Boston Pizza Royalties Limited Partnership
TSX : BPF.UN

Boston Pizza International Inc.

Boston Pizza International Inc.

February 09, 2012 11:00 ET

Boston Pizza Royalties Income Fund Announces Strong SSSG and Record Franchise Sales for Q4 and 2011

Trustees Announce January Distribution to Unitholders of 9.2 Cents per Unit

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Feb. 9, 2012) - Boston Pizza Royalties Income Fund (the "Fund") (TSX:BPF.UN) and Boston Pizza International Inc. ("BPI") each reported today financial results for the period from October 1, 2011 to December 31, 2011 (the "Period") and from January 1, 2011 to December 31, 2011 (the "Year"). A copy of this press release, the annual consolidated financial statements for the Year and related Management's Discussion and Analysis of the Fund and BPI are available at www.sedar.com and www.bpincomefund.com. The financial results below are reported in accordance with International Financial Reporting Standards ("IFRS") and as a result are not directly comparable to those figures contained within historical financial statements of the Fund that were prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). The Fund will host a conference call to discuss the results on February 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 March 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 positive 6.4% for the Period and positive 4.9% for the Year, compared to positive 1.3% and negative 1.3%, respectively, for the same periods in 2010. Franchise sales, the basis upon which royalties are paid by the franchisees to BPI, exclude revenue from the sale of liquor, beer, wine and tobacco and approved national promotions and discounts. On a franchise sales basis, SSSG was positive 5.8% for the Period and positive 4.9% for the Year, compared to positive 2.6% and negative 0.7%, respectively, for the same periods in 2010. The increases in SSSG for the Period and the Year were principally due to higher takeout and delivery sales resulting from continued promotion of Boston Pizza's online ordering system and higher sales of the new chicken wing product that was launched in early 2011 through successful national television, radio and online ad campaigns. Other key sales initiatives in the Period included a "Festive Favourites" menu feature sheet in December, and the sale of Boston Pizza Gift Cards throughout the fourth quarter. Franchise sales of restaurants in the royalty pool were a record $177.5 million for the Period and a record $699.3 million for the Year compared to $166.2 million and $663.8 million, respectively, in the same periods in 2010. The increases in franchise sales for the Period and Year are largely attributed to positive SSSG.

"We are very pleased with the strong same store sales growth of 6.4% in the fourth quarter and 4.9% in 2011. This is a key metric with respect to distribution growth for Boston Pizza Royalties Income Fund and our steady top line growth has enabled the fund to increase monthly distributions to unitholders a total of 14 times since the initial public offering in 2002," said Mark Pacinda, President and CEO of BPI. "In addition, Boston Pizza International opened seven new full service locations in 2011 and posted record annual system-wide sales which exceeded $900 million from 343 locations, further expanding Boston Pizza's position as Canada's #1 casual dining brand."

The Fund's net income was $0.3 million for the Period and $15.6 million for the Year compared to a loss of $1.8 million and a loss of $0.2 million, respectively, in the same periods in 2010. The Fund's net income under IFRS contains many non-cash items that do not affect the Fund's operations or its ability to pay distributions to unitholders. As such, it is not in the Fund's view, 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 cash and payout ratio (as set forth in the tables contained herein) to provide investors with more meaningful information about the Fund's ability to pay distributions. Readers are cautioned that distributable cash and payout ratio 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 reconciliation between cash flow from operating activities (the most directly comparable IFRS measure) and distributable cash, please see the table below. For a detailed discussion on the Fund's distributable cash and payout ratio, please refer to the Management's Discussion and Analysis for the Period and the Year as filed on SEDAR and posted on the Fund's website at www.bpincomefund.com.

The Fund's distributable cash was $4.1 million or $0.281 per unit of the Fund ("Unit") for the Period and $16.1 million or $1.104 per Unit for the Year compared to $5.0 million or $0.345 per Unit and $20.5 million or $1.413 per Unit for the same periods, respectively, in 2010. The decreases in distributable cash and distributable cash per Unit for the Period and the Year are a result of the Fund becoming taxable under the specified investment flow through tax ("SIFT Tax") beginning on January 1, 2011. For comparative purposes, if the Fund was not liable to pay SIFT Tax in respect of the Period and Year, distributable cash for the Period and Year would have been $5.5 million or $0.377 per Unit and $21.6 million or $1.480 per Unit, respectively. As a result of the SIFT Tax, the Fund pays tax at a rate approximately equal to the rate applicable to income earned by a Canadian corporation, and is prevented from deducting trust distributions when calculating taxable income. The SIFT Tax rate was 26.5% in 2011 and is anticipated to be 25.0% for 2012. The Fund's liability to pay SIFT Tax reduces the amount available for distributions to unitholders. The SIFT Tax also recharacterizes such distributions as eligible dividends received from a Canadian corporation for individual tax purposes. Eligible dividend treatment for distributions to unitholders will generally be beneficial to Canadian resident investors holding their Units in taxable accounts compared to the previous characterization primarily as other income because of the potential for individuals to claim a dividend tax credit. Distributions for the Period and the Year were funded entirely by cash flow from operations. No debt was incurred at any point during the Period or the Year to fund distributions. The table below sets out the Fund's distributable cash and distributable cash per Unit for the Period and Year along with comparable figures for the same periods one year ago.

DESCRIPTION Q4 2011 Q4 2010 2011 2010
Distributable Cash $ 4.1 million $ 5.0 million $ 16.1 million $ 20.5 million
Distributable Cash per Unit $ 0.281 $ 0.345 $ 1.104 $ 1.413
Distributable Cash without SIFT Tax* $ 5.5 million $ 5.0 million $ 21.6 million $ 20.5 million
Distributable Cash per Unit without SIFT Tax* $ 0.377 $ 0.345 $ 1.480 $ 1.413
* These rows are provided for comparative purposes only and assume that the Fund was not liable to pay SIFT Tax in respect of the applicable periods.

The Fund's payout ratio (amount distributed divided by distributable cash) was 98.3% for the Period and 95.7% for the Year compared to 100.0% and 98.1%, respectively, in the same periods one year ago. The Fund's payout ratio for the Period and for the Year decreased compared to the same periods one year ago primarily due to the impact of positive SSSG partially offset by the distribution increase beginning with the July 2011 distribution to unitholders. 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 sales 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 ratio close to 100% over time as the trustees of the Fund continue to distribute all available cash in order to maximize returns to unitholders.

The trustees of the Fund announced a cash distribution to unitholders of 9.2 cents per Unit for January 2012. The distribution will be payable to unitholders of record at the close of business on February 21, 2012 and will be paid on February 29, 2012. The Fund periodically reviews distribution levels based on its policy of stable and sustainable distribution flow to unitholders.

HIGHLIGHTS

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

Adoption of IFRS:

The Fund adopted IFRS on January 1, 2011 and the financial results disclosed in this press release for all periods commencing on or after January 1, 2010 have all been prepared in accordance with IFRS. Readers are advised that the Fund's transition to reporting its financial results in accordance with IFRS from Canadian GAAP, including consolidating the Partnership accounts with the Fund, has had no impact, nor is it expected to have any future impact, on the operations of the Fund's business, the amount of cash that is available to distribute to unitholders or the contractual obligations between the Fund, the Partnership, BPI or any third parties. However, it has impacted the presentation of certain key financial metrics of the Fund and BPI. The comparative financial results contained in this press release for periods in 2010 have been restated to conform to IFRS. Readers are cautioned that they should refer to the annual consolidated financial statements of the Fund for a full description of the impact of IFRS on the Fund's financial results, copies of which are available at www.sedar.com and www.bpincomefund.com.

Jan 1, 2011 to Dec 31, 2011 Jan 1, 2010 to Dec 31, 2010 Proforma1 Jan 1, 2010 to Dec 31, 2010
(in thousands of dollars - except restaurants, SSSG, payout ratio and per Unit items)
Revenues
Number of restaurants in Royalty Pool2 336 334 334
System-wide gross sales3 904,872 853,461 853,461
Franchise Sales4 reported by restaurants in the Royalty Pool 699,329 663,758 663,758
Royalty revenue - 4% of Franchise Sales of Restaurants 27,973 26,550 26,550
Net interest income 1,815 1,803 1,803
Total revenues 29,788 28,353 28,353
Expenses
Administrative expenses and interest on bank debt (1,894 ) (2,053 ) (2,053 )
Interest accrued to holders of Units5 - - (16,725 )
Interest accrued to BPI on Class B Units and Class C Units6 (5,814 ) (5,639 ) (5,639 )
Gain on retirement of Unit liability - 46 46
Fair value adjustment on Class B Unit liability7 (731 ) (3,703 ) (3,703 )
Subtotal (8,439 ) (11,349 ) (28,074 )
Current income tax expense (5,474 ) - -
Deferred income tax expense (290 ) (490 ) (490 )
Total expenses (14,203 ) (11,839 ) (28,564 )
Net Income
Net income (loss) 15,585 16,514 (211 )
Basic and diluted earnings per Unit 1.186 1.245 0.091
Distributable Cash / Distributions / Payout Ratio8, 9
Cash flows from operating activities 27,490 26,185 26,185
BPI entitlement:
Class C distributions (1,800 ) (1,800 ) (1,800 )
Class B entitlement (4,130 ) (3,911 ) (3,911 )
SIFT tax on Units (5,474 ) - -
Distributable Cash8 16,086 20,474 20,474
Interest accrued5 / distributions payable10 15,387 20,076 20,076
Payout Ratio9 95.7 % 98.1 % 98.1 %
Distributable Cash per Unit8 1.104 1.413 1.413
Interest5 / distributions payable per Unit10 1.056 1.380 1.380
Other
Same store sales growth (SSSG) 4.9 % (1.3 %) (1.3 %)
Number of restaurants opened during the period 7 6 6
Number of restaurants closed during the period 4 6 6
Dec 31, 2011 Dec 31, 2010
Proforma1
Dec 31, 2010
Total assets 261,571 258,547 258,547
Total liabilities 99,794 96,968 96,968
Q4
2011
Q3
2011
Q2
2011
Q1
2011
(in thousands of dollars - except restaurants, SSSG, payout ratio and per Unit items)
Revenues
Number of restaurants in Royalty Pool2 336 336 338 339
System-wide gross sales3 232,713 235,911 228,766 207,482
Franchise Sales4 reported by restaurants in the Royalty Pool 177,465 183,163 175,568 163,133
Royalty revenue - 4% of Franchise Sales of Restaurants 7,098 7,327 7,023 6,525
Interest income 454 454 455 452
Total revenues 7,552 7,781 7,478 6,977
Expenses
Administrative expenses and interest on bank debt (432 ) (449 ) (511 ) (502 )
Interest accrued to BPI on Class B Units and Class C Units6 (2,042 ) (1,447 ) (1,388 ) (937 )
Fair value adjustment on Class B Unit liability7 (3,308 ) 1,148 2,707 (1,278 )
Subtotal (5,782 ) (748 ) 808 (2,717 )
Current income tax expense (1,396 ) (1,449 ) (1,366 ) (1,263 )
Deferred income tax expense (70 ) (100 ) (70 ) (50 )
Total expenses (7,248 ) (2,297 ) (628 ) (4,030 )
Net Income
Net income 304 5,484 6,850 2,947
Basic and diluted earnings per Unit 0.089 0.401 0.495 0.201
Distributable Cash / Distributions / Payout Ratio8, 9
Cash flows from operating activities 7,037 7,266 6,922 6,265
BPI entitlement:
Class C distributions (450 ) (450 ) (450 ) (300 )
Class B entitlement (1,099 ) (1,077 ) (1,023 ) (952 )
SIFT tax on Units (1,396 ) (1,449 ) (1,366 ) (1,263 )
Distributable cash8 4,092 4,290 4,083 3,600
Interest accrued5 / distributions payable10 4,021 4,021 3,672 3,672
Payout Ratio9 98.3 % 93.7 % 89.9 % 102.0 %
Distributable cash per Unit8 0.281 0.294 0.280 0.247
Interest5 / distributions payable per Unit10 0.276 0.276 0.252 0.252
Q4
2010
Q3
2010
Q2
2010
Q1
2010
(in thousands of dollars - except restaurants, SSSG, payout ratio and per Unit items)
Revenues
Number of restaurants in Royalty Pool2 334 335 338 340
System-wide gross sales3 215,303 218,335 215,336 204,487
Franchise Sales4 reported by restaurants in the Royalty Pool 166,181 171,151 165,972 160,455
Royalty revenue - 4% of Franchise Sales of Restaurants 6,647 6,846 6,639 6,418
Interest income 452 451 450 450
Total revenues 7,099 7,297 7,089 6,868
Expenses
Administrative expenses and interest on bank debt (687 ) (485 ) (444 ) (437 )
Interest accrued to holders of Units5 (3,352 ) (5,027 ) (5,096 ) (3,250 )
Interest accrued to BPI on Class B Units and Class C Units6 (1,852 ) (1,362 ) (1,362 ) (1,063 )
Gain (Loss) on retirement of Unit liability - - 181 (135 )
Fair value adjustment on Class B Unit liability7 (2,916 ) (3,924 ) 1,056 2,081
Subtotal (8,807 ) (10,798 ) (5,665 ) (2,804 )
Current income tax expense - - - -
Deferred income tax expense (80 ) (70 ) (70 ) (270 )
Total expenses (8,887 ) (10,868 ) (5,735 ) (3,074 )
Net Income
Net income (1,788 ) (3,571 ) 1,354 3,794
Basic and diluted earnings per Unit (0.058 ) (0.218 ) 0.120 0.256
Distributable Cash / Distributions / Payout Ratio8, 9
Cash flows from operating activities 6,425 6,963 6,554 6,243
BPI entitlement:
Class C distributions (450 ) (450 ) (450 ) (450 )
Class B entitlement (948 ) (1,000 ) (931 ) (1,067 )
Distributable cash8 5,027 5,513 5,173 4,726
Interest accrued5 / distributions payable10 5,027 5,027 5,068 4,953
Payout Ratio9 100.0 % 91.2 % 98.0 % 104.8 %
Distributable cash per Unit8 0.345 0.378 0.350 0.338
Interest5 / distributions payable per Unit10 0.345 0.345 0.345 0.345

OUTLOOK

The Canadian Restaurant and Foodservices Association has forecast sales growth of 3.0% for the Canadian full-service restaurant sector in 2012. BPI's management believes that Boston Pizza is well positioned to continue outperforming this 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 will be achieved through a combination of menu design and annual re-pricing. In addition, BPI's franchise agreement requires that each Boston Pizza restaurant undergo a complete store renovation every seven years and four locations have already completed renovations in 2012 with many 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 seven new Boston Pizza restaurants that opened in 2011. Another new Boston Pizza restaurant has opened to date in 2012 and one more is currently under construction and scheduled to open in March 2012. 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 known and 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.com and www.bpincomefund.com. The trustees of the Fund have approved the contents of this press release.

  1. The results shown in this column assume that the Units were classified under IFRS as equity at all times during the applicable period rather than as a financial liability and that amounts paid by the Fund to Unitholders during or in respect of the applicable period were classified under IFRS as distributions rather than interest expense. These results are not audited and are provided only for information purposes. See note 7 below and the "Operating Results - Expenses" and "Operating Results - Distributions" sections of the Fund's most recent Management's Discussion and Analysis for more details.
  2. Number of restaurants in the Royalty Pool (as defined herein) excludes restaurants that permanently closed during the applicable period.
  3. 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").
  4. Franchise sales is the basis on which the royalty is payable; it means the revenues of Boston Pizza Restaurants (as defined herein) 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 (as defined herein); 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 conducted during the year.
  5. 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 (as defined herein) 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. See "Operating Results - Expenses" and "Operating Results - Distributions" of the Fund's most recent Management's Discussion and Analysis for more details.
  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. See the "Operating Results - Expenses" section of the Fund's Management's Discussion and Analysis for more details.
  7. Because the Class B Units are classified as a financial liability under IFRS, the Fund is required under IFRS to fair value that 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. See the "Operating Results - Expenses" section of this Management's Discussion and Analysis for more details. This adjustment has no impact on the Fund's Distributable Cash.
  8. 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 available for distribution on the Units. Investors are cautioned that this should not be construed as an alternative net income measure of profitability. The tables above provide a reconciliation from this non-IFRS financial measure to cash flows from operating activities, which is the most directly comparable IFRS measure. See the "Operating Results- Distributable Cash / Payout Ratio" section of this Management's Discussion and Analysis for more details.
  9. Payout Ratio is calculated by dividing the interest / distributions payable by the Fund in respect of the applicable period by the Distributable Cash earned in that period. 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 contrued as an alternative net income measure of profitability.
  10. Under the Declaration of Trust (as defined in the Fund's Management's Discussion and Analysis), the Fund pays interest / distributions on the Units in respect of any particular calendar month not later than the last business day of the immediately subsequent month. Accordingly, interest / distributions on the Units in respect of the calendar month of January are paid no later than the last business day of February, interest / distributions on the Units in respect of the calendar month of February are paid no later than the last business day of March and soforth. Consequently, interest / distributions payable by the Fund on the Units in respect of the Period (as defined herein) were the October 2011 distribution (which was paid on November 30, 2011), the November 2011 distribution (which was paid on December 30, 2011) and the December 2011 distributions (which was paid on January 31 2012). Similarly, the interest / distributions payable by the Fund on the Units in respect of any other period are the interest / distributions paid in the immediately subsequent month of each month comprising such other period.

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