Brookfield Renewable Partners L.P. — FY2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a standalone fourth-quarter report; fourth-quarter comparisons are included below where disclosed. Financial statement amounts are in U.S. dollars unless noted. The consolidated financial statements follow IFRS; Funds From Operations (FFO), Adjusted EBITDA and proportionate results are non-IFRS measures.
Business context and performance
Brookfield Renewable owns and operates a globally diversified renewable power portfolio, primarily hydroelectric, with wind, solar, storage and other generation. At year-end, portfolio capacity was 18,883 MW and annualized long-term average generation was 56,666 GWh. Actual consolidated generation was 52,560 GWh, about 2.5% below that average; proportionate generation was 26,038 GWh versus a 26,189 GWh long-term average. Portfolio growth included acquisitions and development, partly offset by asset sales.
Key financial metrics
| Metric | FY2019 | FY2018 |
|---|---|---|
| Consolidated revenue | $2,980 million | $2,982 million |
| Consolidated net income | $273 million | $403 million |
| Net income (loss) attributable to Unitholders | ($59) million; ($0.19) per LP Unit | $42 million; $0.13 per LP Unit |
| Consolidated Adjusted EBITDA | $2,339 million | $2,223 million |
| Proportionate Adjusted EBITDA | $1,444 million | $1,323 million |
| FFO | $761 million; $2.45 per Unit | $676 million; $2.16 per Unit |
| Cash provided by operating activities | $1,212 million | $1,103 million |
| Cash used in investing activities | $251 million | $624 million |
| Cash used in financing activities | $1,010 million | $1,080 million |
| Cash and cash equivalents, consolidated year-end balance | $115 million | $173 million |
| Available liquidity | $2,695 million | $1,974 million |
| Total borrowings, as presented in selected financial data | $11,004 million | $10,718 million |
| Debt to capitalization, consolidated | 32% | 32% |
| Annual distribution per LP Unit | $2.06 | $1.96 |
Management reported approximately 77% of borrowings as non-recourse on a proportionate basis. Average terms to maturity were about 10 years for corporate and subsidiary borrowings; average interest rates were 4.1% and 5.1%, respectively. Approximately 90% of financing was fixed-rate, according to the business overview. Year-end cash declined by $53 million.
Fourth-quarter results and material changes
- Q4 2019 proportionate FFO was $171 million ($0.55 per Unit), compared with $206 million ($0.66 per Unit) in Q4 2018. Management attributed the decline mainly to generation: the prior-year quarter was 7% above long-term average, while Q4 2019 was 9% below average.
- Q4 revenue was $726 million versus $780 million; net loss attributable to Unitholders was $66 million versus net income of $91 million. Proportionate actual generation was 5,977 GWh versus 7,052 GWh.
- For FY2019, consolidated revenue was essentially unchanged. On a same-store, constant-currency basis, revenue increased $130 million, including $107 million from realized pricing and contracting and $23 million from generation. Foreign exchange reduced revenue by $143 million; acquisitions and commissioning added $55 million, while asset sales reduced revenue by $44 million.
- FFO increased 13% year over year, supported by portfolio growth, higher realized prices, cost savings of $12 million and generation broadly in line with long-term average on a proportionate basis. Net loss attributable to Unitholders reversed the prior-year profit, reflecting higher income-tax expense, lower equity-accounted earnings and other items. The prior year included a significant deferred tax recovery in Colombia.
- Property, plant and equipment rose to $30.7 billion, including a $2.0 billion revaluation increase, principally reflecting lower discount rates and operating initiatives; additions and acquisitions were partly offset by depreciation and disposals. Revaluations are highly assumption-sensitive and largely non-cash.
Liquidity, outlook and notable developments
- Management targets a long-term FFO payout ratio of approximately 70% and annual distribution growth of 5%–9%, supported by operating improvements, inflation-linked contracts and development. The stated 2019 annual distribution of $2.06 per Unit was raised to $2.17 beginning with the March 2020 distribution. Distribution decisions remain discretionary and depend on cash availability and other constraints.
- The filing reports 2020 contracted generation at differing levels: approximately 91% in one overview disclosure and 95% in other disclosures. The contract-profile table reports 95% for 2020, with its scope excluding Brazil and Colombia. Weighted-average remaining contract duration is reported as 13 years.
- Available liquidity increased to $2.7 billion. The company completed or arranged substantial refinancing and financing activity, including C$600 million of corporate green bonds, extended its $1.7 billion corporate credit facility to 2024, and established a $500 million U.S. commercial-paper program. Management stated it did not anticipate material difficulty addressing borrowings through 2024, subject to prevailing conditions.
- Capital allocation included selling an additional 25% interest in a Canadian hydro portfolio while retaining 50%; sales of wind and solar assets in Europe and South Africa; acquisitions of 410 MW of wind assets in Asia with institutional partners; and a 12.5% economic interest in X-Elio, which has operating assets, projects under construction and a development pipeline. A 428 MW Brazilian solar acquisition was pending customary closing conditions.
- North American energy marketing was internalized into Brookfield Renewable in September 2019. Brookfield remains a significant power purchaser and related party; 2020 proportionate contracted-generation exposure to Brookfield is reported at 18%.
- Subsequent events: Brookfield Renewable proposed a special distribution of BEPC shares to LP Unitholders, intended at one share for every four LP Units, subject to approvals. In January 2020 it also made a non-binding proposal to acquire the remaining TerraForm Power shares it did not already own, using BEPC shares; completion was uncertain and required independent committee, unaffiliated shareholder and other approvals.
Risks, contingencies and unusual items
- Key operating risks include hydrology, wind and solar-resource variability; climate-related extreme weather; market prices for uncontracted generation; expiring PPAs; transmission access; equipment and dam failures; and rising operating, water-use, permitting or environmental costs.
- Brazilian hydro results depend partly on the MRE balancing mechanism, which could change or be terminated. Two Brazilian biomass facilities rely on a single feedstock supplier described as financially distressed and in judicial reorganization.
- Other material exposures include foreign-exchange and interest-rate movements, counterparty credit, financing availability and covenant restrictions, concession and license renewals, construction execution, and political or regulatory changes. Brookfield’s control, management role, related-party arrangements and discretion over investment opportunities create conflicts of interest.
- The filing reports no material pending or threatened legal proceeding known to management and states that ordinary-course claims are not expected to have a material adverse effect. It reports $36 million of capital expenditure commitments and $336 million of letters of credit, alongside other project, water, land, guarantee and acquisition commitments.
- Net loss attributable to Unitholders coexisted with positive FFO, which excludes or adjusts for items including depreciation, certain taxes, non-cash financial instrument effects and other items. These non-IFRS measures are not substitutes for IFRS results and may not be comparable across issuers.
- Management and the auditor concluded internal control over financial reporting was effective; the assessment excluded the acquired India and China wind portfolios, representing about 2% of total assets and 1% of revenue each on the stated combined basis. The auditor issued unqualified opinions on the financial statements and controls.
Investor verification priorities
- Reconcile the 91% and 95% 2020 contracted-generation disclosures, including which regions and contract types each includes.
- Review FFO and Adjusted EBITDA reconciliations against IFRS earnings, cash flow and distributions; assess whether distributions are covered through a full generation and price cycle.
- Examine the assumptions and sensitivities behind the $30.7 billion fair value of generation assets, particularly discount rates, power prices, long-term generation and terminal values.
- Confirm debt by level, recourse, currency, rate structure, covenant headroom and refinancing needs; distinguish available liquidity from cash actually held by the partnership.
- Track the BEPC special distribution, TerraForm Power proposal, pending acquisitions and disposals, and the related approvals, financing and dilution implications.
- Assess Brookfield counterparty exposure, management fees and incentive distributions, and the governance protections applicable to related-party transactions.