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
fourth quarter and full year of 2023.
Financial Highlights
- Delivered $1.42 GAAP EPS on a fully diluted basis in 2023,
compared with $0.47 in 2022
- Delivered $2.23 Distributable EPS on a fully diluted basis in
2023, compared to $2.08 Distributable EPS in 2022, representing 7%
year-on-year growth
- Grew Portfolio 44% in 2023 to $6.2 billion and managed assets
26% to $12.3 billion compared to the end of 2022
- Reported GAAP-based Net Investment Income of $58 million in
2023, compared to $45 million in 2022
- Increased Distributable Net Investment Income in 2023 by 21%
year-on-year to $217 million, compared to $180 million in 2022
- Closed $2.3 billion of investments in 2023, compared to $1.8
billion in 2022
- Reported pipeline of greater than $5 billion as of the end of
2023, compared to greater than $4.5 billion as of the end of
2022
- Increased dividend to $0.415 per share for the first quarter of
2024, representing a 5% increase over the dividend declared in the
fourth quarter of 2023
- Announced 2% discount on 2023 Dividend Reinvestment and Stock
Purchase Plan for the first quarter of 2024
Guidance
- Established new guidance that annual distributable earnings per
share is expected to grow at a compounded annual rate of 8% - 10%
during the years 2024 to 2026 relative to the 2023 baseline of
$2.23 per share
- Established guidance that our dividend per share is expected to
be within a payout ratio range of 60% - 70% of distributable
earnings per share during the years 2024 to 2026
2024 REIT Election
In December 2023, our Board of Directors approved a plan to
revoke our Real Estate Investment Trust (REIT) election and become
a taxable C-Corporation, effective January 1, 2024. Our Board of
Director’s decision was made after careful consideration of all
relevant implications and is not expected to have any material
impact on the Company’s business or operations. The Company expects
its existing net operating losses ("NOLs") and other tax attributes
will enable HASI to continue to operate in a tax efficient
manner.
Sustainability and Impact Highlight
- Estimated that more than 760,000 metric tons of carbon
emissions will be avoided annually by our transactions closed in
2023, equating to a CarbonCount® score of 0.3 metric tons per
$1,000 invested
"Driven by a record volume of closed transactions, HASI
delivered another excellent year of financial performance in 2023,
underscoring the strength and resilience of our non-cyclical and
adaptable business model,” said Jeffrey A. Lipson, HASI President
and Chief Executive Officer. "Our updated earnings and dividend
guidance demonstrates continued confidence in our strategy over the
next three years."
A summary of our results is shown in the table below:
For the three months ended
December 31, 2023
For the three months ended
December 31, 2022
$ in thousands
Per Share (Diluted)
$ in thousands
Per Share (Diluted)
GAAP Net Income
$
89,762
$
0.74
$
(19,928
)
$
(0.22
)
Distributable earnings
60,642
0.53
42,887
0.47
For the year ended December
31, 2023
For the year ended December
31, 2022
$ in thousands
Per Share
$ in thousands
Per Share
GAAP Net Income
$
148,836
$
1.42
$
41,502
$
0.47
Distributable earnings
232,248
2.23
185,791
2.08
Financial Results
"Our diversified funding platform facilitated record growth in
the Portfolio," said Marc T. Pangburn, Chief Financial Officer.
"Recent debt raises combined with our liquidity position provide a
significant portion of our growth debt capital needs for 2024."
Comparison of the year ended December 31, 2023 to the year ended
December 31, 2022
Total revenue increased by $80 million, or 33%. Interest and
rental income increased by $68 million, or 42%, due to a larger
portfolio and a higher average interest rate. Gain on sale and
other income increased by $11 million, or 17%, primarily from a
change in mix of assets being securitized. Securitization asset
income increased by approximately $1 million, due to a larger
volume of securitized assets under management.
Interest expense increased by $55 million, or 48%, due to a
higher average interest rate on a larger average outstanding debt
balance. Provision for loss on receivables decreased by $1 million
compared 2022 as a result of the release of certain loan specific
reserves, partially offset by provisions on new loans and loan
commitments. Other expenses (compensation and benefits and general
and administrative expenses) increased by $2 million primarily due
to an increase in our employee headcount and compensation and
additional investment in corporate infrastructure.
We recognized $141 million in income using the hypothetical
liquidation at book value method (HLBV) for our equity method
investments in 2023, compared to $31 million of HLBV income in
2022, primarily due to allocations of income in the current period
related to tax credits allocated to other investors in a
grid-connected utility-scale solar project.
We recognized income tax expense of $32 million in 2023,
compared to an income tax expense of $7 million in 2022, driven
primarily by deferred tax expense recognized in the current period
associated with the Board’s 2023 approval of our decision to revoke
our REIT status effective January 1, 2024.
GAAP net income in 2023 was $151 million, compared to $42
million in 2022, driven primarily by the equity method investment
income change discussed above. Distributable earnings in 2023 was
$232 million, or an increase of approximately $46 million from 2022
due primarily to an increase in distributable earnings from a
larger portfolio.
Leverage
The calculation of our fixed-rate debt and leverage ratios as of
December 31, 2023 and December 31, 2022 are shown in the table
below:
December 31, 2023
% of Total
December 31, 2022
% of Total
($ in millions)
($ in millions)
Floating-rate borrowings (1)
$
338
8
%
$
431
14
%
Fixed-rate debt (2)
3,909
92
%
2,545
86
%
Total
$
4,247
100
%
$
2,976
100
%
Leverage (3)
2.0 to 1
1.8 to 1
(1)
Floating-rate borrowings include
borrowings under our floating-rate credit facilities and commercial
paper notes 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 $6.2 billion
as of December 31, 2023, which included approximately $3.0 billion
of behind-the-meter assets and approximately $2.3 billion of
grid-connected assets, with the remainder invested in fuels,
transportation, and nature assets. The following is an analysis of
the performance of our portfolio as of December 31, 2023:
Portfolio Performance
Commercial
Government
1 (1)
2 (2)
3 (3)
1 (1)
Total
(dollars in millions)
Total receivables held-for-investment
$
3,033
$
—
$
—
$
91
$
3,124
Less: Allowance for loss on
receivables
(50
)
—
—
—
(50
)
Net receivables held-for-investment
(4)
2,983
—
—
91
3,074
Receivables held-for-sale
32
—
—
3
35
Investments
5
—
—
2
7
Real estate
111
—
—
—
111
Equity method investments (5)
2,930
36
—
—
2,966
Total
$
6,061
$
36
$
—
$
96
$
6,193
Percent of Portfolio
97
%
1
%
—
%
2
%
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)
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 8% to 10% from 2024 to
2026, relative to the 2023 baseline of $2.23 per share, which is
equivalent to a 2026 midpoint of $2.89 per share. The Company also
expects distributions of annual dividends per share from 2024 to
2026 to be set at a payout ratio of 60-70% of annual distributable
earnings per share. 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. 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
declared a quarterly cash dividend of $0.415 per share of common
stock. This dividend will be paid on April 19, 2024, to
stockholders of record as of April 5, 2024.
Conference Call and Webcast Information
Hannon Armstrong will host an investor conference call today,
Thursday, February 15, 2024, at 5:00 p.m. Eastern time. The
conference call can be accessed live over the phone by dialing
1-877-407-0890 (Toll-Free) or +1-201-389-0918 (toll). Participants
should inform the operator you want to be joined to the HASI call.
The conference call will also be accessible as an audio webcast
with slides on our website. A replay after the event will be
accessible as on-demand webcast on our website.
About HASI
HASI (NYSE: HASI) is a leading climate positive investment firm
that actively partners with clients to deploy real assets that
facilitate the energy transition. With more than $12 billion in
managed assets, our vision is that every investment improves our
climate future. For more information, please visit hasi.com
Forward-Looking Statements:
Some of the information contained in this press release is
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (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. 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.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
For the Three Months Ended
December 31,
For the Year Ended December
31,
2023
2022
2023
2022
Revenue
Interest income
$
62,170
$
36,752
$
207,794
$
134,656
Rental income
2,239
6,529
21,251
26,245
Gain on sale of assets
15,722
5,935
68,637
57,187
Securitization asset income
5,878
7,962
19,259
17,905
Other income
576
1,130
2,930
3,744
Total revenue
86,585
58,308
319,871
239,737
Expenses
Interest expense
50,595
30,524
171,008
115,559
Provision for loss on receivables
(649
)
6,576
11,832
12,798
Compensation and benefits
15,817
13,337
64,344
63,445
General and administrative
6,457
7,238
31,283
29,934
Total expenses
72,220
57,675
278,467
221,736
Income before equity method
investments
14,365
633
41,404
18,001
Income (loss) from equity method
investments
113,545
(27,241
)
140,974
31,291
Income (loss) before income
taxes
127,910
(26,608
)
182,378
49,292
Income tax (expense) benefit
(36,920
)
6,412
(31,621
)
(7,381
)
Net income (loss)
$
90,990
$
(20,196
)
$
150,757
$
41,911
Net income (loss) attributable to
non-controlling interest holders
1,228
(268
)
1,921
409
Net income (loss) attributable to
controlling stockholders
$
89,762
$
(19,928
)
$
148,836
$
41,502
Basic earnings (loss) per common share
$
0.80
$
(0.22
)
$
1.45
$
0.47
Diluted earnings (loss) per common
share
$
0.74
$
(0.22
)
$
1.42
$
0.47
Weighted average common shares
outstanding—basic
111,277,751
89,601,922
101,844,551
87,500,799
Weighted average common shares
outstanding—diluted
129,656,080
89,601,922
109,467,554
90,609,329
HANNON ARMSTRONG SUSTAINABLE
INFRASTRUCTURE CAPITAL, INC.
CONSOLIDATED BALANCE
SHEETS
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
December 31, 2023
December 31, 2022
Assets
Cash and cash equivalents
$
62,632
$
155,714
Equity method investments
2,966,305
1,869,712
Commercial receivables, net of allowance
of $50 million and $41 million, respectively
2,983,170
1,887,483
Government receivables
90,685
102,511
Receivables held-for-sale
35,299
85,254
Real estate
111,036
353,000
Investments
7,165
10,200
Securitization assets, net of allowance of
$3 million and $0, respectively
218,946
177,032
Other assets
77,112
119,242
Total Assets
$
6,552,350
$
4,760,148
Liabilities and Stockholders’
Equity
Liabilities:
Accounts payable, accrued expenses and
other
$
163,305
$
120,114
Credit facilities
400,861
50,698
Commercial paper notes
30,196
192
Term loan facility
727,458
379,742
Non-recourse debt (secured by assets of
$239 million and $632 million, respectively)
160,456
432,756
Senior unsecured notes
2,318,841
1,767,647
Convertible notes
609,608
344,253
Total Liabilities
4,410,725
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, 112,174,279 and 90,837,008 shares
issued and outstanding, respectively
1,122
908
Additional paid in capital
2,381,510
1,924,200
Accumulated deficit
(303,536
)
(285,474
)
Accumulated other comprehensive income
(loss)
13,165
(10,397
)
Non-controlling interest
49,364
35,509
Total Stockholders’ Equity
2,141,625
1,664,746
Total Liabilities and Stockholders’
Equity
$
6,552,350
$
4,760,148
HANNON ARMSTRONG SUSTAINABLE
INFRASTRUCTURE CAPITAL, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(DOLLARS IN THOUSANDS)
Years Ended December
31,
2023
2022
2021
Cash flows from operating
activities
Net income (loss)
$
150,757
$
41,911
$
127,346
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loss on receivables
11,832
12,798
496
Depreciation and amortization
3,127
3,993
3,801
Amortization of financing costs
12,958
11,685
11,316
Equity-based compensation
18,386
20,101
17,047
Equity method investments
(108,025
)
16,403
(94,773
)
Non-cash gain on securitization
(43,542
)
(28,614
)
(48,332
)
(Gain) loss on sale of assets
1,305
(218
)
(720
)
Changes in receivables held-for-sale
51,538
(62,953
)
(22,035
)
Loss on debt extinguishment
—
—
14,584
Changes in accounts payable and accrued
expenses
48,485
18,176
11,313
Change in accrued interest on receivables
and investments
(44,105
)
(15,414
)
(859
)
Other
(3,027
)
(17,638
)
(5,875
)
Net cash provided by operating
activities
99,689
230
13,309
Cash flows from investing
activities
Equity method investments
(869,412
)
(127,867
)
(401,856
)
Equity method investment distributions
received
30,140
110,064
21,777
Proceeds from sales of equity method
investments
—
1,700
300
Purchases of and investments in
receivables
(1,338,860
)
(726,931
)
(553,366
)
Principal collections from receivables
197,784
125,976
148,769
Proceeds from sales of receivables
7,634
5,047
75,582
Purchases of real estate
—
(4,550
)
—
Sales of real estate
—
4,550
—
Purchases of investments and
securitization assets
(14,404
)
(2,329
)
(4,830
)
Proceeds from sales of investments and
securitization assets
—
7,020
15,197
Collateral provided to hedge
counterparties
(93,550
)
—
—
Collateral received from hedge
counterparties
84,950
—
—
Funding of escrow accounts
—
(5,476
)
(12,069
)
Withdrawal from escrow accounts
—
22,757
1,756
Other
2,915
(2,071
)
5,338
Net cash provided by (used in) investing
activities
(1,992,803
)
(592,110
)
(703,402
)
Cash flows from financing
activities
Proceeds from credit facilities
1,177,000
100,000
100,000
Principal payments on credit
facilities
(827,000
)
(150,000
)
(22,441
)
Proceeds from issuance of commercial paper
notes
30,000
—
50,000
Principal payments on commercial paper
notes
—
(50,000
)
—
Proceeds from issuance of non-recourse
debt
—
32,923
—
Principal payments on non-recourse
debt
(21,606
)
(30,581
)
(37,974
)
Proceeds from issuance of term loan
365,000
383,000
—
Principal payments on term loan
(16,478
)
—
—
Proceeds from issuance of senior unsecured
notes
550,000
—
1,000,000
Redemption of senior unsecured notes
—
—
(500,000
)
Proceeds from issuance of convertible
notes
402,500
200,000
—
Principal payments on convertible
notes
(143,748
)
(461
)
—
Purchase of capped calls related to the
issuance of convertible notes
(37,835
)
—
—
Net proceeds of common stock issuances
492,377
188,881
200,641
Payments of dividends and
distributions
(159,786
)
(132,198
)
(113,510
)
Withholdings on employee share vesting
(1,488
)
(3,211
)
(14,018
)
Redemption premium paid
—
—
(14,101
)
Payment of debt issuance costs
(22,894
)
(11,754
)
(17,750
)
Collateral provided to hedge
counterparties
(166,600
)
—
—
Collateral received from hedge
counterparties
176,050
—
—
Other
(3,268
)
(9,820
)
(12
)
Net cash provided by (used in) financing
activities
1,792,224
516,779
630,835
Increase (decrease) in cash, cash
equivalents, and restricted cash
(100,890
)
(75,101
)
(59,258
)
Cash, cash equivalents, and restricted
cash at beginning of period
175,972
251,073
310,331
Cash, cash equivalents, and restricted
cash at end of period
$
75,082
$
175,972
$
251,073
Interest paid
$
138,418
$
98,704
$
108,267
Supplemental disclosure of non-cash
activity
Residual assets retained from
securitization transactions
$
35,483
$
28,614
$
56,432
Equity method investments received upon
deconsolidation of a special purpose entity
144,603
—
—
Issuance of common stock from conversion
of convertible notes
—
7,674
141,810
Deconsolidation of non-recourse debt and
other liabilities
257,746
—
126,139
Deconsolidation of assets pledged for
non-recourse debt
374,608
—
130,513
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. 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 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 income (loss) from equity method
investments as 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 results related to our equity
method investments for the three months and years ended December
31, 2023 and 2022:
Three Months Ended
December 31,
Year Ended December
31,
2023
2022
2023
2022
(in millions)
Income (loss) under GAAP
$
114
$
(27
)
$
141
$
31
Collections of distributable earnings
$
9
$
16
$
39
$
57
Return of capital
7
10
24
101
Cash collected (1)
$
16
$
26
$
63
$
158
(1)
Cash collected during the years ended 2023
and 2022 includes $9 million and $64 million, respectively of debt
issuance proceeds from certain of our equity method investees, the
repayment of which we have guaranteed.
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 months and year ended December 31, 2023 and 2022 in the
tables below.
For the Three Months Ended
December 31, 2023
For the Three Months Ended
December 31, 2022
(dollars in thousands, except per
share amounts)
$
per share
$
per share
Net income attributable to controlling
stockholders (1)
$
89,762
$
0.74
$
(19,928
)
$
(0.22
)
Distributable earnings adjustments:
Reverse GAAP (income) loss from equity
method investments
(113,545
)
27,241
Add equity method investments earnings
43,304
32,802
Equity-based expense
3,409
2,108
Provision for loss on receivables
(649
)
6,576
Amortization of intangibles
213
768
Non-cash provision (benefit) for taxes
36,920
(6,412
)
Current year earnings attributable to
non-controlling interest
1,228
(268
)
Distributable earnings (2)
$
60,642
$
0.53
$
42,887
$
0.47
(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)
Distributable earnings per share for the
three months ended December, 2023 and 2022, are based on
113,847,831 shares and 91,536,442 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 or exchangeable notes, we
will assess the market characteristics around the instrument to
determine if it is more akin to debt or equity based on an
expectation of the likelihood of conversion based on current
conditions. 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.
Year Ended December 31,
2023
Year Ended December 31,
2022
(dollars in thousands, except per
share amounts)
$
per share
$
per share
Net income attributable to controlling
stockholders (1)
$
148,836
$
1.42
$
41,502
$
0.47
Distributable earnings adjustments:
Reverse GAAP (income) loss from equity
method investments
(140,974
)
(31,291
)
Add equity method investments earnings
156,757
131,762
Equity-based expense
19,782
20,101
Provision for loss on receivables (2)
11,832
12,798
Amortization of intangibles
2,473
3,129
Non-cash provision (benefit) for taxes
31,621
7,381
Current year earnings attributable to
non-controlling interest
1,921
409
Distributable earnings (3)
$
232,248
$
2.23
$
185,791
$
2.08
(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 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 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)
Distributable earnings per share for the
years ended December 31, 2023 and 2022, are based on 104,319,803
shares and 89,355,907 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 or exchangeable notes, we will assess the market
characteristics around the instrument to determine if it is more
akin to debt or equity based on an expectation of the likelihood of
conversion based on current conditions. 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 December
31,
Year ended December
31,
2023
2022
2023
2022
(in thousands)
Interest income
$
62,170
$
36,752
$
207,794
$
134,656
Rental income
2,239
6,529
21,251
26,245
GAAP-based investment revenue
64,409
43,281
229,045
160,901
Interest expense
50,595
30,524
171,008
115,559
GAAP-based net investment income
13,814
12,757
58,037
45,342
Equity method earnings adjustment (1)
43,304
32,802
156,757
131,762
Amortization of real estate intangibles
(2)
213
768
2,473
3,061
Distributable net investment
income
$
57,331
$
46,327
$
217,267
$
180,165
(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 December 31, 2023 and December 31,
2022:
As of
December 31, 2023
December 31, 2022
(dollars in millions)
Equity method investments
$
2,966
$
1,870
Commercial receivables, net of
allowance
2,983
1,887
Government receivables
91
103
Receivables held-for-sale
35
85
Real estate
111
353
Investments
7
10
GAAP-Based Portfolio
6,193
4,308
Assets held in securitization trusts
6,060
5,486
Managed assets
$
12,253
$
9,794
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240215516581/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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