- Anticipated resumption of Fund distributions in the near future -
BURLINGTON, ON , May 31, 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 is entitled to payments, has completed an eighth amending agreement (the "Eighth Amending Agreement") to its credit agreement with its senior lender (the "Lender"). The Eighth Amending Agreement, among other things, extends the maturity date of the original credit agreement (the "Credit Agreement") from July 6, 2021 to July 6, 2022 , extends certain waivers, and permits SIR to restart the payment of the current royalties and interest on the SIR Loan that are payable to the Fund and the SIR Royalty Limited Partnership (the "Partnership") beginning in July 2021 . The Eighth Amending Agreement also lays out the conditions for the start of the repayment of previously deferred royalties and interest on the SIR Loan. The Trustees of the Fund also executed an eighth acknowledgement, waiver and extension agreement (the "Acknowledgement Agreement"), which is also in effect until July 6, 2022 . The Eighth Amending Agreement and the Acknowledgement Agreement can be accessed via the Fund's profile on the SEDAR website at www.sedar.com .
"These developments are excellent news for Fund unitholders," said Peter Fowler , CEO of SIR Corp. "Since the start of the pandemic, our priority has been to develop a framework that would stabilize SIR's liquidity, which is fundamental to the success of the Fund. We have now achieved that. With COVID-19 vaccinations ramping up, SIR's restaurant operations are positioned for recovery, which is expected to lead to the resumption of monthly unitholder distributions in the near future. I want to thank our team members, our senior lender, our suppliers and the Fund for standing with SIR through these tough times. We are not through this yet, but we could not have reached this point without working together."
Amendment to Credit Agreement and Waivers
The Fund's royalty and other entitlements have always been subordinated to obligations owed by SIR to its Lender. As a result, as SIR was not earning material revenues due to the COVID-19 pandemic, it was not able to make royalty payments to the Fund. The Fund therefore deferred, but did not forgive, those payment obligations, in order to seek to ensure the long-term viability of SIR.
With the vaccine rollout now well advanced and the economic outlook improving, SIR's Lender has approved the resumption of current royalty payments and a framework to enable SIR to catch up on deferred royalty payments by mid-July 2022 . The necessary agreements, which are expected to enable the Fund to re-commence distributions in the near future, have been executed. Distributions are expected to be modest at first and increase over time.
They key details are as follows:
- The Company's Credit Facilities have been extended until July 6, 2022 , with appropriate adjustments to its covenants.
- Royalty payments on current sales to the Fund are to recommence effective July 7, 2021 .
- SIR will be entitled to begin repaying deferred royalty payments under the condition that at least 25 restaurants have, for six consecutive weeks, been allowed the use of at least 50 indoor dining seats and the use of their patios (with social distancing). The repayments, which on a net basis amount to approximately $4.8 million as of May 9, 2021 , are expected to be made in equal monthly installments such that the deferred amounts are targeted, absent and defaults occurring, to be fully repaid by the Credit Facility maturity date of July 6, 2022 .
- A waiver has been granted allowing a covenant breach in the third quarter of 2021 (SIR's EBITDA is expected to be short of the minimum target in the quarter due to the impact of the unbudgeted "third wave" of COVID-19 infections).
- An amendment to the financial covenants have been granted by the senior lender that includes only a Cumulative Minimum EBITDA Covenant. SIR will be allowed to miss quarterly projections by up to $3.5 million cumulatively prior to July 6, 2022 .
- The definition of EBITDA has been amended back to the definition in the original credit agreement.
- An extension of certain temporary waivers has been granted until August 31, 2021 , with others granted until the maturity of the loan. Also on May 31, 2021 , the Fund and the Partnership entered into an Acknowledgement Agreement with SIR and its senior lender, providing a waiver for any and all existing breaches of covenants and events of default under the various agreements between SIR, the Fund, and the Partnership until July 6, 2022 . As a result of the Acknowledgment Agreement, the Lender consented to the resumption of regular payments by SIR to the Fund and the Partnership.
Business Update
As a result of rapidly increasing COVID-19 case counts, the Ontario government issued a "stay-at-home" order effective April 8, 2021 . While the stay-at-home order limited restaurants across the province to takeout and delivery services, the Toronto and Peel regions have effectively been limited to takeout and delivery since late November 2020 .
On May 22, 2021 , the Ontario government announced a province-wide "Roadmap to Reopen." The three-step plan allows restaurants to reopen for outdoor dining in Step 1 (estimated to start in the week of June 14 ) and allows indoor dining in Step 3 (estimated to begin in early August). These dates may be realized sooner (or potentially later) than estimated. However, a minimum 21-day period has been mandated between each step of the plan. While the province has yet to formally outline all operating guidelines for restaurants, and while the reopening plans may change, physical distancing measures and capacity limits are expected to remain in effect through each step.
In the regions in which SIR's four Quebec restaurants are located, provincial orders have limited restaurants to takeout and delivery since September 30, 2020 . Quebec's three-phase reopening plan, which is based on the achievement of vaccination targets and which is also subject to change, was announced last week. The first phase of the plan is effective May 28 and permits outdoor dining at all restaurants across the province. Indoor dining is permitted in the second phase and will be resumed on a regional basis. Two SIR restaurants are in regions that will permit indoor dining as of May 31 , while the other two are in regions that are anticipated to permit indoor dining in the second week of June.
SIR's restaurants in Nova Scotia and Newfoundland have also experienced limited operations due to government restrictions. Restaurant operations in St. John's, Newfoundland were restricted to takeout and delivery for approximately seven weeks beginning on February 10 , before reopening with reduced capacity on March 27 . Restaurant operations in Halifax and Dartmouth, Nova Scotia have been limited to takeout and delivery since April 23 . A Nova Scotia provincial reopening plan is was announced on May 28 that, while it is subject to change, will permit the opening of patios with social distancing and capacity restrictions on June 2 . Phase 2 of the Nova Scotia plan, which will not begin before June 16 , will permit indoor dining with limited capacity and table-size, masks and limited service hours. Three additional phases were announced beyond Phase 2, each one based on increasing levels of vaccinations in the community and each one further reducing the restrictions on capacity and hour of operation.
While only three SIR restaurants are currently allowed to offer in-restaurant dining, a loosening of restrictions, aided by increasing rates of vaccinations, is expected in the near future.
SIR began testing the Renegade Chicken concept in late 2020 in an attempt to increase sales volume and help ensure the survival of SIR during the severely reduced volume periods driven by the COVID-19 pandemic. It was a ghost kitchen concept that, while increasing the volume of food produced in the test locations (certain Jack Astor's and Dukes Refresher & Bar locations), was specifically designed and marketed as distinctly different from Jack Astor's . Appearing independent was a key element in its marketing strategy. The test concluded as of May 31 , 2021. It is SIR's belief that, while the brand has potential, in order to be successful, it must stand on its own and apart from Jack Astor's . Further, at as restrictions over patios and in restaurant dining are reduced in the near future, it is not believed that Renegade and Jack Astor's can operate out of the same kitchen without having a negative effect on the Jack Astor's guest experience, which is critical to the long-term success of SIR and the Fund. As Jack Astor's is allowed to re-open, our food focus and the need for flawless execution of the expanded menu conflicts with adding the complexity of Renegade Chicken. As of June 1, 2021 Renegade Chicken will no longer be offered through the Jack Astor's kitchens. The pop-up Renegade Chicken in our Dukes St. Lawrence Market location, which is not part of the royalty pool, will continue and SIR is looking forward to further growth prospects for Renegade Chicken. While the Fund has no ownership interest in the Renegade Chicken trademark, SIR intends to make a voluntary payment to the Fund in an amount equal to 6% of the revenues earned by the Renegade Chicken operation. This payment is estimated to be approximately $0.1 million .