Boston Pizza Royalties Income Fund is updated and rated Speculative Buy at $18.09.
The thesis for investing in the BP Royalty units was that you get a good yield and the yield should rise perhaps 1 to 3% annually on average. If that can be expected to happen or even if the distribution stays as is, then BP should be a good investment given the cash yield. This should be true even with moderately higher interest rates.
BP has a strong history of growing its cash distribution per unit.
However for about the past two years, distributable cash per unit has declined somewhat. And this occurred despite menu price increases particularly in Ontario (in response to higher minimum wages) that should have increased the franchise fees that the BP Royalty entity collects and pays out.
BP same-store sales growth has been weak to slightly negative. Meanwhile Statistics Canada reports that restaurant sales in Canada grew an average of 6.4% year over year in the past nine months. Alberta, where BP has 28% of its restaurants was weaker at 2.6%. If BP maintained market share its same-store growth would still lag these figures since some of the growth reflects new restaurants. But overall it looks like BP has lost some market share.
Unless BP starts to grow its same-store sales in this Q3 it is possible that a small cut to the distribution could be made. I believe BP will attempt to avoid that but that now seems like a possibility.
Any distribution cut would likely be small such as from 11.5 cents per month down to 11 cents. But the market would likely react quite negatively if that did occur. BP is attempting to achieve growth with renewed marketing efforts and added take-out sales.
Given the 7.6% yield the rating is still in the Buy range. But given at least some possibility or even just the fear of a modest distribution cut it is now rated Speculative Buy.