Brookfield Renewable Partners Spinoff of Corporate Shares

Brookfield Renewable Partners Spinoff of Corporate Shares

When I checked my portfolio recently, I discovered 195 BEPC shares along with my original 780 BEP.UN units. Where did these new BEPC shares come from?

On July 30, Brookfield Renewable Partners LP (BEP.UN) completed a special distribution – or unit split – in which investors received one share of a new company, Brookfield Renewable Corp. (BEPC), for every four BEP.UN units held.

The purpose of the unit split – similar to one completed in March by Brookfield Infrastructure Partners LP (BIP.UN) – is to increase demand from retail and institutional investors who are unable or unwilling, for tax or other reasons, to hold limited partnership units. The BEPC shares give investors, including exchange-traded funds, a way to access Brookfield Renewable’s global portfolio of hydro, wind and solar facilities through a traditional corporate structure.

Will the BEPC shares pay a dividend?

Yes. BEPC shares and BEP.UN units will pay the same quarterly dividend/distribution of 43.4 US cents, with the next payment scheduled for Sept. 30. The key difference is that BEPC’s quarterly payments will consist entirely of eligible dividends that qualify for the Canadian dividend tax credit (DTC), whereas BEP.UN’s distributions have typically included a mix of eligible dividends, foreign income and return of capital. This makes BEPC’s new shares attractive for non-registered accounts, where the DTC reduces tax payable.

Will my BEP.UN units pay the same distribution as before or is the payout reduced?

To reflect the unit split, BIP.UN’s payout is being reduced by 20 per cent. However, including dividends from your BEPC shares, you will receive the same pretax quarterly income, in aggregate.

What is the adjusted cost base (ACB) of the BEPC shares? And what happens to the cost base of my BEP.UN units?

If you hold BEPC or BEP.UN in a registered account, the ACB of your investment is irrelevant. However, if you’re investing in a non-registered account, you’ll need to know the ACB of your BEPC shares and BEP.UN units in order to calculate your capital gain or loss when you eventually sell. According to information provided by Brookfield Renewable, the ACB per share of the BEPC shares is $58.28, as determined by the volume-weighted average price of BEPC on its first five trading days on the Toronto Stock Exchange. To calculate the new ACB per unit of your BEP.UN units, subtract the total cost base of your BEPC shares – and any cash received in lieu of a partial share – from the total cost base of your BEP.UN units before the split, then divide by the number of BEP.UN units you hold.

The BEPC shares are “exchangeable.” What does that mean?

BEPC shares are exchangeable on a one-for-one basis for BEP.UN units, but I don’t recommend it. BEPC shares are trading at an 8.3-per-cent premium to BEP.UN units – the shares and units closed at $62.28 and $57.50, respectively, on Friday – so you would be throwing money away by making such a swap now. Unfortunately, the exchange option only goes one way: You can’t exchange your BEP.UN units for BEPC shares. There is nothing to stop you from selling BEP.UN and buying BEPC, or vice versa, but be mindful of any capital gains tax that would apply.

Which is better, BEPC or BEP.UN?

If you are investing primarily for income – and doing so in a registered account where the dividend tax credit is moot – BEP.UN might look more appealing, as it is yielding about 4 per cent compared with BEPC’s yield of about 3.7 per cent. However, it’s possible that BEPC could widen its price premium over BEP.UN, in which case BEPC might be the better pick because of its potential for greater capital gains. Note that when Brookfield Infrastructure completed its split, BIPC shares initially traded in a tight range with BIP.UN. But BIPC shares soon began to pull away; they now trade at a 13.5-per-cent premium to BIP.UN. Evidently, there has been strong investor demand for the corporate shares.

Regardless of which vehicle you choose, I expect that you will be rewarded over the long run with capital growth and rising income. Brookfield Renewable has a deep pipeline of growth projects, a track record of successful mergers and acquisitions and the backing of parent Brookfield Asset Management (BAM.A). Brookfield Renewable is aiming to raise its dividend/distribution at an annual rate of 5 per cent to 9 per cent, so whether you choose shares or units, your income will almost certainly grow for many years to come.

John Heniz, The Globe and Mail