Mr. Sean Morrison reports

DIVERSIFIED ROYALTY CORP. ANNOUNCES FIRST QUARTER 2024 RESULTS

Diversified Royalty Corp. has released its financial results for the three months ended March 31, 2024 (Q1 2024).

Highlights

• The weighted average organic royalty growth of DIV's diversified royalty portfolio was 6.0 per cent in Q1 2024, compared with 11.1 per cent for the three months ended March 31, 2023 (Q1 2023). The weighted average organic royalty growth on a consistent currency basis was 6.0 per cent in Q1 2024.
• Revenue was $15.1-million in Q1 2024, up 22.2 per cent, compared with $12.3-million in Q1 2023.
• Adjusted revenue of $16.4-million in Q1 2024, up 20.3 per cent, compared with $13.6-million in Q1 2023.
• Distributable cash of $9.6-million in Q1 2024, up 8.4 per cent, compared with $8.8-million in Q1 2023.
• Payout ratio of 97.2 per cent in Q1 2024 on dividends of 6.11 cents per share, compared with 96.1 per cent in Q1 2023 on dividends of six cents per share.
• On Feb. 23, 2024, Diversified Royalty closed its bought deal public offering of 20,320,500 common shares for gross proceeds of $54.0-million, including 2,650,500 common shares issued pursuant to the full exercise of the overallotment option, at a price of $2.66 per common share. The net proceeds were primarily used for the full repayment of outstanding amounts under Diversified Royalty's acquisition credit facility, which funds were drawn by Diversified Royalty to partially finance the BarBurrito acquisition, which completed in October, 2023.

In Q1 2024, Diversified Royalty generated $15.1-million of revenue compared with $12.3-million in Q1 2023. After taking into account the Diversified Royalty royalty entitlement related to Diversified Royalty's royalty arrangements with Nurse Next Door, Diversified Royalty's adjusted revenue was $16.4-million in Q1 2024, compared with $13.6-million in Q1 2023. Adjusted revenue increased primarily due to incremental revenue received through the acquisition of the BarBurrito rights on Oct. 4, 2023, positive SSSG (same store sales growth) at Mr. Lube + Tires, the addition of five new locations on May 1, 2023, to the Mr. Lube + Tires royalty pool, the annual contractual increases at Stratus, Nurse Next Door and Sutton, partially offset by negative SSSG from Oxford and Mr. Mikes and lower royalty income from Air Miles, all as discussed in further detail herein.

Royalty partner business updates

Mr. Lube + Tires: Mr. Lube + Tires generated SSSG of 14.6 per cent for the Mr. Lube + Tires stores in the royalty pool for Q1 2024, compared with SSSG of 17.6 per cent, in Q1 2023. SSSG in the current period is primarily due to the sustained growth across all of Mr. Lube + Tires' offerings including oil change services, tire sales and services, and maintenance services offerings.

Stratus: Royalty income from SBS Franchising LLC was $2.1-million ($1.6-million (U.S.) translated at an average foreign exchange rate of $1.3483 to $1.00 (U.S.)) for Q1 2024. The corporation granted Stratus a licence to use the Stratus rights in exchange for an annual royalty payment of $6.3-million (U.S.) increasing each November at a rate of 5 per cent until and including November, 2025, and 4 per cent each November thereafter during the term of the licence.

Nurse Next Door: The royalty entitlement to Diversified Royalty from Nurse Next Door Professional Homecare Services Inc. was $1.3-million in Q1 2024. 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, 2023.

Mr. Mikes: SSSG for the Mr. Mikes Restaurants Corp. restaurants in the Mr. Mikes royalty pool was negative 5.5 per cent in Q1 2024, compared with SSSG of 30.5 per cent in Q1 2023. The lower SSSG percentage in the current period is due to lower restaurant guest traffic. In addition, in the prior comparable period SSSG was measured against Q1 2022 which quarter included the impact from COVID-19 restaurant closures and vaccine mandates.

Royalty income and management fees of $1.0-million were generated from Mr. Mikes in Q1 2024, compared with $1.1-million in Q1 2023.

Oxford: The Oxford Learning Centres Inc. locations in the Oxford royalty pool generated SSSG (on a constant currency basis) of negative 2.1 per cent in Q1 2024, compared with SSSG 15.8 per cent in Q1 2023. Oxford's SSSG for the last three quarters, since the third quarter of 2023, have remained flat to slightly down primarily due to the completion of the Ontario government funding of student learning supports, which includes private tutoring, in the second half of 2023, which has negatively impacted Oxford's system sales.

Air Miles: In Q1 2024, royalty income of $900,000 was generated from the Air Miles licences compared with $1.1-million generated in Q1 2023, a decrease of 20.7 per cent from the comparable quarter. The decrease is largely due to the remaining wind-down of the Sobey's exit from the Air Miles reward program that began in the second quarter of 2023, resulting in contribution from Sobeys partial participation in the Air Miles reward program in the prior period.

On April 23, 2024, Air Miles announced recent enhancements to the Air Miles reward program, positively improving rewards for BMO Air Miles credit card holders on eligible wholesale and alcohol purchases.

Sutton: In Q1 2024, royalty income of $1.1-million was generated 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, 2023.

BarBurrito: Royalty income from BarBurrito Restaurants Inc. was $2.1-million for Q1 2024. On Oct. 4, 2023, the corporation granted BarBurrito the licence to use the BarBurrito rights in exchange for a fixed monthly payment equal to $8.3-million per annum which 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.

First quarter commentary

Sean Morrison, president and chief executive officer of Diversified Royalty, stated: "We are pleased with the strong start to 2024. The first quarter of 2024 once again saw a strong performance from our top royalty partner, Mr. Lube + Tires, which continues to produce double-digit growth, generating SSSG of 14.6 per cent. Mr. Lube management continues to see strong revenue growth opportunities across the system. Q1 results from Mr. Mikes and Oxford showed slightly negative growth. Both of these royalty partners have recently added/promoted management that are optimistic about the go forward growth opportunities for their respective businesses. Royalty partners Nurse Next Door, Sutton, Stratus and BarBurrito each made their fixed royalty payments. DIV continues to see a decrease in royalty income from Air Miles, which is lapping the last full quarter that had Sobeys in the program. BMO has recently announced increased Air Miles being issued to BMO Air Miles credit card holders, which shows their continued commitment to the loyalty program."

Distributable cash and dividends declared

In Q1 2024, distributable cash increased to $9.6-million (6.29 cents per share), compared with $8.8-million (6.24 cents per share) in Q1 2023. The increase in distributable cash for the quarter was primarily due to higher adjusted revenue and lower general and administrative expenses, offset by higher interest, professional fees, and salaries and benefits. The increase in distributable cash per share for the quarter, was primarily due to an increase in distributable cash, partially offset by a higher weighted average number of common shares outstanding.

In Q1 2024, the payout ratio was 97.2 per cent on dividends of 6.11 cents per share, compared with the payout ratio of 96.1 per cent on dividends of six cents per share for the same respective period in 2023. The increase was primarily due to higher dividends declared per share, partially offset by higher distributable cash per share.

Net income

Net income for Q1 2024 was $7.1-million compared with net income of $6.7-million for the three months ended March 31, 2023. The increase in net income in Q1 2024 was primarily due to the higher adjusted revenues, partially offset by higher interest expenses, income tax expenses, share-based compensation expenses and other finance costs.

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 + Tires, Air Miles, Sutton, Mr. Mikes, Nurse Next Door, Oxford Learning Centres, Stratus Building Solutions, and BarBurrito trademarks. Mr. Lube + Tires 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 a home care provider with locations across Canada and the United States, as well as in Australia. Oxford Learning Centres is one of Canada's leading franchisee 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. BarBurrito is the largest quick-service Mexican restaurant food chain in Canada.

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.