Diversified Royalty Corp. (TSX: DIV and DIV.DB) (the
“Corporation” or “DIV”) is providing an update on the businesses of
its royalty partners.
Mr. Lube
Mr. Lube Canada Limited Partnership’s (“Mr.
Lube”) business has continued to stabilize since provinces started
easing the restrictions put in place to fight the COVID-19 pandemic
and Canadians began driving more. Mr. Lube has been proactive in
enacting measures to support franchisee cash flow, including
negotiating rent deferrals and concessions, suspending marketing
contributions, arranging for improved payment terms with suppliers
and promoting government sponsored initiatives. Further, all Mr.
Lube locations have resumed normal operating hours, and Mr. Lube
has advised DIV that marketing activities are ramping up. Mr. Lube
generated same-store-sales-growth (“SSSG”) for the Mr. Lube stores
in the royalty pool of 1.1% in July 2020 and -0.5% in August 2020,
compared to SSSG of -12.5% for the three months ended June 30, 2020
(“Q2 2020”). Mr. Lube has paid all royalties and management fees
due and owing to DIV to date.
AIR MILES®
The AIR MILES® Reward Program is operated by
Loyalty One, Inc., a subsidiary of Alliance Data Systems Inc.
(“ADS”). LoyaltyOne has an exclusive right to use the AIR MILES®
Rights for purposes of operating the AIR MILES® Reward Program in
Canada for an indefinite term in exchange for a royalty payment to
DIV equal to 1% of “gross billings” from the AIR MILES® Reward
Program. Gross billings for the AIR MILES® Reward Program is
derived from several AIR MILES® metrics, primarily from the
issuance of AIR MILES® as well as redemption of AIR MILES®, service
revenue, commissions and promotional items. According to ADS,
LoyaltyOne is supporting collectors and sponsors by pivoting the
reward portfolio to reflect more non-travel options. ADS has 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. We expect AIR MILES® issued to generally
track total Canadian consumer spending during COVID-19 and return
to normal levels thereafter. Royalty income from the AIR MILES®
Reward Program is collected on a quarterly basis, accordingly no
information is currently available in respect of the Q3 2020
performance of this royalty. LoyaltyOne has paid all royalties due
and owing to DIV to date.
Nurse Next Door
The COVID-19 pandemic has highlighted
preferences by certain seniors to remain in their homes for as long
as possible, compared to long-term care facilities. In recent
months, Nurse Next Door Professional Homecare Services Inc. (“Nurse
Next Door”) has received a high level of interest from existing
franchisees about adding to their current territories and from
potential franchisees enquiring about franchise opportunities. In
addition, Nurse Next Door is in the process of re-selling the
territories previously held by franchise partners that issued
notices of their purported termination of their respective
franchise agreements. These territories are also being sub-divided
to optimize the market penetration of the Nurse Next Door brand.
The initial franchise fees generated from the sale of these
territories, along with the incremental franchise revenues from
these new operations are expected to enhance Nurse Next Door's
profitability and provide improved royalty coverage. Additionally,
Nurse Next Door is pursuing legal remedies from all franchisees who
have wrongfully exited the system.
The 12-month restricted period subsequent to the
termination of the St. Joseph Health Personal Care Services, LLC
(“St. Joseph”) master license agreement will end in August 2021.
Nurse Next Door expects to focus its business development efforts
in California, a region that was largely covered by the St. Joseph
master licence agreement. The California region is an attractive
market where Nurse Next Door intends to sell approximately 50 new
territories following the expiry of the 12-month restricted
period.
Nurse Next Door has a strong balance sheet, has
received the USD$1.1 million payment from St. Joseph, and has
continued to make its fixed royalty payment to DIV in full, which
DIV expects will continue.
Sutton
Two of Sutton’s primary markets are Vancouver
and Toronto, both of which are currently experiencing strong
recoveries following a period of low transactional activity in
April and May 2020. According to the Real Estate Board of Greater
Vancouver, July 2020 and August 2020 home sales activity in Metro
Vancouver significantly outpaced historical averages for those
months. These results reflect pent up activity from both home
buyers and sellers. July 2020 and August 2020 sales volumes in
Metro Vancouver were up 22% and 37% over 2019 levels, respectively
(compared to -39% in April, -44% in May and +18% in June).
According to the Toronto Regional Real Estate
Board (“TRREB”), July 2020 and August 2020 home sales activity hit
a new record for the months of July and August, respectively. The
TRREB also noted that the increase in demand is attributable to
improving economic conditions and the continuation of low borrowing
costs. July 2020 and August 2020 sales volumes in the Greater
Toronto Area were up 30% and 40% over 2019 levels, respectively
(compared to -67% in April, -54% in May and -1% in June).
Since June 2020, DIV has been collecting 100% of
the fixed royalty and management fee payments from Sutton Group
Realty Services Ltd. (“Sutton”), which fixed royalty increases at a
rate of 2% per year, with the most recent increase effective July
1, 2020.
Oxford Learning Centres
Locations in the Oxford Learning Centres, Inc.
(“Oxford”) royalty pool generated SSSG (on a constant currency
basis) of -24% in July 2020 and -23% in August 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. In addition, in early July, in accordance with regional
guidelines, certain Oxford locations started transitioning back to
in-centre services at a reduced capacity (90% of 154 locations have
now re-opened). Oxford has paid all royalties and management
fees due and owing to DIV to date.
Mr. Mikes
Currently, 43 of 45 Mr. Mikes Restaurants
Corporation (“Mr. Mikes”) restaurants are open for in-restaurant or
patio dining. Overall SSSG for Mr. Mikes restaurants in the royalty
pool, including stores that were temporarily closed due to the
COVID-19 pandemic, was approximately -18% in July and -14% in
August.
Notwithstanding the partial re-opening of such
Mr. Mikes restaurants, Mr. Mikes expects a slow recovery as we move
into fall, including the potential effects of cooler weather,
decreased patio utilization and further government restrictions on
operations. DIV has waived 100% of Mr. Mikes’ fixed royalty and
management fee payments from February 24, 2020 to July 12, 2020.
For the period from July 13, 2020 to August 9, 2020, DIV received a
payment from Mr. Mikes of $0.15 million, which represents 50% of
Mr. Mikes’ fixed royalty payment for the period. DIV expects
continued royalty relief will be required by Mr. Mikes going
forward.
Commentary
Sean Morrison, President and Chief Executive
Officer of DIV stated, “Many of our royalty partners are currently
experiencing encouraging trends in their business. We continue to
have discussions with our royalty partners to assist them during
this challenging economic period. Based on current trends and
expectations, we estimate the run-rate payout ratio on DIV’s $0.20
per share annual dividend to be approximately 101%. DIV remains
focused on preserving and enhancing shareholder value and the
long-term success of 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 Q3 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
July and August 2020, as applicable; 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 multiyear national renewal with Shell
Canada Products, as LoyaltyOne focuses on driving collector
engagement in key categories such as gasoline, grocery and liquor;
DIV’s expectation that AIR MILES® issued to generally track total
Canadian consumer spending during COVID-19 and return to normal
levels thereafter; Royalty income from the AIR MILES® Reward
Program is collected on a quarterly basis; the initial franchise
fees generated from the sale of the resold territories, along with
the incremental franchise revenues from these new operations are
expected to enhance Nurse Next Door's profitability and provide
improved royalty coverage; the details of the 12-month restricted
period following termination of the St. Joseph master license
agreement; Nurse Next Door’s expectation that it will focus its
business development efforts in California; Nurse Next Door’s
intention to sell approximately 50 new territories in the
California region over time following the expiry of the 12-month
restricted period; DIV’s expectation that Nurse Next Door will
continue to make its royalty payments in full; Oxford locations
have started transitioning back to in-centre services at a reduced
capacity; Mr. Mikes expects a slow recovery, including the
potential effects of cooler weather, decreased patio utilization
and further government restrictions on operation in the fall; DIV’s
expectation that continued royalty relief will be required by Mr.
Mikes going forward; DIV continuing to have discussions with its
royalty partners to assist them; DIV’s estimate that the run-rate
payout ratio will be approximately 101% based on the current annual
dividend of $0.20 cents per share; DIV remaining focused on
preserving and enhancing shareholder value and the long-term
success of its royalty partners; 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; the rate of sales of new franchises by Nurse Next
Door may be slow to recover, and expected new franchise sales may
not complete; the impact of the termination by St. Joseph of the
master licence agreement on Nurse Next Door’s business could be
greater than expected; Nurse Next Door may not be successful in
selling new franchises in the territories currently covered by the
St. Joseph master licence agreement or those territories covered by
the franchisees that have recently purported to terminate their
franchise agreements, or may be delayed in completing such sales or
may not complete such sales on terms currently contemplated; Nurse
Next Door may not realize the expected financial benefits of
reselling franchises in such locations; certain franchisees who
recently purported to terminate their franchise agreements may
operate competing businesses to the detriment of other Nurse Next
Door locations and Nurse Next Door; Nurse Next Door may not reach a
satisfactory resolution in respect of the franchisees that have
purported to terminate their respective franchise agreements and
may not recover any costs it incurs in pursuing legal remedies
against such franchisees, which costs may be significant; as a
result of the termination by St. Joseph of the master licence
agreement and the purported termination of the franchise agreements
by certain other franchisors, Nurse Next Door may experience
constrained cash flows and could potentially request some form of
royalty relief from DIV in the future, or fail to make all or a
portion of its royalty payments and/or draw on its credit
facilities in order to fund its royalty payments to DIV; the
termination by St. Joseph of the master licence agreement and the
purported termination of the franchise agreements by certain other
franchisors may, in future periods, result in a reduction in the
fair value of DIV’s investment in NND LP recorded on DIV’s
consolidated statement of financial position, resulting in a
non-cash loss in the period where any such reduction is recorded;
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; the impact of the termination by St. Joseph
of its master licence agreement on Nurse Next Door’s business will
be consistent with DIV’s current expectations; Nurse Next Door will
be successful in selling new franchises in the territories covered
by the St. Joseph master licence agreement and those territories
covered by the franchisees that have purported to terminate their
franchise agreements, which sales will be completed in accordance
with Nurse Next Door’s currently estimated timing, and such
locations will achieve Nurse Next Door’s financial targets and have
a positive financial impact on Nurse Next Door; and Nurse Next Door
will continue to make its royalty payments to DIV in full and will
not request royalty relief in relation to such event. 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.
“Same Store Sales Growth” or “SSSG”, “run-rate
payout ratio” are used as non-IFRS measures in this news release.
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 with respect to the
calculation of certain non-IFRS measures, including run-rate payout
ratio, see the Corporation’s investor presentation titled
“Diversified Royalty Corp. – Sep 14, 2020 Investor Presentation”, a
copy of which is available on the Corporation’s website at
www.diversifiedroyaltycorp.com and under the Corporation’s profile
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