Boston Pizza Royalties Income Fund Announces First Quarter 2016 Results Including Distributable Cash Per Unit Increase of 11.5%

Franchise Sales From Royalty Pool Restaurants Increase 2.4% Versus the Same Period One Year Ago

VANCOUVER, BRITISH COLUMBIA--(Marketwired - May 4, 2016) - Boston Pizza Royalties Income Fund (TSX:BPF.UN) and Boston Pizza International Inc. -

Highlights

  • Franchise Sales1 from royalty pool restaurants of $198.0 million for the Period, an increase of $4.6 million or 2.4% versus the same period one year ago.
  • Distributable Cash2 per Unit increased 11.5% for the Period to 32.0 cents versus 28.7 cents for the same period one year ago.
  • Payout Ratio3 of 105.7% compared to 106.8% one year ago and a cash balance of $2.9 million at the end of the Period.
  • Same Store Sales Growth of 0.6% for the Period.
  • Six net new Boston Pizza restaurants opened in 2015, and were added to the Fund's royalty pool on January 1, 2016.
  • Trustees declare April 2016 distribution to unitholders of 11.5 cents per Unit.

Boston Pizza Royalties Income Fund (the "Fund") and Boston Pizza International Inc. ("BPI") reported financial results today for the first quarter period from January 1, 2016 to March 31, 2016 (the "Period"). A copy of this press release, the condensed consolidated interim financial statements and related Management's Discussion and Analysis ("MD&A") of the Fund and BPI are available at www.sedar.com andwww.bpincomefund.com. The Fund will host a conference call to discuss the results on May 4, 2016 at 8:30 am Pacific Time (11:30 am Eastern Time). The call can be accessed by dialling 1-800-319-4610 or 604-638-5340. A replay will be available until June 4, 2016 by dialling 1-855-669-9658 or 604-674-8052 and entering the access code: 00454 followed by the # sign.

Same store sales growth ("SSSG"), a key driver of distribution growth for unitholders of the Fund, was 0.6% for the Period compared with 2.1%, for the same period in 2015. Franchise Sales, the basis upon which Royalty4 and Distribution Income4 are paid to the Fund, exclude revenue from the sale of liquor, beer, wine and approved national promotions and discounts. On a Franchise Sales basis, SSSG was 0.5% for the Period compared with 1.9%, for the same period in 2015. The SSSG for the Period was principally due to menu re-pricing, higher chicken wing sales and the extra day of sales in February as 2016 is a leap year, offset by the impact of weaker general economic conditions in regions directly connected to the Canadian oil and gas industry. Franchise Sales of restaurants in the Fund's royalty pool were $198.0 million for the Period compared with $193.4 million for the same period in 2015. The $4.6 million increase in Franchise Sales for the Period was primarily due to the additional Franchise Sales from six net new Boston Pizza restaurants added to the royalty pool on January 1, 2016 and positive SSSG.

"We continue to have strong sales growth in all regions of Canada that are not directly impacted by the oil and gas industry," said Mark Pacinda, President and CEO of BPI. "Our new signature Boston Pizza nachos, that launched in April with national marketing support are receiving a great reaction from our guests and continuing our commitment to menu innovation. Moving forward, we have more food news planned including a refreshed national menu coming out next month and some delicious new items on our popular summer feature sheet."

The Fund's net and comprehensive income was $8.5 million for the Period compared with net and comprehensive income of $3.5 million for the first quarter of 2015. The $5.0 million increase in net and comprehensive income for the Period was primarily due to a net $3.0 million change in fair value adjustments, the addition of $2.6 million in Distribution Income, an increase in Royalty income of $0.2 million, partially offset by an increase in interest on debt and Class B Unit and Class C Unit liabilities of $0.4 million, and an increase in income taxes of $0.3 million. For a detailed discussion on the Fund's net and comprehensive income, please see the "Operating Results - Net and Comprehensive Income / Basic and Diluted Earnings" section in the Fund's MD&A for the Period. The Fund's net income under International Financial Reporting Standards ("IFRS") contains non-cash items, such as the fair value adjustments on financial instruments, 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 Cash and Payout Ratio 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 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 see the "Financial Summary" section of this press release for the Period. For a detailed discussion on the Fund's Distributable Cash and Payout Ratio, please see the "Operating Results - Distributable Cash / Payout Ratio" section in the Fund's MD&A for the Period.

The Fund's Distributable Cash was $6.5 million or $0.320 per unit of the Fund ("Unit") for the Period compared with $4.4 million or $0.287 per Unit for the same period in 2015. This represents an increase to Distributable Cash and Distributable Cash per Unit of 47.1% and 11.5%, respectively. These increases are primarily attributed to the Fund completing an indirect investment in Boston Pizza Canada Limited Partnership ("BP Canada LP") on May 6, 2015 to effectively increase the Fund's interest in Franchise Sales of Boston Pizza restaurants in the royalty pool by 1.5%, from 4.0% to 5.5%, less the pro rata portion payable to BPI in respect of its retained interest in the Fund (the "Transaction") and receiving Distribution Income of $2.6 million during the Period. For more details regarding the Transaction, please refer to the "General Development of the Business - Significant Acquisition - The Transaction" section of the Fund's Annual Information Form dated February 9, 2016. The percentage increase in Distributable Cash for the Period was larger than the percentage increase in Distributable Cash per Unit for the Period due to the combined effect of the Fund receiving Distribution Income and the Fund issuing 5,047,613 Units on May 6, 2015.

The Fund's Payout Ratio was 105.7% for the Period compared to 106.8% in the same period one year ago. The Fund's Payout Ratio for the Period decreased compared with the same period one year ago due to the increase in Distributable Cash, as discussed above, being greater than the increase in distributions paid. The increase in the aggregate amount of distributions paid during the Period compared to the same period in 2015 was due to a combination of: (a) the Fund issuing 5,047,613 Units on May 6, 2015 in connection with the Transaction; and (b) the Fund increasing the monthly distribution from 10.20 cents per Unit to 10.83 cents per Unit beginning with the April 2015 distribution (which was paid on May 29, 2015) and then further increasing the monthly distribution from 10.83 cents per Unit to 11.50 cents per Unit beginning with the January 2016 distribution (which was paid on February 29, 2016) (collectively, the "Distribution Increases"). The increase in the amount of distributions per Unit paid during the Period compared to the same period in 2015 was due to the Distribution Increases. The Fund was able to make the Distribution Increases because of the accretive effect of the Transaction. The Fund strives to provide unitholders with regular monthly distributions, and as a result, the Fund will generally experience seasonal fluctuations in its Payout Ratio. The Fund's Payout Ratio is likely to be higher in the first and fourth quarters each year compared with the second and third quarters each year since Boston Pizza restaurants generally experience higher Franchise Sales during the summer months when restaurants open their patios and benefit from increased tourist traffic. On a trailing 12-month basis, the Fund's Payout Ratio was 94.7% as at March 31, 2016. Higher Franchise Sales generally results in increases in Distributable Cash. A key feature of the Fund is that it is a "top line" structure, in which BPI and BP Canada LP pay the Fund an amount based on 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, BP Canada LP or 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.

On May 3, 2016 the trustees of the Fund approved a cash distribution to unitholders of 11.5 cents per Unit for April 2016. The distribution will be payable to unitholders of record at the close of business on May 21, 2016 and will be paid on May 31, 2016. The Fund periodically reviews distribution levels based on its policy of stable and sustainable distribution flow to unitholders. Including the April 2016 distribution, which will be paid in May 2016, the Fund will have paid out 166 consecutive monthly distributions totalling $229.3 million or $16.96 per Unit since the Fund's initial public offering in 2002.

FINANCIAL SUMMARY

The tables below set out selected information from the Fund's condensed consolidated interim financial statements together with other data and should be read in conjunction with the condensed consolidated interim financial statements and MD&A of the Fund for the three month periods ended March 31, 2016 and 2015.

         
For the periods ended March 31 Q1 2016   Q1 2015  
(in thousands of dollars - except restaurants, SSSG, Payout Ratio and per Unit items)  
System-wide Gross Sales5 254,182   248,671  
Number of restaurants in Royalty Pool 372   366  
Franchise Sales reported by restaurants in the Royalty Pool 198,049   193,409  
         
Royalty income 7,922   7,736  
Distribution Income 2,565   -  
Interest income 452   452  
Total revenue 10,939   8,188  
Administrative expenses (287 ) (250 )
Interest expense on debt (610 ) (371 )
Interest expense on Class B Unit and Class C Unit liabilities (1,084 ) (933 )
Profit before fair value adjustments and income taxes6 8,958   6,634  
Fair value adjustment on investment in BP Canada LP 3,887   -  
Fair value adjustment on Class B Unit liability (2,052 ) (1,054 )
Fair value adjustment on interest rate swaps (443 ) (545 )
Current and deferred income tax expense (1,841 ) (1,516 )
Net and comprehensive income 8,509   3,519  
         
Basic earnings per Unit 0.42   0.23  
Diluted earnings per Unit 0.42   0.23  
         
Distributable Cash / Distributions / Payout Ratio        
Cash flows from operating activities 8,689   6,069  
    Class C Unit distributions to BPI (450 ) (450 )
    BPI Class B Unit entitlement (1,161 ) (949 )
  Interest paid on long-term debt (605 ) (327 )
  SIFT Tax on Units 37   84  
Distributable Cash 6,510   4,427  
Distributions paid 6,880   4,726  
Payout Ratio 105.7%   106.8%  
Distributable Cash per Unit 0.320   0.287  
Distributions paid per Unit 0.338   0.306  
         
Other        
Same store sales growth 0.6%   2.1%  
Number of restaurants opened 0   2  
Number of restaurants closed 2   2  
     
  Mar 31, 2016   Dec 31, 2015  
Total assets 422,809   413,174  
Total liabilities 165,524   157,151  
         

Notes:

  1. "Franchise Sales" is the basis upon which Royalty and Distribution Income are payable, and means the gross revenue: (i) of the corporate Boston Pizza restaurants in Canada owned by BPI; and (ii) reported to BPI or BP Canada LP, applicable, 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 revenue from BPI or BP Canada LP approved national promotions and discounts and excluding applicable sales and similar taxes. Nevertheless, BPI or BP Canada LP 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 preceding table provides a reconciliation from this non-IFRS financial measure to cash flows from operating activities, which is the most directly comparable IFRS measure. For additional information regarding this financial metric, see the heading "Description of Non-IFRS and Additional IFRS Measures" in the Fund's MD&A for the Period.
  3. Payout Ratio is calculated by dividing the distributions paid by the Fund during a 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. As the Payout Ratio is calculated from a formula which includes Distributable Cash, which is a non-IFRS measure, a reconciliation of Payout Ratio to an IFRS measure is not possible. The Fund has modified how it calculates Payout Ratio commencing with the second quarter of 2015. As a result, Payout Ratios set forth in this press release are not necessarily directly comparable with Payout Ratios set forth in press releases or MD&A of the Fund prior to the second quarter of 2015. For additional information regarding this financial metric, see the heading "Description of Non-IFRS and Additional IFRS Measures" in the Fund's MD&A for the Period.
  4. The Fund licenses BPI the right to use various Boston Pizza trademarks in return for BPI paying the Fund a royalty equal to 4% of Franchise Sales of Boston Pizza restaurants in the Fund's royalty pool ("Royalty"). "Distribution Income" is income received by the Fund from the investment in BP Canada LP it completed on May 6, 2015. See the "General - Purpose of Fund / Sources of Revenue" section of the Fund's MD&A for the Period for more details.
  5. "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 or BP Canada LP, as applicable, 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 revenue from BPI or BP Canada LP, as applicable, approved national promotions and discounts and excluding applicable sales and similar taxes.
  6. Profit before fair value adjustments and income taxes is an additional IFRS measure. For additional information regarding these financial metrics, see the heading "Description of Non-IFRS and Additional IFRS Measures" in the Fund's MD&A for the Period.
  7. Other capitalized terms used in these tables are defined in the Fund's MD&A for the Period.

SUMMARY OF QUARTERLY RESULTS

                 
  Q1 2016   Q4 2015   Q3 2015   Q2 2015  
(in thousands of dollars - except restaurants, SSSG, Payout Ratio and per Unit items)                
System-Wide Gross Sales 254,182   272,017   275,009   263,852  
Number of restaurants in Royalty Pool 372   366   366   366  
Franchise Sales reported by restaurants in the Royalty Pool 198,049   205,365   212,367   202,860  
                 
Royalty income 7,922   8,215   8,494   8,115  
Distribution Income 2,565   2,708   2,799   2,666  
Interest income 452   452   452   488  
Total revenue 10,939   11,375   11,745   11,269  
Administrative expenses (287 ) (298 ) (395 ) (283 )
Interest expense on debt (610 ) (596 ) (590 ) (527 )
Interest expense on Class B Unit and Class C Unit liabilities (1,084 ) (1,862 ) (1,339 ) (1,358 )
Profit before fair value adjustments and income taxes 8,958   8,619   9,421   9,101  
Fair value adjustment on investment in BP Canada LP 3,887   3,584   (18,453 ) -  
Fair value adjustment on Class B Unit liability (2,052 ) (1,634 ) 8,356   2,878  
Fair value adjustment on interest rate swaps (443 ) 47   (287 ) 172  
Current and deferred income tax expense (1,841 ) (1,954 ) (1,908 ) (2,307 )
Net and comprehensive income (loss) 8,509   8,662   (2,871 ) 9,844  
                 
Basic earnings (loss) per Unit 0.42   0.42   (0.14 ) 0.53  
Diluted earnings (loss) per Unit 0.42   0.42   (0.45 ) 0.39  
                 
Distributable Cash / Distributions / Payout Ratio                
Cash flows from operating activities 8,689   9,259   9,472   8,351  
    Class C Unit distributions to BPI (450 ) (450 ) (450 ) (450 )
    BPI Class B Unit entitlement (1,161 ) (1,011 ) (947 ) (895 )
  Interest paid on long-term debt (605 ) (617 ) (543 ) (474 )
  SIFT Tax on Units 37   (23 ) 9   (94 )
Distributable Cash 6,510   7,158   7,541   6,438  
Distributions paid 6,880   6,642   6,655   6,014  
Payout Ratio 105.7%   92.8%   88.3%   93.4%  
Distributable Cash per Unit 0.320   0.350   0.368   0.347  
Distributions paid per Unit 0.338   0.325   0.325   0.319  
                 
Other                
Same store sales growth 0.6%   2.2%   2.7%   0.1%  
Number of restaurants opened 0   5   3   2  
Number of restaurants closed 2   2   2   0  
                 

SUMMARY OF QUARTERLY RESULTS (continued)

                 
  Q1 2015   Q4 2014   Q3 2014   Q2 2014  
(in thousands of dollars - except restaurants, SSSG, Payout Ratio and per Unit items)                
System-Wide Gross Sales 248,671   260,240   258,716   255,002  
Number of restaurants in Royalty Pool 366   358   358   358  
Franchise Sales reported by restaurants in the Royalty Pool 193,409   197,531   201,369   196,627  
                 
Royalty income 7,736   7,902   8,054   7,865  
Interest income 452   454   452   453  
Total revenue 8,188   8,356   8,506   8,318  
Administrative expenses (250 ) (262 ) (237 ) (263 )
Interest expense on debt (371 ) (370 ) (331 ) (307 )
Interest expense on Class B Unit and Class C Unit liabilities (933 ) (1,637 ) (1,247 ) (1,194 )
Profit before fair value adjustments and income taxes 6,634   6,087   6,691   6,554  
Fair value adjustment on Class B Unit liability (1,054 ) (1,672 ) 19   (2,392 )
Fair value adjustment on interest rate swaps (545 ) (101 ) 7   (37 )
Current and deferred income tax expense (1,516 ) (1,684 ) (1,715 ) (1,681 )
Net and comprehensive income 3,519   2,630   5,002   2,444  
                 
Basic earnings per Unit 0.23   0.17   0.32   0.16  
Diluted earnings per Unit 0.23   0.17   0.28   0.16  
                 
Distributable Cash / Distributions / Payout Ratio                
Cash flows from operating activities 6,069   6,369   6,909   6,458  
    Class C Unit distributions to BPI (450 ) (450 ) (450 ) (450 )
    BPI Class B Unit entitlement (949 ) (779 ) (833 ) (741 )
  Interest paid on long-term debt (327 ) (374 ) (332 ) (299 )
  SIFT Tax on Units 84   10   (60 ) (41 )
Distributable Cash 4,427   4,776   5,234   4,927  
Distributions paid 4,726   4,737   4,781   4,814  
Payout Ratio 106.8%   99.2%   91.3%   97.7%  
Distributable Cash per Unit 0.287   0.309   0.335   0.313  
Distributions paid per Unit 0.306   0.306   0.306   0.306  
                 
Other                
Same store sales growth 2.1%   5.3%   3.1%   (0.1% )
Number of restaurants opened 2   9   3   2  
Number of restaurants closed 2   1   2   1  
                 

Outlook

Boston Pizza is well positioned for future growth and should continue to strengthen its position as the number one casual dining brand in Canada by continuing to achieve positive SSSG and opening 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 and BP Canada LP'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 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, the franchise agreement governing each Boston Pizza Restaurant requires 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 six net new Boston Pizza Restaurants that opened in 2015 and the two new locations that have opened to date in 2016. There are currently four new locations under construction with more planned for later in 2016. BPI's management believes that Boston Pizza will continue to serve more guests in more locations than any other casual dining brand in Canada by pursuing further restaurant development opportunities across the country.

Certain information in this press release constitutes "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, Boston Pizza Royalties Limited Partnership, Boston Pizza Holdings Limited Partnership, BP Canada LP, 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. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Fund or management of BPI expects or anticipates will or may occur in the future, including such things as, seasonal fluctuations in the Payout Ratio, the Payout Ratio is likely to be higher in the first and fourth quarters, higher Franchise Sales generally result in increases in Distributable Cash, a Payout Ratio close to 100% will be maintained, trustees of the Fund will continue to distribute all available cash in order to maximize returns to unitholders, Boston Pizza being well positioned for future growth, the strengthening of Boston Pizza's position as the number one casual dining brand in Canada, the achievement of positive SSSG, opening of new restaurants, increases in average guest cheques levels, incremental sales increasing after store renovations, plans to pursue restaurant development opportunities and other such matters are forward-looking information. When used in this press release, forward-looking information may include words such as "anticipate", "estimate", "may", "will", "expect", "believe", "plan", "should", "continue" and other similar terminology. The material factors and assumptions used to develop the forward-looking information contained in this press release include the following: future results being similar to historical results, expectation related to future general economic conditions, business plans, receipt of franchise fees and other amounts, franchisees access to financing, pace of commercial real estate development, protection of intellectual property rights of Boston Pizza Royalties Limited Partnership and absence of changes of laws. Risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievement expressed or implied by the forward-looking information contained herein, relate to (among others) competition, demographic trends, consumer preferences and discretionary spending patterns, business and economic conditions, legislation and regulation, Distributable Cash and reliance on operating revenues, accounting policies and practices, the results of operations and financial condition of BPI, BP Canada LP and the Fund, as well as those factors discussed under the heading "Risks and Uncertainties" in the most recent Annual Information Form of the Fund. 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 the Fund's business, please refer to the "Risks and Uncertainties" and "Note Regarding Forward-Looking Information" sections included in the Fund's MD&A for the Period available atwww.sedar.com and www.bpincomefund.com.

The trustees of the Fund approved the contents of this press release.

SOURCE Boston Pizza

Contact:

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

###

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