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 nine months ended September 30, 2013.
The gross sales reported by the 102 Keg restaurants in the Royalty Pool were
$116,016,000 for the quarter, a decrease of $3,269,000 or 2.7% from the
comparable quarter of the prior year. Year to date gross sales decreased by
$7,405,000 or 2.0% to $354,771,000. The decrease in gross sales for both the
quarter and year to date was primarily due to the closure of three corporate
restaurants at the beginning of the year, and the closure of one additional
corporate restaurant during the third quarter.
The Keg's same store sales (sales of restaurants that operated during the entire
period of both the current and prior years) decreased by 1.5% in Canada and
increased by 0.8% in the United States for the 13- week period ended September
29, 2013. For the 39-week period ended September 29, 2013, same store sales
decreased by 0.9% in Canada and increased by 1.9% in the United States. After
translating the sales of the U.S. restaurants into their Canadian dollar
equivalent, consolidated same store sales decreased by 0.9% for the 13-week
period and by 0.5% for the 39-week period. The average exchange rate moved from
0.99 to 1.04 in the comparable 13-week period, and from 1.00 to 1.02 in the
comparable 39-week period, thereby increasing the Canadian dollar equivalent of
the U.S. restaurant sales.
Royalty income increased by $4,000 or 0.1% from $4,772,000 in the three months
ended September 30, 2012 to $4,776,000 in the three months ended September 30,
2013. For the nine months ended September 30, 2013 royalty income increased by
$30,000 or 0.2% from $14,505,000 to $14,535,000.
Distributable cash before SIFT tax increased by $11,000 from $3,638,000 (32.0
cents/Fund unit) to $3,649,000 (32.1 cents/Fund unit) for the quarter and
decreased by $28,000 from $11,210,000 (98.7 cents/Fund unit) to $11,182,000
(98.5 cents/Fund unit) for the nine-month period. Distributable cash available
to pay distributions to public unitholders decreased by $18,000 from $2,784,000
(24.5 cents/Fund unit) to $2,766,000 (24.4 cents/Fund unit) for the quarter and
by $121,000 from $8,611,000 (75.8 cents/Fund unit) to $8,490,000 (74.8
cents/Fund unit) year to date.
The Fund remains financially well-positioned with cash on hand of $890,000 and a
positive working capital balance of $2,024,000 as at September 30, 2013. The
Fund's payout ratio was 98.5% for the third quarter of 2013 and was 96.3% year
to date.
"We are pleased with our results for the third quarter, particularly given the
challenging economic conditions experienced by the Canadian restaurant industry
so far this year," said David Aisenstat, President and CEO of Keg Restaurants
Ltd. "We continue to be encouraged by the same store sales growth generated by
our U.S. restaurants."
FINANCIAL HIGHLIGHTS
Jul. 1 Jul. 1 Jan. 1 Jan. 1
to Sep. to Sep. to Sep. to Sep.
30, 30, 30, 30,
($000's except per unit
amounts) 2013 2012 2013 2012
----------------------------------------------------------------------------
Restaurants in the Royalty Pool 102 102 102 102
Gross sales reported by Keg
restaurants in the Royalty
Pool $ 116,016 $ 119,285 $ 354,771 $ 362,176
--------------------------------------------
--------------------------------------------
Royalty income (1) $ 4,776 $ 4,772 $ 14,535 $ 14,505
Interest income (2) 1,079 1,075 3,201 3,207
--------------------------------------------
Total income $ 5,855 $ 5,847 $ 17,736 $ 17,712
Administrative expenses (3) (117) (104) (308) (312)
Interest and financing expenses
(4) (175) (181) (522) (529)
--------------------------------------------
Operating income $ 5,563 $ 5,562 $ 16,906 $ 16,871
Distributions to KRL (5) (1,996) (1,998) (6,033) (6,027)
--------------------------------------------
Profit (loss) before fair value
adjustment and taxes $ 3,567 $ 3,564 $ 10,873 $ 10,844
Fair value adjustment (7) (2,278) (1,478) (1,509) (5,186)
Taxes (8) (904) (876) (2,826) (2,685)
--------------------------------------------
Profit (loss) $ 385 $ 1,210 $ 6,538 $ 2,973
--------------------------------------------
--------------------------------------------
Distributable cash before SIFT
tax (9) $ 3,649 $ 3,638 $ 11,182 $ 11,210
--------------------------------------------
--------------------------------------------
Distributable cash (10) $ 2,766 $ 2,784 $ 8,490 $ 8,611
--------------------------------------------
--------------------------------------------
Distributions paid to Fund
unitholders $ 2,725 $ 2,725 $ 8,175 $ 8,175
--------------------------------------------
--------------------------------------------
Payout Ratio (11) 98.5% 97.9% 96.3% 94.9%
--------------------------------------------
--------------------------------------------
Per Fund unit information (12)
Profit (loss) before market
value adjustment and income
taxes $ .314 $ .314 $ .958 $ .955
--------------------------------------------
--------------------------------------------
Profit (loss) $ .034 $ .107 $ .576 $ .262
--------------------------------------------
--------------------------------------------
Distributable cash before SIFT
tax (9) $ .321 $ .320 $ .985 $ .987
--------------------------------------------
--------------------------------------------
Distributable cash (10) $ .244 $ .245 $ .748 $ .758
--------------------------------------------
--------------------------------------------
Distributions paid to Fund
unitholders $ .240 $ .240 $ .720 $ .720
--------------------------------------------
--------------------------------------------
SSSG (13)
Canada (1.5)% (0.6)% (0.9)% 0.8%
United States 0.8% (0.8)% 1.9% 0.7%
Consolidated (0.9)% (0.5)% (0.5)% 1.0%
Restaurant Openings/Closings
(14)
Opened -- -- 1 --
Closed 1 -- 3 --
Relocated -- -- -- --
Net Opened (Closed) (1) -- (2) --
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. Represents the distributions declared on the publicly traded Fund units
during the period. The distributions declared to the Fund's public
unitholders since January 1, 2011 have been recorded as distributions
and charged to unitholder's equity whereas the distributions declared
prior to December 31, 2010 were expensed as interest.
7. 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
during the same period.
8. Taxes for the quarter ended September 30, 2013, include SIFT tax expense
of $883,000 (quarter ended September 30, 2012 - $854,000) and non-cash
deferred taxes of $21,000 (quarter ended September 30, 2012 - $22,000).
Taxes for the nine months ended September 30, 2013 include SIFT tax
expense of $2,692,000 (nine months ended September 30, 2012 -
$2,599,000) and non-cash deferred tax of $134,000 (nine months ended
September 30, 2012 - $86,000). The obligation to pay SIFT tax came into
effect on January 1, 2011.
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. 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).
12. 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, 2013 was
11,353,500 (three months ended September 30, 2012 - 11,353,500) and for
the nine months ended September 30, 2013 was 11,353,500 (nine months
ended September 30, 2012 - 11,353,500).
13. 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.
14. The number of restaurants added to the Royalty Pool each year may differ
from the number of restaurant openings and closings reported by KRL on
an annual basis, as the periods for which they are reported differ
slightly.
15. 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,
Keg Restaurants Ltd 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 twelve 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
Investor Relations
(416) 646-4960
ryan.bullock@kegrestaurants.com
www.kegincomefund.com
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