The Keg Royalties Income Fund
TSX : KEG.UN

The Keg Royalties Income Fund

March 23, 2011 07:00 ET

The Keg Royalties Income Fund Posts Record Year End Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 23, 2011) -

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 financial results for the quarter and year ended December 31, 2010.

Gross sales reported by Keg restaurants in the Royalty Pool decreased by $3,587,000 or 3.0% to $114,298,000 during the quarter and by $2,112,000 or 0.5% to $452,786,000 for the year. Readers should note that the decrease in sales for both the quarter and the full year is entirely due to the loss of an extra week of sales in the prior year as explained below.

Keg Restaurants Ltd. ("KRL"), the company which makes the royalty payments to the Fund, has a year end which falls on the Sunday closest to September 30th in any year. As a result of the floating year-end date, approximately every fifth fiscal year contains 53 weeks of operation. KRL's fiscal year ended October 3, 2010, contained 53 weeks of sales and the period ended January 3, 2010, contained 14 weeks of sales. Royalty Pool sales for the year ended December 31, 2009 contained 53 weeks of sales and the Royalty Pool sales generated during the extra week of operation in the prior year were $8,099,000. After deducting the extra week of sales in the prior year for comparative purposes, Royalty Pool sales increased by $4,512,000 or 4.1% for the comparable 13-week periods, and by $5,987,000 or 1.3% for the comparable 52-week periods. After deducting the additional week of sales in the prior year for comparative purposes, The Keg's same store sales (sales of restaurants that operated during the entire 13-week period of both the current and the prior year) increased by 1.5% in Canada and decreased by 0.5% in the United States. Same store sales for the year (sales of restaurants that operated during the entire 52-week period of both the current and the prior year) were flat in Canada and decreased by 5.8% in the United States. After translating the sales of the U.S. restaurants into their Canadian dollar equivalent, consolidated same store sales increased by 0.8% for the comparable 13-week period and decreased by 1.7% for the comparable 52-week period.

"We are very pleased with our sales performance during the quarter, particularly in Canada" said David Aisenstat, The Keg's President and Chief Executive Officer. "Although this growth remains relatively modest by our historical standards, we are encouraged by our performance relative to the restaurant industry as a whole, which has seen real sales declines for the past three years. We believe that an improving economic environment will drive restaurant industry growth and that The Keg will once again outperform the full service category with respect to same store sales growth."

Royalty income decreased by $182,000 or 3.7% to $4,697,000 for the quarter, and by $223,000 or 1.2% to $18,422,000 for the year, primarily as the result of the loss of the extra week of sales in the prior year.

Earnings before income taxes increased by $57,000 from $3,260,000 (33.6 cents\Fund unit) to $3,317,000 (31.3 cents\Fund unit) for the quarter and by $372,000 from $12,473,000 ($1.285\Fund unit) to $12,845,000 ($1.240\Fund unit) for the year.

Distributable cash available to pay distributions to Fund unitholders decreased by $57,000 from $3,182,000 (32.8 cents\Fund unit) to $3,125,000 (29.5 cents\Fund unit) for the comparable quarter and increased by $317,000 from $12,501,000 ($1.288\Fund unit) to $12,818,000 ($1.237\Fund unit) for the year. The Fund has paid distributions of 32.0 cents/Fund unit during the quarter, and $1.280/Fund unit for the year.

FINANCIAL HIGHLIGHTS

    Oct. 1
to Dec. 31, 2010
  Oct. 1
to Dec. 31, 2009 
  Jan. 1
to Dec. 31, 2010
  Jan. 1
to Dec. 31, 2009 
   
($000's except per unit amounts)                
Restaurants in the Royalty Pool   102   102   102   102 
                 
Gross sales reported by Keg restaurants                
in the Royalty Pool $ 114,298 $ 117,885 $ 452,786 $ 454,898
                 
                 
Royalty income $ 4,697 $ 4,879 $ 18,422 $ 18,645
Partnership expenses   (112)   (101)   (417)   (397)
Partnership earnings   4,585   4,778   18,005   18,248
KRL's interest   (2,169)   (2,445)   (8,787)   (9,546)
Equity income   2,416   2,333   9,218   8,702 
Interest income   1,079   1,078   4,278   4,280 
Total income   3,495   3,411   13,496   12,982 
Interest and financing expenses   (178)   (151)   (651)   (509)
Earnings before income taxes $ 3,317 $ 3,260 $ 12,845 $ 12,473
Net earnings (1) $ 3,267 $ 3,110 $ 12,845 $ 12,398
Distributable cash $ 3,125 $ 3,182 $ 12,818 $ 12,501
Distributions paid $ 3,388 $ 3,100 $ 13,264 $ 12,401
                 
Earnings before income taxes per Fund unit (2) $ .313 $ .336 $ 1.240 $ 1.285
Earnings per Fund unit (2) $ .308 $ .321 $ 1.240 $ 1.278
Distributable cash per Fund unit (2) $ .295 $ .328 $ 1.237 $ 1.288
Distributions paid per Fund unit (2) $ .320 $ .320 $ 1.280 $ 1.278
Payout Ratio   108.4%   97.4%   103.5%   99.2%
                 
(1) Net earnings for the three months ended December 31, 2010 reflect the non-cash future income tax expense of $50,000 (three months ended December 31, 2009 - $150,000) and net earnings for the year ended December 31, 2010 reflect the non-cash future income tax expense of $nil (year ended December 31, 2009 - $75,000).
 
(2) 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. On April 9, 2010, KRL exchanged 900,000 Class B Partnership Units for an equal number of Fund units, and sold them through the facilities of the Toronto Stock Exchange. As a result, the total number of Fund units held by public unitholders increased to 10,603,500. The public's average effective ownership of the Fund (based on the weighted average number of Fund units held by public unitholders during the respective period) was 75.11% during the three months ended December 31, 2010 (three months ended December 31, 2009 – 70.36%) and 73.40% during the year ended December 31, 2010 (year ended September 30, 2009 – 70.36%). The weighted average number of Fund units outstanding for the three-month period ended December 31, 2010 was 10,603,500 (three-month period ended December 31, 2009 – 9,703,500) and for the year ended December 31, 2010 was 10,361,856 (year ended December 31, 2009 – 9,703,500).

A copy of the complete financial results will be available at www.sedar.com or on the Fund's website at www.kegincomefund.com.

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. Keg Restaurants Ltd. has been named one of the "50 Best Employers in Canada" for the past nine 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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