SIR Royalty Income Fund Reports 2024 First Quarter Financial Results

BURLINGTON, ON, May 9, 2024 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the first quarter ended March 31, 2024 ("Q1 2024").

"We further enhanced our restaurant portfolio during the quarter, completing renovations to two Jack Astor's restaurants, opening a new Scaddabush in Toronto's Don Mills neighbourhood and developing the new Edna + Vita fine dining Italian restaurant in downtown Toronto, which is an exciting new brand for us. Subsequent to quarter end, we opened another new Scaddabush in London, Ontario and opened Edna + Vita," said Peter Fowler, CEO of SIR Corp. "We also strengthened the Royalty Pool during the quarter with the addition of our Scaddabush location in Whitby, Ontario in January, and we expect to add our new Don Mills and London Scaddabush locations to the Royalty Pool in January of 2025. We are also advancing plans to develop two additional Scaddabush restaurants, one new Jack Astor's and one new Duke's Refresher. We are making strong progress in further elevating our brands and strengthening our market presence in support of the best interests of Fund unitholders."

Q1 2024 Summary

• Pooled Revenue totaled $60.5 million compared to $61.4 million for the three months ended March 31, 2023 ("Q1 2023").
• Royalty income in the SIR Royalty Limited Partnership (the "Partnership") was $3.6 million, compared to $3.7 million in Q1 2023.
• Equity income from the Partnership, which represents the Fund's pro rata share of the residual distributions of the Partnership, was $2.5 million, compared to $2.5 million in Q1 2023.
• The Royalty Pooled Restaurants (the "Royalty Pool") had a same store sales ("SSS")⁽¹⁾ decline of 1.1%.
• Net earnings increased to $2.3 million, from $0.3 million in Q1 2023.
• Distributable cash⁽²⁾ totaled $2.3 million, or $0.28 (basic) and $0.27 (diluted) per Fund Unit, and cash distributed to unitholders totaled $2.4 million, representing a payout ratio⁽²⁾ of 103.6%. The payout ratio⁽²⁾ since the Fund's inception in 2004, up to and including Q1 2024, is 100%, in line with the Fund's target payout ratio per annum.
• SIR Corp. ("SIR") completed renovations to two Jack Astor's® locations (in Ancaster and Richmond Hill, Ontario).
• Effective January 1, 2024, the new Scaddabush Italian Kitchen & Bar® ("Scaddabush") location in Whitby, Ontario was added to the Royalty Pooled Restaurants (the "Royalty Pool"), and three closed restaurants were removed (Reds® Wine Tavern, Reds® Kitchen + Wine Bar Fallsview and the Scaddabush location in the Mimico neighbourhood of Etobicoke, Ontario).
• On February 27, 2024, SIR opened a new Scaddabush restaurant in the Don Mills neighbourhood in Toronto, Ontario. This new Scaddabush restaurant is expected to be added to the Royalty Pool effective January 1, 2025.

Subsequent Events

• On April 17, 2024, SIR opened a new Scaddabush restaurant in London, Ontario. This new Scaddabush restaurant is expected to be added to the Royalty Pool effective January 1, 2025.
• On April 26, 2024, SIR opened a new Italian-themed, fine dining restaurant called Edna + Vita^TM at the site of the former Reds Wine Tavern in downtown Toronto.

Q1 2024 Financial Results Summary

($000s except restaurants and per Unit amounts) (unaudited)		Three-month  period ended Mar. 31, 2024	Three-month  period ended Mar. 31, 2023
Royalty Pooled Restaurants		49	51
Pooled Revenue generated by SIR Corp.		60,527	61,366
Royalty income to Partnership – 6% of Pooled Revenue		3,631	3,682
Partnership income allocated to Fund		2,481	2,541
Change in estimated fair value of the SIR Loan		750	(1,250)
Net earnings		2,267	300
Net earnings per Fund Unit (basic)		$0.27	$0.04
Net earnings per Fund Unit (diluted)		$0.27	$0.04

Pooled Revenue in Q1 2024 decreased 1.4% to $60.5 million, compared to $61.4 million in Q1 2023. The slight year-over-year decrease reflects declines in delivery sales and dine-in guest traffic, and the permanent closures of three Royalty Pooled Restaurants in late 2023. These factors were partially offset by system-wide price increases, the addition of one new Scaddabush location to the Royalty Pool at the start of Q1 2024 and increased guest counts at Scaddabush restaurants.

Net earnings for Q1 2024 were $2.3 million, or $0.27 per Fund Unit (basic and diluted), compared to net earnings of $0.3 million, or $0.04 per Fund Unit (basic and diluted), for Q1 2023. The year-over-year increase in net earnings was primarily attributable to an increase of $0.8 million in the estimated fair value of the SIR Loan in Q1 2024, compared to a decrease of $1.3 million in Q1 2023. Changes to the SIR Loan's valuation are related to IFRS 9, 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")⁽¹⁾

SSS(1) (Decline)/Growth for Royalty Pooled Restaurants	Three-month period ended Mar. 31, 2024	Three-month period ended  Mar. 31, 2023
Jack Astor's®	(4.1 %)	47.9 %
Scaddabush®	5.2 %	58.4 %
Signature Restaurants	19.2 %	151.9 %
Overall SSS(1) (Decline)/Growth	(1.1 %)	54.4 %

Jack Astor's SSS⁽¹⁾ performance for Q1 2024 includes all 37 locations. Jack Astor's accounted for approximately 69.5% of Pooled Revenue in Q1 2024 and had a SSS⁽¹⁾ decline of 4.1%. The decline primarily reflects lower delivery sales and dine-in guest traffic, partially offset by price increases. SIR management believes the decline in delivery sales and dine-in guest visits in the quarter was primarily due to macroeconomic factors, including inflation and increased interest rates, and their impact on discretionary consumer spending. During Q1 2024, SIR temporarily closed two Jack Astor's restaurants for a combined total of 26 days to complete renovations. During Q1 2023, one Jack Astor's restaurant was closed for four days to complete renovations.

Scaddabush SSS⁽¹⁾ performance for Q1 2024 includes eight locations. Scaddabush generated same store sales growth ("SSSG")⁽¹⁾ of 5.2% in Q1 2024, reflecting increased dine-in guest traffic and pricing, partially offset by a decline in delivery sales.

The Signature Restaurants SSS⁽¹⁾ performance for Q1 2024 includes two restaurants (Reds® Square One and the Loose Moose). The Signature Restaurants had SSSG⁽¹⁾ of 19.2% in Q1 2024, primarily attributable to higher guest counts and price increases.

Distributable Cash⁽²⁾

The following table reconciles the relationship between cash provided by operating activities and distributable cash⁽²⁾:

(in thousands of dollars except per unit amounts and payout ratio2)	Three-month period ended Mar. 31, 2024	Three-month period ended Mar. 31, 2023
Cash provided by operating activities	2,741	968
Add/(deduct):       Net change in non-cash working capital items	(72)	(100)
Net change in income tax payable	(348)	1,429
Net change in distribution receivable from the Partnership	(18)	42
Distributable cash(2)	2,303	2,339
Cash distributed for the period	2,387	2,387
Surplus (shortfall) of distributable cash(2)	(84)	(48)
Payout ratio(2)	103.6 %	102.0 %
Distributable cash(2) per Fund Unit (basic)	$0.28	$0.28
Distributable cash(2) per Fund Unit (diluted)	$0.27	$0.28

Distributable cash⁽²⁾ for Q1 2024 totaled $2.3 million, or $0.28 per Fund Unit (basic) and $0.27 per Fund Unit (diluted), and distributions to Unitholders totaled $2.4 million, representing a payout ratio⁽²⁾ of 103.6%. The Fund's payout ratio⁽²⁾ since the Fund's inception in 2004, up to and including Q1 2024, is 100%, in line with the Fund's target payout ratio⁽²⁾ of 100% per annum.  

Outlook

SIR continues to monitor consumer spending behavior in light of current evolving macroeconomic factors, including inflation and higher interest rates, and their potential impact on the Canadian economy and consumer confidence. Ongoing 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 and to capitalize on the rapid growth of take-out and delivery services in commercial foodservice. The availability of funding via SIR's Credit Agreement with its Lender provides financial certainty, enabling SIR to continue to invest in restaurant renovations, new restaurants and other initiatives to drive growth.

During 2023 and Q1 2024, SIR completed renovations to 12 restaurants (11 Jack Astor's locations and Reds Square One) to drive enhanced performance. SIR is pleased with the success of these renovations and plans to invest in similar restaurant renovations throughout 2024.

On April 17, 2024, SIR opened a new Scaddabush restaurant in London, Ontario. This new Scaddabush restaurant is expected to be added to the Royalty Pool effective January 1, 2025.

On April 26, 2024, SIR opened a new Italian-themed, fine dining restaurant called Edna + Vita at the site of the former Reds Wine Tavern in downtown Toronto.

The recently opened Scaddabush location in the Don Mills neighbourhood of Toronto is expected to be added to the Royalty Pool on January 1, 2025.

SIR is currently evaluating alternative uses for the recently closed Scaddabush property in the Mimico neighborhood of Etobicoke.

SIR has commitments to lease two properties in Barrie and Guelph, Ontario upon which it plans to develop two new Scaddabush locations. SIR also has commitments to lease two additional properties, including one in Oshawa, Ontario, upon which it plans to develop a new Jack Astor's, and one at Queen Street East and Broadview Avenue in downtown Toronto, upon which it plans to build a new Duke's Refresher® + Bar. There can be no assurance at this time that these planned new restaurants will be opened or will become part of the Royalty Pool.

In consideration of the ongoing 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.

Non-IFRS Financial Measures

(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, the Fund believes that SSS and SSSG are useful measures and provide investors with an indication of the change in year-over-year sales. The Fund'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. SSS includes revenue from all SIR Restaurants included in Pooled Revenue except for those locations that were not open for the entire comparable periods in 2024 and 2023. SSSG is the percentage increase in SSS over the prior year comparable period.
(2)	Distributable cash and payout ratio are non-GAAP financial measures and do not have standardized meanings prescribed by IFRS. However, the Fund believes that distributable cash and the payout ratio are useful measures as they provide investors with an indication of cash available for distribution. The Fund's method of calculating distributable cash and the payout ratio may differ from that of other issuers and, accordingly, distributable cash and the payout ratio may not be comparable to measures used by other issuers. Investors are cautioned that distributable cash and the payout ratio should not be construed as an alternative to the statement of cash flows as a measure of liquidity and cash flows of the Fund. The payout ratio is calculated as cash distributed for the period as a percentage of the distributable cash for the period. Distributable cash represents the amount of money which the Fund expects to have available for distribution to Unitholders of the Fund, and is calculated as cash provided by operating activities of the Fund, adjusted for the net change in non-cash working capital items including a reserve for income taxes payable and the net change in the distribution receivable from the SIR Royalty Limited Partnership. For a detailed explanation of how the Fund's distributable cash is calculated, please refer to the Fund's Q1 2024 MD&A, which can be accessed via the SEDAR+ website (www.sedarplus.ca).

Q1 2024 Filings

The Fund's unaudited interim consolidated Financial Statements and Management Discussion & Analysis ("MD&A"), and the Partnership's Financial Statements, for Q1 2024 are available via the SEDAR+ website at www.sedarplus.ca and SIR's website at www.sircorp.com.

About SIR Corp.

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 12 locations. SIR also operates one-of-a-kind "Signature" brands including Reds® Square One, The Loose Moose® and Edna + Vita^TM. 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 two additional Signature restaurants, including a Duke's Refresher® + Bar in downtown Toronto, and Abbey's Bakehouse®, a seasonal restaurant in Muskoka, Ontario, 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.

Caution concerning forward-looking statements

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 war 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.

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.

For more information concerning the Fund's risks and uncertainties, please refer to the March 14, 2024 Annual Information Form, for the period ended December 31, 2023, and the Fund's Q1 2024 MD&A, which are available under the Fund's profile at www.sedarplus.ca.

SOURCE SIR Royalty Income Fund

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