SIR ROYALTY INCOME FUND REPORTS FIRST QUARTER FISCAL 2011 RESULTS

BURLINGTON, ON, June 13, 2011 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) ("the Fund") today reported its financial results for the three-month period ended March 31, 2011 (the first quarter).  All comparisons are to the corresponding period in the prior fiscal year.

Beginning with the first quarter of 2011, the Fund is reporting its financial results in accordance with International Financial Reporting Standards (IFRS), as required for public companies in Canada. Previously, the Fund reported its financial results under Canadian Generally Accepted Accounting Principles (GAAP). Financial results for the corresponding period in 2010 have been restated to reflect the adoption of IFRS.

First Quarter Highlights:

  • Net earnings for the Fund were $1.3 million, or $0.23 per unit, compared with a re-stated net loss under IFRS of $10.6 million for Q1 2010(3);
  • Pooled Revenue increased 1.2% to $48.1 million from $47.5 million for Q1 2010;
  • Distributable cash(2) per Fund unit (basic and diluted) was $0.24;
  • The payout ratio(2) in the first quarter of the current fiscal year increased from 104.5% of distributable cash to 119.2%.  The payout ratio(2) for the 3-month period ended March 31, 2011 was affected by the December 2010 distribution that was declared and paid in January 2011 at a rate of $0.115 per unit;
  • On January 1, 2011, the Jack Astor's restaurant in Boisbriand, Quebec, which opened during the fourth quarter of 2010 was added to the Royalty Pooled Restaurants;
  • Certain legislative changes to the tax treatment of income trusts, commonly referred to as Specified Investment Flow Through tax ("SIFT Tax") effective January 1, 2011 are applicable to the taxable income of the Fund in 2011.  The SIFT Tax applies to the Fund at the estimated prevailing corporate tax rate of approximately 28.25% for 2011 and as a result, cash available for the Fund to distribute to Unitholders is effectively reduced by that amount.

Highlights Subsequent to Quarter End:

  • On May 2, 2011, SIR opened a new Jack Astor's restaurant in London, Ontario, which is expected to be added to the Royalty Pooled Restaurants on January 1, 2012;

"Although we are seeing some improvement in consumer discretionary spending on dining and entertainment as the economy continues its gradual recovery, the Canadian Restaurant and Foodservices Association, is forecasting only a modest increase in 2011 sales for the full service restaurant industry", said Peter Fowler, Chief Executive Officer of SIR Corp. "Within this context, we are pursuing a prudent growth strategy while continuing to monitor economic conditions.  Following on the opening of a new Jack Astor's restaurant in Quebec late last year, we opened a new Jack Astor's in London, Ontario at the beginning of last month, and currently plans to open an additional restaurant in 2012 and two restaurants in 2013."

Financial Results

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

      3-month
period ended
March 31,
2011
3-month
period ended
March 31,
2010
           
Royalty Pooled Restaurants       46 45
Pooled Revenue generated by SIR       48,094 47,540
           
Royalty income to Partnership - 6% of Pooled Revenue       2,886 2,852
Partnership other income       8 6
Partnership expenses       (24) (30)
Partnership earnings       2,870 2,828
SIR Corp.'s interest (Class A, B, and C GP Units)       (1,767) (1,731)
           
Partnership income allocated to Fund       1,103 1,097
Interest income       750 750
Total income of the Fund       1,853 1,847
General & administrative expenses       (99) (78)
Operating income       1,754 1,769
Change in amortized cost on Fund Units       - (12,401)(3)
           
Net earnings (loss) before income taxes of the Fund       1,754 (10,632)
Income tax expense       (503) -
           
Net earnings for the period       1,251 (10,632)
           
Earnings per Fund Unit (basic and diluted)       $0.23 n/a(3)

The Fund's net earnings for Q1 2011 totaled $1.3 million or $0.23 per Fund Unit (basic and diluted), compared to a re-stated loss under IFRS of $10.6 million for Q1 2010(3). Under IFRS, the Fund Units are treated as a financial liability until December 20, 2010 requiring an adjustment of $12.4 million to the consolidated statement of earnings.

Pooled Revenue for Q1 2011 increased 1.2% to $48.1 million compared to $47.5 million for the same period in 2010. The change in Pooled Revenue is partially a result of the addition of a Jack Astor's restaurant to the Royalty Pooled Restaurants. During Q4 2010, SIR opened a Jack Astor's in Boisbriand, Quebec on October 25, 2010.  This restaurant was added to the Royalty Pooled Restaurants on January 1, 2011.  On January 1, 2011, SIR converted 137,190 Class B GP Units of the Partnership into 137,190 Class A GP Units of the Partnership related to the restaurant added to the Royalty pool on January 1, 2011.

Distributable cash(2) for Q1 2011 totaled $1.3 million or $0.24 per Fund Unit (basic and diluted), and declared distributions to unitholders totaled $1.5 million, representing a payout ratio(2) of 119.2% for the period.  The higher payout ratio for Q1 2011 is a result of the December 2010 distribution having been declared and paid at $0.115 per Unit in January 2011. For Q1 2010, distributable cash(2) totaled $1.8 million or $0.33 per Fund Unit (basic and diluted) and declared distributions totaled $1.8 million, representing a payout ratio(2) of 104.5%. The payout ratio since the Fund's inception, up to and including Q1 2011, is 99.3%.

The following table provides disclosure regarding the relationship between cash provided by operating activities and distributable cash:

       
(in thousands of dollars except per Unit amounts and payout ratio(2))
(unaudited)
  3-month
period
ended
March 31,
2011
3-month
period
ended
March 31,
2010
Cash provided by operating activities   1,848 1,848
Add/(deduct):
     Net change in non-cash working capital items
  (590) (78)

     Net change in distribution receivable from the Partnership

  5 (1)

Distributable cash(2)

  1,263 1,769

Cash distributed for the period

  1,505 1,848

Surplus/(shortfall) of distributable cash(2)

  (242) (79)

Payout ratio(2)

  119.2% 104.5%

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

  $0.24 $0.33

Effective January 1, 2011, the Fund became taxable and therefore the cash available for distribution to Unitholders is reduced.

Same Store Sales(1)

SSSG(1) for Royalty
Pooled Restaurants

3-month period
ended
March 31, 2011
3-month period
ended
March 31, 2010
     
Jack Astor's® (0.9%) 5.5%
Canyon Creek® 2.2% 0.2%
Alice Fazooli's® (9.1%) 5.1%
Signature Restaurants 5.9% 3.8%
Overall SSSG(1) (0.6%) 4.5%

For the three-month period ended March 31, 2011, SIR reported to the Fund a decrease in SSS(1) of 0.6%. Jack Astor's, which accounts for approximately 68% of Pooled Revenue, reported a decline in SSS(1) of 0.9%. Alice Fazooli's reported a decline in SSS(1) of 9.1%. Alice Fazooli's had a strong comparative SSSG(2) in Q1 2010 and the sales in the prior year were supported by aggressive discounting. The strategy in 2011 has been to reduce Alice Fazooli's discounting in favour of attracting guests through improved menu and feature beverage offerings. Management believes this is an appropriate long-term strategy for Alice Fazooli's, but in the short term, it is resulting in lower top-line revenues. Canyon Creekâ reported SSSG(1) of 2.2%.  SIR's Signature Restaurants, which include reds®, Loose Moose Tap & Grill®, and Far Niente®/FOUR®/Petit FourTM reported SSSG(1) of 5.9%.  Management believes that the current economic conditions and uncertainties are still having some effect on SIR's revenue.  The Canadian Restaurant and Foodservices Association, in its 2011 - 2015 Long Term Foodservice Forecast is forecasting that sales in 2011, in the full service restaurant industry, will have a modest increase.  SIR remains cautious and continues to monitor the economy and consumer confidence as its sales have not yet achieved its pre-recession levels.

Corporate Developments

During the fourth quarter of 2010, SIR opened a Jack Astor's in Boisbriand, Quebec, which was added to the Royalty Pooled Restaurants on January 1, 2011. In addition, SIR has secured additional sites for three new restaurants with expected openings for one restaurant in 2012 and the other two restaurants in 2013.

SIR will continue to carefully monitor the current economic environment and has advised the Fund that it is considering new store growth and renovations subject to raising acceptable long-term financing. Additional sites will be considered when appropriate.

The Fund's consolidated Financial Statements and Management's Discussion & Analysis ("MD&A"), and the SIR Royalty Limited Partnership's Financial Statements, for the three-month periods ended March 31, 2011 and March 31, 2010 will be filed on SEDAR today and will be available via the SEDAR web site at www.sedar.com tomorrow. The Fund's fiscal 2011 consolidated Financial Statements and MD&A are also available via SIR's website at www.sircorp.com.

(1) Same store sales ("SSS") and same store sales growth ("SSSG") are not IFRS or Canadian GAAP financial measures and do not have standardized meanings prescribed by IFRS or Canadian GAAP.  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.  The US restaurant is not part of SSS.

(2) Distributable cash and payout ratio are not IFRS or Canadian GAAP financial measures and do not have standardized meanings prescribed by IFRS or Canadian GAAP.  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 the 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 3-month period ended March 31, 2011, which can be accessed via the SEDAR web site (www.sedar.com).

(3) Under IFRS, until December 20, 2010, the Fund Units have been classified as a liability with changes in the carrying value in the Fund Units recorded in the consolidated statement of earnings (loss).  The Fund's Declaration of Trust was amended on December 20, 2010 at which time the Fund Units met the definition of a puttable instrument under IFRS and were then reclassified to equity.  As a result, earnings per share have not been calculated for fiscal 2010.

About SIR Corp.

SIR is a privately held Canadian corporation that owns and operates a portfolio of 47 restaurants in Canada. SIR's concept brands include: Jack Astor's Bar and Grill®, with 31 locations; Alice Fazooli's®, with five 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®, 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 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 46 restaurants included in the Royalty pool as at March 31, 2011. 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

Statements in this report, 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 securities laws.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund, the Trust, the Partnership, SIR, the SIR Restaurants, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  When used in this document, such statements may include, among other language, such words as "may", "will", "expect", "believe", "plan", "anticipate", "intend", "estimate" and other similar terminology.  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.  These forward-looking statements involve a number of risks and uncertainties.  The following are some of the factors that could cause actual results to differ materially from those expressed in or underlying such forward-looking statements: 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, specifically as they relate to the changes under IFRS; 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.  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 contained herein to reflect any change in expectations, estimates and projections with regard thereto or any changes in events, conditions or circumstances on which any statement is based, except as expressly required by law.  This Management's Discussion and Analysis is provided as of June 7, 2011.

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, 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 the tax effects on distributions will remain consistent with current pronouncements, and also in estimating the revenue for the new Jack Astor's restaurant, Management has assumed that it will operate consistent with other Jack Astor's restaurants.  For more information concerning the Fund's risks and uncertainties, please refer to the October 2004 final prospectus, and/or its March 31, 2011 Annual Information Form, all of which are available under the Fund's profile at www.sedar.com.

SOURCE SIR Royalty Income Fund

For further information:

Jeff Good
Chief Financial Officer
SIR Corp.
5360 South Service Road, Suite 200
Burlington, Ontario, Canada L7L 5L1
Tel: 905-681-2997












         

Lawrence Chamberlain
Investor Relations
Tel: 416-815-0700 ext. 257
Email: lchamberlain@equicomgroup.com
            

 


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