- Published: 15 December 2008
- Written by Editor
A&W Revenue Royalties Income Fund adds nine restaurants to Royalty Pool
A&W Revenue Royalties Income Fund (the "Fund") and A&W Food Services of Canada Inc. ("Food Services") announced today that, effective January 5, 2009, the number of A&W restaurants for which royalties are paid to A&W Trade Marks Inc. ("Trade Marks") will be increased by 17 new restaurants opened across Canada between October 2007 and September 2008, less eight restaurants that were permanently closed during this period. The addition of these nine net new restaurants brings the total number of A&W restaurants in the Royalty Pool to 685.
This is the seventh increase in the number of restaurants in the Royalty Pool since the launch of the Fund in February 2002. Since that time, the number of restaurants for which royalties are paid to the Fund (through Trade Marks) has increased by 100 restaurants, from 585 to 685.
"We continue to be pleased with the growth of new A&W restaurants across Canada" said Paul Hollands, President and Chief Executive Officer of Food Services. "The growth in both the number of restaurants and our overall sales is a testament to the strength of the A&W brand."
The estimated annualized sales of the 17 new A&W restaurants being added to the Royalty Pool are $19,664,000 and annual sales for the eight permanently closed restaurants were $4,415,000. The net sales of $15,249,000 from the nine net new restaurants translate into estimated additional annual royalty payments to the Fund of $457,000 on the basis of the royalty of 3% of sales. The consideration paid by Trade Marks to Food Services for the additional royalty revenue is $3,513,000, 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 27, 2008, or $11.39. The consideration is paid by issuance to Food Services of 308,419 Class B and 308,419 common shares of Trade Marks which together can be exchanged at the option of Food Services for units of the Fund. The ability of Food Services to exchange these shares of Trade Marks for units of the Fund is subject to the approval of the TSX.
A final adjustment to the number of shares issued will be made in December 2009 based upon the actual annual sales of the new restaurants. Until then, twenty percent of the shares will be held in escrow.
In addition, the actual sales of the new restaurants added to the Royalty Pool on January 5, 2008 have now been determined. The actual annual sales for the 52 weeks ended November 2, 2008 for the 23 new restaurants added on January 5, 2008 were $24,716,000 compared to the original estimate of $23,156,000. As a result, the 90,092 shares held in escrow will now be released to Food Services and, due to the sales exceeding the original estimate, additional consideration of $449,000 is payable to Food Services in the form of 33,591 Class B and 33,591 common shares of Trade Marks.
After these amendments to the Royalty Pool, Food Services will receive a proportionate increase in monthly dividends from Trade Marks, and will own the equivalent of 41.5% 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 restaurant business. The Fund's current annual distribution rate is $1.272 per unit.
About the Fund
The source of revenue for the Fund is through its ownership interest in Trade Marks which owns the A&W trade-marks and, under a Licence and Royalty Agreement entered into February 15, 2002 between Food Services and Trade Marks, licenses these trade-marks to Food Services for use in operating and franchising A&W restaurants. In return, Food Services pays Trade Marks a top-line royalty of 3% of sales from 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. Trade Marks pays Food Services for the additional net new restaurants in the form of additional Class B and common shares of Trade Marks, based upon a formula set out in the licence agreement. These annual adjustments to the Royalty Pool are required under the licence agreement.
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. 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 Food Services of Canada Inc.
SOURCE: A&W Revenue Royalties Income Fund