Energy, Automobile, EV, Renewable News | HASI Announces First Quarter 2023 Results and Declares Dividend,

HASI Announces First Quarter 2023 Results and Declares Dividend,

May 5, 2023

Affirms 10-13% Annualized Distributable EPS Growth and 5-8% Dividend Growth Guidance

ANNAPOLIS, Md.–(BUSINESS WIRE)–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 first quarter of 2023.

Business Highlights

Highest-ever first quarter volume and increased pipeline of investment opportunities
15% annual total shareholder return over first ten years as a public company, outperforming the S&P 500¹
Conducted successful Investor Day providing detailed description of the business
Completed leadership transition with Jeff W. Eckel assuming the role of Executive Chair, Jeffrey A. Lipson becoming the President and CEO, and Marc Pangburn assuming the role of CFO

Financial Highlights

Delivered $0.26 GAAP diluted EPS compared with $0.51 a year ago
Delivered $0.53 Distributable EPS compared to $0.52 a year ago
Increased Portfolio by 9% in the quarter and 25% in the last twelve months to $4.7 billion. Managed assets grew 15% year over year to $10.4 billion
Increased GAAP-based Net Investment Income of $12.4 million by 23% and Distributable Net Investment Income of $47.1 million by 11% year over year
Closed $389 million of investments in the first quarter of 2023, up 18% from a year ago
Declared dividend of $0.395 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

¹ Total shareholder return since IPO based on the closing price 4/18/13 to 4/18/23, which marks the 10th anniversary

ESG Highlights

An estimated 92,000 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
Released 2022 HASI Impact Report that details our approach, targets and performance across material ESG topics

“We completed another quarter of strong performance, capping ten years of consistent success,” said Jeffrey A. Lipson, HASI President and Chief Executive Officer. “Our business is poised for further growth as we commence our second decade as a public company.”

A summary of our results is shown in the table below:

	For the three months ended March 31, 2023				For the three months ended March 31, 2022
	$ in thousands		Per Share (Diluted)		$ in thousands		Per Share (Diluted)
GAAP Net Income	$	24,106	$	0.26	$	45,346	$	0.51
Distributable earnings		49,658		0.53		45,734		0.52

Financial Results

“We have maintained substantial liquidity and ongoing access to capital at costs which provide investment margins that support our short and long-term profitability targets,” said Marc Pangburn, HASI Chief Financial Officer.

Comparison of the quarter ended March 31, 2023 to the quarter ended March 31, 2022

Total revenue increased by $11 million, driven by $14 million in higher interest and securitization income from larger portfolio and managed assets balances. There was a $3 million decrease in gain on sale and other income, driven by a change in the mix and volume of assets being securitized as well as lower fee generating opportunities.

Interest expense increased $11 million primarily due to a larger average outstanding debt balance and a higher average interest rate. We recorded a $2 million provision for loss on receivables as a result of loans and loan commitments made during the quarter. Other expenses (compensation and benefits and general and administrative expenses) increased by approximately $4 million primarily due to share-based compensation recognized upon the grant of certain awards for employees eligible for retirement as well as additional investment in corporate infrastructure.

We recognized income of $22 million using the hypothetical liquidation at book value method (HLBV) for our equity method investments in the first quarter of 2023, compared to income of $48 million for the same period in 2022, primarily due to fewer tax attributes recognized by our co-investors in this quarter which decreases our HLBV allocation of earnings.

Income tax expense decreased by approximately $10 million in the first quarter of 2023 compared to the same period in 2022 due to a decrease in GAAP earnings.

GAAP net income (loss) in the first quarter of 2023 was $24 million, compared to $45 million in the same period in 2022. Distributable earnings in the first quarter of 2023 was approximately $50 million, or an increase of approximately $4 million from the same period in 2022 due primarily to new assets added to our portfolio.

Leverage

The calculation of our fixed-rate debt and leverage ratios as of March 31, 2023 and December 31, 2022 are shown in the table below:

	March 31, 2023		% of Total		December 31, 2022		% of Total
	($ in millions)				($ in millions)
Floating-rate borrowings ⁽¹⁾	$	439	13	%	$	431	14	%
Fixed-rate debt ⁽²⁾		2,921	87	%		2,545	86	%
Total	$	3,360	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 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 present notional value of debt that is hedged using interest rate swaps. 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 $4.7 billion as of March 31, 2023, which included approximately $2.5 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 March 31, 2023:

	Portfolio Performance
	Government			Commercial
	1⁽¹⁾			1⁽¹⁾			2⁽²⁾			3⁽³⁾			Total
	(dollars in millions)
Total receivables		98			1,995			—			11			2,104
Less: Allowance for loss on receivables		—			(38	)		—			(5	)		(43	)
Net receivables ⁽⁴⁾		98			1,957			—			6			2,061
Receivables held-for-sale		—			17			—			—			17
Investments		2			8			—			—			10
Real estate		—			352			—			—			352
Equity method investments ⁽⁵⁾		—			2,227			23			—			2,250
Total	$	100		$	4,561		$	23		$	6		$	4,690
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.
(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 July 12, 2023, to stockholders of record as of July 5, 2023.

Conference Call and Webcast Information

HASI will host an investor conference call today, Thursday, May 4, 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 $10 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 March 31,
	2023			2022
Revenue
Interest income	$	43,108		$	30,242
Rental income		6,487			6,499
Gain on sale of receivables and investments		15,719			17,099
Securitization income		3,432			2,741
Other income		355			1,895
Total revenue		69,101			58,476
Expenses
Interest expense		37,216			26,652
Provision for loss on receivables		1,883			621
Compensation and benefits		18,369			14,929
General and administrative		8,022			7,138
Total expenses		65,490			49,340
Income before equity method investments		3,611			9,136
Income (loss) from equity method investments		22,418			47,566
Income (loss) before income taxes		26,029			56,702
Income tax (expense) benefit		(1,431	)		(10,999	)
Net income (loss)	$	24,598		$	45,703
Net income (loss) attributable to non-controlling interest holders		492			357
Net income (loss) attributable to controlling stockholders	$	24,106		$	45,346
Basic earnings (loss) per common share	$	0.26		$	0.53
Diluted earnings (loss) per common share	$	0.26		$	0.51
Weighted average common shares outstanding—basic		91,102,374			85,583,152
Weighted average common shares outstanding—diluted		94,129,174			89,052,167

HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	March 31, 2023			December 31, 2022
Assets
Cash and cash equivalents	$	142,489		$	155,714
Equity method investments		2,249,684			1,869,712
Commercial receivables, net of allowance of $43 million and $41 million, respectively		1,962,793			1,887,483
Government receivables		97,968			102,511
Receivables held-for-sale		16,603			85,254
Real estate		352,227			353,000
Investments		10,499			10,200
Securitization assets		193,378			177,032
Other assets		114,229			119,242
Total Assets	$	5,139,870		$	4,760,148
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable, accrued expenses and other	$	120,968		$	120,114
Credit facilities		358,728			50,698
Green commercial paper notes		99,899			192
Term loan facility		380,102			379,742
Non-recourse debt (secured by assets of $602 million and $632 million, respectively)		395,002			432,756
Senior unsecured notes		1,779,749			1,767,647
Convertible notes		346,607			344,253
Total Liabilities		3,481,055			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, 91,657,822 and 90,837,008 shares issued and outstanding, respectively		917			908
Additional paid in capital		1,946,904			1,924,200
Accumulated deficit		(297,708	)		(285,474	)
Accumulated other comprehensive income (loss)		(32,820	)		(10,397	)
Non-controlling interest		41,522			35,509
Total Stockholders’ Equity		1,658,815			1,664,746
Total Liabilities and Stockholders’ Equity	$	5,139,870		$	4,760,148

HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities
Net income (loss)	$	24,598		$	45,703
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loss on receivables		1,883			621
Depreciation and amortization		926			987
Amortization of financing costs		3,250			2,716
Equity-based compensation		7,898			3,540
Equity method investments		(11,415	)		(38,564	)
Non-cash gain on securitization		(6,882	)		(4,532	)
(Gain) loss on sale of receivables and investments		1,305			29
Changes in receivables held-for-sale		37,249			(43,482	)
Changes in accounts payable and accrued expenses		936			11,709
Change in accrued interest on receivables and investments		(12,231	)		(2,925	)
Other		1,287			(7,745	)
Net cash provided by (used in) operating activities		48,804			(31,943	)
Cash flows from investing activities
Equity method investments		(362,831	)		(78,717	)
Equity method investment distributions received		1,469			4,217
Proceeds from sales of equity method investments		—			1,700
Purchases of and investments in receivables		(96,842	)		(35,018	)
Principal collections from receivables		22,741			19,850
Proceeds from sales of receivables		7,634			—
Purchases of real estate		—			(4,550	)
Posting of hedge collateral		(20,350	)		—
Other		(548	)		(2,975	)
Net cash provided by (used in) investing activities		(448,727	)		(95,493	)
Cash flows from financing activities
Proceeds from credit facilities		312,000			—
Principal payments on credit facilities		(5,000	)		—
Proceeds from issuance of commercial paper notes		100,000			25,000
Principal payments on non-recourse debt		(5,140	)		(5,577	)
Net proceeds of common stock issuances		23,256			50,011
Payments of dividends and distributions		(35,142	)		(31,810	)
Withholdings on employee share vesting		(1,317	)		(2,211	)
Payment of financing costs		—			(3,421	)
Other		(503	)		(461	)
Net cash provided by (used in) financing activities		388,154			31,531
Increase (decrease) in cash, cash equivalents, and restricted cash		(11,769	)		(95,905	)
Cash, cash equivalents, and restricted cash at beginning of period		175,972			251,073
Cash, cash equivalents, and restricted cash at end of period	$	164,203		$	155,168
Interest paid	$	20,343		$	13,145
Supplemental disclosure of non-cash activity
Residual assets retained from securitization transactions	$	5,330		$	4,532
Issuance of common stock from conversion of Convertible Notes		—			7,674
Deconsolidation of non-recourse debt		32,923			—
Deconsolidation of assets pledged for non-recourse debt		31,371			—

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.

Contacts

Investor Contact:

Neha Gaddam

investors@hasi.com
410-571-6189

Media Contact:

Gil Jenkins

media@hasi.com
443-321-5753

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