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.
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 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®.
Forward-Looking Statements
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
