SIR Royalty Income Fund Reports 2014 Fourth Quarter and Year End Results

BURLINGTON, ON, March 18, 2015 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the quarter ("Q4 2014") and year ended December 31, 2014. All comparisons in the following summary are to the corresponding periods in the prior fiscal year. Percentage calculations are based on the numbers in the financial statements and may not correspond to rounded figures presented in this release.

2014 Highlights

• On January 1, 2014, four new restaurants were added to Royalty Pooled Restaurants, including three Jack Astor's^® and Reds® Midtown Tavern;
• Net earnings for the Fund were $8.2 million, or $1.13 per Fund unit, up from $7.1 million, or $1.08 per Fund unit, in 2013;
• Pooled Revenue increased 9.9% to $257.9 million supported by the addition of four Royalty Pooled Restaurants on January 1, 2014 and growth in same store sales ("SSS")⁽¹⁾;
• 2.0% Same Store Sales Growth ("SSSG")⁽¹⁾ for Royalty Pooled Restaurants;
• Distributable cash⁽²⁾ per Fund unit (basic and diluted) was $1.13, representing a payout ratio⁽²⁾ of 100.5%, slightly above the Fund's target payout ratio of 100%;
• SIR Corp. ("SIR") opened one new Jack Astor's® restaurant and one new Scaddabush Italian Kitchen & Bar® during 2014, which were added to Royalty Pooled Restaurants effective January 1, 2015; and,
• SIR completed a renovation at one Canyon Creek location during 2014 and completed upgrades and expansions to two Jack Astor's patios.

Q4 2014 Highlights

• Net earnings for the Fund were $2.1 million, or $0.28 per Fund unit, up from $1.7 million, or $0.26 per Fund unit, in Q4 2013;
• Pooled Revenue increased 11.0% to $64.1 million supported by the addition of four Royalty Pooled Restaurants as well as growth in SSS⁽¹⁾;
• 3.6% SSSG⁽¹⁾ for Royalty Pooled Restaurants; and,
• Distributable cash⁽²⁾ per Fund unit (basic and diluted) was $0.28, representing a payout ratio⁽²⁾ of 100.0%.

"SIR continues to demonstrate its commitment to build value for SIR Royalty Income Fund unitholders through the addition of new restaurants to the Royalty pool and ongoing investments in restaurant renovations and enhancements to drive same store sales growth," said Peter Fowler, President and CEO of SIR Corp. "Four new restaurants were added to the Royalty pool at the beginning of 2014 and during the year, we opened two more restaurants that were subsequently added to the Royalty pool, including a new Jack Astor's in St. John's, Newfoundland and a new Scaddabush in downtown Toronto. Our Jack Astor's in St. John's is our first location in the province and we are very pleased with our reception in this new market. Our new Scaddabush is our second location for this popular new SIR brand. We also completed renovations at our Canyon Creek in Burlington in 2014, which our guests have reacted very favourably to."

"Our focus on expansion of Royalty Pooled Restaurants and investing in restaurant renovations and continuous innovation system-wide, has resulted in 11% Pooled Revenue growth and 3.6%  same store sales growth in the fourth quarter of 2014. This growth has resulted in an improved payout ratio for the Fund in both the fourth quarter and year ended December 31, 2014, compared to the corresponding periods a year ago," added Mr. Fowler. "Looking ahead, SIR will continue to focus on these core value creation initiatives. We currently have commitments to lease four additional properties, upon which, we intend to build three new Jack Astor's restaurants and one new Scaddabush restaurant. We expect to open two of these restaurants in 2015 and the other two in 2016. Our Jack Astor's renovation program and the conversion of our Alice Fazooli's locations into Scaddabush locations will continue in 2015."

Financial Results

($000s except restaurants and per Unit amounts)		Three-month  period ended Dec. 31, 2014	Three-month  period ended Dec. 31, 2013	12-month period ended Dec. 31, 2014	12-month period ended Dec. 31, 2013
Royalty Pooled Restaurants		53	49	53	49
Pooled Revenue generated by SIR		64,100	57,760	257,878	234,667
Royalty income to Partnership – 6% of Pooled Revenue		3,846	3,466	15,473	14,080
Partnership other income		9	12	37	43
Partnership expenses		(12)	(18)	(81)	(99)
Partnership earnings		3,843	3,460	15,429	14,024
SIR Corp.'s interest (Class A, B, and C GP Units)		(1,639)	(1,698)	(6,838)	(6,709)
Partnership income allocated to Fund		2,204	1,762	8,591	7,315
Interest income		750	750	3,000	3,000
Total income of the Fund		2,954	2,512	11,591	10,315
General & administrative expenses		(94)	(100)	(409)	(417)
Net earnings before income taxes of the Fund		2,860	2,412	11,182	9,898
Income tax expense		(767)	(675)	(2,999)	(2,777)
Net earnings for the period		2,093	1,737	8,183	7,121
Earnings per Fund Unit (basic and diluted)		$0.28	$0.26	$1.13	$1.08

Pooled Revenue increased 11.0% to $64.1 million in Q4 2014, up from $57.8 million in Q4 2013. Increased Pooled Revenue resulted from SSSG⁽¹⁾ and the four additional restaurants added to the Royalty pool as of January 1, 2014.

The Fund's net earnings for Q4 2014 totaled $2.1 million, or $0.28 per Fund unit (basic and diluted), compared with $1.7 million, or $0.26 per Fund unit (basic and diluted) for Q4 2013.

Distributable cash⁽²⁾ for Q4 2014 totaled $2.1 million, or $0.28 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.1 million, representing a payout ratio⁽²⁾ of 100.0%. Distributable cash⁽²⁾ for Q4 2013 totaled $1.8 million, or $0.26 per Fund unit (basic and diluted), and distributions to Unitholders totaled $1.9 million, representing a payout ratio⁽²⁾ of 110.2%. The Fund's payout ratio⁽²⁾ is intended to average 100% per annum. Since the Fund's inception in October 2004 up to and including Q4 2014, the Fund has generated $70.9 million in cumulative distributable cash⁽²⁾ and has paid cumulative cash distributions of $70.5 million, representing a cumulative payout ratio⁽²⁾ (the ratio of cumulative cash distributions paid since inception to cumulative distributable cash generated⁽²⁾) of  99.4%.

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))			Three-month period ended Dec. 31, 2014	Three-month period ended Dec. 31, 2013	12-month period ended Dec. 31, 2014	12-month period ended Dec. 31, 2013
Cash provided by operating activities			2,095	1,571	8,181	7,884
Add/(deduct):
		Net change in non-cash working capital items	105	149	(214)	(171)
		Net change in income tax payable	20	398	149	(543)
		Net change in distribution receivable from the Partnership	(113)	(365)	122	99
Distributable cash^(2)			2,107	1,753	8,238	7,269
Cash distributed for the period			2,106	1,931	8,280	7,624^(3)
Surplus/(shortfall) of distributable cash^(2)			1	(178)	(42)	(355)
Payout ratio^(2)			100.0%	110.2%	100.5%	104.9%^(3)
Distributable cash^(2) per Fund unit (basic and diluted)			$0.28	$0.26	$1.13	$1.10

SSS^(1) for Royalty Pooled Restaurants	Three-month period ended Dec. 31, 2014	Three-month period ended Dec. 31, 2013	12-month period ended Dec. 31, 2014	12-month period ended Dec. 31, 2013
Jack Astor's^®	3.5%	(0.8%)	1.7%	0.6%
Canyon Creek^®	2.2%	(2.7%)	1.7%	(3.2%)
Alice Fazooli's^®/Scaddabush Italian Kitchen & Bar^®	3.0%	(10.1%)	1.2%	(9.6%)
Signature Restaurants	7.1%	4.8%	6.1%	14.3%
Overall SSS^(1)	3.6%	(1.3%)	2.0%	0.4%

Jack Astor's, which generated approximately 73% of the Fund's Pooled Revenue in Q4 2014, had SSSG⁽¹⁾ of 3.5% in the quarter. Alice Fazooli's / Scaddabush and Canyon Creek, generated SSSG of 3.0% and 2.2%, respectively. Alice Fazooli's / Scaddabush SSSG reflects the strong performance of Scaddabush at Square One in Mississauga, which generated SSSG of 14.4% in Q4 2014. The Signature Restaurants reported SSSG of 7.1% in Q4 2014.

2014 Corporate Developments
During 2014, SIR made the following investments in Royalty Pooled Restaurants:

• Completed a renovation at Canyon Creek in Burlington;
• Completed upgrades and expansions to two Jack Astor's patios;
• Opened a second Scaddabush location in downtown Toronto (February 2014), which was added to Royalty Pooled Restaurants subsequent to December 31, 2014, effective January 1, 2015; and,  
• Opened a new Jack Astor's restaurant in St. John's, Newfoundland (June 2014), in the heart of the city's historic waterfront district, which was added to Royalty Pooled Restaurants subsequent to December 31, 2014, effective January 1, 2015.

During 2014, SIR converted 850,000 Class A GP Units of the SIR Royalty Limited Partnership ("Partnership") into 850,000 Fund units, and then sold the Fund units generating gross proceeds of approximately $11.4 million. The Class A GP Units received by the Fund were converted to Class A LP Units, which are entitled to a pro rata share of the residual income of the Partnership. Accordingly, these transactions did not have a dilutive effect on the Fund. SIR has used, or intends to use, proceeds from its sale of Fund units to help fund restaurant renovations and expansion. As a result of the conversion of 850,000 Class A GP Units into Fund units, SIR's retained interest in the residual earnings of the Partnership was 21.9% as at December 31, 2014. After adding two new restaurants to the Royalty pool and the Second Incremental Adjustment for the four new restaurants added to the Royalty pool on January 1, 2014, effective January 1, 2015, SIR retained a 24.6% interest in the Partnership.

SIR advised the Fund in 2014 that Duke's Refresher™ should be considered as a potential New Concept Restaurant brand. As such, the earliest that any Duke's Refresher would be added to the Royalty pool would be the Adjustment Date following the earlier of: (i) the date that four Duke's Refresher restaurants are open for business at the same time, and (ii) 90 days following the end of the fiscal year in which revenues from all Duke's Refresher restaurants in Canada first exceed $12.0 million.   The Duke's Refresher brand is currently being managed and developed by SIR's Signature Restaurants group. 

Subsequent to December 31, 2014, on February 18, 2015, one of SIR's Signature brand restaurants was temporarily closed due to significant water damage. The restoration is anticipated to be completed by the end of March and the restaurant will re-open soon thereafter. SIR maintains business interruption insurance to mitigate the risk of such events.

Outlook
SIR continues to monitor economic conditions and consumer confidence and has advised the Fund that it is considering new store development where appropriate.  Based on its assessment of these conditions, the timing of restaurant construction and opening schedules will be reviewed regularly by SIR and adjusted as necessary. SIR currently has plans to open two new Jack Astor's restaurants in 2015 and one in 2016. SIR also plans to open a new Scaddabush restaurant in Toronto in 2016.

The Fund's consolidated Financial Statements and Management's Discussion & Analysis ("MD&A"), and the Partnership's Financial Statements, for the year ended December 31, 2014, 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 2014 and fiscal 2013 as well as the seasonal Duke's Refresher™ and Abbey's BakeHouse® both located in Muskoka, Ontario. SSS for Alice Fazooli's includes three Alice Fazooli's restaurants and one Scaddabush restaurant, representing the Square One location in Mississauga, Ontario, which was renovated and re-opened as Scaddabush on July 23, 2013.

(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-month and twelve-month periods ended December 31, 2014, which can be accessed via the SEDAR website (www.sedar.com).

(3) Cash distributed to Unitholders for the twelve-month period ended December 31, 2013 includes the special 2012 year-end distribution of $0.05 per unit, or $0.3 million that was declared in December 2012 and paid in January 2013. The payout ratio for the twelve-month period ended December 31, 2013 was significantly affected by the special 2012 year-end distribution.

About SIR Corp.
SIR is a privately held Canadian corporation that owns and operates a portfolio of 58 restaurants in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 38 locations; Alice Fazooli's® together with Scaddabush Italian Kitchen & Bar®, for a total of five locations; and Canyon Creek®, with eight locations.  SIR also operates one-of-a-kind "Signature" brands in downtown Toronto, including 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 55 restaurants currently included in the Royalty Pool. SIR also owns and operates Dukes Refresher™ & Bar in downtown Toronto and two seasonal Signature restaurants: Abbey's Bake House® and Duke's Refresher™, which are not 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", "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: 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; 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.  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, 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, and has assumed that SIR will remain compliant in the future with all of its financial covenants under the Credit Agreement and imposed by the lender. For more information concerning the Fund's risks and uncertainties, please refer to the March 18, 2015 Annual Information Form, for the period ended December 31, 2014, which is available under the Fund's profile at www.sedar.com.

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.

SOURCE SIR Royalty Income Fund

Jeff Good, Chief Financial Officer, Tel: [phone]; Bruce Wigle, Bay Street Communications, Tel: [phone]