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SIR Royalty Income Fund
Symbol SRV
Shares Issued 8,375,567
Close 2020-03-25 C$ 2.50
Recent Sedar Documents

SIR Royalty's SIR Corp. earns $6.6-million in Q2

2020-03-25 20:32 ET - News Release

Mr. Jeff Good reports

SIR ROYALTY INCOME FUND REPORTS SIR CORP. FISCAL 2020 SECOND QUARTER RESULTS

SIR Corp., the operating entity from which SIR Royalty Income Fund earns equity income, has filed its financial results for the 12-week and 24-week periods ended Feb. 9, 2020 (Q2 2020 and YTD (year to date) 2020, respectively).

SIR has advised the fund that food and beverage revenue from corporate restaurant operations for Q2 2020 totalled $61.5-million, a decline of 6.3 per cent compared with $65.6-million for the 12-week period ended Feb. 10, 2019 (Q2 2019). Food and beverage revenue from corporate restaurant operations for YTD 2020 was $123.5-million, a decline of 8.3 per cent compared with $134.7-million for the 24-week period ended Feb. 10, 2019 (YTD 2019). The revenue decline in both periods is primarily attributable to lower same-store sales (SSS) (1).

                                  SAME-STORE SALES (1)

                      12-week period ended Feb. 9, 2020  24-week period ended Feb. 9, 2020
                                                                              
Jack Astor's                                      (7.0%)                             (8.2%)
Scaddabush Italian Kitchen & Bar                  (0.2%)                             (1.9%)
Canyon Creek                                     (10.4%)                            (11.1%)
Signature restaurants                             (1.7%)                             (2.6%)
Overall SSS (1)                                   (5.6%)                             (6.8%)

SIR reported SSS (1) declines of 5.6 per cent for Q2 2020 and 6.8 per cent for YTD 2020. SSS (1) is typically impacted by changes in guest traffic and average check amount. SIR believes that recent SSS (1) has been impacted by specific factors impacting consumer behaviour related to spending at full-service restaurants, especially in Ontario. These include the rapid growth of delivery services, stricter impaired driving laws and price increases related to the minimum wage increase that took effect at the start of 2018.

Jack Astor's, SIR's flagship concept restaurant brand, which contributed approximately 64 per cent of Q2 2020 pooled revenue, had SSS (1) declines of 7.0 per cent and 8.2 per cent in Q2 2020 and YTD 2020, respectively. No Jack Astor's locations were renovated in Q2 2020, compared with two renovations in Q2 2019 (Yonge and Bloor in downtown Toronto, and the location near Pearson International Airport in Etobicoke, Ont.), which resulted in the closure of these restaurants for a combined total of 18 days during the quarter. The sales from the two permanently closed Jack Astor's locations (in the St. Lawrence Market neighbourhood and on John Street in downtown Toronto) have been excluded from the calculation of SSS (1) for Q2 2020 and YTD 2020. Beginning in late 2019, SIR's management began implementing a number of strategies to address declining food and beverage sales at Jack Astor's resulting from changes in consumer behaviour and guest preferences.

Scaddabush had SSS (1) declines of 0.2 per cent in Q2 2020 and 1.9 per cent in YTD 2020. Scaddabush SSS (1) performance for Q2 2020 and YTD 2020 includes eight Scaddabush locations (Mississauga, Richmond Hill, Scarborough, Oakville, Vaughan and Etobicoke, Ont., and Front Street, and Yonge and Gerrard in downtown Toronto). The new Scaddabush restaurants in the Mimico neighbourhood of Etobicoke, Ont., and Burlington, Ont., are excluded from the calculation of Q2 2020 and YTD 2020 SSS (1) as they were not in operation for the entire comparable periods a year ago.

Canyon Creek had SSS (1) declines of 10.4 per cent in Q2 2020 and 11.1 per cent in YTD 2020. The sales from the closed Canyon Creek locations on Front Street in downtown Toronto and in Burlington, Ont., have been excluded from the calculation of SSS (1) performance for Q2 2020 and YTD 2020. SIR's management continues to evaluate options to improve performance for the remaining restaurants in the Canyon Creek portfolio.

The downtown Toronto Signature restaurants had SSS (1) declines of 1.7 per cent and 2.6 per cent in Q2 2020 and YTD 2020, respectively. The Q2 2020 and YTD 2020 SSS (1) performance for the Signature restaurants does not include the new Duke's Refresher and Bar ) in the St. Lawrence Market neighbourhood, which opened during Q1 2020, on Sept. 26, 2019.

SIR's net earnings and comprehensive income were $6.6-million in Q2 2020, compared with $3.8-million in Q2 2019. Net earnings and comprehensive income for YTD 2020 were $40.3-million, compared with a net loss and comprehensive loss of $6.8-million in YTD 2019. The positive variances in Q2 2020 and YTD 2020 are primarily the result of changes in the amortized cost of the ordinary limited partnership (LP) units and Class A units of SIR Royalty LP (the partnership) that SIR holds. This resulted in income of $7.3-million in Q2 2020 and $42.0-million in YTD 2020, compared with income of $3.5-million in Q2 2019 and expenses of $7.7-million in YTD 2019, respectively. These variances in Q2 2020 and YTD 2020 are due to decreases in the underlying unit price of the fund compared with the end of Q1 2020 and Q4 2019.

SIR's adjusted net loss (2) for Q2 2020 was $700,000, compared with adjusted net earnings (2) of $300,000 in Q2 2019. The adjusted net loss (2) for YTD 2020 was $1.7-million, compared with adjusted net earnings (2) of $900,000 in YTD 2019.

SIR Q2 2020 corporate developments

On Nov. 19, 2019, SIR opened a new Scaddabush restaurant in Burlington, Ont., at the former location of the Canyon Creek restaurant that was permanently closed effective Oct. 13, 2019.

On Jan. 1, 2020, the new Scaddabush restaurant in the Mimico neighbourhood of Etobicoke, Ont., was added to royalty pooled restaurants.

Liquidity and capital resources

As at Feb. 9, 2020, SIR had cash and equivalents of $2.0-million, compared with $3.6-million as at Aug. 25, 2019, SIR's fiscal 2019 year-end.

SIR's ability to meet its obligations for the next 12 to 18 months is dependent on its ability to obtain necessary financing through a renewal of its credit agreement, the availability of credit under the current credit agreement or other financing sources, and government assistance to aid businesses. SIR's ability to meet its obligations for the next 12 to 18 months also depends on, among other factors, the length of the closure of dine-in operations at all of its restaurants due to COVID-19, the speed at which SIR is able to return to full operating capacity in the near future, Canadian economic conditions after bars and restaurants are able to reopen, business interruption insurance coverage, and SIR's ability to negotiate longer-term extended credit terms from its suppliers, including negotiating deferrals of rent obligations over the terms of its leases.

SIR's Q2 2020 filings, which include its unaudited interim consolidated financial statements and management's discussion and analysis (MD&A), can be accessed via the fund's profile on the SEDAR.

Subsequent event

Subsequent to Feb. 9, 2020, the outbreak of COVID-19 in Canada resulted in a severe drop in in-restaurant dining, and, beginning March 16, 2020, SIR closed all of its dining rooms and bars. These mandated closures are to continue until further notice, in an effort to help reduce large group gatherings as required by public health and government officials. Pending future government legislation or other developments, SIR currently intends to continue to offer takeout and delivery across most of its Jack Astor's and Scaddabush locations.

The negative impacts from COVID-19, including the temporary closure of its dine-in restaurant operations, will have a material impact on the results of SIR and, as such, management began to implement a mitigation plan for the foreseeable future, including updating cash flow forecasts, and working in combination with its lender, landlords and suppliers in an effort to maintain continued support of SIR.

As a result of the closure of its dining rooms and a material reduction in forecasted sales, SIR is evaluating the potential impairment of property and equipment and intangible assets subsequent to Feb. 9, 2020. There is a possibility that this evaluation will result in impairments in future periods.

As of March 23, 2020, the fund announced that due to SIR temporarily suspending dine-in restaurant operations at all of its locations, it is temporarily suspending unitholder distributions until further notice.

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 and same-store sales growth (SSSG) are non-GAAP (generally accepted accounting principles) 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.

(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) and comprehensive income (loss) for the period. Adjusted net earnings (loss) is a non-GAAP financial measure and does not have a standardized meaning prescribed by IFRS.

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