SIR Royalty Income Fund Announces Filing of SIR Corp. Fiscal 2022 First Quarter Results

BURLINGTON, ON, Dec. 23, 2021 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today announced that SIR Corp. ("SIR" or the "Company"), the operating entity from which the Fund earns equity income, has filed its financial results for the 12-week period ended November 21, 2021 ("Q1 2022"). SIR's unaudited interim consolidated financial statements and management's discussion & analysis ("MD&A") for Q1 2022 can be accessed via the Fund's profile on the SEDAR website at www.sedar.com under "Other", or the SIR website at www.sircorp.com/sir-royalty-income-fund/financial-reports.

Q1 2022 Business Update

• The state of the restaurant and bar industry trended positively during Q1 2022 due to increased vaccination rates and the reduction of government-mandated capacity restrictions on indoor dining compared to the 12-week period ended November 22, 2020 ("Q1 2021").
• Proof of full vaccination (vaccine certificate or passport), along with identification, is required to be shown in order to dine indoors in all provinces where SIR operates its restaurants. In Ontario (44 SIR restaurants), Nova Scotia (two SIR restaurants) and Newfoundland (one SIR restaurant), proof of vaccination is required for those aged 12 years and older. In Quebec (four SIR restaurants), proof of vaccination is required for those aged 13 and older. While these vaccination requirements have enabled SIR to host patrons for indoor dining, the Company's sales remain negatively impacted compared to pre-pandemic periods due to certain limitations that restrict overall guest counts, including public health and workplace safety measures such as (but not limited to) physical distancing.
• Food and beverage revenue from corporate restaurant operations for Q1 2022 totaled $45.6 million, an increase of 58.6% compared to Q1 2021.
• Consolidated Same Store Sales ("SSS")¹ increased 64% in Q1 2022.
• Effective September 15, 2021, having met the conditions stipulated by SIR's senior lender, SIR began its repayment of deferred royalties and interest on the SIR Loan. Pursuant to the eighth amendment under SIR's Credit Agreement, these amounts will be repaid over 10 monthly installments of $0.5 million and $0.4 million, respectively.
• SIR completed a renovation of its Jack Astor's restaurant at the Square One shopping centre in Mississauga, Ontario.

Results of Operations Summary  

SIR has advised the Fund that food and beverage revenue from corporate restaurant operations for Q1 2022 totaled $45.6 million, an increase of 58.6% compared to Q1 2021. The increase was primarily attributable to same store sales growth ("SSSG")¹ due to the decline in pandemic-related operating restrictions during Q1 2022 compared to Q1 2021.

Same Store Sales^(^1^)by Segment	12-Week  Period Ended  November 21, 2021	12-week  Period Ended  November 22, 2020	Variance
	(in thousands of dollars) (unaudited)
Jack Astor's	33,750	21,967	53.6%
Scaddabush	8,826	5,136	71.8%
Canyon Creek	425	117	263.2%
Signature Restaurants	2,632	607	333.6%
Same Store Sales^(^1^)	45,633	27,827	64.0%

SSS¹ performance includes all SIR restaurants, except for those restaurants that were not open for the entire comparable periods in Fiscal 2022 and Fiscal 2021, and the Abbey's Bakehouse retail outlet as it is not a SIR restaurant. The following restaurants are excluded from SSS¹ performance:

• the former (now closed) Canyon Creek locations in Mississauga and Scarborough, Ontario; and
• the former (now closed) Reds Midtown Tavern, Scaddabush and Dukes Refresher locations at Yonge and Gerrard in downtown Toronto, as these restaurants were not open for the entire comparable periods in Fiscal 2022 and Fiscal 2021.

Net loss and comprehensive loss was $50.8 million for Q1 2022, compared to a net loss and comprehensive loss of $5.6 million for Q1 2021. The negative variance in Q1 2022 is primarily attributable to changes in the amortized cost of the Ordinary LP Units and Class A Units of SIR Royalty Limited Partnership ("the Partnership") that SIR holds. This resulted in a loss of $51.3 million in Q1 2022 due to the increase in the underlying unit price of the Fund compared to the end of Q4 2020.

Adjusted Net Earnings² were $0.5 million in Q1 2022, compared to an Adjusted Net Loss² of $5.6 million in Q1 2021.

Liquidity and Capital Resources

As at November 21, 2021, SIR had cash and equivalents of $2.3 million, compared to $9.6 million as at August 29, 2021. As at November 21, 2021, SIR had drawn $29.6 million against the $49.6 million maximum borrowing under the Company's credit facility.

SIR has advised the Fund that its ability to meet its obligations for the next 12 to 18 months is dependent on its ability to obtain sufficient and extended financing through further amendments to its Credit Agreement and the availability of credit under the current Credit Agreement or other financing sources and/or additional government assistance to aid businesses.

SIR's ability to meet its obligations for the next 12 to 18 months also depends on, among other factors, how long SIR is able to remain at full operating capacity in the near future, Canadian economic conditions affecting bars and restaurants when they are able to fully re-open on a sustained basis, SIR's ability to negotiate longer term extended credit terms from its suppliers, including negotiating deferrals of rent obligations over the terms of its leases. SIR's insurer has denied any business interruption claims due to COVID-19 closures. However, SIR continues to pursue its claim through legal avenues. There can be no assurance this action will be successful.

Outlook

The state of the restaurant and bar industry had been trending positively due to increasing vaccination rates and the implementation of mandatory vaccine certificates (or passports). However, with the emergence of new COVID-19 variants (Delta and Omicron), and increasing infection rates, new operating restrictions have been introduced in all provinces where SIR operates its restaurants. These new restrictions are expected to remain in effect throughout the holiday season (at a minimum) and are expected to have a negative impact of SIR's sales.

• Effective December 19, 2021, the province of Ontario, where SIR operates 44 restaurants, implemented: i) 50% capacity limits for bars and restaurants, ii) restaurants will be required to close at 11 p.m. and the sale of alcohol will be restricted after 10 p.m., iii) a maximum table capacity of 10 patrons, and iv) guests must remain seated at all times.
• Effective December 20, 2021, the province of Quebec, where SIR operates four restaurants, implemented: i) 50% capacity limits for restaurants, ii) restaurants will be required to close at 10 p.m., iii) physical distancing between tables (one metre) if there are no partitions between them, and iv) maximum table capacity of 6 patrons.
• Effective December 17, 2021, the province of Nova Scotia, where SIR operates two restaurants, implemented: i) 50% capacity limits for bars and restaurants, ii) restaurants will be required to close at 11 p.m., iii) physical distancing between tables (two metres), iv) a maximum table capacity of 10 patrons, and v) patrons must be seated to remove their mask for eating and/or drinking; all other mask requirements for indoor public places remain.
• Effective December 20, 2021, the province of Newfoundland, where SIR operates one restaurant, implemented 50% capacity limits for bars and restaurants, with physical distancing measures in effect.

There is a potential risk of additional government-mandated restaurant closures and/or capacity restrictions due to the pandemic, which could have a material adverse impact on future sales at SIR restaurants.

About SIR Corp.
SIR Corp. ("SIR") is a privately held Canadian corporation that owns a portfolio of 53 restaurants in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 37 locations; Scaddabush Italian Kitchen & Bar® with nine locations; and Canyon Creek®, with two locations. SIR also operates one-of-a-kind "Signature" brands including Reds® Wine 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 one 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 receives distribution income from its investment in the SIR Royalty Limited Partnership and interest income from the SIR Loan. The Fund intends to pay distributions to unitholders on a monthly basis.

(1) Same store sales ("SSS") and same store sales growth ("SSSG") are non-GAAP financial measures and do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS"). However, SIR believes that SSS and SSSG are useful measures and provide investors with an indication of the change in year-over-year sales. SIR's method of calculating SSS and SSSG may differ from those of other issuers and accordingly, SSS and SSSG may not be comparable to measures used by other issuers. SSSG is the percentage increase in SSS over the prior comparable period. SSS includes revenue from all SIR restaurants except for those restaurants that were not open for the entire comparable period and Abbey's Bakehouse in Muskoka, Ontario as it is not a SIR Restaurant. When a SIR Restaurant is closed, the revenue for the closed restaurant is excluded from the calculation of SSS and SSSG for both the quarter in which the restaurant is closed and the current year-to-date.

(2) Adjusted Net Earnings (Loss) is calculated by removing the change in amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership from the net earnings (loss) for the period. Adjusted Net Earnings (Loss) is a non-GAAP financial measure and does not have a standardized meaning prescribed by IFRS. Management believes that in addition to net earnings (loss), Adjusted Net Earnings (Loss) is a useful supplemental measure to evaluate SIR's performance. Changes in the amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership is a non-cash transaction and varies with changes in the market price of the Fund units. The exclusion of the change in amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership eliminates this non-cash impact. Management cautions investors that Adjusted Net Earnings (Loss) should not replace net earnings or loss or cash flows from operating, investing and financing activities (as determined in accordance with IFRS), as an indicator of SIR's performance. SIR's method of calculating Adjusted Net Earnings (Loss) may differ from the methods used by other issuers. Please refer to the reconciliations of net earnings (loss) for the period to Adjusted Net Earnings (Loss) in the Company's MD&A for Q1 2022.

Caution concerning forward-looking information

Certain statements contained in this news release, 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 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 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 of restaurants and bars; 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, except as required by securities legislation. 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 risks and uncertainties, please refer to the Fund's March 31, 2021 Annual Information Form, for the period ended December 31, 2020, and the Fund's most recent interim filings, which are available under the Fund's profile at www.sedar.com.

All of the forward-looking statements made in this report 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