Toronto Stock Exchange: BPF.UN
Payout Ratio of 94.7% for the third
quarter
Highlights
- System-Wide Gross Sales1 of $290.3 million for the Period and $836.7 million YTD, representing increases of
1.3% and 1.6%, respectively, versus the same periods one year
ago.
- Franchise Sales2 from royalty pool restaurants of
$224.4 million for the Period and
$643.8 million YTD, representing
increases of 1.3% and 1.1%, respectively, versus the same periods
one year ago.
- Same store sales growth of 0.0% for the Period and 0.2%
YTD.
- Distributable Cash3 per Unit of $0.364 for the Period and $1.004 YTD, representing decreases of 6.4% and
4.3%, respectively, versus the same periods one year ago.
- Payout Ratio4 of 94.7% for the Period, 103.1% YTD,
and 103.4% on a trailing 12-month basis. Cash balance at the end of
the Period was $2.6 million.
- Effective January 1, 2018, the
British Columbia provincial
government increased the general corporate income tax rate by 1%,
which increased the Fund's SIFT tax rate by 1% to 27%. The
decreases in Distributable Cash per Unit and the increases in
Payout Ratio for the Period and YTD compared to the same periods in
2017 were principally due to the 1% increase in SIFT Tax.
- Trustees declared the October
2018 distribution to unitholders of 11.5 cents per Unit.
VANCOUVER, Nov. 8, 2018 /CNW/ - Boston Pizza Royalties
Income Fund (the "Fund") and Boston Pizza International Inc.
("BPI") reported financial results today for the third
quarter period from July 1, 2018 to
September 30, 2018 (the
"Period") and January 1, 2018
to September 30, 2018
("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 November 8, 2018 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 December 8, 2018 by dialling
1-800-319-6413 or 604-638-9010. and entering the access code: 2711
followed by the # sign. The replay will also be available at
www.bpincomefund.com.
Same store sales growth ("SSSG"), a key driver of distribution
growth for unitholders of the Fund, was 0.0% for the Period and
positive 0.2% YTD compared with positive 0.4% and negative 0.4%,
respectively, for the same periods in 2017. Franchise Sales,
the basis upon which Royalty5 and Distribution
Income5 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, SSSG was negative 0.2% for
the Period and negative 0.4% YTD compared with positive 0.4% and
negative 0.5%, respectively, for the same periods in 2017.
The SSSG for the Period and YTD was principally due to menu
re-pricing and increased take-out and delivery sales, offset by
weak general economic conditions in regions directly connected to
the Canadian oil and gas industry and lower guest traffic. Much of
the menu price increases were made in response to provincial
minimum wage increases, and these menu price increases have
contributed to reduced guest traffic compared to the same period
last year. BPI continues to monitor reactions to pricing
strategies in order to adapt to the competitive restaurant
environment. Franchise Sales of restaurants in the Fund's
Royalty Pool were $224.4 million for
the Period and $643.8 million YTD
compared to $221.5 million and
$636.6 million, respectively, for the
same periods in 2017. The increases in Franchise Sales for
the Period and YTD were primarily due to the additional Franchise
Sales from eight Net New Restaurants6 added to the
Royalty Pool on January 1, 2018, partially offset by
negative SSSG on a Franchise Sales basis.
"We continue to see good results in take-out and delivery sales
driven by our website and MyBP app, and our aggregator partnership
with Skip the Dishes. However, our overall performance continues to
be impacted by challenges in the regions directly connected to the
Canadian oil and gas sector and decreased guest traffic," said
Jordan Holm, President of BPI.
"We have several exciting initiatives underway that we believe will
drive improved performance and guest traffic in the quarters ahead,
including our Appy Hour campaign with $4 appetizers and cocktails during certain times
and our popular Holiday promotion featuring tasty new menu items
and a bonus Promotion Card offer."
The Fund's net and comprehensive income was $0.9 million for the Period compared to net and
comprehensive income of $5.4 million
for third quarter of 2017. The $4.5
million decrease in the Fund's net and comprehensive income
for the Period compared to the third quarter of 2017 was primarily
due to a $5.9 million change in fair
value adjustments and lower interest income of $0.3 million, partially offset by higher Royalty
income of $0.1 million, higher
Distribution Income of $0.1 million,
lower income taxes of $0.7 million
and lower interest and financing expenses of $0.7 million. The Fund's net and comprehensive
income was $9.6 million YTD compared
to net and comprehensive income of $19.9
million year-to-date in 2017. The $10.3 million decrease in the Fund's net and
comprehensive income for the Period compared to the same period in
2017 was primarily due to $14.1
million change in fair value adjustments and lower interest
income of $1.2 million partially
offset by higher Royalty income of $0.3
million, higher Distribution Income of $0.5 million, lower income taxes of $2.1 million and lower interest and financing
expenses of $2.0 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. Readers are cautioned
that Distributable Cash and Payout Ratio 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.
The Fund generated Distributable Cash of $8.0 million for the Period compared to
$7.9 million for the third quarter of
2017. The increase in Distributable Cash of $0.1 million or 0.6% was primarily attributable
to a decrease in BPI's entitlement related to Class B general
partner units ("Class B Units") of Boston Pizza Royalties
Limited Partnership ("Royalties LP") of $0.2 million and higher Royalty and Distribution
Income of $0.2 million, partially
offset by higher SIFT Tax of $0.3
million and interest paid on debt of $0.1 million. The Fund generated
Distributable Cash of $22.0 million
YTD compared to $21.3 million
year-to-date in 2017. The increase in Distributable Cash of
$0.7 million or 3.1% was primarily
attributable to a decrease in BPI's Class B Unit entitlement of
$1.0 million and higher Royalty and
Distribution Income of $0.8 million,
partially offset by higher SIFT Tax of $0.8
million and interest paid on debt of $0.2 million.
The Fund generated Distributable Cash per Unit of $0.364 for the Period compared to $0.389 per Unit for the third quarter of
2017. The decrease in Distributable Cash per Unit of
$0.025 or 6.4% was primarily
attributable to the British
Columbia provincial government increasing the general
corporate tax rate by 1% effective January
1, 2018, which increased the Fund's SIFT Tax rate by 1% to
27% for the Period, and negative SSSG on a Franchise Sales basis
for the Period. The Fund generated Distributable Cash per Unit of
$1.004 YTD compared to $1.049 per Unit for the same period in 2017.
The decrease in Distributable Cash per Unit of $0.045 or 4.3% was primarily attributable to
higher SIFT Tax and negative SSSG on a Franchise Sales basis
YTD.
The Fund's Payout Ratio for the Period was 94.7% and 103.1% YTD
compared to 88.4% and 98.5%, respectively, for the same periods in
2017. The increase in the Fund's Payout Ratio for the Period
compared to the same period in 2017 was due to the combined effects
of distributions paid increasing by $0.6
million or 7.9% and Distributable Cash increasing by
$0.1 million or 0.6%. The increase in
the Fund's Payout Ratio YTD compared to the same period in 2017 was
due to the combined effects of distributions paid increasing by
$1.7 million or 7.9% and
Distributable Cash increasing by $0.7
million or 3.1%. The increase in distributions paid in the
Period and YTD compared to the same periods in 2017 was due to BPI
having exchanged 1,910,597 Class B Units and
40,815,839 Class 2 general partner units of Boston Pizza
Canada Limited Partnership ("BP Canada LP") for
1,600,000 Units on September 26, 2017. 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 103.4% as at
September 30, 2018. A key
feature of the Fund is that it is a "top line" structure, in which
BPI and 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% over time as the
trustees of the Fund continue to distribute all available cash in
order to maximize returns to unitholders.
On November 8, 2018, the trustees
of the Fund approved a cash distribution to Unitholders of
11.5 cents per Unit in respect of the
period from October 1, 2018 to
October 31, 2018. This
distribution will be payable on November 30,
2018 to Unitholders of record at the close of business on
November 21, 2018. The Fund
periodically reviews distribution levels based on its policy of
stable and sustainable distribution flow to unitholders.
Including the October 2018
distribution, which will be paid on November
30, 2018, the Fund will have paid out 196 consecutive
monthly distributions totaling $301.8
million or $20.41 per
Unit. Unitholders have received 18 distribution increases
since the Fund's initial public offering of Units in 2002.
FINANCIAL SUMMARY
The tables below set 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 nine month periods ended September 30, 2018 and 2017.
|
|
|
|
|
|
Q3 2018
|
Q3 2017
|
YTD 2018
|
YTD 2017
|
(in thousands of
dollars – except restaurants, SSSG, Payout Ratio and per Unit
items)
|
|
|
|
|
System-Wide Gross
Sales
|
290,331
|
286,731
|
836,714
|
823,568
|
Number of restaurants
in Royalty Pool
|
391
|
383
|
391
|
383
|
Franchise Sales
reported by restaurants in the Royalty Pool
|
224,368
|
221,547
|
643,758
|
636,644
|
|
|
|
|
|
Royalty
income
|
8,974
|
8,862
|
25,750
|
25,466
|
Distribution
Income
|
2,991
|
2,863
|
8,584
|
8,107
|
Interest
income
|
8
|
304
|
24
|
1,208
|
Total
revenue
|
11,973
|
12,029
|
34,358
|
34,781
|
Administrative
expenses
|
(303)
|
(273)
|
(956)
|
(910)
|
Interest expense on
debt
|
(672)
|
(611)
|
(1,983)
|
(1,824)
|
Interest expense on
Class B Unit and Class C GP Unit liabilities
|
(908)
|
(1,727)
|
(2,483)
|
(4,680)
|
Profit before fair
value adjustments and income taxes
|
10,090
|
9,418
|
28,936
|
27,367
|
Fair value adjustment
on investment in BP Canada LP
|
(13,476)
|
(7,455)
|
(25,424)
|
(5,587)
|
Fair value adjustment
on Class B Unit liability
|
5,380
|
4,929
|
10,153
|
3,515
|
Fair value adjustment
on interest rate swaps
|
298
|
668
|
320
|
1,160
|
Current and deferred
income tax expense
|
(1,361)
|
(2,115)
|
(4,355)
|
(6,515)
|
Net and comprehensive
income
|
931
|
5,445
|
9,630
|
19,940
|
|
|
|
|
|
Basic earnings per
Unit
|
0.04
|
0.27
|
0.44
|
0.98
|
Diluted (loss)
earnings per Unit
|
(0.17)
|
0.02
|
0.05
|
0.80
|
|
|
|
|
|
Distributable Cash /
Distributions / Payout Ratio
|
|
|
|
|
Cash flows from
operating activities
|
9,548
|
9,953
|
26,796
|
28,074
|
Class C GP Unit
distributions to BPI
|
-
|
(300)
|
-
|
(1,200)
|
BPI Class B Unit
entitlement
|
(915)
|
(1,113)
|
(2,796)
|
(3,747)
|
Interest paid on
long-term debt
|
(687)
|
(615)
|
(2,027)
|
(1,835)
|
SIFT Tax on
Units
|
25
|
(5)
|
1
|
15
|
Distributable
Cash
|
7,971
|
7,920
|
21,974
|
21,307
|
Distributions
paid
|
7,551
|
6,999
|
22,652
|
20,996
|
Payout
Ratio
|
94.7%
|
88.4%
|
103.1%
|
98.5%
|
Distributable Cash
per Unit
|
0.364
|
0.389
|
1.004
|
1.049
|
Distributions paid
per Unit
|
0.345
|
0.345
|
1.035
|
1.035
|
|
|
|
|
|
Other
|
|
|
|
|
Same store sales
growth
|
0.0%
|
0.4%
|
0.2%
|
(0.4%)
|
Number of restaurants
opened
|
2
|
2
|
3
|
4
|
Number of restaurants
closed
|
4
|
1
|
5
|
3
|
|
|
|
|
|
|
Sep 30,
2018
|
Dec 31,
2017
|
Total
assets
|
|
|
415,947
|
434,939
|
Total
liabilities
|
|
|
130,714
|
139,201
|
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)
|
"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.
|
4)
|
"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.
|
5)
|
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 in the Fund's royalty pool
("Royalty"). "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.
|
6)
|
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").
|
7)
|
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.
|
8)
|
Prior to
September 26, 2017, BPI owed the Fund $24.0 million
pursuant to a credit agreement that was acquired by the Fund as
part of the Fund's initial public offering of Units that occurred
on July 17, 2002 (the "BP Loan"). Interest
accrued on all amounts outstanding under the BP Loan at the rate of
7.5% per annum and interest was payable in arrears by BPI to the
Fund on the first day of each month. The principal amount,
together with all accrued and unpaid interest, outstanding under
the BP Loan was to become due and payable on July 17,
2042. On September 26, 2017, BPI exchanged
2,400,000 Class C general partner units of
Royalties LP ("Class C GP Units") for the
assumption by Boston Pizza Holdings Limited Partnership
("Holdings LP") of BPI's obligation to pay the Fund the
BP Loan (the "Class C Exchange"). As part of
the Class C Exchange, Holdings LP received
2,400,000 Class C limited partner units of
Royalties LP, which entitle Holdings LP to receive the
monthly distributions from Royalties LP that BPI previously
received on the Class C GP Units. Immediately following
the Class C Exchange, the Fund and its subsidiaries
capitalized and eliminated the BP Loan.
|
9)
|
Other capitalized
terms used in this press release are defined 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 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 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 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 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 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
re-opening.
Boston Pizza remains well positioned for future expansion as
evidenced by the eight Net New Restaurants that opened in 2017, the
six new locations that have opened to date in 2018 and the seven
new locations currently 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 US
The Fund is a limited purpose open ended trust with an
excellent track record for investors since its IPO in 2002.
Including the October 2018
distribution which is payable on November
30, 2018, the Fund has delivered 18 distribution increases
and 196 consecutive monthly distributions totaling $301.8 million or $20.41 per Unit. The Fund earns revenue
based on the franchise system sales of the 391 Boston Pizza
restaurants included in the Fund's royalty pool.
BPI is Canada's number one
casual dining brand with annual gross sales of $1.1 billion serving more than
50 million guests through over 390 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 seven
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, 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 SSSG, opening of new restaurants, increases
in average guest cheques levels, incremental sales increasing after
store 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