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

BURLINGTON, ON, June 21, 2017 /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 and 36-week periods ended May 7, 2017 ("Q3 2017" and "YTD 2017", respectively).

SIR has advised the Fund that revenue from corporate restaurant operations for Q3 2017 increased 4.8% to $67.5 million compared to $64.4 million for the 12-week period ended May 8, 2016 ("Q3 2016"). Revenue from corporate restaurant operations for YTD 2017 increased 2.5% to $193.5 million from $188.8 million for the 36-week period ended May 8, 2016 ("YTD 2016"). The increase in revenue for both periods is attributable to the addition of two new restaurants and same store sales growth ("SSSG")(1).

 

Same Store Sales(1)

12-week period ended

May 7, 2017

(unaudited)

36-week period ended

May 7, 2017

(unaudited)




Jack Astor's®

1.1%

(0.3%)

Canyon Creek®

(1.2%)

(3.4%)

Scaddabush Italian Kitchen & Bar®/Alice Fazooli's®

11.5%

10.4%

Signature Restaurants

7.2%

6.7%

Overall SSSG(1)

2.0%

0.7%

 

Overall same store sales ("SSS")(1) increased 2.0% in Q3 2017 and 0.7% in YTD 2017, compared to the corresponding periods in the prior year. Jack Astor's, which contributed approximately 73% of Pooled Revenue in Q3 2017, had SSSG(1) of 1.1% in the quarter and a decline in SSS(1) of 0.3% for YTD 2017. Q3 2017 sales were favourably impacted by improved sales performance at locations that were recently renovated, including increases in beverage sales at these locations. This is partially due to enhanced beverage programs implemented with the renovations to drive SSSG(1). The locations in Whitby, Ontario and Front Street in downtown Toronto were closed for renovations for nine days and 17 days, respectively, in the quarter. The Front Street location was closed a further three days and reopened subsequent to the end of the quarter. Q3 2017 SSSG(1) was impacted by these closures, and continues to be impacted by the weak local economies at two restaurants (Jack Astor's in Calgary, Alberta and Jack Astor's in St. John's, Newfoundland). In addition to the aforementioned factors that impacted SSSG(1) in Q3 2017, YTD 2017 SSS(1) were negatively impacted by the closure of six other Jack Astor's locations for renovations, for a combined total of 37 days, compared to one location in YTD 2016, for a total of 16 days, partially offset by the positive impact from the World Cup of Hockey, which took place in Toronto during September 2016, and the 2017 IIHF World Junior Hockey Championship in December 2016, particularly at locations near the Air Canada Centre.

Canyon Creek had SSS(1) declines of 1.2% and 3.4% for Q3 2017 and YTD 2017, respectively. The SSS(1) declines are partially due to the impact of the recent significant competitive intrusion at one of the eight Canyon Creek locations, which had SSS(1) declines of 9.0% in Q3 2017 and 18.4% in YTD 2017.

Scaddabush Italian Kitchen & Bar ("Scaddabush"), together with Alice Fazooli's, generated SSSG(1) of 11.5% and 10.4% for Q3 2017 and YTD 2017, respectively, primarily due to the strong performance of Scaddabush, as the Alice Fazooli's location in Vaughan, Ontario had a decline in SSS(1). SSS(1) performance for Q3 2017 includes three Scaddabush locations (Richmond Hill, Mississauga, and at the intersection of Yonge and Gerrard in Toronto, Ontario) and one Alice Fazooli's location (Vaughan). SIR permanently closed the Alice Fazooli's location in Oakville, Ontario and opened a new Scaddabush restaurant at this location during Q3 2017.  Subsequent to Q3 2017, effective June 18, 2017, SIR permanently closed the remaining Alice Fazooli's location in Vaughan, Ontario and plans to open a new Scaddabush restaurant at this location in early July 2017. Beginning in the quarter each of these Alice Fazooli's restaurants are closed, their respective sales will be excluded, retroactively, from the calculation of SSS(1), similar to any permanently closed location. Accordingly, the Q3 2017 SSSG(1) performance for Scaddabush/Alice Fazooli's does not include Alice Fazooli's in Oakville, as this location was closed effective March 19, 2017. The Alice Fazooli's in Vaughan, Ontario will cease to be part of SSS(1) starting in Q4 2017.  The new Scaddabush restaurants in Scarborough, Ontario and on Front Street in downtown Toronto are also excluded from the calculation of Q3 2017 and YTD 2017 SSS(1).

The downtown Toronto Signature Restaurants posted SSSG(1) of 7.2% and 6.7% for Q3 2017 and YTD 2017, respectively. The Loose Moose® continues to post strong SSSG(1) due in part to the impact of favourable guest traffic driven by the above mentioned World Cup of Hockey in September 2016 and the 2017 IIHF World Junior Hockey Championship in December 2016. In addition, Duke's Refresher & Bar continues to demonstrate improved sales performance. The Q3 2017 SSSG(1) for the Signature Restaurants 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 $6.9 million in Q3 2017, compared to $13.4 million in Q3 2016. SIR's net loss and comprehensive loss for YTD 2017 was $18.0 million, compared to $8.1 million for YTD 2016.

The variances are primarily the result of the change in the amortized cost of the Ordinary LP Units and Class A Units of SIR Royalty Limited Partnership ("the Partnership") that SIR holds. This resulted in expenses of $8.3 million and $19.1 million for Q3 2017 and YTD 2017, respectively, compared to expenses of $15.2 million and $9.2 million for Q3 2016 and YTD 2016, respectively. These changes in Q3 2017 and YTD 2017 are due to an increase in the underlying unit price of the Fund compared to the end of Q2 2017 and Q4 2017, respectively.

SIR's Adjusted Net Earnings(2) were $1.4 million and $1.0 million in Q3 2017 and YTD 2017, respectively, compared to $1.8 million and $1.1 million in Q3 2016 and YTD 2016, respectively.

SIR Corporate Developments
During Q3 2017, effective March 19, 2017, SIR permanently closed the Alice Fazooli's restaurant in Oakville, Ontario. A new Scaddabush restaurant was opened at this location on April 5, 2017. SIR is required to pay a Make-Whole Payment to the SIR Royalty Income Fund (the "Fund"), via the SIR Royalty Limited Partnership (the "Partnership"), for this location from the date of closure until it ceases to be part of Royalty Pooled Restaurants on January 1, 2018. The new Oakville Scaddabush is expected to be added to Royalty Pooled Restaurants on January 1, 2018.

During Q3 2017, SIR substantially completed renovations on two Jack Astor's locations (Whitby, Ontario and Front Street in downtown Toronto). These locations were closed for nine days and 17 days in the quarter, respectively. Two additional Jack Astor's renovations (Vaughan, Ontario and Brampton, Ontario) were completed subsequent to May 7, 2017.

Liquidity and Capital Resources
As at May 7, 2017, SIR had cash and cash equivalents of $2.6 million, compared to $3.9 million as at August 28, 2016, SIR's Fiscal 2016 year end. The decrease is attributable to $8.6 million used in investing activities, mainly attributable to the purchase of property and equipment and other assets – net of $8.8 million, partially offset by $1.5 million provided by operations and $5.9 million provided by financing activities.   

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
As at June 19, 2017, SIR has one commitment to lease a property, upon which it plans to build a new Reds restaurant, to be located in the Square One Shopping Centre in Mississauga, Ontario, which is expected to open in calendar year 2017.

SIR continues to convert its Alice Fazooli's concept brand into the more popular Scaddabush brand. Effective June 18, 2017, SIR closed its last Alice Fazooli's location in Vaughan, Ontario, and plans to open a new Scaddabush restaurant at this location in early July 2017. Similar to the Oakville location, the closure of this Alice Fazooli's restaurant will be treated as a permanent closure and the new Scaddabush at this location will be treated as a New Additional Restaurant.

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

SIR has recently completed renovations at 12 Jack Astor's restaurants, including two in Fiscal 2016, four in Q1 2017, two in Q2 2017, two in Q3 2017, and two subsequent to Q3 2017. SIR's Management is pleased with performance of these renovated Jack Astor's restaurants and plans to continue to implement similar renovations at additional Jack Astor's locations in the future as part of its ongoing focus on strengthening its flagship brand and driving SSSG(1).

Subsequent to Q3 2017, SIR opened both Abbey's Bakehouse locations for the 2017 season. SIR did not open either of the Abbey's Bakehouse locations during the 2016 season.

SIR continues to focus on sustaining and growing existing restaurant sales and profits while managing costs. SIR continues to monitor economic conditions and consumer confidence and considers new restaurant developments and renovations to existing restaurants where appropriate and subject to 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's Q3 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 currently included in the Royalty Pool (56 operating and one closed). 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 one Alice Fazooli's restaurant.

(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 Q3 2017, Adjusted Net Earnings of $1.4 million (Q3 2016 – Adjusted Net Earnings of $1.8 million) is equal to the net loss for the period of $6.9 million (Q3 2016 – net loss of $13.4 million) plus the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $8.3 Million (Q3 2016 – $15.2 million). For YTD 2017, Adjusted Net Earnings of $1.0 million (YTD 2016 – Adjusted Net Earnings of $1.1 million) is equal to the net loss for the period of $18.0 million (YTD 2016 – net loss of $8.1 million) plus the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $19.1 million (YTD 2017 - $9.2 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 14, 2017 Annual Information Form, for the year ended December 31, 2016, 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

For further information: Jeff Good, Chief Financial Officer, Tel: 905-681-2997; Bruce Wigle, Bay Street Communications, Tel: 647-496-7856