Key Statistics
- The royalty financing concept has been used in the mining, oil & gas, pharmaceuticals, and even entertainment industries. Interestingly, it is relatively new to the renewables sector. RE Royalties is one of the first movers to leverage this model and apply it to renewable energy.
- This model can provide higher returns for investors as it focuses on near-term, recurring cash flows and commercially proven technologies. In the past 12 months, RROYF has achieved an ~18% IRR.
- The company currently owns more than 100+ royalties. Almost all of them generate cash flow, where royalties come from solar, wind, energy storage, renewable natural gas, and energy efficiency. RROYF has deployed ~$60 million in investments, with ~$37 million in the past 15 months.
- Royalties come from long-term (20-30 years) contracts and are mostly revenue-based. These contracts are well diversified, with ~45% in Canada, ~45% in the US, ~5% in Europe, and 5% in Mexico, having about 12 clients.
- RROYF stands off from a typical small-cap company, having recorded revenue from its inception. Moreover, the company continues to pay dividends from its positive earnings.
- RROYF can grow multifold irrespective of the size of its team, as deal size can be any amount mutually agreed on in a project. Thus, overhead costs become a controllable expense.
- The deal size is typically between $1 million and $20 million, providing potentially higher returns due to the lack of competition in that segment. For larger deals, co-investors who like the model in the $100 million to $200 million range can be brought in.
- Our prior content on RROYF can be accessed here.
The Opportunities
RER is a company that has an innovative business model in a growing renewable sector and provides a strong dividend yield, opportunity for capital growth, and positive environmental impact. In its 2Q22 results, RER announced quarterly revenue and income of C$1.2 million, representing growth of 185% over the same period in the previous year. Its backlog of investment opportunities continues to grow, with more than C$40 million in deal flow that the RER team is currently reviewing. RER pays an annualized dividend of C$0.04 per share, which yields ~5% based on the current share price. Investors in RER will have the opportunity to own a portfolio of diverse renewable investments typically available for large private equity or infrastructure funds.
The Obstacles
RER is a small, publicly traded company with major growth aspirations. Its challenge will be whether it can secure reasonably priced capital to continue executing on its robust pipeline.
The royalty financing concept has been used in the mining, oil & gas, pharmaceuticals, and even entertainment industries. Interestingly, it is relatively new to the renewables sector. RE Royalties is one of the first movers to leverage this model and apply it to renewable energy.
Executive in Focus: Bernard Tan Co-founded RE Royalties and has served as Chief Executive Officer since 2016.
Shawn Severson: Today, we are talking with RE Royalties’ CEO, Bernard Tan. We will be discussing several topics providing a broad overview of the company.
Because this is our first Management Series, we should start with a background of the company and a general overview.
Bernard Tan: We formed this company about six years ago with my other two Co-Founders, Peter Leighton and Marchand Snyman. Essentially, we saw the opportunity to apply the royalty financing model to the renewable sector where it did not exist previously. A little bit of background on myself, I come from the resources industry and mining sector. And Peter comes from the renewable sector. So, it's this combination of expertise that allows us to do what we do. And we saw the opportunity to apply this model in the same way that some ...
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