Saturday, December 13, 2014

Recent Buy

    During the recent fall in the market, I was tempted to add to my energy positions but did not pull the trigger. Enerplus has fallen more than I would like so I decided not to average down at this time. Enerplus is a energy producer that operates in Canada and the United States.  As the price of a barrel of crude continues to fall, the stock will remain low for the foreseeable future.

     On Dec 1, Enbridge paid a dividend. I hold this stock in 2 accounts. The small position is directly with the transfer agent. I have a full drip on which allows for partial shares. So I averaged in with the recent dividend payment. Investing with the transfer agent, there are specific rules to follow for each company. The last time I bought shares, the rules say to have the money in by the 15th of the month prior to the month they pay the dividend.  When the shares are actually purchased, it will be at the end of the month, these new shares are not eligible for the dividend as the shares are purchased after the ex-dividend date.  The other account that I own 33 shares of Enbridge is a TFSA account, so the dividends are tax free.

    I purchased 200 units of Boston Pizza Royalties Income Fund at $21.23 per share in my margin account on December 8. Boston Pizza Royalties Income Fund works as follows.

           "A key feature of the Fund is that it is a “top line” structure, in which BPI pays the Fund a royalty equal to 4% of Franchise Sales from restaurants in the Fund’s royalty pool.  Accordingly, Fund unitholders are not directly exposed to changes in the operating costs or profitability of BPI or of individual Boston Pizza restaurants.  Given this structure, and that the Fund has no current mandate to retain capital for other purposes, it is expected that the Fund will maintain a Payout Ratio close to 100% over time as the trustees of the Fund continue to distribute all available cash in order to maximize returns to unitholders." - Earnings Release 11-07-14.
Please note that franchise Sales exclude revenue from the sales of liquor, beer, wine and approved national promotions and discounts.

      Boston Pizza International is consists of casual dining restaurants that are operated by franchisees. The owners of Boston Pizza International are George Melville and Jim Treliving and they own 50% each.  Jim Treliving is also a dragon on Dragon's Den since the show started. Dragon's Den is Canadian based. The United States version of Dragon's Den is Shark Tank.

     On January 1 of each year, the new restaurants started during the previous year are added the the royalty pool.  When you walk into the front doors of the restaurants, you can go through one of 2 doors. One door leads to the lounge, which is a sports bar, that has lots of big screen TVs and sometimes pool tables. The other door is the restaurant section. All the food of the restaurant section can also be ordered and eaten in the lounge part.  

    Right now the fund is buying back units in large amounts so has not been an increase in its distribution payment in a while.

    I also own this fund in my Tax Free savings account since 2010.  Their distribution was lowered in January 2011,  as the Canadian tax laws were changed regarding income trusts. The fund decided to remain an income fund instead of converting to a corporation, so there profits are taxed with what is called the SIFT tax. SIFT stands for Specified Investment Flow-Through tax.  The reduction in the distribution was approximately equal to the amount of tax they had to now pay.  Boston Pizza Royalties Income Fund has raised their distribution since then.

   A few highlights from the recent quarter are as follows:
  • Franchise sales of restaurants in the royalty pool were 201.4 million in Q3 and 584.4 million YTD in 2014 compared to 191.5 million and 571.1 million in the same periods, respectively, in 2013
  • Same store sales growth, SSSG, was 3.1 % in Q3 of 2014 and 0.5% YTD compared to 0.8% and 2.5% for the same periods, respectively, in 2013
  • On a franchise sales basis, SSSG was 3.0% in Q3 of 2014 and 0.1% YTD, compared to 0.8% and 2.7% for the same period, respectively, in 2013.

     With the only expenses of the royalty fund is adminstrative expenses to run the fund, the fund is able to pay out all of its profits or close to 100% of its profits.  As the price of oil continues to drop, I feel confident in continuing to hold this position going forward.
This purchase adds  $244.80 to my annual dividend income. I will add the recent purchase to my investment account tab above in early January.

Disclosure: Long BPF-UN

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     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk


  1. I order Bp every once in awhile just for pizza, not a fan of there other food. Good idea just to invest in their income model as BP is growing everywhere.

    1. Asset-Grinder,

      I find there food expensive. I try to eat there on Tuesday's as it is Pasta Tuesday. So my meal which is around 17.00 , I get for around 10 dollars.

      Inside my TFSA, I have an ACB of around $12.50 per unit. It is a safe investment as the income for the fund is royalties only and the fund is not responsible for the bills or debts of the franchisee. I will continue to hold this stock, especially in the TFSA.

  2. I have seen you mention Boston Pizza a few times. They certainly have been a consistent payer. I'm gonna have to take a closer look at them.

    1. Pulling Myself Up,

      Thanks for dropping by. The two owners of Boston Pizza each own 50% each of the main company, which is private. The Boston Pizza Royalties Income Fund was formed to be able to share some profits without giving up equity. 4% of gross sales, with a few exceptions such as alcohol, are paid to the fund. This is the income the fund gets and is used to pay out to unit holders. The income fund must pay out at least 90% of its profits to unit holders, just like a REIT does.

      The owners get the rest of the royality payments from the franchisees and they also own around 25% or less of the units of the income fund.

    2. Do you know what happened to their EPS in 2012 when it went to $0.14?

    3. According to the annual report for 2012, there was a 13.6 million decrease in net income in 2012 over the same period in 2011. This was mainly due to the net difference in fair value adjustments on the Class B Unit liability year over year.

      "The Class B general partner units of the Partnership (the "Class B Units") and the Class C general partner units of the Partnership (the "Class Units") are classified as financial liabilities under IFRS, as as such, amounts paid by the Partnership to Boston Pizza International in respect of the Class B and Class C Units are classified as interest expense and not distributions". -2012 annual report

      " The fund is required under IFRS to fair value the Class B unit liability at the end of each period and adjust for any increase or decrease in fair value of that liability as compared to the fair value of that liability at the end of the immediatety preceding period. " - annual report 2012

      The fund's net income under IFRS accounting standards contain many non-cash items that do not affect the Fund's ability to pay distributions and therefore, the fund does not believe this is not the only measurement of the ability to pay distributions. The fund provides the non-IFRS metric of distributable cash that allows investors better information regarding the Fund's ability to pay distributions on the units.

      I hope this helps.