SIR Royalty Income Fund Announces SIR Corp. Fiscal 2012 Second Quarter Results

BURLINGTON, ON, March 28, 2012 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) ("the Fund") today announced that SIR Corp. ("SIR"), the operating entity from which the Fund earns distribution income and interest income, has filed its financial results for the 12-week and 24-week periods ended February 12, 2012 ("Q2 2012" and "YTD", respectively).

SIR has advised the Fund that revenue for Q2 2012 increased 8.6% to $50.1 million from $46.1 million for the same period a year ago. Same store sales⁽¹⁾ ("SSS") for Q2 2012 increased 5.0% compared to the same period a year ago.  SSS⁽¹⁾ for Jack Astor's, SIR's flagship concept restaurant brand, which generated approximately 69% of YTD Fiscal 2012 Pooled Revenue, increased 7.5% and 7.3% during Q2 2012 and YTD, respectively.

Same Store Sales Growth^(1^) ("SSSG")			12-week period ended February 12, 2012 (unaudited)			24-week period ended February 12, 2012 (unaudited)
Jack Astor's®			7.5%			7.3%
Canyon Creek®			0.4%			0.1%
Alice Fazooli's®			(0.9%)			3.4%
Signature Restaurants			0.5%			3.3%
Overall SSSG^(1)			5.0%			5.5%

Net loss for the period attributable to shareholders of SIR for Q2 2012 was $0.2 million compared with $0.3 million for the same period in fiscal 2011. The favourable variance in net loss is due to favourable earnings from corporate restaurant operations, resulting primarily from SSSG⁽¹⁾.

Effective August 29, 2011, SIR elected to adopt Canadian accounting standards for private enterprises (ASPE) as issued by the Canadian Accounting Standards Board and beginning with the first quarter of 2012, SIR is reporting its financial results in accordance with ASPE.  Previously, SIR reported its financial results under Canadian Generally Accepted Accounting Principles.  Financial results for the corresponding period in 2011 have been restated to reflect the adoption of ASPE.

SIR Corporate Development

During Q2 2012, SIR had 47 restaurants open in Canada. During Q1 2012, SIR opened a new Jack Astor's restaurant on Argentia Road in Mississauga, Ontario, which will be added to Royalty Pooled Restaurants on January 1, 2013.  The new Jack Astor's restaurant in London, Ontario, opened on May 2, 2011, was added to Royalty Pooled Restaurants on January 1, 2012.  During Q2 2012, on January 27, 2012, SIR closed the Alice Fazooli's restaurant in Toronto, Ontario. Subsequent to Q2, on February 13, 2012, SIR closed the Jack Astor's restaurant in Kitchener, Ontario. These restaurants will cease to be part of Royalty Pooled Restaurants on January 1, 2013.

During Q1 2012, SIR also completed three Jack Astor's renovations, one at the location in Barrie, Ontario, one at the location on Front Street, in Toronto, Ontario and one at the location in Etobicoke, Ontario.  SIR has secured three additional sites for Jack Astor's, one in Pickering, Ontario, one in Toronto, Ontario and one in Kingston, Ontario.  Two of these restaurants are expected to open in fiscal year 2012, with the other one expected to open in fiscal year 2013.  SIR has also secured two additional sites, at one location, in Toronto, Ontario, with expected opening dates in the second half of fiscal year 2013.  SIR has invested in existing restaurants to ensure that it remains well positioned with modern and relevant concepts.  Management remains focused on maximizing the performance of its restaurants through growth in sales and earnings over time.

Liquidity and Capital Resources

As at February 12, 2012, SIR had cash and cash equivalents of $5.6 million compared with $5.2 million as at August 28, 2011. Cash provided by continuing operations for Q2 2012 and YTD totaled $2.5 million and $2.2 million, respectively, compared with cash provided by continuing operations of $0.8 million for Q2 2011 and cash used in continuing operations of $1.0 million YTD 2011.  The increase in cash provided by operations is primarily due to the favourable change in net earnings from continuing operations of $0.1 million and $1.0 million for Q2 2012 and YTD, respectively.  The increase is also partly due to the net change in working capital items of $1.5 million and $2.0 million for Q2 2012 and YTD, respectively, mainly due to the timing of payments.

Cash used in continuing investing activities for Q2 2012 and YTD was $3.0 million and $4.8 million, compared with $1.4 million and $3.1 million for the same periods in 2011, respectively.  The majority of the capital expenditures in the current year relate to the construction costs incurred for the new Jack Astor's in Mississauga, Ontario that opened in Q1 2012, the other new Jack Astor's expected to open later in fiscal 2012 and the three Jack Astor's renovations that occurred in Q1 2012.  Management expects that the investments in new and existing restaurants and other profit enhancing initiatives, such as new patios and patio expansions, as well as maintenance capital expenditures, will help position SIR to work through this period of weaker economic conditions.

During Q2 2012, on November 25, 2011, SIR entered into a First Amendment to the existing Amended and Restated Loan Agreement with its senior lender ("First Amendment") to extend and make coterminous the terms of the $12.0 million Development Loan and the $26.0 million Term Loan. Under the terms of the First Amendment, the term of the $26.0 million Term Loan was extended from November 13, 2012 to November 14, 2016 and the term of the Development Loan was extended from August 26, 2016 to November 14, 2016. Additionally, under the terms of the First Amendment the variable interest rate of the Term Loan is reduced to the same rate as that of the Development Loan.

Outlook

While the economy is continuing to show some signs of improvement, SIR remains cautious as it believes that the economic conditions may continue to impact its sales and profit prospects in the near future. The Canadian Restaurant and Foodservices Association ("CRFA"), in its 2012 - 2016 Long Term Foodservice Forecast is forecasting that sales in calendar year 2012 and over the next five years, in the full service restaurant industry, will show a modest increase.  SIR continues to focus on sustaining and growing existing restaurant sales and profits while managing costs.  Going forward, SIR continues to carefully monitor the current economic environment and is considering new restaurant growth and renovations. In addition to the five restaurant sites already secured, new restaurant sites will be considered when appropriate and will be subject to availability of long-term financing.

SIR's Q2 2012 filings, which include its unaudited consolidated financial statements and management's discussion & analysis, can be accessed via the Fund's profile on the SEDAR web site at www.sedar.com under "Other".

About SIR Corp.

SIR is a privately held Canadian corporation that owns and operates a portfolio of 46 restaurants in Canada. SIR's concept brands include: Jack Astor's Bar and Grill®, with 31 locations; Alice Fazooli's!®, with four locations; and Canyon Creek Chop House®, with eight locations. SIR also operates one-of-a-kind "signature" brands in downtown Toronto, which comprise the upscale reds®, Far Niente®/FOUR®/Petit Four®, and the Loose Moose Tap & Grill®. All trademarks related to the concept and signature brands noted above are used by SIR under a license 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 47 restaurants currently included in 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 release, 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 Trust, the Partnership, SIR, the SIR Restaurants or industry results, are forward-looking statements. The words "may", "will", "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 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; changing consumer preferences and discretionary spending patterns; changes in consumer confidence; changes in national and local business and economic conditions; 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 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, 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, in estimating the revenue for the new Jack Astor's restaurant added to Royalty Pooled Restaurants on January 1, 2012, Management has assumed that it will operate consistent with other Jack Astor's restaurants.  For more information concerning the Fund's risks and uncertainties, please refer to the October 2004 final prospectus, and/or its March 31, 2011 Annual Information Form, all of which are 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.

¹ Same store sales and same store sales growth exclude revenue from restaurants which are not included in the Royalty pool, and exclude revenue from restaurants opened or closed during the current or prior fiscal year and therefore not open for the full period in both years. Same store sales growth is the percentage increase in SSS over the prior comparable period. SSS and SSSG are non-GAAP measures that do not have standardized meanings prescribed by GAAP. 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.

Jeff Good
Chief Financial Officer
SIR Corp.
5360 South Service Road, Suite 200
Burlington, Ontario, Canada L7L 5L1
Tel: [phone]

Lawrence Chamberlain
Investor Relations
Tel: [phone] ext. 257
Email: [email protected]