Greetings, and welcome to HASI's second quarter earnings conference call and webcast. At this time, all participants are in a listen-only mode. A brief question- and- answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Neha Gaddam, Senior Director, Investor Relations and Corporate Finance.
Thank you, operator. Good afternoon, everyone, and welcome. Earlier this afternoon, HASI distributed a press release detailing our second quarter of 2023 results, a copy of which is available on our website. This conference call is being webcast live on Investor Relations webpage, where a replay will be available later today. Some of the comments made in this call are forward-looking statements, which are subject to risks and uncertainties described in Risk Factors section of Company's Form 10-K and other filings with the SEC. Actual results may differ materially from those stated. Today's discussions also include some non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is available on our posted earnings release and slide presentation. Joining me on today's call are Jeff Lipson, the Company's President and CEO, Marc Pangburn, CFO, and Susan Nickey, our Chief Client Officer.
I'd like to turn the call over to Jeff, who will begin on slide three. Jeff?
Thank you, Neha. Good afternoon, everyone. July 2023 is likely to be recognized as the hottest month in history to date. 2023 is trending to be the hottest year on record. Unfortunately, climate risks continue to escalate. These trends also highlight the enormous amount of projects and capital that will be required to mitigate these risks. In this context, HASI continues to actively engage with our clients, providing capital, industry expertise, and advocacy to address these growing challenges. Our business remains uniquely positioned to invest in the increasing number of projects being developed with a climate-positive focus. As evidence of these trends and our growing opportunity set, I am pleased to announce that our investment volume for the first half of the year is the highest ever at $815 million, including $426 million for the second quarter.
This is paired with our highest investment yields ever over the same period, with a weighted average yield greater than 8.5% for balance sheet investments. This combination of larger volumes and higher yields provides significant momentum for the business and for future earnings growth. In addition, our portfolio yield has increased from 7.5%-7.7%. We also closed on a successful capital raise, sustaining long-term equity growth capital that provides the foundation for another $1 billion of accretive balance sheet investments, or roughly $2 billion of total investments, if we include securitized investments. We upsized our bank revolver, providing enhanced financial flexibility. For the second quarter, we announced distributable EPS of $0.53 and GAAP EPS of $0.14.
We have declared a quarterly dividend of $0.395 per share and are affirming our earnings and dividend guidance. On our Investor Day in March, we disclosed we were performing a thorough analysis of our tax and corporate structure. As a result of this process, we have determined that the growth opportunity in renewables, fuels, and other non-qualifying investments can best be obtained outside of a REIT structure. Therefore, we have preliminarily concluded our optimal structure going forward is to discontinue electing REIT status beginning in 2024. This change in tax election will not impact our dividend policy nor our strategy, and I will make a few additional comments on this matter towards the end of our prepared remarks. Moving to slide four, we are very excited about our investment pipeline of greater than $5 billion.
The pipeline has grown recently due to both growth in our business development efforts and our investment team, as well as increased project volumes from our clients. Notably, the yield on the pipeline transactions targeted for the balance sheet are consistent with the higher yields on newly closed transactions in the first half that I discussed earlier. The pipeline also remains extremely diverse, with no asset class comprising an outsized portion of the total. Our FTN business has grown from 12% of the pipeline in Q1 to 15% in Q2, as we continue to see strong opportunities in fuels and transport. Our Behind-the-Meter business has a large pipeline of attractive opportunities as community solar, energy efficiency, and resi solar all remain active asset classes. Our Grid-Connected business is experiencing robust growth as the IRA has triggered an increasing volume of development.
Recently, we have also added several standalone storage transactions to our pipeline. In summary, this diverse pipeline provides substantial optimism regarding our ability to continue to grow our business and continued confidence in our business model. Turning to page five, we provide additional detail on our record, $815 million of closed transactions year- to- date. As always, diversity remains the strength of the business. As displayed on the left, the transactions are from all three of our target markets, with six different asset classes represented. On the right, we note five transactions that have been previously disclosed as a reminder of the types of projects and clients that comprise our portfolio.
Highlighting one transaction, our credit facility with GridPoint, which has been established to finance a portfolio of commercial energy efficiency retrofits and has a CarbonCount of 5.2, representing a very significant emissions impact. A reminder that energy efficiency is often the most impactful and economic way to address carbon emissions. A good example of a profitable investment with significant impact as we continue to execute effectively, converting our pipeline into closed transactions. I'd like to turn it over to Marc Pangburn to detail our financial results.
Thank you, Jeff. I'll begin by summarizing our financial performance on slide six. In the second quarter, we recorded distributable earnings per share of $0.53 and GAAP earnings per share of $0.14. Over the last year, we grew our portfolio by 26% to $4.9 billion, and managed assets 15% to $10.7 billion. Our portfolio is driving a 12% increase in distributable net investment income compared to the same period last year. We also recorded $39 million of gain on sale, fees, and securitization income for the first half of this year, and anticipate full year to be in line with prior year. Our execution has remained consistent in any number of different macroeconomic environments. To provide some context for this consistent execution, between 2019 and 2021, we approximately doubled our gain on sale fees and have maintained these levels.
We've also more than doubled our portfolios in 2019 and continue to see a shift where a larger portion of our earnings are anticipated to be derived from NII. This shift is particularly important as we see a higher level of visibility into profitable growth. Let's turn to slide seven. Our portfolio yield increased from 7.5% to 7.7% in the second quarter. We funded $290 million of investments during the quarter. Recent closings at higher yields are beginning to show their impact. As we continue to convert our pipeline and fund newer transactions at higher yields, we expect portfolio yield to continue its upward trend. On slide eight, I'm pleased to update that our disciplined focus on margins is working. While our investment yields are increasing, our cost of debt has remained constant.
Year- to- date, we've managed our debt costs primarily through our hedging program and more efficiently managing our revolver and cash position. During the second half of 2023, we anticipate our focus to be on further debt rates. Although we expect some increase in the cost of debt over time due to the higher interest rate environment, we see this as being offset by increasing investment yields. To provide some context behind this comment, we receive investor questions on our 2025 and 2026 bond refinancings. We've entered into hedges relating to these refinancings to lock in base rates around 3%. Using our current trading levels for credit spread and the hedged base rates, we estimate that a refinancing would increase the total cost of debt from 4.8% to approximately 5.6%. We have more than two years before a refinancing is required.
However, even at 5.6%, our margins on the existing portfolio are attractive and drive continued long-term profitability. To reiterate my lead in on profitable growth, we are seeing a higher level of visibility into continued strong margins, with both investment yields increasing and debt markets recovering. Before I move on to discuss liquidity and capital, I'd like to address two industry trends, not on the slides, which have recently come into focus. The first relates to future volumes in the residential solar market. We remain highly active with our residential solar clients on new investment opportunities and continue to be bullish on the long-term industry fundamentals. Driven by the continued diversification of our business, residential solar represents less than 10% of our pipeline. The second trend relates to multiple Grid-Connected clients reporting low quarterly wind performance.
We are seeing similar data in our wind investments. The impact on our business is muted, as we generally underwrite to a lower lifetime production forecast, and our preferred equity investment structures mitigate downside risk. Our current period cash collections are lower. With our preferred equity structures, the cash we do not collect this period will accrue at our preferred rate and be collected in the future. Getting back to the slides, on slide nine, I'll cover liquidity and capital. Starting on the top left, our liquidity remains strong, with a total of over $790 million of cash and undrawn revolver capacity. We're pleased to highlight the successful upsize of our unsecured revolver by $240 million to a total of $840 million, and an increase of our bank group to 15 banks.
I cannot emphasize more what a sign of support and confidence this shows from our banking relationships, especially in the backdrop of a tight lending environment in the aftermath of SVB. The fact that our credit spread remains below two is evidence of the high-quality assets we originate and the confidence that our lenders have in this company. Additionally, Fitch has recently placed our BB+ rating on a positive outlook, which is an encouraging development as we continue to target a second investment grade rating. I'll take a moment to speak about the recent $345 million follow-on equity offering in near-term capital plan. The proceeds from the raise are foundational for the next $2 billion of accretive investments as Jeff identified earlier. Notably, this positions us well to meet our 2024 guidance.
It also reduces our leverage, enabling us to shift focus to debt capital.... We will utilize our diversified funding platform for additional issuances of convertible bonds, secured debt, and corporate unsecured bonds. We have been active in all three markets. We are tracking performance, again, with the equity rates behind us, we're moving on to debt. We're also continuing to execute on our securitization activities and pursue syndications, both of which are capital light. To conclude, we are executing on our key 2023 focus: profitable growth. We will continue to engage with our investor community to articulate the value of the business and opportunity we are excited to capture with our unique platform. With that, I'll turn the call back to Jeff.
Thanks, Marc. Turning to slide 10, I'll give an update on our environmental, social, and governance efforts, which are embedded into our differentiated business model. We made good progress in quantifying our Scope 3 Category 15 portfolio emissions for 2022, which certain investors have asked about, with the goal of setting a Scope 3 science-based target later this year. I am also pleased to report that the HASI Foundation continues to make an impact at the intersection of climate change and social justice. Related to governance, a majority of our independent directors are now women or from underrepresented communities. Turning to page 11, a few more thoughts on our corporate structure transition. Reiterating that as a C corp, we will be better positioned to capitalize on new opportunities, particularly in our FTN business segment.
I will again clarify that our change in corporate structure will have no impact on our investment strategy or dividend policy. Quite simply, the company will continue to operate in an identical fashion in virtually all aspects of our business. We also expect the shareholder rotation will be minimal as our shares are held by very few REIT funds. As it relates to tax efficiency, we will utilize existing NOLs, as well as newly generated NOLs, depreciation, and tax credits, all from our traditional equity investments, in order to minimize our tax obligations going forward. We expect to pay de minimis cash taxes for at least the next five years and expect to deploy an effective tax planning strategy in the subsequent years to maintain efficiency. In summary, the business will have a higher growth trajectory, an unchanged dividend profile, and continued tax efficiency.
Please note we have included an FAQ regarding the tax election on page 14 in the appendix. Let's wrap up on slide 12. Over the last several months, we've been responsive to investor and analyst advice to simplify our story. On Investor Day in March, we clarified we have a simple business model focused on climate, clients, and assets. Today, we are further simplifying by communicating a simpler corporate structure in 2024. We pair this simplified model with demonstrated success as we continue to execute quarter- after- quarter, achieving our profitability goals and establishing a path for continued success, despite higher interest rates and other real or perceived headwinds. Our unique business offers investors access to the energy transition with both growth and income. We are very proud of our success in the first half of 2023 and have positioned the business for additional prosperity.
These achievements are the result of a dedicated and talented team at HASI that I have the privilege of working with every day. I thank all of my teammates, as well as our shareholders, for their support of our business. That concludes our prepared remarks. Operator, please open the line for questions.
Thank you. We will now be conducting a question- and- answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Your first question comes from Noah Kaye with Oppenheimer. Please go ahead.
Good afternoon. Thanks for taking the questions. Let's start with the REIT announcement. You clearly put a lot of effort and thought into this and announcing to us today, you know, just indicating this is preliminary or I guess subject to board approval, maybe just walk us through expected process and timing for making this formal, getting it formally approved by the board.
Thanks, Noah, and I appreciate you calling in. There are a few compliance and governance items involved, and when companies are de-REITing, it's best to seek the board approval and the finalization in the fourth quarter, for those governance and compliance reasons. That will be our plan. We will... We're targeting a fourth quarter board approval. For now, we're calling this a preliminary decision, but I think investors should certainly expect us to start to move in this direction for 2024.
Okay, and as a formal approval, one would presume you've consulted already with the board on this?
Yes, we have informed the board. We just haven't asked for their approval. That is correct.
Okay. The second part of this: Have you had any discussions with the agencies that provide classification systems about moving out of the REIT category, or do you plan to? I guess, what industry peer group would you ultimately expect to be placed in if you're not classified as a REIT?
We have looked at that issue. I believe the way to think about it is the SIC code you select when you file your financial statements, and the GICS code is primarily determined by MSCI and S&P. You don't have control over your GICS code. Those organizations generally select it for you, but we are going to advocate for a certain code to the extent you can do so.
Okay, the SIC code that you would elect would be?
That's to be determined.
Something we'll find out. Okay. All right, understood.
Finalize that decision.
I had to ask. I, I guess just the last question from me, you know, appreciate, Marc, the, the comments around, you know, the timing of cash collections on, on those wind investments. It seems like in general, you know, credit loss provisions tend to continue to be de minimis. You know, the, the, the overarching question we have is, in your cash sources and uses, you know, you've shown healthy coverage of the dividend, fiscal 2022 and then trailing 12 months. Any concern that, you know, as we move throughout the year, we may be getting tighter on that? Do you expect to have continued healthy coverage in terms of cash collections?
Thanks, Noah. Yes, there's no concern. We have obviously identified a, a quarter dynamic that I think everyone has seen show up throughout the industry. At this time, I would not point to any long-term trends.
Okay, I'll turn it over.
Thank you.
Next question, Chris Souther with B. Riley Securities. Please go ahead.
Hey, thanks for taking my questions, guys. Maybe just to follow up on the, the winds, impact there. Can, could you kind of break that out versus kind of the just general lumpiness of, of the cash collection, you know, and, and kind of cash flows from operation? I just wanted to get a sense what the magnitude there was, you know, specifically on the wind side. And then if you had any sense of the timing of that catch-up, would, would be helpful.
The best place to look, which I'll point you to, I think will show up actually in the Q, which will detail the cash collected from our EMI investments, which, as I think you know, are primarily the Grid-Connected and Grid-Connected wind investments. That, I think, can help start to quantify it for you. In terms of the catch-up, I think that that will largely depend on what next quarter's performance is. Assuming that wind bounces back and starts to perform per expectations, we would not anticipate that this is a, a long wait period for us.
Got it. Okay. I guess asking you to predict the, the wind. Maybe just on the pipeline mix dynamics, there's an uptick in Behind-the-Meter. I'm curious if that reflects additional partners, customers, any specific subsectors that are getting more exciting that you could call out, that would be great?
There are some new clients in there, Chris. you know, the Behind-the-Meter side is mostly community solar, energy efficiency, and resi solar. There's a lot in the pipeline from long-standing clients in those asset classes. There are several transactions also from some new clients as well, as we expand our business.
Got it. Okay, that's helpful. I'll, I'll hop in the queue. Thanks, guys.
Next question, Ben Kallo with Baird. Please go ahead.
Hi, good evening, and thanks for taking my question. Just on the restructure, does it change anything, Jeff, on the way you think about either the distribution rate for your dividend or the capital structure? I know you guys, for a long time, I think had, like a 2.5 leverage ratio.
No, Ben, it really doesn't. I think the leverage profile of less than 2.5, it will be unchanged as a result of the tax election, and I think the trajectory of dividends will be unchanged as well. On Investor Day, Marc, for instance, alluded to by 2030, the payout ratio being in that 50%-60% range. I think that's a reasonable way to think about the business with more retained capital over time, that the dividend will continue to grow, but will grow at a slower pace than earnings. The roughly 70% payout ratio we had this year will, will gradually decline accordingly. I think that's, that's the way to think about the business.
Thank you. As we see your portfolio yield tick up, you know, often we think that you might be taking on more risk. Can you just talk to that a little bit? You know, if anything has changed. I know you gave the examples there, but maybe just how you guys continue to look at different investment opportunities. Thank you.
Yep, good question, Ben. The answer is no, we're not taking on a different risk profile in order to obtain the higher yield. The higher yield is a function of higher base rates. In many of the investments we've made for many years at, at the same risk profile, we're now achieving a higher yield naturally with the base rates higher and with more revenue in the projects, because of some of the dynamics there. Then in some of the new asset classes, particularly in FTN, we're also achieving a higher yield because they're a bit less mature than some of our traditional asset classes. From a risk profile perspective, they're really very, very similar.
On Investor Day, we talked about the six attributes that virtually all of our investments have, and as we have expanded into FTN, we've maintained those six attributes as our risk profile and in the way we think about the business. We have not taken on more risk in order to achieve this higher yield.
Thank you.
Thanks, Ben.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.