TRADING SYMBOL:  The Toronto Stock Exchange - AW.UN

• Weather hits March sales, resulting in -3.0% same store sales for the quarter
• Distributions for the quarter up 2.2 cents (10%) from Q1, 2010

VANCOUVER, May 3 /CNW/ - A&W Revenue Royalties Income Fund (the Fund) reported today results for the first quarter ended March 27, 2011.  The Fund will hold a conference call to discuss first quarter results on Tuesday, May 3, 2011 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).  The call can be accessed by dialling toll-free 1-800-814-4861 or (416) 644-3418.  A replay will be available until May 16, 2011, by dialling toll-free 1-877-289-8525 or (416) 640-1917 Passcode: 4436716#.

Over the last 9 years since its inception, the Fund has focused on providing unitholders with a strong return with increasing distributions.  When the Fund was launched in 2002, distributions were set at $1.08 per unit per year.  With the growth in same store sales, these distributions have grown steadily.  The imposition of the SIFT tax on income trusts in January 2011 had a significant impact on all income trusts.  Consistent with our intention to maximize unitholder value, several important initiatives were undertaken last year to mitigate the impact on the Fund and our unitholders.  First, the decision was made to retain the trust structure because with some minor modifications it offered the most tax effective structure for unitholders.  Second, debt was added to the balance sheet of the Fund's subsidiary to buy back units of the Fund under the substantial issuer bid, creating a more efficient overall capital structure and further enhancing distributions to unitholders.  As a result of these changes, we were pleased that in the first quarter this year, we were able to increase the annual distribution rate to $1.404, while other trusts were cutting distributions due to the impact of the new SIFT tax.  This is a very important set of developments for the Fund and for our unitholders.

In terms of sales performance, after a January and February where sales were similar to last year, March 2011 proved to be one of the most challenging months that the business has faced in many years.  There were several factors which impacted same store sales.  The first was an unusually long and severe winter in Canada which negatively impacted the sales in freestanding restaurants. The second major impact was the Harmonized Sales Tax (HST) in British Columbia.  Since it was introduced in July 2010, the HST, which increased the amount of tax on restaurant meals by 7%, has reduced customer spending in restaurants in BC.  As a result of the difficult operating environment in March, same store sales for the quarter declined by 3%, the first negative same store sales in 30 consecutive quarters.

"While we were challenged in the first quarter, we are pleased that we were able to increase distributions to our unitholders earlier this year in the face of the SIFT tax on income trusts.  We are also delighted with the early results from the Prime Rib Grandma Burger, the first hamburger in the Canadian marketplace that features a beef patty made from 100% prime rib.  Response from customers has been very positive" said Paul Hollands, President and Chief Executive Officer of A&W Food Services of Canada Inc. (A&W Food Services).  "In responding to this generally challenging market environment, we have introduced aggressive promotional programs and activities, especially in the BC market."

Total sales reported by restaurants in the Royalty Pool decreased by 2.6% to $167.2 million compared to $171.7 million in the same quarter of 2010.  The increase in sales resulting from the increase in the number of restaurants in the Royalty Pool from 700 to 715 was offset by the negative same store sales growth.

Financial Highlights

⁽¹⁾ Same store sales growth is not an earnings measure recognized by generally accepted accounting principles (GAAP) 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 generally accepted accounting principles ("GAAP") and therefore may not be comparable to similar measures presented by other issuers.  This information is provided as it identifies the amount of actual cash available to pay distributions to unitholders and dividends to A&W Food Services.

Financial Results
The financial results for the first quarter reflect two important changes from previous years.  The first is the payment of taxes for the first time since the inception of the Fund in 2002.  The second change is the interest cost associated with the debt introduced for the substantial issuer bid, which was undertaken to enhance distributable cash per unit.

Royalty income for the quarter was $5,017,000, representing a slight decrease of $133,000 or 2.6% compared to the same quarter in 2010.  This decrease in royalty income was driven by the negative same store sales growth, offset by the impact of the increase in the number of restaurants in the Royalty Pool to 715 in 2011 from 700 in 2010.

Cash expenses, interest and taxes increased by $931,000 due to the increase in A&W Trade Marks Inc.'s (Trade Marks) term loan from $10 million to $60 million to buy back Fund units for cancellation under the Fund's substantial issuer bid in December last year.  In addition, Trade Marks' earnings are now subject to income taxes at 18%.   

Distributable cash generated to pay distributions to unitholders and dividends to A&W Food Services decreased to $3,581,000 compared to $4,645,000 for the first quarter of 2010.  The number of equivalent units decreased from 14,722,901 units in the first quarter of 2010 to 12,501,731 units in the first quarter of 2011, due to the substantial issuer bid in December 2010 which resulted in the Fund purchasing for cancellation 2,500,000 units.  Distributable cash per equivalent unit decreased to 28.5¢ from 31.6¢.  The income taxes payable for the first quarter were 3.4¢ per unit.

The monthly distribution rate was increased to 11.7¢ per unit from 10.6¢ per unit effective with the distribution for the month of January 2011 which was paid on February 28, 2011.  Total distributions of 23.4¢ per unit were declared in the quarter.  The new monthly distribution rate of 11.7¢ per unit translates into an annualized distribution of $1.404 per unit.  The cumulative surplus of distributable cash at the end of the quarter was $2,353,000, compared to a cumulative surplus of $2,971,000 at the end of 2010.

Outlook
The HST in British Columbia and continued unsettled economic conditions are expected to continue to impact restaurant sales for some time to come.  In response, A&W has moved to respond aggressively with promotional programs and activities, while at the same time focusing on the key strategic priorities which build long term competitive advantage.

A&W's strategic focus is on the growing "premium burger" market, its most powerful differentiator from the competition.  Building on innovations like the Sirloin Uncle Burger, the Mini Sirloin Twins and the Spicy Mama Burger, A&W recently introduced its newest member of the Burger Family, the Prime Rib Grandma Burger.

Another strategic initiative underway is A&W's "next generation" re-image program, to modernize and enhance the appeal of A&W restaurants.  Twenty-four restaurants have re-imaged to this new design to date.  Costs of re-imaging restaurants are borne by the franchisees and there is no cost to the Fund.

A&W's strategy also includes accelerating the pace of growth of new restaurants, particularly in the key Ontario market.  A&W has now entered into Multi-Site Development Agreements for a total of 145 new restaurants to be built over the coming years.  A&W opened 5 new restaurants in the first quarter of 2011.

A&W is a strategy driven company whose mission is "to make A&W the number one national burger choice for baby boomers and the fastest growing and most successful burger businesses in Canada."  A&W plans to continue to focus on building the A&W brand through successful advertising and marketing campaigns, menu innovation, facilities design and expanding to serve customers in new markets.

International Financial Reporting Standards (IFRS)
IFRS became effective January 1, 2011, therefore the Fund's and Trade Marks' interim financial statements for the first quarter of 2011 will be their first financial statements prepared using IFRS.  The Canadian Securities Administrators have extended the filing deadline by 30 days for a company's first IFRS interim financial reports, to assist management in meeting their continuous disclosure requirements under IFRS, and to provide Trustees and audit committees time to review and approve the first interim filing under IFRS.  Therefore, the Fund's financial statements and management discussion and analysis and A&W Food Services' financial statements for the first quarter will be available on www.sedar.com and www.awincomefund.ca on or before June 14, 2011.  For a complete description of the impact of IFRS on the Fund, please see the Fund's management discussion and analysis filed on www.sedar.com for the year ended December 31, 2010. 

Overview
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 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 will be exchanged for additional shares of Trade Marks which are exchangeable for units of the Fund.  A&W Food Services currently owns 10% of the common shares of Trade Marks, and therefore currently owns the equivalent of 10% 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 report may be forward-looking in nature.  These include references to liquidity, subordinated dividends, earnings and anticipated earnings from growth in same store sales and new restaurant openings, A&W Food Services' plans to introduce aggressive promotional programs and activities, especially in the BC market; A&W Food Services' plans to continue to focus on its strategic goals and develop promotional programs and activities; A&W Food Services' plans to focus on the growing "premium burger" market; A&W Food Services' plans to accelerate the pace of growth of new restaurants, particularly in the key Ontario market; A&W Food Services' strategy to "make A&W the number one national burger choice for baby boomers and the fastest growing and most successful burger businesses in Canada:, A&W Food Services' plans to build the A&W brand through advertising and marketing campaigns, menu innovation, facilities design and expanding to serve customers in new markets; and A&W Food Services' plans to modernize and enhance the appeal of its restaurants.  Actual results may differ materially from those expressed or implied in these forward-looking statements.  The forward-looking statements are based on assumptions that management considered reasonable at the time they were prepared.  These forward-looking statements are subject to a number of risk factors, including the ability of A&W Food Services to implement its strategy, implement marketing and promotional programs and activities, focus on the growing "premium burger" market, accelerate the pace of growth of new A&W restaurants, modernize and enhance the appeal of A&W restaurants; general economic and business conditions, unemployment, harmonization of sales taxes, financial and political instability, and other factors disclosed previously and from time to time in the Fund's public filings.

Additional information relating to the Fund is on SEDAR at www.sedar.com and on the Fund's website at www.awincomefund.ca.