SIR Royalty Income Fund Reports 2017 Third Quarter Results
BURLINGTON, ON, Nov. 9, 2017 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the three-month ("Q3 2017") and nine-month ("YTD 2017") periods ended September 30, 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.
Q3 2017 Highlights
- Net earnings for the Fund were $2.6 million, or $0.31 per Fund unit, compared to $2.4 million, or $0.30 per Fund unit, for the three-month period ended September 30, 2016 ("Q3 2016").
- Pooled Revenue increased to $74.6 million, up 2.9% from $72.5 million in Q3 2016, supported by overall same store sales growth ("SSSG")(1) of 3.9% 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 2016, Alice Fazooli's® in Oakville, Ontario in Q1 2017, and Alice Fazooli's in Vaughan, Ontario in Q2 2017.
- Distributable cash(2) totaled $2.6 million, or $0.31 per Fund unit (basic and diluted), and cash distributed to unitholders totaled $2.4 million, representing a payout ratio(2) of 92.0%. The Fund's target payout ratio is 100% per annum.
- SIR Corp. ("SIR") completed renovations at one Jack Astor's® restaurant during the quarter, bringing the total number of Jack Astor's renovations completed to six in YTD 2017.
- SIR opened a new Scaddabush restaurant in Vaughan, Ontario during the quarter, which will be added to Royalty Pooled Restaurants on January 1, 2018, along with two other new Scaddabush locations (Oakville, Ontario and Front Street in downtown Toronto).
"SIR Corp. continues to invest in renovating its Jack Astor's locations to drive same store sales growth. We completed one additional renovation in the third quarter, bringing the total number of restaurant renovations to 12 since the beginning of 2016. We are pleased with the favourable guest reception to our comprehensive renovation program and plan to continue the program into 2018. We have also invested in expanding our popular Scaddabush brand, with three new locations opened to date in 2017 and one additional location expected to open prior to year-end. The three new Scaddabush locations now in operation will be added to the Fund's Royalty Pool in January 2018," said Peter Fowler, President and CEO of SIR Corp. "We expect the combination of our ongoing comprehensive renovation program to our flagship Jack Astor's brand and the expansion of our highly popular Scaddabush brand to drive improved sales performance and enhanced value for Fund unitholders."
Q3 2017 Financial Results Summary
| ($000s except restaurants and per Unit amounts) (unaudited) |
Three-month |
Three-month |
Nine-month |
Nine-month |
|
| Royalty Pooled Restaurants |
57 |
57 |
57 |
57 |
|
| Pooled Revenue generated by SIR Corp. |
74,555 |
72,489 |
213,506 |
210,501 |
|
| Royalty income to Partnership – |
4,473 |
4,349 |
12,811 |
12,630 |
|
| Make-Whole Payment |
-- |
-- |
229 |
-- |
|
| Total Royalty income to |
4,473 |
4,349 |
13,040 |
12,630 |
|
| Partnership other income |
6 |
6 |
18 |
18 |
|
| Partnership expenses |
(21) |
(20) |
(66) |
(51) |
|
| Partnership earnings |
4,458 |
4,335 |
12,992 |
12,597 |
|
| SIR Corp.'s interest |
(1,583) |
(1,768) |
(4,671) |
(5,437) |
|
| Partnership income allocated to Fund |
2,875 |
2,567 |
8,321 |
7,160 |
|
| Interest income |
750 |
750 |
2,250 |
2,250 |
|
| Total income of the Fund |
3,625 |
3,317 |
10,571 |
9,410 |
|
| General & administrative expenses |
(103) |
(99) |
(338) |
(309) |
|
| Net earnings before income taxes of the Fund |
3,522 |
3,218 |
10,233 |
9,101 |
|
| Income tax expense |
(941) |
(860) |
(2,736) |
(2,434) |
|
| Net earnings for the period |
2,581 |
2,358 |
7,497 |
6,667 |
|
| Earnings per Fund Unit (basic) |
$0.31 |
$0.30 |
$0.90 |
$0.86 |
Pooled Revenue increased 2.9% to $74.6 million in Q3 2017, up from $72.5 million in Q3 2016. The increase resulted from overall SSSG(1) of 3.9% in the quarter and the addition of the Scaddabush restaurant in Scarborough, Ontario to the Royalty Pool on January 1, 2017. This was partially offset by the removal of Far Niente/FOUR/Petit Four from the Royalty Pool on January 1, 2017 after its closure in 2016, and the closures of the Alice Fazooli's locations in Oakville and Vaughan, Ontario in Q1 2017 and Q2 2017, respectively. Although these closed Alice Fazooli's restaurants no longer contribute to Pooled Revenue, a Make-Whole payment was made by SIR to the Fund during Q2 2017 equal to the amount of the royalty that would otherwise be payable from their effective dates of closure until December 31, 2017.
A new Scaddabush restaurant was opened in Vaughan, Ontario during Q3 2017. Both this location, and the new Scaddabush restaurant opened in Oakville, Ontario during Q2 2017, will be treated as New Additional Restaurants and will be added to Royalty Pooled Restaurants on January 1, 2018, along with the Scaddabush on Front Street in downtown Toronto that was opened in the fourth quarter of 2016.
The Fund's net earnings were $2.6 million in Q3 2017, or $0.31 per Fund unit (basic and diluted), compared to $2.4 million, or $0.30 per Fund unit (basic and diluted), in Q3 2016.
Distributable cash(2) for Q3 2017 totaled $2.6 million, or $0.31 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.4 million, representing a payout ratio(2) of 92.0% for the quarter. Distributable cash(2) for Q3 2016 totaled $2.4 million, or $0.30 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.2 million, representing a payout ratio(2) of 94.7%.
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 2017, the Fund has generated $96.2 million in cumulative distributable cash and has paid cumulative cash distributions of $95.3 million, representing a cumulative payout ratio (the ratio of cumulative cash distributions paid since inception to cumulative distributable cash generated) of 99.1%.
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 (unaudited) |
Three-month period ended September 30, |
Three-month period ended |
Nine-month |
Nine-month |
||
| Cash provided by operating activities |
2,429 |
2,484 |
7,152 |
6,429 |
||
| Add/(deduct): |
||||||
| Net change in non-cash working capital items |
(102) |
(358) |
(354) |
(542) |
||
| Net change in income tax payable |
(108) |
(17) |
(83) |
378 |
||
| Net change in distribution receivable from the Partnership |
376 |
262 |
824 |
439 |
||
| Distributable cash(2) |
2,595 |
2,371 |
7,539 |
6,704 |
||
| Cash distributed for the period |
2,387 |
2,244 |
7,161 |
6,591 |
||
| Surplus of distributable cash(2) |
208 |
127 |
378 |
113 |
||
| Payout ratio(2) |
92.0% |
94.7% |
95.0% |
98.3% |
||
| Distributable cash(2) per Fund unit |
$0.31 |
$0.30 |
$0.90 |
$0.87 |
||
Same Store Sales ("SSS") (1)
| SSS(1) for the Royalty (unaudited) |
Three-month |
Three-month |
Nine-month |
Nine-month |
|
| Jack Astor's |
3.8% |
(1.2%) |
1.6% |
0.1% |
|
| Canyon Creek |
1.3% |
(2.4%) |
(0.1%) |
1.6% |
|
| Scaddabush |
15.7% |
14.9% |
14.0% |
14.7% |
|
| Signature Restaurants |
(2.9%) |
13.6% |
3.2% |
14.7% |
|
| Overall SSSG(1) |
3.9% |
0.9% |
2.3% |
2.4% |
Overall SSS(1) increased 3.9% in Q3 2017, and 2.3% in YTD 2017, compared to the corresponding periods in the prior year. Jack Astor's, which generated approximately 77% of Pooled Revenue in Q3 2017, generated SSSG(1) of 3.8% in the quarter and 1.6% for YTD 2017. This was primarily due to improved sales performance at certain locations that have been recently renovated, including beverage sales at these locations, as SIR has implemented enhanced beverage programs as part of its renovation program. Q3 2017 sales were also positively impacted by a major nationwide media marketing campaign during the quarter. During Q3 2017, SIR completed renovations at the Jack Astor's location in Dartmouth, Nova Scotia. This location was closed for a total of nine days in the quarter, compared to the closure of one Jack Astor's for renovations in Q3 2016 for five days. Jack Astor's SSS(1) performance continues to be impacted by two Jack Astor's restaurants affected by their weakened local economies (Jack Astor's in Calgary, Alberta and Jack Astor's in St. John's, Newfoundland). In addition to the aforementioned factors impacting Q3 2017 SSS(1), YTD 2017 SSSG(1) was impacted by the closure of five other Jack Astor's closures for renovations. These locations were closed for a combined total of 55 days. The location on Front Street in downtown Toronto, one of SIR's highest volume Jack Astor's locations, completed a renovation that was more extensive than other locations, resulting in a longer than normal closure. This location was closed for 20 days in Q2 2017. SIR plans to continue with renovations at additional Jack Astor's to drive SSSG(1).
Canyon Creek® generated SSSG(1) of 1.3% in Q3 2017 and had a decline in SSS(1) of 0.1% in YTD 2017. The Q3 2017 SSSG(1) is primarily the result of the downtown Toronto Canyon Creek location benefiting from a local marketing campaign during the quarter, as well as improved sales performance at certain locations outside downtown Toronto. The SSS(1) decline in YTD 2017 was primarily due to a significant competitive intrusion at one of the eight Canyon Creek locations, which had a decline in SSS(1) of 12.4% in YTD 2017. Subsequent to Q3 2017, effective October 15, 2017, this particular location in Etobicoke, Ontario was permanently closed. SIR plans to open a new Scaddabush at this location prior to the end of 2017.
Scaddabush SSSG(1) performance for Q3 2017 includes three Scaddabush locations (Richmond Hill, Ontario, Mississauga, Ontario and Yonge and Gerrard in downtown Toronto). Scaddabush generated SSSG(1) of 15.7% and 14.0% in Q3 2017 and YTD 2017, respectively, reflecting the continued strong performance of the Scaddabush brand. During Q1 2017, effective March 19, 2017, SIR permanently closed the Alice Fazooli's location in Oakville, Ontario and opened a new Scaddabush restaurant at this location at the beginning of Q2 2017 on April 5, 2017. During Q2 2017, effective June 18, 2017, SIR permanently closed the Alice Fazooli's location in Vaughan, Ontario and opened a new Scaddabush restaurant at this location at the beginning of Q3 2017 on July 5, 2017. Beginning in the quarter that each of these Alice Fazooli's restaurants were closed, their respective sales have been excluded from the calculation of SSS(1) for the quarter and current year-to-date, similar to any permanently closed location. Accordingly, the YTD 2017 SSS(1) performance for Scaddabush does not include the Alice Fazooli's locations in Oakville or Vaughan, Ontario. The new Scaddabush locations in Scarborough, Ontario and on Front Street in downtown Toronto, Ontario are also excluded from the SSS(1) calculation in Q3 2017 and YTD 2017, since they were not open for the entire comparable periods in 2017 and 2016.
The downtown Toronto Signature Restaurants had a SSS(1) decline of 2.9% in Q3 2017, and generated SSSG(1) of 3.2% in YTD 2017. The SSS(1) decline in Q3 2017 primarily resulted from a sales decline at the Loose Moose Tap & Grill®, related to a decrease in overall event attendance at the Air Canada Centre and Rogers Centre during Q3 2017 which similarly impacted sales at Jack Astor's locations near these venues. The Q3 2017 and YTD 2017 SSS(1) performance of the Signature Restaurants does not include Far Niente/FOUR/Petit Four, as this location was closed effective October 15, 2016. The Signature Restaurants' SSSG(1) of 14.7% in YTD 2016 included SSSG(1) of 17.6% from Far Niente/FOUR/Petit Four. The high SSSG(1) for Far Niente/FOUR/Petit Four during YTD 2016 was primarily due to its 40-day closure during YTD 2015 due to a flood.
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 is proposing increases to the minimum wage starting January 1, 2018 that will materially increase the cost of hourly labour in the majority of SIR's restaurants. SIR is working with industry groups to lobby the government for certain changes that could mitigate the impact of some of these proposed changes to Ontario labour legislation. SIR's Management is evaluating alternatives to offset the impact of these planned 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 SSS(1)
- SIR commenced a Jack Astor's renovation program in 2016, completing renovations at six Jack Astor's locations. SIR completed renovations to six additional Jack Astor's during YTD 2017. 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 opened two new Scaddabush locations in 2016, including: Scarborough, Ontario (Q3 2016), and Front Street in downtown Toronto, Ontario (Q4 2016). The new Scaddabush in Scarborough was added to Royalty Pooled Restaurants on January 1, 2017. The new Scaddabush on Front Street will be added to Royalty Pooled Restaurants on January 1, 2018.
- SIR permanently closed the Alice Fazooli's restaurants in Oakville, Ontario and Vaughan, Ontario in 2017 and opened two new Scaddabush restaurants at these locations in Q2 2017 and Q3 2017, respectively. Both of these new Scaddabush locations will be treated as New Additional Restaurants and will be added to Royalty Pooled Restaurants on January 1, 2018.
- SIR currently has plans to open a new Reds® restaurant, at the Square One Shopping Centre in Mississauga, Ontario, which is expected to open prior to the end of 2017.
- Subsequent to the end of Q3 2017, SIR closed the Canyon Creek restaurant in Etobicoke, Ontario, located near the Sherway Gardens shopping centre, which had been negatively impacted by significant competitive intrusion. SIR plans to open a new Scaddabush at this location prior to the end of 2017.
The Fund's consolidated unaudited Financial Statements and MD&A, and the Partnership's Financial Statements, for the three and nine-month periods ended September 30, 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.
(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 quarter ended September 30, 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 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®, with seven 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, 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 (54 operating restaurants and three closed 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. 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, 2017 Annual Information Form, for the period ended December 31, 2016, 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
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