HASI Announces Second Quarter 2024 Results

02 Aug HASI Announces Second Quarter 2024 Results

ANNAPOLIS, Md.–(BUSINESS WIRE)–HA Sustainable Infrastructure Capital, Inc. (“HASI,” “we,” “our” or the “Company”) (NYSE: HASI), a leading investor in climate solutions, today reported results for the second quarter of 2024.

Key Highlights

• New strategic partnership launched with KKR targeting co-investment of $2 billion over 18 months in sustainable infrastructure projects.
• Second investment grade rating enabled our first investment grade bond issuance—$700 million of senior secured notes due 2034 with a coupon of 6.375%.
• Managed assets increased 21% year-over-year to $13.0 billion and our Portfolio grew 27% year-over-year to $6.2 billion.
• Closed transactions of $260 million in the second quarter of 2024 and $823 million in the first half of 2024, which is consistent with the first half of 2023.
• Yields on new portfolio investments through the first half of 2024 were greater than 10.5%, with total portfolio yield over 8.0% at the end of the quarter.
• QTD GAAP EPS of $0.23 (compared with $0.14 a year ago), Adjusted EPS of $0.63 (compared to $0.53) a year ago and quarterly dividend declared of $0.415 per share.

“HASI achieved two major milestones in the second quarter of 2024: we inaugurated CCH1, our strategic partnership with KKR, and we received a second investment grade rating and priced our first investment grade bond,” said Jeffrey A. Lipson, president and CEO of HASI. “With data centers, domestic manufacturing and EVs launching a new era of growth in U.S. electricity demand, and clean energy as a major part of the supply, HASI is now optimally positioned to capitalize on this growth as the preeminent pure play investor in the energy transition.”

A summary of our financial results is detailed in the table below:

“We continue to see an attractive investment environment with greater than 10.5% yields on new portfolio investments and new cost of debt less than 6.5%,” said Marc Pangburn, Chief Financial Officer of HASI. “In addition, our investment grade status will enable our largest source of capital to be lower cost, longer term, and more resilient.”

Sustainability and Impact Highlights

During the second quarter of 2024, HASI closed new funding commitments for more than 300 MW of solar and wind power assets. As a result, our portfolio has invested in more than 10 GW of solar and wind power assets and 5.8 million MM BTUs of renewable natural gas capacity as of June 30, 2024. In aggregate, these projects are generating more than 20 TWh of renewable energy annually. An estimated 60,000 metric tons of carbon emissions will be avoided annually by our transactions closed this quarter, equating to a CarbonCount^® score of 0.26 metric tons per $1,000 invested. All in, including assets we have not retained in our portfolio, our managed assets are avoiding approximately 8 million metric tons of carbon emissions annually, based on our proprietary CarbonCount score.

Investment Activity

We closed new investments totaling approximately $260 million in the second quarter, bringing total closed transactions to more than $820 million for the first half of 2024. Weighted average yields on our new investments have been underwritten at greater than 10.5% through the first half of the year.

As of June 30, 2024, our managed assets totaled $13.0 billion, up 21% year-over-year, and our portfolio of assets on our balance sheet was approximately $6.2 billion, up 27% year-over-year. Our portfolio remains well-diversified across established clean energy end markets with approximately $3.0 billion of behind-the-meter assets and approximately $2.4 billion of grid-connected assets, with the remainder in fuels, transport, and nature assets.

The following is an analysis of the performance ratings of our portfolio as of June 30, 2024:

Financial Results

• GAAP Net Investment Income was $3.3 million in 2Q24, compared to $14.8 million a year ago, while Adjusted Net Investment Income in 2Q24 grew 16% year over year to $62.5 million.
• Securitization Income was $5 million in 2Q24, compared to $4 million in 2Q23, and Gain on Sale of Receivables and Investment was $26 million in 2Q24, compared to $15 million in 2Q23
• GAAP diluted EPS of $0.23 in 2Q24 compared with $0.14 a year ago, and Adjusted EPS of $0.63 in 2Q24 compared to $0.53 a year ago

GAAP Earnings and EPS

Total revenue of $95 million in the second quarter of 2024 grew by 27% year-over-year, from $74 million in the second quarter of 2023, driven by an increase of $16 million in interest and securitization income due to both higher managed assets and a higher average yield. In addition, gain on sale was $26 million in the second quarter of 2024, compared to $15 million in the second quarter of 2023 driven by a change in the mix and volume of assets being securitized. The rotation of land assets in 2024 and 2023 resulted in a reduction of rental income of $6 million.

Interest expense of $60 million increased $20 million year-over-year, primarily due to a larger average outstanding debt balance and a higher average interest rate. We recorded a $4 million benefit for loss on receivables and securitization assets, due primarily to a reduction in our reserve related to a large one-time principal prepayment on an outstanding loan and the contribution of portfolio assets into CCH1. Compensation and benefits and general and administrative expenses increased by a combined $5 million, primarily due to the growth of the company and a change in our retirement policy, which resulted in the acceleration of share-based compensation expense.

Income from equity method investments increased by approximately $25 million in the second quarter of 2024 compared to the same period in 2023 primarily due to allocations of income in the current period related to tax credits. Income tax expense increased by approximately $12 million due to higher pre-tax book income.

GAAP net income (loss) to controlling shareholders in the second quarter of 2024 was $27 million, compared to $14 million in the same period in 2023.

Adjusted Earnings and EPS

In addition to our GAAP results, we also present non-GAAP measures to enhance the usefulness of financial information and allow for greater transparency with respect to key metrics used by management internally for planning, forecasting, and evaluating our operating performance.

GAAP net investment income in the second quarter of 2024 was $3 million. This includes all of our interest expense but only includes the portion of our investment returns that is reflected in GAAP interest income and rental income revenue. It does not include the portion of our investment returns recognized through our Equity Method investments. Thus, GAAP net investment income fails to capture all of the economic returns achieved by our Portfolio.

Given that GAAP net investment income, and in turn GAAP net income, does not reflect such economic returns, our non-GAAP measures Adjusted net investment income and Adjusted Earnings are utilized by management to monitor and evaluate our business as we believe they are a helpful indicator of the underlying economics of our investments. We also believe they provide investors and analysts with useful supplemental information to understand the financial performance of our business and to analyze financial and business trends and enables a useful comparison of financial results between periods.

Adjusted net investment income is calculated using an Equity Method Investments Earnings Adjustment. The Equity Method investments Earnings Adjustment is calculated using 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 (based upon the underwritten investment rate) and a return of the capital we have committed to our renewable energy equity method investments, as adjusted to reflect the performance of the project and the cash distributed.

Adjusted net investment income was $63 million in the second quarter of 2024, compared to $54 million in the second quarter of 2023.

Adjusted Earnings is calculated using the same Equity Method Investments Earnings Adjustment that is used to calculate adjusted net investment income. Adjusted earnings excludes the recognition of income using HLBV, which uses profit and loss allocation that may differ materially from the agreed upon allocations of a project’s cash flows, and in turn reflects income that can differ substantially from the economic returns achieved by a project.

Adjusted Earnings also excludes non-cash equity compensation expense, provisions for loss on receivables, amortization of intangibles, non-cash provision (benefit) for taxes, and earnings attributable to non-controlling interests, and also makes an adjustment to eliminate our portion of fees we earn from related-party co-investment structures. Please refer to the Explanatory Notes in this press release for a more detailed explanation of Adjusted Earnings.

Adjusted earnings in the second quarter of 2024 was approximately $74 million, an increase of $21 million over the same period in 2023, primarily driven by growth in adjusted net investment income due to a larger portfolio and increased gain on sale income. Adjusted EPS was $0.63, compared to $0.53 a year ago.

Leverage

As of June 30, 2024, cash and cash equivalents were $146 million and total debt outstanding was $4,113 million. Our debt-to-equity ratio at June 30, 2024, was 1.8x, within our target range of 1.5 to 2.0 and below our internal limit of 2.5x.

Our weighted average interest cost, as measured by GAAP interest expense divided by average debt outstanding, was 5.6% in the second quarter of 2024, as compared to 4.8% in the second quarter of 2023.

The calculation of our fixed-rate debt and leverage ratios as of June 30, 2024 and December 31, 2023 are shown in the table below:

Guidance

We confirm our guidance for both adjusted earnings per share and dividend payout ratio. We continue to expect annual adjusted earnings per share to 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. We also expect distributions of annual dividends per share from 2024 to 2026 at a payout ratio of between 60% and 70% of annual adjusted earnings per share. This guidance reflects our judgments and estimates of (i) yield on our existing portfolio; (ii) yield on incremental portfolio investments, inclusive of our 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 our forecasted operations; and (vi) the general interest rate and market environment. In addition, distributions are subject to approval by our Board of Directors on a quarterly basis. We have not provided GAAP guidance as discussed in the Forward-Looking Statements section of this press release.

Dividend

Finally, our Board of Directors today approved a quarterly cash dividend of $0.415 per share of common stock. This dividend will be paid on October 18, 2024, to stockholders of record as October 4, 2024.

Conference Call and Webcast Information

HASI will host an investor conference call today, Thursday, August 1, 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, 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 adjusted earnings guidance.

Estimated carbon savings are calculated using the estimated kilowatt hours, gallons of fuel oil, million British thermal units of natural gas and gallons of water saved as appropriate, for each project. The energy savings are converted into an estimate of metric tons of CO2 equivalent emissions based upon the project’s location and the corresponding emissions factor data from the U.S. Government and International Energy Agency. Portfolios of projects are represented on an aggregate basis.

Contacts

Investor Contact:

Aaron Chew

investors@hasi.com
240-343-7526

Media Contact:

Conor Fryer

media@hasi.com
443-321-5754

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