Mr. Sean Morrison reports

DIVERSIFIED ROYALTY CORP. ANNOUNCES Q2 2023 RESULTS AND STRONGEST ADJUSTED REVENUE(1) SECOND QUARTER IN ITS HISTORY

Diversified Royalty Corp. has released its financial results for the three months ended June 30, 2023, and the six months ended June 30, 2023.

Second quarter 2023 highlights:

• Revenue of $14.1-million in Q2 2023 and $26.5-million for the six months ended June 30, 2023, up 27.7 per cent and 27.2 per cent, respectively, compared with the same periods in 2022;
• Adjusted revenue of $15.4-million in Q2 2023 (Diversified's strongest adjusted revenue quarter to date since adopting its multiroyalty strategy in 2013) and $29.0-million for the six months ended June 30, 2023, up 25.1 per cent and 24.5 per cent, respectively, compared with the same periods in 2022;
• Distributable cash of $9.8-million in Q2 2023 and $18.6-million for the six months ended June 30, 2023, up 23.7 per cent and 23.2 per cent, respectively, compared with the same periods in 2022;
• Payout ratio of 87.5 per cent in Q2 2023 based on dividends of six cents per share for the quarter, compared with 86.1 per cent in Q2 2022, based on dividends of 5.5 cents per share for the comparable quarter, and 91.6 per cent for the six months ended June 30, 2023, based on dividends of 12 cents per share for the period, compared with 89.7 per cent, based on dividends of 11 cents per share for the comparable period.

In Q2 2023, Diversified generated $14.1-million of revenue compared with $11.1-million in Q2 2022. After taking into account the Diversified royalty entitlement related to Diversified's royalty arrangements with Nurse Next Door Professional Homecare Services Inc., Diversified's adjusted revenue was $15.4-million in Q2 2023, compared with $12.3-million in Q2 2022. Adjusted revenue increased primarily due to positive trends experienced by most of Diversified's royalty partners, as discussed in further detail below. In addition, incremental revenue was generated from the addition of four net new locations to the Mr. Lube Canada Limited Partnership royalty pool on May 1, 2022, and the addition of five new locations to the Mr. Lube royalty pool on May 1, 2023, plus incremental royalty income generated from Stratus beginning on Nov. 15, 2022.

Second quarter commentary

Sean Morrison, president and chief executive officer of Diversified, stated: "DIV is pleased with how its royalty partners performed in the second quarter of 2023. Q2 was DIV's best second quarter, in terms of adjusted revenue and distributable cash, in its history as a royalty company. Mr. Lube, our largest royalty partner, continues to produce strong double-digit growth, generating [same-store sales growth] of 21.1 per cent for the three-month period ended June 30, 2023, while Mr. Mikes and Oxford generated positive SSSG results of 5.5 per cent and 8.6 per cent, respectively. Royalty partners Nurse Next Door, Sutton and Stratus made their fixed royalty payments. Q2 represented the first quarter with Sobey's fully exited from the Air Miles program resulting in the large year-over-year decrease in royalty income from Air Miles. However, there were several positive developments for Air Miles in Q2: ownership transferred to BMO, the outstanding [first quarter] royalty payment was paid in full and Dollarama was added as a new loyalty partner. DIV believes stability of ownership, in the hands of BMO, provides Air Miles with significant credibility and the ability to attract more new loyalty partners going forward. DIV's Q2 2023 weighted-average organic royalty growth was 10.3 per cent (excluding the collection of $50,000 in Mr. Mikes deferred contractual royalty fees and accrued management fees), once again demonstrating the overall strength of DIV's diversified portfolio."

Distributable cash and dividends declared

In Q2 2023 and for the six months ended June 30, 2023, distributable cash increased to $9.8-million (6.86 cents per share) and $18.6-million (13.11 cents per share), respectively, compared with $7.9-million (6.39 cents per share) and $15.1-million (12.26 cents per share) for the same respective periods in 2022. The increase in distributable cash was primarily due to higher adjusted revenue (including payments from Mr. Mikes representing partial payment of deferred contractual royalty fees and deferred contractual management fees), partially offset by higher current tax expense, higher interest expense and professional fees. 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.

Net income

Net income for Q2 2023 and the six months ended June 30, 2023, was $9.1-million and $15.8-million, respectively, compared with net income of $7.1-million and $13.3-million for the same respective periods of 2022. 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 and interest expenses on credit facilities.

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. Diversified'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, Oxford Learning Centres and Stratus Building Solutions 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 steak house 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. Stratus Building Solutions is a leading commercial cleaning service franchise company, providing comprehensive environmentally friendly janitorial, building cleaning and office cleaning services primarily in the United States.

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

We seek Safe Harbor.