HASI Announces Second Quarter 2023 Results, Affirms Guidance, Reports Increasing Investment Volume and Yields

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ANNAPOLIS, Md., August 03, 2023--(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 second quarter of 2023.

Business Highlights

  • Largest first half volume of $815m and investment yields >8.5% highlight continued execution of business objectives. Portfolio yield increases to 7.7%

  • Investment pipeline of >$5b and diversification of asset classes provide strong visibility on portfolio growth

  • Announce intention to discontinue electing REIT status in 2024, subject to board approval, to better capture growing investment opportunities while maintaining existing strategy, guidance, dividend policy and tax efficiency

Financial Results

  • Delivered $0.14 GAAP diluted EPS QTD compared with $(0.21) a year ago

  • Delivered $0.53 Distributable EPS QTD compared to $0.60 a year ago

  • Increased Portfolio by 4% in the quarter and 26% in the last twelve months to $4.9 billion. Managed assets grew 15% year over year to $10.7 billion

  • Increased GAAP-based Net Investment Income by 33% year over year to $14.8 million QTD and Distributable Net Investment Income by 13% year over year to $54.0 million QTD

  • Closed $426 million of investments in the second quarter of 2023

  • 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%

  • Declared dividend of $0.395 per share

  • Announce 4% discount on 2023 Dividend Reinvestment and Stock Purchase Plan ("DRIP") for the third quarter

ESG Highlights

  • An estimated 147,000 metric tons of carbon emissions will be avoided annually by our transactions closed this quarter, equating to a CarbonCount® score of 0.31 metric tons per $1,000 invested

"The combination of record investment volumes and higher yields provides us with a strong foundation for continued growth and success in the second half of 2023 and beyond," said Jeffrey A. Lipson, HASI President and Chief Executive Officer.

"As the demand for climate solutions continues to grow in the U.S. and across the world, 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

June 30, 2023

For the three months ended

June 30, 2022

$ in thousands

Per Share

(Diluted)

$ in thousands

Per Share

(Diluted)

GAAP Net Income

$

13,522

$

0.14

$

(18,449

)

$

(0.21

)

Distributable earnings

53,146

0.53

53,524

0.60

For the six months ended

June 30, 2023

For the six months ended

June 30, 2022

$ in thousands

Per Share

(Diluted)

$ in thousands

Per Share

(Diluted)

GAAP Net Income

$

37,628

$

0.39

$

26,896

$

0.30

Distributable earnings

102,804

1.07

99,257

1.13

Financial Results

"Our strong liquidity position and second quarter capital raising activities positions us well to capitalize on future investments with higher yields," said Marc Pangburn, HASI Chief Financial Officer. "With our equity capital raise completed in May, we can now focus on our diversified debt funding platform."

Comparison of the quarter ended June 30, 2023 to the quarter ended June 30, 2022

Total revenue increased by $12 million, driven by $16 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 a $5 million decrease in gain on sale driven by a change in the mix and volume of assets being securitized.

Interest expense increased $11 million primarily due to a larger average outstanding debt balance and a higher average interest rate. We recorded a $1 million provision for loss on receivables as a result of loans and loan commitments made during the quarter, offset partially by the release of a loan specific reserve where we collected the loan in full. Other expenses (compensation and benefits and general and administrative expenses) decreased by approximately $6 million primarily due to higher share-based compensation recognized in the prior year for certain awards to employees eligible for retirement, offset partially by a one-time transaction related payment.

We recognized income of $2 million using the hypothetical liquidation at book value method (HLBV) for our equity method investments in the second quarter of 2023, compared to loss of $20 million for the same period in 2022. The second quarter of 2022 result was primarily due to the impact of increasing power prices and the resulting unrealized mark to market losses on economic hedges used by some of our projects to reduce the impact of power price fluctuations.

Income tax benefit decreased by approximately $3 million in the second quarter of 2023 compared to the same period in 2022 due to an increase in GAAP earnings.

GAAP net income (loss) in the second quarter of 2023 was $14 million, compared to $(18) million in the same period in 2022. Distributable earnings in the second quarter of 2023 was approximately $53 million, largely in line with the same period in 2022.

Leverage

The calculation of our fixed-rate debt and leverage ratios as of June 30, 2023 and December 31, 2022 are shown in the table below:

June 30, 2023

% of Total

December 31, 2022

% of Total

($ in millions)

($ in millions)

Floating-rate borrowings (1)

$

108

3

%

$

431

14

%

Fixed-rate debt (2)

3,159

97

%

2,545

86

%

Total

$

3,267

100

%

$

2,976

100

%

Leverage (3)

1.6 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)

Included in Fixed-rate debt is the present notional value of debt that is hedged using interest rate swaps and collars. 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 $4.9 billion as of June 30, 2023, which included approximately $2.5 billion of behind-the-meter assets and approximately $2.1 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 June 30, 2023:

Portfolio Performance

Government

Commercial

1 (1)

1 (1)

2 (2)

3 (3)

Total

(dollars in millions)

Total receivables

97

2,178

—

—

2,275

Less: Allowance for loss on receivables

—

(44

)

—

—

(44

)

Net receivables (4)

97

2,134

—

—

2,231

Receivables held-for-sale

3

2

—

—

5

Investments

2

8

—

—

10

Real estate

—

351

—

—

351

Equity method investments (5)

—

2,276

23

—

2,299

Total

$

102

$

4,771

$

23

$

—

$

4,896

Percent of Portfolio

2

%

98

%

—

%

—

%

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 October 11, 2023, to stockholders of record as of October 4, 2023.

2024 REIT Election

As a result of the increasing non-REIT qualifying assets in our pipeline and expected future growth opportunities in part due to the Inflation Reduction Act, we now expect to discontinue our REIT status for 2024. We do not expect this plan to change our investment strategy, guidance or our dividend policy. This plan is subject to board and other approvals and we will provide further updates late in 2023.

Conference Call and Webcast Information

HASI will host an investor conference call today, Thursday, August 3, 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 June 30,

For the Six Months Ended June 30,

2023

2022

2023

2022

Revenue

Interest income

$

48,222

$

33,358

$

91,330

$

63,601

Rental income

6,487

6,609

12,973

13,108

Gain on sale of receivables and investments

14,791

19,664

30,510

36,762

Securitization income

4,330

2,798

7,762

5,540

Other income

504

374

860

2,269

Total revenue

74,334

62,803

143,435

121,280

Expenses

Interest expense

39,903

28,827

77,118

55,479

Provision for loss on receivables

806

8,064

2,689

8,685

Compensation and benefits

13,862

22,246

32,232

37,176

General and administrative

10,095

7,408

18,117

14,546

Total expenses

64,666

66,545

130,156

115,886

Income before equity method investments

9,669

(3,742

)

13,279

5,394

Income (loss) from equity method investments

2,252

(19,585

)

24,670

27,981

Income (loss) before income taxes

11,921

(23,327

)

37,949

33,375

Income tax (expense) benefit

1,601

4,789

171

(6,209

)

Net income (loss)

$

13,522

$

(18,538

)

$

38,120

$

27,166

Net income (loss) attributable to non-controlling interest holders

—

(89

)

492

270

Net income (loss) attributable to controlling stockholders

$

13,522

$

(18,449

)

$

37,628

$

26,896

Basic earnings (loss) per common share

$

0.14

$

(0.21

)

$

0.39

$

0.31

Diluted earnings (loss) per common share

$

0.14

$

(0.21

)

$

0.39

$

0.30

Weighted average common shares outstanding—basic

96,996,805

87,049,777

94,065,873

86,316,464

Weighted average common shares outstanding—diluted

99,989,158

87,049,777

97,075,329

89,541,858

HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

June 30, 2023

December 31, 2022

Assets

Cash and cash equivalents

$

126,907

$

155,714

Equity method investments

2,298,962

1,869,712

Commercial receivables, net of allowance of $44 million and $41 million, respectively

2,134,154

1,887,483

Government receivables

96,558

102,511

Receivables held-for-sale

5,244

85,254

Real estate

351,455

353,000

Investments

10,213

10,200

Securitization assets

203,743

177,032

Other assets

147,993

119,242

Total Assets

$

5,375,229

$

4,760,148

Liabilities and Stockholders’ Equity

Liabilities:

Accounts payable, accrued expenses and other

$

114,446

$

120,114

Credit facilities

282,859

50,698

Green commercial paper notes

100,044

192

Term loan facility

374,996

379,742

Non-recourse debt (secured by assets of $599 million and $632 million, respectively)

389,950

432,756

Senior unsecured notes

1,770,047

1,767,647

Convertible notes

348,982

344,253

Total Liabilities

3,381,324

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, 106,769,719 and 90,837,008 shares issued and outstanding, respectively

1,068

908

Additional paid in capital

2,283,255

1,924,200

Accumulated deficit

(326,413

)

(285,474

)

Accumulated other comprehensive income (loss)

(8,003

)

(10,397

)

Non-controlling interest

43,998

35,509

Total Stockholders’ Equity

1,993,905

1,664,746

Total Liabilities and Stockholders’ Equity

$

5,375,229

$

4,760,148

HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

(UNAUDITED)

Six Months Ended June 30,

2023

2022

Cash flows from operating activities

Net income (loss)

$

38,120

$

27,166

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Provision for loss on receivables

2,689

8,685

Depreciation and amortization

1,862

1,925

Amortization of financing costs

6,318

5,632

Equity-based compensation

11,478

15,933

Equity method investments

(6,355

)

(12,186

)

Non-cash gain on securitization

(14,603

)

(14,952

)

(Gain) loss on sale of receivables and investments

1,305

(218

)

Changes in receivables held-for-sale

51,538

(51,649

)

Changes in accounts payable and accrued expenses

(9,733

)

3,666

Change in accrued interest on receivables and investments

(14,518

)

(7,334

)

Other

(2,375

)

(3,558

)

Net cash provided by (used in) operating activities

65,726

(26,890

)

Cash flows from investing activities

Equity method investments

(429,944

)

(136,582

)

Equity method investment distributions received

4,203

36,381

Proceeds from sales of equity method investments

—

1,700

Purchases of and investments in receivables

(317,805

)

(264,618

)

Principal collections from receivables

74,328

87,799

Proceeds from sales of receivables

7,634

5,047

Purchases of real estate

—

(4,550

)

Purchases of investments and securitization assets

(12,969

)

(2,329

)

Proceeds from sales of investments and securitization assets

—

7,020

Withdrawal from escrow accounts

—

15,156

Posting of hedge collateral

(13,380

)

—

Other

(473

)

(574

)

Net cash provided by (used in) investing activities

(688,406

)

(255,550

)

Cash flows from financing activities

Proceeds from credit facilities

467,000

100,000

Principal payments on credit facilities

(235,000

)

—

Principal payments on term loan

(4,788

)

—

Proceeds from issuance of commercial paper notes

100,000

50,000

Principal payments on non-recourse debt

(10,069

)

(13,529

)

Proceeds from issuance of convertible notes

—

200,000

Net proceeds of common stock issuances

357,594

77,974

Payments of dividends and distributions

(72,129

)

(64,930

)

Withholdings on employee share vesting

(1,433

)

(3,161

)

Payment of financing costs

(921

)

(8,241

)

Other

(1,768

)

(2,545

)

Net cash provided by (used in) financing activities

598,486

335,568

Increase (decrease) in cash, cash equivalents, and restricted cash

(24,194

)

53,128

Cash, cash equivalents, and restricted cash at beginning of period

175,972

251,073

Cash, cash equivalents, and restricted cash at end of period

$

151,778

$

304,201

Interest paid

$

68,167

$

48,402

Supplemental disclosure of non-cash activity

Residual assets retained from securitization transactions

$

26,020

$

14,952

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. 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 six months ended June 30, 2023 and 2022.

Three Months Ended

June 30,

Six Months Ended

June 30,

2023

2022

2023

2022

(in millions)

Income (loss) under GAAP

$

2

$

(20

)

$

25

$

28

Collections of Distributable earnings

$

9

$

13

$

18

$

21

Return of capital

2

26

5

31

Cash collected

$

11

$

39

$

23

$

52

Distributable earnings does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), or an indication of our cash flow from operating activities (determined in accordance with GAAP), or a measure of our liquidity, or an indication of funds available to fund our cash needs, including our ability to make cash distributions. In addition, our methodology for calculating distributable earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported distributable earnings may not be comparable to similar metrics reported by other companies.

Reconciliation of our GAAP Net Income to Distributable Earnings

We have calculated our distributable earnings and provided a reconciliation of our GAAP net income to distributable earnings for the three and six months ended June 30, 2023 and 2022 in the tables below.

For the three months

ended June 30, 2023

For the three months

ended June 30, 2022

(dollars in thousands, except per share amounts)

$

per share

$

per share

Net income attributable to controlling stockholders (1)

$

13,522

$

0.14

$

(18,449

)

$

(0.21

)

Distributable earnings adjustments:

Reverse GAAP (income) loss from equity method investments

(2,252

)

19,585

Add equity method investments earnings

38,461

36,048

Equity-based expense

3,438

12,393

Provision for loss on receivables

806

8,064

Amortization of intangibles (2)

772

761

Non-cash provision (benefit) for income taxes

(1,601

)

(4,789

)

Net income attributable to non-controlling interest

—

(89

)

Distributable earnings (3)

$

53,146

$

0.53

$

53,524

$

0.60

(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 June 30, 2023 and 2022, are based on 99,581,898 shares and 88,994,421 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.

For the six months ended

June 30, 2023

For the six months ended

June 30, 2022

(dollars in thousands, except per share amounts)

$

per share

$

per share

Net income attributable to controlling stockholders (1)

$

37,628

$

0.39

$

26,896

$

0.30

Distributable earnings adjustments:

Reverse GAAP (income) loss from equity method investments

(24,670

)

(27,981

)

Add equity method investments earnings

72,419

67,645

Equity-based expense

12,873

15,933

Provision for loss on receivables

2,689

8,685

Amortization of intangibles (2)

1,544

1,600

Non-cash provision (benefit) for income taxes

(171

)

6,209

Net income attributable to non-controlling interest

492

270

Distributable earnings (3)

$

102,804

$

1.07

$

99,257

$

1.13

(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 June 30, 2023 and 2022, are based on 96,441,450 shares and 88,100,480 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.

Distributable Net Investment Income

We have a portfolio of debt and equity investments in climate change solutions. We calculate distributable net investment income by adjusting GAAP-based net investment income for those distributable earnings adjustments described above which impact investment income. We believe that this measure is useful to investors as it shows the recurring income generated by our Portfolio after the associated interest cost of debt financing. Our management also uses distributable net investment income in this way. Our non-GAAP distributable net investment income measure may not be comparable to similarly titled measures used by other companies. The following is a reconciliation of our GAAP-based net investment income to our distributable net investment income:

Three months ended June 30,

Six months ended June 30,

2023

2022

2023

2022

(in thousands)

Interest income

$

48,222

$

33,358

$

91,330

$

63,601

Rental income

6,487

6,609

12,973

13,108

GAAP-based investment revenue

54,709

39,967

104,303

76,709

Interest expense

39,903

28,827

77,118

55,479

GAAP-based net investment income

14,806

11,140

27,185

21,230

Equity method earnings adjustment (1)

38,461

36,048

72,419

67,645

Amortization of real estate intangibles (2)

772

761

1,544

1,532

Distributable net investment income

$

54,039

$

47,949

$

101,148

$

90,407

(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 June 30, 2023 and December 31, 2022:

As of

June 30, 2023

December 31, 2022

(dollars in millions)

Equity method investments

$

2,299

$

1,870

Commercial receivables, net of allowance

2,134

1,887

Government receivables

97

103

Receivables held-for-sale

5

85

Real estate

351

353

Investments

10

10

GAAP-Based Portfolio

4,896

4,308

Assets held in securitization trusts

5,793

5,486

Managed assets

$

10,689

$

9,794

View source version on businesswire.com: https://www.businesswire.com/news/home/20230803425566/en/

Contacts

Investor:

Neha Gaddam
investors@hasi.com
410-571-6189

Media:

Gil Jenkins
media@hasi.com
443-321-5753

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