|By Marketwired .||
|January 2, 2013 07:08 PM EST||
VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 01/03/13 -- Boston Pizza Royalties Income Fund (the "Fund") (TSX:BPF.UN) and Boston Pizza International Inc. ("BPI") announced today that effective January 1, 2013, the Fund's royalty pool (the "Royalty Pool") has been adjusted to include the royalties from seven new restaurants opened across Canada between January 1, 2012 and December 31, 2012 (the "Period"), six of which are full service restaurants and one of which is a fast casual location. Two full service restaurants were permanently closed during the Period. This is the eleventh consecutive annual increase of royalties payable to the Fund and, with the adjustment for these openings and closures during 2012, the Royalty Pool now includes 348 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 net of any permanent closures.
"Boston Pizza continues to open new locations and grow franchise sales, further strengthening our position as Canada's number one casual dining brand," said Mark Pacinda, President and Chief Executive Officer of BPI. "Since the inception of the Fund, the Royalty Pool has more than doubled, growing by 194 restaurants from 154 in 2002 to 348 Boston Pizza locations today."
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 that permanently closed since the last Adjustment Date. In return for adding net additional royalty revenue, BPI receives the right to indirectly acquire additional units of the Fund ("Additional Entitlements"). The adjustment for net additional royalty revenue added to the Royalty Pool is designed to be accretive to unitholders. For each Adjustment Date occurring after January 2, 2011, the Additional Entitlements are calculated at 92.5% of the estimated net royalty revenue added to the Royalty Pool, multiplied by one minus the estimated effective average tax rate (expressed as a decimal) that the Fund will pay during that year, 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 both the actual full year performance of the new restaurants and the effective average tax rate paid by the Fund are 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 each of the royalty revenues of these restaurants received from BPI and the effective average tax rate paid by the Fund is performed. At such time an adjustment is made to reconcile distributions paid to BPI and the Additional Entitlements received by BPI.
In return for adding the royalty revenue from the seven new restaurants to the Royalty Pool, less revenue from the two permanent closures, BPI has received 155,559 Additional Entitlements. The 155,559 represents 80% (194,449 represents 100%) of the Additional Entitlements with the balance to be received (as adjusted) by BPI when both the actual full year performance of the new restaurants and the effective average tax rate paid by the Fund are known with certainty. The 155,559 Additional Entitlements represents 0.9% of the Fund units on a fully diluted basis. The full 194,449 Additional Entitlements would represent 1.1% of the Fund on a fully diluted basis. Including the 194,449 Additional Entitlements described above, BPI has the right to acquire 2,197,957 Fund Units, representing 12.4% 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 seven new restaurants in 2013 is $11.6 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 addition to the Royalty Pool, which is $3.4 million. Consequently, the estimated annual net franchise revenue for the new restaurants in 2012 is $8.2 million. The estimated 4% royalty revenue the Fund will receive in 2013 from these additional new restaurants is $0.3 million. The pre-tax royalty revenue for the purposes of calculating the Additional Entitlements, therefore, is approximately $0.3 million or 92.5%. The estimated effective average tax rate that the Fund will pay in the calendar year 2013 is 25.0%. Accordingly, the after-tax royalty revenue for the purposes of calculating the Additional Entitlements is approximately $0.2 million ($0.3 million x (1 - 0.25)). Once both the actual performance of these new restaurants for 2013 and the actual effective average tax rate paid by the Fund for 2013 are known, the number of Additional Entitlements will be adjusted in 2014 to reflect the actual royalty revenue received by the Fund in 2013 and the actual effective average tax rate paid by the Fund in 2013. As of January 1, 2013, there are 348 restaurants in the Royalty Pool.
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 Dec. 31, 2012 15,570,644 15,570,644 BPI Additional Entitlements - Outstanding as of Dec. 31, 2012 1,959,875 1,959,875 BPI Additional Entitlements - Holdback as of Dec. 31, 2012 N/A 43,633 (1) ----------------------------------------------------------------------- Number of Fully Diluted Units as of Dec. 31, 2012 17,530,519 17,574,152 ---------------------------------------- ---------------------------------------- Issued and Outstanding Units as of Dec. 31, 2012 & Jan. 1, 2013 15,570,644 15,570,644 BPI Additional Entitlements - Outstanding as of Dec. 31, 2012 1,959,875 1,959,875 BPI Additional Entitlements - Holdback as of Dec. 31, 2012 N/A 43,633 (1) BPI Additional Entitlements - Issued & Outstanding as of Jan. 1, 2013 (5 net new Restaurants added to Royalty Pool) 155,559 155,559 (2) BPI Additional Entitlements - Holdback as of Jan. 1, 2013 (5 net new Restaurants added to Royalty Pool) N/A 38,890 (3) ----------------------------------------------------------------------- Number of Fully Diluted Units as of Jan. 1, 2013 17,686,078 17,768,601 ---------------------------------------- ---------------------------------------- BPI Total Ownership as of Jan. 1, 2013 12.0% 12.4% BPI Ownership based on 5 net new Restaurants added to Royalty Pool only as of Jan. 1, 2013 0.9% 1.1% (1) Additional Entitlements from the 3 net new restaurants added to Royalty Pool on Jan. 1, 2012 determined in 2013, once audited results of the 3 net new restaurants and actual effective average tax rate paid by the Fund are known. (2) Issued effective Jan. 1, 2013. (3) Holdback of Additional Entitlements from 5 net new restaurants added to Royalty Pool on Jan. 1, 2013. Actual number of Additional Entitlements will be determined in early 2014, effective Jan. 1, 2013, once audited results of the 5 net new restaurants and actual effective average tax rate paid by the Fund are known.
The Trustees of the Fund have approved the contents of this news 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 trademarks owned by the Boston Pizza Royalties Limited Partnership and licensed by the Boston Pizza Royalties Limited Partnership to Boston Pizza International Inc.
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