NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2017
Hannon Armstrong Sustainable Infrastructure Capital, Inc. (the
Company) makes debt and equity investments in sustainable infrastructure, including energy efficiency and renewable energy. The Company and its subsidiaries are hereafter referred to as we, us, or our.
We refer to the financings that we hold on our balance sheet as our Portfolio. Our Portfolio may include:
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Financing receivables, such as project loans and receivables,
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Investments, such as debt securities,
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Real estate, such as land or other physical assets and related intangible assets used in sustainable infrastructure projects, and
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Equity investments in unconsolidated entities, such as projects where we hold a
non-controlling
equity interest.
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We finance our business through cash on hand, borrowings under credit facilities and debt transactions, various asset-backed securitization
transactions and equity issuances. We also generate fee income through securitizations and syndications, by providing broker/dealer services and by servicing assets owned by third parties. Some of our subsidiaries are special purpose entities that
are formed for specific operations associated with financing sustainable infrastructure receivables for specific long term contracts.
Our
common stock is listed on the New York Stock Exchange (NYSE) under the symbol HASI. We have qualified as a REIT and also intend to operate our business in a manner that will continue to permit us to maintain our exception
from registration as an investment company under the 1940 Act, as amended. We operate our business through, and serve as the sole general partner of, our operating partnership subsidiary, Hannon Armstrong Sustainable Infrastructure, L.P, (the
Operating Partnership), which was formed to acquire and directly or indirectly own our assets.
2.
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Summary of Significant Accounting Policies
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Basis of Presentation
The preparation of financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and such
differences could be material. These financial statements have been prepared in accordance with the instructions to Form
10-Q
and should be read in conjunction with the consolidated financial statements and
notes thereto included in our annual report on Form
10-K
for the year ended December 31, 2016, as filed with the SEC. In the opinion of management, all adjustments necessary to present fairly our
financial position, results of operations and cash flows have been included. Our results of operations for the quarterly period ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year or any other
future period. Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. Certain amounts in the prior years have been reclassified to conform to the current year
presentation. These reclassifications include changes to the presentation of the Consolidated Statements of Cash Flows related to the adoption of Accounting Standards Update (ASU)
No. 2016-18
Statement of Cash Flows (Topic 230).
The adoption of this ASU is discussed further in our 2016 Form
10-K
in the Recently Issued Accounting Pronouncements section of Note 2.
The consolidated financial statements include our accounts and controlled subsidiaries, including the Operating Partnership. All significant
intercompany transactions and balances have been eliminated in consolidation.
Financing Receivables
Financing receivables include financing energy efficiency and renewable energy project loans and receivables. Unless otherwise noted, we
generally have the ability and intent to hold our financing receivables for the foreseeable future and thus they are classified as held for investment. Our ability and intent to hold certain financing receivables may change from time to time
depending on a number of factors, including economic, liquidity and capital market conditions. At inception of the arrangement, the carrying
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value of financing receivables held for investment represents the present value of the note, lease or other payments, net of any unearned fee income, which is recognized as income over the term
of the note or lease using the effective interest method. Financing receivables that are held for investment are carried, unless deemed impaired, at amortized cost, net of any unamortized acquisition premiums or discounts and include origination and
acquisition costs, as applicable. Our initial investment and principal repayments of these financing receivables are classified as investing activities and the interest collected is classified as operating activities in our statements of cash flows.
Financing receivables that we intend to sell in the short-term are classified as
held-for-sale
and are carried at the lower of amortized cost or fair value on our
balance sheet. The net purchases and proceeds from these sales of our
held-for-sale
financing receivables are recorded as operating activities in our statements of cash
flows. Interest collected is classified as an operating activity. We may secure debt with the proceeds from our financing receivables.
We
evaluate our financing receivables for potential delinquency or impairment on at least a quarterly basis and more frequently when economic or other conditions warrant such an evaluation. When a financing receivable becomes 90 days or more past due,
and if we otherwise do not expect the debtor to be able to service all of its debt or other obligations, we will generally consider the financing receivable delinquent or impaired and place the financing receivable on
non-accrual
status and cease recognizing income from that financing receivable until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a financing receivables status
significantly improves regarding the debtors ability to service the debt or other obligations, we will remove it from
non-accrual
status.
A financing receivable is also considered impaired as of the date when, based on current information and events, it is determined that it is
probable that we will be unable to collect all amounts due in accordance with the original contracted terms. Many of our financing receivables are secured by energy efficiency and renewable energy infrastructure projects. Accordingly, we regularly
evaluate the extent and impact of any credit deterioration associated with the performance and value of the underlying project, as well as the financial and operating capability of the borrower, its sponsors or the obligor as well as any guarantors.
We consider a number of qualitative and quantitative factors in our assessment, including, as appropriate, a projects operating results,
loan-to-value
ratio, any
cash reserves, the ability of expected cash from operations to cover the cash flow requirements currently and into the future, key terms of the transaction, the ability of the borrower to refinance the transaction, other credit support from the
sponsor or guarantor and the projects collateral value. In addition, we consider the overall economic environment, the sustainable infrastructure sector, the effect of local, industry, and broader economic factors, the impact of any variation
in weather and the historical and anticipated trends in interest rates, defaults and loss severities for similar transactions.
If a
financing receivable is considered to be impaired, we will determine if an allowance should be recorded. We will record an allowance if the present value of expected future cash flows discounted at the financing receivables contractual
effective rate is less than its carrying value. This estimate of cash flows may include the currently estimated fair market value of the collateral less estimated selling costs if repayment is expected solely from the collateral. We charge off
financing receivables against the allowance, if any, when we determine the unpaid principal balance is uncollectible, net of recovered amounts.
Investments
Investments include
debt securities that meet the criteria of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320,
InvestmentsDebt and Equity Securities
. We have designated our debt securities as
available-for-sale
and carry these securities at fair value on our balance sheet. Unrealized gains and losses, to the extent not considered to have an other than temporary
impairment (OTTI), on
available-for-sale
debt securities are recorded as a component of accumulated other comprehensive income (AOCI) in equity
on our balance sheet. Our initial investment and principal repayments of these investments are classified as investing activities and the interest collected is classified as operating activities in our statements of cash flows.
We evaluate our investments for OTTI on at least a quarterly basis, and more frequently when economic or market conditions warrant such an
evaluation. Our OTTI assessment is a subjective process requiring the use of judgments and assumptions. Accordingly, we regularly evaluate the extent and impact of any credit deterioration associated with the financial and operating performance and
value of the underlying project. We consider a number of qualitative and quantitative factors in our assessment. We first consider the current fair value of the security and the duration of any unrealized loss. Other factors considered include
changes in the credit rating, performance of the underlying project, key terms of the transaction, the value of any collateral and any support provided by the sponsor or guarantor.
To the extent that we have identified an OTTI for a security and intend to hold the investment to maturity and we do not expect that we will
be required to sell the security prior to recovery of the amortized cost basis, we recognize only the credit component of the OTTI in earnings. We determine the credit component using the difference between the securitys amortized cost basis
and the present value of its expected future cash flows, discounted using the effective interest method or its estimated collateral value. Any remaining unrealized loss due to factors other than credit is recorded in AOCI.
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To the extent we hold investments with an OTTI and if we have made the decision to sell the
security or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, we recognize the entire portion of the impairment in earnings.
Premiums or discounts on investment securities are amortized or accreted into investment interest income using the effective interest method.
Real Estate
Real estate
consists of land or other real estate and its related lease intangibles, net of any amortization. Our real estate is generally leased to tenants on a triple net lease basis, whereby the tenant is responsible for all operating expenses relating to
the property, generally including property taxes, insurance, maintenance, repairs and capital expenditures. Scheduled rental revenue typically varies during the lease term and thus rental income is recognized on a straight-line basis, unless there
is considerable risk as to collectability, so as to produce a constant periodic rent over the term of the lease. Accrued rental income is the aggregate difference between the scheduled rents which vary during the lease term and the income recognized
on a straight-line basis and is recorded in other assets. Expenses related to leases where we are the lessor, if any, are charged to operations as incurred. Our initial investment is classified as investing activities and income collected for rental
income is classified as operating activities in our statements of cash flows.
We record our real estate purchases as asset acquisitions
that are recorded at cost, including acquisition and closing costs, unless they meet the definition of a business combination in accordance with ASC 805,
Business Combinations
. When we record our real estate purchases as asset acquisitions we
allocate our cost to each asset acquired on a relative fair value basis. For business combinations, the fair value of the real estate acquired in a business combination with
in-place
leases is allocated to
(i) the acquired tangible assets, consisting of land or other real property such as buildings, and (ii) the identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of
other acquired intangible assets, in each case based on their fair values.
The fair value of the tangible assets of an acquired leased
property is determined by valuing the property as if it were vacant, and the
as-if-vacant
value is then allocated to land, building and tenant improvements,
if any, based on the determination of the fair values of these assets. The
as-if-vacant
fair value of a property is typically determined by management based on
appraisals by a qualified appraiser.
In allocating the fair value of the identified intangibles of an acquired property, above-market and
below-market
in-place
lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the
contractual amounts to be paid pursuant to the
in-place
leases, and (ii) managements estimate of fair market lease rates for the corresponding
in-place
leases, measured over a period equal to the remaining term of the lease, including renewal periods likely of being exercised by the lessee. The capitalized above-market lease values are amortized as a reduction of rental income and the capitalized
below-market lease values are amortized as an increase to rental income, both of which are amortized over the term used to value the intangible. We also record, as appropriate, an intangible asset for
in-place
leases. The value of the leases in place at the time of the transaction is equal to the potential income lost if the leases were not in place. The amortization of this intangible occurs over the initial term unless management believes that it is
likely that the tenant would exercise the renewal option. If a lease were to be terminated, all unamortized amounts relating to that lease would be written off.
Securitization of Receivables
We
have established various special purpose entities or securitization trusts for the purpose of securitizing certain financing receivables or other debt investments. We determined that the trusts used in securitizations are variable interest entities
(VIEs), as defined in ASC 810,
Consolidation
. We typically serve as primary or master servicer of these trusts; however, as the servicer, we do not have the power to make significant decisions impacting the performance of the
trusts. Based on an analysis of the structure of the trusts, under U.S. GAAP, we have concluded that we are not the primary beneficiary of the trusts as we do not have power over the trusts significant activities. Therefore, we do not
consolidate these trusts in our consolidated financial statements.
We account for transfers of financing receivables to these
securitization trusts as sales pursuant to ASC 860,
Transfers and Servicing
, when we have concluded the transferred receivables have been isolated from the transferor (i.e., put presumptively beyond the reach of the transferor and its
creditors, even in bankruptcy or other receivership) and we have surrendered control over the transferred receivables. We have received
true-sale-at-law
opinions for all
of our securitization trust structures and
non-consolidation
legal opinions for all but one legacy securitization trust structure that support our conclusion regarding the transferred receivables. When we sell
receivables in securitizations, we generally retain interests in the form of servicing rights and residual assets, which we refer to as securitization assets.
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Gain or loss on the sale of receivables is calculated based on the excess of the proceeds
received from the securitization (less any transaction costs) plus any retained interests obtained over the cost basis of the receivables sold. For retained interests, we generally estimate fair value based on the present value of future expected
cash flows using our best estimates of the key assumptions of anticipated losses, prepayment rates, and current market discount rates commensurate with the risks involved. Cash flows related to our securitizations at origination are classified as
operating activities in our statements of cash flows.
We initially account for all separately recognized servicing assets and servicing
liabilities at fair value and subsequently measure such servicing assets and liabilities using the amortization method. Servicing assets and liabilities are amortized in proportion to, and over the period of, estimated net servicing income with
servicing income recognized as earned. We assess servicing assets for impairment at each reporting date. If the amortized cost of servicing assets is greater than the estimated fair value, we will recognize an impairment in net income.
Our other retained interest in securitized assets, the residual assets, are classified as
available-for-sale
securities and carried at fair value on the consolidated balance sheets in other assets. We generally do not sell our residual assets. Our residual assets are evaluated for impairment on a
quarterly basis. Interest income related to the residual assets is recognized using the effective interest rate method. If there is a change in expected cash flows related to the residual assets, we calculate a new yield based on the current
amortized cost of the residual assets and the revised expected cash flows. This yield is used prospectively to recognize interest income.
Cash and
Cash Equivalents
Cash and cash equivalents include short-term government securities, certificates of deposit and money market
funds, all of which had an original maturity of three months or less at the date of purchase. These securities are carried at their purchase price, which approximates fair value.
Restricted Cash
Restricted cash
includes cash and cash equivalents set aside with certain lenders primarily to support deferred funding and other obligations outstanding as of the balance sheet dates. Restricted cash is reported as part of other assets in the consolidated balance
sheets. Refer to Note 3 for disclosure of the balances of restricted cash included in other assets.
Consolidation and Equity Method Investments
We account for our investments in entities that are considered voting interest entities or VIEs under ASC 810,
Consolidation
and assess whether we should consolidate these entities on an ongoing basis. We have established various special purpose entities or securitization trusts for the purpose of securitizing certain financing receivables or other
debt investments which are not consolidated in our financial statements as described in Securitization of Receivables above.
Substantially all of the activities of the special purpose entities that are formed for the purpose of holding our financing receivables and
investments on our balance sheet are closely associated with our activities. Based on our assessment, we determined that we have power over and receive the benefits of these special purpose entities; hence, we are the primary beneficiary and should
consolidate these entities under the provisions of ASC 810.
We have made equity investments in various renewable energy projects. We
share in the cash flows, income, and tax attributes according to a negotiated schedule (which typically does not correspond with our ownership percentages). Our renewable energy projects are typically owned in partnerships structures (using limited
liability companies (LLCs), taxed as partnerships) where we receive a stated preferred return consisting of a priority distribution of all or a portion of the projects cash flows, and in some cases, tax attributes. We have
typically partnered with either the operator of the project or other institutional investors. Once our preferred return is achieved, the partnership flips and the company which operates the project, receives a larger portion of the cash
flows through its interest in the holding company and we, along with any other institutional investors, will have an
on-going
residual interest.
These equity investments in renewable energy projects are accounted for under the equity method of accounting. Certain of our equity method
investments were determined to be VIEs in which we are not the primary beneficiary. Our maximum exposure to loss associated with our equity method investments is limited to our recorded value of our investments. Under the equity method of
accounting, the carrying value of these equity method investments is determined based on amounts we invested, adjusted for the equity in earnings or losses of the investee allocated based on the LLC agreement, less distributions received. Because
certain of the LLC agreements contain preferences with regard to cash flows from operations, capital events and liquidation, we reflect our share of profits and losses by determining the difference between our claim on the investees book
value at the end and the beginning of the period, which is adjusted for distributions received and contributions made. This claim is calculated as the amount we would receive
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(or be obligated to pay) if the investee were to liquidate all of its assets at recorded amounts determined in accordance with U.S. GAAP and distribute the resulting cash to creditors and
investors in accordance with their respective priorities. This method is commonly referred to as the hypothetical liquidation at book value method or (HLBV). Intercompany gains and losses are eliminated for an amount equal to our
interest and are reflected in our share of income or loss from equity method investments in the consolidated statements of operations. Cash distributions received from our equity method investments are classified as operating activities to the
extent of cumulative HLBV earnings in our statements of cash flows. Our initial investment and additional cash distributions beyond that which is classified as operating activities are classified as investing activities in our statements of cash
flows. We have elected to recognize earnings from these investments one quarter in arrears to allow for the receipt of financial information.
We have also made an investment in a joint venture which holds land under solar projects that we have determined to be a voting interest
entity. This investment entitles us to receive an equal percentage of both cash distributions and profit and loss under the terms of the LLC operating agreement. The investment is accounted for under the equity method of accounting, with our portion
of income, being recognized in income (loss) from equity method investments in the period in which the income is earned.
We evaluate on a
quarterly basis whether our investments accounted for using the equity method have an OTTI. An OTTI occurs when the estimated fair value of an investment is below the carrying value and the difference is determined to not be recoverable. This
evaluation requires significant judgment regarding, but not limited to, the severity and duration of the impairment; the ability and intent to hold the securities until recovery; financial condition, liquidity, and near-term prospects of the issuer;
specific events; and other factors.
Convertible Notes
In August 2017, we issued convertible senior notes (Convertible Notes) that are accounted for in accordance with
ASC 470-20,
Debt with Conversion and Other Options
, and ASC 815,
Derivatives and Hedging.
Under ASC 815, issuers of certain convertible debt instruments are generally required to
separately account for the conversion option of the convertible debt instrument as either a derivative or equity, unless it meets the scope exception for contracts indexed to, and settled in, an issuers own equity. Since this conversion option
is both indexed to our equity and can only be settled in our common stock, we have met the scope exception and therefore, we are not separately accounting for the embedded conversion option. The initial issuance and any principal repayments are
classified as financing activities and interest payments are classified as operating activities in our statements of cash flows.
Derivative
Financial Instruments
We utilize derivative financial instruments, primarily interest rate swaps, to manage, or hedge, our
interest rate risk exposures associated with new debt issuances, to manage our exposure to fluctuations in interest rates on variable rate debt, and to optimize the mix of our fixed and floating-rate debt. In addition, we use forward-starting
interest rate swap contracts to manage a portion of our interest rate exposure for anticipated refinancing of our long-term debts. Our objective is to reduce the impact of changes in interest rates on our results of operations and cash flows. The
fair values of our interest rate swaps designated and qualifying as effective cash flow hedges are reflected in our condensed consolidated balance sheets as a component of other assets (if in an unrealized asset position) or accounts payable,
accrued expenses and other (if in an unrealized liability position) and in net unrealized gains and losses in AOCI. The cash settlements of our interest rate swaps are classified as operating activities in our statements of cash flows.
The interest rate swaps we use are designated as cash flow hedges and are considered highly effective in reducing our exposure to the interest
rate risk that they are designated to hedge. This effectiveness is required in order to qualify for hedge accounting. Instruments that meet the required hedging criteria are formally designated as hedges at the inception of the derivative contract.
Derivatives are recorded at fair value. If a derivative is designated as a cash flow hedge and meets the highly effective threshold, the change in the fair value of the derivative is recorded in AOCI, net of associated deferred income tax effects
and is recognized in earnings at the same time as the hedged item, including as a result of the accrual of interest. For any derivative instruments not designated as hedging instruments, changes in fair value would be recognized in earnings in the
period that the change occurs. We assess, both at the inception of the hedge and on an ongoing basis, whether the derivatives designated as cash flow hedges are highly effective in offsetting the changes in cash flows of the hedged items. We do not
hold derivatives for trading purposes.
Interest rate swap contracts contain a credit risk that counterparties may be unable to fulfill
the terms of the agreement. We attempt to minimize that risk by evaluating the creditworthiness of our counterparties, who are limited to major banks and financial institutions, and do not anticipate nonperformance by the counterparties.
Income Taxes
We elected and
qualified to be taxed as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2013. To qualify as a REIT, we must meet on an ongoing basis a number of organizational and operational
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requirements, including a requirement that we currently distribute at least 90% of our net taxable income, excluding capital gains, to our stockholders. We intend to continue to meet the
requirements for qualification as a REIT. As a REIT, we are not subject to U.S. federal corporate income tax on that portion of net income that is currently distributed to our owners. However, our taxable REIT subsidiaries (TRSs) will
generally be subject to U.S. federal, state, and local income taxes as well as taxes of foreign jurisdictions, if any.
We account for
income taxes under ASC 740,
Income Taxes
for our TRSs using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. We evaluate any deferred tax assets for valuation allowances based on an
assessment of available evidence including sources of taxable income, prior years taxable income, any existing taxable temporary differences and our future investment and business plans that may give rise to taxable income.
We apply ASC 740,
Income Taxes
with respect to how uncertain tax positions should be recognized, measured, presented, and disclosed in
the financial statements. This guidance requires the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are more likely than not to
be sustained by the applicable tax authority. We are required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which includes U.S. federal and certain states.
Equity-Based Compensation
In
2013, we adopted our equity incentive plan (the 2013 Plan), which provides for grants of stock options, stock appreciation rights, restricted stock units, shares of restricted common stock, phantom shares, dividend equivalent rights,
long-term incentive-plan units (LTIP units) and other restricted limited partnership units issued by our Operating Partnership and other equity-based awards. From time to time, we may make equity or equity based awards as compensation to
members of our senior management team, our independent directors, employees, advisors, consultants and other personnel under our 2013 Plan. Certain awards earned under the plan are based on achieving various performance targets, which are generally
earned between 0% and 200% of the initial target, depending on the extent to which the performance target is met.
We record compensation
expense for grants made under the 2013 Plan in accordance with ASC 718,
CompensationStock Compensation
. We record compensation expense for unvested grants that vest solely based on service conditions on a straight-line basis over the
vesting period of the entire award based upon the fair market value of the grant on the date of grant. Fair market value for restricted common stock is based on our share price on the date of grant. For awards where the vesting is contingent upon
achievement of certain performance targets, compensation expense is measured based on the fair market value on the grant date and is recorded over the requisite service period (which includes the performance period). Actual performance results at
the end of the performance period determines the number of shares that will ultimately be awarded. We have also issued restricted stock units where the vesting is contingent upon service being provided for a defined period and certain market
conditions being met. The fair value of these awards, as measured at the grant date, is recognized over the requisite service period as it is provided, even if the market conditions are not met. The grant date fair value of these awards was
developed by an independent appraiser using a Monte Carlo simulation.
Earnings Per Share
We compute earnings per share of common stock in accordance with ASC 260,
Earnings Per Share
. Basic earnings per share is calculated by
dividing net income attributable to controlling stockholders (after consideration of the earnings allocated to unvested grants under the 2013 Plan, if applicable) by the weighted-average number of shares of common stock outstanding during the period
excluding the weighted average number of unvested grants under the 2013 Plan, if applicable (participating securities as defined in Note 12). Diluted earnings per share is calculated by dividing net income attributable to controlling
stockholders (after consideration of the earnings allocated to unvested grants under the 2013 Plan, if applicable) by the weighted-average number of shares of common stock outstanding during the period plus other potential common stock instruments
if they are dilutive. Other potentially dilutive common stock instruments include our unvested restricted stock, restricted stock units and Convertible Notes. The restricted stock and restricted stock units are included if they are dilutive using
the treasury stock method. The treasury stock method assumes that theoretical proceeds received for future service provided is used to purchase treasury stock at our stocks average market price, which is deducted from the amount of stock
included in the calculation. When unvested grants are dilutive, the earnings allocated to these dilutive unvested grants are not deducted from the net income attributable to controlling stockholders when calculating diluted earnings per share. The
Convertible Notes are included if they are dilutive using the
if-converted
method. The
if-converted
method removes interest expense related to the convertible notes from
the net income attributable to controlling stockholders and includes the weighted average shares over the period issuable upon conversion of the note. No adjustment is made for shares that are anti-dilutive during a period.
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Segment Reporting
We provide and arrange debt and equity investments for sustainable infrastructure projects and report all of our activities as one business
segment.
Recently Issued Accounting Pronouncements
Revenue from Contracts with Customers
In
May 2014, the FASB issued ASU
No. 2014-09,
Revenue from Contracts with Customers
(Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the
transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or modified retrospective
transition method. The mandatory effective date for us is on January 1, 2018, with early adoption allowed in 2017. We do not expect the adoption of ASU
2014-09
to have a material impact on our
consolidated financial statements and related disclosures as the majority of our sources of revenue, e.g., investments in financing receivables, debt and equity securities, land leasing, and the securitization of financing receivables are not
impacted by this new standard. Upon adoption of the new standard, we expect to elect the modified retrospective transition method.
Leases
In February 2016, the FASB issued ASU
No. 2016-02,
Leases
(Topic 842). Under the new
guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (a) a lease liability, which is a lessees obligation to make lease payments arising from a
lease, measured on a discounted basis; and (b) a
right-of-use
asset, which is an asset that represents the lessees right to use, or control the use of, an
identified asset for the lease term. Changes were made to align lessor accounting with the lessee accounting model and ASU
No. 2014-09,
Revenue from Contracts with Customers
. The ASU will be
effective for us beginning January 1, 2019. Early application is permitted for all public business entities at any time. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the financial statements, and may apply certain practical expedients to transition. If elected, these practical expedients would allow us to continue to use our previous lease
classification conclusions and continue to classify the leases that exist at the date of adoption based on their
pre-existing
classification. We are currently evaluating the impact the adoption of this ASU
will have on our consolidated financial statements and related disclosures.
Credit Losses
In June 2016, the FASB issued ASU
No. 2016-13,
Financial InstrumentsCredit
LossesMeasurement of Credit Losses on Financial Instruments
(Topic 326). ASU
2016-13
significantly changes how entities will measure credit losses for most financial assets and certain other
instruments that are not measured at fair value through net income. ASU
2016-13
will replace the incurred loss approach under existing guidance with an expected loss model for
instruments measured at amortized cost, and require entities to record allowances for
available-for-sale
debt securities rather than reduce the carrying amount, as
currently required. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU
2016-13
is effective for fiscal years beginning after December 15, 2019 and is to
be adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We are currently evaluating the impact the adoption of ASU
2016-13
will have on our consolidated financial statements and related disclosures.
Equity Method Investments
In March 2016, the FASB issued ASU
No. 2016-07,
Simplifying the Transition to the
Equity Method of Accounting
. The new standard eliminates the requirement for an investor to retroactively apply the equity method when an increase in ownership interest in an investee triggers equity method accounting. It also simplifies,
in certain areas, the accounting for equity method investments. The new standard is effective for us in the current fiscal year ending December 31, 2017 and interim periods therein. The new provisions are applied on a prospective basis to
transactions within its scope. The adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures.
Derivatives and Hedging
In August 2017,
the FASB issued ASU
No. 2017-12,
Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities
. The new standard requires that entities record hedge
ineffectiveness related to cash flow hedges in
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AOCI rather than in current period earnings. It also provides for other simplifications of the hedge accounting guidance. ASU
2017-12
is effective for
fiscal years beginning after December 15, 2018, with early adoption permitted in any interim period after issuance of the update. The effect of the adoption should be shown as of the beginning of the fiscal year of adoption, with the amended
presentation and disclosure guidance required only prospectively. We have adopted this standard in the quarter ended September 30, 2017 and the adoption of this standard did not have a material impact on our consolidated financial statements
and related disclosures.
Other accounting standards updates effective after September 30, 2017, are not expected to have a material
effect on our consolidated financial statements and related disclosures.
3.
|
Fair Value Measurements
|
Fair value is defined as the price that would be received for
an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level hierarchy for classifying financial instruments. The levels of inputs
used to determine the fair value of our financial assets and liabilities carried on the balance sheet at fair value and for those which only disclosure of fair value is required are characterized in accordance with the fair value hierarchy
established by ASC 820,
Fair Value Measurements
. Where inputs for a financial asset or liability fall in more than one level in the fair value hierarchy, the financial asset or liability is classified in its entirety based on the lowest level
input that is significant to the fair value measurement of that financial asset or liability. We use our judgment and consider factors specific to the financial assets and liabilities in determining the significance of an input to the fair value
measurements. As of September 30, 2017 and December 31, 2016, only our residual assets, financing receivables
held-for-sale,
interest rate swaps and
investments, if any, were carried at fair value on the consolidated balance sheets on a recurring basis. The three levels of the fair value hierarchy are described below:
|
|
|
Level 1Quoted prices (unadjusted) in active markets that are accessible at the measurement date.
|
|
|
|
Level 2Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
|
|
|
|
Level 3Unobservable inputs are used when little or no market data is available.
|
The
tables below illustrate the estimated fair value of our financial instruments on our balance sheet. Unless otherwise discussed below, fair value for our Level 2 and Level 3 measurements is measured using a discounted cash flow model, contractual
terms and inputs which consist of base interest rates and spreads over base rates which are based upon market observation and recent comparable transactions. An increase in these inputs would result in a lower fair value and a decline would result
in a higher fair value. Our convertible notes are valued using a market based approach and observable prices. The financing receivables held for sale, if any, are carried at the lower of cost or fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017
|
|
|
|
Fair Value
|
|
|
Carrying
Value
|
|
|
Level
|
|
|
|
(dollars in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing receivables
(1)
|
|
$
|
1,044
|
|
|
$
|
1,062
|
|
|
|
Level 3
|
|
Investments
(2)
|
|
|
131
|
|
|
|
131
|
|
|
|
Level 3
|
|
Securitization residual assets
|
|
|
35
|
|
|
|
35
|
|
|
|
Level 3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit facilities
|
|
$
|
175
|
|
|
$
|
175
|
|
|
|
Level 3
|
|
Non-recourse
debt
(3)
|
|
|
1,103
|
|
|
|
1,097
|
|
|
|
Level 3
|
|
Convertible notes
(3)
|
|
|
156
|
|
|
|
151
|
|
|
|
Level 2
|
|
Derivative liabilities
|
|
|
1
|
|
|
|
1
|
|
|
|
Level 2
|
|
(1)
|
There were no financing receivables held-for-sale as of September 30, 2017.
|
(2)
|
The amortized cost of our investments as of September 30, 2017 was $131 million.
|
(3)
|
Fair value and carrying value excludes unamortized debt issuance costs.
|
- 12 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
Fair Value
|
|
|
Carrying
Value
|
|
|
Level
|
|
|
|
(dollars in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing receivables
(1)
|
|
$
|
1,017
|
|
|
$
|
1,042
|
|
|
|
Level 3
|
|
Investments
(2)
|
|
|
58
|
|
|
|
58
|
|
|
|
Level 3
|
|
Securitization residual assets
|
|
|
19
|
|
|
|
19
|
|
|
|
Level 3
|
|
Derivative assets
|
|
|
1
|
|
|
|
1
|
|
|
|
Level 2
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit facilities
|
|
$
|
283
|
|
|
$
|
283
|
|
|
|
Level 3
|
|
Non-recourse
debt
(3)
|
|
|
718
|
|
|
|
709
|
|
|
|
Level 3
|
|
(1)
|
There were no financing receivables held-for-sale as of December 31, 2016.
|
(2)
|
The amortized cost of our investments as of December 31, 2016 was $61 million.
|
(3)
|
Fair value and carrying value excludes unamortized debt issuance costs.
|
Investments
We carry our investments in debt securities at fair value on our balance sheet as investments. The following table reconciles the beginning and
ending balances for our Level 3 investments that are carried at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months
ended
September 30,
|
|
|
For the nine months
ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(dollars in millions)
|
|
Balance, beginning of period
|
|
$
|
126
|
|
|
$
|
48
|
|
|
$
|
58
|
|
|
$
|
29
|
|
Purchases of investments
|
|
|
5
|
|
|
|
2
|
|
|
|
71
|
|
|
|
34
|
|
Payments on investments
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Sale of investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
Realized gains on investments recorded in earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Unrealized gains (losses) on investments recorded in OCI
(1)
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
131
|
|
|
$
|
50
|
|
|
$
|
131
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As of September 30, 2017 and December 31, 2016, approximately $10 million of investment grade rated debt was held for more than 12 months in an unrealized loss position of approximately $1 million
due to interest rate movements. We have the intent and the ability to hold this investment until a recovery of amortized cost. As of September 30, 2017 and December 31, 2016, we held no other securities in an unrealized loss position for
over 12 months.
|
In determining the fair value of our investments, we used a range of interest rate spreads of approximately
1% to 4% based upon comparable transactions as of September 30, 2017 and December 31, 2016.
Interest Rate Swap Agreements
The fair values of the derivative financial instruments are determined using widely accepted valuation techniques including discounted cash
flow analysis on the expected cash flows of each derivative. We have determined that the significant inputs, such as interest yield curves and discount rates, used to value our derivatives fall within Level 2 of the fair value hierarchy and
that the credit valuation adjustments associated with our counterparties and our own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of our or our counterparties default. As of
September 30, 2017 and December 31, 2016, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments were not
significant to the overall valuation of our derivatives. As a result, we determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. The fair values of the derivative financial instruments
are included in the other assets or accounts payable, accrued expenses and other line items in the consolidated balance sheets.
Non-recurring
Fair Value Measurements
Our financial statements may include
non-recurring
fair value measurements related to acquisitions and
non-monetary
transactions, if any. Assets acquired in a business combination are recorded at their fair
value. We may use third party valuation firms to assist us with developing our estimates of fair value.
Concentration of Credit Risk
Financing receivables, investments and leases consist primarily of U.S. federal government-backed receivables, investment grade state and local
government receivables and receivables from various sustainable infrastructure projects and do not, in our view,
- 13 -
represent a significant concentration of credit risk. See Note 6 for an analysis by type of obligor. As described above, we do not believe we have a significant credit exposure to our interest
rate swap providers. We had cash deposits that are subject to credit risk as shown below:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(dollars
in
millions)
|
|
Cash deposits
|
|
$
|
91
|
|
|
$
|
29
|
|
Restricted cash deposits (included in other assets)
|
|
|
68
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Total cash deposits
|
|
$
|
159
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
Amount of cash deposits in excess of amounts federally insured
|
|
$
|
157
|
|
|
$
|
57
|
|
4.
|
Non-Controlling
Interest
|
Units of limited
partnership interests in the Operating Partnership (OP units) that are owned by limited partners other than us are included in
non-controlling
interest on our consolidated balance sheets. The
outstanding OP units held by outside limited partners represents less than 1% of our outstanding OP units and are redeemable by the limited partners for cash, or at our option, for a like number of shares of our common stock. No OP units were
exchanged for shares of common stock or redeemed for cash during the nine months ended September 30, 2017 or the nine months ended September 30, 2016. The
non-controlling
interest holders are
generally allocated their pro rata share of income, other comprehensive income and equity transactions.
- 14 -
5.
|
Securitization of Receivables
|
The following summarizes certain transactions with our
securitization trusts:
|
|
|
|
|
|
|
|
|
|
|
As of and for the nine months
ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(dollars in millions)
|
|
Gains on securitizations
|
|
$
|
15
|
|
|
$
|
13
|
|
Purchase of receivables securitized
|
|
$
|
277
|
|
|
$
|
394
|
|
Proceeds from securitizations
|
|
$
|
292
|
|
|
$
|
407
|
|
Residual and servicing assets included in other assets
|
|
$
|
35
|
|
|
$
|
18
|
|
Cash received from residual and servicing assets
|
|
$
|
4
|
|
|
$
|
2
|
|
In connection with securitization transactions, we typically retain servicing responsibilities and residual
assets. In certain instances, we receive annual servicing fees of up to 0.20% of the outstanding balance. We may periodically make servicer advances, which are subject to credit risk. Included in other assets in our consolidated balance sheets are
our servicing assets at amortized cost, our residual assets at fair value, and our servicing advances at cost, if any. Our residual assets are subordinate to investors interests, and their values are subject to credit, prepayment and interest
rate risks on the transferred financial assets. The investors and the securitization trusts have no recourse to our other assets for failure of debtors to pay when due. In computing gains and losses on securitizations, we use the same discount rates
we use for the fair value calculation of residual assets, which are determined based on a review of comparable market transactions including Level 3 unobservable inputs which consist of base interest rates and spreads over base rates. Depending
on the nature of the transaction risks, the discount rate ranged from 4% to 7%.
As of September 30, 2017 and December 31, 2016,
our managed assets totaled $4.6 billion and $3.9 billion, respectively, of which $2.5 billion and $2.3 billion, respectively, were securitized assets held in unconsolidated securitization trusts. There were no securitization
credit losses in the nine months ended September 30, 2017 or 2016. As of September 30, 2017, there was approximately $1.8 million in payments from certain debtors to the securitization trusts that was greater than 90 days past due.
The securitized assets consist of financing receivables from contracts for the installation of energy efficiency and other technologies in facilities owned by, or operated for or by, federal, state or local government entities where the ultimate
obligor is the government. The contracts may have guarantees of energy savings from third party service providers, which typically are entities rated investment grade by an independent rating agency. Based on the nature of the receivables and
experience-to-date,
we do not currently expect to incur any credit losses on the receivables sold.
As of September 30, 2017, our Portfolio included approximately
$2.0 billion of financing receivables, investments, real estate and equity method investments on our balance sheet. The financing receivables and investments are typically collateralized by contractually committed debt obligations of government
entities or private high credit quality obligors and are often supported by additional forms of credit enhancement, including security interests and supplier guaranties. The real estate is typically land and related lease intangibles for long-term
leases to wind and solar projects with high credit quality obligors. The equity method investments represent our
non-controlling
equity investments in renewable energy projects and land.
The following is an analysis of our Portfolio by type of obligor and credit quality as of September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
(1)
|
|
|
Commercial
Investment
Grade
(2)
|
|
|
Commercial
Non-Investment
Grade
(3)
|
|
|
Subtotal,
Debt and
Real Estate
|
|
|
Equity Method
Investments
|
|
|
Total
|
|
|
|
(dollars in millions)
|
|
Financing receivables
|
|
$
|
574
|
|
|
$
|
478
|
|
|
$
|
10
|
|
|
$
|
1,062
|
|
|
$
|
|
|
|
$
|
1,062
|
|
Investments
|
|
|
105
|
|
|
|
26
|
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
131
|
|
Real estate
(4)
|
|
|
|
|
|
|
314
|
|
|
|
|
|
|
|
314
|
|
|
|
21
|
|
|
|
335
|
|
Equity investments in renewable energy projects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
519
|
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
679
|
|
|
$
|
818
|
|
|
$
|
10
|
|
|
$
|
1,507
|
|
|
$
|
540
|
|
|
$
|
2,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Debt and real estate portfolio
|
|
|
45
|
%
|
|
|
54
|
%
|
|
|
1
|
%
|
|
|
100
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
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, which typically are entities rated investment grade by an independent rating agency.
|
- 15 -
(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 (SunPower), for which we rely on certain limited indemnities, warranties, and other obligations of SunPower 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.
|
Financing Receivables and Investments
The following table provides a summary of our anticipated maturity dates of our financing receivables and investments and the weighted average
yield for each range of maturities as of September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Less than 1
year
|
|
|
1-5 years
|
|
|
5-10 years
|
|
|
More than 10
years
|
|
|
|
(dollars in millions)
|
|
Financing Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities by period
|
|
$
|
1,062
|
|
|
$
|
4
|
|
|
$
|
23
|
|
|
$
|
77
|
|
|
$
|
958
|
|
Weighted average yield by period
|
|
|
5.2
|
%
|
|
|
8.7
|
%
|
|
|
5.2
|
%
|
|
|
4.9
|
%
|
|
|
5.2
|
%
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities by period
|
|
$
|
131
|
|
|
$
|
|
|
|
$
|
66
|
|
|
$
|
1
|
|
|
$
|
64
|
|
Weighted average yield by period
|
|
|
3.9
|
%
|
|
|
|
%
|
|
|
3.6
|
%
|
|
|
4.7
|
%
|
|
|
4.3
|
%
|
Our
non-investment
grade assets consists of two financing receivables
with a carrying value of approximately $10 million that became past due in the second quarter of 2017. These financing receivables, which we acquired as part of our acquisition of American Wind Capital Company, LLC in 2014, are assignments of
land lease payments from two wind projects (the Projects). We have been informed by the owner of the Projects that the Projects are experiencing a decline in revenue. On this basis, the owner of the Projects is seeking to renegotiate the
land lease contractual payment terms or terminate the lease. In July 2017, we filed a legal claim against the owners of the Projects in order to protect our interests in the Projects and the amounts due to us under the land lease assignments.
Although there can be no assurance in this regard, we believe that we have the ability to recover the carrying value from the Projects, including by taking title to the underlying collateral, and thus have not recorded an allowance for losses as of
September 30, 2017. We have determined that the assets are impaired and placed them on
non-accrual
status.
Other than discussed above, we had no financing receivables, investments or leases that were impaired or on
non-accrual
status as of September 30, 2017 or December 31, 2016. There was no provision for credit losses or troubled debt restructurings as of September 30, 2017 or December 31, 2016.
Real Estate
Our real estate
is leased to renewable energy projects, typically under long-term triple net leases with expiration dates that range between the years 2033 and 2057 under the initial terms and 2047 and 2080 if all renewals are exercised. The components of our real
estate portfolio as of September 30, 2017 and December 31, 2016, were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(dollars in millions)
|
|
Real Estate
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
226
|
|
|
$
|
145
|
|
Lease intangibles
|
|
|
92
|
|
|
|
29
|
|
Accumulated amortization of lease intangibles
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
314
|
|
|
$
|
172
|
|
|
|
|
|
|
|
|
|
|
In the first quarter of 2017, we purchased a portfolio of over 4,000 acres of land and related long-term
triple net leases to over 20 individual solar projects with investment grade
off-takers
at a cost of approximately $145 million. Approximately $21 million (1,100 acres) of this real estate portfolio
was acquired through an equity interest in a joint venture that we account for under the equity method of accounting and approximately $56 million of our purchase price was allocated to intangible lease assets on a relative fair value basis.
- 16 -
As of September 30, 2017, the future amortization expense of these intangible assets and the
future minimum rental income payments under our land lease agreements are as follows:
|
|
|
|
|
|
|
|
|
Years Ending December 31,
|
|
Future
Amortization
Expense
|
|
|
Minimum
Rental Income
Payments
|
|
|
|
(dollars in millions)
|
|
From October 1, 2017 to December 31, 2017
|
|
$
|
1
|
|
|
$
|
4
|
|
2018
|
|
|
3
|
|
|
|
18
|
|
2019
|
|
|
3
|
|
|
|
18
|
|
2020
|
|
|
3
|
|
|
|
18
|
|
2021
|
|
|
3
|
|
|
|
18
|
|
2022
|
|
|
3
|
|
|
|
19
|
|
Thereafter
|
|
|
72
|
|
|
|
674
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
88
|
|
|
$
|
769
|
|
|
|
|
|
|
|
|
|
|
There are conservation easement agreements covering several of our properties that limit the use of the
property upon its lease expiration.
Equity Investments
We have made
non-controlling
equity investments in a number of renewable energy projects operated by
renewable energy companies as well as in a joint venture that owns land with a long-term triple net lease agreement to several solar projects that we account for as equity method investments. As of September 30, 2017, we held the following
equity method investments:
|
|
|
|
|
|
|
|
|
Acquisition Date
|
|
Transaction
|
|
Investment
|
|
|
Partner
|
|
|
|
|
(dollars in
millions)
|
|
|
|
Various
|
|
Vento I, LLC
|
|
$
|
121
|
|
|
EDP Renewables
|
June 2017
|
|
Northern Frontier, LLC
|
|
|
87
|
|
|
Various
|
December 2015
|
|
Buckeye Wind Energy Class B Holdings, LLC
|
|
|
67
|
|
|
Invenergy
|
February 2017
|
|
Strong Upwind Holdings IV, LLC
|
|
|
56
|
|
|
JPMorgan
|
October 2016
|
|
Invenergy Gunsight Mountain Holdings, LLC
|
|
|
36
|
|
|
Invenergy
|
June 2016
|
|
MM Solar Holdings, LLC
|
|
|
29
|
|
|
AES
|
Various
|
|
Other transactions
|
|
|
144
|
|
|
Various
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Method Investments
|
|
$
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
An underlying solar project associated with one of our equity method investments located in the U.S. Virgin
Islands was materially damaged in the recent hurricanes. Although there can be no assurance in this regard, we believe that the projects insurance will be sufficient to rebuild the project or to recover our investment in the project of
approximately $10 million. Based on an evaluation of our equity method investments, inclusive of this project, we determined that no OTTI had occurred as of September 30, 2017, or December 31, 2016
Deferred Funding Obligations
In
accordance with the terms of certain purchase agreements relating to financing receivables and investments, payments of the purchase price are scheduled to be made over time and as a result, we have recorded deferred funding obligations of
$226 million and $171 million as of September 30, 2017 and December 31, 2016, respectively. We have secured financing for, or placed in escrow, approximately $165 million of the deferred funding obligations as of
September 30, 2017. As of September 30, 2017 and December 31, 2016, we have pledged approximately $29 million and $41 million of our equity method investments as collateral for a deferred funding obligation of
$20 million and $34 million, respectively.
- 17 -
The next five years of outstanding deferred funding obligations to be paid are as follows:
|
|
|
|
|
|
|
(dollars
in
millions)
|
|
October 1, 2017 to December 31, 2017
|
|
$
|
29
|
|
2018
|
|
|
80
|
|
2019
|
|
|
69
|
|
2020
|
|
|
36
|
|
2021
|
|
|
12
|
|
|
|
|
|
|
Total Deferred funding obligations
|
|
$
|
226
|
|
|
|
|
|
|
Revolver
We have a senior secured revolving credit facility which matures in July 2019. The facility provides for total maximum advances of
$1.5 billion with the aggregate amount outstanding at any point in time of $500 million and which consists of two components, the G&I Facility and the PF Facility. The G&I Facility can be used to leverage
certain qualifying government and institutional financings entered into by us and the PF Facility can be used to leverage certain qualifying project financings entered into by us. In June 2017, we entered into an amendment that adjusted certain of
the
sub-limits
but did not change the overall maximum advances or aggregate amount available at any point in time.
The following table provides additional detail on our credit facility as of September 30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(dollars
in
millions)
|
|
Outstanding balance
|
|
$
|
133
|
|
|
$
|
283
|
|
Value of collateral pledged to credit facility
|
|
$
|
272
|
|
|
$
|
471
|
|
Weighted average short-term borrowing rate
|
|
|
3.0
|
%
|
|
|
2.3
|
%
|
Loans under the G&I Facility bear interest at a rate equal to the London Interbank Offered Rate
(LIBOR) plus 1.5% or, under certain circumstances, 1.5% plus the Base Rate. Loans under the PF Facility bear interest at a rate equal to LIBOR plus 2.5% or, under certain circumstances, 2.5% plus the Base Rate or as mutually agreed. The
Base Rate is defined as the highest of (i) the Federal Funds Rate plus 0.5%, (ii) the rate of interest publicly announced by Bank of America from time to time as its prime rate, (iii) LIBOR plus 1.0% and (iv) zero.
Under the PF Facility, we also have the option to borrow at a fixed rate of interest until the expiration of the credit facility in July 2019. The fixed rate is determined by agreement with the administrative agent and is based on the prevailing US
SWAP rate of an equivalent term to the average-life of the fixed rate portion of the borrowing plus an agreed upon margin. The loans are made through wholly-owned special purpose subsidiaries (the Borrowers) and we have guaranteed the
obligations of the Borrowers under the credit facility pursuant to (x) a Continuing Guaranty, dated July 19, 2013, and (y) a Limited Guaranty, dated July 19, 2013, both as amended and restated.
Any financing we propose to be included in the borrowing base as collateral under the facility is subject to the approval of the
administrative agent in its sole discretion and the payment of a placement fee. We may, with the consent of the administrative agent, borrow against new projects before such projects become Approved Financings (as defined in the PF Facility loan
agreement) but after they have been pledged as collateral. The amount eligible to be drawn under the facility for purposes of financing such investments will be based on a discount to the value of each investment or an applicable valuation
percentage. Under the G&I Facility, the applicable valuation percentage for
non-delinquent
investments is 85% in the case of a U.S. federal government obligor, 80% in the case of an institutional obligor
or a state and local obligor, and with respect to other obligors or in certain circumstances, such other percentage as the administrative agent may prescribe. Under the PF Facility, the applicable valuation percentage is 67% or such other percentage
as the administrative agent may prescribe. The sum of approved financings after taking into account the valuation percentages and any changes in the valuation of the financings in accordance with the loan agreements determines the borrowing
capacity, subject to the overall facility limits described above.
We have approximately $5 million of remaining unamortized costs
associated with the credit facility that have been capitalized and included in other assets on our balance sheet, and are being amortized on a straight-line basis over the term of the loan agreements. On each monthly payment date, the Borrowers
shall also pay to the administrative agent, for the benefit of the lenders, certain availability fees for each loan agreement equal to 0.50%, divided by 360, multiplied by the excess of the available borrowing capacity under each component of the
credit facility over the actual amount borrowed under such component.
- 18 -
The credit facility contains terms, conditions, covenants, and representations and warranties
that are customary and typical for a transaction of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions,
changes in the nature of business, transactions with affiliates, use of proceeds and stock repurchases. We were in compliance with our covenants as of September 30, 2017 and December 31, 2016.
The credit facility also includes customary events of default, including the existence of a default in more than 50% of underlying financings.
The occurrence of an event of default may result in termination of the credit facility, acceleration of amounts due under the credit facility, and accrual of default interest at a rate of LIBOR plus 2.50% in the case of the G&I Facility and at a
rate of LIBOR plus 5.00% in the case of the PF Facility.
Term Loan
In February 2017, we borrowed $102 million under a recourse credit facility, of which $42 million was still outstanding as of
September 30, 2017. We repaid the loan in October 2017.
- 19 -
Non-recourse
debt
We have outstanding the following asset-backed
non-recourse
debt and bank loans (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Balance
as of
|
|
|
|
|
|
|
|
|
|
|
|
Value of Assets Pledged
as of
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
Interest
Rate
|
|
|
Maturity Date
|
|
|
Anticipated
Balance at
Maturity
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
Description of Assets Pledged
|
HASI Sustainable Yield Bond
2013-1
|
|
$
|
68
|
|
|
$
|
75
|
|
|
|
2.79
|
%
|
|
|
December 2019
|
|
|
$
|
57
|
|
|
$
|
87
|
|
|
$
|
93
|
|
|
Financing receivables
|
ABS Loan Agreement
|
|
$
|
79
|
|
|
$
|
90
|
|
|
|
5.74
|
%
|
|
|
September 2021
|
|
|
$
|
17
|
|
|
$
|
80
|
|
|
$
|
97
|
|
|
Equity interest in Strong Upwind Holdings I, LLC
|
HASI Sustainable Yield Bond
2015-1A
|
|
$
|
95
|
|
|
$
|
97
|
|
|
|
4.28
|
%
|
|
|
October 2034
|
|
|
$
|
|
|
|
$
|
137
|
|
|
$
|
138
|
|
|
Financing receivables, real estate and real estate intangibles
|
HASI Sustainable Yield Bond
2015-1B
Note
|
|
$
|
14
|
|
|
$
|
|
|
|
|
5.41
|
%
|
|
|
October 2034
|
|
|
$
|
|
|
|
$
|
137
|
|
|
$
|
|
|
|
Class B Bond of HASI Sustainable Yield Bond
2015-1
|
HASI SYB Loan Agreement
2015-1
|
|
$
|
|
(1)
|
|
$
|
74
|
|
|
$
|
|
(1)
|
|
|
(1)
|
|
|
$
|
|
(1)
|
|
$
|
|
(1)
|
|
$
|
96
|
|
|
Equity interest in Strong Upwind Holdings II and III, LLC, related interest rate swap
|
2017 Credit Agreement
|
|
$
|
198
|
|
|
$
|
|
|
|
|
3.55
|
%
(2)
|
|
|
June 2024
|
|
|
$
|
|
|
|
$
|
243
|
|
|
$
|
|
|
|
Equity interests in Strong Upwind Holdings I, II, III, and IV LLC, and Northern Frontier, LLC
|
HASI SYB Loan Agreement
2015-2
|
|
$
|
37
|
|
|
$
|
41
|
|
|
|
5.41
|
%
(3)
|
|
|
December 2023
|
|
|
$
|
|
|
|
$
|
67
|
|
|
$
|
70
|
|
|
Equity interest in Buckeye Wind Energy Class B Holdings LLC, related interest rate swap
|
HASI SYB Loan Agreement
2015-3
|
|
$
|
146
|
|
|
$
|
150
|
|
|
|
4.92
|
%
|
|
|
December 2020
|
|
|
$
|
127
|
|
|
$
|
172
|
|
|
$
|
175
|
|
|
Residential solar financing receivables, related interest rate swaps
|
HASI SYB Loan Agreement
2016-1
|
|
$
|
118
|
|
|
$
|
98
|
|
|
|
4.37
|
%
(3)
|
|
|
November 2021
|
|
|
$
|
101
|
|
|
$
|
138
|
|
|
$
|
114
|
|
|
Residential solar financing receivables, related interest rate swaps
|
HASI SYB Trust
2016-2
|
|
$
|
86
|
|
|
$
|
|
|
|
|
4.35
|
%
|
|
|
April 2037
|
|
|
$
|
|
|
|
$
|
88
|
|
|
$
|
|
|
|
Financing receivables
|
2017 Master Repurchase Agreement
|
|
$
|
37
|
|
|
$
|
|
|
|
|
3.96
|
%
(3)
|
|
|
July 2019
|
|
|
$
|
31
|
|
|
$
|
41
|
|
|
$
|
|
|
|
Financing receivables and investments
|
HASI ECON 101 Trust
|
|
$
|
134
|
|
|
$
|
|
|
|
|
3.57
|
%
|
|
|
May 2041
|
|
|
$
|
|
|
|
$
|
139
|
|
|
$
|
|
|
|
Financing receivables and investments
|
Other non-recourse debt
(4)
|
|
$
|
85
|
|
|
$
|
84
|
|
|
|
2.26% -
7.45
|
%
|
|
|
2017 to 2046
|
|
|
$
|
|
|
|
$
|
224
|
|
|
$
|
81
|
|
|
Financing receivables
|
Debt issuance costs
(5)
|
|
$
|
(21
|
)
|
|
$
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse
debt
(6)
|
|
$
|
1,076
|
|
|
$
|
692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 20 -
(1)
|
This
non-recourse
debt agreement was
re-financed
in the second quarter of 2017 with the same lender through the 2017 Credit Agreement.
|
(2)
|
Interest rate represents the current periods LIBOR based rate plus the spread. Under the terms of the 2017 Credit Agreement, this rate will become fixed upon the lenders syndication of the loan, or the rate
can be fixed at our option.
|
(3)
|
Interest rate represents the current periods LIBOR based rate plus the spread. Also see the interest rate swap contracts shown in the table below, the value of which are not included in the book value of assets
pledged or the interest rate of the debt instrument.
|
(4)
|
Other
non-recourse
debt consists of various debt agreements used to finance certain of our financing receivables for their term. Debt service payment requirements, in a majority
of cases, are equal to or less than the cash flows received from the underlying financing receivables.
|
(5)
|
Excludes costs of approximately $2 million associated with the 2017 Master Repurchase Agreement that were recorded in other assets due to the nature of the costs.
|
(6)
|
The total collateral pledged against our
non-recourse
debt was $1,416 million and $864 million as of September 30, 2017 and December 31, 2016, respectively.
|
We have pledged the financed assets, and typically our interests in one or more parents or subsidiaries of the borrower
that are legally separate bankruptcy remote special purpose entities as security for the
non-recourse
debt. There is no recourse for repayment of these obligations other than to the applicable borrower and any
collateral pledged as security for the obligations. Generally, the assets and credit of these entities are not available to satisfy any of our other debts and obligations. The creditors can only look to the borrower, the cash flows of the pledged
assets and any other collateral pledged, to satisfy the debt and we are not otherwise liable for nonpayment of such cash flows. The debt agreements contain terms, conditions, covenants, and representations and warranties that are customary and
typical for transactions of this nature, including limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of
proceeds and stock repurchases. The agreements also include customary events of default, the occurrence of which may result in termination of the agreements, acceleration of amounts due, and accrual of default interest. We typically act as servicer
for the debt transactions.
We have guaranteed the performance of the representations and warranties and other obligations of certain of
our subsidiaries under certain of the debt agreements and provided an indemnity against certain losses from bad acts of such subsidiaries including fraud, failure to disclose a material fact, theft, misappropriation, voluntary bankruptcy
or unauthorized transfers. In the case of the debt secured by certain of our renewable energy equity interests, we have also guaranteed the compliance of our subsidiaries with certain tax matters and certain obligations if our joint venture partners
exercise their right to withdraw from our partnerships.
The HASI Sustainable Yield Bond (HASI SYB)
2015-1
consists of two instruments, (i) $101 million in aggregate principal amount of 4.28% HASI SYB
2015-1A,
Class A Bonds (the Class A Bonds)
and (ii) $18 million in aggregate principal amount of 5.0% HASI SYB
2015-1B,
Class B Bonds (the Class B Bonds), both with an anticipated repayment date in October 2034. The
Class A Bonds rank senior to the Class B Bonds in priority of payment. In January 2017, we borrowed $14 million of
non-recourse
debt using the Class B Bonds as collateral.
In connection with several of our
non-recourse
debt borrowings, we have entered into the following
interest rate swaps that are designated as cash flow hedges (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Value as of
|
|
|
Fair Value as of
|
|
|
|
|
|
Base
Rate
|
|
Hedged
Rate
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
Term
|
HASI SYB Loan Agreement
2015-1
(1)
|
|
3 month
Libor
|
|
|
1.55
|
%
|
|
$
|
|
|
|
$
|
67
|
|
|
$
|
|
|
|
$
|
|
|
|
December 2015 to September 2021
|
HASI SYB Loan Agreement
2015-2
|
|
3 month
Libor
|
|
|
1.52
|
%
|
|
$
|
36
|
|
|
$
|
37
|
|
|
$
|
|
|
|
$
|
|
|
|
December 2015 to December 2018
|
HASI SYB Loan Agreement
2015-2
|
|
3 month
Libor
|
|
|
2.55
|
%
|
|
$
|
29
|
|
|
$
|
29
|
|
|
$
|
(0.3
|
)
|
|
$
|
(0.2
|
)
|
|
December 2018 to December 2024
|
HASI SYB Loan Agreement
2015-3
|
|
1 month
Libor
|
|
|
2.34
|
%
|
|
$
|
119
|
|
|
$
|
119
|
|
|
$
|
(0.1
|
)
|
|
$
|
1.0
|
|
|
November 2020 to August 2028
|
HASI SYB Loan Agreement
2016-1
|
|
3 month
Libor
|
|
|
1.88
|
%
|
|
$
|
119
|
|
|
$
|
72
|
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
November 2016
to November 2021
|
HASI SYB Loan Agreement
2016-1
|
|
3 month
Libor
|
|
|
2.73
|
%
|
|
$
|
107
|
|
|
$
|
107
|
|
|
$
|
(1.0
|
)
|
|
$
|
|
|
|
November 2021 to October 2032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
410
|
|
|
$
|
431
|
|
|
$
|
(1.3
|
)
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
This interest rate swap was financially settled in June 2017.
|
The total fair value of our
derivatives relating to interest rate hedges that are effective in offsetting variable cash flows is reflected as unrealized gains or losses in AOCI and in other assets or accounts payable, accrued expenses and other in the condensed
- 21 -
consolidated balance sheets. As of September 30, 2017 and December 31, 2016, all of our derivatives were designated as hedging instruments. The following is an analysis of the financial
statement line item impacted by our cash flow hedges in our condensed consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
(dollars in thousands)
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Total interest expense
|
|
$
|
17,584
|
|
|
$
|
10,635
|
|
|
$
|
46,728
|
|
|
$
|
32,945
|
|
Impact of hedging
|
|
$
|
201
|
|
|
$
|
253
|
|
|
$
|
798
|
|
|
$
|
1,042
|
|
Our future stated minimum maturities of
non-recourse
debt are as
follows:
|
|
|
|
|
|
|
(dollars
in
millions)
|
|
October 1, 2017 to December 31, 2017
|
|
$
|
24
|
|
2018
|
|
|
51
|
|
2019
|
|
|
142
|
|
2020
|
|
|
178
|
|
2021
|
|
|
146
|
|
2022
|
|
|
21
|
|
Thereafter
|
|
|
535
|
|
|
|
|
|
|
|
|
$
|
1,097
|
|
Deferred financing costs, net
|
|
|
(21
|
)
|
|
|
|
|
|
Total
non-recourse
debt
|
|
$
|
1,076
|
|
|
|
|
|
|
The stated minimum maturities of
non-recourse
debt above include only
the mandatory minimum principal payments. To the extent there are additional cash flows received from Buckeye Wind Energy Class B Holdings LLC, these additional cash flows are required to be used to make additional principal payments against
the respective debt. Any additional principal payments made due to these provisions may impact the anticipated balance at maturity of these financings.
SunPower, which originated and services the residential solar leases that are the collateral for the HASI SYB Loan Agreement
2015-3
and the HASI SYB Loan Agreement
2016-1,
had publicly disclosed that they were not in compliance and did not expect to be in compliance for 2017, with a
debt-to-EBITDA
leverage covenant in one of their loan agreements, due in part to a restructuring they have undertaken as result of changes in the broader solar market.
According to SunPowers disclosure, they were not in default under this cash collateralized loan that had an outstanding balance of $5 million. In June 2017, SunPower negotiated an amendment to their loan agreement and removed the
debt-to-EBITDA
leverage covenant.
The portfolios of residential
solar leases are held in bankruptcy remote special purpose entities (SPEs) that are performing in line with our expectations and the SPEs, and not SunPower, are the source of repayment under our loans. SunPower has provided us certain
limited indemnities and warranties and as servicer, provides various services including billing, monitoring payments by homeowners to a third-party lockbox and customer service. Our loan agreements included the same
debt-to-EBITDA
covenant referred to above to monitor changes in SunPowers credit, as is typical for a servicer. As a result, our lenders are entitled to apply approximately $1 million of the cash
flow after payment of principal and interest each quarter to further reduce the principal balance on our loan. We continue to monitor the situation and anticipate having further discussions with our lenders and with SunPower but at the present time,
do not anticipate any other impact.
Convertible Senior Notes
In August 2017, we issued $150 million aggregate principal amount ($145 million net of issuance costs) of 4.125% convertible senior
notes due September 1, 2022 (Convertible Notes). Holders may convert any of their Convertible Notes into shares of our common stock at the applicable conversion rate at any time prior to the close of business on the second scheduled
trading day immediately preceding the maturity date, unless the Convertible Notes have been previously redeemed or repurchased by us. The Convertible Notes are senior unsecured obligations of ours and have an initial conversion rate of 36.7101
shares for each $1,000 principal amount of Convertible Notes which is equal to a total of approximately 5.5 million shares. The conversion rate is subject to adjustment for dividends declared above $.33 per share per quarter and certain other
events that may be dilutive to the holder. As of September 30, 2017, none of these dilutive events have occurred and the conversion rate remains at the initial rate.
- 22 -
Following the occurrence of a make-whole fundamental change, we will, in certain circumstances,
increase the conversion rate for a holder that converts its Convertible Notes in connection with such make-whole fundamental change. There are no cash settlement provisions in the Convertible Notes and the conversion option can only be settled
through physical delivery of our common stock. Additionally, upon the occurrence of certain fundamental changes involving us, holders of the Convertible Notes may require us to redeem all or a portion of their Convertible Notes for cash at a price
of 100% of the principal amount outstanding, plus accrued and unpaid interest.
We have a redemption option to call the
Convertible Notes prior to maturity (i) on or after March 1, 2022 and (ii) at any time if such a redemption is deemed reasonably necessary to preserve our qualification as a REIT. The redemption price will be equal to the principal of
the notes being redeemed, plus accrued and unpaid interest. In the event of redemption after March 1, 2022, there will be an additional make-whole premium paid to the holder of the redeemed notes unless the redemption is deemed reasonably
necessary to preserve our qualification as a REIT.
The following table presents a summary of the components of the Convertible Notes
(dollars in millions):
|
|
|
|
|
|
|
September 30,
2017
|
|
Principal
|
|
$
|
150
|
|
Accrued interest
|
|
|
1
|
|
Less:
|
|
|
|
|
Unamortized financing costs
|
|
|
(5
|
)
|
|
|
|
|
|
Carrying value of Convertible Notes
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
|
During the three and nine months ended September 30, 2017, we recorded $0.8 million in interest
expense related to the Convertible Notes.
9.
|
Commitments and Contingencies
|
Litigation
The nature of our operations exposes us to the risk of claims and litigation in the normal course of our business. Other than
non-material
litigation arising out of the ordinary course of business, we are not currently subject to any legal proceedings that are probable of having a material adverse effect on our financial position, results
of operations or cash flows.
We recorded a tax expense of approximately $0.1 million for the nine
months ended September 30, 2017 and 2016, and less than $0.1 million for the three months ended September 30, 2017 and 2016. Our income tax expense was determined using a federal rate of 35% and a combined state rate, net of federal
benefit, of 5%.
Dividends and Distributions
Our board of directors declared the following dividends in 2016 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Announced Date
|
|
Record Date
|
|
|
Pay Date
|
|
|
Amount per
share
|
|
3/15/16
|
|
|
3/30/16
|
|
|
|
4/7/16
|
|
|
$
|
0.30
|
|
6/07/16
|
|
|
7/06/16
|
|
|
|
7/14/16
|
|
|
$
|
0.30
|
|
9/15/16
|
|
|
10/05/16
|
|
|
|
10/13/16
|
|
|
$
|
0.30
|
|
12/13/16
|
|
|
12/29/16
|
(1)
|
|
|
1/12/17
|
|
|
$
|
0.33
|
|
3/15/17
|
|
|
4/05/17
|
|
|
|
4/13/17
|
|
|
$
|
0.33
|
|
6/01/17
|
|
|
7/06/17
|
|
|
|
7/13/17
|
|
|
$
|
0.33
|
|
9/12/17
|
|
|
10/05/17
|
|
|
|
10/16/17
|
|
|
$
|
0.33
|
|
(1)
|
This dividend was treated as a distribution in 2017 for tax purposes.
|
- 23 -
We have an effective universal shelf registration statement registering the potential offer and
sale, from time to time and in one or more offerings, of any combination of our common stock, preferred stock, depositary shares, debt securities, warrants and rights (collectively referred to as the securities). We may offer the
securities directly, through agents, or to or through underwriters by means of ordinary brokers transactions on the NYSE or otherwise at market prices prevailing at the time of sale or at negotiated prices and may include at the
market (ATM) offerings or sales at the market, to or through a market maker or into an existing trading market on an exchange or otherwise. We completed the following public offerings and ATM offerings of our common
stock in 2016 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Date
|
|
Common Stock
Offerings
|
|
Shares Issued
(1)
|
|
|
Price
Per
Share
|
|
|
Net
Proceeds
(2)
|
|
|
|
|
|
(amounts
in
millions,
except
per
share
amounts)
|
|
6/21/16
|
|
Public Offering
|
|
|
4.600
|
|
|
$
|
19.78
|
(3)
|
|
$
|
91
|
|
5/9/16 to 6/30/16
|
|
ATM
|
|
|
0.065
|
|
|
$
|
20.31
|
(4)
|
|
$
|
1
|
|
11/09/16
|
|
Public Offering
|
|
|
4.025
|
|
|
$
|
19.28
|
(3)
|
|
$
|
77
|
|
12/13/16 to 12/29/16
|
|
ATM
|
|
|
0.407
|
|
|
$
|
19.47
|
(4)
|
|
$
|
8
|
|
1/20/17 to 2/2/17
|
|
ATM
|
|
|
0.197
|
|
|
$
|
19.18
|
(4)
|
|
$
|
4
|
|
3/10/17
|
|
Public Offering
|
|
|
3.450
|
|
|
$
|
18.73
|
(3)
|
|
$
|
64
|
|
5/17/17 to 6/22/17
|
|
ATM
|
|
|
1.376
|
|
|
$
|
22.71
|
(4)
|
|
$
|
31
|
|
(1)
|
Includes shares issued in connection with the exercise of the underwriters option to purchase additional shares.
|
(2)
|
Net proceeds from the offerings is shown after deducting underwriting discounts, commissions and other offering costs.
|
(3)
|
Represents the price per share at which the underwriters in our public offerings purchased our shares.
|
(4)
|
Represents the average price per share at which investors in our ATM offerings purchased our shares.
|
Awards of Shares of Restricted Common Stock and Restricted Stock Units under our 2013 Plan
We have issued awards with service, performance and market conditions. During the nine months ended September 30, 2017, our board of
directors awarded employees and directors 707,648 shares of restricted stock and restricted stock units that vest from 2017 to 2021. As of September 30, 2017, as it relates to previously issued restricted stock awards with performance
conditions, we have concluded that it is probable that the performance conditions will be met.
- 24 -
For the three and nine months ended September 30, 2017, we recorded $3 million and
$8 million, respectively, of equity-based compensation expense as compared to $3 million and $7 million, respectively, for the three and nine months ended September 30, 2016. The total unrecognized compensation expense related to
awards of shares of restricted stock and restricted stock units was approximately $15 million as of September 30, 2017. We expect to recognize compensation expense related to these awards over a weighted-average term of approximately two
years. A summary of the unvested shares of restricted common stock that have been issued is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Shares of
Common Stock
|
|
|
Weighted Average
Share Price
|
|
|
Value
(in millions)
|
|
Ending Balance December 31, 2015
|
|
|
1,248,069
|
|
|
$
|
15.16
|
|
|
$
|
18.9
|
|
Granted
|
|
|
661,055
|
|
|
|
18.62
|
|
|
|
12.3
|
|
Vested
|
|
|
(716,264
|
)
|
|
|
14.03
|
|
|
|
(10.0
|
)
|
Forfeited
|
|
|
(11,188
|
)
|
|
|
17.25
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance December 31, 2016
|
|
|
1,181,672
|
|
|
$
|
17.76
|
|
|
$
|
21.0
|
|
Granted
|
|
|
451,614
|
|
|
|
19.04
|
|
|
|
8.6
|
|
Vested
|
|
|
(217,833
|
)
|
|
|
14.15
|
|
|
|
(3.1
|
)
|
Forfeited
|
|
|
(4,519
|
)
|
|
|
18.72
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance September 30, 2017
|
|
|
1,410,934
|
|
|
$
|
18.72
|
|
|
$
|
26.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the unvested shares of restricted stock units that have market based vesting conditions that have
been issued is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
Units
(1)
|
|
|
Weighted Average
Share Price
|
|
|
Value
(in millions)
|
|
Ending Balance December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
256,034
|
|
|
$
|
18.99
|
|
|
$
|
4.9
|
|
Vested
|
|
|
(376
|
)
|
|
|
18.99
|
|
|
|
|
|
Forfeited
|
|
|
(1,202
|
)
|
|
|
18.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance September 30, 2017
|
|
|
254,456
|
|
|
$
|
18.99
|
|
|
$
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As discussed in Note 2 these restricted stock units vest between 0% and 200% of the target. The amounts shown represent the number of restricted stock units at 100% of target.
|
12.
|
Earnings per Share of Common Stock
|
Both the net income or loss attributable to the
non-controlling
OP units and the
non-controlling
limited partners outstanding OP units have been excluded from net income or loss and the diluted earnings per share
calculation attributable to common stockholders.
Unvested share-based payment awards that contain
non-forfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the
two-class
method. Any shares of or rights to common stock which, if included in the diluted earnings per share calculation, would have an anti-dilutive effect have been excluded from the diluted earnings per share
calculation. Additionally, as described in Note 2, the Convertible Notes have been considered in the diluted earnings per share calculation using the
if-converted
method.
- 25 -
The computation of basic and diluted earnings per common share of common stock is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
Numerator:
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in millions, except share and per share data)
|
|
Net income attributable to controlling stockholders and participating securities
|
|
$
|
7.9
|
|
|
$
|
3.3
|
|
|
$
|
27.5
|
|
|
$
|
10.2
|
|
Less: Dividends paid on participating securities
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
|
(1.5
|
)
|
|
|
(1.3
|
)
|
Undistributed earnings attributable to participating securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to controlling stockholders
|
|
$
|
7.5
|
|
|
$
|
2.9
|
|
|
$
|
26.0
|
|
|
$
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares basic
|
|
|
51,655,868
|
|
|
|
41,988,036
|
|
|
|
49,924,224
|
|
|
|
38,924,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares diluted
|
|
|
51,655,868
|
|
|
|
41,988,036
|
|
|
|
49,924,224
|
|
|
|
38,924,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of OP units
|
|
|
284,992
|
|
|
|
284,992
|
|
|
|
284,992
|
|
|
|
284,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted common stock outstanding as of
|
|
|
1,410,934
|
|
|
|
1,323,460
|
|
|
|
1,410,934
|
|
|
|
1,323,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock units outstanding as of
|
|
|
254,456
|
|
|
|
|
|
|
|
254,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Equity Method Investments
|
We have
non-controlling
unconsolidated equity investments in renewable energy projects or entities that own minority interests in renewable energy projects and in one case, real estate. We recognized income from our
equity method investments of $6.9 million and $19.4 million during the three and nine months ended September 30, 2017, respectively, as compared to income of $1.3 million and $2.7 million during the three and nine months
ended September 30, 2016. We describe our accounting for equity method investments in Note 2.
The following is a summary of the
consolidated financial position and results of operations of the significant entities accounted for using the equity method.
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2017
|
|
|
As of
December 31, 2016
|
|
|
|
(dollars
in
millions,
unaudited)
|
|
Current assets
|
|
$
|
4
|
|
|
$
|
3
|
|
Total assets
|
|
$
|
115
|
|
|
$
|
99
|
|
Current liabilities
|
|
$
|
5
|
|
|
$
|
4
|
|
Total liabilities
|
|
$
|
37
|
|
|
$
|
39
|
|
Members equity
|
|
$
|
78
|
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months
ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(dollars
in
millions,
unaudited)
|
|
Revenue
|
|
$
|
7
|
|
|
$
|
6
|
|
Income from continuing operations
|
|
$
|
3
|
|
|
$
|
1
|
|
Net income
|
|
$
|
3
|
|
|
$
|
1
|
|
- 26 -