SIR Royalty Income Fund announces increase to Royalty Pool



    BURLINGTON, ON, Jan. 20 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN)
("the Fund") today announced that, as of January 1, 2009, five new Jack
Astor's(R) restaurants and one Canyon Creek(R) restaurant have been added to
the Royalty Pooled Restaurants (the "Royalty Pool") from which the Fund earns
distribution income. The Fund announced details of the Initial Adjustment
related to these six openings during 2008. The Fund also announced details of
the Second Incremental Adjustment for restaurants added to the Royalty Pool
effective January 1, 2008 and details of the associated Priority Special
Conversion Distribution.
    Effective January 1, 2009, the Royalty Pool is expected to receive an
estimated annualized net increase in restaurant Royalties of $1.7 million.
This amount is based on the addition of the 6% Royalty on the $28.9 million in
estimated annual net revenue from the six new openings in 2008. The Fund,
through the SIR Royalty Limited Partnership (the "Partnership") pays SIR Corp.
("SIR") for the net additional royalties through the conversion of 946,071
Class B GP Units, held by SIR, into Class A GP Units. The payment formula as
set out in the license and royalty agreement between SIR and the Partnership
("License and Royalty Agreement") is designed to be accretive to Fund
unitholders.
    The six new Royalty Pool restaurants, which were opened during the period
from April 7, 2008 through October 31, 2008, include: the Jack Astor's opened
on April 7, 2008, and the Canyon Creek opened on April 8, 2008, both near the
Toronto Pearson International Airport; the Jack Astor's that opened on May 5,
2008 at the corner of Yonge and Dundas Streets in downtown Toronto; the Jack
Astor's near the corner of John and Adelaide Streets in downtown Toronto that
opened on July 7, 2008; the Jack Astor's near the corner of Don Mills Road and
Lawrence Avenue in Toronto that opened on October 7, 2008; and the Jack
Astor's at the corner of Yonge and Bloor Streets in downtown Toronto that
opened on October 31, 2008. With the addition of these six new restaurant
Royalty streams, the Fund will indirectly receive Royalty payments from 45
restaurants effective January 1, 2009.
    "The addition of these six new restaurants to the Royalty Pool will
contribute to the Fund's distributable cash in 2009, and will support our
ongoing long-term goal of delivering stable and growing levels of distribution
income for our unitholders," said Peter Fowler, Chief Executive Officer of
SIR.
    The Royalty Pool is adjusted in January of each year to include sales
from any new SIR restaurants that have opened on or before November 1 of the
prior year, net of sales of any Royalty Pool restaurants that have closed. The
Fund (through the Partnership) pays SIR for the additional Royalty stream from
new restaurants, based upon a formula set out in the License and Royalty
Agreement. The payment formula, which is designed to be accretive to Fund
unitholders, is based on the 6% Royalty from the estimated annualized revenue
from the new restaurants divided by the current yield on the units of the
Fund. The accretion to Fund unitholders is achieved by discounting the payment
to SIR by 7.5%. The payment to SIR is in the form of additional Class A GP
Units of the Partnership. These units are the economic equivalent of units of
the Fund.
    These transactions were approved by the Partnership on or about January
19, 2009, with effect on January 1, 2009.

    2009 Initial Adjustment

    The estimated annualized revenue of the six new restaurants added to the
Royalty Pool in 2009 is anticipated to be $28.9 million, translating into an
estimated addition of $1.7 million to the Royalty Pool. The amount initially
paid by the Fund, through the Partnership, to SIR for this additional Royalty
stream is $4.8 million through the conversion of 946,071 Class B GP Units into
Class A GP Units of the Partnership on a one-for-one basis. These Class A GP
Units are valued at $5.07 per Unit, representing the volume weighted average
price of the units of the Fund for the 20 trading days ending December 22,
2008 ("Current Fund Unit Price"). The 946,071 Class A GP Units represent 80%
of the estimated Class A GP Units that SIR is estimated to receive. The
remaining amount will be issued in the Second Incremental Adjustment based on
the actual annual revenue for the new restaurants in 2009. The date of such
Second Incremental Adjustment is January 1, 2010. The actual payment from the
Partnership to SIR for the additional Royalty stream is calculated as follows:
    $1.7 million (the estimated annual addition to the Royalty Pool based on
6% of the $28.9 million in estimated revenue from the new additional
restaurants) multiplied by 92.5% (the accretive adjustment) multiplied by 80%
(the Initial Adjustment) divided by Current Yield(*) on the Fund units of 26.73%
(equal to the aggregate cash distribution paid per Fund unit during the
immediately preceding 12 calendar months of $1.355 divided by the Current Fund
Unit Price of $5.07).

    2009 Adjustment for Reduction

    In 2008, there were no restaurant closures within the SIR portfolio.
Consequently, there is no Adjustment for reduction effective January 1, 2009.

    2009 Second Incremental Adjustment

    The Second Incremental Adjustment for the January 1, 2008 addition of new
restaurants to the Royalty Pool has been finalized. The actual revenue, for
the 52-weeks ended December 31, 2008, of the three Jack Astor's restaurants
that were added to the Royalty Pool effective January 1, 2008 was $12.2
million, which was approximately 6.7% in excess of the amount originally
estimated. This resulted in SIR receiving an additional 130,800 Class A GP
Units. The Second Incremental Adjustment is calculated as follows:
    $0.7 million (the estimated annual addition to the Royalty Pool based on
6% of the $12.2 million in actual revenue for the 52-weeks ended December 31,
2008) multiplied by 92.5% (the accretive adjustment) divided by Current Yield(*)
at the date of the Initial Adjustment on the Fund units of 14.40% (equal to
the aggregate cash distribution paid per Fund unit during the immediately
preceding 12 calendar months of $1.295 divided by the volume weighted average
price of the Fund units for the 20 trading days ending December 20, 2007 of
$8.99 ("Current Fund Unit Price at the time of the Initial Adjustment"))
divided by Current Fund Unit Price at the time of the Initial Adjustment
($8.99) minus the Initial Adjustment of 392,400 Class A GP Units for the
January 1, 2008 addition of new restaurants.

    Priority Special Conversion Distribution

    Also, the Priority Special Conversion Distribution ("Conversion
Distribution") payable to SIR from the Partnership for December 31, 2008 has
been finalized. The amount of the Conversion Distribution is $177,888. This
distribution can only be calculated after December 31, 2008 once the actual
revenue for the 52-weeks ended December 31, 2008 for the new restaurants added
to the Royalty Pool effective January 1, 2008 and the number of additional
Class B GP Units that will be converted to Class A GP Units for the Second
Incremental Adjustment related to the January 1, 2008 new additional
restaurants are known with certainty. The amount of the Conversion
Distribution is equal to the aggregate distributions declared per Fund unit
for the preceding calendar year of $1.36 multiplied by 130,800 which is the
number of Class B GP Units that are converted into Class A GP Units as a
result of the Second Incremental Adjustment. This distribution has been
declared effective December 31, 2008 and will be paid on January 21, 2009.

    2010 Second Incremental Adjustment

    Assuming the six additional new restaurants added to the Royalty Pool
effective January 1, 2009 achieve their estimated revenue for the 52-weeks
ended December 31, 2009, SIR would have the right to convert an additional
236,518 Class B GP Units to Class A GP Units effective January 1, 2010 as the
Second Incremental Adjustment for the January 1, 2009 additional new
restaurants. This would increase SIR's share of the Fund on a fully diluted
basis on January 1, 2009 to 35.6% assuming no other changes in the number of
outstanding Class A GP Units or Fund units occurred before that date. Further,
again assuming the six additional new restaurants added to the Royalty Pool
effective January 1, 2009 achieve their estimated revenue for the 52-weeks
ended December 31, 2009, a Conversion Distribution as of December 31, 2009
would be declared on the 236,518 Class B GP Units that would be converted into
Class A GP Units as a result of the Second Incremental Adjustment on January
1, 2010. Assuming the monthly distributions per Fund unit remained at the
current level throughout 2009, the amount of the December 31, 2009 Conversion
Distribution would be estimated to be $326,394.

    Capital Structure

    Following the: i) 2009 Initial Adjustment, ii) 2009 Adjustment for
Reduction, and iii) 2009 Second Incremental Adjustment, all effective January
1, 2009, SIR will own, control and hold 2,725,415 Class A GP Units,
representing the equivalent of 33.7% of the units of the Fund on a fully
diluted basis. This 33.7% consists of:

    
    -   1,648,544 Class A GP Units held by SIR as at January 1, 2008, and
    -   946,071 in additional Class A GP Units received for the adjustments
        described above (946,071 for the 2009 Initial Adjustment minus zero
        for the 2008 Adjustment for Reduction plus 130,800 for the 2009
        Second Incremental Adjustment).
    

    SIR's Class A GP Units currently represent 100% of the issued and
outstanding Class A GP Units.
    Subsequent to the aforementioned exchanges, SIR owns, controls and holds
97,869,770 Class B GP Units, which are convertible in certain circumstances
(based on the addition of further new restaurants to the Royalty Pool) into
Class A GP Units. Other than as described herein, none are currently
convertible. If converted, the resulting Class A GP Units would, subject to
the Partnership's right to re-convert them back into Class B GP Units in
certain circumstances (based on the new restaurants' performance being below
80% of the original expectations), also be exchangeable (without being subject
to any subordination provisions) on a one-for-one basis into units of the
Fund. The 97,869,770 Class B GP Units currently represent 100% of the issued
and outstanding Class B GP Units.
    SIR is not acting in concert with any other person, including any of its
shareholders, directors or officers, in connection with its holdings of the
Fund or the Partnership, and thus any holdings that they may have in the Fund
are not included in this report.
    The transactions noted herein took place privately.
    SIR holds its interests in the Partnership for investment purposes and in
connection with its operation of its restaurant business, which produces the
revenues from which the Partnership and the Fund derive their revenues via a
trade-mark license and royalty agreement entered into in connection with the
Fund's IPO.
    SIR may, depending on market and other conditions, increase or decrease
its beneficial ownership control or direction over units of the Fund, or
securities of the Partnership, through market transactions, private
agreements, treasury issuances, exercise of options, convertible or
exchangeable securities or otherwise.
    SIR has entered into a number of material agreements with the Fund and/or
the Partnership, which are described in the final prospectus of the Fund dated
October 1, 2004. In addition to the five new Jack Astor's restaurants and one
new Canyon Creek restaurant added to the Royalty Pool, the consideration paid
by SIR for its Class A GP Units and Class B GP Units was the transfer of
certain trade-marks, as described in the final prospectus of the Fund.

    
    (*) Current Yield as defined in the Limited Partnership Agreement of the
        Partnership
    

    About SIR Corp.

    SIR is a privately held Canadian corporation that owns and operates a
portfolio of 45 restaurants in Canada. SIR's concept brands include: Jack
Astor's Bar and Grill(R), with 29 locations; Alice Fazooli's(R), with five
locations; and Canyon Creek Chop House(R), with eight locations. SIR also
operates one-of-a-kind "signature" brands in downtown Toronto, which comprise
the upscale reds(R), Far Niente-/FOUR(TM)/Petit Four(TM), and the Loose Moose
Tap & Grill(R). 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 45 restaurants currently included
in 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
    ---------------------------------------------
    
    Statements in this release, 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; 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 conditions affecting SIR's restaurants
and the Fund will continue substantially in the ordinary course, including
without limitation with respect to general industry conditions, 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. Management is not anticipating an
improvement, in the near future, in economic conditions (particularly as it
relates to the recent unprecedented deterioration of the economic environment
and consumer confidence, which could significantly negatively affect sales and
profit prospects in the near future). Management is not anticipating an
improvement, in the near future, in the availability of credit (particularly
as it relates to the recent disruption of world credit markets, which could
significantly negatively affect sales and profit prospects in the near
future). These assumptions, although considered reasonable by Management at
the time of preparation, may prove to be incorrect. In particular, in
estimating the revenues for the five new Jack Astor's restaurants and the one
new Canyon Creek restaurant, added to the Royalty pool on January 1, 2009,
Management has assumed that they will operate consistent with other Jack
Astor's and Canyon Creek restaurants. For more information concerning the
Fund's risks and uncertainties, please refer to the October 2004 final
prospectus, and/or its March 31, 2008 Annual Information Form, all of which
are available under the Fund's profile at www.sedar.com.

    %SEDAR: 00020914E




For further information:

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; Alice Dunning or Bruce Wigle, Investor Relations, Tel: (416)
815-0700 ext. 228 or ext. 255, Email: bwigle@equicomgroup.com or
adunning@equicomgroup.com


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