ANNAPOLIS, Md., Feb. 21, 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 reduce climate changing
greenhouse gas emissions ("GHG") as well as mitigating the impact
of, or increasing resiliency to, climate change, today reported
earnings as shown in the table below:
|
|
For the Three Months
Ended
December 31,
2017
|
|
For the Three Months
Ended
December 31,
2016
|
|
|
$ in
thousands
|
|
Per Share
|
|
$ in
thousands
|
|
Per Share
|
GAAP Net
Income
|
|
$
3,383
|
|
$
0.06
|
|
$
4,408
|
|
$
0.09
|
Core Earnings
(1)
|
|
$
16,410
|
|
$
0.31
|
|
$
13,123
|
|
$
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
Ended
December 31,
2017
|
|
For the Year
Ended
December 31,
2016
|
|
|
$ in
thousands
|
|
Per Share
|
|
$ in
thousands
|
|
Per Share
|
GAAP Net
Income
|
|
$
30,856
|
|
$
0.57
|
|
$
14,652
|
|
$
0.32
|
Core Earnings
(1)
|
|
$
66,135
|
|
$
1.27
|
|
$
50,529
|
|
$
1.20
|
|
|
|
|
|
|
|
|
|
(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.
|
Highlights
- Closed approximately $1 billion
of transactions for the year
- Delivered 78% annual GAAP EPS growth and 6% annual Core EPS
growth in 2017
- Over $2.5 billion widely
diversified pipeline
- Over 25% annual growth in balance sheet to approximately
$2.3 billion, diversified across
approximately 175 separate investments
- Achieved a fixed-rate debt level of 92% as of December 31, 2017
- Declared Q4 2017 dividend of $0.33 per share, for an annualized yield of 6.3%
based on our closing stock price of $20.99 on February 20,
2018
- An estimated 530,000 metric tons of annual carbon emissions
will be offset by our 2017 transactions equating to a
CarbonCount® score of 0.56, or 0.56 metric tons per
$1,000 invested
"We moved aggressively over the last several years to fix out
substantially all of our debt, and lock in our portfolio returns,
before the recent increase in rates and flattening of the yield
curve," said President & CEO Jeff
Eckel. "Over the last 30 years, we have seen flat or
inverted yield curve environments similar to what we have today and
believe this is the time to increase the proportion of gain on
sale securitization transactions. Longer term, as the yield
curve normalizes, we will again prioritize accretive on-balance
sheet investments, possibly with the benefit of a higher interest
rate and spread environment. Given our strong and growing pipeline,
we are introducing three-year guidance of 8% to 12% annualized
total shareholder returns. Finally," continued Eckel, "as a result
of the costs of the higher fixed rate debt, we decided to keep the
dividend unchanged from its previous level for 2018 and will review
it again this time next year."
Guidance
The Company is targeting total shareholder returns, on a
compounded annual basis over the next 3 years, in the 8% - 12%
range. The Company believes that investors focus on both our
dividend yield and core earnings growth, thus it defines total
shareholder return for any period as the average yield on the stock
plus change in core earnings per share. For example, a 5% average
dividend yield and a 5% growth in core earnings per share, would
equate to a 10% total shareholder return. 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, including a relatively consistent price to core
earnings multiple for the Company's stock. Changes in the actual
share price may vary over a period of time for factors outside of
the Company's control which would impact the total shareholder
return (share price change with dividends reinvested) realized by
an investor. 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.
Portfolio
Our Portfolio totaled approximately $2.0
billion as of December 31,
2017, and included approximately $0.5
billion of energy efficiency, approximately $1.4 billion of renewable energy (wind and
solar), and approximately $0.1
billion other sustainable infrastructure investments. The
following is an analysis of our Portfolio by type of obligor as of
December 31, 2017:
|
Investment
Grade
|
|
|
|
|
|
|
|
|
|
Government
(1)
|
|
Commercial
(2)
|
|
Commercial
Non- Investment Grade (3)
|
|
Subtotal, Debt and
Real Estate
|
|
Equity Method
Investments
|
|
Total
|
|
|
|
|
($ in
millions)
|
|
|
|
|
|
|
Equity investments in
renewable energy
projects
|
$
—
|
|
$
—
|
|
$
—
|
|
$
—
|
|
$
502
|
|
$
502
|
Receivables and
investments
|
639
|
|
514
|
|
10
|
|
1,163
|
|
—
|
|
1,163
|
Real estate
(4)
|
—
|
|
341
|
|
—
|
|
341
|
|
21
|
|
362
|
Total
|
$
639
|
|
$
855
|
|
$
10
|
|
$
1,504
|
|
$
523
|
|
$
2,027
|
Average Remaining
Balance (5)
|
$
11
|
|
$
9
|
|
$
5
|
|
$
10
|
|
$
19
|
$
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 $400 million of U.S. federal
government transactions and $239 million of transactions where the
ultimate obligors are state or local governments. Transactions may
have guaranties of energy savings from third party service
providers, the majority of which are entities rated investment
grade by an independent rating agency.
|
(2)
|
Transactions where
the projects or the ultimate obligors are commercial entities that
have been rated investment grade (either by an independent rating
agency or based on our internal credit analysis). Of this total,
$11 million of the transactions have been rated investment grade by
an independent rating agency. Commercial investment grade financing
receivables include $314 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 135 transactions each with outstanding balances that
are less than $1 million and that in the aggregate total $52
million.
|
Fourth Quarter and Full Year Financial Results
Revenue grew by approximately $7
million, or 36%, for the three months, and approximately
$24 million, or 30%, for the year
ended December 31, 2017, as compared
to the same periods in 2016. Increases were primarily driven by
growth in the Portfolio to $2.0
billion as of December 31,
2017 from $1.6 billion as of
December 31, 2016 as well as higher
gain on sale income for both the quarter and year to date. GAAP
equity method income was down slightly for the quarter and grew by
approximately $16 million for the
twelve months ended December 31,
2017, compared to the same period in 2016, due to both
additional investments and increased income allocations from
certain projects.
The growth in both revenue and income from the equity method
investments was offset by an approximately $6 million increase in interest expense for the
three months, and an approximately $20
million increase interest expense for the year ended
December 31, 2017, as compared to the
same periods in 2016. This increase was primarily the result of
higher average outstanding borrowings, including higher fixed-rate
debt and an increase in interest rates.
Other expenses (compensation and benefits and general and
administrative expenses) increased by $0.5
million for the three months, and increased by approximately
$3 million for the year ended
December 31, 2017, as compared to the
same periods in 2016 due primarily to the growth of the
Company.
GAAP earnings fell slightly for the three months due to the
higher interest expense but increased by $16
million for the year on the higher revenue and equity method
income offset by the higher interest and other expenses. Core
earnings grew by approximately $3
million for the quarter primarily due to higher core
earnings from equity method investments. Core earnings grew in line
from GAAP earnings by approximately $16
million for the year ended December
31, 2017, over the same periods in 2016 primarily as the
result of higher GAAP earnings. A reconciliation of our GAAP net
income to core earnings is included in this press release.
The calculation of our fixed-rate debt and leverage ratios as of
December 31, 2017 and 2016 are shown
in the chart below:
|
December 31,
2017
|
|
% of Total
|
|
December 31,
2016
|
|
% of Total
|
|
($ in
millions)
|
|
|
|
|
($ in
millions)
|
|
|
Floating-rate
borrowings (1)
|
$
110
|
|
|
8%
|
|
$
320
|
|
33%
|
Fixed-rate debt
(2)
|
1,318
|
|
|
92%
|
|
655
|
|
67%
|
Total
|
$
1,428
|
|
|
100%
|
|
$
975
|
|
100%
|
Leverage
(3)
|
2.2 to 1
|
|
|
|
|
1.7 to 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Floating-rate
borrowings include borrowings under our floating-rate credit
facilities ("credit facilities") and approximately $40 million and
$37 million of nonrecourse debt with floating rate exposure as of
December 31, 2017 and December 31, 2016, respectively.
Approximately $32 million of the 2017 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.
|
(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).
|
"We completed over $600 million of
fixed-rate debt in the second half of 2017 at an average coupon of
below 4% as we ended 2017 with 92% fixed-rate debt. While we
estimate this higher fixed-rate debt cost will equate to
approximately $0.10 per share on an
annual basis, our year-end average debt cost was approximately 0.4%
higher than the average of 2016—well below the 1.1%
increase in LIBOR over the last year and a half. We expect to
maintain this higher level of fixed-rate debt until the Federal
Reserve has completed its normalization process. During this
time period, we expect to capitalize on strong institutional
investor interest by increasing our securitization activity.
This will likely increase the quarter over quarter or year over
year variability of the earnings," said Chief Financial Officer
Brendan Herron.
Dividend
The Company announced today that its Board of Directors declared
a quarterly cash dividend of $0.33
per share of common stock, payable on April
12, 2018, to stockholders of record on April 4, 2018.
Conference Call and Webcast Information
Hannon Armstrong will host an
investor conference call today, February 21,
2018, 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
5253208. The replay will be available until February 28, 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, 2016 as amended by our Amendment No.
1 to our Annual Report on Form 10-K for the year ended December 31, 2016 (collectively, our "2016 Form
10-K") that was filed with the U.S. Securities and Exchange
Commission (the "SEC"), as well as in other reports that we file
with the SEC. Statements regarding the following subjects, among
others, may be forward-looking:
- our expected returns and performance of our investments;
- the state of government legislation, regulation and policies
that support or enhance the economic feasibility of sustainable
infrastructure projects, including energy efficiency and renewable
energy projects and the general market demands for such
projects;
- market trends in our industry, energy markets, commodity
prices, interest rates, the debt and lending markets or the general
economy;
- our business and investment strategy;
- availability of opportunities to invest in 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 revised guidance reflects the Company's estimates of (i)
yield on its existing Portfolio; (ii) yield on incremental
Portfolio investments, inclusive of the Company's existing
pipeline; (iii) amount, timing, and costs of debt and equity
capital to fund new investments; (iv) changes in costs and expenses
reflective of the Company's forecasted operations and (v)
the general interest rate and market environment, including a
relatively consistent price to core earnings multiple for the
Company's stock. Changes in the actual share price may vary over a
period of time for factors outside of the Company's control which
would impact the total shareholder return (share price change with
dividends reinvested) realized by an investor. 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 ("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
Administration. 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.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
|
|
|
|
For the three
months ended
|
|
For the year
ended
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue
|
|
|
|
|
|
|
|
Interest income,
receivables
|
$
|
13,605
|
|
$
|
12,024
|
|
$
|
56,734
|
|
$
|
48,202
|
Interest income,
investments
|
1,461
|
|
519
|
|
5,079
|
|
1,822
|
Rental
income
|
5,572
|
|
3,165
|
|
19,831
|
|
11,933
|
Gain on sale of
receivables and investments
|
5,752
|
|
3,761
|
|
20,956
|
|
17,425
|
Fee income
|
705
|
|
393
|
|
2,973
|
|
1,816
|
Total
revenue
|
27,095
|
|
19,862
|
|
105,573
|
|
81,198
|
Expenses
|
|
|
|
|
|
|
|
Interest
expense
|
18,744
|
|
12,296
|
|
65,472
|
|
45,241
|
Compensation and
benefits
|
3,976
|
|
4,380
|
|
19,708
|
|
18,877
|
General and
administrative
|
3,068
|
|
2,164
|
|
10,762
|
|
8,293
|
Total
expenses
|
25,788
|
|
18,840
|
|
95,942
|
|
72,411
|
Income before
equity method investments
|
1,307
|
|
1,022
|
|
9,631
|
|
8,787
|
Income (loss) from
equity method investments
|
2,866
|
|
3,433
|
|
22,289
|
|
6,110
|
Income before
income taxes
|
4,173
|
|
4,455
|
|
31,920
|
|
14,897
|
Income tax (expense)
benefit
|
(766)
|
|
(18)
|
|
(885)
|
|
(141)
|
Net
income (loss)
|
3,407
|
|
4,437
|
|
31,035
|
|
14,756
|
Net income (loss)
attributable to non-controlling interest holders
|
24
|
|
29
|
|
179
|
|
104
|
Net
income (loss) attributable to controlling
stockholders
|
$
|
3,383
|
|
$
|
4,408
|
|
$
|
30,856
|
|
$
|
14,652
|
Basic earnings per
common share
|
$
|
0.06
|
|
$
|
0.09
|
|
$
|
0.57
|
|
$
|
0.32
|
Diluted earnings per
common share
|
$
|
0.06
|
|
$
|
0.09
|
|
$
|
0.57
|
|
$
|
0.32
|
Weighted average
common shares outstanding—basic
|
51,659,751
|
|
44,358,245
|
|
50,361,672
|
|
40,290,717
|
Weighted average
common shares outstanding—diluted
|
51,659,751
|
|
44,358,245
|
|
50,361,672
|
|
40,290,717
|
HANNON ARMSTRONG
SUSTAINABLE INFRASTRUCTURE CAPITAL, INC.
CONSOLIDATED BALANCE SHEET
($ IN THOUSANDS,
EXCEPT PER SHARE DATA)
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Assets
|
|
|
|
Equity method
investments
|
$
522,615
|
|
$
363,297
|
Government
receivables
|
519,485
|
|
526,481
|
Commercial
receivables
|
473,452
|
|
515,756
|
Receivables
held-for-sale
|
19,081
|
|
—
|
Real estate
|
340,824
|
|
172,257
|
Investments
|
151,209
|
|
58,058
|
Cash and cash
equivalents
|
57,274
|
|
29,428
|
Other
assets
|
166,232
|
|
80,610
|
|
|
|
|
Total
Assets
|
$
2,250,172
|
|
$
1,745,887
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
Liabilities
|
|
|
|
Accounts payable,
accrued expenses and other
|
$
25,645
|
|
$
25,219
|
Deferred funding
obligations
|
153,308
|
|
170,892
|
Credit
facility
|
69,922
|
|
283,346
|
Non-recourse debt
(secured by assets of $1,545 million and $864 million,
respectively)
|
1,210,861
|
|
692,091
|
Convertible
notes
|
147,655
|
|
—
|
|
|
|
|
Total
Liabilities
|
1,607,391
|
|
1,171,548
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
Preferred stock, par
value $0.01 per share, 50,000,000 shares authorized, no shares
issued and outstanding
|
—
|
|
—
|
Common stock, par
value $0.01 per share, 450,000,000 shares authorized, 51,665,449
and 46,493,155 shares issued and outstanding,
respectively
|
517
|
|
465
|
Additional paid in
capital
|
770,983
|
|
663,744
|
Accumulated
deficit
|
(131,251)
|
|
(92,213 )
|
Accumulated other
comprehensive income (loss)
|
(1,065)
|
|
(1,388 )
|
Non-controlling
interest
|
3,597
|
|
3,731
|
|
|
|
|
Total Stockholders'
Equity
|
642,781
|
|
574,339
|
|
|
|
|
Total Liabilities
and Stockholders' Equity
|
$
2,250,172
|
|
$
1,745,887
|
|
|
|
|
EXPLANATORY NOTES
Non-GAAP Financial Measures
Core Earnings
We calculate core earnings as GAAP net income excluding non-cash
equity compensation expense, non-cash provision for credit losses,
amortization of intangibles, any one-time acquisition related costs
or non-cash tax charges and the earnings attributable to our
non-controlling interest of our Operating Partnership. We also make
an adjustment to account for our equity method investments in the
renewable energy projects as described below. In the future, core
earnings may also exclude one-time events pursuant to changes in
GAAP and certain other non-cash charges as approved by a majority
of our independent directors.
Certain of our equity method investments in renewable energy
projects are structured using typical partnership "flip" structures
where we, along with any other institutional investors, if any,
receive a pre-negotiated preferred return consisting of priority
distributions from the project cash flows, in many cases, along
with tax attributes. Once this preferred return is achieved, the
partnership "flips" and the renewable energy company, which
operates the project, receives more of the cash flows through its
equity interests while we, and any other institutional investors,
retain an ongoing residual interest. We typically negotiate the
purchase prices of 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 year ended December 31,
2017, we recognized $22.3 million in income under GAAP for our
equity investments in renewable energy projects. We reversed the
GAAP income and recorded $42.7 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 $89.7 million
for the year ended December 31, 2017, with the difference
between core earnings and cash collected representing a return of
capital.
For the year ended December 31,
2016, we recognized $6.1 million in income under GAAP for our
equity investments in renewable energy projects. We reversed the
GAAP income and recorded $30.5 million for core earnings as discussed
above to reflect our return on capital from these investments for
the year ended December 31, 2016. This compares to the
collected cash distributions from these equity method investments
of approximately $55.8 million
for the year ended December 31, 2016, with the difference
between core earnings and cash collected representing a return of
capital.
We believe that core earnings provides an additional measure of
our core operating performance by eliminating the impact of certain
non-cash expenses and facilitating a comparison of our financial
results to those of other comparable REITs with fewer or no
non-cash charges and comparison of our own operating results from
period to period. Our management uses core earnings in this way. We
believe that our investors also use core earnings, or a comparable
supplemental performance measure, to evaluate and compare our
performance to that of our peers, and as such, we believe that the
disclosure of core earnings is useful to our investors.
However, core earnings does not represent cash generated from
operating activities in accordance with GAAP and should not be
considered as an alternative to net income (determined in
accordance with GAAP), or an indication of our cash flow from
operating activities (determined in accordance with GAAP), or a
measure of our liquidity, or an indication of funds available to
fund our cash needs, including our ability to make cash
distributions. In addition, our methodology for calculating core
earnings may differ from the methodologies employed by other REITs
to calculate the same or similar supplemental performance measures,
and accordingly, our reported core earnings may not be comparable
to similar metrics reported by other REITs.
Reconciliation of our GAAP Net Income to Core
Earnings
We have calculated our core earnings and provided a
reconciliation of our GAAP net income to core earnings for the
three months and year ended December 31,
2017 and 2016 in the tables below:
|
|
|
|
|
|
|
For the three
months ended
|
|
For the three months
ended
|
|
December 31,
2017
|
|
December 31,
2016
|
|
($ in thousands,
except per share data)
|
|
|
|
Per Share
|
|
|
|
Per Share
|
Net income
attributable to controlling stockholders
|
$
3,383
|
|
$
0.06
|
|
$
4,408
|
|
$
0.09
|
Core earnings
adjustments:
|
|
|
|
|
|
|
|
Reverse GAAP income
from equity method investments
|
(2,866)
|
|
|
|
(3,433)
|
|
|
Add back core equity
method investments earnings (1)
|
11,414
|
|
|
|
9,256
|
|
|
Non-cash equity-based
compensation charges (2)
|
2,953
|
|
|
|
2,602
|
|
|
Other core adjustments
(3)
|
1,526
|
|
|
|
290
|
|
|
Core
earnings (4)
|
$
16,410
|
|
$
0.31
|
|
$
13,123
|
|
$
0.29
|
|
|
(1)
|
Reflects adjustment
for equity method investments described above.
|
(2)
|
Reflects adjustment
for non-cash equity based compensation.
|
(3)
|
See detail
below.
|
(4)
|
Core earnings per
share for the three months ended December 31, 2017 and December 31,
2016, are based on 53,606,671 shares and 45,964,465 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
|
|
For the year
ended
|
|
December 31,
2017
|
|
December 31,
2016
|
|
($ in thousands,
except per share data)
|
|
|
|
Per Share
|
|
|
|
Per Share
|
Net income
attributable to controlling stockholders
|
$
30,856
|
|
$
0.57
|
|
$
14,652
|
|
$
0.32
|
Core earnings
adjustments:
|
|
|
|
|
|
|
|
Reverse GAAP income
from equity method investments
|
(22,289)
|
|
|
|
(6,110)
|
|
|
Add back core equity
method investments earnings (1)
|
42,707
|
|
|
|
30,491
|
|
|
Non-cash equity-based
compensation charges (2)
|
11,304
|
|
|
|
10,054
|
|
|
Other core adjustments
(3)
|
3,557
|
|
|
|
1,442
|
|
|
Core earnings
(4)
|
$
66,135
|
|
$
1.27
|
|
$
50,529
|
|
$
1.20
|
|
|
(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, 2017 and December 31, 2016,
are based on 52,231,030 shares and 41,940,480 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
|
|
For the year
ended
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
($ in
thousands)
|
|
|
Other core
adjustments
|
|
|
|
|
|
|
|
Amortization of
intangibles (1)
|
$
746
|
|
$
261
|
|
$
2,622
|
|
$
1,338
|
Net income
attributable to non-controlling interest
|
23
|
|
29
|
|
179
|
|
104
|
Non-cash provision
for taxes
|
757
|
|
—
|
|
756
|
|
—
|
Other core
adjustments
|
$
1,526
|
|
$
290
|
|
$
3,557
|
|
$
1,442
|
|
|
(1)
|
Adds back non-cash
amortization of lease and pre-IPO intangibles.
|
The table below provides a reconciliation of the GAAP SG&A
expenses to Core SG&A expenses:
|
For the three
months ended
|
|
For the year
ended
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
($ in
thousands)
|
|
|
GAAP SG&A
expenses
|
|
|
|
|
|
|
|
Compensation and
benefits
|
$
|
3,976
|
|
$
|
4,380
|
|
$
|
19,708
|
|
$
|
18,877
|
General and
administrative
|
3,068
|
|
2,164
|
|
10,762
|
|
8,293
|
Total SG&A
expenses (GAAP)
|
$
|
7,044
|
|
$
|
6,544
|
|
$
|
30,470
|
|
$
|
27,170
|
Core SG&A expenses
adjustments:
|
|
|
|
|
|
|
|
Non-cash equity-based
compensation charge (1)
|
$
|
(2,953)
|
|
$
|
(2,602)
|
|
$
|
(11,304)
|
|
$
|
(10,054)
|
Amortization of
intangibles (2)
|
(51)
|
|
(50)
|
|
(202)
|
|
(203)
|
Core SG&A expenses
adjustments
|
(3,004)
|
|
(2,652)
|
|
(11,506)
|
|
$
|
(10,257)
|
Core SG&A
expenses
|
$
|
4,040
|
|
$
|
3,892
|
|
$
|
18,964
|
|
$
|
16,913
|
|
(1)
|
Reflects add back of
non-cash amortization of stock based compensation. Outstanding
grants related to stock based compensation are included in core
earnings per share calculation.
|
(2)
|
Adds back non-cash
amortization of pre-IPO intangibles.
|
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SOURCE Hannon Armstrong Sustainable Infrastructure Capital,
Inc.