Diversified Royalty Corp. (TSX: DIV and DIV.DB.A) (the
“Corporation” or “DIV”) and Mr. Lube Canada Limited Partnership
(“Mr. Lube”) announced today that effective May 1, 2023 the Mr.
Lube royalty pool (the “Mr. Lube Royalty Pool”) has been adjusted
to include the royalties from five new flagship Mr. Lube locations.
With the adjustment for these five new locations, the Mr. Lube
Royalty Pool now includes 144 flagship locations.
Sean Morrison, President and Chief Executive
Officer of DIV, stated, “Mr. Lube has once again demonstrated
strong growth and outstanding performance. I have no doubt that the
experienced management team at Mr. Lube, led by Pamela Lee, and the
strong store-level execution by its franchisees will continue to
produce superior same-store-sales-growth and grow the Mr. Lube
brand across Canada.”
Pamela Lee, President and Chief Executive
Officer of Mr. Lube, stated, “Mr. Lube is proud of the performance
of our franchisees over the past year. We are focused on growing
the Mr. Lube brand and strengthening the store level economics of
our franchisees, and continuing our mutually beneficial
relationship with DIV”.
Additions to the Mr. Lube Royalty Pool
Subject to certain performance criteria being
met, and the LP Amendment as described further below, the Mr. Lube
Royalty Pool is adjusted annually on May 1 (the “Adjustment Date”)
to include new Mr. Lube locations that have been open since July 1
of the previous reporting period and to remove Mr. Lube locations
that have been permanently closed during the previous year.
On April 21, 2023, DIV and Mr. Lube entered into
an amendment (the “LP Amendment”) to the amended and restated
limited partnership agreement (the “LP Agreement”) of DIV’s direct
subsidiary ML Royalties Limited Partnership (“ML LP”) to confirm
the terms on which the five new locations would be added to the Mr.
Lube Royalty Pool on May 1, 2023. The initial consideration paid to
Mr. Lube for the estimated net additional royalty revenue from the
five new locations was $4.7 million, representing 80% of the total
estimated consideration of $5.9 million. The initial consideration
of $4.7 million was elected by DIV to be paid in cash. The initial
consideration is based on the forecast system sales of such
locations for year ending December 31, 2023.
As a result of the LP Amendment, the remaining
consideration payable for the additional royalty revenue of the
five new Mr. Lube locations added to the Mr. Lube Royalty Pool on
May 1, 2023 will be paid to Mr. Lube on May 1, 2025 (as opposed to
May 1, 2024), and will be adjusted to reflect the actual system
sales of these five new locations for the year ending December 31,
2024 (as opposed to the actual system sales for the year ending
December 31, 2023). The actual amount of the consideration payable
for the addition of the five Mr. Lube locations to the Mr. Lube
Royalty Pool has not yet been determined and will be calculated in
accordance with the LP Amendment (as noted above), a copy of which
agreement has been filed on SEDAR at www.sedar.com.
On May 1, 2021, the Mr. Lube Royalty Pool was
adjusted to include royalties from 13 new flagship Mr. Lube
locations. The initial consideration previously paid by DIV was
$7.7 million, which represented 80% of the total estimated
consideration for those 13 locations, which estimate was based on
the forecast system sales of these 13 locations for the 2021 fiscal
year. As previously announced on May 2, 2022, the remaining
consideration payable for the net additional royalty revenue
related to 7 of the 13 locations of $1.6 million was paid by DIV to
Mr. Lube in cash on May 1, 2022 based the actual system sales of
these locations for the year ending December 31, 2021. As described
further below, the remaining consideration for the net additional
royalty revenue related to 6 of the 13 locations (the “2021 True-Up
Locations”) was paid to Mr. Lube on May 1, 2023 to reflect the
actual system sales of these locations for the year ending December
31, 2022.
The actual system sales for the 2021 True-Up
Locations added to the Royalty Pool on May 1, 2021 has now been
determined for the year ended December 31, 2022 to be $12.3
million. The total consideration payable to Mr. Lube for the net
additional royalty revenue of these 2021 True-Up Locations based on
their actual system sales for the year ended December 31, 2022 is
$6.7 million. After taking into account the $3.9 million previously
paid by DIV to Mr. Lube on May 1, 2021 for the 2021 True-Up
Locations, DIV paid Mr. Lube the remaining $2.8 million of cash
consideration for the net additional royalty revenue of these 2021
True-Up Locations on May 1, 2023.
On May 1, 2022, the Mr. Lube Royalty Pool was
adjusted to include royalties from six new flagship Mr. Lube
locations (the “2022 True-Up Locations”) and to remove two
locations that had been permanently closed. The initial
consideration previously paid by DIV was $3.4 million in the form
of 1,083,063 Common Shares of DIV on the basis of the 20-day volume
weighted average closing price of the Common Shares for the period
ended April 25, 2022 of $3.1592 per Common Share (the “2022 Share
Price”). The initial consideration represented 80% of the total
estimated consideration for those 2022 True-Up Locations, which
estimate was based on the forecast system sales of these 2022
True-Up Locations for the 2022 fiscal year.
The actual system sales for the 2022 True-Up
Locations added to the Royalty Pool on May 1, 2022 has now been
determined for the year ended December 31, 2022 to be $10.0
million. The total consideration payable to Mr. Lube for the net
additional royalty revenue of these 2022 True-Up Locations based on
their actual system sales for the year ended December 31, 2022 is
$6.1 million. After taking into account the $3.4 million previously
paid by DIV to Mr. Lube in the form of 1,083,063 Common Shares
issued to Mr. Lube on May 1, 2022, DIV paid Mr. Lube the remaining
$2.6 million of consideration for the net additional royalty
revenue of these 2022 True-Up Locations on May 1, 2023, in the form
of 832,848 Common Shares of DIV on the basis of the 2022 Share
Price. In accordance with the terms of the LP Agreement, ML LP also
made a cash payment to Mr. Lube of approximately $192,000
representing the amount of the dividends of DIV that would have
been received by Mr. Lube had the 832,848 Common Shares been issued
to Mr. Lube on May 1, 2022.
For further details with respect to the manner
in which annual adjustments of the Mr. Lube Royalty Pool occur and
the agreements underlying the procedures therefor, see DIV’s Annual
Information Form dated March 9, 2023 as well as the LP Amendment,
copies of each of which are available on SEDAR at
www.sedar.com.
Amendment to the Acquisition Facility
On May 1, 2023, DIV amended the credit agreement
governing its $50.0 million acquisition credit facility with a
Canadian chartered bank (the “Acquisition
Facility”) to allow for a one-time advance of up to $7.5
million to be used to fund the initial consideration paid by DIV to
Mr. Lube for the five new Mr. Lube locations added to the Royalty
Pool on May 1, 2023 and to partially fund the remaining true-up
consideration paid by DIV to Mr. Lube on May 1, 2023 for the 2021
True-Up Locations. The maximum size of the Acquisition Facility of
$50.0 million was not increased to facilitate this one-time
advance. After taking into account this one-time advance, DIV
currently has $39 million of available capacity under the
Acquisition Facility. A copy of the amendment to the Acquisition
Facility is available under DIV’s profile on SEDAR at
www.sedar.com.
May 2023 Cash Dividend
DIV is pleased to announce that its board of
directors has approved a cash dividend of $0.02 per common share
for the period of May 1, 2023 to May 31, 2023, which is equal to
$0.24 per common share on an annualized basis. The dividend will be
paid on May 31, 2023 to shareholders of record as of the close of
business on May 15, 2023.
Q1 2023 Earnings Release Date
DIV will release earnings results for the three
months ended March 31, 2023 following the closing of regular
trading on the Toronto Stock Exchange on May 10, 2023.
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, Oxford Learning Centres and
Stratus Building Solutions 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.
Sutton is among the leading residential real estate brokerage
franchisor businesses in Canada. Mr. Mikes 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. Stratus
Building Solutions is a leading commercial cleaning service
franchise company providing comprehensive environmentally friendly
janitorial, building cleaning, and office cleaning services
primarily in the United States.
DIV’s objective is to increase cash flow per
share by making accretive royalty purchases and through the growth
of purchased royalties. DIV intends to continue to pay a
predictable and stable monthly dividend to shareholders and
increase the dividend over time, in each case as cash flow per
share allows.
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
“intend” 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 includes, but is not limited
to, statements made in relation to: the amount and timing of the
payment for the remaining consideration payable to Mr. Lube for the
additional royalty revenue from the five Mr. Lube locations added
to the Mr. Lube Royalty Pool on May 1, 2023; DIV’s belief that the
experienced management team at Mr. Lube and strong store-level
execution by its franchisees will continue to produce superior
same-store-sales-growth and grow the Mr. Lube brand across Canada;
Mr. Lube being focused on growing the Mr. Lube brand and
strengthening the store level economics of its franchisees, and
continuing its mutually beneficial relationship with DIV; the
amount and timing of the May 2023 dividend to be paid to DIV’s
shareholders; the timing of DIV releasing earnings results for the
three months ended March 31, 2023; DIV’s objective to continue to
pay predictable and stable 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 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: Mr. Lube will continue to make
royalty payments in the amounts and at the times required, or at
all; the amount of, or timing of the payment for, the additional
consideration payable to Mr. Lube for the five additional Mr. Lube
locations added to the Mr. Lube Royalty Pool on May 1, 2023 will
occur in the amount or at the time estimated; that transactions
completed with Mr. Lube for the additions to the Mr. Lube Royalty
Pool will be accretive to DIV shareholders; Mr. Lube will realize
any of the intended benefits of its growth strategy; Mr. Lube will
continue opening new stores, or that such stores will be successful
if opened; that Mr. Lube will succeed in improving store level
economics of its franchisees; all conditions to the draws on the
Acquisition Facility will be satisfied; DIV will not further amend
its Acquisition Facility in the future; 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
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 9, 2023 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
and financial outlook 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; government mandated COVID-19
restrictions will not be re-imposed; the performance of the Mr.
Lube flagship locations in the Mr. Lube Royalty Pool will be
consistent with DIV’s expectations; and the 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 in
this news release constitutes a “financial outlook” within the
meaning of applicable securities laws, such information is being
provided to provide investors with an estimate of the financial
impact to DIV of transactions with Mr. Lube described in this news
release.
All of the forward-looking information and
financial outlook in this news release is qualified in its entirety
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
information and financial outlook included in this news release is
presented 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
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. (604) 235-3146
Greg Gutmanis, Chief Financial Officer and VP
Acquisitions Diversified Royalty Corp. (604) 235-3146
Diversified Royalty (TSX:DIV)
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