19:43:39 EST Thu 01 Dec 2022
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SIR Royalty Income Fund
Symbol SRV
Shares Issued 8,375,567
Close 2022-11-24 C$ 15.62
Recent Sedar Documents

SIR Royalty's SIR Corp. loses $49.66-million in FY 2022

2022-11-24 19:39 ET - News Release

Mr. Jeff Good reports

SIR ROYALTY INCOME FUND ANNOUNCES FILING OF SIR CORP. FISCAL 2022 FOURTH QUARTER AND YEAR-END RESULTS

SIR Corp., the operating entity from which SIR Royalty Income Fund's equity income is ultimately derived, has filed its financial results for the 16-week and 52-week periods ended Aug. 28, 2022. SIR's audited consolidated financial statements and management's discussion and analysis for fourth quarter 2022/fiscal 2022 can be viewed on the fund's profile on the SEDAR website under other, or the SIR website.

Q4 2022 business update:

  • The state of the restaurant and bar industry continued to trend positively during Q4 2022 due to the absence of government-mandated operating restrictions. As of mid-March, 2022, all of the remaining indoor dining operating restrictions in each of the provinces where SIR operates were lifted.
  • Food and beverage revenue from corporate restaurant operations increased 75.6 per cent to $88.0-million, compared with $50.1-million in the 16-week period ended Aug. 29, 2021.
  • Consolidated same-store sales (SSS) (1) increased 73.8 per cent.
  • SIR began offering Renegade Chicken takeout and delivery services again on a trial basis as of Jan. 27, 2022. The services were initially offered out of 21 Jack Astor's locations in Ontario, with two additional Jack Astor's locations added to the trial as of Feb. 16, 2022. SIR agreed to pay an amount equal to 6 per cent of the revenues earned to the SIR Royalty Limited Partnership. The trial was initially scheduled to continue until March 31, 2022, at SIR's option. Effective March 29, 2022, SIR opted to extend the trial until Aug. 28, 2022, but reduced the number of Jack Astor's locations supporting the trial to eight locations. On Aug. 29, 2022, the trustees of the fund approved a further extension of the trial, under the existing terms, until Dec. 31, 2022.
  • The last remaining Canyon Creek restaurant, located in Etobicoke, Ont., in close proximity to Pearson International Airport, was permanently closed, effective May 23, 2022. SIR opened a new Scaddabush Italian Kitchen & Bar restaurant at this location in August, 2022, which is expected to be added to the royalty pooled restaurants, effective Jan. 1, 2023.
  • SIR made its final scheduled deferral payment of royalties owing to the partnership and interest on the SIR loan owing to the fund on June 15, 2022.
  • On June 16, 2022, SIR entered into the ninth amending agreement to its credit agreement with its lender, and the fund and the partnership entered into an acknowledgment agreement with the lender. The ninth amendment, 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 prepandemic financial covenants.

Results of operations summary

SIR has advised the fund that food and beverage revenue from corporate restaurant operations increased to $88.0-million in Q4 2022, compared with $50.1-million in Q4 2021. Food and beverage revenue from corporate restaurant operations increased to $221.7-million in fiscal 2022, compared with $107.9-million for the 52-week period ended Aug. 29, 2021. The increases in Q4 2022 and fiscal 2022 were primarily attributable to same-store-sales growth (SSSG) (1) due to the gradual easing and eventual lifting of pandemic-related operating restrictions in the markets in which SIR restaurants are located.

SSS (1) performance includes all SIR restaurants, except for those restaurants that were not open for the entire comparable periods in fiscal 2022 and fiscal 2021, and the Abbey's Bakehouse retail outlet as it is not a SIR restaurant.

Net earnings and comprehensive income were $1.1-million for Q4 2022, compared with a net loss and comprehensive loss of $28.4-million for Q4 2021. Net loss and comprehensive loss were $49.7-million for fiscal 2022, compared with net loss and comprehensive loss of $61.8-million for fiscal 2021. The variances reflect changes in the amortized cost of the ordinary limited partnership units and Class A units of the partnership that SIR holds. This resulted in expenses of $5.2-million and $65.4-million in Q4 2022 and fiscal 2022, respectively, compared with expenses of $35.4-million and $60.6-million in Q4 2021 and fiscal 2021, respectively. These non-cash changes in Q4 2022 and fiscal 2022 are due to increases in the underlying unit price of the fund compared with the end of third quarter 2022 and the end of fourth quarter 2021, respectively.

Adjusted net earnings (2) were $6.3-million in Q4 2022, compared with $7.0-million in Q4 2021. Adjusted net earnings (2) for fiscal 2022 were $15.8-million, compared with an adjusted net loss (2) of $1.1-million in fiscal 2021.

Liquidity and capital resources

As at Aug. 28, 2022, SIR had cash and equivalents of $8.1-million, compared with $9.6-million as at Aug. 29, 2021. As at Aug. 28, 2022, SIR had drawn $19.7-million against the $46.2-million maximum principal borrowing under the company's credit facility.

Outlook

As of mid-February, 2022, the state of the restaurant and bar industry has been trending positively due to increased vaccination rates and the easing of pandemic-related government restrictions. As of mid-March, 2022, all remaining operational restrictions in the provinces where SIR operates were lifted.

The new Reds Kitchen + Wine Bar Fallsview, opened on March 31, 2022, and the new Scaddabush in Etobicoke, Ont., opened on Aug. 1, 2022, are both expected to be added to the royalty pooled restaurants, effective Jan. 1, 2023.

Subsequent to the end of fiscal 2022, SIR completed restaurant renovations to its Jack Astor's locations in Whitby and Barrie, Ont. SIR plans to invest in similar restaurant renovations in fiscal 2023. SIR expects to drive future sales growth through a combination of measured new restaurant growth and investments in its existing restaurants over the long term.

Reconciliation of adjusted net earnings (2)

The attached table reconciles net earnings (loss) and comprehensive income (loss) for the 16-week and 52-week periods ended Aug. 28, 2022, and Aug. 29, 2021, respectively, to adjusted net earnings (loss) (2).

About 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 licence 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.

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 and same-store-sales growth are non-generally accepted accounting principle 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 Abbey's Bakehouse in Muskoka, Ont., as it is not a SIR 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) are 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) are 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 are a non-cash transaction and vary 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 reconciliations of net earnings (loss) to adjusted net earnings (loss) for Q4 2022 and fiscal 2022 provided in this news release.

We seek Safe Harbor.

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