HA Sustainable Infrastructure Capital, Inc. Q3 FY2024 earnings call

• Third quarter 2024 was solid with key drivers: $1.2B YTD new investments, managed assets up 14% to over $13B, new asset yields 10.5%, portfolio yield 8.1%, adjusted EPS $0.52 in Q3, YTD $1.83 (+8% vs 2023).
• Confident in 8-10% annual adjusted EPS growth through 2026, dividend payout 60-70% during that period, aiming for 10% EPS growth and 50% payout by 2030.
• Clean energy investment secular growth transcends political administrations; renewable deployments split evenly between political states, investments post-IRA skew to Republican states.
• Business not dependent on low interest rates; maintained disciplined interest rate risk management, margins attractive, consistent adjusted earnings growth. Outlook for margins robust with double-digit yield transactions and long-term public bonds at ~6.5%.
• CCH1 partnership with KKR progressing, on track to $2B by 2025. SunStrong JV transitioned, new partner bought 50%, legacy leases serviced as expected.
• Pipeline over $5.5B, diversified; anticipate 10 new clients this year. Grid-Connected investments have 2+ year development cycles. RNG driving FTN growth.
• Year-to-date closings $1.2B, expect over $2B for year. Portfolio growth via asset rotation, rotated out >$400M low-yield, replaced with higher-yield. GAAP loss due to mark-to-market on power contracts, but projects will offset over time. Balance sheet strong, liquidity $1.3B, debt-to-equity 1.8x.

Managed assets grew 14% in the last 12 months, exceeding $13 billion. Year-to-date, HASI has closed $1.2 billion of new investments, with year-to-date as of today at $1.7 billion. New asset yields have been approximately 10.5% year-to-date, increasing the overall portfolio yield to 8.1%. Adjusted earnings per share in the third quarter was $0.52, with year-to-date adjusted EPS at $1.83, representing 8% growth over the first three quarters of 2023. Year-to-date, adjusted NII was $192 million (up 20%), recurring capital light income was $19 million (up 43%), and upfront capital light income was $65 million (up 19%). Managed assets grew to $13.1 billion and the portfolio increased to $6.3 billion.

• Confident in 8-10% annual adjusted EPS growth through 2026, with dividend payout ratio 60-70% over that period.
• Aim for 10% annual EPS growth and 50% payout ratio by 2030.
• CCH1 partnership on track to complete $2B investment target by year-end 2025.
• Expect to exceed $2B in transaction closings for the year.

• Mark-to-market impacts on power contracts affecting GAAP earnings.
• RIN risk in RNG projects, though senior debt mitigates some.
• Interest rate volatility, though hedges in place to manage risk.

Q: Regarding technology partners, size of RNG in FTN market and impact of solar/wind declines; rate hedges and impact of rising rates; SunStrong new partner.

A: The RNG market is very large and growing, and natural gas will be a big part of the energy future; hedges are in place on floating rate facilities and forward starting swaps to manage earnings power; SunStrong JV continues servicing leases.

Q: Exposure to RIN credits; KKR partnership projects.

A: Senior debt mitigates RIN risk; KKR partnership adding investments, vehicle operating as designed with some unfunded commitments.

Q: Pipeline shift from BTM to Grid-Connected; visibility on $2B originations; refi and duration risk; GAAP loss explanation.

A: Pipeline lumpy, no long-term theme; $1.7B YTD, confident in $2B for year; duration management focused, GAAP loss due to mark-to-market on power contracts where assets will realize higher power prices over time while contracts are mark-to-market.