Sir Royalty Income Fund T.SRV.UN

Statement from the Independent Trustees

[BlueJay2020]

The plot thickens!  Hats off to the independents here - they seem to be going into bat for us and doing exacrtly what they should do.  I might see if I can track them down and send them a wee note!

TORONTO , Jan. 7, 2021 /CNW/ - The Independent Trustees of SIR Royalty Income Fund (TSX: SRV.UN) (the " Fund ") wish to update unitholders in respect of a press release issued yesterday by SIR Corp. (" SIR ").

Over a number of months, SIR, a related party of the Fund, has expressed interest in an unsolicited transaction with the Fund, through an acquisition of Fund units for shares of SIR or cash, including recently an acquisition of units for $3.55 per unit. While the Independent Trustees had discussions with SIR concerning these expressions of interest, discussions did not proceed further on a share exchange as the parties could not agree on respective valuations. More recently, while the Independent Trustees were asking their advisors to consider SIR's most recent expression of interest for cash, SIR provided to the Independent Trustees a requisition in draft for a meeting of unitholders to consider a sale of the assets of the Fund and a termination of the Fund, as described in the SIR press release. The Independent Trustees have not received a proposal in respect of that transaction, but understand through SIR's press release that SIR wishes them to consider same.

The Independent Trustees have asked SIR for clarification of certain terms of the transaction described by it and their independent financial and legal advisors to consider various alternatives that may be available to the Fund and will further update unitholders as circumstances warrant.

[Tommy123]

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[logicandinertia]

An open market process to sell SIR ROYALTY would be challenging, given the structure of the CORP (PRIVATE), PARTNERSHIP (PRIVATE), and ROYALTY (PUBLIC) and their interdependence.   I suppose the CORP could be bought and a buyer to takeout and collapse all the structures, but note that when KEG CORP (PRIVATE) was bought out, they left the ROYATY (PUBLIC) intact and it still trades today.

[BlueJay2020]

I agree that it is unlikely that there will be a white knight at this stage - I think the best we can hope for is for the price to be bumped up by a buck OR we just sit tight and wait for the situation to improve and start earning dividends. I actually think the short statement from independent trustees is quite revealing for a number of reasons: 1) Sir Corp have been interested in buying out

[flamingogold]

"If they are that keen to acquire the royalty stream, that tells me they are prepared to pay more than $3.55" At $3.55 they are robbing us, plain and simple. Even if they pay a buck or two more they are getting it for a song. The fund started at $10, they would like to run us over for $3.55 then collapse the fund, then relaunch it again likely at $10 when restaurants are back to full

[Tommy123]

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[flamingogold]

What are the chances the price get renegotiated higher or is this it and we are forked?

[Tommy123]

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[logicandinertia]

as per takeover rules, the independent committee must solicit an independent valuation (usually from a banker) which is used to gauge whether the offer is FAIR  (a fairness opinion) for minority shareholders.  If they elect that it is, then the offer is made public..     They still need 66% of minority shareholders to approve in order for transaction to be consummated

[Ahlavanthan]

Hopefully they aren't looking for backroom handouts before throwing us under the bus.

[Tommy123]

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[logicandinertia]

Banker would use multiple valuation methods, including historical results, comparable company (even today, comps are valued much higher), and discounted cash flow (likely using next 5 or 10 years as range).   Unless they heavily weight SIR bankruptcy risk, hard to see how somebody rationalizes a $30mm buyout for an asset that has been distributing $10mm per year for 15 years (up to 2019)...

[Tommy123]

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[jcw604]

My question is that who can agree or disagree on this transaction? The SIR corp for its own interests should strive to perform their own best as far as running the restaurant is concerned and that is their role. The interesting thing about this proposal is that I suspect the owner of SIR happens to also own a lot of the fund units. Otherwise, why would he even have a say on this. The fund trustees

[jcw604]

I think that the theory that the SIR corp is going bankrupt and they need to renegotiate their debt with their lenders by improving their asset quality is only something the SIR corp owner trying to project to the unit holders of the fund. I don't think that they are under pressure to improve their asset quality despite that they have been breaching the covenant requirements of the lenders. In

[BlueJay2020]

Indeed they would, and I've been involved on quite a few of these exercises during purchase price equations for accounting purposes (I'm a retired CA).  It's a complex, time-consuming and expensive process.  I think the chances of them coming up with a number of $3.55 would be close to nil, whichever way they slice it.  The valuation has to be on a going concern basis

[wildrunner11]

Well I'm in agreement with Bluejay2020, I bump should occur. We need a proper Business Equity Valuation, from what I know, this would be assessed on revenue stream and then impairment for current conditions and of course continued viability of Corp(which is dramatically improving with Feds subsidies and rollout of vaccine) the Corp has decided $3.55 is fair based on 90 day rolling share

[Lazaros]

I completely agree. The structure makes the royalty less attractive without the corporate piece. However, if you read Receipe Unlimited's MD&A's, they are always complaining about how paying out the royalty to KEG Fund has hurt their margins and profitability.  I'm surprised they didn't take a run at the Fund last summer.

[flamingogold]

Does this independent group have any power to change things further? A lot of bitter investors and rightly so. Long time dedicated shareholders in Fowler's vision get screwed while monopolistic day traders buying under $3 in the last year reap the rewards. If this goes through who will ever invest in Fowler again?