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