The Keg Royalties Income Fund
TSX : KEG.UN

The Keg Royalties Income Fund

February 18, 2015 18:17 ET

The Keg Royalties Income Fund Announces Fourth Quarter 2014 Results

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Feb. 18, 2015) -

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE U.S.

The Keg Royalties Income Fund (TSX:KEG.UN) (the "Fund") is pleased to announce its financial results for the three months and year ended December 31, 2014.

The gross sales reported by the 103 Keg restaurants in the Royalty Pool were $130,887,000 for the quarter, an increase of $10,794,000 or 9.0% from the comparable quarter of the prior year. For the year, gross sales increased by $45,837,000 or 9.7% to $520,701,000. The increase in Royalty Pool sales during the quarter and for the year, reflect the sales of the new Keg restaurants added to the Royalty Pool on January 1, 2014, and same store sales increases of 5.7% for the quarter and 5.8% for the year.

The Keg's same store sales (sales of restaurants that operated during the entire period of both the current and prior years) increased by 4.5% in Canada and by 8.5% in the United States for the 13-week period ended December 28, 2014. For the 52-week period ended December 28, 2014, same store sales increased by 4.9% in Canada and by 6.4% in the United States. After translating the sales of the U.S. restaurants into their Canadian dollar equivalent, consolidated same store sales increased by 5.7% for the 13-week period and by 5.8% for the 52-week period. The average exchange rate moved from 1.049 to 1.135 in the comparable 13-week period, and from 1.031 to 1.104 in the comparable 52-week period, significantly increasing the Canadian dollar equivalent of the U.S. restaurant sales.

Royalty income increased by $297,000 or 6.0% from $4,961,000 in the three months ended December 31, 2013 to $5,258,000 in the three months ended December 31, 2014. For the year ended December 31, 2014 royalty income increased by $1,400,000 or 7.2% from $19,496,000 to $20,896,000.

Distributable cash before SIFT tax increased by $277,000 from $3,458,000 (30.5 cents/Fund unit) to $3,735,000 (32.9 cents/Fund unit) for the quarter and by $663,000 from $14,641,000 ($1.290/Fund unit) to $15,304,000 ($1.348/Fund unit) for the year. Distributable cash available to pay distributions to public unitholders increased by $223,000 from $2,534,000 (22.3 cents/Fund unit) to $2,757,000 (24.3 cents/Fund unit) for the quarter and by $397,000 from $11,024,000 (97.1 cents/Fund unit) to $11,421,000 (100.6 cents/Fund unit) for the year.

The Fund remains financially well-positioned with cash on hand of $1,651,000 and a positive working capital balance of $1,867,000 as at December 31, 2014. The Fund's payout ratio was 98.8% for the fourth quarter of 2014 and was 95.4% for the year.

"We are exceptionally pleased with our same store sales growth performance for the quarter and for the year," said David Aisenstat, President and CEO of Keg Restaurants Ltd. "We are also thrilled to have exceeded the $500 million threshold for the year, both in terms of system sales for KRL, and Royalty Pool sales for the Fund, a significant milestone in the Company's evolution."

FINANCIAL HIGHLIGHTS

($000's except per unit amounts) Oct. 1 to
Dec. 31,
2014
Oct. 1 to
Dec. 31,
2013
Jan. 1 to
Dec. 31,
2014
Jan. 1 to
Dec. 31,
2013
Restaurants in the Royalty Pool 103 102 103 102
Gross sales reported by Keg restaurants in the Royalty Pool $ 130,887 $ 120,093 $ 520,701 $ 474,864
Royalty income (1) $ 5,258 $ 4,961 $ 20,896 $ 19,496
Interest income (2) 1,080 1,078 4,281 4,279
Total income $ 6,338 $ 6,039 $ 25,177 $ 23,775
Administrative expenses (3) (110 ) (114 ) (408 ) (422 )
Interest and financing expenses (4) (157 ) (161 ) (624 ) (681 )
Operating income $ 6,071 $ 5,764 $ 24,145 $ 22,672
Distributions to KRL (5) (2,186 ) (2,039 ) (8,713 ) (8,072 )
Profit (loss) before fair value adjustment and taxes $ 3,885 $ 3,725 $ 15,432 $ 14,600
Fair value adjustment (6) (2,686 ) (4,231 ) (3,926 ) (5,740 )
Taxes (7) (1,005 ) (973 ) (3,983 ) (3,800 )
Profit (loss) $ 194 $ (1,479 ) $ 7,523 $ 5,060
Distributable cash before SIFT tax (8) $ 3,735 $ 3,458 $ 15,304 $ 14,641
Distributable cash (9) $ 2,757 $ 2,534 $ 11,421 $ 11,024
Distributions paid to Fund unitholders $ 2,725 $ 2,725 $ 10,899 $ 10,899
Payout Ratio (10) 98.8 % 107.5 % 95.4 % 98.9 %
Per Fund unit information (11)
Profit (loss) before fair value adjustment and taxes $ .342 $ .328 $ 1.359 $ 1.286
Profit (loss) $ .017 $ (.130 ) $ .663 $ .446
Distributable cash before SIFT tax (8) $ .329 $ .305 $ 1.348 $ 1.290
Distributable cash (9) $ .243 $ .223 $ 1.006 $ .971
Distributions paid to Fund unitholders $ .240 $ .240 $ .960 $ .960

Notes:

(1) The Fund, indirectly through the Partnership, earns royalty income equal to 4% of gross sales of Keg restaurants in the Royalty Pool.
(2) The Fund directly earns interest income on the $57.0 million Keg Loan, with interest income accruing at 7.5% per annum, payable monthly.
(3) The Fund, indirectly through the Partnership, incurs administrative expenses and interest on the operating line of credit, to the extent utilized.
(4) The Fund, indirectly through the Trust, incurs interest expense on the $14.0 million term loan and amortization of deferred financing charges.
(5) Represents the distributions of the Partnership attributable to KRL during the respective periods on the Exchangeable and Class C units held by KRL. The Class A, entitled Class B and Class D Partnership units are exchangeable into Fund units on a one-for-one basis ("Exchangeable units"). These distributions are presented as interest expense in the financial statements.
(6) Fair value adjustment is the non-cash increase or decrease in the market value of the Exchangeable units held by KRL during the respective period. Exchangeable units are classified as a financial liability under IFRS. The Fund is required to determine the fair value of that liability at the end of each reporting period and adjust for any increase or decrease, taking into consideration the sale of any Exchangeable units and additional entitlements during the same period.
(7) Taxes for the three months ended December 31, 2014, include SIFT tax expense of $978,000 (three months ended December 31, 2013 - $924,000) and non-cash deferred taxes of $27,000 (three months ended December 31, 2013 - $49,000). Taxes for the year ended December 31, 2014, include SIFT tax expense of $3,883,000 (year ended December 31, 2013 - $3,617,000) and non-cash deferred tax of $100,000 (year ended December 31, 2013 - $183,000).
(8) Distributable cash before SIFT tax is defined as the periodic cash flows from operating activities as reported in the IFRS consolidated financial statements, including the effects of changes in non-cash working capital, plus SIFT tax paid (including current year instalments), less interest and financing fees paid on the term loan, less the Partnership distributions attributable to KRL through its ownership of Exchangeable units. Distributable cash before SIFT tax is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS, and therefore may not be comparable to similar measures presented by other issuers.
(9) Distributable cash is the amount of cash available for distribution to the Fund's public unitholders and is calculated as distributable cash before SIFT tax, less current year SIFT tax expense. Distributable cash is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS, and therefore may not be comparable to similar measures presented by other issuers. However, the Fund believes that distributable cash, both before and after SIFT tax, provides useful information regarding the amount of cash available for distribution to the Fund's public unitholders.
(10) Payout ratio is computed as the ratio of aggregate cash distributions paid during the period (numerator) to the aggregate distributable cash of the period (denominator).
(11) All per unit amounts are calculated based on the weighted average number of Fund units outstanding, which are those units held by public unitholders during the respective period. The weighted average number of Fund units outstanding for the three months ended December 31, 2014 were 11,353,500 (three months ended December 31, 2013 - 11,353,500) and for the year ended December 31, 2014 were 11,353,500 (year ended December 31, 2013 - 11,353,500).

The Fund (TSX:KEG.UN) is a limited purpose, open-ended trust established under the laws of the Province of Ontario that, through The Keg Rights Limited Partnership, owns certain trademarks and other related intellectual property used by Keg Restaurants Ltd. ("KRL"). In exchange for use of those trademarks, KRL pays the Fund a royalty of 4% of gross sales of Keg restaurants included in the royalty pool.

Vancouver-based KRL is the leading operator and franchisor of the steakhouse restaurants in Canada and has a substantial presence in select regional markets in the United States. KRL continues to operate The Keg restaurant system and expand that system through the addition of both corporate and franchised Keg steakhouses. KRL has been named one of the "50 Best Employers in Canada" for the past thirteen years by Aon Hewitt. For more information on our brand, visit www.kegsteakhouse.com.

This press release may contain certain "forward looking" statements reflecting The Keg Royalties Income Fund's current expectations in the casual dining segment of the restaurant food industry. Investors are cautioned that all forward looking statements involve risks and uncertainties, including those relating to the Keg's ability to continue to realize historical same store sales growth, changes in market and existing competition, new competitive developments, and potential downturns in economic conditions generally. Additional information on these and other potential factors that could affect the Fund's financial results are detailed in documents filed from time to time with the provincial securities commissions in Canada.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy, which may be made only by means of the prospectus, nor shall there be any sale of the Fund units in any state, province or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any state, province or jurisdiction. The Keg Royalties Income Fund units have not been, and will not be registered under the U.S. Securities Act of 1933, as amended and may not be offered or sold in the United States absent registration or an application for exemption from the registration requirement under U.S. securities laws.

The Trustees of the Fund have approved the contents of this press release.

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