The Keg Royalties Income Fund
TSX : KEG.UN

The Keg Royalties Income Fund

February 02, 2016 21:18 ET

The Keg Royalties Income Fund Announces Increase to Royalty Pool

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Feb. 2, 2016) -

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

The Keg Royalties Income Fund (the "Fund") (TSX:KEG.UN) and Keg Restaurants Ltd. ("KRL") are pleased to announce that as of January 1, 2016, an estimated $1.9 million in annual net sales were added to the Royalty Pool. Three new restaurants that opened during the period from October 3, 2014 through October 2, 2015, with estimated gross sales of $21.0 million annually, were added to the Royalty Pool. Five permanently closed Keg restaurants with annual sales of $19.1 million were removed from the Royalty Pool. The total number of restaurants in the Royalty Pool decreased to 100.

"The sales performance of the new Kegs which will be added to the Fund's Royalty Pool has once again exceeded expectations," David Aisenstat, The Keg's President and CEO. "We view this as a continued endorsement of the strength of The Keg brand." The Fund indirectly owns certain trademarks, and other related intellectual property used by KRL in both the operation and franchising of its Keg restaurants in Canada and the United States. The trademarks are licensed to KRL for 99 years and in return KRL pays the Fund a top-line royalty of 4% of gross sales of Keg restaurants included in the Royalty Pool.

Annually on January 1st, the Fund's Royalty Pool is adjusted to include the gross sales from new Keg restaurants that have opened on or before October 2nd of the prior year, after deducting the gross sales from any Keg restaurants that were permanently closed during the preceding calendar year. In return for adding these net sales to the Royalty Pool, KRL receives the right to indirectly acquire additional Fund units (the "Additional Entitlement"). This Additional Entitlement is determined based on 92.5% of the royalty revenue added to the Royalty Pool, divided by the annual yield of the Fund units, divided by the weighted average unit price of the Fund units. KRL receives 80% of the estimated Additional Entitlement initially, with the balance determined and awarded when the actual full-year performance of the new restaurants is known with certainty retroactive to January 1st of that year.

As a result of the January 1, 2016 contribution of the additional net sales to the Royalty Pool, and assuming receipt of 100% of the Additional Entitlement, KRL's Additional Entitlement will be the equivalent of 52,357 Fund units. This will represent 0.35% of the issued and outstanding Fund units on a fully diluted basis. These Fund units were calculated using a weighted average unit price of $18.01, which resulted in a pre-tax yield of 7.37%. The yield has been adjusted to reflect the SIFT tax payable by the Fund.

On January 1, 2016, KRL received 80% of this entitlement, representing the equivalent of 41,886 Fund units, being 0.28% of the Fund units on a fully diluted basis. KRL will also receive a proportionate increase in monthly distributions. Including the initial portion of the Additional Entitlement described above, KRL will have the right to exchange its units in the capital of the Partnership for 3,500,510 Fund units, representing 23.57% of the Fund units on a fully diluted basis.

On December 31, 2015, KRL's Additional Entitlement for 2015 was finalized. The actual sales generated by the four new restaurants added to the Royalty Pool on January 1, 2015, were confirmed to be $23.8 million, approximately $0.8 million or 3.4% more than originally estimated. Therefore as a result of the contribution of $6,430,000 in annual net sales on January 1, 2015, KRL received a total of 183,399 Partnership units, increasing its effective ownership of the Fund to 23.35% on a fully diluted basis. Combined with the January 1, 2016 Additional Entitlement, and assuming receipt of 100% of that Additional Entitlement, KRL will be entitled to the equivalent of 3,510,981 Fund units, representing 23.62% of the Fund units on a fully diluted basis.

Management of KRL has advised the Trustees of the Fund that it expects to open four restaurants prior to October 2, 2016, consisting of two corporate and two franchised restaurants in Canada. Management of KRL has further advised the Trustees that the scheduled opening of these new restaurants is conditional upon the timely receipt of required municipal approvals and construction permits.

Vancouver-based Keg Restaurants Ltd. is the leading operator and franchisor of 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" by Aon Hewitt for the past fourteen years.

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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