Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI)

HASI 
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Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI)

Q2 2013 Earnings Conference Call

August 8, 2013 17:00 ET

Executives

Steve Chuslo - General Counsel

Jeff Eckel - Chief Executive Officer

Brendan Herron - Chief Financial Officer

Analysts

Joel Houck - Wells Fargo

Ken Bruce - Bank of America Merrill Lynch

Presentation

Operator

Good afternoon, and welcome to the Hannon Armstrong Sustainable Infrastructure Capital’s 2013 Second Quarter Earnings Conference Call. Management will be utilizing a slide presentation for this call, which is available now for download on Hannon Armstrong’s Investor Relations page at investors.hannonarmstrong.com. Today’s call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

At this time, I would like to turn the conference call over to Steve Chuslo, General Counsel at Hannon Armstrong.

Steve Chuslo - General Counsel

Thank you, operator. Good afternoon, everyone. By now you should have received a copy of the earnings release for the company’s second quarter 2013 results. If you have not, a copy is available on our website at www.hannonarmstrong.com. Today’s speakers are Jeff Eckel, Chief Executive Officer and Brendan Herron, Chief Financial Officer.

But before we begin, I would like to remind you that some of the comments made on today’s call are forward-looking statements and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The company claims the protections of the Safe Harbor for forward-looking statements contained in such sections. The forward-looking statements made on this call are subject to the risks and uncertainties described in the Risk Factors section of the Company’s Form 10-Q and other filings with the SEC. Actual results may differ materially from those described during the call. In addition, all forward-looking statements are made as of today and the company does not undertake any responsibility to update any forward-looking statements based on new circumstances or revised expectations.

I would now like to turn the call over to Jeff Eckel, the Chief Executive Officer.

Jeff Eckel - Chief Executive Officer

Thank you, Steve, and good afternoon everyone. I’d like to welcome you all to our Hannon Armstrong’s second quarter earnings call. I am joined as Steve said by our CFO, Brendan Herron.

I will start off the call by providing some comments about our dividend, our execution this quarter, and of course, our business model. And then Brendan will discuss the Q2 results. Finally, I will walk through our plans for the rest of 2013 and we’ll wrap up by taking your questions.

We are pleased to declare our first dividend of $0.06 per share for shareholders of record as of August 20. This equates to a 2.5% annualized yield based on our $12.50 IPO share price and is the first building block for our ramp target yield of more than 7% by Q4. The dividend is paid from core earnings of $0.07 per share, which was generated by our execution on $204 million of transaction closings. The closings were accompanied by an expansion of our pipeline to over $2 billion and supported by the closing of our $700 million warehouse credit facility.

Hannon Armstrong has always been about execution and being a public company, it doesn’t change that. Let’s go a little deeper on some of the execution highlights. Of the $204 million of transactions, a $134 million were newly originated, which we believe demonstrates our strong origination capabilities. We went public with an initial portfolio of $110 million of transactions. We closed $701 million from that portfolio with remaining $40 million closing in the near-term. A $165 million of the transactions are held on the balance sheet with the remainder closed in our fee generating securitization vehicles such as the Hannie Mae. Overall, the portfolio is rated as solid investment grade. While the execution team was doing its job, our origination team was busy selling our new financing capabilities and expanded the 12-month pipeline by more than 33% to over $2 billion. Finally, leveraging our IPO proceeds is critical to the business model and we were pleased to have closed the $700 million warehouse facility and start to draw funds from it.

Turning to page five, we believe that $204 million of closings and the 33% growth in the pipeline reflect positive trends in each of our markets. We closed transaction in each of our three target asset classes, energy efficiency, clean energy, and other infrastructure and expanded the pipeline in each as well. Some of the positive market trends we see include state and local governments seeing the value in the kind of public-private partnerships we can offer with our new financing capability. Our financings effectively increased the borrowing capacity of a better rated jurisdictions preserving their precious bonding capacity. U.S. federal government the world’s largest energy consumer is accelerating its decade-old efforts to reduce energy usage impart due to President Obama’s recently announced carbon initiative, but also for the need to reduce energy costs and increase energy security.

Finally the clean energy market is expanding as expected due to renewable mandates and stable natural gas prices, both of which are driving the transition to a cleaner stock of power plants in this country and contributing high quality opportunities to our pipeline. These market trends flange up well with our proprietary origination platform which has produced financing transactions two of which we discussed on page six. The first example is a $25 million energy efficiency transaction with AAA rated school system we closed in May. It is engineered by our long time federal client Johnson Controls who is expanding its state and local offering based in part on our ability to fund transactions like this.

Read the rest of this transcript for free on seekingalpha.com