Boston Pizza Royalties Income Fund is updated and rated Buy at $17.87. Basically it pays a cash distribution of 6.6% and the distribution should grow with inflation but not much beyond inflation. We were pleasantly surprised to see the units rise 26% this year to date. Investors should not expect too much in the way of gains. This investment is attractive for its yield.
Last week there was a strange development in these units . On Wednesday morning it announced a loss on A GAAP basis but indicated that the cash distributions were unaffected by this “loss”. Upon investigation, we agree, this particular “loss” is a strange accounting artifact and is not a true loss at all. The stock opened almost 10% lower at $16.00. By t the time I attempted to place a trade it was back up slightly to $16.35. I placed an order for 500 at $16.50. A few minutes later it was back to $16.15 so I placed an order to buy at that price. Strangely enough my $16.50 order actually got filled at $16.21 and I got 400 at $16.15 as well. This worked out well as the units recovered to $17.35 by the end of Wednesday and $17.87 by Friday.
In fact the Q1 earnings were quite strong and the little swoon in the price was unjustified but just reflected the fact that some people (quite understandably) got spooked by the loss on a GAAP basis. It would be complicated to explain it but the loss resulted from a liability being marked to market higher due to the higher prices of the units. But in substance this particular liability is not a liability at all and represents effectively ownership by Boston Pizza International and is just an accounting artifact. (I realize that is about as clear as mud, but it’s the best I can do without getting into a long story). I don’t ignore GAAP accounting lightly, but in this case it did a poor job of reflecting economic reality.