TORONTO, Jan. 9 /CNW/ - Pizza Pizza Royalty Income Fund (the "Fund") and
Pizza Pizza Limited announce that, effective January 1, 2006, the pool of
Pizza Pizza restaurants (the "Royalty Pool") for which royalties are paid to
the Fund by Pizza Pizza Limited will receive an estimated increase in net
system sales of $1.4 million annually. The positive change is due to a net
increase of one restaurant following the opening of five locations from March
14, 2005 to September 1, 2005 and the closing of four from March 14, 2005, to
December 31, 2005. The adjustment increases the total number of Pizza Pizza
restaurants within the Royalty Pool to 501 at January 1, 2006.
This is the first adjustment to the Royalty Pool since the Fund, on July
6, 2005, indirectly acquired the Pizza Pizza Rights and Marks (the "PPL
Rights") used by Pizza Pizza Limited ("PPL") in the Pizza Pizza restaurants.
The PPL Rights have been licensed to Pizza Pizza Limited for 99 years and in
return the Fund receives a 6% royalty from system sales of the 501 restaurants
in the Royalty Pool.
"During the fiscal year ended October 2, 2005, we opened 16 new
restaurants and extensively renovated or relocated more than 30, while
continuing to increase same store sales growth by 5.7% for the twelve months,"
said Daniel Vukovich, Chief Operating Officer for Pizza Pizza. "The 5.7%
growth follows a 5.9% same store sales growth for the 2004, fiscal year."
The Pizza Pizza Royalty Income Fund is a limited purpose, open-ended
trust established under the laws of Ontario. A key attribute of the Fund is
that it is based on top-line revenue of the Royalty Pool restaurants and not
on the profitability of either Pizza Pizza Limited 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.
Pizza Pizza Limited, a privately-held Canadian corporation, is one of
Canada's most successful players in the quick service restaurant industry.
Backed by a proven track record for growth, a powerful brand and with more
than 500 restaurants - predominantly in Ontario - the company is among the
most promising in the foodservice 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.
(xx) Background on the Annual Adjustment (xx)
Commencing January 1, 2006, and annually thereafter (each an "Adjustment
Date") an adjustment will be made annually to the Royalty Pool to include
sales from new Pizza Pizza restaurants that have been open at least 120 days,
(i.e. by September 1 of each year) prior to the Adjustment Date. At each
annual adjustment the Fund will pay Pizza Pizza for the royalty stream
generated from the net, new restaurant sales. The payment is based on a
formula set out in the License and Royalty Agreement. The formula, designed to
be accretive to unitholders, is based on the estimated sales from new
restaurants less sales from any closed restaurants, multiplied by the 6%
royalty rate (the "net royalty addition") then divided by the current yield on
the Fund's units. The resulting amount is discounted by 7.5% before payment is
made to PPL by the Fund in the form of securities exchangeable for units of
the Fund.
For further clarity, the net royalty addition is divided by the unit
yield of the Fund then multiplied by 92.5%. The resulting amount is converted
to securities exchangeable for Fund units at the current unit price. Of this
amount, Pizza Pizza Limited receives 80% on the Adjustment Date, with the
balance received when the full year sales of the new restaurants have been
determined by an independent sales audit.
Based on the above calculation, Pizza Pizza Limited is entitled to
receive 94,064 in securities exchangeable for units of the Fund in return for
the $1,358,924 of estimated system sales added to the Royalty Pool January 1,
2006. The initial 80%, or 75,251 units, of additional securities are available
to Pizza Pizza for conversion into Fund units on January 1, 2006. Once the
actual sales of the new restaurants are determined in early 2007, the number
of additional securities due to PPL will be finalized.
Including the 75,251 units described above, Pizza Pizza has the right to
exchange its total securities for 4,563,251 Fund Units, representing 20.3% of
the Fund units on a fully diluted basis. PPL has agreed to maintain at least a
20% interest in the Fund until June 30, 2007; distributions on the 20%
interest are subordinated during the initial two-year hold period pursuant to
the terms of a subordination agreement.
Please see the following table for current ownership:
<<
Summary of Pizza Pizza Royalty Income Fund Units
Issued & Outstanding Issued & Outstanding
units, and Exchangeable units, and Exchangeable
Equivalent units Equivalent units
& Holdback of Exchangeable
Equivalent units
Units outstanding on December 31, 2005
-------------------------------------------------------------------------
Public float 17,952,000 17,952,000
Class B units held by PPL 4,488,000 4,488,000
-----------------------------------------------
Fully diluted units 22,440,000 22,440,000
-----------------------------------------------
-----------------------------------------------
Units outstanding & issuable on January 1, 2006
-------------------------------------------------------------------------
Public float 17,952,000 17,952,000
Class B units held by PPL 4,488,000 4,488,000
Additional Class B units
issued to PPL on
January 1, 2006 75,251 75,251
Class B units issuable
to PPL but withheld - 18,813
-----------------------------------------------
Number of fully
diluted units 22,515,251 22,534,064
-----------------------------------------------
-----------------------------------------------
Proportion of all units
outstanding held by
Pizza Pizza as of
January 1, 2006 20.27% 20.33%
Pizza Pizza has opened five new locations since September 1, 2005, and
they will be eligible for inclusion into the Royalty Pool on January 1, 2007,
along with restaurants that may be opened prior to September 1, 2006, less any
closures.
Pizza Pizza's trust units are listed on the Toronto Stock Exchange under
the symbol PZA.UN.
Web: www.pizzapizzaroyaltyincomefund.com and www.pizzapizza.ca
>>
%SEDAR: 00022262EF
