Brookfield Renewable Energy Partners L.P.

Transcription

1 2015 Investor Day Presentation Transcript Date: Thursday, October 8, 2015 Time: Speakers: 10:45 AM ET Sachin Shah Chief Executive Officer Ralf Rank Managing Partner, Europe Nicholas Goodman Chief Financial Officer

2 1 Sachin Shah: Good morning everyone. Thank you for staying for the second half of this session on Brookfield Renewable Energy Partners. I m Sachin Shah. I have oversight of our renewable business for Brookfield. Joining me today is going to be Ralf Rank who is a Managing Partner in our group and heads up our European business, and Nick Goodman who s the CFO. Really what we re going to talk about is a bit of an extension of the theme from last year but positioned a little bit differently. We want to articulate what we ve been up to over the last four or five years since launching BREP in 2011 and how we ve been building this business. As we always say in every meeting that we re in, we have a singular focus in this business and it s generating 12% to 15% total returns to shareholders on a pershare basis. Our approach to that has always been by driving cash flow growth. So what we wanted to spend a little bit of time on is, in the last four or five years, how have we deployed capital and why have we deployed it in that way. We re value investors and we look for opportunities where we can differentiate ourselves. What we think that means to the future of this business and our ability to extract upsides that we can control. And then the operational levers that we have to actually drive cash flow growth and capital appreciation and how we think we re differentiated in this space. I d say the biggest change in the last four or five years, at least in the power sector and in particular in renewables has been a number of entities that have formed, in particular in the U.S. and in Canada and in Europe that are focused now on direct investing in renewables. So for the first time, you know, if we were here in 2011 we were probably the only renewable company that was listed that had the scale that we had and that was putting capital to work, and I d say for the first time you can now look across the renewable space and find a dozen companies, whether they re public, IPPs, yieldcos or even private renewable infrastructure funds who invest in our space and compete with us in transactions, and what we want to show you today is how we have built a very differentiated business and one that we think will drive outsize returns for shareholders over the long term. I think that s summarized on this page here and I d say there s three things that differentiate us. The first is our scale and our operating platforms. We ve been in this business for 20 years and we ve built scale slowly in the power group, and what we mean by scale isn t just the ability to put money to work in multiple markets but the ability to use our operations to drive cash flow growth. So if you look at all the market we re in, and we re in three continents today that have very large investable universes, have significant need for electricity, in all three of them we ve got in-house expertise that we re going to reference in this presentation that allow us to manage downside risk, and build a stable cash flow

3 2 stream but really create an asymmetric return profile for investors, recognizing that power markets are cyclical and building a business that can capture upside over time so that we can deliver strong total returns to shareholders. The other unique differentiator, and especially if you look at us today relative to a number of companies in our space, is that we re 80% hydroelectric and I think that s particularly important because if you talk to most people today about a renewable company and you say, We re the largest renewable company in the world, we re listed on the New York and Toronto stock exchanges, we have $20 billion of assets, we ve delivered 16% total returns over 15 years and we own no solar, most people would step back and not understand how that could possibly happen. I think what s particularly important is our focus on hydro and why we invest in hydro and why we believe it s the best asset class in the electricity stack period, and not just from a renewable perspective. Our business today is obviously hydro focused; as I mentioned, 80%. The balance of it is largely a wind business. We don t have any solar and for the first time we entered into the biomass space in Brazil which is a niche business, particularly situated in Brazil. We don t expect to expand into biomass meaningfully in other markets but in Brazil it does represent an attractive asset class that we can build out in a small way. We re diversified. Fifty percent of our business is here in the U.S. If you take the U.S. and Canada, that s 75% of our business, so very stable regimes, very stable cash flows and we ve got 20% in Brazil we have a large business there and 5% in Europe which we just started to build out last year and Ralf will speak about our European business. Stability is also a hallmark of our business. Ninety-two percent of our cash flows are contracted over a long period of time, and again, since launching BREP in 2011, we ve had meaningful growth across all of our metrics. Obviously we ve continued to acquire assets. We ve delivered distribution growth. In our first two years as a public vehicle we promised 3% to 5% distribution growth. We revised that last year to 5% to 9% distribution growth. You can see over that time we ve delivered 6% and publicly what we ve stated is that we re very comfortable in the 5% to 9% range today, probably in the midpoint of that guidance in light of where power prices are in most developed markets, and we ve been able to deliver share price appreciation.

4 3 Our goals, if you ve listened to the other presentations, are obviously very similar. We believe that we re value investors. We take a very contrarian approach and we re going to dig into that in today s presentation, what we ve been up to in the last five years that demonstrate that approach. But we do that because again we believe that if we can buy assets at a discount to their intrinsic value that we provide tremendous upside to investors, have a business that s protected on the downside. We re very focused in building operating scale globally. This was largely a North American business probably five years ago. Since that time we ve expanded into multiple markets and we think there are opportunities to look at new markets and new continents where there s significant need for power and where the expertise we have could allow us to continue to deploy capital in a meaningful way, and obviously our return thresholds stay the same at 12 to 15% total returns. I mentioned hydro at the outset. That continues to be our focus in the business. We think we can deploy $500 million to $600 million of capital in this sector globally per year. We ll talk a little bit about our track record. Operational improvements and recycling capital are very critical to our ability to create accretive returns and when we say operational improvements what we really mean is being able to sell bulk power into the market during periods of low price environments where we can optimize revenue streams through our power trading and marketing activities, where we can tuck in acquisitions into our existing systems and reduce cost over time, where we can sell more capacity to the grid because we control multiple assets on single river systems, where we can develop projects at premium returns because we have a pipeline and the in-house expertise to build, and all of that leads to a strong track record of tuck-ins on hydro and wind and we think that it s time to start building that same expertise on solar. We re being very patient on solar. If we re back here in five years, I think we ll have a meaningful solar business attached to this portfolio but I think today we ve been very patient and we ll talk a little bit about why. And obviously expand into new markets. Ralf is going to touch on our investment criteria for new markets and some of the markets that we re looking at. So what have we been up to in the last five years? First, if you take the period after 2009, post the financial crisis in the U.S., and also at the same time that in the power markets gas prices had hit an all-time low with the development of shale gas and the technology to extract gas through fracking, most people were really focused on investing in emerging markets. Most investors were pulling their capital out of the U.S. and you saw significant appreciation of currencies globally relative to the U.S. dollar. You also saw a significant rush in North America into what I call the traditional renewables:

5 4 wind and solar, where returns were being supported through government incentives, whether that s taxes, feed-in tariffs, financial structures like tax equity, all of which was helping support a return. We shifted our focus during this period to investing in merchant hydro and we did this because we felt that, one, we had a unique operating expertise that allowed us to do this with less competition and buy assets at a deep discount to their intrinsic value. We also felt that these assets generated the same returns at the bottom of the market that assets which were protected by tariffs would generate but had significant upside optionality, had a proven technology and we had the expertise to be able to actually capture those rising income streams over time. So you ll see much of our growth in the merchant space has been done in the last four or five years and most important in that is although we re adding this merchant risk profile to the business, we re doing it during a period where power prices are $40 to $50 a megawatt hour. So if you go back through the last 20 years, really the last 15 years of deregulation, you would appreciate that $40 to $50 is really the cyclical low. It s at the price where coal and gas start to fuel switch amongst each other as the primary baseload generators in mature markets like North America. So we felt quite good that we could put money to work at the low point in the cycle, earn an 8% to 10% FFO yield on our capital as we waited for the option value of the asset to increase, and we were buying assets traditionally at 50% of replacement cost. The other important thing is we did nothing in Brazil. We bought 30 megawatts in Brazil in the last five years until 2015, and like the comments from the prior presentation is we share that view that Brazil is a tremendously important country in the world. It s an exporter of significant goods around the world and has 200 million people and is the size of the continental U.S. in terms of its geography, and so we always like it as a power market. We knew that electricity was the critical backbone of the country and its export markets, but we felt that just too much capital was chasing transactions in Brazil in the last four years, in particular between 2010 and 2014, and it was tough for us to compete at returns that we felt weren t suited to the risk profile of the country. But what we ll show you on a later slide is we made our first meaningful investment again in Brazil in 2015, doubling the size of our business and we think it will deliver tremendous returns long term and we continue to look for investment opportunities in the country. Third, we did build out a wind business. We have 1,500 megawatts of wind in the business today but we did it through a development strategy rather than chasing tariffs. So when I said that many competitors were really buying assets into low cost of capital vehicles that were predicated on government incentives, we knew that wind was an important technology. We believe that wind will be

6 5 a meaningful part of the supply stack long term. It s a great diversification tool for system operators, but we want to still adhere to our underwriting standards and the returns that we want to deliver to shareholders, and one of the unique things about our business today is that we have 3,000 megawatts of development pipeline that we own in BREP. It s our pipeline. We build it out at our discretion and we build it out at 15% to 20% return hurdles, which reflects the development risk that comes with those projects. All of that value and all of those cash flows accrue to a BREP shareholder. So if you look at our 1,000 megawatts that we have in the U.S., 850 of that was developed by ourselves and we had one project that we bought for 150 megawatts. So much of our growth on the wind side has been through our own development. In Europe, I would say it s the exact same phenomenon with low cost of capital investors there as well, and again when we entered Europe Ralf will talk about it we really focused on a development strategy. Fourth, we avoided solar, as I said. The solar space, we do believe will be a meaningful part of the supply stack longer term, a great diversification tool for system operators. It provides power typically when load is the highest during the day and the sun resource is the strongest. But again, like wind and more exacerbated than wind, the issue we always had with solar is that the unincentivized cost was uneconomic. You couldn t build solar without incentives and we didn t want to build a business that was wholly predicated on government support because as government support changes as policies change, it can really have a detrimental impact to returns and it can create an environment where you re destroying capital for your shareholders. We are building expertise internally right now in solar. We have a small team of people dedicated to building our underwriting conviction, building our operating skills in solar and we think that we re entering what I call the first inning of really dislocation in the solar market with owners who have acquired assets at perhaps multiples that are too high with unstable capital structures and we think there may be an opportunity in the next two to three years to acquire meaningful solar as a third technology or a fourth technology to add onto this business. Lastly, we entered Europe as a period of distress. We always liked Europe as a market. Its acceptance of renewables is very strong: 500 million people, very large investable universe but very expensive market. Ralf will talk about some of the transactions that we have done in the market. We still see it as an expensive place to do business in terms of what people pay, but what we see is very similar to North America is if you have strong operating expertise and you have the ability to drive

7 6 value through your own people and through the expertise without having to find a low cost of capital partner, then you are uniquely positioned to acquire projects on the continent and deliver outsized returns. We have two slides here, this and the next one, which really just speak to our capital deployment in the last five years, and what I want to point out on these slides is, obviously we ve been putting a lot of capital to work, over $4 billion in the last five years, but what s more important is just if you look at where that capital has been deployed. This goes back to my earlier point that really since establishing a platform in Europe in 2014, today we have the flexibility in this business to move capital around to markets where we believe had the highest value opportunities. You can see in 2015 it s the first time in years that we ve made a meaningful investment in Brazil. The currency is weak, obviously there s political distress, there s a corruption scandal, and in the power sector specifically they ve gone through two years of a terrible drought and so what it s created is this perfect storm environment where a number of our competitors in the power space are struggling financially. They ve been short power and worse than that, short on their contracts and have had to go into a high-price market to cover those shortfalls. We ve been defensive in that regard. We haven t stayed short in our contracts. We actually took contracts off entering 2013, anticipating weak hydrology in light of where the reservoirs in the country were and we ve benefitted tremendously. We ve been able to find opportunities to acquire great assets. The $500 million that we deployed in 2015 at the early part of this year was a portfolio of hydro, wind and biomass, and so we were already the second largest owner of small hydro in the country but we were able to pick up wind and biomass in this environment which are two growing sectors of the Brazilian electrical backbone and we think could be continued growth opportunities for us in the country. If you look at the technology, I think this speaks to the fact that we continue to focus on hydro. We actually made an announcement this morning about acquiring 300 megawatts of hydro. You ll notice in your books it s slightly different than what s up on here. This includes this morning s acquisition we announced a 300 megawatt acquisition of hydro on the Susquehanna River in Pennsylvania, acquiring that from Talen who also put out a press release. I d say what you can see from this is that we continue to find tremendous opportunities to put money to work in hydro space and what it s allowed us to do during this period of low prices is effectively buy hydro assets at about 50% of replacement cost, and I ll explain to you on a following slide why we think that will drive tremendous shareholder value. I think Nick is going to walk through what that means to our share price.

8 7 So I d say on this slide really it s about it s a first principle in our business: how are we building this renewable business? It s really about focusing on the highest quality hydro, and I said it earlier on that if you take the traditional supply stack in developed markets, you have nuclear, coal, gas, hydro and today you have some wind and solar, and to a smaller degree very niche technologies. Our view has been for over 20 years that hydro is the highest quality asset in the supply stack, period, relative to all the other technologies, and on top of that it s completely carbon-free. It has the longest life and the lowest cost. It has high margins even during periods of low prices and that s allowed us to generate strong cash flow in low price environment markets, but it s also allowed us to take a very patient approach to building value. When you earn a 70% margin in a business like ours when prices are at an all-time low, it allows you to take your time and be patient to look for contracting opportunities when prices eventually rise to incent new build as old technology comes out of the system. We re going through that for the first time right now. I d say we ve been up here three years in a row talking about rising prices and for the first time what we ve seen is capacity markets starting to show signs that new build is needed. If I take New England and PJM, NEPOOL and the PJM markets you can see in the capacity auctions that have cleared in both of these markets in the last two years a very strong price response for the first time in probably six years and that s a function of significant coal retirement and really now the first signs that new build is needed. To put that in perspective or to put a little bit of math around that, when we buy these hydros that we re talking about we re underwriting that energy view in a market of $40 to $50, we re typically underwriting $40 to $50 energy with some inflationary growth long term and we re underwriting capacity which is really a component of the revenue stream we earn at around $2 to $3 a kw month, and all-in what that gives you is a total revenue stream of call it $50, low $50s. If you take the capacity options that we ve just seen clear in the last few years, you ve seen New England clear anywhere between $7.50 a kw month all the way up to $15 a kw month for imported capacity, and PJM just cleared at around $5 to $6 a kw month. So what you re seeing is the first signs of stress on the system in the Northeast United States where much of our hydro is being acquired and it s a signal to us that you re going to start to see rising power prices through capacity auctions and through capacity prices. So for our business, just to again put value to that, what that means is just through these early capacity auctions, if we take 2017 and 2018 we re adding about $30 million to our FFO or 5% to our FFO just through these capacity auctions relative to our business that produces about $600 million per year of FFO and that 5% has nothing to do with energy or RECs or any other attributes that we sell; it s solely related to this capacity auction. So it shows you the leverage that we have in the business and the leverage that we have to rising prices.

9 8 We also believe that we have a business with very strong downside protection. We focus on investing in opportunities that will deliver an asymmetric return profile. I think we acknowledge that we won t always get it right but what we re trying to do when we deploy capital is how can we, with our barriers to entry and with our operating expertise, get ourselves into situations where there s an asymmetric risk profile, and if you do that more often than you don t you should build a business that has outsized returns. So what do we mean by that? Obviously if we re buying merchant hydro, we want to buy at the bottom. If we re buying a development pipeline we want to buy it from somebody who is capital constrained and in a position where they have to sell their pipeline or sell assets out of their pipeline to fund some of the growth of their existing development. What that allows us to do is generate cash flows through the cycle with very high margins but have significant upside optionality. When we raised our guidance last year to 5% to 9% it was really off the back that we didn t need M&A to generate cash flow growth; we could generate cash flow growth from the existing assets we have. Today, 90% of our assets are contracted and that s really a function of the assets that we ve acquired from 2000 to 2010 that we put contracts on over time and the piece that s merchant today, the 10% which grows to about 20% in the next five years, and those are really the assets that we ve acquired in the last four years. Obviously we continue to maintain an investment grade balance sheet and have significant liquidity as well to continue to pursue opportunities like these. So what differentiates us? We ve been focusing on operating expertise. If you look at what we ve been building out in Brazil and in Europe, it s really been a focus on development. We ve been in five years of very, very low interest rates and very low cost of capital, and so what we ve done in both of those markets and we already had it in North America is focus on building out our development capabilities, adding to our pipeline and being in a position where we could secure higher returns for our shareholders through taking on a bit of a higher risk profile but one that we can manage because we have internal capabilities. We also focused on power marketing expertise. So today in the U.S. we sell power across 10 different power markets. In Brazil we sell between the south and the southeast submarkets, and in Europe for the first time we re looking at selling power between Ireland and the UK, and what this allows us to do is ultimately take our electrons, move them to markets that are the highest value and secure growing revenue streams, in particular during weak power price environments. Having that access to interconnections, having the trading capabilities, having the internal systems to do all of this, it gives us a unique advantage to be able to buy assets that not all of

10 9 our competitors can actually go after. If you take a pension plan or a yieldco who basically has to buy a bond-like investment, it s very difficult for them to compete with us when we can go in and look at a merchant asset that may have some near-term cash flow volatility but over the long term could have significant upside, and that s really been one of the critical differentiators for us in this strategy. Proprietary deal flow, we obviously have a very large network at BAM of investment professionals across this space. Over 70% of the deals that relate to that $4 billion of capital that we deploy that we mentioned a few slides ago has been directly originated through proprietary transactions, and many of the auctions that we enter into are really auctions after we ve already talked to a seller about selling their hydro and they ultimately need some level of comfort for their Board that a process has been undertaken. So we have a very strong ability to drive proprietary deal flow in this business and I think it s in part because although there are many renewable companies now forming, very few of them actually look like us. Lastly, we always maintain very strong liquidity, have a very strong balance sheet. It allows us to pursue transactions quickly in particular if there s a significant restructuring involved or you need to put a meaningful amount of capital in there. So what is the model that we re trying to create in the markets we re in? As I said, we re in North America, Brazil, Europe and over the next five years I hope we re in another continent. The model that we re trying to drive for all of our operators is quite simple: have very strong operational and power marketing expertise. We want to be able to flow power to the highest value markets. We want to be able to manage our assets which creates further barriers to entry for others who can t. We obviously want to be able to have internal development capabilities on every continent we re on. And we want to have multi-technology platforms. We ve done a great job building a hydro business. It will always be our core but we want to have in every continent the ability to buy wind, solar. In Brazil we want to continue to build out our biomass business and we want to have diversity of asset class with a focus on hydro that allows us to look at more opportunities, in particular opportunities that we think will come along where you re buying portfolios of different types of technologies in one bulk transaction. We have local relationships, both in the funding and the transaction side, and so one of the key changes we ve made in the business in the last few years is pushing M&A and business development people into each local market. That s consistent with what I d call all the BAM groups and we ve also

11 10 leveraged the BAM network and that allows us to be closer to sellers. It allows us to have a better direct origination program, and it allows us all to be close to the operators who are critical when we re underwriting these assets in helping make sure that we don t underwrite a risk profile or take on a level of risk that ultimately won t allow us to drive the appropriate return. And all of this is focused on cash flow growth. So if you look at the last four years and you look at the transactions that I have put up, the $4.4 billion or the $4 billion that you have in your book, each one of them checks a certain box for us that I would say is very differentiated from what a traditional low cost-of-capital competitor might pursue. First of all, the merchant ones are obvious; I ve spent a lot of time talking about merchant hydro and they re all in the hydro space. I think development is another big area that we just talked about. Tuck-ins have been a very critical form of growth for us. I would describe this morning s transaction, the 300 megawatt hydro as a classic tuck-in. This is two hydros, a 50 megawatt and a 242 megawatt hydro downstream from our 400 megawatt hydro Safe Harbor asset. And when I say it s a classic tuck-in, if you think about what we own in that river system is we have the second largest hydro that s privately owned in the United States called Safe Harbor upstream with a reservoir. We control the reservoir, we control the river flows and ultimately what we acquired was two downstream facilities. All of these facilities sell energy, they sell capacity into capacity auctions. The two facilities that we acquired today, one of them sells Class 1 RECs and when you control the reservoir upstream, you have the ability to optimize cash flow. You have the ability to actually pool your capacity together and bid it in strategically into auctions and what that drives is higher revenue streams than anybody else who is just buying the asset without the benefit of the upstream reservoir could ultimately generate. That value for us is unique because now we control the river and ultimately it s a tuck-in opportunity where we can see and capture value that others would not be able to. So we ve been able to do this across multiple river systems throughout the U.S., throughout Canada and throughout Brazil and it s a huge advantage when you have operating expertise in hydro to be able to leverage that expertise to then build around a single asset and buy multiple assets in the same region so that you can bid them in together. The fourth column there is restructuring. We ve acquired a number of assets because sellers have put too much debt on them; power markets go up and power markets go down and ultimately we ve been in a position to be able to build an investment grade business with a strong underlying thesis on power prices and knowing that when power markets go up, if you don t have a contract ultimately it s very

12 11 risky to your capital structure to leverage that rising price environment. So we ve been taking advantage of that, at least in the last few years, being able to acquire assets from sellers who needed capital quickly to get them out of a situation of default with their lending counterparties. So I m going to walk you through two case studies and I think they re important because they both demonstrate our ability to drive and secure returns but they re both very different situations and both of them check multiple boxes that we just showed you on the prior pages. The first is Bear Swamp, this is a 600 megawatt pumped storage facility in Massachusetts. It today continues to have a 60 megawatt expansion opportunity which we haven t built out. We acquired this in 2004 for just under $100 million. It was out of a restructuring. So it s hydro pumped storage, effectively a battery that provides critical grid stability services to ISO New England. It can sell its power across to other markets. We sell power today to New York through a PPA that we secured probably about four years after we acquired the asset. But I think the most important thing about this asset when we bought it was that we bought it in 2004 when we d been in four to five years of protracted low prices. So if you go back to that period of time, markets had deregulated in 1999/2000. Prices were low, gas prices were low and we were buying merchant hydro, typically at a $40 price environment at a deep discount to replacement cost, like you see here, and we were earning okay returns along the way, probably in that 8% to 10% category, but we were being patient and we understood the value of these assets. If you take Bear Swamp since that time, we sold energy, capacity and environmental attributes to Long Island Power Authority through an interconnector that we control. We refinanced the asset the first time for $125 million, so above our actual book value at the time we did our first financing. We then secured capacity revenues into New York through a second agreement with Long Island Power Authority which then extended that for another 15 years. Then finally, just this year off of the capacity auctions I was telling you about, we took this asset to market again and secured a $400 million financing, pulling not only all of our original capital out which was already out, but ultimately driving a really strong return to our shareholders. We have no capital left in this asset. All the cash flow it generates is just all return today. We re not putting meaningful capital back in. We still have an expansion opportunity in this asset that we think we can undertake if power prices continue to go up, but ultimately we re able to pull all of our capital out and sit on effectively an option on future power prices but it s taken 10 to 15 years to play out. If you think about the return profile of that, the patience that we had to adhere to, and the ability to recycle this capital into higher value and new initiatives that can be just as accretive in the future, it s a tremendous way to grow a business without having to

13 12 always go to the market and issue your equity. For example, I just found out today from one of the bankers here that the financing is actually closing today on this, so the $400 million will close today and we just announced the acquisition of the Holtwood and Wallenpaupack hydro facilities. I d like to say we re really that coordinated; we re not. It was just circumstance but ultimately you can see that here we are pulling that kind of money out of this facility, we re redeploying those proceeds right back into another merchant hydro with significant upside potential. We don t need to go to the market to ultimately make that investment and we continue to retain a billion dollars of liquidity. So it s a very big way to compound our capital over time and it allows us to generate the type of returns that we ve been able to do in our history. Coram is another asset. I think we talked about Coram last year but just to reiterate, back in 2009 we bought an early stage development interest in a project called Coram in Tehachapi, California. I think it was Ralf who found a developer who had a great site in Tehachapi, strong wind speeds but no real offtake structure so no PPA, no financing, no ability to actually commercialize this project, couldn t connect to the grid. What we were able to offer that developer was obviously a return of the small dollars they had put in to secure the site and a little bit of carry along the way of our project if we built it out. We then proceeded to bid the asset into an RFP in California in 2011, secured a contract with PG&E, put in an interconnection agreement, secured 18-year financing on these facilities, built the project using our own internal development engineering capabilities we obviously outsourced the construction but we have our own people who oversee it and develop the project to operate for the next three years. It was during this period where we started to see, as I mentioned, a number of buyers in the marketplace that were bidding up values for these type of contracted assets to levels that we just felt were clearly much higher than we would be able to buy these assets ourselves and so we thought it would be a good time to cycle out of the asset, sell it into the market, see who the buyer universe would be, and if it was attractive secure a very strong return. We just sold it last quarter for $270 million of EV. That will lock in a 30% IRR to our shareholders and what we ll be able to do with that is again recycle that capital into acquisition opportunities and growth opportunities in the multiple markets we serve. So we believe our model is very repeatable. We believe scale is a huge advantage for us and operating expertise is a huge advantage for us, and we feel that if we can create a structure like we have in North America where there s barriers to entry in an asset class but we have the skills to manage those barriers to entry and ultimately create further distance between ourselves and the

14 13 sellers, that we can create significant scale in this business. So we do believe in the next five years that we will find a new market to invest in like that. The markets we re looking at are obviously other countries in Europe. Ralf will talk about Germany, France, Spain, but other mature markets in Europe; Latin America where we see opportunities to invest in Colombia, Peru. In Asia it s early days and I d say the jury is still out. We re looking at India as a market that is deeply undersupplied from an electricity perspective but what we like about India is that it has tremendous hydro potential. So when I say we don t want to chase incentives or feed-in tariffs which have really been pushed onto wind and solar, if we can find a market that has deep hydro potential and then build out those other asset classes over time, India is one of those types of markets that could be attractive. What we believe that this model creates for investors is a very high quality, the highest quality portfolio in the supply stack. It also happens to be renewable. It also happens to be carbon-free. We think that that will drive tremendous value over the long term. We believe these assets should and do trade at the highest multiple in their asset class over time and if we can buy those at a discount to replacement cost, which we ve been doing over the last four to five years, it provides investors with significant price appreciation and capital appreciation in their portfolio. We built a business with strong downside protection, contracted cash flows that are inflation-linked and that support a 5% to 9% distribution growth with our development capabilities, with our ability to capture rising prices, whether that s through capacity markets, selling RECs or selling energy. We obviously have significant upside potential. Nick will walk through what that means in terms of our share price but the upsides that we can capture, even with small increases in energy prices and building out our development pipeline in a modest way are very meaningful, and so we believe that will drive capital appreciation through further cash flow growth and we can deliver 12% to 15% returns. Finally, we believe we have a unique track record with a very large investable universe where we ve been able to originate a majority of transactions through our proprietary basis, leverage our platforms and in a very short period of time build out truly a global business with scale that now is delivering projects, growing cash flows and finding M&A opportunities in all of our markets that we re in, and we believe we re well placed to offer another market over the next few years to drive that same type of growth. So we have a very unique renewable franchise and if this is the type of investment that you re looking for in terms of renewables, we don t think that there s a comparable out there today.

15 14 So maybe before I pass it off to Ralf, I can take a few questions. Andrew? Andrew Kuske: Andrew Kuske, Credit Suisse. Sachin, you touched upon Colombia. Could you give us an update on ISAGEN and that process and what it would mean to BREP? Sachin Shah: Sure. So first of all the question was on ISAGEN which is a Colombian utility that s 57% owned by the Colombian government; the balance is public in case anybody doesn t know. There s been a public process to sell the government stake through a block trade, effectively, of their shares and it s public that we ve qualified ourselves to bid in the process. We re amongst a handful of bidders in the process. I d say what we like about it is that this is a hydro dominated market, 15,000 megawatt market. ISAGEN is truly a franchise in the country with significant growth opportunities but also strong reservoirs. It has the second largest reservoir in the country which is very important in a hydro dominated country to control storage. It s about 3,000 megawatts in terms of the size of the portfolio and 2,800 of that is hydro. So we believe that we re one of the few unique organizations globally that actually has the capital and the expertise to bring to bear on this transaction, buy it for value, buy it at a discount to replacement cost, and then ultimately be part of the growth of Colombia where, again, like many Latin American countries it s deeply underserved in terms of its grid capabilities. Just to put that into context, what I mean by that is Colombia would have the same population as Canada, for example, but it would have an electricity system that would be one-sixth the size. So to put that in perspective, although it has a more moderate climate it s still deeply underserved from an electrical perspective and we see significant growth in that marketplace. Obviously, if you add to that the backdrop of weak oil prices, its significant oil exporting capabilities, we believe that the entry point for a weaker currency could be particularly unique so it s a transaction we re looking at. Sean Steuart: Thanks, Sachin. Sean Steuart from TD. Wondering if you can speak to the valuation on this morning s hydro acquisition announcement. It looks like the capacity multiple is a little bit higher than you paid for Safe Harbor and some of the other U.S. hydro deals. Can you speak to the asset

16 15 specifically, and you touched on the tuck-in aspect of it but anything else with this acquisition and maybe initial returns you re expecting out of the gate and how that trends over time? Sachin Shah: Sure. And you re right, on a headline basis it s a little bit more expensive than the other hydro deals we ve done. I d say there are two things that drive that. One is on the larger facility, the 240 megawatt facility, the company had put significant capital into this facility just in the last two years to effectively rebuild it, and so what we re buying is an asset here that needs very little CapEx in the foreseeable future and it s really driven down the capital program that we d need to put back in. The second benefit of that is that all of that capital upgrade that was put in qualifies the energy for Class 1 RECs and typically Class 1 RECs is something that states need to procure to meet their renewable power standards. So what we believe we re buying is a very valuable income stream in addition to energy at a very low price and capacity that s in the early days of starting to grow. We re putting our arms around all of these Class 1 RECs and we have the trading capabilities to actually optimize that. So we think that the portfolio itself is very valuable and if you layer on my earlier remarks about Safe Harbor and controlling the reservoir, we actually think that even relative to the incumbent owner, Talen, that we could optimize both base capacity and performance capacity to a higher degree than they could because we now control the whole river. Sean Steuart: Okay. Then just one other question on your North American wind portfolio right now. Over the last five, six years that s been consistently generation below average, consistent and significant magnitude as well, how do you guys think about that overall platform and does what s happened with the yieldcos in the States change your thinking on potential timeframes for dealing with that portfolio? Sachin Shah: It s a good question. The question was just performance of wind assets and just what s going on with the yieldcos; does that change our view of the wind asset class? I d say first as an asset class it s a very good asset class. I think earlier vintage assets suffered from probably overly exuberant wind studies, and everyone got caught up in that. I think even an organization like ours who were relying on these wind studies, we take a very careful view, we discount them. Probably didn t discount them enough so we ve seen this consistent underperformance. But we re three to five years in and your point is a valid one. What we haven t seen really is the outperformance of this asset class. I d say we

17 16 have a completely different experience in Europe and Brazil where we re actually getting much more outperformance. So from a portfolio basis I feel quite comfortable that we re managing that risk profile but our earlier stage U.S. assets in particular haven t performed the way we thought. At the same time through that period of underperformance, the value of these assets has grown significantly as more and more capital has come into the market to acquire them and we ve seen multiples start to go up. So hence the reason why we were quick to pursue a sale on Coram and I think we ve been clear with the market that, you know, we may sell wind assets from time to time in North America. We might look at opportunities to do a little bit more on the sale side for our U.S. fleet, but what we re not going to lose is the internal expertise on the O&M that we manage ourselves, the development capabilities, because we think it s an important part of the franchise that we want to secure. But we can trade in and out of these assets over time if we feel that values are above what we d be willing to buy them at. There s a question back there. David Noseworthy: Hi Sachin, David Noseworthy, CIBC. I was just wondering if we could maybe go back to your conversation about the Brazilian assets and just the idea that some of the guys you re buying from are short power; you re not. Is there a limitation to how much operating Brazilian assets you can buy to the point where the incremental operating asset would then have you short power, and how do you think about that? Sachin Shah: If I understand the question correctly, is there a situation where we buy so much we re now short ourselves? David Noseworthy: Essentially. Sachin Shah:

18 17 It s a good question. I d say obviously if we went in and we bought a portfolio that was three times the size of what we own today, 100% contracted, it would be very difficult for us to mitigate the risk profile, but going in and knowing that, we would underwrite that. So we would know what the cash outflows were. We d build that into our underwriting and although we would be what I d call technically short, we would have factored that into our valuation. So I feel quite comfortable that it s a risk profile we could manage and if we find the right opportunity that happens to have 100% contracts on that we would get better value for it because sellers recognize that risk profile. As you heard earlier in earlier presentations, there s nobody else bidding on assets. We re one of the very few in this marketplace that has the capital, the expertise and the conviction to make investments. I d say more importantly is if we acquire assets where we have that, not only can we pay less but because we are able to move our power between our portfolios across different submarkets and treat this like a fungible commodity, we may actually get ourselves into a situation where we not only pay less but then we don t actually realize that cash outflow by being able to take our entire portfolio and optimize it. One of the things we loved about the biomass assets and the wind assets were the added diversity it gives because hydro has a very distinct delivery profile or production profile and biomass happens to have the offsetting delivery or production profile and so what you could do is you could offer customers a much more balanced product and you can move power between periods during the year using different technologies to manage. So I think the theoretical risk is absolutely there. I think that from our perspective not only would we pay less but we have a unique portfolio where we can actually manage that risk and potentially recoup a lot of that cash flow that we would have told somebody we were not going to make. David Noseworthy: And just a follow-up question. You were talking about the merchant part of your portfolio, 10% today going to 20%, and we re starting to see the capacity payments move up, but in terms of that power price and capacity price market improving, are you going to be looking to time the top of the market or are we going to start seeing you contract those assets kind of incrementally over time? How do you think about that? Sachin Shah:

19 18 I don t think we ever try to time the top of anything. I think we build in enough downside protection that if we feel that there s an opportunity to secure two things: one is relatively decent value compared to what we believe replacement cost is or cost of new entry is, and we re not going to get exactly cost of new entry economics but if we can get at least within a reasonable shot of it, that s sort of criteria number one. Criteria number two is term to those contracts. What s more important right now is that if you get a contract, I would rather walk away from a one-year contract at replacement cost and take a 20-year contract at a 15% discount to cost of new entry because it would be much more lucrative to be able to pull capital out, recycle that capital, and drive shareholder returns than just having a one-year flier on cash flows. So I think we d take both of those. Obviously counterparties are important. I d say the other really interesting thing right now in North America at least is we re seeing for the first time a new class of buyers for renewable power and that s the commercial class. Historically it was always utilities and industrials who were looking for power and for the first time we re starting to see commercial buyers who value carbon-free green power and that s another area I think over the next five years will continue to evolve and provide us more opportunities to sell our power to different types of customers. I think I ll end it there. I will come back at the end for questions but I m going to pass it off to Ralf. Ralf Rank: Thanks, Sachin. I look forward to updating you on our progress on building out the business in Europe and maybe before I do that I ll sort of step back a little bit and talk about some of the key criteria that we re looking at when we invest in a new market. I think as many of you know probably about three years ago we started looking at new geographies in a serious way and put together these criteria. As a starting point, of course one would always look at traditional macroeconomics, fundamental and political indicators to really make sure a country has sound and stable government, but what I would say we re really looking for is that policy makers and rule makers and politicians in countries we might invest in have a long track record and a demonstrated history of respect for capital and particularly so when it comes to private investment.

20 19 Secondly, clearly being in the power business we like investing in places where there are competitive, transparent wholesale markets so that we can do a real deep dive on fundamental value of supply, demand and the outlook on prices. This is really so that we can understand fundamental value because, as Sachin mentioned, we pride ourselves on being contrarian investors and to do that you need to understand your entry point. So we spend a lot of time on looking at the underlying cash flows of assets but also really the valuation of those cash flows to make sure that when we re investing in a place we re doing so at a reasonable point in the cycle where there s good downside protection and good prospects for value accretion over time. The other factor clearly is building out a scaled business. If we re making a management commitment to a new region then it s important that it s not just one transaction but that there are good prospects for opportunities to invest follow-on capital with that platform either through M&A opportunities, development opportunities and of course ideally both. I think the last thing that I ll mention is established local capital markets. I think many of you that know us know our non-recourse funding model and so the ability to finance assets on a long-term, low risk basis in the local currency where we can match the underlying cash flows is important, as is being in jurisdictions where the regulations allow for the distribution of dividends and capital seamlessly over time so that we can actually surface capital from these assets at opportune times in the cycle. With those criteria, maybe stepping to Europe, and I moved to Europe about a year and a half ago. At the time as a management team we had and we still have a very strong conviction that Europe truly is a unique opportunity for us to build an integrated power business, and to do so for really good value. There are a couple reasons why. Europe's always been a large share of the global population, of the global economy, and from a renewable perspective really always been at the forefront of renewable power, technology and innovation. There's a huge investable universe. About half the world's renewables are actually installed in Europe right now. The ownership is very fragmented, so that gives rise to a lot of M&A opportunities, but there are also significant new build development needs. You have a marketplace where there's a very strong commitment to climate change. Over the foreseeable future we expect that the current 2020 targets that we have for renewables in Europe will actually continue to be extended to higher 2030 targets. Both Europe and the UK have functioning carbon markets, and you have large economies like Germany completely transitioning their power

21 20 systems to phase out nuclear and coal. So all of these factors together are giving rise to significant new build development needs. I think the last thing about Europe is that it's probably the first time in our lifetime that you're seeing a more value-based entry point than we've ever seen. The large utilities in Europe have weaker balance sheets, some of the smaller developers there are facing more capital constraints than the past, and wholesale prices are at a very low point in the cycle. So we see the valuation entry point, particularly for the types of transactions that we're looking for, at a better spot than historically. Let me start a little bit with Ireland. I think many of you will already been familiar with our transaction in Ireland, but this was an important one for us in 2014 because it really put us on the map in Europe in a meaningful way, and allowed us to really build out the operating platform there. Just to recap the business, at the time this was a wind business that was part of a state-owned utility called Bord Gais Energy, which was a multi-utility and also owned a gas distribution and a retail business. At the time, this was a portfolio of about 326 megawatts, a 300 megawatt development pipeline and a team of about 75 people. We think really we were successful securing this transaction for really two reasons. One, we were able to partner with two other companies who bought the other parts of the business that we weren't interested in, and were able to put forth a solution for the government to sell the entire business, which was its key objective. The second reason was that as a long-term owner and operator in the renewable power business and with the track record that we had, we were able to put forth a very credible plan to actually effectively separate the businesses, and then more importantly, keep reinvesting in the wind assets in the country, and into the people and the platform, which at the time, this was being sold by Ireland as it was going through its financial crisis. That was a very important element to the transaction as well. What we like about wind in Ireland is simple. Simply put, wind makes a lot of sense in this power market. It's been a great deal for the Irish consumer, and so as a consequence you have a very sound and stable policy environment with good continued growth prospects. Ireland has one of the strongest wind resources in Europe, and otherwise, the country is fairly poor in terms of indigenous fossil fuels and so you have a power market that is about 50% reliant on imported gas-fired generation. The wind power that we produce we can do so at a cost that's very comparable to the

22 21 long-term cost of power in that market, and we do so under very attractive long-term PPAs that are government-backed, inflation indexed, and attractive insofar as that they provide a long-term floor price but also allow us to participate in market price appreciation; an upside over that floor price over time. Today, Ireland is one of the best performing economies in Europe. You have a country that's doing about 4% annual economic growth, above average population growth, and the country's very nicely positioned in some of the key growth sectors, particularly IT, pharmaceuticals, and agriculture. So, as a result, we have a stable business in a high value power market, and the financial results have been in line with expectations as has the wind generation in our business here, and so we've been spending a lot of time really building out the business in terms of our development pipeline. Since we bought the business, we executed about 137 megawatts of follow-on development growth. Those projects were all brought in under budget. We commenced construction on another 14 megawatts since then, and have about 60 to 80 megawatts of our pipeline that's actually in the near-term fully permitted stage that we hope to start construction on in the next few quarters in order to complete those projects under the existing Feed-in Tariff. We've also seen in Ireland that since we bought the business, the financeability of assets in the country has improved dramatically. When we entered Ireland there was lending interest from probably a handful of local lenders and banks. That's increased dramatically to a very deep pool of capital that's available both on the debt capital market side and also by financial institutions and pension fund investors who are actually looking now at the equity cash flows of these assets which are very stable, so discount rates have come down dramatically in the market from where we bought the business. So putting that altogether, as we continue to build out our development pipeline over the next few years, I expect that this will also set us up nicely for capital recycling potentially in this marketplace as well. Let me connect that a little bit now to how that translates into building out the operating platform, because the other key highlight in our business in Ireland is not just the high quality of the assets, but really the great team that we secured as part of the transaction. The team, I'm pleased to say, has integrated really well into the Brookfield performance-based culture, and I truly think the enthusiasm and the expertise that we actually have in the team right now in Europe is going to be a key competitive advantage for helping us secure additional opportunities, and then also drive value creation in assets that we acquire.

23 22 Let me take you through a little bit about how we've been building out the operating side of the business in Europe, and how we've been focusing on really building teams that are focused around the key levers that we think are important to drive value. From an operating standpoint, when we bought the business in Ireland we had a number of long-term fixed price O&M contracts with our turbine suppliers, and that was actually a good thing coming into a new market, because it fully eliminated all of our cost, risk, and substantially our CapEx risk in the business. But what we've really done on the operating side now is really built out the health and safety performance of the business, the business systems, and built out business integration capability as well, which is an important one to have in the platform to make sure that when we're buying assets we can integrate those assets and deliver the value drivers in the underwriting models that we predict. We're now at the stage on the operating side of the business where we can look at a number of our O&M contracts and really focus on driving the performance of our contractors. We're very focused on revenue availability, and also increasing the optionality now to bring some of our maintenance activities in-house, where we think we might be able to do not only a better job but also do it at lower cost. The second function I'll talk about a little bit is our power marketing business. This is actually a focus that we've been building out from scratch in Europe. You've heard Sachin talk about the importance of optimizing our revenues and the opportunities to surface long-term contracts in the business. Similarly in Europe, where we're continuing to see the market integration of renewables, as well as really a lot of interest from corporate counterparties and industrial counterparties into signing long-term contracts, particularly in Ireland in the IT space, where we're seeing a huge amount of datacentres being built and interest from those counterparties to actually contract for power, having this skill set in the business is very important. There are about 10 people on the team focused on this business. We've done a few small transactions where we've been able to re-contract power for higher value. We've sold green credits and flowed power into adjacent power markets for higher value. So we're at the very early stages of doing this in Europe, but once we have the skill set I truly think that this will be a really great way to add cash flows to the business, and also a factor that will differentiate us in terms of how we can secure assets and drive value from our assets.

24 23 In terms of greenfield, I think you've heard the focus on all of our business in terms of driving organic growth in the business. I've already talked a little bit about what we've done in Ireland on this effect. We have a significant development pipeline in Europe and about 40 people focused in this area. We have great end-to-end capabilities where we have all the skills in the business from land acquisition, planning, securing grid connections, project design, procurement and really construction oversight, and what that really means is that we can take a project from a very early conceptual stage into a fully operating project. What it means from a cash flow perspective and a value perspective is that we can really capture the full development value creation across all of those cycles and realize that value. What we've done now with the business is really built out the focus in a couple of key areas. We've really focused the business and the teams on project execution and project delivery in terms of bringing these projects into construction. We've looked at all of our greenfield capital allocation processes and have rigorous processes around that. We've also really meaningfully increased the amount of focus on the origination of early and late stage projects, particularly in areas where we have a strong competitive advantage in the business, whether that's by leveraging our grid assets, our adjacent sites and so forth. You know, lastly I'll talk a little bit about our finance platform in Europe. This has really been about driving scale and controls. We've centralized this function in Europe now. We've implemented Brookfield IT and financial systems, and what that allows us to do is really have a centralized professional finance function that can serve to really integrate additional businesses in Europe with very minimal, if any, additional overhead costs. Our finance team in Europe has also been very active in the funding markets. We've secured over $300 million of non-recourse, very long-term debt sized to investment grade levels at some of our assets, and done that at average interest costs in the range of 2%, so that's been a great success. Let me shift now to talking a little bit about how we use our operating team and combine that with our M&A team to drive accretive follow-on growth in Europe. I would say it's been a tough market in Europe. I think as Sachin alluded to, plain vanilla contracted assets trade at extremely high multiples, and so we've been focusing on a few unique transactions that have been proprietary in nature. In terms of the M&A side of the business, we have five investment professionals based in London. These will be provided by Brookfield under the management services contract. The team there has a

25 24 dedicated focus by market. We have a dedicated strategy and outreach program to really build relationships in Europe and source transactions where we think we have a competitive advantage. I'll give two examples that we completed this year. Earlier this year we acquired 123 megawatts of operating capacity in Portugal. I would characterize these assets as being high quality assets, stable long-term contracts and cash flows, proven operating history, so fairly straightforward. But what we really liked about this transaction is that we were able to acquire these assets on a proprietary basis from a proven local developer. Much like our experience in Ireland, I would say that where we acquired these was probably at a very significant discount rate premium to where we've seen even some very recent transactions trade in the marketplace. The other thing that it's allowed us to do is establish a foothold in Iberia, which is a huge market, but doing it a low risk way in a market where there's a sound policy framework. As a consequence, we're starting to see a lot more opportunities for investment in those markets. We know more about the market, and it'll make us a smarter investor on the next transaction and to really spend our time picking where the unique investment opportunities will be in that region of Europe. Secondly, I'll talk a little bit about Scotland. This was a large-scale development pipeline that we acquired from a publicly traded wind developer earlier this year. The portfolio has a real range of projects; everything from contracted projects with a PPA that we can built out in the short-term, fully permitted capacity that with the right revenue model we can construct, as well as a vast number of early stage sites. These sites are very attractively positioned in the marketplace that they're in. We structured the transaction in a low risk way where a large portion of the payment is due only if we're successful in building out the megawatts. To put it in perspective, these are some of the best sites in the UK, which is really a supply constrained market at this point. The UK is going through about 6,000 megawatts of coal retirements. It needs significant new capacity and also significant new renewable capacity in order to meet its targets. When you look at the competitive positioning of various alternatives in this marketplace, Scottish onshore wind is actually one of the lowest cost probably the lowest cost source of new build renewables and significantly cheaper than some of the other alternatives regulators are considering, namely offshore wind and biomass. So we very much like the competitive positioning of these sites. These are attractive sites that are very well-positioned relative to the fundamental price of electricity in the market that they're in.

26 25 The other key highlight of this was that we secured a great team. We have 10 people now developing this portfolio based in Edinburgh. This gives us local boots on the ground. It's worth noting that if you look at the UK and if you look at where the bulk of wind and hydro is actually installed, it's actually installed in Scotland, less so in England or Wales or other regions of the country, and so this will be a competitive advantage as we look for new opportunities in the UK now, and we've been able to very effectively integrate this team into our European platform. So bringing it all together, in terms of the European platform today, total asset base is about $1 billion. We have close to 600 megawatts of operating capacity spread between 22 wind farms in three countries, about 100 employees, the bulk of which and many of which are focused on developing our significant development pipeline. In terms of the future, to talk a little bit about the M&A prospects in Europe, we're very much focused, as are all the Brookfield platforms, on transactions that are proprietary in nature and where we think we can really have a competitive advantage through our operational expertise and our investment expertise. A lot of what we see in Europe is clearly going to be high quality contracted assets. We're looking for that, but we're also looking for transactions where we see opportunities to buy regional scale regional businesses where we can leverage our scale, businesses with a bit of market exposure, and businesses with continued follow-on development opportunities, and then access those opportunities by really deploying investment expertise, capital markets expertise, transaction expertise so that we can secure these assets for better value. In terms of the markets that we're focused on, we're focused on all of the major markets in Europe. Ireland and the UK we are well-positioned now with the people that we have on the ground and the footprint that we have in those markets. Some of the other larger markets present great opportunities. France, for example, where Brookfield already has an investment, it's a market that has significant new build needs in order to meet its renewables targets. That market has really had less build-out to date than some of the other European markets, and so regulators are looking for new sources of renewables to really catch up and meet the targets that they've set for themselves. Germany, for example, is a very large market, a huge installed asset base, very fragmented ownership and continuing to set the bar in terms of having very high renewable targets and undergoing a transition to

27 26 really take coal and nuclear out of the system in a meaningful way. So with the team that we have in Europe we can now pursue all types of transactions, whether that's earlier stage sites to larger portfolios. I would close maybe by just saying that the experience that we've had in Europe in terms of building out our platform can be replicated in terms of other markets. We're always looking for new markets that fit the investment criteria that I mentioned. I think as Sachin said earlier, there are a number of other markets globally that we might consider over the next five years. If you look at markets like India, Australia, potentially one or two additional markets in LatAm are possibilities. We'd only enter these markets if there's a real way to enter with building out our operating platform and starting with an initial operating presence that we can then deepened by really building out the operating capability and building a bit of scale, because those two factors then set you up really nicely to pursue tuck-in M&A growth and development growth. And that's really the key, once you have people on the ground, we feel that we can see transactions and create value in transactions that others simply can't see, and hopefully the two acquisitions I mentioned to you in Europe are great examples of transactions that we wouldn't have been able to access without first building out an operating platform. So with that, I'd be happy to take any questions, and otherwise, Nick will review the financial profile. Male Speaker: Thank you. Ralf, I was just wondering if you could talk a little bit about development returns that you're seeing in Europe, and maybe just also the spread between development returns and the operating asset returns and how that might compare to the North American market. Ralf Rank: Sure. The returns and the spread obviously differ by market, and they differ, of course, on the site that you have. But in general, operating assets might trade anywhere from 7% to 9% or even lower cost of equity, whereas on a development project you would be well into the double digits and probably about 15%. It depends, of course, on the exact site you have and the market that you're in. But as I said, we think there's a meaningful spread. Of course it's a different risk profile, so you're compensated for the value that you're actually creating by taking those development stage projects from an earlier stage in their cycle to a finished product. But we feel that that's a risk that we can manage and that's where we can really invest capital at premium returns compared to simply buying finished assets.

28 27 Male Speaker: Just to follow-on that, when you think about how you construct your portfolio in Europe of the various asset classes, and I'm talking development versus operating and in late stage, what is your optimal portfolio or is it just opportunistic? Ralf Rank: It's not opportunistic in the sense that we have a strategy to be in markets where development assets are not just dependant on subsidies but are well-positioned in terms of the long-term power and projects that we can deliver relative to the market that they're in. So you start with that. It's opportunistic a bit in terms of the sellers that we build relationships and access. With different sellers there will be different opportunities to secure assets at better value and so that part of it I would say is a little bit more opportunistic. Then we want to have a mix of assets. The capital allocation between the different phases is something that we spend a lot of time on, but as a business, clearly a good base of operating assets gives us the local presence as a scale. We do want to have a reliable stream of near-term assets that we can build out and deploy capital in an accretive way in the near-term, but we are a long-term owner and operator, and so it's also important to have long-term options on the ground than having a development pipeline of earlier stage projects. Where we have great expertise in the business is to be selective about the capital that we allocate across the whole development portfolio to make sure that we're making the right decisions in terms of that mix between near-term, medium-term, and long-term. But it is important to keep investing in that part because it continues to secure a long-term stream of development projects for us. Rupert Merer: Rupert Merer from National Bank. You mentioned your focus in Scotland is onshore. It doesn't sound like you look too favourably on the offshore at this point. But given your perception of the risk in offshore, what would you need to see to step into that market today? What sort of returns would you need to see relative to onshore?

29 28 Ralf Rank: Yes, it's a good question. I think you've really touched on the key point that clearly, offshore is a growing asset class. The technology is improving and coming down in cost, but what we've felt is that we haven't really seen a meaningful spread in terms of risk adjusted returns for offshore projects compared to onshore projects, and the reality is that there's still higher risk around capital costs and operating costs in particular for offshore, as there is around the continued commitment of significant above-market subsidies for offshore. So what we've seen more in the offshore space is transactions where larger utilities are selling off slices of a project but wrapping all of the risk. So that becomes more of a cost of capital exercise, which is not attractive for us. Then on the other end of the spectrum, we haven't really seen transactions where there's a reasonable amount of risk adjusted return premium relative to onshore assets, and so if that changes, that might be something to reevaluate. We always monitor the markets and opportunities in this regard, but I think you've really touched on the key point that we see in offshore. Nelson Ng: Hi, it's Nelson Ng from RBC. It looks like the focus has mainly been on the onshore wind side in Europe. Similar to the U.S., do you see any opportunities to acquire hydro assets at a discount to the replacement value at a low power price market? Ralf Rank: Yes, absolutely. We'd love to buy more hydro in Europe or buy some hydro in Europe and also look at other technologies and really broaden the business in Europe, and we're absolutely focused on trying to find hydro and have looked at a few of those situations. I would say in Europe there is more government-owned hydro so those assets will take longer or fewer of them will trade. The other thing I would say is that hydro assets in Europe, to date have been very small transactions or transactions where you're seeing municipal or government-owned buyers buying these assets, and there's a vast difference in terms of discount rates in Europe versus where we see these assets trade in North America, which is to say that the multiples or the premiums in Europe are still very high compared to what we've seen in North America. So a lot of these assets have not been trading to date at discounts to replacement cost; on the contrary. If that changes then we'd love to clearly own more hydro as well in Europe.

30 29 Nicholas Goodman: Good morning, everyone. Thank you for coming. So following on from Sachin and Ralf's comments, I'm going to focus on BREP's financial profile, providing an insight into our view of the inherent value of a BREP share, really outlining the stable base that underpins our business, our view of value, and how we've really built our business to be robust through the cycle. Secondly, looking at what Sachin has touched on, the incremental value that we have embedded in our business today with our development pipeline and our exposure to merchant pricing in the US Northeast predominantly. What this should illustrate is that inherent in today's trading price, there's material upside in our share price based on our in-place business to date, and on top of that, there's additional value that can be surfaced over the short to medium-term. Our business really has three pillars to its value proposition. The first one is a very solid business; a very solid base backed by stable cash flows, strong liquidity, and conservative capitalization. The second, which I've mentioned, is our strong organic growth levers in the form of a 1,000 megawatt late stage development pipeline, and 2 terawatt hours of annual generation with exposure to rising prices. The fact that the levers in the second pillar can be surfaced without having to access the equity capital markets and really is dependent on internally generated cash will ensure maximum accretion to our existing shareholders. The third pillar is our global M&A capabilities. Sachin has touched on our global reach and Ralf has touched on really what our strategy is in trying to build up our platform structure, grow our local operating expertise, and complement that with BAM s global ability to surface and originate transactions. Combining that with our due diligence that will come from our operating expertise, we really feel we can deliver additional value to our unitholders through that pillar. So before I walk through the valuation, I wanted to focus on a theme that we highlighted in our session last year and Sachin touched on this in his section, and that really is capital recycling. As you know, we look to acquire assets on a value basis which often means we seem to be a contrarian investor. But this approach allows us to acquire high quality assets with strong downside protection but with significant embedded upside. As we embed these assets and integrate them into our business, through our operational expertise we have various levers that we can pull to surface value over time, be it from operational improvements, revenue growth or building out development pipelines. Over

31 30 time, as we realize this value upside, we're able to surface the capital which we've evidenced through the Bear Swamp financing, which did close today, and the Coram sale that we executed recently, and look to redeploy that capital into transactions in an accretive manner. It would be straightforward for us to look to buy fully contracted assets in developed markets and deliver 6% to 8% returns to our shareholders, and the valuation of our business would really just be a debate over discount rates. But the way that we look to invest in a contrarian manner allows us to invest in day one at attractive day one cash-on-cash yields, and we're really embedding the business with optionality, allowing us to deliver 12% to 15% returns to investors over time, and the capital recycling strategy is an integral part of this growth. I'm going to spend more time looking at each of the value levers but really the key messages are as follows. We feel that our current share price is trading at a discount to what we feel is the inherent value of the business that we have in place today, and we feel that is more tied to a $34 share price, which is a 14 times multiple on in-place cash flows. On top of that, we feel there's probably another $7 to $9 of incremental value that we can surface over time, and this is from levers that we have in place in the business today, really within our own control and can be delivered through internally generated cash, so not reliant on any equity capital markets. It should be noted that all of this ignores the value of our M&A growth engine, which I'll touch on at the end. So our view of value today, as I said, is based on a 14 times multiple of in-place cash flows, and we feel that this multiple is backed up really by key factors of distinguished breadth as a best-in-class renewable business. Our asset base is 80% hydro, and as it's been mentioned earlier in the presentation, what this provides is a perpetual asset base. So what we're really delivering to our investors is a return on capital, not a combination of return on and return of capital, which a lot of our peers are delivering. Our ongoing maintenance CapEx is low given the straightforward nature of our technology being predominantly hydro. On a $20 billion asset base, we have roughly $70 million of annual maintenance CapEx. Our assets have no fuel input cost, so even in a low-cost environment, our contracted assets are still able to deliver strong margins and high cash returns. Our assets have the ability to modulate their river flow, so we can modulate our power supply thus we're able to capture premium pricing. This is going to become increasingly important as coal is retired from the system and is replenished with intermittent technologies.

32 31 What does all of this provide? It provides a very robust cash flow and strong capital protection to our shareholders. In addition to that, our cash flows are highly contracted. We're 90% contracted for the next 12 months. If we look five years out that drops to 80%, but that's on a conservative assumption of no re-contracting. In addition to providing cash flow certainty, our PPAs have an inflation linkage in them, which again provides strong downside protection and protection in a rising rate environment. Our capital structure continues to be conservative. We maintain our BBB rating with S&P and BBB high with DBRS. Integral to that is really our financing strategy, which Ralf touched on in his section, to pursue non-recourse financing, either investment grade rated or with investment grade characteristics at the asset level, complemented or supplemented by a very modest level of corporate level debt. This is a key component in our business and really should not be underestimated. By having modest investment grade leverage at the asset level, we're really protecting the free cash flow to BREP, and we're ensuring that our financings are robust through the cycle and able to really absorb any short-term fluctuations in hydrology. A disciplined approach to the covenant packages that we've put in place really ensure that recourse truly is limited to the corporate. In addition, we target fixed rate debt in the business, and as much as possible we seek to match the duration of our debt with the life of the asset. Currently, 90% of our debt obligations are fixed rate, and we have a weighted average duration of our project debt of 10 years. This again provides strong protection in what will be a rising rate environment in North America. We have an active currency hedging program as well, which year-to-date has largely mitigated the impact of the appreciation of the US dollar against the Canadian dollar and the euro. In Brazil, the currency is too expensive to hedge for us. We do have an element of currency protection through the inflation linkage in our contracts, but I would say more importantly, at 20% of our business and even in such a rapid depreciation that we've seen through this year, the impact is not material on our business. You know, it should also be noted that our current development pipeline and growth pipelines that we have in Brazil really means that all locally surfaced cash flow is being reinvested into the business and we're not relying on any of that cash flow to fund any other parts of BREP.

33 32 I think all these factors considered together, they really underline the robustness of BREP's cash flows, and when viewed in this context and bearing in mind the business models that Sachin and Ralf have talked to, we have a very strong conviction that the current trading price really undervalues the business today. As we have outlined in the past and again today, our strategy of buying merchant generation in high value markets in the U.S. Northeast in the last few years has embedded our business with material optionality. Acquiring these assets at cyclically low energy prices has provided the business with attractive day one cash returns, but also exposure to future increases. While power prices have remained stubbornly low, we retain our conviction that prices will gravitate to something close to a cost of new entry, and something that's materially higher than current prices, and so our business is poised to materialize value upside when this occurs. But I should point out that it's not just exposure to rising energy prices that will deliver upside to our shareholders. Our power marketing platform even in this low price environment is able to optimize the value of our merchant generation, implementing strategies that are continuing to outperform the market price. In addition to that, the benefit of owning hydro is that the assets have other valuable revenue streams beside just energy, most notably capacity and other ancillaries. I think Sachin touched on this earlier, but in the recent New England and PJM capacity auctions, we've already added $30 million to our FFO in 2018 from the 2016 base. While this is in the form of one-year contracts, it is indicative of another lever that we have to drive value in the business. Based on our two terawatt-hours of annual merchant generation, which we outlined at our Investor Day last year, and our view on that exposure and the $40 to $50 upside has not changed year-overyear, if we turn that from really providing our distribution growth guidance and look at that from a value perspective, we feel that that offers an additional $3.50 to $5 in incremental value that can be surfaced in the next five years. Our late stage development pipeline is highly valuable and based on projects that we can feel to be delivered in the next five years. Last year we talked about a 500 to 700 megawatt pipeline. This year with the addition of the European portfolio and some acquisitions of late stage development pipelines that we made in Brazil, that pipeline now stands at about 1,000 megawatts we feel we can deliver by

34 This pipeline, you know, looking at it in the context of the market, a very key differentiator with BREP is this pipeline is 100% owned by us. It's not dependent on drop-downs, and it will be wholly accretive to our shareholders as we don't envision having to access the capital markets to fund this growth. Furthermore, the ownership and geographic diversity of this pipeline should allow us to be patient and develop at the optimum time maximizing returns. I think this is best evidenced by three hydro construction projects that we currently have underway in Brazil. We have remained very patient in Brazil in recent years, and Sachin touched on our patience as it relates to an M&A perspective, but from a development perspective, we've also been very patient. We've retained our conviction in what long-term prices will be in Brazil, and so we've passed on a lot of government auctions and we've held back our capacity, feeling that the price that is being offered didn't truly reflect the long-term value of our assets. As those prices have gradually come up and the auctions have cleared at levels that have slowly moved towards our long-term price, we started to take a keener interest, and this year we cleared close to 75 megawatts at 207 reais a megawatt hour for 30 years with fuel inflation linkage. So it's evidence that when you own your pipeline, when you have global diversity, you have no pressure to really push forward the development unless it really makes sense from a return perspective, and that has been our strategy and we're starting to see it deliver real value through these Brazilian assets. Our track record in development is strong. We've delivered roughly 600 megawatts since 2011, and the creation of the continental platform has ensured that we've enhanced our local expertise and we have even more capabilities to drive growth in this area. In valuing the pipeline, we've assumed a build-out of 750 to 1,000 megawatts over a five year period, which is roughly 250 megawatts a year. I think again in the context of our peers this is a very conservative target and hurdle returns that should generate in the range of $2.75 to $3.25 of incremental value per share. On top of our late stage pipeline, we also have an early stage development pipeline that's essentially an option value that we've embedded in the business. With minimal annual burn rate, this pipeline offers material future value to shareholders. The pipeline is spread across geography and technology; however, given its infancy, we've ascribed a low value to the pipeline. Adopting a value roughly in the range of $70,000 to $100,000 a megawatt, we feel this translates to roughly $0.50 to $1.00 of further incremental value.

35 34 I think the key takeaway from this is that as we continue to build out our pipeline, we're also very focused on replenishing our pipeline so that we always have a view to accretive growth in a five year window. So if we pull all of that together, I think that the key message is that we feel that today the current intrinsic value of our share price is not reflected in where we're currently trading, and given the stable nature of our business, we feel that we're trading at a discount to intrinsic value. When we layer on top of that all of the levers and optionality that we have embedded in the business, we feel there's further material upside that we can deliver over the next five years in the range of $7 to $9, and all of that will help us deliver 12% to 15% returns to shareholders which is our continued target. As a highlight, this does not consider the value of our M&A. I know our analysts may be reluctant to give us credit for M&A because we can't actually point to transactions, but when you look at our track record of delivering M&A, when you look at the continental platforms we've established and our local contacts, our ability to grow on a tuck-in basis, and then our ability to leverage BAM's global M&A network and our ability to potentially identify new markets and build another scalable platform, there really is large incremental accretive value that can be added through our M&A. When you pair that with our significant access to capital, be it from public markets and private markets, we really are wellpositioned to deliver strong accretive growth from our M&A in the next five years. So there is one more slide to go, which is really key takeaways, so maybe I ll ask Sachin to come up and do that and then we can take questions at the end. Sachin Shah: So Nick and I will stay up to take questions right after this. I'd say that the biggest key takeaway that we don't have on the page, actually, is that our whole industry is going through significant structural change with this aggressive pursuit of getting rid of carbon emitting technologies, displacing coal, and finding renewable sources of power that can ultimately drive the next 50 years of the electrical backbone of developed economies. As investors position themselves to generate value or create value for themselves on this backdrop, what we offer is a very unique franchise that's hydro-focused. We have 1,500 people in this business who operate the plants every day and really allow us to pursue growth and transactions in a way that others can't compete with, and we're trying to maintain that

36 35 competitive advantage, move it out to new markets. We think through all of that, the capabilities that we have both internally and the support that we have with the BAM network, it gives us a very large universe and a very large reach to be able to add platforms, to add expertise and drive that 12% to 15% growth, and we feel that we're uniquely positioned to do that in light of both our track record and the technological focus that we've had. So maybe with that, Nick and I can both answer questions, whether it's on his topic or other questions more broadly. Andrew? Andrew Kuske: Andrew Kuske, Credit Suisse. Maybe if you could just deconstruct your view of the $80 power price assumption on a longer term basis? You know, what portion of that is carbon? How do you think about gas pricing to really come up with that $80 figure? Sachin Shah: Sure. So the question was how do, you know, if you had to take $80 a megawatt hour, how would you deconstruct the different components of that? So first I'd start with none of that includes any carbon value, so we don't factor carbon into any of our numbers. To the extent that carbon starts to get taxed or we start to get compensated for the fact that we don't emit carbon, we would view that as additive. When I look at the $80, I would start with, you know, what really sets bulk power prices? Historically it was always coal, and I think most people would acknowledge that over time it will include gas. Whatever your view of gas prices are, you know, whether it's $3, $4, $5, $6, all of that will drive a baseline energy price that doesn't contemplate the peak demand periods. If you just took $4 gas, which is a little bit ahead of where we are today in sort of a $2.50 environment, you know, $4 gas would mean that you would need a power market that was delivering energy at about $65 a megawatt hour for it to make sense to put money in the ground to actually build that gas plant. On top of that, you would need to get paid capacity payments to make sure that you're getting your 10%, 12%, 15% target return that you're trying to drive towards. Our own view is that, you know, if your energy price is $65 and then you layer on our ability to capture capacity prices to sell ancillary services like black start or AGC into the marketplace, the ability to move power between markets, the combination of that capacity and the flexibility that we have with

37 36 our hydro pretty easily covers $80 a megawatt hour in a very, very low power price environment in a very low gas environment, and a pretty modest assumption on gas prices. Personally, we believe that gas prices will go higher than $4 over the long-term. We have pretty strong conviction that today not too many gas producers are making a strong enough return to justify the current price environment. But we know the debate is out there, and so whatever your view is, we feel pretty confident that in this environment, $80 is not out of the realm of the normal sort of power price increases to justify continuing to build out gas which should displace coal. I'd say on top of that, you can't build any renewables today for $80. Not a wind farm, not a solar plant; certainly not a hydro could be built in this market for $80. All three of them would be at least $100 and potentially a lot more. So if you're a system operator and your market continuously gets to $80 and it drives gas, you're making a giant bet on one commodity to displace coal, and that leaves you in a very vulnerable position. So I think there's going to be a number of factors here at play, but we feel pretty confident that $80 is a pretty conservative estimate. Yes? There's a question right here. Jeremy Rosenfield: Hi, Jeremy Rosenfield, Industrial Alliance Securities. Just given where interest rates are right now, from a growth perspective, why would you not want to increase the leverage given your balance sheet and your stable financial position? Why not increase the leverage right now over the short-term to speed up the M&A-based growth? You know, recognizing you have tons of organic growth opportunities, but why not bring some of that M&A-based growth forward, let's say? Sachin Shah: I'll take a crack and then Nick can correct me. Look, I think, you know, we're in this business for multiple decades of growth, and we've been in it for multiple decades, and we intend to be in it for that long. I think if you saw our presentation, the opportunities we've had to acquire assets from people who undertook that exact strategy have led to some spectacular acquisition opportunities for us. White Pine was 340 megawatts of hydro where the owner did exactly that. They levered up during a power price environment that was looking robust without a contract, and ultimately saw their revenues decline and their debt levels stay at elevated levels, which led to an eventual default scenario. We

38 37 bought it before they defaulted. But it changes the risk profile of the business, and I think, one, we're committed to an investment grade balance sheet. Two, we want duration in our debt stack. We want to make sure that we have locked in interest rates for a very long period of time so that we can drive accretion to the bottom line as GDP recovers and as revenues start to rise in these real-return type assets. Three, we want to have financial flexibility that if we see a spectacular opportunity where we have room on our balance sheet and with our liquidity, that we can pursue it. So just doing a shortterm debt optimization is really not how we generally would pursue making money. Stephen Paget: Sachin, it's Stephen Paget, First Energy. How big are your private fund commitments that are dedicated to renewables, and do they put you under an obligation to invest? Sachin Shah: Hi Stephen. So first, there's no obligation to invest. If you take our $7 billion infrastructure fund that we share with BIP, there is a 35% target to renewables on that and with a 40% cap. So, just taking the upside on that there is about $2.8 billion that we would dedicate to renewable investments globally. We would generally invest in 40% of each investment through BREP; sometimes 50% depending on the market and the region we're in. But we're the same decision-maker for the fund and BREP, it's just a different pool of capital. We only invest if we feel that the opportunity to drive accretion to all of our investors is significant and meets our return hurdles. The return hurdles are the same, and so we feel quite confident that there's no pressure to invest, and we're investing if we believe that the returns of an investment opportunity meet the 12% to 15% hurdles that we put out here today. Stephen Paget: Thank you. Sean Steuart: Thanks, Sachin. Sean Steuart from TD. A question on your liquidity cushion. You guys have grown really aggressively the last few years and kept available liquidity somewhere from $1 billion to $1.3 billion. Are you comfortable with that cushion given how rich the opportunity set is for you right now?

39 38 Sachin Shah: Yes. Do we have enough liquidity in light of the opportunity set? We could always have more. You know, liquidity is a nice thing to have. I'd say what we've done really well in the business is left pockets of capital that we could secure for times like this. So when I referenced that Bear Swamp financing, we're opportunistically looking at areas on the balance sheet where we can continue to source capital. We're looking at asset sales. In part because absolutely we have enough liquidity today to drive the business to do growth on a normal course basis, but if something special comes along we want to make sure that we have the pools of capital available in addition to all of the regular sources we have, which are debt, prefs, public market equity, private capital equity through our funds. So I feel we have enough, but obviously we continue to look at the balance sheet to make sure that we can harvest the right liquidity. Rupert Merer: Yes, Rupert Merer from National Bank. Let me take the opposite of that debt question. If you evolve your portfolio to having a greater percentage of wind and say finite life assets, less perpetual assets, should we see an increasing percentage of amortizing debt going forward? Sachin Shah: I'll let Nick answer that question. Nicholas Goodman: Sure. I think our growth strategy, as you've seen, is really is to maintain a strong hydro focus in the business. So as we grow we may add wind, but I would imagine at the same time proportionately we'll be adding more hydro and starting from a very high hydro base. So, yes, you're right, wind debt would amortize; our hydro debt's all non-amortizing. I don't see the proportion changing over time. Sachin Shah: Okay, thank you everyone. I think we've hit our time of 12:30, which we promised to get you out by. So we appreciate you being here for the last couple of days. We know it's been a long couple of days. Thank you again for your continued support and we're around for questions if anybody has any afterwards.