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SIR Royalty Income Fund
Symbol SRV
Shares Issued 8,375,567
Close 2023-12-21 C$ 16.00
Market Cap C$ 134,009,072
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SIR Royalty loses $5.6-million in fiscal Q1

2023-12-21 17:46 ET - News Release

Mr. Jeff Good reports

SIR ROYALTY INCOME FUND ANNOUNCES FILING OF SIR CORP. FISCAL 2024 FIRST QUARTER 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 12-week period ended Nov. 19, 2023 (Q1 2024). SIR's unaudited interim consolidated financial statements and management's discussion and analysis (MD&A) for Q1 2024 can be accessed via the fund's profile on the SEDAR+ website under other, or the SIR website.

Q1 2024 business update

  • Food and beverage revenue from corporate restaurant operations was $59.3-million compared with $60.2-million for the 12-week period ended Nov. 20, 2022 (Q1 2023).
  • Consolidated same-store sales (SSS) declined by 4.5 per cent.
  • SIR temporarily closed six Jack Astor's locations during the quarter for a combined total of 45 days to complete renovations, which had a negative impact on food and beverage revenue from corporate restaurant operations and SSS.
  • 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.

Subsequent events

  • SIR's insurer 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. SIR is considering its option to apply to the Supreme Court of Canada for leave to appeal.
  • On Nov. 28, 2023, SIR permanently closed the Scaddabush restaurant located in the Mimico neighbourhood of Etobicoke, Ont. This restaurant will be removed from the royalty pooled restaurants on Jan. 1, 2024. SIR is currently evaluating alternative uses for this property, including, but not limited to, reopening the location as another SIR restaurant brand.

Results of operations summary

SIR has advised the fund that food and beverage revenue from corporate restaurant operations was $59.3-million in Q1 2024, a decline of 1.5 per cent compared with $60.2-million in Q1 2023. The slight decline was primarily attributable to decreased SSS, which was due to lower guest counts at Jack Astor's and the Signature Restaurants, partially offset by price increases across SIR's restaurant network and the continued strong same store sales growth of Scaddabush. The temporary closures of six Jack Astor's locations (in South London, Vaughan, Newmarket, Ottawa and Scarborough, Ont., and Dundas Square in Toronto) for a combined total of 45 days to complete renovations during Q1 2024 had a negative impact on guest counts and SSS. During Q1 2023, two Jack Astor's restaurants were temporarily closed for a combined total of 19 days to complete renovations.

SSS performance includes all SIR restaurants, except for those restaurants that were not open for the entire comparable periods in fiscal 2024 and fiscal 2023, and the Abbey's Bakehouse retail outlet as it is a seasonal restaurant.

Net loss and comprehensive loss was $5.6-million for Q1 2024 compared with $18.4-million for Q1 2023. The positive variance reflects changes in the amortized cost of the ordinary LP units and Class A units of the SIR Royalty LP that SIR holds. This resulted in an expense of $5.9-million in Q1 2024 compared with an expense of $20.7-million in Q1 2023. These non-cash changes in Q1 2024 and Q1 2023 are due to increases in the underlying unit price of the fund compared with the end of fiscal 2023 and the end of fiscal 2022, respectively.

Adjusted net earnings were $300,000 in Q1 2024 compared with $2.3-million in Q1 2023. The decline primarily reflects a $1.3-million reduction in earnings from corporate restaurant operations in Q1 2024 compared with Q1 2023 and a $700,000 increase in corporate costs in Q1 2024 compared with Q1 2023.

Liquidity and capital resources

As at Nov. 19, 2023, SIR had cash and equivalents of $3.5-million compared with $8.2-million as at Aug. 27, 2023. As at Nov. 19, 2023, SIR had drawn $24.0-million against the $42.0-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's changes in pricing overall.

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 growth of takeout and delivery services in commercial food service. The amendment to SIR's credit agreement with its lender in June, 2023, provides greater certainty and availability of funding, enabling SIR to continue to invest in restaurant renovations, new restaurants and other initiatives to drive growth.

During Q1 2024, SIR completed renovations to six Jack Astor's restaurants, expanding the total number of renovated Jack Astor's locations to 15 since the beginning of fiscal 2022. SIR also completed renovations to its Reds Square One location in Mississauga, Ont., during Q4 2023. The company is pleased with the success of these renovations and 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. SIR is actively pursuing additional new restaurant development sites to further expand its Jack Astor's and Scaddabush brands.

Reconciliation of adjusted net earnings

The attached table reconciles net earnings (loss) and comprehensive income (loss) for the 12-week periods ended Nov. 19, 2023, and Nov. 20, 2022, respectively, to adjusted net earnings.

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 herein 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.

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