Diversified Royalty Corp. (TSX: DIV and DIV.DB) (the
“Corporation” or “DIV”) is pleased to announce its financial
results for the three months ended June 30, 2019 (“Q2 2019”) and
six months ended June 30, 2019.
Highlights
- Acquired the trademarks and certain
related other intellectual property rights (the “MRM Rights”)
utilized by Mr. Mikes Restaurants Corporation (“Mr. Mikes”) in
their restaurant business on May 20, 2019.
- Mr. Lube Canada Limited Partnership
(“Mr. Lube”) added four new stores to the Mr. Lube royalty pool,
which increased from 118 to 122 locations on May 1, 2019.
- Revenues of $7.5 million for Q2
2019 compared to $6.8 million in Q2 2018, 11.3% increase.
Second Quarter Results
In Q2 2019, DIV generated $7.5 million of
royalty revenue and management fees compared to $6.8 million in the
three months ended June 30, 2018 (“Q2 2018”). Revenues of $4.1
million were generated from Mr. Lube, $1.0 million from Sutton
Group Realty Services Ltd. (“Sutton”), $2.0 million from the AIR
MILES® licenses and $0.5 million from Mr. Mikes.
For the six months ended June 30, 2019, DIV
generated $14.0 million of royalty revenue and management fees
compared to $12.8 million in the six months ended June 30, 2018.
Revenues of $7.8 million were generated from Mr. Lube, $2.0 million
from Sutton, $3.7 million from the AIR MILES® licenses and $0.5
million from Mr. Mikes.
The growth in revenues for the three and six
months ended June 30, 2019 compared to the same periods in 2018 was
primarily driven by incremental revenues generated from the
licensing of the recently acquired MRM Rights to Mr. Mikes, the
addition of four locations to the Mr. Lube royalty pool on May 1,
2019, the increase in the Mr. Lube royalty rate and the net
addition of one store to the Mr. Lube royalty pool on May 1, 2018,
positive same-store-sales growth (“SSSG”) at Mr. Lube for the
locations in the Mr. Lube royalty pool and the annual contractual
2% increase in the Sutton royalty rate.
SSSG for the Mr. Lube stores in the royalty pool
was 4.2% in Q2 2019 and 4.3% for the six months ended June 30,
2019. Sutton’s fixed royalty increases at a contractual rate of 2%
per year, which effectively represents 2% SSSG. According to
Alliance Data Systems Inc.’s (“ADS”) news release dated July 18,
2019, the number of AIR MILES® reward miles issued decreased by 2%
for the three months and was flat for the six months ended June 30,
2019. ADS also disclosed that AIR MILES® reward miles redeemed
decreased by 2% for the three months and 5% for the six months
ended June 30, 2019.
Second Quarter Commentary
Sean Morrison, President and Chief Executive
Officer of DIV stated, “We continue to see strong results from Mr.
Lube this quarter and Sutton’s royalty continues to grow at 2% each
year, while AIR MILES royalties were flat. The addition of
Mr. Mikes to our portfolio improves the diversification of DIV’s
royalty streams. With over $46 million on cash on hand, we are
actively pursuing opportunities to acquire trademarks and royalties
from a diverse group of high-quality businesses.”
Distributable Cash
In Q2 2019, distributable cash was $5.5 million
($0.0505 per share), an increase of $0.2 million ($0.0017 per
share) compared to Q2 2018. For the six months ended June 30, 2019,
distributable cash was $10.3 million ($0.0952 per share), an
increase of $0.5 million ($0.0037 per share) compared to the six
months ended June 30, 2018. The increase was primarily due to the
growth in revenues and was partially offset by higher interest
expense related to the $7.0 million increase to ML Royalties
Limited Partnership’s term loan facility on May 1, 2018 and current
tax expense of $0.2 million.
Dividends declared exceeded distributable cash
by $0.5 million for the three months and $1.7 million for the six
months ended June 30, 2019. This resulted in a payout ratio of
110.0% for the three months and $116.9% for the six months ended
June 30, 2019. The Corporation has a dividend reinvestment plan
that allows the dividends to be settled through a reinvestment in
the Corporation’s shares at the election of the shareholder. On a
cash basis, the payout ratio was 84.4% for the three months and
94.8% for the six months ended June 30, 2019. As a result, there
was no cash shortfall in making dividend payments for the three and
six months ended June 30, 2019.
The Corporation intends to use its $46 million
cash balance to fund future royalty acquisitions, with the
intention of achieving a payout ratio that approximates 100% over
time. The Corporation expects the payout ratio to remain over 100%
until such time as further royalty acquisitions are completed and
excess cash has been deployed.
Net Income
Net income for Q2 2019 was $3.4 million,
compared to net income of $3.0 million in Q2 2018. The increase in
net income for Q2 2019 was primarily due to the growth in revenues,
partially offset by higher interest expense and income tax expense.
In addition, Q2 2018 results included non-recurring litigation
expenses.
Net income for the six months ended June 30,
2019 was $5.9 million compared to net income of $5.7 million for
the six months ended June 30, 2019. The increase in net income was
driven by the growth in revenues, partially offset by higher
interest expense and the fair value adjustment on financial
instruments. In addition, the results for the six months ended June
30, 2018 included non-recurring litigation expenses.
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 43 casual steakhouse restaurants primarily in
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 information, although not all
forward-looking information contain these identifying words.
Specifically, forward-looking information in this news release
include, but are not limited to, statements made in relation to:
DIV pursuing opportunities to acquire trademarks and royalties from
a diverse group of high-quality businesses; DIV’s ability to pay a
predictable and stable dividend to shareholders; DIV’s intention to
use its cash balance to fund future royalty acquisitions, with the
intention of achieving a payout ratio that approximates 100% over
time; DIV’s expectation that the payout ratio will remain over 100%
until such time as further royalty acquisitions are completed and
excess cash has been deployed; and DIV’s corporate objectives.
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 information. DIV believes that
the expectations reflected in the forward-looking information are
reasonable but no assurance can be given that these expectations
will prove to be correct. In particular there can be no assurance
that: DIV will use its cash balance to fund future royalty
acquisitions, or the timing thereof; DIV will be successful in
identifying or completing any royalty acquisition opportunities;
DIV will be able to make monthly dividend payments to the holders
of its common shares; DIV will achieve a payout ratio that
approximates 100% over time; DIV’s payout ratio will remain over
100% until such time as further royalty acquisitions are completed
and all excess cash has been deployed; or DIV will achieve any of
its corporate objectives. 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, and the “Risk Factors” section of its
management’s discussion and analysis for the three and six months
ended June 30, 2019 that are available under DIV’s profile on SEDAR
at www.sedar.com.
In formulating the forward-looking information
contained herein, management has assumed that business and economic
conditions affecting DIV and its royalty partners will continue
substantially in the ordinary course, including without limitation
with respect to general industry conditions, general levels of
economic activity and regulations and that DIV will be successful
in identifying and completing additional royalty acquisitions.
These assumptions, although considered reasonable by management at
the time of preparation, may prove to be incorrect.
All of the forward-looking information 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 will be
realized or, even if substantially realized, that it will have the
expected consequences to, or effects on, DIV. The forward-looking
information 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.
DIV notes that the financial results reported in
this news release for the three and six months ended June 30, 2019
are consistent with the preliminary results for such period
reported in DIV’s news release dated July 18, 2019.
Non-IFRS Financial Measures
Management believes that disclosing certain
non-IFRS financial measures provides readers with important
information regarding the Corporation’s financial performance and
its ability to pay dividends. By considering these measures in
combination with the most closely comparable IFRS measure,
management believes that investors are provided with additional and
more useful information about the Corporation than investors would
have if they simply considered IFRS measures alone. The non-IFRS
financial measures do not have standardized meanings prescribed by
IFRS and therefore are unlikely to be comparable to similar
measures presented by other issuers. Investors are cautioned that
non-IFRS measures should not be construed as a substitute or an
alternative to cash flows from operating activities as determined
in accordance with IFRS.
“Distributable Cash”, “Same Store Sales Growth”
and “payout ratio” are used as non-IFRS measures in this news
release. For further details, see the “Description of Non-IFRS and
Additional IFRS Measures” in the Corporation’s management’s
discussion and analysis for the three and six months ended June 30,
2019, a copy of which is available on SEDAR at www.sedar.com.
Third Party Information
This news release includes information obtained
from third party company filings and reports and other publicly
available sources. Although DIV believes these sources to be
generally reliable, such information cannot be verified with
complete certainty. Accordingly, the accuracy and completeness of
this information is not guaranteed. DIV has not independently
verified any of the information from third party sources referred
to in this news release nor ascertained the underlying assumptions
relied upon by such sources.
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 OfficerDiversified Royalty Corp. (604) 235-3146
Greg Gutmanis, Chief Financial Officer and VP
Acquisitions Diversified Royalty Corp. (604) 235-3146
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