TORONTO, Oct. 31 /CNW/ - Today, Pizza Pizza Royalty Income Fund (the
"Fund") reported financial results for the third quarter ended September 30,
2006.
System sales for the 501 restaurants in the Fund's Royalty Pool were
$90.8 million for the three months ended September 30, 2006 and were
$259.2 million for nine months ended September 30, 2006. Same store sales
growth, the key driver of yield growth for unitholders of the Fund, increased
4% in the third quarter and has increased 4.5% for the nine months ended
September 30, 2006 compared with the same periods in 2005.
The latest industry statistics released by the Ontario Ministry of
Tourism reported U.S. border crossings to Ontario decreased by 12.2% in July
2006 over July 2005 and by 9.3% in the first seven months of 2006 over the
same period in 2005. A decrease in Ontario tourism, both U.S. and
international, has negatively impacted sales at a select number of our
restaurants during the current quarter and year-to-date. Particularly affected
during the summer months were sales at some of our outdoor-themed,
nontraditional locations.
The Fund's net earnings for the quarter were $4.1 million or $0.23 per
unit and earnings from operations for the nine month period were $11.7 million
or $0.65 per unit. The payout ratio for the third quarter was 93% and 97%
year-to-date.
Total system sales at Pizza Pizza restaurants have increased 5%
year-to-date over the prior year with sales rising to $264.1 million from
$250.1 million. The increase in sales is a result of a 4.5% increase in
year-to-date same store sales plus a net of 12 restaurants added since
September 30, 2005.
Pizza Pizza's system sales for the quarter ended December 31 have
generally been the strongest quarter and the March 31 quarter system sales
have been the softest due to seasonality of the business.
As previously announced during the quarter, the Fund increased its July
2006 distribution by 2.1%, from $0.0695 to $0.071 per unit as a direct result
of the consistent same store sales growth. This was the third increase since
the Fund's initial public offering on July 6, 2005.
Pizza Pizza Limited ("Pizza Pizza"), the operating company, opened four
nontraditional restaurants during the third quarter and closed three
nontraditional; 18 restaurants have opened in the nine months ended
September 30, 2006 and five have closed bringing the total to 518 locations.
Six of the 18 restaurants opened were traditional and one of the five closed
was a traditional location.
FINANCIAL HIGHLIGHTS
As the Fund's initial public offering date was July 6, 2005, below are
the results of the Fund's first, complete four quarters of operations. An
analysis of the presented highlights is available within the Management's
Discussion and Analysis on the Fund's website at
www.pizzapizzaroyaltyincomefund.com.
Equity earned by the Fund through its interest in the Pizza Pizza Royalty
Limited Partnership (the "Partnership") and interest income from the Pizza
Pizza Limited Loan have been derived as shown in the table below:
<<
Analysis of Distributable Cash
-------------------------------------------------------------------------
Most
Recent
Three Three Three Three Four
Months Months Months Months Quarters
ended ended ended ended ended
September June March December September
30, 2006 30, 2006 31, 2006 31, 2005 30, 2006
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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 501 501 501 500
Days in the Period 92 91 90 92 365
System sales
reported by
restaurants in
the Royalty Pool $ 90,773 $ 86,015 $ 82,484 $ 89,651 $ 348,923
-------------------------------------------------------------------------
Royalty - 6% of
system sales $ 5,446 $ 5,161 $ 4,949 $ 5,379 $ 20,935
Partnership
expenses (390) (455) (439) (418) (1,702)
-------------------------------------------------------------------------
Partnership
earnings for
the period
before under-noted 5,056 4,706 4,510 4,961 19,233
Pizza Pizza's
interest (1,385) (1,314) (1,275) (1,353) (5,327)
-------------------------------------------------------------------------
Equity income
related to
Pizza Pizza
royalties earned
by Fund 3,671 3,392 3,235 3,608 13,906
Interest income 450 450 450 450 1,800
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Net earnings $ 4,121 $ 3,842 $ 3,685 $ 4,058 $ 15,706
-------------------------------------------------------------------------
Earnings per
Fund unit $ 0.229 $ 0.214 $ 0.205 $ 0.226 $ 0.874
Distributions
declared $ 3,824 $ 3,744 $ 3,718 $ 3,643 $ 14,929
Distributions
per Fund unit $ 0.213 $ 0.209 $ 0.207 $ 0.203 $ 0.832
Payout ratio 93% 97% 101% 90% 95%
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Operating Results:
The Partnership, which is 79.7% owned by the Fund at September 30, 2006,
earns a 6% royalty on system sales of Pizza Pizza restaurants in the Royalty
Pool. 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 nine months ended September 30, 2006.
Revenues
Royalty Income earned by the Partnership was $5.4 million for the
quarter and $15.6 million for the nine months ended September 30,
2006. The 6% royalty is earned on the Royalty Pool of 501 Pizza Pizza
restaurants reporting $90.8 million in system sales for the quarter
and $259.2 for the nine months ended September 30, 2006.
Royalty Income earned by the Partnership for the prior year period
from July 6, 2005 to September 30, 2005 was $5 million and the
500 Pizza Pizza restaurants in the Royalty Pool reported System Sales
of $83.6 million.
Expenses
The Partnership's operating expenses include administrative expenses,
amortization of deferred financing fees and interest paid on a $20
million bank term loan.
Operating expenses for the quarter were $390,000, including $255,000
of interest expense, $122,000 of administrative expenses, and $13,000
in amortization of deferred financing fees. Operating expenses for
the first nine months were $1.3 million including $805,000 of
interest expense, $442,000 of administration expenses, and $37,000 in
amortization of deferred financing fees.
For the prior year period from July 6, 2005 to September 30, 2005,
operating expenses were $363,000, including $262,000 of interest
expense, $89,000 of administrative expenses and $12,000 in
amortization of deferred financing fees.
Net earnings
The Partnership had net earnings for the quarter of $5.1 million and
$14.3 million for the nine months ended September 30, 2006, which
were allocated to the Fund and Pizza Pizza based on their respective
interest in the Partnership.
For the period from July 6, 2005 to September 30, 2005, net earnings
were $4.6 million.
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. For
the most recent four quarters ended September 30, 2006 the Fund's
payout ratio was 95%.
As of September 30, 2006, working capital of the Fund combined with
working capital of the Partnership was $1.1 million and is available
as a reserve to cover seasonality and any unusual administrative
expenditures.
Distributions for the third quarter were as follows:
Period Payment Date Amount/unit
------ ------------ -----------
July 31, 2006 August 15, 2006 7.10 cents
August 31, 2006 September 15, 2006 7.10 cents
September 30, 2006 October 13, 2006 7.10 cents
A percentage of the 2006 distributions received by Unitholders will
be a tax-deferred return of capital. The return of capital percentage
is estimated to be 53% with the remaining 47% being taxable.
>>
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 November 1, on
www.sedar.com, prior to the Fund's conference call on November 1, 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 were 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 December 31 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
were 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
