SIR Royalty Income Fund Reports 2023 Third Quarter Financial Results
BURLINGTON, ON, Nov. 9, 2023 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the third quarter ("Q3 2023") and nine months ended September 30, 2023 ("YTD 2023").
"SIR continues to invest in new restaurant development and renovations to existing restaurants," said Peter Fowler, CEO of SIR Corp. "We completed renovations to one Reds and two Jack Astor's restaurants during the third quarter, and four additional Jack Astor's locations subsequent to quarter end. In total, we have renovated 10 locations thus far in 2023. We also opened our 11th Scaddabush restaurant this past quarter and plan to open four more locations in the months ahead to further capitalize on the strong momentum of this brand. While the current economic environment is having an impact on discretionary consumer spending, we are confident that these investments will further elevate our brands and enhance value for Fund unitholders."
Q3 2023 Summary
Pooled Revenue increased 0.2% to $68.8 million, compared to $68.7 million for the three months ended September 30, 2022 ("Q3 2022").
Royalty income in the SIR Royalty Limited Partnership (the "Partnership") was $4.1 million, similar to Q3 2022.
Equity income from the Partnership, which represents the Fund's pro rata share of the residual distributions of the Partnership, was $2.8 million, similar to Q3 2022.
The Royalty Pooled Restaurants (the "Royalty Pool") had a same store sales ("SSS")(1) decline of 2.1%.
Net earnings were $3.0 million, compared to net earnings of $4.1 million in Q3 2022.
Distributable cash(2) totaled $2.7 million, or $0.32 (basic and diluted) per Fund Unit, and cash distributed to unitholders totaled $2.4 million, representing a payout ratio(2) of 87.8% for Q3 2023. The payout ratio(2) since the Fund's inception in 2004, up to and including Q3 2023, is 99.6%, in line with the Fund's target payout ratio of 100% per annum.
SIR completed renovations to one Reds® (in Mississauga, Ontario) and two Jack Astor's® locations (in South London and Vaughan, Ontario). Subsequent to Q3 2023, SIR completed renovations to four additional Jack Astor's locations (in Newmarket, Ottawa, and Scarborough, Ontario and at Dundas Square in Toronto).
On September 1, 2023, SIR opened a new Scaddabush® restaurant in Whitby, Ontario. This new restaurant is expected to be added to the Royalty Pooled Restaurants on January 1, 2024.
Q3 2023 Financial Results Summary
($000s except restaurants and per Unit amounts) (unaudited) | Three-month period ended Sept. 30, 2023 | Three-month period ended Sept. 30, 2022 | Nine-month Sept. 30, 2023 | Nine-month | |
Royalty Pooled Restaurants | 51 | 51 | 51 | 51 | |
Pooled Revenue generated by SIR Corp. | 68,791 | 68,667 | 201,279 | 175,817 | |
Royalty income to Partnership – 6% of Pooled Revenue | 4,128 | 4,120 | 12,077 | 10,549 | |
(Impairment) recovery of financial and intangible assets | (12) | (32) | 28 | 56,004 | |
Partnership income allocated to Fund | 2,821 | 2,786 | 8,320 | 8,241 | |
Recovery of impairment in the Partnership and Fund financial assets | - | - | - | 30,066 | |
Change in estimated fair value of the SIR Loan | 1,000 | 1,750 | 2,500 | 1,250 | |
Net earnings | 2,968 | 4,108 | 7,828 | 36,608 | |
Net Earnings per Fund Unit (basic) | $0.35 | $0.49 | $0.93 | $4.37 | |
Net Earnings per Fund Unit (diluted) | $0.35 | $0.46 | $0.93 | $3.90 |
Pooled Revenue in Q3 2023 increased 0.2% to $68.8 million, compared to $68.7 million in Q3 2022. The higher Pooled Revenue in Q3 2023 reflects the addition of two new restaurants to the Royalty Pool on January 1, 2023 and increased pricing.
Net earnings for Q3 2023 were $3.0 million, or $0.35 (basic and diluted) per Fund Unit, compared to net earnings of $4.1 million, or $0.49 (basic) and $0.46 (diluted) per Fund Unit, for Q3 2022. The decline in net earnings was primarily attributable to a smaller increase in the estimated fair value of the SIR Loan in Q3 2023 compared to Q3 2022, and higher income tax expense. The increase to the estimated fair value of the SIR Loan was $1.0 million in Q3 2023, compared to $1.8 million in Q3 2022. 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 Sept. 30, 2023 | Three-month Sept. 30, 2022 | Nine-month Sept. 30, 2023 | Nine-month Sept. 30, 2022 |
Jack Astor's® | (4.4 %) | 26.2 % | 9.2 % | 88.7 % |
Scaddabush® | 10.0 % | 25.5 % | 21.1 % | 90.4 % |
Signature Restaurants | (9.9 %) | 235.1 % | 24.7 % | 600.7 % |
Overall SSS(1) (Decline)/Growth | (2.1 %) | 31.0 % | 12.3 % | 97.2 % |
Jack Astor's SSS(1) performance for Q3 2023 includes all 37 locations. Jack Astor's accounted for approximately 71.8% of Pooled Revenue in Q3 2023 and had a SSS(1) decline of 4.4%. During Q3 2023, SIR temporarily closed its Jack Astor's locations in South London and Vaughan, Ontario to complete renovations, which had a negative impact on SSS(1). The location in South London was closed for five days, and the location in Vaughan was closed for 10 days. During Q3 2022, SIR completed renovations to one Jack Astor's location (in North London, Ontario), which was closed for five days. Jack Astor's SSS(1) performance for Q3 2023 was also impacted by lower guest counts, which SIR management believes was primarily due to macroeconomic factors, including inflation and increased interest rates, and their impact on discretionary consumer spending.
Scaddabush Italian Kitchen & Bar ("Scaddabush")® SSS(1) performance for Q3 2023 includes nine locations. Scaddabush had same store sales growth ("SSSG")(1) of 10.0% in Q3 2023, reflecting the continued popularity of this brand.
The Signature Restaurants SSS(1) performance for Q3 2023 includes three restaurants (Reds® Wine Tavern, Reds Square One and the Loose Moose Tap + Grill®). The Signature Restaurants had a SSS(1) decline of 9.9% in Q3 2023, primarily attributable to lower guest counts, as discussed above, and the temporary closure of the Reds location in the Square One Shopping Centre in Mississauga, Ontario for four days to complete renovations.
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 Sept. 30, 2023 | Three-month period ended Sept. 30, 2022 | Nine-month Sept. 30, 2023 | Nine-month Sept. 30, 2022 |
Cash provided by operating activities | 1,569 | 4,179 | 5,579 | 8,324 |
Add/(deduct): Net change in non-cash working capital items | (126) | (130) | (402) | (430) |
Net change in income tax payable | 953 | 137 | 1,618 | (36) |
Net change in distribution receivable from the Partnership | 322 | (1,078) | 824 | 1,826 |
Distributable cash(2) | 2,718 | 3,108 | 7,619 | 9,684 |
Cash distributed for the period | 2,387 | 3,392 | 7,161 | 7,915 |
Surplus (shortfall) of distributable cash(2) | 331 | (284) | 458 | 1,769 |
Payout ratio(2) | 87.8 % | 109.1 % | 94.0 % | 81.7 % |
Distributable cash(2) per Fund Unit (basic) | $0.32 | $0.37 | $0.91 | $1.16 |
Distributable cash(2) per Fund Unit (diluted) | $0.32 | $0.36 | $0.91 | $1.12 |
Distributable cash(2) for Q3 2023 totaled $2.7 million, or $0.32 (basic and diluted) per Fund Unit, and distributions to Unitholders totaled $2.4 million, representing a payout ratio(2) of 87.8%. Distributable cash for Q3 2023 was impacted by normalization of income in a post-pandemic environment without material loss provisions or recoveries, which affected taxation expense. The payout ratio(2) for Q3 2023 reflects the increase in monthly distributions from $0.09 per Fund unit to $0.095 per Fund unit that took effect beginning in October 2022.
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 to its restaurants and to capitalize on the rapid growth of take-out and delivery services in commercial foodservice. The recent amendment to SIR's Credit Agreement with its Lender provides greater certainty and availability of funding over the next three years, enabling SIR to continue to invest in restaurant renovations, new restaurants and other initiatives to drive growth. 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.
During YTD 2023, SIR completed renovations to one Reds (in Mississauga, Ontario) and five Jack Astor's locations (in Kanata, Etobicoke, Kingston, South London and Vaughan, Ontario) to help drive enhanced performance for these locations. Subsequent to quarter end, SIR completed renovations to four additional Jack Astor's locations (in Newmarket, Ottawa, and Scarborough, Ontario and at Dundas Square in Toronto). SIR plans to continue to invest in similar restaurant renovations going forward.
SIR has commitments to lease four properties in Barrie, London and Guelph, Ontario and in the Don Mills neighbourhood in Toronto, upon which it plans to build four new Scaddabush restaurants. There can be no assurance at this time that these planned new Scaddabush restaurants will be opened or will become part of the Royalty Pooled Restaurants.
SIR's insurer has denied any business interruption claims due to COVID-19-related operating restrictions or closures. However, SIR continues 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. 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 by the court. SIR filed an appeal which was heard on May 24, 2023 in the Ontario Court of Appeal, and is awaiting the rendering of a judgment.
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 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 2023 and 2022. 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 Q3 2023 MD&A, which can be accessed via the SEDAR+ website (www.sedarplus.ca).
Q3 2023 Interim Filings
The Fund's unaudited interim consolidated Financial Statements and MD&A, and the Partnership's Financial Statements, for the three and nine-month periods ended September 30, 2023 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 11 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 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 16, 2023 Annual Information Form, for the period ended December 31, 2022, and the Fund's Q3 2023 Management Discussion & Analysis, which are available under the Fund's profile at www.sedarplus.ca.
SOURCE SIR Royalty Income Fund
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