Sir Royalty Income Fund T.SRV.UN

RE:RE:What does the future hold for SIR - could be interesting

[logicandinertia]

Sir provides audited statements for both the Royalty and the Corporation (Corp).  In 2017, Ebitda for the CORP was about $19 million, while cash flow from operations (excluding the distributions paid to the Royalty), was $22.3 million (and $20 million in 2016).   So the Corp generates an ebitda margin of 7.6 percent .   The KEG was at 6.9 percent in 2017 and Cara was 6.8 percent.  The Keg was 54 percent franchised and Cara 82 percent, so this illustrates the strength of SIR CORP (generating more margin with no franchising).

 A buyer would be buying the CORP and then could also purchase the Royalty too and collapse this structure.  

Given that the Royalty pays out all its “earnings”, and the yield is 7.9 percent , the inverse is used to generate a rough earnings multiple.  1/0.079 Equals 12.6x “earnings”, quite reasonable.  

If one were a buyer, what steps could they take?   Franchising of one or more of the brands would pay immediate benefits in up front franchise fees and the ability to earn margin of supplies and the typical ongoing percentage paid on revenues.  There would be immediate cost savings on head office and public reporting costs too.

So there is no easy answer to your query.  These economics are not lost , however , on Mr Fowler and I’m sure that if the business is to be sold, it will be done so at a favourable price, given his vested interest and effort put into to building such a successful entity.   Hope this helps.