TORONTO, March 15 /CNW/ - Today, Pizza Pizza Royalty Income Fund (the
"Fund") reported financial results for the period of operations from July 6,
2005 to December 31, 2005 (the "Period"), which is the Fund's initial year. As
the Fund's initial public offering date was July 6, 2005, there are no
year-over-year comparables for the period.
The Fund's earnings were $7.9 million for the Period or $0.438 per unit
and the Fund declared distributions of $7.0 million or $0.392 per unit for the
Period.
As of December 31, 2005, working capital of the Fund combined with
working capital of the Partnership totalled $961 thousand and has been
accumulated as a reserve to cover seasonality and any unusual administrative
expenditures.
Same Store Sales Growth ("SSSG") was 6.0% for the Period when compared to
the same period in 2004. The growth for the Period is consistent with the 5.7%
SSSG for the 2005 fiscal year ended October 2, 2005, and 5.9% SSSG for the
2004 fiscal year ended September 26, 2004.
As a result of the SSSG during the reporting Period, the Fund increased
its November 2005 distribution by 2%, from $0.0667 to $0.0681 per unit.
Subsequent to the year end, the Fund increased its February 2006 distribution
by 2%, from $0.0681 to $0.0695 per unit.
FINANCIAL HIGHLIGHTS
Equity income earned by the Fund through its, effective 80% interest in
the Partnership at December 31, 2005, and interest income from the PPL Loan
for the period from July 6, 2005 to December 31, 2005, have been derived as
shown in the table below:
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Pizza Pizza Royalty Limited Partnership
Analysis of Distributable Cash
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For the Period
For the Period Three Months from July 6,
from July 6, to ended 2005 to
September 30, December 31, December 31,
2005(1) 2005 2005
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(in thousands of dollars,
except number of restaurants
in the Royalty Pool and
earnings per Fund unit)
Restaurants in Royalty Pool 500 500 500
System sales reported by
restaurants in the
Royalty Pool $ 83,582 $ 89,651 $ 173,233
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Royalty - 6% of system sales $ 5,015 $ 5,379 $ 10,394
Partnership expenses(2) (363) (418) (781)
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Partnership earnings for the
period before under-noted(4) 4,652 4,961 9,613
Pizza Pizza's interest(3) (1,275) (1,352) (2,627)
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Equity income related to
Pizza Pizza royalties earned
by Fund(4) 3,377 3,608 6,985
Interest income(5) 430 450 880
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Net earnings before
structuring costs(4) $ 3,807 $ 4,058 $ 7,865
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Earnings per Fund unit(4) $ 0.212 $ 0.226 $ 0.438
Distributions declared $ 3,398 $ 3,643 $ 7,041
Distributions per Fund unit $ 0.189 $ 0.203 $ 0.392
Payout ratio 89.2% 89.8% 89.4%
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(1) System sales for the initial, partial quarter of operations represent
system sales of the restaurants included in the royalty pool from the
time of completing the initial public offering on July 6, 2005 to
September 30, 2005.
(2) The Fund, indirectly through the Partnership, incurs administrative
expenses and interest expense on the $20 million outstanding bank
loan. Interest expense on the bank loan for the operating period was
$544 thousand.
(3) Represents the interest of Pizza Pizza in the earnings of the
Partnership from Class B and Class C Partnership units. The Class B
units are exchangeable into Fund units based on value of the Class B
Exchange Multiplier at the time of exchange as defined in the Licence
and Royalty Agreement.
(4) Excludes structuring costs of $11.9 million related to indirectly
receiving proceeds from the Fund's initial public offering. The
structuring costs were expensed during the period since they were
determined to be a cost without a future benefit. The Partnership
disclosed this transaction in the October 2, 2005, Pizza Pizza
Limited year end consolidated financial statements, which were filed
subsequent to the Fund's September 30, 2005 quarterly statement.
(5) The Fund indirectly earns interest income on the $30 million loan to
Pizza Pizza, with interest income accruing at 6% per annum, payable
monthly.
Distributions
The Fund declared distributions of $7.0 million or $0.3922 per unit for
the Period for a payout ratio of 89.4%.
For those unitholders holding units outside a tax deferred plan, the 2005
distributions will be treated as 46.20% taxable income and 53.80% return of
capital.
Distributions for the Period were as follows:
Period Payment Date Amount/unit
------ ------------ -----------
Partial month
July 6-31, 2005 August 15, 2005 5.59 cents (partial month)
August 1-31, 2005 September 15, 2005 6.67 cents
September 1-30, 2005 October 15, 2005 6.67 cents
October 1-31, 2005 November 15, 2005 6.67 cents
November 1-30, 2005 December 15, 2005 6.81 cents
December 1-31, 2005 January 15, 2006 6.81 cents
Subsequent events
Subsequent to the year ended December 31, 2005, the Fund declared
distributions as follows:
Period Payment Date Amount/unit
------ ------------ -----------
January 1-31, 2006 February 15, 2006 6.81 cents
February 1-28, 2006 March 15, 2006 6.95 cents
Subsequent to September 1, 2005, the date by which restaurants must have
been opened to be considered for inclusion in the 2006 Royalty Pool, and prior
to March 15, 2006, Pizza Pizza has opened 12 new locations; four of which were
traditional locations and eight were non-traditional. Subsequent to
December 31, 2005 and prior to March 15, 2006, Pizza Pizza has closed two
locations, both of which were non-traditional.
The audited, consolidated financial statements of the Fund, together with
its Management's Discussion and Analysis, will be available at www.sedar.com
and on the Fund's website at www.pizzapizzaroyaltyincomefund.com on or before
March 17, 2006.
LIQUIDITY & CAPITAL RESOURCES
The Fund's distribution policy is to distribute all available cash, after
allowing for reasonable reserves held at the Partnership level, in order to
maximize returns to Unitholders. In light of seasonal variations that are
inherent to the restaurant industry, the Fund's policy is to make equal
distribution payments to Unitholders on a monthly basis in order to smooth out
these fluctuations. Any further increase in distributions will be implemented
in such a manner so that the continuity of uniform monthly distributions is
maintained, while making provisions for working capital due to seasonal
variations of Pizza Pizza restaurant sales.
As of December 31, 2005, working capital of the Fund combined with
working capital of the Partnership totalled $961 thousand.
Outlook
Pizza Pizza management has advised the Trustees that, in 2006, it expects
to grow the number of restaurants in the Ontario network by 3% and to continue
researching potential expansion opportunities outside its predominately
Ontario market with potential expansion coming either through organic growth
or acquisitions. Additionally, Pizza Pizza expects to continue franchising its
remaining Company-owned restaurants.
On January 1, 2006, one net, new restaurant was added to the Royalty Pool
as a result of five new restaurants opening from March 14, 2005 to
September 1, 2005 and four closing during the year ended December 31, 2005.
For 2006, the Royalty Pool will consist of 501 Pizza Pizza restaurants.
With over 90% of traditional restaurants expanded or relocated within the
last five years, Pizza Pizza offers expanded seating capacity, thereby
targeting additional day-parts and allowing for additional product offerings
to enable restaurants to continue increasing same store sales. Management is
focused on completing the renovation program in 2006.
Forward-Looking Information
Certain statements in this report may constitute "forward-looking"
statements which involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. When used in this
report, such statements include such words as "may", "will", "expect",
"believe", "plan", and other similar terminology. These statements reflect
management's current expectations regarding future events and operating
performance and speak only as of the date of this report. These
forward-looking statements involve a number of risks and uncertainties. The
following are some factors that could cause actual results to differ
materially from those expressed in or underlying such forward-looking
statements: competition; changes in demographic trends; changing consumer
preferences and discretionary spending patterns; changes in national and local
business and economic conditions; legislation and governmental regulation;
accounting policies and practices; and the results of operations and financial
condition of Pizza Pizza. The foregoing list of factors is not exhaustive.
About the Fund, a publicly-traded entity
The Fund is a limited purpose, open-ended trust established under the
laws of Ontario to indirectly acquire certain trademarks and trade names used
by Pizza Pizza in its restaurants. The trademarks are licensed to Pizza Pizza
for 99 years, for which Pizza Pizza pays the Fund a royalty equal to 6% of the
system sales of its Pizza Pizza restaurants in the Royalty Pool. Annually, on
January 1 (the "Adjustment Date"), Pizza Pizza restaurants in the Royalty
Pool, on which Pizza Pizza pays a Royalty to the Fund, are adjusted to include
the forecasted system sales from new Pizza Pizza restaurants opened on or
before September 1 of the prior year, less system sales from any Pizza Pizza
restaurants that have been permanently closed during the year. As of
January 1, 2006, there were 501 Pizza Pizza restaurants in the Royalty Pool.
A key attribute of the Fund is that it is based on top-line, system sales
of the Royalty Pool restaurants and not on the profitability of either Pizza
Pizza or the restaurants in the Royalty Pool. The success of the Fund depends
primarily on the ability of Pizza Pizza to maintain and increase system sales
of the Royalty Pool and to meet its royalty obligations.
The Fund's trust units are listed on the Toronto Stock Exchange under the
symbol PZA.UN.
About Pizza Pizza Limited, the privately-owned company
Pizza Pizza Limited, a privately held-Canadian corporation, is one of
Canada's most successful players in the quick service restaurant industry.
Founded in 1967, Pizza Pizza is guided by a mission to provide the "best food,
made especially for you" and a focus on quality ingredients, customer service,
community contribution and continual innovation. The Pizza Pizza trademarks
are licensed to Pizza Pizza for 99 years, for which Pizza Pizza pays the Fund
a royalty equal to 6% of the system sales of its Pizza Pizza restaurants in
the Royalty Pool.
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%SEDAR: 00022262EF
