VANCOUVER, BRITISH COLUMBIA–(Jan. 4, 2010) – Boston Pizza Royalties Income Fund (the “Fund”) (TSX:BPF.UN) and Boston Pizza International Inc. (“BPI”) announced today that effective January 1, 2010, the number of Boston Pizza restaurants included in the Fund’s royalty pool (the “Royalty Pool”) has been increased to include the royalties from 18 new restaurants opened across Canada between January 1, 2009 and December 31, 2009 (the “Period”) sixteen of which are full service restaurants and two of which are Quick Express locations. One full service restaurant was permanently closed during the Period. With the addition of these 17 net new restaurants, royalties are now payable to the Fund from 340 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 18 Boston Pizza restaurants in 2009. Since the inception of the Fund in 2002, Boston Pizza has opened a remarkable total of 190 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 that permanently closed, during the year 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 17 net new restaurants to the Royalty Pool, BPI has received 518,607 Additional Entitlements. The 518,607 represents 80% (648,259 represents 100%) of the Additional Entitlements with the balance to be received by BPI when the actual full year performance of the new restaurants is known with certainty. The 518,607 Additional Entitlements represents 2.9% of the Fund units on a fully diluted basis. The full 648,259 Additional Entitlements would represent 3.5% of the Fund on a fully diluted basis. Including the 648,259 Additional Entitlements described above, BPI has the right to acquire 4,212,386 Fund Units, representing 23.1% 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 18 new restaurants in 2010 is $25.7 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 one permanently closed restaurant during the first 12 month period immediately following its addition to the Royalty Pool, which is $1.5 million. Consequently, the estimated annual gross franchise revenue for the 17 net new restaurants in 2010 is $24.2 million. The estimated 4% royalty revenue the Fund will receive in 2010 from these additional 17 net new restaurants is $1.0 million. The royalty revenue for the purposes of calculating the Additional Entitlements, therefore, is $0.9 million or 92.5%. Once the actual performance of these new restaurants for 2010 is known, the number of Additional Entitlements will be adjusted in 2011 to reflect the actual royalty revenue received by the Fund in 2010. As of January 1, 2010, there are 340 restaurants in the Royalty Pool.