The Keg Royalties Income Fund
TSX : KEG.UN

The Keg Royalties Income Fund

February 21, 2017 07:45 ET

The Keg Royalties Income Fund Announces Year End Results

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Feb. 21, 2017) -

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) has reported record financial results for the quarter and year ended December 31, 2016.

The Royalty Pool sales reported by the 100 Keg restaurants in the Royalty Pool decreased by $6,691,000 or 4.3% to $147,837,000 during the quarter and increased by $2,903,000 or 0.5% to $576,951,000 for the year. The decrease in Royalty Pool sales was entirely due to the loss of an extra week of sales included in both the quarter and the 2015 fiscal year, which resulted from KRL's floating year-end date which occurs approximately every five years.

After deducting the additional week of sales included in the fourth quarter of the prior year 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 0.2% in Canada and decreased by 2.0% in the United States. For the comparable 52-week periods, same store sales increased by 1.3% in Canada and by 0.7% in the United States. After translating the sales of the U.S. restaurants into their Canadian dollar equivalent, consolidated same store sales were essentially flat for the comparable 13-week period and increased by 1.5% for the comparable 52-week period. The average exchange rate moved from 1.3372 to 1.3356 in the comparable 13-week period, slightly decreasing the Canadian dollar equivalent of the U.S. restaurant sales, and from 1.2816 to 1.3250 in the comparable 52-week period, significantly increasing the Canadian dollar equivalent of the U.S. restaurant sales.

Royalty income decreased by $456,000 or 7.1% from $6,387,000 in the three months ended December 31, 2015 to $5,931,000 in the three months ended December 31, 2016. For the year ended December 31, 2016 royalty income decreased by $150,000 or 0.6% from $23,251,000 to $23,101,000. The loss of the extra week of sales included in the fourth quarter of the prior year negatively impacted royalty income by approximately $410,000 in both the comparable quarter and for the year.

Distributable cash before SIFT tax decreased by $230,000 from $4,283,000 (37.7 cents/Fund unit) to $4,053,000 (35.7 cents/Fund unit) for the quarter and increased by $446,000 from $16,681,000 ($1.469/Fund unit) to $17,127,000 ($1.509/Fund unit) for the year. Distributable cash available to pay distributions to public unitholders decreased by $122,000 from $3,062,000 (27.0 cents/Fund unit) to $2,940,000 (25.9 cents/Fund unit) for the quarter and increased by $511,000 from $12,296,000 ($1.083/Fund unit) to $12,807,000 ($1.128/Fund unit) for the year.

Distributions of $3,127,000 (27.5 cents/Fund unit) were paid to Fund unitholders during the fourth quarter of 2016, and a special distribution declared of $341,000 (3.0 cents/Fund unit), as compared with $2,946,000 (25.9 cents/Fund unit) paid during the fourth quarter of 2015 and a special distribution declared of $795,000 (7.0 cents/Fund unit). During 2016, distributions of $12,250,000 ($1.080/Fund unit) were paid to Fund unitholders (excluding the $341,000 special distribution declared in the fourth quarter of 2016) versus $11,365,000 ($1.001/Fund unit) during 2015 (excluding the $795,000 special distribution declared in the fourth quarter of 2015). The payout ratio was 118.0% for the fourth quarter of the current year and 98.3% for fiscal 2016.

The Fund remains financially well positioned with cash on hand of $1,990,000, and a positive working capital balance of $2,449,000 as at December 31, 2016.

"We are satisfied with the financial results of the Fund for the 2016 year" said David Aisenstat, President & CEO of Keg Restaurants Ltd. "Despite having one week less of sales included in this year's financial results compared to last year and despite persistent challenges in the oil-producing provinces, we still managed to significantly increase cash available for distribution to the Fund's unitholders."

FINANCIAL HIGHLIGHTS



($000's except per unit amounts)
Oct. 1
to Dec. 31,
2016
Oct. 1
to Dec. 31,
2015
Jan. 1
to Dec. 31,
2016
Jan. 1
to Dec. 31,
2015
Restaurants in the Royalty Pool 100 102 100 102
Royalty Pool sales (1) $ 147,837 $ 154,528 $ 576,951 $ 574,048
Royalty income (2) $ 5,931 $ 6,387 $ 23,101 $ 23,251
Interest income (3) 1,076 1,079 4,279 4,281
Total income $ 7,007 $ 7,466 $ 27,380 $ 27,532
Administrative expenses (4) (98 ) (138 ) (384 ) (435 )
Interest and financing expenses (5) (108 ) (108 ) (436 ) (519 )
Operating income $ 6,801 $ 7,220 $ 26,560 $ 26,578
Distributions to KRL (6) (2,408 ) (2,511 ) (9,485 ) (9,491 )
Profit before fair value gain (loss) and income taxes $ 4,393 $ 4,709 $ 17,075 $ 17,087
Fair value gain (loss) (7) 2,185 550 (11,408 ) (1,324 )
Income taxes (8) (1,142 ) (1,271 ) (4,399 ) (4,527 )
Profit (loss) and comprehensive income (loss) $ 5,436 $ 3,988 $ 1,268 $ 11,236
Distributable cash before SIFT tax (9) $ 4,053 $ 4,283 $ 17,127 $ 16,681
Distributable cash (10) $ 2,940 $ 3,062 $ 12,807 $ 12,296
Distributions to Fund unitholders (11) $ 3,468 $ 3,741 $ 12,591 $ 12,160
Payout Ratio (12) 118.0 % 122.2 % 98.3 % 98.9 %
Per Fund unit information (13)
Profit before fair value gain (loss) and income taxes $ .387 $ .415 $ 1.504 $ 1.505
Profit (loss) and comprehensive income (loss) $ .479 $ .351 $ .112 $ .990
Distributable cash before SIFT tax (9) $ .357 $ .377 $ 1.509 $ 1.469
Distributable cash (10) $ .259 $ .270 $ 1.128 $ 1.083
Distributions to Fund unitholders (11) $ .305 $ .330 $ 1.109 $ 1.071
Notes:
(1) Royalty Pool sales are the gross sales reported by Keg Restaurants included in the Royalty Pool in any period. As of January 1, 2016, the Royalty Pool includes 100 Keg restaurants, 42 of which are owned and operated by KRL and its subsidiaries, (32 in Canada and 10 in the United Sates), and 58 Keg restaurants which are owned and operated by Keg franchisees (all of which are in Canada).
(2) The Fund, indirectly through The Keg Rights Limited Partnership (the "Partnership"), earns royalty income equal to 4% of gross sales of Keg restaurants in the Royalty Pool.
(3) The Fund directly earns interest income on the $57.0 million Keg Loan, with interest income accruing at 7.5% per annum, payable monthly.
(4) The Fund, indirectly through the Partnership, incurs administrative expenses and interest on the operating line of credit, to the extent utilized.
(5) 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.
(6) 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.
(7) 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.
(8) Income taxes for the three months ended December 31, 2016, include SIFT tax expense of $1,113,000 (three months ended December 31, 2015 – $1,221,000) and a non-cash deferred income tax expense of $29,000 (three months ended December 31, 2015 – $50,000). Income taxes for the twelve months ended December 31, 2016, include SIFT tax expenses of $4,320,000 (twelve months ended December 31, 2015 – $4,385,000) and a non-cash deferred income tax expense of $79,000 (twelve months ended December 31, 2015 – $142,000).
(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) 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.
(12) 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).
(13) 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 December 31, 2016 were 11,353,500 (three months ended December 31, 2015 - 11,353,500), and for the twelve months ended December 31, 2016 were 11,353,500 (twelve months ended December 31, 2015 - 11, 353,500).

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 fifteen 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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