Financial Performance - GAAP EPS reached $1.10 for FY20[6], while Distributable EPS grew by 11% year-over-year to $1.55, exceeding previous guidance[7] - The company's portfolio grew by 38% year-over-year, reaching $2.9 billion[7] - Transaction volume for FY20 was $1.9 billion, a 48% increase year-over-year[7] - Distributable Net Investment Income increased to $88 million, a 7% year-over-year growth[6] Guidance and Growth - The company anticipates annual Distributable Earnings per Share to grow at a compound annual rate of 7% to 10% from 2021 to 2023, with a 2023 midpoint of $1.98 per share[7] - Annual dividends per share are expected to grow at a compound annual rate of 3% to 5% from 2021 to 2023, targeting a 2023 midpoint of $1.53 per share[9, 52] - The company's managed assets grew to $7.2 billion[6] Portfolio and Investments - The company's pipeline has grown to over $3 billion[12] - A $663 million preferred equity investment was made with Clearway Energy, Inc for 2.0 GW of grid-connected wind, solar, and solar + storage projects[14] - A $93 million preferred equity investment was made with ENGIE for 70 MW of community and C&I solar + 8 MW collocated storage projects[19] - The portfolio yield remained stable at 7.6%[6, 23] Capital Structure and ESG - The company raised over $1.2 billion in debt and equity in 2020, including $775 million in unsecured green bonds[37] - The company maintains a conservative leverage profile with a debt-to-equity ratio of 1.8x[6, 37] - The company invested $1.9 billion in climate solutions[39]

| --- | --- | --- | --- | --- | --- | --- | --- | |--------------------|-------|-------|-------|-------|-------|-------|--------------------------| | | | | | | | | | | | | | | | | | | | HANNON | | | | | | | | | ARMSTRONG | | | | | | | | | | | | | | | | | | | | | | | | | | | EARNINGS | | | | | | | | | PRESENTATION | | | | | | | | | | | | | | | | INVESTING IN | | Third Quarter 2020 | | | | | | | CLIMATE CHANGE SOLUTIONS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ...

Hannon Armstrong Sustainable Infrastructure Capital, Inc. (NYSE:HASI) Q3 2020 Earnings Conference Call November 5, 2020 5:00 PM ET Company Participants Chad Reed - VP, IR and ESG Jeff Eckel - Chairman and CEO Jeff Lipson - CFO Conference Call Participants Noah Kaye - Oppenheimer & Company Anya Shelekhin - Bank of America Chris Souther - B. Riley Operator Good afternoon and welcome to Hannon Armstrong's Conference Call on its Q3 2020 Financial Results. Leadership will be utilizing a slide presentation for th ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-35877 HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. (Exact name of registrant as specified in its charter) Maryland 46-134745 ...

[Filing Information](index=1&type=section&id=Filing%20Information) Details the quarterly report's filing specifics, including registrant, stock symbol, filer status, and outstanding common stock - The document is a Quarterly Report on Form 10-Q for Hannon Armstrong Sustainable Infrastructure Capital, Inc. for the quarterly period ended June 30, 2019[2](index=2&type=chunk) - The registrant's common stock trades on the New York Stock Exchange under the symbol '**HASI**'[3](index=3&type=chunk) - The company is classified as a **large accelerated filer**[6](index=6&type=chunk) - As of July 29, 2019, there were **65,689,228 shares of common stock outstanding**[6](index=6&type=chunk) [Forward-Looking Statements](index=4&type=section&id=FORWARD-LOOKING%20STATEMENTS) Outlines the nature of forward-looking statements within the report, cautioning investors about inherent risks and uncertainties - The report contains forward-looking statements regarding future business results, financial condition, liquidity, operations, plans, and objectives, subject to risks and uncertainties[8](index=8&type=chunk) - Investors are cautioned against placing undue reliance on these statements, as actual results may differ materially due to factors discussed in the Annual Report on Form 10-K and this Form 10-Q[9](index=9&type=chunk) - The company is not obligated to update or revise any forward-looking statements after the report date, except as required by law[11](index=11&type=chunk) [PART I. FINANCIAL INFORMATION](index=7&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Encompasses the company's comprehensive financial disclosures, including statements, notes, and management's analysis of operations and condition [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, fair value measurements, and specific financial components [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2019 | December 31, 2018 | | :-------------------------------- | :------------ | :------------------ | | Total Assets | $2,027,421 | $2,154,913 | | Total Liabilities | $1,142,677 | $1,350,390 | | Total Stockholders' Equity | $884,744 | $804,523 | | Common Stock Outstanding (shares) | 64,912,741 | 60,510,086 | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Reports the company's financial performance over specific periods, including revenue, expenses, and net income Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Revenue | $31,268 | $36,135 | $64,411 | $64,328 | | Total Expenses | $25,258 | $29,212 | $51,469 | $56,330 | | Net Income (Loss) Attributable to Controlling Stockholders | $12,740 | $17,262 | $26,386 | $16,039 | | Basic Earnings (Loss) Per Common Share | $0.20 | $0.32 | $0.41 | $0.29 | | Diluted Earnings (Loss) Per Common Share | $0.19 | $0.32 | $0.41 | $0.29 | [Condensed Consolidated Statements of Comprehensive Income](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Details the company's comprehensive income, including net income and other comprehensive income items not recognized in profit or loss Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Income (Loss) | $12,795 | $17,353 | $26,503 | $16,125 | | Unrealized gain (loss) on available-for-sale securities | $4,597 | $(303) | $6,596 | $(3,032) | | Unrealized gain (loss) on interest rate swaps | $(3,249) | $2,082 | $(3,932) | $7,979 | | Comprehensive Income (Loss) Attributable to Controlling Stockholders | $14,082 | $19,031 | $29,039 | $20,959 | [Condensed Consolidated Statements of Stockholders' Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Illustrates changes in the company's equity over time, reflecting net income, share issuances, and dividends - Total Stockholders' Equity increased from **$804,523 thousand** at December 31, 2018, to **$884,744 thousand** at June 30, 2019[18](index=18&type=chunk)[27](index=27&type=chunk) - Net income attributable to controlling stockholders for the six months ended June 30, 2019, was **$26,386 thousand**[27](index=27&type=chunk) - Issued shares of common stock contributed **$97,144 thousand** to additional paid-in capital for the six months ended June 30, 2019[27](index=27&type=chunk) - Dividends and distributions totaled **$(43,398) thousand** for the six months ended June 30, 2019[27](index=27&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------------------------- | :--------------------------- | :--------------------------- | | Net Cash Provided by Operating Activities | $20,490 | $14,519 | | Net Cash Provided by Investing Activities | $90,154 | $40,322 | | Net Cash Used in Financing Activities | $(87,711) | $(62,887) | | Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $22,933 | $(8,046) | | Cash, Cash Equivalents, and Restricted Cash at End of Period | $82,286 | $110,131 | [NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS](index=14&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) Provides detailed explanations and additional information supporting the condensed consolidated financial statements [Note 1. The Company](index=14&type=section&id=Note%201.%20The%20Company) Describes the company's core business, investment strategy, and regulatory qualifications as a REIT - Hannon Armstrong Sustainable Infrastructure Capital, Inc. focuses on investments in climate change solutions, specifically energy efficiency, renewable energy, and other sustainable infrastructure markets[31](index=31&type=chunk) - The company aims to generate attractive returns for stockholders by investing in a diversified portfolio that yields long-term, recurring, and predictable cash flows from proven commercial technologies[31](index=31&type=chunk) - The company has qualified as a real estate investment trust (REIT) and intends to maintain its exemption from registration as an investment company under the 1940 Act[33](index=33&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=14&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) Outlines the key accounting principles and methods used in preparing the financial statements, including estimates and new standards - Financial statements are prepared in accordance with U.S. GAAP, requiring management estimates and assumptions[34](index=34&type=chunk) - Equity investments in renewable energy projects are accounted for under the equity method, often using the hypothetical liquidation at book value (HLBV) method[39](index=39&type=chunk)[40](index=40&type=chunk) - Receivables are generally classified as held for investment (amortized cost) or held-for-sale (lower of amortized cost or fair value) and are evaluated quarterly for impairment[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk) - The company adopted Topic 842 (Leases) effective January 1, 2019, with no material impact on financial statements, and is evaluating Topic 326 (Credit Losses) for adoption after December 15, 2019[75](index=75&type=chunk)[76](index=76&type=chunk) [Note 3. Fair Value Measurements](index=20&type=section&id=Note%203.%20Fair%20Value%20Measurements) Explains the methodology for fair value measurements, including the three-level hierarchy and credit risk concentrations - The company uses a three-level hierarchy for fair value measurements, with most financial instruments (investments, securitization residual assets, credit facilities, non-recourse debt) valued using Level 3 unobservable inputs[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) Fair Value of Financial Instruments (in millions) | Instrument | June 30, 2019 Fair Value | June 30, 2019 Carrying Value | Level | | :-------------------------- | :----------------------- | :--------------------------- | :------ | | Government receivables | $352 | $343 | Level 3 | | Commercial receivables | $513 | $508 | Level 3 | | Investments | $124 | $124 | Level 3 | | Securitization residual assets | $79 | $79 | Level 3 | | Credit facilities | $210 | $210 | Level 3 | | Non-recourse debt | $773 | $756 | Level 3 | | Convertible notes | $167 | $152 | Level 2 | - The company's portfolio does not represent a significant concentration of credit risk, as it primarily consists of U.S. federal government-backed or investment-grade receivables, with structural credit protections and insurance[88](index=88&type=chunk) [Note 4. Non-Controlling Interest](index=23&type=section&id=Note%204.%20Non-Controlling%20Interest) Details the components of non-controlling interests, including OP units and LTIP Units, and their economic characteristics - Non-controlling interests include OP units held by outside limited partners and LTIP Units granted to officers and directors[90](index=90&type=chunk)[92](index=92&type=chunk) - LTIP Units are designed as profits interests that initially have a zero capital account but achieve full parity with OP units upon certain economic appreciation events in the Operating Partnership[92](index=92&type=chunk) [Note 5. Securitization of Receivables](index=23&type=section&id=Note%205.%20Securitization%20of%20Receivables) Discusses the company's securitization activities, including gains, managed assets, and retained responsibilities Gains on Securitizations (in millions) | Metric | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :---------------------- | :--------------------------- | :--------------------------- | | Gains on securitizations | $9 | $20 | | Change YoY | $(11) | - | | % Change YoY | -55.0% | - | - Managed securitized assets held in unconsolidated trusts increased from **$3.3 billion** at December 31, 2018, to **$3.7 billion** at June 30, 2019[94](index=94&type=chunk) - The company retained servicing responsibilities and residual assets in securitization transactions, with no securitization credit losses incurred in the six months ended June 30, 2019 or 2018[93](index=93&type=chunk)[94](index=94&type=chunk) [Note 6. Our Portfolio](index=24&type=section&id=Note%206.%20Our%20Portfolio) Provides a detailed breakdown of the company's investment portfolio by asset type, credit quality, and maturity profiles - As of June 30, 2019, the company's Portfolio totaled approximately **$1.8 billion**, comprising equity method investments, receivables, real estate, and investments[95](index=95&type=chunk) Portfolio Composition by Credit Quality (June 30, 2019, in millions) | Category | Amount | % of Debt and Real Estate Portfolio | | :-------------------------------- | :----- | :---------------------------------- | | Equity investments in renewable energy projects | $436 | N/A | | Receivables | $851 | N/A | | Real estate | $386 | N/A | | Investments | $124 | N/A | | **Total** | **$1,797** | **N/A** | | Government | $383 | 29% | | Commercial Investment Grade | $604 | 45% | | Commercial Non-Investment Grade | $352 | 26% | Anticipated Maturity Dates and Weighted Average Yields (June 30, 2019, in millions) | Asset Type | Total | Less than 1 year | 1-5 years | 5-10 years | More than 10 years | | :------------------------ | :---- | :--------------- | :-------- | :--------- | :----------------- | | Receivables (Maturities) | $851 | $2 | $36 | $58 | $755 | | Receivables (Avg. Yield) | 7.3% | 4.3% | 7.0% | 4.6% | 7.5% | | Investments (Maturities) | $124 | $0 | $0 | $14 | $110 | | Investments (Avg. Yield) | 4.7% | —% | —% | 4.1% | 4.8% | - Two commercial receivables with a combined carrying value of approximately **$8 million** were considered impaired and on non-accrual status as of June 30, 2019[102](index=102&type=chunk) - Deferred funding obligations decreased from **$72 million** at December 31, 2018, to **$6 million** at June 30, 2019, with all scheduled for payment by December 31, 2019[105](index=105&type=chunk) [Note 7. Credit facilities](index=26&type=section&id=Note%207.%20Credit%20facilities) Describes the company's senior revolving credit facilities, including their terms, outstanding balances, and compliance status - The company has two senior revolving credit facilities, a Rep-Based Facility (**$250 million** maximum) and an Approval-Based Facility (**$200 million** maximum), both maturing in July 2023[106](index=106&type=chunk) Senior Credit Facilities Details (June 30, 2019, in millions) | Facility | Outstanding Balance | Weighted Average Short-Term Borrowing Rate | | :---------------------- | :------------------ | :----------------------------------------- | | Rep-Based Facility | $118 | 4.1% | | Approval-Based Facility | $92 | 4.2% | - The company was in compliance with all covenants of its credit facilities as of June 30, 2019[111](index=111&type=chunk) [Note 8. Long-term Debt](index=28&type=section&id=Note%208.%20Long-term%20Debt) Details the company's non-recourse debt and convertible senior notes, including changes in balances and interest expenses - Non-recourse debt decreased from **$835 million** at December 31, 2018, to **$740 million** at June 30, 2019[114](index=114&type=chunk) - The total collateral pledged against non-recourse debt was **$920 million** as of June 30, 2019, down from **$1,105 million** at December 31, 2018[116](index=116&type=chunk) - The company has **$150 million** aggregate principal amount of **4.125% convertible senior notes** due September 1, 2022, with a conversion rate of **36.7179 shares per $1,000 principal amount**[119](index=119&type=chunk) - Interest expense related to convertible notes was approximately **$2 million** for the three months and **$4 million** for the six months ended June 30, 2019[123](index=123&type=chunk) [Note 9. Commitments and Contingencies](index=30&type=section&id=Note%209.%20Commitments%20and%20Contingencies) Addresses potential future obligations and legal matters, confirming no material adverse effects are currently anticipated - The company is not currently subject to any legal proceedings that are probable of having a material adverse effect on its financial position, results of operations, or cash flows[124](index=124&type=chunk) - Limited representations, warranties, covenants, and indemnities have been provided in connection with certain transactions, including those related to investment tax credits[125](index=125&type=chunk) [Note 10. Income Tax](index=30&type=section&id=Note%2010.%20Income%20Tax) Presents the company's income tax expense or benefit and the federal and state tax rates used in calculations Income Tax Expense (Benefit) (in thousands) | Period | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :---------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax (expense) benefit | $(839) | $(153) | $1,430 | $(171) | - Income tax calculations used federal rates of **21%** and combined state rates (net of federal benefit) of approximately **3%**[126](index=126&type=chunk) [Note 11. Equity](index=30&type=section&id=Note%2011.%20Equity) Details dividends declared, equity issuances, and equity-based compensation expenses and unrecognized amounts Dividends Declared | Announced Date | Record Date | Pay Date | Amount per share | | :------------- | :---------- | :--------- | :--------------- | | 2/21/2019 | 4/3/2019 | 4/11/2019 | $0.335 | | 6/6/2019 | 7/5/2019 | 7/12/2019 | $0.335 | - The company raised approximately **$98 million** through equity issuances during the six months ended June 30, 2019, including **$88 million** from its 'at-the-market' (ATM) equity distribution program[189](index=189&type=chunk) Equity-Based Compensation Expense (in millions) | Period | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Equity-based compensation expense | $3 | $3 | $7 | $5 | - Total unrecognized compensation expense related to awards of restricted stock and restricted stock units was approximately **$20 million** as of June 30, 2019, with a weighted-average recognition term of approximately **2 years**[131](index=131&type=chunk) [Note 12. Earnings per Share of Common Stock](index=32&type=section&id=Note%2012.%20Earnings%20per%20Share%20of%20Common%20Stock) Provides basic and diluted earnings per common share, explaining the methodology and exclusions Basic and Diluted Earnings Per Common Share | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic earnings per common share | $0.20 | $0.32 | $0.41 | $0.29 | | Diluted earnings per common share | $0.19 | $0.32 | $0.41 | $0.29 | - The computation of basic and diluted EPS excludes net income/loss attributable to non-controlling OP units and limited partners, and includes participating securities (unvested share-based awards) in the two-class method[135](index=135&type=chunk) [Note 13. Equity Method Investments](index=34&type=section&id=Note%2013.%20Equity%20Method%20Investments) Reports income from equity method investments and explains the primary drivers of changes in these amounts Income from Equity Method Investments (in millions) | Period | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income from equity method investments | $8 | $11 | $12 | $8 | | Change YoY (6 months) | $4 | - | - | - | | % Change YoY (6 months) | +50% | - | - | - | - The increase in income from equity method investments for the six months ended June 30, 2019, was primarily due to the allocation of investment tax credits[170](index=170&type=chunk) [Note 14. Subsequent Event](index=35&type=section&id=Note%2014.%20Subsequent%20Event) Discloses significant events occurring after the reporting period, including new debt issuances and use of proceeds - On July 2, 2019, the company issued **$350 million** of **5.25% senior unsecured notes** due July 15, 2024[140](index=140&type=chunk) - Proceeds are intended for eligible green projects, with **$167 million** used to repay senior credit facilities and **$58 million** for the 2017 Master Repurchase Agreement[140](index=140&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, detailing its business strategy, factors influencing results, critical accounting policies, and a comprehensive analysis of its portfolio and operational outcomes for the periods presented [Our Business](index=36&type=section&id=Our%20Business) Describes the company's investment focus on climate change solutions, diverse investment structures, and managed asset portfolio - The company invests in climate change solutions across three main areas: Behind-The-Meter (BTM), Grid Connected (GC), and Other Sustainable Infrastructure[147](index=147&type=chunk) - Investment structures include equity, government and commercial receivables/securities, and real estate (land leases), often with long-term, investment-grade rated off-takers[148](index=148&type=chunk)[149](index=149&type=chunk) Transaction Volume (in millions) | Period | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :---------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Transactions completed | $204 | $200 | $523 | $308 | - As of June 30, 2019, managed assets totaled approximately **$5.5 billion**, including **$1.8 billion** on-balance sheet and **$3.7 billion** in unconsolidated securitization trusts[152](index=152&type=chunk) - The company has a pipeline of over **$2.5 billion** in new equity, debt, and real estate opportunities expected to close in the next 12 months[153](index=153&type=chunk) [Factors Impacting our Operating Results](index=38&type=section&id=Factors%20Impact%20our%20Operating%20Results) Identifies key internal and external factors that influence the company's financial performance and operational outcomes - Operating results are affected by portfolio size and mix, income from securitizations and services, credit risk, market interest rates, commodity prices, governmental policies, REIT qualification, 1940 Act exemption, and climate change impacts[156](index=156&type=chunk) [Critical Accounting Policies and Use of Estimates](index=38&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) Highlights accounting policies requiring significant management judgment and assumptions, such as consolidation and impairment - Critical accounting policies requiring significant judgment and assumptions include consolidation and equity method investments, impairment of the portfolio, and securitization of receivables[158](index=158&type=chunk) [Financial Condition and Results of Operations](index=38&type=section&id=Financial%20Condition%20and%20Results%20of%20Operations) Analyzes the company's financial health and performance, including portfolio characteristics and key operational outcomes [Our Portfolio](index=38&type=section&id=Our%20Portfolio) Details the composition, average size, and remaining life of the company's investment portfolio, including yields and margins - The portfolio totaled approximately **$1.8 billion** as of June 30, 2019, consisting of over **190 transactions** with an average size of **$9 million** and a weighted average remaining life of approximately **14 years**[159](index=159&type=chunk) - Approximately **24%** of the portfolio comprised unconsolidated equity investments in renewable energy projects, and **22%** was real estate used in renewable energy projects[159](index=159&type=chunk) Portfolio Average Yield and Net Investment Margin | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :---------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Average yield from Portfolio | 6.6% | 5.5% | 6.6% | 5.5% | | Net investment margin | 3.1% | 1.5% | 3.1% | 1.5% | [Results of Operations](index=40&type=section&id=Results%20of%20Operations) Compares the company's financial performance across different reporting periods, highlighting key revenue and expense changes [Comparison of the Three Months Ended June 30, 2019 vs. Three Months Ended June 30, 2018](index=40&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030,%202019%20vs.%20Three%20Months%20Ended%20June%2030,%202018) Compares the company's financial performance for the three-month periods, highlighting significant changes in key metrics Key Financial Changes (3 Months Ended June 30, in millions) | Metric | 2019 | 2018 | $ Change | % Change | | :-------------------------------- | :--- | :--- | :------- | :------- | | Net income (loss) | $13 | $18 | $(5) | (28)% | | Total revenue | $31 | $36 | $(5) | (14)% | | Gain on sale of receivables and investments | $2 | $14 | $(12) | (86)% | | Fee and other income | $6 | $1 | $5 | 500 % | | Interest expense | $15 | $19 | $(4) | (21)% | | Income (loss) from equity method investments | $8 | $11 | $(3) | (27)% | [Comparison of the Six Months Ended June 30, 2019 vs. Six Months Ended June 30, 2018](index=41&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030,%202019%20vs.%20Six%20Months%20Ended%20June%2030,%202018) Compares the company's financial performance for the six-month periods, detailing changes in revenue, expenses, and net income Key Financial Changes (6 Months Ended June 30, in millions) | Metric | 2019 | 2018 | $ Change | % Change | | :-------------------------------- | :--- | :--- | :------- | :------- | | Net income (loss) | $27 | $16 | $11 | 69 % | | Total revenue | $64 | $64 | $0 | — % | | Interest income, receivables | $31 | $26 | $5 | 19 % | | Rental income | $13 | $12 | $1 | 8 % | | Gain on sale of receivables and investments | $9 | $20 | $(11) | (55)% | | Fee and other income | $8 | $3 | $5 | 167 % | | Interest expense | $30 | $38 | $(8) | (21)% | | Compensation and benefits | $14 | $11 | $3 | 27 % | | Income (loss) from equity method investments | $12 | $8 | $4 | 50 % | - The increase in income from equity method investments for the six months ended June 30, 2019, was primarily due to the allocation of investment tax credits[170](index=170&type=chunk) [Non-GAAP Financial Measures](index=42&type=section&id=Non-GAAP%20Financial%20Measures) Presents and reconciles non-GAAP financial measures, such as Core Earnings and Managed Assets, to provide additional performance insights [Core Earnings](index=42&type=section&id=Core%20Earnings) Defines and presents Core Earnings, a non-GAAP measure, by adjusting GAAP net income for specific non-cash and one-time items - Core earnings is a non-GAAP measure calculated by adjusting GAAP net income (loss) for non-cash equity compensation, non-cash credit loss provision, amortization of intangibles, one-time acquisition costs/non-cash tax charges, non-controlling interest, and an adjustment to equity method investments to reflect return on capital[172](index=172&type=chunk)[175](index=175&type=chunk) Core Earnings (in thousands, except per share amounts) | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :---------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income (loss) attributable to controlling stockholders | $12,740 | $17,262 | $26,386 | $16,039 | | Core earnings | $19,773 | $20,846 | $40,707 | $35,123 | | Core earnings per share | $0.30 | $0.39 | $0.63 | $0.65 | [Managed Assets](index=43&type=section&id=Managed%20Assets) Defines and presents Managed Assets, a non-GAAP measure, encompassing both on-balance sheet and off-balance sheet securitized assets - Managed Assets is a non-GAAP measure that includes both on-balance sheet assets and off-balance sheet securitized receivables to portray the total amount of assets managed[182](index=182&type=chunk) Managed Assets (in millions) | Metric | June 30, 2019 | December 31, 2018 | | :-------------------------------- | :------------ | :------------------ | | Equity method investments | $458 | $471 | | Government receivables | $343 | $497 | | Commercial receivables | $508 | $447 | | Real estate | $364 | $365 | | Investments | $124 | $170 | | Assets held in securitization trusts | $3,740 | $3,334 | | **Managed Assets** | **$5,537** | **$5,284** | | Credit losses as a percentage of assets under management | 0.0% | 0.0% | [Environmental Metrics](index=44&type=section&id=Environmental%20Metrics) Highlights the company's use of CarbonCount® to quantify and report the estimated carbon emission reductions from its investments - The company uses CarbonCount® to estimate the reduction in annual carbon emissions from its investments[184](index=184&type=chunk) - Investments originated in the quarter ended June 30, 2019, are estimated to reduce annual carbon emissions by approximately **48,000 metric tons**[184](index=184&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) Analyzes the company's cash flow, funding sources, and capital management strategies, including off-balance sheet arrangements and dividend policies [Sources and Uses of Cash](index=46&type=section&id=Sources%20and%20Uses%20of%20Cash) Summarizes the primary sources and applications of cash from operating, investing, and financing activities Cash Flows (6 Months Ended June 30, in millions) | Activity | 2019 | 2018 | | :-------------------------------- | :--- | :--- | | Net cash provided by operating activities | $20 | $15 | | Net cash provided by investing activities | $90 | $40 | | Net cash used in financing activities | $(88) | $(63) | - Key financing uses in H1 2019 included **$103 million** in principal payments on non-recourse debt, **$131 million** on credit facilities, **$14 million** on deferred funding obligations, and **$52 million** in dividends and distributions[204](index=204&type=chunk) [Off-Balance Sheet Arrangements](index=46&type=section&id=Off-Balance%20Sheet%20Arrangements) Describes the company's relationships with non-consolidated entities and the nature of its off-balance sheet obligations - The company has relationships with non-consolidated entities for securitized assets but has not guaranteed their obligations or committed additional funding, beyond its residual interest and limited guarantees for certain transaction-related representations, warranties, or tax matters[206](index=206&type=chunk)[207](index=207&type=chunk) [Dividends](index=47&type=section&id=Dividends) Explains the company's dividend policy as a REIT, including distribution requirements and tax implications for stockholders - As a REIT, the company is required to distribute annually at least **90%** of its REIT taxable income, which limits its ability to retain earnings for growth[208](index=208&type=chunk) - Distributions are generally taxable as ordinary income, with a potential **20% deduction** for qualified REIT dividends for U.S. individuals, trusts, and estates (2018-2025)[209](index=209&type=chunk) [Book Value Considerations](index=47&type=section&id=Book%20Value%20Considerations) Clarifies that the company's book value may not reflect its true economic or market value due to varying asset valuation methods - The company's book value does not necessarily represent its net realizable value, liquidation value, or market value, as only investments, interest rate swaps, and securitized residual assets are carried at fair value, while other assets and liabilities are recorded at cost[211](index=211&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses the company's primary market risks, including credit quality, interest rates, liquidity, and commodity prices, and outlines strategies to manage these risks, such as rigorous underwriting, hedging, and portfolio diversification [Credit Risks](index=47&type=section&id=Credit%20Risks) Identifies the company's exposure to credit risk across various project types and outlines strategies for mitigation - The company is exposed to credit risk from government energy efficiency projects (contingent on ESCO guarantees), non-government projects (universities, hospitals, commercial), and renewable energy projects (PPA obligors, suppliers, operators)[213](index=213&type=chunk) - Credit risk has increased with the company's strategy to include more mezzanine debt, real estate, and equity investments[214](index=214&type=chunk) - Credit risk is managed through due diligence, underwriting processes, strong structural protections, and continuous active asset management and portfolio monitoring[214](index=214&type=chunk)[215](index=215&type=chunk) [Interest Rate and Borrowing Risks](index=48&type=section&id=Interest%20Rate%20and%20Borrowing%20Risks) Discusses the company's exposure to interest rate fluctuations from assets and borrowings, along with hedging strategies - The company is subject to interest rate risk from new asset originations, borrowings (including credit facilities), and future floating-rate assets/borrowings[217](index=217&type=chunk) - Strategies to mitigate interest rate risk include matching debt/asset maturities, fixed-rate financing, and using interest rate swap agreements or other financial instruments[217](index=217&type=chunk) - As of June 30, 2019, the company had approximately **$269 million** in variable rate borrowings (**$210 million** from credit facilities and **$59 million** from non-recourse debt)[219](index=219&type=chunk) - A hypothetical **50 basis point increase** in LIBOR would increase quarterly interest expense related to variable rate borrowings by **$0.3 million**[219](index=219&type=chunk) [Liquidity and Concentration Risk](index=49&type=section&id=Liquidity%20and%20Concentration%20Risk) Addresses the illiquidity of the company's asset portfolio and the risks associated with geographic and obligor concentrations - The company's asset portfolio is illiquid, making it difficult to sell assets quickly in response to changing economic conditions[221](index=221&type=chunk) - Concentration risk exists due to many projects having a single obligor and assets being geographically concentrated, increasing susceptibility to poor performance or natural disasters[221](index=221&type=chunk) [Commodity Price Risk](index=49&type=section&id=Commodity%20Price%20Risk) Examines the company's exposure to energy price volatility and its potential impact on renewable energy project performance - The company is exposed to volatility in energy prices (electricity, coal, natural gas), which can impact the performance of renewable energy projects, especially utility-scale projects selling power wholesale[222](index=222&type=chunk) - Low natural gas prices may increase demand for some projects (e.g., combined heat and power) but reduce demand for others (e.g., renewable energy substitutes)[224](index=224&type=chunk) - Mitigation strategies include focusing on long-term Power Purchase Agreements (PPAs) and structural protections like preferred return mechanisms[223](index=223&type=chunk) [Risk Management](index=49&type=section&id=Risk%20Management) Outlines the company's comprehensive approach to risk management, including asset monitoring and board oversight - The company employs active asset management, portfolio monitoring, and interest rate management techniques to mitigate risks[225](index=225&type=chunk) - Historical credit losses have been low, with approximately **$11 million** (net of recoveries) on **$6 billion** originated since 2012, representing less than **0.2% aggregate loss**[225](index=225&type=chunk) - A Finance and Risk Committee of the board of directors reviews policies and guidelines for various risks, including interest rate, counter-party, credit, capital availability, and refinancing risks[225](index=225&type=chunk) [Item 4. Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2019, providing reasonable assurance for timely information disclosure. No material changes in internal controls over financial reporting occurred during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[226](index=226&type=chunk) - No changes in internal control over financial reporting occurred during the three-month period ended June 30, 2019, that materially affected, or were reasonably likely to materially affect, the company's internal control over financial reporting[228](index=228&type=chunk) [PART II. OTHER INFORMATION](index=50&type=section&id=PART%20II.%20OTHER%20INFORMATION) Contains additional disclosures not covered in the financial information, including legal matters, equity sales, and exhibits [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its financial position, results of operations, or cash flows - As of June 30, 2019, the company is not subject to any legal proceedings likely to have a material adverse effect on its financial position, results of operations, or cash flows[230](index=230&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the 'Risk Factors' section in the company's 2018 Form 10-K for a comprehensive discussion of potential risks and uncertainties - For a discussion of potential risks and uncertainties, readers are directed to Item 1A. 'Risk Factors' of the company's 2018 Form 10-K[231](index=231&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details common stock repurchases during the six months ended June 30, 2019, which occurred when employees surrendered shares to cover tax obligations related to restricted stock vesting. No OP units were exchanged for common stock during this period - During the six months ended June 30, 2019, the company repurchased common stock from employees to satisfy federal and state tax obligations associated with the vesting of restricted stock awards[232](index=232&type=chunk)[233](index=233&type=chunk) Common Stock Repurchases (2019) | Period | Total number of shares purchased | Average price per share | | :--------- | :----------------------------- | :---------------------- | | March 2019 | 253,743 | $25.31 | | May 2019 | 97,343 | $26.36 | - No OP units held by non-controlling interest holders were exchanged for shares of common stock during the six months ended June 30, 2019[234](index=234&type=chunk) [Item 3. Defaults Upon Senior Securities](index=50&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[235](index=235&type=chunk) [Item 4. Mine Safety Disclosures](index=50&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[236](index=236&type=chunk) [Item 5. Other Information](index=51&type=section&id=Item%205.%20Other%20Information) This item states that there is no other information to report - No other information is reported under this item[237](index=237&type=chunk) [Item 6. Exhibits](index=52&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, indentures for debt, certifications (Sarbanes-Oxley Act), and XBRL taxonomy extensions - The exhibits include organizational documents (Articles of Amendment, Bylaws, Partnership Agreement), debt indentures (e.g., for **4.125% Convertible Senior Note due 2022** and **5.25% Senior Notes due 2024**), Sarbanes-Oxley Act certifications from the CEO and CFO, and XBRL Taxonomy Extensions[239](index=239&type=chunk) [SIGNATURES](index=53&type=section&id=SIGNATURES) This section contains the official signatures of the company's Chairman, Chief Executive Officer, President, Chief Accounting Officer, and Senior Vice President, certifying the report on August 2, 2019 - The report was signed by Jeffrey W. Eckel (Chairman, Chief Executive Officer and President) and Charles W. Melko (Chief Accounting Officer and Senior Vice President) on August 2, 2019[243](index=243&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-35877 HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. (Exact name of registrant as specified in its charter) Maryland 46-1347456 (S ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-35877 HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. (Exact name of registrant as specified in its charter) FORM 10-K ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 Maryla ...