SIR Royalty Income Fund Reports SIR Corp. Second Quarter 2013 Results

BURLINGTON, ON, March 27, 2013 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) ("the Fund") today announced that SIR Corp. ("SIR"), the operating entity from which the Fund earns equity income and interest income, has filed its financial results for the 12-week and 24-week periods ended February 10, 2013 ("Q2 FY2013" and "YTD FY2013", respectively).

SIR has advised the Fund that revenue from corporate restaurant operations for Q2 FY2013 increased 4.2% to $52.2 million compared to $50.1 million for the 12-week period ended February 12, 2012 ("Q2 FY2012"). Revenue from corporate restaurant operations for YTD FY2013 increased 3.3% to $102.6 million from $99.3 million for the 24-week period ended February 12, 2012 ("YTD FY2012").    

Same Store Sales Growth(1)
("SSSG")
          12-week period ended
Feb. 10, 2013
(unaudited)
      24-week period ended
Feb. 10, 2013
(unaudited)
Jack Astor's ®           2.5%       1.9%
Canyon Creek®           (8.0%)       (5.1%)
Alice Fazooli's®           (3.4%)       (5.2%)
Signature Restaurants           (0.2%)       (6.5%)
Overall SSSG(1)           0.3%       (0.3%)
                     

Same store sales(1) ("SSS") for Q2 FY2013 increased 0.3% and decreased by 0.3% for the 24-week period ended February 10, 2013. Jack Astor's, which has contributed approximately 72% of the Fund's Royalty Pooled Revenue in YTD FY2013, had positive SSSG(1) in both Q2 FY2013 and YTD FY2013. Consolidated SSS(1) in Q2 FY2013 and YTD FY2013 were negatively impacted by the National Hockey League (the "NHL") lock-out which has generally impacted all Jack Astor's locations, but the effect was 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). The NHL lock-out ended on January 6, 2013, and NHL games commenced on January 19, 2013. Signature Group SSS(1) were negatively impacted by the closure of Reds® Wine Tavern for 32 days in the first quarter of fiscal 2013 for a major renovation and repositioning. Management is currently reviewing initiatives to enhance value at Canyon Creek and Alice Fazooli's.

The net loss and comprehensive loss for Q2 FY2013 was $2.8 million, compared to a net loss and comprehensive loss of $6.8 million in Q2 FY2012. The lower net loss and comprehensive loss in Q2 FY2013 is primarily due to the change in the amortized cost of Ordinary LP Units and Class A LP Units of the SIR Royalty Limited Partnership ("the Partnership"). Under IFRS, the Ordinary LP Units and Class A LP Units of the Partnership are treated as a financial liability requiring adjustments to the amortized cost to be recorded in the consolidated statements of operations and comprehensive loss. The change in the amortized cost is a non-cash transaction and accordingly, has no impact on cash flows. This change is lower in Q2 FY2013 compared to Q2 FY2012, primarily due to the larger increase in the underlying Fund's unit price during Q2 FY2012 as compared to Q2 FY2013.

SIR's Adjusted Net Earnings(2) for Q2 FY2013 totaled $0.3 million, compared to $0.9 million in Q2 FY2012. Adjusted Net Earnings(2) consists of net earnings (loss) and comprehensive income (loss) excluding the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership. The decline in Q2 FY2013 Adjusted Net Earnings(2) resulted from lower gross margins from corporate restaurant operations. This is largely a result of relatively flat SSSG(1) and additional restaurant operation costs associated with opening new corporate restaurants during the period.

SIR Corporate Development

During YTD FY2013, SIR opened two new Jack Astor's restaurants, one in Laval, Quebec and one in Kingston, Ontario. These two new Jack Astor's restaurants were added to Royalty Pooled Restaurants effective January 1, 2013, along with the Jack Astor's on Argentia Road in Mississauga, Ontario and the Jack Astor's on Front Street near the St. Lawrence Market in Toronto, Ontario, which opened during the first and fourth quarters of fiscal 2012, respectively.

Subsequent to Q2 FY2013, on March 4, 2013, SIR opened a new Jack Astor's restaurant in Kitchener, Ontario. This restaurant will be added to Royalty Pooled Restaurants on January 1, 2014.

During Q1 FY2013, SIR temporarily closed Reds®, a core Signature restaurant, for 32 days to complete a renovation and repositioning. The new Reds Wine Tavern opened on October 2, 2012. During Q2 FY2013, SIR closed the Loose Moose® to complete a renovation, reopening on February 1, 2013. SIR also completed renovations of two Jack Astor's restaurants, one in Q1 FY2013 and one in Q2 FY2013.

At February 10, 2013, SIR had four commitments to lease properties upon which it plans to build six new restaurants. It is expected that five of these restaurants will open in calendar year 2013, with the remaining restaurant expected to open in calendar year 2014.

Liquidity and Capital Resources

As at February 10, 2013, SIR had cash and cash equivalents of $5.1 million compared to $10.5 million as at August 26, 2012 (SIR's fiscal 2012 year-end).

Cash provided by continuing operations totaled $3.3 million and $3.3 million in Q2 FY2013 and YTD FY2013, respectively, compared to $3.6 million in Q2 FY2012 and $4.5 million in YTD FY2012. The declines in the respective periods resulted from the decrease in Adjusted Net Earnings of $0.5 million in Q2 FY2013 as compared to Q2 FY2012, and the unfavourable variance in Adjusted Net Earnings(2) of $1.9 million for YTD FY2013 as compared to YTD FY2012.

Cash used in continuing investing activities was $1.2 million and $4.7 million for Q2 FY2013 and YTD FY2013, respectively, compared to $3.0 million and $4.8 million for Q2 FY2012 and YTD FY2012, respectively. Net purchases of property and equipment and other assets amounted to $4.2 million and $3.0 million for Q2 FY2013 and Q2 FY2012, respectively. The majority of the capital expenditures for YTD FY2013 relate to construction costs incurred for the two new Jack Astor's restaurants that opened in Q1 FY2013 (Laval, Quebec and Kingston, Ontario), the new Jack Astor's restaurant that opened in Kitchener, Ontario subsequent to Q2 FY2013, and renovation costs for Reds Wine Tavern, the Loose Moose and two Jack Astor's restaurants. Cash used in continuing investing activities includes the net cash proceeds received from restricted funds of $3.0 million and $4.6 million for Q2 FY2013 and YTD FY2013, respectively, which related to the conversion of Class A GP Units to Fund units and their subsequent sale.

Outlook

The Canadian Restaurant and Foodservice Association ("CRFA") estimates that sales in the full-service category will grow by 3.9% in calendar 2013.  The CRFA estimates that growth in the full-service category will then average 4.0% over the next three years.  SIR will continue to focus on sustaining and growing existing restaurant sales and profits, and strategically expanding its restaurant portfolio. The Company will carefully monitor economic conditions and manage its growth and capital expenditures accordingly. In addition to the six new restaurants that SIR has four lease commitments for, additional restaurant sites will be considered when appropriate and will be subject to the availability of long-term financing or other available funds.

Subsequent to Q2 FY2013, 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 net proceeds of approximately $10.0 million. As a result of the conversion of the Class A GP Units into Fund units, SIR's interest in the Partnership is reduced to 24.4%. Accordingly, this transaction does not have a dilutive effect on the Fund unitholders.

SIR's Q2 FY2013 interim filings, which include its unaudited consolidated financial statements and management's discussion & analysis, can be accessed via the Fund's profile on the SEDAR web site at www.sedar.com under "Other".

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: Duke's Refresher™ and Abbey's Bakehouse™. 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.

(1) Same store sales ("SSS") includes revenue from all SIR restaurants except for those restaurants that were not open for the entire comparable periods in fiscal 2013 and fiscal 2012. SSS does not include Duke's Refresher or Abbey's Bakehouse. Same store sales growth ("SSSG") is the percentage increase in SSS over the prior comparable period. SSS and 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.

(2) Adjusted Net Earnings (Loss) consist of net earnings (loss) and comprehensive income (loss) excluding the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership.  Adjusted Net Earnings (Loss) is a financial measure that does not have a standardized meaning prescribed by IFRS.  However, SIR believes that Adjusted Net Earnings (Loss) is a useful estimate of the core business' contribution to cash flow from operations and uses this measure as a supplemental measure of SIR's performance.

Adjusted Net Earnings for Q2 FY2013 is calculated as net loss and comprehensive loss for the period of $2.8 million plus the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $3.1 million.  Adjusted Net Earnings for Q2 FY2012 is calculated as net loss and comprehensive loss for the period of $6.8 million plus the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $7.7 million. Adjusted Net Loss for YTD FY2013 is calculated as net loss and comprehensive loss for the period of $4.8 million plus the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $3.8 million.  Adjusted Net Earnings for YTD FY2012 is calculated as net loss and comprehensive loss for the period of $14.5 million plus the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $15.4 million.

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 30, 2012 Annual Information Form, for the period ended December 31, 2011, and the March 7, 2013 short form prospectus, which are both 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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