Boston Pizza Royalties Income Fund

Boston Pizza Royalties Income Fund
Boston Pizza International Inc.

Boston Pizza International Inc.

August 07, 2009 05:00 ET

Boston Pizza Royalties Income Fund and Boston Pizza International Inc. Announce Second Quarter Results and July Distribution to Unitholders

Earnings before non-cash items per Fund unit rise 0.9% despite weaker sales environment

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 7, 2009) - Boston Pizza Royalties Income Fund (the "Fund") (TSX:BPF.UN) and Boston Pizza International Inc. ("BPI") each reported today financial results for the second quarter period of April 1, 2009 to June 30, 2009 (the "Period") and the year-to-date period of January 1, 2009 to June 30, 2009 ("YTD"). A copy of the management's discussion and analysis and financial statements of the Fund and BPI for the Period are available at and The Fund will host a conference call to discuss the results on August 7, 2009 at 10:00 a.m. Pacific Time (1:00 p.m. Eastern Time). The call can be accessed by dialling 1-800-319-4610 or 604-638-5340. A replay will be available until August 14, 2009 by dialling 1-800-319-6413 or 604-638-9010 and entering the pin code: 4452 followed by # sign.

Same store sales growth ("SSSG"), a key driver of distribution growth for individual Unitholders, is the change in gross revenues of Boston Pizza restaurants as compared to the gross revenues for the same period in the previous year, where restaurants were open for the full period in each year. SSSG was negative 5.0% for the Period and negative 1.3% YTD, compared to positive 1.6% and positive 1.3% respectively in the same periods one year ago. Franchise sales, the basis upon which royalties are paid to the Fund, exclude revenue from the sale of liquor, beer, wine and tobacco and approved national promotions and discounts. On a franchise sales basis, SSSG was negative 5.5% for the Period and negative 2.8% YTD, compared to positive 1.1% and positive 0.9% during the same periods last year. Sales results for the Period and YTD were negatively impacted by weaker general economic conditions. In addition, YTD had one less day than the same period one year ago due to 2008 being a leap year.

"As anticipated, 2009 is proving to be a challenging environment for Canadian retailers with weaker economic conditions having an impact on consumer spending patterns. In spite of these conditions, we are pleased to have increased earnings before non-cash items on a per unit basis for both the period and year-to-date as a result of the Fund's unit repurchase program," said George Melville, Chairman and owner of Boston Pizza International Inc. "Also in the second quarter, we were excited to launch our new menu nationwide, which includes 15 new items such as the Baja salad, multigrain pizza dough and our first ever burger - the delicious 1/2 pound prime rib burger."

The Fund's earnings before non-cash items including future income taxes and dilution loss(1) was $4.9 million or $0.342 per unit for the Period and $9.8 million or $0.670 per unit YTD compared to earnings before future income taxes and dilution loss of $5.3 million or $0.339 per unit for the second quarter of 2008 and $9.6 million or $0.664 per unit for the first six months of 2008. The Fund's earnings before non-cash items including future income taxes and dilution loss on a per unit basis increased by 0.9% for the Period and YTD compared to the same periods in 2008. This increase was largely due to the lower number of Fund units ("Units") outstanding during the Period and YTD versus the same periods one year ago as a result of the Fund's Normal Course Issuer Bid (the "NCIB") which was completed on February 23, 2009. Under the NCIB, the Fund repurchased and cancelled 1,336,154 Units, being the maximum number of Units permitted under the NCIB, at an average price of $8.54 per Unit. As a result of this repurchase and cancellation of Units, there is a net savings for the Fund of approximately $1.6 million or $0.0876 per Fund Unit per year at the current annualized distribution rate of $1.38 per Fund Unit and current interest rates charged on amounts borrowed by the Fund to repurchase Units. This accretive benefit of the NCIB will assist the Fund in maintaining the current level of monthly distributions to Unitholders despite the weaker economic conditions and corresponding softer sales experienced during the Period and YTD. Under the rules of the TSX, the Fund is permitted to apply for renewal of its normal course issuer bid no earlier than October 1, 2009.

Distributions declared were $5.0 million or $0.345 per Unit for the Period compared to distributions declared of $5.4 million or $0.345 per Unit in 2008. Distributions declared YTD were $8.3 million or $0.575 per Unit compared to $8.7 million or $0.575 per Unit in the first six months of 2008. Distributions for the Period and YTD decreased due to the Units repurchased and cancelled under the NCIB mentioned above and were funded entirely by cash flow from operations. No debt was incurred at any point during the Period or YTD to fund distributions.

The Trustees of the Fund are pleased to announce a monthly cash distribution to Unitholders of 11.5 cents per unit for July 2009. The distribution will be paid to Unitholders of record at the close of business on August 21, 2009 and will be payable on August 31, 2009. The Fund periodically reviews distribution levels based on its policy of stable and sustainable distribution flow to Unitholders.

The Fund is a limited purpose, open-ended trust established under the laws of British Columbia to acquire indirectly certain trade-marks and trade names used by BPI in its Boston Pizza restaurants in Canada. The trade-marks are licensed to BPI for 99 years for which BPI pays a royalty to the Fund equal to 4% of franchise revenues of royalty pooled restaurants.


The following table sets out selected historical information and other data from the financial statements of the Fund and Boston Pizza Royalties Limited Partnership (the "Partnership"), which should be read in conjunction with the consolidated financial statements of the Fund.

Apr 1, Apr 1, Jan 1, Jan 1,
2009 to 2008 to 2009 to 2008 to
Jun 30, Jun 30, Jun 30, Jun 30,
2009 2008 2009 2008

(in thousands of dollars - except SSSG,
restaurants and per unit items)

System-Wide Gross Sales 213,893 208,998 423,501 400,309

Number of restaurants in Royalty Pool 323 299 323 299

Franchise Sales reported by restaurants
in the Royalty Pool 162,709 163,955 323,441 316,593

Royalty Income - 4% of Franchise Sales
of Restaurants 6,508 6,558 12,938 12,664

Administrative and interest expenses (387) (387) (744) (775)

Partnership earnings for the period
before undernoted(1) 6,121 6,171 12,194 11,889

BPI's interest in the earnings of the
Partnership (1,667) (1,303) (3,305) (3,144)

Equity income related to BPI royalties
earned by the Fund 4,454 4,868 8,889 8,745

Net interest income 451 450 886 900

Earnings before undernoted(1) 4,905 5,318 9,775 9,645

Dilution loss - - (364) -

Future income tax recovery (expense) (74) - 611 (116)

Net earnings 4,831 5,318 10,022 9,529

Earnings before undernoted per Fund
unit(1) 0.342 0.339 0.670 0.664

Basic and diluted earnings per Fund unit 0.336 0.339 0.687 0.656

Distributions declared per Fund unit 0.345 0.345 0.575 0.575

Same store sales growth (SSSG) (5.0%) 1.6% (1.3%) 1.3%

Number of restaurants opened during the
period 1 5 8 7

Number of restaurants closed during the
period - 1 - 1

(1) This is a non-GAAP financial measure that does not have a standardized meaning prescribed by GAAP and therefore is unlikely to be comparable to similar measures presented by other issuers. This non-GAAP financial measure provides useful information to investors and management by providing an indication of operating earnings. Investors are cautioned that this should not be construed as an alternative net income measure of profitability. The table above provides reconciliation from this non-GAAP financial measure to the most directly comparable GAAP measure.


BPI's management believes that the prevailing weaker economic conditions will continue in the remainder of 2009 resulting in continued pressure on SSSG and franchise sales at Boston Pizza Restaurants in Canada. However, Boston Pizza is well positioned to attract a wide variety of guests into the restaurant, sports bar and take-out/delivery parts of each location and offer a compelling value proposition to Canadians in these challenging economic times. BPI's strategies to drive guest traffic and higher average cheque levels include a larger marketing budget versus the previous year, national and local store promotions and menu re-pricing as part of the new menu launched in June. In addition, BPI's management anticipates that 20 to 30 restaurants will complete renovations this year. Renovated restaurants typically experience an incremental sales increase in the year following the re-opening.

New store openings planned for 2009 have also been impacted by the weaker economic conditions with a deceleration in the pace of commercial real estate development in places where new Boston Pizza Restaurants may be located. As a result, BPI's management has determined that approximately 15 to 20 new locations will open across Canada in 2009, which is a change from the previous estimate of 15 to 25 new locations. Boston Pizza remains well positioned for future expansion and will continue to strengthen its position as the number one casual dining brand in Canada by pursuing further restaurant development opportunities across the country.

Under the Specified Investment Flow Through tax legislation, which was substantively enacted into law on June 12, 2007, the Fund will be subject to a tax at the prevailing corporate rate beginning on January 1, 2011. This tax will reduce net earnings and will affect cash distributions to Unitholders by approximately the same amount. Monthly cash distributions to Unitholders will be reclassified for tax purposes as eligible dividends and Canadian residents who hold their Units in a non-tax deferred account may claim the dividend tax credit, thereby reducing the after-tax impact of this legislative change. The Trustees continue to review various strategic alternatives available to the Fund. No determination regarding a change to the current trust structure has been made by the Trustees at this time.

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, the Trust, the Partnership, Holdings LP, 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. Forward-looking information in this Press Release includes, but is not limited to, such things as: the future expansion of Boston Pizza Restaurants; Boston Pizza will continue to strengthen its position as the number one casual dining brand in Canada; estimates of the number of restaurant openings and estimates related to renovations (number of renovations, timeline of renovations and increased revenues following renovations). The forward-looking information disclosed herein is based on a number of assumptions including, among other things, the protection of BP Rights, pace of commercial real estate development, franchisees' access to financing, speed of permitting, future results being similar to historical results and expectations related to future general economic conditions. When used in this Press Release, this 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. This forward-looking information involves a number of risks, uncertainties and future expectations including, but not limited to: competition; changes in demographic trends; changes in consumer preferences and discretionary spending patterns; changes in national and local business and economic conditions; legislation and government regulation; accounting policies and practices; and the results of operations and financial conditions of BPI and the Fund. The foregoing list of factors is not exhaustive and should be considered in conjunction with the risks and uncertainties set out above in "Risks & Uncertainties". This Press Release discusses some of the factors that could cause actual results to differ materially from those expressed in or underlying such forward-looking information. Forward-looking information is provided as of the date hereof and, except as required by law, we assume no obligation to update or revise forward-looking information to reflect new events or circumstances.

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

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