HA Sustainable Infrastructure Capital, Inc. (HASI) Q4 2017 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Hannon Armstrong's conference call on its Q4 and Full Year 2017 Financial Results. Management will be utilizing a slide presentation for this call, which is available now for download on their Investor Relations page at investors.hannonarmstrong.com. Today's call is being recorded and we have allocated 30 minutes for prepared remarks and Q&A. [Operator Instructions] At this time, I would like to turn the conference call over to Amanda Cimaglia, Investor Relations Director for the company.

Thank you, Melissa. Good afternoon, everyone, and welcome. Earlier this afternoon, Hannon Armstrong distributed a press release detailing its fourth quarter and full year 2017 results. A copy of which is available on our website. This conference call is being webcast live on the Investor Relations page of our website, where a replay will be available later today. Before the call begins, I would like to remind you that some of the comments made in the course of this call are forward-looking statements and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. The company claims the protections of the Safe Harbor for forward-looking statements contained in such sections. The forward-looking statements made in this call are subject to the risks and uncertainties described in the Risk Factor section of the company's Form 10-K and other filings with the SEC. Actual results may differ materially from those described during the call. In addition, all forward-looking statements are made as of today and the company does not undertake any responsibility to update any forward-looking statements based on new circumstances or revised expectations. Please note that certain non-GAAP financial measures will be discussed on this conference call. A presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. A reconciliation of GAAP to non-GAAP financial measures is available on our posted earnings release and slide presentation. Joining me on today's call are Jeffrey Eckel, the Company's President and CEO; Brendan Herron, our CFO; and Justin Cressall, Our deputy CFO. With that, I'd like turn the call over to Jeff, who will begin on Slide 3. Jeff?

Thanks, Amanda, and good afternoon all of you. Thank you all for dialing in. Today we are announcing GAAP earnings of $0.6 per share for the quarter and $0.57 for the year, a 78% increase year-over-year. Core earnings of $0.31 per share for the fourth quarter and $1.27 per share for the full year, 6% year-over-year. Given the flattening of the yield curve and overall increasing rate environment are three very important steps. We’ve fixed out rates on substantially all of our liabilities. We increased our liquidity and we increased the proportion of assets we securitize relative to the portion put on the balance sheet. This flexibility to increase the fee generating securitizations as an alternate to adding assets to the balance sheet is the strength of our business model and allowed us to largely offset the higher costs of fixed rate debt and increase liquidity. We closed approximately $1 billion of transactions for the year and saw the pipeline grow consistent with a growing market. While we are shifting to relatively more securitizations we were still able to grow our balance sheet portfolio by approximately 25% year-over-year and remain widely diversified across 175 separate transactions. Given our strong and growing pipeline we are introducing three-year guidance of 8% to 12% annualized total shareholder returns. And while we guide to earnings growth with a cost of a higher fixed rate debt fully impacting 2018 without the corresponding benefit of investing in a normalized yield curve environment we have decided to keep the quarterly dividend unchanged at $0.33 per share for 2018 and we'll review it again this time next year. Turning to Slide 4 we'd like to address some of the market themes top of mind for our investors. Our market opportunity continues to grow in the overall sustainable infrastructure markets we invest in. We do however, see greater market opportunity in assets that are behind the meter so to speak as opposed to grid connected assets such as power plants. These behind the meter assets include energy efficiency assets, but also distributed solar assets and energy storage assets. The type of asset whether it is efficiency or solar is not defining the market opportunity so much as its location. The key question for us these days is, is it on the customers’ premises or is it feeding power into the utility grid? If on the customers’ premises, then it is generally more economically attractive and if it is grid connected given the impact very low natural gas prices have on the wholesale price of energy. If on the customers’ premises, it is also generally going to be a smaller asset which fits well with our business model. Not only do grid connector renewables face low power prices, they seem to be priced for perfection due to the global search for yield, particularly the larger assets. Investing in the smaller, behind-the-meter assets that we've been aggregating for close to 30 years produces relatively more attractive economics for us. I’ve already touched on the two interest rate themes on this page, a general rise in the overall level of rates and the flattening of the yield curve. Our timing for fixing out 92% of our liabilities was excellent as rates have started to move up. Longer-term, higher rates generally mean higher spreads and better returns on equity for us, like what we experienced in 2008 and 2009. So we will welcome a rising rate and spread environment. That said a flat yield curve which we've seen several times in our corporate history suggests we are better off securitizing for gain on sale of fee income using our traditional and some new sources of institutional capital. It will make our quarterly core earnings a bit lumpier, but it is a better economic choice for us. Finally, we get asked often about the Trump administration policies and the dismantling of the EPA regulations. We've witnessed many policy cycles around our sustainable infrastructure asset class some supportive like Bush I, Clinton and Obama and some not so supportive like today Bush II and the Reagan administrations. Our first defense is our best defense. Focus on assets that are economic without government subsidies like behind-the-meter asset where the drivers of transactions are technology improvements and economics not government policy. To conclude on this page the changes in tax law at year end caused the grid connected renewable industry to pause over the holidays until the tax changes became law, but otherwise will have fairly limited impact. Turning to Slide 5, we breakdown our 12-month pipeline which remains strong, wildly diversified and growing. We're going to start reporting the pipeline based on location of the asset relative to the ultimate obligor. As discussed earlier we think this is a smarter way to think about the assets and the opportunities in our pipeline. For instance a solar panel use and efficiency upgrade is very different and generally better economics than that same panel in the utility scale solar project with today's low natural gas prices. Converting our efficiency wind and solar pipeline on the left to the new presentation on the right involves generally shifting residential and commercial solar assets to the behind-the-meter category, while utility scale solar is combined with the wind pipeline to show the grid connected pipeline. Turning to Slide 6, we’d like to highlight the evolution of our company over the last four years by illustrating that our business model of billing balance sheet of a diversified set of uncorrelated assets with long durations and attractive risk adjusted returns is working. Since 2014 we have more than doubled the size of our balance sheet portfolio. Generally maintain forward-looking yields despite some historically low interest rate periods nearly doubled the amount of fixed rate debt while growing core return on equity to 10.2%. The flexibility and strength in the business model should be more clearly seen today and over the upcoming quarters as the market conditions today look quite different than those of 2014. We believe we are uniquely positioned to capitalize on the long-term opportunities to address climate change and will continue to pursue such opportunities with an attractive risk return profile. Brendan please detail our financial performance.

Thanks Jeff. Turning to Slide 7, our balance sheet portfolio approximates $2 billion growing approximately 25% year-over-year. The portfolio consists of 175 investments with an average investment size of $11 million and is diversified across markets, technologies, obligors and geographic regions. Overall, our portfolio remains comprised of high credit quality of assets. Forward-looking portfolio yields have remained relatively consistent over the last several quarters and ended the year at 6.1%. As Jeff mentioned, there is an increasing search for yield especially in the largest rig connected transactions. Spreads have been at low levels due to the search for yield, so a more normalized interest rate environment will likely result in higher spreads which is good for us. Thus as interest rates rise and the yield curve steepens, we expect to see both base rates and spreads rise. Additionally, continued low natural gas prices are impacting grid connected returns, especially in wind projects. While most of our projects have structural protections such as power purchase agreements in a preferred position, we are seeing some impact especially in the longer dated power curves which impact our expected returns. For example, we have an equity position in one project acquired as a part of a portfolio of projects that represents the approximately 1% of our overall assets. We made the investment in a discount to book value because of its exposure to natural gas prices. We have some flip protection on this project. The continued low natural gas prices are impacting our expected returns which we're working with a sponsor to maximize. The beauty of a widely diversified portfolio is that any such trend will hopefully only impact a small portion of the portfolio. Turning to Slide 8, for the year we generated GAAP investment income of $104 million, an increase from approximately $68 million last year, as a result of approximately 25% growth in the portfolio from this time last year, as well as increases in GAAP equity method investments and allocations. For the quarter, investment income grew to $24 million from $19 million in the same quarter last year. We generated other investment revenue of approximately $24 million, compared in $19 million in the prior year. Given the nature of the assets sold and general market conditions, we achieved higher margins this year. Given the flatness of the yield curve and the current appetite of institutional investors for the types of transactions we are originating, we expect to increase other investment revenue in 2018. As gain on sale securitization is more attractive than adding to our balance sheet. As we have discussed we do not control the timing of the closing of these transactions and thus the increased level securitizations will likely also lead to a higher variability of earnings between quarters and even between years. Interest expense grew to $65 million from $45 million last year, primarily as a result of the approximately 47% increase in debt in 2017 used to fund our portfolio growth. We completed over $600 million of fixed rate debt in the second half of the year at an average coupon of approximately 3.9%. While we believe moving the fixed rate debt level to 92% will cost approximately $0.10 a share. On an annual basis we have largely minimized the associated interest rate risk cost. Our year end forward-looking all in debt cost was approximately 40 basis points higher than our average all in debt cost in 2016. As a comparison one month LIBOR rose approximately 110 basis points or 1.1% over the last 18-month period. This protection will continue even if we see the three to four interest rate hikes the Fed is projecting for 2018. Compensation, general and administrative expenses increased by $0.5 million for the quarter and approximately $3 million year-to-date primarily due to additional cost associated with the growth of the company. In total we have $31 million or $0.57 per share of GAAP income, compared to $15 million or $0.32 per share in 2016. As a reminder the GAAP earnings do not include the full effect of the cash we receive from our renewable energy equity investments, especially where we have invested alongside of the tax equity and received a limited allocation of profits and losses, although much larger allocation of cash. In 2017 we collected $90 million in cash from these equity investments as compared to GAAP income on these investments of approximately $22 million. Since we have based our investment on future cash flows, discounted back to a present value, we believe the cash we received reflects both a return of and a return on our investment. Thus we make a core adjustment of approximately $21 million to recognize the return on investment, which year-to-date when added to our GAAP $22 million gives a total core return of $43 million. And thus the other $47 million represents a return of capital. Stock comp rose by approximately $1 million and other core adjustments rose by $2 million including non-cash tax expenses of approximately $1 million and higher lease amortization cost. In total core earnings were $66 million for the year, a 16% improvement. For the quarter core earnings were $16 million and increased $0.02 per share over this quarter last year. With that I will turn the call back to Jeff.

Thanks Brendan. Turning to Slide 9 we want to emphasize our commitment to environmental, social and governance or ESG metrics. As we've done for many years before our IPO, all investments must be neutral to negative on incremental greenhouse gas emissions or GHGs or deliver some other environmental benefit. We then evaluate those transactions for the most attractive risk adjusted returns. This reflects our investment thesis that in a world increasingly defined by carbon and climate change we will earn superior risk adjusted returns by investing on the right side of the climate change line. And not for nothing today in Washington D.C. we experience record warm temperatures of 80°. It's February and hit 80°, 5° warmer than the prior record for the nation's capital. As part of our commitment to reporting the E in ESG, we published an annual sustainability report card disclosing the metric tons of greenhouse gases reduced per $1000 of investment or its carbon count. In aggregate our 2017 investments have a carbon count of 0.56 metric tons of greenhouse gas equivalent to per $1,000 of capital and will annually offset approximately 530,000 metric tons of CO2. In December, we were the first U.S. public company to commit to implementing the Task Force on Climate-related Financial Disclosures or TCFD through the Climate Disclosure Standards Board initiative chaired by Michael Bloomberg. We believe that this framework is quickly becoming the universal language for disclosure of risks from climate change, encouraging disclosure on four core elements, governance, strategy, risk management, and risks and targets. We are proud to take a leadership position on TCFD implementation given the close alignment with our business strategy and investment thesis. We plan to phase in various disclosures in 2018 and 2019 and we will start this process today by setting our emissions targets to zero for Scope 1 and Scope 2 emissions and negative for Scope 3. Board oversight of our ESG policies has been increased and we look forward to the active discussions with various stakeholders on these important topics. We invite you to look at our 10-K for more detail on the actions we have taken on the social and governance aspects of our business related to diversity, employee engagement and director independence. Turning to Slide 10, we've highlighted our dividend yield compared to various asset classes. We believe that we offer an attractive risk adjusted yield generated from a diverse portfolio of high credit quality assets all managed for an attractive total return by our internally managed platform, by people committed to ESG leadership. In closing, as we approach the five-year anniversary of the IPO and Brendan, I think, this is our 20th call together, I'm proud, alongside some of the best individuals in the field to evolve and grow our business in a way that is thoughtful and conservative, while helping to create define and lead the sustainable investment in the street that we believe is an enormous market and an enormously important market. We are invested in this business alongside you our shareholders as employees own approximately 6% of the business. Thank you for joining us today. And we’ll not open the call up for a few questions.

Thank you. [Operator Instructions] We will take our first from Philip Shen with ROTH Capital Partners.

He guy thanks for the questions. I'd like to start with guidance. It appears the guidance is based in part on your stock price, moreover you could – your guidance if your core earnings are flat year-on-year and your stock was down enough such that your yield hit 8% to 12%. Why did you decide to base your guidance in part on your stock price?

So Phillip if you read the press release, we tried to cover off on that by time relatively standard price to earnings ratio, so relatively consistent price to earnings ratio to cover off on that exact issue. Our thought is that we are a total return story some of our investors look at the yield curve, some of our investors look at the growth. We're trying – we think growth is – the way to look at it is more in the future. And so we were trying to highlight both points. And if we just talked about earnings growth without talking about the dividend, it doesn't really compare us well against just pure growth story. So we're trying to appeal to both markets there.

Okay, and that's fair. And so you may have alluded to this in your prepared remarks but the guidance for the dividend is flat year-on-year, but can you kind of spell out more preps a bit more what the core earnings growth expectation might be for the year? It implies that at a 6% yield, 2% year-on-year growth, or core earnings, or maybe 5% higher numbers if you can just spell that out for us….

Yes I think Phil its Jeff good to talk to again. We said 8% to 12% is the range of if the dividend yield is 6% that implies 2% to 6% core earnings growth.

Okay, great.

And that's over three years Phil. And part of the reason for the three years was: a) the changing rate environment and two the lumpiness of securitization. So we have less control than we may be had in the past over which quarter transactions we’ll end up in and how that will impact earnings because we don't control the timing of the securitization transaction. So that's why we move to more three-year guidance.

Okay, great. And I know in a rising rate environment I know you guys have historically talked about margin expansion as an opportunity, but it sounds like in this flat environment gain on sale is kind of the goal here and selling out the securitizations. And that said how quickly do you think – well what – do you have a view as to how long it might take for the environment to normalize? I guess that’s super tough to – how do you guys think about it?

I don’t think flatter inverted yield curves generally last more than a year. There's typically – that would be a very long period for those if I remember my economics correctly. But of course history is no predictor of the future.

And I think Phil what we've always tried to say is we – the business model is flexible enough to work in any environment. And what we're highlighting here is that the environments change so we're using another tool in our toolkit, the securitization model that will work. We continue to work we expect until the rates normalize. And as you point out when the rates normalize and hopefully at higher levels that will mean higher base rates, higher spreads and better overall profitability for us. So we look forward to that environment, but in the meantime while the economy is going through this transition it's going through we're going to take advantage of it and use another tool that we have.

Great. And one last question that I’ll point and I'll pass it on. Historically I recall you guys securitized about half of your originations especially in the energy efficiency market. You'll do more now, can you can you give us a ballpark sense of what more might look like, I mean is it – can be as much as 90% to 100% or kind of somewhere in between there.

The model is always securitized 30%, put 70% on the balance sheet is coming down from that. There's no way we get to a 100% or 90% I would be shocked. So we're not really giving guidance on that, but it's going to be south of – or it could be more than the 30% we've done historically.

Okay thanks, to you both. I'll pass it on.

Thanks Phil.

We’ll take our next question it comes from Tyler Frank with Robert W. Baird.

Hi guys thanks for taking the question. I guess switching…

Sorry. Hey guys it’s Ben.

Hi Ben.

Sorry I didn’t know my voice could be here.

So if we just look at your fields that you’ve got in this quarter, can you just break out what kind of deals they were energy efficiency or renewables? I think this is the first quarter you haven’t done that.

Actually no, we've never in a quarter broken out the type of assets that got closed in the quarter. We report the pipeline and we report the portfolio. And if you compare quarter-to-quarter which frankly I don't think we've done, it’s not a big difference. So I don't have the data but we've never actually reported in the past, there’s no news and the fact that it's not in this report.

It looks like – that’s why it looks like that there was $400 million for your year down on the balance sheet of the $1 billion.

Yes that’s actually core pay down Phil – Ben. So you can get a rough sense from – and you'll get a better sense from like when the case is filed. But if you look at the yield chart, or the portfolio chart in the press release, you’ll get a sense when you compare it to last quarter you'll get a rough sense of where we closed the transactions, if you compared it to last year, you'll see it's a little over $2 billion, $1.6 billion this time last year.

[Indiscernible]

And then as I talked about we had – we got $90 million back from the equity method investments alone. So that would then bring that number down, so.

How do we think about that for this year for this year total deal volume?

Well we made the comment that the pipeline is strong. I think we definitely believe it's growing. We've always said a $1 billion is a lot of business. And we look forward to doing another $1 billion. For us we'd rather optimize on the economics rather than going from volume targets that – and start chasing deals that aren't as accretive as the top of the $1 billion. It’s pretty comfortable that way.

On that front, I've heard a little more than I’ve had in the past our completion with you guys. And let’s move like solar aside, because I know that’s very competitive. But how is the energy efficiency market competitive market right now?

It's been pretty stable. And the problem is – and really I don't think of it as having changed much in the last decade. It's a series of markets, so the federal market is relatively stable, it's a fairly big lift to get into the Federal risk file and understand it and the benefit to switching providers is not that high. The state and local market is niche-y. The PACE market is just developing. There's a lot of interesting competitors out there. We think we're doing good business in the PACE market. But the problem with efficiency from a competitor standpoints is the assets are just so small. Big institutions just don't want to fuss with small deals. So there’s just not a lot of specialty lenders, like ourselves, who have decades of experience in all of these asset classes. So that's one of the reasons to continue to focus on the behind the meter asset.

And I guess on the front of like $1 billion of transactions and putting somewhat on your balance sheet, it sounds like it sounds like it changes to less than your mix right now. But what do you think about capital leads over this next year?

Well I mean the one beautiful thing about securitizations is we leverage our securitization platform with institutional capital. It’s happy getting a 3% or something like that on some of these transactions. And that benefit all flows to the owners of the equity of the business. So it's certainly lessens the amount of capital we will need in 2018 and we also try to make the point that liquidity has been increased at the end of 2017. So all of that should imply a certain capital-light approach in 2018.

Brendan my next question is…

Wait Ben.

On energy storage, is there an opportunity there year, or cost down enough where you guys can use that market?

Ben that’s actually one of the reasons we think about things behind the meter and grid connected. Storage really changes value of the assets on both sides of that. So when we see efficiency projects that have solar plus storage starting to be close to a micro-grid of many utility. So we are doing transactions with storage, we're not doing standalone storage but we certainly see storage as one of the transforming technologies over the next several years. And on the grid connected side, I think, most of the new wind projects and solar projects have some element of storage in there in their business. And perhaps we'll see it in some retrofits as well.

Alright, great guys. Thank you.

Thanks Ben.

Our next question comes from Noah Kaye with Oppenheimer.

Hey good afternoon. Before Brendon noted bit commodity exposure, it’s in the power market, one of the assets, can you just Brendon for us what percentage of the portfolio overall has exposure to power, commodity fluctuation at this point?

Yes I don't know we break it out specifically it's not a high percentage Noah. As we've said most of the things we have are either flip protected or PPA protected. The point we're trying to make is we look at the expected returns on a long dated power curves. So even as those curves come down you eventually get to some point in the future where the projects will have if it’s a 30-year life project, it probably doesn't have a 30-year life PPA. That just isn't necessary the market's up. At some point you do switch over to having and forecasting returns off of merchants. So those returns will impact. We have a small percentage of the portfolio right now that's more just merchant and even there we typically have flip protection where we're headed the sponsor. But we do have some projects that we’re selling just merchant.

Okay. And you talked about energy efficiency before, but maybe help for us to think about trade-offs between interest margin and ability to do these larger [indiscernible] larger transactions for you. As your kind of base rates cost price go up for an energy efficiency project, are you able to get higher price now? If that’s coming at the expense of the size of the transaction or you kind of having to keep pricing relatively stable and see a little bit of margin compression?

More of the former. We really aren't taking interest rate risks on those projects if – I think of it is like a balloon with three variables. You’ve got the savings in a project, the tenure or the transaction and the interest rate. The interest rate goes up. The size of the project in the savings does have to go down. It has to fit within a 25-year time period if it's a federal ESPC. That’s not a risk we take and shouldn't take. We've always said what the ESCOs do is lop off or descope the least economic measure in their scope of work to get it all fed. And we've been through this dozens of cycles where there's a 10 or 50 basis point runup in rates, and transactions have the get resized. The industry is completely geared to this. We saw this a lot in the early 2000s. Margins are not compressing on the federal market, and it's – commercial pace is less sensitive to basis point movement. There's little more margins then on the good AAA credit U.S. ESPC transactions.

[Indiscernible] that was a good answer.

I’m sorry.

Alright.

We’ll take our next question from Carter Driscoll with B.Riley FBR.

Hi guys. May be just circling back to ESCO what Phil is trying to get to, just in terms of guidance. Do you – I guess I'm trying to get a sense of moving to three-year, I understand certainly increasing securitizations and introducing more variability, especially in core earnings. But is that guidance implying that you think the kind of flattening of the curve in the long end, maybe not going up as fast as short, is potentially going to last longer than a year? Or – and then I'm trying to get a sense of how much of that is just sublevel of what you described as kind of global search for yield and maybe some pressure on the margin return as to why your focus on guidance more on the total return than growth in the portfolio, just trying to square those two metrics, over that three-year period.

I think we’ve always, even at the IPO, talked about total return. So – and we have no view on how long a flat yield curve might last, other than, historically, they don't last more than a year. And we certainly hope that's the case. But having been through this a few times, we make money at this. It's probably not the best time to be using our capital to put very low yielding assets on the balance sheet, but we're really good at using institutional capital for this very purpose. That's what we did for 32 years before having any capital. So there's no bight line of when a deal should be securitized or when it should be – go on the balance sheet. It's just a feel right now there's probably a better time to signal to investors that securitization is a good market for us. It's been there for us for decades. Even during the financial crisis we were able to do it quite profitably. So this is a good time to use some of the institution's money.

And then, Carter I think with a higher fixed rate debt it costs us couple of cents this year. In our estimate is that it's kind of a $0.10 headwind next year. So when we were saying we’re growing on top of that, that means that we’re overcoming that $0.10 plus in order to get to the growth. So we're comfortable we can do that with the securitizations. But to the point someone made earlier, we really don't know how long the curve is going to last, so we're saying while we're in this environment…

That’s what it will be Brendan. [Indiscernible].

So to the point that Jeff made, we don't know how long the curve will last. So we've got to overcome that $0.10 until we get to a more normalized – that $0.10 cost will continue as a headwind until we get to a more normalized rate environment.

And then maybe just a couple of quick follow-ups. In terms of keeping the payout flat year-over-year, is that more just to kind of keep that cushion in order to be opportunistic, simply because the composition is changing and then do you have an expectation of how much of that distribution is a return of versus on [indiscernible] capital versus what you just reported for 2017?

So I think it's probably – as far as keeping the dividends, it's those things, it's the $0.10. There's a variety of things that go into that decision. This year, I think, we reported 15% as a return of capital. That's the – one way to think about it is that's the portion of the REITs income versus at the RSS income I think, we have talked about that that in the past, is how you get to the math on that. We would expect it to continue on that sub 25% range. We don’t want – it moves around a bit year-to-year. The 15% is not far from kind of our four-year average, but somewhere in that sub 25% range is where we would expect it to be.

Okay. Alright, I’ll take the rest offline. Thanks guys.

[Operator Instructions] We’ll take a question from Jeff Osborne with Cowen & Co.

Yes good afternoon. Another follow-up on my end. But Brendan, can you just walk us through, over the past, I think, 18 months or so, the narrative around core earnings growth kind of moved from double-digit core earnings growth to 8% to 12%. Now you're sort of implying 2% to 6%. Is that entire move, in your eyes, attributable to the $0.10 EPS impact from the…

Yes. I mean, if you look at the yield side has remained relatively consistent, so it's a headwind of this year, I think, was the – when we changed the guidance last quarter it was because of the need to move to the higher rates. We thought that was the right decision, continue to think that was the right decision. And I think most people we've talked to believe that was the right decision. So we've taken that risk off the table. There's a cost to that. It was like, as I said, a couple of cents this year, which affected this year's earnings growth which is where we were in the 8% to 12% range. So it affected this, as we said last quarter. And what we're seeing now is that, it's about –it was a couple of cents per quarter so it's about $0.10 for a year. And again, that just means we have to earn on top of that in order to grow, and we think we can. We just are trying to be realistic as to how much we can grow until the interest rates normalize.

And to that point, I guess what was the thought process, either between you and Jeff or the Board, of giving three-year guidance? I think Jeff even just said that yields typically on year are flat for a year. You seem to be implying that everything will be kind of locked down as is for three years. Maybe I'm reading the guidance wrong, but it seems to be to ultraconservative if we move to a more normalized rate environment at some point over the next three years. So let me just say based on what we know now, core earnings growth is, A to B, tough year. We're going to securitize more, but instead you seem to be implying what the world's going to look like in 2020, which is a pretty bold move.

Actually, I think we are comfortable with the levels, the pipeline supports the guidance that we've given, and we do report 12 years – or 12-month pipeline, but we actually do – we have visibility beyond that. So it was meant to actually provide some comfort that we're actually feeling pretty good about the business.

I was just thinking that the core earnings at the time of the IPO was supposed to grow double digits, and now that's facet of the 8% to 12% with the yield on top of that.

I think, Jeff, I think we always said that as we moved out and continue to grow, we would look for double-digit total returns. So I think we're still holding to that in what we think is a rough environment. So I think we were always pretty consistent about that.

Okay. And the last question I had is just as it relates to the change with the securitization strategy, which I get. And you certainly have a vast experience in that. But assuming that was something that kind of you decided on in the last three months or so, does it sort of implies that first half of the year, just given the timing of creating these instruments and a finding behind-the-meter partners and the channel there to finance that – the first half of the year might be at the lower end of the year and that the cadence through the year will be very back-end loaded? Is that a safe assumption, just given the change in strategy on the types of projects you finance as well as the securitization strategy?

No. I wouldn’t infer any timing impact from the shift to, from putting things on balance sheet to relatively more securitizations. We don't have to go look for the clients. We've have had the clients for a decade. We don't have to look for the securitization structures. We've had them for a couple of decades. The investors are relatively stable set of investors, so we really do have the ability to turn left to right securitize put on the balance sheet given market conditions. And that's a nimbleness that we are proud of, but I would not infer any impact on quarterly timings.

Yes, I think the only we're really trying to say there is we're really trying to say there is that it's going to be lumpier than it is. So it could be much higher income one quarter, much lower income the next quarter of series of transactions all are bunched into one quarter versus another quarter. That's really what we're trying to say. So not necessarily timing, but there'll be increased lumpiness.

Okay. And then in the prior call, the last one, you’ve talked about other areas like distribution and transmission lines, water. Is there anything in that realm that's not behind the meter that you could highlight that is growing for you in 2018 or 2019 based on the pipeline that you have?

I think those are all still areas that we see good possibilities in. We're probably not featuring specific projects as often, but the need for infrastructure upgrade, as noted by the President, is fairly profound in this country on larger assets, but it's on larger assets, but it's also very profound for relatively small infrastructure type assets, whether they're behind the meter, or storm water remediation [indiscernible] and cleanup-type projects. We will see those.

Got it, thank you. Appreciate it.

Yes Jeff.

Thanks Jeff.

That concludes today’s question-and-answer session. At this time I’d like turn to the conference call back to Mr. Eckel for any closing remarks.

Thanks you asked good questions again. We look forward to getting out on the road and talking to you. And I know we'll talk to some analysts after this. So thanks again. Speak with you soon.

That concludes today’s conference and thank you for your participation.