Pizza Pizza Royalty Corp. adds Restaurants to the Royalty Pool Friday, February 8th, 2019
For Immediate Release
Attention: Business Editors
Pizza Pizza Royalty Corp. adds Restaurants to the Royalty Pool
Toronto, January 31, 2019 – Pizza Pizza Royalty Corp. (the “Company”) and Pizza Pizza Limited (“PPL”) today announced that effective January 1, 2019, the number of restaurants on which royalties are paid to the Company by PPL (the “Royalty Pool”) has been adjusted to include 25 new restaurants opened during the prior year vend-in period; 11 restaurants were closed and removed from the Royalty Pool.
By brand, 18 new Pizza Pizza restaurants and seven new Pizza 73 restaurants were added to the Royalty Pool; there were ten Pizza Pizza restaurants and one Pizza 73 restaurant closed and removed from the Royalty Pool. Of the 11 closures, two were traditional restaurants and nine were nontraditional locations. For 2019, there will be 772 restaurants in the Royalty Pool made up of 660 Pizza Pizza locations and 112 Pizza 73 locations.
The Company, indirectly through the Pizza Pizza Royalty Limited Partnership (the “Partnership”), owns the trademarks and trade names used by PPL in its Pizza Pizza and Pizza 73 restaurants. The Pizza Pizza trademarks and other intellectual property were licensed to PPL in 2005 for 99 years, for which PPL pays the Partnership a royalty equal to 6% of the System Sales of its Pizza Pizza restaurants in the Royalty Pool. In 2007, the Partnership acquired the trademarks and other intellectual property of Pizza 73 and licensed them to PPL for 99 years, for which PPL pays a royalty equal to 9% of the System Sales of the Pizza 73 restaurants in the Royalty Pool.
Annually, on January 1 (the “Adjustment Date”), the Royalty Pool is adjusted to include the Forecasted System Sales from new restaurants added to the Royalty Pool net of System Sales from restaurants which were closed and removed from the Royalty Pool. The Forecasted System Sales from new restaurants added to the Royalty Pool may also be reduced by any decrease in system sales of a previously existing restaurant whose territory has been adjusted by a new restaurant. (See “Adjusted Restaurant” as defined in the Licence and Royalty Agreements).
In exchange for adding new restaurants to the Royalty Pool, PPL is compensated in equivalent Company shares using an agreed-upon formula which is designed to be accretive to current shareholders. Generally, when additional restaurants are added to the Royalty Pool, the forecasted increase to PPL’s System Sales (and thus, the Company’s royalty income) will result in an increase in PPL’s interest in the Company, reflected in an increase to the Class B and/or Class D Exchange Multipliers. Additional details about this formula can be found in Table 1 below and in the Company’s most recent Annual Information Form.
After the January 1, 2019 Adjustment Date, PPL now owns equivalent Shares representing 23.0% of the Company’s fully diluted shares as shown in Table 1. Prior to this adjustment, PPL’s ownership was 22.3%. PPL’s ownership is through its holdings of Class B and Class D units of the Partnership, which are exchangeable for a number of Shares based on the Class B and Class D Exchange Multipliers (the “equivalent Shares”). The following provides the details supporting the change in PPL’s ownership.
On January 1, 2019, in exchange for adding $3,725,000 of Forecasted System Sales from Pizza Pizza restaurants to the Royalty Pool ($5,860,000 from the 18 new Pizza Pizza restaurants less sales of $2,135,000 from ten permanently closed Pizza Pizza restaurants), PPL has received 150,398 additional equivalent Shares (through the change to the Class B Exchange Multiplier). The additional equivalent Shares represent 80% of the forecasted equivalent Shares entitlement to be received (187,997 equivalent Shares represent 100%), with the final equivalent Shares entitlement to be determined when the actual sales of the new restaurants are known with certainty in early 2020.
Additionally, $2,311,000 of Forecasted System Sales from Pizza 73 restaurants added to the Royalty Pool ($2,472,000 from the seven new Pizza 73 restaurants less sales of $161,000 from one permanently closed Pizza 73 restaurant), were reduced by $1,438,000 million attributable to certain restaurants previously added to the Royalty Pool whose territory adjusted a previously existing restaurant; as a result, PPL has received 52,925 additional equivalent Shares (through the change to the Class D Exchange Multiplier). The additional equivalent Shares represent 80% of the forecasted equivalent Shares entitlement to be received (66,156 equivalent Shares represent 100%), with the final equivalent Shares entitlement to be determined when the actual sales of the new restaurants are known with certainty in early 2020.
Certain statements in this press release, including those concerning Forecasted Sales performance of new restaurants and related adjustments to the Exchange Multipliers, may constitute “forward-looking” statements, which involve known and unknown risks, uncertainties and other factors that 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 press release, such statements include such words as “may”, “will”, “expect”, “believe”, “plan”, and other similar terminology in conjunction with a discussion of future operating or financial performance. These statements reflect management’s current expectations regarding future events and operating performance of the restaurants added to the Royalty Pool and speak only as of the date of this press release. Material factors or assumptions reflected in the presentation of Forecasted Additional System Sales include: demographic and competitive studies, historical sales performance of similar stores and economic forecasts for the retail industry. These forward-looking statements involve a number of risks and uncertainties. The following are some factors that could affect the forecasted performance of these restaurants, causing actual results to differ materially from those expressed in or underlying such forward-looking statements: competition, the store owner’s performance, changes in demographic trends, changing consumer preferences and discretionary spending patterns, changes in national and local business and economic conditions, and legislation and governmental regulation. These factors could also affect PPL’s ability to develop new restaurants. The foregoing list of factors is not exhaustive and should be considered in conjunction with the other risks and uncertainties described in the Company’s most recent Annual Information Form. The Company assumes no obligation to update these forward-looking statements, except as required by applicable securities laws.
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