SIR Royalty Income Fund Reports 2020 Third Quarter Results
- Stronger financial performance compared to the second quarter as the majority of SIR Corp.'s dine-in operations were re-opened -
BURLINGTON, ON, Nov. 16, 2020 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the three-month ("Q3 2020") and nine-month ("YTD 2020") periods ended September 30, 2020 and provided a business update.
Business Update
Since the date of the Fund's last financial report, which was filed on August 18, 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.
- On March 23, 2020, the Fund announced that payment of unitholder distributions is suspended until further notice. Resumption of payment of unitholder distributions will be dependent, in part, on SIR's agreements with its senior lender.
- 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 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. On July 17, 2020, the province of Ontario permitted the re-opening of limited capacity in-restaurant and patio dining in most public health regions of the province, with the exceptions of the Toronto, Peel and Windsor-Essex regions. Accordingly, SIR commenced the gradual re-opening of dine-in and outdoor patio operations at the majority of its restaurants in these regions. On July 31, 2020, the province of Ontario permitted restaurants in the Toronto and Peel public health regions, where SIR has 26 restaurants, 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 were 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.
- 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 provincial government's COVID-19 framework, which restricts the capacity of indoor dining guests, as follows:
Provincial Tier |
Public Health Region |
Red/Control · indoor dining capacity: 10 · maximum number of guests per table: 4 |
Peel* (6) Toronto* (19) 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) |
*Toronto and Peel regions have not announced any plans to re-open indoor dining at this time.
- Reduced services and restaurant closures have resulted in material declines to sales at SIR restaurants. Limited capacity re-openings of in-restaurant and patio dining are expected to continue to result in material year-over-year declines to sales at SIR restaurants.
- 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 the SIR Loan from SIR in order to provide SIR with financial support during the COVID-19 pandemic. The current expiration date of these deferrals is December 31, 2020.
- 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.
- SIR was 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. SIR currently expects to continue to be eligible for CEWS through to at least November 21, 2020. The federal government recently announced its intent to extend the CEWS program until June 2021 and SIR expects to continue to remain eligible for CEWS if it is extended.
- 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 Business Credit Availability Program, or "BCAP", facility.
- 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.
- On September 30, 2020, SIR and its Lender entered into a fifth amending agreement to its Credit Agreement which, among other things, extended certain waivers from August 31, 2020 to December 31, 2020.
- On September 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 December 31, 2020.
"Our third quarter financial results improved significantly compared to our second quarter, as most of our dine-in operations were gradually re-opened and we welcomed a far greater number of customers to our restaurants. However, customer traffic remained well below normal levels due to ongoing concerns about COVID-19," said Peter Fowler, CEO of SIR Corp. "Our restaurant operations continue to be impacted by shifting restrictions on dining in Ontario and Quebec. We are closely tracking the recent resurgence of COVID-19 cases in some of our key markets and the potential impact on our business."
"We continue to work with our lenders to secure further financing support. We recently enter into an amended credit agreement that extended certain waivers until the end of 2020. We are also working with our suppliers on extended credit terms, including negotiations with our landlords over the terms of our leases," continued Mr. Fowler. "The Trustees of the Fund continue to 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."
Q3 2020 Results Summary
($000s except restaurants and per Unit amounts) (unaudited)
|
Three-month period ended September 30, |
Three-month period ended September 30, |
Nine-month September 30, |
Nine-month |
|
Royalty Pooled Restaurants |
56 |
58 |
56 |
58 |
|
Pooled Revenue generated by |
39,902 |
72,154 |
99,730 |
216,878 |
|
Royalty income to Partnership – |
2,394 |
4,329 |
5,984 |
13,013 |
|
Make-Whole Payment |
- |
65 |
- |
267 |
|
Total Royalty income to |
2,394 |
4,394 |
5,984 |
13,280 |
|
Partnership other income |
6 |
6 |
18 |
18 |
|
Impairment of Intangible Assets |
(13,909) |
- |
(54,434) |
- |
|
Partnership expenses |
(49) |
(21) |
(95) |
(66) |
|
Partnership earnings (loss) |
(11,558) |
4,379 |
(48,527) |
13,232 |
|
SIR Corp.'s interest |
(1,144) |
(1,643) |
(3,235) |
(4,941) |
|
SIR's interest (impairment of intangible assets) |
250 |
- |
25,308 |
- |
|
Partnership income (loss) |
(12,452) |
2,736 |
(26,454) |
8,291 |
|
Impairment of financial assets |
(114) |
- |
(114) |
- |
|
Change in estimated fair value |
(2,500) |
(500) |
(16,500) |
12,750 |
|
(15,066) |
2,236 |
(43,068) |
21,041 |
||
General & administrative |
(146) |
(109) |
(383) |
(361) |
|
Net earnings (loss) before |
(15,212) |
2,127 |
(43,451) |
20,680 |
|
Income tax expense |
(486) |
(273) |
(1,133) |
(6,297) |
|
Net earnings (loss) for the |
(15,698) |
1,854 |
(44,584) |
14,383 |
|
Net Earnings (loss) per Fund |
($1.87) |
$0.22 |
($5.32) |
$1.54 |
Pooled Revenue in Q3 2020 was $39.9 million, compared to $72.2 million in the three-month period ended September 30, 2019 ("Q3 2019"). The decline in Pooled Revenue in Q3 2020 primarily reflects lower Same Store Sales ("SSS")(1), which was attributable to the negative impact of the COVID-19 pandemic.
Net earnings in Q3 2020 were impacted by an adjustment of the loss on the Fund's investment in the Partnership and an adjustment to the fair value of the SIR Loan. Net loss was $15.7 million, or $1.87 per Fund unit (basic and diluted), in Q3 2020, compared to $1.9 million, or $0.22 per Fund unit (basic and diluted), in Q3 2019. Adjusted net earnings(2) for Q3 2020 were $1.3 million, or $0.16 per Fund unit, compared to $2.4 million, or $0.29 per Fund unit, in Q3 2019.
Amendments 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 Business Credit Availability Program, or "BCAP", facility. A copy of the agreement was filed on the SEDAR website.
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.
On September 30, 2020, SIR and its Lender entered into a fifth amending agreement to its Credit Agreement which, among other things, extended certain waivers from August 31, 2020 to December 31, 2020. There can be no assurance that SIR will receive additional waivers or remain in compliance in the future.
On September 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 December 31, 2020.
For details of all agreements entered into on June 30, 2020 and September 30, 2020, please refer to the Liquidity and Capital Resources section of the Fund's Management Discussion & Analysis ("MD&A") for Q3 2020, available via the SEDAR website at www.sedar.com and SIR's website at www.sircorp.com.
Outlook
Due to increasing COVID-19 case counts in Ontario and Quebec, there is currently a risk of increased restrictions on in-restaurant dining. Increased restrictions are likely to target regions with the highest new case rates. These restrictions may include, among other things, in increasing levels of adverse impact on SIR's business, such as: lowering music levels, shorter hours for alcohol service, reductions to group sizes, further reductions to indoor seating, and full closure of indoor dining.
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.
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.
Q3 2020 Interim Filings
The Fund's unaudited interim consolidated Financial Statements and MD&A, and the Partnership's Financial Statements, for the three and nine-month periods ended September 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 Q3 2020 and Q3 2019. SSSG is the percentage increase in SSS over the prior comparable period.
(2) References to Adjusted Net Earnings 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 Earnings 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 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 Q3 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
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