SIR Royalty Income Fund Reports Second Quarter 2012 Results

BURLINGTON, ON, Aug. 9, 2012 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the second quarter and six-month period ended June 30, 2012.  All comparisons 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.

Q2 2012 Highlights

• The Fund Trustees authorized a 6.0% increase to Unitholder distributions, effective for the June 2012 Unitholder distribution, resulting in estimated annualized Unitholder distributions of $1.056 per Fund Unit from $0.996 per Fund Unit;
• SIR opened a new Jack Astor's^® in downtown Toronto (on Front Street, near the St. Lawrence Market) which will be added to Royalty Pooled Restaurants on January 1, 2013;
• Net earnings for the Fund were $1.5 million in Q2 2012, or $0.28 per Unit, compared to $1.4 million, or $0.26 per Unit, for Q2 2011;
• Pooled Revenue increased 2.9% to $55.3 million in Q2 2012 from $53.8 million in Q2 2011;
• Same Store Sales Growth (SSSG)⁽¹⁾ for the Royalty Pooled Restaurants was 2.2% in Q2 2012; and
• Distributable cash⁽²⁾ per Fund Unit (basic and diluted) was $0.28 in Q2 2012 and cash distributed per Fund Unit totaled $0.25, representing a payout ratio of 91.6%

"Jack Astor's, which accounted for approximately 75% of the Fund's Pooled Revenue in Q2 2012, generated same store sales growth of 5.0% in the second quarter and 7.6% year-to-date, demonstrating the strong consumer appeal of our revitalized and continually evolving Jack Astor's concept. We are excited by the recent opening of our new Jack Astor's near the St. Lawrence Market in downtown Toronto, which will be added to Royalty Pooled Restaurants in January, 2013," said Peter Fowler, President and Chief Executive Officer of SIR Corp. "Year-to-date same store sales at Canyon Creek are essentially flat compared to last year, while year-to-date same store sales at Alice Fazooli's are down 2.6%. We are currently reviewing initiatives to enhance value at both of these concepts. Construction work on the exterior of the building in which reds is located has negatively impacted our sales at this restaurant on a year-to-date basis, and contributed to a decline in overall same store sales in our Signature Group. SIR plans to complete a major renovation and repositioning of reds in September 2012 to enhance sales at this prime downtown property."

"We are pleased to have increased Unitholder distributions to an estimated $1.056 per Fund Unit on an annualized basis this past quarter," continued Mr. Fowler. "The increased distribution reflects our confidence in the sustainability of the Royalty pool and commitment to long-term value creation."

Financial Results

($000s except restaurants and per Unit amounts) (unaudited)		3-month period ended June 30, 2012	3-month period ended June 30, 2011	6-month period ended June 30, 2012	6-month period ended June 30, 2011
Royalty Pooled Restaurants		47	46	47	46
Pooled Revenue generated by SIR		55,333	53,779	107,410	101,873
Royalty income to Partnership - 6% of Pooled Revenue		3,320	3,227	6,445	6,112
Make-Whole Payment^(3)		91	-	152	-
Partnership other income		9	8	20	17
Partnership expenses		(25)	(20)	(36)	(44)
Partnership earnings		3,395	3,215	6,581	6,085
SIR Corp.'s interest (Class A, B, and C GP Units)		(2,000)	(1,889)	(3,935)	(3,656)
Partnership income allocated to Fund		1,395	1,326	2,646	2,429
Interest income		750	750	1,500	1,500
Total income of the Fund		2,145	2,076	4,146	3,929
General & administrative expenses		(121)	(113)	(207)	(212)
Net earnings before income taxes of the Fund		2,024	1,963	3,939	3,717
Income tax expense		(550)	(568)	(1,064)	(1,071)
Net earnings for the period		1,474	1,395	2,875	2,646
Earnings per Fund Unit (basic and diluted)		$0.28	$0.26	$0.54	$0.49

The Fund's net earnings for Q2 2012 totaled $1.5 million, or $0.28 per Fund Unit (basic and diluted), compared with $1.4 million, or $0.26 per Fund Unit (basic and diluted) for Q2 2011.

Pooled Revenue for Q2 2012 increased 2.9% to $55.3 million compared with $53.8 million in Q2 2011.  As at June 30, 2012, there were 47 restaurants included in Royalty Pooled Restaurants.

Distributable cash⁽²⁾ for Q2 2012 totaled $1.5 million or $0.28 per Fund Unit (basic and diluted), and distributions to Unitholders totaled $1.4 million, or $0.25 per Fund Unit, representing a payout ratio⁽²⁾ of 91.6% for the period. The payout ratio⁽²⁾ since the Fund's inception, up to and including Q2 2012, is 98.5%. The Fund's payout ratio is intended to average 100% per annum.

Distributable Cash
The following table reconciles the relationship between cash provided by operating activities and distributable cash:

(in thousands of dollars except per Unit amounts and payout ratio^(2)) (unaudited)		3-month period ended June 30, 2012		3-month period ended June 30, 2011	6-month period ended June 30, 2012	6-month period ended June 30, 2011
Cash provided by operating activities		1,850		1,849	1,133	3,697
Add/(deduct):
	Net change in non-cash working capital items	(661)		(670)	1,314	(1,260)
	Net change in distribution receivable from the Partnership	296		228	450	233
Distributable cash^(2)		1,485		1,407	2,897	2,670
Cash distributed for the period		1,361		1,334	2,694	2,839
Surplus/(shortfall) of distributable cash^(2)		124		73	203	(169)
Payout ratio^(2)		91.6%		94.8%	93.0%	106.3%
Distributable cash^(2) per Fund Unit (basic and diluted)		$0.28		$0.26	$0.54	$0.50

Same Store Sales⁽¹⁾

SSSG^(1) for Royalty Pooled Restaurants	3-month period ended June 30, 2012	3-month period ended June 30, 2011	6-month period ended June 30, 2012	6-month period ended June 30, 2011
Jack Astor's^®	5.0%	3.6%	7.6%	1.5%
Canyon Creek^®	(2.6%)	3.5%	(0.5%)	2.8%
Alice Fazooli's^®	(5.7%)	(5.0%)	(2.6%)	(7.0%)
Signature Restaurants	(8.2%)	12.6%	(4.4%)	8.9%
Overall SSSG^(1)	2.2%	3.3%	4.7%	1.4%

The overall year-to-date ("YTD") 2012 SSSG⁽¹⁾ was affected positively by one extra day of sales due to 2012 being a leap year, as well as favourable weather.  Jack Astor's, which accounted for approximately 75% of Pooled Revenue in Q2 2012, generated SSSG⁽¹⁾ of 5.0% and 7.6% for Q2 2012 and YTD 2012, respectively. Jack Astor's sales in Q1 2012 were supported by additional media advertising as compared to Q1 2011.  The Signature Restaurants experienced declines in SSS⁽²⁾ of 8.2% and 4.4% in Q2 2012 and YTD 2012, respectively.  Part of this decline is attributed to a decline in sales at reds®, as the landlord of the building in which reds is located refaced the entire building and the construction work has had an ongoing significant impact on the restaurant's YTD sales.  SIR plans to complete a major renovation and repositioning of reds in September 2012 to enhance sales of this prime downtown property.  Canyon Creek SSS are down 2.6% in Q2 2012, but this was against relatively strong growth in Q2 2011 of 3.5%.  The YTD 2012 for Canyon Creek is a slight decline of 0.5%, but again against a relatively strong comparative of 2.8% SSSG⁽²⁾ in the first six months of 2011.  Alice Fazooli's reported a decline of 5.7% in Q2 2012 and a decline of 2.6% YTD 2012.  Management is currently reviewing strategic initiatives to enhance value at both of these concepts.

Corporate Developments
SIR has secured sites for seven new restaurants.  It is expected that, during the remainder of 2012, there will be new Jack Astor's restaurants opening in: Kingston, Ontario and Laval, Quebec.  New Jack Astor's restaurants will open in Pickering, Ontario, Kitchener, Ontario and at 5051 Yonge Street in north Toronto, in fiscal 2013. Two new restaurants will also be opening at the corner of Yonge and Gerrard Streets in downtown Toronto, also in fiscal 2013.

During Q2 2012, SIR opened a new Jack Astor's restaurant on Front Street near the St. Lawrence Market in downtown Toronto. This restaurant, along with the Jack Astor's restaurant that opened during Q4 2011, on Argentia Road in Mississauga, Ontario, will be added to Royalty Pooled Restaurants on January 1, 2013.  Provided they open as planned prior to November 2, 2012, the new Jack Astor's restaurants in Kingston, Ontario and Laval, Quebec would also be expected to be added to Royalty Pooled Restaurants on January 1, 2013.

SIR Management will continue to monitor economic conditions and consumer confidence and has advised the Fund that it is considering new store growth where appropriate.  Based on its assessment of these conditions, the timing of restaurant construction and opening schedules will be reviewed regularly by SIR Management and adjusted as necessary.

The Fund's consolidated Financial Statements and Management's Discussion & Analysis ("MD&A"), and the SIR Royalty Limited Partnership's Financial Statements, for the three-month and six-month periods ended June 30, 2012, will be filed on SEDAR today and will be available via the SEDAR web site at www.sedar.com tomorrow. The Fund's second quarter 2012 consolidated Financial Statements and MD&A are also available via 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 2012 and fiscal 2011.

(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 3-month and 6-month periods ended June 30, 2012, which can be accessed via the SEDAR web site (www.sedar.com).

(3) The Alice Fazooli's restaurant in Toronto and the Jack Astor's restaurant in Kitchener, Ontario were closed on January 27, 2012 and February 13, 2012, respectively.  Under the terms of the License and Royalty Agreement, SIR is required to pay a Make-Whole Payment for these locations from their dates of closure until December 31^st of the year of closure.

About SIR Corp.
SIR is a privately held Canadian corporation that owns and operates a portfolio of 47 restaurants in Canada. SIR's concept brands include: Jack Astor's Bar and Grill®, with 32 locations; Alice Fazooli's®, with four locations; and Canyon Creek Chop House®, with eight locations. SIR also operates one-of-a-kind "signature" brands in downtown Toronto, which comprise the upscale reds®, Far Niente®/FOUR®/ Petit Four®, and the Loose Moose Tap & Grill®. 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 47 restaurants included in the Royalty pool as at June 30, 2012. 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 Trust, the Partnership, SIR, the SIR Restaurants or industry results, are forward-looking statements. The words "may", "will", "would", "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: 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.  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 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, 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 the tax effects on distributions will remain consistent with current regulations or pronouncements, and also in estimating the revenue for the new Jack Astor's restaurant, Management has assumed that it will operate consistent with other Jack Astor's restaurants.  For more information concerning the Fund's risks and uncertainties, please refer to the October 2004 final prospectus, and/or its March 30, 2012 Annual Information Form, all of which are available under the Fund's profile at www.sedar.com.

All of the forward-looking statements made in this report 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
Investor Relations
Tel: [phone] ext. 232