1. The Company

Hannon Armstrong Sustainable Infrastructure Capital, Inc. (“The Company”) provides debt and equity to the energy efficiency and renewable energy markets. 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:

We finance our business through cash on hand, borrowings under our credit facility, and various asset-backed securitization transactions and equity issuances. We also generate fee income through asset-backed securitizations, 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.

On April 23, 2013, we completed our initial public offering (“IPO”). We sold a total of 14.2 million shares and raised net proceeds of approximately $160 million including the exercise by the underwriters of their option to purchase an additional 0.8 million shares on May 23, 2013.

Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “HASI.” Concurrently with the IPO, we completed a series of transactions, which are referred to as the formation transactions, that resulted in Hannon Armstrong Capital, LLC (the “Predecessor”), the entity that operated the historical business prior to the consummation of the IPO, becoming our subsidiary.

On April 29, 2014, we completed a follow-on public offering in which we sold 5,750,000 shares of common stock (including 750,000 shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares) at $13.00 per share, less the underwriting discount and estimated expenses, for net proceeds of $70.4 million.

On October 31, 2014, we completed a follow-on public offering in which we sold 4,600,000 shares of common stock (including 600,000 shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares) at $13.60 per share, less the underwriting discount and estimated expenses, for net proceeds of $58.9 million.

We elected and qualified as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2013. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all of our taxable income to stockholders and maintain our qualification as a REIT. 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 the Company’s assets. We 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 1940 Act.

To the extent any of the financial data included in this report is as of or from a period prior to April 23, 2013, such financial data is that of the Predecessor. The financial data for the Predecessor for such periods do not reflect the material changes to our business as a result of the capital raised in the IPO, including the broadened scope of projects targeted for financing, our enhanced financial structuring flexibility and our ability to retain a larger share of the economics from our origination activities. Accordingly, the financial data for the Predecessor is not necessarily indicative of the Company’s results of operations, cash flows or financial position following the completion of the IPO and formation transactions.

Recent Acquisition

In May 2014, we entered into a Unit Purchase Agreement (the “Purchase Agreement”) to acquire all of the outstanding member interests in American Wind Capital Company, LLC (“AWCC”) from Northwharf Nominees Limited, DBD AWCC LLC, NGP Energy Technology Partners II, L.P. and C.C. Hinckley Company, LLC in exchange for approximately $106.7 million (the “Purchase Price”), which we funded from the use of our cash on hand and our existing credit facilities. During the year ended December 31, 2014, we agreed to a working capital adjustment of approximately $0.2 million, which reduced the Purchase Price and net working capital amounts.

The unaudited pro forma summary for the years ended December 31, 2014 and 2013 presents the consolidated results as if the acquisition was completed on January 1, 2013. The pro forma information is not necessarily indicative of what our actual results of operations would have been for the period indicated, nor does it purport to represent our estimate of future results of operations.

Since the AWCC transaction, we have completed several smaller transactions for a total consideration of $19.4 million, which we funded from the use of our cash on hand and our existing credit facilities. We did not assume any indebtedness in connection with these transactions.

Through these acquisitions, we expanded our portfolio of assets, including acquiring more than 10,500 acres of land with in-place land leases to 20 solar projects, which we have recorded in our financial statements as real estate, and the rights to payments from land leases for a diversified portfolio of 57 wind projects, which we have recorded in our financial statements as financing receivables.

We accounted for these acquisitions as business combinations and incurred approximately $2.5 million of acquisition related costs, which we have expensed as acquisition costs in our consolidated statement of operations. We recorded the acquired assets (including real estate related intangibles) at fair value. We used a qualified appraiser to assist us with the determination of the fair value estimates for the majority of these assets. We expect to finalize the purchase price allocation for one of our small acquisitions during the first half of 2015. There were no liabilities assumed in connection with these acquisitions.

The purchase price allocation for these transactions, which reflects our estimates of the fair value of the assets acquired, is as follows:

As a result of these acquisitions, we have recorded rental income of $3.2 million and interest income of $1.5 million for the year ended December 31, 2014, in our consolidated statement of operations.

Investment in Equity Method Affiliate

In October 2014, we made a $144 million investment in Strong Upwind Holdings LLC (“Strong Upwind”), a newly formed joint venture that we own with an affiliate of JPMorgan Chase & Co (“JPMorgan”). Strong Upwind purchased JPMorgan’s minority interest in four limited liability holding companies that own ten operating wind projects across five states. Each of the four holding companies is controlled and operated by a large wind energy company. The minority ownership interests in the holding companies are structured in a typical wind partnership flip structure where Strong Upwind, along with a number of other large institutional investors receive a pre-negotiated preferred return consisting of a priority distribution of the project cash flows along with tax attributes. Once this preferred return is achieved, the partnership “flips” and the holding company receives the majority of the cash flow and the institutional investors will have an on-going residual interest. We share in the cash flow and tax attributes of Strong Upwind according to a negotiated schedule. After factoring in the various ownership interests, we own between 4% and 17.5% of the holding companies based on voting percentage. We have determined that we do not have a controlling voting interest in Strong Upwind and therefore we account for our investment using the equity method. See footnote 15 for additional information.

Change in Year End

Our fiscal year-end changed from September 30 to December 31, effective January 1, 2013. As a result, our current fiscal year consists of the twelve months ended December 31, 2014 and previous fiscal year consisted of the twelve months ended December 31, 2013. The prior fiscal year ended September 30, 2012 and we have included results for the three-month transition period ended December 31, 2012 in the results of operations, comprehensive income (loss), stockholders’ equity and cash flows (including the related notes.)