SIR Royalty Income Fund Reports 2023 First Quarter Financial Results

BURLINGTON, ON, May 11, 2023 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the first quarter ended March 31, 2023 ("Q1 2023").

"We are pleased to report growth in Pooled Revenue and Same Store Sales of greater than 50% in the first quarter compared to Q1 last year, which was the last quarter impacted by pandemic-related operating restrictions," said Peter Fowler, CEO of SIR Corp. "We continue to advance initiatives to strengthen our financial and operating performance. After completing renovations to five Jack Astor's restaurants in 2022 to implement a refreshing, more contemporary and immersive guest-facing experience, we have completed renovations at three additional Jack Astor's locations to date in 2023, with more anticipated over the course of the year. We have also strengthened the Royalty Pool this year by adding our new Reds restaurant at the Fallsview Casino Resort and our tenth Scaddabush restaurant. We are now advancing the planning and development of two new Scaddabush restaurants, demonstrating the strong momentum of this popular brand. With the weather warming, we are also looking forward to benefitting from a busy patio season ahead."

Q1 2023 Summary

• Pooled Revenue increased 56.8% to $61.4 million, compared to $39.1 million for the three months ended March 31, 2022 ("Q1 2022").
• Royalty income in the SIR Royalty Limited Partnership (the "Partnership") increased to $3.7 million, from $2.3 million in Q1 2022.
• Equity income from the Partnership, which represents the Fund's pro rata share of the residual distributions of the Partnership, increased to $2.5 million, from $1.9 million in Q1 2022.
• The Royalty Pooled Restaurants (the "Royalty Pool") generated same store sales growth ("SSSG")⁽¹⁾ of 54.3%.
• Net earnings were $0.3 million, compared to net earnings of $1.1 million in Q1 2022.
• Distributable cash⁽²⁾ totaled $2.3 million, or $0.28 (basic and diluted) per Fund Unit, and cash distributed to unitholders totaled $2.4 million, representing a payout ratio⁽²⁾ of 102.0% for Q1 2023. The payout ratio⁽²⁾ since the Fund's inception in 2004, up to and including Q1 2023, is 100.0%, in line with the Fund's target payout ratio of 100% per annum.
• Effective January 1, 2023, the new Reds Kitchen + Wine Bar Fallsview® in Niagara Falls, Ontario, and the new Scaddabush Italian Kitchen & Bar ("Scaddabush")® in Etobicoke, Ontario were added to the Royalty Pool, and two closed restaurants were removed.
• During Q1 2023, SIR completed renovations to its Jack Astor's® location in Kanata, Ontario.

Q1 2023 Financial Results Summary 

($000s except restaurants and per Unit amounts) (unaudited)		Three-month  period ended Mar. 31, 2023	Three-month  period ended Mar. 31, 2022
Royalty Pooled Restaurants		51	51
Pooled Revenue generated by SIR Corp.		61,366	39,137
Royalty income to Partnership – 6% of Pooled Revenue		3,682	2,348
Recovery of impairment of financial and intangible assets		76	747
Partnership income allocated to Fund		2,541	1,942
Recovery of impairment of Fund financial assets and investment in the Partnership		-	420
Change in estimated fair value of the SIR Loan		(1,250)	(500)
Net earnings		300	1,055
Net earnings per Fund Unit (basic and diluted)		$0.04	$0.13

Pooled Revenue in Q1 2023 increased 56.8% to $61.4 million, compared to $39.1 million in Q1 2022. The higher Pooled Revenue in Q1 2023 reflects a 54.3% increase in Same Store Sales ("SSS")⁽¹⁾, which was primarily attributable to the absence of pandemic-related operating restrictions during the quarter. During Q1 2022, bars and restaurants in the provinces where SIR operates experienced varying capacity and/or operating restrictions. As of mid-March 2022, all of the operating restrictions impacting SIR's restaurants were lifted.

Net earnings for Q1 2023 were $0.3 million, or $0.04 (basic and diluted) per Fund Unit, compared to net earnings of $1.1 million, or $0.13 (basic and diluted) per Fund Unit, for Q1 2022. The decline in net earnings was primarily attributable to a $1.3 million decrease in the estimated fair value of the SIR Loan in Q1 2023, compared to a smaller decrease of $0.5 million in Q1 2022, and increased impairment recoveries of financial assets in Q1 2022. The changes to the SIR Loans' valuation are related to IFRS 9, which requires the Fund to recognize the SIR Loan at fair value, with changes in the fair value being recorded in the statement of earnings.

Same Store Sales ("SSS")⁽¹⁾

SSS^(1) for Royalty Pooled Restaurants	Three-month period ended Mar. 31, 2023	Three-month period ended  Mar. 31, 2022
Jack Astor's	47.9 %	139.3 %
Scaddabush	58.4 %	149.2 %
Signature Restaurants	151.9 %	N/A
Overall SSS^(1)	54.3 %	154.1 %

Jack Astor's SSS⁽¹⁾ performance for Q1 2023 includes all 37 locations. Jack Astor's accounted for approximately 71.6% of Pooled Revenue in Q1 2023 and had SSSG⁽¹⁾ of 47.9%. The increase in SSS⁽¹⁾ was primarily attributable to the absence of pandemic-related operating restrictions during the quarter. During Q1 2022, bars and restaurants in the provinces where SIR operates experienced varying capacity and/or operating restrictions. SIR temporarily closed its Jack Astor's location in Kanata, Ontario for four days during Q1 2023 to complete a renovation. No renovations were completed during Q1 2022.

Scaddabush SSS⁽¹⁾ performance for Q1 2023 includes nine locations. Scaddabush had SSSG⁽¹⁾ of 58.4% in Q1 2023, reflecting the absence of pandemic-related operating restrictions.

The Signature Restaurants SSS⁽¹⁾ performance for Q1 2023 includes three restaurants (Reds Wine Tavern, Reds Square One and the Loose Moose Tap + Grill®). The Signature Restaurants had SSSG⁽¹⁾ of 151.9% in Q1 2023, reflecting the absence of pandemic-related operating restrictions.

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, 2023	Three-month period ended Mar. 31, 2022
Cash provided by operating activities	968	1,488
Add/(deduct):       Net change in non-cash working capital items	(100)	(135)
Net change in income tax payable	1,429	957
Net change in distribution receivable from the Partnership	42	666
Distributable cash^(2)	2,339	2,976
Cash distributed for the period	2,387	2,261
Surplus/(shortfall) of distributable cash^(2^)	(48)	715
Payout ratio^(2)	102.0 %	76.0 %
Distributable cash^(2) per Fund Unit (basic)	$0.28	$0.36
Distributable cash^(2) per Fund Unit (diluted)	$0.28	$0.34

Distributable cash⁽²⁾ for Q1 2023 totaled $2.3 million, or $0.28 (basic and diluted) per Fund Unit, and distributions to Unitholders totaled $2.4 million, representing a payout ratio⁽²⁾ of 102.0%. The payout ratio⁽²⁾ for Q1 2023 reflects the increase in monthly distributions from $0.09 per Fund unit to $0.095 per Fund unit that took effect beginning in October 2022. Distributable cash⁽²⁾ for Q1 2022 includes the receipt of the repayments of previously deferred royalty amounts from SIR.

Outlook

SIR continues to monitor consumer spending behavior with the absence of pandemic-related operating restrictions and current evolving macroeconomic factors, including inflation and higher interest rates, and their potential impact on the Canadian economy and consumer confidence. Ongoing business impacts due to changes in the minimum wage, rising commodity costs and supply shortages have all been influential in the bar and restaurant industry's changes in pricing overall. To combat these challenges, SIR continues to innovate and provide immersive new product and service offerings to increase dine-in guest visits to its restaurants and to capitalize on the rapid growth of take-out and delivery services in commercial foodservice.

In consideration of the ongoing conditions mentioned above, SIR continues to invest in new restaurant developments and renovations to existing restaurants where appropriate and subject to availability of acceptable long-term financing. Based on its assessment of these conditions and the timing of new restaurant construction and renovations, the related opening schedules will be reviewed regularly by SIR and adjusted as necessary.

Subsequent to Q1 2023, SIR completed two renovations at the Jack Astor's locations in Etobicoke, Ontario and Kingston, Ontario to help drive enhanced performance for these locations. SIR plans to invest in similar restaurant renovations throughout 2023.

SIR has commitments to lease one property in Whitby, Ontario and one property in Barrie, Ontario, upon which it plans to build two new Scaddabush restaurants. There can be no assurance at this time that these planned new Scaddabush restaurants will be opened or will become part of the Royalty Pooled Restaurants.

SIR's insurer has denied any business interruption claims due to COVID-19-related operating restrictions or closures. However, SIR continues to pursue a Business Interruption claim due to Civil Authority orders against its insurer by way of Notice of Application in the Ontario Superior Court. This claim includes a rider provision to SIR's property policy which is in favour of the Fund and covers income reduction for lost royalties for a maximum of 180 days. In January 2023, the application was dismissed by the court. SIR has filed an appeal which will be heard on May 24, 2023 in the Ontario Court of Appeal.

Non-IFRS Financial Measures

 (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 2023 and 2022. 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 2023 MD&A, which can be accessed via the SEDAR website (www.sedar.com).

Q1 2023 Interim Filings

The Fund's unaudited interim consolidated Financial Statements and MD&A, and the Partnership's Financial Statements, for Q1 2023 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, and Scaddabush Italian Kitchen & Bar®, with 10 locations. 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 war 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 16, 2023 Annual Information Form, for the period ended December 31, 2022, and the Fund's Q1 2023 Management Discussion & Analysis, 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]