SIR Royalty Income Fund Reports 2024 Fourth Quarter and Year-End Results

CNW Group

Thu, Mar 13, 2025, 3:00 PM 11 min read

"We significantly enhanced our restaurant portfolio in 2024 with the opening of three new Scaddabush restaurants, a new Duke's Refresher and the successful launch of Edna + Vita, a new Italian themed, fine-dining restaurant in Toronto's financial district. Four of these five new restaurants were added to the Royalty Pool at the start of 2025," said Peter Fowler, CEO of SIR Corp. "Scaddabush continues to resonate with our guests and generated solid same store sales growth in 2024, and we are currently developing new locations in Barrie and Oshawa, Ontario to further expand the brand."

"Looking ahead, we will maintain our focus on continuous innovation and providing immersive new product and guest service offerings to further strengthen our brands," added Mr. Fowler. "Our proudly Canadian corporate ownership model provides us with the agility to rapidly act on market opportunities."

Q4 2024 Summary

Pooled Revenue totaled $62.3 million compared to $64.7 million for the three months ended December 31, 2023 ("Q4 2023").
Royalty income in the SIR Royalty Limited Partnership (the "Partnership") was $3.7 million, compared to $3.9 million in Q4 2023.
Equity income from the Partnership, which represents the Fund's pro rata share of the residual distributions of the Partnership, was $2.6 million, compared to $2.8 million in Q4 2023.
The Royalty Pooled Restaurants (the "Royalty Pool") had a same store sales ("SSS")⁽¹⁾ decline of 1.5%.
Net earnings were $2.2 million, compared to $11.3 million in Q4 2023.
Distributable cash⁽²⁾ totaled $2.2 million, or $0.26 (basic and diluted) per Fund Unit, and cash distributed to unitholders totaled $2.4 million, representing a payout ratio⁽²⁾ of 109.0%. The payout ratio⁽²⁾ since the Fund's inception in 2004, up to and including Q4 2024, is 100.0%, in line with the Fund's target payout ratio⁽²⁾ of 100% per annum.
On September 26, 2024, SIR Corp. ("SIR" or "the Company") experienced a cybersecurity incident that impacted a portion of its IT infrastructure. SIR immediately engaged third-party cybersecurity experts to assist with its containment, remediation and investigation efforts. Despite the related operational disruptions, guest payment platforms remained secure and SIR continued to operate all 54 of its restaurants. As a result of this incident, SIR experienced a moderate decline in revenue, most notably during the 27-day period following the incident while certain restaurant technology was being restored, as well as increased cost of operations and other associated costs related to investigation and mitigation of loss services. SIR was able to predominantly restore operational technology and third-party delivery partner servers by October 23, 2024.
On December 6, 2024, SIR entered into a Twelfth Amending Agreement (the "Twelfth Amendment") to its Credit Agreement with its Senior Lender. The Twelfth Amendment, among other things:
- Increases the maximum Senior Leverage Ratio financial covenant from 2.5x to 3.0x for SIR's Fiscal 2025 first and second quarters. The Senior Leverage Ratio financial covenant returns to 2.5x for SIR's Fiscal 2025 third quarter,
- Excludes the $6.25 million Export Development Canada facility principal repayment in July 2025 from the calculation of fixed charges in the Fixed Charge Coverage Ratio financial covenant,
- Reverts Credit Facility 2 to a non-revolving facility, and
- Increases the applicable interest rates by 0.5%, with the exception of the guaranteed facility with Business Development Bank of Canada, which remains fixed at 4.0% per annum.

2024 Summary

Pooled Revenue was $255.0 million compared to $266.0 million for the year ended December 31, 2023 ("2023").
Royalty income in the Partnership was $15.3 million compared to $16.0 million in 2023.
Equity income from the Partnership was $10.7 million compared to $11.1 million in 2023.
The Royalty Pooled Restaurants had a SSS⁽¹⁾ decline of 2.6%.
Net earnings were $12.0 million compared to $19.1 million in 2023.
Distributable cash⁽²⁾ totaled $9.5 million, or $1.14 per Fund Unit (basic and diluted), and cash distributed to unitholders totaled $9.5 million, representing a payout ratio⁽²⁾ of 100.2%.
SIR completed renovations to three Jack Astor's® locations (in Ancaster and Richmond Hill, Ontario and Halifax, Nova Scotia).
SIR opened three new Scaddabush Italian Kitchen & Bar® ("Scaddabush") locations (in London and Guelph, Ontario and the Don Mills neighbourhood of Toronto), and two new restaurants in downtown Toronto (Edna + Vita^TM and a Duke's Refresher® + Bar). SIR also permanently closed the Jack Astor's restaurant in the North York neighbourhood of Toronto.

Subsequent Event

Effective January 1, 2025, the closed Jack Astor's location in North York was removed from the Royalty Pooled Restaurants and four new restaurants were added, including the three new Scaddabush locations noted above and Edna + Vita. The Royalty Pool currently consists of 52 restaurants, including: 36 Jack Astor's restaurants, 13 Scaddabush locations, Reds Square One®, The Loose Moose Tap + Grill® and Edna + Vita.

2024 Financial Results Summary

($000s except restaurants and per Unit amounts) (audited)	Three-month period ended		12-month period ended
	Dec. 31, 2024	Dec. 31, 2023	Dec. 31, 2024	Dec. 31, 2023

Royalty Pooled Restaurants	49	51	49	51
Pooled Revenue generated by SIR Corp.	62,271	64,736	254,958	266,015

Royalty income to Partnership – 6% of Pooled Revenue	3,729	3,884	15,297	15,961
Partnership income allocated to Fund	2,612	2,754	10,662	11,074
Change in estimated fair value of the SIR Loan	750	9,750	5,500	12,250
Net earnings	2,189	11,285	12,028	19,114
Net Earnings per Fund Unit (basic)	$0.26	$1.35	$1.44	$2.28
Net Earnings per Fund Unit (diluted)	$0.26	$1.21	$1.40	$2.14

Pooled Revenue in Q4 2024 decreased 3.8% to $62.3 million, compared to $64.7 million in Q4 2023. The decrease reflects the permanent closures of three Royalty Pooled Restaurants during the fourth quarter of Fiscal 2023, and the permanent closure of the Jack Astor's restaurant in North York, Ontario on September 4, 2024. The decline in Pooled Revenue in Q4 2024 also reflects lower SSS⁽¹⁾ for Jack Astor's due to declines in dine-in guest traffic at certain locations and reduced take-out and delivery sales. The cybersecurity incident that SIR experienced beginning on September 26, 2024 and continuing through the following 27-day period also had a moderate negative impact on Pooled Revenue. These factors were partially offset by increased pricing and the additional revenue generated from the Scaddabush located in Whitby, Ontario that was added to the Royalty Pool effective January 1, 2024.

Net earnings for Q4 2024 were $2.2 million, or $0.26 (basic and diluted) per Fund Unit, compared to net earnings of $11.3 million, or $1.35 (basic) and $1.21 (diluted) per Fund Unit, for Q4 2023. The decrease in net earnings was primarily attributable to a smaller increase in the estimated fair value of the SIR Loan in Q4 2024 compared to Q4 2023. The estimated fair value of the SIR Loan increased by $0.8 million in Q4 2024, compared to an increase of $9.8 million in Q4 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⁾

	Three-month period ended		12-month period ended
Change in SSS⁽¹⁾ for Royalty Pooled Restaurants	Dec. 31, 2024	Dec. 31, 2023	Dec. 31, 2024	Dec. 31, 2023

Jack Astor's®	(4.5 %)	(5.1 %)	(5.7 %)	5.4 %
Scaddabush®	4.1 %	8.9 %	4.4 %	18.4 %
Signature Restaurants	13.1 %	(4.4 %)	12.4 %	16.4 %
Overall Change in SSS⁽¹⁾	(1.5 %)	(2.4 %)	(2.6 %)	8.5 %

Jack Astor's SSS⁽¹⁾performance for Q4 2024 includes all 36 locations. Jack Astor's accounted for approximately 67.4% of Pooled Revenue in Q4 2024 and had a SSS⁽¹⁾ decline of 4.5%. The decline primarily reflected reduced dine-in guest traffic at certain locations and lower take-out and delivery sales, partially offset by price increases.

Scaddabush SSS⁽¹⁾ performance for Q4 2024 includes nine out of the 13 locations. Scaddabush had same store sales growth ("SSSG")⁽¹⁾ of 4.1% in Q4 2024, reflecting price increases and the continued popularity of this restaurant brand.

The Signature Restaurants SSS⁽¹⁾ performance for Q4 2024 includes two restaurants (Reds Square One and the Loose Moose Tap & Grill). The Signature Restaurants generated SSSG⁽¹⁾ of 13.1% in Q4 2024, primarily attributable to increased dine-in guest traffic and price increases.

Distributable Cash⁽²⁾

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

($000s except per Unit amounts and payout ratio⁽²⁾)	Three-month period ended		12-month period ended
($000s except per Unit amounts and payout ratio⁽²⁾)	Dec. 31, 2024	Dec. 31, 2023	Dec. 31, 2024	Dec. 31, 2023
Cash provided by operating activities	2,479	2,462	10,181	8,041
Add/(deduct): Net change in non-cash working capital items	(474)	(143)	(830)	(545)
Net change in income tax payable	351	595	61	2,213
Net change in distribution receivable from the Partnership	(437)	(629)	116	195
Distributable cash⁽²⁾	2,189	2,285	9,528	9,904
Cash distributed for the period	2,387	2,743	9,548	9,904
(Shortfall) Surplus of distributable cash⁽²⁾	(198)	(458)	(20)	-
Payout ratio⁽²⁾	109.0 %	120.0 %	100.2 %	100.0 %
Distributable cash⁽²⁾ per Fund Unit (basic and diluted)	$0.26	$0.27	$1.14	$1.18

Distributable cash⁽²⁾ for Q4 2024 totaled $2.2 million, or $0.26 per Fund Unit (basic and diluted), and distributions to Unitholders totaled $2.4 million, representing a payout ratio⁽²⁾ of 109.0%. The payout ratio⁽²⁾ since the Fund's inception in 2004, up to and including Q4 2024, is 100.0%, 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, elevated interest rates, and the impact of new cross-border tariffs between Canada and the United States, 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.

SIR has two commitments to lease properties in Barrie and Oshawa, Ontario, upon which it plans to develop two new Scaddabush locations. There can be no assurance at this time that these planned new restaurants will be opened or will become part of the Royalty Pooled Restaurants.

SIR continues to gather information about the current and longer term financial and other impacts of the cybersecurity incident it experienced in the second half of 2024. SIR maintains a variety of insurance coverages, including cyber insurance, and is in the process of working with its insurance providers to make the necessary claims under its policies.

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 2024 MD&A, which can be accessed via the SEDAR+ website (www.sedarplus.ca).

2024 Filings

The Fund's audited consolidated Financial Statements and Management Discussion & Analysis ("MD&A"), and the Partnership's Financial Statements, for the year ended December 31, 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 36 locations, and Scaddabush Italian Kitchen & Bar® with 13 locations. SIR also operates one-of-a-kind "Signature" brands including The Loose Moose®, Reds® Square One 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 Duke's Refresher® + Bar locations, which are currently not part of the Royalty Pool. For more information on SIR 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; 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 13, 2025 Annual Information Form, for the period ended December 31, 2024, and the Fund's 2024 MD&A, which are available under the Fund's profile at www.sedarplus.ca.

SOURCE SIR Royalty Income Fund