Mr. Jordan Holm reports
BOSTON PIZZA ROYALTIES INCOME FUND ANNOUNCES 2019 FIRST QUARTER RESULTS
Boston Pizza Royalties Income Fund and Boston Pizza International Inc. (BPI) have released financial results for the first quarter period from Jan. 1, 2019, to March 31, 2019. A copy of this press release, the interim consolidated financial statements and related management discussion and analysis of the fund and BPI are available at on SEDAR and the fund's website. The fund will host a conference call to discuss the results on May 9, 2019, at 8:30 a.m. Pacific Time (11:30 a.m. Eastern Time). The call can be accessed by dialling 1-800-319-4610 or 604-638-5340. A replay will be available until June 9, 2019, by dialling 1-800-319-6413 or 604-638-9010 and entering the access code 3154 followed by the number sign. The replay will also be available on the fund's website.
System-wide gross sales of $265.3-million for the period was in line with system-wide gross sales of $265.5-million in the same period one year ago;
Franchise sales from royalty pool restaurants of $206.4-million for the period, representing an increase of 1.2 per cent versus the same period one year ago;
Same-store sales growth of negative 1.3 per cent for the period;
Same-store sales growth on a franchise sales basis of 0.0 per cent for the period;
Distributable cash of 30.3 cents per unit, compared with 30.5 cents per unit in the same period one year ago;
Payout ratio of 113.9 per cent, compared with 113.1 per cent in the same period one year ago and 103.4 per cent on a trailing 12-month basis; cash balance at the end of the period was $2-million;
On May 8, 2019, the trustees of the fund declared the April, 2019, distribution to unitholders of 11.5 cents per unit.
Same-store sales growth (SSSG), a key driver of distribution growth for unitholders of the fund, was negative 1.3 per cent for the period, compared with positive 0.2 per cent for the same period in 2018. Franchise sales, the basis upon which royalty and distribution income are paid to the fund, exclude revenue from the sale of liquor, beer and wine, as well as approved national promotions and discounts. On a franchise sales basis, SSSG was 0.0 per cent for the period, compared with negative 0.8 per cent for the first quarter of 2018. SSSG for the period was principally due to continuing decline in guest traffic, partially offset by increased takeout and delivery sales and menu price increases. Much of the menu price increases were made in response to provincial minimum wage increases, and those menu price increases contributed to reduced guest traffic compared with the same period last year. Franchise sales of Boston Pizza restaurants in the royalty pool were $206.4-million for the period, compared with $204-million for the first quarter of 2018. The $2.4-million increase in franchise sales for the period was primarily due to the additional franchise sales from five net new restaurants added to the royalty pool on Jan. 1, 2019.
"While we continue to see challenges in guest visitation and higher labour costs across Canada, we are seeing positive results in other areas, including increased on-line takeout and delivery sales driven by increased adoption of our aggregator delivery channel," said Jordan Holm, president of BPI. "We are excited about several initiatives under way expected to drive in-restaurant visitation and results going forward, including our recently launched BP Shareables promotion that features our new Pepperoni Pizza Poutine, Kick'n Onion Rings and Mad Mac Pizza."
The fund's net and comprehensive income was $11.1-million for the period, compared with net and comprehensive income of $2.4-million for the first quarter of 2018. The $8.7-million increase in the fund's net and comprehensive income for the period compared with the first quarter of 2018 was primarily due to a $10-million change in fair-value adjustments, partially offset by higher income taxes of $1.3-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 management discussion and analysis for the period. 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 SSSG to provide investors useful information regarding the change in gross sales of Boston Pizza restaurants. Readers are cautioned that distributable cash, payout ratio and SSSG are non-IFRS financial measures that do not have standardized meanings prescribed by IFRS and therefore may not be comparable with 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 management discussion and analysis for the period. A reconciliation of SSSG to an IFRS measure is not possible.
The fund generated distributable cash of $6.6-million for the period, compared with $6.7-million for the first quarter of 2018. The decrease in distributable cash of $100,000, or 1.1 per cent, 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 $100,000, partially offset by higher royalty income.
The fund generated distributable cash per unit of the fund of 30.3 cents for the period compared with 30.5 cents per unit for the first quarter of 2018. The decrease in distributable cash per unit of 0.2 cent, or 0.7 per cent, was primarily attributable to the decrease in distributable cash outlined herein.
The fund's payout ratio for the period was 113.9 per cent, compared with 113.1 per cent in the first quarter of 2018. The increase in the fund's payout ratio for the period compared with the same period in 2018 was due to the combined effects of distributable cash decreasing by $100,000, or 1.1 per cent, partially offset by distributions paid decreasing by a nominal amount, or 0.5 per cent. Distributions paid decreased as a result of there being fewer units outstanding compared with same period in 2018 due to the fund's normal course issuer bid active from Nov. 26, 2018, to Dec. 14, 2018, which resulted in the purchase and cancellation of 98,300 units at an average price of $15.86 per unit. 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 with 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 103.4 per cent as at March 31, 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 fund's 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 per cent over time as the trustees of the fund continue to distribute all available cash in order to maximize returns to unitholders.
On May 8, 2019, the trustees of the fund approved a cash distribution to unitholders of 11.5 cents per unit in respect of the period from April 1, 2019, to April 30, 2019. This distribution will be payable on May 31, 2019, to unitholders of record at the close of business on May 21, 2019. The fund periodically reviews distribution levels based on its policy of stable and sustainable distribution flow to unitholders. Including the April, 2019, distribution, which will be paid on May 31, 2019, the fund will have paid out 202 consecutive monthly distributions totalling $316.8-million, or $21.10 per unit. Unitholders have received 18 distribution increases since the fund's initial public offering of units in 2002.
The attached table 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 management discussion and analysis of the fund for the three-month periods ended March 31, 2019, and 2018.
(in thousands of dollars, except restaurants,
SSSG, payout ratio and per-unit items)
For the periods ended March 31,
System-wide gross sales $265,298 $265,535
Number of restaurants in royalty pool 396 391
Franchise sales reported by restaurants
in the royalty pool $206,447 $204,037
Royalty income 8,258 8,161
Distribution income 2,719 2,722
Interest income 12 9
Total revenue 10,989 10,892
Administrative expenses (316) (326)
Interest expense on debt (696) (649)
Interest expense on Class B unit liability (710) (641)
Profit before fair-value adjustments and income taxes 9,267 9,276
Fair-value adjustment on investment in BP Canada LP 8,347 (10,148)
Fair-value adjustment on Class B unit liability (3,521) 4,054
Fair-value adjustment on interest rate swaps (882) 5
Current and deferred income tax expense (2,112) (775)
Net and comprehensive income 11,099 2,412
Basic earnings per unit 0.51 0.11
Diluted earnings (loss) per unit 0.51 (0.07)
Distributable cash/distributions/payout ratio
Cash flows from operating activities 8,364 8,290
BPI Class B unit entitlement (1,048) (950)
Interest paid on long-term debt (686) (671)
SIFT tax on units (29) 5
Distributable cash 6,601 6,674
Distributions paid 7,517 7,551
Payout ratio 113.9% 113.1%
Distributable cash per unit 0.303 0.305
Distributions paid per Unit 0.345 0.345
Same-store sales growth (1.3%) 0.2%
Number of restaurants opened 0 0
Number of restaurants closed 1 1
Boston Pizza is well positioned for future growth and should continue to strengthen its position as the No. 1 casual dining brand in Canada by achieving positive SSSG and opening new Boston Pizza locations across Canada.
The two principal factors that affect SSSG are changes in customer traffic and changes in average guest check. 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 takeout and delivery parts of each location, 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 store promotions. Increased average check levels are expected to be achieved through a combination of culinary innovation and annual menu repricing. In addition, the franchise agreement governing each Boston Pizza restaurant requires a complete store 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 reopening.
Boston Pizza remains well positioned for future expansion as evidenced by the five net new restaurants that opened in 2018. There are currently five new locations under construction. BPI's management believes that Boston Pizza will continue to serve more guests in more locations than any other casual dining brand in Canada by pursuing further restaurant development opportunities across the country.
About Boston Pizza Royalties Income Fund
The fund is a limited-purpose open-ended trust with an excellent record for investors since its initial public offering in 2002. Including the April, 2019, distribution which is payable on May 31, 2019, the fund has delivered 18 distribution increases and 202 consecutive monthly distributions totalling $316.8-million, or $21.10 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 No. 1 casual dining brand with annual gross sales of over $1.1-billion serving more than 50 million guests through 395 mainly franchisee-operated restaurants.
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