Prime Restaurants Royalty Income Fund
TSX : EAT.UN

Prime Restaurants Royalty Income Fund

August 08, 2006 16:45 ET

Prime Restaurants Royalty Income Fund Announces Second Quarter 2006 Results

MISSISSAUGA, ONTARIO--(CCNMatthews - Aug. 8, 2006) - Prime Restaurants Royalty Income Fund ("the Fund") (TSX:EAT.UN) today reported results for the three and six months ended June 30, 2006.

Highlights:

- Same store sales growth up 3.4% through first six months of 2006

- Third consecutive quarter of positive SSSG

- Solid results for all three brands in all geographic regions

- Positive momentum to continue

Same Store Sales Growth Continues

Same store sales growth ("SSSG") for the royalty pooled restaurants increased by 0.6% in the second quarter of 2006 compared to negative 0.2% last year. For the first six months of 2006, SSSG increased 3.4% compared to negative 1.7% in the same period last year. Strong growth was generated by Casey's, with SSSG of 4.8% and the pubs business at 3.7%. East Side Mario's generated negative SSSG of 0.7% in the quarter. On a geographic basis, Atlantic Canada, Ontario and Western Canada posted positive SSSG of 1.8%, 0.7%, and 0.7% respectively. Quebec posted negative SSSG of 0.4% in the second quarter. Ontario represented approximately 73% of total sales in the royalty pool for both the three and six months ended June 30, 2006.

"We were pleased to have generated a third consecutive quarter of positive same store sales growth," commented John Rothschild, Chairman and CEO of Prime Restaurants of Canada Inc. "While a number of our locations were impacted by reduced tourism resulting from the strong Canadian dollar, we are confident the numerous initiatives we are putting in place to drive increased sales will generate sustainable growth through the balance of the year and going forward."

Distributable cash available to Unitholders was $3.5 million or $0.56 per unit for the six months ended June 30, 2006 compared to $3.4 million or $0.56 per unit last year. The Fund declared cash distributions of $3.4 million or $0.56 per unit in both the six months ended June 30, 2006 and 2005.

Gross revenue reported by the royalty pooled restaurants in the second quarter of $80.5 million compared to $81.7 million for the same period last year. For the first six months of 2006 gross revenue for the royalty pooled restaurants was $162.8 million compared to $158.0 million last year. There were 156 royalty pooled restaurants for both the second quarter and first six months of 2006 and 2005. For the three and six months ended July 2, 2006, royalty income from royalty pooled restaurants was $2.7 million and $5.4 million respectively compared to $2.8 million and $5.3 million respectively in the same periods last year.

Operational Review

There were no restaurants opened or closed during the second quarter of 2006. For the first six months of the year, one new East Side Mario's restaurant was opened in Ontario while three Casey's locations in Ontario were closed. In addition, six corporate-owned locations were sold to franchisees during the first six months of 2006, and one under-performing corporate-owned location was closed. Franchisees performed major renovations at eight locations through the first six months of 2006. Five of the renovated restaurants are in Ontario, two are in Quebec and one in Alberta. Five of the locations were East Side Mario's restaurants and three were Casey's restaurants. Following the renovations, SSSG at these locations increased by an average of 2.8% from their performance before the renovations were made. The two renovated locations in Quebec posted an increase in sales of 23.6% after the renovation. Management plans to renovate an additional three East Side Mario's restaurants and an additional four Casey's restaurants through the balance of 2006.

In February 2006 the Fund's operating company, Prime Restaurants of Canada Inc., was pleased to be named one of Canada's Fifty Best Managed Companies. Canada's 50 Best Managed Companies is sponsored by Deloitte, CIBC Commercial Banking, National Post and Queen's School of Business.



FINANCIAL HIGHLIGHTS:
-----------------------------------------------------------------------
($000's, except per unit data) Three Three Six Six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Interest income - TradeMarkCo Note 1,714 1,714 3,409 3,409
Net earnings 1,812 1,776 3,606 3,523
Total assets 61,665 61,684 61,665 61,684
Deferred Liability 5,818 6,026 5,818 6,026
Distributions to Unitholders 1,723 1,723 3,446 3,446
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Basic earnings per unit
(6,110,000 units) $0.30 $0.29 $0.59 $0.58
Basic and diluted earnings per unit
(9,255,501 units) $0.29 $0.29 $0.58 $0.57
Distributions paid per unit
(6,110,000 units) $0.28 $0.28 $0.56 $0.56
-----------------------------------------------------------------------


Outlook

Management continues to execute the successful strategies implemented in late 2005 to drive growth.

The East Side Mario's division will leverage its readily identifiable brand and solid reputation for value to grow its business across the country. Management will build on the success of the home delivery and take-out offering in Ontario to expand the program into Western Canada. A 25% increase in media spending will drive new and return guest visits. Major renovations at three locations planned for the balance of 2006 will drive new and repeat guest visits. A new summer menu was launched in early July 2006, supported by a new television advertising campaign, featuring new and enhanced items focused on the family. In addition, new pasta and desert menus and promotions were introduced in July for the summer months.

The Casey's division will continue to update locations with its new and exciting branding and format. Major renovations are planned for four restaurants in the second half of 2006 to drive new and repeat guest visits. New menus have been introduced focusing on the classic meals for which Casey's restaurants have become famous, while introducing innovative international offerings. In addition, a new summer menu was launched in late May, and the successful "Fajita Tuesday" program will be continued throughout 2006.

The pubs business will benefit from new operational, purchasing and training programs aimed at enhancing the guest experience. In addition, new summer menus were launched in May, as well as promotions featuring mussels and wheat beer to capitalize on strong summer demand for these features. A new menu is expected to be launched in the fall of 2006.

Management expects four new restaurants will be opened during the balance of 2006, all of the openings will be in the fourth quarter of the year.

"Our prime focus this year is to leverage the successful programs launched during 2005 to grow sales steadily and consistently going forward. Our goal is to generate annual same store sales growth of 3%, and we are confident we will achieve this goal in 2006 and over the long term," Mr. Rothschild concluded.

The Fund's financial statements and Management's Discussion and Analysis for the three and six months ended June 30, 2006 and 2005 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 Wednesday, August 9, 2006 at 10.00 a.m. ET to discuss the results of the Fund and operations and performance of PRC. Interested participants may dial (416) 849-2719 or toll-free at (866) 500-7709 to access the call. A recording will be made available until midnight, August 15, 2006. To access the rebroadcast, please dial (800) 395-0363, pass code 2746630#.

Certain information included in this news release is forward looking and based on current expectations and entails various risks and uncertainties. These risks and uncertainties could cause or contribute to actual results that are materially different from those expressed or implied. The forward-looking information contained in this document is current only as of the date of the document. There should not be an expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.

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.

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 the cash flows from operating activities for the Fund (net earnings adjusted for non-cash items such as deferred revenue).



Prime Restaurants Royalty Income Fund
Balance Sheets
As at June 30, 2006 and December 31, 2005
(Unaudited)

2006 2005
$ $
-----------------------------------------------------------------------
(as restated
note 2)
Assets

Current Asset
Interest receivable 564,956 583,788

Investment in PRC Trademarks Inc. (note 5) 61,100,000 61,100,000
-----------------------------------------------------------------------
Total Assets 61,664,956 61,683,788
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Liabilities and Unitholders' Equity

Current Liabilities
Distributions payable 574,340 574,340
Due to PRC Trademarks Inc. 93,321 167,810
-----------------------------------------------------------------------
667,661 742,150

Deferred revenue 5,818,000 5,922,000

Unitholders' Equity 55,179,295 55,019,638
-----------------------------------------------------------------------
Total Liabilities and Unitholders' Equity 61,664,956 61,683,788
-----------------------------------------------------------------------
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Prime Restaurants Royalty Income Fund
Statements Of Earnings
(Unaudited)

Three Months Three Months Six Months Six Months
ended June ended June ended June ended June
30, 2006 30, 2005 30, 2006 30, 2005
$ $ $ $
------------------------------------------------------------------------
Interest income 1,713,701 1,713,701 3,408,571 3,408,571
Dividend income 63,718 27,492 127,334 45,742
Amortization of
deferred revenue 52,000 52,000 104,000 104,000
------------------------------------------------------------------------
1,829,420 1,793,193 3,639,905 3,558,313

Operating expense
Administrative expenses 17,104 17,235 34,208 35,720
------------------------------------------------------------------------
Net earnings for the
period 1,812,316 1,775,958 3,605,697 3,522,593
------------------------------------------------------------------------
Basic earnings per
Trust Unit (note 6) $0.30 $0.29 $0.59 $0.58
------------------------------------------------------------------------
------------------------------------------------------------------------
Diluted earnings per
Trust Unit (note 6) $0.29 $0.29 $0.58 $0.57
------------------------------------------------------------------------
------------------------------------------------------------------------


Statement of Unitholders' Equity


Three Months Three Months Six Months Six Months
ended June 30, ended June 30, ended June 30, ended June 30,
2006 2005 2006 2005
------------------------------------------------------------------------
$ $ $ $
------------------------------------------------------------------------

Balance -
Beginning
of year 55,089,999 55,646,321 55,019,638 54,622,706
Net earnings 1,812,316 1,775,958 3,605,697 3,522,593
Distributions (1,723,020) (1,723,020) (3,446,040) (3,446,040)
------------------------------------------------------------------------
Balance --
End of period 55,179,295 55,699,259 55,179,295 55,699,259
------------------------------------------------------------------------
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