SIR Royalty Income Fund Reports 2016 Fourth Quarter and Year-End Results

BURLINGTON, ON, March 14, 2017 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the fourth quarter ("Q4 2016") and year ended December 31, 2016. 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.

2016 Summary

  • On January 1, 2016, two new Jack Astor's® restaurants were added to Royalty Pooled Restaurants.
  • Net earnings for the Fund were $8.9 million, or $1.13 per Fund unit, compared to $8.6 million, or $1.13 per Fund unit, for the year ended December 31, 2015.
  • Pooled Revenue increased to $278.0 million, up 3.9% from $267.6 million in 2015, supported by the addition of two new Royalty Pooled Restaurants on January 1, 2016, and overall same store sales growth ("SSSG")(1) of 1.6%.
  • Distributable cash(2) per Fund unit (basic and diluted) was $1.15, representing a payout ratio(2) of 99.1%, as compared to distributable cash per Fund unit of $1.13 in 2015, representing a payout ratio of 100.5%.
  • SIR Corp. ("SIR") opened two new Scaddabush® restaurants during 2016, one of which was added to Royalty Pooled Restaurants effective January 1, 2017. The other new Scaddabush is expected to be added to Royalty Pooled Restaurants on January 1, 2018.
  • SIR permanently closed Far Niente®/FOUR®/Petit Four® in downtown Toronto, effective October 15, 2016, as it was unable to negotiate a lease extension with the landlord with sufficient term to ensure a suitable return on its planned investment in the location. Far Niente/FOUR/Petit Four were considered as one restaurant under the Fund's Royalty Pooled Revenue accounting structure. Under terms of the License and Royalty Agreement between SIR and the SIR Royalty Limited Partnership (the "Partnership"), SIR was obligated to pay the Fund, via the Partnership, a "Make-Whole Payment", equal to the amount of the Royalty that otherwise would have been paid to the Partnership by Far Niente/FOUR/Petit Four from their date of closure until December 31, 2016.
  • SIR completed renovations to six Jack Astor's restaurants during 2016.

Q4 2016 Financial Summary

  • Net earnings for the Fund were $2.2 million, or $0.26 per Fund unit, compared to $2.1 million, or $0.28 per Fund unit, for the three-month period ended December 31, 2015 ("Q4 2015");
  • Pooled Revenue increased to $67.5 million, up 0.4% from $67.2 million in Q4 2015, supported by the addition of two new Royalty Pooled Restaurants on January 1, 2016;
  • Royalty Pooled Restaurants had a Same Store Sales ("SSS")(1) decline of 0.1%, primarily attributable to the temporary closures of four Jack Astor's restaurants in the quarter for renovations; and
  • Distributable cash(2) per Fund unit (basic and diluted) was $0.28, representing a payout ratio(2) of 101.2%, as compared to distributable cash per Fund unit of $0.28 in Q4 2015, representing a payout ratio of 102.5%.

"SIR continues to invest in new and existing restaurants to further strengthen our brands and drive sales growth in support of growing cash available for distribution to Fund unitholders. We added two new Jack Astor's to the Royalty Pool at the beginning of 2016 which contributed to the Fund's 3.9% Pooled Revenue growth for the year, and then opened two new Scaddabush locations over the course of the year. One of these new locations was added to the Royalty Pool on January 1, 2017 and the other will be added next January. Scaddabush continues to perform exceptionally well and we look forward to the positive future contributions to Royalty Pooled Revenue from these new locations," said Peter Fowler, President and CEO of SIR Corp. "With the completion of renovations to six Jack Astor's locations in 2016, and two more Jack's renovations completed subsequent to year-end, the next evolution of our flagship Jack Astor's brand is well underway. This is a major ongoing initiative for us aimed at driving same store sales growth. We also look forward to converting our two remaining Alice Fazooli's restaurants to Scaddabush during 2017. New restaurants on the slate for 2017 include a new Reds location. These initiatives demonstrate our ongoing focus on elevating SIR's brands and building value for Fund unitholders." 

Financial Results

($000s except restaurants and per Unit amounts)

(unaudited)


Three-month

 period ended

December 31,
2016

Three-month

 period ended

December 31,
2015

12-month

 period ended

December 31,
2016

12-month

 period ended

December 31,
2015







Royalty Pooled Restaurants


57

55

57

55

Pooled Revenue generated by SIR Corp.


67,534

67,250

278,035

267,601







Royalty income to Partnership – 6% of Pooled Revenue


4,053

4,035

16,682

16,056

Make-Whole Payment


77

--

77

--

Total Royalty income to Partnership


4,130

4,035

16,759

16,056

Partnership other income


6

6

24

27

Partnership expenses


(14)

(21)

(64)

(77)

Partnership earnings


4,122

4,020

16,719

16,006

SIR Corp.'s interest






(Class A, B, and C GP Units)


(1,544)

(1,799)

(6,981)

(6,921)

Partnership income allocated to Fund


2,578

2,221

9,738

9,085

Interest income


750

750

3,000

3,000







Total income of the Fund


3,328

2,971

12,738

12,085

General & administrative expenses


(102)

(93)

(410)

(402)







Net earnings before income taxes of the Fund


3,226

2,878

12,328

11,683

Income tax expense


(1,016)

(770)

(3,451)

(3,083)







Net earnings for the period


2,210

2,108

8,877

8,600







Earnings per Fund Unit

(basic and diluted)


$0.26

$0.28

$1.13

$1.13

 

Pooled Revenue increased 0.4% to $67.5 million in Q4 2016, up from $67.2 million in Q4 2015. The increase resulted from the two restaurants added to the Royalty pool as at January 1, 2016, partially offset by an overall same store sales ("SSS")(1) decline of 0.1% and the closure of one SIR restaurant in the quarter.

The Fund's net earnings were $2.2 million, or $0.26 per Fund unit, compared to $2.1 million, or $0.28 per unit, in Q4 2015.

Distributable cash(2) for Q4 2016 totaled $2.4 million, or $0.28 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.4 million, representing a payout ratio(2) of 101.2%. Distributable cash(2) for Q4 2015 totaled $2.1 million, or $0.28 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.2 million, representing a payout ratio(2) of 102.5%. 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 Q4 2016, the Fund has generated $88.6 million in cumulative distributable cash and has paid cumulative cash distributions of $88.1 million, representing a cumulative payout ratio (the ratio of cumulative cash distributions paid since inception to cumulative distributable cash generated) of 99.4%.

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

December 31,
2016

Three-month

period ended

December 31,
2015

12-month

period ended

December 31,
2016

12-month

period ended

December 31,
2015

Cash provided by operating activities

2,214

2,307

8,643

8,891

Add/(deduct):






Net change in non-cash working capital items

(482)

83

(60)

(230)


Net change in income tax payable

(93)

(108)

285

(87)


Net change in distribution receivable from the Partnership

(245)

(161)

194

79

Distributable cash(2)

2,358

2,121

9,062

8,653

Cash distributed for the period

2,388

2,174

8,978

6,520

Surplus of distributable cash(2)

(30)

(53)

84

12

Payout ratio(2)

101.2%

102.5%

99.1%

100.5%

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

$0.28

$0.28

$1.15

$1.13

 

Same Store Sales ("SSS") (1)  

SSS(1) for Royalty Pooled Restaurants

Three-month
period ended

December 31,
2016

Three-month
period ended

December 31,
2015

12-month
period ended

December 31,
2016

12-month
period ended

December 31,
2015






Jack Astor's®

(1.2%)

(0.8%)

(0.2%)

(1.1%)

Canyon Creek®

(2.0%)

0.8%

0.6%

0.2%

Scaddabush/Alice Fazooli's®

7.3%

7.0%

12.7%

1.9%

Signature Restaurants

5.7%

5.3%

11.7%

(0.4%)

Overall SSS(1)

(0.1%)

0.4%

1.6%

(0.8%)

 

Jack Astor's, which generated approximately 73% of Pooled Revenue in Q4 2016, had a SSS(1) decline of 1.2% in Q4 2016, resulting from: the temporary closures of four Jack Astor's locations during the quarter for renovations; sales declines at Jack Astor's locations in Calgary, Alberta, and St. John's, Newfoundland, due to weakened local economies; and a decline in the overall beverage sales. SIR continues to review its beverage program with a view to improving sales.

Canyon Creek's SSS(1) decline of 2.0% in Q4 2016 was primarily the result of significant competitive intrusion at one of the eight Canyon Creek locations, which had a decline in SSS(1) of 20% in the quarter.

Scaddabush, together with Alice Fazooli's, generated SSSG(1) of 7.3% in Q4 2016, primarily due to SIR's continuation of its program to convert the Alice Fazooli's concept into the more popular Scaddabush brand. Since introducing its new Scaddabush concept, SIR has converted two Alice Fazooli's restaurants (Mississauga and Richmond Hill, Ontario) into Scaddabush locations, and opened three new Scaddabush restaurants. The three new Scaddabush locations include: downtown Toronto at the corner of Yonge Street and Gerrard Street; Scarborough, Ontario, which was opened during Q3 2016; and Front Street in downtown Toronto, which was opened in Q4 2016. The strong combined Scaddabush/Alice Fazooli's SSSG(1) during Q4 2016 was partially offset by SSS(1) declines at the two remaining Alice Fazooli's locations that have not yet been converted to Scaddabush. SIR intends to convert these restaurants during 2017.

The downtown Toronto Signature Restaurants generated SSSG(1) of 5.7% in Q4 2016, driven primarily by the strong performance of the Loose Moose®.

Outlook
SIR continues to monitor economic conditions, competitive actions, and consumer confidence. SIR has advised the Fund that it is considering new restaurant developments and renovations to existing restaurants where appropriate. The rate of growth will be impacted by ongoing earnings from current operations and is subject to the availability of acceptable long-term financing. 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.

In support of driving Royalty Pooled Revenue growth and SSSG, SIR completed renovations of six Jack Astor's locations in 2016, including: Halifax, NS (Q2 2016), Mississauga, ON (Q3 2016), Pickering, ON (Q4 2016), Etobicoke, ON (Q4 2016), Kingston, ON (Q4 2016), and St. Catharines, ON (Q4 2016). Subsequent to 2016 year-end, SIR completed two additional Jack Astor's renovations in Barrie, ON and Whitby, ON. SIR is pleased with the performance at the recently renovated Jack Astor's locations and intends to implement similar renovations at other Jack Astor's locations. In support of driving Royalty Pooled Revenue growth, SIR opened two new Scaddabush locations in 2016, including: Scarborough, ON (Q3 2016), and Front Street in downtown Toronto (Q4 2016). The new Scaddabush in Scarborough was added to Royalty Pooled Restaurants on January 1, 2017. The new Scaddabush on Front Street will be added to Royalty Pooled Restaurants on January 1, 2018. SIR plans to convert the two remaining Alice Fazooli's to Scaddabush restaurants by the end of 2017.  

SIR currently has plans to open a new Reds restaurant, at the Square One Shopping Centre in Mississauga, Ontario, which is expected to open in 2017. There can be no assurance that this restaurant will be opened or will become part of Royalty Pooled Restaurants.

The Fund's consolidated audited Financial Statements and MD&A, and the Partnership's Financial Statements, for the 12-month period ended December 31, 2016, 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 2016 and fiscal 2015. SSS for Alice Fazooli's includes three Scaddabush restaurants and two Alice Fazooli's restaurants.

(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 year ended December 31, 2016, 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 60 restaurants and one seasonal retail outlet in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 40 locations; Scaddabush Italian Kitchen & Bar®, together with Alice Fazooli's®, for a total of seven 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, 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 57 restaurants currently included in the Royalty Pool. SIR also owns and operates Duke's Refresher® & Bar in downtown Toronto, one seasonal Signature restaurant, Abbey's Bakehouse®, and one seasonal retail outlet, 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 14, 2017 Annual Information Form, for the period ended December 31, 2016, 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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