Sir Royalty Income Fund SIRZF

Primary Symbol: T.SRV.UN

Consumer Cyclical Restaurants

SIR Royalty Income Fund (the Fund) holds investment in SIR Corp (SIR). The Funds' investment, SIR is engaged in the business of owning and operating full-service restaurants in Canada. SIR has concept restaurant brands, including Jack Astor’s Bar and Grill, Scaddabush Italian Kitchen & Bar, and Canyon Creek Chop House, signature restaurant brands, such as Reds Wine Tavern, Reds Midtown Tavern, Reds Square One, and The Loose Moose, which are used by SIR under a license agreement with SIR Royalty Limited Partnership (the Partnership. The Fund receives distribution income from its investment in the Partnership and interest income from the SIR Loan. The Fund indirectly participates in the revenues generated under the License and Royalty Agreement through its Investment in the Partnership.

TSX:SRV.UN - Post by User

Sir Royalty Income Fund > Potential future for sir royalty

<< Previous

Bullboard Posts

Next >>

Comment by flamingogoldon Nov 20, 2020 11:36am

139 Views

Post# 31940941

RE:Potential future for sir royalty

Thank you for the input. I own Keg too. It is the best Canadian brand for dining out there and one I enjoy visiting several times per year.

There are only 5 Canyon Creeks left. I believe the airport location and Niagara Falls could be converted to Scaddabush as the latter is currently not in those immediate two areas.

However, the Vaughn, Square One and Scarborough Canyon Creek locations are within a kilometre or two of both Scaddabush and Jack's so they will need to do something different there. I know some Scaddabush and Jack's in those areas share the same building. Perhaps they "move out" the stronger brand Scaddabush to the Canyon Creek location and "move in" a newer brand like Reds to share with Jack.

logicandinertia wrote:
If you review the operating margins of sir Corp over the past decade, it is clear that Peter Fowler knows how to run restaurants. The transition from fazooli's to scaddabush was excellent and Jack's has stayed relevant. The locations are usually very good, and even standalone restaurants like Red's are nice additions. The ebitda at the restaurant operations was $38 mm and $35mm in 2018 and 2019, respectively. Between 11-12 percent. And those weren't easy years and included struggling canyon creek. And this level of ebitda easily supports sir's leverage of between $30-40mm.

In 2018/2019, the combination of higher min wage, increased delivery options, oversupply and a weakening cdn economy hurt traffic. Arguably, menu prices got extended (not just for sir but industry) too. Then Covid hit.

After the real estate crisis in the US in 2008/2009, private capital partnered with existing players to Hoover up cheap land and properties. They made a fortune. If I were a good restaurateur like Fowler, I would partner with private equity and carefully become a consolidator for brands and concepts that have a future under good management. The capital pool is definitely there. One could have the pick of the litter with regards to available real estate where good deals with lots of leasehold improvements thrown in by desperate landlords could be had. Canadians are sitting on lots of cash and spending on restaurants post vaccine will return in earnest.

Companies can come out of a crisis on the front or back foot. I hope that Fowler is more aggressive in a post vaccine rollout world.

This hypothetical doesn't change my existing thesis. Sir royalty distributed an average of $10 million per year to shareholders from 2017 to 2019. The current market cap is less than $20 million , so trading at 2x annual distribution.

And I think Canyon gets rebranded . It hasn't worked. Keg is a juggernaut in the Canadian market.