Mr. Sean Morrison reports

DIVERSIFIED ROYALTY CORP. ANNOUNCES ACQUISITION OF BARBURRITO RESTAURANTS INC. TRADEMARKS, A 2.1% DIVIDEND INCREASE EFFECTIVE NOVEMBER 1, 2023 AND OCTOBER 2023 CASH DIVIDEND

Diversified Royalty Corp. has acquired the trademarks and certain other intellectual property used by BarBurrito Restaurants Inc. in Canada, adding an eighth royalty stream to Diversified Royalty's portfolio.

Highlights

• Acquisition of the trademarks and certain other intellectual property rights used by BarBurrito in Canada for $72-million cash at closing and certain additional consideration;
• Initial annual royalty revenue from BarBurrito of $8.3-million plus $80,000 of management fees, representing approximately 12 per cent of Diversified Royalty's pro forma adjusted revenue (1);
• Diversified Royalty is acquiring the incremental $8.4-million of revenues from BarBurrito at a royalty acquisition multiple of 8.6 times (1);
• Additional consideration includes a $36-million promissory note that is repayable as new BarBurrito locations, contributing an additional $4.3-million of royalties to Diversified Royalty, are added to the royalty pool, representing an 8.4 times royalty acquisition multiple (1);
• The royalty grows at a fixed rate of 4 per cent per year for seven years and thereafter will fluctuate based on gross sales of BarBurrito locations in the royalty pool;
• Annual dividend on Diversified Royalty's common shares to be increased 2.1 per cent from 24 cents per share to 24.5 cents per share, effective Nov. 1, 2023;
• Diversified Royalty's pro forma payout ratio following the acquisition is approximately 84.7 per cent (pro forma payout ratio, net of DRIP (dividend reinvestment plan), is approximately 74.1 per cent) (1).

(1) Pro forma adjusted revenue is a non-IFRS (international financial reporting standards) financial measure, pro forma payout ratio and pro forma payout ratio, net of DRIP, are non-IFRS measures, and royalty acquisition multiple is a supplementary financial measure and as such, do not have a standardized meaning under IFRS.

Acquisition overview

Diversified Royalty and its wholly owned subsidiary BARB Royalties LP (BARB LP) entered into an acquisition agreement dated Oct. 4, 2023, with BarBurrito and an affiliate of BarBurrito pursuant to which BARB LP acquired the trademarks and certain other intellectual property rights utilized by BarBurrito in its quick service Mexican restaurants in Canada (the BarBurrito rights) for a purchase price, excluding GST, of $72-million cash, a retained interest provided to BarBurrito through the issuance of limited partnership units of BARB LP and a $36-million promissory note that is repayable by BARB LP to BarBurrito upon the first eligible new BarBurrito locations being added to the royalty pool (as defined herein), for a total of $108-million. The cash portion of the purchase price was financed with (i) $50-million drawn from Diversified Royalty's existing acquisition facility, (ii) $2.0-million from Diversified Royalty's cash on hand, (iii) $10-million drawn from a new senior credit facility issued to BARB LP, and (iv) $10-million drawn from a new senior term credit facility issued to Diversified Royalty.

Immediately following the closing of the acquisition, Diversified Royalty licensed the BarBurrito Rights back to BarBurrito for 99 years, in exchange for an initial royalty payment of $8.3-million per annum. The royalty grows at a fixed rate of 4 per cent per annum for the first seven years and, commencing on Jan. 1, 2031, will fluctuate based on the gross sales of the BarBurrito locations in the royalty pool (initially including 225 locations).

The acquisition is expected to increase Diversified Royalty's tax pools by approximately $108-million to a total of approximately $410-million, which can be depreciated over time to reduce Diversified Royalty's cash taxes.

Founded in 2005, BarBurrito has over 260 quick service Mexican restaurants in Canada. All of BarBurrito's locations are franchised, except for one corporate store, and substantially all future growth is currently expected to result from opening additional franchised locations. Based on BarBurrito's financial statements for the fiscal year ended April 30, 2023, BarBurrito had $135-million of system sales (2) and SSSG (same store sales growth) (2) of 4.4 per cent. BarBurrito is forecasting over $180-million in system sales in the fiscal year ended April 30, 2024.

Sean Morrison, president and chief executive officer of Diversified Royalty, stated: "The BarBurrito trademark acquisition and royalty agreement adds an eighth royalty stream to DIV's portfolio, representing approximately 12 per cent of DIV's pro forma adjusted revenue and is another step in our strategy of purchasing royalties from a diverse group of proven multilocation businesses and franchisors. We believe BarBurrito's impressive rate of growth is a result of its strong store level economics, quality of its franchisees and experience of its management team. Alex represents a great partner for DIV, as he strongly believes in the continued success of BarBurrito over the long term and therefore partnering with DIV was far superior to selling equity ownership. We look forward to working with Alex and BarBurrito's management team to continue expanding across Canada."

Alex Shtein, president of BarBurrito, stated: "We are excited to complete this transaction with DIV which will help BarBurrito accelerate its growth and reach its strategic objectives. This deal will have no impact on the day-to-day operations of BarBurrito and I will retain full ownership and control of the company. In addition, current management will also remain the same and will now include Greg Gutmanis, CFO of DIV, on an advisory basis, at board meetings. We remain laser focused on strengthening the restaurant-level economics and profitability of our franchisees and growing the brand across Canada. We look forward to developing a mutually beneficial relationship with DIV for years to come."

(2) System sales and same store sales growth (SSSG) are supplementary financial measures and as such, do not have a standardized meaning under IFRS.

Further details of the acquisition and royalty

Under the terms of the licence and royalty agreement which governs the royalty, BarBurrito will pay BARB LP an initial royalty of $8.3-million per annum in respect of the 225 BarBurrito locations in Canada included in the royalty pool. The initial royalty increases at a fixed rate of 4 per cent per annum for the first seven years and, commencing on Jan. 1, 2031, will fluctuate based on the gross sales of the BarBurrito locations in the royalty pool. So long as certain royalty coverage tests are met, BarBurrito will be able to include eligible new BarBurrito locations in the royalty pool commencing on Jan. 1, 2025. On the addition of net new BarBurrito locations into the royalty pool, BARB LP will firstly pay down the $36-million promissory note issued by BARB LP at closing of the transaction in cash at an 8.75 times multiple (representing an 8.4 times royalty acquisition multiple). After the promissory note has been repaid in full, on the addition of net new BarBurrito locations into the royalty pool, BarBurrito will be entitled to exchange certain of the limited partnership units of BARB LP comprising part of the BarBurrito retained interest for common shares of Diversified Royalty (or cash, at Diversified Royalty's election) at a 7.75 times multiple. The $36-million promissory note is non-interest bearing and repayable by BARB LP to BarBurrito upon the first eligible new BarBurrito locations added to the royalty pool.

Commencing Jan. 1, 2031, when the royalty begins to fluctuate based on the gross sales of the BarBurrito locations in the royalty pool and subject to meeting certain performance criteria, BarBurrito will also be provided opportunities to increase the royalty rate then payable in six, 0.25 per cent increments during the life of the royalty. In consideration for each incremental royalty rate increase, BarBurrito will be entitled to exchange certain of the limited partnership units of BARB LP comprising the BarBurrito retained interest for common shares of Diversified Royalty (or cash, at Diversified Royalty's election) based on a formula that is accretive to Diversified Royalty shareholders.

Payment of the royalty is secured by a general security agreement granted by BarBurrito to BARB LP, and by a secured corporate guarantee granted to BARB LP by certain affiliates of BarBurrito that are involved in the BarBurrito business in Canada.

Diversified Royalty and BARB royalties credit facilities

BARB LP financed $10-million of the purchase price with new bank debt having a term of approximately five years. The BARB credit facility is non-amortizing and has a floating interest rate based on Bankers' Acceptance Rate plus a spread based on prevailing market rates. The BARB credit facility is secured by the BarBurrito rights and the royalties payable by BarBurrito under the licence and royalty agreement, and has covenants customary for this type of a credit facility.

Diversified Royalty financed $50-million of the purchase price from the acquisition facility under its existing credit agreement. The $50-million drawn on the acquisition facility is interest-only for six months and thereafter amortizes over a 60-month period. In connection with the transaction, Diversified Royalty amended the credit agreement to add the additional term facility of $10-million with a term of approximately 18 months. Diversified Royalty financed $10-million of the purchase price from this additional term facility. The additional term facility is non-amortizing and has a floating interest rate based on Bankers' Acceptance Rate plus a spread based on prevailing market rates. The credit agreement is secured by a general security interest over the assets of the corporation and, if requested by the lender, may be secured by specific assignments of certain material agreements entered into by the corporation from time to time, and has covenants customary for this type of credit facility. Diversified Royalty intends to pay down the acquisition facility through a combination of cash flows, debt refinancings and/or capital markets transactions.

Dividend policy increase

Diversified Royalty's board of directors has approved an increase in Diversified Royalty's annual dividend policy from 24.0 cents per share to 24.5 cents per share effective Nov. 1, 2023, an increase of 2.1 per cent. Diversified Royalty estimates its pro-forma payout ratio (3) will be approximately 84.7 per cent with $50-million drawn on its acquisition facility.

(3) Pro forma payout ratio is a non-IFRS ratio, and as such, does not have a standardized meaning under IFRS.

Investor conference call

Management of Diversified Royalty will host a conference call today at 3 p.m. Pacific Time (6 p.m. Eastern Time). To participate by telephone across Canada, call toll-free at 1-888-396-8049 or 1-416-764-8646 (conference ID 70353373). The management presentation for the conference call will be available on Diversified Royalty's website prior to the call. The presentation will be followed by a question-and-answer session. An archived telephone recording of the call will be available until Dec. 3, 2023, by calling 1-877-674-7070 or 1-416-764-8692 (playback pass code: 353373 followed by the poun dkey).

October, 2023, cash dividend

Diversified Royalty's board of directors has approved a cash dividend of two cents per common share for the period of Oct. 1, 2023, to Oct. 31, 2023, which is equal to 24 cents per common share on an annualized basis. The dividend will be paid on Oct. 31, 2023, to shareholders of record as of the close of business on Oct. 16, 2023.

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