Pizza Pizza Royalty Income Fund Announces Second Quarter

Pizza Pizza Royalty Income Fund Announces Second Quarter Financial
TORONTO, ONTARIO -- (Marketwire) -- 08/01/12 --  
Attention Business Editors: 
Pizza Pizza Royalty Income Fund (the "Fund") (TSX:PZA.UN) today
announced results for the second quarter ended June 30, 2012. 
Second Quarter Highlights: 

   Same store sales increased 3.4%                                          
   Monthly distribution increased 2.7% in May                               
   Working capital increased by $186,000 to $3.5 million                    
   Payout ratio was 96%, after paying $162,000 corporate conversion costs   

The Fund's two market-leading brands generated same store sales
growth ("SSSG") of 3.4% in the second quarter (3.0% - 2011). By
brand, Pizza Pizza reported comparable sales of 3.2% and Pizza 73
reported 4.1% for the quarter. 
Paul Goddard, CEO, Pizza Pizza Limited, said: "We've posted another
solid quarter of sales growth in which both brands leveraged the
strength of our everyday value offerings, menu variety and
convenience. Royalties earned on the top line sales growth continue
to generate excess cash for the Fund." 
Total sales reported by restaurants in the Royalty Pool for the
second quarter of 2012 was $117 million compared to $114.3 million in
the same quarter last year. For the first six months, Royalty Pool
sales increased to $234.9 million from $226.6 million in the same
period last year.  
Monthly Distribution and Working Capital  
During the quarter, the Fund announced an increase in its monthly
distribution thereby increasing the annualized distribution amount
from $0.70 to $0.72. The distribution increase follows sustained SSSG
over the last eight quarters plus the Fund's accumulation of cash
For the second quarter of 2012, distributions to unitholders were
$3.9 million or $0.1784 per unit which equates to a 96% payout ratio.
For the prior year comparable quarter, the Fund declared
distributions of $3.8 million or $0.1752 per unit equating to a 96%
payout ratio.  
The Fund increased its working capital balance by $186,000 during the
quarter, this after paying $162,000 of professional fees related to
the corporate conversion approval process. The Fund anticipates total
conversion costs will not exce
ed $350,000. The working capital
balance is $3.5 million at June 30, 2012.  
A portion of the Fund's 2012 distributions will be treated as taxable
eligible dividends and a portion as return of capital. 
Restaurant Development  
During the quarter, the Pizza Pizza brand opened three traditional
and three non-traditional restaurants; nine non-traditional locations
closed. At the Pizza 73 brand, there was one non-traditional
restaurant opened and two non-traditional restaurants closed. This
brings the total number of restaurants to 688 at June 30, 2012.  
We continue to prioritize our national expansion strategy, currently
focusing on Nova Scotia, Quebec, and Manitoba. 
Readers should note that the number of restaurants in the Royalty
Pool may differ from the number of restaurants reported on an interim
basis by Pizza Pizza Limited ("PPL") as restaurant openings and
closings may occur subsequent to the annual Royalty Pool Adjustment
Date every January 1st. 
Conversion - Income Trust to Corporation  
At the Fund's annual and special meeting of unitholders held May 30,
2012 in Toronto, Ontario, unitholders of the Fund approved the Fund's
conversion from an income trust to a corporation, to be named Pizza
Pizza Royalty Corp., by way of a plan of arrangement (the
"Conversion"). The special resolution was adopted with 99.7 per cent
of the units voted at the meeting voting in favour.  
The Ontario Superior Court of Justice has approved the Conversion
which is expected to become effective on December 31, 2012. Pursuant
to the Conversion, unitholders would receive, for each unit held, one
common share of Pizza Pizza Royalty Corp. on the effective date of
the Conversion.  
The Conversion is a result of the federal government's 2007 amendment
to the Income Tax Act (Canada) to include the Specified Investment
Flow Through tax provisions, or SIFT Tax, which is an entity-level
tax on Canadian publicly listed income trusts, including the Fund. As
a result, the Fund became a taxable entity effective January 1, 2011
subject to the tax rate applicable on income earned by a Canadian
public corporation.  
An additional rule under the SIFT Tax provisions, of which the Fund
will take advantage, allows trusts to convert from an income trust to
a Canadian corporation on a tax-deferred rollover basis if the
conversion is completed prior to January 1, 2013. With the approved
Conversion, the Fund plans to take advantage of the tax-deferred
rollover option by converting to a corporation effective December 31,
2012. The new corporate structure will also allow for increased
financial flexibility going forward.  
The key terms and economics reflected in the partnership agreement
and all other agreements between PPL and the Pizza Pizza Royalty
Limited Partnership ("Partnership") will not be affected by the
corporate conversion. The Fund and the Partnership will continue to
operate independently from PPL, the privately-held operating company. 
The following table sets out selected financial information and other
data of the Fund and should be read in conjunction with the unaudited
interim consolidated financial statements of the Fund. Readers should
note that the 2012 results are not directly comparable to the 2011
results due to the difference in the number of days in the years and
number of restaurants in the Royalty Pool between the two periods. 

                                  3 months ended          6 months ended    
                                 June 30,    June 30,   June 30,   June 30, 
                                     2012        2011       2012       2011 
    (in thousands of dollars, except number of restaurants and per unit     
Restaurants in Royalty Pool           690         695        690        695 
Same store sales growth               3.4%        3.0%       3.1%       3.5%
Days in Quarter                        91          91        182        181 
System Sales reported by                                                    
 Pizza Pizza restaurants in                                                 
 the Royalty Pool               $  98,179   $  96,040  $ 196,400  $ 189,289 
System Sales reported by                                                    
 Pizza 73 restaurants in the                                                
 Royalty Pool                      18,786      18,229     38,501     37,322 
                                $ 116,965   $ 114,269  $ 234,901  $ 226,611 
Royalty - 6% on Pizza Pizza                                                 
 System Sales                   $   5,890   $   5,762  $  11,784  $  11,357 
Royalty - 9% on Pi
zza 73                                                    
 System Sales                       1,691       1,641      3,465      3,359 
Total Royalty on System Sales   $   7,581   $   7,403  $  15,249  $  14,716 
Partnership interest and                                                    
 administrative expenses(1)          (669)       (787)    (1,348)    (1,549)
Corporate conversion costs(2)        (162)          -       (162)         - 
Earnings available for                                                      
 distribution to the Fund and                                               
 Pizza Pizza Limited                6,750       6,616     13,739     13,167 
Pizza Pizza Limited's                                                       
 interest                          (2,232)     (2,216)    (4,388)    (4,194)
Equity income                       4,518       4,400      9,351      8,973 
Interest income                       450         450        900        900 
Net earnings before income                                                  
 tax expense(3)                 $   4,968   $   4,850  $  10,251  $   9,873 
Provision for current income                                                
 taxes                               (899)       (875)    (1,826)    (1,737)
Net earnings from                                                           
 operations(4)                  $   4,069   $   3,975  $   8,425  $   8,136 
Adjusted basic earnings per                                                 
 Fund unit(3)                   $   0.228   $   0.222  $   0.470  $   0.453 
Basic earnings (loss) per                                                   
 Fund unit                      $  (0.127)  $   0.146  $  (0.256) $   0.088 
Distributions declared          $   3,892   $   3,822  $   7,715  $   7,645 
Distributions per Fund unit     $  0.1784   $  0.1752  $  0.3536  $  0.3504 
Payout ratio(5)                        96%         96%        92%        94%
1.  The Fund, indirectly through the Partnership, incurs administrative
    expenses and interest expense on the $47,000 outstanding bank loan. Cash
    paid interest expense on the bank loan, including the cash paid to draw
    down the termination cost for the three and six months ended June 30,
    2012, was $511 and $1,022 (2011 - $616 and $1,240). 
2.  The Ontario Superior Court of Justice has approved the Conversion which
    is expected to become effective on December 31, 2012. Total conversion
    costs to be incurred in 2012 are estimated to be less than $350,000 and
    will not reoccur in 2013. 
3.  "Net earnings before income tax expense" and "Adjusted basic earnings
    per Fund unit" are not recognized measures under Canadian GAAP.
    References to "net earnings before income tax expense" and "adjusted
    basic earnings per Fund unit" are to earnings determined in accordance
    with GAAP applicable to the financial statements before amounts for
    taxes, termination costs on derivative financial instrument, net of
    termination cost repayments during the year, and change in fair-value of
    exchangeable units, as included in net earnings. The Fund believes that,
    in addition to net earnings, net earnings before income tax is a useful
    supplemental measure in evaluating its performance as it provides
    investors with an indication of operating earnings. Investors are
    cautioned, however, that this should not be construed as an alternative
    to net earnings as a measure of profitability. The method of calculating
    net earnings before tax for the purposes of this report may differ from
    that used by other issuers and, accordingly, it may not be comparable to
    that used by other issuers. 
4.  References to "net earnings from operations" are to earnings determined
    in accordance with GAAP applicable to the financial statements before
    amounts for deferred taxes, and change in fair value of exchangeable
    units, as included in net earnings, plus cash paid to draw down the
    termination costs. 
5.  "Payout Ratio" is calculated as distributions declared divided by net
    earnings from operations. This non-GAAP financial measure provides
    investors with useful information regarding the extent to which the Fund
    distributes cash to unitholders. Investors are cautioned that this
    should not be construed as an alternative to net income as a measure of

A copy of management's discussion and analysis and financial
statements of the Fund and PPL for the quarter will be available at and on o
r before August 2, 2012. The
Fund will host a conference call to discuss the results on Thursday,
August 2, 2012 at 9:00 a.m. Eastern Time. The call can be accessed by
dialing 416-640-5925 or 1-800-711-9538. A replay will be available
until Thursday, August 16, 2012 by dialing 647-436-0148 or
1-888-203-1112 and entering the reservation number: 4166134. 
Forward Looking Statements  
This release may contain certain forward-looking statements, which
reflect management's expectations regarding future events and
operating performance and speak only as of the date hereof. These
forward-looking statements involve a number of risks and
uncertainties. The factors that could cause actual results to differ
materially from our expectations are detailed in the Fund's filings
with the Canadian securities regulatory authorities, including its
quarterly reports and Annual Information Form.  
Pizza Pizza Limited
Curt Feltner
Chief Financial Officer
(416) 967-1010 
Pizza Pizza Limited
Christine D'Sylva
Director of Finance and Investor Relations
(416) 967-1010 and or
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