Toronto Stock Exchange: BPF.UN
VANCOUVER, BC, Jan. 2, 2024
/CNW/ - Boston Pizza Royalties Income Fund (the "Fund")
(TSX: BPF.UN) and Boston Pizza International Inc.
("BPI1") announced today that effective
January 1, 2024, the Fund's royalty
pool (the "Royalty Pool") has been adjusted to include the
one new full service Boston Pizza restaurant opened across
Canada between January 1,
2023 and December 31, 2023 (the "Period"), and to
remove six full service Boston Pizza restaurants that were
permanently closed during the Period. With the adjustment for
these restaurants, the Royalty Pool now includes 372 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.
The estimated annual Franchise Sales in 2024 for the one New
Restaurant that opened in 2023 is $1.8 million. As described above, BPI
is required to deduct from this amount the actual Franchise Sales
received from the six Closed Restaurants in 2023 during the first
12-month period immediately following their addition to the Royalty
Pool, which is $9.2 million. Accordingly, the
resulting estimated annual net Franchise Sales for 2023 is negative
$7.5 million. The Net
Royalty and Distribution Income in respect of the Adjustment Date
of January 1, 2024 is negative $0.4 million (the "Deficiency", being
5.5% of negative $7.5 million
net Franchise Sales). Since there was a Deficiency in respect
of each of the January 1, 2021 Adjustment Date, the
January 1, 2022 Adjustment Date and the January 1, 2023
Adjustment Date, there is currently a cumulative Deficiency of
$2.0 million. A summary of
the cumulative Deficiency is as follows:
Adjustment
Date
|
Actual / Estimated
Franchise Sales of New Restaurants for Adjustment Date
(in millions)*
|
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)*
|
January 1,
2021
|
$3.1†
|
$18.5
|
($15.4)
|
($0.8)
|
January 1,
2022
|
--
|
$6.2
|
($6.2)
|
($0.3)
|
January 1,
2023
|
--
|
$6.8
|
($6.8)
|
($0.4)
|
January 1,
2024
|
$1.8††
|
$9.2
|
($7.5)
|
($0.4)
|
Cumulative
|
$4.9
|
$40.7
|
($35.9)
|
($2.0)
|
*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. ††To be
determined and adjusted in February 2025 after an audit of
Franchise Sales for 2024 is performed on the one New Restaurant for
2023, with the corresponding net Franchise Sales and Deficiency in
respect of the Adjustment Date of 2024 being amended
accordingly.
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Since there is a Deficiency, BPI did not receive any Additional
Entitlements on January 1, 2024. 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 $2.0 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 13.3% interest in the
Fund.
See the Fund's annual information form dated February 8,
2023 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 Sales 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
2024, 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 2023. 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 2023 available at
www.sedarplus.ca 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.
1
|
In this press release,
BPI includes its subsidiaries where applicable.
|
2
|
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.
|
3
|
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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SOURCE Boston Pizza Royalties Income Fund