SIR Royalty Income Fund Announces Filing of SIR Corp. Fiscal 2023 Third Quarter Results

BURLINGTON, ON, June 21, 2023 /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's equity income is ultimately derived, has filed its financial results for the 12-week and 36-week periods ended May 7, 2023 ("Q3 2023" and "YTD 2023", respectively). SIR's unaudited interim consolidated financial statements and management's discussion & analysis ("MD&A") for Q3 2023 / YTD 2023 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.

Q3 2023 Business Update

• Food and beverage revenue from corporate restaurant operations increased 9.9% to $62.1 million, compared to $56.5 million for the 12-week period ended May 8, 2022 ("Q3 2022").
• Consolidated Same Store Sales ("SSS")¹ increased 8.8%.
• SIR completed renovations to three Jack Astor's® locations (in Kanata, Etobicoke and Kingston, Ontario) to implement a refreshing, more contemporary and immersive guest experience. The location in Kanata was closed for five days to complete the renovation, the location in Etobicoke was closed for 14 days, and the location in Kingston was closed for seven days.

Subsequent Event

• On June 6, 2023, SIR entered into a Tenth amending agreement (the "Tenth Amending Agreement") to its credit agreement with its senior lender. The Tenth Amending Agreement, among other things, extended the maturity date of the credit agreement from July 6, 2023 to July 6, 2026, with the exception of the guaranteed facility from Export Development Canada, which has a new maturity date of July 6, 2024. Interest rates were reduced under the Tenth Amending Agreement, with the exception of the interest rate on the guaranteed facility with Business Development Bank of Canada, which remained fixed at 4% per annum. Bankers' acceptance fees were reduced on Credit Facility 1 and Credit Facility 2. Credit Facility 2 reverted to a revolving term facility.

Results of Operations Summary

SIR has advised the Fund that food and beverage revenue from corporate restaurant operations increased 9.9% to $62.1 million in Q3 2023, compared to $56.5 million in Q3 2022. Food and beverage revenue from corporate restaurant operations for YTD 2023 increased 36.3% to $182.4 million, compared to $133.8 million in the 36-week period ended May 8, 2022 ("YTD 2022").  The increases in Q3 2023 and YTD 2023 were primarily attributable to same store sales growth¹ due to the cessation of all pandemic-related operating restrictions during March 2022 in the markets in which SIR restaurants are located.

Same Store Sales^(1)    ($000s)	12-Week  Period Ended  May 7, 2023	12-week  Period Ended  May 8, 2022	Variance	36-Week  Period Ended  May 7, 2023	36-Week  Period Ended  May 8, 2022	Variance
Jack Astor's	43,968	41,691	5.5 %	129,098	98,327	31.3 %
Scaddabush	11,584	10,364	11.8 %	34,129	25,662	33.0 %
Signature Restaurants	5,122	3,724	37.5 %	15,000	8,262	81.6 %
Same Store Sales^(1)	60,674	55,779	8.8 %	178,227	132,251	34.8 %

SSS¹ performance includes all SIR restaurants, except for those restaurants that were not open for the entire comparable periods in Fiscal 2023 and Fiscal 2022, and the Abbey's Bakehouse® retail outlet as it's not a SIR restaurant.

Net loss and comprehensive loss was $2.0 million for Q3 2023, compared to $1.6 million for Q3 2022. Net loss and comprehensive loss was $41.5 million for YTD 2023, compared to $50.8 million for YTD 2022. The variances reflect changes in the amortized cost of the Ordinary LP Units and Class A Units of the Partnership that SIR holds. This resulted in expenses of $6.7 million in Q3 2023 and $49.2 million in YTD 2023, compared to expenses of $9.4 million in Q3 2022 and $60.2 million in YTD 2022. These non-cash changes in Q3 2023 and YTD 2023 are due to increases in the underlying unit price of the Fund compared to the end of the second quarter of Fiscal 2023 and the end of Fiscal 2022, respectively. SIR also did not receive any pandemic-related government subsidies during Q3 2023 or YTD 2023, compared to the corresponding periods a year ago, when the Company recognized significant amounts of government subsidies as a reduction to costs of corporate restaurant operations.

During Q3 2022 and YTD 2022, SIR recognized government assistance through the Canada Emergency Wage Subsidy ("CEWS") and/or the Canada Recovery Hiring Program ("CRHP") of $6.5 million and $12.3 million, respectively. SIR also recognized government assistance through the Canada Emergency Rent Subsidy ("CERS") of $0.1 million and $2.1 million in Q3 2022 and YTD 2022, respectively. SIR recognized a further $0.5 million and $0.8 million in other subsidies during Q3 2022 and YTD 2022, respectively. Of these amounts, $7.0 million and $14.7 million were recognized as reductions to costs of corporate restaurant operations in Q3 2022 and YTD 2022, respectively, and $0.08 million and $0.5 million were recognized as reductions to corporate costs in Q3 2022 and YTD 2022, respectively. These programs ended on May 7, 2022.

Adjusted Net Earnings² were $4.7 million in Q3 2023, compared to $7.8 million in Q3 2022. Adjusted Net Earnings² for YTD 2023 were $7.7 million, compared to $9.5 million in YTD 2022.

Liquidity and Capital Resources

As at May 7, 2023, SIR had cash and equivalents of $2.4 million, compared to $8.1 million as at August 28, 2022. As at May 7, 2023, SIR had drawn $22.6 million, a reduction of $4.3 million from Q2 2023, against the $42.6 million maximum principal borrowing under the Company's credit facility. As a result of the Tenth Amending Agreement, the maximum principal borrowing amount under the credit agreement is $42.4 million.

Outlook

SIR continues to monitor economic conditions and consumer confidence and will consider new restaurant developments and renovations to existing restaurants where appropriate. Based on its assessment of these conditions, the timing of new restaurant construction and renovations, as well as related opening schedules, will be reviewed regularly by SIR and adjusted as necessary. The recent amendment to SIR's Credit Agreement with its Lender provides greater certainty and availability of funding over the next three years, enabling SIR to continue to invest in restaurant renovations, new restaurants and other initiatives to drive growth.

SIR has commitments to lease a property in Whitby, Ontario and a property in Barrie, Ontario upon which it plans to build two new Scaddabush Italian Kitchen & Bar ("Scaddabush")® restaurants. There can be no assurance at this time that these planned new Scaddabush restaurants will be opened or will become part of the Royalty Pooled Restaurants.

During YTD 2023, SIR completed renovations to seven Jack Astor's locations. SIR plans to invest in similar restaurant renovations throughout Fiscal 2023.

SIR continues to pursue a Business Interruption claim, due to Civil Authority orders related to COVID-19, against its insurer. This claim includes a rider provision to SIR's property policy which is in favour of the Fund and covers income reduction for lost royalties for a maximum of 180 days. The claim was heard in the Ontario Superior Court and was dismissed on January 10, 2023. SIR filed an appeal, which was heard on May 24, 2023 in the Ontario Court of Appeal, and is awaiting the rendering of a judgement.

Reconciliation of Adjusted Net Earnings²

The following table reconciles net loss and comprehensive loss for the 12-week and 36-week periods ended May 7, 2023 and May 8, 2022, respectively, to Adjusted Net Earnings²:

	12-Week Period Ended May 7, 2023	12-Week Period Ended May 8, 2022	36-Week Period Ended May 7, 2023	36-Week Period Ended May 8, 2022
	(in thousands of dollars)
Net loss and comprehensive loss for the period	(2,022)	(1,581)	(41,547)	(50,752)
Change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership	6,691	9,398	49,239	60,215
Adjusted Net Earnings^(2)	4,669	7,817	7,692	9,463

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; and Scaddabush Italian Kitchen & Bar® with 10 locations. SIR also operates one-of-a-kind "Signature" brands including Reds® Wine Tavern, Reds® Square One, Reds® Kitchen + Wine Bar Fallsview 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 additional Signature restaurants, including a Duke's Refresher® & Bar in downtown Toronto, and Abbey's Bakehouse®, a seasonal restaurant in Muskoka, Ontario, 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) to Adjusted Net Earnings (Loss) for Q3 2023 and YTD 2023 provided in this news release.

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Caution concerning forward-looking information

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", 'could", "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; the ability to maintain staffing levels;  the impact of inflation, including on input prices and wages; the impact of the war in the Ukraine; changes in tariffs and international trade; changes in foreign exchange and interest rates; 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 or other limits placed on  restaurants and bars; laws affecting the sale and use of alcohol (including availability and enforcement); changes in cannabis laws; changes in environmental laws; privacy matters; accounting policies and practices; changes in tax laws; 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, SIR 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 short to medium term. For more information concerning risks and uncertainties, please refer to the Fund's March 16, 2023 Annual Information Form, for the period ended December 31, 2022, 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 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. See 'Risk Factors' in the Fund's Annual Information Form dated March 16, 2023 for the period ended December 31, 2022.

SOURCE SIR Royalty Income Fund

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