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 March 31, 2021
(“Q1 2021”).
Mr. Lube First Quarter Results
Mr. Lube Canada Limited Partnership (“Mr. Lube”)
generated same-store-sales-growth (“SSSG”) of 3.9% for the Mr. Lube
stores in the royalty pool for Q1 2021, an improvement compared to
SSSG of -7.2% for the three months ended March 31, 2020 (“Q1 2020”)
due to the restrictions and lockdown measures implemented at the
onset of the COVID-19 pandemic in March 2020. Despite the increased
government restrictions to fight the COVID-19 pandemic in Q1 2021,
including restrictions aimed to reduce travel and encourage or
mandate work from home arrangements, we are seeing encouraging
trends at Mr. Lube.
DIV expects to report that aggregate royalty
income and management fees of $3.6 million were generated from Mr.
Lube in Q1 2021, an increase of 3.2% compared to Q1 2020.
AIR MILES® First Quarter Results
DIV expects to report that royalty income of
$1.5 million was generated from the AIR MILES® licenses in Q1 2021,
a decrease of $0.3 million (-16.6%) compared to Q1 2020. In early
Q1 2020, AIR MILES benefited from increased sponsor promotions from
their grocery partners, which drove 7.9% growth in Q1 2020 royalty
income compared to Q1 2019. With strong consumer demand in the
grocery segment since COVID-19, these partners are not currently
running promotions at nearly the same rate as in 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.
Alliance Data Systems Inc. (“ADS”) issued a news
release earlier today announcing that: (i) AIR MILES® reward miles
issued decreased by 15.5% in Q1 2021, reflecting a decline in
discretionary spending, including credit card spend and reduced
promotions by sponsors as a result of the impacts of the COVID-19
pandemic, and (ii) AIR MILES® reward miles redeemed decreased by
25.7% in Q1 2021, reflecting the impact of the COVID-19 pandemic on
travel-related categories, offset in part by strength from
merchandise redemptions. ADS also noted that it is projecting a
more favorable operating environment for LoyaltyOne in the second
half of 2021 with the potential for a surge in post-pandemic
travel-related redemptions, and that LoyaltyOne is working with
airline partners to plan for such eventual comeback of airline
travel.
Nurse Next Door First 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 Q1 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,
2020. During the three months ended March 31, 2021, Nurse Next Door
signed 17 new franchises primarily in major metropolitan markets (5
in Canada, 5 in the US and 7 in Australia). Nurse Next Door
continues to make its fixed royalty payment to DIV in full, which
DIV expects will continue.
Sutton First 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 Q1 2021, compared to $0.8
million in Q1 2020. DIV waived 50% of Sutton’s March 2020 royalty
and management fees and 75% of Sutton’s April and May 2020 royalty
management fees in connection with the dramatic slow-down of
residential real estate activity that occurred following the
initial onset of the COVID-19 pandemic, and the related impact on
Sutton’s business. The Canadian residential real estate market has
experienced a broad recovery with two of Sutton’s primary markets,
Vancouver and Toronto, experiencing particularly strong recoveries
following a period of low transactional activity in April and May
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, 2020.
Oxford Learning Centres First 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 Q1 2021, compared to $0.5 million in Q1
2020 (which Q1 2020 figure reflects royalties collected for the
partial period from the date of DIV’s acquisition of the trademarks
related to Oxford’s business on February 20, 2020 to March 31,
2020).
Oxford locations in the Oxford royalty pool
generated SSSG (on a constant currency basis) of -19% in Q1 2021.
Oxford’s SSSG continues to be negatively impacted by the COVID-19
pandemic, which has resulted in the renewed temporary suspension of
in-centre services at the majority of its locations, including
Ontario, Quebec, Alberta, Manitoba and Saskatchewan in 2021.
However, we saw a meaningful increase in Oxford’s March 2021 system
sales compared to previous months, which we believe to be
indicative of pent-up demand, when restrictions were lifted
primarily in Ontario. At this time, Oxford’s management expects
there to be continued softness in the second quarter of 2021 as
government restrictions were re-implemented to combat the third
wave of COVID-19 in various regions resulting in the aforementioned
renewed temporary suspension of in-centre services at the majority
of its locations.
Mr. Mikes First 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, the majority of Mr.
Mikes Restaurants Corporation (“Mr. Mikes”) restaurants are
temporarily closed for in-restaurant dining. Overall, SSSG in Q1
2021 for the Mr. Mikes restaurants in the royalty pool, including
stores that were temporarily closed due to the COVID-19 pandemic
was ‑25% compared to Q1 2020 and -36% compared to Q1 2019.
Mr. Mikes continues to expect a slow recovery as
a result of recent government restrictions on operations related to
the third wave of COVID-19. DIV expects to report that royalty
income and management fees of $0.5 million were generated from Mr.
Mikes in Q1 2021, compared to $0.6 million in Q1 2020. DIV expects
continued royalty and management fee relief will be required by Mr.
Mikes until such time as all government restrictions impacting the
operation of Mr. Mikes restaurants are lifted and the business
stabilizes.
First Quarter Commentary
Sean Morrison, President and Chief Executive
Officer of DIV, stated, “The third wave of COVID-19 has recently
resulted in wider government restrictions, which includes curfews,
school closings, stay-at-home orders and a ban on indoor restaurant
dining in several regions. As a result, we expect the softness
experienced in the first quarter of 2021 to continue into the
second quarter. However, we saw encouraging trends in the
performance of our royalty partners when government restrictions
were temporarily relaxed in the second half of 2020, and we believe
that there will be a meaningful recovery amongst our royalty
partners when government restrictions are again meaningfully
relaxed in the future and the economy stabilizes, which we expect
to occur post vaccinations. We continue to engage in regular
discussions with our royalty partners with a focus on long-term
success and the preservation of shareholder value.”
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 Q1
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; DIV seeing encouraging trends at Mr. Lube; ADS
projecting a more favorable operating environment for LoyaltyOne in
the second half of 2021 with the potential for a surge in
post-pandemic travel-related redemptions, and that LoyaltyOne is
working with airline partners to plan for such eventual comeback of
airline travel DIV’s expectation that Nurse Next Door will continue
to make its fixed royalty payments in full; Oxford management’s
expectation that Oxford will experience continued softness in the
second quarter of 2021; DIV’s expectation that Mr. Mikes will
require royalty and management fee 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 third wave of COVID-19; DIV’s expectation that that the
softness experienced in the Q1 2021 will continue into the second
quarter; DIV’s belief that there will be a meaningful recovery
amongst its royalty partners when government restrictions are again
meaningfully relaxed in the future and the economy stabilizes,
which DIV expects to occur post vaccinations; DIV remaining engaged
in regular discussions with its royalty partners with a focus on
long-term success and the preservation of shareholder value; 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: 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 (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; LoyaltyOne may not experience a more favorable operating
environment in the second half of 2021 or a surge in post-pandemic
travel-related redemptions; 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 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 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 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. 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 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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