SIR Royalty Income Fund reports fiscal 2009 third quarter results

BURLINGTON , ON, Nov. 12 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) ("the Fund") today reported its financial results for the three-month and nine-month periods ended September 30, 2009 .

Q3 2009 Summary:

    
    -   Net earnings totaled $1.8 million or $0.34 per Fund unit (basic and
        diluted) compared to net earnings of $1.9 million or $0.36 per fund
        unit (basic and diluted) in Q3 2008;
    -   Pooled Revenue increased 11.1% to $48.5 million, up from
        $43.7 million in Q3 2008;
    -   The Fund generated distributable cash(2) of $1.8 million and declared
        distributions totaling $1.8 million, representing a payout ratio(2)
        of 100.9%. This compares to Q3 2008 distributable cash(2) of
        $1.9 million and declared distributions of $1.8 million, representing
        a payout ratio(2) of 96.4%;
    -   Same store sales(1) ("SSS") for the Royalty Pooled Restaurants
        declined 6.6% compared to Q3 2008
    

"While our same store sales continue to be impacted by weak economic conditions, we have maintained stable unitholder distributions and remain focused on our core strategy of operating best-in-class restaurants. In response to challenging economic conditions, we adopted certain cost saving measures and cash preservation strategies late in 2008, which included the previously announced slowing of our restaurant expansion plans. We also shifted some of our marketing focus towards lower cost, individual restaurant initiatives," said Peter Fowler , Chief Executive Officer of SIR Corp. ("SIR"). "Recently we have begun to shift our marketing activities back to broader initiatives such as our "Get Fresh" advertising campaign for Jack Astor's, launched in the second quarter this year. We believe the campaign, involving direct mail, radio and television banner advertisements supporting Jack Astor's key markets, has had a positive impact. During the third quarter, we also launched a new four-week media campaign for Canyon Creek that included print, television, on-line and radio advertisements. Looking ahead, we will continue to selectively invest in strategic marketing programs to support SSS(1) for our restaurant brands. We remain focused on providing our guests with excellence and innovation in their dining experiences; and generating stable distributions for our Fund unitholders."

Financial Results

The Fund's net earnings for Q3 2009 totaled $1.8 million or $0.34 per Fund Unit (basic and diluted), compared to net earnings of $1.9 million or $0.36 per Fund Unit (basic and diluted) for the same period in 2008. For the nine-month period ended September 30, 2009 and 2008 net earnings totaled $5.4 million and $5.7 million , respectively.

Revenue for Royalty Pooled Restaurants ("Pooled Revenue") for the three-month period ended September 30, 2009 , increased 11.1% to $48.5 million compared to $43.7 million for the same period in 2008. For the nine-month period ended September 30, 2009 , Pooled Revenue increased 9.6% to $143.7 million compared to $131.1 million for the nine-month period ended September 30, 2008 . The increase in Pooled Revenue in 2009 resulted primarily from the addition of six new restaurants to Royalty Pooled Restaurants effective January 1, 2009 . Subsequent to Q3 2009, the year-to-date revenues of the six new SIR Restaurants added to Royalty Pooled Restaurants on January 1, 2009 , have exceeded 80% of the Initial Adjustment's estimated revenue. Additional Class A GP Units are expected to be issued to SIR effective January 1, 2010 and a Conversion Distribution is expected to be declared in December 2009 , and paid in cash to SIR in January 2010 .

Distributable cash(2) for Q3 2009 totaled $1.8 million or $0.34 per Fund Unit (basic and diluted), and declared distributions to unitholders totaled $1.8 million , representing a payout ratio(2) of 100.9% for the period. For Q3 2008, distributable cash(2) totaled $1.9 million or $0.36 per Fund Unit (basic and diluted) and declared distributions totaled $1.8 million , representing a payout ratio(2) of 96.4%. For the nine-month period ended September 30, 2009 , distributable cash(2) totaled $5.4 million and declared distributions totaled $5.5 million , representing a payout ratio(2) of 102.1%. For the nine-month period ended September 30, 2008 distributable cash(2) totaled $5.7 million and declared distributions totaled $5.4 million , representing a payout ratio(2) of 94.7%. The payout ratio since the Fund's inception up to and including Q3 2009 is 98.0%.

    
                                       3 month   3 month   9 month   9 month
    Financial Highlights                period    period    period    period
    ($000s except restaurant and per     ended     ended     ended     ended
    unit amounts)                     Sept. 30, Sept. 30, Sept. 30, Sept. 30,
    (unaudited)                           2009      2008      2009      2008
    -------------------------------------------------------------------------

    Royalty Pooled Restaurants              45        39        45        39
    Pooled Revenue generated by SIR     48,539    43,680   143,658   131,128
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Royalty income to Partnership
     - 6% of Pooled Revenue              2,912     2,621     8,619     7,868
    Partnership other income                 6        15        22        47
    Partnership expenses                   (31)      (21)     (104)      (88)
    -------------------------------------------------------------------------

    Partnership earnings                 2,887     2,615     8,537     7,827
    SIR Corp.'s interest (Class A,
     B, and C GP Units)                 (1,682)   (1,339)   (5,012)   (4,008)
    -------------------------------------------------------------------------

    Partnership income allocated to
     Fund                                1,205     1,276     3,525     3,819
    Interest income                        750       750     2,250     2,250
    -------------------------------------------------------------------------

    Total income of the Fund             1,955     2,026     5,775     6,069
    General & administrative
     expenses                             (123)     (110)     (347)     (358)
    -------------------------------------------------------------------------

    Net earnings of the Fund             1,832     1,916     5,428     5,711
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per Fund unit (basic
     and fully diluted)                   0.34      0.36      1.01      1.07
    Distributable cash(2) per Fund
     unit                                 0.34      0.36      1.01      1.07
    

Management believes that weaknesses in the general economy have negatively impacted Pooled Revenue and the resulting Royalty, the Fund's net earnings, distributable cash(2) and payout ratios(2) for the three and nine-month periods ended September 30, 2009 , compared to the same periods in 2008.

Same Store Sales(1)

    
                              3 month      3 month      9 month      9 month
                               period       period       period       period
                                ended        ended        ended        ended
    SSSG(1) for Royalty      Sept. 30,    Sept. 30,    Sept. 30,    Sept. 30,
    Pooled Restaurants           2009         2008         2009         2008
    -------------------------------------------------------------------------

    Jack Astor's                (3.5%)        3.5%        (3.5%)        4.0%
    Canyon Creek Chop House    (13.4%)      (2.4)%       (12.6%)        1.3%
    Alice Fazooli's            (10.1%)        5.5%        (8.9%)        4.9%
    Signature Restaurants      (15.2%)        4.8%       (16.2%)        5.5%
    -------------------------------------------------------------------------
    Overall SSSG(1)             (6.6%)        2.9%        (6.6%)        3.8%
    

For the three and nine-month periods ended September 30, 2009 , SIR reported to the Fund a decline in SSS(1) of 6.6% respectively in both periods, compared to same store sales growth ("SSSG")(1) of 2.9% and 3.8% respectively for the same periods in 2008. Jack Astor's(R), which accounts for approximately 70% of Pooled Revenue, reported a SSS(1) decline of 3.5% for the three-month period ended September 30, 2009 , compared to SSSG(1) of 3.5% in Q3 2008. Alice Fazooli's(R) had a SSS(1) decline of 10.1% in Q3 2009 compared to SSSG(1) of 5.5% in Q3 2008. Canyon Creek(R) reported a SSS(1) decline of 13.4% in Q3 2009, compared to a SSS(1) decline of 2.4% in Q3 2008. For the downtown Toronto Signature Restaurants, which include reds(R), Loose Moose Tap & Grill(R), Far Niente(R)/FOUR(TM)/Petit Four(TM), SSS(1) declined 15.2% in Q3 2009 compared to SSSG(1) of 4.8% in Q3 2008.

SIR's management believes that the Jack Astor's restaurants, with somewhat lower average cheques, have been less affected by the weaker economy than the higher average cheque restaurants such as Alice Fazooli's, Canyon Creek and the Signature Restaurants. In addition, Jack Astor's sales have been supported by the "Get Fresh" campaign launched in Q2 2009 and into Q3 2009. This campaign includes direct mail, radio and television banner advertisements supporting Jack Astor's key markets. During Q3 2009, SIR launched a four-week media campaign for Canyon Creek that includes print, television, on-line, and radio advertisements. SIR has advised the Fund that it plans to return to its regular advertising initiatives including radio-based advertising.

Corporate Development and Liquidity

SIR has secured sites for three additional new restaurants. Two sites are located at the corners of Yonge and Gerrard Streets in downtown Toronto , with estimated openings in 2011, and the third site is located in Boisbriand, Quebec , where SIR plans to construct a Jack Astor's restaurant with an estimated opening in fiscal 2010. Management will continue to monitor economic conditions and consumer confidence. Based on its assessment of these conditions, the timing of restaurant construction and opening schedules will be reviewed regularly and adjusted as necessary.

SIR has in place a credit agreement with a Canadian Schedule 1 bank (the "Credit Agreement") totaling $16.0 million . The Credit Agreement provides for a $2.0 million revolving facility, a $13.0 million construction facility, and a $1.0 million treasury management facility to hedge the construction facility. As at May 10, 2009 , SIR had drawn an aggregate of $12.7 million under these facilities, and SIR is in compliance with the covenants of the Credit Agreement.

During Q2 2009, the lender approved the extension of the credit facilities for 364 days maturing on July 30, 2010 , at which time, the construction line, if not extended, would be converted into a five-year term loan due in 60 equal monthly installments. The interest rates on the financing will be banker's acceptance plus 3.75% and prime rate plus 2.25%. All other terms and conditions remain unchanged.

Proposed Transaction

On November 12, 2009 , SIR announced that it is negotiating the terms of, and expects to soon enter into, a Credit Agreement ("Proposed Credit Agreement") with a new senior lender to refinance its current revolving line of credit and construction facility and to facilitate the repurchase of certain of its common shares. Once executed, a copy of the Proposed Credit Agreement will be filed on SEDAR. The Proposed Credit Agreement is expected to provide for a maximum $26.0 million senior term debt facility. This facility is anticipated to have a 3 year term and a 10 year amortization. Interest will be the greater of 7.80% per annum and the three-month Canadian dollar bankers' acceptance rate ("BA Rate") plus 7.55% per annum. Certain financial covenants will apply to SIR, including a minimum fixed charge coverage ratio. The loan is expected to be secured by substantially all of the assets of SIR and most of its subsidiaries, which are also guarantors. The SIR Royalty Limited Partnership (the "Partnership") and the Fund will not guarantee the Proposed Credit Agreement. The new Proposed Credit Agreement will qualify as "permitted indebtedness" within the meaning of the agreements between the Fund, the Partnership and SIR, and as a result the Fund and the Partnership are expected to, as contemplated in the existing agreements, subordinate and postpone their claims against SIR to the claims of the new lender. The terms of this proposed subordination are as contemplated in the existing agreements between the Fund, the Partnership and SIR. This subordination, which is expected to include a subordination of the Partnership's rights under the License and Royalty Agreement between the Partnership and SIR whereby the Partnership licenses to SIR the right to use trade-marks and related intellectual property in return for royalty payments based on revenues, is anticipated to be effected pursuant to the terms of a Subordination and Postponement Agreement, a copy of which, when executed, will also be filed on SEDAR. In addition, the original five year restrictions on repurchases of shares by SIR contained in the agreements between the Fund, the Partnership and SIR have expired. For further details see the "Proposed Transaction" section of the Fund's Third Quarter MD&A.

The Fund's 2009 third quarter consolidated Financial Statements and Management's Discussion & Analysis ("MD&A"), and the SIR Royalty Limited Partnership's Financial Statements, for the three-month and nine-month periods ended September 30, 2009 will be filed on SEDAR today and will be available via the SEDAR web site at www.sedar.com tomorrow. The Fund's 2009 third quarter consolidated Financial Statements and MD&A are also available via SIR's website at www.sircorp.com.

2009 Third Quarter Conference Call & Web Cast

Management of SIR Royalty Income Fund will host a conference call to discuss the Fund's 2009 third quarter results on Friday, November 13, 2009 at 10:00 a.m. (EST ). The call will be audio-cast live and archived for 90 days at www.newswire.ca or www.sircorp.com. A replay of the conference call will be available until Friday, November 20, 2009 at midnight by calling 1-877-289-8525 or 416-640-1917, reference number 4173932 followed by the number sign.

    
    (1) Same store sales and same store sales growth exclude revenue from
        restaurants which are not included in Royalty Pooled Restaurants, and
        exclude revenue from restaurants opened or closed during the current
        or prior fiscal year and therefore not open for the full period in
        both years. SSSG is the percentage increase in SSS over the prior
        comparable period. SSS and SSSG are non-GAAP measures that do not
        have standardized meanings prescribed by GAAP. However, SIR believes
        that SSS and SSSG are useful measures and provide investors with an
        indication of the change in year-over-year sales. SIR'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.

    (2) Distributable cash and payout ratio are non-GAAP financial measures
        and do not have a standardized meaning prescribed by GAAP. 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. 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, 2009, which can be accessed via the SEDAR web site
        (www.sedar.com).
    

About SIR Corp.

SIR is a privately held Canadian corporation that owns and operates a portfolio of 45 restaurants in Canada . SIR's concept brands include: Jack Astor's Bar and Grill(R), with 29 locations; Alice Fazooli's(R), with five locations; and Canyon Creek Chop House(R), with eight locations. SIR also operates one-of-a-kind "signature" brands in downtown Toronto , which comprise the upscale reds(R), Far Niente(R)/FOUR(TM)/Petit Four(TM), and the Loose Moose Tap & Grill(R). All trademarks related to the concept and signature brands noted above are used by SIR under a license 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 45 Royalty Pooled Restaurants. 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
    ---------------------------------------------
    

Statements in this release, 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 securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund, the Trust, the Partnership, SIR, the SIR Restaurants, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this document, such statements may include, among other language, such words as "may", "will", "expect", "believe", "plan", "anticipate", "intend", "estimate" and other similar terminology. 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. These forward-looking statements involve a number of risks and uncertainties. The following are some of the factors that could cause actual results to differ materially from those expressed in or underlying such forward-looking statements: competition; changes in demographic trends; changing consumer preferences and discretionary spending patterns; changes in consumer confidence; changes in national and local business and economic conditions; 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. 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 release any updates or revisions to any forward-looking statements contained herein to reflect any change in expectations, estimates and projections with regard thereto or any changes in events, conditions or circumstances on which any statement is based, except as expressly required by law.

In formulating the forward-looking statements contained herein, Management has assumed that business conditions affecting SIR's restaurants and the Fund will continue substantially in the ordinary course, including without limitation with respect to general industry conditions, 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. Management is not anticipating an improvement, in the near future, in economic conditions (particularly as it relates to the recent deterioration of the economic environment and consumer confidence, which could significantly negatively affect sales and profit prospects in the near future). Management is not anticipating an improvement, in the near future, in the availability of credit (particularly as it relates to the recent disruption of world credit markets, which could significantly negatively affect sales and profit prospects in the near future). These assumptions, although considered reasonable by Management at the time of preparation, may prove to be incorrect. In particular, in estimating the revenues for the five new Jack Astor's restaurants and the one new Canyon Creek restaurant, added to Royalty Pooled Restaurants on January 1, 2009 , Management has assumed that they will operate consistent with other Jack Astor's and Canyon Creek restaurants. For more information concerning the Fund's risks and uncertainties, please refer to the March 31, 2009 Annual Information Form which is available under the Fund's profile at www.sedar.com.

%SEDAR: 00020914E

For further information: Jeff Good, Chief Financial Officer, SIR Corp., 5360 South Service Road, Suite 200, Burlington, Ontario, Canada, Tel: [phone]; Bruce Wigle or Alice Dunning, Investor Relations, Tel: [phone] ext. 228 or ext. 255, Email: [email protected] or [email protected]