Boston Pizza Royalties Income Fund (the "Fund") (TSX:BPF.UN) and Boston Pizza International Inc. ("BPI") announced today that effective January 1, 2009, the number of Boston Pizza restaurants included in the Fund's royalty pool (the "Royalty Pool") has been increased to include the royalties from 25 new full-service restaurants opened across Canada between January 1, 2008 and December 31, 2008 (the "Period"). Two restaurants were permanently closed during the Period. With the addition of these 23 net new restaurants, royalties are now payable to the Fund from 323 Boston Pizza restaurants.
The Fund indirectly owns the Boston Pizza trademarks and trade names used by BPI in its Boston Pizza restaurants in Canada. In 2002, the Fund licensed these trademarks to BPI for 99 years and in return BPI pays the Fund a top line royalty of 4% of franchise revenues of Royalty Pool restaurants. Annually, the Royalty Pool of Boston Pizza restaurants is increased to include the new Boston Pizza restaurants that have opened in the prior year. The increase is adjusted to reflect any locations that may have permanently closed during the year.
"We are very pleased to have opened another 25 Boston Pizza restaurants in 2008. Since the inception of the Fund in 2002, Boston Pizza has opened a remarkable total of 172 new restaurants in Canada which is more than any other full service restaurant chain over that period. This robust growth is evidence of Boston Pizza's strong operating model and further strengthens our position as Canada's number one casual dining brand," said George Melville, Co-Chairman of BPI.
On January 1 of each year (the "Adjustment Date"), an adjustment is made to add to the Royalty Pool new Boston Pizza restaurants that opened and to remove any Boston Pizza restaurants permanently closed prior to that Adjustment Date. In return for adding this additional royalty revenue, BPI receives the right to indirectly acquire additional Fund units (the "Additional Entitlements"). The adjustment for new franchise sales added to the Royalty Pool is designed to be accretive for Unitholders. The Additional Entitlements are calculated at 92.5% of the estimated royalty revenue added to the Royalty Pool, divided by the yield of the Fund, divided by the weighted average unit price. BPI receives 80% of the Additional Entitlements initially, with the balance received when the actual full year performance of the new restaurants is known with certainty. BPI receives 100% of distributions from the Additional Entitlements throughout the year. Once these new restaurants have been part of the Royalty Pool for a full year, an audit of the royalty revenues of these restaurants received from BPI will be performed. At such time an adjustment will be made to reconcile distributions paid to BPI and the Additional Entitlements received by BPI.
In return for adding the royalty revenue from the 23 net new restaurants to the Royalty Pool, BPI has received 940,085 Additional Entitlements. The 940,085 represents 80% (1,175,106 represents 100%) of the Additional Entitlements with the balance received when the actual full year performance of the new restaurants is known with certainty. The 940,085 Additional Entitlements represents 5.1% of the Fund units on a fully diluted basis. The full 1,175,106 Additional Entitlements would represent 6.2% of the Fund on a fully diluted basis. Including the 940,085 Additional Entitlements described above, BPI has the right to acquire 3,080,477 Fund Units, representing 16.8% of the Fund Units on a fully diluted basis. The issuance of the Additional Entitlements to BPI is subject to approval by the Toronto Stock Exchange.
The estimated annual gross franchise revenue for the 25 new restaurants in 2009 is $46.4 million. Pursuant to the Amended and Restated Limited Partnership Agreement governing Boston Pizza Royalties Limited Partnership, BPI is required to deduct from this amount the actual gross franchise revenue received from the two permanently closed restaurants during the first 12 month period immediately following their respective addition to the Royalty Pool, which in aggregate is $2.6 million. Consequently, the estimated annual gross franchise revenue for the 23 net new restaurants in 2009 is $43.8 million. The estimated 4% royalty revenue the Fund will receive in 2009 from these additional 23 net new restaurants is $1.8 million. The royalty revenue for the purposes of calculating the Additional Entitlements, therefore, is $1.6 million or 92.5%. Once the actual performance of these new restaurants for 2009 is known, the number of Additional Entitlements will be adjusted in 2010 to reflect the actual royalty revenue received by the Fund in 2009. As of January 1, 2009, there are 323 restaurants in the Royalty Pool.
Table 1 - Summary of Boston Pizza Royalties Income Fund Units
Issued &
Outstanding
Units,
Additional
Issued & Entitlements,
Outstanding &
Units, & Holdback of
Additional Additional
Entitlements Entitlements
Issued and Outstanding
Units as of December 31, 2008 15,220,968 15,220,968 (1)
BPI Additional Entitlements -
Outstanding as of December 31, 2008 2,140,392 2,140,392
BPI Additional Entitlements -
Holdback as of December 31, 2008 N/A 377,892 (2)
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Number of Fully Diluted Units as
of December 31, 2008 17,361,360 17,739,252
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Issued and Outstanding Units as of
December 31, 2008 & January 1, 2009 15,220,968 15,220,968
BPI Additional Entitlements -
Outstanding as of December 31, 2008 2,140,392 2,140,392
BPI Additional Entitlements -
Holdback as of December 31, 2008 N/A 377,892 (2)
BPI Additional Entitlements -
Issued & Outstanding as of January 1, 2009 940,085 940,085 (3)
(23 net new Restaurants added to Royalty Pool)
BPI Additional Entitlements -
Holdback as of January 1, 2009 N/A 235,021 (4)
(23 net new Restaurants added to Royalty Pool)
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Number of Fully Diluted Units
as of January 1, 2009 18,301,445 18,914,358
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BPI Total Ownership as of January 1, 2009 16.8% 19.5%
BPI Ownership based on 23 net new
Restaurants added to Royalty Pool only as
of January 1, 2009 5.1% 6.2%
(1) Issued and Outstanding Units as at December 31, 2008 is after the
repurchase and cancellation of 475,200 units under the Normal Course
Issuer Bid which commenced on October 1, 2008.
(2) Holdback of Additional Entitlements from the 34 new restaurants added
to Royalty Pool on January 1, 2008. Actual number of Additional
Entitlements will be determined in early 2009, effective January 1,
2008, once audited results of the 34 new restaurants are known.
(3) Issued effective January 1, 2009.
(4) Holdback of Additional Entitlements from 23 net new restaurants added
to Royalty Pool on January 1, 2009. Actual number of Additional
Entitlements will be determined in early 2010, effective January 1,
2009, once audited results of the 23 net new restaurants are known.
The Trustees of the Fund have approved the contents of this news release.
(R) 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 trademarks owned by the Boston Pizza Royalties Limited Partnership and licensed by the Boston Pizza Royalties Limited Partnership to Boston Pizza International Inc.
(C) Boston Pizza International Inc. 2009
SOURCE: Boston Pizza Royalties Income Fund
Boston Pizza Royalties Income Fund Jordan Holm Vice President, Investor Relations (604) 303-6083 Email: This email address is being protected from spambots. You need JavaScript enabled to view it. Website: www.bpincomefund.com