SIR units plunge after trust lowers payouts due to lower restaurant sales

TORONTO — SIR Royalty Income Fund units fell to a multi-year low Wednesday after it warned that investor payouts will drop 16.7 per cent to reflect lower food and drink sales at its restaurants, which include the Jack Astors chain.

SIR said same-store sales for its operating company’s fourth quarter, which ended Aug. 25, were down 5.9 per cent and didn’t improve during the first four weeks of its 2020 financial year.

As a result, the trust will lower the monthly cash distributions to be paid on SIR Royalty units by 1.75 cents to 8.75 cents per unit, starting in November, down from 10.5 cents per unit.

Analyst Elizabeth Johnston, who covers several of Canada’s publicly listed restaurant companies for Laurentian Bank Securities, said the distribution cut reverses increases SIR announced in 2018.

“We view this reduction as indicative not only that near term (same-store sales growth) will decline, but that the next several quarters are also likely to be under pressure,” Johnston said in a note.

“We will be looking for additional colour from management regarding the SSSG outlook post-Q3/19 results (which we expect mid-November).”

The fund said management at SIR Corp., the private company that operates the business, believes Ontario’s full-service restaurant industry is being affected by higher menu pricing as well as competition from meal delivery services.

“We continue to focus our strategic efforts on capturing a greater share of the market,” Peter Fowler, CEO of SIR Corp., said in a statement.

“We are currently concentrating our efforts on new and healthier food options, improving everyday value, promotional pricing on food and beverage offerings in non-peak periods, and increasing our share in the delivery segment.”

Most of SIR’s restaurants are in Ontario, with the larger chains operating under the Jack Astors, Scaddabush and Canyon Creek banners. It also has the Loose Moose in downtown Toronto near the Scotiabank Arena and three Toronto-area restaurants under variations of the Reds banner.

In total, there are just under 600 restaurants in the royalty pool that feeds SIR Royalty’s distributions to unit-holders. Jack Astors accounts for about 75 per cent of system sales generated by the pool’s restaurants,

The income trust’s units fell 21 per cent Wednesday, dropping $2.89 to $10.87 — their lowest close since March 2012.

Laurentian Bank Securities said it continues to rate SIR Royalty units as a hold but reduced their target price to $11.50 from $14.75.

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