SIR Royalty Income Fund - My Restaurant Stock Candidate

I had been an investor of Prime Restaurants Royalty Income Fund (EAT) since Apr 2010 until it was sold to Fairfax. It had a good run on price plus hefty dividends. I would appreciate the timing of buying and Fairfax’s generosity. Since EAT was gone, I am looking for the substitution of restaurant stocks. Similar like my selection for restaurant income funds, the first criterion is high dividend, 10% if possible. Frankly, in most of the cases, it is not wise to buy a stock at 10% or higher dividend as that kind of dividend yield usually means dividend cut is in brewing. (Just like YLO suffered and I am still owning YLO). SIR Royalty Income Fund came into my radar after searching. SIR Royalty had a tough time from second half year of 2009, but it had been improved eventually. Note: information abstracted from SIRCorp.com, GlobeAndMail, TheStars.com MorningStar.com, and my brokers' websites.

1. Fundamentals Last Quater SSSG Return on equity Payout Ratio Long term debt Next margin 5.60% 13% 96.1% 0.00 67.6% EPS Dividend (Annual) Dividend Yield P/E Book value Price/Book Value Price/Sales $1.28 $0.996 9.9% 7.81 -10.06 9.52 1.06 6.87

2.Growth One Jack Astor's bar to be added to the pool in year 2013. Another two to be open in year 2013. Considering there are only 45 restaurants in the fund’s pool, it is 2% expected growth in term of store number in year 2013. As an important bench mark, SSSG fluctuated and is improving: Period Ended Nov 21, 2010, SSSG +1.1% Period Ended Feb 13, 2011, SSSG  -0.8% Period Ended Mar 31, 2011, SSSG -0.68%  Payout Ratio: 119.2% Period Ended Jun 30,  2011, SSSG +3.30%  Payout Ratio:  94.8%   Period Ended Aug 28, 2011, SSSG +3.10%         Period Ended Sep 30,  2011, SSSG +3.2% Payout Ratio:  96.1%   Period Ended Nov 20, 2011, SSSG +5.6%. Revenue growth 9.8% In the latest three quarters(ended Mar 31,2011, Jun 30, and Sep 30), the fund earned $1.3M, $1.4M, and $1.4M respectively. Cash increased to 6.0M from 5.5M by Nov 20, 2011. Payout ratio was around 95% level. And with the strong SSSG reported, I assume, payout ratio would be lower going forward. In summary, my understanding is the situation was improving in the past year and the trend continues.

3. Analyst's Coverage I could not find any analyst's report or coverage on the internet for SIR Fund. Shareholders' wise, there is only on institution and mutual fund share holder. They are under the same name: Norrep. Reported on Dec 31, 2011, Norrep funds hold 273,200 shares, about 5.1% of outstanding shares, the holding was increased a little bit by 58,000 shares since last annual report. It counts 3.66% of Norrep Income Growth Class-F Fund.

4. My Entry Point SIR Fund’s price hit the bottom on Jul 26, 2011 at $7.68; it is in the uptrend tunnel since With 10% dividend and sound payout ratio, I think it has the flexibility for holding and trading at the current price level $10.00. I am reluctant to buy it right now since the price has been risen 5.6% and the index risen 4.2% this year as of today Jan 25. I would buy at a pull back, ideally, at the range of $9.50 - $9.60. (I may need to consider the macro economy for restaurant stocks, if I find something I will update this blog).

5. Company Information Company website:  http://www.sircorp.com SIR Royalty Income Fund (the Fund) is a trust. The trademarks related to the SIR Corp. (SIR) concept restaurant brands, including Jack Astor's Bar and Grill, Alice Fazooli's! and Canyon Creek Chop House, and SIR's signature restaurant brands, including reds, Far Niente/Soul of the Vine, Petit Four, and the Loose Moose Tap & Grill, is used by SIR under a license agreement with SIR Royalty Limited Partnership (the Partnership) in consideration for a Royalty, payable by SIR to the Partnership. SIR operates 45 Concept Restaurants and Signature Restaurants in Canada (in Ontario, Quebec, Alberta and Nova Scotia). The Concept Restaurants are Jack Astor's Bar and Grill, Canyon Creek Chop House and Alice Fazooli's. The Signature Restaurants are reds, Far Niente/Petit Four and FOUR, and the Loose Moose Tap & Grill. During the year ended December 31, 2009, SIR acquired the non-controlling interest in Jack Astor's Don Mills Limited.

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