ANNAPOLIS, Md., Nov. 1, 2017 /PRNewswire/ -- Hannon
Armstrong Sustainable Infrastructure Capital, Inc. ("Hannon Armstrong," "we," "our" or the "Company")
(NYSE: HASI), a leading investor in sustainable infrastructure,
including energy efficiency and renewable energy, today reported
earnings as shown in the table below:
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
2017
|
|
For the Three Months Ended September
30, 2016
|
|
$ in thousands
|
|
Per Share
|
|
$ in thousands
|
|
Per Share
|
GAAP Net
Income
|
$
7,933
|
|
$
0.14
|
|
$
3,329
|
|
$
0.07
|
Core Earnings
(1)
|
$
16,362
|
|
$
0.31
|
|
$
12,486
|
|
$
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September
30, 2017
|
|
For the Nine Months Ended September
30, 2016
|
|
$ in
thousands
|
|
Per Share
|
|
$ in
thousands
|
|
Per Share
|
GAAP Net
Income
|
$
27,472
|
|
$
0.52
|
|
$
10,244
|
|
$
0.23
|
Core Earnings
(1)
|
$
49,724
|
|
$
0.96
|
|
$
37,405
|
|
$
0.92
|
"Given rising interest rates and a flattening yield curve, we
have moved to fix out rates, extend maturities and increase our
leverage. With transactions either closed, locked or
committed, we will have approximately 94% of our debt at fixed
interest rates and leverage above 2:1 to 1. The
transactions taken together further strengthen our balance sheet
and significantly improve liquidity," said President and CEO,
Jeffrey Eckel. "In light
of these steps, we are now expecting the moderately higher
borrowing costs will result in our annual core earnings per share
to be at, or a bit below, the low point of our previously announced
guidance range." He went on to say: "Our focus for the
remainder of the year will be on converting our pipeline into
completed transactions and continuing to build our pipeline to
support a successful 2018."
Highlights
- Approximately $645 million of
additional fixed-rate debt – leading to approximately 94%
fixed-rate debt level based on the following transactions
-
- 3.57%, $134 million, 24 year
fully amortizing debt closed in September
- 3.86%, $164 million, 25 year
fully amortizing debt closed in October
- 4.125%, $150 million debut
convertible notes with a 20.0% conversion premium, closed in
August
-
- the conversion of approximately $198
million of floating-rate debt to amortizing fixed-rate debt
with anticipated closing in the fourth quarter
- Assigned our first investment grade corporate rating of BBB
(low) LT Issuer Rating by DBRS, Inc.
- Debt to equity ratio of 2.1 to 1 as of September 30, 2017
- Grew balance sheet to more than $2.3
billion, widely diversified across approximately 170
separate investments
- Closed approximately $751 million
of transactions year to date 2017, compared to approximately
$712 million in the same period in
2016
- Delivered $0.14 GAAP EPS in the
third quarter of 2017, compared to $0.07 in the third quarter 2016
- Delivered $0.31 Core EPS in the
third quarter 2017, compared to $0.29
in the third quarter 2016
- Declared $0.33 per share
quarterly dividend, for an annualized yield of 5.5% based on
our closing stock price of $24.06 on October 31, 2017
- Diversified pipeline of over $2.5
billion
"While we estimate the difference in core earnings, between the
low end of our targeted fixed debt range of 60% and our
approximately 94% fixed we expect in Q4, is up to $0.10 per year, we believe that reducing our
exposure to rising interest rates was prudent," said Chief
Financial Officer Brendan
Herron. "These actions further strengthen our balance
sheet, continue to diversify our lender base and extend maturities
to 2019 and beyond."
(1)
|
The difference
between GAAP net income and core earnings is primarily the result
of adjusting for a return on capital from our equity investments in
renewable energy projects and adding back non-cash equity-based
compensation. A reconciliation of our GAAP net income to core
earnings is included in this press release.
|
Portfolio
Our Portfolio totaled approximately $2.0
billion as of September 30, 2017, and included
approximately $0.4 billion of energy
efficiency, approximately $1.4
billion of renewable energy (wind and solar), and
approximately $0.2 billion other
sustainable infrastructure investments. The following is an
analysis of our Portfolio by type of obligor as of
September 30, 2017:
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|
|
|
|
|
|
|
|
|
|
|
|
Investment
Grade
|
|
|
|
|
|
|
|
|
|
Government (1)
|
|
Commercial (2)
|
|
Commercial
Non-
Investment Grade (3)
|
|
Subtotal,
Debt and
Real Estate
|
|
Equity
Method
Investments
|
|
Total
|
|
($ in
millions)
|
Financing receivables
and
investments
|
$
679
|
|
$
504
|
|
$
10
|
|
$
1,193
|
|
$
—
|
|
$
1,193
|
Real estate
(4)
|
—
|
|
314
|
|
—
|
|
314
|
|
21
|
|
335
|
Equity investments in
renewable
energy
projects
|
—
|
|
—
|
|
—
|
|
—
|
|
519
|
|
519
|
Total
|
$
679
|
|
$
818
|
|
$
10
|
|
$
1,507
|
|
$
540
|
|
$
2,047
|
Average Remaining
Balance
(5)
|
$
12
|
|
$
9
|
|
$
5
|
|
$
10
|
|
$
20
|
|
$
12
|
|
|
|
|
(1)
|
Transactions where
the ultimate obligor is the U.S. federal government or state or
local governments where the obligors are rated investment grade
(either by an independent rating agency or based upon our internal
credit analysis). This amount includes $474 million of U.S. federal
government transactions and $205 million of transactions where the
ultimate obligors are state or local governments. Transactions may
have guaranties of energy savings from third party service
providers, the majority of which are entities rated investment
grade by an independent rating agency.
|
(2)
|
Transactions where
the projects or the ultimate obligors are commercial entities that
have been rated investment grade (either by an independent rating
agency or based on our internal credit analysis). Of this total,
$10 million of the transactions have been rated investment grade by
an independent rating agency. Commercial investment grade financing
receivables include $310 million of internally rated residential
solar loans made on a non-recourse basis to special purpose
subsidiaries of the SunPower Corporation, for which we rely on
certain limited indemnities, warranties, and other obligations of
the SunPower Corporation or its other subsidiaries.
|
(3)
|
Transactions where
the projects or the ultimate obligors are commercial entities that
have ratings below investment grade (either by an independent
rating agency or using our internal credit analysis).
|
(4)
|
Includes the real
estate and the lease intangible assets (including those held
through equity method investments) from which we receive scheduled
lease payments, typically under long-term triple net lease
agreements.
|
(5)
|
Excludes
approximately 130 transactions each with outstanding balances that
are less than $1 million and that in the aggregate total $51
million.
|
Third Quarter Financial Results
Revenue grew by approximately $7.4
million, or 39%, for the three months, and approximately
$17.1 million, or 28%, for the nine
months ended September 30, 2017, as compared to the same
periods last year. Increases were primarily driven by growth
in the Portfolio to $2.0 billion as
of September 30, 2017 from $1.4
billion as of September 30, 2016 as well as higher gain
on sale income for both the quarter and year to date. GAAP equity
method income grew by approximately $5.5
million for the three months and approximately $16.7 million for the nine months ended
September 30, 2017, compared to the same periods last year,
due to both additional investments and increased income allocations
from certain projects.
The growth in both revenue and income from the equity method
investments was offset by an approximately $7.0 million increase in interest expense for the
three months, and an approximately $13.8
million increase interest expense for the nine months ended
September 30, 2017, as compared to
the same periods last year. This increase was primarily the
result of higher average outstanding borrowings, including higher
fixed-rate debt and an increase in interest rates.
Other expenses (compensation and benefits and general and
administrative expenses) increased by approximately $1.4 million for the three months, and by
approximately $2.8 million for the
nine months ended September 30, 2017, as compared to the same
periods in 2016 due primarily to additional costs associated with
the growth in the Company.
Core earnings grew by approximately $3.9
million for the three months, and by approximately
$12.3 million for the nine months
ended September 30, 2017, over the same periods last year due
to factors described above.
A reconciliation of our GAAP net income to core earnings is
included in this press release.
An analysis of our fixed-rate debt and leverage ratios as of
September 30, 2017 and a pro forma
analysis including the transactions closed, locked or committed as
of September 30, 2017, are shown in
the charts below.
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|
|
|
|
|
|
|
|
As of
|
|
September 30, 2017
|
|
% of Total
|
|
December 31, 2016
|
|
% of Total
|
|
($ in
millions)
|
Floating-rate
borrowings (1)
|
$
411
|
|
29%
|
|
$
320
|
|
33%
|
Fixed-rate debt
(2)
|
$
986
|
|
71%
|
|
$
655
|
|
67%
|
Total
|
$
1,397
|
|
100%
|
|
$
975
|
|
100%
|
Leverage
(3)
|
2.1 to 1
|
|
|
|
1.7 to 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Adjustments
(4)
|
|
Pro forma as
of September 30, 2017
|
|
% of Total
|
|
($ in
millions)
|
Floating-rate
borrowings (1)
|
$
411
|
|
$
(328)
|
|
$
83
|
|
6%
|
Fixed-rate debt
(2)
|
$
986
|
|
$
362
|
|
$
1,348
|
|
94%
|
Total
|
$
1,397
|
|
$
34
|
|
$
1,431
|
|
100%
|
Leverage
(3)
|
2.1 to 1
|
|
|
|
2.2 to 1
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Floating-rate
borrowings include borrowings under our floating-rate credit
facilities ("credit facilities") and approximately $236 million and
$37 million of nonrecourse debt that has not been hedged as of
September 30, 2017 and December 31, 2016,
respectively.
|
(2)
|
Fixed-rate debt also
includes the present notional value of nonrecourse debt that is
hedged using interest rate swaps.
|
(3)
|
Leverage, as measured
by our debt-to-equity ratio. This calculation excludes
securitizations that are not consolidated on our balance sheet
(where the collateral is typically financing receivables with U.S.
government obligors).
|
(4)
|
Pro forma adjustments
reflect: (i) the $164 million, 25 year fixed-rate debt with yield
of 3.86%, closed in October 2017, $130 million of which was used to
pay down the credit facilities and (ii) the approximately $198
million of fixed-rate debt to be converted from floating to
fixed-rate in the fourth quarter as part of the refinancing of the
credit agreement we entered into in June of 2017. The pro
forma information is presented as if the transaction described in
the preceding sentence all had occurred on September 30, 2017, and
is not necessarily indicative of what our actual financial position
would have been as of the period indicated, nor does it purport to
represent our future financial position.
|
Conference Call and Webcast Information
Hannon Armstrong will host an
investor conference call today, November 1,
2017, at 5:00 pm eastern time.
The conference call can be accessed live over the phone by dialing
1-888-245-0932, or for international callers, 1-719-325-4773. A
replay will be available two hours after the call and can be
accessed by dialing 1-844-512-2921, or for international callers,
1-412-317-6671. The passcode for the live call and the replay is
3963781. The replay will be available until November 8, 2017.
A webcast of the conference call will also be available through
the Investor Relations section of our website, at
www.hannonarmstrong.com. A copy of this press release is also
available on our website.
About Hannon Armstrong
Hannon Armstrong (NYSE: HASI)
invests in sustainable infrastructure markets, including energy
efficiency and renewable energy. We focus on providing preferred or
senior level capital to established sponsors and high credit
quality obligors for assets that generate long-term, recurring, and
predictable cash flows. We are based in Annapolis, Maryland.
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.
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 for the year ended December 31, 2016 as
amended by our Amendment No. 1 to our Annual Report on Form
10-K for the year ended December 31, 2016 (collectively, our
"2016 Form 10-K") that was filed with the U.S. Securities and
Exchange Commission (the "SEC"), as well as in other reports that
we file with the SEC. Statements regarding the following subjects,
among others, may be forward-looking:
- our expected returns and performance of our investments;
- the state of government legislation, regulation and policies
that support or enhance the economic feasibility of sustainable
infrastructure projects, including energy efficiency and renewable
energy projects and the general market demands for such
projects;
- market trends in our industry, energy markets, commodity
prices, interest rates, the debt and lending markets or the general
economy;
- our business and investment strategy;
- availability of opportunities to invest in sustainable
infrastructure projects, including energy efficiency and renewable
energy projects and our ability to complete potential new
opportunities in our pipeline;
- our relationships with originators, investors, market
intermediaries and professional advisers;
- competition from other providers of capital;
- our or any other companies' projected operating results;
- actions and initiatives of the federal, state and local
governments and changes to federal, state and local government
policies, regulations, tax laws and rates and the execution and
impact of these actions, initiatives and policies;
- the state of the U.S. economy generally or in specific
geographic regions, states or municipalities, economic trends and
economic recoveries;
- our ability to obtain and maintain financing arrangements on
favorable terms, including securitizations;
- general volatility of the securities markets in which we
participate;
- changes in the value of our assets, our portfolio of assets
and our investment and underwriting process;
- rates of default or decreased recovery rates on our
assets;
- interest rate and maturity mismatches between our assets and
any borrowings used to fund such assets;
- changes in interest rates and the market value of our assets
and target assets;
- changes in commodity prices;
- effects of hedging instruments on our assets or
liabilities;
- the degree to which our hedging strategies may or may not
protect us from interest rate volatility;
- impact of and changes in accounting guidance and similar
matters;
- our ability to maintain our qualification as a real estate
investment trust for U.S. federal income tax purposes (a
"REIT");
- our ability to maintain our exception from registration
under the Investment Company Act of 1940, as amended (the "1940
Act");
- availability of qualified personnel;
- estimates relating to our ability to make distributions to
our stockholders in the future; and
- our understanding of our competition.
Forward-looking statements are based on beliefs, assumptions
and expectations as of the date of this press release. Any
forward-looking statement speaks only as of the date on which it is
made. New risks and uncertainties arise over time, and it is not
possible for us to predict those events or how they may affect us.
Except as required by law, we are not obligated to, and do not
intend to, update or revise any forward-looking statements after
the date of this earnings release, whether as a result of new
information, future events or otherwise.
The revised guidance reflects the Company's estimates of (i)
yield on its existing Portfolio; (ii) yield on incremental
Portfolio investments, inclusive of the Company's existing
pipeline; (iii) amount, timing, and costs of debt and equity
capital to fund new investments; and (iv) changes in costs and
expenses reflective of the Company's forecasted operations. All
guidance is based on current expectations of future economic
conditions, the regulatory environment, the dynamics of the markets
in which it operates and the judgment of the Company's management
team. 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 for 2017 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
transactions 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 Core Earnings guidance.
The risks included here are not exhaustive. Our 2016 Form
10-K or other regulatory filings may include additional factors
that could adversely affect our business and financial performance.
Moreover, we operate in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is
not possible for management to predict all such risk factors, nor
can it assess the impact of all such risk factors on our business
or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in
any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual
results.
Investor Relations
410-571-6189
investors@hannonarmstrong.com
HANNON ARMSTRONG
SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS ($ IN THOUSANDS,
EXCEPT PER SHARE DATA) (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
September 30,
|
|
For the Nine
Months Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue:
|
|
|
|
|
|
|
|
Interest income,
financing receivables
|
$
15,374
|
|
$
12,043
|
|
$
43,129
|
|
$
36,178
|
Interest income,
investments
|
1,316
|
|
494
|
|
3,617
|
|
1,303
|
Rental
income
|
5,286
|
|
2,977
|
|
14,259
|
|
8,768
|
Gain on sale of
receivables and
investments
|
3,529
|
|
2,724
|
|
15,204
|
|
13,665
|
Fee income
|
897
|
|
770
|
|
2,268
|
|
1,422
|
Total
Revenue
|
26,402
|
|
19,008
|
|
78,477
|
|
61,336
|
Expenses:
|
|
|
|
|
|
|
|
Interest
expense
|
17,584
|
|
10,635
|
|
46,728
|
|
32,945
|
Compensation and
benefits
|
5,347
|
|
4,325
|
|
15,732
|
|
14,497
|
General and
administrative
|
2,367
|
|
1,991
|
|
7,694
|
|
6,129
|
Total
Expenses
|
25,298
|
|
16,951
|
|
70,154
|
|
53,571
|
Income (loss)
before equity method investments
|
1,104
|
|
2,057
|
|
8,323
|
|
7,765
|
Income (loss) from
equity method investments
|
6,876
|
|
1,331
|
|
19,424
|
|
2,677
|
Income (loss)
before income taxes
|
7,980
|
|
3,388
|
|
27,747
|
|
10,442
|
Income tax (expense)
benefit
|
(5)
|
|
(41)
|
|
(119)
|
|
(123)
|
Net Income
(loss)
|
$
7,975
|
|
$
3,347
|
|
$
27,628
|
|
$
10,319
|
Net income (loss)
attributable to non-controlling interest
holders
|
42
|
|
18
|
|
156
|
|
75
|
Net Income (loss)
attributable to controlling
stockholders
|
$
7,933
|
|
$
3,329
|
|
$
27,472
|
|
$
10,244
|
Basic earnings per
common
share
|
$
0.14
|
|
$
0.07
|
|
$
0.52
|
|
$
0.23
|
Diluted earnings per
common share
|
$
0.14
|
|
$
0.07
|
|
$
0.52
|
|
$
0.23
|
Weighted average
common shares outstanding—basic
|
51,655,868
|
|
41,988,036
|
|
49,924,224
|
|
38,924,977
|
Weighted average
common shares
outstanding—diluted
|
51,655,868
|
|
41,988,036
|
|
49,924,224
|
|
38,924,977
|
HANNON ARMSTRONG
SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. CONSOLIDATED
BALANCE SHEET ($ IN THOUSANDS, EXCEPT PER SHARE
DATA)
|
|
|
|
|
|
|
|
September 30, 2017 (unaudited)
|
|
December 31, 2016
|
|
|
|
|
Assets
|
|
|
|
Financing
receivables
|
$
1,062,051
|
|
$
1,042,237
|
Investments
|
130,540
|
|
58,058
|
Real estate
|
313,642
|
|
172,257
|
Equity method
investments
|
540,150
|
|
363,297
|
Cash and cash
equivalents
|
90,752
|
|
29,428
|
Other
assets
|
173,550
|
|
80,610
|
Total
Assets
|
$
2,310,685
|
|
$
1,745,887
|
Liabilities and
Stockholders' Equity
|
|
|
|
Liabilities:
|
|
|
|
Accounts payable,
accrued expenses and other
|
$
33,187
|
|
$
25,219
|
Deferred funding
obligations
|
225,817
|
|
170,892
|
Credit
facilities
|
174,742
|
|
283,346
|
Non-recourse debt
(secured by assets of $1,416 million and $864 million,
respectively)
|
1,076,326
|
|
692,091
|
Convertible
notes
|
145,914
|
|
0
|
Total
Liabilities
|
1,655,986
|
|
1,171,548
|
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,
51,656,224 and 46,493,155 shares
issued and outstanding,
respectively
|
517
|
|
465
|
Additional paid in
capital
|
768,665
|
|
663,744
|
Accumulated
deficit
|
(117,122 )
|
|
(92,213 )
|
Accumulated other
comprehensive income
(loss)
|
(1,009 )
|
|
(1,388 )
|
Non-controlling
interest
|
3,648
|
|
3,731
|
Total Stockholders'
Equity
|
654,699
|
|
574,339
|
Total Liabilities
and Stockholders' Equity
|
$
2,310,685
|
|
$
1,745,887
|
|
|
|
|
EXPLANATORY NOTES
Non-GAAP Financial Measures
Core Earnings
We calculate core earnings as GAAP net income excluding non-cash
equity compensation expense, non-cash provision for credit losses,
amortization of intangibles, any one-time acquisition related costs
or non-cash tax charges and the earnings attributable to our
non-controlling interest of our Operating Partnership. We also make
an adjustment to account for our equity method investments in the
renewable energy projects as described below. In the future, core
earnings may also exclude one-time events pursuant to changes in
GAAP and certain other non-cash charges as approved by a majority
of our independent directors.
Certain of our equity method investments in renewable energy
projects are structured using typical partnership "flip" structures
where we, along with any other institutional investors, if any,
receive a pre-negotiated preferred 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 renewable energy company, which
operates the project, receives more of the cash flows through its
equity interests while we, and any other institutional investors,
retain an ongoing residual interest. We typically negotiate the
purchase prices of these projects, which have a finite expected
life, based on our assessment of the expected cash flows we will
receive from these projects discounted back to the net present
value, based on a target investment rate, with the expected 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. This is also similar to how we
negotiate many of our financing receivables.
Under GAAP, we account for these investments utilizing the
hypothetical liquidation at book value ("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 are also 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. 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.
The cash distributions for our equity method investments are
segregated into a return on and return of capital on our cash flow
statement based on the cumulative income 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. Thus, in calculating core earnings, we further adjust
GAAP net income to take into account our calculation of the return
on capital (based upon the 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 adjustment to our GAAP net income in calculating our core
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.
For the three and nine months ended September 30, 2017, we
recognized $7 million and
$19 million in income under GAAP for
our equity investments in renewable energy projects. We reversed
the GAAP income and recorded $12
million and $31 million for
core earnings as discussed above to reflect our return on capital
from these investments for the three and nine months ended
September 30, 2017, respectively. This compares to the
collected cash distributions from these equity method investments
of approximately $27 million and
$66 million, for the three and nine
months ended September 30, 2017, with the difference between
core earnings and cash collected representing a return of capital.
We believe that core earnings provides an additional measure of
our core operating performance by eliminating the impact of certain
non-cash expenses and facilitating a comparison of our financial
results to those of other comparable REITs with fewer or no
non-cash charges and comparison of our own operating results from
period to period. Our management uses core earnings in this way. We
believe that our investors also use core 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 core earnings is useful to our investors.
However, core 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 core
earnings may differ from the methodologies employed by other REITs
to calculate the same or similar supplemental performance measures,
and accordingly, our reported core earnings may not be comparable
to similar metrics reported by other REITs.
Reconciliation of our GAAP Net Income to Core
Earnings
We have calculated our core earnings and provided a
reconciliation of our GAAP net income to core earnings for the
three and nine months ended September 30, 2017 and 2016 in the
tables below:
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
2017
|
|
2016
|
|
$
|
|
Per Share
|
|
$
|
|
Per Share
|
|
($ in thousands, except per share amounts)
|
Net income
attributable to Controlling Stockholders
|
$
7,933
|
|
$
0.14
|
|
$
3,329
|
|
$
0.07
|
Core earnings
adjustments:
|
|
|
|
|
|
|
|
Reverse GAAP income
from equity method
investments
|
(6,876)
|
|
|
|
(1,331)
|
|
|
Add back Core equity
method investments
earnings
(1)
|
11,754
|
|
|
|
7,575
|
|
|
Non-cash equity-based
compensation charges
(2)
|
2,798
|
|
|
|
2,531
|
|
|
Other core adjustments
(3)
|
753
|
|
|
|
382
|
|
|
Core earnings
(4)
|
$
16,362
|
|
$
0.31
|
|
$
12,486
|
|
$
0.29
|
|
|
|
|
|
|
|
|
(1)
|
Reflects adjustment
for equity method investments described above.
|
(2)
|
Reflects adjustment
for non-cash equity based compensation.
|
(3)
|
See detail
below.
|
(4)
|
Core earnings per
share for the three months ended September 30, 2017 and
September 30, 2016, are based on 53,610,895 shares and
43,596,100 shares outstanding, respectively, which represent the
weighted average number of fully diluted shares outstanding during
such period including participating securities and the minority
interest in our Operating Partnership. We include any potential
common stock issuance in this calculation related to our
convertible notes using the treasury stock method.
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
|
$
|
|
Per Share
|
|
$
|
|
Per Share
|
|
($ in thousands, except per share amounts)
|
Net income
attributable to controlling
stockholders
|
$ 27,472
|
|
$
0.52
|
|
$ 10,244
|
|
$
0.23
|
Core earnings
adjustments:
|
|
|
|
|
|
|
|
Reverse GAAP income
from equity method
investments
|
(19,424)
|
|
|
|
(2,677)
|
|
|
Add back Core equity
method investments
earnings
(1)
|
31,294
|
|
|
|
21,235
|
|
|
Non-cash equity-based
compensation charges
(2)
|
8,351
|
|
|
|
7,452
|
|
|
Other core
adjustments(3)
|
2,031
|
|
|
|
1,151
|
|
|
Core earnings
(4)
|
$
49,724
|
|
$
0.96
|
|
$
37,405
|
|
$
0.92
|
|
|
|
|
|
|
|
|
(1)
|
Reflects adjustment
for equity method investments described above.
|
(2)
|
Reflects adjustment
for non-cash equity based compensation.
|
(3)
|
See detail
below.
|
(4)
|
Core earnings per
share for the nine months ended September 30, 2017 and
September 30, 2016, are based on 51,767,444 shares and
40,589,360 shares outstanding, respectively, which represent the
weighted average number of fully diluted shares outstanding during
such period including participating securities and the minority
interest in our Operating Partnership. We include any potential
common stock issuance in this calculation related to our
convertible notes using the treasury stock method.
|
The table below provides a reconciliation of the Other core
adjustments:
|
|
|
|
|
|
|
|
|
For
the Three Months Ended
|
|
For
the Nine Months Ended
|
|
September 30, 2017
|
|
September 30, 2016
|
|
September 30, 2017
|
|
September 30, 2016
|
|
($ in thousands)
|
Other core
adjustments:
|
|
|
|
|
|
|
|
Amortization
of intangibles (1)
|
$
711
|
|
$
364
|
|
$
1,875
|
|
$
1,076
|
Net income
attributable to non-
controlling
interest
|
42
|
|
18
|
|
156
|
|
75
|
Other core
adjustments
|
$
753
|
|
$
382
|
|
$
2,031
|
|
$
1,151
|
|
|
|
|
|
|
|
|
(1)
|
Adds back non-cash
amortization of lease and pre-IPO intangibles.
|
The table below provides a reconciliation of the GAAP SG&A
expenses to Core SG&A expenses:
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
|
|
For the Nine
Months Ended
|
|
September 30, 2017
|
|
September 30, 2016
|
|
September 30, 2017
|
|
September 30, 2016
|
|
($ in
thousands)
|
GAAP SG&A
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
$
5,347
|
|
$
4,325
|
|
$
15,732
|
|
$
14,497
|
General and
administrative
|
2,367
|
|
1,991
|
|
7,694
|
|
6,129
|
Total SG&A
expenses (GAAP)
|
$
7,714
|
|
$
6,316
|
|
$
23,426
|
|
$
20,626
|
Core SG&A expenses
adjustments:
|
|
|
|
|
|
|
|
Non-cash
equity-based
compensation
charge (1)
|
$
(2,798)
|
|
$
(2,531)
|
|
$
(8,351)
|
|
$
(7,452)
|
Amortization of
intangibles (2)
|
(50)
|
|
(51)
|
|
(152)
|
|
(152)
|
Core SG&A expenses
adjustments
|
(2,848)
|
|
(2,582)
|
|
(8,503)
|
|
(7,604)
|
Core SG&A
expenses
|
$
4,866
|
|
$
3,734
|
|
$
14,923
|
|
$
13,022
|
|
|
|
|
|
|
|
|
(1)
|
Reflects add back of
non-cash amortization of stock based compensation. Outstanding
grants related to stock based compensation are included in Core
earnings per share calculation.
|
(2)
|
Adds back non-cash
amortization of pre-IPO intangibles.
|
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SOURCE Hannon Armstrong Sustainable Infrastructure Capital,
Inc.