SIR Royalty Income Fund Reports 2020 Second Quarter Results
- The majority of SIR Corp.'s restaurants have re-opened for in-restaurant and outdoor patio dining adhering to provincial government safety and capacity guidelines -
BURLINGTON, ON, Aug. 18, 2020 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the three-month ("Q2 2020") and six-month ("YTD 2020") periods ended June 30, 2020 and provided a business update.
Business Update
Since the date of the Fund's last financial report, which was filed on June 30, 2020, the COVID-19 pandemic has significantly impacted the operations of SIR Corp. ("SIR").
- Beginning March 16, 2020, SIR suspended the 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 (SIR subsequently re-opened its three Jack Astor's locations in the Maritime provinces with limited capacity seating). Starting June 12, 2020, Ontario adopted a phased approach to the re-opening of limited capacity 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 and outdoor patio dining, with Greater Montreal Area restaurants following on June 22, 2020 (SIR subsequently re-opened its four Jack Astor's locations in the Greater Montreal Area). Starting July 17, 2020, through July 31, 2020, the province of Ontario adopted a phased approach to the re-opening of limited capacity in-restaurant dining. Accordingly, SIR commenced the gradual re-opening of dine-in operations at the majority of its restaurants in Ontario.
- SIR has now re-opened dining rooms and outdoor patios at the majority of its Jack Astor's restaurants and all of its Scaddabush restaurants, and certain of its Canyon Creek and Signature restaurants, adhering to strict operating procedures and sanitary guidelines to prioritize the safety of its guests and staff.
- Reduced services and restaurant closures 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.
- As a result of the significant decline in sales at SIR restaurants, Pooled Revenue and royalty income in the SIR Royalty Limited Partnership (the "Partnership"), along with the Fund's equity income from the Partnership and cash available for distribution to unitholders of the Fund, has decreased significantly.
- The Partnership has deferred the collection of royalties and the Fund has deferred the collection of interest on the SIR Loan from SIR until August 31, 2020, in order to provide SIR with financial support during the COVID-19 pandemic.
- On March 23, 2020, the Fund announced that payment of unitholder distributions is suspended until further notice.
- SIR was deemed eligible for the Canada Emergency Wage Subsidy 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 this subsidy program through to at least November 21, 2020.
- On May 27, 2020, effective April 1, 2020, SIR received a covenant waiver under its credit agreement (the "Credit Agreement") with a Schedule I Canadian chartered bank (the "Lender") 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 Amending Agreement"), including among other things, the addition of a new $6.25 million EDC-guaranteed BCAP facility. The Waiver and Amending Agreement has been filed on SEDAR.
- On June 30, 2020, the Fund and the Partnership entered into an acknowledgement and consent agreement with the Lender, and the Fund, the Partnership, and SIR entered into a waiver and extension agreement. The current expiration date of certain deferrals in these agreements is August 31, 2020. Other deferrals extend to the maturity date of the SIR Loan.
- SIR permanently closed its Jack Astor's location in Calgary, Alberta effective July 15, 2020.
"Our second quarter was an exceptionally challenging period, as most of our dine-in operations were closed throughout the entire three-month period due to the COVID-19 pandemic. Fortunately, the vast majority of our dine-in operations, including all of our Jack Astor's and Scaddabush restaurants, have subsequently re-opened following the easing of government restrictions," said Peter Fowler, CEO of SIR Corp. "We are adhering to strict health and safety protocols at our restaurants to mitigate the spread of COVID-19 and will continue to closely adhere to public health guidelines to ensure a safe and comfortable environment for our guests and staff. While we can't predict the future trajectory of the pandemic and related economic conditions, our corporate ownership model enables us to rapidly adjust and optimize our operations based upon prevailing health guidelines and consumer preferences."
"We continue to work with our lenders to secure further financing support, and with our suppliers to secure extended credit terms, including negotiations with our landlords over the terms of our leases, as we manage through this uncertain period," continued Mr. Fowler. "The Trustees of the Fund continue to closely monitor SIR's ability to return to a position where it can pay appropriate and sustainable royalty payments to the Fund, enabling the Fund to resume predictable and sustainable distributions to unitholders."
Q2 2020 Results Summary
($000s except restaurants and per Unit amounts) (unaudited) |
Three-month period ended June 30, 2020 |
Three-month period ended June 30, 2019 |
Six-month June 30, 2020 |
Six-month |
|
Royalty Pooled Restaurants |
56 |
58 |
56 |
58 |
|
Pooled Revenue generated by |
9,551 |
77,708 |
59,828 |
144,724 |
|
Royalty income to Partnership – |
571 |
4,662 |
3,590 |
8,683 |
|
Make-Whole Payment |
- |
- |
- |
203 |
|
Total Royalty income to |
571 |
4,662 |
3,590 |
8,886 |
|
Partnership other income |
6 |
6 |
12 |
12 |
|
Impairment of Intangible Assets |
- |
- |
(40,525) |
- |
|
Partnership expenses |
(21) |
(22) |
(45) |
(45) |
|
Partnership earnings (loss) |
556 |
4,646 |
(36,968) |
8,853 |
|
SIR Corp.'s interest |
(825) |
(1,694) |
(2,092) |
(3,298) |
|
SIR's interest (impairment of intangible assets) |
- |
- |
25,058 |
- |
|
Partnership income (loss) |
(269) |
2,952 |
(14,002) |
5,555 |
|
Change in estimated fair value |
2,500 |
5,000 |
(14,000) |
13,250 |
|
2,231 |
7,952 |
(28,002) |
18,805 |
||
General & administrative |
(131) |
(133) |
(238) |
(252) |
|
Net earnings (loss) before |
2,100 |
7,819 |
(28,240) |
18,553 |
|
Income tax expense |
(218) |
(3,211) |
(647) |
(6,024) |
|
Net earnings (loss) for the |
1,882 |
4,608 |
(28,887) |
12,529 |
|
Net Earnings (loss) per Fund |
$0.22 |
$0.50 |
($3.45) |
$1.31 |
|
Pooled Revenue in Q2 2020 was $9.6 million, compared to $77.7 million in the three-month period ended June 30, 2019 ("Q2 2019"). The decline in Pooled Revenue in Q2 2020 primarily reflects lower Same Store Sales ("SSS")(1), which was attributable to the negative impact of the temporary closure of dine-in operations at SIR restaurants due to the COVID-19 pandemic.
Net earnings in Q2 2020 were impacted by an adjustment to the fair value of the SIR Loan. Net earnings were $1.9 million, or $0.22 per Fund unit (basic and diluted), in Q2 2020, compared to $4.6 million, or $0.55 per Fund unit (basic) and $0.50 (diluted), in Q2 2019. Adjusted net earnings(2) for Q2 2020 were $0.1 million, or $0.02 per Fund unit, compared to $2.6 million, or $0.31 per Fund unit, in Q2 2019.
Amendment to Credit Agreement and Waivers
On May 27, 2020, effective April 1, 2020, SIR received a covenant waiver under its credit agreement (the "Credit Agreement") with a Schedule I Canadian chartered bank (the "Lender") until June 30, 2020.
On June 30, 2020, SIR and its Lender entered into a fourth amending agreement to its Credit Agreement, including the addition of a new $6.25 million EDC-guaranteed BCAP facility, to the Credit Agreement.
On June 30, 2020, the Fund and the Partnership entered into an acknowledgement and consent agreement with the Lender, and the Fund, the Partnership, and SIR entered into a waiver and extension agreement.
For details of all agreements entered into on June 30, 2020, please refer to the Liquidity and Capital Resources section of the Fund's Management Discussion & Analysis ("MD&A") for Q2 2020, available via the SEDAR website at www.sedar.com and SIR's website at www.sircorp.com.
Outlook
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 length of the closure of dine-in operations at certain of its restaurants due to COVID-19, the speed at which SIR is able to return to full operating capacity in the near future, Canadian economic conditions after bars and restaurants are able to fully re-open, and SIR's ability to negotiate 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.
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.
Q2 2020 Interim Filings
The Fund's unaudited interim consolidated Financial Statements and MD&A, and the Partnership's Financial Statements, for the three and six-month periods ended June 30, 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 Q2 2020 and Q2 2019. SSSG is the percentage increase in SSS over the prior comparable period.
(2) Adjusted Net Earnings (Loss) is calculated by 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 Earnings per Fund unit represents the portion of net earnings adjusted for 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 Earnings 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 in the Fund's Q2 2020 MD&A.
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 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. 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: 905-681-2997; Bruce Wigle, Bay Street Communications, Tel: 647-496-7856
Share this article