BURLINGTON, ON, Aug. 8, 2016 /CNW/ - SIR Royalty Income Fund
(TSX: SRV.UN) (the "Fund") today reported its financial results for the three-month ("Q2 2016") and six-month ("YTD 2016") periods
ended June 30, 2016. All comparisons in the following summary are to the corresponding periods in the
prior fiscal year. Percentage calculations are based on the numbers in the financial statements and may not correspond to rounded
figures presented in this release.
Q2 2016 Summary
- Net earnings for the Fund were $2.34 million, or $0.31 per Fund
unit, up from $2.28 million, or $0.30 per Fund unit for the three
months ended June 30, 2015 ("Q2 2015");
- Pooled Revenue increased to $74.8 million, up 5.5% from Q2 2015, supported by the addition of
two new Royalty Pooled Restaurants on January 1, 2016, and overall same store sales growth
("SSSG")(1) of 2.7%;
- Distributable cash(2) per Fund unit (basic and diluted) was $0.31,
representing a payout ratio(2) of 92.4%, as compared to distributable cash per Fund unit of $0.30 in Q2 2015, representing a payout ratio of 94.8%.
"The continued expansion of Royalty Pooled Restaurants, and our ongoing focus on driving same store sales growth through
continuous innovation, resulted in a 5.5% increase in Pooled Revenue in the second quarter. We generated overall same store sales
growth of 2.7% in the quarter, with positive results from each of our Concept brands and Signature restaurants," said Peter Fowler, President and CEO of SIR Corp. "Scaddabush continues to perform exceptionally well, contributing
to the 13.5% same store sales growth for the combined Scaddabush/Alice Fazooli's concepts. Supported by the strong popularity of
Scaddabush, we intend to continue to invest in Scaddabush expansion to grow Pooled Revenue and market share. Subsequent to the end
of the second quarter, we opened a new location in Scarborough, Ontario, which is expected to be
added to Royalty Pooled Restaurants on January 1, 2017. We plan to open another new Scaddabush in downtown Toronto by the end of 2016 and convert the remaining two Alice Fazooli's to Scaddabush by the end of
2017."
"Same store sales growth for our flagship Jack Astor's brand, which contributed 75% of Pooled
Revenue in the quarter, was positively impacted by the Toronto Raptors' extended playoff run and by higher year-to-date average
attendance at Toronto Blue Jays' games at locations closest to Toronto's downtown sporting venues.
These gains were achieved despite the comparatively late start of the patio season this year and an 11-day shutdown of our
Jack Astor's restaurant in Halifax, Nova Scotia, for major
renovations," continued Mr. Fowler. "We are pleased with the performance at our recently renovated Jack
Astor's in Halifax, Nova Scotia and Scarborough, Ontario,
and intend to initiate similar renovations at additional Jack Astor's locations. Our future
restaurant expansion plans currently include the aforementioned new Scaddabush in downtown Toronto
this year, and opening one new Reds restaurant in 2017 and one new Jack Astor's restaurant in
2018."
Financial Results
($000s except restaurants and per
Unit amounts)
(unaudited)
|
|
Three-month
period ended
June 30, 2016
|
Three-month
period ended
June
30, 2015
|
Six-month
period ended
June 30, 2016
|
Six-month
period ended
June
30, 2015
|
|
|
|
|
|
|
Royalty Pooled Restaurants
|
|
57
|
55
|
57
|
55
|
Pooled Revenue generated by SIR
Corp.
|
|
74,757
|
70,876
|
138,012
|
130,224
|
|
|
|
|
|
|
Royalty income to Partnership – 6% of
Pooled Revenue
|
|
4,485
|
4,252
|
8,281
|
7,813
|
Partnership other income
|
|
6
|
8
|
12
|
16
|
Partnership expenses
|
|
(12)
|
(19)
|
(31)
|
(36)
|
Partnership earnings
|
|
4,479
|
4,241
|
8,262
|
7,793
|
|
|
|
|
|
|
SIR
Corp.'s interest
(Class A, B, and C GP Units)
|
|
(1,927)
|
(1,766)
|
(3,669)
|
(3,364)
|
|
|
|
|
|
|
Partnership income allocated to
Fund
|
|
2,552
|
2,475
|
4,593
|
4,429
|
Interest income
|
|
750
|
750
|
1,500
|
1,500
|
|
|
|
|
|
|
Total income of the
Fund
|
|
3,302
|
3,225
|
6,093
|
5,929
|
General & administrative
expenses
|
|
(108)
|
(112)
|
(209)
|
(216)
|
|
|
|
|
|
|
Net earnings before income taxes
of the Fund
|
|
3,194
|
3,113
|
5,884
|
5,713
|
Income tax expense
|
|
(854)
|
(834)
|
(1,575)
|
(1,484)
|
|
|
|
|
|
|
Net earnings for the
period
|
|
2,340
|
2,279
|
4,309
|
4,229
|
|
|
|
|
|
|
Earnings per Fund Unit
(basic and diluted)
|
|
$0.31
|
$0.30
|
$0.57
|
$0.55
|
Pooled Revenue increased 5.5% to $74.8 million, up from $70.9
million in Q2 2015. The increase resulted from the two restaurants added to the Royalty pool as at January 1, 2016 and overall same store sales growth of 2.7%.
The Fund's net earnings were $2.34 million, or $0.31 per Fund unit,
up from $2.28 million, or $0.30 per unit, in Q2 2015.
Distributable cash(2) for Q2 2016 totaled $2.35 million, or $0.31 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.17
million, representing a payout ratio(2) of 92.4%. Distributable cash(2) for Q2 2015 totaled
$2.29 million, or $0.30 per Fund unit (basic and diluted), and
distributions to Unitholders totaled $2.17 million, representing a payout ratio(2) of
94.8%. 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 Q2 2016, the Fund has generated
$83.9 million in cumulative distributable cash and has paid cumulative cash distributions of
$83.5 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):
|
|
|
|
|
(in thousands of dollars except
per unit amounts and payout ratio(2))
(unaudited)
|
Three-month
period ended
June 30, 2016
|
Three-month
period ended
June
30, 2015
|
Six-month
period ended
June 30, 2016
|
Six-month
period ended
June
30, 2015
|
Cash
provided by operating activities
|
2,137
|
1,968
|
3,945
|
4,276
|
Add/(deduct):
|
(108)
|
227
|
(184)
|
(217)
|
|
Net
change in non-cash working capital items
|
|
Net change in income tax
payable
|
(21)
|
(170)
|
395
|
184
|
|
Net
change in distribution receivable from the Partnership
|
344
|
267
|
177
|
13
|
Distributable
cash(2)
|
2,352
|
2,292
|
4,333
|
4,256
|
Cash
distributed for the period
|
2,173
|
2,173
|
4,347
|
4,347
|
Surplus/(shortfall) of distributable
cash(2)
|
179
|
119
|
(14)
|
(91)
|
Payout
ratio(2)
|
92.4%
|
94.8%
|
100.3%
|
102.1%
|
Distributable cash(2)
per Fund unit
(basic and diluted)
|
$0.31
|
$0.30
|
$0.57
|
$0.56
|
Same Store Sales ("SSS") (1)
SSS(1) for Royalty
Pooled Restaurants
|
Three-month
period ended
June 30, 2016
|
Three-month
period ended
June
30, 2015
|
Six-month
period ended
June 30, 2016
|
Six-month
period ended
June
30, 2015
|
|
|
|
|
|
Jack
Astor's®
|
0.7%
|
(2.3%)
|
0.8%
|
(2.1%)
|
Canyon Creek®
|
3.2%
|
(0.8%)
|
3.6%
|
(0.1%)
|
Scaddabush/Alice
Fazooli's®
|
13.5%
|
0.6%
|
14.7%
|
1.5%
|
Signature Restaurants
|
12.7%
|
(1.0%)
|
15.2%
|
(6.2%)
|
Overall
SSS(1)
|
2.7%
|
(1.9%)
|
3.2%
|
(2.0%)
|
Jack Astor's, which generated approximately 75% of Pooled Revenue in Q2 2016, generated
SSSG(1) of 0.7% in Q2 2016. The Toronto Raptors' 2016 playoff run and increased year-to-date average attendance for the
Toronto Blue Jays favourably impacted Jack Astor's sales in Q2 2016, particularly at its locations
near the Air Canada Centre and Rogers Centre. These favourable impacts were slightly offset by the late start to the patio season
in Q2 2016 due to cooler temperatures in April, compared to Q2 2015, the 11-day closure of the Jack Astor's location in
Halifax, Nova Scotia for renovations during the quarter, and sales declines at the Jack
Astor's restaurants in Calgary, Alberta and St. John's,
Newfoundland, which are currently experiencing weakened local economies.
Canyon Creek generated SSSG(1) of 3.2% in Q2 2016, representing its fourth consecutive quarter of SSSG(1).
This growth has resulted from SIR's concerted effort to improve performance at its Canyon Creek locations by strengthening
leadership and execution from the top down. These operational improvements continue to be fine-tuned and positive results are
evident in Canyon Creek's increasing sales.
Scaddabush Italian Kitchen & Bar® ("Scaddabush"), together with Alice Fazooli's®, experienced SSSG(1) of 13.5% in
Q2 2016, largely due to SIR's continuation of its program to convert the Alice Fazooli's concept into the more popular Scaddabush
brand. Since introducing its new Scaddabush concept, SIR has renovated and converted two Alice Fazooli's restaurants (Mississauga and Richmond Hill, Ontario) into Scaddabush locations, and opened
new locations at the intersection of Yonge Street and Gerrard Street in downtown Toronto and in Scarborough, Ontario. The strong combined Scaddabush/Alice
Fazooli's SSSG(1) during Q2 2016 was partially offset by SSS(1) declines at the two remaining Alice Fazooli's
locations that have not yet been converted to Scaddabush. SIR intends to convert these restaurants during 2017.
The downtown Toronto Signature Restaurants generated SSSG(1) of 12.7% in Q2 2016. Strong sales performance at the
Loose Moose®, partially attributable to the aforementioned Toronto Raptors playoff run and increased attendance at
Toronto Blue Jays games in Q2 2016, contributed favourably to the Signature Restaurants SSSG(1) in Q2 2016.
Proposed Transaction
SIR filed a Form 45-102 F1 on August 3, 2016 relating to a public or private sale of up to
750,000 units of the Fund in order to assist in the funding of new and/or renovated restaurants, which is expected to benefit the
Fund. There can be no assurance that the sale of the Fund units will occur or to the terms thereof.
Outlook
SIR continues to monitor economic conditions 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.
SIR completed renovations of three Jack Astor's locations during 2015 and one additional
Jack Astor's location in Q2 2016. SIR is encouraged by the performance of the two most recently
renovated Jack Astor's locations and intends to initiate similar renovations at additional
Jack Astor's locations. SIR converted one Alice Fazooli's location to Scaddabush during 2015 and
plans to convert the two remaining Alice Fazooli's to Scaddabush restaurants by the end of 2017.
Subsequent to Q2 2016, on July 12, 2016, SIR opened a new Scaddabush restaurant in Scarborough, Ontario. This Scaddabush location will be considered a New Additional Restaurant for purposes of
Royalty Pooled Restaurants.
SIR plans to open another new Scaddabush restaurant in downtown Toronto by the end of 2016. SIR
also plans to open one new Reds restaurant in 2017 and one new Jack Astor's restaurant in 2018.
There can be no assurance that these new additional restaurants will be opened or will become part of Royalty Pooled
Restaurants.
The Fund's consolidated unaudited Financial Statements and MD&A, and the Partnership's Financial Statements, for the
three-month and six-month periods ended June 30, 2016, 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 2016 and fiscal 2015. SSS for Alice Fazooli's includes three Scaddabush restaurants and two Alice
Fazooli's restaurants.
(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 three-month and six-month periods ended June 30, 2016, which can be accessed via the
SEDAR website (www.sedar.com).
About SIR Corp.
SIR is a privately held Canadian corporation that owns 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 six 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, 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 57 restaurants currently included in the Royalty Pool. SIR also owns Duke's Refresher® & Bar in
downtown Toronto, one seasonal Signature restaurant, Abbey's Bake House®, 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 15, 2016 Annual
Information Form, for the period ended December 31, 2015, 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