Mr. Sean Morrison reports
DIVERSIFIED ROYALTY CORP. ANNOUNCES ADDITIONS TO THE MR. LUBE ROYALTY POOL
Diversified Royalty Corp. and Mr. Lube Canada Limited Partnership note that, effective May 1, 2022, the Mr. Lube royalty pool has been adjusted to include the royalties from six new flagship Mr. Lube locations and remove two flagship Mr. Lube locations that have permanently closed. With the adjustment for these four net new openings, the Mr. Lube royalty pool now includes 139 flagship locations.
Sean Morrison, president and chief executive officer of Diversified, stated: "Mr. Lube continues to demonstrate growth and strong performance. We believe that the experienced management team at Mr. Lube and the strong store-level execution by its franchisees will facilitate the continued growth of the Mr. Lube brand across Canada."
Stuart Suls, president and chief executive officer of Mr. Lube, stated: "As the pandemic evolved over the past several years, we are proud of the resilience our franchisees demonstrated in adapting to the constantly changing environment. We look forward to continue strengthening the store-level economics of our franchisees, growing the Mr. Lube brand and the ongoing mutually beneficial relationship with DIV."
Additions to the Mr. Lube royalty pool
Subject to certain performance criteria being met, the Mr. Lube royalty pool is adjusted annually on May 1 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. The initial consideration paid to Mr. Lube for the estimated net additional royalty revenue was $3.4-million, representing 80 per cent of the total estimated consideration of $4.3-million. The initial consideration of $3.4-million was elected by Diversified to be paid in the form of 1,083,063 common shares of the company 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 remaining consideration payable for the additional royalty revenue of the six new Mr. Lube locations added to the royalty pool on May 1, 2022, will be paid to Mr. Lube on May 1, 2023, the next adjustment date, and will be adjusted to reflect the actual system sales of these six new locations for the year ending Dec. 31, 2022, net of the lost system sales of the two permanently closed Mr. Lube locations removed from the Mr. Lube royalty pool on May 1, 2022.
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 Diversified was $7.7-million, which represented 80 per cent 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 described further below, the remaining consideration payable for the net additional royalty revenue related to seven of the 13 locations of $1.6-million was paid by Diversified to Mr. Lube in cash on May 1, 2022, based the actual system sales of these locations for the year ending Dec. 31, 2021. The remaining consideration payable for the net additional royalty revenue related to six of the 13 locations will be paid to Mr. Lube on May 1, 2023, and will be adjusted to reflect the actual system sales of these locations for the year ending Dec. 31, 2022.
The actual system sales for the 2022 true-up locations added to the royalty pool on May 1, 2021, has now been determined for the year ended Dec. 31, 2021, to be $10-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 Dec. 31, 2021, is $5.4-million. After taking into account the $3.8-million previously paid by Diversified to Mr. Lube on May 1, 2021, the company paid Mr. Lube the remaining $1.6-million of cash consideration for the net additional royalty revenue of these 2022 true-up locations 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 Diversified's annual information form dated March 10, 2022, a copy of which is available on SEDAR.
About Diversified Royalty Corp.
Diversified is a multiroyalty corporation, engaged in the business of acquiring top-line royalties from well-managed multilocation businesses and franchisors in North America. The company's objective is to acquire predictable, growing royalty streams from a diverse group of multilocation businesses and franchisors.
Diversified 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.
Diversified intends to increase cash flow per share by making accretive royalty purchases and through the growth of purchased royalties. The company expects to pay a predictable and stable dividend to shareholders and increase the dividend as cash flow per share increases allow.
We seek Safe Harbor.
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