Pizza Pizza Royalty Income Fund announces third quarter 2007 results



    TORONTO, Nov. 12 /CNW/ - Today, Pizza Pizza Royalty Income Fund (the
"Fund") reported financial results for the quarter and nine months ended
September 30, 2007.
    During the quarter, the Fund acquired the Pizza 73 trademarks thereby
increasing the Royalty Pool by 41 "Pizza 73" restaurants. Quarterly sales from
the 572 restaurants on which the Fund earns royalties were $108.9 million of
which $13.9 million were Pizza 73 sales; sales from the 501 restaurants during
the third quarter of 2006 were $90.8 million.
    Same store sales growth ("SSSG"), the key driver of yield growth for Fund
unitholders, was 5.1% for the quarter and 5% for the nine months ended
September 30, 2007. By brand for the quarter, Pizza 73 SSSG was 20.8% and
Pizza Pizza SSSG was 3.1%.
    Commenting on the two distinct markets, Pizza Pizza's Chief Marketing
Officer, Pat Finelli, indicated that, "While Alberta's foodservice industry is
the number one growth market for Canada's restaurant business, retail sales
for Ontario's limited service food industry, generally, have been negatively
affected by pressures on Ontario's manufacturing base and the continued
decline in tourism. Having said that, we are very satisfied with the quarterly
results and we continue to remain focused on providing the "best food, made
especially for each customer."
    "Pizza Pizza is very pleased with the operational performance and the
progress of the integration plan at our recent acquisition in western Canada,"
said Curt Feltner, Chief Financial Officer. "The exceptional Pizza 73 sales
growth coupled with Pizza Pizza's consistent growth continues to generate
excellent returns for our unitholders."

    Distributable Cash

    Distributable cash for the third quarter was $5.1 million or $0.248 per
unit compared with $4.1 million or $0.229 per unit for the third quarter of
2006, which represents an 8.3% increase in distributable cash per unit. The
Fund declared distributions of $4.8 million or $0.222 per unit for the quarter
compared with $3.8 million or $0.213 for the same quarter last year, or a 4.2%
increase. The payout ratio for the quarter was 94%.
    Distributable cash for the nine months ended September 30, 2007 was
$13 million or $0.692 per unit compared with $11.7 million or $0.649 per unit
for the nine months ended September 30, 2006 equating to a 6.6% per unit
increase. The Fund declared distributions of $12.6 million or $0.660 per unit
for the nine months compared with $11.3 million or $0.629 for the comparable
nine months of 2006, or a 4.9% increase. The payout ratio for the nine-month
period was 97%.
    As of September 30, 2007, working capital of the Pizza Pizza Royalty
Limited Partnership (the "Partnership") was $1.6 million (December 31, 2006 -
$1.5 million), accumulated as a reserve to cover seasonality and any unusual
administrative expenditures.
    The Fund previously announced it increased its September 2007
distribution by 4.1%, from $0.073 to $0.076 per unit. This is the fifth
distribution increase since the Fund's initial public offering and the second
increase in 2007. The increase is attributable to Pizza Pizza's acquisition of
Pizza 73 and to continued same stores sales growth.

    Restaurants

    During the quarter, Pizza Pizza opened three traditional and three
non-traditional locations and closed five non-traditional locations;
year-to-date five traditional and 14 non-traditional locations have opened and
seven non-traditional locations have closed. This brings the total number of
Pizza Pizza locations to 543 of which 531 are in the Fund's 2007 royalty pool.
The 543 restaurants are comprised of 360 traditional restaurants and 183
non-traditional restaurants. One traditional and one non-traditional Pizza 73
location were opened during the quarter, bringing the total number of Pizza 73
restaurants to 50 of which 41 are in the Fund's 2007 Royalty Pool.

    FINANCIAL HIGHLIGHTS

    Equity income earned by the Fund through its interest in the Partnership
and interest income from the PPL Loan for the Period, have been derived as
shown in the table below:

    
    Pizza Pizza Royalty Limited Partnership
    Analysis of Distributable Cash

                            3 months ended              9 months ended
    -------------------------------------------------------------------------
                     September 30,  September 30, September 30, September 30,
                          2007           2006          2007          2006
                    (unaudited)(1)   (unaudited) (unaudited)(1)  (unaudited)
    -------------------------------------------------------------------------

    Restaurants in
     Royalty Pool(1)           572           501           572           501
    Same store sales
     growth                   5.1%          4.0%          5.0%          4.5%
    System sales
     reported by Pizza
     Pizza restaurants
     in the Royalty Pool $  95,041     $  90,773     $ 276,721     $ 259,272
    System sales
     reported by
     Pizza 73 restau-
     rants in the Royalty
     Pool                   13,894             -        13,894             -
    -------------------------------------------------------------------------
                         $ 108,935     $  90,773     $ 290,615     $ 259,272
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Royalty - 6% on
     Pizza Pizza system
     sales               $   5,703     $   5,446     $  16,604     $  15,556
    Royalty - 9% on
     Pizza 73 system
     sales                   1,250             -         1,250             -
    -------------------------------------------------------------------------
    Total Royalty on
     System Sales            6,953         5,446        17,854        15,556
    Partnership
     expenses(2)              (813)         (390)       (1,649)       (1,284)
    -------------------------------------------------------------------------
    Earnings available
     for distribution
     to the Fund and
     Pizza Pizza             6,140         5,056        16,205        14,272
    Pizza Pizza
     Limited's
     interest(3)            (1,564)       (1,385)       (4,581)       (3,974)
    -------------------------------------------------------------------------
    Fund equity income
     excluding issuance
     costs                   4,576         3,671        11,624        10,298
    Interest income(4)         499           450         1,399         1,350
    -------------------------------------------------------------------------
    Distributable cash   $   5,075     $   4,121     $  13,023     $  11,648

    Distributions
     declared            $   4,772     $   3,824     $  12,634     $  11,285
    Distributable cash
     per unit            $   0.248     $   0.229     $   0.692     $   0.649
    Distributions per
     Fund unit           $   0.222     $   0.213     $   0.660     $   0.629

    Payout ratio               94%           93%           97%           97%
    -------------------------------------------------------------------------


                                                  September 30,  December 31,
                                                          2007          2006
    -------------------------------------------------------------------------

    Total assets                                     $ 212,332     $ 171,796
    Total liabilities                                $  14,556     $   1,275
    -------------------------------------------------------------------------
    (1) Pizza 73 trademarks were acquired on July 24, 2007 and resulted in
        the addition of 41 restaurants to the Royalty Pool.
    (2) The Fund, indirectly through the Partnership, incurs administrative
        expenses and interest expense on the $47 million outstanding bank
        loan. Interest expense on the bank loan for the current quarter was
        $590 and $1.1 million for the nine months ended (2006 - $255 and
        $806) and excludes the write-off of $207 in issuance costs paid from
        the proceeds raised to acquire the Pizza 73 trademarks and rights on
        July 24, 2007.
    (3) Represents the interest of Pizza Pizza in the earnings of the
        Partnership from Class B and Class C Partnership units. The Class B
        units are exchangeable into Fund units based on value of the Class B
        Exchange Multiplier at the time of exchange as defined in the Licence
        and Royalty Agreement and represents 18.4% of the fully diluted units
        of the Fund at September 30, 2007.
    (4) The Fund indirectly earns interest income on the $30 million loan to
        Pizza Pizza, with interest income accruing at 6% per annum, payable
        monthly.
    

    Distributable cash is not an earnings measure recognized by generally
accepted accounting principles ("GAAP") and therefore may not be comparable to
similar measures presented by other issuers. Distributable cash, calculated as
net earnings before non-cash, future income tax expense and issuance costs, is
based on the operating activities of the Fund and its share of the operations
of the Partnership.
    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.pizzapizzaroyaltyincomefund.com
on or before November 12, 2007.
    The Fund will hold a conference call to discuss the third quarter results
on November 12, 2007 at 4:30 p.m. EST. The call can be accessed by dialing
(416) 642-5212 or 1-866-321-6651. A replay will be available until November
26, 2007 by dialing (416) 915-1028 or 1-866-244-4494, reservation number
346887.

    Forward Looking Information

    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.

    Non-GAAP Measures

    Certain financial disclosures contained in this news release, including
references to cash available for distribution, are not standard measures under
GAAP in Canada and may not be comparable to similar measures presented by
other entities. These measures are considered to be important measures used by
the investment community to assess the source and sustainability of the Fund's
cash distributions and should be used to supplement other performance measures
prepared in accordance with GAAP in Canada.

    About the Fund, a publicly-traded entity

    The Fund is a limited purpose, open-ended trust established under the
laws of Ontario. The Fund, through a subsidiary, has acquired the trademarks
and trade names used in Pizza Pizza and Pizza 73 branded restaurants. The
Pizza Pizza trademarks were licensed to Pizza Pizza Limited in 2005 for 99
years, for which it pays the Fund a royalty equal to 6% of the system sales of
its Pizza Pizza restaurants in the Royalty Pool. Effective July 24, 2007, the
Partnership acquired the Pizza 73 trademarks and trade names and licensed them
to Pizza Pizza Limited, for which it pays the Fund a royalty equal to 9% of
the system sales of the 41 Pizza 73 restaurants added to the Royalty Pool. By
adding these 41 Pizza 73 restaurants to the 531 Pizza Pizza restaurants
already in the pool, the Fund's Royalty Pool is 572 restaurants for the
remainder of 2007.
    A key attribute of the Fund is that it is based on top-line, system sales
of the Royalty Pool restaurants and not on the profitability of either Pizza
Pizza or the restaurants in the Royalty Pool. The success of the Fund depends
primarily on the ability of Pizza Pizza to maintain and increase system sales
of the Royalty Pool 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

    Pizza Pizza Limited, a privately-held Canadian corporation, is one of
Canada's most successful operators in the QSR industry. It operates franchised
and corporate restaurants under the brand names Pizza Pizza and Pizza 73. The
Pizza Pizza brand is celebrating its 40th anniversary this year and dominates
the Ontario pizza QSR. The Pizza 73 brand is celebrating its 22nd anniversary
and was recently awarded the distinction of being named one of Canada's
"50 Best Managed" companies for 2006. Pizza Pizza Limited 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.





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

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PIZZA PIZZA ROYALTY INCOME FUND

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