TD's takeOn September 30 during trading hours, ARR announced that the Great Bay Renewables (GBR) JV has closed a US$52.5 million royalty financing with Northleaf Capital Partners related to three operating renewable power facilities. The three facilities total 216 MW of generating capacity and are located in Texas. ARR also announced that a new 2.5% developer royalty has been created in favour of GBR on a 500 MW wind project under development in Texas.
Impact: POSITIVE
This is GBR's second direct royalty investment into operating assets, pointing to a widening opportunity set. This investment is expected to provide GBR with $4 million-$7 million per year of revenue over the first 10 years of its investment. ARR's partner Apollo has now completed its earn-in and holds a 50% stake in GBR; ARR and Apollo are expected to fund future opportunities on an equal basis. Great Bay now has royalties on 15 renewable energy projects totalling 3.2 GW (detailed in Exhibit 1).
Investments in operating assets have allowed GBR to drive near-term revenue growth. We anticipate that GBR will be receiving royalties from six operating facilities as of January. Management anticipates that Great Bay will generate $6.7 million of revenue (50% attributable to ARR) in 2022. GBR's royalty pipeline from development partners continues to grow; we anticipate that construction of the 500 MW royalty announced yesterday will begin in H1/22.
We reiterate our SPECULATIVE BUY recommendation and C$15.50 target price. We have updated our estimates and capital-deployment assumptions to reflect this transaction.
TD Investment Conclusion We view Great Bay's success in securing a second royalty investment in operating assets as further confirmation of a growing investment opportunity set for GBR's royalty financing offering. ARR's accelerating growth aspirations are well-timed with accelerating global themes of decarbonization and electrification, in our view. Our C $15.50 target price is based on a 1.5x NAV multiple applied to our C$10.18/share NAV for ARR. We believe that ARR's trading multiple should expand as it executes on its growth plan, and GBR is able to secure opportunities for the ~US$89 million of capital it will be able to access through ARR's available liquidity and Apollo's expected matching capital contribution.