Q3 2023 Hannon Armstrong Sustainable Infrastructure Capital Inc Earnings Call
Yes.
Earlier. This afternoon, we distributed a press release detailing our third quarter 2020, we resolved a copy of which is available on our website. This conference call is being webcast live on our Investor Relations page on the website a replay will be available later.
Some of the comments made in this call are forward looking statements, which are subject to risks and uncertainties described in the risk factors section of the company.
Creation of GAAP to non-GAAP financial measures is available in our press release and slides.
Joining me on today's call are Jeff Lipson, our company's President and CEO, Mark thing Brown, CFO and Susan Mcgee, our Chief client officer, Susan it'll be available for the Q&A portion of our presentation now I would like to turn the call over to Josh who will begin on slide six yes.
Thank you Nathan and good afternoon, everyone and thank you for joining the call.
Had an outstanding quarter as measured by nearly every meaningful metric in the business remains positioned for future success.
Before we discuss the quarter, well dressed and item of recent market perception.
<unk> has emerged recently, which has been weighing heavily on stocks related to the energy transition.
There's a perception assumes renewables and other clean energy sources are no longer economically viable due to the higher cost of capital driven by the higher for longer outlook for interest rates and that this impactful caused a substantial slowdown in project development.
Appointment of clean energy.
We believe this view is not accurate.
In fact, the energy transition is in its early stages.
We wish to grow on a steady long term trajectory.
Just this week the American clean Power Association reported record breaking third quarter U S capacity installations at 10% year over year growth in the utility scale wind solar and storage project pipeline.
Although not every project remains viable.
In energy demand remains elevated in the liberalized cost of renewable energy remains competitive or less expensive than the alternatives.
As one example, the AI driven buildout of data centers has created significant incremental demand for renewable electricity.
Likewise, the higher cost of capital and other input costs are being passed onto the end user due to the ongoing growth in demand, particularly from corporate buyers with ambitious net zero goals utility off takers.
These economic dynamics continue to validate our business model they provider of capital to the energy transition.
The energy transition as a long term non cyclical macro trends.
Our team is well situated enthusiastic and capable of continuing to work with our clients to meet the demands of this transition.
Further evidence of the strength of our business model is in our third quarter and year to date results were.
We're reporting record quarterly distributable earnings of 62.
Record quarterly volume almost $1 billion and year to date total volume of $1 8 billion.
Which is similar to annual volume over the prior three years.
In addition, consistent with our objective discussed throughout this year, we're reporting investment yield on new balance sheet investments year to date of greater than 9%.
Well above the expense of our incremental year to date, resulting in continued healthy margins.
These results and the outlook for the business allow us to affirm our existing guidance of 10% to 13% EPS growth.
5% to 8% dividend growth through 2024.
As Mark will discuss we have deployed a thoughtful diverse and strategic capital plan in 2023, despite challenging markets.
$1.5 billion of debt and equity we have raised has resulted in a strong balance sheet and liquidity position.
And it's allowed us to continue to operate the business with a strategic long term focus rather than under any short term duress.
This capital raising in 'twenty, two 'twenty three coupled with our substantial investment volumes. That's also situated the business such that we do not require incremental equity to achieve our guidance.
You always have and remain focused on diversifying our liquidity sources, including our recent initiatives to develop incremental channels of off balance sheet growth that we referred to is capital light.
Turning to slide four I'd like to discuss how well positioned we are to achieve our EPS guidance in the range of $2 27 to $2 53 per share in 2024.
In part due to our success in 2020 three increasing the portfolio by $1 2 billion. So far this year, we are well situated for earnings growth in 2024.
In fact, we can attain the guidance level of EPS without any new equity issuance, nor any new balance sheet investments.
No incremental debt as necessary and our gain on sale and fees can be consistent with the annual levels over the past three years.
Therefore, our path to achieving guidance is limited variables.
Turning to slide five I believe a company should always have an executable plan to focus the organization.
Our action plan in this period of volatile capital markets is displayed here.
General capital scarcity has provided an investment opportunity and even higher level of return than we've seen in 2023 year to date.
The average yield of investments in the pipeline is greater than 10%.
And these are investments consistent with the risk profile of our existing portfolio.
We intend to fund these new attractive investments with balance sheet rotation seasoned assets and debt issued outside the capital markets.
Utilized to fund $6 billion of investments off balance sheet.
The final item and the action plan is to make further progress executing transactions with private capital providers that allow us to continue investing utilizing off balance sheet sources of capital.
All of our success in 2023 closing a large volume of transactions at an attractive yield has positioned the business to expand our capital light initiatives at a reasonable pace.
It is important to note that our company has a long history of executing on these action plan items.
We have a demonstrated track record of adapting our capital and funding structure in a way that allows us to continue to actively invest and grow our earnings per share.
Therefore, this action plan fits well within our comfort zone.
Slide six is a good summary of our year to date investment activity highlighted by a $1 8 billion of volume at an average yield greater than 9%.
Notably our fuels transported in nature segment, that's been very active producing 38% or over $600 million of 2023 value.
We remain very disciplined regarding margins and expect future investments to be at an attractive margin. So our cost of funds.
On slide seven our investment pipeline of greater than 5 billion is well diversified among non cyclical uncorrelated end markets.
Or demand for renewable power continues to drive more opportunities.
Higher PPA prices allow projects to pass on higher costs.
As discussed earlier energy transition assets remain economic strongly preferred by many users due to climate goals and cost competitiveness versus alternatives.
I will also reiterate reiterate that the return profile on these pipeline investments is well above our current portfolio yields and that our strong margins through our cost of funds.
Now I'll turn the call over to Mark Greenberg detail our financial results.
Thank you Jeff.
I'll begin on slide eight by summarizing our financial performance.
Simply put our third quarter and year to date execution continues to prove our adaptability to a rapidly changing macroeconomic environment.
In the third quarter, we are reporting record distributable EPS of 60 twosome may close a record amount of new transactions at $973 million and these transactions were at record yields over the last year, we grew our portfolio by 41% to $5 5 billion in managed assets of 22%.
So 11 5 billion.
Continued growth of our portfolio translated to a 20% increase in year to date distributable NII to $160 million meaningfully increasing our long term recurring income.
Amplifying Jeff's comments earlier around our existing capital light activities. We also recorded a $69 million of gain on sale.
And securitization income for year to date 2023.
In an 8% increase year over year and a notable increase in our securitization in Ghana, which is now 13 billion for the same period.
This included a balance sheet rotation, where we were able to securitize and on balance sheet portfolio of seasoned assets at a gain.
Turning to slide nine our portfolio yield increased for the second quarter in a row from 7.77 0.9.
Year to date or year, it'll yield on the portfolio increased by 40 basis points after being relatively constant for four years in the third quarter, we funded $865 million, we anticipate funding additional commitments of 645 million through 2024.
Year to date, our portfolio has grown at a record pace, one 2 billion compared to a 700 million average over the prior three years.
And reiterating Jeff's comments on the business mix F. T N has grown from 4% of the portfolio at year end 'twenty two.
The 13% as of Q3, 'twenty, three driven primarily by R&D.
I'd like to take a moment to reiterate a few common characteristics of our portfolio.
We typically invest for some form of preference not only do we have preference.
We also invest at the asset.
Creates a non cyclical dynamic where changes in interest rates or client growth have minimal impact on portfolio performance.
It also mitigates corporate risk that's the various service providers to projects can be replaced based on performance or disruptions at the corporate level.
Another common attribute of our investment profile as we typically do not take development risk, we invest based on asset collateral when the economic value of any particular project has been established.
Certain segments of the energy transition are more or less economic today.
For example, energy efficiency solar in R&D continue to have strong viability.
And to briefly address recent industry news, we have no offshore wind in our pipeline or portfolio.
On slide 10.
We're pleased to report growth in margins due to the faster growth in our portfolio yield at $7 nine compared to interest expense of $4 nine.
We will continue our disciplined investing strategy of pricing new apps that sort of margin to our current cost of funds.
Last quarter, we provided additional context to address questions.
On our 25 and 26 bond refinancings as a reminder, the base rate for the expected bond refinancings are currently hedged around 3%.
Based on the market spreads updated.
Well yesterday theoretical refinancing would result in a blended cost of debt of five 7%.
While we continue to evaluate higher yielding new investment opportunities.
Even if we close no additional transactions the spread would result in a greater than 11, 5% Roe.
Yeah.
Liquidity remains robust and I am pleased to provide additional specificity around our debt raising activities.
Starting on the top left.
Quality is strong with a total of over $710 million of cash and Undrawn revolver capacity.
The total liquidity includes 165 million, which relates to an upsize of our unsecured term loan a which was closed after quarter end.
Our current leverage is one seven which provides additional room to utilize debt to fund further portfolio growth, while operating within our leverage targets.
8% of our debt is either fixed or hedged.
And the process around the REIT tax conversion is proceeding smoothly.
Now I'd like to highlight recent debt raises all at rates well below our investment yields.
We have upsized and extended our secured debt facility with a hedged interest rate of six 9%.
Upsized, our T L, a which carries a hedged interest rate of five to six 5% and issued convertible debt with a total cost of five 6% inclusive of an option premium to increase the conversion price.
Looking ahead, an example of a path to attractively priced incremental debt.
We expect to raise secured debt on our portfolio of solar assets based on unexpected rating of B minus.
In the quarter, we raised more than $770 million of incremental debt within the T. L a year.
Year to date, we've raised approximately 1 billion of debt at a blended rate of six 5% driving spreads.
Opening ROA.
ROE of greater than 13%.
In summary record EPS record closings and record asset yields leading to attractive spreads positioning us well to achieve guidance with no additional equity capital.
I'll turn the call back to Jeff.
Thanks Mark.
Turning to slide 12, we update our sustainability initiatives, including two items related to the measurement and reporting of the impact of our investments and a recognition that our team remains active in climate Justice community service.
Well wrap up on slide 13.
We continue to execute on our business plan producing consistent earnings growth despite challenging capital markets.
The long term fundamentals of our business are very powerful.
We continue to operate in growing non cyclical investment markets working with active partners, providing capital at the asset level.
Our consistent results over several cycles and operating environments provide a demonstrated track record that we intend to replicate.
And we have a specific action plan to thrive during this period of volatility.
We're very proud of our success in the first three quarters of 2023 and have positioned the business for additional prosperity.
I, thank our dedicated and talented team for continuing to execute on our goals.
That concludes our prepared remarks, operator, please open the line for questions.
Yes.
Thank you.
We will now be conducting a question and answer session.
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Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Our first question comes from Noah Kaye with whole benign ma'am. Please go ahead.
Well thanks for taking the questions. There were a lot of great details in this presentation and congrats on a great quarter.
I wanted to ask you about the AR balance sheet rotation to start you called out the real estate securitization, we can see that movement in the balance sheet.
Can you talk a little bit about the profiles of additional assets and both you know sort of the magnitude of those rotation opportunities and potential incremental lift in average yield you would get from such a rotation.
Okay.
Sure. So I'd say the profile of the type of investment that would be on our balance sheet and then we could look to securitize. It would be something that we are likely currently already securitizing.
But before it became an asset class that we could reliably securitize, we would close those assets onto our balance sheet.
And they've largely sat on our balance sheet, but they've now been season to appoint and proven from a securitization perspective that we can look to pull from that.
We do have additional opportunities to pursue balance sheet rotations.
As you might imagine that it's ultimately pull with them from a static portfolio. So there is a limit to that.
Wouldn't put a exact number on it on it right now, but but I wouldn't be surprised if it continues as more of a decade.
And I think just to add to that no and thanks for the question on the bottom right of page on page 11, where mark referenced.
Additional secured debt. That's an example of assets that sit on our balance sheet that we can.
Peter rating on which makes them that much easier to securitize should rotate off so that's good live evidence of that activity.
And that would be sitting within equity method.
Not necessarily.
It could either be debt or equity.
Okay, Okay very helpful.
I think just one more.
Is it looks certainly as though you know RMG has become a.
A significant part of the growth story for the company.
You talked a little bit at your Investor day about our additional asset classes, maybe you know two to three years down. The Pike are maybe you could talk a little bit about where you have conviction or a greater interest in those opportunities today, how those asset classes are maturing certainly we'd love to hear from from Susan as well.
If you don't mind.
Sure.
Thanks, Dan.
Yes, renewable natural gas has been a growth market and can he has strong protections for so about 25%.
Market continued well, but with corporate demand also looking to decarbonize across across all their different sectors. There is increasing demand and also economies of scale from our other renewable fuels or transport.
And de carbonization of different parts of the industrial sector. So we continue to monitor those and watch as we're still waiting for guidance on some of the tax credits that are expected to come out at the end of this year, which will also help support and growth and scaling at those some of those new sectors.
Yeah, well, we're all hoping for those clarifications and hopefully that's something we can revisit it in future calls alright. Thank you very much.
Thank you.
Thank you.
Our next question comes from the line of Mark Strouse with JP Morgan. Please go ahead.
Yes, good afternoon, thanks for taking our questions.
I wanted to go to the comments about the the yields being above 10% for the pipeline can.
Can you talk about how broad based that might be versus how much of that is driven by kind of maybe an increasing mix towards F. T N.
Yeah.
I would characterize it mark as broad based I think we're seeing our yields at that level.
Given where markets and capital are right now in really all three of our segments. That's not that's not overly driven by Afghan.
Okay, Okay, and then I.
The commentary about the the 'twenty 'twenty four targets being able to be met without.
Right right, yes, sorry, with with the the gain on sales being kind of in line with where they've been the last few years.
How how are you thinking about that that model, though I mean, I, maybe that that presents maybe a downside scenario or are you thinking of 'twenty 'twenty four.
It could be a higher year for that line item than what you've got this year.
Well it certainly couldnt be a higher line item. That's one that you know you need to recreate every year, but I think our forward pipeline.
<unk> says can be securitize, it gives us strong confidence that.
Where we're tracking towards this year.
We'll be able to achieve again next year, and thereby able to achieve our guidance and remember those parameters to achieving guidance that we laid out our are meant to be sort of a bare minimum and it's not actually our plan of course, so I think we from a gain on sale perspective, I remain confident that we'll be able to replicate this year again next year.
There was some chance we'll exceed it.
That makes sense, okay. Thanks, Jeff.
Thank you.
Our next question is from Chris subtle, but B Riley Securities. Please go ahead.
Hey, guys. Thanks for taking my questions here so.
Essentially it seems like we're saying with today's balance sheet.
Hum.
Normal gain on sale, we're already at next year's guidance.
But you know, there's obviously kind of a big pipeline of opportunities here.
You guys are looking to execute on it.
Can you just walk through the puts and takes around the.
The impact.
Sure.
What would have on the.
The balance sheet size and therefore.
What we have.
As far as net investment income next year versus kind of the new stuff that's coming on I'm, just wanted to kind of square away.
It sounds like we're saying there is potentially good upside.
Upside as to the guidance for next year.
Sure, Thanks, Chris and I'll start and maybe Mark glad to this answer, but I would start by saying.
The portfolio balance given all of the volume we did this year and a decent amount of it in the back half of the year of.
Of course creates a dynamic where the average portfolio balance next year is already going to be unambiguously higher than this year, so that creates earnings growth in and of itself.
In terms of executing.
And the pipeline as we talked about some of these balance sheet rotation ideas and some of the things we're developing in terms of other off balance sheet channels will help us fund that pipeline, but well obviously be.
Somewhat call it capital first mode, where we want to make sure. We've identified the source of funds before we move forward to actively on the Ford pipeline. So I think that's the dynamic that's occurring now given given the volatility, but we remain confident in and developing these sources and actually executing on some of that pipeline.
Okay.
Looking at it like that.
You've kind of levers here.
Rotation of existing assets.
$1 2 billion of receivables that are yielding below 8% being kind of the first lever there and then.
We're looking at new assets can you kind of just walk through the data.
The decision tree between the.
The balance sheet securitization co invest.
Between specific projects that you're evaluating.
Obviously the yield.
Fantastic class or kind of thing.
Maybe.
Just just how youre kind of approaching that.
New assets what would be helpful.
So it is in some regard an optimization exercise. So for example, if we have assets on the balance sheet that we could securitize at a game and replace with new assets that are.
300 basis points higher on yield that's a bit of a no brainer and obviously, we'll execute on on transactions that looked like that.
Likewise, as Mark said, Leverages, one seven which gives us additional room for additional debt that he laid out some perspective.
Sources of debt that we think will be cost effective, particularly given the.
The yield on these investments in the pipeline so that is another.
Source, there as well and then some of these off balance sheet.
Sources that we're working on with some new partners you know it will be next in line behind those two as well. So again, that's how I think about the decision tree of raising additional funds to take advantage of this opportunity.
I'd just add one comment which is that the potential balance sheet rotations that could lead to a securitization for example would generally be some of the lower yielding lower risk assets. Because that is has generally been what's gone through our securitization program.
Yeah.
Okay.
Maybe just last one.
Kind of ROE V evolve with some of these capital light activities picking up potentially.
Next year.
And then I'll hop in the queue.
So.
The long term big picture answer to that question is these are enormously ROE accretive initiatives, because they use very little of our own capital.
When you add the modifier impact next year.
Go back to my comment around pacing that that some of these things we're working on will take some time.
And I don't want to over promise exactly in 'twenty for what the impact will be but long term. The ROE will benefit from these type of off balance sheet activities.
Okay.
Yeah.
Thank you.
Next question is from Ben Carlo with Bad. Please go ahead.
Hey, Thank you guys good evening.
Congrats on the results.
Jack.
Just.
Once we get on a bus.
You wouldn't see the yields are.
Got it.
How does it, especially as you do ship Super asset classes.
Right.
Yeah. Thanks for the question, Ben and we do get that question a lot as well I think the natural.
Inclination of folks that here higher yield is to assume it's at higher risk and so we need to keep reminding folks over and over again in our case, it's not higher risk, it's really where the projects are gone and given base rates given the capital dynamics in the market right. Now. These are in many cases, the exact same investment in things like grid connected solar arrays.
<unk> solar.
That we've done historically at significantly higher yields than we were doing you know call. It 18 to 24 months ago.
And some of our new asset classes as you referenced we're underwriting them with the exact same criteria. We're seeking the exact same attributes in terms of client relationships.
Monetizing contractual cash flows such that they're identical risks are what we've done historically. So this is higher yield that same risk and thank you for asking because we want that to be very clear.
Yeah.
I'm just following up on when we think about.
It's slow.
The Guy Who's here, yeah, that'd be good.
It was sort of asked before but.
24 and onwards.
How do you think about too.
The ability to grow without accessing capital markets.
24.
So I think it's about having multiple levers and you know we've historically had the securitization platform.
This capital markets for the balance sheet now, we're you know working on balance sheet rotation and and some of these additional levers that we're calling capital light.
And I think.
We have a vision that eventually capital markets will come back as well and we'll be active there, but until they do we want to make sure. We continue to utilize and develop new levers are so that we can take advantage of this investment opportunity.
As it relates specifically to the impact of all this on 25 again as we've said before.
We expect to talk about that more or in February but not on this call.
And what would you. Thank you last question would you do you could you talked about the benefits.
All right.
<unk> heard about.
Our Oh.
Tax equity transfers.
And how do you play into all of this evolving market.
B, a REIT structure help you or what's the disadvantage.
Thanks.
So.
The way to think about that is.
Migrating away from REIT status removes I can't stream that would have occurred a few years down the line since we remain primarily active.
Non REIT qualifying investments the retest would've become a constraint there haven't been a constraint historically are not a constraint this year, but would happen in the future so for that and some other reasons that we articulated on last quarter's call. It makes perfect sense for us to seek an alternative tax election at this point.
Thank you.
Okay.
Have you ever has been.
Our next question is from Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, Jim. Thank you. Good afternoon I appreciate the time actually just Ah I wasn't going to kick off here, but just since I've been with asking you know tax equity and the dislocation here I mean is there an opportunity where you step into obligations.
Given the situation, where we could see some some rules changed and some tax commitments in 'twenty four proved to be less you know.
<unk>. If you will it is is that a tactical opportunity for you as you look ahead here given some of the capital changes with Basil.
Julian I just wanted to clarify are you asking about stepping.
Stepping into the.
The role of a tax equity provider.
Yeah, I I know that that was something that I think some of the defunct structures before you'd looked at at some point, but again I guess I would imagine the newer instructions as probably less appealing, but I figured I'd ask here since you've done that in the past.
Thank you for the clarification no I would say that that is unlikely to be a target opportunity for us.
And it's probably you already identified it but the newer the newer the tax equity transaction the more heavily weighted it is the tax benefits and we have plenty of tax benefits right now and so we wouldn't necessarily be targeting targeting that as a potential opportunistic transactions.
Got it okay excellent sorry back to our scheduled program just as far as the right. The rights offering an update here can you give a little bit of context as to.
Sort of the thought process behind.
You know pursuing or that that potential Avenue here I mean.
Not every day, we see companies with rights offering. So if you could just give a little context.
Sure, we view that as sort of an ordinary course item. It came up it's not directly related to removing the read there are revoking the REIT election, but it did come up in the research as we were reviewing items related to revoking the REIT election.
It's the simple rights plan to preserve our Nols are theres been about eight of them. This year prior to us theres been over 250 of them and are in the last 15 years or so so it's it's really nothing other than putting in place.
<unk> a structure that is very common in the marketplace to preserve our Nols.
The tax benefit.
Loaded as to why we don't need to do tax equity or are the same tax benefits, we'd like to keep to make sure we're very tax efficient.
100% that makes a ton of sense and I appreciate that and then and then lastly, if I can I mean, you guys are kind of steadily giving us data point on you know pipeline backlog.
Interest rate swaps I mean, you provided a lot of the puzzle pieces here to put the outlook together, but you haven't quite put the cherry on top in terms of putting in consolidated guidance.
How do you think about the timeline forgiving that you know post 'twenty four view at this point I mean, I again, I know that you've teed up a lot of these points, but I'm curious on when and how we get that it actually even what metrics do you think you'll be providing you know as you kind of really fully refreshing reconstitute here if you will under your posts.
Good question Julien and the short answer is February and that that's been our cadence to talk about updating guidance in the fourth quarter call I think to your point. We're also working on a looking at our metrics and the post REIT world and making sure they're still.
The appropriate metrics and deciding whether it would be helpful to investors to have a new metric or two so it will be it will be talking about that in February as well so.
I think it should be clear from our reported here today that the outlook for the company is strong, but you get a little more specific about twenty-five we need a little more time to complete our business planning in November and December and we'll talk about that in February.
Right, but maybe the core point here, if I were to get at the heart of it is your confidence in the growth pipeline in the net spreads available Theres nothing about your historic statements about asset growth in the portfolio that would that would somehow DVA given the new interest rate environment.
Or anything that has transpired in the interim here right.
Sort of a double digit type portfolio growth is it still the aspiration here.
Well I certainly confirm the first part of what you said that the higher interest rate environment has proved not to be an impediment to our business and we've adapted as necessary our model to higher yields set a margin to today's debt costs and that process has gone very well as evidenced by the results.
Here today.
And that adaptable flexible business model outlook is unchanged. So I certainly confirm that part of what you said.
Alright fair enough I'll leave it there guys well well talk Mark you.
Thanks, Joe likes to do it.
Thank you.
Thank you.
Our next question is from Jon Windham, but UBS. Please go ahead.
Okay perfect. Thanks can you hear me okay.
Yes. Thank you.
Okay. Okay.
Great result, actually finding a pretty target rich environments deploy capital maybe just how many tons just clarify a couple of things.
It was a relatively big provision for loss in the quarter I know they pop up every now and then can you just talk to what that was again.
Sure. So that was primarily related to the seasonal if it gets put on when we put new loans.
Loans on the balance sheet.
And a very large portion of the volume that was funded this quarter were in the form of loans. So that that's the primary.
Okay, Great and then can you just.
Hopefully you know the residential solar part of.
Clean energy market right now struggling a little bit and maybe even particular sunpower just had some announcements about its accounting can you just remind people what the relationship is there with sunpower.
And your preferred position within the cash flows.
Sure. Thanks for asking so we have a joint venture with Sunpower that is that exclusively exist to hold assets that they essentially originate and when those assets are are operating they sell them to this to this partnership that of course.
Moves it off balance sheet from their perspective.
Our our role and that is really just to monetize the cash flows from the underlying asset portfolio.
And that really just to emphasize some comments I made in the prepared remarks drives.
The fact that our performance is very much just associated from the corporate performance of any of our clients not just not just sunpower.
And so are our role in that is we do have a preference on the cash flows and the performance of those underlying portfolios are holding up well and in line with our underwriting expectations.
And I would just add that Sunpower has been and I. We expect we will continue to be a great partner of ours, but our but our role in the residential solar market is really just to monetize those.
Good stuff. Thanks, so much for the time.
Thanks, John.
Yeah.
Thank you.
Our next question is from Jeff Osborne with Cowen and company. Please go ahead.
Thank you most of my questions have been answered maybe just a follow up on the residential side.
I think the Kroll bond rating agency data suggests that the default rates on.
<unk> loans.
Frankly that have been secured.
Six to nine months are you folks seeing that on your books.
One clarification just to make sure we're talking apples to apples that are.
A vast majority.
I don't have a number but let's just say 95% of our residential solar portfolio of leases are not loans. So I just wanted to make a clarification on that in terms of delinquencies. We we certainly see that move around but compared to the way we underwrote these transactions.
The total transactions are continuing to perform in line with our underwriting expectations.
Got it and you've talked a lot about adapting.
And.
Project returns in a raising rate environment, which is great to see has there been any noticeable changes on accrual rates or IRR related investments.
[noise].
Sure. So I would say in terms of accruals no Oh.
We do have a process, where roughly every six months, we re underwrite our EMI investments with the general lens of how would we invest in them today.
And to the extent that re underwriting.
Is different from how we have them.
Currently on the balance sheet, we would update our yield expectations Accordingly, and that would then flow through into the portfolio yield at 7.9 that we report on quarterly and so yes, there have been changes over time.
But that's that's the normal course of how we.
How we look at those levels.
Got it that's all I had thank you.
Thanks Joseph.
Thank you Hassan and no further questions at this time, ladies and gentlemen that concludes today's teleconference. Thank you for your participation you may now disconnect your lines.
Julie.
Yeah.
Yeah.
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