Business context and reporting period
Hannon Armstrong Sustainable Infrastructure Capital, Inc. (NYSE: HASI) filed this unaudited Form 10-Q for the three months ended March 31, 2019. The company invests in energy efficiency, renewable energy and other sustainable infrastructure through equity, loans and receivables, real estate and securitizations; it operates as a REIT.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Total revenue | $32.9 million | $27.9 million; up 18% |
| Net income attributable to controlling stockholders | $13.6 million | Net loss of $1.2 million |
| EPS, basic / diluted | $0.22 / $0.21 | ($0.03) / ($0.03) |
| Net cash from operating activities | $3.5 million | $5.3 million |
| Cash from investing / financing activities | $26.6 million / $16.8 million | $25.8 million / ($32.8) million |
| Cash, cash equivalents and restricted cash at quarter-end | $106.1 million | $59.4 million at prior year-end |
| Total assets / stockholders’ equity | $2.19 billion / $842.1 million | $2.15 billion / $804.5 million at prior year-end |
Revenue growth reflected higher receivables interest income, securitization gains and fee income. Interest expense declined to $15.4 million from $18.7 million. Equity-method investment income was $4.5 million, versus a $2.3 million loss a year earlier. GAAP net income margin was approximately 41.7%, compared with a net loss in the prior-year quarter. The company’s supplemental net investment margin was 3.1%, versus 1.6%.
Debt, portfolio and liquidity
- Quarter-end debt for leverage reporting was $1.245 billion, with leverage of 1.5:1 against a stated target limit of 2.5:1. Fixed-rate debt was 72% of total debt, within the company’s 60%–85% target range. Debt excludes approximately $3.6 billion of assets financed in unconsolidated securitization structures.
- Balance-sheet debt included $283.4 million under credit facilities, $814.7 million of non-recourse debt and $147.2 million carrying value of convertible notes. The two revolving facilities had combined commitments of $450 million and maturities in July 2023; reported borrowings were subject to borrowing-base availability.
- The on-balance-sheet portfolio was approximately $1.9 billion; managed assets, including assets in securitization trusts, were $5.516 billion, up from $5.284 billion at December 31, 2018. The portfolio’s weighted average remaining life, excluding match-funded transactions, was about 14 years.
- Q1 transaction closings were approximately $319 million, compared with $108 million in Q1 2018. The potential-opportunity pipeline exceeded $2.5 billion, but the filing cautions that transactions may not close.
Material changes, outlook and risks
- Net income improved by about $15 million year over year, reflecting revenue growth, lower expenses, a $6 million improvement in equity-method results and an approximately $2.3 million income-tax benefit. A wind investment impairment recorded by its sponsor contributed to an approximately $8 million equity-method loss recognized by HASI in Q1; the company reported no other-than-temporary impairment in its equity-method portfolio.
- HASI reported $20.9 million of non-GAAP core earnings, or $0.33 per diluted share, versus $14.3 million, or $0.27, in Q1 2018. This measure adjusts GAAP results, including for equity-method income and noncash items, and is not a substitute for GAAP earnings or operating cash flow.
- The company raised approximately $47 million net from common-stock issuances in the quarter, including $37 million through its at-the-market program. This supports financing capacity but increases the share count; 62.9 million shares were outstanding at March 31, versus 60.5 million at December 31, 2018. The declared quarterly dividend was $0.335 per share, payable April 11, 2019.
- Management said it expects continued use of equity, borrowings and on- and off-balance-sheet securitizations. It noted a flatter yield curve and anticipated elevated securitization activity in the short to intermediate term. No specific earnings or revenue guidance was provided.
- Risks include credit deterioration and project or obligor concentration, refinancing and interest-rate exposure, asset illiquidity, commodity prices and changes in government policy. A 50-basis-point increase in LIBOR was estimated to add $0.4 million to quarterly interest expense on the cited $345 million of floating-rate borrowings. Two commercial receivables totaling about $8 million were impaired and on non-accrual; the company is pursuing legal claims and recorded no allowance. Separately, about $1.4 million of payments to securitization trusts were more than 90 days past due; no securitization credit losses were reported for the quarter.
- Adoption of the new lease standard on January 1, 2019 did not materially affect the financial statements. The company was in compliance with credit and non-recourse debt covenants at quarter-end; management reported no legal proceedings expected to have a material adverse effect.
Most important facts for investors to verify
- Whether the $2.5 billion-plus opportunity pipeline converts into completed investments, and at what yields and financing terms.
- Credit performance and recoverability of the $8 million non-accrual receivables, the wind investment affected by sponsor impairment, and the hurricane-damaged solar project’s remaining carrying value.
- Availability under the revolving facilities and the company’s capacity to refinance shorter-term borrowings against long-duration assets.
- Cash generation relative to dividends and investment commitments; operating cash flow was $3.5 million despite $13.7 million of net income.
- Effects of further equity issuance and the company’s non-GAAP core-earnings adjustments when assessing per-share performance and dividend coverage.