Hannon Armstrong Announces Fourth Quarter and Full Year 2020 Results, Dividend Increase, and New Guidance
Hannon Armstrong (NYSE: HASI) reported a GAAP EPS of $1.10 for 2020, down from $1.24 in 2019. However, Distributable EPS increased to $1.55, marking an 11% growth year-on-year. The portfolio grew by 38% to $2.9 billion, with total revenues rising by 32% or $45 million. They announced a dividend increase to $0.35 per share for Q1 2021 and projected a 7% to 10% annual growth in distributable earnings through 2023. A $50 million sustainability-linked credit facility was established, and a $1 million social dividend was declared.
- Distributable EPS increased by 11% to $1.55 in 2020.
- Portfolio growth of 38% to $2.9 billion.
- Total revenue rose by 32%, equating to a $45 million increase.
- Established $50 million sustainability-linked credit facility.
- Increased dividend to $0.35 per share for Q1 2021.
- New guidance projects 7% to 10% growth in annual distributable EPS until 2023.
- GAAP EPS decreased from $1.24 in 2019 to $1.10 in 2020.
- Interest expense increased by 43%, impacting net income.
- Provision for loss on receivables recorded at $10 million.
Hannon Armstrong Sustainable Infrastructure Capital, Inc. ("Hannon Armstrong," "we," "our" or the "Company") (NYSE: HASI), a leading investor in climate change solutions, today reported results for the fourth quarter and full year of 2020.
Financial Highlights
-
Delivered
$1.10 GAAP EPS on a fully diluted basis in 2020, compared with$1.24 in the same period in 2019 -
Delivered
$1.55 Distributable (Core Pre-CECL) EPS on a fully diluted basis in 2020, compared to$1.40 Distributable (Core Pre-CECL) EPS in 2019, representing11% year-on-year growth and a7% three-year compound annual growth rate - exceeding the high end of previously communicated three-year guidance -
Grew balance sheet portfolio
38% year-on-year to$2.9 billion and managed assets16% to$7.2 billion as of the end of 2020 -
Closed
$1.9 billion of transactions in 2020, compared to$1.3 billion in 2019 and representing a48% year-on-year increase -
Established
$50 million sustainability-linked unsecured revolving credit facility with J. P. Morgan in the first quarter of 2021 -
Increased dividend to
$0.35 per share for the first quarter of 2021
Guidance
-
Established new guidance expecting that annual distributable earnings per share will grow at a compounded annual rate of
7% to10% from 2021 to 2023, relative to the 2020 baseline of$1.55 per share, which is equivalent to a 2023 midpoint of$1.98 per share
ESG Highlights
-
Declared Social Dividend of
$1 million in the first quarter of 2021 to capitalize newly formed Hannon Armstrong Foundation - Enhanced disclosures on Diversity, Equity, Inclusion, and Justice in annual SEC filing
- Recognized by Institutional Investor Research for Best Financially Material ESG Disclosure
-
Recorded highest annual CarbonCount® score in company history with an estimated 2.0 million metric tons of annual carbon emissions that will be avoided annually by our transactions closed in 2020 - equating to a CarbonCount® score of 1.03 metric tons per
$1,000 invested
"Despite Covid-19, Hannon Armstrong had an outstanding year. We grew our distributable earnings per share above guidance, increased our investment pipeline, and significantly grew our portfolio and resulting net investment income. With the progress we made in 2020, we are issuing new three-year guidance of
"Leveraging our climate solutions investing focus and leadership on ESG, we are declaring a Social Dividend to capitalize the newly formed Hannon Armstrong Foundation, which, along with several other initiatives, will allow us to contribute to meaningful and sustained impact at the intersection of climate change and social justice."
A summary of our results is shown in the tables below:
|
|
For the three months ended
|
|
For the three months ended
|
||||||||||||
|
|
$ in thousands |
|
Per Share
|
|
$ in thousands |
|
Per Share
|
||||||||
GAAP Net Income |
$ |
24,925 |
|
|
$ |
0.32 |
|
|
$ |
46,076 |
|
|
$ |
0.66 |
|
|
Distributable earnings (1) |
29,325 |
|
|
0.37 |
|
|
26,755 |
|
|
0.40 |
|
|||||
|
|
For the year ended
|
|
For the year ended
|
||||||||||||
|
|
$ in thousands |
|
Per Share
|
|
$ in thousands |
|
Per Share
|
||||||||
GAAP Net Income |
$ |
82,416 |
|
|
$ |
1.10 |
|
|
$ |
81,564 |
|
|
$ |
1.24 |
|
|
Distributable earnings (1) |
117,500 |
|
|
1.55 |
|
|
92,746 |
|
|
1.40 |
|
|||||
(1) |
Beginning with this quarter, we are changing the name of our primary Non-GAAP earnings metric from Core (Pre-CECL) earnings to distributable earnings with no change in the historical method of calculation. We will no longer be reporting a Core earnings metric which includes the CECL provision. Reconciliations of our GAAP EPS to our Distributable EPS and our GAAP-based Net Investment Income to our Distributable Net Investment Income are included below in this press release. |
Financial Results
"In 2020, we achieved significant growth in our balance sheet portfolio, which is currently
"With our new
Comparison of the year ended December 31, 2020 to the year ended December 31, 2019
Total revenue increased by
Interest expense increased
We recognized
Income tax expense decreased by approximately
GAAP net income in 2020 was
Leverage
The calculation of our fixed-rate debt and leverage ratios as of December 31, 2020 and 2019 are shown in the chart below:
|
December 31, 2020 |
|
% of Total |
|
December 31, 2019 |
|
% of Total |
||||||
|
($ in millions) |
|
|
|
($ in millions) |
|
|
||||||
Floating-rate borrowings (1) |
$ |
23 |
|
|
1 |
% |
|
$ |
33 |
|
|
2 |
% |
Fixed-rate debt (2) |
2,166 |
|
|
99 |
% |
|
1,360 |
|
|
98 |
% |
||
Total |
$ |
2,189 |
|
|
100 |
% |
|
$ |
1,393 |
|
|
100 |
% |
Leverage (3) |
1.8 to 1 |
|
|
|
1.5 to 1 |
|
|
||||||
(1) |
Floating-rate borrowings include borrowings under our floating-rate credit facilities. |
|
(2) |
Fixed-rate debt also includes the present notional value of non-recourse debt that is hedged using interest rate swaps. Debt excludes securitizations that are not consolidated on our balance sheet. | |
(3) |
Leverage, as measured by our debt-to-equity ratio. |
Portfolio
Our balance sheet portfolio totaled approximately
|
Portfolio Performance |
|
|
|
|||||||||||||||
|
Government |
|
Commercial |
|
|
||||||||||||||
|
1 (1) |
|
1 (1) |
|
2 (2) |
|
3 (3) |
|
Total |
||||||||||
Total receivables |
248 |
|
|
984 |
|
|
10 |
|
|
8 |
|
|
1,250 |
|
|||||
Less: Allowance for loss on receivables |
— |
|
|
(24) |
|
|
(4) |
|
|
(8) |
|
|
(36) |
|
|||||
Net receivables (4) |
248 |
|
|
960 |
|
|
6 |
|
|
— |
|
|
1,214 |
|
|||||
Investments |
35 |
|
|
20 |
|
|
— |
|
|
— |
|
|
55 |
|
|||||
Real estate |
— |
|
|
359 |
|
|
— |
|
|
— |
|
|
359 |
|
|||||
Equity method investments (5) |
— |
|
|
1,255 |
|
|
25 |
|
|
— |
|
|
1,280 |
|
|||||
Total |
$ |
283 |
|
|
$ |
2,594 |
|
|
$ |
31 |
|
|
$ |
— |
|
|
$ |
2,908 |
|
Percent of Portfolio |
10 |
% |
|
89 |
% |
|
1 |
% |
|
— |
% |
|
100 |
% |
|||||
Average remaining balance (6) |
$ |
7 |
|
|
$ |
14 |
|
|
$ |
12 |
|
|
$ |
4 |
|
|
$ |
12 |
|
(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 to 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. Included in this category are two commercial receivables with a combined total carrying value of approximately |
|
(4) |
Total reconciles to the total of the government receivables and commercial receivables lines of the consolidated balance sheets |
|
(5) |
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. |
|
(6) |
Average remaining balance is calculated gross of allowance for loss on receivables and excludes approximately 143 transactions each with outstanding balances that are less than |
Guidance
The Company expects that annual distributable earnings per share will grow at a compounded annual rate of
Dividend
The Company is announcing today that its Board of Directors approved a quarterly cash dividend of
Conference Call and Webcast Information
Hannon Armstrong will host an investor conference call today, Thursday, February 18, 2021, at 5:00 p.m. eastern time. The conference call can be accessed live over the phone by dialing 1-866-652-5200 or for international callers, 1-412-317-6060. Please ask to be connected to the Hannon Armstrong call. A replay will be available two hours after the call and can be accessed by dialing 1-877-344-7529, or for international callers, 1-412-317-0088. The passcode for the replay is 10151938. The replay will be available until February 25, 2021.
Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the Investor Relations section of the Company's website at www.hannonarmstrong.com. The online replay will be available for a limited time beginning immediately following the call.
About Hannon Armstrong
Hannon Armstrong (NYSE: HASI) is the first U.S. public company solely dedicated to investments in climate solutions, providing capital to leading companies in energy efficiency, renewable energy, and other sustainable infrastructure markets. With more than
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.
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 (the "SEC").
Other important factors that we think could cause our actual results to differ materially from expected results are summarized below, including the ongoing impact of the current outbreak of the novel coronavirus (COVID-19), on the U.S., regional and global economies, the U.S. sustainable infrastructure market and the broader financial markets. The current outbreak of COVID-19 has also impacted, and is likely to continue to impact, directly or indirectly, many of the other important factors below and the risks described in the Form 10-K and in our subsequent filings under the Securities Exchange Act of 1934, as amended. Other factors besides those listed could also adversely affect us. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In particular, it is difficult to fully assess the impact of COVID-19 at this time due to, among other factors, uncertainty regarding the severity and duration of the outbreak domestically and internationally, uncertainty regarding the effectiveness of federal, state and local governments’ efforts to contain the spread of COVID-19 and respond to its direct and indirect impact on the U.S. economy and economic activity including the timing of the successful distribution of an effective vaccine.
Statements regarding the following subjects, among others, may be forward-looking:
- negative impacts from continued spread of COVID-19, including on the U.S. or global economy or on our business, financial position or results of operations;
- our expected returns and performance of our investments;
- the state of government legislation, regulation and policies that support or enhance the economic feasibility of projects that reduce carbon emissions or increase resilience to climate change, which we refer to as climate change solutions, including energy efficiency and renewable energy projects and the general market demands for such projects;
- market trends in our industry, energy markets, commodity prices, interest rates, the debt and lending markets or the general economy;
- our business and investment strategy;
- availability of opportunities to invest in climate change solutions including energy efficiency and renewable energy projects and our ability to complete potential new opportunities in our pipeline;
- our relationships with originators, investors, market intermediaries and professional advisers;
- competition from other providers of capital;
- our or any other company’s projected operating results;
- actions and initiatives of the federal, state and local governments and changes to federal, state and local government policies, regulations, tax laws and rates and the execution and impact of these actions, initiatives and policies;
- the state of the U.S. economy generally or in specific geographic regions, states or municipalities and economic trends;
- our ability to obtain and maintain financing arrangements on favorable terms, including securitizations;
- general volatility of the securities markets in which we participate;
- the credit quality of our assets;
- changes in the value of our assets, our portfolio of assets and our investment and underwriting process;
- the impact of weather conditions, natural disasters, accidents or equipment failures or other events that disrupt the operation of our investments or negatively impact the value of our assets;
- rates of default or decreased recovery rates on our assets;
- interest rate and maturity mismatches between our assets and any borrowings used to fund such assets;
- changes in interest rates and the market value of our assets and target assets;
- changes in commodity prices, including continued low natural gas prices;
- effects of hedging instruments on our assets or liabilities;
- the degree to which our hedging strategies may or may not protect us from risks, such as interest rate volatility;
- impact of and changes in accounting guidance;
- our ability to maintain our qualification as a real estate investment trust for U.S. federal income tax purposes;
- our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended;
- availability of and our ability to attract and retain qualified personnel;
- estimates relating to our ability to generate sufficient cash in the future to operate our business and to make distributions to our stockholders; and
- our understanding of our competition.
The risks included here are not exhaustive. Forward-looking statements are based on beliefs, assumptions and expectations as of the date of this press release. Any forward- looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements after the date of this earnings release, whether as a result of new information, future events or otherwise.
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 distributable 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.
HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) |
|||||||||||||||
|
For the Three Months
|
|
For the Year Ended
|
||||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||
Revenue |
|
|
|
|
|
|
|
||||||||
Interest income |
$ |
24,512 |
|
|
$ |
21,930 |
|
|
$ |
95,559 |
|
|
$ |
76,200 |
|
Rental income |
6,470 |
|
|
6,469 |
|
|
25,878 |
|
|
25,884 |
|
||||
Gain on sale of receivables and investments |
15,439 |
|
|
7,704 |
|
|
49,887 |
|
|
24,423 |
|
||||
Fee income |
2,468 |
|
|
2,225 |
|
|
15,583 |
|
|
15,074 |
|
||||
Total revenue |
48,889 |
|
|
38,328 |
|
|
186,907 |
|
|
141,581 |
|
||||
Expenses |
|
|
|
|
|
|
|
||||||||
Interest expense |
26,299 |
|
|
17,381 |
|
|
92,182 |
|
|
64,241 |
|
||||
Provision for loss on receivables |
4,467 |
|
|
— |
|
|
10,096 |
|
|
8,027 |
|
||||
Compensation and benefits |
10,542 |
|
|
7,495 |
|
|
37,766 |
|
|
28,777 |
|
||||
General and administrative |
3,665 |
|
|
3,875 |
|
|
14,846 |
|
|
14,693 |
|
||||
Total expenses |
44,973 |
|
|
28,751 |
|
|
154,890 |
|
|
115,738 |
|
||||
Income before equity method investments |
3,916 |
|
|
9,577 |
|
|
32,017 |
|
|
25,843 |
|
||||
Income (loss) from equity method investments |
15,457 |
|
|
46,060 |
|
|
47,963 |
|
|
64,174 |
|
||||
Income (loss) before income taxes |
19,373 |
|
|
55,637 |
|
|
79,980 |
|
|
90,017 |
|
||||
Income tax (expense) benefit |
5,640 |
|
|
(9,396) |
|
|
2,779 |
|
|
(8,097) |
|
||||
Net income (loss) |
$ |
25,013 |
|
|
$ |
46,241 |
|
|
$ |
82,759 |
|
|
$ |
81,920 |
|
Net income (loss) attributable to non-controlling interest holders |
88 |
|
|
165 |
|
|
343 |
|
|
356 |
|
||||
Net income (loss) attributable to controlling stockholders |
$ |
24,925 |
|
|
$ |
46,076 |
|
|
$ |
82,416 |
|
|
$ |
81,564 |
|
Basic earnings (loss) per common share |
$ |
0.33 |
|
|
$ |
0.70 |
|
|
$ |
1.13 |
|
|
$ |
1.25 |
|
Diluted earnings (loss) per common share |
$ |
0.32 |
|
|
$ |
0.66 |
|
|
$ |
1.10 |
|
|
$ |
1.24 |
|
Weighted average common shares outstanding—basic |
75,400,321 |
|
|
65,173,294 |
|
|
72,387,581 |
|
|
63,916,440 |
|
||||
Weighted average common shares outstanding—diluted |
84,843,939 |
|
|
71,668,124 |
|
|
74,373,169 |
|
|
64,771,491 |
|
||||
HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) |
|||||||
|
December 31,
|
|
December 31,
|
||||
Assets |
|
|
|
||||
Cash and cash equivalents |
$ |
286,250 |
|
|
$ |
6,208 |
|
Equity method investments |
1,279,651 |
|
|
498,631 |
|
||
Government receivables |
248,455 |
|
|
263,175 |
|
||
Commercial receivables, net of allowance of |
965,452 |
|
|
896,432 |
|
||
Real estate |
359,176 |
|
|
362,265 |
|
||
Investments |
55,377 |
|
|
74,530 |
|
||
Securitization assets |
164,342 |
|
|
123,979 |
|
||
Other assets |
100,364 |
|
|
162,054 |
|
||
Total Assets |
$ |
3,459,067 |
|
|
$ |
2,387,274 |
|
Liabilities and Stockholders’ Equity |
|
|
|
||||
Liabilities: |
|
|
|
||||
Accounts payable, accrued expenses and other |
$ |
59,944 |
|
|
$ |
54,351 |
|
Credit facilities |
22,591 |
|
|
31,199 |
|
||
Non-recourse debt (secured by assets of |
592,547 |
|
|
700,225 |
|
||
Senior unsecured notes |
1,283,335 |
|
|
512,153 |
|
||
Convertible notes |
290,501 |
|
|
149,434 |
|
||
Total Liabilities |
2,248,918 |
|
|
1,447,362 |
|
||
Stockholders’ Equity: |
|
|
|
||||
Preferred stock, par value |
— |
|
|
— |
|
||
Common stock, par value |
765 |
|
|
663 |
|
||
Additional paid in capital |
1,394,009 |
|
|
1,102,303 |
|
||
Accumulated deficit |
(204,112) |
|
|
(169,786) |
|
||
Accumulated other comprehensive income (loss) |
12,634 |
|
|
3,300 |
|
||
Non-controlling interest |
6,853 |
|
|
3,432 |
|
||
Total Stockholders’ Equity |
1,210,149 |
|
|
939,912 |
|
||
Total Liabilities and Stockholders’ Equity |
$ |
3,459,067 |
|
|
$ |
2,387,274 |
|
EXPLANATORY NOTES
Non-GAAP Financial Measures
Distributable Earnings
Beginning with this quarter, we are changing the name of our primary Non-GAAP earnings metric from Core (Pre-CECL) earnings to distributable earnings with no change in the historical method of calculation. We will no longer be reporting a Core earnings metric which includes the CECL provision. We calculate distributable earnings as GAAP net income (loss) excluding non-cash equity compensation expense, provisions for loss on receivables, amortization of intangibles, any one-time acquisition related costs or non-cash tax charges and the earnings attributable to our non-controlling interest of our Operating Partnership. We also make an adjustment to our equity method investments in the renewable energy projects as described below. Judgment will be utilized in determining when we will reflect the losses on receivables in our distributable earnings. In making this determination, we 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, distributable earnings may also exclude one-time events pursuant to changes in GAAP and certain other non-cash charges as approved by a majority of our independent directors.
We believe a non-GAAP measure, such as distributable earnings, that adjusts for the items discussed above is and has been a meaningful indicator of our economic performance and is useful to our investors as well as management in evaluating our performance as it relates to expected dividend payments over time. As a REIT, we are required to distribute substantially all of our taxable income to investors in the form of dividends and we believe our dividends are a principal focus of our investors. Additionally, we believe that our investors also use distributable 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 distributable 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 assessment of the expected cash flows we will receive from these projects discounted back to the net present value, based on a target investment rate, with the expected 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. 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.
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. Thus, in calculating distributable 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 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 distributable 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.
The following table provides our results related to our equity method investments for the quarter and year ended December 31, 2020 and 2019,
|
Three months ended
|
|
Year ended December 31, |
||||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||
|
(in millions) |
||||||||||||||
Income (loss) under GAAP |
$ |
15 |
|
|
$ |
46 |
|
|
$ |
48 |
|
|
$ |
64 |
|
|
|
|
|
|
|
|
|
||||||||
Distributable earnings |
$ |
15 |
|
|
$ |
13 |
|
|
$ |
55 |
|
|
$ |
41 |
|
Return of capital |
7 |
|
|
13 |
|
|
102 |
|
|
60 |
|
||||
Cash collected |
$ |
22 |
|
|
$ |
26 |
|
|
$ |
157 |
|
|
$ |
101 |
|
Distributable 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 distributable earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported distributable earnings may not be comparable to similar metrics reported by other companies.
Reconciliation of our GAAP Net Income to Distributable Earnings
We have calculated our distributable earnings and provided a reconciliation of our GAAP net income to distributable earnings for the quarter and year ended December 2020 and 2019 in the tables below.
|
|
For the three months ended
|
|
For the three months ended
|
||||||||||||
|
|
(dollars in thousands, except per share amounts) |
||||||||||||||
|
|
$ |
|
per share |
|
$ |
|
per share |
||||||||
Net income attributable to controlling stockholders (1) |
$ |
24,925 |
|
|
$ |
0.32 |
|
|
$ |
46,076 |
|
|
$ |
0.66 |
|
|
Distributable earnings adjustments: |
|
|
|
|
|
|
|
|||||||||
Reverse GAAP (income) loss from equity method investments |
(15,458) |
|
|
|
|
(46,060) |
|
|
|
|||||||
Add equity method investments earnings (2) |
14,943 |
|
|
|
|
12,580 |
|
|
|
|||||||
Non-cash equity-based compensation charges (3) |
5,176 |
|
|
|
|
3,775 |
|
|
|
|||||||
Non-cash provision for loss on receivables |
4,467 |
|
|
|
|
— |
|
|
|
|||||||
Other adjustments (4) |
(4,728) |
|
|
|
|
10,384 |
|
|
|
|||||||
Distributable earnings (5) |
29,325 |
|
|
$ |
0.37 |
|
|
$ |
26,755 |
|
|
$ |
0.40 |
|
||
(1) |
Represents GAAP diluted earnings per share and is the most comparable GAAP measure to our distributable earnings per share. |
|
(2) |
Reflects adjustment for equity method investments described above. |
|
(3) |
Reflects adjustment for non-cash equity-based compensation. |
|
(4) |
See Other adjustments table below. |
|
(5) |
Distributable earnings per share for the three months ended December 31, 2020 and 2019, are based on 79,820,082 shares and 67,702,206 shares outstanding, respectively, which represents the weighted average number of fully-diluted shares outstanding including our restricted stock awards and restricted stock units and the long-term incentive plan units and non-controlling interest in our Operating Partnership. We include any potential common stock issuance in this calculation related to our convertible notes using the treasury stock method and any potential common stock issuances related to share based compensation units in the amount we believe is reasonably certain to vest. We believe the use of the treasury stock method is an appropriate representation of the potential dilution when considering the economic behaviors of the holders of the instrument. |
|
|
For the year ended
|
|
For the year ended
|
|||||||||||
|
|
(dollars in thousands, except per share amounts) |
|||||||||||||
|
|
$ |
|
per share |
|
$ |
|
per share |
|||||||
Net income attributable to controlling stockholders (1) |
82,416 |
|
|
$ |
1.10 |
|
|
$ |
81,564 |
|
|
$ |
1.24 |
|
|
Distributable earnings adjustments: |
|
|
|
|
|
|
|
||||||||
Reverse GAAP (income) loss from equity method investments |
(47,963) |
|
|
|
|
(64,174) |
|
|
|
||||||
Add equity method investments earnings (2) |
55,305 |
|
|
|
|
41,437 |
|
|
|
||||||
Non-cash equity-based compensation charges (3) |
16,791 |
|
|
|
|
14,160 |
|
|
|
||||||
Non-cash provision for loss on receivables |
10,096 |
|
|
|
|
8,027 |
|
|
|
||||||
Other adjustments (4) |
855 |
|
|
|
|
11,732 |
|
|
|
||||||
Distributable earnings (5) |
117,500 |
|
|
$ |
1.55 |
|
|
$ |
92,746 |
|
|
$ |
1.40 |
|
|
(1) |
Represents GAAP diluted earnings per share and is the most comparable GAAP measure to our distributable earnings per share. |
|
(2) |
Reflects adjustment for equity method investments described above. |
|
(3) |
Reflects adjustment for non-cash equity-based compensation. |
|
(4) |
See Other adjustments table below. |
|
(5) |
Distributable earnings per share for the year ended December 31, 2020 and 2019, are based on 75,588,286 shares and 66,046,401 shares outstanding, respectively, which represents the weighted average number of fully-diluted shares outstanding including our restricted stock awards and restricted stock units and the long-term incentive plan units and non-controlling interest in our Operating Partnership. We include any potential common stock issuance in this calculation related to our convertible notes using the treasury stock method and any potential common stock issuances related to share based compensation units in the amount we believe is reasonably certain to vest. We believe the use of the treasury stock method is an appropriate representation of the potential dilution when considering the economic behaviors of the holders of the instrument. |
The table below provides a reconciliation of the Other adjustments:
|
|
For the three months ended
|
|
For the year ended
|
||||||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||
|
|
(in thousands) |
|
(in thousands) |
||||||||||||
Other adjustments |
|
|
|
|
|
|
|
|||||||||
Amortization of intangibles (1) |
$ |
824 |
|
|
$ |
823 |
|
|
$ |
3,291 |
|
|
$ |
3,285 |
|
|
Non-cash provision (benefit) for income taxes |
(5,640) |
|
|
9,395 |
|
|
(2,779) |
|
|
8,091 |
|
|||||
Net income attributable to non-controlling interest |
88 |
|
|
166 |
|
|
343 |
|
|
356 |
|
|||||
Other adjustments |
$ |
(4,728) |
|
|
$ |
10,384 |
|
|
$ |
855 |
|
|
$ |
11,732 |
|
|
(1) |
Adds back non-cash amortization of lease and pre-IPO intangibles. |
The table below provides a reconciliation of GAAP SG&A expenses to Distributable SG&A expenses:
|
|
For the three months
|
|
For the year ended
|
||||||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||
|
|
(in thousands) |
|
(in thousands) |
||||||||||||
GAAP SG&A expenses |
|
|
|
|
|
|
|
|||||||||
Compensation and benefits |
$ |
10,542 |
|
|
$ |
7,495 |
|
|
$ |
37,766 |
|
|
$ |
28,777 |
|
|
General and administrative |
3,665 |
|
|
3,875 |
|
|
14,846 |
|
|
14,693 |
|
|||||
Total SG&A expenses (GAAP) |
$ |
14,207 |
|
|
$ |
11,370 |
|
|
$ |
52,612 |
|
|
$ |
43,470 |
|
|
Distributable SG&A expenses adjustments: |
|
|
|
|
|
|
|
|||||||||
Non-cash equity-based compensation charge (1) |
$ |
(5,176) |
|
|
$ |
(3,775) |
|
|
$ |
(16,791) |
|
|
$ |
(14,160) |
|
|
Amortization of intangibles (2) |
(52) |
|
|
(51) |
|
|
(202) |
|
|
(203) |
|
|||||
Distributable SG&A expenses adjustments |
(5,228) |
|
|
(3,826) |
|
|
(16,993) |
|
|
(14,363) |
|
|||||
Distributable SG&A expenses |
$ |
8,979 |
|
|
$ |
7,544 |
|
|
$ |
35,619 |
|
|
$ |
29,107 |
|
|
|
|
|||||||||||||||
(1) |
Reflects add back of non-cash amortization of equity-based compensation. Outstanding grants related to equity-based compensation are included in the distributable earnings per share calculation. |
|
(2) |
Adds back non-cash amortization of pre-IPO intangibles. |
Distributable Net Investment Income
We have a portfolio of debt and equity investments in climate change solutions. We calculate distributable net investment income by adjusting GAAP net investment income for those distributable 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 distributable net investment income in this way. Our non-GAAP distributable 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 distributable net investment income:
|
Three months ended December 31, |
|
Year ended December 31, |
||||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||
|
(in thousands) |
||||||||||||||
Interest income |
$ |
24,512 |
|
|
$ |
21,930 |
|
|
$ |
95,559 |
|
|
$ |
76,200 |
|
Rental income |
6,470 |
|
|
6,469 |
|
|
25,878 |
|
|
25,884 |
|
||||
GAAP-based investment revenue |
30,982 |
|
|
28,399 |
|
|
121,437 |
|
|
102,084 |
|
||||
Interest expense |
26,299 |
|
|
17,381 |
|
|
92,182 |
|
|
64,241 |
|
||||
GAAP-based net investment income |
4,683 |
|
|
11,018 |
|
|
29,255 |
|
|
37,843 |
|
||||
Equity method earnings adjustment (1) |
14,943 |
|
|
12,580 |
|
|
55,305 |
|
|
41,438 |
|
||||
Amortization of real estate intangibles (2) |
772 |
|
|
776 |
|
|
3,089 |
|
|
3,082 |
|
||||
Distributable net investment income |
$ |
20,398 |
|
|
$ |
24,374 |
|
|
$ |
87,649 |
|
|
$ |
82,363 |
|
(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 Portfolio to our Managed Assets as of December 31, 2020 and 2019:
|
As of December 31, |
||||||
|
2020 |
|
2019 |
||||
|
(dollars in millions) |
||||||
Equity method investments |
$ |
1,280 |
|
|
$ |
499 |
|
Government receivables |
248 |
|
|
263 |
|
||
Commercial receivables |
965 |
|
|
896 |
|
||
Real estate |
359 |
|
|
362 |
|
||
Investments |
55 |
|
|
75 |
|
||
Assets held in securitization trusts |
4,308 |
|
|
4,101 |
|
||
Managed assets |
$ |
7,215 |
|
|
$ |
6,196 |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20210218005984/en/
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