SIR Royalty Income Fund Announces Filing of SIR Corp. Fiscal 2023 Second Quarter Results

BURLINGTON, ON, March 29, 2023 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today announced that SIR Corp. ("SIR" or the "Company"), the operating entity from which the Fund's equity income is ultimately derived, has filed its financial results for the 12-week and 24-week periods ended February 12, 2023 ("Q2 2023" and "YTD 2023", respectively). SIR's unaudited interim consolidated financial statements and management's discussion & analysis ("MD&A") for Q2 2023 / YTD 2023 can be accessed via the Fund's profile on the SEDAR website at www.sedar.com under "Other", or the SIR website at www.sircorp.com/sir-royalty-income-fund/financial-reports.

Q2 2023 Business Update

• Food and beverage revenue from corporate restaurant operations increased 90.0% to $60.0 million, compared to $31.6 million for the 12-week period ended February 13, 2022 ("Q2 2022").
• Consolidated Same Store Sales ("SSS")¹ increased 87.5%.
• SIR completed renovations to two Jack Astor's® locations (in Brampton and Don Mills, Ontario) to implement a refreshing, more contemporary and immersive guest experience. The location in Brampton was closed for nine days to complete the renovation, and the location in Don Mills was closed for five days.
• The new Reds Kitchen + Wine Bar Fallsview® in Niagara Falls, Ontario, and the new Scaddabush® in Etobicoke, Ontario were added to the Royalty Pooled Restaurants effective January 1, 2023, and two closed Canyon Creek® restaurants were removed.
• SIR began offering Renegade Chicken takeout and delivery services again on a trial basis as of January 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 February 16, 2022. SIR agreed to pay an amount equal to 6% of the revenues earned to the SIR Royalty Limited Partnership (the "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 August 28, 2022, but reduced the number of Jack Astor's locations supporting the trial to eight locations. On August 29, 2022 and December 15, 2022, respectively, the Trustees of the Fund approved further extensions of the trial, under the existing terms, until December 31, 2022 and December 31, 2023, respectively.

Results of Operations Summary

SIR has advised the Fund that food and beverage revenue from corporate restaurant operations increased 90.0% to $60.0 million in Q2 2023, compared to $31.6 million in Q2 2022. Food and beverage revenue from corporate restaurant operations for YTD 2023 increased 55.7% to $120.3 million, compared to $77.2 million in the 24-week period ended February 13, 2022 ("YTD 2022").  The increases in Q2 2023 and YTD 2023 were primarily attributable to same store sales growth¹ due to the lifting of pandemic-related operating restrictions in the markets in which SIR restaurants are located.

Same Store Sales(1)    ($000s)	12-Week  Period Ended  February 12, 2023	12-week  Period Ended  February 13, 2022	Variance	24-Week  Period Ended  February 12, 2023	24-Week  Period Ended  February 13, 2022	Variance
Jack Astor's	42,169	22,885	84.3 %	85,129	56,636	50.3 %
Scaddabush	11,492	6,472	77.6 %	22,545	15,298	47.4 %
Signature Restaurants	4,948	1,907	159.5 %	9,878	4,539	117.6 %
Same Store Sales(1)	58,609	31,264	87.5 %	117,552	76,473	53.7 %

SSS¹ 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's not a SIR restaurant.

Net loss and comprehensive loss was $21.2 million for Q2 2023, compared to net earnings and comprehensive income of $1.6 million for Q2 2022. Net loss and comprehensive loss was $39.5 million for YTD 2023, compared to a net loss and comprehensive loss of $49.2 million for YTD 2022. The 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 expenses of $21.8 million in Q2 2023 and $42.5 million in YTD 2023, compared to income of $0.5 million in Q2 2022 and an expense of $50.8 million in YTD 2022. These non-cash changes in Q2 2023 and YTD 2023 are due to increases in the underlying unit price of the Fund compared to the end of the first quarter of Fiscal 2023 and the end of Fiscal 2022, respectively. SIR also did not receive any pandemic-related government subsidies during Q2 2023 or YTD 2023, compared to the corresponding periods a year ago, when the Company recognized significant amounts of government subsidies as a reduction to costs of corporate restaurant operations.

During Q2 2022 and YTD 2022, SIR recognized government assistance through the Canada Emergency Wage Subsidy ("CEWS") and/or the Canada Recovery Hiring Program ("CRHP") of $5.8 million and $7.8 million, respectively. SIR also recognized government assistance through the Canada Emergency Rent Subsidy ("CERS") of $2.3 million in Q2 2022 and YTD 2022, respectively. SIR recognized a further $0.1 million in other subsidies during YTD 2022. Of these amounts, $7.7 million and $9.7 million were recognized as a reduction to costs of corporate restaurant operations in Q2 2022 and YTD 2022, respectively, and $0.4 million and $0.5 million were recognized as a reduction to corporate costs in Q2 2022 and YTD 2022, respectively. These programs ended on May 7, 2022.

Adjusted Net Earnings² were $0.7 million in Q2 2023, compared to $1.1 million in Q2 2022. Adjusted Net Earnings² for YTD 2023 were $3.0 million, compared to $1.6 million in YTD 2022.

Liquidity and Capital Resources

As at February 12, 2023, SIR had cash and equivalents of $2.8 million, compared to $8.1 million as at August 28, 2022. As at February 12, 2023, SIR had drawn $26.9 million against the $43.8 million maximum principal borrowing under the Company's credit facility.

Outlook

SIR continues to focus on sustaining and growing existing restaurant sales and profits while managing costs. SIR continues to monitor economic conditions and consumer confidence and considers new restaurant developments and renovations to existing restaurants where appropriate and subject to availability of acceptable long-term financing. Based on its assessment of these conditions, the timing of new restaurant construction and renovations, as well as related opening schedules, will be reviewed regularly by SIR and adjusted as necessary.

SIR has a commitment to lease a property in Whitby, Ontario, upon which it plans to build a new Scaddabush restaurant. There can be no assurance that the new Scaddabush restaurant will be opened or will become part of the Royalty Pooled Restaurants.

Subsequent to the end of Q2 2023, SIR completed a renovation to its Jack Astor's location in Kanata, Ontario. The location was closed for five days to complete the renovation. SIR plans to invest in similar restaurant renovations throughout 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.

SIR's insurer has denied any business interruption claims due to COVID-19 related operating restrictions or closures. However, SIR continued 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, which was heard on May 19, 2021, June 2, 2021, November 25, 2021, December 8, 2021 and May 9, 2022. 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 January 10, 2023, the application was dismissed. Following an internal review, SIR filed an appeal on January 19, 2023.

Reconciliation of Adjusted Net Earnings²

The following table reconciles net earnings (loss) and comprehensive earnings (loss) for the 12-week and 24-week periods ended February 12, 2023 and February 13, 2022, respectively, to Adjusted Net Earnings²:

	12-Week Period Ended February 12, 2023	12-Week Period Ended February 13, 2022	24-Week Period Ended February 12, 2023	24-Week Period Ended February 13, 2022
	(in thousands of dollars)
Net (loss) earnings and comprehensive (loss) income for the period	(21,166)	1,627	(39,525)	(49,171)
Change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership	21,840	(492)	42,548	50,817
Adjusted Net Earnings(2)	674	1,135	3,023	1,646

About SIR Corp.

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 License 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. For more information on SIR Corp. or the SIR Royalty Income Fund, please visit www.sircorp.com.

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 ("SSS") and same store sales growth ("SSSG") are non-GAAP 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 to 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, Ontario 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 Q2 2023 and YTD 2023 provided in this news release.

Caution concerning forward-looking information

Certain statements contained in this report, or incorporated herein by reference, including the information set forth as to the future financial or operating performance of the Fund or SIR, that are not current or historical factual statements may constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Statements concerning the objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of the Fund, the SIR Holdings Trust (the "Trust"), the Partnership, SIR, the SIR Restaurants or industry results, are forward-looking statements. The words "may", "will", "should", "would", 'could", "expect", "believe", "plan", "anticipate", "intend", "estimate" and other similar terminology and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Fund, the Trust, the Partnership, SIR, the SIR Restaurants or industry results, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. These statements reflect Management's current expectations, estimates and projections regarding future events and operating performance and speak only as of the date of this document. Readers should not place undue importance on forward-looking statements and should not rely upon this information as of any other date. Risks related to forward-looking statements include, among other things, challenges presented by a number of factors, including: the impact of the COVID-19 pandemic; market conditions at the time of this filing; competition; changes in demographic trends; weather; changing consumer preferences and discretionary spending patterns; changes in consumer confidence; changes in national and local business and economic conditions; pandemics or other material outbreaks of disease or safety issues affecting humans or animals or food products; the ability to maintain staffing levels;  the impact of inflation, including on input prices and wages; the impact of the crisis in the Ukraine; changes in tariffs and international trade; changes in foreign exchange and interest rates; changes in availability of credit; legal proceedings and challenges to intellectual property rights; dependence of the Fund on the financial condition of SIR; legislation and governmental regulation, including the cost and/or availability of labour as it relates to changes in minimum wage rates or other changes to labour legislation and forced closures of or other limits placed on  restaurants and bars; laws affecting the sale and use of alcohol (including availability and enforcement); changes in cannabis laws; changes in environmental laws; privacy matters; accounting policies and practices; changes in tax laws; and the results of operations and financial condition of SIR. The foregoing list of factors is not exhaustive. Many of these issues can affect the Fund's or SIR's actual results and could cause their actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, the Fund or SIR.  There can be no assurance that SIR will remain compliant in the future with all of its financial covenants under the Credit Agreement and imposed by the lender. Given these uncertainties, readers are cautioned that forward-looking statements are not guarantees of future performance and should not place undue reliance on them. The Fund and SIR expressly disclaim any obligation or undertaking to publicly disclose or release any updates or revisions to any forward-looking statements. Forward-looking statements are based on Management's current plans, estimates, projections, beliefs and opinions, and the Fund and SIR do not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change, except as expressly required by applicable securities laws.

In formulating the forward-looking statements contained herein, SIR Management has assumed that it will be successful in dealing with the effects of the COVID-19 pandemic and that business and economic conditions affecting SIR's restaurants and the Fund will return to normalcy within the short to medium term. For more information concerning risks and uncertainties, please refer to the Fund's March 16, 2023 Annual Information Form, for the period ended December 31, 2022, and the Fund's most recent interim filings, which are available under the Fund's profile at www.sedar.com.

All of the forward-looking statements made herein are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Fund or SIR. See 'Risk Factors' in the Fund's Annual Information Form dated March 16, 2023 for the period ended December 31, 2022.

SOURCE SIR Royalty Income Fund

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