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Pizza Pizza Royalty Corp. 2017 Earnings & Price Target Update

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Pizza Pizza Royalty Corp.(PZA) earns revenues from a royalty based on sales from Pizza Pizza outlets mainly in Ontario and Pizza 73 quick service pizza restaurants in Alberta. Pizza Pizza has 652 outlets and 108 for Pizza 73. Revenues for Pizza Pizza Royalty Corp.(PZA) are based on collecting a 6% royalty on Pizza Pizza restaurant system sales and 9% on Pizza 73 restaurant system sales included in the Royalty Pool. Pizza Pizza restaurants are franchise oriented restaurants and Pizza 73 Restaurants are owned and operated as independent businesses with each restaurant being a corporation equally owned by an independent Owner/Operator and Pizza Pizza Ltd. For Pizza Pizza Litd. there are three revenue sources; food sales, royalty payments and profits from the 50% ownership in the Pizza 73 restaurants. For Pizza Pizza Royalty Corp.(PZA) the only revenue source is the royalty on franchise fees. Pizza Pizza, operates largely in Ontario while Pizza 73, operates mainly in Alberta and Saskatchewan. Since 2006 the Royalty Pool has increased from 501 restaurants to 783 as of Dec-31-2017. Pizza Pizza contributes 80% of annual sales, Pizza 73 the remaining 20%. The Pizza Pizza and Pizza 73 restaurants are subject to seasonal variations in their business. Pizza Pizza Royalty Corp.(PZA) owns approximately 80% of the Pizza Pizza Royalty LP and Pizza Pizza Ltd., a private company held by management owns 20%.

Traditional Pizza Pizza Restaurants feature self-service counters with a majority of its renovated restaurants ranging in size from 1,600 to 3,000 square feet, with seating for approximately 25 customers. Traditional Pizza 73 Restaurants are approximately 1,200 sq. ft. with limited seating. Traditional restaurants also support take-out and delivery service. The Company seeks to locate these restaurants in high traffic and high visibility locations that are easily accessible. Non-traditional restaurants feature a more limited menu and are targeted to "captured traffic" locations. Non-traditional restaurants typically offer counter service and are oriented to individual purchases by walk-in customers.

Pizza Pizza is a franchise-oriented restaurant business operating primarily in Ontario in which it dominates the pizza quick service restaurant (QSR) segment. Of the 652 Pizza Pizza restaurants at Dec-31-2017, 645 are franchised or licensed and 7 are owned and operated as corporate restaurants. Of the 652 restaurants, 231 are non-traditional locations which have limited operating hours and a limited menu.

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