SIR Royalty Income Fund Reports 2024 Third Quarter Financial Results

CNW Group

Thu, Nov 14, 2024, 4:27 PM 10 min read

"We further strengthened our restaurant portfolio in the third quarter with the opening of a new Scaddabush in Guelph, Ontario, our 13^th Scaddabush location. We have now opened three new Scaddabush restaurants to date in 2024, all of which we expect to add to the Royalty Pool in January of 2025. Scaddabush is currently our top performing restaurant concept, and we believe our investment in expanding this brand will create long-term value for Fund unitholders," said Peter Fowler, CEO of SIR Corp. "During the quarter, we also continued to advance the development of two additional new Scaddabush restaurants in Barrie and Oshawa, Ontario, which we expect to open in 2025."

Q3 2024 Summary

Pooled Revenue totaled $64.8 million compared to $68.8 million for the three months ended September 30, 2023 ("Q3 2023").
Royalty income in the SIR Royalty Limited Partnership (the "Partnership") was $3.9 million, compared to $4.1 million in Q3 2023.
Equity income from the Partnership, which represents the Fund's pro rata share of the residual distributions of the Partnership, was $2.7 million, compared to $2.8 million in Q3 2023.
The Royalty Pooled Restaurants (the "Royalty Pool") had a same store sales ("SSS")⁽¹⁾ decline of 4.7%.
Net earnings were $3.7 million, compared to $3.0 million in Q3 2023.
Distributable cash⁽²⁾ totaled $2.5 million, or $0.30 (basic and diluted) per Fund Unit, and cash distributed to unitholders totaled $2.4 million, representing a payout ratio⁽²⁾ of 95.5%. The payout ratio⁽²⁾ since the Fund's inception in 2004, up to and including Q3 2024, is 99.8%, in line with the Fund's target payout ratio⁽²⁾ of 100% per annum.
On August 7, 2024, SIR Corp. ("SIR") opened a new Scaddabush Italian Kitchen & Bar® ("Scaddabush") restaurant in Guelph, Ontario. This new Scaddabush restaurant is expected to be added to the Royalty Pool effective January 1, 2025.
On September 4, 2024, SIR permanently closed the Jack Astor's® restaurant located in the North York neighbourhood of Toronto, Ontario. This restaurant will be removed from the Royalty Pool effective January 1, 2025.
On September 26, 2024 and continuing subsequent to Q3 2024, SIR experienced a cybersecurity incident that has 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 has continued to operate all 54 of its restaurants. As a result of this incident, SIR experienced a moderate decline in revenue during the first three weeks 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. While SIR continues to gather information about the current and longer-term financial and other impacts of this event, the extent of the potential effect on the Fund or Partnership is yet to be determined.

Q3 2024 Financial Results Summary

($000s except restaurants and per Unit amounts) (unaudited)	Three-month period ended		Nine-month period ended
	Sept. 30, 2024	Sept. 30, 2023	Sept. 30, 2024	Sept. 30, 2023

Royalty Pooled Restaurants	49	51	49	51
Pooled Revenue generated by SIR Corp.	64,795	68,791	192,802	201,279

Royalty income to Partnership – 6% of Pooled Revenue	3,888	4,128	11,568	12,077
Partnership income allocated to Fund	2,722	2,821	8,049	8,320
Change in estimated fair value of the SIR Loan	2,000	1,000	4,750	2,500
Net earnings	3,749	2,968	9,839	7,828
Net Earnings per Fund Unit (basic)	$0.45	$0.35	$1.17	$0.93
Net Earnings per Fund Unit (diluted)	$0.43	$0.35	$1.14	$0.93

Pooled Revenue in Q3 2024 decreased 5.8% to $64.8 million, compared to $68.8 million in Q3 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 on September 4, 2024. The decline in Pooled Revenue in Q3 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. These factors were partially offset by increased pricing and the additional revenue generated from the new Scaddabush located in Whitby, Ontario that was added to the Royalty Pool effective January 1, 2024.

Net earnings for Q3 2024 were $3.7 million, or $0.45 (basic) and $0.43 (diluted) per Fund Unit, compared to net earnings of $3.0 million, or $0.35 (basic and diluted) per Fund Unit, for Q3 2023. The increase in net earnings was primarily attributable to a larger increase in the estimated fair value of the SIR Loan in Q3 2024 compared to Q3 2023, partially offset by lower royalty income. The estimated fair value of the SIR Loan increased by $2.0 million in Q3 2024, compared to an increase of $1.0 million in Q3 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		Nine-month period ended
Change in SSS⁽¹⁾ for Royalty Pooled Restaurants	Sept. 30, 2024	Sept. 30, 2023	Sept. 30, 2024	Sept. 30, 2023

Jack Astor's®	(6.8 %)	(4.4 %)	(5.9 %)	9.2 %
Scaddabush®	0.4 %	0.4 %	4.4 %	21.1 %
Signature Restaurants	4.0 %	(9.9 %)	11.8 %	24.7 %
Overall Change in SSS⁽¹⁾	(4.7 %)	(2.1 %)	(2.8 %)	12.3 %

Jack Astor's SSS⁽¹⁾performance for Q3 2024 includes all 36 locations currently in operation. Jack Astor's accounted for approximately 70.6% of Pooled Revenue in Q3 2024 and had a SSS⁽¹⁾ decline of 6.8%. 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 Q3 2024 includes nine out of the 13 locations currently in operation. Scaddabush had same store sales growth ("SSSG")⁽¹⁾ of 0.4% in Q3 2024, reflecting price increases and the continued popularity of this restaurant brand.

The Signature Restaurants SSS⁽¹⁾ performance for Q3 2024 includes two restaurants (Reds® Square One and the Loose Moose Tap & Grill®). The Signature Restaurants generated SSSG⁽¹⁾ of 4.0% in Q3 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		Nine-month period ended
($000s except per Unit amounts and payout ratio⁽²⁾)	Sept. 30, 2024	Sept. 30, 2023	Sept. 30, 2024	Sept. 30, 2023
Cash provided by operating activities	1,907	1,569	7,432	5,579
Add/(deduct): Net change in non-cash working capital items	(120)	(126)	(355)	(402)
Net change in income tax payable	489	953	(254)	1,618
Net change in distribution receivable from the Partnership	223	322	552	824
Distributable cash⁽²⁾	2,499	2,718	7,375	7,619
Cash distributed for the period	2,387	2,387	7,161	7,161
Surplus of distributable cash⁽²⁾	112	331	214	458
Payout ratio⁽²⁾	95.5 %	87.8 %	97.1 %	94.0 %
Distributable cash⁽²⁾ per Fund Unit (basic and diluted)	$0.30	$0.32	$0.88	$0.91

Distributable cash⁽²⁾ for Q3 2024 totaled $2.5 million, or $0.30 per Fund Unit (basic and diluted), and distributions to Unitholders totaled $2.4 million, representing a payout ratio⁽²⁾ of 95.5%. The payout ratio⁽²⁾ since the Fund's inception in 2004, up to and including Q3 2024, is 99.8%, 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 elevated 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.

During 2023 and YTD 2024, SIR completed renovations to 13 restaurants (12 Jack Astor's locations and Reds Square One) to drive enhanced performance. SIR is pleased with the success of these renovations.

The recently opened Scaddabush locations in London and Guelph, Ontario and the Don Mills neighbourhood of Toronto are expected to be added to the Royalty Pool on January 1, 2025.

The permanently closed Jack Astor's restaurant located in the North York neighbourhood of Toronto will be removed from the Royalty Pool on January 1, 2025.

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 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 Q3 2024 MD&A, which can be accessed via the SEDAR+ website (www.sedarplus.ca).

Q3 2024 Filings

The Fund's unaudited interim consolidated Financial Statements and Management Discussion & Analysis ("MD&A"), and the Partnership's Financial Statements, for the three and nine-month periods ended September 30, 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® and Reds® Square One. 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 three additional restaurants, including two Duke's Refresher® + Bar locations and Edna + Vita^TM, 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 14, 2024 Annual Information Form, for the period ended December 31, 2023, and the Fund's Q3 2024 MD&A, which are available under the Fund's profile at www.sedarplus.ca.

SOURCE SIR Royalty Income Fund