For Immediate Release – not for distribution to US news wire services or for US dissemination.
Vancouver, B.C., May 11, 2017 – Diversified Royalty Corp. (TSX: DIV) (the “Company” or “DIV”) is pleased to announce its financial results for the three months (“First Quarter”) ended March 31, 2017. A copy of this news release and DIV’s unaudited condensed consolidated interim financial statements and related Management’s Discussion and Analysis are available on SEDAR at www.sedar.com and on DIV’s website at www.diversifiedroyaltycorp.com.
• Revenues of $4.1 million for the First Quarter.
• Combined same-store-sales-growth (“SSSG”) for Mr. Lube Canada Limited Partnership (“Mr. Lube”) and Sutton Group Realty Services Ltd. (“Sutton”) of positive 2.5%(1) for the First Quarter.
First Quarter Results
In the First Quarter of 2017, DIV generated $4.1 million of royalty revenue and management fees compared to $7.0 million in the First Quarter of 2016. Revenues of $3.2 million were generated from Mr. Lube and $0.9 million were generated from Sutton. The decrease in total revenues was due to the sale of the trademarks and other intellectual property rights (the “FW Rights”) related to the business of Franworks Franchise Corp. on November 27, 2016.
SSSG of the 117 Mr. Lube flagship stores in the royalty pool was 2.7%(2) for the First Quarter.
Sutton’s fixed royalty increases at a contractual rate of 2% per year with the first increase effective July 1, 2016. From DIV’s perspective, this annual contractual royalty rate increase effectively represents 2% SSSG. The next increase will be effective July 1, 2017.
First Quarter Commentary
Sean Morrison, President and Chief Executive Officer of DIV stated, “We are pleased to report that Mr. Lube achieved SSSG of 2.7%(2) this quarter, after lapping a very strong 5.8%(2) SSSG in the First Quarter of 2016. Overall, Mr. Lube and Sutton continued their solid performance in the quarter.”
Mr. Morrison continued, “With approximately $73 million of cash on hand, the Company is well positioned to take on new royalty transactions. We are very active in pursuing discussions with several potential business partners with the aim of increasing value for our shareholders.”
In the First Quarter, distributable cash was $3.2 million ($0.0306 per share) compared to $5.9 million ($0.0526 per share) in the prior year. The decrease was due to the sale of the FW Rights on November 27, 2016.
In the First Quarter, the dividends declared were in excess of distributable cash. The shortfall in distributable cash was funded by the proceeds received from the sale of the FW Rights. The Company intends to use the proceeds from the sale of the FW Rights to fund future royalty acquisitions, with the intention of achieving a payout ratio that approximates 100% over time. However, as the Company has not yet completed a royalty acquisition subsequent to the sale of the FW Rights, the Company expects the payout ratio to remain over 100% until such time as further royalty acquisitions are completed.
Net income for the First Quarter was $2.3 million, an increase of $0.3 million compared to the same prior period. The increase was driven by lower litigation expense related to the settlement in December 2016 of both John Bennett’s indemnification claim against the Company and the underwriter’s claim for repayment of amounts advanced to DIV in respect of Mr. Bennett’s past indemnity claims.
(1) After adjusting for the estimated impact of the 2016 leap year, the combined SSSG for Mr. Lube and Sutton is 2.5% for the First Quarter of 2017. Prior to the adjustment related to the 2016 leap year, the combined SSSG is 1.6%.
(2) After adjusting for the estimated impact of the 2016 leap year, the SSSG for Mr. Lube is 2.7% for the First Quarter of 2017 and 5.8% for the First Quarter of 2016. Prior to the adjustment related to the 2016 leap year, the SSSG is 1.5% for the First Quarter of 2017 and 7.0% in the First Quarter of 2016.
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 and Mr. Lube trademarks. Sutton is among the leading residential real estate brokerage franchisor businesses in Canada with approximately 8,000 agents and over 200 offices across Canada. Mr. Lube is the leading quick lube service business in Canada with 170 locations across Canada and approximately $200 million of annual system sales.
DIV is currently paying a dividend and 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 statements which 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 statements. 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 statements, although not all forward-looking statements contain these identifying words. Specifically, forward-looking statements in this news release include, but are not limited to, statements made in relation to: the amount and timing of the February 2017 dividend to be paid to DIV’s 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 statements. DIV believes that the expectations reflected in these forward-looking statements 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 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 statements included in this news release are not guarantees of future performance, and such forward-looking statements 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 29, 2016, which is available under DIV’s profile on SEDAR at www.sedar.com.
In formulating the forward-looking statements 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.
All of the forward-looking statements made in this news release are 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 they will have the expected consequences to, or effects on, DIV. The forward-looking statements are 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.
THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR THE ACCURACY OF THIS RELEASE.
Additional information relating to the Corporation and other public filings, is available on SEDAR at www.sedar.com.
Sean Morrison, President and Chief Executive Officer
Diversified Royalty Corp.
Greg Gutmanis, Chief Financial Officer and VP Acquisitions
Diversified Royalty Corp.