HA Sustainable Infrastructure Capital, Inc. (HASI) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a stand-alone fourth-quarter report. The company invests in climate-positive infrastructure, including energy efficiency, renewable power, fuels, transport, and nature-related projects. Its common stock trades on the NYSE as HASI.
Business context and portfolio
- HASI completed approximately $2.3 billion of transactions in 2023, up from $1.8 billion in 2022.
- At year-end, its on-balance-sheet Portfolio was $6.2 billion, compared with $4.3 billion a year earlier. Managed Assets, including assets in unconsolidated securitization trusts, totaled $12.253 billion, up from $9.794 billion.
- The Portfolio comprised more than 520 investments, with a weighted-average remaining life of approximately 17 years, excluding match-funded transactions. Mix by market was approximately 48% Behind-the-Meter, 37% Grid-Connected, and 15% Fuels, Transport, and Nature.
- HASI estimated that investments originated in 2023 would avoid more than 760,000 metric tons of annual carbon emissions; reported CarbonCount was 0.33.
Financial results and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $319.9 million | $239.7 million | +33% |
| Interest income | $207.8 million | $134.7 million | +54% |
| Interest expense | $171.0 million | $115.6 million | +48% |
| Income before equity-method investments | $41.4 million | $18.0 million | +130% |
| Income from equity-method investments | $141.0 million | $31.3 million | +351% |
| Net income | $150.8 million | $41.9 million | +260% |
| Net income attributable to controlling stockholders | $148.8 million | $41.5 million | +259% |
| Diluted GAAP earnings per share | $1.42 | $0.47 | — |
| Distributable earnings per share (non-GAAP) | $2.23 | $2.08 | +7% |
| Distributable net investment income (non-GAAP) | $217.3 million | $180.2 million | +21% |
- Interest and rental income totaled $229.0 million, against interest expense of $171.0 million; GAAP-based net investment income was $58.0 million, versus $45.3 million in 2022. The filing does not present a conventional operating-margin measure.
- Average yield on receivables, investments, and real estate was 8.3%, up from 7.9%; average cost of debt rose to 5.0% from 4.3%. Year-end unlevered Portfolio yield was 7.9%, versus 7.5%.
- Cash flow from operating activities was $99.7 million, compared with $0.2 million in 2022. Investing activities used $2.0 billion; financing activities provided $1.8 billion. Year-end cash and cash equivalents were $62.6 million; cash, cash equivalents, and restricted cash totaled $75.1 million.
- HASI reported $106.1 million of “Cash Available for Reinvestment,” a company-defined non-GAAP measure calculated as adjusted operating cash flow and other Portfolio collections less dividends.
- Year-end total debt was $4.25 billion and equity was $2.14 billion; reported debt-to-equity leverage was 2.0:1, versus 1.8:1 in 2022. Fixed-rate debt was 92% of total debt.
- Liquidity included $63 million of unrestricted cash, $507 million of unused capacity on the unsecured revolving credit facility, and $70 million available under the commercial-paper program.
- The allowance for losses on receivables was $50 million at year-end, against $3.12 billion of receivables before allowance. HASI reported no receivables on non-accrual status and no material securitization payments more than 90 days past due.
Material changes and unusual items
- Equity-method income increased by $110 million, primarily due to income allocations associated with tax credits in a grid-connected utility-scale solar project. The company uses the hypothetical liquidation at book value (HLBV) method for certain investments; GAAP allocations can differ substantially from cash distributions and economic returns in a period.
- HASI’s Board approved revocation of its REIT election effective January 1, 2024. A $33 million deferred-tax charge related to the transition contributed to 2023 income-tax expense of $31.6 million. The company expects to be taxed as a C corporation from 2024 and says NOLs and tax credits are expected to limit near-term incremental current tax expense.
- HASI deconsolidated certain entities after amendments to non-recourse debt agreements, reducing reported real estate and non-recourse debt and recording a retained equity-method interest. It recognized approximately $19 million of gain on deconsolidation.
- The company issued $494 million of equity during 2023, including a 15 million-share public offering, and issued $403 million of 2028 exchangeable notes and $550 million of 2027 senior unsecured notes. The 2028 notes carry a 3.75% coupon; the 2027 notes carry an 8.00% coupon. An additional $200 million of 2027 notes was issued in January 2024.
- Quarterly dividends increased from $0.375 per share in 2022 to $0.395 in 2023. A $0.415 dividend was declared in February 2024. Future distributions remain at the Board’s discretion; the company is no longer subject to the REIT distribution requirement for 2024 onward.
Outlook, risks, and contingencies
- Management cited the Inflation Reduction Act, Infrastructure Investment and Jobs Act, and clean-energy demand as supportive of investment opportunities. The year-end pipeline exceeded $5.0 billion, but HASI cautioned that pipeline transactions may not close. No formal earnings or dividend guidance is provided in the filing.
- Management noted volatile and elevated interest rates in 2023 and expected continued volatility into 2024. Higher borrowing costs may compress returns; lower natural-gas prices may pressure merchant-exposed renewable projects. The company stated inflation had not materially affected its business to date.
- Key risks include interest-rate and refinancing exposure; illiquid assets and subjective fair-value estimates; borrower, sponsor, offtaker, and project-performance risks; reliance on government incentives and regulation; competition; merchant power and environmental-credit prices; extreme weather, insurance costs, and other climate-related physical risks; and maintaining exemptions from Investment Company Act registration.
- HASI disclosed guarantees with a maximum obligation of approximately $87 million related to joint-venture financing and up to $53 million for working-capital support to two project companies, capped at $20 million in any calendar year. The company recorded no liability for these guarantees, stating performance was not considered probable. It also disclosed limited transaction representations, warranties, and indemnities.
- No legal proceedings were identified as likely to have a material adverse effect. Ernst & Young LLP issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified accounting for equity-method investments—including power assessments, HLBV allocations, and impairment judgments—as a critical audit matter.
Important facts for investors to verify
- Reconcile the sharp increase in GAAP equity-method income with cash distributions, HLBV accounting, and the non-GAAP adjustments underlying distributable earnings.
- Review debt maturities, refinancing plans, interest-rate hedges, facility covenants, and the effect of rising funding costs on investment spreads and dividend capacity.
- Assess the transition to C-corporation taxation, including deferred-tax accounting, use and potential limitations of $666 million in federal NOLs and $31 million in tax credits, and any implications for distributions.
- Examine the credit quality and concentration of the receivables portfolio, including $1.5 billion of mezzanine loans to residential-solar-related entities, the $50 million allowance, and the status of project and sponsor exposures.
- Evaluate the assumptions and valuation sensitivity for illiquid equity-method investments and securitization residual assets, along with the guarantees and collateral requirements disclosed in the filing.
- Consider share dilution from 2023 equity issuance and exchangeable notes, and confirm that future dividends are supported by recurring cash generation rather than non-GAAP measures alone.