Boston Pizza Royalties Income Fund
TSX : BPF.UN

Boston Pizza Royalties Income Fund

January 02, 2007 17:10 ET

Boston Pizza Opens a Record 41 New Restaurants in 2006, Increasing the Total Royalty Pool Stores to 266 for the Boston Pizza Royalties Income Fund

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Jan. 2, 2007) - Boston Pizza Royalties Income Fund (the "Fund") (TSX:BPF.UN) and Boston Pizza International Inc. ("BPI") announced today that effective January 1, 2007, the number of Boston Pizza restaurants included in the Fund's royalty pool (the "Royalty Pool") has been increased to include the royalties from 41 new full-service restaurants opened across Canada between January 1, 2006 and December 31, 2006 (the "Period"). One full-service restaurant was closed during the Period. With the addition of these 40 net new restaurants, royalties are now payable to the Fund from 266 Boston Pizza restaurants.

The Fund indirectly owns the Boston Pizza trade marks and trade names used by BPI in its Boston Pizza restaurants in Canada. In 2002 the Fund licensed these trade marks to BPI for 99 years and in return BPI pays the Fund a top line royalty of 4% of franchise revenues of Royalty Pool restaurants. Annually, the Royalty Pool of Boston Pizza restaurants is increased to include the new Boston Pizza restaurants that have opened in the prior year. The increase is adjusted to reflect any locations that may have permanently closed during the year.

"In 2006 our team set another Boston Pizza record for new store openings. Opening 41 new locations is a great achievement that speaks to the strength of our business model. Our employees and franchisees should be commended," said Mike Cordoba, Chief Executive Officer for BPI and the Fund.

On January 1 of each year (the "Adjustment Date"), an adjustment is made to add to the Royalty Pool new Boston Pizza restaurants that opened and to remove any Boston Pizza restaurants closed prior to that Adjustment Date. In return for adding this additional royalty revenue, BPI receives the right to indirectly acquire additional Fund units (the "Additional Entitlements"). The adjustment for new Franchise Sales added to the Royalty Pool is designed to be accretive for Unitholders. The Additional Entitlements are calculated at 92.5% of the estimated royalty revenue added to the Royalty Pool, divided by the yield of the Fund, divided by the Weighted Average Unit Price. BPI receives 80% of the Additional Entitlements initially, with the balance received when the actual full year performance of the new restaurants is known with certainty. BPI receives 100% of distributions from the Additional Entitlements throughout the year. Once these new restaurants have been part of the Royalty Pool for a full year, an audit of the royalty revenues of these restaurants received from BPI will be performed. At such time an adjustment will be made to reconcile distributions paid to BPI and the Additional Entitlements received by BPI.

In return for adding the royalty revenue from the 40 net new restaurants to the Royalty Pool, BPI has received 1,726,782 Additional Entitlements. The 1,726,782 represents 80% (2,158,478 represents 100%) of the Additional Entitlements with the balance received when the actual full year performance of the new restaurants is known with certainty. The 1,726,782 Additional Entitlements represents 11.2% of the Fund units on a fully diluted basis. The full 2,158,478 Additional Entitlements would represent 13.3% of the Fund on a fully diluted basis. The issuance of the Additional Entitlements to BPI is subject to approval by the Toronto Stock Exchange.

The estimated annual gross franchise revenue for the net 40 restaurants in 2007 is estimated to be $74,555,000, due to the addition of $75,777,000 in estimated annual gross franchise revenue for the 41 new restaurants less $1,222,000 in estimated annual gross franchise revenue from the one closed restaurant. The estimated 4% royalty revenue the Fund will receive in 2007 from these additional net 40 restaurants is $2,982,200. The royalty revenue for the purposes of calculating the Additional Entitlements, therefore, is $2,758,535 or 92.5%. Once the actual performance of these new restaurants for 2007 is known, after taking account of the one closure, the number of Additional Entitlements will be adjusted in 2008 to reflect the actual royalty revenue received by the Fund in 2007. As of January 1, 2007, there are 266 restaurants in the Royalty Pool.

Including the 1,726,782 Additional Entitlements described above, BPI has the right to exchange its securities for 4,475,957 Fund Units, representing 28.9% of the Fund Units on a fully diluted basis. BPI has agreed to maintain at least a 20% ownership interest, direct or indirect, in the Fund until such time as there are 275 restaurants in the Royalty Pool. Please see below Table 1.



Table 1 - Summary of Boston Pizza Royalties Income Fund Units
Issued &
Outstanding
Units,
Issued & Additional
Outstanding Entitlements, &
Units, & Holdback of
Additional Additional
Entitlements Entitlements

Public Float as of December 31, 2006 10,996,700 10,996,700
BPI Additional Entitlements -
Outstanding as of December 31, 2006 2,749,175 2,749,175
BPI Additional Entitlements -
Holdback as of December 31, 2006 N/A 380,962 (1)
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Number of Fully Diluted Units
as of December 31, 2006 13,745,875 14,126,837
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----------------------------

Public Float as of December 31, 2006 &
January 1, 2007 10,996,700 10,996,700
BPI Additional Entitlements -
Outstanding as of December 31, 2006 2,749,175 2,749,175
BPI Additional Entitlements -
Holdback as of December 31, 2006 N/A 380,962 (1)
BPI Additional Entitlements -
Issued & Outstanding as of January 1, 2007
(net 40 Restaurants added to Royalty Pool) 1,726,782 1,726,782 (2)
BPI Additional Entitlements -
Holdback as of January 1, 2007
(net 40 Restaurants added to Royalty Pool) N/A 431,696 (3)
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Number of Fully Diluted Units as of
January 1, 2007 15,472,657 16,285,315
----------------------------
----------------------------

BPI Total Ownership as of January 1, 2007 28.9% 32.5%
BPI Ownership based on net 40 Restaurants
added to Royalty Pool only as of
January 1, 2007 11.2% 13.3%

(1) Holdback of Additional Entitlements from 31 restaurants added to
Royalty Pool on January 1, 2006. Actual number of Additional
Entitlements will be determined in early 2007, effective January 1,
2006, once audited results of 31 restaurants are known.
(2) Issued effective January 1, 2007
(3) Holdback of Additional Entitlements from net 40 restaurants added to
Royalty Pool on January 1, 2007. Actual number of Additional
Entitlements will be determined in early 2008, effective January 1,
2007, once audited results of net 40 restaurants are known.


The Trustees of the Fund have approved the contents of this news release.

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