Diversified Royalty Corp. (TSX: DIV; DIV.DB) (the
“
Corporation” or “
DIV”) is
pleased to announce it has completed its previously announced
transaction with Mr. Mikes Restaurants Corporation and certain of
its affiliates (collectively, “
Mr. Mikes”) to add
a fourth royalty stream for DIV's portfolio. DIV acquired the
trademarks and certain other intellectual property rights utilized
by Mr. Mikes in its restaurant business (the “
Mr. Mikes
Marks”) for a purchase price (the “
Purchase
Price”) of approximately $43.2 million, including a
deferred amount of $4.95 million (the “
Deferred
Amount”), which is not payable for at least 12 months
following closing subject to certain conditions being met (the
“
Acquisition”).
Immediately following the closing of the
Acquisition, DIV licensed the Mr. Mikes Marks back to Mr. Mikes for
99 years, in exchange for an initial royalty payment of $3.9
million per annum (the “Royalty” and together with
the Acquisition, the “Transaction”). The Royalty
is based on 4.35% of sales of the 38 Mr. Mikes locations in the
royalty pool (“Royalty Pool”). The Royalty has
been structured to grow at a fixed rate of 2% per annum for the
first four years and thereafter will fluctuate based on the
same-store-sales growth (“SSSG”) of the Mr. Mikes
locations in the Royalty Pool.
The Deferred Amount will be payable on the later
of 12 months after closing of the Acquisition and the date Mr.
Mikes has opened the five locations earmarked to be opened in 2019,
subject to Mr. Mikes meeting the required royalty coverage test.
Once these five locations are open and Mr. Mikes has met the
required royalty coverage test, these locations will be added to
the Royalty Pool (with an incremental $0.5 million of royalty added
to the Royalty Pool) for no additional consideration (other than
the payment of the $4.95 million Deferred Amount).
For further details with respect to the
Transaction, see DIV’s news release dated May 16, 2019, a copy of
which is available under DIV’s profile at www.sedar.com.
About Diversified Royalty Corp.
DIV is a multi-royalty corporation, engaged in
the business of acquiring top-line royalties from well-managed
multi-location businesses and franchisors in North America. DIV’s
objective is to acquire predictable, growing royalty streams from a
diverse group of multi-location businesses and franchisors.
DIV currently owns the Sutton, Mr. Lube, AIR
MILES® and Mr. Mikes trademarks in Canada. Sutton is among the
leading residential real estate brokerage franchisor businesses in
Canada with over 200 offices across Canada. Mr. Lube is the leading
quick lube service business in Canada with 181 locations across
Canada and over $235 million of annual system sales. AIR MILES® is
Canada’s largest coalition loyalty program with over 200 leading
brand-name sponsors; approximately two-thirds of Canadian
households actively participate in the AIR MILES® Program. Mr.
Mikes operates 42 casual steakhouse restaurants primarily in
smaller western Canadian communities with over $85 million of
annual system sales.
DIV expects to increase cash flow per share by
making accretive royalty purchases and through the growth of
purchased royalties. DIV expects to pay a predictable and stable
dividend to shareholders and increase the dividend as cash flow per
share increases allow.
Forward Looking Statements
Certain statements contained in this news
release may constitute “forward-looking information" within the
meaning of applicable securities laws that involve known and
unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking information. The use
of any of the words “anticipate”, “continue”, “estimate”, “expect”,
“intend”, “may”, “will”, ”project”, “should”, “believe”,
“confident”, “plan” and “intends” and similar expressions are
intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words.
Specifically, forward-looking information in this news release
includes, but are not limited to, statements made in relation to:
the Deferred Amount related to the addition of five further
locations to the Royalty Pool; the expectation that five new Mr.
Mikes franchised locations will be opened in 2019; DIV’s corporate
objectives; and DIV’s expectation that it will pay a predictable
and stable dividend to shareholders and increase the dividend as
cash flow per share increases allow. These statements involve known
and unknown risks, uncertainties and other factors that may cause
actual results or events, performance, or achievements of DIV to
differ materially from those anticipated or implied in such
forward-looking statements. DIV believes that the expectations
reflected in these forward-looking statements are reasonable but no
assurance can be given that these expectations will prove to be
correct. In particular there can be no assurance that: Mr. Mikes
will meet its business objectives, including its objectives with
respect to the future growth in the number of franchised locations;
Mr. Mikes will not be adversely affected by the other risks facing
its business; DIV will be able to achieve any of its corporate
objectives or make monthly dividend payments to the holders of its
common shares. Given these uncertainties, readers are cautioned
that forward-looking information included in this news release are
not guarantees of future performance, and such forward-looking
information should not be unduly relied upon. More information
about the risks and uncertainties affecting DIV’s business and the
businesses of its royalty partners can be found in the “Risk
Factors” section of its Annual Information Form dated March 11,
2019, which is available under DIV’s profile on SEDAR at
www.sedar.com.
In formulating the forward-looking statements
contained herein, management has assumed that, among other things,
Mr. Mikes will be successful in meeting its stated corporate
objectives, including its growth targets for franchised locations,
DIV will obtain the expected benefits of the Transaction, Mr.
Mikes’ business will not suffer any material adverse effect, and
the business and economic conditions affecting DIV and Mr. Mikes
will continue substantially in the ordinary course, including
without limitation with respect to general industry conditions,
general levels of economic activity and regulations. These
assumptions, although considered reasonable by management at the
time of preparation, may prove to be incorrect.
All of the forward-looking information disclosed
in this news release is qualified by these cautionary statements
and other cautionary statements or factors contained herein, and
there can be no assurance that the actual results or developments
contemplated thereby will be realized or, even if substantially
realized, that they will have the expected consequences to, or
effects on, DIV contemplated by such forward-looking information
contained herein. The forward-looking information included in this
news release is made as of the date of this news release and DIV
assumes no obligation to publicly update or revise such information
to reflect new events or circumstances, except as may be required
by applicable law.
Non-IFRS Measures
This news release makes reference to certain
non-IFRS financial measures. These non-IFRS financial measures are
not recognized measures under IFRS, do not have a standardized
meaning prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other issuers, and
should not be construed as an alternative to other financial
measures determined in accordance with IFRS. Rather, these
financial measures are provided as additional information to
complement IFRS financial measures by providing further
understanding of Mr. Mikes’ financial performance from management’s
perspective. Accordingly, non-IFRS financial measures should never
be considered in isolation nor as a substitute to using net income
as a measure of profitability or as an alternative to the IFRS
consolidated statements of income or other IFRS financial measures.
Management presents the non-IFRS measure, “Same Store Sales Growth”
or “SSSG” in this news release.
“Same Store Sales Growth” or “SSSG” is
calculated as the percentage increase in store sales over the prior
comparable period for Mr. Mikes locations that were open for at
least 24 months in both the current and prior periods, excluding
stores that were permanently closed. Same store sales growth is a
non-IFRS financial measure and does not have a standardized meaning
prescribed by IFRS. However, the Corporation believes that SSSG is
a useful measure as it provides investors with an indication of the
change in year-over-year sales of Mr. Mikes locations. The
Corporation’s method of calculating same store sales growth may
differ from those of other issuers or companies and, accordingly,
same store sales growth may not be comparable to similar measures
used by other issuers or companies.
THE TORONTO STOCK EXCHANGE HAS NOT
REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR THE
ACCURACY OF THIS RELEASE.
Additional Information
Additional information relating to the
Corporation and other public filings, is available on SEDAR at
www.sedar.com.
Contact:Sean Morrison, President and Chief
Executive Officer Diversified Royalty Corp.(604) 235-3146
Greg Gutmanis, Chief Financial Officer and VP
AcquisitionsDiversified Royalty Corp.(604) 235-3146
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