Diversified Royalty (DIV) Investor update summary

Transaction overview

• Acquired Cheba Hut trademarks and royalty rights for US$36 million, adding a ninth royalty stream and second U.S.-based royalty to the portfolio, funded via cash, credit, and an expanded acquisition facility.

• Cheba Hut is a 77-location U.S. fast-casual franchise with US$174 million in 2024 system sales and strong unit economics.

• The royalty grows annually at the greater of 3.5% or U.S. CPI plus 1.5%, providing built-in inflation protection.

• Funding included US$18 million from an acquisition facility, US$10 million in term debt, and US$8–8.5 million from cash on hand, with no equity raise required.

• Cheba Hut now represents approximately 7% of the royalty portfolio's pro forma adjusted share contribution.

Cheba Hut business profile and growth

• Cheba Hut operates in 19 U.S. states, with 11 new locations planned for 2025 and 16–18 annually in 2026–2027, supported by 8 under construction and 53 franchise agreements signed.

• Store-level economics are strong, with average sales of US$2.3–2.4 million per location and 10–12% EBITDA margins, with a ~3-year payback.

• Same-store sales growth has been consistently positive, ranging from 4.1% to 18.2% over the last three years.

• System sales grew from US$65 million in 2021 to US$149 million in 2024, a 32% CAGR, with over US$187 million forecast for 2025.

• The management team is experienced, with significant equity ownership and a recent increase in management's stake.

Financial impact and guidance

• Pro forma adjusted revenue rises from $71.3 million to $76.9 million; normalized EBITDA from $66.8 million to $72.4 million; distributable cash from $45.5 million to $48.6 million.

• Distributable cash per share increases 6.8% from $0.2714 to $0.2897.

• Board approved a 10% annual dividend increase to $0.275 per share, effective July 2025.

• Pro forma payout ratio remains below 100%, estimated at 94.9% or 83.0% net of DRIP participation.

• Tax pools increased by approximately $51 million, reducing future cash taxes.