Brookfield Renewable Partners (NYSE: BEP) keeps getting better. That was on full display during the second quarter.
Not only did the renewable power company's existing operations improve, but it also continued enhancing its portfolio. The company remains on track with its long-term plan to create value for its investors.
A look at the numbers
|Metric||Q2 2019||Q2 2018||Change|
|Actual generation||7,602 GWh||6,455 GWh||17.8%|
|Funds from operations (FFO)||$230 million||$172 million||33.7%|
|FFO per unit||$0.74||$0.55||34.5%|
Data source: Brookfield Renewable Partners.
Brookfield Renewable delivered healthy growth during the second quarter. The company benefited from strong results within its legacy portfolio, its continual focus on making operational improvements, and the contributions from its recent acquisitions. These factors helped power growth in each of its business units:
Data source: Brookfield Renewable Partners. Chart by author.
Brookfield Renewable's hydroelectric assets helped lead the way, as their FFO rose 25%. That's due to higher power pricing in Colombia and excellent power generation in North America, which ran 15% above the long-term average. The company was also able to take further advantage of the higher power prices in Colombia by locking in long-term contracts for more of its anticipated electricity production.
FFO from the wind segment increased 15% year over year due to recently completed expansion projects and acquisitions, including buying wind assets in India. That helped offset weaker wind resources during the quarter.
The company's "solar, storage, and other" segment grew FFO by 48% from the year-ago period. Acquisitions and recently completed projects helped power that growth. The company completed 10 megawatts (MW) of rooftop solar projects as part of a joint venture in China, and closed the first phase of a 15 MW acquisition in the U.S.
Image source: Getty Images.
What management had to say about the quarter
"We continue to make good progress in advancing our strategic priorities with a focus on delivering 12% to 15% long-term returns to our unitholders," stated CEO Sachin Shah. He further noted that "during the quarter, we executed many operational improvements, invested new capital into a number of transactions, and added a global solar development business as another growth area for us. All the while, we continue to strengthen our balance sheet and access diverse sources of capital."
As the CEO pointed out, Brookfield was very active during the second quarter. The company closed the acquisition of a 210 MW wind portfolio in India, and the first phase of its investment in a hydro portfolio owned by Canadian utility TransAlta. The company also agreed to invest in a joint venture that will own X-Elio, which is a Spanish solar-power developer. Meanwhile, TerraForm Power (NASDAQ: TERP) signed a deal to buy a large-scale rooftop solar portfolio. Given that Brookfield owns a sizable stake in TerraForm, it will benefit from that deal, which will double the size of the two companies' rooftop solar platform.
At the same time Brookfield Renewable invested in expanding its portfolio, the company also further improved its balance sheet. The company raised $275 million in incremental liquidity by selling some of its South African assets and refinancing some of its debt. As a result, it had $2.5 billion of available liquidity to invest in expanding its operations. That will help it fund the planned annual development of 500 to 800 MW in new solar capacity over the next five years as part of the X-Elio acquisition. The company also has a few more asset sales underway, which should add a bit more cash to its balance sheet.
Meanwhile, thanks to its growing FFO, Brookfield Renewable's distribution payout ratio has declined to a more comfortable 85% over the last 12 months. While that's still above its 70% target, it's a substantial improvement from the 95% payout ratio it had at the end of last year.
The future remains bright
Brookfield Renewable delivered excellent financial results during the second quarter, which helped put its high-yielding distribution on an even firmer footing. The company made more progress on its strategic plan as it expanded its portfolio while also strengthening its balance sheet.
As a result, Brookfield Renewable remains in an excellent position to achieve its goal of growing its FFO at a 6% to 11% annual pace over the next five years. That sets it up to increase its 5.5%-yielding distribution at a 5% to 9% yearly rate during that time frame. This growing income stream makes it one of the top renewable energy stocks to buy, since it gives Brookfield the potential to generate total annual returns in the double digits.
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