RE Royalties: The Speedboat Among Financiers

An opinion piece by Tarik Dede (Apaton Finance GmbH).

RE Royalties stock offers a bit more excitement. The Canadian company has a fundamentally similar and equally established business model in the renewable energy sector. Since its founding in 2016, more than CAD 80 million has been invested in a diversified portfolio comprising over 27 transactions and approximately 135 individual projects. The internal rate of return on these investments has been over 19% since the company's inception. About 41% of the current pipeline comes from existing customers, underscoring the company's reliability. Here, too, the focus is on building a diversified portfolio that generates stable, recurring, and long-term cash flows. In addition to solar and wind farms, battery storage, renewable natural gas, and hydropower, the portfolio also includes energy-efficiency infrastructure projects.

In doing so, RE Royalties relies primarily on two financing structures. On one hand, long-term royalties are acquired in exchange for capital, promising a share of revenue over 20 to 25 years. On the other hand, this approach is combined with short-term bridge loans of 1 to 3 years for the partners, resulting in an additional source of income. The success of this approach speaks for itself. Revenue growth averaged approximately 60% per year over the past five years. RE Royalties benefits from its niche: Since major banks and lenders are primarily interested in very large financing deals in the hundreds of millions, the company steps in to fill the financing gap for smaller projects (CAD 10 to 20 million). And quite quickly at that: as COO Peter Leighton stated at the International Investment Forum (IIF) (see video), capital can in some cases be made available within just a few weeks. In that sense, if Brookfield is the tanker in project financing, then RE Royalties is the speedboat.

Watch Peter Leighton, COO present at the IIF here: https://www.youtube.com/watch?v=5dQvcZkFR7E

Read the full article here.