Boston Pizza Royalties Income Fund Announces Record Quarterly Franchise Sales of $186.3 Million

Same store sales growth of 3.2% for the first quarter. Subsequent to the Period Boston Pizza opens its 350th location in Canada.

VANCOUVER, BRITISH COLUMBIA - (Marketwired - May 9, 2013) - Boston Pizza Royalties Income Fund (TSX:BPF.UN) and Boston Pizza International Inc. -

Highlights

  • Highest ever quarterly Franchise Sales1 from royalty pool restaurants of $186.3 million.
  • Same store sales growth of 3.2% for the Period rolling on the very strong 7.5% SSSG for the same period in 2012.
  • Distributable Cash2 and Distributable Cash2 per Unit both increase for the Period versus the same period in 2012.
  • Distribution increase announced during the Period of 4.1% effective for the February 2013 distribution paid in March 2013.
  • Non-cash fair value adjustments of $5.8 million result in net loss of $0.8 million for the Period but do not affect the Fund's business operations or ability to pay distributions.
  • Trustees declare April distribution to unitholders of 10.2 cents per unit.
  • Subsequent to the Period, Boston Pizza opens its 350th location in Canada.

Boston Pizza Royalties Income Fund (the "Fund") and Boston Pizza International Inc. ("BPI") each reported today financial results for the period from January 1, 2013 to March 31, 2013 (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, 2013 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, 2013 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 3.2% for the Period compared to 7.5% for the same period in 2012. Franchise Sales1, the basis upon which royalties are paid by BPI to the Fund, exclude revenue from the sale of liquor, beer, wine and tobacco and approved national promotions and discounts. On a Franchise Sales1 basis, SSSG was 3.5% for the Period compared to 6.9% for the same period in 2012. The positive SSSG in the Period was principally due to higher take-out and delivery sales resulting from continued promotion of Boston Pizza's online ordering system, higher chicken wing sales resulting from the introduction of "All Meat Wings" in 2012 and menu re-pricing. The positive SSSG results for the period were achieved in spite of several challenges including the strong SSSG figures posted in the same period one year ago, the one fewer day in the Period compared to the first quarter of 2012 due to the leap year in 2012 and the poor weather experienced in many parts of Canada during the Period. Franchise Sales1 of restaurants in the royalty pool were an all-time quarterly record of $186.3 million for the Period compared to $176.6 million in the same period in 2012. The increase in Franchise Sales1 for the Period is attributed to the positive SSSG experienced in the Period and the addition of five net new restaurants to the Fund's royalty pool on January 1, 2013.

"Boston Pizza's national promotions during the Period, including "Hockey's Back", "Finger Cooking" and "Careful You Don't Become a Foodie", attracted guests to three distinct areas of our restaurants: the sports bar, take-out and delivery, and dining room. This approach helped drive positive SSSG of 3.2% in the first quarter of 2013, which is particularly impressive given the strong comparable SSSG posted in the same period one year ago," said Mark Pacinda, President and CEO of BPI. "As a result of the continued positive sales momentum, the Fund's trustees announced an increase of 4.1% to the monthly distribution amount to unitholders effective for the February 2013 distribution. This marks the 16th distribution increase since the initial public offering and, including the April 2013 distribution announced today and payable in May 2013, the Fund will have paid out 130 consecutive monthly distributions totaling almost $164 million."

The Fund's net loss was $0.8 million for the Period compared to a net loss of $6.9 million in the same period in 2012. The change in net loss for the Period was mainly driven by the $5.7 million difference in fair value adjustments on the class B general partner units of Boston Pizza Royalties Limited Partnership (the "Class B Unit liability"). The Fund's net income under International Financial Reporting Standards ("IFRS") contains non-cash items, such as the fair value adjustment on the Class B Unit liability, that do not affect the Fund's business operations or its ability to pay distributions to unitholders. In the Fund's view, net income is not the only or most meaningful measurement of the Fund's ability to pay distributions. Consequently, the Fund reports the non-IFRS metrics of Distributable Cash2 and Payout Ratio3 to provide investors with more meaningful information regarding the amount of cash that the Fund has generated to pay distributions. Readers are cautioned that Distributable Cash2 and Payout Ratio3 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 Cash2 and a detailed discussion on the Fund's Distributable Cash2 and Payout Ratio3, please see the "Operating Results - Distributable Cash / Payout Ratio" section in the Fund's Management's Discussion and Analysis for the Period.

The Fund's Distributable Cash2 was $4.3 million or $0.277 per unit of the Fund ("Unit") for the Period compared to $4.0 million or $0.274 per Unit for the same period, respectively, in 2012. This represents increases of 8.0% and 1.1%, respectively, for the Period compared to the same period one year ago. The increase in Distributable Cash2 was driven primarily by BPI's exchange of class B general partner units of Boston Pizza Royalties Limited Partnership into 1,000,000 Fund Units in November 2012 and higher royalty revenue in the Period compared to the same period one year ago, partially offset by temporary changes in working capital. The increase in Distributable Cash2 on a per Unit basis was attributed to higher royalty revenue, partially offset by temporary changes in working capital. 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 Fund's Payout Ratio3 was 108.7% for the Period compared to 105.0% in the same period one year ago. The Fund's Payout Ratio3 for the Period increased compared to the same period one year ago primarily due to an increase in working capital during the Period that will reverse over time. The Fund strives to provide unitholders with regular monthly distributions, and as a result, the Fund will generally experience seasonal fluctuations in its Payout Ratio3. On a trailing 12-month basis, the Fund's Payout Ratio3 was 100.3% as at March 31, 2013. The Fund's Payout Ratio3 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 Sales1 during the summer months when restaurants open their patios and benefit from increased tourist traffic. Higher Franchise Sales1 generally results in increases in Distributable Cash2. 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 Sales1 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 Ratio3 close to 100% over time as the trustees of the Fund continue to distribute all available cash in order to maximize returns to unitholders. As the Payout Ratio3 is calculated from a formula which includes Distributable Cash2, which is a non-IFRS measure, a reconciliation of Payout Ratio3 to an IFRS measure is not possible.

The trustees of the Fund announced a cash distribution to unitholders of 10.2 cents per Unit for April 2013. The distribution will be payable to unitholders of record at the close of business on May 21, 2013 and will be paid on May 31, 2013. 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 16 distribution increases. The most recent distribution increase of 4.1% was effective for the February 2013 distribution payable in March 2013 and increased the monthly distribution amount from 9.8 cents per Unit to 10.2 cents per Unit. Including the April 2013 distribution, which will be paid in May 2013, the Fund will have paid out 130 consecutive monthly distributions totalling $163.9 million or $13.18 per Unit.

Financial Summary

The tables below sets out selected information from the consolidated interim financial statements of the Fund together with other data and should be read in conjunction with the consolidated interim financial statements of the Fund for the Period and in conjunction with the consolidated financial statements for the twelve month period ended December 31, 2012.

  Q1 2013 Q1 2012
(in thousands of dollars - except restaurants, SSSG, Payout Ratio3 and per Unit items)    
System-wide Gross Sales4 236,324 226,065
Number of restaurants in Royalty Pool5 348 342
Franchise Sales1 reported by restaurants in the Royalty Pool 186,338 176,581
     
Revenues    
Royalty revenue - 4% of Franchise Sales1 7,454 7,063
Interest income 453 455
Total revenues 7,907 7,518
     
Expenses    
Administrative expenses and interest on bank debt (477) (477)
Interest expense on Class B Units and Class C Units6 (898) (1,061)
Fair value adjustment on Class B Unit liability7 (5,712) (11,563)
Fair value adjustment on interest rate swap (89) -
Subtotal (7,176) (13,101)
Current income tax expense (1,463) (1,301)
Deferred income tax expense (20) (20)
Total expenses (8,659) (14,422)
     
Net loss    
Net loss (752) (6,904)
Basic loss per Unit (0.05) (0.47)
Diluted loss per Unit (0.05) (0.47)
     
Distributable CashDistributions / Payout Ratio3    
Cash flows from operating activities 5,815 334
    Class C distributions to BPI (450) (450)
    BPI Class B entitlement (903) (1,154)
  Interest paid on long-term debt (213) (257)
  SIFT tax on Units8 67 5,524
Distributable Cash2 4,316 3,997
Distributions payable9 4,692 4,196
Payout Ratio3 108.7% 105.0%
Distributable Cash per Unit2 0.277 0.274
Distributions payable per Unit9 0.302 0.288
     
Other    
Same store sales growth 3.2% 7.5%
Number of restaurants opened during the period 0 2
Number of restaurants closed during the period 0 1
  Mar 31, 2013 Dec 31, 2012
Total assets 268,808 264,632
Total liabilities 108,285 99,353
  Q1
2013
Q4
2012
Q3
2012
Q2
2012
(in thousands of dollars - except restaurants, Payout Ratio3 and per Unit items)        
System-wide Gross Sales4 236,324 239,764 239,269 237,955
Number of restaurants in Royalty Pool5 348 341 341 341
Franchise Sales1 reported by restaurants in the Royalty Pool 186,338 185,197 186,081 183,593
         
Revenues        
Royalty revenue - 4% of Franchise Sales 7,454 7,408 7,443 7,344
Interest income 453 453 453 453
Total revenues 7,907 7,861 7,896 7,797
         
Expenses        
Administrative expenses and interest on bank debt (477) (462) (616) (512)
Interest on Class B Units and Class C Units6 (898) (1,978) (1,628) (1,628)
Fair value adjustment on Class B Unit liability7 (5,712) 633 (5,890) 1,953
Fair value adjustment on interest rate swap (89) 69 67 -
Subtotal (7,176) (1,738) (8,067) (187)
Current income tax expense (1,463) (1,421) (1,350) (1,351)
Deferred income tax expense (20) (360) (60) (70)
Total expenses (8,659) (3,519) (9,477) (1,608)
         
Net Income (loss)        
Net income (loss) (752) 4,342 (1,581) 6,189
Basic earnings (loss) per Unit (0.05) 0.29 (0.11) 0.42
Diluted earnings (loss) per Unit (0.05) 0.23 (0.11) 0.24
         
Distributable Cash2 / Distributions / Payout Ratio3        
Cash flows from operating activities 5,815 6,221 6,319 6,188
    Class C distributions to BPI (450) (450) (450) (450)
    BPI Class B entitlement (903) (986) (1,211) (1,178)
  Interest paid on long-term debt (213) (215) (130) (285)
  SIFT tax on Units8 67 (31) - (1)
Distributable cash2 4,316 4,539 4,528 4,274
Distributions payable9 4,692 4,480 4,284 4,284
Payout Ratio3 108.7% 98.7% 94.6% 100.2%
Distributable cash per Unit2 0.277 0.303 0.311 0.293
Distributions payable per Unit9 0.302 0.294 0.294 0.294
  Q1
2012
Q4
2011
Q3
2011
Q2
2011
(in thousands of dollars - except restaurants, Payout Ratio3 and per Unit items)        
System-wide Gross Sales4 226,065 232,713 235,911 228,766
Number of restaurants in Royalty Pool5 342 336 336 338
Franchise Sales1 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 expense on Class B Units and Class C Units6 (1,061) (2,042) (1,447) (1,388)
Fair value adjustment on Class B Unit liability7 (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 earnings (loss) per Unit (0.47) 0.02 0.38 0.47
Diluted earnings (loss) per Unit (0.47) 0.02 0.24 0.23
         
Distributable Cash2 / Distributions / Payout Ratio3        
Cash flows from operating activities 334 7,271 7,440 7,191
    Class C distributions to BPI (450) (450) (450) (450)
    BPI Class B entitlement (1,154) (1,099) (1,077) (1,023)
  Interest paid on long-term debt (257) (234) (174) (269)
  SIFT tax on Units8 (5,524) (1,396) (1,449) (1,366)
Distributable cash2 3,997 4,092 4,290 4,083
Distributions payable9 4,196 4,021 4,021 3,672
Payout Ratio3 105.0% 98.3% 93.7% 89.9%
Distributable cash per Unit2 0.274 0.281 0.294 0.280
Distributions payable per Unit9 0.288 0.276 0.276

0.252

Outlook

The Canadian Restaurant and Foodservices Association has forecast average annual sales growth of 3.5% for the Canadian full-service restaurant sector in 2013. BPI's management believes that Boston Pizza is well positioned to continue outperforming this overall sales growth rate by maintaining positive SSSG 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 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 leveraging a larger marketing budget versus the previous year along with a revised calendar of national and local store promotions. Increased average cheque levels are expected to be achieved through a combination of culinary innovation and annual menu re-pricing. In addition, BPI's franchise agreement requires that each Boston Pizza restaurant undergo a complete store renovation every seven years. 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 so far 2013 and the four additional locations that are currently under construction. 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 known 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.

1 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.

2 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 related tables in the Fund's Management Discussion and Analysis for the Period provide a reconciliation from this non-IFRS financial measure to cash flows from operating activities, which is the most directly comparable IFRS measure.

3 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.

4 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").

5 Number of restaurants in the Royalty Pool excludes restaurants that permanently closed during the applicable period.

6 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.

7 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. This adjustment has no impact on the Fund's Distributable Cash.

8 Specified Investment Flow through tax ("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.

9 Under the declaration of trust governing the Fund, 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 (as defined herein) were the January 2013 distribution (which was paid on January 31, 2013), the February 2013 distribution (which was paid on March 31, 2013) and the March 2013 distribution (which was paid on April 30, 2013). 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.

Contact:

Jordan Holm
Vice President of Investor Relations
604-303-6083
investorrelations@bostonpizza.com
www.bpincomefund.com

###

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