Diversified Royalty Corp. (TSX: DIV and DIV.DB) (the
“Corporation” or “DIV”) is pleased to announce preliminary results
for Mr. Lube, AIR MILES®, Sutton, Mr. Mikes and Nurse Next Door for
the three months ended December 31, 2019 (“Q4 2019”).
Mr. Lube Fourth Quarter Results
Mr. Lube Canada Limited Partnership (“Mr. Lube”)
generated same-store-sales-growth (“SSSG”) of 2.1% for the Mr. Lube
stores in the royalty pool for Q4 2019, compared to SSSG of 3.0%
for the three months ended December 31, 2018 (“Q4 2018”). Mr. Lube
generated SSSG of 4.1% for the Mr. Lube stores in the royalty pool
for the year ended December 31, 2019 compared to SSSG of 3.0% for
the year ended December 31, 2018. Mr. Lube’s SSSG was driven by
continued growth in all aspects of the business, including oil
services, tire sales and service across Canada.
DIV expects to report that aggregate royalty
income and management fees of $4.2 million were generated from Mr.
Lube in Q4 2019, an increase of $0.2 million from Q4 2018. The
growth in royalty income was driven by the addition of four Mr.
Lube locations to the Mr. Lube royalty pool on May 1, 2019 and
positive SSSG.
AIR MILES® Fourth Quarter Results
Alliance Data Systems Inc. (“ADS”) issued a news
release earlier today announcing that AIR MILES® reward miles
issued increased by 1.2% in Q4 2019. ADS also disclosed that AIR
MILES® reward miles redeemed increased by 3.4% in Q4 2019.
According to ADS, changes to the collector value proposition during
2019 are expected to stimulate AIR MILES® issuance growth in
2020.
DIV expects to report that royalty income of
$2.1 million was generated from the AIR MILES® licenses in Q4 2019,
an increase of 1.7% compared to Q4 2018. DIV’s royalty payment is
derived from several AIR MILES metrics, including AIR MILES reward
miles issued, AIR MILES reward miles redeemed, service revenue,
commissions and promotional items, which affect quarterly
variability.
Sutton Fourth Quarter Results
DIV expects to report that royalty income and
management fees of $1.0 million were generated from Sutton Group
Realty Services Ltd. (“Sutton”) in Q4 2019, representing a 2.0%
increase over Q4 2018.
Mr. Mikes Fourth Quarter Results
DIV expects to report that royalty income and
management fees of $1.0 million were generated from Mr. Mikes
Restaurants Corporation (“Mr. Mikes”) in Q4 2019. The royalty
income from Mr. Mikes grows at a fixed rate of 2.0% per annum until
March 31, 2023 and thereafter fluctuates based on the SSSG of the
Mr. Mikes locations in the Royalty Pool.
Nurse Next Door Fourth Quarter Results
On November 15, 2020, DIV acquired the
trademarks and certain other intellectual property rights utilized
by Nurse Next Door Professional Homecare Services Inc. (“Nurse Next
Door”) in its premium home care business. DIV expects to report
that royalty income and management fees of $0.6 million were
generated from Nurse Next Door from November 15, 2019, the date of
acquisition, to December 31, 2019. The royalty income from Nurse
Next Door grows at a fixed rate of 2.0% per annum during the term
of the license.
Fourth Quarter Commentary
Sean Morrison, President and Chief Executive
Officer of DIV stated, “Mr. Lube has opened eight new Mr. Lube
locations in 2019 while continuing to deliver robust operating
results. Sutton and Mr. Mikes are performing as expected, and we
are encouraged by the positive trends in the AIR MILES® royalty. We
are excited to add Nurse Next Door to our portfolio this quarter as
our fifth royalty stream. DIV’s weighted average portfolio SSSG for
Q4 2019 was 2.0%.”
Mr. Morrison continued, “With a $50 million
acquisition line and $7 million of undrawn debt capacity, we
continue to pursue accretive royalty transactions.”
The financial information contained in this news
release is preliminary, is based upon the estimates and assumptions
of the respective management of DIV, Mr. Lube, Sutton, Mr. Mikes
and Nurse Next Door as applicable, has not yet been approved by
their respective Audit Committees or Boards of Directors, and has
not been subject to a review by their respective auditors. The
final Q4 2019 financial results could differ materially from the
above preliminary financial information.
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®, Mr. Mikes and Nurse Next Door trademarks. Mr. Lube is the
leading quick lube service business in Canada with 185 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. Sutton
is among the leading residential real estate brokerage franchisor
businesses in Canada with over 200 offices across Canada. Mr. Mikes
operates 45 casual steakhouse restaurants primarily in western
Canadian communities with over $85 million of annual system sales.
Nurse Next Door is one of North America’s largest growing home care
providers and operates over 180 locations across Canada, the United
States and Australia with over $100 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” or “financial
outlook” 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 or financial outlook. 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 and financial outlook, although not all
forward-looking information and financial outlook contain these
identifying words. Specifically, forward-looking information and
financial outlook in this news release include, but are not limited
to, statements made in relation to: the expected financial results
of Mr. Lube, Sutton, Mr. Mikes and Nurse Next Door for the three
months and year ended December 31, 2019, as applicable, and the
amount of royalty income expected to be reported by DIV as having
been generated from the AIR MILES® licenses during such periods;
ADS’ expectation that changes to the collector value proposition
during 2019 will stimulate AIR MILES® issuance growth in 2020; DIV
pursuing accretive royalty transactions; DIV’s ability to pay a
predictable and stable dividend to shareholders; 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 by such
forward-looking information and financial outlook. DIV believes
that the expectations reflected in the forward-looking information
and financial outlook included in this news release are reasonable
but no assurance can be given that these expectations will prove to
be correct. In particular there can be no assurance that: the final
financial results of Mr. Lube, Sutton, Mr. Mikes and Nurse Next
Door will be consistent with the preliminary results; LoyaltyOne’s
performance in 2019 may not be consistent with current
expectations; the changes to the collector value proposition during
2019 may not stimulate AIR MILES® issuance growth in 2020 to the
extent expected by ADS, or at all; an increase in AIR MILES® reward
miles issued or redeemed will guarantee an increase in royalty
income earned by DIV, as the royalty payments made to DIV under the
AIR MILES® licences are derived from several AIR MILES® metrics and
not solely based on the number of AIR MILES® reward miles issued or
redeemed; DIV will be successful in identifying or completing any
royalty acquisition opportunities, and if completed that such
acquisitions will be accretive; DIV will be able to make monthly
dividend payments to the holders of its common shares; or DIV will
achieve any of its corporate objectives. Given these uncertainties,
readers are cautioned that forward-looking information and
financial outlook included in this news release are not guarantees
of future performance, and such forward-looking information and
financial outlook 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 nine months ended
September 30, 2019 that are available under DIV’s profile on SEDAR
at www.sedar.com.
In formulating the forward-looking information
and financial outlook 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.
These assumptions, although considered reasonable by management at
the time of preparation, may prove to be incorrect.
To the extent any forward-looking information or
statements in this news release constitute a “financial outlook”
within the meaning of applicable securities laws, such information
is being provided to investors to ensure they receive timely
disclosure of material financial information with respect to the
financial performance of the Corporation and its royalty partners
prior to the completion of year end audits.
All of the forward-looking information and
financial outlook in this news release is qualified in its entirety
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
thereby. The forward-looking information and financial outlook
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 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.
“Same Store Sales Growth” or “SSSG” is used as a
non-IFRS measure in this news release. Further details with respect
to this non-IFRS measure will be included in the Corporation’s
management’s discussion and analysis for the three months and year
ended December 31, 2019 once filed.
The weighted average portfolio SSSG is
calculated based on the SSSG for Mr. Lube for Q4 2019, the 2.0%
contractual royalty rate increase for each of Sutton, Mr. Mikes and
Nurse Next Door, and the percentage increase in royalty income from
AIR MILES®, in each case, weighted in proportion to the respective
royalty income generated from such royalty partner as compared to
DIV’s gross royalty income generated from all of its royalty
partners.
DIV and its auditor are currently reviewing the
application of certain IFRS standards to the contractual
relationships between DIV’s indirect subsidiary NND Royalties
Limited Partnership (“NND Royalties LP”) and Nurse Next Door and
the impact thereof on DIV’s financial reporting. The outcome of
this review will determine how DIV reports the royalties NND
Royalties LP receives from Nurse Next Door in DIV’s consolidated
financial statements, which may or may not be as royalty income.
Given such review is ongoing, for purposes of simplicity, in this
news release DIV has presented the royalties received by NND
Royalties LP from Nurse Next Door during Q4 2019 as royalty income,
as DIV does for its other royalty partners.
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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