Mr. Sean Morrison reports

DIVERSIFIED ROYALTY CORP. ANNOUNCES FIRST QUARTER 2022 RESULTS

Diversified Royalty Corp. has released its financial results for the three months ended March 31, 2022 (Q1 2022).

Q1 2022 highlights

• Revenue of $9.7-million, up 28.0 per cent compared with the three months ended March 31, 2021 (Q1 2021).
• Adjusted revenue of $11.0-million, up 24.4 per cent compared with Q1 2021.
• Distributable cash of $7.2-million, up 22.4 per cent compared with Q1 2021.
• Payout ratio of 93.6 per cent based on dividends of 22 cents per share on an annualized basis, an improvement compared with 103.1 per cent in Q1 2021 based on dividends of 20 cents per share on an annualized basis.
• On March 30, 2022, Diversified Royalty closed its bought deal offering of $52.5-million principal amount of 6-per-cent convertible debentures resulting in net proceeds of $50.4-million. The net proceeds along with cash on hand were used to partially redeem the company's existing convertible debentures on May 4, 2022.

In Q1 2022, Diversified Royalty generated $9.7-million of revenue compared with $7.6-million in Q1 2021. After taking into account the Diversified Royalty royalty entitlement (defined herein) related to Diversified Royalty's royalty arrangements with Nurse Next Door Professional Homecare Services Inc., Diversified Royalty's adjusted revenue was $11.0-million in Q1 2022, compared with $8.8-million in Q1 2021. Adjusted revenue increased primarily due to positive trends experienced by most of Diversified Royalty's royalty partners, as discussed in further detail herein. COVID-19 and the related government restrictions more adversely impacted Diversified Royalty's royalty partners in Q1 2021, compared with the current quarter. In addition, incremental revenue was generated from the addition of 13 locations to the Mr. Lube Canada LP royalty pool and the 0.5-per-cent increase in the Mr. Lube royalty rate on May 1, 2021.

Royalty partner business updates

Mr. Lube: Mr. Lube generated same-store-sales-growth (SSSG) of 16.3 per cent for the Mr. Lube stores in the royalty pool for Q1 2022, compared with SSSG of 3.9 per cent in Q1 2021. The increase was due to a variety of factors including continued growth in Mr. Lube's maintenance services, tire services and sales carried over from the fourth quarter of 2021, the effectiveness in Mr. Lube's targeted multimedia marketing campaigns, the addition of 13 new stores to the Mr. Lube royalty pool and the 0.5-per-cent increase to the Mr. Lube royalty rate on May 1, 2021.

Air Miles: Air Miles reward miles issued decreased by 4.2 per cent in Q1 2022, primarily due to the non-renewal of two sponsors in the first quarter of 2021. Air Miles reward miles redeemed increased by 43.0 per cent in Q1 2022, primarily reflecting pent-up demand for travel as COVID-related restrictions abated.

During the first quarter of 2022, Air Miles renewed top five sponsor, American Express, activated a national marketing campaign to drive greater collector enrolment and engagement and launched several additional marketing campaigns in conjunction with the Air Miles 30th anniversary.

Sutton: During the first quarter of 2022, 100 per cent of the fixed royalty was collected from Sutton. 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 14.2 per cent in Q1 2022, compared with SSSG of negative 19.3 per cent in Q1 2021. In March, 2022, most Ontario-government-mandated COVID-19 restrictions were lifted (with Ontario being Oxford's largest market), including most mandatory vaccination, masking requirements and distance restrictions. During the quarter, Oxford saw a transition back to in-person tutoring for many locations. March, 2022, was the strongest March in Oxford's history and is the third strongest month ever on the basis of system sales.

Mr. Mikes: Mr. Mikes reported that SSSG, for Mr. Mikes restaurants in the royalty pool was 24.6 per cent in the first quarter of 2022 compared with the first quarter of 2021, which included stores that were temporarily closed due to the COVID-19 pandemic.

In Q1 2022, Diversified Royalty granted royalty and management fee relief to Mr. Mikes in connection with the COVID-19 pandemic, collecting 67 per cent of the contractual royalty amounts. In addition, in March, 2022, Mr. Mikes made a one-time payment of approximately $550,000 to Diversified Royalty and its subsidiary MRM Royalties LP representing partial payment of deferred contractual royalty fees and accrued management fees, which has been recognized as revenue upon collection.

Most Mr. Mikes locations are in British Columbia and Alberta. In March, 2022, some B.C.-government-mandated COVID restrictions were lifted, including masking requirements in public indoor settings; however, the proof of vaccination requirements for restaurants remained in place until early April, 2022. In Alberta, the proof of vaccination program ended earlier in 2022, and the mask mandate was lifted on March 1, 2022, as part of the government's easing of COVID-19 restrictions. As such, the management team at Mr. Mikes expects a measured return of system sales toward prepandemic levels.

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

Nurse Next Door: The royalty entitlement to Diversified Royalty from Nurse Next Door was $1.3-million in Q1 2022. The Diversified Royalty 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. In Q1 2022, Nurse Next Door signed 16 new franchises primarily in major metropolitan markets (three in Canada, 11 in the United States and two in Australia). Nurse Next Door continues to make its fixed royalty payment to Diversified Royalty in full, which Diversified Royalty expects will continue.

First quarter commentary

Sean Morrison, president and chief executive officer of Diversified Royalty, stated: "We are very encouraged with the strong start to 2022. Mr. Lube, our largest royalty partner, produced continued robust results, generating SSSG of 16.3 per cent for the period ended March 31, 2022. The outlook for Mr. Lube remains strong with tire and minor maintenance services continuing to drive growth. Oxford Learning had its third best month in its history (based on system sales) in March, 2022, while dealing with COVID-19 spacing restrictions in Ontario up to March 21. These strong results are indicative of the pent-up demand for tutoring services and Oxford's strong outlook now that core COVID-19 restrictions in Ontario have been removed. With the recent removal of COVID-19 vaccine passports mandates in Alberta (February, 2022) and in B.C. (early April, 2022), Mr. Mikes is positioned to continue its recovery towards pre-COVID sales levels. Air Miles has stabilized, and Sutton and Nurse Next Door continue to make their fixed-growth royalty payments."

Distributable cash and dividends declared

In Q1 2022, distributable cash increased to $7.2-million (5.87 cents per share), from $5.9-million (4.85 cents per share) in Q1 2021. The increase in distributable cash was primarily due to higher adjusted revenue (including the one-time payment of approximately $550,000 made by Mr. Mikes to Diversified Royalty and its subsidiary MRM Royalties noted herein) partially offset by higher current tax expense, salaries and benefits, and interest expense. The increase in distributable cash per share was primarily due to the increase in distributable cash, partially offset by a higher weighted average number of common shares outstanding.

In Q1 2022, the payout ratio was 93.6 per cent, a decrease when compared with the payout ratio in Q1 2021 of 103.1 per cent. The decrease was primarily due to higher distributable cash, partially offset by higher dividends declared per share.

Net income

Net income for Q1 2022 was $6.2-million, compared with net income of $4.1-million in Q1 2021. The increase in net income was primarily due to higher adjusted revenues, 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 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.