DALLAS-In a ground breaking move, Hunt Power has spearheaded the creation of two REITs that will invest up to $2.1 billion in energy infrastructure and gas storage and delivery sectors in the US.
The two new REITs, Electric Infrastructure Alliance of America and Gas Infrastructure Alliance of America, are backed by Hunt Power, Tokyo-based Marubeni Corp., John Hancock Life Insurance (USA), TIAA-CREF and OPTrust Private Markets Group. They are the first REITs of their kind in the electricity and gas transmission and distribution sector and have been several years in the making, according to Kirk Baker, chairman and president of both REITs and senior vice president of Hunt Power.
Baker tells GlobeSt.com the REITs will develop and acquire electricity and gas transmission and distribution assets primarily in Texas, the Great Plains and the desert Southwest regions. Subsidiaries of Hunt Power will manage the REITs and will invest up to $322.5 million in cash and assets in the alliance, Marubeni will invest up to $500 million, John Hancock will invest up to $450 million, TIAA-CREF will invest up to $450 million, and OPTrust will invest up to $400 million.
“We like the demographic growth in those areas and the demand for new transmission lines to harvest electricity generated from renewable energy generation,” Baker says, adding that the new REITs will partner with utilities, co-ops, municipalities and local distribution companies seeking expertise and capital to upgrade and expand their infrastructure systems.
The REIT structure will allow operators to lease electricity and gas transmission and distribution assets, according to Baker. The new REITs can be closely compared with the way hospitality REITs operate.
Like hospitality REITs, these new infrastructure REITs will develop and/or own assets and lease them to regional operators. In some cases, the REITs will acquire distribution and transmission assets from operators, who will then lease back the assets.
Baker says Hunt Power initially came up with the concept of placing a REIT structure on energy infrastructure in 2006. The company spent some time refining the concept and applied to the Internal Revenue Service for a private letter ruling to obtain their view that electricity transfer assets were eligible for REIT structures. Hunt Power received IRS approval in 2007.
Electric Infrastructure Alliance of America has already inked a deal to acquire an interest in Sharyland Distribution and Transmission Services, an affiliate of Hunt Power. Sharyland will own five line segments and four substations that have been proposed as part of the Competitive Renewable Energy Zone transmission build out in the Electric Reliability Council of Texas.
The facilities will be built by Sharyland Utilities LP, and once completed, will form a loop in the Texas Panhandle and South Plains that will bring wind power to major load centers in Texas while enhancing reliability.
Applications for regulatory approval have been filed with the Public Utility Commission of Texas for all five segments, with final decisions expected by May 2011. Construction is expected to be completed in 2013.
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