SIR Royalty Income Fund Reports 2015 First Quarter Results

BURLINGTON, ON, May 12, 2015 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the quarter ended March 31, 2015 ("Q1 2015"). All comparisons in the following summary are to the quarter ended March 31, 2014 ("Q1 2014"). Percentage calculations are based on the numbers in the financial statements and may not correspond to rounded figures presented in this release.

Q1 2015 Summary

• Net earnings for the Fund were $1.9 million, or $0.26 per Fund unit, up from $1.8 million, or $0.25 per Fund unit, in Q1 2014;
• Pooled Revenue increased 2.0% to $59.3 million, supported by the addition of two Royalty Pooled Restaurants, slightly offset by a decline in Same Store Sales ("SSS")⁽¹⁾;
• A decline in SSS⁽¹⁾ for Royalty Pooled Restaurants of 2.2% primarily attributable to the closure of one Signature restaurant for a period of 40 days during the quarter due to water damage, and a 1.7% decline in SSS⁽¹⁾ at Jack Astor's^®;
• Distributable cash⁽²⁾ per Fund unit (basic and diluted) was $0.26, representing a payout ratio⁽²⁾ of 110.7% as compared to distributable cash per Fund unit (basic and diluted) of $0.25 and a payout ratio of 113.1% in Q1 2014. The payout ratio⁽²⁾ since the Fund's inception, up to and including Q1 2015 is 99.7%;
• SIR Corp. ("SIR") opened a new Jack Astor's in Ottawa, Ontario during the quarter;
• Effective January 1, 2015, two new restaurants were added to Royalty Pooled Restaurants, including one Jack Astor's and one Scaddabush Italian Kitchen & Bar^®; and
• On February 18, 2015 one of SIR's Signature restaurants (Far Niente®/FOUR®/Petit Four®) was temporarily closed for 40 days due to water damage.  The restaurant re-opened on March 30, 2015, following extensive restoration work.

"SIR remains committed to building value for SIR Royalty Income Fund unitholders through the continued expansion of Royalty Pooled Restaurants, investing in restaurant renovations to drive same store sales growth and continuous innovations across all of our brands," said Peter Fowler, President and CEO of SIR Corp.  "In January, we increased the number of restaurants in the Royalty pool to 55 with the addition of one new Jack Astor's and one new Scaddabush Italian Kitchen & Bar. In March of this year, we opened our newest Jack Astor's location in Ottawa, which will be added to Royalty Pooled restaurants effective January 2016."   

"Looking ahead, we currently have plans to build two new Jack Astor's restaurants and one new Scaddabush restaurant, which are scheduled to be completed within the next two years.  Internally, we are focused on improving the performance of all of our restaurants and plan to continue to invest in our Jack Astor's renovation program and the conversion of additional Alice Fazooli's locations into Scaddabush locations," added Mr. Fowler. 

Financial Results

($000s except restaurants and per Unit amounts)		Three-month  period ended Mar. 31, 2015	Three-month  period ended Mar. 31, 2014
Royalty Pooled Restaurants		55	53
Pooled Revenue generated by SIR		59,348	58,173
Royalty income to Partnership – 6% of Pooled Revenue		3,561	3,490
Partnership other income		8	12
Partnership expenses		(17)	(24)
Partnership earnings		3,552	3,478
SIR Corp.'s interest (Class A, B, and C GP Units)		(1,598)	(1,682)
Partnership income allocated to Fund		1,954	1,796
Interest income		750	750
Total income of the Fund		2,704	2,546
General & administrative expenses		(103)	(116)
Net earnings before income taxes of the Fund		2,601	2,430
Income tax expense		(651)	(653)
Net earnings for the period		1,950	1,777
Earnings per Fund Unit (basic and diluted)		$0.26	$0.25

Pooled Revenue increased 2.0% to $59.3 million in Q1 2015, up from $58.2 million in Q1 2014. Increased Pooled Revenue resulted from the two additional restaurants added to the Royalty pool as of January 1, 2015, slightly offset be a decline in SSS⁽¹⁾.

The Fund's net earnings for Q1 2015 totaled $1.9 million, or $0.26 per Fund unit (basic and diluted), compared with $1.8 million, or $0.25 per Fund unit (basic and diluted) for Q1 2014.

Distributable cash⁽²⁾ for Q1 2015 totaled $2.0 million, or $0.26 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.2 million, representing a payout ratio⁽²⁾ of 110.7%. Distributable cash⁽²⁾ for Q1 2014 totaled $1.8 million, or $0.25 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.0 million, representing a payout ratio⁽²⁾ of 113.1%. 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 Q1 2015, the Fund has generated $72.9 million in cumulative distributable cash⁽²⁾ and has paid cumulative cash distributions of $72.6 million, representing a cumulative payout ratio⁽²⁾ (the ratio of cumulative cash distributions paid since inception to cumulative distributable cash generated⁽²⁾) of  99.7%.

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 Mar. 31, 2015	Three-month period ended Mar. 31, 2014
Cash provided by operating activities		2,308	1,741
Add/(deduct):		(444)	(117)
	Net change in non-cash working capital items
	Net change in income tax payable	354	378
	Net change in distribution receivable from the Partnership	(254)	(211)
Distributable cash^(2)		1,964	1,791
Cash distributed for the period		2,173	2,026
Surplus/(shortfall) of distributable cash^(2)		(209)	(235)
Payout ratio^(2)		110.7%	113.1%
Distributable cash^(2) per Fund unit (basic and diluted)		$0.26	$0.25

SSS^(1) for Royalty Pooled Restaurants	Three-month period ended Mar. 31, 2015	Three-month period ended Mar. 31, 2014
Jack Astor's^®	(1.7%)	(1.8%)
Canyon Creek^®	0.7%	1.3%
Alice Fazooli's^®/Scaddabush Italian Kitchen & Bar^®	2.5%	(5.5%)
Signature Restaurants	(11.5%)	7.7%
Overall SSS^(1)	(2.2%)	(0.9%)

Jack Astor's, which generated approximately 73% of the Fund's Pooled Revenue in Q1 2015, experienced a decline in SSS⁽¹⁾ of 1.7% in the quarter. Certain Jack Astor's restaurants located near sporting event venues in downtown Toronto experienced declines in SSS⁽¹⁾ for Q1 2015 over the prior year.  Management is committed to maximizing the performance of all of its restaurants. Alice Fazooli's/Scaddabush and Canyon Creek, generated SSSG⁽¹⁾ of 2.5% and 0.7%, respectively. Alice Fazooli's/Scaddabush SSSG⁽¹⁾ includes Scaddabush at Square One in Mississauga, which again generated strong SSSG⁽¹⁾ in Q1 2015. The Signature Restaurants reported a decline in SSS⁽¹⁾ of 11.5% in Q1 2015, primarily attributable to the closure of Far Niente/FOUR/Petit Four  for 40 days during the quarter due to water damage resulting from a burst pipe. Excluding the SSS decline for Far Niente/FOUR/Petit Four, the Signature Restaurants generated SSSG⁽¹⁾ of 0.8% in the quarter. Excluding the sales of Far Niente/FOUR/Petit Four for the quarter reduces SIR's reported total SSS⁽¹⁾ decline from 2.2% to 1.0%.

Q1 2015 Corporate Developments
On February 18, 2015, Far Niente/FOUR/Petit Four were temporarily closed due to water damage resulting from a burst pipe in the building where these restaurants are located.  The restaurants were re-opened on March 30, 2015, following extensive restoration work.  SIR maintains adequate business interruption insurance to mitigate the risk of such events.

SIR has advised the Fund that it will no longer operate the seasonal Duke's Refresher located in Muskoka, Ontario.  The landlord of this location has decided that they will operate their own restaurant on the premises under its own name and with no association with SIR.  While the operation of this seasonal business was instrumental for SIR in developing the Duke's Refresher brand, not operating this seasonal location in Muskoka, Ontario will not negatively impact SIR's results or cash flows.  As this location was not part of Royalty Pooled Restaurants, this also has no impact on Pooled Revenue, the Partnership or the Fund.

SIR opened a new Jack Astor's on March 24, 2015 in Ottawa, ON, which is expected to be added to Royalty Pooled Restaurants on January 1, 2016.

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 one new Jack Astor's restaurant 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 three-month period ended March 31, 2015, 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 2015 and fiscal 2014. 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 period ended March 31, 2015, which can be accessed via the SEDAR website (www.sedar.com).

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 39 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 one seasonal Signature restaurant: Abbey's Bake House®, 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. 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]