NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2017
Hannon Armstrong Sustainable Infrastructure Capital, Inc. (the
Company) makes debt and equity investments in sustainable infrastructure, including energy efficiency and renewable energy. The Company and its subsidiaries are hereafter referred to as we, us, or our. We
refer to the financings that we hold on our balance sheet as our Portfolio. Our Portfolio may include:
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Financing receivables, such as project loans, receivables and direct financing leases,
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Real estate, such as land or other physical assets and related intangible assets used in sustainable infrastructure projects, and
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Equity investments in unconsolidated entities, such as projects where we hold a non-controlling equity interest.
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We finance our business through cash on hand, borrowings under credit facilities and debt transactions, and various asset-backed
securitization transactions and equity issuances. We also generate fee income through securitizations and syndications, by providing broker/dealer services and by servicing assets owned by third parties. Some of our subsidiaries are special purpose
entities that are formed for specific operations associated with financing sustainable infrastructure receivables for specific long term contracts.
Our common stock is listed on the New York Stock Exchange (NYSE) under the symbol HASI. We have qualified as a REIT
and also intend to operate our business in a manner that will continue to permit us to maintain our exception from registration as an investment company under the Investment Company Act of 1940, as amended. We operate our business through, and serve
as the sole general partner of, our operating partnership subsidiary, Hannon Armstrong Sustainable Infrastructure, L.P, (the Operating Partnership), which was formed to acquire and directly or indirectly own our assets.
2.
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Summary of Significant Accounting Policies
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Basis of Presentation
The preparation of financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and such
differences could be material. These financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and notes thereto included in the
Companys annual report on Form 10-K for the year ended December 31, 2016, as filed with the SEC. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the
Companys financial position, results of operations and cash flows have been included. The Companys results of operations for the quarterly period ended June 30, 2017 are not necessarily indicative of the results to be expected for
the full year or any other future period. Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. Certain amounts in the prior years have been reclassified to
conform to the current year presentation. These reclassifications include changes to the presentation of the Consolidated Statements of Cash Flows related to the adoption of Accounting Standards Update (ASU) No. 2016-18
Statement
of Cash Flows (Topic 230).
The adoption of this ASU is discussed further in our 2016 Form 10-K in the Recently Issued Accounting Pronouncements section of Note 2.
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The consolidated financial statements include the accounts of the Company and its controlled
subsidiaries, including the Operating Partnership. All significant intercompany transactions and balances have been eliminated in consolidation.
Financing Receivables
Financing
receivables include financing energy efficiency and renewable energy project loans, receivables and direct financing leases.
Unless
otherwise noted, we generally have the ability and intent to hold our financing receivables for the foreseeable future and thus they are classified as held for investment. Our ability and intent to hold certain financing receivables may change from
time to time depending on a number of factors, including economic, liquidity and capital market conditions. At inception of the arrangement, the carrying value of financing receivables held for investment represents the present value of the note,
lease or other payments, net of any unearned fee income, which is recognized as income over the term of the note or lease using the effective interest method. Financing receivables that are held for investment are carried, unless deemed impaired, at
cost, net of any unamortized acquisition premiums or discounts and include origination and acquisition costs, as applicable. Financing receivables that we intend to sell in the short-term are classified as held-for-sale and are carried at the lower
of amortized cost or fair value on our balance sheet. The net purchases and proceeds from these sales of our held-for-sale financing receivables are recorded as an operating activity in our statement of cash flows based on our intent at the time of
purchase. We may secure debt with the proceeds from our financing receivables.
We evaluate our financing receivables for potential
delinquency or impairment on at least a quarterly basis and more frequently when economic or other conditions warrant such an evaluation. When a financing receivable becomes 90 days or more past due, and if we otherwise do not expect the debtor to
be able to service all of its debt or other obligations, we will generally consider the financing receivable delinquent or impaired and place the financing receivable on non-accrual status and cease recognizing income from that financing receivable
until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a financing receivables status significantly improves regarding the debtors ability to service the debt or other obligations, we will remove it
from non-accrual status.
A financing receivable is also considered impaired as of the date when, based on current information and events,
it is determined that it is probable that we will be unable to collect all amounts due in accordance with the original contracted terms. Many of our financing receivables are secured by energy efficiency and renewable energy infrastructure projects.
Accordingly, we regularly evaluate the extent and impact of any credit deterioration associated with the performance and value of the underlying project, as well as the financial and operating capability of the borrower, its sponsors or the obligor
as well as any guarantors. We consider a number of qualitative and quantitative factors in our assessment, including, as appropriate, a projects operating results, loan-to-value ratios and any cash reserves, the ability of expected cash from
operations to cover the cash flow requirements currently and into the future, key terms of the transaction, the ability of the borrower to refinance the transaction, other credit support from the sponsor or guarantor and the projects
collateral value. In addition, we consider the overall economic environment, the sustainable infrastructure sector, the effect of local, industry, and broader economic factors, the impact of any variation in weather and the historical and
anticipated trends in interest rates, defaults and loss severities for similar transactions.
If a financing receivable is considered to
be impaired, we will determine if an allowance should be recorded. We will record an allowance if the present value of expected future cash flows discounted at the financing receivables contractual effective rate is less than its carrying
value. This estimate of cash flows may include the currently estimated fair market value of the collateral less estimated selling costs if repayment is expected solely from the collateral. We charge off financing receivables against the allowance
when we determine the unpaid principal balance is uncollectible, net of recovered amounts.
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Investments
Investments include debt securities that meet the criteria of Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) 320,
InvestmentsDebt and Equity Securities
. We have designated our debt securities as available-for-sale and carry these securities at fair value on our balance sheet. Unrealized gains and losses, to the
extent not considered to have an other than temporary impairment (OTTI), on available-for-sale debt securities are recorded as a component of accumulated other comprehensive income (AOCI) in equity on our balance sheet.
We evaluate our investments for OTTI on at least a quarterly basis, and more frequently when economic or market conditions warrant such an
evaluation. Our OTTI assessment is a subjective process requiring the use of judgments and assumptions. Accordingly, we regularly evaluate the extent and impact of any credit deterioration associated with the financial and operating performance and
value of the underlying project. We consider a number of qualitative and quantitative factors in our assessment. We first consider the current fair value of the security and the duration of any unrealized loss. Other factors considered include
changes in the credit rating, performance of the underlying project, key terms of the transaction, the value of any collateral and any support provided by the sponsor or guarantor.
To the extent that we have identified an OTTI for a security and intend to hold the investment to maturity and we do not expect that we will
be required to sell the security prior to recovery of the amortized cost basis, we recognize only the credit component of the OTTI in earnings. We determine the credit component using the difference between the securities amortized cost basis
and the present value of its expected future cash flows, discounted using the effective interest method or its estimated collateral value. Any remaining unrealized loss due to factors other than credit is recorded in AOCI.
To the extent we hold investments with an OTTI and if we have made the decision to sell the security or it is more likely than not that we
will be required to sell the security prior to recovery of its amortized cost basis, we recognize the entire portion of the impairment in earnings.
Premiums or discounts on investment securities are amortized or accreted into investment interest income using the effective interest method.
Real Estate
Real estate
consists of land or other real estate and its related lease intangibles, net of any amortization. Our real estate is generally leased to tenants on a triple net lease basis, whereby the tenant is responsible for all operating expenses relating to
the property, generally including property taxes, insurance, maintenance, repairs and capital expenditures. Scheduled rental revenue typically varies during the lease term and thus rental income is recognized on a straight-line basis, unless there
is considerable risk as to collectability, so as to produce a constant periodic rent over the term of the lease. Accrued rental income is the aggregate difference between the scheduled rents which vary during the lease term and the income recognized
on a straight-line basis and is recorded in other assets. Expenses related to leases where we are the lessor, if any, are charged to operations as incurred.
We record our real estate purchases as asset acquisitions that are recorded at cost, including acquisition and closing costs, unless they meet
the definition of a business combination in accordance with ASC 805,
Business Combinations
. For business combinations, the fair value of the real estate acquired in a business combination with in-place leases is allocated to (i) the
acquired tangible assets, consisting of land or other real property such as buildings, and (ii) the identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of other acquired
intangible assets, based in each case on their fair values.
The fair value of the tangible assets of an acquired leased property is
determined by valuing the property as if it were vacant, and the as-if-vacant value is then allocated to land, building and tenant improvements, if any, based on the determination of the fair values of these assets. The as-if-vacant fair
value of a property is determined by management based on appraisals by a qualified appraiser.
In allocating the fair value of the
identified intangibles of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference
between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) managements estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the
lease, including renewal periods likely of being exercised
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by the lessee. The capitalized above-market lease values are amortized as a reduction of rental income and the capitalized below-market lease values are amortized as an increase to rental income,
both of which are amortized over the term used to value the intangible. We also record, as appropriate, an intangible asset for in-place leases. The value of the leases in place at the time of the transaction is equal to the potential income lost if
the leases were not in place. The amortization of this intangible occurs over the initial term unless management believes that it is likely that the tenant would exercise the renewal option. If a lease were to be terminated, all unamortized amounts
relating to that lease would be written off.
Securitization of Receivables
We have established various special purpose entities or securitization trusts for the purpose of securitizing certain financing receivables or
other debt investments. We determined that the trusts used in securitizations are variable interest entities (VIEs), as defined in ASC 810,
Consolidation
. We typically serve as primary or master servicer of these trusts; however,
as the servicer, we do not have the power to make significant decisions impacting the performance of the trusts. Based on an analysis of the structure of the trusts, under U.S. GAAP, we have concluded that we are not the primary beneficiary of the
trusts as we do not have power over the trusts significant activities. Therefore, we do not consolidate these trusts in our consolidated financial statements.
We account for transfers of financing receivables to these securitization trusts as sales pursuant to ASC 860,
Transfers and Servicing
,
as we have concluded the transferred receivables have been isolated from the transferor (i.e., put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership) and we have surrendered control over the
transferred receivables. We have received true-sale-at-law opinions for all of our securitization trust structures and non-consolidation legal opinions for all but one legacy securitization trust structure that support our conclusion regarding the
transferred receivables. When we sell receivables in securitizations, we generally retain interests in the form of servicing rights and residual assets, which we refer to as securitization assets.
Gain or loss on the sale of receivables is calculated based on the excess of the proceeds received from the securitization (less any
transaction costs) plus any retained interests obtained over the cost basis of the receivables sold. For retained interests, we generally estimate fair value based on the present value of future expected cash flows using our best estimates of the
key assumptions of anticipated losses, prepayment rates, and current market discount rates commensurate with the risks involved.
We
initially account for all separately recognized servicing assets and servicing liabilities at fair value and subsequently measure such servicing assets and liabilities using the amortization method. Servicing assets and liabilities are amortized in
proportion to, and over the period of, estimated net servicing income with servicing income recognized as earned. We assess servicing assets for impairment at each reporting date. If the amortized cost of servicing assets is greater than the
estimated fair value, we will recognize an impairment in Net income.
Our other retained interest in securitized assets, the residual
assets, are classified as available-for-sale securities and carried at fair value on the consolidated balance sheets in Other Assets. We generally do not sell our residual assets. Our residual assets are evaluated for impairment on a quarterly
basis. Interest income related to the residual assets is recognized using the effective interest rate method. If there is a change in expected cash flows related to the residual assets, we calculate a new yield based on the current amortized cost of
the residual assets and the revised expected cash flows. This yield is used prospectively to recognize interest income.
Cash and Cash Equivalents
Cash and cash equivalents include short-term government securities, certificates of deposit and money market funds, all of which
had an original maturity of three months or less at the date of purchase. These securities are carried at their purchase price, which approximates fair value.
Restricted Cash
Restricted cash
includes cash and cash equivalents set aside with certain lenders primarily to support deferred funding and other obligations outstanding as of the balance sheet dates. Restricted cash is reported as part of Other Assets in the consolidated balance
sheets. Refer to Note 3 for disclosure of the balances of Restricted cash included in Other Assets.
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Consolidation and Equity Method Investments
We account for our investment in entities that are considered voting or variable interest entities under ASC 810,
Consolidation
. We
perform an ongoing assessment to determine the primary beneficiary of each entity as required by ASC 810. We have established various special purpose entities or securitization trusts for the purpose of securitizing certain financing receivables or
other debt investments which are not consolidated in our financial statements as described in Securitization of Receivables above.
Substantially all of the activities of the special purpose entities that are formed for the purpose of holding our financing receivables and
investments on our balance sheet are closely associated with our activities. Based on our assessment, we determined that we have power over and receive the benefits of these special purpose entities; hence, we are the primary beneficiary and should
consolidate these entities under the provisions of ASC 810.
We have made equity investments in various renewable energy projects. We
share in the cash flows, income, and tax attributes according to a negotiated schedule (which typically does not correspond with our ownership percentages). Our renewable energy projects are typically owned in partnerships structures (using limited
liability companies, or LLCs taxed as partnerships) where we receive a stated preferred return consisting of a priority distribution of all or a portion of the projects cash flows, and in some cases, tax attributes. We have typically partnered
with either the operator of the project or other tax equity investors. Once our preferred return is achieved, the partnership flips and the company which operates the project, receives a larger portion of the cash flows through its
interest in the holding company and we, along with any other institutional investors, will have an on-going residual interest.
These
equity investments in renewable energy projects are accounted for under the equity method of accounting. Certain of our equity method investments were determined to be VIEs in which we are not the primary beneficiary. Our maximum exposure to loss
associated with our equity method investments is limited to our recorded value of our investments. Under the equity method of accounting, the carrying value of these equity method investments is determined based on amounts we invested, adjusted for
the equity in earnings or losses of the investee allocated based on the limited liability company agreement, less distributions received. Because certain of the limited liability company and holding company agreements contain preferences with regard
to cash flows from operations, capital events and liquidation, we reflect our share of profits and losses by determining the difference between our claim on the investees book value at the end and the beginning of the period, which
is adjusted for distributions received and contributions made. This claim is calculated as the amount we would receive (or be obligated to pay) if the investee were to liquidate all of its assets at recorded amounts determined in accordance with
U.S. GAAP and distribute the resulting cash to creditors and investors in accordance with their respective priorities. This method is commonly referred to as the hypothetical liquidation at book value method or (HLBV). Intercompany gains
and losses are eliminated for an amount equal to our interest and are reflected in the share in income or loss from equity method investments in the consolidated statements of operations. Cash distributions received from our equity method
investments are classified as operating cash flows to the extent of cumulative HLBV earnings. Any additional cash flows are deemed to be returns of the investment and are classified as investing cash flows. We have elected to recognize earnings from
these investments one quarter in arrears to allow for the receipt of financial information.
We have also made an investment in a joint
venture which holds land under solar projects. This investment entitles us to receive an equal percentage of both cash distributions and profit and loss under the terms of the LLC agreement. The investment, which we have determined to be a voting
interest entity, is accounted for under the equity method of accounting, with our portion of rental income, adjusted for any fair value to book value basis difference, being recognized in Income (loss) from equity method investments in the period in
which the income is earned.
We evaluate the realization of our investments accounted for using the equity method if circumstances
indicate that our investment is an OTTI. An OTTI impairment occurs when the estimated fair value of an investment is below the carrying value and the difference is determined to not be recoverable. This evaluation requires significant judgment
regarding, but not limited to, the severity and duration of the impairment; the ability and intent to hold the securities until recovery; financial condition, liquidity, and near-term prospects of the issuer; specific events; and other factors.
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Derivative Financial Instruments
We utilize derivative financial instruments, primarily interest rate swaps, to manage, or hedge, our interest rate risk exposures associated
with new debt issuances, to manage our exposure to fluctuations in interest rates on variable rate debt, and to optimize the mix of our fixed and floating-rate debt. In addition, we use forward-starting interest rate swap contracts to manage a
portion of our interest rate exposure for anticipated refinancing of our long-term debts. Our objective is to reduce the impact of changes in interest rates on our results of operations and cash flows.
The interest rate swaps we use are designated as cash flow hedges and are considered highly effective in reducing our exposure to the interest
rate risk that they are designated to hedge. This effectiveness is required in order to qualify for hedge accounting. Instruments that meet the required hedging criteria are formally designated as hedges at the inception of the derivative contract.
Derivatives are recorded at fair value. If a derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in AOCI, net of associated deferred income tax effects and are recognized
in earnings at the same time as the hedged item, including as a result of the accrual of interest. Changes in fair value of the ineffective portions of these hedges are recognized in general and administrative expenses. For any derivative
instruments not designated as hedging instruments, changes in fair value would be recognized in earnings in the period that the change occurs. We assess, both at the inception of the hedge and on an ongoing basis, whether the derivatives designated
as cash flow hedges are highly effective in offsetting the changes in cash flows of the hedged items. We do not hold derivatives for trading purposes.
Interest rate swap contracts contain a credit risk that counterparties may be unable to fulfill the terms of the agreement. We attempt to
minimize that risk by evaluating the creditworthiness of its counterparties, who are limited to major banks and financial institutions, and do not anticipate nonperformance by the counterparties.
Income Taxes
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. To qualify as a REIT, we must meet on an ongoing basis a number of organizational and operational requirements,
including a requirement that we currently distribute at least 90% of our net taxable income, excluding capital gains, to our stockholders. We intend to continue to meet the requirements for qualification as a REIT. As a REIT, we are not subject to
U.S. federal corporate income tax on that portion of net income that is currently distributed to our owners. However, our taxable REIT subsidiaries (TRSs) will generally be subject to U.S. federal, state, and local income taxes as well
as taxes of foreign jurisdictions, if any.
We account for income taxes under ASC 740,
Income Taxes
for our TRSs using the asset
and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the consolidated financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. We evaluate any deferred tax assets for valuation allowances based on an assessment of available evidence including sources of taxable
income, prior years taxable income, any existing taxable temporary differences and our future investment and business plans that may give rise to taxable income.
We apply ASC 740,
Income Taxes
with respect to how uncertain tax positions should be recognized, measured, presented, and disclosed in
the financial statements. This guidance requires the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are more likely than not to
be sustained by the applicable tax authority. We are required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which includes U.S. federal and certain states.
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Equity-Based Compensation
At the time of completion of our initial public offering (IPO), we adopted our 2013 Equity Incentive Plan (the 2013
Plan), which provides for grants of stock options, stock appreciation rights, restricted stock units, shares of restricted common stock, phantom shares, dividend equivalent rights, long-term incentive-plan units (LTIP units) and
other restricted limited partnership units issued by our Operating Partnership and other equity-based awards. From time to time, we may make equity or equity based awards as compensation to members of our senior management team, our independent
directors, employees, advisors, consultants and other personnel under our 2013 Plan.
We record compensation expense for grants made under
the 2013 Plan in accordance with ASC 718,
CompensationStock Compensation
. We record compensation expense for unvested grants that vest solely based on service conditions on a straight-line basis over the vesting period of the entire
award based upon the fair market value of the grant on the date of grant. Fair market value for restricted common stock is based on our share price on the date of grant. For awards where the vesting is contingent upon achievement of certain
performance targets, compensation expense is measured based on the fair market value on the grant date and is recorded over the requisite service period (which includes the performance period). Actual performance results at the end of the
performance period determines the number of shares that will ultimately be awarded. The award earned is generally between 0% and 200% of the initial target, depending on the extent to which the performance target is met. We have also issued
restricted stock units where the vesting is contingent upon service being provided for a defined period and certain market conditions being met. The fair value of these awards, as measured at the grant date, is recognized over the requisite service
period as it is provided, even if the market conditions are not met. The grant date fair value of these awards was developed by an independent appraiser using a Monte Carlo simulation.
Earnings Per Share
We compute
earnings per share of common stock in accordance with ASC 260,
Earnings Per Share
. Basic earnings per share is calculated by dividing Net income attributable to controlling stockholders (after consideration of the earnings allocated to
unvested grants under the 2013 Plan if applicable) by the weighted-average number of shares of common stock outstanding during the period excluding the weighted average number of unvested grants under the 2013 Plan if applicable (participating
securities as defined in Note 12). Diluted earnings per share is calculated by dividing Net income attributable to controlling stockholders by the weighted-average number of shares of common stock outstanding during the period plus other
potentially dilutive securities. No adjustment is made for shares that are anti-dilutive during a period.
Segment Reporting
We provide and arrange debt and equity investments for sustainable infrastructure projects and report all of our activities as one business
segment.
Recently Issued Accounting Pronouncements
Revenue from Contracts with Customers
In
May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
(Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to
customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or modified retrospective transition method. The updated standard becomes
effective for us on January 1, 2018 and we expect will be first presented in our March 31, 2018, Form 10-Q. We do not expect the adoption of ASU 2014-09 to have a material impact on our consolidated financial statements and related
disclosures as the majority of our sources of revenue, e.g., investments in financing receivables, debt and equity securities, land leasing, and the securitization of financing receivables are not impacted by this new standard. Upon adoption of the
new standard, we expect to elect the modified retrospective transition method.
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Leases
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(Topic 842). Under the new guidance, lessees will be required to
recognize the following for all leases (with the exception of short-term leases) at the commencement date: (a) a lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis;
and (b) a right-of-use asset, which is an asset that represents the lessees right to use, or control the use of, an identified asset for the lease term. Changes were made to align lessor accounting with the lessee accounting model and ASU
No. 2014-09,
Revenue from Contracts with Customers
. The ASU will be effective for us beginning January 1, 2019. Early application is permitted for all public business entities upon issuance. Lessees and lessors must apply a modified
retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, and may apply certain practical expedients to transition. If elected, these
practical expedients would allow us to continue to use our previous lease classification conclusions and continue to classify the leases that exist at the date of adoption based on their pre-existing classification. We are currently evaluating the
impact the adoption of this ASU will have on our consolidated financial statements and related disclosures.
Credit Losses
In June 2016, the FASB issued ASU No. 2016-13,
Financial InstrumentsCredit LossesMeasurement of Credit Losses on Financial
Instruments
(Topic 326). ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will replace the
incurred loss approach under existing guidance with an expected loss model for instruments measured at amortized cost, and require entities to record allowances for available-for-sale debt securities rather than reduce the
carrying amount, as currently required. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and is to be adopted through a
cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We are currently evaluating the impact the adoption of ASU 2016-13 will have on our consolidated financial
statements and related disclosures.
Equity Method Investments
In March 2016, the FASB issued ASU No. 2016-07,
Simplifying the Transition to the Equity Method of Accounting
. The new standard
eliminates the requirement for an investor to retroactively apply the equity method when an increase in ownership interest in an investee triggers equity method accounting. It also simplifies, in certain areas, the accounting for equity method
investments. The new standard is effective for us in the current fiscal year ending December 31, 2017 and interim periods therein. The new provisions are applied on a prospective basis to transactions within its scope. The adoption of this
standard did not have a material impact on our consolidated financial statements and related disclosures.
Other accounting standards
updates effective after June 30, 2017, are not expected to have a material effect on our consolidated financial statements and related disclosures.
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Fair Value Measurements
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Fair value is defined as the price that would be received for
an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level hierarchy for classifying financial instruments. The levels of inputs
used to determine the fair value of our financial assets and liabilities carried on the balance sheet at fair value and for those which only disclosure of fair value is required are characterized in accordance with the fair value hierarchy
established by ASC 820,
Fair Value Measurements
. Where inputs for a financial asset or liability fall in more than one level in the fair value hierarchy, the financial asset or liability is classified in its entirety based on the lowest level
input that is significant to the fair value measurement of that financial asset or liability. We use our judgment and consider factors specific to the financial assets and liabilities in determining the significance of an input to the fair value
measurements. As of June 30, 2017 and December 31, 2016, only our residual assets, financing receivables
held-for-sale,
interest rate swaps and investments available-for-sale, if any, were carried at
fair value on the consolidated balance sheets on a recurring basis. The three levels of the fair value hierarchy are described below:
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Level 1Quoted prices (unadjusted) in active markets that are accessible at the measurement date.
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Level 2Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
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Level 3Unobservable inputs are used when little or no market data is available.
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Unless
otherwise discussed below, fair value is measured using a discounted cash flow model, contractual terms and Level 3 unobservable inputs which consist of base interest rates and spreads over base rates which are based upon market observation and
recent comparable transactions. An increase in these unobservable inputs would result in a lower fair value and a decline would result in a higher fair value. The financing receivables held for sale, if any, are carried at the lower of cost or fair
value.
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As of June 30, 2017
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Fair Value
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Carrying
Value
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Level
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(dollars in millions)
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Assets
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Financing receivables
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$
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1,129
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$
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1,140
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Level 3
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Investments
(1)
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126
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126
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Level 3
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Securitization residual assets
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28
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28
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Level 3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit facilities
|
|
$
|
392
|
|
|
$
|
392
|
|
|
|
Level 3
|
|
Nonrecourse notes
(2)
|
|
|
951
|
|
|
|
943
|
|
|
|
Level 3
|
|
Derivative liabilities
|
|
|
1
|
|
|
|
1
|
|
|
|
Level 2
|
|
(1)
|
The amortized cost of our investments as of June 30, 2017 was $127 million.
|
(2)
|
Fair value and carrying value of nonrecourse notes excludes unamortized debt issuance costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
Fair Value
|
|
|
Carrying
Value
|
|
|
Level
|
|
|
|
(dollars in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing receivables
|
|
$
|
1,017
|
|
|
$
|
1,042
|
|
|
|
Level 3
|
|
Investments
(1)
|
|
|
58
|
|
|
|
58
|
|
|
|
Level 3
|
|
Securitization residual assets
|
|
|
19
|
|
|
|
19
|
|
|
|
Level 3
|
|
Derivative assets
|
|
|
1
|
|
|
|
1
|
|
|
|
Level 2
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit facilities
|
|
$
|
283
|
|
|
$
|
283
|
|
|
|
Level 3
|
|
Nonrecourse notes
(2)
|
|
|
718
|
|
|
|
709
|
|
|
|
Level 3
|
|
(1)
|
The amortized cost of our investments as of December 31, 2016 was $61 million.
|
(2)
|
Fair value and carrying value of nonrecourse notes excludes unamortized debt issuance costs.
|
- 13 -
Investments
We carry our investments in debt securities at fair value on our balance sheet as investments available-for-sale. The following table
reconciles the beginning and ending balances for our Level 3 investments that are carried at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months
ended June 30,
|
|
|
For the six months
ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(dollars in millions)
|
|
Balance, beginning of period
|
|
$
|
125
|
|
|
$
|
37
|
|
|
$
|
58
|
|
|
$
|
29
|
|
Purchases of investments
|
|
|
1
|
|
|
|
10
|
|
|
|
67
|
|
|
|
32
|
|
Payments on investments
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Sale of investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
Gains on investments recorded in earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Gains (losses) on investments recorded in
OCI
(1)
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
126
|
|
|
$
|
48
|
|
|
$
|
126
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As of June 30, 2017 and December 31, 2016, approximately $10 million of investment grade rated debt was held for more than 12 months in an unrealized loss position of approximately $1 million due to interest
rate movements. We have the intent and the ability to hold this investment until a recovery of amortized cost. As of June 30, 2017 and December 31, 2016, we held no other securities in an unrealized loss position for over 12 months.
|
For investments held at fair value, we used a range of interest rate spreads of approximately 1% to 4% based upon
comparable transactions as of June 30, 2017 and December 31, 2016.
Interest Rate Swap Agreements
The fair values of the derivative financial instruments are determined using widely accepted valuation techniques including discounted cash
flow analysis on the expected cash flows of each derivative. We have determined that the significant inputs, such as interest yield curves and discount rates, used to value our derivatives fall within Level 2 of the fair value hierarchy and that the
credit valuation adjustments associated with our counterparties and our own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of our or our counterparties default. As of June 30, 2017 and
December 31, 2016, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments were not significant to the overall
valuation of our derivatives. As a result, we determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. The fair values of the derivative financial instruments are included in the other assets
or accounts payable, accrued expenses and other line items in the consolidated balance sheets.
Non-recurring Fair Value Measurements
Our financial statements may include non-recurring fair value measurements related to acquisitions and non-monetary transactions, if any.
Assets acquired in a business combination are recorded at their fair value. We may use third party valuation firms to assist us with developing our estimates of fair value.
Concentration of Credit Risk
Financing receivables, investments and leases consist primarily of U.S. federal government-backed receivables, investment grade state and local
government receivables and receivables from various sustainable infrastructure projects and do not, in our view, represent a significant concentration of credit risk. See Note 6 for an analysis by type of obligor. As described above, we do not
believe we have a significant credit exposure to our interest rate swap providers. We had cash deposits that are subject to credit risk as shown below:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(dollars in millions)
|
|
Cash deposits
|
|
$
|
42
|
|
|
$
|
29
|
|
Restricted cash deposits (included in Other assets)
|
|
|
64
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Total cash deposits
|
|
$
|
106
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
Amount of cash deposits in excess of amounts federally insured
|
|
$
|
103
|
|
|
$
|
57
|
|
4.
|
Non-Controlling Interest
|
Units of limited partnership interests in the Operating
Partnership (OP units) that are owned by limited partners other than the Company are included in non-controlling interest on our consolidated balance sheets. The outstanding OP units held by outside limited partners represents less than
1% of our outstanding OP units and are redeemable for cash, or at our option, for a like number of shares of our common stock. No OP units were exchanged for shares of common stock or redeemed for cash during the six months ended June 30, 2017
or the six months ended June 30, 2016. The non-controlling interest holders are generally allocated their pro rata share of income, other comprehensive income and equity transactions.
- 14 -
5.
|
Securitization of Receivables
|
The following summarizes certain transactions with our
securitization trusts:
|
|
|
|
|
|
|
|
|
|
|
As of and for the six months
ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(dollars in millions)
|
|
Gains on securitizations
|
|
$
|
12
|
|
|
$
|
10
|
|
Purchase of receivables securitized
|
|
$
|
195
|
|
|
$
|
319
|
|
Proceeds from securitizations
|
|
$
|
207
|
|
|
$
|
329
|
|
Residual and servicing assets included in Other Assets
|
|
$
|
29
|
|
|
$
|
15
|
|
Cash received from residual and servicing assets
|
|
$
|
3
|
|
|
$
|
2
|
|
In connection with securitization transactions, we typically retain servicing responsibilities and residual
assets. In certain instances, we receive annual servicing fees of up to 0.20% of the outstanding balance. We may periodically make servicer advances, which are subject to credit risk. Included in other assets in our consolidated balance sheets are
our servicing assets at amortized cost, our residual assets at fair value, and our servicing advances at cost, if any. Our residual assets are subordinate to investors interests, and their values are subject to credit, prepayment and interest
rate risks on the transferred financial assets. The investors and the securitization trusts have no recourse to our other assets for failure of debtors to pay when due. In computing gains and losses on securitizations, we use the same discount rates
we use for the fair value calculation of residual assets, which are determined based on a review of comparable market transactions including Level 3 unobservable inputs which consist of base interest rates and spreads over base rates. Depending on
the nature of the transaction risks, the discount rate ranged from 4% to 7%.
As of June 30, 2017 and December 31, 2016, our
managed assets totaled $4.6 billion and $3.9 billion, respectively, of which $2.5 billion and $2.3 billion, respectively, were securitized assets held in unconsolidated securitization trusts. There were no securitization credit losses in the six
months ended June 30, 2017 or 2016. As of June 30, 2017 there was approximately $1.4 million in payments from certain debtors to the securitization trusts that was greater than 90 days past due. The securitized assets consist of financing
receivables from contracts for the installation of energy efficiency and other technologies in facilities owned by, or operated for or by, federal, state or local government entities where the ultimate obligor is the government. The contracts may
have guarantees of energy savings from third party service providers, the majority of which are entities rated investment grade by an independent rating agency. Based on the nature of the receivables and experience-to-date, we do not currently
expect to incur any credit losses on the receivables sold.
As of June 30, 2017, our Portfolio included approximately $2.1
billion of financing receivables, investments, real estate and equity method investments on our balance sheet. The financing receivables and investments are typically collateralized by contractually committed debt obligations of government entities
or private high credit quality obligors and are often supported by additional forms of credit enhancement, including security interests and supplier guaranties. The real estate is typically land and related lease intangibles for long-term leases to
wind and solar projects with high credit quality obligors. The equity method investments represent our non-controlling equity investments in renewable energy projects and land.
- 15 -
The following is an analysis of our Portfolio by type of obligor and credit quality as of June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
(1)
|
|
|
Commercial
Investment
Grade
(2)
|
|
|
Commercial
Non-Investment
Grade
(3)
|
|
|
Subtotal,
Debt and
Real Estate
|
|
|
Equity Method
Investments
|
|
|
Total
|
|
|
|
(dollars in millions)
|
|
Financing receivables
|
|
$
|
632
|
|
|
$
|
482
|
|
|
$
|
26
|
|
|
$
|
1,140
|
|
|
$
|
|
|
|
$
|
1,140
|
|
Investments
|
|
|
104
|
|
|
|
22
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
126
|
|
Real estate
(4)
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
|
298
|
|
|
|
21
|
|
|
|
319
|
|
Equity investments in renewable energy projects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
530
|
|
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
736
|
|
|
$
|
802
|
|
|
$
|
26
|
|
|
$
|
1,564
|
|
|
$
|
551
|
|
|
$
|
2,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Debt and Real Estate Portfolio
|
|
|
47
|
%
|
|
|
51
|
%
|
|
|
2
|
%
|
|
|
100
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Average Remaining Balance
(5)
|
|
$
|
13
|
|
|
$
|
9
|
|
|
$
|
9
|
|
|
$
|
11
|
|
|
$
|
20
|
|
|
$
|
12
|
|
(1)
|
Transactions where the ultimate obligor is the U.S. federal government or state or local governments where the obligors are rated investment grade (either by an independent rating agency or based upon our internal
credit analysis). This amount includes $525 million of U.S. federal government transactions and $211 million of transactions where the ultimate obligors are state or local governments. Transactions may have guaranties of energy savings from third
party service providers, the majority of which are entities rated investment grade by an independent rating agency.
|
(2)
|
Transactions where the projects or the ultimate obligors are commercial entities that have been rated investment grade (either by an independent rating agency or based on our internal credit analysis). Of this total,
$10 million of the transactions have been rated investment grade by an independent rating agency. Commercial investment grade financing receivables include $311 million of internally rated residential solar loans made on a nonrecourse basis to
special purpose subsidiaries of the SunPower Corporation, for which we rely on certain limited indemnities, warranties, and other obligations of Sunpower Corporation or its other subsidiaries.
|
(3)
|
Transactions where the projects or the ultimate obligors are commercial entities that have ratings below investment grade (either by an independent rating agency or using our internal credit analysis).
|
(4)
|
Includes the real estate and the lease intangible assets (including those held through equity method investments) from which we receive scheduled lease payments, typically under long-term triple net lease agreements.
|
(5)
|
Excludes approximately 125 transactions each with outstanding balances that are less than $1 million and that in the aggregate total $48 million.
|
Financing Receivables and Investments
The following table provides a summary of our anticipated maturity dates of our financing receivables and investments and the weighted average
yield for each range of maturities as of June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Less than 1
year
|
|
|
1-5 years
|
|
|
5-10 years
|
|
|
More than 10
years
|
|
|
|
(dollars in millions)
|
|
Financing Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities by period
|
|
$
|
1,140
|
|
|
$
|
7
|
|
|
$
|
25
|
|
|
$
|
75
|
|
|
$
|
1,033
|
|
Weighted average yield by period
|
|
|
5.2
|
%
|
|
|
8.4
|
%
|
|
|
5.3
|
%
|
|
|
5.0
|
%
|
|
|
5.2
|
%
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities by period
|
|
$
|
126
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
125
|
|
Weighted average yield by period
|
|
|
4.3
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
4.7
|
%
|
|
|
4.3
|
%
|
Our non-investment grade assets includes two financing receivables with a carrying value of approximately $10
million that became past due in the second quarter of 2017. These financing receivables, which we acquired as part of our acquisition of American Wind Capital Company, LLC in 2014, are assignments of land lease payments from two wind projects (the
Projects). We have been informed by the owner of the Projects that the Projects are experiencing a decline in revenue. On this basis, the owner of the Projects is seeking to renegotiate the land lease contractual payment terms or
terminate the lease. In July 2017, we filed a legal claim against the owners of the Projects in order to protect our interests in the Projects and the amounts due to us under the land lease assignments. Although there can be no assurance in this
regard, we believe that we have the ability to recover the carrying value from the Projects, including by taking title to the underlying collateral, and thus have not recorded an allowance for losses as of June 30, 2017. We have determined that
the assets are impaired and placed them on non-accrual status.
Other than discussed above, we had no financing receivables, investments
or leases that were impaired or on nonaccrual status as of June 30, 2017 or December 31, 2016. There was no provision for credit losses or troubled debt restructurings as of June 30, 2017 or December 31, 2016.
- 16 -
Real Estate
Our real estate is leased to renewable energy projects, typically under long-term triple net leases with expiration dates that range between
the years 2033 and 2057 under the initial terms and 2047 and 2080 if all renewals are exercised. The components of our real estate portfolio as of June 30, 2017 and December 31, 2016, were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(dollars in millions)
|
|
Real Estate
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
222
|
|
|
$
|
145
|
|
Lease intangibles
|
|
|
80
|
|
|
|
29
|
|
Accumulated amortization of lease intangibles
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
298
|
|
|
$
|
172
|
|
|
|
|
|
|
|
|
|
|
In the first quarter of 2017, we purchased a portfolio of over 4,000 acres of land and related long-term
triple net leases to over 20 individual solar projects with investment grade off-takers at a cost of approximately $138 million. Approximately $21 million (1,100 acres) of this real estate portfolio was acquired through an equity interest in a joint
venture that we account for under the equity method of accounting and approximately $49 million of our purchase price was allocated to intangible lease assets on a relative fair value basis. Up to an additional $7 million may become payable under
this transaction upon completion of certain project related contingencies.
As of June 30, 2017, the future amortization expense of
these intangible assets and the future minimum rental income payments under our land lease agreements are as follows:
|
|
|
|
|
|
|
|
|
Years Ending December 31,
|
|
Future
Amortization
Expense
|
|
|
Minimum
Rental Income
Payments
|
|
|
|
(dollars in millions)
|
|
From July 1, 2017 to December 31, 2017
|
|
$
|
1
|
|
|
$
|
8
|
|
2018
|
|
|
2
|
|
|
|
17
|
|
2019
|
|
|
2
|
|
|
|
17
|
|
2020
|
|
|
2
|
|
|
|
17
|
|
2021
|
|
|
2
|
|
|
|
17
|
|
2022
|
|
|
2
|
|
|
|
17
|
|
Thereafter
|
|
|
65
|
|
|
|
602
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
76
|
|
|
$
|
695
|
|
|
|
|
|
|
|
|
|
|
There are conservation easement agreements covering several of our properties that limit the use of the
property upon its lease expiration.
Equity Investments
We have made non-controlling equity investments in a number of renewable energy projects operated by renewable energy companies as well as in
a joint venture that owns land with a long-term triple net lease agreement to several solar projects that we account for as equity method investments. As of June 30, 2017, we held the following equity method investments:
|
|
|
|
|
|
|
|
|
Acquisition Date
|
|
Transaction
|
|
Investment
|
|
|
Partner
|
|
|
|
|
(in millions)
|
|
|
|
Various
|
|
Strong Upwind Holdings I,II, and III LLC
|
|
$
|
195
|
|
|
Various
(1)
|
June 2017
|
|
Northern Frontier LLC
|
|
|
94
|
|
|
Various
|
December 2015
|
|
Buckeye Wind Energy Class B Holdings LLC
|
|
|
67
|
|
|
Invenergy
|
February 2017
|
|
Strong Upwind Holdings IV LLC
|
|
|
59
|
|
|
JPMorgan
|
October 2016
|
|
Invenergy Gunsight Mountain Holdings, LLC
|
|
|
36
|
|
|
Invenergy
|
- 17 -
|
|
|
|
|
|
|
|
|
|
|
Acquisition Date
|
|
Transaction
|
|
Investment
|
|
|
Partner
|
|
|
|
|
|
(in millions)
|
|
|
|
|
June 2016
|
|
MM Solar Holdings LLC
|
|
|
28
|
|
|
|
AES
|
|
Various
|
|
Other transactions
|
|
|
72
|
|
|
|
Various
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Method Investments
|
|
$
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In June 2017, we acquired the remaining interest in these holding company entities for $22 million from JPMorgan. The entities are now consolidated entities in which the underlying assets (i.e. project level equity
method investments) are being reported in our financial statements as equity method investments.
|
Based on an evaluation of
our equity method investments, we determined that no OTTI impairment had occurred as of June 30, 2017, or December 31, 2016.
Deferred
Funding Obligations
In accordance with the terms of certain purchase agreements relating to financing receivables and investments,
payments of the purchase price are scheduled to be made over time and as a result, we have recorded deferred funding obligations of $273 million and $171 million as of June 30, 2017 and December 31, 2016, respectively. As of June 30,
2017 and December 31, 2016, we have pledged approximately $34 million and $41 million of our equity method investments as collateral for a deferred funding obligation of $26 million and $34 million, respectively.
The next five years of outstanding deferred funding obligations to be paid are as follows:
|
|
|
|
|
|
|
(dollars in millions)
|
|
July 1, 2017 to December 31, 2017
|
|
$
|
49
|
|
2018
|
|
|
103
|
|
2019
|
|
|
73
|
|
2020
|
|
|
36
|
|
2021
|
|
|
12
|
|
|
|
|
|
|
Total Deferred Funding Obligations
|
|
$
|
273
|
|
|
|
|
|
|
Revolver
We have a senior secured revolving credit facility which matures in July 2019. The facility provides for total maximum advances of $1.5 billion
with the aggregate amount outstanding at any point in time of $500 million and which consists of two components, the G&I Facility and the PF Facility. The G&I Facility can be used to leverage certain qualifying government and
institutional financings entered into by us and the PF Facility can be used to leverage certain qualifying project financings entered into by us. In June 2017, we entered into an amendment that adjusted certain of the sub-limits but did
not change the overall maximum advances or aggregate amount available at any point in time.
The following table provides additional
detail on our credit facility as of June 30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(dollars in millions)
|
|
Outstanding balance
|
|
$
|
290
|
|
|
$
|
283
|
|
Value of collateral pledged to credit facility
|
|
$
|
421
|
|
|
$
|
471
|
|
Weighted average short-term borrowing rate
|
|
|
2.9
|
%
|
|
|
2.3
|
%
|
- 18 -
Loans under the G&I Facility bear interest at a rate equal to the London Interbank Offered
Rate (LIBOR) plus 1.5% or, under certain circumstances, 1.5% plus the Base Rate. Loans under the PF Facility bear interest at a rate equal to LIBOR plus 2.5% or, under certain circumstances, 2.5% plus the Base Rate or as mutually agreed.
The Base Rate is defined as the highest of (i) the Federal Funds Rate plus 0.5%, (ii) the rate of interest publicly announced by Bank of America from time to time as its prime rate, (iii) LIBOR plus 1.0% and
(iv) zero. Under the PF Facility, we also have the option to borrow at a fixed rate of interest until the expiration of the credit facility in July 2019. The fixed rate is determined by agreement with the Administrative Agent and is based on
the prevailing US SWAP rate of an equivalent term to the average-life of the fixed rate portion of the borrowing plus an agreed upon margin. The loans are made through wholly-owned special purpose subsidiaries (the Borrowers) and we have
guaranteed the obligations of the Borrowers under the credit facility pursuant to (x) a Continuing Guaranty, dated July 19, 2013, and (y) a Limited Guaranty, dated July 19, 2013, both as amended and restated.
Any financing we propose to be included in the borrowing base as collateral under the facility is subject to the approval of the
administrative agent in its sole discretion and the payment of a placement fee. We may, with the consent of the administrative agent, borrow against new projects before such projects become Approved Financings (as defined in the PF Facility loan
agreement) but after they have been pledged as collateral. The amount eligible to be drawn under the facility for purposes of financing such investments will be based on a discount to the value of each investment or an applicable valuation
percentage. Under the G&I Facility, the applicable valuation percentage for non-delinquent investments is 85% in the case of a U.S. federal government obligor, 80% in the case of an institutional obligor or a state and local obligor, and with
respect to other obligors or in certain circumstances, such other percentage as the administrative agent may prescribe. Under the PF Facility, the applicable valuation percentage is 67% or such other percentage as the administrative agent may
prescribe. The sum of approved financings after taking into account the valuation percentages and any changes in the valuation of the financings in accordance with the loan agreements determines the borrowing capacity, subject to the overall
facility limits described above.
We have approximately $5 million of remaining unamortized costs associated with the credit facility that
have been capitalized and included in Other assets on our balance sheet, and are being amortized on a straight-line basis over the term of the Loan Agreements. On each monthly payment date, the Borrowers shall also pay to the administrative agent,
for the benefit of the lenders, certain availability fees for each Loan Agreement equal to 0.50%, divided by 360, multiplied by the excess of the available borrowing capacity under each component of the credit facility over the actual amount
borrowed under such component.
The credit facility contains terms, conditions, covenants, and representations and warranties that are
customary and typical for a transaction of this nature, including various affirmative and negative covenants, and limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the
nature of business, transactions with affiliates, use of proceeds and stock repurchases.
The credit facility also includes customary
events of default, including the existence of a default in more than 50% of underlying financings. The occurrence of an event of default may result in termination of the credit facility, acceleration of amounts due under the credit facility, and
accrual of default interest at a rate of LIBOR plus 2.50% in the case of the G&I Facility and at a rate of LIBOR plus 5.00% in the case of the PF Facility.
We were in compliance with the required financial covenants described below at each quarterly reporting date that such covenants were
applicable:
|
|
|
|
|
Covenant
|
|
Covenant Threshold
|
|
Minimum Liquidity (defined as available borrowings under the Loan Agreements plus unrestricted
cash divided by actual borrowings) of greater than:
|
|
|
5
|
%
|
12 month rolling Net Interest Margin of greater than:
|
|
|
zero
|
|
Maximum Debt to Equity Ratio of less than:
(1)
|
|
|
4 to 1
|
|
(1)
|
Debt is defined as Total Indebtedness excluding accounts payable and accrued expenses and nonrecourse debt.
|
- 19 -
Term Loan
In February 2017, we borrowed $102 million under a recourse credit facility. In July 2017, we amended this agreement to mature on
September 20, 2017. This credit facility is secured by equity in one of our wholly-owned subsidiaries that holds approximately $128 million of real estate, financing receivables and equity investments. The credit facility can be repaid at any
time. The loan bears interest at a rate of three month LIBOR plus 200 basis points through September 1, 2017, increasing to three month LIBOR plus 275 basis points on September 2, 2017.
This term loan also includes customary events of default. The occurrence of an event of default may result in termination of the term loan,
acceleration of amounts due, and accrual of default interest. Any default interest will accrue at the applicable rate plus 2.0% prior to any acceleration or the scheduled maturity date, and 5.0% thereafter. We recorded $1.4 million of debt issuance
costs which are netted against the outstanding balance.
We have outstanding the following asset-backed nonrecourse debt and
bank loans (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Balance
as of
|
|
|
|
|
|
|
|
|
|
|
|
Value of Assets
Pledged
as of
|
|
|
|
|
|
June 30,
2017
|
|
|
December
31, 2016
|
|
|
Interest
Rate
|
|
|
Maturity Date
|
|
|
Anticipated
Balance at
Maturity
|
|
|
June 30,
2017
|
|
|
December
31, 2016
|
|
|
Description of Assets Pledged
|
HASI Sustainable Yield Bond 2013-1
|
|
$
|
73
|
|
|
$
|
75
|
|
|
|
2.79
|
%
|
|
|
December 2019
|
|
|
$
|
57
|
|
|
$
|
91
|
|
|
$
|
93
|
|
|
Financing receivables
|
ABS Loan Agreement
|
|
$
|
89
|
|
|
$
|
90
|
|
|
|
5.74
|
%
|
|
|
September 2021
|
|
|
$
|
17
|
|
|
$
|
87
|
|
|
$
|
97
|
|
|
Equity interest in Strong Upwind Holdings I, LLC
|
HASI Sustainable Yield Bond 2015-1A
|
|
$
|
96
|
|
|
$
|
97
|
|
|
|
4.28
|
%
|
|
|
October 2034
|
|
|
$
|
|
|
|
$
|
138
|
|
|
$
|
138
|
|
|
Financing receivables, real estate and real estate intangibles
|
HASI Sustainable Yield Bond 2015-1B Note
|
|
$
|
14
|
|
|
$
|
|
|
|
|
5.41
|
%
|
|
|
October 2034
|
|
|
$
|
|
|
|
$
|
138
|
|
|
$
|
|
|
|
Class B Bond of HASI Sustainable Yield Bond 2015-1
|
HASI SYB Loan Agreement 2015-1
|
|
|
(1)
|
|
|
$
|
74
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
$
|
96
|
|
|
Equity interest in Strong Upwind Holdings II and III, LLC, related interest rate swap
|
2017 Credit Agreement
|
|
$
|
196
|
|
|
|
|
|
|
|
3.47
|
%
(2)
|
|
|
June 2024
|
|
|
$
|
|
|
|
$
|
262
|
|
|
$
|
|
|
|
Equity interests in Strong Upwind Holdings I, II, III, and IV LLC, and Northern Frontier, LLC
|
HASI SYB Loan Agreement 2015-2
|
|
$
|
37
|
|
|
$
|
41
|
|
|
|
5.38
|
%
(3)
|
|
|
December 2023
|
|
|
$
|
|
|
|
$
|
67
|
|
|
$
|
70
|
|
|
Equity interest in Buckeye Wind Energy Class B Holdings LLC, related interest rate swap
|
HASI SYB Loan Agreement 2015-3
|
|
$
|
147
|
|
|
$
|
150
|
|
|
|
4.92
|
%
|
|
|
December 2020
|
|
|
$
|
127
|
|
|
$
|
173
|
|
|
$
|
175
|
|
|
Residential solar financing receivables, related interest rate swaps
|
HASI SYB Loan Agreement 2016-1
|
|
$
|
119
|
|
|
$
|
98
|
|
|
|
4.23
|
%
(3)
|
|
|
November 2021
|
|
|
$
|
101
|
|
|
$
|
139
|
|
|
$
|
114
|
|
|
Residential solar financing receivables, related interest rate swaps
|
HASI SYB
Trust 2016-2
|
|
$
|
85
|
|
|
$
|
|
|
|
|
4.35
|
%
|
|
|
April 2037
|
|
|
$
|
|
|
|
$
|
91
|
|
|
$
|
|
|
|
Financing receivables
|
Other nonrecourse debt
(4)
|
|
$
|
87
|
|
|
$
|
84
|
|
|
|
2.26
|
% - 7.45%
|
|
|
2017 to 2046
|
|
|
$
|
|
|
|
$
|
221
|
|
|
$
|
81
|
|
|
Financing receivables
|
Debt issuance costs
|
|
$
|
(21
|
)
|
|
$
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecourse debt
(5)
|
|
$
|
922
|
|
|
$
|
692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 20 -
(1)
|
This nonrecourse debt agreement was re-financed in the second quarter of 2017 with the same lender through the 2017 Credit Agreement.
|
(2)
|
Interest rate represents the current periods LIBOR based rate plus the spread. Under the terms of the 2017 Credit Agreement, this rate will become fixed upon the lenders syndication of the loan, or that can
be fixed at our option.
|
(3)
|
Interest rate represents the current periods LIBOR based rate plus the spread. Also see the interest rate swap contracts shown in the table below, the value of which are not included in the book value of assets
pledged.
|
(4)
|
Other nonrecourse debt consists of various debt agreements used to finance certain of our financing receivables for their term. Debt service payment requirements, in a majority of cases, are equal to or less than the
cash flows received from the underlying financing receivables.
|
(5)
|
The total collateral pledged against our nonrecourse debt was $1,269 million and $864 million as of June 30, 2017 and December 31, 2016, respectively.
|
We have pledged the financed assets, and typically our interests in one or more parents or subsidiaries of the borrower that are legally
separate bankruptcy remote special purpose entities as security for the nonrecourse debt. There is no recourse for repayment of these obligations other than to the applicable borrower and any collateral pledged as security for the obligations. The
assets and credit of these entities are not available to satisfy any of our other debts and obligations, except as not prohibited by the debt agreements. The creditors can only look to the borrower, the cash flows of the pledged assets and any other
collateral pledged, to satisfy the debt and we are not otherwise liable for nonpayment of such cash flows. The debt agreements contain terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction
of this nature, including limitations on the incurrence of liens and indebtedness, investments, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, use of proceeds and stock repurchases.
The agreements also include customary events of default, the occurrence of which may result in termination of the agreements, acceleration of amounts due, and accrual of default interest. We typically act as servicer for the debt transactions.
We have guaranteed the performance of the representations and warranties and other obligations of certain of our subsidiaries under certain of
the debt agreements and provided an indemnity against certain losses from bad acts of such subsidiaries including fraud, failure to disclose a material fact, theft, misappropriation, voluntary bankruptcy or unauthorized transfers. In the
case of the debt secured by certain of our renewable energy equity interests, we have also guaranteed the compliance of our subsidiaries with certain tax matters and certain obligations if our joint venture partners exercise their right to withdraw
from our partnerships.
The HASI Sustainable Yield Bond (HASI SYB) 2015-1 consists of two instruments, (i) $101 million
in aggregate principal amount of 4.28% HASI SYB 2015-1A, Class A Bonds (the Class A Bonds) and (ii) $18 million in aggregate principal amount of 5.0% HASI SYB 2015-1B, Class B Bonds (the Class B Bonds), both with an
anticipated repayment date in October 2034. The Class A Bonds rank senior to the Class B Bonds in priority of payment. In January 2017, we borrowed $14 million of non-recourse debt using the Class B Bonds as collateral.
In connection with several of our nonrecourse debt borrowings, we have entered into the following interest rate swaps that are designated as
cash flow hedges (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Value as of
|
|
|
Fair Value as of
|
|
|
|
|
|
Base
Rate
|
|
Hedged
Rate
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
Term
|
HASI SYB Loan Agreement 2015-1
(1)
|
|
3 month
Libor
|
|
|
1.55
|
%
|
|
$
|
|
|
|
$
|
67
|
|
|
$
|
|
|
|
$
|
|
|
|
December 2015 to September 2021
|
HASI SYB Loan Agreement 2015-2
|
|
3 month
Libor
|
|
|
1.52
|
%
|
|
$
|
36
|
|
|
$
|
37
|
|
|
$
|
|
|
|
$
|
|
|
|
December 2015 to December 2018
|
HASI SYB Loan Agreement 2015-2
|
|
3 month
Libor
|
|
|
2.55
|
%
|
|
$
|
29
|
|
|
$
|
29
|
|
|
$
|
(0.4
|
)
|
|
$
|
(0.2
|
)
|
|
December 2018 to December 2024
|
HASI SYB Loan Agreement 2015-3
|
|
1 month Libor
|
|
|
2.34
|
%
|
|
$
|
119
|
|
|
$
|
119
|
|
|
$
|
0.2
|
|
|
$
|
1.0
|
|
|
November 2020 to August 2028
|
HASI SYB Loan Agreement 2016-1
|
|
3 month
Libor
|
|
|
1.88
|
%
|
|
$
|
109
|
|
|
$
|
72
|
|
|
$
|
(0.1
|
)
|
|
$
|
0.2
|
|
|
November 2016
to November 2021
|
HASI SYB Loan Agreement 2016-1
|
|
3 month
Libor
|
|
|
2.73
|
%
|
|
$
|
107
|
|
|
$
|
107
|
|
|
$
|
(0.7
|
)
|
|
$
|
|
|
|
November 2021 to October 2032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
400
|
|
|
$
|
431
|
|
|
$
|
(1.0
|
)
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
This interest rate swap was financially settled in June 2017.
|
- 21 -
The total fair value of our derivatives relating to interest rate hedges that are effective in
offsetting variable cash flows is reflected as unrealized gains or losses in AOCI and in Other assets or Accounts payable, accrued expenses and other in the Condensed Consolidated Balance Sheets. As of June 30, 2017 and December 31, 2016,
all of our derivatives were designated as hedging instruments and there was no ineffectiveness recorded on our designated hedges.
The
next 12-months of stated minimum maturities of nonrecourse debt are as follows:
|
|
|
|
|
|
|
(dollars in millions)
|
|
July 1, 2017 to December 31, 2017
|
|
$
|
37
|
|
2018
|
|
|
47
|
|
2019
|
|
|
105
|
|
2020
|
|
|
176
|
|
2021
|
|
|
143
|
|
2022
|
|
|
18
|
|
Thereafter
|
|
|
417
|
|
|
|
|
|
|
|
|
$
|
943
|
|
Deferred financing costs, net
|
|
|
(21
|
)
|
|
|
|
|
|
Total Nonrecourse
|
|
$
|
922
|
|
|
|
|
|
|
Debt
|
|
|
|
|
The stated minimum maturities of nonrecourse debt above include only the mandatory minimum principal payments.
To the extent there are additional cash flows received from Buckeye Wind Energy Class B Holdings LLC, these additional cash flows are required to be used to make additional principal payments against the respective debt. Any additional principal
payments made due to these provisions may impact the anticipated balance at maturity of these financings.
SunPower Corporation
(Sunpower), which originated and services the residential solar leases that are the collateral for the HASI SYB Loan Agreement 2015-3 and the HASI SYB Loan Agreement 2016-1, had publicly disclosed that were not in compliance and did not
expect to be in compliance for 2017, with a debt-to-EBITDA leverage covenant in one of their loan agreements, due in part to a restructuring they have undertaken as result of changes in the broader solar market. According to SunPowers
disclosure, they were not in default under this cash collateralized loan that has an outstanding balance of $5 million. In June 2017, SunPower negotiated an amendment to their loan agreement and removed the debt-to-EBITDA leverage covenant.
The portfolios of residential solar leases are held in bankruptcy remote special purpose entities (SPEs) that are performing in
line with our expectations and the SPEs, and not SunPower, are the source of repayment under our loans. SunPower has provided us certain limited indemnities and warranties and as servicer, provides various services including billing, monitoring
payments by homeowners to a third-party lockbox and customer service. Our loan agreements included the same debt-to-EBITDA covenant referred to above to monitor changes in SunPowers credit, as is typical for a servicer. As a result, our
lenders are entitled to apply approximately $1 million of the cash flow after payment of principal and interest each quarter to further reduce the principal balance on our loan. We continue to monitor the situation and anticipate having further
discussions with our lenders and with SunPower but at the present time, do not anticipate any other impact.
- 22 -
9.
|
Commitments and Contingencies
|
Litigation
The nature of our operations exposes us to the risk of claims and litigation in the normal course of our business. Other than non-material
litigation arising out of the ordinary course of business, we are not currently subject to any legal proceedings that are probable of having a material adverse effect on our financial position, results of operations or cash flows.
We recorded a tax expense of approximately $0.1 million for the three and
six months ended June 30, 2017 and 2016. Our income tax expense was determined using a federal rate of 35% and a combined state rate, net of federal benefit, of 5%.
Dividends and Distributions
Our board of directors declared the following dividends in 2016 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Announced Date
|
|
Record Date
|
|
|
Pay Date
|
|
|
Amount per
share
|
|
3/15/16
|
|
|
3/30/16
|
|
|
|
4/7/16
|
|
|
$
|
0.30
|
|
6/07/16
|
|
|
7/06/16
|
|
|
|
7/14/16
|
|
|
$
|
0.30
|
|
9/15/16
|
|
|
10/05/16
|
|
|
|
10/13/16
|
|
|
$
|
0.30
|
|
12/13/16
|
|
|
12/29/16
|
*
|
|
|
1/12/17
|
|
|
$
|
0.33
|
|
3/15/17
|
|
|
4/05/17
|
|
|
|
4/13/17
|
|
|
$
|
0.33
|
|
6/01/17
|
|
|
7/06/17
|
|
|
|
7/13/17
|
|
|
$
|
0.33
|
|
*
|
This dividend was treated as a distribution in 2017 for tax purposes.
|
We have an effective
universal shelf registration statement registering the potential offer and sale, from time to time and in one or more offerings, of any combination of our common stock, preferred stock, depositary shares and warrants and rights (collectively
referred to as the securities). We may offer the securities directly, through agents, or to or through underwriters by means of ordinary brokers transactions on the NYSE or otherwise at market prices prevailing at the time of sale
or at negotiated prices and may include at the market (ATM) offerings or sales at the market, to or through a market maker or into an existing trading market on an exchange or otherwise. We completed the following
public offerings and ATM offerings of our common stock in 2016 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Date
|
|
Common Stock
Offerings
|
|
Shares Issued
(1)
|
|
|
Price
Per
Share
|
|
|
Net
Proceeds
(2)
|
|
|
|
|
|
(amounts in millions, except per share amounts)
|
|
6/21/16
|
|
Public Offering
|
|
|
4.600
|
|
|
$
|
19.78
|
(3
)
|
|
$
|
91
|
|
5/9/16 to 6/30/16
|
|
ATM
|
|
|
0.065
|
|
|
$
|
20.31
|
(4
)
|
|
$
|
1
|
|
11/09/16
|
|
Public Offering
|
|
|
4.025
|
|
|
$
|
19.28
|
(3
)
|
|
$
|
77
|
|
12/13/16 to 12/29/16
|
|
ATM
|
|
|
0.407
|
|
|
$
|
19.47
|
(4
)
|
|
$
|
8
|
|
1/20/17 to 2/2/17
|
|
ATM
|
|
|
0.197
|
|
|
$
|
19.18
|
(4
)
|
|
$
|
4
|
|
3/10/17
|
|
Public Offering
|
|
|
3.450
|
|
|
$
|
18.73
|
(3
)
|
|
$
|
64
|
|
5/17/17 to 6/22/17
|
|
ATM
|
|
|
1.376
|
|
|
$
|
22.71
|
(4
)
|
|
$
|
31
|
|
(1)
|
Includes shares issued in connection with the exercise of the underwriters option to purchase additional shares.
|
(2)
|
Net proceeds from the offerings is shown after deducting underwriting discounts, commissions and other offering costs.
|
(3)
|
Represents the price per share at which the underwriters in our public offerings purchased shares from our company.
|
(4)
|
Represents the average price per share at which investors in our ATM offerings purchased shares from our company.
|
- 23 -
Awards of Shares of Restricted Common Stock under our 2013 Plan
We have issued awards with service, performance and market conditions. During the six months ended June 30, 2017, our board of directors
awarded employees and directors 707,648 shares of restricted stock and restricted stock units that vest in 2017 to 2020. As of June 30, 2017, as it relates to previously issued awards with performance conditions, we have concluded that it is
probable that the performance conditions will be met.
For the three and six months ended June 30, 2017, we recorded $3 million and
$6 million, respectively, of equity-based compensation expense as compared to $3 million and $5 million, respectively, for the three and six months ended June 30, 2016. The total unrecognized compensation expense related to awards of shares of
restricted stock and restricted stock units was approximately $17 million as of June 30, 2017. We expect to recognize compensation expense related to these awards over a weighted-average term of approximately two years. A summary of the
unvested shares of restricted common stock that have been issued is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Shares of
Common Stock
|
|
|
Weighted Average
Share Price
|
|
|
Value
(in millions)
|
|
Ending Balance December 31, 2015
|
|
|
1,248,069
|
|
|
$
|
15.16
|
|
|
$
|
18.9
|
|
Granted
|
|
|
661,055
|
|
|
|
18.62
|
|
|
|
12.3
|
|
Vested
|
|
|
(716,264
|
)
|
|
|
14.03
|
|
|
|
(10.0
|
)
|
Forfeited
|
|
|
(11,188
|
)
|
|
|
17.25
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance December 31, 2016
|
|
|
1,181,672
|
|
|
$
|
17.76
|
|
|
$
|
21.0
|
|
Granted
|
|
|
451,614
|
|
|
|
19.04
|
|
|
|
8.6
|
|
Vested
|
|
|
(216,657
|
)
|
|
|
14.12
|
|
|
|
(3.1
|
)
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance June 30, 2017
|
|
|
1,416,629
|
|
|
$
|
18.72
|
|
|
$
|
26.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 24 -
A summary of the unvested shares of restricted stock units that have market based vesting
conditions that have been issued is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
Units
|
|
|
Weighted Average
Share Price
|
|
|
Value
(in millions)
|
|
Ending Balance December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
256,034
|
|
|
$
|
18.99
|
|
|
$
|
4.9
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance June 30, 2017
|
|
|
256,034
|
|
|
$
|
18.99
|
|
|
$
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Earnings per Share of Common Stock
|
Both the Net income or loss attributable to the
non-controlling OP units and the non-controlling limited partners outstanding OP units have been excluded from Net income or loss and the diluted earnings per share calculation attributable to common stockholders.
Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and are included in the computation of earnings per share pursuant to the two-class method. Any shares of common stock which, if included in the diluted earnings per share calculation, would have an anti-dilutive effect have
been excluded from the diluted earnings per share calculation.
The computation of basic and diluted earnings per common share of common
stock is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
Numerator:
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in millions, except share and per share data)
|
|
Net income attributable to controlling stockholders and participating securities
|
|
$
|
12.3
|
|
|
$
|
3.8
|
|
|
$
|
19.5
|
|
|
$
|
6.9
|
|
Less: Dividends paid on participating securities
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
|
(0.9
|
)
|
|
|
(0.9
|
)
|
Undistributed earnings attributable to participating securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to controlling stockholders
|
|
$
|
11.9
|
|
|
$
|
3.4
|
|
|
$
|
18.6
|
|
|
$
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares basic
|
|
|
50,573,996
|
|
|
|
37,737,026
|
|
|
|
49,044,051
|
|
|
|
37,376,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares diluted
|
|
|
50,573,996
|
|
|
|
37,737,026
|
|
|
|
49,044,051
|
|
|
|
37,376,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.23
|
|
|
$
|
0.09
|
|
|
$
|
0.38
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.23
|
|
|
$
|
0.09
|
|
|
$
|
0.38
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of OP units
|
|
|
284,992
|
|
|
|
284,992
|
|
|
|
284,992
|
|
|
|
284,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted common stock outstanding as of
|
|
|
|
|
|
|
|
|
|
|
1,416,629
|
|
|
|
1,330,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock units outstanding as of
|
|
|
|
|
|
|
|
|
|
|
256,034
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Equity Method Investments
|
We have noncontrolling unconsolidated equity investments in
entities that own minority interests in renewable energy projects and in one case, real estate. We recognized income from our equity method investments of $8.4 million and $12.5 million during the three and six months ended June 30, 2017,
respectively, as compared to income of $1.1 million and $1.3 million during the three and six months ended June 30, 2016. We describe our accounting for noncontrolling equity investments in Note 2.
- 25 -
The following is a summary of the consolidated financial position and results of operations of
the significant holding companies, accounted for using the equity method.
|
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2017
|
|
|
As of
December 31, 2016
|
|
|
|
|
(dollars in millions, unaudited)
|
|
Current Assets
|
|
$
|
3
|
|
|
$
|
3
|
|
Total Assets
|
|
$
|
115
|
|
|
$
|
99
|
|
Current Liabilities
|
|
$
|
4
|
|
|
$
|
4
|
|
Total Liabilities
|
|
$
|
38
|
|
|
$
|
39
|
|
Members Equity
|
|
$
|
77
|
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months
ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(dollars in millions, unaudited)
|
|
Revenue
|
|
$
|
3
|
|
|
$
|
3
|
|
Income from Continuing Operations
|
|
$
|
1
|
|
|
$
|
0
|
|
Net income
|
|
$
|
1
|
|
|
$
|
0
|
|
- 26 -