HA Sustainable Infrastructure Capital, Inc. (HASI) — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. HASI invests in renewable energy, energy efficiency and other sustainable infrastructure, using equity, lending, real estate, securitizations and fee-generating services. It operates as a REIT.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $62.8m | $58.9m | $121.3m | $110.6m |
| Net income (loss) | ($18.5m) | $16.4m | $27.2m | $67.6m |
| Diluted EPS | ($0.21) | $0.20 | $0.30 | $0.81 |
| Operating cash flow | Not separately provided for quarter | Not separately provided for quarter | ($26.9m) | ($2.2m) |
| Investing cash flow | Not separately provided for quarter | Not separately provided for quarter | ($255.6m) | ($198.6m) |
| Financing cash flow | Not separately provided for quarter | Not separately provided for quarter | $335.6m | $499.9m |
- Q2 revenue rose 7%; interest income increased 33% to $33.4m, while gains on asset sales declined 19% to $19.7m. H1 revenue increased 10%, including higher interest and fee income.
- Q2 turned to a net loss, primarily reflecting a $41.8m year-over-year decline in equity-method investment results, which recorded unrealized mark-to-market losses on project-level energy hedges amid rising power prices. H1 net income declined 60%, mainly for the same equity-investment reason.
- Interest expense was $28.8m in Q2 and $55.5m in H1, down year over year; prior-year periods included a one-time debt-redemption loss. Provision for receivable losses rose to $8.1m in Q2 and $8.7m in H1. Compensation expense also rose, partly due to a new retirement policy.
- Non-GAAP distributable earnings were $53.5m, or $0.60 per share, in Q2 and $99.3m, or $1.13 per share, in H1, versus $47.6m/$0.57 and $83.2m/$1.01, respectively, in 2021. The company cautions this measure is not GAAP income, operating cash flow or a liquidity measure.
Balance sheet, debt and liquidity
- At June 30, total assets were $4.52bn, total liabilities $2.93bn and stockholders’ equity $1.59bn. Cash and cash equivalents were $279.5m; including restricted cash, cash totaled $304.2m.
- Debt was approximately $2.82bn, excluding off-balance-sheet securitizations: $201m credit facilities, $100m commercial paper, $416m non-recourse debt, $1.77bn senior unsecured notes and $340m convertible notes. Debt-to-equity leverage was 1.8x, below the board limit of 2.5x; 93% of debt was fixed-rate.
- Liquidity included $450m unused capacity on the $600m unsecured revolver and $16m available under secured facilities; the $100m green commercial-paper program was fully used. Management stated liquidity was adequate. The unsecured revolver matures in February 2025; the secured facilities mature in July 2023.
- Managed assets were $9.3bn, including $5.4bn in unconsolidated securitization trusts. The on-balance-sheet portfolio was $3.9bn. The company reported a 7.4% unlevered portfolio yield, compared with 7.5% at year-end 2021.
Material changes, outlook and risks
- HASI completed $671m of transactions in H1 2022, versus $697m in H1 2021. Its pipeline exceeded $4.0bn at quarter-end; the filing does not provide a specific earnings or transaction-volume forecast, and pipeline opportunities are not assured to close.
- A new $200m, 0% exchangeable note due 2025 was issued in April; it accretes at an effective annual rate of 3.25%. The company also issued $78m of common equity in H1. Quarterly dividends were raised from $0.35 to $0.375 per share in 2022; the August 2022 declaration is payable in October.
- The allowance for receivable losses was $37m. An $11m new-market loan exposure was moved to the highest-risk portfolio category. Separately, an adverse court decision resulted in an $8m write-off of two older wind-project land-lease receivables; the full amount had previously been reserved.
- HASI identified credit quality, refinancing and interest-rate exposure, asset illiquidity, commodity and power-price volatility, and environmental and weather-related factors as risks. A 50-basis-point increase in benchmark rates would add an estimated $251,000 of quarterly expense on $201m of variable-rate borrowings, before any mitigating actions.
- No material litigation or COVID-19 contingency was reported at quarter-end. Management noted that ongoing economic disruption and COVID-19 effects remain uncertain. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether project-level hedge mark-to-market losses are temporary and how power prices and grid congestion affect future equity-method earnings and portfolio yield.
- Credit performance of the $11m higher-risk new-market loans, the adequacy of the $37m allowance, and exposure to mezzanine and related-party commercial receivables.
- Availability and cost of refinancing, particularly the July 2023 secured-facility maturity and fully utilized commercial-paper program, as well as compliance with debt covenants.
- How reported GAAP earnings compare with distributable earnings and cash actually available to fund investments and dividends.
- Execution, timing and returns from the more-than-$4bn pipeline, and whether dividends remain supported by taxable income and cash generation.