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Press release from CNW Group

A&W Revenue Royalties Income Fund announces third quarter 2011 results

Tuesday, October 18, 2011

A&W Revenue Royalties Income Fund announces third quarter 2011 results12:29 EDT Tuesday, October 18, 2011TRADING SYMBOL:  The Toronto Stock Exchange - AW.UNVANCOUVER, Oct. 18, 2011 /CNW/ -Same store sales growth of 0.7% for the quarterRoyalty income up 3.4% compared to Q3, 2010A&W Revenue Royalties Income Fund (the Fund) reported today results for the third quarter ended September 11, 2011.  The Fund will hold a conference call to discuss third quarter results on Tuesday, October 18, 2011 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).  The call can be accessed by dialling toll-free 1-800-814-4859 or (416) 644-3414.  A replay will be available until November 1, 2011, by dialling toll-free 1-877-289-8525 or (416) 640-1917 Passcode: 4476353#.Same store sales growth, the most important driver of growth in the Fund, was 0.7% for the quarter and 0.4% year to date compared to the same periods in the prior year. Total sales reported by restaurants in the Royalty Pool increased by 3.4% to $194.9 million in the third quarter of 2011 compared to $188.5 million in the same quarter of 2010.  The increase in sales resulted from the increase in the number of restaurants in the Royalty Pool from 700 to 715 and the same store sales growth.  Royalty income also increased by 3.4% for the quarter to $5,848,000."We are pleased to report another quarter of same store sales increases," said Paul Hollands, President and CEO of A&W Food Services of Canada Inc.  "Despite uncertain economic conditions, our continued focus on serving the best burgers yielded good customer response in the quarter.  The Prime Rib Grandma Burger has been a great addition to our menu and we are very pleased with its results."Financial Highlights             (dollars in thousands except per unit amounts)  12 weekperiod endingSep 11, 2011  12 weekperiod endingSep 12, 2010  Period fromJan 1, 2011 toSep 11, 2011  Period fromJan 1, 2010 toSep 12, 2010Same store sales growth (1)  0.7%  1.7%  0.4%  2.8%Number of restaurants in the RoyaltyPool  715  700  715  700Sales reported by the restaurants inthe Royalty Pool  $194,901  $188,453  $549,918  $537,801Royalty income  $5,848  $5,654  $16,498  $16,134General and administrative expenses  $77  $52  $488  $478Net third party interest expense  $686  $130  $2,082  $401Income taxes payable  $597  -  $1,621  -Partnership distributions to FoodServices  -  $6           $2              $16Total distributable cash generated fordistributions and dividends  (2)  $4,488  $5,466  $12,305  $15,239Distributable cash (2) per equivalentunit (2011 - 12,571,435(3) units;2010 - 14,705,897 units)  $0.357  $0.372  $0.979  $1.036Distributions and dividends declaredper equivalent unit  $0.351  $0.318  $0.936  $0.848Special distribution per equivalent unit  -  -  -  $0.100(1)Same store sales growth is not an earnings measure recognized by International Financial Reporting Standards (IFRS)and therefore may not be comparable to similar measures presented by other issuers.  This information is provided asit is a key driver of growth in the Fund.(2) Distributable cash is not an earnings measure recognized by IFRS and therefore may not be comparable to similarmeasures presented by other issuers.  This information is provided as it identifies the amount of actual cash availableto pay distributions to unitholders and dividends to A&W Food Services.(3) The number of equivalent units and distributable cash per equivalent unit in 2011 includes the 69,704 LP unitsexchangeable for 139,408 common shares of Trade Marks representing the remaining 20% of the consideration forthe January 5, 2011 adjustment to the Royalty Pool which is held back until December 2011 when the actual annualsales are reported by the new restaurants. Financial ResultsThe financial results for the quarter and year to date reflect two important changes from previous years.  The first is the payment of taxes for the first time since the inception of the Fund in 2002.  The second change is the interest cost associated with the debt introduced for the substantial issuer bid, which was undertaken to enhance distributable cash per unit.Royalty income for the third quarter was $5,848,000, representing an increase of $194,000 or 3.4% compared to the same quarter in 2010.  Year to date royalty income was $16,498,000, an increase of $364,000 or 2.3% compared to year to date 2010.  The increase in royalty income was driven by the same store sales growth and the impact of the increase in the number of restaurants in the Royalty Pool to 715 in 2011 from 700 in 2010.Total cash expenses, including interest and taxes, increased by $1,172,000 for the quarter and $3,298,000 year to date compared to last year.  Interest expense increased by $556,000 in the quarter and $1,681,000 year to date due to the increase in A&W Trade Marks Inc.'s (Trade Marks) term loan from $10 million to $60 million to buy back Fund units for cancellation under the Fund's substantial issuer bid in December last year.  Trade Marks' earnings are now subject to income taxes at 18%, and therefore income tax expense was $597,000 for the quarter and $1,621,000 year to date, compared to no taxes payable in 2010.Distributable cash generated to pay distributions to unitholders and dividends to A&W Food Services decreased to $4,488,000 compared to $5,466,000 for the third quarter of 2010 due to the higher interest and tax expenses as noted above.  Year to date distributable cash decreased to $12,305,000 compared to $15,239,000 for 2010 year to date.  The number of equivalent units also decreased, from 14,705,897 units in 2010 to 12,571,435 units in 2011, due to the substantial issuer bid in December 2010 which resulted in the Fund purchasing for cancellation 2,500,000 units.  Therefore, distributable cash per equivalent unit decreased by only 1.5¢ to 35.7¢ per unit for the quarter, and decreased by only 5.7¢ to 97.9¢ per unit year to date.  The decrease in distributable cash per equivalent unit is due to the income tax expense in 2011 which was 4.7¢ per unit for the quarter and 12.9¢ per unit year to date. Despite the burden of 12.9¢ per unit income tax expense, year to date distributions in 2011 have been maintained at 98.7% of 2010 levels.The monthly distribution rate was increased to 11.7¢ per unit from 10.6¢ per unit effective with the distribution for the month of January 2011 and payable as and from February 28, 2011.  Total distributions of 35.1¢ per unit were declared in the quarter and 93.6¢ per unit year to date.  The new monthly distribution rate of 11.7¢ per unit translates into an annualized distribution of $1.404 per unit.  The cumulative surplus of distributable cash at the end of the third quarter was $3,038,000, compared to a cumulative surplus of $2,548,000 at the end of the second quarter of 2011.About the FundThe Fund is a limited purpose trust established to invest in Trade Marks, which through its interest in 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) receives royalties equal to 3% of the sales of A&W restaurants in the Royalty Pool.  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.The Royalty Pool is adjusted annually to reflect sales from new A&W restaurants, net of the 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 will be exchanged for additional shares of Trade Marks which are exchangeable for units of the Fund.  A&W Food Services currently owns 10% of the common shares of Trade Marks, and therefore currently owns the equivalent of 10% of the units of the Fund on a fully-diluted basis.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, and are thereby isolated from many of the factors that impact an operating business.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.  The forward-looking information is based on assumptions that management considered reasonable at the time it was prepared.  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.  The 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 and on the Fund's website at www.awincomefund.ca.Additional information relating to the Fund is available at www.sedar.com and www.awincomefund.ca.   For further information: Don Leslie, Chief Financial Officer:  (604) 988-2141 or investorrelations@aw.ca