SRV.UN Sir Royalty Income Fund

BURLINGTON, ON, Dec. 21, 2023 /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's equity income is ultimately derived, has filed its financial results for the 12-week period ended November 19, 2023 ("Q1 2024"). SIR's unaudited interim consolidated financial statements and management's discussion & analysis ("MD&A") for Q1 2024 can be accessed via the Fund's profile on the SEDAR+ website at www.sedarplus.ca under "Other", or the SIR website at www.sircorp.com/sir-royalty-income-fund/financial-reports.

Q1 2024 Business Update

• Food and beverage revenue from corporate restaurant operations was $59.3 million compared to $60.2 million for the 12-week period ended November 20, 2022 ("Q1 2023").
• Consolidated Same Store Sales ("SSS")¹ declined by 4.5%.
• SIR temporarily closed six Jack Astor's® locations during the quarter for a combined total of 45 days to complete renovations, which had a negative impact on food and beverage revenue from corporate restaurant operations and SSS¹.
• On September 1, 2023, SIR opened a new Scaddabush Italian Kitchen & Bar® ("Scaddabush") in Whitby, Ontario. This new restaurant is expected to be added to the Royalty Pooled Restaurants (the "Royalty Pool") on January 1, 2024.

Subsequent Events

• SIR's insurer denied any business interruption claims due to COVID-19 related operating restrictions or closures. However, SIR pursued a Business Interruption claim due to Civil Authority orders against its insurer by way of Notice of Application in the Ontario Superior Court. On January 10, 2023, the application was dismissed. SIR filed an appeal, which was heard on May 24, 2023 in the Ontario Court of Appeal ("ONCA"). The ONCA overturned the original decision and reviewed the application anew. On November 22, 2023, the application was dismissed. SIR is considering its option to apply to the Supreme Court of Canada for leave to appeal.
• On November 28, 2023, SIR permanently closed the Scaddabush restaurant located in the Mimico neighbourhood of Etobicoke, Ontario. This restaurant will be removed from the Royalty Pooled Restaurants on January 1, 2024. SIR is currently evaluating alternative uses for this property, including, but not limited to, reopening the location as another SIR restaurant brand.

Results of Operations Summary

SIR has advised the Fund that food and beverage revenue from corporate restaurant operations was $59.3 million in Q1 2024, a decline of 1.5% compared to $60.2 million in Q1 2023. The slight decline was primarily attributable to decreased SSS¹, which was due to lower guest counts at Jack Astor's and the Signature Restaurants, partially offset by price increases across SIR's restaurant network and the continued strong same store sales growth of Scaddabush. The temporary closures of six Jack Astor's locations (in South London, Vaughan, Newmarket, Ottawa and Scarborough, Ontario and Dundas Square in Toronto) for a combined total of 45 days to complete renovations during Q1 2024 had a negative impact on guest counts and SSS¹. During Q1 2023, two Jack Astor's restaurants were temporarily closed for a combined total of 19 days to complete renovations.

SSS¹ performance includes all SIR restaurants, except for those restaurants that were not open for the entire comparable periods in Fiscal 2024 and Fiscal 2023, and the Abbey's Bakehouse® retail outlet as it is a seasonal restaurant.

Net loss and comprehensive loss was $5.6 million for Q1 2024 compared to $18.4 million for Q1 2023. The positive variance reflects changes in the amortized cost of the Ordinary LP Units and Class A Units of the SIR Royalty Limited Partnership that SIR holds. This resulted in an expense of $5.9 million in Q1 2024 compared to an expense of $20.7 million in Q1 2023. These non-cash changes in Q1 2024 and Q1 2023 are due to increases in the underlying unit price of the Fund compared to the end of Fiscal 2023 and the end of Fiscal 2022, respectively.

Adjusted Net Earnings² were $0.3 million in Q1 2024 compared to $2.3 million in Q1 2023. The decline primarily reflects a $1.3 million reduction in earnings from corporate restaurant operations in Q1 2024 compared to Q1 2023 and a $0.7 million increase in corporate costs in Q1 2024 compared to Q1 2023.

Liquidity and Capital Resources

As at November 19, 2023, SIR had cash and equivalents of $3.5 million compared to $8.2 million as at August 27, 2023. As at November 19, 2023, SIR had drawn $24.0 million against the $42.0 million maximum principal borrowing under the Company's credit facility.

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 to its restaurants and to capitalize on the growth of take-out and delivery services in commercial foodservice. The amendment to SIR's Credit Agreement with its Lender in June 2023 provides greater certainty and availability of funding, enabling SIR to continue to invest in restaurant renovations, new restaurants and other initiatives to drive growth.

During Q1 2024, SIR completed renovations to six Jack Astor's restaurants, expanding the total number of renovated Jack Astor's locations to 15 since the beginning of Fiscal 2022. SIR also completed renovations to its Reds® Square One location in Mississauga, Ontario during Q4 2023. The Company is pleased with the success of these renovations and plans to invest in similar restaurant renovations throughout Fiscal 2024.

SIR has commitments to lease four properties in Barrie, London and Guelph, Ontario and in the Don Mills neighbourhood in Toronto upon which it plans to build four new Scaddabush restaurants. SIR is actively pursuing additional new restaurant development sites to further expand its Jack Astor's and Scaddabush brands.

Reconciliation of Adjusted Net Earnings²

The following table reconciles net earnings (loss) and comprehensive income (loss) for the 12-week periods ended November 19, 2023 and November 20, 2022, respectively, to Adjusted Net Earnings²:

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 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.

(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 a seasonal 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 reconciliation of net earnings (loss) to Adjusted Net Earnings (Loss) for Q1 2024 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 SIR Royalty Limited Partnership (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 risks and uncertainties, please refer to the 'Risk Factors' in the Fund's March 16, 2023 Annual Information Form, for the period ended December 31, 2022, and the Fund's most recent interim filings, which are available under the Fund's profile at www.sedarplus.ca.

SOURCE SIR Royalty Income Fund