SIR Royalty Income Fund Reports 2020 Fourth Quarter and Year-End Results

- SIR Corp. enters into amended credit agreement with its senior lender providing extensions to existing waivers and additional liquidity -

BURLINGTON, ON, March 31, 2021 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the fourth quarter ("Q4 2020") and year ended December 31, 2020 ("2020")  and provided a business update. 

Q4 2020 Summary

• Starting in October 2020, in response to increasing "second wave" COVID-19 case counts, the operations of SIR Corp. ("SIR") were adversely impacted by a series of increasing restrictions in the various regions it operates. Please refer to the Fund's Management Discussion and Analysis ("MD&A") for the year ended December 31, 2020 for additional details on the timing and duration of various restrictions that impacted SIR's operations.
• Reduced services and restaurant closures have resulted in material declines to sales at SIR restaurants. As a result of the significant decline in sales at SIR restaurants, Pooled Revenue and royalty income in the Partnership, along with the Fund's equity income from the Partnership and cash available for distribution to unitholders of the Fund, continues to be significantly reduced compared to prior years.
• The SIR Royalty Limited Partnership (the "Partnership') continues to defer the collection of royalties and the Fund continues to defer the collection of interest on a loan owing by SIR to the Fund (the "SIR Loan") as part of the conditions required by SIR's senior lender to grant SIR a series of waiver and amending agreements under its Credit Agreement.

Subsequent Events

• On January 1, 2021, the new Scaddabush Kitchen & Bar® ("Scaddabush")  location in Burlington, Ontario was added to the Royalty Pooled Restaurants (the "Royalty Pool"), while the closed Jack Astor's® restaurant in Calgary, Alberta was removed from the Royalty Pool.
• Effective January 8, 2021, SIR permanently closed the Canyon Creek® locations at the Square One shopping centre in Mississauga, Ontario and in Scarborough, Ontario.
• Effective February 9, 2021, SIR permanently closed three restaurants located at the corner of Yonge and Gerrard in downtown Toronto. The three restaurants included a Scaddabush location, Reds® Midtown Tavern and a Duke's Refresher & Bar™. The Scaddabush and Reds locations were part of the Royalty Pool.
• Effective March 31, 2021, SIR permanently closed the Canyon Creek location in Vaughan, Ontario.
• On March 31, 2021, the Fund and the Partnership entered into a seventh waiver and extension agreement (the "Amendment") with SIR's senior lender providing a waiver for any and all existing breaches of covenants and events of default under the various agreements between SIR, the Fund, and the Partnership until July 6, 2021. Additionally, this Amendment includes the addition of a new $6.25 million Business Development Bank of Canada ("BDC") guaranteed Highly Affected Sectors Credit Availability Program facility to the Credit Agreement. Further the senior lender consented to SIR making a distribution to the Partnership and/or the Fund in an amount up to $1,000,000 for previously deferred royalty payments and/or payments of interest on the SIR Loan. This amount is expected to be paid in April 2021. The Fund expects to use this payment to fund operations and for general corporate purposes.  As a result of the Amendment, the period of the deferral of interest on the SIR Loan to the Fund and royalties to the Partnership has been extended from March 31, 2021 to July 6, 2021.

"The Fund's fourth quarter performance was impacted by tightened government restrictions on SIR's indoor dining operations that were introduced in several different stages from October to December. Accordingly, Pooled Revenue declined sequentially relative to our third quarter this year and revenue was down significantly from Q4 a year ago," said Peter Fowler, CEO of SIR Corp. "Operating restrictions have continued to impact us into the first quarter of 2021. We continue to carefully monitor the pandemic in all the regions in which we operate, while maintaining a safe environment for our customers and personnel. We are encouraged that COVID-19 vaccinations are now ramping up across Canada and we look forward to the potential easing of restrictions on our operations as the year progresses."

"We continue our efforts to position SIR for long-term success and eventually enable the resumption of unitholder distributions. Effective today, we entered into an amended credit agreement that extends certain waivers until July 6, 2021, and adds $6.25 million in additional liquidity. We continue to work with our suppliers on extended credit terms."

2020 Financial Results Summary 

($000s except restaurants and per Unit amounts) (audited)	Three-month  period ended December 31, 2020	Three-month  period ended December 31, 2019	12-month period ended December 31, 2020	12-month period ended December 31, 2019
Royalty Pooled Restaurants	56	58	56	58
Pooled Revenue generated by SIR Corp.	20,283	67,455	120,013	284,333
Royalty income to Partnership – 6% of Pooled Revenue	1,217	4,047	7,201	17,060
Make-Whole Payment	-	-	-	267
Total Royalty income to Partnership	1,217	4,047	7,201	17,327
Partnership other income	6	6	24	24
Impairment of Intangible Assets	(1,564)	-	(55,999)	-
Partnership expenses	(34)	(13)	(128)	(79)
Partnership earnings (loss)	(375)	4,040	(48,902)	17,272
SIR Corp.'s interest (Class A, B, and C GP Units)	(651)	(1,549)	(3,886)	(6,491)
SIR's interest (impairment of intangible assets)	-	-	25,308	-
Partnership income (loss) allocated to Fund	(1,026)	2,491	(27,480)	10,781
Impairment of financial assets	(886)	-	(1,000)	-
Change in estimated fair value of the SIR Loan	2,250	(6,750)	(14,250)	6,000
	338	(4,259)	(42,730)	16,781
General & administrative expenses	(141)	(128)	(524)	(488)
Net earnings (loss) before income taxes of the Fund	197	(4,387)	(43,254)	16,293
Income tax recovery (expense)	385	2,648	(748)	(3,649)
Net earnings (loss) for the period	582	(1,739)	(44,002)	12,644
Net Earnings (loss) per Fund Unit (diluted)	$0.07	($0.21)	($5.25)	$1.43

Pooled Revenue in Q4 2020 was $20.3 million, compared to $67.5 million for the three-month period ended December 31, 2019 ("Q4 2019"). Pooled Revenue for 2020 was $120.0 million, compared to $284.3 million for the year ended December 31, 2019 ("2019"). The decline in Pooled Revenue in Q4 2020 and 2020 reflects lower Same Store Sales ("SSS")⁽¹⁾, which was primarily attributable to the negative impact of the COVID-19 pandemic. The declines in Q4 2020 and 2020 also reflect the permanent closure of two Jack Astor's restaurants and one Canyon Creek restaurant during 2019, and one Jack Astor's during 2020.  

Net earnings were $0.6 million, or $0.07 per Fund unit (basic and diluted), in Q4 2020, compared to a net loss of $1.7 million, or $0.21 per Fund unit (basic and diluted), in Q4 2019. The Fund's net loss for 2020 was $44.0 million, or $5.25 per fund unit (basic and diluted), compared to net earnings of $12.6 million, or $1.51 (basic) and $1.43 (diluted) for 2019. Net earnings in Q4 2020 and 2020 were impacted by adjustments of the loss on the Fund's investment in the Partnership and adjustments to the fair value of the SIR Loan. The Fund's increased net loss in 2020 also reflects the significant year-over-year decline in Pooled Revenue. On March 23, 2020, the Fund temporarily suspended payment of unitholder distributions until further notice as a result of the impact of COVID-19 on SIR's operations.    

Adjusted net loss⁽²⁾ for Q4 2020 was $0.03 million, or $0.00 per Fund unit, compared to adjusted net earnings⁽²⁾ of $2.3 million, or $0.27 per Fund unit, in Q4 2019. Adjusted net earnings⁽²⁾ were $3.4 million, or $0.40 per Fund unit, for 2020, compared to adjusted net earnings⁽²⁾ of $9.6 million, or $1.15 per Fund unit for 2019.

During 2020, the Fund paid monthly distributions in arrears of $0.0875 per unit in each of the months of January, February and March 2020, for a total of $0.2625 per Fund unit. On March 23, 2020, the Fund temporarily suspended unitholder distributions until further notice as a result of the adverse impact of COVID-19 on SIR's restaurant operations. No distributions were paid in the months of April through December 2020. The Fund paid monthly distributions in arrears of $0.105 per Fund unit in each of the months of January to October 2019, inclusive. The Fund paid distributions in arrears of $0.0875 per Fund unit in November and December 2019, reflecting the adjustment to the Fund's monthly distribution level that was announced on October 16, 2019. Total cash distributed per Fund unit in 2019 was $1.225. Total distributable cash generated in 2020 was $1.2 million, compared to $9.7 million in 2019. Cash distributions in 2020 totaled $2.2 million, representing a payout ratio⁽¹⁾ of 187.4%, compared to cash distributions totaling $10.3 million in 2019, representing a payout ratio⁽¹⁾  of 105.9%.

Outlook

Limited capacity re-openings of in-restaurant and outdoor patio dining due to COVID-19, in addition to SIR's recent restaurant closures, are expected to continue to impact sales at SIR restaurants. As a result of the significant decline in sales at SIR restaurants, Pooled Revenue and royalty income in the Partnership, along with the Fund's equity income from the Partnership and cash available for distribution to unitholders of the Fund, will continue to be significantly reduced compared to prior years.

SIR has been deemed 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. The federal government recently announced an extension of the CEWS program until June 5, 2021, and SIR expects to continue to remain eligible for the program.

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 increased 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: the duration of restaurant capacity restrictions due to COVID-19, SIR's ability to return to increased or full operating capacity in the near future, Canadian economic conditions after bars and restaurants are able to fully re-open, the type and impact of any new government mandated pandemic-related operating regulations, and 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.

Accordingly, given the uncertainty surrounding the COVID-19 pandemic and the increasing government mandated shutdowns and the related impact to SIR, which the Fund is dependent on for cash flow, the Fund's ability to continue as a going concern for the next 12 to 18 months involves significant judgement. The consolidated financial statements of the Fund have been prepared using International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS) applicable to a going concern, which contemplates the realization of assets and the settlement of liabilities during the normal course of operations for the foreseeable future. Please refer to Note 1 of the Fund's financial results for the fourth quarter ("Q4 2020") and year ended December 31, 2020 for the Fund's complete going concern disclosure.

Under the Seventh Amending Agreement, payments by SIR of royalties and interest on the SIR Loan to the Partnership and the Fund continue to be deferred until at least July 6, 2021, other than the $1,000,000 payment. Consequently Fund distributions to unitholders continue to be suspended.

2020 Filings

The Fund's audited consolidated Financial Statements and MD&A, and the Partnership's Financial Statements, for the year ended December 31, 2020 are available via the SEDAR website at www.sedar.com and SIR's website at www.sircorp.com.

(1) Same store sales ("SSS") and same store sales growth ("SSSG") are non-GAAP financial measures and do not have standardized meanings prescribed by IFRS.  However, the Fund believes that SSS and SSSG are useful measures and provide investors with an indication of the change in year-over-year sales.  The Fund'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. SSS includes revenue from all SIR Restaurants included in Pooled Revenue except for those locations that were not open for the entire comparable periods in fiscal 2020 and fiscal 2019. SSSG is the percentage increase in SSS over the prior comparable period.

(2) References to Adjusted Net Earnings (Loss) are to the Fund's net earnings (loss) plus or minus the impairment on financial assets and the investment in the Partnership and replacing the change in estimated fair value of the SIR Loan as reported in the statement of earnings with the interest received on the SIR Loan during the period and the corresponding deferred tax expense or recovery from the net earnings for the period. Adjusted Net Earnings (Loss) per Fund unit represents the portion of net earnings adjusted for any impairment adjustment on financial assets and the investment in the Partnership and the change in estimated fair value of the SIR Loan and the deferred tax expense or recovery for the period allocated to each outstanding Fund unit. Adjusted Net Earnings (Loss) and Adjusted Net Earnings (Loss) per Fund unit are non-GAAP financial measures and do not have a standardized meaning prescribed by IFRS. Management believes that in addition to net earnings (loss), Adjusted Net Earnings (Loss) and Adjusted Earnings per Fund unit are useful supplemental measures to evaluate the Fund's performance. The change in estimated fair value of the SIR Loan is a non-cash fair value transaction resulting from IFRS 9 and varies with changes in a discount rate that fluctuates based on current market interest rates adjusted for SIR's credit risk. The replacement of the non-cash change in estimated fair value of the SIR Loan with the interest received, and the corresponding deferred tax amount, 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 the Fund's performance. The Fund'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 Fund's MD&A for the year ended December 31, 2020.

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 location 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", '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; 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 restaurants and bars; laws affecting the sale and use of alcohol (including availability and enforcement); changes in cannabis laws; 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 medium term.

For more information concerning the Fund's risks and uncertainties, please refer to the March 31, 2021 Annual Information Form, for the period ended December 31, 2020, 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]