BURLINGTON, ON, Jan. 21 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) ("the Fund") today announced that, as of January 1, 2011, one new Jack Astor's® restaurant has been added to the Royalty Pooled Restaurants (the "Royalty Pool") from which the Fund earns distribution income. The Fund announced details of the Initial Adjustment related to this opening during 2010.

Effective January 1, 2011, the Royalty Pool is expected to receive an estimated annualized net increase in restaurant Royalties of $0.3 million. This amount is based on the addition of the 6% Royalty on the $4.3 million in estimated annual net revenue from the one new opening in 2010. The Fund, through the SIR Royalty Limited Partnership (the "Partnership") pays SIR Corp. ("SIR") for the net additional royalties through the conversion of 137,190 Class B GP Units, held by SIR, into Class A GP Units. The payment formula as set out in the license and royalty agreement between SIR and the Partnership (as amended the "License and Royalty Agreement") is designed to be accretive to Fund unitholders.

The one Royalty Pool restaurant, which was opened on October 25, 2010, was the Jack Astor's in Boisbriand, Quebec. With the addition of this new restaurant Royalty stream, the Fund will indirectly receive Royalty payments from 46 restaurants effective January 1, 2011.

"The addition of our new Jack Astor's restaurant in Boisbriand, Quebec, to the Royalty Pool will contribute to the Fund's distributable cash in 2011, and is expected to continue to help us to deliver stable and growing levels of distribution income for our unitholders." said Peter Fowler, Chief Executive Officer of SIR.

The Royalty Pool is adjusted in January of each year to include sales from any new SIR restaurants that have opened on or before November 1 of the prior year, net of sales of any Royalty Pooled Restaurants that have closed. The Fund (through the Partnership) pays SIR for the additional Royalty stream from new restaurants, based upon a formula set out in the License and Royalty Agreement between SIR and the Partnership (the "License and Royalty Agreement"). The payment formula, which is designed to be accretive to Fund unitholders, is based on the 6% Royalty from the estimated annualized revenue from the new restaurants divided by the tax-adjusted current yield on the units of the Fund. The accretion to Fund unitholders is achieved by discounting the payment to SIR by 7.5%. The payment to SIR is in the form of additional Class A GP Units of the Partnership. These units are the economic equivalent of units of the Fund.

These transactions were approved by the Partnership on or about January 21, 2011, with effect on January 1, 2011.

2011 Initial Adjustment
The estimated annualized revenue of the one new restaurants added to the Royalty Pool in 2011 is anticipated to be $4.3 million, translating into an estimated addition of $0.3 million to the Royalty Pool. The amount initially paid by the Fund, through the Partnership, to SIR for this additional Royalty stream is $1.4 million through the conversion of 137,190 Class B GP Units into Class A GP Units of the Partnership on a one-for-one basis. These Class A GP Units are valued at $10.35 per Unit, representing the volume weighted average price of the units of the Fund for the 20 trading days ending December 22, 2010 ("Current Fund Unit Price"). The 137,190 Class A GP Units represent 80% of the estimated Class A GP Units that SIR is estimated to receive. The remaining amount will be issued in the Second Incremental Adjustment based on the actual annual revenue for the new restaurants in 2011. The date of such Second Incremental Adjustment is January 1, 2012. The actual payment from the Partnership to SIR for the additional Royalty stream is calculated as follows:

$0.3 million (the estimated annual addition to the Royalty Pool based on 6% of the $4.3 million in estimated revenue from the new additional restaurants) multiplied by 92.5% (the accretive adjustment) multiplied by 80% (the Initial Adjustment) divided by Current Yield* on the Fund units of 13.33% (equal to the aggregate cash distribution paid per Fund unit during the immediately preceding 12 calendar months of $1.38 divided by the Current Fund Unit Price of $10.35).

2011 Adjustment for Reduction
In 2010, there were no restaurant closures within the SIR portfolio.  Consequently, there is no Adjustment for reduction effective January 1, 2011.

2011 Second Incremental Adjustment
In 2009, there were no restaurant openings within the SIR portfolio. Consequently, there is no Second Incremental Adjustment effective January 1, 2011.

Priority Special Conversion Distribution
In 2009, there were no restaurant openings within the SIR portfolio. Consequently, there is no Priority Special Conversion Distribution effective January 1, 2011.

2012 Second Incremental Adjustment
Assuming the one additional new restaurant added to the Royalty Pool effective January 1, 2011 achieves its estimated revenue for the 52-weeks ended December 31, 2011, SIR would have the right to convert an additional 34,298 Class B GP Units to Class A GP Units effective January 1, 2012 as the Second Incremental Adjustment for the January 1, 2011 additional new restaurants. This would increase SIR's share of the Fund on a fully diluted basis on January 1, 2012 to 37.0% assuming no other changes in the number of outstanding Class A GP Units or Fund units occurred before that date. Further, again assuming the one additional new restaurant added to the Royalty Pool effective January 1, 2011 achieves its estimated revenue for the 52-weeks ended December 31, 2011, a Conversion Distribution as of December 31, 2011 would be declared on the 34,298 Class B GP Units that would be converted into Class A GP Units as a result of the Second Incremental Adjustment on January 1, 2012. Assuming the monthly distributions per Fund unit, adjusted for the impact of the SIFT tax, remained at the current level throughout 2011, the amount of the December 31, 2011 Conversion Distribution would be estimated to be $47,331.

Capital Structure
Following the: i) 2011 Initial Adjustment, ii) 2011 Adjustment for Reduction, and iii) 2011 Second Incremental Adjustment, all effective January 1, 2011, SIR will own, control and hold 3,106,514 Class A GP Units, representing the equivalent of 36.7% of the units of the Fund on a fully diluted basis. This 36.7% consists of:

  • 2,969,324 Class A GP Units held by SIR as at January 1, 2010, and
  • 137,190 in additional Class A GP Units received for the adjustments described above for the 2011 Initial Adjustment minus zero for the 2010 Adjustment for Reduction plus zero for the 2010 Second Incremental Adjustment.

SIR's Class A GP Units currently represent 100% of the issued and outstanding Class A GP Units.

Subsequent to the aforementioned exchanges, SIR owns, controls and holds 97,488,671 Class B GP Units, which are convertible in certain circumstances (based on the addition of further new restaurants to Royalty Pooled Restaurants) into Class A GP Units. Other than as described herein, none are currently convertible. If converted, the resulting Class A GP Units would, subject to the Partnership's right to re-convert them back into Class B GP Units in certain circumstances (based on the new restaurants' performance being below 80% of the original expectations), also be exchangeable (without being subject to any subordination provisions) on a one-for-one basis into units of the Fund. The 97,488,671 Class B GP Units currently represent 100% of the issued and outstanding Class B GP Units.

The Offeror and Peter Fowler (who beneficially owns 31,500 units of the Fund apart from the Offeror's holdings), who are affiliated, may be considered under applicable securities laws to be acting jointly or in concert. This news release is not an admission of same, and the 36.7% percentage above would be 37.1% taking into account such additional units of the Fund. Except for the foregoing, SIR is not acting in concert with any other person, including any of its shareholders, directors or officers, in connection with its holdings of the Fund or the Partnership, and thus any holdings that they may have in the Fund are not included in this report.

The transactions noted herein took place privately.

SIR holds its interests in the Partnership for investment purposes and in connection with its operation of its restaurant business, which produces the revenues from which the Partnership and the Fund derive their revenues via a trade-mark license and royalty agreement entered into in connection with the Fund's IPO.

SIR may, depending on market and other conditions, increase or decrease its beneficial ownership control or direction over units of the Fund, or securities of the Partnership, through market transactions, private agreements, treasury issuances, exercise of options, convertible or exchangeable securities or otherwise.

SIR has entered into a number of material agreements with the Fund and/or the Partnership, which are described in the final prospectus of the Fund dated October 1, 2004. In addition to the royalty generated by any new SIR restaurants added to Royalty Pooled Restaurants, the consideration paid by SIR for its Class A GP Units and Class B GP Units was the transfer of certain trade-marks, as described in the final prospectus of the Fund. Certain amendments to the Declaration of Trust and other material agreements were approved at a Special Meeting of Unitholders held on December 20, 2010. They are filed on SEDAR.

* Current Yield as defined in Amendment No. 2 to the Limited Partnership Agreement of the Partnership dated December 20, 2010.

About SIR Corp.
SIR is a privately held Canadian corporation that owns and operates a portfolio of 46 restaurants in Canada. SIR's concept brands include: Jack Astor's Bar and Grill®, with 30 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®/FOURTM/Petit FourTM, 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 currently included in Royalty Pooled Restaurants. For more information on SIR Corp. or the SIR Royalty Income Fund, please visit

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 in this news release may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund 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 are such words as "may", "will", "expect", "believe", "plan", "anticipate", "intend", "estimate" and other similar terminology.  These statements reflect SIR Management's current expectations regarding future events and operating performance and speak only as of the date of this document.  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 with regard thereto or any changes in events, conditions or circumstances on which any statement is based, except as expressly required by law. 

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, in estimating the revenues for the new Jack Astor's restaurant, added to Royalty Pooled Restaurants on January 1, 2011, 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 Fund's periodic interim filings, and/or its March 31, 2010 Annual Information Form.

SOURCE SIR Royalty Income Fund

For further information:

Jeff Good       Lawrence Chamberlain
Chief Financial Officer       Investor Relations
SIR Corp.       Tel: 416-815-0700 ext. 257
5360 South Service Road, Suite 200       Email:
Burlington, Ontario, Canada L7L 5L1                   
Tel: 905-681-2997


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