Mr. Sean Morrison reports

DIVERSIFIED ROYALTY CORP. ANNOUNCES ACQUISITION OF US-BASED CHEBA HUT FRANCHISING, INC.'S TRADEMARKS, A 10% DIVIDEND INCREASE, AND AN INCREASE IN SIZE OF ITS ACQUISITION faciLITY

Diversified Royalty Corp. has acquired the trademarks and certain other intellectual property used by Cheba Hut Franchising Inc. of Fort Collins, Colo., adding a ninth royalty stream (and the second based in the United States) to Diversified Royalty's portfolio. All dollar amounts in this news release, unless specifically denominated in United States dollars, are represented in Canadian dollars.

Highlights

• Acquisition of Cheba Hut's worldwide trademark portfolio and certain other intellectual property rights for $36-million (U.S.) and certain additional consideration;
• Initial annual royalty revenue from Cheba Hut of $4-million (U.S.), representing approximately 7 per cent of Diversified Royalty's pro forma adjusted revenue;
• The royalty grows at a fixed rate equal to the greater of 3.5 per cent and the U.S. Consumer Price Index (U.S. CPI) plus 1.5 per cent per year;
• Annual dividend on Diversified Royalty's common shares to be increased 10 per cent from 25 cents per share to 27.5 cents per share, effective July 1, 2025;
• Diversified Royalty's strong balance sheet enabled it to finance the transaction without the need to raise equity.

Acquisition overview

Diversified Royalty and its wholly owned subsidiary Cheeb Royalties LP entered into an acquisition agreement dated June 17, 2025, with Cheba Hut and an affiliate of Cheba Hut pursuant to which Cheeb LP acquired Cheba Hut's worldwide trademarks portfolio and certain other intellectual property rights utilized by Cheba Hut in its fast casual, toasted sub sandwich restaurants (the Cheba rights) for a purchase price of $36-million (U.S.) cash. The purchase price was financed with (i) approximately $18-million (U.S.) drawn from Diversified Royalty's amended acquisition facility (further details below); (ii) approximately $8-million (U.S.) from Diversified Royalty's cash on hand; (iii) $5-million (U.S.) drawn from a new senior credit facility issued to Cheeb LP; and (iv) $5-million (U.S.) drawn from a new senior term credit facility issued to Diversified Royalty.

Immediately following the closing of the acquisition, Diversified Royalty licensed the Cheba rights in the United States back to Cheba Hut for 50 years, in exchange for an initial royalty payment of $4-million (U.S.) per annum. The royalty will be automatically increased at a rate equal to the greater of 3.5 per cent and the U.S. CPI plus 1.5 per cent per year without any further consideration payable by Diversified Royalty or Cheeb LP. Cheba Hut may also increase the annual royalty payable on April 1 of each year following the closing subject to Cheba Hut satisfying certain royalty coverage tests. The amount of each royalty increase cannot be less than $500,000 (U.S.) per annum and must, in respect of amounts over that threshold, be in increments of $100,000 (U.S.) per annum. In consideration for a royalty increase on an adjustment date, Cheeb LP will pay an amount to Cheba Hut in cash, based on a multiple between seven and eight times (depending on certain conditions being met) the incremental annual royalty purchased, as additional consideration for the Cheba rights.

Payment of the royalty will be secured by a general security agreement granted by Cheba Hut to Cheeb LP, and by secured corporate guarantees to be granted to Cheeb LP by several affiliates of Cheba Hut.

The acquisition is expected to increase Diversified Royalty's tax pools by approximately $51-million to a total of approximately $424-million, which can be depreciated over time to reduce Diversified Royalty's cash taxes. Amounts paid for incremental annual royalties will also increase Diversified Royalty's tax pools.

Founded in 1998, Cheba Hut has 77 fast casual, toasted sub sandwich restaurants in the U.S. All of Cheba Hut's locations are franchised, except for two corporate stores and substantially all future growth is currently expected to result from opening additional franchised locations. Cheba Hut had $149-million (U.S.) of system sales and SSSG (same-store sales growth) of 5 per cent in 2024. Cheba Hut is forecasting over $187-million (U.S.) in system sales in the fiscal year ended Dec. 31, 2025.

Sean Morrison, chief executive officer of Diversified Royalty, stated: "The Cheba Hut trademark acquisition and royalty agreement adds a ninth royalty stream to Diversified Royalty's portfolio, representing approximately 7 per cent of Diversified Royalty'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 Cheba Hut's impressive track record of growth is a result of its strong store-level economics, quality of its franchisees and experience of its management team. Scott Jennings, the founder of Cheba Hut, and his management team represent a great partner for DIV, as they strongly believe in the continued success of Cheba Hut over the long term and therefore partnering with Diversified Royalty was far superior to selling equity ownership. We look forward to working with Scott and Cheba Hut's management team to continue expanding the business across the U.S.

"Diversified Royalty has worked to promote its royalty model in the U.S. market and now, with its second U.S.-based royalty transaction, is building significant momentum in that market. Such continued momentum in the U.S. franchisor market will become significant to Diversified Royalty as it scales its business going forward.

"Further, Diversified Royalty's strong balance sheet (cash on hand, underlevered existing royalty LPs, an unused acquisition facility) enabled it to fund the transaction without the need to raise equity. Diversified Royalty's less than 100 per cent payout ratio, automated DRIP program and ability to refinance existing LPs will enable it to substantially pay down the acquisition facility within 12 months. This is a game-changer for Diversified Royalty as all prior trademarks acquisitions have been funded concurrently, or shortly thereafter, with a sizeable equity raise."

Scott Jennings stated: "Diversified Royalty understands and believes that leaving us in control of our company keeps us in the best position to sustain our controlled growth. In addition, we can continue to take care of our product, partners, crew and most importantly our customers the way we have for the last 27 years. We thank Diversified Royalty for believing in Cheba Hut and helping us stay in excellent position to keep our soul intact for the next 50 years and beyond!!!"

Amendment to acquisition facility

Diversified Royalty amended its acquisition facility to increase the size from $50-million to $70-million and extend the maturity date to May 30, 2027, and thereafter to June 17, 2028 (if certain conditions are met).

Diversified Royalty and Cheeb LP credit facilities

Cheeb LP financed $5-million (U.S.) of the purchase price with new bank debt having a term of three years from closing. The Cheeb credit facility is non-amortizing and has a floating interest rate equal to SOFR (secured overnight financing rate) plus 2.5 per cent per annum; however, Diversified Royalty will have 90 days following closing to effectively fix the interest rate on 75 per cent of the amount borrowed under this facility through an interest rate swap. The Cheeb credit facility is secured by the Cheba rights and the royalty payable by Cheba Hut, and has covenants customary for this type of a credit facility.

Diversified Royalty financed approximately $18-million (U.S.) of the purchase price from the acquisition facility as amended and described above. The approximately $18-million (U.S.) drawn on the acquisition facility is interest only for 12 months and thereafter amortizes over a 60-month period. In connection with the transaction, Diversified Royalty financed $5-million (U.S.) of the purchase price from an additional term facility of $5-million (U.S.) with a term of approximately 18 months. The additional term facility is non-amortizing and has a floating interest rate based on SOFR plus a spread based on prevailing market rates. The additional term facility 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 dividend policy to increase its annualized dividend from 25.0 cents per share to 27.5 cents per share effective July 1, 2025, an increase of 10 per cent. Diversified Royalty estimates its pro forma payout ratio will be approximately 94.9 per cent (pro forma payout ratio, net of DRIP is approximately 83.0 per cent).

Investor conference call

Management of Diversified Royalty will host a conference call on Wednesday, June 18, 2025, at 7 a.m. Pacific Time (10 a.m. Eastern Time). To participate by telephone across Canada, call toll-free at 1-800-717-1738 or 1-289-514-5100 (conference ID 02753). The presentation will be followed by a question-and-answer session. An archived telephone recording of the call will be available until Wednesday, Sept. 17, 2025, by calling 1-888-660-6264 or 1-289-819-1325 (playback pass code: 02753 followed by the pound key). The management presentation for the conference call will be available on Diversified Royalty's website prior to the call. Alternatively, the link to the webcast of the conference can be found on-line.

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 plus Tires, Air Miles, Sutton, Mr. Mikes, Nurse Next Door, Oxford Learning Centres, Stratus Building Solutions, BarBurrito and Cheba Hut trademarks. Mr. Lube plus 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 janitorial, building cleaning and office cleaning services primarily in the United States. BarBurrito is the largest quick-service Mexican restaurant food chain in Canada. Cheba Hut is a fast casual toasted sub sandwich franchise with locations across 19 U.S. 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.