Diversified Royalty Corp. (TSX: DIV and DIV.DB) (the
“Corporation” or “DIV”) is pleased to announce a 4.7% increase to
its monthly dividend and the preliminary results for its royalty
partners for the three months ended September 30, 2021 (“Q3 2021”).
DIV also announced a change to its board of directors (the
“Board”).
Increase to the Monthly Dividend
The Board has approved an increase to the
dividend from $0.0175 per share per month ($0.21 per share on an
annualized basis) to $0.01833 per share per month ($0.22 per share
on an annualized basis) effective November 2021.
Sean Morrison, President and Chief Executive
Officer of DIV stated, “As our royalty partners continue to
experience positive trends, we are pleased to announce a 4.7%
increase to DIV’s annual dividend. We remain cautiously optimistic
that our royalty partners will continue to have a meaningful
recovery in their respective businesses as the economy stabilizes.
Our Board, in consultation with management, continues to monitor
the performance of DIV and its royalty partners, and will consider
further adjustments to its dividend while maintaining a target
annual payout ratio below 100%.”
Mr. Lube Third Quarter Results
Mr. Lube generated same-store-sales-growth
(“SSSG”) of 14.9% for the Mr. Lube stores in the royalty pool for
Q3 2021, compared to SSSG of 0.5% for the three months ended
September 30, 2020 (“Q3 2020”). Mr. Lube generated SSSG of 13.9%
for the nine months ended September 30, 2021 compared to SSSG of
-6.4% for the nine months ended September 30, 2020. Mr. Lube’s SSSG
for the three and nine months ended September 30, 2020 were more
significantly negatively impacted by the COVID-19 pandemic, and the
ensuing restrictions and lockdown measures implemented by various
levels of government than in the current periods. Mr. Lube
generated SSSG of 15.0% and 6.4% respectively for the Mr. Lube
stores in the royalty pool, for the three and nine months ended
September 30, 2021 compared to the same periods in 2019. As
provinces have relaxed the restrictions put in place to fight the
COVID-19 pandemic and Canadians drive more, Mr. Lube has been
experiencing favorable trends in its business.
DIV expects to report that aggregate royalty
income and management fees of $5.3 million were generated from Mr.
Lube in Q3 2021, an increase of 30.4% compared to Q3 2020. The
increase in royalty income and management fees was primarily due to
SSSG of 14.9% in Q3 2021, as well as the addition of 13 new stores
to the Mr. Lube royalty pool and the 0.5% increase to the Mr. Lube
royalty rate on May 1, 2021.
AIR MILES® Third Quarter Results
On October 13, 2021, Alliance Data Systems Inc.
(“ADS”) issued a news release announcing that its Board of
Directors approved the separation of ADS’ LoyaltyOne segment
(comprising the Canadian AIR MILES® reward program and the
Netherlands-based BrandLoyalty business) into a new independent
US-based, publicly traded company, Loyalty Ventures Inc. (“Loyalty
Ventures”). According to ADS, the separation will be completed
after the market closes on November 5, 2021. Following the
distribution of the Loyalty Ventures common shares on November 5,
2021, Loyalty Ventures will be an independent, US-based publicly
traded company and is expected to be listed on Nasdaq under the
symbol “LYLT”. The pending spinoff of the LoyaltyOne segment was
initially announced by ADS on May 5, 2021 and previously disclosed
by DIV. In addition, on October 14, 2021, ADS published a
presentation that noted increased investment by LoyaltyOne, Co.
(“LoyaltyOne”) amid post-pandemic recovery tailwinds creates
significant upside potential for Loyalty Ventures.
LoyaltyOne, the operator of the AIR MILES®
reward program in Canada, recently provided details of that further
investment, announcing that the AIR MILES® reward program is
implementing a series of improvements to enhance the loyalty
program. Over the coming months, AIR MILES collectors will be
introduced to more redemption benefits, more ways to earn AIR
MILES®, and more opportunities to take part in promotions. Under
the revitalized AIR MILES® brand, LoyaltyOne announced that it
expects to roll-out the all-new AIR MILES® Flights platform, which
is expected to officially launch this November. According to
LoyaltyOne, the AIR MILES® Flights platform, a new flight booking
experience, provides more choice, flexibility and transparency for
Canadian travelers at a time when 70% of AIR MILES collectors have
expressed a desire to return to travel. In addition, LoyaltyOne
revealed a new visual identity for the AIR MILES® reward program,
which is a modern take on the iconic logo.
DIV believes that the refresh of the AIR MILES®
brand and the recent improvements to the AIR MILES® reward program
could result in increased top-line growth at LoyaltyOne, which
would be beneficial to DIV’s royalty.
ADS issued a news release earlier today
announcing that: (i) AIR MILES® reward miles issued decreased by
6.9% in Q3 2021, reflecting certain promotional activity in the
prior year not present in the current year, and (ii) AIR MILES®
reward miles redeemed increased by 30.4% in Q3 2021 to their
highest level since the pandemic began, reflecting an improvement
in travel-related categories. ADS also noted that AIR MILES® reward
miles issued and redeemed both increased on a sequential basis
relative to the second quarter of 2021 as airline bookings improved
and merchandise redemptions remained strong. ADS further advised
that it remains optimistic on the long-term outlook for AIR MILES®
as travel returns to steady-state levels.
DIV expects to report that royalty income of
$1.7 million was generated from the AIR MILES® licenses in Q3 2021,
a decrease of $0.1 million (-4.5%) compared to Q3 2020. For the
nine months ended September 30, 2021, DIV expects to report royalty
income of $4.8 million, a decrease of $0.3 million (-5.6%) compared
to the nine months ended September 30, 2020. 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.
Sutton Third Quarter Results
DIV expects to report royalty income and
management fees of $1.0 million were generated from Sutton Group
Realty Services Ltd. (“Sutton”) in Q3 2021, compared to $1.0
million in Q3 2020. 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, with the most recent increase effective July 1, 2021.
Oxford Learning Centres Third Quarter
Results
DIV expects to report that royalty income and
management fees of $0.8 million were generated from Oxford Learning
Centres, Inc. (“Oxford”) in Q3 2021, compared to $0.7 million in Q3
2020.
Oxford locations in the Oxford royalty pool
generated SSSG (on a constant currency basis) of 19.5% in Q3 2021,
compared to SSSG of -24% in Q3 2020. Oxford’s SSSG for the nine
months ended September 30, 2021 was 7.8%, compared to -28% for the
period from February 20, 2020, the acquisition date of the Oxford
Rights, to September 30, 2020. Oxford locations in the Oxford
royalty pool generated SSSG (on a constant currency basis) of -9.0%
and -14.3% for the three and nine months ended September 30, 2021
compared to the same periods in 2019 (on a pro forma basis, had the
Oxford transaction closed on January 1, 2019). In 2020, Oxford’s
SSSG was negatively impacted by the COVID-19 pandemic, which has
resulted in the temporary suspension of in-centre services at the
majority of its locations. 2021 year-to-date has been impacted by
government-mandated COVID restrictions, predominantly in Ontario,
its largest market. Oxford management is optimistic about a
stronger recovery in the last quarter of 2021.
Mr. Mikes Third Quarter Results
The majority of Mr. Mikes Restaurants
Corporation (“Mr. Mikes”) restaurants have been open for
in-restaurant dining at a reduced capacity since mid-June 2021.
Overall, SSSG in Q3 2021 for the Mr. Mikes restaurants in the
royalty pool, including stores that were temporarily closed due to
the COVID-19 pandemic, was 10.1% compared to Q3 2020 and -7.2%
compared to Q3 2019. SSSG for the nine months ended September 30,
2021 for the Mr. Mikes restaurants in the royalty pool was 5.1%
compared to the nine months ended September 30, 2020 and [-28.9%]
compared to the nine months ended September 30, 2019.
DIV expects to report that royalty income and
management fees of $1.0 million were generated from Mr. Mikes in Q3
2021, compared to $0.4 million in Q3 2020. DIV granted royalty and
management fee relief to Mr. Mikes in connection with the COVID-19
pandemic, collecting 75% of the contractual royalty amount for the
nine months ended September 30, 2021 and 40% for the nine months
ended September 30, 2020. The management team at Mr. Mikes
continues to expect a protracted recovery.
DIV is in discussions with Mr. Mikes and its
lender regarding additional royalty and management fee relief for
Mr. Mikes, which DIV expects may be required until such time as all
government restrictions impacting the operation of Mr. Mikes
restaurants are lifted and the business stabilizes.
Nurse Next Door Third 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 Q3 2021. 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,
2021.
Change to Board of Directors
Ms. Lorraine McLachlan recently advised DIV of
her intention to step down from the Board to pursue opportunities
outside the Corporation. The Board has accepted her resignation,
which was effective October 26, 2021.
Paula Rogers, Chair of the Board, said, “On
behalf of the Board, I want to thank Lorraine for her contributions
over more than 3 years of service to the Board and wish her all the
best in her future endeavors.”
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 increase to DIV’s monthly
dividend effective November 2021; DIV remaining cautiously
optimistic that its royalty partners will continue to have a
meaningful recovery in their respective businesses as the economy
stabilizes; the Board, in consultation with management, continuing
to monitor the performance of DIV and its royalty partners, and
considering further adjustments to DIV’s dividend while maintaining
a target annual payout ratio below 100%; the expected financial
results of Mr. Lube, Nurse Next Door, Sutton, Mr. Mikes and Oxford
for Q3 2021 and the amount of royalty income expected to be
reported by DIV as having been generated from the AIR MILES
licenses during this period; the details and expected timing of the
completion separation of ADS’ LoyaltyOne segment into Loyalty
Ventures; ADS’ belief that increased investment by LoyaltyOne amid
post-pandemic recovery tailwinds creates significant upside
potential for Loyalty Ventures; the details of LoyaltyOne’s further
investment in the AIR MILES® reward program and the expected
impacts thereof on the AIR MILES® reward program; DIV’s belief that
the refresh of the AIR MILES® brand and the recent improvements to
the AIR MILES® reward program could result in increased top-line
growth at LoyaltyOne, which would be beneficial to DIV’s royalty;
ADS remaining optimistic on the long-term outlook for AIR MILES® as
travel returns to steady-state levels; Oxford management being
optimistic about a stronger recovery in the last quarter of 2021;
Mr. Mikes’ expectation that it will continue to experience a
protracted recovery; DIV’s expectation that Mr. Mikes may require
additional royalty relief until such time as all government
restrictions impacting the operation of Mr. Mikes restaurants are
lifted and the business stabilizes; 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: DIV may not increase its dividend in accordance with the
currently expected timing or amounts; there may be no future
increases to DIV’s dividend; DIV’s payout ratio may from time to
time exceed 100% notwithstanding DIV’s target is a payout ratio
below 100%; the financial results of DIV and its 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
(including their respective franchisees) than currently expected
and the businesses of DIV’s royalty partners (and their respective
franchisees) may not fully recover following the relaxation of
government restrictions or post vaccinations; current improvement
trends being experienced by certain of DIV’s royalty partners (and
their respective franchisees) may not continue and may regress;
royalty partner locations that are temporarily closed may not
reopen; the rates of recovery for DIV’s royalty partners will be
dependent upon, among other things, the availability and
effectiveness of vaccines for the COVID-19 virus, government
responses, rates of economic recovery, precautionary measures taken
by consumers and the rate at which government restrictions will be
lifted or meaningfully relaxed; the separation of ADS’ LoyaltyOne
segment may not be beneficial to LoyaltyOne’s top-line or DIV’s
royalty, and could be detrimental; recent investments by LoyaltyOne
in the AIR MILES® reward program may not achieve their intended
strategic of financial impacts; AIR MILES® long-term performance
may not be consistent with ADS’ expectations; Oxford may not
experience a stronger recovery in the last quarter of 2021; DIV may
not be able to make monthly dividend payments to the holders of its
common shares; dividends are not guaranteed and may be reduced,
suspended or terminated at any time; 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 11,
2021 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 (including their respective franchisees) 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 (including their respective
franchisees) will be able to reasonably manage the impacts of the
COVID-19 pandemic on their respective businesses; vaccination
programs will be successful and vaccines effective, and the
expected positive impacts thereof on DIV and the businesses of its
royalty partners (including their respective franchisees) will be
consistent with DIV’s expectations; the performance of DIV’s
royalty partners will be consistent with DIV’s and its royalty
partners’ respective expectations; recent positive trends for
certain of DIV’s royalty partners (including their respective
franchisees) will continue and not regress; recent investments by
LoyaltyOne in the AIR MILES® reward program may not achieve their
intended strategic of financial impacts; the separation of the
LoyaltyOne segment into Loyalty Ventures will not have any adverse
impact on the AIR MILES® reward program or DIV’s royalty; and
recent investments by LoyaltyOne in the AIR MILES® reward program
will achieve their intended strategic of financial impacts. 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”, “distributable cash” and “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 a 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
restaurants 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. Distributable cash is a non-IFRS financial measure that
does not have a standardized meaning prescribed by IFRS. Management
believes that distributable cash provides investors with useful
information about the amount of cash the Corporation has generated
to cover dividends on its common shares during the applicable
period. Readers should be cautioned, however, that distributable
cash should not be construed as an alternative to the statement of
cash flows as a measure of liquidity and cash flows of the
Corporation. The Corporation’s method of calculating distributable
cash may differ from that of other issuers and companies and,
accordingly, distributable cash may not be comparable to similar
measures used by other issuers or companies. The payout ratio is
calculated by dividing the total dividends declared during the
period by the distributable cash generated in that period. The
payout ratio is not a recognized measure under IFRS, however,
management of the Corporation believes that it provides
supplemental information regarding the extent to which the
Corporation distributes cash as dividends, when compared to its
cash flow capacity. The Corporation’s method of calculating payout
ratio may differ from those of other issuers or companies and,
accordingly, payout ratio 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 DIV’s
most recently filed management’s discussion and analysis, 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. (236) 521-8470
Greg Gutmanis, Chief Financial Officer and VP
Acquisitions Diversified Royalty Corp. (236) 521-8471
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