SIR Royalty Income Fund Reports 2014 Third Quarter Results

BURLINGTON, ON, Nov. 6, 2014 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the three-month ("Q3 2014") and nine-month ("YTD 2014") periods ended September 30, 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.

Q3 2014 Summary

• Net earnings for the Fund were $2.1 million, or $0.29 per Fund unit, up from $1.9 million, or $0.28 per Fund unit, in Q3 2013;
• Pooled Revenue increased 11.9% to $66.4 million supported by the addition of four Royalty Pooled Restaurants on January 1, 2014;
• 3.4% Same Store Sales Growth ("SSSG")⁽¹⁾ for Royalty Pooled Restaurants; and,
• Distributable cash⁽²⁾ per Fund unit (basic and diluted) was $0.29, representing a payout ratio⁽²⁾ of 97.3%.

"Our three multi-unit concept restaurant brands – Jack Astor's®, Canyon Creek® and Alice Fazooli's®/ Scaddabush Italian Kitchen and Bar™ and our Signature restaurants all posted same store sales growth during the third quarter. This reflects both the underlying strength of our brands and our ability to maximize the performance of our restaurants through our investments in innovative renovation and repositioning programs. We are particularly pleased with our ongoing repositioning of Alice Fazooli's. The introduction of our variation on this brand – Scaddabush – has been performing very well. The conversion of our Alice Fazooli's Square One location in Mississauga to a Scaddabush has resulted in same store sales growth⁽¹⁾  of more than 20% for both the third quarter and year-to-date," said Peter Fowler, President and CEO of SIR Corp.  "Stronger same store sales growth⁽¹⁾ have driven an improved payout ratio in the three-month periods ended June 30, 2014 and September 30, 2014 and YTD 2014."

"Looking ahead, we will remain focused on opportunities to continue to drive performance for Fund unitholders. We are currently testing a repositioning program for Canyon Creek at our Burlington location. We look forward to reporting on our progress," continued Mr. Fowler.  "Two additional restaurants are expected to be added to the royalty pool on January 1, 2015, including our new Jack Astor's in St. John's, Newfoundland, and our new Scaddabush location in downtown Toronto. We currently have commitments to lease three additional properties, upon which, we intend to build three new Jack Astor's restaurants, which we expect to open in 2015."

Financial Results

($000s except restaurants and per Unit amounts) (unaudited)		Three-month  period ended Sept. 30, 2014	Three-month  period ended Sept. 30, 2013	Nine-month  period ended Sept. 30, 2014	Nine-month  period ended Sept. 30, 2013
Royalty Pooled Restaurants		53	49	53	49
Pooled Revenue generated by SIR		66,433	59,353	193,777	176,907
Royalty income to Partnership – 6% of Pooled Revenue		3,986	3,561	11,627	10,614
Partnership other income		9	11	28	31
Partnership expenses		(22)	(32)	(69)	(81)
Partnership earnings		3,973	3,540	11,586	10,564
SIR Corp.'s interest (Class A, B, and C GP Units)		(1,740)	(1,591)	(5,199)	(5,011)
Partnership income allocated to Fund		2,233	1,949	6,387	5,553
Interest income		750	750	2,250	2,250
Total income of the Fund		2,983	2,699	8,637	7,803
General & administrative expenses		(90)	(94)	(315)	(318)
Net earnings before income taxes of the Fund		2,893	2,605	8,322	7,485
Income tax expense		(776)	(693)	(2,232)	(2,101)
Net earnings for the period		2,117	1,912	6,090	5,384
Earnings per Fund Unit (basic and diluted)		$0.29	$0.28	$0.85	$0.82

Pooled Revenue increased 11.9% to $66.4 million in Q3 2014, up from $59.4 million in Q3 2013, which is the result of same store sales growth (SSSG)⁽¹⁾ and the four additional restaurants included in the Royalty pool as of January 1, 2014.

The Fund's net earnings for Q3 2014 totaled $2.1 million, or $0.29 per Fund unit (basic and diluted), compared with $1.9 million, or $0.28 per Fund unit (basic and diluted) for Q3 2013.

Distributable cash⁽²⁾ for Q3 2014 totaled $2.1 million, or $0.29 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.1 million, representing a payout ratio⁽²⁾ of 97.3% for the quarter.    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 Q3 2014, the Fund has generated $68,812,000 in cumulative distributable cash⁽²⁾ and has paid cumulative cash distributions of $68,357,000, representing a cumulative payout ratio⁽²⁾ (the ratio of cumulative cash distributions paid since inception to cumulative distributable cash generated⁽²⁾) of  99.3%.

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, 2014	Three-month period ended Sept. 30, 2013	Nine-month period ended Sept. 30, 2014	Nine-month period ended Sept. 30, 2013
Cash provided by operating activities		2,050	2,676	6,086	6,312
Add/(deduct):
	Net change in non-cash working capital items	(92)	(96)	(319)	(320)
	Net change in income tax payable	12	(679)	129	(941)
	Net change in distribution receivable from the Partnership	161	24	235	465
Distributable cash^(2)		2,131	1,925	6,131	5,516
Cash distributed for the period		2,074	1,931	6,173	5,692^(3)
Surplus/(shortfall) of distributable cash^(2)		57	(6)	(42)	(176)
Payout ratio^(2)		97.3%	100.3%	100.7%	103.2%^(3)
Distributable cash^(2) per Fund unit (basic and diluted)		$0.29	$0.28	$0.85	$0.84

Same Store Sales (SSS)⁽¹⁾

SSS^(1) for Royalty Pooled Restaurants		Three-month period ended Sept. 30, 2014	Three-month period ended Sept. 30, 2013	Nine-month period ended Sept. 30, 2014	Nine-month period ended Sept. 30, 2013
Jack Astor's^®		3.0%	(0.3%)	1.1%	1.0%
Canyon Creek^®		1.7%	(1.1%)	1.5%	(3.4%)
Alice Fazooli's^®/Scaddabush
	Italian Kitchen & Bar^®	5.2%	(7.4%)	0.6%	(9.4%)
Signature Restaurants		9.6%	26.3%	5.8%	18.2%
Overall SSS^(1)		3.4%	0.6%	1.4%	0.9%

Jack Astor's, which generated approximately 78% of the Fund's Pooled Revenue in Q3 2014, had Same Store Sales Growth ("SSSG")⁽¹⁾ of 3.0% in the quarter. Alice Fazooli's / Scaddabush and Canyon Creek, generated SSSG of 5.2% and 1.7%, respectively. Alice Fazooli's / Scaddabush SSSG reflects the strong performance of Scaddabush at Square One in Mississauga. The Signature Restaurants reported SSSG of 9.6% in Q3 2014 on top of SSSG of 26.3% in the third quarter a year ago. The strong performance of the Signature Restaurants is primarily attributable to SIR's investment to a renovation program at Loose Moose, as this initiative resulted in significant increases to same store sales.     

Corporate Developments
During the three-month period ended September 30, 2014, SIR completed a renovation at one Canyon Creek restaurant. SIR is encouraged by the initial sales growth and guest feedback. SIR also completed upgrades and expansions to two Jack Astor's patios during the nine-month period ended September 30, 2014. There have been no other significant restaurant renovations during the nine-month period ended September 30, 2014.

Subsequent to Q3 2014, SIR Corp. ("SIR") filed a notice of its intention to convert up to 350,000 of its 2,491,344 Class A GP Units of the SIR Royalty Limited Partnership (the "Partnership") into Fund units and sell these Fund units. The Fund units are expected to be sold privately, and/or through the facilities of the Toronto Stock Exchange or other marketplaces. As a result of SIR exercising its right to convert these Class A GP Units into Fund units, the Fund will issue up to 350,000 Fund units to SIR in exchange for an increased interest in the Partnership. Accordingly, this transaction will not have a dilutive effect on the Fund.

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.

During Q1 2014, SIR opened a new Scaddabush restaurant in Toronto, Ontario. During Q2 2014, SIR opened a new Jack Astor's restaurant in St. John's, Newfoundland. It is expected that these restaurants will be added to Royalty Pooled Restaurants on January 1, 2015.

SIR currently has plans to open three new Jack Astor's restaurants in 2015. The Fund's consolidated Financial Statements and Management's Discussion & Analysis ("MD&A"), and the SIR Royalty Limited Partnership's (the "Partnership") Financial Statements, for the three and nine-month periods ended September 30, 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 nine-month periods ended September 30, 2014, 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 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 nine-month period ended September 30, 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 Chop House®, with eight locations.  SIR also operates "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 53 restaurants currently included in the Royalty pool. SIR also owns and operates a Duke's Refresher™ & Bar in downtown Toronto and two seasonal restaurants: Abbey's Bake House® and Duke's Refresher™, in addition to one seasonal Abbey's Bakehouse retail outlet, which 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", "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, or that it will be entitled to utilize any funds in the blocked account.  Further, there can be no assurances as to whether the offering will occur or as to how many Fund units may be sold or the pricing or timing of such sales.  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, that SIR will be entitled to utilize any funds in its blocked account, and that all of the Fund units will be sold at the planned quantities, prices and timing.. For more information concerning the Fund's risks and uncertainties, please refer to the March 11, 2014 Annual Information Form, for the period ended December 31, 2013, 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]