VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 01/02/14 -- Boston Pizza Royalties Income Fund (TSX: BPF.UN) (the "Fund") and Boston Pizza International Inc. ("BPI") announced today that effective January 1, 2014, the Fund's royalty pool (the "Royalty Pool") has been adjusted to include the royalties from 12 new full service restaurants opened across Canada between January 1, 2013 and December 31, 2013 (the "Period"). Two full service restaurants were permanently closed during the Period. This is the twelfth consecutive annual increase of royalties payable to the Fund. With the adjustment for these openings and closures during 2013, the Royalty Pool now includes 358 Boston Pizza restaurants.
The Fund indirectly owns the Boston Pizza trademarks and trade names used by BPI in its 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 Royalty Pool restaurants. Annually, the Royalty Pool of Boston Pizza restaurants is adjusted to include the new Boston Pizza restaurants opened in the prior year net of any permanent closures.
"We are very pleased with the 12 new Boston Pizza restaurants opened in 2013, including six in Western Canada, four in Ontario and two in Quebec. These new locations further strengthen our position as Canada's number one casual dining brand," said Mark Pacinda, President and Chief Executive Officer of BPI. "Since the inception of the Fund, the Royalty Pool has added more than 200 new Boston Pizza restaurants, growing from 154 in 2002 to 358 locations across the country today."
On January 1 of each year (the "Adjustment Date"), an adjustment is made to add to the Royalty Pool new Boston Pizza restaurants that opened and to remove any Boston Pizza restaurants that permanently closed since the last Adjustment Date. In return for adding net additional royalty revenue, BPI receives the right to indirectly acquire additional units of the Fund ("Additional Entitlements"). The adjustment for net additional royalty revenue added to the Royalty Pool is designed to be accretive to unitholders. The Additional Entitlements are calculated at 92.5% of the estimated net royalty revenue added to the Royalty Pool, multiplied by one minus the estimated effective average tax rate (expressed as a decimal) that the Fund will pay during that year, divided by the yield of the Fund, divided by the weighted average unit price. BPI receives 80% of the Additional Entitlements initially, with the balance received when both the actual full year performance of the new restaurants and the effective average tax rate paid by the Fund are known with certainty. BPI receives 100% of distributions from the Additional Entitlements throughout the year. Once these new restaurants have been part of the Royalty Pool for a full year, an audit of each of the royalty revenues of these restaurants received from BPI and the effective average tax rate paid by the Fund is performed. At such time an adjustment is made to reconcile distributions paid to BPI and the Additional Entitlements received by BPI.
In return for adding the royalty revenue from the 12 new restaurants to the Royalty Pool, less revenue from the two permanent closures, BPI has received 355,750 Additional Entitlements. The 355,750 represents 80% (444,688 represents 100%) of the Additional Entitlements with the balance to be received (as adjusted) by BPI when both the actual full year performance of the new restaurants and the effective average tax rate paid by the Fund are known with certainty. The 355,750 Additional Entitlements represents 2.0% of the Fund units on a fully diluted basis. The full 444,688 Additional Entitlements would represent 2.5% of the Fund on a fully diluted basis. Including the 444,688 Additional Entitlements described above, BPI has the right to acquire 2,687,423 Fund Units, representing 15.2% of the Fund Units on a fully diluted basis. The issuance of the Additional Entitlements to BPI is subject to approval by the Toronto Stock Exchange.