Diversified Royalty Corp. (TSX: DIV and DIV.DB) (the
“Corporation” or “DIV”) is pleased to announce preliminary results
for its royalty partners for the three months ended June 30, 2020
(“Q2 2020”).
Mr. Lube Second Quarter Results
Mr. Lube Canada Limited Partnership (“Mr. Lube”)
generated same-store-sales-growth (“SSSG”) of -12.5% for the Mr.
Lube stores in the royalty pool for Q2 2020, compared to SSSG of
4.2% for the three months ended June 30, 2019 (“Q2 2019”). Mr. Lube
generated SSSG of -10.0% for the six months ended June 30, 2020
compared to SSSG of 4.3% for the six months ended June 30, 2019.
Mr. Lube’s SSSG was impacted by the COVID-19 pandemic, which
resulted in a slow-down in consumer activity across the country and
recommendations from all levels of government for people to work
from home and self-isolate. As certain provinces started easing the
restrictions put in place to fight the COVID-19 pandemic and
Canadians started driving more, Mr. Lube’s business has stabilized
with June 2020 SSSG for the Mr. Lube stores in the royalty pool up
0.4% (compared to SSSG of -27% in April 2020 and -11% in May
2020).
DIV expects to report that aggregate royalty
income and management fees of $3.6 million were generated from Mr.
Lube in Q2 2020, a decrease of $0.6 million from Q2 2019.
AIR MILES® Second Quarter Results
Alliance Data Systems Inc. (“ADS”) issued a news
release earlier today announcing that: (i) AIR MILES® reward miles
issued decreased by 26% in Q2 2020 and 11.6% for the six months
ended June 30, 2020, reflecting a decline in discretionary
spending, including credit card spend and delays in promotions by
sponsors, and (ii) AIR MILES® reward miles redeemed decreased by
42% in Q2 2020 and 25% for the six months ended June 30, 2020,
reflecting the impact of the COVID-19 pandemic on travel-related
categories, offset somewhat by strength from merchandise
redemptions. According to ADS, LoyaltyOne is supporting collectors
and sponsors by pivoting the reward portfolio to reflect more
non-travel options. ADS also noted that the AIR MILES® business
continues to renew with sponsors, including a multi-year national
renewal with Shell Canada Products, as LoyaltyOne focuses on
driving collector engagement in key categories such as gasoline,
grocery and liquor, which are deemed essential services.
DIV expects to report that royalty income of
$1.5 million was generated from the AIR MILES® licenses in Q2 2020,
a decrease of $0.4 million (-22%) compared to Q2 2019. For the six
months ended June 30, 2020, DIV expects to report royalty income of
$3.4 million, a decrease of $0.3 million (-8.4%) compared to the
six months ended June 30, 2019. DIV’s royalty payment is derived
from several AIR MILES® metrics, with AIR MILES® reward miles
issued being the primary metric, and other metrics including AIR
MILES® reward miles redeemed, service revenue, commissions and
promotional items, all of which affect quarterly variability.
Nurse Next Door Second Quarter Results
DIV expects to report that the royalty
entitlement to DIV (the “DIV Royalty Entitlement”) from Nurse Next
Door Professional Homecare Services Inc. (“Nurse Next Door”) was
$1.2 million in Q2 2020. The DIV Royalty Entitlement from Nurse
Next Door grows at a fixed rate of 2.0% per annum during the term
of the license.
Sutton Second Quarter Results
As disclosed in DIV’s news release dated March
31, 2020, with the dramatic slow-down of residential real estate
activity due to the COVID-19 pandemic, DIV waived 75% of Sutton’s
April and May royalty payment and management fee obligations (due
in May and June, respectively). The June royalty payment and
management fees were not subject to a waiver and were received in
full. According to the Real Estate Board of Greater Vancouver’s
news release dated July 3, 2020, home buyers and sellers have
gradually become more active in each month of the COVID-19
pandemic, and home sales and listing activity in Metro Vancouver
returned to more historically typical levels with June sales
volumes up 18% (compared to -39% in April and -44% in May).
According to the Toronto Regional Real Estate Board, sales volumes
were only down 1% in June (compared to -67% in April and -54% in
May).
DIV expects to report that royalty income and
management fees of $0.5 million were generated from Sutton in Q2
2020, compared to $1.0 million in Q2 2019. The decrease in Q2 2020
was due to the 75% waiver of the April and May 2020 royalty and
management fees.
Oxford Learning Centres Second Quarter
Results
DIV expects to report that royalty income and
management fees of $0.7 million were generated from Oxford Learning
Centres, Inc. (“Oxford”) in Q2 2020.
Oxford locations in the Oxford royalty pool
generated SSSG (on a constant currency basis) of -41% in Q2 2020
and -29% for the period from February 20, 2020 to June 30, 2020.
Oxford’s SSSG was negatively impacted by the COVID-19 pandemic,
which resulted in the temporary suspension of in-centre services.
In mid-March, Oxford management pivoted its business to provide
online tutoring with over 95% of its locations currently able to
provide this service. Oxford sales are improving with June 2020
SSSG (on a constant currency basis) of -33% for the Oxford
locations in the royalty pool (compared to SSSG of -47% in April
2020 and -44% in May 2020). In early July, in accordance with
regional guidelines, certain Oxford locations have started
transitioning back to in-centre services at a reduced capacity.
Oxford is in the process of making the necessary changes in their
locations to ensure that every parent, student and staff member
will have the safest possible experience at their locations.
Mr. Mikes Royalty Waiver and Second Quarter
Results
As previously announced, Mr. Mikes Restaurants
Corporation (“Mr. Mikes”) temporarily closed all its locations for
in-restaurant dining on March 18, 2020. Also as previously
announced, as of early June 2020, 33 of 45 Mr. Mikes restaurants
had re-opened for in-restaurant or patio dining, which has now
increased to 42 of 45 Mr. Mikes restaurants. Overall SSSG for Mr.
Mikes restaurants in the royalty pool, including stores that were
temporarily closed due to the COVID-19 pandemic, was -28% in June.
SSSG for Mr. Mikes restaurants in the Mr. Mikes royalty pool that
have re-opened for in-restaurant and patio dining was -19% in June
2020.
Notwithstanding the partial re-opening of such
Mr. Mikes restaurants, DIV continues to expect that Mr. Mikes will
experience a slow recovery and constrained cash flows. Accordingly,
DIV has waived Mr. Mikes’ fixed royalty and management fee payment
for the period from February 24, 2020 to June 14, 2020. DIV
anticipates that Mr. Mikes may require royalty relief for an
extended period of time and is in discussions with its lenders and
Mr. Mikes in this regard.
DIV expects to report that royalty income and
management fees of $nil were generated from Mr. Mikes in Q2 2020,
given that royalties and management fees for Q2 2020 were
waived.
Second Quarter Commentary
Sean Morrison, President and Chief Executive
Officer of DIV stated, “The impact of COVID-19 on the daily lives
of Canadians and the Canadian economy was swift and unprecedented.
The management teams of our royalty partners continue to do an
excellent job of managing their businesses through these
challenging times, and are starting to see encouraging trends as
certain provinces have started to ease restrictions put in place to
fight the COVID-19 pandemic. In particular, many of our royalty
partners are showing positive signs of improvement in June: Mr.
Lube’s positive June SSSG, full royalty received from Sutton in
respect of the June royalty payment period, Oxford SSSG improving
by 10% month-over-month and locations re-opening for in-centre
services, and Mr. Mikes now having 42 out of 45 restaurants
re-opened for in restaurant or patio dining. DIV’s management is in
regular discussions with our royalty partners, and together with
the board of directors are monitoring developments with a focus on
preserving shareholder value and the long-term success of DIV and
its royalty partners.”
The financial information contained in this news
release is preliminary, is based upon the estimates and assumptions
of the respective management of DIV and its royalty partners 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 Q2 2020 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 Mr. Lube, AIR MILES®,
Sutton, Mr. Mikes, Nurse Next Door and Oxford Learning Centres
trademarks. Mr. Lube is the leading quick lube service business in
Canada, with locations across Canada. AIR MILES® is Canada’s
largest coalition loyalty program with approximately two-thirds of
Canadian households actively participating in the AIR MILES®
Program. Sutton is among the leading residential real estate
brokerage franchisor businesses in Canada. Mr. Mikes currently
operates casual steakhouse restaurants primarily in western
Canadian communities. Nurse Next Door is one of North America’s
fastest growing home care providers with locations across Canada
and the United States as well as in Australia. Oxford Learning
Centres is one of Canada’s leading franchised supplemental
education services in Canada and the United States.
DIV intends 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 includes, but is not limited
to, statements made in relation to: the expected financial results
of Mr. Lube, Nurse Next Door, Sutton, Mr. Mikes and Oxford for the
three months ended June 30, 2020, as applicable and the amount of
royalty income expected to be reported by DIV as having been
generated from the AIR MILES licenses during this period;
LoyaltyOne is supporting collectors and sponsors by pivoting the
reward portfolio to reflect more non-travel options; the AIR MILES®
business continues to renew with sponsors, including a multi-year
national renewal with Shell Canada Products, as LoyaltyOne focuses
on driving collector engagement in key categories such as gasoline,
grocery and liquor; Oxford locations have started transitioning
back to in-centre services at a reduced capacity; Oxford is in the
process of making the necessary changes in their locations to
ensure that every parent, student and staff member will have the
safest possible experience at their locations; DIV anticipating
that Mr. Mikes may require royalty relief for an extended period of
time and continuing its discussions with its lenders and Mr. Mikes
in this regard; the expectation that Mr. Mikes will experience a
slow recovery and constrained cash flow; DIV’s intention to pay
monthly dividends 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, risks
and uncertainties include: Mr. Mikes may not make its fixed royalty
payments to DIV, in whole or in part; the financial results of
DIV’s royalty partners may not be consistent with the preliminary
results set forth herein; LoyaltyOne may not be successful in
continuing to renew sponsor contracts, and such contracts, if
renewed, may be renewed on less advantageous terms than existing
contracts; DIV’s royalty partners may request further royalty
relief; COVID-19 may have a more significant negative impact on DIV
and its royalty partners than currently expected and the businesses
of DIV’s royalty partners may not fully recover post COVID-19;
current improvement trends being experienced by certain of DIV’s
royalty partners may not continue and may regress; recently
re-opened royalty partner locations may be required to temporarily
close in the future; royalty partner locations that are temporarily
closed may not reopen; DIV may not be able to make monthly dividend
payments to the holders of its common shares; dividends are not
guaranteed and may be further reduced, suspended or terminated; or
DIV may not 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 18, 2020 and in DIV’s most recently filed management’s
discussion and analysis, copies of which 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
DIV will generate sufficient cash flows from its royalties to
service its debt and pay dividends to shareholders; lenders will
provide any necessary waivers required in order to allow DIV to
continue to pay dividends; the impacts of COVID-19 on DIV and its
royalty partners will be consistent with DIV’s expectations and the
expectations of management of each of its Royalty Partners, both in
extent and duration; DIV and its royalty partners will be able to
reasonably manage the impacts of the COVID-19 pandemic on their
respective businesses. 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 will be realized or, even if
substantially realized, that they will have the expected
consequences to, or effects on, DIV. The forward-looking
information and financial outlook included in this news release is
presented 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 and the performance of its royalty
partners. 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 and its royalty partners 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.
“DIV Royalty Entitlement” and “Same Store Sales
Growth” or “SSSG” are used as non-IFRS measures in this news
release. The DIV Royalty Entitlement is being reported to allow
readers to assess the performance of DIV’s royalty arrangements
with Nurse Next Door on a basis consistent with the royalties
received from DIV’s other royalty partners. Under IFRS, DIV is
required to record its investment in the Nurse Next Door trademarks
and other intellectual property as a financial instrument and the
income earned from this investment as finance income, which does
not allow for a direct comparison of the income received from this
investment to the royalties received from DIV’s other royalty
partners, which attract different treatment under IFRS. The most
closely comparable IFRS measure to DIV Royalty Entitlement is
royalty income; however, DIV Royalty Entitlement should not be
considered substitute for IFRS measures. References to “same store
sales growth” or “SSSG” in this news release are to the percentage
increase in store sales over the prior comparable period that were
open 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 same
store sales growth is a useful measure as it provides investors
with an indication of the change in year-over-year sales of Mr.
Lube Locations and Oxford 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. 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 months ended March 31, 2020,
a copy of each 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
Diversified Royalty (TSX:DIV.DB)
Historical Stock Chart
From Jun 2024 to Jul 2024
Diversified Royalty (TSX:DIV.DB)
Historical Stock Chart
From Jul 2023 to Jul 2024