Hannon Armstrong

152 Pages·2015·0.64 MB·English

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Hannon Armstrong
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Hannon Armstrong
1906 Towne Centre Boulevard, Suite 370
Annapolis, MD 21401
www.hannonarmstrong.com
2014 Annual Report
SUSTAINABLE YIELDSM 2014 Annual Report
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Company Corporate
Overview Information
Senior Management Team Board of Directors
Hannon Armstrong (NYSE: HASI) provides debt and equity
financing to the energy efficiency and renewable energy Jeffrey W. Eckel Jeffrey W. Eckel
Chairman, President Chairman
markets. We focus on providing preferred or senior level
and Chief Executive Officer
capital to established sponsors and high credit quality Mark J. Cirilli
J. Brendan Herron Chair of Compensation Committee
obligors for assets that generate long-term, recurring and
Chief Financial Officer
predictable cash flows. and Executive Vice President Charles M. O’Neil
Steven L. Chuslo Richard J. Osborne
General Counsel Chair of Audit Committee
Our management team has extensive industry knowledge
and Executive Vice President
and experience, having completed its first renewable Steven G. Osgood
M. Rhem Wooten Jr.
energy financing more than 25 years ago and its first energy
Executive Vice President Jackalyne Pfannenstiel
efficiency financing over 15 years ago. Since our initial public Chair of Governance Committee
Nathaniel J. Rose, CFA
offering in 2013, we have completed transactions worth
Chief Investment Officer
more than $1.5 billion — including over $875 million and Senior Vice President
in 2014 — with leading service providers, such as Global
Daniel K. McMahon, CFA
1000 corporations and private developers. Senior Vice President
Corporate Headquarters Stock Listing
1906 Towne Centre Boulevard, Suite 370 Hannon Armstrong Sustainable Infrastructure
Annapolis, MD 21401 Capital, Inc.’s common stock is listed on the New York Stock
[email protected] Exchange under the symbol “HASI”.
Phone: [phone]
Fax: [phone]
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2014 Annual Report
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Financial
Core Earnings per Share
Highlights
$0.27
Post IPO
Q4
2014
$0.22
Q4
2013
$0.14
Q3
2013
$0.07
Q2
2013
A record of more than
13,000 MW of wind
projects are under
construction in 22 states.
Source: American Wind
Energy Association
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Dear
Stockholders
Jeffrey W. Eckel
Chairman, President and CEO
March 18, 2015
When an analyst commented on our “sustainable yield” at an investor meeting,
I, of course, responded enthusiastically to his keen understanding of the
positive environmental impact of the assets we invest in. That was until he
assured me he only cared if we have long-lived assets to sustain the dividend
for a decade or more. Notwithstanding this analyst’s singular view, the double
entendre of our Sustainable YieldSM continues to be an important distinction
in our investment thesis: Superior risk-adjusted returns will be achieved with
a diverse portfolio of assets that sit on the right side of the climate change
issue. 2014 represents another step forward in the creation of a business that
will provide investors with a sustainable dividend as well as enable meaningful
reductions in greenhouse gases (GHGs).
In 2014, we increased core earnings1 23% for the quarter ended Dec. 31, 2014,
compared with Dec. 31, 2013, exceeding our target growth rate of 13% to 15%.
We also raised our dividend 18% and achieved our $1 billion asset target. To
complement our leadership position in energy efficiency finance, we developed
new platforms for solar, through owning the land under solar farms, and, in
wind, by participating alongside leading equity investors in operating wind
farms. Both the solar land ownership and wind equity platforms sit in a senior
or preferred position in the capital stack, consistent with our view on where
the best returns currently reside.
1. C ore earnings is a non-GAAP financial measure. See our Annual Report on Form 10-K for an explanation of core earnings and a reconciliation to our GAAP earnings.
2014 Annual Report
2014 and Outlook for 2015 2014 surprised many with Sustainability As discussed last year, we screen each
the persistently low interest rate environment. Hannon Armstrong investment against our sustainability definition: assets that are
performed well in this environment as we grew our portfolio more neutral to negative on GHG emissions. We believe that this approach
than 90% to $900 million by focusing on assets with attractive produces superior risk-adjusted returns in a world increasingly
returns. Our portfolio of more than 80 separate transactions, defined by climate change. We are proud to publish our second
with a blended forward-looking yield of 6.0% and an average life annual HASI Sustainability Report Card, detailing the GHG and
of 13 years, provides a solid foundation from which we will grow water reduction impact of our investment. Assets we financed
earnings. Our pipeline of more than $2.0 billion at year-end continues will reduce emissions by more than 340,577 metric tons of GHG
to be optimized for opportunities that offer the best risk-adjusted per year, equivalent to more than 165,000 tons of coal, and save
yields and that support the growth of our clients’ businesses. more than 145 million gallons of water annually. Our sustainable
dividend, combined with enabling GHG reductions, comprises our
After a historically long and favorable interest rate environment, we Sustainable Yield.
continue to be cautious about adverse interest rate movements.
We were able to fix rates on $115 million of borrowings in Q4, leaving Conclusion Again, I want to thank the HASI team for an
us with 40% fixed-rate liabilities at the end of 2014. Plans for fixing outstanding 2014. Together we have broadened our client base of
interest rates on more liabilities, as well as increasing leverage from industry-leading companies, expanded our financial offerings to
1.9 to 1 at the end of the year, will be a top priority in 2015. While we these companies and deepened our debt and equity investor base.
will continue to privately place fixed-rate debt, we will also work to The opportunities in front of us are becoming more visible, and we
secure a public credit rating for some of our future HASI Sustainable look forward to thoughtfully expanding the business in 2015 for
Yield Bonds™ (HASI SYB), as well as a GHG metric from a third- the benefit of our clients, our staff and, of course, our stockholders.
party certifier, consistent with the metric we used in our pioneering
HASI SYB 2013-1 issuance. We believe the incremental effort Thank you for investing in HASI.
to obtain both a public credit rating and a GHG rating on our HASI
SYBs has the potential to drive down our cost of debt capital Respectfully,
by broadening the appeal of any future debt offerings to a larger
pool of investors.
Jeffrey W. Eckel
Chairman, President and CEO
Newly installed solar
photovoltaic (PV) capacity
grew 30% in 2014,
making 2014 the largest
year ever in terms of
PV installations.
Source: Solar Energy
Industry Association
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M eeting and
E xceeding
2014 Goals
Core Earnings Transactions
per Share Q4 to Q4 Closed
Actual Actual
2 3% $ 875
Million
13% –15% Goal $800 Goal
Million
2014 Annual Report
Employing high-
performance HVAC
equipment in conjunction
with whole-building
design can typically result
in a 30% reduction in
annual energy costs.
Source: National Institute
of Building Science
Assets on Leverage
Balance Sheet
Actual Actual
$1 1.9 1
Billion to
$1 Goal 2 1 Goal
Billion to
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Sustainability
Report Card
We define sustainability as positively impacting the environment while
being neutral or negative on GHG emissions. As part of our investment
evaluation process, projects are screened for GHG reductions and
other environmental benefits, such as water use reduction. We plan to
report these metrics on an annual basis. If carbon counts and capital
is scarce, we believe in evaluating investments not only for their
financial returns, but also for their impactfulness in reducing GHG.
Lighting accounts for
about 12% of total U.S.
electricity consumption.
LEDs use approximately
75% less energy than
incandescent bulbs.
Source: U.S. Department
of Energy, U.S.
Energy Information
Administration
2014 Annual Report
ESTIMATED ANNUAL PROJECT BENEFITS
GHG Reductions GHG Reductions
Technology Region per $1,000 Invested Technology Region per $1,000 Invested
(Metric Tons of CO) (Metric Tons of CO)
2 2
Efficiency MW 2.10 Solar NE 0.28
Efficiency S 1.09 Solar C 0.27
Efficiency W 0.97 Efficiency S 0.27
Efficiency S 0.95 Efficiency W 0.25
Efficiency W 0.94 Efficiency S 0.24
Efficiency S 0.94 Efficiency MW 0.23
Efficiency S 0.79 Solar NE 0.22
Efficiency MW 0.78 Solar NE 0.22
Solar W 0.73 Solar W 0.21
Efficiency S 0.69 Efficiency NE 0.21
Efficiency MW 0.67 Solar W 0.21
Efficiency S 0.66 Solar W 0.20
Wind Various 0.61 Solar W 0.20
Efficiency MW 0.61 Solar W 0.20
Solar S 0.56 Solar W 0.20
Efficiency S 0.56 Solar W 0.18
Solar S 0.55 Solar Various 0.13
Efficiency Various 0.52 Solar Various 0.12
Efficiency W 0.50 Solar Various 0.12
Efficiency W 0.47 Solar W 0.12
Efficiency S 0.46 Solar Various 0.12
Efficiency AP 0.44 Solar C 0.11
Efficiency S 0.44 Efficiency W 0.11
Solar Various 0.41 Solar CAN 0.04
Efficiency W 0.35 Efficiency AP 0.03
Efficiency NE 0.33 Other S 0.00
Efficiency W 0.29 Other S 0.00
Metric Tons of CO per
2014 Totals 2 Metric Tons of CO KGallons of Water
$1,000 Invested 2
0.39 340,577 145,080
W = West S = South MW = Midwest NE = Northeast C = Caribbean CAN = Canada AP = Asia Pacific
Estimated carbon savings are calculated using the estimated kilowatt hours (“kWh”), gallons of fuel oil, million British thermal units
(“MMBtus”) of natural gas and gallons of water saved as appropriate, for each project. The energy savings are converted into an
estimate of metric tons of CO equivalent emissions based upon the project’s location and the corresponding emissions factor data
2
from the U.S. Government and International Energy Administration. Portfolios of projects are represented on an aggregate basis.
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