Brookfield Renewable Partners L.P. — 2017 Form 20-F
Reporting period: Fiscal year ended December 31, 2017; filed February 28, 2018. This is an annual report, not a standalone Q4 filing. Financial statements are audited and prepared under IFRS in U.S. dollars. Adjusted EBITDA, Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO) are non-IFRS measures.
Business context
Brookfield Renewable owns and operates a globally diversified renewable power portfolio, predominantly hydroelectric, with wind, solar, pumped storage and other generation assets. At year-end, reported capacity was 16,369 MW and development pipeline approximately 7,000 MW. Brookfield Asset Management held approximately 60% of BEP on a fully exchanged basis.
Key financial and operating metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue, consolidated | $2.625 billion | $2.452 billion |
| Net income, consolidated | $51 million | $40 million |
| Net income (loss) attributable to Unitholders | $(56) million; loss per LP Unit $(0.18) | $(65) million; loss per LP Unit $(0.23) |
| Consolidated Adjusted EBITDA | $1.751 billion | $1.499 billion |
| Proportionate Adjusted EBITDA | $1.142 billion | $942 million |
| FFO / AFFO | $581 million / $513 million | $419 million / $352 million |
| Operating cash flow | $928 million | $632 million |
| Long-term debt and credit facilities | $11.766 billion | $10.182 billion |
| Available liquidity | $1.539 billion | $1.191 billion |
| Debt to total capitalization | 39% in selected data; 40% in the financial statement capital-management calculation | 38% |
Consolidated actual generation was 43,385 GWh, versus long-term average generation of 42,334 GWh. Proportionate actual generation was 23,968 GWh, 19% above 2016 and 3% above long-term average. Average realized revenue was reported as $70/MWh in selected data; management’s consolidated year-over-year discussion compares $61/MWh in 2017 with $72/MWh in 2016. The filing does not provide a single clearly consistent average-price figure across these presentations. No standardized IFRS operating-margin measure is highlighted.
Cash and cash equivalents were $799 million, including $611 million acquired with TerraForm Global that was restricted under its indenture. Investing cash flow was $(328) million and financing cash flow $(27) million. Distributions paid to LP and Redeemable/Exchangeable unitholders were $591 million. The annual distribution was $1.87 per LP Unit, up 5%; a February 2018 increase to $1.96 annualized was announced.
Material changes versus prior year
- Revenue rose 7%, principally from higher generation and growth investments, partly offset by lower average realized revenue per MWh. Currency movements added to reported revenue.
- FFO increased 39% and AFFO increased 46%, reflecting stronger hydrology in North America and Colombia, organic initiatives and acquisitions.
- Unitholder net loss narrowed, but remained a loss. A $49 million deferred tax expense, including the effect of U.S. tax reform, weighed on results.
- Portfolio expansion included the acquisition of TerraForm Global, a non-controlling investment in TerraForm Power, and an interest in the U.K. First Hydro pumped-storage portfolio. Two Irish wind farms totaling 137 MW were sold.
- Available liquidity increased to $1.539 billion. The company reported $3.1 billion of long-term debt financing activity during the year, reduced floating-rate exposure to 13%, and reported approximately 70% of borrowings as non-recourse.
Outlook, commentary, risks and unusual items
- Management targets a long-term payout ratio of approximately 70% of FFO and annual distribution growth of 5%–9%. The 2017 payout ratio was 92% when including a full-year contribution from acquisitions and development projects. Targets are not guarantees; distributions depend on cash generation, financing conditions and the Managing General Partner’s discretion.
- Management stated that approximately 90% of 2018 proportionate generation was contracted, with a 15-year weighted-average remaining contract duration. A separate contract table reports 92% for 2018 excluding Brazil and Colombia; country and calculation scope matter when comparing these figures.
- Management expects organic growth from inflation-linked contracts, operating improvements and development, supported by a roughly 7,000 MW pipeline. Project commissioning, construction costs, permitting and counterparties remain execution risks.
- Risks include hydrology, wind and weather variability; power-price exposure and contract renewals; regulatory, water-rights and concession changes; currency and interest-rate movements; equipment, dam, transmission and environmental risks; and reliance on Brookfield, including related-party conflicts and limited unitholder control.
- TerraForm Global brought project-level loans with $342 million outstanding that were in covenant default at year-end, as well as $841 million of debt classified current following a change-of-control provision. The filing says the $841 million was redeemed in early 2018 at approximately 107% of par; management was working with lenders to cure the separate project-loan defaults.
- The U.S. Tax Cuts and Jobs Act produced a significant deferred-tax effect. Fair values of property, plant and equipment rely on Level 3 discounted-cash-flow estimates; management disclosed material valuation sensitivity to discount rates and future electricity prices.
- Brookfield-related transactions included $601 million of power-purchase and revenue-agreement revenue and $82 million of management service costs in 2017. The filing describes conflicts policies, but also notes Brookfield’s substantial influence and the modification of certain fiduciary duties.
Important facts for investors to verify
- Reconcile the differing 2017 average revenue-per-MWh figures and the varying contracted-generation percentages by scope and geography.
- Review the status, covenant terms, lender remedies and any remaining restrictions for the TerraForm Global project loans in default; confirm refinancing and repayment details for the separate current debt.
- Assess the 92% payout ratio against the 70% long-term target, cash available for distribution, sustaining capital requirements and the effect of future acquisitions.
- Review debt maturity and refinancing needs, including the 2018 corporate note maturity, subsidiary-level debt, non-recourse structure and restricted TerraForm Global cash.
- Examine the assumptions and sensitivities underlying asset fair values, including power-price forecasts, discount rates, hydrology and concession lives.
- Evaluate related-party fees, power contracts, Brookfield’s acquisition-allocation role and the governance protections available to public unitholders.
- Note that management and the auditor concluded internal controls were effective, but the assessment excluded TerraForm Global and the Shantavny wind project acquired in 2017.