SIR Royalty Income Fund Reports 2015 Second Quarter Results

BURLINGTON, ON, Aug. 11, 2015 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the three-month ("Q2 2015") and six-month ("YTD 2015") periods ended June 30, 2015. All comparisons in the following summary 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.

Q2 2015 Summary

  • Net earnings for the Fund were $2.3 million, or $0.30 per Fund unit, compared with $2.2 million, or $0.30 per Fund unit, for the three months ended June 30, 2014 ("Q2 2014");
  • Pooled Revenue increased 2.5% to $70.9 million, supported by the addition of two Royalty Pooled Restaurants, partially offset by a 1.9% decline in Same Store Sales ("SSS")(1); and
  • Distributable cash(2) per Fund unit (basic and diluted) was $0.30, representing a payout ratio(2) of 94.8% as compared to distributable cash per Fund unit (basic and diluted) of $0.30 and a payout ratio of 93.9% in Q2 2014.

"We are committed to building value for SIR Royalty Income Fund unitholders through a constant focus on strengthening our brands, and investing in new restaurant openings to expand our market presence and renovations to existing restaurants to drive same store sales growth," said Peter Fowler, President and CEO of SIR Corp. "Jack Astor's same store sales performance in the second quarter was negatively impacted by the wetter than normal weather conditions, which decreased patio sales, and we experienced increased overall guest counts during Q2 a year ago due to the FIFA World Cup. However, with improved financial flexibility provided by way of our new credit agreement, we are currently moving forward with a number of strategic investments to further elevate our core brands and drive overall sales growth, including: major renovations to three of our Jack Astor's locations that will be completed in the second half of 2015; the opening of two new Scaddabush locations during the first half of 2016; the conversion of our three remaining Alice Fazooli's locations to our popular Scaddabush brand by the end of 2016; and, we are currently evaluating a comprehensive plan to improve the long-term performance of our Canyon Creek locations. We will provide further details of our Canyon Creek performance enhancement plan in the near future."

Financial Results

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


Three-month

period ended

June 30, 2015


Three-month

period ended

June 30, 2014


Six-month

period ended

June 30, 2015


Six-month

period ended

June 30, 2014










Royalty Pooled Restaurants


55


53


55


53

Pooled Revenue generated by SIR Corp.


70,876


69,172


130,224


127,345










Royalty income to Partnership – 6% of Pooled Revenue


4,252


4,151


7,813


7,641

Partnership other income


8


7


16


19

Partnership expenses


(19)


(23)


(36)


(47)

Partnership earnings


4,241


4,135


7,793


7,613

SIR Corp.'s interest
(Class A, B, and C GP Units)


(1,766)


(1,777)


(3,364)


(3,459)

Partnership income allocated to Fund


2,475


2,358


4,429


4,154

Interest income


750


750


1,500


1,500










Total income of the Fund


3,225


3,108


5,929


5,654

General & administrative expenses


(112)


(109)


(216)


(225)










Net earnings before income taxes of the Fund


3,113


2,999


5,713


5,429

Income tax expense


(834)


(803)


(1,484)


(1,456)










Net earnings for the period


2,279


2,196


4,229


3,973










Earnings per Fund Unit

(basic and diluted)


$0.30


 

$0.30


$0.55


$0.55

 

Pooled Revenue increased 2.5% to $70.9 million in Q2 2015, from $69.2 million in Q2 2014. Increased Pooled Revenue resulted from the two additional restaurants added to the Royalty pool as of January 1, 2015, offset by a slight decline in SSS(1).  As at June 30, 2015, there were 55 restaurants included in Royalty Pooled Restaurants, compared to 53 restaurants as at June 30, 2014.

The Fund's net earnings for Q2 2015 totaled $2.3 million, or $0.30 per Fund unit (basic and diluted), compared with $2.2 million, or $0.30 per Fund unit (basic and diluted) for Q2 2014.

Distributable cash(2) for Q2 2015 totaled $2.3 million, or $0.30 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.2 million, representing a payout ratio(2) of 94.8%. Distributable cash(2) for Q2 2014 totaled $2.2 million, or $0.30 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.1 million, representing a payout ratio(2) of 93.9%. The Fund's payout ratio(2) is intended to average 100% per annum.

Since the Fund's inception in October 2004 up to and including Q2 2015, the Fund has generated $75.2 million in cumulative distributable cash(2) and has paid cumulative cash distributions of $74.8 million, representing a cumulative payout ratio(2) (the ratio of cumulative cash distributions paid since inception to cumulative distributable cash generated(2)) of 99.5%.

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)



Three-month

period ended

June 30, 2015


Three-month

period ended

June 30, 2014


Six-month

period ended

June 30, 2015


Six-month

period ended

June 30, 2014

Cash provided by operating activities



1,968


2,295


4,276


4,036

Add/(deduct):











Net change in non-cash working
capital items



227


 

(110)


(217)


(227)


Net change in income tax payable



(170)


(261)


184


117


Net change in distribution receivable
from the Partnership



267


285


13


74

Distributable cash(2)



2,292


2,209


4,256


4,000

Cash distributed for the period



2,173


2,074


4,347


4,100

Surplus/(shortfall) of distributable cash(2)



119


135


(91)


(100)

Payout ratio(2)



94.8%


93.9%


102.1%


102.5%

Distributable cash(2) per Fund unit
(basic and diluted)



$0.30


$0.30


$0.56


$0.56





















Same Store Sales ("SSS") (1) 




















SSS(1) for Royalty Pooled Restaurants



Three-month
period ended

June 30, 2015


Three-month
period ended

June 30, 2014


Six-month
period ended

June 30, 2015


Six-month
period ended

June 30, 2014











Jack Astor's®



(2.3%)


1.7%


(2.1%)


0.1%

Canyon Creek®



(0.8%)


1.7%


(0.1%)


1.5%

Alice Fazooli's®/Scaddabush Italian











Kitchen & Bar®



0.6%


1.9%


1.5%


(1.7%)

Signature Restaurants



(1.0%)


0.8%


(6.2%)


4.1%

Overall SSS(1)



(1.9%)


1.6%


(2.0%)


0.4%

 

Jack Astor's, which generated approximately 76% of the Fund's Pooled Revenue in Q2 2015, had a 2.3% decline in same store sales ("SSS")(1) in the quarter. SIR management believes that Jack Astor's SSS decline in Q2 2015 is primarily attributable to the increased precipitation in June 2015 compared to June 2014, which negatively impacted patio sales, and the positive impact that the 2014 FIFA World Cup (June 12 to July 13, 2014) had on Jack Astor's guest counts during Q2 2014. Canyon Creek had a 0.8% decline in SSS(1) in Q2 2015. During the third quarter of 2014, SIR Corp. ("SIR") completed a renovation of its Canyon Creek location in Burlington and management is currently evaluating a comprehensive performance enhancement plan for all Canyon Creek locations. Alice Fazooli's, together with Scaddabush, generated same store sales growth ("SSSG")(1) of 0.6% in Q2 2015, primarily due the strong performance of Scaddabush at Square One in Mississauga, which was formerly an Alice Fazooli's location until its conversion in July 2013.  SIR expects to complete the conversions of each of its remaining three Alice Fazooli's locations to its popular Scaddabush brand by the end of 2016.  The downtown Toronto Signature Restaurants had a 1.0% decline in SSS(1) in Q2 2015. The decline in SSS(1) for the Signature Restaurants is primarily attributable to the closure of Far Niente, FOUR and Petit Four for 40 days during Q1 2015 due to the extensive repair work that was required due to water damage caused by a burst pipe. Far Niente, FOUR and Petit Four were re-opened at the beginning of Q2 2015, but their 40-day closure in Q1 2015 had a negative residual impact on Q2 2015 sales, as it took some time to reach normal sales levels again.  

Corporate Developments
Subsequent to the end of Q2 2015, on July 6, 2015 SIR entered into a new credit agreement (the "Credit Agreement") with a Schedule I Canadian chartered bank (the "Lender").  The Credit Agreement provides a maximum principal amount of $30.0 million, consisting of a $20.0 million revolving term credit facility ("Credit Facility 1") and a $10.0 million revolving term loan ("Credit Facility 2"). SIR and the Lender have also entered into a purchase card agreement providing credit of up to an additional $5.0 million. The previous term loan was repaid by a full draw down of Credit Facility 2 and a partial draw down of Credit Facility 1. The remaining funds available through Credit Facility 1 will be used for general corporate and operating purposes, including capital spending on new and renovated restaurants. The Credit Agreement includes more favourable interest rates on outstanding debt than SIR's prior credit facility and thereby lowers SIR's debt service costs. Further details on the Credit Agreement are available in the Fund's 2015 second quarter Management's Discussion & Analysis ("MD&A"), Concurrent with the Credit Agreement, SIR announced that Competitive Foods Canada Ltd. acquired 3,190,691 common shares of SIR, representing 26.5% of SIR's common shares on a fully diluted basis (29.9% of the currently issued and outstanding shares). The share capital was acquired directly and indirectly from certain of the existing minority common shareholders and common share option holders of SIR. Peter Fowler Enterprises Ltd. ("PFEL") did not sell any of its holdings in SIR in this transaction and remains the majority shareholder of SIR.  

Outlook
SIR continues to monitor economic conditions and consumer confidence and has advised the Fund that it is considering new store developments and renovations to existing restaurants where appropriate.  Based on its assessment of these conditions, the timing of new restaurant construction and renovations as well as related opening schedules will be reviewed regularly by SIR and adjusted as necessary. SIR currently has plans to open one new Jack Astor's restaurant in 2015 and one in 2016. SIR also plans to open two new Scaddabush restaurants in 2016. SIR expects to complete major renovations to three Jack Astor's locations in the second half of 2015 and plans to convert its three remaining Alice Fazooli's locations to the popular Scaddabush brand by the end of 2016.          

The Fund's consolidated Financial Statements and MD&A, and the Partnership's Financial Statements, for the three and six-month periods ended June 30, 2015, are available via the SEDAR website at www.sedar.com and 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 2015 and fiscal 2014. SSS for Alice Fazooli's includes three Alice Fazooli's restaurants and one Scaddabush restaurant, representing the Square One location in Mississauga, Ontario, which was renovated and re-opened as Scaddabush on July 23, 2013.

(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 and six-month periods ended June 30, 2015, which can be accessed via the SEDAR website (www.sedar.com).

About SIR Corp.
SIR is a privately held Canadian corporation that owns and operates a portfolio of 58 restaurants in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 39 locations; Alice Fazooli's® together with Scaddabush Italian Kitchen & Bar®, for a total of five locations; and Canyon Creek®, with eight locations.  SIR also operates one-of-a-kind "Signature" brands in downtown Toronto, including Reds® Wine Tavern, Reds® Midtown Tavern, Far Niente®/FOUR®/Petit Four®, and The Loose Moose®.  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 55 restaurants currently included in the Royalty Pool. SIR also owns and operates Dukes Refresher® & Bar in downtown Toronto and one seasonal Signature restaurant: Abbey's Bakehouse®, which 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", "should", "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: market conditions at the time of this filing; competition; changes in demographic trends; weather; changing consumer preferences and discretionary spending patterns; changes in consumer confidence; changes in national and local business and economic conditions; changes in foreign exchange; 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.  There can be no assurance that SIR will remain compliant in the future with all of its financial covenants under the Credit Agreement and imposed by the lender. 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 disclose or 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, and has assumed that SIR will remain compliant in the future with all of its financial covenants under the Credit Agreement and imposed by the lender. For more information concerning the Fund's risks and uncertainties, please refer to the March 18, 2015 Annual Information Form, for the period ended December 31, 2014, which is available under the Fund's profile at www.sedar.com.

All of the forward-looking statements made herein 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, Bay Street Communications, Tel: 647-496-7856

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