SIR Royalty Income Fund Reports SIR Corp. Fiscal 2017 Fourth Quarter and Year End Results

BURLINGTON, ON, Nov. 22, 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 16-week and 52-week periods ended August 27, 2017 ("Q4 2017" and "Fiscal 2017", respectively).   

SIR has advised the Fund that revenue from corporate restaurant operations for Q4 2017 increased 8.5% to $99.8 million compared to $92.0 million for the 16-week period ended August 28, 2016 ("Q4 2016"). Revenue from corporate restaurant operations for Fiscal 2017 increased 4.4% to $293.3 million from $280.8 million for the 52-week period ended August 28, 2016 ("Fiscal 2016"). Increased revenue in Q4 2017 and Fiscal 2017 is attributable to the addition of new restaurants and same store sales growth ("SSSG")⁽¹⁾.

Overall same store sales ("SSS")⁽¹⁾ increased 3.8% and 1.7% for Q4 2017 and Fiscal 2017, respectively, compared to the corresponding periods in the prior year. Jack Astor's, SIR's flagship Concept Restaurant brand, which contributed approximately 76% of Pooled Revenue in Q4 2017, had SSSG⁽¹⁾ of 2.3% and 0.6% for Q4 2017 and Fiscal 2017, respectively. Q4 2017 sales were favourably impacted by improved sales performance at certain 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.  Q4 2017 sales were also positively impacted by a major nationwide media marketing campaign during the quarter. SIR completed renovations at two Jack Astor's locations in Q4 2017 (Vaughan and Brampton, Ontario) which resulted in the closure of these locations for a combined total of 19 days, compared to one location closed for 11 days in Q4 2016. Q4 2017 SSS⁽¹⁾ were impacted by these closures, and continue 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). Certain Jack Astor's locations near the Air Canada Centre and the Rogers Centre were also negatively impacted by an overall decrease in event attendance in Q4 2017 compared to Q4 2016.

In addition to the aforementioned factors that impacted SSSG⁽¹⁾ in Q4 2017, Fiscal 2017 SSS⁽¹⁾ were negatively impacted by the closure of eight other Jack Astor's locations for renovations (Mississauga, Pickering, Etobicoke, Kingston, St. Catharines, Barrie, and Whitby, Ontario, and Front Street in downtown Toronto), for a combined total of 66 days, compared to two locations in Fiscal 2016, for a total of 27 days. The location on Front Street in Toronto, one of SIR's highest volume Jack Astor's locations, completed a renovation that was more extensive than other locations, resulting in a longer than normal closure. This location was closed for a total of 20 days in Fiscal 2017. The negative impact of the 10 Jack Astor's renovations in Fiscal 2017 was partially offset by the positive impact from the World Cup of Hockey, which took place in Toronto during September 2016, as well as the 2017 IIHF World Junior Hockey Championship in December 2016.

Canyon Creek had SSSG⁽¹⁾ of 5.7% and a SSS⁽¹⁾ decline of 0.9% for Q4 2017 and Fiscal 2017, respectively. The Q4 2017 SSSG⁽¹⁾ is primarily the result of the downtown Toronto Canyon Creek location continuing to benefit from a local marketing campaign, as well as improved sales performance at certain locations outside downtown Toronto. The SSS⁽¹⁾ decline in Fiscal 2017 is partially due to the impact of a significant competitive intrusion at one of the eight Canyon Creek locations, which had SSS⁽¹⁾ declines of 8.1% in Q4 2017 and 16.0% in Fiscal 2017. Subsequent to Q4 2017, effective October 15, 2017, this particular location in Etobicoke, Ontario was permanently closed.

Scaddabush SSS⁽¹⁾ performance for Q4 2017 includes three Scaddabush locations: Richmond Hill, Mississauga, and the location at the intersection of Yonge and Gerrard streets in downtown Toronto. These locations generated SSSG⁽¹⁾ of 17.0% and 14.3% for Q4 2017 and Fiscal 2017, respectively. SIR permanently closed the Alice Fazooli's® location in Oakville, Ontario and opened a new Scaddabush restaurant at this location during Q3 2017. During Q4 2017, effective June 18, 2017, SIR closed its last Alice Fazooli's restaurant, located in Vaughan, Ontario, and opened a new Scaddabush restaurant in its place on July 5, 2017. Beginning in the quarter each of these Alice Fazooli's restaurants were closed, their respective sales have been excluded from the calculation of SSS⁽¹⁾ for that quarter and the current year-to-date, similar to any permanently closed location. Accordingly, the Q4 2017 SSSG⁽¹⁾ performance for Scaddabush does not include the Alice Fazooli's in Vaughan and the Fiscal 2017 SSS⁽¹⁾ performance for Scaddabush does not include the Alice Fazooli's locations in Oakville or Vaughan, Ontario. The new Scaddabush restaurants in Scarborough, Ontario and on Front Street in downtown Toronto are also excluded from the calculation of Q4 2017 and Fiscal 2017 SSS⁽¹⁾, as they were not in operation for the entire comparable periods a year ago.    

The downtown Toronto Signature Restaurants generated SSSG⁽¹⁾ of 6.4% and 6.6% for Q4 2017 and Fiscal 2017, respectively. The Loose Moose® generated strong SSSG⁽¹⁾, despite the previously mentioned impact of overall decreased event attendance at the Air Canada Centre and Rogers Centre during Q4 2017. SSSG⁽¹⁾ for Fiscal 2017 was 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 Q4 2017 and Fiscal 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 earnings and comprehensive income was $4.7 million in Q4 2017, compared to a net loss and comprehensive loss of $15.6 million in Q4 2016. SIR's net loss and comprehensive loss was $13.4 million in Fiscal 2017, compared to a net loss and comprehensive loss of $23.7 million in Fiscal 2016. The favourable variances are primarily the result of a 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 income of $1.9 million for Q4 2017 and an expense of $17.2 million for Fiscal 2017, respectively, compared to expenses of $16.1 million and $25.3 million for Q4 2016 and Fiscal 2016, respectively. These changes in Q4 2017 and Fiscal 2017 are due to a decrease in the underlying unit price of SIR Royalty Income Fund (the "Fund") compared to the end of Q3 2017, and an increase in the underlying unit price of the Fund compared to the end of Fiscal 2016, respectively.

SIR's Adjusted Net Earnings⁽²⁾ were $2.8 million and $3.8 million in Q4 2017 and Fiscal 2017, respectively, compared to $0.5 million and $1.6 million in Q4 2016 and Fiscal 2016, respectively.

SIR 2017 Corporate Developments
As part of SIR's focus on strengthening its Jack Astor's flagship brand and driving SSSG⁽¹⁾, SIR continued with its renovation program by completing renovations of 10 Jack Astor's restaurants in Fiscal 2017. Subsequent to the end of Fiscal 2017, SIR completed renovations of two additional Jack Astor's locations.

During Q4 2017, effective June 18, 2017, SIR permanently closed the Alice Fazooli's restaurant in Vaughan, Ontario. A new Scaddabush restaurant was opened at this location on July 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 Scaddabush restaurant in Vaughan is expected to be added to Royalty Pooled Restaurants on January 1, 2018.

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 Fund, via 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 Scaddabush restaurant in Oakville is expected to be added to Royalty Pooled Restaurants on January 1, 2018.

During Q1 2017, on November 3, 2016, SIR opened a new Scaddabush restaurant on Front Street in downtown Toronto, Ontario. This restaurant is expected to be added to Royalty Pooled Restaurants on January 1, 2018.

During Q1 2017, effective October 15, 2016, Far Niente/FOUR/Petit Four located in downtown Toronto was permanently closed. SIR was required to pay a Make-Whole Payment to the Fund, via the Partnership, for this location from the date of closure until it ceased to be part of Royalty Pooled Restaurants on January 1, 2017.

During Fiscal 2016, SIR opened one new Jack Astor's restaurant and one new Scaddabush restaurant. The Jack Astor's restaurant was opened on September 8, 2015 in Ottawa, Ontario and was added to Royalty Pooled Restaurants on January 1, 2016, along with another Jack Astor's restaurant that was opened in Ottawa during the 52-week period ended August 30, 2015. The new Scaddabush restaurant was opened on July 12, 2016 in Scarborough, Ontario, and was added to Royalty Pooled Restaurants on January 1, 2017.

Liquidity and Capital Resources
As at August 27, 2017, SIR had cash and cash equivalents of $4.6 million, compared to $3.9 million as at August 28, 2016. The increase is attributable to $12.1 million of cash provided by operations and $2.3 million provided by financing activities, partially offset by $13.8 million used in investing activities.

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

Outlook
As at November 21, 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. It is expected that the Reds restaurant will open during calendar year 2017.

During Fiscal 2017, SIR permanently closed the last two Alice Fazooli's restaurants (Vaughan and Oakville, Ontario) opening two new Scaddabush restaurants in these locations. These closures, along with the previous conversions of two Alice Fazooli's restaurants into Scaddabush restaurants (Mississauga and Richmond Hill, Ontario), completed SIR's program to evolve the Alice Fazooli's concept brand into the newest concept brand, Scaddabush. SIR has also opened three new Scaddabush restaurants: one at the intersection of Yonge Street and Gerrard Street in downtown Toronto; one in Scarborough, Ontario; and one on Front Street in downtown Toronto. The new Scaddabush restaurants on Front Street in Toronto, and in Oakville and Vaughan, Ontario will be added to Royalty Pooled Restaurants on January 1, 2018.

SIR is pleased with the demonstrated strong sales performance of the Scaddabush brand and will be opening an additional new Scaddabush restaurant at the site of the former Canyon Creek restaurant in Etobicoke, Ontario, near Sherway Gardens shopping centre, before the end of calendar year 2017. SIR closed this Canyon Creek restaurant subsequent to year-end, effective October 15, 2017.  

Subsequent to year-end, a dividend payable of $1.0 million was declared to the holders of the issued and outstanding common shares of SIR.

SIR's Management is pleased with the performance at the recently renovated Jack Astor's locations, with 10 completed in Fiscal 2017 and two additional renovations completed subsequent to year-end, 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⁾.

On November 22, 2017, the Ontario government passed legislation that will raise Ontario's general minimum wage on January 1, 2018, and again on January 1, 2019, followed by annual increases at the rate of inflation. These changes will materially increase the cost of hourly labour in the majority of SIR's restaurants. SIR's Management is evaluating alternatives to offset the impact of these increases in an effort to reduce the price increases that otherwise may have to be implemented to mitigate anticipated cost increases.

SIR continues to focus on sustaining and growing existing restaurant sales and profits while effectively managing costs. SIR carefully monitors 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 Q4 2017 and Fiscal 2017 filings, which include its audited 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 59 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® with seven locations; and Canyon Creek®, with seven 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 (54 operating restaurants and three closed restaurants). 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 and the seasonal Duke's Refresher & Bar and Abbey's Bakehouse, which are both located in Muskoka, Ontario. When a SIR Restaurant is closed, the revenue for the closed restaurant is excluded from the calculation of SSS and SSSG for both the quarter in which the restaurant is closed and the current year-to-date.

(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. 

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