TORONTO, Aug. 25 /CNW/ - Pizza Pizza Royalty Income Fund (the "Fund")
(TSX:PZA.UN) today announced that its Board of Trustees unanimously approved
amendments to its License and Royalty Agreement with Pizza Pizza Limited
("Pizza Pizza") and related provisions of the Partnership Agreement of Pizza
Pizza Royalty Limited Partnership (the "Partnership") that will result in a
removal of the requirement that a restaurant be open for at least 120
consecutive days before it may be included in the Royalty Pool for the
subsequent year. The removal of the 120-day seasoning period involves only a
change in the timing of the inclusion of restaurants in the Royalty pool and
not the substance of the relationship between Pizza Pizza and the Fund.
Previously, restaurants opened after September 1st of a given year would not
be included in the Royalty Pool until January 1 of the second following year.
Pizza Pizza requested elimination of the 120-day seasoning period in
order that the restaurant opening period would coincide with the fiscal year
of the Fund. This change will benefit management's reporting of restaurant
openings and closures in relation to the number of restaurants in the Royalty
Pool. Existing safeguards, including the holdback arrangement described below
in greater detail, will continue to ensure that additional entitlements
awarded to Pizza Pizza upon adding new restaurants to the Royalty Pool are
reconciled based on actual system sales one year after being added to the
Royal Pool.
This change will affect the determination of the Royalty Pool as at
January 1, 2007 and subsequent years and the corresponding entitlements of
Pizza Pizza to indirectly acquire additional Fund units. For January 1, 2007,
new restaurants opened between September 1, 2005 and December 31, 2006 will be
added to the Royalty Pool. For each January 1 thereafter, restaurants opened
between January 1 and December 31 of the prior year will be included in the
calculation. As is currently the case, Pizza Pizza will receive the right to
indirectly acquire Fund units in return for adding this additional royalty
revenue. The calculation for the number of additional unit entitlements
received by Pizza Pizza is designed to be accretive to existing Fund
Unitholders as the additional royalty revenues from the new restaurants are
acquired at a 7.5% discount.
On January 1 of each year the additional entitlements earned as a result
of adding estimated royalty revenue to the Fund will initially represent 80%
of the total number of Fund units that Pizza Pizza has the right to receive;
20% is held back until the actual performance of the new restaurants is known
with certainty. Once new restaurants have been in the royalty pool for a full
year, an audit of the actual royalty revenues of these restaurants is
performed and an adjustment is made with respect to the actual number of
additional entitlements which Pizza Pizza will receive.
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. 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 operating company
Pizza Pizza Limited, a privately-held, Canadian corporation, is one of
Canada's most successful operators 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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