NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2018
Hannon Armstrong Sustainable Infrastructure Capital, Inc. (the “Company”) provides capital and services 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. We focus primarily on the energy efficiency, renewable energy and sustainable infrastructure markets. Our goal is to generate attractive returns for our stockholders by investing capital in assets or projects 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.
The Company and its subsidiaries are hereafter referred to as “we,” “us,” or “our.” Our investments take various forms, including equity, joint ventures, lending or other financing transactions, as well as land ownership and typically benefit from contractually committed high credit quality obligors. We also generate on-going fees through gain-on-sale securitization transactions, advisory services and asset management. We refer to the income producing assets that we hold on our balance sheet as our “Portfolio.” Our Portfolio may include:
|
|
•
|
Equity investments in either preferred or common structures in unconsolidated entities;
|
|
|
•
|
Government and commercial receivables, such as loans for renewable energy and energy efficiency projects;
|
|
|
•
|
Real estate, such as land or other assets leased for use by sustainable infrastructure projects typically under long-term leases; and
|
|
|
•
|
Investments in debt securities of renewable energy or energy efficiency projects.
|
We finance our business through cash on hand, borrowings under credit facilities and debt transactions, various asset-backed securitization transactions and equity issuances. We also generate fee income through securitizations and syndications, by providing broker/dealer services and by managing and servicing assets owned by third parties. Some of our subsidiaries are special purpose entities that are formed for specific operations associated with investing in sustainable infrastructure receivables for specific long-term contracts.
Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “HASI.” We have qualified as a real estate investment trust (“REIT”) and also intend to operate our business in a manner that will permit us to continue to maintain our exemption from registration as an investment company under the 1940 Act, as amended. We operate our business through, and serve as the sole general partner of, our operating partnership subsidiary, Hannon Armstrong Sustainable Infrastructure, L.P., (the “Operating Partnership”), which was formed to acquire and directly or indirectly own our assets.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and such differences could be material. These financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended
December 31, 2017
, as filed with the SEC. In the opinion of management, all adjustments necessary to present fairly our financial position, results of operations and cash flows have been included. Our results of operations for the quarterly period ended
September 30, 2018
are not necessarily indicative of the results to be expected for the full year or any other future period. Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. Certain amounts in the prior years have been reclassified to conform to the current year presentation.
The consolidated financial statements include our accounts and controlled subsidiaries, including the Operating Partnership. All significant intercompany transactions and balances have been eliminated in consolidation.
Following the guidance for non-controlling interests in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810,
Consolidation
("ASC 810")
,
references in this report to our earnings per share and our net income and stockholders’ equity attributable to common stockholders do not include amounts attributable to non-controlling interests.
Consolidation and Equity Method Investments
We account for our investments in entities that are considered voting interest entities or variable interest entities (“VIEs”) under ASC 810 and assess whether we should consolidate these entities on an ongoing basis. We have established various special purpose entities or securitization trusts for the purpose of securitizing certain receivables or other debt investments which are not consolidated in our financial statements as described in Securitization of Receivables below.
Substantially all of the activities of the special purpose entities that are formed for the purpose of holding our government and commercial receivables and investments on our balance sheet are closely associated with our activities. Based on our assessment, we determined that we have power over and receive the benefits of these special purpose entities; hence, we are the primary beneficiary and should consolidate these entities under the provisions of ASC 810.
We have made equity investments in various renewable energy projects. We share in the cash flows, income, and tax attributes according to a negotiated schedule (which typically does not correspond with our ownership percentages). Our renewable energy projects are typically owned in holding companies (using limited liability companies (“LLCs”), taxed as partnerships) where we receive a stated preferred return consisting of a priority distribution of all or a portion of the project’s cash flows, and in some cases, tax attributes. We have typically partnered with either the operator of the project or other institutional investors. Once our preferred return is achieved, the partnership “flips” and operator of the project, receives a larger portion of the cash flows through its interest in the holding company and we, along with any other institutional investors, will have an on-going residual interest.
These equity investments in renewable energy projects are accounted for under the equity method of accounting. Certain of our equity method investments were determined to be VIEs in which we are not the primary beneficiary, as we do not direct the significant activities of those entities in which we invest. Our maximum exposure to loss associated with the continued operation of the underlying projects in our equity method investments is limited to our recorded value of our investments. Under the equity method of accounting, the carrying value of these equity method investments is determined based on amounts we invested, adjusted for the equity in earnings or losses of the investee allocated based on the LLC agreement, less distributions received. For the LLC agreements which contain preferences with regard to cash flows from operations, capital events and liquidation, we reflect our share of profits and losses by determining the difference between our claim on the investee’s book value at the beginning and the end of the period, which is adjusted for distributions received and contributions made. This claim is calculated as the amount we would receive (or be obligated to pay) if the investee were to liquidate all of its assets at recorded amounts determined in accordance with GAAP and distribute the resulting cash to creditors and investors in accordance with their respective priorities. This method is commonly referred to as the hypothetical liquidation at book value method or (“HLBV”). Any difference between the amount of our investment and the amount of underlying equity in net assets is generally amortized over the life of the assets and liabilities to which the difference relates. Intercompany gains and losses are eliminated for an amount equal to our interest and are reflected in our share of income or loss from equity method investments in the consolidated statements of operations. Cash distributions received from these equity method investments are classified as operating activities to the extent of cumulative HLBV earnings in our consolidated statements of cash flows. We have elected to recognize earnings from these investments one quarter in arrears to allow for the receipt of financial information.
We have also made an investment in a joint venture which holds land under solar projects that we have determined to be a voting interest entity. This investment entitles us to receive an equal percentage of both cash distributions and profit and loss under the terms of the LLC operating agreement. The investment is accounted for under the equity method of accounting with our portion of income being recognized in income (loss) from equity method investments in the period in which the income is earned. Cash distributions received from this equity method investment are classified as operating activities to the extent of cumulative earnings in our consolidated statements of cash flows. Our initial investment and additional cash distributions beyond that which is classified as operating activities are classified as investing activities in our consolidated statements of cash flows.
We evaluate on a quarterly basis whether our investments accounted for using the equity method have an other than temporary impairment (“OTTI”). An OTTI occurs when the estimated fair value of an investment is below the carrying value and the difference is determined to not be recoverable. This evaluation requires significant judgment regarding, but not limited to, the severity and duration of the impairment; the ability and intent to hold the securities until recovery; financial condition, liquidity, and near-term prospects of the issuer; specific events; and other factors.
Government and Commercial Receivables
Government and commercial receivables (“receivables”), include energy efficiency and renewable energy project loans and receivables. These receivables are separately presented in our balance sheet to illustrate the differing nature of the credit risk related to these assets. Unless otherwise noted, we generally have the ability and intent to hold our receivables for the foreseeable future and thus they are classified as held for investment. Our ability and intent to hold certain receivables may change from time to time depending on a number of factors, including economic, liquidity and capital market conditions. At inception of the arrangement, the carrying value of receivables held for investment represents the present value of the note, lease or other payments, net of any unearned fee income, which is recognized as income over the term of the note or lease using the effective interest method. Receivables that are held for investment are carried, unless deemed impaired, at amortized cost, net of any unamortized acquisition premiums or discounts and include origination and acquisition costs, as applicable. Our initial investment and principal repayments of these receivables are classified as investing activities and the interest collected is classified as operating activities in our consolidated statements of cash flows. Receivables that we intend to sell in the short-term are classified as held-for-sale and are carried at the lower of amortized cost or fair value on our balance sheet. The net purchases and proceeds from receivables that we intend to sell at origination are classified as operating activities in our consolidated statements of cash flows, otherwise the net purchases and proceeds are classified as investing activities. Interest collected is classified as an operating activity in our consolidated statements of cash flows.
We evaluate our receivables for potential delinquency or impairment on at least a quarterly basis and more frequently when economic or other conditions warrant such an evaluation. When a receivable becomes
90
days or more past due, and if we otherwise do not expect the debtor to be able to service all of its debt or other obligations, we will generally consider the receivable delinquent or impaired and place the receivable on non-accrual status and cease recognizing income from that receivable until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a receivable’s status significantly improves regarding the debtor’s ability to service the debt or other obligations, we will remove it from non-accrual status.
A receivable is also considered impaired as of the date when, based on current information and events, it is determined that it is probable that we will be unable to collect all amounts due in accordance with the original contracted terms. Many of our receivables are secured by energy efficiency and renewable energy infrastructure projects. Accordingly, we regularly evaluate the extent and impact of any credit deterioration associated with the performance and value of the underlying project, as well as the financial and operating capability of the borrower, its sponsors or the obligor as well as any guarantors. We consider a number of qualitative and quantitative factors in our assessment, including, as appropriate, a project’s operating results, loan-to-value ratio, any cash reserves, the ability of expected cash from operations to cover the cash flow requirements currently and into the future, key terms of the transaction, the ability of the borrower to refinance the transaction, other credit support from the sponsor or guarantor and the project’s collateral value. In addition, we consider the overall economic environment, the sustainable infrastructure sector, the effect of local, industry, and broader economic factors, the impact of any variation in weather and the historical and anticipated trends in interest rates, defaults and loss severities for similar transactions.
If a receivable is considered to be impaired, we will determine if an allowance should be recorded. We will record an allowance if the present value of expected future cash flows discounted at the receivable’s contractual effective rate is less than its carrying value. This estimate of cash flows may include the currently estimated fair market value of the collateral less estimated selling costs if repayment is expected from the collateral. We charge off receivables against the allowance, if any, when we determine the unpaid principal balance is uncollectible, net of recovered amounts.
Real Estate
Real estate consists of land or other real estate and its related lease intangibles, net of any amortization. Our real estate is generally leased to tenants on a triple net lease basis, whereby the tenant is responsible for all operating expenses relating to the property, generally including property taxes, insurance, maintenance, repairs and capital expenditures. Scheduled rental revenue typically varies during the lease term and thus rental income is recognized on a straight-line basis, unless there is considerable risk as to collectability, so as to produce a constant periodic rent over the term of the lease. Accrued rental income is the aggregate difference between the scheduled rents which vary during the lease term and the income recognized on a straight-line basis and is recorded in other assets. Expenses, if any, related to the ongoing operation of leases where we are the lessor, are charged to operations as incurred. Our initial investment is classified as investing activities and income collected for rental income is classified as operating activities in our consolidated statements of cash flows.
We typically record our real estate purchases as asset acquisitions that are recorded at cost, including acquisition and closing costs. When we record our real estate purchases as asset acquisitions we allocate our cost to each tangible and intangible asset acquired on a relative fair value basis.
The fair value of the tangible assets of an acquired leased property is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, building and tenant improvements, if any, based on the
determination of the fair values of these assets. The as-if-vacant fair value of a property is typically determined by management based on appraisals by a qualified appraiser. In determining the fair value of the identified intangibles of an acquired property, above-market and below-market in-place lease values are valued based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease, including renewal periods likely of being exercised by the lessee.
The capitalized above-market lease values are amortized as a reduction of rental income and the capitalized below-market lease values are amortized as an increase to rental income, both of which are amortized over the term used to value the intangible. We also record, as appropriate, an intangible asset for in-place leases. The value of the leases in place at the time of the transaction is equal to the potential income lost if the leases were not in place. The amortization of this intangible occurs over the initial term unless management believes that it is likely that the tenant would exercise the renewal option, in which case the amortization would extend through the renewal period. If a lease were to be terminated, all unamortized amounts relating to that lease would be written off.
Investments
Investments are debt securities that meet the criteria of ASC 320,
Investments-Debt and Equity Securities
. We have designated our debt securities as available-for-sale and carry these securities at fair value on our balance sheet. Unrealized gains and losses, to the extent not considered to have an OTTI, on available-for-sale debt securities are recorded as a component of accumulated other comprehensive income (“AOCI”) in equity on our balance sheet. Our initial investment and principal repayments of these investments are classified as investing activities and the interest collected is classified as operating activities in our consolidated statements of cash flows.
We evaluate our investments for OTTI on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Our OTTI assessment is a subjective process requiring the use of judgments and assumptions. Accordingly, we regularly evaluate the extent and impact of any credit deterioration associated with the financial and operating performance and value of the underlying project. We consider a number of qualitative and quantitative factors in our assessment. We first consider the current fair value of the security and the duration of any unrealized loss. Other factors considered include changes in the credit rating, performance of the underlying project, key terms of the transaction, the value of any collateral and any support provided by the sponsor or guarantor.
To the extent that we have identified an OTTI for a security and intend to hold the investment to maturity and we do not expect that we will be required to sell the security prior to recovery of the amortized cost basis, we recognize only the credit component of the OTTI in earnings. We determine the credit component using the difference between the security’s amortized cost basis and the present value of its expected future cash flows, discounted using the effective interest method or its estimated collateral value. Any remaining unrealized loss due to factors other than credit is recorded in AOCI.
To the extent we hold investments with an OTTI and if we have made the decision to sell the security or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, we recognize the entire portion of the impairment in earnings.
Premiums or discounts on investment securities are amortized or accreted into interest income using the effective interest method.
Securitization of Receivables
We have established various special purpose entities or securitization trusts for the purpose of securitizing certain receivables or investments. We determined that the trusts used in securitizations are VIEs, as defined in ASC 810. We typically serve as primary or master servicer of these trusts; however, as the servicer, we do not have the power to make significant decisions impacting the performance of the trusts. Based on an analysis of the structure of the trusts, we have concluded that we are not the primary beneficiary of the trusts as we do not have power over the trusts’ significant activities. Therefore, we do not consolidate these trusts in our consolidated financial statements.
We account for transfers of receivables or investments to these securitization trusts as sales pursuant to ASC 860,
Transfers and Servicing
, when we have concluded the transferred receivables have been isolated from the transferor (i.e., put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership) and we have surrendered control over the transferred receivables. We have received true-sale-at-law opinions for all of our securitization trust structures and non-consolidation legal opinions for all but one legacy securitization trust structure that support our conclusion regarding the transferred receivables. When we sell receivables in securitizations, we generally retain interests in the form of servicing rights and residual assets, which we refer to as securitization assets.
Gain or loss on the sale of receivables is calculated based on the excess of the proceeds received from the securitization (less any transaction costs) plus any retained interests obtained over the cost basis of the receivables sold. For retained interests,
we generally estimate fair value based on the present value of future expected cash flows using our best estimates of the key assumptions of anticipated losses, prepayment rates, and current market discount rates commensurate with the risks involved. Cash flows related to our securitizations at origination are classified as operating activities in our consolidated statements of cash flows.
We initially account for all separately recognized servicing assets and servicing liabilities at fair value and subsequently measure such servicing assets and liabilities using the amortization method. Servicing assets and liabilities are amortized in proportion to, and over the period of, estimated net servicing income with servicing income recognized as earned. We assess servicing assets for impairment at each reporting date. If the amortized cost of servicing assets is greater than the estimated fair value, we will recognize an impairment in net income.
Our other retained interest in securitized assets, the residual assets, are accounted for as available-for-sale securities and carried at fair value on the consolidated balance sheets in other assets. We generally do not sell our residual assets. Our residual assets are evaluated for impairment on a quarterly basis. Interest income related to the residual assets is recognized using the effective interest rate method. If there is a change in the expected cash flows related to the residual assets, we calculate a new yield based on the current amortized cost of the residual assets and the revised expected cash flows. This yield is used prospectively to recognize interest income.
Cash and Cash Equivalents
Cash and cash equivalents include short-term government securities, certificates of deposit and money market funds, all of which had an original maturity of
three
months or less at the date of purchase. These securities are carried at their purchase price, which approximates fair value.
Restricted Cash
Restricted cash includes cash and cash equivalents set aside with certain lenders primarily to support deferred funding and other obligations outstanding as of the balance sheet dates. Restricted cash is reported as part of other assets in the consolidated balance sheets. Refer to Note 3 for disclosure of the balances of restricted cash included in other assets.
Convertible Notes
We have issued convertible senior notes that are accounted for in accordance with ASC 470-20,
Debt with Conversion and Other Options
, and ASC 815,
Derivatives and Hedging
("ASC 815")
.
Under ASC 815, issuers of certain convertible debt instruments are generally required to separately account for the conversion option of the convertible debt instrument as either a derivative or equity, unless it meets the scope exemption for contracts indexed to, and settled in, an issuer’s own equity. Since this conversion option is both indexed to our equity and can only be settled in our common stock, we have met the scope exemption, and therefore, we are not separately accounting for the embedded conversion option. The initial issuance and any principal repayments are classified as financing activities and interest payments are classified as operating activities in our consolidated statements of cash flows.
Derivative Financial Instruments
We utilize derivative financial instruments, primarily interest rate swaps, to manage, or hedge, our interest rate risk exposures associated with new debt issuances, to manage our exposure to fluctuations in interest rates on variable rate debt, and to optimize the mix of our fixed and floating-rate debt. In addition, we use forward-starting interest rate swap contracts to manage a portion of our interest rate exposure for anticipated refinancing of our long-term debts. Our objective is to reduce the impact of changes in interest rates on our results of operations and cash flows. The fair values of our interest rate swaps designated and qualifying as effective cash flow hedges are reflected in our consolidated balance sheets as a component of other assets (if in an unrealized asset position) or accounts payable, accrued expenses and other (if in an unrealized liability position) and in net unrealized gains and losses in AOCI. The cash settlements of our interest rate swaps are classified as operating activities in our consolidated statements of cash flows.
The interest rate swaps we use are designated as cash flow hedges and are considered highly effective in reducing our exposure to the interest rate risk that they are designated to hedge. This effectiveness is required in order to qualify for hedge accounting. Instruments that meet the required hedging criteria are formally designated as hedges at the inception of the derivative contract. Derivatives are recorded at fair value. If a derivative is designated as a cash flow hedge and meets the highly effective threshold, the change in the fair value of the derivative is recorded in AOCI, net of associated deferred income tax effects and is recognized in earnings at the same time as the hedged item, including as a result of the accrual of interest. For any derivative instruments not designated as hedging instruments, changes in fair value would be recognized in earnings in the period that the change occurs. We assess, both at the inception of the hedge and on an ongoing basis, whether the derivatives designated as cash flow hedges are highly effective in offsetting the changes in cash flows of the hedged items. We do not hold derivatives for trading purposes.
Interest rate swap contracts contain a credit risk that counterparties may be unable to fulfill the terms of the agreement. We attempt to minimize that risk by evaluating the creditworthiness of our counterparties, who are limited to major banks and financial institutions, and do not anticipate nonperformance by the counterparties.
Income Taxes
We elected and qualified to be taxed as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2013. To qualify as a REIT, we must meet on an ongoing basis a number of organizational and operational requirements, including a requirement that we currently distribute at least
90%
of our net taxable income, excluding capital gains, to our stockholders. As a REIT, we are not subject to U.S. federal corporate income tax on that portion of net income that is currently distributed to our owners. However, our taxable REIT subsidiaries (“TRSs”) will generally be subject to U.S. federal, state, and local income taxes as well as taxes of foreign jurisdictions, if any.
We account for income taxes under ASC 740,
Income Taxes
("ASC 740") for our TRSs using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. We evaluate any deferred tax assets for valuation allowances based on an assessment of available evidence including sources of taxable income, prior years taxable income, any existing taxable temporary differences and our future investment and business plans that may give rise to taxable income.
We apply ASC 740 with respect to how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. This guidance requires the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more likely than not” to be sustained by the applicable tax authority. We are required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which includes U.S. federal and certain states.
Equity-Based Compensation
In 2013, we adopted our equity incentive plan (the “2013 Plan”), which provides for grants of stock options, stock appreciation rights, restricted stock units, shares of restricted common stock, phantom shares, dividend equivalent rights, long-term incentive-plan units (“LTIP units”) and other restricted limited partnership units issued by our Operating Partnership and other equity-based awards. From time to time, we may make equity or equity based awards as compensation to members of our senior management team, our independent directors, employees, advisors, consultants and other personnel under our 2013 Plan. Certain awards earned under the plan are based on achieving various performance targets, which are generally earned between
0%
and
200%
of the initial target, depending on the extent to which the performance target is met.
We record compensation expense for grants made under the 2013 Plan in accordance with ASC 718,
Compensation-Stock Compensation
. We record compensation expense for unvested grants that vest solely based on service conditions on a straight-line basis over the vesting period of the entire award based upon the fair market value of the grant on the date of grant. Fair market value for restricted common stock is based on our share price on the date of grant. For awards where the vesting is contingent upon achievement of certain performance targets, compensation expense is measured based on the fair market value on the grant date and is recorded over the requisite service period (which includes the performance period). Actual performance results at the end of the performance period determines the number of shares that will ultimately be awarded. We have also issued restricted stock units where the vesting is contingent upon service being provided for a defined period and certain market conditions being met. The fair value of these awards, as measured at the grant date, is recognized over the requisite service period, even if the market conditions are not met. The grant date fair value of these awards was developed by an independent appraiser using a Monte Carlo simulation.
Earnings Per Share
We compute earnings per share of common stock in accordance with ASC 260,
Earnings Per Share
. Basic earnings per share is calculated by dividing net income attributable to controlling stockholders (after consideration of the earnings allocated to unvested grants under the 2013 Plan, if applicable) by the weighted-average number of shares of common stock outstanding during the period excluding the weighted average number of unvested grants under the 2013 Plan, if applicable (“participating securities” as defined in Note 12). Diluted earnings per share is calculated by dividing net income attributable to controlling stockholders (after consideration of the earnings allocated to unvested grants under the 2013 Plan, if applicable) by the weighted-average number of shares of common stock outstanding during the period plus other potential common stock instruments if they are dilutive. Other potentially dilutive common stock instruments include our unvested restricted stock, restricted stock units and convertible notes. The restricted stock and restricted stock units are included if they are dilutive using the treasury stock method. The treasury stock method assumes that theoretical proceeds received for future service provided is used to purchase treasury stock at our stock’s average market price, which is deducted from the amount of stock included in the
calculation. When unvested grants are dilutive, the earnings allocated to these dilutive unvested grants are not deducted from the net income attributable to controlling stockholders when calculating diluted earnings per share. The convertible notes are included if they are dilutive using the if-converted method. The if-converted method removes interest expense related to the convertible notes from the net income attributable to controlling stockholders and includes the weighted average shares over the period issuable upon conversion of the note. No adjustment is made for shares that are anti-dilutive during a period.
Segment Reporting
We make equity and debt investments for sustainable infrastructure projects. We manage our business as a single portfolio and report all of our activities as
one
business segment.
Recently Issued Accounting Pronouncements
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
(Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard replaces most existing revenue recognition guidance in GAAP and permits the use of either the retrospective or modified retrospective transition method. We have adopted ASU 2014-09 effective January 1, 2018, and have elected the modified retrospective transition method. The adoption of ASU 2014-09 did not have a material impact on our consolidated financial statements and related disclosures as the majority of our sources of revenue, e.g., investments in receivables, debt and equity securities, land leasing, and the securitization of receivables are not within the scope of the new standard.
Leases
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, an identified asset for the lease term. Changes were made to align lessor accounting with the lessee accounting model and ASU No. 2014-09,
Revenue from Contracts with Customers
. The ASU will be effective for us beginning January 1, 2019. Early application is permitted for all public business entities at any time. Lessees and lessors may apply either a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements or may recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The guidance allows for certain practical expedients to transition, which if elected, would allow us to continue to use our previous lease classification conclusions and continue to classify the leases that exist at the date of adoption based on their pre-existing classification. The changes in guidance could result in a different accounting treatment for certain of our operating leases as lessors of real estate. We are continuing to evaluate the impact of this ASU on our consolidated financial statements and related disclosures and anticipate electing the practical expedient to continue to apply previous lease classification conclusions to leases that exist at the date of adoption.
Credit Losses
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments
(Topic 326). ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will replace the “incurred loss” approach under existing guidance with an “expected loss” model for instruments measured at amortized cost, and require entities to record allowances for expected losses from available-for-sale debt securities rather than reduce the amortized cost, as currently required. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and is to be adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We are currently evaluating the impact the adoption of ASU 2016-13 will have on our consolidated financial statements and related disclosures.
Other accounting standards updates issued before
November 5, 2018
and effective after
September 30, 2018
are not expected to have a material effect on our consolidated financial statements and related disclosures.
3.
Fair Value Measurements
Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level hierarchy for classifying financial instruments. The levels of inputs used to determine the fair value of our financial assets and liabilities carried on the balance sheet at fair value and for those which only disclosure of fair value is required are characterized in accordance with the fair value hierarchy established by ASC 820, Fair Value Measurements. Where inputs for a financial asset or liability fall in more than one level in the fair value hierarchy, the financial asset or liability is classified in its entirety based on the lowest level input that is significant to the fair value measurement of that financial asset or liability. We use our judgment and consider factors specific to the financial assets and liabilities in determining the significance of an input to the fair value measurements. As of
September 30, 2018
and
December 31, 2017
, only our residual assets related to our securitization trusts, interest rate swaps and investments, if any, were carried at fair value on the consolidated balance sheets on a recurring basis. The three levels of the fair value hierarchy are described below:
•
Level 1 — Quoted prices (unadjusted) in active markets that are accessible at the measurement date.
|
|
•
|
Level 2 — Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
|
|
|
•
|
Level 3 — Unobservable inputs are used when little or no market data is available.
|
The tables below illustrate the estimated fair value of our financial instruments on our balance sheet. Unless otherwise discussed below, fair value for our Level 2 and Level 3 measurements is measured using a discounted cash flow model, contractual terms and inputs which consist of base interest rates and spreads over base rates which are based upon market observation and recent comparable transactions. An increase in these inputs would result in a lower fair value and a decline would result in a higher fair value. Our convertible notes are valued using a market based approach and observable prices. The receivables held-for-sale, if any, are carried at the lower of cost or fair value.
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2018
|
|
Fair Value
|
|
Carrying
Value
|
|
Level
|
|
(in millions)
|
|
|
Assets
|
|
|
|
|
|
Government receivables
|
$
|
478
|
|
|
$
|
504
|
|
|
Level 3
|
Commercial receivables
|
552
|
|
|
577
|
|
|
Level 3
|
Receivables held-for-sale
|
16
|
|
|
16
|
|
|
Level 3
|
Investments
(1)
|
162
|
|
|
162
|
|
|
Level 3
|
Securitization residual assets
(2)
|
68
|
|
|
68
|
|
|
Level 3
|
Derivative assets
|
10
|
|
|
10
|
|
|
Level 2
|
Liabilities
|
|
|
|
|
|
Credit facilities
(3)
|
$
|
290
|
|
|
$
|
290
|
|
|
Level 3
|
Non-recourse debt
(3)
|
1,091
|
|
|
1,120
|
|
|
Level 3
|
Convertible notes
(3)
|
146
|
|
|
151
|
|
|
Level 2
|
|
|
(1)
|
The amortized cost of our investments as of
September 30, 2018
was
$169
million.
|
|
|
(2)
|
Included in other assets on the consolidated balance sheet.
|
|
|
(3)
|
Fair value and carrying value excludes unamortized debt issuance costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
Fair Value
|
|
Carrying
Value
|
|
Level
|
|
(in millions)
|
|
|
Assets
|
|
|
|
|
|
Government receivables
|
$
|
519
|
|
|
$
|
519
|
|
|
Level 3
|
Commercial receivables
|
464
|
|
|
473
|
|
|
Level 3
|
Receivables held-for-sale
|
20
|
|
|
19
|
|
|
Level 3
|
Investments
(1)
|
151
|
|
|
151
|
|
|
Level 3
|
Securitization residual assets
(2)
|
45
|
|
|
45
|
|
|
Level 3
|
Liabilities
|
|
|
|
|
|
Credit facilities
(3)
|
$
|
70
|
|
|
$
|
70
|
|
|
Level 3
|
Non-recourse debt
(3)
|
1,239
|
|
|
1,238
|
|
|
Level 3
|
Convertible notes
(3)
|
156
|
|
|
152
|
|
|
Level 2
|
(1) The amortized cost of our investments as of
December 31, 2017
was
$153
million.
(2) Included in other assets on the consolidated balance sheet.
(3) Fair value and carrying value excludes unamortized debt issuance costs.
Investments
The following table reconciles the beginning and ending balances for our Level 3 investments that are carried at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(in millions)
|
Balance, beginning of period
|
$
|
154
|
|
|
$
|
126
|
|
|
$
|
151
|
|
|
$
|
58
|
|
Purchases of investments
|
12
|
|
|
5
|
|
|
19
|
|
|
71
|
|
Payments on investments
|
(3
|
)
|
|
—
|
|
|
(4
|
)
|
|
(1
|
)
|
Unrealized gains (losses) on investments recorded in AOCI
|
(1
|
)
|
|
—
|
|
|
(4
|
)
|
|
3
|
|
Balance, end of period
|
$
|
162
|
|
|
$
|
131
|
|
|
$
|
162
|
|
|
$
|
131
|
|
The following table illustrates our investments in an unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
Unrealized Losses
(1)
|
|
Securities with a loss shorter than 12 months
|
|
Securities with a loss longer than 12 months
|
|
Securities with a loss shorter than 12 months
|
|
Securities with a loss longer than 12 months
|
|
(in millions)
|
September 30, 2018
|
$
|
104
|
|
|
$
|
44
|
|
|
$
|
3
|
|
|
$
|
4
|
|
December 31, 2017
|
26
|
|
|
46
|
|
|
1
|
|
|
2
|
|
(1) Loss position is due to interest rates movements. We have the intent and ability to hold these investments until a recovery of fair value.
In determining the fair value of our investments, we used a range of interest rate spreads of approximately
1%
to
4%
based upon comparable transactions as of
September 30, 2018
and
December 31, 2017
.
Interest Rate Swap Agreements
The fair values of the derivative financial instruments are determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. We have determined that the significant inputs, such as interest yield curves and discount rates, used to value our derivatives fall within Level 2 of the fair value hierarchy and that the credit valuation adjustments associated with our counterparties and our own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of our or our counterparties default. As of
September 30, 2018
and
December 31, 2017
, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments were not significant to the
overall valuation of our derivatives. As a result, we determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Non-recurring Fair Value Measurements
Our financial statements may include non-recurring fair value measurements related to acquisitions and non-monetary transactions, if any. Assets acquired in a business combination are recorded at their fair value. We may use third party valuation firms to assist us with developing our estimates of fair value.
Concentration of Credit Risk
Government and commercial receivables, investments and leases consist primarily of U.S. federal government-backed receivables, investment grade state and local government receivables and receivables from various sustainable infrastructure projects and do not, in our view, represent a significant concentration of credit risk. See Note 6 for an analysis by type of obligor and the method for rating. Additionally, our investments are collateralized by projects concentrated in certain geographic regions throughout the United States. We have structural credit protections to mitigate our risk exposure and, in most cases, the projects are insured for estimated physical loss which helps to mitigate the possible risk from these concentrations. As described above, we do not believe we have a significant credit exposure to our interest rate swap providers. We had cash deposits that are subject to credit risk as shown below:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
(in millions)
|
Cash deposits
|
$
|
34
|
|
|
$
|
57
|
|
Restricted cash deposits (included in other assets)
|
63
|
|
|
61
|
|
Total cash deposits
|
$
|
97
|
|
|
$
|
118
|
|
Amount of cash deposits in excess of amounts federally insured
|
$
|
95
|
|
|
$
|
116
|
|
|
|
4.
|
Non-Controlling Interest
|
Units of limited partnership interests in the Operating Partnership (“OP units”) that are owned by limited partners other than us are included in non-controlling interest on our consolidated balance sheets. The outstanding OP units held by outside limited partners represent less than
1%
of our outstanding OP units and are redeemable by the limited partners for cash, or at our option, for a like number of shares of our common stock. We exchanged
3,703
OP units held by our non-controlling interest holders for the same number of shares of our common stock during the
nine
months ended
September 30, 2018
.
No
OP units were exchanged for either cash or shares of our common stock during the
nine
months ended
September 30, 2017
. The non-controlling interest holders are generally allocated their pro rata share of income, other comprehensive income and equity transactions.
|
|
5.
|
Securitization of Receivables
|
The following summarizes certain transactions with our securitization trusts:
|
|
|
|
|
|
|
|
|
|
As of and for the nine months ended September 30,
|
|
2018
|
|
2017
|
|
(in millions)
|
Gains on securitizations
|
$
|
31
|
|
|
$
|
15
|
|
Purchase of receivables securitized
|
595
|
|
|
277
|
|
Proceeds from securitizations
|
626
|
|
|
292
|
|
Residual and servicing assets included in other assets
|
69
|
|
|
35
|
|
Cash received from residual and servicing assets
|
3
|
|
|
4
|
|
In connection with securitization transactions, we typically retain servicing responsibilities and residual assets. In certain instances, we receive annual servicing fees of up to
0.20%
of the outstanding balance. We may periodically make servicer advances, which are subject to credit risk. Included in other assets in our consolidated balance sheets are our servicing assets at amortized cost, our residual assets at fair value, and our servicing advances at cost, if any. Our residual assets are subordinate to investors’ interests, and their values are subject to credit, prepayment and interest rate risks on the transferred financial assets.
The investors and the securitization trusts have no recourse to our other assets for failure of debtors to pay when due. In computing gains and losses on securitizations, we use the same discount rates we use for the fair value calculation of residual assets, which are determined based on a review of comparable market transactions including Level 3 unobservable inputs which consist of base interest rates and spreads over base rates. Depending on the nature of the transaction risks, the discount rate ranged from
4%
to
7%
.
As of
September 30, 2018
and
December 31, 2017
, our managed assets totaled $
5.3
billion and
$4.7
billion, respectively, of which
$3.2
billion and
$2.7
billion, respectively, were securitized assets held in unconsolidated securitization trusts. There were
no
securitization credit losses in the
nine
months ended
September 30, 2018
or
2017
. As of
September 30, 2018
, there was approximately
$1.1
million in payments from certain debtors to the securitization trusts that was greater than 90 days past due. The securitized assets generally consist of receivables from contracts for the installation of energy efficiency and other technologies in facilities owned by, or operated for or by, federal, state or local government entities where the ultimate obligor is the government. The contracts may have guarantees of energy savings from third party service providers, which typically are entities rated investment grade by an independent rating agency. Based on the nature of the receivables and experience-to-date, we do not currently expect to incur any credit losses of our residual interests related to the receivables sold.
As of
September 30, 2018
, our Portfolio included approximately
$2.1
billion of equity method investments, receivables, real estate and investments on our balance sheet. The equity method investments represent our non-controlling equity investments in renewable energy projects and land. The receivables and investments are typically collateralized by contractually committed debt obligations of government entities or private high credit quality obligors and are often supported by additional forms of credit enhancement, including security interests and supplier guaranties. The real estate is typically land and related lease intangibles for long-term leases to wind and solar projects.
The following is an analysis of our Portfolio as of
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Grade
|
|
|
|
|
|
|
|
Government
(1)
|
|
Commercial Investment Grade
(2)
|
|
Commercial Non-Investment Grade
(3)
|
|
Subtotal,
Debt and
Real Estate
|
|
Equity
Method
Investments
|
|
Total
|
|
(dollars in millions)
|
Equity investments in renewable energy projects
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
412
|
|
|
$
|
412
|
|
Receivables
(4)
|
504
|
|
|
457
|
|
|
120
|
|
|
1,081
|
|
|
—
|
|
|
1,081
|
|
Receivables held-for-sale
|
16
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
16
|
|
Real estate
(5)
|
—
|
|
|
362
|
|
|
—
|
|
|
362
|
|
|
22
|
|
|
384
|
|
Investments
|
101
|
|
|
61
|
|
|
—
|
|
|
162
|
|
|
—
|
|
|
162
|
|
Total
|
$
|
621
|
|
|
$
|
880
|
|
|
$
|
120
|
|
|
$
|
1,621
|
|
|
$
|
434
|
|
|
$
|
2,055
|
|
% of Debt and real estate portfolio
|
38
|
%
|
|
55
|
%
|
|
7
|
%
|
|
100
|
%
|
|
N/A
|
|
|
N/A
|
|
Average remaining balance
(6)
|
$
|
11
|
|
|
$
|
9
|
|
|
$
|
40
|
|
|
$
|
10
|
|
|
$
|
16
|
|
|
$
|
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
$389
million of U.S. federal government transactions and
$232
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. Commercial investment grade receivables include
$308
million of internally rated residential solar loans made on a non-recourse basis to special purpose subsidiaries of the SunPower Corporation (“SunPower”), for which we rely on certain limited indemnities, warranties, and other obligations of SunPower or its subsidiaries.
|
|
|
(3)
|
Transactions where the projects or 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 subordination in the asset causes it to be considered non-investment grade. This includes an approximately
$110 million
mezzanine loan made in the third quarter of 2018 on a non-recourse basis to special purpose subsidiaries of SunPower secured by residential solar assets and for which we rely on certain limited indemnities, warranties, and other obligations of SunPower or its other subsidiaries. See Receivables and Investments below for further information.
|
|
|
(4)
|
Total reconciles to the total of the government receivables and commercial receivables lines of the consolidated balance sheets.
|
|
|
(5)
|
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.
|
|
|
(6)
|
Excludes approximately
160
transactions each with outstanding balances that are less than
$1 million
and that in the aggregate total
$60
million.
|
Equity Method Investments
We have made non-controlling equity investments in a number of renewable energy projects as well as in a joint venture that owns land with a long-term triple net lease agreement to several solar projects that we account for as equity method investments. As of
September 30, 2018
, we held the following equity method investments:
|
|
|
|
|
|
|
|
Investment Date
|
|
Investee
|
|
Carrying Value
|
|
|
|
|
(in millions)
|
Various
|
|
Vento I, LLC
|
|
$
|
90
|
|
Various
|
|
Northern Frontier, LLC
|
|
86
|
|
December 2015
|
|
Buckeye Wind Energy Class B Holdings, LLC
|
|
72
|
|
October 2016
|
|
Invenergy Gunsight Mountain Holdings, LLC
|
|
37
|
|
June 2016
|
|
MM Solar Holdings, LLC
|
|
30
|
|
Various
|
|
Helix Fund I, LLC
|
|
23
|
|
Various
|
|
Other transactions
|
|
96
|
|
|
|
Total equity method investments
|
|
$
|
434
|
|
An underlying solar project associated with one of our equity method investments located in the U.S. Virgin Islands was materially damaged in the 2017 hurricanes. Although there can be no assurance in this regard, we continue to believe that the project’s insurance as well as other existing assets in the project will be sufficient to recover our investment of approximately
$11
million through either rebuilding the project or returning our invested capital.
As of December 31, 2017, we held a
$25 million
investment in a wind project that was purchased as part of a portfolio at a significant discount to the project’s book value, in part, due to the lack of a power purchase agreement and some operational issues. As disclosed in our 2017 Form 10-K, in February 2018, the sponsor indicated it would be recording a material write-down of the project within its 2017 annual financial statements due to these issues. As we account for this investment one quarter in arrears, we recognized an
$8 million
non-cash HLBV loss in the first quarter of 2018. There have been no additional write-downs of the project recorded by us subsequent to the first quarter of 2018.
Based on an evaluation of our equity method investments, inclusive of these projects, we determined that
no
OTTI had occurred as of
September 30, 2018
or
December 31, 2017
.
Receivables and Investments
The following table provides a summary of our anticipated maturity dates of our receivables and investments and the weighted average yield for each range of maturities as of
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Less than 1
year
|
|
1-5 years
|
|
5-10 years
|
|
More than 10
years
|
|
(dollars in millions)
|
Receivables
(1)
|
|
|
|
|
|
|
|
|
|
Maturities by period
|
$
|
1,081
|
|
|
$
|
1
|
|
|
$
|
18
|
|
|
$
|
64
|
|
|
$
|
998
|
|
Weighted average yield by period
|
5.8
|
%
|
|
2.4
|
%
|
|
5.8
|
%
|
|
4.6
|
%
|
|
5.9
|
%
|
Investments
|
|
|
|
|
|
|
|
|
|
Maturities by period
|
$
|
162
|
|
|
$
|
—
|
|
|
$
|
64
|
|
|
$
|
13
|
|
|
$
|
85
|
|
Weighted average yield by period
|
4.2
|
%
|
|
—
|
%
|
|
3.6
|
%
|
|
4.1
|
%
|
|
4.6
|
%
|
|
|
(1)
|
Excludes receivables held-for-sale of
$16
million.
|
In the third quarter of 2018, we provided a mezzanine loan in the amount of approximately
$110 million
, to a special purpose subsidiary of SunPower ("SunStrong") with an interest rate of
12%
and a contractual maturity of 2043. SunStrong holds managing member interests in a number of portfolios of residential solar holding companies and our loan is subordinate to senior debt and other minority tax equity investments. We are also a pre-existing lender of approximately
$308
million of the senior debt in the portfolio. The cash flows from the residential solar assets, in most cases, are first applied to the minority tax
equity investments and the senior debt and then to our mezzanine loan. In the event there is not sufficient cash for payment on the mezzanine loan, the interest is paid-in-kind ("PIK"). Due to the mezzanine nature of the loan we have classified this loan as a non-investment grade commercial receivable on our balance sheet. In conjunction with providing this loan, we also sold an equity method investment in solar projects for
$12 million
. We recognized a gain of approximately
$1 million
upon sale of this equity method investment.
In November 2018 we entered into several agreements related to SunStrong including a purchase and sale agreement with SunPower for the acquisition of
49%
of the membership interests in SunStrong for
$10 million
. We also entered into an additional mezzanine loan agreement with SunStrong that has a maximum lending limit of
$32 million
bearing an interest rate of
11.75%
that also includes a PIK feature. The contractual maturity date of this additional mezzanine loan agreement is 2043. Although there can be no assurance in this regard, we expect that there will be additional transactions in the future that may include the repayment of our
$308 million
of senior debt with SunPower. We have provided a limited guaranty, which is generally limited to the purchase price, in connection with our
49%
equity interest covering the accuracy of certain of the representations and warranties and other obligations of and provided an indemnity against certain losses from “bad acts” including fraud, failure to disclose a material fact, theft, misappropriation, voluntary bankruptcy or unauthorized transfers. We have also guaranteed our compliance with certain actions under our control such as negatively impacting the investment tax credit, exercising certain protective rights or other obligations in the event of a change in ownership up to a maximum exposure of
$300
million which will decrease over time.
Our non-investment grade assets also consist of two commercial receivables with a combined total carrying value of approximately
$8
million as of
September 30, 2018
that became past due in the second quarter of 2017. These receivables, which we acquired as part of our acquisition of American Wind Capital Company, LLC in 2014, are assignments of land lease payments from two wind projects (the “Projects”). We have been informed by the owner of the Projects that the Projects are experiencing a decline in revenue. The owner of the Projects is seeking to terminate the lease. In July 2017, we filed a legal claim against the owners of the Projects in order to protect our interests in these Projects and the amounts due to us under the land lease assignments. In January 2018, we received a
$1.6 million
payment from the Projects and we continue to pursue our legal claims. Although there can be no assurance in this regard, we believe that we have the ability to recover the carrying value from the Projects based on projected cash flows, and thus have not recorded an allowance for losses as of
September 30, 2018
. We have determined that the assets are impaired and placed them on non-accrual status.
Other than discussed above, we had
no
receivables or investments that were impaired or on non-accrual status as of
September 30, 2018
or
December 31, 2017
. There was
no
provision for credit losses or troubled debt restructurings as of
September 30, 2018
or
December 31, 2017
.
Real Estate
Our real estate is leased to renewable energy projects, typically under long-term triple net leases with expiration dates that range between the years
2033
and
2057
under the initial terms and
2047
and
2080
if all renewals are exercised. The components of our real estate portfolio as of
September 30, 2018
and
December 31, 2017
, were as follows:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
(in millions)
|
Real estate
|
|
|
|
Land
|
$
|
266
|
|
|
$
|
247
|
|
Lease intangibles
|
103
|
|
|
99
|
|
Accumulated amortization of lease intangibles
|
(7
|
)
|
|
(5
|
)
|
Real estate
|
$
|
362
|
|
|
$
|
341
|
|
In the first quarter of 2017, we purchased a portfolio of over
4,000
acres of land and related long-term triple net leases to over
20
individual solar projects with investment grade off-takers at a cost of approximately
$145 million
. Approximately
$21 million
(
1,100
acres) of this real estate portfolio was acquired through an equity method investment in a joint venture that we account for under the equity method of accounting and approximately
$56 million
of our purchase price was allocated to intangible lease assets on a relative fair value basis. This transaction was accounted for as an asset acquisition.
As of
September 30, 2018
, the future amortization expense of the intangible assets and the future minimum rental income payments under our land lease agreements are as follows:
|
|
|
|
|
|
|
|
|
|
Future Amortization Expense
|
|
Minimum Rental Income Payments
|
|
(in millions)
|
From October 1, 2018 to December 31, 2018
|
$
|
1
|
|
|
$
|
5
|
|
2019
|
3
|
|
|
21
|
|
2020
|
3
|
|
|
21
|
|
2021
|
3
|
|
|
22
|
|
2022
|
3
|
|
|
22
|
|
2023
|
3
|
|
|
23
|
|
Thereafter
|
80
|
|
|
778
|
|
Total
|
$
|
96
|
|
|
$
|
892
|
|
Deferred Funding Obligations
In accordance with the terms of purchase agreements relating to certain equity method investments, receivables and investments, payments of the purchase price are scheduled to be made over time and as a result, we have recorded deferred funding obligations of
$83
million and
$153
million as of
September 30, 2018
and
December 31, 2017
, respectively. We have secured financing for, or placed in escrow, approximately
$70
million and
$90
million of the deferred funding obligations as of
September 30, 2018
and
December 31, 2017
, respectively. As of
December 31, 2017
, we had pledged approximately
$29
million of our equity method investments as collateral for a deferred funding obligation of
$20
million, which was fully funded in the second quarter of 2018.
The outstanding deferred funding obligations to be paid are as follows:
|
|
|
|
|
|
Deferred Funding Obligations
|
|
(in millions)
|
From October 1, 2018 to December 31, 2018
|
$
|
27
|
|
2019
|
35
|
|
2020
|
16
|
|
2021
|
5
|
|
Total
|
$
|
83
|
|
Senior credit facility
We have a senior secured revolving credit facility which matures, except as described below, in July 2019. The facility provides for maximum cumulative advances of
$1.6
billion with the aggregate amount outstanding at any point in time of
$500
million and which consists of two components, the “G&I Facility” and the “PF Facility”. The G&I Facility can be used to leverage certain qualifying government and institutional investments made by us and the PF Facility can be used to leverage certain qualifying project investments made by us. In September 2018 we increased the maximum cumulative advances under the facility by
$100 million
. We also modified the PF facility to borrow against our equity interest in Strong Upwind Holdings I, LLC ("SU Borrowing"), using an agreed upon amortization schedule through July 2021 and a rate of London Interbank Offered Rate ("LIBOR") plus
1.5%
with the proceeds used to repay the ABS Loan Agreement described in Note 8.
The following table provides additional detail on our credit facility as of
September 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
(dollars in millions)
|
Outstanding balance
|
$
|
252
|
|
|
$
|
70
|
|
Value of collateral pledged to credit facility
|
362
|
|
|
252
|
|
Weighted average short-term borrowing rate
|
3.8
|
%
|
|
3.0
|
%
|
Borrowings under the G&I Facility bear interest at a rate equal to the
LIBOR plus 1.5%
or, under certain circumstances,
1.5%
plus the Base Rate. Borrowings under the PF Facility bear interest at a rate equal to
LIBOR plus 2.5%
or, under certain circumstances,
2.5%
plus the Base Rate or as mutually agreed. The Base Rate is defined as the highest of (i) the Federal Funds
Rate plus
0.5%
, (ii) the rate of interest publicly announced by Bank of America from time to time as its “prime rate,” (iii) LIBOR plus
1.0%
and (iv)
zero
. Under the PF Facility, we also have the option to borrow at a fixed rate of interest until the expiration of the credit facility in July 2019. The fixed rate is determined by agreement with the administrative agent and is based on the prevailing US SWAP rate of an equivalent term to the average-life of the fixed rate portion of the borrowing plus an agreed upon margin. The loans are made through wholly-owned special purpose subsidiaries (the “Borrowers”) and we have guaranteed the obligations of the Borrowers under the credit facility pursuant to (x) a Continuing Guaranty, dated July 19, 2013, and (y) a Limited Guaranty, dated July 19, 2013, both as amended and restated.
Any financing we propose to be included in the borrowing base as collateral under the facility is subject to the approval of the administrative agent in its sole discretion and the payment of a placement fee. We may, with the consent of the administrative agent, borrow against new projects before such projects become Approved Financings (as defined in the PF Facility loan agreement) but after they have been pledged as collateral. The amount eligible to be drawn under the facility for purposes of financing such investments will be based on a discount to the value of each investment or an applicable valuation percentage. Under the G&I Facility, the applicable valuation percentage for non-delinquent investments is
85%
in the case of a U.S. federal government obligor,
80%
in the case of an institutional obligor or a state and local obligor, and with respect to other obligors or in certain circumstances, such other percentage as the administrative agent may prescribe. Under the PF Facility, the applicable valuation percentage is
67%
or such other percentage as the administrative agent may prescribe. The sum of approved financings after taking into account the valuation percentages and any changes in the valuation of the financings in accordance with the loan agreements determines the borrowing capacity, subject to the overall facility limits described above.
We have approximately
$3
million of remaining unamortized costs associated with the credit facility that have been capitalized and included in other assets on our balance sheet, and are being amortized on a straight-line basis over the term of the credit facility. On each monthly payment date, the Borrowers shall also pay to the administrative agent, for the benefit of the lenders, certain availability fees for each loan agreement equal to
0.50%
, divided by 360, multiplied by the excess of the available borrowing capacity under each component of the credit facility over the actual amount borrowed under such component.
The credit facility contains terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds and stock repurchases. We were in compliance with our covenants as of
September 30, 2018
and
December 31, 2017
.
The credit facility also includes customary events of default, including the existence of a default in more than
50%
of underlying financings. The occurrence of an event of default may result in termination of the credit facility, acceleration of amounts due under the credit facility, and accrual of default interest at a rate of
LIBOR plus 2.50%
in the case of the G&I Facility and at a rate of
LIBOR plus 5.00%
in the case of the PF Facility.
The stated minimum maturities to be paid under the SU Borrowing to meet the required target loan balances as of
September 30, 2018
are as follows:
|
|
|
|
|
|
Future minimum maturities
|
|
(in millions)
|
October 1, 2018 to December 31, 2018
|
$
|
14
|
|
2019
|
10
|
|
2020
|
8
|
|
2021
|
31
|
|
Total
|
$
|
63
|
|
Term Loan
In August 2018, we borrowed
$40
million which matures in August 2019 from a financial institution to fund the SunPower mezzanine loan described in Note 6. This recourse credit facility, which can be repaid at anytime, requires mandatory repayments with mezzanine loan proceeds including from the refinancing of senior debt. It bears interest at a floating rate of three month LIBOR plus
1.50%
through February 10, 2019, increasing to three month LIBOR plus
1.75%
through May 10, 2019 and then to three month LIBOR plus
2.00%
through maturity. The loan is secured by the equity of our special purpose subsidiary that holds our
$110
million mezzanine loan provided to a special purpose subsidiary of SunPower. The credit facility contains terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and
indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds and stock repurchases.
This credit facility also includes customary events of default. The occurrence of an event of default may result in acceleration of amounts due under the credit facility and accrual of default interest at the floating rate described above plus
2%
. We capitalized
$0.6
million of debt issuance costs which are included in the credit facilities line item on the balance sheet.
Non-recourse debt
We have outstanding the following asset-backed non-recourse debt and bank loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Balance
as of
|
|
|
|
|
|
|
|
Anticipated
Balance at
Maturity
|
|
Value of Assets Pledged
as of
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Interest
Rate
|
|
|
|
Maturity Date
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Description
of Assets Pledged
|
|
(dollars in millions)
|
|
|
HASI Sustainable Yield Bond 2013-1
|
$
|
62
|
|
|
$
|
67
|
|
|
2.79
|
%
|
|
|
|
December 2019
|
|
$
|
57
|
|
|
$
|
83
|
|
|
$
|
86
|
|
|
Receivables
|
ABS Loan Agreement
(1)
|
—
|
|
|
81
|
|
|
5.74
|
%
|
|
|
|
—
|
|
—
|
|
|
—
|
|
|
79
|
|
|
Equity interest in Strong Upwind Holdings I, LLC
|
HASI Sustainable Yield Bond 2015-1A
|
91
|
|
|
94
|
|
|
4.28
|
%
|
|
|
|
October 2034
|
|
—
|
|
|
135
|
|
|
137
|
|
|
Receivables, real estate and real estate intangibles
|
HASI Sustainable Yield Bond 2015-1B Note
|
13
|
|
|
14
|
|
|
5.41
|
%
|
|
|
|
October 2034
|
|
—
|
|
|
135
|
|
|
137
|
|
|
Class B Bond of HASI Sustainable Yield Bond 2015-1
|
2017 Credit Agreement
|
124
|
|
|
180
|
|
|
4.12
|
%
|
|
|
|
January 2023
|
|
—
|
|
|
160
|
|
|
226
|
|
|
Equity interests in Strong Upwind Holdings I, II, III, and IV LLC, and Northern Frontier, LLC
|
HASI SYB Loan Agreement 2015-2
|
33
|
|
|
36
|
|
|
6.47
|
%
|
|
(2)
|
|
December 2023
|
|
—
|
|
|
72
|
|
|
68
|
|
|
Equity interest in Buckeye Wind Energy Class B Holdings LLC, related interest rate swap
|
HASI SYB Loan Agreement 2015-3
|
137
|
|
|
143
|
|
|
4.92
|
%
|
|
|
|
December 2020
|
|
127
|
|
|
167
|
|
|
171
|
|
|
Residential solar receivables, related interest rate swaps
|
HASI SYB Loan Agreement 2016-1
|
119
|
|
|
121
|
|
|
5.40
|
%
|
|
(2)
|
|
November 2021
|
|
106
|
|
|
141
|
|
|
143
|
|
|
Residential solar receivables, related interest rate swaps
|
HASI SYB Trust 2016-2
|
81
|
|
|
81
|
|
|
4.35
|
%
|
|
|
|
April 2037
|
|
—
|
|
|
82
|
|
|
86
|
|
|
Receivables
|
2017 Master Repurchase Agreement
|
47
|
|
|
35
|
|
|
5.00
|
%
|
|
(2)
|
|
July 2019
|
|
42
|
|
|
51
|
|
|
38
|
|
|
Receivables and investments
|
HASI ECON 101 Trust
|
133
|
|
|
134
|
|
|
3.57
|
%
|
|
|
|
May 2041
|
|
—
|
|
|
135
|
|
|
140
|
|
|
Receivables and investments
|
HASI SYB Trust 2017-1
|
160
|
|
|
162
|
|
|
3.86
|
%
|
|
|
|
March 2042
|
|
—
|
|
|
208
|
|
|
209
|
|
|
Receivables, real estate and real estate intangibles
|
Other non-recourse
debt
(3)
|
120
|
|
|
90
|
|
|
2.26% - 7.45%
|
|
|
|
|
2018 to 2046
|
|
18
|
|
|
177
|
|
|
162
|
|
|
Receivables
|
Debt issuance costs
|
(24
|
)
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse debt
(4)
|
$
|
1,096
|
|
|
$
|
1,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
This non-recourse debt agreement was re-financed in the third quarter of 2018 with the same lender with the PF Credit Facility as discussed in Note 7.
|
|
|
(2)
|
Interest rate represents the current period’s LIBOR based rate plus the spread. Also see the interest rate swap contracts shown in the table below, the value of which are not included in the book value of assets pledged or the interest rate of the debt instrument.
|
|
|
(3)
|
Other non-recourse debt consists of various debt agreements used to finance certain of our receivables for their term. Debt service payment requirements, in a majority of cases, are equal to or less than the cash flows received from the underlying receivables.
|
|
|
(4)
|
The total collateral pledged against our non-recourse debt was
$1,411
million and
$1,545
million as of
September 30, 2018
and
December 31, 2017
, respectively. In addition,
$59 million
of our restricted cash balance was pledged as collateral to various non-recourse loans as of
September 30, 2018
and
December 31, 2017
.
|
We have pledged the financed assets, and typically our interests in one or more parents or subsidiaries of the borrower that are legally separate bankruptcy remote special purpose entities as security for the non-recourse debt. There is no recourse for repayment of these obligations other than to the applicable borrower and any collateral pledged as security for the obligations. Generally, the assets and credit of these entities are not available to satisfy any of our other debts and obligations. The creditors can only look to the borrower, the cash flows of the pledged assets and any other collateral pledged, to satisfy the debt and we are not otherwise liable for nonpayment of such cash flows. The debt agreements contain terms, conditions, covenants, and representations and warranties that are customary and typical for transactions of this nature, including limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds and stock repurchases. The agreements also include customary events of default, the occurrence of which may result in termination of the agreements, acceleration of amounts due, and accrual of default interest. We typically act as servicer for the debt transactions. We are in compliance with all covenants as of
September 30, 2018
and
December 31, 2017
.
We have guaranteed the accuracy of certain of the representations and warranties and other obligations of certain of our subsidiaries under certain of the debt agreements and provided an indemnity against certain losses from “bad acts” of such subsidiaries including fraud, failure to disclose a material fact, theft, misappropriation, voluntary bankruptcy or unauthorized transfers. In the case of the debt secured by certain of our renewable energy equity interests, we have also guaranteed the compliance of our subsidiaries with certain tax matters and certain obligations if our joint venture partners exercise their right to withdraw from our partnerships.
In connection with several of our non-recourse debt borrowings, we have entered into the following interest rate swaps that are designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Value as of
|
|
Fair Value as of
|
|
|
|
Base
Rate
|
|
Hedged
Rate
|
|
September 30, 2018
|
|
December 31, 2017
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Term
|
|
|
|
|
|
(dollars in millions)
|
|
|
HASI SYB Loan Agreement 2015-2
|
3 month LIBOR
|
|
1.52
|
%
|
|
$
|
30
|
|
|
$
|
31
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
December 2015 to December 2018
|
HASI SYB Loan Agreement 2015-2
|
3 month LIBOR
|
|
2.55
|
%
|
|
29
|
|
|
29
|
|
|
0.4
|
|
|
(0.2
|
)
|
|
December 2018 to December 2024
|
HASI SYB Loan Agreement 2015-3
|
1 month LIBOR
|
|
2.34
|
%
|
|
119
|
|
|
119
|
|
|
3.0
|
|
|
—
|
|
|
November 2020 to August 2028
|
HASI SYB Loan Agreement 2016-1
|
3 month LIBOR
|
|
1.88
|
%
|
|
111
|
|
|
120
|
|
|
3.7
|
|
|
1.1
|
|
|
November 2016 to
November 2021
|
HASI SYB Loan Agreement 2016-1
|
3 month LIBOR
|
|
2.73
|
%
|
|
107
|
|
|
107
|
|
|
1.7
|
|
|
(1.1
|
)
|
|
November 2021 to October 2032
|
2017 Master Repurchase Agreement
|
3 month LIBOR
|
|
2.42
|
%
|
|
32
|
|
|
32
|
|
|
1.0
|
|
|
—
|
|
|
August 2019 to March 2033
|
Total
|
|
|
|
|
$
|
428
|
|
|
$
|
438
|
|
|
$
|
9.9
|
|
|
$
|
(0.1
|
)
|
|
|
The fair values of our interest rate swaps designated and qualifying as effective cash flow hedges are reflected in our consolidated balance sheets as a component of other assets (if in an unrealized gain position) or accounts payable, accrued expenses and other (if in an unrealized loss position) and in net unrealized gains and losses in AOCI. As of
September 30, 2018
and
December 31, 2017
, all of our derivatives were designated as hedging instruments which were deemed to be effective. The following is a presentation of the total balance of the financial statement line item related to our hedging activities in our consolidated statements of operations and the impact of our hedges that is included in this total balance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(in thousands)
|
|
|
|
|
Total interest expense
|
$
|
19,681
|
|
|
$
|
17,584
|
|
|
$
|
57,424
|
|
|
$
|
46,728
|
|
Impact of hedging
|
(198
|
)
|
|
201
|
|
|
(286
|
)
|
|
798
|
|
The stated minimum maturities of non-recourse debt as of
September 30, 2018
, were as follows:
|
|
|
|
|
|
Future minimum maturities
|
|
(in millions)
|
October 1, 2018 to December 31, 2018
|
$
|
19
|
|
2019
|
139
|
|
2020
|
156
|
|
2021
|
135
|
|
2022
|
27
|
|
2023
|
62
|
|
Thereafter
|
582
|
|
Total minimum maturities
|
$
|
1,120
|
|
Deferred financing costs, net
|
(24
|
)
|
Total non-recourse debt
|
$
|
1,096
|
|
The stated minimum maturities of non-recourse debt above include only the mandatory minimum principal payments. To the extent there are additional cash flows received from our investments in renewable energy projects serving as collateral for certain of our non-recourse debt facilities, these additional cash flows are required to be used to make additional principal payments against the respective debt. Any additional principal payments made due to these provisions may impact the anticipated balance at maturity of these financings.
SunPower and its subsidiaries, which originated and service the residential solar leases that are the collateral for the HASI SYB Loan Agreement 2015-3, have provided us certain limited indemnities and warranties and as servicer, provide various services including billing, monitoring payments by homeowners to a third-party lockbox and customer service. The portfolios of residential solar leases are held in bankruptcy remote special purpose entities (“SPEs”) that are performing in line with our expectations and the SPEs, and not SunPower, are the source of repayment under our loans.
In June 2017, SunPower amended a loan agreement to remove a debt-to-EBITDA leverage covenant with which SunPower was not in compliance. Two of our loan agreements included the same debt-to-EBITDA covenant to monitor changes in SunPower’s credit, as is typical for a servicer. One of our loan agreements, HASI SYB Loan Agreement 2015-3, still contains this covenant and as a result our lender is entitled to apply approximately
$1
million of the cash flow after payment of principal and interest each quarter to further reduce the principal balance on this loan. We continue to monitor the situation and anticipate having further discussions with our lenders and with SunPower but at the present time, do not anticipate any other impact.
Convertible Senior Notes
We issued
$150
million aggregate principal amount (
$145
million net of issuance costs) of
4.125%
convertible senior notes due September 1, 2022. Holders may convert any of their convertible notes into shares of our common stock at the applicable conversion rate at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, unless the convertible notes have been previously redeemed or repurchased by us. The convertible notes are senior unsecured obligations of ours and have an initial conversion rate of
36.7107
shares for each
$1,000
principal amount of convertible notes which is equal to a total of approximately
5.5
million shares with an initial conversion price of $
27.24
. The conversion rate is subject to adjustment for dividends declared above
$0.33
per share per quarter and certain other events that may be dilutive to the holder. As of
September 30, 2018
, none of these dilutive events have occurred and the conversion rate remains at the initial rate.
Following the occurrence of a make-whole fundamental change, we will, in certain circumstances, increase the conversion rate for a holder that converts its convertible notes in connection with such make-whole fundamental change. There are no cash settlement provisions in the convertible notes and the conversion option can only be settled through physical delivery of our common stock. Additionally, upon the occurrence of certain fundamental changes involving us, holders of the convertible notes may require us to redeem all or a portion of their convertible notes for cash at a price of
100%
of the principal amount outstanding, plus accrued and unpaid interest.
We have a redemption option to call the convertible notes prior to maturity (i) on or after March 1, 2022 and (ii) at any time if such a redemption is deemed reasonably necessary to preserve our qualification as a REIT. The redemption price will be equal to the principal of the notes being redeemed, plus accrued and unpaid interest. In the event of redemption after March 1, 2022, there will be an additional make-whole premium paid to the holder of the redeemed notes unless the redemption is deemed reasonably necessary to preserve our qualification as a REIT.
The following table presents a summary of the components of the convertible notes:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
(in millions)
|
Principal
|
$
|
150
|
|
|
$
|
150
|
|
Accrued interest
|
1
|
|
|
3
|
|
Less:
|
|
|
|
Unamortized financing costs
|
(4
|
)
|
|
(5
|
)
|
Carrying value of convertible notes
|
$
|
147
|
|
|
$
|
148
|
|
During the
three and nine
months ended
September 30, 2018
, we recorded
$2
million and
$5
million in interest expense related to the convertible notes, respectively, compared to
$0.8
million in interest expense in the
three and nine
months ended
September 30, 2017
.
|
|
9.
|
Commitments and Contingencies
|
Litigation
The nature of our operations exposes us to the risk of claims and litigation in the normal course of our business. We are not currently subject to any legal proceedings that are probable of having a material adverse effect on our financial position, results of operations or cash flows.
10. Income Tax
We recorded a tax expense of approximately
$0.9
million and
$1.1
million for the three and
nine
months ended
September 30, 2018
, respectively, compared to
$0.0
million and
$0.1
million for the three months and
nine
months ended
September 30, 2017
. For the
three and nine
months ended
September 30, 2018
and
2017
, our income tax expense was determined using federal rates of
21%
and
35%
, respectively, and combined state rates, net of federal benefit, of
3%
and
5%
, respectively.
The Tax Cuts and Jobs Act ("TCJA"), signed into law on December 22, 2017, made significant changes to the U.S federal income tax laws applicable to businesses and their owners, including REITs and their stockholders. As of December 31, 2017 we made provisional estimates for the impact of the TCJA on our income tax accounting. We completed our assessment in the third quarter of 2018 and concluded the provisional estimates made as of December 31, 2017 are appropriate and we did not record any measurement period adjustments.
11. Equity
Dividends and Distributions
Our board of directors declared the following dividends in
2017
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
Announced Date
|
|
Record Date
|
|
Pay Date
|
|
Amount per
share
|
3/15/2017
|
|
4/5/2017
|
|
|
4/13/2017
|
|
$
|
0.33
|
|
6/1/2017
|
|
7/6/2017
|
|
|
7/13/2017
|
|
0.33
|
|
9/12/2017
|
|
10/5/2017
|
|
|
10/16/2017
|
|
0.33
|
|
12/12/2017
|
|
12/26/2017
|
(1)
|
|
1/11/2018
|
|
0.33
|
|
2/21/2018
|
|
4/4/2018
|
|
|
4/12/2018
|
|
0.33
|
|
5/31/2018
|
|
7/5/2018
|
|
|
7/12/2018
|
|
0.33
|
|
9/12/2018
|
|
10/3/2018
|
|
|
10/11/2018
|
|
0.33
|
|
|
|
(1)
|
This dividend was treated as a distribution in
2018
for tax purposes.
|
We have an effective universal shelf registration statement registering the potential offer and sale, from time to time and in one or more offerings, of any combination of our common stock, preferred stock, depositary shares, debt securities, warrants and rights (collectively referred to as the “securities”). We may offer the securities directly, through agents, or to or through underwriters by means of ordinary brokers’ transactions on the NYSE or otherwise at market prices prevailing at the time of sale or at negotiated prices and may include “at the market” (“ATM”) offerings or sales “at the market,” to or through a market maker or into an existing trading market on an exchange or otherwise. We completed the following public offerings (including ATM issuances) of our common stock in
2017
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Date
|
|
Common Stock Offerings
|
|
Shares Issued
(1)
|
|
Price Per Share
|
|
Net Proceeds
(2)
|
|
|
|
|
(amounts in millions, except per share amounts)
|
1/20/17 to 2/2/17
|
|
ATM
|
|
0.197
|
|
|
$
|
19.18
|
|
|
(3)
|
|
$
|
4
|
|
3/10/17
|
|
Public Offering
|
|
3.450
|
|
|
18.73
|
|
|
(4)
|
|
64
|
|
5/17/17 to 6/22/17
|
|
ATM
|
|
1.376
|
|
|
22.71
|
|
|
(3)
|
|
31
|
|
5/18/18 to 6/25/18
|
|
ATM
|
|
0.834
|
|
|
18.76
|
|
|
(3)
|
|
15
|
|
|
|
(1)
|
Includes shares issued in connection with the exercise of the underwriters’ option to purchase additional shares.
|
|
|
(2)
|
Net proceeds from the offerings is shown after deducting underwriting discounts, commissions and other offering costs.
|
|
|
(3)
|
Represents the average price per share at which investors in our ATM offerings purchased our shares.
|
|
|
(4)
|
Represents the price per share at which the underwriters in our public offerings purchased our shares.
|
Awards of Shares of Restricted Common Stock and Restricted Stock Units under our 2013 Plan
We have issued awards with service, performance and market conditions that vest from
2019
to
2021
. During the
nine
months ended
September 30, 2018
, our board of directors awarded employees and directors
549,858
shares of restricted stock and restricted stock units that vest from
2019
to
2021
. As of
September 30, 2018
, as it relates to previously issued restricted stock awards with performance conditions, we have concluded that it is probable that the performance conditions will be met.
For the
three and nine
months ended
September 30, 2018
, we recorded
$3
million and $
8
million, respectively, of equity-based compensation expense as compared to
$3
million and $
8
million, respectively, for the
three and nine
months ended
September 30, 2017
. The total unrecognized compensation expense related to awards of shares of restricted stock and restricted stock units was approximately
$13
million as of
September 30, 2018
. We expect to recognize compensation expense related to these awards over a weighted-average term of approximately
2
years. A summary of the unvested shares of restricted common stock that have been issued is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Shares of Common Stock
|
|
Weighted Average Share Price
|
|
Value
|
|
|
|
|
|
(in millions)
|
Ending Balance — December 31, 2016
|
1,181,672
|
|
|
$
|
17.76
|
|
|
$
|
21.0
|
|
Granted
|
452,864
|
|
|
19.06
|
|
|
8.6
|
|
Vested
|
(230,424
|
)
|
|
14.41
|
|
|
(3.3
|
)
|
Forfeited
|
(4,519
|
)
|
|
18.72
|
|
|
(0.1
|
)
|
Ending Balance — December 31, 2017
|
1,399,593
|
|
|
$
|
18.73
|
|
|
$
|
26.2
|
|
Granted
|
377,730
|
|
|
19.05
|
|
|
7.2
|
|
Vested
|
(369,656
|
)
|
|
18.88
|
|
|
(7.0
|
)
|
Forfeited
|
(96,871
|
)
|
|
18.92
|
|
|
(1.8
|
)
|
Ending Balance — September 30, 2018
|
1,310,796
|
|
|
$
|
18.77
|
|
|
$
|
24.6
|
|
A summary of the unvested shares of restricted stock units that have market based vesting conditions that have been issued is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
|
Weighted Average Share Price
|
|
Value
|
|
|
|
|
|
(in millions)
|
Ending Balance — December 31, 2016
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Granted
|
257,284
|
|
|
18.99
|
|
|
4.9
|
|
Vested
|
(376
|
)
|
|
18.99
|
|
|
—
|
|
Forfeited
|
(1,202
|
)
|
|
18.99
|
|
|
—
|
|
Ending Balance — December 31, 2017
|
255,706
|
|
|
$
|
18.99
|
|
|
$
|
4.9
|
|
Granted
|
172,128
|
|
|
20.24
|
|
|
3.4
|
|
Vested
|
(20,368
|
)
|
|
18.99
|
|
|
(0.4
|
)
|
Forfeited
|
(18,318
|
)
|
|
19.05
|
|
|
(0.3
|
)
|
Ending Balance — September 30, 2018
|
389,148
|
|
|
$
|
19.54
|
|
|
$
|
7.6
|
|
12.
Earnings per Share of Common Stock
Both the net income or loss attributable to the non-controlling OP units and the non-controlling limited partners’ outstanding OP units have been excluded from the basic earnings per share and the diluted earnings per share calculations attributable to common stockholders. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two-class method.
The computation of basic and diluted earnings per common share of common stock is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Numerator:
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(in thousands, except share and per share data)
|
Net income (loss) attributable to controlling stockholders and participating securities
|
$
|
16,483
|
|
|
$
|
7,933
|
|
|
$
|
32,522
|
|
|
$
|
27,472
|
|
Less: Dividends paid on participating securities
|
(433
|
)
|
|
(466
|
)
|
|
(1,342
|
)
|
|
(1,445
|
)
|
Undistributed earnings attributable to participating securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income (loss) attributable to controlling stockholders
|
$
|
16,050
|
|
|
$
|
7,467
|
|
|
$
|
31,180
|
|
|
$
|
26,027
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted-average number of common shares — basic
|
52,728,587
|
|
|
51,655,868
|
|
|
52,167,308
|
|
|
49,924,224
|
|
Weighted-average number of common shares — diluted
|
52,728,587
|
|
|
51,655,868
|
|
|
52,167,308
|
|
|
49,924,224
|
|
Basic earnings per common share
|
$
|
0.30
|
|
|
$
|
0.14
|
|
|
$
|
0.60
|
|
|
$
|
0.52
|
|
Diluted earnings per common share
|
$
|
0.30
|
|
|
$
|
0.14
|
|
|
$
|
0.60
|
|
|
$
|
0.52
|
|
Other Information:
|
|
|
|
|
|
|
|
Weighted-average number of OP units
|
281,289
|
|
|
284,992
|
|
|
282,171
|
|
|
284,992
|
|
Unvested restricted common stock outstanding (i.e. participating securities)
|
|
|
|
|
1,310,796
|
|
|
1,410,934
|
|
13. Equity Method Investments
We have non-controlling unconsolidated equity investments in renewable energy projects. We recognized income from our equity method investments of
$11.7
million and
$20.0
million during the
three and nine
months ended
September 30, 2018
, respectively, as compared to income of
$6.9
million and
$19.4
million during the
three and nine
months ended
September 30, 2017
.
The following is a summary of the consolidated financial position and results of operations of the significant entities accounted for using the equity method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buckeye Wind Energy Class B Holdings, LLC
|
|
MM Solar Parent, LLC
|
|
Helix Fund I, LLC
|
|
Other Investments
(1)
|
|
Total
|
|
(in millions)
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018
|
Current assets
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
31
|
|
|
$
|
38
|
|
Total assets
|
281
|
|
|
85
|
|
|
28
|
|
|
879
|
|
|
1,273
|
|
Current liabilities
|
1
|
|
|
5
|
|
|
—
|
|
|
18
|
|
|
24
|
|
Total liabilities
|
11
|
|
|
34
|
|
|
—
|
|
|
32
|
|
|
77
|
|
Members' equity
|
270
|
|
|
51
|
|
|
28
|
|
|
847
|
|
|
1,196
|
|
As of December 31, 2017
|
Current assets
|
3
|
|
|
3
|
|
|
1
|
|
|
29
|
|
|
36
|
|
Total assets
|
286
|
|
|
85
|
|
|
28
|
|
|
917
|
|
|
1,316
|
|
Current liabilities
|
1
|
|
|
5
|
|
|
—
|
|
|
25
|
|
|
31
|
|
Total liabilities
|
11
|
|
|
37
|
|
|
—
|
|
|
55
|
|
|
103
|
|
Members' equity
|
275
|
|
|
48
|
|
|
28
|
|
|
862
|
|
|
1,213
|
|
Income Statement
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2018
|
Revenue
|
7
|
|
|
6
|
|
|
1
|
|
|
31
|
|
|
45
|
|
Income from continuing operations
|
(2
|
)
|
|
3
|
|
|
—
|
|
|
18
|
|
|
19
|
|
Net income
|
(2
|
)
|
|
3
|
|
|
—
|
|
|
18
|
|
|
19
|
|
For the six months ended June 30, 2017
|
Revenue
|
6
|
|
|
6
|
|
|
1
|
|
|
44
|
|
|
57
|
|
Income from continuing operations
|
(4
|
)
|
|
3
|
|
|
—
|
|
|
8
|
|
|
7
|
|
Net income
|
(4
|
)
|
|
3
|
|
|
—
|
|
|
8
|
|
|
7
|
|
(1) Represents aggregated financial statement information for investments not separately presented.