Raising TERP ownership interest through Saeta Yield acquisition financing

Equity Morning Update

Written by Nitin Manohar
June 12, 2018

Brookfield Renewable (BEP) has increased its ownership position in TerraForm Power (TERP-US) to 30% from 15% following a private placement common equity issuance related to the Saeta Yield (SAY-Spain) acquisition. Brookfield sees the transaction being US$80m accretive to funds from operations (US$0.26 per share). That said, our FFO estimates increase US$0.04-US$0.07 per share, as they only include dividends received from TERP, rather than its proportionate share of FFO (plus other minor estimate revisions). We believe this better represents the cash available to BEP unitholders, given that TERP is equity accounted for, has significant debt amortizations, and is a separate public entity. In addition, we already had $0.02 of accretion in our estimates from when the acquisition was initially proposed earlier this year. Nevertheless, we see TERP and Saeta as a good long-term investment opportunity for BEP, though acquiring shares of a publicly-traded entity does not materially move our valuation. At recent levels, we believe BEP could be attractive to longer-term, income-oriented investors.

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