Earnings Call Transcript - HASI Q1 2020

Operator, Operator

Good afternoon and welcome to Hannon Armstrong's conference call regarding its Q1 2020 financial results. Leadership will use a slide presentation for this call, which is now available for download on the company’s Investor Relations page at investors.hannonarmstrong.com. This call is being recorded, and we have set aside 30 minutes for prepared remarks and Q&A. All participants will be in a listen-only mode. At this time, I would like to turn the conference call over to Chad Reed, Vice President of Investor Relations and ESG for the company. Please go ahead.

Chad Reed, Vice President, Investor Relations and ESG

Thank you, Operator. Good afternoon, everyone, and welcome. Earlier today, Hannon Armstrong released a press statement outlining our first-quarter 2020 results, which you can find on our website. This conference call is being streamed live on the Investor Relations section of our website, where a recording will be accessible later today. Before we start, I want to remind you that some statements made during this call may be forward-looking statements as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The company is claiming the protections of the Safe Harbor for these forward-looking statements. These statements are subject to the risks and uncertainties mentioned in the Risk Factors section of the company's Form 10-K and other filings with the SEC. Actual results may vary significantly from what is discussed in this call. Additionally, all forward-looking statements are valid only as of today, and the company does not have an obligation to update any forward-looking statements based on new developments or altered expectations. Please be aware that certain non-GAAP financial measures will be discussed during this conference call. This information should not be viewed in isolation or as a replacement for the financial information provided in accordance with GAAP. A reconciliation of GAAP to non-GAAP financial measures can be found in our earnings release and slide presentation. Joining me for today's call are Jeff Eckel, the company's Chairman and CEO, and Jeff Lipson, our CFO. Now, I will hand it over to Jeff, who will begin on slide three. Jeff?

Jeff Eckel, Chairman and CEO

Thank you, Chad, and good afternoon, everyone. I hope you and your families are as well as they can be. I have to admit, I've struggled more in preparation for this call than I have for my prior 28 earnings calls. Today, Hannon Armstrong is announcing that fortunately we maintain a healthy workforce and access markets for growth capital, our reporting record first-quarter earnings, continue to manage a portfolio that is performing to expectations and are able and willing to reaffirm guidance for 2020. This good news stands in stark contrast with the impact of this pandemic on people and businesses to date and in the future. This is my struggle. There are so many impacted directly and indirectly, so many first responders and healthcare workers taking risks. We at Hannon Armstrong are not directly exposed to. We are deeply humbled by and grateful for their work. Rather than jump right into the numbers, I want to highlight a few actions we've taken during the pandemic. First, we closed the office on March 10th, earlier than most companies in order to ensure our staff and their families stay healthy. Fortunately, we have stayed healthy and will continue to put employee health first. The good news is that financial service firms are better suited to remote work than most, other than the working parents of school-aged children struggling with school and childcare closures. Our team is highly functional. Second, we made significant donations to three local organizations, the Maryland Food Bank, the YWCA in Annapolis, and Indianapolis Lighthouse, organizations providing food security, protection for domestic abuse victims, and shelter for the homeless. We and our staff will continue to support these and other community organizations during the pandemic. As for the resiliency of the business, I've reflected on a number of factors that caused Hannon Armstrong's business model to prosper in this unprecedented environment. First, virtually all of our investments saved the obligor money. This is a profoundly important distinction that is often missed in more normal times. Second, our clients, the leading energy and infrastructure companies in the country and the world are large, responsible corporate citizens, who will survive and prosper as we exit from this crisis. Finally, the investment pipeline which drives our future growth remains intact, not only because these investments save people money and are sponsored by our terrific clients, but also because the underlying theme of investing in climate change solutions is proving a durable asset class and one that we believe will come out of this crisis even stronger. Now on to the numbers for our first-quarter results on page four of the slide deck. Today we're announcing GAAP earnings per share of $0.35, up 67% year-over-year, core earnings per share of $0.44, up 33% year-over-year. Later, Jeff L will detail a new accounting standard and how our definition of core earnings has changed as a result. But until then, when I refer to core earnings, it is consistent with the last quarter's definition to allow investors to compare our results to our guidance. We raised nearly $550 million in growth capital through April including $400 million in unsecured green bonds and $150 million in equity through our ATM. We achieved 40% year-over-year growth in GAAP net income, excuse me, GAAP net investment income, and 52% growth in core net investment income. We report a portfolio yield of 7.7% and as Jeff L will detail in a bit, our portfolio is performing to expectations and is in great shape. We closed $186 million of transactions compared to $319 million in the first quarter last year. But importantly, we still expect full year originations to exceed the $1 billion mark. And finally, at a time when challenging economic conditions and uncertainty about the future are forcing many companies to withdraw guidance, fortunately for the reasons I outlined, we remain confident about our ability to weather the current crisis and are reaffirming our guidance for 2020 with core EPS expected to exceed $1.43 per share. Turning to slide five, let's turn to our more than $2.5 billion pipeline, the majority of which is behind the meter. Although, you will notice this quarter an increase in grid-connected pipeline. We continue to identify attractive efficiency and renewable opportunities in the federal and municipal markets, as well as universities, schools, and hospitals. Investments that have been engineered before the crisis are generally proceeding, while the to-be-engineered investments may be pushed back a quarter or two. With regard to residential solar, deployments of projects already in our pipeline continue, even as new originations have understandably slowed as a result of social distancing and the economic downturn. The quick shift by the residential solar companies to online selling, engineering, and permitting has been impressive. We also continue to look closely at a number of opportunities in the grid-connected sector. As federal tax credits for wind step down, wind project execution is accelerating, potentially leading to new investment opportunities for Hannon. As a final note, we occasionally get the question on the impact of low oil prices on our renewable pipeline. The answer is there is virtually zero impact, whether the price of oil is $10 or $100, because oil is not used for electric power generation, except a little bit in Hawaii. Hopefully, we can put this question to rest for good. Turning to slide six, our balance sheet portfolio is more diverse and longer-dated than it was at the end of 2019, as at the end of the first quarter, we have 180 investments, with an average size of approximately $12 million and a weighted average life of approximately 15 years. The behind-the-meter market represents over 60% of our portfolio and generates a forward-looking yield of 8.1%. The fact that virtually all of these assets save money for the obligor. It’s one of the reasons for a strong credit profile. I think one of the outcomes of the crisis is that people will be more focused on the reliability and resiliency of power where they work and live, as reliable power is proving even more critical. This will only help strengthen both our credit profile, as well as expand the storage opportunity. At 38% of our portfolio generating a forward-looking yield of 7.1%, the grid-connected market continues to be driven by both solar/land and onshore wind. In sum, our $2.1 billion balance sheet portfolio remains well diversified with long-dated assets and poised to support our projected growth in 2020 and beyond. Let's turn now to slide seven, which highlights a transaction that went from our pipeline to our portfolio in Q1. We invested $115 million in preferred equity into the Hawkeye Energy, a landmark public-private partnership between NG and the University of Iowa. Hawkeye Energy was awarded a $1 billion 50-year utility management concession contract and the investment reached financial close on March 10th. Hawkeye will support the university's energy, water, and sustainability objectives for two campuses spanning 1,700 acres, including meeting zero carbon energy transition objectives and becoming coal-free in campus energy production on or before 2025. Innovative in both scope and ambition, it serves as a campus utility system model for major U.S. universities and research hospitals that look to achieve their cost and sustainability objectives. The investment's financial profile is strong with an attractive 50-year risk-adjusted return for contracted cash flows from a high investment-grade counterparty. This expansion in the higher education P3 market also grows and diversifies our pipeline and strengthens the portfolio while fully aligning with our climate-positive ESG objectives. Now, I'll turn it over to Jeff L, who will detail our financial performance.

Jeff Lipson, CFO

Thanks, Jeff. Summarizing our first-quarter results on slide eight. We recorded GAAP earnings per share of $0.35 in the first quarter, an increase of 67% over the same period last year, due to increases in both interest revenue and equity method investment earnings. For core earnings per share, allow me to reiterate our definition that beginning this quarter, core earnings will now include CECL-related provisions, which I will explain further in a few moments. However, for 2020, we will also disclose pre-provision core EPS as that is the comparable metric related to prior periods and is also the metric we are utilizing for our guidance. Core earnings per share was $0.43 in the first quarter and core earnings per share on the pre-provision basis was $0.44 cents, reflecting a 30% increase from 2019. As we turn to slide nine, I want to highlight the $29 million of core net investment income in Q1, a 52% increase year-over-year. This increase has been the result of growth in our portfolio, as well as improvement in our portfolio yield. We are encouraged by this migration of the business to more significant levels of net investment income, as this enhances the predictability of our core EPS. However, we would expect the growth rate in core net investment income to moderate somewhat over the next one to two quarters due to a substantial amount of low yielding cash on the balance sheet from our recent capital raises. It is also notable we achieved a core ROE in excess of 12% in the first quarter. As we turn to slide 10, I want to emphasize that even in the midst of an extraordinarily challenging macroeconomic environment, our diversified liquidity platform is working as intended. We primarily fund our business in four ways: bank credit facilities, unsecured debt, public equity, and secured financings, both on and off balance sheet primarily with life insurance companies. Despite all of this disruption – despite all the disruption in capital markets over the last two months, we've utilized all four of these sources actively and each of them remained open to us. After a brief period in which non-investment grade debt markets were inaccessible, we issued $400 million of green bonds soon after the market reopened in a transaction that was well received by investors and significantly oversubscribed. The substantial fundraising we completed over the last two months positions us extremely well for the current recessionary environment, with a substantial amount of cash available to continue to fund accretive investments. We ended the quarter with $173 million of unrestricted cash, much of it generated from equity issuance via our ATM platform and we significantly increased that balance with the debt offering and additional ATM sales in April. In fact, the ATM has been a successful low-cost equity issuance platform and we intend to refresh our registration, allowing for another $350 million of issuance. To reiterate, our motivation for raising this debt and equity was our confirmation from our clients that our pipeline transactions continue to move forward. I'll also note we have limited refinance risk, as we have no material recourse debt maturities until September 2022, when our convertible bonds mature and that given this baby settles in shares, this maturity does not necessarily reflect the cash need. We also have limited interest rate risk, as the vast majority of our assets and liabilities are fixed rate. Turning to slide 11, the credit quality of our portfolio remains stable, as depicted in the pie chart on the right. All of our governments and the vast majority of our commercial obligors enjoy investment-grade ratings. In addition, the obligors of our residential solar assets include approximately 150,000 high credit quality consumers located across 22 states. And then our equity method investments we are typically preferred in the investment structure. On slide 12, as I discussed in our last call, we highlight that beginning this year we've implemented the new accounting standard referred to as CECL. Similar to the method that banks and many finance companies have utilized for years. As a result, we have created an allowance for losses on the balance sheet and recorded a provision on the income statement for certain of our assets. Notably, equity method investments are excluded from CECL. For the first quarter, we recorded approximately $650,000 net provision expense, hence the $0.01 in core EPS mentioned earlier. It's important to note two things: one, utilizing provisions and allowance does not change the profitability of our investments over their full life but typically reduces profitability in the first year of the investment, and two, CECL is an accounting methodology change and does not impact the actual credit quality of our investments and should not be interpreted as a change in our expectations of portfolio performance. We've also included for reference a simple example of the timing impact of CECL income recognition in the appendix of today's presentation. Further, to give investors additional transparency into our portfolios performance, we provided a new disclosure table on slide 12. Currently, 99% of our portfolio is performing, 1% is performing slightly below our metrics, but it’s a low probability of loss of invested capital and $8 million of assets are performing significantly below our metrics. However, please note the investments in category three have been fully reserved for 2019. Turning slide 13, we're also providing details on the credit attributes of our residential solar investments, including the customer savings component that Jeff referenced earlier, modest monthly payment amounts, widespread usage of ACH, FICO scores well above national averages, transferability of panels, portfolio granularity and geographic diversity. We also highlight that these portfolios have been underwritten by multiple sophisticated investors and rating agencies as part of the senior debt, financing the same pools of assets. These debt financings are also structured with an identified backup servicing plan. Towards the bottom of this slide, we reflect that we have substantial equity providing credit enhancement for our mezzanine investments. We can report that since the COVID-19 pandemic commenced, based on information we've received to date and other public disclosures, the increase in customer delinquencies and deferrals in the underlying portfolio have not been significant. However, we continue to work closely with our solar partners to monitor the portfolio given the current macroeconomic environment. We've also included in the appendix, a slide outlining the collections procedures of the solar providers. We hope these enhanced asset quality disclosures are helpful to investors in better understanding our credit risk and portfolio performance. With that, I'll turn the call back over to Jeff.

Jeff Eckel, Chairman and CEO

Thanks. Turning to slide 14, I will highlight notable recent developments on the ESG front that continue to demonstrate our leadership. Following our most recent green bond offering, we joined the NASDAQ sustainable bond network, which sharpens accountability for issuers and should enhance liquidity for green bond investors. In addition to the donations I mentioned at the beginning of the call to support COVID-19 relief efforts by local charities, we also offered a 100% match of employee charitable contributions and an employee bonus to help with hardship expenses. We also invite you to check out our 2019 impact report, which we published in March, which you can find on our website. I believe we get appropriate credit for our environmental and governance practices in most quarters. The social element of ESG is generally not as visible to investors. When this crisis has passed, and it will, I'm certain that the investments we have made in our staff and our community will elevate the social component to equal visibility and prominence with the environmental and governance aspects in investors’ eyes, and you as investors should see the financial benefit from our unwavering commitment to industry-leading ESG business practices. I'll conclude on slide 15. We believe our core markets and clients will prove strong and capable of continuing to develop and engineer programmatic, high-quality long-dated assets for us to invest in for our portfolio. That portfolio is geographically and technologically diverse in over 180 investments and has shown strength in class financial crises by being uncorrelated to the general business cycle. Our durable capital structure, as Jeff detailed, with ample liquidity, conservative leverage, and access to diverse funding sources will allow us to make investments and grow the business. Finally, we remain focused on the sizeable and growing investment opportunities in climate change solutions that our clients continue to create. Thank you for joining us today. Stay well. And Operator, we'll open the line for questions.

Operator, Operator

Our first question comes from Chris Van Horn with B. Riley FBR. Please go ahead.

Chris Van Horn, Analyst

Good afternoon. Thanks for taking my call and hope everyone as well.

Jeff Eckel, Chairman and CEO

Thanks, Chris.

Chris Van Horn, Analyst

I am wondering if you could give us maybe a real-time update on how the month of April has progressed and how your conversations with the pipeline have been going?

Jeff Eckel, Chairman and CEO

Chris, it’s kind of hard to address. In April, I think you could take from particularly my comments on the pipeline and the reaffirmation of guidance that we've not heard anything in April that would change what our view was at the end of the quarter. Most of the assets in construction are considered essential services. We've not seen any notable reduction in construction. And I think a key thing to think about is when we see an investment opportunity, say, like the University of Iowa, there's been one or two years of selling, engineering, and structuring that investment before we see it. There is a stock of those assets sitting out there in our clients' pipeline that we fully expect to be able to transact on in 2020. I mentioned that some assets that haven't been sold or engineered yet might have a one-quarter or two-quarter delay. I think that's quite possible, and I think most of the clients believe they can play catch up at the end of the year and get their pipelines back intact.

Chris Van Horn, Analyst

I understand. Great. Looking at your pipeline, I assume there is significant military, government, and municipal exposure. Are you noticing any budget impacts on that pipeline, or is the scope of work focused on cost-saving leading to an increase in demand, which you hinted at?

Jeff Eckel, Chairman and CEO

I believe the federal government can create debt and produce more currency. We've navigated several financial crises alongside the federal government, and they will face remote working challenges just like any employee. However, from a credit perspective, this has never posed a problem for us, and we don't expect it to. Generally, municipalities, universities, schools, and hospitals cannot issue debt, which raises credit concerns. But, as you've pointed out, these assets that save money by not paying us will ultimately end up costing them more, and the credit quality of our municipal exposure is quite strong.

Chris Van Horn, Analyst

Got it. Great. And I guess, finally, the residential solar piece of the portfolio. It seems like it's somewhat holding up mainly due to the high FICO score. But in your conversations with the servicers, what’s kind of the temperature moving forward and how do they see that playing out?

Jeff Eckel, Chairman and CEO

Well, I think, SunPower is doing their call right now. Sunrun has reported not sure about the event. Yeah, but in talks with SunPower and Sunrun comments, you are given the impression and we have zero loan, we have the information that the assets are performing and there is a sense of optimism among SunPower and Sunrun that this is actually an asset class that people will value more post-crisis than they might have pre-crisis. We are still in early days, but we love the credit profile of what we have got and where we are in the capital stack in these transactions. Jeff, anything you would add to that answer?

Jeff Lipson, CFO

No. Nothing to reiterate what I said in the prepared remarks that we are seeing significant deferrals or delinquency yet, but we are watching it very closely and we have underwritten as a priority payment and we continue to have a thesis that this is a priority payment to the customers.

Chris Van Horn, Analyst

Okay. Great. Thank you so much for the time, and stay safe and healthy.

Jeff Eckel, Chairman and CEO

Thank you, Chris.

Jeff Lipson, CFO

Thank you.

Operator, Operator

The next question is from Julien Dumoulin-Smith with Bank of America. Please go head.

Anya Shelekhin, Analyst

Hey. This is actually Anya filling for Julien.

Jeff Eckel, Chairman and CEO

Hi, Anya.

Anya Shelekhin, Analyst

Hi. How are you?

Jeff Eckel, Chairman and CEO

Good.

Anya Shelekhin, Analyst

First, just wanted to ask what your expectations are for the pace of origination grid, just given circumstances? And similar for gain on sales securitization, maybe more for 2021 than 2020 since you seem pretty confident on 2020 originations as the conversations that have been ongoing and just yeah, more color on that?

Jeff Eckel, Chairman and CEO

I think the companies we're working with see this as an opportunity to transition from less sustainable to more sustainable infrastructure. Other companies in different energy sectors are not as optimistic about 2020 or 2021, but those are not our clients. Since it's still early and we don't have a vaccine, we can't definitively say how long this situation will last, but our clients are progressing with construction projects, which will save them money and create a solid pipeline for us. I also want to highlight that we expect to reach $1 billion in closed transactions in 2020, and we have a pipeline of over $2.5 billion. Historically, there has been a tendency for things to move to the right in our pipeline, and I expect that will continue, but that means moving into 2021. I believe new transactions will come in to replace those we transition from the pipeline to the portfolio. Jeff, would you like to address the securitizations?

Jeff Lipson, CFO

Sure. Again, the forecast gain on sale in 2021 would be challenging. As you know, Anya, most of what we securitize is energy efficiency transactions. That market remains strong, but I would think we'd be hesitant to be definitive about what 2021 gain on sale would look like at this point.

Jeff Eckel, Chairman and CEO

Except maybe I would add that the insurance companies, who are the buyers of our gain on sale are functioning open; we're doing business with them. And just as we did in ’08 and ’09, they have insurance premium money coming in, they have to reinvest it, and in this extremely low-interest rate environment, they have no choice but to keep doing transactions, and that's good news for us.

Anya Shelekhin, Analyst

Okay. Thanks. And just to follow up on just across the asset classes, where are you seeing growth opportunities today maybe in the P3 asset class and then elsewhere?

Jeff Eckel, Chairman and CEO

Well, I think, yeah, the P3 area. For those of you who don't know what P3 is, well, it's not paycheck protection plan in our context its public-private partnerships. Thrilled to be in the transaction with NG and supporting them. The offering that they're making to the P3 customers is a really compelling one, and I think, they're going to have a lot of success in this market and we look forward to participating in future transactions. We're certainly seeing governments continue to go after their sustainability goals, which is largely achieved through efficiency, but also through solar and storage. And then, as I mentioned, the wind industry is having, maybe not the record that they were planning on having in 2020, but they're going to have a terrific year and that creates opportunities for us as well.

Anya Shelekhin, Analyst

Okay. Thanks. I'll jump back in the queue.

Operator, Operator

The next question is from Noah Kaye with Oppenheimer. Please go ahead.

Noah Kaye, Analyst

Good afternoon. Thanks for taking the questions.

Jeff Eckel, Chairman and CEO

Hi, Noah.

Noah Kaye, Analyst

Hi. How are you?

Jeff Eckel, Chairman and CEO

Good.

Noah Kaye, Analyst

Thanks for providing an extremely transparent view of the health of the business, and frankly, doing so in a manner that fits the company's values. Jeff, I'm not sure if you were alluding to this as a potential opportunity, but it's something we've been thinking about. There's quite a lot of discussion about what the built environment needs to look like and how that needs to change as we all hopefully do go back to work and recongregate? Some of the partners that you have for institutional building improvements and commercial building improvement, they've been talking about this and there's quite a lot that they need to be done from a perspective of making buildings more resilient and now really from a public health perspective as well. It's not strictly talking about energy saving but it is life-saving, some of these measures being considered. And so, I'm wondering if, since you're talking about…

Jeff Eckel, Chairman and CEO

Yeah. We do.

Noah Kaye, Analyst

…social aspect of your business is that expanding your opportunities…

Jeff Eckel, Chairman and CEO

Noah, it’s a great question. I did a webinar for the alliance to save energy on John’s Controls 2020 Survey of Building Energy Managers and have completed in 2019, so pre-COVID and somewhat out of date. But the entire webinar was focused, at least my comments on what is actually changing now in the scope of supply for energy service companies for buildings. You need a lot more air circulation post-COVID environment than you did before. And you need UV filters in that circulation system. People aren't going – our employees aren't going to come back to work unless they know the building is safe and we fully encourage that. So we're actually looking into some of those technologies for our own office. It's early days on how to get them done, but absolutely, this increases the scope of supply for the energy service companies, and it goes from ‘gosh, we get to save money’ to ‘good Lord, we got to save buildings that are very valuable.’ So as I think everybody is realizing that virtually everything has changed, that is one area that I think our clients are very quick to seize that opportunity.

Noah Kaye, Analyst

Thank you. Just a quick question regarding the potential Russia wind projects in the pipeline. Do you think there is enough tax equity available to fund those projects if the cost of tax equity rises due to scarcity? How does that affect your position? Your insights would be appreciated.

Jeff Eckel, Chairman and CEO

Sure. I think in most markets, you see life isn't fair in a crisis in large companies have access to, in this case tax equity that smaller companies don't. To the extent there's scarcity of tax equity has become scarcer, we're seeing commitments get follow through on and transactions closed. But it's going to be our large clients who are getting what available capacity there is. If there are other projects that need tax equity and can't get it – that's pretty hard for us to bridge in the short-term with actual cash equity. But in terms of the wind opportunity we're talking about, we do not see and I think the wind industry association has confirmed it is not seeing a notable pickup in the tax equity market.

Noah Kaye, Analyst

Okay. That's very helpful. Thank you.

Jeff Eckel, Chairman and CEO

Thank you, Noah. Stay safe. Hello? I think Chris from Cowen is up next.

Christopher Souther, Analyst

Hi, Jeff. I missed the introducer. Thanks for taking the question here. I just wanted to touch on and see if there were any new opportunities that were popping up outside of your traditional scope, as projects or companies kind of face liquidity issues in the near-term. Just given your peak-up the war chest here, want to get your thoughts?

Jeff Eckel, Chairman and CEO

Yeah. It's a fair question, Chris. The bias we have in picking through projects and investable opportunities is, who can we do repeat business with is programmatic investment that we talk about so often. That's the way our business makes money. We are less likely to be opportunistic and a one-off transaction, even if somebody needs more capital than they thought they did. That's really not kind of our way of working. And fortunately, most of our clients are large companies who have tremendous access to liquidity. So we're not seeing train wrecks that allow us to be more opportunistic. But I would say that it’s – we've seen an increase in our cost of capital and as the stock price lowered and the unsecured debt priced more expensively than the prior issuance. That is something that we'll be able to in this market, I think, adjust pricing to make sure that the price and cost of capital moves out in parallel lines.

Christopher Souther, Analyst

So just on kind of the price that you're discussing as kind of dislocation in markets, change that with either some of the projects that you're looking at now or potentially the change companies when you go to several different projects?

Jeff Eckel, Chairman and CEO

Yeah. I think there was maybe in March and early April some failure to recognize that the world had changed a bit. But now that we're in May, I think, everybody is pretty much got the memo that the finance markets have changed and capital is getting paid, I think, a more fair price than it was pre-crisis.

Christopher Souther, Analyst

That's good to hear. And then just the last one, you'd call out wind as – good tide wind is an area of the pipeline that seems to be growing. Can you talk a bit about what is in the sustainable infrastructure side and where the increased opportunities are there?

Jeff Eckel, Chairman and CEO

A significant portion of our work involves stormwater remediation, and we are actively pursuing that sector. The transactions we engage in primarily involve state-level credits from highly rated states, which adds substantial value to our balance sheet. Although COVID-19 has impacted many areas, states are still required to move forward with these projects, which are typically construction-focused and allow for social distancing. Much of the work is conducted in less populated areas, such as forests or along highways, giving us confidence that these projects will proceed. Additionally, we are involved in other sustainable infrastructure initiatives, such as repairing transmission lines, which have been somewhat irregular but also present good opportunities in the post-COVID landscape.

Christopher Souther, Analyst

Got it. And maybe just the last one, how can the origination process change understanding with the programmatic relationships, it's a lot easier. But just funded them, it sounds like things seem to be well on track when see if there are any areas where, there are delays or lockdowns within that process?

Jeff Eckel, Chairman and CEO

Typically, the projects that might face lockdowns or supply chain issues would not have been expected for another six to eighteen months anyway. While these challenges may exist in the future, the projects we are currently investing in are generally well-supplied and able to move forward. In this new environment, there is still much to learn and understand. However, I am very impressed with our clients, as they can quickly adapt and change their operations to overcome challenges. These companies are highly capable, and it's a pleasure to have them as clients.

Christopher Souther, Analyst

Good to hear. I will hop in the queue. Thanks.

Operator, Operator

The next question is from Stephen Byrd with Morgan Stanley. Please go ahead.

Stephen Byrd, Analyst

Hey. Good afternoon. Hope you all are doing well.

Jeff Eckel, Chairman and CEO

Hi, Stephen.

Stephen Byrd, Analyst

A lot of my questions have been addressed, I just wanted to touch on Hawkeye, pretty sizable investment? And I just wanted to understand in terms of the impacts to guidance for 2020, how to think about the impacts to guidance given the size of the investment?

Jeff Eckel, Chairman and CEO

I mean, let’s say, I’m looking at Jeff here, how would you answer? I think, we would – we obviously have just reiterated the guidance we expected to put a substantial amount of assets into the portfolio. This is one of them that’s been in our pipeline for a while. So I'm not sure it fundamentally changes the 2020 results. The good thing about infrastructure investments like these, as they move glacially up and down. And the things in our pipeline are generally going to happen. So I'm not sure there is a 2020 impact. Anything you would add, Jeff?

Jeff Lipson, CFO

No. I mean our guidance is based on obviously a certain level of investments, and the Iowa transaction was a component of that that we've now checked off. So it certainly helps us facilitate us reaffirming our guidance.

Stephen Byrd, Analyst

Yeah. That's great. What I check, yeah, no, please go ahead.

Jeff Eckel, Chairman and CEO

I am glad to close it on March 10th, the same day we were closing the office. So a lot of stuff got closed on March 10th.

David Cater, Analyst

Hey, guys. Thanks for the questions.

Jeff Eckel, Chairman and CEO

Hi, Phil.

Phillip Shen, Analyst

We're aware that many others are likely experiencing similar situations regarding conference calls, so I apologize if this has already been covered. However, I would appreciate it if you could provide more information on the status of your residential solar investments. I believe you have three partners: SunStrong, SunPower, and another one. Could you compare the performance of these different portfolios? Additionally, Sunrun recently shared some interesting data about their delinquencies over the past six months, noting that 30, 60, 90, and 120-day delinquencies in March and April were at the lowest levels. Can you comment on how your three portfolios are performing in light of this information?

Jeff Eckel, Chairman and CEO

So, Phil, we would not comment on the portfolios individually. That's just not something that we're able to disclose and each of our three partners are public companies. So as you alluded to, there is some data out there that they're providing. I think what we have said, if you missed it, was that deferrals and delinquencies have not increased significantly as a result of the pandemic so far. But, obviously, we're keeping a close eye on it given the macroeconomic trends we have right now. And we've underwritten this, our investment thesis here is that this is a priority payment for the consumers, at the top of the consumer waterfall, so to speak. And for reasons that we've outlined most notably that it does save them money and many other things which are on page 13 of this slide deck. So that's how we've sort of thought about it and so far it's holding up, we're watching it closely, I think, would be our message there.

Phillip Shen, Analyst

Okay. As we navigate through this pandemic and considering the performance of that asset class for you, along with the various other investment options available, are you feeling more encouraged or less encouraged? Do you anticipate making significantly more megawatts or investments in your portfolio over time?

Jeff Lipson, CFO

We are pleased with our current investments and are open to future residential solar opportunities. It's interesting to note that while Sunrun plans to accomplish in two years what SunStrong managed in just 30 days regarding online sales, engineering, and permitting, SunPower has demonstrated a similarly rapid pace of change. This efficiency greatly benefits sales and reduces customer acquisition costs for these companies, ultimately making them more profitable, which is a positive outcome for us.

Jeff Eckel, Chairman and CEO

Great. One of the ones, if I may, data centers in the growth there is pretty phenomenal, and there's a lot of renewables going into there. And industrial guys have not talked about exposure to that market, but do you see on the horizon potential to get some exposure to that data center growth? Well, I do think some of the PPA off-takers and portfolios we bought would represent some of those companies. It's absolutely going to be a growing market and they have a big impact. And so, I'm glad they have big sustainability goals. It's certainly a market that we will like and continue to see opportunities.

Phillip Shen, Analyst

Great. Thank you both. I'll pass it on.

Jeff Eckel, Chairman and CEO

Stay well, Phil.

Jeff Lipson, CFO

Thanks, Phil.

Operator, Operator

The next question is from David Cater with Baird. Please go ahead.

David Cater, Analyst

Hey, guys. Thanks for taking the question. And I'm sorry if I'm repeating something I already touched on. But seeing portfolio yields continue to move higher as you look at current portfolio, how high can that go, how much more room do you have to rotate some lower yielding assets out there?

Jeff Eckel, Chairman and CEO

The rotation of lower yielding assets is primarily complete. So movements in portfolio yield will likely going forward be much more affected by what the incremental assets are on the balance sheet and when any payoffs are syndicated. But we don't sort of forecast publicly our yield, I would say directionally, as Jeff alluded to a few moments ago, the price of risk has increased, and there has been some resetting of cost of capital. And so that may have a positive impact on our yield, but I think it's still too early to tell right now.

Jeff Lipson, CFO

Yeah.

David Cater, Analyst

Understood. And then shifting to kind of capital, you issued some more debt in 2020 as we think of future capital raises, how much debt are you comfortable raising there? What will be the kind of the upper limit?

Jeff Lipson, CFO

In other words, as an active participant and established name in the high-yield market, I don't think there's any meaningful limitation on the amount we could issue given the size of that market. And if we upgraded it certainly we would make the same comment around the high-grade market as well. So the limitation is only what we can do with that money and what kind of leverage profile we want to maintain. And so, it's not a market limitation. So we'll raise debt, consistent with maintaining roughly the leverage profile we have today and the amount of investment opportunity we have in the pipeline. So it's not a debt target so to speak.

David Cater, Analyst

Understood. That's helpful and that's all I had, guys. Thanks.

Jeff Eckel, Chairman and CEO

Thank you. Stay well.

Operator, Operator

This concludes our question-and-answer session and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.