TORONTO, Jan. 22 /CNW/ - Pizza Pizza Royalty Income Fund (the "Fund") and Pizza Pizza Limited ("PPL") today announced that effective January 1, 2009, the pool of restaurants (the "Royalty Pool"), on which royalties are paid to the Fund by PPL, has been increased to include 18 new Pizza Pizza restaurants and 19 new Pizza 73 restaurants. Of the 18 new Pizza Pizza restaurants opened between January 1, 2008 and December 31, 2008, six are traditional restaurants and 12 are non-traditional locations. The 19 Pizza 73 restaurants are comprised of 13 traditional restaurants and six non-traditional locations opened between September 2, 2007 and September 1, 2008. The Royalty Pool will decrease by nine Pizza Pizza restaurants which were closed during the year, of which four were traditional and five non-traditional. With the addition of the 28 net, new restaurants, royalties are now paid to the Fund on 637 restaurants in the Royalty Pool.
"All of our indicators reveal a market share that is consistently growing," said Curt Feltner, Chief Financial Officer for PPL. "The latest available market research for the three-month period from June to August 2008, showed Pizza Pizza's market share in Ontario's pizza segment to be 50% from a dollar standpoint while our share of total traffic exceeded 52%, well ahead of all of the U.S.-based companies and other competitors combined."
The Fund indirectly owns the Pizza Pizza and Pizza 73 trademarks and trade names used by PPL in its restaurants. In 2005, the Pizza Pizza trademarks and trade names were licensed to PPL for 99 years, and in return PPL pays the Fund a 6% royalty on the Pizza Pizza Royalty Pool system sales. In 2007, the Fund licensed the Pizza 73 trademarks and trade names to PPL for 99 years, and in return PPL pays the Fund a 9% royalty on the Pizza 73 Royalty Pool system sales.
Annually, on January 1 (the "Adjustment Date"), the Royalty Pool is adjusted to include the forecasted system sales from new Pizza Pizza restaurants opened on or before December 31 of the prior year, less system sales from any Pizza Pizza restaurants that have been permanently closed during the year. Similarly, on the Adjustment Date, the Royalty Pool is adjusted to include the forecasted system sales from new Pizza 73 restaurants opened on or before September 1 of the prior year, less any Pizza 73 restaurants permanently closed during the calendar year and further reduced by any decrease in system sales attributable to certain Pizza 73 restaurants whose territory has been adjusted (See "Adjusted Restaurant" as defined in the "Licence and Royalty Agreement for the Pizza 73 Operations").
PPL holds Class B and Class D units of Pizza Pizza Royalty Limited Partnership (the "Partnership"), which are exchangeable for a number of Fund units ("Units") based on the Class B and Class D Exchange Multipliers (the "equivalent Units"). At each annual Adjustment Date, the number of equivalent Units held by PPL is adjusted in accordance with a formula which determines the Class B and Class D Exchange Multipliers for the upcoming year. The formula and terms are defined in the Partnership's Limited Partnership Agreement. The formula, designed to be accretive to current Unitholders, is based on the forecasted sales from new restaurants less sales from any closed and/or adjusted restaurants, multiplied by the royalty rate, divided by the yield of the Units, and discounted by 7.5%. From January 1, PPL is entitled to receive 80% of the calculated, equivalent Units and distributions thereon, with the balance of the equivalent Units to be determined when the full year's sales of the new restaurants have been verified by an independent sales audit.
Effective January 1, 2009, the Class B Exchange Multiplier is adjusted based on the 2009 forecasted system sales of $4.7 million from the 18 new Pizza Pizza restaurants less sales of $1.6 million from nine permanently closed Pizza Pizza restaurants resulting in net, estimated Pizza Pizza sales of $3.1 million added to the Royalty Pool. The Class D Exchange Multiplier is adjusted based on 2009 forecasted system sales of $14.1 million from the 19 new Pizza 73 restaurants less $4.9 million in system sales attributable to eight adjusted restaurants resulting in net, estimated Pizza 73 sales of $9.2 million added to the Royalty Pool.
In exchange for adding the 28 net, new restaurants to the Royalty Pool, PPL has received 148,690 additional equivalent Units (through the Class B Exchange Multiplier) and 660,745 equivalent Units (through the Class D Exchange Multiplier). These units represent 80% of the full Class B and Class D entitlements (185,863 and 825,932 equivalent Units, respectively, represent 100%), with the balance to be received when the restaurants' 2009 sales performance is known with certainty.
The additional 809,435 equivalent Units described above represent 2.8% of the Units on a fully-diluted basis. Including these additional units, PPL now owns equivalent Units representing 24.4% of the Units, calculated on a fully-diluted basis; the controlling shareholder of PPL and his associates control an additional 5% of the Units.
Table 1 - Summary of Pizza Pizza Royalty Income Fund Outstanding and
Fully-Diluted Units:
Issued &
Outstanding
Units,
Issued & Equivalent
Outstanding Units
Units, and and Holdback of
Equivalent Equivalent
Units Units
Units outstanding & issuable
on December 31, 2008
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Public float 21,818,392 21,818,392
Class B equivalent Units held by PPL 5,430,699 5,430,699
PPL Additional Class B equivalent Units -
Holdback as of December 31, 2008 N/A 99,839 (1)
Class D equivalent Units held by PPL 558,750 558,750
PPL Additional Class D equivalent Units -
Holdback as of December 31, 2008 N/A 139,687 (2)
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Fully-diluted Units 27,807,841 28,047,367
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Percentage available for exchange by PPL
at December 31, 2008. 21.5% 22.2%
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Units outstanding & issuable on
January 1, 2009
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Public float 21,818,392 21,818,392
Class B equivalent Units held by PPL 5,430,699 5,430,699
PPL Additional Class B equivalent Units -
Holdback as of December 31, 2008 99,839 99,839 (1)
Class D equivalent Units held by PPL 558,750 558,750
PPL Additional Class D equivalent Units -
Holdback as of December 31, 2008 139,687 139,687 (2)
Additional PPL Class B equivalent Units
as of January 1, 2009 (80%) 148,690 148,690 (3)
Additional PPL Class B equivalent Units -
Holdback as of January 1, 2009 (20%) N/A 37,173 (4)
Additional Class D equivalent Units issued
to PPL on January 1, 2009 (80%) 660,745 660,745 (3)
PPL Additional Class D equivalent Units -
Holdback as of January 1, 2009 (20%) N/A 165,187 (5)
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Number of fully-diluted Units 28,856,802 29,059,162
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Percentage available for exchange by PPL
from January 1, 2009 24.4% 24.9%
(1) 20% holdback of equivalent Units from 28 net Pizza Pizza restaurants
added to the Royalty Pool on January 1, 2008. Actual number of
equivalent Units will be determined in early 2009, effective
January 1, 2008, once audited sales of the restaurants are known.
(2) 20% Holdback of equivalent Units from 9 net Pizza 73 restaurants
added to the Royalty Pool on January 1, 2008. Actual number of
equivalent Units will be determined in early 2009, effective
January 1, 2008, once audited sales of the restaurants are known.
(3) Equivalent Units available January 1, 2009
(4) 20% holdback of equivalent Units from 9 net Pizza Pizza restaurants
added to the Royalty Pool on January 1, 2009. Actual number of
equivalent Units will be determined in early 2010, effective
January 1, 2009, once audited sales of the restaurants are known.
(5) 20% holdback of equivalent Units from 19 net Pizza 73 restaurants
added to the Royalty Pool on January 1, 2009. Actual number of
equivalent Units will be determined in early 2010, effective
January 1, 2009, once audited sales of the restaurants are known.
%SEDAR: 00022262E