SIR Royalty Income Fund Reports Third Quarter Fiscal 2011 Results

Fund reports third quarter same store sales growth of 3.2%

BURLINGTON, ON, Nov. 10, 2011 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) ("the Fund") today reported its financial results for the three-month and nine-month period ended September 30, 2011 (the third quarter).  All comparisons are to the corresponding period in the prior fiscal year.

Beginning with the first quarter of 2011, the Fund is reporting its financial results in accordance with International Financial Reporting Standards (IFRS), as required for public companies in Canada. Previously, the Fund reported its financial results under Canadian Generally Accepted Accounting Principles (GAAP). The Fund has consistently applied the same accounting policies in its opening IFRS consolidated balance sheet at January 1, 2010 and throughout all 2010 quarters, as if these policies had always been in effect.

Third Quarter Highlights:

  • Net earnings for the Fund were $1.4 million, or $0.26 per unit, compared with net income under IFRS of $0.01 million for Q3 2010(3);
  • Pooled Revenue increased 5.4% to $52.6 million from $50.0 million in Q3 2010;
  • Distributable cash(2) per Fund unit (basic and diluted) was $0.26;
  • The payout ratio(2) decreased to 96.1% from 99.5% of distributable cash in Q3 2010;
  • SIR entered into an Amended and Restated Loan Agreement that added a $12.0 million Development Loan to be used to finance the building of new restaurants and renovate existing restaurants;
  • Certain legislative changes to the tax treatment of income trusts, commonly referred to as Specified Investment Flow Through tax ("SIFT Tax") effective January 1, 2011 are applicable to the taxable income of the Fund in 2011.  The SIFT Tax applies to the Fund at the estimated prevailing corporate tax rate of approximately 28.25% for 2011 and as a result, cash available for the Fund to distribute to Unitholders is effectively reduced by that amount.

"Overall same store sales growth of 3.2% for the quarter was strong, despite mixed results across our individual segments", said Peter Fowler, President and Chief Executive Officer of SIR Corp.  "We remain committed to managing costs while at the same time sustaining and growing restaurant sales.  We are mindful of the factors affecting our industry and continue to monitor economic conditions and consumer confidence in an effort to deliver positive and reliable results for Unitholders."

Financial Results

Financial Highlights
($000s except restaurants and per Unit amounts)
(unaudited)

3-month
period ended
Sep 30, 2011
3-month
period ended
Sep 30, 2010
9-month
period ended
Sep 30, 2011
9-month
period ended
Sep 30, 2010
         
Royalty Pooled Restaurants 46 45 46 45
Pooled Revenue generated by SIR 52,647 49,970 154,520 148,574
         
Royalty income to Partnership - 6% of Pooled Revenue 3,159 2,998 9,271 8,915
Partnership other income 8 7 25 19
Partnership expenses (22) (32) (66) (83)
Partnership earnings 3,145 2,973 9,230 8,851
SIR Corp.'s interest (Class A, B, and C GP Units) (1,871) (1,780) (5,527) (5,301)
         
Partnership income allocated to Fund 1,274 1,193 3,703 3,550
Interest income 750 750 2,250 2,250

Total income of the Fund

2,024 1,943 5,953 5,800

General & administrative expenses

(91) (85) (303) (296)
Operating income 1,933 1,858 5,650 5,504
Change in amortized cost on Fund Units - (1,848)(3) - (14,651)(3)
         
Net earnings (loss) before income taxes of the Fund 1,933 10 5,650 (9,147)
Income tax expense (556) - (1,627) -
         
Net earnings (loss) for the period 1,377 10 4,023 (9,147)
         
Earnings per Fund Unit (basic and diluted) $0.26 n/a(3) $0.75 n/a(3)

The Fund's net earnings for Q3 2011 totaled $1.4 million, or $0.26 per Fund Unit (basic and diluted), compared to net income under IFRS of $0.01 million for Q3 2010(3).

Pooled Revenue for Q3 2011 increased 5.4% to $52.6 million compared with $50.0 million for the comparable period in 2010.  As at September 30, 2011, there were 46 restaurants included in Royalty Pooled Restaurants.

Distributable cash(2) for Q3 2011 totaled $1.4 million or $0.26 per Fund Unit (basic and diluted), and distributions to unitholders totaled $1.3 million, representing a payout ratio(2) of 96.1% for the period. For the first nine months of 2011, distributable cash(2) totaled $4.1 million or $0.76 per Fund Unit (basic and diluted) and distributions to unitholders totaled $4.2 million, representing a payout ratio(2) of 102.8%.  The higher payout ratio for the first nine months of 2011 was impacted by the December 2010 distribution having been declared and paid at $0.115 per Unit in January 2011. The payout ratio since the Fund's inception, up to and including Q3 2011, is 99.1%.

The following table provides disclosure regarding 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
Sep 30, 2011
3-month
period ended
Sep 30, 2010
9-month
period ended
Sep 30, 2011
9-month
period ended
Sep 30, 2010
Cash provided by operating activities 1,759 1,848 5,456 5,554
Add/(deduct):        
  Net change in non-cash working capital items (547) (85) (1,807) (296)
  Net change in distribution receivable from the Partnership 176 95 409 256
Distributable cash(2) 1,388 1,858 4,058 5,504
Cash distributed for the period 1,334 1,848 4,173 5,544
Surplus/(shortfall) of distributable cash(2) 54 10 (115) (40)
Payout ratio(2) 96.1% 99.5% 102.8% 100.7%
Distributable cash(2) per Fund Unit
(basic and diluted)
$0.26 $0.35 $0.76 $1.03

Effective January 1, 2011, the Fund became taxable and therefore the cash available for distribution to Unitholders is reduced.

Same Store Sales(1)

SSSG(1) for Royalty
Pooled Restaurants

  3-month
period ended
Sep 30, 2011
  3-month
period ended
Sep 30, 2010
  9-month
period ended
Sep 30, 2011
  9-month
period ended
Sep 30, 2010
                 
Jack Astor's®   5.4%   2.2%   2.8%   3.7%
Canyon Creek®   (3.5%)   1.8%   0.8%   0.4%
Alice Fazooli's®   (3.1%)   1.2%   (5.7%)   3.3%
Signature Restaurants   1.7%   16.9%   6.7%   6.8%
Overall SSS(1)   3.2%   2.9%   2.0%   3.4%

For the three-month period ended September 30, 2011, SIR reported to the Fund an increase in SSS(1) of 3.2%. Jack Astor's, which accounts for approximately 73% of Pooled Revenue, reported an increase in SSS(1) of 5.4%.  There was a decline in SSS(1) in Canyon Creek in Q3 2011 of 3.5%.  This decline is due in part to higher sales in the prior year as a result of a summer promotion that was heavily supported by in-restaurant promotion as well as on-line advertising.  During 2011, Canyon Creek's promotions consisted of time limited offerings and were only supported by social media advertising.  Alice Fazooli's reported a decline in SSS(1) of 3.1%. The strategy in 2011 has been to reduce Alice Fazooli's discounting in favour of attracting guests through improved menu and feature beverage offerings.  Management believes this is an appropriate long-term strategy for Alice Fazooli's, but in the short term, it is resulting in lower top-line revenues.  In addition, Alice Fazooli's has two locations that have been renovated (one in October 2008 located near the Square One shopping mall in Mississauga, Ontario and the other in October 2010 located in Richmond Hill, Ontario).  These two renovated locations are growing SSS(1) in both, Q3 2011 and YTD 2011, which are being offset by declines in SSS(1) in the other three Alice Fazooli's locations.  SIR's Signature Restaurants, which include reds®, Loose Moose Tap & Grill®, and Far Niente®/FOUR®/Petit FourTM reported SSSG(1) of 1.7%. SIR continues to focus on sustaining and growing restaurant sales and profits while managing costs in light of the economic conditions in Canada.  The Canadian Restaurant and Foodservices Association, in its 2011 - 2015 Long Term Foodservice Forecast is forecasting that sales in 2011, in the full service restaurant industry, will have a modest increase.  SIR remains cautious and continues to monitor the economy and consumer confidence as its sales have not yet achieved its pre-recession levels.

Corporate Developments

During Q2 2011, SIR opened a Jack Astor's in London, Ontario on May 2, 2011.  This restaurant will be added to Royalty Pooled Restaurants on January 1, 2012 as a New Additional Restaurant.  In addition, SIR has secured sites for five new restaurants.  It is expected that there will be a new Jack Astor's restaurant opening on Argentia Road in Mississauga, Ontario in November 2011.  In addition, a new Jack Astor's restaurant will be opening in Pickering, Ontario and on Front Street near the St. Lawrence Market in Toronto, Ontario, both during fiscal 2012. Two new restaurants will be opening at the corner of Yonge and Gerrard Streets in Toronto, Ontario in fiscal 2013.

On August 26, 2011, SIR entered into an Amended and Restated Loan Agreement that added a $12.0 million Development Loan to its existing $26.0 million Term Loan.  The Development Loan will be used in the next six to nine months to finance the building of new restaurants and to renovate existing restaurants to increase SSS(1) and strengthen SIR's portfolio of restaurants.

SIR Management will continue to monitor economic conditions and consumer confidence and has advised the Fund that it is considering new store growth subject to raising acceptable long-term financing.  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.  Additional sites will be considered where appropriate.

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 nine-month periods ended September 30, 2011 and September 30, 2010, will be filed on SEDAR today and will be available via the SEDAR web site at www.sedar.com tomorrow. The Fund's fiscal 2011 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 not IFRS or Canadian GAAP financial measures and do not have standardized meanings prescribed by IFRS or Canadian GAAP.  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.  The US restaurant is not part of SSS.

(2) Distributable cash and payout ratio are not IFRS 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 9-month periods ended September 30, 2011, which can be accessed via the SEDAR web site (www.sedar.com).

(3) Under IFRS, the Fund Units have been classified as a liability with changes in the carrying value in the Fund Units recorded in the consolidated statement of earnings (loss).  The Fund's Declaration of Trust was amended on December 20, 2010 at which time the Fund Units met the definition of a puttable instrument under IFRS and were then reclassified to equity.  As a result, earnings per share have not been calculated for fiscal 2010

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 31 locations; Alice Fazooli's®, with five 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 46 restaurants included in the Royalty pool as at September 30, 2011. 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

Statements in this report, 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 securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund, the Trust, the Partnership, SIR, the SIR Restaurants, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this document, such statements may include, among other language, such words as "may", "will", "expect", "believe", "plan", "anticipate", "intend", "estimate" and other similar terminology. 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. These forward-looking statements involve a number of risks and uncertainties. The following are some of the factors that could cause actual results to differ materially from those expressed in or underlying such forward-looking statements: 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, specifically as they relate to the changes under IFRS; 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. 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 contained herein to reflect any change in expectations, estimates and projections with regard thereto or any changes in events, conditions or circumstances on which any statement is based, except as expressly required by law.

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 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 31, 2011 Annual Information Form, all of which are available under the Fund's profile at www.sedar.com. 

 

 

SOURCE SIR Royalty Income Fund

For further information:

Jeff Good
Chief Financial Officer
SIR Corp.
5360 South Service Road, Suite 200
Burlington, Ontario, Canada L7L 5L1
Tel: 905-681-2997
                  Lawrence Chamberlain
Investor Relations
Tel: 416-815-0700 ext. 257
Email: lchamberlain@equicomgroup.com

 

 


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