RE Royalties Ltd.

The company reported C$1.8 million in income and revenue in Q1 2023, up 225% versus Q1 of the prior year. EBITDA was C$1.3 million, and management said this was the company’s highest net income so far. Total assets increased by approximately C$14 million, or 33%, during the quarter, and the loan and royalty portfolio increased by approximately $3 million. Guidance-wise, management did not provide formal next-quarter or full-year financial guidance, but said the new Series-3 Green Bonds should provide runway for targeted investments already under term sheet and due diligence, and that royalty income should begin to rise as 2022 projects come online.

Bernard Tan framed the quarter as another period of “great progress” and emphasized growth in revenue, income, cash flow, and EBITDA. Strategically, he highlighted the Series-3 Green Bond raise, the additional capital runway it provides, and the company’s focus on projects that are already operating or near operation so it can prioritize near-term cash flow. He also said higher rates and banking disruptions have not materially hurt the business and may be creating more deal flow.

Luqman Khan said total assets rose by about C$14 million in Q1, driven mainly by Green Bond proceeds and repayments of certain convertible notes. He noted that the company’s loan and royalty portfolio increased by about $3 million, while equity also rose due to net income. On cash flow, he said operating cash changes were mainly working-capital related, including a reserve held with the trustee for six months of Green Bond interest, and that investing cash was used for new loans while financing cash reflected bond proceeds, note prepayments, shareholder distributions, and interest payments. He also pointed out that compensation warrants tied to the Green Bond offering were recorded in equity at fair value.

Analysts asked about the derecognition loss on the OCEP investment and the credit loss on the FuseForward facility; management said both were year-end accounting items, not Q1 cash issues. Luqman explained the OCEP loss came from an IFRS control change after an amendment, with no change in project economics, and said the FuseForward issue was caused by delayed payments tied to a working-capital squeeze after an acquisition, with resolution expected in coming quarters. On the flat royalty revenue question, Bernard said many newer investments were still under construction in the last 12 months and should start contributing more royalty income as they come online. Management also said the bank stress in the U.S. had not materially affected them, but it has increased deal flow, and they said higher rates have been partially passed through to clients. Peter added that the Inflation Reduction Act is accelerating project activity in the U.S. and Canada.