The sustainability of REIT’s investment in renewable energy

Unlike other commercial or residential mortgages, Hannon Armstrong Sustainable Infrastructure Capital (HASI) is a Real Estate Investment Trust (REIT) that focuses on providing investment to cooperations developing strategies that address solutions to climate change. Recently, the company partnered with the global energy producer ENGIE to implement strategies to boost its sustainable infrastructure portfolio. The cooperate deal intends to increase cash-flowing renewable energy assets to the company’s portfolio to boost long-term sustainability of the current 3.2%-yielding dividend.

The partnership between Hannon Armstrong and ENGIE seeks to own approximately 2.3 gigawatts of onshore wind as well as utility-scale solar power assets in the United States. Ideally, 1 gigawatt of solar energy is capable of powering about 190,000 homes. The portfolio constitutes 13 projects distributed across five states. Currently, 663 megawatts of wind power projects are functional. Projects for five new wind farms as well as four utility-scale solar power facilities intended to provide the remaining 1.6 gigawatts are currently under construction.

Hannon Armstrong plans to make $540 million preferred equity financing into the asset and portfolio, earning it a 49% interest. On the other hand, ENGIE intends to maintain the position of the overall shareholder that controls the portfolio and manages the assets. The arrangement allows Hannon Armstrong to receive steady cash flows from the support. The portfolio vends power generated from the company’s renewable energy assets to different high-quality customers such as utilities and large companies either under long-term or fixed-rate power purchase agreements. Generally, the contracts are calculated using a weighted average with a lifespan of 13 years, meaning that the corporation benefits from more than ten years of stable cash flow.

When all the projects are operational, the REIT investment significantly increases to diversify the Hannon Armstrong’s balance sheet. The company plans to use the high return on investment to continually support the growth in the recurring net financial income, improving long-term sustainability of the dividend. Projections indicate that the acquisition increases the balance sheet from a figure of $2.1 billion to $2.6 billion. The energy contribution increases from 27% to approximately 50% for grid-connected assets such as wind power farms and utility-scale solar power facilities. Energy contribution increases from 62% to 49% for behind-the-meter assets that does include energy efficiency investments, storage investments and distributed solar assets. 

Another essential detail of the REIT investment is that it is equity instead of debt, in-line with the company’s main focus. Equity investments are more permanent because the owner usually controls the activities, but debt investments are usually subject to the borrower repayments. A decline in interest rates encourages borrowers to refinance their loans at a reduced cost. To summarize, great opportunity investing in green energy increases the potential for companies developing renewable energy technologies because they get funding need for their operations.