ANNAPOLIS, Md., Aug. 2,
2018 /PRNewswire/ -- Hannon Armstrong Sustainable
Infrastructure Capital, Inc. ("Hannon
Armstrong," "we," "our" or the "Company") (NYSE: HASI), a
capital and services provider focused on sustainable infrastructure
markets that address climate change, today reported quarterly
results.
Second Quarter 2018 Highlights
- Delivered $0.32 GAAP EPS in the
second quarter of 2018, compared to $0.23 in the second quarter of 2017
- Delivered $0.39 Core EPS in the
second quarter of 2018, compared to $0.34 in the second quarter of 2017
- Confirming expected 2018 annual Core EPS growth over 2017 to be
between 2% to 6%, equivalent to $1.32
at the midpoint
- Pipeline remains over $2.5
billion
- Closed approximately $200 million
of transactions during the three months ended June 30, 2018, continue to target $1 billion for the year
- Maintained a fixed-rate debt level of 89% as of June 30, 2018
- An estimated 62,000 metric tons of annual carbon emissions will
be offset by second quarter transactions equating to a CarbonCount®
score of 0.31 metric tons per $1,000
invested
- Became a signatory to the UN Global Compact in July 2018, the world's largest voluntary
corporate sustainability initiative
"As expected, we securitized a higher percentage of investments
in the quarter, thus, generating higher core earnings," said
Jeffrey Eckel, President &
CEO. "The flexibility in our business model allows us to take
advantage of securitization markets, when the broader rate
environment - like the one we continue to experience today, is less
attractive for adding assets to our balance sheet. As a
result -- and as previously discussed -- we expect some variability
in earnings over the next several quarters," continued
Eckel. "Our identified investment pipeline remains robust and
our end markets continue to expand. We are pleased to
announce our first stormwater remediation investment, which we made
this quarter. Environmental stewardship continues to be a
driving force for our investments and we look forward to the
continued expansion in this particular market, among others
addressing climate change impact, mitigation and resiliency."
A summary of our results is shown in the table below:
|
|
For the Three
Months Ended
June 30, 2018
|
|
For the Three
Months Ended
June 30, 2017
|
|
|
$ in
thousands
|
|
Per Share
|
|
$ in
thousands
|
|
Per Share
|
GAAP Net
Income
|
$
|
17,262
|
|
|
$
|
0.32
|
|
|
$
|
12,340
|
|
|
$
|
0.23
|
|
Core Earnings
(1)
|
$
|
20,846
|
|
|
$
|
0.39
|
|
|
$
|
17,866
|
|
|
$
|
0.34
|
|
|
|
For the Six Months
Ended
June 30, 2018
|
|
For the Six Months
Ended
June 30, 2017
|
|
|
$ in
thousands
|
|
Per Share
|
|
$ in
thousands
|
|
Per Share
|
GAAP Net
Income
|
$
|
16,039
|
|
|
$
|
0.29
|
|
|
$
|
19,539
|
|
|
$
|
0.38
|
|
Core Earnings
(1)
|
$
|
35,123
|
|
|
$
|
0.65
|
|
|
$
|
33,362
|
|
|
$
|
0.66
|
|
|
|
(1)
|
The difference
between GAAP net income and core earnings is primarily the result
of adjusting for a return on capital from our
equity investments in renewable energy projects and adding back
non-cash equity-based compensation. A reconciliation of our
GAAP net income to core earnings is included in this press
release.
|
Second Quarter 2018 Financial Results
Revenue grew by approximately $8
million, or 27%, for the three months, and approximately
$12 million, or 22%, for the six
months ended June 30, 2018, as
compared to the same periods in 2017. Increases in the quarter and
year to date were primarily driven by higher gain on sale and fee
income of approximately $7 million
and $10 million, respectively, due to
increased securitization activity. The revenue growth was offset by
an approximately $4 million increase
in interest expense for the three months, and an approximately
$9 million increase for the six
months ended June 30, 2018, as
compared to the same periods in 2017. This increase was primarily
the result of higher average outstanding borrowings, a higher
percentage of fixed-rate debt and an increase in interest
rates.
Other expenses (compensation and benefits and general and
administrative expenses) increased by $1
million for both GAAP and core for the three months, and by
$2 million (GAAP) and by $3 million (core) for the six months ended
June 30, 2018, as compared to the
same period in 2017 due primarily to an increase in the size of the
Company.
For the second quarter, income from equity method investments
increased by approximately $2 million
due in large part to one-time changes in tax law recognized in the
quarter. On a year to date basis, income from equity method
investments decreased by approximately $4
million primarily as a result of a non-cash HLBV loss on an
equity method investment recorded in the first quarter of 2018.
For the three months ended June 30,
2018, we recognized a GAAP net income of $17 million for the quarter, an increase of
$5 million over the same quarter last
year. On a year to date basis, GAAP net income decreased by
approximately $4 million as a result
of the equity method loss in the first quarter discussed above.
Core earnings grew by approximately $3
million over the same quarter last year primarily due to the
increase in gain on sale income. Core earnings grew by
approximately $2 million for the six
months ended June 30, 2018 over the
same periods in 2017 primarily as a result of higher core earnings
from our equity method investments. For additional information
please see "Explanatory Notes - Non-GAAP Financial Measures - Core
Earnings."
A reconciliation of our GAAP net income to core earnings is
included in this press release.
The calculation of our fixed-rate debt and leverage ratios as of
June 30, 2018 and 2017 are shown in
the chart below:
|
June 30,
2018
|
|
% of Total
|
|
June 30,
2017
|
|
% of Total
|
|
($ in
millions)
|
|
|
|
($ in
millions)
|
|
|
Floating-rate
borrowings (1)
|
$
|
159
|
|
|
11
|
%
|
|
$
|
599
|
|
|
46
|
%
|
Fixed-rate debt
(2)
|
1,290
|
|
|
89
|
%
|
|
715
|
|
|
54
|
%
|
Total
|
$
|
1,449
|
|
|
100
|
%
|
|
$
|
1,314
|
|
|
100
|
%
|
Leverage
(3)
|
2.2 to 1
|
|
|
|
2.0 to 1
|
|
|
|
|
(1)
|
Floating-rate
borrowings include borrowings under our floating-rate credit
facilities and approximately $56 million and $207 million of
nonrecourse debt with floating rate exposure as of June 30, 2018
and June 30, 2017, respectively. Approximately $32 million of the
June 30, 2018 floating rate exposure is hedged beginning in
2019.
|
|
|
(2)
|
Fixed-rate debt also
includes the present notional value of nonrecourse debt that is
hedged using interest rate swaps. Debt excludes securitizations
that are not consolidated on our balance sheet.
|
|
|
(3)
|
Leverage, as measured
by our debt-to-equity ratio. This calculation excludes
securitizations that are not consolidated on our balance sheet
(where the collateral is typically financing receivables with U.S.
government obligors).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
"Increased gain on sale securitizations offset the impact of the
cost of our continued high level of fixed rate debt in the
quarter," said Brendan Herron, Chief
Financial Officer. "We expect our fixed-rate debt level to
stay near or slightly above the high end of our 60% to 85% fixed
debt target range given the continued focus of the Fed on raising
short-term rates."
Portfolio
Our Portfolio totaled approximately $2.0
billion as of June 30, 2018,
and included approximately $1.0 billion of behind-the-meter assets,
approximately $0.9 billion of
grid-connected assets and approximately $0.1 billion of other sustainable
infrastructure investments. The following is an analysis of our
Portfolio as of June 30, 2018:
|
Investment
Grade
|
|
|
|
|
|
|
|
Government (1)
|
|
Commercial
(2)
|
|
Commercial
Non-Investment
Grade (3)
|
|
Subtotal,
Debt and
Real Estate
|
|
Equity
Method
Investments
|
|
Total
|
|
($ in
millions)
|
Equity
investments in
renewable energy
projects
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
439
|
|
|
$
|
439
|
|
Receivables and
investments
|
632
|
|
|
512
|
|
|
8
|
|
|
1,152
|
|
|
—
|
|
|
1,152
|
|
Real estate
(4)
|
—
|
|
|
355
|
|
|
—
|
|
|
355
|
|
|
22
|
|
|
377
|
|
Total
|
$
|
632
|
|
|
$
|
867
|
|
|
$
|
8
|
|
|
$
|
1,507
|
|
|
$
|
461
|
|
|
$
|
1,968
|
|
Average
remaining balance(5)
|
$
|
11
|
|
|
$
|
9
|
|
|
$
|
4
|
|
|
$
|
10
|
|
|
$
|
17
|
|
|
$
|
11
|
|
|
|
(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 $394 million of U.S. federal
government transactions and $238 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.
|
(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
receivables include $310 million of internally rated residential
solar loans made on a non-recourse basis to special purpose
subsidiaries of the SunPower Corporation, for which we rely on
certain limited indemnities, warranties, and other obligations of
the SunPower Corporation or its other subsidiaries.
|
(3)
|
Transactions where
the projects or the ultimate obligors are commercial entities that
have ratings below investment grade (either by an independent
rating agency or using our internal credit analysis).
|
(4)
|
Includes the real
estate and the lease intangible assets (including those held
through equity method investments) from which we receive scheduled
lease payments, typically under long-term triple net lease
agreements.
|
(5)
|
Excludes
approximately 150 transactions each with outstanding balances that
are less than $1 million and that in the aggregate total $57
million.
|
Guidance
The Company is confirming its previously issued 2018 guidance
for annual core earnings per share growth of 2% to 6% for 2018
compared to 2017 and its three-year guidance with respect to core
earnings per share growth, on a compounded annual basis over the
next three years, in the 2% to 6% range.
This guidance reflects the Company's estimates of (i) yield
on its existing Portfolio; (ii) yield on incremental Portfolio
investments, inclusive of the Company's existing pipeline;
(iii) amount, timing, and costs of debt and equity capital to
fund new investments; (iv) changes in costs and expenses
reflective of the Company's forecasted operations, and (v) the
general interest rate and market environment. All guidance is based
on current expectations of future economic conditions, the
regulatory environment, the dynamics of the markets in which it
operates and the judgment of the Company's management team. The
Company has not provided GAAP guidance as discussed in the Non-GAAP
Financial Measures section of this press release.
Conference Call and Webcast Information
Hannon Armstrong will host an
investor conference call today, August 2,
2018, at 5:00 pm eastern time.
The conference call can be accessed live over the phone by dialing
1-866-548-4713, or for international callers, 1-323-794-2093. A
replay will be available two hours after the call and can be
accessed by dialing 1-844-512-2921, or for international callers,
1-412-317-6671. The passcode for the live call and the replay
is 9870331. The replay will be available until August 9, 2018.
A webcast of the conference call will also be available through
the Investor Relations section of our website, at
www.hannonarmstrong.com. A copy of this press release is also
available on our website.
About Hannon Armstrong
Hannon Armstrong (NYSE: HASI) is
a capital and services provider to the sustainable infrastructure
markets, focused on reducing climate changing greenhouse gas
emissions ("GHG" or carbon emissions) as well as mitigating the
impact of, or increasing resiliency to, climate change. Our
goal is to generate attractive returns for our stockholders by
investing capital in assets that generate long-term, recurring and
predictable cash flows or cost savings from proven technologies. We
also provide services to the various partners and counterparties in
the markets where we invest. Our management team has extensive
relevant industry knowledge and experience, dating back more than
30 years. With scientific consensus that climate warming trends are
linked to human activities and resulting in various extreme weather
events, we believe our firm is well positioned to generate better
risk-adjusted returns by investing in the assets, and providing
services to the firms, that reduce carbon emissions. Further, with
increasing weather-related events affecting certain areas of our
markets, we see similar investment and services opportunities in
infrastructure assets that mitigate the impact of, and increase the
resiliency to, these weather events and climate change. We are
based in Annapolis, MD.
Forward-Looking Statements:
Some of the information contained in this press release is
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended that are subject to
risks and uncertainties. For these statements, we claim the
protections of the safe harbor for forward-looking statements
contained in such Sections. These forward-looking statements
include information about possible or assumed future results of our
business, financial condition, liquidity, results of operations,
plans and objectives. When we use the words "believe," "expect,"
"anticipate," "estimate," "plan," "continue," "intend," "should,"
"may" or similar expressions, we intend to identify forward-looking
statements.
Forward-looking statements are subject to significant risks
and uncertainties. Investors are cautioned against placing undue
reliance on such statements. Actual results may differ materially
from those set forth in the forward-looking statements. Factors
that could cause actual results to differ materially from those
described in the forward-looking statements include those discussed
under the caption "Risk Factors" included in our most recent Annual
Report on Form 10-K for the year ended December 31, 2017 as amended by our Amendment
No. 1 to our Annual Report on Form 10-K for the year ended
December 31, 2017 (collectively, our
"2017 Form 10-K") that was filed with the U.S. Securities and
Exchange Commission (the "SEC"), as well as in other periodic
reports that we file with the SEC. Statements regarding the
following subjects, among others, may be forward-looking:
- our expected returns and performance of our
investments;
- the state of government legislation, regulation and policies
that support or enhance the economic feasibility of sustainable
infrastructure projects, including energy efficiency and renewable
energy projects and the general market demands for such
projects;
- market trends in our industry, energy markets, commodity
prices, interest rates, the debt and lending markets or the general
economy;
- our business and investment strategy;
- availability of opportunities to invest in projects that
reduce greenhouse gas emissions or mitigate the impact of climate
change including energy efficiency and renewable energy projects
and our ability to complete potential new opportunities in our
pipeline;
- our relationships with originators, investors, market
intermediaries and professional advisers;
- competition from other providers of capital;
- our or any other companies' projected operating
results;
- actions and initiatives of the federal, state and local
governments and changes to federal, state and local government
policies, regulations, tax laws and rates and the execution and
impact of these actions, initiatives and policies;
- the state of the U.S. economy generally or in specific
geographic regions, states or municipalities, economic trends and
economic recoveries;
- our ability to obtain and maintain financing arrangements on
favorable terms, including securitizations;
- general volatility of the securities markets in which we
participate;
- changes in the value of our assets, our portfolio of assets
and our investment and underwriting process;
- the impact of weather conditions, natural disasters,
accidents or equipment failures or other events that disrupt the
operation of our investments or negatively impact on the value our
assets;
- rates of default or decreased recovery rates on our
assets;
- interest rate and maturity mismatches between our assets and
any borrowings used to fund such assets;
- changes in interest rates, including the flattening of the
yield curve, and the market value of our assets and target
assets;
- changes in commodity prices, including continued low natural
gas prices;
- effects of hedging instruments on our assets or
liabilities;
- the degree to which our hedging strategies may or may not
protect us from risks, such as interest rate volatility;
- impact of and changes in accounting guidance and similar
matters;
- our ability to maintain our qualification as a real estate
investment trust for U.S. federal income tax purposes (a
"REIT");
- our ability to maintain our exemption from registration
under the Investment Company Act of 1940, as amended (the "1940
Act");
- availability of and our ability to attract and retain
qualified personnel;
- estimates relating to our ability to generate sufficient
cash in the future to operate our business and to make
distributions to our stockholders; and
- our understanding of our competition.
Forward-looking statements are based on beliefs, assumptions
and expectations as of the date of this press release. Any forward-
looking statement speaks only as of the date on which it is made.
New risks and uncertainties arise over time, and it is not possible
for us to predict those events or how they may affect us. Except as
required by law, we are not obligated to, and do not intend to,
update or revise any forward-looking statements after the date of
this earnings release, whether as a result of new information,
future events or otherwise.
The confirmed guidance reflects the Company's estimates of
(i) yield on its existing Portfolio; (ii) yield on
incremental Portfolio investments, inclusive of the Company's
existing pipeline; (iii) amount, timing, and costs of debt and
equity capital to fund new investments; (iv) changes in costs
and expenses reflective of the Company's forecasted operations and
(v) the general interest rate and market environment. All
guidance is based on current expectations of future economic
conditions, the regulatory environment, the dynamics of the markets
in which it operates and the judgment of the Company's management
team.
The Company has not provided GAAP guidance as forecasting a
comparable GAAP financial measure, such as net income, would
require that the Company apply the HLBV method to these
investments. In order to forecast under the HLBV method, the
Company would be required to make various assumptions related to
expected changes in the net asset value of the various entities and
how such changes would be allocated under HLBV. GAAP HLBV earnings
over a period of time are very sensitive to these assumptions
especially in regard to when a partnership transactions flips and
thus the liquidation scenarios change materially. The Company
believes that these assumptions would require unreasonable efforts
to complete and if completed, the wide variation in projected GAAP
earnings based upon a range of scenarios would not be meaningful to
investors. Accordingly, the Company has not included a GAAP
reconciliation table related to any Core Earnings guidance.
Estimates of incremental costs due to fixed rate debt is
based on the ending balance and debt rate in the current quarter
compared to the average debt rate in the comparable quarter in the
prior year and uses the weighted average share count used for core
earnings for the current quarter. Estimated carbon savings
are calculated using the estimated kilowatt hours ("kWh"), gallons
of fuel oil, million British thermal units ("MMBtus") of natural
gas and gallons of water saved as appropriate, for each project.
The energy savings are converted into an estimate of metric tons of
CO2 equivalent emissions based upon the project's location and the
corresponding emissions factor data from the U.S. Government and
International Energy Agency. Portfolios of projects are represented
on an aggregate basis.
The risks included here are not exhaustive. Our most recent
quarterly report on Form 10‐Q, annual report on
Form10‐K, or other regulatory filings may include additional
factors that could adversely affect our business and financial
performance. Moreover, we operate in a very competitive and rapidly
changing environment. New risk factors emerge from time to time and
it is not possible for management to predict all such risk factors,
nor can it assess the impact of all such risk factors on our
business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual
results.
Investor Relations
410-571-6189
investors@hannonarmstrong.com
HANNON ARMSTRONG
SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN
THOUSANDS, EXCEPT PER SHARE DATA)
|
|
|
For the Three
Months
Ended June 30,
|
|
For the Six
Months
Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenue
|
|
|
|
|
|
|
|
Interest income,
receivables
|
$
|
12,756
|
|
|
$
|
13,637
|
|
|
$
|
25,604
|
|
|
$
|
27,755
|
|
Interest income,
investments
|
1,589
|
|
|
1,358
|
|
|
3,129
|
|
|
2,301
|
|
Rental
income
|
5,967
|
|
|
4,863
|
|
|
11,909
|
|
|
8,972
|
|
Gain on sale of
receivables and investments
|
14,208
|
|
|
7,726
|
|
|
20,465
|
|
|
11,675
|
|
Fee income
|
1,306
|
|
|
691
|
|
|
2,627
|
|
|
1,372
|
|
Total
revenue
|
35,826
|
|
|
28,275
|
|
|
63,734
|
|
|
52,075
|
|
Expenses
|
|
|
|
|
|
|
|
Interest
expense
|
19,033
|
|
|
15,361
|
|
|
37,744
|
|
|
29,144
|
|
Compensation and
benefits
|
6,335
|
|
|
5,659
|
|
|
11,656
|
|
|
10,385
|
|
General and
administrative
|
3,535
|
|
|
3,139
|
|
|
6,336
|
|
|
5,327
|
|
Total
expenses
|
28,903
|
|
|
24,159
|
|
|
55,736
|
|
|
44,856
|
|
Income before
equity method investments
|
6,923
|
|
|
|
4,116
|
|
|
7,998
|
|
|
7,219
|
|
Income (loss) from
equity method investments
|
10,583
|
|
|
8,377
|
|
|
8,298
|
|
|
12,548
|
|
Income (loss)
before income taxes
|
17,506
|
|
|
12,493
|
|
|
16,296
|
|
|
19,767
|
|
Income tax (expense)
benefit
|
(153)
|
|
|
(83)
|
|
|
(171)
|
|
|
(114)
|
|
Net income
(loss)
|
$
|
17,353
|
|
|
$
|
12,410
|
|
|
$
|
16,125
|
|
|
$
|
19,653
|
|
Net income (loss)
attributable to non-controlling
interest holders
|
91
|
|
|
70
|
|
|
86
|
|
|
114
|
|
Net income (loss)
attributable to controlling
stockholders
|
$
|
17,262
|
|
|
$
|
12,340
|
|
|
$
|
16,039
|
|
|
$
|
19,539
|
|
Basic earnings per
common share
|
$
|
0.32
|
|
|
$
|
0.23
|
|
|
$
|
0.29
|
|
|
$
|
0.38
|
|
Diluted earnings per
common share
|
$
|
0.32
|
|
|
$
|
0.23
|
|
|
$
|
0.29
|
|
|
$
|
0.38
|
|
Weighted average
common shares outstanding—
basic
|
52,051,253
|
|
|
50,573,996
|
|
|
51,882,021
|
|
|
49,044,051
|
|
Weighted average
common shares outstanding—
diluted
|
52,051,253
|
|
|
50,573,996
|
|
|
51,882,021
|
|
|
49,044,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HANNON ARMSTRONG
SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
|
|
|
June 30,
2018
|
|
December 31,
2017
|
Assets
|
|
|
|
Equity method
investments
|
$
|
461,159
|
|
|
$
|
522,615
|
|
Government
receivables
|
511,700
|
|
|
519,485
|
|
Commercial
receivables
|
468,402
|
|
|
473,452
|
|
Receivables
held-for-sale
|
18,078
|
|
|
19,081
|
|
Real
estate
|
355,200
|
|
|
340,824
|
|
Investments
|
153,612
|
|
|
151,209
|
|
Cash and cash
equivalents
|
41,812
|
|
|
57,274
|
|
Other
assets
|
208,044
|
|
|
166,232
|
|
Total
Assets
|
$
|
2,218,007
|
|
|
$
|
2,250,172
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
Liabilities:
|
|
|
|
Accounts payable,
accrued expenses and other
|
$
|
24,772
|
|
|
$
|
25,645
|
|
Deferred funding
obligations
|
97,685
|
|
|
153,308
|
|
Credit
facility
|
102,939
|
|
|
69,922
|
|
Non-recourse debt
(secured by assets of $1,503 million and $1,545 million,
respectively)
|
1,198,256
|
|
|
1,210,861
|
|
Convertible
notes
|
147,959
|
|
|
147,655
|
|
Total
Liabilities
|
1,571,611
|
|
|
1,607,391
|
|
Stockholders'
Equity:
|
|
|
|
Preferred stock, par
value $0.01 per share, 50,000,000 shares authorized, no shares
issued and outstanding
|
—
|
|
|
—
|
|
Common stock, par
value $0.01 per share, 450,000,000 shares authorized, 52,728,327
and 51,665,449 shares issued and outstanding,
respectively
|
527
|
|
|
517
|
|
Additional paid in
capital
|
789,129
|
|
|
770,983
|
|
Accumulated
deficit
|
(150,624)
|
|
|
(131,251)
|
|
Accumulated other
comprehensive income (loss)
|
3,855
|
|
|
(1,065)
|
|
Non-controlling
interest
|
3,509
|
|
|
3,597
|
|
Total Stockholders'
Equity
|
646,396
|
|
|
642,781
|
|
Total Liabilities
and Stockholders' Equity
|
$
|
2,218,007
|
|
|
$
|
2,250,172
|
|
EXPLANATORY NOTES
Non-GAAP Financial Measures
Core Earnings
We calculate core earnings as GAAP net income excluding
non-cash equity compensation expense, non-cash provision for credit
losses, amortization of intangibles, any one-time acquisition
related costs or non-cash tax charges and the earnings attributable
to our non-controlling interest of our Operating Partnership. We
also make an adjustment to our equity method investments in the
renewable energy projects as described below. In the future, core
earnings may also exclude one-time events pursuant to changes in
GAAP and certain other non-cash charges as approved by a majority
of our independent directors.
Certain of our equity method investments in renewable energy
projects are structured using typical partnership "flip" structures
where we, along with any other institutional investors, if any,
receive a pre-negotiated preferred return consisting of priority
distributions from the project cash flows, in many cases, along
with tax attributes. Once this preferred return is achieved, the
partnership "flips" and the renewable energy company, which
operates the project, receives more of the cash flows through its
equity interests while we, and any other institutional investors,
retain an ongoing residual interest. We typically negotiate the
purchase prices of our equity investments, which have a finite
expected life, based on our assessment of the expected cash flows
we will receive from these projects discounted back to the net
present value, based on a target investment rate, with the expected
cash flows to be received in the future reflecting both a return on
the capital (at the investment rate) and a return of the capital we
have committed to the project. We use a similar approach in
the underwriting of our receivables.
Under GAAP, we account for these investments utilizing the HLBV
method. Under this method, we recognize income or loss based on the
change in the amount each partner would receive, typically based on
the negotiated profit and loss allocation, if the assets were
liquidated at book value, after adjusting for any distributions or
contributions made during such quarter. The HLBV allocations of
income or loss are also impacted by the receipt of tax attributes,
as tax equity investors are allocated losses in proportion to the
tax benefits received, while the sponsors of the project are
allocated gains of a similar amount. In addition, the agreed upon
allocations of the project's cash flows may differ materially from
the profit and loss allocation used for the HLBV calculations.
The cash distributions for our equity method investments are
segregated into a return on and return of capital on our cash flow
statement based on the cumulative income that has been
allocated using the HLBV method. However, as a result of the
application of the HLBV method, including the impact of tax
allocations, the high levels of depreciation and other non-cash
expenses that are common to renewable energy projects and the
differences between the agreed upon profit and loss and the cash
flow allocations, the distributions and thus the economic returns
(i.e. return on capital) achieved from the investment are often
significantly different from the income or loss that is allocated
to us under the HLBV method. Thus, in calculating core earnings, we
further adjust GAAP net income to take into account our calculation
of the return on capital (based upon the investment rate) from our
renewable energy equity method investments, as adjusted to reflect
the performance of the project and the cash distributed. We believe
this adjustment to our GAAP net income in calculating our core
earnings measure is an important supplement to the HLBV income
allocations determined under GAAP for an investor to understand the
economic performance of these investments.
For the three and six months ended June
30, 2018, we recognized income of $11
million and $8 million,
respectively under GAAP for our equity investments in renewable
energy projects. We reversed the GAAP income and recorded
$10 million and $21 million for core earnings as discussed above
to reflect our return on capital from these investments for the
three and six months ended June 30,
2018, respectively. This compares to the collected cash
distributions from these equity method investments of approximately
$40 million and $70 million, for the three and six months ended
June 30, 2018, with the difference
between core earnings and cash collected representing a return of
capital.
We believe that core earnings provides an additional measure of
our core operating performance by eliminating the impact of certain
non-cash expenses and facilitating a comparison of our financial
results to those of other comparable companies with fewer or no
non-cash charges and comparison of our own operating results from
period to period. Our management uses core earnings in this way. We
believe that our investors also use core earnings, or a comparable
supplemental performance measure, to evaluate and compare our
performance to that of our peers, and as such, we believe that the
disclosure of core earnings is useful to our investors.
However, core earnings does not represent cash generated from
operating activities in accordance with GAAP and should not be
considered as an alternative to net income (loss) (determined in
accordance with GAAP), or an indication of our cash flow from
operating activities (determined in accordance with GAAP), or a
measure of our liquidity, or an indication of funds available to
fund our cash needs, including our ability to make cash
distributions. In addition, our methodology for calculating core
earnings may differ from the methodologies employed by other REITs
to calculate the same or similar supplemental performance measures,
and accordingly, our reported core earnings may not be comparable
to similar metrics reported by other REITs.
Reconciliation of our GAAP Net Income to Core
Earnings
We have calculated our core earnings and provided a
reconciliation of our GAAP net income to core earnings for the
three and six months ended June 30,
2018 and 2017 in the tables below:
|
|
For the Three
Months
Ended June 30, 2018
|
|
For the Three
Months
Ended June 30, 2017
|
|
|
($ in thousands,
except per share data)
|
|
|
|
Per Share
|
|
|
Per Share
|
Net income
attributable to controlling stockholders
|
$
|
17,262
|
|
|
$
|
0.32
|
|
|
$
|
12,340
|
|
|
$
|
0.23
|
|
Core earnings
adjustments:
|
|
|
|
|
|
|
|
Reverse GAAP income
from equity method
investments
|
(10,583)
|
|
|
|
|
(8,377)
|
|
|
|
Add back core equity
method investments earnings
(1)
|
9,912
|
|
|
|
|
10,191
|
|
|
|
Non-cash equity-based
compensation charges (2)
|
3,379
|
|
|
|
|
2,984
|
|
|
|
Other core
adjustments (3)
|
876
|
|
|
|
|
728
|
|
|
|
Core earnings
(4)
|
20,846
|
|
|
$
|
0.39
|
|
|
17,866
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects adjustment
for equity method investments described above
|
|
|
(2)
|
Reflects adjustment
for non-cash equity-based compensation.
|
|
|
(3)
|
See detail
below.
|
|
|
(4)
|
Core earnings per
share for the three months ended June 30, 2018 and June 30, 2017,
are based on 54,076,462 shares and 52,561,081 shares outstanding,
respectively, which represents the weighted average number of
fully-diluted shares outstanding including our restricted stock
awards and restricted stock units and the non-controlling interest
in our Operating Partnership. We include any potential common stock
issuance in this calculation related to our convertible notes using
the treasury stock method.
|
|
|
For the Six
Months
Ended June 30, 2018
|
|
For the Six
Months
Ended June 30, 2017
|
|
|
($ in thousands,
except per share data)
|
|
|
|
|
Per Share
|
|
|
|
Per Share
|
Net income
attributable to controlling stockholders
|
$
|
16,039
|
|
|
$
|
0.29
|
|
|
$
|
19,539
|
|
|
$
|
0.38
|
|
Core earnings
adjustments:
|
|
|
|
|
|
|
|
Reverse GAAP income
from equity method
investments
|
(8,298)
|
|
|
|
|
(12,548)
|
|
|
|
Add back core equity
method investments earnings
(1)
|
20,504
|
|
|
|
|
19,539
|
|
|
|
Non-cash equity-based
compensation charges (2)
|
5,225
|
|
|
|
|
5,553
|
|
|
|
Other core
adjustments (3)
|
1,653
|
|
|
|
|
1,279
|
|
|
|
Core earnings
(4)
|
35,123
|
|
|
$
|
0.65
|
|
|
33,362
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects adjustment
for equity method investments described above
|
|
|
(2)
|
Reflects adjustment
for non-cash equity-based compensation.
|
|
|
(3)
|
See detail
below.
|
|
|
(4)
|
Core earnings per
share for the six months ended June 30, 2018 and June 30, 2017, are
based on 53,814,625 shares and 50,830,442 shares outstanding,
respectively, which represents the weighted average number of
fully-diluted shares outstanding including our restricted stock
awards and restricted stock units and the non-controlling interest
in our Operating Partnership. We include any potential common stock
issuance in this calculation related to our convertible notes using
the treasury stock method.
|
The table below provides a reconciliation of the Other core
adjustments:
|
|
For the Three
Months
Ended June 30,
|
|
For the Six
Months
Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
($ in
thousands)
|
|
($ in
thousands)
|
Other core
adjustments
|
|
|
|
|
|
|
|
Amortization of
intangibles (1)
|
$
|
785
|
|
|
$
|
658
|
|
|
$
|
1,567
|
|
|
$
|
1,165
|
|
Net income
attributable to non-controlling interest
|
91
|
|
|
70
|
|
|
86
|
|
|
114
|
|
Other core
adjustments
|
$
|
876
|
|
|
$
|
728
|
|
|
$
|
1,653
|
|
|
$
|
1,279
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adds back non-cash
amortization of lease and pre-IPO intangibles
|
|
|
|
|
The table below provides a reconciliation of the GAAP SG&A
expenses to Core SG&A expenses:
|
|
For the Three
Months
Ended June 30,
|
|
For the Six
Months
Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
($ in
thousands)
|
|
($ in
thousands)
|
GAAP SG&A
expenses
|
|
|
|
|
|
|
|
Compensation and
benefits
|
$
|
6,335
|
|
|
$
|
5,659
|
|
|
$
|
11,656
|
|
|
$
|
10,385
|
|
General and
administrative
|
3,535
|
|
|
3,139
|
|
|
6,336
|
|
|
5,327
|
|
Total SG&A
expenses (GAAP)
|
$
|
9,870
|
|
|
$
|
8,798
|
|
|
$
|
17,992
|
|
|
$
|
15,712
|
|
Core SG&A
expenses adjustments:
|
|
|
|
|
|
|
|
Non-cash equity-based
compensation charge (1)
|
$
|
(3,379)
|
|
|
$
|
(2,984)
|
|
|
$
|
(5,225)
|
|
|
$
|
(5,553)
|
|
Amortization of
intangibles (2)
|
(51)
|
|
|
(51)
|
|
|
(101)
|
|
|
(101)
|
|
Core SG&A
expenses adjustments
|
(3,430)
|
|
|
(3,035)
|
|
|
(5,326)
|
|
|
(5,654)
|
|
Core SG&A
expenses
|
$
|
6,440
|
|
|
$
|
5,763
|
|
|
$
|
12,666
|
|
|
$
|
10,058
|
|
|
|
(1)
|
Reflects add back of
non-cash amortization of equity-based compensation. Outstanding
grants related to equity-based compensation are
included in core earnings per share calculation.
|
|
|
(2)
|
Adds back non-cash
amortization of pre-IPO intangibles
|
View original content with
multimedia:http://www.prnewswire.com/news-releases/hannon-armstrong-announces-second-quarter-2018-results-300691394.html
SOURCE Hannon Armstrong Sustainable Infrastructure Capital,
Inc.