Prime Restaurants Royalty Income Fund
TSX : EAT.UN

Prime Restaurants Royalty Income Fund

November 05, 2007 16:30 ET

Prime Restaurants Royalty Income Fund Announces Strong Same Store Sales Growth in Third Quarter 2007

MISSISSAUGA, ONTARIO--(Marketwire - Nov. 5, 2007) - Prime Restaurants Royalty Income Fund ("the Fund") (TSX:EAT.UN) today reported results for the three and nine months ended September 30, 2007.

THIRD QUARTER HIGHLIGHTS:

- A 2.74% same store sales growth

- Casey's and Pubs same store sales up 4.6% and 14.1% respectively

- East Side Mario's posts a positive quarter of 0.75% SSSG on new programs and roll-out of new design elements to renovated restaurants

- Renovation programs and new menus contribute to improved performance

Gross revenue reported by the royalty pooled restaurants in the third quarter was $88.6 million compared to $84.3 million for the same period last year. For the nine months ended September 30, 2007, gross revenue reported by the royalty pooled restaurants was $253.2 million compared to $247.0 million last year. There were 156 royalty pooled restaurants in both years. For the three and nine months ended September 30, 2007, royalty income from royalty pooled restaurants was $2.9 million and $8.3 million respectively.

Distributable cash available to Unitholders was $1.7 million or $0.28 per unit for the three month period ended September 30, 2007 and $5.2 million or $0.85 for the first nine months ended September 30, 2007. The Fund declared cash distributions of $1.7 million or $0.28 per unit in the third quarter of 2007 and $5.2 million or $0.85 for the nine months ended September 30, 2007.

Same store sales growth ("SSSG") for the quarter ended September 30, 2007 increased 2.74% for the royalty pooled restaurants. Strong growth was generated in Prime's pubs and Casey's brands, resulting in 4.6% SSSG at Casey's in the third quarter of 2007 and an impressive 14.13% SSSG in the pubs. East Side Mario's posted a much improved SSSG of 0.75% in the third quarter. All regions had positive SSSG in the period with Ontario posting SSSG of 2.98%, Western Canada at 2.57% and Quebec with 1.27%.

"We are very pleased with our continued growth in the quarter," commented John Rothschild, Chairman and CEO of Prime Restaurants of Canada Inc. "Looking ahead, new menus and innovative promotional programs to be launched in the coming months, combined with the ongoing rejuvenation and renovation of our locations and our brands, are expected to generate further growth going forward".

"We are particularly pleased to have generated such improved performance at East Side Mario's over the last two quarters. Three recently renovated East Side Mario's locations have utilized elements of our new concept, and all posted solid growth following their reopening. Three other new restaurants opening through the balance of the year will also include elements of the new prototype design. In addition, an exciting new fall menu, From Our Familiglia to Yours, to be followed by a high impact festive menu in November, should contribute to the brand's growth through the balance of the year," Mr. Rothschild concluded.

Operational Review

For restaurants available to enter the royalty pool on January 1, 2008, one East Side Mario's location was opened in Alberta in the third quarter, while one Casey's restaurant located in Quebec was permanently closed during the period. In addition, in late September 2007 one Pat & Mario's restaurant in Ontario was converted to a Casey's restaurant. Post conversion, this location has generated 14.5% sales growth compared to the same period last year. This restaurant, post conversion, is not part of the same store sales growth calculation. After a consecutive 24 months of operation as a Casey's restaurant this location will once again be considered a same store.

Major renovations were performed at one Casey's and one East Side Mario's location during the third quarter of 2007. Following the renovations, SSSG at these locations had a cumulative increase of 7.5% from their performance before the renovations were made.



FINANCIAL HIGHLIGHTS OF THE FUND:
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($000's, except per unit data) Three Three Nine Nine
months months months months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
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Interest income - TradeMarkCo
Note 1,733 1,733 5,141 5,141
Net earnings 1,746 1,831 5,181 5,437
Total assets 55,182 55,899 55,182 55,899
Distributions to Unitholders 1,723 1,723 5,169 5,169
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Trust Units - outstanding 6,110,000 6,110,000 6,110,000 6,110,000
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Trust Units - diluted 9,298,545 9,266,867 9,298,545 9,266,867
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Basic earnings per Trust Unit $0.29 $0.30 $0.85 $0.89
Diluted earnings per Trust Unit $0.28 $0.29 $0.85 $0.87
Distributions paid per Trust
Unit $0.28 $0.28 $0.85 $0.85

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SELECTIVE YEAR-TO-DATE TRADEMARKCO FINANCIAL HIGHLIGHTS:
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($000's except # of Royalty Pooled Restaurants) 2007 2006
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# of Royalty Pooled Restaurants 156 156
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Gross Revenue Royalty Pooled Restaurants 253,200 247,000
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Royalty Income 8,315 8,196
Operating Expenses 357 356
Dividends on Class A and Class B shares 2,682 2,647
Interest Expense 5,141 5,141
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The common share ownership of TradeMarkCo is as follows:
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September 30, % December 31, %
2007 2006
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Common shares held by public 6,110,000 65.71 6,110,000 65.93
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Common shares held by PRC 3,188,545 34.29 3,156,893 34.07
Total common shares of
TradeMarkCo 9,298,545 100.0 9,266,893 100.0
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Outlook

Management continues to execute its strategies to drive continued growth.

The re-branding of the Casey's division has resulted in solid improvements in SSSG. For 2008, management plans to continue to renovate Casey's locations to maintain the positive trend being experienced with the rejuvenated concept. During the next couple of months an additional two Casey's locations, one each in Ontario and Quebec will undergo renovations. Casey's is targeting opening an additional twenty-four new locations over the next five years, primarily focused in eastern Canada.

In the pubs business new and innovative menus are being introduced and proving very popular. In addition, numerous promotions such as Keith's® Wednesdays and Guinness® Fridays are generating solid growth, while the repositioning of certain locations to expand beyond the highly successful Irish theme will continue. Management is looking at opportunities to further develop the Bier Markt brand. The Bier Markt offers a premium and unique experience to consumers. Real estate is being actively sought in areas that would leverage the success the brand has achieved from the downtown Toronto location. Currently, plans have been set in motion that will see a second Bier Markt location in downtown Toronto.

At East Side Mario's, management is in the process of launching a new re-freshed and high energy design that will take the brand back to its roots to provide an authentic taste of Little Italy. With a twenty-year heritage of providing fun and value to Canadian families, East Side Mario's has a well-established identity with an 88% brand loyalty factor as measured by an independent survey. Elements of the new prototype were unveiled at a Mississauga corporate-owned restaurant in late April and a new restaurant in Alberta in September. The new design includes an authentic new decor in keeping with a Little Italy street party, as well as a new uniform program and various innovative new guest touch points. An exciting new menu was introduced in September, to be followed by a new festive menu in November. Nine new restaurants utilizing the rejuvenated prototype design are planned for opening in 2008 while three locations plan renovations incorporating elements of the new design in November 2007 and December 2007. An additional two locations are scheduled for renovations in January 2008. Management's target over the next five years is to open a total of forty-five new East Side Mario's locations with a focus on building the brand's presence in Western Canada and Quebec.

The Fund's financial statements and Management's Discussion and Analysis for the three and nine months ended September 30, 2007 and 2006 are available at www.primeincomefund.ca and www.sedar.com.

PRC's Consolidated Financial Statements and MD&A

PRC's consolidated financial statements, notes and MD&A can be accessed at www.sedar.com under the "other" document type for the Fund.

Quarterly Conference Call

Prime Restaurants Royalty Income Fund will host a conference call on Tuesday, November 6, 2007 at 10:30 a.m. ET to discuss the results of the Fund and operations and performance of PRC. Interested participants may dial (416) 849-2698 or toll-free at (866) 400-2270 to access the call. A recording will be made available until midnight, November 12, 2007. To access the rebroadcast, please dial (416) 915-1035 or toll-free (866) 245-6755, pass code 205612#.

Prime Restaurants Royalty Income Fund (the Fund) is a limited purpose trust with an unlimited number of Trust Units (Units) established to invest in PRC Trademarks Inc. (TradeMarkCo). The source of revenue for the Fund is through its ownership in TradeMarkCo. The Fund receives interest income on the TradeMarkCo Note from TradeMarkCo based on 11.25% per annum which it distributes to its Unitholders. TradeMarkCo owns the Prime Restaurants of Canada Inc. (PRC) trademarks and licenses their use to PRC which operates the restaurant and bar business. In return, TradeMarkCo receives royalty income based on 3.25% of gross revenue from the royalty pooled restaurants operated by PRC.

Certain information included in this news release is forward looking and based on current expectations and entails various risks and uncertainties. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives for 2007 and beyond, our strategies or future actions, and our targets or expectations for our financial performance and condition (including estimated revenue from royalty pooled restaurants and the prospective number of new restaurants and pubs). Although management of the Fund and PRC believe that the expectations represented in such forward looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.

By their nature, forward-looking statements require us to make assumptions (such as, on the demand for the goods and services provided under the Prime Marks) and are subject to inherent risks and uncertainties, including those discussed in the current annual information form of the Fund and annual and quarter MD&A of the Fund and PRC, which are available at www.sedar.com. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. We caution readers not to place undue reliance on our forward-looking statements because a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements are made as of the date hereof. Except as required by applicable securities laws, the Fund does not undertake to update any forward-looking statement, whether written or oral, that it may make or that may be made, from time to time, on its behalf.

Distributable Cash is a useful supplemental measure of operating performance that provides investors with an indication of cash available for distribution. Distributable Cash is a non-GAAP measure and therefore may not be comparable to similar measures presented by other issuers. Distributable cash is calculated as operating cash flows for the Fund (net earnings adjusted for non-cash items such as deferred revenue).



Prime Restaurants Royalty Income Fund
Balance Sheets
As at September 30, 2007 and December 31, 2006
(Unaudited)
2007 2006
$ $
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Assets
Current asset
Interest receivable 583,788 583,788

Investment in PRC Trademarks Inc. 54,598,038 61,100,000
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Total assets 55,181,826 61,683,788
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Liabilities and Unitholders' Equity
Current liabilities
Distributions payable 574,340 574,340
Due to PRC Trademarks Inc. 14,124 -
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588,464 574,340
Deferred revenue - financing fees - 5,714,000
Unitholders' equity 54,593,362 55,395,448

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Total liabilities and unitholders' equity 55,181,826 61,683,788
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Prime Restaurants Royalty Income Fund
Statements Of Earnings
For the three months and nine months ended September 30, 2007 and 2006
(Unaudited)

Three Three Nine Nine
Months Months Months Months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
$ $ $ $
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Interest income 1,732,533 1,732,533 5,141,104 5,141,104
Dividend income 32,031 63,548 96,093 190,882
Amortization of deferred
revenue - financing fees 8,613 52,000 25,840 160,000
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1,773,177 1,848,081 5,263,037 5,487,986
Operating expense
Administrative expenses 27,420 16,985 82,261 51,193
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Net earnings for the period 1,745,757 1,831,096 5,180,776 5,436,793
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Basic earnings per Trust Unit $0.29 $0.30 $0.85 $0.89
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Diluted earnings per Trust Unit $0.28 $0.29 $0.85 $0.87
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Statement of Unitholders' Equity
For the three months and nine months ended September 30, 2007 and 2006

Three Three Nine Nine
Months Months Months Months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
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$ $ $ $
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Balance - Beginning
of year 54,570,625 55,179,295 54,581,646 55,019,638
Net earnings 1,745,757 1,831,095 5,180,776 5,436,792
Distributions (1,723,020) (1,723,020) (5,169,060) (5,169,060)
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Balance - End of period 54,593,362 55,287,370 54,593,362 55,287,370
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