TRADING SYMBOL:  TSX: AW.UN   

VANCOUVER, BC, Oct. 20, 2021 /CNW/ -

  • Same Store Sales Growth(1) was 16.8% for Q3 2021 as compared to Q3 2020.
  • Same Store Sales Growth(1) for the year to date period ended September 12, 2021 was 14.0%.
  • The monthly distribution rate will be increased from 15.0¢ per Unit to 15.5¢ per Unit beginning with the October 2021 distribution that is payable November 30, 2021.

THIRD QUARTER 2021 RESULTS

A&W Revenue Royalties Income Fund (the "Fund") and A&W Food Services of Canada Inc. ("A&W Food Services") today reported results for the third quarter and year to date period ended September 12, 2021.  The Fund will hold a conference call to discuss the results on Wednesday, October 20, 2021 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).  The call can be accessed by dialling toll-free 1-866-248-8441 or (647) 792-1240 Passcode 3277538#.  A replay will be available until October 27, 2021 by dialling toll-free 1-888-203-1112 or (647) 436-0148 Passcode 3277538#.

Same Store Sales(i) for the third quarter of 2021 increased by 16.8% as compared to the same quarter of 2020. Same Store Sales(i) for the 36-week period ended September 12, 2021 increased by 14.0% as compared to the comparable period in 2020.  The growth in Same Store Sales(i) in the quarter was largely fueled by the lifting of COVID-19 related public health restrictions across Canada which led to increased guest counts and a reduction in the number of A&W restaurants that were temporarily closed or were not able to offer dine-in services. As at September 12, 2021, only two restaurants remained temporarily closed. As of today, one of those restaurants remains temporarily closed and is expected to reopen when permitted to do so.

The actions required in 2020 and 2021 in response to COVID-19 have adversely impacted A&W restaurant operations across Canada, particularly for those restaurants located on urban street fronts and in shopping centres. Since the second quarter of 2020 when COVID-19 impacts on A&W were at their peak, the impact of COVID-19 on Same Store Sales(i) has lessened.  There does, however, continue to be uncertainty related to COVID-19 and its impact on our business. It is possible that the number of restaurants temporarily closed increases again as the situation evolves in the next year or other restrictions or requirements are introduced affecting operations, guest counts or sales.

As a result of the performance by restaurants in the Royalty Pool, the monthly distribution to unitholders will increase from 15.0 cents per Unit to 15.5 cents per Unit, beginning with the October distribution which is payable on November 30, 2021. The new distribution rate translates into a go-forward annualized distribution rate of $1.86 per Unit, an increase of 3.3% from the prior level of $1.80 per Unit.

"Although we continue to face challenges related to COVID-19, we are pleased to report strong sales growth for the quarter and are delighted to have almost all of our restaurants back open", said Susan Senecal, President and CEO of A&W Food Services. "We are also pleased that the strong performance of the restaurants in the royalty pool has supported another increase to the Fund's distribution rate."

FINANCIAL RESULTS

(dollars in thousands except per unit
amounts)

Period from

Jun 21, 2021 to
Sep 12, 2021

Period from

Jun 15, 2020 to
Sep 6, 2020

Period from

Jan 1, 2021 to
Sep 12, 2021

Period from

Jan 1, 2020 to 
Sep 6, 2020

Same Store Sales Growth(i)

16.8%

-12.7%

14.0%

-16.5%

Number of restaurants in the Royalty

Pool

994

971

994

971

Gross sales reported by A&W

restaurants in the Royalty Pool(ii)

$409,452

$340,558

$1,070,819

$902,410

Royalty income

$12,284

$10,216

$32,125

$27,072

General and administrative expenses

103

124

405

531

Term loan and other interest (net)

580

444

1,797

1,496

Current income tax provision

2,087

1,447

6,012

4,444

Total distributable cash generated for

distributions and dividends(iii)

$9,514

$8,201

$23,911

$20,601

Distributable cash per equivalent unit

(2021 – 19,132,830 units; 2020 –
18,556,378 units)(iii)(iv) 

$0.497

$0.442

$1.250

$1.110

Distributions and dividends declared

per equivalent unit

$0.435

$0.300

$1.075

$0.618

Net income(v)

$8,896

$7,392

$23,730

$17,180

Net income excluding non-cash

items(v)

$9,218

$7,694

$23,207

$19,126

Notes:

(i) "Same Store Sales" and "Same Store Sales Growth" are calculated as the change in the gross sales reported by A&W restaurants in the Royalty Pool (as defined below) that operated, or were temporarily closed at any point due to COVID-19, during the entire 12-week and 36-week periods ending September 12, 2021 and September 6, 2020 and is based on an equal number of days in each quarter. "Same Store Sales" and "Same Store Sales Growth" are non-IFRS measures – see "Non-IFRS Measures". This important information is provided as it is a key driver of growth in the Fund.  See "Sales Performance".

(ii) "Gross sales reported by A&W restaurants in the Royalty Pool" is calculated in respect of A&W restaurants in Canada in the Royalty Pool (as defined below), as the amount of gross sales reported to Food Services by franchisees of such A&W restaurants in the Royalty Pool without audit, verification or other form of independent assurance and the gross sales of A&W restaurants owned and operated by Food Services in the Royalty Pool, in each case, after deducting amounts for discounts for coupons and other promotional offerings and applicable sales taxes.

(iii) "Distributable cash", "distributable cash per equivalent unit", "total distributions and dividends declared and accrued per equivalent unit" and "payout ratio" are non-IFRS measures.  See "Non-IFRS Measures". This information is provided as it identifies the amount of actual cash generated to pay distributions to unitholders and dividends to Food Services.  See "Distributable Cash" and footnote (iv) below for more information, including a description of how these non-IFRS measures are calculated.

(iv) Equivalent units includes Units of the Fund ("Units") and Limited Voting Units of the Fund ("Limited Voting Units" and together with the Units, the "Trust Units") and common shares of Trade Marks that are exchangeable for Trust Units. The number of equivalent units and distributable cash per equivalent unit in 2021 is calculated on a fully-diluted basis and includes the 116,329 LP units (as hereinafter defined) exchangeable for 232,658 common shares of Trade Marks representing the remaining 20% of the initial consideration for the January 5, 2021 adjustment to the Royalty Pool, which LP units are held back until the number of LP units is determined in December 2021 based on the actual annual sales reported by the new restaurants. See "Adjustment to the Royalty Pool". The number of equivalent units and distributable cash per equivalent unit in Q3 2020 is calculated on a fully-diluted basis and includes 152,965 LP units, exchangeable for 305,930 common shares of Trade Marks representing the remaining 20% of the initial consideration for the January 5, 2020 adjustment to the Royalty Pool but does not include the adjustment to reduce the final consideration by 5,193 LP units, equivalent to 10,386 common shares of Trade Marks, made in December 2020 based on the actual system sales for the A&W Restaurants added to the Royalty Pool as part of the January 5, 2020 adjustment to the Royalty Pool.   

(v) Net income in 2021 and 2020 includes unrealized gains and losses on interest rate swaps, amortization of financing fees and deferred income taxes.  These non-cash items have no impact on the Fund's ability to pay distributions to unitholders.  The Fund's net income excluding these non-cash items is presented for information purposes only.  "Net income excluding non-cash items" is a non-IFRS measure – see "Non-IFRS Measures".

Royalty income for the third quarter of 2021 was $12,284,000 based on gross sales reported by restaurants in the Royalty Pool(ii) of $409,452,000, compared to royalty income of $10,216,000 and gross sales reported by A&W restaurants in the Royalty Pool(ii) of $340,558,000 for the third quarter of 2020. Year to date royalty income for 2021 was $32,125,000 based on gross sales reported by restaurants in the Royalty Pool(ii) of $1,070,819,000, compared to royalty income of $27,072,000 and gross sales reported by A&W restaurants in the Royalty Pool(ii) of $902,410,000 for the comparable period in 2020. The increase in royalty income and gross sales for the quarter and year to date is driven by the increase in Same Store Sales(i) and the additional net 23 new restaurants added to the Royalty Pool on January 5, 2021.  The five additional days in the year to date period for fiscal 2021, as compared to the year to date period for fiscal 2020, also contributed to the year to date increase in royalty income.

General and administrative expenses for the third quarter of 2021 decreased by $21,000 to $103,000 from $124,000 for the third quarter of 2020.  Year to date general and administrative expenses were $405,000 compared to $531,000 for the comparable period in 2020. The decrease in general and administrative expenses in 2021 is primarily attributable to additional costs incurred in 2020 for special meetings and advisory services related to COVID-19 that were non-recurring in 2021.

Term loan and other interest (net) was $580,000 for the third quarter of 2021, $136,000 higher compared to the third quarter of 2020.  Year to date term loan and other interest (net) increased by $301,000. The increase in the quarter and year to date period is primarily due to a higher effective interest rate on the term loan and interest income on deferred royalties of $105,000 that was recognized in the comparative quarter and year to date period ended September 6, 2020. Interest rate swap agreements are used to manage risks from fluctuations in interest rates and facilitate uniform monthly distributions when paid.

Current income taxes payable increased by $640,000 for the quarter and increased by $1,568,000 year to date. Total income tax including current tax, non-cash deferred income tax and refundable income tax increased by $114,000 for the quarter and increased by $675,000 in the year to date period. The increase in total income tax for the quarter and year to date period is driven by the increase in net income before income taxes, partially offset by a decrease in refundable income tax due to the Fund paying more distributions in 2021 as compared to the comparable periods in 2020. The year to date increase in net income before taxes is driven by an increase in royalty income and a $2,347,000 year-over-year positive variance in the fair value adjustment on interest rate swaps.

The Fund's net income under International Financial Reporting Standards (IFRS) includes non-cash items, such as the fair value adjustment of the interest rate swap, that have no impact on the Fund's ability to pay distributions to unitholders. Therefore, net income is not the only or most meaningful measure of the Fund's ability to pay distributions and consequently, non-IFRS measures of "distributable cash", "distributable cash per equivalent unit", "total distributions and dividends declared and accrued per equivalent unit" and "payout ratio" are reported to provide investors with more meaningful information. The payout ratio is calculated by dividing total distributions and dividends declared and accrued per equivalent unit, by the distributable cash per equivalent unit generated in that period. 

The Fund's net income for the third quarter of 2021 was $8,896,000 compared to $7,392,000 for the third quarter of 2020. Year to date 2021 net income was $23,730,000 compared to $17,180,000 for the comparable period in 2020. The $6,550,000 year to date increase in net income was a result of the $5,053,000 increase in royalty income, the $2,347,000 positive variance on the unrealized gain (loss) on the interest rate swap and the $126,000 decrease in general and administrative expenses, less the $675,000 increase in total income tax expense and the $301,000 increase in net interest expense.

Distributable cash per equivalent unit increased by 5.5¢ to 49.7¢ per Unit in the third quarter of 2021 from 44.2¢ per Unit for the third quarter of 2020. Year to date distributable cash per equivalent unit increased by 14.0¢ to $1.250 per Unit for 2021 from $1.110 per Unit for the comparable period in 2020. The increase in distributable cash per equivalent unit is a result of the increase in distributable cash discussed above, partially offset by the increase in the number of equivalent units.

Three monthly distributions totaling 43.5¢ per Unit were declared in the third quarter of 2021 compared to three monthly distributions totaling 30.0¢ per Unit in the third quarter of 2020. Eight monthly distributions totaling $1.075 per Unit were declared in the 2021 year to date period compared to five monthly distributions totaling 61.8¢ per Unit for the comparable period in 2020. No monthly distributions were declared in the second quarter of 2020 as the Trustees had temporarily suspended monthly distributions on the Units commencing with the March 2020 distribution that would ordinarily have been declared in April 2020. The Trustees approved the resumption of monthly distributions on July 7, 2020 commencing with the June distribution of 10¢ per Unit that was paid on July 31, 2020 to unitholders of record as of the close of business on July 15, 2020. Total distributions declared and accrued per equivalent unit year to date were $1.170 for 2021 compared to 69.5¢ for the comparable period in 2020.

The current monthly distribution rate of 15.0¢ per Unit translates to an annualized distribution of $1.80 per Unit. Due to the performance by restaurants in the Royalty Pool, the monthly distribution to unitholders will increase from 15.0¢ per Unit to 15.5¢ per Unit beginning with the October distribution which is payable on November 30, 2021. The new distribution rate translates into a go-forward annualized distribution rate of $1.86 per Unit, an increase of 3.3% from the prior level of $1.80 per Unit.

The payout ratio for the third quarter of 2021 was 77.5% compared to 60.6% for the same quarter of 2020. The year to date payout ratio for 2021 was 93.6% compared to 62.6% for the comparable period in 2020. The cumulative surplus of distributable cash on reserve at the end of the third quarter of 2021 was $10,591,000, compared to a cumulative surplus of distributable cash on reserve of $8,967,000 at the beginning of the year, an increase of $1,624,000

CREDIT FACILITY RENEWAL AND EXTENSION

Trade Marks has a $60,000,000 term loan, $2,000,000 demand operating loan and an interest rate swap facility (collectively the "Credit Facility") with HSBC Bank Canada (the "Bank"). On September 10, 2021, the Credit Facility was renewed and extended for an additional five years on terms and conditions substantially consistent with those of the previous Credit Facility. On September 10, 2021 Trade Marks also entered into a forward start interest rate swap with a notional value of $60,000,000, effective date of December 22, 2022 and a maturity date of September 10, 2026.

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 gross sales reported by A&W restaurants in the Royalty Pool(ii)

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 limited partnership units ("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 common shares of Trade Marks which are exchangeable for Trust Units.  The 19th annual adjustment to the Royalty Pool took place on January 5, 2021 at which time the number of restaurants in the Royalty Pool increased from 971 to 994.   

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.

ABOUT A&W FOOD SERVICES
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®.

CONTACT

Follow A&W on Facebook (www.facebook.com/AWCanada) and Twitter @AWCanada or visit www.awincomefund.ca.

Non-IFRS Measures

The Fund believes that disclosing certain non-IFRS financial measures provides readers of this news release with important information regarding the Fund's financial performance and its ability to pay distributions to Unitholders. By considering these measures in combination with the most closely comparable IFRS measure, if any, the Fund believes that readers are provided with additional and more useful information about the Fund than readers would have if they simply considered IFRS measures alone.

The Fund uses "Same Store Sales Growth", "distributable cash", "distributable cash per equivalent unit", "total distributions and dividends declared and accrued per equivalent unit", "payout ratio" and "net income, excluding non-cash items" as non-IFRS measures in this news release. These measures do not have a standardized meaning prescribed by IFRS and the Fund's method of calculating these measures may differ from those of other issuers or companies and may not be comparable to similar measures used by other issuers or companies. For further details, including how such measures are calculated by the Fund see "Financial Results" above and for reconciliations of certain of these non-IFRS measures to the most closely comparable IFRS measure, see the Fund's MD&A for the third quarter ended September 12, 2021, which will be filed on SEDAR at www.sedar.com in due course. 

Forward-Looking Information

Certain statements in this press release may contain forward-looking information within the meaning of applicable securities laws in Canada (forward-looking information). The words "anticipates", "believes", "budgets", "could", "estimates", "expects", "forecasts", "intends", "may", "might", "plans", "projects", "schedule", "should", "will", "would" and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words.  Specific forward-looking statements include statements with respect to: the expectation that the monthly distribution rate will be increased from 15.0 cents per Unit to 15.5 cents per Unit beginning with the October 2021 distribution that is payable November 30, 2021; the expectation that the currently closed A&W restaurant will reopen when able to do so; and the impact of COVID-19, including its impact on store closures, on the global economy in general and on the businesses of A&W Food Services and the A&W franchisees in particular. The forward-looking information is based on assumptions that management considered reasonable at the time it was prepared, which assumptions include: current store closures will be temporary and restaurant performance will continue to improve; the Fund will receive sufficient revenue in the future (in the form of royalty payments from A&W Food Services) to maintain monthly distributions; the projections for the A&W business and the Fund provided by A&W Food Services are accurate; no material changes will occur in the quick service restaurant burger market including as a result of changes in consumer taste or health concerns or changes in economic conditions or unemployment, the COVID-19 pandemic or a disease outbreak; and the impacts of COVID-19 on the A&W system will not significantly worsen. The forward-looking information is subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by the forward-looking information.  Those risks and uncertainties include, among other things, risks related to: the impacts of  COVID-19 on the Canadian economy, the QSR industry, the willingness of the general public to dine outside their homes and travel, all of which have negatively impacted A&W Food Services and the Fund and have or may, as applicable, adversely affect each of A&W Food Services', their franchisees' and the Fund's respective investments, results of operations, and financial condition; A&W Food Services may become liable for the lease obligations of certain of its franchisees, if such franchisees default on their leases, and such obligations may be significant and A&W Food Services may be unsuccessful in seeking recovery from such franchisees, all of which may adversely affect A&W Food Services' investments, results of operations and financial condition; A&W Food Services' projections may be inaccurate, and do not represent a financial forecast and actual results may differ materially from those anticipated by the projections; monthly distributions are not guaranteed and may be reduced, suspended or terminated at any time; the current sales improvement trends of the A&W restaurants in the Royalty Pool may not continue and may slow or regress; the A&W restaurant that is currently temporarily closed may not reopen; government restrictions related to COVID-19 may have their durations extended, or may be reinstated, in the case of those that have recently been lifted, which measures may restrict the ability of A&W restaurants to operate, or result in forced closures, further reduced guest traffic, supply interruptions or staff shortages; and, government programs expected to be helpful to A&W Franchisees may not be available to some franchisees, and may not be available in amounts expected for those franchisees for which such programs are available and may be terminated at any time, and following the termination of such programs, or the reduction of amounts available under such programs, franchisees currently receiving support under those programs may need to find alternative sources of financial support and may make requests for such support from, among other parties, A&W Food Services. Additional factors which could cause results to differ from current expectations are described in the Fund's most recent Management Discussion and Analysis under the heading "Risks and Uncertainties" and the Fund's Annual Information Form under the heading "Risk Factors", available on SEDAR at www.sedar.com. The forward-looking information contained in this news release represents the Fund's expectations as of the date of this news release, and are subject to change after this date. 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

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