BPF.UN Boston Pizza Royalties Income Fund

COVID-19's continued impact on Boston Pizza's business resulted in Same Restaurant Sales² of positive 25.5% for the fourth quarter of 2021 and negative 11.5% if compared to the fourth quarter of 2019.

HIGHLIGHTS

• Franchise Sales[1] of $183.2 million for the Period and $660.1 million for the Year, representing an increase of 25.0% and 7.6%, respectively, versus the same periods one year ago.
• Same Restaurant Sales[2] of positive 25.5% for the Period and positive 8.5% for the Year.  As COVID-19 began to adversely affect sales in Boston Pizza restaurants in March of 2020, the Fund believes that it is also useful to calculate and report SRS comparing 2021 Franchise Sales to 2019 Franchise Sales.  If SRS were calculated comparing Franchise Sales in the Period and Year to Franchise Sales in the fourth quarter of 2019 and the year 2019, SRS would be negative 11.5% and negative 21.5%, respectively.
• Cash flows generated from operating activities of $8.5 million for the Period and $30.5 million for the Year, representing an increase of 8.0% and 33.3%, respectively, versus the same periods one year ago.
• Distributable Cash[3] increased 12.7% for the Period and 25.4% for the Year, and Distributable Cash per Unit[4] increased 12.8% for the Period and 25.7% for the Year.
• Payout Ratio[5] of 90.4% for the Period and 109.5% for the Year.  Cash balance at the end of the Period was $5.2 million.
• Boston Pizza did not open any new full-service restaurants and closed four full-service restaurants in 2021.
• The monthly distribution rate was increased from $0.065 per unit of the Fund ("Unit") to $0.085 per Unit beginning with the September 2021 distribution that was paid on October 29, 2021.
• Cash distribution of $0.085 per Unit declared for January 2022, and payable on February 28, 2022 to unitholders of record on February 21, 2022.

VANCOUVER, BC, Feb. 9, 2022 /CNW/ - Boston Pizza Royalties Income Fund (the "Fund") and Boston Pizza International Inc. ("BPI") reported financial results today for the fourth quarter period from October 1, 2021 to December 31, 2021 (the "Period") and January 1, 2021 to December 31, 2021 (the "Year").  A copy of this press release, the audited annual consolidated financial statements, related Management's Discussion and Analysis ("MD&A") of the Fund and BPI and Annual Information Form of the Fund are available at www.sedar.com and www.bpincomefund.com.  The Fund will host a conference call to discuss the results on February 9, 2022 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 March 9, 2022 by dialling 1-800-319-6413 or 604-638-9010 and entering the access code: 8275 followed by the # sign.  The replay will also be available at www.bpincomefund.com.  Capitalized terms used in this press release that are not otherwise defined have the meanings ascribed to them in the Fund's MD&A for the Period and the Year.

"We are encouraged to see our sales performance improve during the year compared to 2020.  However, 2021 continued to present challenges brought on by the COVID-19 pandemic that had significant impact on the business of Boston Pizza restaurants across Canada for most of the year," said Jordan Holm, President of BPI.  "Our focus continues to be the safety of our guests and staff in restaurants, serving our communities with take-out, delivery and in-restaurant dining where permitted, and supporting our franchisees during these challenging times."

ONGOING EFFECTS OF COVID-19

COVID-19 had significant adverse effects on the business of the Fund, BPI and Boston Pizza Canada Limited Partnership ("BP Canada LP") during the Period and the Year.  Throughout 2021, the business of Boston Pizza restaurants in the Royalty Pool varied inversely with the severity of COVID-19 across Canada.  The beginning of 2021 saw various governmental authorities across Canada impose assorted restrictions on the operations of restaurants in an attempt to control the spread of COVID-19.  The restrictions ranged from limiting operating hours, reductions in permitted hours to serve alcohol, closures of indoor dining rooms and closures of patio dining depending upon the particular regions and times.  As COVID-19 case counts declined in February and March of 2021, the business of Boston Pizza restaurants in the Royalty Pool again improved as the assorted governmental restrictions were eased.  However, that improvement was temporary as the third wave of COVID-19 developed shortly thereafter and again various governmental authorities across Canada imposed assorted restrictions on the operations of restaurants in an attempt to control the spread of COVID-19.  As the third wave of COVID-19 subsided in May and June of 2021, the business of Boston Pizza restaurants in the Royalty Pool again improved as the assorted governmental restrictions were once again eased.  As the fourth wave of COVID-19 developed in Canada, the business of Boston Pizza restaurants again declined as various governmental authorities across Canada again implemented assorted restrictions, including vaccine card or vaccine passport systems that require guests to show proof of vaccination when dining in restaurants.  See the "Operating Results" section of the Fund's MD&A for the Period and Year for details.

COVID-19 continues to impact the business of the Fund, BPI and BP Canada LP, and the operation of Boston Pizza restaurants.  Franchise Sales, and the resulting Royalty and Distribution Income, for January 2022 were approximately 129% of the level they were in January 2021 and approximately 70% of the level they were in January 2019.  SRS for January 2022 was approximately positive 29% when compared to the same period in 2021 and approximately negative 28% when compared to the same period in 2019. 

PERIOD AND YEAR RESULTS

SRS, a key driver of distribution growth for unitholders of the Fund, was positive 25.5% for the Period and positive 8.5% for the Year compared to negative 29.7% and negative 27.6%, respectively, for the same periods one year ago.  If SRS were calculated comparing Franchise Sales in the Period and Year to Franchise Sales for the same periods in 2019, SRS would be negative 11.5% and negative 21.5%, respectively.  The increase in SRS for the Period and Year was principally due to increases in restaurant guest traffic due to the easing of dining restrictions and increased take-out and delivery sales.

Franchise Sales were $183.2 million for the Period and $660.1 million for the Year compared to $146.6 million and $613.2 million, respectively, for the same periods in 2020.  The $36.6 million and $46.9 million increase in Franchise Sales for the Period and Year, respectively, were primarily due to positive SRS.

The Fund's net and comprehensive income was $12.6 million for the Period compared to $19.6 million for the fourth quarter of 2020.  The $7.0 million decrease in the Fund's net and comprehensive income for the Period compared to the fourth quarter of 2020 was primarily due to a $9.2 million decrease in fair value gain, partially offset by higher Royalty and Distribution Income of $1.9 million and a decrease in interest on Class B Units of $0.4 million.  The Fund's net and comprehensive income was $37.4 million for the Year compared to $9.6 million in 2020.  The $27.8 million increase in the Fund's net and comprehensive income for the Year compared to the same period in 2020 was primarily due to a $26.3 million increase in fair value gain, higher Royalty and Distribution Income of $2.5 million and a decrease in administrative expenses of $0.1 million, partially offset by higher interest on long-term debt of $0.5 million, higher interest on Class B Units of $0.4 million and higher current income tax expense of $0.2 million.

The Fund's cash flows generated from operating activities was $8.5 million for the Period compared to $7.9 million for the fourth quarter of 2020.  The increase of $0.6 million was primarily due to an increase of Royalty and Distribution Income of $1.9 million, partially offset by a decrease in changes in working capital of $1.1 million and an increase in income taxes paid of $0.2 million.  The Fund's cash flows generated from operating activities was $30.5 million for the Year compared to $22.9 million for the same period in 2020.  The increase of $7.6 million was primarily due to increased changes in working capital of $5.7 million and an increase of Royalty and Distribution Income of $2.5 million, partially offset by an increase in income taxes paid of $0.6 million.

The Fund generated Distributable Cash of $6.1 million for the Period compared to $5.4 million for the fourth quarter of 2020.  The increase in Distributable Cash of $0.7 million or 12.7% was primarily due to an increase in cash flow generated from operating activities of $0.6 million and an adjustment to income taxes of $0.1 million, partially offset by increased BPI Class B Unit entitlement of $0.1 million.  The Fund generated Distributable Cash of $20.4 million for the Year compared to $16.3 million in 2020.  The increase in Distributable Cash of $4.1 million or 25.4% was primarily due to an increase in cash flow generated from operating activities of $7.6 million and an adjustment to income taxes of $0.5 million, partially offset by higher contractually required debt repayments of $3.1 million, an increase of interest paid on long-term debt of $0.5 million and increased BPI Class B Unit entitlement of $0.3 million.

The Fund generated Distributable Cash per Unit of $0.282 for the Period compared to $0.250 per Unit for the fourth quarter of 2020.  The increase in Distributable Cash per Unit of $0.032 or 12.8% was primarily attributable to the increase in Distributable Cash outlined above.  The Fund generated Distributable Cash per Unit of $0.950 for the Year compared to $0.756 per Unit in 2020.  The increase in Distributable Cash per Unit of $0.194 or 25.7% was primarily attributable to the increase in Distributable Cash outlined above and fewer Units outstanding compared to the same period in 2020 due to the Fund's normal course issuer bid that was then in effect.

The Fund's Payout Ratio for the Period was 90.4% compared to 77.9% in the fourth quarter of 2020.  The increase in the Fund's Payout Ratio for the Period was due to distributions paid increasing by $1.3 million or 30.8%, partially offset by Distributable Cash increasing by $0.7 million or 12.7%.  The Fund's Payout Ratio for the Year was 109.5% compared to 68.2% in 2020.  The increase in the Fund's Payout Ratio for the Year was due to distributions paid increasing by $11.3 million or 101.3%, partially offset by Distributable Cash increasing by $4.1 million or 25.4%.  Payout Ratio for the Year factors in the Special Distribution (defined below) that was paid on January 29, 2021 even though the cash generated to fund the Special Distribution was generated during 2020.  If the Special Distribution was excluded in the calculation of Payout Ratio for the Year, Payout Ratio would be 88.4%.  The Fund's Payout Ratio is typically higher in the first and fourth quarters compared to the second and third quarters since Boston Pizza restaurants generally experience higher Franchise Sales levels during the summer months when restaurants open their patios and benefit from increased tourist traffic.

COVID-19 has resulted in material declines to Franchise Sales and SRS when compared to periods prior to COVID-19.  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 when compared to periods prior to COVID-19, and significant declines in the amount of Distributable Cash available for distribution to unitholders when compared to periods prior to COVID-19.  The effects of COVID-19 may materially affect the Fund's Payout Ratio in the future.

DISTRIBUTIONS

During the Period, the Fund declared distributions on the Units in the aggregate amount of $7.3 million or $0.340 per Unit.  During the fourth quarter of 2020, the Fund declared distributions on the Units in the aggregate amount of $9.9 million or $0.460 per Unit.  During the Period, the Fund paid distributions on the Units in the aggregate amount of $5.5 million or $0.255 per Unit.  During the fourth quarter of 2020, the Fund paid distributions on the Units in the aggregate amount of $4.2 million or $0.195 per Unit.  The amount of distributions declared during the Period decreased by $0.120 per Unit due to the special one-time cash distribution to unitholders of $0.20 per Unit, which was declared on December 16, 2020 and was paid on January 29, 2021 to unitholders of record at the close of business on December 31, 2020 (the "Special Distribution") without any special distribution being declared during the Period, partially offset by the monthly distribution rate increasing from $0.065 per Unit to $0.085 per Unit commencing with the September 2021 distribution.  Distributions paid during the Period increased by $0.060 per Unit due to the monthly distribution rate increasing from $0.065 per Unit to $0.085 per Unit commencing with the September 2021 distribution.

During the Year, the Fund declared distributions on the Units in the aggregate amount of $18.5 million or $0.860 per Unit compared to $14.3 million or $0.664 per Unit in 2020.  During the Year, the Fund paid distributions on the Units in the aggregate amount of $22.4 million or $1.040 per Unit, compared to $11.1 million or $0.516 per Unit for the same period in 2020.  The amount of distributions declared for the Year increased by $0.196 per Unit due to the monthly distribution rate during the Year increasing from $0.065 per Unit to $0.085 per Unit commencing with the September 2021 distribution and the Fund not declaring distributions in the second or third quarters of 2020, partially offset by a lower monthly distribution rate of $0.065 per Unit for the first quarter of the Year compared to $0.102 per Unit for the first quarter of the prior year and by the Special Distribution declared in the prior year.  The amount of distributions paid during the Year increased by $0.524 per Unit due to the Special Distribution, the Fund not having paid distributions in respect of the second and third quarters of 2020, and the Fund increasing the monthly distribution rate from $0.065 per Unit to $0.085 per Unit commencing with the September 2021 distribution, partially offset by decreases in the monthly distribution rates: (a) from $0.115 per Unit that was in effect for the December 2019 distribution that was paid on January 31, 2020 to $0.065 per Unit for the December 2020 distribution that was paid on January 29, 2021; and (b) from $0.102 per Unit that was in effect for the January and February 2020 distributions that were paid on February 28 and March 31, 2020, respectively, to $0.065 per Unit for the January and February 2021 distributions that were paid on February 26 and March 31, 2021, respectively.

On February 8, 2022, the trustees of the Fund declared a distribution for the period of January 1, 2022 to January 31, 2022 of $0.085 per Unit, which will be payable on February 28, 2022 to unitholders of record on February 21, 2022.  Including the January 2022 distribution, which will be paid on February 28, 2022, the Fund will have paid out total distributions of $371.5 million or $23.63 per Unit which includes 229 monthly distributions and the Special Distribution.

FINANCIAL SUMMARY

The tables below set out selected information from the Fund's audited annual consolidated financial statements together with other data and should be read in conjunction with the audited annual consolidated financial statements and MD&A of the Fund for the years ended December 31, 2021 and 2020.

SUMMARY OF QUARTERLY RESULTS

SUMMARY OF QUARTERLY RESULTS (continued)

SHORT-TERM OUTLOOK

COVID-19 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, BPI and BP Canada LP.  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 staff of BP Canada LP's franchisees; (iii) responsibly and safely operate the dining rooms, sports bars and patios of Boston Pizza restaurants across Canada as 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.

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 COVID-19 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.

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 potential for COVID-19 to continue to materially affect the Fund's Payout Ratio in the future, COVID-19 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, implementation of the pandemic recovery plan, future distributions and dates distributions are to be paid or payable, the significant uncertainties related to COVID–19 and its impact on BPI and the Fund, the focus of BPI's management on guest safety, maximizing the take-out and delivery business and helping franchisees succeed during these challenging times, the trustees of the Fund continuing to closely monitor the Fund's available cash balances, future changes to calculations of financial measures, 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, 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 Fund maintaining the same distribution policy, expectations related to future general economic conditions, expectations that the Fund's Payout Ratio is typically higher in the first and fourth quarter; Boston Pizza restaurants maintaining operational excellence, the COVID-19 pandemic continuing 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, pandemics and national health crises, in particular COVID-19, 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.

Notes – Non-GAAP, Specified Financial Measures and Other Information

1. "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 Royalty Pool; and (ii) reported to BP Canada LP by franchised Boston Pizza restaurants in Canada that are in the 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. Franchise Sales is reported on a quarterly basis in the Fund's financial statements, however, the financial statements do not report it on a monthly basis.  Therefore, when disclosed on a monthly basis herein, this is a supplementary financial measure under National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure
   ("NI 52-112").  The Fund believes that Franchise Sales for this month provides useful information to investors regarding recent performance of Boston Pizza.
   
   
2. "Same Restaurant Sales" or "SRS" is a supplementary financial measure under NI 52-112 and therefore may not be comparable to similar measures presented by other issuers.  Prior to the fourth quarter of 2021, the Fund defined SRS as the change in gross revenues of Boston Pizza restaurants in the Royalty Pool as compared to the gross revenues for the same period in the previous year (where restaurants were open for a minimum of 24 months).  Commencing with the fourth quarter of 2021, the Fund defines SRS as the change in Franchise Sales of Boston Pizza restaurants in the Royalty Pool as compared to the Franchise Sales for the same period in the previous year (where restaurants were open for a minimum of 24 months).  The Fund believes that the current method of calculating SRS provides unitholders more meaningful information regarding the performance of Boston Pizza restaurants since Royalty and Distribution Income are payable to the Fund by BPI and BP Canada LP on Franchise Sales and not gross revenues of Boston Pizza restaurants.  All historical SRS figures contained in this press release have been restated to conform to the current method of calculating SRS.
   
   
3. "Distributable Cash" is a non-GAAP financial measure under NI 52-112.  Distributable Cash is not a standardized financial measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers.  The Fund defines Distributable Cash to be, in respect of any particular period, the Fund's cash flows generated from operating activities for that period (being the most comparable financial measure in the Fund's primary financial statements) minus (a) BPI's entitlement in respect of its Class B Units in respect of the period (see note 7 below), minus (b) interest paid on long-term debt during the period, minus (c) principal repayments on long-term debt that are contractually required to be made during the period, minus (d) the current income tax expense in respect of the period, plus (e) current income tax paid during the period (the sum of (d) and (e) being "SIFT Tax on Units").  Management believes that Distributable Cash provides investors with useful information about the amount of cash the Fund has generated and has available for distribution on the Units in respect of any period.  The tables in the "Financial Highlights" section of this press release provide a reconciliation from this non-GAAP financial measure to cash flows generated from operating activities, which is the most directly comparable IFRS measure.  Current income tax expense in respect of any period is prepared using reasonable and supportable assumptions (including that the base rate of SIFT Tax will not increase throughout the calendar year and that certain expenses of the Fund will continue to be deductible for income tax purposes), all of which reflect the Fund's planned courses of action given management's judgment about the most probable set of economic conditions.  There is a risk that the federal government of Canada could increase the base rate of SIFT Tax or that applicable taxation authorities could assess the Fund on the basis that certain expenses of the Fund are not deductible.  Investors are cautioned that if either of these possibilities occurs, then the actual results for this component of Distributable Cash may vary, perhaps materially, from the amounts used in the reconciliation.
    
4.  "Distributable Cash per Unit" is a non-GAAP ratio under NI 52-112.  Distributable Cash per Unit is not a standardized financial measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers.  The Fund defines Distributable Cash per Unit for any period as the Distributable Cash generated in that period divided by the weighted average number of Units outstanding during that period.  Management believes that Distributable Cash per Unit provides investors with useful information regarding the amount of cash per Unit that the Fund has generated and has available for distribution in respect of any period.
   
   
5. "Payout Ratio" is a non-GAAP ratio under NI 52-112.  Payout Ratio is not a standardized financial measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers.  The Fund defines Payout Ratio for any period as the aggregate distributions paid by the Fund during that period divided by the Distributable Cash generated in that period.  Management believes that Payout Ratio provides investors with useful information regarding the extent to which the Fund distributes cash generated on Units.
   
   
6. Boston Pizza Royalties Limited Partnership ("Royalties LP") licenses BPI the right to use various Boston Pizza trademarks in return for BPI paying Boston Pizza Royalties Limited Partnership a royalty equal to 4% of Franchise Sales of Boston Pizza restaurants (the "Royalty") in the Fund's royalty pool (the "Royalty Pool").
   
   
7. "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 and the Year for more details.
   
   
8. "BPI Class B Unit entitlement" is a supplementary financial measure under NI 52-112 and therefore may not be comparable to similar measures presented by other issuers.  The BPI Class B Unit entitlement is the interest expense on Class B Units in respect of a period plus management's estimate of how much cash BPI would be entitled to receive pursuant to the limited partnership agreement governing Royalties LP (a copy of which is available on www.sedar.com) on its Class B Units if Royalties LP fully distributed any residual cash generated in respect of that period after the Fund pays interest on long-term debt, principal repayments on long-term debt and SIFT Tax on Units in respect of that period.  Management believes that the BPI Class B Unit entitlement is an important component in calculating Distributable Cash since it represents the amount of residual cash generated that BPI would be entitled to receive and therefore would not be available for distribution to unitholders.  Management prepares such estimate using reasonable and supportable assumptions that reflect the Fund's planned courses of action given management's judgment about the most probable set of economic conditions.

SOURCE Boston Pizza Royalties Income Fund