What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-16 compared with 2023-02-21 · 155 added, 145 removed, 510 unchanged (37% of the section changed)

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Refer to ‘Item 7 -- Management’s Discussion and Analysis of Financial Condition and Results of Operations’ on our Form 10-K for the year ended December 31, 2022 for a discussion of our results for the year ended December 31, 2022 and a comparison of our results of operations for the fiscal years ended December 31, 2022 and December 31, 2021.

We invest in climate solutions developed or sponsored by leading companies in the energy efficiency, renewable energy and other sustainable infrastructure markets.

We believe we are one of the first U.S.

public companies solely dedicated to climate solutions.

Our goal is to generate attractive returns from a diversified portfolio of project company investments with long-term, predictable cash flows from proven technologies that reduce carbon emissions or increase resilience to climate change.

We are a climate positive investment firm that actively partners with clients to deploy real assets that facilitate the energy transition.

With more than $12 billion in managed assets, our vision is that every investment improves our climate future.

Our investments take many forms, including equity, joint ventures, land ownership, lending, and other financing transactions.

In addition to net investment income from our portfolio, we also generate ongoing fees through gain-on-sale securitization transactions, asset management, and other services.

We are internally managed, and our management team has extensive relevant industry knowledge and experience.

We have long-standing relationships with the leading energy service companies (“ESCOs”), manufacturers, project developers, utilities, owners and operators that provide recurring, programmatic investment and fee-generating opportunities.

Additionally, we have relationships with leading commercial and investment banks and institutional investors from which we are referred additional investment and fee generating opportunities.

We completed approximately $2.3 billion of transactions during 2023, compared to approximately $1.8 billion during 2022.

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When we combine these assets with our Portfolio, as of December 31, 2023, we manage approximately $12 billion of assets, which we refer to as our “Managed Assets”.

Our investments take many forms, including equity, joint ventures, land ownership, lending, or other financing transactions.

We also generate ongoing fees through off-balance sheet securitization transactions, advisory services, and asset management.

We use borrowings as part of our strategy to increase potential returns to our stockholders and we have available a broad range of financing sources including non-recourse or recourse debt, equity and off-balance sheet securitization structures.

Business for a further discussion of our business, investing strategy, and financing strategy.

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As a result of increasing global awareness of and aversion to climate change impacts, we believe the climate solutions markets in which we invest, and investment in climate solutions more broadly, will continue to grow as the impact of climate change increases.

In January 2023, National Oceanic and Atmospheric Administration (“NOAA”) reported that globally, 2022 was the sixth warmest year on record, with ten of the warmest years on record having occurred since 2010.

In January 2024, National Oceanic and Atmospheric Administration (“NOAA”) reported that globally, 2023 was the warmest year on record, with the ten warmest years since 1850 having occurred in the last decade.

In light of this trend, we expect the federal government to continue to build upon its recent efforts to support the industry for climate solutions.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law, representing an unprecedented level of government support for the climate solutions industry as a whole.

The IRA includes approximately $400 billion in federal funding for tax credits, consumer rebates, and other incentives that put the U.S.

on a path to achieve the U.S.’s goal of reducing emissions 50 percent below 2005 levels by the end of the decade.

The IRA includes federal funding for tax credits, consumer rebates, and other incentives that put the United States on a path to achieve the U.S.’s goal of reducing emissions 50 percent below 2005 levels by the end of the decade.

Specifically, production tax credits (“PTCs”) and investment tax credits (“ITCs”) for certain wind and solar investments have been extended for at least ten years, which we believe will provide developers, operators, and investors significant runway for capital deployment.

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Critically, the IIJA includes approximately $65 billion for energy and electric grid development, which will prove critical to integrating the next generation of renewable energy projects.

Relatedly, President Biden signed the CHIPS and Science Act into law in August 2022, which provides more than $280 billion to bolster U.S.

semiconductor capacity and research and development efforts for key emerging technologies over the next ten years.

As McKinsey & Company noted in “The CHIPS and Science Act:

Here’s what’s in it” published October 4, 2022, semiconductor shortages have been a key aspect of global supply chain pressures over the past 18 months, with the global supply chain approximately 2.5 standard deviations away from normal operations.

This new law is expected to help to alleviate such supply chain issues within our markets over time, as high-powered semiconductors play a key role in both renewable power generation and transmission of this power to the grid.

In addition to these laws, President Biden has taken several executive actions aimed at accelerating the clean energy economy.

In June 2022, President Biden issued an executive order authorizing use of the Defense Production Act to accelerate domestic production of clean energy technologies, including solar panel parts.

In December 2022, the President Biden announced the first-ever Federal Building Performance Standard, setting a goal of reducing energy usage and electrifying equipment and appliances in 30 percent of the building space owned by the federal government by 2030.

This action represents another important step in meeting President Biden’s goal of achieving net-zero emissions in all federal buildings by 2045.

The Federal Building Performance Standard follows a December 2021 executive order, signed by President Biden, that commits the federal government to achieving 100 percent carbon pollution-free electricity and a net-zero emissions building portfolio by 2045, including a 50 percent emissions reduction from buildings, campuses, and installations by 2032 from 2008 levels.

While this legislation can be expected to have lasting impacts on the markets in which we invest, effects are already being seen, with the American Clean Power Association reporting in it’s August 2023 publication Clean Energy Investing in America that $270 billion in capital investments were announced in the roughly one-year period following the signing into law of the IRA.

Each of these actions by the federal government represent unprecedented support for the climate solutions markets that we serve.

While we are not dependent on the support of the federal government to achieve our financial results, we welcome these actions to further combat the impact of climate change.

Corporates are also responding to climate change risks.

The American Clear Power Association (“ACP”) noted in its “Clean Energy Powers American Business” report for 2022 that corporate sustainability targets as well as economic and environmental benefits have led to a 100-fold increase in corporate clean power procurement over the past decade.

In 2022, despite rising PPA prices, ACP estimates that corporations purchased nearly 20 gigawatts of clean energy and contracted for more than 77 gigawatts of clean energy during the year.

Corporations remain an integral component in removing carbon from energy markets through their own energy transition plans as well as the carbon within their supply chains.

States are also responding, with 29 states plus the District of Columbia having renewable portfolio standards, with 17 of those states having targets that eventually require 100% of energy to be obtained from clean or renewable sources.

These positive industry trends coupled with the increasing environmental and economic imperative to reduce carbon emissions are expected to further broaden our investment opportunities.

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Energy Information Administration (“EIA”) estimates that decreasing energy intensity resulting from energy efficiency improvements will continue until at least 2050 with declines in each end-use sector.

While we believe that the long-term growth prospects for our business remain positive, volatility in financial markets and higher inflation along with interest rate movements could impact the markets we serve.

The Federal Reserve Board of Governors began increasing the federal funds rate (the rate at which banks lend to one another) on March 17, 2022 for the first time since December 20, 2018.

In total, the Federal Reserve increased the federal funds rate by 4.25 percent in 2022, as well as 0.25 percent in 2023, and has signaled future increases and balance sheet reductions as necessary to reduce inflation to its 2 percent target.

These actions, in additional to general market conditions, have increased the cost of financing available to the markets that we serve.

Interest rates were volatile in 2023, and are expected to continue to be volatile into 2024.

The Federal Reserve Board of Governors increased the federal funds rate (the rate at which banks lend to one another) 11 times in 2022 and 2023 for an overall increase of 5.25% to reduce inflation to stated targets.

These actions, in additional to general market conditions, increased the cost of financing available to the markets that we serve in those periods.

However, the Treasury yield curve as of December 31, 2023 suggests interest rates are likely to be lower in the future.

See “Item 7A.

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To date, inflationary pressures have not had a material impact on our business.

According to the EIA, the average annual Henry Hub natural gas price for 2022 was $6.45/MMBtu, an increase of 53 percent over 2021 and a 14-year high.

The EIA cites COVID-related issues as well as Russia’s invasion of Ukraine as key contributors to the sharp increase in price during 2022.

The EIA’s outlook for 2023 is for an average price of $4.90/MMBtu with an expectation that prices remain at nearly the same level in 2024.

As wholesale electricity prices are closely tied to wholesale natural gas prices in many parts of the United States, higher natural gas prices have positively impacted, and are expected to continue to positively impact, renewable energy projects that sell wholesale power on a “merchant” basis at spot market prices.

According to the EIA, the average annual Henry Hub natural gas price for 2023 was $2.57/MMBtu, a decrease of 62 percent over 2022.

The EIA cites record natural gas production along with flat consumption and rising natural gas inventories as key contributors to the sharp decrease in price compared to 2022.

The EIA’s outlook for 2024 and 2025 is for the average price of natural gas to remain below $3.00 MMBtu.

While we typically invest in projects which sell power at prices which have been prenegotiated under power purchase agreements, lower natural gas prices, may negatively impact, renewable energy projects that sell wholesale power on a “merchant” basis at spot market prices, as wholesale electricity prices are closely tied to wholesale natural gas prices in many parts of the United States.

For more detail on commodity price impacts, see “Item 7A.

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Factors Impacting our Operating Results

We expect that our results of operations will be affected by a number of factors and will primarily depend on the size of our Portfolio, including the mix of transactions which we hold in our Portfolio, the income we receive from securitizations, syndications and other services, our Portfolio’s credit risk profile, changes in market interest rates, commodity prices, federal, state and/or municipal governmental policies, general market conditions in local, regional and national economies, our ability to qualify as a REIT and maintain our exemption from registration as an investment company under the 1940 Act and the impact of climate change.

Portfolio Size

The size of our Portfolio will be a key driver of revenue.

We expect that our results of operations will be affected by a number of factors and will primarily depend on the size and mix of our Portfolio, the income we receive from securitizations, syndications and other services, our Portfolio’s credit risk profile, changes in market interest rates, commodity prices, federal, state and/or municipal governmental policies, general market conditions in local, regional and national economies, and maintain our exemption from registration as an investment company under the 1940 Act and the impact of climate change.

Portfolio Size and Mix

The size and mix of our Portfolio will be a key driver of revenue.

Generally, as the size of our Portfolio on our balance sheet grows the amount of our revenue will increase.

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Income from Securitization, Syndication and Other Services

We earn gain on sale of financial assets or fee income by securitizing or selling all or a portion of certain transactions.

We earn gain on sale of assets or fee income by securitizing or selling all or a portion of certain transactions.

For transactions that we securitize via a non-consolidated trust, we recognize a gain on the securitization.

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We may charge advisory, retainer or other fees, including through our broker dealer subsidiary.

The total amount of income from securitizations, syndications, and other services will vary from quarter to quarter depending on various factors, including the level of our originations, the duration, credit quality and types of assets we originate, current and anticipated future interest rates, the impact on our leverage, the mix of our Portfolio and our need to tailor our mix of assets in order to allow us to qualify as a REIT for U.S.

federal income tax purposes and maintain our exemption from registration under the 1940 Act.

We source and identify quality opportunities within our broad areas of expertise and apply our rigorous underwriting processes to our transactions, which, we believe, will generally enable us to minimize our credit losses and maintain our current level of financing costs.

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Commodity Prices

When we make investments in a project that act as a substitute for an underlying commodity, we may be exposed to volatility in prices for that commodity.

When we make investments in a project that is exposed to commodity prices, we may also be exposed to volatility in those prices.

For example, the performance of renewable energy projects that produce electricity can be impacted by volatility in the market prices of various forms of energy, including electricity, coal and natural gas.

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Policies and incentives provided by the U.S.

federal government may include tax credits (with some of these tax credits that are related to renewable energy scheduled to be reduced or eliminated in the future), tax deductions, bonus depreciation, federal grants and loan guarantees, and energy market regulations.

federal government may include tax credits, tax deductions, bonus depreciation, federal grants and loan guarantees, and energy market regulations.

The value of tax credits, deductions and incentives and how they can be realized may be impacted by changes in tax laws, rates, or regulations.

Incentives provided by state and local governments may include an RPS or similar clean energy standard, which specify the portion of the power utilized by local utilities that must be derived from renewable or clean energy sources as well as the state or local government sponsored programs where the financing of energy efficiency or renewable energy projects is repaid through an assessment in the property tax bill in a program commonly referred to as PACE.

Additionally, certain states have implemented feed-in or net metering tariffs, pursuant to which electricity generated from renewable energy sources is purchased at a higher rate than prevailing wholesale rates.

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Government regulations also impact the terms of third party financing provided to support these projects.

negative impact from the recent federal law changes or proposals, the operating results of the projects we finance and the demand for, and the returns available from our investments may decline, which could harm our business.

If any of these government policies, incentives or regulations are adversely amended, delayed, eliminated, reduced, retroactively changed or not extended beyond their current expiration dates or there is a negative impact from the recent federal law changes or proposals, the operating results of the projects we finance and the demand for, and the returns available from our investments may decline, which could harm our business.

Impacts of climate change on our future operations

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The price of Renewable Energy Credits (“RECs”) or similar structures increase as more aggressive renewable portfolio standards and corporate renewable energy targets are implemented Increased expected cash flows and financial returns for certain of our investments to the extent the RECs are sold at higher market prices.

If the overall price level of RECs increased by 5% we would not expect a material impact to the overall cash flows from our existing investments.

This is largely due to the lower value of RECs in comparison to power prices in most of the markets where our investments are located.

If the overall price level of RECs increased by 5% we would expect an approximately 1% increase in future cash flows for our existing GC and BTM equity investments.

We would not expect a material impact to our, renewable energy debt, solar real estate, or energy efficiency investments.

We may identify more investment opportunities resulting from the increased REC value.

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Under a scenario where a carbon tax drives the price of power up by 10%, our existing GC equity investments may hit their preferred return targets earlier, resulting in a modest increase in our overall investment yield, compared to the current baseline scenario.

Our existing BTM equity investments would experience a 2% increase in expected cash flows.

Our existing BTM and GC equity investments would experience a 3% increase in expected cash flows.

We would not expect a material impact to our, renewable energy debt, solar real estate, or energy efficiency investments.

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For any new investments, we make conservative assumptions to protect our investments from such types of pricing volatility and will continue to do so, including new assumptions around commodity volatility as relevant.

However, climate change-related impacts to the amount of potable water supplies, such as irregular rainfall and salt water intrusion, may drive increases in the price of water.

However, climate change-related impacts to the amount of potable water supplies, such as irregular rainfall and saltwater intrusion, may drive increases in the price of water.

These increases in cost may increase the demand for assets that increase water use efficiency, resulting in an increase in the volume of investment opportunities available to us.

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If production of these GC assets decreases by 5% the cash flows from those investments would be expected to decrease by approximately 10%.

We would not expect a material impact on our renewable energy debt, solar real estate and energy efficiency investments.

We would not expect a material impact on our BTM equity investments, renewable energy debt, solar real estate and energy efficiency investments.

When underwriting our investment opportunities we make conservative assumptions regarding performance and operational expenses that protect our returns from some level of unexpected performance or operation issues in the future.

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Increased wind variability and increased wear on wind turbine components, which may increase operating costs.

An increase in operating expenses would result and if there was 5% higher operating expenses the cash flows from our wind equity investments would be expected to decrease by 5%.

An increase in operating expenses would result and if there was 5% higher operating expenses the cash flows from our GC equity investments would be expected to decrease by 4%.

Increased operating costs and lower generation from the increase in temperatures may reduce our expected cash flows and financial returns from our investments, which may cause us to reduce the amount of financial leverage we utilize and cause a decline in our overall profitability.

If there were both a decrease in production of 5% and higher operating expenses of 5% our cash flows from our wind equity and solar equity investments would be expected to decline by 15% and 6%, respectively.

If there were both a decrease in production of 5% and higher operating expenses of 5% our cash flows from our GC equity investments would be expected to decline by 12%.

We would not expect a material impact on our renewable energy debt, solar real estate and energy efficiency investments.

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To the extent this becomes a material matter we would seek out protections to mitigate any impact of additional water related costs.

Climate change related impacts to the amount of potable water supplies, such as irregular rainfall and salt water intrusion, may drive increases in the price of water.

Climate change related impacts to the amount of potable water supplies, such as irregular rainfall and saltwater intrusion, may drive increases in the price of water.

These increases in cost may increase the demand for assets that increase water use efficiency resulting in an increase in the volume of investment opportunities available to us.

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An increase in insurance costs may reduce the cash flows and financial returns from these investments and may cause us to reduce the amount of financial leverage we utilize and cause a decline in our overall profitability.

Insurance policies are executed on an annual basis and in some regions the price of insurance could increase such that the cashflow and value of our projects in high risk geographic regions are affected.

Insurance policies are executed on an annual basis and in some regions the price of insurance could increase such that the cash flow and value of our projects in high risk geographic regions are affected.

This increase in insurance cost would drive an increase in total operating expenses.

We have estimated that an increase in operating expenses of 5% would be expected to reduce our cash flows from solar equity projects by 1% .

We would not expect a material impact on our wind equity, renewable energy debt, solar real estate and energy efficiency investments.

We have estimated that an increase in operating expenses of 5% would be expected to reduce our cash flows from GC equity investments by 4%, and from BTM equity investments by 1% .

We would not expect a material impact on our renewable energy debt, solar real estate and energy efficiency investments.

We require that the projects in which we invest are insured against casualty events that could impact our cash distributions.

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Equity Method Investments

For our non-consolidated equity investments, we generally determine our income allocations under the equity method of accounting based on the change in our claim on net assets of the investee entity as reported by the investee using a method commonly referred to as the hypothetical liquidation at book value method or (“HLBV”).

For our non-consolidated equity investments that we have concluded contain substantive profit sharing agreements, we generally determine our income allocations under the equity method of accounting based on the change in our claim on net assets of the investee entity as reported by the investee using a method commonly referred to as the hypothetical liquidation at book value method or (“HLBV”).

This method uses a hypothetical liquidation scenario that may require judgment in its application and could have a material impact on our reported financial results.

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Our Portfolio was approximately $6.2 billion as of December 31, 2023 and $4.3 billion December 31, 2022.

Our Portfolio totaled approximately $4.3 billion as of December 31, 2022, and included approximately $2.4 billion of BTM assets and approximately $1.7 billion of GC assets.

Our Portfolio totaled approximately $6.2 billion as of December 31, 2023, and included approximately $3.0 billion of BTM assets, approximately $2.3 billion of GC assets, and approximately $0.9 billion of FTN assets.

Approximately 45% of our Portfolio consisted of unconsolidated equity investments in renewable energy related projects.

Approximately 48% consisted of fixed-rate government and commercial receivables and debt securities, which are classified as investments, on our balance sheet and approximately 9% of our Portfolio was real estate leased to renewable energy projects under long-term operating lease agreements.

Approximately 51% consisted of commercial and government receivables on our balance sheet and approximately 4% of our Portfolio was real estate leased to renewable energy projects under long-term operating lease agreements.

Our Portfolio consisted of over 520 transactions with an average size of $12 million and the weighted average remaining life of our Portfolio (excluding match-funded transactions) of approximately 17 years as of December 31, 2023.

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(in millions)

Floating-rate receivable, interest rate of 10.1%

$ 277 2026 to 2026

Fixed-rate receivables, interest rates less than 5.00% per annum 102 2025 to 2047

Fixed-rate receivables, interest rates from 5.00% to 6.50% per annum 348 2024 to 2057

Fixed-rate receivables, interest rates from 6.50% to 8.00% per annum 728 2024 to 2069

Fixed-rate receivables, interest rates from 8.00% to 9.50% per annum 313 2025 to 2032

Fixed-rate receivables, interest rates greater than 9.50% per annum 520 2024 to 2061

Fixed-rate receivables, interest rates from 5.00% to 6.49% per annum

417 2024 to 2061

Fixed-rate receivables, interest rates from 6.50% to 7.99% per annum

868 2025 to 2069

Fixed-rate receivables, interest rates from 8.00% to 9.49% per annum

1,004 2027 to 2039

Fixed-rate receivables, interest rates 9.50% or greater per annum

456 2024 to 2047

Receivables (1)

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Average yield from receivables, investments, and real estate 8.3 % 7.9 % 7.9 %

Interest expense (1)

Interest expense, including the impact of cash flow hedges (1)

$ 171 $ 116 $ 106

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The following table provides a summary of our anticipated principal repayments for our receivables and investments as of December 31, 2023:

Payment due by Period

Principal payment due by Period

Total Less than

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Gain on sale of receivables and investments 68,637 57,187 11,450 20 %

Securitization asset income

19,259 17,905 1,354 8 %

Fee income 2,930 3,744 (814) (22) %

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Net income (loss) $ 150,757 $ 41,911 $ 108,846 260 %

• Net income decreased by approximately $85 million as a result of a $95 million decrease in income from equity method investments and a $27 million increase in total expenses, partially offset by a $27 million increase in total revenue and a $10 million decrease in income tax expense.

• Net income increased by approximately $109 million as a result of a $110 million increase in income from equity method investments and an $80 million increase in total revenue, partially offset by a $57 million increase in total expense and a $24 million increase in income tax expense.

These results do not include the Non-GAAP earnings adjustment related to equity method investments, which is discussed in the Non-GAAP Financial Measures section.

• Interest and rental income increased by $28 million due to a larger portfolio.

Gain on sale of receivables and investments and fee income decreased by $2 million primarily from a change in mix of assets being securitized, partially offset by increased fee income.

• Interest expense for the year decreased by approximately $6 million due to a one time $15 million loss on the redemption of the 2024 senior unsecured notes in the prior year which did not recur, offset partially by additional expense from a larger average outstanding debt balance.

Provision for loss on receivables increased by $12 million compared to the prior period as the result of new loans and loan commitments made in the current year.

• Compensation and benefits increased by $10 million as a result of an increase in our employee headcount and compensation and the acceleration of share based compensation associated with the adoption of a new retirement policy.

General and administrative increased by $10 million due to additional investment in corporate infrastructure and corporate governance expenses.

• Income from equity method investments decreased by $95 million, due to allocations of income in the prior period related to tax credits allocated to our investors which did not recur, as well as our current period allocation of unrealized mark to market losses on economic hedges used by some of our projects.

Renewable energy projects often enter into contracts to minimize the impact of increasing power prices.

These contracts serve as economic hedges where rising power prices cause the value of these contracts to decrease, which in our case is recognized through the project’s income statement under mark-to-market accounting.

As these economic hedges are settled over the life of the contracts, the projects will sell power at the higher market price, offsetting the loss recognized on the hedge.

• Income tax expense decreased by $10 million primarily due to lower pre-tax income.

• Interest income increased by $73 million due to a higher average rate on a larger portfolio.

Rental income decreased as a result of the deconsolidation of certain special purpose entities which held such land assets as a result of amendments to terms of the non-recourse debt held by those special purpose entities.

See the table above for information on our average receivables, investment, and land balance and average yield on those assets.

of receivables and investments and fee income increased by $11 million primarily from a change in mix of assets being securitized.

Securitization income was largely flat compared to the prior year.

• Interest expense for the year increased by approximately $55 million due to a higher average rate on a higher average debt balance.

See the table above for detail on our average debt rate and average debt balance.

Provision for loss on receivables decreased by $1 million compared to the prior period as a result of the release of certain loan specific reserves, offset partially by provision on new loans and loan commitments.

• Compensation and benefits increased by $1 million as a result of an increase in our employee headcount and compensation.

General and administrative increased by $1 million due to additional investment in corporate infrastructure.

• Income from equity method investments increased by $110 million, due to allocations of income in the current period related to tax credits allocated to our investors related to a grid-connected utility-scale solar project, as those tax credits reduced the tax equity investors ongoing claim on the net assets of the project.

• Income tax expense increased by $24 million primarily due to recording a deferred tax liability in the current period associated with the Board’s 2023 approval of our decision to revoke our REIT status effective January 1, 2024.

Non-GAAP Financial Measures

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We believe a non-GAAP measure, such as distributable earnings, that adjusts for the items discussed above is and has been a meaningful indicator of our economic performance in any one period and is useful to our investors as well as management in evaluating our performance as it relates to expected dividend payments over time.

As a REIT, we are required to distribute substantially all of our taxable income to investors in the form of dividends, which is a principal focus of our investors.

Additionally, we believe that our investors also use distributable earnings, or a comparable supplemental performance measure, to evaluate and compare our performance to that of our peers, and as such, we believe that the disclosure of distributable earnings is useful to our investors.

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Under this method, we recognize income or loss based on the change in the amount each partner would receive, typically based on the negotiated profit and loss allocation, if the assets were liquidated at book value, after adjusting for any distributions or contributions made during such quarter.

The HLBV allocations of income or loss may be impacted by the receipt of tax attributes, as tax equity investors

are allocated losses in proportion to the tax benefits received, while the sponsors of the project are allocated gains of a similar amount.

The investment tax credit available for election in solar projects is a one-time credit realized in the quarter when the project is considered operational for tax purposes and is fully allocated under HLBV in that quarter (subject to an impairment test), while the production tax credit required for wind projects and electable for solar projects is a ten-year credit and thus is allocated under HLBV over a ten year period.

The HLBV allocations of income or loss may be impacted by the receipt of tax attributes, as tax equity investors are allocated losses in proportion to the tax benefits received, while the sponsors of the project are allocated gains of a similar amount.

allocated under HLBV over a ten year period.

In addition, the agreed upon allocations of the project’s cash flows may differ materially from the profit and loss allocation used for the HLBV calculations in a given period.

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return on capital) achieved from the investment are often significantly different from the income or loss that is allocated to us under the HLBV method in any one period.

Thus, in calculating distributable earnings, for certain of these investments where there are characteristics as described above, we further adjust GAAP net income (loss) to take into account our calculation of the return on capital (based upon the underwritten investment rate) from our renewable energy equity method investments, as adjusted to reflect the performance of the project and the cash distributed.

We believe this equity method investment adjustment to our GAAP net income (loss) in calculating our distributable earnings measure is an important supplement to the HLBV income allocations determined under GAAP for an investor to understand the economic performance of these investments where HLBV income can differ substantially from the economic returns in any one period.

We have acquired equity investments in portfolios of renewable energy projects which have the majority of the distributions payable to more senior investors in the first few years of the project.

Thus, in calculating distributable earnings, for certain of these investments where there are characteristics as described above, we further adjust GAAP net income (loss) to take into account our calculation of the return on capital (based upon the underwritten investment rate), as adjusted to reflect the performance of the project and the cash distributed.

We believe this equity method investment adjustment to our GAAP net income (loss) in calculating our distributable earnings measure is an important supplement to the income (loss) from equity method investments as determined under GAAP for an investor to understand the economic performance of these investments where HLBV income can differ substantially from the economic returns in any one period.

We have acquired equity investments in portfolios of projects which have the majority of the distributions payable to more senior investors in the first few years of the project.

The following table provides results related to our equity method investments for the last three years:

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Income (loss) under GAAP $ 141 $ 31 $ 126

Distributable earnings $ 132 $ 104 $ 55

Return of capital/(deferred cash collections) 26 (51) 102

Collections of Distributable earnings $ 39 $ 57 $ 23

Return of capital 24 101 30

Cash collected (1)

$ 63 $ 158 $ 53

(1) Cash collected during 2022 includes $64 million of debt issuance proceeds from three of our equity method investees, the repayment of which we have guaranteed.

(1) Cash collected during 2023 and 2022 includes $9 million and $64 million, respectively of debt issuance proceeds from certain of our equity method investees, the repayment of which we have guaranteed.

Distributable earnings does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), or an indication of our cash flow from operating activities (determined in accordance with GAAP), or a measure of our liquidity, or an indication of funds available to fund our cash needs, including our ability to make cash distributions.

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Add equity method investments earnings adjustment 156,757 131,762 103,707

Non-cash equity-based compensation charges

Equity-based expenses

19,782 20,101 17,047

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Current year earnings attributable to non-controlling interest

1,921 409 767

Distributable earnings (3)

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(1) The per share data reflects the GAAP diluted earnings per share and is the most comparable GAAP measure to our distributable earnings per share.

(2) In addition to these provisions, in the second quarter of 2022 we wrote-off two commercial receivables with a combined total carrying value of approximately $8 million which represented assignments of land lease payments from two wind projects that we had originated in 2014 as a part of an acquisition of a large land portfolio.

(2) In addition to these provisions, in 2022 we wrote-off two commercial receivables with a combined total carrying value of approximately $8 million which represented assignments of land lease payments from two wind projects that we had originated in 2014 as a part of an acquisition of a large land portfolio.

In 2017, the operator of the projects terminated the lease, at which time we filed a legal claim and placed these assets on non-accrual status.

In 2019, we received a court decision indicating that the owners of the projects were within their rights under the contract terms to terminate the lease which impacts the land lease assignments to us, at which time we reserved the receivables for their full carrying amount.

In the second quarter of 2022, we received a court decision indicating that our appeal was not successful, and accordingly wrote off the full amount of the receivable.

We have excluded the write off from Distributable earnings due to the infrequent occurrence of credit losses as well as the unique nature of the receivables, as the assignment of land lease payments from wind projects represent a small portion of our total portfolio.

(3) Distributable earnings per share are based on 89,355,907 shares, 84,268,341 shares and 75,588,286 shares for the years ended December 31, 2022, 2021 and 2020, respectively, which represents the weighted average number of fully-diluted shares outstanding including our restricted stock awards, restricted stock units, long-term incentive plan units and the non-controlling interest in our Operating Partnership.

We include any potential common stock issuances related to share based compensation units in the amount we believe is reasonably certain to vest.

In 2022, we received a court decision indicating that our appeal was not successful, and accordingly wrote off the full amount of the receivable.

We have excluded the write off from Distributable earnings for the year ended December 31, 2022, due to the infrequent occurrence of credit losses as well as the unique nature of the receivables, as the assignment of land lease payments from wind projects represent a small portion of our total portfolio.

(3) Distributable earnings per share are based on 104,319,803 shares, 89,355,907 shares and 84,268,341 shares for the years ended December 31, 2023, 2022 and 2021, respectively, which represent the weighted average number of fully-diluted shares outstanding including our restricted stock awards, restricted stock units, long-term incentive plan units and the non-controlling interest in our Operating Partnership.

We include any issuances of our common stock related to share based compensation units in the amount we believe is reasonably certain to vest.

As it relates to Convertible Notes, we will assess the market characteristics around the instrument to determine if it is more akin to debt or equity based on an expectation of the likelihood of conversion based on current conditions.

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If the instrument is more equity-like and is more dilutive when treated as equity then we will exclude any related interest expense and include the weighted average shares underlying the instrument.

We consider the impact of any capped calls in assessing whether an instrument is equity-like or debt-like.

Distributable Net Investment Income

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Our non-GAAP distributable net investment income measure may not be comparable to similarly titled measures used by other companies.

For further information, see the discussion above related to Distributable Earnings.

For further information on the adjustments between GAAP-based net investment income and distributable net investment income, see the discussion above related to Distributable Earnings.

The following is a reconciliation of our GAAP-based net investment income to our distributable net investment income for the years ended December 31, 2023, 2022 and 2021:

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Managed assets $ 12,253 $ 9,794

Adjusted Cash from Operations Plus Other Portfolio Collections

We operate our business in a manner that considers total cash collected from our portfolio and making necessary operating and debt service payments to assess the amount of cash we have available to fund dividends and investments.

We believe that the aggregate of these items, which combine as a non-GAAP financial measure titled Adjusted Cash Flow from Operations plus Other Portfolio Collections, is a useful measure of the liquidity we have available from our assets to fund both new investments and our regular quarterly dividends.

This non-GAAP financial measure may not be comparable to similarly titled or other similar measures used by other companies.

Although there is also not a directly comparable GAAP measure that demonstrates how we consider cash available for dividend payment, below is a reconciliation of this measure to Net cash provided by operating activities.

Also, Adjusted Cash Flow from Operations plus Other Portfolio Collections differs from Net cash provided by (used in) investing activities in that it excludes many of the uses of cash used in our investing activities such as in Equity method investments, Purchases of and investments in receivables, Purchases of real estate, Purchases of investments, Funding of escrow accounts, and excludes Withdrawal from escrow accounts, and Other.

In addition, Adjusted Cash Flow from Operations plus Other Portfolio Collections is not comparable to Net cash provided by (used in) financing activities in that it excludes many of our financing activities such as proceeds from common stock issuances and borrowings and repayments of unsecured debt.

For the year ended December 31,

2023 2022 2021

(in thousands)

Net cash provided by operating activities $ 99,689 $ 230 $ 13,309

Changes in receivables held-for-sale (51,538) 62,953 22,035

Equity method investment distributions received 30,140 110,064 21,777

Proceeds from sales of equity method investments — 1,700 300

Principal collections from receivables 197,784 125,976 148,769

Proceeds from sales of receivables

7,634 5,047 75,582

Proceeds from sales of land

Principal collections from investments (1)

3,805 171 414

Proceeds from sales of investments and securitization assets — 7,020 15,197

Principal payments on non-recourse debt (21,606) (30,581) (37,974)

Adjusted cash flow from operations and other portfolio collections

$ 265,908 $ 287,130 $ 259,409

(159,786) (132,198) (113,510)

Cash Available for Reinvestment

$ 106,122 $ 154,932 $ 145,899

(1) Included in Other in the cash provided (used in) investing activities section of our statement of cash flows.

Other Measures and Metrics

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As discussed in Item 1.

Government or the International Energy Administration to an estimate of a project’s energy production or savings to compute an estimate of metric tons of carbon emissions avoided.

We then determine the metric tons of carbon emissions avoided per thousand dollars of investments, in a calculation we refer to as CarbonCount, which enables us to measure the impact our investments have on reducing carbon emissions.

We estimate that our investments originated in 2022 will reduce annual carbon emissions by approximately 600 thousand metric tons, equating to a CarbonCount of 0.35.

Business, as part of our investment process, we calculate the estimated metric tons of CO2 equivalent emissions, or carbon emissions avoided by our investments by applying emissions factor data representing the locational marginal emissions associated with a project to an estimate of a project’s energy production or savings to compute an estimate of metric tons of carbon emissions avoided.

We estimate that our investments originated in 2023 will avoid annual carbon emissions by over 760 thousand metric tons, equating to a CarbonCount of 0.33.

In assessing our performance and results of operations, we also consider the impact of our operations on the environment.

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Category Goal Performance

(in thousands)

Scope 1 GHG emissions 0 MT 0 MT

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As part of our broader human capital strategy, we monitor and disclose certain metrics which help us understand our workforce and our progress in fostering a diverse and inclusive work environment.

As of December 31, 2022, we employed 112 people full-time, 2 person part-time, and 10 people as independent contractors.

As of December 31, 2023, we employed 137 people full-time, 2 people part-time, and 4 people as independent contractors.

The average tenure of our employees as of December 31, 2023, was approximately 4.5 years, and more than 36% of our employees had been employed by us for more than 4 years.

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We carefully manage and forecast our liquidity sources and uses on a frequent basis.

Our sources of liquidity typically include collections from our Portfolio, proceeds from sales and securitizations (including gains-on-sale), fee revenue, proceeds from debt transactions, and proceeds from equity transactions.

Our uses of liquidity typically include operating expenses (including cash compensation), interest and principal payments on our debt, shareholder dividends, and funding investments.

Our sources of liquidity typically include collections from our Portfolio, cash proceeds from asset sales and securitizations, fee revenue, proceeds from debt transactions, and proceeds from equity transactions.

Our uses of liquidity typically include funding investments, operating expenses (including cash compensation), interest and principal payments on our debt, and stockholder dividends and limited partner distributions.

We maintain sufficiently available liquidity in the form of unrestricted cash and immediately available capacity on our credit facilities to manage our net cash flow.

We typically pay our operating expenses, including interest on our debt, and dividends from collections on our Portfolio and proceeds from sales of Portfolio investments.

We typically pay our operating expenses, including debt service, and dividends from collections on our Portfolio and proceeds from sales of Portfolio investments.

We use borrowings as part of our financing strategy to increase potential returns to our stockholders and have available to us a broad range of financing sources.

We finance our investments primarily with non-recourse or recourse debt, equity and off-balance sheet securitization structures.

We have adequate liquidity as of December 31, 2022, with unrestricted cash balances of $156 million, an unsecured revolving credit facility with an unused capacity of $600 million, $16 million of available capacity in our secured revolving credit facilities, and $100 million of availability under our CarbonCount Green Commercial Paper Notes Program.

During 2022 we issued $189 million in equity.

In March 2022, $8 million of our 2022 Senior Convertible Notes were converted into 282,678 shares of common stock, with the remaining notes redeemed for $0.5 million of cash.

In April 2022, we issued $200 million principal amount of Senior Exchangeable Notes which mature in 2025, have a 0.00% coupon and accrete to a premium at maturity at an effective rate of 3.25% annually.

In November 2022, we entered into a $383 million term loan facility.

As of December 31, 2022, we had $442 million of non-recourse borrowings, $1.8 billion of senior unsecured notes, and $344 million of convertible notes outstanding.

We also continue to utilize off-balance sheet securitization transactions, where we transfer the loans or other assets we originate to securitization trusts or other bankruptcy remote special purpose funding vehicles that are not consolidated on our balance sheet.

We have continued to complete off-balance sheet securitization transactions with large institutional investors such as life insurance companies.

We have adequate liquidity as of December 31, 2023, with unrestricted cash balances of $63 million, an unsecured revolving credit facility with an unused capacity of $507 million, and $70 million of availability under our CarbonCount Green Commercial Paper Notes Program.

During 2023 we issued our 2028 Exchangeable Notes with a principal amount of $403 million, with the proceeds used in part to payoff the 2023 Convertible Notes at maturity.

In December of 2023, we issued a principal amount of $550 million of Green Senior Unsecured Note due 2027 (the “2027 Notes”), which we supplemented with an add-on offering of $200 million principal amount of 2027 Notes in January 2024.

We increased the outstanding borrowings on our CarbonCount Term Loan Facility by $165 million, and increased the capacity under our unsecured revolving credit facility by $315 million.

We issued $494 million in equity in 2023.

As of December 31, 2023, we had $162 million of non-recourse borrowings, $2.3 billion of senior unsecured notes, and $603 million of convertible or exchangeable notes (the “Convertible Notes”) outstanding.

We also use off-balance sheet securitization transactions with large institutional investors such as life insurance companies, where we transfer the loans or other assets we originate to securitization trusts or other bankruptcy remote special purpose funding vehicles that are not consolidated on our balance sheet.

As of December 31, 2023, the outstanding principal balance of our assets financed through the use of these off-balance sheet transactions was approximately $6.1 billion.

In addition to general operational obligations, which are typically paid as incurred, and dividends, which are declared by our Board quarterly, we will have future cash needs related to the payments due at maturity on our Senior Unsecured Notes and loans under our Term Loan Facility and the balances of our short-term commercial paper issuances and revolving credit facilities.

In addition to general operational obligations, which are typically paid as incurred, and dividends and distributions, which are declared by our Board quarterly, we will have future cash needs related to the payments due at maturity on the Senior Unsecured Notes and loans under our unsecured loan facility and the balances under our commercial paper program and revolving credit facilities.

We also have maturities related to our non-recourse debt and Convertible Notes.

However, as it relates to the non-recourse debt, to the extent there are not sufficient cash flows received from those investments pledged as collateral, the investor has no recourse against other corporate assets to recover any shortfalls and corporate cash contributions would not be required.

As it relates to the Convertible Notes, those obligations may be settled at maturity with the issuance of shares or with cash.

As it relates to the Convertible Notes, those obligations may be settled at maturity with cash, or with the issuance of shares to the extent that the market price of our common stock exceeds the strike price on the Convertible Notes.

For further information on our long-term debt, see Note 8 to our financial statements of this Form 10-K.

The maturity profile of these obligations (excluding non-recourse debt) are shown below:

We plan to raise additional equity capital and continue to use fixed and floating rate borrowings, which may be in the form of short-term commercial paper issuances, revolving credit facilities, recourse or non-recourse debt, convertible securities, repurchase agreements, and public and private debt issuances as a means of financing our business.

The maturity profile of our recourse debt obligations are shown below:

We plan to continue to issue debt which may be either recourse or non-recourse and either fixed-rate or floating-rate as a means of financing our business and may issue additional equity.

We also expect to use both on-balance sheet and off-balance sheet securitizations.

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Over time, as market conditions change, we may use other forms of debt and equity in addition to these financing arrangements.

The amount of financial leverage we may deploy for particular assets will depend upon the availability of particular types of financing and our assessment of the credit, liquidity, price volatility and other risks of those assets, and the interest rate environment.

The amount of financial leverage we may deploy for particular assets will depend upon our target capital structure and the availability of particular types of financing and our assessment of the credit, liquidity, price volatility and other risks of those assets, and the interest rate environment.

As shown in the table below, our debt to equity ratio was approximately 2.0 to 1 as of December 31, 2023, which is below our current board-approved leverage limit of up to 2.5 to 1.

Our percentage of fixed rate debt was approximately 92% as of December 31, 2023, which is within our board-approved targeted fixed rate debt percentage range of 75% to 100%.

Our targeted fixed rate debt range allows for percentages as low as 70% on a short term basis if we intend to repay or swap floating rate borrowings in the near term

The calculation of our fixed-rate debt and financial leverage as of December 31, 2023 and 2022 is shown in the chart below:

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Fixed-rate debt (2)

Total debt (2)

3,909 92 % 2,545 86 %

$ 4,247 100 % $ 2,976 100 %

Equity $ 2,142 $ 1,665

Leverage 2.0 to 1 1.8 to 1

(1) Floating-rate borrowings include borrowings under our floating-rate credit facilities, commercial paper notes with less than six months original maturity, and loans under our term loan facility.

(1) Floating-rate borrowings include borrowings under our floating-rate credit facilities and commercial paper notes with less than six months original maturity, to the extent such borrowings are not hedged using interest rate swaps.

(2) Fixed-rate debt includes the impact of our interest rate swaps and collars on debt that is otherwise floating.

Debt excludes securitizations that are not consolidated on our balance sheet.

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We believe our identified sources of liquidity will be adequate for purposes of meeting our short-term and long-term liquidity needs, which include funding future investments, debt service, operating costs and distributions to our stockholders.

To qualify as a REIT, we must distribute annually at least 90% of our REIT’s taxable income without regard to the deduction for dividends paid and excluding net capital gains.

These dividend requirements limit our ability to retain earnings and thereby increase the need to replenish capital for growth and our operations.

Sources and Uses of Cash

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Cash Flows Relating to Operating Activities

Net cash provided by operating activities was approximately $100 million for the year ended December 31, 2023, driven primarily by net income of $151 million, offset by adjustments for non-cash and other items of $51 million.

The non-cash and other adjustments consisted of decreases of $108 million for equity method investments, $42 million for gain on securitizations, $44 million for change in accrued interest on receivables and investments, and $3 million of other.

These were partially offset by increases of $52 million in changes in receivables held-for-sale, $48 million for changes in accounts payable and accrued expenses, $18 million for equity-based expenses, $16 million for depreciation and amortization, and $12 million for provision for loss on receivables.

Net cash provided by operating activities was less than $1 million for the year ended December 31, 2022, driven primarily by net income of $42 million, offset by adjustments for non-cash and other items of $42 million.

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These were partially offset by increases of $16 million related to equity method investments, $13 million related to provision for loss on receivables, $20 million for equity based compensation, $12 million in amortization of financing costs, $4 million of depreciation and amortization, and $18 million related to changes in accounts payable and accrued expenses.

Net cash provided by operating activities was approximately $13 million for the year ended December 31, 2021, driven primarily by net income of $127 million, less adjustments for non-cash and other items of $114 million.

The non-cash and other adjustments consisted of decreases of $94 million related to equity method investments, $48 million related to non-cash gain on securitization, $22 million related to changes in receivables held for sale, and $7 million in accrued interest and other.

These were partially offset by increases of $17 million for equity based compensation, $14 million of non-cash loss on debt extinguishment, $11 million of changes in accounts payable and accrued expenses, $11 million in amortization of financing costs, and $4 million of depreciation and amortization.

Cash Flows Relating to Investing Activities

Net cash used in investing activities was approximately $2 billion for the year ended December 31, 2023.

We made investments in receivables and fixed rate debt securities of $1.3 billion, equity method investments of $869 million, and investments of $14 million, and pledged $94 million as collateral to hedge counterparties.

These were offset by principal collections of $198 million from receivables, $85 million received from the return of collateral from hedge counterparties, $30 million received from equity method investments in excess of income recognized to date under GAAP, and the receipt of $11 million from the sale of financial assets and other investing inflows.

Net cash used in investing activities was approximately $592 million for the year ended December 31, 2022.

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These were offset by collected payments of $126 million from receivables and fixed rate debt securities and the receipt of $12 million from the sale of financial assets.

We also collected $112 million from equity method investments in excess of income recognized to date under GAAP, withdrew $23 million from escrow accounts, and received $5 million related to the sale of real estate.

Net cash used in investing activities was approximately $703 million for the year ended December 31, 2021.

We made equity method investments of $402 million, investments in receivables and fixed rate debt securities of $558 million, and

funded escrow accounts of $12 million.

These were offset by collected payments of $149 million from receivables and fixed rate debt securities and the receipt of $91 million from the sale of financial assets.

We also collected $21 million from equity method investments in excess of income recognized to date under GAAP, withdrew $2 million from escrow accounts, and had other cash inflows of $6 million.

We also collected $112 million from equity method investments in excess of

income recognized to date under GAAP, withdrew $23 million from escrow accounts, and received $5 million related to the sale of real estate.

Cash Flows Relating to Financing Activities

Net cash provided by financing activities was approximately $1.8 billion for the year ended December 31, 2023.

We received proceeds from credit facilities of $1.2 billion, proceeds from the issuance of senior unsecured notes of $550 million, net proceeds from common stock issuances of $492 million, proceeds from the issuance of a term loan of $365 million, proceeds from the issuances of convertible debt of $403 million, proceeds of $176 million from the receipt of collateral from hedge counterparties, and proceeds from the issuance of green commercial paper notes of $30 million.

These were partially offset by principal payments on credit facilities $827 million, collateral provided to hedge counterparties of $167 million, principal payments on convertible notes of $144 million, the purchase of capped calls related to the issuance of convertible notes for $38 million, payment of debt issuance costs of $23 million, principal payments on non-recourse debt of $22 million, principal payments of term loan of $16 million and payments of dividends, distributions, and other financing activities of $164 million.

Net cash provided by financing activities was approximately $516 million for the year ended December 31, 2022.

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These were partially offset by principal payments on credit facilities and commercial paper notes of $200 million, principal payments on non-recourse debt of $31 million, payments of $3 million for withholding requirements as a result of the vesting of employee shares, payment of debt issuance costs of $12 million and payments of dividends, distributions, and other financing activities of $142 million.

Net cash provided by financing activities was approximately $631 million for the year ended December 31, 2021.

We received proceeds from the issuance of senior unsecured debt of $1 billion, net proceeds from common stock issuances of $201 million, and proceeds from credit facilities and commercial paper notes of $150 million.

These were partially offset by the redemption of senior unsecured notes of $514 million, principal payments on credit facilities of $22 million, principal payments on non-recourse debt of $38 million, payments of $14 million for withholding requirements as a result of the vesting of employee shares, payment of debt issuance costs of $18 million and payments of dividends, distributions, and other financing activities of $114 million.

Off-Balance Sheet Arrangements

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In some transactions, we have also guaranteed our compliance with certain tax matters, such as negatively impacting the investment tax credit and certain other obligations in the event of a change in ownership or our exercising certain protective rights.

federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pays tax at regular corporate rates to the extent that it annually distributes less than 100% of its REIT taxable income.

Our current policy is to pay quarterly distributions, which on an annual basis will equal or exceed substantially all of our REIT taxable income.

The taxable income of the REIT can vary from our GAAP earnings due to a number of different factors including the book to tax timing differences of income and expense recognition from our transactions as well as the amount of taxable income of our TRS distributed to the REIT.

See Note 10 to our financial statements in this Form 10-K regarding the amount of our distributions that are treated as ordinary taxable income to our stockholders.

Any distributions we make will be at the discretion of our board of directors and will depend upon, among other things, our actual results of operations.

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In the event that our Board determines to make 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.

To the extent, that in respect of any calendar year, cash available for distribution is less than our taxable income, or our declared distribution we could be required to sell assets, borrow funds or raise additional capital to make cash distributions or make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

We will generally not be required to make distributions with respect to activities conducted through our domestic TRS.

To the extent that we generate taxable income, distributions to our stockholders generally will be taxable as ordinary income, although all or a portion of such distributions may be designated by us as a qualified dividend or capital gain.

Beginning in 2018 (and through taxable years ending in 2025), a deduction is permitted for certain pass-through business income, including “qualified REIT dividends” (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), which will allow U.S.

individuals, trusts and estates to deduct up to 20% of such amounts, subject to certain limitations, resulting in an effective maximum U.S.

federal income tax rate of 29.6% on such qualified REIT dividends.

In the event we make distributions to our stockholders in excess of our taxable income, the excess will constitute a return of capital.

In addition, a portion of such distributions may be taxable stock dividends payable in our shares.

We will furnish annually to each of our stockholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain.

Our board of directors had approved of our revocation of our REIT status effective for tax year 2024.

We elected to be taxed as a REIT during tax years 2023 and previous.

As a REIT, we paid quarterly distributions, which on an annual basis equaled or exceeded substantially all of our REIT taxable income.

The taxable income of the REIT would vary from our GAAP earnings due to a number of different factors including the book to tax timing differences of income and expense recognition from our transactions as well as the amount of taxable income of our TRS distributed to the REIT.

See Note 10 to our financial statements in this Form 10-K regarding the amount of our distributions that are treated as ordinary taxable income to our stockholders.

The dividends declared in 2023 and 2022 are described in Note 11 to our audited financial statements in this Form 10-K.

Book Value Considerations

As of December 31, 2022, we carried only our investments and residual assets in securitized financial assets at fair value on our balance sheet.

As of December 31, 2023, we carried only our investments, residual assets in securitized financial assets, and our interest rate swaps and collar at fair value on our balance sheet.

As a result, in reviewing our book value, there are a number of important factors and limitations to consider.

Other than our investments and the residual assets in securitized financial assets that are carried on our balance sheet at fair value as of December 31, 2022, the carrying value of our remaining assets and liabilities are calculated as of a particular point in time, which is largely determined at the time such assets and liabilities were added to our balance sheet using a cost basis in accordance with GAAP, adjusted for income or loss recognized on such assets.

Other than our investments, the residual assets in securitized financial assets, and interest rate swaps and collar that are carried on our balance sheet at fair value as of December 31, 2023, the carrying value of our remaining assets and liabilities are calculated as of a particular point in time, which is largely determined at the time such assets and liabilities were added to our balance sheet using a cost basis in accordance with GAAP, adjusted for income or loss recognized on such assets.

Other than the allowance for current expected credit losses applied to our commercial and government receivables, our remaining assets and liabilities do not incorporate other factors that may have a significant impact on their value, most notably any impact of business activities, changes in estimates, or changes in general economic conditions, interest rates or commodity prices since the dates the assets or liabilities were initially recorded.

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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.

What changed 10-K

Item 7. Management’s Discussion and Analysis