HA Sustainable Infrastructure Capital, Inc.

a balanced view of upside opportunities and downside risks, there are scenarios that would result in earnings above our guidance, including a second investment grade rating, which would presumably reduce our debt costs, or expansion of our investment platform resulting in higher transaction volumes, or improved return on underlying investments. Each of these items would have a positive impact on our margin. In summary, this guidance reflects an enthusiastic and confident vision of our company and strategy over the next three years. And we remain optimistic that we have the talent, client relationships, and market opportunity that will result in continued growth and prosperity. Turning to page five, I'd like to reinforce that for many years we have consistently accomplished our disclosed objectives. On our investor day in March of 2023, We discussed several strategic priorities, and in each case, kept our promise. We executed on a seamless CEO and CFO transition, invested at higher yields without incremental risk, expanded our fuels, transport, and nature segment, continued to access diversified sources of debt, were placed on positive outlook by Fitch, discontinued our re-election, and migrated the business to be less reliant on capital markets via capital-led initiatives and dividend policies. It is also worth noting that we expect to achieve our prior earnings guidance in 2024, and we are meeting our dividend guidance with today's announcement. We have an unblemished track record of meeting or exceeding our guidance. Achieving our disclosed objectives reflects both the predictability of our lower-risk business model and the reliability of our messaging. Turning to page six, I'd like to address four items that represent our most frequent investor questions. beginning with policy. We are attentives of public policy and engage in advocacy efforts. However, we do not fundamentally believe that public policy will have a meaningful impact on our business over the guidance period. Our company has been successful in administrations from either party and thrived prior to the IRA. In addition, clean energy demand continues to grow exponentially, including at the state and corporate level, and the levelized cost of energy supports further development. Our company is also well positioned to pivot to a variety of investment alternatives, which further provides comfort that public policy changes are not likely to be impactful to our profitability. Regarding interest rate risk, we have prudently navigated this period of interest volatility, which began in 2022. Since that time, we have not wavered in our execution, implementing a strategy of pricing our investments to produce our targeted margins. These higher-yielding investments do not include higher risk, but rather reflect broad industry adaptation to higher rates. We've also deployed a hedging program, which has allowed us to navigate the higher rate environment successfully and minimize the risk of rates moving further upward. Next, we are often asked about project delays. However, the risk of potential short-term delays in certain asset classes is mitigated by the diversity of our investment strategy, as evidenced by our 2023 investment volumes and our current pipeline. and long-term economic fundamentals will allow our clients to maintain active pipelines. Finally, our ability to fund record volumes in 2023 is proof positive that our liquidity and funding strategy is sound. Our risk to capital markets volatility has largely been muted for 2024 as we have already pre-financed much of our pipeline with recent debt transactions. If markets are attractive, we will consider early refinancing of upcoming maturities but are otherwise in a strong position related to funding needs over the next 12 months. In summary, and as reflected by our new guidance, we believe the business remains well positioned to address any perceived headwinds. And with that, I'd like to turn the call over to Mark.

Thank you, Jeff. I'll start on slide seven. Underpinning the guidance Jeff discussed is our pipeline of over $5 billion, which is highly diversified across three markets, eight asset classes, over 30 programmatic clients, and over 150 unique transactions, a portion of which represent greater than $25 billion of Project CapEx from our 10 largest clients. We continue to be excited about growth in all three markets and the growing number of new clients that we can serve. Our pipeline has grown significantly from $3 billion in 2020 to greater than $5 billion in 2024, a reflection of our success and organizational structure that supports programmatic transactions. A unique element of our business is our ability to pivot between asset classes, seeking the most attractive risk-adjusted returns and adapting to market conditions. Our annual closings since 2020 confirm the power of a diverse asset strategy as our volumes are consistent while our growth in the underlying end markets are not. We continue to see a vastly expanded opportunity set in front of us, driven by the underlying demand in all of our markets for energy transition assets and services. Moving on to slide eight, for full year 2023, we are reporting distributable EPS of $2.23. We closed a record volume of new transactions at 2.3 billion. Year over year, our volumes increased 28%. Distributable NII increased 21%. and gain on sale increased 15%. Notably, our portfolio grew 44%, providing a much larger base for long-term recurring income. And looking to the top right, this portfolio growth is at higher yields with incremental on-balance sheet investments yielding greater than 9%, a material shift up relative to prior years. Continuing to the next slide, we have a track record of stable growth on all notable metrics Since 2019, we have grown our distributable EPS by a 12% CAGR, distributable NII by a 28% CAGR, and gain on sale by a 23% CAGR. The total managed assets has almost doubled to $12.3 billion, highlighting the increasing scale in the business. One key ratio reflecting the benefit of scale is the growth in our key performance metrics relative to SG&A. Year over year, combined NAI and gain on sale increased by 19%, while SG&A only increased by 2%. While we are happy with this result directionally, we believe there are more benefits to gain as we scale. On slide 10, our portfolio yield increased to 7.9%, while the portfolio grew by 1.9 billion. This growth compares to the previous three-year annual average of 700 million. In the fourth quarter, We funded 609 million of new and previously closed investments and anticipate funding additional commitments of 500 million through 2024. Additionally, with the growth in FTN and community solar, our portfolio has attained a higher level of diversification in 2023. On slide 11, our focus on profitable growth has contributed to maintaining healthy margins throughout 2023 with a portfolio yield of 7.9 compared to interest expense of 5.0. In 23, we made incremental investments at an average yield greater than 9%, with new cost of debt, 7%. And we expect that over time, we will benefit from improved cost of funds if the second investment grade rating can be attained. To provide another data point, in our recent corporate debt offering materials, we identified a near-term investment opportunities, which are anticipated to yield 11%. This results in ROEs of mid to high teens relative to where the offering priced. Looking along the bottom of the slide, in past quarters, we've 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 market spreads, a theoretical refinancing would result in a blended cost of debt of 5.6%, resulting in a 12.5% ROE. Turning to slide 12, our funding platform was critical to our success in 2023. Starting on the top left with over 930 million, our liquidity remains robust. The total liquidity includes approximately 300 million of corporate unsecured debt and non-recourse secured debt, both of which closed in January. Our current leverage is two times debt to equity and 92% is either fixed or hedged. Over the past 12 months, we've raised $1.9 billion of debt, a vast majority of which was used to fund portfolio growth. Importantly, we utilized all sources of debt available to us, highlighting our diverse funding platform. The recent high yield offering, secured debt raise, and existing liquidity substantially address our growth debt capital needs for 2024. We will consider opportunistic windows for refinancing or extending our 25 debt maturities throughout the course of this year. While liquidity for balance sheet funding remains strong, we continue to progress our capital light initiatives to further diversify our funding platform. In summary, our execution to date, current liquidity, and go-forward plan position us extremely well to capitalize on the opportunity ahead. I'll now turn the call back to Jeff.

Thanks, Mark. Turning to slide 13, we summarize a few of our sustainability and impact highlights from 2023. including our alignment with the EU taxonomy and other items related to advocacy, disclosure, and philanthropic priorities, as well as summarizing the impact of our investments as measured by our carbon count metric. We'll conclude on slide 14. As I reflect on my first year as CEO of HACI, I am extremely proud of our many accomplishments in 2023, and I remain confident that our three-year business planning process has concluded that all of the components of long-term success are in place. As I said on Investor Day back in March, HACI is the preeminent climate pure play with a differentiated strategy that allows investors to access the growth trajectory of the energy transition in a low risk business model. This strategy of focusing on climate positive asset level investing with the leading sponsors and developers continues to be successful and provide ongoing shareholder value. Our business model has proven resilient despite many headwinds, and our new guidance reflects a path forward to consistent profitability and less reliance on capital markets. I thank our dedicated team for their outstanding achievements in 2023 and their enthusiasm and commitment to our future success. Thank you for joining the call, and I'll ask the operator to open the line for questions.