SIR Royalty Income Fund Reports 2023 Fourth Quarter and Year-End Results

BURLINGTON, ON, March 14, 2024 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the fourth quarter ("Q4 2023") and year ended December 31, 2023 ("2023").

"During 2023, we completed renovations to 10 of our restaurants and we opened one new Scaddabush location, demonstrating our commitment to continue to invest in existing restaurants and new restaurant development to further elevate our brands and enhance value for Fund unitholders. We also closed three underperforming locations in 2023 as part of our focus on optimizing future performance. We are currently converting the former Reds Wine Tavern into a new, Italian-themed fine dining brand called Edna + Vita, and we are evaluating alternative uses for our other two closed locations," said Peter Fowler, CEO of SIR Corp. "Looking ahead, we intend to continue to innovate and provide immersive new product and service offerings to drive both dine-in guest visits and take-out and delivery sales, while continuing to gradually expand our brands in strategic locations. We recently opened a new Scaddabush location in the Don Mills neighbourhood of Toronto, and currently have commitments to lease five new properties, upon which we plan to develop three additional Scaddabush locations, one new Jack Astor's and one new Duke's Refresher."

Q4 2023 Summary

• Pooled Revenue totaled $64.7 million compared to $64.9 million for the three months ended December 31, 2022 ("Q4 2022").
• Royalty income in the SIR Royalty Limited Partnership (the "Partnership") was $3.9 million, similar to Q4 2022.
• Equity income from the Partnership, which represents the Fund's pro rata share of the residual distributions of the Partnership, increased to $2.8 million from $2.6 million in Q4 2022.
• The Royalty Pooled Restaurants (the "Royalty Pool") had a same store sales ("SSS")⁽¹⁾ decline of 2.4%.
• Net earnings were $11.3 million, compared to $7.8 million in Q4 2022.
• On December 12, 2023, the Fund declared a special year-end cash distribution of $0.0425 per Fund unit, which was paid on December 29, 2023.
• Distributable cash⁽²⁾ totaled $2.3 million, or $0.27 (basic and diluted) per Fund Unit, and cash distributed to unitholders totaled $2.7 million, representing a payout ratio⁽²⁾ of 120%. The payout ratio⁽²⁾ since the Fund's inception in 2004, up to and including Q4 2023, is 100%, in line with the Fund's target payout ratio of 100% per annum.
• SIR Corp. ("SIR") completed renovations to four Jack Astor's® locations (Newmarket, Ottawa, and Scarborough, Ontario, as well as Dundas Square in downtown Toronto).
• SIR permanently closed the Scaddabush Italian Kitchen & Bar® ("Scaddabush") location in the Mimico neighbourhood of Etobicoke, Ontario, Reds® Wine Tavern in downtown Toronto, and Reds® Kitchen + Wine Bar Fallsview in Niagara Falls.

2023 Summary

• Pooled Revenue increased 10.5% to $266.0 million, compared to $240.7 million for the year ended December 31, 2022 ("2022").
• Royalty income in the Partnership increased to $16.0 million from $14.4 million in 2022.
• Equity income from the Partnership increased to $11.1 million from $10.8 million in 2022.
• The Royalty Pooled Restaurants generated same store sales growth ("SSSG")⁽²⁾ of 8.5%.
• Net earnings were $19.1 million compared to $44.4 million in 2022.
• Distributable cash⁽²⁾ totaled $9.9 million, or $1.18 per Fund Unit (basic and diluted), and cash distributed to unitholders totaled $9.9 million, representing a payout ratio⁽²⁾ of 100%.
• SIR completed renovations to Reds® Square One and a total of nine Jack Astor's locations during the year, and opened a new Scaddabush location in Whitby, Ontario.

Subsequent Events

• Effective January 1, 2024, Scaddabush (Mimico), Reds Wine Tavern and Reds Kitchen + Wine Bar Fallsview were removed from the Royalty Pooled Restaurants, and the new Scaddabush location in Whitby, Ontario was added to the Royalty Pooled Restaurants. The Royalty Pool currently consists of 49 restaurants, including: 37 Jack Astor's restaurants, 10 Scaddabush locations, Reds Square One and The Loose Moose Tap + Grill ® ("The Loose Moose").
• On February 27, 2024, SIR opened a new Scaddabush restaurant in the Don Mills neighborhood of Toronto. This new Scaddabush restaurant is anticipated to be added to the Royalty Pooled Restaurants on January 1, 2025.

2023 Financial Results Summary 

($000s except restaurants and per Unit amounts) (audited)		Three-month  period ended Dec. 31, 2023	Three-month  period ended Dec. 31, 2022	12-month period ended Dec. 31, 2023	12-month period ended Dec. 31, 2022
Royalty Pooled Restaurants		51	51	51	51
Pooled Revenue generated by SIR Corp.		64,736	64,866	266,015	240,679
Royalty income to Partnership – 6% of Pooled Revenue		3,884	3,892	15,961	14,441
Recovery (Impairment) of financial and intangible assets		60	(31)	88	55,973
Partnership income allocated to Fund		2,754	2,595	11,074	10,836
Recovery of impairment in the Partnership and Fund financial assets		-	-	-	30,066
Change in estimated fair value of the SIR Loan		9,750	6,750	12,250	8,000
Net earnings		11,285	7,801	19,114	44,409
Net Earnings per Fund Unit (basic)		$1.35	$0.93	$2.28	$5.30
Net Earnings per Fund Unit (diluted)		$1.21	$0.84	$2.14	$4.75

Pooled Revenue in Q4 2023 decreased 0.2% to $64.7 million, compared to $64.9 million in Q4 2022. The slight year-over-year decrease reflects declines in delivery sales and dine-in guest traffic, and the closure of the Scaddabush location in the Mimico neighbourhood in Etobicoke, Ontario, effective November 28, 2023. These factors were mostly offset by system-wide price increases and the continued strong SSSG⁽¹⁾ performance of Scaddabush. The effective closure date for both Reds Wine Tavern and Reds Kitchen + Wine Bar Fallsview was December 31, 2023, so there was negligible impact on Pooled Revenue in Q4 2023 from these restaurant closures.    

Net earnings for Q4 2023 were $11.3 million, or $1.35 per Fund Unit (basic) and $1.21 per Fund Unit (diluted), compared to net earnings of $7.8 million, or $0.93 per Fund Unit (basic) and $0.84 per Fund Unit (diluted), for Q4 2022. The year-over-year increase in net earnings was primarily attributable to the increase in the estimated fair value of the SIR Loan in Q4 2023 compared to Q4 2022, and lower income tax expense. The increase to the estimated fair value of the SIR Loan was $9.6 million in Q4 2023, compared to $6.8 million in Q4 2022. Changes to the SIR Loan's 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) (Decline)/Growth for Royalty Pooled Restaurants	Three-month period ended Dec.31, 2023	Three-month period ended  Dec. 31, 2022	12-month period ended Dec. 31, 2023	12-month period ended Dec. 31, 2022
Jack Astor's®	(5.1 %)	39.3 %	5.4 %	71.6 %
Scaddabush®	8.9 %	32.4 %	18.4 %	69.5 %
Signature Restaurants	(4.4 %)	74.6 %	16.4 %	251.3 %
Overall SSS^(1) (Decline)/Growth	(2.4 %)	40.0 %	8.5 %	76.7 %

Jack Astor's SSS⁽¹⁾ performance for Q4 2023 includes all 37 locations. Jack Astor's accounted for approximately 69.2% of Pooled Revenue in Q4 2023 and had a SSS⁽¹⁾ decline of 5.1%. The decline primarily reflects lower delivery sales and dine-in guest traffic, partially offset by price increases. SIR management believes the decline in delivery sales and dine-in guest visits in the quarter was primarily due to macroeconomic factors, including inflation and increased interest rates, and their impact on discretionary consumer spending.

Scaddabush SSS⁽¹⁾ performance for Q4 2023 includes eight locations. Scaddabush generated SSSG⁽¹⁾ of 8.9% in Q4 2023, reflecting increased dine-in guest traffic and pricing, partially offset by a decline in delivery sales.

The Signature Restaurants SSS⁽¹⁾ performance for Q4 2023 includes three restaurants (Reds Wine Tavern, Reds Square One and the Loose Moose). The Signature Restaurants had a SSS⁽¹⁾ decline of 4.4% in Q4 2023, primarily attributable to lower dine-in guest traffic, as discussed above, partially offset by price increases.

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 Dec. 31, 2023	Three-month period ended Dec. 31, 2022	12-month period ended Dec. 31, 2023	12-month period ended Dec. 31, 2022
Cash provided by operating activities	2,462	3,259	8,041	11,583
Add/(deduct):       Net change in non-cash working capital items	(143)	1,322	(545)	891
Net change in income tax payable	595	(931)	2,313	(968)
Net change in distribution receivable from the Partnership	(629)	(1,849)	195	(22)
Distributable cash^(2)	2,285	1,801	9,904	11,484
Cash distributed for the period	2,743	2,806	9,904	10,721
Surplus (shortfall) of distributable cash^(2^)	(458)	(1,005)	--	763
Payout ratio^(2)	120.0 %	155.8 %	100.0 %	93.4 %
Distributable cash^(2) per Fund Unit (basic)	$0.27	$0.22	$1.18	$1.37
Distributable cash^(2) per Fund Unit (diluted)	$0.27	$0.22	$1.18	$1.34

Distributable cash⁽²⁾ for Q4 2023 totaled $2.3 million, or $0.27 per Fund Unit (basic and diluted), and distributions to Unitholders totaled $2.7 million, representing a payout ratio⁽²⁾ of 120%. In addition to the regular monthly cash distributions of $0.095 per Fund unit, Unitholder distributions in Q4 2023 include a special year-end cash distribution of $0.0425 per Fund Unit, as the Fund had excess distributable cash available. The Fund's payout ratio⁽²⁾ since the Fund's inception in 2004, up to and including Q4 2023, is 100%, in line with the Fund's target payout ratio⁽²⁾ of 100% per annum.  

Outlook

SIR continues to monitor consumer spending behavior in light of 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.

SIR continues to innovate and provide immersive new product and service offerings to increase dine-in guest visits and to capitalize on the rapid growth of take-out and delivery services in commercial foodservice. The recent amendment to SIR's Credit Agreement with its Lender provides greater certainty and availability of funding over the next two years, enabling SIR to continue to invest in restaurant renovations, new restaurants and other initiatives to drive growth.

During 2023, SIR completed renovations to 10 restaurants (nine Jack Astor's locations and Reds Square One) to drive enhanced performance. Subsequent to year end, SIR completed a renovation to its Jack Astor's location in Ancaster, Ontario. SIR plans to continue to invest in similar restaurant renovations throughout 2024.

SIR is converting the former Reds Wine Tavern in downtown Toronto into a new, Italian-themed fine dining brand called Edna + Vita, which is expected to open in Q2 2024. It is anticipated that the new Edna + Vita restaurant and the recently opened Scaddabush location in Don Mills, Ontario will be added to the Royalty Pooled Restaurants on January 1, 2025.   

SIR is currently evaluating alternative uses for the recently closed Scaddabush (Mimico) and Reds Kitchen + Wine Bar Fallsview.  

SIR has commitments to lease five properties in Barrie, London, Guelph and Oshawa, Ontario and at the intersection of Queen Street East and Broadview Ave. in Toronto, upon which it plans to build one new Jack Astor's, three new Scaddabush restaurants and one Duke's Refresher® + Bar. There can be no assurance at this time that these planned new restaurants will be opened or will become part of the Royalty Pooled Restaurants.

In consideration of the ongoing conditions mentioned above and the timing of new restaurant construction and renovations, the related restaurant opening schedules will be reviewed regularly by SIR and adjusted as necessary.

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 International Financial Reporting Standards ("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 2023 MD&A, which can be accessed via the SEDAR+ website (www.sedarplus.ca).

2023 Filings

The Fund's audited consolidated Financial Statements and Management Discussion & Analysis ("MD&A"), and the Partnership's Financial Statements, for the year ended December 31, 2023 are available via the SEDAR+ website at www.sedarplus.ca 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 52 restaurants in Canada. SIR's Concept brands include Jack Astor's Bar and Grill®, with 37 locations; and Scaddabush Italian Kitchen & Bar® with 11 locations. SIR also operates one-of-a-kind "Signature" brands including 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 additional Signature restaurants, including a Duke's Refresher® + Bar in downtown Toronto, and Abbey's Bakehouse®, a seasonal restaurant in Muskoka, Ontario, 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.

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 14, 2024 Annual Information Form, for the period ended December 31, 2023, and the Fund's 2023 MD&A, which are available under the Fund's profile at www.sedarplus.ca. 

SOURCE SIR Royalty Income Fund

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