SIR Royalty Income Fund Reports SIR Corp. Fiscal 2015 Third Quarter Results
BURLINGTON, ON, June 24, 2015 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today announced that SIR Corp. ("SIR" or the "Company"), the operating entity from which the Fund earns equity income and interest income, has filed its financial results for the 12-week and 36-week periods ended May 10, 2015 ("Q3 2015" and "YTD 2015", respectively).
SIR has advised the Fund that revenue from corporate restaurant operations for Q3 2015 increased 3.8% to $62.1 million compared to $59.8 million for the 12-week period ended May 4, 2014 ("Q3 2014"). Revenue from corporate restaurant operations for YTD 2015 increased 5.8% to $181.0 million from $171.1 million for the 36-week period ended May 4, 2014 ("YTD 2014"). Increased revenue for Q3 2015 is attributable to the addition of new restaurants. Increased revenue for YTD 2015 is attributable to the addition of new restaurants and same store sales growth ("SSSG")(1).
| Same Store Sales(1) |
12-week period ended |
36-week period ended |
||
| Jack Astor's® |
2.0% |
1.1% |
||
| Canyon Creek® |
(0.7)% |
2.0% |
||
| Alice Fazooli's® / Scaddabush Italian Kitchen & Bar® |
3.6% |
2.9% |
||
| Signature Restaurants |
(19.3)% |
(2.8)% |
||
| Overall Same Store Sales(1) |
0.0% |
1.0% |
Overall same store sales ("SSS")(1) were flat in Q3 2015 and up 1.0% in YTD 2015, compared to the corresponding periods in the prior year. Jack Astor's, which contributed approximately 75% of Pooled Revenue in Q3 2015, generated same store sales growth ("SSSG")(1) of 2.0% in Q3 2015 and 1.1% for YTD 2015. SSSG(1) for Alice Fazooli's, together with Scaddabush Italian Kitchen & Bar ("Scaddabush") in Q3 2015 and YTD 2015, was primarily attributable to the strong performance of Scaddabush at Square One in Mississauga, which generated SSSG(1) of 15.5% and 14.5% in Q3 2015 and YTD 2015, respectively. The Signature Restaurants' decline in SSS(1) in Q3 2015 and YTD 2015 is primarily attributable to the closure of Far Niente® / FOUR® / Petit Four® for a period of 40 days during February and March in order to complete restoration work, as a burst pipe on the premises resulted in significant water damage. SIR maintains adequate business interruption insurance to mitigate the risk of such events.
SIR recorded net losses and comprehensive losses for Q3 2015 and YTD 2015 of $3.7 million and $8.3 million, respectively, compared to net income and comprehensive income of $0.7 million in Q3 2014 and a net loss and comprehensive loss of $10.9 million in YTD 2014. Results for both Q3 2015 and YTD 2015 benefitted from increased year-over-year earnings from corporate restaurant operations of $0.7 million and $3.1 million, respectively. The net loss and comprehensive loss in Q3 2015 is primarily attributable to a $4.5 million increase in the non-cash change in amortized cost of Ordinary LP Units and Class A LP Units of the SIR Royalty Limited Partnership (the "Partnership") compared to Q3 2014. This same item increased by $0.2 million on a year-over-year basis during YTD 2015. The decreased net loss and comprehensive loss in YTD 2015 compared to YTD 2014 is primarily attributable to increased year-over-year earnings from corporate restaurant operations.
Adjusted Net Earnings(2) for Q3 2015 and YTD 2015 were $0.6 million and $2.5 million, respectively. These amounts represent favourable variances of $0.1 million and $2.9 million for Q3 2015 and YTD 2015, respectively, compared to the corresponding periods in the prior year, and are primarily the result of increased earnings from corporate restaurant operations.
SIR Corporate Development
During Q3 2015, SIR opened one new Jack Astor's restaurant in Ottawa, Ontario. On January 1, 2015, two restaurants were added to the Royalty Pooled Restaurants consisting of one Jack Astor's and one Scaddabush restaurant, both having opened during SIR's fiscal 2014. During Q1 2015, SIR completed the renovation of one Canyon Creek restaurant.
SIR no longer operates the seasonal Duke's Refresher located in Muskoka, Ontario. The landlord of this location decided they will operate their own restaurant on the premises under a new name with no association to SIR. While the operation of this seasonal restaurant was instrumental for SIR in developing the Duke's Refresher & Bar brand, this development will not negatively impact SIR's financial results or cash flow. As this location was not part of Royalty Pooled Restaurants, this development has no impact on Pooled Revenue, the Partnership or the Fund.
Liquidity and Capital Resources
As at May 10, 2015, SIR had cash and cash equivalents of $8.4 million, compared to $4.6 million as at August 31, 2014, SIR's fiscal 2014 year end. The increase is attributable to cash provided by operations of $10.4 million, partially offset by cash used in financing activities of $6.6 million and cash used in investing activities of $0.01 million during YTD 2015.
As previously reported, SIR entered into a Third Amended and Restated Loan Agreement, with its existing senior lender, on June 23, 2014, which provided contemplated financing of a $6.0 million Tranche C Development Loan (the "Tranche C"), in addition to its existing loan facilities. No draws were made on Tranche C and the draw down date has expired.
On November 19, 2014, SIR converted 350,000 Class A GP Units into Fund units and sold these Fund units for net proceeds of $4.3 million (the "Transaction"). The net proceeds were deposited into SIR's restricted cash account and during Q1 2015 and Q2 2015, SIR drew $2.0 million and $2.3 million from this account, respectively to finance capital expenditures, including restaurant renovations and new restaurant construction. The Class A GP Units received by the Fund in exchange for the Fund units issued were converted to Class A LP Units of the Partnership, which are entitled to a pro rata share of residual income of the Partnership. Accordingly, the Transaction did not have a dilutive effect on the Fund. SIR's residual interest in the Partnership was effected by the conversion of the Class A GP Units into Fund units. Following the Transaction, SIR's residual interest in the Partnership decreased to 21.9%, but increased 2.7% after the net effect of the adjustments to Royalty Pooled Restaurants on January 1, 2015. Currently, SIR's residual interest in the Partnership is 24.6%.
Outlook
SIR currently has three commitments to lease properties, upon which it plans to build two new Jack Astor's restaurants and one new Scaddabush restaurant, which are expected to open in fiscal 2016 and early fiscal 2017. There can be no assurance that these restaurants will be opened or will become part of Royalty Pooled Restaurants.
SIR will continue to focus on sustaining and growing existing restaurant sales and profits while managing costs and monitoring economic conditions. The Company considers new restaurant growth and renovations when appropriate and subject to availability of acceptable long-term financing.
SIR's Q3 2015 filings, which include its unaudited consolidated financial statements and management's discussion & analysis, can be accessed via the Fund's profile on the SEDAR website at www.sedar.com under "Other".
About SIR Corp.
SIR is a privately held Canadian corporation that owns and operates a portfolio of 58 restaurants in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 39 locations; Alice Fazooli's® together with Scaddabush Italian Kitchen & Bar®, 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 55 restaurants currently included in the Royalty Pool. SIR also owns and operates Dukes Refresher® & Bar in downtown Toronto and one seasonal Signature restaurant, Abbey's Bake House®, 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 Partnership and interest income from the SIR Loan. The Fund intends to pay distributions to unitholders on a monthly basis.
(1) Same store sales ("SSS") and same store sales growth ("SSSG") are non-GAAP financial measures and do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS"). 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. SSSG is the percentage increase in SSS over the prior comparable period. SSS includes revenue from all SIR restaurants except for those restaurants that were not open for the entire comparable period and the seasonal Duke's Refresher & Bar and Abbey's Bakehouse, which are both located in Muskoka, Ontario. SSS for Alice Fazooli's includes three Alice Fazooli's restaurants and one Scaddabush Italian Kitchen & Bar restaurant, representing the Square One location in Mississauga, Ontario.
(2) Adjusted Net Earnings (Loss) is calculated by removing the change in amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership from the net earnings (loss) and comprehensive income (loss) for the period. Adjusted Net Earnings (Loss) is a non-GAAP financial measure and does not have a standardized meaning prescribed by IFRS. Management believes that in addition to net earnings (loss) and comprehensive income (loss), Adjusted Net Earnings (Loss) is a useful supplemental measure to evaluate SIR's performance. Changes in the amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership is a non-cash transaction and varies with changes in the market price of the Fund units. The exclusion of the change in amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership eliminates this non-cash impact. Management cautions investors that Adjusted Net Earnings (Loss) should not replace net earnings or loss or cash flows from operating, investing and financing activities (as determined in accordance with IFRS), as an indicator of SIR's performance. SIR's method of calculating Adjusted Net Earnings (Loss) may differ from the methods used by other issuers. Therefore, SIR's Adjusted Net Earnings (Loss) may not be comparable to similar measures presented by other issuers.
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: 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. 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. For more information concerning the Fund's risks and uncertainties, please refer to the March 18, 2015 Annual Information Form, for the period ended December 31, 2014, which is 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: 905-681-2997; Bruce Wigle, Bay Street Communications, Tel: 647-496-7856
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