SIR Royalty Income Fund Reports SIR Corp. Fiscal 2017 First Quarter Results

BURLINGTON, ON, Dec. 21, 2016 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today announced that SIR Corp. ("SIR" or the "Company"), the operating entity from which the Fund earns equity income and interest income, has filed its financial results for the 12-week period ended November 20, 2016 ("Q1 2017").

SIR has advised the Fund that revenue from corporate restaurant operations for Q1 2017 increased to $63.6 million, up 0.7% from $63.1 million for the 12-week period ended November 22, 2015 ("Q1 2016"). Increased revenue in Q1 2017 is primarily attributable to the addition of new restaurants.

Jack Astor's 1.8% SSS⁽¹⁾ decline in the quarter primarily resulted from sales declines in two restaurants affected by their weakened local economies (Jack Astor's in Calgary, Alberta, and Jack Astor's in St. John's, Newfoundland), a decline in beverage sales, and the closure of four Jack Astor's locations for renovations during the quarter, for a combined total of 20 days. These unfavourable impacts were partially offset by the positive impact on SSS⁽¹⁾ from the World Cup of Hockey, which took place in Toronto, Ontario during September 2016, particularly at Jack Astor's locations near the Air Canada Centre. SIR management continues to review its beverage programs with a view to improving sales. SIR has also been investing in renovations to Jack Astor's to drive SSSG⁽¹⁾. Jack Astor's contributed 74% of Pooled Revenue during the quarter. 

Canyon Creek's 3.3% SSS⁽¹⁾ decline in the quarter was primarily attributable to a recent significant competitive intrusion at one of the eight Canyon Creek locations. The Canyon Creek location that was impacted had a SSS⁽¹⁾ decline of 22% in Q1 2017. SIR remains focused on operational performance improvement initiatives for Canyon Creek.  

Scaddabush Italian Kitchen & Bar ("Scaddabush"), together with Alice Fazooli's, 12.8% same store sales growth ("SSSG") ⁽¹⁾ in Q1 2017 is primarily attributable to the popularity of Scaddabush and SIR's continuation of its program to evolve the Alice Fazooli's concept into the more popular Scaddabush brand. Since introducing the Scaddabush concept, SIR has renovated and converted two Alice Fazooli's locations (Mississauga and Richmond Hill, Ontario) to Scaddabush and opened three new locations. The new locations include: one at the intersection at Yonge Street and Gerrard Street in downtown Toronto, one in Scarborough, Ontario, and one on Front Street in downtown Toronto. The strong combined Scaddabush/Alice Fazooli's SSSG⁽¹⁾ in the quarter 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 calendar year 2017. The two new Scaddabush locations in Scarborough, Ontario and on Front Street in Toronto, Ontario are not currently included in the above mentioned SSSG⁽¹⁾.    

The Signature Restaurants SSSG⁽¹⁾ of 3.9% for Q1 2107 was primarily attributable to strong sales at the Loose Moose®, partially due to the World Cup of Hockey in September 2016.  Further, Duke's Refresher® & Bar continues to demonstrate improved sales performance. The above mentioned SSSG⁽¹⁾ does not include Far Niente®/FOUR®/Petit Four®, as this location was closed effective October 15, 2016.

SIR's net loss and comprehensive loss was $1.2 million in Q1 2017, compared to $3.8 million in Q1 2016. The decreased net loss and comprehensive loss was partially attributable to a change in the amortized cost of the Ordinary LP Units and Class A Units of SIR Royalty Limited Partnership ("the Partnership"), which resulted in an expense of $0.7 million in Q1 2017, compared to an expense of $3.1 million in Q1 2016. The decrease in this expense is a result of a lower favourable change in the underlying unit price of the SIR Royalty Income Fund (the "Fund") during the current quarter compared to the change in the underlying unit price of the Fund during Q1 2016.   SIR's Adjusted Net Loss⁽²⁾ for Q1 2017 was $0.6 million, compared to $0.7 million in Q1 2016. The decreased Adjusted Net Loss⁽²⁾ resulted primarily from a $0.1 million increase in earnings from corporate restaurant operations. SIR's costs of corporate restaurant operations represented 94.2% of revenue in Q1 2017, in line with Q1 2016. 

SIR Q1 2017 Corporate Developments
During Q1 2107, SIR opened a new Scaddabush location on Front Street in downtown Toronto, completed renovations at four Jack Astor's locations and permanently closed Far Niente/FOUR/Petit Four at 187 Bay Street in downtown Toronto, as it was unable to negotiate a lease extension with the landlord with sufficient term to ensure a suitable return on its planned investment in the location.

Far Niente/FOUR/Petit Four are considered as one restaurant under the Fund's Royalty Pooled Revenue accounting structure. Under terms of the License and Royalty Agreement between SIR and the SIR Royalty Limited Partnership (the "Partnership"), SIR is obligated to indirectly pay the Fund, via the Partnership, a "Make-Whole Payment", subject to certain terms, equal to $0.08 million which is the amount of the Royalty that otherwise would have been paid to the Partnership by Far Niente/FOUR/Petit Four from their date of closure until December 31, 2016.  On January 1, 2017, SIR will convert the same number of Class A GP units that it received for this restaurant when it was added to the Royalty Pooled restaurants at the time of the Fund's initial public offering in October 2004, into Class B GP units.  This will have the net effect of increasing the Fund's share of the Partnership's earnings.

SIR expects the impact to Royalty Pool Revenue resulting from the closure of Far Niente/FOUR/Petit Four to be offset in calendar 2017 and beyond by the aforementioned conversion of Class A GP units to Class B GP units and the anticipated positive contributions from the addition of new restaurants to the Royalty Pool going forward and from investments by SIR to drive future same store sales growth.

Liquidity and Capital Resources
As at November 20, 2016, SIR had cash and cash equivalents of $3.8 million, compared to $3.9 million as at August 28, 2016.

During Q4 2016, SIR sold 750,000 units of the Fund for net proceeds of $10.3 million. SIR sold the units primarily to invest the net proceeds in new restaurants and/or in the renovation of existing restaurants.

SIR management believes that currently there are sufficient cash resources retained in SIR from its cash generated by operations and from its financing activities to fund its working capital requirements, scheduled debt repayments, and future construction commitments.

Outlook
The new Scaddabush locations in Scarborough, Ontario and on Front Street in downtown Toronto will be added to Royalty Pooled Restaurants on January 1, 2017 and January 1, 2018, respectively.

SIR currently has plans to open a new Reds® restaurant at Square One Shopping Centre in Mississauga, Ontario during calendar year 2017, and one additional new restaurant during calendar year 2018. SIR plans to convert its two remaining Alice Fazooli's locations to the more popular Scaddabush brand by the end of calendar year 2017. SIR has recently completed renovations to seven Jack Astor's locations, including two in Fiscal 2016, four in Q1 2017, and one subsequent to Q1 2017. SIR's Management is pleased with the performance at the recently renovated Jack Astor's locations and plans to continue to implement similar renovations at additional Jack Astor's locations in the future, in order to enhance SSSG⁽¹⁾.

SIR continues to monitor economic conditions, competitive actions, and consumer confidence, and considers new store developments and renovations to existing restaurants where appropriate.  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's Q1 2017 filings, which include its unaudited consolidated financial statements and management's discussion & analysis, can be accessed via the Fund's profile on the SEDAR website at www.sedar.com under "Other".

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 seven 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, 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 (56 operating restaurants and one closed restaurant) currently included in the Royalty Pool. SIR also owns Duke's Refresher® & Bar in downtown Toronto, one seasonal Signature restaurant, Abbey's Bakehouse®, and one seasonal Abbey's Bakehouse 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.

(1) Same store sales ("SSS") and same store sales growth ("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. SSSG is the percentage increase in SSS over the prior comparable period. SSS includes revenue from all SIR restaurants except for those restaurants that were not open for the entire comparable period.  The seasonal Abbey's Bakehouse and Abbey's Bakehouse retail outlet are not SIR Restaurants. SSS for Scaddabush/Alice Fazooli's includes three Scaddabush Italian Kitchen & Bar restaurants and two Alice Fazooli's restaurants.

(2) Adjusted Net Earnings (Loss) is calculated by removing the change in amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership from the net earnings (loss) and comprehensive income (loss) for the period.  Adjusted Net Earnings (Loss) is a non-GAAP financial measure and does not have a standardized meaning prescribed by IFRS. Management believes that in addition to net earnings (loss) and comprehensive income (loss), Adjusted Net Earnings (Loss) is a useful supplemental measure to evaluate SIR's performance.  Changes in the amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership is a non-cash transaction and varies with changes in the market price of the Fund units.  The exclusion of the change in amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership eliminates this non-cash impact.  Management cautions investors that Adjusted Net Earnings (Loss) should not replace net earnings or loss or cash flows from operating, investing and financing activities (as determined in accordance with IFRS), as an indicator of SIR's performance.  SIR's method of calculating Adjusted Net Earnings (Loss) may differ from the methods used by other issuers.  Therefore, SIR's Adjusted Net Earnings (Loss) may not be comparable to similar measures presented by other issuers. For Q1 2017, Adjusted Net Loss of $0.6 million (Q1 2016 - $0.7 million) is equal to the net loss for the period of $1.2 million (Q1 2016 - $3.8 million) plus the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $0.7 Million (Q1 2016 - $3.1 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", "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: 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.  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. For more information concerning the Fund's risks and uncertainties, please refer to the March 11, 2016 Annual Information Form, for the year ended December 31, 2015, 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