Toronto Stock Exchange: BPF.UN
VANCOUVER, BC, Jan. 3, 2023
/CNW/ - Boston Pizza Royalties Income Fund (the "Fund")
(TSX: BPF.UN) and Boston Pizza International Inc.
("BPI1") announced today that effective
January 1, 2023, the Fund's royalty pool (the "Royalty
Pool") has been adjusted to remove six Boston Pizza restaurants
that were permanently closed between January 1, 2022 and
December 31, 2022 (the "Period"). No new Boston Pizza
restaurants were opened during the Period. With the adjustment for
these closures during 2022, the Royalty Pool now includes 377
Boston Pizza restaurants.
The Fund effectively receives 5.5% of franchise revenues of
Boston Pizza restaurants in the Royalty Pool less the pro rata
portion payable to BPI in respect of its retained interest in the
Fund.2 On January 1 of
each year (each, an "Adjustment Date"), an adjustment is
made to add to the Royalty Pool new Boston Pizza restaurants that
opened ("New Restaurants") and to remove any Boston Pizza
restaurants that permanently closed since the last Adjustment Date
(the "Closed Restaurants"). In return for adding new Royalty and
Distribution Income from the New Restaurants after subtracting the
Royalty and Distribution Income that is lost from the Closed
Restaurants3 (such difference, "Net
Royalty and Distribution Income"), BPI receives the right to
indirectly acquire additional units of the Fund (the "Additional
Entitlements"). The calculation of Additional Entitlements
is designed to be accretive to unitholders of the Fund as the
expected increase in Franchise Sales from the New Restaurants added
to the Royalty Pool less the decrease in Franchise Sales from the
Closed Restaurants is valued at a 7.5% discount. The Additional
Entitlements are calculated at 92.5% of the estimated Royalty and
Distribution Income expected to be generated by the New Restaurants
less the actual Royalty and Distribution Income lost from the
Closed Restaurants, multiplied by one minus the effective tax rate
estimated to be paid by the Fund, divided by the yield of the Fund,
divided by the weighted average unit price over a specified period.
BPI indirectly receives 80% of the Additional Entitlements
initially, with the balance received when the actual full year
performance of the New Restaurants and the actual effective tax
rate paid by the Fund are known with certainty (the
"Holdback"). BPI receives 100% of the distributions on the
Additional Entitlements throughout the year. After the New
Restaurants have been part of the Royalty Pool for a full year, an
audit of the Franchise Sales of these restaurants is performed, and
the actual effective tax rate paid by the Fund is determined.
At such time, an adjustment is made to reconcile distributions paid
to BPI and the Additional Entitlements received by BPI.
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1
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In this press release,
BPI includes its subsidiares where applicable.
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2
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The Fund indirectly
owns the Boston Pizza trademarks and trade names used by 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 ("Franchise
Sales") of Boston Pizza restaurants in the Royalty Pool
("Royalty"). On May 6, 2015, the Fund completed an indirect
investment in Boston Pizza Canada Limited Partnership (a limited
partnership controlled and operated by BPI) that entitles the Fund
to receive distribution income from Boston Pizza Canada Limited
Partnership ("Distribution Income") equal to 1.5% of
Franchise Sales of Boston Pizza restaurants in the Royalty Pool
less the pro rata portion payable to BPI in respect of its retained
interest in the Fund.
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3
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The Royalty and
Distribution Income that is lost from the Closed Restaurants is
calculated based upon the actual Franchise Sales received from the
Closed Restaurants during the first 12-month period immediately
following their addition to the Royalty Pool.
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The actual Franchise Sales received from the six Boston Pizza
restaurants that permanently closed in 2022 during the first
12-month period immediately following their addition to the Royalty
Pool is $6.8 million. As there were
no New Restaurants in 2022, the Net Royalty and Distribution Income
in respect of the Adjustment Date of January
1, 2023 is negative $0.4
million (the "Deficiency", being 5.5% of negative
$6.8 million Franchise Sales). Since
there was a Deficiency in respect of each of the January 1, 2021 Adjustment Date and the
January 1, 2022 Adjustment Date,
there is currently a cumulative Deficiency of 1.6 million. A
summary of the cumulative Deficiency is as follows:
Adjustment
Date
|
Actual Franchise
Sales of New
Restaurants for
Adjustment Date
(in millions)*
|
Actual Franchise
Sales of Closed
Restaurants for
Adjustment Date
(in millions)*
|
Net Franchise
Sales for
Adjustment Date
(in millions)*
|
Deficiency, being
5.5% of Net
Franchise Sales
(in millions)*
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January 1,
2021
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$3.1⸶
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$18.5
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($15.4)
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($0.8)
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January 1,
2022
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--
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$6.2
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($6.2)
|
($0.3)
|
January 1,
2023
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--
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$6.8
|
($6.8)
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($0.4)
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Cumulative
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$3.1
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$31.5
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($28.4)
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($1.6)
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*Figures are rounded
to one decimal place. ⸶ Determined in February 2022 after an audit
of Franchise Sales for 2021 was performed
on the New Restaurants.
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Since there is a Deficiency, BPI did not receive any Additional
Entitlements on January 1, 2023.
However, BPI did not lose any of the Additional Entitlements it
received in respect of previous years. Instead, BPI will be
required to make-up the cumulative Deficiency of $1.6 million in future years by first adding Net
Royalty and Distribution Income in an amount equal to the
cumulative Deficiency before receiving any further Additional
Entitlements. BPI continues to hold a 13.2% interest in the
Fund.
See the Fund's annual information form dated February 8,
2022 for a detailed description of the annual adjustment that is
made to the Royalty Pool.
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, Boston Pizza
Canada Limited Partnership, 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 adjustments to the Royalty Pool on the Adjustment Date,
calculation and timing of payment of Additional Entitlements and
Holdback, an audit of franchise revenues being performed and an
adjustment to reconcile distributions indirectly paid to BPI and
the Additional Entitlements indirectly received by BPI being made,
the estimated effective tax rate that will be paid by the Fund for
2023, and other such matters are forward-looking information. When
used in this press release, forward-looking information may include
words such as "estimate", "will", "expect" 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, expectations 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, absence of changes of
laws, absence of amendments to contracts and the Toronto Stock
Exchange granting final approval for the issuance of the Additional
Entitlements. 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
and the Fund, as well as those factors discussed under the heading
"Risks and Uncertainties" in the Fund's Management Discussions and
Analysis for the third quarter of 2022. 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 our business, please refer to the "Risks and
Uncertainties" and "Note Regarding Forward-Looking Information"
sections included in the Fund's Management's Discussion and
Analysis for the third quarter of 2022 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.
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SOURCE Boston Pizza Royalties Income Fund