Diversified Royalty : Q4 (Q4 2024 DIV MDA Final v.2)
DIV.TO
Management's Discussion and Analysis
For the three months and year ended December 31, 2024
March 24, 2025
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
BASIS OF PRESENTATION
This management's discussion and analysis ("MD&A") in respect of the results of operations and financial condition of Diversified Royalty Corp. ("DIV" or the "Company") for the three months and year ended December 31, 2024 should be read in conjunction with the Company's audited consolidated financial statements for the years ended December 31, 2024 and 2023 (the "2024 Financial Statements"). The 2024 Financial Statements of the Company are presented in thousands of Canadian dollars and have been prepared in accordance with IFRS Accounting Standards ("IFRS").
Additional information related to the Company, including its Annual Information Form dated March 24, 2025 for the year ended December 31, 2024, is available on SEDAR+ at www.sedarplus.com.
Statements made in this MD&A and in the 2024 Financial Statements are subject to the risks and uncertainties identified under the headings "Risk Factors" and "Forward Looking Information" and those identified elsewhere in this MD&A.
DESCRIPTION OF NON-IFRS FINANCIAL MEASURES, NON-IFRS RATIOS AND SUPPLEMENTARY FINANCIAL MEASURES
Non-IFRS Financial Measures
Readers are cautioned that, in addition to reported results, the Company has also included non-IFRS financial measures that are historical, non-IFRS ratios and supplementary financial measures to assess its results and the results of its Royalty Partners (as defined below) in this MD&A. Non-IFRSfinancial measures are utilized to assess the Company's business and to measure the Company's overall performance. Non-IFRS financial measures used in this MD&A include EBITDA, normalized EBITDA, distributable cash, DIV Royalty Entitlement, DIV Royalty Entitlement net of NND Royalties LP Expenses, adjusted royalty income and adjusted revenue. Non-IFRS ratios are ratios that include a non-IFRS financial measure as one or more of its components. Non-IFRS ratios used in this MD&A include distributable cash per share and payout ratio. Supplementary financial
measures used in this MD&A include same store sales growth or SSSG and system sales of certain of DIV's Royalty Partners.
Management believes that disclosing certain non-IFRS financial measures, non-IFRS ratios and supplementary financial measures provides readers of this MD&A with important information regarding the Company's financial performance and its ability to pay dividends and the performance of its Royalty Partners. 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 Company and its Royalty Partners 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 financial measures should not be construed as a substitute or an alternative to net income, revenue or cash flows from operating activities as determined in accordance with IFRS.
DIV Royalty Entitlement, Adjusted Royalty Income and Adjusted Revenue
DIV Royalty Entitlement, adjusted royalty income and adjusted revenue are reported to allow readers to assess the performance of DIV's royalty arrangement with Nurse Next Door (as defined below) on a basis consistent with the royalties received from DIV's other Royalty Partners. Under IFRS, DIV is required to record its investment in NND Royalties LP (as defined below) as a financial instrument and the income earned from this investment as finance income, which does not allow for a direct comparison of the income received from this investment to the royalties received from DIV's other Royalty Partners, which attract different treatment under IFRS. The most comparable IFRS measure to DIV Royalty Entitlement is "distributions received from NND LP" on the 2024 Financial Statements. DIV Royalty Entitlement is calculated as distributions received from
NND LP plus NND Royalties LP expenses, which include legal, audit, tax and advisory services. Note that distributions received from NND LP is derived from the royalty paid by Nurse Next Door to NND LP. Adjusted royalty income is calculated as royalty income, plus the DIV Royalty Entitlement received by NND Royalties LP from Nurse Next Door. Adjusted revenue is calculated as adjusted royalty income plus management fees. The table under the section "DIV Royalty Entitlement net of NND Royalties LP Expenses" provides a reconciliation of DIV Royalty Entitlement to distributions received from NND LP on the financial statements and the table under the section "Royalty Pools" provides a reconciliation of adjusted royalty income and adjusted revenue to royalty income, the most comparable IFRS measure disclosed in the financial statements.
DIV Royalty Entitlement net of NND Royalties LP Expenses
DIV Royalty Entitlement net of NND Royalties LP expenses is calculated as the DIV Royalty Entitlement less expenses related to NND Royalties LP, which include legal, audit, tax and advisory services. In addition to net income and cash flow from operations, DIV Royalty Entitlement net of NND Royalties LP expenses is a useful supplemental measure as it provides investors with an indication of cash available for distribution generated by NND Royalties LP.
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The following table reconciles DIV Royalty Entitlement net of NND Royalties LP Expenses to the most directly comparable IFRS measure disclosed in the financial statements:
Three months ended December 31,
Year ended December 31,
(000's)
2024
2023
2024
2023
Distributions received from NND LP
$
1,314
$
1,284
$
5,197
$
5,095
Add: NND Royalties LP expenses
2
2
27
22
DIV Royalty Entitlement
1,316
1,286
5,224
5,117
Less: NND Royalties LP expenses
(2)
(2)
(27)
(22)
DIV Royalty Entitlement, net of NND Royalties LP expenses
$
1,314
$
1,284
$
5,197
$
5,095
EBITDA and Normalized EBITDA
EBITDA is calculated as earnings before interest, taxes, depreciation and amortization. Normalized EBITDA is calculated as EBITDA before certain items including: share-based compensation, other finance costs, the fair value adjustment on financial instruments and payment of lease obligations, but including the DIV Royalty Entitlement net of NND Royalties LP expenses. While EBITDA and normalized EBITDA are not recognized measures under IFRS, management of the Company believes that, in addition to net income, EBITDA and normalized EBITDA are useful supplemental measures as they provide investors with an indication of cash available for distribution prior to debt service needs, litigation expenditures and interest income, as applicable. The methodologies used by the Company to determine EBITDA and normalized EBITDA may differ from those utilized by other issuers or companies and, accordingly, EBITDA and normalized EBITDA as used in this MD&A may not be comparable to similar measures used by other issuers or companies. Readers are cautioned that EBITDA and normalized EBITDA should not be construed as an alternative to net income or loss determined in accordance with IFRS as indicators of an issuer's performance or to cash flows from operating, investing and financing activities as measures of liquidity and cash flows. The table under the section "EBITDA, Normalized EBITDA, and Distributable Cash" provides a reconciliation of these non-IFRS financial measures to net income or loss, the most comparable IFRS measure disclosed in the financial statements.
Distributable Cash
Distributable cash is defined as Normalized EBITDA less interest expense on the credit facilities, less distributions on MRM LP Units held by Mr. Mikes, less current income tax expense, less mandatory principal payments on credit facilities plus interest income. Management believes that distributable cash provides investors with useful information about the amount of cash the Company has generated to cover dividends on its common shares during the applicable period. Readers should be cautioned, however, that distributable cash should not be construed as an alternative to the statement of cash flows as a measure of liquidity and cash flows of the Company. The Company's method of calculating distributable cash may differ from that of other issuers and companies and, accordingly, distributable cash may not be comparable to similar measures used by other issuers or companies. The table under the section "EBITDA, Normalized EBITDA, and Distributable Cash" provides a reconciliation of this non-IFRS financial measure to net income and cash flows from operating activities, the most comparable IFRS measures disclosed in the financial statements.
Non-IFRS Ratios
Distributable Cash per Share
Distributable cash per share is defined as distributable cash divided by the weighted average number of common shares outstanding during the period. Distributable cash per share is a non-IFRS ratio and is not recognized under IFRS, however, management of the Company believes that it provides supplemental information regarding the amount of cash per common share the Company has generated to cover dividends in the applicable period. The Company's method of calculating distributable cash per share may differ from that of other issuers and companies and, accordingly, distributable cash per share may not be comparable to similar measures used by other issuers or companies.
Payout Ratio
The payout ratio is calculated by dividing the dividends per share during the period by the distributable cash per share generated in that period. The payout ratio is a non-IFRS ratio and is not recognized under IFRS, however, management of the Company believes that it provides supplemental information regarding the extent to which the Company distributes cash as dividends, when compared to its cash flow capacity. The Company's method of calculating the payout ratio may differ from that of other issuers and companies and, accordingly, the payout ratio may not be comparable to similar measures used by other issuers or companies.
Supplementary Financial Measures
Same Store Sales Growth or SSSG and System Sales
Same store sales growth or SSSG is the percentage increase in top-line store sales ("System Sales") over the prior comparable period for locations that are included in the Mr. Lube + Tires Royalty Pool, the Oxford Royalty Pool or the Mr. Mikes Royalty Pool (as defined below), as applicable, and were open in both the current and prior periods, excluding stores that were
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permanently closed. Same store sales growth is a supplementary financial measure and does not have a standardized meaning prescribed by IFRS. However, the Company believes that SSSG is a useful measure as it provides investors with an indication of the change in year-over-year sales of Mr. Lube + Tires locations included in the Mr. Lube + Tires Royalty Pool, Oxford locations in the Oxford Royalty Pool and Mr. Mikes Restaurants in the Mr. Mikes Royalty Pool, as applicable. SSSG figures are reported to the Company by its Royalty Partners (see "Third Party Information"). The applicable Royalty Partners' methods of calculating same store sales growth may differ from those of other issuers or companies and, accordingly, same store sales growth may not be comparable to similar measures used by other issuers or companies.
ADDITIONAL IFRS MEASURES
IFRS mandates certain minimum line items for financial statements and requires presentation of additional line items, headings and subtotals when such presentation is relevant to an understanding of the issuer's financial position or performance. IFRS also requires that notes to the financial statements provide information that is not presented elsewhere in the financial statements but is relevant to understanding them. Such financial measures outside the minimum mandated line items are considered additional IFRS measures. The 2024 Financial Statements include certain additional IFRS measures where
management considers such information to be useful to understanding the Company's financial results.
OVERVIEW
DIV is a multi-royalty corporation, engaged in the business of acquiring royalties from well-managed multi-location businesses
and franchisors in North America ("Royalty Partners"). The Company believes that its royalty structure provides a strong incentive for a Royalty Partner to continue growing its business while retaining control of its business.
The Company's primary objectives are to: (i) purchase stable and growing royalty streams from Royalty Partners, and
The Company's revenue for the year ended December 31, 2024 consists of royalties and management fees that are contractually agreed to between the Company and its following Royalty Partners:
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The Company's ongoing cash expenditures are comprised of salaries and benefits, general and administration (including public company costs), professional fees, and interest on credit facilities. The success of the Company currently depends largely on the ability of Mr. Lube + Tires, Sutton, Mr. Mikes, Oxford, Nurse Next Door, Stratus and BarBurrito to maintain and increase the sales or number of agents in the respective royalty pools, and, in the case of Loyalty Inc., the gross billings generated
through the AIR MILES® Reward Program. See "Risk Factors" for further information.
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FINANCIAL HIGHLIGHTS
Three months ended December 31,
Year ended December 31,
(000's except per share amounts and SSSG%)
2024
2023
2024
2023
Consolidated:
Revenue
$
17,032
$
16,393
$
64,990
$
56,495
Adjusted revenue1, 2
18,352
17,688
70,218
61,621
Royalty income
16,879
16,241
64,391
55,962
Adjusted royalty income1, 2
18,199
17,536
69,619
61,088
Normalized EBITDA2
17,167
16,194
65,736
57,232
Distributable cash2
12,603
10,376
44,802
38,115
Income from operations
7,007
14,595
50,190
50,822
Net income - basic
4,015
9,092
26,619
31,723
Net income - diluted
4,015
9,845
26,619
31,723
Dividends declared
10,372
8,736
40,330
34,391
Weighted average number of shares
outstanding - basic
166,056
143,560
162,183
142,676
Weighted average number of shares
outstanding - diluted
167,660
157,738
163,655
144,051
Basic income per share
$
0.02
$
0.06
$
0.16
$
0.22
Diluted income per share
0.02
0.06
0.16
0.22
Distributable cash per share2
0.0759
0.0723
0.2762
0.2671
Dividends declared per share
0.0625
0.0609
0.2487
0.2410
Total assets
$
578,978
$
567,351
$
578,978
$
567,351
Total non-current financial liabilities
261,034
289,958
261,034
289,958
Adjusted Revenue 2 by Royalty Partner
Mr. Lube + Tires
$
8,602
$
7,810
$
31,190
$
28,429
Stratus3
2,268
2,099
8,714
8,171
BarBurrito
2,101
2,032
8,403
2,032
Nurse Next Door1
1,341
1,316
5,309
5,207
Oxford
1,206
1,162
4,530
4,521
Sutton
899
1,095
4,206
4,339
Mr. Mikes
1,040
1,130
4,226
4,570
AIR MILES®
896
1,044
3,640
4,352
Mr. Lube + Tires SSSG2
12.0%
14.0%
10.5%
17.1%
Oxford SSSG2, 4
4.0%
-0.2%
0.2%
5.9%
Mr. Mikes SSSG2
-4.7%
7.3%
-3.4%
10.1%
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ROYALTY POOLS
The following table reconciles the non-IFRS financial measures of adjusted royalty income and adjusted revenue to royalty income, the most directly comparable IFRS measure disclosed in the financial statements:
Three months ended December 31,
Year ended December 31,
(000's)
2024
2023
2024
2023
Mr. Lube + Tires
$
8,543
$
7,750
$
30,953
$
28,196
Stratus2
2,269
2,099
8,714
8,171
BarBurrito
2,080
2,013
8,320
2,013
Oxford
1,194
1,152
4,487
4,481
Sutton
872
1,068
4,096
4,229
Mr. Mikes
1,025
1,115
4,181
4,520
AIR MILES®
896
1,044
3,640
4,352
Royalty income
$
16,879
$
16,241
$
64,391
$
55,962
DIV Royalty Entitlement1
1,320
1,295
5,228
5,126
Adjusted royalty income1
$
18,199
$
17,536
$
69,619
$
61,088
Management fees
153
152
599
533
Adjusted revenue1
$
18,352
$
17,688
$
70,218
$
61,621
Mr. Lube + Tires
ML Royalties Limited Partnership ("ML LP"), an entity controlled by the Company, owns all the trademarks and certain other intellectual property rights utilized by Mr. Lube + Tires (the "ML Rights") in its business of franchising automotive maintenance businesses.
ML LP licensed the ML Rights to Mr. Lube + Tires for a 99 year term ending on August 19, 2114, in exchange for a royalty payment currently equal to 7.95% of the system sales of flagship Mr. Lube + Tires locations in the Mr. Lube + Tires Royalty Pool, with the exception of system sales on tires and rims ("Tire Sales") that are subject to a royalty rate of 2.5% (collectively, the "Mr. Lube + Tires Royalty Rate").
Subject to certain performance criteria being met, the Mr. Lube + Tires Royalty Pool is adjusted annually on May 1 (the "Adjustment Date") to include new Mr. Lube + Tires locations and to remove Mr. Lube + Tires locations that have been permanently closed during the previous year. See "Mr. Lube + Tires Royalty Pool Additions" below.
Mr. Lube + Tires has the option, subject to meeting certain performance criteria, to increase the Mr. Lube + Tires Royalty Rate on non-Tire Sales in two further 0.5% increments during the life of the royalty. As consideration for the Mr. Lube + Tires Royalty Rate increases, Mr. Lube + Tires is entitled to exchange certain limited partnership units of ML LP for DIV shares, or cash at DIV's election, based on a formula that is intended to be accretive to DIV.
For Mr. Lube + Tires, changes in system sales are derived from both SSSG, a supplementary financial measure, from existing locations in the Mr. Lube + Tires Royalty Pool and from the addition of new Mr. Lube + Tires locations to the Mr. Lube + Tires Royalty Pool.
Mr. Lube + Tires Royalty Pool Additions
On May 1, 2023 the Mr. Lube + Tires Royalty Pool was adjusted to include the royalties from five new flagship Mr. Lube + Tires locations. With the adjustment for these five new locations, the Mr. Lube + Tires Royalty Pool included 144 flagship locations (one of which has since permanently closed).
On April 21, 2023, DIV and Mr. Lube + Tires entered into an amendment (the "LP Amendment") to the amended and restated limited partnership agreement (the "LP Agreement") of ML LP to confirm the terms on which the five new locations would be added to the Mr. Lube + Tires Royalty Pool on May 1, 2023. The initial consideration paid to Mr. Lube + Tires 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 "2023 Amendment Consideration"). The initial consideration was based on the forecast system sales of such locations for the 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 + Tires locations added to the Mr. Lube + Tires Royalty Pool on May 1, 2023 will be paid to Mr. Lube + Tires 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
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December 31, 2023). As at December 31, 2024, the remaining consideration payable was adjusted to $2.4 million from $1.2 million, reflecting the actual system sales of these locations for the year ending December 31, 2024, which was recorded to accounts payable and accrued liabilities. A copy of the LP Amendment has been filed under DIV's profile on SEDAR+ atwww.sedarplus.com.
In addition, Mr. Lube + Tires elected in 2024 to defer (i) the third royalty rate increase until the next adjustment date in respect of which the Mr. Lube + Tires Royalty Rate is eligible to be increased (subject to Mr. Lube + Tires' right to further defer the increase to the Mr. Lube + Tires Royalty Rate at such date), and (ii) the addition of eligible flagship locations to the Mr. Lube + Tires Royalty Pool to the next adjustment date in respect of which such locations are eligible to added to the Mr. Lube + Tires Royalty Pool.
Fourth Quarter
System sales, a supplementary financial measure, reported by Mr. Lube + Tires for the Mr. Lube + Tires locations within the Mr. Lube + Tires Royalty Pool were $118.5 million in the fourth quarter of 2024, compared to $106.8 million in the fourth quarter of 2023. SSSG for the Mr. Lube + Tires locations within the Mr. Lube + Tires Royalty Pool was reported by Mr. Lube + Tires as 12.0% in the fourth quarter of 2024, compared to SSSG of 14.0% in the fourth quarter of 2023. Refer to "Description of Non- IFRS Financial Measures, Non-IFRSRatios and Supplementary Financial Measures" in this MD&A.
Royalty income from Mr. Lube + Tires was $8.5 million in the fourth quarter of 2024, an increase of 10.2% compared to the fourth quarter of 2023. The increase in royalty income was due to positive SSSG.
Year
System sales reported by Mr. Lube + Tires for the Mr. Lube + Tires locations within the Mr. Lube + Tires Royalty Pool were $414.8 million for the year ended December 31, 2024, compared to $376.9 million for the year ended December 31, 2023. SSSG for the Mr. Lube + Tires locations within the Mr. Lube + Tires Royalty Pool was reported by Mr. Lube + Tires as 10.5% for the year ended December 31, 2024, compared to SSSG of 17.1% for the year ended December 31, 2023. Refer to "Description of Non-IFRS Financial Measures, Non-IFRSRatios and Supplementary Financial Measures" in this MD&A.
Royalty income from Mr. Lube + Tires was $31.0 million for the year ended December 31, 2024, an increase of 9.8% compared to the prior year. The increase in royalty income was due to positive SSSG as well as the addition to the Mr. Lube + Tires Royalty Pool of five new Mr. Lube + Tires locations on May 1, 2023.
As at December 31, 2024, of the 144 store locations in the Mr. Lube + Tires Royalty Pool, 143 locations were operating and 1 location was permanently closed for which ML LP is collecting make-whole payments from Mr. Lube + Tires.
AIR MILES® Reward Program
AM Royalties Limited Partnership ("AM LP") (a wholly owned subsidiary of the Company) owns the Canadian AIR MILES® trademarks and certain related Canadian intellectual property rights (collectively, the "AIR MILES® Rights"). Loyalty Inc. has an exclusive right to use the AIR MILES® Rights in exchange for a royalty payment equal to 1% of gross billings from the AIR MILES® Reward Program.
Gross billings for the AIR MILES® Reward Program is derived from several AIR MILES® metrics, with AIR MILES® reward miles issued being the primary metric, and other metrics including AIR MILES® reward miles redeemed, service revenue, commissions and promotional items. Variations in these metrics collectively affect DIV's royalty income under the AIR MILES®
Licenses.
Fourth Quarter and Year
For the fourth quarter of 2024, royalty income of $0.9 million was generated from the AIR MILES® Licenses compared to $1.0 million generated in the fourth quarter of 2023, a decrease of 14.2%. In the year ended December 31, 2024, royalty income of $3.6 million was generated from the AIR MILES® Licenses compared to $4.4 million in the same prior year, a decrease of 16.4%. The decrease is largely due to the loss of AIR MILES® sponsor Metro and continued softness in the AIR MILES® Rewards Program.
Sutton
SGRS Royalties Limited Partnership ("SGRS LP"), an entity controlled by the Company, owns all the Canadian and US trademarks and certain other intellectual property rights utilized by Sutton in its residential real estate franchise business (the "SGRS Rights").
On September 19, 2015, SGRS LP licensed the SGRS Rights to Sutton for 99 years in exchange for a monthly royalty payment (the "Sutton Royalty Rate"), based on the number of agents in the Sutton Royalty Pool. The Sutton Royalty Rate grows by
2.0% per year, effective July 1st of each year. On July 1, 2024, the monthly Sutton Royalty Rate was increased from $65.906 per agent to $67.224 per agent. There are currently 5,400 agents in the Sutton Royalty Pool.
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Fourth Quarter and Year
Royalty income was $0.9 million for the three months and $4.1 million for the year ended December 31, 2024, which reflects the contractual 2% annual increase effective July 1, 2024 and is net of a 20% royalty deferral applied in the fourth quarter of 2024. DIV and Sutton entered into a royalty deferral agreement during the fourth quarter, which provides Sutton with a 20% deferral of royalties from October 1, 2024 to December 31, 2025. The deferred royalties do not accrue interest and are due in full on December 31, 2027. Sutton finished 2024 on a strong note, opening two new franchise locations in Q4 and has a growing pipeline of franchise opportunities across Canada. Sutton intends to invest the deferred royalties to complete the rebuild of its management team, increase investment in marketing, roll out its rebranded logo across Canada, increase business development, and build on the positive momentum that began in the back half of 2024.
Oxford
OX Royalties Limited Partnership ("OX LP"), an entity controlled by DIV, owns the trademarks and certain other intellectual property rights utilized by Oxford in its franchised supplementary education services business (the "Oxford Rights").
On February 20, 2020, OX LP licensed the Oxford Rights to Oxford for 99 years in exchange for a royalty equal to 7.67% of the gross sales (the "Oxford Royalty Rate") from Oxford's 146 franchise and corporate locations in Canada and the United
States included in the Oxford Royalty Pool. So long as certain royalty coverage tests are met, Oxford is eligible to add new Oxford locations to the Oxford Royalty Pool on May 1st of each year. In consideration for the addition of net new Oxford locations into the Oxford Royalty Pool, Oxford will be entitled, subject to TSX approval, to exchange certain of the limited partnership units of OX LP held by Oxford for common shares of DIV, or cash at DIV's election.
Oxford will also, subject to meeting certain performance criteria, be provided opportunities to increase the Oxford Royalty Rate in six 0.25% increments during the life of the royalty. In consideration for each incremental Oxford Royalty Rate increase, Oxford will be entitled, subject to TSX approval, to exchange certain of the limited partnership units of OX LP for common shares of DIV, or cash at DIV's election.
As at December 31, 2024, of the 146 locations in the Oxford Royalty Pool, 138 locations were operating and 8 locations were permanently closed, for which OX LP is accruing and collecting make-whole payments from Oxford.
Fourth Quarter and Year
System sales, a supplementary financial measure, reported by Oxford for Oxford locations within the Oxford Royalty Pool were $15.3 million in the fourth quarter of 2024 and $57.7 million for the year ended December 31, 2024, compared to $14.8 million and $57.7 million in the same respective prior periods.
Oxford reported that Oxford locations in the Oxford Royalty Pool generated SSSG, a supplementary financial measure, on a constant currency basis of 4.0% in the fourth quarter of 2024 and 0.2% for the year ended December 31, 2024 (after the impact of foreign currency translation, SSSG was 4.4% and 0.4%, respectively), compared to -0.2% and 5.9% for the same respective prior periods (after the impact of foreign currency translation, SSSG was 0.0% and 6.5%, respectively). Oxford's SSSG since the third quarter of 2023 until the second quarter of 2024 remained flat to slightly down primarily due to the completion of the Ontario Government funding of student learning supports, which included private tutoring, in the first half of 2023, which negatively impacted Oxford system sales. From Q3 2024 onwards, Oxford has returned to positive SSSG. Refer to "Description of Non-IFRS Financial Measures, Non-IFRSRatios and Supplementary Financial Measures" in this MD&A.
Royalty income from Oxford was $1.2 million and $4.5 million for the three months and year ended December 31, 2024, respectively, compared to $1.2 million and $4.5 million in the same respective prior periods.
Mr. Mikes
MRM Royalties Limited Partnership ("MRM LP"), an entity controlled by the Company, owns the trademarks and certain related other intellectual property rights utilized by Mr. Mikes in its restaurant business (the "MRM Rights").
On May 20, 2019, MRM LP licensed the MRM Rights to Mr. Mikes for 99 years for a fixed royalty payment. On November 9, 2022, DIV, MRM LP, MRM Royalties GP Inc. and Mr. Mikes, as applicable, entered into an amended set of agreements effective June 13, 2022, including an amended and restated royalty agreement, pursuant to which Mr. Mikes now pays a royalty to MRM LP equal to 4.35% (the "Mr. Mikes Royalty Rate") of the gross sales of the Mr. Mikes restaurants in the Mr. Mikes
Royalty Pool.
Fourth Quarter and Year
Mr. Mikes reported that SSSG, a supplementary financial measure, for Mr. Mikes restaurants in the Mr. Mikes Royalty Pool was approximately -4.7% in the fourth quarter of 2024 and -3.4% for the year ended December 31, 2024, compared to 7.3% and 10.1% for the same respective prior periods. The lower SSSG percentage in the current period is due to lower restaurant guest traffic. In addition, in the comparable period, SSSG was measured against quarters that included the impact from COVID- 19 related government regulations, including vaccine mandates.
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Royalty income from Mr. Mikes was $1.0 million in the fourth quarter of 2024 and $4.2 million for the year ended December 31, 2024 compared to $1.1 million and $4.5 million for the same respective prior periods (which included partial payment of deferred contractual royalty and management fees of $0.05 million and $0.18 million, respectively).
Nurse Next Door
On November 15, 2019, NND Royalties Limited Partnership ("NND Royalties LP") licensed the trademarks and certain other intellectual property rights utilized by Nurse Next Door in its premium home care business (the "NND Rights") to Nurse Next Door for 99 years in exchange for a gross royalty (the "Gross Royalty") equal to the greater of: (i) 6% of gross sales from Nurse
Next Door franchises and corporate stores in Canada and the United States, and (ii) approximately $0.42 million per month, which amount increases at a fixed rate of 2% per annum (being the DIV Royalty Entitlement, a non-IFRS measure). To the extent the Gross Royalty is greater than the DIV Royalty Entitlement, Nurse Next Door is entitled to receive the excess amount in the form of a cash distribution paid by NND Royalties LP on the NND Exchangeable Units held by Nurse Next Door (the
"Nurse Next Door Distribution Entitlement").
Subject to certain royalty coverage tests being met, Nurse Next Door is eligible to sell incremental royalties to NND Royalties LP. In consideration for the incremental royalty, Nurse Next Door will be entitled, subject to TSX approval, to indirectly exchange certain of the limited partnership units of NND Royalties LP held by Nurse Next Door for common shares of DIV, or cash at
DIV's election, based on a formula that is intended to be accretive to DIV.
Nurse Next Door has the ability to repurchase the NND Rights from NND Royalties LP (the "NND Buy-OutOption") at any time after November 15, 2026. Due to the NND Buy-Out Option, NND Royalties LP does not satisfy the tests under IFRS to establish control over the NND Rights; accordingly, the Company cannot recognize the NND Rights as an intangible asset on its consolidated statement of financial position and the transaction is accounted for as a financing arrangement. Under IFRS, DIV is required to record its investment in NND Royalties LP as a financial instrument and the income earned from this investment as finance income, which does not allow for a direct comparison of the income received from this investment to the royalties received from DIV's other Royalty Partners, which attract different treatment under IFRS. To allow readers to assess the performance of DIV's royalty arrangements with Nurse Next Door on a basis consistent with the royalties received from DIV's other Royalty Partners, the Company reports the DIV Royalty Entitlement as a non-IFRS financial measure. Refer to "Description of Non-IFRS Financial Measures, Non-IFRSRatios and Supplementary Financial Measures" in this MD&A.
Fourth Quarter and Year
The DIV Royalty Entitlement was $1.3 million for the three months and $5.2 million for the year ended December 31, 2024, and reflects the contractual 2.0% increase effective October 1, 2024, compared to the same prior periods. Refer to the
"Description of Non-IFRSFinancial Measures, Non-IFRS Ratios and Supplementary Financial Measures" section of this MD&A.
Stratus
On November 14, 2022, the Company acquired through Strat-B Royalties Limited Partnership ("Strat-BLP") (an entity controlled by the Company), the trademarks and certain other intellectual property rights utilized by Stratus in its commercial cleaning and building maintenance franchise business (the "Stratus Rights") for a purchase price of US$59.4 million. The
Company granted Stratus the license to use the Stratus Rights in exchange for a royalty payment currently equal to US$6.4 million per annum which increases each November at a rate of 5% until and including 2026 and 4% each November thereafter.
Stratus may increase the annual royalty payable on April 1st of each year following the closing date (each a "Stratus Adjustment Date") subject to Stratus satisfying certain royalty coverage tests. The amount of each royalty increase cannot be less than
US$1.0 million per annum and must, in respect of amounts over that threshold, be in increments of US$0.1 million per annum. In consideration for a royalty increase on a Stratus Adjustment Date, Strat-B LP will pay an amount to Stratus in cash, based on a formula that is intended to be accretive to DIV.
Fourth Quarter and Year
Royalty income was $2.3 million for the three months and $8.7 million for the year ended December 31, 2024 translated at an average foreign exchange rate of $1.4000 and $1.3703 to US$1, respectively (US$1.6 million and US$6.4 million in the respective prior periods, translated at an average foreign exchange rate of $1.3610 and $1.3493 to US$1, respectively), and reflects the contractual 5.0% increase effective November 15, 2024, compared to the same prior periods.
BarBurrito
On October 4, 2023, the Company acquired through BARB Royalties Limited Partnership ("BARB LP") (an entity controlled by the Company), the trademarks and certain other intellectual property rights utilized by BarBurrito in its quick service Mexican restaurants in Canada (the "BarBurrito Rights") for a total purchase price of $108.0 million.
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Disclaimer
Diversified Royalty Corp. published this content on March 24, 2025, and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on March 24, 2025 at 21:36:04.217.