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"Record Distributable Earnings Per Share in the quarter on strong Net Investment Income from portfolio growth and stable margins, shows the increasing strength of our dual-revenue business model," said Jeffrey W. Eckel, Hannon Armstrong Chairman and Chief Executive Officer. "We remain confident in the continued growth of the portfolio based on committed transactions and conversion of the pipeline to executed investments, including growth in Sustainable Infrastructure opportunities."


	For the three months ended June 30, 2022				For the three months ended June 30, 2021
	$ in thousands		Per Share (Diluted)		$ in thousands		Per Share (Diluted)
GAAP Net Income	$	(18,449)	$	(0.21)	$	15,974	$	0.20
Distributable earnings	53,524		0.60		47,573		0.57
	For the six months ended June 30, 2022				For the six months ended June 30, 2021
	$ in thousands		Per Share		$ in thousands		Per Share
GAAP Net Income	$	26,896	$	0.30	$	66,998	$	0.81
Distributable earnings	99,257		1.13		83,248		1.01

Interest expense decreased $12 million primarily due to a one time loss on the redemption of senior unsecured notes in the prior period which did not recur. We recorded an $8 million provision for loss on receivables driven primarily by loan and loan commitments made during the period as well as certain loan specific provisions. Other expenses (compensation and benefits and general and administrative expenses) increased by approximately $12 million primarily due to an acceleration of share based compensation resulting from the adoption of a new retirement policy.

We recognized a loss of $20 million using the hypothetical liquidation at book value method (HLBV) for our equity method investments in the second quarter of 2022, compared to income of $22 million for the same period in 2021, primarily due to the impact of increasing power prices and the resulting unrealized mark-to-market losses on economic hedges used by some of our projects to reduce the impact of power price fluctuations.

GAAP net income (loss) in the second quarter of 2022 was $(18) million, compared to $16 million in the same period in 2021. Distributable earnings in the second quarter of 2022 was approximately $54 million, or an increase of approximately $6 million from the same period in 2021 due primarily to new assets added to our portfolio.


	Portfolio Performance
	Government			Commercial
	1 (1)			1 (1)			2 (2)			3 (3)			Total
	(dollars in millions)







Total receivables	111			1,472			—			11			1,594
Less: Allowance for loss on receivables	—			(29)			—			(8)			(37)
Net receivables (4)	111			1,443			—			3			1,557
Receivables held-for-sale	50			24			—			—			74
Investments	3			9			—			—			12
Real estate	—			359			—			—			359
Equity method investments (5)	—			1,907			28			—			1,935
Total	$	164		$	3,742		$	28		$	3		$	3,937
Percent of Portfolio	4		%	95		%	1		%	—		%	100		%
Average remaining balance (6)	$	8		$	11		$	14		$	11		$	11

(3)This category includes our assets where based on our credit criteria and performance to date, we believe there is substantial doubt regarding our ability to recover some or all of our invested capital. Loans in this category are placed on non-accrual status. In the second quarter of 2022, we moved to this category from Category 2 $11 million of loans we had made in a new market venture where the performance has not met expectations. Previously included in this category were two commercial receivables with a combined total carrying value of approximately $8 million which were assignments of land lease payments from two wind projects that we had originated in 2014, as a part of an acquisition of a large land portfolio. In 2017, the operator of the projects terminated the lease, at which time we filed a legal claim and placed these assets on non-accrual status. In 2019, we received a court decision indicating that the owners of the projects were within their rights under the contract terms to terminate the lease which impacts the land lease assignments to us, at which time we reserved the receivables for their full carrying amount. In the second quarter of 2022, we received a court decision indicating that our appeal was not successful, and accordingly we charged off the full amount of the receivable.

The Company expects that annual distributable earnings per share will grow at a compounded annual rate of 10% to 13% from 2021 to 2024, relative to the 2020 baseline of $1.55 per share, which is equivalent to a 2024 midpoint of $2.40 per share. The Company also expects growth of annual dividends per share to be at a compounded annual rate of 5% to 8%. This guidance reflects the Company’s judgments and estimates of (i) yield on its existing portfolio; (ii) yield on

incremental portfolio investments, inclusive of the Company’s existing pipeline; (iii) the volume and profitability of transactions; (iv) amount, timing, and costs of debt and equity capital to fund new investments; (v) changes in costs and expenses reflective of the Company’s forecasted operations; and (vi) the general interest rate and market environment. All guidance is based on current expectations of the ongoing and future impact of COVID-19 and the speed and efficacy of vaccine distribution on economic conditions, the regulatory environment, the dynamics of the markets in which we operate and the judgment of the Company’s management team, among other factors. In addition, distributions are subject to approval by the Company’s Board of Directors on a quarterly basis. The Company has not provided GAAP guidance as discussed in the Forward-Looking Statements section of this press release.

Hannon Armstrong will host an investor conference call today, Thursday, August 4, 2022, at 5:00 p.m. Eastern Time. The conference call can be accessed live over the phone by dialing 1-877-407-0890 or for international callers, +1-201-389-0918. Participants should inform the operator they want to be joined to the Hannon Armstrong call. The conference call will also be accessible as an audio webcast with slides on the Company’s website at investors.hannonarmstrong.com. An online replay will be available for a limited time beginning immediately following the call.

Hannon Armstrong (NYSE: HASI) is the first U.S. public company solely dedicated to investments in climate solutions, providing capital to assets developed by leading companies in energy efficiency, renewable energy, and other sustainable infrastructure markets. With more than $9 billion in managed assets, our core purpose is to make climate positive investments with superior risk-adjusted returns. For more information, please visit hannonarmstrong.com or follow us on Twitter and LinkedIn.

Some of the information contained in this press release is forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are subject to risks and uncertainties. For these statements, we claim the protections of the safe harbor for forward-looking statements contained in such Sections. These forward-looking statements include information about possible or assumed future results of our business,

financial condition, liquidity, results of operations, plans and objectives, and include the ongoing impact of the current outbreak of the novel coronavirus (“COVID-19”). When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions, we intend to identify forward-looking statements. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements.

Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward-looking statements. Factors that could cause actual results to differ materially from those described in the forward-looking statements include those discussed under the caption “Risk Factors” included in our most recent Annual Report on Form 10-K as well as in other periodic reports that we file with the U.S. Securities and Exchange Commission (the "SEC").

Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances, including, but not limited to, unanticipated events, after the date on which such statement is made, unless otherwise required by law. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained or implied in any forward-looking statement.

The Company has not provided GAAP guidance as forecasting a comparable GAAP financial measure, such as net income, would require that the Company apply the HLBV method to these investments. In order to forecast under the HLBV method, the Company would be required to make various assumptions related to expected changes in the net asset value of the various entities and how such changes would be allocated under HLBV. GAAP HLBV earnings over a period of time are very sensitive to these assumptions especially in regard to when a partnership transaction flips and thus the liquidation scenarios change materially. The Company believes that these assumptions would require unreasonable efforts to complete and if completed, the wide variation in projected GAAP earnings based upon a range of scenarios would not be meaningful to investors. Accordingly, the Company has not included a GAAP reconciliation table related to any distributable earnings guidance.

Estimated carbon savings are calculated using the estimated kilowatt hours, gallons of fuel oil, million British thermal units of natural gas and gallons of water saved as appropriate, for each project. The energy savings are converted into an estimate of metric tons of CO2 equivalent emissions based upon the project’s location and the corresponding emissions factor data from the U.S. Government and International Energy Agency. Portfolios of projects are represented on an aggregate basis.


	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2022			2021		2022		2021
Revenue
Interest income	$	33,358		$	25,016	$	63,601	$	50,117
Rental income	6,609			6,462		13,108		12,931
Gain on sale of receivables and investments	19,664			24,426		36,762		41,916
Fee income	3,172			2,990		7,809		5,625
Total revenue	62,803			58,894		121,280		110,589
Expenses
Interest expense	28,827			40,463		55,479		68,045
Provision for loss on receivables	8,064			906		8,685		1,411
Compensation and benefits	22,246			12,422		37,176		27,633
General and administrative	7,408			4,966		14,546		9,850
Total expenses	66,545			58,757		115,886		106,939
Income before equity method investments	(3,742)		—	137		5,394		3,650
Income (loss) from equity method investments	(19,585)			22,252		27,981		76,734
Income (loss) before income taxes	(23,327)			22,389		33,375		80,384
Income tax (expense) benefit	4,789			(5,981)		(6,209)		(12,760)
Net income (loss)	$	(18,538)		$	16,408	$	27,166	$	67,624
Net income (loss) attributable to non-controlling interest holders	(89)			434		270		626
Net income (loss) attributable to controlling stockholders	$	(18,449)		$	15,974	$	26,896	$	66,998
Basic earnings (loss) per common share	$	(0.21)		$	0.20	$	0.31	$	0.85
Diluted earnings (loss) per common share	$	(0.21)		$	0.20	$	0.30	$	0.81
Weighted average common shares outstanding—basic	87,049,777			78,372,647		86,316,464		77,935,264
Weighted average common shares outstanding—diluted	87,049,777			81,944,511		89,541,858		87,165,587


	June 30, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	279,459	$	226,204
Equity method investments	1,935,467		1,759,651
Commercial receivables, net of allowance of $37 million and $36 million, respectively	1,445,576		1,298,529
Government receivables	110,754		125,409
Receivables held-for-sale	74,109		22,214
Real estate	359,106		356,088
Investments	11,643		17,697
Securitization assets	178,156		210,354
Other assets	124,748		132,165
Total Assets	$	4,519,018	$	4,148,311
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable, accrued expenses and other	$	105,200	$	88,866

Credit facilities	201,032		100,473
Green commercial paper notes	100,174		50,094
Non-recourse debt (secured by assets of $553 million and $573 million, respectively)	416,343		429,869
Senior unsecured notes	1,765,195		1,762,763
Convertible notes	339,559		149,731
Total Liabilities	2,927,503		2,581,796
Stockholders’ Equity:
Preferred stock, par value $0.01 per share, 50,000,000 shares authorized, no shares issued and outstanding	—		—
Common stock, par value $0.01 per share, 450,000,000 shares authorized, 87,489,951 and 85,326,781 shares issued and outstanding, respectively	875		853
Additional paid in capital	1,811,889		1,727,667
Accumulated deficit	(232,590)		(193,706)
Accumulated other comprehensive income (loss)	(22,132)		9,904
Non-controlling interest	33,473		21,797
Total Stockholders’ Equity	1,591,515		1,566,515
Total Liabilities and Stockholders’ Equity	$	4,519,018	$	4,148,311

We calculate distributable earnings as GAAP net income (loss) excluding non-cash equity compensation expense, provisions for loss on receivables, amortization of intangibles, non-cash provision (benefit) for taxes, gains or (losses) from modification or extinguishment of debt facilities, any one-time acquisition related costs or non-cash tax charges and the earnings attributable to our non-controlling interest of our Operating Partnership. We also make an adjustment to our equity method investments in the renewable energy projects as described below. We will use judgment in determining when we will reflect the losses on receivables in our distributable earnings. In making this determination we will consider certain circumstances such as the time period in default and sufficiency of collateral as well as the outcomes of any related litigation. In the future, distributable earnings may also exclude one-time events pursuant to changes in GAAP and certain other adjustments as approved by a majority of our independent directors.

We believe a Non-GAAP measure, such as distributable earnings, that adjusts for the items discussed above is and has been a meaningful indicator of our economic performance in any one period and is useful to our investors as well as management in evaluating our performance as it relates to expected dividend payments over time. As a REIT, we are required to distribute substantially all of our taxable income to investors in the form of dividends, which are a principal focus of our investors. Additionally, we believe that our investors also use distributable earnings, or a comparable supplemental performance measure, to evaluate and compare our performance to that of our peers, and as such, we believe that the disclosure of distributable earnings is useful to our investors.

Certain of our equity method investments in renewable energy and energy efficiency projects are structured using typical partnership “flip” structures where the investors with cash distribution preferences receive a pre-negotiated return consisting of priority distributions from the project cash flows, in many cases, along with tax attributes. Once this preferred return is achieved, the partnership “flips” and the cash equity investor(s) receive more of the cash flows through its equity interests while the previously preferred investors retain an ongoing residual interest. 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 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. We use a similar approach in the underwriting of our receivables.

Under GAAP, we account for these equity method investments utilizing the HLBV method. Under this method, we recognize income or loss based on the change in the amount each partner would receive, typically based on the negotiated profit and loss allocation, if the assets were liquidated at book value, after adjusting for any distributions or contributions made during such quarter. The HLBV allocations of income or loss may be impacted by the receipt of tax attributes, as tax equity investors are allocated losses in proportion to the tax benefits received, while the sponsors of the project are allocated gains of a similar amount. The investment tax credit typically used in solar projects is a one-time credit which is 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 used in wind is a ten year

The cash distributions for those equity method investments where we apply HLBV are segregated into a return on and return of capital on our cash flow statement based on the cumulative income (loss) that has been allocated using the HLBV method. However, as a result of the application of the HLBV method, including the impact of tax allocations, the high levels of depreciation and other non-cash expenses that are common to renewable energy projects and the differences between the agreed upon profit and loss and the cash flow allocations, the distributions and thus the economic returns (i.e., return on capital) achieved from the investment are often significantly different from the income or loss that is allocated to us under the HLBV method in any one period. Thus, in calculating distributable earnings, for certain of these investments where there are characteristics as described above, we further adjust GAAP net income (loss) to take into account our calculation of the return on capital (based upon the investment rate) from our renewable energy equity method investments, as adjusted to reflect the performance of the project and the cash distributed. We believe this equity method investment adjustment to our GAAP net income (loss) in calculating our distributable earnings measure is an important supplement to the HLBV income allocations determined under GAAP for an investor to understand the economic performance of these investments where HLBV income can differ substantially from the economic returns in any one period.

Distributable earnings does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), or an indication of our cash flow from operating activities (determined in accordance with GAAP), or a measure of our liquidity, or an indication of funds available to fund our cash needs, including our ability to make cash distributions. In addition, our methodology for calculating distributable earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported distributable earnings may not be comparable to similar metrics reported by other companies.


	For the three months ended June 30, 2022				For the three months ended June 30, 2021
	(dollars in thousands, except per share amounts)
	$		per share		$		per share
Net income attributable to controlling stockholders (1)	$	(18,449)	$	(0.21)	$	15,974	$	0.20
Distributable earnings adjustments:
Reverse GAAP (income) loss from equity method investments	19,585				(22,252)
Add equity method investments earnings	36,048				26,834
Equity-based compensation charges	12,393				4,289
Provision for loss on receivables (2)	8,064				906
(Gain) loss on debt modification or extinguishment	—				14,584
Other adjustments (3)	(4,117)				7,238
Distributable earnings (4)	$	53,524	$	0.60	$	47,573	$	0.57

(2)In addition to these provisions, in the second quarter of 2022 we wrote-off two commercial receivables with a combined total carrying value of approximately $8 million which represented assignments of land lease payments from two wind projects that we had originated in 2014. In 2017, the operator of the projects terminated the lease, at which time we filed a legal claim and placed these assets on non-accrual status. In 2019, we received a court decision indicating that the owners of the projects were within their rights under the contract terms to terminate the lease which impacts the land lease assignments to us, at which time we reserved the receivables for their full carrying amount. In the second quarter of 2022, we received a court decision indicating that our appeal was not successful, and accordingly wrote off the full amount of the receivable. We have excluded the write off from Distributable earnings due to the infrequent occurrence of credit losses as well as the unique nature of the receivables, as the assignment of land lease payments from wind projects represent a small portion of our total portfolio.

(4)Distributable earnings per share for the three months ended June 30, 2022 and 2021, are based on 88,994,421 shares and 82,832,735 shares outstanding, respectively, which represents the weighted average number of fully-diluted shares outstanding including our restricted stock awards, restricted stock units, long-term incentive plan units, and the non-controlling interest in our Operating Partnership. We include any potential common stock issuances related to share based compensation units in the amount we believe is reasonably certain to vest. As it relates to convertible notes, we will assess the market characteristics around the instrument to determine if it is more akin to debt or equity based on the value of the underlying shares upon conversion. If the instrument is more debt-like then we will include any related interest expense and exclude the underlying shares issuable upon conversion of the instrument. If the instrument is more equity-like and is more dilutive when treated as equity then we will exclude any related interest expense and include the weighted average shares underlying the instrument.


	For the six months ended June 30, 2022				For the six months ended June 30, 2021
	(dollars in thousands, except per share amounts)
	$		per share		$		per share
Net income attributable to controlling stockholders (1)	$	26,896	$	0.30	$	66,998	$	0.81
Distributable earnings adjustments:
Reverse GAAP (income) loss from equity method investments	(27,981)				(76,734)
Add equity method investments earnings	67,645				50,671
Equity-based compensation charges	15,933				9,787
Provision for loss on receivables (2)	8,685				1,411
(Gain) loss on debt modification or extinguishment	—				16,083
Other adjustments (3)	8,079				15,031
Distributable earnings (4)	$	99,257	$	1.13	$	83,247	$	1.01

(4)Distributable earnings per share for the six months ended June 30, 2022 and 2021, are based on 88,100,480 shares and 82,723,380 shares outstanding, respectively, which represents the weighted average number of fully-diluted shares outstanding including our restricted stock awards, restricted stock units, long-term incentive plan units, and the non-controlling interest in our Operating Partnership. We include any potential common stock issuances related to share based compensation units in the amount we believe is reasonably certain to vest. As it relates to convertible notes, we will assess the market characteristics around the instrument to determine if it is more akin to debt or equity based on the value of the underlying shares upon conversion. If the instrument is more debt-like then we will include any related interest expense and exclude the underlying shares issuable upon conversion of the instrument. If the instrument is more equity-like and is more dilutive when treated as equity then we will exclude any related interest expense and include the weighted average shares underlying the instrument.


		For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2022		2021		2022		2021
		(in thousands)				(in thousands)
Other adjustments
Amortization of intangibles (1)		$	761	$	823	$	1,600	$	1,645
Non-cash provision (benefit) for income taxes		(4,789)		5,981		6,209		12,760
Net income attributable to non-controlling interest		(89)		434		270		626
Other adjustments		$	(4,117)	$	7,238	$	8,079	$	15,031

(1)	Adds back non-cash amortization of lease and pre-IPO intangibles.


		For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2022		2021		2022		2021
		(in thousands)				(in thousands)
GAAP SG&A expenses
Compensation and benefits		$	22,246	$	12,422	$	37,176	$	27,633
General and administrative		7,408		4,966		14,546		9,850
Total SG&A expenses (GAAP)		$	29,654	$	17,388	$	51,722	$	37,483
Distributable SG&A expenses adjustments:
Non-cash equity-based compensation charge (1)		$	(12,393)	$	(4,289)	$	(15,933)	$	(9,787)
Amortization of intangibles (2)		—		(50)		(68)		(102)
Distributable SG&A expenses adjustments		(12,393)		(4,339)		(16,001)		(9,889)
Distributable SG&A expenses		$	17,261	$	13,049	$	35,721	$	27,594

(1)	Reflects add back of non-cash amortization of equity-based compensation. Outstanding grants related to equity-based compensation are included in the distributable earnings per share calculation.
(2)	Adds back non-cash amortization of pre-IPO intangibles.

We have a portfolio of debt and equity investments in climate change solutions. We calculate distributable net investment income by adjusting GAAP-based net investment income for those distributable earnings adjustments described above which impact investment income. We believe that this measure is useful to investors as it shows the recurring income generated by our Portfolio after the associated interest cost of debt financing. Our management also uses distributable net investment income in this way. Our non-GAAP distributable net investment income measure may not be comparable to similarly titled measures used by other companies. The following is a reconciliation of our GAAP-based net investment income to our distributable net investment income:


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2021		2020
	(in thousands)
Interest income	$	33,358	$	25,016	$	63,601	$	50,117
Rental income	6,609		6,462		13,108		12,931
GAAP-based investment revenue	39,967		31,478		76,709		63,048
Interest expense	28,827		40,463		55,479		68,045
GAAP-based net investment income	11,140		(8,985)		21,230		(4,997)
Equity method earnings adjustment (1)	36,048		26,834		67,645		50,671
(Gain) loss on debt modification or extinguishment (2)	—		14,584		—		16,083
Amortization of real estate intangibles (3)	761		773		1,532		1,543
Distributable net investment income	$	47,949	$	33,206	$	90,407	$	63,300

As we both consolidate assets on our balance sheet and securitize assets, certain of our receivables and other assets are not reflected on our balance sheet where we may have a residual interest in the performance of the investment, such as servicing rights or a retained interest in cash flows. Thus, we present our investments on a non-GAAP “managed” basis, which assumes that securitized receivables are not sold. We believe that our Managed Asset information is useful to investors because it portrays the amount of both on- and off-balance sheet receivables that we manage, which enables investors to understand and evaluate the credit performance associated with our portfolio of receivables, investments, and residual assets in securitized receivables. Our non-GAAP Managed Assets measure may not be comparable to similarly titled measures used by other companies.


	As of
	June 30, 2022		December 31, 2021
	(dollars in millions)
Equity method investments	$	1,935	$	1,760
Commercial receivables, net of allowance	1,446		1,299
Government receivables	111		125
Receivables held-for-sale	74		22
Real estate	359		356
Investments	12		18
GAAP-Based Portfolio	3,937		3,580
Assets held in securitization trusts	5,326		5,199
Managed assets	$	9,263	$	8,779


	June 30, 2022		% of Total		December 31, 2021		% of Total
	($ in millions)				($ in millions)
Floating-rate borrowings (1)	$	201	7	%	$	101	4	%
Fixed-rate debt (2)	2,621		93	%	2,392		96	%
Total	$	2,822	100	%	$	2,493	100	%
Leverage (3)	1.8 to 1				1.6 to 1


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in millions)
Income (loss) under GAAP	$	(20)	$	22	$	28	$	77

Distributable earnings	$	36	$	27	$	68	$	51
Return of capital/(deferred cash collections)	3		(17)		(16)		(30)
Cash collected	$	39	$	10	$	52	$	21