Mr. Sean Morrison reports

DIVERSIFIED ROYALTY CORP. ANNOUNCES RECORD ADJUSTED REVENUE(1) QUARTER, FULL REDEMPTION OF ITS 5.25% CONVERTIBLE DEBENTURES AND AMENDMENTS TO ITS MR. MIKES ROYALTY AGREEMENTS

Diversified Royalty Corp. has released its financial results for the three months ended Sept. 30, 2022, and nine months ended Sept. 30, 2022.

Q3 2022 highlights

• Revenue of $11.6-million in Q3 2022 (Diversified Royalty's strongest revenue quarter since adopting its multiroyalty strategy in 2013) and $32.5-million for the nine months ended Sept. 30, 2022, up 18.1 per cent compared with the three months ended Sept. 30, 2021 (Q3 2021), and 21.8 per cent compared with the nine months ended Sept. 30, 2021.
• Adjusted revenue of $12.9-million in Q3 2022 and $36.2-million for the nine months ended Sept. 30, 2022, up 16.3 per cent and 19.4 per cent, respectively, compared with the same periods in 2021.
• Distributable cash of $8.0-million in Q3 2022 and $23.0-million for the nine months ended Sept. 30, 2022, up 8.5 per cent and 15.0 per cent, respectively, compared with the same periods in 2021.
• Payout ratio of 86.1 per cent in Q3 2022 and 88.7 per cent for the nine months ended Sept. 30, 2022, based on dividends of 22 cents per share on an annualized basis, an improvement for the nine months ended Sept. 30, 2022, compared with 92.4 per cent in the same prior period (Q3 2022 was flat compared with the prior period -- 86.1 per cent), based on dividends of 20.17 cents per share on an annualized basis.

In Q3 2022, Diversified Royalty generated $11.6-million of revenue compared with $9.9-million in Q3 2021. After taking into account the Diversified royalty entitlement related to Diversified Royalty's royalty arrangements with Nurse Next Door Professional Homecare Services Inc., Diversified Royalty's adjusted revenue was $12.9-million in Q3 2022, compared with $11.1-million in Q3 2021. Adjusted revenue increased primarily due to positive trends experienced by Diversified Royalty's royalty partners, as discussed in further detail herein. Diversified Royalty's royalty partner revenues in Q3 2022 were less impacted by COVID-19 and the related government restrictions than in Q3 2021. In addition, incremental revenue was generated from the inclusion of the four net stores added to the Mr. Lube royalty pool on May 1, 2022.

1. Adjusted revenue, distributable cash and Diversified Royalty 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 meaning under IFRS.
2. On a pro forma basis, if the dividends for the three and nine months ended Sept. 30, 2021, were paid out on an annualized basis of 22 cents per share, the payout ratio would have been 91.6 per cent and 100.5 per cent, respectively.

For the nine months ended Sept. 30, 2022, Diversified Royalty generated $32.5-million of revenue compared with $26.6-million for the nine months ended Sept. 30, 2021. After taking into account the Diversified Royalty royalty entitlement related to Diversified Royalty's royalty arrangement with Nurse Next Door, Diversified Royalty's adjusted revenue was $36.2-million for the nine months ended Sept. 30, 2022, and $30.3-million for the nine months ended Sept. 30, 2021. The increase in adjusted revenue was primarily due to the positive trends experienced by Diversified Royalty's royalty partners in the current period, as well as the full period inclusion of both the 13 locations added to the Mr. Lube royalty pool and the 0.5-per-cent increase in the Mr. Lube royalty rate on May 1, 2021, plus further incremental revenue from the four net stores added to the Mr. Lube royalty pool on May 1, 2022. Diversified Royalty's royalty partner revenues in the nine months ended Sept. 30, 2022, were less impacted by COVID-19 and the related government restrictions than in the nine months ended Sept. 30, 2021.

Royalty partner business updates

Mr. Lube: Mr. Lube generated same-store sales growth (SSSG) of 14.8 per cent for the Mr. Lube stores in the royalty pool for Q3 2022 and 18.3 per cent for the nine months ended Sept. 30, 2022, compared with SSSG of 14.9 per cent and 13.9 per cent, for the same respective prior periods in 2021, representing record results for Mr. Lube. The increase was primarily due to resumption of consumer prepandemic activities and associated vehicle service intervals, price increases, the continued growth in Mr. Lube's maintenance, tire and mechanical service offerings, and the effectiveness in Mr. Lube's targeted multimedia marketing campaigns.

Air Miles: Loyalty Ventures Inc., the parent company of LoyaltyOne Co., issued a news release on Nov. 8, 2022, regarding the Q3 2022 performance of the Air Miles reward program announcing that Air Miles reward miles issued increased by 2 per cent due to the strength in the credit card and fuel verticals partially offset by changes in the grocery category, and Air Miles reward miles redeemed increased by 45 per cent in Q3 2022, primarily due to the continued demand for travel as COVID-related restrictions abated.

Loyalty Ventures also announced that during the third quarter of 2022, that Air Miles completed contract extensions with three long-time sponsors, Bank of Montreal, Shell Canada and Metro, in Ontario and has recently added high-frequency grocer Pattison Food Group as part of its card-linked offers promotion, enabling Air Miles collectors to accelerate earning while shopping for everyday grocery essentials. Pattison Food Group consists of eight grocery banners, and its largest is Save-On-Foods, a well-known retail chain with 176 stores across Western Canada.

Sutton: During the nine months ended Sept. 30, 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, 2022.

Oxford: Oxford locations in the Oxford royalty pool generated SSSG (on a constant currency basis) of 8.9 per cent in Q3 2022 and 15.0 per cent for the nine months ended Sept. 30, 2022, compared with SSSG of 19.5 per cent and 7.8 per cent, for the same respective periods in 2021. In Q1 2022, Oxford saw a transition back to in-person tutoring for many locations and the second quarter resulted in the strongest May and June months in Oxford's history, based on system sales. Oxford's third quarter of 2022 saw sustained recovery with system sales4 comparable to prepandemic levels.

Mr. Mikes: SSSG for the Mr. Mikes restaurants in the Mr. Mikes royalty pool (defined herein) was 8.7 per cent in Q3 2022 and 29.7 per cent for the nine months ended Sept. 30, 2022, compared with SSSG of 11.1 per cent and 6.2 per cent for the same respective periods in 2021, which included stores that were temporarily closed due to the COVID-19 pandemic in 2021.

For the three months ended Sept. 30, 2022, Diversified Royalty collected 100 per cent of the contractual royalty amounts and Mr. Mikes continued to see strong recovery to prepandemic levels. For the nine months ended Sept. 30, 2022, Diversified Royalty granted royalty and management fee relief to Mr. Mikes in connection with the COVID-19 pandemic, collecting 88 per cent of the contractual royalty amounts.

Nurse Next Door: The royalty entitlement to Diversified Royalty from Nurse Next Door was $1.3-million in Q3 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, 2022. In Q3 2022, Nurse Next Door signed 86 new franchises primarily in major metropolitan markets (16 in Canada, 69 in the United States and one in Australia). Nurse Next Door continues to make its fixed royalty payment to Diversified Royalty in full, which Diversified Royalty expects will continue.

Third quarter commentary

Sean Morrison, president and chief executive officer of Diversified Royalty, stated: "We are pleased to announce record royalty revenues once again in Q3 2022, with strong performances across all of our royalty partners following an already impressive second quarter. Mr. Lube, our largest royalty partner, continues to produce record results, generating SSSG of 14.8 per cent for the three-month period ended Sept. 30, 2022, and SSSG of 18.3 per cent for the nine months then ended. Mr. Mikes has been sustaining pre-COVID levels of revenue after the removal of COVID-19 vaccine mandates in early 2022, Oxford Learning is seeing a sustained recovery to prepandemic levels and the Air Miles royalty experienced growth of 4.5 per cent compared with Q3 2021. In addition, Sutton and Nurse Next Door continue to make their fixed-growth royalty payments. Coupled with our record results, the company saw weighted average organic growth in its royalty partners of 10.1 per cent in Q3, 2022 (excluding the collection of [$580,000] in Mr. Mikes deferred contractual royalty fees)."

Distributable cash and dividends declared

In Q3 2022 and for the nine months ended Sept. 30, 2022, distributable cash increased to $8.0-million (6.39 cents per share) and $23.0-million (18.60 cents per share), respectively, compared with $7.3-million (6.01 cents per share) and $20.0-million (16.42 cents per share) for the same respective periods in 2021. The increase in distributable cash was primarily due to higher adjusted revenue, 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 Q3 2022 and for the nine months ended Sept. 30, 2022, the payout ratios were 86.1 per cent and 88.7 per cent, respectively, an improvement compared with the nine months ended Sept. 30, 2022, of 92.4 per cent (Q3 2022 was flat compared with the prior period -- 86.1 per cent). The improvement in the payout ratio for the nine months ended Sept. 30, 2022, was primarily due to higher distributable cash, partially offset by higher dividends declared per share.

Net income

Net income for Q3 2022 and the nine months ended Sept. 30, 2022, was $6.7-million and $20.1-million, respectively, compared with net income of $5.9-million and $15.3-million for the same respective periods of 2021. The increase in net income was primarily due to higher adjusted revenues, and higher fair value gains on financial instruments partially offset by an increase in income tax expenses, interest expenses on credit facilities, and salaries and benefits.

Full redemption of remaining 5.25 per cent convertible unsecured subordinated debentures

Diversified Royalty announced today that it has issued a notice of redemption to the registered holder of Diversified Royalty's 5.25 per cent convertible unsecured subordinated debentures maturing on Dec. 31, 2022. As set out in the notice of redemption, the company intends to redeem all of the remaining 2022 debentures on Dec. 20, 2022. The 2022 debentures are redeemable at a redemption price equal to their principal amount, plus accrued and unpaid interest thereon up to, but excluding, the redemption date. As of the close of business on Nov. 9, 2022, there was $5.0-million aggregate principal amount of 2022 debentures issued and outstanding. The redemption price will be approximately $1,024.6458 for each $1,000 principal amount redeemed comprising: (i) a payment of $1,000 of the principal amount: and (ii) approximately $24.6458, being the accrued and unpaid interest up to but excluding the redemption date. Payment of the redemption price is expected to be made to CDS Clearing and Depository Services Inc., as the sole registered holder of the 2022 debentures, on the redemption date, with payments to beneficial holders of the 2022 debentures to follow after the redemption date. Trading of the 2022 debentures on the Toronto Stock Exchange is expected to be halted prior to the open on the redemption date, with delisting to follow after the close of trading on such date. Payment is expected to be made from cash on hand.

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. 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.

Diversified Royalty's objective is to increase cash flow per share by making accretive royalty purchases and through the growth of purchased royalties. The company 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 increases allows.

We seek Safe Harbor.