MISSISSAUGA, ON, Jan. 15 /CNW/ - Second Cup Royalty Income Fund (the "Fund") and The Second Cup Ltd. ("Second Cup") announced today their unaudited same cafe sales results for the fourth quarter and the annual adjustment to the number of Second Cup cafes in the royalty pool (the "Royalty Pool"). The sales of Second Cup cafes in the royalty pool is the basis on which the Fund's subsidiary, Second Cup Trade-Marks Limited Partnership ("MarksLP") receives royalty payments from Second Cup. The Fund expects to release its audited annual financial results on or before March 9, 2009.
Unaudited Same Cafe Sales Growth
Same cafe sales growth for cafes in the Royalty Pool for the fourth quarter and the year ended December 31, 2008 is expected to be lower by 1.4% and higher by 0.2% respectively.
"In line with reported lower retail spending throughout Canada, Second Cup experienced a relatively soft holiday season to deliver a -1.4% in same cafe sales for the quarter and +0.2% for the full year. I would like to thank our franchise partners for their passion and commitment to delivering a great guest experience every time. We are confident in Second Cup's value proposition and will continue to reinforce our core fundamentals of superior quality, inviting and relaxing atmosphere with caring individual owners committed to growing and maintaining our guest base during these economic times," commented Stacey Mowbray, President of Second Cup.
Royalty Pool Adjustment
The Royalty Pool is adjusted on January 1 of each year to include sales from new cafes that have been open for at least 60 days prior to November 1 of the preceding year, after deducting sales of any Second Cup cafes that have closed since the previous adjustment date. The Fund (through MarksLP) pays Second Cup for the additional royalty stream, if any, from the sales of the new cafes vended in to the Royalty Pool, based upon a formula set out in the licence and royalty agreement between Second Cup and MarksLP (the "Agreement"). The formula, designed to be accretive, is based on the sales from the new cafes and the yield of the Fund's units. The accretion is achieved by discounting the payment by 7.5%. The payment to Second Cup may be in the form of cash or additional units of the Fund.
Effective January 1, 2009, 18 cafes with estimated total annual system sales of $7,209,000 in 2009 were vended in to the Royalty Pool. 16 cafes with aggregate system sales of $6,194,000 were permanently closed in 2008 and removed from the Royalty Pool. Accordingly, the total number of cafes in the Royalty Pool as at January 1, 2009 is 359.
The net system sales increase for the Royalty Pool from this adjustment is estimated at $1,015,000 resulting in additional annual royalty revenues to the Fund of $66,000. The 80% initial payment by MarksLP to Second Cup for these estimated additional royalty revenues is $190,000. MarksLP has elected to satisfy this payment in cash. This payment was based on a Unit value of $4.37 per unit, calculated as the weighted average trading price of the units of the Fund for the 20 trading days ending December 23, 2008. A remaining 20% adjustment payment will be made on January 1, 2010 based upon the actual system sales of the 18 new cafes during 2009.
Second Cup has advised the Fund that two new cafes were opened subsequent to September 2, 2008, bringing the total number of cafes opened in 2008 to 12, and will be eligible for inclusion in the Royalty Pool effective January 1, 2010.
The Fund also reported that the actual system sales of the 15 cafes added to the Royalty Pool on January 1, 2008 have now been determined to be $6,433,000 for the period ended December 31, 2008 compared to the original estimate of $6,750,000. As a result, a final adjustment payment of $172,000 will be made by MarksLP to Second Cup, satisfied by delivering 18,312 additional units of the Fund. These units were valued at $9.40 per unit, calculated as the weighted average trading price of the units of the Fund for the 20 days ending December 21, 2007. In accordance with the Agreement, MarksLP will also make a cash payment of $20,600 to Second Cup, representing the distributions that would have otherwise been earned by Second Cup on the 18,312 additional units above had they been issued on January 1, 2008.
Subsequent to the transactions described above, Second Cup will own approximately 0.8% of the total outstanding units of the Fund. Also, Mr. Gabriel Tsampalieros, who controls Second Cup, will directly and indirectly control a total of 1,091,808 units (including the 75,819 units owned by Second Cup) which are held for investments purposes and which represent 11.0% of the total outstanding units of the Fund.
December Distribution
As previously announced, the Fund will make a distribution payment of $0.0940 per unit on January 30, 2009 for the month of December 2008 to unitholders of record at the close of business on December 31, 2008.
The Fund is an open-ended trust established under the laws of the Province of Ontario. It holds, through a subsidiary, the Canadian trade-marks and other intellectual property and associated rights used by Second Cup in connection with the operation of Second Cup cafes in Canada. For more information on the Second Cup Royalty Income Fund please visit www.secondcupincomefund.com.
Second Cup is Canada's largest specialty coffee cafe franchisor and second largest retailer of specialty coffee, as measured by number of cafes. For the ultimate on-line coffee experience, visit www.secondcup.com.
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