TORONTO, May 4 /CNW/ - Today, Pizza Pizza Royalty Income Fund (the
"Fund") reported financial results for the quarter ended March 31, 2006 (the
"Period"). As the Fund's initial public offering date was July 6, 2005, there
are no prior year comparables for the Period.
Same Store Sales Growth ("SSSG") was 5.4% for the Period compared with
the same period in 2005. As a result of the SSSG increase during the reporting
Period, the Fund increased its February 2006 distribution by 2%, from $0.0681
to $0.0695 per unit.
System sales for Pizza Pizza Limited ("Pizza Pizza") for the first
quarter of the calendar year have generally been the softest quarter and the
fourth quarter system sales have been the strongest. This seasonality has been
repeated in the past two quarters. The Fund's earnings were $3.685 million for
the Period or $0.205 per unit and the Fund declared distributions of $3.718
million or $0.207 per unit for the Period.
Pizza Pizza opened nine restaurants and closed two during the quarter
bringing the total number to 512 locations.
FINANCIAL HIGHLIGHTS
Equity and interest income earned by the Fund through its interest in the
Partnership and from the PPL Loan has been derived as shown in the table
below:
<<
Pizza Pizza Royalty Limited Partnership
Analysis of Distributable Cash
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Three Three For the
Months Months Period from
Ended Ended July 6, to
March 31, December September
2006 31, 2005 30, 2005
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(in thousands of dollars, except
number of restaurants, days in the
Period and earnings per Fund unit)
Restaurants in Royalty Pool 501 500 500
Days in the Period 90 92 87
System sales reported by
restaurants in the Royalty Pool $ 82,484 $ 89,651 $ 83,582
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Royalty - 6% of system sales $ 4,949 $ 5,379 $ 5,015
Partnership expenses(1) (439) (418) (363)
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Partnership earnings for the period
before under-noted(3)(4) 4,510 4,961 4,652
Pizza Pizza's interest(2) (1,275) (1,353) (1,275)
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Equity income related to Pizza Pizza
royalties earned by Fund(3)(4) 3,235 3,608 3,377
Interest income(5) 450 450 430
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Net earnings(3)(4) $ 3,685 $ 4,058 $ 3,807
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Earnings per Fund unit(3)(4) $ 0.205 $ 0.226 $ 0.212
Distributions declared $ 3,718 $ 3,643 $ 3,398
Distributions per Fund unit $ 0.207 $ 0.203 $ 0.189
Payout ratio 101% 89.8% 89.2%
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(1) 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 current Period was
$274 thousand.
(2) 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.
(3) For the current Period, earnings shown in the table excludes a
$635 thousand accounting loss on an effective disposition of 0.3%
interest in the Partnership as a result of the vending in of one new
restaurant by Pizza Pizza thereby increasing Pizza Pizza's exchange
multiplier. This loss would be reversed if, in future periods,
Pizza Pizza converted its additional Class B units into Fund units
and sold them. (See "Restaurants Added to the Royalty Pool" within
the Fund's Management's Discussion and Analysis)
(4) For the two quarters in 2005, earnings shown exclude 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. There was no effect on the Partnership's
cash from operations.
(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. (the "PPL Loan")
Term Loan and Operating Loan
The Partnership has a $20 million non-revolving, three-year term loan
facility, which was arranged during the initial public offering to partially
finance the purchase of the PPL Rights from Pizza Pizza. During 2005, the
interest rate on the facility was fixed with an interest rate swap through
January 6, 2010 at 3.55% plus 2% credit spread. If the Fund has operated for
four consecutive quarters and has achieved an annualized EBITDA of
$20 million, the credit spread would be reduced to 1.75%, reducing the
effective fixed interest rate on the loan to 5.3%.
Distributions
For the period from July 6, 2005 through March 31, 2006, the Fund's
payout ratio was 93%. Since the Fund is a top-line royalty fund, it does not
have capital expenditure requirements.
As of March 31, 2006, working capital was $808,000 and has been
accumulated as a reserve to cover seasonality and any unusual administrative
expenditures.
Distributions for the Period were as follows:
Period Payment Date Amount/unit
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January 1-31, 2006 February 15, 2006 6.81 cents
February 1-28, 2006 March 15, 2006 6.95 cents
March 1-31, 2006 April 13, 2006 6.95 cents
For those unitholders holding units outside a tax deferred plan, the 2005
distributions are treated as 46.20% taxable income and 53.80% return of
capital.
The unaudited, consolidated financial statements of the Fund, together
with its Management's Discussion and Analysis, are available at www.sedar.com
and on the Fund's website at www.pizzapizzaroyaltyincomefund.com.
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 predominantly
Ontario market, with any potential expansion coming either through organic
growth or acquisitions. Additionally, Pizza Pizza expects to continue
franchising its remaining Company-owned restaurants.
Same Store Sales Growth, the key driver of yield growth for unitholders
of the Fund, was 5.4% for the quarter ended March 31, 2006, compared with the
same period in 2005.
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 31, 2006, Pizza Pizza has opened 14 new locations, five of which are
traditional locations and nine are non-traditional. Subsequent to December 31,
2005 and prior to March 31, 2006, Pizza Pizza has closed two locations, both
of which were non-traditional.
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
