Sir Royalty Income Fund SIRZF

Renegade - New Concept rules

[frugalGreg]

With Renegade, there is precedent for SIR creating new brands; While it is a little unusual that they are operating out of existing Jack's locations and as popup/virtual locations vs standalone buildings, my view is that it's great they are pivoting and adapting, and that in due time Renegade will fall under the SRV agreement.  

SIR has the ability to introduce new brands (aka "concepts"), and as these mature SRV has the option to buy them.   I wasn't able to find the "formula"  in the declaration of trust, but this has happened in recent years with Scaddabush and most recently with Duke's. 

See below for wording around the arrangement for Duke's -- there is a threshold, both $ revenue, and # locations that trigger SRV's option, and a process for pricing the licensing rights and what would happen if SRV did not want to purchase them (right of first refusal).  Certainly the revenue threshold would apply with Renegade - it's less clear how they could consider # locations.  (I suspect the timing of the launch, just after the annual royalty pool adjustment, was designed to allow SIR to operate an extra year before a trigger event.)


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(full details, Page 9:  https://www.sircorp.com/wp-content/uploads/2020/05/SIR-2019_AR-full-secure.pdf)

On September 26, 2019, SIR opened a new Duke’s Refresher in the St. Lawrence Market neighbourhood of downtown Toronto. SIR believes that Duke’s Refresher has multi-unit growth potential and has advised the Fund that Duke’s Refresher should be considered as a potential New Concept Restaurant brand. As such, the earliest that any Duke’s Refresher would be added to the Royalty Pool would be the Adjustment Date following the earlier of: (i) the date that four Duke’s Refresher restaurants are open for business at the same time, and (ii) 90 days following the end of the fiscal year in which revenues from all Duke’s Refresher restaurants in Canada first exceed $12.0 million (the “Trigger Event”). As neither of these events are expected to occur before November 22, 2020, Duke’s Refresher is not expected to be added to the Royalty Pool on January 1, 2021