Second Cup Royalty Income Fund announces first quarter 2005 results

MISSISSAUGA, ON, May 11 /CNW/ - Second Cup Royalty Income Fund
(the "Fund") reported today financial results for the first quarter of 2005.
As the Fund went public on December 2, 2004, there are no year-over-year
comparables for the period. The Funds units are traded on the Toronto Stock
Exchange under the symbol "SCU.UN".
System sales of the Royalty Pool CafDes during the quarter were
$40.4 million and same cafDe sales growth was 3.3%. For 2005, the Easter
weekend fell in the first quarter of the year, whereas in 2004 it fell in the
second quarter. Management estimates that this timing difference had a
negative impact of approximately 0.6% on system sales for the quarter due, for
the most part, to Office Tower and Mall situated cafDes being closed on the
holiday. System sales growth benefited from a price increase implemented in
late January. The increase was applied to certain product offerings and
resulted in an overall price increase of approximately 2.0% to 2.5% for the
quarter.
The first quarter represents the lowest average sales quarter for the
year due to seasonality of the business and is in line with management's
expectations. The final quarter, which includes the holiday sales periods of
November and December in the retail industry, generally constitutes the
highest average sales quarter of the fiscal year.
The source of revenue for the Fund is through its ownership in Second Cup
Trade-Marks Inc (MarksCo) which, in turn, receives royalty income from The
Second Cup Ltd. (Second Cup) under a Royalty and Licence Agreement. For the
quarter, MarksCo earned total royalty revenue of $2,639,000 and paid
$2,339,000 in interest and $110,000 in dividends up to the Fund. The Fund
incurred total operating expenses of $73,000, excluding $256,000 incurred by
MarksCo. Operating expenses of the Fund and MarksCo are limited to general and
administrative expenses, interest expense, and amortization of deferred
financing fees, and were in line with management's expectations. Net earnings
of the Fund were $2,289,000 or 23.89 cents per unit for the quarter.
Distributable cash, a non-GAAP measurement, represents net earnings of
the Fund adjusted for future income taxes and non-cash amortization expenses
of the Fund and its wholly-owned subsidiary, MarksCo, and was $2,362,000, or
24.66 cents per unit compared to distributions declared of $2,383,000 or
24.99 cents per unit for the quarter. The small difference between
distributable cash and total distributions is reflective of the seasonality
inherent in Second Cup's system sales.

Financial Statements

Effective January 1, 2005, the Fund has adopted a new accounting standard
(AcG-15 "Variable Interest Entities"). This change in accounting standard has
not resulted in a change to the Fund's net earnings. Further details on the
impact of this standard can be found in the Fund's consolidated financial
statements, which will be available at www.sedar.com or on the Fund's website
at www.secondcupincomefund.com on or before May 13, 2005.


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Highlights

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(in thousands of dollars                              Three months ended
 except per Unit amounts)                                March 31, 2005
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Number of cafDes in Royalty Pool as at March 31, 2005                 349

Same CafDe Sales Growth                                              3.3%

System Sales of Royalty Pooled CafDes                             $40,436

Net earnings                                                      $2,289

Basic and diluted earnings per Fund unit                         $0.2389

Distributable cash per unit                                      $0.2466

Distributions declared per Fund unit                             $0.2499

Ending number of units outstanding                             9,582,760
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Outlook

The Fund's "top line" structure means that its success and growth depends
primarily on Second Cup's ability to maintain and increase the overall system
sales of Royalty Pool CafDes. Growth in overall system sales is dependant upon
same cafDe sales growth, and adding net new cafDes to the cafDe network.
During the remainder of 2005, Second Cup will continue to focus on
growing same cafDe sales and expanding the number of new Second Cup cafDes
across Canada. Based upon the information available at this time, the Company
expects that it will modernize 18 to 20 cafDes and open 8 to 10 new cafDes
during the current year. To facilitate this growth, Second Cup has hired
additional resources in real estate, franchising and construction.
Overall, based on the Second Cup initiatives outlined above and others,
the anticipated economic environment and market conditions affecting the
specialty coffee industry and the results to date, the Fund continues to
expect a successful year for 2005.

Distribution Announcement

The Fund has announced that its Board of Trustees has approved a cash
distribution of $0.0833 per unit for the month of April to be paid on May 31,
2005 to unitholders of record at the close of business on May 25, 2005.

Forward Looking Information

Certain statements in this news release may constitute forward-looking
statements. Forward-looking statements include words such as "may", "will",
"should", "expect", "anticipate", "believe", "plan", "intend" and other
similar words. These statements reflect current expectations regarding future
events and operating performance and speak only as of the date of this
release. These forward-looking statements should not be read as guarantees of
future performance or results and will not necessarily be accurate indications
of whether or not those results will be achieved. Forward-looking statements
are subject to known and unknown risks, uncertainties and other factors that
may cause the Fund's actual results, performance or achievements, or those of
Second Cup cafDes, or industry results to be materially different from any
future results, performance or achievements expressed or implied by those
forward-looking statements.

About the Fund

The Fund is an open-ended trust established under the laws of the
Province of Ontario. It holds, through an indirect wholly-owned subsidiary,
the Canadian trade-marks and other intellectual property and associated rights
used by The Second Cup Ltd. ("Second Cup") in connection with the operation of
Second Cup cafDes in Canada. The trade-marks are licensed to Second Cup for
99 years for which Second Cup pays the Fund 6.5% of system sales of royalty
pooled cafDes. For further information on the Fund, visit
www.secondcupincomefund.com.

About Second Cup

Second Cup is Canada's largest specialty coffee cafDe franchisor and
second largest retailer of specialty coffee, as measured by number of cafDes.
For the ultimate on-line coffee experience, visit www.secondcup.com. Second
Cup is a wholly owned subsidiary of Cara Operations Limited, Canada's leading
integrated restaurant company.

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