Hannon Armstrong Sustainable Infrastructure Capital, Inc.
("Hannon Armstrong," "we," "our" or the "Company") (NYSE: HASI), a
leading investor in climate solutions, today reported results for
the second quarter of 2022.
Financial Highlights
- Delivered $(0.21) GAAP EPS on a fully diluted basis for the
second quarter of 2022, compared with $0.20 for the same period in
2021
- Delivered $0.60 Distributable EPS on a fully diluted basis for
the second quarter of 2022, compared to $0.57 Distributable EPS for
the same period in 2021, representing a 5% YOY increase
- Reported GAAP-based Net Investment Income of $11.1 million for
the second quarter of 2022, compared to $(9.0) million for the same
period in 2021
- Increased Distributable Net Investment Income for the second
quarter of 2022 by 44% YOY to $47.9 million, compared to $33.2
million for the same period in 2021
- Closed $340 million of investments in the second quarter of
2022, compared to $509 million in the same period in 2021
- The portfolio grew 30% YOY to $3.9 billion
- Investment Grade (Baa3) rating by Moody’s
- Declared dividend of $0.375 per share
- Affirm guidance that Distributable Earnings Per Share is
expected to grow at a compound annual rate of 10% to 13% from 2021
to 2024, relative to the 2020 baseline of $1.55 per share, which is
equivalent to a 2024 midpoint of $2.40 per share
ESG Highlights
- Published internal price on carbon and updated business partner
code of conduct
- An estimated 81,000 metric tons of carbon emissions will be
avoided annually by our transactions closed this quarter, equating
to a CarbonCount® score of 0.24 metric tons per $1,000
invested
"Record Distributable Earnings Per Share in the quarter on
strong Net Investment Income from portfolio growth and stable
margins, shows the increasing strength of our dual-revenue business
model," said Jeffrey W. Eckel, Hannon Armstrong Chairman and Chief
Executive Officer. "We remain confident in the continued growth of
the portfolio based on committed transactions and conversion of the
pipeline to executed investments, including growth in Sustainable
Infrastructure opportunities."
A summary of our results is shown in the table below:
For the three months ended
June 30, 2022
For the three months ended
June 30, 2021
$ in thousands
Per Share (Diluted)
$ in thousands
Per Share (Diluted)
GAAP Net Income
$
(18,449
)
$
(0.21
)
$
15,974
$
0.20
Distributable earnings
53,524
0.60
47,573
0.57
For the six months ended June
30, 2022
For the six months ended June
30, 2021
$ in thousands
Per Share
$ in thousands
Per Share
GAAP Net Income
$
26,896
$
0.30
$
66,998
$
0.81
Distributable earnings
99,257
1.13
83,248
1.01
Financial Results
"Our flexible funding platform, investment grade rating, and
consistent portfolio cash flows contribute to our business
resiliency," said Jeffrey A. Lipson, Chief Financial Officer and
Chief Operating Officer. “We remain well-positioned to achieve our
earnings guidance.”
Comparison of the quarter ended June 30, 2022 to the quarter
ended June 30, 2021
Total revenue increased by $4 million, as higher interest income
of $8 million from a larger portfolio with a lower average interest
rate was offset by $4 million of lower gain on sale due to a change
in the mix of assets being securitized.
Interest expense decreased $12 million primarily due to a one
time loss on the redemption of senior unsecured notes in the prior
period which did not recur. We recorded an $8 million provision for
loss on receivables driven primarily by loan and loan commitments
made during the period as well as certain loan specific provisions.
Other expenses (compensation and benefits and general and
administrative expenses) increased by approximately $12 million
primarily due to an acceleration of share based compensation
resulting from the adoption of a new retirement policy.
We recognized a loss of $20 million using the hypothetical
liquidation at book value method (HLBV) for our equity method
investments in the second quarter of 2022, compared to income of
$22 million for the same period in 2021, primarily due to the
impact of increasing power prices and the resulting unrealized
mark-to-market losses on economic hedges used by some of our
projects to reduce the impact of power price fluctuations.
Income tax benefit (expense) increased approximately $11 million
in the second quarter of 2022 compared to the same period in 2021
due to the GAAP loss recognized in the quarter.
GAAP net income (loss) in the second quarter of 2022 was $(18)
million, compared to $16 million in the same period in 2021.
Distributable earnings in the second quarter of 2022 was
approximately $54 million, or an increase of approximately $6
million from the same period in 2021 due primarily to new assets
added to our portfolio.
Leverage
The calculation of our fixed-rate debt and leverage ratios as of
June 30, 2022 and December 31, 2021 are shown in the table
below:
June 30, 2022
% of Total
December 31, 2021
% of Total
($ in millions)
($ in millions)
Floating-rate borrowings (1)
$
201
7
%
$
101
4
%
Fixed-rate debt (2)
2,621
93
%
2,392
96
%
Total
$
2,822
100
%
$
2,493
100
%
Leverage (3)
1.8 to 1
1.6 to 1
(1)
Floating-rate borrowings include
borrowings under our floating-rate credit facilities.
(2)
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 $3.9 billion
as of June 30, 2022, which included approximately $2.3 billion of
behind-the-meter assets and approximately $1.6 billion of
grid-connected assets. The following is an analysis of the
performance of our portfolio as of June 30, 2022:
Portfolio Performance
Government
Commercial
1 (1)
1 (1)
2 (2)
3 (3)
Total
(dollars in millions)
Total receivables
111
1,472
—
11
1,594
Less: Allowance for loss on
receivables
—
(29
)
—
(8
)
(37
)
Net receivables (4)
111
1,443
—
3
1,557
Receivables held-for-sale
50
24
—
—
74
Investments
3
9
—
—
12
Real estate
—
359
—
—
359
Equity method investments (5)
—
1,907
28
—
1,935
Total
$
164
$
3,742
$
28
$
3
$
3,937
Percent of Portfolio
4
%
95
%
1
%
—
%
100
%
Average remaining balance (6)
$
8
$
11
$
14
$
11
$
11
(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. In the second quarter of 2022, we moved to this
category from Category 2 $11 million of loans we had made in a new
market venture where the performance has not met expectations.
Previously included in this category were two commercial
receivables with a combined total carrying value of approximately
$8 million which were assignments of land lease payments from two
wind projects that we had originated in 2014, as a part of an
acquisition of a large land portfolio. In 2017, the operator of the
projects terminated the lease, at which time we filed a legal claim
and placed these assets on non-accrual status. In 2019, we received
a court decision indicating that the owners of the projects were
within their rights under the contract terms to terminate the lease
which impacts the land lease assignments to us, at which time we
reserved the receivables for their full carrying amount. In the
second quarter of 2022, we received a court decision indicating
that our appeal was not successful, and accordingly we charged off
the full amount of the receivable.
(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 243 transactions each with outstanding balances that
are less than $1 million and that in the aggregate total $76
million.
Guidance
The Company expects that annual distributable earnings per share
will grow at a compounded annual rate of 10% to 13% from 2021 to
2024, relative to the 2020 baseline of $1.55 per share, which is
equivalent to a 2024 midpoint of $2.40 per share. The Company also
expects growth of annual dividends per share to be at a compounded
annual rate of 5% to 8%. This guidance reflects the Company’s
judgments and estimates of (i) yield on its existing portfolio;
(ii) yield on incremental portfolio investments, inclusive of the
Company’s 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 the Company’s forecasted operations; and (vi) the
general interest rate and market environment. All guidance is based
on current expectations of the ongoing and future impact of
COVID-19 and the speed and efficacy of vaccine distribution on
economic conditions, the regulatory environment, the dynamics of
the markets in which we operate and the judgment of the Company’s
management team, among other factors. In addition, distributions
are subject to approval by the Company’s Board of Directors on a
quarterly basis. The Company has not provided GAAP guidance as
discussed in the Forward-Looking Statements section of this press
release.
Dividend
The Company is announcing today that its Board of Directors
approved a quarterly cash dividend of $0.375 per share of common
stock. This dividend will be paid on October 11, 2022, to
stockholders of record as of October 4, 2022.
Conference Call and Webcast Information
Hannon Armstrong will host an investor conference call today,
Thursday, August 4, 2022, at 5:00 p.m. Eastern Time. The conference
call can be accessed live over the phone by dialing 1-877-407-0890
or for international callers, +1-201-389-0918. Participants should
inform the operator they want to be joined to the Hannon Armstrong
call. The conference call will also be accessible as an audio
webcast with slides on the Company’s website at
investors.hannonarmstrong.com. An 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 assets developed by leading companies in energy
efficiency, renewable energy, and other sustainable infrastructure
markets. With more than $9 billion in managed assets, our core
purpose is to make climate positive investments with superior
risk-adjusted returns. For more information, please visit
hannonarmstrong.com or follow us on Twitter and LinkedIn.
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 (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) 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, and include
the ongoing impact of the current outbreak of the novel coronavirus
(“COVID-19”). 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 (the
"SEC").
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 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 Ended
June 30,
For the Six Months Ended June
30,
2022
2021
2022
2021
Revenue
Interest income
$
33,358
$
25,016
$
63,601
$
50,117
Rental income
6,609
6,462
13,108
12,931
Gain on sale of receivables and
investments
19,664
24,426
36,762
41,916
Fee income
3,172
2,990
7,809
5,625
Total revenue
62,803
58,894
121,280
110,589
Expenses
Interest expense
28,827
40,463
55,479
68,045
Provision for loss on receivables
8,064
906
8,685
1,411
Compensation and benefits
22,246
12,422
37,176
27,633
General and administrative
7,408
4,966
14,546
9,850
Total expenses
66,545
58,757
115,886
106,939
Income before equity method
investments
(3,742
)
—
137
5,394
3,650
Income (loss) from equity method
investments
(19,585
)
22,252
27,981
76,734
Income (loss) before income
taxes
(23,327
)
22,389
33,375
80,384
Income tax (expense) benefit
4,789
(5,981
)
(6,209
)
(12,760
)
Net income (loss)
$
(18,538
)
$
16,408
$
27,166
$
67,624
Net income (loss) attributable to
non-controlling interest holders
(89
)
434
270
626
Net income (loss) attributable to
controlling stockholders
$
(18,449
)
$
15,974
$
26,896
$
66,998
Basic earnings (loss) per common share
$
(0.21
)
$
0.20
$
0.31
$
0.85
Diluted earnings (loss) per common
share
$
(0.21
)
$
0.20
$
0.30
$
0.81
Weighted average common shares
outstanding—basic
87,049,777
78,372,647
86,316,464
77,935,264
Weighted average common shares
outstanding—diluted
87,049,777
81,944,511
89,541,858
87,165,587
HANNON ARMSTRONG SUSTAINABLE
INFRASTRUCTURE CAPITAL, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
June 30, 2022
December 31, 2021
Assets
Cash and cash equivalents
$
279,459
$
226,204
Equity method investments
1,935,467
1,759,651
Commercial receivables, net of allowance
of $37 million and $36 million, respectively
1,445,576
1,298,529
Government receivables
110,754
125,409
Receivables held-for-sale
74,109
22,214
Real estate
359,106
356,088
Investments
11,643
17,697
Securitization assets
178,156
210,354
Other assets
124,748
132,165
Total Assets
$
4,519,018
$
4,148,311
Liabilities and Stockholders’
Equity
Liabilities:
Accounts payable, accrued expenses and
other
$
105,200
$
88,866
Credit facilities
201,032
100,473
Green commercial paper notes
100,174
50,094
Non-recourse debt (secured by assets of
$553 million and $573 million, respectively)
416,343
429,869
Senior unsecured notes
1,765,195
1,762,763
Convertible notes
339,559
149,731
Total Liabilities
2,927,503
2,581,796
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, 87,489,951 and 85,326,781 shares
issued and outstanding, respectively
875
853
Additional paid in capital
1,811,889
1,727,667
Accumulated deficit
(232,590
)
(193,706
)
Accumulated other comprehensive income
(loss)
(22,132
)
9,904
Non-controlling interest
33,473
21,797
Total Stockholders’ Equity
1,591,515
1,566,515
Total Liabilities and Stockholders’
Equity
$
4,519,018
$
4,148,311
EXPLANATORY NOTES
Non-GAAP Financial Measures
Distributable Earnings
We calculate distributable 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, gains or (losses) 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 our Operating Partnership. We also make
an adjustment to 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
distributable earnings. In making this determination we will
consider certain circumstances such as the time period in default
and 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 adjustments 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 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. As a REIT, we are required to distribute substantially all of
our taxable income to investors in the form of dividends, which 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 cash equity investor(s) receive 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 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 typically used in solar projects
is a one-time credit which is 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 used in wind 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.
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
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 in any one period.
The following table provides our results related to our equity
method investments for the three and six months ended June 30, 2022
and 2021.
Three Months Ended
June 30,
Six Months Ended June
30,
2022
2021
2022
2021
(in millions)
Income (loss) under GAAP
$
(20
)
$
22
$
28
$
77
Distributable earnings
$
36
$
27
$
68
$
51
Return of capital/(deferred cash
collections)
3
(17
)
(16
)
(30
)
Cash collected
$
39
$
10
$
52
$
21
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 three and six months ended June 30, 2022 and 2021 in the tables
below.
For the three months ended
June 30, 2022
For the three months ended
June 30, 2021
(dollars in thousands, except per
share amounts)
$
per share
$
per share
Net income attributable to controlling
stockholders (1)
$
(18,449
)
$
(0.21
)
$
15,974
$
0.20
Distributable earnings adjustments:
Reverse GAAP (income) loss from equity
method investments
19,585
(22,252
)
Add equity method investments earnings
36,048
26,834
Equity-based compensation charges
12,393
4,289
Provision for loss on receivables (2)
8,064
906
(Gain) loss on debt modification or
extinguishment
—
14,584
Other adjustments (3)
(4,117
)
7,238
Distributable earnings (4)
$
53,524
$
0.60
$
47,573
$
0.57
(1)
The per share amounts represent GAAP
diluted earnings per share and is the most comparable GAAP measure
to our distributable earnings per share.
(2)
In addition to these provisions, in the
second quarter of 2022 we wrote-off two commercial receivables with
a combined total carrying value of approximately $8 million which
represented assignments of land lease payments from two wind
projects that we had originated in 2014. In 2017, the operator of
the projects terminated the lease, at which time we filed a legal
claim and placed these assets on non-accrual status. In 2019, we
received a court decision indicating that the owners of the
projects were within their rights under the contract terms to
terminate the lease which impacts the land lease assignments to us,
at which time we reserved the receivables for their full carrying
amount. In the second quarter of 2022, we received a court decision
indicating that our appeal was not successful, and accordingly
wrote off the full amount of the receivable. We have excluded the
write off from Distributable earnings due to the infrequent
occurrence of credit losses as well as the unique nature of the
receivables, as the assignment of land lease payments from wind
projects represent a small portion of our total portfolio.
(3)
See Other adjustments table below.
(4)
Distributable earnings per share for the
three months ended June 30, 2022 and 2021, are based on 88,994,421
shares and 82,832,735 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 upon conversion.
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.
For the six months ended June
30, 2022
For the six months ended June
30, 2021
(dollars in thousands, except per
share amounts)
$
per share
$
per share
Net income attributable to controlling
stockholders (1)
$
26,896
$
0.30
$
66,998
$
0.81
Distributable earnings adjustments:
Reverse GAAP (income) loss from equity
method investments
(27,981
)
(76,734
)
Add equity method investments earnings
67,645
50,671
Equity-based compensation charges
15,933
9,787
Provision for loss on receivables (2)
8,685
1,411
(Gain) loss on debt modification or
extinguishment
—
16,083
Other adjustments (3)
8,079
15,031
Distributable earnings (4)
$
99,257
$
1.13
$
83,247
$
1.01
(1)
The per share amounts represent GAAP
diluted earnings per share and is the most comparable GAAP measure
to our distributable earnings per share.
(2)
In addition to these provisions, in the
second quarter of 2022 we wrote-off two commercial receivables with
a combined total carrying value of approximately $8 million which
represented assignments of land lease payments from two wind
projects that we had originated in 2014. In 2017, the operator of
the projects terminated the lease, at which time we filed a legal
claim and placed these assets on non-accrual status. In 2019, we
received a court decision indicating that the owners of the
projects were within their rights under the contract terms to
terminate the lease which impacts the land lease assignments to us,
at which time we reserved the receivables for their full carrying
amount. In the second quarter of 2022, we received a court decision
indicating that our appeal was not successful, and accordingly
wrote off the full amount of the receivable. We have excluded the
write off from Distributable earnings due to the infrequent
occurrence of credit losses as well as the unique nature of the
receivables, as the assignment of land lease payments from wind
projects represent a small portion of our total portfolio.
(3)
See Other adjustments table below.
(4)
Distributable earnings per share for the
six months ended June 30, 2022 and 2021, are based on 88,100,480
shares and 82,723,380 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 upon conversion.
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.
The table below provides a reconciliation of the Other
adjustments:
For the Three Months Ended
June 30,
For the Six Months Ended June
30,
2022
2021
2022
2021
(in thousands)
(in thousands)
Other adjustments
Amortization of intangibles (1)
$
761
$
823
$
1,600
$
1,645
Non-cash provision (benefit) for income
taxes
(4,789
)
5,981
6,209
12,760
Net income attributable to non-controlling
interest
(89
)
434
270
626
Other adjustments
$
(4,117
)
$
7,238
$
8,079
$
15,031
(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 Ended
June 30,
For the Six Months Ended June
30,
2022
2021
2022
2021
(in thousands)
(in thousands)
GAAP SG&A expenses
Compensation and benefits
$
22,246
$
12,422
$
37,176
$
27,633
General and administrative
7,408
4,966
14,546
9,850
Total SG&A expenses (GAAP)
$
29,654
$
17,388
$
51,722
$
37,483
Distributable SG&A expenses
adjustments:
Non-cash equity-based compensation charge
(1)
$
(12,393
)
$
(4,289
)
$
(15,933
)
$
(9,787
)
Amortization of intangibles (2)
—
(50
)
(68
)
(102
)
Distributable SG&A expenses
adjustments
(12,393
)
(4,339
)
(16,001
)
(9,889
)
Distributable SG&A expenses
$
17,261
$
13,049
$
35,721
$
27,594
(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-based 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 June
30,
Six months ended June
30,
2022
2021
2021
2020
(in thousands)
Interest income
$
33,358
$
25,016
$
63,601
$
50,117
Rental income
6,609
6,462
13,108
12,931
GAAP-based investment revenue
39,967
31,478
76,709
63,048
Interest expense
28,827
40,463
55,479
68,045
GAAP-based net investment income
11,140
(8,985
)
21,230
(4,997
)
Equity method earnings adjustment (1)
36,048
26,834
67,645
50,671
(Gain) loss on debt modification or
extinguishment (2)
—
14,584
—
16,083
Amortization of real estate intangibles
(3)
761
773
1,532
1,543
Distributable net investment
income
$
47,949
$
33,206
$
90,407
$
63,300
(1)
Reflects adjustment for equity method
investments described above.
(2)
Adds back losses related to debt prepayments included in
interest expense in our income statement.
(3)
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, 2022 and December 31, 2021:
As of
June 30, 2022
December 31, 2021
(dollars in millions)
Equity method investments
$
1,935
$
1,760
Commercial receivables, net of
allowance
1,446
1,299
Government receivables
111
125
Receivables held-for-sale
74
22
Real estate
359
356
Investments
12
18
GAAP-Based Portfolio
3,937
3,580
Assets held in securitization trusts
5,326
5,199
Managed assets
$
9,263
$
8,779
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220804005952/en/
Investor Contact: Neha Gaddam investors@hannonarmstrong.com
410-571-6189 Media Contact: Gil Jenkins media@hannonarmstrong.com
443-321-5753
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