What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-03 · 180 added, 185 removed, 231 unchanged (61% of the section changed)

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Hannon Armstrong Sustainable Infrastructure, L.P.

is a Delaware limited partnership of which we are the sole general partner and to which we refer in this Form 10-Q as our “Operating Partnership.” Our business is focused on reducing the impact of greenhouse gases that have been scientifically linked to climate change.

is a Delaware limited partnership of which we are the sole general partner and to which we refer in this Form 10-Q as our “Operating Partnership.” We invest in projects which, among others things, are focused on reducing the impact of greenhouse gases that have been scientifically linked to climate change.

We refer to these gases, which are often for consistency expressed as carbon dioxide equivalents, as carbon emissions.

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

Our investments take many forms, including equity, joint ventures, real estate, commercial and government receivables or securities, and other financing transactions.

Our investments take many forms, including equity, joint ventures, real estate, receivables or securities, and other financing transactions.

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

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

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

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

Our investments are focused on three markets:

• Behind-the-Meter (“BTM”) :

distributed building or facility projects, which reduce energy usage or cost through the use of solar generation and energy storage or energy efficiency improvements including heating, ventilation and air conditioning systems (“HVAC”), lighting, energy controls, roofs, windows, building shells, and/or combined heat and power systems;

distributed energy projects which reduce energy usage or cost through solar power generation, electric storage, or energy efficiency improvements such as heating, ventilation, and air conditioning systems (HVAC), lighting, energy controls, roofs, windows, building shells, and/or combined heat and power systems;

• Grid-Connected (“GC”) :

renewable energy projects that deploy cleaner energy sources, such as solar, solar-plus-storage, stand-alone storage, and wind, to generate power production where the off-taker or counterparty may be part of the wholesale electric power markets;

renewable energy projects that deploy cleaner energy sources, such as solar, solar-plus-storage, and wind, to generate power production where the off-taker or counterparty may be part of the wholesale electric power markets;

• Fuels, Transport, and Nature (“FTN”) :

renewable natural gas (RNG) plants, transportation fleet enhancements, and ecological restoration projects, among others, that increase resiliency or more efficiently use natural resources.

a range of real assets spanning high-emitting economic sectors other than the power grid such as transportation and fuels in the United States, including renewable natural gas (RNG) plants, transportation fleet enhancements, and ecological restoration projects, among others.

We prefer investments in which the assets use proven technology and have a long-term, creditworthy off-taker or counterparties.

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For GC assets, the off-takers or counterparties may be utility or electric users who have entered into contractual commitments, such as power purchase agreements (“PPAs”), to purchase power produced by a renewable energy project at a specified price with potential price escalators for a portion of the project’s estimated life.

We completed approximately $973 million and $1.8 billion of transactions during the three and nine months ended September 30, 2023, respectively, compared to approximately $273 million and $944 million during the same periods in 2022, respectively.

As of September 30, 2023, pursuant to our strategy of holding transactions on our balance sheet, we held approximately $5.5 billion of transactions on our balance sheet, which we refer to as our “Portfolio.” As of September 30, 2023, our Portfolio consisted of over 460 assets and we seek to manage the diversity of our Portfolio by, among other factors, project type, project operator, type of investment, type of technology, transaction size, geography, obligor and maturity.

We completed approximately $562 million of transactions during the three months ended March 31, 2024, respectively, compared to approximately $389 million during the same period in 2023, respectively.

As of March 31, 2024, pursuant to our strategy of holding transactions on our balance sheet, we held approximately $6.4 billion of transactions on our balance sheet, which we refer to as our “Portfolio.” As of March 31, 2024, our Portfolio consisted of approximately 500 assets and we seek to manage the diversity of our Portfolio by, among other factors, project type, project operator, type of investment, type of technology, transaction size, geography, obligor and maturity.

For those transactions that we choose not to hold on our balance sheet, we transfer all or a portion of the economics of the transaction, typically using securitization trusts, to institutional investors in exchange for cash and/or residual interests in the assets and in some cases, ongoing fees.

As of September 30, 2023, we managed approximately $6.0 billion in assets in these securitization trusts or vehicles that are not consolidated on our balance sheet.

When combined with our Portfolio, as of September 30, 2023, we manage approximately $11.5 billion of assets which we refer to as our “Managed Assets”.

Our equity investments are operated by various renewable energy companies or by joint ventures in which we participate.

As of March 31, 2024, we managed approximately $6.5 billion in assets in these securitization trusts or vehicles that are not consolidated on our balance sheet.

When combined with our Portfolio, as of March 31, 2024, we manage approximately $12.9 billion of assets which we refer to as our “Managed Assets”.

Our equity investments in climate solutions projects are operated by various renewable energy companies or by joint ventures in which we participate.

These transactions allow us to participate in the cash flows associated with these projects, typically on a priority basis.

Our debt investments in various renewable energy or other sustainable infrastructure projects or portfolios of projects are generally secured by the installed improvements or other real estate rights.

Our energy efficiency debt investments are usually assigned

the payment stream from the project savings and other contractual rights, often using our pre-existing master purchase agreements with the ESCOs.

We also own, both directly and through equity investments, land which is leased under long-term agreements to renewable energy projects, where our investment returns are typically senior to most project costs, debt, and equity.

Our debt investments in various renewable energy or other sustainable infrastructure projects or

portfolios of projects are generally secured by the installed improvements, or other real estate rights.

Our energy efficiency debt investments are usually assigned the payment stream from the project savings and other contractual rights, often using our pre-existing master purchase agreements with the ESCOs.

We often make investments where we hold a preferred or mezzanine position in a project company where we are subordinated to project debt and/or preferred forms of equity.

Investing greater than 10% of our assets in any individual investment requires the approval of a majority of our independent directors.

We may adjust the mix and duration of our assets over time in order to allow us to manage various aspects of our Portfolio, including expected risk-adjusted returns, macroeconomic conditions, liquidity, availability of adequate financing for our assets, and the maintenance of our REIT qualification and our exemption from registration as an investment company under the 1940 Act.

Investing greater than 10% of our assets in any single investment requires the approval of a majority of our independent directors.

We may adjust the mix and duration of our assets over time in order to allow us to manage various aspects of our Portfolio, including expected risk-adjusted returns, macroeconomic conditions, liquidity, availability of adequate financing for our assets, and our exemption from registration as an investment company under the 1940 Act.

We believe we have available a broad range of financing sources as part of our strategy to fund our investments.

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

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

When issuing debt, we generally provide the estimated carbon emission savings using CarbonCount.

In addition, certain of our debt issuances meet the environmental eligibility criteria for green bonds as defined by the International Capital Markets Association’s Green Bond Principles, which we believe makes our debt more attractive for many investors compared to such offerings that do not qualify under these principles.

In addition, certain of our debt issuances meet the environmental eligibility criteria for green bonds as defined by the International Capital Markets Association’s Green Bond Principles, which we believe makes our debt more attractive for certain investors compared to such offerings that do not qualify under these principles.

We may also consider the use of special purpose entities or funds in which outside investors participate to facilitate the expansion of the investments that we make or to manage our Portfolio diversification.

In May 2024, we entered into a strategic partnership with KKR, where we have each committed to invest $1 billion into climate solutions projects.

We have a large and active pipeline of potential new opportunities that are in various stages of our underwriting process.

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Our pipeline of transactions that could potentially close in the next 12 months consists of opportunities in which we will be the lead originator as well as opportunities in which we may participate with other institutional investors.

As of September 30, 2023, our pipeline consisted of more than $5.0 billion in new equity, debt and real estate opportunities.

As of March 31, 2024, our pipeline consisted of more than $5.5 billion in new equity, debt and real estate opportunities.

Of our pipeline, approximately 51% is related to BTM assets and 26% is related to GC assets, with the remainder related to FTN.

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As part of our investment process, we calculate the ratio of the estimated first year of metric tons of carbon emissions avoided by our investments divided by the capital invested to quantify the carbon impact of our investments.

In this calculation, which we refer to as CarbonCount, we use emissions factor data, expressed on a carbon dioxide equivalent basis representing the locational marginal emissions associated with a projects location to an estimate of a project’s energy production or savings to compute an estimate of metric tons of carbon emissions avoided.

In this calculation, which we refer to as CarbonCount, we use emissions factor data, expressed on a CO 2 equivalent basis, representing the locational marginal emissions associated with a project to determine an estimate of a project’s energy production or savings to compute an estimate of metric tons of carbon emissions avoided.

Refer to “MD&A — Environmental Metrics” below for a discussion of the carbon emissions avoided as a result of our investments.

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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, and operate our business in a manner that will permit us to continue to maintain our exemption from registration as an investment company under the 1940 Act.

The Company’s management has studied the impact of the Company’s REIT status, together with the Company’s tax and legal advisors, and has made a determination that it would be advisable and in the best interests of the Company to revoke the Company’s REIT status, effective for the tax year 2024, subject to approval by the Company’s board of directors.

Management believes that an alternative tax structure can achieve tax efficiency similar to a REIT, considering the Company’s ability to invest in projects with tax attributes (inclusive of credits and depreciation deductions) as well as the Company’s existing accumulated net operating losses (NOLs).

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

In December 2023, our board of directors approved our revocation of our REIT status effective January 1, 2024, and are now taxed as a C Corporation beginning with tax year 2024.

We operate our business in a manner that permits us to maintain our exemption from registration as an investment company under the 1940 Act.

Factors Impacting our Operating Results

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

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

We provide a summary of the factors impacting our operating results in our 2023 Form 10-K under MD&A – Factors Impacting our Operating Results.

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Understanding our accounting policies and the extent to which we make judgments and estimates in applying these policies is integral to understanding our financial statements.

We believe the estimates and assumptions used in preparing our financial statements and related footnotes are reasonable and supportable based on the best information available to us as of September 30, 2023.

Various uncertainties may materially impact the accuracy of the estimates and assumptions used in the financial statements and related footnotes and, as a result, actual results may vary significantly from estimates.

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Our Portfolio

Our Portfolio totaled approximately $5.5 billion as of September 30, 2023 and included approximately $2.7 billion of BTM assets and approximately $2.0 billion of GC assets, and approximately $0.8 billion of FTN assets.

Our Portfolio totaled approximately $6.4 billion as of March 31, 2024 and included approximately $3.1 billion of BTM assets and approximately $2.4 billion of GC assets, and approximately $0.9 billion of FTN assets.

Approximately 49% of our Portfolio consisted of unconsolidated equity investments in renewable energy related projects.

Approximately 47% consisted of fixed-rate commercial and government receivables and debt securities, which are classified as investments on our balance sheet, approximately 4% consisted of floating-rate commercial receivables, and 5% of our Portfolio was real estate leased to renewable energy projects under lease agreements.

Our Portfolio consisted of over 460 transactions with an average size of $12 million and the weighted average remaining life of our Portfolio (excluding match-funded transactions) of approximately 17 years as of September 30, 2023.

The table below provides details on the interest rate and maturity of our receivables and debt securities as of September 30, 2023:

Approximately 44% consisted of fixed-rate receivables and debt securities, which are classified as investments on our balance sheet, approximately 5% consisted of floating-rate receivables, and 2% of our Portfolio was real estate leased to renewable energy projects under lease agreements.

Our Portfolio consisted of over 500 transactions with an average size of $12 million and the weighted average remaining life of our Portfolio (excluding match-funded transactions) of approximately 17 years as of March 31, 2024.

The table below provides details on the interest rate and maturity of our receivables and debt securities as of March 31, 2024:

Balance Maturity

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Floating rate receivable, interest rate of 10.06% per annum

$ 213 2026 to 2026

Fixed-rate receivables, interest rates less than 5.00% per annum 49 2026 to 2047

Fixed-rate receivables, interest rates from 5.00% to 6.50% per annum 405 2024 to 2061

Fixed-rate receivables, interest rates from 6.50% to 8.00% per annum 705 2025 to 2069

Fixed-rate receivables, interest rates from 8.00% to 9.50% per annum 967 2024 to 2039

Fixed-rate receivables, interest rates greater than 9.50% per annum 455 2024 to 2047

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

427 2024 to 2061

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

790 2025 to 2069

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

1,050 2027 to 2039

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

551 2024 to 2050

Receivables 3,165 (1)

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Fixed-rate investments, interest rates less than 5.00% per annum 7 2033 to 2047

Fixed-rate investments, interest rates from 5.00% to 6.50% per annum 5 2047 to 2051

Total receivables and investments $ 3,120

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Our earnings from our equity method investments are not included in this table.

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

(dollars in millions)

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Interest expense (1)

$ 43 $ 30 $ 120 $ 85

Average balance of debt $ 4,380 $ 3,096

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(1) Excludes any loss on debt modification or extinguishment included in interest expense in our income statement.

The following table provides a summary of our anticipated principal repayments for our receivables and investments as of September 30, 2023:

Payment due by Period

The following table provides a summary of our anticipated principal repayments for our receivables and investments as of March 31, 2024:

Principal payment due by Period

Total Less than

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See Note 6 to our financial statements in this Form 10-Q for information on:

• the anticipated maturity dates of our receivables and investments and the weighted average yield for each range of maturities as of September 30, 2023,

• the term of our leases and a schedule of our future minimum rental income under our land lease agreements as of September 30, 2023,

• the anticipated maturity dates of our receivables and investments and the weighted average yield for each range of maturities as of March 31, 2024,

• the term of our leases and a schedule of our future minimum rental income under our land lease agreements as of March 31, 2024,

• the Performance Ratings of our Portfolio, and

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Results of Operations

Comparison of the Three Months Ended September 30, 2023 vs.

Three Months Ended September 30, 2022

Three months ended September 30,

Comparison of the Three Months Ended March 31, 2024 vs.

Three Months Ended March 31, 2023

Three months ended March 31,

2024 2023 $ Change % Change

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Net income (loss) $ 124,548 $ 24,598 $ 99,950 406 %

• Net income decreased by $13 million due to a decrease in equity method investments income of $28 million and an increase in total expenses of $28 million, offset by a $30 million increase in total revenue, and a $13 million increase in income tax benefit (expense).

• Total revenue increased by $30 million due to a $21 million increase in interest income and securitization asset income, driven by a higher average Portfolio balance and by higher Managed Assets.

Gain on sale and other income increased by $9 million, driven by a change in the mix and volume of assets being securitized, which included the balance sheet rotation of certain land assets.

• Net income increased by $100 million due to an increase in income from equity method investments of $136 million and an increase in total revenue of $37 million, offset by a $28 million increase in total expenses, and a $45 million increase in income tax expense.

• Total revenue increased by $37 million due to a $27 million increase in interest income and securitization asset income, driven by a higher average Managed Assets and higher average interest rate.

Rental income decreased by $5 million due to the sale of real estate assets in 2023 and 2024.

Gain on sale and other income increased by $14 million, driven by a change in the mix and volume of assets being securitized, which included the balance sheet rotation of certain land and government receivable assets.

• Interest expense increased by $25 million primarily due to a larger average outstanding debt balance and a higher average interest rate.

We recorded a $10 million provision for loss on receivables and securitization assets, driven primarily by loans and loan commitments made during the quarter along with a provision on our securitization assets based on changes in our estimated cash flows due to prepayments on certain of the assets that have been securitized.

We recorded a $2 million provision for loss on receivables and securitization assets, driven primarily by loans and loan commitments made during the quarter.

• Compensation and benefits and general and administrative expenses increased by $3 million primarily due to growth of the company.

• Income (loss) from equity method investments using HLBV allocations decreased by $28 million primarily due to fewer tax attributes recognized by tax equity investors in our projects than in the prior year, which decreased our allocation of HLBV income.

• Income tax benefit (expensed) increased by $13 million primarily due to future tax benefits generated by our taxable REIT subsidiaries.

Comparison of the Nine Months Ended September 30, 2023 vs.

Nine Months Ended September 30, 2022

Nine Months Ended September 30,

2023 2022 $ Change % Change

(dollars in thousands)

Interest income $ 145,624 $ 97,904 $ 47,720 49 %

Rental income 19,013 19,716 (703) (4) %

Gain on sale of assets 52,915 51,252 1,663 3 %

Securitization asset income 13,381 9,943 3,438 35 %

Other Income 2,353 2,614 (261) (10) %

Total Revenue 233,286 181,429 51,857 29 %

Interest expense 120,413 85,035 35,378 42 %

Provision for loss on receivables 12,481 6,222 6,259 101 %

Compensation and benefits 48,527 50,108 (1,581) (3) %

General and administrative 24,826 22,696 2,130 9 %

Total expenses 206,247 164,061 42,186 26 %

Income (loss) before equity method investments 27,039 17,368 9,671 56 %

Income (loss) from equity method investments 27,429 58,533 (31,104) (53) %

Income (loss) before income taxes 54,468 75,901 (21,433) (28) %

Income tax (expense) benefit 5,299 (13,794) 19,093 (138) %

Net income (loss) $ 59,767 $ 62,107 $ (2,340) (4) %

• Net income decreased by $2 million due to a decrease in income from equity method investments of $31 million and an increase in total expenses of $42 million, offset by an increase in total revenue of $52 million and an increase in income tax benefit (expense) of $19 million.

• Total revenue increased by $52 million due to a $51 million increase in interest income and securitization income driven by a higher average Portfolio balance and by higher Managed Assets.

• Interest expense increased by $35 million primarily due to a larger average outstanding debt balance and a higher average interest rate.

We recorded a provision for loss on receivables of $12 million primarily as a result of loans and loan commitments offset partially by the release of allowance on loans which we collected in full.

• Compensation and benefits and general and administrative expense decreased by $1 million primarily due to higher share-based compensation recognized in the prior year for certain awards to employees eligible for retirement, offset partially by a one-time transaction related payment.

• Income from equity method investments decreased by $31 million primarily due fewer tax attributes recognized by tax equity investors in our projects than in the prior year, which decreased our allocation of HLBV income.

• Income tax benefit increased by $19 million due to future tax benefits generated by our taxable REIT subsidiaries.

• Income (loss) from equity method investments using HLBV allocations increased by $136 million primarily due to allocations of income in the current period related to tax credits allocated to other investors in a grid-connected utility-scale solar project, as those tax credits reduced the tax equity investors ongoing claim on the net assets of the project, as well as due to an allocation of income related to mark-to-market income related to a power price derivative held by one of the projects in which we have invested.

• Income tax benefit (expense) increased by $45 million primarily due to larger income before income taxes driven primarily by income from equity method investments discussed above.

Non-GAAP Financial Measures

We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our performance:

(1) distributable earnings, (2) distributable net investment income, and (3) managed assets.

(1) adjusted earnings, (2) adjusted net investment income, (3) managed assets, and (4) adjusted cash from operations plus other portfolio collections.

These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss as measures of our operating performance.

These non-GAAP financial measures, as calculated by us, may not be comparable to similarly named financial measures as reported by other companies that do not define such terms exactly as we define such terms.

Distributable Earnings

We calculate distributable earnings as GAAP net income (loss) excluding non-cash equity compensation expense, provisions for loss on receivables, amortization of intangibles, non-cash provision (benefit) for taxes, losses or (gains) from modification or extinguishment of debt facilities, any one-time acquisition related costs or non-cash tax charges and the

earnings attributable to our non-controlling interest of our Operating Partnership.

Adjusted Earnings

We calculate adjusted earnings as GAAP net income (loss) excluding non-cash equity compensation expense, provisions for loss on receivables, amortization of intangibles, non-cash provision (benefit) for taxes, losses or (gains) from modification or extinguishment of debt facilities, any one-time acquisition related costs or non-cash tax charges and the earnings attributable to our non-controlling interest of our Operating Partnership.

We also make an adjustment to our equity method investments in the renewable energy projects as described below.

We will use judgment in determining when we will reflect the losses on receivables in our distributable earnings, and will consider certain circumstances such as the time period in default, sufficiency of collateral as well as the outcomes of any related litigation.

In the future, distributable earnings may also exclude one-time events pursuant to changes in GAAP and certain other adjustments as approved by a majority of our independent directors.

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

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

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

We will use judgment in determining when we will reflect the losses on receivables in our adjusted earnings, and will consider certain circumstances such as the time period in default, sufficiency of collateral as well as the outcomes of any related litigation.

In the future, adjusted earnings may also exclude one-time events pursuant to changes in GAAP and certain other adjustments as approved by a majority of our independent directors.

Prior to 2024, we referred to this metric as distributable earnings.

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

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

Certain of our equity method investments in renewable energy and energy efficiency projects are structured using typical partnership “flip” structures where the investors with cash distribution preferences receive a pre-negotiated return consisting of priority distributions from the project cash flows, in many cases, along with tax attributes.

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

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

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

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

We believe this equity method investment adjustment to our GAAP net income (loss) in calculating our adjusted earnings measure is an important supplement to the income (loss) from equity method investments as determined under GAAP for an investor to

understand the economic performance of these investments where HLBV income can differ substantially from the economic returns in any one period.

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

The following table provides results related to our equity method investments for the three and nine months ended September 30, 2023 and 2022.

Three months ended September 30, Nine months ended September 30,

2023 2022 2023 2022

The following table provides results related to our equity method investments for the three months ended March 31, 2024 and 2023.

Three months ended March 31,

(in millions)

Income (loss) under GAAP $ 159 $ 22

Collections of Distributable earnings $ 12 $ 20 $ 30 $ 41

Collections of Adjusted earnings $ 13 $ 9

Return of Capital 3 3

Cash collected $ 16 $ 12

(1) Cash collected includes $9 million during the three and nine months ended September 30, 2023 and $64 million during the three and nine months ended September 30, 2022 related to the issuance of debt by three of our equity method investees, the repayment of which we have guaranteed.

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

In addition, our methodology for calculating distributable earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported distributable earnings may not be comparable to similar metrics reported by other companies.

The table below provides a reconciliation of our GAAP net income (loss) to distributable earnings for the three and nine months ended September 30, 2023 and 2022.

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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

In addition, our methodology for calculating adjusted earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported adjusted earnings may not be comparable to similar metrics reported by other companies.

The table below provides a reconciliation of our GAAP net income (loss) to adjusted earnings for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

(dollars in thousands, except per share amounts)

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$ 123,025 $ 0.98 $ 24,106 $ 0.26

Distributable earnings adjustments:

Reverse GAAP (income) loss from equity method investments

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Provision for loss on receivables (2)

9,792 (2,463) 12,481 6,222

Amortization of intangibles

716 760 2,260 2,360

Non-cash provision (benefit) for income taxes

(5,128) 7,585 (5,299) 13,794

Current year earnings attributable to non-controlling interest

201 407 692 676

Distributable earnings (3)

Adjusted earnings (3)

$ 78,906 $ 0.68 $ 49,658 $ 0.53

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

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

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

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

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

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

(3) Distributable earnings per share are based on 110,290,640 and 101,046,485 shares for the three and nine months ended September 30, 2023, respectively, and 89,635,572 and 88,612,178 shares for the three and nine months ended September 30, 2022, respectively, which represents the weighted average number of fully-diluted shares outstanding including our restricted stock awards, restricted stock units, long-term incentive plan units, and the non-controlling interest in our Operating Partnership.

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

(2) In addition to these provisions, in the current period, we concluded that an equity method investment along with certain loans we had made to this investee, were not recoverable.

The equity method investment and loans had a carrying value of $0 due to the losses already recognized through GAAP income from equity method investments as a result of operating losses sustained by the investee.

We have excluded this write-off from Adjusted earnings, as this investment was an investment in a corporate entity which is not a part of our current investment strategy and is immaterial to our Portfolio.

The loss associated with this investment is included in our Average Annual Realized Loss on Managed Assets metric disclosed below.

(3) Adjusted earnings per share are based on 115,400,151 shares for the three months ended March 31, 2024, respectively, and 93,266,916 shares for the three months ended March 31, 2023, respectively, which represents the weighted average number of fully-diluted shares outstanding including our restricted stock awards, restricted stock units, long-term incentive plan units, and the non-controlling interest in our Operating Partnership.

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

As it relates to Convertible Notes, we will assess the market characteristics around the instrument to determine if it is more akin to debt or equity based on the value of the underlying shares compared to the conversion price.

If the instrument is more debt-like then we will include any related interest expense and exclude the underlying shares issuable upon conversion of the

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

If the instrument is more debt-like then we will include any related interest expense and exclude the underlying shares issuable upon conversion of the instrument.

If the instrument is more equity-like and is more dilutive when

treated as equity then we will exclude any related interest expense and include the weighted average shares underlying the instrument.

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

Distributable Net Investment Income

Adjusted Net Investment Income

We have a portfolio of investments, which we finance using a combination of debt and equity.

We calculate distributable net investment income as shown in the table below by adjusting GAAP-based net investment income for those distributable earnings adjustments that are applicable to distributable net investment income.

We calculate adjusted net investment income as shown in the table below by adjusting GAAP-based net investment income for those earnings adjustments that are applicable to adjusted net investment income.

We believe that this measure is useful to investors as it shows the recurring income generated by our Portfolio after the associated interest cost of debt financing.

Our management also uses distributable net investment income in this way.

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

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

The following is a reconciliation of our GAAP-based net investment income to our distributable net investment income:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Our management also uses adjusted net investment income in this way.

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

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

Prior to 2024, we referred to this measure as distributable net investment income.

The following is a reconciliation of our GAAP-based net investment income to our adjusted net investment income:

Three Months Ended March 31,

(in thousands)

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Amortization of real estate intangibles 171 772

Distributable net investment income $ 58,789 $ 43,431 $ 159,937 $ 133,837

Adjusted net investment income $ 64,299 $ 47,108

Managed Assets

As we both consolidate assets on our balance sheet and securitize assets off-balance sheet, certain of our receivables and other assets are not reflected on our balance sheet where we may have a residual interest in the performance of the investment, such as servicing rights or a retained interest in cash flows.

Thus, we present our investments on a non-GAAP “Managed Assets” basis, which assumes that securitized receivables are not sold.

We believe that our Managed Asset information is useful to investors because it portrays the amount of both on- and off-balance sheet receivables that we manage, which enables investors to understand and evaluate the credit performance associated with our portfolio of receivables, investments and residual assets in off-balance sheet securitized receivables.

As we consolidate assets on our balance sheet, securitize assets off-balance sheet, and manage assets in which we coinvest with other parties, certain of our receivables and other assets are not reflected on our balance sheet where we may have a residual interest in the performance of the investment, such as a retained interest in cash flows.

Thus, we present our investments on a non-GAAP “Managed Assets” basis.

We believe that our Managed Asset information is useful to investors because it portrays the amount of both on- and off-balance sheet assets that we manage, which enables investors to understand and evaluate the credit performance associated with our portfolio of loans, equity investments and residual assets in off-balance sheet assets.

Our management also uses Managed Assets in this way.

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The following is a reconciliation of our GAAP-based Portfolio to our Managed Assets:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

(in millions)

Equity method investments $ 3,263 $ 2,966

Commercial receivables, net of allowance 2,706 1,887

Government receivables 93 103

Receivables, net of allowance

Receivables held-for sale 5 35

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Managed Assets $ 12,893 $ 12,253

Adjusted Cash from Operations Plus Other Portfolio Collections

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

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

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

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

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

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

We evaluate Adjusted Cash Flow from Operations plus Other Portfolio Collections on a trailing twelve month (“TTM”) basis, as cash collections during any one quarter may not be comparable to other single quarters due to, among other reasons, the seasonality of projects operations and the timing of disbursement and payment dates.

For the year ended, For the three months ended, For the three months ended, For the TTM ended,

December 31, 2023 March 31, 2024 March 31, 2023 March 31, 2024

(in thousands)

Net cash provided by operating activities $ 99,689 $ 20,931 $ 48,804 $ 71,816

Changes in receivables held-for-sale (51,538) (3) (37,249) (14,292)

Equity method investment distributions received 30,140 3,762 1,469 32,433

Principal collections from receivables 197,784 141,594 22,741 316,637

Proceeds from sales of receivables 7,634 24,769 7,634 24,769

Proceeds from sales of land — 115,767 — 115,767

Principal collection from investments (1)

3,805 — 62 3,743

Principal payments on non-recourse debt (21,606) (68,910) (5,140) (85,376)

Adjusted cash flow from operations and other portfolio collections 265,908 237,910 38,321 465,497

Dividends (159,786) (45,093) (35,142) (169,737)

Cash Available for Reinvestment 106,122 192,817 3,179 295,760

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

Other Metrics

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Our management uses portfolio yield this way and we believe that our investors use it in a similar fashion to evaluate certain characteristics of our Portfolio compared to our peers, and as such, we believe that the disclosure of portfolio yield is useful to our investors.

Our Portfolio totaled approximately $5.5 billion as of September 30, 2023.

Unlevered portfolio yield was 7.9% as of September 30, 2023 and 7.5% as of December 31, 2022.

See Note 6 to our financial statements and MD&A - Our Business in this Form 10-Q for additional discussion of the characteristics of our portfolio as of September 30, 2023.

Our Portfolio totaled approximately $6.4 billion as of March 31, 2024.

Unlevered portfolio yield was 8.0% as of March 31, 2024 and 7.9% as of December 31, 2023.

See Note 6 to our financial statements and MD&A - Our Business in this Form 10-Q for additional discussion of the characteristics of our portfolio as of March 31, 2024.

Average Annual Realized Loss on Managed Assets

Average Annual Realized Loss on Managed Assets represents the average annual rate of our incurred losses, calculated as the amount of realized losses incurred in each year as a percentage of each year’s average annual Managed Assets.

This metric is calculated on the ten year period ending March 31, 2024.

Incurred losses include both realized losses on equity method investments and realized credit losses on receivables and investments.

Although there is not a direct comparable GAAP measure, we have presented average annual recognized loss on Managed Assets as calculated under GAAP for comparison.

Average Annual Realized Loss on Managed Assets differs from average annual recognized loss on Managed Assets as calculated under GAAP as the timing is based on realization of loss rather than GAAP recognition.

We believe that Average Annual Realized Loss on Managed Assets provides an additional metric to our underwriting quality over our history of investing in climate solutions.

Our management uses it in this way and we believe that our investors use it in a similar fashion to evaluate our investment performance, and as such, we believe that its disclosure is useful to our investors.

The table below shows these metrics as of March 31, 2024 is:

Average Annual Recognized Loss on Managed Assets (GAAP)

Average Annual Realized Loss on Managed Assets

Environmental Metrics

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

We estimate that our investments originated during the quarter ended September 30, 2023, will avoid annual carbon emissions by approximately 127,000 metric tons, equating to a CarbonCount® of 0.14.

We estimate that our investments originated during the quarter ended March 31, 2024, will avoid annual carbon emissions by approximately 520,000 metric tons, equating to a CarbonCount® of 0.92.

We estimate that our investments made since 2013 have cumulatively avoided annual carbon emissions by over 7 million metric tons.

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

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

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

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

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

We have adequate liquidity as of September 30, 2023, with unrestricted cash balances of $156 million, an unsecured revolving credit facility with an unused capacity of $355 million, and $50 million of available capacity in our green commercial paper program.

During 2023, we have issued $465 million in equity.

During the quarter ended September 30, 2023, we issued our 2028 Exchangeable Notes with a principal amount of $403 million, with the proceeds in part used to payoff the 2023 Convertible Notes at maturity.

As of September 30, 2023, we had $170 million of non-recourse borrowings, $1.8 billion of senior unsecured notes, $573 million in term loans, and $603 million of Convertible Notes outstanding.

We have adequate liquidity as of March 31, 2024, with unrestricted cash balances of $61 million, an unsecured revolving credit facility with an unused capacity of $707 million, and $35 million of available capacity in our green commercial paper program.

During 2024, we have issued $31 million in equity, issued an additional $200 million principal amount of 2027 Senior Unsecured Notes for proceeds of $204 million, and issued $94 million of non-recourse debt secured by equity method investments.

As of March 31, 2024, we had $137 million of non-recourse borrowings, $2.5 billion of senior unsecured notes, $696 million in term loans, and $603 million of Convertible Notes outstanding.

Subsequent to March 31, 2024, we increased the available capacity available under our unsecured revolving credit facility to $1.25 billion, and extended the maturity of the facility to April 2028.

Also subsequent to March 31, 2024, we extended the maturity of our unsecured term loan facility to April 2027, and used proceeds from the unsecured revolving credit facility to partially prepay our unsecured term loan facility by $275 million.

Also subsequent to March 31, 2024, we increased the maximum amount outstanding under our green commercial paper program to $125 million, and extended the term of the facility to April 2026.

For further information, see Note 8 to our financial statements of this Form 10-Q.

As discussed in Note 14 to our financial statements in this Form 10-Q, subsequent to March 31, 2024, we entered into a strategic partnership with KKR, where we each have committed to invest $1 billion in climate solutions projects.

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

As of September 30, 2023, the outstanding balance of our assets financed through the use of these off-balance sheet transactions was approximately $6.0 billion.

As of March 31, 2024, the outstanding balance of our assets financed through the use of these off-balance sheet transactions was approximately $6.5 billion.

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

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

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

would not be required.

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

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

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

The maturity profile of our recourse debt obligations are as follows:

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

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

(1) Includes the impacts of April 2024 financing activities described above.

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

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

sheet securitizations.

We may also consider the use of separately funded special purpose entities or funds to allow us to expand the investments that we make or to manage Portfolio diversification.

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

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

As shown in the table below, our debt to equity ratio was approximately 1.7 to 1 as of September 30, 2023, below our current board-approved leverage limit of up to 2.5 to 1.

Our percentage of fixed rate debt was approximately 88% as of September 30, 2023, which is within our targeted fixed rate debt percentage range of 75% to 100%.

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

As shown in the table below, our debt to equity ratio was approximately 1.9 to 1 as of March 31, 2024, below our current board-approved leverage limit of up to 2.5 to 1.

Our percentage of fixed rate debt including the impact of our interest rate derivatives was approximately 97% as of March 31, 2024, which is within our targeted fixed rate debt percentage range of 75% to 100%.

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

The calculation of our fixed-rate debt and financial leverage is shown in the chart below:

September 30, 2023 % of Total December 31, 2022 % of Total

March 31, 2024 % of Total December 31, 2023 % of Total

(dollars in millions) (dollars in millions)

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

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

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

Sources and Uses of Cash

We had approximately $170 million and $176 million of unrestricted cash, cash equivalents, and restricted cash as of September 30, 2023 and December 31, 2022, respectively.

We had approximately $77 million and $75 million of unrestricted cash, cash equivalents, and restricted cash as of March 31, 2024 and December 31, 2023, respectively.

Cash flows relating to operating activities

Net cash provided by operating activities was approximately $92 million for the nine months ended September 30, 2023, driven primarily by net income of $60 million and adjustments for non-cash and other items of $32 million.

The non-cash and other adjustments consisted of increases of $15 million related to equity-based compensation, $12 million of depreciation and amortization, $12 million related to provision for loss on receivables, $40 million in changes in receivables held-for-sale, and $14 million related to changes in accounts payable and accrued expenses and other items.

Net cash provided by operating activities was approximately $21 million for the three months ended March 31, 2024, driven primarily by net income of $125 million and adjustments for non-cash and other items of $104 million.

The non-cash and other adjustments consisted of increases of $7 million related to equity-based compensation, $4 million of depreciation and amortization, $2 million related to provision for loss on receivables, and $69 million related to changes in accounts payable and accrued expenses and other items.

These were partially offset by decreases of $146 million related to equity method investments, $22 million related to gains on securitizations, and $18 million related to portfolio accrued interest.

Net cash provided by operating activities was approximately $64 million for the nine months ended September 30, 2022, driven primarily by net income of $62 million plus adjustments for non-cash and other items of $2 million.

The non-cash and other adjustments consisted of increases of $18 million related to equity-based compensation, $12 million of depreciation and amortization, $28 million related to changes in accounts payable and accrued expenses, $6 million related to provision for loss on receivables, and $5 million in changes in receivables held-for-sale.

These were partially offset by decreases of $26 million related to equity method investments, $25 million related to gains on securitizations, $10 million related to portfolio accrued interest, and $6 million related to other items.

Net cash provided by operating activities was approximately $49 million for the three months ended March 31, 2023, driven primarily by net income of $25 million plus adjustments for non-cash and other items of $24 million.

The non-cash and other adjustments consisted of increases of $8 million related to equity-based compensation, $4 million of depreciation and amortization, $3 million related to changes in accounts payable and accrued expenses and other items, $2 million related to provision for loss on receivables, and $37 million in changes in receivables held-for-sale.

These were partially offset by decreases of $11 million related to equity method investments, $7 million related to gains on securitizations, and $12 million related to portfolio accrued interest.

Cash flows relating to investing activities

Net cash used in investing activities was approximately $1.4 billion for the nine months ended September 30, 2023.

We made $1.0 billion of investments in receivables and fixed rate debt-securities, made collateral deposits of $14 million, and made $583 million of equity method investments.

Net cash used in investing activities was approximately $70 million for the three months ended March 31, 2024.

We made $231 million of investments in receivables and fixed rate debt-securities and made $127 million of equity method investments.

We collected $142 million of principal payments from receivables and fixed rate debt-securities, received $115 million from the sale of real estate, $4 million from equity method investments in excess of income recognized to date under GAAP, received $3 million of returned hedge collateral previously posted, and received $24 million from the sale of receivables and investments.

Net cash used in investing activities was approximately $449 million for the three months ended March 31, 2023.

We made $97 million of investments in receivables and fixed rate debt-securities, made collateral deposits of $21 million, and made $363 million of equity method investments.

We collected $23 million of principal payments from receivables and fixed rate debt-securities, $1 million from equity method investments in excess of income recognized to date under GAAP, and $8 million from the sale of receivables and investments.

Net cash used in investing activities was approximately $254 million for the nine months ended September 30, 2022.

We made $340 million of investments in receivables and fixed rate debt-securities, made $144 million of equity method investments and purchased $5 million of real estate.

We collected $107 million of principal payments from receivables and fixed rate debt-securities, $101 million from equity method investments in excess of income recognized to date under GAAP, and $12 million from the sale of receivables and investments, and withdrew $15 million from escrow accounts.

Cash flows relating to financing activities

Net cash provided by financing activities was approximately $1.3 billion for the nine months ended September 30, 2023.

We received $777 million from our credit facilities, $465 million of net proceeds from issuances of common stock, $403 million from the issuance of convertible notes, $200 million from the issuance of a term loan, $50 million of net proceeds from the issuance of green commercial paper notes, and collected $106 million of hedge collateral, which were offset by $342 million of payments on credit facilities, $144 million of principal payments on convertible notes, $15 million of principal prepayments on non-recourse debt, $10 million in principal payments on our term loan, $1 million for withholding requirements resulting from the vesting of employee shares, $38 million for premiums on capped calls related to the issuance of convertible notes, $13 million for payment of financing costs, and payments of $118 million of dividends, distributions and other items.

Net cash provided by financing activities was approximately $237 million for the nine months ended September 30, 2022.

We received $200 million from the issuance of Convertible Notes, $100 million from our credit facilities, $127 million of net proceeds from issuances of common stock and $50 million of net proceeds from the issuance of green commercial paper notes, which were offset by $100 million of payments on credit facilities, $22 million of principal prepayments on non-recourse debt, $8 million for financing costs, $3 million for withholding requirements resulting from the vesting of employee shares and payments of $107 million of dividends, distributions and other items.

Net cash provided by financing activities was approximately $51 million for the three months ended March 31, 2024.

We received $250 million from our credit facilities, $30 million of net proceeds from issuances of common stock, $206 million from the issuance of senior unsecured notes, $35 million of net proceeds from the issuance of green commercial paper notes, $94 million of net proceeds from the issuance of non-recourse debt, and collected $69 million of hedge collateral, which were offset by $450 million of payments on credit facilities, $69 million of principal prepayments on non-recourse debt, $35 million in principal payments on our term loan, $7 million for payment of financing costs, $25 million for the posting of hedge collateral, and payments of $47 million of dividends, distributions and other items.

Net cash provided by financing activities was approximately $388 million for the three months ended March 31, 2023.

We received $312 million from our credit facilities, $23 million of net proceeds from issuances of common stock and $100 million of net proceeds from the issuance of green commercial paper notes, which were offset by $5 million of payments on credit facilities, $5 million of principal prepayments on non-recourse debt, $1 million for withholding requirements resulting from the vesting of employee shares and payments of $36 million of dividends, distributions and other items.

Off-Balance Sheet Arrangements

We have relationships with non-consolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, or special purpose or variable interest entities, established to facilitate the sale of securitized assets.

Other than our securitization assets (including any outstanding servicer advances) of approximately $190 million as of September 30, 2023, that may be at risk in the event of defaults or prepayments in our securitization trusts and as discussed below, and except as disclosed in Note 9 to our financial statements in this Form 10-Q, we have not guaranteed any obligations of non-consolidated entities or entered into any commitment or intent to provide additional funding to any such entities.

Other than our securitization assets (including any outstanding servicer advances) of approximately $224 million as of March 31, 2024, that may be at risk in the event of defaults or prepayments in our securitization trusts and as discussed below, and except as disclosed in Note 9 to our financial statements in this Form 10-Q, we have not guaranteed any obligations of non-consolidated entities or entered into any commitment or intent to provide additional funding to any such entities.

A more detailed description of our relations with non-consolidated entities can be found in Note 2 to our financial statements in this Form 10-Q.

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

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

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

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

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

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

These results and our ability to pay distributions will be affected by various factors, including the net interest and other income from our assets, our operating expenses and any other expenditures.

In the event that our board of directors determines to make distributions in excess of the income or cash flow generated from our assets, we may make such distributions from the proceeds of future offerings of equity or debt securities or other forms of debt financing or the sale of assets.

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

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

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

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

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

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

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

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

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

In the event that our Board determines to make distributions in excess of the income or cash flow generated from our assets, we may make such distributions from the proceeds of future offerings of equity or debt securities or other forms of debt financing or the sale of assets.

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

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

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

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

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

The dividends declared in 2023 and 2024 are described in Note 11 to our financial statements in this Form 10-Q.

Book Value Considerations

As of September 30, 2023, we carried only our investments, residual assets in securitized financial assets, and derivatives at fair value on our balance sheet.

As of March 31, 2024, we carried only our investments, residual assets in securitized financial assets, and derivatives at fair value on our balance sheet.

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

Other than our investments and the residual assets in securitized financial assets that are carried on our balance sheet at fair value as of September 30, 2023, the carrying value of our remaining assets and liabilities are calculated as of a particular point in time, which is largely determined at the time such assets and liabilities were added to our balance sheet using a cost basis in accordance with GAAP, adjusted for income or loss recognized on such assets.

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

Other than our investments, residual assets in securitized financial assets, and derivatives that are carried on our balance sheet at fair value as of March 31, 2024, the carrying value of our remaining assets and liabilities are calculated as of a particular point in time, which is largely determined at the time such assets and liabilities were added to our balance sheet using a cost basis in accordance with GAAP, adjusted for income or loss recognized on such assets.

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

Accordingly, our book value does not necessarily represent an estimate of our net realizable value, liquidation value or our fair market value.

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-Q

Item 2. Management’s Discussion and Analysis