A&W Revenue Royalties Income Fund (AW-UN) Q2 2024 earnings summary

Executive summary

• Announced a strategic combination of A&W Food Services of Canada and A&W Revenue Royalties Income Fund to form a new publicly traded corporation, Newco, on the TSX, pending unitholder and regulatory approvals.

• Unitholders can choose to receive CAD 37 per unit in cash (about a 30% premium) or shares in Newco, with a cap of CAD 175.6 million for the cash option, subject to proration.

• Trustees received independent fairness opinions and unanimously recommend unitholders vote in favor of the transaction.

• Royalty income rose 1.5% in Q2 2024 and 1.3% year to date compared to 2023, driven by new restaurant openings and modest same store sales growth.

• Nine new A&W restaurants opened in the first half of 2024, supporting brand momentum and national expansion.

Financial highlights

• Royalty income for Q2 2024 grew to CAD 13 million on gross sales of CAD 432.2 million, up from CAD 12.8 million and CAD 425.8 million in Q2 2023.

• Year-to-date royalty income was CAD 24.5 million on gross sales of CAD 817.3 million, compared to CAD 24.2 million and CAD 807.1 million in 2023.

• Distributable cash for Q2 2024 was CAD 10.22 million, nearly unchanged from CAD 10.1 million in Q2 2023.

• Three monthly distributions totaling CAD 0.48 per unit were declared in Q2 2024 and 2023; annualized distribution rate remains CAD 1.92 per unit.

• Net income for Q2 2024 was CAD 9.25 million, compared to CAD 11.55 million in Q2 2023.

Outlook and guidance

• Unitholders who become Newco shareholders will maintain current distribution levels as dividends and gain exposure to greater growth and capital appreciation.

• Management expects continued growth from new restaurant openings and ongoing marketing initiatives.

• The proposed combination with A&W Food Services is expected to close in October, subject to approvals.

• No Pret A Manger contribution included in three-year adjusted EBITDA targets; future growth potential from this initiative.

• CapEx strategy remains unchanged, with new restaurants primarily funded by franchisees; recent higher CapEx was due to mobile app investment, not expected to recur.