HA Sustainable Infrastructure Capital, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 7, 2021. HASI invests in energy efficiency, renewable energy and other sustainable infrastructure, using on- and off-balance-sheet financing. Figures below are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $51.7 | $40.8 |
| Income before equity-method investment income | $3.5 | $9.7 |
| Equity-method investment income | $54.5 | $16.6 |
| Net income | $51.2 | $24.4 |
| Net income attributable to controlling stockholders | $51.0 | $24.3 |
| Basic / diluted EPS | $0.65 / $0.61 | $0.36 / $0.35 |
| Distributable earnings (non-GAAP) | $35.7; $0.43 per diluted share | $30.8; $0.44 per diluted share |
| Net cash from operating activities | $(18.2) | $11.7 |
| Net cash used in investing activities | $(95.0) | $(45.5) |
| Net cash from financing activities | $55.9 | $127.5 |
Revenue rose 27%, led by higher securitization and asset-sale gains; interest income was also higher. Interest expense increased 52% to $27.6 million, while compensation and benefits rose to $15.2 million. Management attributed the increase in equity-method income primarily to a larger investment portfolio and tax attributes allocated under the HLBV accounting method. The resulting GAAP earnings growth therefore substantially reflects equity-method accounting income; distributable earnings per share declined year over year.
Portfolio, balance sheet and liquidity
- Balance-sheet assets were $3.43 billion at March 31, 2021, versus $3.46 billion at year-end 2020. Stockholders’ equity was $1.31 billion, up from $1.21 billion.
- Cash and cash equivalents were $232.3 million; cash, cash equivalents and restricted cash totaled $253.0 million. Operating cash flow was negative, partly reflecting equity-method investment accounting and $23.6 million of receivables held for sale.
- Debt on the balance sheet totaled approximately $2.05 billion: $19.5 million on credit facilities, $462.5 million of non-recourse debt, $1.28 billion of senior unsecured notes and $289.6 million of convertible notes. Reported leverage was 1.6 to 1, below the board-approved 2.5 to 1 limit; 99% of debt was fixed-rate.
- The company reported $2.92 billion in on-balance-sheet Portfolio assets and $7.42 billion in Managed Assets, including $4.50 billion in assets held in off-balance-sheet securitization trusts. Portfolio unlevered yield was 7.7%, versus 7.6% at December 31, 2020.
- The receivables allowance remained $36 million. Two commercial receivables with a combined carrying value of about $8 million remained on non-accrual; the company continues legal claims relating to them.
- HASI issued $103 million net through its ATM common-stock program during the quarter. The board declared a $0.35-per-share dividend, payable in April 2021.
Changes, outlook and notable items
- Transactions completed in the quarter totaled approximately $188 million, compared with $186 million a year earlier. The company reported a pipeline exceeding $3.0 billion, but cautioned that pipeline opportunities may not close.
- Management stated that it believed liquidity was adequate for short- and long-term needs. In April, after quarter-end, HASI replaced its $50 million unsecured revolving facility with a $400 million, 364-day facility. No formal earnings or dividend guidance was provided in the filing.
- In March, HASI reduced the maximum size of its representation-based secured revolving facility from $250 million to $100 million, recording a $1.5 million loss from accelerated financing-cost write-offs. It prepaid a securitization-related loan using asset-sale proceeds and recorded an approximately $3 million loss on that asset sale.
- The February 2021 Texas winter storms led HASI to contribute approximately $15 million and make $10 million of member loans to a Lighthouse Partnership to settle project hedge activity.
- Management cited COVID-19, borrower and project credit quality, interest-rate and refinancing exposure, asset illiquidity, energy and commodity prices, weather events, and changes in government policy as risks. A separate guarantee tied to a joint-venture financing had a maximum obligation of approximately $60 million; the partner is responsible for 15% under a separate agreement. Management reported no litigation expected to have a material adverse effect and no material COVID-19 contingency accrual beyond receivables allowances.
Important facts for investors to verify
- How much of reported equity-method earnings is recurring cash return versus HLBV and tax-allocation accounting, and how cash distributions compare with earnings.
- Whether the $3.0 billion pipeline converts to investments, and the expected funding schedule for large commitments, including Jupiter and the Lighthouse Partnerships.
- Performance and recovery prospects for the two non-accrual receivables, the $36 million allowance, and the company’s exposure to commercial solar borrowers and counterparties.
- Liquidity after investment commitments, dividends and debt service; terms and availability of the April $400 million revolver; and refinancing needs across the debt portfolio.
- Exposure to the Texas storm-related hedge settlement and the approximately $60 million joint-venture financing guarantee.