Brookfield Renewable: M&A Pivots Back to Operating Assets With Large Portfolio Purchase

We expect to maintain our $32 (CAD 43) and $33 (CAD 44) fair value estimates for Brookfield Renewable BEP.UN and Brookfield Renewable Corp. BEPC, respectively, following the acquisition of a renewable portfolio from Duke Energy DUK. We view shares as fairly valued.

On June 12 Brookfield Renewable agreed to purchase a 3.4-gigawatt portfolio of operating wind, solar, and battery storage projects from Duke Energy. The purchase price is $1.1 billion in equity ($265 million net to Brookfield Renewable) with an additional $1.7 billion of assumed tax equity and project level debt. Brookfield Renewable indicated the acquisition would be 3% accretive to its 2024 funds from operations, with 90% of cash flows contracted for a remaining weighted average length of 13 years. In conjunction with the offering, Brookfield Renewable raised $650 million of equity in a bought deal and private placement.

We are not surprised with the purchase of a large operating portfolio of renewable assets given that Brookfield Renewable had indicated it recently saw more opportunities to acquire operating assets than in recent years. The financing choice was more surprising given that Brookfield Renewable has largely eschewed equity offerings—the last equity raise was in 2017—except for times when shares were trading at particularly robust valuation levels, which we don’t view to be the case today. We acknowledge the equity issuance was likely more driven by the company tracking well ahead of its investment targets than an opportunistic increase based on valuation. The transaction and financing do not change our Exemplary Morningstar Capital Allocation Rating given the company’s strong historical track record.