- 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 .
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 indirectly has interests in the trademarks used by SIR.
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 Corp. (" SIR Corp. " or the " Corporation "), 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, SIR Holdings Trust (the " Trust "), SIR Royalty Limited Partnership (the " Partnership "), SIR Corp. or industry results, are forward-looking statements. The words "may", "will", "should", "could", "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 the Fund, the Trust, the Partnership, SIR Corp. 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 SIR Corp. management's (" Management ") current expectations, estimates and projections regarding future events and operating performance and are based on information currently available to Management, Management's historical experience, perception of trends and current business conditions, expected future developments and other factors which management considers appropriate. The forward-looking statements speak only as of the date hereof. Readers should not place undue importance on forward-looking statements, as there can be no assurance that the future circumstances, outcomes or results anticipated or implied by such forward-looking statements will occur or that plans, intentions or expectations upon which the forward-looking statements are based will occur, and readers should not rely upon this information as of any other date. By their nature, forward-looking statements involve known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated by such statements. Risks related to forward-looking statements include, among other things, challenges presented by a number of factors, including, without limitation: the impact of the COVID-19 pandemic, including a worsening of the COVID-19 pandemic, changes in governmental or customer responses to the COVID-19 outbreak, continued availability of required employees, business interruptions, access to restaurant locations and access to needed supplies and capital ; market conditions; 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 or 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 Corp.; 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; changes in laws affecting the sale and use of alcohol (including availability and enforcement); changes in cannabis laws; changes in tax laws; changes in accounting policies and practices; and the results of operations and financial condition of SIR Corp. The foregoing list of factors is not exhaustive. Many of these issues can affect the Fund's or SIR Corp.'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 Corp. There can be no assurance that SIR Corp. will remain compliant in the future with all of its financial covenants under the Credit Agreement (as defined herein) and otherwise, particularly amid the COVID-19 outbreak. 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 Corp. expressly disclaim any obligation or undertaking to publicly disclose or release any updates or revisions to any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements are based on Management's current plans, estimates, projections, beliefs and opinions, and the Fund and SIR Corp. 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 its businesses will be able to continue to operate following the resolution of the COVID-19 pandemic and that business and economic conditions affecting SIR Corp.'s restaurants and the Fund will return to normalcy within the medium term. However, the continuation or escalation of this public health crisis could create adverse impacts on the Fund's and SIR Corp.'s workforce, supply chain and customer access and could reduce revenue for the Fund and SIR Corp., which could have a material adverse effect on SIR Corp.'s business, financial condition and results of operations. Management has also assumed that SIR Corp. will remain compliant in the future with, or receive waivers from, all of its financial covenants under the Credit Agreement and otherwise. These assumptions, although considered reasonable by Management at the time of preparation, may prove to be incorrect. For more information concerning the Fund's risks and uncertainties, please refer to the Fund's annual information form dated March 31, 2021 for the period ended December 31, 2020 , which is available under the Fund's profile at www.sedar.com .
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 Corp. In particular, there can be no assurance that restaurants will be able to reopen as currently anticipated, or that current or deferred royalty payments will be able to be made as currently anticipated. See "Risk Factors" in the Fund's annual information form dated March 31, 2021 for the period ended December 31, 2020 .
SOURCE SIR Royalty Income Fund
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