The Keg Royalties Income Fund
TSX : KEG.UN

The Keg Royalties Income Fund

December 18, 2006 17:18 ET

The Keg Royalties Income Fund Announces Increase to Royalty Pool

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Dec. 18, 2006) -

Not for distribution to U.S. News wire 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, 2007, the gross sales of six new Keg restaurants, opened during the period October 3, 2005 through October 2, 2006, will be added to the royalty pool (the "Royalty Pool") on which the Fund earns royalty revenue. The Royalty Pool will receive an estimated increase in net gross sales of $22.3 million annually due to the addition of $28.0 million in estimated annual gross sales from the six new restaurants, less $5.7 million in actual annual gross sales from two closed restaurants. The addition of these restaurants, after taking into account the two closures, will increase the total number of restaurants in the Royalty Pool to 95.

"The performance of the new Kegs which will be added to the Fund's Royalty Pool has once again exceeded expectations," said David Aisenstat, the Keg's President and CEO. "The average annual sales of these restaurants are estimated to be in excess of $4.6 million, which we view as a great 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 franchise 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. 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 with effect from January 1st of that year.

As a result of the January 1, 2007 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 739,449 Fund units. This represents 6.02% of the issued and outstanding Fund units on a fully diluted basis. These Fund units were calculated using a weighted average unit price of $13.10, which resulted in a yield of 8.52%. KRL will also receive a proportionate increase in monthly distributions from the Fund.

Also, the January 1, 2006 addition of new restaurant sales to the Royalty Pool has been finalized. The actual sales for the seven new restaurants added to the Royalty Pool for the 52 weeks ended October 2, 2006 were $31.4 million, for a net sales increase of $25.4 million, approximately 2.9% in excess of the amount originally estimated. This resulted in KRL receiving an entitlement equivalent to 193,297 Fund units. Combined with the January 1, 2007 Additional Entitlement, KRL will be entitled to 3,234,672 Fund units, representing 26.32% of the Fund units on a fully diluted basis.

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. Keg Restaurants Ltd. has been named one of the "50 Best Employers in Canada" by the Globe and Mail's Report on Business Magazine for the past four 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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