DIV.DB Diversified Royalty Corp

Diversified Royalty Corp. (TSX: DIV and DIV.DB) (the “Corporation” or “DIV”) is pleased to announce preliminary results for its royalty partners for the three months ended September 30, 2020 (“Q3 2020”).

Mr. Lube Third Quarter Results

Mr. Lube Canada Limited Partnership (“Mr. Lube”) generated same-store-sales-growth (“SSSG”) of 0.5% for the Mr. Lube stores in the royalty pool for Q3 2020, compared to SSSG of 5.9% for the three months ended September 30, 2019 (“Q3 2019”). Mr. Lube’s business continued to stabilize in Q3 2020 as various provinces eased certain of the restrictions put in place to fight the COVID-19 pandemic and Canadians started driving more. Mr. Lube generated SSSG of -6.4% for the nine months ended September 30, 2020 compared to SSSG of 4.8% for the nine months ended September 30, 2019. Mr. Lube’s SSSG for the nine months ended September 30, 2020 was impacted by the COVID-19 pandemic, which resulted in a slow-down in consumer activity across the country and temporary recommendations from all levels of government for people to work from home and self-isolate.

DIV expects to report that aggregate royalty income and management fees of $4.1 million were generated from Mr. Lube in Q3 2020, relatively flat compared to Q3 2019.

AIR MILES® Third Quarter Results

DIV expects to report that royalty income of $1.7 million was generated from the AIR MILES® licenses in Q3 2020, a decrease of $0.2 million (-11.2%) compared to Q3 2019. For the nine months ended September 30, 2020, DIV expects to report royalty income of $5.1 million, a decrease of $0.5 million (-9.4%) compared to the nine months ended September 30, 2019. DIV’s royalty payment is derived from several AIR MILES® metrics, with AIR MILES® reward miles issued being the primary metric, and other metrics including AIR MILES® reward miles redeemed, service revenue, commissions and promotional items, all of which affect quarterly variability.

Alliance Data Systems Inc. (“ADS”) issued a news release earlier today announcing that: (i) AIR MILES® reward miles issued decreased by 7.7% in Q3 2020 and 10.3% for the nine months ended September 30, 2020, reflecting a decline in discretionary spending, including credit card spend and delays in promotions by sponsors, and (ii) AIR MILES® reward miles redeemed decreased by 36.2% in Q3 2020 and 28.8% for the nine months ended September 30, 2020, reflecting the impact of the COVID-19 pandemic on travel-related categories, offset in part by strength from merchandise redemptions. According to ADS, on a sequential basis, AIR MILES® reward miles issued and redeemed improved 18% and 13% in Q3 2020 compared to Q2 2020, respectively, reflecting better business conditions than in Q2 2020. ADS also noted that LoyaltyOne is continuing to pivot the AIR MILES® reward portfolio to emphasize more non-travel options, which drove higher merchandise redemptions in Q3 2020.

Nurse Next Door Third Quarter Results

DIV expects to report that the royalty entitlement to DIV (the “DIV Royalty Entitlement”) from Nurse Next Door Professional Homecare Services Inc. (“Nurse Next Door”) was $1.2 million in Q3 2020. The DIV Royalty Entitlement from Nurse Next Door grows at a fixed rate of 2.0% per annum during the term of the license, with the most recent increase effective October 1, 2020. In September 2020, Nurse Next Door sold 19 new franchises in attractive markets (8 in Canada and 11 in the US). Nurse Next Door continues to make its fixed royalty payment to DIV in full, which DIV expects will continue.

Sutton Third Quarter Results

DIV expects to report that royalty income and management fees of $1.0 million were generated from Sutton Group Realty Services Ltd. (“Sutton”) in Q3 2020, compared to $1.0 million in Q3 2019. Since June 2020, DIV has been collecting 100% of the fixed royalty and management fee payments from Sutton. The fixed royalty payable by Sutton increases at a rate of 2.0% per year.

As disclosed in DIV’s news release dated September 14, 2020, two of Sutton’s primary markets, Vancouver and Toronto, have experienced strong recoveries in recent months following a period of low transactional activity in April and May 2020.

Oxford Learning Centres Third Quarter Results

DIV expects to report that royalty income and management fees of $0.7 million were generated from Oxford Learning Centres, Inc. (“Oxford”) in Q3 2020. DIV acquired the trademarks related to Oxford’s business on February 20, 2020.

Oxford locations in the Oxford royalty pool generated SSSG (on a constant currency basis) of -24% in Q3 2020 and -28% for the period from February 20, 2020 to September 30, 2020. Oxford’s SSSG was negatively impacted by the COVID-19 pandemic, which resulted in the temporary suspension of in-centre services. In mid-March, Oxford management pivoted its business to provide online tutoring with over 95% of its locations currently able to provide this service. In early July, in accordance with regional guidelines, certain Oxford locations started transitioning back to in-centre services at a reduced capacity (over 90% of Oxford’s locations have now re-opened), which resulted in an improvement in Oxford’s Q3 2020 SSSG.

Mr. Mikes Royalty Waiver and Third Quarter Results

Currently, 43 of 45 Mr. Mikes Restaurants Corporation (“Mr. Mikes”) restaurants are open for in-restaurant or patio dining. Overall SSSG for Mr. Mikes restaurants in the royalty pool, including stores that were temporarily closed due to the COVID-19 pandemic, was -15% in Q3 2020.

Notwithstanding the partial re-opening of such Mr. Mikes restaurants, Mr. Mikes expects a slow recovery as we move into fall, including the potential effects of cooler weather, decreased patio utilization and further government restrictions on operations. DIV waived 100% of Mr. Mikes’ fixed royalty and management fee payments from February 24, 2020 to July 12, 2020. For the royalty payment period from July 13, 2020 to October 4, 2020, DIV collected $0.4 million, which represents 50% of Mr. Mikes’ fixed royalty payment for the period. DIV expects continued royalty relief will be required by Mr. Mikes going forward.

DIV expects to report that royalty income and management fees of $0.4 million were generated from Mr. Mikes in Q3 2020, compared to $1.0 million in Q3 2019.

Third Quarter Commentary

Sean Morrison, President and Chief Executive Officer of DIV, stated, “Many of our royalty partners experienced improved results in Q3 2020 versus Q2 2020 as certain governments have eased some of the restrictions related to COVID-19. Based on current results and go-forward expectations, we estimate a 100% run-rate payout ratio on DIV’s $0.20 per share annual dividend. DIV continues to closely monitor developments impacting the businesses of our royalty partners and remains engaged in ongoing discussions with our royalty partners with a focus on preserving shareholder value and the long-term success of DIV and its royalty partners.”

About Diversified Royalty Corp.

DIV is a multi-royalty corporation, engaged in the business of acquiring top-line royalties from well-managed multi-location businesses and franchisors in North America. DIV’s objective is to acquire predictable, growing royalty streams from a diverse group of multi-location businesses and franchisors.

DIV 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 with approximately two-thirds of Canadian households actively participating in the AIR MILES® Program. Sutton is among the leading residential real estate brokerage franchisor businesses in Canada. Mr. Mikes currently 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 in Canada and the United States.

DIV intends to increase cash flow per share by making accretive royalty purchases and through the growth of purchased royalties. DIV expects to pay a predictable and stable dividend to shareholders and increase the dividend as cash flow per share increases allow.

Forward Looking Statements

Certain statements contained in this news release may constitute “forward-looking information” or “financial outlook” within the meaning of applicable securities laws that involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information or financial outlook. The use of any of the words “anticipate”, “continue”, “estimate”, “expect”, “intend”, “may”, “will”, ”project”, “should”, “believe”, “confident”, “plan” and “intends” and similar expressions are intended to identify forward-looking information and financial outlook, although not all forward-looking information and financial outlook contain these identifying words. Specifically, forward-looking information and financial outlook in this news release includes, but is not limited to, statements made in relation to: the expected financial results of Mr. Lube, Nurse Next Door, Sutton, Mr. Mikes and Oxford for the three months ended September 30, 2020, as applicable and the amount of royalty income expected to be reported by DIV as having been generated from the AIR MILES licenses during this period; LoyaltyOne is continuing to pivot the AIR MILES® reward portfolio to emphasize more non-travel options; DIV’s expectation that Nurse Next Door will continue to make its fixed royalty payments in full; DIV’s expectation that Mr. Mikes will require royalty relief going forward; Mr. Mikes’ expectation that it will experience a slow recovery, including the potential effects of cooler weather, decreased patio utilization and further government restrictions on operations in the fall; DIV’s estimate that the run-rate payout ratio will be approximately 100% based on the current annual dividend of $0.20 cents per share; DIV remaining engaged in ongoing discussions with its royalty partners with a focus on preserving and enhancing shareholder value and the long-term success of DIV and its royalty partners; DIV’s intention to pay monthly dividends to shareholders; and DIV’s corporate objectives. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events, performance, or achievements of DIV to differ materially from those anticipated or implied by such forward-looking information and financial outlook. DIV believes that the expectations reflected in the forward-looking information and financial outlook included in this news release are reasonable but no assurance can be given that these expectations will prove to be correct. In particular, risks and uncertainties include: the financial results of DIV’s royalty partners may not be consistent with the preliminary results set forth herein; DIV’s royalty partners may not make their respective royalty payments to DIV, in whole or in part; DIV’s royalty partners may request further royalty relief; COVID-19 may have a more significant negative impact on DIV and its royalty partners than currently expected and the businesses of DIV’s royalty partners may not fully recover post COVID-19; current improvement trends being experienced by certain of DIV’s royalty partners may not continue and may regress; recently re-opened royalty partner locations may be required to temporarily close in the future; royalty partner locations that are temporarily closed may not reopen; DIV’s run-rate payout ratio may exceed the current estimate of 100%; DIV may not be able to make monthly dividend payments to the holders of its common shares; dividends are not guaranteed and may be further reduced, suspended or terminated; or DIV may not achieve any of its corporate objectives. Given these uncertainties, readers are cautioned that forward-looking information and financial outlook included in this news release are not guarantees of future performance, and such forward-looking information and financial outlook should not be unduly relied upon. More information about the risks and uncertainties affecting DIV’s business and the businesses of its royalty partners can be found in the “Risk Factors” section of its Annual Information Form dated March 18, 2020 and in DIV’s most recently filed management’s discussion and analysis, copies of which are available under DIV’s profile on SEDAR at www.sedar.com.

In formulating the forward-looking information and financial outlook contained herein, management has assumed that DIV will generate sufficient cash flows from its royalties to service its debt and pay dividends to shareholders; lenders will provide any necessary waivers required in order to allow DIV to continue to pay dividends; the impacts of COVID-19 on DIV and its royalty partners will be consistent with DIV’s expectations and the expectations of management of each of its Royalty Partners, both in extent and duration; DIV and its royalty partners will be able to reasonably manage the impacts of the COVID-19 pandemic on their respective businesses. These assumptions, although considered reasonable by management at the time of preparation, may prove to be incorrect.

To the extent any forward-looking information or statements in this news release constitute a “financial outlook” within the meaning of applicable securities laws, such information is being provided to investors to ensure they receive timely disclosure of material financial information with respect to the financial performance of the Corporation and its royalty partners prior to the completion of year end audits.

All of the forward-looking information and financial outlook in this news release is qualified in its entirety by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, DIV. The forward-looking information and financial outlook included in this news release is presented as of the date of this news release and DIV assumes no obligation to publicly update or revise such information to reflect new events or circumstances, except as may be required by applicable law.

Non-IFRS Financial Measures

Management believes that disclosing certain non-IFRS financial measures provides readers with important information regarding the Corporation’s financial performance and its ability to pay dividends and the performance of its royalty partners. By considering these measures in combination with the most closely comparable IFRS measure, management believes that investors are provided with additional and more useful information about the Corporation and its royalty partners than investors would have if they simply considered IFRS measures alone. The non-IFRS financial measures do not have standardized meanings prescribed by IFRS and therefore are unlikely to be comparable to similar measures presented by other issuers. Investors are cautioned that non-IFRS measures should not be construed as a substitute or an alternative to cash flows from operating activities as determined in accordance with IFRS.

“DIV Royalty Entitlement”, “Same Store Sales Growth” or “SSSG” and run-rate payout ratio are used as non-IFRS measures in this news release. The DIV Royalty Entitlement is being reported to allow readers to assess the performance of DIV’s royalty arrangements with Nurse Next Door on a basis consistent with the royalties received from DIV’s other royalty partners. Under IFRS, DIV is required to record its investment in the Nurse Next Door trademarks and other intellectual property as a financial instrument and the income earned from this investment as finance income, which does not allow for a direct comparison of the income received from this investment to the royalties received from DIV’s other royalty partners, which attract different treatment under IFRS. The most closely comparable IFRS measure to DIV Royalty Entitlement is royalty income; however, DIV Royalty Entitlement should not be considered substitute for IFRS measures. References to “same store sales growth” or “SSSG” in this news release are to the percentage increase in store sales over the prior comparable period that were open in both the current and prior periods, excluding stores that were permanently closed. Same store sales growth is a non-IFRS financial measure and does not have a standardized meaning prescribed by IFRS. However, the Corporation believes that same store sales growth is a useful measure as it provides investors with an indication of the change in year-over-year sales of Mr. Lube Locations, Mr. Mikes Locations and Oxford Locations. The Corporation’s method of calculating same store sales growth may differ from those of other issuers or companies and, accordingly, same store sales growth may not be comparable to similar measures used by other issuers or companies. For further details with respect to how run-rate payout ratio defined and determined, see the Corporation’s investor presentation titled “Diversified Royalty Corp. – Sep 14, 2020 Investor Presentation”, a copy of which is available on the Corporation’s website at www.diversifiedroyaltycorp.com and under the Corporation’s profile on SEDAR at www.sedar.com. In addition, see the “Description of Non-IFRS and Additional IFRS Measures” in the Corporation’s management’s discussion and analysis for the three and six months ended June 30, 2020, a copy of each of which is available on SEDAR at www.sedar.com.

Third Party Information

This news release includes information obtained from third party company filings and reports and other publicly available sources. Although DIV believes these sources to be generally reliable, such information cannot be verified with complete certainty. Accordingly, the accuracy and completeness of this information is not guaranteed. DIV has not independently verified any of the information from third party sources referred to in this news release nor ascertained the underlying assumptions relied upon by such sources.

THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR THE ACCURACY OF THIS RELEASE.

Additional Information

Additional information relating to the Corporation and other public filings, is available on SEDAR at www.sedar.com.

Contact: Sean Morrison, President and Chief Executive Officer Diversified Royalty Corp. (604) 235-3146

Greg Gutmanis, Chief Financial Officer and VP Acquisitions Diversified Royalty Corp. (604) 235-3146