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SIR Royalty Income Fund Reports SIR Corp. Fiscal 2018 Second Quarter Results

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SIR Royalty Income Fund Reports SIR Corp. Fiscal 2018 Second Quarter Results

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BURLINGTON, ON, March 26, 2018 /CNW/ - SIR Royalty Income Fund (TSX:SRV) (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 24-week periods ended February 11, 2018 ("Q2 2018" and "YTD 2018", respectively).

SIR has advised the Fund that revenue from corporate restaurant operations for Q2 2018 increased 6.1% to $66.2 million, compared to $62.4 million for the 12-week period ended February 12, 2017 ("Q2 2017"). Revenue from corporate restaurant operations for YTD 2018 increased 6.9% to $134.6 million from $125.9 million for the 24-week period ended February 12, 2017 ("YTD 2017"). The increase in revenue for both periods is primarily attributable to the addition of new restaurants and same store sales growth ("SSSG")(1).

 

Same Store Sales(1)

12-week period ended

February 11, 2018

(unaudited)

24-week period ended

February 11, 2018

(unaudited)




Jack Astor's®

3.2%

4.3%

Canyon Creek®

(1.1%)

0.3%

Scaddabush Italian Kitchen & Bar®

6.3%

9.4%

Signature Restaurants

(5.7%)

(4.0%)

Overall SSSG(1)

2.3%

3.6%

 

Jack Astor's, SIR's flagship concept restaurant brand, contributed approximately 72% of Pooled Revenue in Q2 2018 and generated SSSG(1) of 3.2% for Q2 2018 and 4.3% for YTD 2018, respectively. Jack Astor's SSS(1) continue to be favourably impacted by the improved sales performance of certain locations that were renovated within the last two fiscal years, including increases in beverage sales at these locations. Enhanced beverage programs were implemented as part of the renovation program, including the rollout of a new craft beer program during Q1 2018. SIR completed renovations at two Jack Astor's locations during Q2 2018 (in south London, Ontario and 10 Dundas East in downtown Toronto), which resulted in the closure of those restaurants for a combined total of 21 days, compared to the closure of two locations for renovations for a combined total of 17 days during Q2 2017. In addition to the aforementioned factors that impacted SSSG(1) in Q2 2018, YTD 2018 SSSG(1) was impacted by the closure of two Jack Astor's locations for renovations (Dartmouth, Nova Scotia and on Richmond Row in London, Ontario), for a combined total of 15 days, compared to the closure of four restaurants for renovations for a combined total of 20 days during YTD 2017.

Canyon Creek had a SSSG(1) percentage decline of 1.1% in Q2 2018, and generated SSSG(1) of 0.3% for YTD 2018. The sales from the Canyon Creek location in Etobicoke, Ontario, which was permanently closed in Q1 2018, have been excluded from the calculation of SSSG(1) for Q2 2018 and YTD 2018. A new Scaddabush restaurant was opened at this location on November 28, 2017.

Scaddabush SSS(1) performance for Q2 2018 includes four Scaddabush locations: Richmond Hill, Mississauga, Scarborough, and Yonge and Gerrard in downtown Toronto. These four Scaddabush locations generated SSSG(1) of 6.3% in Q2 2018 and 9.4% in YTD 2018, respectively. The new Scaddabush restaurants on Front Street in downtown Toronto and in Etobicoke, Oakville, and Vaughan, Ontario are excluded from Q2 2018 and YTD 2018 SSS(1) performance as they were not in operation during the entire comparable periods a year ago.  

The downtown Toronto Signature Restaurants had SSS(1) percentage declines of 5.7% in Q2 2018 and 4.0% in YTD 2018, respectively. Duke's Refresher® & Bar in downtown Toronto continues to demonstrate improved sales performance.

SIR's net income and comprehensive income was $8.0 million in Q2 2018, compared to a net loss and comprehensive loss of $9.9 million in Q2 2017. SIR's net income and comprehensive income was $3.6 million in YTD 2018, compared to a net loss and comprehensive loss of $11.1 million in YTD 2017. 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 $8.4 million and $2.9 million in Q2 2018 and YTD 2018, respectively, compared to an expense of $10.1 million and $10.8 million in Q2 2017 and YTD 2017, respectively. These changes in Q2 2018 and YTD 2018 are due to a decrease in the underlying unit price of the Fund compared to the end of Q1 2018 and Q4 2017, respectively.

SIR's Adjusted Net Loss(2) for Q2 2018 was $0.4 million, compared to Adjusted Net Earnings(2) of $0.2 million in Q2 2017. Adjusted Net Earnings(2) for YTD 2018 were $0.7 million, compared to an Adjusted Net Loss(2) of $0.3 million in YTD 2017.

Q2 2018 Corporate Developments
As part of SIR's focus on strengthening its flagship Jack Astor's brand and driving SSSG(1), SIR continued with its renovation program by completing renovations of two Jack Astor's restaurants (in south London, Ontario and 10 Dundas East in downtown Toronto) in Q2 2018. Subsequent to the end of Q2 2018, SIR completed partial renovations at an additional Jack Astor's location in Kingston, Ontario.

During Q2 2018, on November 28, 2017, SIR opened a new Scaddabush restaurant near the Sherway Gardens shopping centre in Etobicoke, Ontario, at the location of the Canyon Creek restaurant that was permanently closed effective October 15, 2017.

During Q2 2018, on December 11, 2017, SIR opened a new Reds® restaurant at the Square One shopping centre in Mississauga, Ontario.

During Q2 2018, effective January 1, 2018, the new Scaddabush restaurants on Front Street in downtown Toronto and in Oakville and Vaughan, Ontario were added to Royalty Pooled Restaurants.

Liquidity and Capital Resources
As at February 11, 2018, SIR had cash and cash equivalents of $3.0 million, compared to $4.6 million as at August 27, 2017, SIR's Fiscal 2017 year-end.

During Q2 2018, on December 8, 2017, SIR extended its credit agreement (the "Credit Agreement") with its lender (a Schedule I Canadian chartered bank) from July 6, 2018 to July 6, 2020 under substantially the same terms and conditions. The Credit Agreement as amended provides for a new $2.2 million leasing facility.

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
The new Scaddabush restaurant and the new Reds restaurant that opened during Q2 2018 will be added to Royalty Pooled Restaurants on January 1, 2019.

SIR has one commitment to lease a property in the Mimico neighbourhood of Etobicoke, Ontario upon which it plans to build one new Scaddabush restaurant. There can be no assurance that this restaurant will be opened or will become part of Royalty Pooled Restaurants

During Fiscal 2017, SIR permanently closed the last two Alice Fazooli's restaurants (Oakville and Vaughan, Ontario) and opened two new Scaddabush restaurants at these locations. These closures completed SIR's program to evolve the Alice Fazooli's concept brand into its newest concept brand, Scaddabush. With eight Scaddabush locations now in operation, SIR and the Fund are well positioned to benefit from the expected continued sales growth of this popular brand.

Since commencing its comprehensive Jack Astor's renovation program at the end of calendar 2015, SIR has completed major renovations at 15 Jack Astor's locations. SIR's Management is pleased with the performance at the renovated Jack Astor's locations 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).

The Ontario government has passed legislation that raised Ontario's general minimum wage on January 1, 2018, and will raise it again on January 1, 2019, followed by annual increases at the rate of inflation. These changes 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 Q2 2018 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 61 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 eight locations; and Canyon Creek®, with seven locations.  SIR also operates one-of-a-kind "Signature" brands including Reds® Wine Tavern, Reds® Midtown Tavern, Reds® Square One 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 Bakehouse®, and one seasonal Abbey's Bakehouse retail outlet, which are currently not in consideration to be 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. For Q2 2018, Adjusted Net Loss of $0.4 million (Q2 2017 – Adjusted Net Earnings of $0.2 million) is equal to the net earnings for the period of $8.0 million (Q2 2017 – net loss of $9.9 million) minus (plus) the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $8.4 million (Q2 2017 - $10.1 million). For YTD 2018, Adjusted Net Earnings of $0.7 million (YTD 2017 – Adjusted Net Loss of $0.3 million) is equal to the net earnings for the period of $3.6 million (YTD 2017 – net loss of $11.1 million) minus (plus) the change in amortized cost of Ordinary LP Units and Class A LP Units of the Partnership of $2.9 million (YTD 2017 – $10.8 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. Recent changes in employment law, including announced increases in minimum wage, are factored into management's assumptions. 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, 2018 Annual Information Form, for the year ended December 31, 2017, 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

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