The Keg Royalties Income Fund Reports First Quarter 2020 Financial Results

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

VANCOUVER, British Columbia, May 13, 2020 (GLOBE NEWSWIRE) -- The Keg Royalties Income Fund (the “Fund”) (KEG-UN.TO) and Keg Restaurants Ltd (“KRL”) are pleased to announce the financial results of the Fund for the first quarter of 2020.

HIGHLIGHTS

• All 106 Keg restaurants in the Royalty Pool closed as at March 17, 2020 due to the COVID-19 pandemic

• KRL system sales down 14.3% to $144.1M for the 13-week period

• KRL same store sales down 0.3% for the comparable 8-week periods

• Royalty Pool sales down 13.9% to $142.7M for the quarter

• Distributable cash up 7.4% to 36.6 cents/Fund unit for the quarter

• Payout ratio was 77.6% for the first quarter of 2020

The Royalty Pool sales reported by the 106 Keg restaurants in the Royalty Pool were $142,653,000 for the quarter, a decrease of $23,123,000 or 13.9% from the comparable quarter of the prior year. These Royalty Pool sales include the sales of one net new Keg restaurant, which was added to the Royalty Pool on January 1, 2020, net of a same store sales decrease of 0.3% for the quarter, and the loss of $26,708,000 in Royalty Pool sales due to the temporary closure of all Keg restaurants on March 17, 2020, due to the COVID-19 crisis.

The Keg’s same store sales (sales of restaurants that operated during the 8-week period ended February 23, 2020 in the current year, and in the 8-week period ended February 24, 2019) decreased by 0.5% in Canada and increased by 2.5% 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 8-week periods decreased by 0.3%. The average exchange rate moved from 1.3301 in KRL’s 8-week period ended February 24, 2019 to 1.3407 in KRL’s 8-week period ended February 23, 2020, slightly increasing the Canadian dollar equivalent of the U.S. restaurant sales.

“The COVID-19 pandemic has disrupted our lives and the economy in a truly unprecedented manner. The restaurant industry was among the most affected areas, as has been widely reported. Fortunately, Keg Restaurants Ltd. was in a very strong financial position when we were faced with the slowdown and ultimate closures resulting from the COVID-19 crisis, and that has allowed us to weather the storm reasonably well and still remain in sound financial condition,” said David Aisenstat, CEO of Keg Restaurants Ltd. “We are now well along in our detailed reopening plans and feel highly confident that we will be able to move forward with those initiatives over the coming weeks when allowed to reopen by the various Governments under whose jurisdictions we operate in Canada and the U.S. When that happens, we will first and foremost be certain to ensure the health and safety of our staff and our guests. But please know The Keg and our dedicated team truly look forward to also delivering the legendary food, service and hospitality for which we have been renowned over close to fifty years. We can't wait to welcome you back!”

Royalty income decreased by $980,000 or 14.7% from $6,686,000 in the three months ended March 31, 2019 to $5,706,000 in the three months ended March 31, 2020.

Distributable cash before SIFT tax increased by $55,000 from $5,120,000 (45.1 cents/Fund unit) to $5,175,000 (45.6 cents/Fund unit) for the quarter. Distributable cash available to pay distributions to public unitholders increased by $286,000 from $3,867,000 (34.1 cents/Fund unit) to $4,153,000 (36.6 cents/Fund unit) for the quarter. Distributions paid to Fund unitholders remained the same during the first quarter of 2020 at $3,222,000 (28.4 cents/Fund unit). The payout ratio for the quarter was 77.6% as compared with 83.3% for the comparable quarter of the prior year.

The Fund remains financially well positioned with cash on hand of $2,835,000 and a positive working capital balance of $3,461,000 as at March 31, 2020.

FINANCIAL HIGHLIGHTS

($000’s except per unit amounts)	Jan. 1 to Mar. 31, 2020				Jan. 1 to Mar. 31, 2019
Restaurants in the Royalty Pool		106				105
Royalty Pool sales (1)	$	142,653			$	165,776
Royalty income (2)	$	5,706			$	6,686
Interest income (3)		1,070				1,062
Total income	$	6,776			$	7,748
Administrative expenses (4)		(98	)			(107	)
Interest and financing expenses (5)		(141	)			(150	)
Operating income	$	6,537			$	7,491
Distributions to KRL (6)		(2,675	)			(2,834	)
Profit before fair value gain (loss) and income taxes	$	3,862			$	4,657
Fair value gain (loss) (7)		32,600				(5,332	)
Income taxes (8)		(883	)			(1,272	)
Profit (loss) and comprehensive income (loss)	$	35,579			$	(1,947	)
Distributable cash before SIFT tax (9)	$	5,175			$	5,120
Distributable cash (10)	$	4,153			$	3,867
Distributions to Fund unitholders (11)	$	3,222			$	3,222
Payout ratio (12)		77.6	%			83.3	%
Per Fund unit information (13)
Profit before fair value gain (loss) and income taxes	$	.340			$	.410
Profit (loss) and comprehensive income (loss)	$	3.134			$	(.171	)
Distributable cash before SIFT tax (9)	$	.456			$	.451
Distributable cash (10)	$	.366			$	.341
Distributions to Fund unitholders (11)	$	.284			$	.284

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, 2020, the Royalty Pool includes 106 Keg restaurants, 49 of which are owned and operated by KRL and its subsidiaries (39 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).

⁽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 include the Specified Investment Flow-through Trust tax (“SIFT tax”) expense, and either a non-cash deferred tax expense or deferred tax recovery. The deferred tax expense or recovery primarily results from differences in income recognition between the Fund’s accounting methods and enacted tax laws. It is also partially due to temporary differences between accounting and tax bases of the Keg Rights owned by the Partnership.

⁽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, 2020 were 11,353,500 (three months ended March 31, 2019 – 11,353,500).

The Fund (KEG-UN.TO) 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 sixteen 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, Chief Marketing Officer
Tel: (416) 646-4517
ryan.bullock@kegrestaurants.com
www.kegincomefund.com