SIR Royalty Income Fund Reports 2013 Third Quarter Results

BURLINGTON, ON, Nov. 7, 2013 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the three-month ("Q3 2013") and nine-month ("YTD 2013") periods ended September 30, 2013. All comparisons in the following summary of the Fund's Q3 2013 financial results are to the corresponding period in the prior fiscal year ("Q3 2012"). Percentage calculations are based on the numbers in the financial statements and may not correspond to rounded figures presented in this release.

Q3 2013 Summary

• Net earnings for the Fund increased to $1.9 million, or $0.28 per Fund unit, in Q3 2013, from $1.5 million, or $0.27 per Fund unit, in Q3 2012;
• Pooled Revenue increased 9.9% to $59.4 million as the result of the four additional Royalty Pooled Restaurants and Same Store Sales Growth (SSSG)⁽¹⁾ over the corresponding period in the prior fiscal year;
• SSSG⁽¹⁾ for Royalty Pooled Restaurants was 0.6% in Q3 2013;
• Distributable cash⁽²⁾ per Fund unit (basic and diluted) totalled $0.28, and cash distributed to unitholders in the quarter totalled $0.28, representing a payout ratio⁽²⁾ of 100.3%;
• During Q3 2013, SIR Corp. ("SIR") began testing a variant of the Alice Fazooli's concept called Scaddabush at the Alice Fazooli's Square One location in Mississauga, Ontario.

"SIR is committed to building value for Fund unitholders through investment in our existing restaurants, a constant focus on exceeding the expectations of our guests, and as market conditions permit, opening new restaurants in targeted markets," said Peter Fowler, President and CEO of SIR Corp. "To date in 2013, we have opened four new restaurants in Ontario, including three new Jack Astor's in Kitchener, Toronto and Pickering, and our new REDs Midtown Tavern at the Aura Condominium in downtown Toronto, each of which will be added to the Fund's Royalty Pooled Restaurants in January 2014. Our Signature Group restaurants achieved 26.3% same store sales growth this quarter, driven primarily by the strong performance of our recently renovated and repositioned Reds Wine Tavern and The Loose Moose."

"We remain focused on initiatives to drive performance, including brand innovation and new restaurant openings," continued Mr. Fowler. "During the third quarter, we tested a new concept called Scaddabush Italian Kitchen and Bar at our Square One, Mississauga Alice Fazooli's location. Scaddabush offers our guests a new, refreshing take on Italian dining, and guest response to-date has been very positive. We are now planning the opening of our second Scaddabush Italian Kitchen and Bar at the Aura Condominium, along with our new Signature brand Duke's Refresher and Bar. We look forward to updating our unitholders on these exciting new developments as we advance our plans."

Financial Results

($000s except restaurants and per Unit amounts) (unaudited)		Three-month period ended Sept. 30, 2013		Three-month period ended Sept. 30, 2012		Nine-month period ended Sept. 30, 2013		Nine-month period ended Sept. 30, 2012
Royalty Pooled Restaurants		49		47		49		47
Pooled Revenue generated by SIR		59,353		54,017		176,907		161,427
Royalty income to Partnership - 6% of Pooled Revenue		3,561		3,241		10,614		9,686
Make-Whole Payment^(4)		-		93		-		245
Partnership other income		11		9		31		29
Partnership expenses		(32)		(21)		(81)		(57)
Partnership earnings		3,540		3,322		10,564		9,903
SIR Corp.'s interest (Class A, B, and C GP Units)		(1,591)		(1,987)		(5,011)		(5,922)
Partnership income allocated to Fund		1,949		1,335		5,553		3,981
Interest income		750		750		2,250		2,250
Total income of the Fund		2,699		2,085		7,803		6,231
General & administrative expenses		(94)		(82)		(318)		(289)
Net earnings before income taxes of the Fund		2,605		2,003		7,485		5,942
Income tax expense		(693)		(531)		(2,101)		(1,595)
Net earnings for the period		1,912		1,472		5,384		4,347
Earnings per Fund Unit (basic and diluted)		$0.28		$0.27		$0.82		$0.81

Pooled Revenue increased 9.9% to $59.4 million in Q3 2013, up from $54.0 million in Q3 2012.  As at September 30, 2013, there were 49 restaurants included in Royalty Pooled Restaurants, compared to 47 restaurants included in Royalty Pooled Restaurants as at September 30, 2012.

The Fund's net earnings for Q3 2013 totalled $1.9 million, or $0.28 per Fund Unit (basic and diluted), compared with $1.5 million, or $0.27 per Fund Unit (basic and diluted) for Q3 2012.

Distributable cash⁽²⁾ for Q3 2013 totalled $1.9 million or $0.28 per Fund Unit (basic and diluted), and distributions to Unitholders totalled $1.9 million, representing a payout ratio⁽²⁾ of 100.3% for the quarter.  The Fund's payout ratio⁽²⁾ is intended to average 100% per annum. The payout ratio⁽²⁾ since the Fund's inception, up to and including Q3 2013, is 98.9%.

Distributable Cash⁽²⁾

The following table reconciles the relationship between cash provided by operating activities and distributable cash⁽²⁾:

(in thousands of dollars except per Unit amounts and payout ratio^(2)) (unaudited)				Three-month period ended Sept. 30, 2013		Three-month period ended Sept. 30, 2012		Nine-month period ended Sept. 30, 2013		Nine-month period ended Sept. 30, 2012
Cash provided by operating activities				2,676		1,313		6,312		2,446
Add/(deduct):
	Net change in non-cash working capital items			(96)		(83)		(320)		(943)
	Net change in income tax payable			(679)		16		(941)		2,189
	Net change in distribution receivable from the Partnership			24		237		465		687
Distributable cash^(2)				1,925		1,483		5,516		4,379
Cash distributed for the period				1,931		1,414		5,692^(3)		4,109
Surplus/(shortfall) of distributable cash^(2)				(6)		69		(176)		270
Payout ratio^(2)				100.3%		95.4%		103.2%^(3)		93.8%
Distributable cash^(2) per Fund Unit (basic and diluted)				$0.28		$0.28		$0.84		$0.82

Same Store Sales (SSS)^(1)
SSSG^(1) for Royalty Pooled Restaurants		Three-month period ended Sept. 30, 2013		Three-month period ended Sept. 30, 2012		Nine-month period ended Sept. 30, 2013		Nine-month period ended Sept. 30, 2012
Jack Astor's^®		(0.3%)		4.2%		1.0%		6.4%
Canyon Creek^®		(1.1%)		1.5%		(3.4%)		0.1%
Alice Fazooli's^®/Scaddabush^TM		(7.4%)		(6.0%)		(9.4%)		(3.7%)
Signature Restaurants		26.3%		(12.4%)		18.2%		(6.7%)
Overall SSSG^(1)		0.6%		2.1%		0.9%		3.8%

Jack Astor's, which accounted for approximately 78% of Pooled Revenue in Q3 2013, reported a Same Store Sales decline (SSS)⁽¹⁾ of 0.3% in Q3 2013. The Signature Restaurants generated SSSG⁽¹⁾ of 26.3% in Q3 2013, led by strong contributions from the fully renovated and repositioned Reds Wine Tavern and the recently renovated Loose Moose Tap & Grill. Canyon Creek and Alice Fazooli's reported declines in SSS⁽¹⁾ of 1.1% and 7.4%, respectively, in Q3 2013. During Q3, SIR closed the Alice Fazooli's Square One location in Mississauga, Ontario for renovations lasting 9 days and re-opened the restaurant as Scaddabush. Scaddabush offers guests a new, refreshing take on Italian dining. SIR's Management is committed to enhancing the performance of all Concept and Signature restaurant brands and will continue to build value for Fund unitholders through new restaurant openings and renovations, as market conditions permit.

Corporate Developments
Year-to-date in 2013, SIR has opened four new restaurants in Ontario.  In Q1 2013, SIR opened a new Jack Astor's in Kitchener; in Q2 2013, SIR opened two new Jack Astor's, one in north Toronto and one in Pickering.  Subsequent to Q3 2013, SIR opened a new Signature restaurant, REDS Midtown Tavern, at the site of the new Aura condominium development in Toronto.  These four new restaurants will be added to Royalty Pooled Restaurants on January 1, 2014.

Outlook
SIR Management will continue to monitor economic conditions and consumer confidence and has advised the Fund that it is considering new store growth where appropriate.  Based on its assessment of these conditions, the timing of restaurant construction and opening schedules will be reviewed regularly by SIR Management and adjusted as necessary.

SIR has plans to build five new restaurants, one of which, Duke's Refresher, is expected to open in late 2013. The new Duke's Refresher will be located at the site of the Aura condominium development at Yonge and Gerrard in Toronto, Ontario.  The remaining four new restaurants are planned to open in 2014 and 2015 and include three new Jack Astor's and one new Scaddabush. One of the new Jack Astor's restaurants is planned for St. John's, Newfoundland, a market SIR believes has significant upside due to its rapid economic growth, coupled with its attractive location in the heart of the waterfront.

The Fund's unaudited interim consolidated Financial Statements and Management's Discussion & Analysis ("MD&A"), and the SIR Royalty Limited Partnership's Financial Statements, for the three and nine-month periods ended September 30, 2013, are available via the SEDAR website at www.sedar.com and SIR's website at www.sircorp.com.

(1) 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 fiscal 2013 and fiscal 2012.

(2) 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 three and nine-month periods ended September 30, 2013, which can be accessed via the SEDAR website (www.sedar.com).

(3) Cash distributed to Unitholders for the nine-month period ended September 30, 2013 includes the special year-end distribution of $0.05 per unit or $0.3 million that was declared in December 2012 and paid on January 11, 2013. The payout ratio for the nine-month period ended September 30, 2013 was significantly affected by the special year-end distribution.

(4) The Alice Fazooli's restaurant in Toronto and the Jack Astor's restaurant in Kitchener, Ontario were closed on January 27, 2012 and February 13, 2012, respectively.  Under the terms of the License and Royalty Agreement, SIR was required to pay a Make-Whole Payment for these locations from their dates of closure until December 31, 2012.

About SIR Corp.

SIR is a privately held Canadian corporation that owns and operates a portfolio of 55 restaurants in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 37 locations; Alice Fazooli's® together with Scaddabush™, for a total of 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® Wine Tavern, Reds® Midtown Tavern, Far Niente®/FOUR®/Petit Four®, 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 49 restaurants currently included in the Royalty pool. SIR also owns and operates two seasonal Signature restaurants: Abbey's Bake House™ and Duke's Refresher™, that are not currently 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", "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, 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 28, 2013 Annual Information Form, for the period ended December 31, 2012, 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

Jeff Good
Chief Financial Officer
Tel: [phone]

Bruce Wigle
BMIR Investor Relations
Tel: [phone] ext. 232