Diversified Royalty Corp. (TSX: DIV and DIV.DB) (the
“Corporation” or “DIV”) is pleased to announce its financial
results for the three months ended March 31, 2021 (“Q1 2021”).
Q1 2021 Highlights
- Revenue of $7.6 million, up 4.8% compared to the three months
ended March 31, 2020 (“Q1 2020”)
- Adjusted revenue of $8.8 million, up 4.4% compared to Q1
2020
- Distributable cash of $5.9 million, up 7.4% compared to Q1
2020
First Quarter Results
|
|
Three months ended March 31, |
(000’s) |
|
|
2021 |
|
2020 |
Mr. Lube |
|
|
$ |
3,630 |
$ |
3,517 |
AIR MILES® |
|
|
|
1,525 |
|
1,829 |
Sutton |
|
|
|
1,033 |
|
843 |
Oxford1 |
|
|
|
906 |
|
465 |
Mr. Mikes |
|
|
|
497 |
|
591 |
Nurse Next Door |
|
|
|
1,246 |
|
1,222 |
Adjusted revenue2 |
|
|
$ |
8,837 |
$ |
8,467 |
- 2020 figures include royalties and management fees from Oxford
from the date of the Oxford Rights acquisition on February 20,
2020.
- Adjusted revenue is a non-IFRS measure and as such, do not have
standardized meetings under IFRS. For additional information
regarding these financial metrics, refer to “Non-IFRS Financial
Measures” in this press release.
In Q1 2021, DIV generated $7.6 million of
revenue compared to $7.3 million in Q1 2020. After taking into
account the DIV Royalty Entitlement (defined below) related to
DIV’s royalty arrangements with Nurse Next Door Professional
Homecare Services Inc. (“Nurse Next Door”), DIV’s adjusted revenue
was $8.8 million in Q1 2021 compared to $8.5 million in Q1 2020.
Adjusted revenue increased in Q1 2021 compared to Q1 2020 due to
the incremental adjusted revenues related to the acquisition of the
Oxford Rights from Oxford Learning Centres, Inc. (“Oxford”) in
February 2020, higher royalty income from Sutton Group Realty
Services Ltd. (“Sutton”), as DIV granted royalty and management
relief to Sutton in Q1 2020, and positive same-store-sales growth
(“SSSG”) at Mr. Lube Canada Limited Partnership (“Mr. Lube”). The
increase in adjusted revenue was partially offset by the impact of
the COVID-19 pandemic, which included continued royalty and
management fee relief for Mr. Mikes Restaurants Corporation (“Mr.
Mikes”) and lower royalty income from the AIR MILES® licenses.
Royalty Partner Business Updates
Mr. Lube: SSSG for the Mr. Lube
stores in the royalty pool was 3.9% in Q1 2021, an improvement
compared to SSSG of -7.2% in Q1 2020 due to the restrictions and
lockdown measures implemented at the onset of the COVID-19 pandemic
in March 2020. Despite the increase 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. In
April 2021, SSSG for the 141 flagship locations (122 of which are
in the Mr. Lube Royalty Pool) was approximately 54.5%
year-over-year, due to the more significant restrictions and
lockdown measures in place in April 2020 compared to April
2021.
AIR
MILES®: According to
Alliance Data Systems Inc.’s (“ADS”) news release dated April 29,
2021, the number of AIR MILES® reward miles issued decreased by
15.5% in Q1 2021, reflecting a decline in discretionary spending,
including credit card spend and delays in promotions by sponsors as
a result of the impacts of the COVID-19 pandemic. In addition, ADS
announced that AIR MILES reward miles redeemed decreased by 25.7%
in Q1 2021, reflecting the impact of the COVID-19 pandemic on
travel-related categories, partially offset 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.
Sutton: DIV waived 50% of
Sutton’s March 2020 royalty and management fees and 75% of Sutton’s
April and May 2020 royalty and 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 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: Oxford locations in the
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 resulted in the renewed temporary
suspension of in-centre tutoring services at the majority of its
locations in Q1 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. 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, including Ontario, Quebec,
Alberta, Manitoba and Saskatchewan.
Mr. Mikes: 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 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.
Nurse Next Door: The royalty
entitlement to DIV (the “DIV Royalty Entitlement”) from 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.
First Quarter Commentary
Sean Morrison, President and Chief Executive
Officer of DIV stated, “The renewed restrictions imposed by various
governments to combat the growing number of COVID-19 cases in
recent months are expected to result in some softness in the second
quarter of 2021. However, as vaccinations are underway across the
country, we are optimistic that there will be a meaningful recovery
amongst our Royalty Partners when government restrictions are
reasonably relaxed and the economy stabilizes. We remain focused on
preserving and enhancing shareholder value and the long-term
success of our Royalty Partners.”
Distributable Cash and Dividends Declared
In Q1 2021, distributable cash increased to $5.9
million ($0.0485 per share), compared to $5.5 million ($0.0486 per
share) in Q1 2020. The increase in distributable cash was primarily
due to higher adjusted revenue on account of the reasons discussed
above, lower salaries and benefits, savings in professional fees
and lower interest expense, partially offset by higher current tax
expense. The decrease in distributable cash per share was primarily
due to a higher weighted average number of common shares
outstanding in Q1 2021 compared to Q1 2020, partially offset by the
increase in distributable cash.
In Q1 2021, the Corporation’s payout ratio was
103.1%, compared to the payout ratio of 119.2% in Q1 2020. The
decrease was primarily due to higher distributable cash and lower
dividends declared, partially offset by a higher weighted average
number of common shares outstanding. Due to seasonality in both AIR
MILES and Mr. Lube, the payout ratio in the first quarter is
typically weaker that other quarters. However, the Corporation’s
dividend reinvestment plan (“DRIP”) was open for participation in
Q1 2021. As a portion of the dividends declared in Q1 2021 were
settled through a reinvestment in the Corporation’s shares for
participants in the DRIP, the payout ratio on a cash basis was
90.3% in Q1 2021 and there was no cash shortfall.
Net Income (Loss)
Net income for Q1 2021 was $4.1 million,
compared to a net loss of $11.7 million in Q1 2020. The increase in
net income was primarily due to the non-cash impairment loss of
$19.8 million related to the MRM Rights recorded in Q1 2020. In
addition, net income increased in Q1 2021 due to the fair value
adjustment on financial instruments and higher revenues, partially
offset by higher income tax expense and other finance costs.
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 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” 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. 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, although not all
forward-looking information contains these identifying words.
Specifically, forward-looking information in this news release
includes, but is not limited to, statements made in relation to:
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 renewed
restrictions imposed by governments in recent months will result in
some softness in the second quarter of 2021; DIV’s belief that
there will be a meaningful recovery amongst its royalty partners
when government restrictions are reasonably relaxed and the economy
stabilizes, which DIV expects to occur post vaccinations; 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. DIV believes that the expectations reflected in the
forward-looking information 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’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 included in this news
release is not a guarantee of future performance, and such
forward-looking information 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
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; lenders will provide any necessary covenant waivers to
DIV and its royalty partners; 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 and related government regulations on their
respective businesses; Nurse Next Door will continue to make its
royalty payments to DIV in full and will not request royalty relief
in relation to such events; 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;
and DIV will be able to obtain debt financing for such transactions
on reasonable terms. These assumptions, although considered
reasonable by management at the time of preparation, may prove to
be incorrect.
All of the forward-looking information 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 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 months ended March 31, 2021 are
consistent with the preliminary results for such period reported in
DIV’s news release dated April 29, 2021.
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 DIV’s 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.
“Adjusted revenue”, “DIV Royalty Entitlement”,
“distributable cash”, “same store sales growth” or “SSSG”, and
“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 months ended March 31, 2021,
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
The information in this news release should be
read in conjunction with DIV’s consolidated financial statements
and management’s discussion and analysis (“MD&A”) for the three
months ended March 31, 2021, which are available on SEDAR at
www.sedar.com.
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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