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Press Release

Boston Pizza Royalties Income Fund Announces 7.5% SSSG and Record Franchise Sales for Q1 2012

Trustees Declare April Distribution to Unitholders of 9.8 Cents per Unit
VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 9, 2012) - Boston Pizza Royalties Income Fund (TSX:BPF.UN) and Boston Pizza International Inc. -
Highlights
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-- Strong same store sales growth of positive 7.5% for the Period.
-- Record first quarter franchise sales from royalty pool restaurants of
$176.6 million for the Period, representing an increase of 8.2% compared
to the same period in 2011.
-- Distributable cash increased 11.0% versus the first quarter of 2011.
-- Increased monthly distribution amount during the Period by 6.5% to 9.8
cents per unit effective for the February 2012 distribution to
unitholders paid in March.
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Boston Pizza Royalties Income Fund (the "Fund") and Boston Pizza International Inc. (" BPI") each reported today financial results for the period from January 1, 2012 to March 31, 2012 (the "Period"). A copy of this press release, the consolidated interim financial statements for the Period and related Management's Discussion and Analysis of the Fund and BPI are available at www.sedar.com and www.bpincomefund.com. The Fund will host a conference call to discuss the results on May 9, 2012 at 8:30 a.m. Pacific Time (11:30 a.m. Eastern Time). The call can be accessed by dialling 1-800-319-4610 or 604-638-5340. A replay will be available until June 8, 2012 by dialling 1-800-319-6413 or 604-638-9010 and entering the pin code: 4452 followed by the # sign.
Same store sales growth ("SSSG"), a key driver of distribution growth for unitholders of the Fund, was positive 7.5% for the Period, compared to positive 1.4% for the same period in 2011. Franchise sales, the basis upon which royalties are paid by BPI to the Fund, exclude revenue from the sale of liquor, beer, wine, tobacco and approved national promotions and discounts. On a franchise sales basis, SSSG was positive 6.9% for the Period, compared to positive 2.1% for the same period in 2011. The increase in SSSG for the Period was principally due to higher takeout and delivery sales resulting from continued promotion of Boston Pizza's online ordering system, higher chicken wing sales resulting from successful marketing campaigns launched in 2011 and the extra day of sales in February as 2012 is a leap year. Other key sales initiatives in the Period included the 20th anniversary of "Heart-Shaped Pizzas" and a "Pizza Hobbyists" feature menu promotion. Franchise sales of restaurants in the royalty pool were a record $176.6 million for the Period compared to $163.1 million in the same period in 2011. The increase in franchise sales for the Period was principally due to the increase in SSSG.
"Boston Pizza continues to strengthen our position as Canada's #1 casual dining brand with record franchise sales for the first quarter and strong same store sales growth of 7.5% versus one year ago. This is the highest quarterly SSSG that we have achieved in over four years, driven by successful marketing initiatives including our Finger Cooking campaign promoting take-out and delivery and, more recently, the launch of our new 'All Meat Wings' campaign," said Mark Pacinda, President and CEO of BPI. "Boston Pizza's continued sales growth momentum led the Fund to announce during the Period a 6.5% increase in the monthly cash amount paid to unitholders from 9.2 cents per unit to 9.8 cents per unit effective for the February 2012 distribution."
The Fund posted a net loss of $6.9 million for the Period compared to net income of $2.9 million in the same period in 2011. The $9.8 million decrease in net income was driven mainly by the Fund's $0.5 million increase in revenues due to strong SSSG offset by the $10.3 million increase in the fair value adjustment of the liability related to the Class B general partnership units of Boston Pizza Royalties Limited Partnership. The Fund's net income under International Financial Accounting Standards ("IFRS") contains many non-cash items that do not affect the Fund's operations or its ability to pay distributions to unitholders. As such, it is not in the Fund's view, the only or most meaningful measurement of the Fund's ability to pay distributions. Consequently, the Fund has provided the non-IFRS metrics of distributable cash and payout ratio to provide investors with more meaningful information about the Fund's ability to pay distributions. Readers are cautioned that distributable cash and payout ratio are non-IFRS financial measures that do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. For a reconciliation between cash flow from operating activities (the most directly comparable IFRS measure) and distributable cash, please see the table below. For a detailed discussion on the Fund's distributable cash and payout ratio, please refer to the Management's Discussion and Analysis for the Period as filed on SEDAR and posted on the Fund's website at www.bpincomefund.com.
The Fund's distributable cash was $4.0 million or $0.274 per unit of the Fund ("Unit") for the Period compared to $3.6 million or $0.247 per Unit for the same period in 2011. This represents a 10.9% increase compared to the same period one year ago, driven by higher royalty revenue partially offset by changes in non-cash working capital for the Period. Distributions for the Period were funded entirely by cash flow from operations. No debt was incurred at any point during the Period to fund distributions. The table below sets out the Fund's distributable cash and distributable cash per Unit for the Period along with comparable figures for the same period one year ago.
The Fund's payout ratio was 105.0% for the Period compared to 102.0% in the same period one year ago. The Fund's payout ratio for the Period increased compared to the same period one year ago primarily due to the distribution increase beginning with the February 2012 distribution to unitholders. In addition, because the Fund strives to provide Unitholders with regular monthly distributions, the Fund will generally experience seasonal fluctuations in its payout ratio. On a trailing 12-month basis, the Fund's payout ratio was 96.4% as at March 31, 2012. The Fund's payout ratio is likely to be higher in the first and fourth quarters compared to the second and third quarters since Boston Pizza restaurants experience higher franchise sales levels during the summer months when restaurants open their patios and benefit from increased tourist traffic. A key feature of the Fund is that it is a "top line" structure, in which BPI pays the Fund a royalty equal to 4% of franchise sales from restaurants in the Fund's royalty pool. Accordingly, Fund unitholders are not directly exposed to changes in the operating costs or profitability of BPI or of individual Boston Pizza restaurants. Given this structure, and that the Fund has no current mandate to retain capital for other purposes, it is expected that the Fund will maintain a payout ratio close to 100% over time as the trustees of the Fund continue to distribute all available cash in order to maximize returns to unitholders.
The trustees of the Fund announced a cash distribution to unitholders of 9.8 cents per Unit for April 2012. The distribution will be payable to unitholders of record at the close of business on May 21, 2012 and will be paid on May 31, 2012. The Fund periodically reviews distribution levels based on its policy of stable and sustainable distribution flow to unitholders. Since the Fund's initial public offering in 2002, unitholders have received 15 distribution increases. The most recent distribution increase of 6.5% was effective for the February distribution payable in March and increased the monthly distribution amount from 9.2 cents per unit to 9.8 cents per unit. As at May 8, 2012, the Fund had paid out 117 consecutive monthly distributions totalling $144.6 million or $11.89 per Unit.
FINANCIAL SUMMARY
The tables below set out selected information from the consolidated interim financial statements of the Fund, which consolidates the accounts of the Boston Pizza Royalties Limited Partnership's (the "Partnership"), together with other data and should be read in conjunction with the interim consolidated financial statements of the Fund.
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Jan 1, 2012 Jan 1, 2011
to Mar 31, to Mar 31,
2012 2011
----------------------------------------------------------------------------
(in thousands of dollars - except restaurants, SSSG, payout ratio and per
Unit items)
System-wide Gross Sales(1) 226,065 207,482
Number of restaurants in Royalty Pool(2) 342 339
Franchise Sales(3) reported by restaurants in
the Royalty Pool 176,581 163,133
Revenues
----------------------------------------------
Royalty revenue - 4% of Franchise Sales 7,063 6,525
Interest income 455 452
----------------------------------------------------------------------------
Total revenues 7,518 6,977
Expenses
----------------------------------------------
Administrative expenses and interest on bank
debt (477) (502)
Interest accrued to BPI on Class B Units and
Class C Units(4) (1,061) (937)
Fair value adjustment on Class B Unit
liability(5) (11,563) (1,278)
----------------------------------------------------------------------------
Subtotal (13,101) (2,717)
Current income tax expense (1,301) (1,263)
Deferred income tax expense (20) (50)
----------------------------------------------------------------------------
Total expenses (14,422) (4,030)
----------------------------------------------------------------------------
Net Income (loss)
----------------------------------------------
Net income (loss) (6,904) 2,947
Basic and diluted earnings (loss) per Unit (0.478) 0.201
Distributable Cash(6)/Distributions/Payout
Ratio(7)
----------------------------------------------
Cash flows from operating activities 77 6,265
BPI entitlement:
Class C distributions (450) (450)
Class B entitlement (1,154) (952)
SIFT tax on Units(8) 5,524 (1,263)
----------------------------------------------------------------------------
Distributable Cash(6) 3,997 3,600
Distributions payable(9) 4,196 3,672
Payout Ratio(7) 105.0% 102.0%
Distributable Cash per Unit(6) 0.274 0.247
Distributions payable per Unit(9) 0.288 0.252
Other
Same store sales growth (SSSG) 7.5% 1.4%
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Number of restaurants opened during the period 2 2
Number of restaurants closed during the period 1 1
----------------------------------------------------------------------------
Mar 31, Dec 31,
2012 2011
----------------------------------------------------------------------------
Total assets 264,306 261,571
Total liabilities 112,201 99,794
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Q1 Q4 Q3 Q2
2012 2011 2011 2011
----------------------------------------------------------------------------
(in thousands of dollars - except restaurants, SSSG, payout ratio and per
Unit items)
System-wide Gross Sales(1) 226,065 232,713 235,911 228,766
Number of restaurants in Royalty
Pool(2) 342 336 336 338
Franchise Sales(3) reported by
restaurants in the Royalty Pool 176,581 177,465 183,163 175,568
Revenues
------------------------------------
Royalty revenue - 4% of Franchise
Sales 7,063 7,098 7,327 7,023
Interest income 455 454 454 455
----------------------------------------------------------------------------
Total revenues 7,518 7,552 7,781 7,478
Expenses
------------------------------------
Administrative expenses and interest
on bank debt (477) (432) (449) (511)
Interest accrued to BPI on Class B
Units and Class C Units(4) (1,061) (2,042) (1,447) (1,388)
Fair value adjustment on Class B
Unit liability(5) (11,563) (3,308) 1,148 2,707
----------------------------------------------------------------------------
Subtotal (13,101) (5,782) (748) 808
Current income tax expense (1,301) (1,396) (1,449) (1,366)
Deferred income tax expense (20) (70) (100) (70)
----------------------------------------------------------------------------
Total expenses (14,422) (7,248) (2,297) (628)
----------------------------------------------------------------------------
Net Income (loss)
------------------------------------
Net income (loss) (6,904) 304 5,484 6,850
Basic and diluted earnings (loss)
per Unit (0.478) 0.089 0.401 0.495
Distributable
Cash(6)/Distributions/Payout
Ratio(7)
------------------------------------
Cash flows from operating activities 77 7,037 7,266 6,922
BPI entitlement:
Class C distributions (450) (450) (450) (450)
Class B entitlement (1,154) (1,099) (1,077) (1,023)
SIFT tax on Units(8) 5,524 (1,396) (1,449) (1,366)
----------------------------------------------------------------------------
Distributable cash(6) 3,997 4,092 4,290 4,083
Distributions payable(9) 4,196 4,021 4,021 3,672
Payout Ratio(7) 105.0% 98.3% 93.7% 89.9%
Distributable cash per Unit(6) 0.274 0.281 0.294 0.280
Distributions payable per Unit(9) 0.288 0.276 0.276 0.252
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----------------------------------------------------------------------------
Q1 Q4 Q3 Q2
2011 2010 2010 2010
----------------------------------------------------------------------------
(in thousands of dollars - except restaurants, SSSG, payout ratio and per
Unit items)
System-wide Gross Sales(1) 207,482 215,303 218,335 215,336
Number of restaurants in Royalty
Pool(2) 339 334 335 338
Franchise Sales(3) reported by
restaurants in the Royalty Pool 163,133 166,181 171,151 165,972
Revenues
------------------------------------
Royalty revenue - 4% of Franchise
Sales 6,525 6,647 6,846 6,639
Interest income 452 452 451 450
----------------------------------------------------------------------------
Total revenues 6,977 7,099 7,297 7,089
Expenses
------------------------------------
Administrative expenses and interest
on bank debt (502) (687) (485) (444)
Interest accrued to holders of
Units(10) - (3,352) (5,027) (5,096)
Interest accrued to BPI on Class B
Units and Class C Units(4) (937) (1,852) (1,362) (1,362)
Gain on retirement of Unit liability - - - 181
Fair value adjustment on Class B
Unit liability(5) (1,278) (2,916) (3,924) 1,056
----------------------------------------------------------------------------
Subtotal (2,717) (8,807) (10,798) (5,665)
Current income tax expense (1,263) - - -
Deferred income tax expense (50) (80) (70) (70)
----------------------------------------------------------------------------
Total expenses (4,030) (8,887) (10,868) (5,735)
----------------------------------------------------------------------------
Net Income (loss)
------------------------------------
Net income (loss) 2,947 (1,788) (3,571) 1,354
Basic and diluted earnings (loss)
per Unit 0.201 (0.058) (0.218) 0.120
Distributable
Cash(6)/Distributions/Payout
Ratio(7)
------------------------------------
Cash flows from operating activities 6,265 6,425 6,963 6,554
BPI entitlement:
Class C distributions (450) (450) (450) (450)
Class B entitlement (952) (948) (1,000) (931)
SIFT tax on Units(8) (1,263) - - -
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Distributable cash(6) 3,600 5,027 5,513 5,173
Interest accrued(10)/distributions
payable(9) 3,672 5,027 5,027 5,068
Payout Ratio(7) 102.0% 100.0% 91.2% 98.0%
Distributable cash per Unit(6) 0.247 0.345 0.378 0.350
Interest(10)/distributions payable
per Unit(9) 0.252 0.345 0.345 0.345
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OUTLOOK
The Canadian Restaurant and Foodservices Association has forecast sales growth of 3.0% for the Canadian full-service restaurant sector in 2012. BPI's management believes that Boston Pizza is well positioned to continue outperforming this growth rate by attracting a wide variety of guests into the restaurant, sports bar and take-out/delivery parts of each location, offering a compelling value proposition to our guests and continuing to open new Boston Pizza locations across Canada.
The two principal factors that affect SSSG are changes in customer traffic and changes in average guest cheque. BPI's strategies to drive higher guest traffic include a larger marketing budget versus the previous year along with a revised calendar of national and local store promotions. Increased average cheque levels will be achieved through a combination of culinary innovation and annual menu re-pricing. BPI management recognizes that franchise sales results during the last nine months of 2011 were comparatively stronger than those posted in the first quarter of 2011 and that results from the remainder of 2012 will be compared against those stronger sales levels. In addition, BPI's franchise agreement requires that each Boston Pizza restaurant undergo a complete store renovation every seven years and nine locations have already completed renovations in 2012 with many more underway or planned for later this year. Restaurants typically close for two to three weeks to complete the renovation and experience an incremental sales increase in the year following the re-opening.
Boston Pizza remains well positioned for future expansion as evidenced by the two new Boston Pizza restaurants that have opened to date in 2012, with two more new locations under construction currently that are scheduled to open later in the year. BPI's management believe that Boston Pizza will continue to strengthen its position as the number one casual dining brand in Canada by pursuing further restaurant development opportunities across the country.
Certain information in this press release may constitute "forward-looking information" that involves k nown and unknown risks, uncertainties, future expectations and other factors which may cause the actual results, performance or achievements of the Fund, Boston Pizza Holdings Trust, the Partnership, Boston Pizza Holdings Limited Partnership, Boston Pizza Holdings GP Inc., Boston Pizza GP Inc., BPI, Boston Pizza restaurants, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. When used in this press release, forward-looking information may include words such as "anticipate", "estimate", "may", "will", "expect ", "believe", "plan" and other similar terminology. This information reflects current expectations regarding future events and operating performance and speaks only as of the date of this press release. Except as required by law, the Fund and BPI assume no obligation to update previously disclosed forward-looking information.
For a complete list of the risks associated with forward-looking information and our business, please refer to the "Risks and Uncertainties" and "Note Regarding Forward-Looking Information" sections included in the Fund's most recent Management's Discussion and Analysis for the Period available at www.sedar.com and www.bpincomefund.com. The trustees of the Fund have approved the contents of this press release.
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1. System-wide gross sales means the gross revenue: (i) of the corporate
Boston Pizza restaurants in Canada owned by BPI; and (ii) reported to
BPI by franchised Boston Pizza restaurants in Canada, without audit or
other form of independent assurance, and in the case of both (i) and
(ii), including revenue from the sale of liquor, beer, wine and tobacco
and revenue from BPI approved national promotions and discounts and
excluding applicable sales and similar taxes ("System-wide Gross
Sales").
2. Number of restaurants in the Royalty Pool excludes restaurants that
permanently closed during the applicable period.
3. Franchise sales is the basis on which the royalty is payable; it means
the revenues of Boston Pizza restaurants in respect of which the royalty
is payable ("Franchise Sales"). The term "revenue" refers to the gross
revenue: (i) of the corporate Boston Pizza restaurants in Canada owned
by BPI; and (ii) reported to BPI by franchised Boston Pizza restaurants
in Canada, without audit or other form of independent assurance, and in
the case of both (i) and (ii), after deducting revenue from the sale of
liquor, beer, wine and tobacco and revenue from BPI approved national
promotions and discounts and excluding applicable sales and similar
taxes. Nevertheless, BPI periodically conducts audits of the Franchise
Sales reported to it by its franchisees, and the Franchise Sales
reported herein include results from sales audits of earlier periods.
4. The Class B general partner units of the Partnership (the "Class B
Units") and the Class C general partner units of the Partnership (the
"Class C Units") are classified as financial liabilities under IFRS, and
as such, amounts paid by the Partnership to BPI in respect of the Class
B Units and Class C Units are classified as interest expense and not
distributions. See the "Operating Results - Expenses" section of the
Fund's Management's Discussion and Analysis for more details.
5. The Fund is required under IFRS to fair value the Class B Unit liability
at the end of each period and adjust for any increase or decrease in the
fair value of that liability as compared to the fair value of that
liability at the end of the immediately preceding period. See the
"Operating Results - Expenses" section of the Fund's Management's
Discussion and Analysis for more details. This adjustment has no impact
on the Fund's Distributable Cash.
6. Distributable Cash is a non-IFRS financial measure that does not have a
standardized meaning prescribed by IFRS and therefore may not be
comparable to similar measures presented by other issuers. This non-IFRS
financial measure provides useful information to investors regarding the
amount of cash the Fund has generated for distribution on the Units.
Investors are cautioned that this should not be construed as an
alternative net income measure of profitability. The tables above
provide a reconciliation from this non-IFRS financial measure to cash
flows from operating activities, which is the most directly comparable
IFRS measure. See the "Operating Results - Distributable Cash/Payout
Ratio" section of the Fund's Management's Discussion and Analysis for
more details.
7. Payout Ratio is calculated by dividing the interest/distributions
payable by the Fund in respect of the applicable period by the
Distributable Cash generated in that period. Payout Ratio is a non-IFRS
financial measure that does not have a standardized meaning prescribed
by IFRS and therefore may not be comparable to similar measures
presented by other issuers. This non-IFRS financial measure provides
investors with useful information regarding the extent to which the Fund
distributes cash on the Units. Investors are cautioned that this should
not be construed as an alternative net income measure of profitability.
8. SIFT Tax on Units is the SIFT Tax expense for the respective period (as
a negative number) plus the amount of SIFT Tax paid in the respective
period. See the "Operating Results - Distributable Cash/Payout Ratio"
section of the Fund's Management's Discussion and Analysis for more
details.
9. Under the Declaration of Trust, the Fund pays distributions on the Units
in respect of any particular calendar month not later than the last
business day of the immediately subsequent month. Accordingly,
distributions on the Units in respect of the calendar month of January
are paid no later than the last business day of February, distributions
on the Units in respect of the calendar month of February are paid no
later than the last business day of March and so forth. Consequently,
distributions payable by the Fund on the Units in respect of the Period
were the January 2012 distribution (which was paid on February 29,
2012), the February 2012 distribution (which was paid on March 30, 2012)
and the March 2012 distribution (which was paid on April 30, 2012).
Similarly, the distributions payable by the Fund on the Units in respect
of any other period are the distributions paid in the immediately
subsequent month of each month comprising such other period.
10. Units are classified as a financial liability under IFRS in respect of
the period from January 1, 2010 through December 6, 2010, and as a
result the amounts paid by the Fund to Unitholders in respect of that
period are classified as interest expense of the Fund and not
distributions. From and after December 7, 2010, amounts paid by the Fund
to Unitholders are classified as distributions of the Fund as the Units
are classified as equity from and after December 7, 2010.
/T/
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