Boston Pizza Royalties Income Fund Announces 2020 First Quarter Results

Franchise Sales of $174.1 million for the first quarter of 2020 decreased by 15.7% versus one year ago.

Highlights

• The COVID-19 pandemic began near the end of the Period partially impacting the quarter; however, the full effects of the impacts from the COVID-19 pandemic will not be realized until the second quarter of 2020 and beyond.
• As announced on June 22, 2020, the Fund and BPI reached agreements to holistically address their financial challenges caused by the COVID-19 pandemic.
• System-Wide Gross Sales¹ of $224.8 million for the Period, representing a decrease of 15.3% versus the same period one year ago.
• Franchise Sales² from royalty pool restaurants of $174.1 million for the Period, representing a decrease of 15.7% versus the same period one year ago.
• Same Restaurant Sales³ of negative 15.8% for the Period.
• Same Restaurant Sales on a Franchise Sales basis of negative 15.9% for the Period.
• Distributable Cash³ per Unit increased 17.2% for the Period.
• Payout Ratio⁴ of 90% compared to 113.9% in the same period one year ago and 98.9% on a trailing 12-month basis. Cash balance at the end of the Period was $2.4 million.

Toronto Stock Exchange: BPF.UN

VANCOUVER, BC, June 26, 2020 /CNW/ - Boston Pizza Royalties Income Fund (the "Fund") and Boston Pizza International Inc. ("BPI") reported financial results today for the first quarter period from January 1, 2020 to March 31, 2020 (the "Period").  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 June 26, 2020 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 July 26, 2020 by dialling 1-800-319-6413 or 604-638-9010. and entering the access code: 4553 followed by the # sign. The replay will also be available at www.bpincomefund.com.

"The COVID-19 pandemic has had a dramatic impact on the business of Boston Pizza restaurants across Canada," said Jordan Holm, President of BPI.  "During these unprecedented times Boston Pizza restaurants have complied with the respective government authorities and related health agencies mandates, and continue to adjust best practices accordingly.  We continue to promote online take-out and delivery, and have begun re-opening dining rooms, sports bars and patios with reduced seating capacity and appropriate physical distancing measures as permitted by provincial health authorities."

As announced on June 3, 2020, the COVID-19 pandemic has had significant impacts on Gross Sales, Franchise Sales, Same Restaurant Sales ("SRS"), Distributable Cash and the financial health of the Fund and BPI.  As announced on June 22, 2020, the Fund and BPI reached agreements to holistically address their financial challenges caused by the COVID-19 pandemic (the "Pandemic Recovery Plan").  A copy of these press releases is available on www.sedar.com and www.bpincomefund.com.

SRS, a key driver of distribution growth for unitholders of the Fund, was negative 15.8% for the Period compared to negative 1.3% reported in the first quarter of 2019.  Franchise Sales, the basis upon which Royalty and Distribution Income are paid by BPI and Boston Pizza Canada Limited Partnership ("BP Canada LP") respectively, indirectly to the Fund, excludes revenue from sales of liquor, beer, wine and approved national promotions and discounts.  On a Franchise Sales basis, SRS was negative 15.9% for the Period compared to 0.0% for the first quarter of 2019.  The decline in SRS for the Period was principally due to declines in restaurant guest traffic and the temporary closure of all dining rooms and sports bars in Boston Pizza Restaurants across Canada on March 17, 2020 both as a result of the COVID-19 pandemic, partially offset by increased take-out and delivery sales and the extra day of sales in February as 2020 is a leap year.

The World Health Organization declared the COVID-19 outbreak a pandemic on March 11, 2020.  To illustrate the effect such declaration had on SRS, SRS for January 1, 2020 to March 10, 2020 was negative 1.1%, and for March 11, 2020 to March 31, 2020 was negative 60.3%.  On a Franchise Sales basis, SRS for January 1, 2020 to March 10, 2020 was negative 1.5%, and for March 11, 2020 to March 31, 2020 was negative 59.3%.

Franchise Sales of Boston Pizza Restaurants in the Royalty Pool were $174.1 million for the Period compared to $206.4 million for the first quarter of 2019.  The $32.3 million decrease in Franchise Sales for the Period was primarily due to negative SRS on a Franchise Sales basis.

The Fund's net and comprehensive loss was $16.9 million for the Period compared to net and comprehensive income of $11.1 million for first quarter of 2019.  The $28.0 million decrease in the Fund's net and comprehensive income for the Period compared to the first quarter of 2019 was primarily due to a $26.6 million fair value loss and lower Royalty and Distribution Income of $1.7 million.  For a detailed discussion on the Fund's net and comprehensive income, please see the "Operating Results – Net and Comprehensive (Loss) Income / Basic and Diluted (Loss) Earnings" section in the Fund's MD&A for the Period.  The Fund's net income or loss 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 or loss 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.  The Fund also reports the non-IFRS metric of SRS to provide investors useful information regarding the change in gross sales of Boston Pizza restaurants.  Readers are cautioned that Distributable Cash, Payout Ratio and SRS 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.  A reconciliation of SRS to an IFRS measure is not possible.

The Fund generated Distributable Cash of $7.7 million for the Period, compared to $6.6 million for the first quarter of 2019.  The increase in Distributable Cash of $1.1 million or 16.6% was primarily due to lower current income tax expense of $0.4 million, BPI's entitlement in respect of its Class B general partner units of Boston Pizza Royalties Limited Partnership ("Royalties LP") being lower by $0.3 million and positive working capital timing of $0.4 million.

The Fund generated Distributable Cash per Unit of $0.355 for the Period compared to $0.303 per Unit for the first quarter of 2019.  The increase in Distributable Cash per Unit of $0.052 or 17.2% was primarily attributable to the increase in Distributable Cash outlined above and there being fewer Units outstanding compared to the same period in 2019 due to the Fund's normal course issuer bid that is active from February 19, 2020 to February 18, 2021 (the "NCIB").  As at March 31, 2020, the Fund acquired 266,300 Units under the NCIB at an average price of $12.98 per Unit.  Between March 31, 2020 and June 26, 2020, the Fund did not acquire any additional Units under the NCIB.

The increases in Distributable Cash and Distributable Cash per Unit for the Period are not fully reflective of the effects that the COVID-19 pandemic has had and will continue to have on the Fund.  As noted above, the impacts of COVID-19 on Boston Pizza restaurants, BPI and the Fund began near the end of the Period and the full effects will not be realized until the second quarter of 2020 and beyond.  Higher Franchise Sales generally result in increases in Distributable Cash.

The Fund's Payout Ratio was 90% for the Period compared to 113.9% for the same period in 2019.  The decrease in the Fund's Payout Ratio for the Period compared to the same period in 2019 was due to the combined effects of Distributable Cash increasing by $1.1 million or 16.6%, and distributions paid decreasing by $0.6 million or 7.9%. However, the effects of COVID-19, including the temporary suspension of distributions on Units, will materially affect the Fund's Payout Ratio in the future.

Distributions paid for the Period decreased as a result of there being fewer Units outstanding compared to the same period in 2019 due to the NCIB.  On a trailing 12-month basis, the Fund's Payout Ratio was 98.9% as at March 31, 2020. 

The COVID-19 pandemic has resulted and will continue to result in material declines to Franchise Sales and SRS.  The declines in Franchise Sales and SRS will result in significant declines to Royalty and Distribution Income payable by BPI and BP Canada LP to the Fund, and significant declines in the amount of Distributable Cash available for distribution to unitholders.  On March 23, 2020, the trustees of the Fund temporarily suspended monthly distributions on Units, commencing with the March 2020 distribution that ordinarily would have been payable on April 30, 2020 to unitholders of record on April 21, 2020, as a result of the COVID-19 pandemic.  As a condition to agreeing to the Pandemic Recovery Plan, the Fund's bank requires that the Fund not pay distributions to Unitholders before October 1, 2020.  The Fund intends to reinstate monthly distributions as soon as it is responsible and practicable to do so.  The reinstatement of, and the amount and timing of, monthly distributions will be determined by the Trustees of the Fund and will depend upon the stability and amount of Royalty and Distribution Income received by the Fund, the significant uncertainties related to the COVID–19 pandemic and the impact on BPI and the Fund, and other factors.

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 month periods ended March 31, 2020 and 2019.

For the periods ended March 31		Q1 2020	Q1 2019
(in thousands of dollars – except restaurants, SRS, Payout Ratio and per Unit items)
System-Wide Gross Sales		224,757	265,298
Number of restaurants in Royalty Pool		395	396
Franchise Sales reported by restaurants in the Royalty Pool		174,069	206,447
Royalty income		6,963	8,258
Distribution Income		2,293	2,719
Interest income		5	12
Total revenue		9,261	10,989
Administrative expenses		(394)	(316)
Interest expense on debt		(703)	(696)
Interest expense on Class B Unit liability		(648)	(710)
Profit before fair value gain (loss) and income taxes		7,516	9,267
Fair value (loss) gain on investment in BP Canada LP		(37,591)	8,347
Fair value gain (loss) on Class B Unit liability		16,735	(3,521)
Fair value loss on interest rate swaps		(1,840)	(882)
Current and deferred income tax expense		(1,738)	(2,112)
Net and comprehensive (loss) income		(16,918)	11,099
Basic (loss) earnings per Unit		(0.78)	0.51
Diluted (loss) earnings per Unit		(1.36)	0.51
Distributable Cash / Distributions / Payout Ratio
Cash flows from operating activities		9,501	8,364
BPI Class B Unit entitlement		(648)	(1,048)
Interest paid on long-term debt		(701)	(686)
SIFT Tax on Units		(458)	(29)
Distributable Cash		7,694	6,601
Distributions paid		6,923	7,517
Payout Ratio		90.0%	113.9%
Distributable Cash per Unit		0.355	0.303
Distributions paid per Unit		0.319	0.345
Other
Same Restaurant Sales		(15.8%)	(1.3%)
Number of restaurants opened		1	0
Number of restaurants closed		2	1
		Mar 31, 2020	Dec 31, 2019
Total assets		358,191	396,426
Total liabilities		117,879	131,323

Notes:
1)	"System-Wide Gross Sales" means the gross revenue: (i) of the corporate Boston Pizza restaurants in Canada owned by BPI; and (ii) reported to BP Canada LP by franchised Boston Pizza restaurants in Canada, without audit or other form of independent assurance, and in the case of both (i) and (ii), including revenue from the sale of liquor, beer, wine and revenue from BP Canada LP approved national promotions and discounts and excluding applicable sales and similar taxes.
2)	"Franchise Sales" is the basis upon which Royalty and Distribution Income are payable, and means the gross revenue: (i) of the corporate Boston Pizza restaurants in Canada owned by BPI that are in the Fund's Royalty Pool; and (ii) reported to BP Canada LP by franchised Boston Pizza restaurants in Canada that are in the Fund's Royalty Pool, without audit or other form of independent assurance, and in the case of both (i) and (ii), after deducting revenue from the sale of liquor, beer, wine and revenue from BP Canada LP approved national promotions and discounts and excluding applicable sales and similar taxes. Nevertheless, BP Canada LP periodically conducts audits of the Franchise Sales reported to it by its franchisees, and the Franchise Sales reported herein include results from sales audits of earlier periods.
3)	"Same Restaurant Sales" or "SRS" (previously named "same store sales growth" – see the "Overview – Top-Line Fund / Increases in Franchise Sales" section of the Fund's MD&A for the Period for more details) is the change in gross revenue of Boston Pizza restaurants as compared to the gross revenue for the same period in the previous year for Boston Pizza restaurants that have been open for a minimum 24 months.  SRS is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.  Management believes SRS provides investors useful information regarding the change in gross sales of Boston Pizza restaurants.
4)	"Distributable Cash" is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.  Management believes that this non-IFRS financial measure provides useful information to investors regarding the amount of cash the Fund has generated for distribution on the Units.  The preceding table provides a reconciliation from this non-IFRS financial measure to cash flows from operating activities, which is the most directly comparable IFRS measure.  Investors are cautioned that this should not be construed as an alternative to cash flows from operating activities.  For additional information regarding this financial metric, see the heading "Description of Non-IFRS and Additional IFRS Measures" in the Fund's MD&A for the Period.
5)	"Payout Ratio" is calculated by dividing the aggregate distributions paid by the Fund during a period by the Distributable Cash generated in that period.  Payout Ratio is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.  Management believes that this non-IFRS financial measure provides investors with useful information regarding the extent to which the Fund distributes cash on the Units.  As the Payout Ratio is calculated from a formula which includes Distributable Cash, which is a non-IFRS measure, a reconciliation of Payout Ratio to an IFRS measure is not possible.  For additional information regarding this financial metric, see the heading "Description of Non-IFRS and Additional IFRS Measures" in the Fund's MD&A for the Period.
6)	Royalties LP licenses BPI the right to use various Boston Pizza trademarks in return for BPI paying Royalties LP a royalty equal to 4% of Franchise Sales of Boston Pizza restaurants (the "Royalty") in the Fund's royalty pool (the "Royalty Pool").  "Distribution Income" is income received indirectly by the Fund on Class 1 LP Units and Class 2 LP Units of BP Canada LP.  See the "Overview – Purpose of the Fund / Sources of Revenue" section of the Fund's MD&A for the Period for more details.
7)	On January 1 of each year, an adjustment is made to add the Fund's Royalty Pool new Boston Pizza restaurants that opened and to remove any Boston Pizza restaurants that permanently closed since January 1 of the previous year.
8)	Profit before fair value adjustments and income taxes is an additional IFRS measure.  For additional information regarding these financial metrics, see the heading "Description of Non-IFRS and Additional IFRS Measures" in the Fund's MD&A for the Period.
9)	Capitalized terms used in this press release that are undefined have the meanings ascribed to them in the Fund's MD&A for the Period.

SHORT-TERM OUTLOOK

The COVID-19 pandemic has had sudden, unexpected and unprecedented impacts on the general economy, the restaurant industry and has specifically caused significant disruption to the business of the Fund and BPI.  The focus of BPI's management is to continue to: (i) monitor carefully the continuously evolving COVID-19 situation; (ii) modify the operating procedures of Boston Pizza Restaurants to ensure the safety of guests and employees of BP Canada LP's franchisees; (iii) responsibly and safely re-open the dining rooms and sports bars of Boston Pizza Restaurants across Canada when permitted by applicable provincial health authorities; (iv) maximize the opportunity to grow its take-out and delivery business; and (v) review and adapt current and future plans to responsibly address the challenges and opportunities presented by COVID-19.  Management of BPI anticipates that sales levels for remainder of 2020 will continue to be challenged as a result of COVID-19.

The trustees of the Fund will continue to closely monitor BPI's and BP Canada LP's business as the COVID-19 situation continues to develop and consider the best interests of the Fund and its stakeholders.  While the COVID-19 pandemic persists, the trustees of the Fund expect that Franchise Sales and SRS at Boston Pizza Restaurants, and resulting Royalty, Distribution Income and Distributable Cash available for distribution to Unitholders will continue to be adversely affected, and that preservation of cash by the Fund is prudent and appropriate until economic conditions improve.

Forward Looking Information

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, BP Canada LP, 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 its Trustees expect or anticipate will or may occur in the future, including such things as, the full effects of the impacts from the COVID-19 pandemic will not be realized until the second quarter of 2020 and beyond, the effects of COVID-19, including the temporary suspension of distributions on Units, will materially affect the Fund's Payout Ratio in the future, the COVID-19 pandemic continuing to result in material declines to Franchise Sales and SRS, declines in Franchise Sales and SRS resulting in significant declines to Royalty and Distribution Income payable to the Fund and significant declines in the amount of Distributable Cash available for distribution to unitholders, the Fund intending after October 1, 2020 to reinstate monthly distributions as soon as it is responsible and practicable to do so, the reinstatement of, and the amount and timing of, monthly distributions being determined by the Trustees of the Fund and depending upon the stability and amount of Royalty and Distribution Income received by the Fund, the significant uncertainties related to the COVID–19 pandemic and the impact on BPI and the Fund, and other factors, the focus of BPI's management, management's anticipation that sales levels for the remainder of 2020 will continue to be challenged as a result of COVID-19, the Trustees of the Fund continuing to closely monitor BPI's and BP Canada LP's business as the COVID-19 situation continues to develop, that preservation of cash by the Fund is prudent and appropriate until economic conditions improve, and other such matters are forward-looking information.  When used in this press release, forward-looking information may include words such as "anticipate", "estimate", "may", "will", "expect", "believe", "plan", "should", "continue" and other similar terminology.  The material factors and assumptions used to develop the forward-looking information contained in this press release include the following: the COVID-19 pandemic will continue to negatively impact the restaurant industry, Franchise Sales, SRS and Distributable Cash.  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, reliance on operating revenues, accounting policies and practices, the results of operations and financial condition of BPI, BP Canada LP and the Fund, as well as those factors discussed under the heading "Risks and Uncertainties" in the most recent Annual Information Form of the Fund. 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, neither the Fund nor BPI assumes any obligation to update previously disclosed forward-looking information.  For a complete list of the risks associated with forward-looking information and the Fund's business, please refer to the "Risks and Uncertainties" and "Note Regarding Forward-Looking Information" sections included in the most recent Annual Information Form of the Fund available at www.sedar.com and www.bpincomefund.com.

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 trade-marks owned by the Boston Pizza Royalties Limited Partnership and licensed by the Boston Pizza Royalties Limited Partnership to Boston Pizza International Inc.

SOURCE Boston Pizza Royalties Income Fund

Michael Harbinson, Chief Financial Officer, Tel: [phone], E-mail: [email protected], www.bpincomefund.com

Related Links

www.bpincomefund.com