The Keg Royalties Income Fund
TSX : KEG.UN

The Keg Royalties Income Fund

November 10, 2015 18:27 ET

The Keg Royalties Income Fund Announces Third Quarter 2015 Results

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Nov. 10, 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 and nine months ended September 30, 2015.

The gross sales reported by the 102 Keg restaurants in the Royalty Pool were $138,849,000 for the quarter, an increase of $9,189,000 or 7.1% from the comparable quarter of the prior year. Year to date gross sales increased by $29,706,000 or 7.6% to $419,520,000. The increase in Royalty Pool sales during the quarter and year to date, reflect the sales of the new Keg restaurants added to the Royalty Pool on January 1, 2015, and same store sales increases of 7.5% for the quarter and 7.0% year to date.

The Keg's same store sales (sales of restaurants that operated during the entire period of both the current and prior years) increased by 5.7% in both Canada and the United States for the 13-week period ended September 27, 2015. For the 39-week period ended September 27, 2015, same store sales increased by 5.5% 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 7.5% for the 13-week period and by 7.0% for the 39-week period. The average exchange rate moved from 1.089 to 1.324 in the comparable 13-week period, and from 1.093 to 1.263 in the comparable 39-week period, significantly increasing the Canadian dollar equivalent of the U.S. restaurant sales.

Royalty income increased by $420,000 or 8.1% from $5,209,000 in the three months ended September 30, 2014 to $5,629,000 in the three months ended September 30, 2015. For the nine months ended September 30, 2015 royalty income increased by $1,226,000 or 7.8% from $15,638,000 to $16,864,000.

Distributable cash before SIFT tax increased by $323,000 from $3,783,000 (33.3 cents/Fund unit) to $4,106,000 (36.2 cents/Fund unit) for the quarter and by $831,000 from $11,568,000 ($1.019/Fund unit) to $12,399,000 ($1.092/Fund unit) for the nine-month period. Distributable cash available to pay distributions to public unitholders increased by $247,000 from $2,815,000 (24.8 cents/Fund unit) to $3,062,000 (27.0 cents/Fund unit) for the quarter and by $572,000 from $8,663,000 (76.3 cents/Fund unit) to $9,235,000 (81.3 cents/Fund unit) year to date.

The Fund remains financially well-positioned with cash on hand of $2,247,000 and a positive working capital balance of $3,559,000 as at September 30, 2015. The Fund's payout ratio was 94.0% for the third quarter of 2015 and 91.2% year to date.

"We are exceptionally pleased that The Keg's same store sales growth momentum has continued on into the third quarter of the current year", said David Aisenstat, President and CEO of Keg Restaurants Ltd. "The continued strong same store sales growth has allowed the Fund to increase distributions twice so far this year".

F I N A N C I A L H I G H L I G H T S

Jul. 1 Jul. 1 Jan. 1 Jan. 1
to Sept. 30, to Sept. 30, to Sept. 30, to Sept. 30,
($000's except per unit amounts) 2015 2014 2015 2014
Restaurants in the Royalty Pool 102 103 102 103
Gross sales reported by Keg restaurants
in the Royalty Pool $ 138,849 $ 129,660 $ 419,520 $ 389,814
Royalty income (1) $ 5,629 $ 5,209 $ 16,864 $ 15,638
Interest income (2) 1,079 1,079 3,202 3,201
Total income $ 6,708 $ 6,288 $ 20,066 $ 18,839
Administrative expenses (3) (105 ) (103 ) (297 ) (297 )
Interest and financing expenses (4) (112 ) (161 ) (412 ) (468 )
Operating income $ 6,491 $ 6,024 $ 19,357 $ 18,074
Distributions to KRL (5) (2,371 ) (2,175 ) (6,979 ) (6,527 )
Profit (loss) before fair value gain (loss) and taxes $ 4,120 $ 3,849 $ 12,378 $ 11,547
Fair value gain (loss) (6) 3,642 (1,473 ) (1,874 ) (1,240 )
Taxes (7) (1,056 ) (993 ) (3,256 ) (2,978 )
Profit (loss) and comprehensive income (loss) $ 6,706 $ 1,383 $ 7,248 $ 7,329
Distributable cash before SIFT tax (8) $ 4,106 $ 3,783 $ 12,399 $ 11,568
Distributable cash (9) $ 3,062 $ 2,815 $ 9,235 $ 8,663
Distributions paid to Fund unitholders $ 2,878 $ 2,725 $ 8,419 $ 8,175
Payout Ratio (10) 94.0 % 96.8 % 91.2 % 94.4 %
Per Fund unit information (11)
Profit (loss) before fair value gain (loss) and taxes $ .363 $ .339 $ 1.090 $ 1.017
Profit (loss) $ .591 $ .122 $ .638 $ .646
Distributable cash before SIFT tax (8) $ .362 $ .333 $ 1.092 $ 1.019
Distributable cash (9) $ .270 $ .248 $ .813 $ .763
Distributions paid to Fund unitholders $ .253 $ .240 $ .742 $ .720
SSSG (12)
Canada 5.7 % 7.0 % 5.5 % 5.1 %
United States 5.7 % 7.6 % 6.4 % 5.7 %
Consolidated 7.5 % 7.4 % 7.0 % 5.8 %
Restaurants in KRL System (13)
# Beginning of Period 104 104 107 105
Opened -- 1 2 1
Closed (2 ) -- (7 ) (1 )
# End of Period 102 105 102 105

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 Exchangeable and Cla ss 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 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 September 30, 2015, include SIFT tax expense of $1,044,000 (three months ended September 30, 2014 - $968,000) and a non-cash deferred tax of $12,000 (three months ended September 30, 2014 - $25,000). Taxes for the nine months ended September 30, 2015, include SIFT tax expense of $3,164,000 (nine months ended September 30, 2014 - $2,905,000) and non-cash deferred tax of $92,000 (nine months ended September 30, 2014 - $73,000).
  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 hel d by public unitholders during the respective period. The weighted average number of Fund units outstanding for the three months ended September 30, 2015 were 11,353,500 (three months ended September 30, 2014 - 11,353,500) and for the nine months ended September 30, 2015 were 11,353,500 (nine months ended September 30, 2014 - 11,353,500).
  12. 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.
  13. The number of restaurants included in the Royalty Pool, or added or removed from the Royalty Pool, may differ from the number of restaurants in the KRL system at any time. The number of restaurants added or removed from the Royalty Pool during any period will differ from the number of restaurant openings and closings reported by KRL, as the periods for which are reported differ as well.

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 Keg 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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