SIR Royalty Income Fund
Investor Presentation (TSX: SRV.UN)
September 17, 2014
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 11, 2014 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
• Corporate ownership model increases flexibility
• Consistent track record of investment in new and existing locations
• Proven track record of sustained growth
• Five distribution increases since Fund inception
• Experienced management team with strong alignment of interests
2
SIR Overview
SIR Corp.
•
•
•
•
SIR: ‘Service Inspired Restaurants’
A leading Canadian operator of casual
and fine dining restaurants
Founded in 1990 by Fowler family
Employees: ~4,900
SIR Royalty Income Fund
•
•
•
•
•
•
IPO: October 2004 (TSX: SRV.UN)
Market Cap: ~ $100.0 m
Recent close: $13.49 (Sept. 15, 2014)
Units outstanding: 7.3 m (basic) / 9.8 m (FD)
Annualized distribution per unit: $1.14
Effective current distribution yield: ~ 8.5%
SRV.UN 5-year unit price performance
3
Experienced Management Team with
Strong Alignment of Interests
Experienced Management Team
Peter Fowler
• Director of SIR Corp. since 1992
• Served as CEO since 2004 and the largest shareholder
Bruce Elliott
• Joined SIR Corp. in January 2011 as COO and EVP,
became the President of Jack Astor’s in March 2012, and
effective January 2014 is Vice President Business
Development.
–Previous: partner at Level 5 Strategic Brand Advisors;
President of Labatt Breweries; and senior management
positions at Second Cup
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
Paul Bognar
• Joined SIR Corp. in 2012 as COO and EVP
• Head of Marketing, Human Resources, Finance, IT and
Jeff Good
• CFO of SIR Corp. and SIR GP Inc.
• Has worked with SIR Corp. since 2000
• Helped launch SIR as an Income Fund
– 20 + years experience in Finance and Accounting
– Previously worked at Oliver Bonacini in Toronto
Board of Trustees of the Fund:
Purchasing Departments
–Previous: President of Simmons Canada; and held
various positions within Maytag Canada
Independent Trustees:
Peter Fowler
Peter Luit
• CEO and Director of SIR Corp.
• President of SIR GP Inc.
• Managing Director, CXO Advisory Services Inc.
• Chairman of Audit Committee
Kim van Nieuwkoop
John McLaughlin
• General Counsel, SIR Corp.
• President, Treasury Technologies International
• Chairman of Board of Trustees
William Rogers
• President, The Commercial Capital Corporation
• Chairman of Corporate Governance Committee
4
Corporate Ownership Increases Flexibility
Greater control and the ability to quickly implement operational and growth
initiatives in response to customer trends and competitive activity
•
Corporate ownership allows SIR to improve overall operations by:
– Leveraging best practices across restaurant network
– Coordinate roll-out of new restaurant locations and product offerings
– Able to better leverage 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 (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
53 Royalty Pooled Restaurants
30
1
8
1
4
2
Alberta
1
Quebec
4
SOUTHERN
O N TA R I O
Nova Scotia
2
7
Royalty Pooled Restaurants
Revenue Contribution (six months ended June 30, 2014)
Signature Group
5.2%
8.0%
9.7%
77.1%
8
Concept Royalty Pooled Restaurants
Pooled Revenue
34
$180,000
29
35
31
30
29
30
$40,000
$20,000
25
20
$96,199
$60,000
$147,004
$80,000
$137,582
$100,000
$157,629
$120,000
$176,723
$140,000
$133,298
($000s)
$160,000
40
$-
15
# of restaurants
37
$200,000
10
5
0
2009
2010
2011
2012
2013
H1 2014
Same Store Sales Growth
5.0%
3.2%
3.9%
0.6%
2009
-3.1%
2010
2011
2012
2013
0.1%
H1 2014
9
Consistent Track Record of Investment
in New and Existing Locations
Jack Astor’s Evolution
•
Over the past 9 years, SIR has “evolved” every Jack
Astor’s in the system
Recent Renovations
•
Dundas Square / Don Mills / Square One (Mississauga) /
Newmarket / Bloor St.
Recent New Restaurant Openings
•
•
•
•
Kitchener, ON in Q1 2013
North York, ON in Q2 2013
Pickering, ON in Q2 2013
St. John’s, NL in Q2 2014
10
Concept Royalty Pooled Restaurants
Pooled Revenue
$35,000
8
8
8
8
8
9
8
8
$30,000
7
$20,000
$5,000
4
3
$13,370
$26,794
$27,682
$27,948
$10,000
$27,843
$15,000
5
$-
# of restaurants
6
$27,709
$000s
$25,000
2
1
0
2009
2010
2011
2012
2013
H1 2014
Same Store Sales Growth
2009
0.5%
0.4%
2010
2011
1.5%
2012
2013
H1 2014
-1.0%
-3.2%
-10.5%
11
Concept Royalty Pooled Restaurants
5
5
6
5 ¹
4
5
$13,610
$15,159
4
$18,180
$19,039
4¹
3
2
# of restaurants
5
$6,661
$20,000
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$-
$18,785
($000s)
Pooled Revenue
1
0
2009
2010
2011
2012
2013
H1 2014
Same Store Sales Growth
1.3%
2009
2010
2011
-4.5%
-6.9%
2012
-3.9%
2013
²
H1 2014
-1.7%
-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.
12
Alice Fazooli’s Repositioning
• Alice Fazooli’s Square One (Mississauga)
converted to Scaddabush in July 2013
• Positive early results: SSSG of 12.8% in Q4
2013, 19.5% in Q1 2014, and 25.1% in Q2 2014
• Second Scaddabush location opened at the
Aura Condominium Development in downtown
Toronto (Yonge & Gerrard) in February 2014
• Continued repositioning of Alice Fazooli’s in
2015 / 2016
13
Signature Group
Royalty Pooled Restaurants
Pooled Revenue
4
$16,000
3
3
3
3
3
3
$14,000
2010
2011
$4,000
2
$11,115
2009
$17,540
$6,000
$15,352
$8,000
$16,055
$10,000
$15,183
$12,000
$14,351
($000s)
$18,000
# of restaurants
4
$20,000
1
$2,000
$-
0
2012
Same Store Sales Growth
2009
5.8%
5.7%
2010
2011
H1 2014
14.3%
4.1%
2012
-4.4%
-13.7%
2013
¹
2013
H1 2014
¹ Reds was closed for 32 days for a major renovation and repositioning
14
Consistent Track Record of Investment
in New and Existing Locations
• Major renovation and repositioning of Reds
completed October 2012 and reopened as Reds
Wine Tavern
• Redevelopment of lower level of the Loose Moose
into the “Antler Room” completed December 2012
• Major renovation of the Loose Moose completed
February 2013
15
New Signature Restaurants
Opened Duke’s Refresher in the summer of 2011
•
Fast casual seasonal restaurant in Muskoka
Downtown Toronto Expansion
•
Reds Midtown Tavern and Duke’s Refresher are two of the three new SIR
restaurants at Aura Condominium Development (Yonge & Gerrard)
•
•
Reds Midtown Tavern opened on October 30, 2013
Duke’s opened December 4, 2013
16
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, 2014, SIR Corp. holds 25.5% retained interest in SIR Royalty Limited Partnership.
17
Recent Fund Unit Offerings
Q1 2013
•
•
•
The Fund issued 895,000 units in exchange for Class A GP units held by SIR
SIR sold Fund units via TSX for gross proceeds of $11.0 million
The Fund converted Class A GP units into Class A LP units, which are entitled to
a pro rata share of residual LP income
Q1 2014
•
•
•
The Fund issued 500,000 units in exchange for Class A GP units held by SIR
SIR sold Fund units via TSX for gross proceeds of $7.0 million
The Fund converted Class A GP units into Class A LP units, which are entitled to
a pro rata share of residual LP income
SIR to use net proceeds to partially fund renovations to existing
restaurants and construction / development costs of new restaurants
18
Q2 2014 Financial Review
Pooled Revenue (in $ millions)
70
60
50
53
40
30
58.2
49
Cash Distributions Q1 (in $ millions)
2.5
2
1.5
1
0.5
0
20
10
54.7
Q1 2013
1.8
2.0
Q1 2013
Q1 2014
Distributable Cash
Cash Distributed
Cash Distributions Q2 (in $ millions)
90.6%
53
60
50
20
1.9
Q1 2014
70
30
1.6
113.1%
Payout Ratio
0
40
123.1%
2
49
69.2
62.9
1.5
1
2.0 1.8
93.9%
2.2 2.1
0.5
0
10
Q2 2013
Q2 2014
Distributable Cash
Cash Distributed
-
Q2 2013
Q2 2014
Restaurants in Royalty Pool
Payout Ratio
19
Q2 2014 Same Store Sales Growth
(3 months ended June 30, 2014)
1.9%
2.0%
1.8%
1.7%
1.7%
1.6%
1.6%
1.4%
1.2%
1.0%
0.8%
0.8%
0.6%
0.4%
0.2%
0.0%
Overall
SSSG
20
Pooled Revenue Growth
Pooled Revenue
(in $ millions)
Number of Royalty
Pooled Restaurants
250
60
53
200
45
45
46
47
49
50
40
$234.7
30
$127.3
$215.8
$209.2
$199.6
100
$194.1
150
50
20
10
0
0
2009
2010
2011
Pooled Revenue
2012
2013
H1 2014
Restaurants in Royalty Pool
NOTE: On January 1, 2014 four additional restaurants were added to the Royalty Pool
21
Same Store Sales Growth
2.8%
2009
2010
2.8%
2011
2.8%
2012
0.4%
0.4%
2013
H1 2014
-5.7%
22
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 2013 is 99.2%.
(in $ millions)
95.1%
5.51
5.62
4
5.91
5.51
5
104.9%
7.62
99.9%
7.38
6
100.1%
7.39
7
103.6%
7.50
8
7.39
9
7.27
SIFT Tax¹
Distributions
3
2
1
0
2009
2010
Distributions
2011
2012
2
2013
3
Distributable Cash
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.
23
Attractive and Stable Yield with
History of Increases
•
Current monthly distribution of $0.095 / unit, current yield ~ 8.5%
•
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
24
Outlook
• Recent opening of new Jack Astor’s in St. John’s, NL
• Two new Jack Astor’s planned for Ottawa, ON in 2014 and 2015
• Vend-in of Scaddabush (downtown) and Jack Astor’s (St. John’s) in Jan., 2015
• Alice Fazooli’s / Scaddabush repositioning driving strong SSSG
• Continued investment in existing restaurants to drive SSSG
• Restaurants Canada forecasts that total sales in the full-service category will grow
by an average of 4% per year over the next four years
25