Executive Summary / Key Takeaways

• HASI operates as a unique pure-play investor in sustainable infrastructure, leveraging a diversified portfolio across Behind-the-Meter, Grid-Connected, and Fuels, Transport, and Nature markets, supported by a robust pipeline exceeding $5.5 billion.
• The company demonstrated strong operational execution in Q1 2025, closing a record over $700 million in new originations at attractive yields greater than 10.5%, contributing to a portfolio yield of 8.3%.
• Strategic enhancements to the capital platform, including the CCH1 partnership with KKR (KKR) and attainment of investment-grade credit ratings, significantly improve access to committed, lower-cost, and more stable funding, reducing reliance on public markets.
• Management reaffirmed guidance for 8% to 10% compound annual growth in adjusted EPS through 2027, underpinned by the resilience of the business model against policy/macro uncertainty and the strong fundamental tailwinds of increasing U.S. energy demand and the cost competitiveness of clean energy.
• While facing risks like interest rate volatility, credit exposure, and potential policy shifts, HASI's differentiated financing expertise, REIT structure, and active risk management position it to capitalize on the ongoing energy transition.

Powering the Transition: HASI's Enduring Investment Thesis

Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI) has carved out a distinct niche as a dedicated investor in the critical infrastructure driving the global energy transition. Since its origins, the company has focused on providing capital to projects that reduce carbon emissions and enhance energy efficiency, evolving into a sophisticated financial partner for leading developers and operators in the sector. At its core, HASI's business model revolves around investing in long-lived real assets that generate predictable, long-term recurring cash flows. This is achieved through a variety of investment structures, including equity, joint ventures, real estate, receivables, and debt securities. The company's internally managed team, comprising over 150 professionals with deep industry expertise, cultivates long-standing relationships with programmatic clients, fostering a pipeline of recurring investment opportunities.

HASI operates within a single reportable segment, but strategically focuses on three key markets: Behind-the-Meter (BTM), Grid-Connected (GC), and Fuels, Transport, and Nature (FTN). The BTM segment encompasses distributed energy projects like residential and commercial solar, storage, and energy efficiency upgrades, often secured by assets or real estate. GC focuses on utility-scale solar, wind, and storage projects, typically supported by long-term power purchase agreements (PPAs). The FTN segment is the newest area of significant growth, targeting assets beyond the power grid such as renewable natural gas (RNG) plants and sustainable transport, driven by the need for cleaner molecules and environmental benefits. This diversified approach across markets, coupled with a variety of investment types, is central to managing portfolio risk and capturing the breadth of the energy transition opportunity.

The company's strategic positioning is further defined by its unique capital structure and financial expertise. As a REIT, HASI benefits from tax efficiencies, allowing it to distribute a significant portion of its taxable income to shareholders. This structure, combined with its specialized underwriting and financing capabilities, provides a competitive edge in structuring complex sustainable infrastructure deals. While direct, publicly available financial comparisons with all niche competitors are challenging to ascertain, HASI's focus on financing and services differentiates it from asset-heavy operators like NextEra Energy Partners (NEP) or global asset managers like Brookfield Renewable Partners (BEP). HASI's emphasis on energy efficiency projects offers distinct benefits in reducing operational costs for end-users, a value proposition that complements the generation-focused strategies of many peers. However, compared to larger players or technology manufacturers like First Solar (FSLR), HASI operates at a smaller scale, which can sometimes translate to higher per-unit operating costs or slower innovation cycles in specific technology areas. Despite this, HASI's financing efficiency, particularly its ability to structure deals and manage capital, provides a tangible advantage in bringing projects to fruition.

Financial Performance and Operational Momentum

HASI's financial performance reflects its ability to translate its strategic focus and operational execution into tangible results. For the three months ended March 31, 2025, the company reported total revenue of $96.9 million, a decrease from $105.8 million in the same period of 2024. This decline was primarily driven by a $10 million decrease in gain on sale income, reflecting a change in the mix and volume of assets securitized compared to a period of unusually high asset rotation activity in early 2024. Interest income also saw a slight decrease, down $2 million to $66.4 million, attributed to a lower outstanding balance of receivables due to contributions to a co-investment structure. Partially offsetting these declines was a $3 million increase in other income, stemming from fees recognized on the origination of assets within the CCH1 co-investment structure.

Expenses saw an increase, with total expenses rising to $102.8 million in Q1 2025 from $93.6 million in Q1 2024. Interest expense increased by $3 million to $64.7 million, primarily due to a larger average outstanding debt balance. The provision for loss on receivables and securitization assets increased by $1.8 million to $3.8 million, driven by changes in macroeconomic assumptions used in credit loss predictions. Compensation and benefits also rose by $4 million, partly due to accelerated share-based compensation for employees meeting retirement criteria.

Income from equity method investments, a significant component of HASI's earnings, decreased substantially to $88 million in Q1 2025 from $158.6 million in Q1 2024. This was primarily influenced by lower mark-to-market income related to power purchase agreements held by certain projects and increased income tax expense recognized by an equity method investee, partially offset by higher allocations of tax credits to other investors in solar projects.

Despite the decrease in GAAP net income ($58.2 million in Q1 2025 vs. $124.5 million in Q1 2024), the company's Adjusted Net Investment Income, a non-GAAP measure reflecting recurring income from the portfolio after associated debt costs, increased by 11% year-over-year to $72 million in Q1 2025. This growth was attributed to the expansion of the portfolio and the attractive yields on new investments.

Operationally, the first quarter of 2025 marked a record for new originations, with over $700 million in transactions closed. This follows a strong 2024 where the company closed $2.3 billion in transactions, including a record $1.1 billion in Q4 2024. The average yield on new investments continues to be robust, exceeding 10.5% in Q1 2025. This influx of higher-yielding assets is gradually impacting the overall portfolio yield, which stood at 8.3% as of March 31, 2025, up from 7.9% a year prior. The company's managed assets, encompassing both on-balance sheet and off-balance sheet investments, grew 12% year-over-year, reaching approximately $14.5 billion by the end of Q1 2025.

Strategic Capital and Future Outlook

A pivotal aspect of HASI's strategy and future growth trajectory is its enhanced capital platform. The company has made significant strides in diversifying and optimizing its funding sources, reducing reliance on potentially volatile public equity markets. A key development was the launch of the CarbonCount Holdings 1 (CCH1) co-investment partnership with KKR. This vehicle, initially targeting $2 billion in investments with $1 billion committed by each partner, has been extended through Q4 2026 and is now expected to scale to $2.5 billion to $3 billion with the potential addition of debt at the CCH1 level. As of March 31, 2025, both HASI and KKR had funded $503 million of their commitments, with CCH1 holding $989 million in assets. This partnership provides HASI with access to committed capital outside traditional markets and generates incremental fee income, positioning the company to scale its investment activity more effectively.

Complementing the CCH1 partnership is HASI's attainment of full investment-grade credit ratings from Moody's, Fitch, and S&P (upgraded to BBB- by S&P in June 2025). This achievement provides access to the deeper, more stable, and lower-cost investment-grade bond market. Management highlighted the significant cost compression achieved, with their inaugural investment-grade issuance priced at a credit spread of 225 basis points, over 100 basis points tighter than the average spread on their previous high-yield debt. This improved cost of capital, combined with the ability to issue longer-tenor debt, enhances investment margins and better aligns asset and liability durations.

HASI maintains a strong liquidity position, totaling $1.3 billion as of March 31, 2025, comprising unrestricted cash and available capacity on its unsecured revolving credit facility and Credit-enhanced Commercial Paper Program. The unsecured revolving credit facility was recently increased to $1.55 billion, adding new lenders and providing substantial flexibility to fund the growing pipeline and opportunistically time long-term capital market issuances. The company actively manages interest rate risk through hedging activities, utilizing swaps and collars to fix the cost of floating-rate debt and hedge future refinancing needs. As of March 31, 2025, approximately 95% of HASI's debt was either fixed or hedged, positioning it favorably in a rising rate environment.

Looking ahead, management reaffirmed their guidance for 8% to 10% compound annual growth in adjusted EPS through 2027. This outlook is supported by a robust pipeline exceeding $5.5 billion, diversified across BTM, GC, and FTN markets, which management believes is largely insulated from near-term policy changes or macroeconomic fluctuations due to the development status of the projects. The underlying assumptions for this guidance are rooted in the fundamental tailwinds driving the energy transition: accelerating U.S. energy demand (fueled by data centers, EVs, and domestic manufacturing), and the increasing cost competitiveness and rapid deployment capabilities of clean energy technologies. Management views these trends as non-cyclical and powerful drivers of continued investment opportunities, regardless of the political or economic climate.

The company also increased its quarterly dividend to $0.42 per share and reiterated its long-term goal of achieving a 50% payout ratio by 2030, with an interim target of 55% to 60% by the end of the 2027 guidance period. This strategy to retain more capital is intended to further support the funding of the growing business and contribute to achieving the targeted EPS growth.

Risks and Competitive Dynamics

While the outlook is positive, HASI operates in a dynamic environment subject to various risks. Macroeconomic uncertainty, including the potential for a recession, could impact project economics and off-taker creditworthiness, although management believes the non-cyclical nature of clean energy demand and the development status of its pipeline mitigate near-term exposure. Policy uncertainty, particularly regarding potential changes to the Inflation Reduction Act or trade tariffs, remains a factor. However, management emphasizes the bipartisan support for clean energy, the economic drivers independent of policy, and the ability of clients to adapt and potentially pass through increased costs. The company's pipeline projects are also largely viewed as safe-harbored or sufficiently advanced to be less susceptible to immediate policy shifts.

Interest rate risk is inherent in HASI's business, although its active hedging strategy and increasing proportion of fixed/hedged debt mitigate exposure to rising rates. Credit risk exists across its portfolio, particularly in commercial receivables and equity method investments. The company employs rigorous underwriting and active asset management, but unanticipated losses can occur. The $54 million allowance for losses on receivables as of March 31, 2025, reflects expected credit losses based on macroeconomic assumptions. Securitization residual assets are subordinate and subject to performance risk of the underlying assets, though investors typically have no recourse to other HASI assets. Concentration risk in certain geographic areas or asset types is also a consideration, although diversification efforts aim to mitigate this.

In the competitive landscape, HASI faces competition from a range of players. Beyond direct competitors like NEP, BEP, and CWEN (CWEN) in renewable energy financing and asset ownership, and FSLR in solar technology, indirect competitors include traditional energy companies expanding into transitional solutions and other financial institutions entering the clean energy finance space. HASI's competitive advantages, such as its REIT structure, specialized financing expertise, and focus on energy efficiency, provide a differentiated value proposition. Its ability to structure complex deals and its long-standing client relationships are key strengths. However, its smaller scale relative to global players like BEP or large utilities can present challenges in competing for the largest transactions or achieving the same level of operational cost efficiency. The company's strategic response involves leveraging its niche expertise, expanding its client base (adding ~10 new clients in 2024), and exploring new growth paths in areas like FTN and potentially international markets with existing partners, while also considering platform investments as opportunities arise from market valuation resets. The CCH1 partnership is a direct response to the need for scaled, dedicated capital to compete effectively. Management noted that some competitors have left the market amidst macro and political uncertainty, which has helped increase HASI's competitive position.

Conclusion

HA Sustainable Infrastructure Capital, Inc. presents a compelling investment thesis grounded in its unique position as a pure-play investor in the accelerating energy transition. Despite facing macroeconomic and policy uncertainties, the company's business model has demonstrated resilience across various market cycles. The first quarter of 2025 highlighted continued operational strength with record originations at attractive yields, contributing to portfolio growth and rising yields. Strategic enhancements to the capital structure, including the CCH1 partnership and investment-grade ratings, provide a robust funding platform that is less reliant on public markets and offers improved cost and stability.

Management's affirmation of 8% to 10% adjusted EPS growth through 2027 underscores confidence in the company's ability to capitalize on powerful, non-cyclical tailwinds like surging U.S. energy demand and the economic advantages of clean energy. While risks related to credit, interest rates, and policy persist, HASI's differentiated expertise, diversified portfolio, and proactive risk management framework are designed to navigate these challenges. The company's competitive positioning, while facing larger players, is strengthened by its specialized financing capabilities, REIT structure, and strategic partnerships, allowing it to capture opportunities in a rapidly expanding market. Investors looking for exposure to the energy transition through a specialized, yield-focused financial intermediary with a clear growth trajectory and improving capital efficiency may find HASI's story compelling.