Real estate investment trusts, or REITs in short, have been steadily gaining popularity in recent years. REITs have continued to prove its steadfastness amidst rocky market prospects, and they are becoming more and more attractive to many investors that might not have looked at the asset twice. REIT assets are also becoming more varied. There are a number of different types of REITs you can get your hands on today, and one of the latest REIT models is in the renewable energy industry. Does a renewable energy REIT actually exist? Read on to find out.
What is a renewable energy REIT?
To understand what a renewable energy REIT is, it’s important to know how an REIT works to begin with. According to this article, “an REIT is a company that owns and typically operates income-producing real estate or related assets.” There are many different kinds of REITs out there, and some of the more popular ones include mortgage REITs, equity REITs, hybrid REITs, gaming REITs, retail REITs, residential REITs, and so forth.
A renewable energy REIT is a company that invests in energy-related businesses. It’s a fairly new niche that has not gotten a lot of traction yet. In fact, the first company that’s become a certified renewable energy REIT only formed last year in 2019. There’s an incredible amount of potential in the investment, however, given the nature of climate awareness today. It’s only a matter of time before renewable energy REITs become soaring investments necessary for every portfolio. So does a renewable energy REIT actually exist? The answer is yes, and in fact there are two we can look at.
RadiantREIT claims to be the first true renewable energy REIT ever created. In essence, RadiantREIT is a mortgage REIT that caters to the solar energy market. The company seeks to finance solar energy the way real estate works. RadiantREIT works with both solar developers and solar asset portfolio owners, offering long-term and fixed rate debt.
Solar energy is one of the largest growing markets in renewable energy. The projected investment for solar installations was remarkably high in 2019, and it stands to show how more investors are looking into this kind of asset. Before RadiantREIT, talks of solar energy REIT were treated as part of the umbrella of equity REITs. RadiantREIT acts more like solar mortgage REIT, which generates revenue from loan interest payments from the real estate involved in any solar-related projects. RadiantREIT was founded in 2018 and headquartered in New York. However, the company is still a private entity, and there are no indications of it going public anytime soon.
Hannon Armstrong (HASI)
Hannon Armstrong Sustainable Infrastructure Capital (NYSE: HASI) was approved by the IRS for REIT status back in 2012 at a time when no one was really talking about sustainable energy REITs. According to this article, Hannon Armstrong is a “renewable power and energy efficiency investor that stands out through its status as a real estate investment trust (REIT) and its strategy of investing in assets that have a lower risk profile.” The company also declares to be the first clean energy REIT to go public, which happened in 2013. Hannon Armstrong’s investment approach is environmentally sustainable, and they provide capital to various sustainable-related companies.
Hannon Armstrong has been in the industry awhile. Originally known as Eden Hannon Goodwin & Company, Hannon Armstrong was founded in 1981. Its first transaction in the renewable energy field was refinancing a solar plant in California in 1987. In the same year, Hannon Armstrong also financed an energy-efficient asset for the US Department of Energy. The firm operated primarily as a private entity for 32 years before it became publicly traded and listed on the New York Stock Exchange in 2013. By the end of 2013, Hannon Armstrong had sold $100 million worth of bonds with a yield of 2.9%.
Hannon Armstrong can be attributed to being one of the first companies to utilize the CarbonCount metric tool, which is used to evaluate US-based sustainable energy investments. The CarbonCount metric determines how effective a project is when it comes to reducing CO2 emissions per amount of investment. Hannon Armstrong first utilized this tool in partnership with Alliance to Save Energy in 2015. The investment firm was also the first American company to join the Climate Disclosures Standards Board’s Task Force on Climate-related Financial Disclosures. By 2018, Hannon Armstrong was investing $1 billion annually towards energy and sustainability-related projects throughout the US.
Future of renewable energy REIT
With renewable energy markets evolving and demands for sustainability growing, the future of this type of REITs could radically change in the near future. Although HASI has commanded the field for so long, it’s becoming clearer that REITs might be the future for financing renewable energy companies. Whether investment firms follow the mortgage REIT model used by RadiantREIT or that used by HASI is irrelevant at this point. The US is still leading the global market when it comes to renewable energy investments and assets. In addition, renewable energy has so many sub industries; firms can diversity portfolios as needed and create their own sustainable models if necessary.
Renewable energy REITs are assets that investors should be on the lookout for. Although Hannon Armstrong might be the only public firm available for investing today, it’s highly likely that this will change soon. The future is bright for renewable energy, especially now that oil is facing plenty of headwinds. Renewable energy REIT HASI might be operating from a behind-the-scenes standpoint today, and it’s probably the best time to jump in on the asset. If you’re not ready to jump in on HASI just yet, at least be on the lookout for private sustainable energy firms that might follow HASI’s footsteps. Once everyone else gets a whiff of this opportunity, the numbers will never be the same.