Sir Royalty Income Fund T.SRV.UN

What a mess

[logicandinertia]

This is disappointing.  

SIR CORP maintains a "going concern" provision in its financials and fails to pay the partnership/fund the accrued owing (therefore setting up a tax liability - $$$ that should have gone to shareholders will now go to the govt), yet now want to lowball SIR ROYALTY shareholders.

They remain beholden to BNS, who i assume is restricting their ability to pay out the accrued amounts (as they have issued covenant relief) to fund holders.  

Yet instead of diluting themselves and bringing in additional equity capital to pay down BNS or line up other debt lines to gain more flexibility (benefiting unit holders), they propose to opportunistically buy out minority shareholders while the pandemic reaches record numbers (albeit a vaccine is slowly rolling) and hope scared shareholders will fold.  

This is absurd, and good on the independent trustees for putting in their $0.02.   

The bank line with BNS is up for  renewal in the summer i think .   Vaccine rollout will be in full stride at this time, and restaurants will be reopened.  Why not find alternative lenders then which will provide more flexibility??   

This is the owners of SIR (Fowler) presumably crying poverty on one side of his mouth , yet scrounging up enough capital to attempt to low ball investors, such that once things reopen, all the cash flow that was going to unit holders (~$10mm per year for a decade) goes to him and the other SIR CORP owners.   At a buyout price of $30mm and if financing could be done at 5%, that is only $1.5 million in servicing costs, versus cash flow thrown off of $10mm , a good deal by anybody's standard.   Recognizing that the restaurants won't get back to $10mm in 2021, but with reduced industry capacity, and a decent economy, maybe 2022.

Minority shareholders should vocally (call the company) make the company aware of their feelings...

[logicandinertia]

Reading the statement from the Independent trustees, what SIR CORP may be proposing would be a collapse of the structure, and taking SIR CORP public in the process, as the idea of minority shareholders having shares in a private co is a non-starter.   Perhaps a complex undertaking, but this idea is much more palatable to me than some $3.50 buyout garbage.  It would provide SIR CORP

[flamingogold]

So was the news released meant to be final or a bargaining chip/bully takeover threat by the Corpotation to get the trustees to come down on their demands?

[BlueJay2020]

Now why didn't I think of that?! It's still problematic, though.  Why would you give away equity so cheaply?  Would I be interested in taking a slice of the whole business, rather than taking a royalty off the top?  To be honest, I am not sure.  I'm primarily an income investor and usually not especially interested in ownership of a restaurant - it's too

[logicandinertia]

I think your last sentence is where I was going with that.   On that franchise point, it can't escape sir that had they been franchised, most of the rent (for the franchisees) would have been covered .  Their existing structure meant that they hit the maximum subsidy, whereas recipe and other more franchised businesses saw their franchisees secure rent subsidy for each location

[BlueJay2020]

You're absolutely correct, not that I (or probably you) would criticise Fowler for not foreseeing that eventuality.   He had his own reasons for not franchising, and they may or many not have worked for him in the past, and may or may not when we get back to normality.  If he still prefers a corporate model, then hopefully he will be able to stick with that, and not be forced to

[logicandinertia]

I agree with your points about selling equity at this point in the cycle .   However, if it were a small offering and you were rolling up the trust as part of it, kill 2 birds with one stone and if it achieved the broader corporate goals, Perhaps the bit of near term pain worth it...just a thought.