Pizza Pizza Royalty Income Fund
TSX : PZA.UN

Pizza Pizza Royalty Income Fund

February 22, 2012 16:44 ET

Pizza Pizza Announces Fourth Quarter and Full-Year 2011 Financial Results and February Dividend

TORONTO, ONTARIO--(Marketwire - Feb. 22, 2012) -

Attention Business Editors:

Pizza Pizza Royalty Income Fund (the "Fund") (TSX:PZA.UN) today announced a cash dividend of $0.0584 per unit for the month of February 2012. The deemed dividend, a portion of which is return of capital, will be eligible for the enhanced dividend tax credit if paid or allocated to a Canadian resident. The dividend will be payable to unitholders of record at the close of business on February 29, 2012, and will be paid on March 15, 2012.

The Fund also announced the following unaudited financial results for the fourth quarter and year ended December 31, 2011.

Annual Highlights:
Same store sales increased 2.6%
Earnings per unit before income taxes increased 8.1%
Working capital reserve increased $1.5 million
Payout ratio was 90%
Fourth Quarter Highlights:
Same store sales increased 1.4%
Earnings per unit before income taxes increased 6.7%
Working capital reserve increased $586,000
Payout ratio was 84%

SALES

For 2011, same store sales growth ("SSSG") was 2.6% compared to the prior year 2010. By brand, Pizza Pizza reported SSSG of 2.4% and Pizza 73 reported 3.9% for the year. In the fourth quarter SSSG was 1.4% compared to the same quarter in 2010 with Pizza Pizza reporting SSSG of 1.1% and Pizza 73 reporting 3% for the quarter. SSSG is the key driver of yield growth for Fund unitholders.

Total sales reported by restaurants in the Royalty Pool in 2011 increased 2.7% to $467.9 million compared to $455.8 million in 2010. For the fourth quarter, Royalty Pool sales increased 1.1% to $123.6 million compared to $122.3 million for the same quarter in 2010. The increase in sales is a result of the increase in SSSG plus the increase in the number of restaurants in the 2011 Royalty Pool to 695 compared to 671 in 2010.

DEEMED DIVIDENDS

In conjunction with the new federal tax legislation which became effective January 1, 2011, the Fund declared deemed dividends for the year of $15.3 million or $0.7008 per unit which equates to a 90% payout ratio. For the fourth quarter, the Fund declared dividends of $3.8 million or $0.1752 per unit equating to an 84% payout ratio.

Pizza Pizza Royalty Limited Partnership increased its working capital balance by $1.5 million during the year, bringing the working capital reserve balance to $2.8 million at December 31, 2011.

The audited, consolidated financial statements of the Fund, together with the related Management's Discussion and Analysis, will be made available on or before March 29, 2012.

FINANCIAL HIGHLIGHTS

3 months ended 12 months ended
December 31,
2011
(unaudited)
December 31,
2010
(unaudited)
December 31,
2011
(unaudited)
December 31,
2010
(unaudited)
(in thousands of dollars, except number of restaurants and per unit amounts)
Restaurants in Royalty Pool 695 671 695 671
Same store sales growth 1.4 % 1.3 % 2.6 % 0 %
System sales reported by Pizza Pizza restaurants in the Royalty Pool $ 103,045 $ 101,920 $ 391,117 $ 379,623
System sales reported by Pizza 73 restaurants in the Royalty Pool 20,544 20,410 76,763 76,225
$ 123,589 $ 122,330 $ 467,880 $ 455,848
Royalty - 6% on Pizza Pizza system sales $ 6,183 $ 6,116 $ 23,467 $ 22,777
Royalty - 9% on Pizza 73 system sales 1,848 1,837 6,908 6,860
Total Royalty on System Sales 8,031 7,953 30,375 29,637
Partnership interest and admin. expenses(1) (694 ) (889 ) (2,916 ) (3,229 )
Earnings available for distribution to the Fund and Pizza Pizza Limited 7,337 7,064 27,459 26,408
Pizza Pizza Limited's interest (2,213 ) (2,306 ) (8,623 ) (9,133 )
5,124 4,758 18,836 17,275
Interest income 450 450 1,800 1,800
Net earnings before income tax expense $ 5,574 $ 5,208 $ 20,636 $ 19,075
Provision for current income taxes (1,028 ) - (3,710 ) -
Net earnings from operations(2) $ 4,546 $ 5,208 $ 16,926 $ 19,075
Basic earnings per Fund unit before income tax expense $ 0.255 $ 0.239 $ 0.945 $ 0.874
Basic earnings per Fund unit $ 0.046 $ 0.239 $ 0.545 $ 0.399
Diluted earnings per Fund unit $ 0.046 $ 0.239 $ 0.545 $ 0.399
Distributions declared $ 3,822 $ 5,073 $ 15,290 $ 20,291
Distributions per Fund unit $ 0.1752 $ 0.2325 $ 0.7008 $ 0.930
Payout ratio(3) 84 % 97 % 90 % 106 %
1. Partnership, incurs administrative expenses and interest expense on the $47,000 outstanding bank loan. Additionally in July 2011, the Partnership incurred a non-cash expense of $1,198 associated with the termination of its interest rate swaps, which is excluded from Partnership expenses. Cash paid interest expense on the bank loan, including the $109 of cash paid to draw down the termination cost for the year ended December 31, 2011 was $2,253.
2. References to net earnings from operations are to earnings determined in accordance with GAAP applicable to the financial statements before amounts for future taxes (2011 - $2,878 and 2010 - $435), termination costs on derivative financial instrument (2011 - $1,198 and 2010 - nil), and change in fair-value of exchangeable units (2011 - $1,063 and 2010 -$9,927), as included in net earnings.
3. Payout Ratio is calculated by distributions declared / net earnings from operations. This non-GAAP financial measure provides investors with useful information regarding the extent to which the Fund distributes cash to unitholders. Investors are cautioned that this should not be construed as an alternative net income measure of profitability.

Forward Looking Statements

Certain statements in this report may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. When used in this report, such statements include such words as "may", "will", "expect", "believe", "plan", and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this report. These forward-looking statements involve a number of risks and uncertainties. The following are some factors that could cause actual results to differ materially from those expressed in or underlying such forward-looking statements: competition; changes in demographic trends; changing consumer preferences and discretionary spending patterns; changes in national and local business and economic conditions; legislation and governmental regulation; accounting policies and practices; changes in the Fund's distribution policy, tax position and availability and use of deductions and related structuring decisions; and the results of operations and financial condition of the Fund. The foregoing list of factors is not exhaustive and should be considered in conjunction with the other risks and uncertainties described in the Fund's Annual Information Form. The Fund assumes no obligation to update these forward looking statements, except as required by applicable securities laws.

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