HA Sustainable Infrastructure Capital, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request metadata labels the period “2021 Q4,” this filing reports full-year results; it does not provide standalone fourth-quarter financial results in the supplied text.
Business context
HASI invests in energy efficiency, renewable energy and other sustainable infrastructure, using loans, equity investments, real estate and securitizations. It reported approximately $3.6 billion of on-balance-sheet Portfolio assets and $5.2 billion in unconsolidated securitization trusts, or $8.8 billion of Managed Assets, at year-end. The Portfolio included more than 285 investments, with a weighted-average remaining life of approximately 17 years, excluding match-funded transactions.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $213.2 million | $186.9 million | +14% |
| Income before equity-method investment income | $18.1 million | $32.0 million | -44% |
| Income from equity-method investments | $126.4 million | $48.0 million | +164% |
| Net income attributable to controlling stockholders | $126.6 million | $82.4 million | +54% |
| Diluted earnings per share | $1.51 | $1.10 | +$0.41 |
| Distributable earnings (non-GAAP) | $158.7 million; $1.88/share | $117.5 million; $1.55/share | +35% |
| Net cash from operating activities | $13.3 million | $73.3 million | -$60.0 million |
| Net cash used in investing activities | $703.4 million | $831.7 million | $128.3 million less cash used |
Revenue growth reflected higher interest income and gains on asset sales, partly offset by lower fee income. Interest expense rose 32% to $121.7 million, including a $15 million loss associated with redeeming 2024 notes. The filing attributes much of the equity-method income increase to new investments and substantial one-time HLBV allocations related to tax benefits recognized by co-investors. Net income therefore grew faster than revenue; it should not be read as equivalent to recurring cash earnings.
Interest income was $106.9 million and rental income was $25.9 million. Interest expense was $121.7 million; the resulting GAAP net investment income was $11.1 million. The company reported distributable net investment income of $134.0 million, a non-GAAP measure that includes equity-method earnings adjustments and other specified adjustments. Portfolio unlevered yield was 7.5%, versus 7.6% in 2020.
Balance sheet, debt and liquidity
- Total assets were $4.15 billion and stockholders’ equity was $1.57 billion at December 31, 2021.
- Cash and cash equivalents were $226.2 million; unrestricted cash plus restricted cash was approximately $251 million. Operating cash flow was $13.3 million, down from $73.3 million.
- Total debt was approximately $2.49 billion, excluding off-balance-sheet securitizations. Debt-to-equity leverage was 1.6-to-1, below the board’s stated maximum of 2.5-to-1. Approximately 96% of debt was fixed-rate, within the 75%–100% target range.
- Debt included $1.76 billion of senior unsecured notes, $149.7 million carrying value of convertible notes, $429.9 million of non-recourse debt, $100.5 million of credit-facility borrowings and $50.1 million of commercial paper notes.
- Management cited $350 million of unused capacity on an unsecured revolving facility and $25 million of available capacity in secured revolving facilities at year-end, as well as $50 million of remaining capacity under its $100 million commercial-paper program. The unsecured facility was increased to $600 million in February 2022.
- HASI issued $1 billion of senior notes in 2021 and used $500 million of proceeds to redeem its 2024 notes. It also issued $201 million of equity; $142 million principal amount of 2022 convertible notes converted into equity.
Material changes and unusual items
- Portfolio assets increased to $3.6 billion from $2.9 billion; Managed Assets rose to $8.8 billion from $7.2 billion.
- Transactions completed totaled approximately $1.7 billion, compared with $1.9 billion in 2020. The year-end pipeline exceeded $4.0 billion, but management cautioned that pipeline transactions may not close.
- Equity-method investment income included unusual HLBV allocations associated with co-investor tax benefits. A $7 million reversal of prior non-cash HLBV income was also recorded after an investment was restructured into a loan.
- The company recorded a $17.2 million income tax expense, compared with a $2.8 million tax benefit in 2020, primarily reflecting the HLBV-related income. The 2021 allowance for receivable losses was approximately $36 million, unchanged from year-end 2020.
- Quarterly dividends declared increased from $0.34 per share in 2020 to $0.35 in 2021. The board retains discretion over future distributions; the REIT must generally distribute at least 90% of REIT taxable income.
Outlook, management commentary and risks
Management described long-term growth prospects as positive, citing climate investment demand, government and corporate clean-energy commitments, and a pipeline of prospective transactions. It provided no specific quantitative earnings or dividend guidance in the supplied filing text. Management said higher interest rates and inflation were expected to have minimal impact on the existing Portfolio and that PPA prices on future deals were rising to compensate, while acknowledging volatility and uncertainty.
Principal risks include higher borrowing costs and refinancing needs; illiquid assets and subjective fair-value estimates; credit, counterparty and project-performance risk; exposure to merchant power prices and low natural-gas prices; reliance on government incentives, regulation and net-metering policies; competition; severe weather, climate impacts and insurance availability; and maintaining REIT qualification and exemptions from investment-company registration. The filing says COVID-19 had not materially adversely affected 2021 results, but continuing uncertainty and supply-chain, labor and inflation pressures could affect future performance. No legal proceedings were reported as likely to have a material adverse effect.
The auditor issued an unqualified opinion on the financial statements and internal controls. The audit identified accounting for renewable-energy and energy-efficiency equity investments, including judgments about control and HLBV allocations, as a critical audit matter.
Important facts for investors to verify
- How much of 2021 net income and distributable earnings reflects recurring operating performance versus HLBV allocations and related tax benefits; review the company’s non-GAAP reconciliations and cash distributions from equity-method investments.
- Portfolio credit quality, including the $36 million allowance, $8 million of non-accrual receivables, and exposure to residential solar mezzanine loans and project sponsors.
- Debt maturities, refinancing terms, covenant headroom, and the effect of higher short-term rates on funding costs and distributable cash.
- Execution and economics of the more-than-$4 billion pipeline, 2022 commitments under the Lighthouse investments, and continued growth in off-balance-sheet securitizations.
- Whether quarterly distributions remain supported by cash generation and REIT taxable income, given low 2021 operating cash flow and the board’s discretion over dividends.
- Climate-related sensitivities and assumptions, including estimated project production, insurance costs, and the filing’s CarbonCount estimates for 2021-originated investments.