The Keg Royalties Income Fund
TSX : KEG.UN

The Keg Royalties Income Fund

November 14, 2013 18:00 ET

The Keg Royalties Income Fund Announces Third Quarter 2013 Results

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Nov. 14, 2013) -

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 and nine months ended September 30, 2013.

The gross sales reported by the 102 Keg restaurants in the Royalty Pool were $116,016,000 for the quarter, a decrease of $3,269,000 or 2.7% from the comparable quarter of the prior year. Year to date gross sales decreased by $7,405,000 or 2.0% to $354,771,000. The decrease in gross sales for both the quarter and year to date was primarily due to the closure of three corporate restaurants at the beginning of the year, and the closure of one additional corporate restaurant during the third quarter.

The Keg's same store sales (sales of restaurants that operated during the entire period of both the current and prior years) decreased by 1.5% in Canada and increased by 0.8% in the United States for the 13- week period ended September 29, 2013. For the 39-week period ended September 29, 2013, same store sales decreased by 0.9% in Canada and increased by 1.9% in the United States. After translating the sales of the U.S. restaurants into their Canadian dollar equivalent, consolidated same store sales decreased by 0.9% for the 13-week period and by 0.5% for the 39-week period. The average exchange rate moved from 0.99 to 1.04 in the comparable 13-week period, and from 1.00 to 1.02 in the comparable 39-week period, thereby increasing the Canadian dollar equivalent of the U.S. restaurant sales.

Royalty income increased by $4,000 or 0.1% from $4,772,000 in the three months ended September 30, 2012 to $4,776,000 in the three months ended September 30, 2013. For the nine months ended September 30, 2013 royalty income increased by $30,000 or 0.2% from $14,505,000 to $14,535,000.

Distributable cash before SIFT tax increased by $11,000 from $3,638,000 (32.0 cents/Fund unit) to $3,649,000 (32.1 cents/Fund unit) for the quarter and decreased by $28,000 from $11,210,000 (98.7 cents/Fund unit) to $11,182,000 (98.5 cents/Fund unit) for the nine-month period. Distributable cash available to pay distributions to public unitholders decreased by $18,000 from $2,784,000 (24.5 cents/Fund unit) to $2,766,000 (24.4 cents/Fund unit) for the quarter and by $121,000 from $8,611,000 (75.8 cents/Fund unit) to $8,490,000 (74.8 cents/Fund unit) year to date.

The Fund remains financially well-positioned with cash on hand of $890,000 and a positive working capital balance of $2,024,000 as at September 30, 2013. The Fund's payout ratio was 98.5% for the third quarter of 2013 and was 96.3% year to date.

"We are pleased with our results for the third quarter, particularly given the challenging economic conditions experienced by the Canadian restaurant industry so far this year," said David Aisenstat, President and CEO of Keg Restaurants Ltd. "We continue to be encouraged by the same store sales growth generated by our U.S. restaurants."

FINANCIAL HIGHLIGHTS

Jul. 1 Jul. 1 Jan. 1 Jan. 1
to Sep. 30, to Sep. 30, to Sep. 30, to Sep. 30,
($000's except per unit amounts) 2013 2012 2013 2012
Restaurants in the Royalty Pool 102 102 102 102
Gross sales reported by Keg restaurants in the Royalty Pool $ 116,016 $ 119,285 $ 354,771 $ 362,176
Royalty income (1) $ 4,776 $ 4,772 $ 14,535 $ 14,505
Interest income (2) 1,079 1,075 3,201 3,207
Total income $ 5,855 $ 5,847 $ 17,736 $ 17,712
Administrative expenses (3) (117 ) (104 ) (308 ) (312 )
Interest and financing expenses (4) (175 ) (181 ) (522 ) (529 )
Operating income $ 5,563 $ 5,562 $ 16,906 $ 16,871
Distributions to KRL (5) (1,996 ) (1,998 ) (6,033 ) (6,027 )
Profit (loss) before fair value adjustment and taxes $ 3,567 $ 3,564 $ 10,873 $ 10,844
Fair value adjustment (7) (2,278 ) (1,478 ) (1,509 ) (5,186 )
Taxes (8) (904 ) (876 ) (2,826 ) (2,685 )
Profit (loss) $ 385 $ 1,210 $ 6,538 $ 2,973
Distributable cash before SIFT tax (9) $ 3,649 $ 3,638 $ 11,182 $ 11,210
Distributable cash (10) $ 2,766 $ 2,784 $ 8,490 $ 8,611
Distributions paid to Fund unitholders $ 2,725 $ 2,725 $ 8,175 $ 8,175
Payout Ratio (11) 98.5 % 97.9 % 96.3 % 94.9 %
Per Fund unit information (12)
Profit (loss) before market value adjustment and income taxes $ .314 $ .314 $ .958 $ .955
Profit (loss) $ .034 $ .107 $ .576 $ .262
Distributable cash before SIFT tax (9) $ .321 $ .320 $ .985 $ .987
Distributable cash (10) $ .244 $ .245 $ .748 $ .758
Distributions paid to Fund unitholders $ .240 $ .240 $ .720 $ .720
SSSG (13)
Canada (1.5 )% (0.6 )% (0.9 )% 0.8 %
United States 0.8 % (0.8 )% 1.9 % 0.7 %
Consolidated (0.9 )% (0.5 )% (0.5 )% 1.0 %
Restaurant Openings/Closings (14)
Opened -- -- 1 --
Closed 1 -- 3 --
Relocated -- -- -- --
Net Opened (Closed) (1 ) -- (2 ) --

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. Represents the distributions declared on the publicly traded Fund units during the period. The distributions declared to the Fund's public unitholders since January 1, 2011 have been recorded as distributions and charged to unitholder's equity whereas the distributions declared prior to December 31, 2010 were expensed as interest.

  7. 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 during the same period.

  8. Taxes for the quarter ended September 30, 2013, include SIFT tax expense of $883,000 (quarter ended September 30, 2012 - $854,000) and non-cash deferred taxes of $21,000 (quarter ended September 30, 2012 - $22,000). Taxes for the nine months ended September 30, 2013 include SIFT tax expense of $2,692,000 (nine months ended September 30, 2012 - $2,599,000) and non-cash deferred tax of $134,000 (nine months ended September 30, 2012 - $86,000). The obligation to pay SIFT tax came into effect on January 1, 2011.

  9. 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.

  10. 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.

  11. 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).

  12. 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 September 30, 2013 was 11,353,500 (three months ended September 30, 2012 - 11,353,500) and for the nine months ended September 30, 2013 was 11,353,500 (nine months ended September 30, 2012 - 11,353,500).

  13. Same Store Sales Growth ("SSSG") is the overall increase or decrease in gross sales from Keg restaurants (that operated during the entire period of both the current and the prior year) as compared to gross sales for the same period of the prior year. SSSG is not an IFRS financial measure and 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 SSSG provides useful information regarding the increase or decrease in gross sales for comparable restaurants.

  14. The number of restaurants added to the Royalty Pool each year may differ from the number of restaurant openings and closings reported by KRL on an annual basis, as the periods for which they are reported differ slightly.

  15. The interim financial results for all periods presented herein have not been audited.

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, Keg Restaurants Ltd 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 twelve 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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