RE Royalties FY2024 Results: Navigating Transition to Growth

RE Royalties Ltd. (TSXV:RE) has reported its fiscal year 2024 results, marking a pivotal transition period for the renewable energy royalty specialist. While headline metrics like net loss widened due to non-cash adjustments, the company’s strategic moves—including new loans, asset acquisitions, and green bond issuances—position it for stronger performance in FY2025. Below is an in-depth analysis of the results and their implications for investors.

Key Financial and Operational Highlights

Revenue and Income Trends

• Total Revenue & Income: Declined 12% to CAD $8.6 million (vs. CAD $9.8 million in FY2023). The drop was driven by the absence of a one-time CAD $1.6 million gain on a royalty buyout in the prior year.
• Royalty Revenue: Rose 79% to CAD $1.47 million, reflecting stronger performance from existing projects like the NOMAD solar farm.
• Adjusted EBITDA: Fell 22% to CAD $4.45 million, but this included non-recurring costs like a CAD $4.8 million loss from transitioning loans into owned subsidiaries (SPOBOC/SPOSOC).

Net Loss Surge Explained

The CAD $9.27 million net loss (up 412% from FY2023) was primarily due to:- Non-cash provisions: CAD $4.1 million for potential credit losses on delayed loans (e.g., OCEP, Delta, and Cleanlight).- Loan derecognition: A CAD $4.8 million write-down from converting loans to equity in SPOBOC/SPOSOC.

Balance Sheet Strength

• Cash Reserves: Increased 15% to CAD $16.55 million, bolstered by CAD $6.2 million from Series 4 Green Bonds.
• Debt Management: Interest payments rose 13% due to new bond issuances, but the company’s focus on non-dilutive financing (royalties vs. equity) maintains capital discipline.

Growth Catalysts for FY2025

New Investments and Royalties

• Revolve Renewable Power Corp. Wind Loan: A CAD $8 million secured loan for a 9.6 MW U.S. wind project (closing Q2 2025). The 5% royalty on gross revenues and 12% interest rate could add CAD $0.96 million in annualized income.
• SPOBOC/SPOSOC Subsidiaries: The acquired battery storage and solar assets are projected to contribute CAD $1.4–1.5 million in energy revenue and CAD $1.1–1.2 million in net cash flow in FY2025.
• Maldives Solar Loan: The first CAD $1.1 million tranche of a CAD $10 million loan to Abraxas Power Corp. will generate a 2% royalty on PPA revenues starting in FY2025.

Risk Mitigation Progress

• Credit Provisions: Management expects reversals of CAD $2.2 million in provisions (OCEP and Delta loans) by mid-2025, potentially improving net income.
• PPA Stability: 88% of projects are backed by long-term PPAs averaging 22 years remaining, reducing revenue volatility.

Risks and Challenges

• Client Refinancing Delays: Provisions for Cleanlight (CAD $1.9 million) remain unresolved, though discussions are ongoing.
• Foreign Exchange Risk: USD-denominated loans (e.g., Revolve) expose the company to currency fluctuations.
• Execution Risks: Delays in closing the Revolve loan or resolving refinancing issues could defer revenue recognition.

Conclusion: Positioning for FY2025 Growth

RE Royalties’ FY2024 results reflect a strategic transition rather than a failure of its business model. While the net loss widened due to one-time charges, the company’s actions—such as acquiring SPOBOC/SPOSOC and securing new loans—lay the groundwork for FY2025 growth. Key positives include:

• Revenue Drivers: The Revolve wind project and SPOBOC/SPOSOC subsidiaries alone could add CAD $2.6–3.0 million in FY2025 revenue, offsetting prior-year anomalies.
• Cash Flow Stability: A 15% rise in cash reserves to CAD $16.55 million and a 314% three-year revenue growth (per Globe and Mail rankings) underscore operational resilience.
• Dividend Consistency: The CAD $0.01 per share dividend (25th consecutive quarter) signals confidence in cash flow generation, even during transition periods.

Investors should monitor two key metrics in the coming quarters:1. Provision Reversals: If OCEP and Delta provisions are cleared, net income could rebound sharply.2. Loan Closures: Timely execution of the Revolve wind loan and Maldives solar projects will determine revenue upside.

RE Royalties remains a compelling play on renewable energy’s long-term growth, particularly for income-focused investors. While risks persist, its focus on royalty-based financing and high-quality PPAs positions it to capitalize on the global shift to clean energy. The company’s FY2025 outlook, though still evolving, suggests a strong foundation for sustainable returns.

Data sources: RE Royalties FY2024 press release, TSX filings, and company statements.