Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI): Powering the Energy Transition with Resilience and Diversification

Published on September 24, 2024 | Ticker: HASI

Hannon Armstrong Sustainable Infrastructure Capital, Inc. (NYSE: HASI) is a leading climate positive investment firm that actively partners with clients to deploy real assets that facilitate the energy transition. With over $12 billion in managed assets, the company's vision is that every investment improves its climate future.

Business Overview

HASI's business model is centered around three key markets: Behind-the-Meter (BTM), Grid-Connected (GC), and Fuels, Transport, and Nature (FTN). The company's investments take various forms, including equity, joint ventures, land ownership, lending, and other financing transactions. HASI generates net investment income from its portfolio, as well as fees through gain-on-sale securitization transactions, asset management and servicing, broker/dealer, and other services.

Financials

For the full year 2023, HASI reported annual net income of $148.8 million, annual revenue of $319.9 million, annual operating cash flow of $129.8 million, and annual free cash flow of $129.8 million. In the first quarter of 2024, the company reported net income of $124.5 million, revenue of $105.8 million, and operating cash flow of $20.9 million.

Recent Developments

One of the key highlights for HASI in the first quarter of 2024 was the announcement of a strategic partnership with KKR, a leading global investment firm. The $2 billion partnership, named CarbonCount Holdings 1 (CCH1), will allow HASI to reduce its reliance on capital markets, increase its investment capacity, and diversify its income streams with stable fee revenue.

Under the CCH1 partnership, HASI and KKR have each committed $1 billion to be deployed over approximately 18 months. HASI will continue to source and manage the investments, while KKR will provide 50% of the funding, reducing HASI's equity needs by half. The partnership is expected to complement HASI's existing securitization program, balance sheet, and other financing sources, creating a more resilient and diversified business model.

Investment Pipeline

HASI's investment pipeline remains robust, with over $5.5 billion in new equity, debt, and real estate opportunities as of the end of the first quarter of 2024. The company has seen notable growth in its pipeline for community solar, grid-connected solar, and renewable fuels, while other asset classes, such as residential solar, have remained consistent.

Portfolio Composition

The company's portfolio totaled approximately $6.4 billion as of March 31, 2024, with a weighted average remaining life of approximately 17 years. The portfolio is well-diversified, consisting of over 500 transactions with an average size of $12 million. Approximately 49% of the portfolio is comprised of unconsolidated equity investments in renewable energy-related projects, 44% is fixed-rate receivables and debt securities, 5% is floating-rate receivables, and 2% is real estate leased to renewable energy projects.

Liquidity

HASI's financial position remains strong, with over $800 million in liquidity, minimal near-term debt maturities, and a leverage ratio of 1.9x as of March 31, 2024. The company has also taken steps to strengthen its debt platform, including upsizing and extending its revolving credit facility, term loan, and commercial paper program.

Sustainability and Impact

In terms of sustainability and impact, HASI published its 2023 Sustainability Impact Report, donated $2.5 million to the HASI Foundation to support Climate Justice initiatives, and achieved independent verification of its Scope 3 Category 15 emissions.

Outlook

Looking ahead, HASI's management team remains confident in the company's ability to navigate the current market environment and continue to capitalize on the growing demand for climate solutions. The CCH1 partnership with KKR is expected to further strengthen HASI's position and provide additional flexibility to execute on its long-term strategy.

Conclusion

Overall, HASI's diversified business model, robust investment pipeline, strong financial position, and commitment to sustainability make it well-positioned to continue delivering value to its shareholders and contributing to the energy transition.

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