Pizza Pizza Royalty Income Fund announces second quarter 2008 results



    TORONTO, July 31 /CNW/ - Pizza Pizza Royalty Income Fund (the "Fund")
today reported its financial results for the second quarter ended June 30,
2008.

    
    2008 Quarterly Highlights compared to 2007:

      -  Pre-tax earnings per unit increased 9.5%
      -  Same store sales grew 1.3%
      -  Royalty Pool system sales increased 24%
      -  Monthly distribution increased 2% in June
    

    Pizza Pizza continues to report positive sales growth. As previously
announced, same store sales growth (SSSG) for the second quarter increased
1.3% and grew 2.7% for the six months ended June 30, 2008, both as compared to
the same periods last year. SSSG is the key driver of yield growth for Fund
unitholders and includes results of Pizza 73 restaurants.
    System Sales for the 609 restaurants in the Royalty Pool increased 24%
for the quarter to $114.3 million compared to $92.2 million for the 531
restaurants in the Royalty Pool for the same quarter in 2007. Sales for the
quarter from the 559 Pizza Pizza restaurants were $94.2 million and sales from
the 50 Pizza 73 restaurants were $20.1 million. System sales of the Royalty
Pool for the six months ended June 30, 2008 increased by 25.3% to
$227.8 million from $181.7 million in the comparative period in 2007. The
increase in system sales and the corresponding royalty income was the result
of the positive SSSG plus the 37, net new restaurants added to the Royalty
Pool on January 1, 2008, and the 41 Pizza 73 restaurants added to the Royalty
Pool on July 24, 2007.

    Net earnings after non-cash future income taxes

    As a result of the increase in Royalty Pool sales, pre-tax earnings per
unit for the second quarter increased 9.5% over the comparable quarter in
2007, growing to $0.242 from $0.221 per unit. Earnings before future income
tax were $5.3 million, or $0.242 per unit; earnings increased to $8.4 million
as a result of recording a non-cash, future tax recovery of $0.142 per unit.
Earnings for the second quarter in 2007 were $4 million which were reduced to
a loss of $4.7 million as a result of recording an $8.7 million non-cash,
future tax expense. The provision for future income taxes is unrelated to
normal business operations and is the result of federal tax legislation
requiring a provision for future income tax expense.
    On a year-to-date basis, pre-tax earnings per unit increased 9% to $0.483
per unit from $0.443 during the same period in 2007. Earnings before future
tax were $10.5 million and increased to $12.7 million as a result of a
non-cash future tax recovery of $2.2 million. For the same six month period in
2007, the Fund had earnings before future tax of $8 million which were reduced
to a loss of $752,000 as a result of a $8.7 million provision for future
income taxes which was unrelated to normal business operations.

    Distributions

    As previously announced during the quarter, the Fund increased its
monthly cash distribution by 2% in June. The distribution per unit increased
to $0.0775 from $0.076. The new, monthly distribution equates to an annualized
distribution of $0.93 per Fund unit or a 16.3% increase over the level at the
time of the Fund's initial public offering in July 2005. This is the sixth
distribution increase since the initial public offering.
    The Fund declared distributions of $5 million or $0.230 per unit for the
second quarter compared to $3.9 million or $0.219 per unit for the same period
last year, or a 5% increase per unit. The payout ratio for the quarter was
95%.
    As of June 30, 2008, working capital of the Pizza Pizza Royalty Limited
Partnership (the "Partnership") increased 21% during the first six months of
2008 to $2.3 million (December 31, 2007 - $1.9 million) and is accumulated as
a reserve to cover seasonality and any unusual administrative expenditures.

    Restaurants

    During the second quarter, the Pizza Pizza brand opened one traditional
and five non-traditional locations and closed one non-traditional location. On
a year-to-date basis, two traditional and six non-traditional Pizza Pizza
locations have opened, and four non-traditional locations have closed. This
brings the total number of Pizza Pizza restaurants to 563, of which 369 are
traditional restaurants and 194 are non-traditional locations. One
non-traditional and two traditional Pizza 73 locations were opened during the
quarter. On a year-to-date basis, five non-traditional and two traditional
Pizza 73 locations have opened, bringing the total number of Pizza 73
restaurants to 64.

    
    FINANCIAL HIGHLIGHTS

    The following table sets out selected financial highlights of the Fund and
the Partnership:

                                  3 months ended            6 months ended
                           --------------------------------------------------
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    (in thousands of dollars,
     except number of
     restaurants and per
     unit amounts)

    Restaurants in Royalty
     Pool(1)                      609          531          609          531
    Same store sales growth      1.3%         4.3%         2.7%         4.9%

    System sales reported
     by Pizza Pizza
     restaurants in the
     Royalty Pool          $   94,190   $   92,162   $  188,160   $  181,680
    System sales reported
     by Pizza 73 restaurants
     in the Royalty Pool(1)    20,087            -       39,637            -
    -------------------------------------------------------------------------
                           $  114,277   $   92,162   $  227,797   $  181,680
    -------------------------------------------------------------------------

    Royalty - 6% on Pizza
     Pizza system sales    $    5,651   $    5,530   $   11,289   $   10,901
    Royalty - 9% on Pizza
     73 system sales            1,808            -        3,568            -
    -------------------------------------------------------------------------
    Total Royalty on
     System Sales               7,459        5,530       14,857       10,901
    Partnership expenses(2)      (854)        (498)      (1,679)        (836)
    -------------------------------------------------------------------------
    Earnings available for
     distribution to the
     Fund and Pizza Pizza
     Limited                    6,605        5,032       13,178       10,065
    Pizza Pizza's
     interest(3)               (1,776)      (1,508)      (3,545)      (3,017)
    -------------------------------------------------------------------------
    Equity income               4,829        3,524        9,633        7,048
    Interest income(4)            450          450          900          900
    -------------------------------------------------------------------------
    Net earnings before
     non-cash future income
     tax expense           $    5,279   $    3,974   $   10,533   $    7,948
    Provision for
     (recovery of) future
     income taxes              (3,091)       8,700       (2,235)       8,700
    -------------------------------------------------------------------------
    Net earnings (loss)    $    8,370   $   (4,726)  $   12,768   $     (752)
    -------------------------------------------------------------------------

    Basic earnings per Fund
     unit excluding the
     impact of non-cash
     future income tax
     expense               $    0.242   $    0.221   $    0.483   $    0.443
    Basic earnings (loss)
     per Fund unit         $    0.384   $   (0.263)  $    0.585   $   (0.043)
    Diluted earnings (loss)
     per Fund unit         $    0.349   $   (0.263)  $    0.554   $   (0.043)

    Distributions declared $    5,007   $    3,931   $    9,982   $    7,862
    Distributions per Fund
     unit                  $    0.230   $    0.219   $    0.458   $    0.438
    Payout ratio                  95%          99%          95%          99%

    -------------------------------------------------------------------------
                                           June 30,              December 31,
                                              2008                      2007
    -------------------------------------------------------------------------
    Total assets                        $  221,307                $  212,643
    Total liabilities                   $    7,664                $    9,866
    -------------------------------------------------------------------------

    (1) The Pizza 73 Rights were acquired on July 24, 2007 and resulted in
        the addition of 41 restaurants to the Royalty Pool for the balance of
        2007. Effective January 1, 2008, there are 50 Pizza 73 restaurants in
        the Royalty Pool.
    (2) The Fund, indirectly through the Partnership, incurs administrative
        expenses and interest expense on the $47,000 outstanding bank loan
        (2007 - $20,000). Interest expense on the bank loan for the quarter
        and six months ended June 30, 2008 was $687 and $1,400 respectively
        (2007 - $265 and $527).
    (3) Represents the interest of Pizza Pizza Limited in the earnings of the
        Partnership from Class B, Class C and Class D Partnership units. The
        Class B and D units are exchangeable into Fund units based on value
        of the Class B Exchange Multiplier and the Class D Exchange
        Multiplier at the time of exchange as defined in the Pizza Pizza
        Licence and Royalty Agreement and the Pizza 73 Licence and Royalty
        Agreement, respectively, and represents 21.5% of the fully diluted
        units of the Fund at June 30, 2008 (2007 - 23%).
    (4) The Fund indirectly earns interest income on the $30,000 loan to
        Pizza Pizza, with interest income accruing at 6% per annum, payable
        monthly.
    

    The unaudited, consolidated financial statements of the Fund, together
with its Management's Discussion and Analysis, will be available at
www.sedar.com and on the Fund's website at
www.pizzzapizzaroyaltyincomefund.com on or before August 1, 2008.
    The Fund will host a conference call to discuss the results on August 1,
2008 at 9:00 a.m. EDT. The call can be accessed by dialing 416-642-5212 or
1-866-321-6651. A replay will be available until August 14, 2008 by dialing
647-436-0148 or 1-888-203-1112 and entering the reservation number: 8482654.

    Forward Looking Statements

    Certain statements in this report may constitute "forward-looking"
statements which involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. When used in this
report, such statements include such words as "may", "will", "expect",
"believe", "plan", and other similar terminology. These statements reflect
management's current expectations regarding future events and operating
performance and speak only as of the date of this report. These
forward-looking statements involve a number of risks and uncertainties. The
following are some factors that could cause actual results to differ
materially from those expressed in or underlying such forward-looking
statements: competition; changes in demographic trends; changing consumer
preferences and discretionary spending patterns; changes in national and local
business and economic conditions; legislation and governmental regulation;
accounting policies and practices; and the results of operations and financial
condition of Pizza Pizza. The foregoing list of factors is not exhaustive and
should be considered in conjunction with the other risks and uncertainties
described in the Fund's Annual Information Form. The Fund assumes no
obligation to update these forward looking statements, except as required by
applicable securities laws.

    About the Fund, a publicly-traded entity

    The Fund is a limited purpose, open-ended trust established under the
laws of Ontario. The Fund, indirectly through the Partnership, has acquired
the trademarks and trade names used by Pizza Pizza Limited ("the Company") in
its Pizza Pizza and Pizza 73 restaurants. The Pizza Pizza trademarks were
licensed to the Company in 2005 for 99 years, for which the Company pays the
Fund a royalty equal to 6% of the system sales of its Pizza Pizza restaurants
in the Royalty Pool. There are 559 Pizza Pizza restaurants in the Royalty Pool
for 2008. On July 24, 2007, the Partnership acquired the trademarks and other
intellectual property of Pizza 73 (the "Pizza 73 Rights") and licensed them to
the Company for 99 years, for which the Company pays the Fund a royalty equal
to 9% of the 50 Pizza 73 restaurants in the Royalty Pool for 2008. The 2008
Royalty Pool has 609 total restaurants.
    A key attribute of the Fund is that revenues are based on top-line,
system sales of the Royalty Pool restaurants and not on the profitability of
either the Company or the restaurants in the Royalty Pool. Moreover, the Fund
is not subject to the variability of earnings or expenses of the operating
companies. The Fund's only expenses are administration expenses and the
interest on debt. Thus, the success of the Fund depends primarily on the
ability of Pizza Pizza to maintain and increase system sales of the Royalty
Pool restaurants and to meet its royalty obligations.
    The Fund's trust units are listed on the Toronto Stock Exchange under the
symbol PZA.UN.

    About Pizza Pizza Limited, the privately-owned operating company

    The Company, a privately-held Canadian corporation, is one of Canada's
most successful operators in the QSR industry. It operates franchised,
owner/operator and corporate restaurants under the brand names Pizza Pizza and
Pizza 73. The Pizza Pizza brand celebrated its 40th anniversary in 2007 and
dominates the Ontario pizza quick service industry. The Pizza 73 brand is
celebrating its 23rd anniversary in 2008. The Company is guided by a mission
to provide the "best food, made especially for you" and a focus on quality
ingredients, customer service, community contribution and continual
innovation, especially in offering health-conscious menu choices.

    %SEDAR: 00022262EF




For further information:

For further information: Curtis Feltner, Chief Financial Officer, Pizza
Pizza Limited, (416) 967-1010, cfeltner@pizzapizza.ca; Christine D'Sylva,
Investor Relations Manager, Pizza Pizza Limited, (416) 967-1010,
cdsylva@pizzapizza.ca; www.pizzapizzaroyaltyincomefund.com, www.pizzapizza.ca
and www.pizza73.com or www.sedar.com

Organization Profile

PIZZA PIZZA ROYALTY INCOME FUND

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