Market Overview

Boston Pizza Royalties Income Fund announces second quarter 2018 results including system-wide gross sales of $280.8 million for the period, an increase of 1.9%

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Boston Pizza Royalties Income Fund announces second quarter 2018 results including system-wide gross sales of $280.8 million for the period, an increase of 1.9%

Canada NewsWire

Toronto Stock Exchange: BPF.UN

Franchise Sales of $215.4 million for the second quarter of 2018 increased by 1.3% versus one year ago

Highlights

  • System-Wide Gross Sales1 of $280.8 million for the Period and $546.4 million YTD, representing increases of 1.9% and 1.8%, respectively, versus the same periods one year ago.
  • Franchise Sales2 from royalty pool restaurants of $215.4 million for the Period and $419.4 million YTD, representing increases of 1.3% and 1.0%, respectively, versus the same periods one year ago.
  • Same store sales growth of 0.3% for the Period and 0.3% YTD.
  • Distributable Cash3 per Unit decreased 3.7% for the Period and decreased 3.0% YTD.
  • Payout Ratio4 of 103.0% for the Period, 107.8% YTD, and 101.6% on a trailing 12-month basis. Cash balance at the end of the Period was $2.2 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 July 2018 distribution to unitholders of 11.5 cents per Unit.

VANCOUVER, Aug. 9, 2018 /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, 2018 to June 30, 2018 (the "Period") and January 1, 2018 to June 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 August 9, 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 September 9, 2018 by dialling 1-800-319-6413 or 604-638-9010. and entering the access code: 2506 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 positive 0.3% for the Period and positive 0.3% YTD compared with negative 1.6% and negative 0.9%, 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 0.4% for the Period and negative 0.6% YTD compared with negative 1.6% and negative 1.0%, 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. SSSG was also impacted YTD by the adverse impact of the Saskatchewan 6% provincial sales tax on restaurant purchased food. Franchise Sales of restaurants in the Fund's Royalty Pool were $215.4 million for the Period and $419.4 million YTD compared to $212.7 million and $415.1 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 Restaurants added to the Royalty Pool on January 1, 2018, partially offset by negative SSSG on a Franchise Sales basis.

"While we continue to see challenges in certain areas of our business such as the regions directly connected to the Canadian oil and gas industry, we are seeing positive results in other areas, including increased online take-out and delivery sales through our website, MyBP app and our recently launched Skip the Dishes partnership," said Jordan Holm, President of BPI.  "Our successful thin crust pizza creations promotion, which drove increased pizza sales during the Period, also contributed positively to our second quarter results."

The Fund's net and comprehensive income was $6.3 million for the Period compared to net and comprehensive income of $7.9 million for second quarter of 2017.  The $1.6 million decrease in the Fund's net and comprehensive income for the Period compared to the second quarter of 2017 was primarily due to a $2.6 million change in fair value adjustments and lower interest income of $0.5 million, partially offset by higher Royalty income of $0.1 million, higher Distribution Income of $0.2 million, lower income taxes of $0.3 million and lower interest and financing expenses of $0.8 million. The Fund's net and comprehensive income was $8.7 million YTD compared to net and comprehensive income of $14.5 million year-to-date in 2017.  The $5.8 million decrease in the Fund's net and comprehensive income YTD compared to the same period in 2017 was primarily due to a $8.1 million change in fair value adjustments and lower interest income of $0.9 million partially offset by higher Royalty income of $0.2 million, higher Distribution Income of $0.4 million, lower income taxes of $1.4 million and lower interest and financing expenses 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 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 $7.3 million for the Period compared to $7.1 million for the second quarter of 2017.  The increase in Distributable Cash of $0.2 million or 3.8% 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 $0.4 million as a result of BPI having exchanged 1,910,597 Class B Units for 1,191,851 units of the Fund ("Units") on September 26, 2017 and higher Royalty and Distribution Income of $0.3 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 $14.0 million YTD compared to $13.4 million year-to-date in 2017.  The increase in Distributable Cash of $0.6 million or 4.6% was primarily attributable to a decrease in BPI's Class B Unit entitlement of $0.7 million and higher Royalty and Distribution Income of $0.6 million, partially offset by higher SIFT Tax of $0.4 million and interest paid on debt of $0.1 million

The Fund generated Distributable Cash per Unit of $0.335 for the Period compared to $0.348 per Unit for the second quarter of 2017.  The decrease in Distributable Cash per Unit of $0.013 or 3.7% 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 $0.640 YTD compared to $0.660 per Unit for the same period in 2017.  The decrease in Distributable Cash per Unit of $0.020 or 3.0% 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 103.0% and 107.8% YTD compared to 99.1% and 104.6%, 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 $0.2 million or 3.8%. 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 $1.1 million or 7.9% and Distributable Cash increasing by $0.6 million or 4.6%.  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 101.6% as at June 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 August 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 July 1, 2018 to July 31, 2018.  This distribution will be payable on August 31, 2018 to Unitholders of record at the close of business on August 21, 2018.  The Fund periodically reviews distribution levels based on its policy of stable and sustainable distribution flow to unitholders.  Including the July 2018 distribution, which will be paid on August 31, 2018, the Fund will have paid out 193 consecutive monthly distributions totaling $294.3 million or $20.07 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 six month periods ended June 30, 2018 and 2017.







Q2 2018

Q2 2017

YTD 2018

YTD 2017

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

System-Wide Gross Sales

280,848

275,637

546,383

536,837

Number of restaurants in Royalty Pool

391

383

391

383

Franchise Sales reported by restaurants in the Royalty Pool

215,353

212,691

419,390

415,097






Royalty income

8,615

8,508

16,776

16,604

Distribution Income

2,871

2,686

5,593

5,244

Interest income

7

452

16

904

Total revenue

11,493

11,646

22,385

22,752

Administrative expenses

(327)

(335)

(653)

(637)

Interest expense on debt

(662)

(612)

(1,311)

(1,213)

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