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Boston Pizza International Adds Seven New Restaurants Opened in 2011

03/01/2012 5:20:28 PM

For Immediate Release                                                                           Toronto Stock Exchange: BPF.UN

Boston Pizza International Adds Seven New Restaurants Opened in 2011
to the Royalty Pool of Boston Pizza Royalties Income Fund

VANCOUVER, BC, JANUARY 3, 2012 - Boston Pizza Royalties Income Fund (the “Fund”) (TSX: BPF.UN) and Boston Pizza International Inc. (“BPI”) announced today that effective January 1, 2012, 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, 2011 and December 31, 2011 (the “Period”) all of which are full service restaurants.  Two full service restaurants and two Quick Express locations were permanently closed during the Period.  With the adjustment for these openings and closures during 2011, royalties are now payable to the Fund from 343 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 added seven new locations in 2011, bringing our total to a remarkable 343 Boston Pizzas across ten provinces and two territories. Boston Pizza is proud to serve more customers in more locations than any other full service restaurant brand in Canada” said Mark Pacinda, President and Chief Executive Officer 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 since the last Adjustment Date.  In return for adding net additional royalty revenue, BPI receives the right to indirectly acquire 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 four permanent closures, BPI has received 174,533 Additional Entitlements.  The 174,533 represents 80% (218,166 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 174,533 Additional Entitlements represents 1.0% of the Fund units on a fully diluted basis.  The full 218,166 Additional Entitlements would represent 1.2% of the Fund on a fully diluted basis.  Including the 218,166 Additional Entitlements described above, BPI has the right to acquire 2,953,624 Fund Units, representing 16.9% 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 2012 is $11.7 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 four 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 $8.3 million.  The estimated 4% royalty revenue the Fund will receive in 2012 from these additional new restaurants is $0.3 million.  The pre-tax royalty revenue for the purposes of calculating the Additional Entitlements, therefore, is $0.3 million or 92.5%.  The estimated effective average tax rate that the Fund will pay in the calendar year 2012 is 25.0%.  Accordingly, the after-tax royalty revenue for the purposes of calculating the Additional Entitlements is $0.2 million ($0.3 million x (1 – 0.25)).  Once both the actual performance of these new restaurants for 2012 and the actual effective average tax rate paid by the Fund for 2012 are known, the number of Additional Entitlements will be adjusted in 2013 to reflect the actual royalty revenue received by the Fund in 2012 and the actual effective average tax rate paid by the Fund in 2012.  As of January 1, 2012, there are 343 restaurants in the Royalty Pool.

Table 1 - Summary of Boston Pizza Royalties Income Fund Units

 

 

 

Issued & Outstanding Units, & Additional Entitlements

Issued & Outstanding Units, Additional Entitlements, & Holdback of Additional Entitlements

 

Issued and Outstanding Units as of December 31, 2011

14,570,644

14,570,644

 

BPI Additional Entitlements - Outstanding as of December 31, 2011

2,723,861

2,723,861

 

BPI Additional Entitlements - Holdback as of December 31, 2011

N/A

11,597

 

Number of Fully Diluted Units as of December 31, 2011

17,294,505

17,306,102

 

 

 

 

 

Issued and Outstanding Units as of December 31, 2011 & January 1, 2012

14,570,644

14,570,644

 

BPI Additional Entitlements - Outstanding as of December 31, 2011

2,723,861

2,723,861

 

BPI Additional Entitlements - Holdback as of December 31, 2011

N/A

11,597

 

BPI Additional Entitlements - Issued & Outstanding as of January 1, 2012 (3 net new Restaurants added to Royalty Pool)

174,533

174,533

 

BPI Additional Entitlements - Holdback as of January 1, 2012                       (3 net new Restaurants added to Royalty Pool)

N/A

43,633

 

Number of Fully Diluted Units as of January 1, 2012

17,469,038

17,524,268

 

 

 

 

 

 

 

 

 

BPI Total Ownership as of January 1, 2012

16.6%

16.9%

 

BPI Ownership based on 3 net new Restaurants added to Royalty Pool only as of January 1, 2012

1.0%

1.2%

 

(1)  Additional Entitlements from the 0 net new restaurants added to Royalty Pool on January 1, 2011 determined in 2012, once audited results of the 0 net new restaurants were known.

 

(2)  Issued effective January 1, 2012.

 

(3)  Holdback of Additional Entitlements from 3 net new restaurants added to Royalty Pool on January 1, 2012.  Actual number of Additional Entitlements will be determined in early 2013, effective January 1, 2012, once audited results of the 3 net new restaurants are known.

 

The Trustees of the Fund have approved the contents of this news release.

 

FOR FURTHER INFORMATION PLEASE CONTACT:

Boston Pizza Royalties Income Fund
Jordan Holm - Vice President of Investor Relations
Tel: 604-303-6083

www.bpincomefund.com

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