Hannon Armstrong Sustainable Infrastructure Capital, Inc.
("Hannon Armstrong," "we," "our" or the "Company") (NYSE: HASI), a
leading investor in climate solutions, today reported results for
the fourth quarter and full year of 2022.
Financial Highlights
- Delivered $0.47 GAAP EPS on a fully diluted basis in 2022,
compared with $1.51 in 2021
- Delivered $2.08 Distributable EPS on a fully diluted basis in
2022, compared to $1.88 Distributable EPS in 2021, representing 11%
year-on-year growth
- Grew Portfolio 19% in 2022 to $4.3 billion and managed assets
11% to $9.8 billion compared to the end of 2021
- Reported GAAP-based Net Investment Income of $45 million in
2022, compared to $11 million in 2021
- Increased Distributable Net Investment Income in 2022 by 34%
year-on-year to $180 million, compared to $134 million in 2021
- Closed $1.8 billion of investments in 2022, compared to $1.7
billion in 2021
- Reported pipeline of greater than $4.5 billion as of the end of
2022, compared to greater than $4 billion as of the end of
2021
- Increased dividend to $0.395 per share for the first quarter of
2023, representing a 5.3% increase over the dividend declared in
the fourth quarter of 2022
- Announce 4% discount on 2023 Dividend Reinvestment and Stock
Purchase Plan ("DRIP") for the first quarter
Guidance
- Affirm guidance that Distributable Earnings Per Share is
expected to grow at a compound annual rate of 10% to 13% from 2021
to 2024, relative to the 2020 baseline of $1.55 per share, which is
equivalent to a 2024 midpoint of $2.40 per share
- Affirm guidance that annual dividends per share is expected to
grow at a compounded annual rate of 5% to 8%
Key Executive Changes
- Concurrent press release indicating Jeffrey W. Eckel will
become Executive Chairman, Jeffrey A. Lipson CEO and Marc Pangburn
CFO
ESG Highlight
- Estimated more than 600,000 metric tons of carbon emissions
will be avoided annually by our transactions closed in 2022,
equating to a CarbonCount® score of 0.4 metric tons per $1,000
invested
"This company continues to execute quarter after quarter, year
after year, growing Distributable EPS at 11% CAGR since our first
full year of going public as a company," said Jeffrey W. Eckel,
Hannon Armstrong Chairman and Chief Executive Officer, "and our
prospects entering 2023 look outstanding."
"I believe we are showing investors that climate solutions
investing is the best market to be in, we have the best clients in
the industry and the best mission-driven team to execute on the
incredible growth in the energy transition. "
A summary of our results is shown in the table below:
For the three months
ended
December 31, 2022
For the three months
ended
December 31, 2021
$ in thousands
Per Share
(Diluted)
$ in thousands
Per Share
(Diluted)
GAAP Net Income
$
(19,928
)
$
(0.22
)
$
62,420
$
0.71
Distributable earnings
42,887
0.47
40,687
0.47
For the year ended
December 31, 2022
For the year ended
December 31, 2021
$ in thousands
Per Share
$ in thousands
Per Share
GAAP Net Income
$
41,502
$
0.47
$
126,579
$
1.51
Distributable earnings
185,791
2.08
158,723
1.88
Financial Results
"Our capital and funding platform served us well in 2022 as we
navigated rising interest rates by utilizing diverse funding
sources," said Jeffrey A. Lipson, Chief Financial Officer and Chief
Operating Officer, "the outlook for 2023 remains robust and I am
enthusiastic about the transition and new roles for Jeff Eckel,
Marc Pangburn, and myself."
Comparison of the year ended December 31, 2022 to the year ended
December 31, 2021
Total revenue increased by $27 million, or 13%. Interest and
rental income increased by $28 million, or 21%, due to a larger
portfolio. Gain on sale and fee income decreased by $1 million, or
2%, primarily from a change in mix of assets being securitized,
partially offset by increased deferred fee income.
Interest expense decreased by $6 million, or 5%, due to a
one-time loss of $15 million on the redemption of senior unsecured
notes in the prior year which did not recur, offset partially by
additional expense from a larger average outstanding debt balance.
Provision for loss on receivables increased by $12 million compared
to the prior year as a result of new loans and loan commitments in
the current year. Other expenses (compensation and benefits and
general and administrative expenses) increased by $21 million
primarily due to an increase in our employee headcount and
compensation and additional investment in corporate infrastructure
and corporate governance expense.
We recognized $31 million in income using the hypothetical
liquidation at book value method (HLBV) for our equity method
investments in 2022, compared to $126 million of HLBV income in
2021, primarily due to the impact of increasing power prices and
the resulting unrealized mark to market losses on economic hedges
used by some of our projects to reduce the impact of power price
fluctuations. As these swaps are settled, the projects will sell
power at the higher market price, offsetting the loss recognized on
the power price hedges.
We recognized income tax expense of $7 million in 2022, compared
to an income tax expense of $17 million in 2021, driven primarily
by the lower HLBV income described above.
GAAP net income in 2022 was $42 million, compared to $127
million in 2021, driven primarily by the equity method investment
income change discussed above. Distributable earnings in 2022 was
$186 million, or an increase of approximately $27 million from 2021
due primarily to an increase in distributable earnings from equity
method investments.
Leverage
The calculation of our fixed-rate debt and leverage ratios as of
December 31, 2022 and December 31, 2021 are shown in the table
below:
December 31, 2022
% of Total
December 31, 2021
% of Total
($ in millions)
($ in millions)
Floating-rate borrowings (1)
$
431
14
%
$
151
6
%
Fixed-rate debt (2)
2,545
86
%
2,342
94
%
Total
$
2,976
100
%
$
2,493
100
%
Leverage (3)
1.8 to 1
1.6 to 1
(1)
This category includes our assets where
based on our credit criteria and performance to date, we believe
that our risk of not receiving our invested capital remains
low.
(2)
This category includes our assets where
based on our credit criteria and performance to date, we believe
there is a moderate level of risk of not receiving some or all of
our invested capital.
(3)
This category includes our assets where
based on our credit criteria and performance to date, we believe
there is substantial doubt regarding our ability to recover some or
all of our invested capital. Loans in this category are placed on
non-accrual status. In the second quarter of 2022, we moved to this
category from Category 2 $11 million of loans we had made in a new
market venture where the performance has not met expectations.
Previously included in this category were
two commercial receivables with a combined total carrying value of
approximately $8 million which were assignments of land lease
payments from two wind projects that we had originated in 2014. In
2017, the operator of the projects terminated the lease, at which
time we filed a legal claim and placed these assets on non-accrual
status. In 2019, we received a court decision indicating that the
owners of the projects were within their rights under the contract
terms to terminate the lease which impacts the land lease
assignments to us, at which time we reserved the receivables for
their full carrying amount. In the second quarter of 2022, we
received a court decision indicating that our appeal was not
successful, and accordingly we wrote off the full amount of the
receivable.
(4)
Total reconciles to the total of the
government receivables and commercial receivables lines of the
consolidated balance sheets.
(5)
Some of the individual projects included
in portfolios that make up our equity method investments have
government off-takers. As they are part of large portfolios, they
are not classified separately.
(6)
Average remaining balance is calculated
gross of allowance for loss on receivables and excludes
approximately 270 transactions each with outstanding balances that
are less than $1 million and that in the aggregate total $93
million. The average is calculated on a per project basis, and some
investments are made in structures that own multiple projects.
Guidance
The Company expects that annual distributable earnings per share
will grow at a compounded annual rate of 10% to 13% from 2021 to
2024, relative to the 2020 baseline of $1.55 per share, which is
equivalent to a 2024 midpoint of $2.40 per share. The Company also
expects growth of annual dividends per share to be at a compounded
annual rate of 5% to 8%. This guidance reflects the Company’s
judgments and estimates of (i) yield on its existing portfolio;
(ii) yield on incremental portfolio investments, inclusive of the
Company’s existing pipeline; (iii) the volume and profitability of
transactions; (iv) amount, timing, and costs of debt and equity
capital to fund new investments; (v) changes in costs and expenses
reflective of the Company’s forecasted operations; and (vi) the
general interest rate and market environment. In addition,
distributions are subject to approval by the Company’s Board of
Directors on a quarterly basis. The Company has not provided GAAP
guidance as discussed in the Forward-Looking Statements section of
this press release.
Dividend
The Company is announcing today that its Board of Directors
declared a quarterly cash dividend of $0.395 per share of common
stock. This dividend will be paid on April 10, 2023, to
stockholders of record as of April 3, 2023. We are also announcing
a 4% discount on the 2023 Dividend Reinvestment and Stock Purchase
Plan (“DRIP”) for the first quarter of 2023. Additional information
on how shareholders can access the DRIP will be forthcoming.
Conference Call and Webcast Information
Hannon Armstrong will host an investor conference call today,
Thursday, February 16, 2023, at 5:00 p.m. Eastern time. The
conference call can be accessed live over the phone by dialing
1-877-407-0890 (Toll-Free) or +1-201-389-0918 (toll). Participants
should inform the operator they want to be joined to the Hannon
Armstrong call. The conference call will also be accessible as an
audio webcast with slides on the Company’s website at
investors.hannonarmstrong.com. An online replay will be available
for a limited time beginning immediately following the call.
About Hannon Armstrong
Hannon Armstrong (NYSE: HASI) is the first U.S. public company
solely dedicated to investments in climate solutions, providing
capital to assets developed by leading companies in energy
efficiency, renewable energy, and other sustainable infrastructure
markets. With more than $9 billion in managed assets, our core
purpose is to make climate positive investments with superior
risk-adjusted returns. For more information, please visit
hannonarmstrong.com or follow us on Twitter and LinkedIn.
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 (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) that are subject to risks and uncertainties. For
these statements, we claim the protections of the safe harbor for
forward-looking statements contained in such Sections. These
forward-looking statements include information about possible or
assumed future results of our business, financial condition,
liquidity, results of operations, plans and objectives. When we use
the words “believe,” “expect,” “anticipate,” “estimate,” “plan,”
“continue,” “intend,” “should,” “may” or similar expressions, we
intend to identify forward-looking statements. However, the absence
of these words or similar expressions does not mean that a
statement is not forward-looking. All statements that address
operating performance, events or developments that we expect or
anticipate will occur in the future are forward-looking
statements.
Forward-looking statements are subject to significant risks and
uncertainties. Investors are cautioned against placing undue
reliance on such statements. Actual results may differ materially
from those set forth in the forward-looking statements. Factors
that could cause actual results to differ materially from those
described in the forward-looking statements include those discussed
under the caption “Risk Factors” included in our most recent Annual
Report on Form 10-K as well as in other periodic reports that we
file with the U.S. Securities and Exchange Commission (the
"SEC").
Any forward-looking statement speaks only as of the date on
which such statement is made, and we undertake no obligation to
update any forward-looking statement to reflect events or
circumstances, including, but not limited to, unanticipated events,
after the date on which such statement is made, unless otherwise
required by law. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it
assess the impact of each such factor on the business or the extent
to which any factor, or combination of factors, may cause actual
results to differ materially from those contained or implied in any
forward-looking statement.
The Company has not provided GAAP guidance as forecasting a
comparable GAAP financial measure, such as net income, would
require that the Company apply the HLBV method to these
investments. In order to forecast under the HLBV method, the
Company would be required to make various assumptions related to
expected changes in the net asset value of the various entities and
how such changes would be allocated under HLBV. GAAP HLBV earnings
over a period of time are very sensitive to these assumptions
especially in regard to when a partnership transaction flips and
thus the liquidation scenarios change materially. The Company
believes that these assumptions would require unreasonable efforts
to complete and if completed, the wide variation in projected GAAP
earnings based upon a range of scenarios would not be meaningful to
investors. Accordingly, the Company has not included a GAAP
reconciliation table related to any distributable earnings
guidance.
Estimated carbon savings are calculated using the estimated
kilowatt hours, gallons of fuel oil, million British thermal units
of natural gas and gallons of water saved as appropriate, for each
project. The energy savings are converted into an estimate of
metric tons of CO2 equivalent emissions based upon the project’s
location and the corresponding emissions factor data from the U.S.
Government and International Energy Agency. Portfolios of projects
are represented on an aggregate basis.
HANNON ARMSTRONG SUSTAINABLE
INFRASTRUCTURE CAPITAL, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
For the Three Months
Ended December 31,
For the Year Ended
December 31,
2022
2021
2022
2021
Revenue
Interest income
$
36,752
$
30,536
$
134,656
$
106,889
Rental income
6,529
6,544
26,245
25,905
Gain on sale of receivables and
investments
5,935
13,345
57,187
68,333
Fee income
9,092
3,270
21,649
12,039
Total revenue
58,308
53,695
239,737
213,166
Expenses
Interest expense
30,524
26,311
115,559
121,705
Provision for loss on receivables
6,576
(2,399
)
12,798
496
Compensation and benefits
13,337
13,124
63,445
52,975
General and administrative
7,238
5,093
29,934
19,907
Total expenses
57,675
42,129
221,736
195,083
Income before equity method
investments
633
11,566
18,001
18,083
Income (loss) from equity method
investments
(27,241
)
56,903
31,291
126,421
Income (loss) before income
taxes
(26,608
)
68,469
49,292
144,504
Income tax (expense) benefit
6,412
(5,648
)
(7,381
)
(17,158
)
Net income (loss)
$
(20,196
)
$
62,821
$
41,911
$
127,346
Net income (loss) attributable to
non-controlling interest holders
(268
)
401
409
767
Net income (loss) attributable to
controlling stockholders
$
(19,928
)
$
62,420
$
41,502
$
126,579
Basic earnings (loss) per common share
$
(0.22
)
$
0.73
$
0.47
$
1.57
Diluted earnings (loss) per common
share
$
(0.22
)
$
0.71
$
0.47
$
1.51
Weighted average common shares
outstanding—basic
89,601,922
84,698,890
87,500,799
79,992,922
Weighted average common shares
outstanding—diluted
89,601,922
88,609,807
90,609,329
87,671,641
HANNON ARMSTRONG SUSTAINABLE
INFRASTRUCTURE CAPITAL, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
December 31,
2022
December 31,
2021
Assets
Cash and cash equivalents
$
155,714
$
226,204
Equity method investments
1,869,712
1,759,651
Commercial receivables, net of allowance
of $41 million and $36 million, respectively
1,887,483
1,298,529
Government receivables
102,511
125,409
Receivables held-for-sale
85,254
22,214
Real estate
353,000
356,088
Investments
10,200
17,697
Securitization assets
177,032
210,354
Other assets
119,242
132,165
Total Assets
$
4,760,148
$
4,148,311
Liabilities and Stockholders’
Equity
Liabilities:
Accounts payable, accrued expenses and
other
$
120,114
$
88,866
Credit facilities
50,698
100,473
Commercial paper notes
192
50,094
Term loan facility
379,742
—
Non-recourse debt (secured by assets of
$633 million and $573 million, respectively)
432,756
429,869
Senior unsecured notes
1,767,647
1,762,763
Convertible notes
344,253
149,731
Total Liabilities
3,095,402
2,581,796
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, 90,837,008 and 85,326,781 shares
issued and outstanding, respectively
908
853
Additional paid in capital
1,924,200
1,727,667
Accumulated deficit
(285,474
)
(193,706
)
Accumulated other comprehensive income
(loss)
(10,397
)
9,904
Non-controlling interest
35,509
21,797
Total Stockholders’ Equity
1,664,746
1,566,515
Total Liabilities and Stockholders’
Equity
$
4,760,148
$
4,148,311
EXPLANATORY NOTES
Non-GAAP Financial Measures
Distributable Earnings
We calculate distributable earnings as GAAP net income (loss)
excluding non-cash equity compensation expense, provisions for loss
on receivables, amortization of intangibles, non-cash provision
(benefit) for taxes, losses or (gains) from modification or
extinguishment of debt facilities, any one-time acquisition related
costs or non-cash tax charges and the earnings attributable to our
non-controlling interest of Hannon Armstrong Sustainable
Infrastructure, L.P., a Delaware limited partnership (our
“operating partnership”). We also make an adjustment to our equity
method investments in the renewable energy projects as described
below. We will use judgment in determining when we will reflect the
losses on receivables in our distributable earnings, and will
consider certain circumstances such as the time period in default,
sufficiency of collateral as well as the outcomes of any related
litigation. In the future, distributable earnings may also exclude
one-time events pursuant to changes in GAAP and certain other
adjustments as approved by a majority of our independent
directors.
We believe a non-GAAP measure, such as distributable earnings,
that adjusts for the items discussed above is and has been a
meaningful indicator of our economic performance in any one period
and is useful to our investors as well as management in evaluating
our performance as it relates to expected dividend payments over
time. As a REIT, we are required to distribute substantially all of
our taxable income to investors in the form of dividends, which is
a principal focus of our investors. Additionally, we believe that
our investors also use distributable 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 distributable earnings is useful to our
investors.
Certain of our equity method investments in renewable energy and
energy efficiency projects are structured using typical partnership
“flip” structures where the investors with cash distribution
preferences receive a pre-negotiated 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 common equity investor, often the
operator or sponsor of the project, receives more of the cash flows
through its equity interests while the previously preferred
investors retain an ongoing residual interest. We have made
investments in both the preferred and common equity of these
structures. Regardless of the nature of our equity interest, we
typically negotiate the purchase prices of our equity investments,
which have a finite expected life, based on our underwritten cash
flows discounted back to the net present value, based on a target
investment rate, with the 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 may be 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. The investment tax credit available for election in solar
projects is a one-time credit realized in the quarter when the
project is considered operational for tax purposes and is fully
allocated under HLBV in that quarter (subject to an impairment
test), while the production tax credit required for wind projects
and electable for solar projects is a ten year credit and thus is
allocated under HLBV over a ten year period. 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 in a given period. We also consider the impact of any
OTTI in determining our income from equity method investments.
The cash distributions for those equity method investments where
we apply HLBV 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 in any one period. Thus, in calculating
distributable earnings, for certain of these investments where
there are characteristics as described above, we further adjust
GAAP net income (loss) to take into account our calculation of the
return on capital (based upon the underwritten 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 equity method investment adjustment to our GAAP net
income (loss) in calculating our distributable 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 where HLBV income can differ substantially
from the economic returns in any one period.
We have acquired equity investments in portfolios of renewable
energy projects which have the majority of the distributions
payable to more senior investors in the first few years of the
project. The following table provides results related to our equity
method investments for the last three years:
Three Months Ended
December 31,
Year Ended
December 31,
2022
2021
2022
2021
(in millions)
Income (loss) under GAAP
$
(27
)
$
57
$
31
$
126
Distributable earnings
$
33
$
27
$
132
$
104
Return of capital/(deferred cash
collections)
(8
)
(9
)
25
(51
)
Cash collected (1)
$
25
$
18
$
157
$
53
(1)
Cash collected during the year ended
December, 31 2022 includes $64 million of debt issuance proceeds
from three of our equity method investees, the repayment of which
we have guaranteed.
Distributable earnings does not represent cash generated from
operating activities in accordance with GAAP and should not be
considered as an alternative to net income (determined in
accordance with GAAP), or an indication of our cash flow from
operating activities (determined in accordance with GAAP), or a
measure of our liquidity, or an indication of funds available to
fund our cash needs, including our ability to make cash
distributions. In addition, our methodology for calculating
distributable earnings may differ from the methodologies employed
by other companies to calculate the same or similar supplemental
performance measures, and accordingly, our reported distributable
earnings may not be comparable to similar metrics reported by other
companies.
Reconciliation of our GAAP Net Income to Distributable
Earnings
We have calculated our distributable earnings and provided a
reconciliation of our GAAP net income to distributable earnings for
the three months and year ended December 31, 2022 and 2021 in the
tables below.
For the Three Months
Ended December 31,
2022
For the Three Months
Ended December 31,
2021
(dollars in thousands, except per
share amounts)
$
per share
$
per share
Net income attributable to controlling
stockholders (1)
$
(19,928
)
$
(0.22
)
$
62,420
$
0.71
Distributable earnings adjustments:
Reverse GAAP (income) loss from equity
method investments
27,241
(56,903
)
Add equity method investments earnings
32,802
27,135
Equity-based compensation charges
2,108
3,544
Provision for loss on receivables
6,576
(2,399
)
Other adjustments (2)
(5,912
)
6,890
Distributable earnings (3)
$
42,887
$
0.47
$
40,687
$
0.47
(1)
The per share amounts represent GAAP diluted earnings per share
and is the most comparable GAAP measure to our distributable
earnings per share.
(2)
See Other adjustments table below.
(3)
Distributable earnings per share for the three months ended
December, 2022 and 2021, are based on 91,536,442 shares and
87,143,351 shares outstanding, respectively, which represents the
weighted average number of fully-diluted shares outstanding
including our restricted stock awards, restricted stock units,
long-term incentive plan units, and the non-controlling interest in
our operating partnership. We include any potential common stock
issuances related to share based compensation units in the amount
we believe is reasonably certain to vest. As it relates to
Convertible Notes, we will assess the market characteristics around
the instrument to determine if it is more akin to debt or equity
based on an expectation of the likelihood of conversion based on
current conditions. If the instrument is more debt-like then we
will include any related interest expense and exclude the
underlying shares issuable upon conversion of the instrument. If
the instrument is more equity-like and is more dilutive when
treated as equity then we will exclude any related interest expense
and include the weighted average shares underlying the
instrument.
Twelve Months Ended
December 31, 2022
Twelve Months Ended
December 31, 2021
(dollars in thousands, except per
share amounts)
$
per share
$
per share
Net income attributable to controlling
stockholders (1)
$
41,502
$
0.47
$
126,579
$
1.51
Distributable earnings adjustments:
Reverse GAAP (income) loss from equity
method investments
(31,291
)
(126,421
)
Add equity method investments earnings
131,762
103,707
Equity-based compensation charges
20,101
17,047
Provision for loss on receivables (2)
12,798
496
(Gain) loss on debt modification or
extinguishment
—
16,083
Other adjustments (3)
10,919
21,232
Distributable earnings (4)
$
185,791
$
2.08
$
158,723
$
1.88
(1)
The per share amounts represent GAAP diluted earnings per share
and is the most comparable GAAP measure to our distributable
earnings per share.
(2)
In addition to these provisions, in the second quarter of 2022
we wrote-off two commercial receivables with a combined total
carrying value of approximately $8 million which represented
assignments of land lease payments from two wind projects that we
had originated in 2014 as a part of an acquisition of a large land
portfolio. In 2017, the operator of the projects terminated the
lease, at which time we filed a legal claim and placed these assets
on non-accrual status. In 2019, we received a court decision
indicating that the owners of the projects were within their rights
under the contract terms to terminate the lease which impacts the
land lease assignments to us, at which time we reserved the
receivables for their full carrying amount. In the second quarter
of 2022, we received a court decision indicating that our appeal
was not successful, and accordingly wrote off the full amount of
the receivable. We have excluded the write off from Distributable
earnings due to the infrequent occurrence of credit losses as well
as the unique nature of the receivables, as the assignment of land
lease payments from wind projects represent a small portion of our
total portfolio.
(3)
See Other adjustments table below.
(4)
Distributable earnings per share for the
years ended December 31, 2022 and 2021, are based on 89,355,907
shares and 84,268,341 shares outstanding, respectively, which
represents the weighted average number of fully-diluted shares
outstanding including our restricted stock awards, restricted stock
units, long-term incentive plan units, and the non-controlling
interest in our operating partnership. We include any potential
common stock issuances related to share based compensation units in
the amount we believe is reasonably certain to vest. As it relates
to Convertible Notes, we will assess the market characteristics
around the instrument to determine if it is more akin to debt or
equity based on an expectation of the likelihood of conversion
based on current conditions. If the instrument is more debt-like
then we will include any related interest expense and exclude the
underlying shares issuable upon conversion of the instrument. If
the instrument is more equity-like and is more dilutive when
treated as equity then we will exclude any related interest expense
and include the weighted average shares underlying the
instrument.
The table below provides a reconciliation of the Other
adjustments:
For the Three Months
Ended December 31,
For the Year
Ended December 31,
2022
2021
2022
2021
(in thousands)
(in thousands)
Other adjustments
Amortization of intangibles (1)
$
768
$
841
$
3,129
$
3,307
Non-cash provision (benefit) for income
taxes
(6,412
)
5,648
7,381
17,158
Net income attributable to non-controlling
interest
(268
)
401
409
767
Other adjustments
$
(5,912
)
$
6,890
$
10,919
$
21,232
(1)
Adds back non-cash amortization of lease
and pre-IPO intangibles.
The table below provides a reconciliation of GAAP SG&A
expenses to Distributable SG&A expenses:
For the Three Months
Ended December 31,
For the Year Ended
December 31,
2022
2021
2022
2021
(in thousands)
(in thousands)
GAAP SG&A expenses
Compensation and benefits
$
13,337
$
13,124
$
63,445
$
52,975
General and administrative
7,238
5,093
29,934
19,907
Total SG&A expenses (GAAP)
$
20,575
$
18,217
$
93,379
$
72,882
Distributable SG&A expenses
adjustments:
Non-cash equity-based compensation charge
(1)
$
(2,108
)
$
(3,544
)
$
(20,101
)
$
(17,047
)
Amortization of intangibles (2)
—
(69
)
(68
)
(218
)
Distributable SG&A expenses
adjustments
(2,108
)
(3,613
)
(20,169
)
(17,265
)
Distributable SG&A expenses
$
18,467
$
14,604
$
73,210
$
55,617
(1)
Reflects add back of non-cash amortization
of equity-based compensation. Outstanding grants related to
equity-based compensation are included in the distributable
earnings per share calculation.
(2)
Adds back non-cash amortization of pre-IPO
intangibles.
Distributable Net Investment Income
We have a portfolio of debt and equity investments in climate
change solutions. We calculate distributable net investment income
by adjusting GAAP-based net investment income for those
distributable earnings adjustments described above which impact
investment income. We believe that this measure is useful to
investors as it shows the recurring income generated by our
portfolio after the associated interest cost of debt financing. Our
management also uses distributable net investment income in this
way. Our non-GAAP distributable net investment income measure may
not be comparable to similarly titled measures used by other
companies. The following is a reconciliation of our GAAP-based net
investment income to our distributable net investment income:
Three months ended December
31,
Year ended December
31,
2022
2021
2022
2021
(in thousands)
Interest income
$
36,752
$
30,536
$
134,656
$
106,889
Rental income
6,529
6,544
26,245
25,905
GAAP-based investment revenue
43,281
37,080
160,901
132,794
Interest expense
30,524
26,311
115,559
121,705
GAAP-based net investment income
12,757
10,769
45,342
11,089
Equity method earnings adjustment (1)
32,802
27,135
131,762
103,707
(Gain) loss on debt modification or
extinguishment (2)
—
—
—
16,083
Amortization of real estate intangibles
(3)
768
772
3,061
3,089
Distributable net investment
income
$
46,327
$
38,676
$
180,165
$
133,968
(1)
Reflects adjustment for equity method
investments described above.
(2)
Adds back losses related to debt
prepayments included in interest expense in our income
statement.
(3)
Adds back non-cash amortization related to acquired real estate
leases.
Managed Assets
As we both consolidate assets on our balance sheet and
securitize assets, certain of our receivables and other assets are
not reflected on our balance sheet where we may have a residual
interest in the performance of the investment, such as servicing
rights or a retained interest in cash flows. Thus, we present our
investments on a non-GAAP “managed” basis, which assumes that
securitized receivables are not sold. We believe that our Managed
Asset information is useful to investors because it portrays the
amount of both on- and off-balance sheet receivables that we
manage, which enables investors to understand and evaluate the
credit performance associated with our portfolio of receivables,
investments, and residual assets in securitized receivables. Our
non-GAAP Managed Assets measure may not be comparable to similarly
titled measures used by other companies.
The following is a reconciliation of our GAAP-based Portfolio to
our Managed Assets as of December 31, 2022 and December 31,
2021:
As of
December 31, 2022
December 31, 2021
(dollars in millions)
Equity method investments
$
1,870
$
1,760
Commercial receivables, net of
allowance
1,887
1,299
Government receivables
103
125
Receivables held-for-sale
85
22
Real estate
353
356
Investments
10
18
GAAP-Based Portfolio
4,308
3,580
Assets held in securitization trusts
5,486
5,199
Managed assets
$
9,794
$
8,779
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230216005816/en/
Investor Contact: Neha Gaddam investors@hannonarmstrong.com
410-571-6189
Media Contact: Gil Jenkins media@hannonarmstrong.com
443-321-5753
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