Hannon Armstrong's Q3 2025: Contradictions Emerge on Investment Strategy, IRA Uncertainty, and Capital Access

Date of Call: November 6, 2025

Financials Results

• EPS: $0.80 adjusted EPS in Q3; year-to-date adjusted EPS $2.04, up 11% YOY

Guidance:

• Reaffirming 8% to 10% compound annual adjusted EPS growth through 2027.
• Expect roughly 10% adjusted EPS growth in 2025.
• On track to close >$3.0 billion of investments for full-year 2025 (management expects >30% YOY increase in volumes).
• Formal guidance for 2026–27 to be provided with the company’s February update.

Business Commentary:

• Profitability and EPS Growth:
• HA Sustainable Infrastructure Capital, Inc. (HASI) reported a record quarterly adjusted EPS of $0.80, marking the highest ever reported.
• This growth was driven by strong performance across all revenue components and a year-to-date adjusted recurring net investment income increase of 27%.

• HASI's managed assets grew by 15% year-over-year to $15 billion, contributing to the overall financial success.

• Investment Volumes and Returns:

• The company closed on over $650 million in new transactions in Q3 and plans to close more than $3 billion for the full year 2025, up more than 30% year-over-year.
• New asset yield for Q3 exceeded 10.5% for the sixth consecutive quarter.
• These results were achieved through a combination of strong demand for energy and strategic investments in utility-scale renewables, storage, and other clean energy sectors.

• Pipeline and Strategic Investments:
• Despite closing a significant $1.2 billion investment in Q3, the pipeline remained strong at over $6 billion.
• This investment represents a milestone for HASI, reflecting its increased capacity for larger transactions, driven by favorable access to capital and strategic partnerships.

• The pipeline's diversity spans various sectors, including utility-scale renewables, storage, and emerging Next Frontier opportunities.

• CCH1 Co-investment Vehicle:

• The CCH1 co-investment vehicle completed funding of $1.2 billion in investments, with $1.8 billion of potential further investment capacity.
• This vehicle is a key driver of HASI's growth, enabling it to achieve higher adjusted ROE on new transactions and manage interest rate risk more effectively.

Sentiment Analysis:

Overall Tone: Positive

• Management called Q3 "the most profitable quarter in our history" and reported record adjusted EPS of $0.80. Adjusted recurring net investment income grew 42% in the quarter (27% YTD); pipeline remains above $6 billion; management reaffirmed 8%–10% CAGR EPS through 2027.

Q&A:

• Question from Jonathan Windham (UBS): Great result, by the way. It sounds a lot like you're describing the SunZia project on Pattern Energy in New Mexico. Is there a reason you're not naming the project? Any color you can talk about what sort of equity stake and the economics of it would be interesting.
  Response: Confirmed it's SunZia; it's a preferred equity investment with returns consistent with recent grid-connected transactions.

• Question from Christopher Dendrinos (RBC): You mentioned a $6 billion pipeline (flat QoQ) but adjusting for the $1.2B October transaction would be up—can you talk about the pipeline and whether you're seeing demand pull-forward?
  Response: Pipeline remains above $6B after replacing the $1.2B grid-connected volume; activity is ordinary course and we are not seeing material pull-forward.

• Question from Noah Kaye (Oppenheimer): This $1.2B deal is much larger than your historical smaller-ticket investments—how should we think about appetite for larger single projects going forward?
  Response: Access to capital (investment-grade rating and CCH1) lets us participate in larger transactions when it makes sense while still managing risk; we'll continue a mix of smaller and occasional larger deals.

• Question from Noah Kaye (Oppenheimer): Housekeeping—can you quantify the benefit from the SunStrong ABS refinancing to the quarter given the ROE expansion?
  Response: SunStrong ABS refi generated ~$240M proceeds; ~$200M paid down our mezzanine loans and ~$40M related to equity, of which ~$24M was a gain that benefited the quarter (~$24M impact).

• Question from Davis Sunderland (Robert W. Baird): How have the tax credit changes affected types of investments by asset class or opportunities to step into capital-stack holes?
  Response: With multi-year extensions and safe-harbor rules, the market is still dominated by traditional tax equity and transfer structures; no immediate capital-stack shift expected.

• Question from John Hurley (Mizuho): Prepaid leases—is that a product you'd be interested in and would yields be similar to traditional leases?
  Response: We would consider prepaid-lease opportunities but none have been presented yet.

• Question from Unknown Analyst (Citibank) (Ted on for Vik): Principal collections looked larger (~$382M). Can you explain the maturity profile and roll-off schedule—should we expect pace to increase approaching the new wind investment?
  Response: Higher principal collections were driven by the SunStrong refinancing (~$200M paydown); portfolio weighted-average life is ~10 years so amortization should generally mirror that profile.

• Question from Michael Fairbanks (JPMorgan) (on for Mark): How might this large transaction and ~$3B volumes this year impact the EPS growth algorithm in 2026 and beyond—could there be a step-up in '26?
  Response: We will adhere to our February cadence for guidance; management will present 2026–27 detail with the Board in February.

• Question from Michael Fairbanks (JPMorgan) (on for Mark): Was SunZia included in last quarter's >$6B pipeline?
  Response: Yes — SunZia was included in last quarter's pipeline.

• Question from Christopher Dendrinos (RBC) (follow-up): bp Lightsource (or subsidiary) reportedly had a supplier default—would that affect you given past dealings with them?
  Response: No impact—the issue does not affect the project cash flows in which HASI is invested.

Contradiction Point 1

Investment Strategy and Large Transactions

It involves changes in the company's investment strategy, particularly regarding its appetite for large single projects, which could significantly impact its financial outlook and risk management.

How should we think about the $1.2 billion investment and what it signals about your willingness to pursue larger single projects moving forward? - Noah Kaye (Oppenheimer & Co. Inc., Research Division)

2025Q3: This investment reflects our increased access to capital through investment-grade ratings and CCH1, enabling us to participate in larger transactions while managing risk, which could become more frequent due to data centers and grid-connected developments. - [Jeffrey Lipson(CEO)]

Can you explain the debt strategy at the CCH1 level, including leverage and interest rates? - Chris Dendrinos (RBC Capital Markets, Research Division)

2025Q1: We remain very disciplined about managing our risk-reward as we continue to add to our portfolio. And importantly, we are not increasing. We have been managing risk over the last 20 years. And we really have not let it get out of control in terms of concentrations of risk even as we have grown. - [Jeff Lipson(CEO)]

Contradiction Point 2

Impact of IRA Uncertainty on Investment Activity

It involves the company's assessment of the impact of IRA uncertainty on its investment activity, which could affect investor expectations regarding the company's growth and financial performance.

How might the large transaction and $3B in volumes this year affect EPS growth in 2026 and beyond? - Michael Fairbanks (JPMorgan Chase & Co, Research Division)

2025Q3: Business activity is robust and expected to continue at a high level, with no significant impacts from IRA uncertainty. Developers are adapting to tariffs and supply chain issues. - [Jeff Lipson(CEO)]

How should we assess Q2 and Q3 investment plans considering IRA uncertainty? - Ben Kallo (Robert W. Baird)

2025Q1: We're beginning to see tangible effects of IRA coming through in the last 60 days of the quarter. Now, we're not calling out any specific transactions or dollars attached to that, but I think we're beginning to see that. - [Jeff Lipson(CEO)]

Contradiction Point 3

Cash Generation Expectations

It involves expectations for cash generation, which is critical for company operations and investor confidence.

How have tax credit changes from Big Beautiful Bill impacted your investment strategies? - Davis Sunderland (Robert W. Baird & Co. Incorporated, Research Division)

2025Q3: Cash generation is expected to continue growing, mirroring the growth in the portfolio. There was an uptick in cash received in Q2, and this trend is expected to continue. - [Charles Melko(CFO)]

Could you clarify the cash generation outlook for the second half? - Noah Kaye (Oppenheimer & Co. Inc., Research Division)

2025Q2: Cash generation is expected to continue growing, mirroring the growth in the portfolio. There was an uptick in cash received in Q2, and this trend is expected to continue. - [Charles Melko(CFO)]

Contradiction Point 4

Tax Credit Impact on Investment Types

It impacts the company's ability to take advantage of tax credits and diversify its investment portfolio, which could affect future growth and financial performance.

How have tax credit changes from Big Beautiful Bill affected your investment types? - Davis Sunderland (Robert W. Baird & Co. Incorporated, Research Division)

2025Q3: Tax credit extensions for wind and solar maintain market structures. Traditional tax equity and transfer structures dominate, but longer transitions are expected before significant changes. - [Susan Nickey(CMO)]

How are you and your clients managing regulatory and policy changes, and what are your expectations for deal activity in the second half? - Noah Kaye (Oppenheimer & Co. Inc., Research Division)

2025Q2: Tax credit extensions for wind and solar maintain market structures. Traditional tax equity and transfer structures dominate, but longer transitions are expected before significant changes. - [Susan Nickey(CMO)]

Contradiction Point 5

Increased Capital Access and Larger Transactions

It involves changes in the company's strategy and capacity for larger investments, which impacts investor expectations and risk management.

What does the $1.2 billion investment signal about your willingness to pursue larger projects moving forward? - Noah Kaye (Oppenheimer & Co. Inc., Research Division)

2025Q3: This investment reflects our increased access to capital through investment-grade ratings and CCH1, enabling us to participate in larger transactions while managing risk, which could become more frequent due to data centers and grid-connected developments. - [Jeffrey Lipson(CEO)]

Does the scope expansion change your goal of reducing reliance on public capital markets? - Mark Strouse (J.P. Morgan)

2024Q4: The funding strategy for new asset classes will be consistent with past practices. New asset classes, if similar in risk profile, will be funded the same way as historically. - [Jeff Lipson(CEO)]