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Boston Pizza Royalties Income Fund Announces 2019 Second Quarter Results Including Franchise Sales of $216.9 Million for the Period, an Increase of 0.7%

Toronto Stock Exchange: BPF.UN

Distributable Cash of 33.6 cents per Unit for the second quarter of 2019 increased by 0.3% versus one year ago

Highlights

  • System-Wide Gross Sales1 of $281.3 million for the Period and $546.6 million YTD, representing increases of 0.2% and nominal growth, respectively, versus the same periods one year ago.
  • Franchise Sales2 from royalty pool restaurants of $216.9 million for the Period and $423.3 million YTD, representing increases of 0.7% and 0.9%, respectively, versus the same periods one year ago.
  • Same Restaurant Sales3 of negative 1.2% for the Period and negative 1.3% YTD.
  • Same Restaurant Sales on a Franchise Sales basis of negative 0.3% for the Period and negative 0.2% YTD.
  • Distributable Cash4 per Unit increased 0.3% for the Period and decreased 0.2% YTD.
  • Payout Ratio5 of 102.6% for the Period, 108.0% YTD, and 103.3% on a trailing 12-month basis. Cash balance at the end of the Period was $1.8 million .
  • On August 7, 2019 the trustees of the Fund declared the July 2019 distribution to unitholders of 11.5 cents per Unit.


VANCOUVER , Aug. 8, 2019 /CNW/ - Boston Pizza Royalties Income Fund (the "Fund") and Boston Pizza International Inc. ("BPI") reported financial results today for the second quarter period from April 1, 2019 to June 30, 2019 (the "Period") and January 1, 2019 to June 30, 2019 ("YTD").  A copy of this press release, the condensed consolidated interim financial statements and related Management's Discussion and Analysis ("MD&A") of the Fund and BPI are available at www.sedar.com and www.bpincomefund.com.  The Fund will host a conference call to discuss the results on August 8, 2019 at 8:30 am Pacific Time (11:30 am Eastern Time).  The call can be accessed by dialling 1-800-319-4610 or 604-638-5340. A replay will be available until September 8, 2019 by dialling 1-800-319-6413 or 604-638-9010. and entering the access code: 3458 followed by the # sign. The replay will also be available at www.bpincomefund.com.

Same Restaurant Sales ("SRS"), a key driver of distribution growth for unitholders of the Fund, was negative 1.2% for the Period and negative 1.3% YTD compared with positive 0.3% for both of the same periods in 2018.  Franchise Sales, the basis upon which Royalty6 and Distribution Income6 are paid to the Fund, exclude revenue from the sale of liquor, beer, wine and approved national promotions and discounts. On a Franchise Sales basis, SRS was negative 0.3% for the Period and negative 0.2% YTD compared with negative 0.4% and negative 0.6%, respectively, for the same periods in 2018. SRS results for the Period and YTD were principally due to declines in guest traffic and adverse weather conditions across Canada , partially offset by increased take-out and delivery sales and menu price increases. Franchise Sales of restaurants in the Fund's Royalty Pool were $216.9 million for the Period and $423.3 million YTD compared to $215.4 million and $419.4 million , respectively, for the same periods in 2018.  The increases in Franchise Sales for the Period and YTD were primarily due to the additional Franchise Sales from five Net New Restaurants7 added to the Royalty Pool on January 1, 2019 , partially offset by negative SRS on a Franchise Sales basis.

"We continue to see positive contributions from increased online take-out and delivery sales driven by increased adoption of our third party delivery channel which helped to offset declines in guest visitation and adverse weather conditions across Canada ," said Jordan Holm , President of BPI.  "Near the end of the second quarter, Boston Pizza introduced a completely refreshed national menu representing one of the biggest menu launches in Boston Pizza's history with over fifty percent of the menu items either brand new or improved recipes of existing items.  Popular new recipes include the Hungry Carnivore pasta, Mad Mac Pizza and Pizza Poutine."

The Fund's net and comprehensive income was $9.2 million for the Period compared to net and comprehensive income of $6.3 million for second quarter of 2018. The $2.9 million increase in the Fund's net and comprehensive income for the Period compared to the second quarter of 2018 was primarily due to a $3.1 million change in fair value adjustments. The Fund's net and comprehensive income was $20.3 million YTD compared to net and comprehensive income of $8.7 million year-to-date in 2018. The $11.6 million increase in the Fund's net and comprehensive income YTD compared to the same period in 2018 was primarily due to a $13.1 million change in fair value adjustments, partially offset by higher non-cash deferred income tax expense of $1.4 million . For a detailed discussion on the Fund's net and comprehensive income, please see the "Operating Results – Net and Comprehensive Income / Basic and Diluted Earnings" section in the Fund's MD&A for the Period and YTD.  The Fund's net income under International Financial Reporting Standards ("IFRS") contains non-cash items, such as the fair value adjustments on financial instruments and deferred income taxes, that do not affect the Fund's business operations or its ability to pay distributions to unitholders.  In the Fund's view, net income is not the only or most meaningful measurement of the Fund's ability to pay distributions.  Consequently, the Fund reports the non-IFRS metrics of Distributable Cash and Payout Ratio to provide investors with more meaningful information regarding the amount of cash that the Fund has generated to pay distributions and the extent to which the Fund has distributed that cash.  The Fund also reports the non-IFRS metric of SRS to provide investors useful information regarding the change in gross sales of Boston Pizza restaurants.  Readers are cautioned that Distributable Cash, Payout Ratio and SRS are non-IFRS financial measures that do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.  For a reconciliation between cash flow from operating activities (the most directly comparable IFRS measure) and Distributable Cash see the "Financial Summary" section of this press release.  For a detailed discussion on the Fund's Distributable Cash and Payout Ratio, please see the "Operating Results – Distributable Cash / Payout Ratio" section in the Fund's MD&A for the Period and YTD. A reconciliation of SRS to an IFRS measure is not possible.

The Fund generated Distributable Cash of $7.3 million for the Period, relatively unchanged from the second quarter of 2018. The Fund generated Distributable Cash of $13.9 million YTD compared to $14.0 million year-to-date in 2018.  The decrease in Distributable Cash of $0.1 million or 0.6% was primarily attributable to an increase in BPI's entitlement related to Class B general partner units of Boston Pizza Royalties Limited Partnership ("Royalties LP") of $0.2 million , partially offset by higher Royalty income.

The Fund generated Distributable Cash per unit of the Fund ("Unit") of $0.336 for the Period compared to $0.335 per Unit for the second quarter of 2018.  The increase in Distributable Cash per Unit of $0.001 or 0.3% was primarily attributable to there being fewer Units outstanding compared to the same period in 2018 due to the Fund's normal course issuer bid that was active from November 26, 2018 to December 14, 2018 , which resulted in the purchase and cancellation of 98,300 Units at an average price of $15.86 per Unit (the "2018 NCIB"). The Fund generated Distributable Cash per Unit of $0.639 YTD compared to $0.640 per Unit year-to-date in 2018. The decrease in Distributable Cash per Unit of $0.001 or 0.2% was primarily attributable to the decrease in Distributable Cash outlined above, partially offset by there being fewer Units outstanding compared to the same period in 2018 due to the 2018 NCIB.

The Fund's Payout Ratio was 102.6% for the Period and 108.0% YTD compared to 103.0% and 107.8%, respectively, for the same periods in 2018.  The decrease in the Fund's Payout Ratio for the Period compared to the same period in 2018 was due to the distributions paid decreasing by a nominal amount or 0.4%. The increase in the Fund's Payout Ratio YTD compared to the same period in 2018 was due to the combined effects of Distributable Cash decreasing by $0.1 million or 0.6%, partially offset by distributions paid decreasing by $0.1 million or 0.4%.  Distributions paid for the Period and YTD decreased as a result of there being fewer Units outstanding compared to same period in 2018 due to the 2018 NCIB.  The Fund strives to provide unitholders with consistent monthly distributions, and as a result, the Fund will generally experience seasonal fluctuations in its Payout Ratio.  The Fund's Payout Ratio is likely to be higher in the first and fourth quarters each year compared to the second and third quarters each year since Boston Pizza restaurants generally experience higher Franchise Sales during the summer months when restaurants open their patios and benefit from increased tourist traffic.  Higher Franchise Sales generally result in increases in Distributable Cash. On a trailing 12-month basis, the Fund's Payout Ratio was 103.3% as at June 30 , 2019.  A key feature of the Fund is that it is a "top line" structure, in which BPI and Boston Pizza Canada Limited Partnership  ("BP Canada LP") pay the Fund an amount based on Franchise Sales from restaurants in the Royalty Pool.  Accordingly, unitholders of the Fund are not directly exposed to changes in the operating costs or profitability of BPI, BP Canada LP or individual Boston Pizza restaurants.  Given this structure, and that the Fund has no current mandate to retain capital for other purposes, it is expected that the Fund will maintain a Payout Ratio close to 100% over time as the trustees of the Fund continue to distribute all available cash in order to maximize returns to unitholders.

On August 7, 2019 the trustees of the Fund approved a cash distribution to unitholders of 11.5 cents per Unit in respect of the period from July 1, 2019 to July 31 , 2019.  This distribution will be payable on August 30, 2019 to unitholders of record at the close of business on August 21 , 2019.  The Fund periodically reviews distribution levels based on its policy of stable and sustainable distribution flow to unitholders.  Including the July 2019 distribution, which will be payable on August 30, 2019 , the Fund will have paid out 205 consecutive monthly distributions totaling $324.4 million or $21.45 per Unit. Unitholders have received 18 distribution increases since the Fund's initial public offering of Units in 2002. 

FINANCIAL SUMMARY

The table below sets out selected information from the Fund's condensed consolidated interim financial statements together with other data and should be read in conjunction with the condensed consolidated interim financial statements and MD&A of the Fund for the three and six month periods ended June 30, 2019 and 2018.






For the periods ended June 30

Q2 2019  

Q2 2018  

YTD 2019  

YTD 2018  

(in thousands of dollars – except restaurants, SRS, Payout Ratio and per Unit items)

System-Wide Gross Sales

281,310

280,848

546,608

546,383

Number of restaurants in Royalty Pool

396

391

396

391

Franchise Sales reported by restaurants in the Royalty Pool

216,882

215,353

423,329

419,390






Royalty income

8,675

8,615

16,933

16,776

Distribution Income

2,856

2,871

5,575

5,593

Interest income

10

7

22

16

Total revenue

11,541

11,493

22,530

22,385

Administrative expenses

(307)

(327)

(623)

(653)

Interest expense on debt

(709)

(662)

(1,405)

(1,311)

Interest expense on Class B Unit liability

(1,030)

(934)

(1,740)

(1,575)

Profit before fair value adjustments and income taxes8

9,495

9,570

18,762

18,846

Fair value adjustment on investment in BP Canada LP

4,201

(1,800)

12,548

(11,948)

Fair value adjustment on Class B Unit liability

(1,851)

719

(5,372)

4,773

Fair value adjustment on interest rate swaps

(363)

17

(1,245)

22

Current and deferred income tax expense

(2,313)

(2,219)

(4,425)

(2,994)

Net and comprehensive income

9,169

6,287

20,268

8,699






Basic earnings per Unit

0.42

0.29

0.93

0.40

Diluted earnings per Unit

0.42

0.23

0.93

0.19






Distributable Cash / Distributions / Payout Ratio





Cash flows from operating activities

9,039

8,958

17,403

17,248

BPI Class B Unit entitlement                                                                                        

(1,029)

(931)

(2,077)

(1,881)

Interest paid on long-term debt

(723)

(669)

(1,409)

(1,340)

SIFT Tax on Units

37

(29)

8

(24)

Distributable Cash

7,324

7,329

13,925

14,003

Distributions paid

7,517

7,550

15,034

15,101

Payout Ratio

102.6%

103.0%

108.0%

107.8%

Distributable Cash per Unit

0.336

0.335

0.639

0.640

Distributions paid per Unit

0.345

0.345

0.690

0.690






Other





Same Restaurant Sales

(1.2%)

0.3%

(1.3%)

0.3%

Number of restaurants opened

3

1

3

1

Number of restaurants closed

3

0

4

1









Jun 30, 2019

Dec 31, 2018

Total assets


418,197

403,686

Total liabilities


137,790

131,019



 

Notes:

1)

"System-Wide Gross Sales" means the gross revenue: (i) of the corporate Boston Pizza restaurants in Canada owned by BPI; and (ii) reported to BP Canada LP by franchised Boston Pizza restaurants in Canada, without audit or other form of independent assurance, and in the case of both (i) and (ii), including revenue from the sale of liquor, beer, wine and revenue from BP Canada LP approved national promotions and discounts and excluding applicable sales and similar taxes.

2)

"Franchise Sales" is the basis upon which Royalty and Distribution Income are payable, and means the gross revenue: (i) of the corporate Boston Pizza restaurants in Canada owned by BPI that are in the Fund's Royalty Pool; and (ii) reported to BP Canada LP by franchised Boston Pizza restaurants in Canada that are in the Fund's Royalty Pool, without audit or other form of independent assurance, and in the case of both (i) and (ii), after deducting revenue from the sale of liquor, beer, wine and revenue from BP Canada LP approved national promotions and discounts and excluding applicable sales and similar taxes. Nevertheless, BP Canada LP periodically conducts audits of the Franchise Sales reported to it by its franchisees, and the Franchise Sales reported herein include results from sales audits of earlier periods.

3)

"Same Restaurant Sales" or "SRS" (previously named "same store sales growth" – see the "Overview – Top-Line Fund / Increases in Franchise Sales" section of the Fund's MD&A for the Period and YTD for more details) is the change in gross revenue of Boston Pizza restaurants as compared to the gross revenue for the same period in the previous year for Boston Pizza restaurants that have been open for a minimum 24 months.  SRS is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.  Management believes SRS provides investors useful information regarding the change in gross sales of Boston Pizza restaurants.

4)

"Distributable Cash" is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.  Management believes that this non-IFRS financial measure provides useful information to investors regarding the amount of cash the Fund has generated for distribution on the Units.  The preceding table provides a reconciliation from this non-IFRS financial measure to cash flows from operating activities, which is the most directly comparable IFRS measure.  Investors are cautioned that this should not be construed as an alternative to cash flows from operating activities.  For additional information regarding this financial metric, see the heading "Description of Non-IFRS and Additional IFRS Measures" in the Fund's MD&A for the Period and YTD.

5)

"Payout Ratio" is calculated by dividing the aggregate distributions paid by the Fund during a period by the Distributable Cash generated in that period.  Payout Ratio is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.  Management believes that this non-IFRS financial measure provides investors with useful information regarding the extent to which the Fund distributes cash on the Units.  As the Payout Ratio is calculated from a formula which includes Distributable Cash, which is a non-IFRS measure, a reconciliation of Payout Ratio to an IFRS measure is not possible.  For additional information regarding this financial metric, see the heading "Description of Non-IFRS and Additional IFRS Measures" in the Fund's MD&A for the Period and YTD.

6)

Royalties LP licenses BPI the right to use various Boston Pizza trademarks in return for BPI paying Royalties LP a royalty equal to 4% of Franchise Sales of Boston Pizza restaurants (the "Royalty") in the Fund's royalty pool (the "Royalty Pool").  "Distribution Income" is income received indirectly by the Fund on Class 1 LP Units and Class 2 LP Units of BP Canada LP.  See the "Overview – Purpose of the Fund / Sources of Revenue" section of the Fund's MD&A for the Period and YTD for more details.

7)

On January 1 of each year, an adjustment is made to add the Fund's Royalty Pool new Boston Pizza restaurants that opened and to remove any Boston Pizza restaurants that permanently closed since January 1 of the previous year (the "Net New Restaurants").

8)

Profit before fair value adjustments and income taxes is an additional IFRS measure.  For additional information regarding these financial metrics, see the heading "Description of Non-IFRS and Additional IFRS Measures" in the Fund's MD&A for the Period and YTD.

9)

Capitalized terms used in this press release that are undefined have the meanings ascribed to them in the Fund's MD&A for the Period and YTD.

 

OUTLOOK

Boston Pizza is well positioned for future growth and should continue to strengthen its position as the number one casual dining brand in Canada by achieving positive SRS and opening new Boston Pizza restaurants across Canada .

The two principal factors that affect SRS are changes in customer traffic and changes in average guest cheque.  BPI's and BP Canada LP's strategies to drive higher guest traffic include attracting a wide variety of guests into the restaurant, sports bar and take-out and delivery parts of each restaurant, offering a compelling value proposition to guests and leveraging a larger marketing budget versus the previous year along with a revised calendar of national and local restaurant promotions.  Increased average cheque levels are expected to be achieved through a combination of culinary innovation and annual menu re-pricing.  In addition, the franchise agreement governing each Boston Pizza restaurant requires a complete restaurant renovation every seven years.  Restaurants typically close for two to three weeks to complete the renovation and experience an incremental sales increase in the year following the re-opening.

Boston Pizza remains well positioned for future expansion as evidenced by the five Net New Restaurants that opened in 2018, the five new restaurants that have opened to date in 2019 and the two new restaurants currently under construction.  BPI's management believes that Boston Pizza will continue to serve more guests in more restaurants than any other casual dining brand in Canada by pursuing further restaurant development opportunities across the country.

ABOUT US

The Fund is a limited purpose open ended trust with an excellent track record for investors since its IPO in 2002.  Including the July 2019 distribution which is payable on August 30, 2019 , the Fund has delivered 18 distribution increases and 205 consecutive monthly distributions totaling $324.4 million or $21.45 per Unit.  The Fund earns revenue based on the franchise system sales of the 396 Boston Pizza restaurants in the Fund's royalty pool.

BPI is Canada's number one casual dining brand with annual gross sales of over $1 .1 billion serving more than 50 million guests through over 395 mainly franchisee operated restaurants.  The Boston Pizza brand has successfully existed for over 50 years since opening its first restaurant in Edmonton, Alberta in 1964.  BPI has been recognized as a Platinum Member of Canada's 50 Best Managed Companies and has been a Franchisees' Choice Designation winner for eight consecutive years.

Certain information in this press release constitutes "forward-looking information" that involves known and unknown risks, uncertainties, future expectations and other factors which may cause the actual results, performance or achievements of the Fund, Boston Pizza Holdings Trust, Boston Pizza Royalties Limited Partnership, Boston Pizza Holdings Limited Partnership, Boston Pizza Holdings GP Inc., Boston Pizza GP Inc., BPI, BP Canada LP, Boston Pizza Canada Holdings Inc., Boston Pizza Canada Holdings Partnership, Boston Pizza restaurants, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information.  All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Fund or management of BPI expects or anticipates will or may occur in the future, including such things as, initiatives underway for the year that will drive results going forward, seasonal fluctuations in the Payout Ratio, the Payout Ratio is likely to be higher in the first and fourth quarters, higher Franchise Sales generally result in increases in Distributable Cash, a Payout Ratio close to 100% will be maintained, trustees of the Fund will continue to distribute all available cash in order to maximize returns to unitholders, Boston Pizza being well positioned for future growth and expansion, the strengthening of Boston Pizza's position as the number one casual dining brand in Canada , the achievement of positive SRS, opening of new restaurants, attracting a wide variety of guests into the restaurant, sports bar and take-out and delivery parts at each restaurant, offering compelling value propostion to guests, leveraging a larger marketing budget with a revised calendar of national and restaurant promotions, increases in average guest cheques levels, incremental sales increasing after restaurant renovations, plans to pursue restaurant development opportunities and other such matters are forward-looking information.  When used in this press release, forward-looking information may include words such as "anticipate", "estimate", "may", "will", "expect", "believe", "plan", "should", "continue" and other similar terminology.  The material factors and assumptions used to develop the forward-looking information contained in this press release include the following: future results being similar to historical results, expectation related to future general economic conditions, business plans, receipt of franchise fees and other amounts, franchisees access to financing, pace of commercial real estate development, protection of intellectual property rights of Boston Pizza Royalties Limited Partnership and absence of changes of laws. Risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievement expressed or implied by the forward-looking information contained herein, relate to (among others) competition, demographic trends, consumer preferences and discretionary spending patterns, business and economic conditions, legislation and regulation, Distributable Cash and reliance on operating revenues, accounting policies and practices, the results of operations and financial condition of BPI, BP Canada LP and the Fund, as well as those factors discussed under the heading "Risks and Uncertainties" in the most recent Annual Information Form of the Fund. This information reflects current expectations regarding future events and operating performance and speaks only as of the date of this press release. Except as required by law, the Fund and BPI assume no obligation to update previously disclosed forward-looking information. For a complete list of the risks associated with forward-looking information and the Fund's business, please refer to the "Risks and Uncertainties" and "Note Regarding Forward-Looking Information" sections included in the Fund's MD&A for the Period and YTD available at www.sedar.com and www.bpincomefund.com.

The trustees of the Fund approved the contents of this press release.

® Boston Pizza Royalties Limited Partnership. All Boston Pizza registered Canadian trade-marks and unregistered Canadian trade-marks containing the words "Boston", "BP", and/or "Pizza" are trade-marks owned by the Boston Pizza Royalties Limited Partnership and licensed by the Boston Pizza Royalties Limited Partnership to Boston Pizza International Inc.

SOURCE Boston Pizza Royalties Income Fund


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