SIR Royalty Income Fund Reports 2021 Third Quarter Results

BURLINGTON, ON, Nov. 11, 2021 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the third quarter ("Q3 2021") and nine months ("YTD 2021") ended September 30, 2021, and provided a business update. 

Q3 2021 Summary

• The operations of SIR Corp. ("SIR") were adversely impacted by a series of restrictions in the various regions in which it operates that were introduced to mitigate the spread of COVID-19. However, the easing of operating restrictions, particularly in Ontario, starting in June 2021, resulted in increased Pooled Revenue in Q3 2021 compared to the third quarter ended September 30, 2020 ("Q3 2020"). Please refer to the Fund's Management Discussion and Analysis ("MD&A") for Q3 2021 for additional details on the timing and duration of various restrictions that impacted SIR's operations.
  
  
• Pooled Revenue for Q3 2021 increased 34.2% to $53.5 million, compared to $39.9 million in Q3 2020.
  
  
• Royalty income in the Partnership increased to $3.2 million in Q3 2021 from $2.4 million for Q3 2020.
  
  
• Equity income from the Partnership, which represents the Fund's pro rata share of the residual distributions of the Partnership, was $1.7 million in Q3 2021 compared to $1.2 million in Q3 2020.
  
  
• Net earnings were $2.2 million, or $0.26 per Fund unit (basic and diluted), for Q3 2021 compared to a net loss of $15.7 million, or $1.87 per Fund unit (basic and diluted), for Q3 2020.
  
  
• Adjusted Net Earnings⁽¹⁾ were $2.2 million for Q3 2021 compared to $1.3 million for Q3 2020.
  
  
• The Royalty Pooled Restaurants generated same store sales growth ("SSSG")⁽²⁾ of 34.9%.
  
  
• Distributable cash⁽³⁾ totaled $2.0 million, or $0.24 per unit (basic and diluted), and cash distributed to unitholders totaled $1.9 million, representing a payout ratio⁽³⁾ of 94.5%. The Fund's target payout ratio⁽³⁾ is 100% per annum.
  
  
• On July 15, 2021, the Fund announced that its Trustees approved the resumption of monthly distributions effective July 30, 2021. The initial monthly distribution of $0.07 per Fund Unit was paid on July 30, 2021 to unitholders of record as at July 22, 2021.
  
  
• On September 9, 2021, the Fund announced that its Trustees approved a $0.02 increase in monthly distributions, resulting in an increase in the Fund's monthly distributions from $0.07 per Fund Unit to $0.09 per Unit, effective for the cash distribution paid on September 30, 2021 to unitholders of record as at September 20, 2021.

"During the quarter, our operations continued to gradually return to a more normalized environment due to the easing of COVID-19 related operating restrictions, particularly in Ontario," said Peter Fowler, CEO of SIR Corp. "We experienced significant growth in same store sales and Pooled Revenue in the quarter as we welcomed our guests back, while maintaining our focus on safety measures. The resumption of monthly distributions to Fund unitholders reflects these improved business conditions."  

Q3 2021 Financial Results Summary 

($000s except restaurants and per Unit amounts) (unaudited)		Three-month  period ended Sept. 30, 2021	Three-month  period ended Sept. 30, 2020	Nine-month period ended Sept. 30, 2021	Nine-month period ended Sept. 30, 2020
Royalty Pooled Restaurants		56	56	56	56
Pooled Revenue generated by SIR Corp.		53,529	39,902	90,586	99,730
Royalty income to Partnership – 6% of Pooled Revenue		3,212	2,394	5,367	5,984
Other Income		-	-	68	-
Total Royalty income to Partnership		3,212	2,394	5,435	5,984
Partnership other income		6	6	18	18
Impairment of Intangible Assets		-	(13,909)	(34)	(53,434)
Partnership expenses		(86)	(49)	(176)	(95)
Partnership earnings (loss)		3,132	(11,558)	5,243	(48,527)
SIR Corp.'s interest (Class A, B, and C GP Units)		(1,460)	(1,144)	(3,159)	(3,235)
SIR's interest (impairment of intangible assets)		-	250	-	25,308
Partnership income (loss) allocated to Fund		1,672	(12,452)	2,084	(26,454)
Impairment of financial assets		-	(114)	(500)	(114)
Other Income		273	-	273	-
Change in estimated fair value of the SIR Loan		750	(2,500)	2,250	(16,500)
		2,695	(15,066)	4,107	(43,068)
General & administrative expenses		(107)	(146)	(474)	(383)
Net earnings (loss) before income taxes of the Fund		2,588	(15,212)	3,633	(43,451)
Income tax expense		(389)	(486)	(1,025)	(1,133)
Net earnings (loss)		2,199	(15,698)	2,608	(44,584)
Net Earnings (loss) per Fund Unit (basic)		$0.26	($1.87)	$0.31	($5.32)
Net Earnings (loss) per Fund Unit (diluted)		$0.26	($1.87)	$0.31	($5.32)

Pooled Revenue in Q3 2021 increased 34.2% to $53.5 million, compared to $39.9 million in Q3 2020. The higher Pooled Revenue in Q3 2021 reflects a 34.9% increase in Same Store Sales ("SSS")⁽²⁾, which was primarily attributable to the easing of pandemic-related operating restrictions in the markets in which SIR restaurants are located.  

Net earnings were $2.2 million, or $0.26 per Fund unit (basic and diluted), for Q3 2021 compared to a net loss of $15.7 million, or $1.87 per Fund unit (basic and diluted), for Q3 2020. Adjusted Net Earnings⁽¹⁾ were $2.2 million, or $0.26 per Fund unit, for Q3 2021 compared to $1.3 million, or $0.16 per Fund unit, for Q3 2020. The positive variances reflect the significant increase in Pooled Revenue in Q3 2021.

Distributable Cash⁽³⁾
The following table reconciles the relationship between cash provided by operating activities and distributable cash⁽³⁾:

(in thousands of dollars except per unit amounts and payout ratio^3)	Three-month period ended September 30, 2021	Three-month period ended September 30, 2020	Nine-month period ended September 30, 2021	Nine-month period ended September 30, 2020
Cash provided by operating activities	2,620	(60)	2,869	2,305
Add/(deduct):  Net change in non-cash working capital items	(255)	(46)	(623)	(283)
Net change in income tax payable	(479)	(517)	(1,086)	(523)
Net change in distribution receivable from the Partnership	152	1,207	565	432
Distributable cash^(3)	2,038	584	1,725	1,931
Cash distributed for the period	1,926	-	1,926	2,199
Surplus (shortfall) of distributable cash^(3^)	112	584	(201)	(268)
Payout ratio^(3)	94.5%	0%	111.7%	113.9%
Distributable cash^(3) per Fund unit (basic and diluted)	$0.24	$0.07	$0.21	$0.23

Effective July 15, 2021, the Trustees of the Fund approved the resumption of monthly unitholder distributions effective July 30, 2021. The initial monthly distribution under the resumption was $0.07 per Fund Unit and was paid on July 30, 2021 to unitholders of record as at July 22, 2021. On August 11, 2021, the Fund declared a distribution of $0.07 per Fund Unit payable on August 31, 2021 to unitholders of record on August 20, 2021.

During Q3 2021, on September 9, 2021, the Fund announced a $0.02 increase in the Fund's monthly cash distributions to unitholders, resulting in an increase in the Fund's monthly cash distributions from $0.07 per unit to $0.09 per unit, effective for the cash distribution paid on September 30, 2021 to unitholders of record on September 20, 2021.

Distributable cash⁽³⁾ for Q3 2021 totaled $2.0 million, or $0.24 per Fund unit (basic and diluted), and distributions to Unitholders totaled $1.9 million, representing a payout ratio⁽³⁾ of 94.5%.

Same Store Sales⁽²⁾

SSS^(2) for Royalty Pooled Restaurants	Three-month period ended Sept. 30, 2021	Three-month period ended  Sept. 30, 2020	Nine-month period ended Sept. 30, 2021	Nine-month period ended Sept. 30, 2020
Jack Astor's®	32.9%	(36.8%)	(1.7%)	(50.8%)
Scaddabush®	39.3%	(45.2%)	(5.2%)	(49.9%)
Canyon Creek®	93.9%	(93.2%)	(67.8%)	(73.8%)
Signature Restaurants	62.0%	(78.4%)	(69.1%)	(66.5%)
Overall SSS^(2)	34.9%	(44.1%)	(6.6%)	(53.2%)

Jack Astor's, which accounted for approximately 78.7% of Pooled Revenue in Q3 2021, had a SSS⁽²⁾ increase of 32.9% in Q3 2021. After SIR suspended dine-in operations at all of its restaurants and bars on March 16, 2020, 23 of the 38 Jack Astor's restaurants remained open for take-out and delivery services only. These closures remained in effect for the majority of the year ended December 31, 2020 and into the second quarter of 2021 ("Q2 2021") amid increasing closures and full lockdown measures in Ontario effective April 8, 2021. Outdoor patios and dining rooms at certain of the Jack Astor's restaurants were re-opened throughout the month of June during Q2 2021 and remained open during Q3 2021.

The sales from the three permanently closed Jack Astor's locations (the former locations in the St. Lawrence Market neighborhood and on John Street in downtown Toronto and the location in Calgary) have been excluded from the calculation of SSS⁽²⁾ for Q3 2021.

Scaddabush Italian Kitchen & Bar ("Scaddabush") SSS⁽²⁾ performance for Q3 2021 includes eight locations, excluding the locations at Yonge and Gerrard in Toronto, and in Burlington, Ontario. Scaddabush had a SSS⁽²⁾ increase of 39.3% Q3 2021. Outdoor patios and dining rooms at certain of the Scaddabush restaurants were re-opened throughout the month of June during Q2 2021 and remained open during Q3 2021.

Canyon Creek had a SSS⁽²⁾ increase of 93.9% in Q3 2021. The Canyon Creek location near the airport in Etobicoke, Ontario was reopened during Q3 2021. SIR temporarily suspended operations at one Canyon Creek restaurant in Niagara Falls, Ontario during Q2 2020. SIR permanently closed the Canyon Creek locations at the Square One shopping centre in Mississauga, Ontario and in Scarborough, Ontario, effective January 8, 2021, and in Vaughan, Ontario, effective March 31, 2021.

The downtown Toronto Signature Restaurants had a SSS⁽²⁾ increase of 62.0% in Q3 2021. On March 16, 2020, SIR suspended all operations at the four Signature Restaurants in the Royalty Pool. SIR permanently closed the Reds Midtown Tavern location at Yonge and Gerrard in Toronto effective February 9, 2021. Outdoor patios and dining rooms at three of the Signature restaurants were reopened on June 11, 2021 during Q2 2021 and remained open during Q3 2021.

Outlook

Effective September 22, 2021, the province of Ontario released "A Plan to Safely Reopen Ontario and Manage COVID-19 for the Long-Term", which outlines the province's gradual approach to lifting remaining public health and workplace safety measures by March 2022. The plan outlined requirements for all Ontarians (12 years and older) to be fully vaccinated in order to access certain public settings including restaurants and bars. Proof of full vaccination (vaccine certificate or passport) along with identification is required to dine indoors at restaurants. Subsequent to Q3 2021, effective October 22, 2021, the province of Ontario's plan was put into effect, making COVID-19 employee vaccination policies mandatory, and lifting capacity limits for restaurants and bars where proof of vaccination is required for patrons. Provided there are no concerning public health and health care trends following the winter holiday season, the province of Ontario plans to begin to lift vaccine certificate requirements for restaurants and bars on January 17, 2022 with the end goal of lifting all remaining public health and workplace safety measures, including masking, by March 28, 2022.

Effective September 1, 2021, Quebec is now in phase three of its three-phase reopening plan, which permits indoor dining (with limited capacity restrictions effective November 1, 2021) to patrons who show a vaccination passport.

Effective October 4, 2021, Nova Scotia moved into Phase 5 of its reopening plan, permitting restaurants to return to regular hours of operation with no operational restrictions or requirements other than patrons showing proof of vaccination to dine indoors. Newfoundland followed on October 26, 2021.

SIR was deemed eligible for the Canada Emergency Wage Subsidy ("CEWS") program. As a result, SIR received a subsidy from the federal government to partially offset certain of its wage costs starting in mid-March 2020. The federal government ended the CEWS program on October 23, 2021.

SIR was deemed eligible for the Canadian Emergency Rent Subsidy ("CERS"). However, the program, as passed, limited SIR's claims under the base program to a maximum of 65% of $0.3 million in eligible expenses during each 4-week claim period. As SIR owns all of its restaurants, it appears to be deemed to be considered an "affiliated group" and, as such, the size of the available subsidy was limited. The maximum claim of $0.2 million per month represents approximately 10% of SIR's eligible expenses under the CERS program. SIR received rebates under this program beginning on September 27, 2020. The program ended on October 23, 2021.

On October 21, 2021, the federal government announced the proposed new Tourism and Hospitality Recovery Program ("THRP"). Restaurants are one of the targeted businesses to which this program applies. The program commenced on October 24, 2021 and is intended to provide a replacement program for the CEWS and CERS programs until at least May 7, 2022. This program would apply to SIR in any claim period between October 24, 2021 and May 7, 2022 when the revenue decline in the claim period is 40% or more compared to the prior reference period. On the same day, the federal government proposed extending the Canada Recovery Hiring Program until May 7, 2022 for eligible employers with current revenue declines of more than 10% compared to the prior reference period, and proposed increasing the subsidy rate to 50% starting on October 24, 2021. This program would also be expected to apply to SIR in any claim period between October 21, 2021 and May 7, 2022 when SIR's revenue decline in the claim period is 10% or more compared to the prior reference period.

SIR was deemed eligible for the Ontario COVID-19 Energy Assistance Program which provides support to businesses to partially offset the cost of energy bills and property taxes during certain lockdown periods. SIR received a rebate under this program beginning on January 4, 2021.

The current state of the restaurant and bars industry during the pandemic has been trending positively due to increasing vaccination rates and recent reductions to government restrictions on indoor dining. However, the potential risk of future government mandated shutdowns and/or capacity restrictions of in-restaurant and patio dining could continue to impact future sales at SIR restaurants. As a result of the pandemic and ongoing government and public health recommendations and restrictions, there are material uncertainties that may cast doubt on SIR's ability to continue as a going concern.

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. On May 31, 2021, SIR's Credit Agreement was amended to, among other things, extend the maturity date from July 6, 2021 to July 6, 2022. There can be no assurance that SIR can remain in compliance with such agreements, or receive additional waivers in future.

SIR's and the Fund's ability to meet their 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 now that they are fully re-open, 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 and SIR's ability to negotiate a further extension to its current credit agreement with its senior lender which is scheduled to mature on July 6, 2022.

Q3 2021 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, 2021 are available via the SEDAR website at www.sedar.com and SIR's website at www.sircorp.com.

(1) 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 Q3 2021 MD&A.

(2) 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 2021 and 2020. SSSG is the percentage increase in SSS over the prior year comparable period.

(3) Distributable cash and payout ratio are non-GAAP financial measures and do not have standardized meanings prescribed by IFRS.  However, the Fund believes that distributable cash and the payout ratio are useful measures as they provide investors with an indication of cash available for distribution.  The Fund's method of calculating distributable cash and the payout ratio may differ from that of other issuers and, accordingly, distributable cash and the payout ratio may not be comparable to measures used by other issuers.  Investors are cautioned that distributable cash and the payout ratio should not be construed as an alternative to the statement of cash flows as a measure of liquidity and cash flows of the Fund. The payout ratio is calculated as cash distributed for the period as a percentage of the distributable cash for the period.  Distributable cash represents the amount of money which the Fund expects to have available for distribution to Unitholders of the Fund, and is calculated as cash provided by operating activities of the Fund, adjusted for the net change in non-cash working capital items including a reserve for income taxes payable and the net change in the distribution receivable from the SIR Royalty Limited Partnership.  For a detailed explanation of how the Fund's distributable cash is calculated, please refer to the Fund's Q3 2021 MD&A, which can be accessed via the SEDAR website (www.sedar.com).

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 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.

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, and the Fund's Management Discussion & Analysis for Q3 2021, 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.

SOURCE SIR Royalty Income Fund

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