SIR Royalty Income Fund Reports SIR Corp. Fiscal 2013 Year End Results

BURLINGTON, ON, Nov. 21, 2013 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today announced that SIR Corp. ("SIR"), the operating entity from which the Fund earns equity income and interest income, has filed its financial results for the 16-week and 52-week periods ended August 25, 2013 ("Q4 2013" and "fiscal 2013", respectively).

SIR has advised the Fund that revenue from corporate restaurant operations for Q4 2013 increased 16.0% to $82.9 million compared to $71.4 million for the 16-week period ended August 26, 2012 ("Q4 2012"). Revenue from corporate restaurant operations for fiscal 2013 increased 9.2% to $242.1 million, from $221.6 million for the 52-week period ended August 26, 2012 ("fiscal 2012").    

Same store sales⁽¹⁾ ("SSS") increased 1.1% and 0.7% in Q4 2013 and fiscal 2013, respectively. Fiscal 2013 SSS⁽¹⁾ were negatively impacted by the National Hockey League ("NHL") lock-out during the first and second quarters of the 2013 fiscal year. The NHL lock-out generally impacted all Jack Astor's® locations, but the effect was most significant at the eight SIR Restaurants located in close proximity to NHL venues (four Jack Astor's, one Canyon Creek® and three Signature restaurants).  SSSG⁽¹⁾ for fiscal 2013 was also negatively affected by the temporary closure of restaurants for renovations during the period.  SSSG⁽¹⁾ for the Signature restaurants in Q4 2013 and fiscal 2013 was primarily attributable to the completed renovation and repositioning of Reds Wine Tavern®, the renovations at the Loose Moose® during the first half of fiscal 2013, and a patio renovation and extension at Reds Wine Tavern in Q3 2013.

Jack Astor's, which contributed approximately 75% of the Fund's fiscal 2013 Royalty Pooled Revenue, had SSSG⁽¹⁾ in both Q4 2013 and fiscal 2013. Canyon Creek and Alice Fazooli's® had SSS⁽¹⁾ declines in both Q4 2013 and fiscal 2013.  SIR has initiated a program to evolve the Alice Fazooli's concept. In Q4 2013, SIR renovated the Alice Fazooli's Square One location in Mississauga, Ontario, and after a nine-day closure, the restaurant was reopened as Scaddabush Italian Kitchen and Bar™.   Scaddabush offers guests a new, refreshing take on Italian dining.  SIR's Management is committed to maximizing the performance of all of its restaurants and continues to focus on value-enhancing initiatives for Canyon Creek. The downtown Toronto Signature restaurants had SSSG⁽¹⁾ in both Q4 2013 and fiscal 2013, supported by the renovations undertaken at Reds Wine Tavern and the Loose Moose in the first half of fiscal 2013.

SIR's net loss and comprehensive loss for Q4 2013 was $6.5 million, compared to a net loss and comprehensive loss of $15.4 million in Q4 2012. The favourable variance in net loss and comprehensive loss in Q4 2013 was primarily attributable to the favourable change in the amortized cost of Ordinary LP Units and Class A LP Units of the SIR Royalty Limited Partnership (the "Partnership") of $9.8 million in Q4 2013.  The change in the amortized cost is a non-cash transaction and has no impact on cash flows.   SIR's Adjusted Net Earnings⁽²⁾ for Q4 2013 totaled $0.6 million, compared to $1.4 million in Q4 2012. The unfavourable variance in Adjusted Net Earnings⁽²⁾ was primarily the result of increased corporate costs of $0.5 million, increased income tax expense of $0.2 million and reduced earnings from corporate restaurant operations of $0.2 million.

SIR Corporate Development
During fiscal 2013, SIR opened five new Jack Astor's restaurants, which are located in Kingston, Kitchener, North York, and Pickering, Ontario, as well as Laval, Quebec. Subsequent to the year end, on October 30, 2013, SIR opened one new Signature restaurant, Reds® Midtown Tavern, in Toronto, Ontario.  The two Jack Astor's restaurants that were opened in fiscal 2012 and the two new Jack Astor's restaurants that opened in Q1 2013 were added to Royalty Pooled Restaurants on January 1, 2013. The two Jack Astor's restaurants that were opened during Q3 2013, the one Jack Astor's restaurant that was opened in Q4 2013 and one new Signature restaurant (Reds Midtown Tavern) opened subsequent to the year end, will be added to Royalty Pooled Restaurants on January 1, 2014.

During Q1 2013, SIR temporarily closed Reds, a core Signature restaurant, to complete a renovation and repositioning. The new Reds Wine Tavern opened on October 2, 2012. During Q2 2013, SIR closed the Loose Moose to complete a renovation. The Loose Moose reopened on February 1, 2013. During Q4 2013, SIR closed Alice Fazooli's Square One location in Mississauga, Ontario to complete a renovation and concept redirection, and reopened the restaurant as Scaddabush Italian Kitchen and Bar™ on July 23, 2013.  SIR also renovated and extended the Reds Wine Tavern patio in Q3 2013.  During fiscal 2013, SIR completed renovations of two Jack Astor's restaurants, one in Q1 2013 and one in Q2 2013.  Subsequent to Q4 2013, SIR renovated an additional three Jack Astor's restaurants.

Liquidity and Capital Resources
As at August 25, 2013, SIR had cash and cash equivalents of $7.7 million compared to $10.5 million as at August 26, 2012 (SIR's fiscal 2012 year-end).

Cash provided by continuing operations totaled $7.1 million and $12.6 million in Q4 2013 and fiscal 2013, respectively, compared to $6.6 million in Q4 2012 and $12.4 million in fiscal 2012. Net loss and comprehensive loss for Q4 2013 and fiscal 2013 decreased by $8.9 million and $18.5 million, respectively. This decrease was offset by fluctuations in non-cash expenses from the same periods of the prior year. Additional non-cash expenses for Q4 2013 and fiscal 2013 included an increase in the impairment of goodwill of $0.2 million and $0.2 million, respectively, an increase in the impairment of non-financial assets of $0.2 million and $0.3 million, respectively, an increase in depreciation and amortization of $0.5 million and $1.2 million, respectively, and an increase in other items of $0.2 million and $1.1 million, respectively. Other items not affecting cash during fiscal 2013 includes transaction costs related to the sale of Fund units in Q1 2013 and Q3 2013 that were paid from the restricted cash account rather than from operating cash. There was also an increase in the change in working capital items of $0.8 million and $1.5 million in Q4 2013 and fiscal 2013 respectively, mainly due to the timing of payments. These increases in operating cash were offset by the decrease in the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $9.8 million and $21.5 million, respectively, and the increase in distributions paid to Ordinary LP and Class A LP unitholders of $0.7 million and $1.7 million in Q4 2013 and YTD 2013 respectively.

Continuing investing activities used cash of $2.5 million and $6.5 million for Q4 2013 and fiscal 2013, respectively, compared to cash used in continuing investing activities of $4.5 million and $11.1 million in Q4 2012 and fiscal 2012, respectively. Net purchases of property and equipment and other assets amounted to $4.6 million and $4.5 million in Q4 2013 and Q4 2012, respectively. Net purchases of property and equipment and other assets amounted to $20.7 million and $11.5 million in fiscal 2013 and 2012, respectively. The majority of the capital expenditures for fiscal 2013 relate to construction costs incurred for the new restaurants (two in Q1 2013, two in Q3 2013, one in Q4 2013 and one subsequent to Q4 2013).  SIR also incurred renovation costs for Reds Wine Tavern, the Loose Moose, Scaddabush at the Alice Fazooli's Square One location in Mississauga, Ontario and two Jack Astor's restaurants. Cash provided by (used in) continuing investing activities includes the net cash proceeds received from restricted funds of $2.0 million and $14.0 million for Q4 2013 and fiscal 2013, respectively, which related to the conversion of Class A GP Units to Fund units and their subsequent sale.

During fiscal 2013, SIR converted 1,418,900 Class A GP Units to Fund units and sold these Fund units for total net proceeds of $16.6 million. SIR's interest in the Partnership was affected by the conversions of the Class A GP Units into Fund units and as at August 25, 2013, SIR retained a 24.4% interest in the Partnership.  This disposition of the Fund units has been accounted for as a non-cash transaction in the consolidated statements of cash flows. The proceeds from the sale of Fund units must be used by SIR to fund the costs associated with constructing new restaurants and renovating existing restaurants.

Outlook
In addition to the five new restaurants that SIR has opened during fiscal 2013 and the one new restaurant opened subsequent to fiscal 2013, SIR has four commitments to lease new properties, upon which it plans to build five new restaurants.  It is expected that one of these restaurants will open later in the 2013 calendar year, with the remaining four to open in fiscal 2014 and fiscal 2015.  One of the new restaurants will be a Jack Astor's restaurant in St. John's, Newfoundland, a new market for SIR that management believes has significant upside due to the city's recent economic growth. SIR has secured an attractive location in St. John's, in the heart of the city's waterfront.

The Canadian Restaurant and Foodservice Association ("CRFA") estimates that sales in the full-service category will grow by 5.6% in calendar 2013 and then average 4.4% over the next three years.  SIR will continue to focus on sustaining and growing existing restaurant sales and profits, and strategically expanding its restaurant portfolio. SIR will carefully monitor economic conditions and manage its growth and capital expenditures accordingly.

SIR's fiscal 2013 year-end filings, which include its audited consolidated financial statements and management's discussion & analysis, can be accessed via the Fund's profile on the SEDAR web site at www.sedar.com under "Other".

About SIR Corp.
SIR is a privately held Canadian corporation that owns and operates a portfolio of 55 restaurants in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 37 locations; Alice Fazooli's® together with Scaddabush™, for a total of four 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® 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 49 restaurants currently included in the Royalty pool. SIR also owns and operates two seasonal Signature restaurants: Abbey's Bake House™ and Duke's Refresher™, 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.

(1) Same store sales ("SSS") includes revenue from all SIR restaurants except for those restaurants that were not open for the entire comparable periods in fiscal 2013 and fiscal 2012. Same store sales growth ("SSSG") is the percentage increase in SSS over the prior comparable period. SSS and SSSG are non-GAAP financial measures and do not have standardized meanings prescribed by International Financial Reporting Standards (IFRS). However, SIR believes that SSS and SSSG are useful measures and provide investors with an indication of the change in year-over-year sales. SIR'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 does not include Duke's Refresher or Abbey's Bake House. SSS for Alice Fazooli's includes three Alice Fazooli's restaurants and one Scaddabush restaurant, representing the Square One location in Mississauga, Ontario, which was renovated and re-opened as Scaddabush on July 23, 2013.

(2) Adjusted Net Earnings (Loss) consist of net earnings (loss) and comprehensive income (loss) excluding the change in amortized cost of Ordinary LP Units and Class A LP Units of the SIR Royalty Limited Partnership (the "Partnership").  Adjusted Net Earnings (Loss) is a financial measure that does not have a standardized meaning prescribed by IFRS.  However, SIR believes that Adjusted Net Earnings (Loss) is a useful estimate of the core business' contribution to cash flow from operations and uses this measure as a supplemental measure of SIR's performance.

Adjusted Net Earnings for Q4 2013 is calculated as net loss and comprehensive loss for the period of $6.5 million plus the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $7.1 million.  Adjusted Net Earnings for Q4 2012 is calculated as net loss and comprehensive loss for the period of $15.4 million plus the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $16.9 million. Adjusted Net Loss for fiscal 2013 is calculated as net loss and comprehensive loss for the period of $16.3 million plus the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $16.2 million.  Adjusted Net Earnings for fiscal 2012 is calculated as net loss and comprehensive loss for the period of $34.8 million plus the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $37.6 million.

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", "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: 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; 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.  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 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. For more information concerning the Fund's risks and uncertainties, please refer to the March 28, 2013 Annual Information Form, for the period ended December 31, 2012, which is available under the Fund's profile at www.sedar.com.

All of the forward-looking statements made in this report 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