SIR Royalty Income Fund Reports SIR Corp. Fiscal 2020 Second Quarter Results

BURLINGTON, ON, March 25, 2020 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today announced that SIR Corp. ("SIR" or the "Company"), the operating entity from which the Fund earns equity income, has filed its financial results for the 12-week and 24-week periods ended February 9, 2020 ("Q2 2020" and "YTD 2020", respectively).

SIR has advised the Fund that food and beverage revenue from corporate restaurant operations for Q2 2020 totaled $61.5 million, a decline of 6.3% compared to $65.6 million for the 12-week period ended February 10, 2019 ("Q2 2019"). Food and beverage revenue from corporate restaurant operations for YTD 2020 was $123.5 million, a decline of 8.3% compared to $134.7 million for the 24-week period ended February 10, 2019 ("YTD 2019"). The revenue decline in both periods is primarily attributable to lower Same Store Sales ("SSS")⁽¹⁾.

Same Store Sales^(1)	12-week period ended February 9, 2020 (unaudited)	24-week period ended February 9, 2020 (unaudited)
Jack Astor's®	(7.0%)	(8.2%)
Scaddabush Italian Kitchen & Bar®	(0.2%)	(1.9%)
Canyon Creek®	(10.4%)	(11.1%)
Signature Restaurants	(1.7%)	(2.6%)
Overall SSS^(1)	(5.6%)	(6.8%)

SIR reported SSS⁽¹⁾ declines of 5.6% for Q2 2020 and 6.8% for YTD 2020. SSS⁽¹⁾ are typically impacted by changes in guest traffic and average cheque amount. SIR believes that recent SSS⁽¹⁾ have been impacted by specific factors impacting consumer behavior related to spending at full-service restaurants, especially in Ontario. These include the rapid growth of delivery services, stricter impaired driving laws, and price increases related to the minimum wage increase that took effect at the start of 2018.

Jack Astor's, SIR's flagship Concept Restaurant brand, which contributed approximately 64% of Q2 2020 Pooled Revenue, had SSS⁽¹⁾ declines of 7.0% and 8.2% in Q2 2020 and YTD 2020, respectively. No Jack Astor's locations were renovated in Q2 2020, compared to two renovations in Q2 2019 (Yonge and Bloor in downtown Toronto, and the location near Pearson International Airport in Etobicoke, Ontario), which resulted in the closure of these restaurants for a combined total of 18 days during the quarter. The sales from the two permanently closed Jack Astor's locations (in the St. Lawrence Market neighbourhood and on John Street in downtown Toronto) have been excluded from the calculation of SSS⁽¹⁾ for Q2 2020 and YTD 2020. Beginning in late 2019, SIR's management began implementing a number of strategies to address declining food and beverage sales at Jack Astor's resulting from changes in consumer behaviour and guest preferences.

Scaddabush had SSS⁽¹⁾ declines of 0.2% in Q2 2020 and 1.9% in YTD 2020. Scaddabush SSS⁽¹⁾ performance for Q2 2020 and YTD 2020 includes eight Scaddabush locations (Mississauga, Richmond Hill, Scarborough, Oakville, Vaughan, and Etobicoke, Ontario, and Front Street and Yonge and Gerrard in downtown Toronto). The new Scaddabush restaurants in the Mimico neighbourhood of Etobicoke, Ontario and Burlington, Ontario are excluded from the calculation of Q2 2020 and YTD 2020 SSS⁽¹⁾ as they were not in operation for the entire comparable periods a year ago.

Canyon Creek had SSS⁽¹⁾ declines of 10.4% in Q2 2020 and 11.1% in YTD 2020. The sales from the closed Canyon Creek locations on Front Street in downtown Toronto and in Burlington, Ontario have been excluded from the calculation of SSS⁽¹⁾ performance for Q2 2020 and YTD 2020. SIR's management continues to evaluate options to improve performance for the remaining restaurants in the Canyon Creek portfolio.

The downtown Toronto Signature Restaurants had SSS⁽¹⁾ declines of 1.7% and 2.6% in Q2 2020 and YTD 2020, respectively. The Q2 2020 and YTD 2020 SSS⁽¹⁾ performance for the Signature Restaurants does not include the new Duke's Refresher® and Bar ("Duke's Refresher") in the St. Lawrence Market neighbourhood which opened during Q1 2020, on September 26, 2019.

SIR's net earnings and comprehensive income was $6.6 million in Q2 2020, compared to $3.8 million in Q2 2019. Net earnings and comprehensive income for YTD 2020 was $40.3 million, compared to a net loss and comprehensive loss of $6.8 million in YTD 2019. The positive variances in Q2 2020 and YTD 2020 are primarily the result of changes in the amortized cost of the Ordinary LP Units and Class A Units of SIR Royalty Limited Partnership ("the Partnership") that SIR holds. This resulted in income of $7.3 million in Q2 2020 and $42.0 million in YTD 2020, respectively, compared to income of $3.5 million in Q2 2019 and expenses of $7.7 million in YTD 2019, respectively. These variances in Q2 2020 and YTD 2020 are due to decreases in the underlying unit price of the Fund compared to the end of Q1 2020 and Q4 2019.

SIR's Adjusted Net Loss⁽²⁾ for Q2 2020 was $0.7 million, compared to Adjusted Net Earnings⁽²⁾ of $0.3 million in Q2 2019. Adjusted Net Loss⁽²⁾ for YTD 2020 was $1.7 million, compared to Adjusted Net Earnings⁽²⁾ of $0.9 million in YTD 2019.

SIR Q2 2020 Corporate Developments
On November 19, 2019, SIR opened a new Scaddabush restaurant in Burlington, Ontario at the former location of the Canyon Creek restaurant that was permanently closed effective October 13, 2019.

On January 1, 2020, the new Scaddabush restaurant in the Mimico neighbourhood of Etobicoke, Ontario was added to Royalty Pooled Restaurants.

Liquidity and Capital Resources
As at February 9, 2020, SIR had cash and equivalents of $2.0 million, compared to $3.6 million as at August 25, 2019, SIR's Fiscal 2019 year-end.

SIR's ability to meet its obligations for the next 12 to 18 months is dependent on its ability to obtain necessary financing through a renewal of its Credit Agreement, the availability of credit under the current Credit Agreement, or other financing sources, and 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 length of the closure of dine-in operations at all of its restaurants due to COVID-19, the speed at which SIR is able to return to full operating capacity in the near future, Canadian economic conditions after bars and restaurants are able to re-open, business interruption insurance coverage, 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 Q2 2020 filings, which include its unaudited interim consolidated financial statements and management's discussion & analysis, can be accessed via the Fund's profile on the SEDAR website at www.sedar.com under "Other".

Subsequent Event
Subsequent to February 9, 2020, the outbreak of COVID-19 in Canada resulted in a severe drop in in-restaurant dining and, beginning March 16, 2020, SIR closed all of its dining rooms and bars. These mandated closures are to continue until further notice, in an effort to help reduce large group gatherings as required by public health and government officials. Pending future government legislation or other developments, SIR currently intends to continue to offer take-out and delivery across most of its Jack Astor's and Scaddabush locations.

The negative impacts from COVID-19, including the temporary closure of its dine-in restaurant operations, will have a material impact on the results of SIR and, as such, management began to implement a mitigation plan for the foreseeable future, including updating cash flow forecasts and working in combination with its lender, landlords, and suppliers in an effort to maintain continued support of SIR.

As a result of the closure of its dining rooms and a material reduction in forecasted sales, SIR is evaluating the potential impairment of property and equipment and intangible assets subsequent to February 9, 2020. There is a possibility that this evaluation will result in impairments in future periods. 

As of March 23, 2020, the Fund announced that due to SIR temporarily suspending dine-in restaurant operations at all of its locations, it is temporarily suspending unitholder distributions until further notice.

About SIR Corp.
SIR Corp. ("SIR") is a privately held Canadian corporation that owns a portfolio of 60 restaurants in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 38 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 in consideration for a Royalty, payable by SIR to the Partnership, equal to six percent of the revenue of the 56 restaurants currently included in the Royalty Pool. 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 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.

(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, SIR believes that SSS and SSSG are useful measures and provide investors with an indication of the change in year-over-year sales. SIR'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. SSSG is the percentage increase in SSS over the prior comparable period. SSS includes revenue from all SIR restaurants except for those restaurants that were not open for the entire comparable period and Abbey's Bakehouse in Muskoka, Ontario as it is not a SIR Restaurant. When a SIR Restaurant is closed, the revenue for the closed restaurant is excluded from the calculation of SSS and SSSG for both the quarter in which the restaurant is closed and the current year-to-date.
(2)	Adjusted Net Earnings (Loss) is calculated by removing the change in amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership from the net earnings (loss) and comprehensive income (loss) for the period.  Adjusted Net Earnings (Loss) is a non-GAAP financial measure and does not have a standardized meaning prescribed by IFRS. Management believes that in addition to net earnings (loss) and comprehensive income (loss), Adjusted Net Earnings (Loss) is a useful supplemental measure to evaluate SIR's performance.  Changes in the amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership is a non-cash transaction and varies with changes in the market price of the Fund units.  The exclusion of the change in amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership 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 SIR's performance.  SIR's method of calculating Adjusted Net Earnings (Loss) may differ from the methods used by other issuers.  Therefore, SIR's Adjusted Net Earnings (Loss) may not be comparable to similar measures presented by other issuers. For Q2 2020, Adjusted Net Loss of $0.7 million (Q2 2019 – Adjusted Net Earnings of $0.3 million) is equal to the Net Earnings for the period of $6.6 million (Q2 2019 – $3.8 million) minus the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $7.3 million (Q2 2019 – $3.5 million). For YTD 2020, Adjusted Net Loss of $1.7 million (YTD 2019 – Adjusted Net Earnings of $0.9 million) is equal to the net earnings for the period of $40.3 million (YTD 2019 – net loss of $6.8 million) minus (plus) the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $42.0 million (YTD 2019 – $7.7 million).

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", "would", "should", "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 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.  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 year ended December 31, 2019, which is available under the Fund's profile at www.sedar.com.

All of the forward-looking statements made in this report 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]

Related Links

http://www.sircorp.com