SIR Royalty Income Fund Reports 2021 Fourth Quarter and Year-End Results

BURLINGTON, ON, March 22, 2022 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the fourth quarter ("Q4 2021") and year ended December 31, 2021 ("2021") and provided a business update.

Since the onset of the pandemic in March 2020, the operations of SIR Corp. ("SIR") have been adversely impacted by a series of government mandated restrictions and/or closures that were introduced to mitigate the spread of COVID-19. However, the easing of operating restrictions, particularly in Ontario, starting in June 2021, resulted in increased Pooled Revenue in Q4 2021 and 2021 compared to the fourth quarter and year ended December 31, 2020 ("Q4 2020" and "2020", respectively). Please refer to the Fund's Management Discussion and Analysis ("MD&A") for 2021 for additional details on the timing and duration of various restrictions that impacted SIR's operations.

2021 Summary

• Pooled Revenue increased 14.1% to $136.9 million, compared to $120.0 million in 2020.
• Royalty income in the SIR Royalty Limited Partnership (the "Partnership") increased to $8.2 million, from $7.2 million in 2020.
• Equity income from the Partnership, which represents the Fund's pro rata share of the residual distributions of the Partnership, increased to $3.7 million, compared to $1.6 million in 2020.
• The Royalty Pooled Restaurants generated same store sales growth ("SSSG")(2) of 16.9%.
• Distributable cash(3) totaled $5.0 million, or $0.60 (basic) and $0.59 (diluted) per Fund Unit, and cash distributed to unitholders totaled $5.0 million, representing a payout ratio(3) of 99.9%. The Fund's target payout ratio(3) is 100% per annum.
• On January 1, 2021, the Scaddabush Italian Kitchen & Bar® ("Scaddabush") restaurant in Burlington, Ontario was added to the Royalty Pooled Restaurants (the "Royalty Pool").
• SIR permanently closed six restaurants during 2021, including three Canyon Creek® locations (Mississauga, Scarborough and Vaughan, Ontario) and three restaurants located at Yonge and Gerrard in downtown Toronto (one Scaddabush, one Reds® and one Duke's Refresher® & Bar). The Duke's Refresher was not part of the Royalty Pool.
• On May 31, 2021, SIR and its Lender entered into an eighth amending agreement to its Credit Agreement which, among other things, extended the maturity date of the credit facilities as well as certain waivers from July 6, 2021 to July 6, 2022. Additionally, SIR's Lender approved the resumption of current royalty payments on July 7, 2021 and a framework to enable SIR to catch up on deferred royalty payments and interest on the SIR Loan by July 6, 2022. Effective September 15, 2021, having met the conditions stipulated by SIR's Lender, SIR began its repayment of deferred royalties and interest on the SIR Loan.
• On June 14, 2021, the Fund, SIR Corp. and Lembit Janes announced a settlement agreement (the "Settlement Agreement") that concluded a proxy contest. Under the terms of the Settlement Agreement, the size of the Fund's Board of Trustees was fixed at seven members, and seven nominees were recommended for election: Stephen Dewis, Michael Fisher, Lembit Janes, Sandra Levy, Norm Mayr, William Rogers and Kim van Nieuwkoop. All seven nominees were elected as Trustees at the Fund's annual general meeting on June 29, 2021. William Rogers was subsequently appointed Chair.
• On July 15, 2021, the Fund announced that its Trustees approved the resumption of monthly distributions effective July 30, 2021. The initial monthly distribution of $0.07 per Fund Unit was paid on July 30, 2021 to unitholders of record as at July 22, 2021. On September 9, 2021, the Fund announced that its Trustees approved a $0.02 increase in monthly distributions, resulting in an increase in the Fund's monthly distributions from $0.07 per Fund Unit to $0.09 per Fund Unit, effective for the cash distribution paid on September 30, 2021 to unitholders of record as at September 20, 2021.

Q4 2021 Summary

• Pooled Revenue for Q4 2021 increased by 134.2% to $47.5 million, compared to $20.3 million in Q4 2020.
• Royalty income in the Partnership increased to $2.8 million, from $1.2 million for Q4 2020.
• Equity income from the Partnership was $1.6 million, compared to a loss of $1.0 million in Q4 2020.
• The Royalty Pooled Restaurants generated SSSG(2) of 134.9%.
• Distributable cash(3) totaled $2.8 million, or $0.33 (basic) and $0.31 (diluted) per Fund Unit, and cash distributed to unitholders totaled $3.1 million, representing a payout ratio(3) of 111.1%.
• On December 9, 2021, the Fund declared a special cash distribution of $0.10 per Fund Unit, which was paid on December 31, 2021 to unitholders of record as at December 20, 2021.

Subsequent Events

• Five closed restaurants were removed from the Royalty Pool effective January 1, 2022.
• On January 28, 2022, the Fund announced that its independent Trustees provided approval to SIR to operate Renegade Chicken take-out and delivery services, on a trial basis until March 31, 2022, in certain Jack Astor's locations in Ontario.
• On February 9, 2022, the Fund announced that SIR is converting its Canyon Creek location at the Fallsview Casino Resort in Niagara Falls, Ontario, into a new Reds. The new Reds Fallsview is expected to open on April 1, 2022. This former Canyon Creek location was a Royalty Pooled Restaurant, but it has not been in operation since the onset of the pandemic in mid-March 2020. In accordance with the License and Royalty Agreement between SIR and the SIR Royalty Limited Partnership, this former Canyon Creek location will be treated as a permanently closed restaurant and the new Reds Fallsview will become a new Royalty Pooled Restaurant effective January 1, 2023.

"We generated significant growth in Pooled Revenue and same store sales in the fourth quarter as we welcomed more guests and operated with fewer restrictions compared to Q4 last year," said Peter Fowler, CEO of SIR Corp. "Operating restrictions did increase late in the quarter due to the Omicron variant, and this continued to impact our operations into the first quarter of 2022. However, provincial governments across the country are now lifting the vast majority of remaining COVID-related restrictions. We are well positioned for further growth in revenue and same store sales as we move forward in a more normalized operating environment, while continuing to prioritize the safety of our guests and staff."

2021 Financial Results Summary

Pooled Revenue in Q4 2021 increased 134.2% to $47.5 million, compared to $20.3 million in Q4 2020. The higher Pooled Revenue in Q4 2021 reflects a 134.9% increase in Same Store Sales ("SSS")(2), which was primarily attributable to the easing of pandemic-related operating restrictions in the markets in which SIR restaurants are located.

Net earnings were $2.3 million, or $0.27 (basic) and $0.27 (diluted) per Fund Unit, for Q4 2021 compared to $0.6 million, or $0.07 (basic) and $0.05 (diluted) per Fund Unit, for Q4 2020. Adjusted Net Earnings(1) were $1.7 million, or $0.21 per Fund Unit (basic and diluted), for Q4 2021 compared to an Adjusted Net Loss(1) of $0.03 million, or $0.00 (basic) and $0.01 (diluted) per Fund Unit, for Q4 2020. The positive variances reflect the significant increase in Pooled Revenue in Q4 2021.

Distributable Cash(3)
The following table reconciles the relationship between cash provided by operating activities and distributable cash(3):

Distributable cash(3) for Q4 2021 totaled $2.8 million, or $0.33 (basic) and $0.31 (diluted) per Fund Unit, and distributions to Unitholders totaled $3.1 million, representing a payout ratio(3) of 111.1%. In addition to the regular monthly distribution of $0.09 per Fund Unit, a special year-end distribution of $0.10 per Fund Unit was paid on December 31, 2021. Distributable cash has increased due to current royalties in addition to the receipt of the monthly repayments of previously deferred royalty amounts.

Same Store Sales(2)

Jack Astor's, which accounted for approximately 72.7% of Pooled Revenue in Q4 2021, had a SSS(2) increase of 112.2% in Q4 2021. Outdoor patios and dining rooms at all Jack Astor's restaurants were reopened throughout the month of June, during Q2 2021, and remained open with gradually easing operating restrictions until the third week of December 2021, when heightened operating restrictions were implemented due to Omicron.

Scaddabush Italian Kitchen & Bar ("Scaddabush") SSS(2) performance for Q4 2021 includes eight locations, excluding the locations at Yonge and Gerrard in Toronto, and in Burlington, Ontario. Outdoor patios and dining rooms at all the Scaddabush restaurants were re-opened throughout the month of June, during Q2 2021, and remained open with gradually easing operating restrictions until the third week of December 2021, when heightened operating restrictions were implemented due to Omicron.

Canyon Creek SSS(2) performance for Q4 2021 includes one operating restaurant in Etobicoke, Ontario. SIR permanently closed the Canyon Creek restaurants at the Square One shopping centre in Mississauga, Ontario and in Scarborough, Ontario effective January 8, 2021, and in Vaughan, Ontario effective March 31, 2021. Operations at the Canyon Creek location in Niagara Falls, Ontario were suspended in March 2020 through to the end of 2021.

The downtown Toronto Signature Restaurants SSS(2) performance for Q4 2021 includes three operating restaurants. SIR permanently closed the Reds Midtown Tavern location at Yonge and Gerrard in Toronto effective February 9, 2021. Outdoor patios and dining rooms at three of the Signature restaurants were reopened on June 11, 2021, during Q2 2021, and remained open with gradually easing operating restrictions until the third week of December 2021, when heightened operating restrictions were implemented due to Omicron.

Outlook

Ontario

Effective January 31, 2022, the province of Ontario began its reopening process and gradual easing of public health measures. As of January 31, 2022, restaurants, bars and other food and drink establishments without dance facilities were permitted to operate at 50% capacity. Effective February 17, 2022, restaurants, bars and other food and drink establishments without dance facilities were allowed to operate at full capacity (with proof of vaccination in place). Effective March 1, 2022, the government of Ontario lifted capacity limits at all indoor public settings and proof of vaccination requirements. Effective March 21, 2022, masks will no longer be required in most indoor settings, including restaurants and bars.

Quebec

Effective January 31, 2022, the province of Quebec, where SIR operates four restaurants, allowed restaurants to reopen at 50% capacity with tables of up to four people. Alcohol service was restricted until 11 p.m. with restaurant closures by midnight. Effective February 28, 2022, bars were allowed to operate at 50% capacity with last call for alcohol at midnight and a closing time of 1 a.m. Effective March 12, 2022, restaurants and bars were allowed to operate at full capacity, and vaccine requirements were lifted. Masking requirements remain in effect.

Nova Scotia

Effective February 14, 2022, the province of Nova Scotia, where SIR operates two restaurants, allowed restaurants and bars to operate at 75% capacity with public health measures like social distancing and masking remaining in place. Restaurants and bars are required to close by 1 a.m. Takeout, delivery and drive-thru are allowed beyond 1 a.m. Effective March 21, 2022, all remaining COVID-19 restrictions were lifted.

Newfoundland

Effective January 4, 2022, the province of Newfoundland, where SIR operates one restaurant, moved to 50% indoor dining capacity with physical distancing between tables. A maximum guest capacity of six people per table was also established. Effective February 7, 2022, Newfoundland moved to an Alert Level 3, which increased table sizes to 10 per table. Bars were allowed to operate at 50% capacity. Masking and physical distancing remained in effect. Effective February 14, 2022, the province ended the use of the Alert Level systems. Effective March 14, 2022, all remaining COVID-19 restrictions were lifted.

On October 21, 2021, the federal government announced the proposed new Tourism and Hospitality Recovery Program ("THRP"). Restaurants are one of the targeted businesses to which this program applies. The program commenced on October 24, 2021 and is intended to provide a replacement program for the Canada Emergency Wage Subsidy and Canada Emergency Rent Subsidy programs until at least May 7, 2022. This program would apply to SIR in any claim period between October 24, 2021 and May 7, 2022 when the revenue decline in the claim period is 40% or more compared to the prior reference period. On the same day, the federal government proposed extending the Canada Recovery Hiring Program until May 7, 2022 for eligible employers with current revenue declines of more than 10% compared to the prior reference period, and proposed increasing the subsidy rate to 50% starting on October 24, 2021. This program would also be expected to apply to SIR in any claim period between October 21, 2021 and May 7, 2022 when SIR's revenue decline in the claim period is 10% or more compared to the prior reference period.

The potential risk of future restaurant closures and/or increased capacity restrictions due to the pandemic could further impact future sales at SIR restaurants.

Reconciliation of Adjusted Net Earnings(1)
The following table reconciles net earnings (loss) for the period to Adjusted Net Earnings(1) and calculates Adjusted Earnings per Fund Unit(1):

(1)References to Adjusted Net Earnings (Loss) are to the Fund's net earnings (loss) plus or minus the impairment on financial assets and the investment in the Partnership and replacing the change in estimated fair value of the SIR Loan as reported in the statement of earnings with the interest received on the SIR Loan during the period and the corresponding deferred tax expense or recovery from the net earnings for the period. Adjusted Net Earnings (Loss) per Fund unit represents the portion of net earnings adjusted for any impairment adjustment on financial assets and the investment in the Partnership and the change in estimated fair value of the SIR Loan and the deferred tax expense or recovery for the period allocated to each outstanding Fund unit. Adjusted Net Earnings (Loss) and Adjusted Net Earnings (Loss) per Fund unit are non-GAAP financial measures and do not have a standardized meaning prescribed by IFRS. Management believes that in addition to net earnings (loss), Adjusted Net Earnings (Loss) and Adjusted Earnings per Fund unit are useful supplemental measures to evaluate the Fund's performance. The change in estimated fair value of the SIR Loan is a non-cash fair value transaction resulting from IFRS 9 and varies with changes in a discount rate that fluctuates based on current market interest rates adjusted for SIR's credit risk. The replacement of the non-cash change in estimated fair value of the SIR Loan with the interest received, and the corresponding deferred tax amount, eliminates this non-cash impact. Management cautions investors that Adjusted Net Earnings (Loss) should not replace net earnings or loss or cash flows from operating, investing and financing activities (as determined in accordance with IFRS), as an indicator of the Fund's performance. The Fund's method of calculating Adjusted Net Earnings (Loss) may differ from the methods used by other issuers. Please refer to the reconciliation of net earnings (loss) for the period to Adjusted Net Earnings (Loss) for the year ended December 31, 2021 provided in this news release.

(2) 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 2021 and 2020. SSSG is the percentage increase in SSS over the prior year comparable period.

(3) 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 MD&A for the year ended December 31, 2021, which can be accessed via the SEDAR website (www.sedar.com).

2021 Filings

The Fund's audited consolidated Financial Statements and MD&A, and the Partnership's Financial Statements, for the year ended December 31, 2021 are available via the SEDAR website at www.sedar.com 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 52 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 one location. 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 location 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 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 crisis 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.

In formulating the forward-looking statements contained herein, SIR Management has assumed that it will be successful in dealing with the effects of the COVID-19 pandemic and that business and economic conditions affecting SIR's restaurants and the Fund will return to normalcy within the medium term.

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 22, 2022 Annual Information Form, for the period ended December 31, 2021, and the Fund's Management Discussion & Analysis for the year ended December 31, 2021, which are available under the Fund's profile at www.sedar.com.

SOURCE SIR Royalty Income Fund

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