SIR Royalty Income Fund Reports 2012 Fourth Quarter and Year End Results

BURLINGTON, ON, March 28, 2013 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the three-month ("Q4") and 12-month ("YTD") periods ended December 31, 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.

2012 Highlights

  • Net earnings for the Fund were $5.9 million in YTD 2012, or $1.08 per Fund unit, up from $5.5 million, or $1.02 per Fund unit, in YTD 2011;
  • Pooled Revenue increased 3.2% to $215.8 million in YTD 2012 from $209.2 million in YTD 2011;
  • Same Store Sales Growth(1) (SSSG) of 2.8% for the Royalty Pooled Restaurants in YTD 2012;
  • Distributable cash(2) per Fund unit (basic and diluted) totaled $1.09 for YTD 2012 with a payout ratio(2) of 95.1%;
  • Effective January 1, 2012, one new Jack Astor's® restaurant was added to Royalty Pooled Restaurants:
  • The Fund Trustees authorized a 6.0% increase to unitholder distributions, beginning with the distribution paid in June 2012, resulting in annualized distributions increasing to $1.056 per Fund unit;
  • The Fund also declared a special year-end cash distribution of $0.05 per unit in December 2012;
  • During Q4 2012, the Fund issued 523,900 Fund units in exchange for an increased investment in the SIR Royalty Limited Partnership (the "Partnership").  This transaction did not have a dilutive effect on the Fund unitholders.
  • SIR opened three new Jack Astor's®  restaurants during YTD 2012, which, along with the Jack Astor's restaurant that opened in Q4 2011, were added to Royalty Pooled Restaurants effective January 1, 2013;
  • SIR completed renovations at two Jack Astor's restaurants; and
  • SIR completed a major renovation and repositioning of Reds®, transitioning the restaurant to Reds® Wine Tavern.

"We had a successful year in delivering on our commitment to build value for SIR Royalty Income Fund unitholders. We started the year with the addition of a new Jack Astor's to Royalty Pooled Restaurants, and as part of our continuing focus on driving Same Store Sales(1) at our existing restaurants, SIR completed renovations at two Jack Astor's, and a major renovation and repositioning of Reds during the year. We re-launched Reds as Reds Wine Tavern in the fall. SIR also opened three new Jack Astor's restaurants in 2012, each in prime locations, including downtown Toronto, Ontario, Kingston, Ontario and Laval, Quebec. These three new Jack Astor's restaurants, along with a Jack Astor's that we opened in Mississauga, Ontario, late in 2011, were added to the Royalty pool effective January 1, 2013," said Peter Fowler, President and Chief Executive Officer of SIR Corp. "We announced a six percent increase to unitholder distributions in June, the Fund's fourth distribution increase since its inception, demonstrating our confidence in the sustainability and future growth potential of Royalty Pooled Restaurants."

"Looking ahead, SIR will continue to focus on building value for SIR Royalty Income Fund unitholders through new restaurant openings and restaurant renovations, as market conditions permit, and maintaining our constant focus on innovation and strengthening our restaurant brands," added Mr. Fowler.

Financial Results

($000s except restaurants and per
Unit amounts)
(unaudited)
  3-month
period ended
Dec. 31, 2012
3-month
period ended
Dec. 31, 2011
12-month
period ended
Dec. 31, 2012
12-month
period ended
Dec. 31, 2011
           
Royalty Pooled Restaurants   47 46 47 46
Pooled Revenue generated by SIR   54,396 54,667 215,822 209,187
           
Royalty income to Partnership -
6% of Pooled Revenue
  3,263 3,279 12,949 12,551
Make-Whole Payment(3)   93 - 339 -
Partnership other income   10 13 39 37
Partnership expenses   (20) (13) (78) (79)
Partnership earnings   3,346 3,279 13,249 12,509
SIR Corp.'s interest
(Class A, B, and C GP Units)
  (1,911) (1,948) (7,832) (7,475)
Partnership income allocated
to Fund
  1,435 1,331 5,417 5,034
Interest income   750 750 3,000 3,000
Total income of the Fund   2,185 2,081 8,417 8,034
General & administrative
expenses
  (85) (73) (374) (376)
           
Net earnings before
income taxes of the Fund
  2,100 2,008 8,043 7,658
Income tax expense   (585) (564) (2,181) (2,191)
Net earnings for the period   1,515 1,444 5,862 5,467
Earnings per Fund Unit
(basic and diluted)
  $0.27 $0.27 $1.08 $1.02

Pooled Revenue decreased 0.5% to $54.4 million in Q4 2012 from $54.7 million in Q4 2011.  As at December 31, 2012, there were 47 restaurants included in Royalty Pooled Restaurants.

The Fund's net earnings for Q4 2012 totaled $1.5 million, or $0.27 per Fund Unit (basic and diluted), compared with $1.4 million, or $0.27 per Fund Unit (basic and diluted) for Q4 2011.

Distributable cash(2) for Q4 2012 totaled $1.5 million or $0.27 per Fund Unit (basic and diluted), and distributions to Unitholders totaled $1.5 million, representing a payout ratio(2) of 98.7% for the period. The payout ratio(2) since the Fund's inception, up to and including Q4 2012, is 98.5%. The Fund's payout ratio(2) is intended to average 100% per annum.

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)
3-month
period ended
Dec. 31, 2012
3-month
period ended
Dec. 31, 2011
12-month
period ended
Dec. 31, 2012
12-month
period ended
Dec. 31, 2011
Cash provided by operating activities 1,385 2,151 3,381 7,607
Add/(deduct):        
  Net change in non-cash working capital items 780 124 (162) (92)
  Net change in income tax payable (38) (553) 2,151 (2,144)
  Net change in distribution receivable from the Partnership (601) (267) 86 142
Distributable cash(2) 1,526 1,455 5,906 5,513
Cash distributed for the period 1,506 1,334 5,615 5,507
Surplus/(shortfall) of distributable cash(2) 20 121 291 6
Payout ratio(2) 98.7% 91.6% 95.1% 99.9%
Distributable cash(2) per Fund Unit (basic and diluted) $0.27 $0.27 $1.09 $1.03

Same Store Sales(1)

SSSG(1) for Royalty
Pooled Restaurants

3-month
period ended
Dec. 31, 2012
3-month
period ended
Dec. 31, 2011
12-month
period ended
Dec. 31, 2012
12-month
period ended
Dec. 31, 2011
         
Jack Astor's® 1.0% 7.3% 5.0% 3.9%
Canyon Creek® (3.7%) (0.7%) (1.0%) 0.4%
Alice Fazooli's® (4.5%) (0.9%) (3.9%) (4.5%)
Signature Restaurants 1.7% 3.3% (4.4%) 5.7%
Overall SSSG(1) 0.0% 5.0% 2.8% 2.8%

Jack Astor's, which accounted for approximately 70% of Pooled Revenue in Q4 2012, generated SSSG(1) of 1.0% and 5.0% for Q4 2012 and YTD 2012, respectively. The Signature Restaurants generated SSSG(1) of 1.7% in Q4 2012 and experienced a decline in SSS(1) of 4.4% in YTD 2012, respectively. Sales in Q4 2012 were negatively impacted by the National Hockey League (the "NHL") lock-out, which has generally impacted all Jack Astor's locations, but the effect is most significant at the eight SIR Restaurants located in close proximity to NHL venues (four Jack Astor's, one Canyon Creek and three Signature restaurants). In addition, part of the YTD 2012 decline in the Signature Restaurants was 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 2012 sales. SIR completed a major renovation and repositioning of Reds in September 2012 to enhance sales of this prime downtown property. As a result, Reds was closed for 32 days, reopening on October 2, 2012 as Reds® Wine Tavern. Canyon Creek experienced a decline in SSS(1) of 3.7% in Q4 2012 and a decline of 1.0% in YTD 2012. Alice Fazooli's reported a decline of 4.5% in Q4 2012 and a decline of 3.9% in YTD 2012. Management continues to review initiatives to enhance value at both of the Alice Fazooli's and Canyon Creek concepts.

Corporate Developments
During Q4 2012, SIR opened new Jack Astor's restaurants in Laval, Quebec and Kingston, Ontario. In Q2 2012, SIR opened a new Jack Astor's restaurant on Front Street near the St. Lawrence Market in downtown Toronto. These new restaurants along with the Jack Astor's restaurant that opened during Q4 2011 in Mississauga, Ontario were added to Royalty Pooled Restaurants effective January 1, 2013. Subsequent to Q4 2012, on March 4, 2013, SIR opened a new Jack Astor's restaurant in Kitchener, Ontario.  This restaurant will be added to Royalty Pooled Restaurants effective January 1, 2014.

During Q4 2012, the Fund issued 523,900 Fund units. The Fund units were issued in exchange for Class A GP Units held by SIR. The Fund units were subsequently sold by SIR on the TSX at a price of $13.00 per Fund unit, resulting in gross proceeds of $6.8 million. The Fund then converted the Class A GP Units into Class A LP Units of the Partnership, which are entitled to a pro rata share of the residual income of the Partnership.  As the Fund's investment in the Partnership has increased, this transaction did not have a dilutive effect on the Fund unitholders. The number of outstanding Fund units increased by 523,900 or 9.8%, from 5,356,667 to 5,880,567 units.

Subsequent to Q4 2012, the Fund filed a short form prospectus to qualify the distribution of 895,000 Fund units by SIR. On March 14, 2013, SIR converted 895,000 of its Class A GP Units in the Partnership into Fund units and sold these Fund units generating gross proceeds of approximately $11.0 million. As a result of the conversion of the Class A GP Units into Fund units, SIR's interest in the Partnership changed to 24.4%. 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 receive a pro rata share of the residual income of the Partnership. Accordingly, this transaction does not have a dilutive effect on the Fund unitholders.

Outlook
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.

SIR expects to open five additional restaurants in 2013, including two new Jack Astor's, to be located in north Toronto and Pickering, Ontario. The other three new restaurants are expected to be opened in the Aura condominium development located at Yonge and Gerrard Streets in Toronto, which is one of the largest condominium developments in Canada. SIR also expects to open one new Jack Astor's restaurant in 2014.

The Fund's audited consolidated Financial Statements and Management's Discussion & Analysis ("MD&A"), and the SIR Royalty Limited Partnership's Financial Statements, for the 12-month period ended December 31, 2012, will be filed on SEDAR today and will be available via the SEDAR web site at www.sedar.com tomorrow. The Fund's December 31, 2012 audited 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 12-month periods ended December 31, 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 was required to pay a Make-Whole Payment for these locations from their dates of closure until December 31, 2012.

About SIR Corp.
SIR is a privately held Canadian corporation that owns and operates a portfolio of 52 restaurants in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 35 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® Wine Tavern, 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 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 49 restaurants currently included in the Royalty pool. SIR also owns and operates two seasonal Signature restaurants: Abbey's Bakehouse™ and Duke's Refresher™. These two restaurants 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", "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, 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 28, 2013 Annual Information Form, for the period ended December 31, 2012, 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

For further information:

Jeff Good
Chief Financial Officer
Tel: 905-681-2997

Bruce Wigle
BMIR Investor Relations
Tel: 416-447-4740 ext. 232


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