Diversified Royalty : Q4 (Q4 2024 DIV FS Final with Audit Report)

Published: 2025-03-24 17:37:11 ET DIV.TO

Consolidated Financial Statements of

DIVERSIFIED ROYALTY CORP.

Years ended December 31, 2024 and 2023

KPMG LLP

PO Box 10426 777 Dunsmuir Street

Vancouver BC V7Y 1K3

Canada

Telephone (604) 691-3000

Fax (604) 691-3031

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of Diversified Royalty Corp.

Opinion

We have audited the consolidated financial statements of Diversified Royalty Corp. (the Entity), which comprise:

(Hereinafter referred to as the "financial statements").

In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2024 and December 31, 2023, its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with IFRS Accounting Standards.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's report.

We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2024. These matters were addressed in the

KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP. Document classification: Confidential.

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context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We have determined the matters described below to be the key audit matters to be communicated in our auditor's report.

Assessment of the fair value measurement of the investment in NND LP

Description of the matter

We draw attention to Notes 3(j), 4(b), and 8 to the financial statements. The investment in Nurse Next Door LP ("NND LP") is a financial instrument measured at fair value and has a carrying value of $40,897 thousand. In determining the fair value, the Entity's significant assumption is the discount rate used to discount the contractual cash flows receivable from NND LP.

Why the matter is a key audit matter

We identified the assessment of the fair value measurement of the investment in NND LP as a key audit matter. This matter represented an area of significant risk of material misstatement as it required the Entity to determine the discount rate with reference to its expectations about NND LP's future operating results and financial condition. Minor changes in the discount rate used had a significant effect on the fair value of the investment in NND LP. As a result, specialized skills and knowledge and significant auditor judgement were required in evaluating the results of our audit procedures.

How the matter was addressed in the audit

The following are the primary procedures we performed to address this key audit matter:

We evaluated the appropriateness of the Entity's projection of NND LP's operating results by comparing the projected results to historical actual results of NND LP and planned business initiatives. We also compared the Entity's historical projection of NND LP's operating results to actual operating results to assess the Entity's ability to project operating results.

We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the discount rate assumption used in the fair value measurement of the investment in NND LP. The valuation professionals compared the discount rate assumption against a discount rate range that was independently developed using publicly available data for comparable companies. The valuation professionals considered features and risks specific to the investment in NND LP.

Assessment of the carrying value of intangible assets

Description of the matter

We draw attention to Notes 3(e), 4(b), and 9(h) to the financial statements. The intangible assets are measured at historical cost and have a carrying value of $510,133 thousand. The Entity performs an impairment test over its intangible assets annually or when events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverable amount is the higher of fair value less costs of disposal and value in use. In determining the recoverable amount of each intangible asset, the Entity's significant assumptions include the projected sales underlying the royalty payment and pre-tax discount rate.

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Why the matter is a key audit matter

We identified the assessment of the recoverable amount of intangible assets as a key audit matter. This matter represented a significant risk of misstatement given the high degree of estimation uncertainty in determining the recoverable amount. Minor changes in the projected sales underlying the royalty payment and pre-tax discount rates had a significant effect on the recoverable amount. These factors indicated a significant risk of material misstatement. As a result, specialized skills and knowledge and significant auditor judgment were required in evaluating the results of our audit procedures.

How the matter was addressed in the audit

The following are the primary procedures we performed to address this key audit matter:

We evaluated the appropriateness of the Entity's projected sales underlying the royalty payment by comparing the projected sales to historical sales. When performing this assessment, we considered specific conditions and events affecting sales.

We compared the Entity's historical revenue projections to actual results to assess the Entity's ability to accurately project future revenue.

We involved valuation professionals with specialized skills and knowledge, who assisted in the evaluation of the pre-tax discount rate used in the determination of the recoverable amount. The valuation professionals evaluated the pre-tax discount rate by comparing it against a pre-tax discount rate range that was independently developed using publicly available data for comparable companies. The valuation professionals considered features and risks specific to the intangible assets.

Other Information

Management is responsible for the other information. Other information comprises:

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated.

We obtained the information included in Management's Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditor's report.

If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditor's report.

We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS Accounting Standards, and for such internal control as management determines is

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necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Entity's financial reporting process.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit.

We also:

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The engagement partner on the audit resulting in this auditor's report is Adam Schell. Vancouver, Canada

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DIVERSIFIED ROYALTY CORP.

Consolidated Statements of Financial Position (Expressed in thousands of Canadian dollars)

As at December 31, 2024 and 2023

Note

December 31, 2024

December 31, 2023

Assets

Current assets:

Cash

19,692

4,031

Royalty and other receivables

6,001

5,857

Income tax receivable

328

Prepaid expenses and other

107

342

Interest rate swap assets

2,279

25,800

12,837

Interest rate swap assets

194

Right-of-use asset and other

615

711

Note receivable

1,339

1,489

Investment in NND LP

40,897

40,825

Intangible assets

510,133

511,489

578,978

567,351

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable and accrued liabilities

4,128

1,803

Income tax payable

1,376

Interest rate swap liabilities

146

Bank loans, net of deferred financing charges

16,734

5,650

18,537

Long-term accrued liabilities

Bank loans, net of deferred financing charges

176,479

205,375

Convertible debentures

49,606

48,586

Promissory notes

9(d),(g)

33,746

33,763

Exchangeable units and other

1,119

2,234

Interest rate swap liabilities

547

Lease obligation

635

706

Deferred income tax liability

22,859

20,199

Shareholders' equity:

Share capital

319,509

260,142

Contributed surplus

40,862

40,351

Equity component of convertible debentures

5,127

Accumulated other comprehensive income

5,000

(229)

Accumulated deficit

(81,698)

(67,987)

288,800

237,404

578,978

567,351

Subsequent events (note 26)

The accompanying notes are an integral part of these consolidated financial statements.

DIVERSIFIED ROYALTY CORP.

Consolidated Statements of Net Income and Comprehensive Income (Expressed in thousands of Canadian dollars, except per share amounts)

For the years ended December 31, 2024 and 2023

Year ended December 31,

Note

2024

2023

Royalty income

64,391

55,962

Management fees

599

533

64,990

56,495

Expenses:

Salaries and benefits

2,766

2,480

Share-based compensation

2,152

1,381

General and administration

1,068

1,222

Professional fees

610

681

Impairment (reversal)

9(h)

8,204

(91)

14,800

5,673

Income from operations

50,190

50,822

Interest expense on credit facilities

(14,133)

(13,126)

Other finance income (costs), net

(887)

3,811

Fair value adjustment on financial instruments

2,322

2,087

Income before income taxes

37,492

43,594

Income tax expense

10,873

11,871

Net income for the year

26,619

31,723

Other comprehensive income (loss)

Item that may be reclassified subsequently to profit or loss:

Foreign currency translation adjustment

5,229

(1,394)

Other comprehensive income (loss) for the year

5,229

(1,394)

Total comprehensive income for the year

31,848

30,329

Weighted average number of shares outstanding

Basic (thousands)

162,183

142,676

Diluted (thousands)

163,655

144,051

Income per share

Basic

0.16

0.22

Diluted

0.16

0.22

The accompanying notes are an integral part of these consolidated financial statements.

DIVERSIFIED ROYALTY CORP.

Consolidated Statements of Changes in Equity

(Expressed in thousands of Canadian dollars, except for share amounts)

As at December 31, 2024 and 2023

Equity

Accumulated

Common

component of

other

Contributed

convertible

comprehensive

Accumulated

Total

Note

(thousands)

capital

surplus

debentures

(loss) income

deficit

equity

Balance, December 31, 2023

143,871

260,142

40,351

5,127

(229)

(67,987)

237,404

Common shares issued on

20,321

51,820

public offering

Common shares issued on DRIP

2,004

5,507

Common shares issued on RSUs settled

108

223

(269)

(46)

Common shares issued on exercise

640

1,817

(204)

1,613

of options

Share-based compensation - net of

1,639

RSUs settled

Reclassification of RSUs vested

(655)

Dividends declared

(40,330)

Comprehensive income

5,229

26,619

31,848

Balance, December 31, 2024

166,944

319,509

40,862

5,127

5,000

(81,698)

288,800

Equity

Accumulated

Common

component of

other

Contributed

convertible

comprehensive

Accumulated

Total

Note

(thousands)

capital

surplus

debentures

income

deficit

equity

Balance, December 31, 2022

141,423

253,139

39,776

5,127

1,165

(65,319)

233,888

Common shares issued on DRIP

1,558

4,300

Common shares issued on RSUs settled

(700)

(628)

Share-based compensation - net of

1,275

RSUs settled

Dividends declared

(34,391)

Settlement of consideration payable

9(a)

833

2,631

Comprehensive income

(1,394)

31,723

30,329

Balance, December 31, 2023

143,871

260,142

40,351

5,127

(229)

(67,987)

237,404

The accompanying notes are an integral part of these consolidated financial statements.

DIVERSIFIED ROYALTY CORP.

Consolidated Statements of Cash Flows (Expressed in thousands of Canadian dollars)

For the years ended December 31, 2024 and 2023

Year ended December 31,

Note

2024

2023

Operating activities:

Net income

26,619

31,723

Adjustments for:

Tax expense

10,873

11,871

Impairment (reversal)

8,204

(91)

Depreciation expense

103

100

Share-based compensation

2,152

1,381

Fair value adjustments on financial instruments

(2,331)

(2,087)

Interest expense on credit facilities

14,133

13,126

Other finance costs (income), net

887

(3,811)

Interest paid

(13,695)

(13,170)

Interest received

497

243

Taxes paid

(6,012)

(7,691)

Distributions received from NND LP

5,197

5,095

Distributions paid on Exchangeable MRM Units

14(b)

(138)

(164)

Note receivable

305

(2,130)

Changes in non-cash operating items:

Royalties and management fees receivable

(50)

(293)

Amounts receivable

318

(11)

Prepaid expenses and other

(188)

(586)

Accounts payable and accrued liabilities

(383)

(2,689)

Cash flows generated from operating activities

46,491

30,816

Financing activities:

Proceeds from equity issuance, net of fees

50,995

Proceeds from issuance of debt, net of fees

11(b)

6,707

89,290

Proceeds from exercise of options

1,613

Payment of lease obligations

(110)

(107)

RSUs settled in cash

(807)

(689)

Payment of dividends

(34,823)

(30,091)

Repayment of debt

11(a),(b)

(54,345)

(15,350)

Cash flows generated from (used in) financing activities

(30,770)

43,053

Investing activities:

Purchase of fixed assets

(8)

(10)

Additions to intangible assets

9(g)

(77,215)

Cash flows used in investing activities

(8)

(77,225)

Net increase (decrease) in cash

15,713

(3,356)

Cash, beginning of the year

4,031

7,409

Effect of foreign exchange rate changes on cash

(52)

(22)

Cash, end of the year

19,692

4,031

The accompanying notes are an integral part of these consolidated financial statements.

Disclaimer

Diversified Royalty Corp. published this content on March 24, 2025, and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on March 24, 2025 at 21:36:04.467.