Brookfield Renewable Partners L.P. — 2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone quarterly filing; fourth-quarter figures are included where disclosed. Financial statements are prepared under IFRS in U.S. dollars. Adjusted EBITDA and Funds From Operations (FFO) are non-IFRS measures.
Business context and reporting period
Brookfield Renewable owns and operates a global renewable-power portfolio, principally hydroelectric, with wind, solar, storage and other generation. At year-end, portfolio capacity was 17,419 MW, with annualized long-term average generation of 53,433 GWh on a consolidated basis and approximately 25,844 GWh proportionately. Brookfield held approximately 60% of BEP on a fully exchanged basis.
Key financial and operating metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Consolidated revenue | $2.982 billion | $2.625 billion |
| Net income attributable to Unitholders | $42 million | Loss of $56 million |
| Basic earnings (loss) per LP Unit | $0.13 | ($0.18) |
| Consolidated Adjusted EBITDA | $2.223 billion | $1.751 billion |
| Proportionate Adjusted EBITDA | $1.323 billion | $1.142 billion |
| FFO | $676 million; $2.16 per Unit | $581 million; $1.90 per Unit |
| LP Unit distribution | $1.96 per Unit | $1.87 per Unit |
| Cash flow from operating activities | $1.103 billion | $928 million |
| Cash and cash equivalents at year-end | $173 million | $799 million |
| Available liquidity, as defined by the company | $1.875 billion | $1.697 billion |
| Total borrowings | $10.718 billion | $11.766 billion |
| Debt to capitalization | 34% consolidated; 20% corporate | 40% consolidated; 24% corporate |
Revenue rose 14% and FFO rose 16%; management attributed FFO growth to acquisitions, commissioned assets, commercial and re-contracting initiatives, and $21 million of recurring cost reductions. These gains were partly offset by lower same-store generation than in 2017, which had benefited from above-average hydrology. Actual proportionate generation was 25,753 GWh, slightly below its 25,844 GWh long-term average and below 2017’s 23,968 GWh.
Operating cash flow increased by $175 million. Investing activities used $624 million, including a $420 million additional investment in TerraForm Power and $235 million of property, plant and equipment investment. Financing activities used $1.080 billion; the company reported net debt repayments of $266 million and $643 million of distributions to LP and Redeemable/Exchangeable Unit holders. Cash and cash equivalents fell by $618 million during the year.
At year-end, 75% of borrowings were non-recourse on a proportionate basis; proportionate floating-rate exposure was 14%. Corporate borrowings had a weighted-average 4.4% interest rate and seven-year average term; proportionate subsidiary borrowings averaged 5.4% and ten years. The filing reports approximately 85% of financings as fixed rate in its business overview.
Fourth-quarter results
For Q4 2018, consolidated revenue was $780 million versus $657 million in Q4 2017. Net income attributable to Unitholders was $91 million versus a $67 million loss. FFO was $206 million, or $0.66 per Unit, compared with $143 million, or $0.46 per Unit. Proportionate generation was 7,052 GWh, 20% above the prior-year quarter and 7% above long-term average, supported by strong hydrology.
Material changes, outlook and risks
- Portfolio and transactions: Capacity increased from 16,369 MW to 17,419 MW. BEP increased its interest in TerraForm Power from 16% to 30%; TerraForm Power acquired Saeta, a 1,028 MW European wind and solar portfolio. BEP sold a 25% non-controlling interest in a 413 MW Canadian hydro portfolio and agreed to sell interests in South Africa, Thailand and Malaysia portfolios, subject to closing conditions.
- Distribution outlook: Management targets a long-term payout ratio of approximately 70% of FFO and annual distribution growth of 5%–9%. The 2018 per-Unit distribution was $1.96; in February 2019, BEP announced an increase to $2.06 annualized. The simple comparison of $1.96 distribution to $2.16 FFO per Unit implies an approximate 91% ratio; this is an indicative calculation, not a company-reported payout ratio.
- Contracting and market exposure: The filing describes approximately 90% of 2019 proportionate generation as contracted in its overview, but gives 87% in its contract-profile and risk disclosures. It reports a 14-year weighted-average remaining contract duration. The differing coverage figures should be checked against the underlying definitions and tables.
- Debt and contingencies: Some TerraForm Global project loans were already in covenant default at acquisition. The filing states that $183 million of principal related to these loans, while $13 million remained outstanding at December 31, 2018 on the maturity discussion; the remainder was classified with assets held for sale. BEP was working with lenders to cure defaults. Other material risks include hydrology and weather variability, power prices, foreign exchange, counterparty performance, regulation and license renewal, and refinancing access.
- Concentrations and unusual items: Two Brazilian biomass facilities rely on a bagasse supplier described as financially distressed and in judicial reorganization. Net income includes substantial non-cash and valuation effects: property, plant and equipment revaluation added $4.558 billion to other comprehensive income, while deferred income tax recovery was $89 million. These items are distinct from cash operating performance.
- Governance and related parties: Brookfield provides management services, controls the general partner and is a significant offtaker. The 2018 management service cost was $80 million. The planned North American energy-marketing internalization was expected to close in the first half of 2019; related-party power and revenue agreements were amended as part of the transaction.
Most important facts for investors to verify
- Reconcile IFRS net income attributable to Unitholders with non-IFRS FFO and Adjusted EBITDA, and assess the sustainability of the year’s growth.
- Confirm 2019 contracted-generation coverage (87% versus approximately 90%) and the credit quality and concentration of offtakers, including Brookfield.
- Review the defaulted project debt balances, lender negotiations and restrictions on cash distributions from affected subsidiaries.
- Assess the valuation assumptions for revalued generation assets, especially future power prices, discount rates, long-term generation and Brazilian concession renewals.
- Check completion, proceeds and retained ownership for announced asset sales and the energy-marketing internalization, as well as the distribution payout against cash available after debt service and capital needs.