SIR Royalty Income Fund Reports 2017 First Quarter Results

BURLINGTON, ON, May 9, 2017 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the three-month period ended March 31, 2017 ("Q1 2017"). All comparisons in the following summary are to the three-month period ended March 31, 2016 ("Q1 2016"). Percentage calculations are based on the numbers in the financial statements and may not correspond to rounded figures presented in this release.

Q1 2017 Highlights

  • On January 1, 2017, one new Scaddabush® restaurant was added to Royalty Pooled Restaurants.

  • Net earnings for the Fund were $2.3 million, or $0.27 per Fund unit, compared to $2.0 million, or $0.26 per Fund unit, for Q1 2016.

  • Pooled Revenue increased 1.9% to $64.5 million, up from $63.3 million in Q1 2016, supported by the addition of one new Royalty Pooled Restaurant on January 1, 2017, and overall same store sales growth ("SSSG")(1) of 2.7%.

  • Distributable cash(2) totaled $2.3 million, or $0.28 per Fund unit (basic and diluted), and cash distributed totaled $2.4 million, representing a payout ratio(2) of 103.6%. The Fund's payout ratio is typically higher during the first quarter due to seasonal factors. The Fund's target payout ratio is 100% per annum.

  • SIR Corp. ("SIR") completed renovations to two additional Jack Astor's® restaurants during the quarter.

"We are pleased to report solid same store sales growth in the quarter, reflecting SIR's continued focus on investing in existing restaurants to further strengthen our brands, drive growth and build value for Fund unitholders. In 2016, we commenced a comprehensive renovation program for Jack Astor's, completing renovations at six locations. During the first quarter, we completed renovations at two additional locations. We are pleased with the improved performance of these renovated Jack Astor's and intend to continue the program throughout 2017 as part of a major initiative to drive same store sales growth for our flagship brand," said Peter Fowler, President and CEO of SIR Corp. "We also advanced our program to convert the remaining two Alice Fazooli's locations to our more popular Scaddabush brand, with the conversion of our Alice Fazooli's location in Oakville to Scaddabush completed in early April. The last remaining Alice Fazooli's in Vaughan will be converted by the end of this year. Our Scaddabush restaurants continue to perform exceptionally well and our unitholders are well positioned to benefit from the improved sales performance resulting from the completion of our Alice Fazooli's / Scaddabush conversion program, coupled with the expected addition of our new Scaddabush location on Front Street in downtown Toronto to Royalty Pooled Restaurants in January 2018."


Financial Results

($000s except restaurants and per Unit amounts)


Three-month

 period ended

Mar. 31, 2017

Three-month

 period ended

Mar. 31, 2016





Royalty Pooled Restaurants


57

57

Pooled Revenue generated by SIR Corp.


64,474

63,255





Royalty income to Partnership –
6% of Pooled Revenue


3,868

3,795

Make-whole payment


130

-

Total Royalty Income to
Partnership


3,998

3,795

Partnership other income


6

6

Partnership expenses


(23)

(18)

Partnership earnings


3,981

3,783

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


(1,489)

(1,742)

Partnership income allocated
to Fund


2,492

2,041

Interest income


750

750

Total income of the Fund


3,242

2,791

General & administrative expenses


(117)

(101)





Net earnings before income
taxes of the Fund


3,125

2,690

Income tax expense


(834)

(721)

Net earnings for the period


2,291

1,969





Earnings per Fund Unit
(basic and diluted)


$0.27

$0.26

 

Pooled Revenue increased 1.9% to $64.5 million in Q1 2017, up from $63.3 million in Q1 2016. The increase resulted from the addition of one new restaurant to the Royalty pool effective January 1, 2017, and overall SSSG(1) of 2.7%.

The Fund's net earnings were $2.3 million, or $0.27 per Fund unit (basic and diluted), compared to $2.0 million, or $0.26 per Fund unit, in Q1 2016.

Distributable cash(2) for Q1 2017 totaled $2.3 million, or $0.28 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.4 million, representing a payout ratio(2) of 103.6%. Distributable cash(2) for Q1 2016 totaled $2.0 million, or $0.26 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.2 million, representing a payout ratio(2) of 109.7%. The decrease in the payout ratio(2) is due to the immediate recognition of the full Make-Whole payment of $0.1 million from SIR to the Partnership in Q1 2017, for the closure of the Alice Fazooli's location in Oakville, Ontario, that is paid from the date of closure to December 31, 2017, and same store sales growth in the quarter. 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 Q1 2017, the Fund has generated $90.9 million in cumulative distributable cash and has paid cumulative cash distributions of $90.5 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)          

($000s except per unit amounts and

payout ratio(2))

Three-month

 period ended

Mar. 31, 2017

Three-month

 period ended

Mar. 31, 2016

Cash provided by operating activities

2,473

1,808

Add/(deduct): 




Net change in non-cash working




capital items

(302)

(76)


Net change in income tax payable

140

416


Net change in distribution receivable




from the Partnership

(6)

(167)

Distributable cash(2)

2,305

1,981

Cash distributed for the period

2,387

2,173

Shortfall of distributable cash(2)

(82)

(192)

Payout ratio(2)

103.6%

109.7%

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

$0.28

$0.26

 

Same Store Sales ("SSS") (1)  

SSSG(1) for Royalty Pooled
Restaurants

Three-month

 period ended

Mar. 31, 2017

Three-month

 period ended

Mar. 31, 2016




Jack Astor's®

2.6%

1.0%

Canyon Creek®

(2.8%)

3.9%

Scaddabush/Alice Fazooli's®

10.1%

15.9%

Signature Restaurants

5.1%

18.0%

Overall SSSG(1)

2.7%

3.7%

 

Jack Astor's, which generated approximately 73% of Pooled Revenue in Q1 2017, generated SSSG(1) of 2.6% in the quarter, reflecting the improved sales performance at certain of the recently renovated Jack Astor's locations, including improved beverage sales, as well as improved sales across the Jack Astor's brand related to a direct mail marketing program during the quarter. Jack Astor's SSSG(1) continues to be impacted by two Jack Astor's restaurants affected by their weakened local economies (Jack Astor's in Calgary, Alberta and Jack Astor's in St. John's, Newfoundland). SIR completed renovations at two Jack Astor's locations during the quarter. The locations in Barrie and Whitby, Ontario were closed for a combined total of 16 days in the quarter.

Canyon Creek's SSS(1) decline of 2.8% in Q1 2017 was primarily due to a significant competitive intrusion at one of the eight Canyon Creek locations, which had a decline in SSS(1) of 15.6% in the quarter.

Scaddabush/Alice Fazooli's SSS(1) performance for Q1 2017 includes three Scaddabush locations (Richmond Hill, Ontario, Mississauga, Ontario, and Yonge and Gerrard in downtown Toronto) and one Alice Fazooli's location (Vaughan, Ontario). The new Scaddabush locations in Scarborough, Ontario and on Front Street in downtown Toronto were not in operation during Q1 2016. Scaddabush/Alice Fazooli's generated SSSG(1) of 10.1% in Q1 2017 due to the continued strong performance of Scaddabush, partially offset by a SSS(1) decline at the Alice Fazooli's in Vaughan. During Q1 2017, SIR closed the Alice Fazooli's location in Oakville, Ontario and began the conversion into a Scaddabush restaurant, which was completed and opened subsequent to Q1 2017, on April 5, 2017. SIR plans to complete the conversion of the remaining Alice Fazooli's location in Vaughan, Ontario by the end of calendar year 2017. Beginning in the quarter that each of these Alice Fazooli's restaurants are closed, their respective sales will be excluded, retroactively, from the calculation of SSS(1) similar to any permanently closed location. Accordingly, the Q1 2017 SSS(1) performance for Scaddabush/Alice Fazooli's does not include Alice Fazooli's in Oakville, as this location was closed effective March 19, 2017.

The downtown Toronto Signature Restaurants generated SSSG(1) of 5.1% in Q1 2017, driven primarily by the strong performance of the Loose Moose®. The Q1 2017 SSSG(1) figures for the Signature Restaurants do not include Far Niente®/FOUR®/Petit Four®, as this location was closed effective October 15, 2016. The 18.0% SSSG(1) for the Signature Restaurants in Q1 2016 includes SSSG(1) of 70.6% from Far Niente/FOUR/Petit Four, primarily due to its 40 day closure in Q1 2015 due to a flood.

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 growth in Royalty Pooled Revenue and/or SSS(1)

  • SIR commenced a Jack Astor's renovation program in 2016, completing renovations at six Jack Astor's locations. SIR completed renovations to two additional Jack Astor's during Q1 2107 (Barrie and Whitby, Ontario). SIR is pleased with the performance of the renovated Jack Astor's locations and intends to implement similar renovations at other Jack Astor's locations in the future.

  • SIR opened two new Scaddabush locations in 2016, including: Scarborough (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 is expected to be added to Royalty Pooled Restaurants on January 1, 2018.

  • SIR completed the conversion of the Alice Fazooli's location in Oakville, Ontario to a new Scaddabush which opened on April 5, 2017. The remaining Alice Fazooli's in Vaughan, Ontario will be converted to a Scaddabush restaurant 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.

The Fund's consolidated unaudited Financial Statements and MD&A, and the Partnership's Financial Statements, for the three-month period ended March 31, 2017, 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 2017 and fiscal 2016.

(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 quarter ended March 31, 2017, 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 (56 operating restaurants and one closed restaurant) 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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http://www.sircorp.com

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