HASI Announces First Quarter 2024 Results, Establishes $2b Strategic Partnership with KKR
Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI) reported Q1 2024 results, including a $2b partnership with KKR. They achieved $0.98 GAAP EPS, a 36% increase in portfolio, and a 24% growth in managed assets. They closed $562 million of investments. The sustainability initiatives will avoid 520,000 metric tons of carbon emissions annually. The company expects 8-10% annual growth in adjusted EPS from 2024 to 2026.
Increased capacity and extended maturities of revolving credit and commercial paper programs.
Delivered $0.98 GAAP EPS and $0.68 Adjusted EPS QTD, showing strong earnings.
Increased portfolio by 36% to $6.4 billion and managed assets grew 24% to $12.9 billion.
Closed $562 million of investments in the first quarter of 2024.
Estimated avoidance of 520,000 metric tons of carbon emissions annually through sustainable investments.
Expects 8-10% annual growth in adjusted EPS from 2024 to 2026.
GAAP-based Net Investment Income decreased by 30% year over year to $8.7 million QTD.
Interest expense increased by $25 million due to larger outstanding debt balance and higher interest rate.
Provision for loss on receivables and securitization assets resulted in a $2 million expense.
Income tax expense increased by approximately $45 million in Q1 2024 compared to Q1 2023.
Leverage decreased slightly to 1.9 to 1 as of March 31, 2024, compared to 2.0 to 1 as of December 31, 2023.
Insights
The detailed earnings report by Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI) indicates a substantial year-over-year increase in GAAP diluted EPS, from $0.26 to $0.98, as well as an increase in Adjusted EPS. This growth reflects a robust performance in light of the current macroeconomic conditions. A surge in net investment income, especially the adjusted figure which is more indicative of operational performance, suggests that the company’s focus on sustainable infrastructure assets is yielding financial benefits. Additionally, the increased pipeline and portfolio expansion signal a positive outlook for future revenue growth.
What stands out is the strategic partnership with KKR to invest in $2 billion of sustainable infrastructure assets, demonstrating HASI’s commitment to capitalizing on the growing demand for climate solutions. This partnership is likely to enhance HASI's market positioning and provide a competitive edge. The improved liquidity profile, via the extended revolving line of credit and commercial paper programs, prepares the company to effectively navigate market volatility and invest in growth opportunities. Also noteworthy is the proactive approach to capital management, as evidenced by the 2% discount on the DRIP, which could encourage shareholder participation and enhance equity capital. However, investors should remain aware of the increased interest expense, which reflects the impact of a rising rate environment and a larger average outstanding debt balance.
HASI's announcement of an estimated 520,000 metric tons of carbon emissions avoided through recent transactions reflects a strong alignment with the broader trend towards sustainability and impact investment. The reported CarbonCount® score of 0.92 metric tons per $1,000 invested provides a tangible measure of the environmental impact of HASI's investments. The company's focus on behind-the-meter and grid-connected assets aligns well with the ongoing transition to renewable energy sources and energy efficiency solutions.
From an investment perspective, the company's significant growth in managed assets and the establishment of a significant partnership with KKR indicates a forward-thinking strategy in a sector likely to see continued governmental and societal support. HASI's guidance for compounded annual EPS growth between 2024 and 2026, at a rate of 8% to 10%, is ambitious and suggests confidence in their strategic direction, though it is subject to the assumptions regarding market conditions and operational costs. Investors should appreciate HASI's positioning in a sector with strong tailwinds but also consider the potential risks inherent in the cyclical nature of infrastructure investment and the evolving policy landscape.
Business Highlights
-
Announced CarbonCount Holdings 1 LLC, a strategic partnership with KKR, to invest in
$2 billion - Increased the capacity and extended the maturities of our revolving line of credit and commercial paper programs
-
Increased pipeline to over
$5.5 billion
Financial Results
-
Delivered
$0.98 $0.26 -
Delivered
$0.68 $0.53 -
Increased Portfolio
36% in the last twelve months to$6.4 billion 24% in the same period to$12.9 billion -
GAAP-based Net Investment Income decreased by
30% year over year to$8.7 million 37% year over year to$64.3 million -
Closed
$562 million -
Declared dividend of
$0.41 5 -
Announced
2% discount on 2024 Dividend Reinvestment and Stock Purchase Plan ("DRIP") for the second quarter
Sustainability and Impact Highlights
-
An estimated 520,000 metric tons of carbon emissions will be avoided annually by our transactions closed this quarter, equating to a CarbonCount® score of 0.92 metric tons per
$1,000
“Our company continues to execute on our goals including closing our exciting new strategic partnership with KKR,” said Jeffrey A. Lipson, HASI President and Chief Executive Officer. “We had an outstanding quarter in all respects with strong earnings, liquidity and investment volumes.”
A summary of our results is shown in the table below:
|
|
For the three months ended
|
|
For the three months ended
|
||||||||
|
|
$ in thousands |
|
Per Share (Diluted) |
|
$ in thousands |
|
Per Share (Diluted) |
||||
GAAP Net Income |
$ |
123,025 |
|
$ |
0.98 |
|
$ |
24,106 |
|
$ |
0.26 |
|
Adjusted earnings |
|
78,906 |
|
|
0.68 |
|
|
49,658 |
|
|
0.53 |
|
Financial Results
“With our capital formation activities year-to-date, we have positioned our business to thrive in a volatile macroeconomic environment,” said Marc Pangburn, HASI Chief Financial Officer. “CCH1, the upsize and extension of our banking facilities, the corporate bond add-on, and a secured debt closing have meaningfully strengthened our liquidity profile.”
Comparison of the quarter ended March 31, 2024 to the quarter ended March 31, 2023
Total revenue increased by
Interest expense increased
We recognized income of
Income tax expense increased by approximately
GAAP net income (loss) to controlling shareholders in the first quarter of 2024 was
Leverage
The calculation of our fixed-rate debt and leverage ratios as of March 31, 2024 and December 31, 2023 are shown in the table below:
|
March 31, 2024 |
|
% of Total |
|
December 31, 2023 |
|
% of Total |
||||
|
($ in millions) |
|
|
|
($ in millions) |
|
|
||||
Floating-rate borrowings (1) |
$ |
139 |
|
3 |
% |
|
$ |
338 |
|
8 |
% |
Fixed-rate debt (2) |
|
4,112 |
|
97 |
% |
|
|
3,909 |
|
92 |
% |
Total |
$ |
4,251 |
|
100 |
% |
|
$ |
4,247 |
|
100 |
% |
Leverage (3) |
1.9 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. |
Portfolio
Our balance sheet portfolio totaled approximately
|
Portfolio Performance |
|
|
||||||||||||||||
|
Commercial |
|
Government |
|
Commercial |
|
Commercial |
|
|
||||||||||
|
1 (1) |
|
1 (1) |
|
2 (2) |
|
3 (3) |
|
Total |
||||||||||
|
(dollars in millions) |
||||||||||||||||||
Total receivables |
|
3,128 |
|
|
|
37 |
|
|
|
— |
|
|
|
— |
|
|
|
3,165 |
|
Less: Allowance for loss on receivables |
|
(52 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(52 |
) |
Net receivables |
|
3,076 |
|
|
|
37 |
|
|
|
— |
|
|
|
— |
|
|
|
3,113 |
|
Receivables held-for-sale |
|
2 |
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
Investments |
|
5 |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
Real estate |
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
Equity method investments (4) |
|
3,226 |
|
|
|
— |
|
|
|
37 |
|
|
|
— |
|
|
|
3,263 |
|
Total |
$ |
6,312 |
|
|
$ |
42 |
|
|
$ |
37 |
|
|
$ |
— |
|
|
$ |
6,391 |
|
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. |
Guidance
The Company expects that annual adjusted 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
HASI will host an investor conference call today, Tuesday, May 7, 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
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
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
HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) |
|||||||
|
For the Three Months Ended March 31, |
||||||
|
|
2024 |
|
|
|
2023 |
|
Revenue |
|
|
|
||||
Interest income |
$ |
68,692 |
|
|
$ |
43,108 |
|
Rental income |
|
1,846 |
|
|
|
6,487 |
|
Gain on sale of assets |
|
28,611 |
|
|
|
15,719 |
|
Securitization asset income |
|
4,898 |
|
|
|
3,432 |
|
Other income |
|
1,769 |
|
|
|
355 |
|
Total revenue |
|
105,816 |
|
|
|
69,101 |
|
Expenses |
|
|
|
||||
Interest expense |
|
61,872 |
|
|
|
37,216 |
|
Provision for loss on receivables |
|
2,022 |
|
|
|
1,883 |
|
Compensation and benefits |
|
20,676 |
|
|
|
18,369 |
|
General and administrative |
|
9,053 |
|
|
|
8,022 |
|
Total expenses |
|
93,623 |
|
|
|
65,490 |
|
Income before equity method investments |
|
12,193 |
|
|
|
3,611 |
|
Income (loss) from equity method investments |
|
158,550 |
|
|
|
22,418 |
|
Income (loss) before income taxes |
|
170,743 |
|
|
|
26,029 |
|
Income tax (expense) benefit |
|
(46,195 |
) |
|
|
(1,431 |
) |
Net income (loss) |
$ |
124,548 |
|
|
$ |
24,598 |
|
Net income (loss) attributable to non-controlling interest holders |
|
1,523 |
|
|
|
492 |
|
Net income (loss) attributable to controlling stockholders |
$ |
123,025 |
|
|
$ |
24,106 |
|
Basic earnings (loss) per common share |
$ |
1.08 |
|
|
$ |
0.26 |
|
Diluted earnings (loss) per common share |
$ |
0.98 |
|
|
$ |
0.26 |
|
Weighted average common shares outstanding—basic |
|
112,617,809 |
|
|
|
91,102,374 |
|
Weighted average common shares outstanding—diluted |
|
130,998,775 |
|
|
|
94,129,174 |
|
HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) |
|||||||
|
March 31, 2024 |
|
December 31, 2023 |
||||
Assets |
|
|
|
||||
Cash and cash equivalents |
$ |
61,419 |
|
|
$ |
62,632 |
|
Equity method investments |
|
3,263,391 |
|
|
|
2,966,305 |
|
Receivables, net of allowance of |
|
3,112,810 |
|
|
|
3,073,855 |
|
Receivables held-for-sale |
|
5,422 |
|
|
|
35,299 |
|
Real estate |
|
2,992 |
|
|
|
111,036 |
|
Investments |
|
7,223 |
|
|
|
7,165 |
|
Securitization assets, net of allowance of |
|
220,003 |
|
|
|
218,946 |
|
Other assets |
|
54,690 |
|
|
|
77,112 |
|
Total Assets |
$ |
6,727,950 |
|
|
$ |
6,552,350 |
|
Liabilities and Stockholders’ Equity |
|
|
|
||||
Liabilities: |
|
|
|
||||
Accounts payable, accrued expenses and other |
$ |
203,753 |
|
|
$ |
163,305 |
|
Credit facilities |
|
201,270 |
|
|
|
400,861 |
|
Green commercial paper notes |
|
65,278 |
|
|
|
30,196 |
|
Term loan facility |
|
692,777 |
|
|
|
727,458 |
|
Non-recourse debt (secured by assets of |
|
133,297 |
|
|
|
160,456 |
|
Senior unsecured notes |
|
2,550,058 |
|
|
|
2,318,841 |
|
Convertible notes |
|
608,102 |
|
|
|
609,608 |
|
Total Liabilities |
|
4,454,535 |
|
|
|
4,410,725 |
|
Stockholders’ Equity: |
|
|
|
||||
Preferred stock, par value |
|
— |
|
|
|
— |
|
Common stock, par value |
|
1,135 |
|
|
|
1,122 |
|
Additional paid in capital |
|
2,415,118 |
|
|
|
2,381,510 |
|
Accumulated deficit |
|
(227,820 |
) |
|
|
(303,536 |
) |
Accumulated other comprehensive income (loss) |
|
29,111 |
|
|
|
13,165 |
|
Non-controlling interest |
|
55,871 |
|
|
|
49,364 |
|
Total Stockholders’ Equity |
|
2,273,415 |
|
|
|
2,141,625 |
|
Total Liabilities and Stockholders’ Equity |
$ |
6,727,950 |
|
|
$ |
6,552,350 |
|
|
|
|
|
||||
HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED) |
|||||||
|
Three Months Ended March 31, |
||||||
|
|
2024 |
|
|
|
2023 |
|
Cash flows from operating activities |
|
|
|
||||
Net income (loss) |
$ |
124,548 |
|
|
$ |
24,598 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
||||
Provision for loss on receivables |
|
2,022 |
|
|
|
1,883 |
|
Depreciation and amortization |
|
340 |
|
|
|
926 |
|
Amortization of financing costs |
|
4,012 |
|
|
|
3,250 |
|
Equity-based compensation |
|
6,601 |
|
|
|
7,898 |
|
Equity method investments |
|
(145,900 |
) |
|
|
(11,415 |
) |
Non-cash gain on securitization |
|
(32,342 |
) |
|
|
(6,882 |
) |
(Gain) loss on sale of receivables and investments |
|
9,869 |
|
|
|
1,305 |
|
Changes in receivables held-for-sale |
|
3 |
|
|
|
37,249 |
|
Changes in accounts payable and accrued expenses |
|
59,123 |
|
|
|
936 |
|
Change in accrued interest on receivables and investments |
|
(17,709 |
) |
|
|
(12,231 |
) |
Other |
|
10,364 |
|
|
|
1,287 |
|
Net cash provided by (used in) operating activities |
|
20,931 |
|
|
|
48,804 |
|
Cash flows from investing activities |
|
|
|
||||
Equity method investments |
|
(127,422 |
) |
|
|
(362,831 |
) |
Equity method investment distributions received |
|
3,762 |
|
|
|
1,469 |
|
Purchases of and investments in receivables |
|
(230,885 |
) |
|
|
(96,842 |
) |
Principal collections from receivables |
|
141,594 |
|
|
|
22,741 |
|
Proceeds from sales of receivables |
|
24,769 |
|
|
|
7,634 |
|
Proceeds from sale of real estate |
|
115,767 |
|
|
|
— |
|
Posting of hedge collateral |
|
— |
|
|
|
(20,350 |
) |
Receipt of hedge collateral |
|
2,920 |
|
|
|
— |
|
Other |
|
(450 |
) |
|
|
(548 |
) |
Net cash provided by (used in) investing activities |
|
(69,945 |
) |
|
|
(448,727 |
) |
Cash flows from financing activities |
|
|
|
||||
Proceeds from credit facilities |
|
250,000 |
|
|
|
312,000 |
|
Principal payments on credit facilities |
|
(450,000 |
) |
|
|
(5,000 |
) |
Principal payments on term loan |
|
(35,339 |
) |
|
|
— |
|
Proceeds from issuance of non-recourse debt |
|
94,000 |
|
|
|
— |
|
Proceeds from issuance of commercial paper notes |
|
35,000 |
|
|
|
100,000 |
|
Principal payments on non-recourse debt |
|
(68,910 |
) |
|
|
(5,140 |
) |
Proceeds from issuance of senior unsecured notes |
|
205,500 |
|
|
|
— |
|
Net proceeds of common stock issuances |
|
30,386 |
|
|
|
23,256 |
|
Payments of dividends and distributions |
|
(45,093 |
) |
|
|
(35,142 |
) |
Withholdings on employee share vesting |
|
(157 |
) |
|
|
(1,317 |
) |
Payment of financing costs |
|
(7,498 |
) |
|
|
— |
|
Posting of hedge collateral |
|
(24,900 |
) |
|
|
— |
|
Receipt of hedge collateral |
|
69,000 |
|
|
|
— |
|
Other |
|
(725 |
) |
|
|
(503 |
) |
Net cash provided by (used in) financing activities |
|
51,264 |
|
|
|
388,154 |
|
Increase (decrease) in cash, cash equivalents, and restricted cash |
|
2,250 |
|
|
|
(11,769 |
) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
75,082 |
|
|
|
175,972 |
|
Cash, cash equivalents, and restricted cash at end of period |
$ |
77,332 |
|
|
$ |
164,203 |
|
Interest paid |
$ |
33,207 |
|
|
$ |
20,343 |
|
Supplemental disclosure of non-cash activity |
|
|
|
||||
Residual assets retained from securitization transactions |
$ |
6,715 |
|
|
$ |
5,330 |
|
Equity method investments retained from securitization transactions |
|
32,564 |
|
|
|
— |
|
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
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 months ended March 31, 2024 and 2023.
|
Three Months Ended March 31, |
||||
|
2024 |
|
2023 |
||
|
(in millions) |
||||
Income (loss) under GAAP |
$ |
159 |
|
$ |
22 |
|
|
|
|
||
Collections of Adjusted earnings |
$ |
13 |
|
$ |
9 |
Return of capital |
|
3 |
|
|
3 |
Cash collected |
$ |
16 |
|
$ |
12 |
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 months ended March 31, 2024 and 2023 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) |
$ |
123,025 |
|
|
$ |
0.98 |
|
$ |
24,106 |
|
|
$ |
0.26 |
||
Adjusted earnings adjustments: |
|
|
|
|
|
|
|
||||||||
Reverse GAAP (income) loss from equity method investments |
|
(158,550 |
) |
|
|
|
|
(22,418 |
) |
|
|
||||
Add equity method investments earnings |
|
55,462 |
|
|
|
|
|
33,957 |
|
|
|
||||
Equity-based expense |
|
9,058 |
|
|
|
|
|
9,435 |
|
|
|
||||
Provision for loss on receivables (2) |
|
2,022 |
|
|
|
|
|
1,883 |
|
|
|
||||
Amortization of intangibles (3) |
|
171 |
|
|
|
|
|
772 |
|
|
|
||||
Non-cash provision (benefit) for income taxes |
|
46,195 |
|
|
|
|
|
1,431 |
|
|
|
||||
Net income attributable to non-controlling interest |
|
1,523 |
|
|
|
|
|
492 |
|
|
|
||||
Adjusted earnings (4) |
$ |
78,906 |
|
|
$ |
0.68 |
|
$ |
49,658 |
|
|
$ |
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) |
In addition to these provisions, in the current period, 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 |
||||||||||||||
(3) |
Adds back non-cash amortization of lease and pre-IPO intangibles. |
||||||||||||||
(4) |
Adjusted earnings per share for the three months ended March 31, 2024 and 2023, are based on 115,400,151 shares and 93,266,916 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 March 31, |
||||
|
2024 |
|
2023 |
||
|
(in thousands) |
||||
Interest income |
$ |
68,692 |
|
$ |
43,108 |
Rental income |
|
1,846 |
|
|
6,487 |
GAAP-based investment revenue |
|
70,538 |
|
|
49,595 |
Interest expense |
|
61,872 |
|
|
37,216 |
GAAP-based net investment income |
|
8,666 |
|
|
12,379 |
Equity method earnings adjustment (1) |
|
55,462 |
|
|
33,957 |
Amortization of real estate intangibles (2) |
|
171 |
|
|
772 |
Adjusted net investment income |
$ |
64,299 |
|
$ |
47,108 |
(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 March 31, 2024 and December 31, 2023:
|
As of |
||||
March 31, 2024 |
December 31, 2023 |
||||
|
(dollars in millions) |
||||
Equity method investments |
$ |
3,263 |
|
$ |
2,966 |
Receivables, net of allowance |
|
3,113 |
|
|
3,074 |
Receivables held-for-sale |
|
5 |
|
|
35 |
Real estate |
|
3 |
|
|
111 |
Investments |
|
7 |
|
|
7 |
GAAP-Based Portfolio |
|
6,391 |
|
|
6,193 |
Assets held in securitization trusts |
|
6,502 |
|
|
6,060 |
Managed assets |
$ |
12,893 |
|
$ |
12,253 |
View source version on businesswire.com: https://www.businesswire.com/news/home/20240507201775/en/
Investor Contact:
Neha Gaddam
investors@hasi.com
410-571-6189
Media Contact:
Gil Jenkins
media@hasi.com
443-321-5753
Source: Hannon Armstrong Sustainable Infrastructure Capital, Inc.
FAQ
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