The Sustainable Infrastructure Income Trust
Tom Konrad CFA
Jeffrey Eckel has an investor relations problem.
No, there has not been any scandal involving fudging the books or sweatshop labor. Rather, most investors simply don’t seem to “get” his company.
His company recently went public as a REIT, or Real Estate Investment Trust, and the traditional REIT investor likes the familiar. They invest for income, and for many, a track record of past income and dividends is a must. While Eckel’s company manages $1.8 billion of securitized energy efficient and sustainable infrastructure assets, it has not been able to invest in such assets itself until the funds from its IPO made that possible.
Eckel’s firm is now in the process of investing those IPO proceeds, and he expects the average investment will yield near 5.5%. Using a 2 to 1 leverage ratio, he plans to ramp that up to 7% of the IPO price ($12.50.) This is well above the yields of most other REITs, but given that there are no other REITs which invest in the same asset class, traditionally conservative REIT investors don’t seem to know what to make of it. Eckel’s predicted yield translates to annual earnings (almost all of which will be distributed to shareholders) of around 88 cents a share. The two analysts who have initiated coverage so far are predicting 2014 earnings of $0.84 and $1.08, which makes sense given that Eckel is probably being a bit conservative about his earnings projections in order not to disappoint Wall Street.
One other, somewhat less serious, problem Eckel has is the name of his firm.
If you have never heard of “The Sustainable Infrastructure Income Trust” in this article’s headline, that’s because the company does not (yet) exist. I recently sat down with Mr. Eckel at the Renewable Energy Finance Forum (REFF) Wall Street, and suggested the name to him. His company is called Hannon Armstrong Sustainable Infrastructure Capital (NYSE:HASI). I think the re-branding might make it easier to convey exactly what his firm does.
Many successful public companies have names that don’t describe their businesses. Proctor and Gamble (NYSE:PG) doesn’t monitor exams at casinos, and Honeywell (NYSE:HON) doesn’t raise bees. But for every Honeywell or P&G, there’s a General Electric (NYSE:GE) and a Waste Management (NYSE:WM).
I think small, environmentally oriented, investors might pay a little more for HASI than professional income investors. The professionals care a lot about the financial sustainability of the dividend, but could not care less about the environmental aspects of the business of funding energy efficiency and other sustainable investments. Retail investors are more likely to care about both. It might be easier to attract their attention if Hannon Armstrong’s name were more descriptive of what it does. Hannon Armstrong produces sustainable income from sustainable infrastructure investments; the name should reflect that. Hence, “The Sustainable Infrastructure Income Trust.”
Eckel seemed to take my idea seriously, so there may be some re-branding in HASI’s future. He got an extra nudge less than an hour later: The moderator of a panel he was speaking on at REFF Wall Street choked while trying to say “Hannon Armstrong” in Eckel’s introduction. No doubt it was a coincidence, but it spurred me to write this article.
Rebranding or no, real dividends will get the attention of traditional REIT investors even if HASI’s environmental credentials do not. HASI will announce second quarter results and its first dividend on August 8th. That will give investors a taste, and I expect the stock price to “ramp up” from there as successive dividends are announced. My guess is that we’ll see the full dividend by Q1 2014.
I like investing in companies that are having difficulty communicating their stories to Wall Street. Eventually, the hard earnings numbers will reflect the company’s reality. Whenever I have a chance to buy a stock before I have to pay full price, I’m as happy as a fashionista who finds a pair of Manolo Blahniks in the clearance bin at Bergdorf.
I don’t know when the sale on Hannon Armstrong Sustainable Infrastructure Capital will end, but it could be as soon as the first dividend announcement on August 8th.
Disclosure: Long HASI, WM.DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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