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SIR Royalty earns $2.96-million in Q3

2023-11-09 17:23 ET - News Release

Mr. Peter Fowler reports

SIR ROYALTY INCOME FUND REPORTS 2023 THIRD QUARTER FINANCIAL RESULTS

SIR Royalty Income Fund has released its financial results for the third quarter (Q3 2023) and nine months ended Sept. 30, 2023 (YTD (year to date) 2023).

"SIR continues to invest in new restaurant development and renovations to existing restaurants," said Peter Fowler, chief executive officer of SIR Corp. "We completed renovations to one Reds and two Jack Astor's restaurants during the third quarter, and four additional Jack Astor's locations subsequent to quarter-end. In total, we have renovated 10 locations thus far in 2023. We also opened our 11th Scaddabush restaurant this past quarter and plan to open four more locations in the months ahead to further capitalize on the strong momentum of this brand. While the current economic environment is having an impact on discretionary consumer spending, we are confident that these investments will further elevate our brands and enhance value for fund unitholders."

Q3 2023 summary:

  • Pooled revenue increased 0.2 per cent to $68.8-million, compared with $68.7-million for the three months ended Sept. 30, 2022 (Q3 2022).
  • Royalty income in the SIR Royalty LP (the partnership) was $4.1-million, similar to Q3 2022.
  • Equity income from the partnership, which represents the fund's pro rata share of the residual distributions of the partnership, was $2.8-million, similar to Q3 2022.
  • The royalty pooled restaurants (the royalty pool) had a same-store sales (SSS) decline of 2.1 per cent.
  • Net earnings were $3.0-million, compared with net earnings of $4.1-million in Q3 2022.
  • Distributable cash totalled $2.7-million, or 32 cents (basic and diluted) per fund unit, and cash distributed to unitholders totalled $2.4-million, representing a payout ratio of 87.8 per cent for Q3 2023. The payout ratio since the fund's inception in 2004, up to and including Q3 2023, is 99.6 per cent, in line with the fund's target payout ratio of 100 per cent per annum.
  • SIR completed renovations to one Reds (in Mississauga, Ont.) and two Jack Astor's locations (in south London and Vaughan, Ont.). Subsequent to Q3 2023, SIR completed renovations to four additional Jack Astor's locations (in Newmarket, Ottawa and Scarborough, Ont., and at Dundas Square in Toronto).
  • On Sept. 1, 2023, SIR opened a new Scaddabush restaurant in Whitby, Ont. This new restaurant is expected to be added to the royalty pooled restaurants on Jan. 1, 2024.

Q3 2023 financial results summary

Pooled revenue in Q3 2023 increased 0.2 per cent to $68.8-million, compared with $68.7-million in Q3 2022. The higher pooled revenue in Q3 2023 reflects the addition of two new restaurants to the royalty pool on Jan. 1, 2023, and increased pricing.

Net earnings for Q3 2023 were $3.0-million, or 35 cents (basic and diluted) per fund unit, compared with net earnings of $4.1-million, or 49 cents (basic) and 46 cents (diluted) per fund unit, for Q3 2022. The decline in net earnings was primarily attributable to a smaller increase in the estimated fair value of the SIR loan in Q3 2023 compared with Q3 2022 and higher income tax expense. The increase to the estimated fair value of the SIR loan was $1.0-million in Q3 2023, compared with $1.8-million in Q3 2022. Changes to the SIR loan's valuation are related to IFRS 9 (international financial reporting standards), 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.

Same-store sales (SSS)

Jack Astor's SSS performance for Q3 2023 includes all 37 locations. Jack Astor's accounted for approximately 71.8 per cent of pooled revenue in Q3 2023 and had a SSS decline of 4.4 per cent. During Q3 2023, SIR temporarily closed its Jack Astor's locations in south London and Vaughan, Ont., to complete renovations, which had a negative impact on SSS. The location in south London was closed for five days and the location in Vaughan was closed for 10 days. During Q3 2022, SIR completed renovations to one Jack Astor's location (in north London, Ont.), which was closed for five days. Jack Astor's SSS performance for Q3 2023 was also impacted by lower guest counts, which SIR management believes was primarily due to macroeconomic factors, including inflation and increased interest rates, and their impact on discretionary consumer spending.

Scaddabush Italian Kitchen & Bar (Scaddabush) SSS performance for Q3 2023 includes nine locations. Scaddabush had same-store sales growth (SSSG) of 10.0 per cent in Q3 2023, reflecting the continued popularity of this brand.

The Signature Restaurants SSS performance for Q3 2023 includes three restaurants (Reds Wine Tavern, Reds Square One, and the Loose Moose Tap + Grill). The Signature Restaurants had an SSS decline of 9.9 per cent in Q3 2023, primarily attributable to lower guest counts, as discussed above, and the temporary closure of the Reds location in the Square One Shopping Centre in Mississauga, Ont., for four days to complete renovations.

Distributable cash

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

Distributable cash for Q3 2023 totalled $2.7-million, or 32 cents (basic and diluted) per fund unit, and distributions to unitholders totalled $2.4-million, representing a payout ratio of 87.8 per cent. Distributable cash for Q3 2023 was impacted by normalization of income in a postpandemic environment without material loss provisions or recoveries, which affected taxation expense. The payout ratio for Q3 2023 reflects the increase in monthly distributions from nine cents per fund unit to 9.5 cents per fund unit that took effect beginning in October, 2022.

Outlook

SIR continues to monitor consumer spending behaviour 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 over all.

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 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 financing over the next three years, enabling SIR to continue to invest in restaurant renovations, new restaurants and other initiatives to drive growth. In consideration of the continuing conditions mentioned above and the timing of new restaurant construction and renovations, the related restaurant opening schedules will be reviewed regularly by SIR and adjusted as necessary.

During YTD 2023, SIR completed renovations to one Reds (in Mississauga, Ont.) and five Jack Astor's locations (in Kanata, Etobicoke, Kingston, south London and Vaughan, Ont.) to help drive enhanced performance for these locations. Subsequent to the quarter-end, SIR completed renovations to four additional Jack Astor's locations (in Newmarket, Ottawa and Scarborough, Ont., and at Dundas Square in Toronto). SIR plans to continue to invest in similar restaurant renovations going forward.

SIR has commitments to lease four properties in Barrie, London and Guelph, Ont., and in the Don Mills neighbourhood in Toronto, upon which it plans to build four new Scaddabush restaurants. There can be no assurance at this time that these planned new Scaddabush restaurants will be opened or will become part of the royalty pooled restaurants.

SIR's insurer has denied any business interruption claims due to COVID-19-related operating restrictions or closures. However, SIR continues to pursue a business interruption claim due to civil authority orders against its insurer by way of notice of application in the Ontario Superior Court. This claim includes a rider provision to SIR's property policy, which is in favour of the fund and covers income reduction for lost royalties for a maximum of 180 days. On Jan. 10, 2023, the application was dismissed by the court. SIR filed an appeal that was heard on May 24, 2023, in the Ontario Court of Appeal and is awaiting the rendering of a judgment.

Q3 2023 interim filings

The fund's unaudited interim consolidated financial statements and MD&A (management's discussion and analysis), and the partnership's financial statements, for the three- and nine-month periods ended Sept. 30, 2023, are available via SEDAR+ and SIR's website.

About SIR Corp.

SIR is a privately held Canadian corporation that owns a portfolio of 54 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 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 LP. SIR also owns one Duke's Refresher & Bar location in downtown Toronto and one seasonal Signature restaurant, Abbey's Bakehouse, which are currently not part of the royalty Pool. For more information on SIR or the SIR Royalty Income Fund, please SIR's website.

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.

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