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 | |||||||||||
