VANCOUVER, BC, Dec. 11, 2020 /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, 2021, the number of A&W restaurants for which royalties are paid to A&W Trade Marks Limited Partnership (the Partnership) will be increased by 34 new restaurants that were opened across Canada between September 6, 2019 and September 3, 2020, less 11 restaurants that were permanently closed between November 4, 2019 and November 1, 2020. The addition of these 23 net new restaurants brings the total number of A&W restaurants in the Royalty Pool to 994. 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 409 restaurants, from 585 to 994.
"We are very pleased to be adding 23 net new A&W restaurants to the Royalty Pool" said Susan Senecal, President and Chief Executive Officer of A&W Food Services. "A&W Food Services continues to successfully expand with new restaurants across Canada. We are delighted with this pace of growth, particularly in Ontario and Quebec which are our most important growth markets."
The estimated annualized sales of the 34 new A&W restaurants being added to the Royalty Pool on January 5, 2021 are $45,248,000 and annual sales for the 11 permanently closed restaurants were $6,199,000. The net estimated annualized sales of $39,049,000 from the 23 net new restaurants translate into estimated net additional annual royalty payments to the Fund of $1,171,000 on the basis of the royalty of 3% of sales. The consideration for the estimated net additional royalty revenue is $13,270,000, 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 based on the weighted average trading price of the units of the Fund for the 20 trading days ending October 26, 2020, or $28.52. The yield has been adjusted to reflect income tax payable by A&W Trade Marks Inc. (Trade Marks). This consideration will be paid on January 5, 2021 by issuance of 465,316 limited partnership units of the Partnership (LP units), which will immediately be exchanged for 930,632 non-voting common shares of Trade Marks. These additional shares of Trade Marks are exchangeable at the option of A&W Food Services for 465,316 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 2021. The actual amount of the consideration to be paid, and the number of LP units to be issued, in December 2021 will be determined based on the actual annual sales reported by the 34 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, 2020 have now been determined. The actual annual sales for the 44 new restaurants added on January 5, 2020 were $65,533,000 compared to the original estimate of $65,953,000, resulting in total consideration of $28,881,000 payable to A&W Food Services. The total consideration payable to A&W Food Services is slightly less than the original estimate of $29,079,000, 20% of which estimated consideration was withheld pending the determination of the actual sales for the 44 new restaurants. As a result, the remaining consideration of $5,618,000 has now been paid to A&W Food Services by issuance of 147,772 LP units at a price of $38.02 per unit. The 147,772 LP units have been exchanged for an aggregate of 295,544 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 147,772 limited voting units of the Fund, subject to the approval of the TSX.
As a result of the increase in the royalties paid to the Partnership by A&W Food Services, Trade Marks also declared and paid a special dividend of $165,000 to A&W Food Services. This amount represents the amount of the distributions of the Fund that would have been indirectly received by A&W Food Services had the 295,544 non-voting common shares of Trade Marks been issued to A&W Food Services on January 5, 2020.
After the amendment to the Royalty Pool on January 5, 2021, 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 26.0% of the voting securities 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 annualized distribution rate is $1.20 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) is entitled to royalties equal to 3% of the sales of A&W restaurants in the Royalty Pool. The Royalty Pool is adjusted annually to reflect gross sales from new A&W restaurants, net of the gross sales of any A&W restaurants that have permanently closed. Additional 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 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; the amount and timing of the payment for the remaining consideration payable to A&W Food Services for the net new royalty revenue from the 23 net new 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 risk factors that could affect the Fund's financial results are detailed in the most recent Annual Information Form and Management's Discussion and Analysis of the Fund, filed on SEDAR at www.sedar.com. 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