Shareholders' Equity

12 Months Ended

Dec. 31, 2022

Shareholders’ Equity

Capital Structure

Following the completion of our IPO as discussed in Note 1–Organization and Purpose, we have two classes of voting shares: Class A ordinary shares and Class B ordinary shares, each of which has one vote per ordinary share. The Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of shareholders, except as otherwise required by applicable law. Our Class B ordinary shares are not publicly traded and holders of Class B ordinary shares only have limited rights to receive a distribution equal to their nominal value upon a liquidation, dissolution or winding up of the Company. As of December 31, 2022, we have 443,166 thousand Class A ordinary shares and 164,058 thousand Class B ordinary shares outstanding.

An exchange agreement entered into in connection with the IPO by us, RP Holdings, the Continuing Investors Partnerships, RPI International Partners 2019, LP and EPA Holdings (the “Exchange Agreement”) governs the exchange of RP Holdings Class B Interests held by the Continuing Investors Partnerships for Class A ordinary shares. Pursuant to the Exchange Agreement, RP Holdings Class B interests are exchangeable on a one-for-one basis for Class A ordinary shares on a quarterly basis. Each such exchange also results in the re-designation of the same number of our Class B ordinary shares as deferred shares. As of December 31, 2022, we have 371,325 thousand deferred shares outstanding.

In addition, we have in issue 50 thousand Class R redeemable shares, which do not entitle the holder to voting or dividend rights.The Class R redeemable shares may be redeemed at our option in the future. Any such redemption would be at the nominal value of £1 each.

Non-Controlling Interests

The changes in the balance of our four non-controlling interests for 2022, 2021 and 2020 are as follows (in thousands):


	RPSFT		Legacy Investors Partnerships		Continuing Investors Partnerships (1)		EPA Holdings		Total
December 31, 2019	$	35,883	$	—	$	—	$	—	$	35,883
Contributions	—		1,165,258		9,418		—		1,174,676
Transfer of interests	—		1,037,161		—		—		1,037,161
Distributions	(112,339)		(594,592)		(85,426)		—		(792,357)
Net income prior to IPO	42,151		102,892		—		—		145,043
Effect of exchange by Continuing Investors of Class B ordinary shares for Class A ordinary shares and reallocation of historical equity	—		(750)		2,433,848		—		2,433,098
Issuance of Class A ordinary shares sold in IPO, net of offering costs	—		—		758,354		—		758,354
Other exchanges	—		—		(309,566)		—		(309,566)
Net income subsequent to IPO	46,741		218,137		316,993		—		581,871
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities	—		15,015		7,488		—		22,503
Reclassification of unrealized gains on available for sale debt securities	—		(3,612)		(6,018)		—		(9,630)
December 31, 2020	$	12,436	$	1,939,509	$	3,125,091	$	—	$	5,077,036
Contributions	—		35,148		13,391		—		48,539
Distributions	(56,490)		(425,050)		(133,433)		—		(614,973)
Other exchanges	—		—		(642,974)		—		(642,974)
Net income	57,582		266,570		297,321		—		621,473
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities	—		2,038		3,227		—		5,265
Reclassification of unrealized gains on available for sale debt securities	—		(8,946)		(13,469)		—		(22,415)
December 31, 2021	$	13,528	$	1,809,269	$	2,649,154	$	—	$	4,471,951
Contributions	—		6,343		5,253		—		11,596
Distributions	(24,687)		(435,446)		(144,115)		—		(604,248)
Other exchanges	—		—		(157,494)		—		(157,494)
Net Income	10,562		152,895		23,775		—		187,232
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities	—		4,218		5,520		—		9,738
Reclassification of unrealized gains on available for sale debt securities	—		(9,392)		(12,160)		—		(21,552)
December 31, 2022	$	(597)	$	1,527,887	$	2,369,933	$	—	$	3,897,223

(1)Related to the Continuing Investors Partnerships’ ownership of approximately 27%, 29% and 36% in RP Holdings through their ownership of RP Holdings Class B Interests as of December 31, 2022, 2021 and 2020, respectively. Royalty Pharma plc owns the remaining and 73%, 71% and 64% of RP Holdings through its ownership of RP Holdings Class A Interests and RP Holdings Class B Interests as of December 31, 2022, 2021 and 2020, respectively.

RP Holdings Class C Special Interest Held by EPA Holdings

EPA Holdings, an affiliate of the Manager, is entitled to Equity Performance Awards (as defined below) through its RP Holdings Class C Special Interest based on our performance, as determined on a portfolio-by-portfolio basis. Investments made during each two-year period are grouped together as separate portfolios (each, a “Portfolio”). Subject to certain conditions, at the end of each fiscal quarter, EPA Holdings is entitled to a distribution from RP Holdings in respect of each Portfolio equal to 20% of the Net Economic Profit (defined as the aggregate cash receipts for all new portfolio investments in such Portfolio less Total Expenses (defined as interest expense, operating expense and recovery of acquisition cost in respect of such Portfolio)) for such Portfolio for the applicable measuring period (the “Equity Performance Awards”). The Equity Performance Awards will be allocated and paid by RP Holdings to EPA Holdings as the holder of the RP Holdings Class C Special Interest. The Equity Performance Awards will be payable in RP Holdings Class B Interests that will be exchanged upon issuance for Class A ordinary shares. EPA Holdings may also receive a periodic cash advance in respect of the RP Holdings Class C Special Interest to the extent necessary for EPA Holdings or any of its beneficial owners to pay when due any income tax imposed on it or them as a result of holding such RP Holdings Class C Special Interest. We do not expect any material Equity Performance Awards to be payable until certain performance conditions discussed above are met. Similarly, we do not expect any material income to be allocated to EPA Holdings until such performance conditions are met.

Dividends

The holders of Class A ordinary shares are entitled to receive dividends subject to approval by our board of directors. The holders of Class B ordinary shares do not have any rights to receive dividends; however, RP Holdings Class B Interests are entitled to dividends and distributions from RP Holdings. During 2022, we declared and paid four quarterly cash dividends of $0.19 per Class A ordinary share for an aggregate amount of $333.3 million to holders of our Class A ordinary shares.

2020 Independent Directors Equity Incentive Plan

On June 15, 2020, our 2020 Independent Director Equity Incentive Plan was approved and became effective, whereby 800 thousand Class A ordinary shares have been reserved for future issuance to our independent directors. As of December 31, 2022, approximately 565 thousand shares remain reserved for future issuance under the Equity Incentive Plan.

RSU Activity and Share-based Compensation

We grant RSUs to our independent directors under the 2020 Independent Director Equity Incentive Plan. Share-based compensation expense is recognized based on estimated fair value of the award on the grant date and amortized on a straight-line basis over the requisite service period of generally one year as part of General and administrative expenses in the consolidated statements of operations. In 2022, 2021 and 2020, respectively, we did not recognize material share-based compensation expense. As of December 31, 2022, the total unrecognized share-based compensation expense related to total outstanding RSUs was less than $1.0 million, which we expect to recognize in the next six months.