SRV.UN Sir Royalty Income Fund

BURLINGTON, ON, March 16, 2023 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the fourth quarter ("Q4 2022") and year ended December 31, 2022 ("2022").

"The Fund's positive momentum continued in the fourth quarter with significant year-over-year growth in Same Store Sales, Royalty Pooled Revenue and net earnings," said Peter Fowler, CEO of SIR Corp. "During the quarter, the Fund's Trustees approved a 5.6% increase to monthly distributions to unitholders, as well as a special year-end distribution, reflecting the positive impact of SIR's sales growth on cash available for distribution. While SIR's focus on investing in restaurant renovations to elevate its brands was temporarily slowed due to the pandemic, we are now re-engaged on this important performance-enhancing initiative. We completed renovations to four Jack Astor's locations during the fourth quarter, implementing a refreshing, more contemporary and immersive guest-facing experience, and we plan to complete similar restaurant renovations throughout 2023."

Q4 2022 Summary

• Pooled Revenue increased 36.6% to $64.9 million, compared to $47.5 million for the three months ended December 31, 2021 ("Q4 2021").
• Royalty income in the SIR Royalty Limited Partnership (the "Partnership") increased to $3.9 million, from $2.8 million in Q4 2021.
• Equity income from the Partnership, which represents the Fund's pro rata share of the residual distributions of the Partnership, increased to $2.6 million, from $1.6 million in Q4 2021.
• The Royalty Pooled Restaurants (the "Royalty Pool") generated same store sales growth ("SSSG")⁽¹⁾ of 40.0%.
• Net earnings of the Fund were $7.8 million, compared to $2.3 million in Q4 2021.
• In October 2022, the Trustees of the Fund approved a $0.005 increase in the monthly cash distribution, increasing the Fund's monthly distributions from $0.09 per Fund unit to $0.095 per Fund unit, effective for the distribution paid on October 31, 2022.
• On December 15, 2022, the Fund declared a special year-end cash distribution of $0.05 per Fund unit, which was paid on December 30, 2022.
• Distributable cash⁽²⁾ totaled $1.8 million, or $0.22 (basic and diluted) per Fund Unit, and cash distributed to unitholders totaled $2.8 million, representing a payout ratio⁽²⁾ of 155.8%. The payout ratio⁽²⁾ since the Fund's inception in 2004, up to and including Q4 2022, is 100.0%, which is in line with the Fund's target payout ratio of 100% per annum.
• SIR completed renovations at four Jack Astor's® locations.

2022 Summary

• As of mid-March 2022, all of the remaining pandemic-related operating restrictions impacting SIR's restaurant operations were lifted.
• Pooled Revenue increased 75.8% to $240.7 million in 2022, compared to $136.9 million in the year ended December 31, 2021 ("2021").
• Royalty income in the Partnership increased to $14.4 million, from $8.2 million in 2021.
• Equity income from the Partnership increased to $10.8 million, compared to $3.7 million in 2021.
• The Royalty Pooled Restaurants generated SSSG⁽²⁾ of 76.7%.
• Net earnings of the Fund were $44.4 million, compared to $4.9 million in 2021.
• Distributable cash⁽²⁾ totaled $11.5 million, or $1.37 (basic) and $1.34 (diluted) per Fund Unit, and cash distributed to unitholders totaled $10.7 million, representing a payout ratio⁽²⁾ of 93.4%.
• SIR converted its Canyon Creek® location at the Fallsview Casino Resort in Niagara Falls, Ontario, into the new Reds Kitchen + Wine Bar Fallsview®, which opened on March 31, 2022.
• SIR converted its last remaining Canyon Creek® restaurant, located in Etobicoke, Ontario near Toronto Pearson International Airport, into a new Scaddabush Italian Kitchen & Bar ("Scaddabush")® restaurant, which opened on August 1, 2022.
• On June 15, 2022, SIR made its final scheduled payments of previously deferred restaurant royalties to the Partnership and interest on a loan owing to the Fund (the "SIR Loan").
• On June 16, 2022, the Fund announced that SIR completed a ninth amending agreement to its credit agreement with its senior lender. This agreement, among other things, extended the maturity date of the credit agreement from July 6, 2022 to July 6, 2023, with no change in pricing, and the financial covenants related to the credit agreement reverted to the original pre-pandemic financial covenants.
• On July 12, 2022, the Fund declared a special cash distribution of $0.135 per unit, which was paid on July 29, 2022.

Subsequent Event

• The new Reds Kitchen + Wine Bar Fallsview in Niagara Falls, Ontario, and the new Scaddabush in Etobicoke, Ontario were added to the Royalty Pool effective January 1, 2023, and two closed restaurants were removed.

2022 Financial Results Summary 

Pooled Revenue in Q4 2022 increased 36.6% to $64.9 million, compared to $47.5 million in Q4 2021. The higher Pooled Revenue in Q4 2022 reflects a 40.0% increase in Same Store Sales ("SSS")⁽¹⁾, which was primarily attributable to the absence of pandemic-related operating restrictions during the quarter. As of mid-March 2022, all of the operating restrictions impacting SIR's restaurants were lifted. During Q4 2021, bars and restaurants in the provinces where SIR operates experienced varying capacity and/or operating restrictions. Notably, heightened restrictions were implemented during December 2021 due to the Omicron variant.

Net earnings for Q4 2022 were $7.8 million, or $0.93 (basic) and $0.84 (diluted) per Fund Unit, compared to $2.3 million, or $0.27 (basic and diluted) per Fund Unit, for Q4 2021. The increase was primarily attributable to higher Pooled Revenue and a $6.8 million increase in the estimated fair value of the SIR Loan. This increase is 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⁽¹⁾

Jack Astor's SSS⁽¹⁾ performance for Q4 2022 includes 37 locations. Jack Astor's accounted for approximately 72.8% of Pooled Revenue in Q4 2022 and had SSSG⁽¹⁾ of 39.4%. The increase in SSS⁽¹⁾ was primarily attributable to the absence of pandemic-related operating restrictions during the quarter. During Q4 2021, bars and restaurants in the provinces where SIR operates experienced varying capacity and/or operating restrictions. Notably, heightened restrictions were implemented during December 2021 due to the Omicron variant. SIR temporarily closed four of its Jack Astor's locations in Q4 2022 for periods ranging from five to 11 days to complete renovations, which had a negative impact on SSS⁽¹⁾ for the quarter.  

Scaddabush SSS⁽¹⁾ performance for Q4 2022 includes nine locations. Scaddabush had SSSG⁽¹⁾ of 32.4% in Q4 2022, reflecting the absence of pandemic-related operating restrictions, as discussed above.

The Signature Restaurants SSS⁽¹⁾ performance for Q4 2022 includes three restaurants (Reds Wine Tavern, Reds Square One and the Loose Moose Tap + Grill®). The Signature Restaurants had SSSG⁽¹⁾ of 74.6% in Q4 2022, reflecting the absence of pandemic-related operating restrictions, as discussed above.

Distributable Cash⁽²⁾

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

Distributable cash⁽²⁾ for Q4 2022 totaled $1.8 million, or $0.22 (basic and diluted) per Fund Unit, and distributions to Unitholders totaled $2.8 million, representing a payout ratio⁽²⁾ of 155.8%. The payout ratio⁽²⁾ for Q4 2022 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, and the special year-end cash distribution of $0.05 per Fund unit that was declared and paid in December 2022. Distributable cash⁽²⁾ for Q4 2021 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.

SIR completed renovations to five Jack Astor's locations during 2022 to help drive enhanced performance for these locations. SIR plans to invest in similar restaurant renovations in 2023.

SIR has a commitment to lease a property in Whitby, Ontario, upon which it plans to build a new Scaddabush restaurant. There can be no assurance that the new Scaddabush restaurant will be opened or will become part of the Royalty Pooled Restaurants.

The new Reds and Scaddabush restaurants that opened during 2022 were added to the Royalty Pooled Restaurants effective January 1, 2023, and two closed restaurants were removed.

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. Subsequent to year-end, the application was dismissed by the court. Following an internal review, SIR filed an appeal on January 19, 2023.

Non-IFRS Financial Measures

2022 Filings

The Fund's audited consolidated Financial Statements and MD&A, and the Partnership's Financial Statements, for the year ended December 31, 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, 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 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 16, 2023 Annual Information Form, for the period ended December 31, 2022, and the Fund's Management Discussion & Analysis for the year ended December 31, 2022, which are available under the Fund's profile at www.sedar.com.

SOURCE SIR Royalty Income Fund