The Keg Royalties Income Fund
TSX : KEG.UN

The Keg Royalties Income Fund

February 08, 2016 07:30 ET

The Keg Royalties Income Fund Announces Record Year End Results

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Feb. 8, 2016) -

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") has reported record financial results for the quarter and year ended December 31, 2015. System sales reported by Keg Restaurants Ltd ("KRL"), Royalty Pool sales, royalty income and distributable cash all increased from the prior year periods to reach new record levels.

The gross sales reported by the 102 Keg restaurants in the Royalty Pool increased by $23,641,000 or 18.1% to $154,528,000 during the quarter and by $53,347,000 or 10.2% to $574,048,000 for the year. The increase in Royalty Pool sales is partly due to an extra week of sales included in both the quarter and the year, which results from KRL's floating year-end date which occurs approximately every five years. These sales also include the sales of the three new restaurants added to the Royalty Pool on January 1, 2015, and same store sales increases of 11.1% for the quarter and 8.0% for the year.

After deducting the additional week of sales for comparative purposes, The Keg's same store sales (sales of restaurants that operated during the comparable 13-week periods of both the current and prior years) increased by 9.5% in Canada and by 9.1% in the United States. For the comparable 52-week periods, same store sales increased by 6.5% in Canada and by 7.0% in the United States. After translating the sales of the U.S. restaurants into their Canadian dollar equivalent, consolidated same store sales increased by 11.1% for the comparable 13-week period and by 8.0% for the comparable 52-week period. The average exchange rate moved from 1.1350 to 1.3372 in the comparable 13-week period, and from 1.1042 to 1.2816 in the comparable 52-week period, significantly increasing the Canadian dollar equivalent of the U.S. restaurant sales.

Royalty income increased by $1,129,000 or 21.5% from $5,258,000 in the three months ended December 31, 2014 to $6,387,000 in the three months ended December 31, 2015. For the year ended December 31, 2015 royalty income increased by $2,355,000 or 11.3% from $20,896,000 to $23,251,000.

Distributable cash before SIFT tax increased by $548,000 from $3,735,000 (32.9 cents/Fund unit) to $4,283,000 (37.7 cents/Fund unit) for the quarter and by $1,377,000 from $15,304,000 ($1.348/Fund unit) to $16,681,000 ($1.469/Fund unit) for the year. Distributable cash available to pay distributions to public unitholders increased by $305,000 from $2,757,000 (24.3 cents/Fund unit) to $3,062,000 (27.0 cents/Fund unit) for the quarter and by $875,000 from $11,421,000 ($1.006/Fund unit) to $12,296,000 ($1.083/Fund unit) for the year.

Distributions of $2,946,000 (26.0 cents/Fund unit) were paid to Fund unitholders during the fourth quarter of 2015 and a special distribution of $795,000 (7.0 cents/Fund unit) was declared during December 2015, as compared with distributions of $2,725,000 (24.0 cents/Fund unit) paid during the fourth quarter of 2014. During 2015, distributions of $11,365,000 ($1.001/Fund unit) were paid to Fund unitholders and a special distribution of $795,000 (7.0 cents/Fund unit) declared during December 2015, compared to distributions of $10,899,000 (96.0 cents/Fund unit) paid during 2014. The Fund's payout ratio, including the special distribution declared in December 2015, was 122.2% for the fourth quarter of 2015 and 98.9% for the year.

The Fund remains financially well-positioned with cash on hand of $2,770,000 and a positive working capital balance of $2,317,000 as at December 31, 2015.

"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. "The same store sales growth was the primary driver of the growth in Royalty Pool Sales during the year, which in turn generated record levels of both royalty income and cash available for distribution to the Fund's unitholders."

FINANCIAL HIGHLIGHTS
($000's except per unit amounts) Oct. 1 to Dec. 31, 2015 Oct. 1 to Dec. 31, 2014 Jan. 1 to Dec. 31, 2015 Jan. 1 to Dec. 31, 2014
Restaurants in the Royalty Pool 102 103 102 103
Gross sales reported by Keg restaurants in the Royalty Pool $ 154,528 $ 130,887 $ 574,048 $ 520,701
Royalty income (1) $ 6,387 $ 5,258 $ 23,251 $ 20,896
Interest income (2) 1,079 1,080 4,281 4,281
Total income $ 7,466 $ 6,338 $ 27,532 $ 25,177
Administrative expenses (3) (138 ) (110 ) (435 ) (408 )
Interest and financing expenses (4) (108 ) (157 ) (519 ) (624 )
Operating income $ 7,220 $ 6,071 $ 26,578 $ 24,145
Distributions to KRL (5) (2,511 ) (2,186 ) (9,491 ) (8,713 )
Profit (loss) before fair value gain (loss) and taxes $ 4,709 $ 3,885 $ 17,087 $ 15,432
Fair value gain (loss) (6) 550 (2,686 ) (1,324 ) (3,926 )
Taxes (7) (1,271 ) (1,005 ) (4,527 ) (3,983 )
Profit (loss) and comprehensive income (loss) $ 3,988 $ 194 $ 11,236 $ 7,523
Distributable cash before SIFT tax (8) $ 4,283 $ 3,735 $ 16,681 $ 15,304
Distributable cash (9) $ 3,062 $ 2,757 $ 12,296 $ 11,421
Distributions to Fund unitholders(10) $ 3,741 $ 2,725 $ 12,160 $ 10,899
Payout Ratio (11) 122.2 % 98.8 % 98.9 % 95.4 %
Per Fund unit information (12)
Profit (loss) before fair value gain (loss) and taxes $ .415 $ .342 $ 1.505 $ 1.359
Profit (loss) $ .351 $ .017 $ .990 $ .663
Distributable cash before SIFT tax (8) $ .377 $ .329 $ 1.469 $ 1.348
Distributable cash (9) $ .270 $ .243 $ 1.083 $ 1.006
Distributions to Fund unitholders(10) $ .330 $ .240 $ 1.071 $ .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 Keg Holdings Trust (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 Class A, entitled Class B, and Class D Partnership units ("Exchangeable units") and Class C Partnership units held by KRL. The Exchangeable units are exchangeable into Fund units on a one-for-one basis. These distributions are presented as interest expense in the financial statements.
(6) Fair value gain (loss) is the non-cash decrease or increase 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, 2015, include SIFT tax expense of $1,221,000 (three months ended December 31, 2014 - $978,000) and non-cash deferred taxes of $50,000 (three months ended December 31, 2014 - $27,000). Taxes for the year ended December 31, 2015, include SIFT tax expense of $4,385,000 (year ended December 31, 2014 - $3,883,000) and non-cash deferred taxes of $142,000 (year ended December 31, 2014 - $100,000).
(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) Distributions to Fund unitholders include all regular monthly cash distributions paid to Fund unitholders during a period and any special distributions, either declared or paid, to Fund unitholders in the same period.
(11) Payout ratio is computed as the ratio of aggregate cash distributions paid during the period plus any special distributions declared or paid during the same period (numerator) to the aggregate distributable cash of the period (denominator).

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 fourteen 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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