HA Sustainable Infrastructure Capital, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020, with audited comparisons to 2019 and 2018. The filing also reports fourth-quarter results. HASI invests in energy efficiency, renewable energy, and other sustainable infrastructure, operating as a REIT.
Business context and portfolio
- Completed approximately $1.9 billion of transactions in 2020, versus $1.3 billion in 2019. At year-end, the on-balance-sheet Portfolio was approximately $2.9 billion; Managed Assets, including off-balance-sheet securitizations, were approximately $7.2 billion ($6.2 billion in 2019).
- The Portfolio comprised more than 230 investments, with a weighted-average remaining life of approximately 17 years, excluding match-funded transactions. It was approximately 48% behind-the-meter and 52% grid-connected assets.
- The company reported a pipeline exceeding $3.0 billion of potential transactions. Pipeline opportunities are not commitments and may not close.
Financial results and key metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $186.9 million | $141.6 million |
| Interest income | $95.6 million | $76.2 million |
| Gain on sale of receivables and investments | $49.9 million | $24.4 million |
| Total expenses | $154.9 million | $115.7 million |
| Income from equity-method investments | $48.0 million | $64.2 million |
| Net income attributable to controlling stockholders | $82.4 million | $81.6 million |
| Diluted earnings per share | $1.10 | $1.24 |
| Distributable earnings per share (non-GAAP) | $1.55 | $1.40 |
- Revenue rose 32%, while expenses rose 34%; net income attributable to controlling stockholders increased about 1%. Higher interest and rental income and gains on asset sales were partly offset by higher interest expense and lower equity-method income. The 2019 equity-method result included a $28 million gain from selling wind projects.
- Average yield on receivables, investments, and real estate was 7.6%, versus 6.9% in 2019; average debt cost was 5.1%, versus 4.9%. GAAP net investment income decreased to $29.3 million from $37.8 million. Distributable net investment income, a non-GAAP measure, increased to $87.6 million from $82.4 million.
- Fourth-quarter 2020 revenue was $48.9 million and net income attributable to controlling stockholders was $24.9 million, with diluted EPS of $0.32. In Q4 2019, those figures were $38.3 million, $46.1 million, and $0.66, respectively; the prior-year quarter included substantially higher equity-method income.
- Net cash provided by operating activities was $73.3 million ($29.5 million in 2019); investing activities used $831.7 million; financing activities provided $962.1 million.
- Year-end unrestricted cash was $286.3 million, compared with $6.2 million a year earlier. Cash, cash equivalents, and restricted cash totaled $310.3 million. The company said it believed liquidity was sufficient for its needs.
- Year-end debt was approximately $2.19 billion: $1.28 billion senior unsecured notes, $593 million non-recourse debt, $291 million convertible notes, and $23 million credit-facility borrowings. Debt-to-equity leverage was 1.8:1, below the board’s 2.5:1 limit; 99% of debt was fixed-rate. The revolving credit facilities had combined maximum commitments of $450 million, subject to borrowing availability and other terms.
- The board declared quarterly dividends of $0.34 per share during 2020. Future distributions remain subject to board discretion, cash generation, covenants, and REIT requirements.
Material changes, outlook, and commentary
- The company adopted the expected-credit-loss standard (CECL) on January 1, 2020, recording an approximately $17 million pre-tax cumulative adjustment to retained earnings. The year-end allowance for receivable losses was $35.8 million, including $10.1 million of 2020 provision expense; management said much of the provision reflected expected losses on new loans and commitments, not realized charge-offs.
- HASI issued approximately $300 million of common stock through its ATM program, $775 million principal amount of senior unsecured notes, and $144 million of convertible notes during 2020 to support liquidity and investment growth. It also reported a $50 million unsecured credit facility entered into in February 2021, after year-end.
- Management described long-term market prospects as positive, citing climate investment demand, policy support, and improving renewable-energy economics. This is commentary, not quantified earnings guidance. Management also noted that low natural-gas prices can pressure merchant renewable-power revenues and that low interest rates and increased investor interest intensify competition.
- Management said COVID-19 had not materially adversely affected 2020 financial results and reported no material loan delinquencies. It nevertheless highlighted uncertainty around future economic conditions, counterparties, project construction and operations, capital-market access, and asset values.
- Climate-scenario analysis identifies both potential opportunities and risks. Illustratively, a 5% decrease in solar or wind production could reduce cash flows from related equity investments; management emphasized that such scenario estimates are assumptions, not forecasts.
Risks, contingencies, and unusual items
- Key risks include dependence on government incentives and regulation; competition; low conventional-energy prices; borrower, sponsor, and offtaker credit; illiquid and sometimes subordinated investments; project performance, weather, and climate impacts; and interest-rate, refinancing, and funding risks.
- REIT qualification and the exemption from Investment Company Act registration depend on complex asset, income, and operating tests. Failure to maintain either status could materially affect taxes, operations, and distributions.
- A guarantee associated with a joint-venture financing could require up to approximately $60 million; the company stated that its partner is responsible for 15% under a separate agreement. The financing was due in February 2021.
- The company reported no legal proceedings expected to have a material adverse effect and no COVID-19 contingencies recorded at year-end other than receivable allowances. Its auditors gave unqualified opinions on the financial statements and internal control over financial reporting; the audit identified equity-method investment accounting as a critical audit matter.
Important facts for investors to verify
- Reconcile distributable earnings and distributable net investment income to GAAP results; these non-GAAP measures are not cash flow or liquidity measures.
- Review CECL assumptions, the $35.8 million allowance, and the performance of the $8 million of commercial receivables on non-accrual status.
- Assess leverage, debt maturities, variable-rate exposure, covenant headroom, refinancing needs, and actual availability under revolving facilities.
- Evaluate the concentration, contractual coverage, valuation assumptions, and realized cash returns of the equity-method portfolio, including the Jupiter and Lighthouse investments.
- Track whether the greater-than-$3.0 billion pipeline closes, whether growth is funded on acceptable terms, and whether dividends remain supported by cash generation and REIT taxable income.