SIR Royalty Income Fund Announces Filing of SIR Corp. Fiscal 2021 Fourth Quarter and Year-End Results

BURLINGTON, ON, Nov. 29, 2021 /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 earns equity income, has filed its financial results for the 16-week and 52-week periods ended August 29, 2021 ("Q4 2021" and "Fiscal 2021", respectively). SIR's audited consolidated financial statements and management's discussion & analysis ("MD&A") for Q4 2021 and Fiscal 2021 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.

Q4 2021 Business Update

• During Q4 2021, SIR's operations were adversely impacted by the COVID-19 pandemic and the related series of restrictions in the various regions in which it operates. However, the easing of operating restrictions, particularly in Ontario starting in June 2021, resulted in increased food and beverage revenue in Q4 2021 compared to the 17-week period ended August 30, 2020 ("Q4 2020"). Please refer to the Q4 2021 MD&A for additional details on the timing and duration of various restrictions that impacted SIR's operations.
  
  
• The current state of the restaurant and bar industry has been trending positively due to increasing vaccination rates and recent reductions to government capacity restrictions on indoor dining. However, the potential risk of restaurant closures and/or increased operating restrictions due to the pandemic could impact future sales at SIR restaurants.
  
  
• On May 31, 2021, SIR entered into an amending agreement (the "Eighth Amending Agreement") to its Credit Agreement. With the vaccine rollout in Canada well advanced and the economic outlook improving, SIR's Lender approved the resumption of current royalty payments and interest on a loan owing by SIR to the Fund (the "SIR Loan"), as well as a framework to enable SIR to catch up on deferred royalty payments and interest on the SIR Loan by July 6, 2022.
  
  
• SIR was deemed eligible for the Canada Emergency Wage Subsidy ("CEWS") and Canada Emergency Rent Subsidy ("CERS") programs. During Fiscal 2021, SIR received $22.2 million of government assistance through the CEWS program and $5.0 million through the CERS program, as well as other government subsidies totaling $4.2 million. Of these amounts, $24.1 million was recognized as a reduction to costs of corporate restaurant operations, $3.3 million was recognized as a reduction to corporate costs and $4.0 million was recognized as other income. The CEWS program and the CERS program both ended on October 23, 2021.

Subsequent Events

• Effective September 15, 2021, having met the conditions stipulated by SIR's senior lender, SIR began its repayment of deferred royalties and interest on the SIR Loan. Pursuant to the eighth amendment under SIR's Credit Agreement, these amounts will be repaid over 10 monthly installments of $0.5 million and $0.4 million, respectively.
  
  
• On September 22, 2021, the province of Ontario released "A Plan to Safely Reopen Ontario and Manage COVID-19 for the Long-Term", which outlines the province's gradual approach to lifting remaining public health and workplace safety measures by March 2022. The plan outlined requirements for all Ontarians (12 years and older) to be fully vaccinated in order to access certain public settings including restaurants and bars. Proof of full vaccination (vaccine certificate or passport) along with identification is required to dine indoors at restaurants. Subsequent to Q4 2021, effective October 22, 2021, the province of Ontario's plan was put into effect, making COVID-19 employee vaccination policies mandatory, and lifting capacity limits for restaurants and bars where proof of vaccination is required for patrons. Provided there are no concerning public health and health care trends following the winter holiday season, the province of Ontario plans to begin to lift vaccine certificate requirements for restaurants and bars on January 17, 2022 with the end goal of lifting all remaining public health and workplace safety measures, including masking, by March 28, 2022.
  
  
• On October 21, 2021, the federal government announced the proposed new Tourism and Hospitality Recovery Program ("THRP"). Restaurants are one of the targeted businesses to which this program applies. The program commenced on October 24, 2021 and is intended to provide a replacement program for the CEWS and CERS programs until at least May 7, 2022. This program would apply to SIR in any claim period between October 24, 2021 and May 7, 2022 when the revenue decline in the claim period is 40% or more compared to the prior reference period. On the same day, the federal government proposed extending the Canada Recovery Hiring Program until May 7, 2022 for eligible employers with current revenue declines of more than 10% compared to the prior reference period, and proposed increasing the subsidy rate to 50% starting on October 24, 2021. This program would also be expected to apply to SIR in any claim period between October 21, 2021 and May 7, 2022 when SIR's revenue decline in the claim period is 10% or more compared to the prior reference period.
  
  
• SIR completed a renovation of the Jack Astor's restaurant at the Square One shopping centre in Mississauga, Ontario.

Results of Operations Summary
SIR has advised the Fund that food and beverage revenue from corporate restaurant operations for Q4 2021 totaled $50.1 million, an increase of 45.8% compared to Q4 2020. The increase was primarily attributable to same store sales growth ("SSSG")¹ due to the easing of pandemic-related operating restrictions compared to Q4 2020. Food and beverage revenue from corporate restaurant operations for Fiscal 2021 was $107.9 million, compared to $185.8 million for Fiscal 2020. The decrease was primarily attributable to a decline in same store sales ("SSS")¹ due to the greater impact and duration of pandemic-related operating restrictions in Fiscal 2021 compared to Fiscal 2020.

SSS¹ performance includes all SIR restaurants, except for those restaurants that were not open for the entire comparable periods in Fiscal 2021 and Fiscal 2020, and the Abbey's Bakehouse retail outlet as it is not a SIR restaurant. The following restaurants are excluded from SSS¹ performance:

• the former (now closed) Jack Astor's locations in the St. Lawrence Market neighbourhood of downtown Toronto, John Street in downtown Toronto, and Calgary;
• the former (now closed) Canyon Creek locations in Burlington, Mississauga and Scarborough, Ontario;
• the former (now closed) Reds Midtown Tavern, Scaddabush and Dukes Refresher locations at Yonge and Gerrard in downtown Toronto; and
• the Scaddabush in Burlington, Ontario, and the Duke's Refresher in the St. Lawrence Market neighbourhood of downtown Toronto, as these restaurants were not open for the entire comparable periods in Fiscal 2021 and Fiscal 2020.

Net loss and comprehensive loss was $28.4 million for Q4 2021, compared to a net loss and comprehensive loss of $1.1 million for Q4 2020. Net loss and comprehensive loss was $61.8 million for Fiscal 2021, compared to net earnings and comprehensive income $78.1 million for Fiscal 2020. The negative variances in Q4 2021 and Fiscal 2021 are primarily the result of changes in the amortized cost of the Ordinary LP Units and Class A Units of SIR Royalty Limited Partnership ("the Partnership") that SIR holds. This resulted in a loss of $35.4 million in Q4 2021 and $60.6 million in Fiscal 2021. The negative variances in Q4 2021 and Fiscal 2021 are due to increases in the underlying unit price of the Fund compared to the end of Q3 2021 and Fiscal 2020, respectively.

Adjusted Net Earnings²⁾ were $7.0 million in Q4 2021, compared to an Adjusted Net Loss² of $2.3 million in Q4 2020. Adjusted Net Loss² was $1.1 million in Fiscal 2021, compared to an Adjusted Net Loss² of $21.0 million in Fiscal 2020.

Liquidity and Capital Resources
As at August 29, 2021, SIR had cash and equivalents of $9.6 million, compared to $1.6 million as at August 30, 2020. As at August 29, 2021, SIR had drawn $22.4 million against the $50.7 million maximum borrowing under the Company's credit facility.

Prior to the pandemic, SIR was a viable going concern and was in compliance with financial and non-financial covenants as outlined in its Credit Agreement and the SIR Loan Agreement.

SIR has advised the Fund that its ability to meet its obligations for the next 12 to 18 months is dependent on its ability to obtain sufficient and extended financing through further amendments to its Credit Agreement and the availability of credit under the current Credit Agreement or other financing sources and/or additional 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, how long SIR is able to remain at full operating capacity in the near future, Canadian economic conditions affecting bars and restaurants now that they are fully re-open, 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 insurer has denied any business interruption claims due to COVID-19 closures. However, SIR continues to pursue its claim through legal avenues. There can be no assurance this action will be successful.

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; Scaddabush Italian Kitchen & Bar® with nine locations; and Canyon Creek®, with two locations. SIR also operates one-of-a-kind "Signature" brands including Reds® Wine Tavern, Reds® Square One 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 locations 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) for the period to Adjusted Net Earnings (Loss) in the Company's MD&A for Q4 2021 and Fiscal 2021.

Caution concerning forward-looking information

Certain statements contained in this news release, 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 Trust, the Partnership, SIR, the SIR Restaurants or industry results, are forward-looking statements. The words "may", "will", "should", "would", "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 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; changes in tariffs and international trade; changes in foreign exchange; 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 restaurants and bars; laws affecting the sale and use of alcohol (including availability and enforcement); changes in cannabis laws; accounting policies and practices; 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, except as required by securities legislation. 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, 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 medium term.  For more information concerning risks and uncertainties, please refer to the Fund's March 31, 2021 Annual Information Form, for the period ended December 31, 2020, 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 in this report 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. 

SOURCE SIR Royalty Income Fund