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SIR Royalty Income Fund
Symbol SRV
Shares Issued 8,375,567
Close 2023-11-23 C$ 16.25
Market Cap C$ 136,102,964
Recent Sedar Documents

SIR Royalty's SIR Corp. loses $20.19M in 2023

2023-11-23 18:13 ET - News Release

Mr. Jeff Good reports

SIR ROYALTY INCOME FUND ANNOUNCES FILING OF SIR CORP. FISCAL 2023 FOURTH QUARTER AND YEAR-END RESULTS

SIR Royalty Income Fund's SIR Corp., the operating entity from which the fund's equity income is ultimately derived, has filed its financial results for the 16-week and 52-week periods ended Aug. 27, 2023 (Q4 2023 and fiscal 2023, respectively). SIR's audited consolidated financial statements and management's discussion and analysis (MD&A) for Q4 2023/fiscal 2023 can be accessed via the fund's profile on SEDAR+ or the SIR website.

Q4 2023 business update:

  • Food and beverage revenue from corporate restaurant operations increased 1.6 per cent to $89.3-million, compared with $88.0-million for the 16-week period ended Aug. 28, 2022 (Q4 2022).
  • Consolidated same-store sales (SSS) (1) increased 0.4 per cent.
  • On June 6, 2023, SIR entered into a 10th amending agreement to its credit agreement with its senior lender. The 10th amending agreement extends the maturity date of the credit agreement, providing SIR with greater certainty and availability of financing.
  • SIR completed renovations to the Reds Square One in Mississauga, Ont.

Subsequent events:

  • On Sept. 1, 2023, SIR opened a new Scaddabush Italian Kitchen & Bar in Whitby, Ont. This new restaurant is expected to be added to the royalty pooled restaurants on Jan. 1, 2024.
  • SIR completed renovations to six Jack Astor's locations (in South London, Vaughan, Newmarket, Ottawa and Scarborough, Ont., and Dundas Square in Toronto).
  • SIR's insurer has 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 Jan. 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 Nov. 22, 2023, the application was dismissed.

Results of operations summary

SIR has advised the fund that food and beverage revenue from corporate restaurant operations increased 1.6 per cent to $89.3-million in Q4 2023, compared with $88.0-million in Q4 2022. Food and beverage revenue from corporate restaurant operations for fiscal 2023 increased 22.6 per cent to $271.7-million, compared with $221.7-million in the 52-week period ended Aug. 28, 2022. The increase in Q4 2023 was primarily attributable to increased pricing and strong same-store sales growth (SSSG) (1) for Scaddabush. The increase in fiscal 2023 reflects increased pricing and strong system-wide SSSG (1), which was primarily attributable to the negative impact of pandemic-related operating restrictions on food and beverage revenue during the first three quarters of fiscal 2022.

SSS (1) performance includes all SIR restaurants, except for those restaurants that were not open for the entire comparable periods in fiscal 2023 and fiscal 2022, and the Abbey's Bakehouse retail outlet as it is a seasonal restaurant.

Net income and comprehensive income totalled $21.4-million for Q4 2023, compared with $1.1-million for Q4 2022. Net loss and comprehensive loss totalled $20.2-million for fiscal 2023, compared with $49.7-million for fiscal 2022. The positive variances reflect changes in the amortized cost of the ordinary LP units and Class A units of the partnership that SIR holds. This resulted in income of $13.1-million and an expense of $36.1-million in Q4 2023 and fiscal 2023, compared with expenses of $5.2-million in Q4 2022 and $65.4-million in fiscal 2022. These non-cash changes in Q4 2023 and fiscal 2023 are due to a decrease in the underlying unit price of the fund compared with the end of the third quarter of fiscal 2023, and an increase compared with the end of fiscal 2022, respectively. SIR also did not receive any pandemic-related government subsidies during fiscal 2023. In fiscal 2022, the company recognized significant amounts of government subsidies as a reduction to costs of corporate restaurant operations.

During fiscal 2022, SIR recognized government assistance through the Canada emergency wage subsidy (CEWS) and/or the Canada recovery hiring program (CRHP) of $12.3-million. SIR also recognized government assistance through the Canada emergency rent subsidy (CERS) of $2.1-million. SIR recognized a further $800,000 in other subsidies during fiscal 2022. Of these amounts, $14.7-million was recognized as a reduction to costs of corporate restaurant operations and $500,000 was recognized as a reduction to corporate costs. These programs ended on May 7, 2022.

Adjusted net earnings (2) were $8.3-million in Q4 2023, compared with $6.3-million in Q4 2022. Adjusted net earnings (2) for fiscal 2023 were $15.9-million, compared with $15.8-million in fiscal 2022.

Liquidity and capital resources

As at Aug. 27, 2023, SIR had cash and equivalents of $8.2-million, compared with $8.1-million as at Aug. 28, 2022. As at Aug. 27, 2023, SIR had drawn $22.2-million against the $42.2-million maximum principal borrowing under the company's credit facility.

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 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, 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 fiscal 2023, SIR completed renovations to seven Jack Astor's locations and one Reds location. Subsequent to fiscal 2023, SIR completed renovations to six additional Jack Astor's locations. SIR plans to invest in similar restaurant renovations throughout fiscal 2024.

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.

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. 27, 2023, and Aug. 28, 2022, respectively, to adjusted net earnings (2).

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 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.

(1) Same-store sales (SSS) and same-store sales growth (SSSG) are non-GAAP (generally accepted accounting principles) financial measures and do not have standardized meanings prescribed by IFRS (international financial reporting standards). 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) 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 reconciliations of net earnings (loss) to adjusted net earnings (loss) for Q4 2023 and fiscal 2023 provided in this news release.

We seek Safe Harbor.

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