SIR Royalty Income Fund Reports 2017 Fourth Quarter and Year-End Results
BURLINGTON, ON, March 14, 2018 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the fourth quarter ("Q4 2017") and year ended December 31, 2017. 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.
2017 Highlights
- On January 1, 2017, one new Scaddabush® restaurant was added to Royalty Pooled Restaurants.
- Net earnings for the Fund were $9.8 million, or $1.17 per Fund unit, up from $8.9 million, or $1.13 per Fund unit, for the year ended December 31, 2016.
- Pooled Revenue increased to $283.0 million, up 1.8% from $278.0 million in 2016, supported by overall same store sales growth ("SSSG")(1) of 3.0% and the addition of the new Scaddabush restaurant in Scarborough, Ontario to Royalty Pooled Restaurants on January 1, 2017. The increase in Pooled Revenue was partially offset by the closures of: Far Niente®/FOUR®/Petit Four® in Q4 2016, Alice Fazooli's® in Oakville, Ontario in Q1 2017, Alice Fazooli's in Vaughan, Ontario in Q2 2017, and Canyon Creek® in Etobicoke, Ontario in Q4 2017.
- Distributable cash(2) totaled $9.9 million, or $1.18 per Fund unit (basic and diluted), and cash distributed to unitholders totaled $9.7 million, representing a payout ratio(2) of 98.4%. The Fund's target payout ratio is 100% per annum.
- SIR Corp. ("SIR") opened three new Scaddabush restaurants and one new Reds® restaurant in 2017. The new Scaddabush restaurants were opened at the former locations of the two closed Alice Fazooli's restaurants and one closed Canyon Creek restaurant noted above, while the Reds restaurant was opened at a new location at Square One shopping centre in Mississauga, Ontario. The new Scaddabush restaurants in Oakville, Vaughan, and on Front Street in downtown Toronto (opened Q4 2016) were added to Royalty Pooled Restaurants on January 1, 2018. The new Scaddabush restaurant in Etobicoke and the new Reds restaurant in Mississauga will be added to Royalty Pooled Restaurants on January 1, 2019.
- SIR continued its Jack Astor's renovation program in 2017, completing renovations at eight locations.
Q4 2017 Financial Summary
- Net earnings for the Fund were $2.3 million, or $0.28 per Fund unit, up from $2.2 million, or $0.26 per Fund unit, for the three-month period ended December 31, 2016 ("Q4 2016").
- Pooled Revenue increased to $69.5 million, up 3.0% from $67.5 million in Q4 2016, supported by overall SSSG(1) of 4.6% and the addition of one new Scaddabush restaurant to Royalty Pooled Restaurants on January 1, 2017, partially offset by the closures of Far Niente/FOUR/Petit Four, two Alice Fazooli's restaurants, and one Canyon Creek restaurant as noted above.
- The Fund's payout ratio(2) for Q4 2017 was 109.6%, compared to a payout ratio of 101.2% in Q4 2016. The higher payout ratio in Q4 2017 is primarily attributable to the $0.02 per unit special distribution paid to Fund unitholders in December 2017.
"We are pleased with the positive guest reception to our renovated Jack Astor's locations. Since commencing our Jack Astor's renovation program in 2016, we have completed renovations at 16 locations and plan to continue with the program throughout 2018 to drive continued same store sales growth and further elevate our flagship restaurant brand," said Peter Fowler, President and CEO of SIR Corp. "Our Scaddabush brand continues to perform exceptionally well, with strong sales performance at each location. With three new Scaddabush restaurants added to the Royalty Pool at the beginning of 2018, there are now seven Scaddabush locations included in the Royalty Pool. We are excited by the growth prospects for this brand, both for SIR and the Fund."
"Looking ahead, we currently expect to add our new Reds Square One location in Mississauga and our newest Scaddabush restaurant in Etobicoke to the Royalty Pool next January," continued Mr. Fowler. "We remain committed to investing in new and existing restaurants to further strengthen our brands and drive same store sales growth in support of stable and growing cash available for distribution."
Financial Results
| ($000s except restaurants and per |
Three-month |
Three-month |
12-month period ended |
12-month |
| Royalty Pooled Restaurants |
57 |
57 |
57 |
57 |
| Pooled Revenue generated by |
69,528 |
67,534 |
283,034 |
278,035 |
| Royalty income to Partnership – |
4,172 |
4,053 |
16,982 |
16,682 |
| Make-Whole Payment |
67 |
77 |
296 |
77 |
| Total Royalty income to |
4,239 |
4,130 |
17,278 |
16,759 |
| Partnership other income |
6 |
6 |
24 |
24 |
| Partnership expenses |
(17) |
(14) |
(82) |
(64) |
| Partnership earnings |
4,228 |
4,122 |
17,220 |
16,719 |
| SIR Corp.'s interest |
(1,498) |
(1,544) |
(6,169) |
(6,981) |
| Partnership income allocated |
2,730 |
2,578 |
11,051 |
9,738 |
| Interest income |
750 |
750 |
3,000 |
3,000 |
| Total income of the Fund |
3,480 |
3,328 |
14,051 |
12,738 |
| General & administrative |
(101) |
(102) |
(439) |
(410) |
| Net earnings before income |
3,379 |
3,226 |
13,612 |
12,328 |
| Income tax expense |
(1,062) |
(1,016) |
(3,798) |
(3,451) |
| Net earnings for the period |
2,317 |
2,210 |
9,814 |
8,877 |
|
Earnings per Fund Unit (basic and diluted) |
$0.28 |
$0.26 |
$1.17 |
$1.13 |
Pooled Revenue increased 3.0% to $69.5 million in Q4 2017, up from $67.5 million in Q4 2016. The increase resulted from overall SSSG(1) of 4.6% and the addition of one new Scaddabush restaurant to Royalty Pooled Restaurants on January 1, 2017, partially offset by the closure of Far Niente/FOUR/Petit Four in Q4 2016 and the closure of two Alice Fazooli's restaurants and one Canyon Creek restaurant during 2017. SIR made Make-Whole payments to the Fund during 2017 equal to the amount of the royalty that would otherwise be payable from the closed Alice Fazooli's and Canyon Creek restaurants from their effective dates of closure until December 31, 2017.
The Fund's net earnings were $2.3 million, or $0.28 per Fund unit, compared to $2.2 million, or $0.26 per unit, in Q4 2016.
Distributable cash(2) for Q4 2017 totaled $2.3 million, or $0.28 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.6 million, representing a payout ratio(2) of 109.6%. Distributable cash(2) for Q4 2016 totaled $2.4 million, or $0.28 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.4 million, representing a payout ratio(2) of 101.2%. The increased payout ratio(2) in Q4 2017 is primarily the result of the $0.02 per unit special distribution paid to Fund unitholders in December 2017.
Since the Fund's inception in October 2004, up to and including Q4 2017, the Fund has generated $98.5 million in cumulative distributable cash(2) and has paid cumulative cash distributions of $97.9 million, representing a cumulative payout ratio(2) (the ratio of cumulative cash distributions paid since inception to cumulative distributable cash generated) 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 (unaudited) |
Three-month period ended December 31, |
Three-month period ended December 31, |
12-month period ended December 31, |
12-month period ended December 31, |
|
| Cash provided by operating activities |
2,596 |
2,214 |
9,748 |
8,643 |
|
| Add/(deduct): |
|||||
| Net change in non-cash working |
571 |
482 |
217 |
(60) |
|
| Net change in income tax payable |
(228) |
(93) |
(311) |
285 |
|
| Net change in distribution receivable |
(608) |
(245) |
216 |
194 |
|
| Distributable cash(2) |
2,331 |
2,358 |
9,870 |
9,062 |
|
| Cash distributed for the period |
2,555 |
2,388 |
9,716 |
8,978 |
|
| Surplus (shortfall) of distributable cash(2) |
(224) |
(30) |
154 |
84 |
|
| Payout ratio(2) |
109.6% |
101.2% |
98.4% |
99.1% |
|
| Distributable cash(2) per Fund unit |
$0.28 |
$0.28 |
$1.18 |
$1.15 |
|
Same Store Sales Growth ("SSSG") (1)
| SSSG(1) for Royalty Pooled |
Three-month December 31, |
Three-month December 31, |
12-month December 31, |
12-month December 31, |
| Jack Astor's |
5.5% |
(1.2%) |
2.5% |
(0.2%) |
| Canyon Creek |
1.5% |
(2.0%) |
1.8% |
0.6% |
| Scaddabush |
10.6% |
7.3% |
13.1% |
12.7% |
| Signature Restaurants |
(5.4%) |
5.7% |
1.0% |
11.7% |
| Overall SSS(1) |
4.6% |
(0.1%) |
3.0% |
1.6% |
Jack Astor's, which accounted for approximately 75% of Pooled Revenue in Q4 2017, generated SSSG(1) of 5.5% in Q4 2017, reflecting the improved sales performance at certain locations that were renovated in 2016 and 2017, and the continued benefit from a major nationwide media marketing campaign during Q3 2017. Beverage sales increased at certain renovated locations as SIR implemented enhanced beverage programs as part of its renovation program, including the rollout of a new craft beer program during Q4 2017. SIR completed renovations at two Jack Astor's locations in London, Ontario during Q4 2017, which resulted in the closure of these locations for a combined total of 15 days in the quarter, compared to the closure of four Jack Astor's locations for renovations for a combined total of 25 days in Q4 2016. Jack Astor's locations near the Air Canada Centre and Rogers Centre in Toronto were negatively impacted by a decrease in event overall attendance in Q4 2017 compared to Q4 2016.
Canyon Creek had SSSG(1) of 1.5% in Q4 2017. Sales from the Canyon Creek location in Etobicoke, Ontario, which faced a competitive intrusion and was permanently closed effective October 15, 2017, are excluded from this calculation. SIR opened a new Scaddabush restaurant at this location on November 28, 2017.
Scaddabush generated SSSG(1) of 10.6% in Q4 2017, reflecting the continued strong performance of this brand. Scaddabush SSSG(1) performance for Q4 2017 includes three locations (Richmond Hill and Mississauga, Ontario, and Yonge and Gerrard in downtown Toronto). The new Scaddabush locations in Scarborough, Oakville and Vaughan, Ontario and on Front Street in downtown Toronto are excluded from the calculation of SSSG(1), since they were not open for the entire comparable periods in 2017 and 2016. SIR is pleased with the strong sales performance of each of the Scaddabush locations.
The downtown Toronto Signature Restaurants had a SSS(1) percentage decline of 5.4% in Q4 2017 which was primarily attributable to lower overall event attendance at the Air Canada Centre and Rogers Centre in Q4 2017 relative to Q4 2016, which negatively impacted the sales performance of the Loose Moose Tap & Grill®.
Outlook
SIR continues to monitor economic conditions, competitive actions, and consumer confidence. SIR has advised the Fund that it is considering new restaurant developments and renovations to existing restaurants where appropriate. The rate of growth will be impacted by ongoing earnings from current operations and is subject to the availability of acceptable long-term financing. Based on SIR's 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.
The Ontario government has passed legislation that raised Ontario's general minimum wage on January 1, 2018 and will raise it again on January 1, 2019, followed by annual increases at the rate of inflation. These changes materially increase the cost of hourly labour at the majority of SIR's restaurants. SIR's Management is evaluating alternatives to offset the impact of these increases in an effort to reduce the price increases that otherwise may have to be implemented to mitigate anticipated cost increases.
In support of driving growth in Royalty Pooled Revenue and/or SSSG(1)
- SIR commenced a Jack Astor's renovation program in 2016, completing renovations at six Jack Astor's locations in 2016, eight Jack Astor's locations in 2017, and two additional locations to date in 2018. SIR is pleased with the performance of the renovated Jack Astor's locations and intends to implement similar renovations at other Jack Astor's locations in the future.
- SIR has now completed the system-wide conversion of its Alice Fazooli's concept brand into the more popular Scaddabush concept brand. There are currently seven Scaddabush locations in the Royalty Pool (four former Alice Fazooli's locations and three new Scaddabush locations). Scaddabush has generated exceptional sales performance at each location to date, and SIR and the Fund should benefit from the strong revenue contributions from Scaddabush going forward. SIR's eighth Scaddabush location in Etobicoke will be added to Royalty Pooled Restaurants on January 1, 2019.
- The new Reds restaurant at the Square One shopping centre in Mississauga, Ontario will be added to Royalty Pooled Restaurants on January 1, 2019.
The Fund's consolidated audited Financial Statements and MD&A, and the Partnership's Financial Statements, for the 12-month period ended December 31, 2017, 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 2017 and fiscal 2016. SSSG is the percentage increase in SSS over the prior comparable period.
(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 year ended December 31, 2017, 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 61 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®, with eight locations; and Canyon Creek®, with seven locations. SIR also operates one-of-a-kind "Signature" brands in downtown Toronto, including Reds® Wine Tavern, Reds® Midtown Tavern, Reds® Square One 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 Bakehouse®, 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, including the cost and/or availability of labour as it relates to changes in minimum wage rates or other changes to labour legislation; 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. Recent changes in employment law, including announced increases in minimum wage, are factored into management's assumptions. 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 14, 2018 Annual Information Form, for the period ended December 31, 2017, 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: 905-681-2997; Bruce Wigle, Bay Street Communications, Tel: 647-496-7856
Share this article