Mr. Peter Fowler reports

SIR ROYALTY INCOME FUND REPORTS 2023 FOURTH QUARTER AND YEAR-END RESULTS

SIR Royalty Income Fund today released its financial results for the fourth quarter (Q4 2023) and year ended Dec. 31, 2023 (2023).

"During 2023, we completed renovations to 10 of our restaurants and we opened one new Scaddabush location, demonstrating our commitment to continue to invest in existing restaurants and new restaurant development to further elevate our brands and enhance value for fund unitholders. We also closed three underperforming locations in 2023 as part of our focus on optimizing future performance. We are currently converting the former Reds Wine Tavern into a new, Italian-themed fine dining brand called Edna + Vita, and we are evaluating alternative uses for our other two closed locations," said Peter Fowler, chief executive officer of SIR Corp. "Looking ahead, we intend to continue to innovate and provide immersive new product and service offerings to drive both dine-in guest visits and takeout and delivery sales, while continuing to gradually expand our brands in strategic locations. We recently opened a new Scaddabush location in the Don Mills neighbourhood of Toronto, and currently have commitments to lease five new properties, upon which we plan to develop three additional Scaddabush locations, one new Jack Astor's and one new Duke's Refresher."

Q4 2023 summary

• Pooled revenue totalled $64.7-million compared with $64.9-million for the three months ended Dec. 31, 2022 (Q4 2022).
• Royalty income in the SIR Royalty LP was $3.9-million, similar to Q4 2022.
• Equity income from the partnership, which represents the fund's pro rata share of the residual distributions of the partnership, increased to $2.8-million from $2.6-million in Q4 2022.
• The royalty pooled restaurants (the royalty pool) had a same-store sales (SSS) decline of 2.4 per cent.
• Net earnings were $11.3-million, compared with $7.8-million in Q4 2022.
• On Dec. 12, 2023, the fund declared a special year-end cash distribution of 4.25 cents per fund unit, which was paid on Dec. 29, 2023.
• Distributable cash totalled $2.3-million, or 27 cents (basic and diluted) per fund unit, and cash distributed to unitholders totalled $2.7-million, representing a payout ratio of 120 per cent. The payout ratio since the fund's inception in 2004, up to and including Q4 2023, is 100 per cent, in line with the fund's target payout ratio of 100 per cent per annum.
• SIR Corp. completed renovations to four Jack Astor's locations (Newmarket, Ottawa, and Scarborough, Ont., as well as Dundas Square in downtown Toronto).
• SIR permanently closed the Scaddabush Italian Kitchen & Bar location in the Mimico neighbourhood of Etobicoke, Ont., Reds Wine Tavern in downtown Toronto, and Reds Kitchen + Wine Bar Fallsview in Niagara Falls.

2023 summary

• Pooled revenue increased 10.5 per cent to $266.0-million, compared with $240.7-million for the year ended Dec. 31, 2022 (2022).
• Royalty income in the partnership increased to $16.0-million from $14.4-million in 2022.
• Equity income from the partnership increased to $11.1-million from $10.8-million in 2022.
• The royalty pooled restaurants generated same-store sales growth (SSSG) of 8.5 per cent.
• Net earnings were $19.1-million compared with $44.4-million in 2022.
• Distributable cash totalled $9.9-million, or $1.18 per fund unit (basic and diluted), and cash distributed to unitholders totalled $9.9-million, representing a payout ratio of 100 per cent.
• SIR completed renovations to Reds Square One and a total of nine Jack Astor's locations during the year, and opened a new Scaddabush location in Whitby, Ont.

Subsequent events

• Effective Jan. 1, 2024, Scaddabush (Mimico), Reds Wine Tavern and Reds Kitchen + Wine Bar Fallsview were removed from the royalty pooled restaurants, and the new Scaddabush location in Whitby, Ont., was added to the royalty pooled restaurants. The royalty pool currently consists of 49 restaurants, including: 37 Jack Astor's restaurants, 10 Scaddabush locations, Reds Square One and The Loose Moose Tap + Grill.
• On Feb. 27, 2024, SIR opened a new Scaddabush restaurant in the Don Mills neighbourhood of Toronto. This new Scaddabush restaurant is anticipated to be added to the royalty pooled restaurants on Jan. 1, 2025.

Pooled revenue in Q4 2023 decreased 0.2 per cent to $64.7-million, compared with $64.9-million in Q4 2022. The slight year-over-year decrease reflects declines in delivery sales and dine-in guest traffic, and the closure of the Scaddabush location in the Mimico neighbourhood in Etobicoke, Ont., effective Nov. 28, 2023. These factors were mostly offset by system-wide price increases and the continued strong SSSG performance of Scaddabush. The effective closure date for both Reds Wine Tavern and Reds Kitchen + Wine Bar Fallsview was Dec. 31, 2023, so there was negligible impact on pooled revenue in Q4 2023 from these restaurant closures.

Net earnings for Q4 2023 were $11.3-million, or $1.35 per fund unit (basic) and $1.21 per fund unit (diluted), compared with net earnings of $7.8-million, or 93 cents per fund unit (basic) and 84 cents per fund unit (diluted), for Q4 2022. The year-over-year increase in net earnings was primarily attributable to the increase in the estimated fair value of the SIR loan in Q4 2023 compared with Q4 2022, and lower income tax expense. The increase to the estimated fair value of the SIR loan was $9.6-million in Q4 2023, compared with $6.8-million in Q4 2022. Changes to the SIR loan's valuation are 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.

Jack Astor's SSS performance for Q4 2023 includes all 37 locations. Jack Astor's accounted for approximately 69.2 per cent of pooled revenue in Q4 2023 and had a SSS decline of 5.1 per cent. The decline primarily reflects lower delivery sales and dine-in guest traffic, partially offset by price increases. SIR management believes the decline in delivery sales and dine-in guest visits in the quarter was primarily due to macroeconomic factors, including inflation and increased interest rates, and their impact on discretionary consumer spending.

Scaddabush SSS performance for Q4 2023 includes eight locations. Scaddabush generated SSSG of 8.9 per cent in Q4 2023, reflecting increased dine-in guest traffic and pricing, partially offset by a decline in delivery sales.

The signature restaurants SSS performance for Q4 2023 includes three restaurants (Reds Wine Tavern, Reds Square One and the Loose Moose). The signature restaurants had a SSS decline of 4.4 per cent in Q4 2023, primarily attributable to lower dine-in guest traffic, as discussed herein, partially offset by price increases.

Distributable cash

The attached table reconciles the relationship between cash provided by operating activities and distributable cash.

Distributable cash for Q4 2023 totalled $2.3-million, or 27 cents per fund unit (basic and diluted), and distributions to unitholders totalled $2.7-million, representing a payout ratio of 120 per cent. In addition to the regular monthly cash distributions of 9.5 cents per fund unit, unitholder distributions in Q4 2023 include a special year-end cash distribution of 4.25 cents per fund unit, as the fund had excess distributable cash available. The fund's payout ratio since the fund's inception in 2004, up to and including Q4 2023, is 100 per cent, in line with the fund's target payout ratio of 100 per cent per annum.

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. Continuing 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 and to capitalize on the rapid growth of takeout and delivery services in commercial food service. The recent amendment to SIR's credit agreement with its lender provides greater certainty and availability of funding over the next two years, enabling SIR to continue to invest in restaurant renovations, new restaurants and other initiatives to drive growth.

During 2023, SIR completed renovations to 10 restaurants (nine Jack Astor's locations and Reds Square One) to drive enhanced performance. Subsequent to year-end, SIR completed a renovation to its Jack Astor's location in Ancaster, Ont. SIR plans to continue to invest in similar restaurant renovations throughout 2024.

SIR is converting the former Reds Wine Tavern in downtown Toronto into a new, Italian-themed fine dining brand called Edna + Vita, which is expected to open in Q2 2024. It is anticipated that the new Edna + Vita restaurant and the recently opened Scaddabush location in Don Mills, Ont., will be added to the royalty pooled restaurants on Jan. 1, 2025.

SIR is currently evaluating alternative uses for the recently closed Scaddabush (Mimico) and Reds Kitchen + Wine Bar Fallsview.

SIR has commitments to lease five properties in Barrie, London, Guelph and Oshawa, Ont., and at the intersection of Queen Street East and Broadview Ave. in Toronto, upon which it plans to build one new Jack Astor's, three new Scaddabush restaurants and one Duke's Refresher + Bar. There can be no assurance at this time that these planned new restaurants will be opened or will become part of the royalty pooled restaurants.

In consideration of the ongoing conditions mentioned herein and the timing of new restaurant construction and renovations, the related restaurant opening schedules will be reviewed regularly by SIR and adjusted as necessary.

Distributable cash and payout ratio are non-GAAP (generally accepted accounting principles) financial measures and do not have standardized meanings prescribed by IFRS (international financial reporting standards). 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 with 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 LP. For a detailed explanation of how the fund's distributable cash is calculated, please refer to the fund's 2023 MD&A (management's discussion and analysis), which can be accessed via the SEDAR+ website.

About 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; and Scaddabush Italian Kitchen & Bar with 11 locations. SIR also operates one-of-a-kind signature brands including Reds Square One and The Loose Moose. All trademarks related to the concept and signature brands noted herein are used by SIR under a licence and royalty agreement with SIR Royalty. 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, Ont., which are currently not in consideration to be part of the royalty pool.

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.

We seek Safe Harbor.