		62,434
Non-cash reorganization structuring fee		44,897			—		—
Base rent adjustment (1)		6,538			6,688		(1,351	)
Reorganization expenses		333			1,729		—
Other (income) expense, net (2)		(3,048	)		17,236		(20,932	)
AFFO	$	108,862		$	90,513	$	40,151

(1) See footnote (1) to the reconciliation of Non-GAAP EPS above.

(2) See footnote (2) to the reconciliation of CAD above.

Financial Information Related to Our Tenant

We are presenting Sharyland’s non-GAAP financial information below, which our management reviews to help evaluate Sharyland’s results of operations and financial condition, and which we believe provides useful information regarding Sharyland’s ability to meet its rent obligations to us. We have legal title to our T&D assets; however, Sharyland maintains operational control of those assets through the leases and through its managing member interest in SDTS, and is responsible for construction and maintenance of our T&D assets. These rights and obligations constitute continuing involvement, which results in failed sale-leaseback financing accounting with respect to the lease of our T&D assets in Sharyland’s financial statements. Under failed sale-leaseback financing accounting, Sharyland is treated as the owner of the assets under all lease agreements, including T&D assets currently under construction. Consequently, our T&D assets, including any T&D assets currently under construction, are reflected as assets, and an estimate of Sharyland’s lease obligations to us are reflected as liabilities, on Sharyland’s balance sheet.

We present the following below:

· Sharyland’s net income, calculated in accordance with U.S. GAAP.

· Sharyland’s non-GAAP net income, which is calculated by adding the amount of depreciation expense and interest expense that Sharyland incurs as a result of failed sale-leaseback financing accounting to Sharyland’s U.S. GAAP net income and subtracting Sharyland’s non-GAAP rent expense. Sharyland’s non-GAAP rent expense differs from our lease revenue because Sharyland’s non-GAAP rent expense is calculated on a cash rather than U.S. GAAP basis.

· Sharyland’s non-GAAP net income before interest, taxes, depreciation, amortization and rent (EBITDAR), which is calculated by adding Sharyland’s non-GAAP interest, taxes, depreciation, amortization and rent expense to Sharyland’s non-GAAP net income.

· A coverage ratio illustrating how EBITDAR relates to Sharyland’s non-GAAP rent expense.

· Sharyland’s non-GAAP balance sheet, which is derived by removing the impacts of the required U.S. GAAP failed sale-leaseback financing accounting treatment.

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	Years Ended December 31,
(In thousands)	2015			2014		2013
Net (loss) income	$	(2,321	)	$	15,715	$	1,552
Failed sale-leaseback adjustments:
Add: Failed sale-leaseback depreciation expense		26,800			25,600		19,300
Add: Failed sale-leaseback interest expense		128,200			107,600		49,600
Deduct: Rent expense		157,800			139,800		72,000
Sharyland's management reported net (loss) income		(5,121	)		9,115		(1,548	)
Adjustments:
Add: Interest expense, net		362			117		498
Add: Income tax expense		1,332			1,971		1,287
Add: Depreciation and amortization		5,299			2,706		2,060
Add: Rent expense		157,800			139,800		72,000
EBITDAR	$	159,672		$	153,709	$	74,297
Ratio of EBITDAR to rent expense	1.01x			1.10x		1.03x

	December 31, 2015
(In thousands)	U.S. GAAP Balance Sheet		Failed Sale- Leaseback Adjustments			Non-GAAP Balance Sheet
Assets
Property, plant and equipment, net	$	1,608,648	$	(1,591,810	)	$	16,838
Current assets		79,160		—			79,160
Goodwill		1,100		—			1,100
Deferred charges - regulatory assets, net		33,835		(23,793	)		10,042
Total Assets	$	1,722,743	$	(1,615,603	)	$	107,140
Partners' Capital and Liabilities
Partners' capital	$	5,118	$	4,487		$	9,605
Long-term financing obligations		1,588,084		(1,588,084	)		—
Regulatory liabilities		5,940		—			5,940
Other post-employment benefits (OPEB) and other long-term    liabilities		8,787		—			8,787
Total capitalization		1,607,929		(1,583,597	)		24,332
Commitments and contingencies		1,163		—			1,163
Current liabilities:
Accounts payable and accrued liabilities		53,015		—			53,015
Current portion of financing obligation		32,006		(32,006	)		—
Due to affiliates		27,085		—			27,085
Current state margin tax payable		1,545		—			1,545
Total current liabilities		113,651		(32,006	)		81,645
Total Partners' Capital and Liabilities	$	1,722,743	$	(1,615,603	)	$	107,140

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We have floating rate debt under our revolving credit facilities and are exposed to changes in interest rates on this indebtedness. The credit markets have recently experienced historical lows in interest rates. As the overall economy strengthens, it is possible that monetary policy will continue to tighten further, resulting in higher interest rates to counteract possible inflation. Interest rates on our floating rate debt and future debt offerings could be higher than current levels, causing our financing costs to increase accordingly.

As of December 31, 2015, the outstanding balance on the revolving credit facilities was $54.0 million. A hypothetical increase or decrease in interest rates by 1.00% would have changed our interest expense by $0.5 million for the year ended December 31, 2015.

Item 8. Financial Statements and Supplementary Data

See Index to Consolidated Financial Statements on page F-1 of this Form 10-K.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. In designing and evaluating these disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, including our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, we evaluated the effectiveness of our internal controls over financial reporting as of December 31, 2015 using the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, we have concluded that, as of December 31, 2015, our internal control over financial reporting was effective.

This annual report does not include an attestation report of our registered public accountant regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide only the management’s report in this annual report.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting during the quarter ended December 31, 2015 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting. We review our disclosure controls and procedures, which may include internal controls over financial reporting, on an ongoing basis. From time to time, management makes changes to enhance the effectiveness of these controls and ensure that they continue to meet the needs of our business activities over time.

Item 9B. Other Information

Amended and Restated Registration Rights Agreement

In connection with our IPO, we entered into an amended and restated registration rights agreement (Registration Rights Agreement) with Hunt and certain of our pre-IPO investors pursuant to which we agreed, subject to certain limitations, to use our commercially reasonable efforts to register under the Securities Act the shares held by the parties to the Registration Rights Agreement, as well as permitted assignees and transferees of such shares. In accordance with the Registration Rights Agreement, on February 18, 2016, we filed a registration statement that registers the issuance of shares upon the redemption by certain of our limited partners, including Hunt, of their common units to the extent they exercise such right and we decide to redeem such shares for stock in lieu of cash, and we also intend to file a registration statement for resale under the Securities Act of an aggregate of 22,192,899 shares of our common stock held (either of record or beneficially) by Hunt and certain of our pre-IPO investors (collectively, shelf registration statements).

63

On March 1, 2016, we amended and restated the Registration Rights Agreement (as amended and restated, Amended Registration Rights Agreement) to, among other things, eliminate our obligation to keep the shelf registration statements continuously effective and to reduce the amount of our securities that a selling stockholder must own in order to participate in an offering through the exercise of “piggy-back” registration rights. The Amended Registration Rights Agreement also postpones our obligation to register for resale a portion of the shares held by Hunt, including shares that may be issued upon the redemption of outstanding OP Units, until Hunt’s lock-up obligations with respect to those shares expire in 2018 and 2020.

Amended and Restated Lease Supplements

On February 26, 2016, we amended and restated our lease supplements with Sharyland (other than the lease supplement with respect to our Stanton Transmission Loop Lease) to effect a rent validation to reflect the difference between the capital expenditures we expected and the capital expenditures that were actually placed in service during 2015. For a description of the validation process and the lease supplements generally, see the caption Lease Supplements under Our Rent Revenue included under Our Revenue Model and Leases in Item 1., Business.

PART III

Information required by Items 10, 11, 12, 13 and 14 of Form 10-K is omitted for this annual report and will be filed in a definitive proxy statement or by an amendment to this annual report not later than 120 days after the end of the fiscal year covered by this annual report.

Item 10. Directors, Executive Officers and Corporate Governance

The information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K in response to this item will be set forth in our definitive proxy statement for the annual meeting of stockholders to be held on May 18, 2016 and is incorporated herein by reference.

Item 11. Executive Compensation

The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K in response to this item will be set forth in our definitive proxy statement for the annual meeting of stockholders to be held on May 18, 2016 and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The equity compensation plan information required by Item 201(d) is set forth in Item 5 of this Annual Report on Form 10-K and is incorporated by reference. The information required by Item 403 of Regulation S-K in response to this item will be set forth in our definitive proxy statement for the annual meeting of stockholders to be held on May 18, 2016 and is incorporated herein by reference.

Item 13. Certain Relationships and Related Party Transactions, and Director Independence

The information required by Items 404 and 407(a) of Regulation S-K in response to this item will be set forth in our definitive proxy statement for the annual meeting of stockholders to be held on May 18, 2016 and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

The information required by Item 9(e) of Schedule 14A in response to this item will be set forth in our definitive proxy statement for the annual meeting of stockholders to be held on May 18, 2016 and is incorporated herein by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Documents filed as part of report on Form 10-K

The following documents are filed as part of this report on Form 10-K:

1. Financial Statements

See Index to Consolidated Financial Statements on page F-1 of this Form 10-K.

2. Financial Statement Schedules

See Index to Consolidated Financial Statements on page F-1 of this Form 10-K.

3. Exhibits

Exhibit Number		Description
2.1	—	Merger and Transaction Agreement dated as of January 29, 2015 among InfraREIT, L.L.C., InfraREIT, Inc. and InfraREIT Partners, LP (filed as exhibit 2.1 to the Company’s Current Report on Form 8-K dated January 29, 2015 and filed February 4, 2015 and incorporated herein by reference).
3.1	—	Articles of Restatement of the Registrant (filed as exhibit 3.3 to the Company’s Current Report on Form 8-K dated March 9, 2015 and filed March 10, 2015 and incorporated herein by reference).
3.2	—	Amended and Restated Bylaws of the Registrant (filed as exhibit 3.5 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
4.1	—	Form of Certificate of Common Stock of Registrant (filed as exhibit 4.1 to Amendment No. 3 of the Company’s Registration Statement on Form S-11 filed January 20, 2015 and incorporated herein by reference).
10.1	—	Third Amended and Restated Agreement of Limited Partnership of InfraREIT Partners, LP, dated as of March 10, 2015, among the Registrant, Hunt-InfraREIT, L.L.C. and the other persons whose names are set forth on the partner registry as limited partners (filed as exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 9, 2015 and filed March 9, 2015 and incorporated herein by reference).
10.2	—	Third Amended and Restated Company Agreement of Sharyland Distribution & Transmission Services, L.L.C., dated as of January 29, 2015, between Sharyland Utilities, L.P. and Transmission and Distribution Company, L.L.C. (filed as exhibit 10.11 to the Company’s Current Report on Form 8-K dated January 29, 2015 and filed February 4, 2015 and incorporated herein by reference).
10.3	—	Development Agreement, dated as of January 29, 2015, among the Registrant, InfraREIT Partners, LP, Hunt-InfraREIT, L.L.C. and Hunt Transmission Services, L.L.C. (filed as exhibit 10.7 to the Company’s Current Report on Form 8-K dated January 29, 2015 and filed February 4, 2015 and incorporated herein by reference).
10.4	—	Management Agreement, dated as of January 29, 2015, among the Registrant, InfraREIT Partners, LP and Hunt Utility Services, L.L.C. (filed as exhibit 10.8 to the Company’s Current Report on Form 8-K dated January 29, 2015 and filed February 4, 2015 and incorporated herein by reference).
10.5	—	Delegation Agreement, dated as of January 29, 2015, between the Registrant and Sharyland Utilities, L.P. (filed as exhibit 10.7 to the Company’s Current Report on Form 8-K dated January 29, 2015 and filed February 4, 2015 and incorporated herein by reference).
10.6	—	Third Amended and Restated Master System Lease Agreement (McAllen Lease), dated December 1, 2014, between Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities, L.P. (filed as exhibit 10.8 to Amendment No. 3 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.7*	—	Tenth Amended and Restated Rent Supplement (McAllen Lease), dated February 26, 2016, between Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities, L.P.
10.8	—	Third Amended and Restated Lease Agreement (Stanton/Brady/Celeste Lease), dated December 31, 2015, between Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities, L.P. (filed as exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 31, 2015 and filed January 4, 2016 and incorporated herein by reference).
10.9*	—	Tenth Amended and Restated Rent Supplement (Stanton/Brady/Celeste Lease), dated February 26, 2016, between Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities, L.P.

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Exhibit Number		Description
10.10	—	Third Amended and Restated Lease Agreement (Stanton Transmission Loop Lease), dated December 1, 2014, between SDTS FERC, L.L.C. and SU FERC, L.L.C. (filed as exhibit 10.13 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.11	—	Fourth Amended and Restated Rent Supplement (Stanton Transmission Loop Lease), dated January 1, 2015, between SDTS FERC, L.L.C. and SU FERC, L.L.C. (filed as exhibit 10.14 to Amendment No. 3 to the Company’s Registration Statement on Form S-11 filed January 20, 2015 and incorporated herein by reference).
10.12	—	Third Amended and Restated Lease Agreement (CREZ Lease), dated December 1, 2014, between Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities, L.P. (filed as exhibit 10.3 to the Company’s Current Report on Form 8-K dated December 3, 2015 and filed December 4, 2015 and incorporated herein by reference).
10.13*	—	Eighth Amended and Restated Rent Supplement (CREZ Lease), dated February 26, 2016, between Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities, L.P.
10.14	—	Lease Agreement (ERCOT Transmission Lease), dated December 1, 2014, between Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities, L.P. (filed as exhibit 10.14 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.15*	—	Fifth Amended and Restated Rent Supplement (ERCOT Transmission Lease), dated February 26, 2016, between Sharyland Distribution & Transmission Services, L.L.C. and Sharyland Utilities, L.P.
10.16	—	Third Amended and Restated Credit Agreement, dated December 10, 2014, among Sharyland Distribution & Transmission Services, L.L.C., the several lenders from time to time parties thereto and Royal Bank of Canada, as administrative agent (filed as exhibit 10.17 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.17	—	First Amendment, Direction and Consent, dated September 28, 2015 to the Third Amended and Restated Credit Agreement, dated as of December 10, 2014, among Sharyland Distribution & Transmission Services, L.L.C., the several lenders from time to time parties thereto and Royal Bank of Canada, as administrative agent (filed as exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and filed on November 6, 2015 and incorporated herein by reference).
10.18	—	Credit Agreement, dated as of December 3, 2015, among Sharyland Projects, L.L.C. (predecessor in interest to Sharyland Distribution & Transmission Services, L.L.C.) and The Prudential Insurance Company of America, Pruco Life Insurance Company of New Jersey and Prudential Annuities Life Assurance Corporation (filed as exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 3, 2015 and filed December 4, 2015 and incorporated herein by reference).
10.19	—	Credit Agreement, dated December 10, 2014, among InfraREIT Partners, LP, Bank of America, N.A., as administrative agent and L/C issuer and the other lenders party thereto (filed as exhibit 10.23 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.20	—	Amended and Restated Note Purchase Agreement, dated July 13, 2010 (2010 SDTS NPA), between Sharyland Distribution & Transmission Services, L.L.C. and The Prudential Insurance Company of America (filed as exhibit 10.24 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.21	—	First Amendment, dated June 9, 2011, to the 2010 SDTS NPA (filed as exhibit 10.25 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.22	—	Second Amendment, dated October 15, 2013, to the 2010 SDTS NPA (filed as exhibit 10.26 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.23	—	Third Amendment, Direction and Waiver, dated December 10, 2014, to the 2010 SDTS NPA (filed as exhibit 10.27 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.24	—	Fourth Amendment, dated as of September 28, 2015, to the Amended and Restated Note Purchase Agreement, dated as of July 13, 2010, between Sharyland Distribution & Transmission Services, L.L.C. and The Prudential Insurance Company of America (filed as exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and filed on November 6, 2015 and incorporated herein by reference).

66

Exhibit Number		Description
10.25	—	Amended and Restated Note Purchase Agreement, dated July 13, 2010 (the “TDC NPA”), among Transmission and Distribution Company, L.L.C., The Prudential Insurance Company of America, PRUCO Life Insurance Company and Prudential Retirement Insurance and Annuity Company (filed as exhibit 10.28 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.26		First Amendment, dated June 9, 2011, to the TDC NPA (filed as exhibit 10.29 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.27	—	Second Amendment, dated December 10, 2014, to the TDC NPA (filed as exhibit 10.30 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.28*	—	Third Amendment, dated February 19, 2016, to the TDC NPA.
10.29	—	Amended and Restated Note Purchase Agreement, dated September 14, 2010 (the “2009 SDTS NPA”), among Sharyland Distribution & Transmission Services, L.L.C., The Prudential Insurance Company of America and Prudential Retirement Insurance and Annuity Company (filed as exhibit 10.31 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.30	—	First Amendment, dated June 9, 2011, to the 2009 SDTS NPA (filed as exhibit 10.32 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.31	—	Second Amendment, dated October 15, 2013, to the 2009 SDTS NPA (filed as exhibit 10.33 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.32	—	Third Amendment, Direction and Waiver, dated December 10, 2014, to the 2009 SDTS NPA (filed as exhibit 10.34 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.33	—	Fourth Amendment, dated as of September 28, 2015, to the Amended and Restated Note Purchase Agreement, dated as of September 14, 2010, among Sharyland Distribution and Transmission Services, L.L.C. and The Prudential Insurance Company of America, Prudential Retirement Insurance and Annuity Company (filed as exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and filed on November 6, 2015 and incorporated herein by reference).
10.34	—	Note Purchase Agreement, dated as of December 3, 2015, among Sharyland Distribution & Transmission Services, L.L.C. and the purchasers listed in Schedule B thereto (filed as exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 3, 2015 and filed on December 4, 2015 and incorporated herein by reference).
10.35*	—	InfraREIT, Inc. Second Amended and Restated Registration Rights and Lock-Up Agreement, dated as of March 1, 2016, among the Registrant and each of the persons listed on Schedule A thereto.
10.36	—	Lock-Up Agreement, dated as of January 29, 2015, among the Registrant, InfraREIT Partners, LP, Hunt-InfraREIT, L.L.C. and Hunt Consolidated, Inc. (filed as exhibit 10.10 to the Company’s Current Report on Form 8-K dated January 29, 2015 and filed February 4, 2015 and incorporated herein by reference).
10.37	—	License Agreement, dated November 23, 2010, between Hunt Utility Services, LLC (formerly known as Energy Infrastructure Alliance of America, L.L.C.), InfraREIT, L.L.C. (formerly known as Electric Infrastructure Alliance of America, L.L.C.) and InfraREIT Partners, LP (formerly known as Electric Infrastructure Alliance of America, L.P.) (filed as exhibit 10.37 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.38	—	Intellectual Property Assignment Agreement, dated December 1, 2014, between the Registrant and Hunt Utility Services, LLC (filed as exhibit 10.38 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.39+	—	Form of Director and Officer Indemnification Agreement (filed as exhibit 10.39 to Amendment No. 3 to the Company’s Registration Statement on Form S-11 filed January 20, 2015 and incorporated herein by reference).
10.40	—	Share Purchase Agreement, dated as of January 29, 2015, among the Registrant and Westwood Trust, as trustee (filed as exhibit 10.3 to the Company’s Current Report on Form 8-K dated January 29, 2015 and filed February 4, 2015 and incorporated herein by reference).
10.41	—	Structuring Fee Agreement, dated as of January 29, 2015, between the Registrant and Hunt-InfraREIT, L.L.C. (filed as exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 29, 2015 and filed February 4, 2015 and incorporated herein by reference).

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Exhibit Number		Description
10.42	—	Redemption Agreement, dated as of January 29, 2015, among the Registrant, InfraREIT Partners, LP and Hunt-InfraREIT, L.L.C. (filed as exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 29, 2015 and filed February 4, 2015 and incorporated herein by reference).
10.43	—	Redemption Agreement, dated as of January 29, 2015, between the Registrant and InfraREIT Partners, LP (filed as exhibit 10.5 to the Company’s Current Report on Form 8-K dated January 29, 2015 and filed February 4, 2015 and incorporated herein by reference).
10.44	—	Unit Subscription Agreement, dated as of January 29, 2015, between InfraREIT Partners, LP and MC Transmission Holdings, Inc. (filed as exhibit 10.4 to the Company’s Current Report on Form 8-K dated January 29, 2015 and filed February 4, 2015 and incorporated herein by reference).
10.45	—	General Release Agreement, dated as of January 29, 2015, among the Registrant, InfraREIT, L.L.C., InfraREIT Partners, LP, Hunt Transmission Services, L.L.C., Marubeni Corporation, John Hancock Life Insurance Company (U.S.A.), OpTrust Infrastructure N.A. Inc., OpTrust N.A. Holdings Trust and Teachers Insurance and Annuity Association of America (filed as exhibit 10.6 to the Company’s Current Report on Form 8-K dated January 29, 2015 and filed February 4, 2015 and incorporated herein by reference).
10.46	—	Promissory Note, dated November 20, 2014, between the Registrant and Hunt Consolidated, Inc. (filed as exhibit 10.46 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.47+	—	InfraREIT, Inc. 2015 Equity Incentive Plan (filed as exhibit 10.47 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed December 31, 2014 and incorporated herein by reference).
10.48*+	—	Form of Restricted Stock Unit Agreement.
10.49*+	—	Form of InfraREIT Partners, LP LTIP Unit Award Agreement.
10.50+	—	InfraREIT, Inc. 2015 Non-Qualified Employee Stock Purchase Plan (filed as exhibit 10.49 to the Company’s annual report on Form 10-K for the year ended December 31, 2014 filed March 18, 2015 and incorporated herein by reference).
21.1*	—	List of Subsidiaries of the Registrant
23.1*	—	Consent of Ernst & Young LLP
31.1*	—	Rule 13A-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2*	—	Rule 13A-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1*	—	Section 1350 Certification of Chief Executive Officer
32.2*	—	Section 1350 Certification of Chief Financial Officer
99.1*	—	Consolidated Financial Statements of Sharyland Utilities, L.P. as of December 31, 2015
101.INS*	—	XBRL Instance Document
101.SCH*	—	XBRL Taxonomy Extension Schema Document
101.CAL*	—	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	—	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	—	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*	—	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

+ As required by Item 15(a)(3), this exhibit is identified as a management contract or compensatory plan or arrangement.

68

SIGNATURES

Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	InfraREIT, Inc.
	(Registrant)
	/s/ David A. Campbell
	David A. Campbell
Date: March 3, 2016	President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capabilities and as of the date indicated.

Signature	Capacity	Date
/s/ W. Kirk Baker	Chairman of the Board of Directors	March 3, 2016
W. Kirk Baker
/s/ David A. Campbell	President, Chief Executive Officer	March 3, 2016
David A. Campbell	and Director (Principal Executive Officer)
/s/ Brant Meleski	Senior Vice President and Chief Financial Officer	March 3, 2016
Brant Meleski	(Principal Accounting and Financial Officer)
/s/ Hunter L. Hunt	Director	March 3, 2016
Hunter L. Hunt
/s/ John Gates	Director	March 3, 2016
John Gates
/s/ Storrow M. Gordon	Director	March 3, 2016
Storrow M. Gordon
/s/ Trudy A. Harper	Director	March 3, 2016
Trudy A. Harper
/s/ Harold R. Logan, Jr.	Director	March 3, 2016
Harold R. Logan, Jr.
/s/ Harvey Rosenblum	Director	March 3, 2016
Harvey Rosenblum
/s/ Ellen C. Wolf	Director	March 3, 2016
Ellen C. Wolf

69

InfraREIT, Inc.

INDEX TO COSOLIDATED FINANCIAL STATEMENTS

	Page
Index to Consolidated Financial Statements	F-1
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statements of Comprehensive Income	F-5
Consolidated Statements of Stockholders’ Equity	F-6
Consolidated Statements of Cash Flows	F-7
Notes to Consolidated Financial Statements	F-8
Schedule III – Electric Plant and Accumulated Depreciation	F-29

All other schedules for which provision is made in the applicable accounting regulation of the U. S. Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore are omitted.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

InfraREIT, Inc.

We have audited the accompanying consolidated balance sheets of InfraREIT, Inc. (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2015. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of InfraREIT, Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Ernst & Young LLP

Dallas, Texas

March 3, 2016

F-2

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

See accompanying notes to the consolidated financial statements.

F-3

InfraREIT, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Years Ended December 31,
	2015			2014			2013
Lease revenue	$	151,203		$	134,415		$	73,193
Operating costs and expenses
General and administrative expense		64,606			18,625			13,691
Depreciation		40,211			35,080			20,024
Total operating costs and expenses		104,817			53,705			33,715
Income from operations		46,386			80,710			39,478
Other (expense) income
Interest expense, net		(28,554	)		(32,741	)		(17,384	)
Other income (expense), net		3,048			(17,236	)		20,932
Total other (expense) income		(25,506	)		(49,977	)		3,548
Income before income taxes		20,880			30,733			43,026
Income tax expense		949			953			616
Net income		19,931			29,780			42,410
Less: Net income attributable to noncontrolling interest		6,664			6,882			10,288
Net income attributable to InfraREIT, Inc.	$	13,267		$	22,898		$	32,122
Net income attributable to InfraREIT, Inc. common    stockholders per share:
Basic	$	0.31		$	0.65		$	1.07
Diluted	$	0.31		$	0.65		$	1.07
Cash dividends declared per common share	$	1.075		$	0.310		$	—

See accompanying notes to the consolidated financial statements.

F-4

InfraREIT, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Years Ended December 31,
	2015		2014		2013
Net income	$	19,931	$	29,780	$	42,410
Change in fair value of cash flow hedging instrument		—		844		1,323
Comprehensive income		19,931		30,624		43,733
Less: Comprehensive income attributable to noncontrolling interest		6,664		7,116		10,611
Comprehensive income attributable to InfraREIT, Inc.	$	13,267	$	23,508	$	33,122

See accompanying notes to the consolidated financial statements.

F-5

InfraREIT, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

(In thousands, except share data)

	Number of Common Shares Outstanding			Members' Capital			Common Stock		Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total InfraREIT,Inc. Equity			Noncontrolling Interest			Total Equity
Balance at December 31, 2012		—		$	258,942		$	—	$	—	$	—		$	(1,610	)	$	257,332		$	91,446		$	348,778
Members' contributions					137,255			—		—		—			—			137,255			—			137,255
Noncontrolling interest     contributions					—			—		—		—			—			—			2,375			2,375
Net income					32,122			—		—		—			—			32,122			10,288			42,410
Change in fair value of cash     flow hedging instrument					—			—		—		—			1,000			1,000			323			1,323
Non-cash noncontrolling     interest equity issuance					—			—		—		—			—			—			32,052			32,052
Balance at December 31, 2013		—			428,319			—		—		—			(610	)		427,709			136,484			564,193
Equity based compensation					—			—		—		—			—			—			120			120
Dividends and distributions					(10,830	)		—		—		—			—			(10,830	)		(3,300	)		(14,130	)
Net income					22,898			—		—		—			—			22,898			6,882			29,780
Change in fair value of cash     flow hedging instrument					—			—		—		—			610			610			234			844
Non-cash noncontrolling     interest equity issuance					—			—		—		—			—			—			4,647			4,647
Balance at December 31, 2014		—			440,387			—		—		—			—			440,387			145,067			585,454
Dividends and distributions		—			(8,964	)		—		—		(35,508	)		—			(44,472	)		(16,627	)		(61,099	)
Repurchase of common shares		(6,242,999	)		(66,517	)		—		—		—			—			(66,517	)		—			(66,517	)
Initial public offering, net of    offering costs		23,000,000			—			230		490,203		—			—			490,433			—			490,433
Merger of InfraREIT, L.L.C. and    InfraREIT, Inc. and related    Reorganization transactions		26,808,494			(367,191	)		206		212,010		—			—			(154,975	)		53,090			(101,885	)
Net income		—			2,285			—		—		10,982			—			13,267			6,664			19,931
Equity based compensation		—			—			—		—		—			—			—			678			678
Non-cash noncontrolling interest    equity issuance		—			—			—		—		—			—			—			67,273			67,273
Balance at December 31, 2015		43,565,495		$	—		$	436	$	702,213	$	(24,526	)	$	—		$	678,123		$	256,145		$	934,268

See accompanying notes to the consolidated financial statements.

F-6

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

See accompanying notes to the consolidated financial statements.

F-7

InfraREIT, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

InfraREIT, Inc. is a Maryland corporation and the surviving corporation of a merger (Merger) with InfraREIT, L.L.C., a Delaware limited liability company, completed on February 4, 2015 in connection with the initial public offering (IPO) of InfraREIT, Inc. As used in these financial statements, unless the context requires otherwise or except as otherwise noted, the words “Company” and “InfraREIT” refer to InfraREIT, L.L.C., before giving effect to the Merger, and InfraREIT, Inc., after giving effect to the Merger, as the context requires, and also refer to the registrant’s subsidiaries, including InfraREIT Partners, LP (Operating Partnership or InfraREIT LP), a Delaware limited partnership.

The Merger was accounted for as a reverse acquisition, which means for accounting purposes the Company treated the assets and liabilities of InfraREIT, Inc. as assumed and incorporated with the assets and liabilities of InfraREIT, L.L.C. The main assets and liabilities assumed were marketable securities of $1.1 million and a note payable of $1.0 million. The marketable securities were sold during February 2015 for $1.1 million resulting in a realized gain of $0.1 million which was recorded in other income (expense), net in the Consolidated Statements of Operations. Additionally, the note payable and associated interest were paid in full in February 2015.

Before the IPO, substantially all of the Company’s business and assets were owned, directly or indirectly, by InfraREIT, L.L.C. InfraREIT, L.L.C. was organized on November 23, 2010 as a Delaware limited liability company that elected and qualified under the Internal Revenue Code of 1986, as amended (the Code), to be taxed as a real estate investment trust (REIT) for federal income tax purposes. InfraREIT, L.L.C. was the general partner of the Operating Partnership prior to the Merger and held a controlling financial investment in InfraREIT LP. After the Merger, InfraREIT, Inc. became the general partner of the Operating Partnership. InfraREIT, Inc. will elect to be taxed as a REIT commencing with the taxable year ending December 31, 2015. InfraREIT, Inc.’s operating results before the Merger primarily reflected costs related to obtaining a private letter ruling from the IRS and accounting services. As a result, these financial statements present the operating results of InfraREIT, L.L.C. for years ended December 31, 2014 and 2013 and the InfraREIT, L.L.C. balance sheet as of December 31, 2014. The operating results for the year ended December 31, 2015 reflect the operations of InfraREIT, L.L.C. prior to the effectiveness of the Merger, and the operations of InfraREIT, Inc. for the period from the Merger through December 31, 2015, and the balance sheet as of December 31, 2015 is the balance sheet of InfraREIT, Inc.

InfraREIT, L.L.C. was owned by Marubeni Corporation (Marubeni), John Hancock Life Insurance Company (U.S.A.), Teachers Insurance and Annuity Association of America, OpTrust Infrastructure N.A. Inc. (OpTrust) (collectively, founding investors) as well as Westwood Trust, as trustee of a trust for the benefit of a charitable beneficiary (Westwood Trust), and other private investors. Since the IPO, InfraREIT, Inc. has been owned by external investors as well as the founding investors, affiliates of Hunt Consolidated, Inc. (HCI) and other private investors.

The Company is externally managed and advised by Hunt Utility Services, LLC (Hunt Manager), a Delaware limited liability company. Hunt Manager is responsible for overseeing the Company’s day-to-day affairs.

The Company holds 71.9% of the outstanding partnership units (OP Units) in the Operating Partnership as of December 31, 2015 and is its general partner. The Company includes the accounts of the Operating Partnership and its subsidiaries in the consolidated financial statements. MC Transmission Holdings, Inc. (MC Transmission), which is a subsidiary of Marubeni Corporation (Marubeni), seven members of the Company’s board of directors and affiliates of HCI hold the other 28.1% of the outstanding OP Units as of December 31, 2015.

Sharyland Distribution & Transmission Services, L.L.C. (SDTS) is the owner of electric transmission and distribution assets (T&D assets) located in the Texas Panhandle near Amarillo (CREZ assets), the Permian Basin in and around Stanton, Central Texas around Brady, Northeast Texas in and around Celeste (S/B/C assets) and South Texas near McAllen (McAllen assets). Previously, SDTS held some of its assets through its former wholly owned subsidiaries, SDTS FERC, L.L.C. (SDTS FERC) and Sharyland Projects, L.L.C. (SPLLC). However in June 2015, SDTS FERC were merged with and into SDTS with SDTS as the surviving entity, and in December 2015, SPLLC was merged with and into SDTS with SDTS as the surviving entity (SDTS Merger).

F-8

The T&D assets include over 53,000 electricity delivery points, approximately 665 miles of transmission lines, approximately 12,300 miles of distribution lines, 48 substations and a 300 megawatt (MW) high-voltage direct current interconnection between Texas and Mexico (Railroad DC Tie). SDTS leases the T&D assets to Sharyland Utilities, L.P. (Sharyland or tenant), a Texas based utility, under several lease agreements, which operates and maintains the T&D assets. SDTS is subject to regulation as an electric utility by the Public Utility Commission of Texas (PUCT).

Initial Public Offering and Reorganization

InfraREIT, Inc. completed its IPO on February 4, 2015, issuing 23,000,000 shares of common stock at a price of $23.00, resulting in gross proceeds of $529.0 million.

Immediately after the closing of the IPO, InfraREIT, Inc. completed the Merger, with InfraREIT, L.L.C. merging with and into InfraREIT, Inc., and InfraREIT, Inc. as the surviving entity and general partner of the Operating Partnership. InfraREIT, Inc. used $172.4 million of the net proceeds from the IPO to fund the cash portion of the consideration issued in the Merger, as described in greater detail below. InfraREIT, Inc. contributed the remaining $323.2 million to the Operating Partnership in exchange for common OP Units (Common OP Units).

The Operating Partnership used the net proceeds from the IPO that it received from InfraREIT, Inc.:

· to repay an aggregate of $1.0 million of indebtedness to HCI;

· to repay an aggregate of $72.0 million of indebtedness outstanding under the Operating Partnership’s revolving credit facility and $150.0 million of indebtedness outstanding under SDTS’s revolving credit facility;

· to pay offering expenses (other than the underwriting discounts and commissions and the underwriter structuring fee) of $6.3 million; and

· for general corporate purposes.

The following bullets describe the Merger and related transactions that were effected in the first quarter of 2015 (collectively, the Reorganization).

· On January 29, 2015, the Operating Partnership effected a reverse unit split whereby each holder of OP Units received 0.938550 OP Units of the same class in exchange for each such unit it held immediately prior to such time, which is referred to as the unit split. Also, on January 29, 2015, InfraREIT, L.L.C. effected a reverse share split whereby each holder of shares received 0.938550 shares of the same class in exchange for each such share it held immediately prior to such time, which is referred to as the share split. All references to unit, share, per unit and per share amounts in these consolidated financial statements and related disclosures have been adjusted to reflect the reverse share split and reverse unit split for all periods presented.

· On January 29, 2015, InfraREIT, Inc. issued 1,700,000 shares of common stock to Hunt-InfraREIT, L.L.C. (Hunt-InfraREIT) as a non-cash reorganization advisory fee in accordance with a structuring fee agreement, resulting in the recognition of a $44.9 million non-cash expense in the first quarter of 2015.

· On February 4, 2015, the Operating Partnership issued 1,700,000 OP Units to InfraREIT, Inc. in respect of the structuring fee issuance of 1,700,000 shares of InfraREIT, Inc. common stock described immediately above.

· On February 4, 2015, the Operating Partnership issued an aggregate of 28,000 of its profit interest OP Units (LTIP Units) to seven of InfraREIT’s directors.

· On February 4, 2015, the Operating Partnership issued 983,418 Common OP Units to Hunt-InfraREIT in settlement of the Operating Partnership’s obligation to issue OP Units to Hunt-InfraREIT related to the CREZ Project.

· On February 4, 2015, the Operating Partnership issued Hunt-InfraREIT 1,167,287 Common OP Units as an accelerated payment of a portion of the carried interest agreed to in 2010 in connection with the organization of InfraREIT, L.L.C. To effect the shift in ownership from the pre-IPO investors to Hunt-InfraREIT, an equal number of OP Units held by InfraREIT, L.L.C. in the Operating Partnership were canceled at the same time.

· On February 4, 2015, as a result of the Merger, (1) holders of 8,000,000 common shares of InfraREIT, L.L.C. received $21.551 per common share, which was equal to the IPO price less the underwriting discounts and commissions and an underwriting structuring fee, (2) holders of the remaining 19,617,755 common shares of InfraREIT, L.L.C. received 19,617,755 shares of InfraREIT, Inc. Class A common stock and (3) holders of 25,145 Class C shares of InfraREIT, L.L.C. received 25,145 shares of InfraREIT, Inc. Class C common stock.

F-9

· The founding investors each received both cash and stock consideration in the Merger, and all other pre-IPO investors received shares of InfraREIT, Inc. Class A common stock or Class C common stock in the Merger. InfraREIT, L.L.C. gave each other holder of its common shares the opportunity to receive cash consideration in the Merger, and each such holder elected (or was deemed to have elected) to receive shares of Class A common stock under the merger agreement. All holders of InfraREIT, L.L.C.’s Class C common shares, as a separate class, received shares of Class C common stock pursuant to the merger agreement.

· On February 4, 2015, InfraREIT, Inc. contributed $323.2 million to the Operating Partnership in exchange for 15,000,000 Common OP Units.

· On February 4, 2015, InfraREIT, Inc. issued 1,551,878 shares of common stock to Hunt-InfraREIT in exchange for 1,551,878 OP Units tendered for redemption by Hunt-InfraREIT in accordance with a redemption agreement.

· On February 4, 2015, InfraREIT, Inc. purchased 6,242,999 common shares in consideration for the issuance of a promissory note to Westwood Trust in the principal amount of $66.5 million.

· Westwood Trust immediately transferred the promissory note to MC Transmission, and, immediately following receipt of the promissory note, MC Transmission purchased 3,325,874 Common OP Units from the Operating Partnership in consideration for the assignment of the promissory note. The promissory note was then transferred to InfraREIT, Inc. in exchange for the redemption of 6,242,999 OP Units held by InfraREIT, Inc. and the subsequent cancellation of such promissory note, resulting in no cash consideration being paid or received pursuant to the purchase from Westwood Trust or the sale of Common OP Units to MC Transmission.

· On March 9, 2015, the Operating Partnership issued 2,329,283 Common OP Units to Hunt-InfraREIT, and InfraREIT, Inc. canceled an equal number of shares of Class A common stock and Class C common stock. Each remaining share of Class A common stock and Class C common stock then converted to common stock on a one-for-one basis. This issuance settled InfraREIT, L.L.C.’s pre-IPO investors’ carried interest obligation agreed to by Hunt-InfraREIT under the investment documents entered into by the parties in 2010.

· On March 9, 2015, the 11,264 long-term incentive plan units issued to two of InfraREIT, L.L.C.’s non-voting directors in May 2014 converted on a one-to-one basis to Common OP Units.

Limited Partnership Agreement

In connection with the Reorganization, the Company adopted a Second Amended and Restated Limited Partnership Agreement which became effective with the closing of the IPO. Upon completion of the IPO, the Operating Partnership had five types of OP Units outstanding: Common OP Units, Class A OP Units, Class B OP Units, Class C OP Units and LTIP Units.

On March 9, 2015, the Operating Partnership issued Common OP Units in exchange for outstanding Class A OP Units and Class C OP Units. Such Common OP Units were allocated among the holders of Class A OP Units and Class C OP Units, and the Class A OP Units, Class B OP Units and Class C OP Units were canceled. Following such allocation, the Company adopted a Third Amended and Restated Limited Partnership Agreement that eliminated the provisions related to the Reorganization and the description of the Class A OP Units, Class B OP Units and Class C OP Units; however, it continues to allow amendments to authorize and issue additional classes of OP Units in the future.

Principles of Consolidation and Presentation

The consolidated financial statements include the Company’s accounts and the accounts of all other entities in which the Company has a controlling financial interest with noncontrolling interest of consolidated subsidiaries reported separately. All significant intercompany balances and transactions have been eliminated. SDTS maintains (and prior to their merger with and into SDTS, SDTS FERC and SPLLC also maintained) accounting records in accordance with the uniform system of accounts, as prescribed by the Federal Energy Regulatory Commission (FERC). In accordance with the applicable consolidation guidance, the Company’s consolidated financial statements reflect the effects of the different rate making principles mandated by the FERC and the PUCT which regulate its subsidiaries’ operations.

F-10

The Company and Hunt Manager are parties to a management agreement under which Hunt Manager provides certain services to the Company for a management fee. Historically, the Company’s Consolidated Statements of Operations included all costs incurred on the Company’s behalf by Hunt Manager, including compensation expenses, rent expense and other costs included in general and administrative expense on the Consolidated Statements of Operations totaling $11.6 million for the year ended December 31, 2013. On June 24, 2014, the Company’s board of directors agreed to increase the annual management fee from $2.5 million to $10.0 million effective January 1, 2014. As a result, the Company’s general and administrative expenses for the years ended December 31, 2015 and 2014 do not include costs incurred by Hunt Manager during those periods, but do include management fees paid to Hunt Manager as well as additional costs the Company incurred directly, such as professional services costs and direct reimbursement of third-party costs paid to outside service providers. As a result of the increased management fee, the Company, through its subsidiary InfraREIT LP, incurred costs associated with management fees of $12.3 million and $10.0 million during the years ended December 31, 2015 and 2014, respectively.

The accompanying historical consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). In the opinion of management, all adjustments (consisting of normal recurring accruals), considered necessary for a fair presentation have been included. The historical financial information is not necessarily indicative of the Company’s future results of operations, financial position and cash flows.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Regulation

For regulatory purposes, including regulatory reporting, the T&D assets owned by SDTS and the operations of Sharyland are viewed on a combined basis. As a result, regulatory principles applicable to the utility industry also apply to SDTS (and previously applied to its former subsidiaries). The financial statements reflect regulatory assets and liabilities under cost based rate regulation in accordance with accounting standards related to the effect of certain types of regulation. Regulatory decisions can have an impact on the recovery of costs, the rate earned on invested capital and the timing and amount of assets to be recovered by rates. See Note 7, Other Assets.

SDTS capitalizes allowance for funds used during construction (AFUDC) during the construction of its T&D assets, and SDTS lease agreements with Sharyland rely on FERC definitions and accepted standards regarding capitalization of expense to define key terms in the lease such as footprint projects, which are the amounts SDTS is obligated to fund pursuant to the leases. The amounts funded for these footprint projects include allocations of Sharyland employees’ time and overhead allocations consistent with FERC policies and U.S. GAAP.

Sharyland cannot be removed as lessee without prior approval from the PUCT. SDTS transacts with its tenant through several lease arrangements covering the T&D assets. These lease agreements include provisions for annual additions and retirements of the T&D assets in the form of new construction or other capitalized projects.

Cash and Cash Equivalents

The Company considers all short-term, highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s account balances at one or more institutions periodically exceed the Federal Deposit Insurance Corporation (FDIC) insurance coverage and, as a result, there could be a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company has not experienced any losses and believes that the risk is not significant.

Restricted Cash

Restricted cash represents the principal and interest payable for two consecutive periods associated with the $25.0 million senior secured notes described in Note 9, Long-Term Debt.

Inventory

Inventory consists primarily of transmission parts and materials used in the construction of electric plant. Inventory is valued at average cost when it is acquired and used.

F-11

Assets Held for Sale

The Company records assets held for sale when certain criteria have been met as specified by Accounting Standard Codification (ASC) Topic 360, Property, Plant and Equipment. These criteria include management’s commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is expected to be completed within one year; the assets are being marketed at reasonable prices in relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. Assets held for sale are reported at the lower of their carrying amount or fair value less cost to sell.

Electric Plant, net

Electric plant equipment is stated at the original cost of acquisition or construction, which includes the cost of contracted services, direct labor, materials, acquisition adjustments, and overhead items. In accordance with the FERC uniform system of accounts guidance, SDTS recognizes as a cost to construction work in progress (CWIP) AFUDC on other funds classified as other income, net and AFUDC on borrowed funds classified as a reduction of the interest expense, net on the Consolidated Statements of Operations.

The AFUDC blended rate utilized was 6.6%, 4.1% and 9.1% for the years ended December 31, 2015, 2014 and 2013, respectively.

Electric plant held for future use is included in electric plant, net.

Depreciation of property, plant and equipment is calculated on a straight-line basis over the estimated service lives of the properties based on depreciation rates approved by the PUCT. Depreciation rates include plant removal costs as a component of depreciation expense, consistent with regulatory treatment. Actual removal costs incurred are charged to accumulated depreciation. When accrued removal costs exceed incurred removal costs, the difference is reclassified as a regulatory liability to retire assets in the future. The regulatory liability will be relieved as cost of removal charges are incurred upon asset retirement.

Repairs are the responsibility of Sharyland as the lessee under the lease agreements. Betterments and improvements generally are the responsibility of SDTS and are capitalized.

Provision for depreciation of electric plant is computed using composite straight-line rates as follows:

	Years Ended December 31,
	2015	2014	2013
Transmission plant	1.69% -3.15%	1.69% -3.15%	2.57% -3.00%
Distribution plant	1.74% -5.96%	1.74% -5.96%	2.50% -3.10%
General plant	0.80% -5.12%	0.80% -5.12%	2.50% -33.33%

Impairment of Long-Lived Assets

The Company evaluates impairment of its long-lived assets annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable through expected future cash flows. Regulatory assets are charged to expense in the period in which they are no longer probable of future recovery.

Goodwill

Goodwill represents the excess of costs of an acquired business over the fair value of the assets acquired, less liabilities assumed. Goodwill is not amortized and is tested for impairment annually or more frequently if events or changes in circumstances arise.

Accounting Standard Update (ASU) 2011-08, Testing of Goodwill for Impairment allows entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit (i.e. the first step of the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more-likely-than-not greater than the carrying amount, a quantitative calculation would not be needed.

The Company’s annual goodwill impairment analysis, which was performed qualitatively during the fourth quarter of 2015, did not result in an impairment charge. As of December 31, 2015 and 2014, $138.4 million was recorded as goodwill on the Consolidated Balance Sheets.

F-12

Investments

An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless (1) the Company has the ability and intent to hold an investment for a reasonable period of time sufficient for an anticipated recovery of fair value up to (or beyond) the cost of the investment; and (2) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other than temporary, then an impairment loss is recognized equal to the difference between the investment’s cost and its fair value.

Deferred Financing Costs

Amortization of deferred financing costs associated with the issuance of the $25.0 million senior secured notes and the revolving credit facilities is computed using the straight-line method over the life of the loan which approximates the effective interest method. Amortization of deferred financing costs associated with the Company’s regulated subsidiaries is computed using the straight-line method over the life of the loan in accordance with the applicable regulatory guidance.

Derivative Instruments

The Company uses derivatives to hedge against changes in cash flows related to interest rate risk (cash flow hedging instrument). ASC Topic 815, Derivatives and Hedging, requires all derivatives be recorded on the Consolidated Balance Sheets at fair value. The Company determines the fair value of the cash flow hedging instrument based on the difference between the cash flow hedging instrument’s fixed contract price and the underlying market price at the determination date. The asset or liability related to the cash flow hedging instrument is recorded on the Consolidated Balance Sheets at its fair value.

Unrealized gains and losses on the effective cash flow hedging instrument are recorded as components of accumulated other comprehensive income. Realized gains and losses on the cash flow hedging instrument are recorded as adjustments to interest expense. Settlements of derivatives are included within operating activities on the Consolidated Statements of Cash Flows. Any ineffectiveness in the cash flow hedging instrument is recorded as an adjustment to interest expense in the current period.

Income Taxes

InfraREIT, L.L.C. elected to be treated as a REIT under Sections 856 through 860 of the Code commencing with its taxable year ended December 31, 2010, and InfraREIT, Inc. will elect to be treated as a REIT commencing with its taxable year ended December 31, 2015. As a result, the Company generally will not be subject to federal corporate income tax on its taxable income that is distributed to its stockholders. A REIT is subject to a number of other organizational and operational requirements, including a requirement that it currently distribute at least 90% of its annual taxable income (with certain adjustments). The Company’s policy is to distribute at least 100% of its taxable income. Accordingly, there is no provision for federal income taxes in the accompanying consolidated financial statements. Even if the Company maintains its qualification for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, including excise taxes, and federal income taxes on any undistributed income.

At December 31, 2014, the Company had net operating loss carryforwards for federal income tax purposes of $1.0 million. Of this amount $0.2 million was used for the year ended December 31, 2015 to offset an equivalent amount of regular taxable earnings. The net operating loss carryforward for federal tax purposes was $0.8 million at December 31, 2015 and will expire in 2026. The net operating loss carryforwards for alternative minimum tax (AMT) are generally limited to offsetting 90% of the alternative minimum taxable income (AMTI) for a given year.

The Company recognizes the impact of tax return positions that are more-likely-than-not to be sustained upon audit. Significant judgment is required to evaluate uncertain tax positions. The evaluation of uncertain tax positions is based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues.

A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:

	Years Ended December 31,
(In thousands)	2015		2014
Balance at January 1	$	2,135	$	1,238
Additions based on tax positions related to the current year		789		897
Balance at December 31	$	2,924	$	2,135

F-13

The balance of unrecognized tax benefits relates to state taxes, all of which would impact the effective tax rate if recognized. The Company does not expect the total amount of unrecognized tax benefits to significantly change within the next twelve months. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Operations.

During the years ended December 31, 2015, 2014 and 2013, the Company recognized interest and penalties of $0.2 million, $0.1 million and $0.1 million, respectively. The Company had accrued interest and penalties of $0.4 million and $0.2 million at December 31, 2015 and 2014, respectively. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2012.

Revenue Recognition

The Company, through its subsidiaries, is the owner of the T&D assets and recognizes lease revenue over the term of lease agreements with Sharyland. The Company’s lease revenue includes annual payments and additional rents based upon a percentage of revenue earned by Sharyland on the leased assets in excess of annual specified breakpoints. In accordance with the lease agreements, Sharyland, the lessee and operator of the T&D assets, is responsible for the maintenance and operation of the T&D assets and for compliance with all regulatory requirements of the PUCT, the FERC or any other regulatory entity with jurisdiction over the T&D assets. Each of the lease agreements with Sharyland is a net lease that obligates the lessee to pay all property related expenses, including maintenance, repairs, taxes and insurance, and to comply with the terms of the SDTS secured credit facilities and note purchase agreements. The Company recognizes base rent under these leases on a straight-line basis over the applicable lease term.

The lease agreements provide for periodic supplemental adjustments of base rent based upon capital expenditures made by SDTS. The Company recognizes supplemental adjustments of base rent as a modification under these leases on a prospective straight-line basis over the applicable lease term. The Company recognizes percentage rent under these leases once the revenue earned by Sharyland on the leased assets exceeds the annual specified breakpoints.

Asset Retirement Obligations

The Company has identified, but not recognized, asset retirement obligation liabilities related to the T&D assets, as a result of certain easements on property on which the Company has assets. Generally, such easements are perpetual and require only the retirement and removal of the assets upon cessation of the property’s use. Management has not estimated and recorded a retirement liability for such easements because the Company plans to use the facilities indefinitely.

Interest Expense, net

The Company’s interest expense, net primarily consists of interest expense from the senior notes and credit facilities, see Note 8, Borrowings Under Credit Facilities and Note 9, Long-Term Debt. AFUDC on borrowed funds of $1.8 million, $1.6 million and $12.6 million was recognized as a reduction of the Company’s interest expense during the years ended December 31, 2015, 2014 and 2013, respectively.

Other Income, net

AFUDC on other funds of $3.0 million, $1.1 million and $21.7 million was recognized in other income, net during the years ended December 31, 2015, 2014 and 2013, respectively.

Comprehensive Income

Comprehensive income includes net income and other comprehensive income, which consists of unrealized gains and losses on derivative financial instruments. The Company records deferred hedge gains and losses on its derivative financial instruments that qualify as cash flow hedging instruments as other comprehensive income.

Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurements and Disclosures, sets forth a framework for measuring fair value and required disclosures about fair value measurements of assets and liabilities in accordance with U.S. GAAP.

Level 1 — Quoted prices in active markets for identical assets and liabilities.

F-14

Level 2 — Valuations based on one or more quoted prices in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs that are observable other than quoted prices for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Recently Issued Accounting Pronouncements

In February 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2015-02, Consolidation (Topic 810) – Amendments to the Consolidation Analysis. This amendment affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 is effective for periods beginning after December 15, 2015 with early adoption permitted. The adoption of the new guidance will not have an impact on the current consolidation, but may change the accounting associated with future transactions.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. This ASU is effective for periods beginning after December 15, 2015 with early adoption permitted. When adopted, the new guidance will be applied on a retrospective basis with each balance sheet presented reflecting the new guidance along with transitional disclosures. The Company will adopt this presentation beginning with the three months ended March 31, 2016. The adoption will impact the Company’s presentation of its financial position, but will not have an impact on the Company’s results of operations or cash flows.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined instead of retrospectively applying the adjustments. The change in provisional amounts will be recorded in the income statement for any effect on earnings for changes in depreciation, amortization or other income effect calculated as if the accounting had been completed at the acquisition date. This ASU is effective for periods beginning after December 15, 2015 with early adoption permitted. When adopted in the first quarter of 2016, the new guidance will be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU. The adoption is not expected to have an impact on the Company’s financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amended the existing accounting standard for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for periods beginning after December 15, 2018 with early adoption permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial position, results of operations or cash flows.

Reportable Segments

U.S. GAAP establishes standards for reporting financial and descriptive information about a company’s reportable segments. Management has determined that the Company has one reportable segment, with activities related to ownership and leasing of rate-regulated electric T&D assets.

2. Related Party Transactions

SDTS is party to several lease agreements with Sharyland, through which the Company leases its T&D assets to Sharyland. Under the leases the Company has agreed to fund capital expenditures for footprint projects. The leases define “footprint projects” to be transmission or distribution projects primarily situated within the Company’s distribution service territory, or that physically hang from the Company’s existing transmission assets.

The Company earned lease revenues under these agreements of $151.2 million, $134.4 million and $73.2 million from Sharyland during the years ended December 31, 2015, 2014 and 2013, respectively. In connection with the Company’s leases with Sharyland, the Company recorded a deferred rent liability of $11.5 million and $5.0 million as of December 31, 2015 and 2014, respectively, which is included in accounts payable and accrued liabilities on the Consolidated Balance Sheets.

F-15

In addition to rent payments that Sharyland makes to the Company, the Company and Sharyland also make payments to each other under the leases that primarily consist of payments to reimburse Sharyland for the costs of gross plant and equipment added to the Company’s T&D assets. For the years ended December 31, 2015 and 2014, the net amount of the payments the Company made to Sharyland was $245.1 million and $189.3 million, respectively.

As of December 31, 2015 and 2014, accounts payable and accrued liabilities on the Consolidated Balance Sheets included $9.2 million and $16.1 million, respectively, related to amounts owed to Sharyland. As of December 31, 2015 and 2014, amounts due from affiliates on the Consolidated Balance Sheets included $31.2 million and $27.8 million, respectively, related to amounts owed by Sharyland associated with the Company’s leases.

The Company’s management fee paid to Hunt Manager for the years ended December 31, 2015 and 2014 was $12.3 million and $10.0 million, respectively. As of December 31, 2015 and 2014, there were no prepaid or accrued amounts associated with management fees on the Consolidated Balance Sheets. Additionally, during the years ended December 31, 2015 and 2014, the Company paid Hunt Manager $0.5 million and $0.2 million, respectively, for reimbursement of annual software license and maintenance fees and other expenses in accordance with the Company’s management agreement.

The Company’s current management agreement with Hunt Manager, which was effective February 4, 2015, provided for an annual base fee, or management fee, of $10.0 million through April 1, 2015. Effective as of April 1, 2015, the annual base fee was adjusted to $13.1 million annually through March 31, 2016. Effective as of April 1, 2016, the annual base fee will be adjusted to $14.0 million annually through March 31, 2017. The base fee for each twelve month period beginning April 1 thereafter will equal 1.50% of the Company’s total equity as of December 31 of the immediately preceding year, subject to a $30.0 million cap. The term of the management agreement expires December 31, 2019, and will automatically renew for successive five year terms unless a majority of the Company’s independent directors decides to terminate the agreement.

In connection with the organization of InfraREIT, L.L.C. in November 2010, the Operating Partnership agreed to issue deemed capital credits and Class A OP Units to Hunt-InfraREIT with respect to certain development projects. The amount of the capital account credits the Operating Partnership was required to issue equaled 5% of the Company’s capital expenditures on these projects, including AFUDC. The number of Class A OP Units the Operating Partnership was required to issue equaled the amount of the capital account credit divided by $10.65. During the year ended December 31, 2014, the Operating Partnership issued approximately 104,763 Class A OP Units, and on January 1, 2015, the Operating Partnership issued an additional 17,600 Class A OP Units to Hunt-InfraREIT. Following the consummation of the IPO, the Operating Partnership no longer has the obligation to issue deemed capital credits and related equity to Hunt-InfraREIT. The Company recorded these capital account credits as asset acquisition costs included as part of the capital project in the CWIP balance.

InfraREIT LP also issued deemed capital and equity in connection with its CREZ Project. For further information, see Note 11, Contingent Consideration.

Prior to the IPO, the Company and one of its stockholders were parties to a secondee agreement under which employees of the stockholder provided services to the Company for a secondment fee. The Company incurred costs associated with secondment fees of less than $0.1 million and $0.2 million during the years ended December 31, 2014 and 2013, respectively. These fees are included in general and administrative expense in the Consolidated Statements of Operations. The Company did not incur any fees associated with this agreement in 2015. As of December 31, 2015 and 2014, there were no amounts owed to the member included in accounts payable and accrued liabilities on the Consolidated Balance Sheets related to the secondee agreement. As a result of the IPO, the secondee agreement terminated.

In connection with the IPO, Reorganization and related transactions, the Company incurred an aggregate of $5.0 million of legal fees, a portion of which was paid to reimburse HCI and its subsidiaries (collectively, Hunt), the founding investors and independent directors for legal expenses they incurred in connection with such transactions. This legal expense reimbursement relates to the fees and expenses of outside counsel incurred by those parties and was negotiated separately from the reorganization advisory fee that the Company paid to Hunt-InfraREIT in connection with the reorganization advisory services provided in connection with the IPO. For further information on additional related party transactions the Company entered into as a result of the Reorganization, see the caption Initial Public Offering and Reorganization included in Note 1, Description of Business and Summary of Significant Accounting Policies.

On November 20, 2014, InfraREIT, Inc. borrowed $1.0 million from HCI pursuant to a promissory note. The note accrued interest at 2.5% per year and was due on November 1, 2015. This note and accrued interest were repaid in February 2015 with proceeds from the IPO for a total of $1.0 million.

F-16

Effective January 15, 2015, the Company sold all the assets related to the Cross Valley transmission line (Cross Valley Project) to a newly formed development company owned by Hunt and certain of the Company’s founding investors for cash of $34.2 million. Also effective January 15, 2015, the Company sold all the assets related to the Golden Spread Electric Coop (GSEC) interconnection (Golden Spread Project) to Hunt for cash of $7.0 million. For further information, see Note 3, Assets Held for Sale. These projects constitute identified projects being developed by Hunt and its affiliates under the Company’s development agreement with Hunt Transmission Services, L.L.C., also known as Hunt Developer.

In November 2015, the Conflicts Committee of the Company’s board of directors received an offer for the purchase of the Golden Spread Project. Negotiations are in progress regarding such purchase.

3. Assets Held for Sale

In October 2014, InfraREIT, L.L.C.’s board of directors approved a plan to sell the assets related to the Cross Valley Project and Golden Spread Project. As of December 31, 2014, these assets were classified as assets held for sale at the lower of historical carrying amount or fair value on the Consolidated Balance Sheets as they met the criteria for “held for sale” accounting as of December 31, 2014. These assets represent labor, materials, AFUDC and various other costs associated with the construction of the Cross Valley Project and Golden Spread Project.

The assets of the Cross Valley Project and Golden Spread Project were classified as assets held for sale on the Consolidated Balance Sheets were $41.2 million as of December 31, 2014. Since these assets were not placed in service as of December 31, 2014, no depreciation was taken.

Effective January 15, 2015, the Company sold all the assets related to the Cross Valley Project to a newly formed development company owned by Hunt and certain of the Company’s founding investors for cash of $34.2 million, which equaled the CWIP of the project on the date of the sale, plus reimbursement of out of pocket expenses associated with the project financing.

Also effective January 15, 2015, the Company sold all the assets related to the Golden Spread Project to Hunt for cash of $7.0 million, which equaled the CWIP of the project on the date of the sale.

4. Prepaids and Other Current Assets

Prepaids and other current assets are as follows:

	December 31,
(In thousands)	2015		2014
Offering costs	$	—	$	4,397
Prepaid insurance		267		249
Other		293		251
Total prepaids and other current assets	$	560	$	4,897

Offering costs consisted of costs directly attributable to the registration of the Company’s common stock in connection with the IPO. These offering costs, which were netted against the IPO proceeds, equaled $6.3 million in the aggregate, of which $4.4 million were on the Consolidated Balance Sheet at December 31, 2014.

F-17

5. Electric Plant and Depreciation

The major classes of electric plant are as follows:

	December 31,
(In thousands)	2015			2014
Electric plant:
Transmission plant	$	1,080,050		$	966,560
Distribution plant		457,988			387,329
General plant		15,655			15,018
Total plant in service		1,553,693			1,368,907
CWIP		121,602			41,222
Total electric plant		1,675,295			1,410,129
Accumulated depreciation		(240,764	)		(220,101	)
Electric plant held for future use		—			37,118
Electric plant, net	$	1,434,531		$	1,227,146

General plant consists primarily of a warehouse, buildings and associated assets. CWIP relates to various transmission and distribution projects underway. The capitalized amounts of CWIP consist primarily of route development expenditures, labor and materials expenditures, right of way acquisitions, engineering services and legal fees. Electric plant, net includes plant acquisition adjustments of $28.6 million and $28.7 million at December 31, 2015 and 2014, respectively.

On December 30, 2013, SDTS purchased from Southwestern Public Service Company approximately 66 miles of existing transmission lines and two substations located near Stanton, Texas for $37.1 million. The application for sale, transfer or merger was approved by the PUCT under the Docket No. 41430. SDTS holds legal title to the assets and they are subject to lease with Sharyland. Sharyland has the responsibility for operating these T&D assets and complying with all applicable regulatory requirements. As of December 31, 2014, these transmission lines and substations were classified as electric plant held for future use within electric plant, net on the Consolidated Balance Sheets. During August 2015, electric plant held for future use was placed in service and reclassified to transmission plant within electric plant, net on the Consolidated Balance Sheets and began depreciating.

6. Goodwill

Goodwill represents the excess of costs of an acquired business over the fair value of the assets acquired, less liabilities assumed. The Company conducts an impairment test of goodwill at least annually. The Company’s 2015 impairment test did not result in an impairment charge. As of December 31, 2015 and 2014, $138.4 million was recorded as goodwill on the Consolidated Balance Sheets.

7. Other Assets

Other assets are as follows:

	December 31, 2015							December 31, 2014
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Deferred financing costs	$	1,292	$	(368	)	$	924	$	1,290	$	(143	)	$	1,147
Other regulatory assets:
Deferred financing costs		27,112		(13,208	)		13,904		25,701		(12,693	)		13,008
Deferred costs recoverable in future years		23,793		—			23,793		23,793		—			23,793
Other regulatory assets, net		50,905		(13,208	)		37,697		49,494		(12,693	)		36,801
Investments		2,519		—			2,519		2,519		—			2,519
Other assets	$	54,716	$	(13,576	)	$	41,140	$	53,303	$	(12,836	)	$	40,467

Deferred financing costs primarily consist of costs incurred in connection with the establishment of the InfraREIT LP revolving credit facility and issuance of $25.0 million aggregate principal amount of 8.50% per annum senior notes. See Note 8, Borrowings Under Credit Facilities and Note 9, Long-Term Debt.

F-18

Other regulatory assets consist of deferred financing costs within the Company’s regulated entities. These assets are classified as regulatory assets and amortized over the length of the related loan. These costs will be included in the costs to be recovered in connection with a future rate case. Deferred financing costs included in other regulatory assets primarily consist of debt issuance costs incurred in connection with the construction credit agreement entered into by SPLLC in June 2011, refinancing costs incurred in connection with the amended and restated revolving credit facility entered into by SDTS in June 2013, refinancing costs incurred to amend and restate the SDTS credit facility in order to increase the revolving credit facility to a total of $250.0 million revolving credit facility in December 2014 and financing costs incurred in connection with SDTS’s senior secured notes, Series A and Series B in December 2015. See Note 8, Borrowings Under Credit Facilities and Note 9, Long-Term Debt.

Deferred costs recoverable in future years of $23.8 million at December 31, 2015 and 2014 represent operating costs incurred from inception of Sharyland through December 31, 2007. The Company has determined that these costs are probable of recovery through future rates based on orders of the PUCT in Sharyland’s prior rate cases and regulatory precedent.

In connection with the acquisition of Cap Rock Holding Corporation (Cap Rock), the Company received a participation in the National Rural Utilities Cooperative Finance Corporation (NRUCFC). The Company accounts for this investment under the cost method of accounting. The Company believes that the investment is not impaired at December 31, 2015 and 2014.

8. Borrowings Under Credit Facilities

InfraREIT LP Revolving Credit Facilities

On January 3, 2014, InfraREIT LP entered into a credit facility, led by Bank of America, N.A., as administrative agent, which established a revolving credit facility of $130.0 million that included a letter of credit facility. On November 13, 2014, the credit facility was amended to extend the maturity date to March 31, 2015. On December 10, 2014, the credit facility was repaid and terminated using proceeds from InfraREIT LP’s new $75.0 million credit facility and SDTS’s amended credit agreement entered into on December 10, 2014, as discussed below.

On December 10, 2014, InfraREIT LP entered into a $75.0 million revolving credit facility, led by Bank of America, N.A., as administrative agent, with up to $15.0 million available for issuance of letters of credit and a maturity date of December 10, 2019. The revolving credit facility is secured by substantially all of the assets of InfraREIT LP. In addition, Transmission and Distribution Company, LLC (TDC) guarantees the revolving credit facility and this guarantee is secured by the assets of, and InfraREIT LP’s equity interests in, TDC on materially the same basis as with TDC’s senior secured notes described below. Upon consummation of the IPO and Merger, InfraREIT, Inc. became a guarantor under this revolving credit facility.

The credit agreement requires InfraREIT LP to comply with coverage ratios on a consolidated basis and contains affirmative and negative covenants, including, limitations on additional debt, liens, investments, mergers, acquisitions, dispositions or entry into any line of business other than the business of the transmission and distribution of electric power and the provision of ancillary services and certain restrictions on the payment of dividends. The credit agreement also contains restrictions on the amount of Sharyland’s indebtedness and other restrictions on, and covenants applicable to, Sharyland.

Borrowings and other extensions of credit under the revolving credit facility bear interest, at InfraREIT LP’s election, at a rate equal to (1) the one, two, three or six month London Interbank Offered Rate (LIBOR) plus 2.5%, or (2) a base rate (equal to the highest of (a) the Federal Funds Rate plus ½ of 1%, (b) the Bank of America prime rate and (c) LIBOR plus 1%) plus 1.5%. Letters of credit are subject to a letter of credit fee equal to the daily amount available to be drawn times 2.5%. InfraREIT LP is also required to pay a commitment fee and other customary fees under the new revolving credit facility. InfraREIT LP may prepay amounts outstanding under the revolving credit facility in whole or in part without premium or penalty.

There were no outstanding borrowings or letters of credit under the revolving credit facility at December 31, 2015, and there was $75.0 million of borrowing capacity available. At December 31, 2014, $57.0 million of borrowings were outstanding at a 2.66% interest rate and no letters of credit were outstanding, with $18.0 million of remaining borrowing capacity under this revolving credit facility. As of December 31, 2015 and 2014, InfraREIT LP was in compliance with all debt covenants under the credit agreement.

SDTS Revolving Credit Facilities

On June 28, 2013, SDTS entered into a second amended and restated credit agreement led by Royal Bank of Canada, as administrative agent, which established a revolving credit facility of $75.0 million that originally matured on June 28, 2018 and included a letter of credit facility.

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On December 10, 2014, SDTS’s second amended and restated credit agreement was amended and restated in order to, among other things, increase the amount of the revolving credit facility to a total of $250.0 million and extend the maturity date to December 10, 2019. Up to $25.0 million of the revolving credit facility is available for issuance of letters of credit, and up to $5.0 million of the revolving facility is available for swingline loans.

On September 28, 2015, SDTS amended its credit agreement and related collateral agreements in order to, among other things, modify the collateral requirements. The revolving credit agreement was previously secured by substantially all of the assets of, and TDC’s equity interests in, SDTS. After the amendment, the revolving credit facility is secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s various senior secured note obligations described below in Note 9, Long-Term Debt.

The interest rate for the revolving credit facility is based, at SDTS’s option, at a rate equal to either (1) a base rate, determined as the greatest of (a) the administrative agent’s prime rate, (b) the federal funds effective rate plus ½ of 1% and (c) LIBOR plus 1.00% per annum, plus a margin of either 0.75% or 1.00% per annum, depending on the total debt to capitalization ratio of SDTS on a consolidated basis or (2) LIBOR plus a margin of either 1.75% or 2.00% per annum, depending on the total debt to capitalization ratio of SDTS on a consolidated basis. SDTS is also required to pay a commitment fee and other customary fees under its revolving credit facility. SDTS is entitled to prepay amounts outstanding under the revolving credit facility with no prepayment penalty.

At December 31, 2015, SDTS had $54.0 million of borrowings outstanding at a weighted average interest rate of 2.05%, no letters of credit outstanding and $196.0 million of borrowing capacity available. At December 31, 2014, SDTS had $162.0 million of borrowings outstanding at a 1.91% interest rate with no letters of credit outstanding and $88.0 million of remaining borrowing capacity under this revolving credit facility. As of December 31, 2015 and 2014, SDTS was in compliance with all debt covenants under the credit agreement.

The revolving credit facilities of InfraREIT LP and SDTS are subject to customary events of default. If an event of default occurs under either facility and is continuing, the lenders may accelerate amounts due under such revolving credit facility (except in the case of a bankruptcy event of default, in which case such amounts will automatically become due and payable).

9. Long-Term Debt

Long-term debt consisted of the following:

		December 31, 2015						December 31, 2014
(In thousands)	Maturity Date	Amount Outstanding			Interest Rate			Amount Outstanding			Interest Rate
Senior secured notes - $53.5 million	December 30, 2029	$	44,512			7.25	%	$	46,291			7.25	%
Senior secured notes - $110.0 million	September 30, 2030		101,627			6.47	%		105,622			6.47	%
Senior secured notes - $25.0 million	December 30, 2020		18,750			8.50	%		20,000			8.50	%
Senior secured notes - $60.0 million	June 20, 2018		60,000			5.04	%		60,000			5.04	%
Senior secured notes - $400.0 million	December 3, 2025		400,000			3.86	%		—		N/A
Senior secured credit facilities -    $407.0 million	June 20, 2018		—		N/A				397,843			2.42	%	*
Total long-term debt			624,889						629,756
Less current portion of long-term debt			(7,423	)					(19,234	)
Debt classified as long-term debt		$	617,466					$	610,522

* Interest based on LIBOR at December 31, 2014 plus an applicable margin.

Senior Secured Notes — On December 31, 2009, SDTS issued $53.5 million aggregate principal amount of 7.25% per annum senior secured notes to The Prudential Insurance Company of America and affiliates (2009 Notes). Principal and interest on these senior secured notes are payable quarterly.

On July 13, 2010, in connection with the acquisition of Cap Rock, SDTS issued $110.0 million aggregate principal amount of 6.47% per annum senior secured notes to The Prudential Insurance Company of America (2010 Notes). Principal and interest on these senior secured notes is payable quarterly.

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On July 13, 2010, in connection with the acquisition of Cap Rock, TDC issued $25.0 million aggregate principal amount of 8.50% per annum senior secured notes to The Prudential Insurance Company of America and affiliates. Principal and interest on these senior secured notes are payable quarterly and these senior secured notes are collateralized by the equity interest of TDC and substantially all of the assets of TDC on materially the same basis as with lenders under InfraREIT LP’s credit facility.

On September 28, 2015, SDTS amended its 2009 Notes and 2010 Notes and related collateral agreements related in order to, among other things, modify the collateral requirements. The 2009 Notes and 2010 Notes were previously collateralized by substantially all of the assets of, and TDC’s equity interests in SDTS. After the amendment, the 2009 Notes and 2010 Notes are secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s revolving credit facility described above in Note 8, Borrowings Under Credit Facilities, and as SDTS’s Series A Notes, Series B Notes and Fixed Rate Notes described below.

On December 3, 2015, SDTS issued $400.0 million in 10 year senior secured notes, series A (Series A Notes), due December 3, 2025, and on January 14, 2016 issued an additional $100.0 million in 10 year senior secured notes, series B (Series B Notes), due January 14, 2026. These senior secured notes were issued through a private placement conducted pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (Securities Act) and will bear interest at a rate of 3.86% per annum, payable semi-annually. The Series A Notes will be due in full at maturity with outstanding accrued interest payable each June and December. The Series B Notes will be due in full at maturity with outstanding accrued interest payable each January and July. See Note 23, Subsequent Events for additional information related to the Series B Notes. The Series A Notes and Series B Notes are secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s revolving credit facility described above in Note 8, Borrowings Under Credit Facilities, and as SDTS’s 2009 Notes, 2010 Notes and Fixed Rate Notes.

SDTS and TDC are entitled to prepay amounts outstanding under their senior secured notes, subject to a prepayment penalty equal to the excess of the discounted value of the remaining scheduled payments with respect to such notes over the amount of the prepaid notes.

The agreements governing the senior secured notes contain certain default triggers, including: failure to maintain compliance with financial and other covenants contained in the agreements, limitation on liens, investments and the incurrence of additional indebtedness. As of December 31, 2015 and 2014, SDTS and TDC were in compliance with all debt covenants under the applicable agreements.

Senior Secured Credit Facilities — On June 20, 2011, SPLLC entered into a construction term loan agreement consisting of a $667.0 million construction term loan, reduced to $447.0 million on March 8, 2013, syndicated broadly to a group of 14 international banks, and $60.0 million in fixed rate notes issued to The Prudential Insurance Company of America and affiliates (Fixed Rate Notes). The senior secured credit facility was collateralized by SPLLC’s assets and SDTS’s equity interest in SPLLC.

The $447.0 million construction term loan accrued interest at LIBOR plus 2.00%. LIBOR reset at each selected interest period (one, two, three or six months), at SPLLC’s discretion, at the current market rate. The outstanding borrowings under the construction term loan at December 31, 2013 were $396.0 million at an interest rate of 2.17%. On May 16, 2014, the construction term loan outstanding was converted into a term loan with a balance of $407.0 million. After this conversion, interest accrued at LIBOR plus 2.25% for a period of three years, at which point the interest rate would have increased to LIBOR plus 2.50%. Interest under the term loan was payable the last day of the selected interest period for interest periods of three months or less, and every three months for interest periods greater than three months. Amortized principal amounts of the term loan were payable quarterly after the conversion.

On December 3, 2015, the outstanding principal and interest on the term loan were paid in full with proceeds from the SDTS Series A Notes. Also on December 3, 2015, the Fixed Rate Notes were assumed by SDTS in connection with the SDTS Merger. The Fixed Rate Notes are secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s revolving credit facility described above in Note 8, Borrowings Under Credit Facilities, and as SDTS’s 2009 Notes, 2010 Notes, Series A Notes and Series B Notes.

Interest is payable quarterly on the $60.0 million Fixed Rate Notes with the full principal balance due on June 20, 2018.

The credit agreement governing the Fixed Rate Notes contains certain default triggers, including: failure to maintain compliance with financial and other covenants contained in the agreements, limitation on liens, investments and the incurrence of additional indebtedness. SDTS was in compliance with all debt covenants for the Fixed Rate Notes as of December 31, 2015. SPLLC was in compliance with all debt covenants for the term loan and Fixed Rates Notes as of December 31, 2014.

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Future maturities of long-term debt are as follows for the years ended December 31:

(In thousands)	Total
2016	$	7,423
2017		7,849
2018		68,305
2019		8,792
2020		21,813
Thereafter		510,707
Total	$	624,889

10. Derivative Instruments

Interest — During 2011, SPLLC entered into an interest rate swap agreement designated as a cash flow hedge against variable interest rate exposure on a portion of the construction term loan which established a fixed rate on the LIBOR interest rates specified in the SPLLC construction term loan at 0.832% per annum until June 30, 2014. Notional amounts reset on a monthly basis and did not exceed $261.0 million at any given time. There were no notional amounts as of December 31, 2014 as this swap agreement terminated on June 30, 2014. The Company has not entered into any new derivative instruments since the termination of this swap agreement.

This cash flow hedging instrument was recorded as a liability on the Consolidated Balance Sheets at fair value, with an offset to accumulated other comprehensive income to the extent the cash flow hedging instrument was effective. The cash flow hedging instrument gains and losses included in other comprehensive income were reclassified into earnings as the underlying transaction occurred. There was no cash flow hedging instrument ineffectiveness recorded for this swap agreement.

The Company reclassified $0.9 million and $1.6 million, included in other comprehensive income, during the years ended December 31, 2014 and 2013, respectively, to interest expense, net on the Consolidated Statements of Operations. The Company did not reclassify any amounts related to the swap agreement to interest expense, net during the year ended December 31, 2015.

11. Contingent Consideration

In connection with the Company’s acquisition of InfraREIT LP in 2010, the Company agreed to contingent consideration in the form of future deemed capital credits in an amount up to $82.5 million to Hunt-InfraREIT. The capital account credits, which were generated pro rata with the cash expenditures on the CREZ Project up to $737.0 million, were issued to Hunt-InfraREIT in the form of Class A OP Units at the agreed upon deemed issue price of $10.65 per unit on the first day of each quarter following the actual expenditures. The future deemed capital credits were determined to be contingent consideration and were assessed a fair value of $78.6 million at the date of acquisition and included as a component of long-term liabilities on the Consolidated Balance Sheets.

As of December 31, 2014, InfraREIT LP had issued, as described above, approximately 6.7 million of Class A OP Units to Hunt-InfraREIT. During the first quarter of 2015, the following transactions occurred:

· On January 1, 2015, InfraREIT LP issued 53,246 Class A OP Units to Hunt-InfraREIT.

· On February 4, 2015, in connection with the Reorganization, InfraREIT LP issued Hunt-InfraREIT 983,418 Common OP Units in full settlement of InfraREIT LP’s contingent consideration obligation.

The Company recognized $18.4 million and $0.8 million as expense due to changes in fair value of the contingent consideration in accordance with the acquisition agreement during the years ended December 31, 2014 and 2013, respectively. This expense was recorded as part of other (expense) income, net on the Consolidated Statements of Operations. There was no expense recorded during the year ended December 31, 2015 related to the contingent consideration. As of December 31, 2014, $27.4 million was recorded as a current liability in the form of contingent consideration on the Consolidated Balance Sheets. As of December 31, 2015, no such liability was recorded as the contingent consideration was fully settled.

12. Fair Value of Financial Instruments

The carrying amounts of the Company’s cash and cash equivalents, restricted cash, due from affiliates and accounts payable approximate fair value due to the short-term nature of these assets and liabilities.

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The Company had borrowings totaling $624.9 million and $231.9 million under senior secured notes with a weighted average interest rate of 4.78% and 6.43% per annum as of December 31, 2015 and 2014, respectively. The fair value of these borrowings is estimated using discounted cash flow analysis based on current market rates.

The Company’s derivative contracts consisted of cash flow hedging instruments which are not traded on a public exchange. The fair values of the cash flow hedging instrument contracts were determined using discounted cash flow techniques. The techniques incorporated Level 2 inputs and quotes from the counterparty to the interest rate swap contract. These market inputs were utilized in a discounted cash flow calculation considering the cash flow hedging instrument term, credit risk, notional amount and discount rate and were classified as Level 2 in the fair value hierarchy.

As of December 31, 2014, the Company had $397.8 million of borrowings under the construction term loan which accrued interest under floating interest rate structures. Accordingly, the carrying value of such indebtedness approximated fair value for the amounts outstanding. These borrowings were paid in full during 2015.

For the year ended December 31, 2014, the Company assessed the fair market value of its contingent consideration associated with the acquisition of InfraREIT LP using observable Level 2 inputs associated with the closing price of InfraREIT, Inc.’s stock on the closing date of the IPO.

Financial instruments, measured at fair value, by level within the fair value hierarchy were as follows:

	Carrying		Fair Value
(In thousands)	Value		Level 1		Level 2		Level 3
December 31, 2015
Long-term debt	$	624,889	$	—	$	657,270	$	—
December 31, 2014
Long-term debt	$	629,756	$	—	$	658,306	$	—
Contingent consideration - long-term		27,378		—		27,378		—

At December 31, 2014, the Company transferred the contingent consideration from Level 3 to Level 2.

ASC Topic 820 requires a company to disclose changes during the year for financial instruments that are classified as Level 3 financial instruments in the fair value hierarchy. Changes in Level 3 financial instruments were as follows:

(In thousands)	Year Ended December 31, 2014
Contingent Consideration
Beginning Balance	$	12,554
Non-cash noncontrolling interest equity issuance		(3,533	)
Change in fair value of contingent consideration		18,357
Gross transfers out of Level 3		(27,378	)
Ending Balance	$	—

13. Regulatory Liability

The Company’s regulatory liability is established through depreciation rates related to cost of removal and represents amounts that the Company expects to incur in the future. As of December 31, 2015 and 2014, the Company recorded on the Consolidated Balance Sheets as a long-term liability $10.6 million and $1.2 million, respectively, net of actual removal costs incurred.

14. Commitments and Contingencies

The amounts reported as regulatory assets as of December 31, 2015 and 2014 are subject to the review by the PUCT and as with all utility assets may change at a later date based on that review, see Note 7, Other Assets.

The Company is not a party to any legal proceedings other than legal proceedings arising in the ordinary course of business. The Company does not believe the resolution of these proceedings, individually or in the aggregate, will have a material impact on the Company’s business, financial condition or results of operations, liquidity and cash flows.

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15. Equity

On January 12, 2015, InfraREIT, Inc. amended its charter to increase the number of authorized shares of common stock from 3,000 to 450,000,000. In addition, the par value of the Company’s common stock was reduced from $1 per share to $0.01 per share. Both the authorized number of shares of common stock and the par value were unaffected by the Merger or Reorganization.

On December 4, 2015, the Company’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, Inc., on December 31, 2015 of $0.225 per unit for a total distribution of $13.6 million ($9.8 million to InfraREIT, Inc.). Also, on December 4, 2015, the Company’s board of directors approved a cash dividend to stockholders of record on December 31, 2015 of $0.225 per share for a total of $9.8 million. The cash distribution and cash dividend were paid on January 21, 2016.

On September 3, 2015, the Company’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, Inc., on September 30, 2015 of $0.225 per unit for a total distribution of $13.6 million ($9.8 million to InfraREIT, Inc.). Also, on September 3, 2015, the Company’s board of directors approved a cash dividend to stockholders of record on September 30, 2015 of $0.225 per share for a total of $9.8 million. The cash distribution and cash dividend were paid on October 22, 2015.

On June 5, 2015, the Company’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, Inc., on June 30, 2015 of $0.225 per unit for a total distribution of $13.6 million ($9.8 million to InfraREIT, Inc.). Also, on June 5, 2015, the Company’s board of directors approved a cash dividend to stockholders of record on June 30, 2015 of $0.225 per share for a total of $9.8 million. The cash distribution and cash dividend were paid on July 23, 2015.

On March 6, 2015, the Company’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, Inc., on March 31, 2015 of $0.14 per unit for a total distribution of $8.5 million ($6.1 million to InfraREIT, Inc.). Also, on March 6, 2015, the Company’s board of directors approved a cash dividend to stockholders of record on March 31, 2015 of $0.14 per share for a total of $6.1 million. The cash distribution and cash dividend were paid on April 23, 2015.

On January 13, 2015, InfraREIT, L.L.C.’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, L.L.C., on January 20, 2015 of $0.26 per unit for a total distribution of $11.7 million ($9.0 million to InfraREIT, L.L.C.). Also, on January 13, 2015, InfraREIT, L.L.C.’s board of directors approved a cash dividend to shareholders of record on January 20, 2015 of $0.26 per share for a total of $9.0 million. The cash distribution and cash dividend were paid on January 29, 2015.

For federal income tax purposes, the dividends declared in 2015 were classified as ordinary income.

On December 18, 2014, InfraREIT, L.L.C.’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, L.L.C., on December 18, 2014 of $0.31 per unit for a total distribution of $14.1 million ($10.8 million to InfraREIT, L.L.C.). Also on December 18, 2014, InfraREIT, L.L.C.’s board of directors approved a cash dividend to shareholders of record on December 18, 2014 of $0.31 per share for a total of $10.8 million. The cash distribution and cash dividend were paid on January 16, 2015. For federal income tax purposes, this dividend was classified as ordinary income.

The Company is required to distribute at least 90% of its taxable income (excluding net capital gains) to maintain its status as a REIT. Management believes that the Company has distributed at least 100% of its taxable income.

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16. Accumulated Other Comprehensive Loss

There were no changes in accumulated other comprehensive loss for the year ended December 31, 2015. Changes in accumulated other comprehensive loss for the years ended December 31, 2014 and 2013 associated with the interest rate swap designated as a cash flow hedge were as follows:

(In thousands)	Accumulated Other Comprehensive Loss Attributable to InfraREIT, Inc.			Accumulated Other Comprehensive Loss Attributable to Noncontrolling Interest			Total Accumulated Other Comprehensive Loss
Year Ended December 31, 2014
Other comprehensive (loss) income before reclassifications	$	(77	)	$	28		$	(49	)
Amounts reclassified from accumulated other comprehensive (loss) income		687			206			893
Net period other comprehensive income	$	610		$	234		$	844
Year Ended December 31, 2013
Other comprehensive loss before reclassifications	$	(180	)	$	(56	)	$	(236	)
Amounts reclassified from accumulated other comprehensive loss		1,180			379			1,559
Net period other comprehensive income	$	1,000		$	323		$	1,323

17. Noncontrolling Interest

The Company presents as a noncontrolling interest the portion of any equity in entities that it controls and consolidates but does not own. Generally, Common OP Units participate in net income allocations and distributions and entitle their holder the right, subject to the terms set forth in the partnership agreement, to require the Operating Partnership to redeem all or a portion of the Common OP Units held by such limited partner. At the Company’s option, it may satisfy this redemption with cash or by exchanging shares of InfraREIT, Inc. common stock on a one-for-one basis. Prior to the cancellation of all outstanding Class A OP Units, these units also participated in net income allocations and distributions and had the same redemption rights. As of December 31, 2015 and 2014, there were a total of 17.0 million and 10.7 million OP Units, respectively, held by the limited partners of the Operating Partnership.

On May 1, 2014, the limited partnership agreement of InfraREIT LP was amended in order to incorporate a long-term incentive plan and InfraREIT LP issued 11,264 related OP Units (pre-IPO LTIP Units) to independent non-voting members of the InfraREIT, L.L.C. board of directors as part of their compensation, which were fully vested upon grant. These pre-IPO LTIP Units had an aggregate intrinsic value of $0.1 million with $0.1 million of compensation expense recognized in general and administrative expense during the year ended December 31, 2014. During the first quarter of 2015, an aggregate of 28,000 LTIP Units were issued by the Operating Partnership to seven of the Company’s directors which included a one year vesting period. The Company recognized $0.7 million of compensation expense in general and administrative expense in the Consolidated Statements of Operations during the year ended December 31, 2015. There was no compensation expense recognized during the year ended December 31, 2013.

The Company follows the guidance issued by the FASB regarding the classification and measurement of redeemable securities. Accordingly, The Company has determined that the Common OP Units meet the requirements to be classified as permanent equity. During the year ended December 31, 2015, the Company did not redeem any OP Units other than, in connection with the Reorganization: (1) 1,551,878 Class A OP Units held by Hunt-InfraREIT, which were exchanged with InfraREIT, Inc. for 1,551,878 shares of common stock of InfraREIT, Inc. and (2) 6,242,999 Class A OP Units in exchange for the assignment of a promissory note in the principal amount of $66.5 million. The Operating Partnership did not redeem any OP Units during the years ended December 31, 2014 and 2013.

18. Earnings Per Share

Basic earnings per share is calculated by dividing net earnings after noncontrolling interest by the weighted average shares outstanding. Diluted earnings per share is calculated similarly, except that it includes the dilutive effect of the assumed redemption of OP Units for shares of common stock of InfraREIT, Inc. or common shares of InfraREIT, L.L.C., as applicable, if such redemption were dilutive. The redemption of OP Units would have been anti-dilutive during the years ended December 31, 2015, 2014 and 2013.

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Earnings per share are calculated as follows:

	Years Ended December 31,
(In thousands, except per share data)	2015		2014		2013
Basic net income per share:
Net income attributable to InfraREIT, Inc.	$	13,267	$	22,898	$	32,122
Weighted average common shares outstanding		42,983		35,053		29,883
Basic net income per share	$	0.31	$	0.65	$	1.07
Diluted net income per share:
Net income attributable to InfraREIT, Inc.	$	13,267	$	22,898	$	32,122
Weighted average common shares outstanding		42,983		35,053		29,883
Redemption of operating partnership units		—		—		—
Weighted average dilutive shares outstanding		42,983		35,053		29,883
Diluted net income per share	$	0.31	$	0.65	$	1.07
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	$	6,664	$	6,882	$	10,288
Redemption of operating partnership units		16,232		10,578		9,181

19. Leases

The following table shows the composition of the Company’s lease revenue:

	Years Ended December 31,
(In thousands)	2015		2014		2013
Base rent (straight-line)	$	125,669	$	106,746	$	57,979
Percentage rent		25,534		27,669		15,214
Total lease revenue	$	151,203	$	134,415	$	73,193

SDTS has entered into various leases with Sharyland for all of the Company’s placed in service T&D assets. The master lease agreements, as amended, expire at various dates from December 31, 2017 through December 31, 2022. Each agreement includes annual base rent while all but one agreement includes additional percentage rent (based on an agreed upon percentage of the gross revenue of Sharyland, as defined in the lease agreements, in excess of annual specified breakpoints). The rate used for percentage rent for the reported time periods varies by lease and ranges from a high of 37% to a low of 23%. The percentage rent rate for 2016 through the expiration of the leases ranges from a 23% to 32%. Because an annual specified breakpoint must be met under the leases before the Company can recognize any percentage rent, the Company anticipates that revenue will grow over the year with little to no percentage rent recognized in the first and second quarters of each year and with the largest amounts recognized during the third and fourth quarters of each year.

Future minimum rent revenue expected in accordance with these lease agreements is as follows for the years ended December 31:

(In thousands)	Total
2016	$	148,751
2017		155,855
2018		81,673
2019		78,923
2020		65,601
Thereafter		12,145
Total	$	542,948

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20. Share-Based Compensation

InfraREIT, Inc. 2015 Equity Incentive Plan

The Company’s pre-IPO board of directors adopted the InfraREIT, Inc. 2015 Equity Incentive Plan (2015 Equity Incentive Plan) which permits the Company to provide equity based compensation to certain personnel who provide services to the Company, Hunt Manager or an affiliate of either, in the form of stock options, stock appreciation rights, dividend equivalent rights, restricted stock, stock units, performance based awards, unrestricted stock, LTIP Units and other equity based awards up to an aggregate of 375,000 shares. The 2015 Equity Incentive Plan provides, among other things, that no participant in the plan will be permitted to acquire, or will have any right to acquire, shares thereunder if such acquisition would be prohibited by the ownership limits contained in the Company’s charter or bylaws or would impair the Company’s status as a REIT.

The Company currently utilizes the 2015 Equity Incentive Plan primarily to compensate the non-employee directors for their service on the Company’s board of directors. Effective February 4, 2015, the Company granted an aggregate of 28,000 LTIP Units at a grant date fair value of $26.41 per share to the non-employee directors as their award of shares of the Company’s common stock. This grant vested in full in February 2016. The compensation expense, which represents the fair value of the stock measured at market price at the date of grant, is recognized on a straight-line basis over the vesting period. For the year ended December 31, 2015, $0.7 million was recognized as compensation expense related to these grants and is included in general and administrative expense on the Consolidated Statements of Operations. Unamortized compensation expense related to these grants was $0.1 million at December 31, 2015.

InfraREIT, Inc. Non-Qualified 2015 Employee Stock Purchase Plan

The Company adopted the InfraREIT, Inc. Non-Qualified Employee Stock Purchase Plan (ESPP) that will allow employees of Hunt Manager or its affiliates whose principal duties include the management and operation of the Company’s business to purchase shares of the Company’s common stock at a discount. Pursuant to the management agreement, Hunt Manager is obligated to fund all of the costs associated with the ESPP, including the funds necessary to purchase shares of the Company’s common stock in the open market pursuant to the plan. A total of 250,000 shares of common stock are reserved for sale and authorized for issuance under the ESPP. As of December 31, 2015, no shares have been purchased or offered for purchase under the ESPP.

Other Stock-Based Compensation

During May 2014, 11,264 pre-IPO LTIP Units were issued with an aggregate intrinsic value of $0.1 million with $0.1 million of compensation expense recognized in general and administrative expense during the year ended December 31, 2014. There was no compensation expense recognized during the year ended December 31, 2013.

21. Supplemental Cash Flow Information

Supplemental cash flow information and non-cash investing and financing activities are as follows:

	Years Ended December 31,
(In thousands)	2015			2014		2013
Supplemental cash flow information
Cash paid during the period for interest	$	25,850		$	29,981	$	26,403
Cash (received) paid during the period for taxes		(31	)		75		36
Non-cash investing and financing activities
Non-cash right of way additions to electric plant		—			337		1,275
Change in accrued additions to electric plant		6,942			20,633		8,876
Allowance for funds used during construction - debt		1,767			1,635		12,579
Net non-cash equity issuances related to the Merger    and Reorganization		97,193			—		—
Net non-cash noncontrolling equity issuances related to    the Merger and Reorganization		119,607			—		—
Non-cash members' contributions		—			—		369
Non-cash noncontrolling interests contributions		—			—		119
Non-cash noncontrolling interests equity issuance		755			4,648		32,052
Dividends and distributions payable		13,634			14,130		—

F-27

22. Quarterly Financial Information (Unaudited)

Summarized unaudited consolidated quarterly information for the years ended December 31 follows:

(In thousands, except per share data)	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Year
2015
Lease revenue	$	29,372		$	29,458		$	41,452		$	50,921		$	151,203
General and administrative expense		(48,733	)		(4,728	)		(5,504	)		(5,641	)		(64,606	)
Depreciation		(9,508	)		(9,671	)		(10,259	)		(10,773	)		(40,211	)
Interest expense, net		(7,422	)		(6,939	)		(6,723	)		(7,470	)		(28,554	)
Other income, net		626			847			707			868			3,048
Income tax expense		(208	)		(124	)		(243	)		(374	)		(949	)
Net (loss) income		(35,873	)		8,843			19,430			27,531			19,931
Less: Net (loss) income attributable to noncontrolling    interest		(9,000	)		2,481			5,458			7,725			6,664
Net (loss) income attributable to InfraREIT, Inc.	$	(26,873	)	$	6,362		$	13,972		$	19,806		$	13,267
Basic EPS (1)	$	(0.65	)	$	0.15		$	0.32		$	0.45		$	0.31
Diluted EPS (1)	$	(0.65	)	$	0.15		$	0.32		$	0.45		$	0.31
2014
Lease revenue	$	24,837		$	25,225		$	39,309		$	45,044		$	134,415
General and administrative expense		(3,412	)		(3,284	)		(6,143	)		(5,786	)		(18,625	)
Depreciation		(8,461	)		(8,366	)		(8,998	)		(9,255	)		(35,080	)
Interest expense, net		(7,681	)		(7,984	)		(8,699	)		(8,377	)		(32,741	)
Other (expense) income, net		(133	)		172			294			(17,569	)		(17,236	)
Income tax expense		(158	)		(250	)		(248	)		(297	)		(953	)
Net income		4,992			5,513			15,515			3,760			29,780
Less: Net income attributable to noncontrolling    interest		1,147			1,278			3,621			836			6,882
Net income attributable to InfraREIT, Inc.	$	3,845		$	4,235		$	11,894		$	2,924		$	22,898
Basic EPS (1)	$	0.11		$	0.12		$	0.34		$	0.08		$	0.65
Diluted EPS (1)	$	0.11		$	0.12		$	0.34		$	0.08		$	0.65

(1) Basic and diluted net income per common share are computed independently for each quarter and full year based on the respective average number of common shares outstanding; therefore, the sum of the quarterly net income per common share data may not equal the net income per common share for the year.

23. Subsequent Events

On January 4, 2016, the Company issued an aggregate of 4,735 shares of common stock and 29,722 LTIP Units to seven members of the Company’s board of directors with a grant date fair value of $18.58 per common share or LTIP Unit and a fair value of $0.6 million. The 29,722 LTIP Units are scheduled to vest in January 2017, subject to continued service, and the 4,735 shares of common stock fully vested at issuance.

On January 14, 2016, the Company issued $100.0 million in 10 year senior secured notes, Series B due January 14, 2026. The proceeds from these notes were used to repay the outstanding balance on SDTS’s revolving credit facility and for general operating purposes.

In February 2016, the Conflicts Committee of the Company’s board of directors received an offer for the purchase of the Cross Valley Project. Currently, negotiations are in progress regarding such purchase.

On March 2, 2016, the Company’s board of directors declared a quarterly dividend of $0.25 per share of common stock, or $1.00 per share on an annualized basis, payable on April 21, 2016 to holders of record as of March 31, 2016. The Company’s board of directors also authorized the Operating Partnership to make a distribution of $0.25 per OP Unit to the partners in the Operating Partnership, which includes affiliates of Hunt.

F-28

InfraREIT, Inc.

SCHEDULE III – ELECTRIC PLANT AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2015

(In thousands)

Description (1)	Encumbrances		Initial Cost to Company (2)		Cost Subsequent to Acquisition				Gross Amount Carried at Period Close (3)		Accumulated Depreciation			Date of Construction (4)	Date Acquired	Depreciation Life in Latest Income Statementsis Computed (5)
			Electric Plant		Improvements		Carrying Cost		Electric Plant Total
S/B/C assets	$	268,620	$	713,502	$	—	$	—	$	713,502	$	(129,770	)	(4)	(4)	(5)
McAllen assets		61,676		155,970		—		—		155,970		(21,943	)	(4)	(4)	(5)
CREZ assets		294,159		669,189		—		—		669,189		(29,960	)	(4)	(4)	(5)
Stanton Transmission Loop assets		15,767		92,572		—		—		92,572		(58,309	)	(4)	(4)	(5)
ERCOT Transmission assets		19,917		44,062		—		—		44,062		(782	)	(4)	(4)	(5)

(1) Asset descriptions correspond to asset groups under individual leases.

(2) Because the Company’s assets consist entirely of electric plant assets, which are regulated by the PUCT, electric plant is stated at original cost, which includes cost of contracted services, direct labor, materials, acquisition adjustments, capitalized interest and overhead items.

(3) See reconciliation on next page.

(4) Because additions and improvements to the T&D assets are ongoing, construction and acquisition dates are not applicable.

(5) Provision for depreciation of electric plant is computed using straight-lines rates as follows:

Transmission plant	1.69% - 3.15%
Distribution plant	1.74% - 5.96%
General plant	0.80% - 5.12%

F-29

InfraREIT, Inc.

SCHEDULE III – ELECTRIC PLANT AND ACCUMULATED DEPRECIATION

FIXED ASSET RECONCILATION

(In thousands)

	December 31,
	2015				2014
Electric plant
Beginning balance	$	1,447,247			$	1,298,946
Additions		235,263				153,395
Retirements		(7,215	)	(1)		(5,094	)
Ending balance		1,675,295				1,447,247
Accumulated depreciation
Beginning balance		220,101				194,569
Depreciation expense		40,211				35,080
Retirements		(7,215	)	(1)		(5,094	)
Cost of removal		(12,333	)			(4,454	)
Ending balance		240,764				220,101
Electric plant, net	$	1,434,531			$	1,227,146

(1) Retirements are shown net of the accumulated depreciation related to the assets that were classified as electric plant held for future use and placed in service as transmission assets during August 2015.

F-30

EX-10.7

Exhibit 10.7

Tenth Amended and Restated Rent Supplement

(McAllen Lease)

February 26, 2016

This Tenth Amended and Restated Rent Supplement (this “Tenth Amended Supplement”) between Sharyland Distribution and Transmission Services, L.L.C. (“Lessor”) and Sharyland Utilities, L.P. (“Lessee”) is executed and delivered on February 26, 2016, to memorialize supplements to the McAllen Lease (as defined below), effective as of January 1, 2016.  Capitalized terms used herein that are not otherwise defined will have the meanings assigned to them in the McAllen Lease.

WHEREAS, Lessor and Lessee are Parties to a Third Amended and Restated Lease Agreement (McAllen System), dated December 1, 2014 (as amended from time to time in accordance with its terms, the “McAllen Lease”);

WHEREAS, on December 31, 2015 the Parties executed a Ninth Amended and Restated Rent Supplement (McAllen Lease) effective as of January 1, 2016 (the “Ninth Amended Supplement”);

WHEREAS, the Incremental CapEx and Lessee CapEx for 2015 were different than expected by the Ninth Amended Supplement and the Parties wish to effect a Rent Validation (as set forth in Section 3.2(c) of the McAllen Lease) and to amend and restate the Ninth Amended Supplement to memorialize the effect of such difference; and

WHEREAS, as a result of this Rent Validation, a one-time payment set forth below is owed by Lessee and will be paid within 30 days after execution hereof.

NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Parties hereto agree to the following:

1.The Ninth Amended Supplement is hereby amended and restated in its entirety as set forth below.

2.The McAllen Lease, except as supplemented by this Tenth Amended Supplement, shall remain in full force and effect.

Incremental CapEx:
	2010	$  2,195,000
	2011	$     504,000
	2012	$  1,262,963
	2013	$16,391,255
	2014	$46,042,142
	2015	$     391,710#
		$  2,039,488##
	(Total 2015)	$  2,431,198###
	2016 (Total 2016)	$  4,360,495* $         8,189** $  4,368,684

# Represents the “validated” amount of 2015 distribution Incremental CapEx, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the McAllen Lease, and, as part of this Rent Validation, the amount of 2015 distribution Incremental CapEx has been restated to $391,710.  The amount of 2015 distribution Incremental CapEx included in the Ninth Amended Supplement was $1,019,493.  The weighted average in-service date of July 1, 2015 did not change as a result of this Rent Validation.

## Represents the validated amount of 2015 transmission Incremental CapEx, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the McAllen Lease, and, as part of this Rent Validation, the amount and weighted average in-service date of 2015 transmission Incremental CapEx has been restated to $2,039,488 with a weighted average in-service date of August 1, 2015.  The amount of 2015 transmission Incremental CapEx included in the Ninth Amended Supplement was $0 and, as such, the parties did not provide an anticipated weighted average in-service date.

### Represents the total validated amount of transmission and distribution Incremental CapEx in 2015.

1

MCALLEN LEASE

*Represents the amount of distribution Incremental CapEx that the Parties expect to be placed in service during 2016, with a weighted average in service date of September 1, 2016.  Rent supplements with respect to this distribution Incremental CapEx were agreed to and memorialized as part of the Ninth Amended Supplement.

** Represents the aggregate amount of transmission Incremental CapEx the Parties expect to be placed in service in 2016.  Rent supplements with respect to this transmission Incremental CapEx were agreed to and memorialized as part of the Ninth Amended Supplement.  Of the 2016 Incremental CapEx, $0 is expected to be in service as of the balance sheet date reflected in Lessee’s first 2016 Regulatory Order (“First 2016 CapEx”), an aggregate of $8,189 is expected to be in service as of the balance sheet date reflected in Lessee’s second 2016 Regulatory Order (“Second 2016 CapEx”), and $0 is expected to be placed in service throughout the remainder of 2016 (“2016 Stub-Year CapEx”).  A “Regulatory Order” is defined as either (i) the PUCT’s approval of Lessee’s application for updated wholesale transmission rates or (ii) final resolution or settlement of a rate case applicable to Lessee’s transmission rates.  The Parties expect the First 2016 CapEx, Second 2016 CapEx, and 2016 Stub-Year CapEx, collectively, to have a weighted average in-service date of April 1, 2016.  The Parties expect the first 2016 Regulatory Order to be effective on June 1, 2016, the second 2016 Regulatory Order to be effective on October 1, 2016, and the first 2017 Regulatory Order to be effective on March 1, 2017.  The Parties agree that any Rent Validation (within the meaning of the McAllen Lease) with respect to First 2016 CapEx, Second 2016 CapEx, or 2016 Stub-Year CapEx will use the actual effective dates of the applicable Regulatory Order (to the extent known), but will otherwise be determined in accordance with Section 3.2(c) of the McAllen Lease.

Lessee CapEx:
	2010	$666,488
	2011	$121,897
	2012	$263,733
	2013	$  68,303
	2014	$  89,405
	2015	$168,289#
	2016	$           0

# Represents the “validated” amount of 2015 Lessee CapEx, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the McAllen Lease, and, as part of this Rent Validation, the amount of 2015 Lessee CapEx has been restated.  The amount of 2015 Lessee CapEx included in the Ninth Amended Supplement was $0 and, as such, the parties did not provide an anticipated weighted average in-service date.

Base Rent:
	2010	$  5,260,447
	2011	$  5,453,529
	2012	$  5,521,881
	2013	$  6,566,290
	2014	$  8,445,964
	2015	$11,818,692#
	2016	$11,931,782##
	2017	$11,545,671###
	2018	$11,095,199
	2019	$10,884,231

# Represents the “validated” amount of 2015 Base Rent, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the McAllen Lease and, as part of this Rent Validation, the amount of 2015 Base Rent has been restated.  The amount of 2015 Base Rent included in the Ninth Amended Supplement was $11,764,854, comprised of 2015 Base Rent payments of $952,734 paid on the 15th day of each month beginning on March 15, 2015 through May 15, 2015 (with respect to January 2015 through March 2015), Base Rent payments of $989,628 paid on the 15th day of each month beginning on June 15, 2015 through December 15, 2015 (with respect to April 2015 through October 2015), and Base Rent payments of $989,628 on each of January 15, 2016 and February 15, 2016 (with respect to November and December 2015).  Lessee will pay Lessor $53,838 (which is the difference between the amount set forth as 2015 Base Rent above ($11,818,692) and the aggregate amount of monthly Base Rent set forth in this footnote ($11,764,854)) as a validation payment within 30 days of the date hereof (as set forth under “Validation Payment” below).

## Lessee will make a monthly 2016 Base Rent payment of $994,302 on the 15^th day of each month beginning on March 15, 2016 through August 15, 2016 (with respect to January 2016 through June 2016).  Lessee will then make a monthly 2016 Base Rent payment of $994,302 on the 15^th day of each month beginning on September 15, 2016 through December 15, 2016 (with respect to July 2016 through October 2016), with the increase in monthly Base Rent reflecting First 2016 CapEx and commencing July 1, 2016, which is 30 days after approval of Lessee’s first 2016 Regulatory Order.  Lessee will then make a monthly 2016 Base Rent payment of

2

McAllen Lease

$994,382on each of January 15, 2017 and February 15, 2017 (with respect to November 2016 and December 2016), with the increase in monthly Base Rent reflecting Second 2016 CapEx and commencing November 1, 2016, which is 30 days after approval of Lessee’s second 2016 Regulatory Order.

### Lessee will make a monthly 2017 Base Rent payment of $962,139 on the 15^th day of each month beginning on March 15, 2017 through May 15, 2017 (with respect to January 2017 through March 2017).  Lessee will then make a 2017 Base Rent payment of $962,139 on the 15^th day of each month beginning on June 15, 2017 through February 15, 2018 (with respect to April 2017 through December 2017), with the increase in monthly Base Rent reflecting 2016 Stub-Year CapEx and commencing April 1, 2017, which is 30 days after approval of Lessee’s first 2017 Regulatory Order.  

Percentage Rent Percentages:
	2010	36.993%
	2011	36.972%
	2012	36.923%
	2013	37.0%
	2014	36.9%
	2015	37.2%#
	2016	32.1%
	2017	31.1%
	2018	29.2%
	2019	28.9%

# Represents the “validated” percentage applicable to 2015 Percentage Rent, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the McAllen Lease and, as part of this Rent Validation, the 2015 percentage has been restated.  The 2015 percentage included in the Ninth Amended Supplement was 37.2% (i.e., even though the percentage has not changed it has been “validated” pursuant to this Rent Validation).

Annual Percentage Rent
Breakpoints:
	2010	$  5,260,447
	2011	$  5,453,529
	2012	$  5,521,881
	2013	$  6,566,290
	2014	$  8,445,964
	2015	$11,818,692#
	2016	$12,681,862*
	2017	$12,325,671**
	2018	$11,906,199
	2019	$11,728,231

# Represents the “validated” 2015 Annual Percentage Rent Breakpoint, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the McAllen Lease and, as part of this Rent Validation, the 2015 Annual Percentage Rent Breakpoint has been restated.  The 2015 Annual Percentage Rent Breakpoint included in the Ninth Amended Supplement was $11,764,854.

* The 2016 Annual Percentage Rent Breakpoint reflects the assumptions set forth above regarding the timing of the first 2016 Regulatory Order and the second 2016 Regulatory Order, as well as the amount of First 2016 CapEx and Second 2016 CapEx.

3

McAllen Lease

** The 2017 Annual Percentage Rent Breakpoint reflects the assumptions set forth above regarding the timing of the first 2016 Regulatory Order, the second 2016 Regulatory Order, and the first 2017 Regulatory Order, as well as the amount of First 2016 CapEx, Second 2016 CapEx, and 2016 Stub-Year CapEx.

Revenues Attributable to
Lessee CapEx:
	2010	$ 60,546
	2011	$249,481
	2012	$289,945
	2013	$345,693
	2014	$355,744
	2015	$360,527#
	2016	$206,130
	2017	$  97,925
	2018	$  73,431
	2019	$  45,266

# Represents the “validated” 2015 Revenues Attributable to Lessee CapEx, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the McAllen Lease and, as part of this Rent Validation, the 2015 Revenues Attributable to Lessee CapEx have been restated.  The 2015 Revenues Attributable to Lessee CapEx included in the Ninth Amended Supplement were $305,891.

Validation Payment:  As a result of the validation described above, pursuant to Section 3.2(c) of the McAllen Lease, Lessee will pay Lessor $13,486 within 30 days following execution hereof of which $53,838 is attributable to the validation of Base Rent and ($40,352) is attributable to the validation of Percentage Rent.

ERCOT Transmission Rate
Allocation:	before June 20, 2013:  100%
	between June 20 and October 17, 2013:  27.8%
	between October 17, 2013 and February 25, 2014:  11.8%
	between February 25, 2014 and May 1, 2014:  8.2%
	between May 1, 2014 and October 3, 2014:  8.6%
	between October 3, 2014 and March 31, 2015:  12.0%
	between April 1, 2015 and October 31, 2015:  11.9%
	between November 1, 2015 and June 1, 2016:  10.6%
	between June 1, 2016 and October 1, 2016:  11.0%
	starting October 1, 2016:  10.6%

Term of Rent Supplement:  Expires 12/31/19

4

McAllen Lease

The Parties have executed this Tenth Amended Supplement to the McAllen Lease as of the date set forth above.

SHARYLAND UTILITIES, L.P.
By:	/s/ Greg Wilks
Name:	Greg Wilks
	Chief Financial Officer

SHARYLAND DISTRIBUTION &
TRANSMISSION SERVICES, L.L.C.
By:	/s/ Brant Meleski
Name:	Brant Meleski
	Chief Financial Officer

5

McAllen Lease

EX-10.9

Exhibit 10.9

Tenth Amended and Restated Rent Supplement

(Stanton/Brady/Celeste Lease)

February 26, 2016

This Tenth Amended and Restated Rent Supplement (this “Tenth Amended Supplement”) between Sharyland Distribution and Transmission Services, L.L.C. (“Lessor”) and Sharyland Utilities, L.P. (“Lessee”) is executed and delivered on February 26, 2016, to memorialize supplements to the S/B/C Lease (as defined below), effective as of January 1, 2016.  Capitalized terms used herein that are not otherwise defined will have the meanings assigned to them in the S/B/C Lease.

WHEREAS, Lessor and Lessee are Parties to a Third Amended and Restated Lease Agreement (Stanton/Brady/Celeste Assets) dated December 31, 2015 (as amended from time to time in accordance with its terms, the “S/B/C Lease”);

WHEREAS, on December 31, 2015 the Parties executed a Ninth Amended and Restated Rent Supplement (Stanton/Brady/Celeste Lease) effective as of January 1, 2016 (the “Ninth Amended Supplement”);

WHEREAS, the Incremental CapEx and Lessee CapEx for 2015 were different than expected by the Ninth Amended Supplement and the Parties wish to effect a Rent Validation (as set forth in Section 3.2(c) of the S/B/C Lease) and to amend and restate the Ninth Amended Supplement to memorialize the effect of such difference; and

WHEREAS, as a result of this Rent Validation, a one-time payment set forth below is owed by Lessee and will be paid within 30 days after execution hereof.

NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Parties hereto agree to the following:

1.The Ninth Amended Supplement is hereby amended and restated in its entirety as set forth below.

2.The S/B/C Lease, except as supplemented by this Tenth Amended Supplement, shall remain in full force and effect.

Incremental CapEx:
	2011	$    4,212,000
	2012	$  14,873,337
	2013	$  43,422,100
	2014	$ 139,387,740
	2015	$  73,231,002#
		$  80,197,538##
	(Total 2015)	$153,428,540###
	2016	$121,427,537*
		$  83,593,598**
	(Total 2016)	$205,021,135

# Represents the “validated” amount of 2015 distribution Incremental CapEx, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the S/B/C Lease, and, as part of this Rent Validation, the amount and weighted average in-service date of 2015 distribution Incremental CapEx has been restated to $73,231,002 with a weighted average in-service date of July 1, 2015.  The amount of 2015 distribution Incremental CapEx included in the Ninth Amended Supplement was $83,531,741, with a weighted average in-service date of August 1, 2015.

## Represents the validated amount of 2015 transmission Incremental CapEx, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the S/B/C Lease, and, as part of this Rent Validation, the amount and weighted average in-service date of 2015 transmission Incremental CapEx has been restated to $80,197,538 with a weighted average in-service date of July 1, 2015.  The amount of 2015 transmission Incremental CapEx included in the Ninth Amended Supplement was $93,948,126, with a weighted average in-service date of August 1, 2015.

### Represents the total validated amount of transmission and distribution Incremental CapEx in 2015.

1 Stanton/Brady/Celeste Lease

* Represents the amount of distribution Incremental CapEx that the Parties expect to be placed in service during 2016, with a weighted average in-service date of July 1, 2016.  Rent supplements with respect to this distribution Incremental CapEx were agreed to and memorialized as part of the Ninth Amended Supplement.

** Represents the aggregate amount of transmission Incremental CapEx the Parties expect to be placed in service in 2016.  Rent supplements with respect to this transmission Incremental CapEx were agreed to and memorialized as part of the Ninth Amended Supplement.  Of the 2016 Incremental CapEx, an aggregate of $12,037,735 is expected to be in service as of the balance sheet date reflected in Lessee’s first 2016 Regulatory Order (“First 2016 CapEx”), an aggregate of $35,187,221 is expected to be in service as of the balance sheet date reflected in Lessee’s second 2016 Regulatory Order (“Second 2016 CapEx”), and an aggregate of $36,368,643 is expected to be placed in service throughout the remainder of 2016 (“2016 Stub-Year CapEx”).  A “Regulatory Order” is defined as either (i) the PUCT’s approval of Lessee’s application for updated wholesale transmission rates or (ii) final resolution or settlement of a rate case applicable to Lessee’s transmission rates.  The Parties expect the First 2016 CapEx, Second 2016 CapEx, and 2016 Stub-Year CapEx, collectively, to have a weighted average in-service date of July 1, 2016.  The Parties expect the first 2016 Regulatory Order to be effective on June 1, 2016, the second 2016 Regulatory Order to be effective on October 1, 2016, and the first 2017 Regulatory Order to be effective on March 1, 2017.  The Parties agree that any Rent Validation (within the meaning of the S/B/C Lease) with respect to First 2016 CapEx, Second 2016 CapEx, or 2016 Stub-Year CapEx will use the actual effective dates of the applicable Regulatory Order (to the extent known), but will otherwise be determined in accordance with Section 3.2(c) of the S/B/C Lease.

Lessee CapEx:
	2011	$  1,232,807
	2012	$  1,969,693
	2013	$  2,920,207
	2014	$12,972,164
	2015	$  4,857,416#
	2016	$  5,000,000*

# Represents the “validated” amount of 2015 Lessee CapEx, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the S/B/C Lease, and, as part of this Rent Validation, the amount and weighted average in-service date of 2015 Lessee CapEx has been restated to $4,857,416 with a weighted average in-service date of June 1, 2015.  The amount of 2015 Lessee CapEx included in the Ninth Amended Supplement was $6,000,142, with a weighted average in-service date of July 1, 2015.

* Represents the amount of Lessee CapEx the Parties expect during 2016, with a weighted average in-service date of July 1, 2016.  Rent supplements with respect to this Lessee CapEx were agreed to and memorialized as part of the Ninth Amended Supplement.

Base Rent:
	2011	$18,111,535
	2012	$18,669,636
	2013	$21,784,564
	2014	$31,794,169
	2015	$44,737,618#
	2016	$61,449,561##
	2017	$71,151,440###

# Represents the “validated” amount of 2015 Base Rent, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the S/B/C Lease and, as part of this Rent Validation, the amount of 2015 Base Rent has been restated.  The amount of 2015 Base Rent included in the Ninth Amended Supplement was $44,025,043, comprised of 2015 Base Rent payments of $3,312,437 paid on the 15th day of each month beginning on March 15, 2015 through May 15, 2015 (with respect to January 2015 through March 2015), Base Rent payments of $3,584,836 paid on the 15th day of each month beginning on June 15, 2015 through December 15, 2015 (with respect to April 2015 through October 2015), and Base Rent payments of $4,316,614 on each of January 15, 2016 and February 15, 2016 (with respect to November and December 2015).  In addition, in accordance with the Ninth Amended Supplement, Lessee paid Lessor a Base Rent Validation Payment of $360,657 on January 29, 2016.  Lessee will pay Lessor $712,575 (which is the difference between the amount set forth as 2015 Base Rent above ($44,737,618) and the aggregate amount of monthly Base Rent set forth in this footnote, including the $360,657 Base Rent Validation Payment ($44,025,043)) as a validation payment within 30 days of the date hereof (as set forth under “Validation Payment” below).

2 Stanton/Brady/Celeste Lease

##Lessee will make a monthly 2016 Base Rent payment of $5,001,017on the 15^th day of each month beginning on March 15, 2016 through August 15, 2016 (with respect to January 2016 through June 2016).  Lessee will then make a monthly 2016 Base Rent payment of $5,122,354on the 15^th day of each month beginning on September 15, 2016 through December 15, 2016 (with respect to July 2016 through October 2016), with the increase in monthly Base Rent reflecting First 2016 CapEx and commencing July 1, 2016, which is 30 days after approval of Lessee’s first 2016 Regulatory Order.  Lessee will then make a monthly 2016 Base Rent payment of $5,477,022on each of January 15, 2017 and February 15, 2017 (with respect to November 2016 and December 2016), with the increase in monthly Base Rent reflecting Second 2016 CapEx and commencing November 1, 2016, which is 30 days after approval of Lessee’s second 2016 Regulatory Order.

### Lessee will make a monthly 2017 Base Rent payment of $5,668,976 on the 15^th day of each month beginning on March 15, 2017 through May 15, 2017 (with respect to January 2017 through March 2017).  Lessee will then make a 2017 Base Rent payment of $6,016,057 on the 15^th day of each month beginning on June 15, 2017 through February 15, 2018 (with respect to April 2017 through December 2017), with the increase in monthly Base Rent reflecting 2016 Stub-Year CapEx and commencing April 1, 2017, which is 30 days after approval of Lessee’s first 2017 Regulatory Order.  

Percentage Rent Percentages:
	2011	29.019%
	2012	24.206%
	2013	25.1%
	2014	23.6%
	2015	23.1%#
	2016	23.1%
	2017	23.1%

# Represents the “validated” percentage applicable to 2015 Percentage Rent, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the S/B/C Lease and, as part of this Rent Validation, the 2015 percentage has been restated.  The 2015 percentage included in the Ninth Amended Supplement was 23.1% (i.e., even though the percentage has not changed it has been “validated” pursuant to this Rent Validation).

Annual Percentage Rent
Breakpoints:
	2011	$27,111,535
	2012	$27,669,636
	2013	$30,784,564
	2014	$36,935,549
	2015	$47,271,231#
	2016	$55,428,569*
	2017	$68,027,068**

# Represents the “validated” 2015 Annual Percentage Rent Breakpoint, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the S/B/C Lease and, as part of this Rent Validation, the 2015 Annual Percentage Rent Breakpoint has been restated.  The 2015 Annual Percentage Rent Breakpoint included in the Ninth Amended Supplement was $47,271,231 (i.e., even though the breakpoint has not changed it has been “validated” pursuant to this Rent Validation).

* The 2016 Annual Percentage Rent Breakpoint reflects the assumptions set forth above regarding the timing of the first 2016 Regulatory Order and the second 2016 Regulatory Order, as well as the amount of First 2016 CapEx and Second 2016 CapEx.

** The 2017 Annual Percentage Rent Breakpoint reflects the assumptions set forth above regarding the timing of the first 2016 Regulatory Order, the second 2016 Regulatory Order, and the first 2017 Regulatory Order, as well as the amount of First 2016 CapEx, Second 2016 CapEx, and 2016 Stub-Year CapEx.

3 Stanton/Brady/Celeste Lease

Revenues Attributable to
Lessee CapEx:
	2013	$1,357,683
	2014	$4,850,029
	2015	$7,283,133#
	2016	$8,171,603
	2017	$8,205,052

# Represents the “validated” 2015 Revenues Attributable to Lessee CapEx, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the S/B/C Lease and, as part of this Rent Validation, the 2015 Revenues Attributable to Lessee CapEx have been restated.  The 2015 Revenues Attributable to Lessee CapEx included in the Ninth Amended Supplement were $7,165,041.

Validation Payment:  As a result of the validation described above, pursuant to Section 3.2(c) of the S/B/C Lease, Lessee will pay Lessor $685,295 within 30 days following execution hereof of which $712,575 is attributable to the validation of Base Rent and $(27,280) is attributable to the validation of Percentage Rent.

ERCOT Transmission Rate
Allocation:	before June 20, 2013:  0%
	between June 20 and October 17, 2013:  6.9%
	between October 17 and February 25, 2014:  3.4%
	between February 25 and May 1, 2014:  8.5%
	between May 1 and October 3, 2014:  8.3%
	between October 3, 2014 and March 31, 2015: 7.3%
	between April 1, 2015 and October 31, 2015: 10.5%
	between November 1, 2015 and June 1, 2016: 17.8%
	between June 1, 2016 and October 1, 2016:  19.1%
	starting on October 1, 2016:  21.8%

Term of Rent Supplement:  Expires 12/31/17

4 Stanton/Brady/Celeste Lease

The Parties have executed this Tenth Amended Supplement to the S/B/C Lease as of the date set forth above.

SHARYLAND UTILITIES, L.P.
By:	/s/ Greg Wilks
Name:	Greg Wilks
	Chief Financial Officer

SHARYLAND DISTRIBUTION &
TRANSMISSION SERVICES, L.L.C.
By:	/s/ Brant Meleski
Name:	Brant Meleski
	Chief Financial Officer

5 Stanton/Brady/Celeste Lease

EX-10.13

Exhibit 10.13

Eighth Amended and Restated Rent Supplement
(CREZ Lease)

February 26, 2016

This Eighth Amended and Restated Rent Supplement (this “Eighth Amended Supplement”) between Sharyland Distribution and Transmission Services, L.L.C. (“Lessor”) and Sharyland Utilities, L.P. (“Lessee”) is executed and delivered on February 26, 2016, to memorialize supplements to the CREZ Lease (as defined below), effective as of January 1, 2016.  Capitalized terms used herein that are not otherwise defined will have the meanings assigned to them in the CREZ Lease.

WHEREAS, Lessor and Lessee are Parties to a Third Amended and Restated Lease Agreement (CREZ Assets) dated as of December 4, 2015 (as amended from time to time in accordance with its terms, the “CREZ Lease”);

WHEREAS, on December 31, 2015 the Parties executed a Seventh Amended and Restated Rent Supplement (CREZ Lease) effective as of January 1, 2016 (the “Seventh Amended Supplement”); and

WHEREAS, the Incremental CapEx for 2015 was different than expected by the Eighth Amended Supplement and the Parties wish to effect a Rent Validation (as set forth in Section 3.2(c) of the CREZ Lease) and to amend and restate the Seventh Amended Supplement to memorialize the effect of such difference; and

WHEREAS, as a result of this Rent Validation, a one-time payment set forth below is owed by Lessor and will be paid within 30 days after execution hereof.  

NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Parties hereto agree to the following:

1.The Seventh Amended Supplement is hereby amended and restated in its entirety as set forth below.

2.The CREZ Lease, except as supplemented by this Eighth Amended Supplement, shall remain in full force and effect.

Incremental Cap Ex:	2013	$466,424,280
	2014	$198,982,000
	2015	$  3,493,096*
	2016	$    5,244,389**

* Represents the “validated” amount of 2015 transmission Incremental CapEx, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the CREZ Lease, and, as part of this Rent Validation, the amount of 2015 transmission Incremental CapEx has been restated to $3,493,096.  The amount of 2015 transmission Incremental CapEx included in the Seventh Amended Supplement was $10,500,000.  The weighted average in-service date of November 1, 2015 did not change as a result of this Rent Validation.

** Represents the aggregate amount of transmission Incremental CapEx the Parties expect to be placed in service in 2016.  Rent supplements with respect to this transmission Incremental CapEx were agreed to and memorialized as part of the Seventh Amended Supplement.  Of the 2016 Incremental CapEx, $0 is expected to be in service as of the balance sheet date reflected in Lessee’s first 2016 Regulatory Order (“First 2016 CapEx”), an aggregate of $2,052,263 is expected to be in service as of the balance sheet date reflected in Lessee’s second 2016 Regulatory Order (“Second 2016 CapEx”), and an aggregate of $3,192,126 is expected to be placed in service throughout the remainder of 2016 (“2016 Stub-Year CapEx”).  A “Regulatory Order” is defined as either (i) the PUCT’s approval of Lessee’s application for updated wholesale transmission rates or (ii) final resolution or settlement of a rate case applicable to Lessee’s transmission rates.  The Parties expect the First 2016 CapEx, Second 2016 CapEx, and 2016 Stub-Year CapEx, collectively, to have a weighted average in-service date of October 1, 2016.  The Parties expect the first 2016 Regulatory Order to be effective on June 1, 2016, the second 2016 Regulatory Order to be effective on October 1, 2016, and the first 2017 Regulatory Order to be effective on March 1, 2017.  The Parties agree that any Rent Validation (within the meaning of the CREZ Lease) with respect to First 2016 CapEx, Second 2016 CapEx, or 2016 Stub-Year CapEx will use the actual effective dates of the applicable Regulatory Order (to the extent known), but will otherwise be determined in accordance with Section 3.2(c) of the CREZ Lease.

1
	CREZ LEASE

Lessee Cap Ex:	2013	$0
	2014	$0
	2015	$0
	2016	$0

Base Rent:	2013	$21,758,233
	2014	$67,335,947
	2015	$68,524,342#
	2016	$66,210,646##
	2017	$64,049,041###
	2018	$61,704,141
	2019	$59,428,972
	2020	$57,240,585

# Represents the “validated” amount of 2015 Base Rent, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the CREZ Lease and, as part of this Rent Validation, the amount of 2015 Base Rent has been restated.  The amount of 2015 Base Rent included in the Seventh Amended Supplement was $68,535,384, comprised of 2015 Base Rent payments of $5,688,129 paid on the 15th day of each month beginning on March 15, 2015 through May 15, 2015 (with respect to January 2015 through March 2015), Base Rent payments of $5,712,236 on the 15th day of each month beginning on June 15, 2015 through December 15, 2015 (with respect to April 2015 through October 2015), and Base Rent payments of $5,742,672 on each of January 15, 2016 and February 15, 2016 (with respect to November and December 2015).  Lessor will pay Lessee $11,042 (which is the difference between the aggregate amount of monthly Base Rent paid by Lessee as set forth in this footnote ($68,535,384) and the amount of restated 2015 Base Rent set forth above ($68,524,342)) as a validation payment within 30 days of the date hereof (as set forth under “Validation Payment” below).

## Lessee will make a monthly 2016 Base Rent payment of $5,514,292 on the 15^th day of each month beginning on March 15, 2016 through August 15, 2016 (with respect to January 2016 through June 2016).  Lessee will then make a monthly 2016 Base Rent payment of $5,514,292 on the 15^th day of each month beginning on September 15, 2016 through December 15, 2016 (with respect to July 2016 through October 2016), with the increase in monthly Base Rent reflecting First 2016 CapEx and commencing July 1, 2016, which is 30 days after approval of Lessee’s first 2016 Regulatory Order.  Lessee will then make a monthly 2016 Base Rent payment of $5,533,861 on each of January 15, 2017 and February 15, 2017 (with respect to November 2016 and December 2016), with the increase in monthly Base Rent reflecting Second 2016 CapEx and commencing November 1, 2016, which is 30 days after approval of Lessee’s second 2016 Regulatory Order.

### Lessee will make a monthly 2017 Base Rent payment of $5,315,801 on the 15^th day of each month beginning on March 15, 2017 through May 15, 2017 (with respect to January 2017 through March 2017).  Lessee will then make a 2017 Base Rent payment of $5,344,626 on the 15^th day of each month beginning on June 15, 2017 through February 15, 2018 (with respect to April 2017 through December 2017), with the increase in monthly Base Rent reflecting 2016 Stub-Year CapEx and commencing April 1, 2017, which is 30 days after approval of Lessee’s first 2017 Regulatory Order.  

Percentage Rent Percentages:	2013	29.2%
	2014	31.6%
	2015	31.3%#
	2016	30.3%
	2017	29.5%
	2018	28.5%
	2019	27.7%
	2020	26.8%

# Represents the “validated” percentage applicable to 2015 Percentage Rent, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the CREZ Lease and, as part of this Rent Validation, the 2015 percentage has been restated.  The 2015 percentage included in the Seventh Amended Supplement was 31.3% (i.e., even though the percentage has not changed it has been “validated” pursuant to this Rent Validation).

2
	CREZ LEASE

Annual Percentage Rent
Breakpoints:	2013	$21,758,233
	2014	$67,335,947
	2015	$68,524,342#
	2016	$66,230,214*
	2017	$64,079,575**
	2018	$61,704,141
	2019	$59,428,972
	2020	$57,240,585

# Represents the “validated” 2015 Annual Percentage Rent Breakpoint, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the CREZ Lease and, as part of this Rent Validation, the 2015 Annual Percentage Rent Breakpoint has been restated.  The 2015 Annual Percentage Rent Breakpoint included in the Seventh Amended Supplement was $68,535,384.

* The 2016 Annual Percentage Rent Breakpoint reflects the assumptions set forth above regarding the timing of the first 2016 Regulatory Order and the second 2016 Regulatory Order, as well as the amount of First 2016 CapEx and Second 2016 CapEx.

** The 2017 Annual Percentage Rent Breakpoint reflects the assumptions set forth above regarding the timing of the first 2016 Regulatory Order, the second 2016 Regulatory Order, and the first 2017 Regulatory Order, as well as the amount of First 2016 CapEx, Second 2016 CapEx, and 2016 Stub-Year CapEx.

Revenues Attributable to
Lessee Capex, by Lease Year:
	2013	$0
	2014	$0
	2015	$0
	2016	$0

Validation Payment:  As a result of the validation described above, pursuant to Section 3.2(c) of the CREZ Lease, Lessor will pay Lessee $7,586 within 30 days following execution hereof of which $11,042 is attributable to the validation of Base Rent and ($3,456) is attributable to the validation of Percentage Rent.

ERCOT Transmission Rate Allocation	between June 20 and October 17, 2013:   65.3%
	between October 17, 2013 and February 25, 2014:   84.8%
	between February 25, 2014 and May 1, 2014: 83.3%
	between May 1, 2014 and October 3, 2014:  80.9%
	between October 3, 2014 and March 31, 2015:  75.8%
	between April 1, 2015 and October 31, 2015:  72.7%
	between November 1, 2015 and June 1, 2016: 65.6%
	between June 1, 2016 and October 1, 2016:  64.1%
	starting October 1, 2016:  61.9%

Term of Rent Supplement:  Expires 12/31/20

3
	CREZ LEASE

The Parties have executed this Eighth Amended Supplement to the CREZ Lease as of the date set forth above.

SHARYLAND UTILITIES, L.P.
By:	/s/ Greg Wilks
Name:	Greg Wilks
	Chief Financial Officer

SHARYLAND DISTRIBUTION &
TRANSMISSION SERVICES, L.L.C.
By:	/s/ Brant Meleski
Name:	Brant Meleski
	Chief Financial Officer

CREZ LEASE

EX-10.15

Exhibit 10.15

Fifth Amended and Restated Rent Supplement

(ERCOT Transmission Lease)

February 26, 2016

This Fifth Amended and Restated Rent Supplement (this “Fifth Amended Supplement”) between Sharyland Distribution and Transmission Services, L.L.C. (“Lessor”) and Sharyland Utilities, L.P. (“Lessee”) is executed and delivered on February 26, 2016, to memorialize supplements to the ERCOT Transmission Lease (as defined below), effective as of January 1, 2016. Capitalized terms used herein that are not otherwise defined will have the meanings assigned to them in the ERCOT Transmission Lease.  

WHEREAS, Lessor and Lessee are Parties to a Lease Agreement (ERCOT Transmission Assets) dated December 1, 2014 (as amended from time to time in accordance with its terms, the “ERCOT Transmission Lease”);

WHEREAS, on December 31, 2015 the Parties executed a Fourth Amended and Restated Rent Supplement (ERCOT Transmission Lease) effective as of January 1, 2016 (the “Fourth Amended Supplement”); and

WHEREAS, the Incremental CapEx for 2015 was different than expected by the Fourth Amended Supplement and the Parties wish to effect a Rent Validation (as set forth in Section 3.2(c) of the ERCOT Transmission Lease) and to amend and restate the Fourth Amended Supplement to memorialize the effect of such difference; and

WHEREAS, as a result of this Rent Validation, a one-time payment set forth below is owed by Lessee and will be paid within 30 days after execution hereof.

NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Parties hereto agree to the following:

1.The Fourth Amended Supplement is hereby amended and restated in its entirety as set forth below.

2.The ERCOT Transmission Lease, except as supplemented by this Fifth Amended Supplement, shall remain in full force and effect.

Incremental CapEx:
	2014	$ 18,470,677
	2015	$ 22,517,350*
	2016	$   9,237,495**

* Represents the validated amount of 2015 transmission Incremental CapEx, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the ERCOT Transmission Lease, and, as part of this Rent Validation, the amount and weighted average in-service date of 2015 transmission Incremental CapEx has been restated to $22,517,350 with a weighted average in-service date of August 1, 2015.  The amount of 2015 transmission Incremental CapEx included in the Fourth Amended Supplement was $17,000,000, with a weighted average in-service date of September 1, 2015.

1

ERCOT Transmission Lease

** Represents the aggregate amount of transmission Incremental CapEx the Parties expect to be placed in service in 2016.  Rent supplements with respect to this transmission Incremental CapEx were agreed to and memorialized as part of the Fourth Amended Supplement.  Of the 2016 Incremental CapEx, an aggregate of $4,244,655 is expected to be in service as of the balance sheet date reflected in Lessee’sfirst 2016 Regulatory Order (“First 2016 CapEx”), an aggregate of $2,086,871 is expected to be in service as of the balance sheet date reflected in Lessee’s second 2016 Regulatory Order (“Second 2016 CapEx”), and an aggregate of $2,905,968 is expected to be placed in service throughout the remainder of 2016 (“2016 Stub-Year CapEx”).  A “Regulatory Order” is defined as either (i) the PUCT’s approval of Lessee’s application for updated wholesale transmission rates or (ii) final resolution or settlement of a rate case applicable to Lessee’s transmission rates.The Parties expect the First 2016 CapEx, Second 2016 CapEx, and 2016 Stub-Year CapEx, collectively, to have a weighted average in-service date of June 1, 2016.  The Parties expect the first 2016 Regulatory Order to be effective on June 1, 2016, the second 2016 Regulatory Order to be effective on October 1, 2016, and the first 2017 Regulatory Order to be effective on March 1, 2017.  The Parties agree that any Rent Validation (within the meaning of the ERCOTTransmission Lease) with respect to First 2016 CapEx, Second 2016 CapEx, or 2016 Stub-Year CapEx will use the actual effective dates of the applicable Regulatory Order (to the extent known), but will otherwise be determined in accordance with Section 3.2(c) of the ERCOTTransmission Lease. 

Lessee CapEx:
	2014	$ 0
	2015	$ 0
	2016	$ 0

Base Rent:
	2014	$   484,276
	2015	$2,477,452#
	2016	$4,547,412##
	2017	$4,789,842###
	2018	$4,654,206
	2019	$4,483,257
	2020	$4,323,002
	2021	$4,170,944
	2022	$4,023,029

# Represents the “validated” amount of 2015 Base Rent, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the ERCOT Transmission Lease and, as part of this Rent Validation, the amount of 2015 Base Rent has been restated.  The amount of 2015 Base Rent included in the Fourth Amended Supplement was $2,219,582, comprised of 2015 Base Rent payments of $158,795 paid on the 15th day of each month beginning on March 15, 2015 through May 15, 2015 (with respect to January 2015 through March 2015), Base Rent payments of $160,497 on the 15th day of each month beginning on June 15, 2015 through December 15, 2015 (with respect to April 2015 through October 2015), and Base Rent payments of $309,857 on each of January 15, 2016 and February 15, 2016 (with respect to November and December 2015).  Lessee will pay Lessor $257,870 (which is the difference between the amount set forth as 2015 Base Rent above ($2,477,452) and the aggregate amount of monthly Base Rent set forth in this footnote ($2,219,582)) as a validation payment within 30 days of the date hereof (as set forth under “Validation Payment” below).

## Lessee will make a monthly 2016 Base Rent payment of $355,151 on the 15^th day of each month beginning on March 15, 2016 through August 15, 2016 (with respect to January 2016 through June 2016).  Lessee will then make a monthly 2016 Base Rent payment of $396,049 on the 15^th day of each month beginning on September 15, 2016 through December 15, 2016 (with respect to July 2016 through October 2016), with the increase in monthly Base Rent reflecting First 2016 CapEx and commencing July 1, 2016, which is 30 days after approval of Lessee’s first 2016 Regulatory Order.  Lessee will then make a monthly 2016 Base Rent payment of $416,155 on each of January 15, 2017 and February 15, 2017 (with respect to November 2016 and December 2016), with the increase in monthly Base Rent reflecting Second 2016 CapEx and commencing November 1, 2016, which is 30 days after approval of Lessee’s second 2016 Regulatory Order.

2

ERCOT Transmission Lease

### Lessee will make a monthly 2017 Base Rent payment of $379,093on the 15^th day of each month beginning on March 15, 2017 through May 15, 2017 (with respect to January 2017 through March 2017).  Lessee will then make a 2017 Base Rent payment of $405,841on the 15^th day of each month beginning on June 15, 2017 through February 15, 2018 (with respect to April 2017 through December 2017), with the increase in monthly Base Rent reflecting 2016 Stub-Year CapEx and commencing April 1, 2017, which is 30 days after approval of Lessee’s first 2017 Regulatory Order.  

Percentage Rent Percentages:
	2014	35.8%
	2015	35.1%#
	2016	31.1%
	2017	28.2%
	2018	27.2%
	2019	26.2%
	2020	25.3%
	2021	24.4%
	2022	23.5%

# Represents the “validated” percentage applicable to 2015 Percentage Rent, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the ERCOT Transmission Lease and, as part of this Rent Validation, the 2015 percentage has been restated.  The 2015 percentage included in the Fourth Amended Supplement was 35.1% (i.e., even though the percentage has not changed it has been “validated” pursuant to this Rent Validation).

Annual Percentage Rent
Breakpoints:
	2014	$   484,276
	2015	$2,477,452#
	2016	$4,608,413*
	2017	$4,818,146**
	2018	$4,654,206
	2019	$4,483,257
	2020	$4,323,002
	2021	$4,170,944
	2022	$4,023,029

# Represents the “validated” 2015 Annual Percentage Rent Breakpoint, i.e. a Rent Validation has occurred pursuant to Section 3.2(c) of the ERCOT Transmission Lease and, as part of this Rent Validation, the 2015 Annual Percentage Rent Breakpoint has been restated.  The 2015 Annual Percentage Rent Breakpoint included in the Fourth Amended Supplement was $2,219,582.

* The 2016 Annual Percentage Rent Breakpoint reflects the assumptions set forth above regarding the timing of the first 2016 Regulatory Order and the second 2016 Regulatory Order, as well as the amount of First 2016 CapEx and Second 2016 CapEx.

** The 2017 Annual Percentage Rent Breakpoint reflects the assumptions set forth above regarding the timing of the first 2016 Regulatory Order, the second 2016 Regulatory Order, and the first 2017 Regulatory Order, as well as the amount of First 2016 CapEx, Second 2016 CapEx, and 2016 Stub-Year CapEx.

Revenues Attributable to
Lessee CapEx:
	2014	$ 0
	2015	$ 0
	2016	$ 0
	2017	$ 0
	2018	$ 0
	2019	$ 0
	2020	$ 0
	2021	$ 0
	2022	$ 0

3

ERCOT Transmission Lease

Validation Payment:  As a result of the validation described above, pursuant to Section 3.2(c) of the ERCOT Transmission Lease, Lessee will pay Lessor $167,358 within 30 days following execution hereof of which $257,870 is attributable to the validation of Base Rent and $(90,512) is attributable to the validation of Percentage Rent.

ERCOT Transmission Rate

Allocation:	before October 3, 2014:  0%
	between October 3, 2014 and March 31, 2015: 2.1%
	between April 1, 2015 and October 31, 2015: 2.1%
	between November 1, 2015 and June 1, 2016: 3.6%
	between June 1, 2016 and October 1, 2016:  4.5%
	starting October 1, 2016:  4.5%
Term of Rent Supplement:	Expires 12/31/22

4

ERCOT Transmission Lease

The Parties have executed this Fifth Amended Supplement to the ERCOT Transmission Lease as of the date set forth above.

SHARYLAND UTILITIES, L.P.
By:	/s/ Greg Wilks
Name:	Greg Wilks
	Chief Financial Officer

SHARYLAND DISTRIBUTION &
TRANSMISSION SERVICES, L.L.C.
By:	/s/ Brant Meleski
Name:	Brant Meleski
	Chief Financial Officer

5

ERCOT Transmission Lease

EX-10.28

Exhibit 10.28

EXECUTION VERSION

THIRD AMENDMENT, dated as of February 19, 2016 (this “Third Amendment”) to the AMENDED AND RESTATED NOTE PURCHASE AGREEMENT, dated as of July 13, 2010 (as heretofore amended, restated, supplemented and otherwise modified, the “Agreement”), between TRANSMISSION AND DISTRIBUTION COMPANY, L.L.C. (the “Company”), a Texas limited liability company and the holders of the notes party thereto, as purchasers thereunder (the “Holders”).  Capitalized terms used but not otherwise defined in this Third Amendment shall have the meanings set forth in the Agreement (as amended hereby) and the rules of interpretation set forth therein (as amended hereby) shall apply to this Third Amendment.

W I T N E S S E T H:

WHEREAS, the Company and the Holders are parties to the Agreement;

WHEREAS, the Company has requested that the Holders amend the Agreement, as more fully described herein; and

WHEREAS, each Holder party hereto (such Holders constituting the Required Holders) is willing to agree to such amendment, but only upon the terms and subject to the conditions set forth herein;

NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.Amendments to the Agreement.  

(a) Schedule B of the Agreement is hereby amended by deleting the definition of “Wholly-Owned Subsidiary” in its entirety and replacing the same with the following:

“Wholly-Owned Subsidiary” means, at any time, any Subsidiary at least 90% of all of the common equity and voting interests of which are owned by any one or more of the Company and the Company’s other Wholly-Owned Subsidiaries.

(b) Section 10.10 of the Agreement is hereby amended by deleting the penultimate sentence thereof in its entirety and replacing the same with the following:

“Notwithstanding this Section 10.10, the Company may, without the consent of the Purchasers, amend the Company Agreement and/or exercise its voting rights and other rights as a member of SDTS as may be required to facilitate or implement any of the following:

(a) to reflect the contribution of additional capital by the Member;

(b) to reflect changes to SDTS’s operating agreement or other organizational documents permitted under Section 10.12 of the SDTS 2010 Note Purchase Agreement;

(c) to reflect a change that is of an inconsequential nature and does not adversely affect any Holders in any material respect, or to cure any ambiguity, or correct or supplement any provision, not inconsistent with law or with the provisions of this Agreement; and

(d) to satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a Federal or state agency or contained in Federal or state law.”

2.Conditions to Third Amendment Effective Date.  This Third Amendment shall become effective upon the date the Holders shall have received counterparts of this Third Amendment, duly executed and delivered by the Company and the other Holders.

3.Representations and Warranties to the Holders.  In order to induce the Holders to enter into this Third Amendment, the Company hereby represents and warrants as follows:

(i) The Company has the limited liability power and authority to execute and deliver this Third Amendment and to carry out the terms and provisions of this Third Amendment and the Agreement, as amended hereby,

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and has taken all necessary limited liability company action to authorize the execution and delivery by the Company of this Third Amendment and the performance under this Third Amendment and the Agreement, as amended hereby.  The Company has duly executed and delivered this Third Amendment, and this Third Amendment constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 

(ii) The execution and delivery by the Company of this Third Amendment  and the performance under this Third Amendment and the Agreement, as amended hereby, do not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or limited partnership or limited liability company agreement, or any other agreement or instrument to which the Company is bound or by which the Company or any of its properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company.

(iii) No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution or delivery by the Company of this Third Amendment or the performance under this Third Amendment and the Agreement, as amended hereby.

(iv) No Default or Event of Default has occurred and is continuing on the date hereof after giving effect to the transactions contemplated herein.

4.Continuing Effect of Financing Documents.  Except as expressly set forth herein, this Third Amendment  shall not constitute an amendment or waiver of any provision of the Agreement and shall not be construed as an amendment, waiver or consent to any further or future action on the part of the Company that would require an amendment, waiver or consent of the Holders.  Except as expressly amended hereby, the provisions of the Agreement are and shall remain in full force and effect.  This Third Amendment shall be deemed a Financing Document for purposes of the Agreement.

5.Fees.  In accordance with Section 15.1 of the Agreement, the Company shall have paid the fees, charges and disbursements of the Holders’ special counsel in connection with this Third Amendment.

6.Counterparts.  This Third Amendment may be executed by one or more of the parties hereto on any number of separate counterparts (including by facsimile), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.  Delivery of an executed signature page to this Third Amendment by facsimile or electronic transmission shall be as effective as the delivery of a manually executed counterpart of this Third Amendment.

7.Severability.  Any provision of this Third Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

8.Integration.  This Third Amendment and the other Financing Documents represent the agreement of the Company and the Holders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by any Holder relative to the subject matter hereof not expressly set forth or referred to herein or in the other Financing Documents.

9.GOVERNING LAW.  THIS THIRD AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS THIRD AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

[Signatures of Following Page]

IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed and delivered by their property and duly authorized officers as of the day and year first above written.

TRANSMISSION AND DISTRIBUTION
COMPANY, L.L.C.
By:	/s/ Kristin Boyd
Name:	Kristin Boyd
Title:	Vice President and Treasurer

Signature Page

Third Amendment

THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:	/s/ Richard Carrell
Name:	Richard Carrell
Title:	Vice President

PRUDCO LIFE INSURANCE COMPANY
By:	/s/ Richard Carrell
Name:	Richard Carrell
Title:	Vice President

PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY
By:	PGIM, Inc.,
	as investment manager

By:	/s/ Richard Carrell
Name:	Richard Carrell
Title:	Vice President

Signature Page

Third Amendment

EX-10.35

Exhibit 10.35

________________________________________________

INFRAREIT, INC.

SECOND AMENDED AND RESTATED

REGISTRATION RIGHTS AND LOCK-UP AGREEMENT

______________________________________________

Dated as of March 1, 2016

Table of Contents

			Page
ARTICLE 1 DEFINITIONS			1
	Section 1.1	Definitions	1
	Section 1.2	Interpretation	5
ARTICLE 2 [Reserved]			5
ARTICLE 3 REGISTRATION RIGHTS			5
	Section 3.1	Shelf Registration Under the Securities Act	5
	Section 3.2	Registration Procedures	8
	Section 3.3	Suspension of Use of the Shelf Registration Statement	11
	Section 3.4	Lockout Periods for Holder Sales	11
	Section 3.5	Piggy-Back Rights	11
	Section 3.6	Indemnification	12
	Section 3.7	Rule 144; Reports under Exchange Act	14
ARTICLE 4 MISCELLANEOUS			15
	Section 4.1	Notices	15
	Section 4.2	Further Action	15
	Section 4.3	Successors and Assigns	15
	Section 4.4	Amendment and Waiver	15
	Section 4.5	Additional Holders	16
	Section 4.6	Severability	16
	Section 4.7	Counterparts	16
	Section 4.8	Governing Law	16
	Section 4.9	Waiver of Jury Trial	16
	Section 4.10	Forum Selection and Consent to Jurisdiction	16
	Section 4.11	Entire Understanding	16
	Section 4.12	No Third Party Beneficiaries	16
	Section 4.13	No Presumption Against Drafter	17

-i-

INFRAREIT, INC.

SECOND AMENDED AND RESTATED

REGISTRATION RIGHTS AND LOCK-UP AGREEMENT

THIS SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AND LOCK-UP AGREEMENT (this “Agreement”) is made and entered into as of March 1, 2016, among InfraREIT, Inc., a Maryland corporation (together with its successors and assigns, the “Company”), and each of the persons listed on the attached Schedule A (each, an “Initial Holder” and collectively, the “Initial Holders”).

RECITALS

WHEREAS, some of the Initial Holders and InfraREIT, L.L.C., a Delaware limited liability company (the “Predecessor Company”), were parties to a Registration Rights and Lock-Up Agreement, dated as of November 23, 2010 (the “Original Agreement”);

WHEREAS, in connection with the Company’s initial public offering (the “IPO”) of shares of the Company’s common stock, par value $0.01 per share (“Common Shares”), (a) the Predecessor Company merged with and into the Company, with the Company surviving as the general partner of InfraREIT Partners, LP, a Delaware limited partnership (together with its successors and assigns, the “Operating Partnership”), and (b) in connection with such merger, the Company and the Initial Holders entered into the Amended and Restated Registration Rights and Lock-Up Agreement, dated as of January 29, 2015, which amended and restated the Original Agreement in its entirety and substituted the Company for the Predecessor Company (the “Existing Agreement”);

WHEREAS, certain Initial Holders are owners of Partnership Units (as defined below) and as such are granted a Redemption Right (as defined below) under the Third Amended and Restated Agreement of Limited Partnership of the Operating Partnership (as it may be amended, supplemented or otherwise modified from time to time, the “Partnership Agreement”), pursuant to which such Initial Holders may receive Common Shares calculated in accordance with the Partnership Agreement and such Initial Holders have elected to become Holders (as defined below) under this Agreement;

WHEREAS, the parties hereto desire to amend and restate the Existing Agreement in its entirety.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1
DEFINITIONS

Section 1.1Definitions. Capitalized terms used in this Agreement (including exhibits, schedules and amendments) shall have the meanings set forth below or in the Section of this Agreement referred to below, except as otherwise expressly indicated or limited by the context in which they appear in this Agreement.

“Affiliate” means, with respect to any Person, any Person directly or indirectly controlling, controlled by or under common control with such Person. For purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Agreement” has the meaning set forth in the preamble to this Agreement.

“Board of Directors” or “Board” means the board of directors of the Company or any similar governing body of its successors and assigns.

“Business Day” means any day other than a Saturday, Sunday or other day in which commercial banks in New York, New York are authorized or required by law or executive order to be closed; provided that as long as Marubeni Corporation, MC Transmission Holdings, Inc. or an Affiliate of the foregoing holds Registrable Securities (including any Registrable Securities for purposes of Section 3.5), “Business Day” shall also exclude each public holiday in Tokyo, Japan if such Person has delivered to the Company at least ten (10) days prior to the end of a calendar year a list of public holidays in Tokyo, Japan during the next calendar year.

“Charter” means the Articles of Restatement of the Company, as the same may be amended or otherwise modified from time to time.

“Closing Price” means the last reported sale price of a unit of a security regular way on a given day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices regular way, in each case on the New York Stock Exchange or such other  principal national securities exchange on which the security is listed or admitted to trading, or, if the security is not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices as furnished by any nationally recognized member of FINRA selected from time to time by the Company, reasonably and in good faith, for that purpose, or, if no such prices are furnished, the fair market value of the security as estimated by the Company using an identical valuation formula to that used in determining the pricing for the Company’s then most-recent sale of more than thirty five million dollars ($35,000,000) of similar securities to unaffiliated third parties, or if no such sale has occurred, as determined in good faith by the Board, which estimate shall be prepared at the expense of the Company; provided that any determination of the “Closing Price” of any security hereunder shall be based on the assumption that such security is freely transferable without registration under the Securities Act.

“Commission” means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

“Common Shares” has the meaning set forth in the recitals to this Agreement.

“Company” has the meaning set forth in the preamble to this Agreement.

“Entity” means any general partnership, limited partnership, proprietorship, corporation, joint venture, joint stock company, limited liability company, limited liability partnership, business trust, estate, governmental entity, cooperative, association or other foreign or domestic enterprise, including accounts or funds managed by a Holder or any of its subsidiaries.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time of reference.

“Existing Agreement” has the meaning set forth in the recitals to this Agreement.

“FINRA” means the Financial Industry Regulatory Authority, Inc.

“GAAP” means generally accepted accounting principles in the United States, as consistently applied by the Company and the Operating Partnership.

“Holder” means (i) any Initial Holder who is the record or beneficial owner of any Registrable Security or any assignee or transferee of such Registrable Security (including assignments or transfers of Registrable Securities to such assignees or transferees as a result of the foreclosure on any loans secured by such Registrable Securities) (x) to the extent permitted under the Partnership Agreement or the Charter, as applicable, and (y) provided such assignee or transferee agrees in writing to be bound by all the provisions hereof, unless such owner, assignee or transferee acquires such Registrable Security in a public distribution pursuant to a registration statement under the Securities Act or pursuant to transactions exempt from registration under the Securities Act where securities sold in such transaction may be resold without subsequent registration under the Securities Act and (ii) any other Person who becomes a Holder in accordance with Section 4.5(a) hereof.

“Holder Notice” has the meaning set forth in Section 3.1(g).

“Holder Proposed Sale” has the meaning set forth in Section 3.1(d).

“Hunt Investors” means, collectively, Hunt Transmission Services, L.L.C.; Electricity Participant Partnership, L.L.C.; and any transferee thereof to which rights hereunder have transferred pursuant to Section 4.3.

“Ineligible Investor” means any director or executive officer of the Company and any entity owned or controlled by any such director or executive officer (including, without limitation, the Hunt Investors).

“Initial Holder” and “Initial Holders” have the meaning set forth in the preamble to this Agreement.

“IPO” has the meaning set forth in the recitals to this Agreement.

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“Issuer Proposed Offering” has the meaning set forth in Section 3.5(a).

“Issuer Shelf Registration Statement” has the meaning set forth in Section 3.1(b).

“Notice and Questionnaire” means a written notice, substantially in the form attached as Exhibit A, delivered by a Holder to the Company (i) notifying the Company of such Holder’s desire to include Registrable Securities held by it in a Shelf Registration Statement, (ii) containing all information about such Holder required to be included in such registration statement in accordance with applicable law, including Item 507 of Regulation S-K promulgated under the Securities Act, as amended from time to time, or any similar successor rule thereto, and (iii) pursuant to which such Holder agrees to be bound by the terms and conditions hereof.

“Operating Partnership” has the meaning set forth in the recitals to this Agreement.

“Opt Out Election” has the meaning set forth in Section 3.5(f).

“Original Agreement” has the meaning set forth in the recitals to this Agreement.

“Partnership Agreement” has the meaning set forth in the recitals to this Agreement.

“Partnership Unit” has the meaning set forth in the Partnership Agreement.

“Permitted Transferee” has the meaning set forth in the Partnership Agreement.

“Person” means any individual, corporation, proprietorship, firm, partnership, limited partnership, limited liability company, trust, association or other Entity.

“Piggyback Rights” has the meaning set forth in Section 3.5(a).

“Prospectus” means the prospectus included in the Shelf Registration Statement, including any preliminary prospectus, and any amendment or supplement thereto, including any supplement relating to the terms of the offering of any portion of the Registrable Securities covered by the Shelf Registration Statement, and in each case including all material incorporated by reference therein.

“Publicly Traded” means listed or admitted to trading on the New York Stock Exchange, NYSE Amex, the NASDAQ Stock Market or another national securities exchange, or any successor to any of the foregoing.

“Redeemable Units” means Partnership Units that are redeemable for Common Shares pursuant to the Redemption Right.

“Redemption Right” has the meaning set forth in the Partnership Agreement.

“Registrable Securities” means, with respect to any Holder, (a) all Common Shares owned, either of record or beneficially, by the Holder, (b) any Common Shares that may be issued upon redemption of Redeemable Units held by the Holder that are exchanged for Common Shares upon a redemption of Partnership Units pursuant to the Partnership Agreement, (c) any securities issued upon conversion or exchange of such Common Shares, or (d) any securities issued or issuable with respect to such Common Shares by way of conversion, exchange, stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise, including securities issued or issuable as a dividend or other distribution with respect to or in replacement of any shares referred to above. As to any particular Registrable Securities, they shall cease to be Registrable Securities at the earliest time as one of the following shall have occurred: (i) a registration statement (including a Resale Shelf Registration Statement) covering the sale or other transfer of such Common Shares has been declared effective by the Commission and all such Common Shares have been disposed of pursuant to such effective registration statement; (ii) such shares (other than Restricted Shares) were issued pursuant to an effective registration statement (including an Issuer Shelf Registration Statement) and are freely tradeable by the Holder without restriction; (iii) such Common Shares have been publicly sold under Rule 144; (iv) such Common Shares are held by each Holder who is an Affiliate of the Company if all of such Common Shares are eligible for sale pursuant to Rule 144 and could be sold in one transaction in accordance with the volume limitations contained in Rule 144(e)(1)(i); (v) such Common Shares are held by Holders who are not Affiliates of the Company that are eligible for sale pursuant to Rule 144(d); or (vi) such Common Shares have been otherwise transferred in a transaction that constitutes a sale thereof under the Securities Act, the Company has delivered to the Holder’s transferee a new certificate or other evidence of ownership for such Common Shares not bearing the Securities Act restricted stock legend and such Common Shares subsequently may be publicly resold or otherwise transferred by such transferee without restriction or registration under the Securities Act; provided, however, that, solely for purposes of Sections 3.1(g)(i)(y) and 3.5, Registrable Securities held by a Holder that is not an Ineligible Investor that would

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otherwise continue to be Registrable Securities but for clause (v) of the foregoing will continue to be Registrable Securities for so long as the Holder continues to beneficially own (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) at least five percent (5%) of the Company’s Common Shares (including, for the avoidance of doubt, any Redeemable Units not yet converted) and such Holder otherwise complies with the provisions of Sections 3.1(g) or3.5, as applicable, including the execution by such Holder of any lock-up agreement that may be reasonably requested by the underwriters in connection with the applicable offering.  For the avoidance of doubt, Registrable Securities shall be deemed to include all Common Shares held by a Holder, including Common Shares issuable upon redemption of Redeemable Units, without regard to the ownership limitations set forth in the Charter, to the maximum extent necessary to accommodate the sale of Common Shares pursuant to a registered offering in accordance with Section 8.6.C of the Partnership Agreement.

“Registration Expenses” means any and all expenses incident to performance of or compliance with this Agreement, including: (i) all applicable registration and filing fees imposed by the Commission, FINRA or any other self-regulatory organization; (ii) all fees and expenses incurred in connection with compliance with state securities or “blue sky” laws (including reasonable fees and disbursements of counsel in connection with qualification of any of the Registrable Securities under any state securities or blue sky laws and the preparation of a blue sky memorandum) and compliance with the rules of FINRA; (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing the Shelf Registration Statement, any Prospectus, certificates and other documents relating to the performance of and compliance with this Agreement; (iv) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities on any securities exchange or exchanges pursuant to Section 3.2(m); (v) the fees and disbursements of counsel for the Company and of the independent public accountants of the Company, including the expenses of any special audits or “cold comfort” letters required by or incident to such performance and compliance; and (vi) the fees and expenses, not to exceed $100,000 in the aggregate for all Shelf Registrations effected pursuant to this Agreement, of one counsel for all the Holders (which counsel shall be chosen by the Holders and be reasonably acceptable to the Company).  Registration Expenses shall specifically exclude underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Selling Holder, all of which shall be borne by such Holder in all cases.

“Requesting Holders” has the meaning set forth in Section 3.1(g).

“Resale Rules” has the meaning set forth in Section 3.7.

“Resale Shelf Registration Statement” has the meaning set forth in Section 3.1(a).

“Restricted Shares” means Common Shares issued under an Issuer Shelf Registration Statement which if sold by the holder thereof would constitute “restricted securities” as defined under Rule 144 or would otherwise be subject to volume limitations under Rule 144.

“Rule 144” means Rule 144 (or any similar provision then in force) promulgated under the Securities Act.

“Sale Period” has the meaning set forth in Section 3.1(d).

“Securities Act” means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time of reference.

“Selling Expenses” means (a) any underwriting discounts and commissions or similar charges attributable to the sale of Registrable Shares included in a registration, (b) any transfer taxes relating to the sale or disposition of Registrable Securities by a Selling Holder or (c) any other expenses of the Selling Holders that do not constitute Registration Expenses.

“Selling Holder” means any Holder who sells Registrable Securities pursuant to a public offering registered hereunder.

“Shelf Registration” means a registration required pursuant to Section 3.1.

“Shelf Registration Statement” means a Resale Shelf Registration Statement or an Issuer Shelf Registration Statement, as applicable.

“Staged Lock-Up Agreement” means the Lock-Up Agreement, dated January 29, 2015, among the Company, the Operating Partnership, Hunt-InfraREIT, L.L.C. and Hunt Consolidated, Inc., as it may be amended, supplemented or otherwise modified from time to time.

“Suspension Notice” has the meaning set forth in Section 3.3(a).

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“Transfer” means, whether by operation of law or otherwise, any sale, transfer, distribution, assignment, bequest, lease, pledge, hypothecation, encumbrance, grant of a security interest in, or grant, issue, sale or conveyance of any option, warrant or right to acquire or to otherwise dispose of, transfer, or permit to be transferred (including (a) the granting of any option or entering into any agreement for the sale, transfer or other disposition of Common Shares or Partnership Units, (b) the sale, transfer, assignment or other disposition of any securities or rights convertible into or exchangeable for Common Shares, but excluding (i) the exchange or conversion of any security of the Company for Common Shares or the Operating Partnership for Partnership Units or (ii) the redemption of Partnership Units pursuant to Section 8.6 of the Partnership Agreement, as applicable, (c) any transfer or other disposition of any interest in Common Shares or Partnership Units as a result of a change in the marital status of the holder thereof), and (d) any change in the citizenship or country of formation, incorporation, organization or domicile of the holder of Common Shares or Partnership Units).  For clarity, a “Transfer” shall include any transaction, occurrence or event described in the foregoing clauses (a), (b), (c) or (d) that is effected, occurs or arises directly or indirectly, including without limitation, by a sale, transfer or assignment of a controlling interest in a Holder or by way of a merger, consolidation, business combination or similar transaction; provided, however, for any Holder which has issued securities of a class that are Publicly Traded (or securities of a class which are similarly traded publicly on a securities exchange or market in any other jurisdiction), “Transfer” shall not include a sale of any such securities of a class which are so publicly traded.  The term “Transferred” shall have correlative meanings.

“Underwriting Notice” has the meaning set forth in Section 3.1(g).

“Violation” has the meaning set forth in Section 3.6(a).

Section 1.2Interpretation.  Unless the context otherwise requires: (i) a technical accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (ii) “or” is not exclusive; (iii) references to “Articles,” “Sections” and “Exhibits” refer to the articles, sections and the exhibits to this Agreement, unless explicitly stated or the context requires otherwise; (iv) “herein,” “hereof” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section, Exhibit or other subdivision; (v) references to statutes, regulations and rules include subsequent amendments and successors thereto unless the context otherwise requires; (vi) the various headings of this Agreement are provided herein for convenience only and shall not affect the meaning or interpretation of this Agreement or any provision hereof; (vii) wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine, the feminine or the neuter gender shall include the masculine, feminine and neuter; (viii) “including” means “including, without limitation”; and (ix) if any payment hereunder shall become due on any day which is not a Business Day, such payment shall be made on the next succeeding Business Day.

ARTICLE 2
[Reserved]

ARTICLE 3
REGISTRATION RIGHTS

Section 3.1Shelf Registration Under the Securities Act.  

(a)Filing of Resale Shelf Registration Statement.  The Company shall use its commercially reasonable efforts to cause to be filed, on March 3, 2016 or as soon as reasonably practicable thereafter, a registration statement on an appropriate form for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act (the “Resale Shelf Registration Statement”) and providing for the sale by the Holders of all, but not less than all, of their Registrable Securities in accordance with the terms hereof and will use its commercially reasonable efforts to cause the Resale Shelf Registration Statement to be declared effective by the Commission as soon thereafter as is practicable; provided, however, that the Company shall not be obligated to request the acceleration of the effectiveness of the Resale Shelf Registration Statement prior to March 4, 2016. The Company agrees to use its commercially reasonable efforts, subject to Sections 3.1(e) and 3.3 hereof, to keep the Resale Shelf Registration Statement with respect to the Registrable Securities continuously effective for a period expiring on the date on which all remaining Registrable Securities covered by the Resale Shelf Registration Statement have been sold.  Subject to Section 3.2(b) below, the Company further agrees to amend the Resale Shelf Registration Statement if and as required by the rules, regulations or instructions applicable to the registration form used by the Company for the Resale Shelf Registration Statement or by the Securities Act or any rules and regulations thereunder.  

(b)Filing of an Issuer Shelf Registration Statement.  The Company may, at its option, satisfy its obligation to prepare and file a Resale Shelf Registration Statement pursuant to Section 3.1(a) above with respect to Common Shares issuable upon redemption of Partnership Units pursuant to the Partnership Agreement (the “Redeemable Units”) by preparing

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and filing with the Commission, no later than February 19, 2016 or as soon as reasonably practicable thereafter, a registration statement on an appropriate form for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act (an “Issuer Shelf Registration Statement”) providing for the issuance by the Company of Common Shares registered under the Securities Act, from time to time, to the Holders of such Redeemable Units in lieu of the Operating Partnership’s obligation to pay cash for such Redeemable Units. The Company shall use commercially reasonable efforts to cause the Issuer Shelf Registration Statement to be declared effective by the Commission as promptly as reasonably practicable after filing thereof.  The Company shall use commercially reasonable efforts, subject to Sections 3.1(e) and 3.3 hereof, to keep the Issuer Shelf Registration Statement continuously effective for a period expiring on the date all of the Common Shares covered by such Issuer Shelf Registration Statement have been issued by the Company pursuant thereto.    If the Company shall exercise its rights under this Section 3.1(b), Holders (other than Holders of Restricted Shares) shall have no right to have Common Shares issued or issuable upon exchange of the Redeemable Units included in a Resale Shelf Registration Statement pursuant to Section 3.1(a) above. 

(c)Inclusion in Shelf Registration Statement.  Each Holder that has delivered a duly completed and executed Notice and Questionnaire to the Company as promptly as practicable after receipt of the Company’s request for such document, but in no event later than twenty (20) Business Days thereafter, shall be entitled to have its Registrable Securities included in the applicable Shelf Registration Statement and shall be named as a selling securityholder in such Shelf Registration Statement and the related prospectus in such a manner as to permit such Holder to deliver such prospectus to purchasers of Registrable Securities in accordance with applicable law.  If required by applicable law, subject to the terms and conditions hereof, after effectiveness of the applicable Shelf Registration Statement, the Company shall file a supplement to such prospectus or amendment to such Shelf Registration Statement not less frequently than once a quarter as necessary to name as selling securityholders therein any Holders that provide to the Company a duly completed and executed Notice and Questionnaire and shall use commercially reasonable efforts to cause any post-effective amendment to such Shelf Registration Statement filed for such purpose to be declared effective by the Commission as promptly as reasonably practicable after the filing thereof.  Notwithstanding the foregoing, the Hunt Investors agree that the Company shall not be obligated to include in the Resale Shelf Registration Statement any of the Registrable Securities that are subject to the Staged Lock-Up Agreement until such time as the applicable Registrable Securities have been released from the Staged Lock-Up Agreement, in which case the Company shall use its commercially reasonable efforts to file a supplement to the prospectus included in the Resale Shelf Registration Statement or amendment to such Resale Shelf Registration Statement and to cause the Resale Shelf Registration Statement as soon thereafter as is practicable and shall use commercially reasonable efforts to cause any post-effective amendment to such Resale Shelf Registration Statement filed for such purpose to be declared effective by the Commission as promptly as reasonably practicable after the filing thereof.

(d)Takedown Procedures.  Any Holder that intends to sell Common Shares pursuant to the Resale Shelf Registration Statement (each, a “Holder Proposed Sale”) shall notify the Company in writing and in accordance with Section 4.1 of such Holder Proposed Sale.  Upon receipt of the notice of a Holder Proposed Sale, the Company shall (i) as promptly as commercially practicable, but in no event later than three (3) Business Days following receipt of such notice, and (ii) for a period of thirty (30) days thereafter or such longer period as reasonably requested by the Holder in order to allow such Holder to complete the Holder Proposed Sale (each, a “Sale Period”), use its commercially reasonable efforts to cause to be included or incorporated by reference, as applicable, in the Resale Shelf Registration Statement any disclosure necessary in order to cause the Resale Shelf Registration Statement not to contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.  No Holder may sell Common Shares pursuant to the Resale Shelf Registration Statement unless such Holder has delivered notice of a Holder Proposed Sale to the Company and the Company either has (x) updated the Resale Shelf Registration Statement as described in the preceding sentence or (y) notified such Holder in writing that no such update is necessary; provided, however, that, for the avoidance of doubt, no notice of a Holder Proposed Sale shall be required in connection with sales pursuant to Rule 144 or otherwise exempt from registration under the Securities Act.

(e)Subsequent Filing.  The Company shall prepare and file such additional registration statements as necessary every three (3) years and use commercially reasonable efforts to cause such registration statements to be declared effective by the Commission so that the registration statement remains continuously effective, subject to Section 3.3 hereof, with respect to resales of Registrable Securities as of and for the periods required under Section 3.1(a) or (b) hereof, as applicable, such subsequent registration statements to constitute an Issuer Shelf Registration Statement or a Resale Shelf Registration Statement, as the case may be, hereunder.

(f)Expenses.  Except as provided herein, the Company shall pay all Registration Expenses in connection with the registration pursuant to Section 3.1(a) and Section 3.1(b) and the performance of the Company’s obligations under this Section 3.1 andSection 3.2.  The Company shall not be liable for any underwriting or brokerage discounts and commissions,

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the fees and expenses of counsel retained by any Holder (other than the fees and expenses, not to exceed $100,000 in the aggregate for all Shelf Registrations effected pursuant to this Agreement, of one counsel reasonably acceptable to the Company for all the Holders, which fees and expenses of counsel are Registration Expenses hereunder), and transfer taxes, if any, relating to the sale or disposition of such Holder’s Registrable Securities pursuant to the Shelf Registration Statement or Rule 144. 

(g)Underwritten Offering.

(i)If any of the Registrable Securities covered by the Shelf Registration are to be sold in an underwritten public offering, (x) one or more Holders intending to pursue such underwritten offering (the “Requesting Holders”) shall deliver a notice to the Company of such intent (the “Holder Notice”), and (y) within ten (10) Business Days after receipt of the notice of intent from such Holder for an underwritten offering, the Company shall give written notice (the “Underwriting Notice”) of such notice of intent to all other Holders and, subject to subsection (iii) of this Section 3.1(g), such other Holders shall be entitled to include in such an underwritten offering all or part of their respective Registrable Securities by notice to the Company for inclusion therein within fifteen (15) Business Days after the Underwriting Notice is given.  All notices made pursuant to this Section 3.1(g) shall specify the aggregate number of Registrable Securities to be included. The Company agrees to cooperate with any such request for an underwritten offering and to take all such other reasonable actions in connection therewith as provided in Section 3.2(p); provided that (A) the Holder Notice must be delivered by Requesting Holders that hold in the aggregate at least five percent (5%) of the then outstanding Registrable Securities and (B) the Registrable Securities to be included in such underwritten public offering shall have an aggregate value equal to or greater than fifty million dollars ($50,000,000), based upon the Closing Price as of the date of receipt of the Holder Notice by the Company; and provided, further, that the Company shall not be obligated to effect more than four (4) underwritten offerings hereunder; and provided, further, that the Company shall not be obligated to effect, or take any action to effect, an underwritten offering within ninety (90) days following the last date on which an underwritten offering was effected (a) pursuant to Section 3.5 (if Registrable Securities were included in such underwritten offering) or (b) pursuant to this Section 3.1(g) or if longer, the length of any lock-up required by the underwriters in the prior underwritten offering; and provided, further, that the Company shall not be obligated to effect, or take any action to effect, an underwritten offering if the Company responds to the Holder Notice with an indication that the Company has the good faith intention to commence, within 90 days of the Holder Notice, an Issuer Proposed Offering, in which case the Holders may not request an underwritten offering pursuant to this Section 3.1(g) during such 90-day period (the Company may not exercise its rights under this proviso more than one time during any 12-month period).

(ii)In the case of any firm commitment underwritten offering, if the managing underwriter or underwriters of such offering advise the Company in writing that in its or their opinion the number of Registrable Securities proposed to be sold in such offering exceeds the number of Registrable Securities that can be sold in such offering without adversely affecting the market for the Common Shares, the Company will include in such offering the number of Registrable Securities that in the opinion of such managing underwriter or underwriters can be sold without adversely affecting the market for the Common Shares.  In such event, the number of Registrable Securities to be offered for the account of each Holder requesting to include Registrable Securities in such offering (including the Holder providing the initial Holder Notice) shall be reduced pro rata on the basis of the relative number of Registrable Securities requested by each such Holder to be included in such offering to the extent necessary to reduce the total number of Registrable Securities to be included in such offering to the number recommended by such managing underwriter or underwriters.

(iii)No Person may participate in any underwritten offerings hereunder unless such Person (A) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (B) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and these registration rights provided for in this Article 3.

(h)Selection of Underwriters.  If any of the Registrable Securities covered by the Shelf Registration are to be sold in an underwritten offering, the Company shall have the right to select the investment banker or investment bankers and manager or managers that will underwrite the offering and to approve the underwriting arrangements; provided, however, that such investment bankers and managers and underwriting arrangements must be reasonably acceptable to the Selling Holders holding a majority of the Registrable Securities to be sold in the underwritten offering.

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(i)Company’s Ability to Delay.  The Company may delay the filing of a registration statement under this Section 3.1 only if it would be entitled to delay such filing pursuant to, and for such time as is permitted by, Section 3.3 below. 

(j)Form S-3.  The Company agrees to use its commercially reasonable efforts to meet the general eligibility requirements under the Securities Act for the use of a registration statement on Form S-3.  

Section 3.2Registration Procedures.  In connection with the obligations of the Company with respect to the applicable Shelf Registration Statement contemplated by Section 3.1, the Company shall (except as otherwise provided in this Agreement), as expeditiously as possible after the Company’s obligations vest under Section 3.1:

(a)prepare and file with the Commission the Shelf Registration Statement, which shall (i) be available for the sale of the Registrable Securities in accordance with the intended method or methods of distribution by the Selling Holders thereof and (ii) comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the Commission to be filed therewith;

(b)(i) prepare and file with the Commission such amendments to the Shelf Registration Statement as may be necessary to keep the Shelf Registration Statement effective for the applicable period; (ii) cause the Prospectus to be amended or supplemented as required and to be filed as required by Rule 424 or any similar rule that may be adopted under the Securities Act; (iii) respond as promptly as practicable to any comments received from the Commission with respect to the Shelf Registration Statement or any amendment thereto; and (iv) comply with the provisions of the Securities Act with respect to the disposition of all securities covered by the Shelf Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the Selling Holders thereof;

(c)promptly furnish to each Selling Holder of Registrable Securities, without charge, as many copies of each Prospectus and any amendment or supplement thereto as such Selling Holder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities; the Company consents to the use of the Prospectus and any amendment or supplement thereto by each such Selling Holder of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by the Prospectus or amendment or supplement thereto;

(d)use its commercially reasonable efforts to register or qualify the Registrable Securities by the time the Shelf Registration Statement is declared effective by the Commission under all applicable state securities or blue sky laws of such jurisdictions in the United States and its territories and possessions as any Holder of Registrable Securities covered by the Shelf Registration Statement shall reasonably request in writing, keep each such registration or qualification effective during the period the Shelf Registration Statement is required to be kept effective or during the period offers or sales are being made by a Selling Holder, whichever is shorter; provided, however, that in connection therewith, the Company shall not be required to (i) qualify as a foreign corporation to do business or to register as a broker or dealer in any such jurisdiction where it would not otherwise be required to qualify or register but for this Section 3.2(d), (ii) subject itself to taxation in any such jurisdiction, or (iii) file a general consent to service of process in any such jurisdiction;

(e)notify each Holder of Registrable Securities promptly and, if requested by such Holder, confirm in writing, (i) when the Shelf Registration Statement and any post-effective amendments thereto have become effective, (ii) when any amendment or supplement to the Prospectus has been filed with the Commission, (iii) of the issuance by the Commission or any state securities authority of any stop order suspending the effectiveness of the Shelf Registration Statement or any part thereof or the initiation of any proceedings for that purpose, (iv) if the Company receives any notification with respect to the suspension of the qualification of the Registrable Securities for offer or sale in any jurisdiction or the initiation of any proceeding for such purpose, and (v) of the happening of any event during any Sale Period as a result of which (A) the Shelf Registration Statement contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading or (B) the Prospectus as then amended or supplemented contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading;

(f)make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Shelf Registration Statement or any part thereof as promptly as possible;

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(g)furnish to each Selling Holder of Registrable Securities, without charge, at least one conformed copy of the Shelf Registration Statement and any post-effective amendment thereto (without documents incorporated therein by reference or exhibits thereto, unless requested); 

(h)cooperate with the Selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any Securities Act legend; and enable certificates for such Registrable Securities to be issued for such numbers of shares and registered in such names as the Selling Holders may reasonably request at least ten (10) Business Days prior to any sale of Registrable Securities; and in connection therewith, if required by the Company’s transfer agent, the Company shall, promptly after the effectiveness of a Shelf Registration Statement, cause an opinion of counsel as to the effectiveness of such Shelf Registration Statement to be delivered to and maintained with its transfer agent, together with any other authorizations, certificates and directions required by the transfer agent which authorize and direct the transfer agent to issue such Registrable Securities without legend upon sale by the Selling Holder of such Registrable Securities under such Shelf Registration Statement;

(i)upon the occurrence during any Sale Period of any event contemplated by clause (v) of Section 3.2(e), use its commercially reasonable efforts promptly to prepare and file an amendment or a supplement to the Prospectus or any document incorporated therein by reference or prepare, file and obtain effectiveness of a post-effective amendment to the Shelf Registration Statement, or file any other required document, in any such case to the extent necessary so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus as then amended or supplemented will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading;

(j)make available for inspection by the Holders of Registrable Securities and any counsel, accountants or other representatives retained by such Holders all financial and other records, pertinent corporate documents and properties of the Company and cause the officers, trustees and employees of the Company to supply all such records, documents or information reasonably requested by such Holders, counsel, accountants or representatives in connection with the Shelf Registration Statement; provided, however, that such records, documents or information which the Company determines in good faith to be confidential and notifies such Holders, counsel, accountants or representatives in writing that such records, documents or information are confidential shall not be disclosed by such Holders, counsel, accountants or representatives unless (i) such disclosure is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, or (ii) such records, documents or information become generally available to the public other than through a breach of this Agreement;

(k)a reasonable time prior to the filing of the Shelf Registration Statement or any amendment thereto, or any Prospectus or any amendment or supplement thereto, provide copies of such document (not including any documents incorporated by reference therein unless requested) to the Holders of Registrable Securities;

(l)provide one (1) legal counsel to the Holders (which counsel shall be chosen by the Holders and be reasonably acceptable to the Company) with an opportunity to review and comment upon each Shelf Registration Statement and any related Prospectus included therein at least five (5) Business Days prior to their initial filing with the Commission and upon all amendments and supplements thereto such lesser period prior to their filing with the Commission as shall be reasonable and appropriate under the circumstances, and the Company shall not file any documents to which such legal counsel to the Holders reasonably objects in writing (it being agreed that such writing may for this purpose be in electronic format); provided that any fees and expenses of such counsel shall be borne by the parties as provided in Section 3.1(f);

(m)use its commercially reasonable efforts to cause all Registrable Securities to be listed on any national securities exchange on which similar securities issued by the Company are then listed;

(n)provide a CUSIP number for all Registrable Securities, not later than the effective date of the Shelf Registration Statement;

(o)use its commercially reasonable efforts to make available to its security holders, as soon as reasonably practicable, an earnings statement covering at least twelve (12) months which shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;

(p)if requested by a Selling Holder or any underwriters engaged by such Selling Holder for purposes of distributing the Registrable Securities, enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other reasonable actions in connection therewith

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(including those reasonably requested by the underwriters or such Selling Holder) in order to expedite or facilitate the disposition of such Registrable Securities, and in such connection, (i) make such representations and warranties to the underwriters with respect to the business of the Company and the Shelf Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain customary opinions of counsel to the Company and updates thereof (which shall be in form and substance reasonably satisfactory to the Selling Holders or to the underwriters and their counsel, as the case may be), addressed to such Selling Holder and, if applicable, each of the underwriters; (iii) obtain “cold comfort” letters and updates thereof from the independent registered public accountants of the Company, addressed to such Selling Holder and, if applicable, each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with any such offerings (in each case, to the extent permitted by applicable accounting rules and guidelines); (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the underwriters than those set forth in Section 3.6 and cross indemnification by the underwriters in form and substance as is customary in connection with such offering, in favor of the Company or the Selling Holders, as the case may be; and (v) deliver such documents and certificates as may be reasonably requested by the managing underwriters and their counsel to evidence the continued validity of the representations and warranties made pursuant to clause (i) above of this Section 3.2(p) and to evidence compliance with any customary conditions contained in the underwriting agreement entered into by the Company;  

(q)otherwise comply in all material respects with all applicable rules and regulations of the Commission that are applicable to the Company in connection with any Shelf Registration Statement and the disposition of all Registrable Securities covered by such Shelf Registration Statement, including by filing with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act in order to keep any Shelf Registration Statement effective; and

(r)subject to the foregoing, take all other reasonable actions necessary to facilitate disposition by the Holders pursuant to such Shelf Registration Statement.

Each Selling Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.2(e)(iii), (iv) and (v) hereof or upon receipt of a Suspension Notice, such Selling Holder will forthwith discontinue disposition of Registrable Securities pursuant to the Shelf Registration Statement covering such Registrable Securities until such Selling Holder’s receipt of written notice from the Company that such disposition may be made and, in the case of Section 3.1(d) or 3.2(e)(v) hereof or, if applicable, Section 3.3 hereof, copies of any supplemented or amended prospectus contemplated by Section 3.1(d) or 3.2(e)(v) hereof or, if applicable, prepared under Section 3.3 hereof, and, if so directed by the Company, such Selling Holder will deliver to the Company all copies, other than permanent file copies, then in such Selling Holder’s possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice.  Each Selling Holder of Registrable Securities agrees that it will immediately notify the Company at any time when a prospectus relating to the registration of such Registrable Securities is required to be delivered under the Securities Act of the happening of an event as a result of which information previously furnished by such Selling Holder to the Company in writing for inclusion in such prospectus contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made.

The Company may require each Selling Holder of Registrable Securities to furnish to the Company in writing such information regarding the proposed distribution by such Selling Holder of such Registrable Securities as the Company may from time to time reasonably request in writing.

In connection with and as a condition to the Company’s obligations with respect to the Shelf Registration Statement pursuant to Section 3.1and this Section 3.2, each Selling Holder covenants and agrees that (i) it will not offer or sell any Registrable Securities under the Shelf Registration Statement (x) unless it has complied with Section 3.1(d) and (y) until it has received copies of the Prospectus as then amended or supplemented as contemplated by Section 3.2(c) and notice from the Company that the Shelf Registration Statement and any post-effective amendments thereto have become effective as contemplated by Section 3.2(e); (ii) such Holder and any of its officers, directors or Affiliates, if any, must comply with the provisions of Regulation M under the Exchange Act as applicable to them in connection with sales of Registrable Securities pursuant to the Shelf Registration Statement; and (iii) such Selling Holder and any of its officers, directors or Affiliates, if any, must enter into such customary written agreements as the Company shall reasonably request to ensure compliance with clause (ii) above.

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Section 3.3Suspension of Use of the Shelf Registration Statement.   

(a)Notwithstanding anything to the contrary contained herein, the Company shall not be required to take any of the actions described in Section 3.1(a), Section 3.1(d), Section 3.2(a), clauses (i), (ii) or (iii) of Section 3.2(b), Section 3.2(d) or Section 3.2(i) with respect to each Holder holding Registrable Securities, and each Holder holding Registrable Securities agrees not to effect any sale of Registrable Securities through the Shelf Registration Statement, for a period not to exceed ninety (90) days from the date of the Suspension Notice (as defined below) in the event that the Company delivers written notice (each, a “Suspension Notice”) to each such Selling Holder of Registrable Securities to the effect that in the good faith judgment of the Board, as a result of a pending material corporate development or transaction, it would be seriously detrimental to the Company or its stockholders to cause the Shelf Registration Statement or such filings to be made or to become effective or to amend or supplement the Shelf Registration Statement or to permit the continued use thereof and that such Selling Holder may not make offers or sales under the Shelf Registration Statement for a period not to exceed ninety (90) days from the date of such Suspension Notice; provided, however, that the Company may deliver only two (2) such Suspension Notices within any twelve (12) month period and the period(s) of time addressed by such Suspension Notices shall not exceed one hundred twenty (120) days in the aggregate in any twelve (12) month period.

(b)If all reports required to be filed by the Company pursuant to the Exchange Act have not been filed by the required date without regard to any extension, or if the consummation of any business combination by the Company has occurred or is probable for purposes of Rule 3-05 or Article 11 of Regulation S-X promulgated under the Securities Act or any similar successor rule, or if a post-effective amendment must be filed to update the prospectus pursuant to Section 10(a)(3) of the Securities Act, upon written notice thereof by the Company to the Holders, the rights of the Holders to offer, sell or distribute any Registrable Securities pursuant to a Shelf Registration Statement or to require the Company to take action with respect to the registration or sale of any Registrable Securities pursuant to a Shelf Registration Statement shall be suspended until the date on which the Company has filed such reports or obtained and filed the financial information required by Rule 3-05 or Article 11 of Regulation S-X to be included or incorporated by reference, as applicable, in a Shelf Registration Statement, and the Company shall use commercially reasonable efforts to file the required reports or post-effective amendment or obtain and file the financial information required to be included or incorporated by reference, as applicable, as promptly as commercially practicable, and shall notify the Holders as promptly as practicable when such suspension is no longer required.

Section 3.4Lockout Periods for Holder Sales.  In the event (a) of an underwritten offering covered by the Shelf Registration following the delivery of an Underwriting Notice or (b) the Company intends to issue shares of beneficial interest to the public in an underwritten offering, each Holder agrees, if requested by the managing underwriter or underwriters for such underwritten offering, not to effect any Transfer of Registrable Securities or any securities convertible into or exchangeable or exercisable for such Registrable Securities, including a sale pursuant to Rule 144, except with the consent of the managing underwriter or underwriters, during the period reasonably required by the underwriter or underwriters for such offering, which shall not be longer than the period beginning ten (10) Business Days prior to the consummation of such underwritten offering and ending on the day that is ninety (90) days after the consummation of such underwritten offering; provided that the foregoing restriction shall not apply with respect to (i) any non-public Transfer by any Holder to a Permitted Transferee of such Holder or (ii) any Registrable Securities that would not otherwise constitute Registrable Securities but for the final proviso in the definition of “Registrable Securities,” unless the Holder of such Registrable Securities is participating as a selling securityholder in the applicable offering.  Notwithstanding the foregoing, this Section 3.4 shall not be applicable to or otherwise be binding on any Holder unless it is applicable to and otherwise binding on all Holders who hold at least one percent (1%) of the Company’s Common Shares and the Company causes all of its executive officers and directors to be similarly bound.

Section 3.5Piggy-Back Rights.

(a)If at any time on or after the date hereof, the Company proposes to sell Common Shares for its own account in an underwritten offering registered pursuant to the Securities Act (each, an “Issuer Proposed Offering”), each Holder shall have the right to include in such Issuer Proposed Offering all or part of the Registrable Securities held by such Holder (the “Piggyback Rights”). Except as otherwise provided in Section 3.5(f), the Company shall promptly, but in no event less than fifteen (15) Business Days prior to any such Issuer Proposed Offering (or, in the event of an Issuer Proposed Offering that will be executed as an “overnight” or “bought” deal, no less than five (5) Business Days prior to the commencement of such Issuer Proposed Offering), give written notice to all Holders of Registrable Securities of its intention to conduct the Issuer Proposed Offering.  

(b)Any Holder wishing to exercise its Piggyback Rights shall deliver to the Company a written notice (i) within fifteen (15) Business Days after the receipt of the Company’s notice or (ii) at least one (1) day prior to the first use of

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a preliminary prospectus in connection with such Issuer Proposed Offering, whichever is earlier.  Such Holder’s written notice shall specify the number of Common Shares intended to be disposed of by such Holder, which might be all or a portion of such Holder’s Registrable Securities. The Company will, subject to Sections 3.5(c) and (e) below, use its commercially reasonable efforts to effect the registration under the Securities Act of, and to include in the Issuer Proposed Offering, all Registrable Securities which the Company has been so requested to register by the Holders thereof, to the extent requisite to permit the disposition of the Registrable Securities so to be registered and sold; provided that (x) if, at any time after giving written notice of its intention to conduct the Issuer Proposed Offering and prior to the commencement of the Issuer Proposed Offering, the Company shall determine for any reason not to proceed with the Issuer Proposed Offering, the Company may, at its election, give written notice of such determination to each Holder of Registrable Securities and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such Issuer Proposed Offering, and (y) all Holders of Registrable Securities requesting to be included in the Issuer Proposed Offering must sell their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to the Company (including entering into an underwriting agreement in customary form with the underwriter or underwriters selected for such offering by the Company), as may be customary or appropriate in combined primary and secondary offerings.  

(c)All Holders of Registrable Securities requesting to be included in any Issuer Proposed Offering shall cooperate with the Company in all reasonable respects by supplying information and executing documents relating to such Holder or the Registrable Securities owned by such Holder in connection with such registration and shall enter into such undertakings and take such other action relating to the Issuer Proposed Offering which the Company or the underwriters may reasonably request as being necessary to ensure compliance with federal and state securities laws and the rules or other requirements of a securities exchange listing or otherwise to effectuate such offering.

(d)The Company shall pay all Registration Expenses incurred in connection with each registration of Registrable Securities pursuant to this Section 3.5. All Selling Expenses applicable to Registrable Securities sold by Holders incurred in connection with each registration pursuant to this Section 3.5 shall be borne by the Holders of the Registrable Securities so registered pro rata based on the number of securities so registered.

(e)If the managing underwriter in any Issuer Proposed Offering determines in good faith that marketing factors require a limitation on the number of securities to be underwritten, the number of securities that may be included will be limited to the number of securities that, in the opinion of such underwriter, should be included, and the securities to be included in the underwriting shall be allocated, first, to the Company and, second, pro rata to all other requesting Holders on the basis of the relative number of Registrable Securities then requested to be sold by each such Holder (provided that any securities thereby allocated to any such Holder that exceed such Holder’s request will be reallocated among the remaining requesting Holders in like manner).

(f)Notwithstanding anything to the contrary contained in this Section 3.5, at any time a Holder may elect, in writing and in accordance with Section 4.1, not to receive any notices pursuant to Section 3.5(a) or other communications with respect to events giving rise to such Holder’s ability to exercise its Piggyback Right (each, an “Opt Out Election”).  Following the receipt of an Opt Out Election from any Holder, the Company shall not deliver to any such Holder notice of the Company’s intent to conduct an Issuer Proposed Offering and such Holder shall have no rights to participate in any such Issuer Proposed Offering pursuant to this Section 3.5 until such time as a revocation of such Opt Out Election has been received, or pursuant to Section 4.1 is deemed to be received, by the Company.  For the avoidance of doubt, nothing in this Section 3.5(f) shall be deemed to prohibit the Company from notifying the Holder of any event for which the Company is required to provide notice to such Holder under any other agreement or applicable law, notwithstanding the receipt of an Opt Out Election from such Holder.

Section 3.6Indemnification.  In the event any Registrable Securities are included in a Shelf Registration under Section 3.1 or in a registration statement pursuant to Section 3.5:

(a)Indemnity by the Company.  Without limitation of any other indemnity provided to any Holder, to the extent permitted by law, the Company will indemnify and hold harmless each Holder, the Affiliates, officers, directors and partners of each Holder, any underwriter (as defined in the Securities Act), and each Person, if any, who controls such Holder or underwriter (within the meaning of the Securities Act or the Exchange Act), against any losses, claims, damages, liabilities and expenses (joint or several) to which they may become subject under the Securities Act, the Exchange Act or any other federal or state law, as and when incurred, insofar as such losses, claims, damages, liabilities and expenses (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in a registration statement

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(including any preliminary Prospectus or final Prospectus contained therein or any amendments or supplements thereto or any “issuer free writing prospectus” (as defined in Rule 433 under the Securities Act) related thereto), (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or (iii) any other violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law, and the Company will reimburse each such Holder, Affiliate, officer, director, partner, underwriter or controlling person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability, expense or action; provided, however, that the Company shall not be liable to any Holder in any such case for any such loss, claim, damage, liability, expense or action to the extent that it arises out of or is based upon a Violation which occurs (A) in reliance upon and in conformity with written information furnished expressly for use in the Shelf Registration Statement or Prospectus by any such Holder or any officer, director, partner or controlling person thereof or (B) by such Holder’s failure to deliver a copy of the Shelf Registration Statement or Prospectus or any amendments or supplements thereto after the Company has furnished such Holder with a sufficient number of copies of the same. 

(b)Indemnity by Holders.  In connection with any registration in which a Holder is participating, each such Holder will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with the Shelf Registration Statement or Prospectus or registration statement pursuant to Section 3.5 and, to the extent permitted by law, will indemnify the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act or Exchange Act) against any losses, claims, damages, liabilities and expenses resulting from any Violation, but only to the extent that such Violation occurs in reliance upon and in conformity with any information so furnished in writing by such Holder expressly for use in the Shelf Registration Statement or Prospectus or registration statement pursuant to Section 3.5 or by virtue of such Holder’s failure to deliver a copy of the Shelf Registration Statement or Prospectus or registration statement pursuant to Section 3.5 or any amendments or supplements thereto after the Company has furnished such Holder with a sufficient number of copies of the same; provided that the obligation to indemnify will be several and not joint and several with any other Person and will be limited to the net amount received by such Holder from the sale of Registrable Securities pursuant to the Shelf Registration Statement or registration statement pursuant to Section 3.5.

(c)Notice; Right to Defend.  Promptly after receipt by an indemnified party under this Section 3.6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 3.6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, if the indemnifying party agrees in writing that it will be responsible for any costs, expenses, judgments, damages and losses incurred by the indemnified party with respect to such claim, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties and the indemnified party may participate in such defense at such party’s expense; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if the indemnified party reasonably believes that representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding, provided that the indemnifying party shall not be responsible for the fees and expenses of more than one counsel for the indemnified parties.  The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Section 3.6only if and to the extent that such failure is materially prejudicial to its ability to defend such action, and the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party other than under this Section 3.6.

(d)Contribution.  If the indemnification provided for in this Section 3.6 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other hand in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations.  The relative fault of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  Notwithstanding the foregoing, the amount any Holder shall be

13

obligated to contribute pursuant to this Section 3.6(d) shall be limited to an amount equal to the net proceeds to such Holder of the Registrable Securities sold pursuant to the Shelf Registration Statement or registration statement pursuant to Section 3.5 that gives rise to such obligation to contribute (less the aggregate amount of any damages which the Holder has otherwise been required to pay in respect of such loss, claim, damage, liability or expense or any substantially similar loss, claim, damage, liability or expense arising from the sale of such Registrable Securities). 

(e)Survival of Indemnity and Contribution.  The indemnification and contribution provided by this Section 3.6 shall be a continuing right to indemnification and contribution and shall survive the registration and sale of any securities by any Person entitled to indemnification and contribution hereunder and the expiration or termination of this Agreement.

Section 3.7Rule 144; Reports under Exchange Act.  From and after the time of the effective date of the Shelf Registration Statement filed with the Commission pursuant to Section 3.1(a), in order to permit the Holders to sell the Registrable Securities they hold, if they so desire, from time to time pursuant to Rule 144 promulgated by the Commission or any successor to such rule or any other rule or regulation of the Commission that may at any time permit a Holder to sell Registrable Securities to the public without registration (the “Resale Rules”), the Company will:

(a)comply with all rules and regulations of the Commission applicable in connection with use of the Resale Rules;

(b)make and keep adequate and current public information available, as those terms are understood and defined in the Resale Rules, at all times;

(c)file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act as required by the Resale Rules;

(d)furnish annually to all Holders material containing the information required by Rule 14a-3(b) under the Exchange Act and Items 401, 402 and 403 of Regulation S-K of the Commission;

(e)furnish to any Holder so long as such Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of the Resale Rules, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and any other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the Commission which permits the selling of any such securities to the public without registration; and

(f)take any action (including cooperating with the Holder to cause the transfer agent to remove any restrictive legends on such securities) as shall be reasonably requested by any Holder or which shall otherwise facilitate the sale of Registrable Securities from time to time by the Holders pursuant to the Resale Rules.

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ARTICLE 4MISCELLANEOUS

Section 4.1Notices.  In order to be deemed effective, all documents to be delivered and all notices, approvals, authorizations, demands, requests, reports and/or consents to be given or obtained by any party to this Agreement shall be deemed received, unless earlier received, (i) if sent by certified or registered mail, return receipt requested, when actually delivered as aforesaid, except that such delivery shall be prior to 5:00 p.m., recipient’s time, on any Business Day and if a notice is not delivered on a Business Day or is delivered after 5:00 p.m., recipient’s time, such notice shall be deemed to have been received by such recipient at the commencement of such recipient’s first Business Day next following the time of delivery, (ii) if sent by overnight mail or international courier, when actually delivered as aforesaid, except that such delivery shall be prior to 5:00 p.m., recipient’s time, on any Business Day and if a notice is not delivered on a Business Day or is delivered after 5:00 p.m., recipient’s time, such notice shall be deemed to have been received by such recipient at the commencement of such recipient’s first Business Day next following the time of delivery, (iii) if sent by email or facsimile transmission, prior to 5:00 p.m., recipient’s time, on any Business Day and if a notice is not transmitted on a Business Day or is transmitted after 5:00 p.m., recipient’s time, such notice shall be deemed to have been received by such recipient at the commencement of such recipient’s first Business Day next following transmission of such notice, provided that confirmatory notice is sent promptly thereafter by first-class mail, postage prepaid, and (iv) if delivered by hand, on the date of receipt, at the address set forth below:

(a) To the Company:

InfraREIT, Inc.
1807 Ross Avenue, 4th Floor
Dallas, Texas 75201
Attention:  General Counsel  
Email Address:  Legal@Huntutility.com

(b) To any Holder:

to the address of such Holder as it appears in the Company’s records.

The above addresses may be changed for future communications or delivery of notice hereunder by giving notice of such change to the others listed above in the manner prescribed by this Section 4.1.  All notices shall be deemed effective when received by all applicable parties at the addresses set forth above (as such addresses may be changed by the parties in accordance herewith).  Notwithstanding the foregoing, no notice shall be deemed ineffective because of any party’s refusal to accept delivery at the address specified for the giving of such notice in accordance herewith.

Section 4.2Further Action.  The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.

Section 4.3Successors and Assigns.  Except as otherwise expressly provided herein, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company and each of the Holders (including, for the avoidance of doubt, (x) any subsequent holder of Registrable Securities, whether or not any express assignment has been made and (y) any entity which is the successor to the Company by merger, consolidation or similar transaction); provided, however, that upon any Transfer of Registrable Securities pursuant to a registration statement or under any Resale Rule that permits a Holder to sell Registrable Securities to the public without registration, this Agreement shall not inure to the benefit of the transferee; and provided, further, that the term “Holder” as used in this Agreement shall include any transferee to whose benefit this Agreement has so inured.

Section 4.4Amendment and Waiver.  This Agreement may be amended, and the observance of any term of this Agreement may be waived, but only with the written consent of the Company and Holders then holding a majority of the outstanding Registrable Securities; provided, however, that the effect of any such amendment will be that the consenting Holders will not be treated more favorably than all other Holders (without regard to any differences in effect that such amendment or waiver may have on the Holders due to the differing amounts of Registrable Securities held by such Holders); and provided, further, that without the consent of any other Holder, but with the written agreement of the Company (other than in the case of a waiver of any right to which a Holder is entitled hereunder), any Holder may from time to time enter into one or more agreements amending, modifying or waiving the provisions of this Agreement with respect to such Holder if such action does not adversely affect the rights or interest of any other Holder and such agreements do not provide any more favorable rights to such Holder than the rights set forth herein.  No delay on the part of any party in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise

15

by any party of any right, power or remedy preclude any other or further exercise thereof, or the exercise of any other right, power or remedy. 

Section 4.5Additional Holders.

(a)Notwithstanding the provisions of Section 4.3, additional Persons may be added as Holders under this Agreement in connection with the acquisition of Common Shares by such Persons by executing a joinder to this Agreement and such Person shall become a Holder for all purposes of this Agreement.

(b)The Company will not enter into any contract, arrangement or understanding from and after the date hereof with any future Holders with respect to Common Shares that has the effect of establishing rights or otherwise benefiting such person in a manner more favorable in any material respect with respect to the matters contemplated by Article 3 of this Agreement than the rights and benefits established in favor of the Holders with respect to Common Shares pursuant to this Agreement, unless the Company shall grant similar rights or benefits in favor of the Holders party hereto.

Section 4.6Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, provided, however, if performance of any provision of this Agreement, at the time such performance shall be due, shall transcend the limit of validity prescribed by law, then the obligation to be performed shall be reduced to the limit of such validity; and if any clause or provision contained in this Agreement operates or would operate to invalidate this Agreement, in whole or in part, then such clause or provision only shall be held ineffective, as though not herein contained, and the remainder of this Agreement shall remain operative and in full force and effect.  The parties shall negotiate in good faith a replacement clause or provision as consistent with the ineffective clause or provision as is practicable under law.

Section 4.7Counterparts.  This Agreement may be executed and delivered in one or more counterparts (including by means of facsimile or electronic mail transmission), each of which when so executed and delivered shall be deemed an original, none of which need contain the signatures of each of the parties hereto and all of which together shall constitute one and the same instrument binding on all the parties hereto.  Each party shall become bound by this Agreement immediately upon affixing its signature hereto.

Section 4.8Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.

Section 4.9Waiver of Jury Trial.  TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 4.10Forum Selection and Consent to Jurisdiction.  ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE BOROUGH OF MANHATTAN OR IN A UNITED STATES DISTRICT COURT FOR THE SOUthern District of NEW YORK LOCATED IN THE BOROUGH OF MANHATTAN. EACH OF THE PARTIES HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE BOROUGH OF MANHATTAN AND OF A UNITED STATES DISTRICT COURT FOR THE SOUthern District of NEW YORK LOCATED IN THE BOROUGH OF MANHATTANFOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH OF THE PARTIES HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

Section 4.11Entire Understanding.  This Agreement contains the entire understanding and agreement among the parties with respect to the subject matter hereof and supersedes any prior written or oral understandings or agreements among them with respect thereto, including the Original Agreement.

Section 4.12No Third Party Beneficiaries.  This Agreement is solely for the benefit of the parties hereto and no provisions of this Agreement shall be deemed to confer upon any other party any remedy, claim, liability, reimbursement, cause of action or other right.

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Section 4.13No Presumption Against Drafter. Each of the parties hereto have jointly participated in the negotiation and drafting of this Agreement.  In the event of an ambiguity or if a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by each of the parties hereto and no presumptions or burdens of proof shall arise favoring any party by virtue of the authorship of any of the provisions of this Agreement. 

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the undersigned has executed this Second Amended and Restated Registration Rights and Lock-Up Agreement as of the date and year first above written.

InfraReit, inc.
a Maryland corporation
By:	/s/ Benjamin D. Nelson
Name:	Benjamin D. Nelson
Title:	Senior Vice President and General Counsel

[Signature Page to Second Amended and Restated Registration Rights and Lock-Up Agreement]

IN WITNESS WHEREOF, the undersigned has executed the Second Amended and Restated Registration Rights and Lock-Up Agreement with InfraREIT, Inc. as of the date and year first above written.

John hancock life insurance company (u.s.a.)
By:	/s/ Scott Kushner
Name:	Scott Kushner
Title:	Director

[Signature Page to Second Amended and Restated Registration Rights and Lock-Up Agreement]

IN WITNESS WHEREOF, the undersigned has executed the Second Amended and Restated Registration Rights and Lock-Up Agreement with InfraREIT, Inc. as of the date and year first above written.

optrust n.a. holdings trust, by its trustee computershare trust company of canada
By:	/s/ Soheil Kafai
Name:	Soheil Kafai
Title:	Corporate Trust Officer
By:	/s/ Scott Markham
Name:	Scott Markham
Title:	Manager, Corporate Trust

[Signature Page to Second Amended and Restated Registration Rights and Lock-Up Agreement]

IN WITNESS WHEREOF, the undersigned has executed the Second Amended and Restated Registration Rights and Lock-Up Agreement with InfraREIT, Inc. as of the date and year first above written.

teachers insurance and annuity association of america
By:	/s/ Mario V. Maselli
Name:	Mario V. Maselli
Title:	Senior Director

[Signature Page to Second Amended and Restated Registration Rights and Lock-Up Agreement]

IN WITNESS WHEREOF, the undersigned has executed the Second Amended and Restated Registration Rights and Lock-Up Agreement with InfraREIT, Inc. as of the date and year first above written.

MARUBENI CORPORATION
By:	/s/ Takashi Fujinaga
Name:	Takashi Fujinaga
Title:	General Manager, Overseas Power Project Dep.-III
MC TRANSMISSION HOLDINGS, INC.
By:	/s/ Takashi Fujinaga
Name:	Takashi Fujinaga
Title:	President

[Signature Page to Second Amended and Restated Registration Rights and Lock-Up Agreement]

IN WITNESS WHEREOF, the undersigned has executed the Second Amended and Restated Registration Rights and Lock-Up Agreement with InfraREIT, Inc. as of the date and year first above written.

hunt transmission services, l.l.c.
By:	/s/ David Hernandez
Name:	David Hernandez
Title:
electricity participant partnership, llc
By:	/s/ David Hernandez
Name:	David Hernandez
Title:

[Signature Page to Second Amended and Restated Registration Rights and Lock-Up Agreement]

Schedule A

Holders

John Hancock Life Insurance Company (U.S.A.)

Marubeni Corporation

MC Transmission Holdings, Inc.

OPTrust N.A. Holdings Trust

Teachers Insurance and Annuity Association of America

Hunt Transmission Services, L.L.C.

Electricity Participant Partnership, LLC

The names of other individuals on file with the Company

Schedule A

EXHIBIT A

infrareit, inc.
FORM OF NOTICE AND QUESTIONNAIRE

The undersigned beneficial holder of shares of Common Stock, par value $0.01 per share (“Common Shares”), of InfraREIT, Inc. (the “Company”) and/or units of limited partnership interests (“Partnership Units” and, together with the Common Shares, the “Registrable Securities”) of InfraREIT Partners, L.P. (the “Operating Partnership”), understands that the Company has filed or intends to file with the Securities and Exchange Commission one or more registration statements (collectively, the “Shelf Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities in accordance with the terms of the Second Amended and Restated Registration Rights and Lock-Up Agreement (the “Registration Rights Agreement”), dated March 1, 2016, among the Company and the holders listed on Schedule A thereto.  A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below.  All capitalized terms not otherwise defined herein shall have the meanings set forth in the Registration Rights Agreement.

Each beneficial owner of Registrable Securities is entitled to the benefits of the Registration Rights Agreement.  To be included in a Shelf Registration Statement, this Notice and Questionnaire must be completed, executed and delivered to the Company at the address set forth herein as promptly as practicable after receipt of this request, but in no event later than twenty (20) Business Days thereafter.  We will give notice of the filing and effectiveness of the Shelf Registration Statement by issuing a press release and by mailing a notice to the holders of Registrable Securities at their addresses set forth in the register of the registrar.

Beneficial owners that do not complete this Notice and Questionnaire and deliver it to the Company as provided below will not be named as selling security holders in the prospectus and therefore will not be permitted to acquire and/or sell any Registrable Securities pursuant to the Shelf Registration Statement.  Beneficial owners are encouraged to complete and deliver this Notice and Questionnaire prior to the effectiveness of the Shelf Registration Statement so that such beneficial owners may be named as selling security holders in the related prospectus at the time of effectiveness.  Upon receipt of a completed Notice and Questionnaire from a beneficial owner following the effectiveness of the Shelf Registration Statement, in accordance with the Registration Rights Agreement, the Company will file such amendments to the Shelf Registration Statement or additional shelf registration statements or supplements to the related prospectus as are necessary to permit such holder to deliver such prospectus to purchasers of Registrable Securities.

Certain legal consequences arise from being named as selling security holders in a Shelf Registration Statement and the related prospectus.  Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling security holder in a Shelf Registration Statement and the related prospectus.

Exhibit A-1

NOTICE

The undersigned beneficial owner (the “Selling Security Holder”) of Registrable Securities hereby elects to include in the prospectus forming a part of the Shelf Registration Statement the Registrable Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under Item 3).  The undersigned, by signing and returning this Notice and Questionnaire, understands that it will be bound by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement.

The undersigned hereby provides the following information to the Company and represents and warrants to the Company that such information is accurate and complete:

QUESTIONNAIRE

1.	(a)       Full Legal Name of Selling Security Holder: ______________________________________________________________
	(b)       Full Legal Name of registered holder (if not the same as (a) above) through which Registrable Securities listed in Item (3) below are held: ______________________________________________________________
	(c)       Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) through which Registrable Securities listed in Item (3) below are held: _______________________________________________________________
	(d)       List below the individual or individuals who exercise voting and/or dispositive powers with respect to the Registrable Securities listed in Item (3) below: _______________________________________________________________
2.	Address for Notices to Selling Security Holder: ____________________________________________________________________ ____________________________________________________________________ Telephone: __________________________________________________________ Fax: ______________________________________________________________ E-mail address:  _____________________________________________________ Contact Person:______________________________________________________
3.	Beneficial Ownership of Registrable Securities: Type of Registrable Securities beneficially owned, and number of Common Shares and/or Partnership Units, as the case may be, beneficially owned: ____________________________________________________________________

Exhibit A-2

4.	Beneficial Ownership of Securities of the Company Owned by the Selling Security Holder: Except as set forth below in this Item (4), the undersigned is not the beneficial or registered owner of any securities of the Company, other than the Registrable Securities listed above in Item (3). Type and amount of other securities beneficially owned by the Selling Security Holder: ____________________________________________________________________
5.	Broker-Dealer Status: (a)       Is the Selling Security Holder a broker-dealer? Yes ____      No ____ (b)       If the Selling Security Holder is a broker-dealer, did the Selling Security Holder receive the Registrable Securities as compensation for investment banking services to the Company? Yes ____      No ____ Note:  If “yes” to Question 5(b), the Commission’s staff has indicated that the Selling Security Holder should be identified as an underwriter in the Registration Statement and related prospectus. (c)       Is the Selling Security Holder an affiliate of a broker-dealer? Yes ____      No ____ (d)       If the Selling Stockholder is an affiliate of a broker-dealer, does the Selling Security Holder certify that it purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be sold, the Selling Security Holder had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities? Yes ____      No ____ Note:  If “no” to Question 5(d), the Commission’s staff has indicated that the Selling Stockholder should be identified as an underwriter in the Registration Statement and related prospectus.
6.	Relationship with the Company Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years. State any exceptions here: ____________________________________________________________________ ____________________________________________________________________

Exhibit A-3

7.	Plan of Distribution Except as set forth below, the undersigned (including its donees or pledgees) intends to distribute the Registrable Securities listed above in Item (3) pursuant to the Shelf Registration Statement only as follows and will not be offering any of such Registrable Securities pursuant to an agreement, arrangement or understanding entered into with a broker or dealer prior to the effective date of the Shelf Registration Statement. Such Registrable Securities may be sold from time to time directly by the undersigned or, alternatively, through underwriters or broker-dealers or agents. If the Registrable Securities are sold through underwriters or broker-dealers, the Selling Security Holder will be responsible for underwriting discounts or commissions or agent’s commissions. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions):
	(i)       on any national securities exchange or quotation service on which the Registrable Securities may be listed or quoted at the time of sale; (ii)       in the over-the-counter market; (iii)       in transactions other than on such exchanges or services or in the over-the-counter market; or (iv)       through the writing of options. In connection with sales of the Registrable Securities or otherwise, the undersigned may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities. State any exceptions here: ____________________________________________________________________ ____________________________________________________________________
Note:     In no event may such method(s) of distribution take the form of an underwritten offering of the Registrable Securities without the prior written agreement of the Company.

Exhibit A-4

ACKNOWLEDGEMENTS

The undersigned acknowledges that it understands its obligation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and the rules thereunder relating to stock manipulation, particularly Regulation M thereunder (or any successor rules or regulations), in connection with any offering of Registrable Securities pursuant to the Registration Rights Agreement.  The undersigned agrees that neither it nor any person acting on its behalf will engage in any transaction in violation of such provisions.

The Selling Security Holder hereby acknowledges its obligations under the Registration Rights Agreement to indemnify and hold harmless certain persons as and to the extent provided therein.  Pursuant to the Registration Rights Agreement, the Company has agreed under certain circumstances to indemnify the Selling Security Holders against certain liabilities.

In accordance with the undersigned’s obligation under the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the applicable Shelf Registration Statement remains effective.  All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing at the address set forth below.

In the event that the undersigned transfers all or any portion of the Registrable Securities listed in Item 3 above after the date on which such information is provided to the Company, the undersigned agrees to notify the transferee(s) at the time of transfer of its rights and obligations under this Notice and Questionnaire and the Registration Rights Agreement.

By signing this Notice and Questionnaire, the undersigned consents to the disclosure of the information contained herein in its answers to Items (1) through (7) above and the inclusion of such information in the applicable Shelf Registration Statement and the related prospectus.  The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the applicable Shelf Registration Statement and the related prospectus.

Once this Notice and Questionnaire is executed by the Selling Security Holder and received by the Company, the terms of this Notice and Questionnaire and the representations and warranties contained herein shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives and assigns of the Company and the Selling Security Holder with respect to the Registrable Securities beneficially owned by such Selling Security Holder and listed in Item 3 above.

This Notice and Questionnaire shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the principles of conflicts of law.

Exhibit A-5

IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

Beneficial Owner
By
	Name:
	Title:

Dated:

Please return the completed and executed Notice and Questionnaire to:

InfraREIT, Inc.

1807 Ross Avenue, 4th Floor
Dallas, Texas 75201
Attention: General Counsel

Exhibit A-6

EX-10.48

Exhibit 10.48

INFRAREIT, INC.

2015 EQUITY INCENTIVE PLAN

STOCK UNIT AGREEMENT

InfraREIT, Inc., a Maryland corporation (the “Company”), hereby grants Stock Units denominated in shares of its common stock, par value $0.01 (this “Award”) to the Grantee named below, subject to the transfer restrictions, vesting and other conditions set forth below. Additional terms and conditions of this Award are set forth in this cover sheet and in the attachment (collectively, this “Agreement”) and in the Company’s 2015 Equity Incentive Plan (as amended from time to time, the “Plan”).

Name of Grantee:	[NAME OF GRANTEE]
Number of Stock Units:	The number of shares issued shall be determined by dividing $80,000 by the volume-weighted price of Company shares on the New York Stock Exchange during the fifteen (15) consecutive trading days prior to January 1.
Grant Date:	[INSTERT DATE]

Vesting Schedule: The Stock Units shall vest on each vesting date set forth below:

· 100% of the Stock Units shall vest on the first anniversary of the Grant Date as long as you continue in Service on such anniversary date

By your signature below, you agree to all of the terms and conditions described herein, in the attached Agreement and in the Plan, a copy of which is also attached. You acknowledge that you have carefully reviewed the Plan and this Agreement, and agree that the Plan will control in the event any provision of this Agreement should appear to be inconsistent.

Grantee		Date:
	(Signature)

Company:		Date:
	(Signature)

Name:

Title:

Attachment

This is not a stock certificate or a negotiable instrument.

INFRAREIT, INC.

2015 EQUITY INCENTIVE PLAN

FORM OF STOCK UNIT AGREEMENT

Stock Units	This Agreement evidences an award of Stock Units in the number set forth on the cover sheet and subject to the vesting and other conditions set forth herein, in the Plan and on the cover sheet (the “Stock Units”).
Transfer of Stock Units	The Stock Units may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of, whether by operation of law or otherwise, nor may the Stock Units be made subject to execution, attachment or similar process.  If you attempt to do any of these things, the Stock Units may, in the sole discretion of the Committee, or if applicable, the Board, if awarded to a Committee member (collectively, the “Administrator”), immediately become forfeited.  Upon vesting of the Stock Units and issuance of the related shares of Stock, these restrictions on transfer will terminate, and such shares will be freely transferable, subject to applicable securities laws and Company policies.
Issuance and Vesting of Stock Units; Issuance of Shares of Stock	The Company will issue your Stock Units in the name set forth on the cover sheet.  The Stock Units shall be in the form of bookkeeping entries representing the right to receive one share of Stock upon vesting and settlement of each Stock Unit.
	Your rights under the Stock Units and this Agreement shall vest in accordance with the vesting schedule set forth on the cover sheet, so long as you continue in Service on the vesting date(s) set forth on the cover sheet.
	Notwithstanding your vesting schedule, the Stock Units will become 100% vested upon your termination of Service due to your death or Disability (as determined by the Administrator).  In the event you cease to be a director of the Company for any other reason, you will forfeit the Stock Units included herein, unless such termination occurs in connection with a Change in Control in which the vesting of the Stock Units is accelerated, with such Change in Control determination to be made by the Administrator. One share of Stock will be issued for each Stock Unit that vests, as provided in Section 10.8 of the Plan.
Change in Control	Notwithstanding the vesting schedule set forth above or any provision in the Plan to the contrary, upon the consummation of a Change in Control, the Stock Units will become 100% vested in all circumstances.
Evidence of Issuance	The issuance of shares of Stock delivered in settlement of the Stock Units evidenced by this Agreement shall be evidenced in such a manner as the Company, in its discretion, deems appropriate, including, without limitation, book-entry, direct registration or issuance of one or more stock certificates.  Any stock certificates or book entries shall bear or include such restrictive legends, if any, as the Administrator determines are necessary or appropriate to comply with securities law requirements.
Forfeiture of Unvested Stock Units	Unless the termination of your Service triggers accelerated vesting of your Stock Units or other treatment pursuant to the terms of this Agreement, the Plan, or any other written agreement between you and the Company or an Applicable Entity, you will automatically forfeit to the Company all of the unvested Stock Units in the event you are no longer providing Service, unless such termination occurs in connection with a Change in Control in which the vesting of the Stock Units is accelerated, with such determination to be made by the Administrator.

Withholding Taxes	You agree as a condition of this Award that you will make acceptable arrangements to pay any withholding or other taxes that may be due as a result of the vesting of the Stock Units or receipt of shares of Stock in settlement of such Stock Units.  In the event that the Applicable Entity determines that any federal, state, local or foreign tax or withholding payment is required relating to the vesting of the Stock Units or receipt of shares of Stock arising from this Award, the Applicable Entity shall have the right to require such payments from you, or withhold such amounts from other payments due to you from the Applicable Entity (including withholding the delivery of shares of Stock otherwise deliverable under this Agreement).
Retention Rights	This Agreement and Award evidenced hereby do not give you the right to be retained in the Service of the Company or Applicable Entity, as applicable, in any capacity. Unless otherwise specified in a Service agreement or other written agreement between you and the Company or Applicable Entity, as applicable, the Company or Applicable Entity, as applicable, reserves the right to terminate your Service at any time and for any reason.
No Stockholder Rights; Dividend Equivalent Rights	The holding of the Stock Units will not entitle you to any of the rights of a holder of shares of Stock, including any right to receive any dividends payable to holders of shares of Stock or vote at any meeting of stockholders.  However, for each record date with respect to dividends payable on shares of Stock on which you hold the Stock Units, you will be entitled, as of the payment date of such dividend, to receive an amount for each Stock Unit you held on such record date equal to the amount of dividend payable on one share of Stock (a “Dividend Equivalent Right”) (provided, that, in no event will any Dividend Equivalent Rights be paid with respect to any Stock Unit that is forfeited on or prior to the payment date of such dividend).
Changes in Capitalization	Your Award shall be subject to adjustment as provided in Section 18 of the Plan including the terms of any applicable agreement of merger, liquidation or reorganization in the event of any changes in the Company’s capitalization or reorganization.
Clawback	This Award is subject to mandatory repayment by you to the Company to the extent you are, or in the future become, subject to any Company “clawback” or recoupment policy the terms or requirements of which require the repayment by you to the Company of compensation paid by the Company to you.
Applicable Law	This Agreement will be interpreted and enforced under the laws of the State of Maryland, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.
The Plan	The text of the Plan is incorporated in this Agreement by reference.
	Certain capitalized terms used in this Agreement are defined in the Plan, and have the meaning set forth in the Plan.
	This Agreement and the Plan constitute the entire understanding between you and the Company regarding this Award.  Any prior agreements, commitments or negotiations concerning this Award are superseded; except that any written Service, confidentiality, non-competition, non-solicitation and/or severance agreement between you and any Applicable Entity shall supersede this Agreement with respect to its subject matter.
Data Privacy	In order to administer the Plan, the Company may process personal data about you.  Such data includes, but is not limited to, information provided in this Agreement and any changes thereto, other appropriate personal and financial data about you such as your contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan.
	By accepting this Award, you give explicit consent to the Company to process any such personal data.
Code Section 409A	It is intended that this Award comply with Code Section 409A or an exemption to Code Section 409A, and it shall be interpreted, to the extent possible, to give effect to such intent.

By signing this Agreement, you agree to all of the terms and conditions described herein and in the Plan.

EX-10.49

Exhibit 10.49

INFRAREIT PARTNERS, LP
LTIP UNIT AWARD AGREEMENT

PURSUANT TO INFRAREIT, INC.

2015 EQUITY INCENTIVE PLAN

This Agreement (this “Award Agreement”) is entered into on [INSERT DATE] (the “Grant Date”) by and between InfraREIT Partners, LP a Delaware limited partnership (the “Partnership”), and [Insert the Name of Participant] (the “Participant Interest Holder”).  Capitalized terms used herein and not otherwise defined in Annex A hereto shall have the meanings set forth in the Third Amended and Restated Agreement of the Partnership (the “Partnership Agreement,”effective March 10, 2015, and as such Partnership Agreement may be amended from time to time pursuant to its terms).  

WHEREAS, the Participant Interest Holder desires to acquire LTIP Units in the Partnership, each of which shall represent the right to one of the Partnership’s Common Units, as described in the Partnership Agreement, subject to the terms and conditions described in this Award Agreement, the InfraREIT, Inc. 2015 Equity Incentive Plan (the “Plan”) and the Partnership Agreement, each as in effect on the date of this Award Agreement, (collectively, the “Operative Documents”), and the Partnership desires to issue such LTIP Units to the Participant Interest Holder and to admit such individual as a holder of a Partnership Unit in the Partnership, subject to the terms of this Award Agreement and the Partnership Agreement; and  

WHEREAS, this Award Agreement is being entered into and granted pursuant to the Plan.

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Grant of LTIP Units.  Subject to the provisions of the Operative Documents, the Partnership hereby grants and awards to the Participant Interest Holder the LTIP Units set forth on Annex B hereto.

2.Terms of the LTIP Units.  The specific terms and conditions applicable to the LTIP Units are set forth in the Operative Documents.  

3.Characterization as Profits Interests.  The LTIP Units granted hereunder are, as further described in the Partnership Agreement, intended to qualify as “profits interests” under IRS Revenue Procedures 93-27 and 2001-43.

4.Distributions with respect to LTIP Units.  Distributions with respect to the LTIP Units granted hereunder shall be made by the Partnership at such times and in such manner as is set forth in Sections 4.4.C and D of the Partnership Agreement.  In this regard, (i) subject to clause (ii) below, distributions pursuant to Sections 4.4.C and D of the Partnership Agreement shall be made as if the LTIP Units granted hereunder were fully vested on the date of grant, and (ii) no distributions shall be made pursuant to Sections 4.4.C and D of the Partnership Agreement in respect of any portion of the LTIP Units granted hereunder that has been forfeited pursuant this Agreement or the Partnership Agreement, on or after the date of such forfeiture.

5.Recordkeeping and Notice.  The General Partner shall maintain, or cause to be maintained, books and records sufficient to establish and calculate all amounts necessary or advisable in documenting the LTIP Units granted hereunder.  Except as otherwise required pursuant to the Partnership Agreement or Applicable Law, neither Participant Interest Holder nor any other Person interested hereunder shall have any right to inspect, examine or review the books and records that are maintained by the General Partner or the consulting firm (which consulting firm may include the Accountants).

6.Vesting and Forfeiture.  The LTIP Units granted hereunder shall vest pursuant to the schedule set forth in Annex B hereto.  Notwithstanding anything else set forth herein to the contrary, upon the Participant Interest Holder’s Termination of Service for any reason, the Partnership shall have the right, at any time, to cause the Participant Interest Holder to take all required actions under the Partnership Agreement to elect to redeem the LTIP Units that are or otherwise become vested pursuant to this Section 6.  

7.Representations and Warranties.  The Participant Interest Holder hereby represents and warrants to the Partnership, its General Partner (and the officers thereof) and other Partners as follows and acknowledges that the Partnership, its General Partner (and the officers thereof) and other Partners will rely on such representations and warranties:

(a)The Participant Interest Holder is acquiring the LTIP Units for investment purposes only and does not intend to assign, resell or subdivide the LTIP Units, other than as permitted under the Partnership Agreement.  

(b)The Participant Interest Holder has the power and authority to enter into this Award Agreement and the Partnership Agreement and to accept the LTIP Units and perform his or her obligations thereunder. 

(c)The execution and delivery of this Award Agreement and the Partnership Agreement and the performance of the Participant Interest Holder’s obligations hereunder and thereunder will not conflict with any other agreement or arrangement to which the Participant Interest Holder is a party, or by which his or her assets are bound.

(d)The Participant Interest Holder has received and read the Operative Documents and has had the opportunity to discuss with his or her advisers the terms and conditions to which the Participant Interest Holder is subject.  The Participant Interest Holder and his or her advisers have been given the opportunity to ask questions of, and receive answers from, the General Partner and representatives of the Partnership concerning the Partnership and the LTIP Units.

8.Recoupment Acknowledgment.  The Participant Interest Holder acknowledges that the recoupment and clawback provisions in Section 3.3 of the Plan shall apply with respect to the grant of LTIP Units hereunder.  

9.Execution of Partnership Agreement.  The Participant Interest Holder, as a condition to receipt of the LTIP Units and to the effectiveness of this Award Agreement, has contemporaneously executed the Partnership Agreement.

10.Tax Withholding; Returns and Extensions.

(a)Withholding.  The Partnership intends, and will use its reasonable efforts, to classify the Participant Interest Holder as a “partner” for applicable tax purposes in respect of his or her LTIP Units.  In the event the Participant Interest Holder becomes subject to tax withholding on the LTIP Units, (i) the Participant Interest Holder agrees to make appropriate arrangements with the Partnership for satisfaction of any applicable federal, state or local income tax, payroll taxes, withholding requirements or like requirements, or other settlement in respect of, the LTIP Units, and (ii) the Partnership shall be authorized to take such action as it shall determine (including, without limitation, withholding or causing to be withheld amounts from any distributions by the Partnership, or any compensation or other amount owing from any member of the Partnership Group to the Participant Interest Holder) to satisfy all obligations for the payment of such taxes.  If and to the extent that the Partnership shall be required to withhold or pay any taxes with respect to amounts allocated or distributed to the Participant Interest Holder, the Participant Interest Holder shall be deemed for all purposes of this Award Agreement and the Partnership Agreement to have received a distribution from the Partnership at the time that such withholding or other tax is required to be paid and any such deemed distribution shall be credited/offset against and, thus, shall reduce, amounts otherwise subsequently distributable to the Participant Interest Holder pursuant to the Partnership Agreement or this Award Agreement.  If any amount of any such withholding taxes paid by the Partnership with respect to the Participant Interest Holder exceeds the amounts then distributable to the Participant Interest Holder by the Partnership, such excess shall be paid by the Participant Interest Holder to the Partnership as soon as practicable upon demand of the Partnership and subject to Applicable Law, and any amounts not so paid within thirty (30) days of such demand, shall bear interest at a rate of 18% per annum (or, if less, the maximum rate permissible under Applicable Law), compounded monthly, until repaid (and any such unpaid interest may, at the Partnership’s election, be offset as provided in the immediately preceding sentence).    

(b)Tax Returns and Extensions.  The Participant Interest Holder understands that the Partnership may often be unable to provide a final Schedule K-1 for any given year until after April 15 of the following year and that the Schedule K-1 may significantly complicate the preparation of her tax return.  Accordingly, the Participant Interest Holder may be required to obtain an extension of the filing date for her income tax returns.  Such Schedule K-1 may include long-term capital gain, short-term capital gain, dividends, ordinary income and/or other types of income, deduction and credit.  The Partnership shall use reasonable efforts to provide the Participant Interest Holder with such information as it has available to enable the Participant Interest Holder to timely pay an estimate of her applicable tax liabilities on or before the date such tax is due (without late payment penalty or interest on such amount).

11.Miscellaneous.

(a)Governing Law.  Notwithstanding the place where this Award Agreement may be executed by any of the parties hereto, the parties expressly agree that all the terms and provisions hereof shall be governed by, construed under and interpreted in accordance with the laws of the State of Delaware, without regard to its conflicts of laws rules.

(b)Forum Selection; Waiver OF Objection to Venue.  THE PARTIES agree that they will submit to the jurisdiction of any federal or state court in the County of dALLAS, State of TEXAS having subject matter jurisdiction over any action, suit or proceeding arisinG out of, connected with, related to, or incidental to the relationship between them in connection with THE OPERATIVE DOCUMENTS, and irrevocably waive any

objection THAT they MAY now or hereafter have to the laying of jurisdiction or venue in such courts and waive any claim that any such action, suit or proceeding brought in any such court has been brought in an inconvenient or improper forum.  The PARTIES agree that any action, SUIT or proceeding arising out of, connected with, related to, or incidental to the relationship between them in connection with THE OPERATIVE DOCUMENTS shall be instituted in the United States District Court for the Northern District of TEXAS - Dallas division, SO LONG AS SUCH COURT HAS SUBJECT MATTER JURISDICTION.  If subject matter jurisdiction does not lie in federal court, then any such action, SUIT or proceeding SHALL instead be instituted in any texas state district court located in the County of dALLAS, State of TEXAS.  If subject matter jurisdiction does not lie in either federal court or STATE COURT, then any such action, SUIT or proceeding Shall instead be instituted in any other court having subject matter jurisdiction and located in the County of DALLAS, State of TEXAS. 

(c)Waiver of jury trial.  to the extent permitted by applicable law, each party waives any right to have a jury participate in resolving any dispute whether sounding in contract, tort, or otherwise, between the parties hereto arising out of, connected with, related to, or incidental to the relationship between them in connection with THE OPERATIVE DOCUMENTS.  instead, any such dispute SHALL BE resolved in court in a bench trial without a jury.

(d)Headings.  The captions and titles preceding the text of each section hereof shall be disregarded in the construction of this Award Agreement.

(e)Severability.  To the extent any portion of this Award Agreement or any portion of any provision of this Award Agreement is held to be invalid, void or unenforceable by a court of competent jurisdiction, such court shall substitute a valid, enforceable provision that preserves, to the maximum lawful extent, the terms and intent of this Award Agreement.

(f)No Right to Continued Service.  Nothing in this Award Agreement shall confer upon the Participant Interest Holder any right to continue in the service (or other employment) in respect of the Partnership or any Affiliate thereof or shall interfere with or restrict in any way the rights that any member of the Partnership Group may have, which are hereby expressly reserved, to remove, terminate or discharge the Participant Interest Holder as a service provider (or as an employee) at any time for any reason whatsoever, with or without Cause.

(g)Successors.  The terms of this Award Agreement shall be binding upon and inure to the benefit of the Partnership, its successors and permitted assigns, and of the Participant Interest Holder and the executors, personal representatives, administrators, heirs and permitted assigns of the Participant Interest Holder; provided, however, that the Participant Interest Holder’s ability to sell, assign, pledge, or otherwise transfer his or her rights under this Award Agreement or the Partnership Agreement shall be limited as provided in Article XI of the Partnership Agreement.

(h)Spousal Rights and Conditions.  No grant of LTIP Units shall be effective, if the Participant Interest Holder is legally married as of the Grant Date, until his or her spouse has validly executed the Spousal Consent portion of this Award Agreement set forth in Annex C hereto.  If the Participant Interest Holder is or shall become domiciled in a community property state or a state that has adopted the Uniform Marital Property Act or equivalent or if the Participant Interest Holder is or shall be domiciled in a state that grants to a spouse any other marital rights in the Participant Interest Holder’s assets (including, without limitation, dower rights or a right to elect against the Participant Interest Holder’s will or to claim a forced share of the Participant Interest Holder’s estate), this Award Agreement shall also inure to the benefit of, and shall also be binding upon, such spouse and spouse’s heirs, devisees, legatees, executors, administrators, successors, and legal representatives to the extent of such spouse’s interest in the LTIP Units or any other right or interest of the Participant Interest Holder.  The Participant Interest Holder hereby agrees and covenants that, if he or she legally marries any Person after the Grant Date, the Participant Interest Holder shall deliver to the General Partner as soon as practicable thereafter a Spousal Consent (in the form of the Spousal Consent portion of this Award Agreement set forth in Annex C) executed by such Person.

(i)Waiver.  No breach by a party of any provision of this Award Agreement shall be waived or discharged except with the express written consent of the other party.  A waiver of any term or provision of, or consent granted under, this Award Agreement shall be effective only if given in writing and signed by the waiving or consenting party and then only in the instance and for the purpose for which it is given.  No failure or delay on the part of any party in exercising any right, power or privilege under this Award Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  Notwithstanding anything to the contrary in this Award Agreement, no party shall be deemed to waive any rights that such person is not permitted to waive as a matter of law.

(j)Interpretations of Award Agreement.  Notwithstanding any provision in this Award Agreement or the Partnership Agreement to the contrary, the General Partner may correct any defect or supply any omission or interpretation, or reconcile any inconsistency, in or with respect to this Award Agreement and, when applicable, the Partnership Agreement in the manner and to the extent the General Partner shall deem expedient to carry the purpose of this Award Agreement into effect, and the General Partner shall be the sole and final judge of such expediency.  The determination of the General Partner on the matters referred to in this Section 11(j) shall be final and conclusive on the Participant Interest Holder and other Persons interested hereunder and shall not be subject to challenge by the Participant Interest Holder or other Person. 

(k)Exoneration for Good Faith Determinations.  Neither the General Partner, its delegate nor any Affiliate of the General Partner shall be liable, with respect to this Award Agreement or the Partnership Agreement, as applicable, for any determination or act whether of commission or omission made or taken in good faith by the General Partner, or any officer, agent or employee of the General Partner or any of its Affiliates.

(l)Entire Agreement.  The Operative Documents contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supersede all prior communications, representations and negotiations in respect thereto.  In the event of any conflict between the terms of this Award Agreement and the Partnership Agreement, the Partnership Agreement will control.  In the event of any conflict between this Award Agreement and the Plan, this Award Agreement will control.

(m)Amendment.  The General Partner may, from time to time, amend or modify, in whole or in part, any or all of the provisions of this Award Agreement; provided, however, that no amendment or modification shall adversely affect any right or benefit of the Participant Interest Holder without his or her prior written consent; provided, further, that an amendment or modification shall not be deemed to adversely affect any right or benefit of the Participant Interest Holder if such amendment or modification provides for the Participant Interest Holder to receive a substituted award or amount with substantially similar economic value as the LTIP Units granted hereunder has (as of such time) pursuant to the terms hereof.  In addition, no amendment or modification to this Award Agreement shall be effective unless such amendment or modification is approved by the General Partner.  

(n)Counterparts.  This Award Agreement may be executed in counterparts, each of which shall be an original hereof and all of which shall constitute one and the same instrument.

(o)No Third Party Beneficiaries.  Except as explicitly provided in this Section 11(o), there shall be no third party beneficiaries of this Award Agreement.  The parties acknowledge and agree that the Affiliates of the Partnership are not parties to this Award Agreement, but are intended as third party beneficiaries of Sections 11(a - c) and (f).  The members of the Partnership Group shall be permitted to enforce their rights as such thereunder.

(p)Notices.  All notices, offers or other communications required or permitted to be given pursuant to this Agreement shall be in writing and may be personally served, sent via facsimile or sent by United States mail or by commercial courier and shall be deemed to have been given when received at the address for the receiving party set forth in the Partnership’s records.  For purposes of this Section 11(p), the addresses of the parties hereto shall be as set forth below their name on a signature page hereof.  The address of any party hereto may be changed by a notice in writing given in accordance with the provisions of this Section 11(p).

IN WITNESS WHEREOF, this Award Agreement has been duly executed on the date first written above.

iNFRAREIT PARTNERS, LP

By:

Name:

Title:

Address:
	President and Chief Executive Officer
	Hunt Utility Services, LLC
	1807 Ross Avenue, 4th Floor
	Dallas, TX 75201
	Facsimile:  972-855-6701

With a copy to:
	General Counsel
	Hunt Utility Services, LLC
	1807 Ross Avenue, 4th Floor
	Dallas, TX 75201
	Facsimile:  972-855-6701

PARTICIPANT INTEREST HOLDER

Name:

Address:

[Signature Page to LTIP Unit Award Agreement]

ANNEX A

For purposes of this Award Agreement:

“Award Agreement” shall have the meaning ascribed thereto in the introductory paragraph of this Award Agreement.

“Change in Control” shall have the meaning ascribed thereto in the Plan.

“Grant Date” shall have the meaning ascribed thereto in the introductory paragraph of this Award Agreement.

“Operative Documents” shall have the meaning ascribed thereto in the recitals of this Award Agreement.

“Participant Interest Holder” shall have the meaning ascribed thereto in the introductory paragraph of this Award Agreement.

“Partnership” shall have the meaning ascribed thereto in the introductory paragraph of this Award Agreement.

“Partnership Agreement” shall have the meaning ascribed thereto in the introductory paragraph of this Award Agreement.

“Partnership Group” means the Partnership or any Affiliate thereof.  For the avoidance of doubt, the Participant Interest Holder shall not be deemed to be part of the Partnership Group.

“Person” means any individual, government or any agency or political subdivision thereof or any Entity.

“Plan” shall have the meaning ascribed thereto in the recitals of this Award Agreement.

“Proceeding” means any lawsuit or arbitration, in any forum whatsoever.

“Spousal Consent” means the consent provided by the Participant Interest Holder’s spouse with respect to the LTIP Units granted hereunder pursuant to the form attached hereto in Annex C.  

“Termination of Service” means the termination of the Participant Interest Holder’s status as a director of InfraREIT Inc. for any reason.  Notwithstanding the foregoing, an event shall constitute a Termination of Service only to the extent it constitutes a “separation from service” under section 409A(a)(2)(A)(i) of the Code pursuant to the guidance issued thereunder.

Annex A-1

ANNEX B

Grant and Terms of the LTIP Units
Number of LTIP Units Granted	●   The number of shares issued shall be determined by dividing $80,000 by the volume-weighted price of Company shares on the New York Stock Exchange during the fifteen (15) consecutive trading days prior to January 1.
Vesting	●   The LTIP Units granted hereunder will be 100% vested on the one year anniversary of the Grant Date, and except as otherwise provided herein, in the event you incur a Termination of Service prior to such anniversary date, the LTIP Units granted hereunder will be forfeited (unless such Termination of Service occurs in connection with a Change in Control in which the LTIP Units vesting is accelerated consistent with the terms below, with any such determination to be made by the “administrator” of the Plan). ●   Notwithstanding the above vesting schedule, the LTIP Units granted hereunder will become 100% vested upon your Termination of Service due to your death or “Disability” within the meaning of the Plan (with any such determinations of “Disability” made by the “administrator” of such Plan). ●   The provisions in Section 18 of the Plan regarding vesting upon a Change in Control of InfraREIT Inc. shall also apply to the LTIP Units granted hereunder, except that, upon the consummation of a Change in Control, the LTIP Units granted hereunder, unless previously forfeited, will become 100% vested in all circumstances.

Annex B -1

ANNEX C

PARTICIPANT INTEREST

AWARD AGREEMENT

of ____________, 201__

by and between

InfraREIT Partners, LP

and

[Insert the Name of Participant]

SPOUSAL CONSENT

The undersigned spouse (“Spouse”) of the Participant Interest Holder (“Participant”) who is a party to that certain Award Agreement described above (the “Agreement”), hereby acknowledges that the undersigned Spouse has read the Agreement in its entirety and that the undersigned Spouse is fully aware of and clearly understands that Participant has agreed to the terms and conditions of the Second Amended and Restated Agreement of InfraREIT Partners, LP, effective as of the time described in the Agreement (“Partnership Agreement”).  The undersigned Spouse desires to bind his or her community or other marital property interest (if any) in any and all benefits or interests conferred by the Agreement.

In consideration of these premises, the undersigned Spouse of Participant hereby expressly consents that Participant may execute the same and hereby expressly joins in, agrees to, accepts, and consents to all of the terms and conditions of the Agreement.  The undersigned Spouse hereby agrees to be bound by all of the terms and conditions of the Agreement that are or may be applicable to the undersigned Spouse or to awards of Participant in which the undersigned Spouse has or may have a community or other marital property interest, and to execute and deliver all other additional agreements, instruments, and documents and to perform such additional acts as may be necessary or appropriate to effectuate, comply with, or fulfill the terms, provisions, and purposes of the Agreement and the transactions contemplated thereby.  Any amendments to the Agreement or Partnership Agreement that are consented to by the Participant shall be binding upon the undersigned Spouse.

The undersigned Spouse hereby acknowledges and agrees that the termination of the marital relationship of Participant and the undersigned Spouse for any reason shall not have the effect of removing any award of LTIP Units otherwise subject to the Agreement and the Partnership Agreement from the coverage thereof and that the covenants made in the Agreement (INCLUDING, WITHOUT LIMITATION, THIS SPOUSAL CONSENT) shall be, and hereby are, accepted as binding on Spouse individually and upon all persons ever to claim under Spouse.  Nothing in the Agreement, the Partnership Agreement or this SPOUSAL CONSENT shall be construed to create in Spouse any rights or interests to which Spouse would not otherwise be entitled at law or in equity, nor is this SPOUSAL CONSENT intended to deprive Spouse of any rights that he or she may have under applicable marital property laws; however, no party to this Agreement shall be obliged to deal with Spouse directly and any such right of Spouse may be exercised only by or through Participant, and Spouse agrees that the Partnership and/or General Partner is/are entitled without restriction to deal with Participant for all purposes of the Agreement and Partnership Agreement and has/have no obligation whatsoever to Spouse.

IN WITNESS WHEREOF, the undersigned Spouse has duly executed this SPOUSAL CONSENT to the Agreement willingly and not under influence or duress on the _____ day of ______________, 20___, to be effective as of the date first above written.

Spouse of Participant

Annex C-1

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF REGISTRANT

Entity	Jurisdiction
InfraREIT Partners, LP	Delaware
Sharyland Distribution & Transmission Services, L.L.C.	Texas
Transmission and Distribution Company, L.L.C.	Texas

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 333-209584 and Form S-8 No. 333-208383) of InfraREIT Inc., our report dated March 3, 2016, with respect to the consolidated financial statements and schedule of InfraREIT, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2015.

Also, we consent to the incorporation by reference in the Registration Statements (Form S-3 No. 333-209584 and Form S-8 No. 333-208383) of InfraREIT, Inc. our report dated February 26, 2016, with respect to the consolidated financial statements of Sharyland Utilities, L.P. included in the Annual Report (Form 10-K) for the year ended December 31, 2015.

	\s\ Ernst & Young LLP
Dallas, Texas
March 3, 2016

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER

PURSUANT TO

EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David A. Campbell, certify that:

1. I have reviewed this Annual Report on Form 10-K of InfraREIT, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’ auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 3, 2016	/s/ David A. Campbell
	David A. Campbell
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brant Meleski, certify that:

1. I have reviewed this Annual Report on Form 10-K of InfraREIT, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 3, 2016	/s/ Brant Meleski
	Brant Meleski
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, David A. Campbell, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of InfraREIT, Inc. for the fiscal year ended December 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of InfraREIT, Inc.

Date: March 3, 2016	/s/ David A. Campbell
	David A. Campbell
	President and Chief Executive Officer
	(Principal Executive Officer)

The foregoing certification is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), and is not to be incorporated by reference into any filing of InfraREIT, Inc. under Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language of such filing.

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Brant Meleski, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of InfraREIT, Inc. for the fiscal year ended December 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of InfraREIT, Inc.

Date: March 3, 2016	/s/ Brant Meleski
	Brant Meleski
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

The foregoing certification is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), and is not to be incorporated by reference into any filing of InfraREIT, Inc. under Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language of such filing.

EX-99.1

Exhibit 99.1

SHARYLAND UTILITIES, L.P.

Consolidated Financial Statements

December 31, 2015 and 2014

(With Report of Independent Auditors Thereon)

AUDIT REPORT

Report of Independent Auditors

The Partners

Sharyland Utilities, L.P.

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of Sharyland Utilities, L.P. (the “Partnership”), which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of operations, partners' capital, and cash flows for the years then ended and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sharyland Utilities, L.P. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Dallas, Texas

February 26, 2016

SHARYLAND UTILITIES, L.P.

Consolidated Balance Sheets

(In thousands)

	December 31,
	2015		2014
Assets
Property, Plant and Equipment - net	$	1,608,648	$	1,230,171
Current Assets
Cash and cash equivalents		8,774		7,383
Accounts receivable, net		34,356		32,810
Due from affiliates		34,317		32,292
Prepayments and other current assets		1,713		1,695
Total current assets		79,160		74,180
Goodwill		1,100		1,100
Deferred Charges – Regulatory Assets, net		33,835		38,834
Total Assets	$	1,722,743	$	1,344,285
Partners' Capital and Liabilities
Partners' Capital
General partner	$	3	$	26
Limited partner		5,115		7,413
Total partners' capital		5,118		7,439
Long Term Financing Obligation		1,588,084		1,218,558
Regulatory Liabilities		5,940		3,505
OPEB and Other Liabilities		8,787		9,006
Total Capitalization		1,607,929		1,238,508
Commitments and Contingencies		1,163		—
Current Liabilities
Accounts payable and accrued liabilities		53,015		49,156
Current portion of financing obligation		32,006		32,480
Due to affiliates		27,085		21,999
Current state margin tax payable		1,545		2,142
Total current liabilities		113,651		105,777
Total Partners' Capital and Liabilities	$	1,722,743	$	1,344,285

See accompanying notes to the consolidated financial statements.

SHARYLAND UTILITIES, L.P.

ConsolidatedStatements of Operations

(In thousands)

	Years Ended
	December 31,
	2015			2014
Revenues	$	252,705		$	289,957
Operating Expenses
Purchased power		—			58,462
Distribution expense		28,844			25,970
Transmission expense		25,943			17,805
General and administrative expense		39,384			36,149
Depreciation and amortization		32,099			28,306
Total operating expenses		126,270			166,692
Operating Income		126,435			123,265
Other Expense - net
Interest expense, net		(128,562	)		(107,717	)
Other income	165			404
Tax reimbursements for contributions in aid of construction	973				1,734
Total other expense - net		(127,424	)		(105,579	)
Net (Loss) Income Before Income Taxes		(989	)		17,686
Income Tax Expense		1,332			1,971
Net (Loss) Income	$	(2,321	)	$	15,715

See accompanying notes to the consolidated financial statements.

SHARYLAND UTILITIES, L.P.

Consolidated Statements of Partners’ Capital (Deficit)

Years Ended December 31, 2015 and 2014

(In thousands)

							Total
	General			Limited			Partners' Capital
	Partner			Partner			(Deficit)
Balance at December 31, 2013	$	(131	)	$	(8,145	)	$	(8,276	)
Net Income	157				15,558			15,715
Balance at December 31, 2014	$	26			7,413			7,439
Net Loss		(23	)		(2,298	)		(2,321	)
Balance at December 31, 2015	$	3		$	5,115		$	5,118

See accompanying notes to the consolidated financial statements.

SHARYLAND UTILITIES, L.P.

Consolidated Statements of Cash Flows

(In thousands)

	Years Ended
	December 31,
	2015			2014
Cash Flows from Operating Activities
Net (loss) income	$	(2,321	)	$	15,715
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation		29,205			27,689
Amortization of deferred costs		2,894		617
Expensing of prior rate case costs (See note 5)		—		478
Changes in assets and liabilities:
Prepayments and other current assets		(18	)		(587	)
Accounts receivable		(1,546	)		(5,340	)
Due from affiliates		(2,025	)		(1,036	)
Accounts payable, accrued liabilities and other		4,803			1,565
Purchased power payable		—			(8,241	)
Due to affiliates		5,086			10,120
State margin tax payable		(597	)	827
Deferred charges - regulatory assets and liabilities		4,540			(3,910	)
Net cash provided by operating activities		40,021			37,897
Cash Flows from Investing Activities
Additions to general plant		(8,043	)		(4,137	)
Net cash used in investing activities		(8,043	)		(4,137	)
Cash Flows from Financing Activities
Proceeds from short-term borrowing		5,000			—
Proceeds from short-term borrowing from affiliates		10,000			—
Repayments of short-term borrowing		(5,000	)		—
Repayments of short-term borrowing to affiliates		(10,000	)		—
Repayments of financing obligation		(30,587	)		(34,756	)
Net cash used in financing activities		(30,587	)		(34,756	)
Net  increase (decrease) in cash and cash equivalents		1,391			(996	)
Cash and cash equivalents at beginning of period		7,383			8,379
Cash and Cash Equivalents at end of period	$	8,774		$	7,383
Supplemental disclosure of cash flow information
Cash paid for interest	$	124,083		$	97,156
Cash paid for margin taxes	$	1,970		$	1,142
Noncash change in regulatory pension costs	$	3,835		$	3,410
Noncash financing obligations incurred	$	399,639		$	177,504

See accompanying notes to the consolidated financial statements.

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements
December 31, 2015 and 2014

(1) Description of Business and Summary of Significant Accounting Policies 

(a) Description of Business

Sharyland Utilities, L.P. (the Partnership or SULP) is a regulated electricity transmission and distribution partnership engaged in providing delivery services to retail electric providers (REPs) serving over 53,000 electric delivery points in 29 counties throughout Texas. The Partnership’s customers are principally residential, commercial and irrigation customers located in the cities of Mission and McAllen, Texas, in the outlying areas of Hidalgo County in south Texas, in the Midland-Stanton area of west Texas, in the central Texas area around Brady, and in northeast Texas in Hunt, Collin and Fannin Counties.

The Partnership is also engaged in the transmission of electricity throughout Texas. Those transmission activities include: a 138 Kilovolt (kV) looped system 365 miles in length, through a 300 megawatt (MW) high-voltage direct current transmission interconnection between Texas and Mexico (Railroad DC Tie); and a 300 mile 345 kV transmission loop in the Texas Panhandle and South Plains near Amarillo, Texas.

The Partnership was organized as a Texas limited partnership on November 3, 1998, as an electrical distribution utility located in Hidalgo County, Texas. Effective May 8, 2015, SU FERC, L.L.C., the sole subsidiary of the Partnership was merged with and into SULP as approved by the PUCT pursuant to Docket No. 43589. Immediately following the merger of SU FERC, L.L.C. into SULP, the Partnership created a new wholly owned subsidiary, also named SU FERC, L.L.C.

The Partnership leases all of its transmission and distribution assets from a related party, Sharyland Distribution & Transmission Services, L.L.C. (SDTS) under a Master Lease Agreements. See Note 2.

(b) Principles of Consolidated and Presentation

All significant intercompany balances and transactions have been eliminated. The Partnership maintains accounting records in accordance with the uniform system of accounts, as prescribed by the Federal Energy Regulatory Commission (FERC). The Partnership’s consolidated financial statements reflect the effects of the different rate making principles mandated by the FERC and PUCT regulating its operations.

Certain reclassifications have been made to prior periods’ consolidated financial statements for comparative purposes. The Partnership changed its presentation in the Consolidated Balance Sheet as of December 31, 2014 by offsetting its transmission cost of service (TCOS) charged from other utilities from accounts payable and accrued liabilities to accounts receivable, net to conform with current presentation.

(c) Use of Estimates

The preparation of the Partnership’s consolidated financial statements in accordance with accounting principles generally accepted in the United States (GAAP) require management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.

(d) Regulatory

The Partnership accounts for their regulated operations in accordance with applicable regulatory accounting guidance under Accounting Standards Codification (ASC) Topic 980 – Regulated Operations. The economic effects of regulation can result in a regulated partnership recording assets for costs that have been or are expected to be approved for recovery from customers in a future period or recording liabilities for amounts that are expected to be returned to customers in the rate-making process in a period different from the period in which the amounts would be recorded by an unregulated enterprise. Accordingly, the Partnership records assets and liabilities that result from the regulated ratemaking process that would not be recorded under GAAP for non-regulated entities.

Regulatory assets and liabilities are amortized consistent with the treatment of the related cost in the ratemaking process. Management assesses whether regulatory assets are probable of future recovery by considering factors such as applicable regulatory changes, recent rate orders applicable to other regulated entities and the status of any pending or potential legislation. Additionally, management assesses whether any regulatory liabilities have been incurred. Management believes the existing regulatory assets are probable of recovery and that no other regulatory liabilities, other than those recorded, have been incurred. These regulatory assets and liabilities are primarily classified in the Consolidated Balance Sheets as deferred charges – regulated assets, net and regulatory liabilities, respectively.

(Continued)

2

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

The PUCT has designated certain tariffs such as Transmission Cost Recovery Factor (TCRF) and Energy Efficiency Cost Recovery Factor (EECRF) as reconcilable, which means the differences between amounts billed under these tariffs and the related incurred costs are, deferred as either a regulatory asset or liability. Accordingly, at prescribed intervals, future tariffs are adjusted to repay regulatory liabilities or collect the regulatory assets.

For regulatory purposes the operations of SULP and the assets of SDTS are viewed as one set for regulatory reporting. The Partnership cannot be removed from an operational capacity without prior approval from the PUCT.

(e) Cash and Cash Equivalents

The Partnership considers all short-term, highly liquid investments with original maturities of three months or less to be cash equivalents.

(f) Property, Plant, and Equipment - net

Property, plant and equipment is stated at the original cost of acquisition or construction, which may include the cost of contracted services, direct labor, materials, acquisition adjustments, capitalized interest and overhead items. The Partnership leases transmission and distribution assets from SDTS. See Note 2.

When property is retired, the cost of such property, less salvage, is removed from property, plant and equipment and charged to accumulated depreciation.

Maintenance and repairs are charged to expense. Betterments and improvements of assets subject to leases are billed to the lessor and reimbursed in accordance with the lease agreements. Betterments and improvements not subject to leases are capitalized. See Note 2 for more information.

As a result of the settlement of the Partnership’s rate case approved by the PUCT under Docket No. 41474, effective May 1, 2014, provision for depreciation on property plant and equipment is computed using composite straight-line rates as follows:

Transmission plant	1.29% — 2.16%
Distribution plant	1.56% — 4.97%
General plant	0.80% — 5.12%

(g) Impairment of Long-lived Assets

The Partnership evaluates impairment of its long-lived assets (including regulatory assets) and certain intangible assets annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss shall be recognized only if the carrying amount of a long-lived asset is not recoverable through the expected future cash flows. Regulatory assets are charged to expense in the period in which they are no longer probable of future recovery.

(h) Goodwill

Goodwill represents the excess of costs of an acquired business over the fair value of the assets acquired, less liabilities assumed. Goodwill is not amortized and it is tested for impairment annually or more frequently if events or changes in circumstances arise. As of December 31, 2015 and 2014, approximately $1.1 million of goodwill was recorded in the Partnership’s Consolidated Balance Sheets.

(i) Investments

The Partnership accounts for its investment in SDTS using the cost method. The Partnership has no value assigned to this investment. At this time, the Partnership has the right of distribution only after the majority owner receives its required return.

(j) Income Taxes

The Partnership records no federal income taxes since these taxes are the responsibility of individual partners. The Partnership is subject to the gross margin tax enacted by the State of Texas. The Partnership recorded a margin tax expense of approximately $1.3 million and $2.0 million as of December 31, 2015 and 2014, respectively. The Partnership has no deferred tax assets or liabilities as of December 31, 2015 or 2014.

(Continued)

3

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(k) Revenue Recognition

The Partnership records revenue based on amounts billed to customers and unbilled amounts based upon an estimate of the revenues to be received for service delivered from the latest billing through the end of the period.

Accounts receivable consist primarily of trade receivables from REPs. In the normal course of business, credit is extended to customers on a short-term basis. The Partnership recognized no amount associated with bad debt expense during the year ended December 31, 2015. Under a PUCT rule relating to the certification of REPs, write-off of uncollectible amounts owed by REPs are deferred as regulatory assets. As of December 31, 2015 and 2014, the allowance for doubtful accounts associated with the Partnership’s customers prior the move to competition was approximately $602,000 and $646,000, respectively. Bad debt expense during the year ended December 31, 2014 was approximately $779,000.

Unbilled accounts receivable is comprised of estimated amounts of energy and services delivered from the latest billing through the end of the period. Unbilled revenue of approximately $5.0 million and $6.0 million is included in accounts receivable as of December 31, 2015 and 2014, respectively.

(l) Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Partnership follows ASC 820 in its valuation of its marketable securities. ASC 820 defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 classifies the levels used to measure fair value into the following hierarchy:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Valuations based on one or more quoted prices in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs that are observable other than quoted prices for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

(m) Purchased Power Costs

Prior to May 1, 2014, the day before the move to competition, the Partnership accrued for its purchased power costs based on actual usage for the period. The Partnership’s previous tariffs for electric service included power cost recovery clauses under which electric rates charged to retail customers were adjusted monthly to collect actual purchased power costs incurred in providing service. See Note 9.

(o) Recently issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. ASU 2014-09 is effective for annual reporting periods (including interim reporting periods within those periods) beginning January 1, 2017. Early application is not permitted.  Entities have the option of using either a full retrospective or a modified approach to adopt ASU 2014-909.  The amendment creates a new ASC Topic 606, Revenue from Contracts with Customers, which supersedes revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 requires that an entity recognize revenues as performance obligations embedded in sales agreements with customers until they are satisfied by the entity. The Partnership is assessing the effects of the application of the new guidance and has not determined the impact this standard may have on its consolidated financial statements, and the method of adoption.

(2) Master Lease Agreements

The Partnership leases all of its Transmission and Distribution (T&D) assets from SDTS, a related party, under Master Lease Agreements (MLA). Also under these same MLAs, SDTS is responsible for funding all prudently incurred electric plant capital expenditures deemed necessary to serve customers by the Partnership. In accordance with the lease agreements, the Partnership is responsible for the maintenance and the operation of the T&D assets and for the compliance with all regulatory requirements of the PUCT, the FERC, and any other regulatory entity with jurisdiction over the T&D assets. The lease agreements obligate the Partnership to pay all property-related expenses, including maintenance, repairs, taxes on equipment in service, insurance, and to comply with the terms of the secured credit facilities and secured-term loan, if any, affecting the leased assets. The leases are subject to failed sale-leaseback accounting. See Note 3.

(Continued)

4

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

The MLAs, as amended, expire at various dates from December 31, 2017 through December 31, 2022. Each agreement includes annual base payments while all but one agreement includes additional payments, based on an agreed upon percentage of revenue earned by the Partnership, as defined in the lease agreements, in excess of annual specified breakpoints. The rate used to calculate additional payments varies by lease and ranges from a high of 37% to a low of 23% over the term of the agreements. Fixed payments were approximately $132.3 million and $110.9 million as of December 31, 2015 and 2014, respectively.

The Partnership’s lease agreements include a rent validation after year end to true up lease payments for the difference between actual and estimated incremental capital expenditures placed in service. As a result of the rent validation, the Partnership will make additional fixed payments of approximately $858,000 in March 2016 associated with the year ended December 31, 2015. The Partnership made additional fixed payments of approximately $2.4 million on March 31, 2015 and the Partnership received approximately $2.5 million for over payments of variable payments associated with the year ended December 31, 2014.

The Partnership is also subject to certain restrictive covenants, including indebtedness limits, contained in the lease agreements. The Partnership was in compliance with all covenants as of December 31, 2015 and December 31, 2014.

Future minimum lease payments in accordance with these lease agreements are as follows:

(In thousands)	Total
Year Ending December 31:
2016	$	148,751
2017		155,855
2018		81,673
2019		78,923
2020		65,601
Total future minimun lease payments	$	530,803

(3) Failed Sale Leaseback – Financing Obligation

The Partnership leases all of its T&D assets from SDTS, a related party. SDTS has legal title to the T&D assets. The Partnership, as a managing member of SDTS, has the exclusive power and authority on behalf of SDTS to manage, control, administer, and operate the T&D assets and business affairs of SDTS in accordance with the limited liability company agreement governing SDTS. These rights and obligations constitute continuing involvement, which results in failed sale-leaseback (financing) accounting. Under failed sale-leaseback accounting, the Partnership is deemed owner of the assets under all master lease agreements, including assets currently under construction. Consequently, the T&D assets, including assets currently under construction and corresponding financial obligations are included in the Partnership’s Consolidated Balance Sheets. The leases are considered a failed sale-leaseback (financing) due to the Partnership’s continuing involvement in SDTS and due to the ongoing involvement in the construction of the T&D assets as defined by ASC Topic 840, Accounting for Leases.

Approximately $1.6 billion and $1.2 billion are included in long-term financing obligation liabilities related to the failed sale-leaseback (financing), as of December 31, 2015 and 2014, respectively. Approximately $32.0 million and $32.5 million of the failed sale-leaseback (financing) obligation are included in current liabilities as of December 31, 2015 and 2014, respectively.

Included in interest expense is interest on the failed sale-leaseback (financing). Interest expense on failed sale-leaseback (financing) was approximately $128.2 million and $107.6 million as of December 31, 2015 and 2014, respectively. The fixed portion of the failed sale-leaseback interest expense was approximately $102.7 million and $78.7 million as of December 31, 2015 and 2014, respectively. The variable portion of the failed sale-leaseback (financing) interest expense was approximately $25.5 million and $28.9 million as of December 31, 2015 and 2014, respectively.

As a result of the failed sale-leaseback (financing) transaction, the Partnership accounts for lease payments to the lessor as a reduction of its financing obligation. Payments on the long-term financing obligation during the years ended December 31, 2015 and 2014 were approximately $30.6 million and $34.8 million, respectively.

(Continued)

5

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

Future payments of the financing obligation as of December 31, 2015 are as follows:

(In thousands)	Total
Year Ending December 31:
2016	$	32,006
2017		35,817
2018		18,056
2019		13,510
2020		8,376
Thereafter		1,155,634
Total financing obligation		1,263,399
Less current portion of financing obligation		-32,006
Leased system under construction obligation		332,898
Lease deferral (Note 5)		23,793
Long-term lease obligation	$	1,588,084

The Partnership recorded depreciation expense of approximately $26.8 million and $25.6 million during the years ended December 31, 2015 and 2014, respectively, related to the assets accounted for in accordance with failed sale-leaseback.

(4) Property, Plant and Equipment - net

The major classes of property, plant and equipment at December 31, 2015 and 2014 are as follows:

(In thousands)	2015			2014
Property, plant and equipment
Leased system	$	1,484,792		$	1,300,411
General plant		31,485			24,756
		1,516,277			1,325,167
Construction Work in Progress:
Leased system under construction		332,898			80,521
Leased system held for future use		—			37,118
General plant		1,182		229
		334,080			117,868
Other	293			79
Total Property, plant and equipment		1,850,650			1,443,114
Accumulated Depreciation - Leased system		(225,880	)		(199,112	)
Accumulated Depreciation - General plant		(16,122	)		(13,831	)
Property, Plant, and Equipment - net	$	1,608,648		$	1,230,171

See Note 3 in regards to leased system and leased system under construction.

General plant consists of a warehouse, furniture, fixtures, equipment, computer hardware, software, and vehicles.

(5) Deferred Charges – Regulatory Assets - Liabilities

Deferred Charges – Regulatory Assets, Net

Regulatory assets represent probable future recovery of costs from customers through the regulatory ratemaking process.  The table below provides detail of other deferred charges that are included on the Partnership’s Consolidated Balance Sheets as of December 31, 2015 and 2014.

(Continued)

6

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

Net deferred costs recoverable in future years as of December 31, 2015 and 2014 are as follows:

	December 31, 2015							December 31, 2014
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
(In thousands)	Amount		Amortization			Amount		Amount		Amortization			Amount
Deferred financing costs	$	1,069	$	(321	)	$	748	$	1,069		(267	)	$	802
Deferred costs recoverable in future years
Inception operating costs		23,793		—			23,793		23,793		—			23,793
Rate case costs		5,471		(2,210	)		3,261		5,158		(111	)		5,047
Study costs		3,628		(994	)		2,634		3,587		(373	)		3,214
Under-recovered TCRF		—		—			—		3,172		—			3,172
Transition to competition		1,963		(200	)		1,763		1,934		(80	)		1,854
Postretirement benefit costs		—		—			—		784		—			784
Advanced metering costs		1,636		—			1,636		168		—			168
Net Deferred Charges - Regulatory Assets	$	37,560	$	(3,725	)	$	33,835	$	39,665	$	(831	)	$	38,834

The Partnership filed a rate case with the PUCT under Docket No. 41474 (2013 rate case) to adjust the retail delivery tariff for the Stanton, Brady, and Celeste customers. The application was based on a test year ended December 31, 2012, with an effective date of May 1, 2014. The final order was issued January 23, 2014. The final order of the 2013 rate case addressed recovery for costs associated with the transition to competition and certain study costs. Recovery of those costs began when the new tariff went into effect on May 1, 2014. In addition to those costs, the recovery of the 2013 rate case expenses was proposed under a separate docket – PUCT Docket No. 41723. As a result of the 2013 rate case, the Partnership recognized a write off of approximately $478,000 in regulatory assets during the year ended December 31, 2014.

The inception operating costs of approximately $23.8 million at December 31, 2015 and 2014 represent operating costs incurred from inception through December 31, 2007. The 2013 rate case settlement established that the Partnership may seek recovery in a future rate case, pursuant to the mechanism established in Docket Nos. 21591 and 27556, of the inception operating costs plus related return on rate base. Consequently, the Partnership has recorded a corresponding liability in financing obligation.

Regulatory Liabilities

Regulatory liabilities represent probable future refunds associated with the over-recovery of costs from customers through the regulatory ratemaking process. As of December 31, 2015 and 2014, approximately $5.9 million and $3.5 million, respectively, are included in regulatory liabilities on the Consolidated Balance Sheets.

The carrying amount of the regulatory liabilities as of December 31, 2015 and 2014 are as follows:

	December 31,
(In thousands)	2015		2014
Postretirement benefits costs	$	3,051	$	—
Postretirement benefits collections		1,255		368
Over-recovered TCRF		1,043		—
Energy efficiency cost recovery factor		591		1,307
Power cost recovery factor (Note 9)		—		1,830
Regulatory liabilities	$	5,940	$	3,505

(6) Related-Party Transactions

The Partnership made payments associated with the lease of the T&D assets to SDTS of approximately $154.3 million and $132.0 million during the years ended December 31, 2015 and 2014, respectively.

The Partnership received payments throughout the period related to the acquisition of gross property plant and equipment, contracted services, direct labor, materials and supervision associated with its existing asset build out on the T&D assets from SDTS of approximately $245.9 million and $188.5 million during the years ended December 31, 2015 and 2014, respectively. These costs are included on the Consolidated Balance Sheet under property, plant and equipment - net as leased system.

The Partnership received payments of approximately $8.9 million during the year ended December 31, 2015, for contracted services, direct labor, materials and supervision associated with the Golden Spread interconnection into the 345 kV transmission

(Continued)

7

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

loop in the panhandle of Texas from GS Project Entity, LLC. The Partnership did not receive payments during the year ended December 31, 2014 from GS Project Entity, LLC associated with this interconnection. The costs for this project are included on the Partnership’s Consolidated Balance Sheet under Property, Plant and Equipment - net as leased system under construction.

The Partnership received payments of approximately $543,000 during the year ended December 31, 2015 for contracted services, direct labor, materials and supervision associated with the interconnection into the 345 kV transmission line in South Texas near the Mexican border from Cross Valley Project Entity, LLC. The Partnership did not receive payments during the year ended December 31, 2014 from Cross Valley Project Entity, LLC associated with this interconnection. The costs for this project are included on the Partnership’s Consolidated Balance Sheet under Property, Plant and Equipment - net as leased system under construction.

On February 12, 2015, the Partnership received a subordinated and unsecured loan agreement of $10.0 million from Loyal Trust No. 1, a related party, which originally matured on February 12, 2016. The loan agreement was amended and restated on February 15, 2016 with all the terms superseded and established a subordinated revolving promissory note of $10.0 million that matures on December 31, 2016. The revolving promissory note accrues interest at the floating JP Morgan Chase Prime Rate with all interest compounded semiannually. The note accrued interest at the greater of the three month London Inter-Bank Offered Rate (LIBOR) plus one hundred fifteen basis points as adjusted or at the floating JP Morgan Chase Prime Rate with all interest compounded semiannually. As of December 31, 2015, the Partnership had no amount outstanding on the subordinated note. The interest expense and fees on the subordinated note were approximately $193,000 during the year ended December 31, 2015.

An affiliate of the Partnership provides services to the Partnership at contractually agreed upon rates per hour and set amounts for infrastructure support. Charges for such services included in general and administrative expense in the accompanying Consolidated Statements of Operations amounted to approximately $4.1 million and $3.0 million during the years ended December 31, 2015 and 2014, respectively. Accrued fees included in due to affiliates on the Partnership’s Consolidated Balance Sheets related to these charges were approximately $1.0 million and $303,000 as of December 31, 2015 and 2014, respectively.

(7) Allocation of Partners’ Capital

Revenues, income, gains, losses, expenditures, deductions, credits and distributions, as defined in the partnership agreement, are allocated 1 percent to the general partner and 99 percent to the limited partner.

(8) Credit Facility

On May 15, 2014, the Partnership entered into an unsecured revolving credit facility of $5.0 million with Amegy Bank. The credit facility accrues interest on the outstanding balance at the Prime Rate. At December 31, 2014, Prime Rate was at 3.25%. In addition to the interest on the outstanding balance, commitment fees accrue at 0.35% for the unused portion of the credit facility. The revolving credit facility expires on May 15, 2017.

As of December 31, 2015 and 2014, the partnership had no amount outstanding on the revolving credit facility. The interest expense and fees for the revolving credit facility were approximately $112,000and $45,000 as of December 31, 2015 and 2014, respectively.

The agreement requires maintenance of certain financial ratios and imposes certain restricted covenants. The Partnership was in compliance with all covenants as of December 31, 2015 and 2014, respectively.

(9) Purchased Power

From January 1, 2014 to May 1, 2014, the day before the move to competition, the Partnership purchased all of its electric power pursuant to long-term wholesale electric power contracts with Lower Colorado River Authority (LCRA), and Garland Power and Light (Garland). After the move to competition, the Partnership no longer purchases power for the end use customer. Power is procured by the REPs selected by the end use customer.

The contracts for power covered kWh usage, kW demand levels, transmission, scheduling and ancillary services, and energy and fuel costs. The Partnership’s purchased power costs fluctuated primarily with the price of the fuel and usage. All costs associated with the purchased power were passed through to the end use customer. After the move to competition, revenue does not reflect the cost of purchased power being passed through to the end use customer, therefore the cost of purchase power is not included as a component on the Partnership’s Consolidated Statement of Operations.

The Garland contract and the LCRA contract were terminated on May 31, 2014 upon moving to competition.

After the move to competition and a reconciliation of revenue received with costs incurred related to purchase power, an over-recovery balance of approximately $1.8 million was included in regulatory liabilities in the Partnership’s Balance Sheet as of December 31, 2014.

(Continued)

8

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(10) Transmission Cost of Service

All Transmission Service Providers (TSPs) within Electric Reliability Council of Texas (ERCOT) provide open access transmission service and the costs are ultimately passed through to end-use customers. The PUCT regulates the transmission rates that are charged by the ERCOT TSPs. The Partnership is billed based on the Partnership’s pro rata share, during the prior year, of the average of ERCOT coincident peak demand for the months of June, July, August, and September (ERCOT 4CP), excluding the portion of coincident peak demand attributable to wholesale storage load. Each TSP files a tariff for transmission service to establish its rates, calculated as the TSP’s commission-approved transmission cost of service, or revenue requirement, divided by the aggregate ERCOT 4CP during the prior year. Therefore, the monthly transmission service charge to be paid by the Partnership is the product of each TSP’s monthly rate as specified in its tariff and the Partnership’s previous year’s share of the aggregate ERCOT 4CP.

Taking power over the ERCOT network requires the Partnership to pay fees regulated by the PUCT. The annual charges to use the ERCOT transmission network cover the period from January 1 through December 31 of each year. Because the use of the network is governed by ERCOT and falls under the jurisdiction of the PUCT, a contract is not required with each ERCOT TSP.

(11) Postretirement Benefits

The Partnership provides continued major medical and dental coverage to retired employees and their dependents meeting certain eligibility requirements. The Partnership’s cost to maintain such benefits during the years ended December 31, 2015 and 2014 totaled approximately $785,000 and $1.1 million respectively. The cost is included in general and administrative expense in the Consolidated Statements of Operations. Retiree contributions to the plan totaled approximately $197,000 and $264,000 during the years ended December 31, 2015 and 2014, respectively.

The Partnership’s postretirement health care benefit plan provides prescription drug coverage. The Medicare Prescription Drug Improvement and Modernization Act of 2003 includes a federal subsidy for plans that offer prescription drug benefits that are actuarially equivalent to Medicare Part D. The Partnership and the actuarial advisors have determined that the prescription drug coverage provided by the Partnership’s postretirement health care benefit plan is actuarially equivalent to Medicare Part D, and accordingly, the subsidy provides some relief for ongoing retiree prescription costs.  

The Partnership is required to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability on its balance sheet. Financial Accounting Standards Board (FASB) guidance requires an entity to include items that have not yet been recognized as net periodic postretirement benefit cost as a component of accumulated other comprehensive income. However, for a regulated utility this information is allowed to be recorded as a regulatory asset if: (i) the utility has historically recovered and currently recovers postretirement benefit plan expenses in its electric rates; and (ii) there is no negative evidence that the existing regulatory treatment will change. The Partnership has recorded the unrecognized components of net periodic postretirement benefit cost as a regulatory asset (liability) as these expenses are probable of future recovery.

The components of the postretirement benefit obligation regulatory asset (liability) at December 31, 2015 and 2014 are as follows:

(In thousands)	2015			2014
Defined benefit postretirement plan:
Net (Gain) Loss	$	(3,051	)	$	784
Total		(3,051	)		784

In the postretirement benefit obligation regulatory liability at December 31, 2015, there is a $443,000 net loss that is expected to be recognized as a component of net periodic postretirement benefit cost in 2016.

(Continued)

9

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

The following sets forth the obligations, fair value of plan assets and funded status of the postretirement health care plan at December 31, 2015 and 2014:

(In thousands)	2015			2014
Benefit obligation, beginning of year	$	13,549		$	15,815
Service costs		109			143
Interest costs		506			758
Benefits paid		(361	)		(429	)
Actuarial gain		(3,633	)		(2,738	)
Benefit obligation, end of year		10,170			13,549
Fair value of plan assets		7,268			7,596
Accumulated postretirement benefit obligation	$	2,902		$	5,953

The following sets forth the assumptions used to determine benefit obligations and net periodic benefit cost:

	2015			2014
Discount rate used for year-end obligation		4.17	%		3.88	%
Discount rate used for net periodic benefit cost		3.88	%		4.93	%
Current medical cost trend rate for year-end obligation		6.50	%		7.00	%
Current medical cost trend rate for net periodic benefit cost		7.00	%		7.50	%
Rate to which the costs trend rate is assumed to decline		5.00	%		5.00	%
Rate of return on assets		3.75	%		3.75	%

Net benefits paid during the year ended December 31, 2015 and 2014 were approximately $361,000 and $429,000, respectively. The following table provides estimates of future benefit payments, which reflect expected future service, as applicable:

(In thousands)	Total
Year Ending December 31:
2016	$	457
2017		464
2018		477
2019		489
2020		490
2021 - 2025		2,579
	$	4,956

The following table is the Partnership’s summary of the fair value of plan assets held by the trust as of December 31, 2015 and 2014:

	December 31, 2015						December 31, 2014
(In thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Cash and money balances	$	1,371	$	—	$	—	$	1,731	$	—	$	—
Mutual Funds		5,897		—		—		5,865		—		—
	$	7,268	$	—	$	—	$	7,596	$	—	$	—

The plan assets are being held in a trust account that is classified as Level 1 on the fair value hierarchy discussed in Note 1(l). The Partnership has adopted a conservative investment strategy, with the primary objective of capital preservation and modest returns.

The Partnership has a 401(k) profit sharing plan which covers all of its active employees. At its discretion, the Partnership may match the employee’s contribution to the plan. Matching contributions to the plan were $2.8 million and $2.5 million during the years ended December 31, 2015 and 2014, respectively.

(Continued)

10

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(12) Commitments and Contingencies

Leases

The Partnership has various obligations under operating leases pertaining to equipment, facilities and office space. Charges for the operating leases included in general and administrative expense in the accompanying Consolidated Statements of Operations amounted to approximately $366,000 and $551,000 during the years ended December 31, 2015 and 2014, respectively.  The following is a schedule of future minimum lease payments required under operating leases with a term of greater than 12 months at inception as of December 31, 2015:

(In thousands)
Year Ending December 31:
2016	$	268
2017		270
2018		216
2019		165
2020		—
Thereafter		—
	$	919

Regulatory proceedings

The Partnership is involved in various legal and regulatory proceedings. While management is unable to predict the outcome of these proceedings, management does not believe that the ultimate resolution will have a materially adverse effect on the Partnership’s results of operation, cash flows or financial position.

As mandated in the final order for the 2013 rate case, the Partnership had agreed to file its next rate case on or before July 1, 2016, however on December 3, 2015, on the PUCT commission open meeting, the Partnership agreed to file its next rate case on or before April 30, 2016.

Contingencies

On or about January 14, 2002, the Partnership and Southwestern Public Service Company (SPS) entered into a Transmission Agent Agreement (the Contract) for SPS to obtain transmission services from Southwest Power Pool (SPP) for the Partnership. On or about December 31, 2013, the Partnership disconnected from SPP and transitioned its load to ERCOT. On or about July 3, 2014, SPS filed a lawsuit against the Partnership for allegedly breaching the Contract. In the lawsuit, SPS claims the Partnership owes it approximately $2.9 million in pass-through fees associated with 2014 calendar year. SPS simultaneously filed an action with FERC, asking FERC to waive all the Partnership’s fees incurred after the Partnership moved to ERCOT. The FERC proceeding denied SPS’s request for a waiver of the fees. In August, the trial court entered an order placing the case on an active docket. Trial has been set for August 29, 2016. SPS filed a motion for summary judgment and the hearing is set for March 4, 2016. The ultimate outcome may vary pending on further discovery.

As of December 31, 2015, accrued amounts for legal proceedings of approximately $1.2 million are included in commitment and contingencies on the Partnership’s Consolidated Balance Sheet.

(Continued)

11

SHARYLAND UTILITIES, L.P.

Notes to the Consolidated Financial Statements

(13) Subsequent Events

On January 20, 2016, the Partnership drew $5.0 million under its revolving credit facility with Amegy Bank. The credit facility accrues interest on the outstanding balance at the Prime Rate at 3.50%. On February 16, 2016, the Partnership drew $4.0 million under its revolving credit facility with Loyal Trust No. 1. The credit facility accrues interest on the outstanding balance at the floating JP Morgan Chase Prime Rate with all interest compounded semiannually.

On January 21, 2016, Shary Holdings, L.L.C., the Partnership’s General Partner, in conjunction with Ovation Acquisition I, L.L.C. and Ovation Acquisition II, L.L.C., submitted a revised proposal for regulatory commitments with the PUCT under the Docket No. 45188, where the parties commit to prepare a proposal for a possible business combination between Oncor Electric Delivery Company, LLC (OEDC) and the Partnership and submit it to the PUCT by June 1, 2016.

The Partnership has evaluated subsequent events from the Balance Sheets date through February 26 2016, the date at which the Financial Statements were made available to be issued, and determined there are no other items to disclose.

XML

Document and Entity Information - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2015	Feb. 29, 2016	Jun. 30, 2015
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	FY
Trading Symbol	HIFR
Entity Registrant Name	InfraREIT, Inc.
Entity Central Index Key	0001506401
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Public Float			$ 685.4
Entity Common Stock, Shares Outstanding		43,570,230

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Current Assets
Cash and cash equivalents	$ 9,471,000	$ 15,612,000
Restricted cash	1,682,000	1,682,000
Due from affiliates	31,172,000	27,822,000
Inventory	6,731,000	7,393,000
Assets held for sale		41,211,000
Prepaids and other current assets	560,000	4,897,000
Total current assets	49,616,000	98,617,000
Electric Plant, net	1,434,531,000	1,227,146,000
Goodwill	138,384,000	138,384,000
Other Assets	41,140,000	40,467,000
Total Assets	1,663,671,000	1,504,614,000
Current Liabilities
Accounts payable and accrued liabilities	22,943,000	25,295,000
Short-term borrowings	54,000,000	219,000,000
Current portion of long-term debt	7,423,000	19,234,000
Dividends and distributions payable	13,634,000	14,130,000
Contingent consideration	0	27,378,000
Accrued taxes	3,312,000	2,359,000
Total current liabilities	101,312,000	307,396,000
Long-Term Debt	617,466,000	610,522,000
Regulatory Liability	10,625,000	1,242,000
Total liabilities	$ 729,403,000	$ 919,160,000
Commitments and Contingencies
Equity
Members' capital - 35,053,186 shares issued and outstanding as of December 31, 2014		$ 440,387,000
Common stock, $0.01 par value; 450,000,000 shares authorized; 43,565,495 issued and outstanding as of December 31, 2015	$ 436,000
Additional paid-in capital	702,213,000
Accumulated deficit	(24,526,000)
Accumulated other comprehensive income	0
Total InfraREIT, Inc. equity	678,123,000	440,387,000
Noncontrolling interest	256,145,000	145,067,000
Total equity	934,268,000	585,454,000
Total Liabilities and Equity	$ 1,663,671,000	$ 1,504,614,000

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2015	Dec. 31, 2014
Statement Of Financial Position [Abstract]
Members capital, shares issued		35,053,186
Members capital, shares outstanding		35,053,186
Common stock, par or stated value per share	$ 0.01
Common stock, shares authorized	450,000,000
Common stock, shares issued	43,565,495
Common stock, shares, outstanding	43,565,495

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Income Statement [Abstract]
Lease revenue	$ 151,203	$ 134,415	$ 73,193
Operating costs and expenses
General and administrative expense	64,606	18,625	13,691
Depreciation	40,211	35,080	20,024
Total operating costs and expenses	104,817	53,705	33,715
Income from operations	46,386	80,710	39,478
Other (expense) income
Interest expense, net	(28,554)	(32,741)	(17,384)
Other income (expense), net	3,048	(17,236)	20,932
Total other (expense) income	(25,506)	(49,977)	3,548
Income before income taxes	20,880	30,733	43,026
Income tax expense	949	953	616
Net income	19,931	29,780	42,410
Less: Net income attributable to noncontrolling interest	6,664	6,882	10,288
Net income attributable to InfraREIT, Inc.	$ 13,267	$ 22,898	$ 32,122
Net income attributable to InfraREIT, Inc. common stockholders per share:
Basic	$ 0.31	$ 0.65	$ 1.07
Diluted	0.31	0.65	$ 1.07
Cash dividends declared per common share	$ 1.075	$ 0.310

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 19,931	$ 29,780	$ 42,410
Change in fair value of cash flow hedging instrument		844	1,323
Comprehensive income	19,931	30,624	43,733
Less: Comprehensive income attributable to noncontrolling interest	6,664	7,116	10,611
Comprehensive income attributable to InfraREIT, Inc.	$ 13,267	$ 23,508	$ 33,122

XML

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Stock	Members' Capital	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Loss	Total InfraREIT, Inc. Equity	Noncontrolling Interest
Balance at Dec. 31, 2012	$ 348,778		$ 258,942			$ (1,610)	$ 257,332	$ 91,446
Members' contributions	137,255		137,255				137,255
Noncontrolling interest contributions	2,375							2,375
Net income	42,410		32,122				32,122	10,288
Change in fair value of cash flow hedging instrument	1,323					1,000	1,000	323
Non-cash noncontrolling interest equity issuance	32,052							32,052
Balance at Dec. 31, 2013	564,193		428,319			(610)	427,709	136,484
Equity based compensation	120							120
Dividends and distributions	(14,130)		(10,830)				(10,830)	(3,300)
Net income	29,780		22,898				22,898	6,882
Change in fair value of cash flow hedging instrument	844					$ 610	610	234
Non-cash noncontrolling interest equity issuance	4,647							4,647
Balance at Dec. 31, 2014	585,454		440,387				440,387	145,067
Equity based compensation	678							678
Dividends and distributions	(61,099)		(8,964)		$ (35,508)		(44,472)	(16,627)
Net income	19,931		2,285		10,982		13,267	6,664
Non-cash noncontrolling interest equity issuance	67,273							67,273
Balance at Dec. 31, 2015	934,268	$ 436		$ 702,213	$ (24,526)		678,123	256,145
Balance, shares at Dec. 31, 2015		43,565,495
Repurchase of common shares, value	(66,517)		(66,517)				(66,517)
Repurchase of common shares		(6,242,999)
Initial public offering, net of offering costs	490,433	$ 230		490,203			490,433
Initial public offering, net of offering costs, shares		23,000,000
Merger of InfraREIT, L.L.C. and InfraREIT, Inc. and related Reorganization transactions	$ (101,885)	$ 206	$ (367,191)	$ 212,010			$ (154,975)	$ 53,090
Merger of InfraREIT, L.L.C. and InfraREIT, Inc. and related Reorganization transactions, shares		26,808,494

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Cash flows from operating activities
Net income	$ 19,931,000	$ 29,780,000	$ 42,410,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	40,211,000	35,080,000	20,024,000
Amortization of deferred financing costs	3,241,000	4,383,000	3,588,000
Allowance for funds used during construction - equity	(3,048,000)	(1,106,000)	(21,655,000)
Change in fair value of contingent consideration	0	18,357,000	841,000
Reorganization structuring fee	44,897,000
Realized gain on sale of marketable securities	(66,000)
Equity based compensation	678,000	120,000
Changes in assets and liabilities:
Due from affiliates	(3,350,000)	(7,275,000)	(17,436,000)
Inventory	662,000	(816,000)	(4,414,000)
Prepaids and other current assets	(6,000)	(3,370,000)	(1,388,000)
Accounts payable and accrued liabilities	2,644,000	7,347,000	(649,000)
Net cash provided by operating activities	105,794,000	82,500,000	21,321,000
Cash flows from investing activities
Additions to electric plant	(239,157,000)	(210,791,000)	(390,283,000)
Proceeds from sale of assets	41,211,000
Sale of marketable securities	1,065,000
Cash paid to InfraREIT, L.L.C. investors in the merger, net of cash assumed	(172,400,000)
Net cash used in investing activities	(369,281,000)	(210,791,000)	(390,283,000)
Cash flows from financing activities
Net proceeds from issuance of common stock upon initial public offering	493,722,000
Members' contributions			136,886,000
Noncontrolling interest contributions			2,256,000
Proceeds from short-term borrowings	87,000,000	354,000,000	85,000,000
Repayments of short-term borrowings	(253,000,000)	(210,000,000)	(15,000,000)
Proceeds from borrowings of long-term debt	400,000,000	11,000,000	173,000,000
Repayments of long-term debt	(404,867,000)	(13,934,000)	(8,178,000)
Net change in restricted cash		(1,000)
Deferred financing costs	(3,914,000)	(4,908,000)	(1,523,000)
Dividends and distributions paid	(61,595,000)		(12,175,000)
Net cash provided by financing activities	257,346,000	136,157,000	360,266,000
Net (decrease) increase in cash and cash equivalents	(6,141,000)	7,866,000	(8,696,000)
Cash and cash equivalents at beginning of year	15,612,000	7,746,000	16,442,000
Cash and cash equivalents at end of year	$ 9,471,000	$ 15,612,000	$ 7,746,000

XML

Description of Business and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2015

Accounting Policies [Abstract]

Description of Business and Summary of Significant Accounting Policies

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

InfraREIT, Inc. is a Maryland corporation and the surviving corporation of a merger (Merger) with InfraREIT, L.L.C., a Delaware limited liability company, completed on February 4, 2015 in connection with the initial public offering (IPO) of InfraREIT, Inc. As used in these financial statements, unless the context requires otherwise or except as otherwise noted, the words “Company” and “InfraREIT” refer to InfraREIT, L.L.C., before giving effect to the Merger, and InfraREIT, Inc., after giving effect to the Merger, as the context requires, and also refer to the registrant’s subsidiaries, including InfraREIT Partners, LP (Operating Partnership or InfraREIT LP), a Delaware limited partnership.

The Merger was accounted for as a reverse acquisition, which means for accounting purposes the Company treated the assets and liabilities of InfraREIT, Inc. as assumed and incorporated with the assets and liabilities of InfraREIT, L.L.C. The main assets and liabilities assumed were marketable securities of $1.1 million and a note payable of $1.0 million. The marketable securities were sold during February 2015 for $1.1 million resulting in a realized gain of $0.1 million which was recorded in other income (expense), net in the Consolidated Statements of Operations. Additionally, the note payable and associated interest were paid in full in February 2015.

Before the IPO, substantially all of the Company’s business and assets were owned, directly or indirectly, by InfraREIT, L.L.C. InfraREIT, L.L.C. was organized on November 23, 2010 as a Delaware limited liability company that elected and qualified under the Internal Revenue Code of 1986, as amended (the Code), to be taxed as a real estate investment trust (REIT) for federal income tax purposes. InfraREIT, L.L.C. was the general partner of the Operating Partnership prior to the Merger and held a controlling financial investment in InfraREIT LP. After the Merger, InfraREIT, Inc. became the general partner of the Operating Partnership. InfraREIT, Inc. will elect to be taxed as a REIT commencing with the taxable year ending December 31, 2015. InfraREIT, Inc.’s operating results before the Merger primarily reflected costs related to obtaining a private letter ruling from the IRS and accounting services. As a result, these financial statements present the operating results of InfraREIT, L.L.C. for years ended December 31, 2014 and 2013 and the InfraREIT, L.L.C. balance sheet as of December 31, 2014. The operating results for the year ended December 31, 2015 reflect the operations of InfraREIT, L.L.C. prior to the effectiveness of the Merger, and the operations of InfraREIT, Inc. for the period from the Merger through December 31, 2015, and the balance sheet as of December 31, 2015 is the balance sheet of InfraREIT, Inc.

InfraREIT, L.L.C. was owned by Marubeni Corporation (Marubeni), John Hancock Life Insurance Company (U.S.A.), Teachers Insurance and Annuity Association of America, OpTrust Infrastructure N.A. Inc. (OpTrust) (collectively, founding investors) as well as Westwood Trust, as trustee of a trust for the benefit of a charitable beneficiary (Westwood Trust), and other private investors. Since the IPO, InfraREIT, Inc. has been owned by external investors as well as the founding investors, affiliates of Hunt Consolidated, Inc. (HCI) and other private investors.

The Company is externally managed and advised by Hunt Utility Services, LLC (Hunt Manager), a Delaware limited liability company. Hunt Manager is responsible for overseeing the Company’s day-to-day affairs.

The Company holds 71.9% of the outstanding partnership units (OP Units) in the Operating Partnership as of December 31, 2015 and is its general partner. The Company includes the accounts of the Operating Partnership and its subsidiaries in the consolidated financial statements. MC Transmission Holdings, Inc. (MC Transmission), which is a subsidiary of Marubeni Corporation (Marubeni), seven members of the Company’s board of directors and affiliates of HCI hold the other 28.1% of the outstanding OP Units as of December 31, 2015.

Sharyland Distribution & Transmission Services, L.L.C. (SDTS) is the owner of electric transmission and distribution assets (T&D assets) located in the Texas Panhandle near Amarillo (CREZ assets), the Permian Basin in and around Stanton, Central Texas around Brady, Northeast Texas in and around Celeste (S/B/C assets) and South Texas near McAllen (McAllen assets). Previously, SDTS held some of its assets through its former wholly owned subsidiaries, SDTS FERC, L.L.C. (SDTS FERC) and Sharyland Projects, L.L.C. (SPLLC). However in June 2015, SDTS FERC were merged with and into SDTS with SDTS as the surviving entity, and in December 2015, SPLLC was merged with and into SDTS with SDTS as the surviving entity (SDTS Merger).

The T&D assets include over 53,000 electricity delivery points, approximately 665 miles of transmission lines, approximately 12,300 miles of distribution lines, 48 substations and a 300 megawatt (MW) high-voltage direct current interconnection between Texas and Mexico (Railroad DC Tie). SDTS leases the T&D assets to Sharyland Utilities, L.P. (Sharyland or tenant), a Texas based utility, under several lease agreements, which operates and maintains the T&D assets. SDTS is subject to regulation as an electric utility by the Public Utility Commission of Texas (PUCT).

Initial Public Offering and Reorganization

InfraREIT, Inc. completed its IPO on February 4, 2015, issuing 23,000,000 shares of common stock at a price of $23.00, resulting in gross proceeds of $529.0 million.

Immediately after the closing of the IPO, InfraREIT, Inc. completed the Merger, with InfraREIT, L.L.C. merging with and into InfraREIT, Inc., and InfraREIT, Inc. as the surviving entity and general partner of the Operating Partnership. InfraREIT, Inc. used $172.4 million of the net proceeds from the IPO to fund the cash portion of the consideration issued in the Merger, as described in greater detail below. InfraREIT, Inc. contributed the remaining $323.2 million to the Operating Partnership in exchange for common OP Units (Common OP Units).

The Operating Partnership used the net proceeds from the IPO that it received from InfraREIT, Inc.:

· to repay an aggregate of $1.0 million of indebtedness to HCI;

· to repay an aggregate of $72.0 million of indebtedness outstanding under the Operating Partnership’s revolving credit facility and $150.0 million of indebtedness outstanding under SDTS’s revolving credit facility;

· to pay offering expenses (other than the underwriting discounts and commissions and the underwriter structuring fee) of $6.3 million; and

· for general corporate purposes.

The following bullets describe the Merger and related transactions that were effected in the first quarter of 2015 (collectively, the Reorganization).

· On January 29, 2015, the Operating Partnership effected a reverse unit split whereby each holder of OP Units received 0.938550 OP Units of the same class in exchange for each such unit it held immediately prior to such time, which is referred to as the unit split. Also, on January 29, 2015, InfraREIT, L.L.C. effected a reverse share split whereby each holder of shares received 0.938550 shares of the same class in exchange for each such share it held immediately prior to such time, which is referred to as the share split. All references to unit, share, per unit and per share amounts in these consolidated financial statements and related disclosures have been adjusted to reflect the reverse share split and reverse unit split for all periods presented.

· On January 29, 2015, InfraREIT, Inc. issued 1,700,000 shares of common stock to Hunt-InfraREIT, L.L.C. (Hunt-InfraREIT) as a non-cash reorganization advisory fee in accordance with a structuring fee agreement, resulting in the recognition of a $44.9 million non-cash expense in the first quarter of 2015.

· On February 4, 2015, the Operating Partnership issued 1,700,000 OP Units to InfraREIT, Inc. in respect of the structuring fee issuance of 1,700,000 shares of InfraREIT, Inc. common stock described immediately above.

· On February 4, 2015, the Operating Partnership issued an aggregate of 28,000 of its profit interest OP Units (LTIP Units) to seven of InfraREIT’s directors.

· On February 4, 2015, the Operating Partnership issued 983,418 Common OP Units to Hunt-InfraREIT in settlement of the Operating Partnership’s obligation to issue OP Units to Hunt-InfraREIT related to the CREZ Project.

· On February 4, 2015, the Operating Partnership issued Hunt-InfraREIT 1,167,287 Common OP Units as an accelerated payment of a portion of the carried interest agreed to in 2010 in connection with the organization of InfraREIT, L.L.C. To effect the shift in ownership from the pre-IPO investors to Hunt-InfraREIT, an equal number of OP Units held by InfraREIT, L.L.C. in the Operating Partnership were canceled at the same time.

· On February 4, 2015, as a result of the Merger, (1) holders of 8,000,000 common shares of InfraREIT, L.L.C. received $21.551 per common share, which was equal to the IPO price less the underwriting discounts and commissions and an underwriting structuring fee, (2) holders of the remaining 19,617,755 common shares of InfraREIT, L.L.C. received 19,617,755 shares of InfraREIT, Inc. Class A common stock and (3) holders of 25,145 Class C shares of InfraREIT, L.L.C. received 25,145 shares of InfraREIT, Inc. Class C common stock.

· The founding investors each received both cash and stock consideration in the Merger, and all other pre-IPO investors received shares of InfraREIT, Inc. Class A common stock or Class C common stock in the Merger. InfraREIT, L.L.C. gave each other holder of its common shares the opportunity to receive cash consideration in the Merger, and each such holder elected (or was deemed to have elected) to receive shares of Class A common stock under the merger agreement. All holders of InfraREIT, L.L.C.’s Class C common shares, as a separate class, received shares of Class C common stock pursuant to the merger agreement.

· On February 4, 2015, InfraREIT, Inc. contributed $323.2 million to the Operating Partnership in exchange for 15,000,000 Common OP Units.

· On February 4, 2015, InfraREIT, Inc. issued 1,551,878 shares of common stock to Hunt-InfraREIT in exchange for 1,551,878 OP Units tendered for redemption by Hunt-InfraREIT in accordance with a redemption agreement.

· On February 4, 2015, InfraREIT, Inc. purchased 6,242,999 common shares in consideration for the issuance of a promissory note to Westwood Trust in the principal amount of $66.5 million.

· Westwood Trust immediately transferred the promissory note to MC Transmission, and, immediately following receipt of the promissory note, MC Transmission purchased 3,325,874 Common OP Units from the Operating Partnership in consideration for the assignment of the promissory note. The promissory note was then transferred to InfraREIT, Inc. in exchange for the redemption of 6,242,999 OP Units held by InfraREIT, Inc. and the subsequent cancellation of such promissory note, resulting in no cash consideration being paid or received pursuant to the purchase from Westwood Trust or the sale of Common OP Units to MC Transmission.

· On March 9, 2015, the Operating Partnership issued 2,329,283 Common OP Units to Hunt-InfraREIT, and InfraREIT, Inc. canceled an equal number of shares of Class A common stock and Class C common stock. Each remaining share of Class A common stock and Class C common stock then converted to common stock on a one-for-one basis. This issuance settled InfraREIT, L.L.C.’s pre-IPO investors’ carried interest obligation agreed to by Hunt-InfraREIT under the investment documents entered into by the parties in 2010.

· On March 9, 2015, the 11,264 long-term incentive plan units issued to two of InfraREIT, L.L.C.’s non-voting directors in May 2014 converted on a one-to-one basis to Common OP Units.

Limited Partnership Agreement

In connection with the Reorganization, the Company adopted a Second Amended and Restated Limited Partnership Agreement which became effective with the closing of the IPO. Upon completion of the IPO, the Operating Partnership had five types of OP Units outstanding: Common OP Units, Class A OP Units, Class B OP Units, Class C OP Units and LTIP Units.

On March 9, 2015, the Operating Partnership issued Common OP Units in exchange for outstanding Class A OP Units and Class C OP Units. Such Common OP Units were allocated among the holders of Class A OP Units and Class C OP Units, and the Class A OP Units, Class B OP Units and Class C OP Units were canceled. Following such allocation, the Company adopted a Third Amended and Restated Limited Partnership Agreement that eliminated the provisions related to the Reorganization and the description of the Class A OP Units, Class B OP Units and Class C OP Units; however, it continues to allow amendments to authorize and issue additional classes of OP Units in the future.

Principles of Consolidation and Presentation

The consolidated financial statements include the Company’s accounts and the accounts of all other entities in which the Company has a controlling financial interest with noncontrolling interest of consolidated subsidiaries reported separately. All significant intercompany balances and transactions have been eliminated. SDTS maintains (and prior to their merger with and into SDTS, SDTS FERC and SPLLC also maintained) accounting records in accordance with the uniform system of accounts, as prescribed by the Federal Energy Regulatory Commission (FERC). In accordance with the applicable consolidation guidance, the Company’s consolidated financial statements reflect the effects of the different rate making principles mandated by the FERC and the PUCT which regulate its subsidiaries’ operations.

The Company and Hunt Manager are parties to a management agreement under which Hunt Manager provides certain services to the Company for a management fee. Historically, the Company’s Consolidated Statements of Operations included all costs incurred on the Company’s behalf by Hunt Manager, including compensation expenses, rent expense and other costs included in general and administrative expense on the Consolidated Statements of Operations totaling $11.6 million for the year ended December 31, 2013. On June 24, 2014, the Company’s board of directors agreed to increase the annual management fee from $2.5 million to $10.0 million effective January 1, 2014. As a result, the Company’s general and administrative expenses for the years ended December 31, 2015 and 2014 do not include costs incurred by Hunt Manager during those periods, but do include management fees paid to Hunt Manager as well as additional costs the Company incurred directly, such as professional services costs and direct reimbursement of third-party costs paid to outside service providers. As a result of the increased management fee, the Company, through its subsidiary InfraREIT LP, incurred costs associated with management fees of $12.3 million and $10.0 million during the years ended December 31, 2015 and 2014, respectively.

The accompanying historical consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). In the opinion of management, all adjustments (consisting of normal recurring accruals), considered necessary for a fair presentation have been included. The historical financial information is not necessarily indicative of the Company’s future results of operations, financial position and cash flows.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Regulation

For regulatory purposes, including regulatory reporting, the T&D assets owned by SDTS and the operations of Sharyland are viewed on a combined basis. As a result, regulatory principles applicable to the utility industry also apply to SDTS (and previously applied to its former subsidiaries). The financial statements reflect regulatory assets and liabilities under cost based rate regulation in accordance with accounting standards related to the effect of certain types of regulation. Regulatory decisions can have an impact on the recovery of costs, the rate earned on invested capital and the timing and amount of assets to be recovered by rates. See Note 7, Other Assets.

SDTS capitalizes allowance for funds used during construction (AFUDC) during the construction of its T&D assets, and SDTS lease agreements with Sharyland rely on FERC definitions and accepted standards regarding capitalization of expense to define key terms in the lease such as footprint projects, which are the amounts SDTS is obligated to fund pursuant to the leases. The amounts funded for these footprint projects include allocations of Sharyland employees’ time and overhead allocations consistent with FERC policies and U.S. GAAP.

Sharyland cannot be removed as lessee without prior approval from the PUCT. SDTS transacts with its tenant through several lease arrangements covering the T&D assets. These lease agreements include provisions for annual additions and retirements of the T&D assets in the form of new construction or other capitalized projects.

Cash and Cash Equivalents

The Company considers all short-term, highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s account balances at one or more institutions periodically exceed the Federal Deposit Insurance Corporation (FDIC) insurance coverage and, as a result, there could be a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company has not experienced any losses and believes that the risk is not significant.

Restricted Cash

Restricted cash represents the principal and interest payable for two consecutive periods associated with the $25.0 million senior secured notes described in Note 9, Long-Term Debt.

Inventory

Inventory consists primarily of transmission parts and materials used in the construction of electric plant. Inventory is valued at average cost when it is acquired and used.

Assets Held for Sale

The Company records assets held for sale when certain criteria have been met as specified by Accounting Standard Codification (ASC) Topic 360, Property, Plant and Equipment. These criteria include management’s commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is expected to be completed within one year; the assets are being marketed at reasonable prices in relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. Assets held for sale are reported at the lower of their carrying amount or fair value less cost to sell.

Electric Plant, net

Electric plant equipment is stated at the original cost of acquisition or construction, which includes the cost of contracted services, direct labor, materials, acquisition adjustments, and overhead items. In accordance with the FERC uniform system of accounts guidance, SDTS recognizes as a cost to construction work in progress (CWIP) AFUDC on other funds classified as other income, net and AFUDC on borrowed funds classified as a reduction of the interest expense, net on the Consolidated Statements of Operations.

The AFUDC blended rate utilized was 6.6%, 4.1% and 9.1% for the years ended December 31, 2015, 2014 and 2013, respectively.

Electric plant held for future use is included in electric plant, net.

Depreciation of property, plant and equipment is calculated on a straight-line basis over the estimated service lives of the properties based on depreciation rates approved by the PUCT. Depreciation rates include plant removal costs as a component of depreciation expense, consistent with regulatory treatment. Actual removal costs incurred are charged to accumulated depreciation. When accrued removal costs exceed incurred removal costs, the difference is reclassified as a regulatory liability to retire assets in the future. The regulatory liability will be relieved as cost of removal charges are incurred upon asset retirement.

Repairs are the responsibility of Sharyland as the lessee under the lease agreements. Betterments and improvements generally are the responsibility of SDTS and are capitalized.

Provision for depreciation of electric plant is computed using composite straight-line rates as follows:

	Years Ended December 31,
	2015	2014	2013
Transmission plant	1.69% -3.15%	1.69% -3.15%	2.57% -3.00%
Distribution plant	1.74% -5.96%	1.74% -5.96%	2.50% -3.10%
General plant	0.80% -5.12%	0.80% -5.12%	2.50% -33.33%

Impairment of Long-Lived Assets

The Company evaluates impairment of its long-lived assets annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable through expected future cash flows. Regulatory assets are charged to expense in the period in which they are no longer probable of future recovery.

Goodwill

Goodwill represents the excess of costs of an acquired business over the fair value of the assets acquired, less liabilities assumed. Goodwill is not amortized and is tested for impairment annually or more frequently if events or changes in circumstances arise.

Accounting Standard Update (ASU) 2011-08, Testing of Goodwill for Impairment allows entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit (i.e. the first step of the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more-likely-than-not greater than the carrying amount, a quantitative calculation would not be needed.

The Company’s annual goodwill impairment analysis, which was performed qualitatively during the fourth quarter of 2015, did not result in an impairment charge. As of December 31, 2015 and 2014, $138.4 million was recorded as goodwill on the Consolidated Balance Sheets.

Investments

An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless (1) the Company has the ability and intent to hold an investment for a reasonable period of time sufficient for an anticipated recovery of fair value up to (or beyond) the cost of the investment; and (2) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other than temporary, then an impairment loss is recognized equal to the difference between the investment’s cost and its fair value.

Deferred Financing Costs

Amortization of deferred financing costs associated with the issuance of the $25.0 million senior secured notes and the revolving credit facilities is computed using the straight-line method over the life of the loan which approximates the effective interest method. Amortization of deferred financing costs associated with the Company’s regulated subsidiaries is computed using the straight-line method over the life of the loan in accordance with the applicable regulatory guidance.

Derivative Instruments

The Company uses derivatives to hedge against changes in cash flows related to interest rate risk (cash flow hedging instrument). ASC Topic 815, Derivatives and Hedging, requires all derivatives be recorded on the Consolidated Balance Sheets at fair value. The Company determines the fair value of the cash flow hedging instrument based on the difference between the cash flow hedging instrument’s fixed contract price and the underlying market price at the determination date. The asset or liability related to the cash flow hedging instrument is recorded on the Consolidated Balance Sheets at its fair value.

Unrealized gains and losses on the effective cash flow hedging instrument are recorded as components of accumulated other comprehensive income. Realized gains and losses on the cash flow hedging instrument are recorded as adjustments to interest expense. Settlements of derivatives are included within operating activities on the Consolidated Statements of Cash Flows. Any ineffectiveness in the cash flow hedging instrument is recorded as an adjustment to interest expense in the current period.

Income Taxes

InfraREIT, L.L.C. elected to be treated as a REIT under Sections 856 through 860 of the Code commencing with its taxable year ended December 31, 2010, and InfraREIT, Inc. will elect to be treated as a REIT commencing with its taxable year ended December 31, 2015. As a result, the Company generally will not be subject to federal corporate income tax on its taxable income that is distributed to its stockholders. A REIT is subject to a number of other organizational and operational requirements, including a requirement that it currently distribute at least 90% of its annual taxable income (with certain adjustments). The Company’s policy is to distribute at least 100% of its taxable income. Accordingly, there is no provision for federal income taxes in the accompanying consolidated financial statements. Even if the Company maintains its qualification for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, including excise taxes, and federal income taxes on any undistributed income.

At December 31, 2014, the Company had net operating loss carryforwards for federal income tax purposes of $1.0 million. Of this amount $0.2 million was used for the year ended December 31, 2015 to offset an equivalent amount of regular taxable earnings. The net operating loss carryforward for federal tax purposes was $0.8 million at December 31, 2015 and will expire in 2026. The net operating loss carryforwards for alternative minimum tax (AMT) are generally limited to offsetting 90% of the alternative minimum taxable income (AMTI) for a given year.

The Company recognizes the impact of tax return positions that are more-likely-than-not to be sustained upon audit. Significant judgment is required to evaluate uncertain tax positions. The evaluation of uncertain tax positions is based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues.

A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:

	Years Ended December 31,
(In thousands)	2015		2014
Balance at January 1	$	2,135	$	1,238
Additions based on tax positions related to the current year		789		897
Balance at December 31	$	2,924	$	2,135

The balance of unrecognized tax benefits relates to state taxes, all of which would impact the effective tax rate if recognized. The Company does not expect the total amount of unrecognized tax benefits to significantly change within the next twelve months. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Operations.

During the years ended December 31, 2015, 2014 and 2013, the Company recognized interest and penalties of $0.2 million, $0.1 million and $0.1 million, respectively. The Company had accrued interest and penalties of $0.4 million and $0.2 million at December 31, 2015 and 2014, respectively. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2012.

Revenue Recognition

The Company, through its subsidiaries, is the owner of the T&D assets and recognizes lease revenue over the term of lease agreements with Sharyland. The Company’s lease revenue includes annual payments and additional rents based upon a percentage of revenue earned by Sharyland on the leased assets in excess of annual specified breakpoints. In accordance with the lease agreements, Sharyland, the lessee and operator of the T&D assets, is responsible for the maintenance and operation of the T&D assets and for compliance with all regulatory requirements of the PUCT, the FERC or any other regulatory entity with jurisdiction over the T&D assets. Each of the lease agreements with Sharyland is a net lease that obligates the lessee to pay all property related expenses, including maintenance, repairs, taxes and insurance, and to comply with the terms of the SDTS secured credit facilities and note purchase agreements. The Company recognizes base rent under these leases on a straight-line basis over the applicable lease term.

The lease agreements provide for periodic supplemental adjustments of base rent based upon capital expenditures made by SDTS. The Company recognizes supplemental adjustments of base rent as a modification under these leases on a prospective straight-line basis over the applicable lease term. The Company recognizes percentage rent under these leases once the revenue earned by Sharyland on the leased assets exceeds the annual specified breakpoints.

Asset Retirement Obligations

The Company has identified, but not recognized, asset retirement obligation liabilities related to the T&D assets, as a result of certain easements on property on which the Company has assets. Generally, such easements are perpetual and require only the retirement and removal of the assets upon cessation of the property’s use. Management has not estimated and recorded a retirement liability for such easements because the Company plans to use the facilities indefinitely.

Interest Expense, net

The Company’s interest expense, net primarily consists of interest expense from the senior notes and credit facilities, see Note 8, Borrowings Under Credit Facilities and Note 9, Long-Term Debt. AFUDC on borrowed funds of $1.8 million, $1.6 million and $12.6 million was recognized as a reduction of the Company’s interest expense during the years ended December 31, 2015, 2014 and 2013, respectively.

Other Income, net

AFUDC on other funds of $3.0 million, $1.1 million and $21.7 million was recognized in other income, net during the years ended December 31, 2015, 2014 and 2013, respectively.

Comprehensive Income

Comprehensive income includes net income and other comprehensive income, which consists of unrealized gains and losses on derivative financial instruments. The Company records deferred hedge gains and losses on its derivative financial instruments that qualify as cash flow hedging instruments as other comprehensive income.

Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurements and Disclosures, sets forth a framework for measuring fair value and required disclosures about fair value measurements of assets and liabilities in accordance with U.S. GAAP.

Level 1 — Quoted prices in active markets for identical assets and liabilities.

Level 2 — Valuations based on one or more quoted prices in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs that are observable other than quoted prices for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Recently Issued Accounting Pronouncements

In February 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2015-02, Consolidation (Topic 810) – Amendments to the Consolidation Analysis. This amendment affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 is effective for periods beginning after December 15, 2015 with early adoption permitted. The adoption of the new guidance will not have an impact on the current consolidation, but may change the accounting associated with future transactions.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. This ASU is effective for periods beginning after December 15, 2015 with early adoption permitted. When adopted, the new guidance will be applied on a retrospective basis with each balance sheet presented reflecting the new guidance along with transitional disclosures. The Company will adopt this presentation beginning with the three months ended March 31, 2016. The adoption will impact the Company’s presentation of its financial position, but will not have an impact on the Company’s results of operations or cash flows.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined instead of retrospectively applying the adjustments. The change in provisional amounts will be recorded in the income statement for any effect on earnings for changes in depreciation, amortization or other income effect calculated as if the accounting had been completed at the acquisition date. This ASU is effective for periods beginning after December 15, 2015 with early adoption permitted. When adopted in the first quarter of 2016, the new guidance will be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU. The adoption is not expected to have an impact on the Company’s financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amended the existing accounting standard for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for periods beginning after December 15, 2018 with early adoption permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial position, results of operations or cash flows.

Reportable Segments

U.S. GAAP establishes standards for reporting financial and descriptive information about a company’s reportable segments. Management has determined that the Company has one reportable segment, with activities related to ownership and leasing of rate-regulated electric T&D assets.

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Related Party Transactions

12 Months Ended

Dec. 31, 2015

Related Party Transactions [Abstract]

Related Party Transactions

2. Related Party Transactions

SDTS is party to several lease agreements with Sharyland, through which the Company leases its T&D assets to Sharyland. Under the leases the Company has agreed to fund capital expenditures for footprint projects. The leases define “footprint projects” to be transmission or distribution projects primarily situated within the Company’s distribution service territory, or that physically hang from the Company’s existing transmission assets.

The Company earned lease revenues under these agreements of $151.2 million, $134.4 million and $73.2 million from Sharyland during the years ended December 31, 2015, 2014 and 2013, respectively. In connection with the Company’s leases with Sharyland, the Company recorded a deferred rent liability of $11.5 million and $5.0 million as of December 31, 2015 and 2014, respectively, which is included in accounts payable and accrued liabilities on the Consolidated Balance Sheets.

In addition to rent payments that Sharyland makes to the Company, the Company and Sharyland also make payments to each other under the leases that primarily consist of payments to reimburse Sharyland for the costs of gross plant and equipment added to the Company’s T&D assets. For the years ended December 31, 2015 and 2014, the net amount of the payments the Company made to Sharyland was $245.1 million and $189.3 million, respectively.

As of December 31, 2015 and 2014, accounts payable and accrued liabilities on the Consolidated Balance Sheets included $9.2 million and $16.1 million, respectively, related to amounts owed to Sharyland. As of December 31, 2015 and 2014, amounts due from affiliates on the Consolidated Balance Sheets included $31.2 million and $27.8 million, respectively, related to amounts owed by Sharyland associated with the Company’s leases.

The Company’s management fee paid to Hunt Manager for the years ended December 31, 2015 and 2014 was $12.3 million and $10.0 million, respectively. As of December 31, 2015 and 2014, there were no prepaid or accrued amounts associated with management fees on the Consolidated Balance Sheets. Additionally, during the years ended December 31, 2015 and 2014, the Company paid Hunt Manager $0.5 million and $0.2 million, respectively, for reimbursement of annual software license and maintenance fees and other expenses in accordance with the Company’s management agreement.

The Company’s current management agreement with Hunt Manager, which was effective February 4, 2015, provided for an annual base fee, or management fee, of $10.0 million through April 1, 2015. Effective as of April 1, 2015, the annual base fee was adjusted to $13.1 million annually through March 31, 2016. Effective as of April 1, 2016, the annual base fee will be adjusted to $14.0 million annually through March 31, 2017. The base fee for each twelve month period beginning April 1 thereafter will equal 1.50% of the Company’s total equity as of December 31 of the immediately preceding year, subject to a $30.0 million cap. The term of the management agreement expires December 31, 2019, and will automatically renew for successive five year terms unless a majority of the Company’s independent directors decides to terminate the agreement.

In connection with the organization of InfraREIT, L.L.C. in November 2010, the Operating Partnership agreed to issue deemed capital credits and Class A OP Units to Hunt-InfraREIT with respect to certain development projects. The amount of the capital account credits the Operating Partnership was required to issue equaled 5% of the Company’s capital expenditures on these projects, including AFUDC. The number of Class A OP Units the Operating Partnership was required to issue equaled the amount of the capital account credit divided by $10.65. During the year ended December 31, 2014, the Operating Partnership issued approximately 104,763 Class A OP Units, and on January 1, 2015, the Operating Partnership issued an additional 17,600 Class A OP Units to Hunt-InfraREIT. Following the consummation of the IPO, the Operating Partnership no longer has the obligation to issue deemed capital credits and related equity to Hunt-InfraREIT. The Company recorded these capital account credits as asset acquisition costs included as part of the capital project in the CWIP balance.

InfraREIT LP also issued deemed capital and equity in connection with its CREZ Project. For further information, see Note 11, Contingent Consideration.

Prior to the IPO, the Company and one of its stockholders were parties to a secondee agreement under which employees of the stockholder provided services to the Company for a secondment fee. The Company incurred costs associated with secondment fees of less than $0.1 million and $0.2 million during the years ended December 31, 2014 and 2013, respectively. These fees are included in general and administrative expense in the Consolidated Statements of Operations. The Company did not incur any fees associated with this agreement in 2015. As of December 31, 2015 and 2014, there were no amounts owed to the member included in accounts payable and accrued liabilities on the Consolidated Balance Sheets related to the secondee agreement. As a result of the IPO, the secondee agreement terminated.

In connection with the IPO, Reorganization and related transactions, the Company incurred an aggregate of $5.0 million of legal fees, a portion of which was paid to reimburse HCI and its subsidiaries (collectively, Hunt), the founding investors and independent directors for legal expenses they incurred in connection with such transactions. This legal expense reimbursement relates to the fees and expenses of outside counsel incurred by those parties and was negotiated separately from the reorganization advisory fee that the Company paid to Hunt-InfraREIT in connection with the reorganization advisory services provided in connection with the IPO. For further information on additional related party transactions the Company entered into as a result of the Reorganization, see the caption Initial Public Offering and Reorganization included in Note 1, Description of Business and Summary of Significant Accounting Policies.

On November 20, 2014, InfraREIT, Inc. borrowed $1.0 million from HCI pursuant to a promissory note. The note accrued interest at 2.5% per year and was due on November 1, 2015. This note and accrued interest were repaid in February 2015 with proceeds from the IPO for a total of $1.0 million.

Effective January 15, 2015, the Company sold all the assets related to the Cross Valley transmission line (Cross Valley Project) to a newly formed development company owned by Hunt and certain of the Company’s founding investors for cash of $34.2 million. Also effective January 15, 2015, the Company sold all the assets related to the Golden Spread Electric Coop (GSEC) interconnection (Golden Spread Project) to Hunt for cash of $7.0 million. For further information, see Note 3, Assets Held for Sale. These projects constitute identified projects being developed by Hunt and its affiliates under the Company’s development agreement with Hunt Transmission Services, L.L.C., also known as Hunt Developer.

In November 2015, the Conflicts Committee of the Company’s board of directors received an offer for the purchase of the Golden Spread Project. Negotiations are in progress regarding such purchase.

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Assets Held for Sale

12 Months Ended

Dec. 31, 2015

Assets Held For Sale Not Part Of Disposal Group [Abstract]

Assets Held For Sale Not Part of Disposal Group Disclosure

3. Assets Held for Sale

In October 2014, InfraREIT, L.L.C.’s board of directors approved a plan to sell the assets related to the Cross Valley Project and Golden Spread Project. As of December 31, 2014, these assets were classified as assets held for sale at the lower of historical carrying amount or fair value on the Consolidated Balance Sheets as they met the criteria for “held for sale” accounting as of December 31, 2014. These assets represent labor, materials, AFUDC and various other costs associated with the construction of the Cross Valley Project and Golden Spread Project.

The assets of the Cross Valley Project and Golden Spread Project were classified as assets held for sale on the Consolidated Balance Sheets were $41.2 million as of December 31, 2014. Since these assets were not placed in service as of December 31, 2014, no depreciation was taken.

Effective January 15, 2015, the Company sold all the assets related to the Cross Valley Project to a newly formed development company owned by Hunt and certain of the Company’s founding investors for cash of $34.2 million, which equaled the CWIP of the project on the date of the sale, plus reimbursement of out of pocket expenses associated with the project financing.

Also effective January 15, 2015, the Company sold all the assets related to the Golden Spread Project to Hunt for cash of $7.0 million, which equaled the CWIP of the project on the date of the sale.

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Prepaids and Other Current Assets

12 Months Ended

Dec. 31, 2015

Prepaid Expense And Other Assets Current [Abstract]

Prepaids Expenses And Other Current Assets

4. Prepaids and Other Current Assets

Prepaids and other current assets are as follows:

	December 31,
(In thousands)	2015		2014
Offering costs	$	—	$	4,397
Prepaid insurance		267		249
Other		293		251
Total prepaids and other current assets	$	560	$	4,897

Offering costs consisted of costs directly attributable to the registration of the Company’s common stock in connection with the IPO. These offering costs, which were netted against the IPO proceeds, equaled $6.3 million in the aggregate, of which $4.4 million were on the Consolidated Balance Sheet at December 31, 2014.

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Electric Plant and Depreciation

12 Months Ended

Dec. 31, 2015

Public Utilities Property Plant And Equipment [Abstract]

Electric Plant and Depreciation

5. Electric Plant and Depreciation

The major classes of electric plant are as follows:

	December 31,
(In thousands)	2015			2014
Electric plant:
Transmission plant	$	1,080,050		$	966,560
Distribution plant		457,988			387,329
General plant		15,655			15,018
Total plant in service		1,553,693			1,368,907
CWIP		121,602			41,222
Total electric plant		1,675,295			1,410,129
Accumulated depreciation		(240,764	)		(220,101	)
Electric plant held for future use		—			37,118
Electric plant, net	$	1,434,531		$	1,227,146

General plant consists primarily of a warehouse, buildings and associated assets. CWIP relates to various transmission and distribution projects underway. The capitalized amounts of CWIP consist primarily of route development expenditures, labor and materials expenditures, right of way acquisitions, engineering services and legal fees. Electric plant, net includes plant acquisition adjustments of $28.6 million and $28.7 million at December 31, 2015 and 2014, respectively.

On December 30, 2013, SDTS purchased from Southwestern Public Service Company approximately 66 miles of existing transmission lines and two substations located near Stanton, Texas for $37.1 million. The application for sale, transfer or merger was approved by the PUCT under the Docket No. 41430. SDTS holds legal title to the assets and they are subject to lease with Sharyland. Sharyland has the responsibility for operating these T&D assets and complying with all applicable regulatory requirements. As of December 31, 2014, these transmission lines and substations were classified as electric plant held for future use within electric plant, net on the Consolidated Balance Sheets. During August 2015, electric plant held for future use was placed in service and reclassified to transmission plant within electric plant, net on the Consolidated Balance Sheets and began depreciating.

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Goodwill

12 Months Ended

Dec. 31, 2015

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill

6. Goodwill

Goodwill represents the excess of costs of an acquired business over the fair value of the assets acquired, less liabilities assumed. The Company conducts an impairment test of goodwill at least annually. The Company’s 2015 impairment test did not result in an impairment charge. As of December 31, 2015 and 2014, $138.4 million was recorded as goodwill on the Consolidated Balance Sheets.

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Other Assets

12 Months Ended

Dec. 31, 2015

Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]

Other Assets

7. Other Assets

Other assets are as follows:

	December 31, 2015							December 31, 2014
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Deferred financing costs	$	1,292	$	(368	)	$	924	$	1,290	$	(143	)	$	1,147
Other regulatory assets:
Deferred financing costs		27,112		(13,208	)		13,904		25,701		(12,693	)		13,008
Deferred costs recoverable in future years		23,793		—			23,793		23,793		—			23,793
Other regulatory assets, net		50,905		(13,208	)		37,697		49,494		(12,693	)		36,801
Investments		2,519		—			2,519		2,519		—			2,519
Other assets	$	54,716	$	(13,576	)	$	41,140	$	53,303	$	(12,836	)	$	40,467

Deferred financing costs primarily consist of costs incurred in connection with the establishment of the InfraREIT LP revolving credit facility and issuance of $25.0 million aggregate principal amount of 8.50% per annum senior notes. See Note 8, Borrowings Under Credit Facilities and Note 9, Long-Term Debt.

Other regulatory assets consist of deferred financing costs within the Company’s regulated entities. These assets are classified as regulatory assets and amortized over the length of the related loan. These costs will be included in the costs to be recovered in connection with a future rate case. Deferred financing costs included in other regulatory assets primarily consist of debt issuance costs incurred in connection with the construction credit agreement entered into by SPLLC in June 2011, refinancing costs incurred in connection with the amended and restated revolving credit facility entered into by SDTS in June 2013, refinancing costs incurred to amend and restate the SDTS credit facility in order to increase the revolving credit facility to a total of $250.0 million revolving credit facility in December 2014 and financing costs incurred in connection with SDTS’s senior secured notes, Series A and Series B in December 2015. See Note 8, Borrowings Under Credit Facilities and Note 9, Long-Term Debt.

Deferred costs recoverable in future years of $23.8 million at December 31, 2015 and 2014 represent operating costs incurred from inception of Sharyland through December 31, 2007. The Company has determined that these costs are probable of recovery through future rates based on orders of the PUCT in Sharyland’s prior rate cases and regulatory precedent.

In connection with the acquisition of Cap Rock Holding Corporation (Cap Rock), the Company received a participation in the National Rural Utilities Cooperative Finance Corporation (NRUCFC). The Company accounts for this investment under the cost method of accounting. The Company believes that the investment is not impaired at December 31, 2015 and 2014.

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Borrowings Under Credit Facilities

12 Months Ended

Dec. 31, 2015

Debt Disclosure [Abstract]

Borrowings Under Credit Facilities

8. Borrowings Under Credit Facilities

InfraREIT LP Revolving Credit Facilities

On January 3, 2014, InfraREIT LP entered into a credit facility, led by Bank of America, N.A., as administrative agent, which established a revolving credit facility of $130.0 million that included a letter of credit facility. On November 13, 2014, the credit facility was amended to extend the maturity date to March 31, 2015. On December 10, 2014, the credit facility was repaid and terminated using proceeds from InfraREIT LP’s new $75.0 million credit facility and SDTS’s amended credit agreement entered into on December 10, 2014, as discussed below.

On December 10, 2014, InfraREIT LP entered into a $75.0 million revolving credit facility, led by Bank of America, N.A., as administrative agent, with up to $15.0 million available for issuance of letters of credit and a maturity date of December 10, 2019. The revolving credit facility is secured by substantially all of the assets of InfraREIT LP. In addition, Transmission and Distribution Company, LLC (TDC) guarantees the revolving credit facility and this guarantee is secured by the assets of, and InfraREIT LP’s equity interests in, TDC on materially the same basis as with TDC’s senior secured notes described below. Upon consummation of the IPO and Merger, InfraREIT, Inc. became a guarantor under this revolving credit facility.

The credit agreement requires InfraREIT LP to comply with coverage ratios on a consolidated basis and contains affirmative and negative covenants, including, limitations on additional debt, liens, investments, mergers, acquisitions, dispositions or entry into any line of business other than the business of the transmission and distribution of electric power and the provision of ancillary services and certain restrictions on the payment of dividends. The credit agreement also contains restrictions on the amount of Sharyland’s indebtedness and other restrictions on, and covenants applicable to, Sharyland.

Borrowings and other extensions of credit under the revolving credit facility bear interest, at InfraREIT LP’s election, at a rate equal to (1) the one, two, three or six month London Interbank Offered Rate (LIBOR) plus 2.5%, or (2) a base rate (equal to the highest of (a) the Federal Funds Rate plus ½ of 1%, (b) the Bank of America prime rate and (c) LIBOR plus 1%) plus 1.5%. Letters of credit are subject to a letter of credit fee equal to the daily amount available to be drawn times 2.5%. InfraREIT LP is also required to pay a commitment fee and other customary fees under the new revolving credit facility. InfraREIT LP may prepay amounts outstanding under the revolving credit facility in whole or in part without premium or penalty.

There were no outstanding borrowings or letters of credit under the revolving credit facility at December 31, 2015, and there was $75.0 million of borrowing capacity available. At December 31, 2014, $57.0 million of borrowings were outstanding at a 2.66% interest rate and no letters of credit were outstanding, with $18.0 million of remaining borrowing capacity under this revolving credit facility. As of December 31, 2015 and 2014, InfraREIT LP was in compliance with all debt covenants under the credit agreement.

SDTS Revolving Credit Facilities

On June 28, 2013, SDTS entered into a second amended and restated credit agreement led by Royal Bank of Canada, as administrative agent, which established a revolving credit facility of $75.0 million that originally matured on June 28, 2018 and included a letter of credit facility.

On December 10, 2014, SDTS’s second amended and restated credit agreement was amended and restated in order to, among other things, increase the amount of the revolving credit facility to a total of $250.0 million and extend the maturity date to December 10, 2019. Up to $25.0 million of the revolving credit facility is available for issuance of letters of credit, and up to $5.0 million of the revolving facility is available for swingline loans.

On September 28, 2015, SDTS amended its credit agreement and related collateral agreements in order to, among other things, modify the collateral requirements. The revolving credit agreement was previously secured by substantially all of the assets of, and TDC’s equity interests in, SDTS. After the amendment, the revolving credit facility is secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s various senior secured note obligations described below in Note 9, Long-Term Debt.

The interest rate for the revolving credit facility is based, at SDTS’s option, at a rate equal to either (1) a base rate, determined as the greatest of (a) the administrative agent’s prime rate, (b) the federal funds effective rate plus ½ of 1% and (c) LIBOR plus 1.00% per annum, plus a margin of either 0.75% or 1.00% per annum, depending on the total debt to capitalization ratio of SDTS on a consolidated basis or (2) LIBOR plus a margin of either 1.75% or 2.00% per annum, depending on the total debt to capitalization ratio of SDTS on a consolidated basis. SDTS is also required to pay a commitment fee and other customary fees under its revolving credit facility. SDTS is entitled to prepay amounts outstanding under the revolving credit facility with no prepayment penalty.

At December 31, 2015, SDTS had $54.0 million of borrowings outstanding at a weighted average interest rate of 2.05%, no letters of credit outstanding and $196.0 million of borrowing capacity available. At December 31, 2014, SDTS had $162.0 million of borrowings outstanding at a 1.91% interest rate with no letters of credit outstanding and $88.0 million of remaining borrowing capacity under this revolving credit facility. As of December 31, 2015 and 2014, SDTS was in compliance with all debt covenants under the credit agreement.

The revolving credit facilities of InfraREIT LP and SDTS are subject to customary events of default. If an event of default occurs under either facility and is continuing, the lenders may accelerate amounts due under such revolving credit facility (except in the case of a bankruptcy event of default, in which case such amounts will automatically become due and payable).

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Long-Term Debt

12 Months Ended

Dec. 31, 2015

Debt Instruments [Abstract]

Long-Term Debt

9. Long-Term Debt

Long-term debt consisted of the following:

		December 31, 2015						December 31, 2014
(In thousands)	Maturity Date	Amount Outstanding			Interest Rate			Amount Outstanding			Interest Rate
Senior secured notes - $53.5 million	December 30, 2029	$	44,512			7.25	%	$	46,291			7.25	%
Senior secured notes - $110.0 million	September 30, 2030		101,627			6.47	%		105,622			6.47	%
Senior secured notes - $25.0 million	December 30, 2020		18,750			8.50	%		20,000			8.50	%
Senior secured notes - $60.0 million	June 20, 2018		60,000			5.04	%		60,000			5.04	%
Senior secured notes - $400.0 million	December 3, 2025		400,000			3.86	%		—		N/A
Senior secured credit facilities -    $407.0 million	June 20, 2018		—		N/A				397,843			2.42	%	*
Total long-term debt			624,889						629,756
Less current portion of long-term debt			(7,423	)					(19,234	)
Debt classified as long-term debt		$	617,466					$	610,522

* Interest based on LIBOR at December 31, 2014 plus an applicable margin.

Senior Secured Notes — On December 31, 2009, SDTS issued $53.5 million aggregate principal amount of 7.25% per annum senior secured notes to The Prudential Insurance Company of America and affiliates (2009 Notes). Principal and interest on these senior secured notes are payable quarterly.

On July 13, 2010, in connection with the acquisition of Cap Rock, SDTS issued $110.0 million aggregate principal amount of 6.47% per annum senior secured notes to The Prudential Insurance Company of America (2010 Notes). Principal and interest on these senior secured notes is payable quarterly.

On July 13, 2010, in connection with the acquisition of Cap Rock, TDC issued $25.0 million aggregate principal amount of 8.50% per annum senior secured notes to The Prudential Insurance Company of America and affiliates. Principal and interest on these senior secured notes are payable quarterly and these senior secured notes are collateralized by the equity interest of TDC and substantially all of the assets of TDC on materially the same basis as with lenders under InfraREIT LP’s credit facility.

On September 28, 2015, SDTS amended its 2009 Notes and 2010 Notes and related collateral agreements related in order to, among other things, modify the collateral requirements. The 2009 Notes and 2010 Notes were previously collateralized by substantially all of the assets of, and TDC’s equity interests in SDTS. After the amendment, the 2009 Notes and 2010 Notes are secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s revolving credit facility described above in Note 8, Borrowings Under Credit Facilities, and as SDTS’s Series A Notes, Series B Notes and Fixed Rate Notes described below.

On December 3, 2015, SDTS issued $400.0 million in 10 year senior secured notes, series A (Series A Notes), due December 3, 2025, and on January 14, 2016 issued an additional $100.0 million in 10 year senior secured notes, series B (Series B Notes), due January 14, 2026. These senior secured notes were issued through a private placement conducted pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (Securities Act) and will bear interest at a rate of 3.86% per annum, payable semi-annually. The Series A Notes will be due in full at maturity with outstanding accrued interest payable each June and December. The Series B Notes will be due in full at maturity with outstanding accrued interest payable each January and July. See Note 23, Subsequent Events for additional information related to the Series B Notes. The Series A Notes and Series B Notes are secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s revolving credit facility described above in Note 8, Borrowings Under Credit Facilities, and as SDTS’s 2009 Notes, 2010 Notes and Fixed Rate Notes.

SDTS and TDC are entitled to prepay amounts outstanding under their senior secured notes, subject to a prepayment penalty equal to the excess of the discounted value of the remaining scheduled payments with respect to such notes over the amount of the prepaid notes.

The agreements governing the senior secured notes contain certain default triggers, including: failure to maintain compliance with financial and other covenants contained in the agreements, limitation on liens, investments and the incurrence of additional indebtedness. As of December 31, 2015 and 2014, SDTS and TDC were in compliance with all debt covenants under the applicable agreements.

Senior Secured Credit Facilities — On June 20, 2011, SPLLC entered into a construction term loan agreement consisting of a $667.0 million construction term loan, reduced to $447.0 million on March 8, 2013, syndicated broadly to a group of 14 international banks, and $60.0 million in fixed rate notes issued to The Prudential Insurance Company of America and affiliates (Fixed Rate Notes). The senior secured credit facility was collateralized by SPLLC’s assets and SDTS’s equity interest in SPLLC.

The $447.0 million construction term loan accrued interest at LIBOR plus 2.00%. LIBOR reset at each selected interest period (one, two, three or six months), at SPLLC’s discretion, at the current market rate. The outstanding borrowings under the construction term loan at December 31, 2013 were $396.0 million at an interest rate of 2.17%. On May 16, 2014, the construction term loan outstanding was converted into a term loan with a balance of $407.0 million. After this conversion, interest accrued at LIBOR plus 2.25% for a period of three years, at which point the interest rate would have increased to LIBOR plus 2.50%. Interest under the term loan was payable the last day of the selected interest period for interest periods of three months or less, and every three months for interest periods greater than three months. Amortized principal amounts of the term loan were payable quarterly after the conversion.

On December 3, 2015, the outstanding principal and interest on the term loan were paid in full with proceeds from the SDTS Series A Notes. Also on December 3, 2015, the Fixed Rate Notes were assumed by SDTS in connection with the SDTS Merger. The Fixed Rate Notes are secured by SDTS’s T&D assets, the leases, certain accounts and TDC’s equity interests in SDTS on the same basis as SDTS’s revolving credit facility described above in Note 8, Borrowings Under Credit Facilities, and as SDTS’s 2009 Notes, 2010 Notes, Series A Notes and Series B Notes.

Interest is payable quarterly on the $60.0 million Fixed Rate Notes with the full principal balance due on June 20, 2018.

The credit agreement governing the Fixed Rate Notes contains certain default triggers, including: failure to maintain compliance with financial and other covenants contained in the agreements, limitation on liens, investments and the incurrence of additional indebtedness. SDTS was in compliance with all debt covenants for the Fixed Rate Notes as of December 31, 2015. SPLLC was in compliance with all debt covenants for the term loan and Fixed Rates Notes as of December 31, 2014.

Future maturities of long-term debt are as follows for the years ended December 31:

(In thousands)	Total
2016	$	7,423
2017		7,849
2018		68,305
2019		8,792
2020		21,813
Thereafter		510,707
Total	$	624,889

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Derivative Instruments

12 Months Ended

Dec. 31, 2015

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Instruments

10. Derivative Instruments

Interest — During 2011, SPLLC entered into an interest rate swap agreement designated as a cash flow hedge against variable interest rate exposure on a portion of the construction term loan which established a fixed rate on the LIBOR interest rates specified in the SPLLC construction term loan at 0.832% per annum until June 30, 2014. Notional amounts reset on a monthly basis and did not exceed $261.0 million at any given time. There were no notional amounts as of December 31, 2014 as this swap agreement terminated on June 30, 2014. The Company has not entered into any new derivative instruments since the termination of this swap agreement.

This cash flow hedging instrument was recorded as a liability on the Consolidated Balance Sheets at fair value, with an offset to accumulated other comprehensive income to the extent the cash flow hedging instrument was effective. The cash flow hedging instrument gains and losses included in other comprehensive income were reclassified into earnings as the underlying transaction occurred. There was no cash flow hedging instrument ineffectiveness recorded for this swap agreement.

The Company reclassified $0.9 million and $1.6 million, included in other comprehensive income, during the years ended December 31, 2014 and 2013, respectively, to interest expense, net on the Consolidated Statements of Operations. The Company did not reclassify any amounts related to the swap agreement to interest expense, net during the year ended December 31, 2015.

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Contingent Consideration

12 Months Ended

Dec. 31, 2015

Business Combinations [Abstract]

Contingent Consideration

11. Contingent Consideration

In connection with the Company’s acquisition of InfraREIT LP in 2010, the Company agreed to contingent consideration in the form of future deemed capital credits in an amount up to $82.5 million to Hunt-InfraREIT. The capital account credits, which were generated pro rata with the cash expenditures on the CREZ Project up to $737.0 million, were issued to Hunt-InfraREIT in the form of Class A OP Units at the agreed upon deemed issue price of $10.65 per unit on the first day of each quarter following the actual expenditures. The future deemed capital credits were determined to be contingent consideration and were assessed a fair value of $78.6 million at the date of acquisition and included as a component of long-term liabilities on the Consolidated Balance Sheets.

As of December 31, 2014, InfraREIT LP had issued, as described above, approximately 6.7 million of Class A OP Units to Hunt-InfraREIT. During the first quarter of 2015, the following transactions occurred:

· On January 1, 2015, InfraREIT LP issued 53,246 Class A OP Units to Hunt-InfraREIT.

· On February 4, 2015, in connection with the Reorganization, InfraREIT LP issued Hunt-InfraREIT 983,418 Common OP Units in full settlement of InfraREIT LP’s contingent consideration obligation.

The Company recognized $18.4 million and $0.8 million as expense due to changes in fair value of the contingent consideration in accordance with the acquisition agreement during the years ended December 31, 2014 and 2013, respectively. This expense was recorded as part of other (expense) income, net on the Consolidated Statements of Operations. There was no expense recorded during the year ended December 31, 2015 related to the contingent consideration. As of December 31, 2014, $27.4 million was recorded as a current liability in the form of contingent consideration on the Consolidated Balance Sheets. As of December 31, 2015, no such liability was recorded as the contingent consideration was fully settled.

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Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2015

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

12. Fair Value of Financial Instruments

The carrying amounts of the Company’s cash and cash equivalents, restricted cash, due from affiliates and accounts payable approximate fair value due to the short-term nature of these assets and liabilities.

The Company had borrowings totaling $624.9 million and $231.9 million under senior secured notes with a weighted average interest rate of 4.78% and 6.43% per annum as of December 31, 2015 and 2014, respectively. The fair value of these borrowings is estimated using discounted cash flow analysis based on current market rates.

The Company’s derivative contracts consisted of cash flow hedging instruments which are not traded on a public exchange. The fair values of the cash flow hedging instrument contracts were determined using discounted cash flow techniques. The techniques incorporated Level 2 inputs and quotes from the counterparty to the interest rate swap contract. These market inputs were utilized in a discounted cash flow calculation considering the cash flow hedging instrument term, credit risk, notional amount and discount rate and were classified as Level 2 in the fair value hierarchy.

As of December 31, 2014, the Company had $397.8 million of borrowings under the construction term loan which accrued interest under floating interest rate structures. Accordingly, the carrying value of such indebtedness approximated fair value for the amounts outstanding. These borrowings were paid in full during 2015.

For the year ended December 31, 2014, the Company assessed the fair market value of its contingent consideration associated with the acquisition of InfraREIT LP using observable Level 2 inputs associated with the closing price of InfraREIT, Inc.’s stock on the closing date of the IPO.

Financial instruments, measured at fair value, by level within the fair value hierarchy were as follows:

	Carrying		Fair Value
(In thousands)	Value		Level 1		Level 2		Level 3
December 31, 2015
Long-term debt	$	624,889	$	—	$	657,270	$	—
December 31, 2014
Long-term debt	$	629,756	$	—	$	658,306	$	—
Contingent consideration - long-term		27,378		—		27,378		—

At December 31, 2014, the Company transferred the contingent consideration from Level 3 to Level 2.

ASC Topic 820 requires a company to disclose changes during the year for financial instruments that are classified as Level 3 financial instruments in the fair value hierarchy. Changes in Level 3 financial instruments were as follows:

(In thousands)	Year Ended December 31, 2014
Contingent Consideration
Beginning Balance	$	12,554
Non-cash noncontrolling interest equity issuance		(3,533	)
Change in fair value of contingent consideration		18,357
Gross transfers out of Level 3		(27,378	)
Ending Balance	$	—

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Regulatory Liability

12 Months Ended

Dec. 31, 2015

Regulatory Assets And Liabilities Disclosure [Abstract]

Regulatory Liability

13. Regulatory Liability

The Company’s regulatory liability is established through depreciation rates related to cost of removal and represents amounts that the Company expects to incur in the future. As of December 31, 2015 and 2014, the Company recorded on the Consolidated Balance Sheets as a long-term liability $10.6 million and $1.2 million, respectively, net of actual removal costs incurred.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2015

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

14. Commitments and Contingencies

The amounts reported as regulatory assets as of December 31, 2015 and 2014 are subject to the review by the PUCT and as with all utility assets may change at a later date based on that review, see Note 7, Other Assets.

The Company is not a party to any legal proceedings other than legal proceedings arising in the ordinary course of business. The Company does not believe the resolution of these proceedings, individually or in the aggregate, will have a material impact on the Company’s business, financial condition or results of operations, liquidity and cash flows.

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Equity

12 Months Ended

Dec. 31, 2015

Equity [Abstract]

Equity

15. Equity

On January 12, 2015, InfraREIT, Inc. amended its charter to increase the number of authorized shares of common stock from 3,000 to 450,000,000. In addition, the par value of the Company’s common stock was reduced from $1 per share to $0.01 per share. Both the authorized number of shares of common stock and the par value were unaffected by the Merger or Reorganization.

On December 4, 2015, the Company’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, Inc., on December 31, 2015 of $0.225 per unit for a total distribution of $13.6 million ($9.8 million to InfraREIT, Inc.). Also, on December 4, 2015, the Company’s board of directors approved a cash dividend to stockholders of record on December 31, 2015 of $0.225 per share for a total of $9.8 million. The cash distribution and cash dividend were paid on January 21, 2016.

On September 3, 2015, the Company’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, Inc., on September 30, 2015 of $0.225 per unit for a total distribution of $13.6 million ($9.8 million to InfraREIT, Inc.). Also, on September 3, 2015, the Company’s board of directors approved a cash dividend to stockholders of record on September 30, 2015 of $0.225 per share for a total of $9.8 million. The cash distribution and cash dividend were paid on October 22, 2015.

On June 5, 2015, the Company’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, Inc., on June 30, 2015 of $0.225 per unit for a total distribution of $13.6 million ($9.8 million to InfraREIT, Inc.). Also, on June 5, 2015, the Company’s board of directors approved a cash dividend to stockholders of record on June 30, 2015 of $0.225 per share for a total of $9.8 million. The cash distribution and cash dividend were paid on July 23, 2015.

On March 6, 2015, the Company’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, Inc., on March 31, 2015 of $0.14 per unit for a total distribution of $8.5 million ($6.1 million to InfraREIT, Inc.). Also, on March 6, 2015, the Company’s board of directors approved a cash dividend to stockholders of record on March 31, 2015 of $0.14 per share for a total of $6.1 million. The cash distribution and cash dividend were paid on April 23, 2015.

On January 13, 2015, InfraREIT, L.L.C.’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, L.L.C., on January 20, 2015 of $0.26 per unit for a total distribution of $11.7 million ($9.0 million to InfraREIT, L.L.C.). Also, on January 13, 2015, InfraREIT, L.L.C.’s board of directors approved a cash dividend to shareholders of record on January 20, 2015 of $0.26 per share for a total of $9.0 million. The cash distribution and cash dividend were paid on January 29, 2015.

For federal income tax purposes, the dividends declared in 2015 were classified as ordinary income.

On December 18, 2014, InfraREIT, L.L.C.’s board of directors approved a cash distribution by the Operating Partnership to all unit holders of record, including InfraREIT, L.L.C., on December 18, 2014 of $0.31 per unit for a total distribution of $14.1 million ($10.8 million to InfraREIT, L.L.C.). Also on December 18, 2014, InfraREIT, L.L.C.’s board of directors approved a cash dividend to shareholders of record on December 18, 2014 of $0.31 per share for a total of $10.8 million. The cash distribution and cash dividend were paid on January 16, 2015. For federal income tax purposes, this dividend was classified as ordinary income.

The Company is required to distribute at least 90% of its taxable income (excluding net capital gains) to maintain its status as a REIT. Management believes that the Company has distributed at least 100% of its taxable income.

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Accumulated Other Comprehensive Loss

12 Months Ended

Dec. 31, 2015

Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]

Accumulated Other Comprehensive Loss

16. Accumulated Other Comprehensive Loss

There were no changes in accumulated other comprehensive loss for the year ended December 31, 2015. Changes in accumulated other comprehensive loss for the years ended December 31, 2014 and 2013 associated with the interest rate swap designated as a cash flow hedge were as follows:

(In thousands)	Accumulated Other Comprehensive Loss Attributable to InfraREIT, Inc.			Accumulated Other Comprehensive Loss Attributable to Noncontrolling Interest			Total Accumulated Other Comprehensive Loss
Year Ended December 31, 2014
Other comprehensive (loss) income before reclassifications	$	(77	)	$	28		$	(49	)
Amounts reclassified from accumulated other comprehensive (loss) income		687			206			893
Net period other comprehensive income	$	610		$	234		$	844
Year Ended December 31, 2013
Other comprehensive loss before reclassifications	$	(180	)	$	(56	)	$	(236	)
Amounts reclassified from accumulated other comprehensive loss		1,180			379			1,559
Net period other comprehensive income	$	1,000		$	323		$	1,323

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Noncontrolling Interest

12 Months Ended

Dec. 31, 2015

Noncontrolling Interest [Abstract]

Noncontrolling Interest

17. Noncontrolling Interest

The Company presents as a noncontrolling interest the portion of any equity in entities that it controls and consolidates but does not own. Generally, Common OP Units participate in net income allocations and distributions and entitle their holder the right, subject to the terms set forth in the partnership agreement, to require the Operating Partnership to redeem all or a portion of the Common OP Units held by such limited partner. At the Company’s option, it may satisfy this redemption with cash or by exchanging shares of InfraREIT, Inc. common stock on a one-for-one basis. Prior to the cancellation of all outstanding Class A OP Units, these units also participated in net income allocations and distributions and had the same redemption rights. As of December 31, 2015 and 2014, there were a total of 17.0 million and 10.7 million OP Units, respectively, held by the limited partners of the Operating Partnership.

On May 1, 2014, the limited partnership agreement of InfraREIT LP was amended in order to incorporate a long-term incentive plan and InfraREIT LP issued 11,264 related OP Units (pre-IPO LTIP Units) to independent non-voting members of the InfraREIT, L.L.C. board of directors as part of their compensation, which were fully vested upon grant. These pre-IPO LTIP Units had an aggregate intrinsic value of $0.1 million with $0.1 million of compensation expense recognized in general and administrative expense during the year ended December 31, 2014. During the first quarter of 2015, an aggregate of 28,000 LTIP Units were issued by the Operating Partnership to seven of the Company’s directors which included a one year vesting period. The Company recognized $0.7 million of compensation expense in general and administrative expense in the Consolidated Statements of Operations during the year ended December 31, 2015. There was no compensation expense recognized during the year ended December 31, 2013.

The Company follows the guidance issued by the FASB regarding the classification and measurement of redeemable securities. Accordingly, The Company has determined that the Common OP Units meet the requirements to be classified as permanent equity. During the year ended December 31, 2015, the Company did not redeem any OP Units other than, in connection with the Reorganization: (1) 1,551,878 Class A OP Units held by Hunt-InfraREIT, which were exchanged with InfraREIT, Inc. for 1,551,878 shares of common stock of InfraREIT, Inc. and (2) 6,242,999 Class A OP Units in exchange for the assignment of a promissory note in the principal amount of $66.5 million. The Operating Partnership did not redeem any OP Units during the years ended December 31, 2014 and 2013.

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Earnings Per Share

12 Months Ended

Dec. 31, 2015

Earnings Per Share [Abstract]

Earnings Per Share

18. Earnings Per Share

Basic earnings per share is calculated by dividing net earnings after noncontrolling interest by the weighted average shares outstanding. Diluted earnings per share is calculated similarly, except that it includes the dilutive effect of the assumed redemption of OP Units for shares of common stock of InfraREIT, Inc. or common shares of InfraREIT, L.L.C., as applicable, if such redemption were dilutive. The redemption of OP Units would have been anti-dilutive during the years ended December 31, 2015, 2014 and 2013.

Earnings per share are calculated as follows:

	Years Ended December 31,
(In thousands, except per share data)	2015		2014		2013
Basic net income per share:
Net income attributable to InfraREIT, Inc.	$	13,267	$	22,898	$	32,122
Weighted average common shares outstanding		42,983		35,053		29,883
Basic net income per share	$	0.31	$	0.65	$	1.07
Diluted net income per share:
Net income attributable to InfraREIT, Inc.	$	13,267	$	22,898	$	32,122
Weighted average common shares outstanding		42,983		35,053		29,883
Redemption of operating partnership units		—		—		—
Weighted average dilutive shares outstanding		42,983		35,053		29,883
Diluted net income per share	$	0.31	$	0.65	$	1.07
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	$	6,664	$	6,882	$	10,288
Redemption of operating partnership units		16,232		10,578		9,181

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Leases

12 Months Ended

Dec. 31, 2015

Leases [Abstract]

Leases

19. Leases

The following table shows the composition of the Company’s lease revenue:

	Years Ended December 31,
(In thousands)	2015		2014		2013
Base rent (straight-line)	$	125,669	$	106,746	$	57,979
Percentage rent		25,534		27,669		15,214
Total lease revenue	$	151,203	$	134,415	$	73,193

SDTS has entered into various leases with Sharyland for all of the Company’s placed in service T&D assets. The master lease agreements, as amended, expire at various dates from December 31, 2017 through December 31, 2022. Each agreement includes annual base rent while all but one agreement includes additional percentage rent (based on an agreed upon percentage of the gross revenue of Sharyland, as defined in the lease agreements, in excess of annual specified breakpoints). The rate used for percentage rent for the reported time periods varies by lease and ranges from a high of 37% to a low of 23%. The percentage rent rate for 2016 through the expiration of the leases ranges from a 23% to 32%. Because an annual specified breakpoint must be met under the leases before the Company can recognize any percentage rent, the Company anticipates that revenue will grow over the year with little to no percentage rent recognized in the first and second quarters of each year and with the largest amounts recognized during the third and fourth quarters of each year.

Future minimum rent revenue expected in accordance with these lease agreements is as follows for the years ended December 31:

(In thousands)	Total
2016	$	148,751
2017		155,855
2018		81,673
2019		78,923
2020		65,601
Thereafter		12,145
Total	$	542,948

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Share Based Compensation

12 Months Ended

Dec. 31, 2015

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Share-Based Compensation

20. Share-Based Compensation

InfraREIT, Inc. 2015 Equity Incentive Plan

The Company’s pre-IPO board of directors adopted the InfraREIT, Inc. 2015 Equity Incentive Plan (2015 Equity Incentive Plan) which permits the Company to provide equity based compensation to certain personnel who provide services to the Company, Hunt Manager or an affiliate of either, in the form of stock options, stock appreciation rights, dividend equivalent rights, restricted stock, stock units, performance based awards, unrestricted stock, LTIP Units and other equity based awards up to an aggregate of 375,000 shares. The 2015 Equity Incentive Plan provides, among other things, that no participant in the plan will be permitted to acquire, or will have any right to acquire, shares thereunder if such acquisition would be prohibited by the ownership limits contained in the Company’s charter or bylaws or would impair the Company’s status as a REIT.

The Company currently utilizes the 2015 Equity Incentive Plan primarily to compensate the non-employee directors for their service on the Company’s board of directors. Effective February 4, 2015, the Company granted an aggregate of 28,000 LTIP Units at a grant date fair value of $26.41 per share to the non-employee directors as their award of shares of the Company’s common stock. This grant vested in full in February 2016. The compensation expense, which represents the fair value of the stock measured at market price at the date of grant, is recognized on a straight-line basis over the vesting period. For the year ended December 31, 2015, $0.7 million was recognized as compensation expense related to these grants and is included in general and administrative expense on the Consolidated Statements of Operations. Unamortized compensation expense related to these grants was $0.1 million at December 31, 2015.

InfraREIT, Inc. Non-Qualified 2015 Employee Stock Purchase Plan

The Company adopted the InfraREIT, Inc. Non-Qualified Employee Stock Purchase Plan (ESPP) that will allow employees of Hunt Manager or its affiliates whose principal duties include the management and operation of the Company’s business to purchase shares of the Company’s common stock at a discount. Pursuant to the management agreement, Hunt Manager is obligated to fund all of the costs associated with the ESPP, including the funds necessary to purchase shares of the Company’s common stock in the open market pursuant to the plan. A total of 250,000 shares of common stock are reserved for sale and authorized for issuance under the ESPP. As of December 31, 2015, no shares have been purchased or offered for purchase under the ESPP.

Other Stock-Based Compensation

During May 2014, 11,264 pre-IPO LTIP Units were issued with an aggregate intrinsic value of $0.1 million with $0.1 million of compensation expense recognized in general and administrative expense during the year ended December 31, 2014. There was no compensation expense recognized during the year ended December 31, 2013.

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Supplemental Cash Flow Information

12 Months Ended

Dec. 31, 2015

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information

21. Supplemental Cash Flow Information

Supplemental cash flow information and non-cash investing and financing activities are as follows:

	Years Ended December 31,
(In thousands)	2015			2014		2013
Supplemental cash flow information
Cash paid during the period for interest	$	25,850		$	29,981	$	26,403
Cash (received) paid during the period for taxes		(31	)		75		36
Non-cash investing and financing activities
Non-cash right of way additions to electric plant		—			337		1,275
Change in accrued additions to electric plant		6,942			20,633		8,876
Allowance for funds used during construction - debt		1,767			1,635		12,579
Net non-cash equity issuances related to the Merger    and Reorganization		97,193			—		—
Net non-cash noncontrolling equity issuances related to    the Merger and Reorganization		119,607			—		—
Non-cash members' contributions		—			—		369
Non-cash noncontrolling interests contributions		—			—		119
Non-cash noncontrolling interests equity issuance		755			4,648		32,052
Dividends and distributions payable		13,634			14,130		—

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Quarterly Financial Information

12 Months Ended

Dec. 31, 2015

Quarterly Financial Information Disclosure [Abstract]

Quarterly Financial Information

22. Quarterly Financial Information (Unaudited)

Summarized unaudited consolidated quarterly information for the years ended December 31 follows:

(In thousands, except per share data)	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Year
2015
Lease revenue	$	29,372		$	29,458		$	41,452		$	50,921		$	151,203
General and administrative expense		(48,733	)		(4,728	)		(5,504	)		(5,641	)		(64,606	)
Depreciation		(9,508	)		(9,671	)		(10,259	)		(10,773	)		(40,211	)
Interest expense, net		(7,422	)		(6,939	)		(6,723	)		(7,470	)		(28,554	)
Other income, net		626			847			707			868			3,048
Income tax expense		(208	)		(124	)		(243	)		(374	)		(949	)
Net (loss) income		(35,873	)		8,843			19,430			27,531			19,931
Less: Net (loss) income attributable to noncontrolling    interest		(9,000	)		2,481			5,458			7,725			6,664
Net (loss) income attributable to InfraREIT, Inc.	$	(26,873	)	$	6,362		$	13,972		$	19,806		$	13,267
Basic EPS (1)	$	(0.65	)	$	0.15		$	0.32		$	0.45		$	0.31
Diluted EPS (1)	$	(0.65	)	$	0.15		$	0.32		$	0.45		$	0.31
2014
Lease revenue	$	24,837		$	25,225		$	39,309		$	45,044		$	134,415
General and administrative expense		(3,412	)		(3,284	)		(6,143	)		(5,786	)		(18,625	)
Depreciation		(8,461	)		(8,366	)		(8,998	)		(9,255	)		(35,080	)
Interest expense, net		(7,681	)		(7,984	)		(8,699	)		(8,377	)		(32,741	)
Other (expense) income, net		(133	)		172			294			(17,569	)		(17,236	)
Income tax expense		(158	)		(250	)		(248	)		(297	)		(953	)
Net income		4,992			5,513			15,515			3,760			29,780
Less: Net income attributable to noncontrolling    interest		1,147			1,278			3,621			836			6,882
Net income attributable to InfraREIT, Inc.	$	3,845		$	4,235		$	11,894		$	2,924		$	22,898
Basic EPS (1)	$	0.11		$	0.12		$	0.34		$	0.08		$	0.65
Diluted EPS (1)	$	0.11		$	0.12		$	0.34		$	0.08		$	0.65

(1) Basic and diluted net income per common share are computed independently for each quarter and full year based on the respective average number of common shares outstanding; therefore, the sum of the quarterly net income per common share data may not equal the net income per common share for the year.

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Subsequent Events

12 Months Ended

Dec. 31, 2015

Subsequent Events [Abstract]

Subsequent Events

23. Subsequent Events

On January 4, 2016, the Company issued an aggregate of 4,735 shares of common stock and 29,722 LTIP Units to seven members of the Company’s board of directors with a grant date fair value of $18.58 per common share or LTIP Unit and a fair value of $0.6 million. The 29,722 LTIP Units are scheduled to vest in January 2017, subject to continued service, and the 4,735 shares of common stock fully vested at issuance.

On January 14, 2016, the Company issued $100.0 million in 10 year senior secured notes, Series B due January 14, 2026. The proceeds from these notes were used to repay the outstanding balance on SDTS’s revolving credit facility and for general operating purposes.

In February 2016, the Conflicts Committee of the Company’s board of directors received an offer for the purchase of the Cross Valley Project. Currently, negotiations are in progress regarding such purchase.

On March 2, 2016, the Company’s board of directors declared a quarterly dividend of $0.25 per share of common stock, or $1.00 per share on an annualized basis, payable on April 21, 2016 to holders of record as of March 31, 2016. The Company’s board of directors also authorized the Operating Partnership to make a distribution of $0.25 per OP Unit to the partners in the Operating Partnership, which includes affiliates of Hunt.

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Electric Plant and Accumulated Depreciation

12 Months Ended

Dec. 31, 2015

Real Estate And Accumulated Depreciation Disclosure [Abstract]

Electric Plant and Accumulated Depreciation

InfraREIT, Inc.

SCHEDULE III – ELECTRIC PLANT AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2015

(In thousands)

Description (1)	Encumbrances		Initial Cost to Company (2)		Cost Subsequent to Acquisition				Gross Amount Carried at Period Close (3)		Accumulated Depreciation			Date of Construction (4)	Date Acquired	Depreciation Life in Latest Income Statementsis Computed (5)
			Electric Plant		Improvements		Carrying Cost		Electric Plant Total
S/B/C assets	$	268,620	$	713,502	$	—	$	—	$	713,502	$	(129,770	)	(4)	(4)	(5)
McAllen assets		61,676		155,970		—		—		155,970		(21,943	)	(4)	(4)	(5)
CREZ assets		294,159		669,189		—		—		669,189		(29,960	)	(4)	(4)	(5)
Stanton Transmission Loop assets		15,767		92,572		—		—		92,572		(58,309	)	(4)	(4)	(5)
ERCOT Transmission assets		19,917		44,062		—		—		44,062		(782	)	(4)	(4)	(5)

(1) Asset descriptions correspond to asset groups under individual leases.

(2) Because the Company’s assets consist entirely of electric plant assets, which are regulated by the PUCT, electric plant is stated at original cost, which includes cost of contracted services, direct labor, materials, acquisition adjustments, capitalized interest and overhead items.

(3) See reconciliation on next page.

(4) Because additions and improvements to the T&D assets are ongoing, construction and acquisition dates are not applicable.

(5) Provision for depreciation of electric plant is computed using straight-lines rates as follows:

Transmission plant	1.69% - 3.15%
Distribution plant	1.74% - 5.96%
General plant	0.80% - 5.12%

InfraREIT, Inc.

SCHEDULE III – ELECTRIC PLANT AND ACCUMULATED DEPRECIATION

FIXED ASSET RECONCILATION

(In thousands)

	December 31,
	2015				2014
Electric plant
Beginning balance	$	1,447,247			$	1,298,946
Additions		235,263				153,395
Retirements		(7,215	)	(1)		(5,094	)
Ending balance		1,675,295				1,447,247
Accumulated depreciation
Beginning balance		220,101				194,569
Depreciation expense		40,211				35,080
Retirements		(7,215	)	(1)		(5,094	)
Cost of removal		(12,333	)			(4,454	)
Ending balance		240,764				220,101
Electric plant, net	$	1,434,531			$	1,227,146

(1) Retirements are shown net of the accumulated depreciation related to the assets that were classified as electric plant held for future use and placed in service as transmission assets during August 2015.

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Description of Business and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

Accounting Policies [Abstract]

Description of Business

Description of Business

InfraREIT, Inc. is a Maryland corporation and the surviving corporation of a merger (Merger) with InfraREIT, L.L.C., a Delaware limited liability company, completed on February 4, 2015 in connection with the initial public offering (IPO) of InfraREIT, Inc. As used in these financial statements, unless the context requires otherwise or except as otherwise noted, the words “Company” and “InfraREIT” refer to InfraREIT, L.L.C., before giving effect to the Merger, and InfraREIT, Inc., after giving effect to the Merger, as the context requires, and also refer to the registrant’s subsidiaries, including InfraREIT Partners, LP (Operating Partnership or InfraREIT LP), a Delaware limited partnership.

The Merger was accounted for as a reverse acquisition, which means for accounting purposes the Company treated the assets and liabilities of InfraREIT, Inc. as assumed and incorporated with the assets and liabilities of InfraREIT, L.L.C. The main assets and liabilities assumed were marketable securities of $1.1 million and a note payable of $1.0 million. The marketable securities were sold during February 2015 for $1.1 million resulting in a realized gain of $0.1 million which was recorded in other income (expense), net in the Consolidated Statements of Operations. Additionally, the note payable and associated interest were paid in full in February 2015.

Before the IPO, substantially all of the Company’s business and assets were owned, directly or indirectly, by InfraREIT, L.L.C. InfraREIT, L.L.C. was organized on November 23, 2010 as a Delaware limited liability company that elected and qualified under the Internal Revenue Code of 1986, as amended (the Code), to be taxed as a real estate investment trust (REIT) for federal income tax purposes. InfraREIT, L.L.C. was the general partner of the Operating Partnership prior to the Merger and held a controlling financial investment in InfraREIT LP. After the Merger, InfraREIT, Inc. became the general partner of the Operating Partnership. InfraREIT, Inc. will elect to be taxed as a REIT commencing with the taxable year ending December 31, 2015. InfraREIT, Inc.’s operating results before the Merger primarily reflected costs related to obtaining a private letter ruling from the IRS and accounting services. As a result, these financial statements present the operating results of InfraREIT, L.L.C. for years ended December 31, 2014 and 2013 and the InfraREIT, L.L.C. balance sheet as of December 31, 2014. The operating results for the year ended December 31, 2015 reflect the operations of InfraREIT, L.L.C. prior to the effectiveness of the Merger, and the operations of InfraREIT, Inc. for the period from the Merger through December 31, 2015, and the balance sheet as of December 31, 2015 is the balance sheet of InfraREIT, Inc.

InfraREIT, L.L.C. was owned by Marubeni Corporation (Marubeni), John Hancock Life Insurance Company (U.S.A.), Teachers Insurance and Annuity Association of America, OpTrust Infrastructure N.A. Inc. (OpTrust) (collectively, founding investors) as well as Westwood Trust, as trustee of a trust for the benefit of a charitable beneficiary (Westwood Trust), and other private investors. Since the IPO, InfraREIT, Inc. has been owned by external investors as well as the founding investors, affiliates of Hunt Consolidated, Inc. (HCI) and other private investors.

The Company is externally managed and advised by Hunt Utility Services, LLC (Hunt Manager), a Delaware limited liability company. Hunt Manager is responsible for overseeing the Company’s day-to-day affairs.

The Company holds 71.9% of the outstanding partnership units (OP Units) in the Operating Partnership as of December 31, 2015 and is its general partner. The Company includes the accounts of the Operating Partnership and its subsidiaries in the consolidated financial statements. MC Transmission Holdings, Inc. (MC Transmission), which is a subsidiary of Marubeni Corporation (Marubeni), seven members of the Company’s board of directors and affiliates of HCI hold the other 28.1% of the outstanding OP Units as of December 31, 2015.

Sharyland Distribution & Transmission Services, L.L.C. (SDTS) is the owner of electric transmission and distribution assets (T&D assets) located in the Texas Panhandle near Amarillo (CREZ assets), the Permian Basin in and around Stanton, Central Texas around Brady, Northeast Texas in and around Celeste (S/B/C assets) and South Texas near McAllen (McAllen assets). Previously, SDTS held some of its assets through its former wholly owned subsidiaries, SDTS FERC, L.L.C. (SDTS FERC) and Sharyland Projects, L.L.C. (SPLLC). However in June 2015, SDTS FERC were merged with and into SDTS with SDTS as the surviving entity, and in December 2015, SPLLC was merged with and into SDTS with SDTS as the surviving entity (SDTS Merger).

The T&D assets include over 53,000 electricity delivery points, approximately 665 miles of transmission lines, approximately 12,300 miles of distribution lines, 48 substations and a 300 megawatt (MW) high-voltage direct current interconnection between Texas and Mexico (Railroad DC Tie). SDTS leases the T&D assets to Sharyland Utilities, L.P. (Sharyland or tenant), a Texas based utility, under several lease agreements, which operates and maintains the T&D assets. SDTS is subject to regulation as an electric utility by the Public Utility Commission of Texas (PUCT).

Initial Public Offering and Reorganization

Initial Public Offering and Reorganization

InfraREIT, Inc. completed its IPO on February 4, 2015, issuing 23,000,000 shares of common stock at a price of $23.00, resulting in gross proceeds of $529.0 million.

Immediately after the closing of the IPO, InfraREIT, Inc. completed the Merger, with InfraREIT, L.L.C. merging with and into InfraREIT, Inc., and InfraREIT, Inc. as the surviving entity and general partner of the Operating Partnership. InfraREIT, Inc. used $172.4 million of the net proceeds from the IPO to fund the cash portion of the consideration issued in the Merger, as described in greater detail below. InfraREIT, Inc. contributed the remaining $323.2 million to the Operating Partnership in exchange for common OP Units (Common OP Units).

The Operating Partnership used the net proceeds from the IPO that it received from InfraREIT, Inc.:

· to repay an aggregate of $1.0 million of indebtedness to HCI;

· to repay an aggregate of $72.0 million of indebtedness outstanding under the Operating Partnership’s revolving credit facility and $150.0 million of indebtedness outstanding under SDTS’s revolving credit facility;

· to pay offering expenses (other than the underwriting discounts and commissions and the underwriter structuring fee) of $6.3 million; and

· for general corporate purposes.

The following bullets describe the Merger and related transactions that were effected in the first quarter of 2015 (collectively, the Reorganization).

· On January 29, 2015, the Operating Partnership effected a reverse unit split whereby each holder of OP Units received 0.938550 OP Units of the same class in exchange for each such unit it held immediately prior to such time, which is referred to as the unit split. Also, on January 29, 2015, InfraREIT, L.L.C. effected a reverse share split whereby each holder of shares received 0.938550 shares of the same class in exchange for each such share it held immediately prior to such time, which is referred to as the share split. All references to unit, share, per unit and per share amounts in these consolidated financial statements and related disclosures have been adjusted to reflect the reverse share split and reverse unit split for all periods presented.

· On January 29, 2015, InfraREIT, Inc. issued 1,700,000 shares of common stock to Hunt-InfraREIT, L.L.C. (Hunt-InfraREIT) as a non-cash reorganization advisory fee in accordance with a structuring fee agreement, resulting in the recognition of a $44.9 million non-cash expense in the first quarter of 2015.

· On February 4, 2015, the Operating Partnership issued 1,700,000 OP Units to InfraREIT, Inc. in respect of the structuring fee issuance of 1,700,000 shares of InfraREIT, Inc. common stock described immediately above.

· On February 4, 2015, the Operating Partnership issued an aggregate of 28,000 of its profit interest OP Units (LTIP Units) to seven of InfraREIT’s directors.

· On February 4, 2015, the Operating Partnership issued 983,418 Common OP Units to Hunt-InfraREIT in settlement of the Operating Partnership’s obligation to issue OP Units to Hunt-InfraREIT related to the CREZ Project.

· On February 4, 2015, the Operating Partnership issued Hunt-InfraREIT 1,167,287 Common OP Units as an accelerated payment of a portion of the carried interest agreed to in 2010 in connection with the organization of InfraREIT, L.L.C. To effect the shift in ownership from the pre-IPO investors to Hunt-InfraREIT, an equal number of OP Units held by InfraREIT, L.L.C. in the Operating Partnership were canceled at the same time.

· On February 4, 2015, as a result of the Merger, (1) holders of 8,000,000 common shares of InfraREIT, L.L.C. received $21.551 per common share, which was equal to the IPO price less the underwriting discounts and commissions and an underwriting structuring fee, (2) holders of the remaining 19,617,755 common shares of InfraREIT, L.L.C. received 19,617,755 shares of InfraREIT, Inc. Class A common stock and (3) holders of 25,145 Class C shares of InfraREIT, L.L.C. received 25,145 shares of InfraREIT, Inc. Class C common stock.

· The founding investors each received both cash and stock consideration in the Merger, and all other pre-IPO investors received shares of InfraREIT, Inc. Class A common stock or Class C common stock in the Merger. InfraREIT, L.L.C. gave each other holder of its common shares the opportunity to receive cash consideration in the Merger, and each such holder elected (or was deemed to have elected) to receive shares of Class A common stock under the merger agreement. All holders of InfraREIT, L.L.C.’s Class C common shares, as a separate class, received shares of Class C common stock pursuant to the merger agreement.

· On February 4, 2015, InfraREIT, Inc. contributed $323.2 million to the Operating Partnership in exchange for 15,000,000 Common OP Units.

· On February 4, 2015, InfraREIT, Inc. issued 1,551,878 shares of common stock to Hunt-InfraREIT in exchange for 1,551,878 OP Units tendered for redemption by Hunt-InfraREIT in accordance with a redemption agreement.

· On February 4, 2015, InfraREIT, Inc. purchased 6,242,999 common shares in consideration for the issuance of a promissory note to Westwood Trust in the principal amount of $66.5 million.

· Westwood Trust immediately transferred the promissory note to MC Transmission, and, immediately following receipt of the promissory note, MC Transmission purchased 3,325,874 Common OP Units from the Operating Partnership in consideration for the assignment of the promissory note. The promissory note was then transferred to InfraREIT, Inc. in exchange for the redemption of 6,242,999 OP Units held by InfraREIT, Inc. and the subsequent cancellation of such promissory note, resulting in no cash consideration being paid or received pursuant to the purchase from Westwood Trust or the sale of Common OP Units to MC Transmission.

· On March 9, 2015, the Operating Partnership issued 2,329,283 Common OP Units to Hunt-InfraREIT, and InfraREIT, Inc. canceled an equal number of shares of Class A common stock and Class C common stock. Each remaining share of Class A common stock and Class C common stock then converted to common stock on a one-for-one basis. This issuance settled InfraREIT, L.L.C.’s pre-IPO investors’ carried interest obligation agreed to by Hunt-InfraREIT under the investment documents entered into by the parties in 2010.

· On March 9, 2015, the 11,264 long-term incentive plan units issued to two of InfraREIT, L.L.C.’s non-voting directors in May 2014 converted on a one-to-one basis to Common OP Units.

Limited Partnership Agreement

Limited Partnership Agreement

In connection with the Reorganization, the Company adopted a Second Amended and Restated Limited Partnership Agreement which became effective with the closing of the IPO. Upon completion of the IPO, the Operating Partnership had five types of OP Units outstanding: Common OP Units, Class A OP Units, Class B OP Units, Class C OP Units and LTIP Units.

On March 9, 2015, the Operating Partnership issued Common OP Units in exchange for outstanding Class A OP Units and Class C OP Units. Such Common OP Units were allocated among the holders of Class A OP Units and Class C OP Units, and the Class A OP Units, Class B OP Units and Class C OP Units were canceled. Following such allocation, the Company adopted a Third Amended and Restated Limited Partnership Agreement that eliminated the provisions related to the Reorganization and the description of the Class A OP Units, Class B OP Units and Class C OP Units; however, it continues to allow amendments to authorize and issue additional classes of OP Units in the future.

Principles of Consolidation and Presentation

Principles of Consolidation and Presentation

The consolidated financial statements include the Company’s accounts and the accounts of all other entities in which the Company has a controlling financial interest with noncontrolling interest of consolidated subsidiaries reported separately. All significant intercompany balances and transactions have been eliminated. SDTS maintains (and prior to their merger with and into SDTS, SDTS FERC and SPLLC also maintained) accounting records in accordance with the uniform system of accounts, as prescribed by the Federal Energy Regulatory Commission (FERC). In accordance with the applicable consolidation guidance, the Company’s consolidated financial statements reflect the effects of the different rate making principles mandated by the FERC and the PUCT which regulate its subsidiaries’ operations.

The Company and Hunt Manager are parties to a management agreement under which Hunt Manager provides certain services to the Company for a management fee. Historically, the Company’s Consolidated Statements of Operations included all costs incurred on the Company’s behalf by Hunt Manager, including compensation expenses, rent expense and other costs included in general and administrative expense on the Consolidated Statements of Operations totaling $11.6 million for the year ended December 31, 2013. On June 24, 2014, the Company’s board of directors agreed to increase the annual management fee from $2.5 million to $10.0 million effective January 1, 2014. As a result, the Company’s general and administrative expenses for the years ended December 31, 2015 and 2014 do not include costs incurred by Hunt Manager during those periods, but do include management fees paid to Hunt Manager as well as additional costs the Company incurred directly, such as professional services costs and direct reimbursement of third-party costs paid to outside service providers. As a result of the increased management fee, the Company, through its subsidiary InfraREIT LP, incurred costs associated with management fees of $12.3 million and $10.0 million during the years ended December 31, 2015 and 2014, respectively.

The accompanying historical consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). In the opinion of management, all adjustments (consisting of normal recurring accruals), considered necessary for a fair presentation have been included. The historical financial information is not necessarily indicative of the Company’s future results of operations, financial position and cash flows.

Use of Estimates

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Regulation

Regulation

For regulatory purposes, including regulatory reporting, the T&D assets owned by SDTS and the operations of Sharyland are viewed on a combined basis. As a result, regulatory principles applicable to the utility industry also apply to SDTS (and previously applied to its former subsidiaries). The financial statements reflect regulatory assets and liabilities under cost based rate regulation in accordance with accounting standards related to the effect of certain types of regulation. Regulatory decisions can have an impact on the recovery of costs, the rate earned on invested capital and the timing and amount of assets to be recovered by rates. See Note 7, Other Assets.

SDTS capitalizes allowance for funds used during construction (AFUDC) during the construction of its T&D assets, and SDTS lease agreements with Sharyland rely on FERC definitions and accepted standards regarding capitalization of expense to define key terms in the lease such as footprint projects, which are the amounts SDTS is obligated to fund pursuant to the leases. The amounts funded for these footprint projects include allocations of Sharyland employees’ time and overhead allocations consistent with FERC policies and U.S. GAAP.

Sharyland cannot be removed as lessee without prior approval from the PUCT. SDTS transacts with its tenant through several lease arrangements covering the T&D assets. These lease agreements include provisions for annual additions and retirements of the T&D assets in the form of new construction or other capitalized projects.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all short-term, highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s account balances at one or more institutions periodically exceed the Federal Deposit Insurance Corporation (FDIC) insurance coverage and, as a result, there could be a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company has not experienced any losses and believes that the risk is not significant.

Restricted Cash

Restricted Cash

Restricted cash represents the principal and interest payable for two consecutive periods associated with the $25.0 million senior secured notes described in Note 9, Long-Term Debt.

Inventory

Inventory

Inventory consists primarily of transmission parts and materials used in the construction of electric plant. Inventory is valued at average cost when it is acquired and used.

Assets Held for Sale

Assets Held for Sale

The Company records assets held for sale when certain criteria have been met as specified by Accounting Standard Codification (ASC) Topic 360, Property, Plant and Equipment. These criteria include management’s commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is expected to be completed within one year; the assets are being marketed at reasonable prices in relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. Assets held for sale are reported at the lower of their carrying amount or fair value less cost to sell.

Electric Plant, net

Electric Plant, net

Electric plant equipment is stated at the original cost of acquisition or construction, which includes the cost of contracted services, direct labor, materials, acquisition adjustments, and overhead items. In accordance with the FERC uniform system of accounts guidance, SDTS recognizes as a cost to construction work in progress (CWIP) AFUDC on other funds classified as other income, net and AFUDC on borrowed funds classified as a reduction of the interest expense, net on the Consolidated Statements of Operations.

The AFUDC blended rate utilized was 6.6%, 4.1% and 9.1% for the years ended December 31, 2015, 2014 and 2013, respectively.

Electric plant held for future use is included in electric plant, net.

Depreciation of property, plant and equipment is calculated on a straight-line basis over the estimated service lives of the properties based on depreciation rates approved by the PUCT. Depreciation rates include plant removal costs as a component of depreciation expense, consistent with regulatory treatment. Actual removal costs incurred are charged to accumulated depreciation. When accrued removal costs exceed incurred removal costs, the difference is reclassified as a regulatory liability to retire assets in the future. The regulatory liability will be relieved as cost of removal charges are incurred upon asset retirement.

Repairs are the responsibility of Sharyland as the lessee under the lease agreements. Betterments and improvements generally are the responsibility of SDTS and are capitalized.

Provision for depreciation of electric plant is computed using composite straight-line rates as follows:

	Years Ended December 31,
	2015	2014	2013
Transmission plant	1.69% -3.15%	1.69% -3.15%	2.57% -3.00%
Distribution plant	1.74% -5.96%	1.74% -5.96%	2.50% -3.10%
General plant	0.80% -5.12%	0.80% -5.12%	2.50% -33.33%

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Company evaluates impairment of its long-lived assets annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable through expected future cash flows. Regulatory assets are charged to expense in the period in which they are no longer probable of future recovery.

Goodwill

Goodwill

Goodwill represents the excess of costs of an acquired business over the fair value of the assets acquired, less liabilities assumed. Goodwill is not amortized and is tested for impairment annually or more frequently if events or changes in circumstances arise.

Accounting Standard Update (ASU) 2011-08, Testing of Goodwill for Impairment allows entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit (i.e. the first step of the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more-likely-than-not greater than the carrying amount, a quantitative calculation would not be needed.

The Company’s annual goodwill impairment analysis, which was performed qualitatively during the fourth quarter of 2015, did not result in an impairment charge. As of December 31, 2015 and 2014, $138.4 million was recorded as goodwill on the Consolidated Balance Sheets.

Investments

Investments

An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless (1) the Company has the ability and intent to hold an investment for a reasonable period of time sufficient for an anticipated recovery of fair value up to (or beyond) the cost of the investment; and (2) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other than temporary, then an impairment loss is recognized equal to the difference between the investment’s cost and its fair value.

Deferred Financing Costs

Deferred Financing Costs

Amortization of deferred financing costs associated with the issuance of the $25.0 million senior secured notes and the revolving credit facilities is computed using the straight-line method over the life of the loan which approximates the effective interest method. Amortization of deferred financing costs associated with the Company’s regulated subsidiaries is computed using the straight-line method over the life of the loan in accordance with the applicable regulatory guidance.

Derivative Instruments

Derivative Instruments

The Company uses derivatives to hedge against changes in cash flows related to interest rate risk (cash flow hedging instrument). ASC Topic 815, Derivatives and Hedging, requires all derivatives be recorded on the Consolidated Balance Sheets at fair value. The Company determines the fair value of the cash flow hedging instrument based on the difference between the cash flow hedging instrument’s fixed contract price and the underlying market price at the determination date. The asset or liability related to the cash flow hedging instrument is recorded on the Consolidated Balance Sheets at its fair value.

Unrealized gains and losses on the effective cash flow hedging instrument are recorded as components of accumulated other comprehensive income. Realized gains and losses on the cash flow hedging instrument are recorded as adjustments to interest expense. Settlements of derivatives are included within operating activities on the Consolidated Statements of Cash Flows. Any ineffectiveness in the cash flow hedging instrument is recorded as an adjustment to interest expense in the current period.

Income Taxes

Income Taxes

InfraREIT, L.L.C. elected to be treated as a REIT under Sections 856 through 860 of the Code commencing with its taxable year ended December 31, 2010, and InfraREIT, Inc. will elect to be treated as a REIT commencing with its taxable year ended December 31, 2015. As a result, the Company generally will not be subject to federal corporate income tax on its taxable income that is distributed to its stockholders. A REIT is subject to a number of other organizational and operational requirements, including a requirement that it currently distribute at least 90% of its annual taxable income (with certain adjustments). The Company’s policy is to distribute at least 100% of its taxable income. Accordingly, there is no provision for federal income taxes in the accompanying consolidated financial statements. Even if the Company maintains its qualification for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, including excise taxes, and federal income taxes on any undistributed income.

At December 31, 2014, the Company had net operating loss carryforwards for federal income tax purposes of $1.0 million. Of this amount $0.2 million was used for the year ended December 31, 2015 to offset an equivalent amount of regular taxable earnings. The net operating loss carryforward for federal tax purposes was $0.8 million at December 31, 2015 and will expire in 2026. The net operating loss carryforwards for alternative minimum tax (AMT) are generally limited to offsetting 90% of the alternative minimum taxable income (AMTI) for a given year.

The Company recognizes the impact of tax return positions that are more-likely-than-not to be sustained upon audit. Significant judgment is required to evaluate uncertain tax positions. The evaluation of uncertain tax positions is based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues.

A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:

	Years Ended December 31,
(In thousands)	2015		2014
Balance at January 1	$	2,135	$	1,238
Additions based on tax positions related to the current year		789		897
Balance at December 31	$	2,924	$	2,135

The balance of unrecognized tax benefits relates to state taxes, all of which would impact the effective tax rate if recognized. The Company does not expect the total amount of unrecognized tax benefits to significantly change within the next twelve months. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Operations.

During the years ended December 31, 2015, 2014 and 2013, the Company recognized interest and penalties of $0.2 million, $0.1 million and $0.1 million, respectively. The Company had accrued interest and penalties of $0.4 million and $0.2 million at December 31, 2015 and 2014, respectively. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2012.

Revenue Recognition

Revenue Recognition

The Company, through its subsidiaries, is the owner of the T&D assets and recognizes lease revenue over the term of lease agreements with Sharyland. The Company’s lease revenue includes annual payments and additional rents based upon a percentage of revenue earned by Sharyland on the leased assets in excess of annual specified breakpoints. In accordance with the lease agreements, Sharyland, the lessee and operator of the T&D assets, is responsible for the maintenance and operation of the T&D assets and for compliance with all regulatory requirements of the PUCT, the FERC or any other regulatory entity with jurisdiction over the T&D assets. Each of the lease agreements with Sharyland is a net lease that obligates the lessee to pay all property related expenses, including maintenance, repairs, taxes and insurance, and to comply with the terms of the SDTS secured credit facilities and note purchase agreements. The Company recognizes base rent under these leases on a straight-line basis over the applicable lease term.

The lease agreements provide for periodic supplemental adjustments of base rent based upon capital expenditures made by SDTS. The Company recognizes supplemental adjustments of base rent as a modification under these leases on a prospective straight-line basis over the applicable lease term. The Company recognizes percentage rent under these leases once the revenue earned by Sharyland on the leased assets exceeds the annual specified breakpoints.

Asset Retirement Obligations

Asset Retirement Obligations

The Company has identified, but not recognized, asset retirement obligation liabilities related to the T&D assets, as a result of certain easements on property on which the Company has assets. Generally, such easements are perpetual and require only the retirement and removal of the assets upon cessation of the property’s use. Management has not estimated and recorded a retirement liability for such easements because the Company plans to use the facilities indefinitely.

Interest Expense, net

Interest Expense, net

The Company’s interest expense, net primarily consists of interest expense from the senior notes and credit facilities, see Note 8, Borrowings Under Credit Facilities and Note 9, Long-Term Debt. AFUDC on borrowed funds of $1.8 million, $1.6 million and $12.6 million was recognized as a reduction of the Company’s interest expense during the years ended December 31, 2015, 2014 and 2013, respectively.

Other Income, net

Other Income, net

AFUDC on other funds of $3.0 million, $1.1 million and $21.7 million was recognized in other income, net during the years ended December 31, 2015, 2014 and 2013, respectively.

Comprehensive Income

Comprehensive Income

Comprehensive income includes net income and other comprehensive income, which consists of unrealized gains and losses on derivative financial instruments. The Company records deferred hedge gains and losses on its derivative financial instruments that qualify as cash flow hedging instruments as other comprehensive income.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurements and Disclosures, sets forth a framework for measuring fair value and required disclosures about fair value measurements of assets and liabilities in accordance with U.S. GAAP.

Level 1 — Quoted prices in active markets for identical assets and liabilities.

Level 2 — Valuations based on one or more quoted prices in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs that are observable other than quoted prices for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In February 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2015-02, Consolidation (Topic 810) – Amendments to the Consolidation Analysis. This amendment affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 is effective for periods beginning after December 15, 2015 with early adoption permitted. The adoption of the new guidance will not have an impact on the current consolidation, but may change the accounting associated with future transactions.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. This ASU is effective for periods beginning after December 15, 2015 with early adoption permitted. When adopted, the new guidance will be applied on a retrospective basis with each balance sheet presented reflecting the new guidance along with transitional disclosures. The Company will adopt this presentation beginning with the three months ended March 31, 2016. The adoption will impact the Company’s presentation of its financial position, but will not have an impact on the Company’s results of operations or cash flows.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined instead of retrospectively applying the adjustments. The change in provisional amounts will be recorded in the income statement for any effect on earnings for changes in depreciation, amortization or other income effect calculated as if the accounting had been completed at the acquisition date. This ASU is effective for periods beginning after December 15, 2015 with early adoption permitted. When adopted in the first quarter of 2016, the new guidance will be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU. The adoption is not expected to have an impact on the Company’s financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amended the existing accounting standard for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for periods beginning after December 15, 2018 with early adoption permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its financial position, results of operations or cash flows.

Reportable Segments

Reportable Segments

U.S. GAAP establishes standards for reporting financial and descriptive information about a company’s reportable segments. Management has determined that the Company has one reportable segment, with activities related to ownership and leasing of rate-regulated electric T&D assets.

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Description of Business and Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2015

Accounting Policies [Abstract]

Schedule of Provision for Depreciation of Electric Plant

Provision for depreciation of electric plant is computed using composite straight-line rates as follows:

	Years Ended December 31,
	2015	2014	2013
Transmission plant	1.69% -3.15%	1.69% -3.15%	2.57% -3.00%
Distribution plant	1.74% -5.96%	1.74% -5.96%	2.50% -3.10%
General plant	0.80% -5.12%	0.80% -5.12%	2.50% -33.33%

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:

	Years Ended December 31,
(In thousands)	2015		2014
Balance at January 1	$	2,135	$	1,238
Additions based on tax positions related to the current year		789		897
Balance at December 31	$	2,924	$	2,135

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Prepaids and Other Current Assets (Tables)

12 Months Ended

Dec. 31, 2015

Prepaid Expense And Other Assets Current [Abstract]

Schedule Of Prepaid Expenses And Other Current Assets

Prepaids and other current assets are as follows:

	December 31,
(In thousands)	2015		2014
Offering costs	$	—	$	4,397
Prepaid insurance		267		249
Other		293		251
Total prepaids and other current assets	$	560	$	4,897

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Electric Plant and Depreciation (Tables)

12 Months Ended

Dec. 31, 2015

Public Utilities Property Plant And Equipment [Abstract]

Schedule of Major Classes of Electric Plant

The major classes of electric plant are as follows:

	December 31,
(In thousands)	2015			2014
Electric plant:
Transmission plant	$	1,080,050		$	966,560
Distribution plant		457,988			387,329
General plant		15,655			15,018
Total plant in service		1,553,693			1,368,907
CWIP		121,602			41,222
Total electric plant		1,675,295			1,410,129
Accumulated depreciation		(240,764	)		(220,101	)
Electric plant held for future use		—			37,118
Electric plant, net	$	1,434,531		$	1,227,146

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Other Assets (Tables)

12 Months Ended

Dec. 31, 2015

Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]

Summary of Other Assets

Other assets are as follows:

	December 31, 2015							December 31, 2014
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Deferred financing costs	$	1,292	$	(368	)	$	924	$	1,290	$	(143	)	$	1,147
Other regulatory assets:
Deferred financing costs		27,112		(13,208	)		13,904		25,701		(12,693	)		13,008
Deferred costs recoverable in future years		23,793		—			23,793		23,793		—			23,793
Other regulatory assets, net		50,905		(13,208	)		37,697		49,494		(12,693	)		36,801
Investments		2,519		—			2,519		2,519		—			2,519
Other assets	$	54,716	$	(13,576	)	$	41,140	$	53,303	$	(12,836	)	$	40,467

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Long-Term Debt (Tables)

12 Months Ended

Dec. 31, 2015

Debt Instruments [Abstract]

Components of Long-Term Debt

Long-term debt consisted of the following:

		December 31, 2015						December 31, 2014
(In thousands)	Maturity Date	Amount Outstanding			Interest Rate			Amount Outstanding			Interest Rate
Senior secured notes - $53.5 million	December 30, 2029	$	44,512			7.25	%	$	46,291			7.25	%
Senior secured notes - $110.0 million	September 30, 2030		101,627			6.47	%		105,622			6.47	%
Senior secured notes - $25.0 million	December 30, 2020		18,750			8.50	%		20,000			8.50	%
Senior secured notes - $60.0 million	June 20, 2018		60,000			5.04	%		60,000			5.04	%
Senior secured notes - $400.0 million	December 3, 2025		400,000			3.86	%		—		N/A
Senior secured credit facilities -    $407.0 million	June 20, 2018		—		N/A				397,843			2.42	%	*
Total long-term debt			624,889						629,756
Less current portion of long-term debt			(7,423	)					(19,234	)
Debt classified as long-term debt		$	617,466					$	610,522

* Interest based on LIBOR at December 31, 2014 plus an applicable margin.

Schedule of Maturities of Long-Term Debt

Future maturities of long-term debt are as follows for the years ended December 31:

(In thousands)	Total
2016	$	7,423
2017		7,849
2018		68,305
2019		8,792
2020		21,813
Thereafter		510,707
Total	$	624,889

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Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2015

Fair Value Disclosures [Abstract]

Financial Instruments Measured at Fair Value

Financial instruments, measured at fair value, by level within the fair value hierarchy were as follows:

	Carrying		Fair Value
(In thousands)	Value		Level 1		Level 2		Level 3
December 31, 2015
Long-term debt	$	624,889	$	—	$	657,270	$	—
December 31, 2014
Long-term debt	$	629,756	$	—	$	658,306	$	—
Contingent consideration - long-term		27,378		—		27,378		—

Financial Instruments Changes in Level 3

Changes in Level 3 financial instruments were as follows:

(In thousands)	Year Ended December 31, 2014
Contingent Consideration
Beginning Balance	$	12,554
Non-cash noncontrolling interest equity issuance		(3,533	)
Change in fair value of contingent consideration		18,357
Gross transfers out of Level 3		(27,378	)
Ending Balance	$	—

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Accumulated Other Comprehensive Loss (Tables)

12 Months Ended

Dec. 31, 2015

Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]

Changes in Accumulated Other Comprehensive Loss Associated with the Interest Rate Swap Designated as Cash Flow Hedge

There were no changes in accumulated other comprehensive loss for the year ended December 31, 2015. Changes in accumulated other comprehensive loss for the years ended December 31, 2014 and 2013 associated with the interest rate swap designated as a cash flow hedge were as follows:

(In thousands)	Accumulated Other Comprehensive Loss Attributable to InfraREIT, Inc.			Accumulated Other Comprehensive Loss Attributable to Noncontrolling Interest			Total Accumulated Other Comprehensive Loss
Year Ended December 31, 2014
Other comprehensive (loss) income before reclassifications	$	(77	)	$	28		$	(49	)
Amounts reclassified from accumulated other comprehensive (loss) income		687			206			893
Net period other comprehensive income	$	610		$	234		$	844
Year Ended December 31, 2013
Other comprehensive loss before reclassifications	$	(180	)	$	(56	)	$	(236	)
Amounts reclassified from accumulated other comprehensive loss		1,180			379			1,559
Net period other comprehensive income	$	1,000		$	323		$	1,323

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Earnings Per Share (Tables)

12 Months Ended

Dec. 31, 2015

Earnings Per Share [Abstract]

Computation of Earnings Per Share

Earnings per share are calculated as follows:

	Years Ended December 31,
(In thousands, except per share data)	2015		2014		2013
Basic net income per share:
Net income attributable to InfraREIT, Inc.	$	13,267	$	22,898	$	32,122
Weighted average common shares outstanding		42,983		35,053		29,883
Basic net income per share	$	0.31	$	0.65	$	1.07
Diluted net income per share:
Net income attributable to InfraREIT, Inc.	$	13,267	$	22,898	$	32,122
Weighted average common shares outstanding		42,983		35,053		29,883
Redemption of operating partnership units		—		—		—
Weighted average dilutive shares outstanding		42,983		35,053		29,883
Diluted net income per share	$	0.31	$	0.65	$	1.07
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	$	6,664	$	6,882	$	10,288
Redemption of operating partnership units		16,232		10,578		9,181

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Leases (Tables)

12 Months Ended

Dec. 31, 2015

Leases [Abstract]

Schedule of Composition of Lease Revenue

The following table shows the composition of the Company’s lease revenue:

	Years Ended December 31,
(In thousands)	2015		2014		2013
Base rent (straight-line)	$	125,669	$	106,746	$	57,979
Percentage rent		25,534		27,669		15,214
Total lease revenue	$	151,203	$	134,415	$	73,193

Schedule of Future Minimum Rent Revenue Expected in Accordance with Lease Agreement

Future minimum rent revenue expected in accordance with these lease agreements is as follows for the years ended December 31:

(In thousands)	Total
2016	$	148,751
2017		155,855
2018		81,673
2019		78,923
2020		65,601
Thereafter		12,145
Total	$	542,948

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Supplemental Cash Flow Information(Tables)

12 Months Ended

Dec. 31, 2015

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information and Non-cash Investing and Financing Activities

Supplemental cash flow information and non-cash investing and financing activities are as follows:

	Years Ended December 31,
(In thousands)	2015			2014		2013
Supplemental cash flow information
Cash paid during the period for interest	$	25,850		$	29,981	$	26,403
Cash (received) paid during the period for taxes		(31	)		75		36
Non-cash investing and financing activities
Non-cash right of way additions to electric plant		—			337		1,275
Change in accrued additions to electric plant		6,942			20,633		8,876
Allowance for funds used during construction - debt		1,767			1,635		12,579
Net non-cash equity issuances related to the Merger    and Reorganization		97,193			—		—
Net non-cash noncontrolling equity issuances related to    the Merger and Reorganization		119,607			—		—
Non-cash members' contributions		—			—		369
Non-cash noncontrolling interests contributions		—			—		119
Non-cash noncontrolling interests equity issuance		755			4,648		32,052
Dividends and distributions payable		13,634			14,130		—

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Quarterly Financial Information (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2015

Quarterly Financial Information Disclosure [Abstract]

Summarized Unaudited Consolidated Quarterly Information

Summarized unaudited consolidated quarterly information for the years ended December 31 follows:

(In thousands, except per share data)	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Year
2015
Lease revenue	$	29,372		$	29,458		$	41,452		$	50,921		$	151,203
General and administrative expense		(48,733	)		(4,728	)		(5,504	)		(5,641	)		(64,606	)
Depreciation		(9,508	)		(9,671	)		(10,259	)		(10,773	)		(40,211	)
Interest expense, net		(7,422	)		(6,939	)		(6,723	)		(7,470	)		(28,554	)
Other income, net		626			847			707			868			3,048
Income tax expense		(208	)		(124	)		(243	)		(374	)		(949	)
Net (loss) income		(35,873	)		8,843			19,430			27,531			19,931
Less: Net (loss) income attributable to noncontrolling    interest		(9,000	)		2,481			5,458			7,725			6,664
Net (loss) income attributable to InfraREIT, Inc.	$	(26,873	)	$	6,362		$	13,972		$	19,806		$	13,267
Basic EPS (1)	$	(0.65	)	$	0.15		$	0.32		$	0.45		$	0.31
Diluted EPS (1)	$	(0.65	)	$	0.15		$	0.32		$	0.45		$	0.31
2014
Lease revenue	$	24,837		$	25,225		$	39,309		$	45,044		$	134,415
General and administrative expense		(3,412	)		(3,284	)		(6,143	)		(5,786	)		(18,625	)
Depreciation		(8,461	)		(8,366	)		(8,998	)		(9,255	)		(35,080	)
Interest expense, net		(7,681	)		(7,984	)		(8,699	)		(8,377	)		(32,741	)
Other (expense) income, net		(133	)		172			294			(17,569	)		(17,236	)
Income tax expense		(158	)		(250	)		(248	)		(297	)		(953	)
Net income		4,992			5,513			15,515			3,760			29,780
Less: Net income attributable to noncontrolling    interest		1,147			1,278			3,621			836			6,882
Net income attributable to InfraREIT, Inc.	$	3,845		$	4,235		$	11,894		$	2,924		$	22,898
Basic EPS (1)	$	0.11		$	0.12		$	0.34		$	0.08		$	0.65
Diluted EPS (1)	$	0.11		$	0.12		$	0.34		$	0.08		$	0.65

(1) Basic and diluted net income per common share are computed independently for each quarter and full year based on the respective average number of common shares outstanding; therefore, the sum of the quarterly net income per common share data may not equal the net income per common share for the year.

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Description of Business and Summary of Significant Accounting Policies - Additional Information (Details)				1 Months Ended		3 Months Ended	12 Months Ended
	Mar. 09, 2015 shares	Feb. 04, 2015 USD ($) Director $ / shares shares	Jan. 29, 2015 shares	Feb. 28, 2015 USD ($)	Dec. 31, 2010 USD ($)	Mar. 31, 2015 USD ($)	Dec. 31, 2015 USD ($)	Mar. 31, 2015 USD ($)	Dec. 31, 2014 USD ($) shares	Dec. 31, 2013 USD ($)
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Business combination, assets assumed, marketable securities							$ 1,100,000
Business combination, liabilities assumed, notes payable							1,000,000
Proceeds from sale of marketable securities				$ 1,065,000			1,065,000
Realized gain on sale of marketable securities				$ 66,000			$ 66,000
Percentage of partnership units outstanding							71.90%
Business combination, contingent consideration, cash payments		$ 172,400,000
Contributed to the operating partnership		$ 323,200,000								$ 136,886,000
Offering expenses							$ 6,300,000
Reorganization structuring fee							44,897,000
Number of directors | Director		7
Members capital, shares issued | shares									35,053,186
Shares purchased consideration for promissory note | shares		6,242,999
Repurchase of common shares, value		$ 66,517,000					$ 66,517,000
AFUDC rate							6.60%		4.10%	9.10%
Goodwill							$ 138,384,000		$ 138,384,000
Percentage of taxable income for distribution							90.00%
Percentage of taxable income distributed							100.00%
Percentage of alternative minimum taxable income offsetting							90.00%
Penalties and interest expense							$ 200,000		100,000	$ 100,000
Penalties and interest accrued							400,000		200,000
Asset retirement obligation liabilities							0
AFUDC on Borrowed Funds							1,800,000		1,600,000	12,600,000
AFUDC on Other Funds							3,000,000		1,100,000	21,700,000
Federal Income Tax
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Net operating loss carryforwards							800,000		1,000,000
Net operating loss carryforwards used							200,000
Senior Secured Notes, 8.50%
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Long-term debt, face amount							25,000,000
Hunt Utility Services L L C
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Management fee							12,300,000	$ 10,000,000	10,000,000	$ 11,600,000
Management fee									$ 2,500,000
CREZ Project
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Business combination, contingent consideration, cash payments					$ 737,000,000
LTIP Units
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Operating partnership issued | shares		28,000
Operating Partnership Unit | Revolving Credit Facility
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Repayments of outstanding revolving credit facility							72,000,000
Sharyland Distribution & Transmission Services | Revolving Credit Facility
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Repayments of outstanding revolving credit facility							$ 150,000,000
InfraREIT, L.L.C.
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Initial public offering, net of offering costs, shares | shares		1,700,000
Common stock sold under IPO, per share | $ / shares		$ 21.551
Contributed to the operating partnership		$ 323,200,000
Partners capital received | shares		8,000,000
Members capital, shares issued | shares		15,000,000
Percentage of taxable income for distribution							90.00%
Percentage of taxable income distributed							100.00%
Provision for federal income taxes							$ 0
InfraREIT, L.L.C. | Common Class A
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Initial public offering, net of offering costs, shares | shares		19,617,755
Common shares converted | shares		19,617,755
InfraREIT, L.L.C. | Common Class C
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Initial public offering, net of offering costs, shares | shares		25,145
Common shares converted | shares		25,145
InfraREIT, L.L.C. | LTIP Units
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Common shares converted | shares	11,264
Common stock conversion basis							one-to-one
InfraREIT, L.L.C. | Operating Partnership Unit
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Reverse share split | shares			0.938550
Hunt-InfraREIT
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Initial public offering, net of offering costs, shares | shares		1,551,878	1,700,000
Reorganization structuring fee						$ 44,900,000
Operating partnership issued | shares		1,167,287
Common shares converted | shares	2,329,283
Common stock conversion basis							one-for-one basis
Hunt-InfraREIT | CREZ Project
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Operating partnership issued | shares		983,418
Hunt-InfraREIT | Operating Partnership Unit
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Common shares converted | shares		1,551,878
MC Transmission Holdings Inc. | Operating Partnership Unit
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Shares purchased consideration for promissory note | shares		3,325,874
Initial Public Offering
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Initial public offering, net of offering costs, shares | shares		23,000,000
Common stock sold under IPO, per share | $ / shares		$ 23.00
Gross proceeds from issuance of common stock upon initial public offering		$ 529,000,000
Hunt Consolidated Incorporation
Description Of Business And Summary Of Significant Accounting Policies [Line Items]
Percentage of partnership units outstanding							28.10%
Repayments of related party debt							$ 1,000,000

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Description of Business and Summary of Significant Accounting Policies - Schedule of Provision for Depreciation of Electric Plant (Details)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Transmission Plant | Minimum
Public Utility Property Plant And Equipment [Line Items]
Depreciation rate	1.69%	1.69%	2.57%
Transmission Plant | Maximum
Public Utility Property Plant And Equipment [Line Items]
Depreciation rate	3.15%	3.15%	3.00%
Distribution Plant | Minimum
Public Utility Property Plant And Equipment [Line Items]
Depreciation rate	1.74%	1.74%	2.50%
Distribution Plant | Maximum
Public Utility Property Plant And Equipment [Line Items]
Depreciation rate	5.96%	5.96%	3.10%
General Plant | Minimum
Public Utility Property Plant And Equipment [Line Items]
Depreciation rate	0.80%	0.80%	2.50%
General Plant | Maximum
Public Utility Property Plant And Equipment [Line Items]
Depreciation rate	5.12%	5.12%	33.33%

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Description of Business and Summary of Significant Accounting Policies - Unrecognized Tax Benefits (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Organization Consolidation And Presentation Of Financial Statements [Abstract]
Balance at January 1	$ 2,135	$ 1,238
Additions based on tax positions related to the current year	789	897
Balance at December 31	$ 2,924	$ 2,135

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Related Party Transactions - Additional Information (Details) - USD ($)	1 Months Ended	12 Months Ended
	Feb. 28, 2015	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Jan. 15, 2015	Jan. 01, 2015	Nov. 20, 2014
Related Party Transaction [Line Items]
Due from affiliates				$ 31,172,000		$ 27,822,000
Members capital, shares issued						35,053,186
Purchase price of assets sold						$ 41,211,000
Hunt Utility Services L L C
Related Party Transaction [Line Items]
Payment for management fee				12,300,000		10,000,000
Prepaid management fee				0		0
Accrued management fee				0		0
Reimbursement of annual software license and maintenance fees				$ 500,000		200,000
Effective date of management agreement				Feb. 04, 2015
Management fee				$ 12,300,000	$ 10,000,000	10,000,000	$ 11,600,000
Management agreement expiration date				Dec. 31, 2019
Agreement successive renewal terms				5 years
Management fee, description				The base fee for each twelve month period beginning April 1 thereafter will equal 1.50% of the Company’s total equity as of December 31 of the immediately preceding year, subject to a $30.0 million cap.
Investment management fee equity multiplier				1.50%
Management fee cap				$ 30,000,000
Hunt Utility Services L L C | Scenario, Forecast
Related Party Transaction [Line Items]
Management fee		$ 14,000,000	$ 13,100,000
Stockholder
Related Party Transaction [Line Items]
Secondment fees						100,000	200,000
Hunt Consolidated, Inc. and affiliates | Cross Valley
Related Party Transaction [Line Items]
Purchase price of assets sold								$ 34,200,000
Hunt Consolidated, Inc. and Subsidiaries | Golden Spread Project
Related Party Transaction [Line Items]
Purchase price of assets sold								$ 7,000,000
Sharyland
Related Party Transaction [Line Items]
Lease revenue from related party				151,200,000		134,400,000	$ 73,200,000
Deferred rent liability				11,500,000		5,000,000
Payments to acquire plant, and equipment				245,100,000		189,300,000
Accounts payable and accrued liabilities				9,200,000		16,100,000
Due from affiliates				$ 31,200,000		$ 27,822,000
Hunt-InfraREIT
Related Party Transaction [Line Items]
Percentage of capital expenditure agreed to issue upon operating partnership units				5.00%
Hunt-InfraREIT | Class A OP Units
Related Party Transaction [Line Items]
Shares issued price per share				$ 10.65
Members capital, shares issued						104,763			17,600
Hunt And Affiliated Entity
Related Party Transaction [Line Items]
Aggregate legal fees				$ 5,000,000
Hunt Consolidated Incorporation
Related Party Transaction [Line Items]
Repayments of related party debt				$ 1,000,000
Hunt Consolidated Incorporation | Promissory Notes at 2.5% Accrued Percentage
Related Party Transaction [Line Items]
Borrowings from related parties										$ 1,000,000
Accrued interest bearing note										2.50%
Interest bearing note, maturity date				Nov. 01, 2015
Interest bearing note, maturity date, description				This note and accrued interest were repaid in February 2015 with proceeds from the IPO for a total of $1.0 million.
Repayments of related party debt	$ 1,000,000

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Assets Held for Sale - Additional Information (Details) - USD ($)	12 Months Ended
	Dec. 31, 2014	Jan. 15, 2015
Income Statement Balance Sheet And Additional Disclosures Assets Held For Sale Not Part Of Disposal Group [Line Items]
Assets held for sale	$ 41,211,000
Depreciation	$ 0
Cross Valley | Hunt Consolidated, Inc. and affiliates
Income Statement Balance Sheet And Additional Disclosures Assets Held For Sale Not Part Of Disposal Group [Line Items]
Assets held for sale		$ 34,200,000
Golden Spread Project | Hunt Consolidated, Inc. and Subsidiaries
Income Statement Balance Sheet And Additional Disclosures Assets Held For Sale Not Part Of Disposal Group [Line Items]
Assets held for sale		$ 7,000,000

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Prepaids and Other Current Assets - Summary of Prepaids and Other Current Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Prepaid Expense And Other Assets Current [Abstract]
Offering costs		$ 4,397
Prepaid insurance	$ 267	249
Other	293	251
Total prepaids and other current assets	$ 560	$ 4,897

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Prepaids and Other Current Assets - Additional Information (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Prepaid And Other Current Assets [Line Items]
Offering costs		$ 4,397
Initial Public Offering
Prepaid And Other Current Assets [Line Items]
Aggregate offering costs	$ 6,300
Offering costs		$ 4,400

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Electric Plant and Depreciation - Schedule of Major Classes of Electric Plant (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Electric plant:
Transmission plant	$ 1,080,050	$ 966,560
Distribution plant	457,988	387,329
General plant	15,655	15,018
Total plant in service	1,553,693	1,368,907
CWIP	121,602	41,222
Total electric plant	1,675,295	1,410,129
Accumulated depreciation	(240,764)	(220,101)
Electric plant held for future use		37,118
Electric plant, net	$ 1,434,531	$ 1,227,146

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Electric Plant and Depreciation - Additional Information (Details) $ in Thousands		12 Months Ended
	Dec. 30, 2013 USD ($) Substations mi	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)
Public Utility Property Plant And Equipment [Line Items]
Electric plant, net includes plant acquisition adjustments		$ 28,600	$ 28,700
Payments to acquire electric plant		$ 239,157	$ 210,791	$ 390,283
Electric Plant Held For Future Use
Public Utility Property Plant And Equipment [Line Items]
Electric plant, transmission lines | mi	66
Electric Plant Held For Future Use | Stanton
Public Utility Property Plant And Equipment [Line Items]
Number of substations | Substations	2
Payments to acquire electric plant	$ 37,100

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Goodwill (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Goodwill And Intangible Assets Disclosure [Abstract]
Goodwill impairment charge	$ 0
Goodwill	$ 138,384,000	$ 138,384,000

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Other Assets - Summary of Other Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Other Assets Noncurrent [Abstract]
Deferred financing costs, Gross Carrying Amount	$ 1,292	$ 1,290
Other regulatory assets Deferred financing costs, Gross Carrying Amount	27,112	25,701
Deferred costs recoverable in future years, Gross Carrying Amount	23,793	23,793
Other regulatory assets, Net Gross Carrying Amount	50,905	49,494
Investments, Gross Carrying Amount	2,519	2,519
Other assets, Gross Carrying Amount	54,716	53,303
Deferred financing costs, Accumulated Amortization	(368)	(143)
Other regulatory assets Deferred financing costs, Accumulated Amortization	(13,208)	(12,693)
Other regulatory assets, Net Accumulated Amortization	(13,208)	(12,693)
Other assets, Accumulated Amortization	(13,576)	(12,836)
Deferred financing costs, Net Carrying Amount	924	1,147
Other regulatory assets Deferred financing costs, Net Carrying Amount	13,904	13,008
Deferred costs recoverable in future years, Net Carrying Amount	23,793	23,793
Other regulatory assets, Net Carrying Amount	37,697	36,801
Investments, Net Carrying Amount	2,519	2,519
Other assets, Net Carrying Amount	$ 41,140	$ 40,467

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Other Assets - Additional Information (Details) - USD ($)	Dec. 31, 2015	Dec. 31, 2014	Dec. 10, 2014
Other Assets [Line Items]
Deferred costs recoverable in future years	$ 23,793,000	$ 23,793,000
Sharyland Distribution & Transmission Services
Other Assets [Line Items]
Credit facility, maximum borrowing capacity	196,000,000
Revolving Credit Facility | Sharyland Distribution & Transmission Services
Other Assets [Line Items]
Credit facility, maximum borrowing capacity			$ 250,000,000
Senior Secured Notes, 8.50%
Other Assets [Line Items]
Long-term debt, face amount	$ 25,000,000
Long-term debt, stated interest rate	8.50%	8.50%
Senior Notes | Senior Secured Notes, 8.50%
Other Assets [Line Items]
Long-term debt, stated interest rate	8.50%

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Borrowings Under Credit Facilities - Additional Information (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 10, 2014	Jan. 03, 2014	Jun. 28, 2013
Line Of Credit Facility [Line Items]
Amount of revolving credit facility under agreement	$ 0	$ 57,000,000
Line of credit facility, remaining borrowing capacity	$ 75,000,000	$ 18,000,000
Revolving credit facility, interest rate description	a rate equal to (1) the one, two, three or six month London Interbank Offered Rate (LIBOR) plus 2.5%, or (2) a base rate (equal to the highest of (a) the Federal Funds Rate plus ½ of 1%, (b) the Bank of America prime rate and (c) LIBOR plus 1%) plus 1.5%. Letters of credit are subject to a letter of credit fee equal to the daily amount available to be drawn times 2.5%.
Interest rate on credit facility		2.66%
SDTS Credit Agreements
Line Of Credit Facility [Line Items]
Amount of revolving credit facility under agreement	$ 54,000,000	$ 162,000,000
Revolving credit facility, interest rate description	a rate equal to either (1) a base rate, determined as the greatest of (a) the administrative agent’s prime rate, (b) the federal funds effective rate plus ½ of 1% and (c) LIBOR plus 1.00% per annum, plus a margin of either 0.75% or 1.00% per annum, depending on the total debt to capitalization ratio of SDTS on a consolidated basis or (2) LIBOR plus a margin of either 1.75% or 2.00% per annum
Interest rate on credit facility		1.91%
Credit facility, maximum borrowing capacity	$ 196,000,000
SDTS Credit Agreements | Swingline Loans
Line Of Credit Facility [Line Items]
Line of credit facility, remaining borrowing capacity			$ 5,000,000
SDTS Credit Agreements | Letter Of Credit
Line Of Credit Facility [Line Items]
Amount of revolving credit facility under agreement	$ 0	$ 0
Revolving Credit Facility
Line Of Credit Facility [Line Items]
Amount of revolving credit facility under agreement				$ 130,000,000
Credit facility, maturity date	Mar. 31, 2015
Revolving Credit Facility | SDTS Credit Agreements
Line Of Credit Facility [Line Items]
Amount of revolving credit facility under agreement					$ 75,000,000
Credit facility, maturity date	Jun. 28, 2018
Line of credit facility, remaining borrowing capacity		$ 88,000,000	25,000,000
Credit facility, maximum borrowing capacity			250,000,000
Credit facility, extended maturity date	Dec. 10, 2019
Debt, weighted average interest rate	2.05%
New Revolving Credit Facility
Line Of Credit Facility [Line Items]
Amount of revolving credit facility under agreement			75,000,000
Credit facility, maturity date	Dec. 10, 2019
Line of credit facility, remaining borrowing capacity			$ 15,000,000

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Long-Term Debt - Components of Long-Term Debt (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Long-term debt, Amount Outstanding	$ 624,889	$ 629,756
Less current portion of long-term debt	(7,423)	(19,234)
Debt classified as long-term debt	$ 617,466	610,522
Senior Secured Notes, 7.25% [Member]
Debt Instrument [Line Items]
Interest bearing note, maturity date	Dec. 30, 2029
Long-term debt, Amount Outstanding	$ 44,512	$ 46,291
Long-term debt, Interest Rate	7.25%	7.25%
Senior Secured Notes, 6.47% [Member]
Debt Instrument [Line Items]
Interest bearing note, maturity date	Sep. 30, 2030
Long-term debt, Amount Outstanding	$ 101,627	$ 105,622
Long-term debt, Interest Rate	6.47%	6.47%
Senior Secured Notes, 8.50% [Member]
Debt Instrument [Line Items]
Interest bearing note, maturity date	Dec. 30, 2020
Long-term debt, Amount Outstanding	$ 18,750	$ 20,000
Long-term debt, Interest Rate	8.50%	8.50%
Senior Secured Notes, 5.04% [Member]
Debt Instrument [Line Items]
Interest bearing note, maturity date	Jun. 20, 2018
Long-term debt, Amount Outstanding	$ 60,000	$ 60,000
Long-term debt, Interest Rate	5.04%	5.04%
Senior Secured Notes, 3.86% [Member]
Debt Instrument [Line Items]
Interest bearing note, maturity date	Dec. 03, 2025
Long-term debt, Amount Outstanding	$ 400,000
Long-term debt, Interest Rate	3.86%
Senior Secured Credit Facilities, 2.42% [Member]
Debt Instrument [Line Items]
Interest bearing note, maturity date	Jun. 20, 2018
Long-term debt, Amount Outstanding		$ 397,843
Long-term debt, Interest Rate		2.42%

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Long-Term Debt - Components of Long-Term Debt (Parenthetical) (Details) $ in Millions	Dec. 31, 2015 USD ($)
Senior Secured Notes, 7.25% [Member]
Debt Instrument [Line Items]
Long-term debt, face amount	$ 53.5
Senior Secured Notes, 6.47% [Member]
Debt Instrument [Line Items]
Long-term debt, face amount	110.0
Senior Secured Notes, 8.50% [Member]
Debt Instrument [Line Items]
Long-term debt, face amount	25.0
Senior Secured Notes, 5.04% [Member]
Debt Instrument [Line Items]
Long-term debt, face amount	60.0
Senior Secured Notes, 3.86% [Member]
Debt Instrument [Line Items]
Long-term debt, face amount	400.0
Senior Secured Credit Facilities, 2.42% [Member]
Debt Instrument [Line Items]
Long-term debt, face amount	$ 407.0

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Long-Term Debt - Additional Information (Details) $ in Thousands					12 Months Ended
	Jan. 14, 2016 USD ($)	Dec. 03, 2015 USD ($)	May. 16, 2014 USD ($)	Mar. 08, 2013 USD ($) Bank	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)	Jun. 20, 2011 USD ($)	Jul. 13, 2010 USD ($)	Dec. 31, 2009 USD ($)
Debt Instrument [Line Items]
Long-term debt, Amount Outstanding					$ 624,889	$ 629,756
Senior Secured Notes, 7.25% [Member]
Debt Instrument [Line Items]
Long-term debt, face amount					$ 53,500
Long-term debt, stated interest rate					7.25%	7.25%
Interest bearing note, maturity date					Dec. 30, 2029
Long-term debt, Amount Outstanding					$ 44,512	$ 46,291
Senior Secured Notes, 6.47% [Member]
Debt Instrument [Line Items]
Long-term debt, face amount					$ 110,000
Long-term debt, stated interest rate					6.47%	6.47%
Interest bearing note, maturity date					Sep. 30, 2030
Long-term debt, Amount Outstanding					$ 101,627	$ 105,622
Senior Secured Notes, 8.50% [Member]
Debt Instrument [Line Items]
Long-term debt, face amount					$ 25,000
Long-term debt, stated interest rate					8.50%	8.50%
Interest bearing note, maturity date					Dec. 30, 2020
Long-term debt, Amount Outstanding					$ 18,750	$ 20,000
SDTS Credit Agreements | Senior Secured Notes, 7.25% [Member]
Debt Instrument [Line Items]
Long-term debt, face amount										$ 53,500
Long-term debt, stated interest rate										7.25%
SDTS Credit Agreements | Senior Secured Notes, 6.47% [Member]
Debt Instrument [Line Items]
Long-term debt, face amount									$ 110,000
Long-term debt, stated interest rate									6.47%
SDTS Credit Agreements | Series A Notes [Member]
Debt Instrument [Line Items]
Long-term debt, stated interest rate		3.86%
Issuance of senior secured notes		$ 400,000
Long-Term Debt Maturity Period		10 years
Interest bearing note, maturity date		Dec. 03, 2025
SDTS Credit Agreements | Series B Notes [Member] | Subsequent Event
Debt Instrument [Line Items]
Long-term debt, stated interest rate	3.86%
Issuance of senior secured notes	$ 100,000
Long-Term Debt Maturity Period	10 years
Interest bearing note, maturity date	Jan. 14, 2026
TDC [Member] | Senior Secured Notes, 8.50% [Member]
Debt Instrument [Line Items]
Long-term debt, face amount									$ 25,000
Long-term debt, stated interest rate									8.50%
Sharyland Projects, L.L.C [Member] | Senior Secured Credit Facilities [Member]
Debt Instrument [Line Items]
Long-term debt, face amount				$ 60,000
Long-term debt, stated interest rate							2.17%
Construction-term loan				$ 447,000				$ 667,000
Number of banks, providing construction-term loan | Bank				14
Long-term debt, Amount Outstanding							$ 396,000
Construction term loan outstanding converted into term loan			$ 407,000
Sharyland Projects, L.L.C [Member] | Senior Secured Credit Facilities [Member] | LIBOR [Member]
Debt Instrument [Line Items]
Interest rate					2.00%
Sharyland Projects, L.L.C [Member] | Senior Secured Credit Facilities [Member] | Period of Three Years [Member] | LIBOR [Member]
Debt Instrument [Line Items]
Interest rate					2.25%
Sharyland Projects, L.L.C [Member] | Senior Secured Credit Facilities [Member] | Period After Three Years [Member] | LIBOR [Member]
Debt Instrument [Line Items]
Interest rate					2.50%

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Long-Term Debt - Future Maturities of Long-Term Debt (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Debt Disclosure [Abstract]
2016	$ 7,423
2017	7,849
2018	68,305
2019	8,792
2020	21,813
Thereafter	510,707
Long-term debt, Amount Outstanding	$ 624,889	$ 629,756

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Derivative Instruments - Additional Information (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2011
Swap Agreement
Derivative [Line Items]
Amount reclassified, interest expense	$ 0	$ 900,000	$ 1,600,000
Sharyland Projects, L.L.C [Member]
Derivative [Line Items]
Term loan, fixed interest rate	0.832%
Derivative, notional amount		$ 0
Sharyland Projects, L.L.C [Member] | Maximum
Derivative [Line Items]
Derivative, notional amount				$ 261,000,000

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Contingent Consideration - Additional Information (Details) - USD ($)			1 Months Ended	12 Months Ended
	Feb. 04, 2015	Jan. 01, 2015	Dec. 31, 2010	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Business Acquisition [Line Items]
Business combination, contingent consideration, cash payments	$ 172,400,000
Change in fair value of contingent consideration				$ 0	$ 18,357,000	$ 841,000
Contingent consideration				$ 0	$ 27,378,000
CREZ Project
Business Acquisition [Line Items]
Business combination, contingent consideration, cash payments			$ 737,000,000
Business combination, contingent consideration, fair value			78,600,000
Hunt-InfraREIT
Business Acquisition [Line Items]
Business combination, contingent consideration, capital credits			$ 82,500,000
Hunt-InfraREIT | Operating Partnership Unit
Business Acquisition [Line Items]
Merger of InfraREIT, L.L.C. and InfraREIT, Inc. and related Reorganization transactions, shares	983,418
Hunt-InfraREIT | Class A Partnership Units
Business Acquisition [Line Items]
Merger of InfraREIT, L.L.C. and InfraREIT, Inc. and related Reorganization transactions, shares		53,246			6,700,000
Hunt-InfraREIT | CREZ Project | Class A Partnership Units
Business Acquisition [Line Items]
Shares issued price per share			$ 10.65

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Fair Value of Financial Instruments - Additional Information (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-Term Debt	$ 617,466	$ 610,522
Borrowings under construction term loan		397,800
Senior Secured Notes
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Long-Term Debt	$ 624,900	$ 231,900
Debt, weighted average interest rate	4.78%	6.43%

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Fair Value of Financial Instruments - Financial Instruments Measured at Fair Value (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Carrying Value
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Long-term debt	$ 624,889	$ 629,756
Contingent consideration - long-term		27,378
Level 2 | Fair Value
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Long-term debt	$ 657,270	658,306
Contingent consideration - long-term		$ 27,378

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Fair Value of Financial Instruments - Changes in Level 3 Financial Instruments (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Fair Value Assets Measured On Recurring Basis Unobservable Input Reconciliation [Line Items]
Change in fair value of contingent consideration	$ 0	$ 18,357,000	$ 841,000
Level 3
Fair Value Assets Measured On Recurring Basis Unobservable Input Reconciliation [Line Items]
Beginning Balance		12,554,000
Non-cash noncontrolling interest equity issuance		(3,533,000)
Change in fair value of contingent consideration		18,357,000
Gross transfers out of Level 3		$ (27,378,000)
Ending Balance			$ 12,554,000

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Regulatory Liability - Additional Information (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Regulated Operations [Abstract]
Regulatory Liability	$ 10,625	$ 1,242

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Equity - Additional Information (Details) - USD ($) $ / shares in Units, $ in Millions							12 Months Ended
	Dec. 04, 2015	Sep. 03, 2015	Jun. 05, 2015	Mar. 06, 2015	Jan. 13, 2015	Dec. 18, 2014	Dec. 31, 2015	Dec. 31, 2014	Jan. 12, 2015	Jan. 11, 2015
Class Of Stock [Line Items]
Common stock, shares authorized							450,000,000		450,000,000	3,000
Common stock, par or stated value per share							$ 0.01		$ 0.01	$ 1
Dividends Payable, date declared							Mar. 02, 2016
Dividends payable date of record							Mar. 31, 2016
Cash dividends declared per share to shareholders							$ 1.075	$ 0.310
Percentage of taxable income for distribution							90.00%
Percentage of taxable income distributed							100.00%
Cash Distribution Approved on December 4, 2015
Class Of Stock [Line Items]
Cash distribution declaration date							Dec. 04, 2015
Cash distributions to unit holders, date of record							Dec. 31, 2015
Dividends Payable, date declared							Dec. 04, 2015
Dividends payable date of record							Dec. 31, 2015
Cash dividends declared per share to shareholders	$ 0.225
Cash distribution and dividend paid date							Jan. 21, 2016
Cash Distribution Approved on September 3, 2015
Class Of Stock [Line Items]
Cash distribution declaration date							Sep. 03, 2015
Cash distributions to unit holders, date of record							Sep. 30, 2015
Dividends Payable, date declared							Sep. 03, 2015
Dividends payable date of record							Sep. 30, 2015
Cash dividends declared per share to shareholders		$ 0.225
Cash distribution and dividend paid date							Oct. 22, 2015
Cash Distribution Approved on June 5, 2015
Class Of Stock [Line Items]
Cash distribution declaration date							Jun. 05, 2015
Cash distributions to unit holders, date of record							Jun. 30, 2015
Dividends Payable, date declared							Jun. 05, 2015
Dividends payable date of record							Jun. 30, 2015
Cash dividends declared per share to shareholders			$ 0.225
Cash distribution and dividend paid date							Jul. 23, 2015
Cash Distribution Approved on March 6, 2015
Class Of Stock [Line Items]
Cash distribution declaration date							Mar. 06, 2015
Cash distributions to unit holders, date of record							Mar. 31, 2015
Dividends Payable, date declared							Mar. 06, 2015
Dividends payable date of record							Mar. 31, 2015
Cash dividends declared per share to shareholders				$ 0.14
Cash distribution and dividend paid date							Apr. 23, 2015
Cash Distribution Approved on January 13, 2015
Class Of Stock [Line Items]
Cash distribution declaration date							Jan. 13, 2015
Cash distributions to unit holders, date of record							Jan. 20, 2015
Dividends Payable, date declared							Jan. 13, 2015
Dividends payable date of record							Jan. 20, 2015
Cash dividends declared per share to shareholders					$ 0.26
Cash distribution and dividend paid date							Jan. 29, 2015
Cash Distribution Approved on December 18, 2014
Class Of Stock [Line Items]
Cash distribution declaration date							Dec. 18, 2014
Cash distributions to unit holders, date of record							Dec. 18, 2014
Dividends Payable, date declared							Dec. 18, 2014
Dividends payable date of record							Dec. 18, 2014
Cash dividends declared per share to shareholders						$ 0.31
Cash distribution and dividend paid date							Jan. 16, 2015
Accumulated Deficit | Cash Distribution Approved on December 4, 2015
Class Of Stock [Line Items]
Cash dividends declared to shareholders	$ 9.8
Accumulated Deficit | Cash Distribution Approved on September 3, 2015
Class Of Stock [Line Items]
Cash dividends declared to shareholders		$ 9.8
Accumulated Deficit | Cash Distribution Approved on June 5, 2015
Class Of Stock [Line Items]
Cash dividends declared to shareholders			$ 9.8
Accumulated Deficit | Cash Distribution Approved on March 6, 2015
Class Of Stock [Line Items]
Cash dividends declared to shareholders				$ 6.1
Accumulated Deficit | Cash Distribution Approved on January 13, 2015
Class Of Stock [Line Items]
Cash dividends declared to shareholders					$ 9.0
Accumulated Deficit | Cash Distribution Approved on December 18, 2014
Class Of Stock [Line Items]
Cash dividends declared to shareholders						$ 10.8
InfraREIT, L.L.C.
Class Of Stock [Line Items]
Percentage of taxable income for distribution							90.00%
Percentage of taxable income distributed							100.00%
InfraREIT, L.L.C. | Cash Distribution Approved on December 4, 2015
Class Of Stock [Line Items]
Cash distributions declared to unit holders, per unit	$ 0.225
Cash distribution to unit holders	$ 13.6
InfraREIT, L.L.C. | Cash Distribution Approved on September 3, 2015
Class Of Stock [Line Items]
Cash distributions declared to unit holders, per unit		$ 0.225
Cash distribution to unit holders		$ 13.6
InfraREIT, L.L.C. | Cash Distribution Approved on June 5, 2015
Class Of Stock [Line Items]
Cash distributions declared to unit holders, per unit			$ 0.225
Cash distribution to unit holders			$ 13.6
InfraREIT, L.L.C. | Cash Distribution Approved on March 6, 2015
Class Of Stock [Line Items]
Cash distributions declared to unit holders, per unit				$ 0.14
Cash distribution to unit holders				$ 8.5
InfraREIT, L.L.C. | Cash Distribution Approved on January 13, 2015
Class Of Stock [Line Items]
Cash distributions declared to unit holders, per unit					$ 0.26
Cash distribution to unit holders					$ 11.7
InfraREIT, L.L.C. | Cash Distribution Approved on December 18, 2014
Class Of Stock [Line Items]
Cash distributions declared to unit holders, per unit						$ 0.31
Cash distribution to unit holders						$ 14.1
InfraREIT, L.L.C. | Accumulated Deficit | Cash Distribution Approved on December 4, 2015
Class Of Stock [Line Items]
Cash dividends declared to shareholders	$ 9.8
InfraREIT, L.L.C. | Accumulated Deficit | Cash Distribution Approved on September 3, 2015
Class Of Stock [Line Items]
Cash dividends declared to shareholders		$ 9.8
InfraREIT, L.L.C. | Accumulated Deficit | Cash Distribution Approved on June 5, 2015
Class Of Stock [Line Items]
Cash dividends declared to shareholders			$ 9.8
InfraREIT, L.L.C. | Accumulated Deficit | Cash Distribution Approved on March 6, 2015
Class Of Stock [Line Items]
Cash dividends declared to shareholders				$ 6.1
InfraREIT, L.L.C. | Accumulated Deficit | Cash Distribution Approved on January 13, 2015
Class Of Stock [Line Items]
Cash dividends declared to shareholders					$ 9.0
InfraREIT, L.L.C. | Accumulated Deficit | Cash Distribution Approved on December 18, 2014
Class Of Stock [Line Items]
Cash dividends declared to shareholders						$ 10.8

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Accumulated Other Comprehensive Loss - Additional Information (Details)	Dec. 31, 2015 USD ($)
Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]
Changes in accumulated other comprehensive loss	$ 0

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Accumulated Other Comprehensive Loss - Changes in Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	$ (49)	$ (236)
Amounts reclassified from accumulated other comprehensive (loss) income	893	1,559
Net period other comprehensive income	844	1,323
Accumulated Other Comprehensive Loss Attributable to InfraREIT, Inc.
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	(77)	(180)
Amounts reclassified from accumulated other comprehensive (loss) income	687	1,180
Net period other comprehensive income	610	1,000
Accumulated Other Comprehensive Loss Attributable To Noncontrolling Interest
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	28	(56)
Amounts reclassified from accumulated other comprehensive (loss) income	206	379
Net period other comprehensive income	$ 234	$ 323

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Noncontrolling Interest - Additional Information (Details) - USD ($)		12 Months Ended
	Feb. 04, 2015	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Minority Interest [Line Items]
Description of units redeemed for cash or, at option, exchanged for common shares		one-for-one basis
OP Units held by the limited partners		17,000,000	10,700,000
Compensation Expenses				$ 0
Shares purchased consideration for promissory note	6,242,999
Class A OP Units
Minority Interest [Line Items]
Shares purchased consideration for promissory note		6,242,999
Principal amount of shares purchased consideration for promissory note		$ 66,500,000
Class A OP Units | Hunt-InfraREIT
Minority Interest [Line Items]
Operating partnership units redeem		1,551,878	0	0
Common shares received		1,551,878
General and Administrative Expense
Minority Interest [Line Items]
Compensation Expenses		$ 700,000	$ 100,000
LTIP Units
Minority Interest [Line Items]
Operating partnership units issued		28,000	11,264
Directors vesting period		1 year
Aggregate value of pre-IPO LTIP units		$ 100,000

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Earnings Per Share - Computation of Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Basic net income per share:
Net income attributable to InfraREIT, Inc.	$ 19,806	$ 13,972	$ 6,362	$ (26,873)	$ 2,924	$ 11,894	$ 4,235	$ 3,845	$ 13,267	$ 22,898	$ 32,122
Weighted average common shares outstanding									42,983	35,053	29,883
Basic net income per share	$ 0.45	$ 0.32	$ 0.15	$ (0.65)	$ 0.08	$ 0.34	$ 0.12	$ 0.11	$ 0.31	$ 0.65	$ 1.07
Diluted net income per share:
Net income attributable to InfraREIT, Inc.	$ 19,806	$ 13,972	$ 6,362	$ (26,873)	$ 2,924	$ 11,894	$ 4,235	$ 3,845	$ 13,267	$ 22,898	$ 32,122
Weighted average common shares outstanding									42,983	35,053	29,883
Weighted average dilutive shares outstanding									42,983	35,053	29,883
Diluted net income per share	$ 0.45	$ 0.32	$ 0.15	$ (0.65)	$ 0.08	$ 0.34	$ 0.12	$ 0.11	$ 0.31	$ 0.65	$ 1.07
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	$ 5,458	$ 2,481	$ (9,000)	$ 836	$ 3,621	$ 1,278	$ 1,147	$ 6,664	$ 6,882	$ 10,288
Redemption of operating partnership units									16,232	10,578	9,181

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Leases - Schedule of Composition of Lease Revenue (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Leases [Abstract]
Base rent (straight-line)									$ 125,669	$ 106,746	$ 57,979
Percentage rent									25,534	27,669	15,214
Total lease revenue	$ 50,921	$ 41,452	$ 29,458	$ 29,372	$ 45,044	$ 39,309	$ 25,225	$ 24,837	$ 151,203	$ 134,415	$ 73,193

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Leases - Additional Information (Details)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Operating Leased Assets [Line Items]
Operating leases placed in services dates description		SDTS has entered into various leases with Sharyland for all of the Company’s placed in service T&D assets. The master lease agreements, as amended, expire at various dates from December 31, 2017 through December 31, 2022.
Lease expiration date range, start date		Dec. 31, 2017
Lease expiration date range, end date		Dec. 31, 2022
Maximum
Operating Leased Assets [Line Items]
Rate of rent used, Percentage		37.00%
Minimum
Operating Leased Assets [Line Items]
Rate of rent used, Percentage		23.00%
Scenario, Forecast | Maximum
Operating Leased Assets [Line Items]
Rate of rent used, Percentage	32.00%
Scenario, Forecast | Minimum
Operating Leased Assets [Line Items]
Rate of rent used, Percentage	23.00%

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Leases - Future Minimum Rent Revenue Expected in Accordance with Lease Agreement (Details) $ in Thousands	Dec. 31, 2015 USD ($)
Leases [Abstract]
2016	$ 148,751
2017	155,855
2018	81,673
2019	78,923
2020	65,601
Thereafter	12,145
Total	$ 542,948

XML

Share-Based Compensation - Additional Information (Details) - USD ($)		1 Months Ended	12 Months Ended
	Feb. 04, 2015	May. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Compensation Expenses					$ 0
Initial Public Offering
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Initial public offering, net of offering costs, shares	23,000,000
LTIP Units
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Aggregate intrinsic value of IPO issued			$ 100,000
Stock Based Compensation And Other
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Compensation Expenses				$ 100,000	$ 0
Aggregate intrinsic value of IPO issued				$ 100,000
Stock Based Compensation And Other | Initial Public Offering
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Initial public offering, net of offering costs, shares		11,264
2015 Equity Incentive Plan [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Equity based compensation			375,000
2015 Equity Incentive Plan [Member] | Non Employee Director | LTIP Units
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Number of units granted	28,000
Weighted average fair value of options granted	$ 26.41
Compensation Expenses			$ 700,000
Unamortized stock compensation expense			$ 100,000
Non-Qualified 2015 Employee Stock Purchase Plan
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Equity based compensation			250,000
Common stock reserved for future Issuance			250,000
Shares purchased under ESPP			0

XML

Supplemental Cash Flow Information - Supplemental Cash Flow Information and Non-cash Investing and Financing Activities (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Supplemental cash flow information
Cash paid during the period for interest	$ 25,850	$ 29,981	$ 26,403
Cash (received) paid during the period for taxes	(31)	75	36
Non-cash investing and financing activities
Non-cash right of way additions to electric plant		337	1,275
Change in accrued additions to electric plant	6,942	20,633	8,876
Allowance for funds used during construction - debt	1,767	1,635	12,579
Net non-cash equity issuances related to the Merger and Reorganization	97,193
Net non-cash noncontrolling equity issuances related to the Merger and Reorganization	119,607
Non-cash members' contributions			369
Non-cash noncontrolling interests contributions			119
Non-cash noncontrolling interests equity issuance	755	4,648	$ 32,052
Dividends and distributions payable	$ 13,634	$ 14,130

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Quarterly Financial Information (Unaudited) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Quarterly Financial Information Disclosure [Abstract]
Lease revenue	$ 50,921	$ 41,452	$ 29,458	$ 29,372	$ 45,044	$ 39,309	$ 25,225	$ 24,837	$ 151,203	$ 134,415	$ 73,193
General and administrative expense	(5,641)	(5,504)	(4,728)	(48,733)	(5,786)	(6,143)	(3,284)	(3,412)	(64,606)	(18,625)	(13,691)
Depreciation	(10,773)	(10,259)	(9,671)	(9,508)	(9,255)	(8,998)	(8,366)	(8,461)	(40,211)	(35,080)	(20,024)
Interest expense, net	(7,470)	(6,723)	(6,939)	(7,422)	(8,377)	(8,699)	(7,984)	(7,681)	(28,554)	(32,741)	(17,384)
Other (expense) income, net	868	707	847	626	(17,569)	294	172	(133)	3,048	(17,236)	20,932
Income tax expense	(374)	(243)	(124)	(208)	(297)	(248)	(250)	(158)	(949)	(953)	(616)
Net income	27,531	19,430	8,843	(35,873)	3,760	15,515	5,513	4,992	19,931	29,780	42,410
Less: Net income attributable to noncontrolling interest	7,725	5,458	2,481	(9,000)	836	3,621	1,278	1,147	6,664	6,882	10,288
Net income attributable to InfraREIT, Inc.	$ 19,806	$ 13,972	$ 6,362	$ (26,873)	$ 2,924	$ 11,894	$ 4,235	$ 3,845	$ 13,267	$ 22,898	$ 32,122
Basic EPS	$ 0.45	$ 0.32	$ 0.15	$ (0.65)	$ 0.08	$ 0.34	$ 0.12	$ 0.11	$ 0.31	$ 0.65	$ 1.07
Diluted EPS	$ 0.45	$ 0.32	$ 0.15	$ (0.65)	$ 0.08	$ 0.34	$ 0.12	$ 0.11	$ 0.31	$ 0.65	$ 1.07

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Subsequent Events - Additional Information (Details) - USD ($) $ / shares in Units, $ in Millions				12 Months Ended
	Mar. 02, 2016	Jan. 14, 2016	Jan. 04, 2016	Dec. 31, 2015	Dec. 31, 2014
Subsequent Event [Line Items]
Dividend declared date				Mar. 02, 2016
Cash dividends declared per common share				$ 1.075	$ 0.310
Dividend payable date				Apr. 21, 2016
Dividend record date				Mar. 31, 2016
Subsequent Event
Subsequent Event [Line Items]
Cash distributions to units holders	$ 0.25
Subsequent Event | Quarterly Dividend
Subsequent Event [Line Items]
Cash dividends declared per common share	0.25
Subsequent Event | Annually Dividend
Subsequent Event [Line Items]
Cash dividends declared per common share	$ 1.00
Subsequent Event | Sharyland Distribution & Transmission Services | Series B Notes
Subsequent Event [Line Items]
Issuance of senior secured notes		$ 100.0
Long-Term Debt Maturity Period		10 years
Interest bearing note, maturity date		Jan. 14, 2026
Subsequent Event | Director
Subsequent Event [Line Items]
Aggregate common stock shares issued to directors			4,735
Subsequent Event | Director | LTIP Units
Subsequent Event [Line Items]
LTIP Units issued to directors			29,722
Grant date fair value per share			$ 18.58
Grant date fair value			$ 0.6
Vesting period of LTIP Units			Jan. 01, 2017

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Electric Plant and Accumulated Depreciation - Components of Electric Plant and Accumulated Depreciation (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Real Estate And Accumulated Depreciation [Line Items]
Gross Amount Carried at Period Close	$ 1,675,295	$ 1,447,247	$ 1,298,946
Accumulated Depreciation	(240,764)	$ (220,101)	$ (194,569)
Stanton Brady And Celeste Assets
Real Estate And Accumulated Depreciation [Line Items]
Encumbrances	268,620
Initial Cost to Company	713,502
Gross Amount Carried at Period Close	713,502
Accumulated Depreciation	(129,770)
McAllen Assets
Real Estate And Accumulated Depreciation [Line Items]
Encumbrances	61,676
Initial Cost to Company	155,970
Gross Amount Carried at Period Close	155,970
Accumulated Depreciation	(21,943)
Competitive Renewable Energy Zones
Real Estate And Accumulated Depreciation [Line Items]
Encumbrances	294,159
Initial Cost to Company	669,189
Gross Amount Carried at Period Close	669,189
Accumulated Depreciation	(29,960)
Stanton Transmission Loop Assets
Real Estate And Accumulated Depreciation [Line Items]
Encumbrances	15,767
Initial Cost to Company	92,572
Gross Amount Carried at Period Close	92,572
Accumulated Depreciation	(58,309)
E R C O T Transmission Assets
Real Estate And Accumulated Depreciation [Line Items]
Encumbrances	19,917
Initial Cost to Company	44,062
Gross Amount Carried at Period Close	44,062
Accumulated Depreciation	$ (782)

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Electric Plant and Accumulated Depreciation - Components of Electric Plant and Accumulated Depreciation (Parenthetical) (Details)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Transmission Plant | Minimum
Real Estate And Accumulated Depreciation [Line Items]
Depreciation rate	1.69%	1.69%	2.57%
Transmission Plant | Maximum
Real Estate And Accumulated Depreciation [Line Items]
Depreciation rate	3.15%	3.15%	3.00%
Distribution Plant | Minimum
Real Estate And Accumulated Depreciation [Line Items]
Depreciation rate	1.74%	1.74%	2.50%
Distribution Plant | Maximum
Real Estate And Accumulated Depreciation [Line Items]
Depreciation rate	5.96%	5.96%	3.10%
General Plant | Minimum
Real Estate And Accumulated Depreciation [Line Items]
Depreciation rate	0.80%	0.80%	2.50%
General Plant | Maximum
Real Estate And Accumulated Depreciation [Line Items]
Depreciation rate	5.12%	5.12%	33.33%

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Electric Plant and Accumulated Depreciation - Components of Electric Plant and Accumulated Depreciation Fixed Asset Reconciliation (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Electric plant
Beginning balance	$ 1,447,247	$ 1,298,946
Additions	235,263	153,395
Retirements	(7,215)	(5,094)
Ending balance	1,675,295	1,447,247
Accumulated depreciation
Beginning balance	220,101	194,569
Depreciation expense	40,211	35,080
Retirements	(7,215)	(5,094)
Cost of removal	(12,333)	(4,454)
Ending balance	240,764	220,101
Electric plant, net	$ 1,434,531	$ 1,227,146