SIR Royalty Income Fund Reports 2014 Second Quarter Results

BURLINGTON, ON, Aug. 12, 2014 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the three-month ("Q2 2014") and six-month ("YTD 2014") periods ended June 30, 2014. 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.

Q2 2014 Summary

  • Net earnings for the Fund were $2.2 million, or $0.30 per Fund unit, compared with $2.0 million, or $0.30 per Fund unit, in Q2 2013;
  • Pooled Revenue increased 10.0% to $69.2 million with the addition of four Royalty Pooled Restaurants on January 1, 2014;
  • 1.6% Same Store Sales Growth ("SSSG")(1) for Royalty Pooled Restaurants;
  • Distributable cash(2) per Fund unit (basic and diluted) was $0.30, representing a payout ratio(2) of 93.9%; and,
  • SIR Corp. ("SIR") opened a new Jack Astor's in St. John's, Newfoundland and a seasonal Abbey's Bakehouse® retail outlet.

"Our Concept and Signature restaurants both posted positive same store sales growth in the quarter, as we experienced increased guest traffic with the arrival of spring weather. Our overall Pooled Revenue was up by 10 per cent in the quarter, supported by the addition of four new restaurants to the Royalty Pool effective January 1st. As expected, our improved performance lowered the Fund's payout ratio to 93.9 percent for the quarter," said Peter Fowler, President and CEO of SIR. "We are pleased to report on the opening of our newest Jack Astor's location in St. John's, Newfoundland, during the quarter. St. John's represents a new market for SIR and further expands the footprint of Jack Astor's in Atlantic Canada. We expect this new restaurant to be added to the Royalty pool in January 2015."

Financial Results          
($000s except restaurants and per
Unit amounts)
(unaudited)
  Three-month
period ended
June 30, 2014
Three-month
period ended
June 30, 2013
Six-month
period ended
June 30, 2014
Six-month
period ended
June 30, 2013
           
Royalty Pooled Restaurants   53 49 53 49
Pooled Revenue generated by SIR   69,172 62,855 127,345 117,554
           
Royalty income to Partnership - 6% of Pooled Revenue   4,151 3,771 7,641 7,053
Partnership other income   7 10 19 20
Partnership expenses   (23) (21) (47) (49)
Partnership earnings   4,135 3,760 7,613 7,024
SIR Corp.'s interest (Class A, B, and C GP Units)   (1,777) (1,641) (3,459) (3,420)
Partnership income allocated to Fund   2,358 2,119 4,154 3,604
Interest income   750 750 1,500 1,500
           
Total income of the Fund   3,108 2,869 5,654 5,104
General & administrative expenses   (109) (111) (225) (223)
           
Net earnings before income taxes of the Fund   2,999 2,758 5,429 4,881
Income tax expense   (803) (747) (1,456) (1,409)
           
Net earnings for the period   2,196 2,011 3,973 3,472
           
Earnings per Fund Unit
(basic and diluted)
  $0.30 $0.30 $0.55 $0.54

Pooled Revenue increased 10.0% to $69.2 million in Q2 2014, up from $62.9 million in Q2 2013, which is a result of SSSG(1) and the four additional restaurants included in the Royalty pool.  As at June 30, 2014, there were 53 restaurants included in Royalty Pooled Restaurants, compared to 49 restaurants as at June 30, 2013.

The Fund's net earnings for Q2 2014 totaled $2.2 million, or $0.30 per Fund unit (basic and diluted), compared with $2.0 million, or $0.30 per Fund unit (basic and diluted) for Q2 2013.

Distributable cash(2) for Q2 2014 totaled $2.2 million, or $0.30 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.1 million, representing a payout ratio(2) of 93.9% for the quarter.  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 Q2 2014, the Fund has generated $66,682,000 in cumulative distributable cash(2) and has paid cumulative cash distributions of $66,284,000, representing a cumulative payout ratio(2) (the ratio of cumulative cash distributions paid since inception to cumulative distributable cash generated(2)) of 99.4%. Based on current business and economic conditions, the Fund's Trustees intend to maintain current distribution levels at this time.

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 payout ratio(2))
(unaudited)
Three-month
period ended
June 30, 2014
Three-month
period ended
June 30, 2013
Six-month
period ended
June 30, 2014
Six-month
period ended
June 30, 2013
Cash provided by operating activities 2,295 1,946 4,036 3,637
Add/(deduct):        
  Net change in non-cash working capital items (110) (112) (227) (224)
  Net change in income tax payable (261) (237) 117 (262)
  Net change in distribution receivable from the Partnership 285 430 74 440
Distributable cash(2) 2,209 2,027 4,000 3,591
Cash distributed for the period 2,074 1,836(3) 4,100 3,761(3)
Surplus/(shortfall) of distributable cash(2) 135 191 (100) (170)
Payout ratio(2) 93.9% 90.6% 102.5% 104.8%(3)
Distributable cash(2) per Fund unit (basic and diluted) $0.30 $0.30 $0.56 $0.56

Same Store Sales (SSS)(1)        
SSS(1) for Royalty Pooled
Restaurants
Three-month
period ended
June 30, 2014
Three-month
period ended
June 30, 2013
Six-month
period ended
June 30, 2014
Six-month
period ended
June 30, 2013
         
Jack Astor's® 1.7% 3.9% 0.1% 1.7%
Canyon Creek® 1.7% (0.4%) 1.5% (4.4%)
Alice Fazooli's®/Scaddabush        
  Italian Kitchen & Bar® 1.9% (10.1%) (1.7%) (10.3%)
Signature Restaurants 0.8% 31.8% 4.1% 15.2%
Overall SSS(1) 1.6% 4.1% 0.4% 1.1%

Jack Astor's, which generated approximately 77% of the Fund's Pooled Revenue in Q2 2014, had Same Store Sales Growth ("SSSG")(1) of 1.7% for the three-month period ended June 30, 2014. Alice Fazooli's / Scaddabush and Canyon Creek, generated SSSG of 1.9% and 1.7%, respectively. The Signature Restaurants reported SSSG of 0.8% on top of 31.8% SSSG in the second quarter a year ago. Same Store Sales ("SSS") (1) were negatively impacted in Q2 2014 as a result of the Toronto Maple Leafs missing the 2014 National Hockey League playoffs.

Corporate Developments
On June 11, 2014, SIR opened a new Jack Astor's restaurant in St. John's, Newfoundland, in the heart of the city's historic waterfront district. On June 27, 2014, SIR opened a new seasonal Abbey's Bakehouse retail outlet in Port Carling, Ontario.

SIR believes Duke's Refresher™ has multi-unit growth potential and has advised the Fund that Duke's Refresher should be considered as a potential New Concept Restaurant brand.  As such, the earliest that any Duke's Refresher would be added to the Royalty pool would be the Adjustment Date following the earlier of: (i) the date that four Duke's Refresher restaurants are open for business at the same time, and (ii) 90 days following the end of the fiscal year in which revenues from all Duke's Refresher restaurants in Canada first exceed $12.0 million.  As neither of these events are expected to occur in 2014, Duke's Refresher is not expected to be added to the Royalty Pool on January 1, 2015.  The Duke's Refresher brand is currently being managed and developed by SIR's Signature group.  Accordingly, the current Duke's Refresher location in downtown Toronto will be classified as a Signature restaurant for reporting purposes in the near term.

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

During Q1 2014, SIR opened a new Scaddabush restaurant in Toronto, Ontario. During Q2 2014, SIR opened a new Jack Astor's restaurant in St. John's, Newfoundland. It is expected that these restaurants will be added to Royalty Pooled Restaurants on January 1, 2015.

SIR currently has plans to open three new Jack Astor's restaurants in 2015.

The Fund's consolidated Financial Statements and Management's Discussion & Analysis ("MD&A"), and the SIR Royalty Limited Partnership's (the "Partnership") Financial Statements, for the three and six-month periods ended June 30, 2014, 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 2014 and fiscal 2013 as well as the seasonal Duke's Refresher™ and Abbey's BakeHouse® both located in Muskoka, Ontario. SSS for Alice Fazooli's includes three Alice Fazooli's restaurants and one Scaddabush restaurant, representing the Square One location in Mississauga, Ontario, which was renovated and re-opened as Scaddabush on July 23, 2013.

(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 three-month and six-month periods ended June 30, 2014, which can be accessed via the SEDAR website (www.sedar.com).

(3) Cash distributed to Unitholders for the six-month period ended June 30, 2013 includes the special 2012 year-end distribution of $0.05 per unit, or $0.3 million that was declared in December 2012 and paid in January 2013. The payout ratio for the six-month period ended June 30, 2013 was significantly affected by the special 2012 year-end distribution.

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 38 locations; Alice Fazooli's® together with Scaddabush Italian Kitchen & Bar®, for a total of five locations; and Canyon Creek Chop House®, with eight locations.  SIR also operates "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 53 restaurants currently included in the Royalty pool. SIR also owns and operates a Duke's Refresher™ & Bar in downtown Toronto and two seasonal restaurants: Abbey's Bake House® and Duke's Refresher™, in addition to one seasonal Abbey's Bakehouse 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: 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 11, 2014 Annual Information Form, for the period ended December 31, 2013, 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

For further information:

Jeff Good
Chief Financial Officer
Tel: 905-681-2997
 
Bruce Wigle
BMIR Investor Relations
Tel: 416-447-4740 ext. 232