SIR Royalty Income Fund Reports 2015 Fourth Quarter and Year-End Results

BURLINGTON, ON, March 15, 2016 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the fourth quarter ("Q4 2015") and year ended December 31, 2015. 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.

2015 Summary

• On January 1, 2015, one new Jack Astor's® restaurant and one new Scaddabush Italian Kitchen & Bar® ("Scaddabush") were added to the Royalty Pooled Restaurants;
• Net earnings for the Fund were $8.6 million, up from $8.2 million last year. Net earnings per Fund unit were $1.13, consistent with the prior year;
• Pooled Revenue increased 3.8% to $267.6 million, supported by the addition of two new Royalty Pooled Restaurants on January 1, 2015;
• Same Store Sales ("SSS")⁽¹⁾ for Royalty Pooled Restaurants declined by 0.8%;
• 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 two new Jack Astor's® restaurants during 2015, both of which were added to Royalty Pooled Restaurants effective January 1, 2016; and,
• SIR completed the conversion of an existing Alice Fazooli's® restaurant into a Scaddabush and also completed major renovations of three Jack Astor's restaurants.

Q4 2015 Summary

• Net earnings for the Fund were $2.1 million, or $0.28 per Fund unit, consistent with the earnings generated during the three-month period ended December 31, 2014 ("Q4 2014");
• Pooled Revenue increased by 4.9% to $67.2 million, supported by the addition of two new Royalty Pooled Restaurants on January 1, 2015;
• Royalty Pooled Restaurants generated Same Store Sales Growth ("SSSG")⁽¹⁾ of 0.4%; and
• Distributable cash⁽²⁾ per Fund unit (basic and diluted) was $0.28, representing a payout ratio of 102.5%, slightly above the Fund's target annualized payout ratio of 100%. The Fund's payout ratio⁽²⁾ since inception, up to and including Q4 2015, is 99.5%.

"SIR remains committed to investing in new and existing restaurants to drive both Pooled Revenue and same store sales growth in support of growing cash available for distribution," said Peter Fowler, President and CEO of SIR Corp. "We added one Jack Astor's and one Scaddabush restaurant to the Royalty Pool at the beginning of 2015, which contributed to Pooled Revenue growth of 3.8% during the year. We also opened two new Jack Astor's locations in Ottawa, Ontario in 2015, both of which were added to the Royalty Pool, effective January 1, 2016. In addition to expanding our footprint for these popular brands, SIR completed major renovations of three existing Jack Astor's locations and converted one Alice Fazooli's restaurant to a new Scaddabush location."  

"Looking ahead, we will continue to focus on our core value creation initiatives to elevate our restaurant brands and build value for unitholders," continued Mr. Fowler. "With major renovations now completed on three Jack Astor's restaurants, we are currently evaluating a system-wide evolution of Jack Astor's. Building on the continued strong performance of Scaddabush, we plan to convert our remaining two Alice Fazooli's locations to Scaddabush during 2016. Future expansion plans currently include opening two new Scaddabush locations in 2016 and one new Jack Astor's during 2017."

Financial Results

($000s except restaurants and per Unit amounts)		Three-month  period ended Dec. 31, 2015	Three-month  period ended Dec. 31, 2014	12-month  period ended Dec. 31, 2015	12-month  period ended Dec. 31, 2014
Royalty Pooled Restaurants		55	53	55	53
Pooled Revenue generated by SIR Corp.		67,250	64,100	267,601	257,878
Royalty income to Partnership – 6% of Pooled Revenue		4,035	3,846	16,056	15,473
Partnership other income		6	9	27	37
Partnership expenses		(21)	(12)	(77)	(81)
Partnership earnings		4,020	3,843	16,006	15,429
SIR Corp.'s interest (Class A, B, and C GP Units)		(1,799)	(1,639)	(6,921)	(6,838)
Partnership income allocated to Fund		2,221	2,204	9,085	8,591
Interest income		750	750	3,000	3,000
Total income of the Fund		2,971	2,954	12,085	11,591
General & administrative expenses		(93)	(94)	(402)	(409)
Net earnings before income taxes of the Fund		2,878	2,860	11,683	11,182
Income tax expense		(770)	(767)	(3,083)	(2,999)
Net earnings for the period		2,108	2,093	8,600	8,183
Earnings per Fund Unit (basic and diluted)		$0.28	$0.28	$1.13	$1.13

Pooled Revenue for Q4 2015 totaled $67.2 million, an increase of 4.9% from $64.1 million in Q4 2014. Increased Pooled Revenue resulted from the two additional restaurants added to the Royalty Pool as of January 1, 2015. As at December 31, 2015, there were 55 restaurants included in Royalty Pooled Restaurants, compared to 53 restaurants as at December 31, 2014.

The Fund's net earnings for Q4 2015 totaled $2.1 million, or $0.28 per Fund unit (basic and diluted), unchanged from Q4 2014.

Distributable cash⁽²⁾ for Q4 2015 totaled $2.1 million, or $0.28 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.2 million, representing a payout ratio⁽²⁾ of 102.5%. 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%. 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 2015, the Fund has generated $79.6 million in cumulative distributable cash⁽²⁾ and has paid cumulative cash distributions of $79.2 million, representing a cumulative payout ratio⁽²⁾ (the ratio of cumulative cash distributions paid since inception to cumulative distributable cash generated⁽²⁾) of  99.5%.

Distributable Cash⁽²⁾

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

($000s except per unit amounts and payout ratio^(2))		Three-month  period ended Dec. 31, 2015	Three-month  period ended Dec. 31, 2014	12-month  period ended Dec. 31, 2015	12-month  period ended Dec. 31, 2014
Cash provided by operating activities		2,307	2,095	8,891	8,181
Add/(deduct):		83	105	(230)	(214)
	Net change in non-cash working capital items
	Net change in income tax payable	(108)	20	(87)	149
	Net change in distribution receivable from the Partnership	(161)	(113)	79	122
Distributable cash^(2)		2,121	2,107	8,653	8,238
Cash distributed for the period		2,174	2,106	8,693	8,280
Surplus/(shortfall) of distributable cash^(2)		(53)	1	(40)	(42)
Payout ratio^(2)		102.5%	100.0%	100.5%	100.5%
Distributable cash^(2) per Fund unit (basic and diluted)		$0.28	$0.28	$1.13	$1.13

Same Store Sales ("SSS") ⁽¹⁾  

SSS^(1) for Royalty Pooled Restaurants	Three-month  period ended Dec. 31, 2015	Three-month  period ended Dec. 31, 2014	12-month  period ended Dec. 31, 2015	12-month  period ended Dec. 31, 2014
Jack Astor's^®	(0.8%)	3.5%	(1.1%)	1.7%
Canyon Creek^®	0.8%	2.2%	0.2%	1.7%
Scaddabush/Alice Fazooli's^®	7.0%	3.0%	1.9%	1.2%
Signature Restaurants	5.3%	7.1%	(0.4%)	6.1%
Overall SSS^(1)	0.4%	3.6%	(0.8%)	2.0%

Jack Astor's, which generated approximately 72% of the Fund's Pooled Revenue in Q4 2015, reported a decline in SSS⁽¹⁾ of 0.8% in the quarter. SIR management believes that while the success of the Toronto Blue Jays during their playoff run favourably impacted SSS⁽¹⁾ in October 2015, especially in the Jack Astor's restaurants located near the Rogers Centre, an erosion in beverage sales in the latter half of the quarter negatively affected sales growth. SIR management has revised its beverage programs to address this issue. Additionally, SSS⁽¹⁾ for Jack Astor's was negatively impacted by a 16-day closure of the Jack Astor's location in Scarborough, Ontario to allow for a major renovation. Excluding the sales of this location, Jack Astor's generated SSSG⁽¹⁾ of 0.3% in Q4 2015.

Canyon Creek generated SSSG⁽¹⁾ of 0.8% in Q4 2015. Management is currently evaluating a comprehensive plan to improve the long-term performance of all Canyon Creek locations.

Scaddabush, together with Alice Fazooli's, reported SSSG⁽¹⁾ of 7.0% in Q4 2015, primarily due to the strong performance of the Alice Fazooli's locations that have already been converted into the popular Scaddabush brand. SIR has advised the Fund that it plans to convert the remaining two Alice Fazooli's to Scaddabush restaurants in 2016. SIR has further advised that it also plans to build two new Scaddabush restaurants in the Greater Toronto Area during 2016.

The downtown Toronto Signature Restaurants generated SSSG⁽¹⁾ of 5.3% in Q4 2015. Strong SSSG⁽¹⁾ was primarily attributable to increased guest counts at the Loose Moose during October 2015, due to the aforementioned Toronto Blue Jays playoff run, supported by improved performance at Reds Midtown Tavern.

2015 Corporate Developments
During 2015 SIR made the following investments in Royalty Pooled Restaurants:

• Completed major renovations of three Jack Astor's restaurants and the conversion of one Alice Fazooli's location to Scaddabush; and,
• Opened two new Jack Astor's restaurants in Ottawa, Ontario, which were added to the Royalty Pooled Restaurants subsequent to December 31, 2015, effective January 1, 2016.

On July 6, 2015 SIR entered into a new credit agreement (the "Credit Agreement") with a Schedule I Canadian chartered bank (the "Lender"). The Credit Agreement provides a maximum principal amount of $30.0 million, consisting of a $20.0 million revolving term credit facility ("Credit Facility 1") and a $10.0 million revolving term loan ("Credit Facility 2"). SIR and the Lender have also entered into a purchase card agreement providing credit of up to an additional $5.0 million. The previous term loan was repaid by a full draw down of Credit Facility 2 and a partial draw down of Credit Facility 1. The remaining funds available through Credit Facility 1 will be used for general corporate and operating purposes, including capital spending on new and renovated restaurants. The Credit Agreement includes more favourable interest rates on outstanding debt than SIR's prior credit facility and thereby lowers SIR's debt service costs. Further details on the Credit Agreement are available in the Fund's 2015 annual Management's Discussion & Analysis ("MD&A"), Concurrent with the Credit Agreement, SIR announced that Competitive Foods Canada Ltd. acquired 3,190,691 common shares of SIR, representing 26.5% of SIR's common shares on a fully diluted basis, at the time (29.9% of the currently issued and outstanding shares). The share capital was acquired directly and indirectly from certain of the existing minority common shareholders and common share option holders of SIR. Peter Fowler Enterprises Ltd. did not sell any of its holdings in SIR in this transaction and remains the majority shareholder of SIR.

Outlook
SIR continues to monitor economic conditions and consumer confidence and has advised the Fund that it is considering new store developments and renovations to existing restaurants where appropriate. Based on its assessment of these conditions, the timing of new restaurant construction and renovations as well as related opening schedules will be reviewed regularly by SIR and adjusted as necessary. SIR completed major renovations of three Jack Astor's locations and converted one Alice Fazooli's to the popular Scaddabush brand during 2015. SIR has advised the Fund that it is currently evaluating the second system-wide evolution of Jack Astor's and intends to convert the two remaining Alice Fazooli's locations to Scaddabush by the end of 2016.  SIR currently has plans to open two new Scaddabush restaurants in 2016 and one new Jack Astor's restaurant in 2017.

The Fund's consolidated Financial Statements and MD&A, and the Partnership's Financial Statements, for the year ended December 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 two Alice Fazooli's restaurants and two Scaddabush restaurants.

(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 months and year ended December 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 59 restaurants and one seasonal retail outlet in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 40 locations; Scaddabush Italian Kitchen & Bar®, together with Alice Fazooli's®, 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 57 restaurants currently included in the Royalty Pool. SIR also owns and operates Duke's Refresher® & Bar in downtown Toronto, one seasonal Signature restaurant, Abbey's Bake House®, and one seasonal 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. 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 15, 2016 Annual Information Form, for the period ended December 31, 2015, 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]