Mr. Jeff Good reports

SIR ROYALTY INCOME FUND REPORTS SIR CORP. FISCAL 2018 THIRD QUARTER RESULTS

SIR Royalty Income Fund's SIR Corp. has filed its financial results for the 12-week and 36-week periods ended May 6, 2018 (Q3 2018 and YTD (year to date) 2018, respectively).

SIR has advised the fund that revenue from corporate restaurant operations for Q3 2018 increased 6.8 per cent to $72.1-million, compared with $67.5-million for the 12-week period ended May 7, 2017 (Q3 2017). Revenue from corporate restaurant operations for YTD 2018 increased 6.8 per cent to $206.7-million from $193.5-million for the 36-week period ended May 7, 2017 (YTD 2017). The increase in revenue for both periods is primarily attributable to the addition of new restaurants and same-store sales growth (SSSG) (1).

Same-store sales (1)            12-week period ended May 6, 2018   36-week period ended May 6, 2018

Jack Astor's                                                4.3%                               4.3%
Canyon Creek                                                1.2%                               0.6%
Scaddabush Italian Kitchen & Bar                            0.8%                               6.4%
Signature restaurants                                      (2.8%)                             (3.6%)
Overall SSSG (1)                                            3.1%                               3.5%

Jack Astor's, SIR's flagship concept restaurant brand, contributed approximately 71 per cent of pooled revenue in Q3 2018 and generated SSSG (1) of 4.3 per cent for both Q3 2018 and YTD 2018. Jack Astor's same-store sales (SSS) (1) continue to be favourably impacted by the improved sales performance of certain locations that were renovated within the last two fiscal years, including increased beverage sales at these locations. Enhanced beverage programs were implemented as part of the renovation program, including the rollout of a new craft beer program during Q1 2018. During Q3 2018, SIR also launched takeout and delivery service at a small number of Jack Astor's locations in conjunction with SkipTheDishes, Canada's leading food delivery company. These new sales have positively impacted SSSG (1). Based on the success of this initiative, additional Jack Astor's locations launched takeout and delivery services with SkipTheDishes subsequent to Q3 2018. SIR completed partial renovations at one Jack Astor's location during Q3 2018 (Kingston, Ont.), which resulted in the closure of this restaurant for eight days during the quarter, compared with the closure of two locations for renovations for a combined total of 29 days during Q3 2017. In addition to the aforementioned factors that impacted SSSG (1) in Q3 2018, YTD 2018 SSSG (1) was impacted by the closure of four Jack Astor's locations for renovations (Dartmouth, N.S., two locations in London, Ont., and at 10 Dundas St. East in downtown Toronto) for a combined total of 36 days, compared with the closure of six restaurants for renovations for a combined total of 37 days during YTD 2017.

Canyon Creek had SSSG (1) of 1.2 per cent and 0.6 per cent for Q3 2018 and YTD 2018, respectively. The sales from the Canyon Creek location in Etobicoke, Ont., which was permanently closed in Q1 2018, have been excluded from the calculation of SSSG (1) for Q3 2018 and YTD 2018. A new Scaddabush restaurant was opened at this location during Q2 2018 on Nov. 28, 2017.

Scaddabush SSS (1) performance for Q3 2018 includes four Scaddabush locations: Richmond Hill, Mississauga and Scarborough, Ont., and Yonge and Gerrard in downtown Toronto. These four locations generated SSSG (1) of 0.8 per cent and 6.4 per cent for Q3 2018 and YTD 2018, respectively. The new Scaddabush restaurants on Front Street in downtown Toronto and in Oakville, Vaughan and Etobicoke, Ont., are excluded from Q3 2018 and YTD 2018 SSS (1) performance as they were not in operation during the entire comparable periods a year ago.

The Signature restaurants had SSS (1) percentage declines of 2.8 per cent in Q3 2018 and 3.6 per cent in YTD 2018, respectively. Duke's Refresher & Bar in downtown Toronto continues to demonstrate improved sales performance but is offset by declines at the Loose Moose attributed to increased competition and a weaker event attendance in Q3 2018 and YTD 2018, compared with the same periods in the prior year. The Q3 2018 and YTD 2018 SSS (1) performance for the Signature restaurants does not include Far Niente/FOUR/Petit Four, as this location was closed during Q1 2017 effective Oct. 15, 2016, or the new Reds restaurant at the Square One shopping centre in Mississauga, Ont., which opened during Q2 2018 on Dec. 11, 2017.

SIR's net loss and comprehensive loss totalled $11.6-million in Q3 2018, compared with a net loss and comprehensive loss of $6.9-million in Q3 2017. SIR's net loss and comprehensive loss totalled $8.0-million in YTD 2018, compared with a net loss and comprehensive loss of $18.0-million in YTD 2017. The variances are primarily the result of a change in the amortized cost of the ordinary LP (limited partnership) units and Class A units of SIR Royalty LP that SIR holds. This resulted in expenses of $14.9-million and $11.9-million in Q3 2018 and YTD 2018, respectively, compared with expenses of $8.3-million and $19.1-million in Q3 2017 and YTD 2017, respectively. These changes in Q3 2018 and YTD 2018 are due to an increase in the underlying unit price of the fund, compared with the end of Q2 2018 and Q4 2017, respectively.

SIR's adjusted net earnings (2) for Q3 2018 were $3.3-million, compared with adjusted net earnings (2) of $1.4-million in Q3 2017. Adjusted net earnings (2) for YTD 2018 were $4.0-million, compared with adjusted net earnings (2) of $1.0-million in YTD 2017.

Q3 2018 corporate developments

As part of SIR's focus on strengthening its flagship Jack Astor's brand and driving SSSG (1), SIR continued with its renovation program by completing a partial renovation at the Jack Astor's restaurant in Kingston, Ont., during Q3 2018.

Liquidity and capital resources

As at May 6, 2018, SIR had cash and cash equivalents of $3.0-million, compared with $4.6-million as at Aug. 27, 2017, SIR's fiscal 2017 year-end. The decrease is attributable to $11.3-million of cash used in investing activities, partially offset by $4.5-million of cash provided by operations and $5.2-million of cash provided by financing activities.

SIR management believes that there are sufficient cash resources retained in SIR from its cash generated by operations and from its financing activities to finance its current working capital requirements, scheduled debt repayments and future construction commitments.

Outlook

Since commencing its comprehensive Jack Astor's renovation program at the end of calendar 2015, SIR has completed renovations at 16 Jack Astor's locations. SIR's management is pleased with the performance at the renovated Jack Astor's locations and plans to continue to implement similar renovations at additional Jack Astor's locations in the future as part of its continuing focus on strengthening its flagship brand and driving SSSG (1).

During fiscal 2017, SIR permanently closed the last two Alice Fazooli's restaurants (Vaughan and Oakville, Ont.) and opened two new Scaddabush restaurants at these locations. These closures completed SIR's program to evolve the Alice Fazooli's concept brand into its newest concept brand, Scaddabush. With eight Scaddabush locations now in operation, SIR and the fund are well positioned to benefit from the expected continued sales growth of this popular brand.

The new Scaddabush restaurant and the new Reds restaurant that opened during Q2 2018 will be added to royalty pooled restaurants on Jan. 1, 2019.

As at June 20, 2018, SIR has one commitment to lease a property in the Mimico neighbourhood of Etobicoke, Ont., upon which it plans to build one new Scaddabush restaurant.

On Nov. 22, 2017, the Ontario government passed legislation that raised Ontario's general minimum wage on Jan. 1, 2018. The legislation also included a plan to raise it again on Jan. 1, 2019, followed by annual increases at the rate of inflation. These changes will materially increase the cost of hourly labour in the majority of SIR's restaurants. These rapid increases to minimum wage may impact SIR's profitability and/or its ability to pass on increased costs through price increases without adversely affecting guest count velocity. SIR's management is evaluating alternatives to offset the impact of these increases in an effort to reduce the price increases that otherwise may have to be implemented to mitigate anticipated cost increases. On June 7, 2018, a new provincial government was elected in Ontario. At this time, there can be no certainty that the new government will maintain the planned increase to minimum wage on Jan. 1, 2019.

SIR continues to focus on sustaining and growing existing restaurant sales and profits while effectively managing costs. SIR carefully monitors economic conditions, competitive actions and consumer confidence, and considers new store developments and renovations to existing restaurants where appropriate. Based on its assessment of these conditions, the timing of new restaurant construction and renovations, as well as related opening schedules, will be reviewed regularly by SIR and adjusted as necessary.

SIR's Q3 2018 filings, which include its unaudited consolidated financial statements and management's discussion and analysis, can be accessed via the fund's profile on SEDAR under other.

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 LP and interest income from the SIR loan. The fund intends to pay distributions to unitholders on a monthly basis.

(1) Same-store sales and same-store sales growth are non-GAAP (generally accepted accounting principles) 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 with 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 the seasonal Duke's Refresher & Bar and Abbey's Bakehouse, which are both located in Muskoka, Ont. 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 with similar measures presented by other issuers. For Q3 2018, adjusted net earnings of $3.3-million (Q3 2017 -- $1.4-million) are equal to the net loss for the period of $11.6-million (Q3 2017 -- $6.9-million) plus the change in amortized cost of ordinary LP units and Class A LP units of the partnership of $14.9-million (Q3 2017 -- $8.3-million). For YTD 2018, adjusted net earnings of $4.0-million (YTD 2017 -- $1.0-million) are equal to the net loss for the period of $8.0-million (YTD 2017 -- $18.0-million) plus the change in amortized cost of ordinary LP units and Class A LP units of the partnership of $11.9-million (YTD 2017 -- $19.1-million).

We seek Safe Harbor.