Prime Restaurants Royalty Income Fund
TSX : EAT.UN

Prime Restaurants Royalty Income Fund

November 08, 2006 16:30 ET

Prime Restaurants Royalty Income Fund Announces Third Quarter 2006 Results

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

Highlights:



- Year-to-date same store sales for royalty pooled restaurants up 1.9%
- Solid growth for all three brands
- Strong growth in Atlantic and Western Canada
- Downturn in Ontario casual dining sector impacts growth


Solid Same Store Sales Growth in 2006

Through the first nine months of 2006 same store sales growth ("SSSG") for the royalty pooled restaurants rose 1.9% compared to negative 2.0% in the same period last year. Strong growth was generated by Casey's, with SSSG of 5.0%, the pubs business at 5.5% and positive 0.8% growth for East Side Mario's. On a geographic basis, Atlantic Canada, Western Canada and Ontario posted positive SSSG of 5.4%, 3.0% and 1.9% respectively while Quebec had flat SSSG for the nine months ended September 30, 2006.

According to the Canadian Restaurant and Food Service Association (CRFA), the casual dining sectors in Ontario and Quebec were significantly impacted by the reduction in tourism during the summer months of 2006. The high Canadian dollar resulted in record declines in visitors to Canada, while more Canadians travelled abroad. In addition, the CFRA points out economic factors such as rising interest rates, high fuel costs, and other inflationary forces are resulting in fewer consumers having meals outside their home. As a result of these and other factors, SSSG for the royalty pooled restaurants declined 0.6% in the third quarter of 2006 with Ontario and Quebec down 1.5% and 0.6% respectively. Ontario and Quebec represented approximately 84% of total sales in the royalty pool during the period. Atlantic Canada and the West posted strong SSSG of 4.3% and 3.9% respectively in the quarter. Casey's and the pubs posted SSSG of 1.2% and 2.7% respectively in the quarter while East Side Mario's was negative 1.3% due primarily to its concentration in Ontario.

"While we experienced an industry-wide slowdown in Ontario's casual dining sector in the third quarter, we are confident we are continuing to out-perform the overall industry in these markets," commented John Rothschild, Chairman and CEO of Prime Restaurants of Canada Inc. "For example, according to the CFRA nominal sales for full service restaurants in Ontario through the eight months ended August 31, 2006 were down 0.6%. This compares with positive 2.1% for our Ontario restaurants in the same period. Similarly, according to the CFRA, through the eight months ended August 31 2006 nominal sales for bars and nightclubs were down 5.9% in Ontario. In comparison, our Ontario pub business generated an impressive nominal growth of 5.4% during the same timeframe."

Gross revenue reported by the royalty pooled restaurants in the third quarter was $84.3 million compared to $83.1 million for the same period last year. For the first nine months of 2006 gross revenue for the royalty pooled restaurants was up 2.5% to $247.0 million compared to $241.0 million last year. There were 156 royalty pooled restaurants in both years. For the three and nine months ended October 1, 2006, royalty income from royalty pooled restaurants was $2.8 million and $8.2 million respectively compared to $2.8 million and $8.1 million respectively in the same periods last year.

Distributable cash available to Unitholders was $5.3 million or $0.87 per unit for the nine months ended September 30, 2006 compared to $5.2 million or $0.85 per Unit last year. The Fund declared cash distributions of $5.2 million or $0.85 per unit in both the nine months ended September 30, 2006 and 2005.

Operational Review

For the first nine months of the year, one new East Side Mario's restaurant was opened in Ontario while two Casey's locations in Ontario were closed and another two restaurants were de-identified. The two de-identified restaurants were not part of the Royalty Pooled Restaurants. One of the closed locations was a corporate-owned restaurant.

Franchisees performed major renovations at nine locations through the first nine months of 2006. Six 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 four were Casey's restaurants. Following the renovations, SSSG at these locations increased by an average of 3.1% from their performance before the renovations were made. Management plans to renovate two East Side Mario's restaurants and one Casey's restaurant through the balance of 2006.

Prime Restaurants of Canada also announced today that Mr. Rick Villalpando had been appointed Vice President, Development for Western Canada. Mr. Villalpando brings a wealth of experience to Prime following an extensive career with two other leading casual dining companies. He has been tasked with growing Prime's business in Western Canada. This region currently represents approximately 12% of PRC's sales.

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 Nine Nine
months months months months
ended ended ended ended
September September September September
30, 2006 30, 2005 30, 2006 30, 2005
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Interest income
- TradeMarkCo Note 1,733 1,770 5,141 5,179
Net earnings 1,831 1,816 5,437 5,381
Total assets 61,665 61,684 61,665 61,684
Deferred Liability 5,766 5,974 5,766 5,974
Distributions to Unitholders 1,723 1,723 5,169 5,169
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Basic earnings per Trust Unit
(6,110,000 units) $0.30 $0.30 $0.89 $0.87
Basic and diluted earnings per
Trust Unit (9,255,501 units) $0.29 $0.29 $0.87 $0.86
Distributions paid per unit
(6,110,000 units) $0.28 $0.28 $0.85 $0.85
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Outlook

Management continues to execute its successful strategies to drive continued 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. Major renovations at three locations are planned for the balance of 2006. A new fall menu was launched in September 2006, supported by a new radio advertising campaign. East Side Mario's popular gift card program will also be re-introduced in November. In addition, a new and exciting look for the East Side Mario's brand is currently being developed with a new prototype planned to be introduced in the second quarter of 2007. Management expects to roll the new prototype out into ten locations in 2007.

The re-branding of the Casey's division is essentially complete and has resulted in solid improvements in SSSG. Major renovations are planned for one additional location in the fourth quarter of 2006. A new prototype location is expected to be opened prior to year-end with the new concept being rolled out to six locations in 2007. A new fall menu was introduced in September, with Casey's successful gift card promotion being launched in mid-November.

In the pubs business a new and expanded menu was introduced in the third quarter and is proving very popular. In addition, numerous promotions such as Keith's Wednesdays and Guinness Fridays are showing continued success.

"While we now believe we will not reach our 3% same store sales growth target in 2006, we should achieve positive growth of approximately 2% for the year, a solid improvement over the negative 0.8% last year," Mr. Rothschild concluded.

The Fund's financial statements and Management's Discussion and Analysis for the three and nine months ended September 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 Thursday, November 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, November 16, 2006. To access the rebroadcast, please dial (416) 915-1035 or toll-free (866) 245-6755, pass code 662166#.

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 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 September 30, 2006 and December 31, 2005
(Unaudited)

2006 2005
$ $
---------------------------------------------------------------------------
Current Asset
Interest receivable 564,956 583,788

Investment in PRC Trademarks Inc. 61,100,000 61,100,000
---------------------------------------------------------------------------
Total Assets 61,664,956 61,683,788
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Liabilities and Unitholders' Equity
Current Liabilities
Distributions payable 574,340 574,340
Due to PRC Trademarks Inc. 37,244 167,810
---------------------------------------------------------------------------
611,584 742,150
Deferred revenue 5,766,001 5,922,000
Unitholders' Equity 55,287,371 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 Nine Months Nine Months
ended ended ended ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
$ $ $ $
---------------------------------------------------------------------------
Interest income 1,732,533 1,770,197 5,141,104 5,178,768
Dividend income 63,548 - 190,882 45,742
Amortization of
deferred revenue 52,000 52,000 156,000 156,000
---------------------------------------------------------------------------
1,848,081 1,822,197 5,487,986 5,380,510

Operating expense
Administrative
expenses 16,985 5,985 51,193 41,705
---------------------------------------------------------------------------
Net earnings for
the period 1,831,096 1,816,212 5,436,793 5,338,805
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Basic earnings per
Trust Unit (note 6) $0.30 $0.30 $0.89 $0.87
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Diluted earnings
per Trust Unit (note 6) $0.29 $0.29 $0.87 $0.86
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