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 six months ended June 30, 2014.
The gross sales reported by the 103 Keg restaurants in the Royalty Pool were
$125,394,000 for the quarter, an increase of $10,968,000 or 9.6% from the
comparable quarter of the prior year. Year to date gross sales increased by
$21,399,000 or 9.0% to $260,154,000. 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, 2014, and same store sales increases of 5.8%
for the quarter and 5.0% 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 4.9% in Canada and by
7.5% in the United States for the 13-week period ended June 29, 2014. For the
26-week period ended June 29, 2014, same store sales increased by 4.1% in Canada
and by 4.9% in the United States. After translating the sales of the U.S.
restaurants into their Canadian dollar equivalent, consolidated same store sales
increased by 5.8% for the 13-week period and by 5.0% for the 26-week period. The
average exchange rate moved from 1.027 to 1.092 in the comparable 13-week
period, and from 1.017 to 1.095 in the comparable 26-week period, significantly
increasing the Canadian dollar equivalent of the U.S. restaurant sales.
Royalty income increased by $345,000 or 7.4% from $4,693,000 in the three months
ended June 30, 2013 to $5,038,000 in the three months ended June 30, 2014. For
the six months ended June 30, 2014 royalty income increased by $670,000 or 6.9%
from $9,759,000 to $10,429,000.
Distributable cash before SIFT tax increased by $247,000 from $3,439,000 (30.3
cents/Fund unit) to $3,686,000 (32.5 cents/Fund unit) for the quarter and by
$252,000 from $7,533,000 (66.3 cents/Fund unit) to $7,785,000 (68.6 cents/Fund
unit) for the six-month period. Distributable cash available to pay
distributions to public unitholders increased by $211,000 from $2,543,000 (22.4
cents/Fund unit) to $2,754,000 (24.3 cents/Fund unit) for the quarter and by
$125,000 from $5,723,000 (50.4 cents/Fund unit) to $5,848,000 (51.5 cents/Fund
unit) year to date.
The Fund remains financially well-positioned with cash on hand of $1,334,000 and
a positive working capital balance of $2,425,000 as at June 30, 2014. The Fund's
payout ratio was 98.9% for the second quarter of 2014 and was 93.2% year to
date.
"We are very pleased with the same store sales growth generated during the
quarter and year to date," said David Aisenstat, President and CEO of Keg
Restaurants Ltd. "Same store sales growth is the largest driver of increases to
royalty income and ultimately to increases in cash available for distribution to
the Fund's unitholders".
FINANCIAL HIGHLIGHTS
Apr. 1 Apr. 1 Jan. 1 Jan. 1
to Jun. 30, to Jun. 30, to Jun. 30, to Jun. 30,
($000's except per unit
amounts) 2014 2013 2014 2013
----------------------------------------------------------------------------
Restaurants in the
Royalty Pool 103 102 103 102
Gross sales reported by
Keg restaurants in the
Royalty Pool $ 125,344 $ 114,426 $ 260,154 $ 238,755
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Royalty income (1) $ 5,038 $ 4,693 $ 10,429 $ 9,759
Interest income (2) 1,067 1,067 2,122 2,123
------------ ------------ ------------ ------------
Total income $ 6,105 $ 5,760 $ 12,551 $ 11,882
Administrative expenses
(3) (101) (91) (193) (190)
Interest and financing
expenses (4) (154) (174) (307) (347)
------------ ------------ ------------ ------------
Operating income $ 5,850 $ 5,495 $ 12,051 $ 11,345
Distributions to KRL (5) (2,137) (1,980) (4,353) (4,038)
------------ ------------ ------------ ------------
Profit (loss) before fair
value adjustment and
taxes $ 3,713 $ 3,515 $ 7,698 $ 7,307
Fair value adjustment (6) (33) 3,107 233 769
Taxes (7) (932) (950) (1,985) (1,923)
------------ ------------ ------------ ------------
Profit (loss) $ 2,748 $ 5,672 $ 5,946 $ 6,153
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Distributable cash before
SIFT tax (8) $ 3,686 $ 3,439 $ 7,785 $ 7,533
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Distributable cash (9) $ 2,754 $ 2,543 $ 5,848 $ 5,723
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Distributions paid to
Fund unitholders $ 2,725 $ 2,725 $ 5,450 $ 5,450
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Payout Ratio (10) 98.9% 107.2% 93.2% 95.2%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Per Fund unit information
(11)
Profit (loss) before
market value adjustment
and income taxes $ .327 $ .310 $ .678 $ .644
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Profit (loss) $ .242 $ .500 $ .524 $ .542
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Distributable cash before
SIFT tax (8) $ .325 $ .303 $ .686 $ .663
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Distributable cash (9) $ .243 $ .224 $ .515 $ .504
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Distributions paid to
Fund unitholders $ .240 $ .240 $ .480 $ .480
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
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) 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 and additional entitlements
during the same period.
(7) Taxes for the three months ended June 30, 2014, include SIFT tax expense
of $932,000 (three months ended June 30, 2013 - $896,000) and non-cash
deferred taxes of $nil (three months ended June 30, 2013 - $54,000). Taxes
for the six months ended June 30, 2014, include SIFT tax expense of
$1,937,000 (six months ended June 30, 2013 - $1,810,000) and non-cash
deferred tax of $48,000 (six months ended June 30, 2013 - $113,000).
(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 held by public
unitholders during the respective period. The weighted average number of
Fund units outstanding for the three months ended June 30, 2014 were
11,353,500 (three months ended June 30, 2013 - 11,353,500) and for the six
months ended June 30, 2014 were 11,353,500 (six months ended June 30, 2013 -
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 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.
FOR FURTHER INFORMATION PLEASE CONTACT:
The Keg Royalties Income Fund
Ryan Bullock
Director of Marketing
(416) 646-4960
ryan.bullock@kegrestaurants.com
www.kegincomefund.com
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