A&W REVENUE ROYALTIES INCOME FUND ADDS 19 NEW RESTAURANTS TO ROYALTY POOL
VANCOUVER, BC, Dec. 7, 2023 /CNW/ - A&W Revenue Royalties Income Fund (the Fund) (TSX: AW.UN) and A&W Food Services of Canada Inc. (A&W Food Services) announced today that, effective January 5, 2024 the number of A&W restaurants for which royalties are paid to A&W Trade Marks Limited Partnership (the Partnership) will be increased by 19 new restaurants that were opened across Canada between September 9, 2022 and September 7, 2023, less 9 restaurants that were permanently closed between November 7, 2022 and November 5, 2023 (the Reporting Period). The addition of these 10 net additional restaurants brings the total number of A&W restaurants in the royalty pool (Royalty Pool) to 1,047. Since the inception of the Fund in 2002, the number of restaurants for which royalties are paid to the Fund (through the Partnership) has increased by 462 restaurants, from 585 to 1,047.
"We are pleased to be adding 19 new A&W restaurants to the Royalty Pool at a time of ongoing challenges in the general construction industry," said Susan Senecal, President and Chief Executive Officer of A&W Food Services. "A&W Food Services continues to successfully open new restaurants across Canada, particularly in Ontario and Quebec, which continue to be strategic growth markets for us."
The estimated annualized sales of the 19 new A&W restaurants being added to the Royalty Pool on January 5, 2024 are $28,626,000 and annual sales for the 9 permanently closed restaurants were $5,144,000. Based on the royalty to the Fund that is equal to 3% of sales, the net estimated annualized sales of $23,482,000 from the 10 net additional restaurants translates into estimated net additional annual royalty payments to the Fund of $704,000.
The consideration to be paid to A&W Food Services for the estimated net additional royalty revenue is calculated in accordance with the license agreement and is $6,646,000, representing 80% of the consideration payable for such net additional royalty payments, calculated by discounting the estimated additional royalties by 7.5% and dividing the result by the yield on units of the Fund. The yield is calculated as the total amount of cash distributed to unitholders of the Fund during the Reporting Period, adjusted to reflect income tax payable by A&W Trade Marks Inc. (Trade Marks), divided by the weighted average trading price of the units of the Fund for the 20 trading days ending October 31, 2023 which was $30.48. This consideration will be paid on January 5, 2024 by issuance of 218,029 limited partnership units of the Partnership (LP units), which will immediately be exchanged for 436,058 non-voting common shares of Trade Marks. These additional shares of Trade Marks are exchangeable at the option of A&W Food Services for 218,029 limited voting units of the Fund, subject to the approval of the TSX.
An amount representing 20% of the consideration payable for the net additional royalty revenue, will be paid by issuance of additional LP units in December 2024. The actual amount of the consideration to be paid, and the number of LP units to be issued, in December 2024 will be determined based upon the actual annual sales reported by the 19 new restaurants.
The Fund and A&W Food Services also announced today that the actual sales of the new restaurants added to the Royalty Pool on January 5, 2023 have now been determined. The actual annual sales for the 29 new restaurants added on January 5, 2023 were $45,565,000 compared to the original estimate of $44,339,000. Based on actual sales, total consideration of $16,601,000 is payable to A&W Food Services, compared to total consideration of $16,118,000 that was initially determined based on estimated forecasted sales. As a result of the actual restaurant sales of the new 29 restaurants added to the pool exceeding the original estimate, the remaining 20% of the initial consideration of $3,224,000 has now been paid to A&W Food Services by issuance of 95,092 LP units at a price of $33.90 per unit and additional consideration of $483,000 has also been paid to A&W Food Services in the form of 14,240 LP units also at a price of $33.90 per unit. The 95,092 LP units and additional 14,240 LP units have been exchanged for an aggregate of 218,664 non-voting common shares of Trade Marks. These additional non-voting common shares of Trade Marks are exchangeable at the option of A&W Food Services for 109,332 limited voting units of the Fund, subject to the approval of the TSX.
As a result of the additional LP units issued to A&W Food Services, Trade Marks declared a special dividend of $175,000 to A&W Food Services. This amount represents the amount of the dividends from Trade Marks that A&W Food Services would have received had the 218,664 non-voting common shares of Trade Marks been issued to A&W Food Services on January 5, 2023.
After the amendment to the Royalty Pool on January 5, 2024, which will result in additional shares of Trade Marks being issued to A&W Food Services, A&W Food Services will receive a proportionate increase in monthly dividends from Trade Marks, and will own the equivalent of 29.2% of the voting securities of the Fund on a fully-diluted basis, excluding the issuance of the excess exchangeable LP units that represent the remaining 20% of the initial consideration for the January 5, 2024 amendment to the Royalty Pool that are payable in December 2024. Including the issuance of the excess exchangeable LP units that represent the remaining 20% of the initial consideration for the January 5, 2024 amendment to the Royalty Pool that are payable in December 2024, A&W Food Services' ownership in the outstanding voting securities of the Fund is approximately 29.4% on a fully diluted basis.
The growth of the Royalty Pool reflects the continuing strength and success of the A&W brand. The Fund's current annualized distribution rate is $1.92 per unit.
The Fund is a limited purpose trust established to invest in Trade Marks, which through its interest in the Partnership, owns the A&W trademarks used in the A&W quick service restaurant business in Canada. The A&W trademarks comprise some of the best-known brand names in the Canadian foodservice industry. In return for licensing, A&W Food Services to use its trademarks, Trade Marks (through the Partnership) receives royalties equal to 3% of the sales of A&W restaurants in the Royalty Pool. The Royalty Pool is adjusted annually to add new restaurants, less any A&W restaurants that have permanently closed. The Partnership pays A&W Food Services for the additional sales from the net new restaurants in the form of an increase in the limited partnership interest of A&W Food Services, based upon a formula set out in the licence agreement. A&W Food Services' additional limited partnership interest may be exchanged for additional shares of Trade Marks which are exchangeable for limited voting units of the Fund. These annual adjustments to the Royalty Pool are required under the licence agreement and are exempt from the prospectus and registration requirements pursuant to NI 45-106.
A&W is the second largest quick-service hamburger restaurant chain in Canada. Operating coast-to-coast, A&W restaurants feature famous trade-marked menu items such as The Burger Family®, Chubby Chicken® and A&W Root Beer®.
This release may contain certain forward-looking statements related to: the Fund's current expectations in the quick service segment of the restaurant food industry in Canada; timing for adding new A&W restaurants to the Royalty Pool; the amount and timing of the payment for the remaining consideration payable to A&W Food Services for the royalty revenue from the 10 net additional A&W restaurants added to the Royalty Pool; the potential future exchange by A&W Food Services of the non-voting common shares of Trade Marks it holds for limited voting units of the Fund and the percentage of the Fund's voting securities A&W Food Services would hold upon the completion of such exchange; and the proportionate increase A&W Food Services will receive in monthly dividends from Trade Marks. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including, without limitation, changes in market, competitive developments, and potential downturns in economic conditions generally. Additional information on these and other potential factors that could affect the Fund's financial results are detailed in documents filed from time to time with the provincial securities commissions in Canada. The Fund assumes no obligation to update or revise any forward-looking information, except as required by applicable law.
SOURCE A&W Revenue Royalties Income Fund
Kelly Blankstein, CPA, Chief Financial Officer, 300 - 171 West Esplanade, North Vancouver, B.C. V7M 3K9, 604-988-2141, Email: [email protected], www.awincomefund.ca
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