Diversified Royalty Corp. · TSX:DIV

Diversified Royalty — Merger or Acquisition (November 2022)

21 slides from Diversified Royalty's merger presentation, Nov 14, 2022

  1. Slide 1: SBS Franchising, LLC (Stratus Building Solutions) Trademark Acquisition and Royalty

    SBS Franchising, LLC (Stratus Building Solutions) Trademark Acquisition and Royalty November 14, 2022

  2. Slide 2: Prospectus Information

    Prospectus Information A base shelf prospectus of Diversified Royalty Corp. (“DIV”) dated May 11, 2021 (the “Base Shelf Prospectus”) containing important information relating to the securities described in this document has been filed with the securities regulatory authorities in each of the provinc

  3. Slide 3: Legal Disclaimer

    Legal Disclaimer Notice The contents of this presentation are for information purposes only. This presentation does not constitute an offer to sell securities of DIV or any other entity and it is not soliciting an offer to buy any such securities. This document may contain product names, trade names

  4. Slide 4: Non-IFRS Measures

    Non-IFRS Measures Management believes that disclosing certain non-IFRS financial measures, non-IFRS ratios and supplementary financial measures provides readers with important information regarding the Corporation’s financial performance and its ability to pay dividends and the performance of its ro

  5. Slide 5: Introduction

    Introduction  DIV has been building a diversified portfolio of royalties from high quality multi-location and franchisor businesses in Canada.  DIV’s objective has included bringing its unique royalty model to the US market. In this regard, DIV has been promoting the royalty model at various Inter

  6. Slide 6: Transaction Overview

    Transaction Overview Diversified Royalty Corp. (“DIV”) has entered into an agreement with SBS Franchising, LLC (“Stratus”) to acquire the trademarks and certain other intellectual property used in Stratus’ business, thereby adding a 7th royalty stream (and 1st US royalty stream) to DIV’s portfolio f

  7. Slide 7: Transformative Transaction

    Transformative Transaction  DIV believes Stratus is an excellent royalty acquisition for the following reasons:  Industry. Commercial cleaning and janitorial solutions is a stable industry with room for sophisticated operators, such as Stratus, to accumulate market share – the importance of office

  8. Slide 8: Stratus – Overview

    Stratus – Overview  Founded in 2006 – head office in North Hollywood, California  Stratus is an industry-leading franchisor in commercial cleaning and building maintenance, with Master Franchisees, offering turn-key janitorial unit franchises across North America  Stratus’ 68 Master Franchises ar

  9. Slide 9: Financial Performance

    Financial Performance  Stratus generated trailing 12 months system sales(1) of US$147M (~C$197M (2)) to August 31, 2022 and has grown system sales(1) from ~US$56.4M(1) (~C$75M (2)) in 2017, representing a CAGR of over 21% System Sales (USD$000's) 160,000 140,000 120,000 100,000 80,000 60,000 40,000

  10. Slide 10: Industrial Cleaning Market

    Industrial Cleaning Market  The global contract cleaning services market is very large (US$151B) and is forecasted to grow at a 6.85% CAGR over the period from 2021 to 2026 (1)  The commercial cleaning and janitorial solutions industry is highly-fragmented – the industry remains mostly comprised o

  11. Slide 11: Business Model

    Business Model  Stratus operates a 3-tiered franchise model:  Franchisor – SBS Franchising, LLC  Master Franchises – 68 locations, 13 are corporate-owned – the vast majority of new markets are expected to be franchised  Unit Franchisees – ~2,500, typically individuals managing 2-to-4-person team

  12. Slide 12: Management

    Management  Afshin Cangarlu, CEO – spent 7 years at DreamWorks, followed by another 7 years as President, Instructional Systems Design at Quovadx, a software developer for the health care industry, before becoming a Stratus Master Franchisee (with Foad) for the LA territory in 2008.  Foad Rekabi,

  13. Slide 13: Fit

    Fit  Diversification/Industry  The acquisition of Stratus represents DIV’s 7th royalty stream (and 1st US royalty stream)  With investments in Mr. Lube, Air Miles, Sutton Realty, Mr. Mikes, Nurse Next Door and Oxford Learning, DIV currently has no exposure to the industrial cleaning and building

  14. Slide 14: Diversification

    Diversification 7% 8% 43% 12% 9% 7% 14%(1)(2) Expanding across diverse and attractive industries 14 1) The percentages of adjusted revenues as presented is based on pro-forma adjusted revenue. Pro-forma adjusted revenue is a non-IFRS measure. See “Non-IFRS Measures”. 2) Based upon a USD to CAD forei

  15. Slide 15: Accretive

    Accretive Current Run Rate Pro Forma $49.2M $57.2M Adjusted Revenue(1)(2) Adjusted Revenue(1) $45.9M $53.9M Normalized EBITDA(1) Normalized EBITDA(1)(2) $30.4M $34.4M Distributable Cash(1) Distributable Cash(1)(2) $0.235 $0.240 Dividend per Share Dividend per Share 96.2% 94.4% Payout Ratio(1) Payout

  16. Slide 16: Dividend

    Dividend  DIV’s board of directors has approved a 2.1% increase in DIV’s annual dividend from 23.5 cents per share to 24 cents per share, commencing January 1, 2023  DIV’s pro-forma payout ratio drops to ~94%(1)(2) 16 1) 2) Payout ratio is a non-IFRS ratios. See “Non-IFRS Measures”. Based upon a U

  17. Slide 17: Summary

    Summary  Stratus is a perfect fit for DIV’s royalty model: a proven franchisor business with historically steady, predictable cash flows, strong master franchisee and unit franchisee economics and an opportunity to grow its master franchise business count from 68 up to 150 over the next five to 10

  18. Slide 18: Summary

    Summary  Industry. Commercial cleaning and janitorial solutions is a stable industry with room for sophisticated operators, such as Stratus, to accumulate market share – the importance of office cleaning has been greatly enhanced due to COVID  Business Model. 16-year operating history – strong sto

  19. Slide 19: Appendix A

    [Appendix A] The following table reconciles net income for the three months ended September 30, 2022 to Run-Rate Normalized EBITDA and Pro-Forma Normalized EBITDA: (Cdn$000's) Q3 2022 Annualized Revenues 11,641 46,564 Operating expenses (1,069) (4,276) Finance and other costs (982) (3,928) Income be

  20. Slide 20: Appendix B

    [Appendix B] The following table reconciles Net Income for the three months ended September 30, 2022 to Run-Rate Distributable Cash and Pro-Forma Distributable Cash: (Cdn$000's) Q3 2022 Annualized Net income 6,728 26,912 Interest expense on credit facilities 2,288 9,152 Income tax expense 2,862 11,4

  21. Slide 21: Appendix C

    [Appendix C] The following table reconciles Revenue for the three months ended September 30, 2022 to Adjusted Revenue, Run-Rate Adjusted Revenue and Pro-Forma Adjusted Revenue: (Cdn$000's) Q3 2022 Annualized Revenues 11,641 46,564 DIV Royalty Entitlment, net of NND Royalties LP expenses(1) 1,250 5,0

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