Business Context and Reporting Period
Company: Brookfield Renewable Partners L.P. (BEP)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Year ended December 31, 2016
Accounting Basis: International Financial Reporting Standards (IFRS)
Business Overview: BEP is a Bermuda exempted limited partnership and one of the world's largest publicly traded pure-play renewable power portfolios. It owns and operates hydroelectric, wind, biomass, and co-generation facilities across North America, Colombia, Brazil, and Europe. As of December 31, 2016, the portfolio included 10,731 MW of installed capacity and a development pipeline of over 6,000 MW.
Key Financial Metrics
| Metric (USD Millions) | 2016 | 2015 |
|---|---|---|
| Revenues | $2,452 | $1,628 |
| Adjusted EBITDA | $1,487 | $1,177 |
| Funds From Operations (FFO) | $419 | $467 |
| Adjusted Funds From Operations (AFFO) | $352 | $407 |
| Net Income | $40 | $103 |
| Cash Flow from Operating Activities | $632 | $588 |
| Total Assets | $27,737 | $19,507 |
| Long-term Debt & Credit Facilities | $10,182 | $7,338 |
| Debt to Capitalization | 38% | 39% |
| Available Liquidity | $1,191 | $1,228 |
Note: Adjusted EBITDA, FFO, and AFFO are non-IFRS measures defined by the company.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 51% to $2.452 billion, driven primarily by the acquisition of Isagen (Colombia) in January 2016 and other portfolio growth, which contributed $882 million to revenues.
- Generation Variance: Actual generation was 34,071 GWh, below the long-term average (LTA) of 39,948 GWh. Hydroelectric generation was below LTA due to dry conditions in the Northeastern U.S. and Brazil, partially offset by improved hydrology in Canada and the full-year contribution of the Isagen portfolio.
- FFO Decline: Funds From Operations decreased 10% to $419 million. This decline was attributable to lower hydrology in North America and Brazil, higher interest expense ($606 million vs. $429 million) due to portfolio growth, and foreign exchange impacts, despite significant revenue growth.
- Debt Expansion: Long-term debt increased by $2.8 billion to $10.182 billion to fund acquisitions (notably Isagen) and development projects. Approximately 78% of borrowings are non-recourse to Brookfield Renewable.
- Acquisitions: Major 2016 acquisitions included a 24% controlling interest in Isagen (Colombia), a 296 MW hydro portfolio in Pennsylvania, and a 51 MW hydro portfolio in Brazil.
Guidance, Outlook, and Risks
- Distribution Policy: The company targets a long-term payout ratio of approximately 70% of FFO and an annual distribution growth rate of 5% to 9%. In February 2017, BEP announced an increase in its quarterly distribution to $0.4675 per LP Unit ($1.87 annually).
- Outlook: Management expects organic growth from a 6,000 MW development pipeline and continued acquisitions to drive distribution growth. The portfolio is 91% contracted for 2017 generation with a weighted-average remaining duration of 16 years.
- Key Risks:
- Hydrology and Weather: Significant exposure to water flow variations (hydro) and wind conditions, which directly impact generation volumes and cash flows.
- Counterparty Risk: Reliance on counterparties to fulfill Power Purchase Agreements (PPAs); approximately 31% of 2017 contracted generation is with Brookfield entities.
- Regulatory and Political: Operations in multiple jurisdictions expose the company to changes in tax laws, renewable energy incentives, and water rights regulations.
- Foreign Exchange: Significant operations in non-U.S. dollar currencies (CAD, BRL, EUR, COP, GBP) create exposure to currency fluctuations.
Investor Verification Checklist
- Hydrology Impact: Verify the specific impact of below-average hydrology in North America and Brazil on 2016 FFO and the expected recovery in 2017.
- Isagen Integration: Confirm the financial performance and integration status of the Isagen acquisition (Colombia), which represents a significant portion of the portfolio's growth.
- Debt Maturity Profile: Review the maturity ladder for the $10.2 billion debt load, noting that subsidiary borrowings maturing in 2017 are expected to be refinanced.
- Contracted Revenue: Validate the 91% contracted generation rate for 2017 and the weighted-average remaining contract duration of 16 years.
- Non-IFRS Reconciliations: Review the reconciliations of Adjusted EBITDA, FFO, and AFFO to Net Income and Cash Flow from Operating Activities to understand the adjustments made for depreciation, interest, and non-controlling interests.