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, 2021 (“Q3 2021”)
and nine months ended September 30, 2021.
Highlights
- Revenue of $9.9
million in Q3 2021 and $26.6 million for the nine months ended
September 30, 2021, up 22.9% compared to the three months ended
September 30, 2020 (“Q3 2020”) and 23.5% compared to the nine
months ended September 30, 2020
- Adjusted revenue of
$11.1 million in Q3 2021 and $30.3 million for the nine months
ended September 30, 2021, up 20.2% and 20.4%, respectively,
compared to the same periods in 2020
- Distributable cash
of $7.3 million in Q3 2021 and $20.0 million for the nine months
ended September 30, 2021, up 16.3% and 19.9%, respectively,
compared to the same periods in 2020
- Increased annual
dividend by 4.7% to $0.22 per share, effective with the November
2021 monthly dividend, following a 5% increase in August 2021 to
$0.21 per share.
Third Quarter and Year-To-Date Results
|
Three months ended
September 30, |
Nine months ended
September 30, |
(000’s) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Mr.
Lube |
$ |
5,324 |
$ |
4,095 |
$ |
13,707 |
$ |
11,182 |
AIR
MILES® |
|
1,650 |
|
1,728 |
|
4,798 |
|
5,086 |
Sutton |
|
1,054 |
|
1,033 |
|
3,120 |
|
2,382 |
Oxford1 |
|
831 |
|
706 |
|
2,660 |
|
1,841 |
Mr.
Mikes |
|
983 |
|
442 |
|
2,303 |
|
1,033 |
Nurse Next
Door |
|
1,246 |
|
1,222 |
|
3,738 |
|
3,666 |
Adjusted revenue2 |
$ |
11,088 |
$ |
9,226 |
$ |
30,326 |
$ |
25,190 |
1) 2020 figures include royalties and
management fees from Oxford from the date of the Oxford Rights
acquisition on February 20, 2020.
2) Adjusted revenue is a
non-IFRS measure and as such, does not have a standardized meaning
under IFRS. For additional information, refer to “Non-IFRS
Financial Measures” in this news release.
For the three and nine months ended September
30, 2021, DIV generated $9.9 million and $26.6 million of revenue
respectively, compared to $8.0 and $21.6 million for the same
periods in 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 $11.1 million and $30.3
million for the three and nine months ended September 30, 2021
compared to $9.2 million and $25.2 million for the same periods in
2020. Adjusted revenue increased primarily due to positive trends
experienced by most of DIV’s royalty partners, as discussed in
further detail below. COVID-19 and the related government
restrictions more adversely impacted DIV’s royalty partners in the
three and nine months ended September 30, 2020, compared to the
current year. In addition, incremental revenue was generated from
the addition of 13 locations to the Mr. Lube Canada Limited
Partnership (“Mr. Lube”) royalty pool and the increase in the Mr.
Lube royalty rate on non-tire sales on May 1, 2021.
Royalty Partner Business Updates
Mr. Lube: 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% in 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.
AIR
MILES®: 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”), which separation was previously
disclosed by DIV and is now complete. In addition, on October 14,
2021, ADS published a presentation that noted increased investment
by LoyaltyOne, Co. (“LoyaltyOne”, which now a subsidiary of Loyalty
Ventures) amid post-pandemic recovery tailwinds could create
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, including new AIR MILES® Flights platform.
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.
According to ADS’ news release dated October 28,
2021 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. In addition 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.
Sutton: Since June 2020, DIV
has been collecting 100% of the fixed royalty and management fee
payments from Sutton as the Canadian residential real estate market
experienced a strong recovery following a period of low
transactional activity in April and May 2020. However, DIV
previously 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 Canadian
residential real estate activity that occurred following the
initial onset of the COVID-19 pandemic, and the related impact on
Sutton’s business. 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: 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 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-19
restrictions, predominantly in Ontario, its largest market. Oxford
management is optimistic about a stronger recovery in the last
quarter of 2021.
Mr. Mikes: 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 10.0% compared to Q3 2020 and -7.6%
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 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.
Nurse Next Door: The royalty
entitlement to DIV (the “DIV Royalty Entitlement”) from 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. Nurse Next Door continues to make its fixed
royalty payment and management fees to DIV in full, which DIV
expects will continue.
Third Quarter Commentary
Sean Morrison, President and Chief Executive
Officer of DIV stated, “Although government restrictions continue
to affect some of DIV’s royalty partners, we continue to see
positive trends in their businesses, in particular with our largest
royalty partner Mr. Lube. We are optimistic that our royalty
partners are well-positioned to continue their respective
recoveries, as restrictions related to the COVID-19 pandemic are
lifted. As a result of these positive trends, DIV increased its
monthly dividend by 4.7% to $0.01833 per share effective with the
November 2021 dividend, the second dividend increase this year,
which has resulted in an annualized dividend of $0.22 per share,
while DIV continues to target a sub-100% annualized payout ratio.
We appreciate the continued support from our investors and
stakeholders. We remain focused on the long term success of our
royalty partners and are pleased that their strong performance
contributed to an increase in the annual dividend.”
Distributable Cash and Dividends Declared
In Q3 2021, distributable cash increased to $7.3
million ($0.0600 per share), compared to $6.3 million ($0.0521 per
share) in Q3 2020. The increase in distributable cash was primarily
due to higher adjusted revenue on account of the reasons discussed
above, partially offset by higher current tax expense, salaries and
benefits and interest expense. The increase in distributable cash
per share was primarily due to the increase in distributable cash
partially offset by a higher weighted average number of common
shares outstanding for the nine months ended September 30,
2021.
For the nine months ended September 30, 2021,
distributable cash increased to $20.0 million ($0.1642 per share),
compared to $16.7 million ($0.1411 per share) for the nine months
ended September 30, 2020. The increase in distributable cash was
due to higher adjusted revenue, partially offset by higher current
tax expense and salaries and benefits. The increase in
distributable cash per share was primarily due to the increase in
distributable cash partially offset by a higher weighted average
number of common shares outstanding in the current quarter.
In Q3 2021, the Corporation’s payout ratio was
86.1%, compared to 96.0% in Q3 2020. The decrease was primarily due
to higher distributable cash, partially offset by a higher weighted
average number of common shares outstanding and the increase in the
dividend that took effect in August 2021, which resulted in higher
dividends paid.
For the nine months ended September 30, 2021,
the Corporation’s payout ratio was 92.4%, compared to 111.9% for
the nine months ended September 30, 2020. The decrease was
primarily due to higher distributable cash and lower dividends
declared.
Net Income (Loss)
Net income for Q3 2021 was $5.9 million,
compared to a net loss of $0.9 million in Q3 2020. The increase in
net income was primarily due to higher adjusted revenue, a higher
fair value gain on financial instruments and higher revenues
partially offset by an increase in tax expense and salaries and
benefits.
Net income for the nine months ended September
30, 2021 was $15.3 million, compared to a net loss of $9.7 million
for the nine months ended September 30, 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 during the nine months
ended September 30, 2020. In addition, net income increased during
the nine months ended September 30, 2021 due to higher adjusted
revenue, 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: as
provinces relax the restrictions put in place to fight the COVID-19
pandemic and Canadians drive more, Mr. Lube is experiencing
favorable trends in its business; DIV continuing to target a
sub-100% annualized payout ratio; 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 is 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 Nurse Next Door will continue to make its fixed royalty
payments and management fees in full; DIV being optimistic that its
royalty partners are well positioned to continue their respective
recoveries; DIV remaining focused on 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 temporarily close 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; DIV’s payout ratio may from time to
time exceed 100% notwithstanding DIV targets a sub 100% annualized
payout ratio; 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 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 and management fees to DIV in full; 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; recent positive trends for
certain of DIV’s royalty partners (including their respective
franchisees) will continue and not regress; 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 September 30, 2021 are
consistent with the preliminary results for such period reported in
DIV’s news release dated October 28, 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”, “distributable cash per share”, “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
and nine months ended September 30, 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 as well as financial statements and other reports
provided to DIV by its royalty partners. 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
and nine months ended September 30, 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 OfficerDiversified Royalty Corp. (236) 521-8470
Greg Gutmanis, Chief Financial Officer and VP
Acquisitions Diversified Royalty Corp. (236) 521-8471
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