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Such policies may include governmental initiatives, laws and regulations designed to reduce energy usage and impact the use of renewable energy or the investment in and the use of climate solutions, including the Infrastructure Investment and Jobs Act and the Inflation Reduction Act.
−Removed: federal policies and incentives include, for example, tax credits (including credits that have been recently reduced and scheduled to be eliminated or phased out in the future), tax deductions, bonus depreciation, federal grants and loan guarantees and energy market regulations.
−Removed: State and local governments policies and incentives include, for example, renewable portfolio standards (“RPS”), commercial property assessed clean energy (“C-PACE”) programs, feed-in tariffs, other tariffs, tax incentives and other cash and non-cash payments.
+Added: federal policies and incentives include, for example, tax credits, tax deductions, bonus depreciation, federal grants and loan guarantees and energy market regulations.
+Added: State and local governments policies and incentives include, for example, renewable portfolio standards (“RPS”), feed-in tariffs, other tariffs, tax incentives and other cash and non-cash payments.
Governmental agencies, commercial entities and developers of climate solutions projects frequently depend on these policies and incentives to help defray the costs associated with, and to finance, various projects.
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Our ability to originate new assets could be adversely affected if one or more of the ESCOs or other origination sources with whom we have relationships are suspended or debarred or fail to win new, or renew existing, contracts.
−Removed: If the cost of energy generated by traditional sources of energy continues to stay or further declines from present levels, demand for the projects in which we invest may decline.
+Added: If the cost of energy generated by traditional sources of energy continues to stay low or further declines from present levels, demand for the projects in which we invest may decline.
Many traditional sources of energy such as coal, petroleum-based fuels and natural gas can be influenced by the price of underlying or substitute commodities.
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These various regulations may also limit the transferability or sale of renewable energy projects and any such limits could negatively impact our returns from such projects.
−Removed: We are subject to risks related to our ESG activities and disclosures.
−Removed: Our ESG strategy and practices and the level of transparency with which we are approaching them are foundational to our business and expose us to several risks, including:
−Removed: • that we may fail or be unable to fully achieve one or more of our ESG goals due to a range of factors within or beyond our control, or that we may adjust or modify our goals in light of new information, adjusted projections, or a change in business strategy, which could negatively impact our reputation and our business;
−Removed: • that a failure to or perception of a failure to disclose metrics and set goals that are rigorous enough or in an acceptable format, a failure to appropriately manage selection of goals, a failure to or perception of a failure to make appropriate disclosures, stockholder perception of a failure to prioritize the “correct” ESG goals, or an unfavorable ESG-related rating by a third party, that could negatively impact our reputation and our business;
−Removed: • that certain data we utilize in our CarbonCount or similar metric calculations is prepared by third parties or receives limited assurance from and/or verification by third parties and may undergo a less rigorous review process than
−Removed: assurance sought in connection with more traditional audits and such review process may not identify errors and may not protect us from potential liability under the securities laws, and, if errors are identified our reputation and our business could be negatively impacted and if we were to seek more extensive assurance or attestation with respect to such ESG metrics, we may be unable to obtain such assurance or attestation or may face increased costs related to obtaining and/or maintaining such assurance or attestation;
−Removed: • that the ESG or sustainability standards, norms, or metrics, which are constantly evolving, change in a manner that impacts us negatively or requires us to change the content or manner of our disclosures, and our stockholders or third parties view such changes negatively, we are unable to adequately explain such changes, or we are required to expend significant resources to update our disclosures, any of which could negatively impact our reputation and our business;
−Removed: • that our business could be negatively impacted if any of our disclosures, including our CarbonCount or similar metrics, reporting to third-party ESG standards, or reporting against our goals, are inaccurate, perceived to be inaccurate, or alleged to be inaccurate.
+Added: We are subject to risks related to our sustainability and governance activities and disclosures.
+Added: Our sustainability and governance strategy and practices and the level of transparency with which we are approaching them are foundational to our business and expose us to several risks, including:
+Added: • that we may fail or be unable to fully achieve one or more of our sustainability and governance goals due to a range of factors within or beyond our control, or that we may adjust or modify our goals in light of new information, adjusted projections, or a change in business strategy, which could negatively impact our reputation and our business;
+Added: • that a failure to or perception of a failure to disclose metrics and set goals that are rigorous enough or in an acceptable format, a failure to appropriately manage selection of goals, a failure to or perception of a failure to make appropriate disclosures, stockholder perception of a failure to prioritize the “correct” sustainability and governance goals, or an unfavorable sustainability and governance-related rating by a third party, that could negatively impact our reputation and our business;
+Added: • that certain data we utilize in our CarbonCount or similar metric calculations is prepared by third parties or receives limited assurance from and/or verification by third parties and may undergo a less rigorous review process than assurance sought in connection with more traditional audits and such review process may not identify errors and may not protect us from potential liability under the securities laws, and, if errors are identified our reputation and our business could be negatively impacted and if we were to seek more extensive assurance or attestation with respect to such sustainability and governance metrics, we may be unable to obtain such assurance or attestation or may face increased costs related to obtaining and/or maintaining such assurance or attestation;
+Added: • that the governance, social, or sustainability standards, norms, or metrics, which are constantly evolving, change in a manner that impacts us negatively or requires us to change the content or manner of our disclosures, and our stockholders or third parties view such changes negatively, we are unable to adequately explain such changes, or we are required to expend significant resources to update our disclosures, any of which could negatively impact our reputation and our business;
+Added: • that our business could be negatively impacted if any of our disclosures, including our CarbonCount or similar metrics, reporting to third-party standards, or reporting against our goals, are inaccurate, perceived to be inaccurate, or alleged to be inaccurate.
We operate in a competitive market, which may impact the terms of our investments.
We compete against a number of parties who may provide alternatives to our investments including, among others, a wide variety of financial institutions, government entities and energy industry participants.
−Removed: A historically low interest rate environment over the past several years and increasing investor acceptance of the climate solutions market increased the level of competition we experience, and we expect supportive government policies and initiatives to further increase competition in the markets in which we invest.
+Added: Increasing investor acceptance of the climate solutions market increased the level of competition we experience, and we expect supportive government policies and initiatives to further increase competition in the markets in which we invest.
We also encounter competition in the form of potential customers or our origination partners electing to use their own capital rather than engaging an outside provider such as us.
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In addition, some of our competitors have higher risk tolerances or different risk assessments, which allow those competitors to consider a wider variety of investments and establish more relationships than we can.
−Removed: Further, many of our competitors are not subject to the operating constraints associated with REIT tax compliance or maintenance of an exemption from the 1940 Act.
+Added: Further, many of our competitors are not subject to the operating constraints associated with maintenance of an exemption from the 1940 Act.
These characteristics could allow our competitors to consider a wider variety of opportunities, establish more relationships and offer better pricing and more flexible structuring than we can offer.
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The majority of our investments are not rated by any rating agency and we expect that most of the assets we originate and acquire in the future will not be rated by any rating agency.
−Removed: Although we focus on climate solutions project companies with high credit quality obligors, we believe that some of the projects or obligors in which we invest, if rated, would be rated below investment grade, due to speculative characteristics of the project or the obligor’s capacity to pay interest and repay principal or pay dividends.
+Added: Although we focus on climate solutions project companies with high credit quality obligors, we believe that a number of the projects or obligors in which we invest, if rated, would be rated below investment grade, due to speculative characteristics of the project or the obligor’s capacity to pay interest and repay principal or pay dividends.
Some of our assets may result in an amount of risk, volatility or potential loss of principal that is greater than that of alternative asset opportunities.
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In the case of securities ranking equally with instruments we hold, we would have to share on an equal basis any distributions with other stakeholders holding such instruments in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant project.
−Removed: Our subordinated and mezzanine debt and equity investments, many of which are illiquid with no readily available market, involve a substantial degree of risk.
+Added: Our subordinated and mezzanine debt and equity investments, many of which are illiquid with no readily available market, involve a degree of risk.
Subordinated and mezzanine debt and equity investments involve a number of significant risks, including:
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The project may face unanticipated costs or delays or may not generate projected cash flows, which could lead to the project generating lower than expected rates of return.
−Removed: We generally do not control the projects in which we invest.
+Added: We either jointly control or do not control the projects in which we invest, which may result in the project owner making certain business decisions or taking risks with which we disagree.
Although the covenants in our financing or investment documentation generally restrict certain actions that may be taken by project owners, we generally do not control the projects in which we invest.
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Furthermore, the bankruptcy, insolvency, or other liquidity constraints of one or more customers may result in a renegotiation or rejection of the third-party contract, delay the receipt of any obligations or reduce the likelihood of collecting defaulted obligations.
−Removed: Some projects rely on one customer for their revenue and thus the project could be materially and adversely affected by any material change in the
−Removed: financial condition of that customer.
+Added: Some projects rely on one customer for their revenue and thus the project could be materially and adversely affected by any material change in the financial condition of that customer.
While there may be alternative customers for such a project, there can be no assurance that a new contract on the same terms will be able to be negotiated for the project.
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We are exposed to the risk that the power purchaser, who we consider an obligor, will fail to perform under a PPA or the PPA will be terminated or expire, which will lead to that project needing to sell its electricity at the then market price, which could be substantially lower than the price provided in the applicable PPA.
−Removed: In most instances, the project also commits to sell minimum levels of generation.
+Added: In many instances, the project also commits to sell minimum levels of generation.
If the project generates less than the committed volumes, it may be required to buy the shortfall of electricity on the open market or make payments of liquidated damages or be in default under a PPA, which could result in its termination.
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Portions of the electricity and environmental attributes our assets generate are sold on the open market at spot-market prices.
−Removed: A prolonged environment of low prices for natural gas, or other conventional fuel sources such as we are experiencing may, and could continue to, have a material adverse effect on our long-term business prospects, financial condition and results of operations.
+Added: A prolonged environment of low prices for natural gas, or other conventional fuel sources, below the levels at which we assumed when underwriting these investment could have a material adverse effect on our long-term business prospects, financial condition and results of operations.
Low prices for traditional fossil fuels, particularly natural gas, could cause demand for renewable energy to decrease and prices have, and may continue to, adversely affect both the future sale price of energy under new PPAs and the current sale price of energy sold on a spot-market basis.
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Climate projects are subject to various construction and operating delays and risks that have in the past caused them to, and may in the future cause them to, incur higher than expected costs or generate less than expected amounts of savings or outputs, such as electricity in the case of a renewable energy project.
−Removed: The ongoing operation of the projects in which we invest involves risks that include construction delays, the breakdown or failure of equipment or processes or performance below expected levels of output or efficiency due to wear and tear, latent defect, design error or operator error or force majeure events, among other things.
−Removed: In addition to natural risks such as earthquake, flood, drought, lightning, wildfire, hurricane, ice, wind, and temperature extremes, other hazards, such as fire, explosion, structural collapse and machinery failure, acts of terrorism or related acts of war, hostile cyber intrusions, pandemics, or other catastrophic events are inherent risks in the construction and operation of a project.
+Added: The ongoing operation of the projects in which we invest involves risks that include construction delays, the breakdown or failure of equipment or processes or performance below expected levels of output or efficiency due to wear and tear, the impact of inflation, latent defect, design error or operator error or force majeure events, among other things.
+Added: In addition to natural risks such as earthquake, flood, drought, lightning, wildfire, hurricane, ice, wind, and temperature extremes, other hazards, such as fire, explosion, structural collapse and machinery failure, acts of terrorism or related acts of war, hostile cyber intrusions, pandemics or other public health issue, or other catastrophic events are inherent risks in the construction and operation of a project.
These and other hazards can cause significant personal injury or loss of life, severe damage to and destruction of property, plant and equipment and contamination of, or damage to, the environment and suspension of operations.
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Unplanned outages typically increase operation and maintenance expenses and may reduce revenues as a result of selling less electricity or require the project to incur significant costs as a result of obtaining replacement power from third parties in the open market to satisfy forward power sales obligations.
−Removed: Any extended interruption in a project’s construction or operation, a project’s inability to operate its assets efficiently, manage capital expenditures and costs and generate earnings and cash flow could have a material adverse effect on the repayment of and return on our investment and our business, financial condition, results of operations and cash flows.
+Added: Any extended interruption in a project’s construction or operation, a project’s inability to operate its assets efficiently, manage capital expenditures and costs or generate earnings and cash flow could have a material adverse effect on the repayment of and return on our investment and our business, financial condition, results of operations and cash flows.
While the projects maintain insurance, obtain warranties from vendors and obligate contractors to meet certain performance levels, the proceeds of such insurance, warranties or performance guarantees may not cover the lost revenues, increased expenses or liquidated damages payments should the project experience any equipment breakdowns, insurance claims or non-performance by contractors or vendors.
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Furthermore, leases that are renewed and some new leases for properties that are re-leased, may have terms that are less economically favorable than expiring lease terms, or may require us to incur significant costs, such as lease transaction costs.
−Removed: In addition, negative market conditions or adverse events affecting tenants, or the industries in which they operate, may force us to sell vacant properties for less than their carrying value, which could result in impairments.
+Added: In addition, negative market conditions or adverse events affecting tenants, or the industries in which they operate, may force us to sell vacant properties for less than their carrying value, which
+Added: could result in impairments.
Any of these events could adversely affect the value of our asset, the cash flow from operations and our ability to make distributions to stockholders and service indebtedness.
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In these cases, we could be subject to environmental liabilities with respect to these assets.
−Removed: To the extent that we become liable for the removal costs, our results of operation and financial condition may be adversely affected.
+Added: To the extent that
+Added: we become liable for the removal costs, our results of operation and financial condition may be adversely affected.
The presence of hazardous substances, if any, may adversely affect our ability to sell the affected real property or the project and we may incur substantial remediation costs, thus harming our financial condition.
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Risks Related to Our Company
−Removed: We may change our operational policies (including our investment guidelines and strategies) with the approval of our Board but without stockholder consent at any time, which may adversely affect the market value of our common stock and our ability to make distributions to our stockholders.
−Removed: Our Board determines our operational policies and may amend or revise our policies, including our policies with respect to investments, acquisitions, dispositions, growth, operations, compensation, indebtedness, capitalization and dividends, or approve transactions that deviate from these policies, without a vote of, or notice to, our stockholders at any time.
−Removed: We may change our investment guidelines, underwriting process and our strategy at any time with the approval of our Board, but without the consent of our stockholders, which could result in originating assets that are different in type from, and possibly riskier than, the assets initially contemplated.
−Removed: In addition, our charter provides that our Board may authorize us to revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interests to qualify as a REIT.
−Removed: These changes could adversely affect our business, financial condition, results of operations and our ability to make distributions to our stockholders.
−Removed: Our management and employees depend on information systems and system failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to make distributions to our stockholders.
+Added: Our management and employees depend on information systems and system failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends to our stockholders.
Our underwriting process and our asset and financial management and reporting are dependent on our present and future communications and information systems.
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Additionally, the cost of maintaining such systems and processes, procedures and internal controls may increase from its current level.
−Removed: Potential sources for disruption, damage or failure of our information technology systems include, without limitation, computer viruses, security breaches, human error, cyber- attacks, natural disasters and defects in design.
+Added: Potential sources for disruption, damage or failure of our information technology systems include, without limitation, computer viruses, security
+Added: breaches, human error, cyber- attacks, natural disasters and defects in design.
Additionally, due to the size and nature of our company, we rely on third-party service providers for many aspects of our business.
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The inability to evaluate the potential impacts could have a material adverse effect on the operations of our business.
−Removed: Loss of our 1940 Act exemptions would adversely affect us, the market price of shares of our common stock and our ability to distribute dividends.
+Added: Loss of our 1940 Act exemptions may adversely affect us, the market price of shares of our common stock and our ability to distribute dividends.
We conduct our operations so that we are not required to register as an investment company under the 1940 Act.
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In general, with regard to our subsidiaries relying on Section 3(c)(5)(C), we rely on other guidance published by the SEC or its staff or on our analyses of guidance published with respect to other types of assets to determine which assets are qualifying real estate assets and real estate-related assets.
−Removed: In addition, one or more of our subsidiaries qualifies for an exemption from registration as an investment company under the 1940 Act pursuant to either Section 3(c)(5)(A) of the 1940 Act, which is available for entities which are not engaged in the
−Removed: business of issuing redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates, and which are primarily engaged in the business of purchasing or otherwise acquiring notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance, and services, or Section 3(c)(5)(B) of the 1940 Act, which is available for entities primarily engaged in the business of making loans to manufacturers, wholesalers, and retailers of, and to prospective purchasers of, specified merchandise, insurance, and services.
+Added: In addition, one or more of our subsidiaries qualifies for an exemption from registration as an investment company under the 1940 Act pursuant to either Section 3(c)(5)(A) of the 1940 Act, which is available for entities which are not engaged in the business of issuing redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates, and which are primarily engaged in the business of purchasing or otherwise acquiring notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance, and services, or Section 3(c)(5)(B) of the 1940 Act, which is available for entities primarily engaged in the business of making loans to manufacturers, wholesalers, and retailers of, and to prospective purchasers of, specified merchandise, insurance, and services.
These exemptions generally require that at least 55% of such subsidiaries’ portfolios must be comprised of qualifying assets that meet the requirements of the exemption.
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While the SEC has yet to provide additional information on its position relating to these exemptions and timing of any future changes to the exemptions remain unknown, any additional guidance from the SEC or its staff from this process or in other circumstances could provide additional flexibility to us, or it could further inhibit our ability to pursue the strategies we have chosen.
−Removed: If we or our subsidiaries fail to maintain an exemption from the 1940 Act, we could, among other things, be required either to (1) change the manner in which we conduct our operations to avoid being required to register as an investment company, (2) effect sales of our assets in a manner that, or at a time when, we would not otherwise choose to do so or (3) register as an investment company, any of which could negatively affect our business, our ability to make distributions, our financing strategy and the market price for our shares of common stock.
+Added: If we or our subsidiaries fail to maintain an exemption from the 1940 Act, we could, among other things, be required either to (1) change the manner in which we conduct our operations to avoid being required to register as an investment company, (2) effect sales of our assets in a manner that, or at a time when, we would not otherwise choose to do so or (3) register as an investment company, any of which could negatively affect our business, our ability to make distributions, our financing strategy and the market price for shares of our common stock.
We have not requested the SEC or its staff to approve our treatment of any company as a majority-owned subsidiary and neither the SEC nor its staff has done so.
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Any such adjustment in our strategy could have a material adverse effect on us.
−Removed: Rapid changes in the values of our assets may make it more difficult for us to maintain our qualification as a REIT or our exemption from the 1940 Act.
−Removed: If the market value or income potential of our assets changes as a result of changes in interest rates, general market conditions, government actions or other factors, we may need to adjust the portfolio mix of our real estate assets and income or liquidate our non-qualifying assets to maintain our REIT qualification or our exemption from the 1940 Act.
+Added: Rapid changes in the values of our assets may make it more difficult for us to maintain our exemption from the 1940 Act.
+Added: If the market value or income potential of our assets changes as a result of changes in interest rates, general market conditions, government actions or other factors, we may need to adjust the portfolio mix of our real estate assets and income or liquidate our non-qualifying assets to maintain our exemption from the 1940 Act.
If changes in asset values or income occur quickly, this may be especially difficult to accomplish.
This difficulty may be exacerbated by the illiquid nature of the assets we may own.
−Removed: We may have to make decisions that we otherwise would not make absent the REIT and 1940 Act considerations.
+Added: We may have to make decisions that we otherwise would not make absent 1940 Act considerations.
Risks Related to our Borrowings and Hedging
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If we are unable to repay or refinance the remaining balance of this debt, or if the terms of any available refinancing are not favorable, we may be forced to liquidate assets or incur higher costs which may significantly harm our business, financial condition, results of operations, and our ability to make distributions, which could in turn cause the value of our common stock to decline.
−Removed: The return on our assets
−Removed: and cash available for distribution to our stockholders may be reduced to the extent that market conditions prevent us from leveraging our assets or increase the cost of our financing relative to the income that can be derived from the assets acquired.
+Added: The return on our assets and cash available for distribution to our stockholders may be reduced to the extent that market conditions prevent us from leveraging our assets or increase the cost of our financing relative to the income that can be derived from the assets acquired.
Increases in our financing costs will reduce cash available for distributions to stockholders.
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Increases in interest rates, or a flattening or inversion of the yield curve, reduce the spread between the returns on our assets which are typically priced using longer-term interest rates and the cost of any new borrowings or borrowings where the interest rate adjusts to market rates or is based on shorter-term rates.
−Removed: This change in interest rates would adversely affect our earnings and, in turn, cash available for distribution to our stockholders.
+Added: This change in interest rates may adversely affect our earnings and, in turn, cash available for distribution to our stockholders.
In addition, as we may use short-term borrowings that are generally short-term commitments of capital, lenders may respond to market conditions making it more difficult for us to obtain continued financing.
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We have established leverage limits which are discussed in Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Liquidity and Capital Resources.
−Removed: However, our charter and bylaws do not limit the amount or type of indebtedness we can incur, and our Board has changed, and has the discretion to deviate from or change at any time in the future, our leverage policy, which could result in an investment portfolio with a different risk profile.
+Added: However, our charter and bylaws do not limit the amount or type of indebtedness we can incur, and our Board has changed, and has the discretion to deviate from or change at any time in the future, our leverage policy, which could result in our business having a different risk profile.
We utilize non-recourse facilities on certain types of assets that have significantly higher leverage.
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We have also established funds and special purpose entities through which we hold only a partial or subordinate interest or a residual value after taking into account our non-recourse debt facilities or a right to participate in the profits of such entity once it achieves a predefined threshold.
−Removed: As a holder of the residual value or other such interests, we are more exposed to losses on the underlying collateral because the interest we retain in the securitization vehicle or other entity would be subordinate to the more senior notes or interests issued to investors and we would, therefore, absorb all of the losses, up to the value of our interests, sustained with respect to the underlying assets before the owners of the notes or other interests experience any losses.
+Added: As a holder of the residual value or other such interests, we are more exposed to losses on
+Added: the underlying collateral because the interest we retain in the securitization vehicle or other entity would be subordinate to the more senior notes or interests issued to investors and we would, therefore, absorb all of the losses, up to the value of our interests, sustained with respect to the underlying assets before the owners of the notes or other interests experience any losses.
In addition, the inability to securitize our Portfolio or assets within our Portfolio could hurt our performance and our ability to grow our business.
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A default and resulting repayment acceleration could significantly reduce our liquidity, which could require us to sell our assets to repay amounts due and outstanding.
−Removed: This could also significantly harm our business, financial condition, results of operations, and our ability to make distributions, which could cause the value of our common stock to decline and adversely affect our ability to qualify, or remain qualified, as a REIT.
+Added: This could also significantly harm our business, financial condition, results of operations, and our ability to make distributions, which could cause the value of our common stock to decline.
A default will also significantly limit our financing alternatives such that we will be unable to pursue our leverage strategy, which could curtail the returns on our assets.
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If our subsidiary is unable to repay or refinance the remaining balance of this debt, or if the terms of any available refinancing are not favorable, we may be forced to liquidate assets or incur higher costs which may significantly harm our business, financial condition, results of operations, and our ability to make distributions, which could cause the value of our common stock to decline.
−Removed: The discontinuation of U.S.
−Removed: dollar London Interbank Offered Rate (“LIBOR”) may adversely affect our borrowing costs and the costs of any related hedging transactions.
−Removed: The terms of our secured credit facilities refer to U.S.
−Removed: dollar LIBOR.
−Removed: As announced on March 5, 2021 by the ICE Benchmark Administration Limited (“IBA”) and the U.K.
−Removed: Financial Conduct Authority, the IBA will cease publishing the overnight, 1-month, 3-month, 6-month and 12-month settings of U.S.
−Removed: dollar LIBOR rates immediately after June 30, 2023.
−Removed: The Alternative Reference Rates Committee (“ARCC”), which was convened by the Federal Reserve Board and the New York
−Removed: Federal Reserve Bank, has identified the Secured Overnight Financing Rate (“SOFR”) as the recommended risk-free alternative rate for U.S.
−Removed: dollar LIBOR.
−Removed: The ARRC has also recommended the use of the CME Group's computation of forward-looking SOFR term rates (“Term SOFR”), subject to certain recommended limitations on the scope of its use.
−Removed: In March 2022, the Adjustable Interest Rate (LIBOR) Act was enacted at the federal level in the United States, pursuant to which the Board of Governors of the Federal Reserve System has designated benchmark replacement rates based on SOFR for U.S.
−Removed: law governed legacy contracts that have no or insufficient fallback provisions.
−Removed: Some of our financing arrangements may not include robust fallback language that would facilitate replacing U.S.
−Removed: dollar LIBOR with a clearly defined alternative reference rate.
−Removed: We may not able to amend or refinance these credit facilities and interest rate hedge agreements prior to the discontinuation of U.S.
−Removed: dollar LIBOR, or applicable legislation or regulations may provide a benchmark replacement rate based on SOFR, a spread adjustment and conforming changes.
−Removed: Even when robust fallback language is included in financing arrangements, any alternative rates used to determine interest on our variable rate debt, including any version of SOFR or Term SOFR, plus any spread adjustment may not be economically equivalent to U.S.
−Removed: dollar LIBOR.
−Removed: In addition, market practices related to calculation conventions for replacement benchmark rates continue to develop and may vary, and inconsistent conventions may develop among financial products.
−Removed: Inconsistent use of replacement rates or calculation conventions among financial products could expose us to additional financial risks and increase the cost of any related hedging transactions.
−Removed: Furthermore, the transition away from U.S.
−Removed: dollar LIBOR may adversely impact our ability to hedge exposures to fluctuations in interest rates using derivative instruments.
−Removed: It is not possible to predict all consequences of the IBA’s plans to cease publishing U.S.
−Removed: dollar LIBOR, any related regulatory actions and the expected discontinuance of the use of U.S.
−Removed: dollar LIBOR as a reference rate for financial contracts.
−Removed: Any transition from LIBOR to alternative reference rates could result in financial market disruptions, hedging mismatches, or significant increases in our borrowing costs or the costs of any related hedging, any of which could have an adverse effect on our business, results of operations, financial condition, and the market price of our common stock.
−Removed: We have borrowings which bear interest at a variable rate that is based on the SOFR, which may have consequences for us that cannot be reasonably predicted and may adversely affect our liquidity, financial condition, and results of operations.
−Removed: We have borrowings which bear interest at a rate per annum that is based upon SOFR.
−Removed: Although SOFR has been endorsed by the Alternative Reference Rates Committee as its preferred replacement for LIBOR, it remains uncertain whether or when SOFR or other alternative reference rates will be widely accepted by lenders as the replacement for LIBOR.
−Removed: This may, in turn, impact the liquidity of the SOFR loan market, and SOFR itself.
−Removed: Since the initial publication of SOFR, daily changes in the rate have, on occasion, been more volatile than daily changes in comparable benchmark or market rates, and SOFR over time may bear little or no relation to the historical actual or historical indicative data and use of SOFR may result in interest rates and/or payments that are higher or lower than the rates and payments that we might have experienced using LIBOR.
−Removed: Also, the use of SOFR based rates is relatively new, and there could be unanticipated difficulties or disruptions with the calculation and publication of SOFR based rates.
−Removed: In particular, if the agent under the CarbonCount®-Based Revolving Credit Facility determines that SOFR based rates cannot be determined or the agent or the lenders determine that SOFR based rates do not adequately reflect the cost of funding the SOFR loans, outstanding SOFR loans will be converted into ABR Loans (as defined in the CarbonCount®-Based Revolving Credit Facility).
−Removed: The possible volatility of and uncertainty around SOFR as a LIBOR replacement rate and the potential conversion to ABR Loans could result in higher borrowing costs for us, which would adversely affect our liquidity, financial condition, and results of operations.
+Added: We have borrowings which bear interest at a variable rate that is based on Secured Overnight Financing Rate (“SOFR”) term rates (“Term SOFR”), which may have consequences for us that cannot be reasonably predicted and may adversely affect our liquidity, financial condition, and results of operations.
+Added: We have borrowings which bear interest at a rate per annum that is based upon Term SOFR.
+Added: The use of SOFR based rates is relatively new, and there could be unanticipated difficulties or disruptions with the calculation and publication of SOFR based rates.
+Added: In particular, if the agent under the CarbonCount-Based Revolving Credit Facility (the “unsecured revolving credit facility”) determines that SOFR based rates cannot be determined or the agent or the lenders determine that SOFR based rates do not adequately reflect the cost of funding the SOFR loans, outstanding SOFR loans will be converted into ABR Loans (as defined in the unsecured revolving credit facility).
+Added: The possible volatility of SOFR and the potential conversion to ABR Loans could result in higher borrowing costs for us, which would adversely affect our liquidity, financial condition, and results of operations.
We, or the projects in which we invest, enter into hedging transactions that could expose us to contingent liabilities or additional credit risk in the future and adversely impact our financial condition.
−Removed: Subject to maintaining our qualification as a REIT, part of our strategy, or the strategy of the projects in which we invest, involves entering into hedging transactions that could require us to fund cash payments in certain circumstances (e.g .
+Added: Part of our strategy, or the strategy of the projects in which we invest, involves entering into hedging transactions that could require us to fund cash payments in certain circumstances (e.g .
, the early termination of the hedging instrument caused by an event of default or other early termination event, or the decision by a counterparty to request margin it is contractually owed under the terms of the hedging instrument).
2 unchanged sentences
Even though most swaps are cleared through a central counterparty clearinghouse, certain transactions could be executed bilaterally with a counterparty.
−Removed: We would remain exposed to our counterparty’s ability to perform on its obligations under each hedge and cannot look to the creditworthiness of a central counterparty for performance.
+Added: While we have the ability to require counterparties to post, to the extent we have not obtained sufficient collateral, we would remain exposed to our counterparty’s ability to perform on its obligations under each hedge and cannot look to the creditworthiness of a central counterparty for performance.
As a result, if a hedging counterparty cannot perform under the terms of the hedge, we would not receive payments due under that hedge, we may lose any unrealized gain associated with the hedge and the hedged liability would cease to be hedged.
1 unchanged sentence
In such case, we could be forced to cover our unhedged liabilities at the then current market price.
−Removed: be at risk for any collateral we have pledged to secure our obligations under the hedge if the counterparty becomes insolvent or files for bankruptcy.
+Added: We may also be at risk for any collateral we have pledged to secure our obligations under the hedge if the counterparty becomes insolvent or files for bankruptcy.
Furthermore, our interest rate swaps and other hedge transactions are subject to increasing statutory and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements.
1 unchanged sentence
and foreign regulators to strengthen the oversight of swaps, and any further actions taken by such regulators could constrain our strategy or increase our costs, either of which could materially and adversely impact our results of operations.
−Removed: Additionally, applicable regulations require certain derivatives, including certain interest rate swaps, to be executed on a regulated market and cleared through a central counterparty.
−Removed: Unlike over-the-counter swaps, the counterparty for the cleared swaps is the clearing house, which reduces counterparty risk.
−Removed: However, cleared swaps require us to appoint clearing brokers and to post margin in accordance with the clearing house’s rules, which has resulted in increased costs for cleared swaps compared to over-the-counter swaps.
−Removed: Our over-the-counter hedges with swap dealers are subject to margin regulations which prescribe the required margin, limit eligible margin to cash and specified types of securities.
−Removed: These margin regulations have the effect, therefore, of increasing the costs of hedging and could induce us to limit our use of certain hedging transactions.
−Removed: Also, any mortgage real estate investment trust that trades in swaps may be considered a "commodity pool," which would cause its operator to be regulated as a “commodity pool operator” (a “CPO”).
−Removed: Operators of mortgage REITs are currently exempt from CPO registration requirements, subject to certain qualification parameters.
−Removed: The need to operate within these parameters could limit the use of swaps and other commodity interests by us below the level that we would otherwise consider optimal or may lead to the registration of our company, our management team or our directors as commodity pool operators, which will subject us to additional regulatory oversight, compliance and costs.
Moreover, the projects in which we invest, may enter into various forms of hedging including interest rate and power price hedging.
27 unchanged sentences
• changes in governmental policies, regulations or laws;
−Removed: • failure to qualify, or maintain our qualification, as a REIT or failure to maintain our exemption from registration as an investment company under the 1940 Act;
+Added: • failure to maintain our exemption from registration as an investment company under the 1940 Act;
• price and volume fluctuations in the stock market generally;
3 unchanged sentences
If market interest rates increase, prospective investors may demand a higher distribution rate or seek alternative investments paying higher dividends or interest.
−Removed: As a result, interest rate fluctuations and conditions in capital markets have, or in the future could, affect the market value of our common stock.
+Added: interest rate fluctuations and conditions in capital markets have, or in the future could, affect the market value of our common stock.
Common stock and preferred stock eligible for future sale may have adverse effects on our share price.
3 unchanged sentences
We cannot assure you of our ability to make distributions in the future.
−Removed: If our portfolio of assets fails to generate sufficient income and cash flow, we could be required to sell assets, borrow funds, raise additional equity or make a portion of our distributions in the form of a taxable stock distribution or distribution of debt securities.
−Removed: We are generally required to distribute to our stockholders at least 90% of our REIT taxable income (without regard to the deduction for dividends paid and excluding net capital gains) each year for us to qualify, and maintain our qualification, as a REIT under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).
−Removed: Our current policy is to pay quarterly distributions, which on an annual basis is expected to equal or substantially exceed 90% or more of our REIT taxable income.
+Added: If our portfolio of assets fails to generate sufficient income and cash flow, we could be required to sell assets, borrow funds, issue additional equity or make a portion of our distributions in the form of a taxable stock distribution or distribution of debt securities.
+Added: As a REIT, we were generally required, among other things, to distribute annually at least 90% of our REIT taxable income (without regard to the deduction for dividends paid and excluding net capital gains) each year for us to have qualified as, and to have maintained our qualification as a REIT.
+Added: Effective January 1, 2024, we revoked our REIT election and starting in 2024 we will be taxed as a C corporation, and as a result, in 2024, we are no longer subject to this requirement.
+Added: However, our current policy is to pay quarterly distributions.
In the event that our Board authorizes distributions in excess of the income or cash flow generated from our assets, we may make such distributions from the proceeds of future offerings of equity or debt securities or other forms of debt financing or the sale of assets.
4 unchanged sentences
If we raise additional equity, our stock price could be materially and adversely affected.
−Removed: Our Board will make determinations regarding distributions based upon various factors, including our earnings, our financial condition, our liquidity, our debt covenants, maintenance of our REIT qualification, applicable provisions of the MGCL and other factors as our Board may deem relevant from time to time.
+Added: Our Board will make determinations regarding distributions based upon various factors, including our earnings, our financial condition, our liquidity, our debt covenants, applicable provisions of the MGCL and other factors as our Board may deem relevant from time to time.
We believe that a change in any one of the following factors could adversely affect our results of operations and impair our ability to make distributions to our stockholders:
5 unchanged sentences
As a result, no assurance can be given that we will be able to make distributions to our stockholders at any time in the future or that the level of any distributions we do make to our stockholders will achieve a market yield or increase or even be maintained over time, any of which could materially and adversely affect us.
−Removed: In addition, all or a portion of the distributions that we make to our stockholders will be taxable as ordinary income, subject to a potential deduction equal to 20% of the amount of such dividends for taxable years beginning in 2018 and ending in 2025, which generally reduces the effective U.S.
−Removed: federal income tax rate applicable to such dividends.
−Removed: However, a portion of our distributions may be designated by us as long-term capital gains to the extent that they are attributable to capital gain income recognized by us or may constitute a return of capital to the extent that they exceed our earnings and profits as determined for tax purposes.
−Removed: A return of capital is not taxable income but has the effect of reducing the basis of a stockholder’s investment in shares of our common stock.
+Added: In addition, a failure to achieve the anticipated benefits of the transition from a REIT to a taxable C corporation at all, or in a timely manner, could adversely affect our ability to make distributions to our stockholders as well as our business, financial condition, results of operations, and the market price of our common stock.
Future offerings of debt or equity securities, which may rank senior to our common stock, may adversely affect the market price of our common stock.
10 unchanged sentences
Notwithstanding these agreements, there can be no assurance that any or all members of our senior management team will remain employed by us.
−Removed: We do not maintain key person life insurance on any of our officers other than two policies we maintain for Mr.
−Removed: Eckel under which we are a beneficiary in the amount of approximately $500 thousand.
+Added: We do not maintain key person life insurance on any of our officers.
The loss of services of one or more members of our senior management team could harm our business and our prospects.
8 unchanged sentences
Additionally, the partnership agreement of our Operating Partnership expressly limits our liability by providing that neither we, as the general partner of the Operating Partnership, nor any of our directors or officers, will be liable or accountable in damages to our Operating Partnership, its limited partners or their assignees for errors in judgment, mistakes of fact or law or for any act or omission if the general partner, director or officer, acted in good faith.
−Removed: In addition, our Operating Partnership is required to indemnify us, our affiliates and each of our and their respective officers, directors, employees and agents to the fullest extent permitted by applicable law against any and all losses, claims, damages, liabilities (whether joint or several),
−Removed: expenses (including, without limitation, attorneys’ fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Operating Partnership, provided that our Operating Partnership will not indemnify any such person for (1) willful misconduct or a knowing violation of the law, (2) any transaction for which such person received an improper personal benefit in violation or breach of any provision of the partnership agreement of our Operating Partnership, or (3) in the case of a criminal proceeding, the person had reasonable cause to believe the act or omission was unlawful.
+Added: In addition, our Operating Partnership is required to indemnify us, our affiliates and each of our and their respective officers, directors, employees and agents to the fullest extent permitted by applicable law against any and all losses, claims, damages, liabilities (whether joint or several), expenses (including, without limitation, attorneys’ fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Operating Partnership, provided that our Operating Partnership will not indemnify any such person for (1) willful misconduct or a knowing violation of the law, (2) any transaction for which such person received an improper personal benefit in violation or breach of any provision of the partnership agreement of our Operating Partnership, or (3) in the case of a criminal proceeding, the person had reasonable cause to believe the act or omission was unlawful.
Certain provisions of Maryland law could inhibit changes in control.
18 unchanged sentences
These requirements make it more difficult to change our management by removing and replacing directors and may prevent a change in control of our company that is in the best interests of our stockholders.
−Removed: Ownership limitations may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their shares.
−Removed: In order for us to qualify as a REIT for each taxable year after 2013, no more than 50% in value of our outstanding capital stock may be owned, directly or constructively, by five or fewer individuals during the last half of any calendar year, and at least 100 persons must beneficially own our stock during at least 335 days of a taxable year of 12 months, or during a proportionate portion of a shorter taxable year.
−Removed: “Individuals” for this purpose include natural persons, private foundations, some employee benefit plans and trusts, and some charitable trusts.
−Removed: To assist us in preserving our REIT qualification, among other purposes, our charter generally prohibits any person from directly or indirectly owning more than 9.8% in value or in number of shares, whichever is more restrictive, of the aggregate outstanding shares of our capital stock, the outstanding shares of any class or series of our preferred stock or the outstanding shares of our common stock.
−Removed: These ownership limits could have the effect of discouraging a takeover or other transaction in which holders of our common stock might receive a premium for their shares over the then prevailing market price or which holders might believe to be otherwise in their best interests.
−Removed: Our Board has established exemptions from these ownership limits that permit certain institutional investors and their clients to hold shares of our common stock in excess of these ownership limits.
−Removed: Risks Related to Our Taxation as a REIT
−Removed: Qualifying as a REIT involves highly technical and complex provisions of the Internal Revenue Code, and our failure to qualify or remain qualified as a REIT would subject us to U.S.
−Removed: federal income tax and applicable state and local tax, which would negatively impact the results of our operations and reduce the amount of cash available for distribution to our stockholders.
−Removed: We have elected to be treated, and qualify, as a REIT for U.S.
−Removed: federal income tax purposes.
−Removed: federal income tax laws governing REITs are complex, and judicial and administrative interpretations of the U.S.
−Removed: federal income tax laws governing REIT qualification are limited.
−Removed: To qualify as a REIT and remain so qualified, we must meet, on an ongoing basis through actual operating results, various tests regarding the nature and diversification of our assets and our income, the ownership of our outstanding shares, and the amount of our distributions.
−Removed: Even a technical or inadvertent violation could jeopardize our REIT qualification.
−Removed: Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals.
+Added: Failure to qualify as a REIT for this and prior taxable years would subject us to U.S.
+Added: federal income tax and potentially state and local tax.
+Added: We elected to be taxed as a REIT commencing with our taxable year ended December 31, 2013, but recently terminated our election, effective January 1, 2024.
+Added: Prior to terminating our REIT election, our qualification as a REIT depended upon our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis.
+Added: We structured our activities in a manner designed to satisfy all the requirements to qualify as a REIT.
+Added: However, the REIT qualification requirements are extremely complex and interpretation of the U.S.
+Added: federal income tax laws governing qualification as a REIT is limited.
+Added: Furthermore, any opinion of our counsel, regarding qualification as a REIT is not binding on the Internal Revenue Service (the “IRS”).
+Added: Satisfying the asset tests depended on our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination.
+Added: Furthermore, during the period that we elected to be taxed as a REIT, we invested in certain assets that we believed were qualifying assets for purposes of the REIT assets tests, such as mezzanine loans meeting certain requirements and commercial property assessed clean energy assets, and no assurance can be provided that the IRS would agree with such characterizations.
+Added: Accordingly, if certain of our operations were to be recharacterized by the IRS, such recharacterization could jeopardize our ability to have satisfied all requirements for qualification as a REIT for prior taxable years.
+Added: Furthermore, future legislative, judicial or administrative changes to the U.S.
+Added: federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT for prior taxable years.
We received a private letter ruling from the Internal Revenue Service (“IRS”), which we refer to as the Ruling, relating to our ability to treat certain of our assets as qualifying REIT assets.
−Removed: We are entitled to rely on this Ruling for those assets which fit within the scope of the Ruling only to the extent that we have the legal and contractual rights described therein, we continue to operate in accordance with the relevant facts described in the ruling request we submitted, that such facts were accurately presented and to the extent such ruling is not inconsistent with the Real Property Regulations (as discussed in more detail below).
−Removed: As a result, no assurance can be given that we will always be able to rely on this Ruling.
−Removed: In August of 2016, the Treasury Department and the IRS published regulations which we refer to as the Real Property Regulations relating to the definition of “real property” for purposes of the REIT income and asset tests with respect to our taxable years beginning after December 31, 2016.
+Added: We were entitled to rely on this Ruling for those assets which fit within the scope of the Ruling only to the extent that we had the legal and contractual rights described in the Ruling, and we operated in accordance with the relevant facts described in the Ruling request we submitted, such facts were accurately presented and only to the extent that the Ruling was not inconsistent with the Real Property Regulations (as discussed in more
+Added: detail below).
+Added: As a result, no assurance can be given that we were able to rely on the Ruling during the period that we elected to be taxed as a REIT.
+Added: In August of 2016, the Treasury Department and the IRS published regulations which we refer to as the Real Property Regulations relating to the definition of “real property” for purposes of the REIT income and asset tests with respect to our taxable years that we elected to be taxed as a REIT beginning after December 31, 2016.
Among other things, the Real Property Regulations provide that an obligation secured by a structural component of a building or other inherently permanent structure qualifies as a real estate asset for REIT qualification purposes only if such obligation is also secured by a real property interest in the inherently permanent structure served by such structural component.
−Removed: This aspect of the Real Property Regulations has important implications for our qualification as a REIT since a significant portion of our REIT qualifying assets consists of receivables that are secured by liens on installed structural improvements designed to improve the energy efficiency of buildings and a significant portion of our REIT qualifying gross income is interest income earned with respect to such receivables.
−Removed: The structural improvements securing our receivables generally qualify as “fixtures” under local real property law, as well as under the Uniform Commercial Code, or the UCC, which governs rights and obligations of parties in secured transactions.
+Added: This aspect of the Real Property Regulations has important implications for our qualification as a REIT during the periods that we elected to so qualify, because a significant portion of our REIT qualifying assets consisted of receivables that were secured by liens on installed structural improvements designed to improve the energy efficiency of buildings and a significant portion of our REIT qualifying gross income was interest income earned with respect to such receivables.
+Added: The structural improvements securing the receivables held by us during the period we elected to be taxed as a REIT generally qualified as “fixtures” under local real property law, as well as under the Uniform Commercial Code, or the UCC, which governs rights and obligations of parties in secured transactions.
Although not controlling for REIT purposes, the general rule in the United States is that once improvements are permanently installed in real properties, such improvements become fixtures and thus take on the character of and are considered to be real property for certain state and local law purposes.
−Removed: In general, in the United States, laws governing fixtures,
−Removed: including the UCC and real property law, afford lenders who have secured their financings with security interests in fixtures with rights that extend not just to the fixtures that secure their financings, but also to the real properties in which such fixtures have been installed.
+Added: In general, in the United States, laws governing fixtures, including the UCC and real property law, afford lenders who have secured their financings with security interests in fixtures with rights that extend not just to the fixtures that secure their financings, but also to the real properties in which such fixtures have been installed.
By way of example only, Section 9-604(b) of the UCC, which has been adopted in all but two states in the United States, permits a lender secured by fixtures, upon a default, to enforce its rights under the UCC or under applicable real property laws.
−Removed: Although there is limited authority directly on point, given the nature of, and the extent to which, the structural improvements securing our receivables are integrated into and serve the related buildings, we believe that the better view is that the nature and scope of our rights in such buildings that inure to us as a result of our receivables are sufficient to satisfy the requirements of the Real Property Regulations described above.
+Added: Although there is limited authority directly on point, given the nature of, and the extent to which, the structural improvements securing the receivables held by us during the period we elected to be taxed as a REIT were integrated into and served the related buildings, we believe that the better view is that the nature and scope of our rights in such buildings that inured to us as a result of our receivables were sufficient to satisfy the requirements of the Real Property Regulations described above.
In addition to the limited authority directly on point, two other important caveats apply in this regard.
2 unchanged sentences
This requirement was ultimately not included in the final Real Property Regulations, in part in response to comments that such requirement may negatively affect investment in energy efficiency and renewable energy assets.
−Removed: We believe the deletion of this requirement implies that under the final Real Property Regulations, our rights in the building need not be equivalent to our rights in the structural components serving the building.
+Added: We believe the deletion of this requirement implies that under the final Real Property Regulations, our rights in the building during the period we elected to be taxed as a REIT did not need to be equivalent to our rights in the structural components serving the building.
Second, real property law is typically relegated to the states and the specific rights available to any lien or mortgage holder, including our rights as a fixture lien holder described above, may vary between jurisdictions as a result of a range of factors, including the specific local real property law requirements and judicial and regulatory interpretations of such laws, and the competing rights of mortgage and other lenders.
−Removed: We have applied the analysis described above in a number of states that have adopted Section 9-604(b) of the UCC.
−Removed: In addition, in states where Section 9-604(b) of the UCC has not been adopted, we apply the analysis described above based on the application of the local real property laws of that state to the extent that we have received advice from counsel in those jurisdictions that local real property law provides us with appropriate rights to the buildings in which the structural improvements securing our receivables have been installed.
−Removed: Furthermore, we have applied the analysis described above to certain receivables secured by liens on structural improvements installed in buildings located in certain U.S.
−Removed: installations outside of the United States, based on our view that such installations are subject to U.S.
−Removed: sovereignty and as a result the UCC applies in such installations.
+Added: During the period we elected to be taxed as a REIT,we applied the analysis described above in a number of states that have adopted Section 9-604(b) of the UCC.
+Added: In addition, in states where Section 9-604(b) of the UCC has not been adopted, we applied the analysis described above based on the application of the local real property laws of that state to the extent that we received advice from counsel in those jurisdictions that local real property law provided us with appropriate rights to the buildings in which the structural improvements securing our receivables were installed.
+Added: Furthermore, we applied the analysis described above to certain receivables secured by liens on structural improvements installed in buildings located in certain U.S.
+Added: installations outside of the United States, based on our view that such installations were subject to U.S.
+Added: sovereignty and as a result the UCC applied in such installations.
While a number of cases have addressed the rights of fixture lien holders generally, there are limited judicial interpretations in only a few jurisdictions that directly address the rights and remedies available to a fixture lien holder in the real property in which the fixtures have been installed.
Such rights have been addressed in some cases that support our position and, in factual circumstances distinguishable from our own, in some cases where the courts have found these rights to be more limited.
−Removed: The resolution of these issues in many jurisdictions therefore remains uncertain.
−Removed: As a result of the foregoing, no assurance can be given that the IRS will not challenge our position that our receivables meet the requirements of the Real Property Regulations or that, if challenged, such position would be sustained.
+Added: The resolution of these issues in many jurisdictions therefore has remained uncertain.
+Added: As a result of the foregoing, no assurance can be given that the IRS will not challenge our position that the receivables that we held during the periods that we elected to be taxed as a REIT met the requirements of the Real Property Regulations or that, if challenged, such position would be sustained.
The preamble to the Real Property Regulations provides that, to the extent a private letter ruling issued prior to the issuance of the Real Property Regulations is inconsistent with the Real Property Regulations, the private letter ruling is revoked prospectively from the applicability date of the Real Property Regulations.
−Removed: We do not believe that the Ruling is inconsistent with the Real Property Regulations because we believe the analysis in the Ruling was based on similar principles as the relevant portions of the Real Property Regulations, and accordingly we do not believe that the Real Property Regulations impact our ability to rely on the Ruling.
−Removed: However, no assurance can be given that the IRS would not successfully assert that we are not permitted to rely on the Ruling because the Ruling has been revoked by the Real Property Regulations.
−Removed: If the IRS were to assert that a significant portion of our receivables do not qualify as real estate assets and do not generate income treated as interest income from mortgages on real property, we would fail to satisfy both the gross income requirements and asset requirements applicable to REITs.
−Removed: If this were to occur, we would be required to restructure the manner in which we receive such income and we may realize significant income that does not qualify for the REIT 75% gross income test, which could cause us to fail to qualify as a REIT.
−Removed: In addition, our compliance with the REIT income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis in accordance with existing REIT regulations and rules and interpretations thereof.
−Removed: Moreover, the IRS, new legislation, court decisions or other administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT.
−Removed: Our ability to satisfy the requirements to qualify as a REIT also depends in part on the actions of third parties over which we have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S.
−Removed: federal income tax purposes.
−Removed: Thus, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, no assurance can be given that we will so qualify for any particular year.
−Removed: Further, differences in timing between the recognition of taxable income, our GAAP income and the actual receipt of cash may occur.
−Removed: For example, we may be required to accrue interest and discount income on debt securities or interests in debt securities before we receive any payments of interest or principal on such assets,
−Removed: and there may be timing differences in the accrual of such interest and discount income for tax purposes and for GAAP purposes.
−Removed: If we fail to qualify as a REIT in any taxable year, and we do not qualify for certain statutory relief provisions, we would be required to pay U.S.
−Removed: federal income tax on our net taxable income, and distributions to our stockholders would not be deductible by us in determining our taxable income.
−Removed: In such a case, we might need to borrow money or sell assets in order to pay our taxes.
−Removed: Our payment of income tax would negatively impact the results of our operations and decrease the amount of our income available for distribution to our stockholders.
−Removed: Furthermore, if we fail to maintain our qualification as a REIT, we no longer would be required to distribute substantially all of our taxable income to our stockholders, which would leave our Board with more discretion over our future distribution levels.
−Removed: In addition, unless we were eligible for certain statutory relief provisions, we could not re-elect to qualify as a REIT for the subsequent four taxable years following the year in which we failed to qualify.
−Removed: Complying with REIT requirements may force us to liquidate or forego otherwise attractive investments, incur debt, or sell assets at inopportune times.
−Removed: To qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that, at the end of each calendar quarter, at least 75% of the value of our total assets consists of cash, cash items, government securities, shares in REITs and other qualifying real estate assets.
−Removed: In addition, certain other limitations apply to the asset we may hold, which generally limit the concentration we may hold in assets that are not qualifying real estate assets.
−Removed: If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.
−Removed: In addition, in order to qualify as a REIT, we must distribute to our stockholders, each calendar year, at least 90% of our REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding net capital gain.
−Removed: To the extent that we satisfy the 90% distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to U.S.
−Removed: federal corporate income tax on our undistributed income.
−Removed: In addition, we will incur a 4% non-deductible excise tax on the amount, if any, by which our distributions in any calendar year are less than a minimum amount specified under U.S.
−Removed: federal income tax laws.
−Removed: We intend to distribute our taxable income to our stockholders in a manner intended to satisfy the REIT 90% distribution requirement and to avoid the 4% non-deductible excise tax.
−Removed: These requirements may require us to liquidate from our portfolio, or contribute to a taxable REIT subsidiary (a “TRS”), otherwise attractive investments, and we may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source of income or asset diversification requirements for qualifying as a REIT.
−Removed: These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
−Removed: In addition, if we are compelled to liquidate our assets, such as to repay obligations to our lenders, this could impact our qualification with the REIT requirements, and we may be required to take actions to satisfy the REIT income, asset, or distribution tests, or else fail to qualify as a REIT.
−Removed: No assurance can be provided that we will satisfy these requirements under all circumstances.
−Removed: Furthermore, in order to meet the REIT distribution requirements, we may be required to:
−Removed: (i) sell assets in adverse market conditions, (ii) raise debt or equity on unfavorable terms, (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt, (iv) make a taxable distribution of our shares as part of a distribution in which stockholders may elect to receive shares or (subject to a limit measured as a percentage of the total distribution) cash or (v) use cash reserves, in order to comply with the REIT distribution requirements and to avoid U.S.
−Removed: federal corporate income tax and the 4% non-deductible excise tax.
−Removed: Thus, compliance with the REIT distribution requirements may hinder our ability to grow, which could adversely affect the value of our common stock.
−Removed: Even though we qualify as a REIT, we may face tax liabilities that reduce our cash flow.
−Removed: Even though we qualify for taxation as a REIT, we may be subject to certain U.S.
−Removed: federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, franchise, property and transfer taxes, including mortgage recording taxes.
−Removed: In addition, any TRSs we own are subject to U.S.
−Removed: federal, state and local corporate income or franchise taxes.
−Removed: In order to meet the REIT qualification requirements, or to avoid the imposition of a 100% tax that applies to certain gains derived by a REIT from sales of inventory or property held primarily for sale to customers in the ordinary course of business, we may hold some of our assets through TRSs.
−Removed: Any taxes paid by such TRSs would decrease the cash available for distribution to our stockholders.
−Removed: The failure of assets including mezzanine loans to qualify as real estate assets may adversely affect our ability to qualify as a REIT.
−Removed: We may acquire mezzanine loans, which are loans secured by equity interests in a partnership or limited liability company that directly or indirectly owns real property.
−Removed: In IRS Revenue Procedure 2003-65, the IRS provided a safe harbor pursuant to which a mezzanine loan, if it meets each of the requirements contained in the Revenue Procedure, will be treated by
−Removed: the IRS as a real estate asset for purposes of the REIT asset tests, and interest derived from the mezzanine loan will be treated as qualifying mortgage interest for purposes of the REIT 75% gross income test.
−Removed: Although IRS Revenue Procedure 2003-65 provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law.
−Removed: We may acquire mezzanine loans that may not meet all of the requirements for reliance on this safe harbor.
−Removed: In the event we own a mezzanine loan that does not meet the safe harbor, the IRS could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset and income tests, and if such a challenge were sustained, we could fail to qualify as a REIT.
−Removed: Further, we invest in assets such as C-PACE bonds and assessments, that we believe are secured by real property for purposes of the REIT income and asset tests but with respect to which no authority is directly on point.
−Removed: If the IRS were to successfully assert that such C-PACE assets are not qualifying assets for purposes of the REIT gross asset tests or do not generate qualifying income for purposes of the 75% gross income test, our REIT qualification could be adversely affected.
−Removed: Further, under certain circumstances, interest from debt instruments that are secured by real property and other property is required to be apportioned between qualifying real estate interest and nonqualifying interest based on the principal amount of the debt instrument and the fair market value of the underlying real property.
−Removed: If debt instruments that we hold were to generate a greater amount of nonqualifying interest than we anticipate, we could fail to satisfy the REIT gross income test, and could lose our REIT qualification or be required to pay a penalty tax to preserve our REIT compliance.
−Removed: We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them.
−Removed: To the extent we acquire debt investments in the secondary market for less than their face amount, the amount of such discount will generally be treated as “market discount” for U.S.
−Removed: federal income tax purposes.
−Removed: Market discount is generally accrued on the basis of a constant yield to maturity of a debt investment.
−Removed: Accrued market discount is reported as income when, and to the extent that, any payment of principal of the debt instrument is made, unless we elect to include accrued market discount in income as it accrues.
−Removed: Principal payments on certain loans are made monthly, and consequently accrued market discount may have to be included in income each month as if the debt investment was assured of ultimately being collected in full.
−Removed: If we collect less on the debt investment than our purchase price plus the market discount we had previously reported as income, we may not be able to benefit from any offsetting loss deductions.
−Removed: Similarly, some of the debt investments that we acquire may have been issued with an original issue discount.
−Removed: We will generally be required to report such original issue discount based on a constant yield method and will be taxed based on the assumption that all future projected payments due on such debt investments will be made.
−Removed: If such debt investments turn out not to be fully collectible, an offsetting loss deduction will become available only in the later year that uncollectability is provable.
−Removed: In addition, in the event that any debt investments acquired by us are delinquent as to mandatory principal and interest payments, or in the event payments with respect to a particular debt investment are not made when due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income as it accrues, despite doubt as to its ultimate collectability.
−Removed: While we would in general ultimately have an offsetting loss deduction available to us when such interest was determined to be uncollectible, the utility of that deduction could depend on our having taxable income in that later year or thereafter.
−Removed: Although we do not presently intend to, we may, in the future, acquire debt investments that are subsequently modified by agreement with the borrower.
−Removed: If such amendments are “significant modifications” under the applicable Treasury Regulations, we may be required to recognize taxable income as a result of such amendments.
−Removed: In addition, we may be required to accelerate our accrual for U.S.
−Removed: federal income tax purposes of certain items of income to the extent that we would otherwise recognize such items of income for U.S.
−Removed: federal income tax purposes later than we would report such items on our financial statements.
−Removed: Finally, we may be required under the terms of indebtedness that we incur with private lenders to use cash received from interest payments to make principal payments on that indebtedness, with the effect of recognizing income but not having a corresponding amount of cash available for distribution to our stockholders.
−Removed: These circumstances could affect our ability to satisfy the REIT distribution requirements.
−Removed: The “taxable mortgage pool” rules may increase the taxes that we or our stockholders may incur and may limit the way we effect future securitizations.
−Removed: Securitizations by us or our subsidiaries could result in the creation of taxable mortgage pools for U.S.
−Removed: federal income tax purposes.
−Removed: As a result, we could have “excess inclusion income.” Certain categories of stockholders, such as non-U.S.
−Removed: stockholders eligible for treaty or other benefits, U.S.
−Removed: stockholders with net operating losses, and certain U.S.
−Removed: tax-exempt stockholders that are subject to unrelated business income tax, could be subject to increased taxes on a portion of their dividend income from us that is attributable to any such excess inclusion income.
−Removed: In the case of a stockholder that is a REIT, a regulated investment company (a “RIC”), common trust fund or other pass-through entity, our allocable share of our excess inclusion income could be considered excess inclusion income of such entity.
−Removed: In addition, to the extent that our common stock is owned by U.S.
−Removed: tax-exempt “disqualified organizations,” such as certain government-related entities and charitable remainder trusts that are not subject to tax on unrelated business income, we may incur a corporate level tax on a portion of any excess inclusion income.
−Removed: Because this tax generally would be imposed on us, all of our stockholders, including stockholders that are not disqualified organizations, generally will bear a portion of the tax cost associated with the classification of us or a portion of our assets as a taxable mortgage pool.
−Removed: A RIC, or other pass-through entity owning our common stock in record name will be subject
−Removed: to tax at the highest U.S.
−Removed: federal corporate income tax rate on any excess inclusion income allocated to their owners that are disqualified organizations.
−Removed: Moreover, we could face limitations in selling equity interests in these securitizations to outside investors, or selling any debt securities issued in connection with these securitizations that might be considered to be equity interests for tax purposes.
−Removed: Finally, if we were to fail to qualify as a REIT, any taxable mortgage pool securitizations would be treated as separate taxable corporations for U.S.
−Removed: federal income tax purposes that could not be included in any consolidated U.S.
−Removed: federal corporate income tax return.
−Removed: These limitations may prevent us from using certain techniques to maximize our returns from securitization transactions.
−Removed: Our ownership of and relationship with our TRSs is limited and a failure to comply with the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax.
−Removed: Overall, no more than 20% of the value of a REIT’s total assets may consist of stock or securities of one or more TRSs.
−Removed: In order to satisfy the TRS limitation, we may make loans to our TRSs that meet the requirements to be treated as qualifying investments of new capital, which are generally treated as real estate assets under the Internal Revenue Code.
−Removed: Because such loans are treated as real estate assets for purposes of the REIT requirements, we do not treat these loans as TRS securities for purposes of the TRS asset limitation.
−Removed: However, no assurance can be provided that the IRS may not successfully assert that such loans should be treated as securities of our TRSs, which could adversely impact our qualification as a REIT.
−Removed: In addition, our TRSs have obtained financing in transactions in which we and our other subsidiaries have provided guaranties and similar credit support.
−Removed: Although we believe that these financings are properly treated as financings of our TRSs for U.S.
−Removed: federal income tax purposes, no assurance can be provided that the IRS would not assert that such financings should be treated as issued by other entities in our structure, which could impact our compliance with the TRS limitation and the other REIT requirements.
−Removed: While we will be monitoring the aggregate value of the securities of our TRSs and intend to conduct our affairs so that such securities will represent less than 20% of the value of our total assets, there can be no assurance that we will be able to comply with the TRS limitation in all market conditions.
−Removed: Further, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation.
−Removed: The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.
−Removed: The tax on prohibited transactions limits our ability to engage in certain types of transactions, including certain methods of securitizing loans, which would be treated as sales for U.S.
−Removed: federal income tax purposes.
−Removed: A REIT’s net income from prohibited transactions is subject to a 100% tax.
−Removed: In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, but including loans, held as inventory or primarily for sale to customers in the ordinary course of business.
−Removed: We might be subject to this tax if we were to sell or securitize loans in a manner that was treated as a sale of the loans as inventory for U.S.
−Removed: federal income tax purposes.
−Removed: Therefore, in order to avoid the prohibited transactions tax, we may choose not to engage in certain sales of loans, other than through a TRS, and we may be required to limit the structures we use for our securitization transactions, even though such sales or structures might otherwise be beneficial for us.
−Removed: Complying with REIT requirements may limit our ability to hedge effectively.
−Removed: The REIT provisions of the Internal Revenue Code may limit our ability to hedge our assets and operations.
−Removed: Under these provisions, any income that we generate from transactions intended to hedge our interest rate exposure will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if (i) the instrument (A) hedges interest rate risk on liabilities used to carry or acquire real estate assets or certain other specified types of risk, or (B) hedges an instrument described in clause (A) for a period following the extinguishment of the liability or the disposition of the asset that was previously hedged by the hedged instrument, and (ii) such instrument is properly identified under applicable Treasury Regulations.
−Removed: Income from hedging transactions that do not meet these requirements will generally constitute non-qualifying income for purposes of both the REIT 75% and 95% gross income tests.
−Removed: As a result of these rules, we may have to limit our use of hedging techniques that might otherwise be advantageous or implement those hedges through a TRS.
−Removed: This could increase the cost of our hedging activities because our TRS would be subject to tax on gains or the limits on our use of hedging techniques could expose us to greater risks associated with changes in interest rates than we would otherwise want to bear.
−Removed: In addition, losses in our TRS will generally not provide any tax benefit to us, although subject to limitation, such losses may be carried forward to offset future taxable income of the TRS.
−Removed: Legislative, regulatory, or administrative changes could adversely affect us.
−Removed: federal income tax laws and regulations governing REITs and their stockholders, as well as the administrative interpretations of those laws and regulations, are constantly under review and may be changed at any time, possibly with retroactive effect.
−Removed: No assurance can be given as to whether, when, or in what form, the U.S.
−Removed: federal income tax laws applicable to us and our stockholders may be enacted.
−Removed: Changes to the U.S.
−Removed: federal income tax laws and interpretations of U.S.
−Removed: federal tax laws could adversely affect an investment in our common stock.
−Removed: Your investment has various U.S.
−Removed: federal income tax risks.
−Removed: We urge you to consult your tax advisor concerning the effects of U.S.
−Removed: federal, state, local and foreign tax laws to you regarding an investment in shares of our common stock.
−Removed: Unresolved Staff Comments
−Removed: Our principal executive offices are located at One Park Place, Suite 200, Annapolis, Maryland 21401.
−Removed: Our telephone number is (410) 571-9860.
+Added: We do not believe that the Ruling is inconsistent with the Real Property Regulations because we believe the analysis in the Ruling was based on similar principles as the relevant
+Added: portions of the Real Property Regulations, and accordingly we do not believe that the Real Property Regulations impacted our ability to rely on the Ruling.
+Added: However, no assurance can be given that the IRS would not successfully assert that we were not permitted to rely on the Ruling during periods that we elected to be taxed as a REIT because the Ruling had been revoked by the Real Property Regulations.
+Added: If the IRS were to assert that a significant portion of the receivables that we held during periods that we elected to be taxed as a REIT did not qualify as real estate assets and did not generate income treated as interest income from mortgages on real property, we would fail to satisfy both the gross income requirements and asset requirements applicable to REITs during the relevant periods.
+Added: During the period that we elected to be taxed as a REIT, no more than 20% of the value of our total assets were permitted to consist of stock and securities of one or more taxable REIT subsidiaries, or TRSs.
+Added: In order to satisfy the TRS limitation, we made loans to our TRSs that met the requirements to be treated as qualifying investments of new capital, which are generally treated as real estate assets under the Internal Revenue Code of 1986, as amended, or “the Code”.
+Added: Because such loans were treated as real estate assets for purposes of the REIT requirements, we did not treat these loans as TRS securities for purposes of the TRS asset limitation.
+Added: However, no assurance can be provided that the IRS may not successfully assert that such loans should be treated as securities of our TRSs, which could adversely impact our qualification as a REIT during the periods that we elected to be taxed as a REIT.
+Added: In addition, our TRSs had obtained financing in transactions in which we and our other subsidiaries had provided guaranties and similar credit support.
+Added: Although we believe that these financings were properly treated as financings of our TRSs for U.S.
+Added: federal income tax purposes, no assurance can be provided that the IRS would not assert that such financings should be treated as issued by other entities in our structure, which could impact our compliance with the TRS limitation and the other REIT requirements during the period that we elected to be taxed as a REIT.
+Added: If the IRS were to determine that we failed to qualify as a REIT for any prior taxable year ended on or before December 31, 2023, and we do not qualify for certain statutory relief provisions, we would be subject to U.S.
+Added: federal income tax on our taxable income for such taxable year at the applicable corporate rate.
+Added: If that were to happen, we would also be disqualified from treatment as a REIT for the four taxable years following the year in which we lost our REIT qualification.
+Added: Losing our REIT qualification for any prior taxable year(s) could reduce our current and/or future net earnings available for investment or distribution to stockholders because of additional tax liability for any such year(s).
+Added: If we were to lose our REIT qualification for any prior taxable year(s), we might be required to borrow funds or liquidate some investments in order to pay any applicable tax.
+Added: Our ability to utilize our NOLs and other carryforwards may be limited.
+Added: Under the Code, a corporation is generally allowed a deduction for net operating losses (“NOLs”) carried over from prior taxable years, subject to certain limitations.
+Added: As of December 31, 2023, we had approximately $666 million of gross federal NOLs, of which $87 million begin to expire in 2034 and $579 million of which can be carried forward indefinitely, and $31 million of tax credits available to reduce future federal tax liabilities.
+Added: Our NOL carryforwards are subject to adjustment on audit by the Internal Revenue Service and the respective state taxing authorities.
+Added: Additionally, certain of the NOL carryforwards may expire before we can generate sufficient taxable income to use them.
+Added: Our ability to use our NOLs and other carryforwards depends on the amount of taxable income generated in future periods.
+Added: There can be no assurance that an additional valuation allowance on our net deferred tax assets will not be required should our financial performance be negatively impacted in the future.
+Added: Such valuation allowance could be material.
+Added: In addition, the use of NOLs and other carryforwards to offset taxable income is subject to various limitations, which could limit our ability to utilize these tax attributes to reduce our taxes even if we generate sufficient taxable income.
+Added: A corporation’s ability to deduct its federal NOL carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 of the Code (“Section 382”) if it undergoes an “ownership change” as defined in Section 382 (generally where cumulative stock ownership changes among material stockholders exceed 50% during a rolling three-year period).
+Added: An ownership change may severely limit or effectively eliminate our ability to utilize our NOL carryforwards and other tax attributes.
+Added: In October 2023, our Board of Directors adopted a tax benefits preservation plan (the “Tax Benefits Preservation Plan”) in order to preserve our ability to use our NOLs and certain other tax attributes to reduce potential future income tax obligations.
+Added: The Tax Benefits Preservation Plan is designed to reduce the likelihood that we experience an ownership change by deterring certain acquisitions of our common stock.
+Added: There is no assurance, however, that the deterrent mechanism will be effective, and such acquisitions may still occur.
+Added: In addition, the Tax Benefits Preservation Plan may adversely affect the marketability of our common stock by discouraging existing or potential investors from acquiring our common stock or additional shares of our common stock, because any non-exempt third party that acquires 4.9% or more of the then-outstanding shares of our common stock would suffer substantial dilution of its ownership interest in HASI.
+Added: We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility, and reduce the market price of shares of our stock.
+Added: Changes to the tax laws may occur, and any such changes could have an adverse effect on an investment in shares of our stock or on the market value or the resale potential of our assets.
+Added: Our stockholders are urged to consult with an independent tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our stock.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.