Restaurant Brands International Inc. (QSR) Q4 2016 Earnings Report, Transcript and Summary

Good morning and welcome to the Restaurant Brands International Fourth Quarter 2016 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Markus Sturm, Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone and welcome to Restaurant Brands International’s earnings call for the fourth quarter and full year ended December 31, 2016. A live broadcast of this call may be accessed through the Investor Relations webpage at investor.rbi.com and a recording will be available for replay. Joining me on the call today are Restaurant Brands International CEO, Daniel Schwartz; and CFO, Josh Kobza. The team will be available to answer questions during the Q&A portion of today’s call. Today’s earnings call and presentation contain forward-looking statements, which are subject to various risks set forth in the press release issued this morning and in our SEC filings. In addition, this earnings call and presentation include non-GAAP financial measures. Reconciliations of non-GAAP financial measures are included in the earnings presentation and press release available on our website. Let’s begin on Slide 2 with the agenda for today’s call. Daniel will start by discussing highlights for the year at Restaurant Brands International and will then review performance of Tim Hortons and Burger King. Josh will provide an update on development and review consolidated financial results for the year. Following which, Daniel will share some concluding remarks before opening the call up for Q&A. I will now turn over the call to Daniel.

Thanks, Markus and good morning, everyone. Thanks for joining us on today’s call. I am pleased to report that 2016 was a year in which we achieved strong profitability growth and we accelerated the pace of restaurant development at both of our iconic brands, Tim Hortons and Burger King. Our successes this year were a result of the hard work from our employees and franchisees all around the world, who always strive to deliver a great guest experience. As we have said in the past, delivering a great guest experience and strong franchisee profitability will drive the long-term growth of our brands. In 2016, we reached over 20,000 restaurants worldwide and over $24 billion in annual system-wide sales, but we still feel like we are just getting started. I would like to start by highlighting a summary of our 2016 results on Slide 4. We continued to grow our top line at both brands through same-store sales growth and expansion of our restaurant footprint. In 2016, our Tim Hortons business achieved same-store sales growth of 2.5% and restaurant count growth of 4.5% year-on-year, which collectively contributed to system-wide sales growth of 5.2% on a constant currency basis. We are excited to have achieved several development related milestones for the Tims brand this year through our pursuit of ambitious global expansion. In 2016, we added 200 net new restaurants, up from 144 when we originally acquired the business. We also made great progress in our international expansion efforts, having established new master franchise joint venture partnerships in each of Asia, Europe and Latin America. In January 2017, we announced the formation of MFJV for the development of Tim Hortons in Mexico, our third such agreement in less than a year. We achieved equally important milestones for Burger King in 2016. Despite a more challenging QSR environment in some of our largest markets, our focus on our guests and our core product platforms resulted in same-store sales growth of 2.3% for the year. We also opened 735 net new restaurants, representing 4.9% restaurant count growth year-on-year. Collectively, these growth drivers resulted in 2016 system-wide sales growth of 7.8% on a constant currency basis. Our top line expansion at both brands combined with our continued cost discipline led to 2016 adjusted EBITDA of $1.888 billion, which was up 16.4% organically versus the prior year. When combined with continued capital discipline, this resulted in strong adjusted diluted EPS of $1.58 per share, up 45% year-on-year. Turning to Slide 6, we will now review our 2016 results for Tim Hortons in more detail. This year, we achieved adjusted EBITDA growth of 21.8% on an organic basis to reach annual adjusted EBITDA of $1.72 billion. This strong financial performance was a result of system-wide sales growth of 5.2% and our continued focus on cost discipline. Our same-store sales increase of 2.5% benefited from notable growth in the U.S. and was partially offset by some softness in Canada and the international sales in the fourth quarter. Comparable sales for the full year, reflects growth across each of our breakfast, lunch and dinner dayparts. As it relates to restaurant development, we accelerated net restaurant growth from 155 openings in 2015 to 200 net openings in 2016. We remain excited about the brand’s long-term growth prospects and are encouraged by the significant progress made over the last 12 months with the signing of numerous U.S. development agreements and international master franchise joint ventures. We continue to work closely with our new partners to open great restaurants and are actively pursuing other strategic growth markets. As we have said in the past, it takes time to form new partnerships and to enter into new markets with the right infrastructure in place, including supply chain logistics. We want to make sure that the new restaurants we are going to open all around the world deliver that same incredible experience that millions of people in Canada enjoy everyday. On Slide 7, we outlined our fourth quarter and full year results for Tims Canada. We achieved same-store sales of 2.2% for the year driven by growth in both the lunch and breakfast dayparts as supported by new products such as grilled wraps, potato wedges and grilled breakfast sandwiches. In the fourth quarter, we experienced some softness in sales growth, which was driven by a few factors: continued softness in Western Canada, harsher year-on-year weather conditions and the earlier timing of our hockey card program. Looking forward, we are pursuing a number of exciting new initiatives to drive sales growth in the quarters to come, including a national espresso launch and the rollout of a digital app, which we expect to launch this spring. Despite the already high sales per restaurant in Canada, we are encouraged by the opportunity to grow our same-store sales in our home market. From a restaurant development perspective, we made good progress growing our store count 4.1% year-on-year. Our restaurant expansion in the country was achieved through a variety of restaurant formats, making our brand even more accessible for our guests, a priority that we look forward to continuing in 2017. Turning to Slide 8, we highlight the strong quarter achieved in our Tims U.S. business. Our continued same-store sales growth of 4.9% for the year was a result of the strength, predominantly in our coffee, cold beverage and breakfast sandwich platforms. What most excites us is about our U.S. Tim Hortons business, however, is the major expansion opportunity that lies ahead for the brand in this country. Our strong fourth quarter net restaurant growth of 26 was a big improvement versus 2015 and is an indication our improving new restaurant pipeline. We are also pleased with our openings formant mix in 2016, having opened more freestanding restaurants as compared to last year and thus building our brand in exciting new locations and markets the right way. At year end 2016, we had signed development agreements in each of Cincinnati, Columbus, Indianapolis and Minneapolis. We are pleased with the progress our partners have made. We continue to work closely with our partners to support their ongoing expansion initiatives. Now, turning to Slide 9, let’s review the results for Tims International. We achieved comparable sales growth of 2.1% for the year, with some softness in the fourth quarter, primarily in restaurants based in the United Arab Emirates. Growth for the year was mostly driven by our focus on key platforms in the region, including wraps, breakfast sandwiches and ice caps. We believe that our ability to adapt our core platforms to local tastes and consumer behavior, as we have done in the GCC, will be an important component of our expansion into new markets around the world. As it relates to international development, we achieved net restaurant growth of 16 this year, which reflects our partner’s pursuit of locations in the GCC markets that are less penetrated, such as the Kingdom of Saudi Arabia, to supplement the existing and growing restaurant base in the UAE. Looking forward to 2017 and beyond, we believe that continued expansion in the Middle East, combined with growth in our newly formed MFJV markets will allow us to accelerate the pace of restaurant growth, internationally. In the last 12 months, we formed 3 MFJVs, which will result in the development of the Tim Hortons in each of Asia, Europe and Latin America via the Philippines, Great Britain and Mexico. Josh will be speaking more about these agreements, including Mexico, our most recently announced partnership, shortly. Turning to Burger King on Slide 11, we are pleased to announce our continued profitability growth for this segment, having reached adjusted EBITDA of $816 million in the year. This represents a 10.1% year-on-year increase on a constant currency basis and was primarily driven by our top line with system wide sales growth of 7.8% in 2016. One contributor of this top line expansion was our full year same-store sales growth of 2.3%, a metric which benefited from a healthy fourth quarter across the majority of our markets. The other contributor was restaurant count growth of 4.9% year-on-year. Our partners continue to make good progress on the development front to continue this momentum into 2017 and beyond. On Slide 12, we highlight our Burger King results in the U.S. and Canada for both the fourth quarter and full year. While the market conditions of Q3 continued t prevail in Q4, our continued focus on a balanced menu architecture led to better results this quarter. In the fourth quarter, we launched the Bacon King, a premium priced product that stayed true to our core, which was well received by our guests and helped drive incremental sales at our restaurants. We also continue to grow our breakfast daypart, a part of which was driven by a successful pancake promotion during the quarter. Our continued momentum has resulted in improved economics and thus net restaurant growth as franchisees look to reinvest and expand their businesses. In 2016, we achieved NRG of 32, the highest metric we have seen in the region in many years, but one which we believe we will continue to improve upon. We also continue to make strong progress re-imaging our restaurants in the U.S., which helps us to deliver that great restaurant experience and a unified brand identity to our guests. Additionally, we signed a number of development agreements for the Burger King brand in the U.S., each of which will fuel further opening and remodels in the country for many years to come. Moving to EMEA on Slide 13, we achieved comparable sales growth of 2.2% this year, reflecting notable strength in Russia and Turkey, partially offset by some softness in some other markets, including the UK. We grew our restaurant count by almost 8% year-on-year in 2016. Many of our new restaurants came from countries where we have master franchise agreements in place including France, Russia and Spain. In France, our partner completed the first conversions of Quick, which have performed better than expected while continuing to build new restaurants. These restaurants in France continue to be top sales performers across the entire Burger King system, which really excites us about the further potential from continued development in this country for many years to come. In Russia, after a slower development last year, we are pleased to announce that we reaccelerated growth in this country, which was a key contributor to our EMEA growth this year. We have also entered into new countries this year such as Kenya, as we work towards building the Burger King brand in Africa. Next, on Slide 14, we highlight the strong year we had in APAC. We are happy to report comparable sales growth of 4.9% for the year. China and Korea continued to be strong drivers of this growth as we further build brand awareness and improved our convenience for our guests, including through higher restaurant penetration levels and delivery programs. On the development side, we grew our restaurant count year-on-year by 19%. We have come very far in China in particular, now with more than 600 restaurants in less than 5 years. We still have a long way to go in this region and are working closely with our partners in their pursuit of aggressive and successful new restaurant development. Now let’s move to LAC on Slide 15. Our strong performance in this region continued through the fourth quarter, having achieved comparable sales growth of 8.7% for the year and 10.1% in Q4. Our strong same-store sales results were driven primarily by Brazil and Argentina, where we continue to build our core platforms with product such as the Big King and the Mega Stacker. The momentum in Brazil is also evidenced by restaurant growth in this country. We ended the year with over 600 restaurants in Brazil, making BK one of the largest QSR brands in the country in just a few years after the master franchise joint venture was initially formed. Most of our net restaurant growth in the region this year occurred in the fourth quarter and the performance of the new restaurants leaves us optimistic about the prospect to continue building the brand for many years to come. I would now like to turn the call over to Josh to take us through some development highlights and the financial results for the year.

Thanks Daniel. 2016 marked a strong year on the development front across both brands and the many geographies in which we operate. Heading into 2017, we are pleased by the robust pipeline of high quality, new restaurants that both brands plan to develop. Let’s turn to Slide 17 to provide an update on Burger King first. We are pleased to announce that our largest existing MFJV partners continued to make great progress growing the Burger King brand in their respective markets. As Daniel mentioned, our growth in Brazil has been a true success story, but that success can also be seen in other countries such as Russia, China and France. China in particular has grown its restaurant footprint to over 650 restaurants since the formation of the MFJV just over 4 years ago. In France, our partnership that started in 2013 has now grown to over 100 restaurants today. The exciting part is that in many ways, our partners are just getting started, since our potential in each market continues to be many times the size of our current presence. The notable momentum that the MFJV model has led to in these geographies also excites us about the long-term potential for Tim Hortons, having signed three such agreements for the brand in the last 12 months. Other development highlights for Burger King in 2016 include the signing of numerous development agreements in the U.S., the formation of a new master franchise in Belgium, which subsequently purchased the Belgian Quick restaurants from our France MFJV and the successful completion of several Quick restaurant conversions in France. These accomplishments will lead to further growth opportunities to be realized in 2017 and beyond. We remain dedicated to working closely with our existing and new partners to achieve sustainable long-term growth in their respective markets. Let’s now review development highlights for Tim Hortons on Slide 18. In summary, 2016 was a busy year, in which numerous development agreements were signed to pave the way for our international expansion plans in the brand. Since the formation of RBI, we have announced Tim Hortons development agreements in the U.S. and Cincinnati, Columbus, Indianapolis and Minneapolis, the latter two of which were announced in 2016. We are pleased with the progress our partners have made and we look forward to continuing to grow with them for years to come. On the international front, we signed three MFJV agreements for the TH brand in the last 12 months; the Philippines, Great Britain and Mexico. Mexico is the most recent MFJV agreements, having been announced only a few weeks ago. Our Mexican MFJV is very exciting to us as it marks the brand’s first entry into Latin America. The country has a quickly growing coffee market and is a great starting point for developing the brand across the rest of Latin America due to its cultural alignment with both North America and Latin America. Each of our partners has local market expertise, combined with operating experience in restaurants and hospitality that will enable them to deliver strong results and we look forward to updating you on our progress in the coming quarters. Let’s now review RBI financial results for the year, starting on Slide 20. Our top line expansion at both brands combined with our continued cost discipline led to 2016 adjusted EBITDA of $1.888 billion, up 16.4% organically versus 2015. When combined with the reduction in various below the line expenses, including depreciation and amortization, net interest expense and stock-based compensation, this resulted in strong adjusted diluted EPS of $1.58 per share, up 45% year-on-year. Turning to Slide 21, we highlight our full year 2016 cash bridge, growth in adjusted EBITDA combined with a reduction in capital expenditures, allowed us to generate strong free cash flow of $1.3 billion in 2016. As a part of our balanced approach to capital allocation, we paid a total of $538 million in preferred and common dividends and paid down $70 million in debt for the year. As at December 31, 2016, our ending cash balance was approximately $1.5 billion. Slide 22 outlines our current capital structure in more detail. As of December 31, 2016, our total debt balance was approximately $8.9 billion and our net debt of $7.4 billion represented approximately 3.9x LTM adjusted EBITDA, down approximately 1 turn year-over-year. We also announced last week that we are reviewing the potential amendment and extension to our existing Term Loan B facility. And depending on the outcome of that initiative, we will provide further updates if and as we implement any changes to our current structure. Turning to Slide 23, on February 13, 2017, the RBI Board of Directors declared a dividend of $0.18 per common share and partnership exchangeable unit of RBI LP, payable on April 4, 2017. We have maintained a long history of dividend growth and are pleased to have returned capital to our shareholders and unitholders as a part of our balanced capital allocation strategy. I will now hand it back to Daniel for concluding remarks before moving to the Q&A portion of our presentation.

Thanks, Josh. 2016 marked a strong year for profitability growth at an accelerated pace of restaurant development for both of our brands all around the world. We signed several development agreements and new partnerships this year, which we believe will further accelerate this pace of restaurant growth for many years to come. Looking forward to 2017 and beyond, we are going to continue to focus on the same strategic priorities, guest satisfaction and franchisee profitability, which we believe will drive long-term growth of our brands. We firmly believe that we have the best franchisees, partners and employees in the industry and together we are committed to achieving long-term value for all of our stakeholders. Thanks for joining us on today’s call and we will now open up the call for Q&A. Operator?

[Operator Instructions] Our first question comes from David Palmer of RBC Capital. Please go ahead.

Thanks. Good morning and congrats on the unit growth acceleration particularly in those master JVs. Just a question to follow-up on Canada, you mentioned a few things that might have weighed on the fourth quarter, but thinking broader, I am sure you are not happy that there was a little bit of a decel through the year. If you had to sort of speak to the competitive environment and what broader things you are trying to do with the brand, what you think might have been missing in 2016 that you will be doing more of in 2017? That would be helpful. Thanks.

Yes, hi, David, it’s Daniel. Thanks for the question. We have said this in the past we try not to get too caught up in the quarter-to-quarter trends. I did mentioned in the prepared remarks, there were a few things like the timing of the hockey cards and the weather that impacts us in the fourth quarter, but when we look back on the year and we are pleased that we again grew our same-store sales from an already high starting point in Canada. Our focus, it hasn’t changed, our focus on driving that incredible guest expense, driving our same-store sales, driving further profit growth for our owners. And when we look out to 2017, we are really confident in our ability to do this and to drive further growth from an already strong starting point. We have some pretty exciting innovation coming down the pipe and we have mentioned in the past that we are market testing espresso-based beverages in several markets and we will be rolling that out nationwide. I think that’s a pretty powerful innovation for an already incredibly strong brand and we are also in beta test now with a great mobile app that will add another convenient channel for our guests to experience the Tim Hortons brand. So the combination of some good innovation focused on great operations and delivering that great guest experience, all that and above that really gives us the confidence that we will have another great year with the Tim Hortons brand.

The next question comes from Brian Bittner of Oppenheimer. Please go ahead.

Thanks. Thanks for the question. In the fourth quarter on the Burger King segment, I think, your guidance franchise revenue that you recorded, it grew a lot faster than the system sales grew. And that wasn’t really a dynamic that was happening in prior quarters. So, can you help explain what drove that and if that continues going forward?

Hey, Brian, it’s Josh. Thanks for the question. Yes, I think a couple of things. One is you noted our system sales did grow significantly, but also we opened a lot of additional restaurants in the quarter. So, there would be additional franchise fee and other income, related to the fact that we opened a lot of incremental restaurants in the quarter. So, I think that’s what’s driving the incremental revenue.

The next question comes from Will Slabaugh of Stephens. Please go ahead.

Yes, thanks guys. On the Burger King side, you referenced that the Bacon King was the driver in the quarter and I know there were number of the more value-oriented promotions there as well. So I am curious if you could speak a little bit more to whether the comp was more check or traffic driven during 4Q?

Yes, it’s Daniel. As you know, we don’t give the breakdown between check and traffic, but obviously, what I will say and what I said in the past is that we strive to grow both visitation and check to drive future profit growth for our franchisees. The Burger King in the U.S., if you go back just a few years ago, these restaurants were averaging around $1.1 million per restaurant. And this year we closed above $1.3 million. We have made great progress improving the image of the restaurants. Our franchisees had invested heavily to re-image restaurants over the past few years. We have improved our operations. And we have been quite consistent with our approach on menu and marketing having kind of a balanced approach between more affordable value end of the spectrum and premium products like the Bacon King, which we had mentioned which resonated quite well with our guests. So, really more of the same has helped us continue to drive continued growth in the business for our franchisees.

The next question comes from Gregory Francfort of Bank of America. Please go ahead.

Hey, guys. Maybe one just housekeeping creation. How far are you through the quick conversion, I guess how many stores do you left and then you guys shifting to the Tims business, if you look at the ready to drink business and the cake hub, have those done and sort of how quickly it is growing, how big is that business for you? Any help there would be really helpful. Thanks.

Yes, Greg. It’s Josh. As we mentioned in our remarks earlier, we were really pleased to get started on the quick conversions, completing the first ones towards the end of this year. We have been very pleased with the initial results and they have been meaningfully above our expectations. So that’s very encouraging for the prospects for the brand in the years to come. We haven’t disclosed the exact numbers, but I would say we are just getting started in terms of the conversions and we still have a lot of work to do and there is a lot of growth to come there over the next few years. With respect to Tims and the retail business, as we have talked about over the last few quarters, that’s become an increasingly large driver of our business. We have grown it really significantly over the last couple of years since we put Burger King and Tims together. And we are really excited about the size and potential of that business and where we can take it over time.

The next question comes from Andrew Charles of Cowen. Please go ahead.

Thank you. Just had a question, two questions, one on each of the brands. So, for Burger King, Daniel, the aggressive quick-service discounting environment from 2016, were to persist in 2017 and we saw that at the start of the year, of course. Can you talk about the learnings from last year that helps you shape your strategy to compete more effectively in 2017? And then I want to also ask for Tim is if you look at each quarter in 2016, you saw a sequential deceleration in the amount of Tims’ SG&A declines, so it was quite large at the beginning of the year. And actually, in the fourth quarter, SG&A for this segment is actually up slightly. So, can you talk about the dynamics behind the cadence of SG&A of that brand? And if 4Q’s performance is just that G&A cuts had bottomed? Thank you.

Yes. Thanks, Andrew. With respect to the QSR environment, your first question – the quick-service restaurant industry, it’s always been – it is and it will always be a competitive business. We think it’s a great business. We love being in this business. We have great franchisees. And we have historically and in the future, we will take a balanced approach. If you deliver great guest service, good operations, a modern image, which are all things that we are focused on and you always have a balanced approach between value and premium, always being able to deliver great value, great affordable food at an incredible price with great service to our guests. We will do well. And a competitive environment and the environment we operate in, it changes from year-to-year, but it doesn’t affect our strategy, which is always centered around driving that great guest experience and driving profitability for our franchise owners. I will let Josh comment on the cost question.

Yes. Andrew, with respect to Tims G&A, I think the best way to look at it is to look at the full year SG&A. I think when you look at the Q4 number, I was a little bit higher as we finalized our year end cost allocations between the two segments. And also we saw little bit of an increase in performance related compensation as we finalized our actual results for the full year.

The next question comes from John Glass of Morgan Stanley. Please go ahead.

Thanks very much. Josh, on the Burger King International development you talked about you highlighted number of markets in China and Brazil and other places, how many of those are standard units, how many of those were sort of kiosks or non-standard units, I am trying to get a sense of what’s driving the growth and if you have color by region of standard versus non-standard [indiscernible] broader comments?

Yes. John, thanks for the question. We don’t disclose the exact mix of units and if there is a bit by region. But I think what you can see in the system wide sales growth at Burger King, which has been really strong, is that the sales of the new units that we are opening all around the world has been really encouraging. And I think we are seeing that in terms of the quality of the restaurants that we are opening across all of the international regions, which we have been really pleased with around the world, within the BK system.

The next question comes from Joshua Long of Piper Jaffray. Please go ahead.

Great. Thank you for taking my question. I wanted to see if you might be able to provide some context around when the new mobile app you mentioned that Tims will be rolling out and then broadly speaking, how do you think about your technology, your consumer facing technology initiatives for 2017 and beyond, perhaps any sort of commentary around mobile ordering pay or other consumer facing initiatives that you might have in the pipeline that maybe didn’t get as much air on the text side of the call?

Thanks Josh. 1.5 years or so ago, we decided to take a bit of a different approach to our digital efforts when we acquired a startup of really talented engineers to help us build out our digital platform. We are in an exciting journey here. We are now currently in beta tests in some different markets with guests, with our order and prepay app. I would say it’s for us, it’s just yet another channel, another way for us to deliver the great Tim Hortons experience and added convenience for our guests. And we look forward to launching our app with Tim Hortons, our mobile and order and prepay app later this year. And I think that will be the first step in hopefully, what’s many, many to come on this digital journey that we have embarked on.

Your next question comes from Karen Holthouse of Goldman Sachs. Please go ahead.

Hi. Actually, a little bit of a follow-up to the last question, when you are thinking about mobile, more mobile technology for your stores, do you have at the Tim system and the Burger King system or you want a single POS at the store level or is that something you are still trying to evolve to?

Hi Karen, we are not on a single POS system. But that’s not something that will prevent us from delivering a great app and great mobile experience for our guests.

The next question comes from Dennis Geiger of UBS. Please go ahead.

Great. Thanks for the question and congrats on a strong quarter. So solid Burger King U.S. unit growth results during the quarter, but any additional detail you can provide on the accelerated development agreements in the U.S. and the implications for growth there. And I guess any commentary on the demand from the franchisees to open more units and perhaps comments around current franchisee profitability?

Yes. Thanks Dennis. So if you go back a few years ago, when we got involved with the Burger King brand, the sales per restaurant were around $1.1 million and our franchisees invested significant capital on the past few years. Really around renovating the image, we improved our operations, we generated significant sales growth. To now we are at a point where the restaurants – sales per restaurant are over $1.3 million and the unit economics are much stronger today than they were in the past. And that’s what we are seeing a lot of interest from new and existing franchisees in developing the Burger King brand in the United States. And so we talked on the call earlier about some of the development agreements that we have put in place to accelerate the pace of the Burger King brands’ growth in the U.S. And I think you saw some of that in the full year of 2016. And as we look out to 2017, this is something that we are really encouraged by. There is no reason that the Burger King brands shouldn’t be growing at an accelerated pace in the U.S. and we have great partners all around the country who are going to help us make that a reality now.

The next question comes from Jason West of Credit Suisse. Please go ahead.

Yes. Thanks. Just a question around CapEx, if you guys could comment on the level we saw in 2016, if that’s a good run rate going forward and I guess if it is, just trying to understand, because I know you guys still own quite a bit of the real estate or buildings in Canada and it was always our assumption that that would require you to sort of invest some CapEx, alongside the franchisees in those situations, but it seems like you guys are really not doing that as much anymore, just sort of how that works if you own the real estate, but don’t spend the CapEx and who is taking on that burden? Thanks.

Hi Jason, it’s Josh. Thanks for the question. I think the 2016 numbers reflect a lower level of CapEx as you mentioned, which I think is reflective of the fact that we have now transitioned to a franchisee led development model. But as we go forward, we will continue to invest in our existing real estate portfolio, whereas you mentioned, we do still own a meaningful number of properties both in the U.S. and Canada. And we will continue to make investments in that existing portfolio to remodel restaurants. So we don’t give guidance, but we will continue to evaluate all the appropriate investments and make those going forward.

The next question comes from Peter Sklar of BMO Capital. Please go ahead.

Good morning. For the Tim Hortons master franchisee agreements that you have signed in the three international geographies and the four U.S. cities, can you talk a little bit about the cadence of store openings and how that will unfold over the next few years, I believe you said in the slide deck that two of the cities have started their first restaurant. So anything you can elaborate on in terms of cadence and growth?

Yes. Peter, it’s Josh. I think if you go back a couple of years when we put Burger King and Tim’s together to create RBI, we said that the thing that we are most excited about with this combination was the ability to take Tim Hortons all around the world and make it a truly global brand. And we are really pleased with the progress that we have made in finding partners in putting together of these projects to accelerate the pace of development in the U.S. And now over the past 12 months, to put together partnerships in three really important markets across three continents around the world, I think that’s very exciting. Now as we look into 2017 and beyond we are going to be working very closely with those partners to make sure that we start in those markets very successfully and replicate a great experience we give to our guests everyday in Canada with the Tim Hortons brand. Well, also working to find new partners in additional markets. And I think that our – the pace at which we can grow will be a function of how successfully we execute with those partners. But there is huge potential around the world for us to grow much, much faster than we are today for many, many years to come and that’s what’s gets us very excited about the future for Tim’s and for RBI.

And this concludes our question-and-answer session. I would like to turn the conference back over to Daniel Schwartz for any closing remarks.

Thanks to everyone for joining us today. And we look forward to updating you next quarter. Thanks a lot.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. Have a great day.