BURLINGTON, ON, Jan. 20 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) ("the Fund") today announced details of the Second Incremental Adjustment for the five Jack Astor's(R) restaurants and one Canyon Creek(R) restaurant that were added to Royalty Pooled Restaurants on January 1, 2009. The Second Incremental Adjustment is effective January 1, 2010. Details of the related Priority Special Conversion Distribution were also announced.
Effective January 1, 2010, SIR Corp. ("SIR") will receive an additional 243,909 Class A GP Units of the SIR Royalty Limited Partnership (the "Partnership"), through the conversion of Class B GP Units of the Partnership on a one-for-one basis.
"Due to the challenging economic conditions in late 2008 and 2009, SIR slowed its restaurant expansion plans and did not open any new restaurants during 2009. Rather, we focused on certain cost control initiatives at the corporate level and driving sales at our existing restaurants, in support of our goal of delivering stable distributions to our unitholders," said Peter Fowler, Chief Executive Officer of SIR. "We were encouraged by the fact that, in spite of challenging economic conditions, the six new restaurants added to Royalty Pooled Restaurants effective January 1, 2009, in aggregate, exceeded our Initial Adjustment estimated revenue."
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 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 19, 2010, with effect on January 1, 2010.
2010 Initial Adjustment
In 2009, there were no restaurant openings within the SIR portfolio. Consequently, there is no Initial Adjustment effective January 1, 2010.
2010 Adjustment for Reduction
In 2009, there were no restaurant closures within the SIR portfolio. Consequently, there is no Adjustment for reduction effective January 1, 2010.
2010 Second Incremental Adjustment
The Second Incremental Adjustment for the January 1, 2009 addition of new restaurants to the Royalty Pooled Restaurants has been finalized. The actual revenue, for the 52-weeks ended December 31, 2009, of the five Jack Astor's restaurants and one Canyon Creek restaurant that were added to the Royalty Pooled Restaurants effective January 1, 2009 was $29.1 million, which was approximately 0.6% in excess of the amount originally estimated. This resulted in SIR receiving an additional 243,909 Class A GP Units. The Second Incremental Adjustment is calculated as follows:
$1.7 million (the estimated annual addition to the Royalty Pool based on 6% of the $29.1 million in actual revenue for the 52-weeks ended December 31, 2009), multiplied by 92.5% (the accretive adjustment), divided by the Current Yield* at the date of the Initial Adjustment on the Fund units of 26.73% (equal to the aggregate cash distribution paid per Fund unit during the immediately preceding 12 calendar months of $1.355 divided by the volume weighted average price of the Fund units for the 20 trading days ending December 22, 2008 of $5.07 ("Current Fund Unit Price at the time of the Initial Adjustment")), divided by the Current Fund Unit Price at the time of the Initial Adjustment ($5.07), then minus the Initial Adjustment of 946,071 Class A GP Units for the January 1, 2009 addition of new restaurants.
Priority Special Conversion Distribution
Also, the Priority Special Conversion Distribution ("Conversion Distribution") payable to SIR from the Partnership for December 31, 2009 has been finalized. The amount of the Conversion Distribution is $336,594. This distribution can only be calculated after December 31, 2009 once the actual revenue for the 52-weeks ended December 31, 2009 for the new restaurants added to Royalty Pooled Restaurants effective January 1, 2009; and the number of additional Class B GP Units that will be converted to Class A GP Units for the Second Incremental Adjustment related to the January 1, 2009 new additional restaurants, are known with certainty. The amount of the Conversion Distribution is equal to the aggregate distributions declared per Fund unit for the preceding calendar year of $1.38 multiplied by 243,909 which is the number of Class B GP Units that are converted into Class A GP Units as a result of the Second Incremental Adjustment. This distribution has been declared effective December 31, 2009 and will be paid on January 22, 2010.
2011 Second Incremental Adjustment
As there was no January 1, 2010 Initial Adjustment, no Second Incremental Adjustment would be expected effective January 1, 2011.
Following the: i) 2010 Initial Adjustment, ii) 2010 Adjustment for Reduction, and iii) 2010 Second Incremental Adjustment, all effective January 1, 2010, SIR will own, control and hold 2,969,324 Class A GP Units, representing the equivalent of 35.7% of the units of the Fund on a fully diluted basis. This 35.7% consists of:
- 2,725,415 Class A GP Units held by SIR as at January 1, 2009, and
- 243,909 in additional Class A GP Units received for the adjustments
described above (zero for the 2010 Initial Adjustment minus zero for
the 2010 Adjustment for Reduction plus 243,909 for the 2010 Second
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 97,625,861 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 97,625,861 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 35.7% percentage above would be 36.0% 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, and the value at which the units were issued was the effective Fund unit price on January 1, 2009, namely $5.07 per unit.
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.
* Current Yield as defined in the Limited Partnership Agreement of the
Partnership (and in the final prospectus dated October 1, 2004 on
About SIR Corp.
SIR is a privately held Canadian corporation that owns and operates a portfolio of 45 restaurants in Canada. SIR's concept brands include: Jack Astor's Bar and Grill(R), with 29 locations; Alice Fazooli's(R), with five locations; and Canyon Creek Chop House(R), with eight locations. SIR also operates one-of-a-kind "signature" brands in downtown Toronto, which comprise the upscale reds(R), Far Niente(R)/FOUR(TM)/Petit Four(TM), and the Loose Moose Tap & Grill(R). 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 45 restaurants currently included in Royalty Pooled Restaurants. 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 release, 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; ability to comply with credit agreements; 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. 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.
In formulating the forward-looking statements contained herein, Management has assumed that business conditions affecting SIR's restaurants and the Fund will continue substantially in the ordinary course, including without limitation with respect to general industry conditions, 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. Management is not anticipating an improvement, in the near future, in economic conditions (particularly as it relates to the recent unprecedented deterioration of the economic environment and consumer confidence, which could significantly negatively affect sales and profit prospects in the near future). Management is not anticipating an improvement, in the near future, in the availability of credit (particularly as it relates to the recent disruption of world credit markets, which could significantly negatively affect sales and profit prospects in the near future). These assumptions, although considered reasonable by Management at the time of preparation, may prove to be incorrect. For more information concerning the Fund's risks and uncertainties, please refer to the October 2004 final prospectus, and/or its March 31, 2009 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: 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; Alice Dunning, Investor Relations, Tel: (416) 815-0700 ext. 228, Email: email@example.com