SIR Corp and Its Lenders Enter into Amended Credit Agreements and the SIR Royalty Income Fund Extends Its Existing Waiver and Deferral Agreements with SIR Corp

BURLINGTON, ON, Dec. 21, 2020 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") and SIR Corp. ("SIR") today reported that SIR and its Lenders entered into amended credit agreements providing extensions to existing waivers, and that SIR, the Fund and the SIR Royalty Limited Partnership (the "Partnership") have extended their existing waiver and deferral agreements, in each case until March 31, 2021.  SIR and the Fund also provided an update on the impact of the COVID-19 pandemic on operations.  

Business Update on SIR and the Fund

• Since the date of SIR's last financial report, which was filed on December 1, 2020, the COVID-19 pandemic has continued to significantly impact the operations of SIR.
  
  
• The hospitality industry has faced, and continues to face, significant challenges related to continuing updates to restrictions imposed by federal, provincial and municipal governments. Restaurants have incurred significant costs to implement strict safety protocols for both patio and indoor dining, including: the installation of plexiglass barriers in dining rooms, expansion of patios, adding heaters to extend patio dining season, and swift operational changes to enhance take-out and delivery offerings when restaurants were 100% reliant on take-out and delivery during the months of May and June 2020.
  
  
• Beginning March 16, 2020, SIR suspended dine-in operations at all of its restaurants and bars in accordance with the directives of public health authorities. SIR continued to offer takeout and delivery services at certain of its Jack Astor's^® and Scaddabush Italian Kitchen & Bar^® ("Scaddabush") restaurants, while all Canyon Creek^® and Signature Restaurants were completely closed as of March 16, 2020.
  
  
• Beginning on June 9, 2020, restaurant re-openings commenced in western Canada and the Maritime provinces. On June 12, 2020, certain regions in the province of Ontario began re-opening for outdoor patio dining. On June 15, 2020, restaurants in Quebec, outside of the Greater Montreal Area, were permitted to re-open for limited capacity in-restaurant dining, with Greater Montreal Area restaurants following on June 22, 2020.
  
  
• On July 17, 2020, the province of Ontario permitted the staggered re-opening of limited capacity in-restaurant dining in most public health regions of the province. On July 31, 2020, restaurants in the Toronto and Peel public health regions, where SIR has 25 restaurants, were permitted to re-open on a similar basis to other regions in the province. Accordingly, all of SIR's Jack Astor's and Scaddabush restaurants, and certain of its Canyon Creek and Signature restaurants were re-opened for limited capacity in-restaurant and outdoor-patio dining, adhering to strict operating procedures and sanitary guidelines to prioritize the safety of its guests and staff.
  
  
• On September 28, 2020, the Quebec government announced that effective October 1, 2020, all restaurants and bars in three regions of the province with high rates of new COVID-19 cases would be closed for at least 28 days other than for takeout and delivery. This affected four Jack Astor's locations. Prior to the end of October, the closures were extended another 28 days to November 23, 2020. On November 19, 2020, the Quebec government announced that these closures would remain in place until January 11, 2021.
  
  
• Effective October 10, 2020, the Toronto, Ottawa and Peel regions returned to modified Stage 2 restrictions, resulting in the temporary closure of indoor dining rooms and bars in these regions for 28 days. SIR has 28 restaurants in these regions. Effective October 19, 2020, the York region, where SIR has five restaurants, was also returned to modified Stage 2 restrictions for 28 days. As of November 7, 2020, dining rooms in the Toronto, Ottawa, Peel, and York regions were permitted to re-open. Effective November 9, 2020, additional regions were moved into various zones within the Ontario government's COVID-19 framework, which restricts the capacity of indoor dining guests, as follows:

Provincial Tier	Public Health Region (Number of SIR restaurants*)
Red/Control indoor dining capacity: 10 maximum number of guests per table: 4	Toronto (19) Peel (6) York (5) Halton (3) Hamilton (2)
Orange/Restrict indoor dining capacity: 50 maximum number of guests per table: 4	Durham (2) Niagara (2) Ottawa (3) Waterloo (1)
Yellow/Protect maximum number of guests per table: 6	London Middlesex (3) Simcoe-Muskoka (1)

*The number of SIR restaurants does not include three Canyon Creek restaurants and one Jack Astor's restaurant that were not previously re-opened.

• Effective November 23, 2020, the Ontario government announced additional movement of various regions within its COVID-19 framework as follows:

Provincial Tier	Public Health Region (Number of SIR restaurants*)
Grey/Lockdown no indoor or patio dining take-out and delivery only	Toronto (19) Peel (6)
Red/Control indoor dining capacity: 10 maximum number of guests per table: 4	York (5) Halton (3) Hamilton (2) Durham (2) Waterloo (1)
Orange/Restrict indoor dining capacity: 50 maximum number of guests per table: 4	Ottawa (3) Niagara (2) Simcoe-Muskoka (1)
Yellow/Protect maximum number of guests per table: 6	London Middlesex (3) Kingston (1)

*The number of SIR restaurants does not include three Canyon Creek restaurants and one Jack Astor's restaurant that were not previously re-opened.

• Effective November 26, 2020, the provincial government in Nova Scotia, where SIR has two locations, announced the closure of all restaurant dining rooms.
  
  
• Effective December 7, 2020, the London Middlesex region, where SIR has three restaurants, was moved from the Yellow/Protect tier into the Orange/Restrict tier.
  
  
• Effective December 14, 2020, the Ontario government announced additional movement of various regions within its COVID-19 framework as follows:

Provincial Tier	Public Health Region (Number of SIR restaurants*)
Grey/Lockdown no indoor or patio dining take-out and delivery only	Toronto (19) Peel (6) York (5)
Red/Control indoor dining capacity: 10 maximum number of guests per table: 4	Halton (3) London Middlesex (3) Hamilton (2) Durham (2) Waterloo (1) Simcoe-Muskoka (1)
Orange/Restrict indoor dining capacity: 50 maximum number of guests per table: 4	Ottawa (3) Niagara (2)
Yellow/Protect maximum number of guests per table: 6	Kingston (1)

*The number of SIR restaurants does not include three Canyon Creek restaurants and one Jack Astor's restaurant that were not previously re-opened.

• Reduced services, restaurant closures and capacity restrictions have resulted in material declines to sales at SIR restaurants. Limited capacity re-openings of in-restaurant and outdoor patio dining are expected to continue to result in material year-over-year declines to sales at SIR restaurants.
  
  
• SIR is eligible for the Canada Emergency Wage Subsidy ("CEWS") program. As a result, SIR has received a subsidy from the federal government to partially offset certain of its wage costs starting in mid-March 2020. SIR currently expects to continue to be eligible for the CEWS program through to at least June 2021, the current expected end date of the program.
  
  
• SIR is expected to be eligible for the new Canada Emergency Rent Subsidy ("CERS"). However, the program, as passed, appears to limit SIR's claims under the base program to a maximum of 65% of $0.3 million in eligible expenses. As SIR owns all of its restaurants, it appears to be deemed to be considered an "affiliated group" and, as such, the size of the available subsidy is very limited. The maximum claim of $0.2 million per month represents approximately 10% of SIR's eligible rent expenses. During periods where indoor dining is mandated to be fully closed, SIR may also be eligible to apply for the 25% lock-down support top-up.
  
  
• The low level of rent subsidy available to SIR under both the Canada Emergency Commercial Rent Assistance ("CECRA") and CERS programs necessitated SIR seeking substantial deferral of rents during the first wave of restaurant closures and capacity restrictions and again during the second wave of civil authority restrictions. These landlord deferrals will have to be repaid in future periods.
  
  
• SIR will continue to work with its lenders to secure financing support, and with its suppliers to secure extended credit terms, including negotiations with its landlords over the terms of its leases, as it manages through this uncertain period.

The Trustees of the Fund continue to closely monitor the performance of SIR. The Fund intends to resume payment of monthly distributions when it is fiscally prudent to do so. However, due to the impact of temporary restaurant closures on the earnings of the Partnership that are distributed to the Fund, the Fund will need to reassess appropriate distribution levels and is not expected to resume distributions consistent with the most recent distribution declared in March 2020. Resumption of payment of unitholder distributions will also be dependent, in part, on SIR's future agreements with its senior lender and landlords.

Amendment to Credit Agreement and Waivers

On May 27, 2020, effective April 1, 2020, SIR obtained a waiver with its Lender on its covenants until June 30, 2020.

On June 30, 2020, SIR and its Lender entered into a fourth amending agreement to its Credit Agreement (the "Waiver and Amendment"). The Waiver and Amendment provides for the following:

• extension of the waivers of certain anticipated covenant breaches and events of default granted in the June 1, 2020 Third Amending Agreement effective April 1, 2020 until August 31, 2020 (the "Waiver Period"),
• waiving, for the Waiver Period and for the period June 30, 2020 to the July 6, 2021 Maturity Date, the financial covenants in the Credit Agreement,
• during the Waiver Period and the period June 30, 2020 until the Maturity Date, the two financial covenants in the Credit Agreement are replaced by a minimum quarterly EBITDA amount, and
• the addition of a new $6.25 million Export Development Canada guaranteed Business Credit Availability Program ("BCAP") (the "EDC-Guaranteed Facility") to the Credit Agreement. The EDC-Guaranteed Facility is a 364-day revolving-term credit facility and can be extended at the Lender's sole discretion by a further 12 months.

On September 30, 2020, but with effect from August 31, 2020, SIR and its Lender entered into a fifth amending agreement to its Credit Agreement (the "Fifth Amending Agreement"). The Fifth Amending Agreement provides for the following:

• an extension of the waivers of certain of the previously granted anticipated covenant breaches and events of default until December 31, 2020 (the "Waiver Period"), and
• an amendment to the calculation of EBITDA as used in the Calculation of the Minimum EBITDA financial covenant. Solely for the purpose of determining the Minimum EBITDA Ratio for any given period, EBITDA and Projected EBITDA shall be calculated by adding back the actual rent expense paid in such period (and not the rent expensed for such period) in accordance with GAAP or IFRS as of the Closing Date.

On September 30, 2020, but with effect from August 31, 2020, the Fund and the Partnership entered into an acknowledgement, waiver and extension agreement with the Lender and SIR, acknowledging, among other things:

• receipt of a copy of the Fifth Amending Agreement,
• that none of: entering the agreement, borrowing under the agreement, or performing any of the obligations under the agreement shall breach any of the terms or constitute an event of default under any of the Fund's or the Partnership's existing agreements with SIR,
• an extension of the period of the deferral of interest on the SIR Loan to the Fund and royalties to the Partnership from August 31, 2020 to December 31, 2020, and
• the waiver of any and all existing breaches of covenants and events of default under the various agreements between SIR, the Fund, and the Partnership until December 31, 2020.

On December 18, 2020, but with effect from December 31, 2020, SIR and its Lender entered into a sixth amending agreement to its Credit Agreement (the "Sixth Amending Agreement"). The Sixth Amending Agreement provides for the following:

• an extension of the waivers of certain of the previously granted anticipated covenant breaches and events of default until March 31, 2021 (the "Waiver Period"),
• deferral until the maturity date of $1.0 million in principal payments previously scheduled between December 31, 2020 to January 31, 2021, and
• allowance for the potential addition of up to an additional $375,000 in subordinated debt made available by Investissement Québec ("IQ") to SIR pursuant to IQ's Concerted Temporary Action Program for Businesses ("PACTE") on terms and conditions satisfactory to the Lender.

The Sixth Amending Agreement is being filed on SEDAR.

There can be no assurance that SIR will receive additional waivers or remain in compliance in the future.

On December 18, 2020, but with effect from December 31, 2020, the Fund and the Partnership entered into an acknowledgement, waiver and extension agreement with the Lender and SIR, acknowledging, among other things:

• receipt of a copy of the Sixth Amending Agreement,
• that none of: entering the agreement, borrowing under the agreement, or performing any of the obligations under the agreement shall breach any of the terms or constitute an event of default under any of the Fund's or the Partnership's existing agreements with SIR,
• the extension of the period of the deferral of interest on the SIR Loan to the Fund and royalties to the Partnership from December 31, 2020 to March 31, 2021,
• the recognition of a potential new PACTE Loan of up to $375,000, and
• the waiver of any and all existing breaches of covenants and events of default under the various agreements between SIR, the Fund, and the Partnership until March 31, 2021.

In order to provide SIR with financial support, the Partnership deferred the collection of restaurant royalties and the Fund deferred interest on the SIR Loan from SIR until March 31, 2021.

About SIR Corp.

SIR Corp. ("SIR") is a privately held Canadian corporation that owns a portfolio of 59 restaurants in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 37 locations; Scaddabush Italian Kitchen & Bar® with 10 locations; and Canyon Creek®, with five locations. SIR also operates one-of-a-kind "Signature" brands including Reds® Wine Tavern, Reds® Midtown Tavern, Reds® Square One and The Loose Moose®. All trademarks related to the Concept and Signature brands noted above are used by SIR under a License and Royalty Agreement with SIR Royalty Limited Partnership. SIR also owns two Duke's Refresher® & Bar locations in downtown Toronto, and one seasonal Signature restaurant, Abbey's Bakehouse®, which are currently not in consideration to be part of the Royalty Pool. For more information on SIR Corp. or the SIR Royalty Income Fund, please visit www.sircorp.com.

About SIR Royalty Income Fund

The Fund is a trust governed by the laws of the province of Ontario that indirectly has interests in the trademarks used by SIR.

Caution concerning forward-looking statements

Certain statements contained in this report, or incorporated herein by reference, including the information set forth as to the future financial or operating performance of the Fund or SIR, that are not current or historical factual statements may constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Statements concerning the objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of the Fund, the SIR Holdings Trust (the "Trust"), the Partnership, SIR, the SIR Restaurants or industry results, are forward-looking statements. The words "may", "will", "should", "would", "expect", "believe", "plan", "anticipate", "intend", "estimate" and other similar terminology and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Fund, the Trust, the Partnership, SIR, the SIR Restaurants or industry results, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. These statements reflect Management's current expectations, estimates and projections regarding future events and operating performance and speak only as of the date of this document. Readers should not place undue importance on forward-looking statements and should not rely upon this information as of any other date. Risks related to forward-looking statements include, among other things, challenges presented by a number of factors, including: the impact of the COVID-19 pandemic; market conditions at the time of this filing; competition; changes in demographic trends; weather; changing consumer preferences and discretionary spending patterns; changes in consumer confidence; changes in national and local business and economic conditions; pandemics or other material outbreaks of disease or safety issues affecting humans or animals or food products; changes in tariffs and international trade; changes in foreign exchange; changes in availability of credit; legal proceedings and challenges to intellectual property rights; dependence of the Fund on the financial condition of SIR; legislation and governmental regulation, including the cost and/or availability of labour as it relates to changes in minimum wage rates or other changes to labour legislation and forced closures or other limitations on the operation of restaurants and bars; changes to existing government support for business in response to the impact of the COVID-19 pandemic, laws affecting the sale and use of alcohol (including availability and enforcement); changes in cannabis laws; accounting policies and practices; and the results of operations and financial condition of SIR. The foregoing list of factors is not exhaustive. Many of these issues can affect the Fund's or SIR's actual results and could cause their actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, the Fund or SIR.  There can be no assurance that SIR will remain compliant in the future with all of its financial covenants under the Credit Agreement and imposed by the lender. Given these uncertainties, readers are cautioned that forward-looking statements are not guarantees of future performance and should not place undue reliance on them. The Fund and SIR expressly disclaim any obligation or undertaking to publicly disclose or release any updates or revisions to any forward-looking statements. Forward-looking statements are based on Management's current plans, estimates, projections, beliefs and opinions, and the Fund and SIR do not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change, except as expressly required by applicable securities laws.

In formulating the forward-looking statements contained herein, Management has assumed that it will be successful in dealing with the effects of the COVID-19 pandemic and that business and economic conditions affecting SIR's restaurants and the Fund will return to normalcy within the medium term.

For more information concerning the Fund's risks and uncertainties, please refer to the March 12, 2020 Annual Information Form, for the period ended December 31, 2019, which is available under the Fund's profile at www.sedar.com. All of the forward-looking statements made herein are qualified 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, the Fund or SIR.

SOURCE SIR Royalty Income Fund

Jeff Good, Chief Financial Officer, Tel: [phone]; Bruce Wigle, Bay Street Communications, Tel: [phone]

Related Links

http://www.sircorp.com