Hannon Armstrong Sustainable Infrastructure Capital, Inc.
("Hannon Armstrong," "we," "our" or the "Company") (NYSE: HASI), a
capital provider focused on sustainable infrastructure markets that
address climate change, today reported quarterly results.
Highlights
- Delivered $0.75 annual GAAP EPS for
2018, compared to $0.57 for 2017
- Delivered $1.38 annual Core EPS for
2018, compared to $1.27 for 2017
- Confirming previously stated 2018 to
2020 annual Core EPS growth (using 2017 as the baseline) to be
between 2% to 6%, equivalent to $1.37 at the midpoint in 2019 and
$1.43 at the midpoint in 2020
- Increased dividend approximately 2% per
share for Q1 2019 to $0.335 per share, for an annualized yield of
5.7% based on our closing stock price of $23.54 on February 20,
2018
- Closed approximately $1.2 billion of
transactions in 2018, compared to approximately $1.0 billion for
2017
- Pipeline exceeds $2.5 billion; Widely
diversified across all our target markets
- Refinanced and extended primary credit
facility to increase flexibility, lower cost and diversify our
lender group
- Fixed-rate debt level of 74%
- Debt to Equity ratio of 1.5 to 1 as of
December 31, 2018
- An estimated 496,000 metric tons of
annual carbon emissions will be avoided by our 2018 transactions
equating to a CarbonCount® score of 0.42, or 0.42 metric tons per
$1,000 invested
"Our strong Q4 and FY 2018 earnings resulted from the successful
execution of our business plan in virtually all of our target
markets. We demonstrated the flexibility of our business model by
using both securitizations and accretive balance sheet additions to
simultaneously solve our clients’ need for more capital, while
delivering attractive risk-adjusted returns for 2018, and laying
the foundation for future years," said Jeffrey Eckel, President
& CEO. "Looking ahead, our pipeline continues to strengthen as
our target markets develop, our client base expands and the
addressable market for investing in solutions for climate change
grows."
A summary of our results is shown in the tables below:
For the three months ended
December 31, 2018
For the three months ended
December 31, 2017
$ in thousands Per Share $ in thousands
Per Share GAAP Net Income $ 9,055 $ 0.16 $ 3,383 $ 0.06 Core
Earnings (1) $ 21,067 $ 0.37 $ 16,410 $ 0.31
For the year
ended
December 31, 2018
For the year ended
December 31, 2017
$ in thousands Per Share $ in thousands Per Share GAAP Net Income $
41,577 $ 0.75 $ 30,856 $ 0.57 Core Earnings (1) $ 75,800 $ 1.38 $
66,135 $ 1.27
(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 description of how we
calculate core earnings and a reconciliation of our GAAP net income
to core earnings is included in this press release.
Guidance
The Company is confirming its previously issued three-year
guidance from 2018 to 2020 with respect to core earnings per share
growth, on a compounded annual basis over the three years, in the
2% to 6% range, equivalent to $1.37 at the midpoint in 2019 and
$1.43 at the midpoint in 2020. 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) the volume and profitability
of securitization transactions; (iv) amount, timing, and costs
of debt and equity capital to fund new investments;
(v) changes in costs and expenses reflective of the Company’s
forecasted operations, and (vi) the general interest rate and
market environment. All guidance is based on current expectations
of future economic conditions, the regulatory environment, the
dynamics of the markets in which we operate and the judgment of the
Company’s management team. The Company has not provided GAAP
guidance as discussed in the Forward-Looking Statements section of
this press release.
Financial Results
Revenue grew by approximately $32 million, or 31%, for the year
ended December 31, 2018, as compared to 2017. The increase in
revenue was the result of an increase in gain on sale and fee
income of $15 million and higher yields on our Portfolio. In the
fourth quarter, approximately $300 million of residential solar
assets and our related $250 million of debt was prepaid. Both
revenues and interest expense were impacted by this transaction as
we recorded approximately $9 million of prepayment fees and the
remaining portion of the unamortized loan fees of approximately $4
million in interest income offset by approximately $9 million of
costs recorded in interest expense relating to the debt repayment.
For the three months ended December 31, 2018, revenue grew by
approximately $12 million, or 45%, as compared to the same period
in 2017 largely due to the impact of the repayment discussed
above.
Interest expense for the year rose by approximately $11 million
as a result of the prepayment expense described above and higher
fixed rate debt, primarily in the first three quarters of the year.
The higher interest expense for the year was offset in the fourth
quarter by a series of transactions which lower our interest costs
including refinancing our primary credit facility, reducing the
levels of our interest rate swaps and the $250 million debt
repayment which reduced our leverage. The effect of these changes
was the interest expense for the quarter increased by approximately
$1 million as compared to the same period last year.
Other expenses (compensation and benefits and general and
administrative expenses) increased by approximately $9 million for
GAAP and $10 million for core earnings for the year ended December
31, 2018, as compared to the same periods in 2017 due primarily to
an increase in the size of the Company as well as additional bonus
accrual in the fourth quarter to reflect the performance of the
Company. For the quarter, these other expenses rose by
approximately $5 million for GAAP and $6 million for core earnings
as compared to the same period last year.
For the quarter and the year ended December 31, 2018, income
from equity method investments was largely consistent with the same
period in 2017. The non-cash income tax expenses of the Company
rose by approximately $1 million for the year and was largely flat
for the quarter.
For the year ended December 31, 2018, GAAP net income increased
by approximately $11 million as compared to 2017. For the three
months ended December 31, 2018, we recognized GAAP net income of $9
million, an increase of $6 million over the same quarter last
year.
Core earnings grew by approximately $10 million for the year
ended December 31, 2018 over 2017 primarily as a result of
increased gain on sale income due to increased securitization
activity. Fourth quarter core earnings grew by approximately $5
million over the same quarter last year primarily as a result of
the higher GAAP income. For additional information, please see
"Explanatory Notes - Non-GAAP Financial Measures - Core
Earnings."
A reconciliation of our GAAP net income to core earnings is
included in this press release.
The calculation of our fixed-rate debt and leverage ratios as of
December 31, 2018 and 2017 are shown in the chart below:
December 31,
2018
% of Total
December 31,
2017
% of Total ($ in millions) ($ in millions) Floating-rate
borrowings (1) $ 317 26 % $ 110 8 % Fixed-rate debt (2) 925
74 % 1,318 92 %
Total $ 1,242 100 % $ 1,428 100 %
Leverage (3)
1.5 to 1
2.2 to 1
(1) Floating-rate borrowings include borrowings under
our floating-rate credit facilities and approximately $58 million
and $40 million of nonrecourse debt with floating rate exposure as
of December 31, 2018 and December 31, 2017, respectively.
Approximately $32 million of the December 31, 2018 floating rate
exposure is hedged beginning in 2019. (2) Fixed-rate debt
also includes the present notional value of non-recourse 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).
Given our historical and present leverage levels consistently
remaining below 2.5 to 1, our Board of Directors as of February
2019 has clarified the leverage target to be up to 2.5 to 1 versus
the prior level of 2.5 to 1.
"We executed on our financing plan by closing approximately $1
billion of financing in the fourth quarter of 2018 - successfully
accessing both the debt and equity capital markets as well as
lowering the cost and extending the maturity of our credit
facilities," said Brendan Herron, Chief Financial Officer. "We have
reduced our level of fixed-rate debt to near the midpoint of our
range based on the changing interest rate outlook. Given the
transactions in the quarter, we also reduced our level of leverage
and expect to continue to adjust the leverage based upon the
portfolio mix and market conditions."
Portfolio
Our Portfolio totaled approximately $2.0 billion as of December
31, 2018, and included approximately $1.0 billion of
behind-the-meter assets, approximately $0.9 billion of
grid-connected assets and approximately $0.1 billion of other
sustainable infrastructure investments. The following is an
analysis of our Portfolio as of December 31, 2018:
Investment Grade Government
(1) Commercial (2)
Commercial
Non-Investment
Grade (3)
Subtotal,Debt and Real Estate
EquityMethod Investments
Total ($ in millions) Equity investments in renewable
energy projects $ — $ — $ — $ — $ 449 $ 449 Receivables and
investments 600 216 299 1,115 — 1,115 Real estate (4) —
365 — 365 22 387 Total $ 600 $
581 $ 299 $ 1,480 $ 471 $ 1,951 Average remaining balance (5) $ 12
$ 6 $ 14 $ 9 $ 16 $ 10 (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 $384 million of U.S. federal
government transactions and $216 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, $9
million of the transactions have been rated investment grade by an
independent rating agency. (3) Transactions where the
projects of the ultimate obligors are commercial entities that
either have ratings below investment grade (either by an
independent rating agency or using our internal credit analysis) or
where the nature of the subordination in the asset causes it to be
considered non-investment grade. This category of assets includes
$273 million of mezzanine loans made in 2018 on a non-recourse
basis to special purpose subsidiaries of residential solar
companies where the nature of the subordination causes it to be
considered non-investment grade. These loans are secured by
residential solar assets and we rely on certain limited
indemnities, warranties, and other obligations of the residential
solar companies or their other subsidiaries. This amount also
includes $18 million of transactions made in 2018 where the
projects or the ultimate obligors are commercial entities that have
ratings below investment grade using our internal credit analysis,
and $8 million of loans on non-accrual status.
(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 170 transactions each with outstanding
balances that are less than $1 million and that in the aggregate
total $64 million.
Dividend
The Company announced today that its Board of Directors declared
a quarterly cash dividend of $0.335 per share of common stock, an
increase of approximately 2% from the previous dividend level. This
dividend increase will raise the annualized dividend payout to
$1.34 per share of common stock, equivalent to an annualized yield
of 5.7% based upon the Company's common stock closing price of
$23.54 per share on February 20, 2019. The dividend will be paid on
April 11, 2019 to stockholders of record as of April 3, 2019.
Conference Call and Webcast Information
Hannon Armstrong will host an investor conference call today,
February 21, 2019, at 5:00 pm eastern time. The conference call can
be accessed live over the phone by dialing 1-800-239-9838, or for
international callers, 1-323-794-2551. 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 7295792. The replay
will be available until February 28, 2019.
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) focuses on solutions that reduce
carbon emissions and increase resilience to climate change by
providing capital and specialized expertise to the leading
companies in the energy efficiency, renewable energy and other
sustainable infrastructure markets. Our goal is to generate
attractive returns for our shareholders by investing in a
diversified portfolio of assets and projects that generate
long-term, recurring and predictable cash flows or cost savings
from proven commercial technologies. Hannon Armstrong is proud to
be the first U.S. public company exclusively focused on financing
solutions to climate change. We are based in Annapolis, Md. For
more information, please visit www.hannonarmstrong.com. Follow
Hannon Armstrong on LinkedIn and Twitter @HannonArmstrong.
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;
- 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 Company is confirming its previously issued three-year
guidance from 2018 to 2020 with respect to annual core earnings per
share growth, on a compounded annual basis over the three years
(2018, 2019, 2020),in the 2% to 6% range. 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) the volume and
profitability of securitization transactions; (iv) amount,
timing, and costs of debt and equity capital to fund new
investments; (v) changes in costs and expenses reflective of
the Company’s forecasted operations, and (vi) the general
interest rate and market environment. All guidance is based on
current expectations of 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.
Estimated carbon savings are calculated using the estimated
kilowatt hours, gallons of fuel oil, million British thermal units
of natural gas and gallons of water saved as appropriate, for each
project. The energy savings are converted into an estimate of
metric tons of CO2 equivalent emissions based upon the project’s
location and the corresponding emissions factor data from the U.S.
Government and International Energy Agency. Portfolios of projects
are represented on an aggregate basis.
The risks included here are not exhaustive. Our most recent
annual report on Form 10‐K 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.
HANNON ARMSTRONG SUSTAINABLE
INFRASTRUCTURE CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
For the Three Months
Ended December 31,
For the Year
Ended December 31,
2018 2017 2018
2017 Revenue Interest income, receivables $ 27,529 $
13,605 $ 67,711 $ 56,734 Interest income, investments 1,814 1,461
6,636 5,079 Rental income 6,441 5,572 24,606 19,831 Gain on sale of
receivables and investments 1,595 5,752 32,928 20,956 Fee income
1,813 705 5,927
2,973
Total revenue 39,192 27,095
137,808 105,573 Expenses Interest expense
19,450 18,744 76,874 65,472 Compensation and benefits 7,685 3,976
25,651 19,708 General and administrative 4,116
3,068 13,503 10,762
Total
expenses 31,251 25,788
116,028 95,942
Income before equity method investments 7,941
1,307 21,780 9,631 Income (loss) from equity
method investments 2,192 2,866
22,162 22,289
Income (loss) before income
taxes 10,133 4,173 43,942 31,920
Income tax (expense) benefit (1,034 ) (766 )
(2,144 ) (885 )
Net income (loss) $
9,099 $ 3,407 $
41,798 $ 31,035 Net income
(loss) attributable to non-controlling interest holders 44
24 221 179
Net
income (loss) attributable to controlling stockholders $
9,055 $ 3,383 $
41,577 $ 30,856 Basic earnings
per common share $ 0.16 $ 0.06 $ 0.75 $ 0.57
Diluted earnings per common share $ 0.16 $ 0.06
$ 0.75 $ 0.57 Weighted average common shares
outstanding—basic 54,599,877 51,659,751 52,780,449 50,361,672
Weighted average common shares outstanding—diluted 54,599,877
51,659,751 52,780,449 50,361,672
HANNON ARMSTRONG SUSTAINABLE
INFRASTRUCTURE CAPITAL, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
December 31,
2018
December 31,
2017
Assets Equity method investments $ 471,044 $ 522,615
Government receivables 497,464 519,485 Commercial receivables
447,196 473,452 Receivables held-for-sale — 19,081 Real estate
365,370 340,824 Investments 169,793 151,209 Cash and cash
equivalents 21,418 57,274 Other assets 182,628
166,232
Total Assets $ 2,154,913
$ 2,250,172 Liabilities and Stockholders’
Equity Liabilities: Accounts payable, accrued expenses and
other $ 36,509 $ 25,645 Deferred funding obligations 72,100 153,308
Credit facility 258,592 69,922 Non-recourse debt (secured by assets
of $1,105 million and $1,545 million, respectively) 834,738
1,210,861 Convertible notes 148,451 147,655
Total Liabilities 1,350,390 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, 60,510,086 and 51,665,449 shares
issued and outstanding, respectively 605 517 Additional paid in
capital 965,384 770,983 Accumulated deficit (163,205 ) (131,251 )
Accumulated other comprehensive income (loss) (1,684 ) (1,065 )
Non-controlling interest 3,423 3,597
Total Stockholders’ Equity 804,523 642,781
Total Liabilities and Stockholders’ Equity $
2,154,913 $ 2,250,172
EXPLANATORY NOTES
Non-GAAP Financial Measures
Core Earnings
We calculate core earnings as GAAP net income (loss) 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 equity method investments
utilizing the HLBV method. Under this method, we recognize income
or loss based on the change in the amount each partner would
receive, typically based on the negotiated profit and loss
allocation, if the assets were liquidated at book value, after
adjusting for any distributions or contributions made during such
quarter. The HLBV allocations of income or loss 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 (loss) that has been
allocated using the HLBV method. However, as a result of the
application of the HLBV method, including the impact of tax
allocations, the high levels of depreciation and other non-cash
expenses that are common to renewable energy projects and the
differences between the agreed upon profit and loss and the cash
flow allocations, the distributions and thus the economic returns
(i.e. return on capital) achieved from the investment are often
significantly different from the income or loss that is allocated
to us under the HLBV method. Thus, in calculating core earnings, we
further adjust GAAP net income (loss) 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 core equity method investment earnings
adjustment to our GAAP net income (loss) 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 year ended December 31, 2018, we recognized $22
million in income under GAAP for our equity investments in
renewable energy projects. We reversed the GAAP income and recorded
$41 million for core earnings as discussed above to reflect our
return on capital from these investments for the year ended
December 31, 2018. This compares to the collected cash
distributions from these equity method investments of approximately
$115 million for the year ended December 31, 2018, with the
difference between core earnings and cash collected representing a
return of capital.
For the year ended December 31, 2017, we recognized
$22 million in income under GAAP for our equity investments in
renewable energy projects. We reversed the GAAP income and recorded
$43 million for core earnings as discussed above to reflect
our return on capital from these investments for the year ended
December 31, 2017. This compares to the collected cash
distributions from these equity method investments of approximately
$90 million for the year ended December 31, 2017, with
the difference between core earnings and cash collected
representing a return of capital.
We believe that core earnings provides an additional measure of
our core operating performance by eliminating the impact of certain
non-cash expenses and facilitating a comparison of our financial
results to those of other comparable companies with fewer or no
non-cash charges and comparison of our own operating results from
period to period. Our management uses core earnings in this way. We
believe that our investors also use core earnings, or a comparable
supplemental performance measure, to evaluate and compare our
performance to that of our peers, and as such, we believe that the
disclosure of core earnings is useful to our investors.
However, core earnings does not represent cash generated from
operating activities in accordance with GAAP and should not be
considered as an alternative to net income (loss) (determined in
accordance with GAAP), or an indication of our cash flow from
operating activities (determined in accordance with GAAP), or a
measure of our liquidity, or an indication of funds available to
fund our cash needs, including our ability to make cash
distributions. In addition, our methodology for calculating core
earnings may differ from the methodologies employed by other REITs
to calculate the same or similar supplemental performance measures,
and accordingly, our reported core earnings may not be comparable
to similar metrics reported by other REITs.
Reconciliation of our GAAP Net Income to Core Earnings
We have calculated our core earnings and provided a
reconciliation of our GAAP net income to core earnings for the
quarters and years ended December 31, 2018 and 2017 in the tables
below:
For the three months
ended December 31, 2018
For the three months
ended December 31, 2017
($ in thousands, except per share data) Per Share Per Share Net
income attributable to controlling stockholders
$
9,055 $ 0.16 $ 3,383 $ 0.06 Core earnings adjustments: Reverse GAAP
income from equity method investments (2,192 ) (2,866 ) Add back
core equity method investments earnings (1) 10,113 11,414 Non-cash
equity-based compensation charges (2) 2,184 2,953 Other core
adjustments (3) 1,907 1,526
Core earnings (4)
$
21,067 $ 0.37
$
16,410 $ 0.31 (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 December 31, 2018 and December 31, 2017, are
based on 56,600,469 shares and 53,606,671 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 year ended
December 31, 2018
For the year ended
December 31, 2017
($ in thousands, except per share data) Per Share Per Share Net
income attributable to controlling stockholders $ 41,577 $ 0.75 $
30,856 $ 0.57 Core earnings adjustments: Reverse GAAP income from
equity method investments (22,162 ) (22,289 ) Add back core equity
method investments earnings (1) 40,923 42,707 Non-cash equity-based
compensation charges (2) 10,066 11,304 Other core adjustments (3)
5,396 3,557
Core earnings (4)
$
75,800 $ 1.38
$
66,135 $ 1.27 (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 year ended December 31, 2018 and December 31, 2017, are based
on 54,742,869 shares and 52,231,030 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 December 31,
For the Year
Ended December 31,
2018 2017 2018 2017 ($ in thousands) ($
in thousands) Other core adjustments Amortization of intangibles
(1) $ 827 $ 746 $ 3,207 $ 2,622 Non-cash provision for income taxes
1,036 757 1,968 756 Net income attributable to non-controlling
interest 44 23 221 179
Other core
adjustments $ 1,907 $ 1,526 $ 5,396 $ 3,557 (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 December 31,
For the Year
ended December 31,
2018 2017 2018 2017 ($ in thousands) ($
in thousands) GAAP SG&A expenses Compensation and benefits $
7,685 $ 3,976 $ 25,651 $ 19,708 General and administrative
4,116 3,068 13,503 10,762
Total SG&A expenses (GAAP) $ 11,801 $
7,044 $ 39,154 $ 30,470 Core SG&A expenses
adjustments: Non-cash equity-based compensation charge (1) $ (2,184
) $ (2,953 ) $ (10,066 ) $ (11,304 ) Amortization of intangibles
(2) (51 ) (51 ) (204 ) (202 ) Core
SG&A expenses adjustments (2,235 ) (3,004 )
(10,270 ) (11,506 )
Core SG&A expenses
$ 9,566 $ 4,040 $
28,884 $ 18,964 (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 source
version on businesswire.com: https://www.businesswire.com/news/home/20190221005925/en/
Investor Relations Contact:Amanda
Cimaglia410-571-6189investors@hannonarmstrong.com
Media Contact:Gil Jenkinsmedia@hannonarmstrong.com443-321-5753
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