BURLINGTON, ON, Nov. 10, 2016 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today reported its financial results for the three-month ("Q3 2016") and nine-month ("YTD 2016") periods ended September 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.

Q3 2016 Summary

• Net earnings for the Fund were $2.4 million, or $0.30 per Fund unit, compared to $2.3 million, or $0.30 per Fund unit for the three months ended September 30, 2015 ("Q3 2015");
  
• Pooled Revenue increased to $72.5 million, up 3.4% from Q3 2015, supported by the addition of two new Royalty Pooled Restaurants on January 1, 2016, and overall same store sales growth ("SSSG")⁽¹⁾ of 0.9%;
  
• Distributable cash⁽²⁾ per Fund unit (basic and diluted) was $0.30, representing a payout ratio⁽²⁾ of 94.7%, as compared to distributable cash per Fund unit of $0.30 in Q3 2015, representing a payout ratio of 95.5%; and
  
• During the quarter, SIR Corp. ("SIR") opened a new Scaddabush Italian Kitchen & Bar® ("Scaddabush") in Scarborough, Ontario and completed renovations at the Jack Astor's® location at Square One in Mississauga, Ontario.

"We continue to focus on investing in new restaurants and renovating existing restaurants to drive growth in Royalty Pool Revenue and same store sales. During the quarter, we opened a new Scaddabush in Scarborough, Ontario, which will be added to Royalty Pooled Restaurants on January 1, 2017, and, subsequent to quarter end, we opened a new Scaddabush on Front Street in downtown Toronto, which will be added to the Royalty Pool in 2018. Scaddabush continues to perform exceptionally well and we look forward to the positive contributions from these new locations and towards completing the conversions of our remaining two Alice Fazooli's restaurants to Scaddabush during 2017," said Peter Fowler, President and CEO of SIR Corp. "To date in 2016, we have completed renovations to three Jack Astor's locations and expect to complete renovations at additional Jack Astor's locations prior to year-end. SIR's recent divestiture of Fund units, resulting in net proceeds of over $10 million, was to raise capital to reinvest in new restaurant development and restaurant renovations, so we are well positioned to finance our growth initiatives to the benefit of our Fund unitholders, while maintaining a significant ownership position in the Fund at nearly 20%." 

"Overall same store sales growth of 0.9% in the quarter reflects the strong performance of Scaddabush and our Signature Group, partially offset by a 1.2% decline in same store sales for Jack Astor's. Part of the decline in sales at Jack Astor's was attributable to lower beverage sales. We are currently evaluating our beverage program at Jack Astor's and plan to introduce initiatives to generate sales improvements in this area going forward," added Mr. Fowler.

Pooled Revenue increased 3.4% to $72.5 million in Q3 2016, up from $70.1 million in Q3 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 0.9%.

The Fund's net earnings were $2.4 million, or $0.30 per Fund unit, compared to $2.3 million, or $0.30 per unit, in Q3 2015.

Distributable cash⁽²⁾ for Q3 2016 totaled $2.4 million, or $0.30 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.2 million, representing a payout ratio⁽²⁾ of 94.7%. Distributable cash⁽²⁾ for Q3 2015 totaled $2.3 million, or $0.30 per Fund unit (basic and diluted), and distributions to Unitholders totaled $2.2 million, representing a payout ratio⁽²⁾ of 95.5%. 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 Q3 2016, the Fund has generated $86.3 million in cumulative distributable cash and has paid cumulative cash distributions of $85.7 million, representing a cumulative payout ratio (the ratio of cumulative cash distributions paid since inception to cumulative distributable cash generated) of 99.4%.

Distributable Cash⁽²⁾
The following table reconciles the relationship between cash provided by operating activities and distributable cash⁽²⁾:                 

Jack Astor's, which generated approximately 76% of Pooled Revenue in Q3 2016, had a SSS⁽¹⁾ decline of 1.2% in Q3 2016, primarily resulting from sales declines at Jack Astor's in Calgary, Alberta and Jack Astor's in St. John's, Newfoundland due to weakened local economies and a decline in the overall beverage sales compared to the corresponding period a year ago. These factors offset the positive effect on Jack Astor's sales at certain of the downtown locations resulting from the popularity of various sporting events in the quarter.

SIR has made a concerted effort to improve performance at its Canyon Creek locations by strengthening leadership and execution from the top down. Canyon Creek's SSS⁽¹⁾ decline of 2.4% in Q3 2016 was primarily the result of significant competitive intrusion at one of the eight Canyon Creek locations, which had a decline in SSS⁽¹⁾ of 22.8% in Q3 2016.

Scaddabush, together with Alice Fazooli's®, generated SSSG⁽¹⁾ of 14.9% in Q3 2016, primarily 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 three new Scaddabush restaurants. The three new Scaddabush locations include: downtown Toronto at the corner of Yonge Street and Gerrard Street; Scarborough, Ontario, which was opened during Q3 2016; and Front Street in downtown Toronto, which was opened subsequent to Q3 2016 on November 3, 2016. The strong combined Scaddabush/Alice Fazooli's SSSG⁽¹⁾ during Q3 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 13.6% in Q3 2016, driven primarily by the strong performance of the Loose Moose® and Reds Wine Tavern®.

Transaction
During Q3 2016, SIR Corp. sold 750,000 Units of the Fund at a price of $14.15 per Unit for gross proceeds of $10,612,500. SIR sold the Units primarily to invest the net proceeds in new restaurants and/or in the renovation of existing restaurants. SIR now owns 2,061,097 Class A GP Units, representing the equivalent of approximately 19.75% of the issued and outstanding Units on a fully diluted basis.

Outlook
SIR continues to monitor economic conditions, competitive actions, 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 two Jack Astor's locations in Q2 2016 (Halifax, NS) and Q3 2016 (Mississauga, ON), respectively, and completed an additional Jack Astor's renovation (Pickering, ON) subsequent to quarter end. SIR is pleased with the performance at the recently renovated Jack Astor's locations and intends to implement similar renovations at other Jack Astor's locations. A new Scaddabush restaurant was opened during Q3 2016 in Scarborough, Ontario, and, subsequent to Q3 2016, on November 3, 2016, SIR opened a new Scaddabush restaurant on Front Street in downtown Toronto. These Scaddabush restaurants are expected to be added to Royalty Pooled Restaurants on January 1, 2017 (Scarborough) and January 1, 2018 (Front Street). SIR plans to convert the two remaining Alice Fazooli's to Scaddabush restaurants by the end of 2017.  

SIR permanently closed Far Niente®/FOUR®/Petit Four® at 187 Bay Street in downtown Toronto, effective October 15, 2016, 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, initially equal to 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.

The Fund does not expect the closure of Far Niente/FOUR/Petit Four to have a material impact on the Fund's distributable cash⁽²⁾ or payout ratio⁽²⁾ for the remainder of 2016. SIR expects the impact to Royalty Pool Revenue in 2017 and beyond resulting from the closure of Far Niente/FOUR/Petit Four to be offset 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.

SIR currently has plans to build two new restaurants, including a new Reds restaurant, which is expected to open in 2017, and another restaurant which is expected to open in 2018. There can be no assurance that these 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 nine-month periods ended September 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 nine-month periods ended September 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 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 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