Prime Restaurants Royalty Income Fund (the "Fund") (TSX:EAT.UN) today reported
results for the three months and year ended December 31, 2009.
Gross revenue reported by the royalty pooled restaurants in the fourth quarter
of 2009 was $82.4 million compared to $82.1 million for the same period last
year. For the year ended December 31, 2009, gross revenues were $333.1 million
compared to $340.6 million in 2008. There are 161 royalty pooled restaurants in
2009 compared to 155 royalty pooled restaurants in 2008. For the three months
and year ended December 31, 2009, royalty income from royalty pooled restaurants
was $1.5 million and $9.6 million respectively, compared to $2.7 million and
$11.1 million for the same periods last year.
Distributable cash available to Unitholders was $0.8 million and $6.3 million
for the three months and year ended December 31, 2009. The Fund declared cash
distributions of $0.8 million or $0.12 per unit in the quarter and $6.3 million
or $0.97 per unit for the year, compared to $1.7 million or $0.28 per unit and
$6.9 million or $1.13 per unit for the same periods in 2008.
Sales for the royalty pooled restaurants in 2009 have been affected by intense
competition and the negative impact of the current economic recession on
consumer's discretionary spending and the casual dining sector. As a result,
while the decline in same store sales in the fourth quarter was less than the
second and third quarters of the year, compared to the prior year's fourth
quarter same store sales declined by 4.4%. By brand, Casey's and East Side
Mario's posted same store sales declines of 0.8% and 6.3%, respectively in the
quarter, while the Prime pubs posted flat same store sales growth ("SSSG"). On a
regional basis, Western Canada, Ontario, Quebec, and Atlantic Canada posted same
store sales declines of 7.3%, 4.4%, 3.0%, and 0.5% respectively in the fourth
quarter of 2009. For 2009, same store sales declined by 6.5% compared to the
prior year. SSSG at Casey's, East Side Mario's, and the Prime Pubs were down
4.9%, 7.5%, and 2.6%, respectively. For the year ended December 31, 2009,
Western Canada, Ontario, Quebec, and Atlantic Canada posted negative SSSG of
11.9%, 6.0%, 6.1%, and 0.8% respectively.
"While 2009 was one of the most difficult periods in our 29 year history, we
were able to take a number of positive steps to mitigate the impact of the
challenging economy and, as a result, experienced an improving trend in same
store sales through the fourth quarter," commented John Rothschild, Chairman and
CEO of Prime Restaurants of Canada Inc. ("PRC") "Looking ahead, we believe these
initiatives, combined with our multi-brand approach covering all segments of the
casual dining and pubs business, position us strongly for solid growth as the
economy recovers."
During the year, the Fund determined that its investment in PRC Trademarks Inc.
("TradeMarkCo") was impaired and, accordingly, the investment carrying amount
has been reduced to an estimated realizable amount of $46,947,070. The estimated
realizable amount was determined by discounting the expected future cash flows
on the TradeMarkCo Notes at their original effective interest rate. An allowance
for loan impairment of $16,255,560 has been established against the TradeMarkCo
Note at year-end with a corresponding impairment charge recorded in the
statement of earnings (loss) for the year. The CICA Handbook Section 3025,
Impaired Loans, requires that an impairment loss be recognized as events or
conditions indicating impairment occur. An impairment loss would occur if the
Fund no longer has reasonable assurance of timely collection of the full amount
of principal and interest on its investment in TradeMarkCo. The royalty deferral
for PRC and the interest deferral for TradeMarkCo as announced in previous new
releases, are still in effect. The impairment allowance is a non-cash
transaction and will not have any impact on the Fund's cash flow.
Operational Review
Four restaurants were closed during the quarter; three East Side Mario's located
in Ontario and one in Alberta.
FINANCIAL HIGHLIGHTS OF THE FUND:
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($000's, except per
unit data) Three months Three months Year ended Year ended
ended ended December 31, December 31,
December 31, December 31, 2009 2008
2009 2008
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Interest and dividend
income $ 1,294 $ 1,779 $ 7,369 $ 7,049
Net earnings (15,629) 1,749 (10,157) 6,931
Total assets 42,579 57,009 42,579 57,009
Distributions to
Unitholders 785 1,723 6,316 6,892
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Trust units -
outstanding 6,538,174 6,110,000 6,538,174 6,110,000
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Trust units - diluted 9,749,794 9,321,620 9,749,794 9,321,620
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Basic earnings per
Trust Unit ($ 2.38) $ 0.28 ($ 1.55) $ 1.13
Diluted earnings per
Trust Unit ($ 2.38) $ 0.28 ($ 1.55) $ 1.13
Distributions paid
per Trust Unit $ 0.12 $ 0.28 $ 0.97 $ 1.13
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SELECTIVE YEAR-TO-DATE TRADEMARKCO FINANCIAL HIGHLIGHTS:
----------------------------------------------------------------------------
($000's except # of Royalty Pooled 2009 2008
Restaurants)
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# of Royalty Pooled Restaurants 161 155
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Gross Revenue Royalty Pooled Restaurants $ 333,093 $ 340,552
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Royalty Income 9,643 11,068
Operating Expenses 733 585
Impairment Provision (39,626)(i) -
Dividends accrued on Class A and Class B shares 3,613 3,613
Interest Expense 7,110 6,892
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(i) In accordance with CICA Handbook Section 3064.64, TradeMarkCo is
required to perform an annual test for impairment of the Trademarks, an
intangible asset that is not subject to amortization, held by the
Company. Impairment would be recognized when the estimated fair value of
the Trademarks is lower than the carrying value. Management has
determined that an impairment of the Trademarks has occurred in the
current year, as it appears that there is a permanent reduction in the
estimated fair value of the Trademarks. Accordingly, an impairment
provision of $39.6 million has been recorded against the Trademarks
asset with a corresponding impairment charge recorded in the statement
of earnings (loss) for the year. However, on consolidation with PRC,
there is no impact of this impairment on the audited consolidated
financial statements of PRC.
The Fund's financial statements and Management's Discussion and Analysis
("MD&A") for the three months and year ended December 31, 2009 are available at
www.primeincomefund.ca and www.sedar.com. Prime Restaurants of Canada Inc.
("PRC") consolidated financial statements, notes and MD&A can also be accessed
at www.sedar.com under the "financial statements of operating entity" and
"other" document types for the Fund.
Combination Agreement
As previously announced on February 26, 2009, the Fund has signed a definitive
agreement with PRC, Prime Restaurant Holdings Inc ("PRH"), PRC's sole
shareholder, and TradeMarkCo regarding the terms of a transaction to combine and
form a new publicly-traded corporation to be named Prime Restaurants Inc. The
Trustees of the Fund have unanimously recommended the transaction to the Fund's
Unitholders, which will be submitted for approval by the Fund's Unitholders at a
special meeting currently scheduled for March 30, 2010. An information circular
is expected to be mailed to the Fund's Unitholders in early March 2010
containing the details of the transaction.
About Prime Restaurants Royalty Income Fund
The Fund, through TradeMarkCo, is entitled to receive top-line royalties of
3.25% of the gross food and beverage revenue from pooled restaurants under the
terms of a 99-year licence agreement between TradeMarkCo and PRC.
About PRC and the Fund
PRC operates and franchises a diversified portfolio of leading brands of casual
dining restaurants and premium pubs in Canada. As a pioneer in the Canadian
casual dining industry since 1980, it is considered an important innovator in
the development of strong brands, and today has three core brands: East Side
Mario's, Casey's and Fionn MacCool's. PRC and its franchisees employ
approximately 12,000 people across the country.
The Fund is a limited purpose trust authorised to issue an unlimited number of
Trust Units and established to invest in TradeMarkCo. The source of revenue for
the Fund is through its ownership in, and debt instrument issued by,
TradeMarkCo. The Fund receives interest income on the TradeMarkCo Note which it
distributes to its Unitholders. TradeMarkCo owns certain trade-marks and
licenses their use to PRC which operates and franchises the restaurant and bar
business. In return, TradeMarkCo receives royalty income from the royalty pooled
restaurants operated and franchised by PRC. Additional information relating to
the Fund, including the Fund's financial statements, the Annual Information Form
of the Fund and PRC's MD&A and consolidated financial statements can be found at
www.sedar.com and the Fund's website at www.primeincomefund.ca
Forward-Looking Statements
The public communications of the Fund often include written or oral
forward-looking statements. Statements of this type are included in this new
release, and may be included in filings with Canadian securities regulators, or
in other communications. Forward-looking statements may involve, but are not
limited to, comments with respect to our objectives for 2009 and beyond, our and
PRC's strategies or planned future actions, our and PRC's targets or
expectations for our financial performance and condition, PRC's ability to pay
the Royalty and our ability to pay the distributions. All statements, other than
statements of historical fact, contained in this new release are forward-looking
statements, including, without limitation, statements regarding the future
financial position and operations (including estimated revenue from Royalty
Pooled Restaurants and the estimated administrative and other operating expenses
of the Fund), business strategy, distributions, plans and objectives of or
involving the Fund and PRC. Readers can identify many of these statements by
looking for words such as "believe", "expects", "will", "intends", "projects",
"anticipates", "estimates", "continues" and similar words or the negative
thereof. Although management of the Fund and PRC believe that the expectations
represented in such forward- looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct.
By their nature, forward-looking statements require us to make assumptions and
are subject to inherent risks and uncertainties including those discussed in the
Fund's MD&A and the Fund's annual information form dated March 11, 2009, (the
"AIF") under "Narrative Description of the Business - Risk Factors" which are
available at www.sedar.com. There is significant risk that predictions and other
forward-looking statements will not prove to be accurate. We caution readers of
this news release not to place undue reliance on our forward-looking statements
because a number of factors could cause actual future results, conditions,
actions or events to differ materially from the targets, expectations, estimates
or intentions expressed in the forward-looking statements.
Assumptions and analysis about the performance of the Fund and PRC and the
markets in which they operate are considered in forecasting the Fund's and PRC's
expected financial results, PRC's ability to pay the Royalty and the Fund's
ability to pay distributions and in making related forward-looking statements.
The key assumption in respect of the Fund's level of distributions is that the
cumulative distributable cash will be able to support the Fund's current level
of distributions. The Fund receives the cash it distributes from TradeMarkCo.
TradeMarkCo receives all of the cash it pays to the Fund through a royalty from
PRC. Accordingly, the ability of the Fund to pay its distributions depends on
PRC's financial performance and ability to pay the royalty. In respect of the
ability to maintain and grow the royalty pooled revenue and PRC's financial
performance, key assumptions include those relating to the demand for the goods
and services under the Prime Marks and in respect of the Canadian markets in
which the Royalty Pooled Restaurants operate. Should any of these factors or
assumptions vary, actual results may differ materially from the forward-looking
statements.
The information set forth in the MD&A and AIF identifies factors that could
affect the operating results and performance of the Fund and PRC. We caution
that the list of factors discussed in the MD&A and the AIF is not exhaustive,
and that, when relying on forward-looking statements to make decisions with
respect to the Fund, investors and others should carefully consider the factors
discussed, as well as other uncertainties and potential events, and the inherent
risks and uncertainties of forward-looking statements.
The forward-looking statements contained herein are expressly qualified in their
entirety by this cautionary statement. The forward-looking statements included
in this news release are made as of the date of this news release. Except as
required by applicable securities laws, the Fund does not undertake to update
any forward-looking statement, whether written or oral, that it may make or that
may be made, from time to time, on its behalf.
Definition of Distributable Cash and Non-GAAP Measures
Management views Distributable Cash as a useful supplemental measure of
operating performance that provides investors with an indication of cash
available for distribution. Management calculates Distributable cash as
operating cash flows for the Fund (net earnings adjusted for non-cash items such
as deferred revenue). Distributable Cash is not an earnings measure recognized
under GAAP and does not have a standardized meaning prescribed by GAAP.
Therefore, Distributable Cash may not be comparable with similar measures
presented by other entities.
For further information visit our web sites: www.primeincomefund.ca and
www.primerestaurants.com.
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