SIR Royalty Income Fund Reports 2013 First Quarter Results, Increases Monthly Cash Distribution

BURLINGTON, ON, May 13, 2013 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the three-month period ended March 31, 2013 ("Q1 2013"). The Fund also announced an 8.0% increase to cash distributions, raising its monthly unitholder distributions from $0.088 per unit to $0.095 per unit, representing an estimated annualized distribution of $1.140 per unit. The increase will be effective for the Fund's monthly cash distribution to be paid in June 2013.

All comparisons in the following summary of the Fund's Q1 2013 financial results are to the corresponding period 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.

Q1 2013 Summary

  • Net earnings for the Fund were $1.5 million in Q1 2013, or $0.24 per Fund unit, as compared to $1.4 million, or $0.26 per Fund unit, in Q1 2012;
  • Pooled Revenue increased 5.0% to $54.7 million in Q1 2013 from $52.1 million in Q1 2012;
  • Same Store Sales (SSS)(1) declined 2.2% for Royalty Pooled Restaurants;
  • Distributable cash(2) per Fund unit (basic and diluted) was $0.26 in Q1 2013, representing a payout ratio(2) of 123.1%(3) for Q1 2013;
  • On January 11, 2013, a special cash distribution of $0.05 per unit was paid to unitholders of record as at the close of business on December 31, 2012; this special cash distribution which was paid in Q1 2013 significantly affected the payout ratio for Q1 2013;
  • Effective January 1, 2013, four new Jack Astor's restaurants were added to Royalty Pooled Restaurants and two permanently closed restaurants were removed from Royalty Pooled Restaurants;
  • During Q1 2013, SIR Corp. ("SIR") opened a new Jack Astor's restaurant in Kitchener, Ontario;
  • During Q1 2013, SIR completed renovations of the Loose Moose Tap & Grill and one Jack Astor's restaurant;
  • On March 14, 2013, the Fund issued 895,000 Fund units in exchange for Class A GP units of the SIR Royalty Limited Partnership (the "Partnership") held by SIR.  SIR sold these units generating gross proceeds of approximately $11.0 million, which must be used to fund new restaurant construction and existing restaurant renovations.

"We remain focused on enhancing the performance of our Concept and Signature restaurant brands and driving growth of Pooled Revenue. In the quarter, we added four new Jack Astor's restaurants to Royalty Pooled Restaurants and completed renovations to the Loose Moose Tap & Grill and one Jack Astor's restaurant. To date in 2013, we have opened two new Jack Astor's in Ontario. The first quarter of 2013 was also the first full quarter of operation for Reds Wine Tavern, and we are pleased by our customers' favourable response to this core Signature group brand," said Peter Fowler, President and CEO of SIR Corp. "Supported by our continued efforts to enhance the performance of Royalty Pooled Restaurants, we are pleased to announce an 8.0% increase to the Fund's monthly cash distributions, effective for the distribution to be paid in June. On an estimated annualized basis, this represents an increase from $1.056 per unit to $1.140 per unit. This represents the Fund's fifth distribution increase since inception in 2004."

"Looking ahead, we will continue to focus on building value for Fund unitholders through new restaurant openings and renovations, as market conditions permit, and in maintaining a constant focus on innovation and strengthening our restaurant brands," continued Mr. Fowler. "We expect to open four additional restaurants in the remainder of 2013, including a new Jack Astor's in Pickering, Ontario. The other three new restaurants are planned for a large condominium development at Yonge and Gerrard Streets in downtown Toronto."

Financial Results

($000s except restaurants and per
Unit amounts)
(unaudited)
  Three-month
period ended
March 31, 2013
Three-month
period ended
March 31, 2012
       
Royalty Pooled Restaurants   49 47
Pooled Revenue generated by
SIR
  54,699 52,076
       
Royalty income to Partnership -
6% of Pooled Revenue
  3,282 3,125
Make-Whole Payment(4)   - 62
Partnership other income   10 11
Partnership expenses   (28) (12)
Partnership earnings   3,264 3,186
       
SIR Corp.'s interest
(Class A, B, and C GP Units)
  (1,779) (1,934)
       
Partnership income allocated
to Fund
  1,485 1,252
Interest income   750 750
       
Total income of the Fund   2,235 2,002
General & administrative
expenses
  (112) (86)
       
Net earnings before income
taxes of the Fund
  2,123 1,916
Income tax expense   (662) (515)
       
Net earnings for the period   1,461 1,401
Earnings per Fund Unit
(basic and diluted)
  $0.24 $0.26

Pooled Revenue increased 5.0% to $54.7 million in Q1 2013 from $52.1 million in Q1 2012.  As at March 31, 2013, there were 49 restaurants included in Royalty Pooled Restaurants.

The Fund's net earnings for Q1 2013 totaled $1.5 million, or $0.24 per Fund Unit (basic and diluted), compared with $1.4 million, or $0.26 per Fund Unit (basic and diluted) for Q1 2012.

Distributable cash(2) for Q1 2013 totaled $1.6 million or $0.26 per Fund Unit (basic and diluted), and distributions to Unitholders totaled $1.9 million, representing a payout ratio(2) of 123.1% for the period. The payout ratio(2) was significantly affected by the special year-end distribution of $0.05 per unit that was declared in December 2012, and paid on January 11, 2013.  The Fund's payout ratio(2) is intended to average 100% per annum. The payout ratio(2) since the Fund's inception, up to and including Q1 2013, is 99.1%.

Distributable Cash(2)

The following table reconciles the relationship between cash provided by (used in) operating activities and distributable cash(2):

     
(in thousands of dollars except per Unit
amounts and payout ratio(2))
(unaudited)
Three-month
period ended
March 31, 2013
Three-month
period ended
March 31, 2012
Cash provided by (used in) operating
activities
1,691 (717)
Add/(deduct):
     Net change in non-cash working
     capital items
(112) (200)
     
    Net change in income tax payable (25) 2,175
     
    Net change in distribution receivable
    from the Partnership
10 154
Distributable cash(2) 1,564 1,412
Cash distributed for the period 1,925(3) 1,334
Surplus/(shortfall) of distributable cash(2) (361) 78
Payout ratio(2) 123.1%(3) 94.4%
Distributable cash(2) per Fund Unit
(basic and diluted)
$0.26 $0.26

Same Store Sales (SSS)(1)

SSSG(1) for Royalty
Pooled Restaurants
Three-month
period ended
March 31, 2013
Three-month
period ended
March 31, 2012
     
Jack Astor's® (0.6%) 10.7%
Canyon Creek® (8.2%) 1.6%
Alice Fazooli's® (10.6%) 1.0%
Signature Restaurants 1.8% (1.1%)
Overall SSSG(1) (2.2%) 7.5%

Overall SSS(1) in Q1 2013 were negatively affected due to one less day of sales as compared to Q1 2012, which included one extra day of sales due to 2012 being a leap year, as well as exceptionally favourable weather in the comparable period. Jack Astor's, which accounted for approximately 74% of Pooled Revenue in Q1 2013, experienced a SSS(1) decline of 0.6% in Q1 2013, compared to a strong first quarter a year ago. The Signature Restaurants generated Same Store Sales Growth (SSSG)(1) of 1.8% in Q1 2013. Canyon Creek and Alice Fazooli's reported declines in SSS(1) of 8.2% and 10.6%, respectively, in Q1 2013.  SIR's Management is committed to maximizing the performance of all of its restaurants and continues to review initiatives to enhance value at both of the Alice Fazooli's and Canyon Creek concepts.

Corporate Developments
In Q1 2013, SIR completed a renovation of the Loose Moose Tap & Grill and one Jack Astor's restaurant.  There were no significant restaurant renovations in Q1 2012.

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

In fiscal 2012, SIR opened three new Jack Astor's restaurants, one in Toronto, Ontario, one in Laval, Quebec and one in Kingston Ontario.  These three restaurants, along with a Jack Astor's located in Mississauga, Ontario that opened in Q4 2011, were added to Royalty Pooled Restaurants on January 1, 2013.

On March 14, 2013, the Fund issued 895,000 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 resulting in gross proceeds of approximately $11.0 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 ownership in the Partnership has increased, the transaction did not have a dilutive effect on the Fund unitholders. As at March 31, 2013, SIR retained a 24.4% interest in the Partnership.

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.

Over the remainder of 2013, SIR expects to open four more restaurants, including one Jack Astor's, to be located in Pickering, Ontario. The other three new restaurants are planned for one of the largest condominium developments in Canada, located at Yonge and Gerrard Streets in Toronto. SIR also expects to open one new Jack Astor's restaurant in Ottawa, Ontario in 2014.

The Fund's unaudited consolidated Financial Statements and Management's Discussion & Analysis ("MD&A"), and the SIR Royalty Limited Partnership's Financial Statements, for the three-month period ended March 31, 2013, will be filed on SEDAR today and will be available via the SEDAR web site at www.sedar.com and SIR's website at www.sircorp.com tomorrow.

(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 2013 and fiscal 2012.

(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 period ended March 31, 2013, which can be accessed via the SEDAR web site (www.sedar.com).

(3) Cash distributed to Unitholders for the three-month period ended March 31, 2013 includes the special year-end distribution of $0.05 per unit or $0.3 million that was declared in December 2012 and paid on January 11, 2013. The payout ratio for the three-month period ended March 31, 2013 was significantly affected by the special year-end distribution.

(4) 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 53 restaurants in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 36 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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