NOT FOR DISTRIBUTION TO US NEWS WIRE SERVICES OR FOR US DISSEMINATION
VANCOUVER, British Columbia, Aug. 09, 2018 (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 June 30, 2018 (“Q2
2018”) and six months ended June 30, 2018.
Highlights
- Revenues of $6.8 million for Q2 2018 and $12.8 million for the six months ended June 30, 2018.
- Mr. Lube royalty rate on non-tire sales at flagship locations increased from 6.95% to 7.45% on May 1, 2018.
- Mr. Lube royalty pool increased from 117 to 118 locations on May 1, 2018.
Second Quarter and Year-To-Date Results
In Q2 2018, DIV generated $6.8 million of royalty revenue and management fees compared to $4.5 million in the
second quarter of 2017. Revenues of $3.8 million were generated from Mr. Lube Canada Limited Partnership (“Mr. Lube”), $1.0 million
from Sutton Group Realty Services Ltd. (“Sutton”), and $2.0 million from the AIR MILES® licenses.
For the six months ended June 30, 2018, DIV generated $12.8 million of royalty revenue and management fees
compared to $8.7 million in the prior year. The increase in revenue was driven by the incremental revenue generated from the AIR
MILES® licenses, the increase in the Mr. Lube royalty rate, the net addition of one Mr. Lube location to the Mr. Lube
royalty pool, positive same-store-sales growth (“SSSG”) at Mr. Lube, and the contractual 2.0% increase in the Sutton royalty rate
effective July 1st of each year.
SSSG for the Mr. Lube stores in the royalty pool was 3.2% in Q2 2018 and 3.8% for the six months ended June 30,
2018. 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 July 19, 2018, the number of AIR MILES® reward miles issued
increased by 2% in Q2 2018 and ADS is forecasting growth in the number of AIR MILES® reward miles issued for the
remainder of 2018.
ADS also announced in its news release dated July 30, 2018 that Samsung Electronics Canada Inc. has entered into
an agreement to issue AIR MILES® reward miles to consumers in Canada when they use their AIR MILES® collector
cards via Samsung Pay. This is a new and innovative way for collectors to earn AIR MILES® reward miles and enables the
AIR MILES® program to accelerate the issuance of AIR MILES® reward miles to a growing segment of consumers
interested in e-wallet transactions.
Second Quarter Commentary
Sean Morrison, President and Chief Executive Officer of DIV stated, “We are pleased with Mr. Lube’s continued
strong performance, and are encouraged by the positive trends of collector and sponsor engagement in the AIR MILES Program.”
Mr. Morrison continued, “We remain disciplined in pursuing and evaluating royalty acquisition opportunities.
Recently, the Board formed an Investment Committee to facilitate in the review of proposed acquisitions and financing arrangements
of DIV.”
Distributable Cash
In Q2 2018, distributable cash was $5.2 million ($0.0488 per share) compared to $3.8 million ($0.0359 per share)
in the second quarter of 2017. For the six months ended June 30, 2018, distributable cash was $9.8 million ($0.0915 per share)
compared to $7.2 million ($0.0684 per share) in the prior year. The increase was primarily due to the incremental royalty income
driven by the acquisition of the AIR MILES® licenses on August 25, 2017. The increase was partially offset by higher
interest expense related to the convertible debentures issued on November 7, 2017, the $17.4 million term loan facility drawn on
September 6, 2017 associated with the acquisition of the AIR MILES® licenses, and an increase of $7.0 million to ML
Royalties Limited Partnership’s term loan facility on May 1, 2018 in connection with the increase in the Mr. Lube royalty rate and
the net addition of one location to the Mr. Lube royalty pool.
In Q2 2018, dividends declared exceeded distributable cash by $0.7 million, which resulted in a payout ratio of
114.0%. For the six months ended June 30, 2018, dividends declared exceeded distributable cash by $2.1 million, which resulted in a
payout ratio of 121.6%. However, 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. As a result, the payout ratio on a cash basis was
100.9% in Q2 2018 and 107.1% for the six months ended June 30, 2018. The shortfall in distributable cash was funded by the proceeds
received from the sale of the trademarks and rights related to the Franworks Franchise Corp. business (the “FW Rights”) in November
2016.
The Corporation expects the payout ratio for the 2018 fiscal year, excluding the impact of the dividend
reinvestment plan, to be in the range of 110% - 115% (on a cash basis, in the range of 100% - 105%), after taking into account the
Mr. Lube royalty rate increase and the net addition to the Mr. Lube royalty pool.
The Corporation intends to use the remaining proceeds from the sale of the FW Rights as well as the proceeds
from the convertible debenture offering to fund future royalty acquisitions, with the intention of achieving a payout ratio that
approximates 100% over time. The Corporation expects the payout ratio to remain over 100% until such time as further royalty
acquisitions are completed and excess cash has been deployed.
Net Income
Net income for Q2 2018 was $3.0 million, compared to net income of $2.7 million in the second quarter of 2017.
Net income for the six months ended June 30, 2018 was $5.7 million, compared to net income of 5.0 million in the prior year. The
increase in net income was primarily due to higher income from operations related to the acquisition of the AIR MILES®
licenses, offset by higher interest expense and income taxes.
Resignation of Sutton’s President and CEO
Drew Keddy has resigned as President and CEO of Sutton effective August 10, 2018. Mr. Keddy has been President
and CEO of Sutton for three years. Sutton has advised that Rick Taron, Vice President of Operations at Sutton, will manage Sutton
until a new President and CEO is hired. Mr. Taron has been with Sutton for over 12 years.
Sean Morrison stated, “I would like to personally thank Drew for his involvement with Sutton, from assisting
with DIV’s due diligence of Sutton for the royalty transaction to leading Sutton as President and CEO for the last three years.
Drew leaves Sutton in good financial condition with royalty coverage for the six months ended June 30, 2018 of greater than 40% and
debt free. DIV looks forward to working with the owners of Sutton to find a new President and CEO.”
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 and AIR MILES® 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 174 locations across Canada and over $225 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.
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 and financial outlook
in this news release include, but are not limited to, statements made in relation to: ADS’s forecast of growth in AIR
MILES® issued over the remainder of 2018; ADS’s expected growth in AIR MILES® issued via Samsung Pay; DIV’s
pursuit of royalty acquisition opportunities; DIV’s ability to pay a predictable and stable dividend to shareholders; DIV’s
expected payout ratio for the 2018 fiscal year; DIV’s intention to use the remaining proceeds from the sale of the FW Rights as
well as the proceeds from the convertible debenture offering to fund future royalty acquisitions, with the intention of achieving a
payout ratio that approximates 100% over time; DIV’s expectation that the payout ratio will remain over 100% until such time as
further royalty acquisitions are completed; Sutton’s appointment of a new President and CEO; 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: the number of AIR MILES® issued
will grow over the remainder of 2018 or through Samsung Pay; DIV will use the net proceeds of the convertible debenture offering
and/or the remaining proceeds from the sale of the FW Rights to fund future royalty acquisitions, or the timing thereof; 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; the payout ratio for the 2018 fiscal year will align with
management’s current expectations; DIV will achieve a payout ratio that approximates 100% over time; DIV’s payout ratio will remain
over 100% until such time as further royalty acquisitions are completed and all excess cash has been deployed; Sutton will appoint
a new President and CEO; 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 28, 2018, which is
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 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. 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 presentation constitute a “financial
outlook” within the meaning of securities laws, such information is being provided investors with timely disclosure of material
financial information with respect to the expected 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 disclosed 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 included 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 six months ended June
30, 2018 are consistent with the preliminary results for such period reported in DIV’s news release dated July 19, 2018.
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” and “payout ratio” are used as non-IFRS measures in this
press 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 six months ended June 30, 2018, 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
