A&W Revenue Royalties Income Fund Announces Third Quarter 2014 Results

A&W POSTS STRONG THIRD QUARTER

• Same store sales up 5.7% for the quarter
• Royalty income increased 11.0% for the quarter
• Net income before non-cash items increased by $1.4 million year to date
• Payout ratio improved to 99.6%

TRADING SYMBOL: The Toronto Stock Exchange – AW.UN

VANCOUVER, Oct. 14, 2014 /CNW/ - A&W Revenue Royalties Income Fund (the Fund) and A&W Food Services of Canada Inc. (A&W Food Services) reported today results for the third quarter ended September 7, 2014.  The Fund will hold a conference call to discuss the results on Tuesday, October 14, 2014 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).  The call can be accessed by dialling toll-free 1-866-530-1553 or [phone] Passcode 1762238.  A replay will be available until October 20, 2014, by dialling toll-free 1-888-203-1112 or [phone] Passcode 1762238. 

Building on the strong start to the year, A&W's same store sales growth for the third quarter of 2014 was +5.7%.   Year to date same store sales growth is now 5.8%.  The strong same store sales growth along with the sales from new restaurants added to the Fund's Royalty Pool in January led to an 11.0% increase in royalty income for the quarter and 10.5% year to date.  Net income before non-cash items increased 14.7% for the quarter and $1,433,000 or 11.6% year to date. 

"Our continued positive sales performance is a result of our ongoing strategy to respond to our guests' desire for simple, great tasting ingredients that have been farmed with care," said Paul Hollands, President and CEO of A&W Food Services of Canada Inc. (A&W Food Services).  "In 2013, we became the first national quick service restaurant in North America to serve beef raised without the use of hormones or steroids. Based on its success, we introduced eggs from hens fed a vegetarian diet without animal by-products and on October 20, 2014 we will announce another major ingredient change that is a first in the quick service restaurant industry.  We are pleased that as a result of the strong sales, the Fund's payout ratio has moved below 100%."

A&W Food Services' strategy also includes accelerating the pace of growth of new restaurants.  Twenty two new A&W restaurants were opened across the country in 2014 year to date and 16 of these are in Ontario and Quebec, important growth markets for A&W.  An additional 15 new restaurants are under construction and are expected to open in the coming months.

Total sales reported by A&W restaurants in the Royalty Pool for the third quarter of 2014 were $234,378,000, an increase of 11.0% as compared to sales of $211,118,000 for the third quarter of 2013.  Year to date sales were $638,829,000, an increase of 10.5% for 2014 year to date.  The increase in sales was due to the increase in sales from the 30 net new restaurants added to the Royalty Pool on January 5, 2014 and the same store sales growth.

Distributable cash generated in the third quarter of 2014 to pay distributions to unitholders and dividends to Food Services was $5,133,000 compared to $4,475,000 in the third quarter of 2013, an increase of 14.7%.  Distributable cash generated in 2014 year to date was $13,746,000 compared to $12,313,000 in 2013 year to date.

Distributable cash is equivalent to net income before non-cash items such as non-cash gains and losses on interest rate swaps, future income taxes and amortization.  These non-cash items have no impact on the Fund's ability to pay distributions to unitholders.  The distributable cash calculation is provided as it identifies the amount of actual cash available to pay distributions to unitholders and dividends to Food Services.  

Distributable cash generated per equivalent unit increased by 3.2¢ to 36.1¢ per unit in the third quarter of 2014 from 32.9¢ for the third quarter of 2013.  Year to date distributable cash generated per unit increased by 6.1¢ to 96.6¢ per unit in 2014 year to date from 90.5¢ for 2013 year to date.  The increase in distributable cash per equivalent unit was due to the increase in royalty income flowing from the same store sales growth less the higher income tax expense resulting from the increase in income tax rates.

Three monthly distributions totalling 35.1¢ per unit were declared in the third quarter of 2014, the same as 2013.  2014 year to date distributions were 93.6¢ per unit, the same as 2013.  The payout ratio improved to 89.5% for the third quarter of 2014 from 98.2% for the third quarter of 2013.  The year to date payout ratio improved to 99.6% for 2014 as compared to 106.6% for 2013 year to date.

The Fund's objective is to maintain an annual payout ratio at or below 100%.  Good progress has been made in meeting this objective.  The Fund's annual payout ratio for 2012 was 107.0%; it fell to 104.1% in 2013 and now stands at 99.6% on a trailing four quarter basis as at Q3, 2014.   

Financial Highlights
(dollars in thousands except per unit amounts)	12 week period ended Sep 7, 2014	12 week period ended Sep 8, 2013	Period from Jan 1, 2014 to Sep 7, 2014	Period from Jan 1, 2013 to Sep 8, 2013
Same store sales growth^(1)	+5.7%	+0.8%	+5.8%	-0.7%
Number of restaurants in the Royalty Pool	790	760	790	760
Sales reported by the restaurants in the Royalty Pool	$234,378	$211,118	$638,829	$578,282
Royalty income	$7,031	$6,333	$19,165	$17,348
General and administrative expenses	99	90	442	424
Net third party interest expense	559	556	1,661	1,659
Current income taxes	1,240	1,212	3,316	2,952
Total distributable cash generated for distributions and dividends^(2)	$5,133	$4,475	$13,746	$12,313
Distributable cash per equivalent unit (2014 – 14,233,553 units; 2013 – 13,611,878 units)^(2)(3)	$0.361	$0.329	$0.966	$0.905
Distributions and dividends declared per equivalent unit	$0.351	$0.351	$0.936	$0.936
Payout ratio^(4)	89.5%	98.2%	99.6%	106.6%

⁽¹⁾  Same store sales growth is not an earnings measure recognized by International Financial Reporting Standards (IFRS) and therefore may not be comparable to similar measures presented by other issuers.  This information is provided as it is a key driver of growth in the Fund.    
⁽²⁾   Distributable cash is not an earnings measure recognized by IFRS and therefore may not be comparable to similar measures presented by other issuers.  Distributable cash is equivalent to net income before non-cash items such as non-cash gains and losses on interest rate swaps, future income taxes and amortization.  These non-cash items have no impact on the Fund's ability to pay distributions to unitholders.  The distributable cash calculation is provided as it identifies the amount of actual cash available to pay distributions to unitholders and dividends to Food Services.  
⁽³⁾   The number of equivalent units and distributable cash per equivalent unit in 2014 includes the 124,335 LP units exchangeable for 248,670 common shares of Trade Marks representing the remaining 20% of the consideration for the January 5, 2014 adjustment to the Royalty Pool which is held back until December 2014 when the actual annual sales are reported by the new restaurants.  The number of equivalent units and distributable cash per equivalent unit in 2013 includes the 131,650 LP units exchanged for 263,300 common shares of Trade Marks representing the final consideration paid in December 2013 for the January 5, 2013 adjustment to the Royalty Pool.
⁽⁴⁾  The payout ratio is calculated by dividing distributions paid and distributions accrued to the last day of the quarter and year to date period, by distributable cash generated in that period.

About the Fund
The Fund is a limited purpose trust established to invest in Trade Marks, which through its interest in A&W Trade Marks Limited Partnership (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 the 790 A&W restaurants in the Royalty Pool.  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^®.

The Royalty Pool is adjusted annually to reflect sales from new A&W restaurants, net of the sales of any A&W restaurants that have permanently closed.  Additional limited partnership units (LP units) are issued to A&W Food Services to reflect the annual adjustment.  A&W Food Services' additional LP units are exchanged for additional shares of Trade Marks which are exchangeable for units of the Fund.  A&W Food Services owns 14% of the common shares of Trade Marks, and therefore owns the equivalent of 14% of the units of the Fund on a fully-diluted basis.   

Trade Marks' dividends to A&W Food Services and the Fund, and the Fund's distributions to unitholders are based on top-line revenues of the A&W restaurants in the Royalty Pool, less interest, general and administrative expenses and current income taxes of Trade Marks, and are thereby isolated from many of the factors that impact an operating business.

Certain statements in this press release may contain forward-looking information within the meaning of applicable securities laws in Canada (forward-looking information). The words "anticipates", "believes", "budgets", "could", "estimates", "expects", "forecasts", "intends", "may", "might", "plans", "projects", "schedule", "should", "will", "would" and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words.  The forward-looking information is based on assumptions that management considered reasonable at the time it was prepared.  The forward-looking information is subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by the forward-looking information.  The factors which could cause results to differ from current expectations are described in the Fund's most recent Management Discussion and Analysis under the heading "Risks and Uncertainties" and the Fund's Annual Information Form under the heading "Risk Factors", available on SEDAR at www.sedar.com.     

Additional information relating to the Fund is available at www.awincomefund.ca.

SOURCE: A&W Revenue Royalties Income Fund

Don Leslie, Chief Financial Officer: [phone] or [email protected]