Mr. Sean Morrison reports

DIVERSIFIED ROYALTY CORP. ANNOUNCES FOURTH QUARTER AND YEAR END 2021 RESULTS

Diversified Royalty Corp. has released its financial results for the three months ended Dec. 31, 2021 (Q4 2021), and year ended Dec. 31, 2021.

Highlights

• Revenue of $10.6-million for Q4 2021 and $37.3-million for the year ended Dec. 31, 2021.
• Adjusted revenue (1) of $11.9-million for Q4 2021 and $42.2-million for the year ended Dec. 31, 2021.
• Distributable cash (1) of $7.9-million for Q4 2021 and $27.9-million for the year ended Dec. 31, 2021.
• Payout ratio (1) of 83.5 per cent for Q4 2021 and 89.8 per cent for the year ended Dec. 31, 2021.
• Two dividend increases from 20 cents per share to 21 cents per share, followed by an increase to 22 cents per share, effective with the August and November, 2021, monthly dividends respectively.
• Effective May 1, 2021, the Mr. Lube royalty rate increased from 7.45 per cent to 7.95 per cent on non-tire sales and 13 locations were added to the Mr. Lube royalty pool.

For the three months and year ended Dec. 31, 2021, DIV generated $10.6-million and $37.3-million of revenue respectively, compared with $8.9-million and $30.5-million for the same periods in 2021. After taking into account the DIV Royalty Entitlement (1) (defined herein) related to DIV's royalty arrangements with Nurse Next Door Professional Homecare Services Inc., DIV's adjusted revenue was $11.9-million and $42.2-million for the three months and year ended Dec. 31, 2021, compared with $10.1-million and $35.3-million for the same periods in 2020. Adjusted revenue increased primarily due to positive trends experienced by most of DIV's royalty partners, as discussed in further detail below. COVID-19 and the related government restrictions more adversely impacted DIV's royalty partners in the three months and year ended Dec. 31, 2020, compared with the current year. In addition, incremental revenue was generated from the addition of 13 locations to the Mr. Lube Canada LP royalty pool and the increase in the Mr. Lube royalty rate on non-tire sales on May 1, 2021.

(1) Adjusted revenue, distributable cash and DIV Royalty Entitlement are non-IFRS (international financial reporting standards) financial measures and payout ratio is a non-IFRS ratio, and as such, do not have a standardized meanings under IFRS.

Royalty partner business updates

Mr. Lube: Mr. Lube generated same-store-sales-growth (SSSG)(2) of 20.7 per cent for the Mr. Lube stores in the royalty pool for Q4 2021, compared with SSSG of 1.1 per cent in Q4 2020. Mr. Lube generated SSSG of 15.8 per cent for the Mr. Lube stores in the royalty pool for the year ended Dec. 31, 2021, compared with SSSG of negative 4.4 per cent for the year ended Dec. 31, 2020. Mr. Lube generated SSSG of 21.5 per cent and 10.4 per cent for the Mr. Lube stores in the royalty pool for the three months and year ended Dec. 31, 2021, respectively, compared with the same periods in 2019. The increase in 2021 compared with the prior year was due to a variety of factors including growth in Mr. Lube maintenance services and tire sales, new service offerings, and price increases. In addition, the relaxing of COVID-19 government restrictions during the year resulted in more drivers returning to the road.

Same-store-sales growth or SSSG is a non-IFRS financial measure.

Air Miles: On Feb. 3, 2022, Loyalty Ventures Inc., the parent company of LoyaltyOne Co., issued a news release regarding the Q4 2021 and year ended Dec. 31, 2021, performance of the Air Miles reward program announcing that: (i) Air Miles reward miles issued decreased by 6.7 per cent in Q4 2021 and 5.9 per cent for the year ended Dec. 31, 2021, due to the non-renewal of two sponsors and their exit from the program in the first quarter of 2021; (ii) Air Miles reward miles redeemed increased by 27.8 per cent in Q4 2021 and 12.1 per cent for the year ended Dec. 31, 2021, reflecting continued strength in the merchandise category and positive momentum early in the quarter for travel bookings, before the emergence of the Omicron variant in November, 2021.

Sutton: Since June, 2020, DIV has been collecting 100 per cent of the fixed royalty and management fee payments from Sutton as the Canadian residential real estate market experienced a strong recovery following a period of low transactional activity in April and May, 2020. However, DIV previously waived 50 per cent of Sutton's March, 2020, royalty and management fees and 75 per cent of Sutton's April and May, 2020, royalty and management fees in connection with the dramatic slowdown of residential real estate activity that occurred following the initial onset of the COVID-19 pandemic, and the related impact on Sutton's business. The fixed royalty payable by Sutton increases at a rate of 2 per cent per year, with the most recent increase effective July 1, 2021.

Oxford: Oxford locations in the Oxford royalty pool generated SSSG (on a constant currency basis) of 14.0 per cent in Q4 2021, compared with SSSG of negative 23 per cent in Q4 2020. Oxford's SSSG for the year ended Dec. 31, 2021, was 9.5 per cent, compared with negative 26 per cent for the period from Feb. 20, 2020, the acquisition date of the Oxford rights, to Dec. 31, 2020. Oxford locations in the Oxford royalty pool generated SSSG (on a constant currency basis) of negative 11.7 per cent and negative 13.4 per cent for the three months and year ended Dec. 31, 2021, compared with the same periods in 2019 (on a pro forma basis, had the Oxford transaction closed on Jan. 1, 2019). In 2020, Oxford's SSSG was negatively impacted by the COVID-19 pandemic, which resulted in the temporary suspension of in-centre services in Ontario which represents the majority of its locations. In 2021, government-mandated COVID restrictions began to relax, and Oxford saw a transition back to in-person tutoring for many locations. However, continuing capacity constraints, predominantly in Ontario, continue to limit in-person services.

Mr. Mikes: The majority of Mr. Mikes Restaurants Corp. restaurants have been open for in-restaurant dining at a reduced capacity since mid-June, 2021. Over all, SSSG in Q4 2021 for the Mr. Mikes restaurants in the royalty pool, including stores that were temporarily closed due to the COVID-19 pandemic, was 9.3 per cent compared with Q4 2020 and negative 26.4 per cent compared with Q4 2019. SSSG for the year ended Dec. 31, 2021, for the Mr. Mikes restaurants in the royalty pool was 6.2 per cent compared with the year ended Dec. 31, 2020, and negative 28.4 per cent compared with the year ended Dec. 31, 2019.

DIV granted royalty and management fee relief to Mr. Mikes in connection with the COVID-19 pandemic, collecting 81 per cent of the contractual royalty amount for the year ended Dec. 31, 2021, and 46 per cent for the year ended Dec. 31, 2020. The management team at Mr. Mikes continues to expect a protracted recovery.

(2) SSSG is a supplementary financial measure and as such, does not have a standardized meaning under IFRS.

DIV is in discussions with Mr. Mikes and its lender regarding additional royalty and management fee relief for Mr. Mikes, which DIV expects may be required until such time as all government restrictions impacting the operation of Mr. Mikes restaurants is lifted and the business stabilizes.

Nurse Next Door: The royalty entitlement to DIV from Nurse Next Door was $1.2-million in Q4 2021 and $4.9-million for the year ended Dec. 31, 2021. The DIV Royalty Entitlement from Nurse Next Door grows at a fixed rate of 2.0 per cent per annum during the term of the licence, with the most recent increase effective Oct. 1, 2021. During the year ended Dec. 31, 2021, Nurse Next Door signed 113 (2020 -- 28) new franchises primarily in major metropolitan markets (34 in Canada, 60 in the United States and 19 in Australia). Nurse Next Door continues to make its fixed royalty payment to DIV in full, which DIV expects will continue.

DIV Royalty Entitlement is a non-IFRS measure.

Fourth quarter commentary

Sean Morrison, president and chief executive officer of DIV, stated: "Two thousand twenty-one was a year of continued challenges from the various COVID-19 surges. Through these challenging times, Mr. Lube, our largest royalty partner, produced record results with SSSG of 15.8 per cent for the year ended Dec. 31, 2021. Our other royalty partners also recovered in 2021 and paid DIV 14 per cent more royalties than in 2020. These strong results, combined with the purchase from Mr. Lube of an incremental 0.5 per cent royalty and a royalty on 13 new stores, enabled DIV to raise its dividend twice in 2021. I'm extremely proud of the management teams of our royalty partners and their efforts to manage their businesses and support their franchisees throughout 2021. In summary, DIV is well positioned for a strong 2022 with continued improvement from our royalty partners and increased royalty acquisition opportunities."

Net income (loss)

Net income for Q4 2021 was $8.2-million, compared with net income of $800,000 in Q4 2020. The increase in net income was primarily due to higher adjusted revenues, a net impairment reversal and a higher fair value gain on financial instruments partially offset by an increase in tax expense and salaries and benefits.

About Diversified Royalty Corp.

Diversified Royalty is a multiroyalty corporation, engaged in the business of acquiring top-line royalties from well-managed multilocation businesses and franchisors in North America. Diversified Royalty's objective is to acquire predictable, growing royalty streams from a diverse group of multilocation businesses and franchisors.

Diversified Royalty 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 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 U.S.

Diversified Royalty intends to increase cash flow per share by making accretive royalty purchases and through the growth of purchased royalties. Diversified Royalty intends to pay a monthly dividend to shareholders and increase the dividend as cash-flow-per-share increases allow.

We seek Safe Harbor.