- CBRE Acquisition Holdings, Inc. (Ticker: CBAH) to merge with Altus Power, Inc. in SPAC deal
- Altus provides clean electrification with rooftop solar, battery tech, EV charging infrastructure
- Altus installs tech that reliably provides local, clean power at discount to grid
- Can leverage ties to properties owned or managed by CBRE, Blackstone
- PIPE investments from Altus Management, CBRE, Blackstone, ValueAct, Liberty Mutual
- Altus is highly profitable with positive Ebitda since 2017 and healthy growth ahead
- SPAC structure is friendly to new shareholders, only paying sponsor for performance over time
- Priced at steep discount to comparable companies SunPower Corporation and Tesla
Solar power is no longer an environmentalist’s fantasy but can be an investor’s dream. It is cheap, reliable, and often generated just feet away from the end user. Imagine a business at the forefront of the solar revolution backed by two of the world’s most powerful real estate players – The Blackstone Group, Inc. and CBRE Group, Inc. – to drive growth forward.
Meet Altus Power, Inc., which is going public through a merger with CBRE Acquisition Holdings, Inc. (ticker: CBAH), a special-purpose acquisition company that raised money to find a target. Investors who buy shares of CBAH now will see them automatically convert to shares of Altus after the deal is formally approved.
Why solar? The reasons most investors already understand is that corporations and governments around the world have committed to greener energy to reduce carbon emissions and boost ESG ratings. Hundreds of companies have committed to 100% renewable energy in the near future and investors want to know how they’re doing it: Almost all of the S&P 500 companies now publish ESG reports.
What’s more, solar power has progressed in a microchip-like fashion, getting more and more economically efficient. Solar panels like those President Carter installed on the White House over 40 years ago may have worked, but they weren’t cost effective. Today, solar modules cost a tiny fraction of what they did in the 1970s and are built to last decades.
Some things haven’t changed since the Carter era, like the fact that rooftops are an ideal place for solar panels. In many cases, roofs simply bake in the sun and there are little to no regulatory hurdles to installing solar panels. Once installed, solar panels can provide residential, commercial and industrial buildings with a big chunk of their power needs, delivering it at a substantial discount to grid prices. And while the sun doesn’t shine constantly, smart battery technology helps store power and optimize consumption.
Such “roof to socket” power is Altus’s core business – and it’s already a proven success. The company achieved positive Ebitda in 2017 and its customers are as sticky as they come: The remaining power purchase agreements have an average life of 18 years.
One question investors may have is whether it’s capital intensive to install such equipment and if credit from customers is a concern. The simple answer is that solar equipment creates such a steady and predictable revenue stream that it’s ideally suited for debt financing. Altus customers have never defaulted in its history of more than a decade. They also have no incentive to do so given they save money with Altus over traditional power.
Furthermore, members of Altus’s senior management have white shoe credentials in the debt world. Co-CEO Gregg Felton has a fixed income background including his role as a partner at Goldman Sachs and Co-CEO Lars Norell has similarly-extensive experience from senior positions at Merrill Lynch and Credit Suisse. (Both executives have been with the firm for several years and Mr. Felton is a Co-Founder, so they have extensive industry knowledge to boot).
Altus has plenty of runway in another key growth area: EV charging stations. With states like California banning gas-powered cars by 2035 and billions being poured into EVs by the likes of Tesla and Porsche, the demand for stations in exploding. In many cases, a venue like an office building already is an ideal place to install EV chargers given that employee cars sit idle all day long.
Perhaps the key differentiator for Altus, however, is its connection with Blackstone and CBRE. Blackstone has over a half trillion dollars in AUM and its President is Jonathan Gray, who spearheaded the firm’s legendary success in real estate. Blackstone has worked with Altus since 2014, when it made an initial capital investment and in 2019 completed an $850 million recapitalization of the company.
Blackstone wants properties in its portfolio to be greener and should usher in new business for Altus in coming years. Also, Blackstone knows that ESG-focused investors who purchase properties will pay up for their green attributes, making any Altus deal a value-add exercise.
CBRE also offers serious strategic benefits. With a whopping 7 billion square feet of real estate under management, it’s the world’s largest commercial real estate services firm. Like Blackstone, it will be eager to introduce properties to Altus. CBRE is also a “big data” cruncher and can help Altus choose client opportunities based on ESG needs and power usage.
Put in financial terms, CBRE and Blackstone give Altus a moat that can support healthy profits. The company expects Ebitda margins to inch towards a surprising 70% in the next few years – something investors should notice.
CBRE and Blackstone are also part of the PIPE investment supporting the deal. In addition, ValueAct, Altus Management, and Liberty Mutual are onboard. The latter, a life insurer, is unusual to see in a PIPE and a vote of confidence in the company’s long-term prospects.
Another unusual feature investors should welcome is the SPAC’s compensation structure. Unlike most SPACs that simply grant shares in a “promote” (which has been a target of criticism) CBAH’s economics are long-term and not guaranteed. The rewards are based on upside performance and paid out over seven years.
Turning to valuation, Altus is a deal. At roughly $10 a share, it trades at an enterprise value of 10.6 times 2023 Ebitda. By comparison, SunPower Corporation trades at 19 times, according to Sentieo, an AI-backed research platform. Tesla trades far higher, at 39 times.
With so many ESG opportunities on the horizon, investors should focus on Altus, which has the right wiring for a bright future.
John Jannarone, Editor-in-Chief