The Keg Royalties Income Fund
TSX : KEG.UN

The Keg Royalties Income Fund

May 01, 2017 19:51 ET

The Keg Royalties Income Fund Reports First Quarter 2017 Financial Results

VANCOUVER, BRITISH COLUMBIA--(Marketwired - May 1, 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 its financial results for the three months ended March 31, 2017.

The gross sales reported by the 100 Keg restaurants in the Royalty Pool were $154,060,000 for the quarter, as compared with gross sales of $146,787,000 reported by the 100 Keg restaurants in the Royalty Pool during the comparable quarter of the prior year. Despite having the same number of restaurants included in the Royalty pool during 2017, Royalty Pool sales increased by $7,273,000 or 5.0%, almost entirely due to a same store sales increase of 4.5% for the quarter.

The Keg's same store sales (sales of restaurants that operated during the entire 13-week period of both the current and prior years) increased by 5.3% in Canada and by 0.5% in the United States. After translating the sales of the U.S. restaurants into their Canadian dollar equivalent, consolidated same store sales for the comparable 13-week periods increased 4.5%. The average exchange rate moved from 1.3691 in KRL's 13-week period ended April 3, 2016 to 1.3244 in KRL's 13-week period ended April 2, 2017, significantly decreasing the Canadian dollar equivalent of the U.S. restaurant sales.

"We are extremely pleased with our sales performance for the quarter", said David Aisenstat, President and CEO of Keg Restaurants Ltd. "Despite continued sales weakness in the oil producing provinces, The Keg still managed to generate same store sales growth overall during the quarter".

Royalty income increased by $335,000 or 5.7% from $5,871,000 in the three months ended March 31, 2016 to $6,206,000 in the three months ended March 31, 2017.

Distributable cash before SIFT tax increased by $55,000 from $4,721,000 (41.6 cents/Fund unit) to $4,776,000 (42.1 cents/Fund unit) for the quarter. Distributable cash available to pay distributions to public unitholders decreased slightly by $13,000 from $3,630,000 (32.0 cents/Fund unit) to $3,617,000 (31.9 cents/Fund unit) during the comparable quarter. Distributions of $3,127,000 (27.5 cents/Fund unit) were paid to Fund unitholders in the first quarter of 2017 as compared with $2,980,000 (26.2 cents/Fund unit) in the first quarter of 2016.

The Fund remains financially well positioned with surplus cash on hand of $2,172,000 and a positive working capital balance of $3,764,000 as of March 31, 2017.

FINANCIAL HIGHLIGHTS

($000's except per unit amounts) Jan. 1 to Mar. 31, 2017 Jan. 1 to Mar. 31, 2016
Restaurants in the Royalty Pool 100 100
Royalty Pool sales (1) $ 154,060 $ 146,787
Royalty income (2) $ 6,206 $ 5,871
Interest income (3) 1,055 1,064
Total income $ 7,261 $ 6,935
Administrative expenses (4) (89 ) (94 )
Interest and financing expenses (5) (106 ) (106 )
Operating income $ 7,066 $ 6,735
Distributions to KRL (6) (2,510 ) (2,401 )
Profit before fair value gain (loss) and income taxes $ 4,556 $ 4,334
Fair value gain (loss) (7) 3,562 (1,917 )
Income taxes (8) (1,208 ) (1,109 )
Profit (loss) and comprehensive income (loss) $ 6,910 $ 1,308
Distributable cash before SIFT tax (9) $ 4,776 $ 4,721
Distributable cash (10) $ 3,617 $ 3,630
Distributions to Fund unitholders (11) $ 3,127 $ 2,980
Payout Ratio (12) 86.5% 82.1%
Per Fund unit information (13)
Profit before fair value gain (loss) and income taxes $ .401 $ .382
Profit (loss) and comprehensive income (loss) $ .609 $ .115
Distributable cash before SIFT tax (9) $ .421 $ .416
Distributable cash (10) $ .319 $ .320
Distributions to Fund unitholders (11) $ .275 $ .262
SSSG (14)
Canada 5.3% 0.0%
United States 0.5% 2.2%
Consolidated 4.5% 1.1%
Restaurants in KRL System (15) # Beginning of Period 101 101
Opened 1 --
Closed (1 ) --
# End of Period 101 101

Notes:

(1) Royalty Pool sales are the gross sales reported by Keg Restaurants included in the Royalty Pool in any period. As of March 31, 2017, the Royalty Pool includes 100 Keg restaurants, 43 of which are owned and operated by KRL and its subsidiaries, (33 in Canada and 10 in the United Sates), and 57 Keg restaurants which are owned and operated by Keg franchisees (all of which are in Canada). As of March 31, 2017, one franchise restaurant in Canada is not included in the Royalty Pool, as it opened subsequent to October 2, 2016.

(2) The Fund, indirectly through 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 March 31, 2017, include SIFT tax expense of $1,159,000 (three months ended March 31, 2016 - $1,091,000) and non-cash deferred taxes of $49,000 (three months ended March 31, 2016 - $18,000).

(9) Distributable cash before SIFT tax is defined as the periodic cash flows from operating activities as reported in the IFRS condensed 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 March 31, 2017 were 11,353,500 (three months ended March 31, 2016 - 11,353,500).

(14) 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.

(15) The number of restaurants included in the Royalty Pool, may differ from the number of restaurants in the KRL system at any time as the periods for which they are reported differ. 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 they are reported differ as well.

(16) 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, 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 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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