PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)


	September 30, 2020 (unaudited)		December 31, 2019
Assets
Cash and cash equivalents	$	881,487	$	6,208
Equity method investments	718,793		498,631
Government receivables	250,914		263,175
Commercial receivables, net of allowance of $31 million and $8 million, respectively	848,520		896,432

Real estate	359,948		362,265
Investments	51,638		74,530
Securitization assets	146,549		123,979
Other assets	86,649		162,054
Total Assets	$	3,344,498	$	2,387,274
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable, accrued expenses and other	$	56,843	$	54,351

Credit facilities	22,565		31,199
Non-recourse debt (secured by assets of $724 million and $921 million, respectively)	599,958		700,225
Senior unsecured notes	1,278,844		512,153
Convertible notes	288,551		149,434
Total Liabilities	2,246,761		1,447,362
Stockholders’ Equity:
Preferred stock, par value $0.01 per share, 50,000,000 shares authorized, 0 shares issued and outstanding	0		0
Common stock, par value $0.01 per share, 450,000,000 shares authorized, 74,252,973 and 66,338,120 shares issued and outstanding, respectively	743		663
Additional paid in capital	1,282,744		1,102,303
Accumulated deficit	(202,914)		(169,786)
Accumulated other comprehensive income (loss)	11,474		3,300
Non-controlling interest	5,690		3,432
Total Stockholders’ Equity	1,097,737		939,912
Total Liabilities and Stockholders’ Equity	$	3,344,498	$	2,387,274

See accompanying notes.

- 1 -

September 30, 2019 (unaudited) December 31, 2018
Assets
Equity method investments $ 449,304
$ 471,044
Government receivables 299,877
497,464
Commercial receivables, net of allowance 674,728
447,196
Real estate 363,037
365,370
Investments 113,177
169,793
Cash and cash equivalents 186,152
21,418
Other assets 192,893
182,628
Total Assets $ 2,279,168
$ 2,154,913
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable, accrued expenses and other $ 39,851
$ 36,509
Deferred funding obligations 1,073
72,100
Credit facilities 37,824
258,592
Non-recourse debt (secured by assets of $887 million and $1,105 million, respectively) 664,722
834,738
Senior unsecured notes 505,513
—
Convertible notes 147,642
148,451
Total Liabilities 1,396,625
1,350,390
Stockholders’ Equity:
Preferred stock, par value $0.01 per share, 50,000,000 shares authorized, no shares issued and outstanding —
—
Common stock, par value $0.01 per share, 450,000,000 shares authorized, 64,924,800 and 60,510,086 shares issued and outstanding, respectively 649
605
Additional paid in capital 1,063,102
965,384
Accumulated deficit (193,121 ) (163,205 )
Accumulated other comprehensive income (loss) 8,746
(1,684 )
Non-controlling interest 3,167
3,423
Total Stockholders’ Equity 882,543
804,523
Total Liabilities and Stockholders’ Equity $ 2,279,168
$ 2,154,913

HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue
Interest income	$	23,508	$	19,322	$	71,046	$	54,270

Rental income	6,469		6,469		19,408		19,415
Gain on sale of receivables and investments	13,628		7,713		34,449		16,718
Fee income	4,984		5,338		13,115		12,850
Total revenue	48,589		38,842		138,018		103,253
Expenses
Interest expense	26,085		16,561		65,884		46,861
Provision for loss on receivables	2,458		8,027		5,629		8,027
Compensation and benefits	9,012		7,193		27,223		21,281
General and administrative	3,918		3,737		11,181		10,818
Total expenses	41,473		35,518		109,917		86,987
Income before equity method investments	7,116		3,324		28,101		16,266
Income (loss) from equity method investments	16,506		5,984		32,505		18,114
Income (loss) before income taxes	23,622		9,308		60,606		34,380
Income tax (expense) benefit	(2,345)		(132)		(2,860)		1,298
Net income (loss)	$	21,277	$	9,176	$	57,746	$	35,678
Net income (loss) attributable to non-controlling interest holders	102		74		255		191
Net income (loss) attributable to controlling stockholders	$	21,175	$	9,102	$	57,491	$	35,487
Basic earnings (loss) per common share	$	0.28	$	0.14	$	0.80	$	0.55
Diluted earnings (loss) per common share	$	0.28	$	0.13	$	0.78	$	0.54
Weighted average common shares outstanding—basic	74,012,788		64,922,325		71,376,004		63,492,884
Weighted average common shares outstanding—diluted	76,131,252		65,630,711		72,644,626		64,147,835

See accompanying notes.

- 2 -

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2019 2018 2019 2018
Revenue
Interest income $ 19,322
$ 16,771
$ 54,270
$ 46,098
Rental income 6,469
6,257
19,415
18,166
Gain on sale of receivables and investments 7,713
10,868
16,718
31,333
Fee income 5,338
1,487
12,850
4,114
Total revenue 38,842
35,383
103,253
99,711
Expenses
Interest expense 16,561
19,681
46,861
57,424
Provision for loss on receivables 8,027
—
8,027
—
Compensation and benefits 7,193
6,309
21,281
17,966
General and administrative 3,737
3,551
10,818
10,481
Total expenses 35,518
29,541
86,987
85,871
Income before equity method investments 3,324
5,842
16,266
13,840
Income (loss) from equity method investments 5,984
11,671
18,114
19,969
Income (loss) before income taxes 9,308
17,513
34,380
33,809
Income tax (expense) benefit (132 ) (939 ) 1,298
(1,110 )
Net income (loss) $ 9,176
$ 16,574
$ 35,678
$ 32,699
Net income (loss) attributable to non-controlling interest holders 74
91
191
177
Net income (loss) attributable to controlling stockholders $ 9,102
$ 16,483
$ 35,487
$ 32,522
Basic earnings (loss) per common share $ 0.14
$ 0.30
$ 0.55
$ 0.60
Diluted earnings (loss) per common share $ 0.13
$ 0.30
$ 0.54
$ 0.60
Weighted average common shares outstanding—basic 64,922,325
52,728,587
63,492,884
52,167,308
Weighted average common shares outstanding—diluted 65,630,711
52,728,587
64,147,835
52,167,308

HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(DOLLARS IN THOUSANDS)

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income (loss)	$	21,277	$	9,176	$	57,746	$	35,678
Unrealized gain (loss) on available-for-sale securities, net of tax benefit (provision) of $0.0 million and $(1.1) million for the three and nine months ended 2020, and $0.1 million and $0.2 million for the three and nine months ended 2019, respectively	872		10,289		12,280		16,884
Unrealized gain (loss) on interest rate swaps, net of tax benefit (provision) of $(0.3) million and $1.3 million for the three and nine months ended 2020, respectively and $0.0 million in each of the three and nine months ended 2019	990		(2,483)		(4,071)		(6,415)
Comprehensive income (loss)	23,139		16,982		65,955		46,147
Less: Comprehensive income (loss) attributable to non-controlling interest holders	110		101		289		230
Comprehensive income (loss) attributable to controlling stockholders	$	23,029	$	16,881	$	65,666	$	45,917

See accompanying notes.

- 3 -

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Net income (loss) $ 9,176
$ 16,574
$ 35,678
$ 32,699
Unrealized gain (loss) on available-for-sale securities, net of tax benefit (provision) of $0.1 million and $0.2 million in each of the three and nine month periods ended 2019, and $0.0 million in each of the three and nine month periods ended 2018 10,289
(970 ) 16,884
(4,002 )
Unrealized gain (loss) on interest rate swaps, net of tax benefit (provision) of $0.0 million in each of the three and nine month periods ended 2019 and $(2.0) million in each of the three and nine months period ended 2018, respectively (2,483 ) 136
(6,415 ) 8,115
Comprehensive income (loss) 16,982
15,740
46,147
36,812
Less: Comprehensive income (loss) attributable to non-controlling interest holders 101
86
230
199
Comprehensive income (loss) attributable to controlling stockholders $ 16,881
$ 15,654
$ 45,917
$ 36,613

HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(AMOUNTS IN THOUSANDS)

(UNAUDITED)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Non-controlling interests		Total
	Shares	Amount
Balance at June 30, 2020	73,319	$	733	$	1,250,976	$	(198,719)	$	9,619	$	5,355	$	1,067,964
Net income (loss)	—	—		—		21,175		—		102		21,277
Unrealized gain (loss) on available-for-sale securities	—	—		—		—		864		8		872
Unrealized gain (loss) on interest rate swaps	—	—		—		—		991		(1)		990
Issued shares of common stock	875	10		29,238		—		—		—		29,248
Equity-based compensation	—	—		1,617		—		—		1,285		2,902

Other	59	—		913		—		—		(859)		54
Dividends and distributions	—	—		—		(25,370)		—		(200)		(25,570)
Balance at September 30, 2020	74,253	$	743	$	1,282,744	$	(202,914)	$	11,474	$	5,690	$	1,097,737

Balance at June 30, 2019	64,913	$	649	$	1,060,086	$	(180,217)	$	968	$	3,258	$	884,744
Net income (loss)	—	—		—		9,102		—		74		9,176
Unrealized gain (loss) on available-for-sale securities	—	—		—		—		10,250		39		10,289
Unrealized gain (loss) on interest rate swaps	—	—		—		—		(2,472)		(11)		(2,483)
Issued shares of common stock	—	—		82		—		—		—		82
Equity-based compensation	—	—		3,023		—		—		13		3,036
Issuance (repurchase) of vested equity-based compensation shares	8	—		(28)		—		—		—		(28)
Other	4	—		(61)		—		—		(43)		(104)
Dividends and distributions	—	—		—		(22,006)		—		(163)		(22,169)
Balance at September 30, 2019	64,925	$	649	$	1,063,102	$	(193,121)	$	8,746	$	3,167	$	882,543

See accompanying notes.

- 4 -

Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Non-controlling interests Total
Shares Amount
Balance at June 30, 2019 64,913
$ 649
$ 1,060,086
$ (180,217 ) $ 968
$ 3,258
$ 884,744
Net income (loss) 9,102
74
9,176
Unrealized gain (loss) on available-for-sale securities 10,250
39
10,289
Unrealized gain (loss) on interest rate swaps (2,472 ) (11 ) (2,483 )
Issued shares of common stock

82
82
Equity-based compensation 3,023
13
3,036
Issuance (repurchase) of vested equity-based compensation shares 8

(28 ) (28 )
Redemption of OP Units 4
(61 ) (43 ) (104 )
Dividends and distributions (22,006 ) (163 ) (22,169 )
Balance at September 30, 2019 64,925
$ 649
$ 1,063,102
$ (193,121 ) $ 8,746
$ 3,167
$ 882,543

Balance at June 30, 2018 52,728
$ 527
$ 789,129
$ (150,624 ) $ 3,855
$ 3,509
$ 646,396
Net income (loss) 16,483
91
16,574
Unrealized gain (loss) on available-for-sale securities (965 ) (5 ) (970 )
Unrealized gain (loss) on interest rate swaps 134
2
136
Issued shares of common stock
—
(6 ) (6 )
Equity-based compensation 2,269
11
2,280
Issuance (repurchase) of vested equity-based compensation shares 1
—
(9 ) (9 )
Dividends and distributions (17,693 ) (94 ) (17,787 )
Balance at September 30, 2018 52,729
$ 527
$ 791,383
$ (151,834 ) $ 3,024
$ 3,514
$ 646,614


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Non-controlling interests		Total
	Shares	Amount

Balance at December 31, 2019	66,338	$	663	$	1,102,303	$	(169,786)	$	3,300	$	3,432	$	939,912
Net income (loss)	—	—		—		57,491		—		255		57,746
Adoption of ASU 2016-13, net of tax effect	—	—		—		(14,031)		—		(74)		(14,105)
Unrealized gain (loss) on available-for-sale securities	—	—		—		—		12,222		58		12,280
Unrealized gain (loss) on interest rate swaps	—	—		—		—		(4,048)		(23)		(4,071)
Issued shares of common stock	7,319	75		188,723		—		—		—		188,798
Equity-based compensation	—	—		8,098		—		—		3,543		11,641
Issuance (repurchase) of vested equity-based compensation shares	537	5		(17,293)		—		—		—		(17,288)
Other	59			913		—		—		(860)		53
Dividends and distributions	—	—		—		(76,588)		—		(641)		(77,229)
Balance at September 30, 2020	74,253	$	743	$	1,282,744	$	(202,914)	$	11,474	$	5,690	$	1,097,737

Balance at December 31, 2018	60,510	$	605	$	965,384	$	(163,205)	$	(1,684)	$	3,423	$	804,523
Net income (loss)	—	—		—		35,487		—		191		35,678
Unrealized gain (loss) on available-for-sale securities	—	—		—		—		16,817		67		16,884
Unrealized gain (loss) on interest rate swaps	—	—		—		—		(6,387)		(28)		(6,415)
Issued shares of common stock	3,994	40		97,226		—		—		—		97,266
Equity-based compensation	—	—		9,573		—		—		42		9,615
Issuance (repurchase) of vested equity-based compensation shares	417	4		(9,020)		—		—		—		(9,016)
Other	4	—		(61)		—		—		(43)		(104)
Dividends and distributions	—	—		—		(65,403)		—		(485)		(65,888)
Balance at September 30, 2019	64,925	$	649	$	1,063,102	$	(193,121)	$	8,746	$	3,167	$	882,543

See accompanying notes.

- 5 -

Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Non-controlling interests Total
Shares Amount
Balance at December 31, 2018 60,510
$ 605
$ 965,384
$ (163,205 ) $ (1,684 ) $ 3,423
$ 804,523
Net income (loss) 35,487
191
35,678
Unrealized gain (loss) on available-for-sale securities 16,817
67
16,884
Unrealized gain (loss) on interest rate swaps (6,387 ) (28 ) (6,415 )
Issued shares of common stock 3,994
40
97,226
97,266
Equity-based compensation 9,573
42
9,615
Issuance (repurchase) of vested equity-based compensation shares 417
4
(9,020 ) (9,016 )
Redemption of OP Units 4
(61 ) (43 ) (104 )
Dividends and distributions (65,403 ) (485 ) (65,888 )
Balance at September 30, 2019 64,925
$ 649
$ 1,063,102
$ (193,121 ) $ 8,746
$ 3,167
$ 882,543

Balance at December 31, 2017 51,665
$ 517
$ 770,983
$ (131,251 ) $ (1,065 ) $ 3,597
$ 642,781
Net income (loss) 32,522
177
32,699
Unrealized gain (loss) on available-for-sale securities (3,981 ) (21 ) (4,002 )
Unrealized gain (loss) on interest rate swaps 8,070
45
8,115
Issued shares of common stock 834
8
15,385
15,393
Equity-based compensation 8,086
42
8,128
Issuance (repurchase) of vested equity-based compensation shares 226
2
(3,051 ) (3,049 )
Redemption of OP Units 4
(20 ) (47 ) (67 )
Dividends and distributions (53,105 ) (279 ) (53,384 )
Balance at September 30, 2018 52,729
$ 527
$ 791,383
$ (151,834 ) $ 3,024
$ 3,514
$ 646,614

HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

(UNAUDITED)


	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities
Net income (loss)	$	57,746	$	35,678
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loss on receivables	5,629		8,027
Depreciation and amortization	2,685		2,693
Amortization of financing costs	5,824		5,073
Equity-based compensation	11,615		10,385
Equity method investments	14,024		3,695
Non-cash gain on securitization	(36,866)		(18,575)
Gain on sale of receivables and investments	8,671		3,140

Changes in accounts payable and accrued expenses	5,906		(4,804)
Other	(23,372)		(13,726)
Net cash provided by (used in) operating activities	51,862		31,586
Cash flows from investing activities
Equity method investments	(322,948)		(48,301)
Equity method investment distributions received	90,920		53,485
Proceeds from sales of equity method investments	0		8,433
Purchases of and investments in receivables	(92,232)		(274,472)
Principal collections from receivables	94,780		48,900
Proceeds from sales of receivables	52,329		134,932

Purchases of investments	(22,777)		(22,242)
Principal collections from investments	1,981		5,432
Proceeds from sales of investments and securitization assets	58,018		90,993

Funding of escrow accounts	(7,783)		(28,672)
Withdrawal from escrow accounts	6,300		29,156
Other	3,200		2,891
Net cash provided by (used in) investing activities	(138,212)		535
Cash flows from financing activities
Proceeds from credit facilities	126,000		101,500
Principal payments on credit facilities	(134,594)		(321,869)
Proceeds from issuance of non-recourse debt	15,938		34,988
Principal payments on non-recourse debt	(118,623)		(180,708)
Proceeds from issuance of senior unsecured notes	771,250		507,313
Proceeds from issuance of convertible notes	143,750		0
Payments on deferred funding obligations	0		(18,791)
Net proceeds of common stock issuances	188,197		96,648
Payments of dividends and distributions	(74,295)		(64,239)
Withholdings on employee share vesting	(17,287)		(9,015)
Other	(15,005)		(8,304)
Net cash provided by (used in) financing activities	885,331		137,523
Increase (decrease) in cash, cash equivalents, and restricted cash	798,981		169,644
Cash, cash equivalents, and restricted cash at beginning of period	106,586		59,353
Cash, cash equivalents, and restricted cash at end of period	$	905,567	$	228,997
Interest paid	$	57,310	$	39,884
Non-cash changes in deferred funding obligations and non-recourse debt (financing activity)	0		(78,008)
Non-cash changes in receivables and investments (investing activity)	0		59,979
Non-cash changes in residual assets (investing activity)	(38,081)		(21,746)
Non-cash changes in escrow accounts (investing activity)	0		18,029

See accompanying notes.

- 6 -

Nine Months Ended September 30,
2019 2018
Cash flows from operating activities
Net income (loss) $ 35,678
$ 32,699
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loss on receivables 8,027
—
Depreciation and amortization 2,693
3,561
Amortization of deferred financing costs 5,073
7,891
Equity-based compensation 10,385
7,881
Equity method investments 3,695
2,381
Non-cash gain on securitization (18,575 ) (22,349 )
Gain on sale of receivables and investments 3,140
—
Changes in receivables held-for-sale —
4,110
Changes in accounts payable and accrued expenses (4,804 ) 2,421
Other (13,726 ) (8,800 )
Net cash provided by (used in) operating activities 31,586
29,795
Cash flows from investing activities
Equity method investments (48,301 ) (3,756 )
Equity method investment distributions received 53,485
77,196
Proceeds from sales of equity method investments 8,433
12,433
Purchases of and investments in receivables (274,472 ) (114,276 )
Principal collections from receivables 48,900
29,332
Proceeds from sales of receivables 134,932
—
Purchases of real estate —
(23,178 )
Purchases of investments (22,242 ) (19,127 )
Principal collections from investments 5,432
3,750
Proceeds from sales of investments and securitization assets 90,993
—
Funding of escrow accounts (28,672 ) (28,759 )
Withdrawal from escrow accounts 29,156
29,090
Other 2,891
(736 )
Net cash provided by (used in) investing activities 535
(38,031 )
Cash flows from financing activities
Proceeds from credit facilities 101,500
158,938
Principal payments on credit facilities (321,869 ) (2,784 )
Proceeds from issuance of non-recourse debt 34,988
51,934
Principal payments on non-recourse debt (180,708 ) (108,747 )
Proceeds from issuance of senior unsecured notes 507,313
—
Payments on deferred funding obligations (18,791 ) (70,373 )
Net proceeds of common stock issuances 96,648
15,326
Payments of dividends and distributions (64,239 ) (53,063 )
Other (17,319 ) (4,232 )
Net cash provided by (used in) financing activities 137,523
(13,001 )
Increase (decrease) in cash, cash equivalents, and restricted cash 169,644
(21,237 )
Cash, cash equivalents, and restricted cash at beginning of period 59,353
118,177
Cash, cash equivalents, and restricted cash at end of period $ 228,997
$ 96,940
Interest paid $ 39,884
$ 50,880
Non-cash changes in deferred funding obligations and non-recourse debt (financing activity) (78,008 ) 843
Non-cash changes in receivables and investments (investing activity) 59,979
(248 )
Non-cash changes in residual assets (investing activity) (21,746 ) (23,335 )
Non-cash changes in escrow accounts (investing activity) 18,029
—

HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

September 30, ~~2019~~2020


1.	~~The Company~~

1.The Company

Hannon Armstrong Sustainable Infrastructure Capital, Inc. (the “Company”) focuses on making investments in climate change solutions by providing capital to the leading companies in the energy efficiency, renewable energy and other sustainable infrastructure markets. Our goal is to generate attractive returns ~~for our stockholders by investing in~~from a diversified portfolio of ~~investments that generate~~projects with long-term ~~recurring~~ and predictable cash flows from proven ~~commercial technologies.~~technologies that reduce carbon emissions or increase resilience to climate change.

The Company and its subsidiaries are hereafter referred to as “we,” “us,” or “our.” Our investments take various forms, including equity, joint ventures, lending or other financing transactions, as well as real estate ownership and typically benefit from contractually committed high credit quality obligors. We also generate on-going fees through gain-on-sale securitization transactions, advisory services and asset management. We refer to the income producing assets that we hold on our balance sheet as our “Portfolio.” Our Portfolio may include:

•Equity investments in either preferred or common structures in unconsolidated entities;

•Government and commercial receivables, such as loans for renewable energy and energy efficiency projects;

•Real estate, such as land or other assets leased for use by sustainable infrastructure projects typically under long-term leases; and

•Investments in debt securities of renewable energy or energy efficiency projects.

We finance our business through cash on hand, borrowings under credit facilities and debt transactions, asset-backed securitization transactions and equity issuances. We also generate fee income through securitizations and syndications, by providing broker/dealer services and by managing and servicing assets owned by third parties. Some of our subsidiaries are special purpose entities that are formed for specific operations associated with investing in sustainable infrastructure receivables for specific long-term contracts.

Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “HASI.” We have qualified as a real estate investment trust (“REIT”) and also intend to continue to operate our business in a manner that will maintain our exemption from registration as an investment company under the 1940 Act, as amended. We operate our business through, and serve as the sole general partner of, our operating partnership subsidiary, Hannon Armstrong Sustainable Infrastructure, L.P., (the “Operating Partnership”), which was formed to acquire and directly or indirectly own our assets.

2.Summary of Significant Accounting Policies

Basis of Presentation

The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and such differences could be material. These financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, ~~2018,~~2019, as filed with the SEC. In the opinion of management, all adjustments necessary to present fairly our financial position, results of operations and cash flows have been included. Our results of operations for the ~~quarterly~~three and ~~nine month~~nine-month periods ended September 30, 2020 and 2019, are not necessarily indicative of the results to be expected for the full year or any other future period. Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. Certain amounts in the prior years have been reclassified to conform to the current year presentation.

The consolidated financial statements include our accounts and controlled subsidiaries, including the Operating Partnership. All material intercompany transactions and balances have been eliminated in consolidation.

Following the guidance for non-controlling interests in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation ("ASC 810"), references in this report to our earnings per share and our net

- 7 -

income and stockholders’ equity attributable to common stockholders do not include amounts attributable to non-controlling interests.

Consolidation ~~and Equity Method Investments~~

We account for our investments in entities that are considered voting interest entities or variable interest entities (“VIEs”) under ASC 810 and assess whether we should consolidate these entities on an ongoing basis. We have established various special purpose entities or securitization trusts for the purpose of securitizing certain ~~receivables or other debt investments~~assets which are not consolidated in our financial statements as described below in Securitization of ~~Receivables below.~~Financial Assets.

WeSince we have assessed that we have power over and receive the benefits from those special purpose entities that are formed for the purpose of holding our government and commercial receivables and investments on our balance ~~sheet; hence,~~sheet, we have concluded we are the primary beneficiary and should consolidate these entities under the provisions of ASC 810. We also have certain subsidiaries we deem to be voting interest entities that we control through our ownership of voting interests and accordingly consolidate.

Certain of our equity method investments were determined to be interests in VIEs in which we are not the primary beneficiary, as we do not direct the significant activities of these entities, and thus we account for those investments as Equity Method Investments as discussed below. Our maximum exposure to loss through these investments is limited to their recorded values. However, we may provide guarantees of certain obligations of these VIEs. Certain other equity method investments have been assessed to be voting interest entities as we exert significant influence through our ownership of voting interests, and accordingly we do not consolidate.

Equity Method Investments

We have made equity investments in various renewable energy and energy efficiency projects. ~~Our renewable energy project~~These investments are typically owned in holding companies (using limited liability companies ("LLCs") taxed as partnerships) where we partner with either the operator of the project or other institutional investors. We share in the cash flows, income, and tax attributes according to a negotiated schedule (which typically does not correspond with our ownership percentages). Investors, if any, in a preferred return position typically receive a stated preferred return consisting of a priority distribution of all or a portion of the project's cash flows, and in some cases, tax attributes. Once the stated return, if applicable, is achieved, the partnership “flips” and the operator of the project along with any other common equity investors receive a larger portion of the cash flows, with the previously preferred investors retaining an on-going residual interest.

~~These~~Our equity investments in renewable energy or energy efficiency projects are accounted for under the equity method of accounting. Certain of our equity method investments were determined to be VIEs in which we are not the primary beneficiary, as we do not direct the significant activities of those entities in which we invest. Our maximum exposure to loss associated with the continued operation of the underlying projects in our equity method investments is limited to our recorded value of our investments. Under the equity method of accounting, the carrying value of these equity method investments is determined based on amounts we invested, adjusted for the equity in earnings or losses of the investee allocated based on the LLC agreement, less distributions received. For the LLC agreements which contain preferences with regard to cash flows from operations, capital events and liquidation, we reflect our share of profits and losses by determining the difference between our claim on the investee’s book value at the beginning and the end of the period, which is adjusted for distributions received and contributions made. This claim is calculated as the amount we would receive ~~(or be obligated to pay)~~ if the investee were to liquidate all of its assets at the recorded amounts determined in accordance with GAAP and distribute the resulting cash to creditors and investors in accordance with their respective priorities. This method is ~~commonly~~ referred to as the hypothetical liquidation at book value method or (“HLBV”). Any difference between the amount of our investment and the amount of underlying equity in net assets is generally amortized over the life of the assets and liabilities to which the difference relates. Cash distributions received from these equity method investments are classified as operating activities to the extent of cumulative HLBV earnings in our consolidated statements of cash flows. Our initial investment and additional cash distributions beyond that which are classified as operating activities are classified as investing activities in our consolidated statements of cash flows. We ~~have elected to~~typically recognize earnings ~~from these investments~~ one quarter in arrears for certain of these investments to allow for the receipt of financial information.

We have also made an investment in a joint venture which holds land under solar projects that we have determined to be a voting interest entity. This investment entitles us to receive an equal percentage of both cash distributions and profit and loss under the terms of the LLC operating agreement. The investment is accounted for under the equity method of accounting with our portion of income being recognized in income (loss) from equity method investments in the period in which the income is earned. Cash distributions received from this equity method investment are classified as operating activities to the extent of cumulative earnings in our consolidated statements of cash flows. Our initial investment and additional cash distributions beyond that which are classified as operating activities are classified as investing activities in our consolidated statements of cash flows.

We evaluate on a quarterly basis whether our investments accounted for using the equity method have an other than temporary impairment (“OTTI”). An OTTI occurs when the estimated fair value of an investment is below the carrying value and the difference is determined to not be recoverable. This evaluation requires significant judgment regarding, but not limited to, the severity and duration of the impairment; the ability and intent to hold the securities until recovery; financial condition, liquidity, and near-term prospects of the issuer; specific events; and other factors.

Government and Commercial Receivables

Government and commercial receivables (“receivables”), include project loans and receivables. These receivables are separately presented in our balance sheet to illustrate the differing nature of the credit risk related to these assets. Unless otherwise noted, we generally have the ability and intent to hold our receivables for the foreseeable future and thus they are classified as held for investment. Our ability and intent to hold certain receivables may change from time to time depending on

a number of factors including economic, liquidity and capital market conditions. At inception of the arrangement, the carrying value of receivables held for investment represents the present value of the note, lease or other payments, net of any unearned

- 8 -

fee income, which is recognized as income over the term of the note or lease using the effective interest method. Receivables that are held for investment are carried ~~unless deemed impaired,~~ at amortized cost, net of any unamortized acquisition premiums or discounts and include origination and acquisition costs, as applicable. Our initial investment and principal repayments of these receivables are classified as investing activities and the interest collected is classified as operating activities in our consolidated statements of cash flows. Receivables that we intend to sell in the short-term are classified as held-for-sale and are carried at the lower of amortized cost or fair value on our balance sheet. The purchases and proceeds from receivables that we intend to sell at origination are classified as operating activities in our consolidated statements of cash flows. Interest collected is classified as an operating activity in our consolidated statements of cash flows. Certain of our receivables may include the ability to defer required interest payments in exchange for increasing the receivable balance at the borrower's option. We generally accrue this paid-in-kind ("PIK") interest when collection is expected, and cease accruing PIK interest if there is insufficient value to support the accrual or we expect that any portion of the principal or interest due is not collectible.

We evaluate our receivables for ~~potential delinquency or impairment~~an allowance as determined under ASC Topic 326 Financial Instruments- Credit Losses ("Topic 326") and for our internally derived asset performance categories included in Note 6 on at least a quarterly basis and more frequently when economic or other conditions warrant such an evaluation. When a receivable becomes 90 days or more past due, and if we otherwise do not expect the debtor to be able to service all of its debt or other obligations, we will generally consider the receivable delinquent or impaired and place the receivable on non-accrual status and cease recognizing income from that receivable until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a receivable’s status significantly improves regarding the debtor’s ability to service the debt or other obligations, we will remove it from non-accrual status.

APrior to January 1, 2020, a receivable iswas also considered impaired as of the date when, based on current information and events, it iswas determined that it iswas probable that we ~~will~~would be unable to collect all amounts due in accordance with the original contracted terms. Many of our receivables are secured by energy efficiency and renewable energy infrastructure projects. Accordingly, we ~~regularly evaluate~~evaluated the extent and impact of any credit deterioration associated with the performance and value of the underlying project, as well as the financial and operating capability of the borrower, its sponsors or the obligor as well as any guarantors. If a receivable was impaired, we determined if a specific allowance should be recorded and recorded such allowance if the present value of expected future cash flows discounted at the receivable’s contractual effective rate was less than its carrying value. This estimate of cash flows also considered the estimated fair market value of the collateral less estimated selling costs if repayment was expected from the collateral.

Beginning January 1, 2020, we determine our allowance based on the current expectation of credit losses over the contractual life of our receivables as required by Topic 326. We use a variety of methods in developing our allowance including discounted cash flow analysis and probability-of-default/loss given default ("PD/LGD") methods. In developing our estimates, we consider our historical experience with our and similar assets in addition to our view of both current conditions and what we expect to occur within a period of time for which we can develop reasonable and supportable forecasts, typically two years. For periods following the reasonable and supportable forecast period, we revert to historical information when developing assumptions used in our estimates. In developing our forecasts, we consider a number of qualitative and quantitative factors in our assessment, including ~~as appropriate,~~ a project’s operating results, loan-to-value ratio, any cash reserves, the ability of expected cash from operations to cover the cash flow requirements currently and into the future, key terms of the transaction, the ability of the borrower to refinance the transaction, other credit support from the sponsor or guarantor and the project’s collateral value. In addition, we consider the overall economic environment, the sustainable infrastructure sector, the effect of local, industry, and broader economic factors such as unemployment rates and power prices, the impact of any variation in weather and the historical and anticipated trends in interest rates, defaults and loss severities for similar transactions.

If For those assets where we record our allowance using a ~~receivable~~discounted cash flow method, we have elected to record the change in allowance due solely to the passage of time through the provision for loss on receivables in our income statement. For assets where the obligor is ~~impaired,~~a publicly rated entity, we ~~will determine if~~consider the published historical performance of entities with similar ratings in developing our estimate of an allowance, ~~should~~making adjustments determined by management to be ~~recorded.~~appropriate during the reasonable and supportable forecast period. We ~~will record~~have made certain loan commitments that are within the scope of Topic 326. When estimating an allowance iffor these loan commitments we consider the ~~present value~~probability of ~~expected future~~certain amounts to be funded and apply either a discounted cash flows discounted at the receivable’s contractual effective rate is less than its carrying value. This estimate of cash flows may include the currently estimated fair market value of the collateral less estimated selling costs if repayment is expected from the collateral.flow or PD/LGD methodology as described above. We charge off receivables against the allowance, if any, when we determine the unpaid principal balance is uncollectible, net of recovered amounts. Any provision we record for an allowance is a non-cash reconciling item to cash from operating activities in our consolidated statements of cash flows.

Real Estate

Real estate consists of land or other real estate and its related lease intangibles, net of any amortization. Our real estate is generally leased to tenants on a triple net lease basis, whereby the tenant is responsible for all operating expenses relating to the property, generally including property taxes, insurance, maintenance, repairs and capital expenditures. Certain real estate transactions may be characterized as "failed sale-leaseback" transactions as defined under ASC Topic 842 ("Topic

- 9 -

842"), Leases, and thus are accounted for ~~similar~~similarly to our Commercial Receivables as described above in Government and Commercial Receivables.

For our other real estate lease transactions that are classified as operating leases, the scheduled rental revenue typically varies during the lease term and thus rental income is recognized on a straight-line basis, unless there is considerable risk as to collectability, so as to produce a constant periodic rent over the term of the lease. Accrued rental income is the aggregate difference between the scheduled rents which vary during the lease term and the income recognized on a straight-line basis and is recorded in other assets. Expenses, if any, related to the ongoing operation of leases where we are the lessor, are charged to operations as incurred. Our initial investment is classified as investing activities and income collected for rental income is classified as operating activities in our consolidated statements of cash flows.

When our real estate transactions are treated as an asset acquisition with an operating lease, we typically record our real estate purchases ~~as asset acquisitions that are recorded~~ at cost, including acquisition and closing costs, which is allocated to each tangible and intangible asset acquired on a relative fair value basis.

The fair value of the tangible assets of an acquired leased property is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, building and tenant improvements, if any, based on the determination of the fair values of these assets. The as-if-vacant fair value of a property is typically determined by management based on appraisals by a qualified appraiser. In determining the fair value of the identified intangibles of an acquired property, above-market and below-market in-place lease values are valued based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases, and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease, including renewal periods reasonably certain of being exercised by the lessee.

The capitalized ~~above-market lease values are amortized as a reduction of rental income and the capitalized below-market~~off-market lease values are amortized as an ~~increase to~~adjustment of rental income ~~both of which are amortized~~ over the term used to value the intangible. We also record, as appropriate, an intangible asset for in-place leases. The value of the leases in place at the time of the transaction is equal to the potential income lost if the leases were not in place. The amortization of this intangible occurs over the initial term unless management believes that it is reasonably certain that the tenant would exercise the renewal option, in which case the amortization would extend through the renewal period. If a lease were to be terminated, all unamortized amounts relating to that lease would be written off.

Investments

Investments are debt securities that meet the criteria of ASC 320, Investments-Debt and Equity Securities. We have designated our debt securities as available-for-sale and carry these securities at fair value on our balance sheet. Unrealized gains and losses, to the extent not considered to ~~have an OTTI,~~be credit related, on available-for-sale debt securities are recorded as a component of accumulated other comprehensive income (“AOCI”) in equity on our balance sheet. When a security is sold, we reclassify the AOCI to earnings based on specific identification. Our initial investment and principal repayments of these investments are classified as investing activities and the interest collected is classified as operating activities in our consolidated statements of cash flows.

We evaluate our investments for ~~OTTI~~impairment on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Our ~~OTTI~~impairment assessment is a subjective process requiring the use of judgments and assumptions. Accordingly, we regularly evaluate the extent and impact of any credit deterioration associated with the financial and operating performance and value of the underlying project. We consider several qualitative and quantitative factors in our assessment. ~~We first consider~~The primary factor in our assessment is the current fair value of the security, ~~and the duration of any unrealized loss. Other~~while other factors ~~considered~~ include changes in the credit rating, performance of the underlying project, key terms of the transaction, the value of any collateral and any support provided by the sponsor or guarantor.

To the extent that we have identified an ~~OTTI~~impairment for a security, ~~and~~ intend to hold the investment to maturity, and we do not expect that we will be required to sell the security prior to recovery of the amortized cost basis, we will recognize only the credit component of the ~~OTTI~~unrealized loss in ~~earnings.~~earnings by recording an allowance against the amortized cost of the asset as required by Topic 326. We determine the credit component using the difference between the security’s amortized cost basis and the present value of its expected future cash flows, discounted using the effective interest method or its estimated collateral value. Any remaining unrealized loss due to factors other than credit is recorded in AOCI.

To the extent we hold investments with ~~an OTTI~~a fair value less than the amortized cost and if we have made the decision to sell the security or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, we recognize the entire portion of the impairment in earnings.

Premiums or discounts on investment securities are amortized or accreted into interest income using the effective interest method.

- 10 -

Securitization of Financial Assets

We have established various special purpose entities or securitization trusts for the purpose of securitizing certain financial assets. We determined that the trusts used in securitizations are VIEs, as defined in ASC 810. When we conclude that we are not the primary beneficiary of ~~the~~certain trusts asbecause we do not have power over ~~the~~those trusts' significant activities, we do not consolidate the trust. We typically serve as primary or master servicer of these trusts; however, as the servicer, we do not have the power to make significant decisions impacting the performance of the trusts.

We account for transfers of financial assets to these securitization trusts as sales pursuant to ASC 860, Transfers and Servicing ("ASC 860"), when we have concluded the transferred assets have been isolated from the transferor (i.e., put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership) and we have surrendered control over the transferred assets. We treat those trusts where we are unable to conclude that we have been isolated from the securitized financial assets as secured borrowings, retaining the assets on our balance sheet and recording the amounts due to the trust investor as non-recourse debt.

For transfers treated as sales under ASC 860, we have received true-sale-at-law and non-consolidation legal opinions for all of our securitization trust structures ~~and non-consolidation legal opinions for all but one legacy securitization trust structure~~ that support our conclusion regarding the transferred financial assets. When we sell financial assets in securitizations, we generally retain interests in the form of servicing rights and residual assets, which we refer to as securitization assets.

Gain or loss on the sale of financial assets is calculated based on the excess of the proceeds received from the securitization (less any transaction costs) plus any retained interests obtained over the cost basis of the assets sold. For retained interests, we generally estimate fair value based on the present value of future expected cash flows using our best estimates of the key assumptions of anticipated losses, prepayment rates, and current market discount rates commensurate with the risks involved. Cash flows related to our securitizations at origination are classified as operating activities in our consolidated statements of cash flows.

We initially account for all separately recognized servicing assets and servicing liabilities at fair value and subsequently measure such servicing assets and liabilities using the amortization method. Servicing assets and liabilities are amortized in proportion to, and over the period of, estimated net servicing income with servicing income recognized as earned. We assess servicing assets for impairment at each reporting date. If the amortized cost of servicing assets is greater than the estimated fair value, we will recognize an impairment in net income.

Our other retained interest in securitized assets, the residual assets, are accounted for assimilarly to available-for-sale debt securities and carried at fair ~~value on the consolidated balance sheets in other assets. We generally do not sell our residual assets.~~value. Our residual assets are evaluated for impairment on a quarterly basis. ~~Interest income~~Income related to the residual assets is recognized using the effective interest rate ~~method.~~method and included in fee income in the income statement. If there is a change in the expected cash flows related to the residual assets, we will assess whether the asset is impaired and will calculate a new yield based on the current amortized cost of the residual assets and the revised expected cash flows. This yield is used prospectively to recognize ~~interest income.~~our income related to these assets.

Cash and Cash Equivalents

Cash and cash equivalents include short-term government securities, certificates of deposit and money market funds, all of which had an original maturity of three months or less at the date of purchase. These securities are carried at their purchase price, which approximates fair value.

Restricted Cash

Restricted cash includes cash and cash equivalents set aside with certain lenders primarily to support ~~deferred funding and other~~ obligations outstanding as of the balance sheet dates. Restricted cash is reported as part of other assets in the consolidated balance sheets. Refer to Note 3 for disclosure of the balances of restricted cash included in other assets.

Convertible Notes

We have issued convertible senior notes that are accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options, and ASC 815, Derivatives and Hedging ("ASC 815"). Under ASC 815, issuers of certain convertible debt instruments are generally required to separately account for the conversion option of the convertible debt instrument as either a derivative or equity, unless it meets the scope exemption for contracts indexed to, and settled in, an issuer’s own equity. Since this conversion option is both indexed to our equity and can only be settled in our common stock, we have met the scope exemption, and therefore, we are not separately accounting for the embedded conversion option. The initial issuance and any principal repayments are classified as financing activities and interest payments are classified as operating activities in our consolidated statements of cash flows.

- 11 -

Income Taxes

We elected and qualified to be taxed as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2013. We also have taxable REIT subsidiaries ("~~TRSs"~~TRS") which are taxed separately, and which will generally be subject to U.S. federal, state, and local income taxes as well as taxes of foreign jurisdictions, if any. To qualify as a REIT, we must meet on an ongoing basis several organizational and operational requirements, including a requirement that we currently distribute at least 90% of our REIT's net taxable income before dividends paid, excluding capital gains, to our stockholders. As a REIT, we are not subject to U.S. federal corporate income tax on that portion of net income that is currently distributed to our owners.

We account for income taxes under ASC 740, Income Taxes ("ASC 740") for our ~~TRSs~~TRS using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. We evaluate any deferred tax assets for valuation allowances based on an assessment of available evidence including sources of taxable income, prior years taxable income, any existing

taxable temporary differences and our future investment and business plans that may give rise to taxable income. We treat any tax credits we receive from our equity investments in renewable energy projects as reductions of federal income taxes of the year in which the credit arises. Any deferred tax impacts resulting from transfers of assets to or from our TRS are recorded as an adjustment to additional paid-in capital, as it is a transfer amongst entities under common control.

We apply ASC 740 with respect to how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. This guidance requires the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more likely than not” to be sustained by the applicable tax authority. We are required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which includes U.S. federal and certain states.

Equity-Based Compensation

In 2013, we adopted the 2013 Hannon Armstrong Sustainable Infrastructure Capital, Inc. Equity Incentive Plan (as amended, the “2013 Plan”), which provides for grants of stock options, stock appreciation rights, restricted stock units, shares of restricted common stock, phantom shares, dividend equivalent rights, long-term incentive-plan units (“LTIP units”) and other restricted limited partnership units issued by our Operating Partnership and other equity-based awards. From time to time, we may grant equity or equity-based awards as compensation to ~~members of our senior management team,~~ our independent directors, employees, advisors, consultants and other personnel under our 2013 Plan. Certain awards earned under the plan are based on achieving various performance targets, which are generally earned between 0% and 200% of the initial target, depending on the extent to which the performance target is met. In addition to performance targets, certain LTIP units issued by our Operating Partnership also require a certain level of appreciation of partnership interests to occur before parity is reached and LTIP units can be converted to limited partnership units.

We record compensation expense for grants made under the 2013 Plan in accordance with ASC 718, Compensation-Stock Compensation. We record compensation expense for unvested grants that vest solely based on service conditions on a straight-line basis over the vesting period of the entire award based upon the fair market value of the grant on the date of grant. Fair market value for restricted common stock is based on our share price on the date of grant. For awards where the vesting is contingent upon achievement of certain performance targets, compensation expense is measured based on the fair market value on the grant date and is recorded over the requisite service period (which includes the performance period). Actual performance results at the end of the performance period determines the number of shares that will ultimately be awarded. We have also issued awards where the vesting is contingent upon service being provided for a defined period and certain market conditions being met. The fair value of these awards, as measured at the grant date, is recognized over the requisite service period, even if the market conditions are not met. The grant date fair value of these awards was developed by an independent appraiser using a Monte Carlo simulation.

Earnings Per Share

We compute earnings per share of common stock in accordance with ASC 260, Earnings Per Share. Basic earnings per share is calculated by dividing net income attributable to controlling stockholders (after consideration of the earnings allocated to unvested grants under the 2013 Plan, if applicable) by the weighted-average number of shares of common stock outstanding during the period excluding the weighted average number of unvested grants under the 2013 Plan, if applicable (“participating securities” as defined in Note 12). Diluted earnings per share is calculated by dividing net income attributable to controlling stockholders (after consideration of the earnings allocated to unvested grants under the 2013 Plan, if applicable) by the weighted-average number of shares of common stock outstanding during the period plus other potential common stock instruments if they are dilutive. Other potentially dilutive common stock instruments include our unvested restricted stock,

- 12 -

other equity-based awards, and convertible notes. The restricted stock and other equity-based awards are included if they are dilutive using the treasury stock method. The treasury stock method assumes that theoretical proceeds received for future service provided is used to purchase shares of treasury stock at the average market price per share of common stock, which is deducted from the total shares of potential common stock included in the calculation. When unvested grants are dilutive, the earnings allocated to these dilutive unvested grants are not deducted from the net income attributable to controlling stockholders when calculating diluted earnings per share. The convertible notes are included if they are dilutive using the if-converted method. The if-converted method removes interest expense related to the convertible notes from the net income attributable to controlling stockholders and includes the weighted average shares of potential common stock over the period issuable upon conversion of the note. No adjustment is made for shares of potential common stock that are anti-dilutive during a period.

Segment Reporting

We make equity and debt investments in the energy efficiency, renewable energy, and other sustainable infrastructure markets. We manage our business as a single portfolio and report all of our activities as 1 business segment.

Recently Issued Accounting Pronouncements

~~Leases~~

~~In February 2016, the FASB issued guidance codified in Topic 842, which amends the guidance in former ASC Topic 840,~~ ~~Leases~~. The main principle of Topic 842 requires lessees to recognize the assets and liabilities that arise from nearly all leases on the balance sheet. Lessor accounting remains relatively consistent with some changes to align Topic 842 with ASC Topic 606, ~~Revenue from Contracts with Customers,~~ including changes to the guidance on classification of real estate lease transactions. The standard is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. Topic 842 provides companies with a choice of transitioning to the new standard using one of two modified retrospective transition approaches; one that requires companies to adjust comparative periods upon adoption and another where the impact of adoption is reflected in retained earnings and comparative periods are not adjusted.

We have adopted Topic 842 effective January 1, 2019 and have elected to apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We have also elected the package of practical expedients which allowed us to not reassess (1) whether existing contracts contain leases, (2) the lease classification for existing leases, and (3) whether existing initial direct costs meet the new definition. The adoption of Topic 842 did not have a material impact on our financial statements. Subsequent to adoption of Topic 842, due to the changes in the lessor rules for classification of real estate leasing transactions, certain of our real estate leasing transactions may be accounted for as commercial receivables rather than being treated as real estate asset acquisitions with operating leases.

Credit Losses

In June 2016, the FASB issued ~~ASU No. 2016-13,~~ ~~Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments~~ ~~("Topic 326").~~ Topic 326 which significantly changes how entities will recognize and measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Topic 326 ~~will replace~~has replaced the “incurred loss” approach under existing guidance with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for expected losses from available-for-sale debt securities rather than reduce the amortized cost, as ~~currently~~previously required. It also ~~simplifies~~simplified the accounting model for purchased credit-impaired debt securities and loans. Topic 326 is effective for fiscal years beginning after December 15, 2019 and iswas to be adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. ~~The Company plans to adopt the new standard on its effective date. While we are continuing to assess the impact~~ Topic 326 ~~will have~~became effective for us on the consolidated financial statements, the measurement of expected credit losses under the current expected credit loss model will be based on relevant information including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectabilityJanuary 1, 2020. As a result of the ~~reported amounts~~adoption of Topic 326, we recorded a cumulative-effect pre-tax adjustment to retained earnings as of January 1, 2020 of approximately $17 million in the process of establishing our allowance for our commercial receivables. The allowance for our government receivables recorded as of the ~~financial assets in scope~~adoption date of ~~the model.~~Topic 326 is not material. We did not have ~~pooled our assets by risk characteristics and determined~~ a methodology for each pool. We expect any reserve related to our federal government receivables to be immaterial and are still evaluating the impact of our other receivables. We are still evaluating the appropriate internal controls and financial statement disclosures with regards to receivables and related lending commitments. Based on the amended guidance for available-for-sale debt securities, we do not expect a significantmaterial impact to the accounting for our available-for-sale securities portfolio.

Other accounting standards updates issued before November ~~1, 2019,~~6, 2020, and effective after September 30, ~~2019,~~2020, are not expected to have a material effect on our consolidated financial statements and related disclosures.

3.Fair Value Measurements

Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level hierarchy for classifying financial instruments. The levels of inputs used to determine the fair value of our financial assets and liabilities carried on the balance sheet at fair value and for those which only disclosure of fair value is required are characterized in accordance with the fair value hierarchy established by ASC 820, Fair Value Measurements. Where inputs for a financial asset or liability fall in more than one level in the fair value hierarchy, the financial asset or liability is classified in its entirety based on the lowest level input that is significant to the fair value measurement of that financial asset or liability. We use our judgment and consider factors specific to the financial assets and liabilities in determining the significance of an input to the fair value measurements. As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, only our residual assets related to our securitization trusts ~~interest rate swaps~~ and investments ~~if any,~~ were carried at fair value on the consolidated balance sheets on a recurring basis. The three levels of the fair value hierarchy are described below:

•Level 1 — Quoted prices (unadjusted) in active markets that are accessible at the measurement date.

•Level 2 — Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

•Level 3 — Unobservable inputs are used when little or no market data is available.

- 13 -

The tables below illustrate the estimated fair value of our financial instruments on our balance sheet. Unless otherwise discussed below, fair value for our Level 2 and Level 3 measurements is measured using a discounted cash flow model, contractual terms and inputs which consist of base interest rates and spreads over base rates which are based upon market observation and recent comparable transactions. An increase in these inputs would result in a lower fair value and a decline would result in a higher fair value. Our senior unsecured notes and convertible notes are valued using a market based approach and observable prices. The receivables held-for-sale, if any, are carried at the lower of cost or fair value.

As of September 30, 2019
Fair Value Carrying
Value Level
(in millions)
Assets
Government receivables $ 318
$ 300
Level 3
Commercial receivables 692
675
Level 3
Investments ⁽¹⁾
113
113
Level 3
Securitization residual assets ⁽²⁾
84
84
Level 3
Liabilities
Credit facilities ⁽³⁾
$ 38
$ 38
Level 3
Non-recourse debt ⁽³⁾
714
680
Level 3
Senior unsecured notes ⁽³⁾
533
514
Level 2
Convertible notes ⁽³⁾
168
151
Level 2


~~(1)~~	~~The amortized cost of our investments as of September 30, 2019, was $109 million.~~


~~(2)~~	~~Included in other assets on the consolidated balance sheet.~~


~~(3)~~	~~Fair value and carrying value exclude unamortized debt issuance costs.~~


	As of September 30, 2020
	Fair Value		Carrying Value		Level
	(in millions)
Assets
Government receivables	$	283	$	251	Level 3
Commercial receivables	895		849		Level 3

Investments (1)	52		52		Level 3
Securitization residual assets (2)	142		142		Level 3

Liabilities (3)
Credit facilities	$	23	$	23	Level 3
Non-recourse debt	688		613		Level 3
Senior unsecured notes	1,344		1,295		Level 2
Convertible notes	393		295		Level 2

As of December 31, 2018
Fair Value Carrying
Value Level
(in millions)
Assets
Government receivables $ 487
$ 497
Level 3
Commercial receivables 443
447
Level 3
Investments ⁽¹⁾
170
170
Level 3
Securitization residual assets ⁽²⁾
71
71
Level 3
Liabilities
Credit facilities ⁽³⁾
$ 259
$ 259
Level 3
Non-recourse debt ⁽³⁾
835
852
Level 3
Convertible notes ⁽³⁾
139
152
Level 2
(1)The amortized cost of our investments as of September 30, 2020, was $47 million.

(2)Included in securitization assets on the consolidated balance sheet. This amount excludes securitization servicing assets, which are carried at amortized cost.

(3)Fair value and carrying value exclude unamortized financing costs.


	As of December 31, 2019
	Fair Value		Carrying Value		Level
	(in millions)
Assets
Government receivables	$	278	$	263	Level 3
Commercial receivables	906		896		Level 3

Investments (1)	75		75		Level 3
Securitization residual assets (2)	122		122		Level 3
Liabilities (3)
Credit facilities	$	31	$	31	Level 3
Non-recourse debt	739		716		Level 3
Senior unsecured notes	540		520		Level 2
Convertible notes	185		152		Level 2

(1) The amortized cost of our investments as of December 31, ~~2018,~~2019, was ~~$173~~$74 million.

(2) Included in ~~other~~securitization assets on the consolidated balance sheet. This amount excludes securitization servicing assets, which are carried at amortized cost.

(3) Fair value and carrying value exclude unamortized ~~debt issuance~~financing costs.

- 14 -

Investments

The following table reconciles the beginning and ending balances for our Level 3 investments that are carried at fair value on a recurring basis:


	For the three months ended September 30,				For the nine months ended September 30,
	2020		2019		2020		2019
	(in millions)
Balance, beginning of period	$	46	$	124	$	75	$	170
Purchases of investments	5		7		23		22
Principal payments on investments	0		(2)		(2)		(4)
Sale of investments	0		(20)		(53)		(85)
Realized gains on investments recorded in gain on sale of receivables and investments	0		2		5		2
Unrealized gains (losses) on investments recorded in OCI	1		2		4		8
Balance, end of period	$	52	$	113	$	52	$	113

For the three months ended September 30, For the nine months ended September 30,
2019 2018 2019 2018
(in millions)
Balance, beginning of period $ 124
$ 154
$ 170
$ 151
Purchases of investments 7
12
22
19
Payments on investments (2 ) (3 ) (4 ) (4 )
Sale of investments (20 ) —
(85 ) —
Realized gains on investments recorded in earnings 2
—
2
—
Unrealized gains (losses) on investments recorded in AOCI 2
(1 ) 8
(4 )
Balance, end of period $ 113
$ 162
$ 113
$ 162

Other Metrics

Portfolio Yield

We calculate portfolio yield as the weighted average underwritten yield of the investments in our Portfolio as of the end of the period. Underwritten yield is the rate at which we discount the expected cash flows from the assets in our Portfolio to determine our purchase price. In calculating underwritten yield, we make certain assumptions, including the timing and amounts of cash flows generated by our investments, which may differ from actual results, and may update this yield to reflect our most current estimates of project performance. We believe that portfolio yield provides an additional metric to understand certain characteristics of our Portfolio as of a point in time. Our management uses portfolio yield this way and we believe that our investors use it in a similar fashion to evaluate certain characteristics of our Portfolio compared to our peers, and as such, we believe that the disclosure of portfolio yield is useful to our investors.

Our Portfolio totaled approximately ~~$1.9~~$2.2 billion ~~with an unlevered portfolio yield of 7.7% and 6.8%~~ as of September 30, ~~2019~~2020. Unlevered portfolio yield was 7.7% and 7.6% as of September 30, 2020 and December 31, ~~2018,~~2019, respectively. See Note 6 to our financial statements and MD&A - Our Business in this Form 10-Q for additional discussion of the characteristics of our portfolio as of September 30, ~~2019.~~2020.

Environmental Metrics

As part of our investment process, we calculate the ratio of the estimated first year of metric tons of carbon emissions avoided by our investments divided by the capital invested to understand the impact our investments are having on climate change. In this calculation, which we refer to as CarbonCount®, we apply emissions factor data from the U.S. Government or the International Energy Administration to an estimate of a project’s energy production or savings to compute an estimate of metric tons of carbon emissions avoided. We estimate that our investments originated induring the quarter ended September 30, ~~2019,~~2020, will reduce annual carbon emissions by approximately ~~96 thousand~~1,192,000 metric tons, equating to a CarbonCount® of 1.67. We estimate that our investments made since 2013 have cumulatively reduced annual carbon emissions by over 4 million metric tons.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential ~~short-term~~short term (within one year) and ~~long-term~~long term cash requirements, including ongoing commitments to repay borrowings, fund and maintain our current and future assets, make distributions to our stockholders and other general business needs. We will use significant cash to make investments in sustainable infrastructure, repay principal and interest on our borrowings, make distributions to our stockholders and fund our operations. We use borrowings as part of our financing strategy to increase potential returns to our stockholders and have available to us a broad range of financing sources. We finance our investments ~~using~~primarily with non-recourse or recourse debt, equity and ~~through the use of~~ off-balance sheet securitization structures.

InWe believe we have substantial liquidity as of September 30, 2020, with unrestricted cash balances of $881 million compared to $6 million as of December ~~2018,~~31, 2019. We have been able to successfully access the equity markets, raising approximately $188 million under our "at-the-market" equity distribution program (our "ATM program") during the nine months ended September 30, 2020. During 2020, we ~~entered into~~have issued $775 million principal amount of senior unsecured notes and $144 million of convertible notes to further enhance our liquidity position. We have no material maturities of non-amortizing recourse debt until 2022.

We have two senior secured revolving credit facilities ("(“Rep-Based ~~Facility"~~Facility” and ~~"Approval-Based Facility"~~“Approval-Based Facility”) with several lenders with a combined maximum ~~outstanding balance~~commitment of $450 ~~million, to repay and replace our pre-existing credit facility.~~million. For additional information on our credit facilities, see Note 7 to our financial statements onin this Form 10-Q.

As of September 30, ~~2019,~~2020, we had approximately ~~$665~~$613 million of non-recourse ~~borrowings, $500 million~~borrowings. We have $1.3 billion of senior unsecured notes and ~~$150~~$294 million ~~in outstanding~~of convertible ~~senior notes.~~notes outstanding. We also continue to utilize off-balance sheet securitization transactions, where we transfer the loans or other assets we originate to securitization trusts or other bankruptcy remote special purpose funding vehicles that are not consolidated on our balance sheet. ~~In the quarter ended June 30, 2019, we were able~~We have continued to ~~repay $113 million of on-balance sheet debt by selling lower yielding, highly leveraged assets to~~complete gain on sale securitization transactions with large institutional investors ~~using~~ such ~~trusts.~~as life insurance companies throughout 2020. As of September 30, ~~2019,~~2020, the outstanding principal balance of our assets financed ~~using~~through the use of these off-balance sheet transactions was approximately ~~$3.8~~$4.2 billion.

Large institutional investors ~~primarily insurance companies and commercial banks,~~ have provided the financing for ~~these non-recourse~~our on and off-balance sheet financings. We have worked to expand our liquidity and access to the debt and bank loan markets and have entered into transactions with ~~several~~a number of new institutional investors in the last year. For further information on the credit facilities, senior unsecured notes, asset backed non-recourse debt, convertible notes, and securitizations, see Notes 5, 7 and 8 ~~to our financial statements of this Form 10-Q.~~

In July of 2019, we issued $350 million principal amount of senior unsecured notes which bear interest at a rate of 5.25%. In September of 2019, we issued follow-on notes with a principal amount of $150 million, priced at 104.875% of the principal amount resulting in a yield to maturity for this offering of 4.13%.

During the nine months ended September 30, 2019, we raised approximately $98 million through the issuance of equity, including approximately $10 million through the exercise of the underwriter’s option of common equity from our December 2018 public offering, and approximately $88 million under our “at-the-market” equity distribution program, or our ATM program, pursuant to which we can offer to sell, from time to time, up to an aggregate amount of $250 million of our common stock. For additional information related to our equity raises see Note 11 to our financial statements of this Form 10-Q.

We plan to raise additional equity capital and continue to use fixed and floating rate borrowings which may be in the form of additional bank credit facilities (including term loans and revolving facilities), warehouse facilities, repurchase agreements, ~~and~~

- 43 -

public and private ~~equity and~~ debt issuances as a means of financing our business. We also expect to use both on-balance sheet and off-balance sheet ~~securitizations and also believe we will be able to customize securitized tranches to meet investment preferences of different investors.~~securitizations. We may also consider the use of separately funded special purpose entities or funds to allow us to expand the investments that we make or to manage the Portfolio diversification.

The decision on how we finance specific assets or groups of assets is largely driven by ~~capital allocations and~~ risk and portfolio and financial management considerations, including the potential for gain on sale or fee income, as well as the overall interest rate environment, prevailing credit spreads and the terms of available financing and market conditions. During periods of market disruptions, certain sources of financing may be more readily accessible than others which may impact our financing decisions. Over time, as market conditions change, we may use other forms of debt and equity in addition to these financing arrangements.

The amount of leverage we may deploy for particular assets will depend upon the availability of particular types of financing and our assessment of the credit, liquidity, price volatility and other risks of those assets, the interest rate environment and the credit quality of our financing counterparties. As shown in the table below, our debt to equity ratio was approximately ~~1.5~~2.0 to 1 as of September 30, ~~2019,~~2020, below our ~~target~~leverage limit of 2.5 to 1. Our percentage of fixed rate debt was approximately ~~97%~~99% as of September 30, ~~2019,~~2020, which is within our targeted fixed rate debt percentage range of ~~60%~~75% to ~~85%~~100%.

The calculation of our fixed-rate debt and leverage is shown in the chart below:

September 30, 2019 % of Total December 31, 2018 % of Total
(dollars in millions) (dollars in millions)
Floating-rate borrowings $ 38
3 % $ 317
26 %
Fixed-rate debt 1,318
97 % 925
74 %
Total debt ⁽¹⁾
$ 1,356
100 % $ 1,242
100 %
Equity $ 883
$ 805

Leverage 1.5 to 1
1.5 to 1

~~(1)~~

Floating-rate borrowings include borrowings under our floating-rate credit facilities, and approximately $58 million of non-recourse debt with floating rate exposure as of December 31, 2018, respectively. Fixed-rate debt also includes the present notional value of non-recourse debt that is hedged using interest rate swaps. Debt excludes securitizations that are not consolidated on our balance sheet.


	September 30, 2020		% of Total		December 31, 2019		% of Total
	(dollars in millions)				(dollars in millions)
Floating-rate borrowings	$	23	1	%	$	33	2	%
Fixed-rate debt	2,168		99	%	1,360		98	%
Total debt (1)	$	2,191	100	%	$	1,393	100	%
Equity	$	1,098			$	940
Leverage	2.0 to 1				1.5 to 1

(1)Floating-rate borrowings include borrowings under our floating-rate credit facilities, and approximately $2 million of non-recourse debt with floating rate exposure as of December 31, 2019. Fixed-rate debt also includes the present notional value of non-recourse debt that is hedged using interest rate swaps. Debt excludes securitizations that are not consolidated on our balance sheet.

We intend to use leverage for the primary purpose of financing our Portfolio and business activities and not for the purpose of speculating on changes in interest rates. While we may temporarily exceed the leverage ~~or fixed rate debt targets,~~limit, if our board of directors approves a material change to ~~these targets,~~this limit, we anticipate advising our stockholders of this change through disclosure in our periodic reports and other filings under the Exchange Act.

While we generally intend to hold our target assets that we do not securitize upon acquisition as ~~long-term~~long term investments, certain of our investments may be sold in order to manage our interest rate risk and liquidity needs, to meet other operating objectives and to adapt to market conditions. The timing and impact of future sales of receivables and investments, if any, cannot be predicted with any certainty. Since we expect that our assets will generally be financed with debt, we expect that a significant portion of the proceeds from sales of our assets (if any), prepayments and scheduled amortization will be used to repay balances under our debt financing sources.

We believe these identified sources of liquidity in addition to our cash on hand will be adequate for purposes of meeting our short-term and long-term liquidity needs, which include funding future investments, debt service, operating costs and distributions to our stockholders. To qualify as a REIT, we must distribute annually at least 90% of our REIT’s taxable income without regard to the deduction for dividends paid and excluding net capital gains. These dividend requirements limit our ability to retain earnings and thereby replenish or increase capital for growth and our operations.

Sources and Uses of Cash

We had approximately ~~$229~~$905 million and ~~$59~~$107 million of unrestricted cash, cash equivalents, and restricted cash as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Cash flows relating to operating activities

Net cash provided by operating activities was approximately $52 million for the nine months ended September 30, 2020, driven primarily by net income of $58 million and adjustments for non-cash and other items of $6 million. The non-cash and other adjustments consisted of increases of $6 million related to provision for loss on receivables, $14 million related to equity method investments, $3 million of depreciation and amortization, $6 million of amortization of financing costs, $6 million in accounts payable and accrued expenses, and $12 million related to equity-based compensation. These were offset by $28 million related to gains on securitizations and $25 million related to other items.

- 44 -

Net cash provided by operating activities was approximately $32 million for the nine months ended September 30, 2019, driven primarily by net income of $36 million, offset by adjustments for non-cash and other items of $4 million. The non-cash and other adjustments consisted of increases of $8 million related to the provision for loss on receivables, $4 million related to equity method investments, $3 million of depreciation and amortization, $5 million of amortization of deferred financing costs, and $10 million related to equity-based compensation. These were offset by $15 million related to gains on securitizations and $19 million related to changes in accounts payable and accrued expenses and other items.

Cash flows relating to investing activities

Net cash ~~provided by operating~~used in investing activities was approximately ~~$30~~$138 million for the nine months ended September 30, ~~2018, driven primarily by net income~~2020. We made $115 million of ~~$33~~investments in receivables and fixed rate debt-securities, funded escrow accounts for $8 million ~~offset by adjustments for non-cash~~ and ~~other items~~made $323 million of ~~$3 million. The non-cash and other adjustments consisted of increases of $2~~equity method investments. We collected $91 million ~~related to~~from equity method investments $8representing the return of capital determined under GAAP, $97 million from receivables and fixed rate debt-securities, $110 million from the sales of ~~amortization of deferred financing costs, $4~~financial assets, and received $10 million ~~of depreciation~~from escrow accounts and amortization, $4 million related to receivables held-for-sale, $8 million related to equity-based compensation, and $2 million related to accounts payable and accrued expenses. These were offset by $22 million related to gains on securitizations and $9 million related to other items.

~~Cash flows relating to investing activities~~

Net cash provided by investing activities was approximately $1 million for the nine months ended September 30, 2019. We made $296 million of investments in receivables and fixed rate debt-securities, funded escrow accounts for $29 million, and made $48 million of equity method investments. We collected $53 million from equity method investments representing the return of capital determined under GAAP, $54 million from receivables and fixed rate debt-securities, $226 million from the sales of financial assets, $8 million from the sale of equity method investments, and received $32 million from escrow accounts and other items.

Cash flows relating to financing activities

Net cash ~~used in investing~~provided by financing activities was approximately ~~$38~~$885 million for the nine months ended September 30, ~~2018.~~2020. We borrowed $126 million from our credit facilities, had non-recourse debt borrowings of $16 million, issued $771 million of senior unsecured notes and $144 million of convertible notes, and received $188 million of net proceeds from issuances of common stock. We made ~~$133~~$119 million of ~~investments in receivables and fixed rate debt-securities, made $23~~principal payments on non-recourse debt, $135 million of ~~investments in real estate, made $4~~principal payments on credit facilities, paid $17 million for withholding requirements as a result of the vesting of employee shares and paid $89 million of ~~equity method investments,~~dividends, distributions and funded escrow accounts for $29 million. We collected $77 million from equity method investments representing the return of capital determined under GAAP, $33 million from receivables and fixed rate debt securities, withdrew $29 million from escrow accounts, and received $12 million from the sale of an equity method investment

~~Cash flows relating to financing activities~~other items.

Net cash provided by financing activities was approximately $138 million for the nine months ended September 30, 2019. We had non-recourse debt borrowings of $35 million, borrowings from our credit facilities of $102 million, issued $507 million of senior unsecured notes, and received $97 million of net proceeds from the issuance of common stock. We made $181 million of principal payments on non-recourse debt, $322 million of principal payments on credit facilities, and $19 million of payments on deferred funding obligations, spent $9 million to purchase shares related to employees withholdings, and paid ~~$81~~$72 million of dividends, distributions and other.

Net cash used in financing activities was approximately $13 million for the nine months ended September 30, 2018. We had non-recourse debt borrowings of $52 million, borrowings from our credit facilities of $159 million, and received $15 million of net proceeds from the issuance of common stock. We made $109 million of principal payments on non-recourse debt, $3 million of principal payments on credit facilities, and $70 million of payments on deferred funding obligations and paid $57 million of dividends, distributions and other.

Off-Balance Sheet Arrangements

We have relationships with non-consolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, or special purpose or variable interest entities, established to facilitate the sale of securitized assets. Other than our securitization assets (including any outstanding servicer advances) of approximately ~~$85~~$147 million as of September 30, ~~2019,~~2020, that may be at risk in the event of defaults or prepayments in our securitization trusts and as discussed below, and except as disclosed in Note 9 to our financial statements in this Form 10-Q, we have not guaranteed any obligations of non-consolidated entities or entered into any commitment or intent to provide additional funding to any such entities. A more detailed description of our relations with non-consolidated entities can be found in Note 2 of our financial statements ~~included~~ in this Form 10-Q.

In connection with some of our transactions, we have provided certain limited guaranties to other transaction participants covering the accuracy of certain limited representations, warranties or covenants and provided an indemnity against certain losses from "bad acts" including fraud, failure to disclose a material fact, theft, misappropriation, voluntary bankruptcy or unauthorized transfers. We have also guaranteed our compliance with certain tax matters, such as negatively impacting the investment tax credit and certain other obligations in the event of a change in ownership or our exercising certain protective rights.

- 45 -

Dividends

U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pays tax at regular corporate rates to the extent that it annually distributes less than 100% of its REIT taxable income. Our current policy is to pay quarterly distributions, which on an annual basis will equal or exceed substantially all of our REIT taxable income. The taxable income of the REIT can vary from our GAAP earnings due to a number of different factors, including, the book to tax timing differences of income and expense recognition from our transactions as well as the amount of taxable income of our TRS distributed to the REIT. See Note 10 to our financial statements in our Form 10-K regarding the amount of our distributions that have been taxed as ordinary income to our stockholders.

Any distributions we make will be at the discretion of our board of directors and will depend upon, among other things, our actual results of operations. These results and our ability to pay distributions will be affected by various factors, including the net interest and other income from our portfolio, our operating expenses and any other expenditures. In the event that our board of directors determines to make distributions in excess of the income or cash flow generated from our assets, we may make such distributions from the proceeds of future offerings of equity or debt securities or other forms of debt financing or the sale of assets. To the extent that in respect of any calendar year, cash available for distribution is less than our taxable income, or our declared distribution we could be required to sell assets, borrow funds, or raise additional capital to make cash distributions or make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. We will generally not be required to make distributions with respect to activities conducted through our domestic ~~TRSs.~~TRS.

To the extent that we generate taxable income, distributions to our stockholders generally will be taxable as ordinary income, although all or a portion of such distributions may be designated by us as a qualified dividend or capital gain. ~~For~~Beginning in 2018 (and through taxable years ending in ~~2018 through 2025,~~2025), a deduction is permitted for certain pass-through business income, including “qualified REIT dividends” (generally, dividends received by a REIT ~~stockholder~~shareholder that are not designated as capital gain dividends or qualified dividend income), which will allow U.S. individuals, trusts, and estates to deduct up to 20% of such amounts, subject to certain limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on such qualified REIT dividends. In the event we make distributions to our stockholders in excess of our taxable income, the excess will constitute a return of capital. In addition, a portion of such distributions may be taxable stock dividends payable in our shares. We will furnish annually to each of our stockholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain.

The dividends declared in ~~2018~~2019 and ~~2019~~2020 are described under Note 11 to our financial statements in this Form 10-Q.

Book Value Considerations

As of September 30, ~~2019,~~2020, we carried only our investments ~~interest rate swaps,~~ and residual assets in securitized ~~receivables (included in other assets)~~financial assets at fair value on our balance sheet. As a result, in reviewing our book value, there are ~~several~~a number of important factors and limitations to consider. Other than our investments ~~interest rate swaps,~~ and the residual assets in securitized financial assets that are carried on our balance sheet at fair value as of September 30, ~~2019,~~2020, the carrying value of our remaining assets and liabilities are calculated as of a particular point in time, which is largely determined at the time such assets and liabilities were added to our balance sheet using a cost basis in accordance with GAAP. As such, our remaining assets and liabilities do not incorporate other factors that may have a significant impact on their value, most notably any impact of business activities, changes in estimates, or changes in general economic conditions, interest rates or commodity prices since the dates the assets or liabilities were initially recorded. Accordingly, our book value ~~for these remaining assets and liabilities~~ does not necessarily represent an estimate of our net realizable value, liquidation value or our market value.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We anticipate that our primary market risks will be related to the credit quality of our counterparties and project companies, market interest rates, the liquidity of our assets, commodity prices, and ~~commodity prices.~~environmental factors. We will seek to manage these risks while, at the same time, seeking to provide an opportunity to stockholders to realize attractive returns through ownership of our common stock.Many of these risks have been magnified due to the continuing economic disruptions caused by the COVID-19 pandemic; however, while we continue to monitor the pandemic its impact on such risks remains uncertain and difficult to predict.

Credit Risks

We source and identify quality opportunities within our broad areas of expertise and apply our rigorous underwriting processes to our transactions, which, we believe, will generally enable us to minimize our credit losses and ~~keep financing costs low.~~maintain access to attractive financing. In the case of various renewable energy and other sustainable infrastructure projects, we will be exposed to

- 46 -

the credit risk of the obligor of the project’s PPA or other long-term contractual revenue commitments, as well as to the credit risk of certain suppliers and project operators. While we do not anticipate facing significant credit risk in our assets related to government energy efficiency projects, we are subject to varying degrees of credit risk in these projects in relation to guarantees provided by ESCOs where payments under energy savings performance contracts are contingent upon achieving pre-determined levels of energy savings. We are ~~also~~ exposed to credit risk in our other projects that do not benefit from governments as the obligor such as ~~on-balance~~on balance sheet financing of projects undertaken by universities, schools and hospitals, as well as privately owned commercial projects. In the case of various renewable energy and other sustainable infrastructure projects, we will also be exposed to the credit risk of the obligor of the project’s PPA or other long-term contractual revenue commitments, as well as to the credit risk of certain suppliers and project operators. Our level of credit risk has increased, and is expected to continue to increase, as our strategy ~~increasingly includes~~contemplates additional investments in mezzanine debt ~~real estate~~ and ~~equity investments.~~equity. We seek to manage credit risk through thorough due diligence and underwriting processes, strong structural protections in our transaction agreements with customers and continual, active asset management and portfolio monitoring. Nevertheless, unanticipated credit losses could occur and during periods of economic downturn in the global economy, our exposure to credit risks from obligors increases, and our efforts to monitor and mitigate the associated risks may not be effective in reducing our credit risks.

We utilize a risk rating system to evaluate projects that we target. We first evaluate the credit rating of the obligors involved in the project using an average of the external credit ratings for an obligor, if available, or an estimated internal rating based on a third-party credit scoring system. We then ~~evaluate~~estimate the probability of default and estimated recovery rate based on the obligors’ credit ratings and the terms of the contract. We also review the performance of each investment, including through, as appropriate, a review of project performance, monthly payment activity and active compliance monitoring, regular communications with project management and, as applicable, its obligors, sponsors and owners, monitoring the financial performance of the collateral, periodic property visits and monitoring cash management and reserve accounts. The results of our reviews are used to update the project’s risk rating as necessary. Additional detail of the credit risks surrounding our Portfolio can be found in Note 6 ofto our financial statements ~~included~~ in this Form 10-Q.

Interest Rate and Borrowing Risks

Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

We are subject to interest rate risk in connection with new asset originations and our borrowings, including our credit facilities, and in the future, any new floating rate assets, credit facilities or other borrowings. Because short-term borrowings are generally short-term commitments of capital, lenders may respond to market conditions, making it more difficult for us to secure continued financing. If we are not able to renew our then existing borrowings or arrange for new financing on terms acceptable to us, or if we default on our covenants or are otherwise unable to access funds under any of these borrowings, we may have to curtail our origination of new assets and/or dispose of assets. We face particular risk in this regard given that we expect many of our borrowings will have a shorter duration than the assets they finance. Increasing interest rates may reduce the demand for our investments while declining interest rates may increase the demand. Both our current and future credit facilities and other borrowings may be of limited duration and are periodically refinanced at then current market rates. We attempt to reduce interest rate risks and to minimize exposure to interest rate fluctuations through the use of fixed rate financing structures, when appropriate, whereby we seek to (1) match the maturities of our debt obligations with the maturities of our assets, (2) borrow at fixed rates for a period of time, ~~like in our asset backed securitizations,~~ or (3) match the interest rates on our assets with like-kind debt (i.e., we may finance floating rate assets with floating rate debt and fixed-rate assets with fixed-rate debt), directly or through the use of interest rate swap agreements, interest rate cap agreements or other financial instruments, or through a combination of these strategies. We expect these instruments will allow us to minimize, but not eliminate, the risk that we must refinance our liabilities before the maturities of our assets and to reduce the impact of changing interest rates on our earnings. In addition to the use of traditional derivative instruments, we also seek to mitigate interest rate risk by using securitizations, syndications and other techniques to construct a portfolio with a staggered maturity profile. We monitor the impact of interest rate changes on the market for new originations and often have the flexibility to negotiate the term of our investments to offset interest rate increases.

Typically, our long-term debt is at fixed rates or we have used interest rate hedges that convert most of the floating rate debt to fixed rate. If interest rates rise, and our fixed rate debt balance remains constant, we expect the fair value of our fixed rate debt to decrease and the value of our hedges on floating rate debt to increase. See Note 3 to our financial statements in this Form 10-Q for the estimated fair value of our fixed rate long-term debt, which is based on having the same debt service requirements that could have been borrowed at the date presented, at prevailing current market interest rates.

Our credit facilities ~~contain~~are variable rate ~~loans~~lines of credit with approximately ~~$38~~$23 million outstanding as of September 30, ~~2019. Significant increases~~2020. Increases in interest rates would result in higher interest expense while decreases in interest rates would result in lower interest expense. As described above, we may use various financing techniques including interest rate swap agreements, interest rate cap agreements or other financial instruments, or a combination of these strategies to mitigate the variable interest nature of these facilities. A 50 basis point increase in LIBOR would increase the quarterly interest expense related to the ~~$38~~$23 million in variable rate borrowings by ~~$0.1 million.~~$28 thousand. Such hypothetical impact of interest rates on our variable rate borrowings does not consider the effect of any change in overall economic activity that could occur in a rising interest rate environment. Further, in

- 47 -

the event of such a change in interest rates, we may take actions to further mitigate our exposure to such a change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the analysis assumes no changes in our financial structure.

We record certain of our assets at fair value in our financial statements and any changes in the discount rate would impact the value of these assets. See Note 3 ~~of the~~to our financial statements in this Form 10-Q.

Liquidity and Concentration Risk

The assets that comprise our asset portfolio are not and ~~will~~are not expected to be publicly traded. A portion of these assets may be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly-traded securities. The illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises, including in response to changes in economic and other conditions. ~~Many~~Certain of the projects in which we invest have one obligor and thus we are subject to concentration risk for these investments and could incur significant losses if any of these projects perform poorly or if we are required to write down the value of any of these projects. Many of our assets, or the collateral supporting those assets, are concentrated in certain geographic areas, which may make those assets or the related collateral more susceptible to natural disasters or other regional events. See also “Credit Risks” discussed above.

Commodity Price Risk

When we make equity or debt investments for a renewable energy project that acts as a substitute for an underlying commodity, we may be exposed to volatility in prices for that commodity. The performance of renewable energy projects that produce electricity can be impacted by volatility in the market prices of various forms of energy, including electricity, coal and natural gas. This is especially true for utility scale projects that sell power on a wholesale basis such as many of our ~~wind~~GC projects as opposed to ~~distributed renewable projects or energy efficiency~~BTM projects which compete against the retail or delivered costs of electricity which includes the cost of transmitting and distributing the electricity to the end user.

Although we generally focus on renewable energy projects that have the majority of their operating cash flow supported by long-term PPAs ~~to the extent that the~~or leases, many of our projects have shorter term contracts (which may have the potential of producing higher current returns) or sell their power in the open market on a merchant basis, the cash flows of such projects, and thus the repayment of, or the returns available for, our assets, are subject to risk if energy prices change. We also attempt to mitigate our exposure through structural protections. These structural protections, which are typically in the form of a preferred return mechanism, are designed to allow recovery of our capital and an acceptable return over time. When structuring and underwriting these transactions, we evaluate these transactions using a variety of scenarios, including natural gas prices remaining low for an extended period of time. Despite these protections, as low natural gas prices continue or PPAs expire, the cash flows from certain of our projects are exposed to these market conditions and we work with the projects sponsors to minimize any impact as part of our on-going active asset management and portfolio monitoring. In the case of utility scale solar projects, we focus on owning the land under the project where our rent is paid out of project operational costs before the debt or equity in the project receives any payments.

We believe the current low prices in natural gas will increase demand for some types of our projects, such as combined heat and power, but may reduce the demand for other projects such as renewable energy that may be a substitute for natural gas. We seek to structure our energy efficiency investments so that we typically avoid exposure to commodity price risk. However, volatility in energy prices may cause building owners and other parties to be reluctant to commit to projects for which repayment is based upon a fixed monetary value for energy savings that would not decline if the price of energy declines.

Environmental Risks

Our business is impacted by the effects of climate change and various related regulatory responses. We discuss the risks and opportunities associated with the impacts of climate change in our Form 10-K Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Impact of climate change on our future operations. This discussion outlines potential qualitative impacts to our business, quantitative illustrations of sensitivity as well as our strategy and resilience to these risks and opportunities.

Risk Management

Our ongoing active asset management and portfolio monitoring processes provide investment oversight and valuable insight into our origination, underwriting and structuring processes. These processes create value through active monitoring of the state of our markets, enforcement of existing contracts and ~~receivables~~asset management. As described above, we engage in a variety of interest rate management techniques that seek to mitigate the economic effect of interest rate changes on the values of, and returns on, some of our assets. While ~~there has~~we have either written off or specifically identified only ~~been~~ two ~~credit losses,~~transactions amounting to approximately $19 million (net of recoveries) on the approximately $6$8 billion of transactions we originated since 2012, which represents an aggregate loss of approximately ~~0.3%~~0.2% on cumulative transactions originated over this time period, there can be no

- 48 -

assurance that we will continue to be as successful, particularly as we invest in more credit sensitive assets or more equity ~~positions~~investments and engage in increasing numbers of transactions with obligors other than U.S. federal government agencies. We seek to manage credit risk using thorough due diligence and underwriting processes, strong structural protections in our loan agreements with customers and continual, active asset management and portfolio monitoring. Additionally, we have established a Finance and Risk Committee of our board of directors which discusses and reviews policies and guidelines with respect to our risk assessment and risk management for various risks, including, but not limited to, our interest rate, ~~counter-party,~~counter party, credit, capital availability, and refinancing risks. As it relates to environmental risks, when we underwrite and structure our investments the environmental risks and opportunities are an integral consideration to our investment parameters. While we cannot fully protect our investments, we seek to mitigate these risks by using third-party experts to conduct engineering and weather analysis and insurance reviews as appropriate. Once a transaction has closed we continue to monitor the environmental risks to the portfolio. We further discuss our strategy to managing these risks in our Form 10-K, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Impact of climate change on our future operations.

Item 4. Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer, based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, have concluded that as of September 30, ~~2019,~~2020, the Company’s disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Exchange Act and the rules and regulations promulgated thereunder.

Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.

Changes in Internal Controls over Financial Reporting

There have been no changes in the Company’s “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the ~~three month~~three-month period ended September 30, ~~2019,~~2020, that have materially affected, or was reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in various claims and legal actions in the ordinary course of business. As of September 30, ~~2019,~~2020, we are not currently subject to any legal proceedings that are likely to have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors

~~For a discussion of our potential risks and uncertainties, see~~Except as updated below, there were no material changes from the ~~information~~risk factors disclosed in Item 1A. “Risk Factors” of our ~~2018~~2019 Form 10-K, filed with the SEC, which is accessible on the SEC’s website at www.sec.gov.

The current outbreak and spread of the COVID-19 outbreak has disrupted, and is likely to further cause severe disruptions in, the U.S. and global economies and financial markets and create widespread business continuity and viability issues.

In recent years the outbreaks of a number of diseases, including Avian Bird Flu, H1N1, and various other “super bugs,” have increased the risk of a pandemic. In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread to over 100 countries, including the United States. COVID-19 has also spread to every state in the United States and in regions where we have our executive offices and principal operations, and in regions where our projects and other investments are located or where they are managed. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. Since March 13, 2020, there have been a number of federal, state and local government initiatives to manage the spread of the virus and its impact on the economy, financial markets and continuity of businesses of all sizes and industries.

The impact and duration of COVID-19 or another pandemic, is having and could in the future have significant repercussions across regional, national and global economies and financial markets, and could trigger a period of regional, national and global economic slowdown or regional, national or global recessions. The outbreak of COVID-19 in many

- 49 -

countries continues to adversely impact regional, national and global economic activity and has contributed to significant volatility and negative pressure in financial markets. The impact of the outbreak has been rapidly evolving and, as cases of the virus have continued to increase around the world, many countries, including the United States, have reacted by instituting, among other things, quarantines and restrictions on travel.

Since March, in an attempt to control COVID-19 the Federal government and most states and/or local governments, including where we have our office (Maryland) and in regions where our projects and other investments are located or where they are managed, have implemented various restrictions, rules, or guidelines including quarantines, restrictions on travel, “shelter in place”, “stay at home””, or "safer at home" rules, restrictions on types of business that may continue to operate, and/or restrictions on types of construction projects allowed. While some of these restrictions have been relaxed or phased out, many of these or similar restrictions remain in place, continue to be implemented, or additional restrictions are being considered. Although, in certain cases, exceptions may be available for certain essential operations and businesses which generally include the renewable energy projects in which we invest, there is no assurance that such exceptions will enable us to avoid adverse effects to our results of operations and business. Further, such actions create disruption in energy efficiency, renewable energy, real estate and other sustainable infrastructure markets and adversely impact a number of industries.

We believe that our ability to operate and our level of business activity has been, and will in all likelihood continue to be, impacted by effects of COVID-19 and could in the future be impacted by another pandemic and that such impacts could adversely affect the profitability of our business, as well as the values of, and the cash flows from, the assets we own. For example, the effects of COVID-19 or another pandemic could adversely impact our financial condition and results of operations due to, among other factors:

•interrupted service and availability of personnel, including our executive officers and other employees that are part of our management team and an inability to recruit, attract and retain skilled personnel-to the extent our management or personnel are impacted by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work, our business and operating results may be negatively impacted;

•difficulty accessing debt and equity capital on attractive terms, or at all, and severe disruption or instability in the global financial markets or deteriorations in credit and financing conditions may affect our ability or the ability of our sustainable infrastructure projects and our ultimate off-taker or project users to make regular payments of principal, interest or project revenue (e.g., due to unemployment, underemployment, or reduced income or revenues) or to access savings or capital necessary to fund business operations or replace or renew maturing liabilities on a timely basis, and may adversely affect the valuation of financial assets and liabilities, any of which could result in the inability to make payments under our borrowing facilities or notes, affect our or our projects’ ability to meet liquidity, net worth, and leverage covenants under borrowing facilities or have a material adverse effect on the value of investments we hold or on our business, financial condition, results of operations and cash flows;

•temporary or lasting changes involving the status, practices and procedures of our or our projects or our projects’ sponsors’ operations, including with respect to new originations of investments - to the extent we elect or are required to limit or be more selective in making new originations of investments, we may strain our relationships with business partners, customers and counterparties, breach actual or perceived obligations to them, and be subject to litigation and claims from such partners, customers and counterparties, any of which could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows; moreover, some of our ultimate off-taker or project users’ operations, or our operations, the sustainable infrastructure markets or projects and our ultimate off-taker or project users have not been able to and others may not be able to function effectively because of, among other factors, disruptions in the normal operation of sustainable infrastructure markets or projects, any inability to access short-term or long-term financing, a disruption in the market for securitization transactions, or the inability to access these markets or execute securitization transactions due to negative impacts to our, our projects or our ultimate off-taker or project users financial condition or operating capabilities resulting from the COVID-19 pandemic; any or all of these impacts could result in reduced net investment income and cashflow, as well as an impairment of our investments which reductions and impairments could be material;

•to the extent ultimate off-taker or other project users that have been negatively impacted by the COVID-19 pandemic do not timely remit payments of principal, interest or other payments (whether due to an inability to make such payments, an unwillingness to make such payments, or a waiver of the requirement to make such payments on a timely basis or at all, including under the terms of any applicable forbearance, modification, or maturity extension agreement or program (which forbearance, waiver, or maturity extension may be available as a result of a government-sponsored or -imposed program or under any such agreement or program we or our project sponsors may otherwise offer)), then the value of our investments will likely be impaired, potentially materially; moreover, to the extent any such pandemic impacts local, regional or national economic conditions, the value of a sustainable infrastructure project is likely to decline, which would likely negatively impact the value of our investments, potentially materially;

- 50 -

•some of our sustainable infrastructure projects are being constructed and others are subject to ongoing maintenance; planned construction or maintenance of some of these projects have not been able to proceed on a timely basis or at all and others may be similarly affected as a result of being negatively impacted by the COVID-19 pandemic, including due to operating disruptions or government mandated moratoriums on construction, development or redevelopment or the inability to source the necessary construction personnel, equipment or parts; all of the foregoing factors would likely negatively impact the value of our investments, potentially materially;

•the inability of our project sponsors to operate in affected areas, including the bankruptcy of one or more project sponsors or their suppliers, or inability of our internal resources to effectively manage our investments in certain of their activities or perform certain administration functions;

•the inability of other third-party vendors we rely on to conduct our business to operate effectively and continue to support our business and operations, including vendors that provide IT services, legal and accounting services, or other operational support services;

•the inability of our or our investments’ counterparties to make or satisfy the conditions, covenants or representations and warranties in agreements they have entered into with us or our counterparties; and

•our ability to ensure operational continuity in the event our business continuity plan is not effective or ineffectually implemented or deployed during a disruption.

The rapid development and fluidity of the circumstances resulting from this pandemic preclude any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present material uncertainty and risk with respect to our performance, financial condition, volume of business, results of operations and cash flows.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this ‘‘Risk Factors’’ section, as well as the Risk Factors in the Form 10-K, such as those relating to changes in interest rates, declining demand for our projects due to declining costs of traditionally-sourced energy, the lack of liquidity of our assets and investments, changes in the fair value of our assets, negative market conditions, our dependence on third-party contractual arrangements, our dependence on the availability of capital, changes in credit ratings assigned to our assets, counterparties to repurchase transactions’ defaulting on their obligations and our investments’ subjectivity to delinquency, foreclosure and loss.

Our results could be adversely affected by counterparty credit risk.

The economic impact of COVID-19 and the associated volatility in the financial markets has triggered a period of economic slowdown or recession and could jeopardize the solvency and financial wherewithal of counterparties with whom we do business. In the event a counterparty to us or one of our sustainable infrastructure projects becomes insolvent or unable to make payments, we may fail to recover the full value of our investment or realize the value from the counterparty’s contract, thus reducing our earnings and liquidity. In addition, the insolvency of one or more of our, or one of our sustainable infrastructure projects’, counterparties could reduce the amount of financing available to us, which would make it more difficult for us to leverage the value of our assets and obtain substitute financing on attractive terms or at all. A material reduction in our financing sources or an adverse change in the terms of our financings could have a material adverse effect on our financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

During the nine months ended September 30, ~~2019,~~2020, certain of our employees surrendered common stock owned by them to satisfy their federal and state tax obligations associated with the vesting of their restricted stock awards.

The table below summarizes our repurchases of common stock during ~~2019.~~2020. These repurchases are related to the surrender of common stock by certain of our employees to satisfy their tax and other compensation related withholdings associated with the vesting of restricted stock. The price paid per share is based on the closing price of our common stock as of

the date of the withholding.

- 51 -

Period Total number of shares purchased
Average price
per share
Total number of shares purchased as part of publicly announced plans or programs
Maximum
number of
shares that
may yet be
purchased
under the
plans or programs
March 2019 253,743
25.31
N/A N/A
May 2019 97,343
26.36
N/A N/A
July 2019 885
28.06
N/A N/A
August 2019 91
26.83
N/A N/A

Period

Total number of shares purchased

Average price
per share

Total number of shares purchased as part of publicly announced plans or programs

Maximum
number of
shares that
may yet be
purchased
under the
plans or programs

February 1 - February 29, 2020

165,090

38.13

N/A

March 1 - March 31, 2020

267,653

36.14

N/A

May 1 - May 31, 2020

47,516

27.79

N/A

~~We exchanged 3,703~~

There were 57,400 OP units held by our non-controlling interest holders exchanged for shares of our common stock during the nine months ended September 30, ~~2019.~~2020.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

- 52 -

Item 6. Exhibits



Exhibit number						Exhibit description

3.1						Articles of Amendment and Restatement of Hannon Armstrong Sustainable Infrastructure Capital, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2013 (No. 001-35877), filed on August 9, 2013)

3.2						Bylaws of Hannon Armstrong Sustainable Infrastructure Capital, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Form 10-Q for the quarter ended June 30, 2013 (No. 001-35877), filed on August 9, 2013)

3.3						Amended and Restated Agreement of Limited Partnership of Hannon Armstrong Sustainable Infrastructure, L.P. (incorporated by reference to Exhibit 3.3 to the Registrant’s Form 10-Q for the quarter ended June 30, 2013 (No. 001-35877), filed on August 9, 2013)

4.1						Specimen Common Stock Certificate of Hannon Armstrong Sustainable Infrastructure Capital, Inc. (incorporated by reference to Exhibit 4.1 to the Registrant’s Form S-11 (No. 333-186711), filed on April 12, 2013)

4.2						Indenture, dated as of August 22, 2017, between Hannon Armstrong Sustainable Infrastructure Capital, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K (No. 001-35877), filed on August 22, 2017)

4.3						First Supplemental Indenture, dated as of August 22, 2017, between Hannon Armstrong Sustainable Infrastructure Capital, Inc. and U.S. Bank National Association, as Trustee (including the form of 4.125% Convertible Senior Note due 2022) (incorporated by reference to Exhibit 4.2 to the Registrant’s Form 8-K (No. 001-35877), filed on August 22, 2017)

4.4						Second Supplemental Indenture, dated as of August 21, 2020, between Hannon Armstrong Sustainable Infrastructure Capital, Inc. and U.S. Bank National Association, as Trustee (including the form of 0% Convertible Senior Note due 2023) (incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K (No. 001-35877), filed on August 21, 2020).

4.5						Indenture, dated as of July 2, 2019, between HAT Holdings I LLC and HAT Holdings II LLC, as issuers, and Hannon Armstrong Sustainable Infrastructure Capital, Inc., Hannon Armstrong Sustainable Infrastructure, L.P., and Hannon Armstrong Capital, LLC, as guarantors, and U.S. Bank National Association, as trustee (including the form of HAT Holdings I LLC and HAT Holdings II LLC’s 5.25% Senior Notes due 2024). (incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K (No. 001-35877), filed on July 2, 2019)

31.1*4.6						Indenture, dated as of April 21, 2020, between HAT Holdings I LLC and HAT Holdings II LLC, as issuers, and Hannon Armstrong Sustainable Infrastructure Capital, Inc., Hannon Armstrong Sustainable Infrastructure, L.P., and Hannon Armstrong Capital, LLC, as guarantors, and U.S. Bank National Association, as trustee (including the form of HAT Holdings I LLC and HAT Holdings II LLC’s 6.00% Senior Notes due 2025). (incorporated by reference to Exhibit 4.1 on the Registrant's Form 8-K (No. 001-35877), filed on April 21, 2020)

4.7						Indenture, dated as of August 25, 2020, between HAT Holdings I LLC and HAT Holdings II LLC, as issuers, and Hannon Armstrong Sustainable Infrastructure Capital, Inc., Hannon Armstrong Sustainable Infrastructure, L.P., and Hannon Armstrong Capital, LLC, as guarantors, and U.S. Bank National Association, as trustee (including the form of HAT Holdings I LLC and HAT Holdings II LLC’s 3.750% Senior Notes due 2030) (incorporated by reference to Exhibit 4.1 on the Registrant's Form 8-K (No. 011-35877), filed on August 25, 2020).

10.1						Amended and Restated Employment Agreement, dated April 13, 2020, by and between Hannon Armstrong Sustainable Infrastructure Capital, Inc. and Jeffrey A. Lipson (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended March 31, 2020 (No. 001-35877), filed on May 11, 2020)

31.1*						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**						Certification of Chief Executive Officer pursuant to section 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes—Oxley Act of 2002

32.2**						Certification of Chief Financial Officer pursuant to section 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes—Oxley Act of 2002

101.SCH*

101.SCH*						Inline XBRL Taxonomy Extension Schema

- 53 -


101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase

101. PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase

104						Cover Page Interactive Data File Included as Exhibit 101 (embedded within the Inline XBRL document)

* Filed herewith.

** Furnished herewith.

- 54 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HANNON ARMSTRONG SUSTAINABLE

INFRASTRUCTURE CAPITAL, INC.

(Registrant)

Date: November ~~1, 2019~~6, 2020

/s/ Jeffrey W. Eckel

Jeffrey W. Eckel

Chairman, Chief Executive Officer and President

Date: November ~~1, 2019~~6, 2020

/s/ Charles W. Melko

Charles W. Melko

Chief Accounting Officer and Senior Vice President

- 4655 -

	~~46-1347456~~
Maryland			46-1347456
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

1906 Towne Centre Blvd		Suite 370	21401
Annapolis,		Maryland
(Address of principal executive offices)			(Zip code)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 ~~per~~par value per share	HASI	New York Stock Exchange


	Estimated Fair Value				Unrealized Losses (1)
	Securities with a loss shorter than 12 months		Securities with a loss longer than 12 months		Securities with a loss shorter than 12 months		Securities with a loss longer than 12 months
	(in millions)
September 30, 2020	$	5	$	7	$	0	$	0
December 31, 2019	25		8		0		1



	As of and for the nine months ended September 30,
	2019		2018
	(in millions)
Gains on securitizations	$	16	$	31
Cost of financial assets securitized	560		595
Proceeds from securitizations	576		626
Residual and servicing assets included in other assets	85		69
Cash received from residual and servicing assets	7		3


	As of and for the nine months ended September 30,
	2020		2019
	(in millions)
Gains on securitizations	$	34	$	16
Cost of financial assets securitized	173		560
Proceeds from securitizations	207		576
Residual and servicing assets	147		85
Cash received from residual and servicing assets	9		7



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


•	•negative impacts from a continued spread of COVID-19, including on the U.S. or global economy or on our business, financial position or results of operations; • our expected returns and performance of our investments; •~~our expected returns and performance of our investments;~~



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2934
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4147
Item 4.	Controls and Procedures	4350
PART II. OTHER INFORMATION		4350
Item 1.	Legal Proceedings	4350
Item 1A.	Risk Factors	4350
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4352
Item 3.	Defaults Upon Senior Securities	4453
Item 4.	Mine Safety Disclosures	4453
Item 5.	Other Information	4453
Item 6.	Exhibits	4554
SIGNATURES		4656



	September 30, 2019 (unaudited)			December 31, 2018
Assets
Equity method investments	$	449,304		$	471,044
Government receivables	299,877			497,464
Commercial receivables, net of allowance	674,728			447,196
Real estate	363,037			365,370
Investments	113,177			169,793
Cash and cash equivalents	186,152			21,418
Other assets	192,893			182,628
Total Assets	$	2,279,168		$	2,154,913
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable, accrued expenses and other	$	39,851		$	36,509
Deferred funding obligations	1,073			72,100
Credit facilities	37,824			258,592
Non-recourse debt (secured by assets of $887 million and $1,105 million, respectively)	664,722			834,738
Senior unsecured notes	505,513			—
Convertible notes	147,642			148,451
Total Liabilities	1,396,625			1,350,390
Stockholders’ Equity:
Preferred stock, par value $0.01 per share, 50,000,000 shares authorized, no shares issued and outstanding	—			—
Common stock, par value $0.01 per share, 450,000,000 shares authorized, 64,924,800 and 60,510,086 shares issued and outstanding, respectively	649			605
Additional paid in capital	1,063,102			965,384
Accumulated deficit	(193,121		)	(163,205		)
Accumulated other comprehensive income (loss)	8,746			(1,684		)
Non-controlling interest	3,167			3,423
Total Stockholders’ Equity	882,543			804,523
Total Liabilities and Stockholders’ Equity	$	2,279,168		$	2,154,913



	As of September 30, 2019
	Fair Value		Carrying Value		Level
	(in millions)
Assets
Government receivables	$	318	$	300	Level 3
Commercial receivables	692		675		Level 3
Investments ⁽¹⁾	113		113		Level 3
Securitization residual assets ⁽²⁾	84		84		Level 3
Liabilities
Credit facilities ⁽³⁾	$	38	$	38	Level 3
Non-recourse debt ⁽³⁾	714		680		Level 3
Senior unsecured notes ⁽³⁾	533		514		Level 2
Convertible notes ⁽³⁾	168		151		Level 2



	As of December 31, 2018
	Fair Value		Carrying Value		Level
	(in millions)
Assets
Government receivables	$	487	$	497	Level 3
Commercial receivables	443		447		Level 3
Investments ⁽¹⁾	170		170		Level 3
Securitization residual assets ⁽²⁾	71		71		Level 3
Liabilities
Credit facilities ⁽³⁾	$	259	$	259	Level 3
Non-recourse debt ⁽³⁾	835		852		Level 3
Convertible notes ⁽³⁾	139		152		Level 2



	Estimated Fair Value				Unrealized Losses ⁽¹⁾
	Securities with a loss shorter than 12 months		Securities with a loss longer than 12 months		Securities with a loss shorter than 12 months		Securities with a loss longer than 12 months
	(in millions)
September 30, 2019	$	—	$	17	$	—	$	1
December 31, 2018	82		67		1		3



	Investment Grade
	Government ⁽¹⁾			Commercial Investment Grade ⁽²⁾			Commercial Non-Investment Grade ⁽³⁾			Subtotal, Debt and Real Estate			Equity Method Investments		Total
	(dollars in millions)
Equity investments in renewable energy projects	$	—		$	—		$	—		$	—		$	427	$	427
Receivables ⁽⁴⁾	300			158			517			975			—		975
Real estate ⁽⁵⁾	—			363			—			363			22		385
Investments	34			79			—			113			—		113
Total	$	334		$	600		$	517		$	1,451		$	449	$	1,900
% of Debt and real estate portfolio	23		%	41		%	36		%	100		%	N/A		N/A
Average remaining balance ⁽⁶⁾	$	8		$	6		$	16		$	8		$	15	$	9


~~(2)~~	Transactions where the projects or the ultimate obligors are commercial entities that have been rated investment grade (either by an independent rating agency or based on our internal credit analysis). Of this total, $8 million of the transactions have been rated investment grade by an independent rating agency.



~~Maryland~~


~~(4)~~	~~Total reconciles to the total of the government receivables and commercial receivables lines of the consolidated balance sheets.~~


~~(5)~~	Includes the real estate and the lease intangible assets (including those held through equity method investments) from which we receive scheduled lease payments, typically under long-term triple net lease agreements.


~~(6)~~	~~Excludes approximately 175 transactions each with outstanding balances that are less than $1 million and that in the aggregate total $60 million.~~


	Portfolio Performance
	1 (1)						2 (2)						3 (3)						Total
	Government			Commercial			Government			Commercial			Government			Commercial
Receivable vintage	(dollars in millions)
2020	$	0		$	85		$	0		$	0		$	0		$	0		$	85
2019	2			399			0			2			0			0			403
2018	0			270			0			0			0			0			270
2017	38			1			0			8			0			0			47
2016	68			60			0			0			0			0			128
2015	88			0			0			0			0			0			88
Prior to 2015	55			47			0			0			0			8			110
Total receivables	251			862			0			10			0			8			1,131
Less: Allowance for loss on receivables	0			(19)			0			(4)			0			(8)			(31)
Net receivables (4)	251			843			0			6			0			0			1,100
Investments	36			16			0			0			0			0			52
Real estate	0			360			0			0			0			0			360
Equity method investments (5)	0			695			0			24			0			0			719
Total	$	287		$	1,914		$	0		$	30		$	0		$	0		$	2,231
Percent of Portfolio	13		%	86		%	0		%	1		%	0		%	0		%	100		%
Average remaining balance (6)	$	7		$	12		$	0		$	11		$	0		$	4		$	11



Investment Date	Investee	Carrying Value
		(in millions)
Various	2007 Vento I, LLC	$	81
December 2015	Buckeye Wind Energy Class B Holdings, LLC	73
Various	Vivint Solar Asset 1 Class B, LLC	50
Various	Northern Frontier Wind, LLC	45
December 2018	3D Engie, LLC	39
October 2016	Invenergy Gunsight Mountain Holdings, LLC	35
Various	Helix Fund I, LLC	26
Various	Other transactions	100
	Total equity method investments	$	449



	Total			Less than 1 year			1-5 years			5-10 years			More than 10 years
	(dollars in millions)
Receivables
Maturities by period	$	975		$	3		$	62		$	187		$	723
Weighted average yield by period	7.8		%	4.8		%	7.3		%	7.5		%	7.9		%
Investments
Maturities by period	$	113		$	—		$	—		$	12		$	101
Weighted average yield by period	4.6		%	—		%	—		%	4.1		%	4.7		%


	September 30, 2020				January 1, 2020
	Carrying Value		Allowance		Carrying Value		Allowance
	(in millions)
Government (1)	$	251	$	0	$	263	$	0
Commercial (2)	880		31		904		26
Total	$	1,131	31		$	1,167	26


	Three months ended September 30, 2020				Nine months ended September 30, 2020
	Government		Commercial		Government		Commercial
	(in thousands)
Beginning balance	$	0	$	28,831	$	0	$	25,660
Provision for loss on receivables	0		2,458		0		5,629



Ending balance	$	0	$	31,289	$	0	$	31,289



	September 30, 2019			December 31, 2018
	(in millions)
Real estate
Land	$	269		$	269
Lease intangibles	104			104
Accumulated amortization of lease intangibles	(10		)	(8		)
Real estate	$	363		$	365


	Future Amortization Expense		Minimum Rental Income Payments
	(in millions)
From October 1, 2020 to December 31, 2020	$	1	$	6
2021	3		22
2022	3		22
2023	3		23
2024	3		24
2025	3		24
Thereafter	75		740
Total	$	91	$	861


	Rep-Based Facility		Approval-Based Facility
	(dollars in millions)
Outstanding balance	$	0	$	23
Value of collateral pledged to credit facility	25		152
Weighted average short-term borrowing rate	N/A		1.66		%



	Future minimum maturities
	(in millions)
October 1, 2019 to December 31, 2019	$	—
2020	7
2021	8
2022	8
2023	15
Total	$	38


	Future minimum maturities
	(in millions)
October 1, 2020 to December 31, 2020	$	0
2021	0
2022	7
2023	16

Total	$	23



	Outstanding Balance as of										Anticipated Balance at Maturity		Carrying Value of Assets Pledged as of
	September 30, 2019			December 31, 2018			Interest Rate		Maturity Date		Anticipated Balance at Maturity		September 30, 2019		December 31, 2018		Description of Assets Pledged
	(dollars in millions)
HASI Sustainable Yield Bond 2013-1 ⁽¹⁾	$	—		$	55		2.79%		December 2019		$	—	$	—	$	76	Receivables
HASI Sustainable Yield Bond 2015-1A	87			90			4.28%		October 2034		—		127		135		Receivables, real estate and real estate intangibles
HASI Sustainable Yield Bond 2015-1B Note	13			13			5.41%		October 2034		—		127		135		Class B Bond of HASI Sustainable Yield Bond 2015-1
2017 Credit Agreement	77			112			4.12%		January 2023		—		93		151		Equity interests in Strong Upwind Holdings I, II, III, and IV LLC, and Northern Frontier, LLC
HASI SYB Loan Agreement 2015-2	29			32			6.17%	⁽²⁾	December 2023		—		73		72		Equity interest in Buckeye Wind Energy Class B Holdings LLC, related interest rate swap
HASI SYB Trust 2016-2	76			77			4.35%		April 2037		—		77		81		Receivables
2017 Master Repurchase Agreement	—			56			—%		January 2020	⁽³⁾	—		62		67		Receivables and investments
HASI ECON 101 Trust	129			133			3.57%		May 2041		—		134		137		Receivables and investments
HASI SYB Trust 2017-1	156			159			3.86%		March 2042		—		207		208		Receivables, real estate and real estate intangibles
Other non-recourse debt ⁽⁴⁾	113			125			3.15% - 7.45%		2019 to 2046		18		114		178		Receivables
Debt issuance costs	(15		)	(17		)
Non-recourse debt ⁽⁵⁾	$	665		$	835


~~(1)~~	~~This bond was prepaid without penalty in the second quarter of 2019.~~


~~(2)~~	~~Interest rate represents the current period’s LIBOR based rate plus the spread. We have hedged the LIBOR rate exposure using interest rate swaps fixed at 2.55% for HASI SYB Loan Agreement 2015-2.~~


~~(3)~~	~~We modified this agreement in the second quarter of 2019 to extend the maturity date to October 2019, and again in the fourth quarter of 2019 to extend the maturity to January 2020.~~


~~(4)~~	Other non-recourse debt consists of various debt agreements used to finance certain of our receivables for their term. Debt service payment requirements, in a majority of cases, are equal to or less than the cash flows received from the underlying receivables.


~~(5)~~	The total collateral pledged against our non-recourse debt was $887 million and $1,105 million as of September 30, 2019 and December 31, 2018, respectively. In addition, $41 million and $35 million of our restricted cash balance was pledged as collateral to various non-recourse loans as of September 30, 2019 and December 31, 2018, respectively.


	Outstanding Principal Amount			Maturity Date	Stated Interest Rate		Interest Payment Dates	Redemption Terms Modification Date
	(in millions)
2024 Notes	$	500	(1)	July 15, 2024	5.25	%	January 15th and July 15th	July 15, 2021 (2)
2025 Notes	400			April 15, 2025	6.00	%	April 15 and October 15th	April 15, 2020 (2)
2030 Notes	375		(3)	September 15, 2030	3.75	%	February 15th and August 15th	September 15, 2022 (4)