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 December 31,
2020 (“Q4 2020”).
Mr. Lube Fourth Quarter Results
Mr. Lube Canada Limited Partnership (“Mr. Lube”)
generated same-store-sales-growth (“SSSG”) of 1.1% for the Mr. Lube
stores in the royalty pool for Q4 2020, compared to SSSG of 2.1%
for the three months ended December 31, 2019 (“Q4 2019”). Due to a
growing number of COVID-19 cases in certain regions and provinces,
certain governments have increased restrictions to fight the
COVID-19 pandemic in Q4 2020. Mr. Lube generated SSSG of -4.4% for
the year ended December 31, 2020 compared to SSSG of 4.1% for the
year ended December 31, 2019. Mr. Lube’s SSSG for the year ended
December 31, 2020 was impacted by the COVID-19 pandemic and
temporary recommendations from all levels of government for people
to work from home and self-isolate, which resulted in a slow-down
in consumer activity across the country. While 2020 represents the
first year since 2000 where Mr. Lube did not generate positive
SSSG, it was able to generate positive SSSG in 6 of 12 months in
2020.
DIV expects to report that aggregate royalty
income and management fees of $4.2 million were generated from Mr.
Lube in Q4 2020, flat compared to Q4 2019.
AIR MILES® Fourth Quarter Results
DIV expects to report that royalty income of
$1.9 million was generated from the AIR MILES® licenses in Q4 2020,
a decrease of $0.2 million (-9.3%) compared to Q4 2019. For the
year ended December 31, 2020, DIV expects to report royalty income
of $7.0 million, a decrease of $0.7 million (-9.4%) compared to the
year ended December 31, 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.
Alliance Data Systems Inc. (“ADS”) issued a news
release earlier today announcing that: (i) AIR MILES® reward miles
issued decreased by 8.8% in Q4 2020 and 9.9% for the year ended
December 31, 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 30.1% in Q4
2020 and 29.2% for the year ended December 31, 2020, reflecting the
impact of the COVID-19 pandemic on travel-related categories,
offset in part by strength from merchandise redemptions. According
to ADS, on a sequential basis, AIR MILES® reward miles issued and
redeemed improved 9% and 22% in Q4 2020 compared to Q3 2020,
respectively, reflecting better business conditions than in Q3
2020. ADS also noted that LoyaltyOne is continuing to pivot the AIR
MILES® reward portfolio to emphasize more non-travel options, which
drove higher merchandise redemptions in Q4 2020.
Nurse Next Door Fourth 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 Q4 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, with the most recent increase effective October 1,
2020. During the three months ended September 30, 2020, Nurse Next
Door signed 24 new franchises primarily in major metropolitan
markets (8 in Canada, 13 in the US and 3 in Australia). The
momentum continued in Q4 2020 where Nurse Next Door signed 17 new
franchises (6 in Canada, 9 in the US and 2 in Australia). Nurse
Next Door continues to make its fixed royalty payment to DIV in
full, which DIV expects will continue.
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 2020, compared to $1.0
million in Q4 2019. Since June 2020, DIV has been collecting 100%
of the fixed royalty and management fee payments from Sutton. The
fixed royalty payable by Sutton increases at a rate of 2.0% per
year.
Two of Sutton’s primary markets, Vancouver and
Toronto, are experiencing strong recoveries since early summer 2020
following a period of low transactional activity in April and May
2020.
Oxford Learning Centres Fourth Quarter
Results
DIV expects to report that royalty income and
management fees of $0.9 million were generated from Oxford Learning
Centres, Inc. (“Oxford”) in Q4 2020. DIV acquired the trademarks
related to Oxford’s business on February 20, 2020.
Oxford locations in the Oxford royalty pool
generated SSSG (on a constant currency basis) of -23% in Q4 2020
and -26% for the period from February 20, 2020 to December 31,
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 2020, Oxford management pivoted its business
to provide online tutoring with over 95% of its locations currently
able to provide this service. In September 2020, over 90% of
Oxford’s locations re-opened for in-centre services at a reduced
capacity. However, due to a growing number of COVID-19 cases in
various regions in recent months, certain governments have required
the closure of in-person tutoring at many locations, including
Ontario, Quebec, Alberta, Manitoba and Saskatchewan. As a result,
the majority of Oxford locations are not currently offering
in-centre services.
Mr. Mikes Fourth Quarter Results
In recent months, certain governments have
implemented increased restrictions in various regions to combat the
growing number COVID-19 cases. As a result of these restrictions,
currently 21 of 43 Mr. Mikes Restaurants Corporation (“Mr. Mikes”)
restaurants are open for in-restaurant or patio dining. Overall,
SSSG in Q4 2020 for the Mr. Mikes restaurants in the royalty pool,
including stores that were temporarily closed due to the COVID-19
pandemic was -33%.
Mr. Mikes continues to expect a slow recovery as
a result of recent government restrictions on operations related to
the second wave of COVID-19. In Q4 2020, DIV collected royalties of
$0.8 million, which reflected stronger than anticipated results at
Mr. Mikes. However, with stricter government restrictions in recent
months, more than 50% of Mr. Mikes restaurants are currently closed
for in-restaurant or patio dining. For the last Mr. Mikes royalty
payment period in 2020, DIV collected only 50% of the fixed royalty
amount. DIV expects continued royalty relief will be required by
Mr. Mikes until such time as all government restrictions are lifted
and the business stabilizes.
DIV expects to report that royalty income and
management fees of $0.8 million were generated from Mr. Mikes in Q4
2020, compared to $1.0 million in Q4 2019.
Fourth Quarter Commentary
Sean Morrison, President and Chief Executive
Officer of DIV stated, “We are proud of the resilience demonstrated
by the management teams of our Royalty Partners as they traversed
the uncertainty and disruptions brought upon by the COVID-19
pandemic. We have seen improvements in the later half of 2020
compared to the second quarter of 2020. However, with the second
wave of COVID-19, governments have re-imposed restrictions in
various regions to combat the growing number of COVID-19 cases.
These restrictions are expected to negatively affect our Royalty
Partners in the coming months. We continue to engage in discussions
with our Royalty Partners to ensure their long-term success and the
long-term success of DIV, with a focus on preserving shareholder
value.”
Changes to Board of Directors
Mr. Lawrence (Lorie) Haber, who has served as a
director of DIV since 2011 and who served as President and Chief
Executive Officer of DIV from 2011 to 2013, advised DIV recently of
his intention to retire from DIV’s Board of Directors (the “Board”)
after 10 years of service, and accordingly is stepping down from
the Board effective as of today’s date. Mr. Haber served as the
Chair of DIV’s Board during his tenure and also served as a member
of the Investment Committee. In addition, during his tenure on the
Board, he previously served as a member of the Board’s Governance,
Nominating and Compensation Committee. The Board has elected Ms.
Paula Rogers as its new Chair, and will be seeking to add a new
director. Ms. Rogers has served as a director of DIV and the Chair
of the Audit Committee since 2015. She will continue as Chair of
the Audit Committee until a new director is added.
Ms. Rogers stated, “We have benefitted immensely
from Lorie’s insightful leadership and deep understanding of public
company governance. During Lorie’s tenure, he provided astute
guidance and oversight for DIV’s fundamental and strategic changes,
as well as each of DIV’s royalty transactions. On behalf of the
Board, I want to thank Lorie for his 10 years of invaluable service
to the Board and best wishes for continued success in the
future.”
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
“intend” 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 December 31, 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 continuing to pivot the AIR MILES® reward portfolio to
emphasize more non-travel options; DIV’s expectation that Nurse
Next Door will continue to make its fixed royalty payments in full;
Nurse Next Door continuing to sign new franchise agreements; the
real estate markets in Sutton’s primary markets, Vancouver and
Toronto, continuing to experience strong recoveries; DIV’s
expectation that Mr. Mikes will require royalty relief going
forward; Mr. Mikes’ expectation that it will continue to experience
a slow recovery as a result of recent government restrictions on
operations related to the second wave of COVID-19; DIV remaining
engaged in ongoing discussions with its royalty partners with a
focus on preserving and enhancing shareholder value and the
long-term success of DIV and its royalty partners; DIV’s intention
to pay monthly dividends to shareholders; DIV’s search for a new
director; the composition of the Audit Committee; 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: the
financial results of DIV’s royalty partners may not be consistent
with the preliminary results set forth herein; DIV’s royalty
partners may not make their respective royalty payments to DIV, in
whole or in part; 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; DIV may not find a new director and if a new
director is found the composition of the Audit Committee may not
change; 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”, “Same Store Sales
Growth” or “SSSG” and run-rate payout ratio 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, Mr. Mikes 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.
In addition, 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, 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 Officer Diversified Royalty Corp. (604) 235-3146
Greg Gutmanis, Chief Financial Officer and VP
Acquisitions Diversified Royalty Corp. (604) 235-3146
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