TORONTO, Aug. 9 /CNW/ - Today, Pizza Pizza Royalty Income Fund (the
"Fund") reported financial results for the quarter ended June 30, 2006. As the
Fund's initial public offering date was July 6, 2005, there are no prior year
comparables for the quarter.
Same Store Sales Growth, the key driver of yield growth for unitholders
of the Fund, increased by 4% for the second quarter and by 5% for the six
months ended June 30, 2006 compared with the comparable periods in 2005.
The Fund's net earnings for the quarter were $3.8 million or $0.214 per
unit and earnings for the six month period were $7.5 million or $0.419 per
unit.
As previously announced, the Fund increased its July 2006 distribution by
2.1%, from $0.0695 to $0.071 per unit. This is the Fund's third distribution
increase since the initial public offering.
Pizza Pizza Limited ("Pizza Pizza"), the operating company, opened five
restaurants during the second quarter and none were closed; 14 have been
opened in the six months ended June 30, 2006 and two have been closed bringing
the total number to 517 locations.
Pizza Pizza's system sales for the first quarter have generally been the
softest quarter and the fourth quarter system sales have been the strongest
due to seasonality of the business.
FINANCIAL HIGHLIGHTS
Equity earned by the Fund through its interest in the Partnership and
interest income from the Pizza Pizza Limited Loan have been derived as shown
in the table below:
<<
Pizza Pizza Royalty Limited Partnership
Analysis of Distributable Cash
-------------------------------------------------------------------------
For the Period
Three Months Three Months Three Months from July 6, to
ended ended Ended September 30,
June 30, March 31, December 31, 2005
2006 2006 2005 (partial period)
-------------------------------------------------------------------------
(in thousands of dollars, except number of restaurants, days in the
Period and earnings per Fund unit)
Restaurants in
Royalty Pool 501 501 500 500
Days in the Period 91 90 92 87
System sales
reported by
restaurants in
the Royalty
Pool $ 86,015 $ 82,484 $ 89,651 $ 83,582
-------------------------------------------------------------------------
Royalty - 6% of
system sales $ 5,161 $ 4,949 $ 5,379 $ 5,015
Partnership
expenses(1) (455) (439) (418) (363)
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Partnership
earnings for
the period
before
under-noted(3)(4) 4,706 4,510 4,961 4,652
Pizza Pizza's
interest(2) (1,314) (1,275) (1,353) (1,275)
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Equity income
related to
Pizza Pizza
royalties
earned by
Fund(3)(4) 3,392 3,235 3,608 3,377
Interest
income(5) 450 450 450 430
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Net
earnings(3)(4) $ 3,842 $ 3,685 $ 4,058 $ 3,807
-------------------------------------------------------------------------
Earnings per
Fund
unit(3)(4) $ 0.214 $ 0.205 $ 0.226 $ 0.212
Distributions
declared $ 3,744 $ 3,718 $ 3,643 $ 3,398
Distributions
per Fund unit $ 0.209 $ 0.207 $ 0.203 $ 0.189
Payout ratio 97% 101% 90% 89%
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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
$277 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 License
and Royalty Agreement.
(3) For the period ended March 31, 2006, 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 net new restaurant by Pizza Pizza thereby increasing Pizza
Pizza's exchange multiplier. (See "Restaurants Added to the Royalty
Pool")
(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.
(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.
>>
Pizza Pizza Royalty Limited Partnership (the "Partnership") Operating
Results
The Partnership, which is 79.7% owned by the Fund at June 30, 2006, earns
a 6% royalty income on the Royalty Pool system sales of the Pizza Pizza
restaurants. The Fund earns equity income from its investment in the
Partnership. The Fund's equity income from the Partnership is calculated as
the royalty income less the Partnership's operating expenses less earnings
attributable to Pizza Pizza.
The following provides information on the Partnership performance for the
quarter and six months ended June 30, 2006.
<<
Revenues
Royalty Income earned by the Partnership was $5.2 million for the
quarter and $10.1 million for the six months ended June 30, 2006. The
6% royalty is earned on the Royalty Pool of 501 Pizza Pizza
restaurants reporting $86 million in system sales for the quarter and
$168.5 for the six months ended June 30, 2006.
Expenses
The Partnership's operating expenses include administrative expenses,
amortization of deferred financing fees and interest paid on a $20
million bank term loan. (See "Term Loan and Operating Loan".)
Operating expenses for the quarter were $455,000, including $277,000
of interest expense, $165,000 of administrative expenses, and $13,000
in amortization of deferred financing fees. Operating expenses for
the first six months were $894,000 including $551,000 of interest
expense, $317,000 of administration expenses, and $26,000 in
amortization of deferred financing fees.
Net earnings
The Partnership had net earnings for the quarter of $4.7 million and
$9.2 million for the six months ended June 30, 2006, which were
allocated to the Fund and Pizza Pizza based on their respective
interest in the Partnership.
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 Pizza Pizza trademarks from
Pizza Pizza Limited. 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.
Since the Fund has operated for four consecutive quarters and has
achieved an annualized EBITDA (earnings before interest, taxes and
depreciation and amortization) exceeding $20 million, the credit
spread is now 1.75%, reducing the effective fixed interest rate on
the loan to 5.3%.
Distributions
The Fund is a "top-line" restaurant royalty trust and does not have
exposure to the capital expenditure requirements and operating
activities of the Pizza Pizza restaurants or Pizza Pizza Limited and
therefore, will tend to have a higher payout ratio compared with
other business trusts. For the period from July 6, 2005 through June
30, 2006, the Fund's payout ratio was 94%.
As of June 30, 2006, working capital of the Fund combined with
working capital of the Partnership was $819 thousand and is available
as a reserve to cover seasonality and any unusual administrative
expenditures.
Distributions for the second quarter were as follows:
Period Payment Date Amount/unit
------ ------------ -----------
April 30, 2006 May 15, 2006 6.95 cents
May 31, 2006 June 15, 2006 6.95 cents
June 30, 2006 July 14, 2006 6.95 cents
Distributions subsequent to June 30, 2006 were increased as follows:
July 31, 2006 August 15, 2006 7.10 cents
For those unitholders holding units outside a tax deferred plan, the
2006 distributions are projected to be 47% taxable income and 53%
return of capital.
>>
The unaudited, consolidated financial statements of the Fund, together
with its Management's Discussion and Analysis, are available in conjunction
with this press release on the Fund's website at
www.pizzapizzaroyaltyincomefund.com and will be available August 10, on
www.sedar.com, prior to the Fund's conference call on August 10, at 9:00 a.m.
(ET).
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 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.
%SEDAR: 00022262EF
