Brookfield Renewable Partners L.P First Quarter Conference Call. Transcript. Date: Wednesday, May 4, Sachin Shah, Chief Executive Officer

Transcription

1 2016 First Quarter Conference Call Transcript Date: Wednesday, May 4, 2016 Time: Speakers: 9:00 AM ET Sachin Shah, Chief Executive Officer Brookfield Renewable Partners Nicholas Goodman, Chief Financial Officer Brookfield Renewable Partners

2 1 OPERATOR: This is the Chorus Call Conference Operator. Welcome to the Brookfield Renewable Partners 2016 First Quarter Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, simply press star and one on your touchtone phone. Should anyone need assistance during the conference call, they may signal an Operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Sachin Shah, Chief Executive Officer. Please go ahead, Mr. Shah. Thank you, Operator. Good morning, everyone, and thank you for joining us this morning for our first quarter conference call. Before we begin, I'd like to remind you that a copy of our news release, Investor Supplement, and Letter to Shareholders can be found on our website at brookfieldrenewable.com. I would also like to remind you that we may make forward-looking statements on this call. These statements are subject to known and unknown risks and our future results may differ materially. For more information, you re encouraged to review our regulatory filings available on SEDAR, EDGAR and our website. We started 2016 on very solid footing with strong operating results, and the recent acquisition of 3,000 megawatts of high quality hydro. Our focus continues to be leveraging our operating development and power marketing expertise to deliver 12% to 15% growth in the value and cash flows of the business. Today, our business has over 10,000 megawatts, of which nearly 8,200 megawatts is hydroelectric. In addition, we have a 7,000 megawatt global development pipeline, giving us significant scale in key power markets around the world. We have used this scale, and our operating expertise, to embed the business with significant organic upside, focusing on three themes. First, we are acquiring high quality hydro assets where our operating expertise is a key competitive advantage, at cash returns today exceeding comparable wind and solar opportunities, all while getting the benefit of perpetual assets that have long-term upside leveraged to rising prices. We believe that this approach will continue to provide our shareholders with outsized returns over time.

3 2 Since 2011, we have invested over $3 billion into 1,500 megawatts of hydro in the Northeastern United States. We acquired these assets in the midst of a historically low power price environment at values that generate strong returns, even if prices remain where they are today, and exceptional returns if prices modestly improve, which we believe will occur given supply-side pressure on coal plants, the need for base load power and capacity, and growing carbon reduction initiatives. Second, we have taken a cautious approach to building a wind and solar business. While many operating wind and solar portfolios have traded at significant premiums to the cost of new build in the last few years, our view was that returns on project development were far more compelling. Over this time, we've grown our global wind business to over 1,500 megawatts, of which we have developed and built 1,200 megawatts. In addition, we've acquired over 1,600 megawatts of wind development sites to continue growing this business in the future. On solar and wind, very significant investments in these technologies has lowered costs and driven efficiencies, to the point where they are far more competitive today versus five years ago. We have been patient on building a solar business, and now believe that the market is moving in our favour. Finally, we are growing the business geographically to expand in new markets where capital is scarce, allowing for higher returns, and where the opportunity to build a scale power operation is meaningful. Accordingly, we invested in Ireland to establish our European business in 2013, at the height of the Eurozone crisis, acquiring 600 megawatts of operating and development assets over the last three years. Since then, Ireland has repaid its debts to the EU and has emerged as a stable and growing market once again. In the last two years, we expanded in Brazil, acquiring hydro, wind and biomass assets in a recessionary downturn. Finally, with our partners, we recently acquired a utility scale hydro portfolio in Colombia, a growth market where power is undersupplied and at a time when low global oil prices provided an attractive entry point from a currency perspective. Looking ahead, we believe that the market for renewables will continue to improve. Currently, over $300 billion per year is being invested into renewables, as governments look to replace aging carbonemitting thermal power plants. This investment, combined with volatile capital markets, depressed

4 3 power prices, and scarcity of capital in certain geographies is creating the best investment environment we have seen in the last five years. In North America, we are seeing numerous hydro opportunities arising from owners who are looking to reallocate capital into their core businesses. We are also seeing, for the first time, wind and solar assets at very attractive mid-teens returns, as many of the public yieldcos who were recently acquiring these assets are facing challenged capital structures. In Europe, we continue to build our wind development pipeline, and are now seeing for the first time high quality hydro assets coming to market as low commodity and power prices are impacting balance sheets across a number of industries. And in Brazil, we continue to see a market with little competition. Many owners with high quality hydro and wind remain in need of liquidity, as the recession and the lack of capital impact their core businesses. This is creating an opportunity for us to potentially acquire assets with contracted cash flows at over 20% returns. I'd now like to hand the call over to Nick to review the financial results. NICHOLAS GOODMAN: Thank you, Sachin. Our results for the quarter reflect the combination of strong asset availability combined with a return to long-term average generation across our hydro and wind portfolios. Generation of 7,659 gigawatt hours was above the long-term average and the prior year. Strong inflows and active reservoir management in our North American portfolio contributed to hydroelectric generation that was higher than both LTA and the first quarter of Hydrology in Brazil also continued to improve from the drought conditions affecting prior periods. Wind generation was consistent with the long-term average, and increased 170 gigawatt hours compared to the prior period, led by continued strong performance in Europe and improved wind conditions in North America. Our new wind assets in Brazil contributed 113 gigawatt hours, which was above the long-term average. Adjusted EBITDA for the first quarter was $455 million, and funds from operations was $187 million compared to $338 million and $153 million, respectively, in the same period in the prior year.

5 4 Looking forward, our reservoirs are approximately 30% above typical levels for this time of year, which bodes well for generation heading into the spring months. Our liquidity position remains strong, at $1.3 billion, and combined with the free cash flow generated from our asset base and our access to capital with our investment-grade balance sheet, we are well positioned to fund ongoing growth initiatives. We also maintained currency hedges on the Canadian dollar and the euro, partially insulating the business from current foreign exchange rate volatility. During the quarter, we completed up-financings for our hydro facilities in Ontario, and a wind portfolio in Portugal, raising $170 million of incremental proceeds. In light of the attractive growth opportunities we are seeing, we are also advancing an additional $800 million to a billion dollars of capital-raising initiatives. These include up-financings of approximately $200 million to $300 million, which will extend maturities and maintain current low interest costs. We continue to advance our development pipeline. Currently, we are active with 160 megawatts of projects under construction, including 29 megawatts of wind projects in Europe and 72 megawatts of hydro in Brazil. We also completed construction work on a 55 megawatt biomass site in São Paulo to be commissioned in the coming months. On the acquisition front, we completed the purchase of the Colombian government's controlling interest in Isagen, and we have also launched the first of two mandatory tender offers for the remaining shares. Assuming all remaining shares are sold to the consortium, our incremental equity commitment would approximate $400 million, giving us an approximate 25% interest in the portfolio. On April 1, we also completed the previously announced acquisition of the 286 megawatt Holtwood Hydro portfolio in Pennsylvania, and we also recently completed the acquisition of two small hydro facilities totalling 51 megawatts in Brazil. As Sachin indicated, we continue to benefit from our global portfolio, operating expertise and disciplined approach to growth. Combined with our strong liquidity and access to capital, we remain

6 5 very well positioned to capitalize on the opportunities we are seeing across our core markets and to create meaningful shareholder value over the remainder of 2016 and beyond. That concludes our formal remarks. Thank you for joining us this morning, and we'd be pleased to take your questions at this time. OPERATOR: We will now begin the question-and-answer session. If you'd like to ask a question, please press star, and one on your touchtone phone. You will hear a tone to indicate you're in queue. For participants using a speakerphone, it may be necessary to pick up your handset before pressing any keys. If you wish to remove yourself from the question queue, you may press star, and two. There will be a brief moment while we poll for questions. The first question is from Nelson Ng of RBC Capital Markets. Please go ahead. NELSON NG: Great, thanks. Good morning everyone. A quick question on Isagen. So, when did the first mandatory tender offer go out, and as of today or this month, how much of Isagen does Brookfield and their institutional partners own? Hi, Nelson. We launched the first mandatory tender offer in March, and it should actually conclude at the end of this week with funding in a couple of weeks thereafter. At this stage, we have approximately just north of 70% ownership of the total business. We would expect that to grow in the last few days if the tender offer number one is opened, just in light of people obviously tendering their shares at the last minute. I'd say, we know and we've seen, through various public approval processes in Colombia, that many of the large institutions have already received their approvals to tender, whether it be in the first offer or in the second offer, all at the same price that we acquired the original shares at. So we're pretty confident that when we get through all of this by the end of the summer, that our ownership should be north of 90%.

7 6 Obviously, people can change their minds, but we're seeing pretty good acceptance rates on the actual tender offer process. NELSON NG: Okay, thanks. Then, the Colombian peso has been pretty volatile, especially in Q1. I was just wondering what your FX or hedge approach is near-term, with respect to the tender offering, and also kind of medium to longer-term, after you own the assets? NICHOLAS GOODMAN: Sure. Hi, Nelson, it's Nick. You know, our primary focus just now has been about securing the Colombian pesos for the mandatory tender offer, and we've been doing that selectively at strong rates in the last two months. We have most of the MTO one funded in pesos already with the cash in Colombia ready for completion, so that's been our focus. Long-term, we would kind of look at the Colombian peso similar to how we look at other currencies and we would look to hedge at levels that we felt were attractive going forward, but the primary focus in the early stages has been about locking in the FX rate for the mandatory tender offers. Nelson, the only thing I'd add is we started looking at this portfolio two years ago, and two years ago, if you look back at where the peso traded, where oil prices were, and generally where many of these currencies traded in the marketplace, they were at significant premiums to where they are today. The peso, for example, traded at 1.8 times two years ago. Today it's trading at close to 3 times. Our underwriting of this portfolio was at a higher currency valuation than what we were able to achieve in terms of going in. So we feel quite good about our entry point. It reflects good timing in the marketplace, we've been lucky on that, and what Nick and I are talking about constantly is trying to lock in as much of this low value currency as we can, to be proactive and buy that for our shareholders. NELSON NG: Okay, thanks for the clarification. One other question, just moving onto Brazil. I think the rainy season is almost over. I just wanted to kind of ask, is the drought over in terms of precipitation levels, rather than reservoir levels?

8 7 The rainy season's gone quite well, broadly, for the country. Reservoirs a year ago would have been 20%. Today, they are anywhere between 55% and 60% in really key areas of the country where large reservoirs exist. So, they're not back to 100%, but you remember the drought was two years long and very, very deep, and so to see that kind of progress on the reservoirs, it's great for the country, it's great for all the agricultural land, for the exports that rely on agricultural land in the country. Obviously it's impacted power prices in the short-term; they've come down. But we think it's a good outcome, and we've seen that come through our results with better volumes than last year, and we think it's a good direction for the country, and obviously we're positive on that from just a growth perspective. NELSON NG: Okay, and then just one last question. So, Brazil is about 14% below average in terms of the actual generation. Do you see that level going forward, or is the government kind of holding back generation to kind of build up the reservoir? Yes, the government continues to hold back generation. They're continuing to dispatch their thermal plants, and again it comes back to you know, this was two years of very deep drought. They're trying to replenish the reservoirs. The rainy season has certainly helped. I think our view would be that it's probably the balance of the year until you start to see sort of a more normalized dispatch approach, but it's still all moving in the right direction. NELSON NG: Okay, thanks Sachin. Those are all my questions for now. OPERATOR: The next question is from Sean Steuart of TD Securities. Please go ahead. SEAN STEUART: Thanks, good morning everyone. A couple of questions. Most of the capital raise you're talking about relates to capital recycling. Can you give a little more context, Sachin, on what you're looking at in terms of assets that might be rolled over to raise more capital?

9 8 Sure. I think we've said this on calls in the past, but clearly our wind portfolio, where we've been able to build, contract out, put long-term financing in place, secure very good interconnection agreements and have access to land for multiple repowering periods, those are projects that in today's marketplace with low rates, with many yield-hungry investors, could attract very compelling valuations. Obviously, if we can tap into that, we think that those assets would be the assets that we would look to monetize, and when we talk about raising $800 million to a billion dollars through financings in capital recycling, it would largely be our wind portfolio that we would consider, from a capital recycling perspective. SEAN STEUART: Got it. The European hydro opportunities coming to market, historically you've talked about the value that Brookfield can add in taking these sorts of assets on. Are those sorts of opportunities consistent with your ability to add value and, I guess I'm just trying to differentiate what you could bring to the table versus maybe a pension fund or something like that, bidding for these sorts of assets? Yes, I think certainly this is not something that nobody else other than us can do. You need operating expertise. I think what we benefit from is we just have such a scaled operation that we can move into markets and deploy people very quickly into a new market who have a deep understanding of dispatching power plants, selling energy, selling other products like regulatory services, ancillary products, capacity to the extent that market exists. What that benefit gives us, it not only gives us comfort in operating the plants on a day-to-day basis, but more importantly, it allows us to underwrite the valuation of those products with a view to the long-term. So it allows us to have very strong downside protection in our underwriting and significant optionality for our investors. Obviously we continue to remain disciplined in our approach. We don't win every hydro opportunity that we see, and if there's a financial investor out there who decides they want to pay more, then we're going to stick to our view of value and those opportunities won't come to us. But given our level of depth of understanding and the people that we have in our organization that we can access, it's just a great advantage to have.

10 9 SEAN STEUART: Got it, and then one quick one for Nick. Your North American EBITDA of $109 million exceeded the revenues this quarter of $107 million. Can you go into a little bit of an explanation on the discrepancy there? NICHOLAS GOODMAN: Sure. I think the main reason for the difference there, Sean, is that your revenues don't include the line of Other Income, and Other Income would include some of the gains that we had recognized in the quarter from some of our hedging activities. So those wouldn't be reflected in the revenue line, and that's the main variance. SEAN STEUART: Okay, that's all I have for now. Thanks, guys. NICHOLAS GOODMAN: Thanks. OPERATOR: The next question is from Rupert Merer of National Bank. Please go ahead. RUPERT MERER: Hi, good morning, everyone. So it sounds like you're looking at some capital recycling opportunities in wind power, but I believe you mentioned that the prices for assets, wind and solar, look a little more attractive today. Just wondering if there are any pockets in North America or Europe where you'd actually look at M&A today in wind and solar, or if there are any other hydro opportunities you might be looking at? Yes, first on the hydro side, we've seen and I'm sure somebody will ask about it, but we've seen a few portfolios coming to market that are quite public. There's the TransCanada portfolio, there's Duke's portfolio, both which have publicly announced that they're going to come to market. We'd obviously look at those. There's a number of other transactions that are not in the public domain that I

11 10 can't speak to, but the pipeline for hydro is quite attractive right now and we feel pretty good that we'll be able to continue to grow the franchise in that space. When it comes to wind and solar, I think the challenge we've had in the last three or four years is just that operating contracted wind and solar plants were being sold largely at a premium to long-term treasury bonds and people would view them as just streams of cash flow that would get bid up based on the level of return somebody wanted to generate, rather than what the cost to build was. So we've focused on development, as I laid out in my prepared remarks, and today for the first time, we're just seeing less competition in that space because some of those buyers have really been hurt from a capital structure perspective. So with less competition, creates more opportunity for us to potentially buy more operating wind and potentially even solar at an attractive value. RUPERT MERER: Okay, so it may not be as attractive a market for capital recycling as it was previously. Potentially. Like I said, I think it comes down to the quality of the assets, their track record, their level of contracting. I think our view would be that, although the M&A market is looking more attractive, it's looking more attractive where you're finding opportunities that are potentially distressed, but for assets that do not have distress, for sponsors that are not distressed, there's still a healthy pension market out there, there's still a healthy financial investor market out there that wants a clean asset and that wants to earn a stable stream of cash flow. So it depends on where in the market you're looking, and like I said, our focus will be if we're buyers, then we're going to look in distressed scenarios, and if we're sellers, we're going to look to leverage the fact that we're a strong sponsor and you're getting very, very clean operating assets. RUPERT MERER: Okay, great. Secondly, on Isagen, you talked a little about how the operational integration is progressing, and have you seen any opportunities or challenges that have arisen in the process so far?

12 11 Sure. So I'd say, first, it's been two months, and so take my comments with the fact that it's still early days. But I'd say we're extremely impressed with the management team. We had some access to them during our diligence but obviously it was always more formal and what we've seen is, this is a highly capable group of operators led by a very strong leadership group and a really long track record of running the business and operating the assets prudently, so we're quite pleased with that. The team, I'd say, reflects the quality of the assets we saw. These are amongst the highest quality hydros we've seen anywhere in markets that we've looked at around the world, and I think it speaks to the fact that the team has really looked after the asset base and run them well. So that's a great positive. I think the other thing is, when we underwrote this portfolio, we really didn't get the benefit of looking at the development pipeline and so we ascribed negligible value to it. In the early days, what we're seeing is that the pipeline it's fairly attractive. There's going to be opportunities for us to build out more assets in this portfolio, and part of our thesis on Colombia was that it was deeply undersupplied. It has 50 million people and 15,000 megawatts of installed capacity, whereas Canada, with 30 million people has 100,000 megawatts of installed capacity. So our thesis is this market needs new supply. We have this great development pipeline. We are seeing early signs that the pipeline is very attractive, and so I think all of that would be a net positive relative to our underwriting of this portfolio. RUPERT MERER: Can you give us an idea of the size of the development pipeline? Sure, it's just under 4,000 megawatts. RUPERT MERER: Okay, very good. Thank you. OPERATOR: The next question is from Ben Pham of BMO Capital Markets. Please go ahead.

13 12 BEN PHAM: Hi, thanks, good morning. I wanted to clarify, so you talked about the TransCanada assets and the one area you'd look at for potential acquisitions. So, your appetite for U.S. merchant assets, hydrowise in particular, you're still quite bullish there that you would still lever up the power price thesis even more than what you've done the last couple years? Sure, absolutely. Ben, our view is that if you could acquire in a market that's $35 to $45 from an energy perspective, sell capacity, sell some ancillaries, maybe grab an extra $5 to $7 out of that, and you can earn over the long-term, a 10% levered IRR based on prices never going up other than some inflationary increases, well, that's a pretty good way to have strong downside protection in a $2 gas market where, clearly, supply continues to be under a lot of pressure. If prices go up just a little bit, the returns that we can generate for our shareholders become very, very compelling. If I contrast that to what people pay for wind and solar in this market on an operating basis with limited upside and assets that actually decline in terms of needing to be rebuilt in 20 to 25 years, we feel that that's a great way for us to allocate capital. It's permanent capital that we're putting to work, and we have significant upside. It's an asymmetric investment, which is how we think we should build the business. So yes, we continue to have a strong view on the power markets in the Northeast United States, and we believe that, over the long-term, they continue to settle at prices that are below what are needed to incent meaningful new investment to replace the coal fleet in those markets. BEN PHAM: Okay, and then more specifically on the TransCanada portfolio because I know that they're trying to market it as a package which includes some gas and you have some gas stuff in Ontario. Are you looking at it more like the Talen side of things where you would just pick up the hydro piece, or are you perhaps willing to maybe add some gas to your portfolio if the hydro looks deeply undervalued? Yes, look, I would say obviously our preference is always hydro. We have the capability to do other things, but our preference would be hydro. Ben, maybe just to add to that previous question, I would remind you that over 90% of our portfolio is still contracted under long-term contracts, and so, although we bought a lot of merchant assets and we've got this great price exposure, the actual

14 13 impact to our business hasn't been as dramatic as one might think. So we still have a very contracted portfolio. We still have 17 to 18 years of contract duration, so it gives us a lot of conviction that with the stable cash flow streams that come into the business through contracts, we should be adding upside optionality for shareholders so that we can capture that, to the extent that prices rise in the medium-term. BEN PHAM: Okay. If I may, just one more quick one there was some commentary about solar in your initial comments about conditions maybe becoming more favourable to you. Can you talk about what that means exactly; is it more the return targets could be changing over time with less competition? Yes, I think it's two things. I think one is that, you know, there was a period of time in the last few years where, on the solar side, even development projects were being acquired at very low returns, and that was largely through very, very low-priced PPAs that were being bid into markets around the world. Many developers were taking that risk because they felt that they could ultimately sell on to very aggressive financial buyers. So, just with less of that going on because there's less potential debt going into that sector, given some of the challenges we've seen, largely in the United States with the yieldcos, there may be a greater opportunity for us to buy a late-stage development. That's sort of one area where we're focused on, late-stage development where there may be less competition and potentially a chance to acquire assets that don't yet have PPAs and that you could secure and look to get a better-priced PPA. Secondly, assets that maybe were acquired that are operating that just have challenged capital structures, and to the extent that we could acquire those and ultimately restructure the debt and act as a strong financial sponsor to build out our solar capabilities, that would be another good place for us to spend our time. It's still early days, but it's certainly a better market today than it would have been in the last three years. BEN PHAM: Okay, great. Thanks for taking my questions, everybody.

15 14 OPERATOR: The next question is from Jeremy Rosenfield of Industrial Alliance. Please go ahead. JEREMY ROSENFIELD: Great, thanks. Just a few clean-ups here, on Isagen, you said the first quarter reflected a 16% ownership interest. I'm just curious, if that's going to carry over into the second quarter, will that reflect the same 16% ownership? NICHOLAS GOODMAN: Yes, Jeremy, you're right. When we completed the transaction, we had roughly 9%, and as I stated earlier, we've been putting capital down into the business to fund the MTO and that has increased our look-through interest of the business. So we would expect it to stay at this level until we launch and complete the second mandatory tender offer in the third quarter, so you should expect this level of interest for the second quarter. JEREMY ROSENFIELD: Okay, and then just in terms of how much you've already contributed into the equity so far. I think initially you had said something like $243 million, just wanted to get a little bit more colour there. NICHOLAS GOODMAN: Sure. So, the initial transaction, I think that's what we stated when we announced the transaction. By the time we closed, the currency had moved further in our favour, so we funded $225 million in the initial transaction and then we stated that we would go up to roughly we see a path to $625 million if there's still take up on the mandatory tender offers. Most of that capital for BREP will be invested in the first mandatory tender offer, so $400 million of additional capital. As at quarter end, $250 million of that had already been invested in the country, so we effectively have another $100 million, $125 million to go in Q2. JEREMY ROSENFIELD: Okay, and when does the first the MTO one close? That closes in the second quarter, by June? NICHOLAS GOODMAN: Yes, it would close on May 13.

16 15 JEREMY ROSENFIELD: Okay, excellent. So in theory you could get up to that 25% ownership interest by the end of the second quarter. NICHOLAS GOODMAN: Exactly. JEREMY ROSENFIELD: Right, okay. Just in terms of your contract profile, you had recently announced contracts with Facebook for output from some wind assets, and that hasn't gone into the contract disclosure yet. I'm just curious if you can provide some details in terms of the approximate amount of output that would be covered by that new contract. Sure. So just to put perspective around it, it's a fairly small contract. I think what was important about is Facebook, which is setting up data centres in Ireland, was looking for renewable power and we were able to sell it to them at a slight premium to the existing tariff. I think, directionally, we're seeing a broader theme around corporates who are willing to pay a slight premium to the market to effectively buy what I'd call carbon-free power and advance their own sustainability initiatives. In light of that, we felt that this was important, it's something that we have been working on in the business, and it's something that we think, over the next few years, is a capability that we'll not only both expand, but the opportunity to potentially contract with commercial counterparties could increase. It's just another compelling way for us to secure long-term revenue streams. The actual contract itself was for somewhere in the range of 130 to 135 megawatts, so not very large, and so you shouldn't expect it to have a meaningful impact to our results. But it was important from the context of just a changing trend in the sector. JEREMY ROSENFIELD: Right, okay. Then maybe just, I guess, the last question is the name change, dropping off the Energy. I don't know if there's anything to read into that or not, maybe you can just comment very briefly?

17 16 I would not read into that at all. What we saw in the last few quarters was, our view at least, was that we were getting caught up a little bit in the oil and gas story with the word Energy in our name. Whether that's accurate or not, we don't know, but we just want to make sure that we're doing everything we can to help clarify that we're a renewable business, so we made a small change to our name. It's just meant to be helpful to people who might be looking up our stock and then wondering if Energy means we have oil and gas interests or not. JEREMY ROSENFIELD: Right, okay. Excellent, thank you. Thank you. OPERATOR: The next question is from Andrew Kuske of Credit Suisse. Please go ahead. ANDREW KUSKE: Thank you, good morning. Obviously you've got a lot of levers to pull from a capital access perspective, from capital recycling, up-financings, the fund access from the LPs. So, how do you think about just the current state of the equity markets? I ask the question in part because I think in the Canadian market we've seen something like $17 billion of equity issuance year-to-date. Overwhelmingly, that's been out of the utility infrastructure space, probably to the tune of $11 billion, $12 billion of it, and most of that was many times oversubscribed. So how do you think about that kind of component from a public equity standpoint, versus all the other things you have going on? Yes, I think, Andrew, we've been very consistent that for us, if we can grow this business without dilution, then that would be, obviously, always our preference. We take very seriously the fact that our equity cost to capital, we try to deliver 12% to 15% returns long-term, and so it's not the cheapest option.

18 17 That being said, we're always opportunistic and if we see an opportunity to access the market at a relatively compelling valuation in light of the opportunities we see, we would take it. But at this stage, given our liquidity, given the capital recycling initiatives we have underway, and as you point out, the access to LP capital, we don't have the need to do it. But again, we always remain opportunistic and we always pay attention to what's going on in the marketplace. ANDREW KUSKE: Okay, that's very helpful. Then in the letter you touched upon the state of the yieldcos and how the fortunes have really swung pretty dramatically in the last little while. Do you see this as being potentially a typical Brookfield play on a distressed basis, on potentially looking for the fulcrum security within the capital stack, and would that really be done by BREP or would that be done by part of the broader Brookfield family? To your first question, the implications of this, I think it just takes obviously a layer of the competition that was very aggressive in the last few years and it makes it more muted, their impact is more muted today than it would have been in the last few years. So that, for us, is certainly a net positive. In terms of our approach to the sector, our preference is always going to be to focus on areas where the underlying asset quality is very high and valuations are compelling, and to the extent that we can acquire assets either from them or from sellers who would have otherwise sold to them, then that's really the approach we're going to take. Of course, if there's ever an opportunity to do something more broad-based, we would take that, but at this stage, I'd say it's really just the fact that there's less competition as a result of their capital structure situation in many of the yieldcos that we're seeing. ANDREW KUSKE: Okay, that's helpful. Then if I may, just one final question, and it really relates to your PJM and Northeast exposure. So if we look out over the next few years, some of the pipeline issues that exist within the Marcellus and Utica basin should be overcome, so gas prices right now look fairly distressed within that market because of the pipeline constraints. So, does this tie into your power thesis that as the pipeline connectivity improves, the production profile will improve via the distressed

19 18 nature of gas pricing will lift, pricing will rise and then that should cascade into power pricing. Is that really the core part of your thesis on the Northeast portfolio? I think it's a part of it, Andrew. I think we've always maintained that obviously gas has a huge impact on power prices, but persistently low gas prices don't necessarily mean that power prices have to stay persistently low, and you've seen that play out in the capacity markets where capacity markets have all of a sudden provided investors with that additional revenue stream because they're trying to incent new build in these markets. You see that in PJM, you see that in New England. Our view is that, over time, whether gas prices stay low or whether or not, as many of us believe, they increase because of the debottlenecking, because of the increased demand, because of LNG and because of greater regulatory pressures, setting aside all of those factors, ultimately you need a lot more base load bulk utility-scale power coming into these markets to replace the level of coal that is there, and it can't just be all intermittent power that comes into the stack, otherwise the impact to transmission grids will be terrible. That creates two opportunities for us. One, we think it creates great opportunities for our hydro assets which can provide base load power and capacity to the markets and really help stabilize grids with intermittent technologies coming into the stack; and two, if we can buy in this environment while energy prices are low, then it gives us the strong downside protection. It's certainly part of our thesis, but we still believe that markets are clearing far too low for meaningful investment to occur in the sector. The last thing is, no one's even talking about what happens to cost of capital when interest rates rise over time, and where power prices will need to be for people to make investment decisions if treasuries go up to 3% or 3.5%. ANDREW KUSKE: Okay, that's very helpful. Thank you. OPERATOR: As a reminder, if you have a question, please press star, then one.

20 19 The next question is from Steven Paget of FirstEnergy Capital. Please go ahead. STEVEN PAGET: Thank you, and good morning. Good morning. STEVEN PAGET: The first question, I'm seeing U.S. hydro sales prices come down from $75 to $64 per megawatt hour, and I hope you won't hesitate to correct me if I'm wrong on my math, but could you please expand on this? NICHOLAS GOODMAN: Sure, I can. Yes, Steven, it's Nick. I think what you've seen there is two main factors. One, just marginally relatively lower pricing in the U.S. from our American portfolio. I think, as Sachin mentioned, you're seeing that at the consolidated revenue level and a lot of the merchant energy that we would own, we own 40% interest so the net impact to BREP, it's small, but the revenue line you're seeing is a consolidated level. The other impact you're seeing is that we had very strong generation in Canada this quarter, and yearover-year there's the depreciation in the currency, in the Canadian dollar, and so that's your two main impacts that would drive that variance. STEVEN PAGET: Thank you, Nick. Second question; Brookfield has 7,000 megawatts in the global development pipeline and 4,000 in Colombia, so what's the remaining 3,000? The 3,000 Steven, so we have, I would say, just under a half of that is in Europe and the remaining half is fairly equally split between Brazil and North America, and a fairly even split between hydro and wind in that remaining 3,000.

21 20 STEVEN PAGET: Thank you, Sachin. What proportion of generation do you expect in the next five years of selling wind, buying solar which do you expect to focus on? Well, I think first and foremost, we want the business to have a hydro focus. We've always said that, we believe it's the highest quality asset class. Where we see hydro opportunities, we will continue to focus on them just because of the longevity of the cash flow streams and the upside optionality that it gives us. When it comes to wind and solar, I think we just take a more opportunistic view. To the extent that we can build them at mid to high-teens returns, we'll do that. Solar, we've been patient, and although my remarks are suggesting that it's moving in our favour, if we don't see opportunities to do solar at mid-teens returns, well, we're just not going to do it. We're going to maintain that level of discipline and we're not going to just get into an asset class or a sector to check the box and to say we're there. It's just never been our style. It comes down to the returns. So, although it would be great, it would give us another line of business to continue to grow, we're not rushing into it until we see more compelling valuations. STEVEN PAGET: Thank you, Sachin. Finally, have you seen entities like pension funds outbid you for assets, only to realize that they don't have the capability to operate these assets and then invite Brookfield to come in, buy an equity stake and run the asset? We've seen pension plans bid on many assets that we have then not been successful acquiring. We have not yet seen them approach us to operate their plants, so I can't really comment on that. But I can certainly comment on the fact that we are seeing more and more competition for hydro, certainly wind and solar, and I think that's a good thing. I think it validates the fact that these are great assets with very long-term streams of cash flows that pension plans, who are largely looking to invest with very, very long views to value, if they're

22 21 competing against us and they want obviously very high quality infrastructure type assets, I think that's a great thing. I think it validates our thesis, it shows the market what these assets are worth, and it will potentially even create opportunities where more people who own these look to sell them because there's a bigger buyer universe out there. So I think broadly, it's a good thing, it's a good thing for our industry, and I think our advantage and our scale really speak to itself and will allow us to be highly successful in this sector for a long period of time. STEVEN PAGET: Thank you, Sachin. Those are my questions. Thank you. OPERATOR: We have a follow-up question from Jeremy Rosenfield of Industrial Alliance. Please go ahead. JEREMY ROSENFIELD: Yes, great, just a quick follow-up on the Pennsylvania assets that were just recently acquired, the hydro there. I thought the original intention was to hold a 40% equity stake, but it looks like you actually have a 30% equity stake. I'm just curious if you can comment on that? Yes, Jeremy, we obviously invest alongside our fund partners there and we don't always know going in exactly how much capital is going to come in. It was going to be in that 30% to 40% range, but I think our investors obviously really like the asset class and it's highly attractive to them, and so we were comfortable bringing our interest down to 30% as a result of that. JEREMY ROSENFIELD: Okay, so then we should think of the 30% as the final level, it's not expected to go up to the 40%.

23 22 Yes, give or take a percentage. I think final allocations are still being settled but it's going to be in that range, correct. JEREMY ROSENFIELD: Okay, perfect, thanks. That's it. OPERATOR: This concludes the time allocated for questions on today's call. I will now turn it back over to Mr. Shah for closing comments. Well, thank you again, everyone, for joining us in this first quarter call. We appreciate all the questions and comments and look forward to speaking to you in the second quarter. Take care. OPERATOR: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.