SRV.UN Sir Royalty Income Fund

BURLINGTON, ON, March 30, 2022 /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 13, 2022 ("Q2 2022" and "YTD 2022", respectively). SIR's unaudited interim consolidated financial statements and management's discussion & analysis ("MD&A") for Q2 2022 / YTD 2022 can be accessed via the Fund's profile on the SEDAR website at www.sedar.com under "Other", or the SIR website at www.sircorp.com/sir-royalty-income-fund/financial-reports.

Q2 2022 Business Update

• The state of the restaurant and bar industry was trending positively during SIR's first quarter of Fiscal 2022 (the 12-week period ended November 21, 2021) due to increased vaccination rates and reduced operating restrictions. However, as a result of rising COVID-19 infections due to the emergence of the Omicron COVID-19 variant, provincial governments imposed heightened operating restrictions, followed by indoor and outdoor patio dining closures, beginning in December 2021. The new mandated restrictions remained in effect for the majority of Q2 2022, in all provinces where SIR restaurants operate, and had a negative impact on SIR's sales. For more information on the specific restrictions imposed in each province in which SIR restaurants operate, please consult SIR's Q2 2022 MD&A.
• Food and beverage revenue from corporate restaurant operations increased to $31.6 million in Q2 2022, compared to $12.8 million in the 12-week period ended February 14, 2021 ("Q2 2021").
• Consolidated Same Store Sales ("SSS")¹ increased 152.2% in Q2 2022.
• SIR began offering Renegade Chicken takeout and delivery services again on a trial basis as of January 27, 2022. The services were initially offered out of 21 Jack Astor's® locations in Ontario, with two additional Jack Astor's locations added to the trial as of February 16, 2022. SIR has agreed to pay an amount equal to 6% of the revenues earned to the SIR Royalty Limited Partnership (the "Partnership"). The trial was initially scheduled to continue until March 31, 2022, at SIR's option. SIR now intends to extend the trial until August 28, 2022, but it will only operate out of up to eight Jack Astor's locations. In exchange, SIR will continue to pay 6% of the revenues arising therefrom to the Partnership. The Trustees of the Partnership are supportive of the continuation of the trial.
• 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 Fallsview is expected to open 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 will be treated as a permanently closed restaurant and the new Reds Fallsview will become a new Royalty Pooled Restaurant effective January 1, 2023.

Results of Operations Summary 

SIR has advised the Fund that food and beverage revenue from corporate restaurant operations for Q2 2022 increased to $31.6 million, compared to $12.8 million in Q2 2021. Food and beverage revenue from corporate restaurant operations for YTD 2022 increased to $77.2 million, compared to $41.6 million in the 24-week period ended February 14, 2021 ("YTD 2021"). The increases in Q2 2022 and YTD 2022 were primarily attributable to same store sales growth ("SSSG")¹ due to a decline in pandemic-related operating restrictions during Q2 2022 compared to Q2 2021, until a new round of restrictions were imposed due to the Omicron variant beginning in December 2021.

SSS¹ performance includes all SIR restaurants, except for those restaurants that were not open for the entire comparable periods in Fiscal 2022 and Fiscal 2021, and the Abbey's Bakehouse retail outlet as it is not a SIR restaurant. The following restaurants are excluded from SSS¹ performance:

• the former (now closed) Canyon Creek locations in Mississauga, Scarborough and Vaughan, Ontario; and
• the former (now closed) Reds Midtown Tavern, Scaddabush and Dukes Refresher locations at Yonge and Gerrard in downtown Toronto.

Net earnings and comprehensive income was $1.6 million for Q2 2022, compared to a net loss and comprehensive loss of $8.4 million for Q2 2021. Net loss and comprehensive loss was $49.2 million for YTD 2022, compared to a net loss and comprehensive loss of $14.0 million for YTD 2021. The variances reflect changes in the amortized cost of the Ordinary LP Units and Class A Units of the Partnership that SIR holds. This resulted in income of $0.5 million in Q2 2022 and an expense of $50.8 million in YTD 2022, compared to expenses of $10.9 million in each of Q2 2021 and YTD 2021. These non-cash changes in Q2 2022 and YTD 2022 are due to a decrease in the underlying unit price of the Fund compared to the end of the first quarter of Fiscal 2022, and an increase compared to the end of the fourth quarter of Fiscal 2021.

Adjusted Net Earnings² were $1.1 million in Q2 2022, compared to Adjusted Net Earnings² of $2.5 million in Q2 2021. Adjusted Net Earnings² for YTD 2022 were $1.6 million, compared to an Adjusted Net Loss² of $3.1 million in YTD 2021.

Liquidity and Capital Resources

As at February 13, 2022, SIR had cash and equivalents of $1.7 million, compared to $9.6 million as at August 29, 2021. As at February 13, 2022, SIR had drawn $41.1 million against the $49.6 million maximum borrowing under the Company's credit facility.

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.

SIR's ability to meet its 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, and SIR's ability (if needed) to negotiate longer term extended credit terms from its suppliers, including negotiating deferrals of rent obligations over the terms of its leases. SIR's insurer has denied any business interruption claims due to COVID-19 closures. However, SIR continues to pursue its claim through legal avenues. There can be no assurance this action will be successful. 

Outlook

The recent easing of restaurant and bar operating restrictions by provincial governments across Canada is supporting improved sales performance at SIR restaurants. However, the potential risk of future restaurant closures and/or operating restrictions, could adversely impact future sales at SIR restaurants.

Ontario

Effective February 17, 2022, in the province of Ontario, restaurants, bars and other food and drink establishments, without dance facilities, were allowed to operate at full capacity (with vaccination certificates remaining in effect). Effective March 1, 2022, the government of Ontario lifted capacity limits at all indoor public settings and vaccination certificate requirements. Mask mandates were lifted on March 21, 2022.

Quebec

Effective February 28, 2022, in the province of Quebec, bars were allowed to operate at 50% capacity with last call for alcohol at midnight and a closing time of 1 a.m. Effective March 12, 2022, restaurants and bars were allowed to operate at full capacity and vaccination requirements were lifted. Masking is expected to remain in place until mid-April 2022.

Nova Scotia

Effective February 14, 2022, the province of Nova Scotia allowed restaurants and bars to operate at 75% capacity with public health measures like social distancing and masking remaining in place. Restaurants and bars were required to close by 1 a.m. Takeout, delivery and drive-thru was allowed beyond 1 a.m. Effective February 28, 2022, the province lifted its vaccination requirements, with all other measures remaining in place for restaurants and bars. Effective March 21, 2022, all COVID-19 related restrictions were lifted.

Newfoundland

Effective February 14, 2022, the province of Newfoundland ended the use of the Alert Level systems. Effective March 14, 2022, the province lifted all COVID-19 related restrictions and measures.

Reconciliation of Adjusted Net Earnings²

The following table reconciles net earnings (loss) and comprehensive income (loss) for the 12-week and 24-week periods ended February 13, 2022 and February 14, 2021, respectively, to Adjusted Net Earnings (Loss)²:

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; 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 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 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) 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), 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. Please refer to the reconciliations of net earnings (loss) to Adjusted Net Earnings (Loss) for Q2 2022 and YTD 2022 provided in this news release.

Caution concerning forward-looking information

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 short to medium term. For more information concerning risks and uncertainties, please refer to the Fund's March 22, 2022 Annual Information Form, for the period ended December 31, 2021, and the Fund's most recent interim filings, 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. See 'Risk Factors' in the Fund's Annual Information Form dated March 22, 2022 for the period ended December 31, 2021.

SOURCE SIR Royalty Income Fund