A&W Revenue Royalties Income Fund Adds Record 38 New Restaurants to Royalty Pool

• BIGGEST INCREASE SINCE INCEPTION OF THE FUND IN 2002

TRADING SYMBOL: The Toronto Stock Exchange - AW.UN

VANCOUVER, Dec. 17, 2013 /CNW/ - A&W Revenue Royalties Income Fund (the Fund) and A&W Food Services of Canada Inc. (A&W Food Services) announced today that, effective January 5, 2014, the number of A&W restaurants for which royalties are paid to A&W Trade Marks Limited Partnership (the Partnership) will be increased by 38 new restaurants that were opened across Canada between October 2012 and September 2013, less eight restaurants that were permanently closed during this period.  The addition of these 30 net new restaurants brings the total number of A&W restaurants in the Royalty Pool to 790. This is the 12th increase in the number of restaurants in the Royalty Pool and the largest since the inception of the Fund in 2002.  Since that time, the number of restaurants for which royalties are paid to the Fund (through the Partnership) has increased by 205 restaurants, from 585 to 790.

"We are very pleased to be adding 30 net new A&W restaurants to the Royalty Pool" said Paul Hollands, President and Chief Executive Officer of A&W Food Services.  "We are delighted with the accelerated pace of growth in new A&W restaurants across Canada and in particular in Ontario and Quebec, our most important growth markets in the country.  Bringing A&W's legendary Burger Family and our beef with no added hormones or steroids to customers in new markets right across Canada is a key strategic thrust."

The estimated annualized sales of the 38 new A&W restaurants being added to the Royalty Pool on January 5, 2014 are $41,780,000 and annual sales for the eight permanently closed restaurants were $4,587,000.  The net sales of $37,193,000 from the 30 net new restaurants translate into estimated additional annual royalty payments to the Fund of $1,116,000 on the basis of the royalty of 3% of sales.  The initial consideration for the estimated additional royalty revenue is $13,733,000, 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 based on the weighted average trading price of the units of the Fund for the 20 trading days ending October 28, 2013, or $22.09. The yield has been adjusted to reflect that income tax is payable by A&W Trade Marks Inc. (Trade Marks).  $10,986,000 or 80% of the consideration will be paid on January 5, 2014 by issuance of 497,340 limited partnership (LP) units which will immediately be exchanged for 994,680 non-voting common shares of Trade Marks.  These additional shares of Trade Marks are exchangeable at the option of A&W Food Services for 497,340 units of the Fund, subject to the approval of the TSX.

The remaining 20% of the consideration or $2,747,000 will be paid by issuance of 124,335 LP units in December 2014.  The actual amount of the consideration paid in December 2014 may differ from this amount depending on the actual annual sales reported by the 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, 2013 have now been determined.  The actual annual sales for the 29 new restaurants added on January 5, 2013 were $34,558,000 compared to the original estimate of $33,057,000.  As a result, the remaining 20% of the initial consideration or $2,175,000 has now been paid to A&W Food Services by issuance of 100,878 LP units.  Additional consideration of $663,000 has also been paid to A&W Food Services in the form of 30,772 LP units, as the actual sales exceeded the original estimate. The 100,878 LP units and additional 30,772 LP units have been exchanged for 263,300 non-voting common shares of Trade Marks.  These additional shares of Trade Marks are exchangeable at the option of A&W Food Services for 131,650 units of the Fund, subject to the approval of the TSX.

After these amendments to the Royalty Pool which resulted 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 14% of the units of the Fund 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 annual distribution rate is $1.404 per unit.

About the Fund
The Fund is a limited purpose trust established to invest in Trade Marks, which through its interest in the Partnership, owns the A&W trade-marks used in the A&W quick service restaurant business in Canada.  The A&W trade-marks comprise some of the best-known brand names in the Canadian foodservice industry.  In return for licensing A&W Food Services to use its trade-marks, 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 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 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 Food Services 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 reflecting A&W Revenue Royalties Income Fund's current expectations in the quick service segment of the restaurant food industry in Canada; A&W Food Services' plans to continue to focus on its strategy of making A&W Canada's only authentic better burger restaurants for time-crunched adults, delighting them on every single visit; and A&W Food Services' plans to build the A&W brand through expanding to serve customers in new markets. 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.

SOURCE: A&W Revenue Royalties Income Fund

Don Leslie
Chief Financial Officer
A&W Food Services of Canada Inc.
[phone]
email:  [email protected]
www.awincomefund.ca