SIR Royalty Income Fund Reports SIR Corp. Fiscal 2020 First Quarter Results
SIR Royalty Income Fund (TSX:SRV-UN.TO) (the "Fund") today announced that SIR Corp. ("SIR" or the "Company"), the operating entity from which the Fund earns equity income, has filed its financial results for the 12-week period ended November 17, 2019 ("Q1 2020").
SIR has advised the Fund that food and beverage revenue from corporate restaurant operations for Q1 2020 totaled $62.1 million, a decline of 10.2% compared to $69.1 million for the 12-week period ended November 18, 2018 ("Q1 2019"). The revenue decline is primarily attributable to lower Same Store Sales ("SSS")((1)).
12-week period ended Same Store Sales(1) November 17, 2019 (unaudited) --- Jack Astor's(R) (9.3%) Scaddabush Italian Kitchen & Bar(R) (3.5%) Canyon Creek(R) (12.0%) Signature Restaurants (3.6%) --- Overall SSS(1) (8.0%)
SIR reported an overall decline in SSS((1)) of 8.0% for Q1 2020. SSS((1) )are typically impacted by changes in guest traffic and average cheque amount. SIR believes that recent SSS((1)) have been impacted by specific factors impacting consumer behavior related to spending at full-service restaurants, especially in Ontario. These include the rapid growth of delivery services, stricter impaired driving laws, and price increases related to the minimum wage increase that took effect at the start of 2018.
Jack Astor's, SIR's flagship Concept Restaurant brand, which contributed approximately 69% of Q1 2020 Pooled Revenue, had a SSS((1) )decline of 9.3% in Q1 2020. No Jack Astor's locations were renovated in Q1 2020, compared to two renovations in Q1 2019 (Kanata and Mississauga, Ontario), which resulted in the closure of these restaurants for a combined total of 20 days during the quarter. During Q1 2020, effective September 23, 2019, SIR permanently closed the Jack Astor's location on John Street in downtown Toronto. In Fiscal 2019, effective February 4, 2019, SIR permanently closed the Jack Astor's location in the St. Lawrence Market area of downtown Toronto. The sales from these locations have been excluded from the calculation of SSS((1) )for Q1 2020. Beginning in late 2019, SIR's Management began implementing a number of strategies to address declining food and beverage sales, resulting from changes in consumer behaviour and guest preferences.
Scaddabush had a SSS((1) )decline of 3.5% for Q1 2020. Scaddabush SSS((1) )performance for Q1 2020 includes eight Scaddabush locations (Mississauga, Richmond Hill, Scarborough, Oakville, Vaughan, and Etobicoke, Ontario, and Front Street and Yonge and Gerrard in downtown Toronto). The new Scaddabush restaurant in the Mimico neighbourhood of Etobicoke is excluded from the calculation of Q1 2020 SSS((1) )as it was not in operation in Q1 2019. During Q1 2020, SIR completed the system-wide rollout of its refined pizza and pasta program at Scaddabush.
Canyon Creek had a SSS((1) )decline of 12.0% for Q1 2020. During Q1 2020, effective October 13, 2019, SIR permanently closed the Canyon Creek location in Burlington, Ontario. The sales from the Canyon Creek location on Front Street in downtown Toronto (permanently closed in Q2 2019) and the permanently closed Canyon Creek location in Burlington have been excluded from the calculation of SSS((1)) performance for Q1 2020. SIR's Management continues to evaluate options to improve performance for the remaining restaurants in the Canyon Creek portfolio.
The downtown Toronto Signature Restaurants had a SSS((1) )decline of 3.6% for Q1 2020. The Q1 2020 SSS((1)) performance for the Signature Restaurants does not include the new Duke's Refresher® and Bar ("Duke's Refresher") in St. Lawrence Market which opened during Q1 2020 on September 26, 2019.
SIR's net earnings and comprehensive income was $33.7 million in Q1 2020, compared to a net loss and comprehensive loss of $10.6 million in Q1 2019. The positive variance in Q1 2020 is primarily the result of a change in the amortized cost of the Ordinary LP Units and Class A Units of SIR Royalty Limited Partnership ("the Partnership") that SIR holds. This resulted in income of $34.7 million in Q1 2020, compared to an expense of $11.3 million in Q1 2019, reflecting the decrease in the underlying unit price of the Fund compared to the end of Q4 2019.
SIR's Adjusted Net Loss((2)) for Q1 2020 was $1.0 million, compared to Adjusted Net Earnings((2)) of $0.7 million in Q1 2019.
SIR Q1 2020 Corporate DevelopmentsOn September 23, 2019, SIR permanently closed the Jack Astor's restaurant on John Street in downtown Toronto at the end of the lease, as SIR was unable to negotiate an economically acceptable lease extension due to rent and property tax escalations at this location in recent years.
On September 26, 2019, SIR opened a new Duke's Refresher in the St. Lawrence Market neighbourhood of downtown Toronto at the former location of the Jack Astor's restaurant that was permanently closed on February 4, 2019.
On October 13, 2019, SIR permanently closed the Canyon Creek restaurant in Burlington, Ontario. Subsequent to Q1 2020, on November 19, 2019, SIR opened a new Scaddabush restaurant in Burlington at the former location of the closed Canyon Creek restaurant.
Liquidity and Capital ResourcesAs at November 17, 2019, SIR had cash and equivalents of $5.5 million, compared to $3.6 million as at August 25, 2019, SIR's Fiscal 2019 year-end. SIR Management believes that there are sufficient cash resources retained in SIR from its cash generated by operations and from its financing activities to fund its current working capital requirements, scheduled debt repayments, and future construction commitments.
SIR currently holds 2.2 million Class A GP Units, representing a 20.91% residual interest in the Partnership. The Class A GP Units are exchangeable into units of the Fund on a one for one basis, and, as at November 17, 2019, have a market value of approximately $20.5 million.
OutlookThe following permanently closed restaurants will cease to be a part of Royalty Pooled Restaurants on January 1, 2020:
-- Jack Astor's in the St. Lawrence Market neighbourhood of downtown Toronto (closed February 4, 2019); -- Jack Astor's on John Street in downtown Toronto (closed September 23, 2019); and, -- Canyon Creek Burlington (closed October 13, 2019).
The new Scaddabush restaurant in the Mimico neighbourhood of Etobicoke, Ontario (opened June 2, 2019) is expected to be added to Royalty Pooled Restaurants on January 1, 2020. The new Scaddabush restaurant in Burlington (opened November 19, 2019) is expected to be added to Royalty Pooled Restaurants on January 1, 2021.
Since commencing its comprehensive Jack Astor's renovation program at the end of calendar 2015, SIR has now completed renovations at 21 Jack Astor's locations. SIR's Management plans to continue to implement similar renovations at additional Jack Astor's locations in the future. SIR is currently implementing a number of strategies to address declining food and beverage sales at Jack Astor's.
SIR continues to focus on sustaining and growing existing restaurant sales and profits system-wide, while effectively managing costs. SIR continues to assess changes in the marketplace, including economic conditions and consumer confidence, and has adopted a more cautious stance toward new restaurant openings.
SIR's Q1 2020 filings, which include its unaudited interim consolidated financial statements and management's discussion & analysis, can be accessed via the Fund's profile on the SEDAR website at www.sedar.com under "Other".
About SIR Corp.SIR Corp. ("SIR") is a privately held Canadian corporation that owns a portfolio of 60 restaurants in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 38 locations; Scaddabush Italian Kitchen & Bar® with ten locations; and Canyon Creek®, with five locations. SIR also operates one-of-a-kind "Signature" brands including Reds® Wine Tavern, Reds® Midtown 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 in consideration for a Royalty, payable by SIR to the Partnership, equal to six percent of the revenue of the 58 restaurants (55 operating restaurants and three closed restaurants) currently included in the Royalty Pool. SIR also owns two 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 FundThe 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.
(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, SIR believes that SSS and SSSG are useful measures and provide investors with an indication of the change in year-over-year sales. SIR'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. SSSG is the percentage increase in SSS over the prior comparable period. SSS includes revenue from all SIR restaurants except for those restaurants that were not open for the entire comparable period and Abbey's Bakehouse in Muskoka, Ontario as it is not a SIR Restaurant. When a SIR Restaurant is closed, the revenue for the closed restaurant is excluded from the calculation of SSS and SSSG for both the quarter in which the restaurant is closed and the current year-to-date.
(2) Adjusted Net Earnings (Loss) is calculated by removing the change in amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership from the net earnings (loss) and comprehensive income (loss) for the period. Adjusted Net Earnings (Loss) is a non-GAAP financial measure and does not have a standardized meaning prescribed by IFRS. Management believes that in addition to net earnings (loss) and comprehensive income (loss), Adjusted Net Earnings (Loss) is a useful supplemental measure to evaluate SIR's performance. Changes in the amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership is a non-cash transaction and varies with changes in the market price of the Fund units. The exclusion of the change in amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership 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 SIR's performance. SIR's method of calculating Adjusted Net Earnings (Loss) may differ from the methods used by other issuers. Therefore, SIR's Adjusted Net Earnings (Loss) may not be comparable to similar measures presented by other issuers. For Q1 2020, Adjusted Net Loss of $1.0 million (Q1 2019 - Adjusted Net Earnings of $0.7 million) is equal to the Net Earnings for the period of $33.7 million (Q1 2019 - Net Loss of $10.6 million) minus (plus) the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $34.7 million (Q1 2019 - $11.3 million).
Caution concerning forward-looking statementsCertain 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", "would", "should", "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 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: 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; changes in foreign exchange; 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; accounting policies and practices; 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. 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, Management has assumed that business and economic conditions affecting SIR's restaurants and the Fund will continue substantially in the ordinary course, including without limitation with respect to general industry conditions, competition, general levels of economic activity (including in downtown Toronto), regulations (including those regarding employees, food safety, tobacco and alcohol), weather, taxes, foreign exchange rates and interest rates, that there will be no pandemics or other material outbreaks of disease or safety issues affecting humans or animals or food products, and that there will be no unplanned material changes in its facilities, equipment, customer and employee relations, or credit arrangements. These assumptions, although considered reasonable by Management at the time of preparation, may prove to be incorrect. In particular, Management has assumed that the tax effects on distributions will remain consistent with current regulations or pronouncements, and also in estimating the revenue for new restaurants, Management has assumed that they will operate consistent with other similar SIR restaurants. For more information concerning the Fund's risks and uncertainties, please refer to the March 12, 2019 Annual Information Form, for the year ended December 31, 2018, which is available under the Fund's profile at www.sedar.com.
All of the forward-looking statements made in this report 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.
SOURCE SIR Royalty Income Fund
View original content: http://www.newswire.ca/en/releases/archive/December2019/19/c5697.html
SOURCE: SIR Royalty Income Fund
Jeff Good, Chief Financial Officer, Tel: 905-681-2997; Bruce Wigle, Bay Street Communications, Tel: 647-496-7856