Sir Royalty Income Fund T.SRV.UN

Using Boston Pizza on a comparable analysis basis- what if?

[logicandinertia]

Boston Pizza paid rising distributions from 2014 to 2018, before dipping in 2019.  From 2016 to 2018, distributions rose from $27.8 million in 2016 to $30.2 million in 2018, and $30 million in 2019.  Payout ratio was the following – 2016: 98.9%, 2017: 100.0%, 2018: 103.3%, 2019: 104.8%.

Sir also paid rising distributions, which includes 2019 (a mistake in hindsight).  From 2016 to 2019, distribution increased from $9 million in 2016 to $10.3 million in 2019 (it was cut for Q4/2019).    Payout ratio was the following – 2016: 99.1%,  2017: 98.4%,  2018: 97.7% 2019: 105.9%. 

Same same stores growth was higher at SIR in the timeframe 2016-2018, with the exception being 2019, where both companies struggled with BP at -2.2% and SIR at -5.3%.

The market cap of Boston Pizza Income Fund is currently $185 million.   The company has elected to start paying distributions of $0.065 per month, or $0.78 per year, or $16.8 million.   The yield on the current market cap is 9.1%.  The yield on the $0.105 per month ($27.1 million) distribution that they paid prior to Covid is 14.6% (obviously not reality now).   So BP has reinstated distributions equating to 62% of the prior to Covid distribution.  

The market cap of SIR is $16 million.   Assuming that SIR reinstates dividends at 50% of the prior to Covid levels, rather than BP’s 62%, that would be $0.04375 per month per share or $0.525 per share annualized.  The yield on the current market cap would be  34.4%.   If the market elected to take SIR Royalty yield on this scenario to 10% (rather then BP’s 9.1%), what would that mean for capital return?  The market cap in that scenario would be $55 million, an increase of 244% from current levels.  Hence why I made the point in a prior post that downside may be substantial if COVID gets worse, but there is considerable upside should things be stabilizing.

This is just an exercise, but attempts to view two businesses that behaved rather similarly from 2014 to 2019, and are impacted by similar demographics in the Canadian marketplace.

[flamingogold]

Logic, nice analysis. My thinking as well. To be even more conservative, a token 2cents/mth dividend would still push the share price up to almost $3 as a comparable to BP. A capital gain double and a 14% dividend at today's share price base.

[JohnFriesen]

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[logicandinertia]

Respectfully , I do my own work and listen to my own counsel.  If somebody puts in some work, I welcome it.   I find it interesting that folks spend time on boards of companies that they don’t own just to belittle others.  It diminishes your own returns when you waste time on companies you aren’t interested in.  There is no borrow on SIR.  I assume most

[JohnFriesen]

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