Pizza Pizza Royalty Income Fund announces third quarter 2008 results



    TORONTO, Oct. 30 /CNW/ - Pizza Pizza Royalty Income Fund (the "Fund")
today reported its financial results for the third quarter ended September 30,
2008.

    
    2008 Third Quarter Highlights compared to 2007:

    ---Same store sales increased 2.2%
    ---Royalty Pool system sales increased 10.5%
    ---Pre-tax earnings per unit increased 3.6%
    ---Working capital balance increased 21.7% and 47% year-to-date
    

    Pizza Pizza continues to report positive sales growth. Same store sales
growth (SSSG) for the third quarter increased 2.2% and increased 2.5% for the
nine months ended September 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.

    Sales

    System Sales for the 609 restaurants in the Royalty Pool increased 10.5%
for the quarter to $120.4 million compared to $108.9 million for the 579
restaurants in the Royalty Pool for the same quarter in 2007. System sales of
the Royalty Pool for the nine months ended September 30, 2008 increased by
19.8% to $348.2 million from $290.6 million in the comparative period in 2007.
The increase in system sales 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 with the
acquisition of the Pizza 73 trademarks.

    Net earnings

    Net earnings for the current quarter were $5.6 million compared to net
earnings of $708,000 for the third quarter last year, which had pre-tax
earnings of $5.1 million reduced by $4.2 million of non-cash future income
taxes and $169,000 of issuance costs. Pre-tax earnings per unit for the third
quarter increased 3.6% to $0.257 from $0.248 per unit during the same quarter
in 2007.
    On a year-to-date basis, pre-tax earnings per unit increased 6.9% to
$0.740 per unit from $0.692 per unit during the same period in 2007.
Year-to-date earnings in 2008 have benefited from the accretive acquisition of
the Pizza 73 trademarks in the third quarter last year. Earnings for the year,
before future tax and issuance costs, were $16.2 million and were increased to
$18.4 million as a result of a non-cash future tax recovery of $2.2 million.
For the same nine month period in 2007, the Fund had earnings before future
tax of $13.0 million which were reduced to a loss of $44,000 as a result of a
$12.9 million provision for future income taxes and $169,000 of issuance costs
which were unrelated to normal business operations. The provision for or
recovery of future income taxes are non-cash items and are the result of
federal tax legislation requiring a provision for future income tax expense.

    Distributions

    The Fund declared distributions of $5.1 million or $0.233 per unit for
the quarter, equating to a 90% payout ratio; for the 2007 comparable quarter,
the Fund declared distributions of $4.8 million or $0.222 per unit for a
payout ratio of 94%. For the nine months ended September 30, 2008, the Fund
declared distributions of $15.1 million or $0.690 per unit, equating to a 93%
payout ratio; for the 2007 comparable period, the Fund declared distributions
of $12.6 million or $0.660 per unit for a payout ratio of 97%.
    During the first nine months of 2008, working capital of the Pizza Pizza
Royalty Limited Partnership (the "Partnership") increased 47% to $2.8 million
(December 31, 2007 - $1.9 million) and is accumulated as a reserve to cover
seasonality and any unusual administrative expenditures.

    Restaurants

    During the third quarter, seven traditional and six non-traditional
locations were opened and two traditional and one non-traditional location
closed. On a year-to-date basis, ten traditional and eighteen non-traditional
locations have opened and two traditional and five non-traditional locations
have closed. This brings the total number of locations to 637, of which 432
are traditional restaurants and 205 are non-traditional locations.

    
    FINANCIAL HIGHLIGHTS

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

                                      3 months ended       9 months ended
                                 --------------------------------------------
                                  September  September  September  September
                                   30, 2008   30, 2007   30, 2008   30, 2007
    -------------------------------------------------------------------------
                   (in thousands of dollars, except number
                     of restaurants and per unit amounts)

    Restaurants in Royalty Pool         609        572        609        572
    Same store sales growth            2.2%       5.1%       2.5%       5.0%

    System sales reported by
     Pizza Pizza restaurants in
     the Royalty Pool             $  99,894  $  95,041  $ 288,054  $ 276,721
    System sales reported by
     Pizza 73 restaurants in the
     Royalty Pool                    20,493     13,894     60,130     13,894
    -------------------------------------------------------------------------
                                    120,387    108,935    348,184    290,615
    -------------------------------------------------------------------------

    Royalty - 6% on Pizza Pizza
     system sales                 $   5,994  $   5,703  $  17,283  $  16,604
    Royalty - 9% on Pizza 73
     system sales                     1,844      1,250      5,412      1,250
    -------------------------------------------------------------------------
    Total Royalty on System Sales     7,838      6,953     22,695     17,854
    Partnership expenses               (810)      (813)    (2,489)    (1,649)
    -------------------------------------------------------------------------
    Earnings available for
     distribution to the Fund and
     Pizza Pizza Limited              7,028      6,140     20,206     16,205
    Pizza Pizza Limited's interest   (1,867)    (1,564)    (5,412)    (4,581)
    -------------------------------------------------------------------------
                                      5,161      4,576     14,794     11,624
    Interest income                     450        499      1,350      1,399
    -------------------------------------------------------------------------
    Net earnings before non-cash
     future income tax expense
     and issuance costs of $169       5,611      5,075     16,144     13,023
    Provision for (recovery of)
     future income taxes                  -      4,198     (2,235)    12,898
    -------------------------------------------------------------------------
    Net earnings (loss)           $   5,611  $     708  $  18,379  $     (44)

    Basic earnings per Fund unit
     excluding the impact of
     non-cash future income tax
     expense and issuance costs   $   0.257  $   0.248  $   0.740  $   0.692

    Basic earnings per Fund unit  $   0.257  $   0.035  $   0.842  $       -
    Diluted earnings per Fund
     unit                         $   0.253  $   0.035  $   0.807  $       -

    Distributions declared        $   5,073  $   4,772  $  15,056  $  12,634
    Distributions per Fund unit   $   0.233  $   0.222  $   0.690  $   0.660
    Payout ratio                        90%        94%        93%        97%
    -------------------------------------------------------------------------
    

    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 October 31, 2008.
    The Fund will host a conference call to discuss the results on
October 31, 2008 at 9:00 a.m. EDT. The call can be accessed by dialing
416-640-3406 or 1-866-322-8032. A replay will be available until November 13,
2008 by dialing 647-436-0148 or 1-888-203-1112 and entering the reservation
number: 4270861.

    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

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PIZZA PIZZA ROYALTY INCOME FUND

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