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Boston Pizza Royalties Income Fund : Announces Record Franchise Sales and Record Royalty Income for Third Quarter 2012

11/09/2012 | 12:09pm US/Eastern
Boston Pizza Royalties Income Fund Announces Record Franchise Sales and Record Royalty Income for Third Quarter 2012

For Immediate Release                                                                           Toronto Stock Exchange: BPF.UN


BOSTON PIZZA ROYALTIES INCOME FUND ANNOUNCES

RECORD FRANCHISE SALES AND RECORD ROYALTY INCOME FOR THIRD QUARTER 2012

Trustees declare October distribution to unitholders of 9.8 cents per unit


Highlights

  • Same store sales growth of 1.0% for the Period and 3.7% YTD.
  • Record Franchise Sales[1]from royalty pool restaurants and record royalty income of $186.1 million and $7.4 million respectively, the highest levels posted in any quarter since the inception of the Fund.
  • Distributable Cash[2]increased 5.5% for the Period and 7.0% YTD versus the same periods in 2011.
  • Payout Ratio3 was 94.6% for the Period and 99.5% YTD.

· Net loss reported for the Period of $1.6 million and YTD of $2.3 million are due to non-cash accounting items of $5.9 million and $15.5 million, respectively, that do not affect the Fund's business operations or its ability to pay distributions to unitholders. 

  • The Fund announced a Normal Course Issuer Bid which permits the repurchase for cancellation of up to 1,442,522 units.

VANCOUVER, BC, November 9, 2012 - Boston Pizza Royalties Income Fund (the "Fund") and Boston Pizza International Inc. ("BPI") each reported today financial results for the period from July 1, 2012 to September 30, 2012 (the "Period") and from January 1, 2012 to September 30, 2012 ("YTD"). A copy of this press release, the consolidated interim financial statements for the Period and related Management's Discussion and Analysis of the Fund and BPI are available at www.sedar.comand www.bpincomefund.com. The Fund will host a conference call to discuss the results on November 9, 2012 at 8:30 a.m. Pacific Time (11:30 a.m. Eastern Time). The call can be accessed by dialling 1-800-319-4610 or 604-638-5340. A replay will be available until December 8, 2012 by dialling 1-800-319-6413 or 604-638-9010 and entering the pin code: 4452 followed by the # sign.

Same store sales growth ("SSSG"), a key driver of distribution growth for unitholders of the Fund, was 1.0% for the Period and 3.7% YTD compared to 6.1% and 4.5%, respectively, for the same periods in 2011. Franchise Sales1, the basis upon which royalties are paid by Boston Pizza International Inc. ("BPI") to the Fund, exclude revenue from the sale of liquor, beer, wine and tobacco and approved national promotions and discounts. On a Franchise Sales1 basis, SSSG was 0.9% for the Period and 3.5% YTD compared to 5.6% and 4.6%, respectively, for the same periods in 2011. The positive SSSG in the Period and YTD was principally due to higher takeout and delivery sales resulting from continued promotion of Boston Pizza's online ordering system and higher chicken wing sales resulting from the introduction of "All Meat Wings" earlier in 2012. Franchise Sales1 of restaurants in the royalty pool were a record $186.1 million for the Period and a record $546.3 million YTD compared to $183.2 million and $521.9 million, respectively, in the same periods in 2011. The increases in Franchise Sales1 for the Period and YTD are attributed to the positive SSSG experienced in the Period and YTD and the addition of three net new restaurants to the Fund's royalty pool on January 1, 2012.

"We are very pleased with Boston Pizza's record sales results for the third quarter of 2012, particularly when compared against the already strong sales levels we achieved one year ago," said Mark Pacinda, President and CEO of BPI. "Also during the Period, we reached significant milestones on several operating initiatives including the opening of our first ever 'fast casual' format Boston Pizza restaurant and the launch of our new national menu, which introduced 26 new items like Pulled Pork Pizza, The Meatball Grinder Sandwich and Chipotle Chicken Club."

The Fund's net loss was $1.6 million for the Period with a net loss of $2.3 million YTD compared to net income of $5.5 million and of $15.3 million, respectively, in the same periods in 2011. The decreases in net income for the Period and YTD were driven mainly by changes in the fair value adjustment on Class B units of Boston Pizza Royalties Limited Partnership (the "Class B Unit liability") of $7.0 million and $18.1 million, respectively. The Fund's net income under International Financial Reporting Standards ("IFRS") contains non-cash items, such as the fair value adjustment on the Class B Unit liability, that do not affect the Fund's business operations or its ability to pay distributions to unitholders. In the Fund's view, net income is not the only or most meaningful measurement of the Fund's ability to pay distributions. Consequently, the Fund has provided the non-IFRS metrics of Distributable Cash2 and Payout Ratio[3]to provide investors with more meaningful information regarding the amount of cash that the Fund has generated to pay distributions. Readers are cautioned that Distributable Cash2 and Payout Ratio2 are non-IFRS financial measures that do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. For a reconciliation between cash flow from operating activities (the most directly comparable IFRS measure) and Distributable Cash2 and a detailed discussion on the Fund's Distributable Cash2 and Payout Ratio3, please see the Fund's Management's Discussion and Analysis for the Period.

The Fund's Distributable Cash2 was $4.5 million or $0.311 per unit of the Fund ("Unit") for the Period and $12.8 million or $0.881 per Unit YTD compared to $4.3 million or $0.294 per Unit and $12.0 million or $0.823 per Unit for the same periods, respectively, in 2011. This represents increases of 5.5% for the Period and 7.0% YTD compared to the same periods, respectively, one year ago. These increases were driven by higher royalty revenue partially offset by changes in non-cash working capital. Distributions for the Period and YTD were funded entirely by cash flow from operations. No debt was incurred at any point during the Period or YTD to fund distributions.

The Fund's Payout Ratio3 was 94.6% for the Period and 99.5% YTD compared to 93.7% and 94.7% in the same periods, respectively, one year ago. The Fund's Payout Ratio3 for the Period and YTD increased compared to the same periods one year ago primarily due to the distribution increase beginning with the February 2012 distribution to unitholders. The Fund strives to provide unitholders with regular monthly distributions, and as a result, the Fund will generally experience seasonal fluctuations in its Payout Ratio3.  On a trailing 12-month basis, the Fund's Payout Ratio3 was 99.2% as at September 30, 2012. The Fund's Payout Ratio3 is likely to be higher in the first and fourth quarters compared to the second and third quarters since Boston Pizza restaurants experience higher Franchise Sales1 during the summer months when restaurants open their patios and benefit from increased tourist traffic. Higher Franchise Sales1 generally result in increases in Distributable Cash2.  A key feature of the Fund is that it is a "top line" structure, in which BPI pays the Fund a royalty equal to 4% of Franchise Sales1 from restaurants in the Fund's royalty pool. Accordingly, Fund unitholders are not directly exposed to changes in the operating costs or profitability of BPI or of individual Boston Pizza restaurants. Given this structure, and that the Fund has no current mandate to retain capital for other purposes, it is expected that the Fund will maintain a Payout Ratio3 close to 100% over time as the trustees of the Fund continue to distribute all available cash in order to maximize returns to unitholders. As the Payout Ratio3 is calculated from a formula which includes Distributable Cash2, which is a non-IFRS measure, a reconciliation of Payout Ratio3 to an IFRS measure is not possible.  For a reconciliation of Distributable Cash2 to its closest IFRS measure, cash flows from operating activities, see the "Operating Results - Distributable Cash / Payout Ratio" section in the Fund's most recent Management's Discussion and Analysis.

On August 22, 2012, the Fund announced that it had received Toronto Stock Exchange ("TSX") approval of a Notice of Intention to Make a Normal Course Issuer Bid through the facilities of the TSX from September 4, 2012 to no later than August 31, 2013 (the "2012 NCIB"). The 2012 NCIB permits the Fund to repurchase for cancellation up to 1,442,522 Units, being approximately 9.9% of the Fund's issued and outstanding units (as at August 17, 2012) and approximately 10.0% of its public float, then comprised of 14,452,221 units. Unitholders may obtain, without charge, a copy of the Notice of Intention to Make a Normal Course Issuer Bid that the Fund filed with the TSX by contacting the Vice President of Investor Relations for the Fund. As of November 8, 2012, the Fund had not purchased any Units under the 2012 NCIB.

The trustees of the Fund announced a cash distribution to unitholders of 9.8 cents per Unit for October 2012. The distribution will be payable to unitholders of record at the close of business on November 21, 2012 and will be paid on November 30, 2012. The Fund periodically reviews distribution levels based on its policy of stable and sustainable distribution flow to unitholders. Since the Fund's initial public offering in 2002, unitholders have received 15 distribution increases. The most recent distribution increase of 6.5% was effective for the February distribution payable in March and increased the monthly distribution amount from 9.2 cents per Unit to 9.8 cents per Unit. Including the October 2012 distribution, which will be paid in November 2012, the Fund will have paid out 124 consecutive monthly distributions totalling $154.6 million or $12.58 per Unit.

FINANCIAL SUMMARY

The tables below sets out selected information from the consolidated interim financial statements of the Fund, which consolidates the accounts of Boston Pizza Royalties Limited   Partnership, together with other data and should be read in conjunction with the interim consolidated financial statements of the Fund. 

Q3 2012

Q3 2011

YTD 2012

YTD 2011

(in thousands of dollars - except restaurants, SSSG, Payout Ratio3 and per Unit items)

Q3
2012

Q2
2012

Q1
2012

Q4
2011

(in thousands of dollars - except restaurants, SSSG, Payout Ratio1 and per Unit items)

System-wide Gross Sales4

239,269

237,955

226,065

232,713

Number of restaurants in Royalty Pool5

341

341

342

336

Franchise Sales1 reported by restaurants in the Royalty Pool

186,081

183,593

176,581

177,465

Revenues

Royalty revenue - 4% of Franchise Sales1

7,443

7,344

7,063

7,098

Interest income

453

453

455

454

Total revenues

7,896

7,797

7,518

7,552

Expenses

Administrative expenses and interest on bank debt

(616)

(512)

(477)

(432)

Interest accrued to BPI on Class B Units and Class C Units6

(1,628)

(1,628)

(1,061)

(2,042)

Fair value adjustment on Class B Unit liability7

5,890

1,953

(11,563)

(3,308)

Fair value adjustment on interest rate swap

67

-

-

-

Subtotal

(8,067)

(187)

(13,101)

(5,782)

Current income tax expense

(1,350)

(1,351)

(1,301)

(1,396)

Deferred income tax expense

(60)

(70)

(20)

(70)

Total expenses

(9,477)

(1,608)

(14,422)

(7,248)

Net Income (loss)

Net income (loss)

(1,581)              

6,189

(6,904)

304

Basic earnings (loss) per Unit

(0.11)

0.42

(0.47)

0.02

Diluted earnings (loss) per Unit

(0.11)

0.24

(0.47)

0.02

Distributable Cash2 / Distributions / Payout Ratio3

Cash flows from operating activities

6,189

5,903

77

7,037

Class C distributions to BPI

(450)

(450)

(450)

(450)

BPI Class B entitlement

(1,211)

(1,178)

(1,154)

(1,099)

SIFT tax on Units8

-

(1)

5,524

(1,396)

Distributable cash2

4,528

4,274

3,997

4,092

Distributions payable9

4,284

4,284

4,196

4,021

Payout Ratio3

94.6%

100.2%

105.0%

98.3%

Distributable cash per Unit2

0.311

0.293

0.274

0.281

Distributions payable per Unit9

0.294

0.294

0.288

0.276

The Canadian Restaurant and Foodservices Association has forecast overall sales growth of 4.1% for the Canadian full-service restaurant sector in 2012. BPI's management believes that Boston Pizza is well positioned to continue outperforming this overall growth rate by attracting a wide variety of guests into the restaurant, sports bar and take-out/delivery parts of each location, offering a compelling value proposition to our guests and continuing to open new Boston Pizza locations across Canada.

The two principal factors that affect SSSG are changes in customer traffic and changes in average guest cheque. BPI's strategies to drive higher guest traffic include a larger marketing budget versus the previous year along with a revised calendar of national and local store promotions. Increased average cheque levels are expected to be achieved through a combination of culinary innovation and annual menu re-pricing. BPI management recognizes that Franchise Sales1 results during the last three months of 2011 were comparatively stronger than those posted in the first nine months of 2011 and that results from the remainder of 2012 will be compared against those stronger sales levels. In addition, BPI's franchise agreement requires that each Boston Pizza restaurant undergo a complete store renovation every seven years and 30 locations have already completed renovations in 2012 with more underway or planned for later this year. Restaurants typically close for two to three weeks to complete the renovation and experience an incremental sales increase in the year following the re-opening.

Boston Pizza remains well positioned for future expansion as evidenced by the four new Boston Pizza restaurants that have opened to date in 2012, with three more new locations under construction that are scheduled to open later in the year. BPI's management believe that Boston Pizza will continue to strengthen its position as the number one casual dining brand in Canada by pursuing further restaurant development opportunities across the country.

Certain information in this press release may constitute "forward-looking information" that involves knownand unknown risks, uncertainties, future expectations and other factors which may cause the actual results, performance or achievements of the Fund, Boston Pizza Holdings Trust, the Partnership, Boston Pizza Holdings Limited Partnership, Boston Pizza Holdings GP Inc., Boston Pizza GP Inc., BPI, Boston Pizza restaurants, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information.  When used in this press release, forward-looking information may include words such as "anticipate", "estimate", "may", "will", "expect", "believe", "plan" and other similar terminology. This information reflects current expectations regarding future events and operating performance and speaks only as of the date of this press release. Except as required by law, the Fund and BPI assume no obligation to update previously disclosed forward-looking information.

For a complete list of the risks associated with forward-looking information and our business, please refer to the "Risks and Uncertainties" and "Note Regarding Forward-Looking Information" sections included in the Fund's most recent Management's Discussion and Analysis for the Period available at www.sedar.comand www.bpincomefund.com. The trustees of the Fund have approved the contents of this press release.

Boston Pizza Royalties Income Fund
Jordan Holm - Vice President of Investor Relations
Tel: 604-303-6083
investorrelations(at)bostonpizza.com
www.bpincomefund.com


[1] Franchise sales is the basis on which the royalty is payable; it means the revenues of Boston Pizza restaurants in respect of which the royalty is payable ("Franchise Sales"). The term "revenue" refers to the gross revenue: (i) of the corporate Boston Pizza restaurants in Canada owned by BPI; and (ii) reported to BPI by franchised Boston Pizza restaurants in Canada, without audit or other form of independent assurance, and in the case of both (i) and (ii), after deducting revenue from the sale of liquor, beer, wine and tobacco and revenue from BPI approved national promotions and discounts and excluding applicable sales and similar taxes. Nevertheless, BPI periodically conducts audits of the Franchise Sales reported to it by its franchisees, and the Franchise Sales reported herein include results from sales audits of earlier periods.

[2]Distributable Cash is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.  This non-IFRS financial measure provides useful information to investors regarding the amount of cash the Fund has generated for distribution on the Units.  Investors are cautioned that this should not be construed as an alternative net income measure of profitability.  The precedingtables provide a reconciliation from this non-IFRS financial measure to cash flows from operating activities, which is the most directly comparable IFRS measure.

[3]Payout Ratio is calculated by dividing the interest / distributions payable by the Fund in respect of the applicable period by the Distributable Cash generated in that period.  Payout Ratio is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.  This non-IFRS financial measure provides investors with useful information regarding the extent to which the Fund distributes cash on the Units.  Investors are cautioned that this should not be construed as an alternative net income measure of profitability.

[4]System-wide gross sales means the gross revenue: (i) of the corporate Boston Pizza restaurants in Canada owned by BPI; and (ii) reported to BPI by franchised Boston Pizza restaurants in Canada, without audit or other form of independent assurance, and in the case of both (i) and (ii), including revenue from the sale of liquor, beer, wine and tobacco and revenue from BPI approved national promotions and discounts and excluding applicable sales and similar taxes ("System-wide Gross Sales").

[5]Number of restaurants in the Royalty Pool excludes restaurants that permanently closed during the applicable period.

[6]The Class B general partner units of the Partnership (the "Class B Units") and the Class C general partner units of the Partnership (the "Class C Units") are classified as financial liabilities under IFRS, and as such, amounts paid by the Partnership to BPI in respect of the Class B Units and Class C Units are classified as interest expense and not distributions.

[7]The Fund is required under IFRS to fair value the Class B Unit liability at the end of each period and adjust for any increase or decrease in the fair value of that liability as compared to the fair value of that liability at the end of the immediately preceding period.  This adjustment has no impact on the Fund's Distributable Cash.

[8]Specified Investment Flow through tax ("SIFT Tax") on Units is the SIFT Tax expense for the respective period (as a negative number) plus the amount of SIFT Tax paid in the respective period.

[9]Under the declaration of trust governing the Fund, the Fund pays distributions on the Units in respect of any particular calendar month not later than the last business day of the immediately subsequent month.  Accordingly, distributions on the Units in respect of the calendar month of January are paid no later than the last business day of February, distributions on the Units in respect of the calendar month of February are paid no later than the last business day of March and so forth.  Consequently, distributions payable by the Fund on the Units in respect of the Period were the July 2012 distribution (which was paid on August 31, 2012), the August 2012 distribution (which was paid on September 28, 2012) and the September 2012 distribution (which was paid on October 31, 2012).  Similarly, the distributions payable by the Fund on the Units in respect of any other period are the distributions paid in the immediately subsequent month of each month comprising such other period.

[10]Units are classified as a financial liability under IFRS in respect of the period from January 1, 2010 through December 6, 2010, and as a result the amounts paid by the Fund to Unitholders in respect of that period are classified as interest expense of the Fund and not distributions.  From and after December 7, 2010, amounts paid by the Fund to Unitholders are classified as distributions of the Fund,as the Units are classified as equity from and after December 7, 2010.

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