Diversified Royalty Corp. (TSX: DIV and DIV.DB) (the
“Corporation” or “DIV”) is pleased to announce its financial
results for the three months ended September 30, 2019 (“Q3 2019”)
and nine months ended September 30, 2019.
Third Quarter Results
In Q3 2019, DIV generated $8.1 million of
royalty revenue and management fees compared to $6.7 million in the
three months ended September 30, 2018 (“Q3 2018”). The increase in
revenue was primarily driven by the acquisition of the trademarks
and certain related other intellectual property rights (the “MRM
Rights”) utilized by Mr. Mikes Restaurants Corporation (“Mr.
Mikes”) on May 20, 2019, the addition of four locations to the Mr.
Lube Canada Limited Partnership (“Mr. Lube”) royalty pool on May 1,
2019, positive same-store-sales growth (“SSSG”) at Mr. Lube and the
annual contractual 2.0% increase in the Sutton Group Realty
Services Ltd. (“Sutton”) royalty rate, effective as of July 1st of
each year.
For the nine months ended September 30, 2019,
DIV generated $22.1 million of royalty revenue and management fees
compared to $19.5 million in the nine months ended September 30,
2018. The growth in revenues was due to the items noted above, as
well as the increase in the Mr. Lube royalty rate and the net
addition of one store to the Mr. Lube royalty pool on May 1,
2018.
SSSG for the Mr. Lube stores in the royalty pool
was 5.9% in Q3 2019 and 4.8% for the nine months ended September
30, 2019. Sutton’s fixed royalty increases at a contractual rate of
2% per year, which effectively represents 2% SSSG. According to
Alliance Data Systems Inc.’s (“ADS”) news release dated October 24,
2019, the number of AIR MILES® reward miles issued decreased by 1%
for the three months and was flat for the nine months ended
September 30, 2019. ADS also disclosed that AIR MILES® reward miles
redeemed was flat for the three months and decreased 3% for the
nine months ended September 30, 2019.
Third Quarter Commentary
Sean Morrison, President and Chief Executive
Officer of DIV stated, “Mr. Lube had another exceptional quarter,
and the AIR MILES royalty increased by 1.5% in Q3 2019. The third
quarter also marked the first full quarter of royalty income and
management fees from Mr. Mikes, while Sutton performed as
expected.”
Mr. Morrison continued, “We are pleased with the
diversification of our royalty streams and expect the acquisition
of the Nurse Next Door trademarks to close in November 2019. We
remain active in pursuing opportunities to acquire trademarks and
royalties from a diverse group of high-quality businesses.”
Distributable Cash
In Q3 2019, distributable cash was $5.4 million
($0.0501 per share), an increase of $0.3 million ($0.0022 per
share) compared to Q3 2018. For the nine months ended September 30,
2019, distributable cash was $15.7 million ($0.1453 per share), an
increase of $0.8 million ($0.0059 per share) compared to the nine
months ended September 30, 2018. The increase was primarily due to
the growth in revenues and was partially offset by higher interest
expense and current tax expense.
Dividends declared exceeded distributable cash
by $0.6 million for the three months and $2.3 million for the nine
months ended September 30, 2019. This resulted in a payout ratio of
111.1% for the three months and $114.9% for the nine months ended
September 30, 2019. The Corporation has a dividend reinvestment
plan that allows the dividends to be settled through a reinvestment
in the Corporation’s shares at the election of the shareholder. On
a cash basis, the payout ratio was 85.2% for the three months and
91.5% for the nine months ended September 30, 2019. As a result,
there was no cash shortfall in making dividend payments for the
three and nine months ended September 30, 2019.
DIV currently has over $46 million of cash,
which will be used to partially fund the Nurse Next Door trademarks
acquisition. After the completion of the Nurse Next Door trademarks
acquisition, DIV expects to increase its annual dividend from 22.25
cents per share to 23 cents per share. DIV estimates its pro forma
payout ratio to be reduced to under 100% following the completion
of the Nurse Next Door trademarks acquisition and the dividend
increase.
Net Income
Net income for Q3 2019 was $3.9 million,
compared to net income of $3.4 million in Q3 2018. Net income for
the nine months ended September 30, 2019 was $9.9 million compared
to net income of $9.1 million for the nine months ended September
30, 2019. The increase in net income was primarily due to the
growth in revenues and the fair value adjustment on financial
instruments, partially offset by higher interest expense, finance
costs and income tax expense. In addition, the three and nine
months ended September 30, 2018 included non-recurring litigation
expenses.
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 Sutton, Mr. Lube, AIR
MILES® and Mr. Mikes trademarks in Canada. Sutton is among the
leading residential real estate brokerage franchisor businesses in
Canada with over 200 offices across Canada. Mr. Lube is the leading
quick lube service business in Canada with 182 locations across
Canada and over $235 million of annual system sales. AIR MILES® is
Canada’s largest coalition loyalty program with over 200 leading
brand-name sponsors; approximately two-thirds of Canadian
households actively participate in the AIR MILES® Program. Mr.
Mikes operates 44 casual steakhouse restaurants primarily in
western Canadian communities with over $85 million of annual system
sales.
DIV expects 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 or
financial outlook in this news release include, but are not limited
to, statements made in relation to: the expected closing date of
the Nurse Next Door trademarks acquisition; DIV pursuing
opportunities to acquire trademarks and royalties from a diverse
group of high-quality businesses; DIV’s intention to use its cash
balance to partially fund the Nurse Next Door trademarks
acquisition; DIV’s expectation that it will increase its annual
dividend following the completion of the Nurse Next Door trademarks
acquisition; DIV’s expectation that the pro forma payout ratio will
be reduced to under 100% following the completion of the Nurse Next
Door trademarks acquisition and the dividend increase; DIV’s
ability to pay a predictable and stable dividend 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 in such
forward-looking information and financial outlook. DIV believes
that the expectations reflected in the forward-looking information
and financial outlook are reasonable but no assurance can be given
that these expectations will prove to be correct. In particular
there can be no assurance that: DIV will complete the Nurse Next
Door trademarks acquisition on the timing currently expected or at
all; DIV realize the expected benefits of the Nurse Next Door
trademarks acquisition; DIV will increase its annual dividend;
DIV’s payout ratio will be reduced to under 100% after the
completion of the Nurse Next Door trademarks acquisition and the
dividend increase; DIV will use its cash balance to partially fund
the Nurse Next Door trademarks acquisition; DIV will be successful
in identifying or completing any royalty acquisition opportunities;
DIV will be able to make monthly dividend payments to the holders
of its common shares; or DIV will 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, 2019, and the “Risk
Factors” section of its management’s discussion and analysis for
the three and nine months ended September 30, 2019 that 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
all necessary consents and approvals for the acquisition of the
Nurse Next Door trademarks will be obtained and the acquisition
will be completed in accordance with the timing currently expected
and on the currently contemplated terms and that business and
economic conditions affecting DIV and its royalty partners will
continue substantially in the ordinary course, including without
limitation with respect to general industry conditions, general
levels of economic activity and regulations and that DIV will be
successful in identifying and completing additional royalty
acquisitions. 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 assist investors in understanding the
potential financial impact of the acquisition of the Nurse Next
Door trademarks and related transactions on DIV.
All of the forward-looking information and
financial outlook in this news release is qualified 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 it will have the expected consequences to, or
effects on, DIV. The forward-looking information and financial
outlook in this news release is made 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.
DIV notes that the financial results reported in
this news release for the three and nine months ended September 30,
2019 are consistent with the preliminary results for such period
reported in DIV’s news releases dated October 24, 2019 and November
1, 2019.
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. 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 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.
“Distributable Cash”, “Same Store Sales Growth”,
“payout ratio” and “pro forma payout ratio” are used as non-IFRS
measures in this news release. 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
and nine months ended September 30, 2019 and Appendix A to the
Corporation’s investor presentation titled “Diversified Royalty
Corp. – Nurse Next Door Trademark Acquisition and Royalty –
Investor Presentation” dated November 1, 2019, 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
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