RE Royalties and the Strategic Review

An opinion piece by Armin Schulz (Apaton Finance GmbH).

The Canadians are going on the offensive. After 10 years in the business of royalty financing for renewable energy projects, the management team led by CEO Bernard Tan has initiated a strategic review. Everything that could increase shareholder value is being examined, from co-investments to capital structure optimization to a potential sale of the company; all options are on the table. This is not a sign of weakness, but of maturity. A company that has proven its model and now has a pipeline of approximately CAD 20 million in signed letters of intent, as well as inquiries totalling over CAD 200 million currently under review, is justified in considering its next strategic move.

The foundation remains solid. Just this past January, RE Royalties secured a royalty stake in 25 US solar projects from Solaris Energy with terms of 25 years or more. The model is simple. Project developers receive non-dilutive capital, and RE Royalties participates in the plants' revenue. The key advantage is that the revenues are inflation-resistant and largely independent of electricity price fluctuations, as they are based on kilowatt-hours produced. With over 100 royalty agreements across North and South America and Asia, the company has built a remarkably diversified portfolio.

In parallel with the review, management has adjusted the dividend policy. Instead of quarterly payments, dividends will be distributed once a year going forward. At first glance, this may seem like less, but it is a clever move. It provides more financial flexibility to capitalize on the promising opportunities in the pipeline. The repayment of the green bonds, which was largely completed at the end of last year, also lightens the balance sheet. Anyone looking for sustainable cash flows from renewable energy should keep an eye on this under-the-radar candidate, especially as the strategic review begins to bear fruit. The stock is currently trading at CAD 0.38.

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