HA Sustainable Infrastructure Capital, Inc. current report, 04 December 2023

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Business Context and Reporting Period

Company: Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI)
Filing Type: Form 8-K (Current Report)
Date of Report: December 4, 2023
Reporting Period Context: The filing primarily announces a new debt offering and provides portfolio updates as of September 30, 2023. The Company invests in climate solutions across three markets: Behind-the-Meter (BTM), Grid-Connected (GC), and Fuels, Transport, and Nature (FTN).

Key Financial Metrics

Portfolio and Assets:

  • Portfolio (On-Balance Sheet): Approximately $5.5 billion as of September 30, 2023 (up 28% from December 31, 2022).
  • Managed Assets (Total): Approximately $11.5 billion as of September 30, 2023 (includes $6.0 billion in unconsolidated securitization trusts).
  • Pipeline: Over $5 billion of transactions potentially closing in the next 12 months.
Yields and Returns:
  • Unlevered Portfolio Yield: 7.9% as of September 30, 2023.
  • Closed Transactions Yield (9 months ended Sept 30, 2023): Over 9% on average.
  • Distributable Return on Equity (Non-GAAP): 11.9% for the nine months ended September 30, 2023 (vs. 11.8% in the prior year period).
  • Identified Projects Yield: Weighted average anticipated yield of approximately 11% for ten near-term opportunities.
Debt and Liquidity:
  • Total Net Debt: $3.5 billion as of the nine months ended September 30, 2023.
  • Debt to Total Capitalization: 64%.
  • Debt to Tangible Equity: 1.8x.
  • Secured Debt Ratios: 10% of total debt; 6.2% of total assets.
  • Dividend Coverage: Average of over 2.5x from 2019 through 2022.
Cash Flow:
  • GAAP Net Cash Provided by Operating Activities: $0 for the year ended December 31, 2022; $13 million for 2021; $73 million for 2020; $29 million for 2019.
  • Adjusted Cash Flow from Operations plus Other Portfolio Collections: The filing provides the methodology for this Non-GAAP measure but does not explicitly state the final calculated dollar amount for the 12 months ended September 30, 2023 in the text provided.

Material Changes and New Events

Debt Offering (Item 8.01):
On December 4, 2023, the Company's indirect subsidiaries (HAT Holdings I LLC and HAT Holdings II LLC) issued a preliminary offering memorandum for $500 million aggregate principal amount of Green Senior Unsecured Notes due 2027.

Portfolio Growth:
The on-balance sheet portfolio increased by approximately 28% from December 31, 2022, to September 30, 2023, reaching $5.5 billion.

Investment Pipeline:
The Company identified ten near-term investment opportunities with an aggregate size greater than $500 million. These projects have an assumed cost of debt of 8% to 8.5% and leverage of approximately 2.0x, resulting in an anticipated return on equity of 16% to 17%.

Guidance, Outlook, and Risks

Outlook and Strategy:

  • The Company expects the Inflation Reduction Act to incentivize additional investment opportunities and increase its pipeline over the next several years.
  • Management plans to amend its unsecured credit facility (dated February 7, 2022) to increase borrowing capacity by $75 million on or about December 4, 2023.
  • The Company aims to maintain a diversified portfolio across project types, operators, technologies, and geographies.
Risks and Contingencies:
  • Pipeline Uncertainty: There is no assurance that any or all transactions in the pipeline will be completed or that specific terms will be realized.
  • Yield Estimates: Anticipated yields are based on assumptions and estimates that may prove inaccurate; actual results may vary materially based on market conditions.
  • Non-GAAP Measures: Distributable return on equity and Adjusted Cash Flow from Operations are not GAAP measures and may not be comparable to other companies.

Investor Verification Checklist

  • Debt Issuance Terms: Verify the final pricing, interest rate, and closing date of the $500 million Green Senior Unsecured Notes due 2027.
  • Portfolio Yield Realization: Monitor whether the actual yields on closed transactions continue to exceed the 9% average reported for the first nine months of 2023.
  • Pipeline Conversion: Track the conversion rate of the $5 billion pipeline into closed transactions, specifically the ten identified projects with an 11% anticipated yield.
  • Liquidity Position: Review the finalized credit facility amendment to confirm the $75 million increase in borrowing capacity.
  • Dividend Sustainability: Confirm that the "Adjusted Cash Flow from Operations plus Other Portfolio Collections" continues to exceed dividend payments as historically observed.