SIR Royalty Income Fund

SIR Royalty Income Fund
Investor Presentation (TSX: SRV.UN)
October 2015
0
Caution Concerning Forward-Looking Statements
Statements in this presentation, including the information set forth as to the future financial or operating performance of the
Fund or SIR, that are not current or historical factual statements may constitute “forward-looking” information within the
meaning of securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Fund, the Trust, the Partnership, SIR, the SIR
Restaurants, or industry results, to be materially different from any future results, performance or achievements expressed or
implied by such forward-looking statements. When used in this presentation, such statements may include, among other
language, such words as “may”, “will”, “should”, “would”, “expect”, “believe”, “plan”, “anticipate”, “intend”, “estimate” and other
similar terminology. These statements reflect Management’s current expectations, estimates and projections regarding future
events and operating performance and speak only as of the date of this presentation. Readers are cautioned that forward-looking
statements are not guarantees of future performance, and should not place undue reliance on them. The Fund and SIR expressly
disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained
herein to reflect any change in expectations, estimates and projections with regard thereto or any changes in events, conditions or
circumstances on which any statement is based, except as expressly required by law.
In formulating the forward-looking statements contained herein, Management has assumed that business conditions affecting
SIR’s restaurants and the Fund will continue substantially in the ordinary course, including without limitation with respect to
general industry conditions, general levels of economic activity (including in downtown Toronto), regulations (including those
regarding employees, food safety, tobacco and alcohol), weather, taxes, foreign exchange rates and interest rates, that there will
be no pandemics or other material outbreaks of disease or safety issues affecting humans or animals or food products, and that
there will be no unplanned material changes in its facilities, equipment, customer and employee relations, or credit
arrangements. These assumptions, although considered reasonable by Management at the time of preparation, may prove to be
incorrect. The Fund includes in publicly available documents filed from time to time with securities commissions and The Toronto
Stock Exchange, a discussion of the risk factors that can cause anticipated outcomes to differ from actual outcomes. For more
information concerning the Fund’s risks and uncertainties, please refer to the March 18, 2015 Annual Information Form which is
available under the Fund’s profile at www.sedar.com.
1
SIR Investment Highlights
• Diversified portfolio of well-known brands
• Experienced management team with strong alignment of interests
• Corporate ownership model increases flexibility
• Consistent track record of investment in new and existing locations
• Proven ability to generate long-term growth
• Five distribution increases since Fund inception
2 2
SIR Overview
SIR Corp.
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•
•
•
SIR: ‘Service Inspired Restaurants’
A leading Canadian operator of casual
and fine dining restaurants
Founded in 1990 by Fowler family
Employees: ~5,000
SIR Royalty Income Fund
•
•
•
•
•
•
IPO: October 2004 (TSX: SRV.UN)
Market Cap: ~ $97 m
Recent close: $12.80 (Oct. 2, 2015)
Units outstanding: 7.6 m (basic) / 10.1 m (FD)
Annualized distribution per unit: $1.14
Effective current distribution yield: ~ 8.9%
SRV.UN 5-year unit price performance
3
Experienced Management Team with
Strong Alignment of Interests
Experienced Management Team
Peter Fowler, President & CEO
• Director of SIR Corp. since 1992
• CEO since 2004 and the largest shareholder of SIR
Corp.
–Helped create SIR Concepts and continues to focus
on Concepts
• President of SIR GP Inc. and a trustee of the SIR
Royalty Income Fund since 2004
Jeff Good, CFO
• Joined SIR Corp. in 2000
• Helped launch SIR as an Income Fund
– 20 + years experience in Finance and Accounting
– Previous: VP Finance, Oliver Bonacini
Board of Trustees of the Fund:
Bruce Elliott, VP, Business Development
• Joined SIR Corp. in 2011 as COO and EVP
• Appointed President of Jack Astor’s (March 2012)
• Appointed VP, Business Development (Jan. 2014)
–Previous: partner at Level 5 Strategic Brand Advisors;
President of Labatt Breweries; and senior management
positions at Second Cup
Paul Bognar, COO & EVP
• Joined SIR Corp. in 2012
• Head of Marketing, Human Resources, Finance, IT and
Purchasing Departments
–Previous: President of Simmons Canada; various senior
positions with Maytag Canada
Independent Trustees:
Peter Fowler: CEO and Director of SIR Corp.;
• President of SIR GP Inc.
Peter Luit: Managing Director, CXO Advisory Services Inc.; Chairman
Kim van Nieuwkoop: General Counsel, SIR Corp.
John McLaughlin: President, Treasury Technologies International;
of Audit Committee
Chairman of Board of Trustees
William Rogers: President, The Commercial Capital Corporation;
Chairman of Corporate Governance Committee
4
SIR Corporate Ownership Increases Flexibility
Greater control enables rapid implementation of operational and growth initiatives
in response to customer trends and competitive activity
•
Corporate ownership allows SIR to improve overall operations by:
– Implementing best practices across restaurant network
– Coordinating roll-out of new restaurant locations and product offerings
– Leveraging supplier relationships and delivery logistics
•
Flexibility to react quickly to changing market dynamics
– Ability to change restaurant design as needed with minimal lead time
– Allows for menu innovation; EG: Jack Astor’s updates its menu at least twice a year
– Unlike franchises, business change can be affected without lengthy approvals/negotiations
•
Consistent execution of brand value proposition
– Consistent customer experience at all restaurant locations creates superior brand value
5
Royalty Pool Concept Restaurants
Royalty Pool Signature Restaurants
6
55 Royalty Pooled Restaurants
30
1
8
1
2
5
Alberta
Quebec
1
4
Ontario
Nova Scotia
2
Newfoundland
1
7
Royalty Pooled Restaurants
Revenue Contribution (for the three months ended June 30, 2015)
7.7%
6.6%
9.4%
76.3%
8
Concept Royalty Pooled Restaurants
Pooled Revenue
37
30
$60,000
$40,000
$176,723
$80,000
$157,629
$120,000
$147,004
($000s)
$140,000
$100,000
40
35
31
30
$20,000
25
20
$97,655
$160,000
$194,723
$180,000
38
34
$-
15
# of restaurants
$200,000
10
5
0
2011
2012
2013
2014
H1 2015
Same Store Sales
5.0%
3.9%
1.7%
0.6%
2011
2012
2013
2014
H1 2015
-2.1%
99
Consistent Track Record of Investment
in New and Existing Locations
Nearly all of the Jack Astor’s that existed at the time of
the Fund’s IPO have been “Evolved”
10
1010
Consistent Track Record of Investment
in New and Existing Locations
SIR is now initiating the
2nd Evolution of Jack Astor’s
11
Jack Astor’s Evolution II
Project
Location
Estimated
Completion
New build
Ottawa, Lansdowne
Q2 2015
New build
Ottawa, Hunt Club
Q3 2015
Renovation
London North
Q3 2015
Renovation
Richmond Hill
Q3 2015
Renovation
Scarborough
Q4 2015
New build
Calgary, Sunridge Mall
2017
6 “Evolution II” Jack Astor’s to be
opened by the end of 2017
1212
Concept Royalty Pooled Restaurants
Pooled Revenue
$35,000
8
8
8
8
8
9
8
$30,000
6
$20,000
$5,000
4
3
$13,360
$27,256
$26,794
$10,000
$27,682
$15,000
5
$27,948
$000s
$25,000
$-
# of restaurants
7
2
1
0
2011
2012
2013
2014
H1 2015
Same Store Sales
1.7%
0.4%
2011
2012
2013
2014
H1 2015
-0.10%
-1.0%
13
-3.2%
Consistent Track Record of Investment
in New and Existing Locations
SIR is evaluating a comprehensive plan to improve
the long-term performance of Canyon Creek
14
Concept Royalty Pooled Restaurants
Pooled Revenue
$2,000
$-
2
# of restaurants
$4,000
3
$8,787
$6,000
$15,159
$8,000
5
4
4
$18,180
($000s)
$14,000
$10,000
5
4¹
$16,000
$12,000
6
5 ¹
$13,773
$18,000
5
$13,610
$20,000
1
0
2011
2012
2013
Same Store Sales
2011
2012
-4.5%
-3.9%²
2013
2014
H1 2015
1.2%
1.5%
2014
H1 2015
-9.6%
¹ Alice Fazooli’s on Adelaide St. in Toronto was closed during Q1 2012. SIR paid a make-whole payment to the
Fund from the date of closure to Dec. 31, 2012 (Class A GP units)
² 2012 SSSG excludes the results of Alice Fazooli’s on Adelaide St.
15
Consistent Track Record of Investment
in New and Existing Locations
In July 2013, Alice Fazooli’s at Square One
(Mississauga) was converted to Scaddabush…
Same store sales at Scaddabush I
were up 21.8% in 2014
16
Consistent Track Record of Investment
in New and Existing Locations
Scaddabush expansion – downtown Toronto
17
Alice Fazooli’s to Scaddabush
Conversions & New Scaddabush
Project
Location
Estimated
Completion
Conversion
Richmond Hill
Q4 2015
New build
Toronto
H1 2016
New build
Scarborough
H1 2016
Conversion
Vaughan
2016
Conversion
Oakville
2016
5 new Scaddabush to be opened
by the end of 2016
18
18
Signature Group
Royalty Pooled Restaurants
Pooled Revenue
4
$25,000
3
3
2
$10,422
2012
$5,000
$22,126
2011
$10,000
$17,540
$15,352
$15,000
$16,055
($000s)
3
4
# of restaurants
3
$20,000
4
1
$-
0
2013
2014
H1 2015
Same Store Sales
14.3%
5.7%
2011
6.1%
2012
-4.4%
1)
2)
2013
2014
H1 2015
1
-6.2%
2
Reds was closed for 32 days for a major renovation and repositioning
Far Niente was closed for 40 days to complete restoration work following a burst pipe on the premises
19
Consistent Track Record of Investment
in New and Existing Locations
Major renovation and repositioning completed
in 2012, reopened as Reds Wine Tavern
Reds Midtown Tavern opened in Toronto in 2013
Major renovation completed in 2013
Redeveloped Antler Room opened in 2012
Opened in mid-town Toronto in 2013
with potential to become a new multilocation concept brand
2020
Consistent Track Record of Investment
in New and Existing Locations
60
Cumulative Renovations &
Enhancements Completed
# of Royalty Pooled
Restaurants
50
50
40
40
30
30
20
20
10
10
0
34 34 34 36 38 39 45 45 46 47 49 53 55
0
0 20 26 30 32 32 35 40 43 47 50 50
Delivering on our commitment since inception
21
SIR Royalty Income Fund Structure
Fund Unitholders
Monthly Distributions
Interest Income
from SIR Loan
SIR Royalty
Income Fund
Distribution Income
Restaurant Operations
6% Royalty on
Pooled Revenue
SIR Royalty
Limited Partnership(1)
NOTE: the above illustration is for descriptive purposes only and is qualified in its entirety by the description in the actual agreements and by the Fund’s prospectus on
SEDAR
1. As at June 30, 2015, SIR Corp. holds a 24.6% retained interest in SIR Royalty Limited Partnership.
22
Fund Unit Offerings
Period
Number of Units Issued in Exchanged
for Class A GP units
Gross Proceeds
Q1 2014
500,000
$7.0 million
Q4 2014
350,000
$4.4 million
Transaction Mechanics:
• The Fund issues units in exchange for Class A GP units held by SIR
• SIR sells Fund units via TSX for gross proceeds
• The Fund converts Class A GP units into Class A LP units, which are entitled to a pro rata
share of residual LP income
Net proceeds used to partially fund renovations to existing
restaurants and construction / development costs of new restaurants
23
Q2 2015 Same Store Sales
(3 months ended June 30, 2015)
1.0%
0.5%
0.6%
0.0%
-2.3%
-0.8%
-1.0%
-1.9%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
Overall
SSS
24
Historical Pooled Revenue Growth
Pooled Revenue
(in $ millions)
Number of Royalty
Pooled Restaurants
300
53
250
46
47
55
49
50
200
$257.9
30
20
$130.2
$215.8
$209.2
$234.7
40
150
100
60
50
0
10
0
2011
2012
Pooled Revenue
2013
2014
H1 2015
Restaurants in Royalty Pool
25
Q2 2015 Financial Review
($ millions)
Pooled Revenue Q2 2015
$140.0
$120.0
53
55
$69.2
$70.9
Q2 2014
Q2 2015
$100.0
$80.0
$60.0
$40.0
$20.0
$0.0
Cash Distributions Q2 2015
$4.0
$3.5
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$-
Pooled Revenue H1 2015
$150.0
53
55
$100.0
94.8%
$2.2 $2.1
$2.3 $2.2
Q2 2014
Q2 2015
Cash Distributions H1 2015
$4.0
$3.0
102.5%
102.1%
$4.0 $4.1
$4.3 $4.3
H1 2014
H1 2015
$2.0
$50.0
$0.0
93.9%
$127.3
$130.2
$1.0
$-
H1 2014
H1 2015
Restaurants in Royalty Pool
Distributable Cash
Distributions
Payout Ratio
26
Historical Same Store Sales
2.8%
2.8%
2.0%
0.4%
2011
2012
2013
2014
H1 2015
-2.0%
2727
Historical Cash Distributions & Payout Ratio
The Fund’s payout ratio is intended to average 100%
per annum over the long term. The Fund’s payout ratio
from inception in 2004 through to YE 2014 is 99.4%.
SIFT Tax¹
(in $ millions)
10
100.1%
99.9%
104.9%
100.5%
95.1%
7.62
5.62
4
5.91
5
5.51
5.51
7.27
7.39
7.38
6
7.39
7
7.14
8
8.28
103.6%
8.24
9
3
2
1
0
2009
2010
2011
Distributable Cash
2012
Distributions
2
2013
3
2014
Payout Ratio
1. The reduction in distributions beginning in 2011 was equal to the estimated SIFT tax payable on the Fund’s 2011 income.
2. The special year end distribution of $0.05/unit to unitholders of record as of December 31, 2012 is not included in the chart above.
3. Cash distributed to unitholders in 2013 includes the special year-end distribution of $0.05 per unit that was declared in December 2012 and paid on
January 11, 2013. The Fund also increased monthly distributions to $0.095 / unit effective for the June 2013 distribution. The payout ratio was
significantly affected by these items.
28
Attractive and Stable Yield with
History of Increases
•
Current monthly distribution of $0.095 / unit, current yield ~ 8.8%
•
Five distribution increases since IPO in 2004
$0.100
$0.105
$0.110
$0.115
SIFT Tax
$0.095
$0.083
2004
to
May 2006
June 2006
to
May 2007
June 2007
to
May 2008
June 2008
to
Jan. 2011
Feb. 2011
to
May 2012
$0.088
June 2012
to
May 2013
June 2013
to
Present
29
Outlook
• Evolution II initiated, 6 newly Evolved restaurants
expected by end of 2017
• Two new Jack Astor’s to be added to Royalty Pool Jan. 1,
2016
• SIR is evaluating a comprehensive plan to improve longterm performance
• Converting remaining Alice Fazooli’s to Scaddabush by
the end of 2016
• Two new Scaddabush planned for 2016
•
SIR evaluating additional renovations / enhancements
30