Welcome, everyone, to the RE Royalties fourth quarter 2024 conference call. Joining us today are Bernard Tan, CEO, and.
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As all company executives will participate in the Q&A session after the management's formal remarks. As usual, before we get into opening remarks by management, I would like to remind our listeners that our comments and answers to your questions will contain forward-looking information. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. For further information on these risks and uncertainties, I encourage you to read the cautionary notes that accompany our annual MD&A and the related news release, as well as the risk factors particular to our company. I would also like to point out that we will use various non-GAAP measures during the call. You can find explanations and reconciliations regarding these measures in the related news release. Following opening remarks, we will address some questions that may come in.
If you would like to submit a question, please use the Q&A function in Team. If we do not get to your question today, please email us at teaminvestor@reroyalties.com, and we'd be happy to follow up with an answer. Now, I'd like to turn it over to CEO . Please go ahead.
Thanks, Anisha. Thank you, and good afternoon, ladies and gentlemen. Thank you for joining us today, and welcome to the RE Royalties 2024 year-end results conference call. 2024 was a transitionary year for the company as we became asset operators by adding several new operating battery and solar assets to the company's portfolio, in addition to several new loan and royalty investments from returning clients. These assets provide a strong, stable, and recurring cash flow stream to support our objective of creating long-term cash flows for our investors. Joining me today is our CFO, Luqman Khan. Our Chief Operating Officer, Peter Leighton, is currently traveling and will not be able to join us today. I will highlight some of the key investments made during the year, and Luqman will then provide a summary of our financial results for the year.
I will then provide an update on our deal flow and expectations for fiscal 2025. We will then wrap up with some questions received by email. During 2024, we announced five new investments: two with new clients and three with existing clients, for a total investment of CAD 16.1 million. In January of 2024, the company provided a CAD 1.7 million secured loan to Clean Communities Corporation, an Alberta-based indigenous-led clean energy company, in order to support the construction of a 4-MW project in Cardston, Alberta. The company will receive a gross revenue royalty of 5% on the project once it reaches commercial operations. Clean Communities has substantially completed construction of this project and is expected to generate electricity in the coming months. In February of 2024, the company closed a CAD 4 million loan and royalty agreement with Revolve Renewable Power.
In order to support Revolve's acquisition of a portfolio of two operational run- of- river hydro projects in British Columbia and one operational wind project in Alberta, with a combined gross capacity of 23 MW. This loan was repaid early by Revolve two years ahead of schedule in February of 2025. The company now holds a gross revenue royalty of 1% on these two hydro and one wind project for the remaining life of the power purchase agreement, estimated between 11-35 years. In November of last year, the company entered into an agreement with a wholly owned subsidiary of Abraxas Power, an Ontario-based energy transition company, to provide up to CAD 10 million secured loan to support the construction of a number of solar projects in the Maldives.
The first tranche of CAD 1.1 million was advanced for the construction of two rooftop solar projects with a combined generation capacity of 0.77 MW DC. The projects are located at a hospital in Malé, the capital of the Maldives, and also on an island resort approximately 50 km north of Malé. The company receives a gross revenue royalty of 2% of the projects for the term of the power purchase agreement. Abraxas has substantially completed the construction of these first two projects and expects them to reach operational status in the next few months. The company also provided a CAD 3 million secured loan to a wholly owned subsidiary of Solar Bank Corporation, an independent renewable energy project developer and owner focusing on distributed and community solar projects in Canada and the U.S. to support the construction of three 5-MW battery energy storage systems located in Ontario, Canada.
These battery projects have long-term contracts with the Ontario Independent Electricity Service Operator. The company also received a 0.4% royalty on the gross revenue generated for the life of the battery systems, estimated at 20 years. Solar Bank has completed its financial close on these projects, and they are currently in construction for these projects. In December of 2024, the company also provided a CAD 6.3 million letter of credit facility on behalf of Alpine Solar SA, a renewable energy company focused on the development, construction, and operation of solar power plants globally, in order for Alpine to meet their security requirements with the Alberta Electricity System Operator for their 200-MW Sol Aurora project located in Sturgeon County, Alberta. The Alpine loan carries an annual interest rate of 13% with an initial term of 12 months.
The company also receives a gross revenue royalty equivalent to CAD 0.25 per megawatt of energy produced from the Sol Aurora project for the life of the project. In November of last year, the company also took full ownership of Switch Power Battery Operating Company, or SPOBOC, and also Switch Power Solar Operating Company, SPOSOC. Under the terms of the settlement with Switch, the company will retain the shares of SPOBOC and SPOSOC in full and final satisfaction of its outstanding debts. The company now owns and operates nine operating battery storage projects totaling 5.3 MW or 12.3 MWh and a single 428-kW DC rooftop solar project in Ontario, Canada. Management expects that SPOBOC will generate roughly CAD 1.4-CAD 1.5 million in energy revenues for the upcoming fiscal year and net cash flows of approximately CAD 1.1-CAD 1.2 million for fiscal 2025.
SPOBOC has nine energy services contracts with clients with remaining terms ranging from 3.8-9.4 years, with options to extend for an additional five-year term. For SPOSOC, management expects SPOSOC will generate roughly about CAD 230,000 in energy revenues and net cash flows of CAD 190,000 for the current fiscal year. As of the end of December 2024, we have 106 royalties under contract and nine batteries and a solar project that generates solar and wind energy, and projects that also convert waste to energy, storage projects, and energy efficiency projects. Cumulatively, these represent approximately 643 MW of clean energy capacity and generate roughly 1 million MWh of clean energy every year. This is enough to power approximately 194,000 homes, offsetting approximately 658,000 tons of CO2 emissions annually. I will now pass it over to Luqman to discuss the financial results.
Thank you, Bernard. The company recorded total revenue and income of CAD 8.6 million in fiscal year 2024. That represents a decrease of CAD 1.2 million, or 12%, from the prior year. This decrease was due to a one-time gain of CAD 1.6 million from a royalty buyout recorded in the prior year. No such gain was recorded in the current year. In the current year, the company's royalty revenue increased by 79%, mainly due to revenue recorded from Nomad Royalty, which varies with the timing of underlying sales of units by Nomad. Gross profit, including changes in fair value of financial assets for fiscal year 2024, was CAD 7.65 million, representing a decrease of CAD 1.7 million, or 20%, from the prior year.
Adjusted EBITDA, as presented in the company's MD&A as a non-GAAP measure for fiscal year 2024, was CAD 4.4 million, which represents a decrease of CAD 1.2 million, or 22%, from the prior year. This decrease, as mentioned before, was mainly due to the one-time gain from a royalty buyout in the prior year. The company recorded CAD 9.3 million in net loss after income tax for fiscal year 2024, which net loss represents an increase when compared to the prior year. This was primarily due to a non-cash, non-recurring adjustment of CAD 4.8 million for the derecognition of the SPOBOC loan upon its settlement in November 2024, when the company acquired this operating entity. The cash and cash equivalents balance at December 31st, 2024, was CAD 16.5 million. With that, I will now pass it back to Bernard.
Luqman, in April of this year, we also signed a letter of intent to provide Revolve, an existing client, with a U.S. dollar denominated, a U.S. equivalent of CAD 8 million secured loan to support Revolve's proposed acquisition of a 95% interest in a 9.6-MW operating wind project in the United States. The loan will have a term of 24 months and bear interest rate at 12% annually on drawn funds, with interest payable on a quarterly basis throughout the term. The company will also receive a royalty of 5% on gross revenues generated by this wind project for its remaining life. The wind project consists of six 1.6-MW wind turbines generating revenue through a power purchase agreement with a regional utility.
The closing of this transaction is expected to occur in the second quarter or current quarter of fiscal 2025 and will allow us, as a company, to be substantially fully invested. This investment represents one of our largest single investments and will add roughly about CAD 1.4-CAD 1.5 million in additional revenues, EBITDA, and cash flow to our existing base. This investment is subject to several customary closing conditions, including the completion of the proposed acquisition by Revolve. We continue to see a substantial amount of new high-quality investment opportunities from both existing and also new clients to add to our project pipeline and backlog. Our team is currently undertaking detailed due diligence on several of these opportunities and are still subject to completion of definitive documents, conditions, precedents for each transaction, and also approval by our company's board of directors.
There is no assurance that any of these opportunities under evaluation will result in a completed transaction. With that, I would like to thank everyone for the time they took to join us on the call today. This concludes the formal part of the conference call, and we will now turn it over to Anisha for questions.
Great. Thank you, Bernard. Looks like we have a couple of questions. The first one being, can you please explain how the estimates under IFRS 3 affected the loss on the recognition of the SPOBOC loan?
Sure. Thanks, Anisha. In terms of the IFRS 3's impact on our P&L, just to provide sort of listeners just sort of a very high-level overview, IFRS 3, which is the business combination, requires us to fair value the assets and liabilities of an acquired company. During the year, we acquired SPOBOC and SPOSOC as part of the settlement of the Switch loans. Fair value can take a very different sort of forms and approaches, and these assets are also quite unique. In conjunction and working with our auditors, we decided that the most conservative approach was really to take a historical perspective approach, meaning looking at cash flows from previous years.
As most of our sort of investors know, because of the nature of SPOBOC, this is a sort of a first year of operations and the startup nature of it, the cash flows in the prior year were definitely much lower than what it would be going forward. Because of that sort of conservative approach, the acquisition value when calculated using sort of that historical cash flow approach resulted in a much lower carrying value compared with the carrying value of the loans. The adjustments really were booked as sort of the main difference, which flowed through the P&L. These adjustments are primarily for IFRS presentation purposes and also reporting and do not necessarily reflect the company's view on what these assets are actually worth.
In fact, management feels that once these battery assets have had a longer operating track record, the value which we're able to sell should we choose to do so would be much higher than what is currently stated. As sort of mentioned in the earnings call, on sort of a forward-looking basis, we do expect these assets to generate roughly in the CAD 1.4 million-CAD 1.5 million in energy revenues and roughly about CAD 1.1 million in free cash flows.
Can you provide your outlook on the recovery of the OCEP and Delta loans?
Okay. Thanks for that question as well. Maybe I'll touch with first. We do expect full recovery of the OCEP loan, and it is anticipated that it will likely everything would be fully repaid by September of 2026. The original agreement that we had OCEP anticipated two different repayment paths. One was based on a refinancing that was supposed to occur earlier in the year, and two from, I would call it, an amortized position whereby internally generated cash flows from OCEP's operation would be used to repay back the outstanding principal and interest. As a quick note, OCEP did repay a material portion of the loan last year and paid it down. The exposure is actually much lower than the original investment.
The initial accounting that we utilized on the refi option, and as such, when it became obvious that OCEP would actually move towards the internally generated cash flow repayment option, we had to adjust the discount factor of the loan in order to reflect the additional time that was required for OCEP to repay the loan. This calculation resulted in an adjustment, which is then reflected in the financial statements and then booked. This is purely an IFRS calculation, and we actually do not see any additional risk to this loan. In fact, the risk today for OCEP is actually much lower than when we first initially invested, mainly because OCEP is now operating and generating cash flows and creating a higher level of certainty towards ensuring that this loan is fully repaid.
One additional benefit for this delay in sort of the final repayment is also the coupon that OCEP has to pay does increase from 16%- 19%, along with a small bump in the royalty rates as well, which means future cash flows to the company without additional capital. In terms of Delta, as previously mentioned in the MD&A, Delta is currently undergoing an acquisition. We have been in regular communication with your management team relating to the proposed acquisition. This acquisition is actually quite beneficial in the sense that roughly the $1 million plus that we have invested in would see a full repayment of roughly about $3 million. We do remain very patient because this is a very attractive outcome should Delta be able to complete it.
We remain patient as far as Delta's management team to work through this process of completing their acquisition. Delta's management team has indicated to us that they do expect this transaction to be completed sometime this year, and we are closely monitoring and communicating with them.
Great. Thank you, Bernard. The next question is, could you provide some color and insight on your plan for the Series 1 Green Bond?
Sure. In terms of the Series 1 Green Bonds, part of the Series 1 Green Bonds will be maturing later this year, specifically in Q4. We currently do have the cash later in the year, mainly coming from maturing investments to fully repay the full amount of the Green Bonds. However, we have also started the outreach to the Series 1 Green Bond holders to get an indication of interest to see if they would like to re-up and reinvest those proceeds. If so, we would likely be anticipating an offering later in the year to re-up those bondholders.
Finally, how has the impact of tariffs and U.S. government policy on renewables affected the company?
This is a very, I guess, current. In terms of the tariffs and U.S. government policy, I would say it has been minimal to date, especially on our existing portfolio, as most of our U.S. geoflow focuses on operational assets. As previously mentioned in the call, currently we are targeting to complete a transaction with Revolve on an operating wind farm in the U.S. Once assets become operational, the impact of things like tariffs and policies becomes, I guess, less effective due to sort of changing sort of patterns in policy. However, we do continue to monitor this evolving landscape in the United States. Obviously, there are emerging risks, but it's also creating new opportunities because of these risks for us. Our entire team remains very cautious but also very optimistic that new opportunities will be created. For us, it's just a matter of working through these opportunities.
One of the things we do have noticed in the past few months is that there has been a slightly higher increase in terms of inbound opportunities from the U.S., which we are working through right now.
Great. Those are all the questions we have for today. In case we do not get to yours today, feel free to email us at investor@reroyalties.com. Thank you once again for joining the 2024 earnings call.
Thank you, everyone, for joining us on the call. We look to be providing you an update on Q1 in the next 30 days or so. Thank you.