Prime Restaurants Royalty Income Fund
TSX : EAT.UN

Prime Restaurants Royalty Income Fund

May 07, 2007 16:30 ET

Prime Restaurants Royalty Income Fund Announces First Quarter 2007 Results

MISSISSAUGA, ONTARIO--(CCNMatthews - May 7, 2007) - Prime Restaurants Royalty Income Fund ("the Fund") (TSX:EAT.UN) today reported results for the three months ended March 31, 2007.

Gross revenue reported by the royalty pooled restaurants in the first quarter was $80.2 million compared to $82.3 million for the same period last year. There were 156 royalty pooled restaurants in both periods. For the three months ended March 31, 2007, royalty income from royalty pooled restaurants was $1.7 million compared to $1.8 million in last year's first quarter.

Distributable cash available to Unitholders was $1.7 million or $0.28 per unit for the period ended March 31, 2007. The Fund declared cash distributions of $1.7 million or $0.28 per unit in the first quarter of 2007.

Same store sales growth ("SSSG") for the quarter ended March 31, 2007 for the royalty pooled restaurants decreased 2.38%. However, management is encouraged by the improvement seen in SSSG as the quarter progressed. While the first two months of the quarter were not as strong and resulted in negative SSSG, the month of March was a much stronger resulting in positive SSSG of 0.6%. The month of April 2007 also demonstrated positive growth of approximately 1.3%. Strong growth was generated in Prime's pubs and Casey's brands, resulting in a 0.9% SSSG at Casey's in the first quarter of 2007 and strong 9.2% SSSG in the pubs business. East Side Mario's posted a negative SSSG of 4.7% in the first quarter; however sales trended up through each month of the quarter and through April 2007. The effect of a non-smoking ban that went into effect in late 2006 in Quebec continued to negatively impact results in the Province as SSSG was a negative 5.2% in the quarter. Ontario posted a negative SSSG of 2.0% for the period ended March 31, 2007, primarily attributable to reduced tourism to the Province resulting from the high Canadian dollar and new US border rules.

"Following a slow start to the new year, we were very encouraged by the positive same store growth produced in March and April," commented John Rothschild, Chairman and CEO of Prime Restaurants of Canada Inc. ("PRC") "This improved performance is due to the numerous initiatives that were implemented late in the quarter, including new menus introduced at East Side Mario's and Casey's and the beginning of the roll out of our exciting new look for the East Side Mario's brand."

"Looking ahead, we are confident our growth will accelerate as we execute our value enhancing strategies. Our first new East Side Mario's concept was unveiled in late April, with an aggressive roll-out scheduled over the next few quarters. As renovations occur, we are seeing strong growth at these new-look locations. In addition, new and highly targeted advertising campaigns are scheduled for the busy spring and summer seasons, programs that should also result in increased traffic at all our quality brands."

Operational Review

For restaurants available to enter the royalty pool on January 1, 2008, one Casey's location was opened in Ontario in the first quarter, while no restaurants were closed during the period.

Franchisees performed major renovations at four locations through the first quarter of 2007. Two of the renovated locations were Casey's while the other two were East Side Mario's. Following the renovations, SSSG at these locations had a cumulative increase of 5.2% from their performance before the renovations were made.

Changes in Accounting Policies

On January 1, 2007, the Fund adopted CICA Handbook Section 1530, Comprehensive Income; Section 3251, Equity; Section 3855, Financial Instruments - Recognition and Measurement; Section 3861, Financial Instruments - Disclosure and Presentation and Section 3865, Hedges. The prospective adoption of these new standards resulted in the recognition of certain transition adjustments that have been recorded in opening unitholders' equity as described below. As required by the implementation of these new standards, the comparative interim financial statements have not been restated.

Section 3855 requires transaction costs related to financial assets that are designated as Loans and Receivables and recorded at amortized cost be netted against the asset and amortized over the expected life of the instrument using the effective interest method. The prospective adoption of these new standards has resulted in the recognition of certain transitional adjustments that have been recorded in the financial statements. Accordingly, the opening unitholders' equity was decreased by $813,802 as a result of applying the effective interest rate method of amortization for deferred financing fees which were previously being amortized on a straight-line basis over the term of the debt. In addition, Investment in PRC Trademarks Inc. was reduced by $6,519,189 and deferred revenue was reduced by $5,714,000.



FINANCIAL HIGHLIGHTS:

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($000's, except per unit data) Three months ended Three months ended
March 31, 2007 March 31, 2006
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Interest income - TradeMarkCo Note 1,695 1,695
Net earnings 1,708 1,793
Total assets 55,165 61,684
Distributions to Unitholders 1,723 1,723
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Trust units - outstanding 6,110,000 6,110,000
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Trust units - diluted 9,298,571 9,266,867
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Basic earnings per Trust Unit $0.28 $0.29
Diluted earnings per Trust Unit $0.28 $0.29
Distributions paid per Trust Unit $0.28 $0.28
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Outlook

Management continues to execute its successful strategies to drive growth.

The re-branding of the Casey's division has resulted in solid improvements in SSSG. For 2007, management plans to renovate seven Casey's locations to maintain the positive trend being experienced with the rejuvenated concept. Two new restaurants are planned for opening in 2007, with a target of opening an additional twenty-four new locations over the next five years, primarily focused in eastern Canada.

In the pubs business a new and expanded menu was introduced and is proving popular. In addition, promotions such as Keith's® Wednesdays and Guinness® Fridays are generating solid growth, while the repositioning of certain locations to expand beyond the successful Irish theme will continue.

At East Side Mario's, management has launched a new re-freshed and high energy concept that will take the brand back to its roots to provide an authentic "taste of Little Italy". With a twenty-year heritage of providing fun and value to Canadian families, East Side Mario's has a well-established identity with an 88% brand loyalty factor as measured by an independent survey. The new prototype was unveiled at a Mississauga corporate-owned restaurant in late April to include an authentic new decor, as well as a new uniform program and various innovative new guest touch points. A new and re-positioned menu was also introduced in April focusing on East Side Mario's signature pasta dishes and authentic Italian pizzas, items that continue to be guest favorites. Six new restaurants utilizing the rejuvenated prototype concept are planned for opening in 2007 while eight locations will be renovated. Management's target over the next five years is to open a total of forty-five new East Side Mario's locations with a focus on building the brand's presence in Western Canada and Quebec.

"With 108 locations currently across Canada, East Side Mario's is our largest concept within the Prime family of casual dining and pub brands. With the roll-out of our new prototype, we expect to duplicate the significant growth and success we achieved with the re-design of our Casey's locations," Mr. Rothschild concluded.

The Fund's financial statements and Management's Discussion and Analysis for the three months ended March 31, 2007 and 2006 and annual Information Form for the year ended December 31, 2006 are available at www.primeincomefund.ca and www.sedar.com.

PRC's Consolidated Financial Statements and MD&A

PRC's consolidated financial statements, notes and MD&A can be accessed at www.sedar.com under the "other" document type for the Fund.

Quarterly Conference Call

Prime Restaurants Royalty Income Fund will host a conference call on Tuesday, May 8, 2007 at 10.00 a.m. ET to discuss the results of the Fund and operations and performance of PRC. Interested participants may dial (416) 849-2698 or toll-free at (866) 400-2270 to access the call. A recording will be made available until midnight, May 14, 2007. To access the rebroadcast, please dial (416) 915-1035 or toll-free (866) 245-6755, pass code 287955#.

Prime Restaurants Royalty Income Fund (the Fund) is a limited purpose trust with an unlimited number of Trust Units (Units) established to invest in PRC Trademarks Inc. (TradeMarkCo). The source of revenue for the Fund is through its ownership in TradeMarkCo. The Fund receives interest income on the TradeMarkCo Note from TradeMarkCo based on 11.25% per annum which it distributes to its Unitholders. TradeMarkCo owns the Prime Restaurants of Canada Inc. (PRC) trademarks and licenses their use to PRC which operates the restaurant and bar business. In return, TradeMarkCo receives royalty income based on 3.25% of gross revenue from the royalty pooled restaurants operated by PRC.

Certain information included in this news release is forward looking and based on current expectations and entails various risks and uncertainties. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives for 2007 and beyond, our strategies or future actions, and our targets or expectations for our financial performance and condition (including estimated revenue from royalty pooled restaurants and the prospective number of new restaurants and pubs). Although management of the Fund and PRC believe that the expectations represented in such forward looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.

By their nature, forward-looking statements require us to make assumptions (such as, on the demand for the goods and services provided under the Prime Marks) and are subject to inherent risks and uncertainties, including those discussed in the current annual information form of the Fund and annual and quarter MD&A of the Fund and PRC, which are available at www.sedar.com. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. We caution readers not to place undue reliance on our forward-looking statements because a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements are made as of the date hereof. Except as required by applicable securities laws, the Fund does not undertake to update any forward-looking statement, whether written or oral, that it may make or that may be made, from time to time, on its behalf.

Distributable Cash is a useful supplemental measure of operating performance that provides investors with an indication of cash available for distribution. Distributable Cash is a non-GAAP measure and therefore may not be comparable to similar measures presented by other issuers. Distributable cash is calculated as operating cash flows for the Fund (net earnings adjusted for non-cash items such as deferred revenue).



Prime Restaurants Royalty Income Fund
Balance Sheets
As at March 31, 2007 and December 31, 2006
(Unaudited)

2007 2006
$ $
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Assets

Current asset
Interest receivable 583,788 583,788

Investment in PRC Trademarks Inc. 54,580,811 61,100,000

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Total assets 55,164,599 61,683,788
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Liabilities and Unitholders' Equity
Current liabilities
Distributions payable 574,340 574,340
Due to PRC Trademarks Inc. 23,539 -
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597,879 574,340

Deferred financing fees - 5,714,000

Unitholders' equity 54,566,720 55,395,448

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Total liabilities and unitholders' equity 55,164,599 61,683,788
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Prime Restaurants Royalty Income Fund
Statements Of Earnings
For the three months ended March 31, 2007 and 2006
(Unaudited)

2007 2006
$ $
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Revenue
Interest income 1,694,870 1,694,870
Dividend income 32,031 63,615
Amortization of deferred revenue 8,613 52,000
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1,735,514 1,810,485
Operating expense
Administrative expenses 27,420 17,103
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Net earnings for the year 1,708,094 1,793,382
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Basic earnings per Trust Unit (note 6) $0.28 $0.29
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Diluted earnings per Trust Unit (note 6) $0.28 $0.29
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