Pizza Pizza Royalty Income Fund

Pizza Pizza Royalty Income Fund

January 17, 2011 17:42 ET

Pizza Pizza Royalty Income Fund Announces January Distribution

TORONTO, ONTARIO--(Marketwire - Jan. 17, 2011) -

Attention Business Editors:

Pizza Pizza Royalty Income Fund (the "Fund") today reconfirmed an earlier announcement with regards to its 2011 distribution policy.

Based on current considerations, the Fund's trustees have set the January 2011 distribution at $0.0584 per unit or $0.70 annually. The distribution will be payable to unitholders of record at the close of business on January 31, 2011, and will be paid on February 15, 2011.

At this level, the eligible dividend portion of the Fund's distribution combined with the return of capital component of the distribution will provide taxable Canadian individuals with an effective after-tax yield comparable to 2010 levels.

As shown in the table below, the impact of the Fund's new distribution policy results in an increase to after-tax cash retained by an Ontario taxable individual when compared to the annual distribution of $0.93 per unit in 2010.

      2010   2011  
  Annual Distribution Before Tax   $ 0.93   $ 0.70  
  Distribution breakdown per unit :      
  Taxable distribution1   0.838   0.423  
  Return of capital1   0.092   0.277  
      0.93   0.70  
  Personal taxes per unit2   (0.389)   (0.119)  
  After-tax cash retained by unit holder   $ 0.541   $ 0.581  
1. The Fund expects 2010 distributions will comprise of taxable distributions and returns of capital as to approximately 90% and 10%, respectively. For 2011, the distributions are expected to comprise of taxable distributions and returns of capital as to approximately 60% and 40%, respectively. The return of capital portion, which will reduce a holder's cost base for tax purposes, will decline in future years.
2. Assumes a combined effective federal and Ontario top marginal tax rate on ordinary income of 46.41% for 2010 and on eligible dividends of 28.19% for 2011. The tax consequences of the SIFT tax legislation to a Unitholder that is tax-exempt, holds units in a tax-deferred plan or is a non-resident of Canada would differ from the presentation set forth above.

The Fund's trustees note that the payment of distributions is subject to the requirements of the Fund's declaration of trust and any contractual restrictions under applicable credit facilities, and that the level of distributions are subject to change from time to time based on, among other things, changes in the Pizza Pizza Royalty Income Partnership's royalty income and other available cash. See "Forward Looking Statements".

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 Company. 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.

About the Fund, a publicly-traded entity

The Fund is a limited purpose, open-ended trust established under the laws of Ontario. The Fund, indirectly through the Partnership, has acquired the trademarks and trade names used by the Company in its Pizza Pizza and Pizza 73 restaurants. The Pizza Pizza trademarks were licensed to the Company in 2005 for 99 years, for which the Company pays the Fund a royalty equal to 6% of the system sales of its Pizza Pizza restaurants in the Royalty Pool. There are 590 Pizza Pizza restaurants in the Royalty Pool for 2010. On July 24, 2007, the Partnership acquired the trademarks and other intellectual property of Pizza 73 (the "Pizza 73 Rights") and licensed them to the Company for 99 years, for which the Company pays the Fund a royalty equal to 9% of the 81 Pizza 73 restaurants in the Royalty Pool for 2010. As a result of the January 1, 2010 adjustment date, the 2010 Royalty Pool contains 671 restaurants.

A key attribute of the Fund is that revenues are based on top-line, system sales of the Royalty Pool restaurants and not on the profitability of either the Company or the restaurants in the Royalty Pool. Moreover, the Fund is not subject to the variability of earnings or expenses of the operating companies. The Fund's only expenses are administration expenses and the interest on debt. Thus, the success of the Fund depends primarily on the ability of the Company to maintain and increase system sales of the Royalty Pool restaurants and to meet its royalty obligations.

The Fund's trust units are listed on the Toronto Stock Exchange under the symbol PZA.UN.

About Pizza Pizza Limited, a privately-owned, operating company

The Company, a privately-held Canadian corporation, is one of Canada's most successful operators in the quick service restaurant industry. It operates franchised, owner/operator and corporate restaurants under the brand names Pizza Pizza and Pizza 73. The Pizza Pizza brand is celebrating its 44th anniversary in 2011 and dominates the Ontario pizza quick service industry and is expanding nationally. The Pizza 73 brand is celebrating its 26th anniversary in 2011 and operates largely in Alberta. The Company is guided by a mission to provide the "best food, made especially for you" and a focus on quality ingredients, customer service, community contribution and continual innovation, especially in offering health-conscious menu choices.

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