11.08.2022 23:34

SIR Royalty Income Fund Reports 2022 Second Quarter Results

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-- Strong growth in Pooled Revenue and Same Store Sales following the removal of pandemic-related operating restrictions --    

BURLINGTON, ON, Aug. 11, 2022 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the second quarter ("Q2 2022") and six months ("YTD 2022") ended June 30, 2022.

"The second quarter was the first full quarter in which we operated without government-mandated restrictions since the onset of the pandemic in March 2020. With a return to a more normalized operating environment, our guest volume increased significantly and we generated strong year-over-year growth in Pooled Revenue and Same Store Sales. This positive momentum has carried into the third quarter, as we are experiencing a busy summer patio season," said Peter Fowler, CEO of SIR Corp. "The Fund recently paid a special distribution to unitholders, reflecting the excess cash available to the Fund as SIR Corp. fulfilled its last remaining deferred interest and royalty payment obligations in mid-June. Our team has done a tremendous job in navigating the pandemic-related challenges we have faced to date, and we greatly appreciate the support from our Fund unitholders and the Fund Trustees."

Q2 2022 Summary

  • Pooled Revenue increased 233.7% to $68.0 million, compared to $20.4 million in the three months ended June 30, 2021 ("Q2 2021").

  • Royalty income in the SIR Royalty Limited Partnership (the "Partnership") increased to $4.1 million, from $1.2 million in Q2 2021.

  • Equity income from the Partnership, which represents the Fund's pro rata share of the residual distributions of the Partnership, was $3.5 million, compared to $0.5 million in Q2 2021.

  • The Royalty Pooled Restaurants generated same store sales growth ("SSSG")(1) of 232.7%.

  • Net earnings of the Fund were $31.4 million, compared to $1.2 million in Q2 2021. As SIR continues to recover from the effects of the pandemic and as a result of sustained and continued improvements to the revenue associated with the SIR Rights that were previously impaired, the Partnership recognized an impairment reversal on the SIR Rights intangible asset of $54.2 million in Q2 2022, resulting in an impairment recovery on the Fund's investment in the Partnership of $29.1 million in Q2 2022.

  • Distributable cash(2) totaled $3.6 million, or $0.43 (basic) and $0.42 (diluted) per Fund Unit, and cash distributed to unitholders totaled $2.3 million, representing a payout ratio(2) of 62.8%. The Fund's target payout ratio(2) is 100% per annum.

  • The last remaining Canyon Creek® restaurant, located in Etobicoke, Ontario near Toronto Pearson International Airport, permanently closed effective May 23, 2022. SIR plans to open a new Scaddabush Italian Kitchen & Bar ("Scaddabush")® restaurant at this location in August 2022. This new restaurant is expected to be added to the Royalty Pooled restaurants effective January 1, 2023.

  • On June 15, 2022, SIR Corp. ("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"), enabling SIR to extinguish all liabilities related to these deferred amounts.

  • On June 16, 2022, the Fund announced that SIR completed a ninth amending agreement (the "Ninth Amending Agreement") to its credit agreement with its senior lender. The Ninth Amending Agreement, among other things, extends 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 revert to the original pre-pandemic financial covenants.

Subsequent Event

  • On July 12, 2022, the Fund declared a special cash distribution of $0.135 per unit, which was paid to unitholders of record on July 29, 2022. The Fund's Trustees determined that the special distribution was appropriate, as the Fund had excess cash available to distribute due to the repayment of previously deferred royalties and interest owed by SIR.

Q2 2022 Financial Results Summary 

($000s except restaurants
and per Unit amounts)
(unaudited)  


Three-month
period ended
June 30, 2022

Three-month
period ended
June 30, 2021

Six-month
period ended
June 30, 2022

Six-month
period ended
June 30, 2021







Royalty Pooled Restaurants


51

56

51

56

Pooled Revenue generated by
SIR Corp.


68,016

20,381

107,133

35,913







Royalty income to Partnership –
6% of Pooled Revenue


4,081

1,223

6,428

2,155

Recovery (impairment) of
financial and intangible assets


55,289

203

56,036

(34)

Partnership income allocated
to Fund


3,513

498

5,455

412







Net earnings


31,444

1,232

32,500

410







Net Earnings per Fund Unit
(basic)


$3.75

$0.15

$3.88

$0.05

Net Earnings per Fund Unit
(diluted)


$3.30

$0.13

$3.44

$0.05

 

Pooled Revenue in Q2 2022 increased 233.7% to $68.0 million, compared to $20.4 million in Q2 2021. The higher Pooled Revenue in Q2 2022 reflects a 232.7% increase in Same Store Sales ("SSS")(1), which was attributable to the easing of pandemic-related operating restrictions during the first quarter of 2022 ("Q1 2022") across all provinces in which SIR restaurants are located. As of mid-March 2022, all of the operating restrictions impacting SIR's restaurants were lifted.

Net earnings for Q2 2022 were $31.4 million, or $3.75 (basic) and $3.30 (diluted) per Fund Unit, compared to $1.2 million, or $0.15 (basic) and $0.13 (diluted) per Fund Unit, for Q2 2021. The increases are attributable to the significant increase in Pooled Revenue and the reversal of the previous impairments to the Fund's investment in the Partnership and other financial assets of $29.6 million in Q2 2022, which had an approximate impact on the net earnings per Fund Unit of $3.45 (basic) and $2.99 (diluted) for the quarter.

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
June 30, 2022

Three-month
period ended
June 30, 2021

Six-month
period ended
June 30, 2022

Six-month
period ended
June 30, 2021

Cash provided by operating activities

2,657

250

4,145

249

Add/(deduct): 

     Net change in non-cash working
capital items

(166)

(272)

(301)

(367)

     Net change in income tax payable

(1,130)

(295)

(173)

(608)

     Net change in distribution receivable
from the Partnership

2,238

498

2,904

412

Distributable cash/(shortfall)(2)

3,599

181

6,575

(314)

Cash distributed for the period

2,261

-

4,523

-

Surplus/(shortfall) of distributable cash(2)

1,338

181

2,052

(314)

Payout ratio(2)

62.8 %

0.0 %

68.8 %

0.0 %

Distributable cash/(shortfall)(2) per
Fund Unit (basic)

$0.43

$0.02

$0.78

($0.04)

Distributable cash/(shortfall)(2) per
Fund Unit (diluted)

$0.42

$0.02

$0.76

($0.04)

 

Distributable cash(2) for Q2 2022 totaled $3.6 million, or $0.43 (basic) and $0.42 (diluted) per Fund Unit, and distributions to Unitholders totaled $2.3 million, representing a payout ratio(2) of 62.8%. Distributable cash(2) increased in Q2 2022 due to the easing of pandemic-related operating restrictions compared to Q2 2021, and the payment of previously deferred interest owed by SIR.

Same Store Sales(1)

SSS(1) for Royalty Pooled
Restaurants

Three-month
period ended
June 30, 2022

Three-month
period ended
June 30, 2021

Six-month
period ended
June 30, 2022

Six-month
period ended
June 30, 2021






Jack Astor's®

216.1 %

121.9 %

182.6 %

(28.0 %)

Scaddabush®

211.2 %

116.1 %

184.7 %

(35.9 %)

Canyon Creek®

-

-

-

(96.2 %)

Signature Restaurants

2515.5 %

2500.0 %

3551.3 %

(95.9 %)

Overall SSS(1)

232.7 %

123.0 %

197.7 %

(35.5 %)

 

Jack Astor's SSS(1) performance for Q2 2022 includes 37 locations. Jack Astor's accounted for approximately 75.2% of Pooled Revenue in Q2 2022 and had SSSG(1) of 216.1%. The increase in SSS(1) was primarily due to the easing of pandemic-related operating restrictions during Q1 2022. Bar and restaurant operating restrictions and/or closures were in effect throughout Q1 2021 and into Q2 2021 until June 2021, when outdoor patios and dining rooms were re-opened.

Scaddabush SSS(1) performance for Q2 2022 includes nine locations. Scaddabush had SSSG(1) of 211.2% in Q2 2022, reflecting the easing of pandemic-related operating restrictions.

The Signature Restaurants SSS(1) performance for Q1 2022 includes three restaurants (Reds® Wine Tavern, Reds Square One and the Loose Moose Tap + Grill®). The growth in SSS(1) is due to the Signature Restaurants' gradual return to full operating capacity in Q1 2022 after being closed for the majority of Q2 2021.

Outlook

Since the onset of the pandemic in March 2020 through to mid-February 2022, restaurants and bars across Canada experienced a series of government mandated operating capacity restrictions and/or full restaurant closures. As of mid-February 2022, the restaurant and bar industry has been trending positively due to increased vaccination rates and the easing of government restrictions. As of mid-March 2022, all remaining operational restrictions in the provinces where SIR operates were lifted. SIR's management continues to navigate and monitor the current operating environment and overall consumer behaviour.

The new Reds Kitchen + Wine Bar Fallsview, which opened on March 31, 2022, is expected to be added to the Royalty Pooled Restaurants effective January 1, 2023.

A new Scaddabush restaurant located in Etobicoke, Ontario near the Toronto Pearson International Airport was opened on August 1, 2022, and is expected to be added to the Royalty Pooled Restaurants effective January 1, 2023.

(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 2022 and 2021. 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 Q2 2022 MD&A, which can be accessed via the SEDAR website (www.sedar.com). 

 

Q2 2022 Interim Filings

The Fund's unaudited interim consolidated Financial Statements and MD&A, and the Partnership's Financial Statements, for the three and six-month periods ended June 30, 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 22, 2022 Annual Information Form, for the period ended December 31, 2021, and the Fund's Q2 2022 Management Discussion & Analysis, which are available under the Fund's profile at www.sedar.com.

SOURCE SIR Royalty Income Fund

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