We are short Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI) because its accounting is so complex and misleading that its financial statements are effectively meaningless. HASI is a prime example of how public market incentives can warp a company into relentlessly destroying value to feed a Wall Street growth narrative. Most of HASI’s income is both non-cash and unrealizable: It has little relationship with cash to be received in the future. HASI misleadingly inflates GAAP earnings three ways: 1) Through a loophole in the arcana of accounting for renewables subsidies, HASI books non-cash unrealizable income relating to third parties’ tax credits that will be reversed; 2) HASI produces non-cash income by manipulating the discount rate it applies to residual assets to implausibly low levels, thereby inflating its gains on securitizations; and, 3) HASI books interest income from non-cash “Paid in Kind” (“PIK”) interest payments, which are essentially IOUs from stressed borrowers.
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