HA Sustainable Infrastructure Capital, Inc. ("HASI," "we," "our"
or the "Company") (NYSE: HASI), a leading investor in climate
solutions, today reported results for the second quarter of
2024.
Key Highlights
- New strategic partnership launched with KKR targeting
co-investment of $2 billion over 18 months in sustainable
infrastructure projects.
- Second investment grade rating enabled our first investment
grade bond issuance—$700 million of senior secured notes due 2034
with a coupon of 6.375%.
- Managed assets increased 21% year-over-year to $13.0 billion
and our Portfolio grew 27% year-over-year to $6.2 billion.
- Closed transactions of $260 million in the second quarter of
2024 and $823 million in the first half of 2024, which is
consistent with the first half of 2023.
- Yields on new portfolio investments through the first half of
2024 were greater than 10.5%, with total portfolio yield over 8.0%
at the end of the quarter.
- QTD GAAP EPS of $0.23 (compared with $0.14 a year ago),
Adjusted EPS of $0.63 (compared to $0.53) a year ago and quarterly
dividend declared of $0.415 per share.
“HASI achieved two major milestones in the second quarter of
2024: we inaugurated CCH1, our strategic partnership with KKR, and
we received a second investment grade rating and priced our first
investment grade bond,” said Jeffrey A. Lipson, president and CEO
of HASI. “With data centers, domestic manufacturing and EVs
launching a new era of growth in U.S. electricity demand, and clean
energy as a major part of the supply, HASI is now optimally
positioned to capitalize on this growth as the preeminent pure play
investor in the energy transition.”
A summary of our financial results is detailed in the table
below:
For the three months ended
June 30, 2024
For the three months ended
June 30, 2023
$ in thousands
Per Share (Diluted)
$ in thousands
Per Share (Diluted)
GAAP Net Income
$
26,540
$
0.23
$
13,522
$
0.14
Adjusted earnings
73,683
0.63
53,146
0.53
For the six months ended June
30, 2024
For the six months ended June
30, 2023
$ in thousands
Per Share (Diluted)
$ in thousands
Per Share (Diluted)
GAAP Net Income
$
149,566
$
1.22
$
37,628
$
0.39
Adjusted earnings
152,589
1.31
102,804
1.07
“We continue to see an attractive investment environment with
greater than 10.5% yields on new portfolio investments and new cost
of debt less than 6.5%,” said Marc Pangburn, Chief Financial
Officer of HASI. “In addition, our investment grade status will
enable our largest source of capital to be lower cost, longer term,
and more resilient.”
Sustainability and Impact Highlights
During the second quarter of 2024, HASI closed new funding
commitments for more than 300 MW of solar and wind power assets. As
a result, our portfolio has invested in more than 10 GW of solar
and wind power assets and 5.8 million MM BTUs of renewable
natural gas capacity as of June 30, 2024. In aggregate, these
projects are generating more than 20 TWh of renewable energy
annually. An estimated 60,000 metric tons of carbon emissions will
be avoided annually by our transactions closed this quarter,
equating to a CarbonCount® score of 0.26 metric tons per $1,000
invested. All in, including assets we have not retained in our
portfolio, our managed assets are avoiding approximately 8 million
metric tons of carbon emissions annually, based on our proprietary
CarbonCount score.
Investment Activity
We closed new investments totaling approximately $260 million in
the second quarter, bringing total closed transactions to more than
$820 million for the first half of 2024. Weighted average yields on
our new investments have been underwritten at greater than 10.5%
through the first half of the year.
As of June 30, 2024, our managed assets totaled $13.0 billion,
up 21% year-over-year, and our portfolio of assets on our balance
sheet was approximately $6.2 billion, up 27% year-over-year. Our
portfolio remains well-diversified across established clean energy
end markets with approximately $3.0 billion of behind-the-meter
assets and approximately $2.4 billion of grid-connected assets,
with the remainder in fuels, transport, and nature assets.
The following is an analysis of the performance ratings of our
portfolio as of June 30, 2024:
Portfolio Performance
Commercial
Government
Commercial
Commercial
1 (1)
1 (1)
2 (2)
3 (3)
Total
(dollars in millions)
Total receivables
$
2,781
$
36
$
—
$
—
$
2,817
Less: Allowance for loss on
receivables
(48
)
—
—
—
(48
)
Net receivables
2,733
36
—
—
2,769
Receivables held-for-sale
33
3
—
—
36
Investments
5
2
—
—
7
Real estate
3
—
—
—
3
Equity method investments (4)
3,333
—
38
—
3,371
Total
$
6,107
$
41
$
38
$
—
$
6,186
Percent of Portfolio
99
%
1
%
—
%
—
%
100
%
(1)
This category includes our assets where
based on our credit criteria and performance to date, we believe
that our risk of not receiving our invested capital remains
low.
(2)
This category includes our assets where
based on our credit criteria and performance to date, we believe
there is a moderate level of risk of not receiving some or all of
our invested capital.
(3)
This category includes our assets where
based on our credit criteria and performance to date, we believe
there is substantial doubt regarding our ability to recover some or
all of our invested capital. Loans in this category are placed on
non-accrual status.
(4)
Some of the individual projects included
in portfolios that make up our equity method investments have
government off-takers. As they are part of large portfolios, they
are not classified separately.
Financial Results
- GAAP Net Investment Income was $3.3 million in 2Q24, compared
to $14.8 million a year ago, while Adjusted Net Investment Income
in 2Q24 grew 16% year over year to $62.5 million.
- Securitization Income was $5 million in 2Q24, compared to $4
million in 2Q23, and Gain on Sale of Receivables and Investment was
$26 million in 2Q24, compared to $15 million in 2Q23
- GAAP diluted EPS of $0.23 in 2Q24 compared with $0.14 a year
ago, and Adjusted EPS of $0.63 in 2Q24 compared to $0.53 a year
ago
GAAP Earnings and EPS
Total revenue of $95 million in the second quarter of 2024 grew
by 27% year-over-year, from $74 million in the second quarter of
2023, driven by an increase of $16 million in interest and
securitization income due to both higher managed assets and a
higher average yield. In addition, gain on sale was $26 million in
the second quarter of 2024, compared to $15 million in the second
quarter of 2023 driven by a change in the mix and volume of assets
being securitized. The rotation of land assets in 2024 and 2023
resulted in a reduction of rental income of $6 million.
Interest expense of $60 million increased $20 million
year-over-year, primarily due to a larger average outstanding debt
balance and a higher average interest rate. We recorded a $4
million benefit for loss on receivables and securitization assets,
due primarily to a reduction in our reserve related to a large
one-time principal prepayment on an outstanding loan and the
contribution of portfolio assets into CCH1. Compensation and
benefits and general and administrative expenses increased by a
combined $5 million, primarily due to the growth of the company and
a change in our retirement policy, which resulted in the
acceleration of share-based compensation expense.
Income from equity method investments increased by approximately
$25 million in the second quarter of 2024 compared to the same
period in 2023 primarily due to allocations of income in the
current period related to tax credits. Income tax expense increased
by approximately $12 million due to higher pre-tax book income.
GAAP net income (loss) to controlling shareholders in the second
quarter of 2024 was $27 million, compared to $14 million in the
same period in 2023.
Adjusted Earnings and EPS
In addition to our GAAP results, we also present non-GAAP
measures to enhance the usefulness of financial information and
allow for greater transparency with respect to key metrics used by
management internally for planning, forecasting, and evaluating our
operating performance.
GAAP net investment income in the second quarter of 2024 was $3
million. This includes all of our interest expense but only
includes the portion of our investment returns that is reflected in
GAAP interest income and rental income revenue. It does not include
the portion of our investment returns recognized through our Equity
Method investments. Thus, GAAP net investment income fails to
capture all of the economic returns achieved by our Portfolio.
Given that GAAP net investment income, and in turn GAAP net
income, does not reflect such economic returns, our non-GAAP
measures Adjusted net investment income and Adjusted Earnings are
utilized by management to monitor and evaluate our business as we
believe they are a helpful indicator of the underlying economics of
our investments. We also believe they provide investors and
analysts with useful supplemental information to understand the
financial performance of our business and to analyze financial and
business trends and enables a useful comparison of financial
results between periods.
Adjusted net investment income is calculated using an Equity
Method Investments Earnings Adjustment. The Equity Method
investments Earnings Adjustment is calculated using our
underwritten project cash flows discounted back to the net present
value, based on a target investment rate, with the cash flows to be
received in the future reflecting both a return on the capital
(based upon the underwritten investment rate) and a return of the
capital we have committed to our renewable energy equity method
investments, as adjusted to reflect the performance of the project
and the cash distributed.
Adjusted net investment income was $63 million in the second
quarter of 2024, compared to $54 million in the second quarter of
2023.
Adjusted Earnings is calculated using the same Equity Method
Investments Earnings Adjustment that is used to calculate adjusted
net investment income. Adjusted earnings excludes the recognition
of income using HLBV, which uses profit and loss allocation that
may differ materially from the agreed upon allocations of a
project’s cash flows, and in turn reflects income that can differ
substantially from the economic returns achieved by a project.
Adjusted Earnings also excludes non-cash equity compensation
expense, provisions for loss on receivables, amortization of
intangibles, non-cash provision (benefit) for taxes, and earnings
attributable to non-controlling interests, and also makes an
adjustment to eliminate our portion of fees we earn from
related-party co-investment structures. Please refer to the
Explanatory Notes in this press release for a more detailed
explanation of Adjusted Earnings.
Adjusted earnings in the second quarter of 2024 was
approximately $74 million, an increase of $21 million over the same
period in 2023, primarily driven by growth in adjusted net
investment income due to a larger portfolio and increased gain on
sale income. Adjusted EPS was $0.63, compared to $0.53 a year
ago.
Leverage
As of June 30, 2024, cash and cash equivalents were $146 million
and total debt outstanding was $4,113 million. Our debt-to-equity
ratio at June 30, 2024, was 1.8x, within our target range of 1.5 to
2.0 and below our internal limit of 2.5x.
Our weighted average interest cost, as measured by GAAP interest
expense divided by average debt outstanding, was 5.6% in the second
quarter of 2024, as compared to 4.8% in the second quarter of
2023.
The calculation of our fixed-rate debt and leverage ratios as of
June 30, 2024 and December 31, 2023 are shown in the table
below:
June 30, 2024
% of Total
December 31, 2023
% of Total
($ in millions)
($ in millions)
Floating-rate borrowings (1)
$
21
1
%
$
338
8
%
Fixed-rate debt (2)
4,092
99
%
3,909
92
%
Total
$
4,113
100
%
$
4,247
100
%
Leverage (3)
1.8 to 1
2.0 to 1
(1)
Floating-rate borrowings include
borrowings under our floating-rate credit facilities and commercial
paper issuances with less than six months original maturity, to the
extent such borrowings are not hedged using interest rate
swaps.
(2)
Fixed-rate debt includes the impact of our
interest rate swaps and collars on debt that is otherwise floating.
Debt excludes securitizations that are not consolidated on our
balance sheet.
(3)
Leverage, as measured by our
debt-to-equity ratio.
Guidance
We confirm our guidance for both adjusted earnings per share and
dividend payout ratio. We continue to expect annual adjusted
earnings per share to grow at a compounded annual rate of 8% to 10%
from 2024 to 2026, relative to the 2023 baseline of $2.23 per
share, which is equivalent to a 2026 midpoint of $2.89 per share.
We also expect distributions of annual dividends per share from
2024 to 2026 at a payout ratio of between 60% and 70% of annual
adjusted earnings per share. This guidance reflects our judgments
and estimates of (i) yield on our existing portfolio; (ii) yield on
incremental portfolio investments, inclusive of our existing
pipeline; (iii) the volume and profitability of transactions; (iv)
amount, timing, and costs of debt and equity capital to fund new
investments; (v) changes in costs and expenses reflective of our
forecasted operations; and (vi) the general interest rate and
market environment. In addition, distributions are subject to
approval by our Board of Directors on a quarterly basis. We have
not provided GAAP guidance as discussed in the Forward-Looking
Statements section of this press release.
Dividend
Finally, our Board of Directors today approved a quarterly cash
dividend of $0.415 per share of common stock. This dividend will be
paid on October 18, 2024, to stockholders of record as October 4,
2024.
Conference Call and Webcast Information
HASI will host an investor conference call today, Thursday,
August 1, 2024, at 5:00 p.m. Eastern Time. The conference call can
be accessed live over the phone by dialing 1-877-407-0890
(Toll-Free) or +1-201-389-0918 (toll). Participants should inform
the operator you want to be joined to the HASI call. The conference
call will also be accessible as an audio webcast with slides on our
website. A replay after the event will be accessible as on-demand
webcast on our website.
About HASI
HASI (NYSE: HASI) is a leading climate positive investment firm
that actively partners with clients to deploy real assets that
facilitate the energy transition. With more than $12 billion in
managed assets, our vision is that every investment improves our
climate future. For more information, please visit hasi.com.
Forward-Looking Statements:
Some of the information contained in this press release is
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, that are subject to
risks and uncertainties. For these statements, we claim the
protections of the safe harbor for forward-looking statements
contained in such Sections. These forward-looking statements
include information about possible or assumed future results of our
business, financial condition, liquidity, results of operations,
plans and objectives. When we use the words “believe,” “expect,”
“anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,”
“may” or similar expressions, we intend to identify forward-looking
statements. However, the absence of these words or similar
expressions does not mean that a statement is not forward-looking.
All statements that address operating performance, events or
developments that we expect or anticipate will occur in the future
are forward-looking statements.
Forward-looking statements are subject to significant risks and
uncertainties. Investors are cautioned against placing undue
reliance on such statements. Actual results may differ materially
from those set forth in the forward-looking statements. Factors
that could cause actual results to differ materially from those
described in the forward-looking statements include those discussed
under the caption “Risk Factors” included in our most recent Annual
Report on Form 10-K as well as in other periodic reports that we
file with the U.S. Securities and Exchange Commission.
Any forward-looking statement speaks only as of the date on
which such statement is made, and we undertake no obligation to
update any forward-looking statement to reflect events or
circumstances, including, but not limited to, unanticipated events,
after the date on which such statement is made, unless otherwise
required by law. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it
assess the impact of each such factor on the business or the extent
to which any factor, or combination of factors, may cause actual
results to differ materially from those contained or implied in any
forward-looking statement.
The Company has not provided GAAP guidance as forecasting a
comparable GAAP financial measure, such as net income, would
require that the Company apply the HLBV method to these
investments. In order to forecast under the HLBV method, the
Company would be required to make various assumptions related to
expected changes in the net asset value of the various entities and
how such changes would be allocated under HLBV. GAAP HLBV earnings
over a period of time are very sensitive to these assumptions
especially in regard to when a partnership transaction flips and
thus the liquidation scenarios change materially. The Company
believes that these assumptions would require unreasonable efforts
to complete and if completed, the wide variation in projected GAAP
earnings based upon a range of scenarios would not be meaningful to
investors. Accordingly, the Company has not included a GAAP
reconciliation table related to any adjusted earnings guidance.
Estimated carbon savings are calculated using the estimated
kilowatt hours, gallons of fuel oil, million British thermal units
of natural gas and gallons of water saved as appropriate, for each
project. The energy savings are converted into an estimate of
metric tons of CO2 equivalent emissions based upon the project’s
location and the corresponding emissions factor data from the U.S.
Government and International Energy Agency. Portfolios of projects
are represented on an aggregate basis.
HA SUSTAINABLE INFRASTRUCTURE
CAPITAL, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
For the Three Months Ended
June 30,
For the Six Months Ended June
30,
2024
2023
2024
2023
Revenue
Interest income
$
62,779
$
48,222
$
131,471
$
91,330
Rental income
83
6,487
1,929
12,973
Gain on sale of assets
25,795
14,791
54,405
30,510
Securitization asset income
5,218
4,330
10,116
7,762
Other income
642
504
2,411
860
Total revenue
94,517
74,334
200,332
143,435
Expenses
Interest expense
59,530
39,903
121,403
77,118
Provision for loss on receivables and
securitization assets
(4,198
)
806
(2,177
)
2,689
Compensation and benefits
20,814
13,862
41,490
32,232
General and administrative
7,955
10,095
17,007
18,117
Total expenses
84,101
64,666
177,723
130,156
Income before equity method
investments
10,416
9,669
22,609
13,279
Income (loss) from equity method
investments
26,874
2,252
185,424
24,670
Income (loss) before income
taxes
37,290
11,921
208,033
37,949
Income tax (expense) benefit
(10,346
)
1,601
(56,541
)
171
Net income (loss)
$
26,944
$
13,522
$
151,492
$
38,120
Net income (loss) attributable to
non-controlling interest holders
404
—
1,926
492
Net income (loss) attributable to
controlling stockholders
$
26,540
$
13,522
$
149,566
$
37,628
Basic earnings (loss) per common share
$
0.23
$
0.14
$
1.31
$
0.39
Diluted earnings (loss) per common
share
$
0.23
$
0.14
$
1.22
$
0.39
Weighted average common shares
outstanding—basic
114,329,692
96,996,805
113,473,750
94,065,873
Weighted average common shares
outstanding—diluted
114,433,285
99,989,158
131,922,504
97,075,329
HA SUSTAINABLE INFRASTRUCTURE
CAPITAL, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
June 30, 2024
December 31, 2023
Assets
Cash and cash equivalents
$
145,695
$
62,632
Equity method investments
3,371,373
2,966,305
Receivables, net of allowance of $48
million and $50 million, respectively
2,768,790
3,073,855
Receivables held-for-sale
36,383
35,299
Real estate
2,990
111,036
Investments
7,065
7,165
Securitization assets, net of allowance of
$3 million and $3 million, respectively
237,865
218,946
Other assets
88,581
77,112
Total Assets
$
6,658,742
$
6,552,350
Liabilities and Stockholders’
Equity
Liabilities:
Accounts payable, accrued expenses and
other
$
222,297
$
163,305
Credit facilities
316,589
400,861
Green commercial paper notes
110,326
30,196
Term loan facility
414,117
727,458
Non-recourse debt (secured by assets of
$306 million and $239 million, respectively)
134,196
160,456
Senior unsecured notes
2,523,638
2,318,841
Convertible notes
614,412
609,608
Total Liabilities
4,335,575
4,410,725
Stockholders’ Equity:
Preferred stock, par value $0.01 per
share, 50,000,000 shares authorized, no shares issued and
outstanding
—
—
Common stock, par value $0.01 per share,
450,000,000 shares authorized, 115,151,661 and 112,174,279 shares
issued and outstanding, respectively
1,152
1,122
Additional paid in capital
2,467,512
2,381,510
Accumulated deficit
(249,277
)
(303,536
)
Accumulated other comprehensive income
(loss)
41,052
13,165
Non-controlling interest
62,728
49,364
Total Stockholders’ Equity
2,323,167
2,141,625
Total Liabilities and Stockholders’
Equity
$
6,658,742
$
6,552,350
HA SUSTAINABLE INFRASTRUCTURE
CAPITAL, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Six Months Ended June
30,
2024
2023
Cash flows from operating
activities
Net income (loss)
$
151,492
$
38,120
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Provision for loss on receivables
(2,177
)
2,689
Depreciation and amortization
515
1,862
Amortization of financing costs
8,192
6,318
Equity-based compensation
14,884
11,478
Equity method investments
(161,958
)
(6,355
)
Non-cash gain on securitization
(53,891
)
(14,603
)
(Gain) loss on sale of receivables and
investments
8,532
1,305
Changes in receivables held-for-sale
(6,750
)
51,538
Changes in accounts payable and accrued
expenses
50,801
(9,733
)
Change in accrued interest on receivables
and investments
(33,242
)
(14,518
)
Cash received (paid) upon hedge
settlement
19,261
—
Other
455
(2,375
)
Net cash provided by (used in) operating
activities
(3,886
)
65,726
Cash flows from investing
activities
Equity method investments
(168,896
)
(429,944
)
Equity method investment distributions
received
11,426
4,203
Proceeds from sales of equity method
investments
2,107
—
Purchases of and investments in
receivables
(347,343
)
(317,805
)
Principal collections from receivables
470,788
74,328
Proceeds from sales of receivables
99,166
7,634
Proceeds from sale of real estate
115,767
—
Purchases of investments and
securitization assets
—
(12,969
)
Posting of hedge collateral
(1,140
)
(13,380
)
Receipt of hedge collateral
4,010
—
Other
(680
)
(473
)
Net cash provided by (used in) investing
activities
185,205
(688,406
)
Cash flows from financing
activities
Proceeds from credit facilities
616,792
467,000
Principal payments on credit
facilities
(701,792
)
(235,000
)
Proceeds from issuance of term loan
250,000
—
Principal payments on term loan
(561,023
)
(4,788
)
Proceeds from issuance of non-recourse
debt
94,000
—
Proceeds from issuance of commercial paper
notes
80,000
100,000
Principal payments on non-recourse
debt
(69,958
)
(10,069
)
Proceeds from issuance of senior unsecured
notes
205,500
—
Net proceeds of common stock issuances
82,014
357,594
Payments of dividends and
distributions
(93,280
)
(72,129
)
Withholdings on employee share vesting
(466
)
(1,433
)
Payment of financing costs
(19,711
)
(921
)
Posting of hedge collateral
(90,860
)
—
Receipt of hedge collateral
114,700
—
Other
(969
)
(1,768
)
Net cash provided by (used in) financing
activities
(95,053
)
598,486
Increase (decrease) in cash, cash
equivalents, and restricted cash
86,266
(24,194
)
Cash, cash equivalents, and restricted
cash at beginning of period
75,082
175,972
Cash, cash equivalents, and restricted
cash at end of period
$
161,348
$
151,778
Interest paid
$
110,097
$
68,167
Supplemental disclosure of non-cash
activity
Residual assets retained from
securitization transactions
$
28,164
$
26,020
Equity method investments retained from
securitization transactions
32,564
—
Equity method investments retained from
sale of assets upon establishment of co-investment structure
54,655
—
Deconsolidation of non-recourse debt
51,233
32,923
Deconsolidation of assets pledged for
non-recourse debt
51,761
31,371
EXPLANATORY NOTES Non-GAAP Financial Measures
Adjusted Earnings
We calculate adjusted earnings as GAAP net income (loss)
excluding non-cash equity compensation expense, provisions for loss
on receivables, amortization of intangibles, non-cash provision
(benefit) for taxes, losses or (gains) from modification or
extinguishment of debt facilities, any one-time acquisition related
costs or non-cash tax charges and the earnings attributable to our
non-controlling interest of Hannon Armstrong Sustainable
Infrastructure, L.P., a Delaware limited partnership (our
“Operating Partnership”). We also make an adjustment to eliminate
our portion of fees we earn from related-party co-investment
structures, and for our equity method investments in the renewable
energy projects as described below. We will use judgment in
determining when we will reflect the losses on receivables in our
adjusted earnings, and will consider certain circumstances such as
the time period in default, sufficiency of collateral as well as
the outcomes of any related litigation. In the future, adjusted
earnings may also exclude one-time events pursuant to changes in
GAAP and certain other adjustments as approved by a majority of our
independent directors. Prior to 2024, we referred to this metric as
distributable earnings.
We believe a non-GAAP measure, such as adjusted earnings, that
adjusts for the items discussed above is and has been a meaningful
indicator of our economic performance in any one period and is
useful to our investors as well as management in evaluating our
performance as it relates to expected dividend payments over time.
Additionally, we believe that our investors also use adjusted
earnings, or a comparable supplemental performance measure, to
evaluate and compare our performance to that of our peers, and as
such, we believe that the disclosure of adjusted earnings is useful
to our investors.
Certain of our equity method investments in renewable energy and
energy efficiency projects are structured using typical partnership
“flip” structures where the investors with cash distribution
preferences receive a pre-negotiated return consisting of priority
distributions from the project cash flows, in many cases, along
with tax attributes. Once this preferred return is achieved, the
partnership “flips” and the common equity investor, often the
operator or sponsor of the project, receives more of the cash flows
through its equity interests while the previously preferred
investors retain an ongoing residual interest. We have made
investments in both the preferred and common equity of these
structures. Regardless of the nature of our equity interest, we
typically negotiate the purchase prices of our equity investments,
which have a finite expected life, based on our underwritten
project cash flows discounted back to the net present value, based
on a target investment rate, with the cash flows to be received in
the future reflecting both a return on the capital (at the
investment rate) and a return of the capital we have committed to
the project. We use a similar approach in the underwriting of our
receivables.
Under GAAP, we account for these equity method investments
utilizing the HLBV method. Under this method, we recognize income
or loss based on the change in the amount each partner would
receive, typically based on the negotiated profit and loss
allocation, if the assets were liquidated at book value, after
adjusting for any distributions or contributions made during such
quarter. The HLBV allocations of income or loss may be impacted by
the receipt of tax attributes, as tax equity investors are
allocated losses in proportion to the tax benefits received, while
the sponsors of the project are allocated gains of a similar
amount. The investment tax credit available for election in solar
projects is a one-time credit realized in the quarter when the
project is considered operational for tax purposes and is fully
allocated under HLBV in that quarter (subject to an impairment
test), while the production tax credit required for wind projects
and electable for solar projects is a ten year credit and thus is
allocated under HLBV over a ten year period. In addition, the
agreed upon allocations of the project’s cash flows may differ
materially from the profit and loss allocation used for the HLBV
calculations in a given period. We also consider the impact of any
OTTI in determining our income from equity method investments.
The cash distributions for those equity method investments where
we apply HLBV are segregated into a return on and return of capital
on our cash flow statement based on the cumulative income (loss)
that has been allocated using the HLBV method. However, as a result
of the application of the HLBV method, including the impact of tax
allocations, the high levels of depreciation and other non-cash
expenses that are common to renewable energy projects and the
differences between the agreed upon profit and loss and the cash
flow allocations, the distributions and thus the economic returns
(i.e. return on capital) achieved from the investment are often
significantly different from the income or loss that is allocated
to us under the HLBV method in any one period. Thus, in calculating
adjusted earnings, for certain of these investments where there are
characteristics as described above, we further adjust GAAP net
income (loss) to take into account our calculation of the return on
capital (based upon the underwritten investment rate) from our
renewable energy equity method investments, as adjusted to reflect
the performance of the project and the cash distributed. We believe
this equity method investment adjustment to our GAAP net income
(loss) in calculating our adjusted earnings measure is an important
supplement to the HLBV income allocations determined under GAAP for
an investor to understand the economic performance of these
investments where HLBV income can differ substantially from the
economic returns in any one period.
We have acquired equity investments in portfolios of renewable
energy projects which have the majority of the distributions
payable to more senior investors in the first few years of the
project. The following table provides our results related to our
equity method investments for the three and six months ended June
30, 2024 and 2023.
Three Months Ended June
30,
Six Months Ended June
30,
2024
2023
2024
2023
(in millions)
Income (loss) under GAAP
$
27
$
2
$
185
$
25
Collections of Adjusted earnings
$
18
$
9
$
31
$
18
Return of capital
1
2
4
5
Cash collected
$
19
$
11
$
35
$
23
Adjusted earnings does not represent cash generated from
operating activities in accordance with GAAP and should not be
considered as an alternative to net income (determined in
accordance with GAAP), or an indication of our cash flow from
operating activities (determined in accordance with GAAP), or a
measure of our liquidity, or an indication of funds available to
fund our cash needs, including our ability to make cash
distributions. In addition, our methodology for calculating
adjusted earnings may differ from the methodologies employed by
other companies to calculate the same or similar supplemental
performance measures, and accordingly, our reported adjusted
earnings may not be comparable to similar metrics reported by other
companies.
Reconciliation of our GAAP Net Income to Adjusted Earnings
We have calculated our adjusted earnings and provided a
reconciliation of our GAAP net income to adjusted earnings for the
three and six months ended June 30, 2024 and 2023 in the tables
below.
For the three months ended
June 30, 2024
For the three months ended
June 30, 2023
(dollars in thousands, except per
share amounts)
$
per share
$
per share
Net income attributable to controlling
stockholders (1)
$
26,540
$
0.23
$
13,522
$
0.14
Adjusted earnings adjustments:
Reverse GAAP (income) loss from equity
method investments
(26,874
)
(2,252
)
Add equity method investments earnings
59,291
38,461
Elimination of proportionate share of fees
earned from co-investment structures (2)
(111
)
—
Equity-based expense
8,282
3,438
Provision for loss on receivables
(4,198
)
806
Amortization of intangibles (3)
3
772
Non-cash provision (benefit) for income
taxes
10,346
(1,601
)
Net income attributable to non-controlling
interest
404
—
Adjusted earnings (4)
$
73,683
$
0.63
$
53,146
$
0.53
(1)
The per share amounts represent GAAP
diluted earnings per share and is the most comparable GAAP measure
to our adjusted earnings per share.
(2)
This adjustment is to eliminate the
intercompany portion of fees received from co-investment structures
that for GAAP net income is included in the Equity method income
line item. Since we remove GAAP Equity method income for purposes
of our Adjusted Earnings metric, we add back the elimination
through this adjustment.
(3)
Adds back non-cash amortization of lease
and pre-IPO intangibles.
(4)
Adjusted earnings per share for the three
months ended June 30, 2024 and 2023, are based on 117,506,065
shares and 99,581,898 shares outstanding, respectively, which
represents the weighted average number of fully-diluted shares
outstanding including our restricted stock awards, restricted stock
units, long-term incentive plan units, and the non-controlling
interest in our Operating Partnership. We include any potential
common stock issuances related to share based compensation units in
the amount we believe is reasonably certain to vest. As it relates
to Convertible Notes, we will assess the market characteristics
around the instrument to determine if it is more akin to debt or
equity based on the value of the underlying shares compared to the
conversion price. If the instrument is more debt-like then we will
include any related interest expense and exclude the underlying
shares issuable upon conversion of the instrument. If the
instrument is more equity-like and is more dilutive when treated as
equity then we will exclude any related interest expense and
include the weighted average shares underlying the instrument. We
will consider the impact of any capped calls in assessing whether
an instrument is equity-like or debt like.
For the six months ended June
30, 2024
For the six months ended June
30, 2023
(dollars in thousands, except per
share amounts)
$
per share
$
per share
Net income attributable to controlling
stockholders (1)
$
149,566
$
1.22
$
37,628
$
0.39
Adjusted earnings adjustments:
Reverse GAAP (income) loss from equity
method investments
(185,424
)
(24,670
)
Add equity method investments earnings
114,753
72,419
Elimination of proportionate share of fees
earned from co-investment structures (2)
(111
)
—
Equity-based expense
17,341
12,873
Provision for loss on receivables (3)
(2,177
)
2,689
Amortization of intangibles (4)
174
1,544
Non-cash provision (benefit) for income
taxes
56,541
(171
)
Net income attributable to non-controlling
interest
1,926
492
Adjusted earnings (5)
$
152,589
$
1.31
$
102,804
$
1.07
(1)
The per share amounts represent GAAP
diluted earnings per share and is the most comparable GAAP measure
to our adjusted earnings per share.
(2)
This adjustment is to eliminate the
intercompany portion of fees received from co-investment structures
that for GAAP net income is included in the Equity method income
line item. Since we remove GAAP Equity method income for purposes
of our Adjusted Earnings metric, we add back the elimination
through this adjustment.
(3)
In addition to these provisions, in the
six months ended June 30, 2024, we concluded that an equity method
investment along with certain loans we had made to this investee,
were not recoverable. The equity method investment and loans had a
carrying value of $0 due to the losses already recognized through
GAAP income from equity method investments as a result of operating
losses sustained by the investee. We have excluded the impact of
these losses from Adjusted earnings, as this investment was an
investment in a corporate entity which is not a part of our current
investment strategy. The loss associated with this investment is
included in our Average Annual Loss on Managed Assets metric
disclosed below.
(4)
Adds back non-cash amortization of lease
and pre-IPO intangibles.
(5)
Adjusted earnings per share for the six
months ended June 30, 2024 and 2023, are based on 116,453,108
shares and 96,441,450 shares outstanding, respectively, which
represents the weighted average number of fully-diluted shares
outstanding including our restricted stock awards, restricted stock
units, long-term incentive plan units, and the non-controlling
interest in our Operating Partnership. We include any potential
common stock issuances related to share based compensation units in
the amount we believe is reasonably certain to vest. As it relates
to Convertible Notes, we will assess the market characteristics
around the instrument to determine if it is more akin to debt or
equity based on the value of the underlying shares compared to the
conversion price. If the instrument is more debt-like then we will
include any related interest expense and exclude the underlying
shares issuable upon conversion of the instrument. If the
instrument is more equity-like and is more dilutive when treated as
equity then we will exclude any related interest expense and
include the weighted average shares underlying the instrument. We
will consider the impact of any capped calls in assessing whether
an instrument is equity-like or debt like.
Adjusted Net Investment Income
We have a portfolio of debt and equity investments in climate
change solutions. We calculate adjusted net investment income by
adjusting GAAP-based net investment income for those adjusted
earnings adjustments described above which impact investment
income. We believe that this measure is useful to investors as it
shows the recurring income generated by our Portfolio after the
associated interest cost of debt financing. Our management also
uses adjusted net investment income in this way. Our non-GAAP
adjusted net investment income measure may not be comparable to
similarly titled measures used by other companies. The following is
a reconciliation of our GAAP-based net investment income to our
adjusted net investment income:
Three months ended June
30,
Six months ended June
30,
2024
2023
2024
2023
(in thousands)
Interest income
$
62,779
$
48,222
$
131,471
$
91,330
Rental income
83
6,487
1,929
12,973
GAAP-based investment revenue
62,862
54,709
133,400
104,303
Interest expense
59,530
39,903
121,403
77,118
GAAP-based net investment income
3,332
14,806
11,997
27,185
Equity method earnings adjustment (1)
59,291
38,461
114,753
72,419
Amortization of real estate intangibles
(2)
3
772
174
1,544
Adjusted net investment income
$
62,626
$
54,039
$
126,924
$
101,148
(1)
Reflects adjustment for equity method
investments described above.
(2)
Adds back non-cash amortization related to
acquired real estate leases.
Managed Assets
As we both consolidate assets on our balance sheet and
securitize assets, certain of our receivables and other assets are
not reflected on our balance sheet where we may have a residual
interest in the performance of the investment, such as servicing
rights or a retained interest in cash flows. Thus, we present our
investments on a non-GAAP “managed” basis, which assumes that
securitized receivables are not sold. We believe that our Managed
Asset information is useful to investors because it portrays the
amount of both on- and off-balance sheet receivables that we
manage, which enables investors to understand and evaluate the
credit performance associated with our portfolio of receivables,
investments, and residual assets in securitized receivables. Our
non-GAAP Managed Assets measure may not be comparable to similarly
titled measures used by other companies.
The following is a reconciliation of our GAAP-based Portfolio to
our Managed Assets as of June 30, 2024 and December 31, 2023:
As of
June 30, 2024
December 31, 2023
(dollars in millions)
Equity method investments
$
3,371
$
2,966
Receivables, net of allowance
2,769
3,074
Receivables held-for-sale
36
35
Real estate
3
111
Investments
7
7
GAAP-Based Portfolio
6,186
6,193
Assets held in securitization trusts
6,724
6,060
Assets held in co-investment
structures
57
—
Managed assets
$
12,967
$
12,253
Adjusted Cash from Operations Plus Other Portfolio
Collections
We operate our business in a manner that considers total cash
collected from our portfolio and making necessary operating and
debt service payments to assess the amount of cash we have
available to fund dividends and investments. We believe that the
aggregate of these items, which combine as a non-GAAP financial
measure titled Adjusted Cash Flow from Operations plus Other
Portfolio Collections, is a useful measure of the liquidity we have
available from our assets to fund both new investments and our
regular quarterly dividends. This non-GAAP financial measure may
not be comparable to similarly titled or other similar measures
used by other companies. Although there is also not a directly
comparable GAAP measure that demonstrates how we consider cash
available for dividend payment, below is a reconciliation of this
measure to Net cash provided by operating activities.
Also, Adjusted Cash Flow from Operations plus Other Portfolio
Collections differs from Net cash provided by (used in) investing
activities in that it excludes many of the uses of cash used in our
investing activities such as in Equity method investments,
Purchases of and investments in receivables, Purchases of real
estate, Purchases of investments, Funding of escrow accounts, and
excludes Withdrawal from escrow accounts, and Other. In addition,
Adjusted Cash Flow from Operations plus Other Portfolio Collections
is not comparable to Net cash provided by (used in) financing
activities in that it excludes many of our financing activities
such as proceeds from common stock issuances and borrowings and
repayments of unsecured debt. We evaluate Adjusted Cash Flow from
Operations plus Other Portfolio Collections on a trailing twelve
month (“TTM”) basis, as cash collections during any one quarter may
not be comparable to other single quarters due to, among other
reasons, the seasonality of projects operations and the timing of
disbursement and payment dates.
Cash available for reinvestment is a non-GAAP measure which is
calculated as adjusted cash flow from operations plus other
portfolio collections less dividend and distribution payments made
during the period. We believe Cash available for reinvestment is
useful as a measure of our ability to make incremental investments
from reinvested capital after factoring in all necessary cash
outflows to operate the business. Management uses Cash available
for reinvestment in this way, and we believe that our investors use
it in a similar fashion.
Plus:
Less:
For the year ended,
For the six months
ended,
For the six months
ended,
For the TTM ended,
December 31, 2023
June 30, 2024
June 30, 2023
June 30, 2024
(in thousands)
Net cash provided by operating
activities
$
99,689
$
(3,886
)
$
65,726
$
30,077
Changes in receivables held-for-sale
(51,538
)
6,750
(51,538
)
6,750
Equity method investment distributions
received
30,140
11,426
4,203
37,363
Proceeds from sales of equity method
investments
—
2,107
—
2,107
Principal collections from receivables
197,784
470,788
74,328
594,244
Proceeds from sales of receivables
7,634
99,166
7,634
99,166
Proceeds from sales of land
—
115,767
—
115,767
Principal collection from investments
(1)
3,805
(75
)
85
3,645
Principal payments on non-recourse
debt
(21,606
)
(69,958
)
(10,069
)
(81,495
)
Adjusted cash flow from operations plus
other portfolio collections
265,908
632,085
90,369
807,624
Less: Dividends
(159,786
)
(93,280
)
(72,129
)
(180,937
)
Cash Available for Reinvestment
$
106,122
$
538,805
$
18,240
$
626,687
(1) Included in Other in the cash provided
(used in) investing activities section of our statement of cash
flows.
Plus:
Less:
For the year ended,
For the six months
ended,
For the six months
ended,
For the TTM ended,
December 31, 2023
June 30, 2024
June 30, 2023
June 30, 2024
(in thousands)
Components of adjusted cash flow from
operations and plus portfolio collections:
Cash collected from our Portfolio
442,322
603,545
182,864
863,004
Cash collected from sale of assets (1)
34,034
226,086
24,845
235,275
Cash used for compensation and benefit
expenses and general and administrative expenses
(78,681
)
(48,798
)
(48,192
)
(79,287
)
Interest paid (2)
(138,418
)
(90,836
)
(68,167
)
(161,087
)
Securitization asset and other income
28,189
9,988
13,488
24,688
Principal payments on non-recourse
debt
(21,606
)
(69,958
)
(10,069
)
(81,495
)
Other
68
2,058
(4,400
)
6,526
Adjusted cash from operations plus other
portfolio collections
$
265,908
$
632,085
$
90,369
$
807,624
(1)
Includes cash from the sale of assets on
our balance sheet as well as securitization transactions.
(2)
For the six months and TTM ended June 30,
2024, interest paid includes a $19 million benefit from the
settlement of a derivative which was designated as a cash flow
hedge.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240801756082/en/
Investor Contact: Aaron Chew investors@hasi.com 240-343-7526
Media Contact: Conor Fryer media@hasi.com 443-321-5754
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