The Keg Royalties Income Fund Announces Third Quarter 2018 Results

CBJ Newsmakers

Not for distribution to U.S. News wire services or dissemination in the U.S.

VANCOUVER, British Columbia, Nov. 12, 2018 (GLOBE NEWSWIRE) — The Keg Royalties Income Fund (the “Fund”) (TSX: KEG.UN) is pleased to announce its financial results for the three and nine months ended September 30, 2018.

The gross sales reported by the 103 Keg restaurants in the Royalty Pool were $157,910,000 for the quarter, an increase of $10,112,000 or 6.8% from the comparable quarter of the prior year. Year-to-date gross sales increased by $23,518,000 or 5.3% to $470,848,000. 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, 2018, and same store sales increases of 3.0% for the quarter and 1.7% 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 2.3% in Canada and by 6.3% in the United States (“U.S.”) for the 13-week period ended September 30, 2018. For the 39-week period ended September 30, 2018, same store sales increased by 1.6% in Canada and by 5.2% in the U.S. After translating the sales of the U.S. restaurants into their Canadian dollar equivalent, consolidated same store sales increased by 3.0% for the 13-week period and by 1.7% for the 39-week period. The average exchange rate increased from 1.2414 to 1.3098 in the comparable 13-week period, significantly increasing the Canadian dollar equivalent of the U.S. restaurant sales, and decreased from 1.3069 to 1.2876 in the comparable 39-week period, significantly reducing the Canadian dollar equivalent of the U.S. restaurant sales in the comparable periods.

Royalty income increased by $357,000 or 6.0% from $5,993,000 in the three months ended September 30, 2017 to $6,350,000 in the three months ended September 30, 2018. For the nine months ended September 30, 2018 royalty income increased by $805,000 or 4.5% from $18,068,000 to $18,873,000.

Distributable cash before SIFT tax decreased by $132,000 from $4,549,000 (40.1 cents/Fund unit) to $4,417,000 (38.9 cents/Fund unit) for the quarter but increased by $95,000 from $13,626,000 ($1.200/Fund unit) to $13,721,000 ($1.209/Fund unit) for the nine-month period. Distributable cash available to pay distributions to public unitholders decreased by $209,000 from $3,443,000 (30.3 cents/Fund unit) to $3,234,000 (28.5 cents/Fund unit) for the quarter and decreased by $94,000 from $10,269,000 (90.4 cents/Fund unit) to $10,175,000 (89.6 cents/Fund unit) year to date. The Fund’s payout ratio was 99.6% for the third quarter of 2018 and 95.0% year-to-date.

The Fund remains financially well-positioned with cash on hand of $2,627,000 and a positive working capital balance of $3,952,000 as at September 30, 2018.

“The Keg once again generated same store sales increases in both the comparable quarter and on a year-to-date basis,” said David Aisenstat, President and CEO of Keg Restaurants Ltd. “Despite some of the lingering challenges in the restaurant industry across many of the provinces, we remain pleased with our overall sales performance.”

FINANCIAL HIGHLIGHTS                                          
                                           
                                           
        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)       2018         2017         2018         2017    
                                           
Restaurants in the Royalty Pool       103         100         103         100    
                                           
Royalty Pool sales (1)     $ 157,910       $ 147,798       $ 470,848       $ 447,330    
                                           
Royalty income (2)     $ 6,350       $ 5,993       $ 18,873       $ 18,068    
Interest income (3)       1,084         1,080         3,214         3,201    
Total income      $ 7,434       $ 7,073       $ 22,087       $ 21,269    
Administrative expenses (4)       (105 )       (96 )       (312 )       (283 )  
Interest and financing expenses (5)       (148 )       (124 )       (414 )       (337 )  
Operating income     $ 7,181       $ 6,853       $ 21,361       $ 20,649    
Distributions to KRL (6)       (2,735 )       (2,514 )       (8,011 )       (7,452 )  
Profit before fair value gain (loss) and income taxes     $ 4,446       $ 4,339       $ 13,350       $ 13,197    
Fair value gain (loss) (7)       (363 )       6,696         9,182         1,979    
Income taxes (8)        (1,198 )       (1,115 )       (3,547 )       (3,416 )  
Profit (loss) and comprehensive income (loss)     $ 2,885       $ 9,920       $ 18,985       $ 11,760    
                                           
Distributable cash before SIFT tax (9)     $ 4,417       $ 4,549       $ 13,721       $ 13,626    
Distributable cash (10)     $ 3,234       $ 3,443       $ 10,175       $ 10,269    
Distributions to Fund unitholders (11)     $ 3,222       $ 3,127       $ 9,666       $ 9,380    
Payout Ratio (12)       99.6%         90.8%         95.0%         91.3%    
                                           
Per Fund unit information (13)                                          
Profit before fair value gain (loss) and income taxes     $ .392       $ .382       $ 1.176       $ 1.162    
Profit (loss) and comprehensive income (loss)     $ .254       $ .874       $ 1.672       $ 1.036    
Distributable cash before SIFT tax (9)     $ .389       $ .401       $ 1.209       $ 1.200    
Distributable cash (10)     $ .285       $ .303       $ .896       $ .904    
Distributions to Fund unitholders (11)     $ .284       $ .275       $ .851       $ .826    

           
Notes:
           
    (1)     Royalty Pool sales are the gross sales reported by Keg Restaurants included in the Royalty Pool in any period.  As of September 30, 2018, the Royalty Pool includes 103 Keg restaurants, 48 of which are owned and operated by KRL and its subsidiaries, (38 in Canada and 10 in the United Sates), and 55 Keg restaurants which are owned and operated by Keg franchisees (all of which are in Canada). As of September 30, 2018, two corporate and one franchise restaurant, (all opened subsequent to October 2, 2017), are not yet included in the Royalty Pool, while one permanently closed restaurant remains in the Royalty Pool.
           
    (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 September 30, 2018 include SIFT tax expense of $1,183,000 (three months ended September 30, 2017 – $1,106,000) and non-cash deferred tax expense of $15,000 (three months ended September 30, 2017 – deferred tax expense of $9,000). Income taxes for the nine months ended September 30, 2018, include SIFT tax expense of $3,546,000 (nine months ended September 30, 2017 – $3,357,000) and a non-cash deferred tax expense of $1,000 (nine months ended September 30, 2017 – deferred tax expense of $59,000).
           
    (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 September 30, 2018 were 11,353,500 (three months ended September 30, 2017 – 11,353,500), and for the nine months ended September 30, 2018 were 11,353,500 (nine months ended September 30, 2017 – 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 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.

For further information: 
Ryan Bullock, Vice President, Marketing
Tel:  (416) 646-4960
ryan.bullock@kegrestaurants.com     www.kegincomefund.com  

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