Hannon Armstrong Sustainable Infrastructure Capital (HASI) 7 May 242024 Q1 Earnings call transcript

Greetings, and welcome to HASI's First Quarter 2024 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Neha Gaddam, Senior Director, Investor Relations and Corporate Finance.

Thank you, operator. Good afternoon, everyone, and welcome. has results, press is a our HASI first detailing available afternoon, website. XXXX quarter copy this distributed release a our on Earlier of which page live call be will today. our being conference later website webcast This Investor a is available Relations of replay the where on

Actual Some comments Form with Factors Risk section this the company's made may call which filings forward-looking statements, results the of subject described to from SEC. in and materially the XX-K the other are risks on those are and differ uncertainties of stated.

some And also available financial discussions release of today's reconciliation posted GAAP our non-GAAP include and is non-GAAP measures measures. presentation. financial A slide earnings to on

Nickey, available Joining portion are President Lipson, me presentation. CEO; company's for of today's Officer. our the Jeff call Susan will Chief the our Client and Q&A be Marc on Susan and Pangburn, CFO;

the turn Slide to to X. like who on Jeff? I'd call will begin over Now Jeff,

our and arrangement meaningful KKR going manage leadership hold creates and market good underwrite scalable infrastructure goal. sheet billion The of a that you, in partnership afternoon, ago, a pairing truly This a core X managing of accomplishing efficient we is everyone. and KKR's towards ability for and year of have Today, call. platform diverse very provides in Today source, you announced Thank HASI. investments with we an XXXX Investor Since to partnership to milestone climate-positive talked and emphasis a of roughly a Thank on structure. strategic funds. $X forward. investments Day Neha, more our about joining this step in capital most is moment HASI's sustainable consistently the evolution the the strategic an portfolio efficient raising balance ideal

will facilitate. We with it the this partnership are opportunities thrilled and

the forward. CCHX We refer partnership it and we'll X, CarbonCount going to named Holdings have as

of including the to moment, few also XX% back adjusted year-over-year I'll but guidance, CCHX $X.XXX from growth co-investment quarter, rate mention and dividend, in which and were highlights briefly are changing. closed transaction a our assumed and not million $XXX our come first we assets. of earnings, already a other had declaring a $X.XX We transactions a a is therefore over managed in I'll affirming

quarter also a will our and extending had We very detail successful which upsizing his Marc debt, remarks. in

context. Page to XXXX, historical HASI Turning I by today's funded typically in Prior companies. almost was want put with life announcement X. to securitizations, insurance exclusively to

has announcement utilized for In corporate that like to macroeconomic investments. a a the and ratings IPO, higher headwinds. incrementally business public representation a supplementing all equity capital funds. diversified debt with sheet success. strategy Following we are the for balance infrastructure This access we periods XXXX, bond capital build volatility unsecured profitable market. growth is sources us other long-term utilized obtained return of these even to In during a Today's private capital, the of incremental of sources ours, simple foundation of slide positioned and provides

in will sheet resulting resilient a in Our and our and the program, balance powerful work business. partnership securitization CCHX tandem,

slide. has CCHX benefits, which X, this X Slide Continuing many of noted on on are

reliance years. First, have level which the on it will our of past volatility reduce a capital over X experienced high markets,

of disruptions. obtain for investments market to the XX% reducing will the in markets, outside we forward, of substantially Going risk funding CCHX capital our the

upward, and at with large in coming ultimately expected This energy managed allow accelerate additional be demand a revised continued portion will is a our forecast increase sources. assets. capacity growth be our renewable us of other perfect to to as time and CCHX Second, sustainable to capacity investment

even with to complement results success. the and our continue will our gain positioned for these is fee to sale benefits is to statement, meet are on with income as long-term increased CCHX meet an HASI well income diversity our And growing of they the dynamic revenue will clients and of partnership Our to demand. and required this other The to projects net of capital more third, investment additional to income. access resilient forward stable allow move us that needs provide that more

Turning to more investments CCHX, a by with existing core HASI strategy. source speak structured about one of XX% It detail. Page is I'll in infrastructure ownership funds. our X. with consistent will CCHX for and KKR's each HASI little the of

of part transaction endorsement of are be This to are In originate. viewed we can changes as of existing fact, investment the strategy to not diverse our strategy we our making this that any portfolio the able attractiveness as an arrangement. and

clients, We $X to billion million be $X with approximately the Two party a billion HASI we closed will with months. an and at CCHX, $XXX commitments commitment closed, current to consistent has interface investment continue Each after made the to being utilized has see investments XX our to deployed both and totaling are before under practice. formation. by expect over in just partnership

focus to managing fees sourcing investments, benefit for HASI by information the provided to core compensation HASI to allows in be CCHX. structure and in respective their and accordingly. More detailed and will FAQ competencies the simple is partnership a on the fundamentally KKR It's earnings paid both As an the materials. regarding that appendix CCHX allow

Marc the over Pangburn. call turn I'll Now to

start I'll Jeff. X. on you, Slide Thank

of continues XX-month to Demand growth pipeline in investment greater to markets. We have all $X.X opportunity our billion. our increased drive than

and AI assets. increasing clients' of weather resiliency the While goals, demand see latest are energy extreme pipeline, these decarbonization driven is the themes increasing trend, on factors, transition electricity. the in by underlying multitude and including long-term We and materialize events reliance our for a themes pipeline electrification our

classes, XX.X%. approximately pipeline across with quarters. and with residential renewable community million the there our while different investments $XXX for including fuels, other notable have growth has been on-balance asset solar, in As remained an asset for grid-connected average In identified sheet closed consistent of solar, we X right, solar transactions classes, QX, yield on prior of

X. Slide to on Moving

like slide, one convention. I'd the into jump naming to in change I highlight Before

was as Our non-GAAP REITs. referred distributable, which adopted by term metric was previously a to

our move go-forward we away unchanged. the REIT from The structure, using basis. is adjusted will definition on be Given a

grew Adjusted XX% is XX% million. earnings which gain securitization XX% NII year-over-year. increase and Our income, an significant to totaled EPS higher QX $XX year-over-year fees to by adjusted in million, $XX on contributor growth sale, increased $X.XX. to by A

on a variable As gain on we and be sale quarter-to-quarter, consistent 'XX 'XX. to and guidance reminder, to is the window expect during gain compared sale

our On will in be categories. In the relating updates reorganizing presentation different future right, Jeff reflected CCHX, are X unchanged. given income here. line into on metrics provided NII CCHX XX% the of is The ownership periods, we our to top

upfront our recurring income into of be management will split comprised upfront. will fees. and sale, We comprised fees activities be will securitization capital relating of our income Recurring on ongoing to CCHX and light Upfront CCHX and gain streams fees.

Turning impressive in portfolio to growth assets. show We Slide managed both and X.

ownership to origination Our grew assets. included to future investments will of XX% portfolio XX% $X.X grew The be portfolio, growth our periods, of our billion. CCHX by included year-over-year XX% platform. our $XX.X while our balance in in managed strength managed full programmatic the In will testament the to be assets is in billion, while the

on our due sale X. we've activities. ROE quarter, expansion margin XX, light our to On increased primarily ROE the discussed Page has this Slide chart capital given gain added to the of on

XX.X%. we yield elevated was guidance. deploy delay and these continue portfolio has issued debt temporary transactions to to This in approximately for new coming the at dynamic relates expected a showing with fully costs, to been add transactions, to that newly and debt funds. compression it factored we time I'll see As and are the due QX into returns

liquidity, XX. We Slide and liability highlight million and in Turning to funding a with our growth, that maturities platform underpins near-term management evident. of leverage our ratio minimal business debt over is X.Xx $XXX robust liquidity,

platform fixed hedged, rate ensured while exposure. execution risk also Term extension debt of X our quarter, the year, than and an and to are bank we capacity the refi with our we aggregates upsize is this greater the in extensions the borrowing on further rate the our Loan XX% billion or activities Alongside A the to provided refinancing maturity managing have opportunistically right. CP Our the and of debt the XXXX in facilities: further lower interest strengthened for first revolver, strong detailed facility. management has extensions. box flexibility future approach $X.X markets With ourselves This debt of a

turn back I'll Jeff. call that, to the With

we best-in-class XXXX emissions. a our Thanks, We few Marc. support donated Sustainability and Climate achieved Page Scope sustainability XX, Category On impact first XX million Impact X, published quarter. share to Justice and Report, independent $X.X Foundation highlights of the to from verification Initiatives HASI the

wrap up on Slide XX. Let's

the to business real goals. step to is to the continues with rate The and optimal environment create will will partner strategy results elevated significant scale business. we our intention to us Day, we raises. of step reliance direction on discussed we retain more another direction. increasing from The energy renewable for on as other discussed supply, in or and facilitate our stated trajectory executing one as perceived higher particularly is ideal reducing path interest produce allowing sustainable CCHX Today's our time, is on opportunities and an emphasis to occurring of the Investor invest. our capital Our in the sources, transaction an quarter, this the payout and demand last that equity And despite headwinds. continue for continue perfect at our which ratio announcement the our down structure strong On

even powerful outstanding more a this and the our is access other positioned our for energy enterprise better initiatives important for an diversified and we as HASI capital KKR several to capital. the success, partners jointly I welcome team new transition. to thank with from provide long-term closing Today, CCHX transaction I and quarter,

remarks. That prepared the concludes for open our questions. Operator, line please

with first Noah Kaye Co. Our is question Instructions] & from [Operator Oppenheimer

Are that profile ask we on Congratulations KKR. of think on can the types is question go investments which having or think structure, really kind the parameters those ask helpful stipulations or And that right. avoids the me one there return the that related any with in any we go you get to will questions. should I threshold structure? into But is, with I closing so the provided color investment the about in? investments the will to that is structure appendix for the FAQ that would of the there for yield All

Thanks, question. Noah, for the

board, think be the will the is consistent best HASI risk structure think that and the it to about very the way I yield. underwriting across including with

different you otherwise think about should having don't sheet our I so would have. a CCHX than think as yield And balance

business we source So we're outlook our way not the on changing really the investments. or

million to? little real rationale us Okay. for bit real can XQ, add Certainly, balance exposure is more there seems the give sheet you lot one real the the on-balance whether you $XXX nothing. not trying will like specifically continue method, and investments, a question sheet unwinding it sheet balance around have from class the forward kind color. or the just just get asset down going in the an be And a that to on A investments and to gone of of equity as but will estate some almost color to estate estate

we asset class Thanks, asset to the continue solar real a Yes, great new class that Noah. investments estate like seek and within deal.

that yielding and somewhat They New are originated generally our assets on relative goes what today, that to in highly asset levered. are securitized. class low balance sheet to are today somewhat

balance is out that sheet what on us the real to a rotating into programs through And the our on-balance asset those so of platform. on securitization sheet the much seeing reduction you're And go in securitization program. better estate is

balance, these the types did just get the opportunities the grow in. understand that sneak that you you So to mean at rates. you that I'm you're of right? to And receivables prepared of in suggests still class same receivables finding spoke kind Yes. trying one carry time, your referenced that, financing types just yields that more to asset remarks. that would to of your I

classes. Sure. of just it is a all applicable When which loan really asset into goes it's bucket, to receivables, really our

most show loan Yes. say what in step in the therefore, up receivables to informed, in that the further. just and even Most what RNG take resi we will solar, balance a I for are do in of of would line instance, sheet. do we

Riley. B. with Souther Chris from is question next Our

elevated the elevated wanted sales a estate quarter, in caused the the related or on quarter. to Just sale in real to KKR gain is on the there? the I kind that driver what there numbers see of as just had

and the quarter impact was impact forward latter, going just no will Chris, sale no and closed it gain on line. transaction the the more on on the first have KKR had

about So a that a some big of spoke from part estate of real Marc rotating investments what was on-balance to sheet ago, off-balance moment these sheet.

it. Got

think is is the sense. that to FAQ management about very obviously the business it materially should the makes fees different? the kind That been And we're has Okay. that helpful. looking securitization But then historically? as origination at Or with we as economics of KKR partnership, of similar partnership and

a needing on then just then on And this and follow-up on kind incremental last around mentioned is again sale. gain call you of the that call, not

KKR mean going episodic on to guess doesn't sale. guidance XXXX. count around I upfront main to took as I But to that origination was kind So upfront the not be gain of out driver going revenue the

So with just that the episodic would up end of curious, incorrectly am upfront just of is Or that's between I'm the about the and the because XXXX. change just kind thinking stuff reason it by doesn't timing? of end is the set it XXXX, XXXX? now all be like So I

second question of a are the Marc few in All I'll there answer things the Chris, part answer right, to part. can unpack. maybe first the and there

work part an will upfront no CCHX. orientation will balance, around of and the based variable fees underlying this gain size those in fees that are on in the and the between funds where for each management from first fees yield we we those cost get of there's go driven factors. is vehicle with relationship The very on the fee versus up fixed sale fee and depending related to the nature question, of investment, time. and fees we'll the the the So on over presumably lifeco which market the the One on generally and get a is investment

in any won't I equate those. So way

answer of I'll your that. let To Marc question, part second the

Sure.

the and guidance I referring you're move So gain the gain a up just guidance. of commentary while we continue to of tied remains my forecast identified quarter, is to gain to by where and stream, we by sale down there to we're nature message amount the level by this variable quarter the lumpy on it communicate of it have relates sale on I an sale And will income forecast also is as think elevated our And to Chris, quarter. window. on nature consistent main trying and

Our next question Mizuho. is from with Maheep Mandloi

here of partnership questions. for the detail lot the initial a Hurley Maheep. line the of provides answers the XX Jack on a and of Slide CCHX deck lot on the

So infrastructure thanks of your does the that. key debt other impact X-year capital providers. of is The And also similar for remaining guidance needs? KKR if with includes the the or private other transaction any question any transactions equity

first the achieve to need of on partnerships the close part other wouldn't to co-investment question, order we any Well, in to our guidance.

contemplated was existing I was was think making it so our a the already transaction point I change this guidance. doesn't like

of So now sorry, the I'm second forgetting. part the question --

your Does it or needs? debt equity impact

Oh, needs, yes. the equity

Okay.

partnership. So would framework investments have balance I it's on think Without is gone this that simple a XX-XX those sheet. all that for a our partnership,

way equity of man I that it needs that. So reduces a about is by our the straw think best is XX% think to

a reasons, that because out guys? being for a you And then other projects impact one interconnection pushed by may, to structures other of move more keep you the of example? that require the then about various around with And more the for you lot your quarters if segment, does and challenges follow-up. guys -- hearing Are seeing renewable I to we things. this? few focus we And pipeline to should behind-the-meter for any constructions economics Okay. think transaction about How you

the take Marc of question part second can the take first I'll part. the Maybe first, and

others. episodic not than projects, but to with We challenges developers periodic largest seeing So had certain we less the and work who've are material. delays tend been it's in some

of some also capital the transactions are do recycling. And we

project the there. have so and they're project recycling any wouldn't you built, capital the So into next delays simply is already

aren't to reconsider our to revenue, guidance. delays causing us we're any seeing our material So aren't

been And relatively I'll Marc other let the of part they've the question. answer minor. So

reiterate just generally it's And Sure. XX-XX the think structure. around Jeff just simple -- economics I the to of was question and a said, CCHX, very what

will the earn be whatever And so through management our ongoing to to CCHX then paid, interest. And that balance have ownership in partnership addition would goes investment into instead fees. that upfront some gone and again, sheet XX% our that, of on

with Strouse is question JPMorgan. next from Our Mark

on for Fairbanks Michael Mark. is This

there is for? is I the structure piece within On any hasn't is CCHX, you the it overall the know strategy the is here, there portfolio certain a that more changed can on Or exclusivity Also, but class it best asset works? all-encompassing? provide how investment color of this kind suited

for and some them I are, do would as say it's sourcing think most and our committed cases, own. sheet, they we can think those are them describe limited the in have it in you more cases, ability the other all-encompassing. transactions. based balance on The we we're exclusivity in what we decline showing exclusivity, criteria would as pre-agreed-upon I should And to of on of cases, some

So the I framework. think that's

next question Davis Our from with Baird. is Sunderland

if guide, Surprise, any or joint to the it guidance. already investment ask as question. would it guide I I follow-up. one surprise, Maybe there come KKR contemplated early did as then that wanted a share quick noted you just And was or -- came the another forecasted details helpful. in the maybe can in this in be to would that was fruition be how have was about to you that this

Sure, Davis. for the Thanks question.

and main and the the were our we're partnership that the guidance February we number. model early call, point would able guidance to time in the that in engaged there we we were conversation I think issuing in included become what is with by thought KKR,

need to change So now it. that don't it closed, we

the that's key think I point.

restrictions should guess, then contemplate? for is just other, I different assets But have CCHX clarify, And risk any makes Noah the think may any outlines threshold apologies for the Okay. that so in repeat. or or we I I Good. that there to this, lastly, want That sense. already asked

definitely the not. Thanks question, for and

is business we the remarks way in risk the objective to to that said there, and what that allow have change So do underwrite had an that ways, is what all here many the I'll is our I business. go source, and price that And back KKR endorsement and strategy in of always business, way to participate done not we prepared the to the it's investments, unchanged. in

to So that's the about think it. way

time gentlemen, have call. out are and session Thank reached participation. the and the your you of today's of question-and-answer end Ladies for we for

lines You at time. your may disconnect this