A&W Revenue Royalties Income Fund adds 23 restaurants to Royalty Pool

TRADING SYMBOL: The Toronto Stock Exchange - AW.UN

  A&W Revenue Royalties Income Fund (the Fund) and A&W Food Services of Canada Inc. (A&W Food Services) announced today that, effective January 5, 2013, the number of A&W restaurants for which royalties are paid to A&W Trade Marks Limited Partnership (the Partnership) will be increased by 29 new restaurants that were opened across Canada between October 2011 and September 2012, less six restaurants that were permanently closed during this period.  The addition of these 23 net new restaurants brings the total number of A&W restaurants in the Royalty Pool to 760. This is the 11th increase in the number of restaurants in the Royalty Pool since the inception of the Fund in 2002.  Since that time, the number of restaurants for which royalties are paid to the Fund (through the Partnership) has increased by 175 restaurants, from 585 to 760.

"We are delighted with the growth of new A&W restaurants across Canada, particularly in Ontario and Quebec.  Our new restaurants further strengthen our position as Canada's second largest burger chain" said Paul Hollands, President and Chief Executive Officer of A&W Food Services.

The estimated annualized sales of the 29 new A&W restaurants being added to the Royalty Pool on January 5, 2013 are $33,057,000 and annual sales for the six permanently closed restaurants were $3,087,000.  The net sales of $29,970,000 from the 23 net new restaurants translate into estimated additional annual royalty payments to the Fund of $899,000 on the basis of the royalty of 3% of sales.  The initial consideration for the estimated additional royalty revenue is $10,875,000, 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 29, 2012, or $21.56. The yield has been adjusted to reflect that income tax is payable by A&W Trade Marks Inc. (Trade Marks).  $8,700,000 or 80% of the consideration will be paid on January 5, 2013 by issuance of 403,510 limited partnership (LP) units which will immediately be exchanged for 807,020 non-voting common shares of Trade Marks.  These additional shares of Trade Marks are exchangeable at the option of A&W Food Services for 403,510 units of the Fund, subject to the approval of the TSX.

The remaining 20% of the consideration or $2,175,000 will be paid by issuance of 100,878 LP units in December 2013.  The actual amount of the consideration paid in December 2013 may differ from this amount depending on the actual annual sales reported by the 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, 2012 have now been determined.  The actual annual sales for the 28 new restaurants added on January 5, 2012 were $30,772,000 compared to the original estimate of $28,663,000.  As a result, the remaining 20% of the initial consideration or $1,713,000 has now been paid to A&W Food Services by issuance of 90,535 LP units.  Additional consideration of $670,000 has also been paid to A&W Food Services in the form of 35,440 LP units, as the actual sales exceeded the original estimate. The 90,535 LP units and additional 35,440 LP units have been exchanged for 251,950 non-voting common shares of Trade Marks.  These additional shares of Trade Marks are exchangeable at the option of A&W Food Services for 125,975 units of the Fund, subject to the approval of the TSX.

After these amendments to the Royalty Pool which resulted 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 16.5% 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 brand.  The Fund's current annual distribution rate is $1.404 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) 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 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 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 Food Services 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 reflecting A&W Revenue Royalties Income Fund's current expectations in the quick service segment of the restaurant food industry in Canada; A&W Food Services' plans to continue to focus on its strategy of making A&W Canada's only authentic better burger restaurants for time-crunched adults, delighting them on every single visit; and A&W Food Services' plans to accelerate its rate of expansion.  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 Revenue Royalties Income Fund