HA Sustainable Infrastructure Capital, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Hannon Armstrong Sustainable Infrastructure Capital, Inc., Consolidated Financial Statements, For the Years Ended December 31, 2021, 2020 and 2019 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 77 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 79 Consolidated Balance Sheets 80 Consolidated Statements of Operations 81 Consolidated Statements of Comprehensive Income 82 Consolidated Statements of Stockholders’ Equity 83 Consolidated Statements of Cash Flows 84 Notes to Consolidated Financial Statements 86 - 76 - Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Hannon Armstrong Sustainable Infrastructure Capital, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Hannon Armstrong Sustainable Infrastructure Capital, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 22, 2022 expressed an unqualified opinion thereon. Adoption of ASU 2016-13 As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for credit losses in 2020 due to the adoption of Accounting Standards Update (ASU) No. 2016-13 , Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , and the related amendments. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. - 77 - Accounting for Equity Investments in Renewable Energy and Energy Efficiency Projects Description of the Matter As discussed in Note 2 to the consolidated financial statements, the Company makes equity investments in renewable energy and energy efficiency projects that are accounted for under the equity method of accounting. During the year ended December 31, 2021, the Company made new equity investments in renewable energy and energy efficiency projects amounting to $401.9 million and held $1.8 billion of equity investments in renewable energy and energy efficiency projects as of December 31, 2021. The Company’s determination that it does not have the power to direct the significant activities impacting each of the investees’ economic performance (“power”) is critical to its determination that it is not the primary beneficiary of the investee. Also, as described in Note 2 to the consolidated financial statements, for equity method investments that contain preferences with regard to cash flows from operations, capital events and liquidation in their respective limited liability company agreements (“LLC Agreements”), the Company applies the Hypothetical Liquidation at Book Value (“HLBV”) method to record its share of profits and losses on these investments, which is done one quarter in arrears to allow for receipt of financial information from its investees. Auditing the Company’s determination of whether it has power was complex and required significant judgment to determine both the activities of the investee that most significantly impact the investee’s economics, and the distribution of the power among the members of the investee that ultimately determine the outcome of such activities. In addition, auditing the Company’s application of the HLBV method was challenging and inherently complex, because the application is based on its interpretations of the liquidation provisions outlined within investees’ LLC Agreements. How We Addressed the Matter in our Audit We tested controls that address the risks of material misstatement relating to: i) the determination of whether the Company has the power to direct the significant activities of the investees and ii) the recognition of its share of investees’ profits and losses through use of the HLBV method based on financial information reported to the Company from its investees. For example, we tested controls over management’s review of the variable interest model and determination of whether the Company has power. We also tested controls over management’s review of the HLBV method, including the application of the liquidation provisions and the financial information reported from their investees. To evaluate whether the Company has power over each investee, our audit procedures included, among others, inspecting LLC Agreements and evaluating management’s analysis of the significant activities of the investee and which parties can direct those significant activities. For example, as part of our evaluation, we considered the purpose and design of the investee and the legal rights of each of the involved parties, including the significance of the decisions that each party makes. We also tested the rights of each party included in management’s analysis by comparing such rights to the LLC Agreements. We tested the Company’s application of the HLBV method for a sample of both new and existing investments. Our audit procedures included, among others, involving tax professionals to assist in evaluating the Company’s application of the liquidation provisions within the LLC Agreements. Specifically, we assessed the Company’s HLBV calculations by agreeing provisions of the calculations, such as the application of stated preferred returns and allocation of tax attributes, to the terms of the LLC Agreements for each of these investments. We also performed additional procedures on the Company’s HLBV calculations that included, but were not limited to, recalculating the stated preferred returns, recalculating allocations of tax attributes, comparing inputs included within the calculations to the information reported to the Company by its investee, and recalculating the Company’s share of profits and losses of the investee. /s/ Ernst & Young LLP We have served as the Company’s auditor since 1983. Tysons, Virginia February 22, 2022 - 78 - Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Hannon Armstrong Sustainable Infrastructure Capital, Inc. Opinion on Internal Control Over Financial Reporting We have audited Hannon Armstrong Sustainable Infrastructure Capital, Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Hannon Armstrong Sustainable Infrastructure Capital, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 22, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Tysons, Virginia February 22, 2022 - 79 - HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) December 31, 2021 December 31, 2020 Assets Cash and cash equivalents $ 226,204 $ 286,250 Equity method investments 1,759,651 1,279,651 Commercial receivables, net of allowance of $ 36 million and $ 36 million, respectively 1,298,529 965,452 Government receivables 125,409 248,455 Receivables held-for-sale 22,214 — Real estate 356,088 359,176 Investments 17,697 55,377 Securitization assets 210,354 164,342 Other assets 132,165 100,364 Total Assets $ 4,148,311 $ 3,459,067 Liabilities and Stockholders’ Equity Liabilities: Accounts payable, accrued expenses and other $ 88,866 $ 59,944 Credit facilities 100,473 22,591 Commercial paper notes 50,094 — Non-recourse debt (secured by assets of $ 573 million and $ 723 million, respectively) 429,869 592,547 Senior unsecured notes 1,762,763 1,283,335 Convertible notes 149,731 290,501 Total Liabilities 2,581,796 2,248,918 Stockholders’ Equity: Preferred stock, par value $ 0.01 per share, 50,000,000 shares authorized, no shares issued and outstanding — — Common stock, par value $ 0.01 per share, 450,000,000 shares authorized, 85,326,781 and 76,457,415 shares issued and outstanding, respectively 853 765 Additional paid in capital 1,727,667 1,394,009 Accumulated deficit ( 193,706 ) ( 204,112 ) Accumulated other comprehensive income (loss) 9,904 12,634 Non-controlling interest 21,797 6,853 Total Stockholders’ Equity 1,566,515 1,210,149 Total Liabilities and Stockholders’ Equity $ 4,148,311 $ 3,459,067 See accompanying notes. - 80 - HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Years Ended December 31, 2021 2020 2019 Revenue Interest income $ 106,889 $ 95,559 $ 76,200 Rental income 25,905 25,878 25,884 Gain on sale of receivables and investments 68,333 49,887 24,423 Fee income 12,039 15,583 15,074 Total revenue 213,166 186,907 141,581 Expenses Interest expense 121,705 92,182 64,241 Provision for loss on receivables 496 10,096 8,027 Compensation and benefits 52,975 37,766 28,777 General and administrative 19,907 14,846 14,693 Total expenses 195,083 154,890 115,738 Income before equity method investments 18,083 32,017 25,843 Income (loss) from equity method investments 126,421 47,963 64,174 Income (loss) before income taxes 144,504 79,980 90,017 Income tax benefit (expense) ( 17,158 ) 2,779 ( 8,097 ) Net income (loss) 127,346 82,759 81,920 Net income (loss) attributable to non-controlling interest holders 767 343 356 Net income (loss) attributable to controlling stockholders $ 126,579 $ 82,416 $ 81,564 Basic earnings (loss) per common share $ 1.57 $ 1.13 $ 1.25 Diluted earnings (loss) per common share $ 1.51 $ 1.10 $ 1.24 Weighted average common shares outstanding—basic 79,992,922 72,387,581 63,916,440 Weighted average common shares outstanding—diluted 87,671,641 74,373,169 64,771,491 See accompanying notes. - 81 - HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (DOLLARS IN THOUSANDS) Years Ended December 31, 2021 2020 2019 Net income (loss) $ 127,346 $ 82,759 $ 81,920 Unrealized gain (loss) on available-for-sale securities, net of tax (provision) benefit of $ 0.4 million, $( 1.1 ) million and $( 0.6 ) million in 2021, 2020, and 2019 respectively ( 5,434 ) 12,437 11,249 Unrealized gain (loss) on interest rate swaps, net of tax (provision) benefit of $( 0.8 ) million, $ 1.0 million, and $ 1.8 million in 2021, 2020, and 2019 respectively 2,687 ( 3,063 ) ( 6,243 ) Comprehensive income (loss) 124,599 92,133 86,926 Less: Comprehensive income (loss) attributable to non-controlling interest holders 751 383 378 Comprehensive income (loss) attributable to controlling stockholders $ 123,848 $ 91,750 $ 86,548 See accompanying notes. - 82 - HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (AMOUNTS IN THOUSANDS) Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Non-controlling Interest Total Shares Amount Balance at December 31, 2018 60,510 $ 605 $ 965,384 $ ( 163,205 ) $ ( 1,684 ) $ 3,423 $ 804,523 Net income (loss) — — — 81,564 — 356 81,920 Unrealized gain (loss) on available-for-sale securities — — — — 11,200 49 11,249 Unrealized gain (loss) on interest rate swaps — — — — ( 6,216 ) ( 27 ) ( 6,243 ) Issued shares of common stock 5,399 54 138,347 — — — 138,401 Equity-based compensation — — 12,355 — — 55 12,410 Issuance (repurchase) of vested equity-based compensation shares 425 4 ( 9,173 ) — — — ( 9,169 ) Other 4 — ( 61 ) — — ( 43 ) ( 104 ) Tax basis difference on contributed asset — — ( 4,549 ) — — — ( 4,549 ) Dividends and distributions — — — ( 88,145 ) — ( 381 ) ( 88,526 ) Balance at December 31, 2019 66,338 $ 663 $ 1,102,303 $ ( 169,786 ) $ 3,300 $ 3,432 $ 939,912 Net income (loss) — — — 82,416 — 343 82,759 Adoption of ASU 2016-13, net of tax effect — — — ( 14,031 ) — ( 74 ) ( 14,105 ) Unrealized gain (loss) on available-for-sale securities — — — — 12,380 57 12,437 Unrealized gain (loss) on interest rate swaps — — — — ( 3,046 ) ( 17 ) ( 3,063 ) Issued shares of common stock 9,523 96 298,375 — — — 298,471 Equity-based compensation — — 9,711 — — 4,812 14,523 Issuance (repurchase) of vested equity-based compensation shares 537 6 ( 17,293 ) — — — ( 17,287 ) Other 59 — 913 — — ( 859 ) 54 Dividends and distributions — — — ( 102,711 ) — ( 841 ) ( 103,552 ) Balance at December 31, 2020 76,457 $ 765 $ 1,394,009 $ ( 204,112 ) $ 12,634 $ 6,853 $ 1,210,149 Net income (loss) — — — 126,579 — 767 127,346 Unrealized gain (loss) on available-for-sale securities — — — — ( 5,401 ) ( 33 ) ( 5,434 ) Unrealized gain (loss) on interest rate swaps — — — — 2,671 16 2,687 Issued shares of common stock 3,326 33 200,808 — — — 200,841 Equity-based compensation — — 6,039 — — 15,471 21,510 Issuance (repurchase) of vested equity-based compensation shares 324 3 ( 14,020 ) — — — ( 14,017 ) Conversion of convertible notes 5,220 52 140,831 — — — 140,883 Dividends and distributions — — — ( 116,173 ) — ( 1,277 ) ( 117,450 ) Balance at December 31, 2021 85,327 $ 853 $ 1,727,667 $ ( 193,706 ) $ 9,904 $ 21,797 $ 1,566,515 See accompanying notes. - 83 - HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) Years Ended December 31, 2021 2020 2019 Cash flows from operating activities Net income (loss) $ 127,346 $ 82,759 $ 81,920 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loss on receivables 496 10,096 8,027 Depreciation and amortization 3,801 3,580 3,593 Amortization of financing costs 11,316 7,789 6,435 Equity-based compensation 17,047 16,791 14,160 Equity method investments ( 94,773 ) 13,099 ( 34,392 ) Non-cash gain on securitization ( 48,332 ) ( 55,413 ) ( 56,717 ) Gain (loss) on sale of receivables and investments ( 720 ) 13,811 13,241 Changes in receivables held-for-sale ( 22,035 ) — — Loss on debt extinguishment 14,584 — — Changes in accounts payable and accrued expenses 11,313 8,023 5,184 Change in accrued interest on receivables and investments ( 859 ) ( 24,282 ) ( 17,721 ) Other ( 5,875 ) ( 2,971 ) 5,759 Net cash provided by operating activities 13,309 73,282 29,489 Cash flows from investing activities Equity method investments ( 401,856 ) ( 885,862 ) ( 152,096 ) Equity method investment distributions received 21,777 98,571 71,183 Proceeds from sales of equity method investments 300 — 81,297 Purchases of and investments in receivables ( 553,366 ) ( 256,323 ) ( 497,866 ) Principal collections from receivables 148,769 132,958 57,670 Proceeds from sales of receivables 75,582 59,398 134,932 Purchases of investments ( 4,830 ) ( 40,185 ) ( 45,830 ) Principal collections from investments 414 2,424 6,626 Proceeds from sales of investments and securitization assets 15,197 68,520 139,230 Funding of escrow accounts ( 12,069 ) ( 23,178 ) ( 28,953 ) Withdrawal from escrow accounts 1,756 8,094 30,707 Other 4,924 3,931 1,959 Net cash provided by (used in) investing activities ( 703,402 ) ( 831,652 ) ( 201,141 ) - 84 - Years Ended December 31, 2021 2020 2019 Cash flows from financing activities Proceeds from credit facilities 100,000 126,000 101,500 Principal payments on credit facilities ( 22,441 ) ( 134,594 ) ( 328,465 ) Proceeds from issuance of commercial paper notes 50,000 — — Proceeds from issuance of non-recourse debt — 15,938 130,988 Principal payments on non-recourse debt ( 37,974 ) ( 125,969 ) ( 206,705 ) Proceeds from issuance of senior unsecured notes 1,000,000 771,250 507,313 Redemption of senior unsecured notes ( 500,000 ) — — Proceeds from issuance of convertible notes — 143,750 — Payments on deferred funding obligations — — ( 18,791 ) Net proceeds of common stock issuances 200,641 298,070 138,383 Payments of dividends and distributions ( 113,510 ) ( 99,867 ) ( 86,406 ) Withholdings on employee share vesting ( 14,018 ) ( 17,287 ) ( 9,168 ) Redemption premium paid ( 14,101 ) — — Payment of debt issuance costs ( 17,750 ) — — Other ( 12 ) ( 15,176 ) ( 9,764 ) Net cash provided by (used in) financing activities 630,835 962,115 218,885 Increase (decrease) in cash, cash equivalents, and restricted cash ( 59,258 ) 203,745 47,233 Cash, cash equivalents, and restricted cash at beginning of period 310,331 106,586 59,353 Cash, cash equivalents, and restricted cash at end of period $ 251,073 $ 310,331 $ 106,586 Interest paid $ 108,267 $ 75,934 $ 48,056 Supplemental disclosure of non-cash activity Residual assets retained from securitization transactions $ 56,432 $ 56,697 $ 61,001 Right-of-use asset obtained in exchange for lease liability 4,628 — — Issuance of common stock from conversion of convertible notes 141,810 — — Deconsolidation of non-recourse debt and other liabilities 126,139 — 59,532 Deconsolidation of assets pledged for non-recourse debt 130,513 — 116,829 See accompanying notes. - 85 - HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021 1. The Company Hannon Armstrong Sustainable Infrastructure Capital, Inc. (the “Company”) invests in climate solutions by providing capital to leading companies in the energy efficiency, renewable energy and other sustainable infrastructure markets. Our goal is to generate attractive returns from a diversified portfolio of projects with long-term and predictable cash flows from proven technologies that reduce carbon emissions or increase resilience to climate change. The Company and its subsidiaries are hereafter referred to as “we,” “us” or “our.” Our investments take various forms, including equity, joint ventures, real estate ownership, or lending or other financing transactions, and typically benefit from contractually committed high credit quality obligors. We also generate on-going fees through off-balance sheet securitization transactions, advisory services and asset management. We refer to the income producing assets that we hold on our balance sheet as our “Portfolio.” Our Portfolio may include: • equity investments in either preferred or common structures in unconsolidated entities which own renewable energy or energy efficiency projects; • commercial and government receivables, such as loans for renewable energy and energy efficiency projects; • real estate, such as land or other assets leased for use by climate solutions projects typically under long-term leases; and • investments in debt securities of renewable energy or energy efficiency projects. We finance our business through cash on hand, borrowings through short-term commercial paper issuances and revolving credit facilities, issuances of unsecured debt, asset-backed securitization transactions and equity issuances. We also generate fee income through securitizations and syndications, by providing broker/dealer services and by managing and servicing assets owned by third parties. Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “HASI.” We have qualified as a real estate investment trust (“REIT”) and also intend to continue to operate our business in a manner that will maintain our exemption from registration as an investment company under the Investment Company Act of 1940 (the “1940 Act”), as amended. We operate our business through, and serve as the sole general partner of, our operating partnership subsidiary, Hannon Armstrong Sustainable Infrastructure, L.P., (the “Operating Partnership”), which was formed to acquire and directly or indirectly own our assets. 2. Summary of Significant Accounting Policies Basis of Presentation The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and such differences could be material. In the opinion of management, all adjustments necessary to present fairly our financial position, results of operations and cash flows have been included. Certain amounts in the prior years have been reclassified to conform to the current year presentation. The consolidated financial statements include our accounts and controlled subsidiaries, including the Operating Partnership. All material intercompany transactions and balances have been eliminated in consolidation. Following the guidance for non-controlling interests in Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 810, Consolidation (“ASC 810:), references in this report to our earnings per share and our net income and stockholders’ equity attributable to common stockholders do not include amounts attributable to non-controlling interests. Consolidation We account for our investments in entities that are considered voting interest entities or variable interest entities (“VIEs”) under ASC 810 and assess whether we should consolidate these entities on an ongoing basis. We have established various special purpose entities or securitization trusts for the purpose of securitizing certain assets that are not consolidated in our financial statements as described below in Securitization of Financial Assets. Since we have assessed that we have power over and receive the benefits from those special purpose entities that are formed for the purpose of holding our assets on our balance sheet, we have concluded we are the primary beneficiary and - 86 - should consolidate these entities under the provisions of ASC 810. We also have certain subsidiaries we deem to be voting interest entities that we control through our ownership of voting interests and accordingly consolidate. Certain of our equity method investments were determined to be interests in VIEs in which we are not the primary beneficiary, as we do not direct the significant activities of these entities, and thus we account for those investments as Equity Method Investments as discussed below. Our maximum exposure to loss through these investments is limited to their recorded values. However, we may provide financial commitments to these VIEs or guarantees of certain of their obligations. Certain other entities in which we have equity investments have been assessed to be voting interest entities and are not consolidated as we exert significant influence rather than control through our ownership of voting interests, and accordingly we account for them as equity method investments described below. Equity Method Investments We have made equity investments in various renewable energy and energy efficiency projects. These investments are typically owned in holding companies (using limited liability companies (“LLCs”) taxed as partnerships) where we partner with either the operator of the project or other institutional investors. We share in the cash flows, income, and tax attributes according to a negotiated schedule which typically does not correspond with our ownership percentages. Investors, if any, in a preferred return position typically receive a priority distribution of all or a portion of the project’s cash flows, and in some cases, tax attributes. Once the preferred return, if applicable, is achieved, the partnership “flips” and the operator of the project along with any other common equity investors receive a larger portion of the cash flows, with the previously preferred investors retaining an on-going residual interest. Our equity investments in renewable energy or energy efficiency projects are accounted for under the equity method of accounting. Under the equity method of accounting, the carrying value of these equity method investments is determined based on amounts we invested, adjusted for the equity in earnings or losses of the investee allocated based on the LLC agreement, less distributions received. For the LLC agreements that contain preferences with regard to cash flows from operations, capital events and liquidation, we reflect our share of profits and losses by determining the difference between our claim on the investee’s reported book value at the beginning and the end of the period, which is adjusted for distributions received and contributions made. This claim is calculated as the amount we would receive if the investee were to liquidate all of its assets at the recorded amounts determined in accordance with GAAP and distribute the resulting cash to creditors and investors in accordance with their respective priorities. This method is referred to as the hypothetical liquidation at book value method (“HLBV”). Our exposure to loss to these investments is limited to the amount of our equity investment, as well as other investments we may have in the same investee. Any difference between the amount of our investment and the amount of underlying equity in net assets is generally amortized over the life of the assets and liabilities to which the difference relates. Cash distributions received from each equity method investment are classified as operating activities to the extent of cumulative earnings for each investment in our consolidated statements of cash flows. Our initial investment and additional cash distributions beyond that which are classified as operating activities are classified as investing activities in our consolidated statements of cash flows. We typically recognize earnings one quarter in arrears for certain of these investments to allow for the receipt of financial information. We evaluate on a quarterly basis whether our investments accounted for using the equity method have an other than temporary impairment (“OTTI”). An OTTI occurs when the estimated fair value of an investment is below the carrying value and the difference is determined to not be recoverable. This evaluation requires significant judgment regarding, but not limited to, the severity and duration of the impairment; the ability and intent to hold the securities until recovery; financial condition, liquidity, and near-term prospects of the issuer; specific events; and other factors. - 87 - Commercial and Government Receivables Commercial and government receivables (“receivables”) include project loans and receivables. These receivables are separately presented in our balance sheet to illustrate the differing nature of the credit risk related to these assets. Unless otherwise noted, we generally have the ability and intent to hold our receivables for the foreseeable future and thus they are classified as held for investment. Our ability and intent to hold certain receivables may change from time to time depending on a number of factors including economic, liquidity and capital market conditions. At inception of the arrangement, the carrying value of receivables held for investment represents the present value of the note, lease or other payments, net of any unearned fee income, which is recognized as income over the term of the note or lease using the effective interest method. Receivables that are held for investment are carried at amortized cost, net of any unamortized acquisition premiums or discounts and include origination and acquisition costs, as applicable. Our initial investment and principal repayments of these receivables are classified as investing activities and the interest collected is classified as operating activities in our consolidated statements of cash flows. Receivables that we intend to sell in the short-term are classified as held-for-sale and are carried at the lower of amortized cost or fair value on our balance sheet, which is assessed on an individual asset basis. The purchases and proceeds from receivables that we intend to sell at origination are classified as operating activities in our consolidated statements of cash flows. Interest collected is classified as an operating activity in our consolidated statements of cash flows. Certain of our receivables may include the ability to defer required interest payments in exchange for increasing the receivable balance at the borrower’s option. We generally accrue this paid-in-kind (“PIK”) interest when collection is expected, and cease accruing PIK interest if there is insufficient value to support the accrual or we expect that any portion of the principal or interest due is not collectible. We evaluate our receivables for an allowance as determined under ASC Topic 326 Financial Instruments- Credit Losses (“Topic 326”) and for our internally derived asset performance categories included in Note 6 to our financial statements on at least a quarterly basis and more frequently when economic or other conditions warrant such an evaluation. When a receivable becomes 90 days or more past due, and if we otherwise do not expect the debtor to be able to service all of its debt or other obligations, we will generally consider the receivable delinquent or impaired and place the receivable on non-accrual status and cease recognizing income from that receivable until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a receivable’s status significantly improves regarding the debtor’s ability to service the debt or other obligations, we will remove it from non-accrual status. We determine our allowance based on the current expectation of credit losses over the contractual life of our receivables as required by Topic 326, which we adopted in the year ended December 31, 2020. We use a variety of methods in developing our allowance including discounted cash flow analysis and probability-of-default/loss given default (“PD/LGD”) methods. In developing our estimates, we consider our historical experience with our and similar assets in addition to our view of both current conditions and what we expect to occur within a period of time for which we can develop reasonable and supportable forecasts, typically two years . For periods following the reasonable and supportable forecast period, we revert to historical information when developing assumptions used in our estimates. In developing our forecasts, we consider a number of qualitative and quantitative factors in our assessment, including a project’s operating results, loan-to-value ratio, any cash reserves, the ability of expected cash from operations to cover the cash flow requirements currently and into the future, key terms of the transaction, the ability of the borrower to refinance the transaction, other credit support from the sponsor or guarantor and the project’s collateral value. In addition, we consider the overall economic environment, the climate solutions sector, the effect of local, industry, and broader economic factors such as unemployment rates and power prices, the impact of any variation in weather and the historical and anticipated trends in interest rates, defaults and loss severities for similar transactions. For those assets where we record our allowance using a discounted cash flow method, we have elected to record the change in allowance due solely to the passage of time through the provision for loss on receivables in our income statement. For assets where the obligor is a publicly rated entity, we consider the published historical performance of entities with similar ratings in developing our estimate of an allowance, making adjustments determined by management to be appropriate during the reasonable and supportable forecast period. We have made certain loan commitments that are within the scope of Topic 326. When estimating an allowance for these loan commitments we consider the probability of certain amounts to be funded and apply either a discounted cash flow or PD/LGD methodology as described above. We charge off receivables against the allowance, if any, when we determine the unpaid principal balance is uncollectible, net of recovered amounts. Any provision we record for an allowance is a non-cash reconciling item to cash from operating activities in our consolidated statements of cash flows. Real Estate Real estate consists of land or other real property and its related lease intangibles, net of any amortization. Our real estate is generally leased to tenants on a triple net lease basis, whereby the tenant is responsible for all operating expenses relating to the property, generally including property taxes, insurance, maintenance, repairs and capital expenditures. Certain real estate transactions may be characterized as “failed sale-leaseback” transactions as defined under ASC Topic 842, Leases , and thus are accounted for similarly to our commercial receivables as described above in Government and Commercial Receivables. - 88 - For our other real estate lease transactions that are classified as operating leases, the scheduled rental revenue typically varies during the lease term and thus rental income is recognized on a straight-line basis, unless there is considerable risk as to collectability, so as to produce a constant periodic rent over the term of the lease. Accrued rental income is the aggregate difference between the scheduled rents that vary during the lease term and the income recognized on a straight-line basis and is recorded in other assets. Expenses, if any, related to the ongoing operation of leases where we are the lessor are charged to operations as incurred. Our initial investment is classified as investing activities and income collected for rental income is classified as operating activities in our consolidated statements of cash flows. When our real estate transactions are treated as an asset acquisition with an operating lease, we typically record our real estate purchases at cost, including acquisition and closing costs, which is allocated to each tangible and intangible asset acquired on a relative fair value basis. The fair value of the tangible assets of an acquired leased property is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, building and tenant improvements, if any, based on the determination of the fair values of these assets. The as-if-vacant fair value of a property is typically determined by management based on appraisals by a qualified appraiser. In determining the fair value of the identified intangibles of an acquired property, above-market and below-market in-place lease values are valued based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease, including renewal periods reasonably certain of being exercised by the lessee. The capitalized off-market lease values are amortized as an adjustment of rental income over the term used to value the intangible. We also record, as appropriate, an intangible asset for in-place leases. The value of the leases in place at the time of the transaction is equal to the potential income lost if the leases were not in place. The amortization of this intangible occurs over the initial term unless management believes that it is reasonably certain that the tenant would exercise the renewal option, in which case the amortization would extend through the renewal period. If a lease were to be terminated, all unamortized amounts relating to that lease would be written off. Investments Investments are debt securities that meet the criteria of ASC 320, Investments-Debt and Equity Securities . We have designated our debt securities as available-for-sale and carry these securities at fair value on our balance sheet. Unrealized gains and losses, to the extent not considered to be credit related, on available-for-sale debt securities are recorded as a component of accumulated other comprehensive income (“AOCI”) in equity on our balance sheet. When a security is sold, we reclassify the AOCI to earnings based on specific identification. Our initial investment and principal repayments of these investments are classified as investing activities and the interest collected is classified as operating activities in our consolidated statements of cash flows. We evaluate our investments for impairment on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Our impairment assessment is a subjective process requiring the use of judgments and assumptions. Accordingly, we regularly evaluate the extent and impact of any credit deterioration associated with the financial and operating performance and value of the underlying project. We consider several qualitative and quantitative factors in our assessment. The primary factor in our assessment is the current fair value of the security, while other factors include changes in the credit rating, performance of the underlying project, key terms of the transaction, the value of any collateral and any support provided by the sponsor or guarantor. To the extent that we have identified an impairment for a security, intend to hold the investment to maturity, and do not expect that we will be required to sell the security prior to recovery of the amortized cost basis, we will recognize only the credit component of the unrealized loss in earnings by recording an allowance against the amortized cost of the asset as required by Topic 326. We determine the credit component using the difference between the security’s amortized cost basis and the present value of its expected future cash flows, discounted using the effective interest method or its estimated collateral value. Any remaining unrealized loss due to factors other than credit is recorded in AOCI. To the extent we hold investments with a fair value less than the amortized cost and we have made the decision to sell the security or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, we recognize the entire portion of the impairment in earnings. Premiums or discounts on investment securities are amortized or accreted into interest income using the effective interest method. Securitization of Financial Assets We have established various special purpose entities or securitization trusts for the purpose of securitizing certain financial assets. We determined that the trusts used in securitizations are VIEs, as defined in ASC 810. When we conclude that - 89 - we are not the primary beneficiary of certain trusts because we do not have power over those trusts’ significant activities, we do not consolidate the trust. We typically serve as primary or master servicer of these trusts; however, as the servicer, we do not have the power to make significant decisions impacting the performance of the trusts. We account for transfers of financial assets to these securitization trusts as sales pursuant to ASC 860, Transfers and Servicing (“ASC 860”), when we have concluded the transferred assets have been isolated from the transferor (i.e., put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership) and we have surrendered control over the transferred assets. When we are unable to conclude that we have been sufficiently isolated from the securitized financial assets, we treat such trusts as secured borrowings, retaining the assets on our balance sheet and recording the amounts due to the trust investor as non-recourse debt. For transfers treated as sales under ASC 860, we have received true-sale-at-law and non-consolidation legal opinions for all of our securitization trust structures to support our conclusion regarding the transferred financial assets. When we sell financial assets in securitizations, we generally retain interests in the form of servicing rights and residual assets, which we refer to as securitization assets. Gain or loss on the sale of financial assets is calculated based on the excess of the proceeds received from the securitization (less any transaction costs) plus any retained interests obtained over the cost basis of the assets sold. For retained interests, we generally estimate fair value based on the present value of future expected cash flows using our best estimates of the key assumptions of anticipated losses, prepayment rates, and current market discount rates commensurate with the risks involved. Cash flows related to our securitizations at origination are classified as operating activities in our consolidated statements of cash flows. We initially account for all separately recognized servicing assets and servicing liabilities at fair value and subsequently measure such servicing assets and liabilities using the amortization method. Servicing assets and liabilities are amortized in proportion to, and over the period of, estimated net servicing income with servicing income recognized as earned. We assess servicing assets for impairment at each reporting date. If the amortized cost of servicing assets is greater than the estimated fair value, we will recognize an impairment in net income. Our other retained interest in securitized assets, the residual assets, are accounted for similar to available-for-sale debt securities and carried at fair value. Income related to the residual assets is recognized using the effective interest rate method and included in fee income in our income statement. Our residual assets are evaluated for impairment on a quarterly basis. A residual asset is impaired if its fair value is less than its carrying value. The credit component of impairments, if any, are recognized by recording an allowance against the amortized cost of the asset. For changes in expected cash flows, we will calculate a new yield based on the current amortized cost of the residual assets and the revised expected cash flows. This yield is used prospectively to recognize our income related to these assets. Cash and Cash Equivalents Cash and cash equivalents include short-term government securities, certificates of deposit and money market funds, all of which had an original maturity of three months or less at the date of purchase. These securities are carried at their purchase price, which approximates fair value. Restricted Cash Restricted cash includes cash and cash equivalents set aside with certain lenders primarily to support obligations outstanding as of the balance sheet dates. Restricted cash is reported as part of other assets in our consolidated balance sheets. Refer to Note 3 to our financial statements in this Form 10-K for disclosure of the balances of restricted cash included in other assets. Convertible Notes We have issued convertible senior notes that are accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options , and ASC 815, Derivatives and Hedging (“ASC 815”) . Under ASC 815, issuers of certain convertible debt instruments are generally required to separately account for the conversion option of the convertible debt instrument as either a derivative or equity, unless it meets the scope exemption for contracts indexed to, and settled in, an issuer’s own equity. Since this conversion option is both indexed to our equity and can only be settled in our common stock, we have met the scope exemption, and therefore, we are not separately accounting for the embedded conversion option. The initial issuance and any principal repayments are classified as financing activities and interest payments are classified as operating activities in our consolidated statements of cash flows. If converted, the carrying value of each convertible note is reclassified into stockholders’ equity. - 90 - Income Taxes We elected and qualified to be taxed as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2013. We also have taxable REIT subsidiaries (“TRS”) that are taxed separately, and that will generally be subject to U.S. federal, state, and local income taxes as well as taxes of foreign jurisdictions, if any. To qualify as a REIT, we must meet on an ongoing basis several organizational and operational requirements, including a requirement that we currently distribute at least 90% of our REIT’s net taxable income before dividends paid, excluding capital gains, to our stockholders. As a REIT, we are not subject to U.S. federal corporate income tax on that portion of net income that is currently distributed to our owners. We account for income taxes under ASC 740, Income Taxes (“ASC 740”) for our TRS using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. We evaluate any deferred tax assets for valuation allowances based on an assessment of available evidence including sources of taxable income, prior years taxable income, any existing taxable temporary differences and our future investment and business plans that may give rise to taxable income. We treat any tax credits we receive from our equity investments in renewable energy projects as reductions of federal income taxes of the year in which the credit arises. Any deferred tax impacts resulting from transfers of assets to or from our TRS are recorded as an adjustment to additional paid-in capital, as it is a transfer amongst entities under common control. We apply ASC 740 with respect to how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. This guidance requires the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more likely than not” to be sustained by the applicable tax authority. We are required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which includes U.S. federal and certain states. Equity-Based Compensation In 2013, we adopted the 2013 Hannon Armstrong Sustainable Infrastructure Capital, Inc. Equity Incentive Plan (as amended, the “2013 Plan”), which provides for grants of stock options, stock appreciation rights, restricted stock units, shares of restricted common stock, phantom shares, dividend equivalent rights, long-term incentive-plan units (“LTIP units”) and other restricted limited partnership units issued by our Operating Partnership and other equity-based awards. From time to time, we may grant equity or equity-based awards as compensation to our independent directors, employees, advisors, consultants and other personnel under our 2013 Plan. Certain awards earned under the plan are based on achieving various performance targets, which are generally earned between 0 % and 200 % of the initial target, depending on the extent to which the performance target is met. In addition to performance targets, certain LTIP units issued by our Operating Partnership also require a certain level of appreciation of partnership interests to occur before parity is reached and LTIP units can be converted to limited partnership units. We record compensation expense for grants made under the 2013 Plan in accordance with ASC 718, Compensation—Stock Compensation . We record compensation expense for unvested grants that vest solely based on service conditions on a straight-line basis over the vesting period of the entire award based upon the fair market value of the grant on the date of grant. Fair market value for restricted common stock is based on our share price on the date of grant. For awards where the vesting is contingent upon achievement of certain performance targets, compensation expense is measured based on the fair market value on the grant date and is recorded over the requisite service period (which includes the performance period). Actual performance results at the end of the performance period determines the number of shares that will ultimately be awarded. We have also issued awards where the vesting is contingent upon service being provided for a defined period and certain market conditions being met. The fair value of these awards, as measured at the grant date, is recognized over the requisite service period, even if the market conditions are not met. The grant date fair value of these awards was developed by an independent appraiser using a Monte Carlo simulation. Earnings Per Share We compute earnings per share of common stock in accordance with ASC 260, Earnings Per Share . Basic earnings per share is calculated by dividing net income attributable to controlling stockholders (after consideration of the earnings allocated to unvested grants under the 2013 Plan, if applicable) by the weighted-average number of shares of common stock outstanding during the period excluding the weighted average number of unvested grants under the 2013 Plan, if applicable (“participating securities” as defined in Note 12 to our financial statements in this Form 10-K). Diluted earnings per share is calculated by dividing net income attributable to controlling stockholders (after consideration of the earnings allocated to unvested grants under the 2013 Plan, if applicable) by the weighted-average number of shares of common stock outstanding during the period plus other potential common stock instruments if they are dilutive. Other potentially dilutive common stock instruments include - 91 - our unvested restricted stock, other equity-based awards, and convertible notes. The restricted stock and other equity-based awards are included if they are dilutive using the treasury stock method. The treasury stock method assumes that theoretical proceeds received for future service provided is used to purchase shares of treasury stock at the average market price per share of common stock, which is deducted from the total shares of potential common stock included in the calculation. When unvested grants are dilutive, the earnings allocated to these dilutive unvested grants are not deducted from the net income attributable to controlling stockholders when calculating diluted earnings per share. The convertible notes are included if they are dilutive using the if-converted method. The if-converted method removes interest expense related to the convertible notes from the net income attributable to controlling stockholders and includes the weighted average shares of potential common stock over the period issuable upon conversion of the note. No adjustment is made for shares of potential common stock that are anti-dilutive during a period. Segment Reporting We make equity and debt investments in the climate solutions markets. We manage our business as a single portfolio and report all of our activities as one business segment. Recently Issued Accounting Pronouncements There were no accounting standards that became effective in the year ended December 31, 2021 that had a material effect on our consolidated financial statements and related disclosures. Accounting standards updates issued before February 22, 2022 and effective after December 31, 2021, are not expected to have a material effect on our consolidated financial statements and related disclosures. 3. Fair Value Measurements Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level hierarchy for classifying financial instruments. The levels of inputs used to determine the fair value of our financial assets and liabilities carried on the balance sheet at fair value and for those which only disclosure of fair value is required are characterized in accordance with the fair value hierarchy established by ASC 820, Fair Value Measurements . Where inputs for a financial asset or liability fall in more than one level in the fair value hierarchy, the financial asset or liability is classified in its entirety based on the lowest level input that is significant to the fair value measurement of that financial asset or liability. We use our judgment and consider factors specific to the financial assets and liabilities in determining the significance of an input to the fair value measurements. As of December 31, 2021 and December 31, 2020, only our residual assets related to our securitization trusts and investments were carried at fair value on the consolidated balance sheets on a recurring basis. The three levels of the fair value hierarchy are described below: • Level 1—Quoted prices (unadjusted) in active markets that are accessible at the measurement date. • Level 2—Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. • Level 3—Unobservable inputs are used when little or no market data is available. The tables below illustrate the estimated fair value of our financial instruments on our balance sheet. Unless otherwise discussed below, fair value for our Level 2 and Level 3 measurements is measured using a discounted cash flow model, contractual terms and inputs which consist of base interest rates and spreads over base rates which are based upon market observation and recent comparable transactions. An increase in these inputs would result in a lower fair value and a decline would result in a higher fair value. Our senior unsecured notes and convertible notes are valued using a market based approach and observable prices. The receivables held-for-sale, if any, are carried at the lower of cost or fair value. - 92 - As of December 31, 2021 Fair Value Carrying Value Level (in millions) Assets Commercial receivables $ 1,433 $ 1,299 Level 3 Government receivables 137 125 Level 3 Receivables held-for-sale 32 22 Level 3 Investments (1) 18 18 Level 3 Securitization residual assets (2) 210 210 Level 3 Liabilities (3) Credit facilities $ 100 $ 100 Level 3 Commercial paper notes 50 50 Level 3 Non-recourse debt 476 440 Level 3 Senior unsecured notes 1,823 1,784 Level 2 Convertible notes 186 152 Level 2 (1) The amortized cost of our investments as of December 31, 2021, was $ 17 million. (2) Included in securitization assets on the consolidated balance sheet. The amortized cost of our securitization assets as of December 31, 2021, was $ 194 million. (3) Fair value and carrying value exclude unamortized financing costs. As of December 31, 2020 Fair Value Carrying Value Level (in millions) Assets Commercial receivables $ 1,018 $ 965 Level 3 Government receivables 282 248 Level 3 Investments (1) 55 55 Level 3 Securitization residual assets (2) 159 159 Level 3 Liabilities (3) Credit facilities $ 23 $ 23 Level 3 Non-recourse debt 678 605 Level 3 Senior unsecured notes 1,362 1,299 Level 2 Convertible notes 552 296 Level 2 (1) The amortized cost of our investments as of December 31, 2020, was $ 51 million. (2) Included in securitization assets on the consolidated balance sheet. This amount excludes securitization servicing assets which are carried at amortized cost. The amortized cost of our securitization assets as of December 31, 2020, was $ 141 million. (3) Fair value and carrying value exclude unamortized financing costs. - 93 - Investments The following table reconciles the beginning and ending balances for our Level 3 investments that are carried at fair value on a recurring basis: For the year ended December 31, 2021 2020 (in millions) Balance, beginning of period $ 55 $ 75 Purchases of investments 5 40 Principal payments on investments — ( 3 ) Sale of investments ( 38 ) ( 67 ) Realized gains on investments recorded in gain on sale of receivables and investments — 6 Unrealized gains (losses) on investments recorded in OCI ( 4 ) 4 Balance, end of period $ 18 $ 55 The following table illustrates our investments in an unrealized loss position: Estimated Fair Value Unrealized Losses (1) Securities with a loss shorter than 12 months Securities with a loss longer than 12 months Securities with a loss shorter than 12 months Securities with a loss longer than 12 months (in millions) December 31, 2021 $ 7 $ — $ 0.1 $ — December 31, 2020 — 6 — 0.3 (1) Loss position is due to interest rates movements. We have the intent and ability to hold these investments until a recovery of fair value. In determining the fair value of our investments, we used a market-based risk-free rate and a range of interest rate spreads of approximately 1 % to 4 % based upon transactions involving similar assets as of December 31, 2021 and 2020. The weighted average discount rates used to determine the fair value of our investments as of December 31, 2021 and 2020 were 3.6 % and 3.2 %, respectively. Securitization residual assets The following table reconciles the beginning and ending balances for our Level 3 securitization residual assets that are carried at fair value on a recurring basis: For the year ended December 31, 2021 2020 (in millions) Balance, beginning of period $ 159 $ 122 Accretion of securitization residual assets 9 6 Additions to securitization residual assets 61 54 Collections of securitization residual assets ( 17 ) ( 11 ) Sales of securitization residual assets — ( 21 ) Unrealized gains (losses) on securitization residual assets recorded in OCI ( 2 ) 9 Balance, end of period $ 210 $ 159 In determining the fair value of our securitization residual assets, we used a market-based risk-free rate and a range of interest rate spreads of approximately 1 % to 4 % based upon transactions involving similar assets as of December 31, 2021 and 2020. The weighted average discount rate used to determine the fair value of our securitization residual assets as of December 31, 2021 and 2020 was 4.3 % and 3.8 %, respectively. - 94 - Non-recurring Fair Value Measurements Our financial statements may include non-recurring fair value measurements related to acquisitions and non-monetary transactions, if any. Assets acquired in a business combination are recorded at their fair value. We may use third party valuation firms to assist us with developing our estimates of fair value. See Note 6 for a discussion of a fair value measurement recorded during the year ended December 31, 2021 related to an equity method investment. Concentration of Credit Risk Commercial and government receivables, real estate leases, and debt investments consist primarily of receivables from various projects, U.S. federal government-backed receivables, and investment grade state and local government receivables and do not, in our view, represent a significant concentration of credit risk. Additionally, certain of our investments are collateralized by projects concentrated in certain geographic regions throughout the United States. These investments typically have structural credit protections to mitigate our risk exposure and, in most cases, the projects are insured for estimated physical loss which helps to mitigate the possible risk from these concentrations. We had cash deposits that are subject to credit risk as shown below: December 31, 2021 2020 (in millions) Cash deposits $ 226 $ 286 Restricted cash deposits (included in other assets) 25 24 Total cash deposits $ 251 $ 310 Amount of cash deposits in excess of amounts federally insured $ 249 $ 309 4. Non-Controlling Interest Units of limited partnership interests in the Operating Partnership (“OP units”) that are owned by limited partners other than us are included in non-controlling interest on our consolidated balance sheets. The non-controlling interest holders are generally allocated their pro rata share of income, other comprehensive income and equity transactions. The outstanding OP units held by outside limited partners represent less than 1 % of our outstanding OP units and are redeemable by the limited partners for cash, or at our option, for a like number of shares of our common stock. No OP units were exchanged by non-controlling interest holders during the year ended December 31, 2021. Non-controlling interest holders exchanged 57,400 OP units for the same number of shares of our common stock during the year ended December 31, 2020. We have also granted to members of our leadership team and directors LTIP Units pursuant to the 2013 Plan. The LTIP Units issued to employees are held by HASI Management HoldCo LLC. The LTIP Units are designed to qualify as profits interests in the Operating Partnership and initially will have a capital account balance of zero and, therefore, will not have full parity with OP units with respect to liquidating distributions or other rights. However, the amended and restated agreement of limited partnership of the Operating Partnership (the “OP Agreement”) provides that “book gains,” or economic appreciation, in the Operating Partnership will be allocated first to the LTIP Units until the capital account per LTIP Units is equal to the capital account per-unit of the OP units. Under the terms of the OP Agreement, the Operating Partnership will revalue its assets upon the occurrence of certain specified events, and any increase in valuation from the time of grant until such event will be allocated first to the holders of LTIP Units to equalize the capital accounts of such holders with the capital accounts of OP unit holders. Once this has occurred, the LTIP Units will achieve full parity with the OP units for all purposes, including with respect to liquidating distributions and redemption rights. In addition to these attributes, there are vesting and settlement conditions similar to our other equity-based awards as discussed in Notes 2 and 11 to our financial statements in this Form 10-K. 5. Securitization of Financial Assets The following summarizes certain transactions with securitization trusts: - 95 - As of and for the year ended December 31, 2021 2020 2019 (in millions) Gains on securitizations $ 68 $ 50 $ 24 Cost of financial assets securitized 810 292 853 Proceeds from securitizations 878 342 877 Residual and servicing assets 210 164 124 Cash received from residual and servicing assets 18 12 7 In connection with securitization transactions, we typically retain servicing responsibilities and residual assets. We generally receive annual servicing fees that are typically up to 0.20 % of the outstanding balance. We may periodically make servicer advances, that are subject to credit risk. Included in securitization assets in our consolidated balance sheets are our servicing assets at amortized cost and our residual assets at fair value. Our residual assets are subordinate to investors’ interests, and their values are subject to credit, prepayment and interest rate risks on the transferred financial assets. Other than our securitization assets representing these residual interests in the trusts’ assets, the investors and the securitization trusts have no recourse to our other assets for failure of debtors to pay when due. In computing gains and losses on securitizations, we use discount rates based on a review of comparable market transactions including Level 3 unobservable inputs which consist of base interest rates and spreads over these base rates. Depending on the nature of the transaction risks, the discount rate ranged from 2 % to 8 %. As of December 31, 2021 and December 31, 2020, our managed assets totaled $ 8.8 billion and $ 7.2 billion, respectively, of which $ 5.2 billion and $ 4.3 billion, respectively, were securitized assets held in unconsolidated securitization trusts. There were no securitization credit losses in the years ended December 31, 2021, 2020, or 2019. As of December 31, 2021, there were no material payments from debtors to the securitization trusts that were greater than 90 days past due. Receivables from contracts for the installation of energy efficiency and other technologies are the source of cash flows for $ 104 million of our securitization residual assets. These technologies are installed in facilities owned by, or operated for or by, federal, state or local government entities where the ultimate obligor for the receivable is a governmental entity. The contracts may have guarantees of energy savings from third-party service providers, which typically are entities rated investment grade by an independent rating agency. The remainder of our securitization residual assets are related to contracts where the underlying cash flows are secured by an interest in real estate which are typically senior in terms of repayment to other financings. 6. Our Portfolio As of December 31, 2021, our Portfolio included approximately $ 3.6 billion of equity method investments, receivables, real estate and investments on our balance sheet. The equity method investments represent our non-controlling equity investments in renewable energy and energy efficiency projects and land. The receivables and investments are typically collateralized by contractually committed debt obligations of government entities or private high credit quality obligors and are often supported by additional forms of credit enhancement, including security interests and supplier guaranties. The real estate is typically land and related lease intangibles for long-term leases to wind and solar projects. In developing and evaluating performance against our credit criteria, we consider a number of qualitative and quantitative criteria including a project’s operating results, loan-to-value ratio, any cash reserves, the ability of expected cash from operations to cover the cash flow requirements currently and into the future, key terms of the transaction, the ability of the borrower to refinance the transaction, the financial and operating capability of the borrower, its sponsors or the obligor as well as any guarantors and the project’s collateral value. In addition, we consider the overall economic environment, the climate solutions sector, the effect of local, industry and broader economic factors, the impact of any variation in weather and the historical and anticipated trends in interest rates, defaults and loss severities for similar transactions. - 96 - The following is an analysis of the Performance Ratings of our Portfolio as of December 31, 2021, which is assessed quarterly: Portfolio Performance Government Commercial 1 (1) 1 (1) 2 (2) 3 (3) Total Receivable vintage (dollars in millions) 2021 $ — $ 295 $ — $ — $ 295 2020 — 200 — — 200 2019 — 454 2 — 456 2018 — 263 — — 263 2017 31 1 9 — 41 Prior to 2017 94 103 — 8 205 Total receivables held-for-investment 125 1,316 11 8 1,460 Less: Allowance for loss on receivables — ( 25 ) ( 3 ) ( 8 ) ( 36 ) Net receivables held-for-investment (4) 125 1,291 8 — 1,424 Receivables held-for-sale — 22 — — 22 Investments 11 7 — — 18 Real estate — 356 — — 356 Equity method investments (5) — 1,726 34 — 1,760 Total $ 136 $ 3,402 $ 42 $ — $ 3,580 Percent of Portfolio 4 % 95 % 1 % — % 100 % Average remaining balance (6) $ 6 $ 13 $ 11 $ 4 $ 12 (1) This category includes our assets where based on our credit criteria and performance to date we believe that our risk of not receiving our invested capital remains low. (2) This category includes our assets where based on our credit criteria and performance to date we believe there is a moderate level of risk to not receiving some or all of our invested capital. (3) This category includes our assets where based on our credit criteria and performance to date, we believe there is substantial doubt regarding our ability to recover some or all of our invested capital. Included in this category are two commercial receivables with a combined total carrying value of approximately $ 8 million as of December 31, 2021 which we have held on non-accrual status since 2017. We expect to continue to pursue our legal claims with regards to these assets. This category previously contained an equity method investment in a wind project with no book value due to our allocation of impairment losses recorded by the project sponsor. We sold this equity method investment in the third quarter for nominal proceeds. (4) Total reconciles to the total of the government receivables and commercial receivables lines of the consolidated balance sheets (5) Some of the individual projects included in portfolios that make up our equity method investments have government off-takers. As they are part of large portfolios, they are not classified separately. (6) Average remaining balance is calculated gross of allowance for loss on receivables and excludes approximately 174 transactions each with outstanding balances that are less than $ 1 million and that in the aggregate total $ 84 million. Receivables As of December 31, 2021 our allowance for loan losses was $ 36 million based on our expectation for credit losses over the lives of the receivables in our Portfolio. During 2021, our reserve was unchanged, as additional allowances associated with loans and loan commitments were offset by the release of certain loan-specific reserves. Below is a summary of the carrying value, expected loan funding commitments, and allowance by type of receivable or “Portfolio Segment,” as defined by Topic 326, as of December 31, 2021 and 2020: - 97 - December 31, 2021 December 31, 2020 Gross Carrying Value Loan Funding Commitments Allowance Gross Carrying Value Loan Funding Commitments Allowance (in millions) Commercial (1) $ 1,335 $ 184 $ 36 $ 1,002 $ 282 $ 36 Government (2) 125 — — 248 — — Total $ 1,460 $ 184 $ 36 $ 1,250 $ 282 $ 36 (1) As of December 31, 2021, this category of assets include $ 776 million of mezzanine loans made on a non-recourse basis to special purpose subsidiaries of residential solar companies which are secured by residential solar assets where we rely on certain limited indemnities, warranties, and other obligations of the residential solar companies or their other subsidiaries. Approximately $ 684 million of our commercial receivables are loans made to entities in which we also have non-controlling equity investments of approximately $ 108 million. This total also includes $ 48 million of lease agreements where we hold legal title to the underlying real estate which are treated under GAAP as receivables since they were deemed to be failed sale/leaseback transactions as described in Note 2. Risk characteristics of our commercial receivables include a project’s operating risks, which include the impact of the overall economic environment, the climate solutions sector, the effect of local, industry, and broader economic factors, the impact of any variation in weather and trends in interest rates. We use assumptions related to these risks to estimate an allowance using a discounted cash flow analysis or the PD/LGD method as discussed in Note 2. All of our commercial receivables are included in Performance Rating 1 in the Portfolio Performance table above, except for $ 11 million of receivables included in Performance Category 2 and the $ 8 million of receivables we have placed on non-accrual status which are included in Performance Rating 3. For those assets in Performance Rating 1, the credit worthiness of the obligor combined with the various structural protections of our assets cause us to believe we have a low risk we will not receive our invested capital, however we recorded a $ 25 million allowance on these $ 1.3 billion in assets as a result of lower probability assumptions utilized in our allowance methodology. (2) As of December 31, 2021, our government receivables include $ 28 million of U.S. federal government transactions and $ 97 million of transactions where the ultimate obligors are state or local governments. Risk characteristics of our government receivables include the energy savings or the power output of the projects and the ability of the government obligor to generate revenue for debt service, via taxation or other means. Transactions may have guarantees of energy savings or other performance support from third-party service providers, which typically are entities, directly or whose ultimate parent entity is, rated investment grade by an independent rating agency. All of our government receivables are included in Performance Rating 1 in the Portfolio Performance table above. Our allowance for government receivables is primarily calculated by using PD/LGD methods as discussed in Note 2. Our expectation of credit losses for these receivables is immaterial given the high credit-quality of the obligors. The following table reconciles our beginning and ending allowance for loss on receivables by Portfolio Segment for the year ended December 31, 2021: Commercial Government (in millions) Beginning balance - January 1, 2020 (1) $ 26 $ — Provision for loss on receivables 10 — Ending balance - December 31, 2020 36 — Provision for loss on receivables — — Ending balance - December 31, 2021 $ 36 $ — (1) Balance as of the adoption of Topic 326, which includes the pre-tax allowance for loss on receivables of $ 17 million recorded upon adoption which reflects our estimated loss as of that date under the new standard as well as the $ 8 million of receivables which were previously on non-accrual status and fully reserved. Other than the $ 8 million of receivables discussed above with a Performance Rating of 3, we have no receivables which are on non-accrual status. The following table provides a summary of our anticipated maturity dates of our receivables and the weighted average yield for each range of maturities as of December 31, 2021: Total Less than 1 year 1-5 years 5-10 years More than 10 years (dollars in millions) Maturities by period (excluding allowance) $ 1,460 $ 49 $ 49 $ 538 $ 824 Weighted average yield by period 8.1 % 7.4 % 5.8 % 8.2 % 8.2 % - 98 - Investments The following table provides a summary of our anticipated maturity dates of our investments and the weighted average yield for each range of maturities as of December 31, 2021: Total Less than 1 year 1-5 years 5-10 years More than 10 years (dollars in millions) Maturities by period $ 18 $ — $ — $ — $ 18 Weighted average yield by period 4.1 % — % — % — % 4.1 % We had no investments that were impaired or on non-accrual status as of December 31, 2021 or 2020, and no allowances associated with our investments. Real Estate Our real estate is leased to renewable energy projects, typically under long-term triple net leases with expiration dates that range between the years 2033 and 2057 under the initial terms and 2047 and 2080 if all renewals are exercised. The components of our real estate portfolio as of December 31, 2021 and 2020, were as follows: December 31, 2021 2020 (in millions) Real estate Land $ 269 $ 269 Lease intangibles 104 104 Accumulated amortization of lease intangibles ( 17 ) ( 14 ) Real estate $ 356 $ 359 As of December 31, 2021, the future amortization expense of the intangible assets and the future minimum rental income payments under our land lease agreements are as follows: Year Ending December 31, Future Amortization Expense Minimum Rental Payments (in millions) 2022 $ 3 $ 22 2023 3 24 2024 3 24 2025 3 24 2026 3 24 Thereafter 72 723 Total $ 87 $ 841 Equity Method Investments We have made non-controlling equity investments in a number of renewable energy and energy efficiency projects as well as in a joint venture that owns land with long-term triple net lease agreements to several solar projects that we account for as equity method investments. As of December 31, 2021, we held the following equity method investments: - 99 - Investment Date Investee Carrying Value (in millions) Various Jupiter Equity Holdings, LLC $ 540 December 2020 Lighthouse Partnerships (1) 390 March 2020 University of Iowa Energy Collaborative Holdings LLC 123 Various Other investees 707 Total equity method investments $ 1,760 (1) Represents the total of three equity investments in a portfolio of a renewable energy projects discussed below. Jupiter Equity Holdings, LLC We have a preferred equity interest in Jupiter Equity Holdings, LLC (“Jupiter”) that owns nine operating onshore wind projects and four operating utility-scale solar projects with an aggregate capacity of approximately 2.3 gigawatts. We have made capital contributions to Jupiter of approximately $ 540 million related to these projects. The projects feature cash flows from fixed-price power purchase agreements and financial hedges with a weighted average contract life of 13 years, contracted with highly creditworthy off-takers and counterparties. Jupiter is governed by an amended and restated limited liability company agreement, dated July 1, 2020, by and among Jupiter, one of our subsidiaries and a subsidiary of the project sponsor, and contains customary terms and conditions. We own 100 % of the Class A Units in Jupiter corresponding to 49 % of the distributions from Jupiter subject to the preferences discussed below. Most major decisions that may impact Jupiter, its subsidiaries or its assets, require the majority vote of a four person committee in which we and the project sponsor each have two representatives. Through Jupiter, we will be entitled to preferred distributions until certain return targets are achieved. Once these return targets are achieved, distributions will be allocated approximately 33 % to us and approximately 67 % to the sponsor. We and the sponsor each have a right of first offer if the other party desires to transfer any of its equity ownership to a third party on or after July 1, 2023. We use the equity method of accounting to account for our preferred equity interest in Jupiter, and have elected to recognize earnings from this investment one quarter in arrears to allow for the receipt of financial information. Lighthouse Renewables Portfolio In December 2020, we entered into certain agreements relating to the acquisition, ownership and management of approximately $ 663 million in preferred cash equity investments in three partnerships that expect to own cash equity interests in an approximately 1.6 gigawatt portfolio of onshore wind, utility-scale solar and solar-plus-storage projects (the “Renewables Portfolio”) developed and managed by the project sponsor. In 2021, we modified this structure to include an additional project in the renewables portfolio and to be held through the four partnerships (“Lighthouse Partnerships”), bringing our total expected investment to $ 870 million. We have made initial investments in the preferred cash equity interests of the Lighthouse Partnerships of approximately $ 388 million through December 31, 2021, and additional investments are expected to be made in 2022 as the projects become commercially operational. The Renewables Portfolio currently has contracted cash flows with a combined weighted average contract life of greater than 15 years with a diversified group of predominately investment grade corporate, utility, university, and municipal offtakers. In 2021, we made approximately $ 15 million in equity contributions and made $ 10 million in member loans to one of the Lighthouse Partnerships for the settlement of hedging activity under one of the project’s power hedge agreements as a result of the February 2021 winter storms in Texas. Each of the Lighthouse Partnerships are or will be governed by a limited liability company agreement between us and the sponsor serving as managing member and contain customary terms and conditions. Most major decisions that may impact each of the Lighthouse Partnerships, its subsidiaries or its assets, require a unanimous vote of the representatives present at a meeting of a review committee in which a quorum is present. The review committee is a four person committee, which includes two Company representatives and two sponsor representatives. Through each Lighthouse Partnership, commencing on a certain date following the effective date of the applicable limited liability company agreement, we will be entitled to preferred distributions until certain return targets of the Renewables Portfolio are achieved. Subject to customary exceptions, no member of a Lighthouse Partnership can transfer any of its equity ownership in any Lighthouse Partnership to a third party without approval of the review committee of that Lighthouse Partnership. We use the equity method of accounting to account for our preferred equity interest in each Lighthouse Partnership, and have elected to recognize earnings from this investment one quarter in arrears to allow for the receipt of financial information. Other Equity method investments - 100 - In 2021 we restructured an equity method investment with a GAAP carrying value of $ 24 million to convert it to a $ 17 million loan. The GAAP carrying value of this investment included amounts related to non-cash HLBV income that in normal course would have reversed over time. Upon restructuring, we accelerated the reversal of $ 7 million of previously recorded non-cash HLBV income included in the carrying value of this investment through income from equity method investments on our income statement. Also in 2021, we had a working capital loan with an outstanding principal balance of $ 18 million to one of our equity method investments which we exchanged for an additional equity investment in that investee. 7. Credit facilities and commercial paper notes Secured credit facilities We have two secured revolving credit facilities (our “Secured Credit Facilities”), a representation-based loan agreement (the “Rep-Based Facility”) and an approval-based loan agreement (the “Approval-Based Facility”) with various lenders, which mature in July 2023. The Rep-Based Facility is a secured revolving limited-recourse credit facility, which we modified in March 2021 to have a maximum outstanding principal amount of $ 100 million, lowered from a previous amount of $ 250 million. This modification resulted in a $ 1.5 million loss due to the acceleration of a portion of the related unamortized financing costs that was recognized in interest expense in 2021. The Approval-Based Facility is a secured revolving recourse credit facility with a maximum outstanding principal amount of $ 200 million. The following table provides additional detail on our Secured Credit Facilities as of December 31, 2021: Rep-Based Facility Approval-Based Facility (dollars in millions) Outstanding balance $ — $ 50 Value of collateral pledged to credit facility 24 90 Available capacity based on pledged assets 11 14 Weighted average short-term borrowing rate N/A 2.1 % Loans under the Rep-Based Facility bear interest at a rate equal to one-month LIBOR plus 1.40 % or 1.85 % (depending on the type of collateral) or, in certain circumstances, the Federal Funds Rate plus 0.40 % or 0.85 % (depending on the type of collateral). Loans under the Approval-Based Facility bear interest at a rate equal to one-month LIBOR plus 1.50 % or 2.00 % (depending on the type of collateral) or, under certain circumstances, the Federal Funds Rate plus 0.50 % or 1.00 % (depending on the type of collateral). Inclusion of any financings of the Company in the borrowing base as collateral under the Rep-Based Facility will be subject to the Company making certain agreed upon representations and warranties. We have provided a limited guarantee covering the accuracy of the representations and warranties, and the repayment by the borrowers of certain amounts relating to any such financing is the exclusive remedy with respect to any breach of such representations and warranties under the Rep-Based Facility. Inclusion of any financings of the Company in the borrowing base as collateral under the Approval-Based Facility will be subject to the approval of a super-majority of the lenders, and we have provided a guarantee of the Approval-Based Facility. The amount eligible to be drawn under the Secured Credit Facilities is based on a discount to the value of each included investment based upon the type of collateral or an applicable valuation percentage. The sum of included financings after taking into account the applicable valuation percentages and any changes in the valuation of the financings in accordance with the Secured Credit Facilities determines the borrowing capacity, subject to the overall facility limits described above. Under the Rep-Based Facility, the applicable valuation percentage is 85 % in the case of a land-lease obligor or a U.S. Federal Government obligor, 80 % in the case of an institutional obligor or state and local obligor, and with respect to other obligors or in certain circumstances, such other percentage as the administrative agent may prescribe. Under the Approval-Based Facility, the applicable valuation percentage is 85 % in the case of certain approved financings and 67 % or such other percentage as the administrative agent may prescribe. The Approval-Based Facility previously had an outstanding draw with a fixed amortization schedule that was prepaid in 2021. We have approximately $ 2 million of remaining unamortized financing costs associated with the Secured Credit Facilities that have been capitalized and included in other assets on our balance sheet and are being amortized on a straight-line basis over the term of the Secured Credit Facilities. Administrative fees are payable annually to the administrative agent under each of the Secured Credit Facilities and letter agreements with the administrative agent. Under the Rep-Based Facility, we pay to the administrative agent on each monthly payment date, for the benefit of the lenders, certain availability fees for the Rep-Based Facility equal to 0.60 %, divided by 365 or 366, as applicable, multiplied by the excess of the available total commitments under the Rep-Based Facility over the actual amount borrowed under the Rep-Based Facility. - 101 - The Secured Credit Facilities contain terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds and stock repurchases. We were in compliance with our covenants as of December 31, 2021. The Secured Credit Facilities also include customary events of default, including the existence of a default in more than 50 % of the value of underlying financings. The occurrence of an event of default may result in termination of the credit facilities, acceleration of amounts due under the Secured Credit Facilities, and accrual of default interest at a rate of LIBOR plus 2.00 % in the case of both the Rep-Based Facility and the Approval-Based Facility. Unsecured revolving credit facilities In April 2021, we entered into a $ 400 million 364 -day unsecured revolving credit facility (“Existing Revolving Credit Facility”) pursuant to a revolving credit agreement with a syndicate of lenders, replacing our then-existing $ 50 million unsecured revolving credit facility entered into in February 2021. As of December 31, 2021, the outstanding balance on the Existing Revolving Credit Facility was $ 50 million, and it beared interest at a rate of 2.35 %. As of December 31, 2021, we had less than $ 1 million of remaining unamortized financing costs associated with the Existing Revolving Credit Facility that have been capitalized and included in other assets on our balance sheet and are being amortized on a straight-line basis over the term of the Existing Revolving Credit Facility. In February 2022, the Existing Revolving Credit Facility was replaced with a $ 600 million unsecured revolving credit facility (“New Revolving Credit Facility”), which matures in February 2025. The Existing Revolving Credit Facility bears interest at a rate of the LIBOR or prime rate plus applicable margins based on our current credit rating, which may be adjusted downward up to 0.05 % to the extent our Portfolio achieves certain targeted levels of carbon emissions avoidance as measured by our CarbonCount metric. As of the inception of the unsecured revolving credit facility, the applicable margins are 2.25 % for LIBOR-based loans and 1.25 % for prime rate-based loans. The New Revolving Credit facility bears interest at a rate of SOFR plus applicable margins, which may be adjusted downward up to 0.10 % to the extent our Portfolio achieves certain targeted levels of carbon emissions avoidance. The initial applicable margins are 1.875 % for Term SOFR Rate-based loans and 0.875 % for prime rate-based loans. Both unsecured revolving credit facilities have commitment fee based on our current credit rating. Both unsecured revolving credit facilities contain terms, conditions, covenants, and representations and warranties that are customary and typical for transactions of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds, stock repurchases, and dividends we can declare. Both unsecured revolving credit facilities also include customary events of default and remedies. At our option, upon maturity of the New Revolving Credit Facility, we have the ability to convert amounts borrowed into term loans for a fee equal to 1.875 % of the term loan amounts. CarbonCount Green Commercial Paper Note Program In September 2021, we entered into an agreement allowing us to issue commercial paper notes, in amounts up to $ 100 million outstanding at any time. We obtained an irrevocable direct-pay letter of credit in an amount not to exceed $ 100 million from Bank of America, N.A, to support these obligations which expires in December 2022. Commercial paper notes will not be redeemable, will not be subject to voluntary prepayment and are not to exceed 397 days. The proceeds of our commercial paper notes are used to acquire or refinance, in whole or in part, eligible green projects, including assets that are neutral to negative on incremental carbon emissions. In December 2021, we issued $ 50 million in green commercial paper notes which mature in March 2022, bearing a total borrowing rate of 1.26 %. Green commercial paper notes will be issued at a discount based on market pricing, subject to broker fees of 0.10 %. For issuance of the letter of credit, we will pay 0.95 % on any drawn letter of credit amounts to Bank of America, N.A., and 0.40 % on any unused letter of credit capacity. Fees paid on the drawn letters of credit may be reduced by up to 0.05 % to the extent our Portfolio achieves certain targeted levels of carbon emissions avoidance as measured by our CarbonCount metric. As of December 31, 2021, we have approximately $ 1 million of remaining unamortized financing costs associated with the commercial paper program and associated letter of credit that have been capitalized and included in other assets on our balance sheet and are being amortized on a straight-line basis over the term of the commercial paper program. The associated letter of credit contains terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds, stock repurchases and dividends we declare. The letter of credit also includes customary events of default and remedies. - 102 - 8. Long-term Debt Non-recourse debt We have outstanding the following asset-backed non-recourse debt and bank loans: Outstanding Balance as of December 31, Interest Rate Maturity Date Anticipated Balance at Maturity Carrying Value of Assets Pledged as of December 31, Description of Assets Pledged 2021 2020 2021 2020 (dollars in millions) HASI Sustainable Yield Bond 2015-1A $ 77 $ 81 4.28 % October 2034 $ — $ 133 $ 134 Receivables, real estate and real estate intangibles HASI Sustainable Yield Bond 2015-1B Note (1) — 13 5.41 % October 2034 — — 134 Class B Bond of HASI Sustainable Yield Bond 2015-1 HASI SYB Trust 2016-2 62 67 4.35 % April 2037 — 65 71 Receivables HASI ECON 101 Trust (2) — 126 3.57 % May 2041 — — 133 Receivables and investments HASI SYB Trust 2017-1 146 150 3.86 % March 2042 — 203 205 Receivables, real estate and real estate intangibles Lannie Mae Series 2019-1 93 95 3.68 % January 2047 — 107 107 Receivables, real estate and real estate intangibles Other non-recourse debt (3) 62 73 3.15 % - 7.45 % 2022 to 2032 18 65 73 Receivables Unamortized financing costs ( 10 ) ( 12 ) Non-recourse debt (4) $ 430 $ 593 (1) The Company repurchased this note in 2021. (2) In 2021, contractual terms were modified resulting in the deconsolidation of both this debt and the related pledged assets. We recognized a loss of approximately $ 3 million, which is included in gain on sale of receivables and investments in our income statement. (3) Other non-recourse debt consists of various debt agreements used to finance certain of our receivables. Scheduled debt service payment requirements are equal to or less than the cash flows received from the underlying receivables. (4) The total collateral pledged against our non-recourse debt was $ 573 million and $ 723 million as of December 31, 2021 and December 31, 2020, respectively. In addition, $ 24 million and $ 23 million of our restricted cash balance was pledged as collateral to various non-recourse loans as of December 31, 2021 and December 31, 2020, respectively. We have pledged the financed assets, and typically our interests in one or more parents or subsidiaries of the borrower that are legally separate bankruptcy remote special purpose entities as security for the non-recourse debt. There is no recourse for repayment of these obligations other than to the applicable borrower and any collateral pledged as security for the obligations. Generally, the assets and credit of these entities are not available to satisfy any of our other debts and obligations. The creditors can only look to the borrower, the cash flows of the pledged assets and any other collateral pledged, to satisfy the debt and we are not otherwise liable for nonpayment of such cash flows. The debt agreements contain terms, conditions, covenants, and representations and warranties that are customary and typical for transactions of this nature, including limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds and stock repurchases. The agreements also include customary events of default, the occurrence of which may result in termination of the agreements, acceleration of amounts due, and accrual of default interest. We typically act as servicer for the debt transactions. We were in compliance with all covenants as of December 31, 2021 and 2020. We have guaranteed the accuracy of certain of the representations and warranties and other obligations of certain of our subsidiaries under certain of the debt agreements and provided an indemnity against certain losses from “bad acts” of such subsidiaries including fraud, failure to disclose a material fact, theft, misappropriation, voluntary bankruptcy or unauthorized transfers. - 103 - The stated minimum maturities of non-recourse debt as of December 31, 2021, were as follows: Year Ending December 31, Future minimum maturities (in millions) 2022 $ 25 2023 26 2024 30 2025 26 2026 25 Thereafter 308 Total minimum maturities 440 Unamortized financing costs ( 10 ) Total non-recourse debt $ 430 The stated minimum maturities of non-recourse debt above include only the mandatory minimum principal payments. To the extent there are additional cash flows received from our investments in climate solutions projects serving as collateral for certain of our non-recourse debt facilities, these additional cash flows may be required to be used to make additional principal payments against the respective debt. Any additional principal payments made due to these provisions may impact the anticipated balance at maturity of these financings. To the extent there are not sufficient cash flows received from those investments pledged as collateral, the investor has no recourse against other corporate assets to recover any shortfalls. Senior Unsecured Notes We have outstanding senior unsecured notes issued jointly by certain of our TRS and are guaranteed by the Company and certain other subsidiaries (the “Senior Unsecured Notes”), including $ 1 billion of senior notes due 2026 (“2026 Notes”) issued in June 2021. Proceeds from the 2026 Notes were used to redeem the 2024 Notes as described below. The Senior Unsecured Notes are subject to covenants that limit our ability to incur additional indebtedness and require us to maintain unencumbered assets of not less than 120 % of our unsecured debt. These covenants will terminate on any date at which the Senior Unsecured Notes have been rated investment grade by two of the three major credit rating agencies and no event of default has occurred. We are in compliance with all of our covenants as of December 31, 2021 and 2020. The Senior Unsecured Notes impose certain requirements in the event that we merge with or sell substantially all of our assets to another entity. The proceeds of our Senior Unsecured Notes are used to acquire or refinance, in whole or in part, eligible green projects, including assets that are neutral to negative on incremental carbon emissions. The following are summarized terms of the Senior Unsecured Notes: Outstanding Principal Amount Maturity Date Stated Interest Rate Interest Payment Dates Redemption Terms Modification Date (in millions) 2024 Notes $ — (1) July 15, 2024 5.25 % January 15th and July 15th July 15, 2021 2025 Notes 400 April 15, 2025 6.00 % April 15 and October 15th April 15, 2022 (2) 2026 Notes 1,000 June 15, 2026 3.38 % June 15 and December 15 March 15, 2026 (2) 2030 Notes 375 (3) September 15, 2030 3.75 % February 15th and August 15th September 15, 2022 (4) (1) The first $ 350 million issuance of 2024 Notes was priced at par. We subsequently issued $ 150 million of the $ 500 million aggregate principal amount of the 2024 Notes for total proceeds of $ 157 million ($ 155 million net of issuance costs) at an effective interest rate of 4.13 %. The 2024 Notes were redeemed in June 2021 using a portion of the proceeds from the 2026 Notes. We recognized a loss of $ 15 million upon redemption for the redemption premium and the acceleration of debt issuance cost and premium amortization which is recorded in interest expense in our income statement. (2) Prior to this date, we may redeem, at our option, some or all of the 2025 Notes or 2026 Notes for the outstanding principal amount plus the applicable “make-whole” premium as defined in the indenture governing the 2025 Notes or 2026 Notes plus accrued and unpaid interest through the redemption date. In addition, prior to this date, we may redeem up to 40 % of the Senior Unsecured Notes using the proceeds of certain equity offerings at a price equal to par plus the coupon percentage of the principal amount thereof, plus accrued but unpaid interest, if any, to, but excluding, the applicable redemption date. On, or subsequent to, this date we may redeem the 2025 or 2026 Notes in whole or in part at redemption prices defined in the indenture governing the 2025 Notes or 2026 Notes, plus accrued and unpaid interest though the redemption date. (3) We issued the $ 375 million aggregate principal amount of the 2030 Notes for total proceeds of $ 371 million ($ 367 million net of issuance costs) at an effective interest rate of 3.87 %. - 104 - (4) Prior to this date, we may, at our option on one or more occasions redeem up to 40 % of the 2030 Notes using the proceeds of certain equity offerings at a price equal to 103.75 % of the principal amount thereof; plus accrued but unpaid interest, if any, to, but excluding the applicable redemption date. At any point prior to maturity, we may redeem, at our option, some or all of the 2030 Notes plus the applicable “make-whole” premium as defined in the indenture governing the 2030 Notes plus accrued and unpaid interest through the redemption date. The following table presents a summary of the components of the Senior Unsecured Notes: As of and for the year ended December 31, 2021 2020 (in millions) Principal $ 1,775 $ 1,275 Accrued interest 12 22 Unamortized premium (discount) ( 3 ) 2 Less: Unamortized financing costs ( 21 ) ( 16 ) Carrying value of Senior Unsecured Notes $ 1,763 $ 1,283 Interest expense $ 72 $ 49 Convertible Senior Notes We have outstanding $ 152 million aggregate principal amount of convertible senior notes (“Convertible Senior Notes”), including $ 144 million of principal amount convertible senior notes due August 15, 2023 issued in August 2020 at a stated interest rate of 0 %. Holders may convert any of their convertible notes into shares of our common stock at the applicable conversion ratio at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, unless the Convertible Senior Notes have been previously redeemed or repurchased by us. The following are summarized terms of the Convertible Senior Notes as of December 31, 2021: Outstanding Principal Amount Maturity Date Stated Interest Rate Interest Payment Dates Conversion Ratio Conversion Price Issuable Shares Dividend Threshold Amount (1) (in millions) (in millions) 2022 Convertible Senior Notes $ 8 (2) September 1, 2022 4.125 % March 1 and September 1 36.8366 $ 27.15 0.3 $ 0.33 2023 Convertible Senior Notes 144 August 15, 2023 0.000 % N/A 20.6931 $ 48.33 3.0 $ 0.34 (1) The conversion ratio is subject to adjustment for dividends declared above these amounts per share per quarter and certain other events that may be dilutive to the holder. (2) During the year ended December 31, 2021, $ 142 million in principal amount of 2022 Convertible Senior Notes were converted into 5.2 million shares of common stock. For both the 2022 Convertible Senior Notes and the 2023 Convertible Senior Notes, following the occurrence of a make-whole fundamental change, we will, in certain circumstances, increase the conversion rate for a holder that converts its convertible notes in connection with such make-whole fundamental change. There are no cash settlement provisions in the convertible notes and the conversion option can only be settled through physical delivery of our common stock. Additionally, upon the occurrence of certain fundamental changes involving us, holders of the convertible notes may require us to redeem all or a portion of their convertible notes for cash at a price of 100 % of the principal amount outstanding, plus accrued and unpaid interest. We have a redemption option to call the 2022 Convertible Senior Notes prior to maturity (i) on or after March 1, 2022 and (ii) at any time if such a redemption is deemed reasonably necessary to preserve our qualification as a REIT, with the holder of the notes having the option of converting prior to our redemption becoming effective. The redemption price will be equal to the principal of the notes being redeemed, plus accrued and unpaid interest. In the event of redemption after March 1, 2022, there will be an additional make-whole premium paid to the holder of the redeemed notes unless the redemption is deemed reasonably necessary to preserve our qualification as a REIT. We may redeem the 2023 Convertible Senior Notes at any time only if such a redemption is deemed reasonably necessary to preserve our qualification as a REIT. - 105 - The following table presents a summary of the components of our Senior Convertible Notes: As of and for the year ended December 31, 2021 2020 (in millions) Principal $ 152 $ 294 Accrued interest — 2 Less: Unamortized financing costs ( 2 ) ( 5 ) Carrying value of Convertible Senior Notes $ 150 $ 291 Interest expense $ 6 $ 8 9. Commitments and Contingencies Leases We lease office space at our headquarters in Annapolis, Maryland under an operating lease entered into in 2011 and amended in 2013 and 2017. Lease payments under this lease commenced in 2012 and incremental payments related to the amendments commenced in 2014 and 2017. The lease expires in 2027. In 2021, we signed a lease for new office space which expires in 2033, and expect to begin subleasing the prior space in 2023. The leases provide for operating expense reimbursements and annual escalations that are amortized over the respective lease terms on a straight-line basis. Rent expense was less than $ 1 million for each of the years ended December 31, 2021, 2020, and 2019, respectively. Future gross minimum lease payments are approximately $ 1 million per year during the remaining term of the leases. Litigation The nature of our operations exposes us to the risk of claims and litigation in the normal course of our business. We are not currently subject to any legal proceedings that are probable of having a material adverse effect on our financial position, results of operations or cash flows. Guarantees and other commitments We made a guarantee related to the financing of one of our joint venture entities that owns debt securities of energy efficiency projects. The entity entered into a financing arrangement where we had guaranteed the obligations of the entity related to this financing, which includes collateral posting requirements as well as repayment of the financing at maturity in December 2021, which was paid as scheduled. We have no performance obligations remaining under this guarantee as of December 31, 2021. In connection with some of our transactions, we have provided certain limited representations, warranties, covenants and/or provided an indemnity against certain losses resulting from our own actions, including related to certain investment tax credits. As of December 31, 2021, there have been no such actions resulting in claims against the Company. COVID-19 The COVID-19 global pandemic has brought forth uncertainty and disruption to the global economy. As of December 31, 2021, we have not recorded any contingencies on our balance sheet related to COVID-19 with the exception of any allowances related to our receivables described in Note 6. To the extent COVID-19 continues to cause dislocations in the global economy, our financial condition, results of operations, and cash flows may be adversely impacted. 10. Income Tax We recorded an income tax benefit (expense) of approximately $( 17 ) million for the year ended December 31, 2021, a $ 3 million tax benefit (expense) for the year ended December 31, 2020, and an $( 8 ) million tax benefit (expense) for the year for the year ended 2019 related to the activities of our TRS. The federal income tax expense and benefits recorded were determined using a rate of 21%. Our deferred tax assets and liabilities were measured using a federal rate of 21%. Below is a reconciliation between the federal statutory rates of our TRS entities and our effective tax rates for the years ended December 31: - 106 - 2021 2020 2019 Federal statutory income tax rate 21 % 21 % 21 % Changes in rate resulting from: Share-based compensation ( 4 ) % ( 13 ) % 2 % Equity method investments ( 2 ) % ( 12 ) % ( 2 ) % Other 5 % ( 4 ) % ( 1 ) % Valuation allowance — % — % ( 15 ) % Effective tax rate 20 % ( 8 ) % 5 % Our deferred tax liability was $ 25 million and $ 8 million as of December 31, 2021 and 2020, respectively, related to the activities of our TRS. Our deferred tax liability is included in accounts payable, accrued expenses and other on our consolidated balance sheet. Deferred income taxes represent the tax effect from continuing operations of the differences between the book and tax basis of assets and liabilities. Deferred tax assets (liabilities) include the following as of December 31: 2021 2020 (in millions) Net operating loss (NOL) carryforwards $ 75 $ 63 Tax credit carryforwards 16 15 Share-based compensation 3 3 Other 13 9 Valuation allowance — — Gross deferred tax assets 107 90 Receivables basis difference $ ( 15 ) $ ( 12 ) Equity method investments ( 117 ) ( 86 ) Gross deferred tax liabilities ( 132 ) ( 98 ) Net deferred tax liabilities $ ( 25 ) $ ( 8 ) We have unused NOLs of $ 306 million and tax credits of approximately $ 16 million. Approximately, $ 87 million of our NOLs will begin to expire in 2034. If our TRS entities were to experience a change in control as defined in Section 382 of the Internal Revenue Code, the TRS’s ability to utilize NOLs in the years after the change in control would be limited. Similar rules and limitation may apply for state tax purposes as well. Of our NOLs, $ 219 million were added in taxable years after 2018 which are not subject to expiration but are limited to 80% of taxable income. Our tax credits begin to expire in 2034. We have no examinations in progress, none are expected at this time, and years 2018 through 2021 are open. As of December 2021 and 2020, we had no uncertain tax positions. Our policy is to recognize interest expense and penalties related to income tax matters as a component of general and administrative expense. There were no accrued interest and penalties as of December 31, 2021 and 2020, and no interest and penalties were recognized during the years ended December 31, 2021, 2020, or 2019. For federal income tax purposes, the cash dividends paid for the years ended December 31, 2021 and 2020 are characterized as follows: 2021 2020 Common distributions Ordinary income 14 % — % Return of capital 86 % 100 % 100 % 100 % - 107 - 11. Equity Dividends and Distributions Our board of directors declared the following dividends in 2020 and 2021: Announced Date Record Date Pay Date Amount per share 2/20/2020 04/2/2020 04/10/2020 $ 0.34 6/5/2020 07/2/2020 07/9/2020 0.34 8/6/2020 10/2/2020 10/9/2020 0.34 11/5/2020 12/28/2020 (1) 01/8/2021 0.34 02/18/2021 04/5/2021 04/12/2021 0.35 05/4/2021 07/2/2021 07/9/2021 0.35 08/5/2021 10/1/2021 10/8/2021 0.35 11/4/2021 12/28/2021 (1) 01/11/2022 0.35 (1) These dividends are treated as distributions in the following year for tax purposes. Equity Offerings We have an effective universal shelf registration statement registering the potential offer and sale, from time to time and in one or more offerings, of any combination of our common stock, preferred stock, depositary shares, debt securities, warrants and rights (collectively referred to as the “securities”). We may offer the securities directly, through agents, or to or through underwriters by means of ordinary brokers’ transactions on the NYSE or otherwise at market prices prevailing at the time of sale or at negotiated prices and may include “at the market” (“ATM”) offerings, to or through a market maker or into an existing trading market on an exchange or otherwise. We completed the following public offerings (including ATM issuances) of our common stock in 2020 and 2021: Date/Period Common Stock Offerings Shares Issued Price Per Share (1) Net Proceeds (2) (amounts in millions, except per share amounts) Q1 2020 ATM 4.500 $ 25.84 $ 115 Q2 2020 ATM 1.938 23.10 44 Q3 2020 ATM 0.875 33.81 29 Q4 2020 ATM 2.204 50.35 110 Q1 2021 ATM 1.639 63.55 103 Q2 2021 None — — — Q3 2021 ATM 0.857 57.56 49 Q4 2021 ATM 0.830 59.82 49 (1) Represents the average price per share at which investors in our ATM offerings purchased our shares. (2) Net proceeds from the offerings are shown after deducting underwriting discounts, commissions and other offering costs. Equity-based Compensation Awards under our 2013 Plan We have 6,762,265 awards authorized for issuance under our 2013 Plan. As of December 31, 2021, we have issued awards with service, performance and market conditions and have 2,615,214 awards remaining available for issuance. During the year ended December 31, 2021, our board of directors awarded employees and directors 434,159 shares of restricted stock, restricted stock units, and LTIP Units that vest from 2022 to 2025. Refer to Note 4 for background on the LTIP Units. A summary of equity-based compensation expense and the fair value of shares and LTIP Units vested on the vesting date for the years ended December 31, 2021, 2020, and 2019 is as follows: 2021 2020 2019 (in millions) Equity-based compensation expense $ 17 $ 17 $ 14 Fair value of awards vested on vesting date 44 39 19 - 108 - The total unrecognized compensation expense related to awards of shares of restricted stock, restricted stock units, and LTIP Units was approximately $ 15 million as of December 31, 2021. We expect to recognize compensation expense related to these awards over a weighted-average term of approximately 2 years. A summary of the unvested shares of restricted common stock that have been issued is as follows: Restricted Shares of Common Stock Weighted Average Grant Date Fair Value Value (per share) (in millions) Ending Balance—December 31, 2019 750,242 $ 20.08 $ 15.1 Granted 194,077 32.93 6.4 Vested ( 576,880 ) 19.50 ( 11.3 ) Forfeited ( 262 ) 28.59 — Ending Balance—December 31, 2020 367,177 $ 27.77 $ 10.2 Granted 80,886 59.41 4.8 Vested ( 250,758 ) 29.22 ( 7.3 ) Forfeited ( 3,757 ) 51.43 ( 0.2 ) Ending Balance—December 31, 2021 193,548 $ 38.66 $ 7.5 A summary of the unvested shares of restricted stock units that have market-based vesting conditions that have been issued is as follows: Restricted Stock Units (1) Weighted Average Grant Date Fair Value Value (per share) (in millions) Ending Balance—December 31, 2019 435,578 $ 20.12 $ 8.8 Granted 23,342 27.18 0.6 Incremental performance shares granted 216,932 18.99 4.1 Vested ( 439,986 ) 19.04 ( 8.4 ) Forfeited ( 266 ) 25.90 — Ending Balance—December 31, 2020 235,600 $ 21.78 $ 5.1 Granted 17,426 71.23 1.2 Incremental performance shares granted 171,180 20.24 3.5 Vested ( 342,360 ) 20.24 ( 6.9 ) Forfeited ( 3,480 ) 39.92 ( 0.1 ) Ending Balance—December 31, 2021 78,366 $ 35.32 $ 2.8 (1) As discussed in Note 2, restricted stock units with market-based vesting conditions can vest between 0 % and 200 % subject to both the absolute performance of the Company’s common stock as well as relative performance compared to a group of peers. The incremental performance shares granted relate to the vesting of an award at the 200 % level. A summary of the unvested LTIP Units that have time-based vesting conditions that have been issued is as follows: LTIP Units (1) Weighted Average Grant Date Fair Value Value (per share) (in millions) Ending Balance—December 31, 2019 201,310 $ 25.84 $ 5.2 Granted 165,346 18.56 3.1 Vested ( 80,974 ) 25.87 ( 2.1 ) Forfeited — — — Ending Balance—December 31, 2020 285,682 $ 21.62 $ 6.2 Granted 249,573 54.73 13.7 Vested ( 151,209 ) 21.58 ( 3.3 ) Forfeited — — — Ending Balance—December 31, 2021 384,046 $ 43.15 $ 16.6 (1) See Note 4 for information on the vesting of LTIP Units. - 109 - A summary of the unvested LTIP Units that have market-based vesting conditions that have been issued is as follows: LTIP Units (1) Weighted Average Grant Date Fair Value Value (per share) (in millions) Ending Balance—December 31, 2019 180,500 $ 26.70 $ 4.8 Granted 132,204 12.25 1.6 Vested — — — Forfeited — — — Ending Balance—December 31, 2020 312,704 $ 20.59 $ 6.4 Granted 86,274 65.28 5.6 Incremental performance shares granted 51,500 21.09 1.1 Vested ( 103,000 ) 21.09 ( 2.1 ) Forfeited — — — Ending Balance—December 31, 2021 347,478 $ 31.61 $ 11.0 (1) See Note 4 for information on the vesting of LTIP Units. LTIP Units with market-based vesting conditions can vest between 0 % and 200 % subject to both the absolute performance of the Company’s common stock as well as relative performance compared to a group of peers. The incremental performance shares granted relate to the vesting of an award at the 200 % level. 12. Earnings per Share of Common Stock Both the net income or loss attributable to the non-controlling OP units and the non-controlling limited partners’ outstanding OP units have been excluded from the basic earnings per share and the diluted earnings per share calculations attributable to common stockholders. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are excluded from net income available to common shareholders in the computation of earnings per share pursuant to the two-class method. Certain share-based awards are included in the diluted share count to the extent they are dilutive as discussed in Note 2. To the extent our Senior Convertible Notes are dilutive under the if-converted method, we add back the interest expense to the numerator and include the weighted average shares of potential common stock over the period issuable upon conversion of the note in the denominator in calculating dilutive EPS as described in Note 2. - 110 - The computation of basic and diluted earnings per common share of common stock is as follows: Year ended December 31, Numerator: 2021 2020 2019 (dollars in millions, except share and per share data) Net income (loss) attributable to controlling stockholders and participating securities $ 126.6 $ 82.4 $ 81.6 Less: Dividends and distributions to participating securities ( 0.9 ) ( 0.9 ) ( 1.4 ) Undistributed earnings attributable to participating securities — — — Net income (loss) attributable to controlling stockholders $ 125.7 $ 81.5 $ 80.2 Add: Interest expense related to convertible notes under the if-converted method 6.3 0.4 — Net income (loss) attributable to controlling stockholders—diluted $ 132.0 $ 81.9 $ 80.2 Denominator: Weighted-average number of common shares—basic 79,992,922 72,387,581 63,916,440 Weighted-average number of common shares—diluted 87,671,641 74,373,169 64,771,491 Basic earnings per common share $ 1.57 $ 1.13 $ 1.25 Diluted earnings per common share $ 1.51 $ 1.10 $ 1.24 Securities being allocated a portion of earnings: Weighted-average number of OP units 485,013 309,465 279,135 Participating securities: Unvested restricted common stock and unvested LTIP Units with time-based vesting conditions outstanding at period end 577,594 652,859 951,552 Potentially dilutive securities as of period end: Unvested restricted common stock and unvested LTIP Units with time-based vesting conditions 577,594 652,859 951,552 Restricted stock units 78,366 235,600 435,578 LTIP Units with market-based vesting conditions 347,478 312,704 180,500 Potential shares of common stock related to convertible notes 3,274,300 8,487,800 5,510,499 13. Equity Method Investments We have non-controlling unconsolidated equity investments in renewable energy and energy efficiency projects as well as in a joint venture that owns land with long-term triple net lease agreements to several solar projects. During the years ended December 31, 2021, 2020, and 2019 we recognized income (loss) of $ 126 million, $ 48 million, and $ 64 million respectively, from our equity method investments. We describe our accounting for the non-controlling equity investments in Note 2. The following is a summary of the consolidated balance sheets and income statements of the entities in which we have a significant equity method investment. These amounts are presented on the underlying investees’ accounting basis. In certain instances, adjustment to these equity values may be necessary in order to reflect our basis in these investments. As described in Note 2, any difference between the amount of our investment and the amount of our share of underlying equity is generally amortized over the life of the assets and liabilities to which the differences relate. - 111 - Vivint Solar Asset 3 Borrower, LLC Rosie Targetco, LLC Other Investments (1) Total Balance Sheet in millions As of September 30, 2021 Current assets $ 20 $ 13 $ 754 $ 787 Total assets 406 282 11,188 11,876 Current liabilities 16 5 741 762 Total liabilities 383 101 4,558 5,042 Members’ equity 23 181 6,630 6,834 As of December 31, 2020 Current assets 86 25 671 782 Total assets 303 299 9,637 10,239 Current liabilities 3 19 631 653 Total liabilities 139 118 3,845 4,102 Members’ equity 164 181 5,792 6,137 Income Statement For the nine months ended September 30, 2021 Revenue 20 11 65 96 Income from continuing operations 3 ( 2 ) ( 493 ) ( 492 ) Net income 3 ( 2 ) ( 493 ) ( 492 ) For the year ended December 31, 2020 Revenue 2 1 367 370 Income from continuing operations ( 2 ) ( 5 ) ( 232 ) ( 239 ) Net income ( 2 ) ( 5 ) ( 232 ) ( 239 ) For the year ended December 31, 2019 Revenue — — 273 273 Income from continuing operations — — ( 97 ) ( 97 ) Net income — — ( 97 ) ( 97 ) (1) Represents aggregated financial statement information for investments not separately presented. 14. Defined Contribution Plan We administer a 401(k) savings plan, a defined contribution plan covering substantially all of our employees. Employees in the plan may contribute up to the maximum annual IRS limit before taxes via payroll deduction. Under the plan, we provide a dollar for dollar match for the first 4 % of the employee’s contributions and a $0.50 per dollar match for the next 2 % of employee contributions. We contributed less than $ 1 million under the plan for the years ended December 31, 2021, 2020, and 2019, respectively. - 112 - SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ALLOWANCE FOR CREDIT LOSSES For the year ended December 31, 2021 2020 2019 (in thousands) Balance at beginning of period $ 35,757 $ 8,027 $ — Charged to provision (1) 496 27,730 8,027 Loan charge-offs — — — Balance at end of period $ 36,253 $ 35,757 $ 8,027 (1) Amounts in 2020 include $ 17 million related to the adoption of ASC 326, which we adopted as of January 1, 2020 . - 113 - Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.