Q1 2021 Hannon Armstrong Sustainable Infrastructure Capital Inc Earnings Call
Good afternoon, and welcome to Hannon Armstrong in this conference call on its first 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 <unk>.
Investors Dot Hannon Armstrong Dot com.
Today's call is being recorded and we have allocated 30 minutes for prepared remarks and Q&A.
All participants are in a listen only mode. If you need any operator assistance. Please press star zero on your telephone keypad.
At this time I would like to turn the conference call over to Chad Reed, Vice President Investor Relations and ESG for the company. Please go ahead.
Thank you operator, good afternoon, everyone and welcome earlier this afternoon Hannon Armstrong distributed a press release detailing our first 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 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 27, a M from Securities Act of 1933 as amended and section 21 E 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 and.
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. Our 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 are.
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 three Jeff.
You Chad and good afternoon, everyone.
Today, we are reporting GAAP earnings of 61 cents per share and distributable earnings of 43 cents per share.
38% portfolio growth year over year to $2 9 billion and 19% growth in our managed assets to seven 4 billion Istar.
The establishment of a 400 million dollar unsecured revolving credit facility.
The 10 basis point increase in our portfolio yield of seven 7% from the Q4 levels and the declaration of a dividend of 35 cents per share.
We continue our leadership on ESG reporting with our carbon count disclosures and our 2020 impact from courts.
Turning to slide four we remain confident in our ability to achieve the three year guidance target, we established last quarter due to the expected portfolio growth stable or improving margins and improvements in our operating leverage. These three factors will drive will be the drivers for growth in distributable earnings per share.
Of 7% to 10% through 2023, and the dividend growth at a rate of 3% to 5% annually also through 2023.
With distributable earnings growing faster than our dividend, we can continue to retain capital for accretive investments and believe the combination of earnings growth and dividend yield remains attractive on a total return basis.
On slide five we provide an update on our 12 month pipeline, which we are again reporting is greater than $3 billion. Our pipeline is driven by both new and existing programmatic relationships with a leading clean energy and infrastructure companies and we see strong growth in virtually every one of the approximately 10 net in markets, where we invest.
<unk>.
Energy efficiency opportunities continued to dominate the behind the meter or V. T M pipeline as government and corporate obligor is save money with energy efficiency improve their reliability, all the while reducing greenhouse gas emissions.
The solar pipeline is up as well inclusive of the residential C&I and community solar markets.
The grid connected pipeline continues to expand in each of the markets led first by grid connected solar solar land and offshore wind.
Lastly, we continue to source attractive climate resilience opportunities as reflected in our sustainable infrastructure pipeline and expect this opportunity to grow further as the impacts of severe weather continue to challenge state and local government storm water management efforts.
We've been asked frequently lately about project delays due to COVID-19 silicon chip shortages or delays in anticipation of government stimulus.
And are pleased to report that we see no noticeable project or transaction delays and expect a very active 2021.
Turning to slide six we detail our $2 9 billion dollar balance sheet portfolio as of the end of the first quarter as I said at the beginning the portfolio yield ticked up slightly from last quarter, but otherwise it's fairly steady at seven 7% and over 220 investments with an average size of $13 million.
And a weighted average life of 18 years.
With no asset class comprising more than 28% of the portfolio the diversity of our portfolio remains a strength.
A little more detail on on the portfolio of the behind the meter assets represents roughly half of our portfolio generates a yield of eight 4%. The strong credit profile of these assets is driven by the fact that virtually all of these assets save money for the obligor.
The grid connected portfolio represent.
You're exactly investments represent the other half of the portfolio with an expected forward looking yield of seven 1%.
This market continues to be driven primarily by onshore wind and solar land with utility scale solar a small but growing piece of the pie as reflected in the pipeline a discussion on the prior slide.
We remain pleased with the diversity of our portfolio and believe this is a key driver of its consistently strong performance now.
Now I'll turn it over to Jeff L to detail our portfolio performance and financial results.
Thanks, Jeff turning to slide seven we note our high quality assets continued to perform within our expectations in the first quarter.
This performance is driven in part by the structural seniority of our investments and the credit quality of our obligor.
And nearly all of our investments were in our preferred senior or Super senior position.
In addition, our albacores are typically investment grade government or corporate entities, where creditworthy consumers the.
The structure of our investments most notably our structural seniority has a very meaningful impact in reducing our exposure to gross operating and commodity price risk.
As we discussed last quarter. This structural seniority was a significant factor in limiting the impact of the Texas weather events on our results.
Moving to slide eight we detail our balance sheet as of the end of the quarter.
In the first quarter, we funded $168 million of investments many of which are ongoing fundings of previously closed transactions.
We also executed several securitization transactions, including a low yielding highly leveraged government transaction consistent with our past practice of taking transactions with this profile off balance sheet.
The net result was a portfolio balance of $2 9 billion similar to year end 2020.
Our funding expectation, our previously announced transactions as shown on the lower left.
We expect these incremental fundings along with the strong pipeline that Jeff referenced earlier will generate further growth in net investment income.
As at the end of the quarter, we have over $200 million of cash on our balance sheet.
And subsequent to the quarter, we added substantial incremental liquidity with our revolver, which I will discuss in a moment.
Summarizing our results on slide nine we recorded distributable earnings per share of 43 cents in the first quarter roughly flat with the same period last year.
Higher revenue from gain on sale was offset by higher interest expense due to the volume of debt that we've issued since the first quarter of 2020 and higher compensation.
I'll also note that distributable net investment income increased to $30 million as higher income from equity method investments was partially offset by the aforementioned higher interest expense.
To conclude we enjoyed another strong quarter as our dual revenue model continued to perform.
On slide 10, we highlight our establishment of a $400 million sustainably linked unsecured revolving credit facility with 10 relationship banks.
Given significant interest among other lenders we replaced a similar $50 million facility. We had established in the first quarter with J P. Morgan as a sole lender.
The support we received from the top tier banks should be viewed as an affirmation of our strategy and strong confirmation from the credit profile of our portfolio.
Having a revolver in place will facilitate a more efficient balance sheet as we will no longer be required to raise all the capital prior to the funding of an investment and we'll have the flexibility to reduce the earnings drag of outsized cash balances.
The facility provides for interest rate reductions, if we achieve certain levels of our carbon count metrics on a quarterly basis.
Therefore in addition to further enhancing our liquidity and funding flexibility. The facility also provides market validation of our carbon count scoring tool.
With the facility in place we also highlighted in the graphic on the right. The four prongs of our funding platform.
This diverse liquidity profile provides substantial flexibility in financing our business.
We've been successful in reducing our cost of capital over the last few years and have worked closely with our institutional debt investors and bank partners to build and maintain a scalable liquidity platform.
In terms of equity, we utilized our ATM platform to raise $103 million in the first quarter.
Additionally, I'll note that leverage is one six times at quarter end, we prudently manage interest rate risk and we maintain a ladder maturity profile.
Let's now turn to slide 11 for a discussion of an issue on the minds of some investors.
Since the beginning of the year. The 10 year Treasury rate has ticked up over 65 basis points in anticipation of a strong economic recovery.
This rate movement has led to several questions about the impact on our profitability of movements in interest rates.
The first thing I'd mention is that as depicted in the chart. We have successfully achieved strong earnings growth in a variety of rate environments since IPO.
The 10 year Treasury has been above 3% and below 1% at that time and our earnings have maintained their consistent upward trajectory.
Likewise curve steepness as depicted by the Green line has fluctuated significantly, but with no meaningful impact on our results.
Secondly, I'll reiterate that changes in treasury rates have no impact on our existing assets and liabilities.
We have a portfolio of $2 9 billion almost exclusively fixed rate investments and over 2 billion of fixed rate debt.
None of the rates or cash flows of these assets or liabilities are altered by subsequent changes in treasury rates.
And third as we close on new investments and new debt issuance rates are known to us at the time of closing and we can continue to lock in our margins.
At times, these margins may expand or contract a bit, but our investment profile and the history of our investment in debt markets suggest that margins typically remained within an acceptable range.
Also given the diversity of the asset classes in our portfolio, we can pivot to better risk adjusted returns if a certain asset class is experiencing margin compression.
The last bar on page 11 depicts our 2021 distributable earnings per share assuming we achieve the midpoint of our run rate guidance. We expect to reach you. We expect to achieve this result, regardless of what happens to the yield curve.
And with that I'll turn the call back over to Jeff.
Thanks.
Turning to slide 13, we highlight publication of our 2020 impact report, which we're proud of and I really urge you to read it. It's a terrific piece of work. The report features enhanced disclosures and advocates for our common ESG reporting framework that includes standardized reporting on avoided emissions, particularly for <unk>.
Institutions, we would certainly love for them to embrace the carbon count metric.
And in addition, yesterday, we announced the Hannon Armstrong foundations first grant to establish the climate solution scholarship program. The program provides financial assistance for high achieving sustainability focused undergraduate students from underrepresented communities.
Launch from participating schools include Morgan State University, Maryland's largest historically black colleges and University and Miami University in Oxford, Ohio, the needs based scholarships will cover the cost for up to five students interested in pursuing careers related to climate change and sustainability we.
We believe this grant serves as an important step forward in our journey to drive meaningful and sustainable impact as well as a potential pipeline of new professionals in the industry.
We will conclude on slide 14.
Our four key strengths are the strong programmatic investment platform with the firms we're driving the energy transition to a low carbon future. We are grateful for the opportunity to support these companies in this effort.
Second our well diversified funding platform allows us to satisfy our clients' capital requirements, whether the assets are a good fit for our balance sheet or not this flexibility allows us to solve our customers' financing problem with a full range of behind the meter and grid connected assets. These programmatic clients generate.
Third it is terrific to have a policy tailwind for the first time in four years, we expect recent and anticipated executive orders from proposed federal legislation to contribute to continued growth in our existing markets and asset classes.
As we've shown over the last four years, we don't need the tailwind, but if the country is going to meaningfully address climate change public policy will be a key piece of the solution.
As Jeff L showed we have a proven track record and a variety of interest rate environments over eight years as a public company with consistent growth in distributable earnings independent of the level of interest rate or the shape of the yield curve. This track record should give investors comfort and how we will manage the business into the future.
To sum up the opportunity for growth has never looked more promising and we are confident in our ability to execute in the months and years ahead.
Operator, please open the line for questions.
Yes.
We will now begin the question and answer session to ask a question Press Star then one on a touchtone phone.
We're using a speakerphone please pick up your handset before pressing the keys.
You bet anytime your question has been addressed and you would like to withdraw your question Press Star then two.
At this time, we'll pause momentarily to assemble our roster.
Okay.
And the first question comes from Noah Kaye with Oppenheimer. Please go ahead.
Hi, good afternoon, thanks for taking the questions a lot of positive commentary and actual reported results from some of the leading performance contracting companies.
It seems like you know just having moved past some of the logistics difficulties during.
During the pandemic of doing contracting.
We're starting to see improved improved contracting flow.
Just wanted to get your.
Your color on whether you're seeing that as well and how you look at the flow and the.
Energy efficiency business over the balance of the year I know you addressed that you know, it's a large part of the 12 month pipeline, but.
Just curious for any incremental color you can provide.
Yeah, I think I know I think the you know the.
A comment that in our behind the meter pipeline. It is dominated by energy efficiency speaks to that.
Robustness that yeah, you're commenting on about the ESCO market.
It's a good business and they're doing a good job and I think.
Things are starting to move at the federal level, but also state and local level as.
Some you know maybe maybe they experienced some delays in COVID-19 last year, but things are starting to happen again.
And you know.
You've always said that the timing of originations are it is lumpy, but you know and I think this dovetails off of my previous question you know.
Confidence in kind of an increasing pace of originations over the balance of the year.
I think we're quite confident Noah.
What we did in Q1 was about what we did in Q1 last year and if you look at last year and ended rather well with high volumes.
I don't think anybody should be surprised at the same thing happens this year.
Hum.
And just one last question.
You may have seen that and it was actually on Earth day, there's a lot of announcements on Earth day, but the European.
Commission announced that as part of the new climate law package in June they're going to add buildings.
Buildings to the emissions trading system for carbon.
In other words, you know building a building de carbonization is going to be.
Properly incentivized.
You know, there's always been a U S focused business just curious for perspective on that whether there's potential for Sim.
Similar legislation in the U S to benefit whether or not you know your ambition might start to stretch overseas as you look at the potential for building.
Carbon pricing to actually impact the bottom line.
Great question, Noah as you know, we've been big fans of carbon pricing in whatever form it might take and applaud the EU for.
Adding buildings, which is I think 40 from the built environment <unk> 40 per cent of greenhouse gas emissions or something like that so.
If we're actually going to get at it you should be incentivizing I'm not familiar with any comparable legislation in the U S.
But it certainly is a good idea and would.
We'll provide yet another revenue stream and benefit too.
The energy services industry.
Hi, Thanks, very much for taking the questions.
Sure.
Okay.
Okay.
The next question comes from Ben <unk> with Baird. Please go ahead.
Hey, guys.
Your bedroom, it's low.
Maybe oh, Jeff Lipson.
Could you just talk a little bit more volume straights.
Or or or sector stocks, we've got cross partly because of interest rates I think well yeah yeah.
Maybe just required or remark.
Yes remind us.
You know how.
They impact you and how we think about your sort of I know you have the slide here I know you guys talked about.
Any color you can give there.
Sure Ben.
I think the primary item too.
We consider is as I said, we have fixed rate assets are funded by long term fixed rate liabilities.
We have been extending our liability duration.
Particularly with the 10 year debt.
Offering we did in 2020.
And so we have locked in margins on a large segment of the portfolio.
And then as we go forward and add new investments our funding costs are available to us at the time of growth. So we can look at those and invest accordingly to maintain our margins. So it's not as if rates moving uptown steeper flatter have this sudden impact on the portfolio the existing portfolio.
<unk> margins are pretty much locked in.
And the new investments, we can lock them in at that lock in our margins at the time, we close.
And then I'd add to that we have are.
Off balance sheet distribution network as well and we can.
Lean on that a little heavier if need be to take more things off balance sheet.
We really had some kind of disconnect between our funding costs in our investment markets, but we don't we certainly don't expect that.
And then I would I would add to that the.
What we fundamentally look at is the economic rate of return on these assets and I'm perplexed why a 50 or 100 basis point move in interest rates.
Threatens the viability of those assets.
These assets are not so fragile that 5100 or 200 basis points is going to kill them. So.
I think the well.
Sorry, I was going to be my question well, it's argued in Iraq.
But what what.
What is that kind of threshold that you would think about your across your different asset classes.
A bigger picture question for you guys too.
Okay.
Well.
I would say you know.
The entire industry renewable energy industry and energy efficiency industry has operated successfully in higher interest rate environments than now and they have done it by continually taking costs out of their systems, it's not easy it's hard work.
<unk>.
But I have no doubt, they're going to continue to do that.
To me, it's perplexing that a couple of hundred basis points rise in market rates, which we haven't seen but let's say it happens that the viability entire industry goes away I don't have a precise number to your specific question.
I just you know obviously, we're not betting against this industry. We think this industry has a good.
<unk> ability to prosper.
A higher than chop here interest rate environment.
No. It's good context to remember just history.
About so thank you Rob.
Question that you've gotten for forever.
Maybe on competition.
But you know you're not small anymore.
Yeah.
<unk> capital you're doing bigger deals.
And do you see that you were a good player.
People do want to do small deals like this.
But now where do you stand with that competition from it because you know.
Every headline is one pour money into the sector here. So how do you guys stay.
Nimble as low as have the growth.
Okay.
Okay. Good question I mean, we have competition in every market.
In every asset class.
But I still haven't seen anybody who's put their financial services offering together the way we have that can nimbly go with the same team from a grid connected transaction to a behind the meter transaction.
And our clients are doing both.
You know you have some companies that are just doing wind and solar and I'm sure we'll have more competition over time.
We need a lot more capital in this industry to make.
Make a meaningful difference on climate change.
That said that I'm hard pressed to see where somebody is coming in with.
A better offering than we have right now our cost of capital has come down our price of capital has come down I think we're extremely competitive.
And then at the end of the day service does matter.
Knowledge of the industry matters, and our portfolio management business continues to be a very sticky aspect of client management.
Let me ask it this way who would buy it.
Volume.
Now Ben you know I'm not going to answer that.
Alright.
I had to try.
Alright, thanks, guys.
Thanks Pam.
The next question comes from Philip Shen with Roth Capital Partners. Please go ahead.
Hey, guys. Thanks for taking my questions you calling from.
In your prepared remarks.
Hey, guys. Thanks, you talked about how the shortages that people are seeing out there whether they'd be chip.
Georgia is or what have you are not impacting our business. Yet I was wondering if you might be able to elaborate on that more as you mentioned, you're getting a lot of inbounds on this so there is the interest to here and get more color on this specifically.
When I've been in touch with Upc's recently, they're saying capacity.
There was a whole kind of system is very tight and whether it would be EPC capacity or.
Even the truckers and the U S to drive blades in and get materials from one point to another so.
Are you getting any sense that.
Some of your investments and the timing that you might have expected earlier might be getting pushed out a little bit into 2022.
Any color on this would be very helpful. Thanks.
Phil I recently checked with a number.
Of our clients.
Clients on this very question.
And I think one of the themes as prices are going up a little bit.
And you know.
Some of the risk of development that they've they've got that we don't wear.
But they are basically getting the material they need.
I won't say you know what is absolute and everybody's got everything just in time, but.
Generally that's not the thing that our clients seem to be worrying about.
And maybe what they're worrying about our next year's projects.
Looking at the supply chain for for next year's transactions that may be but we're not seeing it in the business. We are we think we're going to do in 2021.
Okay. Thanks, and that was my follow up on on that topic, what are they worried about anything else you have in mind on that topic.
No I think those are normal things for developers of these assets to worry about what's the price and is there a margin in it and theyre.
They are generally.
Doing a good job with it but it.
Definitely prices are going up and in a variety of whether it's labor or steel or copper ore or chips obviously.
Yes, aluminum et cetera, Okay, great last quarter, you guys talked about it was too early to get a full understanding of the impact of the Texas events.
On your portfolio. So I was wondering if you could give us an update on the situation you know what's the risk you may have a write down at some point.
Or pay any kind of settlement for power that wasn't supplied from their facilities.
You highlight that 99% of your assets are performing.
But wanted to see if you could share some more there.
So.
Not too much to update from what we said last quarter Phil in terms of.
The overall impact on the portfolio is going to be minor theres no.
Sort of.
Contingent items still hanging out there there's various.
Force measure resolutions going on in payments and cash Repower.
Power can be provided.
But as we said last quarter.
The punch line of all of that for us.
As some merit very minor reductions and the expected lifetime.
IRR of some of our investments very very minor so that's <unk>.
That's the impact for us it really hasnt changed from last quarter.
Okay. So as we look across Texas in ERCOT.
How many megawatts of projects are actually behind on payments.
You guys know how much is actually late and if.
There were late payments are they already caught up or is there any continuation of that potential threat.
Theres no late payments to us again.
We're supplying power and <unk>.
As we talked about last quarter and some of the developers have talked about we did have to make certain payments for the day, we cannot provide power, but nobody's late in a payment to us.
Great. Okay. That's really helpful. And then one last housekeeping question on comp.
Compensation and benefits I think it looks like it increased five nine quarter over quarter.
What drove this one time thing.
Should we be modeling this level going forward.
It was driven by higher head count it was driven by.
A higher percentage of our.
Compensation being paid in cash which runs through distributable whereas equity does not.
And then there is also a bit of one time.
In there as well, which will which will not recur.
In the subsequent quarters.
So we should increase have a an increase in that line item.
But maybe not as much as 5 million is that a fair way of putting it.
That's exactly right.
Okay, great. Thank you both.
Thanks, Phil.
Yeah.
Our next question comes from Stephen Byrd with Morgan Stanley. Please go ahead.
Hey, Thanks for taking my questions.
Hi, Steven Thanks Sue.
Congrats on the scholarship announcement as well that's that's fantastic.
So a lot's been addressed I wanted to maybe just focus on energy efficiency a little bit. Further obviously you are bullish on the outlook I was just curious given the biden administrations focus on a variety of things, but certainly energy efficiencies on the list.
Is that bullishness reflective of sort of what you expect there or is it possible we could see a further step change upward in terms of.
Sort of government demand.
Beyond what you're seeing already in your sort of bullish over overview of where you see energy efficiency going.
Good question, Stephen I think will reflect on our.
The pipeline that we're reporting as of 331, we.
We didn't factor in a lot of new stuff.
We build our pipeline.
Theres got to be a lot of granularity. So it's very doubtful that with a inauguration in January we would've seen deals happen.
And go to our pipeline. So I think what we're talking about is just sort of normal course business. We're certainly very encouraged by.
The type of appointments the administration has made in the appropriate agencies.
And the experienced these people they actually know how to turn the dials and push the levers of energy efficiency.
So you haven't seen anything.
Go up, but but I would also caution against.
You know people always talk about energy efficiency is that low hanging fruit and that just means they've never pick grapes on a volume because low hanging fruit is home.
It takes a long time to <unk>.
The engineer these solutions.
Solutions I think the one thing I would point to is in our comments was the industrial sector, which has always been a real challenge for the energy services business too.
Sure.
Yeah.
The effective in but we're starting to see signs that the.
The service providers are offering a really interesting value add service to industrial customers and corporate customers that hit a lot of their sustainability goals inclusive of.
On premise energy efficiency.
Well that's helpful. Yeah. It does seem like I mean, it's as you say, it's not easy to get these.
You get these projects done, but the trend does seem to be pretty clear pretty favorable.
That's helpful.
I seem to ask you about legislation every quarter I wanted to kind of focus in a different way I think we were.
We're constructive around.
The prospects for support for clean energy, one thing I haven't really focused on very much would be just a tax rate impacts for you. All if we did see a higher corporate tax rate I Wonder if you could just remind us sort of how how to think about the impacts to hannon Armstrong, if we did see a higher corporate tax rate.
Well I guess theres two answers that the impact on our Hannon Armstrong as an entity and the impact on our.
Outlook for additional projects and investments so for US of course, we are a REIT. So we're not a taxpayer it doesn't affect us we do have taxable REIT subsidiaries.
But we have enough in the way of tax planning strategies, we don't expect our taxable REIT subsidiaries to be taxpayers for the foreseeable future. So virtually no impact on us on our investment outlook it would.
Potentially create more tax equity capacity, which would be certainly positive for the volume of transactions that could get done.
Yes, so that could help.
And that's been a limit to some extent right as tax equity capacity.
Alright, yes.
Okay. That's all I had thank you.
Thanks, David.
The next question comes from Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, good afternoon day.
Hi, Julien.
Okay.
So let's see if I can just go back.
Real quickly just to understand that so it sounds like it was fairly immaterial in the quarter itself here.
Is that I understand your response earlier.
Obviously, you guys have more of a credit.
Could you hear than necessarily an equity exposure.
But.
Think about that as an ongoing exposure it sounds like there.
Yeah.
Counterparty the projects, but it seems relatively material as well to the extent to which that not everything is this until we resolve this line is it is it fair I'm trying to rehash, a little bit what you said a moment ago here, but I want to make sure I heard that wrong about Texas, yes.
Julian you're breaking up a little bit, but I think we got most of that.
So on Texas again to reiterate the ongoing ex.
The exposure is very limited you know most of these situations have now been settled up and for US with very limited impact on our portfolio. There's still as I mentioned, a few loose ends being tied up.
On various city, the hedges and arrangements, but it's mostly behind us at this point.
Excellent. Thanks for that clarification I, just wanted to make sure I heard that right.
And.
The real question I had for you guys or how do you think about the scaling and the cadence of the balance sheet through the course of this year specifically.
Obviously quarter on quarter here not too much of a change in the in the balance sheet. How do you think about what the balance sheet looks like in size and composition by the end of this year. If you can speak to that a little bit more obviously I'm seeing community solar tier.
A little bit of a step up here, what does that pie going to look like if you will.
Well Julien.
Based on the remarks, you would expect to see more grid connected solar.
Which is a small slice of the pie, but that's as I said one of the largest <unk>.
Element in our grid connected pipeline.
Solar land is is next and when so I would expect to see more.
Our connected solar.
And perhaps less wind added to the portfolio.
<unk>.
The behind the meter assets.
A lot of those are securitized and probably not added to the.
Portfolio, some well of course.
And the government sector and in the AR.
Oh federal and state local government.
As well as the solar.
In terms of the level I.
I did say on the lot on the last call judges by our growth in the portfolio.
Over the full year not not in the quarter and I would reiterate that I think we will have a.
Cigna significantly larger portfolio.
And that will be one of the key drivers of.
Our earnings to hit our guidance.
Yes.
Hence the question just quarter over quarter here.
<unk> Samsung securitization percentage it since that's the.
One of those that transposition shrimp.
How you transpose your growth into the portfolio.
Yeah. It's it remains as unpredictable to you as it is to US. It is one of the transactions happened.
Okay Fair enough I gotcha. Thank you guys very much best of luck and congrats again.
Sure.
The next question comes from Greg Lewis with BTG. Please go ahead.
Yeah, Thank you and good afternoon.
I wanted to touch a little bit on.
How the trend is.
The ability to recycle cash it and so as we think about the ability for you guys to kind of monetize some of the some of them some.
Some of your portfolio is that at all interest rate sensitive.
From your customer side.
At always sort of a tough threshold I would say it's.
Not.
Particularly sensitive to interest rates most of the folks who are.
The buyers of our off balance sheet transactions I wouldn't say they are completely immune from interest rates, but less sensitive than for instance capital markets.
Yeah.
And so and so as we think about where we are today would you say the appetite is as strong as it was I don't know pre COVID-19.
In terms of those opportunities to lay off existing assets too.
Buyers.
It's extremely strong as strong as pre COVID-19, if not stronger than it's been proven.
So sure and we could even take were off balance sheet.
I would like to maintain as we spoke about a moment ago, a nice size and growing balance sheet, but we could even if we so chose to do so.
Take even more off balance sheet, the appetite is quite large.
Okay, great. Thanks, that's all from me.
Thank you.
Yes.
As a reminder, if you have a question press Star then one to each are needed in the queue.
The next question comes from Chris <unk> with B Riley. Please go ahead.
Hey, guys. Thanks for taking my question here, just one quick one.
The grid connected piece of the pipeline continued to go up maybe you could just talk a little bit about the timeframe for the projects Youre looking at originating there would be for funding. So some of the deals that you closed last year. It was funding through kind of 2022.
Should we expect.
If youre able to close.
Connected deals this year would it be similar you know over the next year or two years type.
Timeframe, we'd be looking at before those would be kind of added to the balance sheet just wanted to get a sense of.
How the how those opportunities are looking at this point.
It's a good question Chris.
And we may not have all the information yet, but clearly there is a forward flow element to a lot of the grid connected transactions, we do theres always going to are generally going to be.
Funding of some projects that have commercially matured and then our pipeline of future how those lay out over the next few quarters.
You know kind of hard for us to say at this point what.
What we do like is the number of programmatic.
Platforms that we're developing started to create.
Good diversity among the quarters.
Not every company is going to hit the same set of projects in any one quarter. So I think we'll start to see.
Perhaps a bit smoother quarter to quarter, our additions to the portfolio.
Got it no that's very helpful. And then looking at the various kind of solar pieces within your portfolio and pipeline I just wanted to get a sense of where kind of storage is starting to fit in there.
As far as your I imagine.
Okay portion of the residential solar starting to include it but maybe just kind of walk through.
Sure.
So we're just starting to fit within the portfolio. If you could break out the number kind of Te.
Taking taking apart the different solar areas that you're kind of looking at between Rajeev.
Utility.
Neither.
I think they all have storage I think community solar is much more site specific as to whether it's solar.
Storage is valued I know, Massachusetts as one market for community Solar then that puts a price on capacity and so there's a there's value to add storage other markets or less interesting for community solar and storage.
And C&I generally.
We can echo what the.
The Sunpower is of the world say, but it's the.
Uptake is pretty strong.
Got it okay. That's helpful to think about thanks.
Thanks, Chris.
This concludes our question and answer session, which also concludes today's conference call. Thank you for attending today's presentation. You may now disconnect.
Oh.
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