Hannon Armstrong Sustainable Infrastructure Capital, Inc.
("Hannon Armstrong," "we," "our" or the "Company") (NYSE: HASI), a
leading investor in climate change solutions, today reported
results for the third quarter of 2020.
Recent Highlights
- Delivered $0.78 GAAP EPS on a fully diluted basis through the
first three quarters in 2020, compared with $0.54 in the same
period in 2019
- Delivered $1.19 Core EPS (pre-CECL provision) and $1.12 Core
EPS on a fully diluted basis year-to-date in 2020, compared to
$1.01 Core EPS in the same period in 2019
- Lowered weighted-average cost of debt and extended
weighted-average maturity through issuance of $375 million of
unsecured green bonds with 10-year maturity and a 3.75% coupon and
$144 million of convertible green bonds with a 3-year maturity and
a 0% coupon
- Reported $24.6 million of GAAP Net Investment Income and $67.2
million of Core Net Investment Income through the first three
quarters of 2020
- Closed $716 million of transactions in the quarter, compared to
$287 million in the same period in 2019
- Closed $1.1 billion of transactions through the first three
quarters of 2020, compared to $810 million in the same period in
2019
- Declared quarterly dividend of $0.34 per share payable in
January 2021
- Joined the Partnership for Carbon Accounting Financials
- Estimated that 1.2 million metric tons of annual carbon
emissions will be avoided annually by our transactions closed this
quarter, equating to a CarbonCount® score of 1.67 metric tons per
$1,000 invested
"Since the global pandemic and resulting economic recession
erupted in March, we have raised and committed to invest over $1
billion of capital in climate change solutions - all while our
existing portfolio continues to perform and generate historically
strong earnings," said Jeffrey W. Eckel, Hannon Armstrong Chairman
and Chief Executive Officer.
"In addition, we have continued our leadership on ESG. With our
recently announced membership in the Partnership for Carbon
Accounting Financials, we have joined with over 70 financial
institutions to help drive the development of a global and
transparent standard on financed emissions that will finally enable
investors to measure the efficiency with which their capital is
reducing carbon emissions and mitigating climate change."
A summary of our results is shown in the tables below:
For the three months ended
September 30, 2020
For the three months ended
September 30, 2019
$ in thousands
Per Share (Diluted)
$ in thousands
Per Share (Diluted)
GAAP Net Income
$
21,175
$
0.28
$
9,102
$
0.13
Core Earnings (1)
25,288
0.33
25,284
0.38
(1)
Includes a provision for loss on
receivables of $2 million related to the new credit loss standard,
which we may refer to in this press release as CECL or Topic 326.
On a pre-CECL provision basis comparable to last year, the per
share core earnings are $0.36 for the three months ended September
30, 2020. A reconciliation of our GAAP net income to core earnings
is included in this press release.
For the nine months ended
September 30, 2020
For the nine months ended
September 30, 2019
$ in thousands
Per Share (Diluted)
$ in thousands
Per Share (Diluted)
GAAP Net Income
$
57,491
$
0.78
$
35,487
$
0.54
Core Earnings (1)
82,546
1.12
65,990
1.01
(1)
Includes a provision for loss on
receivables of $6 million for the adoption of CECL. On a pre-CECL
provision basis comparable to last year, the per share core
earnings are $1.19 for the nine months ended September 30, 2020. A
reconciliation of our GAAP net income to core earnings is included
in this press release.
Financial Results
"In the third quarter, we capitalized on favorable market
conditions and our leading ESG position to raise over $500 million
in ten-year unsecured and three-year convertible green bonds at the
lowest coupons in our company's history," said Hannon Armstrong
Chief Financial Officer Jeffrey A. Lipson.
"With over $880 million in available cash on our balance sheet,
we remain well-positioned to fund our forward flow investment
commitments in addition to other anticipated growth
opportunities."
Comparison of the three months ended September 30, 2020 to the
same period in 2019
Total revenue increased by approximately $10 million, or 25%.
Gain on sale and fee income increased by approximately $6 million
and interest and rental income increased by approximately $4
million. These increases were primarily driven by a larger
portfolio of higher yielding assets as well as a change in the mix
of assets being securitized.
Interest expense increased approximately $10 million, or 58%,
primarily as a result of a higher outstanding balance, including
$775 million in unsecured debt raised in the second and third
quarters. We recorded an approximate $2 million provision for loss
on receivables, in accordance with the new CECL standard, as
opposed to realized losses on the portfolio. In the same period
last year, we recorded an $8 million provision on two commercial
receivables that were previously placed on non-accrual. Other
expenses (compensation and benefits and general and administrative
expenses) increased by $2 million primarily due to an increase in
our employee headcount and incentive compensation.
For the quarter, we recognized $17 million in income using the
hypothetical liquidation at book value method (HLBV) for our equity
method investments, compared to $6 million of HLBV income in the
same period last year as a result of tax attribute allocations
which had the impact of increasing our allocation of earnings.
Income tax expense increased by $2 million primarily as a result
of an increase in income from our portfolio and the recognition of
tax benefits in the prior year that did not recur.
GAAP net income for the three months was $21 million, an
increase of $12 million, or 133% compared to the same period in the
prior year. Core earnings for the three months was $25 million,
equal to core earnings from the same period in prior year.
A reconciliation of our GAAP net income to core earnings is
included in this press release.
Leverage
The calculation of our fixed-rate debt and leverage ratios as of
September 30, 2020 and 2019 are shown in the chart below:
September 30, 2020
% of Total
September 30, 2019
% of Total
($ in millions)
($ in millions)
Floating-rate borrowings (1)
$
23
1
%
$
38
3
%
Fixed-rate debt (2)
2,168
99
%
1,318
97
%
Total
$
2,191
100
%
$
1,356
100
%
Leverage (3)
2.0 to 1
1.5 to 1
(1)
Floating-rate borrowings include borrowings under our
floating-rate credit facilities.
(2)
Fixed-rate debt also includes the present notional value of
non-recourse debt that is hedged using interest rate swaps. Debt
excludes securitizations that are not consolidated on our balance
sheet.
(3)
Leverage, as measured by our debt-to-equity ratio. This
calculation excludes securitizations that are not consolidated on
our balance sheet (where the collateral is generally financing
receivables with U.S. government obligors).
Portfolio
Our Portfolio totaled approximately $2.2 billion as of September
30, 2020, which included approximately $1.3 billion of
behind-the-meter assets and approximately $0.9 billion of
grid-connected assets. The following is an analysis of the
performance our Portfolio as of September 30, 2020:
Portfolio Performance
1 (1)
2 (2)
3 (3)
Total
(dollars in millions)
Government
Commercial
Government
Commercial
Government
Commercial
Total receivables
251
862
—
10
—
8
1,131
Less: Allowance for loss on
receivables
—
(19
)
—
(4
)
—
(8
)
(31
)
Net receivables (4)
251
843
—
6
—
—
1,100
Investments
36
16
—
—
—
—
52
Real estate
—
360
—
—
—
—
360
Equity method (5)
investments
—
695
—
24
—
—
719
Total
$
287
$
1,914
$
—
$
30
$
—
$
—
$
2,231
Percent of Portfolio
13
%
86
%
—
%
1
%
—
%
—
%
100
%
Average remaining balance (6)
$
7
$
12
$
—
$
11
$
—
$
4
$
11
(1)
This category includes our assets where based on our credit
criteria and performance to date, we believe that our risk of not
receiving our invested capital remains low.
(2)
This category includes our assets where based on our credit
criteria and performance to date, we believe there is a moderate
level of risk to not receiving some or all of our invested
capital.
(3)
This category includes our assets where based on our credit
criteria and performance to date, we believe there is substantial
doubt regarding our ability to recover some or all of our invested
capital. Included in this category are two commercial receivables
with a combined total carrying value of approximately $8 million as
of September 30, 2020 which we consider impaired and have held on
non-accrual status since 2017. We recorded an allowance for the
entire asset amounts as described in our Annual Report on Form 10-K
filed with the SEC on February 25, 2020. We expect to continue to
pursue our legal claims with regards to these assets.
(4)
Total reconciles to the total of the government receivables and
commercial receivables lines of the consolidated balance
sheets.
(5)
Some of the individual projects included in portfolios that make
up our equity method investments have government off takers. As
they are part of large portfolios, they are not classified
separately.
(6)
Average remaining balance is calculated gross of allowance for
loss on receivables and excludes approximately 145 transactions
each with outstanding balances that are less than $1 million and
that in the aggregate total $58 million.
Guidance
The Company expects that annual core earnings per share in 2020
(pre-CECL provision) will exceed the previously communicated
guidance midpoint of $1.43, reflecting 2018 to 2020 annual Core EPS
growth above the midpoint of the 2% to 6% from the 2017 baseline.
This guidance reflects the Company’s estimates of (i) yield on its
existing Portfolio; (ii) yield on incremental Portfolio
investments, inclusive of the Company’s existing pipeline; (iii)
the volume and profitability of securitization transactions; (iv)
amount, timing, and costs of debt and equity capital to fund new
investments; (v) changes in costs and expenses reflective of the
Company’s forecasted operations, (vi) the ongoing impact of the
current outbreak of COVID-19 and (vii) the general interest rate
and market environment. All guidance is based on current
expectations of the future impact of COVID-19 and the economic
conditions, the regulatory environment, the dynamics of the markets
in which we operate and the judgment of the Company’s management
team. The Company has not provided GAAP guidance as discussed in
the Forward-Looking Statements section of this press release.
Dividend
The Company is announcing today that its Board of Directors
approved a quarterly cash dividend of $0.34 per share of common
stock. This dividend will be paid on January 8, 2021, to
stockholders of record as of December 28, 2020.
Conference Call and Webcast Information
Hannon Armstrong will host an investor conference call today,
Thursday, November 5, 2020, at 5:00 p.m. eastern time. The
conference call can be accessed live over the phone by dialing
1-866-652-5200 or for international callers, 1-412-317-6060. Please
ask to be connected to the Hannon Armstrong call. A replay will be
available two hours after the call and can be accessed by dialing
1-877-344-7529, or for international callers, 1-412-317-0088. The
passcode for the replay is 10149196. The replay will be available
until November 12, 2020.
Interested investors and other parties may also listen to a
simultaneous webcast of the conference call by logging onto the
Investor Relations section of the Company's website at www.hannonarmstrong.com. The online replay will be
available for a limited time beginning immediately following the
call.
About Hannon Armstrong
Hannon Armstrong (NYSE: HASI) is the first U.S. public company
solely dedicated to investments in climate change solutions,
providing capital to leading companies in energy efficiency,
renewable energy, and other sustainable infrastructure markets.
With more than $6 billion in managed assets as of September 30,
2020, Hannon Armstrong's core purpose is to make climate-positive
investments with superior risk-adjusted returns. For more
information, please visit www.hannonarmstrong.com. Follow Hannon
Armstrong on LinkedIn and
Twitter @HannonArmstrong.
Forward-Looking Statements:
Some of the information contained in this press release is
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended that are subject to
risks and uncertainties. For these statements, we claim the
protections of the safe harbor for forward-looking statements
contained in such Sections. These forward-looking statements
include information about possible or assumed future results of our
business, financial condition, liquidity, results of operations,
plans and objectives. When we use the words "believe," "expect,"
"anticipate," "estimate," "plan," "continue," "intend," "should,"
"may" or similar expressions, we intend to identify forward-looking
statements.
Forward-looking statements are subject to significant risks and
uncertainties. Investors are cautioned against placing undue
reliance on such statements. Actual results may differ materially
from those set forth in the forward-looking statements. Factors
that could cause actual results to differ materially from those
described in the forward-looking statements include those discussed
under the caption “Risk Factors” included in our most recent Annual
Report on Form 10-K as well as in other periodic reports that we
file with the U.S. Securities and Exchange Commission (the
"SEC").
Other important factors that we think could cause our actual
results to differ materially from expected results are summarized
below, including the ongoing impact of the current outbreak of the
novel coronavirus (COVID-19), on the U.S., regional and global
economies, the U.S. sustainable infrastructure market and the
broader financial markets. The current outbreak of COVID-19 has
also impacted, and is likely to continue to impact, directly or
indirectly, many of the other important factors below and the risks
described in the Form 10-K and in our subsequent filings under the
Securities Exchange Act of 1934, as amended. Other factors besides
those listed could also adversely affect us. In addition, we cannot
assess the impact of each factor on our business or the extent to
which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any
forward-looking statements. In particular, it is difficult to fully
assess the impact of COVID-19 at this time due to, among other
factors, uncertainty regarding the severity and duration of the
outbreak domestically and internationally, uncertainty regarding
the effectiveness of federal, state and local governments’ efforts
to contain the spread of COVID-19 and respond to its direct and
indirect impact on the U.S. economy and economic activity.
Statements regarding the following subjects, among others, may
be forward-looking:
- negative impacts from continued spread of COVID-19, including
on the U.S. or global economy or on our business, financial
position or results of operations;
- our expected returns and performance of our investments;
- the state of government legislation, regulation and policies
that support or enhance the economic feasibility of projects that
reduce carbon emissions or increase resilience to climate change,
which we refer to as climate change solutions, including energy
efficiency and renewable energy projects and the general market
demands for such projects;
- market trends in our industry, energy markets, commodity
prices, interest rates, the debt and lending markets or the general
economy;
- our business and investment strategy;
- availability of opportunities to invest in climate change
solutions including energy efficiency and renewable energy projects
and our ability to complete potential new opportunities in our
pipeline;
- our relationships with originators, investors, market
intermediaries and professional advisers;
- competition from other providers of capital;
- our or any other company’s projected operating results;
- actions and initiatives of the federal, state and local
governments and changes to federal, state and local government
policies, regulations, tax laws and rates and the execution and
impact of these actions, initiatives and policies;
- the state of the U.S. economy generally or in specific
geographic regions, states or municipalities and economic
trends;
- our ability to obtain and maintain financing arrangements on
favorable terms, including securitizations;
- general volatility of the securities markets in which we
participate;
- the credit quality of our assets;
- changes in the value of our assets, our portfolio of assets and
our investment and underwriting process;
- the impact of weather conditions, natural disasters, accidents
or equipment failures or other events that disrupt the operation of
our investments or negatively impact the value of our assets;
- rates of default or decreased recovery rates on our
assets;
- interest rate and maturity mismatches between our assets and
any borrowings used to fund such assets;
- changes in interest rates and the market value of our assets
and target assets;
- changes in commodity prices, including continued low natural
gas prices;
- effects of hedging instruments on our assets or
liabilities;
- the degree to which our hedging strategies may or may not
protect us from risks, such as interest rate volatility;
- impact of and changes in accounting guidance;
- our ability to maintain our qualification as a real estate
investment trust for U.S. federal income tax purposes;
- our ability to maintain our exemption from registration under
the Investment Company Act of 1940, as amended;
- availability of and our ability to attract and retain qualified
personnel;
- estimates relating to our ability to generate sufficient cash
in the future to operate our business and to make distributions to
our stockholders; and
- our understanding of our competition.
The risks included here are not exhaustive. Forward-looking
statements are based on beliefs, assumptions and expectations as of
the date of this press release. Any forward- looking statement
speaks only as of the date on which it is made. New risks and
uncertainties arise over time, and it is not possible for us to
predict those events or how they may affect us. Except as required
by law, we are not obligated to, and do not intend to, update or
revise any forward-looking statements after the date of this
earnings release, whether as a result of new information, future
events or otherwise.
The Company has not provided GAAP guidance as forecasting a
comparable GAAP financial measure, such as net income, would
require that the Company apply the HLBV method to these
investments. In order to forecast under the HLBV method, the
Company would be required to make various assumptions related to
expected changes in the net asset value of the various entities and
how such changes would be allocated under HLBV. GAAP HLBV earnings
over a period of time are very sensitive to these assumptions
especially in regard to when a partnership transaction flips and
thus the liquidation scenarios change materially. The Company
believes that these assumptions would require unreasonable efforts
to complete and if completed, the wide variation in projected GAAP
earnings based upon a range of scenarios would not be meaningful to
investors. Accordingly, the Company has not included a GAAP
reconciliation table related to any core earnings guidance.
Estimated carbon savings are calculated using the estimated
kilowatt hours, gallons of fuel oil, million British thermal units
of natural gas and gallons of water saved as appropriate, for each
project. The energy savings are converted into an estimate of
metric tons of CO2 equivalent emissions based upon the project’s
location and the corresponding emissions factor data from the U.S.
Government and International Energy Agency. Portfolios of projects
are represented on an aggregate basis.
HANNON ARMSTRONG SUSTAINABLE
INFRASTRUCTURE CAPITAL, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2020
2019
2020
2019
Revenue
Interest income
$
23,508
$
19,322
$
71,046
$
54,270
Rental income
6,469
6,469
19,408
19,415
Gain on sale of receivables and
investments
13,628
7,713
34,449
16,718
Fee income
4,984
5,338
13,115
12,850
Total revenue
48,589
38,842
138,018
103,253
Expenses
Interest expense
26,085
16,561
65,884
46,861
Provision for loss on receivables
2,458
8,027
5,629
8,027
Compensation and benefits
9,012
7,193
27,223
21,281
General and administrative
3,918
3,737
11,181
10,818
Total expenses
41,473
35,518
109,917
86,987
Income before equity method
investments
7,116
3,324
28,101
16,266
Income (loss) from equity method
investments
16,506
5,984
32,505
18,114
Income (loss) before income
taxes
23,622
9,308
60,606
34,380
Income tax (expense) benefit
(2,345
)
(132
)
(2,860
)
1,298
Net income (loss)
$
21,277
$
9,176
$
57,746
$
35,678
Net income (loss) attributable to
non-controlling interest holders
102
74
255
191
Net income (loss) attributable to
controlling stockholders
$
21,175
$
9,102
$
57,491
$
35,487
Basic earnings (loss) per common share
$
0.28
$
0.14
$
0.80
$
0.55
Diluted earnings (loss) per common
share
$
0.28
$
0.13
$
0.78
$
0.54
Weighted average common shares
outstanding—basic
74,012,788
64,922,325
71,376,004
63,492,884
Weighted average common shares
outstanding—diluted
76,131,252
65,630,711
72,644,626
64,147,835
HANNON ARMSTRONG SUSTAINABLE
INFRASTRUCTURE CAPITAL, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
September 30, 2020
December 31, 2019
Assets
Cash and cash equivalents
$
881,487
$
6,208
Equity method investments
718,793
498,631
Government receivables
250,914
263,175
Commercial receivables, net of allowance
of $31 million and $8 million, respectively
848,520
896,432
Real estate
359,948
362,265
Investments
51,638
74,530
Securitization assets
146,549
123,979
Other assets
86,649
162,054
Total Assets
$
3,344,498
$
2,387,274
Liabilities and Stockholders’
Equity
Liabilities:
Accounts payable, accrued expenses and
other
$
56,843
$
54,351
Credit facilities
22,565
31,199
Non-recourse debt (secured by assets of
$724 million and $921 million, respectively)
599,958
700,225
Senior unsecured notes
1,278,844
512,153
Convertible notes
288,551
149,434
Total Liabilities
2,246,761
1,447,362
Stockholders’ Equity:
Preferred stock, par value $0.01 per
share, 50,000,000 shares authorized, no shares issued and
outstanding
—
—
Common stock, par value $0.01 per share,
450,000,000 shares authorized, 74,252,973 and 66,338,120 shares
issued and outstanding, respectively
743
663
Additional paid in capital
1,282,744
1,102,303
Accumulated deficit
(202,914
)
(169,786
)
Accumulated other comprehensive income
(loss)
11,474
3,300
Non-controlling interest
5,690
3,432
Total Stockholders’ Equity
1,097,737
939,912
Total Liabilities and Stockholders’
Equity
$
3,344,498
$
2,387,274
EXPLANATORY NOTES
Non-GAAP Financial Measures
Core Earnings
We calculate core earnings as GAAP net income (loss) excluding
non-cash equity compensation expense, certain provisions for loss
on receivables, amortization of intangibles, any one-time
acquisition related costs or non-cash tax charges and the earnings
attributable to our non-controlling interest of our Operating
Partnership. We also make an adjustment to our equity method
investments in the renewable energy projects as described below. In
the future, core earnings may also exclude one-time events pursuant
to changes in GAAP and certain other non-cash charges as approved
by a majority of our independent directors.
Certain of our equity method investments in renewable energy and
energy efficiency projects are structured using typical partnership
“flip” structures where the investors with cash distribution
preferences receive a pre-negotiated return consisting of priority
distributions from the project cash flows, in many cases, along
with tax attributes. Once this preferred return is achieved, the
partnership “flips” and the common equity investor, often the
operator or sponsor of the project, receives more of the cash flows
through its equity interests while the previously preferred
investors retain an ongoing residual interest. We have made
investments in both the preferred and common equity of these
structures. Regardless of the nature of our equity interest, we
typically negotiate the purchase prices of our equity investments,
which have a finite expected life, based on our assessment of the
expected cash flows we will receive from these projects discounted
back to the net present value, based on a target investment rate,
with the expected cash flows to be received in the future
reflecting both a return on the capital (at the investment rate)
and a return of the capital we have committed to the project. We
use a similar approach in the underwriting of our receivables.
Under GAAP, we account for these equity method investments
utilizing the HLBV method. Under this method, we recognize income
or loss based on the change in the amount each partner would
receive, typically based on the negotiated profit and loss
allocation, if the assets were liquidated at book value, after
adjusting for any distributions or contributions made during such
quarter. The HLBV allocations of income or loss may be impacted by
the receipt of tax attributes, as tax equity investors are
allocated losses in proportion to the tax benefits received, while
the sponsors of the project are allocated gains of a similar
amount. In addition, the agreed upon allocations of the project’s
cash flows may differ materially from the profit and loss
allocation used for the HLBV calculations.
The cash distributions for our equity method investments are
segregated into a return on and return of capital on our cash flow
statement based on the cumulative income (loss) that has been
allocated using the HLBV method. However, as a result of the
application of the HLBV method, including the impact of tax
allocations, the high levels of depreciation and other non-cash
expenses that are common to renewable energy projects and the
differences between the agreed upon profit and loss and the cash
flow allocations, the distributions and thus the economic returns
(i.e. return on capital) achieved from the investment are often
significantly different from the income or loss that is allocated
to us under the HLBV method. Thus, in calculating core earnings,
for certain of these investments where there are the
characteristics described above, we further adjust GAAP net income
(loss) to take into account our calculation of the return on
capital (based upon the investment rate) from our renewable energy
equity method investments, as adjusted to reflect the performance
of the project and the cash distributed. We believe this core
equity method investment adjustment to our GAAP net income (loss)
in calculating our core earnings measure is an important supplement
to the HLBV income allocations determined under GAAP for an
investor to understand the economic performance of these
investments where HLBV income can differ substantially from the
economic returns.
The following table provides our results related to our equity
method investments for the three and nine months ended September
30, 2020 and 2019,
Three months ended September
30,
Nine months ended September
30,
2020
2019
2020
2019
(in millions)
Income (loss) under GAAP
17
6
33
18
Core earnings
13
10
40
29
Return of capital
16
11
95
46
Cash collected
29
21
135
75
We believe that core earnings provides an additional measure of
our core operating performance by eliminating the impact of certain
non-cash expenses and facilitating a comparison of our financial
results to those of other comparable companies with fewer or no
non-cash charges and comparison of our own operating results from
period to period. Our management uses core earnings in this way. We
believe that our investors also use core earnings, or a comparable
supplemental performance measure, to evaluate and compare our
performance to that of our peers, and as such, we believe that the
disclosure of core earnings is useful to our investors.
However, core earnings does not represent cash generated from
operating activities in accordance with GAAP and should not be
considered as an alternative to net income (determined in
accordance with GAAP), or an indication of our cash flow from
operating activities (determined in accordance with GAAP), or a
measure of our liquidity, or an indication of funds available to
fund our cash needs, including our ability to make cash
distributions. In addition, our methodology for calculating core
earnings may differ from the methodologies employed by other
companies to calculate the same or similar supplemental performance
measures, and accordingly, our reported core earnings may not be
comparable to similar metrics reported by other companies.
Reconciliation of our GAAP Net Income to Core Earnings
We have calculated our core earnings and provided a
reconciliation of our GAAP net income to core earnings for the
three and nine months ended September 30, 2020 and 2019 in the
tables below. In the current year we adopted Topic 326, which
requires us to recognize a provision for loss on receivables
expected over the life of the receivable rather than probable
incurred losses. We provide below core earnings which reflects the
Topic 326 provision. To provide comparable metrics to periods prior
to the adoption of Topic 326, we have also provided core earnings
which adds back the Topic 326 provision for loss on
receivables.
For the three months ended
September 30, 2020
For the three months ended
September 30, 2019
(dollars in thousands, except per
share amounts)
$
per share
$
per share
Net income attributable to controlling
stockholders (1)
$
21,175
$
0.28
$
9,102
$
0.13
Core earnings adjustments:
Reverse GAAP (income) loss from equity
method investments
(16,506
)
(5,984
)
Add back core equity method investments
earnings (2)
13,258
9,715
Non-cash equity-based compensation charges
(3)
4,091
3,395
Non-cash provision for loss on receivables
before the adoption of ASC 326 (4)
—
8,027
Other core adjustments (5)
3,270
1,029
Core earnings (including Topic 326
provision) (6)
$
25,288
$
0.33
$
25,284
$
0.38
Add back provision for loss on receivables
under Topic 326 (7)
2,458
—
Core earnings (pre-Topic 326 provision)
(6)
$
27,746
$
0.36
$
25,284
$
0.38
(1)
Represents GAAP diluted earnings per share and is the most
comparable GAAP measure to our core earnings per share.
(2)
Reflects adjustment for equity method investments described
above.
(3)
Reflects adjustment for non-cash equity-based compensation.
(4)
Reflects provision related to receivables, which had been on
non-accrual status since the second quarter of 2017.
(5)
See detail below.
(6)
Core earnings per share for the three months ended September 30,
2020 and 2019, are based on 77,041,509 shares and 66,785,779 shares
outstanding, respectively, which represents the weighted average
number of fully-diluted shares outstanding including our restricted
stock awards and restricted stock units and the long-term incentive
plan units and non-controlling interest in our Operating
Partnership. We include any potential common stock issuance in this
calculation related to our convertible notes using the treasury
stock method and any potential common stock issuances related to
share based compensation units in the amount we believe is
reasonably certain to vest. We believe the use of the treasury
stock method is an appropriate representation of the potential
dilution when considering the economic behaviors of the holders of
the instrument.
(7)
As discussed above, to provide a comparable metric to prior year
metrics we are adding back the provision for loss on receivables
recognized under Topic 326.
For the nine months ended
September 30, 2020
For the nine months ended
September 30, 2019
(dollars in thousands, except per
share amounts)
$
per share
$
per share
Net income attributable to controlling
stockholders (1)
$
57,491
$
0.78
$
35,487
$
0.54
Core earnings adjustments:
Reverse GAAP (income) loss from equity
method investments
(32,505
)
(18,114
)
Add back core equity method investments
earnings (2)
40,361
28,857
Non-cash equity-based compensation charges
(3)
11,615
10,384
Non-cash provision for loss on receivables
before the adoption of ASC 326 (4)
—
8,027
Other core adjustments (5)
5,584
1,349
Core earnings (including Topic 326
provision) (6)
$
82,546
$
1.12
$
65,990
$
1.01
Add back provision for loss on receivables
under Topic 326 (7)
5,629
—
Core earnings (pre-Topic 326 provision)
(6)
$
88,175
$
1.19
$
65,990
$
1.01
(1)
Represents GAAP diluted earnings per share and is the most
comparable GAAP measure to our core earnings per share.
(2)
Reflects adjustment for equity method investments described
above.
(3)
Reflects adjustment for non-cash equity-based compensation.
(4)
Reflects provision related to receivables, which had been on
non-accrual status since the second quarter of 2017.
(5)
See detail below.
(6)
Core earnings per share for the nine months ended September 30,
2020 and 2019, are based on 73,819,517 shares and 65,425,114 shares
outstanding, respectively, which represents the weighted average
number of fully-diluted shares outstanding including our restricted
stock awards and restricted stock units and the long-term incentive
plan units and non-controlling interest in our Operating
Partnership. We include any potential common stock issuance in this
calculation related to our convertible notes using the treasury
stock method and any potential common stock issuances related to
share based compensation units in the amount we believe is
reasonably certain to vest. We believe the use of the treasury
stock method is an appropriate representation of the potential
dilution when considering the economic behaviors of the holders of
the instrument.
(7)
As discussed above, to provide a comparable metric to prior year
metrics we are adding back the provision for loss on receivables
recognized under Topic 326.
The table below provides a reconciliation of the Other core
adjustments:
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2020
2019
2020
2019
(in thousands)
(in thousands)
Other core adjustments
Amortization of intangibles (1)
$
823
$
823
$
2,469
$
2,462
Non-cash provision (benefit) for income
taxes
2,345
132
2,860
(1,304
)
Net income attributable to non-controlling
interest
102
74
255
191
Other core adjustments
$
3,270
$
1,029
$
5,584
$
1,349
(1)
Adds back non-cash amortization of lease
and pre-IPO intangibles.
The table below provides a reconciliation of GAAP SG&A
expenses to Core SG&A expenses:
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2020
2019
2020
2019
(in thousands)
(in thousands)
GAAP SG&A expenses
Compensation and benefits
$
9,012
$
7,193
$
27,223
$
21,281
General and administrative
3,918
3,737
11,181
10,818
Total SG&A expenses (GAAP)
$
12,930
$
10,930
$
38,404
$
32,099
Core SG&A expenses adjustments:
Non-cash equity-based compensation charge
(1)
$
(4,091
)
$
(3,395
)
$
(11,615
)
$
(10,384
)
Amortization of intangibles (2)
(51
)
(51
)
(152
)
(152
)
Core SG&A expenses adjustments
(4,142
)
(3,446
)
(11,767
)
(10,536
)
Core SG&A expenses
$
8,788
$
7,484
$
26,637
$
21,563
(1)
Reflects add back of non-cash amortization
of equity-based compensation. Outstanding grants related to
equity-based compensation are included in the core earnings per
share calculation.
(2)
Adds back non-cash amortization of pre-IPO
intangibles.
Core Net Investment Income
We have a portfolio of debt and equity investments in climate
change solutions. We calculate core net investment income by
adjusting GAAP net investment income for those core earnings
adjustments described above which impact investment income. We
believe that this measure is useful to investors as it shows the
recurring income generated by our portfolio after the associated
interest cost of debt financing. Our management also uses core net
investment income in this way. Our non-GAAP core net investment
income measure may not be comparable to similarly titled measures
used by other companies.
The following is a reconciliation of our GAAP net investment
income to our core net investment income:
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
(in thousands)
Interest income
$
23,508
$
19,322
$
71,046
$
54,270
Rental income
6,469
6,469
19,408
19,415
GAAP investment revenue
29,977
25,791
90,454
73,685
Interest expense
26,085
16,561
65,884
46,861
GAAP net investment income
3,892
9,230
24,570
26,824
Core equity method earnings adjustment
(1)
13,258
9,715
40,361
28,857
Amortization of real estate
intangibles (2)
772
772
2,317
2,310
Core net investment income
$
17,922
$
19,717
$
67,248
$
57,991
(1)
Reflects adjustment for equity method
investments described above.
(2)
Adds back non-cash amortization related to
acquired real estate leases.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201105006077/en/
Investor Relations Contact:
Chad Reed investors@hannonarmstrong.com 410-571-6189
Media Contact:
Gil Jenkins media@hannonarmstrong.com 443-321-5753
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