What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-16 compared with 2023-02-21 · 381 added, 253 removed, 997 unchanged (39% of the section changed)

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We have audited the accompanying consolidated balance sheets of Hannon Armstrong Sustainable Infrastructure Capital, Inc.

(the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.

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Accounting for Equity Investments in Climate Solutions Projects

Description of the Matter As discussed in Note 2 to the consolidated financial statements, the Company makes equity investments in climate solutions projects that are accounted for under the equity method of accounting.

During the year ended December 31, 2022, the Company made new equity investments in climate solutions projects amounting to $128 million and held $1.9 billion of equity investments in climate solutions projects as of December 31, 2022.

Description of the Matter As discussed in Note 2 to the consolidated financial statements, the Company makes investments in climate solutions projects that are accounted for under the equity method of accounting.

As of December 31, 2023, the Company held $2.97 billion of equity investments in climate solutions projects as of December 31, 2023.

The Company’s determination that it does not have the power to direct the significant activities impacting each of the investees’ economic performance (“power”) is critical to its determination that it is not the primary beneficiary of the investee.

Also, as described in Note 2 to the consolidated financial statements, for equity method investments that contain preferences with regard to cash flows from operations, capital events and liquidation in their respective limited liability company agreements (“LLC Agreements”), the Company applies the Hypothetical Liquidation at Book Value (“HLBV”) method to record its share of profits and losses on these investments, which is done one quarter in arrears to allow for receipt of financial information from its investees.

Also, as described in Note 2 to the consolidated financial statements, for equity method investments that contain preferences with regard to cash flows from operations, capital events and liquidation in their respective limited liability company agreements (“LLC Agreements”), the Company applies the Hypothetical Liquidation at Book Value (“HLBV”) method to record its share of profits and losses on these investments, which is recorded one quarter in arrears to allow for receipt of financial information from its investees.

Also, as described in Note 2, the Company evaluates their equity method investments quarterly for other than temporary impairment (“OTTI”).

This requires evaluating both qualitative and quantitative evidence to determine whether there may be indicators of a loss in investment value below carrying value.

This requires evaluating available qualitative and quantitative evidence to determine whether there may be indicators of a loss in investment value below carrying value.

Auditing the Company’s determination of whether it has power over an investee was complex and required significant judgment to determine both the activities of the investee that most significantly impact the investee’s economics, and the distribution of power among the members of the investee that ultimately determine the outcome of such activities.

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Lastly, evaluating available qualitative and quantitative evidence was subjective and required judgment as to whether there were indicators of a loss in investment value below carrying value.

How We Addressed the Matter in our Audit We tested controls that address the risks of material misstatement relating to:

How We Addressed the Matter in Our Audit

We tested the Company’s controls that address the risks of material misstatement relating to:

i) the determination of whether the Company has the power to direct the significant activities of the investees, ii) the recognition of its share of investees’ profits and losses through use of the HLBV method based on financial information reported to the Company from its investees, and iii) the review of available qualitative and quantitative evidence in determining whether there may be indicators of a loss in investment value below carrying value.

For example, we tested controls over management’s review of the variable interest model and determination of whether the Company has power.

We also tested controls over management’s review of the HLBV method, including the application of the liquidation provisions and the financial information reported from their investees.

Lastly, we tested controls over management’s review of quantitative and qualitative evidence and whether there were indicators of a loss in investment value below carrying value.

To evaluate whether the Company has power over each investee, our audit procedures included, among others, inspecting LLC Agreements and evaluating management’s analysis of the significant activities of the investee and which parties can direct those significant activities.

For example, as part of our evaluation, we considered the purpose and design of the investee and the legal rights of each of the involved parties, including the significance of the decisions that each party makes.

For example, we tested the Company’s controls over management’s review of the variable interest model and determination of whether the Company has power.

We also tested controls over management’s review of the HLBV method, including the application of any liquidation provisions and the financial information reported from their investees.

Lastly, we tested controls over management’s review of available quantitative and qualitative evidence and whether there were indicators of a loss in investment value below carrying value.

To evaluate whether the Company has power over each investee, our audit procedures included, on a sample basis, reading LLC Agreements and evaluating management’s analysis of the significant activities of the investee and which parties can direct those significant activities.

For example, as part of our evaluation, we considered the purpose and design of each investee and the legal rights of each of the involved parties, including the significance of the decisions that each party makes.

We also tested the rights of each party included in management’s analysis by comparing such rights to the LLC Agreements.

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We also performed additional procedures on the Company’s HLBV calculations that included, but were not limited to, recalculating the stated preferred returns, recalculating allocations of tax attributes, comparing inputs included within the calculations to the information reported to the Company by its investee, and recalculating the Company’s share of profits and losses of the investee.

We reviewed the Company’s evaluation of qualitative and quantitative evidence and whether there may be indicators of a loss in investment value below carrying value for a sample of investments.

We reviewed the Company’s evaluation of available qualitative and quantitative evidence and whether there may be indicators of a loss in investment value below carrying value for a sample of investments.

This included, among others, evaluating management’s identification of indicators that the Company’s investments may have experienced a loss of value below carrying value, agreeing certain qualitative and quantitative information used in the assessment to source documents, testing clerical accuracy of the analysis as applicable, and assessing any contradictory evidence that arose during our audit.

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 21, 2023 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated February 16, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

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Investments 7,165 10,200

Securitization assets 177,032 210,354

Securitization assets, net of allowance of $ 3 million and $ 0 million , respectively

218,946 177,032

Other assets 77,112 119,242

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Commercial paper notes 30,196 192

Term loan facility 379,742 —

Term loans payable 727,458 379,742

Non-recourse debt (secured by assets of $ 239 million and $ 632 million, respectively)

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Rental income 21,251 26,245 25,905

Gain on sale of receivables and investments 57,187 68,333 49,887

Fee income 21,649 12,039 15,583

Gain on sale of assets 68,637 57,187 68,333

Securitization asset income 19,259 17,905 9,692

Other income 2,930 3,744 2,347

Total revenue 319,871 239,737 213,166

Interest expense 171,008 115,559 121,705

Provision for loss on receivables 12,798 496 10,096

Provision for loss on receivables and securitization assets 11,832 12,798 496

Compensation and benefits 64,344 63,445 52,975

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Net income (loss) attributable to non-controlling interest holders

1,921 409 767

Net income (loss) attributable to controlling stockholders $ 148,836 $ 41,502 $ 126,579

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Comprehensive income (loss) attributable to non-controlling interest holders

1,884 176 751

Comprehensive income (loss) attributable to controlling stockholders $ 172,398 $ 21,201 $ 123,848

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Balance at December 31, 2020

76,457 $ 765 $ 1,394,009 $ ( 204,112 ) $ 12,634 $ 6,853 $ 1,210,149

Net income (loss) — — — 126,579 — 767 127,346

Adoption of ASU 2016-13, net of tax effect ( 14,031 ) ( 74 ) ( 14,105 )

Unrealized gain (loss) on available-for-sale securities

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Balance at December 31, 2021

85,327 $ 853 $ 1,727,667 $ ( 193,706 ) $ 9,904 $ 21,797 $ 1,566,515

Net income (loss) — — — 41,502 — 409 41,911

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Balance at December 31, 2022

90,837 $ 908 $ 1,924,200 $ ( 285,474 ) $ ( 10,397 ) $ 35,509 $ 1,664,746

Net income (loss) — — — 148,836 — 1,921 150,757

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Issuance (repurchase) of vested equity-based compensation shares 69 1 ( 1,490 ) — — — ( 1,489 )

Redemption of OP Units 3 — 85 — — ( 85 ) —

Conversion of convertible notes — — 2 — — — 2

Purchase of capped calls

( 37,835 ) ( 37,835 )

Dividends and distributions — — — ( 166,898 ) — ( 3,325 ) ( 170,223 )

Balance at December 31, 2023

112,173 $ 1,122 $ 2,381,510 $ ( 303,536 ) $ 13,165 $ 49,364 $ 2,141,625

See accompanying notes.

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Non-cash gain on securitization ( 43,542 ) ( 28,614 ) ( 48,332 )

(Gain) loss on sale of receivables and investments ( 218 ) ( 720 ) 13,811

(Gain) loss on sale of assets

1,305 ( 218 ) ( 720 )

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

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Purchases of investments ( 14,404 ) ( 2,329 ) ( 4,830 )

Principal collections from investments — 414 2,424

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

Collateral provided to hedge counterparties

( 93,550 ) — —

Collateral received from hedge counterparties

Funding of escrow accounts — ( 5,476 ) ( 12,069 )

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Proceeds from issuance of term loan 365,000 383,000 —

Principal payments on term loan

( 16,478 ) — —

Proceeds from issuance of senior unsecured notes 550,000 — 1,000,000

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Principal payments on convertible notes ( 143,748 ) ( 461 ) —

Purchase of capped calls related to the issuance of convertible notes ( 37,835 ) — —

Net proceeds of common stock issuances 492,377 188,881 200,641

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Payment of debt issuance costs ( 22,894 ) ( 11,754 ) ( 17,750 )

Collateral provided to hedge counterparties

( 166,600 ) — —

Collateral received from hedge counterparties

Other ( 3,268 ) ( 9,820 ) ( 12 )

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Residual assets retained from securitization transactions $ 35,483 $ 28,614 $ 56,432

Equity method investments received upon deconsolidation of a special purpose entity 144,603 — —

Right-of-use asset obtained in exchange for lease liability — — 4,628

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Hannon Armstrong Sustainable Infrastructure Capital, Inc.

(the “Company”) invests in climate solutions by providing capital to leading companies in the energy efficiency, renewable energy and other sustainable infrastructure markets.

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

The Company and its subsidiaries are hereafter referred to as “we,” “us” or “our.” Our investments take various forms, including equity, joint ventures, real estate ownership, or lending or other financing transactions, and typically benefit from contractually committed high credit quality obligors.

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

We refer to the income producing assets that we hold on our balance sheet as our “Portfolio.” Our Portfolio includes:

• equity investments in either preferred or common structures in unconsolidated entities which own renewable energy or energy efficiency projects;

• commercial and government receivables, such as loans for renewable energy and energy efficiency projects;

• real estate, such as land or other assets leased for use by climate solutions projects typically under long-term leases;

• investments in debt securities of renewable energy or energy efficiency projects.

We finance our business through cash on hand, short-term commercial paper issuances, revolving credit facilities, issuances of unsecured debt, asset-backed securitization transactions, convertible securities, and equity issuances.

We also generate fee income through securitizations and syndications, by providing broker/dealer services and by managing and servicing assets owned by third parties.

Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “HASI.” We have qualified as a real estate investment trust (“REIT”) and also intend to continue to operate our business in a manner that will maintain our exemption from registration as an investment company under the Investment Company Act of 1940 (the “1940 Act”), as amended.

(the “Company”) actively partners with clients to deploy real assets that facilitate the energy transition.

Our investments take various forms, including equity, joint ventures, real estate ownership, lending and other financing transactions.

We generate net investment income from our portfolio, and fees through gain-on sale securitization transactions, asset management and servicing, broker/dealer and other services.

We also generate recurring income through our residual ownership in securitization and syndication structures.

The Company and its subsidiaries are hereafter referred to as “we,” “us” or “our.” We refer to the income producing assets that we hold on our balance sheet as our “Portfolio.” Our Portfolio includes:

• equity investments in either preferred or common structures in unconsolidated entities;

• commercial and government receivables;

• real estate;

• investments in debt securities.

We finance our business through cash on hand, non-recourse debt, recourse debt, convertible securities, or equity issuances and may also decide to finance such transactions through the use of off-balance sheet securitization structures.

Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “HASI.” We intend to continue to operate our business in a manner that will maintain our exemption from registration as an investment company under the Investment Company Act of 1940 (the “1940 Act”), as amended.

We operate our business through, and serve as the sole general partner of, our operating partnership subsidiary, Hannon Armstrong Sustainable Infrastructure, L.P., (the “Operating Partnership”), which was formed to acquire and directly or indirectly own our assets.

Transition to Taxable C Corporation

As a result of expanding opportunities in non-qualifying assets, effective January 1, 2024, we have elected to revoke our real estate investment trust (“REIT”) election, and will be taxed as a C Corporation beginning in tax year 2024.

Commencing with the taxable year ended December 31, 2024, all of the Company’s taxable income is subject to U.S.

federal and state income tax at the applicable corporate tax rate.

Dividends paid to stockholders are no longer tax deductible to us.

The Company is also no longer subject to the REIT requirement for distributions to stockholders when the Company has taxable income.

The Company anticipates that operating as a taxable C Corporation will provide the Company with flexibility to execute various strategic initiatives without the constraints of complying with REIT requirements, including investing in power generating, transportation, and alternative fuel assets which are not REIT qualifying assets.

The Company’s transition to a taxable C Corporation is not expected to result in significant incremental current income tax expense in the near term due to the availability of net operating loss (“NOL”) carryforwards and tax credits typically offered by the assets in which we often invest.

See Note 10 for additional information.

Summary of Significant Accounting Policies

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We have established various special purpose entities or securitization trusts for the purpose of securitizing certain assets that are not consolidated in our financial statements as described below in Securitization of Financial Assets.

Since we have assessed that we have power over and receive the benefits from those special purpose entities that are formed for the purpose of holding our assets on our balance sheet, we have concluded we are the primary beneficiary and

should consolidate these entities under the provisions of ASC 810.

We also have certain subsidiaries we deem to be voting interest entities that we control through our ownership of voting interests and accordingly consolidate.

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Our maximum exposure to loss through these investments is typically limited to their recorded values.

However, we may provide financial commitments to these VIEs or guarantees of certain of their obligations.

Certain other entities in which we have equity investments have been assessed to be voting interest entities and are not consolidated as we exert significant influence rather than control through our ownership of voting interests, and accordingly we account for them as equity method investments described below.

However, we may provide financial commitments to these VIEs or guarantee certain of their obligations.

Certain other entities in which we have equity investments have been assessed to be voting interest entities and as we exert significant influence rather than control through our ownership of voting interests, we do not consolidate them and thus account for them as equity method investments described below.

Equity Method Investments

We have made equity investments in various climate solutions projects, typically in structures where we have a preferred return position.

We have made equity investments, typically in structures where we have a preferred return position.

These investments are typically owned in holding companies (using limited liability companies (“LLCs”) taxed as partnerships) where we partner with either the operator of the project or other institutional investors.

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Cash distributions received from each equity method investment are classified as operating activities to the extent of cumulative earnings for each investment in our consolidated statements of cash flows.

Our initial investment and additional cash distributions beyond that which are classified as operating activities are classified as investing activities in our consolidated statements of cash flows.

Our initial investment and additional cash distributions beyond the amounts that are classified as operating activities are classified as investing activities in our consolidated statements of cash flows.

We typically recognize earnings one quarter in arrears for certain of these investments to allow for the receipt of financial information.

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An OTTI occurs when the estimated fair value of an investment is below the carrying value and the difference is determined to not be recoverable in the near term.

First, we consider both qualitative and quantitative evidence whether there may be indicators of a loss in investment value below carrying value.

After considering the weight of available evidence, if it is determined that there is a indication of loss in investment value, we will perform a fair value analysis.

First, we consider both qualitative and quantitative evidence in determining whether there is an indicator of a loss in investment value below carrying value.

After considering the weight of available evidence, if it is determined that there is an indication of loss in investment value, we will perform a fair value analysis.

If the resulting fair value is less than the carrying value, we will determine if this loss in value is OTTI, and we will recognize any OTTI in the income statement as an impairment.

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These receivables are separately presented in our balance sheet to illustrate the differing nature of the credit risk related to these assets.

Unless otherwise noted, we generally have the ability and intent to hold our receivables for the foreseeable future and thus they are classified as held for investment.

Unless otherwise noted, we generally have the ability and intent to hold our receivables for the foreseeable future and accordingly we classify them as held for investment.

Our ability and intent to hold certain receivables may change from time to time depending on a number of factors including economic, liquidity and capital market conditions.

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Interest collected is classified as an operating activity in our consolidated statements of cash flows.

Receivables from certain projects are subordinate to preferred investors in a project who are allocated the majority of such projects’ cash in the early years of the investment.

Receivables from certain projects are subordinate to preferred investors in a project who are allocated the majority of such project’s cash in the early years of the investment.

Accordingly, such receivables may include the ability to defer scheduled interest payments in exchange for increasing our receivable balance.

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If a receivable’s status significantly improves regarding the debtor’s ability to service the debt or other obligations, we will remove it from non-accrual status.

We determine our allowance based on the current expectation of credit losses over the contractual life of our receivables as required by Topic 326, which we adopted in the year ended December 31, 2020.

We determine our allowance based on the current expectation of credit losses over the contractual life of our receivables as required by Topic 326.

We use a variety of methods in developing our allowance including discounted cash flow analysis and probability-of-default/loss given default (“PD/LGD”) methods.

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Our real estate is generally leased to tenants on a triple net lease basis, whereby the tenant is responsible for all operating expenses relating to the property, generally including property taxes, insurance, maintenance, repairs and capital expenditures.

Certain real estate

transactions may be characterized as “failed sale-leaseback” transactions as defined under ASC Topic 842, Leases , and thus are accounted for similarly to our commercial receivables as described above in Government and Commercial Receivables.

Certain real estate transactions may be characterized as “failed sale-leaseback” transactions as defined under ASC Topic 842, Leases , and thus are

accounted for as financing transactions similarly to our commercial receivables as described above in Government and Commercial Receivables.

For our real estate lease transactions that are classified as operating leases, the scheduled rental revenue typically varies during the lease term and thus rental income is recognized on a straight-line basis, unless there is considerable risk as to collectability, so as to produce a constant periodic rent over the term of the lease.

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Premiums or discounts on investment securities are amortized or accreted into interest income using the effective interest method.

Securitization of Financial Assets

Securitization of Assets

We have established various special purpose entities or securitization trusts for the purpose of securitizing certain financial assets.

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When we are unable to conclude that we have been sufficiently isolated from the securitized financial assets, we treat such trusts as secured borrowings, retaining the assets on our balance sheet and recording the amounts due to the trust investor as non-recourse debt.

Transfers of non-financial assets are accounted for under ASC 610-20, Gains and Losses from the Derecognition of Non-financial Assets , and those transfers are accounted for as sales when we have concluded that we have transferred control of the non-financial asset.

For transfers treated as sales under ASC 860, we have received true-sale-at-law and non-consolidation legal opinions for all of our securitization trust structures to support our conclusion regarding the transferred financial assets.

When we sell financial assets in securitizations, we generally retain interests in the form of servicing rights and residual assets, which we refer to as securitization assets.

Gain or loss on the sale of financial assets is calculated based on the excess of the proceeds received from the securitization (less any transaction costs) plus any retained interests obtained over the cost basis of the assets sold.

Gain or loss on the sale of assets is calculated based on the excess of the proceeds received from the securitization (less any transaction costs) plus any retained interests obtained over the cost basis of the assets sold.

For retained interests, we generally estimate fair value based on the present value of future expected cash flows using our best estimates of the key assumptions of anticipated losses, prepayment rates, and current market discount rates commensurate with the risks involved.

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If the amortized cost of servicing assets is greater than the estimated fair value, we will recognize an impairment in net income.

Our other retained interest in securitized assets, the residual assets, are accounted for similar to available-for-sale debt securities and carried at fair value with changes in fair value recorded in AOCI.

Income related to the residual assets is recognized using the effective interest rate method and included in fee income in our income statement.

We account for our other retained interests in securitized financial assets, the residual assets, similar to available-for-sale debt securities and carry at fair value with changes in fair value recorded in AOCI pursuant to ASC 325-40, Beneficial Interests in Securitized Financial Assets .

Income related to the residual assets is recognized using the effective interest rate method and included in securitization income in our income statement.

Our residual assets are evaluated for impairment on a quarterly basis under Topic 326.

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This yield is used prospectively to recognize our income related to these assets.

Residual interests in securitized non-financial assets are accounted for as equity method investments, and subject to those accounting policies described above.

Cash and Cash Equivalents

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Convertible Notes

We have issued convertible and exchangeable senior notes (together, “Convertible Notes”) that are accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options , and ASC 815, Derivatives and Hedging (“ASC 815”) .

We have issued convertible and exchangeable senior unsecured notes (together, “Convertible Notes”) that are accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options , and ASC 815, Derivatives and Hedging (“ASC 815”) .

Under ASC 815, issuers of certain convertible or exchangeable debt instruments are generally required to separately account for the conversion or exchange option of the debt instrument as either a derivative or equity, unless it meets the scope exemption for contracts indexed to, and settled in, an issuer’s own equity.

Since our conversion or exchange options are both indexed to our equity and can only be settled in our common stock, we have met the scope exemption, and therefore, we are not separately accounting for the embedded conversion or exchange options.

The initial issuance and any principal repayments are

classified as financing activities and interest payments are classified as operating activities in our consolidated statements of cash flows.

Since our conversion or exchange options are both

indexed to our equity and can only be settled in our common stock, we have met the scope exemption, and therefore, we are not separately accounting for the embedded conversion or exchange options.

The initial issuance and any principal repayments are classified as financing activities and interest payments are classified as operating activities in our consolidated statements of cash flows.

If converted or exchanged, the carrying value of each Convertible Note is reclassified into stockholders’ equity.

Derivative Financial Instruments

We use derivative financial instruments, including interest rate swaps and collars, to manage, or hedge, our interest rate risk exposures associated with new debt issuances and anticipated refinancings of existing debt, to manage our exposure to fluctuations in interest rates on floating-rate debt, and to optimize the mix of our fixed and floating-rate debt.

Our objective is to reduce the impact of changes in interest rates on our results of operations and cash flows.

The fair values of our interest rate derivatives designated and qualifying as effective cash flow hedges are reflected in our consolidated balance sheets as a component of other assets (if in an unrealized asset position) or accounts payable, accrued expenses and other (if in an unrealized liability position) and in net unrealized gains and losses in AOCI as described below.

The cash settlements of our interest rate swaps, if any, are classified as operating activities in our consolidated statements of cash flows.

The interest rate derivatives we use are intended to be designated as cash flow hedges and are considered highly effective in reducing our exposure to the interest rate risk that they are designated to hedge.

This effectiveness is required in order to qualify for hedge accounting.

Instruments that meet the required hedging criteria are formally designated as hedging instruments at the inception of the derivative contract.

Derivatives are recorded at fair value.

If a derivative is designated as a cash flow hedge and meets the highly effective threshold, the change in the fair value of the derivative is recorded in AOCI, net of associated deferred income tax effects and is recognized in earnings at the same time as the hedged item.

For any derivative instruments not designated as hedging instruments, changes in fair value would be recognized in earnings in the period that the change occurs.

We assess, both at the inception of the hedge and on an ongoing basis, whether the derivatives designated as cash flow hedges are highly effective in offsetting the changes in cash flows of the hedged items.

We do not hold derivatives for trading purposes.

Any collateral posted or received as credit support against derivative positions are netted against those derivatives in our balance sheets.

When our collateral account with any particular counterparty is in a liability position, we include inflows and outflows related to those collateral postings within financing activities in our statement of cash flows.

When our collateral account with any particular counterparty is in an asset position, we include inflows and outflows related to those collateral postings within investing activities in our statement of cash flows.

Interest rate derivative contracts contain a credit risk that counterparties may be unable to fulfill the terms of the agreement.

We attempt to minimize that risk by evaluating the creditworthiness of our counterparties, who are limited to major banks and financial institutions, and do not anticipate nonperformance by the counterparties due to their requirement to post collateral.

We have entered into certain capped call transactions to mitigate the economic dilution that may result from the conversion or exchange of certain of our Convertible Notes.

These transactions are freestanding equity-linked derivative instruments that qualify for the exemption for contracts indexed to, and settled in, an issuer’s own equity found in ASC 815, and accordingly the payment of the option premium was recorded as a reduction of Additional Paid-in-Capital within our Statement of Stockholders’ Equity.

We elected and qualified to be taxed as a REIT for U.S.

federal income tax purposes, commencing with our taxable year ended December 31, 2013.

We also have taxable REIT subsidiaries (“TRS”) that are taxed separately, and that will generally be subject to U.S.

federal income tax purposes, commencing with our taxable year ended December 31, 2013 through our taxable year ended December 31, 2023.

We have revoked our REIT status effective January 1, 2024, and beginning in taxable year 2024 will be taxed as a C Corporation.

For tax years 2023 and prior, we had taxable REIT subsidiaries (“TRS”) that were taxed separately, and that were generally be subject to U.S.

federal, state, and local income taxes as well as taxes of foreign jurisdictions, if any.

To qualify as a REIT, we must meet on an ongoing basis several organizational and operational requirements, including a requirement that we currently distribute at least 90% of our REIT’s net taxable income before dividends paid, excluding capital gains, to our stockholders.

As a REIT, we are not subject to U.S.

federal corporate income tax on that portion of net income that is currently distributed to our owners.

We account for income taxes under ASC 740, Income Taxes (“ASC 740”) for our TRS using the asset and liability method.

To qualify as a REIT, we were required to meet on an ongoing basis several organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT’s net taxable income before dividends paid, excluding capital gains, to our stockholders each year.

As a REIT, for tax years ended December 31, 2023 and earlier, we were not subject to U.S.

federal corporate income tax on that portion of net income that was distributed to our owners in accordance with the REIT rules.

Subsequent to our REIT status revocation, all of our net taxable income is subject to U.S.

federal and state income tax at the applicable corporate tax rate, and dividends paid to stockholders are no longer tax deductible.

We account for income taxes under ASC 740, Income Taxes (“ASC 740”) for tax years 2024 and later, and for our TRS for tax years 2023 and earlier, using the asset and liability method.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted.

We evaluate any deferred tax assets for valuation allowances based on an assessment of available evidence including sources of taxable income, prior years taxable income, any existing taxable temporary differences and our future investment and business plans that may give rise to taxable income.

evaluate any deferred tax assets for valuation allowances based on an assessment of available evidence including sources of taxable income, prior years taxable income, any existing taxable temporary differences and our future investment and business plans that may give rise to taxable income.

We treat any tax credits we receive from our equity investments in renewable energy projects as reductions of federal income taxes of the year in which the credit arises.

Any deferred tax impacts resulting from transfers of assets to or from our TRS are recorded as an adjustment to additional paid-in capital, as it is a transfer amongst entities under common control.

Any deferred tax impacts resulting from transfers of assets to or from our TRS were recorded as an adjustment to additional paid-in capital, as it is a transfer amongst entities under common control.

We apply ASC 740 with respect to how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements.

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Equity-Based Compensation

In 2013, we adopted the 2013 Hannon Armstrong Sustainable Infrastructure Capital, Inc.

Equity Incentive Plan (as amended, the “2013 Plan”), which provides for grants of stock options, stock appreciation rights, restricted stock units, shares of restricted common stock, phantom shares, dividend equivalent rights, long-term incentive-plan units (“LTIP Units”) and other restricted limited partnership units issued by our Operating Partnership and other equity-based awards.

In 2022, our board of directors approved the 2022 Hannon Armstrong Sustainable Infrastructure Capital, Inc.

Equity Incentive Plan (“the 2022 Plan”), which was subsequently approved by shareholders at our 2022 annual meeting of stockholders, for the purpose of continuing to provide equity-based incentive compensation to members of our senior management team, our independent directors, employees, advisers, consultants and other personnel.

From time to time, we may grant equity or equity-based awards as compensation to our independent directors, employees, advisors, consultants and other personnel under the 2022 Plan.

We have adopted equity incentive plans which provide for grants of stock options, stock appreciation rights, restricted stock units, shares of restricted common stock, phantom shares, dividend equivalent rights, long-term incentive-plan units (“LTIP Units”) and other restricted limited partnership units issued by our Operating Partnership and other equity-based awards.

From time to time, we may grant equity or equity-based awards as compensation to our independent directors, employees, advisors, consultants and other personnel.

Certain awards earned under each plan are based on achieving various performance targets, which are generally earned between 0 % and 200 % of the initial target, depending on the extent to which the performance target is met.

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Forfeitures of unvested awards are recognized as they occur.

In the second quarter of 2022, our Board approved a retirement policy that provides for full vesting at retirement of any time-based awards that were granted prior to the date of retirement and permits the vesting of performance-based awards that were granted prior to the date of retirement according to the original vesting schedule of the award, subject to the achievement

of the applicable performance measures and without the requirement for continued employment.

We have a retirement policy that provides for full vesting at retirement of any time-based awards that were granted prior to the date of retirement and permits the vesting of performance-based awards that were granted prior to the date of retirement according to the original vesting schedule of the award, subject to the achievement of the applicable performance measures and without the requirement for continued employment.

Employees are eligible for the retirement policy upon meeting age and years of service criteria.

We record compensation expense for unvested grants through the date in which an employee meets the retirement criteria.

At implementation of this policy, we recorded compensation expense of $ 9 million to reflect unvested grants of employees who meet the retirement eligibility criteria.

Earnings Per Share

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When unvested grants are dilutive, the earnings allocated to these dilutive unvested grants are not deducted from the net income attributable to controlling stockholders when calculating diluted earnings per share.

The Convertible Notes are included if they are dilutive using the if-converted method, which removes interest expense related to the Convertible Notes from the net income attributable to controlling stockholders and includes the weighted average shares of potential common stock over the period issuable upon conversion or exchange of the note.

weighted average shares of potential common stock over the period issuable upon conversion or exchange of the note.

No adjustment is made for shares of potential common stock that are anti-dilutive during a period.

Our capped call transactions are anti-dilutive and therefore their impact will be excluded from earnings per share.

Segment Reporting

We make equity and debt investments in the climate solutions markets.

We manage our business as a single portfolio and report all of our activities as one business segment.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

2023-07 amended the existing segment reporting requirements by requiring disclosure of the significant segment expenses based on how management internally views segment information and by allowing the disclosure of more than one measure of segment profit or loss, as well as by expanding the interim period segment requirements.

The ASU also requires single-reportable segment entities to report the disclosures required under ASC Topic 280, Segment Reporting .

2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Upon adoption of ASU No.

2023-07, we will provide the disclosures required by ASC Topic 280, Segment Reporting.

Other accounting standards updates issued before February 16, 2024, and effective after December 31, 2023, are not expected to have a material effect on our consolidated financial statements and related disclosures.

There were no accounting standards that became effective in the year ended December 31, 2023 that had a material effect on our consolidated financial statements and related disclosures.

Accounting standards updates issued before February 21, 2023 and effective after December 31, 2022, are not expected to have a material effect on our consolidated financial statements and related disclosures.

Fair Value Measurements

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We use our judgment and consider factors specific to the financial assets and liabilities in determining the significance of an input to the fair value measurements.

As of December 31, 2022 and December 31, 2021, only our residual assets related to our securitization trusts and investments were carried at fair value on the consolidated balance sheets on a recurring basis.

As of December 31, 2023 and December 31, 2022, only our residual assets related to our securitization trusts, our derivatives, and our investments were carried at fair value on the consolidated balance sheets on a recurring basis.

The three levels of the fair value hierarchy are described below:

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An increase in these inputs would result in a lower fair value and a decline would result in a higher fair value.

Our senior unsecured notes and Convertible Notes are valued using a market based approach and observable prices.

The receivables held-for-sale, if any, are carried at the lower of cost or fair value.

Our Senior Unsecured Notes (as defined below) and Convertible Notes are valued using a market based approach and observable prices.

The receivables held-for-sale, if any, are carried at the lower of cost or fair value, as determined on an individual asset basis.

As of December 31, 2023

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Investments (1)

10 10 Level 3

Securitization residual assets (2)

219 219 Level 3

Derivative assets

10 10 Level 2

Liabilities (3)

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Commercial paper notes 30 30 Level 3

Term loan facility 384 384 Level 3

Term loan facilities 736 736 Level 3

Non-recourse debt 158 162 Level 3

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Convertible notes

2023 Convertible Senior Notes 137 143 Level 2

2025 Exchangeable Senior Notes 185 206 Level 2

2025 Exchangeable Senior Notes

202 211 Level 2

2028 Exchangeable Senior Notes

481 408 Level 2

Total Convertible Notes 683 619 Level 2

Derivative liabilities

(1) The amortized cost of our investments as of December 31, 2023, was $ 8 million.

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Commercial paper notes — — Level 3

Term loan facilities 384 384 Level 3

Non-recourse debt 402 442 Level 3

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(3) Fair value and carrying value exclude unamortized financing costs.

The following table reconciles the beginning and ending balances for our Level 3 investments that are carried at fair value on a recurring basis:

For the year ended

(in millions)

Balance, beginning of period $ 18 $ 55

Purchases of investments 2 5

Sale of investments ( 7 ) ( 38 )

Unrealized gains (losses) on investments recorded in OCI ( 3 ) ( 4 )

Balance, end of period $ 10 $ 18

The following table illustrates our investments in an unrealized loss position:

Estimated Fair Value Unrealized Losses (1)

Count of Securities

Securities with a loss shorter than 12 months Securities with a loss longer than 12 months Securities with a loss shorter than 12 months Securities with a loss longer than 12 months Securities with a loss shorter than 12 months Securities with a loss longer than 12 months

(in millions)

December 31, 2022 $ 4 $ 6 $ 0.7 $ 1.2 4 1

December 31, 2021 7 — 0.1 — 1 —

(1) Loss position is due to interest rates movements and is not indicative of credit deterioration.

We have the intent and ability to hold these investments until a recovery of fair value.

In determining the fair value of our investments, as of December 31, 2022 and 2021, we used a risk-free rate and added a range of interest rate spreads of approximately 1 % to 4 %, determined based upon recent transactions involving similar assets.

The weighted average discount rates used to determine the fair value of our investments as of December 31, 2022 and 2021 were 6.5 % and 3.6 %, respectively.

Securitization residual assets

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Collections of securitization residual assets ( 17 ) ( 16 )

Sales of securitization residual assets — —

Unrealized gains (losses) on securitization residual assets recorded in OCI 11 ( 63 )

Provision for loss on securitization residual assets ( 3 ) —

Balance, end of period $ 219 $ 177

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December 31, 2022 118 51 27 22 66 12

(1) Loss position is due to interest rates movements and is not indicative of credit deterioration.

(1) Other than as discussed in Note 5, loss positions are due to interest rates movements and is not indicative of credit deterioration.

We have the intent and ability to hold these investments until a recovery of fair value.

In determining the fair value of our securitization residual assets, as of December 31, 2022 and 2021, we used a market-based risk-free rate and added a range of interest rate spreads of approximately 1 % to 6 %, determined based upon recent transactions involving similar assets.

In determining the fair value of our securitization residual assets, as of December 31, 2023 and 2022, we used a market-based risk-free rate and added a range of interest rate spreads based upon recent transactions of approximately 1 % to 6 %.

The weighted average discount rate used to determine the fair value of our securitization residual assets as of December 31, 2023 and 2022 was 6.6 % and 6.8 %, respectively.

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We may use third party valuation firms to assist us with developing our estimates of fair value.

In 2023, we deconsolidated a special purpose entity and its associated assets and non-recourse debt, and retained a residual interest in the special purpose entity in the form of an equity method investment.

We describe how we determined the fair value of our retained investment in Note 5.

Concentration of Credit Risk

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The outstanding OP units not held by us represent approximately 1 % of our outstanding OP units and are redeemable by the limited partners for cash, or at our option, for a like number of shares of our common stock.

Non-controlling interest holders redeemed 2,777 OP units during the year ended December 31, 2022 for the same number of shares of our common stock.

No OP units were exchanged by non-controlling interest holders during the year ended December 31, 2021.

No OP units were exchanged by non-controlling interest holders during the years ended December 31, 2023, and 2,777 OP units were exchanged for the same number of shares in December 31, 2022.

We have also granted to members of our leadership team and directors LTIP Units pursuant to our equity incentive plans.

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However, the amended and restated agreement of limited partnership of the Operating Partnership (the “OP Agreement”) provides that “book gains,” or economic appreciation, in the Operating Partnership will be allocated first to the LTIP Units until the capital account per LTIP Units is equal to the capital account per-unit of the OP units.

Under the terms of the OP Agreement, the Operating Partnership will revalue its assets upon the occurrence of certain specified events, and any increase in valuation from the time of grant until such event will be allocated first to the holders of LTIP Units to equalize the capital accounts of such holders with the capital

accounts of OP unit holders.

Once this has occurred, the LTIP Units will achieve full parity with the OP units for all purposes, including with respect to liquidating distributions and redemption rights.

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As of December 31, 2023 and December 31, 2022, our managed assets totaled $ 12.3 billion and $ 9.8 billion, respectively, of which $ 6.1 billion and $ 5.5 billion, respectively, were securitized assets held in unconsolidated securitization trusts.

December 31, 2023 and December 31, 2022, these trusts held $ 5.6 billion and $ 5.3 billion, respectively, of notes due to investors.

There were no securitization credit losses in the years ended December 31, 2023, 2022, or 2021.

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The remainder of our securitization residual assets are related to contracts where the underlying cash flows are secured by an interest in real estate which are typically senior in terms of repayment to other financings.

In 2023, we recorded an allowance for losses on securitization residual assets related to prepayable assets secured by real estate.

While there is no change in the underlying credit quality of the securitized assets, we have revised our estimates of cash flows due to prepayments on certain of these assets.

The following table reconciles our beginning and ending allowance for loss on securitization residual assets:

Commercial Government

(in millions)

Beginning balance - December 31, 2021 $ — $ —

Provision for loss on securitization asset — —

Provision recorded on purchase of a credit deteriorated asset — —

Write-off of allowance — —

Recovery of allowance — —

Ending balance - December 31, 2022 $ — $ —

Provision for loss on securitization asset 3 —

Provision recorded on purchase of a credit deteriorated asset — —

Write-off of allowance — —

Recovery of allowance — —

Ending balance - December 31, 2023 $ 3 $ —

We recognized a gain of approximately $ 19 million upon deconsolidation of certain land assets and the debt to which those assets were pledged, which is included in gain on of assets in our income statement.

The fair value of our retained interest, which we account for as an equity method investment as described in Note 6, was calculated consistently with how we calculate the value of our securitization residual assets described above.

Our Portfolio

As of December 31, 2023, our Portfolio included approximately $ 6.2 billion of equity method investments, receivables, real estate and investments on our balance sheet.

The equity method investments represent our non-controlling equity investments in renewable energy and energy efficiency projects and land.

The equity method investments represent our non-controlling equity investments in climate solutions.

The receivables and investments are typically collateralized by contractually committed debt obligations of government entities or private high credit quality obligors and are often supported by additional forms of credit enhancement, including security interests and supplier guaranties.

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Portfolio Performance

Government Commercial

Commercial Government

Receivable vintage (4)

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Prior to 2019

318 — — 91 409

Total receivables held-for-investment

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Net receivables held-for-investment (5)

2,983 — — 91 3,074

Receivables held-for-sale 32 — — 3 35

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Loans in this category are placed on non-accrual status.

In the second quarter of 2022, we moved $ 11 million of loans we had made in a new market venture where the performance has not met expectations to this category from Category 2.

Previously included in this category were two commercial receivables with a combined total carrying value of approximately $ 8 million which were assignments of land lease payments from two wind projects that we had originated in 2014.

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 we wrote off the full amount of the receivable.

(4) Receivable vintage refers to the period in which the relevant loan agreement is signed, and a given vintage may contain loan advances made in periods subsequent to the period in which the loan agreement was signed.

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During 2023, we recorded a provision for loss on receivables of $ 9 million primarily due to new loans and loan commitments.

During 2023, we entered into a variable rate revolving credit facility with an energy services company secured by projects in development, with a maximum principal amount of $ 300 million and that matures in 2026.

As of December 31, 2023, the outstanding balance of the facility was $ 277 million and the facility bore interest at a rate of 10.1 %.

Below is a summary of the carrying value, expected loan funding commitments, and allowance by type of receivable or “Portfolio Segment,” as defined by Topic 326, as of December 31, 2023 and 2022:

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Total $ 3,124 $ 423 $ 50 $ 2,031 $ 256 $ 41

(1) As of December 31, 2022, this category of assets include $ 1,212 million of mezzanine loans made on a non-recourse basis to special purpose subsidiaries of residential solar companies which are secured by residential solar assets where we rely on certain limited indemnities, warranties, and other obligations of the residential solar companies or their other subsidiaries.

This total also includes $ 47 million of lease agreements where we hold legal title to the underlying real estate which are treated under GAAP as receivables since they were deemed to be failed sale/leaseback transactions as described in Note 2.

(1) As of December 31, 2023, this category of assets include $ 1.5 billion of mezzanine loans made on a non-recourse basis to special purpose subsidiaries of residential solar companies which hold residential solar assets where we rely on certain limited indemnities, warranties, and other obligations of the residential solar companies or their other subsidiaries.

Risk characteristics of our commercial receivables include a project’s operating risks, which include the impact of the overall economic environment, the climate solutions sector, the effect of local, industry, and broader economic factors, the impact of any variation in weather and trends in interest rates.

We use assumptions related to these risks to estimate an allowance using a discounted cash flow analysis or the PD/LGD method as discussed in Note 2.

All of our commercial receivables are included in Performance Rating 1 in the Portfolio Performance table above, except for the $ 11 million of receivables we have placed on non-accrual status which are included in Performance Rating 3.

All of our commercial receivables are included in Performance Rating 1 in the Portfolio Performance table above.

For those assets in Performance Rating 1, the credit worthiness of the obligor combined with the various structural protections of our assets cause us to believe we have a low risk we will not receive our invested capital, however we recorded a $ 50 million allowance on these $ 3.0 billion in assets as a result of lower probability assumptions utilized in our allowance methodology.

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Provision for loss on receivables 13 —

Write-off of allowance ( 8 ) —

Ending balance - December 31, 2022

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Ending balance - December 31, 2023

Other than the $ 11 million of receivables discussed above with a Performance Rating of 3, we have no receivables which are on non-accrual status.

We have no receivables which are on non-accrual status.

The following table provides a summary of our anticipated maturity dates of our receivables and the weighted average yield for each range of maturities as of December 31, 2023:

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Weighted average yield by period 8.4 % 6.5 % 8.9 % 8.5 % 8.0 %

The following table provides a summary of our anticipated maturity dates of our investments and the weighted average yield for each range of maturities as of December 31, 2022:

Total Less than 1 year 1-5 years 5-10 years More than 10

(dollars in millions)

Maturities by period $ 10 $ — $ — $ — $ 10

Weighted average yield by period 4.6 % — % — % — % 4.6 %

We had no investments that were impaired or on non-accrual status as of December 31, 2022 or 2021, and no allowances associated with our investments.

Our real estate is leased to renewable energy projects, typically under long-term triple net leases with expiration dates that range between the years 2033 and 2052 under the initial terms and 2047 and 2080 if all renewals are exercised.

In 2023, a majority of our land and related intangibles were deconsolidated, and we retain a residual interest in those assets in the form of equity method investments as discussed in Other Equity Method Investments below.

The components of our real estate portfolio as of December 31, 2023 and 2022, were as follows:

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Equity Method Investments

We have made non-controlling equity investments in a number of climate solutions projects as well as in a joint venture that owns land with long-term triple net lease agreements to several solar projects that we account for as equity method investments.

We have made non-controlling equity investments in a number of climate solutions projects that we account for as equity method investments.

As of December 31, 2023, we held the following equity method investments:

Investment Date Investee Carrying Value

Investee Carrying Value

(in millions)

Various Jupiter Equity Holdings, LLC $ 540

Various Lighthouse Partnerships (1)

Various Phase V Class A LLC 165

March 2020 University of Iowa Energy Collaborative Holdings LLC 130

Various Vivint Solar Asset 3 HoldCo Parent LLC 116

Various Other investees 530

Jupiter Equity Holdings, LLC $ 538

Lighthouse Partnerships (1)

Other equity method investments

Total equity method investments $ 2,966

(1) Represents the total of three equity investments in a portfolio of a renewable energy projects discussed below.

(1) Represents the total of five equity investments in a portfolio of a renewable energy projects discussed below.

Jupiter Equity Holdings, LLC

We have a preferred equity interest in Jupiter Equity Holdings, LLC (“Jupiter”) that owns nine operating onshore wind projects and four operating utility-scale solar projects with an aggregate capacity of approximately 2.3 gigawatts.

We have made capital contributions to Jupiter of approximately $ 536 million related to these projects, reflecting final funding true-ups after all projects reached substantial completion.

The projects feature cash flows from fixed-price power purchase agreements and financial hedges with a weighted average contract life of 13 years, contracted with highly creditworthy off-takers and counterparties.

Jupiter is governed by an amended and restated limited liability company agreement, dated July 1, 2020, by and among Jupiter, one of our subsidiaries and a subsidiary of the project sponsor, and contains customary terms and conditions.

Through December 31, 2023, we have made capital contributions to Jupiter of approximately $ 562 million related to these projects, reflecting final funding true-ups after all projects reached substantial completion.

Alongside the project sponsor and under terms outlined in the partnership agreement, we have made $ 10 million in loans to Jupiter for contract restructuring expenses and payments related to winter storm Uri.

In 2023, in order to increase both the near-term cash flows and expected lifetime return, we made an additional $ 58 million loan to the project to allow for the restructuring of certain power purchase agreements and tax equity arrangements, and also guaranteed, alongside the project sponsor, to fund the working capital needs of two of the underlying portfolio companies.

We anticipate the incremental investment to be accretive to our earnings per share.

Those loans are included in our Related Party Transactions disclosures below.

At agreement inception, the projects feature cash flows from fixed-price power purchase agreements and financial hedges with a weighted average contract life of 13 years, contracted with highly creditworthy off-takers and counterparties.

We own 100 % of the Class A Units in Jupiter corresponding to 49 % of the distributions from Jupiter subject to the preferences discussed below.

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Once these return targets are achieved, distributions will be allocated approximately 33 % to us and approximately 67 % to the sponsor.

We and the sponsor each have a right of first offer if the other party desires to transfer any of its equity ownership to a third party on or after July 1, 2023.

As of July 1, 2023, we and the sponsor each have a right of first offer if the other party desires to transfer any of its equity ownership to a third party.

We use the equity method of accounting to account for our preferred equity interest in Jupiter, and have elected to recognize earnings from this investment one quarter in arrears to allow for the receipt of financial information.

Lighthouse Renewables Portfolio

In December 2020, we entered into certain agreements relating to the acquisition, ownership and management of approximately $ 663 million in preferred cash equity investments in three partnerships that expect to own cash equity interests in an approximately 1.6 gigawatt portfolio of onshore wind, utility-scale solar and solar-plus-storage projects (the “Renewables Portfolio”) developed and managed by the project sponsor.

In 2021, we modified this structure to include an additional project in the renewables portfolio and to be held through the four partnerships (“Lighthouse Partnerships”), bringing our total expected investment to $ 870 million.

We have made initial investments in the preferred cash equity interests of the Lighthouse Partnerships of approximately $ 433 million through December 31, 2022, and additional investments are expected to be made as the projects become commercially operational.

The Renewables Portfolio currently has contracted cash flows with a combined weighted average contract life of greater than 15 years with a diversified group of predominately investment grade corporate, utility, university, and municipal offtakers.

We have entered into certain agreements relating to the acquisition, ownership and management of preferred cash equity investments in five partnerships that expect to own cash equity interests in an approximately 1.6 gigawatt portfolio of onshore wind, utility-scale solar and solar-plus-storage projects (the “Renewables Portfolio”) developed and managed by the project sponsor.

We have made investments in the preferred cash equity interests of the Lighthouse Partnerships of approximately $ 800 million through December 31, 2023, and additional investments are expected to be made as the projects become commercially operational.

We expect to make additional capital contributions of $ 85 million related to the acquisition of new assets, with the final contribution being made in 2024.

Alongside the project sponsor and under terms outlined in the partnership agreement, we have made $ 17 million in working capital loans to the Lighthouse Partnerships primarily for payments related to winter storm Uri.

Those working capital loans are included in our Related Party Transactions disclosures below.

At agreement inception, the Renewables Portfolio had contracted cash flows with a combined weighted average contract life of greater than 15 years with a diversified group of predominately investment grade corporate, utility, university, and municipal offtakers.

Each of the Lighthouse Partnerships are or will be governed by a limited liability company agreement between us and the sponsor serving as managing member and contain customary terms and conditions.

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We use the equity method of accounting to account for our preferred equity interest in each Lighthouse Partnership, and have elected to recognize earnings from this investment one quarter in arrears to allow for the receipt of financial information.

Other Equity Method Investments

In the third quarter of 2023, we entered into an agreement with an existing securitization partner to amend the contractual terms of certain non-recourse debt agreements, which caused us to deconsolidate the entities holding such debt and its pledged collateral.

Our retained interest in those entities are equity method investments, which hold land and associated operating leases as well as financial assets where the ultimate obligors are grid-connected solar projects.

The carrying value of these equity method investments as of December 31, 2023 was $ 155 million.

Our retained interest is in the form of an equity method investment, instead of a Securitization Asset, due to the nature of the underlying assets being predominantly real property.

Related party transactions

Of our commercial receivables, approximately $ 713 million are loans made to entities in which we also have non-controlling equity investments of approximately $ 338 million.

These equity method investments are LLCs taxed as partnerships that we have entered into with various renewable energy project sponsors, such as SunPower Corporation.

As of December 31, 2023, of our commercial receivables, approximately $ 995 million are loans made to entities in which we also have non-controlling equity investments of approximately $ 824 million.

Typically, these equity method investments are LLCs taxed as partnerships that we have entered into with various renewable energy project sponsors, such as the SunPower Corporation.

We negotiate the commercial terms of these loans with the other partner, and the assets against which the project sponsors are borrowing are contributed into the LLCs upon the execution of the loans.

Our equity investments allow us to participate in the residual economics of those contributed assets alongside the other partner, and our rights under the project operating agreements do not allow us to make any significant unilateral decisions regarding the terms of the arrangement.

These assets are bankruptcy remote from the project sponsor, and typically contain back-up servicer provisions to allow for continuity of operations in the event the project sponsor is unable to fulfill its duties in that capacity.

We are not obligated to contribute capital to support these entities, beyond agreements to make contributions to allow for the entities to purchase additional renewable energy assets.

Because the loans made to these entities are typically subordinate to senior debt and tax equity investors in the projects, these loans, which have maturities of over ten years , may accrue PIK interest in the early years of the project until sufficient cash flow is available for our interest payments.

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Interest income from related party loans $ 68 $ 60 $ 54

Investments in related party loans 164 324 101

Additional investments made in related party loans

Principal collected from related party loans 36 87 71

Interest collected from related party loans 62 64 53

In addition to the above, in the second quarter of 2022, as part of a purchase and sale agreement with an equity investee, we exchanged three performing loans for equity interests in the same project companies.

The GAAP carrying value of the loans was $ 55 million, which were exchanged in a non-cash transaction for equity method investments with no gain or loss recognized at the time of exchange as calculated using discounted cash flows at a market interest rate.

Credit facilities and commercial paper notes

Secured credit facilities

We have two secured revolving credit facilities (our “Secured Credit Facilities”), a representation-based loan agreement (the “Rep-Based Facility”) and an approval-based loan agreement (the “Approval-Based Facility”) with various lenders, which mature in July 2023.

The Rep-Based Facility is a secured revolving limited-recourse credit facility, which has a maximum outstanding principal amount of $ 100 million, and the Approval-Based Facility is a secured revolving recourse credit facility with a maximum outstanding principal amount of $ 200 million.

The following table provides additional detail on our Secured Credit Facilities as of December 31, 2022:

Rep-Based Facility Approval-Based Facility

(dollars in millions)

Outstanding balance $ — $ 51

Value of collateral pledged to credit facility 10 103

Available capacity based on pledged assets 7 9

Weighted average short-term borrowing rate N/A 6.2 %

Loans under the Rep-Based Facility bear interest at a rate equal to one-month LIBOR plus 1.40 % or 1.85 % (depending on the type of collateral) or, in certain circumstances, the Federal Funds Rate plus 0.40 % or 0.85 % (depending on the type of collateral).

Loans under the Approval-Based Facility bear interest at a rate equal to one-month LIBOR plus 1.50 % or 2.00 % (depending on the type of collateral) or, under certain circumstances, the Federal Funds Rate plus 0.50 % or 1.00 % (depending on the type of collateral).

Inclusion of any financings of the Company in the borrowing base as collateral under the Rep-Based Facility will be subject to the Company making certain agreed upon representations and warranties.

We have provided a limited guarantee covering the accuracy of the representations and warranties, and the repayment by the borrowers of certain amounts relating to any such financing is the exclusive remedy with respect to any breach of such representations and warranties under the Rep-Based Facility.

Inclusion of any financings of the Company in the borrowing base as collateral under the Approval-Based

Facility will be subject to the approval of a super-majority of the lenders, and we have provided a guarantee of the Approval-Based Facility.

The amount eligible to be drawn under the Secured Credit Facilities is based on a discount to the value of each included investment based upon the type of collateral or an applicable valuation percentage.

The sum of included financings after taking into account the applicable valuation percentages and any changes in the valuation of the financings in accordance with the Secured Credit Facilities determines the borrowing capacity, subject to the overall facility limits described above.

Under the Rep-Based Facility, the applicable valuation percentage is 85 % in the case of a land-lease obligor or a U.S.

Federal Government obligor, 80 % in the case of an institutional obligor or state and local obligor, and with respect to other obligors or in certain circumstances, such other percentage as the administrative agent may prescribe.

Under the Approval-Based Facility, the applicable valuation percentage is 85 % in the case of certain approved financings and 67 % or such other percentage as the administrative agent may prescribe.

We have approximately $ 1 million of remaining unamortized financing costs associated with the Secured Credit Facilities that have been capitalized and included in other assets on our balance sheet and are being amortized on a straight-line basis over the term of the Secured Credit Facilities.

Administrative fees are payable annually to the administrative agent under each of the Secured Credit Facilities and letter agreements with the administrative agent.

Under the Rep-Based Facility, we pay to the administrative agent on each monthly payment date, for the benefit of the lenders, certain availability fees for the Rep-Based Facility equal to 0.60 %, divided by 365 or 366, as applicable, multiplied by the excess of the available total commitments under the Rep-Based Facility over the actual amount borrowed under the Rep-Based Facility.

The Secured Credit Facilities contain terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds and stock repurchases.

We were in compliance with our covenants as of December 31, 2022.

The Secured Credit Facilities also include customary events of default, including the existence of a default in more than 50 % of the value of underlying financings.

The occurrence of an event of default may result in termination of the credit facilities, acceleration of amounts due under the Secured Credit Facilities, and accrual of default interest at a rate of LIBOR plus 2.00 % in the case of both the Rep-Based Facility and the Approval-Based Facility.

We previously had a secured revolving credit facility in the form of an approval-based loan agreement with various lenders with a maximum outstanding principal amount of $ 200 million.

In 2023, we amended the secured revolving credit facility to a secured term loan.

See Note 8 to our financial statements for discussion of the current terms of that secured term loan.

Also in 2023, we terminated a previously existing representation-based secured revolving limited-recourse credit facility which had a maximum outstanding principal amount of $ 100 million.

Unsecured revolving credit facilities

In February 2022, we entered into a $ 600 million unsecured revolving credit facility pursuant to a revolving credit agreement with a syndicate of lenders which matures in February 2025, replacing our then-existing $ 400 million unsecured revolving credit facility entered into in February 2021.

As of December 31, 2022, there were no outstanding balances on the unsecured revolving credit facility.

In February 2022, we entered into a $ 600 million CarbonCount ® -Based Revolving Credit Facility (the “unsecured revolving credit facility”) pursuant to a revolving credit agreement with a syndicate of lenders which matures in February 2025, replacing our then-existing $ 400 million unsecured revolving credit facility entered into in February 2021.

In 2023, we increased the maximum outstanding borrowing amount of the facility from $ 600 million to $ 915 million.

As of December 31, 2023, the outstanding balance on the unsecured revolving credit facility was $ 401 million, which bears interest at 7.28 %.

As of December 31, 2023, we had less than $ 2 million of remaining unamortized financing costs associated with the unsecured revolving credit facility that have been capitalized and included in other assets on our balance sheet and are being amortized on a straight-line basis over the term of the unsecured revolving credit facility.

The unsecured revolving credit facility has a committee fee based on our current credit rating and bears interest at a rate of the SOFR or prime rate plus applicable margins based on our current credit rating, which may be adjusted downward up to 0.10 % to the extent our Portfolio achieves certain targeted levels of carbon emissions avoidance as measured by our CarbonCount metric.

The current applicable margins are 1.875 % for Term SOFR Rate-based loans and 0.875 % for prime rate-based loans.

The unsecured revolving credit facility has a commitment fee based on our current credit rating and bears interest at a rate of the SOFR or prime rate plus applicable margins based on our current credit rating, which may be adjusted downward up to 0.10 % to the extent our Portfolio achieves certain targeted levels of carbon emissions avoidance as measured by our CarbonCount metric.

The current applicable margins are 1.875 % for Term SOFR Rate-based loans and 0.875 % for prime rate-based loans, plus an additional 0.10 %.

The unsecured revolving credit facility contains terms, conditions, covenants, and representations and warranties that are customary and typical for transactions of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds, stock repurchases, and dividends we can declare.

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CarbonCount Green Commercial Paper Note Program

In December 2022, we renewed an agreement allowing us to issue commercial paper notes, in amounts up to $ 100 million outstanding at any time.

We have a CarbonCount Green Commercial Paper Note Program (the “commercial paper program”) that allows us to issue commercial paper notes, in amounts up to $ 100 million outstanding at any time.

We obtained an irrevocable direct-pay letter of credit in an amount not to exceed $ 100 million from Bank of America, N.A, to support these obligations which expires in June 2024.

Bank of America provides a direct-pay letter of credit to the noteholders in the same amount of each commercial paper note.

The letter of credit is automatically drawn upon at maturity of a commercial paper note and the noteholders are repaid in full.

We have a five business-day grace period during which we repay Bank of America for the amount drawn or issue a new commercial paper note.

Following the five business-day grace period, any amount then-outstanding is converted into a loan from Bank of America.

Commercial paper notes will not be redeemable, will not be subject to voluntary prepayment and are not to exceed 397 days.

The proceeds of our commercial paper notes are used to acquire or refinance, in whole or in part, eligible green projects, including assets that are neutral to negative on incremental carbon emissions.

As of December 31, 2022, we have no green commercial paper notes outstanding.

Green commercial paper notes will be issued at a discount based on market pricing, subject to broker fees of 0.10 %.

For issuance of the letter of credit, we will pay 0.95 % on any drawn letter of credit amounts to Bank of America, N.A., and 0.40 %

on any unused letter of credit capacity.

The proceeds from our commercial paper notes are used to acquire or refinance, in whole or in part, eligible green projects, including assets that are neutral to negative on incremental carbon emissions.

As of December 31, 2023, we had $ 30 million outstanding under our commercial paper program, which bore interest at a rate of 6.80 %.

Commercial paper notes will be issued at a discount based on market pricing, subject to broker fees of 0.10 %.

For issuance of the letter of credit, we will pay 1.40 % on any drawn letter of credit amounts to Bank of America, N.A., and 0.40 % on any unused letter of credit capacity.

Any loans converted from drawn letter of credit amounts bear interest at a rate of Term SOFR plus 2.125 %, plus an additional 0.10 %.

Fees paid on the drawn letters of credit may be reduced by up to 0.10 % to the extent our Portfolio achieves certain targeted levels of carbon emissions avoidance as measured by our CarbonCount metric.

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HASI SYB Trust 2016-2 51 56 4.35 % April 2037 — 57 63 Receivables and restricted cash

HASI SYB Trust 2017-1 141 146 3.86 % March 2042 — 231 208 Receivables, real estate, real estate intangibles, and restricted cash

Lannie Mae Series 2019-1 90 93 3.68 % January 2047 — 120 110 Receivables, real estate, real estate intangibles, and restricted cash

HASI SYB Trust 2017-1 — (1)

141 3.86 % March 2042 — — 231 Receivables, real estate, real estate intangibles, and restricted cash

Lannie Mae Series 2019-1 — (1)

90 3.68 % January 2047 — — 120 Receivables, real estate, real estate intangibles, and restricted cash

Other non-recourse debt (2)

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Non-recourse debt (3)

(1) In 2023, contractual terms of these non-recourse debt agreements were modified, which caused us to deconsolidate the entities holding such debt and its related pledged collateral.

(2) Other non-recourse debt consists of various debt agreements used to finance certain of our receivables.

Scheduled debt service payment requirements are equal to or less than the cash flows received from the underlying receivables.

(2) The total collateral pledged against our non-recourse debt was $ 632 million and $ 592 million as of December 31, 2022 and December 31, 2021, respectively, which includes $ 20 million and $ 19 million of restricted cash balance was pledged for debt service as of December 31, 2022 and December 31, 2021, respectively.

(3) The total collateral pledged against our non-recourse debt was $ 239 million and $ 632 million as of December 31, 2023 and December 31, 2022, respectively, which includes $ 11 million and $ 20 million of restricted cash that was pledged for debt service as of December 31, 2023 and December 31, 2022, respectively.

We have pledged the financed assets, and typically our interests in one or more parents or subsidiaries of the borrower that are legally separate bankruptcy remote special purpose entities as security for the non-recourse debt.

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The stated minimum maturities of non-recourse debt above include only the mandatory minimum principal payments.

To the extent there are additional cash flows received from our investments in climate solutions projects serving as collateral for certain of our non-recourse debt facilities, these additional cash flows may be required to be used to make additional principal payments against the respective debt.

To the extent there are additional cash flows received from our investments serving as collateral for certain of our non-recourse debt facilities, these additional cash flows may be required to be used to make additional principal payments against the respective debt.

Any additional principal payments made due to these provisions may impact the anticipated balance at maturity of these financings.

To the extent there are not sufficient cash flows received from those investments pledged as collateral, the investor has no recourse against other corporate assets to recover any shortfalls.

Subsequent to December 31, 2023, we issued $ 94 million of non-recourse debt, secured by equity method investments with a carrying value of $ 247 million.

This non-recourse debt has a tenor of approximately 20 years, and bears interest at a rate of 6.78 %.

The terms of this debt are consistent with those described above for our existing non-recourse debt agreements.

Senior Unsecured Notes

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2025 Notes 400 April 15, 2025 6.000 % April 15 and

October 15th April 15, 2022 (1)

2026 Notes 1,000 June 15, 2026 3.375 % June 15 and December 15 March 15, 2026 (1)

June 15, 2027 8.000 % June 15 and December 15

March 15, 2027 (2)

2030 Notes 375 (4)

September 15, 2030 3.75 % February 15th and August 15th September 15, 2022 (3)

(1) Prior to this date, we may redeem, at our option, some or all of the 2025 Notes or 2026 Notes for the outstanding principal amount plus the applicable “make-whole” premium as defined in the indenture governing the 2025 Notes or 2026 Notes plus accrued and unpaid interest through the redemption date.

September 15, 2030 3.750 % February 15 and August 15

(1) Prior to this date, we may redeem, at our option, some or all of the 2026 Notes for the outstanding principal amount plus the applicable “make-whole” premium as defined in the indenture governing the 2026 Notes plus accrued and unpaid interest through the redemption date.

In addition, prior to this date, we may redeem up to 40 % of the Senior Unsecured Notes using the proceeds of certain equity offerings at a price equal to par plus the coupon percentage of the principal amount thereof, plus accrued but unpaid interest, if any, to, but excluding, the applicable redemption date.

On, or subsequent to, this date we may redeem the 2025 or 2026 Notes in whole or in part at redemption prices defined in the indenture governing the 2025 Notes or 2026 Notes, plus accrued and unpaid interest though the redemption date.

On, or subsequent to, this date we may redeem the 2026 Notes in whole or in part at redemption prices defined in the indenture governing the 2026 Notes, plus accrued and unpaid interest though the redemption date.

(2) Prior to this date, we may redeem, at our option, some or all of the 2027 Notes for the outstanding principal amount plus the applicable “make-whole” premium as defined in the indenture governing the 2027 Notes plus accrued and unpaid interest through the redemption date.

On, or subsequent to, this date we may redeem the 2027 Notes in whole or in part at a price equal to 100 % of the principal amount, plus accrued and unpaid interest though the redemption date.

(3) In January 2024, we issued additional 2027 Notes with a principal amount of $ 200 million for net proceeds of $ 204 million, equivalent to a yield to maturity of 7.08 %.

(4) We issued the $ 375 million aggregate principal amount of the 2030 Notes for total proceeds of $ 371 million ($ 367 million net of issuance costs) at an effective interest rate of 3.87 %.

(3) Prior to this date, we may, at our option on one or more occasions redeem up to 40 % of the 2030 Notes using the proceeds of certain equity offerings at a price equal to 103.75 % of the principal amount thereof;

plus accrued but unpaid interest, if any, to, but excluding the applicable redemption date.

At any point prior to maturity, we may redeem, at our option, some or all of the 2030 Notes plus the applicable “make-whole” premium as defined in the indenture governing the 2030 Notes plus accrued and unpaid interest through the redemption date.

We may redeem the 2025 or 2030 Notes in whole or in part at redemption prices defined in the indenture governing the 2025 Notes or 2030 Notes, plus accrued and unpaid interest though the redemption date.

The following table presents a summary of the components of the Senior Unsecured Notes:

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Interest expense $ 80 $ 77

Convertible Senior Notes

We have outstanding $ 144 million aggregate principal amount of convertible senior notes and $ 200 million aggregate principal amount of exchangeable senior notes, together “Convertible Notes”.

Convertible Notes

We have outstanding exchangeable senior notes, and have previously issued convertible senior notes together “Convertible Notes”.

Holders may convert or exchange any of their Convertible Notes into shares of our common stock at the applicable conversion or exchange ratio at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, unless the Convertible Notes have been previously redeemed or repurchased by us.

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2023 Convertible Senior Notes — (2)

2022 4.125 % March 1 and September 1 36.8366 $ 27.15 — $ 0.330

2023 Convertible Senior Notes 144 August 15,

2023 0.000 % N/A 20.8643 $ 47.93 — $ 0.340

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2025 0.000 % N/A 17.7454 $ 56.35 3.5 $ 0.375

2028 Exchangeable Senior Notes 403 August 15,

2028 3.750 % February 15 and August 15 36.8494 $ 27.14 14.8 $ 0.395

(1) The conversion ratio is subject to adjustment for dividends declared above these amounts per share per quarter and certain other events that may be dilutive to the holder.

(2) In March 2022, we exercised a redemption option to call the remaining $ 8.1 million of 2022 Convertible Senior Notes.

$ 7.6 million principal of the notes was converted prior to the effectiveness of the redemption option, with the remaining notes being redeemed for cash of $ 0.5 million

(2) These Notes were settled in 2023 using proceeds of the 2028 Exchangeable Senior Notes.

(3) The 2025 Exchangeable Senior Notes accrete to a premium at maturity equal to 3.25 % per annum.

The current balance including accreted premium is $ 221 million.

For the 2023 Convertible Senior Notes, following the occurrence of a make-whole fundamental change, we will, in certain circumstances, increase the conversion rate for a holder that converts its convertible notes in connection with such make-whole fundamental change.

There are no cash settlement provisions in the convertible notes and the conversion option can only be settled through physical delivery of our common stock.

Additionally, upon the occurrence of certain fundamental changes involving us, holders of the 2023 Convertible Notes may require us to redeem all or a portion of their notes for cash at a price of 100 % of the principal amount outstanding, plus accrued and unpaid interest.

We may redeem the 2023 Convertible Senior Notes at any time only if such a redemption is deemed reasonably necessary to preserve our qualification as a REIT.

In April 2022, certain of our TRS jointly issued $ 200 million of 0.00 % green exchangeable senior notes due 2025

that are guaranteed by us and certain other subsidiaries and may, under certain conditions, be exchangeable

for our common stock.

For the 2025 Exchangeable Senior Notes and the 2028 Exchangeable Senior Notes, following the occurrence of a make-whole fundamental change, we will, in certain circumstances, increase the exchange rate for a holder that converts its exchangeable notes in connection with such make-whole fundamental change.

There are no cash settlement provisions for the 2025 Exchangeable Senior Notes and the exchange option can only be settled through physical delivery of our common stock.

Upon exchange of the 2028 Exchangeable Senior Notes, exchange may be settled through cash, shares of our common stock or a combination of cash and shares of our common stock, at our election (as described in the indenture related to the 2028 Exchangeable Senior Notes).

Additionally, upon the occurrence of certain fundamental changes involving us, holders of the 2025 Exchangeable Senior Notes or the 2028 Exchangeable Senior Notes may require us to redeem all or a portion of their notes for cash at a price of 100 % of the principal amount outstanding, plus accrued and unpaid interest.

We may redeem the 2028 Exchangeable Senior Notes, in whole or in part, at our option, on or after August 20, 2026 and prior to the 62nd scheduled

trading day immediately preceding the maturity date for such notes, if certain conditions are met including our common stock trading above 130 % of the exchange price for at least 20 trading days, as set forth in the indenture relating to the 2028 Exchangeable Senior Notes.

Any shares of our common stock issuable upon exchange of the 2025 Exchangeable Senior Notes and the 2028 Exchangeable Senior Notes will have certain registration rights.

The 2025 Exchangeable Senior Notes are guaranteed by us and certain other subsidiaries and may, under certain conditions, be exchangeable for our common stock.

The notes accrete to a premium at maturity at an effective rate of 3.25 % annually.

Upon any exchange, holders will receive a number of shares of our common stock equal to the product of (i)

the aggregate initial principal amount of the notes to be exchanged, divided by $1,000 and (ii) the applicable exchange

rate, which will initially be 17.6873, equivalent to an initial exchange price of approximately $ 56.54 per share, plus cash

in lieu of fractional shares.

We intend to allocate an amount equal to the net proceeds of this offering to the

acquisition or refinancing of, in whole or in part, new and/or existing eligible green projects, which include assets that are

neutral to negative on incremental carbon emissions.

Upon any exchange, holders will receive a number of shares of our common stock equal to the product of (i) the aggregate initial principal amount of the notes to be exchanged, divided by $1,000 and (ii) the applicable exchange rate, which will initially be 17.6873, equivalent to an initial exchange price of approximately $ 56.54 per share, plus cash in lieu of fractional shares.

We allocated an amount equal to the net proceeds of this offering to the acquisition or refinancing of, in whole or in part, new and/or existing eligible green projects, which include assets that are neutral to negative on incremental carbon emissions.

The 2028 Exchangeable Senior Notes are guaranteed by us and certain other subsidiaries and may, under certain conditions, be exchangeable for our common stock.

Upon such exchange, holders will receive a number of shares of our common stock equal to the product of (i) the aggregate initial principal amount of the notes to be exchanged, divided by $1,000 and (ii) the applicable exchange rate, which initially was 36.8494, equivalent to an initial exchange price of approximately $ 27.14 per share, plus cash in lieu of fractional shares.

The following table presents a summary of the components of our Convertible Notes:

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Principal $ 603 $ 344

Accrued interest 6 —

Unamortized financing costs ( 10 ) ( 5 )

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Interest expense $ 9 $ 7

In order to mitigate the potential dilution to our common stock upon exchange of the 2028 Exchangeable Senior Notes, we entered into privately-negotiated capped call transactions (“Capped Calls”) with certain counterparties.

The Capped Calls are separate transactions and are not part of the terms of the 2028 Exchangeable Senior Notes.

The total premium for the Capped Calls was recorded as a reduction of additional paid-in capital.

The Company used a portion of the proceeds from the 2028 Exchangeable Senior Notes to pay for the cost of the Capped Call premium.

The material terms of the Capped Calls are as follows:

(in millions except per share data)

Aggregate cost of capped calls $ 38

Initial strike price per share $ 27.14

Initial cap price per share $ 43.42

Shares of our common stock covered by the capped calls 14.8

Expiration date

August 15, 2028

CarbonCount Term Loan Facility

On November 1, 2022, we entered into an unsecured term loan facility with a syndicate of banks which has an outstanding principal amount of $ 383 million.

Principal amounts under the term loan facility will bear interest at a rate of Term SOFR plus applicable margins based on our current credit rating, which may be adjusted downward up to 0.10 % to the extent our Portfolio achieves certain targeted levels of carbon emissions avoidance, as measured by our CarbonCount metric.

We have entered into a CarbonCount Term Loan Facility (“the unsecured term loan facility”) with a syndicate of banks.

In 2023, we increased the outstanding principal amount from $ 383 million, to $ 535 million.

Principal amounts under the term loan facility bear interest at a rate of Term SOFR plus applicable margins based on our current credit rating plus 0.10 %, which may be adjusted downward up to 0.10 % to the extent our Portfolio achieves certain targeted levels of carbon emissions avoidance, as measured by our CarbonCount metric.

As of December 31, 2023, the applicable margin is 2.125 % and the current interest rate is 7.52 %.

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Interest is due and payable quarterly.

Beginning six months after the effective date of the facility, 1.25 % of the outstanding principal balance will be due quarterly.

The term loan facility has a maturity date of October 31, 2025, and loans under the facility can be prepaid without penalty.

Payments of 1.25 % of the outstanding principal balance are due quarterly.

The unsecured term loan facility has a maturity date of October 31, 2025, and loans under the unsecured term loan facility can be prepaid without penalty.

We intend to allocate an amount equal to the net proceeds of this offering to the acquisition or refinancing of, in whole or in part, new and/or existing eligible green projects, which include assets that are neutral to negative on incremental carbon emissions.

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Carrying Value $ 530

The term loan facility contains terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds, stock repurchases and dividends we declare.

The term loan facility also includes customary events of default and remedies.

The unsecured term loan facility contains terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds, stock repurchases and dividends we declare.

The unsecured term loan facility also includes customary events of default and remedies.

Secured Term Loan

In 2023, we amended our approval-based credit facility to become a secured term loan ("secured term loan") with a maturity date of January 2028.

Principal amounts under the secured term loan will bear interest at a rate of Daily Term SOFR plus a credit spread of 2.25 %, plus 0.10 %.

We are required to hold interest rate swaps with notional values equal to 85 % of the outstanding principal amount of the loan.

The secured term loan is subject to mandatory principal amortization of 5 % per annum, with principal and interest payments due quarterly.

The secured term loan contains terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds, stock repurchases and dividends we declare.

The secured term loan also includes customary events of default and remedies.

As of December 31, 2023, with respect to the secured term loan, the outstanding principal balance is $ 200 million, the interest rate as of the last rate reset is 7.68 %, and we have financing receivables pledged with a carrying value of $ 454 million.

Unamortized financing costs associated with the secured term loan have been netted against the loan on our balance sheet and are being amortized on a straight-line basis over the term of the secured term loan Facility.

Principal payments which were due under the secured term loan as of December 31, 2023 are as follows:

Year Ending December 31, Future maturities

(in millions)

Unamortized Financing Costs ( 4 )

Carrying Value $ 197

Interest rate swaps

In connection with several of our long-term borrowings, including floating-rate loans from our unsecured term loan facility, our secured term loan, unsecured revolving credit facility, and the anticipated refinancings of certain of our Senior Unsecured Notes we have entered into the following interest rate swaps derivative transactions in 2023 that are designated as cash flow hedges as of December 31, 2023:

Instrument Type Index Hedged Rate Fair Value as of Notional Value as of Term

December 31, 2023 December 31, 2023

Interest Rate Swap 1 month SOFR 3.79 % $ ( 12 ) $ 400 March 2023 to March 2033

Interest Rate Swap Overnight SOFR 2.98 % 7 400 June 2026 to June 2033

Interest Rate Swap Overnight SOFR 3.09 % 7 600 June 2026 to June 2033

Interest Rate Swap Overnight SOFR 3.08 % 8 400 April 2025 to April 2035

Interest Rate Collar 1 month SOFR 3.70 % - 4.00 %

— 250 May 2023 to May 2026

Interest Rate Swap Overnight SOFR 4.41 % ( 4 ) 85 September 2023 to June 2033

Interest Rate Swap Overnight SOFR 4.39 % ( 2 ) 43 September 2023 to June 2033

Interest Rate Swap Overnight SOFR 4.42 % ( 2 ) 43 September 2023 to June 2033

(1) Interest rate collar consists of a purchased interest rate cap of 4.00 % and a written interest rate floor of 3.70 %.

The fair values of our interest rate derivatives designated and qualifying as effective cash flow hedges are reflected in our consolidated balance sheets as a component of other assets (if in an unrealized gain position) or accounts payable, accrued expenses and other (if in an unrealized loss position) and in net unrealized gains and losses in AOCI.

As of December 31, 2023, all of our derivatives were designated as hedging instruments which were deemed to be effective.

As of December 31, 2023, we hold $ 9 million of collateral related to our interest rate derivatives that are assets, and we have netted the liability associated with that collateral against our derivative assets in other assets on our balance sheet.

As of December 31, 2023, we have posted $ 9 million worth of collateral related to our interest rate derivatives that are liabilities, and we have netted the asset associated with that collateral against our derivative liabilities in accounts payable, accrued assets, and other liabilities on our balance sheet.

A benefit of $ 6 million was included in interest expense as a result of our hedging activities for the year ended December 31, 2023.

Commitments and Contingencies

We lease office space at our headquarters in Annapolis, Maryland under an operating lease entered into in 2021 which expires in 2033.

In 2023, we entered into a lease for additional office space in New York, New York.

We have a lease related to our previous office space entered into in 2011 and amended in 2013 and 2017.

Lease payments under this prior lease commenced in 2012 and incremental payments related to the amendments commenced in 2014 and 2017.

The lease expires in 2027, and we expect to begin subleasing this space in 2023.

The lease expires in 2027, and we began subleasing this space in 2023.

The leases provide for operating expense reimbursements and annual escalations that are amortized over the respective lease terms on a straight-line basis.

Rent expense related to both of these leases was less than $ 1 million for each of the years ended December 31, 2022, 2021, and 2020, respectively.

Future gross minimum lease payments are approximately $ 1 million per year during the remaining term of the leases.

Rent expense related to these three leases was less than $ 1 million for each of the years ended December 31, 2023, 2022, and 2021, respectively.

Future gross minimum lease payments are approximately $ 2 million for years 2024 through 2026, and $ 1 million per year during the remaining term of the leases.

The nature of our operations exposes us to the risk of claims and litigation in the normal course of our business.

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Guarantees and other commitments

In the third quarter of 2022, we made a guarantee related to the financing of three of our joint venture entities that own debt securities of energy efficiency projects.

We received $ 64 million of the proceeds of this financing arrangement, and in turn have guaranteed the obligations of the entity related to this financing, which includes collateral posting requirements as well as repayment of the financing at maturity in February 2023.

In February 2023, we extended this agreement until May 2023.

We have made guarantees related to the financing of four of our joint venture entities that own debt securities of energy efficiency projects.

As of December 31, 2023, our maximum obligation under this guarantee is approximately $ 87 million.

We believe the likelihood of having to perform under the guarantee is remote, have recorded no liability associated with this guarantee, and presently have not been required to post collateral for this guarantee as the assets of the joint venture entities are enough to support the financing obligation.

We have executed a separate agreement with our joint venture partner pursuant to which it is liable for repayment to us 15 % of this guarantee obligation.

We have executed a separate agreement with our joint venture partner pursuant to which it is liable for repayment to us of 15 % of this guarantee obligation.

As a part of broader project restructuring in order to increase our expected cash flows from the investment, we alongside the project sponsor, made guarantees to support the working capital needs of two of the project companies owned by Jupiter Equity Holdings LLC, an equity method investee.

The guarantees are in effect until the tax equity investors in those project companies achieve their target preferred returns, and our contractual maximum under these guarantees is $ 53 million, and is limited to $ 20 million in any particular calendar year.

As of December 31, 2023, we have no liability recorded as a result of these guarantees as we believe it is not probable we will be required to perform under them.

As of December 31, 2023 we have not been asked to perform under them.

In connection with some of our transactions, we have provided certain limited representations, warranties, covenants and/or provided an indemnity against certain losses resulting from our own actions, including related to certain investment tax credits.

As of December 31, 2023, there have been no such actions resulting in claims against the Company.

The COVID-19 global pandemic has brought forth uncertainty and disruption to the global economy.

As of December 31, 2022, we have not recorded any contingencies on our balance sheet related to COVID-19 with the exception of any allowances related to our receivables described in Note 6.

To the extent COVID-19 continues to cause dislocations in the global economy, our financial condition, results of operations, and cash flows may be adversely impacted.

We recorded an income tax benefit (expense) of approximately $( 7 ) million for the year ended December 31, 2022, a $( 17 ) million tax benefit (expense) for the year ended December 31, 2021, and an $ 3 million tax benefit (expense) for the year for the year ended 2020 related to the activities of our TRS.

As discussed in Note 1, as a result of expanding opportunities in non-qualifying REIT assets, effective January 1, 2024, we have elected to revoke our REIT election, and will be taxed as a C Corporation beginning in tax year 2024.

Commencing with the taxable year ended December 31, 2024, all of the Company’s taxable income will be subject to U.S.

federal and state income tax at the applicable corporate tax rate.

Dividends paid to stockholders will no longer be tax deductible.

The Company will also no longer be subject to the REIT compliance requirements for assets, income, or distributions to stockholders among other REIT compliance requirements.

The Company anticipates that operating as a taxable C Corporation will provide the Company with flexibility to execute various strategic initiatives without the constraints of complying with REIT requirements, including increased investing in power generating, transportation, and alternative fuel assets that are not REIT qualifying.

We recorded an income tax benefit (expense) of approximately $( 32 ) million for the year ended December 31, 2023, a $( 7 ) million tax benefit (expense) for the year ended December 31, 2022, and an $( 17 ) million tax benefit (expense) for the year for the year ended 2021.

The federal income tax expense and benefits recorded were determined using a rate of 21%.

Our deferred tax assets and liabilities were measured using a federal rate of 21%.

Below is a reconciliation between the federal statutory rates of our TRS entities and our effective tax rates for the years ended December 31:

As discussed in Note 1, commencing on January 1, 2024, the Company will be taxed as a C Corporation, and $ 33 million of our income tax expense for the year ended December 31, 2023 is the result of revaluing the Company’s REIT business related deferred tax assets and liabilities using a statutory rate of 21% due to the REIT election revocation.

As a result of the revocation of our REIT election effective January 1, 2024, we have changed the presentation of our rate reconciliation to include both REIT and TRS activities in the current year.

presentation has been updated to conform to our current year presentation.

Below is a reconciliation between the federal statutory rates and our effective tax rates for the years ended December 31:

2023 2022 2021

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Equity method investments ( 6 ) % ( 9 ) % ( 1 ) %

Recognition of deferred tax liability from REIT revocation 18 % — % — %

REIT benefit / dividends paid deduction

( 14 ) % ( 32 ) % ( 8 ) %

Other 2 % 5 % 4 %

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Effective tax rate 17 % 15 % 12 %

Our deferred tax liability was $ 44 million and $ 25 million as of December 31, 2022 and 2021, respectively, related to the activities of our TRS.

Our deferred tax liability was $ 77 million and $ 44 million as of December 31, 2023 and 2022.

Our deferred tax liability is included in accounts payable, accrued expenses and other on our consolidated balance sheet.

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Approximately $ 87 million of our NOLs will begin to expire in 2034.

If our TRS entities were to experience a change in control as defined in Section 382 of the Internal Revenue Code, the TRS’s ability to utilize NOLs in the years after the change in control would be limited.

If we were to experience a change in control as defined in Section 382 of the Internal Revenue Code, our ability to utilize NOLs in the years after the change in control would be limited.

Similar rules and limitation may apply for state tax purposes as well.

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Return of capital 6 % 69 %

Capital gain dividend

Dividends and Distributions

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Q1 2022 ATM 1.050 $ 48.14 $ 50

Q2 2021 None — — —

Q2 2022 ATM 0.731 38.91 28

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Q1 2023 ATM 0.763 31.31 24

5/30/2023 Public Offering 15.000 22.23 333

Q2 2023 ATM 0.053 26.07 1

Q3 2023 ATM 4.394 24.71 107

Q4 2023 ATM 1.006 28.81 29

(1) Represents the average price per share at which investors in our ATM offerings purchased our shares.

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Equity-based Compensation Awards

We have 7,500,000 awards authorized for issuance under our 2022 Plan.

We have 7,500,000 awards authorized for issuance under our current equity-based compensation plan.

As of December 31, 2023, we have issued awards with service, performance and market conditions and have 6,340,415 awards remaining available for issuance.

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A summary of equity-based compensation expense and the fair value of shares and LTIP Units vested on the vesting date for the years ended December 31, 2023, 2022, and 2021 is shown below.

In 2022, we adopted a retirement policy which provides for full vesting at retirement of any time-based awards that were granted prior to the date of retirement and permits the vesting of performance-based awards that were granted prior to the date of retirement according to the original vesting schedule of the award, subject to the achievement of the applicable performance measures.

Employees are eligible for the retirement policy upon meeting age and years of service criteria.

Upon adoption of the policy, we recognized any remaining unrecognized share based compensation expense for awards to employees who met the retirement criteria at the time of adoption and accelerated the recognition of expense for employees who will meet the criteria prior to the vesting of their existing awards.

2023 2022 2021

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The total unrecognized compensation expense related to awards of shares of restricted stock, restricted stock units, and LTIP Units was approximately $ 20 million as of December 31, 2023.

We expect to recognize compensation expense related to these awards over a weighted-average term of approximately 1 year.

We expect to recognize compensation expense related to these awards over a weighted-average term of approximately 2 years.

A summary of the unvested shares of restricted common stock that have been issued is as follows:

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Ending Balance—December 31, 2021

193,548 $ 38.66 $ 7.5

Granted 71,911 37.32 2.7

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Ending Balance—December 31, 2021

78,366 $ 35.32 $ 2.8

Granted 24,790 58.77 1.5

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Ending Balance—December 31, 2022

58,404 $ 51.03 $ 3.0

Granted 63,446 39.29 2.4

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Ending Balance—December 31, 2023

(1) As discussed in Note 2, restricted stock units with market-based vesting conditions can vest between 0 % and 200 % subject to both the absolute performance of the Company’s common stock as well as relative performance compared to a group of peers.

94,654 $ 48.42 $ 4.6

(1) As discussed in Note 2, restricted stock units with market-based vesting conditions can vest between 0 % and 200 % subject to both the absolute performance of our common stock as well as relative performance compared to a group of peers.

The incremental performance shares granted relate to the vesting of an award at the 200 % level.

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Ending Balance—December 31, 2021

384,046 $ 43.15 $ 16.6

Granted 174,340 44.08 7.7

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Ending Balance—December 31, 2022

276,766 $ 42.21 $ 11.7

Granted 342,349 30.08 10.3

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Ending Balance—December 31, 2023

477,074 $ 34.40 $ 16.5

(1) See Note 4 for information on the vesting of LTIP Units.

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Ending Balance—December 31, 2021

347,478 $ 31.61 $ 11.0

Granted 125,550 54.77 6.9

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Ending Balance—December 31, 2022

324,028 $ 42.84 $ 13.9

Granted 282,034 39.29 11.1

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Ending Balance—December 31, 2023

493,858 $ 47.76 $ 23.6

(1) See Note 4 for information on the vesting of LTIP Units.

LTIP Units with market-based vesting conditions can vest between 0 % and 200 % subject to both the absolute performance of the Company’s common stock as well as relative performance compared to a group of peers.

The incremental performance shares granted relate to the vesting of an award at the 200 % level.

LTIP Units with market-based vesting conditions can vest between 0 % and 200 % subject to both the absolute performance of our common stock as well as relative performance compared to a group of peers.

The incremental performance shares granted relate to the vesting of awards at the actual performance level.

NOL Stockholder Rights Plan

In 2023, we entered into a Tax Benefits Preservation Plan (“The Plan”), which is designed to protect our tax benefits in connection with any "ownership change" within the meaning of Section 382 of the Internal Revenue Code of 1986.

Under the Plan, we declared a dividend distribution of one right (a “Right”) for each outstanding share of our common stock to be paid to all record holders of our common stock at the close of business on November 21, 2023.

The Plan is intended to reduce the risk that our ability to use net operating losses ("NOLs") and certain other Tax Benefits will become substantially limited as the result of an “ownership change”.

Pursuant to the Plan, if a stockholder (or group) becomes a 5 % stockholder without meeting certain exceptions, the Rights become exercisable upon board approval and entitle stockholders (other than the 5 % stockholder or group causing the rights to become exercisable) to purchase additional of our common shares at a significant discount, resulting in significant dilution in the economic interest and voting power of the 5 % stockholder or group causing the Rights to become exercisable.

Stockholders owning 5% or more of our outstanding shares at the time the Plan was adopted were grandfathered and will only cause the Rights to distribute and become exercisable if they acquire any additional HASI shares.

Under the Plan, the Board has the ability to determine in its sole discretion that any person shall not be deemed an acquiring person and therefore that the Rights shall not become exercisable if such person becomes a 5 % stockholder.

The adoption of the Plan and the dividend distribution will not have an impact on our consolidated financial statements.

Earnings per Share of Common Stock

Both the net income or loss attributable to the non-controlling OP units and the non-controlling limited partners’ outstanding OP units have been excluded from the basic earnings per share and the diluted earnings per share calculations attributable to common stockholders.

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are excluded from net income available to common shareholders in the computation of earnings per share pursuant to the two-class method.

The net income or loss attributable to the non-controlling OP units have been excluded from the basic earnings per share and the diluted earnings per share calculations attributable to common stockholders.

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are excluded from net income available to common stockholders in the computation of earnings per share pursuant to the two-class method.

Certain share-based awards are included in the diluted share count to the extent they are dilutive as discussed in Note 2.

To the extent our Convertible Notes are dilutive under the if-converted method, we add back the interest expense to the numerator and include the weighted average shares of potential common stock over the period issuable upon conversion of the note in the denominator in calculating dilutive EPS as described in Note 2.

The computation of basic and diluted earnings per common share of common stock is as follows:

The computation of basic and diluted earnings per common share of our common stock is as follows:

Year ended December 31,

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Unvested restricted common stock and unvested LTIP Units with time-based vesting conditions outstanding at period end 612,742 445,218 577,594

Potentially dilutive securities as of period end:

Potentially dilutive securities as of period end that were not dilutive for the presented periods:

Unvested restricted common stock and unvested LTIP Units with time-based vesting conditions 612,742 445,218 577,594

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Equity Method Investments

We have non-controlling unconsolidated equity investments in renewable energy and energy efficiency projects as well as in a joint venture that owns land with long-term triple net lease agreements to several solar projects.

During the years ended December 31, 2023, 2022, and 2021 we recognized income of $ 141 million, $ 31 million, and $ 126 million respectively, from our equity method investments.

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These amounts are presented on the underlying investees’ accounting basis.

In certain instances, adjustment to these equity values may be necessary in order to reflect our basis in these investments.

In certain instances, adjustment to these equity values may be necessary in order to reflect our basis in these investments, for reasons including but not limited to the investees reporting to us being on a cost basis rather than a fair value basis or due to our allocations under HLBV differing from our purchase price of the investment.

As described in Note 2, any difference between the amount of our investment and the amount of our share of underlying equity is generally amortized over the life of the assets and liabilities to which the differences relate.

Lighthouse Renewable HoldCo II LLC Other Investments (1)

Our basis in equity method investments exceeds the basis reported to us by our investees by an aggregate amount of $ 284 million, and $ 531 million, as of December 31, 2023 and 2022, respectively.

Daggett Renewable HoldCo LLC

Other Investments (1)

Balance Sheet in millions

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(1) Represents aggregated financial statement information for investments not separately presented.

(2) Amount contains $ 34 million of mark-to-market losses on energy swaps which do not qualify for hedge accounting.

Defined Contribution Plan

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Under the plan, we provide a dollar for dollar match for the first 4 % of the employee’s contributions and a $0.50 per dollar match for the next 2 % of employee contributions.

We contributed approximately $ 1 million under the plan for the years ended December 31, 2022, and less than $ 1 million during the years ended December 31 2021, and 2020.

We contributed approximately $ 1 million under the plan for the years ended December 31, 2023 and 2022, and less than $ 1 million during the year ended December 31 2021.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

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Charged to provision 11,832 12,798 496

12,798 496 27,730

Loan charge-offs — ( 8,027 ) —

Balance at end of period $ 52,856 $ 41,024 $ 36,253

(1) Amounts in 2020 include $ 17 million related to the adoption of ASC 326, which we adopted as of January 1, 2020 .

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data