SIR Royalty Income Fund Reports 2022 First Quarter Results

-- Strong growth in Pooled Revenue and Same Store Sales reflects gradual return to full operating capacity during the quarter --    

BURLINGTON, ON, May 12, 2022 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the first quarter ended March 31, 2022 ("Q1 2022").

"During March 2022, all of the remaining government restrictions impacting our restaurant operations were lifted. We are now at full operating capacity at all locations, and we are pleased that guest volume is increasing as we all collectively learn to live with COVID-19," said Peter Fowler, CEO of SIR Corp. "Our first quarter performance was impacted by the Omicron variant, which resulted in a temporary increase in restrictions that affected us early in the quarter. However, our business gained momentum over the course of the period as restrictions were eased. We welcome the return to a more normalized operating environment and look forward to a busy patio season in the months ahead."

Q1 2022 Summary

• Pooled Revenue increased 152.0% to $39.1 million, compared to $15.5 million in the three months ended March 31, 2021 ("Q1 2021").
  
  
• Royalty income in the SIR Royalty Limited Partnership (the "Partnership") increased to $2.3 million, from $0.9 million in Q1 2021.
  
  
• Equity income (loss) from the Partnership, which represents the Fund's pro rata share of the residual distributions of the Partnership, was $1.9 million, compared to $(0.1) million in Q1 2021.
  
  
• The Royalty Pooled Restaurants generated same store sales growth ("SSSG")⁽¹⁾ of 154.1%.
  
  
• Distributable cash⁽²⁾ totaled $3.0 million, or $0.36 (basic) and $0.34 (diluted) per Fund Unit, and cash distributed to unitholders totaled $2.3 million, representing a payout ratio⁽²⁾ of 76.0%. The Fund's target payout ratio⁽²⁾ is 100% per annum.
  
  
• Five closed restaurants were removed from the Royalty Pooled Restaurants (the "Royalty Pool") effective January 1, 2022.
  
  
• On January 28, 2022, the Fund announced that its independent Trustees provided approval to SIR Corp. ("SIR") to operate Renegade Chicken take-out and delivery services on a trial basis out of certain Jack Astor's locations in Ontario. SIR intends to extend the current trial until August 28, 2022, in exchange for continuing to pay 6% of the revenues arising therefrom to the Partnership.
  
  
• On February 9, 2022, the Fund announced that SIR is converting its Canyon Creek® location at the Fallsview Casino Resort in Niagara Falls, Ontario, into a new Reds®. The new Reds Kitchen + Wine Bar Fallsview opened on March 31, 2022. This former Canyon Creek location was a Royalty Pooled Restaurant, but it has not been in operation since the onset of the pandemic in mid-March 2020. In accordance with the License and Royalty Agreement between SIR and the Partnership, this former Canyon Creek location is treated as a permanently closed restaurant, and the new Reds will become a Royalty Pooled Restaurant effective January 1, 2023.

Subsequent Event

• SIR advised the Fund that the last remaining Canyon Creek restaurant, located in Etobicoke, Ontario near Toronto Pearson International Airport, will permanently close effective May 23, 2022. SIR plans to open a new Scaddabush® restaurant at this location in August 2022.

Q1 2022 Financial Results Summary 

($000s except restaurants and per Unit amounts) (unaudited)		Three-month  period ended Mar. 31, 2022	Three-month  period ended Mar. 31, 2021
Royalty Pooled Restaurants		50	56
Pooled Revenue generated by SIR Corp.		39,148	15,532
Royalty income to Partnership – 6% of Pooled Revenue		2,348	932
Partnership income (loss) allocated to Fund		1,942	(86)
Net earnings (loss)		1,055	(822)
Net Earnings (loss) per Fund Unit (basic)		$0.13	$(0.10)
Net Earnings (loss) per Fund Unit (diluted)		$0.13	$(0.10)

Pooled Revenue in Q1 2022 increased 152.0% to $39.1 million, compared to $15.5 million in Q1 2021. The higher Pooled Revenue in Q1 2022 reflects a 154.1% increase in Same Store Sales ("SSS")⁽¹⁾, which was attributable to the easing of pandemic-related operating restrictions during Q1 2022 in the markets in which SIR restaurants are located.

Net earnings were $1.1 million, or $0.13 (basic and diluted) per Fund Unit, for Q1 2022 compared to a net loss of $0.8 million, or $0.10 (basic and diluted) per Fund Unit, for Q1 2021. The positive variances reflect the significant increase in Pooled Revenue in Q1 2022.

Distributable Cash⁽²⁾
The following table reconciles the relationship between cash provided by operating activities and distributable cash⁽²⁾:

(in thousands of dollars except per unit amounts and payout ratio^2)	Three-month period ended Mar. 31, 2022	Three-month period ended Mar. 31, 2021
Cash provided (used) by operating activities	1,488	-
Add/(deduct):       Net change in non-cash working      capital items	(135)	(95)
Net change in income tax payable	957	(312)
Net change in distribution receivable      from the Partnership	666	(86)
Distributable cash/(shortfall)^(2)	2,976	(493)
Cash distributed for the period	2,261	-
Surplus/(shortfall) of distributable cash^(2^)	715	(493)
Payout ratio^(2)	76.0%	0.0%
Distributable cash/(shortfall)^(2) per Fund Unit (basic)	$0.36	($0.06)
Distributable cash/(shortfall)^(2) per Fund Unit (diluted)	$0.34	($0.06)

Distributable cash⁽²⁾ for Q1 2022 totaled $3.0 million, or $0.36 (basic) and $0.34 (diluted) per Fund Unit, and distributions to Unitholders totaled $2.3 million, representing a payout ratio⁽²⁾ of 76.0%. Distributable cash⁽²⁾ has increased due to the Partnership continuing to receive royalty payments in addition to the Fund's receipt of the monthly repayments of previously deferred interest on the SIR loan.

Same Store Sales⁽¹⁾

SSS^(1) for Royalty Pooled Restaurants	Three-month period ended Mar. 31, 2022	Three-month period ended  Mar. 31, 2021
Jack Astor's®	139.3%	(63.1%)
Scaddabush®	149.2%	(67.5%)
Canyon Creek®	N/A	(100.0%)
Signature Restaurants	N/A	(100.0%)
Overall SSS^(1)	154.1%	(67.9%)

Jack Astor's SSS⁽¹⁾ performance for Q1 2022 includes 37 locations. Jack Astor's accounted for approximately 75.8% of Pooled Revenue in Q1 2022 and had SSSG⁽¹⁾ of 139.3%. The increase in SSS⁽¹⁾  is primarily due to the easing of pandemic-related operating restrictions during Q1 2022. Bar and restaurant operating restrictions and/or closures were in effect throughout Q1 2021.

Scaddabush Italian Kitchen & Bar ("Scaddabush") SSS⁽¹⁾ performance for Q1 2022 includes nine locations. Scaddabush had SSSG⁽¹⁾ of 149.2% in Q1 2022, reflecting the easing of pandemic-related operating restrictions.

Canyon Creek SSS⁽¹⁾ performance for Q1 2022 includes one restaurant in Etobicoke, Ontario. SIR suspended operations at this location on March 16, 2020 and then re-opened it during the second half of 2021. This restaurant will be permanently closed effective May 23, 2022 and is expected to reopen as a Scaddabush location in August 2022.

The Signature Restaurants SSS⁽¹⁾ performance for Q1 2022 includes three restaurants (Reds Wine Tavern, Reds Square One and the Loose Moose Tap + Grill). The growth in SSS⁽¹⁾ is due to the Signature Restaurants gradual return to full operating capacity in Q1 2022 after being closed in Q1 2021.

Outlook

Since the onset of the pandemic in March 2020 through to mid-February 2022, restaurants and bars across Canada experienced a series of government mandated operating capacity restrictions and/or full restaurant closures. As of mid-February 2022, the restaurant and bar industry has been trending positively due to increased vaccination rates and the easing of government restrictions. As of mid-March 2022, this positive trend continued with the lifting of all remaining operational restrictions. SIR's management continues to navigate and monitor the current operating environment and overall consumer behaviour.

During Q1 2022, SIR converted its Canyon Creek location at the Fallsview Casino Resort in Niagara Falls, Ontario, into a new Reds. The new Reds Kitchen + Wine Bar Fallsview opened on March 31, 2022. The new Reds Kitchen + Wine Bar Fallsview is expected to become a new Royalty Pooled Restaurant effective January 1, 2023.

SIR advised the Fund that the last remaining Canyon Creek restaurant, located in Etobicoke, Ontario near the Toronto Pearson International Airport, will permanently close effective May 23, 2022. A new Scaddabush restaurant is expected to open at this location in August 2022 and it is expected to be added to the Royalty Pool on January 1, 2023.

Given the uncertainty surrounding the pandemic and the potential of future government mandated operating capacity restrictions and/or restaurant closures 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. Please refer to "Going Concern" disclosure in Note 1 to the Fund's consolidated financial statements for the year ended December 31, 2021, as well as page 16 of Fund's Q1 2022 Management Discussion & Analysis ("MD&A") for further information.

(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 2022 and 2021. SSSG is the percentage increase in SSS over the prior year comparable period.

(2) 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 Q1 2022 MD&A, which can be accessed via the SEDAR website  (www.sedar.com). 

Q1 2022 Interim Filings

The Fund's unaudited interim consolidated Financial Statements and MD&A, and the Partnership's Financial Statements, for the Q1 2022 are available via the SEDAR website at www.sedar.com and SIR's website at www.sircorp.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 one location. 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 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; the ability to maintain staffing levels;  the impact of inflation, including on input prices and wages; the impact of the crisis 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 medium term.

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.

For more information concerning the Fund's risks and uncertainties, please refer to the March 22, 2022 Annual Information Form, for the period ended December 31, 2021, and the Fund's Management Discussion & Analysis for Q1 2022, which are available under the Fund's profile at www.sedar.com.

SOURCE SIR Royalty Income Fund

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