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spk06: not only by public policy, but increasingly over the last two decades by economic factors. The simple truth is that renewables have not only become the lowest levelized cost of energy, but also offer comparatively rapid deployment, which has helped transform them into the preferred source of incremental energy. In addition, the forecasted demand for power over the next several decades will inevitably result in an all of the above energy strategy in this country. The corresponding elevated investment in supply to meet this demand will ensure our clients maintain strong development pipeline. This dynamic extends not only across presidential administrations, but also across geographic lines as well. As the table at the bottom of the slide indicate, cumulative deployments of renewable power in this country are split quite evenly between Republican and Democratic states, and in fact, lean slightly in favor of states that voted Republican in 2020. Perhaps more importantly, investment in clean energy projects announced since the IRA was enacted a few years ago skews heavily in favor of states that voted Republican in 2020. I would note we could have used a variety of data points in this slide, and they would have all resulted in the same conclusion. The energy transition is an economically viable macro trend that will continue for many decades, regardless of election results. Turning to page five, A reminder that our business is not dependent on low interest rates. We continue to prove the thesis that in all rate environments, high, low, flat, steep, or inverted, our business can thrive. In 2020 and 2021, rates were unusually low, followed by a rapid increase in 2022 and 2023, during which the Fed raised interest rates by 500 basis points and the yield curve was persistently inverted. In 2024, a rate cut cycle has started again and the curve has steepened. Throughout this period of rate volatility, we have maintained a consistent and disciplined approach to interest rate risk management. As noted on the slide, our margins have remained attractive as we have consistently invested at an adequate spread to our debt cost. Likewise, we have consistently increased adjusted earnings throughout this period of rate volatility. Quite simply, the lengthy track record of our business is that we generally invest at an average of Treasuries plus 5 to 6 percent. And now, as an investment-grade debt issuer, we can fund ourselves at Treasuries plus 2 to 2.5 percent. This resulting margin has created a sustainable, predictable, and consistently profitable business. Turning from slide five, detailing our margin history, to slide six, I would like to emphasize that our outlook for margins over the next several quarters remains robust as we continue to close transactions with double-digit yields and our long-term public bonds are trading at roughly 6.5%. I'd also like to provide a brief update on two other items. Our CCH-1 partnership with KKR continues to progress entirely within our expectations. We have closed a number of additional transactions in the vehicle in the third and early fourth quarter with no modifications of our internal processes. AKR continues to be an ideal and constructive partner, and we remain on track to complete the $2 billion investment target by year-end 2025. Finally, I would note that our SunStrong growing venture has transitioned, and we have a new partner that has purchased 50% of the JV following the SunPower bankruptcy. The JV continues to effectively service the legacy leases, and our corresponding asset-secured loans are performing as expected. And with that, I will pass the call over to Mark.
spk04: Thank you, Jeff. I'll start on slide seven. Our pipeline remains at more than $5.5 billion and is well diversified across our end market. Listed on the right are three items I'd like to highlight. Most notably, we anticipate onboarding approximately 10 new clients this year. These additions are across all three of our markets. I've previously summarized our growth coming from three primary avenues. growing with existing clients, adding new clients. The investment this year into expanding our client base will continue to drive our future opportunities. Next, as an example, the grid-connected investments in our pipeline have typically completed a two-plus year development cycle, which requires a meaningful capital investment from our clients. Our entry point into these investments de-risks both development delays and provides clarity on near-term pipeline regardless of political environment. Finally, in the FTN market, we continue to see RNG as the primary driver of growth. We continue to build off our existing partnership with leaders like Amoresco and broaden to other key players like Vision RNG as we announced a few weeks ago. Our optimism is supported by the growing forecast for U.S. power demand. which we see positively impacting our pipeline and portfolio today. Moving on to slide eight, year to date, we have closed $1.2 billion of transactions. As you can see in the table, these closings are well diversified among our underlying assets. Managed assets have grown to $13.1 billion, and the portfolio has increased to $6.3 billion. For the year, we expect to exceed $2 billion in transaction closings, consistent with our expectations. One other positive item I'd like to highlight, portfolio growth reflects our asset rotation initiative where we have rotated out of more than 400 million of investments which were on the balance sheet at a weighted average yield of less than 6.5%. We also rotated out of these investments at a gain. Replacing these lower yielding investments with higher yielding investments will drive a more profitable company into the future. On slide nine, Given the size of our portfolio, it takes time for new investments to impact our overall portfolio yield. But you are starting to see that impact with the portfolio yield rising to 8.1% from 8% a quarter ago and 7.9% last year. In addition, while higher interest rates have increased our cost of debt relative to 23, it's worth noting that it has declined incrementally from 5.7% in Q1 of 24. ROE year-to-date grown to 12.4%, with the rise supported by our gain-on-sale transactions. Turning to slide 10 to cover our financial results. For Q3, we are reporting adjusted EPS of 52 cents and a GAAP EPS loss of 17 cents. Year-to-date 24 versus 23, we grew adjusted NII to 192 million, up 20%, recurring capital light income $19 million, up 43%, and upfront capitalized income, $65 million, up 19%. Year-to-date, our adjusted EPS has increased 8% over the prior year period. There are two items I'd like to explore further. First, the gap loss was driven by mark-to-market impacts related to power contracts in some of our underlying project investments. These power contracts provide revenue stability to the project, As power prices increase, the projects are worth more, but the power contracts are worth less. Over time, these projects will sell power at higher rates, offsetting the market impact. Second, gain on sale has been consistent when viewed in annual cycles, but will vary quarter to quarter as seen in Q3. We remain on track to meet or exceed our prior commentary around being generally in line with 22 and 23 gain on sale levels. Wrapping up my section on slide 11, our balance sheet at the end of the quarter leaves us in an excellent position to achieve our near-term growth target. At September 30, our liquidity was 1.3 billion and our debt to equity ratio remained at 1.8 times comfortably in our one and a half to two times target rate. As you can see on the chart on the right, there have been no major changes to our ladder maturity profile. with no significant near-term maturities, and the $200 million convertible note due next year can be paid off with our revolver. As a reminder, we expect our investment grade status to enable us to refinance our 26 and 27 bonds with longer tenures. We have positioned the company well to capitalize on what is a traditionally a very busy quarter at year end. With that, I'll pass it back to Jeff for closing remarks.
spk06: Thank you, Mark. Turning to slide 12, as always, we detail various sustainability and impact items, including a top-tier sustainability assessment from S&P, the greenest specially financed designation by Newsweek, and are reaching a cumulative 8 million metric tons of annual carbon emissions avoided annually. And finally, wrapping up on slide 13, the energy transition continues to be an extraordinary investment opportunity, providing an enormous addressable market and attractive returns. ASCII remains uniquely positioned to benefit given our experience, expertise, and recent improvements in our access and cost of capital. I would like to thank our talented team for another outstanding quarter as we look forward to closing out another successful year in 2024. Operator, please open the line for questions.
spk02: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question we have is from Jack Hurley of Mizuho Security. Please go ahead.
spk01: Hi. I just had a quick question regarding the technology partners. How big is RNG in the FTN market, relatively speaking, and can it support if there's any declines in the solar and wind market? And then I have one follow-up, if I may.
spk06: The R&G market is very large and growing, and I think it's been an acknowledgement that natural gas is going to be a big part of the energy future. So, the idea of converting, obviously, waste to gas and dairy products and landfill to renewable natural gas has become a very big business, and a lot of the large developers and even large private equity firms are making big investments in renewable natural gas. So, for a business like ours that prides itself on diversity, It can become a meaningful part of our business. I wouldn't necessarily compare it to wind and solar. From a size perspective, we'll very likely continue to do wind, solar, and RNG, but I think it's emerging as a very large market.
spk01: Thanks. And can you remind us of the rate hedges and the impact of rising interest rates on your earnings power, relatively speaking? And then, if anything, you can provide regarding SunStrong for the new OEM partner. Any cost savings there possible as you get a new partner on board?
spk04: We have implemented a few different styles of hedges on our liability portfolio, primarily either current swaps that are in place for some of our floating rate facilities, namely the TLA and the revolver. And then we also have forward starting place to hedge out the base rate for the refinancing of our future liabilities, primarily the 26 and the 27. So in terms of earnings power, the hedges that are in place today on our floating rate facilities are generally in the money and supporting earnings. And then on the forward starting swaps, it's primarily focused around just ensuring we are maintaining a duration profile that fits more closely with the asset side by extending those 26 and 27 programs. On SunStrong, the partner that Jeff was referring to came in and bought the equity interest. In terms of servicing the lease portfolio, the JV will continue to do that on a go-forward basis and has largely transitioned away from SunStrong. Got it. Thanks.
spk02: The next question we have is from Julian Demelin Smith of Jefferies. Please go ahead.
spk00: Hey, this is Hannah on for Julian. Thank you for the question. So as a portfolio, how do you all think about limiting your exposure to some of the volatility associated with the RIN credits as I understand some of these RNG projects are used for transportation offtake?
spk06: I think the primary way we insulate ourselves a bit from risk is that in our RNG business, we are senior debt. So we've underwritten these transactions from a cash flow and coverage perspective. And it's not that we don't have any risk, but I think by being senior debt with good cash flow coverage, we have somewhat mitigated the risk.
spk00: Got it. Thank you. And then just one last question really quick. I was a bit late for the call, so I don't know if you all talked at all about the KKR partnership, if you announced any projects funded out of that JV, or maybe how we would see that reflected in some of the statements. Thank you.
spk06: Sure. We did touch on it very briefly to say that we have in the third quarter and early fourth quarter added additional investments to the vehicle and that the vehicle is operating exactly as designed and the partnership is working quite well. As the vehicle gets larger, we'll have more disclosure but for now it remains relatively small so there's not a lot of specific disclosures we're making just yet on the assets in the vehicle.
spk00: Okay, thank you.
spk06: Thank you.
spk02: The next question we have is from Noah Kay of Oppenheimer and Company. Please go ahead.
spk03: Hey, thanks for taking the questions. Maybe housekeeping follow-up on that last one. I think in the press release, there is a line around the, I think it's $74 million held in co-investment vehicles. Is that the right number to be looking at in terms of, you know, the assets that are currently from a HACI perspective in that co-investment vehicle?
spk06: That's the, yes, no, that's the KKRP. that's the KKR portion of the vehicle that's disclosed in that table. And when I said we'll have more disclosure, I just meant in terms of what, and that's the funded disclosure. There's a fair amount of commitments in CCH1 that have not been funded yet, so I'll make that clarification as well. And when I said we'll have more disclosure, we might have a more descriptive rather than just a balance there over time. That's what I meant in the previous question.
spk03: Right. Thank you. Just pointing out that that gives us a starting point. So to reiterate $2 billion of originations for the year, given the year to date, just talk to us about the visibility to doing roughly $700 million this quarter. Were you able to get a substantial portion of that done already? You know, what's sort of the confidence level there?
spk06: It was in the very early moments of my script. You may have missed it, but I did say that we're at $1.7 billion as of today. So we did have quite an active October and an early part of November. So I think we have very good visibility on closing out the rest of that amount to get to $2 billion.
spk03: Okay. Excellent. And then I guess the last one, you know, I think the previous question touching on the refi Just to unpack it a little bit further, now that you have investment-grade credit rating, we are seeing that showing up in the bonds here. But certainly as we see some of the movements around the yield curve and longer-term notes go a bit higher, how does that change your thinking at all about managing asset versus liability duration risk? and the timing of when you might go to market around a refi.
spk04: Sure. Thanks, Noah. Mark? The fact that the long end of the curve might be moving around doesn't necessarily change our approach to managing interest rate risk. What we, I think we've mentioned this a few times, but we generally focus on a duration approach. where our asset cash flows generally fall in the 10 years of code. And so we like to focus on either issuing 10-year bonds or when we're in the high-yield market, had shorter tenors, attaching these forward-starting slots to extend that duration. So our goal is to minimize the impacts of those curve movements on our business. And then on the front-end side of that, it's as Jeff already talked about, focusing on that T plus investing approach of investing at T plus on average 5%. In terms of timing for the market, that's less around movements on the rate curve and more focused on managing our liquidity. And of course, we have a sizable revolver, which gives us flexibility to go to market when the market is relatively attractive. So it's more of an opportunity.
spk03: Right. Maybe just sneak one more, and apologies, because I think for some folks it's been a number of quarters since we actually saw a gap equity method loss. I think the last time was 4Q22. So just for all of our benefits, the simple answer here is that the projects should be worth more because power prices have gone up, but the contracts don't reflect that yet. They have to recontract, and so there will be more revenue later on, but you have to mark it as a loss. from an HLBV method, right? So essentially, the assets you're invested in are now more valuable. Is that a fair way to think about it?
spk04: Yes. The power contracts are essentially treated like hedges and are mark-to-market, whereas the actual underlying assets, the projects, are not. So those assets will realize the benefit of higher power prices over time, whereas the contracts are mark-to-market and flow through in the peer
spk03: Great. Appreciate the clarification. Thank you.
spk04: Thank you.
spk06: Thanks, Niall.
spk02: Ladies and gentlemen, just a final reminder, if you would like to ask a question, you're welcome to press star and then 1. We will pause a moment to see if we have any further questions. We have a question from Brian Lee of Goldman Sachs. Please go ahead.
spk05: Hey, guys. This is Tyler Bissett on for Brian. Thanks for taking our question. I have just one question on the pipeline. It looks like you had a strong shift towards grid-connected and a shift away from DTM. Anything to call out on driving that?
spk06: Not really. The pipeline can get a little lumpy, particularly on the grid-connected side, as we typically look at some larger transactions there. Some quarter-to-quarter movements between BTM and GridConnected should not necessarily be interpreted as a long-term theme. I don't think there's really much of anything to read in there.
spk05: All right. Thank you. Thank you.
spk02: At this time, there are no further questions. And with that, this concludes today's conference. Thank you for joining us. You may now disconnect your lines.
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