Prime Restaurants Royalty Income Fund
TSX : EAT.UN

Prime Restaurants Royalty Income Fund

August 10, 2009 16:30 ET

Prime Restaurants Royalty Income Fund Announces Second Quarter 2009 Results

MISSISSAUGA, ONTARIO--(Marketwire - Aug. 10, 2009) - Prime Restaurants Royalty Income Fund ("the Fund") (TSX:EAT.UN) today reported results for the three and six months ended June 30, 2009.

Gross revenue reported by the royalty pooled restaurants in the second quarter of 2009 was $82.9 million compared to $86.8 million for the same period last year. For the six months ended June 30, 2009, gross revenues were $162.6 million compared to $169.1 million for the first half of 2008. There are 161 royalty pooled restaurants in 2009 compared to 155 royalty pooled restaurants in 2008. For the three and six months ended June 30, 2009, royalty income from royalty pooled restaurants was $2.7 million and $5.3 million respectively, compared to $2.8 million and $5.5 million for the same periods last year.

Distributable cash available to Unitholders was $1.8 million or $0.28 per unit and $3.7 million or $0.56 per unit for the three and six months ended June 30, 2009. The Fund declared cash distributions of $1.8 million or $0.28 per unit in the quarter and $3.7 million or $0.56 per unit for the first six months of 2009 compared to $1.7 million or $0.28 per unit and $3.4 million or $0.56 per unit for the same periods last year.

Overall sales were affected by intense competition and the negative impact of the current economic recession on consumer's discretionary spending and the casual dining sector, partially offset by the increased number of restaurants in the Royalty Pool in the current year. As a result, same store sales for the three and six months ended June 30, 2009 were negative 8.2% and 6.7% for the royalty pooled restaurants, respectively. By brand, Casey's, East Side Mario's, and the Prime pubs posted same store sales declines of 7.5%, 9.2% and 3.7% respectively in the quarter. For the first six months of 2009, SSSG at Casey's, East Side Mario's, and the Prime Pubs were down 6.5%, 7.2%, and 3.5%, respectively. On a regional basis, Western Canada, Ontario, Quebec, and Atlantic Canada posted same store sales declines of 12.6%, 7.7%, 10.3% and 2.2%, respectively in the second quarter of 2009. For the first half of 2009, Atlantic Canada posted positive SSSG of 0.1%, while Western Canada, Ontario, and Quebec posted negative SSSG of 10.2%, 6.2% and 9.7%, respectively.

"While the Canadian casual dining industry is facing it's most challenging climate since 1991, we believe our multi-brand approach provides a compelling value proposition for budget-conscious families," commented John Rothschild, Chairman and CEO of Prime Restaurants of Canada Inc, "We have successfully weathered recessions in the past, and the strength of our management team and network of dedicated franchisees are committed to improving Prime's results."

Operational Review

One new restaurant was opened in the second quarter of 2009, a pub located on Front Street in downtown Toronto. Three restaurants were closed during the quarter, all three locations were East Side Mario's, located in Ontario and Alberta. Additionally, one East Side Mario's restaurant underwent renovations during the quarter.



FINANCIAL HIGHLIGHTS OF THE FUND:

----------------------------------------------------------------------------
($000's, except Three months Three months Six months Six months
per unit data) ended ended ended ended
June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest and
dividend income $ 1,877 $ 1,724 $ 3,762 $ 3,485
Net earnings 1,845 1,694 3,700 3,426
Total assets 59,166 56,971 59,166 56,971
Distributions
to Unitholders 1,844 1,723 3,688 3,446
----------------------------------------------------------------------------
Trust units
- outstanding 6,538,174 6,110,000 6,538,174 6,110,000
----------------------------------------------------------------------------
Trust units
- diluted 9,749,794 9,321,620 9,749,794 9,321,620
----------------------------------------------------------------------------
Basic earnings
per Trust Unit $ 0.28 $ 0.28 $ 0.57 $ 0.56
Diluted earnings
per Trust Unit $ 0.28 $ 0.28 $ 0.56 $ 0.56
Distributions paid
per Trust Unit $ 0.28 $ 0.28 $ 0.56 $ 0.56
----------------------------------------------------------------------------


SELECTIVE YEAR-TO-DATE TRADEMARKCO FINANCIAL HIGHLIGHTS:

----------------------------------------------------------------------------
($000's except # of Royalty Pooled Restaurants) 2009 2008
----------------------------------------------------------------------------
# of Royalty Pooled Restaurants 161 155
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gross Revenue Royalty Pooled Restaurants $ 162,604 $ 169,122
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Royalty Income 5,285 5,496
Operating Expenses 256 387
Dividends accrued on Class A and Class B shares 1,792 1,802
Interest Expense 3,526 3,427
----------------------------------------------------------------------------


Outlook

The re-branding of the Casey's division over the last three years has resulted in solid performance improvements. A new "Food First" marketing and operating strategy is being introduced in 2009 with a commitment to operational excellence while maintaining Casey's heritage of delivering a value proposition built on quality. During the third quarter, Casey's will be reintroducing the second annual "Feed the Soul" campaign, donating a portion of the proceeds from select menu items to local food banks and supported by public service announcements. Casey's gift card program will also be introduced in the latter half of 2009.

In the pubs business, a new core menu will be introduced during the third quarter of the year, focusing on reducing execution complexity and elevating quality and freshness. The third quarter will also mark the return of the annual "Fall Plat du Jour" menu, as well as numerous promotions surrounding the 250th Anniversary of Guiness®. In addition, numerous promotions such as the popular Keith's® Wednesdays and Guinness® Fridays will continue. A gift card program will also be introduced in the latter half of 2009.

At East Side Mario's, management continues to roll out the new refreshed and high energy design, taking 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 82% brand loyalty factor as measured by an independent survey. A celebration of East Side Mario's new core menu will continue through the remainder of the year, with an emphasis on the new Sicilian-inspired pizza's as well as the popular "Dinner for Two" promotions. In addition, later in the third quarter will see additional promotional support for East Side Mario's lunch, take-out, and delivery services.

Looking ahead, management believes that over the near-term consumer concerns about the economic slowdown in Canada will continue to impact restaurant sales across all sectors of the industry. However, management also believes that its multi-brand approach covering all spectrums of the Canadian casual dining and pubs business will help to mitigate some of this impact as consumers may trend toward the Company's lower-priced offerings from other higher-priced brands. In addition, management believes its ongoing renovation programs, new restaurant openings, new menus and other sales initiatives, combined with its rigorous focus on customer service, will continue to attract new and repeat guests to all of its brands.

The Fund's financial statements and Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2009 are available at www.primeincomefund.ca and www.sedar.com.

PRC's Consolidated Financial Statements and MD&A

Prime Restaurants of Canada Inc. ("PRC") consolidated financial statements, notes and MD&A can be accessed at www.sedar.com under the "financial statements of operating entity" and "other" document types for the Fund.

Quarterly Conference Call

The Fund will host a conference call on Tuesday, August 11, 2009 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 (1-866) 400-2270 to access the call. The conference call will also be broadcast over the Fund's website at www.primeincomefund.ca.

The Fund is a limited purpose trust authorised to issue an unlimited number of Trust Units ("Units") and established to invest in PRC Trademarks Inc. ("TradeMarkCo"). The source of revenue for the Fund is through its ownership in, and debt instrument issued by, TradeMarkCo. The Fund receives interest income on the $63,202,630 TradeMarkCo Note based on 11.25% per annum which it distributes to its Unitholders. TradeMarkCo owns certain trade-marks and licenses their use to PRC which operates and franchises the restaurant and bar business. In return, TradeMarkCo receives royalty income based on 3.25% of gross revenue from the royalty pooled restaurants operated and franchised by PRC.

The public communications of the Fund often include written or oral forward-looking statements. Statements of this type are included in this new release, and may be included in filings with Canadian securities regulators, or in other communications. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives for 2009 and beyond, our and PRC's strategies or planned future actions, our and PRC's targets or expectations for our financial performance and condition, PRC's ability to pay the Royalty and our ability to pay the distributions. All statements, other than statements of historical fact, contained in this new release are forward-looking statements, including, without limitation, statements regarding the future financial position and operations (including estimated revenue from Royalty Pooled Restaurants and the estimated administrative and other operating expenses of the Fund), business strategy, distributions, plans and objectives of or involving the Fund and PRC. Readers can identify many of these statements by looking for words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" and similar words or the negative thereof. 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 and are subject to inherent risks and uncertainties including those discussed in the Fund's MD&A and the Fund's annual information form dated March 11, 2009, (the "AIF") under "Narrative Description of the Business - Risk Factors" 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 of this news release 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.

Assumptions and analysis about the performance of the Fund and PRC and the markets in which they operate are considered in forecasting the Fund's and PRC's expected financial results, PRC's ability to pay the Royalty and the Fund's ability to pay distributions and in making related forward-looking statements. The key assumption in respect of the Fund's level of distributions is that the cumulative distributable cash will be able to support the Fund's current level of distributions. The Fund receives the cash it distributes from TradeMarkCo. TradeMarkCo receives all of the cash it pays to the Fund through a royalty from PRC. Accordingly, the ability of the Fund to pay its distributions depends on PRC's financial performance and ability to pay the royalty. In respect of the ability to maintain and grow the royalty pooled revenue and PRC's financial performance, key assumptions include those relating to the demand for the goods and services under the Prime Marks and in respect of the Canadian markets in which the Royalty Pooled Restaurants operate. Should any of these factors or assumptions vary, actual results may differ materially from the forward-looking statements.

The information set forth in the MD&A and AIF identifies factors that could affect the operating results and performance of the Fund and PRC. We caution that the list of factors discussed in the MD&A and the AIF is not exhaustive, and that, when relying on forward-looking statements to make decisions with respect to the Fund, investors and others should carefully consider the factors discussed, as well as other uncertainties and potential events, and the inherent risks and uncertainties of forward-looking statements.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this news release are made as of the date of this news release. 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).

Contact Information