SIR Royalty Income Fund Reports 2016 Second Quarter Results

BURLINGTON, ON, Aug. 8, 2016 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the three-month ("Q2 2016") and six-month ("YTD 2016") periods ended June 30, 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.

Q2 2016 Summary

  • Net earnings for the Fund were $2.34 million, or $0.31 per Fund unit, up from $2.28 million, or $0.30 per Fund unit for the three months ended June 30, 2015 ("Q2 2015");
  • Pooled Revenue increased to $74.8 million, up 5.5% from Q2 2015, supported by the addition of two new Royalty Pooled Restaurants on January 1, 2016, and overall same store sales growth ("SSSG")(1) of 2.7%; 
  • Distributable cash(2) per Fund unit (basic and diluted) was $0.31, representing a payout ratio(2) of 92.4%, as compared to distributable cash per Fund unit of $0.30 in Q2 2015, representing a payout ratio of 94.8%. 

"The continued expansion of Royalty Pooled Restaurants, and our ongoing focus on driving same store sales growth through continuous innovation, resulted in a 5.5% increase in Pooled Revenue in the second quarter. We generated overall same store sales growth of 2.7% in the quarter, with positive results from each of our Concept brands and Signature restaurants," said Peter Fowler, President and CEO of SIR Corp. "Scaddabush continues to perform exceptionally well, contributing to the 13.5% same store sales growth for the combined Scaddabush/Alice Fazooli's concepts. Supported by the strong popularity of Scaddabush, we intend to continue to invest in Scaddabush expansion to grow Pooled Revenue and market share. Subsequent to the end of the second quarter, we opened a new location in Scarborough, Ontario, which is expected to be added to Royalty Pooled Restaurants on January 1, 2017. We plan to open another new Scaddabush in downtown Toronto by the end of 2016 and convert the remaining two Alice Fazooli's to Scaddabush by the end of 2017."  

"Same store sales growth for our flagship Jack Astor's brand, which contributed 75% of Pooled Revenue in the quarter, was positively impacted by the Toronto Raptors' extended playoff run and by higher year-to-date average attendance at Toronto Blue Jays' games at locations closest to Toronto's downtown sporting venues. These gains were achieved despite the comparatively late start of the patio season this year and an 11-day shutdown of our Jack Astor's restaurant in Halifax, Nova Scotia, for major renovations," continued Mr. Fowler. "We are pleased with the performance at our recently renovated Jack Astor's in Halifax, Nova Scotia and Scarborough, Ontario, and intend to initiate similar renovations at additional Jack Astor's locations. Our future restaurant expansion plans currently include the aforementioned new Scaddabush in downtown Toronto this year, and opening one new Reds restaurant in 2017 and one new Jack Astor's restaurant in 2018."

Financial Results

($000s except restaurants and per Unit amounts)

(unaudited)


Three-month

 period ended

June 30, 2016

Three-month

 period ended

June 30, 2015

Six-month

 period ended

June 30, 2016

Six-month

 period ended

June 30, 2015







Royalty Pooled Restaurants


57

55

57

55

Pooled Revenue generated by SIR Corp.


74,757

70,876

138,012

130,224







Royalty income to Partnership – 6% of Pooled Revenue


4,485

4,252

8,281

7,813

Partnership other income


6

8

12

16

Partnership expenses


(12)

(19)

(31)

(36)

Partnership earnings


4,479

4,241

8,262

7,793







SIR Corp.'s interest

(Class A, B, and C GP Units)


(1,927)

 

(1,766)

(3,669)

(3,364)







Partnership income allocated to Fund


2,552

2,475

4,593

4,429

Interest income


750

750

1,500

1,500







Total income of the Fund


3,302

3,225

6,093

5,929

General & administrative expenses


(108)

(112)

(209)

(216)







Net earnings before income taxes of the Fund


3,194

3,113

5,884

5,713

Income tax expense


(854)

(834)

(1,575)

(1,484)







Net earnings for the period


2,340

2,279

4,309

4,229







Earnings per Fund Unit

(basic and diluted)


$0.31

 

$0.30

$0.57

$0.55

 

Pooled Revenue increased 5.5% to $74.8 million, up from $70.9 million in Q2 2015. The increase resulted from the two restaurants added to the Royalty pool as at January 1, 2016 and overall same store sales growth of 2.7%.

The Fund's net earnings were $2.34 million, or $0.31 per Fund unit, up from $2.28 million, or $0.30 per unit, in Q2 2015.

Distributable cash(2) for Q2 2016 totaled $2.35 million, or $0.31 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.17 million, representing a payout ratio(2) of 92.4%. Distributable cash(2) for Q2 2015 totaled $2.29 million, or $0.30 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.17 million, representing a payout ratio(2) of 94.8%. 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 2016, the Fund has generated $83.9 million in cumulative distributable cash and has paid cumulative cash distributions of $83.5 million, representing a cumulative payout ratio (the ratio of cumulative cash distributions paid since inception to cumulative distributable cash generated) 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, 2016

Three-month

period ended

June 30, 2015

Six-month

period ended

June 30, 2016

Six-month

period ended

June 30, 2015

Cash provided by operating activities

2,137

1,968

3,945

4,276

Add/(deduct): 

(108)

 

227

(184)

(217)


Net change in non-cash working capital items


Net change in income tax payable

(21)

(170)

395

184


Net change in distribution receivable from the Partnership

344

267

177

13

Distributable cash(2)

2,352

2,292

4,333

4,256

Cash distributed for the period

2,173

2,173

4,347

4,347

Surplus/(shortfall) of distributable cash(2)

179

119

(14)

(91)

Payout ratio(2)

92.4%

94.8%

100.3%

102.1%

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

$0.31

$0.30

$0.57

$0.56

 

Same Store Sales ("SSS") (1)  

SSS(1) for Royalty Pooled Restaurants

Three-month
period ended

June 30, 2016

Three-month
period ended

June 30, 2015

Six-month
period ended

June 30, 2016

Six-month
period ended

June 30, 2015






Jack Astor's®

0.7%

(2.3%)

0.8%

(2.1%)

Canyon Creek®

3.2%

(0.8%)

3.6%

(0.1%)

Scaddabush/Alice Fazooli's®

13.5%

0.6%

14.7%

1.5%

Signature Restaurants

12.7%

(1.0%)

15.2%

(6.2%)

Overall SSS(1)

2.7%

(1.9%)

3.2%

(2.0%)

 

Jack Astor's, which generated approximately 75% of Pooled Revenue in Q2 2016, generated SSSG(1) of 0.7% in Q2 2016. The Toronto Raptors' 2016 playoff run and increased year-to-date average attendance for the Toronto Blue Jays favourably impacted Jack Astor's sales in Q2 2016, particularly at its locations near the Air Canada Centre and Rogers Centre. These favourable impacts were slightly offset by the late start to the patio season in Q2 2016 due to cooler temperatures in April, compared to Q2 2015, the 11-day closure of the Jack Astor's location in Halifax, Nova Scotia for renovations during  the quarter, and sales declines at the Jack Astor's restaurants in Calgary, Alberta and St. John's, Newfoundland, which are currently experiencing weakened local economies.

Canyon Creek generated SSSG(1) of 3.2% in Q2 2016, representing its fourth consecutive quarter of SSSG(1). This growth has resulted from SIR's concerted effort to improve performance at its Canyon Creek locations by strengthening leadership and execution from the top down. These operational improvements continue to be fine-tuned and positive results are evident in Canyon Creek's increasing sales.

Scaddabush Italian Kitchen & Bar® ("Scaddabush"), together with Alice Fazooli's®, experienced SSSG(1) of 13.5% in Q2 2016, largely 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 renovated and converted two Alice Fazooli's restaurants (Mississauga and Richmond Hill, Ontario) into Scaddabush locations, and opened new locations at the intersection of Yonge Street and Gerrard Street in downtown Toronto and in Scarborough, Ontario. The strong combined Scaddabush/Alice Fazooli's SSSG(1) during Q2 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 12.7% in Q2 2016. Strong sales performance at the Loose Moose®, partially attributable to the aforementioned Toronto Raptors playoff run and increased attendance at Toronto Blue Jays games in Q2 2016, contributed favourably to the Signature Restaurants SSSG(1) in Q2 2016.

Proposed Transaction
SIR filed a Form 45-102 F1 on August 3, 2016 relating to a public or private sale of up to 750,000 units of the Fund in order to assist in the funding of new and/or renovated restaurants, which is expected to benefit the Fund. There can be no assurance that the sale of the Fund units will occur or to the terms thereof.

Outlook
SIR continues to monitor economic conditions 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.

SIR completed renovations of three Jack Astor's locations during 2015 and one additional Jack Astor's location in Q2 2016. SIR is encouraged by the performance of the two most recently renovated Jack Astor's locations and intends to initiate similar renovations at additional Jack Astor's locations. SIR converted one Alice Fazooli's location to Scaddabush during 2015 and plans to convert the two remaining Alice Fazooli's to Scaddabush restaurants by the end of 2017.

Subsequent to Q2 2016, on July 12, 2016, SIR opened a new Scaddabush restaurant in Scarborough, Ontario. This Scaddabush location will be considered a New Additional Restaurant for purposes of Royalty Pooled Restaurants.

SIR plans to open another new Scaddabush restaurant in downtown Toronto by the end of 2016. SIR also plans to open one new Reds restaurant in 2017 and one new Jack Astor's restaurant in 2018. There can be no assurance that these new additional restaurants will be opened or will become part of Royalty Pooled Restaurants.

The Fund's consolidated unaudited Financial Statements and MD&A, and the Partnership's Financial Statements, for the three-month and six-month periods ended June 30, 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 three-month and six-month periods ended June 30, 2016, which can be accessed via the SEDAR website (www.sedar.com).

About SIR Corp.
SIR is a privately held Canadian corporation that owns 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 six 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 57 restaurants currently included in the Royalty Pool. SIR also owns Duke's Refresher® & Bar in downtown Toronto, one seasonal Signature restaurant, Abbey's Bake House®, 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 15, 2016 Annual Information Form, for the period ended December 31, 2015, 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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