BURLINGTON, Ont. — SIR Royalty Income Fund (the Fund) reported its financial results for the three-month (Q2 2020) and six-month (YTD 2020) periods ended June 30, 2020 and provided a business update.
Since the date of the Fund’s last financial report, which was filed on June 30, 2020, the COVID-19 pandemic has significantly impacted the operations of SIR Corp. (SIR).
After several months of closures, SIR has now re-opened dining-rooms and outdoor patios at the majority of its Jack Astor’s restaurants, all of its Scaddabush restaurants and some of its Canyon Creek and Signature restaurants, adhering to strict operating procedures and sanitary guidelines to prioritize the safety of its guests and staff. Reduced services and restaurant closures have resulted in material declines to sales at SIR restaurants. Limited capacity re-openings of in-restaurant and outdoor patio dining are expected to continue to result in material year-over-year declines to sales at SIR restaurants.
As a result of the significant decline in sales at SIR restaurants, Pooled Revenue and royalty income in the SIR Royalty Limited Partnership (the Partnership), along with the Fund’s equity income from the Partnership and cash available for distribution to unit holders of the Fund, has decreased significantly. The Partnership has deferred the collection of royalties and the Fund has deferred the collection of interest on the SIR Loan from SIR until August 31, 2020, in order to provide SIR with financial support during the COVID-19 pandemic. On March 23, 2020, the Fund announced that payment of unit-holder distributions is suspended until further notice.
SIR was deemed eligible for the Canada Emergency Wage Subsidy program and as a result, has received a subsidy from the Federal government to partially offset certain of its wage costs starting in mid-March, 2020. The company currently expects to continue to be eligible for this subsidy program through to at least November 21, 2020. SIR permanently closed its Jack Astor’s location in Calgary, Alberta effective July 15, 2020.
“Our second quarter was an exceptionally challenging period, as most of our dine-in operations were closed throughout the entire three-month period due to the COVID-19 pandemic,” says Peter Fowler, CEO of SIR Corp. “Fortunately, the vast majority of our dine-in operations, including all of our Jack Astor’s and Scaddabush restaurants, have subsequently re-opened following the easing of government restrictions. We are adhering to strict health-and-safety protocols at our restaurants to mitigate the spread of COVID-19 and will continue to closely adhere to public-health guidelines to ensure a safe and comfortable environment for our guests and staff. While we can’t predict the future trajectory of the pandemic and related economic conditions, our corporate ownership model enables us to rapidly adjust and optimize our operations based upon prevailing health guidelines and consumer preferences.”
Pooled Revenue in Q2 2020 was $9.6 million, compared to $77.7 million in the three-month period ended June 30, 2019 (“Q2 2019”). The decline in Pooled Revenue in Q2 2020 primarily reflects lower Same Store Sales (SSS), which was attributable to the negative impact of the temporary closure of dine-in operations at SIR restaurants due to the COVID-19 pandemic.
Net earnings in Q2 2020 were impacted by an adjustment to the fair value of the SIR Loan. Net earnings were $1.9 million, or $0.22 per Fund unit (basic and diluted), in Q2 2020, compared to $4.6 million, or $0.55 per Fund unit (basic) and $0.50 (diluted), in Q2 2019. Adjusted net earnings for Q2 2020 were $0.1 million, or $0.02 per Fund unit, compared to $2.6 million, or $0.31 per Fund unit, in Q2 2019.
SIR has advised the Fund that its ability to meet its obligations for the next 12 to 18 months is dependent on its ability to obtain increased and extended financing through further amendments to its credit agreement and the availability of credit under the current credit agreement or other financing sources and/or additional government assistance to aid businesses.
SIR’s ability to meet its obligations for the next 12 to 18 months also depends on, among other factors, the length of the closure of dine-in operations at certain of its restaurants due to COVID-19, the speed at which SIR is able to return to full operating capacity in the near future, Canadian economic conditions after bars and restaurants are able to fully re-open and SIR’s ability to negotiate extended credit terms from its suppliers, including negotiating deferrals of rent obligations over the terms of its leases. SIR’s insurer has denied any business-interruption claims due to COVID-19 closures. However, SIR continues to pursue its claim through legal avenues. There is no assurance this action will be successful.
Limited capacity re-openings of in-restaurant and outdoor patio dining are expected to continue to result in material year-over-year declines to sales at SIR restaurants.