Good afternoon, and welcome to the Hannon Armstrong's Conference Call on its Second Quarter 2021 Financial Results. Leadership will be utilizing a slide presentation for this call, which is available now for download on the company's 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. . At this time, I would like to turn the call over to Chad Reed, Vice President, Investor Relations and ESG for the company.

Thank you, Kate. Good afternoon, everyone, and welcome. Earlier this afternoon, Hannon Armstrong distributed a press release detailing our second quarter 2021 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'd like to remind you that some of the comments made in the course of this call are forward-looking statements 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 Factors 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. During this call, we will primarily discuss non-GAAP financial measures, which we believe help investors gain a meaningful understanding of our core financial results and guidance. 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 Jeff Eckel, the company's Chairman and CEO; and Jeff Lipson, our CFO and COO. With that, I'd like to turn the call over to Jeff, who will begin on Slide 3. Jeff?

Thank you, Chad, and good afternoon, everyone. Today, we are reporting terrific results for the second quarter. Record distributable earnings of $0.57 per share, an increase of 43% year-over-year, and distributable net investment income of $33 million, an increase of 64% year-over-year. We issued $1 billion green bonds at 3.375%, the lowest coupon for unsecured high-yield green bonds ever, thus lowering our cost of debt capital. We also grew our portfolio of 43% year-over-year to $3 billion and grew our managed assets to $8 billion. And of course, we declared a dividend of $0.35 per share. We continue our leadership on ESG issues with our carbon count disclosures and our response to the SEC on mandatory ESG disclosures, which we'll talk about later. Turning to Slide 4. We highlight 3 trends that are reinforcing the markets in which we invest, and as a result, increased demand for Climate Solutions investing. Its extreme weather events across the U.S. and the globe are driving acceptance of the climate change reality. And that reality will require, by some estimates, $2 trillion to $4 trillion of Climate Solution investments annually over the next 3 decades in order to limit global warming to 1.5 degrees Celsius. As we have articulated over the last 8-plus years, climate change represents an enormous and imperative investment opportunity. Second, policy tailwinds from the Biden administration and soon from Congress, it appears, are thoughtful and constructive, both in the infrastructure bill and the draft of the budget reconciliation bill. The infrastructure bills focus on transmission and increasing the power of FERC or positives for renewable energy. And while nothing is certain in the reconciliation bill, extension of tax credits, conversion of those credits to direct pay and the carbon border adjustment would all be positive policy tailwinds for the Climate…

Thanks, Jeff. Turning to Slide 6. We detail our $3 billion balance sheet portfolio as of the end of the second quarter. Our portfolio yield remained steady quarter-over-quarter at 7.7% and now includes over 225 investments with an average size of $13 million and a weighted average life of 17 years, with no asset class comprising more than 28% of the portfolio, the diversity of our business remains a persistent strength. The behind-the-meter assets represent roughly half of our portfolio and generated a yield of 8.3%, and the grid-connected investments represent the other half with a forward-looking yield of 7.2%. Turning to Slide 7. We note our high-quality assets continue to perform within our expectations in the second quarter. This performance is driven in part by the credit quality of our obligors and the structural seniority of our investments, which has a meaningful impact in reducing our exposure to both operating and commodity price risk. Summarizing our results on Slide 8. We recorded distributable earnings per share of $0.57 in the second quarter and $1.01 for the first half of the year, which represents annual growth of 20% year-to-date. Growth in equity method investment income and gain on sale primarily drove the strong result. In addition, distributable net investment income increased to $33 million in the second quarter and $63 million in the first half of 2021, the latter figure representing 28% annual growth. Note that our GAAP net investment income includes the impact of a $15 million charge we incurred associated with the refinancing of $500 million of higher-cost debt, which resulted in negative $9 million of GAAP NII. The year-to-date increases of 28% in distributable NII and 63% in gain on sale, represent the ongoing success of our dual revenue model. Turning to Slide 9. We put our…

Thanks, Jeff. Turning to Slide 12. We note a number of ESG accomplishments as I alluded to in the opening of this call. Carbon count continues to prove a useful tool to measure environmental impact as we explore adjacent investments in the larger climate solutions opportunity. Our social impact is driven by our employee-led Hannon Armstrong Foundation, which this quarter granted $275,000 to various nonprofits working at the intersection of climate and social Justice. Finally, in June, we responded to the SEC's request for comments on climate disclosures. In our response, we advocated for mandatory standardized disclosures like the recommendations of the task force on Climate-related Financial Disclosures, otherwise known as TCFD. It is well past time that all companies improved their corporate governance and disclose their scope 1, 2, and 3 emissions, including those emissions generated or, in our case, avoided by their financing activities. We'll conclude on Slide 13. I'll note 3 key strengths that this quarter's results demonstrate. First, our strong programmatic investment platform, driven by our great client base continues to produce impressive growth in our managed assets, our portfolio, and recurring distributable net investment income. Second, our diversified funding platform facilitates stable margins on accretive investments despite low rates and spread compression. Finally, we remain a leader on ESG and hope that all companies, especially other financial service firms join us in making essential climate-related disclosures, so investors can assess the validity of and their progress toward announced decarbonization targets. To sum up, our growth prospects remain very bright as the diversity of our clients, our portfolio, our funding platform, and increasingly, our employees continues to grow. Thank you. And operator, please open the line for questions.

. The first question is from Noah Kaye with Oppenheimer & Company.

Maybe start with the energy as a service trend. You had a very notable project announced last year with ENGIE, the University of Iowa, the Hawkeye project. But, it seems like we are seeing increased momentum for energy as a service in a number of verticals including the C&I space. Can you just comment on what you're seeing, whether that's becoming a larger source of projects in the pipeline, and how HASI plays a role in financing those solutions?

Thanks, Noah. Energy as a service is, I think, a variation on the traditional performance contracting model, whether it's for state, local or federal government. And it's a broadening of the concept to include decarbonization goals, not just energy efficiency as a stand-alone. So in that, it's - we love it because it's increasing the ambition of our clients, the scope of the projects and making them more complex and more value add. That doesn't make them easier to sell and I'm glad our clients are taking on that hard work. To us, it increases the potential market for us to offer our financial services. So we're 2 thumbs up on the development here.

And switching to the utility side. It looks like the real estate portfolio has stayed relatively steady. I was wondering if you could give some color on the utility-scale solder pipeline. Obviously, you still have some large transactions to finish funding. But what you're seeing beyond that in terms of appetite for solar land? And if you could also just give a little bit of color on the large number of transactions you closed this quarter, how that was sort of distributed?

Well, I think one observation I would make is that the pipeline on the grid-connected is definitely trending more towards solar and less towards wind. I think Texas, the Uri storm has not gone unnoticed in the wind industry. But really the solar business is just taking off. I think you've heard that from others as well. That means our investments in equity and solar projects, we think will follow the uptick in the pipeline. But also, all of these projects have land and we know we have an accretive offering on the land solution. So we're very positive about both solar equity and solar land.

And then finally, last just to clarify, Jeff Lipson, I think you mentioned you would expect the portfolio to remain a yield above 7%. It seems like there would have to be a lot of rotation or a lot of lower-yielding paper coming into the portfolio to get it down there, just given the size of what you've got already. So can you just clarify for us whether you're talking about total portfolio yield 10% or you talking about new originations averaging 7%?

So I'm referencing, Noah, a total portfolio remaining above 7%, and you're right, we have $3 billion at 7.7%. So it would take a sizable amount of new investments, some lower rates to get down to 7$. So we don't necessarily think that's going to happen, but to put a bit of a floor on where some of this credit spread compression may take us by the end of 2022, we're saying it will remain about 7% on a portfolio basis.

The next question is from Julien Dumoulin-Smith of Bank of America.

This is Anya stepping in for Julian today. So first question here. Could you talk a little bit more about the energy efficiency opportunity just between the RFP activity going on today as well as from the infrastructure plan? What's the opportunity here that you see?

We've always seen the energy efficiency opportunity to be many multiples of renewable energy, and that energy efficiency is on the demand side, and you can cover 100% of the demand with more efficient equipment. So we continue to be bullish on it. The market by market, I think we're starting to see post-pandemic and let's hope for post-pandemic activity and contracting in virtually all of the sectors. What has been most I would say, intriguing to me is the growth in the corporate sector that has long been a target for energy service companies, and now with decarbonization goals, they're taking more seriously. So we love the success our clients are having in that market. With respect to the federal business and the senate appropriations, bill that just came out today gave a significant funding increase to department of Energy, eE, Re, energy efficiency, renewable energy business that supports ESPCs. And that's a terrific early sign that federal business will achieve its promise of way more than $1 billion a year. So we think that's a very good sign for us.

And then as a follow-up, could I just ask about the funding timing by project a little bit. Could you kind of just provide a little bit more color there on the chart that you had there, it looks like potentially there was a shift in some of the COGs for the Clearway transaction. Is that true? Just wondering with that 1Q '23 COGs the funding there.

I can't recall if that represents a shift from what we disclosed last quarter. If it did, it was perhaps one-quarter shift. There's not been a significant shift in the - portfolios, but maybe it's a quarter later than we had shown last quarter.

And then would you be able to talk about the opportunity for future additional partnerships with Clearway and/or ENGIE or other developers?

Well, we certainly expect to continue our programmatic relationship with both Clearway and ENGIE and they have lots of capital providers who are interested in funding them as well, but we feel we have a very, very strong position and we're going to continue to earn their business. And similarly, we have a team that is out looking for the next set of partners on the - particularly on the grid-connected side. But I would highlight that most of our client base has been clients for 5 or 10 or even 20 years. We might not do a lot of press releases on Schneider or Siemens or list kinds of companies, but we continue to do business with them and others. So there's a nice organic flow of business that we've enjoyed this year and we expect to continue to enjoy. And of course, as the decarbonization efforts of Corporate America expand, there are going to be new clients and we expect to get our fair share of those.

This concludes our question-and-answer session and today's conference. Thank you for attending today's presentation. You may now disconnect.