2012_Q1_PPRIF_MDA

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					  PIZZA PIZZA ROYALTY INCOME FUND


Consolidated Interim Financial Statements
                   (Unaudited)
    For the three months ended March 31, 2012
                                 PIZZA PIZZA ROYALTY INCOME FUND
                              MANAGEMENT’S DISCUSSION AND ANALYSIS

SELECTED FINANCIAL HIGHLIGHTS


The following tables set out selected financial information and other data of the Pizza Pizza Royalty Income Fund
(the “Fund”) and should be read in conjunction with the consolidated financial statements of the Fund. Readers
should note that the 2012 results are not directly comparable to the 2011 results due to the fact that there are 690
restaurants in the 2012 Royalty Pool compared to 695 restaurants in the 2011 Royalty Pool.

                                                                                              3 months        3 months
                                                                                               ended           ended
                                                                                              March 31,       March 31,
                                                                                                2012            2011

                       (in thousands of dollars, except number of restaurants and per unit amounts)

Restaurants in Royalty Pool                                                                       690                  695
                        (1)
Same store sales growth                                                                          2.9%                 4.5%
Days in Quarter                                                                                    91                   90

System Sales reported by Pizza Pizza restaurants in the                                      $    98,221      $        93,249
   Royalty Pool
System Sales reported by Pizza 73 restaurants in the
   Royalty Pool                                                                                   19,715               19,093
                                                                                             $   117,936      $       112,342

Royalty – 6% on Pizza Pizza System Sales                                                     $        5,893   $         5,595
Royalty – 9% on Pizza 73 System Sales                                                                 1,775             1,718
Total Royalty on System Sales                                                                         7,668             7,313
                                                  (2)
Partnership interest and administrative expenses                                                      (679)             (762)
Earnings available for distribution to the Fund and Pizza
    Pizza Limited                                                                                   6,989                6,551
                               (3)
Pizza Pizza Limited’s interest                                                                    (2,156)              (1,978)
Equity income                                                                                       4,833                4,573
                (4)
Interest income                                                                                       450                  450
                                            (5)
Net earnings before income tax expense                                                       $      5,283     $          5,023
Provision for current income taxes                                                                    927                  862
Net earnings from operations                                                                 $      4,356     $          4,161
                                        (5)
Adjusted basic earnings per Fund unit                                                       $       0.242     $          0.230
                             (6)
Basic earnings per Fund unit                                                                $     (0.129)         $    (0.058)


Distributions declared                                                                       $     3,823      $         3,823
Distributions per Fund unit                                                                  $    0.1752      $        0.1752
Payout ratio                                                                                        88%                  92%

                                                                                              March 31,           March 31,
                                                                                                2012                2011
Working capital                                                                                    3,295              1,581
Total assets                                                                                     354,779            353,491
Total liabilities                                                                                164,525            158,494




                                                     -1-
 PIZZA PIZZA ROYALTY INCOME FUND
 Management’s Discussion & Analysis

                                                                  Q1 2012            Q4 2011            Q3 2011            Q2 2011
                    (in thousands of dollars, except number of restaurants, days in the Period and per unit amounts)
Restaurants in Royalty Pool                                             690               695                695                695
                         (1)
Same store sales growth                                                2.9%              1.4%               2.2%               3.0%
Days in quarter                                                           91                92                 92                 91
System sales reported by Pizza Pizza
   restaurants in Royalty Pool                           $           98,221 $         103,045 $            98,783 $          96,040
System sales reported by Pizza 73
        restaurants in Royalty Pool                                  19,715             20,544             18,897            18,229
                                                         $          117,936 $         123,589 $          117,680 $          114,269
Royalty – 6% on Pizza Pizza System Sales                              5,893             6,183 $            5,927 $            5,762
Royalty – 9% on Pizza 73 System Sales                                 1,775             1,848              1,701              1,641
Royalty on System Sales of Royalty Pool                  $            7,668 $           8,031 $            7,628 $            7,403
Partnership interest and administrative expenses(2)                   (679)             (694)              (673)              (787)
Earnings available for distribution to the
          Fund and Pizza Pizza Limited                                 6,989             7,337              6,955              6,616
Pizza Pizza Limited’s interest(3)                                    (2,156)           (2,213)            (2,216)            (2,216)
Equity income                                                          4,833             5,124              4,739              4,400
Interest income(4)                                                       450               450                450                450
Net earnings before income tax expense (5)               $             5,283   $         5,574   $          5,189      $       4,850
Provision for current income taxes                                     (927)           (1,028)              (945)              (875)
Net earnings from operations                             $             4,356   $         4,546   $          4,244      $       3,975
Adjusted basic earnings per Fund unit(5)                 $             0.242   $         0.255   $          0.238      $       0.222
Basic earnings per Fund unit(6)                          $           (0.129)   $         0.046   $          0.411      $       0.146

Distributions declared                                   $            3,822 $            3,822 $            3,823      $      3,822
Distributions per Fund unit                              $           0.1752 $           0.1752 $           0.1752      $     0.1752
Payout ratio                                                           88%                84%                90%               96%
                                                                 Q1 2011            Q4 2010            Q3 2010             Q2 2010
                    (in thousands of dollars, except number of restaurants, days in the Period and per unit amounts)
Restaurants in Royalty Pool                                             695               671                671                671
                         (1)
Same store sales growth                                                4.5%              1.3%               0.8%                0%
Days in quarter                                                           90                92                 92                91
System sales reported by Pizza Pizza
   restaurants in Royalty Pool                           $          93,249 $          101,920 $            95,757 $           91,956
System sales reported by Pizza 73
        restaurants in Royalty Pool                                 19,093              20,410             19,002            18,505
                                                         $         112,342 $          122,330 $          114,759 $          110,461
Royalty – 6% on Pizza Pizza system sales                 $           5,595 $            6,116 $            5,745 $            5,517
Royalty – 9% on Pizza 73 system sales                                1,718              1,837              1,710              1,665
Royalty on System Sales of Royalty Pool                  $           7,313 $            7,953 $            7,455 $            7,182
Partnership interest and administrative expenses(2)                  (762)              (887)              (796)              (789)
Earnings available for distribution to the
          Fund and Pizza Pizza Limited                                6,551              7,066              6,659              6,393
Pizza Pizza Limited’s interest(3)                                   (1,978)            (2,283)            (2,283)            (2,284)
Equity income                                                         4,573              4,783              4,376              4,109
Interest income(4)                                                      450                450                450                450
Net earnings before income tax expense (5)               $            5,023    $         5,233   $          4,826   $          4,559
Provision for current income taxes                                      862                  -                  -                  -
Net earnings from operations                             $            4,161    $         5,233   $          4,826   $          4,559
Adjusted basic earnings per Fund unit(5)                 $            0.230    $         0.239   $          0.221   $          0.209
Basic earnings per Fund unit(6)                          $          (0.058)    $         0.239   $        (0.070)   $          0.392

Distributions declared                                    $           3,823 $            5,073 $            5,073 $           5,073
Distributions per Fund unit                               $          0.1752 $           0.2325 $           0.2325 $           0.233
Payout ratio                                                           92%                97%               105%              111%

                                                                 -2-
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis

(1)    Same Store Sales Growth (“SSSG”) means the change in annual gross revenue of a particular Pizza Pizza or Pizza 73 restaurant as
       compared to sales in the previous year, where the restaurant has been open at least 13 months. Additionally, for a Pizza 73 restaurant
       whose Restaurant Territory was adjusted due to an Additional Restaurant, a Step-Out payment may be added to sales to arrive at SSSG.
(2)    The Fund, indirectly through the Pizza Pizza Royalty Limited Partnership (the “Partnership”), incurs administrative expenses and interest
      expense on the $47,000 outstanding bank loan (2011 - $47,000). Interest paid on the bank loan, including the $62 of cash paid to draw
      down the termination cost for the three months ended March 31, 2012, was $511 (2011 - $617).
(3)   Represents the interest of Pizza Pizza Limited (“PPL”) in the earnings of the Partnership from Class B, Class C and Class D units. The
      Class B and D units are exchangeable into Fund units based on value of the Class B Exchange Multiplier and the Class D Exchange
      Multiplier at the time of exchange as defined in the Pizza Pizza Licence and Royalty Agreement and the Pizza 73 Licence and Royalty
      Agreement, respectively, and represents 26.5% of the fully diluted units of the Fund at March 31, 2012 (2011 – 26.5%).
(4)   The Fund indirectly earns interest income on the $30,000 loan to PPL, with interest income accruing at 6% per annum, payable monthly.
(5)   “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 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.
(6)   “Basic earnings per Fund unit” and “Diluted earnings per Fund unit”, as reported in the three months ended March 31, 2012 unaudited
      interim consolidated financial statements, include the non-cash amounts for “Change in fair value of exchangeable units”, “deferred tax
      expense”, less $62 cash repayments made on the interest rate swap provision during the period.

OVERVIEW AND BUSINESS OF THE FUND

The following Management’s Discussion and Analysis (the “MD&A”) is a discussion of the results of operations
and financial condition of the Fund for the quarter ended March 31, 2012 (the “Quarter”). The unaudited interim
consolidated financial statements of the Fund are prepared in accordance with International Financial Reporting
Standards (“IFRS”). The MD&A has been prepared as of May 2, 2012.

In conjunction with the adoption of IFRS, the financial results of the Pizza Pizza Royalty Limited Partnership (the
"Partnership") have been included in the consolidated financial statements of the Fund commencing January 1,
2011. Previously, the Partnership was classified as a "variable interest entity" for accounting purposes and
therefore the Partnership's financial results were included in Pizza Pizza Limited’s (“PPL”) consolidated financial
statements.

The Fund is a limited purpose, open-ended trust established under the laws of Ontario to indirectly, through the
Partnership, acquire the trademarks and trade names used by PPL in its Pizza Pizza and Pizza 73 restaurants.
The Pizza Pizza trademarks and other intellectual property (the “Pizza Pizza Rights”) were licensed to PPL in
2005 for 99 years, for which PPL pays the Fund a royalty equal to 6% of the system sales of its Pizza Pizza
restaurants in the Royalty Pool. On July 24, 2007, the Partnership acquired the trademarks and other intellectual
property of Pizza 73 (the “Pizza 73 Rights”) from Pizza 73 Inc. and licenced them to PPL for 99 years, for which
PPL pays the Fund a royalty equal to 9% of the system sales of the Pizza 73 restaurants in the Royalty Pool. For
the year 2012, the Royalty Pool consists of 601 Pizza Pizza restaurants and 89 Pizza 73 restaurants.

A key attribute of the Fund is that revenues are based on top-line, system sales of the Royalty Pool restaurants
and not on the profitability of either PPL or the restaurants in the Royalty Pool. Moreover, the Fund is not subject
to the variability of earnings or expenses of the operating companies. The Fund’s only expenses are
administration expenses and the interest on debt. Thus, the success of the Fund depends primarily on the ability
of PPL to maintain and increase system sales of the Royalty Pool and to meet its royalty obligations.

Increases in system sales are derived from both the development of new Pizza Pizza and Pizza 73 restaurants
and same store sales growth (“SSSG”). The key metric for yield growth of the Fund is SSSG, which is dependent
on maintaining operational excellence within each restaurant, general market conditions, pricing, and marketing
programs undertaken by PPL. One of PPL’s competitive strengths in increasing same store sales is that over 99%
of its Pizza Pizza restaurants are new or renovated and have been expanded to accommodate customer seating.
The seating offers franchisees the ability to increase “walk-in” sales, thereby, potentially increasing same store
sales. Restaurant closures also affect system sales. PPL has historically maintained a low closure rate throughout
its chain.
                                                       -3-
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis


As of March 31, 2012, PPL indirectly held an effective 26.5% interest in the Fund (December 31, 2011 – 26.5%)
by holding all Class B and Class D units of the Partnership. PPL has the right to exchange one Class B or Class
D unit indirectly for that number of units equal to the Class B Exchange Multiplier or Class D Exchange Multiplier,
respectively, applicable at the date of such exchange, as described under “Royalty Pool Adjustments”. Subject to
the prior rights of the holders of Class C Partnership units, the holders of Class B and Class D units are entitled to
receive monthly distributions of remaining available cash of the Partnership, if any, on a pro rata basis with Class
A Partnership units held indirectly by the Fund.

ROYALTY POOL ADJUSTMENTS

Annually, on January 1 (the “Adjustment Date”), an adjustment is made to the Royalty Pool to include the
forecasted system sales from new Pizza Pizza restaurants opened on or before December 31 of the prior year,
less system sales from any Pizza Pizza restaurants that have been permanently closed during the year. The
change in the amount of the Royalty due to the Partnership as a result of changes in the system sales of the
Royalty Pool will affect PPL’s retained interest through an adjustment to the rate at which the Class B Partnership
units may ultimately be exchanged for units of the Fund. On the Adjustment Date, the adjustment to the Class B
Exchange Multiplier (as defined in the Pizza Pizza Licence and Royalty Agreement) involves first calculating the
“Determined Amount”, which is defined as 92.5% of the royalty revenue added to the Royalty Pool, divided by the
prevailing yield of the Fund units. Beginning with January 1, 2012, the Determined Amounts are now multiplied by
a number equal to (1-Tax%) where “Tax%” is an estimate of the Fund’s effective tax rate for the year. This
estimate of the effective tax rate will be subject to an adjustment when the actual effective entity level tax rate of
the Fund for the year is known; see “SIFT Tax Royalty Pool Adjustment”. The Determined Amount is multiplied
by 80%, then divided by the current market price of the units, and then further divided by the number of Class B
units outstanding. This fraction is added to the Class B Exchange Multiplier from the preceding year, which was
“one” on the closing of the Fund’s initial public offering. On the following Adjustment Date, a second adjustment
to the Class B Exchange Multiplier will be made in the same manner once the system sales for new restaurants
are known with certainty. The adjustment for new restaurants rolled into the Royalty Pool is designed to be
accretive for current unitholders.

If, during a year, a Pizza Pizza restaurant is closed, the sales of the restaurant from the closing date would no
longer be included in the calculation of the royalty payable to the Partnership by Pizza Pizza. To compensate for
this, in certain circumstances, the Pizza Pizza Licence and Royalty Agreement and the Partnership’s Amended
and Restated Limited Partnership Agreement (the “Partnership Agreement”) provide that an amount (the “Make-
Whole Payment”) reflecting the reduction in the royalty resulting from the restaurant closure will be paid by Pizza
Pizza to the Partnership for the balance of the year in which the restaurant was closed, commencing from the
closing date. The Make-Whole Payment will be the sales of the closed restaurant for the first 52-week period in
which it was included in the Royalty Pool multiplied by the royalty rate, payable as to one-twelfth per month.

Similarly, on the Adjustment Date, a separate adjustment is made to the Royalty Pool for the Pizza 73
restaurants. The Royalty Pool is increased to include the forecasted system sales from new Pizza 73 restaurants
opened on or before September 1 of the prior year, less system sales from any Pizza 73 restaurants that have
been permanently closed during the year. On the Adjustment Date, the adjustment to the Class D Exchange
Multiplier is calculated in a similar manner as the Class B Exchange Multiplier described above. At the time of
acquisition of the Pizza 73 Rights, the Class D Exchange Multiplier was zero.

Readers should note that the number of restaurants added to the Royalty Pool each year may differ from the
number of restaurant openings and closings reported by PPL on an annual basis, as the periods for which they
are reported differ slightly.

SIFT TAX ROYALTY POOL ADJUSTMENT

In November 2011, the Trustees of the Fund and PPL determined that the federal tax imposed on specified
investment flow-through entities such as the Fund (“SIFT Tax”) had a negative impact on the economics


                                                        -4-
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis

associated with the vend-in adjustment by which new Pizza Pizza and Pizza 73 restaurants are added to the
Royalty Pool.

PPL, Pizza Pizza Holdings Trust, Pizza Pizza GP Inc. and the Partnership entered into an agreement to amend
the Partnership Agreement. The amendment eliminates the negative impact on the vend-in adjustment resulting
from payment of the SIFT Tax and restores the original intent of the vend-in adjustment, which was designed to
be accretive to the Fund’s unitholders.

Under the amending agreement, the definitions of the Pizza Pizza and Pizza 73 Estimated and Actual Determined
Amounts, which are the basis for determining changes to the Class B and Class D Exchange Multipliers and
PPL’s additional unit entitlements, were amended to include SIFT Tax as part of the formula to calculate the
Determined Amounts. The Determined Amounts are calculated in the same manner as under the previous
formula, except that the resulting figures would be multiplied by a number equal to (1-Tax%). “Tax%” will be an
estimate of the Fund’s effective tax rate for the year (determined using the total income taxes paid by the Fund
during the fiscal year divided by the total cash received by the Fund during that fiscal year) (i.e., for the
Adjustment Date of January 1, 2012, it will be the effective Fund tax rate for the year ended December 31, 2011).
This estimate of the effective tax rate will be subject to an adjustment when the actual effective entity level tax
rate of the Fund for the year is known.


RESTAURANTS ADDED TO THE ROYALTY POOL

2011 Royalty Pool Adjustment

In early January 2012, adjustments to royalty payments and Pizza Pizza’s Class B Exchange Multiplier were
made based on the actual performance of the 24 new restaurants added to the Royalty Pool on January 1, 2011.
As a result of the adjustments, the new Class B Exchange Multiplier is 1.55305 and Pizza Pizza’s exchangeable
units can be exchanged into 6,325,753 Fund units which is a decrease of 1,766 Fund units, effective January 1,
2011.

In early January 2012, adjustments to royalty payments and Pizza Pizza’s Class D Exchange Multiplier were
made based on the actual performance of the 7 restaurants added to the Royalty Pool on January 1, 2011. As a
result of the adjustments, there was no change to the Class D Exchange Multiplier from what was previously
reported of 15.45432, effective January 1, 2011.

2012 Royalty Pool Adjustment – Class B Exchange Multiplier

On January 1, 2012, six net, Pizza Pizza restaurants were removed from the Royalty Pool as a result of nine new
restaurants opening and fifteen closing from January 1, 2011 to December 31, 2011. The additional system sales
from the nine new restaurants are estimated at $4,146,000 annually less sales of $3,863,000 from fifteen
permanently closed Pizza Pizza restaurants resulting in net, estimated Pizza Pizza sales of $283,000 added to
the Royalty Pool. The total number of Pizza Pizza restaurants in the Royalty Pool has decreased to 601. The
yield of the Fund units was determined to be 8.1063% calculated using $8.65 as a weighted average unit price.
Weighted average unit price is calculated based on the market price of the units traded on the TSX during the
period of twenty consecutive days ending on the fifth trading day before January 1, 2012. As a result of the
contribution of the additional net sales to the Royalty Pool, Pizza Pizza’s Class B Exchange Multiplier increased
fractionally by 80% of the total adjustment or 0.00314; the new Class B Multiplier is 1.55619. This adjustment will
also increase the entitlement of the holders of the Class B units to distributions of cash and allocations of income
from the Partnership. The second adjustment to the Class B Exchange Multiplier will be adjusted to be effective
January 1, 2012, once the actual performance of the new restaurants is determined in early 2013.

2012 Royalty Pool Adjustment – Class D Exchange Multiplier

On January 1, 2012, one new Pizza 73 restaurant was added to the Royalty Pool as a result of new restaurants
opening between September 2, 2010 and September 1, 2011. The forecasted additional system sales from the
one new non-traditional restaurant is estimated at $25,000 annually. During the period, no restaurants were
                                                    -5-
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis

added to the Royalty Pool whose territory adjusted a previously existing restaurant. The total number of Pizza 73
restaurants in the Royalty Pool has increased to 89. The yield of and the weighted average unit price used in the
calculation of the Class D multiplier is determined in the same manner as that of the Class B multiplier calculation
at 8.1063% and $8.65, respectively. As a result of the contribution of the additional net sales to the Royalty Pool,
Pizza Pizza’s Class D Exchange Multiplier increased fractionally by 80% of the total adjustment or 0.01699; the
new Class D Multiplier is 15.47131. Once the actual performance of the new restaurant is determined in early
2013, the Class D Exchange Multiplier may be adjusted to be effective January 1, 2012.

Pizza Pizza’s Ownership of the Fund

In exchange for adding the forecasted Pizza Pizza system sales to the Royalty Pool, PPL has received 12,801
additional equivalent Units (through the change to the Class B Exchange Multiplier). These represent 80% of the
forecasted equivalent Units entitlement to be received (16,002 equivalent Units represent 100%), with the final
equivalent Units entitlement to be determined when the new restaurants’ 2012, actual sales performance is
known with certainty in early 2013.

In exchange for adding the forecasted Pizza 73 system sales to the Royalty Pool, PPL has received 1,699
additional equivalent units of the Fund, or “equivalent Units”, through the change to the Class D Exchange
Multiplier. These represent 80% of the forecasted equivalent Units entitlement to be received (2,123 equivalent
Units represent 100%), with the final equivalent Units entitlement to be determined when the new restaurant’s
2012, actual sales performance is known with certainty in early 2013.

After giving effect to these additional equivalent Units entitlements at January 1, 2012, PPL now owns equivalent
Units representing 26.5% of the fully diluted units.

The chart below shows the Fund units that would be outstanding if all of the Class B and D units of the
Partnership were converted to Fund units after accounting for their respective multipliers.

Units outstanding & issuable on January 1, 2012
Public float                                                                                           21,818,392
Class B units held by Pizza Pizza at December 31, 2011                                  6,327,519
Pizza Pizza additional Class B units - True-up Holdback as of December 31, 2011            (1,766)
Additional Pizza Pizza Class B equivalent Units as of January 1, 2012                      12,801       6,338,554

Class D units held by Pizza Pizza at December 31, 2011                                  1,545,432
Pizza Pizza additional Class D units - True-up Holdback as of December 31, 2011                 -
Additional Pizza Pizza Class D equivalent Units as of January 1, 2012                       1,699       1,547,131
Number of fully diluted units                                                                          29,704,077
Proportion of all units outstanding available for exchange by Pizza Pizza                                   26.5%


SAME STORE SALES GROWTH

Same Store Sales Growth (SSSG), the key driver of yield growth for unitholders of the Fund, increased by 2.9%
(4.5% - 2011) for the quarter compared to the same period in 2011. For the quarter, SSSG for the Pizza Pizza
restaurants was 3.2% and was 1.4% for Pizza 73 restaurants (3.6% and 8.3%, respectively - 2011). SSSG was
unaffected by the extra day in February since SSSG is calculated based on the 13 weeks in the quarter compared
to 13 comparable weeks in 2011.

When comparing 2012 to the prior year, restaurant sales benefited from an increase in the average customer
cheque and an increase in guest traffic counts.



                                                       -6-
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis

Of the two brands, the first, Pizza Pizza, operates largely in Ontario and Quebec; the second, Pizza 73, operates
largely in Alberta and Saskatchewan. According to a recent RBC economic report, Alberta and Saskatchewan
are expected to lead Canada in economic growth in 2012 largely due to expected decreases in unemployment
rates and global demand for the provinces’ commodities and natural resources, in addition to strong capital
investment in the provinces. The economic performance in Ontario and Quebec are more closely tied to
conditions in the United States where recently released economic data are reporting improvements. Management
is aware of the recent volatility within financial and commodity markets that can affect sales at both brands and
will continue adjusting marketing strategies accordingly.




ROYALTY POOL SALES

The restaurants in the Royalty Pool decreased to 690 on the January 1, 2012 Adjustment Date, to include the
royalties from 10 new restaurants, less royalties from fifteen closed restaurants. In the prior year, the Royalty Pool
included 695 restaurants.

System sales from the 690 restaurants in the Royalty Pool for the Quarter were $117.9 million. By brand, sales
from the 601 Pizza Pizza restaurants in the Royalty Pool were $98.2 million for the quarter ended March 31,
2011, while sales from the 89 Pizza 73 restaurants were $19.7 million For the prior year comparative quarter,
                                                        -7-
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis

system sales for the 695 restaurants in the Royalty Pool were $112.3 million. By brand for the prior year quarter,
system sales from the 607 Pizza Pizza restaurants in the Royalty Pool were $93.2 million, and were $19.1 million,
for the 88 Pizza 73 restaurants.

The increase in system sales is the result of positive SSSG of 2.9% and the extra day of sales in February 2012
due to the leap year which Management estimates to be $1.2 million; the increase was offset by the lost sales
from five restaurants closed in 2011 and removed from the Royalty Pool on January 1, 2012.

The Pizza Pizza and Pizza 73 restaurants are subject to seasonal variations in their business; system sales for
the quarter ended March 31 have generally been the softest and the December 31 quarter end system sales have
been the strongest.


FUND OPERATING RESULTS

The interim consolidated financial statements incorporate the assets and liabilities of the Fund and its subsidiaries
as at March 31, 2012 and the results of these subsidiaries for the quarter ended March 31, 2012 and 2011. The
Fund’s subsidiaries and its respective holdings are outlined below:

          Subsidiary                                                       Holding

          Pizza Pizza Royalty Limited Partnership (the Partnership)        73.5%
          Pizza Pizza GP Inc.                                              73.5%
          Pizza Pizza Holdings Trust (the Trust)                           100%

The Fund’s investment in the Partnership is held through the Trust, which holds Class A limited partnership units
of the Partnership and shares of its managing general partner, Pizza Pizza GP Inc..

As of January 1, 2011, the Fund consolidates the Partnership in its financial reporting. Prior to that date and from
the Fund’s inception in 2005, the Fund accounted for the Partnership on an equity basis using the guideline of the
Canadian Institute of Chartered Accountants referred to as “AcG-15”, Consolidation of Variable Interest Entities
(See “Critical Accounting Issues”).

Royalty income earned by the Partnership increased 4.9% to $7.7 million for the Quarter. A 6% royalty was
earned on the Royalty Pool of 601 Pizza Pizza restaurants reporting $98.2 million in system sales for the Quarter.
A 9% royalty was earned on the Royalty Pool of 89 Pizza 73 restaurants reporting $19.7 million in system sales
for the Quarter.

Royalty income for the prior year comparative quarter was $7.3 million. The 607 Pizza Pizza restaurants in the
Royalty Pool reported system sales of $93.2 million for the quarter, while the 88 Pizza 73 restaurants reported
system sales of $19.1 million for the quarter.

The increase in royalty income for the current quarter is largely due to the 2.9% increase in SSSG and the extra
day of sales in 2012, less the reduction in royalties due to five less restaurants in the Royalty Pool.

Administrative expenses were $160,000 for the Quarter. For the prior year comparable quarter, administrative
expenses were $138,000. For the quarter ended March 31, 2012 the expenses related to the Partnership’s
operating expenses largely consisting of directors, audit, legal and public reporting fees as well as directors’ &
officers’ insurance. The increase in the quarter-over-quarter expenses relates to additional legal expenses.

Operating profit for the Quarter was $7.5 million compared to $7.2 million in the same quarter last year, due to
increased royalty income, slightly offset by higher administrative expenses.

Interest income for the quarter ended March 31, 2012 and 2011 was $450,000, earned on the $30 million loan
from the Trust to PPL (the “PPL Loan”), with interest paid monthly at 6% per annum.

                                                        -8-
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis


Interest expense for the Quarter includes $8,000 in amortization of deferred financing fees and $449,000 of
interest expense on the $47 million bank term loan. Interest expense in the prior year comparable included $7,000
in amortization and $617,000 of interest expense. Over the life of the new interest rate swap agreements, interest
expense will be different than the actual interest paid due to accounting for the $1.2 million of the non-cash
interest swap termination costs accrued in 2011. The $1.2 million of swap termination costs were expensed
during the third quarter of 2011 whereas the actual costs will be repaid over the five year life of the swaps,
thereby resulting in the interest expense being lower than the cash interest paid . (See “Liquidity and Capital
Resources-Term Loan and Operating Loan”).

Distributions made by the Partnership on the Class B and D exchangeable units owned by PPL were $1.7
million for the current quarter, compared to $1.5 million for the prior year comparable quarter. The monthly
distribution per unit to PPL was $0.0742 for both 2012 and 2011, however, the year-end true-up described under
“Royalty Pool Adjustments” required PPL to repay $235,000 in 2011, and $50,000 in 2012 on account of
distributions that had been paid. The Fund, indirectly through the Trust, also received $0.0742 per unit per month
from the Partnership a portion of which is retained by the Fund for payment of SIFT tax, administrative expenses
and replenishing the Fund’s cash reserves. See “Distributions”.


Distributions on Class C Partnership units are paid to PPL, as holder of the 3,000,000 Class C units.

Profit for the year before income taxes and change in value of exchangeable units was $5.3 million for the
quarter compared to $5 million in the comparable quarter of 2011, and measures operations after financing costs.
The increase in the profit is the result of higher royalty revenue and lower interest costs, offset by increased
administrative expenses and increased distributions on exchangeable units.

Change in fair value of exchangeable units is a non-cash expense or income item, depending on the direction
of the unit price change, resulting from a mark-to-market adjustment to the Class B and Class D units of the
Partnership. The units are adjusted to fair value at the end of each reporting period based on the market price of
the Fund units and the number of equivalent units received upon the exchange of the Class B and Class D units.
In the current quarter, the Fund’s unit price increased from $8.55 at December 31, 2011 and closed the quarter at
$9.37 on March 31, 2012 with total exchangeable units of 7,885,685. During the comparable period in 2011, the
Fund’s unit price increased from $8.40 to $9.00 when the number of Fund units that would be acquired in the
exchange of the Class B and Class D units was 7,872,951. (See “Pizza Pizza’s Ownership of the Fund”).

Current income tax expense for the quarter was $927,000 and $862,000 for the prior year’s comparable
quarter. The increase is due to increased taxable income offset by a decreased tax rate. Commencing January 1,
2011, certain income earned and distributed by the Fund became taxable in a manner similar to income earned
by a corporation. Distributions or allocations of such income made to investors will be taxable to investors in a
manner similar to dividends from taxable Canadian corporations. The deemed dividend will be eligible for the
enhanced dividend tax credit if paid or allocated to a Canadian resident.

Deferred tax expense was comparable quarter-over-quarter at $759,000 for 2012 and $814,000 for 2011. The
deferred tax expense relates to the temporary timing difference in accounting and tax basis of the rights and
marks, as the Fund is now taxable and is taking tax deductions relating to the rights and marks.

Loss for the period attributable to unitholders was $2.8 million compared to $1.3 million for the comparable
quarter in 2011. The variance in year-over-year results is largely attributable to the unfavourable fair value
adjustment on the exchangeable units in 2012, offset by the increase in the current year’s royalty income.

Adjusted basic earnings per Fund unit (“EPU”) are earnings before income taxes and other non-cash IFRS
adjustments, which for the first quarter increased 5.2% when compared to the same period in 2011. The Fund
reported a basic loss per unit of $0.129 for the quarter ended March 31, 2012 and a loss per unit of $0.058 for the
comparable quarter of 2011. EPU is adjusted as follows:


                                                       -9-
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis

                                                                   Q1 2012               Q1 2011
 Basic EPU (loss)                                                  $    (0.129)         $     (0.058)

 Adjustments:
  Fair value adjustment on Exchangeable Units                               0.296               0.211
  Interest SWAP draw down                                                 (0.003)                   -
  Current income tax expense                                                0.043               0.040
  Deferred tax expense                                                      0.035               0.037
 Adjusted EPU                                                      $        0.242       $       0.230



DISTRIBUTIONS

The Fund declared distributions of $3.8 million or $0.1752 per unit for the quarter ended March 31, 2012 and
2011; the payout ratio was 88% for the current quarter and was 92% in the comparable quarter.

Distributions declared for 2012 are as follows:

        Period                                     Payment Date                       Amount/unit
        January 1-31, 2012                         February 15, 2012                     5.84¢
        February 1-29, 2012                        March 15, 2012                        5.84¢
        March 1-31, 2012                           April 13, 2012                        5.84¢
        Total                                                                           17.52¢

Distributions were funded entirely by cash flow from operations. No debt was incurred during the year to fund
distributions.

Beginning with last year’s, January 2011 distribution, the Trustees set the monthly unitholder distribution at
$0.0584 per unit or $0.7008 annually. In 2011, the portion of the Fund’s distribution treated as an eligible
dividend, combined with the return of capital component of the distribution, provided taxable Canadian individuals
with an effective after-tax yield higher than the 2010 levels. For tax purposes in 2011, the Fund’s distributions
were treated as 38.4% return of capital and 61.6% as an eligible dividend. There can be no assurance that this
effective after-tax yield will be maintained in the future, whether as a result of changes in distribution levels or as a
result of changes in the tax attributes of the Fund’s income or other tax planning strategies. See “CONVERSION
AND TAX CONSIDERATIONS”)


The Fund currently receives $0.074 per month or $0.89 annually, sourced from distributions made by the
Partnership. Of that amount, the Fund currently distributes $0.70 to unitholders, with the remainder used to pay
SIFT Tax and to increase the Fund’s cash reserve. PPL also receives an equal amount as distributions on its
Class B and D equivalent Units.


Since the initial public offering in July 2005, the Fund increased distributions six times prior to the implementation
of the SIFT Tax, effective January 2011, as depicted in the chart below:




                                                         - 10 -
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis




CONVERSION AND TAX CONSIDERATIONS
In 2007, the federal government amended 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.

The Fund became a taxable entity effective January 1, 2011. As a result of the SIFT Tax, the Fund’s taxation rate
will be equal to the rate applicable on income earned by a Canadian public corporation. The SIFT Tax reduces
the Fund’s amount of cash available for distribution to unitholders.

An additional rule under the SIFT Tax provisions allows entities such as the Fund 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.
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. Details of the
conversion can be found in the Fund’s Information Circular for the Annual and Special Meeting of Unitholders filed
on Sedar on May 1, 2012.

The key terms and economics reflected in the partnership agreement and all other agreements between PPL and
the 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. Voting on the conversion will occur at the
annual and special meeting of unitholders scheduled for May 30, 2012.


LIQUIDITY & CAPITAL RESOURCES

The Fund’s policy is to distribute all available cash in order to maximize returns to unitholders over time, after
allowing for reasonable reserves held at the Partnership level. In light of seasonal variations inherent to the
restaurant industry, the Fund’s policy is to make equal distribution payments to unitholders on a monthly basis in
order to smooth out these fluctuations. Any further increase in distributions will be implemented with a view to
maintain the continuity of uniform monthly distributions. It is expected that future distributions will continue to be
funded entirely by cash flow from operations and the cash reserve.

As of March 31, 2012, working capital of the Fund was $3.3 million (December 31, 2011 - $2.8 million)
accumulated, at the discretion of the Trustees, as a reserve to cover seasonality and any unusual administrative
expenditures.

                                                        - 11 -
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis


Term Loan and Operating Loan

Renewed facility
In December 2011, the Fund renewed its $47 million credit facility with a Canadian chartered bank for a five year
term. The facility bears interest at Prime plus 0% to 0. 5% or the Bankers’ Acceptance rate plus 1.25% to 2.00%,
depending on the level of debt-to-EBITDA, with EBITDA defined as annualized earnings before interest, taxes,
depreciation and amortization. In July 2011, in conjunction with the early renewal of the credit facility, the
Partnership terminated its three existing interest rate swaps at a cost of $1.2 million which has been blended and
extended into two new interest rate swap agreements. The credit facility’s new interest rate is comprised of a
portion fixed using the new swap agreements plus a credit spread. Beginning July 25, 2011, the interest rate
portion fixed with the new swaps has decreased from a blended rate of 4.04% to 2.87%. The two new swaps,
each at $23.5 million, will obligate the Partnership to pay the swap counterparties an amount based upon a fixed
interest rate of 2.87% per annum plus the current credit spread of 1.5% and the swap counterparties will be
obligated to pay the Partnership an amount equal to the Canadian Bankers’ Acceptance rate.

These facilities include affirmative and negative covenants customary for agreements of this nature. In particular, the
Partnership has agreed to a financial covenant in which, on a four quarter rolling basis, Distributions may not
exceed Distributable Cash Flow for such period plus the aggregate amount of Distributable Cash Flow for prior
Distribution Periods not distributed, which as at March 31, 2012 was $3.6 million (December 31, 2011 - $3.2
million). In addition, the Partnership is required to maintain a funded debt-to-EBITDA ratio not to exceed 2.5:1 on a
four quarter rolling average. The debt-to-EBITDA ratio for the last four quarters rolling average is 1.56:1 (December
31, 2011 – 1.58:1). The Partnership is presently making interest-only payments on the non-revolving credit facility.
Should the debt-to-EBITDA ratio for the last four quarters rolling average decrease below 1.5:1 then the interest rate
on the credit facility will be decreased accordingly by 25 basis points; should the ratio increase above 2.0:1, then the
interest rate on the credit facility will be increased accordingly by 50 basis points.

Original facility
On July 24, 2007, the Partnership amended the then-existing credit agreement with a Canadian chartered bank to
increase the committed, non-revolving facility from $20 million to $47 million and to extend the term by five years
to 2012. The initial $20 million facility was arranged during the initial public offering to partially finance the
purchase of the Pizza Pizza Rights. To partially finance the Pizza 73 transaction, the facility was increased by
$27 million to $47 million. As security for repayment of the facility, the Partnership has provided the bank with a
first ranking general security agreement charging all tangible and intangible assets of the Partnership, as well as
an assignment of all security supporting the Licence and Royalty Agreements. In addition, PPL granted to the
Partnership a continuing, general security interest, subject to certain exceptions, in all present, and acquired
property of PPL. The facility’s interest rate was Prime plus 0% to 0.25% or the Bankers Acceptance rate plus
1.0% to 1.75%, depending on the level of debt-to-EBITDA, with EBITDA defined as annualized earnings before
interest, taxes, depreciation and amortization.

OUTLOOK

Management of PPL is pleased with the 2.9% SSSG for the 13-week quarter ended April 1, 2012. Value offerings,
including the $5.99 medium pepperoni pizza, the Everyday Deal at Pizza 73 and the annual Cineplex movie
coupon promotion continued to resonate with consumers. Looking to 2012, PPL’s strategies will continue to focus
on improving service levels to our customer base and reinforcing value-oriented menu offerings, launching new
relevant products, and reinvesting in activities which drive sales growth.

Pizza Pizza operates largely in Ontario and Quebec whereas Pizza 73 operates largely in Alberta and
Saskatchewan. According to a recent RBC economic report, Alberta and Saskatchewan are expected to lead
Canada in economic growth in 2012 largely due to expected decreases in unemployment rates and global
demand for the provinces’ commodities and natural resources, in addition to strong capital investment in the
provinces. The economic performance in Ontario and Quebec are more closely tied to conditions in the United
States where recently released economic data are reporting improvements.


                                                         - 12 -
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis

In 2012, PPL management expects to have increased the restaurants in the chain by over 2% with the majority of
new restaurants to be opened as part of PPL’s continued, national expansion plan. To note, the two traditional
openings in the first quarter of 2012 were in Montreal and Halifax. Organically, Pizza Pizza expects to grow
outside its largely Ontario markets by opening additional locations in Montreal, as well as in selected western
provinces.

At this time, in order to rely on rules enacted by the federal government that permit conversion on a tax-deferred
rollover basis, the Fund expects a conversion to a dividend-paying corporation would be completed and effective
at the end of December 2012. The key terms and economics reflected in the Partnership Agreement and all other
agreements between PPL and the 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.

Looking further into 2012, PPL sees customer satisfaction as the key to maintaining sales growth. In addition to
PPL’s time guarantees, “hot and fresh” promise, and modern restaurant network, this past year PPL launched our
on-line customer feedback program. Customers provide a rating of their Pizza Pizza experience based on
restaurant cleanliness, employee friendliness, food quality and speed of service. They are encouraged to do so
with the offer to try one of our new products. Sales managers receive time-sensitive email notification of the
customer feedback and use it to coach restaurant staff in ways to improve the experience thereby striving to
increase individual customer frequency. Additionally the customer feedback is used by PPL’s food research and
development team to revisit the menu, not only when it comes to new product introductions, but with core menu
items as well. With these steps taken, Pizza Pizza goes into 2012 with a guarded sense of confidence, hopeful
that a sustained emphasis on delivering a positive consumer experience will pay dividends in the form of
improved sales and customer loyalty.


CONTROLS AND PROCEDURES

Internal controls and procedures are designed to provide reasonable assurance that relevant information is
gathered and reported to senior management, including the Chief Executive Officer (“CEO”) and the Chief
Financial Officer (“CFO”) of Pizza Pizza GP Inc., managing general partner of the Partnership and administrator
of the Fund, on a timely basis so that the appropriate decisions can be made regarding public disclosure. Internal
controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the financial statements in accordance with GAAP and IFRS.

Management carried out an evaluation of the effectiveness of design and operation of the Fund’s disclosure
controls and procedures and internal controls over financial reporting as of March 31, 2012. It was determined
that the Fund’s disclosure controls and procedures and internal controls over financial reporting were effective.

During the quarter ending March 31, 2012, there was no material change in the Fund’s internal control over
financial reporting that has materially affected, or is reasonably likely to materially affect, the Fund’s internal
control over financial reporting.



CRITICAL ACCOUNTING ISSUES

The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next period are
addressed below:

Consolidation
Determining whether the Partnership consolidates with the Fund or with PPL requires judgment on the definition
of control. The definition of Control under IAS 27 states that control is the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities. Based on an assessment of the activities

                                                        - 13 -
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis

of the Partnership it was concluded that the Fund controls the Partnership, and therefore consolidates its
operations.

Impairment of Rights and Marks
Determining whether the rights and marks owned by the Partnership are impaired requires an estimation of the
recoverable amount of the cash generating unit in which the assets are included. The value-in-use calculation
requires the Fund estimate the future cash flows expected to arise from the cash generating unit and a suitable
discount rate in order to calculate present value. Significant estimates and assumptions were used in the
impairment tests performed at December 31, 2011. Pizza Pizza GP Inc. believes that there have been no
declines in the carrying value of the intangible assets in the Partnership.

Income taxes
The Fund computes an income tax expense. However, actual amounts of income tax expense only become final
upon filing and acceptance of the tax return by the relevant taxation authorities, which occur subsequent to the
issuance of these interim consolidated financial statements. Additionally, estimation of income taxes includes
evaluating the recoverability of deferred tax assets based on an assessment of the ability to use the underlying
future tax deductions before they expire against future taxable income. The assessment is based upon existing
tax laws and estimates of future taxable income. To the extent estimates differ from the final tax return, profit
would be affected in a subsequent period.

Fair value of derivatives
The fair value of the interest rate swaps that are not traded in an active market is determined using valuation
techniques. The Fund uses its judgment to select a variety of methods and make assumptions that are mainly
based on market conditions existing at the end of each reporting period.

RECENT ACCOUNTING PRONOUNCEMENTS

Standards, amendments and interpretations to existing standards that are not yet effective and have not yet been
early adopted by the Fund:

IFRS 9, Financial Instruments (IFRS 9), was issued in November 2009 and contains requirements for financial
assets. This standard addresses classification and measurement of financial assets and replaces the multiple
category and measurement models in IAS 39, Financial Instruments – Recognition and Measurement (IAS 39),
for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair
value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments and such
instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive
income. Where such equity instruments are measured at fair value through other comprehensive income,
dividends are recognized in profit or loss; however, other gains and losses (including impairments) associated
with such instruments remain in accumulated comprehensive income indefinitely.

Requirements for financial liabilities were added in October 2010 and they largely carried forward existing
requirements in IAS 39 except that fair value changes due to credit risk for liabilities designated at fair value
through profit or loss would generally be recorded in other comprehensive income. This standard is required to be
applied for accounting periods beginning on or after January 1, 2015, with earlier adoption permitted. The Fund is
currently in the process of evaluating the impact of this new standard.

IFRS 10, Consolidated Financial Statements (IFRS 10) was issued in May 2011 and replaces the portion of IAS
27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial
statements. It also includes the issues raised in SIC-12 Consolidation — Special Purpose Entities. What remains
in IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial
statements. IFRS 10 establishes a single control model that applies to all entities (including “special purpose
entities,” or “structured entities” as they are now referred to in the new standards). The changes introduced by
IFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and
therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27. Under
IFRS 10, an investor controls an investee when it is exposed, or has rights, to variable returns from its

                                                        - 14 -
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis

involvement with the investee and has the ability to affect those returns through its power over the investee. This
principle applies to all investees, including structured entities.

IFRS 10 is effective for annual periods commencing on or after January 1, 2013. The Fund is currently in the
process of evaluating the implications of this new standard, if any.

IFRS 11 Joint Arrangements (IFRS 11) was issued in May 2011 and replaces IAS 31 Interests in Joint Ventures
and SIC-13 Jointly-controlled Entities — Non-monetary Contributions by Venturers. IFRS 11 uses some of the
terms that were used by IAS 31, but with different meanings. Whereas IAS 31 identified three forms of joint
ventures (i.e., jointly controlled operations, jointly controlled assets and jointly controlled entities), IFRS 11
addresses only two forms of joint arrangements (joint operations and joint ventures) where there is joint control.
IFRS 11 defines joint control as the contractually agreed sharing of control of an arrangement which exists only
when the decisions about the relevant activities require the unanimous consent of the parties sharing control.
Because IFRS 11 uses the principle of control in IFRS 10 to define joint control, the determination of whether joint
control exists may change. In addition, IFRS 11 removes the option to account for jointly controlled entities using
proportionate consolidation. Instead, jointly controlled entities that meet the definition of a joint venture must be
accounted for using the equity method. For joint operations (which includes former jointly controlled operations,
jointly controlled assets, and potentially some former jointly controlled entities), an entity recognizes its assets,
liabilities, revenues and expenses, and/or its relative share of those items, if any. In addition, when specifying the
appropriate accounting, IAS 31 focused on the legal form of the entity, whereas IFRS 11 focuses on the nature of
the rights and obligations arising from the arrangement.

IFRS 11 is effective for annual periods commencing on or after January 1, 2013. The Fund is currently in the
process of evaluating the implications of this new standard, if any.

IFRS 12 Disclosure of Interests in Other Entities (IFRS 12) was issued in May 2011 and includes all of the
disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the
disclosures that were previously included in IAS 31 and IAS 28 Investment in Associates. These disclosures
relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of
new disclosures are also required. One of the most significant changes introduced by IFRS 12 is that an entity is
now required to disclose the judgments made to determine whether it controls another entity.
IFRS 12 is effective for annual periods commencing on or after January 1, 2013. The Fund is currently in the
process of evaluating the implications of this new standard, which will be limited to disclosure requirements for the
financial statements.

IFRS 13 Fair Value Measurement (IFRS 13) was issued in May 2011. IFRS 13 does not change when an entity is
required to use fair value, but rather, provides guidance on how to measure the fair value of financial and non-
financial assets and liabilities when required or permitted by IFRS. While many of the concepts in IFRS 13 are
consistent with current practice, certain principles, such as the prohibition on blockage discounts for all fair value
measurements, could have a significant effect. The additional disclosure requirements are substantial.

IFRS 13 is effective for annual periods commencing on or after January 1, 2013 and will be applied prospectively.
The Fund is currently in the process of evaluating the implications of this new standard.

IAS 1, Presentation of Financial Statements (IAS 1), Amendments to IAS 1 requires entities to group items
presented in other comprehensive income on the basis of whether they are potentially reclassifiable to profit or
loss subsequently.

The amendments are effective for annual periods beginning on or after July 1, 2012 with early application
permitted. The Fund has not yet determined the impact of this standard on its consolidated financial statements.

The amendments to IFRS 7 require the disclosure of information that will enable users of an entity’s financial
statements to evaluate the effect, or potential effect, of offsetting financial assets and financial liabilities, to the
entity’s financial position. Amendments to IFRS 7 are applicable to annual periods beginning on or after January
1, 2013, with retrospective application required. The Fund is currently in the process of evaluating the implications
of this new standard.
                                                        - 15 -
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis


The amendments to IAS 32 clarify the criteria that should be considered in determining whether an entity has a
legally enforceable right of set off in respect of its financial instruments. Amendments to IAS 32 are applicable to
annual periods beginning on or after January 1, 2014, with retrospective application required. Early adoption is
permitted. The Fund is currently in the process of evaluating the implications of this new standard.

RISKS & UNCERTAINTIES

The Fund continues to recognize certain risks and uncertainties associated with the ordinary course of business,
including those associated with the business and operations of PPL, upon which the Fund relies solely for its
earnings.

The Restaurant Industry

The performance of the Fund is directly dependent upon the royalty and interest payments received from PPL.
The amount of royalty received from PPL is dependent on various external factors that may affect the limited
service sector of the restaurant industry. The restaurant industry, generally, is intensely competitive with respect
to price, service, location and food quality. Competitors include national and regional chains, as well as
independently owned restaurants and retailers of frozen pizza. If PPL, Pizza Pizza franchisees and Pizza 73
operators are unable to successfully compete in the limited service sector, System Sales may be adversely
affected, the amount of royalty reduced and the ability of PPL to pay the royalty or interest on the PPL Loan may
be impaired. Changes in demographic trends, traffic patterns, and the type, number, and location of competing
restaurants also affect the restaurant industry. In addition, factors such as government regulations, risk of
technology failures, smoking bylaws, inflation, publicity from any food borne illnesses, increased food, labour and
benefits costs, and the availability of experienced management and hourly employees may adversely affect the
restaurant industry in general and therefore, potentially, Pizza Pizza and Pizza 73 System Sales. PPL’s success
also depends on numerous factors affecting discretionary spending, including economic conditions, disposable
consumer income and consumer confidence. Adverse changes in these factors could reduce guest traffic or
impose practical limits on pricing, either of which could reduce sales and operating income, which could adversely
affect revenue, the royalty and the ability of PPL to pay the royalty to the Fund or interest on the PPL Loan. For
additional information concerning the performance of PPL, please refer to the PPL MD&A which is available at
www.sedar.com and www.pizzapizzaroyaltyincomefund.com.


Other

For a more detailed list of risks and uncertainties please refer to the Fund’s Annual Information Form which is
available at www.sedar.com and www.pizzapizzaroyaltyincomefund.com.


FORWARD LOOKING STATEMENTS

Certain statements in this report, including those concerning our plans and strategies described under “Outlook”,
and under “Conversion and Tax Considerations” may constitute “forward-looking” statements which involve
known and unknown risks, uncertainties and other factors which may cause the actual results, performance or
achievements to be materially different from any future results, performance or achievements expressed or
implied by such forward looking statements. When used in this report, such statements include such words as
“may”, “will”, “expect”, “believe”, “plan”, and other similar terminology. These statements reflect management’s
current expectations regarding future events and operating performance and speak only as of the date of this
report. These forward-looking statements involve a number of risks and uncertainties. The following are some
factors that could cause actual results to differ materially from those expressed in or underlying such forward-
looking statements: competition; changes in demographic trends; changing consumer preferences and
discretionary spending patterns; changes in national and local business and economic conditions; legislation and
governmental regulation; accounting policies and practices; and the results of operations and financial condition
of Pizza Pizza. The foregoing list of factors is not exhaustive and should be considered in conjunction with the

                                                       - 16 -
PIZZA PIZZA ROYALTY INCOME FUND
Management’s Discussion & Analysis

other risks and uncertainties described in the Fund’s Annual Information Form. The Fund assumes no obligation
to update these forward looking statements, except as required by applicable securities laws.


ADDITIONAL INFORMATION

Additional information about the Fund, including the Fund’s most recent Annual Information Form, is available on
SEDAR at www.sedar.com or at the Fund’s website www.pizzapizzaroyaltyincomefund.com.




                                                     - 17 -

				
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