Hannon Armstrong Sustainable Infrastructure Capital, Inc.
("HASI," "we," "our" or the "Company") (NYSE: HASI), a leading
investor in climate solutions, today reported results for the third
quarter of 2023.
Business Highlights
- YTD 2023 volume of $1.8 billion and portfolio growth of $1.2
billion
- YTD asset yields > 9% compared to YTD debt cost of
6.5%1
- Portfolio yield increases to 7.9%
- Well-positioned to achieve guidance without future equity
raises through 2024
- 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. The Company also
expects growth of annual dividends per share to be at a compounded
annual rate of 5% to 8%
________________________________
1 Inclusive of Term Loan A upsize in
October 2023
Financial Results
- Delivered $0.20 GAAP diluted EPS QTD compared with $0.38 a year
ago
- Delivered $0.62 Distributable EPS QTD compared to $0.49 a year
ago
- Increased Portfolio by 11% in the quarter and 41% in the last
twelve months to $5.5 billion. Managed assets grew 22% year over
year to $11.5 billion
- Increased GAAP-based Net Investment Income by 50% year over
year to $17.0 million QTD and Distributable Net Investment Income
by 35% year over year to $58.8 million QTD
- Closed $973 million of investments in the third quarter of
2023
- Declared dividend of $0.395 per share
- Adopted tax benefit preservation plan for Net Operating losses,
further detailed in concurrent press release
- Announce 2% discount on 2023 Dividend Reinvestment and Stock
Purchase Plan ("DRIP") for the third quarter
ESG Highlights
- An estimated 127,000 metric tons of carbon emissions will be
avoided annually by our transactions closed this quarter, equating
to a CarbonCount® score of 0.14 metric tons per $1,000
invested
"We are very pleased with our 2023 performance to date with
record earnings, volume, and yields,” said Jeffrey A. Lipson, HASI
President and Chief Executive Officer. “The business model is
proving its resiliency as we continue to execute despite
challenging capital markets. Demand for climate solutions continues
to grow, and HASI’s differentiated business model remains ideally
positioned to address the accelerating energy transition
markets.”
A summary of our results is shown in the table below:
For the three months ended
September 30, 2023
For the three months ended
September 30, 2022
$ in thousands
Per Share (Diluted)
$ in thousands
Per Share (Diluted)
GAAP Net Income
$
21,446
$
0.20
$
34,534
$
0.38
Distributable earnings
68,801
0.62
43,646
0.49
For the nine months ended
September 30, 2023
For the nine months ended
September 30, 2022
$ in thousands
Per Share (Diluted)
$ in thousands
Per Share (Diluted)
GAAP Net Income
$
59,075
$
0.59
$
61,431
$
0.69
Distributable earnings
171,605
1.70
142,903
1.61
Financial Results
“Our liquidity position and recent capital raising activities
demonstrate the power of our diversified funding platform,” said
Marc Pangburn, HASI Chief Financial Officer. “Our strong
year-to-date execution positions us well to achieve Guidance
without additional equity capital.”
Comparison of the quarter ended September 30, 2023 to the
quarter ended September 30, 2022
Total revenue increased by $30 million, driven by $21 million in
higher interest and securitization income from a larger portfolio
and a higher average rate, and an increase in the managed assets
balance. There was an $8 million increase in gain on sale driven by
a change in the mix and volume of assets being securitized, which
included the balance sheet rotation of certain land assets.
Interest expense increased $14 million primarily due to a larger
average outstanding debt balance and a higher average interest
rate. We recorded a $10 million provision for loss on receivables
and securitization assets as a result of loans and loan commitments
made during the quarter as well as changes in our estimated cash
flows due to prepayments on certain assets that have been
securitized. Other expenses (compensation and benefits and general
and administrative expenses) increased by $2 million primarily due
to the growth of the company.
We recognized income of $3 million using the hypothetical
liquidation at book value method (HLBV) for our equity method
investments in the third quarter of 2023, compared to income of $31
million for the same period in 2022. The decrease compared to 2022
is primarily due to fewer tax attributes recognized by tax equity
investors in our projects than in the prior year, which decreased
our current allocation of HLBV income.
Income tax benefit increased by approximately $13 million in the
third quarter of 2023 compared to the same period due to future tax
benefits generated by our taxable REIT subsidiaries in the current
period.
GAAP net income (loss) in the third quarter of 2023 was $21
million, compared to $35 million in the same period in 2022.
Distributable earnings in the third quarter of 2023 was
approximately $69 million, an increase of $24 million over the same
period in 2022 as a result of growth in distributable net
investment income due to the larger portfolio and gain on sale
income.
Leverage
The calculation of our fixed-rate debt and leverage ratios as of
September 30, 2023 and December 31, 2022 are shown in the table
below:
September 30, 2023
% of Total
December 31, 2022
% of Total
($ in millions)
($ in millions)
Floating-rate borrowings (1)
$
454
12
%
$
431
14
%
Fixed-rate debt (2)
3,204
88
%
2,545
86
%
Total
$
3,658
100
%
$
2,976
100
%
Leverage (3)
1.7 to 1
1.8 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 $5.5 billion
as of September 30, 2023, which included approximately $2.7 billion
of behind-the-meter assets and approximately $2.0 billion of
grid-connected assets, with the remainder in fuels, transport, and
nature. The following is an analysis of the performance ratings of
our portfolio as of September 30, 2023:
Portfolio Performance
Government
Commercial
1 (1)
1 (1)
2 (2)
3 (3)
Total
(dollars in millions)
Total receivables
93
2,757
—
—
2,850
Less: Allowance for loss on
receivables
—
(51
)
—
—
(51
)
Net receivables (4)
93
2,706
—
—
2,799
Receivables held-for-sale
3
14
—
—
17
Investments
2
7
—
—
9
Real estate
—
111
—
—
111
Equity method investments (5)
—
2,521
43
—
2,564
Total
$
98
$
5,359
$
43
$
—
$
5,500
Percent of Portfolio
2
%
97
%
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. Previously included in this category was $11
million of loans we had made in a new market venture where the
performance was not meeting expectations. We collected this loan in
full in the second quarter of 2023 and accordingly released the
related allowance.
(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.
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 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 $0.395 per share of common
stock. This dividend will be paid on January 12, 2024, to
stockholders of record as of December 29, 2023.
2024 REIT Election
Last quarter, the Company announced its plan to revoke its REIT
status, effective for the tax year 2024 subject to the Board of
Directors and other approvals. We are on track toward executing
this proposed plan and do not expect it to change our investment
strategy. We will provide further updates in late 2023.
Conference Call and Webcast Information
HASI will host an investor conference call today, Thursday,
November 2, 2023, 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 $11 billion in
managed assets, our vision is that every investment improves our
climate future. For more information, please visit hasi.com.
Forward-Looking Statements:
Some of the information contained in this press release is
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, that are subject to
risks and uncertainties. For these statements, we claim the
protections of the safe harbor for forward-looking statements
contained in such Sections. These forward-looking statements
include information about possible or assumed future results of our
business, financial condition, liquidity, results of operations,
plans and objectives. When we use the words “believe,” “expect,”
“anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,”
“may” or similar expressions, we intend to identify forward-looking
statements. However, the absence of these words or similar
expressions does not mean that a statement is not forward-looking.
All statements that address operating performance, events or
developments that we expect or anticipate will occur in the future
are forward-looking statements.
Forward-looking statements are subject to significant risks and
uncertainties. Investors are cautioned against placing undue
reliance on such statements. Actual results may differ materially
from those set forth in the forward-looking statements. Factors
that could cause actual results to differ materially from those
described in the forward-looking statements include those discussed
under the caption “Risk Factors” included in our most recent Annual
Report on Form 10-K as well as in other periodic reports that we
file with the U.S. Securities and Exchange Commission.
Any forward-looking statement speaks only as of the date on
which such statement is made, and we undertake no obligation to
update any forward-looking statement to reflect events or
circumstances, including, but not limited to, unanticipated events,
after the date on which such statement is made, unless otherwise
required by law. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it
assess the impact of each such factor on the business or the extent
to which any factor, or combination of factors, may cause actual
results to differ materially from those contained or implied in any
forward-looking statement.
The Company has not provided GAAP guidance as forecasting a
comparable GAAP financial measure, such as net income, would
require that the Company apply the HLBV method to these
investments. In order to forecast under the HLBV method, the
Company would be required to make various assumptions related to
expected changes in the net asset value of the various entities and
how such changes would be allocated under HLBV. GAAP HLBV earnings
over a period of time are very sensitive to these assumptions
especially in regard to when a partnership transaction flips and
thus the liquidation scenarios change materially. The Company
believes that these assumptions would require unreasonable efforts
to complete and if completed, the wide variation in projected GAAP
earnings based upon a range of scenarios would not be meaningful to
investors. Accordingly, the Company has not included a GAAP
reconciliation table related to any 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
September 30,
For the Nine Months Ended
September 30,
2023
2022
2023
2022
Revenue
Interest income
$
54,295
$
34,303
$
145,624
$
97,904
Rental income
6,039
6,609
19,013
19,716
Gain on sale of assets
22,405
14,490
52,915
51,252
Securitization asset income
5,620
4,403
13,381
9,943
Other income
1,492
345
2,352
2,614
Total revenue
89,851
60,150
233,285
181,429
Expenses
Interest expense
43,295
29,556
120,413
85,035
Provision for loss on receivables
9,792
(2,463
)
12,481
6,222
Compensation and benefits
16,296
12,933
48,527
50,108
General and administrative
6,708
8,150
24,826
22,696
Total expenses
76,091
48,176
206,247
164,061
Income before equity method
investments
13,760
11,974
27,039
17,368
Income (loss) from equity method
investments
2,759
30,552
27,429
58,533
Income (loss) before income
taxes
16,519
42,526
54,468
75,901
Income tax (expense) benefit
5,128
(7,585
)
5,299
(13,794
)
Net income (loss)
$
21,647
$
34,941
$
59,767
$
62,107
Net income (loss) attributable to
non-controlling interest holders
201
407
692
676
Net income (loss) attributable to
controlling stockholders
$
21,446
$
34,534
$
59,075
$
61,431
Basic earnings (loss) per common share
$
0.20
$
0.39
$
0.59
$
0.70
Diluted earnings (loss) per common
share
$
0.20
$
0.38
$
0.59
$
0.69
Weighted average common shares
outstanding—basic
107,715,057
87,721,756
98,665,598
86,784,895
Weighted average common shares
outstanding—diluted
109,145,088
90,762,820
101,142,782
89,928,741
HANNON ARMSTRONG SUSTAINABLE
INFRASTRUCTURE CAPITAL, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
September 30, 2023
December 31, 2022
Assets
Cash and cash equivalents
$
155,500
$
155,714
Equity method investments
2,563,948
1,869,712
Commercial receivables, net of allowance
of $51 million and $41 million, respectively
2,705,976
1,887,483
Government receivables
93,364
102,511
Receivables held-for-sale
16,660
85,254
Real estate
111,249
353,000
Investments
9,370
10,200
Securitization assets, net of allowance of
$3 million and $0, respectively
182,824
177,032
Other assets
69,253
119,242
Total Assets
$
5,908,144
$
4,760,148
Liabilities and Stockholders’
Equity
Liabilities:
Accounts payable, accrued expenses and
other
$
150,584
$
120,114
Credit facilities
486,724
50,698
Green commercial paper notes
49,974
192
Term loan facility
567,244
379,742
Non-recourse debt (secured by assets of
$245 million and $632 million, respectively)
167,622
432,756
Senior unsecured notes
1,782,197
1,767,647
Convertible notes
603,905
344,253
Total Liabilities
3,808,250
3,095,402
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, 111,167,157 and 90,837,008 shares
issued and outstanding, respectively
1,112
908
Additional paid in capital
2,353,453
1,924,200
Accumulated deficit
(348,929
)
(285,474
)
Accumulated other comprehensive income
(loss)
47,264
(10,397
)
Non-controlling interest
46,994
35,509
Total Stockholders’ Equity
2,099,894
1,664,746
Total Liabilities and Stockholders’
Equity
$
5,908,144
$
4,760,148
HANNON ARMSTRONG SUSTAINABLE
INFRASTRUCTURE CAPITAL, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Nine Months Ended September
30,
2023
2022
Cash flows from operating
activities
Net income (loss)
$
59,767
$
62,107
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Provision for loss on receivables
12,481
6,222
Depreciation and amortization
2,746
2,938
Amortization of financing costs
9,347
8,666
Equity-based compensation
14,977
17,994
Equity method investments
(937
)
(26,340
)
Non-cash gain on securitization
(34,080
)
(25,201
)
(Gain) loss on sale of receivables and
investments
1,305
(218
)
Changes in receivables held-for-sale
40,183
5,466
Changes in accounts payable and accrued
expenses
8,952
28,154
Change in accrued interest on receivables
and investments
(26,087
)
(10,077
)
Other
3,686
(5,736
)
Net cash provided by (used in) operating
activities
92,340
63,975
Cash flows from investing
activities
Equity method investments
(583,323
)
(143,645
)
Equity method investment distributions
received
20,259
99,599
Proceeds from sales of equity method
investments
—
1,700
Purchases of and investments in
receivables
(1,016,467
)
(337,517
)
Principal collections from receivables
167,406
106,695
Proceeds from sales of receivables
7,634
5,047
Purchases of real estate
—
(4,550
)
Purchases of investments and
securitization assets
(14,404
)
(2,329
)
Proceeds from sales of investments and
securitization assets
—
7,020
Funding of escrow accounts
—
(228
)
Withdrawal from escrow accounts
—
15,156
Other
(285
)
(815
)
Net cash provided by (used in) investing
activities
(1,419,180
)
(253,867
)
Cash flows from financing
activities
Proceeds from credit facilities
777,000
100,000
Principal payments on credit
facilities
(342,000
)
(100,000
)
Proceeds from issuance of term loan
200,000
—
Principal payments on term loan
(9,575
)
—
Proceeds from issuance of commercial paper
notes
49,775
50,000
Principal payments on non-recourse
debt
(14,714
)
(22,127
)
Proceeds from issuance of convertible
notes
402,500
200,000
Principal payments on convertible
notes
(143,748
)
—
Purchase of capped calls related to the
issuance of convertible notes
(37,835
)
—
Net proceeds of common stock issuances
465,015
127,008
Payments of dividends and
distributions
(115,087
)
(98,310
)
Withholdings on employee share vesting
(1,466
)
(3,211
)
Payment of financing costs
(13,302
)
(8,203
)
Receipt of hedge collateral
106,330
—
Other
(2,493
)
(8,128
)
Net cash provided by (used in) financing
activities
1,320,400
237,029
Increase (decrease) in cash, cash
equivalents, and restricted cash
(6,440
)
47,137
Cash, cash equivalents, and restricted
cash at beginning of period
175,972
251,073
Cash, cash equivalents, and restricted
cash at end of period
$
169,532
$
298,210
Interest paid
$
91,988
$
62,594
Supplemental disclosure of non-cash
activity
Residual assets retained from
securitization transactions
$
26,020
$
25,374
Equity method investments received upon
deconsolidation of a special purpose entity
144,603
—
Issuance of common stock from conversion
of Convertible Notes
—
7,674
Deconsolidation of non-recourse debt
257,746
—
Deconsolidation of assets pledged for
non-recourse debt
374,608
—
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, losses or (gains) from modification or
extinguishment of debt facilities, any one-time acquisition related
costs or non-cash tax charges and the earnings attributable to our
non-controlling interest of Hannon Armstrong Sustainable
Infrastructure, L.P., a Delaware limited partnership (our
“Operating Partnership”). We also make an adjustment to 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, and will
consider certain circumstances such as the time period in default,
sufficiency of collateral as well as the outcomes of any related
litigation. In the future, 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 is
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 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
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 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 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.
We have acquired equity investments in portfolios of renewable
energy projects which have the majority of the distributions
payable to more senior investors in the first few years of the
project. The following table provides our results related to our
equity method investments for the three and nine months ended
September 30, 2023 and 2022.
Three Months Ended
September 30,
Nine Months Ended September
30,
2023
2022
2023
2022
(in millions)
Income (loss) under GAAP
$
3
$
31
$
27
$
59
Collections of Distributable earnings
$
12
$
20
$
30
$
41
Return of capital
12
60
17
91
Cash collected
$
24
$
80
$
47
$
132
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 nine months ended September 30, 2023 and 2022 in the
tables below.
For the three months ended
September 30, 2023
For the three months ended
September 30, 2022
(dollars in thousands, except per
share amounts)
$
per share
$
per share
Net income attributable to controlling
stockholders (1)
$
21,446
$
0.20
$
34,534
$
0.38
Distributable earnings adjustments:
Reverse GAAP (income) loss from equity
method investments
(2,759
)
(30,552
)
Add equity method investments earnings
41,034
31,315
Equity-based expense
3,499
2,060
Provision for loss on receivables
9,792
(2,463
)
Amortization of intangibles (2)
716
760
Non-cash provision (benefit) for income
taxes
(5,128
)
7,585
Net income attributable to non-controlling
interest
201
407
Distributable earnings (3)
$
68,801
$
0.62
$
43,646
$
0.49
(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)
Adds back non-cash amortization of lease
and pre-IPO intangibles.
(3)
Distributable earnings per share for the
three months ended September 30, 2023 and 2022, are based on
110,290,640 shares and 89,635,572 shares outstanding, respectively,
which represents the weighted average number of fully-diluted
shares outstanding including our restricted stock awards,
restricted stock units, long-term incentive plan units, and the
non-controlling interest in our Operating Partnership. We include
any potential common stock issuances related to share based
compensation units in the amount we believe is reasonably certain
to vest. As it relates to Convertible Notes, we will assess the
market characteristics around the instrument to determine if it is
more akin to debt or equity based on the value of the underlying
shares compared to the conversion price. If the instrument is more
debt-like then we will include any related interest expense and
exclude the underlying shares issuable upon conversion of the
instrument. If the instrument is more equity-like and is more
dilutive when treated as equity then we will exclude any related
interest expense and include the weighted average shares underlying
the instrument. We will consider the impact of any capped calls in
assessing whether an instrument is equity-like or debt like.
For the nine months ended
September 30, 2023
For the nine months ended
September 30, 2022
(dollars in thousands, except per
share amounts)
$
per share
$
per share
Net income attributable to controlling
stockholders (1)
$
59,075
$
0.59
$
61,431
$
0.69
Distributable earnings adjustments:
Reverse GAAP (income) loss from equity
method investments
(27,429
)
(58,533
)
Add equity method investments earnings
113,453
98,960
Equity-based expense
16,372
17,993
Provision for loss on receivables
12,481
6,222
Amortization of intangibles (2)
2,260
2,360
Non-cash provision (benefit) for income
taxes
(5,299
)
13,794
Net income attributable to non-controlling
interest
692
676
Distributable earnings (3)
$
171,605
$
1.70
$
142,903
$
1.61
(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)
Adds back non-cash amortization of lease
and pre-IPO intangibles.
(3)
Distributable earnings per share for the
three months ended September 30, 2023 and 2022, are based on
101,046,485 shares and 88,612,178 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.
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 September
30,
Nine months ended September
30,
2023
2022
2023
2022
(in thousands)
Interest income
$
54,295
$
34,303
$
145,624
$
97,904
Rental income
6,039
6,609
19,013
19,716
GAAP-based investment revenue
60,334
40,912
164,637
117,620
Interest expense
43,295
29,556
120,413
85,035
GAAP-based net investment income
17,039
11,356
44,224
32,585
Equity method earnings adjustment (1)
41,034
31,315
113,453
98,960
Amortization of real estate intangibles
(2)
716
760
2,260
2,292
Distributable net investment
income
$
58,789
$
43,431
$
159,937
$
133,837
(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 September 30, 2023 and December 31,
2022:
As of
September 30, 2023
December 31, 2022
(dollars in millions)
Equity method investments
$
2,564
$
1,870
Commercial receivables, net of
allowance
2,706
1,887
Government receivables
93
103
Receivables held-for-sale
17
85
Real estate
111
353
Investments
9
10
GAAP-Based Portfolio
5,500
4,308
Assets held in securitization trusts
5,978
5,486
Managed assets
$
11,478
$
9,794
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231102189429/en/
Investor Contact:
Neha Gaddam investors@hasi.com 410-571-6189
Media Contact:
Gil Jenkins media@hasi.com 443-321-5753
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