VANCOUVER, British Columbia, Nov. 09, 2020 (GLOBE NEWSWIRE) -- 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, 2020 (“Q3 2020”) and nine months ended September 30, 2020.
Highlights
- Revenue of $8.0 million and adjusted revenue of $9.2 million for Q3 2020.
- Distributable cash of $6.3 million and payout ratio of 96.0% for Q3 2020.
- Effective May 1, 2021, the Mr. Lube royalty rate will increase from 7.45% to 7.95% on non-tire sales and 13 locations will be added to the Mr. Lube royalty pool – resulting in an estimated accretion of over 1 cent to distributable cash per share, which is expected to further improve DIV’s payout ratio.
Third Quarter Results
In Q3 2020, DIV generated $8.0 million of revenue compared to $8.1 million in the three months ended September 30, 2019 (“Q3 2019”). 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 $9.2 million in Q3 2020 compared to $8.1 million in Q2 2019. Adjusted revenue increased in Q3 2020 compared to Q3 2019 primarily due to the incremental revenues related to the Nurse Next Door royalty transaction in November 2019 and the acquisition of the Oxford Rights from Oxford Learning Centres, Inc. (“Oxford”) in February 2020, partially offset by the impact of the COVID-19 pandemic, which included royalty and management fee waivers for Mr. Mikes Restaurants Corporation (“Mr. Mikes”) and lower royalty income from the AIR MILES ® licenses.
For the nine months ended September 30, 2020, DIV generated $21.6 million of revenue compared to $22.1 million for the nine months ended September 30, 2019. After taking into account the DIV Royalty Entitlement related to DIV’s royalty arrangements with Nurse Next Door, DIV’s adjusted revenue was $25.2 million for the nine months ended September 30, 2020 and $22.1 million for the nine months ended September 30, 2019. The increase in adjusted revenue was primarily due to the incremental revenues related to the Nurse Next Door royalty transaction in November 2019, the acquisition of the Oxford Rights in February 2020 and the acquisition of the MRM Rights from Mr. Mikes in May 2019. The increase was partially offset by the impact of the COVID-19 pandemic, which included negative same-store-sales-growth (“SSSG”) at Mr. Lube Canada Limited Partnership (“Mr. Lube”), lower royalty income from the AIR MILES ® licenses and the royalty and management fee waivers granted to Mr. Mikes and Sutton Group Realty Services Ltd. (“Sutton”).
Royalty Partner Business Updates
Mr. Lube: SSSG for the Mr. Lube stores in the royalty pool was 0.5% in Q3 2020 and -6.4% for the nine months ended September 30, 2020, compared to positive SSSG of 5.9% and 4.8%, respectively, in the same prior periods in 2019. Mr. Lube’s business continued to stabilize in Q3 2020 as various governments eased certain of the restrictions put in place to fight the COVID-19 pandemic and Canadians started driving more. Mr. Lube’s SSSG for the nine months ended September 30, 2020 was negatively impacted by the COVID-19 pandemic, which resulted in a slow-down in consumer activity across the country and recommendations from all levels of government for people to work from home and self-isolate.
AIR MILES ® : According to Alliance Data Systems Inc.’s (“ADS”) news release dated October 29, 2020, the number of AIR MILES ® reward miles issued decreased by 7.8% in Q3 2020 and 10.3% for the nine months ended September 30, 2020, reflecting a decline in discretionary spending, including credit card spend and delays in promotions by sponsors. In addition, ADS announced that AIR MILES reward miles redeemed decreased by 36.3% in Q3 2020 and 28.8% for the nine months ended September 30, 2020, reflecting the impact of the COVID-19 pandemic on travel-related categories, partially offset by strength from merchandise redemptions. According to ADS, on a sequential basis, AIR MILES reward miles issued and redeemed improved 18% and 13% in Q3 2020 compared to Q2 2020, respectively, reflecting better business conditions than in Q2 2020. ADS also noted that LoyaltyOne is continuing to pivot the AIR MILES reward portfolio to emphasize more non-travel options, which drove higher merchandise redemptions in Q3 2020. Royalty income from the AIR MILES ® licenses was down 11% in the three months and 9.4% in the nine months ended September 30, 2020 compared to the same prior periods.
Nurse Next Door: The royalty entitlement to DIV (the “DIV Royalty Entitlement”) from Nurse Next Door was $1.2 million in Q3 2020.