A&W REVENUE ROYALTIES INCOME FUND ANNOUNCES THIRD QUARTER 2024 RESULTS

TRADING SYMBOL: TSX: AW.UN   

VANCOUVER, BC, Oct. 15, 2024 /CNW/ -

• Royalty income increased by 0.3% in Q3 2024 and 0.9% year to date, as compared to the comparable periods in 2023.
• Royalty Pool Same Store Sales Growth⁽ⁱ⁾ was -1.0% for Q3 2024 and nil year to date.
• The Fund and Food Services entered into a combination agreement on July 21, 2024 pursuant to which Food Services will be amalgamated with certain holding companies to form a new publicly-traded company ("A&W Food Services NewCo") and will acquire all of the Fund's Trust Units (the "Transaction") for consideration of cash, common shares of A&W Food Services NewCo, or a combination of both. The Transaction is structured as a statutory plan of arrangement under the Canada Business Corporations Act.
• On October 8, 2024, the Fund's unitholders ("Unitholders") approved the Transaction.
• On October 11, 2024, the Ontario Superior Court of Justice (Commercial List) issued a final order approving the Transaction.
• The Transaction will be effective on October 17, 2024, subject to the satisfaction or waiver of certain customary closing conditions.

THIRD QUARTER 2024 RESULTS

A&W Revenue Royalties Income Fund (the "Fund") and A&W Food Services of Canada Inc. ("A&W Food Services or "A&W") today reported the Fund's results for the third quarter ended September 8, 2024.

"With 19 new A&W restaurants opened in the first three quarters of 2024 and 20 additional restaurants under construction at the end of the quarter, we are pleased with the pace at which Food Services has been able to expand the A&W brand across Canada so far this year," said Susan Senecal, President and CEO of A&W Food Services. "The number of A&W restaurants opened in the first three quarters of 2024 puts Food Services on track to exceed the annual number of new restaurants opened in the years since the onset of the COVID-19 pandemic, which disrupted businesses across Canada and slowed down the pace of A&W's expansion".

Royalty income for the third quarter of 2024 was $13,742,000 based on Gross sales reported by restaurants in the Royalty Pool⁽ⁱ⁾ of $458,078,000, compared to royalty income of $13,705,000 and Gross sales reported by A&W restaurants in the Royalty Pool⁽ⁱ⁾ of $456,842,000 for the third quarter of 2023. Year to date royalty income was $38,260,000 based on gross sales reported by restaurants in the Royalty Pool⁽ⁱ⁾ of $1,275,348,000, compared to royalty income of $37,917,000 and gross sales reported by restaurants in the Royalty Pool⁽ⁱ⁾ of $1,263,908,000 for the comparable period in 2023.

The increase in royalty income is driven by the 10 net new restaurants added to the Royalty Pool on January 5, 2024. The increase in the year to date period was partially offset by there being one less day in Q1 2024 than in Q1 2023.

Royalty Pool Same Store Sales Growth is a function of changes in guest counts and check size, which are impacted by party size, menu prices and menu mix and changes in consumers discretionary spending. The Royalty Pool Same Store Sales Growth⁽ⁱ⁾ of -1.0% for the third quarter and nil year to date primarily results from a decrease in guest counts partially offset by an increase in average check size due in part to industry-wide inflation on goods, services, and labour. The decrease in guest counts reflects A&W's proportionate share of an overall decline in traffic at burger quick service restaurants ("QSR") across Canada. Food Services believes the decline in traffic at A&W restaurants and burger QSR more generally is attributable to increased interest rates and inflation, along with market uncertainty, which have impacted consumer discretionary spending. In response to these economic conditions, Food Services continues to seek new and innovative ways to offer A&W's guests a delicious and affordable experience and in turn increase guest traffic.

Full quarterly results are expected to be filed today on SEDAR+ at www.sedarplus.ca.

Strategic Combination of the Fund and A&W Food Services

The Fund and Food Services entered into the Combination Agreement on July 21, 2024 whereby Food Services will be amalgamated with certain holding companies to form A&W Food Services Newco, a new publicly-traded company, and will acquire all of the Fund's Trust Units. The Transaction is structured as a statutory plan of arrangement under the Canada Business Corporations Act.

On October 8, 2024, a special meeting of the Unitholders was held, and the Transaction was approved by Unitholders.

On October 11, 2024, the Ontario Superior Court of Justice (Commercial List) issued a final order (the "Final Order") approving the plan of arrangement under the Canada Business Corporations Act in respect of the Transaction.

Completion of the Transaction remains subject to the satisfaction or waiver of certain customary closing conditions. In accordance with the Final Order, the Transaction will become effective after the close of business on October 17, 2024 (the "Effective Date"), subject to the terms and conditions of the combination agreement in respect of the Transaction, all of which have been or are expected to be satisfied by or on such date, and the filing of articles of arrangement in respect of the Transaction. The common shares of A&W Food Services NewCo have been conditionally approved for listing on the Toronto Stock Exchange ("TSX"), subject to fulfilling all of the requirements of the TSX. Subject to the approval of the TSX, it is expected that (a) the Fund's Trust Units will be delisted from the TSX after the close of business on the Effective Date, (b) the common shares of A&W Food Services Newco will be listed (but not yet posted for trading) on the TSX after the close of business on the Effective Date, and (c) the common shares of A&W Food Services Newco will be posted and begin trading on the TSX at the open of business on the business day immediately following the Effective Date, being October 18, 2024, under the symbol "AW".

For further information regarding the Transaction, please refer to the Fund's management information circular dated August 29, 2024 available on the Fund's SEDAR+ profile at www.sedarplus.ca.

Conference Call

The Fund will hold a conference call to discuss the results and the combination with A&W Food Services on Tuesday, October 15, 2024 at 12:00 p.m. Pacific Time (3:00 p.m. Eastern Time).

The call will be webcast live and may be accessed at https://events.q4inc.com/attendee/780817360. Participants who wish to ask questions or are unable to join via webcast may dial-in by calling toll-free 1-800-579-2543 or 1-785-424-1789 and by quoting the conference ID "AWRRIF" when prompted by the operator. For those unable to participate in the live call, a replay will be made available for one year at https://events.q4inc.com/attendee/780817360.

FINANCIAL RESULTS

(dollars in thousands except per unit amounts)	Period from Jun 17, 2024 to Sep 8, 2024	Period from Jun 19, 2023 to Sep 10, 2023	Period from Jan 1, 2024 to Sep 8, 2024	Period from Jan 1, 2023 to Sep 10, 2023
Royalty Pool Same Store Sales Growth(i)	-1.0 %	1.1 %	0.0 %	3.0 %
Number of restaurants in the Royalty      Pool	1,047	1,037	1,047	1,037
Gross sales reported by A&W restaurants      in the Royalty Pool(i)	$458,078	$456,842	$1,275,348	$1,263,908
Royalty income	$13,742	$13,705	$38,260	$37,917
General and administrative expenses	$189	$134	$578	$509
Term loan and other interest (net)	$222	$272	$777	$872
Current income tax provision	$1,881	$2,223	$7,250	$7,256
Distributable cash generated(ii)	$8,990	$11,076	$27,195	$29,280
Number of equivalent units(iii)	20,655,650	20,368,874	20,655,650	20,368,874
Distributable cash per equivalent unit(iv)	$0.435	$0.544	$1.317	$1.437
Distributions and dividends declared per      equivalent unit(iv)	$0.480	$0.480	$1.280	$1.280
Distributions and dividends declared and      accrued per equivalent unit(iv)	$0.441	$0.442	$1.322	$1.331
Payout ratio(iv)	101.4 %	81.3 %	100.4 %	92.6 %
Net cash generated from operating      activities	$11,215	$10,077	$30,789	$21,628
Net income(v)	$9,526	$10,636	$28,176	$29,502

(i) "Royalty Pool Same Store Sales Growth" and "Gross sales reported by A&W restaurants in the Royalty Pool" are non-IFRS supplementary financial measures. See the "Non-IFRS Measures" section of this news release.

(ii) "Distributable cash generated" is a non-IFRS financial measure. Refer to the table below for a reconciliation of this measure to the most comparable IFRS measure and the "Non-IFRS Measures" section of this news release.

(iii) Equivalent units include units ("Units") and limited voting units of the Fund (together with the Units, the "Trust Units") and common shares of A&W Trade Marks Inc. ("Trade Marks") that are exchangeable for Trust Units. The number of equivalent units in 2024 is calculated on a fully-diluted basis and includes the 54,507 limited partnership units (the "LP units") that are exchangeable for 109,014 common shares of Trade Marks representing the remaining 20% of the initial consideration for the January 5, 2024 adjustment to the Royalty Pool, which LP units are held back until the number of LP units is determined in December 2024 based on the actual annual sales reported by the new restaurants. The number of equivalent units in 2023 is calculated on a fully-diluted basis and includes 95,092 LP units, exchangeable for 190,184 common shares of Trade Marks representing the remaining 20% of the initial consideration for the January 5, 2023 adjustment to the Royalty Pool but does not include the adjustment to increase the final consideration by 14,240 LP units, equivalent to 28,480 common shares of Trade Marks, made in December 2023 based on the actual system sales for the A&W Restaurants added to the Royalty Pool as part of the January 5, 2023 adjustment to the Royalty Pool.

(iv) "Distributable cash per equivalent unit", "Distributions and dividends declared per equivalent unit" and "Payout ratio" are non-IFRS ratios. See the "Non-IFRS Measures" section of this news release.

(v) Net income 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 following table provides a reconciliation of "Distributable cash generated" to "Net cash generated from operating activities", the most comparable IFRS measure, for the periods indicated.

(dollars in thousands)	Period from Jun 17, 2024 to Sep 8, 2024	Period from Jun 19, 2023 to Sep 10, 2023	Period from Jan 1, 2024 to Sep 8, 2024	Period from Jan 1, 2023 to Sep 10, 2023
Net cash generated from operating      activities	$11,215	$10,077	$30,789	$21,628
Term loan and other interest (net)	(222)	(272)	(777)	(872)
Current income tax provision	(1,881)	(2,223)	(7,250)	(7,256)
Net changes in items of non-cash      working capital	29	136	631	964
Interest paid	1	488	3	962
Interest received	(691)	(130)	(493)	(334)
Income tax paid	2,999	3,000	6,752	14,188
Capitalized Transaction costs	(2,460)	-	(2,460)	-
Distributable cash generated	$8,990	$11,076	$27,195	$29,280

Three monthly distributions totalling 48.0¢ per Unit were declared in the third quarter of both 2024 and 2023. Eight monthly distributions totalling $1.280 per Unit were declared in both the 2024 and 2023 year to date periods. Total distributions declared and accrued per equivalent unit year to date were $1.322 for 2024 compared to $1.331 for the comparable period in 2023.

The Payout ratio^(iv) for the third quarter of 2024 was 101.4% compared to 81.3% for the third quarter of 2023. The year to date Payout ratio^(iv) for 2024 was 100.4% compared to 92.6% for the comparable period in 2023. The Fund's long-term objective is to maintain an annual Payout ratio at or below 100%; however, as the Fund strives to provide Unitholders with regular monthly distributions, and as a result of fluctuations in sales, the timing of current income taxes and non-recurring costs that impact the amount of Distributable cash generated, the Fund can experience fluctuations in its Payout ratio. The Payout ratio^(iv) for the year to date period in 2024 of 100.4% is higher than the trailing four quarter Payout ratio^(iv) of 97.0% due mainly to the timing impact of current income taxes and the $2,460,000 in non-recurring costs related to the Transaction that reduced the amount of Distributable cash generated in 2024.

NON-IFRS MEASURES
This news release references the following non-IFRS measures: "Gross sales reported by A&W restaurants in the Royalty Pool", "Royalty Pool Same Store Sales Growth", "Distributable cash generated", "Distributable cash per equivalent unit", "Distributions and dividends declared per equivalent unit" and "Payout ratio". The Fund believes that disclosing these non-IFRS 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 IFRS measures, 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 non-IFRS measures reported by the Fund 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. 

Refer to the "Financial Results" section of this news release for a reconciliation of Distributable cash generated to Net cash generated from operating activities, the most comparable IFRS measure and the "Non-IFRS Measures" section of the Fund's management discussion and analysis ("MD&A") for the third quarter ended September 8, 2024, for further details on how these measures are calculated and used to assess the Fund's performance which are expected to be filed on SEDAR+ at www.sedarplus.ca today.

ABOUT THE FUND
The Fund is a limited purpose trust established to invest in Trade Marks, which through its interest in the 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) is entitled to royalties equal to 3% of the gross sales reported by 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 common shares of Trade Marks which are exchangeable for Trust Units. The 22^nd annual adjustment to the Royalty Pool took place on January 5, 2024 at which time the number of restaurants in the Royalty Pool increased from 1,037 to 1,047.  

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^®.

^® trademark of A&W Trade Marks Limited Partnership, used under license.

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

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: expectations regarding the annual number of new restaurants Food Services will open during this fiscal year; expectations relating to the timing and completion of the Transaction; the de-listing of the Units from the TSX and the listing of the common shares of A&W Food Services NewCo on the TSX, including the timing thereof. The forward-looking information is based on assumptions that management considered reasonable at the time it was prepared, which assumptions include: the Fund's ability to consummate the Transaction on the terms and conditions and timing currently contemplated; 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, changes in economic conditions or unemployment, or a disease outbreak. 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 completion of the Transaction which may not occur on the anticipated terms and timing or at all; failure to complete the Transaction could negatively impact the market price of the units of the Fund; 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; supply interruptions or staff shortages; and changes in economic conditions, including economic recession or changes in the rate of inflation or deflation, employment rates and household debt, seasonality of sales, political uncertainty, interest rates, currency exchange rates or derivative and commodity prices.

The forward-looking information in this news release is subject to risks, uncertainties and other factors including, among others, the risks identified in the Fund's management information circular dated August 29, 2024 (the "Circular") under the headings "Information Concerning A&W Food Services NewCo After Giving Effect to the Transaction – Risk Factors" and "Risk Factors". Certain of the material risks related to Food Services' business (including those generally impacting the QSR industry) identified in the Circular are expressed from the perspective of Food Services and, consequently, their impact on the financial, condition, performance or prospects of Food Services' business and the market price or value of the shares of A&W Food Services NewCo following completion of the Transaction or the amount of any dividend paid on those shares. Prior to completion of the Transaction, Unitholders will be exposed to each of the risks related to Food Services' business, which risks could materially and adversely impact the royalty and Food Services' ability to pay such royalty to the Fund. 

In addition, prior to completion of the Transaction, Unitholders will continue to be exposed to the risks and uncertainties relating to the structure of the Fund identified in the Fund's annual information form dated February 27, 2024 (the "AIF") under the heading "Risk Factors - Risks and Uncertainties Related to the Structure of the Fund". The Circular and the AIF are available on the Fund's SEDAR+ profile at www.sedarplus.ca. Additional risks and uncertainties not currently known to the Fund or that are currently not considered to be material also may impair the Fund's business. 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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