Press Release Details

View all news

Boston Pizza Royalties Income Fund and Boston Pizza International Inc. Provide Update on the Timing of Release of 2020 Q1 Financial Results and the Impact of COVID-19

May 04, 2020

Toronto Stock Exchange: BPF.UN

VANCOUVER, May 4, 2020 /CNW/ - Boston Pizza Royalties Income Fund (the "Fund")1 (TSX: BPF.UN) and Boston Pizza International Inc. ("BPI") today provided an update on the timing for release of first quarter 2020 financial results and the impact COVID-19 has had on their businesses.

Highlights

  • The Fund and BPI will delay releasing their first quarter 2020 financial results until approximately June 12, 2020.
  • Since March 18, 2020, approximately 75% of the 394 Boston Pizza restaurants in Canada remain open providing only take-out and delivery services, while approximately 25% of Boston Pizza restaurants have completely closed temporarily.
  • Such reduced services and closures have resulted and will continue to result in material declines in Franchise Sales2, Same Restaurant Sales ("SRS")3, Royalty4, Distribution Income4 and cash available to distribute to unitholders of the Fund.
  • Since March 18, 2020, Franchise Sales and the resulting Royalty and Distribution Income are approximately one-quarter of the level they were at prior to the COVID-19 pandemic and SRS has declined by approximately 75%.
  • SRS for the first quarter of 2020 was negative 15.8% compared to negative 1.3% reported in the first quarter of 2019. On a Franchise Sales basis, SRS was negative 15.9% compared to 0.0% reported in the first quarter of 2019.
  • Boston Pizza Canada Limited Partnership ("BP Canada LP") has deferred the collection of royalties and advertising fees from its franchisees until further notice to provide financial support to its franchisees during COVID-19.
  • BPI and BP Canada LP advised the Fund that BPI and BP Canada LP would be delaying payment of Royalty and Distribution Income to the Fund in respect of March and April 2020, but that they will pay such amounts in the future with interest.
  • BPI and BP Canada LP are not in compliance with certain financial covenants under the general security agreements granted to the Fund.
  • BPI is not in compliance with certain financial covenants under the credit agreement with its bank (the "Bank").
  • The Fund has not waived such delayed payment or non-compliance by BPI and BP Canada LP and has reserved all its rights under the applicable agreements between the Fund and BPI and BP Canada LP.
  • Neither the Bank nor the Fund has taken any steps to enforce any of their respective rights under these agreements.
  • BPI continues to actively manage its financial condition and take steps to preserve liquidity, including having temporarily laid off approximately half of its corporate employees as announced on March 27, 2020.
  • Although the Fund was in compliance with the covenants under its senior credit facilities as at March 31, 2020, the Fund anticipates that it will not be in compliance as at June 30, 2020.
  • BPI and the Fund continue to work with each other and the Bank with a view to reaching mutually satisfactory arrangements with respect to these matters in the near future.
  • Distributions on units of the Fund continue to be temporarily suspended until further notice.

Details

The Fund and BPI intend to rely upon the exemptions recently granted by the Canadian securities regulatory authorities that allow issuers to delay the filing of certain continuous disclosure obligations as a result of COVID-19.  The Fund and BPI would ordinarily be required to release their financial statements and MD&A for the quarter ended March 31, 2020 on or before May 14, 2020.  The Fund and BPI expect to file and release their financial statements and MD&A for the quarter ended March 31, 2020 on or before June 12, 2020.  The Fund and BPI confirm that their management and insiders remain subject to a trading blackout pursuant to their internal Corporate Disclosure and Stock Trading Policy, which policy reflects the principles in section 9 of National Policy 11-207 – Failure to File Cease Trading Orders and Revocations in Multiple Jurisdictions.  Since the Fund and BPI filed their annual financial statements for the years ended December 31, 2019 and 2018 on February 13, 2020, there have been material business developments as set forth in the remainder of this press release.

BPI previously announced on March 18, 2020 that BPI, BP Canada LP, a limited partnership owned and controlled by BPI and the franchisor of the Boston Pizza brand in Canada, and its franchisees temporarily closed all of their dining rooms and sports bars across Canada in response to the COVID-19 pandemic.  The closure of all Boston Pizza dining rooms and sports bars across Canada in response to COVID-19 has resulted and will continue to result in material declines to Franchise Sales and SRS at Boston Pizza restaurants across Canada.  Consequently, the declines in Franchise Sales and SRS has resulted and will continue to 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 cash available to distribute to unitholders of the Fund.

Since March 18, 2020, approximately three-quarters of the 394 Boston Pizza restaurants in Canada remain in partial operation providing only take-out and delivery services while approximately one-quarter of Boston Pizza restaurants have closed completely on a temporary basis.  Since March 18, 2020, Franchise Sales and the resulting Royalty and Distribution Income are approximately one-quarter of the level they were at prior to the COVID-19 pandemic and SRS has declined by approximately 75%.  SRS for the first quarter of 2020 was negative 15.8% compared to negative 1.3% reported in the first quarter of 2019.  On a Franchise Sales basis, SRS was negative 15.9% compared to 0.0% reported in the first quarter of 2019.  The future effects of the COVID-19 pandemic on the Canadian economy, restaurant industry and Boston Pizza restaurants continue to remain uncertain.  Government and related health agencies at the federal, provincial and municipal levels are currently signaling a gradual return to normal business and easing of current restrictions and mandates.  At this time, there is no clear direction and timeline as to when Boston Pizza restaurants can resume full operations.  Boston Pizza will continue to work diligently to ensure the safety and well-being of its guests and restaurant staff.

To support Boston Pizza franchisees, BP Canada LP has deferred the collection of royalties and advertising fees from its franchisees until further notice.  Consistent with many other franchisors, the deferral of royalties and advertising fees has been made in order to provide its franchisees with financial support during the challenging times caused by the COVID-19 pandemic.  Boston Pizza franchisees are required to pay BP Canada LP a 7% royalty on Franchise Sales and a 3% advertising fee on Franchise Sales.  Until a time when all levels of government and related health agencies are able to provide clearer timelines on the full re-opening of Boston Pizza restaurants, BPI will continue to work diligently to build a consortium of financial relief and support for its franchisees across financial institutions, governments, landlords, and others that together will be required to provide assistance at a level needed to help offset the otherwise unprecedented financial impact facing Boston Pizza restaurants and BP Canada LP's many franchisees.  BPI and BP Canada LP will re-evaluate the decision to defer the collection of royalties and advertising fees at an appropriate time in the future.

BPI and BP Canada LP advised the Fund that BPI and BP Canada LP would be delaying payment of Royalty and Distribution Income to the Fund in respect of March and April 2020, which is payable on or before April 30, 2020 and May 31, 2020, respectively, because of the significant impacts the COVID-19 pandemic has had, and will continue to have, on BPI's and BP Canada LP's revenues and cashflows.  BPI and BP Canada LP have further advised the Fund that they will pay such amounts in the future and have offered to pay interest on such amounts at an annual rate equal to the prime rate for commercial loans offered by the Fund's bank plus 2%5

BPI is also currently not in compliance with certain financial covenants under:

(a) the general security agreement it granted the Fund to secure BPI's obligation to pay the Fund Royalty, including, a covenant not to exceed a certain debt-to-EBITDA ratio; and

(b) under the credit agreement with the Bank, which is also the lender of the Fund, including a covenant not to exceed a certain debt-to-EBITDA ratio and a requirement that the market value of the securities it holds that are exchangeable for units of the Fund that are pledged to the Bank6 exceeds the amount of indebtedness owed by BPI to its bank.

BP Canada LP is also currently not in compliance with certain financial covenants under the general security agreement granted to the Fund to secure BP Canada LP's obligations to pay the Distribution Income, including, a covenant not to exceed a certain debt-to-EBITDA ratio.

The Fund recognizes that the financial health of BPI, BP Canada LP and the Boston Pizza franchisee system as a whole are of paramount concern to the Fund.  The Fund has not waived the delay of such payment obligations nor such non-compliance and has reserved all its rights under the applicable agreements between the Fund and BPI and BP Canada LP.  BPI, the Fund and the Bank are in active discussions and neither the Bank nor the Fund has taken any steps to enforce any of their respective rights under any of the agreements between the Bank and BPI,  the Fund and BPI, and the Fund and BP Canada LP.  BPI continues to actively manage its financial condition and take steps to preserve liquidity, including having temporarily laid off approximately half of its corporate employees as announced on March 27, 2020.  BPI and the Fund continue to work with each other and the Bank with a view to reaching mutually satisfactory arrangements with respect to these matters in the near future, however, there is no assurance that such arrangements can be reached.  BPI has agreed to keep the Trustees of the Fund apprised of material developments in the business of BPI, BP Canada LP and its franchisees. 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.

Although the Fund was in compliance with the covenants under its senior credit facilities as at March 31, 2020, the Fund anticipates that it will not be in compliance as at June 30, 2020.  The Fund is currently in discussions with the Bank regarding its senior credit facilities. The Fund previously announced on March 23, 2020 the temporarily suspension of monthly distributions on units of the Fund until further notice, commencing with the March 2020 distribution that ordinarily would have been payable on April 30, 2020 to unitholders of record on April 21, 2020.  The Trustees of the Fund continue to believe that this is a prudent decision to help preserve the Fund's existing cash until the full economic consequences of COVID-19 on the Fund are better understood.  The Trustees will continue to monitor the effects of COVID-19 on the Fund and adjust the Fund's distribution policy in a prudent manner as circumstances warrant with a view to the best interests of the Fund and its stakeholders.

1)

The Fund includes, where applicable, its subsidiaries, including Boston Pizza Holdings Limited Partnership and Boston Pizza Royalties Limited Partnership.

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" 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)

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 of Boston Pizza restaurants in the Royalty Pool ("Royalty").  On May 6, 2015, the Fund completed an indirect investment in BP Canada LP (a limited partnership controlled and operated by BPI) that entitles the Fund to receive distribution income from BP Canada LP ("Distribution Income") equal to 1.5% 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.

5)

The License and Royalty Agreement governing BPI's obligation to pay the Fund Royalty provides that late payments of Royalty accrue interest an annual rate equal to the prime rate for commercial loans offered by the Fund's bank plus 2%.  The agreement governing BP Canada LP's obligation to pay the Fund Distribution Income does not contemplate late payments and consequently does not provide for accrual of interest on such late payments.

6)

BPI indirectly holds Class B General Partner Units of Boston Pizza Royalties Limited Partnership and Class 2 General Partner Units of BP Canada LP that are currently exchangeable for approximately 3.2 million units of the Fund.

 

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 Fund and BPI expecting to file and release their financial statements and MD&A for the quarter ended March 31, 2020 on or before June 12, 2020, the closure of Boston Pizza dining rooms and sports bars across Canada 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 cash available to distribute to unitholders of the Fund, the future effects of the COVID-19 pandemic on the Canadian economy, restaurant industry and Boston Pizza restaurants continuing to remain uncertain, a gradual return to normal business and easing of current restrictions and mandates continuing, Boston Pizza continuing to work diligently to ensure the safety and well-being of its guests and restaurant staff, BP Canada LP continuing to defer the collection of royalties and advertising fees from its franchisees until further notice, BPI continuing to work diligently to build a consortium of financial relief and support for its franchisees across financial institutions, governments, landlords, and others that together will be required to provide assistance at a level needed to help offset the otherwise unprecedented financial impact facing Boston Pizza restaurants and BP Canada LP's many franchisees, BPI and BP Canada LP re-evaluating the decision to defer the collection of royalties and advertising fees at an appropriate time in the future, BPI and BP Canada LP delaying payment of Royalty and Distribution Income to the Fund and paying such amounts to the Fund in the future with interest, BPI, the Fund and the Bank continuing in active discussions, neither the Bank nor the Fund taking any steps to enforce any of their respective rights under any of the agreements between the Bank and BPI, the Fund and BPI, and the Fund and BP Canada LP, BPI continuing to actively manage its financial condition and taking steps to preserve liquidity , BPI and the Fund continuing to work with each other and the Bank with a view to reaching mutually satisfactory arrangements with respect to certain matters in the near future, BPI agreeing to keep the Trustees of the Fund apprised of material developments in the business of BPI, BP Canada LP and its franchisees, 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, the Fund anticipating that it will not be in compliance with the covenants under its senior credit facilities as at June 30, 2020, the Fund continuing in discussions with the Bank regarding its senior credit facilities, distributions on units of the Fund continuing to be temporarily suspended until further notice, the Trustees of the Fund continuing to believe that temporarily suspending distributions on units of the Fund being a prudent decision to help preserve the Fund's existing cash until the full economic consequences of COVID-19 on the Fund are better understood, the Trustees continuing to monitor the effects of COVID-19 on the Fund and adjusting the Fund's distribution policy in a prudent manner as circumstances warrant with a view to the best interests of the Fund and its stakeholders, 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 outbreak will continue to negatively impact the restaurant industry and necessitate the closure of all Boston Pizza dining rooms and sports bars across Canada, and that the closure of all Boston Pizza dining rooms and sports bars across Canada will result in significant declines in Franchise Sales and SRS.  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, the Fund assumes no 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 trademarks and unregistered Canadian trademarks containing the words "Boston", "BP", and/or "Pizza" are trademarks 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

Categories: Press Releases
View all news