What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-08 · 152 added, 185 removed, 309 unchanged (52% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

In this Form 10-Q, unless specifically stated otherwise or the context otherwise indicates, references to “we,” “our,” “us,” and the “Company” refer to HA Sustainable Infrastructure Capital, Inc., a Delaware corporation formerly known as Hannon Armstrong Sustainable Infrastructure Capital, Inc.

prior to July 2, 2024, Hannon Armstrong Sustainable Infrastructure, L.P., and any of our other subsidiaries.

In this Form 10-Q, unless specifically stated otherwise or the context otherwise indicates, references to “we,” “our,” “us,” and the “Company” refer to HA Sustainable Infrastructure Capital, Inc., a Delaware corporation, Hannon Armstrong Sustainable Infrastructure, L.P., and any of our other subsidiaries.

Hannon Armstrong Sustainable Infrastructure, L.P.

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1 to our Annual Report on Form 10-K for the year ended December 31, 2024 (collectively, our “2024 Form 10-K”), that was filed with the SEC .

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

With more than $13 billion in managed assets, our vision is that every investment improves our climate future.

We are an investor in sustainable infrastructure assets advancing the energy transition.

With more than $14 billion in managed assets, our investment strategy is focused primarily on long-lived real assets that are supported by long-term recurring cash flows.

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 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.

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

We are internally managed by an executive team that has extensive relevant industry knowledge and experience, and a team of over 150 clean energy investment, operating, and technical professionals.

We have long-standing relationships with some of the leading U.S.

clean energy project developers, owners and operators, utilities, and energy service companies (“ESCOs”), which provide recurring, programmatic investment and fee-generating opportunities, while also enabling scale benefits and operational and transactional efficiencies.

Our investments are focused on three markets:

• Behind-the-Meter (“BTM”) :

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;

distributed renewable energy projects which reduce energy cost and/or usage and increase resiliency through residential, commercial & industrial, and community solar power and energy storage deployments, as well as 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.

The off-taker or counterparty for BTM assets may be the building owner or occupant, and our investment may be secured by the installed improvements or other real estate rights;

• Grid-Connected (“GC”) :

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;

utility-scale renewable energy projects that deploy cleaner energy sources, such as solar, solar-plus-storage, and wind, to generate cleaner, lower cost energy.

The off-takers or counterparties for GC assets may be utility, electric users, or participants in the wholesale electric power markets 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;

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

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 long-term, creditworthy off-takers or counterparties.

For BTM assets, the off-taker or counterparty may be the building owner or occupant, and our investment may be secured by the installed improvements or other real estate rights.

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 $396 million and $1.2 billion of transactions during the three and nine months ended September 30, 2024, respectively, compared to approximately $973 million and $1.8 billion during the same period in 2023, respectively.

As of September 30, 2024, pursuant to our strategy of holding transactions on our balance sheet, we held approximately $6.3 billion of transactions on our balance sheet, which we refer to as our “Portfolio.” As of September 30, 2024, our Portfolio consisted of approximately 520 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.

a range of infrastructure assets that are designed to reduce emissions and/or provide environmental benefits in projects beyond the power grid, such as transportation and fuels, including renewable natural gas (RNG) plants, transportation fleet enhancements, and ecological restoration projects, among others.

For FTN assets, the off-takers may be oil and gas refiners, industrial companies, and vertically integrated electric utilities.

Our primary objective is to earn attractive risk-adjusted returns that sufficiently exceed our cost of capital.

We believe we are able to generate superior risk-adjusted returns in part due to our adherence to a core set of investment criteria.

In particular, we are focused primarily on investments which are:

• income-generating sustainable infrastructure assets;

• supported by underlying, long-term recurring cash flows;

• contracted with creditworthy, incentivized off-takers;

• reliant upon proven commercial technologies;

• originated by programmatic clients.

We completed approximately $706 million of transactions during the three months ended March 31, 2025, compared to approximately $562 million during the same period in 2024.

As of March 31, 2025, pursuant to our strategy of holding transactions on our balance sheet, we held approximately $7.1 billion of transactions on our balance sheet, which we refer to as our “Portfolio.” As of March 31, 2025, our Portfolio consisted of over 600 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, 2024, we managed approximately $6.8 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, 2024, we manage approximately $13 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.

As of March 31, 2025, we managed approximately $7.4 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, 2025, we manage approximately $14.5 billion of assets which we refer to as our “Managed Assets”.

Our equity investments in energy transition assets and infrastructure 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 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 single investment requires the approval of a majority of our independent directors.

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

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, syndication, or co-investment structures.

We finance our business through cash on hand, debt which may be either unsecured or secured, with or without recourse, and either fixed-rate or floating-rate, or equity.

We may also decide to finance such transactions through the use of off-balance sheet securitization, syndication, or co-investment structures.

Our revolving line of credit and our commercial paper programs allow us flexibility with regards to the timing of long-term capital markets transactions.

We manage the interest rate risk associated with debt issuances through hedging activities, including the use of interest rate swaps.

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 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 an active strategic partnership with KKR where we have each committed to invest $1 billion into eligible projects, and we may consider further use of similar structures to allow us to expand the investments that we make or to manage our Portfolio diversification.

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

We believe the Inflation Reduction Act signed into law on August 16, 2022, incentivizes the construction of and investment in climate solutions and will result in additional investment opportunities in the markets in which we invest over the next several years, which may result in increases in our pipeline in the future.

We refer to potential opportunities as being part of our pipeline if we have determined that the project fits within our investment strategy and exhibits the appropriate risk and reward characteristics through an initial credit analysis, including a quantitative and qualitative assessment of the opportunity, as well as research on the relevant market and sponsor.

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

There can be no assurance with regard to any specific terms of such pipeline transactions or that any or all of the transactions in our pipeline will be completed.

As of March 31, 2025, our pipeline consisted of more than $5.5 billion in new equity, debt and real estate opportunities.

Of our pipeline, approximately 49% is related to BTM assets and 30% is related to GC assets, with the remainder related to FTN.

There can, however, be no assurance with regard to any specific terms of such pipeline transactions or that any or all of the transactions in our pipeline will be completed.

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 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.

In addition to carbon emission avoidance, we also consider other environmental attributes, such as water use reduction, stormwater remediation benefits and stream restoration benefits.

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 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 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, and our ability to maintain our exemption from registration as an investment company under the 1940 Act.

We provide a summary of the factors impacting our operating results in our 2024 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, 2024.

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 $6.3 billion as of September 30, 2024 and included approximately $3.0 billion of BTM assets and approximately $2.4 billion of GC assets, and approximately $0.9 billion of FTN assets.

Our Portfolio totaled approximately $7.1 billion as of March 31, 2025 and included approximately $3.4 billion of BTM assets, approximately $2.7 billion of GC assets, and approximately $1.0 billion of FTN assets.

Approximately 54% of our Portfolio consisted of unconsolidated equity investments in renewable energy related projects.

Approximately 39% 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 520 transactions with an average size of $12 million and the weighted average remaining life of our Portfolio (excluding match-funded transactions) of approximately 17 years as of September 30, 2024.

The table below provides details on the interest rate and maturity of our receivables and debt securities as of September 30, 2024:

Our Portfolio consisted of over 600 transactions with an average size of $11 million and the weighted average remaining life of our Portfolio (excluding match-funded transactions) of approximately 16 years as of March 31, 2025.

The table below provides details on the interest rate and maturity of our receivables and debt securities as of March 31, 2025:

Balance Maturity

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

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

Total receivables and investments $ 2,968

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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,

2024 2023 2024 2023

Three Months Ended March 31,

(dollars in millions)

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Interest expense (1)

$ 58 $ 43 $ 180 $ 120

Average balance of debt $ 4,555 $ 4,380

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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, 2024:

The following table provides a summary of our anticipated principal repayments for our receivables and investments as of March 31, 2025:

Principal payment due by Period

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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, 2024,

• the term of our leases and a schedule of our future minimum rental income under our land lease agreements as of September 30, 2024,

• the anticipated maturity dates of our receivables and investments and the weighted average yield for each range of maturities as of March 31, 2025,

• the term of our leases and a schedule of our future minimum rental income under our land lease agreements as of March 31, 2025,

• the Performance Ratings of our Portfolio, and

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Results of Operations

Comparison of the Three Months Ended September 30, 2024 vs.

Three Months Ended September 30, 2023

Three months ended September 30,

Comparison of the Three Months Ended March 31, 2025 vs.

Three Months Ended March 31, 2024

Three months ended March 31,

2025 2024 $ Change % Change

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Net income (loss) $ 58,185 $ 124,548 $ (66,363) (53) %

• Net income decreased by $41 million due to a decrease in revenue of $8 million, a decrease in income from equity method investments of $26 million and an increase in total expenses of $9 million, partially offset by a $2 million increase in income tax benefit.

• Net income decreased by $66 million due to a decrease in revenue of $9 million, a decrease in income from equity method investments of $71 million and an increase in total expenses of $9 million, partially offset by a $22 million decrease in income tax expense.

• Total revenue decreased by $9 million due to a $10 million decrease in gain on sale income, the result of a change in the mix and volume of assets being securitized.

Interest and securitization asset income increased $13 million, driven by a higher average receivables and securitization assets balance.

Rental income decreased by $6 million due to the sale of real estate assets in 2023 and 2024.

• Interest expense increased by $16 million primarily due to a larger average outstanding debt balance and a higher average interest rate.

We recorded a $1 million provision for loss on receivables and securitization assets, driven primarily by new loans and loan commitments made during the quarter.

• Compensation and benefits and general and administrative expenses increased by $1 million primarily due to growth of the company.

• Income (loss) from equity method investments using HLBV allocations decreased by $26 million primarily due to allocations of mark-to-market losses related to power purchase agreements held by certain of the projects in which we have invested.

• Income tax benefit increased by $2 million primarily due to lower pre-tax book income (loss).

Comparison of the Nine Months Ended September 30, 2024 vs.

Nine Months Ended September 30, 2023

Nine Months Ended September 30,

2024 2023 $ Change % Change

(dollars in thousands)

Interest income $ 195,539 $ 145,624 $ 49,915 34 %

Rental income 2,012 19,013 (17,001) (89) %

Gain on sale of assets 62,084 52,915 9,169 17 %

Securitization asset income 19,197 13,381 5,816 43 %

Other Income 3,466 2,353 1,113 47 %

Total Revenue 282,298 233,286 49,012 21 %

Interest expense 180,804 120,413 60,391 50 %

Provision for loss on receivables (944) 12,481 (13,425) (108) %

Compensation and benefits 58,711 48,527 10,184 21 %

General and administrative 24,001 24,826 (825) (3) %

Total expenses 262,572 206,247 56,325 27 %

Income (loss) before equity method investments 19,726 27,039 (7,313) (27) %

Income (loss) from equity method investments 162,019 27,429 134,590 491 %

Income (loss) before income taxes 181,745 54,468 127,277 234 %

Income tax (expense) benefit (49,429) 5,299 (54,728) (1,033) %

Net income (loss) $ 132,316 $ 59,767 $ 72,549 121 %

• Net income increased by $73 million due to an increase in income from equity method investments of $135 million and an increase in total revenue of $49 million, offset by an increase in total expenses of $56 million and an increase in income tax expense of $55 million.

• Total revenue increased by $49 million due to a $56 million increase in interest income and securitization income driven by higher receivables and securitization assets balances.

Rental income decreased by $17 million due to the sale of real estate assets in 2023 and 2024.

Gain on sale and other income increased by $10 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 $60 million primarily due to a larger average outstanding debt balance and a higher average interest rate.

We recorded a benefit for loss on receivables of $1 million driven primarily by a reduction in our reserve related to the contribution of assets into a co-investment vehicle, partially offset by loans and loan commitments made during the period.

• Compensation and benefits and general and administrative expense increased by $9 million primarily due to growth of the company.

• Income from equity method investments increased by $135 million primarily due to allocations of income 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.

• Income tax expense increased by $55 million primarily due to larger income before income taxes driven primarily by income from equity method investments discussed above.

Interest income decreased by $2 million due to a lower outstanding balance due to the contribution of receivables to a co-investment structure.

Other income increased by $3 million due to fees recognized on the origination of assets within a co-investment structure.

• Interest expense increased by $3 million primarily due to a larger average outstanding debt balance.

We recorded a $4 million provision for loss on receivables and securitization assets, driven primarily by changes in macroeconomic assumptions used to predict future credit losses.

• Compensation and benefits expenses increased by $4 million primarily due to the acceleration of share-based compensation related to those employees who met the age and years of service criteria of our retirement policy in the current period.

• Income (loss) from equity method investments using HLBV allocations decreased by $71 million primarily due to (a) lower mark-to-market income compared to the prior period related to power purchase agreements held by certain of the projects in which we have invested, (b) increased income tax expense recognized by an equity method investee in the current period, offset by (c) higher allocations in the current period of income related to tax credits allocated to other investors in solar projects.

• Income tax expense decreased by $22 million primarily due to lower pre-tax book income.

Non-GAAP Financial Measures

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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.

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.

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 calculate adjusted earnings as GAAP net income (loss) excluding non-cash equity 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, or non-cash tax charges and the earnings attributable to our non-controlling interest of our Operating Partnership.

We also make an adjustment to eliminate our portion of fees we earn from related-party co-investment structures, and for our equity method investments in the renewable energy projects as described below.

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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.

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We have made investments in both the preferred and common equity of these structures.

Regardless of the nature of our equity interest, we typically negotiate the purchase prices of our equity investments, which have a finite expected life, based on our underwritten project cash flows discounted back to the net present value, based on a target investment rate, with the cash flows to be received in the future reflecting both a return on the capital (at the investment rate) and a return of the capital we have committed to the project.

Given our equity method investments are in project companies, they typically have a finite expected life.

We typically negotiate the purchase prices of our equity investments based on our underwritten project cash flows discounted back to a net present value, based on a target investment rate, with the cash flows to be received in the future reflecting both a return on the capital (at the investment rate) and a return of the capital we have committed to the project.

We use a similar approach in the underwriting of our receivables.

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

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

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

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

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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.

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, 2024 and 2023.

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

2024 2023 2024 2023

The following table provides results related to our equity method investments for the three months ended March 31, 2025 and 2024.

Three months ended March 31,

(in millions)

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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 and nine months ended September 30, 2024 and 2023.

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

2024 2023 2024 2023

The table below provides a reconciliation of our GAAP net income (loss) to adjusted earnings for the three months ended March 31, 2025 and 2024.

Three Months Ended March 31,

(dollars in thousands, except per share amounts)

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Elimination of proportionate share of fees earned from co-investment structures (3)

(236) — (347) —

Equity-based expenses 12,678 9,058

Provision for loss on receivables (4)

1,233 9,792 (944) 12,481

Loss (gain) on debt modification or extinguishment 321 —

Amortization of intangibles

3 716 177 2,260

Non-cash provision (benefit) for income taxes

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Current year earnings attributable to non-controlling interest

440 201 2,367 692

Adjusted earnings

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Since we remove GAAP Equity method income for purposes of our Adjusted Earnings metric, we add back the elimination through this adjustment.

(4) In addition to these provisions, in the nine months ended September 30, 2024, we concluded that an equity method investment, along with certain loans we had made to this investee, were not recoverable.

(4) In addition to these provisions, in the three months ended March 31, 2024, 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.

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.

(5) Shares used to calculated adjusted earnings per share represents the weighted average number of shares outstanding including our issued unrestricted common shares, restricted stock awards, restricted stock units, long-term incentive plan units, and the non-controlling interest in our Operating Partnership.

(5) Shares used to calculate adjusted earnings per share represent the weighted average number of shares outstanding including our issued unrestricted common shares, 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.

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Adjusted Net Investment Income

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

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

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.

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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 September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

(in thousands)

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Managed Assets

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.

We consolidate assets on our balance sheet, securitize assets off-balance sheet, and manage assets in which we coinvest with other parties via equity method investments.

Therefore, 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.

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 receivables, 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, 2024 December 31, 2023

March 31, 2025 December 31, 2024

(in millions)

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Managed Assets $ 14,496 $ 13,703

(1) Total assets in co-investment structures are $989 million as of March 31, 2025 .

Not included in this amount is an additional $225 million related to closed transactions not yet funded as of March 31, 2025.

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.

We operate our business in a manner that considers total cash collected from our portfolio, reduced by 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 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.

Cash available for reinvestment is a non-GAAP measure which is calculated as adjusted cash flow from operations plus other portfolio collections less dividend and distribution payments made during the period.

Adjusted Cash from Operations plus Other Portfolio Collections also 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 Equity method investments, Purchases of and investments in receivables, Purchases of investments, and Collateral provided to and received from hedge counterparties.

In addition, Adjusted Cash 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 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.

Cash available for reinvestment is a non-GAAP measure which is calculated as Adjusted Cash from Operations Plus Other Portfolio Collections less dividend and distribution payments made during the period.

We believe Cash available for reinvestment is useful as a measure of our ability to make incremental investments from reinvested capital after factoring in all necessary cash outflows to operate the business.

Management uses Cash available for reinvestment in this way, and we believe that our investors use it in a similar fashion.

For the year ended, For the year ended, For the nine months ended, For the nine months ended, For the TTM ended,

December 31, 2022 December 31, 2023 September 30, 2024 September 30, 2023 September 30, 2024

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

December 31, 2023 December 31, 2024 March 31, 2025 March 31, 2024 March 31, 2025

(in thousands)

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Equity method investment distributions received (1)

30,140 39,142 7,642 3,762 43,022

Proceeds from sales of equity method investments — 9,472 — — 9,472

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

Principal collection from investments (1)

Principal collections from investments (2)

3,805 47 4 — 51

Proceeds from the sale of a previously consolidated VIE (2)

— 5,478 — — 5,478

Proceeds from sales of investments and securitization assets — 5,390 — — 5,390

Principal payments on non-recourse debt (21,606) (72,989) (4,348) (68,910) (8,427)

Adjusted cash flow from operations plus other portfolio collections 287,129 265,908 740,215 233,055 773,068

Adjusted Cash from Operations plus Other Portfolio Collections

265,908 910,075 38,695 237,910 710,860

Dividends (159,786) (192,269) (50,397) (45,093) (197,573)

Cash Available for Reinvestment $ 106,122 $ 717,806 $ (11,702) $ 192,817 $ 513,287

(1) Represents return of capital distributions from our equity method investments included in cash provided by (used in) investing activities section of our statement of cash flows which is incremental to any equity method investment distributions found in net cash provided by operating activities.

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

For the year ended, For the year ended, For the nine months ended, For the nine months ended, For the TTM ended,

December 31, 2022 December 31, 2023 September 30, 2024 September 30, 2023 September 30, 2024

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

December 31, 2023 December 31, 2024 March 31, 2025 March 31, 2024 March 31, 2025

(in thousands)

Components of adjusted cash flow from operations plus portfolio collections:

Components of Adjusted Cash from Operations plus Other Portfolio Collections:

Cash collected from our Portfolio 442,322 891,250 111,249 208,907 793,592

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Adjusted Cash from Operations plus Other Portfolio Collections

$ 265,908 $ 910,075 $ 38,695 $ 237,910 $ 710,860

(1) Includes cash from the sale of assets on our balance sheet as well as securitization transactions.

(2) For the nine months and TTM ended September 30, 2024, interest paid includes a $19 million benefit from the settlement of a derivative which was designated as a cash flow hedge.

(2) For the year ended December 31, 2024, and the TTM ended March 31, 2025, interest paid includes a $20 million benefit from the settlement of a derivative which was designated as a cash flow hedge.

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 $6.3 billion as of September 30, 2024.

Unlevered portfolio yield was 8.1% as of September 30, 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 September 30, 2024.

Our Portfolio totaled approximately $7.1 billion as of March 31, 2025.

Unlevered portfolio yield was 8.3% as of March 31, 2025 and 8.3% as of December 31, 2024.

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, 2025.

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 September 30, 2024.

This metric is calculated over the ten year period ending March 31, 2025.

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

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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.

We believe that Average Annual Realized Loss on Managed Assets provides an additional metric to our underwriting quality over our history of investing in energy transition assets and infrastructure.

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 September 30, 2024 is:

Average Annual Recognized Loss on Managed Assets (GAAP)

The table below shows these metrics as of March 31, 2025 is:

Average Annual Recognized Loss (GAAP) on Managed Assets

Average Annual Realized Loss on Managed Assets

Environmental Metrics

As a part of our investment process, we calculate the estimated metric tons of carbon emissions avoided by our investments by applying emissions factor data 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.

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, 2024, will avoid annual carbon emissions by approximately 70,000 metric tons, equating to a CarbonCount® of 0.18.

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

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential short term (within one year) and long term cash requirements.

Liquidity is a measure of our available cash and committed short term borrowing capacity.

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

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

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

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

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

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

We finance our investments primarily with secured or unsecured debt, equity and off-balance sheet securitization or co-investment structures.

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.

Below is a summary of our available liquidity by source:

As of September 30, 2024

As of March 31, 2025

(in millions)

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Unused capacity under our unsecured revolving credit facility (1)

Unused capacity under our commercial paper program 107

Unused capacity under our senior secured credit facility 22

Unused capacity under our Credit-enhanced Commercial Paper Program

Total liquidity $ 1,302

Capital markets activity during the nine months ended September 30, 2024

During the nine months ended September 30, 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.

We also 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.

We also increased the available capacity under our green commercial paper program to $125 million, and extended the term of the facility to April 2026.

Also in June 2024, we established a senior secured credit facility, designed to warehouse climate solutions assets until they achieve key technical milestones, at which point we may consider them for sale to large institutional investors under our established securitization programs.

During the nine months ended September 30, 2024, we issued $181 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.

In the quarter ended September 30, 2024, we issued $700 million of senior unsecured notes due 2034 at a yield to maturity of 6.476% and used $400m of the net proceeds from such offering to redeem our 6.00% Senior Notes due 2025, and the remainder to temporarily repay a portion of the outstanding borrowings under our unsecured revolving credit facility.

As discussed in Note 8 to our financial statements in this Form 10-Q, we entered into a strategic partnership with KKR called CarbonCount Holdings 1, LLC (“CCH1”), under which we each have committed to invest $1 billion in climate solutions projects over an 18 month period.

(1) As a credit enhancement for our Standalone Commercial Paper Notes, we reserve capacity under our unsecured revolving credit facility for the principal amount of any outstanding Standalone Commercial Paper Notes.

As of March 31, 2025, that reserved capacity was $431 million, and we have presented the capacity under our unsecured revolving credit facility of $1,541 million as reduced by that amount.

Capital markets activity during the three months ended March 31, 2025

During the three months ended March 31, 2025, we increased the available capacity available under our unsecured revolving credit facility to $1.55 billion, adding two additional banks.

We also issued $47 million in equity.

As discussed in Note 8 to our financial statements in this Form 10-Q, we entered into a strategic partnership with KKR called CarbonCount Holdings 1, LLC (“CCH1”), under which we each have committed to invest $1 billion in eligible projects over an 18 month period, of which $497 million remains to be funded by each of us as of March 31, 2025.

The commitment period was extended to 30 months in May 2025.

Maturities of recourse debt obligations

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 of our Senior Unsecured Notes, and our term loan facilities, and the balances of our short-term commercial paper program, and our revolving credit facilities.

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

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 of our Commercial Paper Notes, Senior Unsecured Notes, Convertible Notes, and term loan facilities.

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

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

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

As of September 30, 2024, the maturity profile of our recourse debt obligations was as follows:

As of March 31, 2025, the maturity profile of our long-term recourse debt obligations is shown in the table below.

Amounts exclude $431 million principal amount of commercial paper notes which mature in 2025, as we have reserved capacity under our credit facility for such amounts as described above.

(1) The Convertible Notes due in 2025 were repaid subsequent to March 31, 2025 with proceeds from our unsecured revolving credit facility.

Additional borrowings and financial leverage management

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

As a means of financing our business, we plan to continue to issue debt which may be either secured or unsecured and either fixed-rate or floating-rate and may issue additional equity.

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

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

The decision as to how we finance specific assets or groups of assets is largely driven by risk and portfolio and financial management considerations, including the potential for gain on sale or fee income, as well as the overall interest rate environment, prevailing credit spreads, the terms of available financing, and financial market conditions.

During periods of market disruptions, certain sources of financing may be more readily accessible than others which may impact our financing decisions.

We also use separately funded special purpose entities or co-investment vehicles to allow us to expand the investments that we make or to manage Portfolio diversification.

The decision as to how we finance specific assets or groups of assets is largely driven by risk, portfolio, and financial management considerations, including the potential for gain on sale or fee income, the overall interest rate environment, prevailing credit spreads, the terms of available financing, and financial market conditions.

During periods of market

disruptions, certain sources of financing may be more readily accessible than others which may impact our financing decisions.

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 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 such assets, and the interest rate environment.

As shown in the table below, our debt to equity ratio was approximately 1.8 to 1 as of September 30, 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 100% as of September 30, 2024, which is at the top of our targeted fixed rate debt percentage range of 75% to 100%.

As shown in the table below, our debt to equity ratio was approximately 1.9 to 1 as of March 31, 2025, 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 95% as of March 31, 2025, which is at the top of 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, 2024 % of Total December 31, 2023 % of Total

March 31, 2025 % of Total December 31, 2024 % of Total

(dollars in millions) (dollars in millions)

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Sources and Uses of Cash

We had approximately $59 million and $75 million of unrestricted cash, cash equivalents, and restricted cash as of September 30, 2024 and December 31, 2023, respectively.

The following table summarizes our cash flows for the nine months ended September 30, 2024 and 2023.

We had approximately $84 million and $150 million of unrestricted cash, cash equivalents, and restricted cash as of March 31, 2025 and December 31, 2024, respectively.

The following table summarizes our cash flows for the three months ended March 31, 2025 and 2024.

See our statements of cash flows for full details on the components of each category of cash flows.

As discussed above, Adjusted cash from operations plus other portfolio collections was $740 million for the nine months ended September 30, 2024.

For the nine months ended,

September 30, 2024 September 30, 2023

As discussed above, Adjusted cash from operations plus other portfolio collections was $39 million for the three months ended March 31, 2025.

For the three months ended,

March 31, 2025 March 31, 2024

(in millions)

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Discussion of changes in cash provided by (used in) operating activities

Cash provided by (used in) operating activities for the nine months ended September 30, 2024 was $74 million lower than the same period ended September 30, 2023.

Net income was $73 million higher in the current period, which was offset by higher net negative adjustments to net income of $147 million when compared to the prior period.

Cash provided by (used in) operating activities for the three months ended March 31, 2025 was $58 million lower than the same period ended March 31, 2024.

Net income was $66 million lower in the current period, offset by higher adjustments to net income of $8 million when compared to the prior period.

Discussion of changes in cash provided by (used in) investing activities

Cash provided by (used in) investing activities for the nine months ended September 30, 2024 was $1.4 billion higher than the same period ended September 30, 2023.

This was driven by $341 million higher principal collections from receivables in the current period, $209 million of which was driven by a large, one-time prepayment.

We received $117 million more from the sales of receivables in the period ended September 30, 2024 than the same period in the prior year.

We invested $383 million less in equity method investments and $519 million less in receivables and investments in the period ended September 30, 2024 than the same period in the prior year.

Cash used in investing activities for the three months ended March 31, 2025 was $254 million higher than the same period ended March 31, 2024.

We invested $120 million more in equity method investments and collected $101 million less in principal from receivables in the period ended March 31, 2025 than the same period in the prior year.

In the prior year, we sold $116 million of real estate, which did not recur in the current period.

These changes were offset by $93 million less invested in receivables than in the same period in the prior year.

Discussion of changes in cash provided by (used in) financing activities

Cash provided by (used in) financing activities for the nine months ended September 30, 2024 was $1.4 billion lower than the same period ended September 30, 2023, primarily driven by lower borrowings net of principal repayments of approximately $1 billion than in the prior period, and lower equity issuances of $285 million.

Cash provided by financing activities for the three months ended March 31, 2025 was $243 million higher than the same period ended March 31, 2024.

We had higher net borrowings from our revolving credit facility and commercial paper notes of $496 million compared to the prior period, which was partially offset by no issuances of non-recourse debt or senior unsecured notes in the current period.

Supplemental Guarantor Information

The Company and each of Hannon Armstrong Sustainable Infrastructure, L.P., Hannon Armstrong Capital, LLC.

HAC Holdings I LLC, HAC Holdings II LLC, HAT Holdings I LLC and HAT Holdings II LLC (the “Subsidiary Guarantors”) have filed registration statements with the SEC pursuant to which the Company has offered and may offer and sell debt securities from time to time and such securities have been and may be guaranteed by the Subsidiary Guarantors.

The Subsidiary Guarantors are consolidated in the Company's Consolidated Financial Statements and separate Consolidated Financial Statements of the Subsidiary Guarantors have not been presented in accordance with Rule 3-10 of Regulation S-X.

Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for the Subsidiary Guarantors as the assets, liabilities and results of operations of the Company and the Subsidiary Guarantors are not materially different than the corresponding amounts presented in the Consolidated Financial Statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors.

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 $258 million as of September 30, 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.

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

Other than our securitization assets (including any outstanding servicer advances) of approximately $280 million as of March 31, 2025, that may be at risk in the event of defaults or prepayments in our securitization trusts and certain limited guarantees 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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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 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.

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.

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.

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.

The dividends declared in 2024 and 2025 are described in Note 11 to our financial statements in this Form 10-Q.

Book Value Considerations

As of September 30, 2024, we carried only our investments, residual assets in securitized financial assets, and derivatives at fair value on our balance sheet.

As of March 31, 2025, 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, residual assets in securitized financial assets, and derivatives that are carried on our balance sheet at fair value as of September 30, 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 our investments, residual assets in securitized financial assets, and derivatives that are carried on our balance sheet at fair value as of March 31, 2025, 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 and cash collected from 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis