Not for distribution to U.S. News wire services or dissemination in the U.S.
VANCOUVER, British Columbia, Nov. 12, 2019 (GLOBE NEWSWIRE) -- The Keg Royalties Income Fund (the “Fund”) (TSX: KEG.UN) is pleased to announce its financial results for the three months ended September 30, 2019 (the “quarter”) and for the nine months ended September 30, 2019 (“YTD”).
HIGHLIGHTS
- Royalty Pool sales down 3.5% to $152.5M for the quarter and by 0.4% to $469.0M YTD
- Royalty income down 2.0% to $6.2M for the quarter and up 0.9% to $19.0M YTD
- KRL same store sales down 3.6% for the quarter and by 0.9% YTD
- Distributable cash down 6.1% to 26.7 cents/Fund unit for the quarter and by 0.6% to 89.0 cents/Fund unit YTD
- Payout ratio was 106.1% for the quarter and 95.6% YTD
Royalty Pool sales reported by the 105 Keg restaurants in the Royalty Pool were $152,454,000 for the quarter, a decrease of $5,456,000 or 3.5% from the comparable quarter of the prior year. Year-to-date Royalty Pool sales decreased by $1,887,000 or 0.4% to $468,961,000. The decrease 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, 2019, net of same store sales decreases of 3.6% for the quarter and 0.9% 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) decreased by 3.8% in Canada and by 1.9% in the United States (“U.S.”) for the 13-week period ended September 29, 2019. For the 39-week period ended September 29, 2019, same store sales decreased by 1.5% in Canada and increased by 1.2% in the U.S. After translating the sales of the U.S. restaurants into their Canadian dollar equivalent, consolidated same store sales decreased by 3.6% for the 13-week period and by 0.9% for the 39-week period. The average exchange rate moved from 1.3098 to 1.3186 in the comparable 13-week period, slightly increasing the Canadian dollar equivalent of the U.S. restaurant sales, and from 1.2876 to 1.3294 in the comparable 39-week period, significantly increasing the Canadian dollar equivalent of the U.S. restaurant sales.
Royalty income decreased by $125,000 or 2.0% from $6,350,000 in the three months ended September 30, 2018 to $6,225,000 in the three months ended September 30, 2019. Year-to-date, royalty income increased by $174,000 or 0.9% from $18,873,000 for the nine months ended September 30, 2018 to $19,047,000 for the nine months ended September 30, 2019.
Distributable cash before SIFT tax decreased by $249,000 from $4,417,000 (38.9 cents/Fund unit) to $4,168,000 (36.7 cents/Fund unit) for the quarter and by $122,000 from $13,721,000 ($1.209/Fund unit) to $13,599,000 ($1.198/Fund unit) for the nine-month period. Distributable cash available to pay distributions to public unitholders decreased by $198,000 from $3,234,000 (28.5 cents/Fund unit) to $3,036,000 (26.7 cents/Fund unit) for the quarter and by $65,000 from $10,175,000 (89.6 cents/Fund unit) to $10,110,000 (89.0 cents/Fund unit) year to date. During the third quarter of both 2018 and 2019, distributions of $3,222,000 (28.4 cents/Fund unit) were paid to Fund unitholders, and during the first nine months of both years, distributions of $9,666,000 (85.1 cents/Fund unit) were paid to Fund unitholders (excluding the $341,000 special distributions paid in the first quarter of both 2019 and 2018). The payout ratio was 106.1% for the third quarter of the current year and 95.6% year to date.
The Fund remains financially well positioned with cash on hand of $2,292,000 and a positive working capital balance of $3,843,000 as at September 30, 2019.
“Category-wide guest count declines are a symptom of general economic concerns, evolving guest preferences, and increased competition in the space,” said David Aisenstat, CEO of Keg Restaurants Ltd. “We have faced these headwinds in the past and came out on top through a deliberate and unwavering focus on delivering an exceptional guest experience, through best-in-class service, exceptional in-restaurant atmosphere and a phenomenal food offering. We have continuously evolved to ensure leadership and relevance amongst our loyal and future guests. This will continue to be our strategy as we innovate on tradition, never losing site of the unique value proposition that has brought us success for close to 50 years.”
| FINANCIAL HIGHLIGHTS | ||||||||||||||||
| ($000’s except per unit amounts) | Jul 1 to Sept 30, 2019 | Jul 1 to Sept 30, 2018 | Jan 1 to Sept 30, 2019 | Jan 1 to Sept 30, 2018 | ||||||||||||
| Restaurants in the Royalty Pool | 105 | 103 | 105 | 103 | ||||||||||||
| Royalty Pool sales (1) | $ | 152,454 | $ | 157,910 | $ | 468,960 | $ | 470,848 | ||||||||
| Royalty income (2) | $ | 6,225 | $ | 6,350 | $ | 19,047 | $ | 18,873 | ||||||||
| Interest income (3) | 1,086 | 1,084 | 3,222 | 3,214 | ||||||||||||
| Total income | $ | 7,311 | $ | 7,434 | $ | 22,269 | $ | 22,087 | ||||||||
| Administrative expenses (4) | (98 | ) | (105 | ) | (284 | ) | (312 | ) | ||||||||
| Interest and financing expenses (5) | (159 | ) | (148 | ) | (460 | ) | (414 | ) | ||||||||
| Operating income | $ | 7,054 | $ | 7,181 | $ | 21,525 | $ | 21,361 | ||||||||
| Distributions to KRL (6) | (2,807 | ) | (2,735 | ) | (8,322 | ) | (8,011 | ) | ||||||||
| Profit before fair value gain (loss) and income taxes | $ | 4,247 | $ | 4,446 | $ | 13,203 | $ | 13,350 | ||||||||
| Fair value gain (loss) (7) | 2,980 | (363 | ) | (1,445 | ) | 9,182 | ||||||||||
| Income taxes (8) | (1,126 | ) | (1,198 | ) | (3,484 | ) | (3,547 | ) | ||||||||
| Profit (loss) and comprehensive income (loss) | $ | 6,101 | $ | 2,885 | $ | 8,274 | $ | 18,985 | ||||||||
| Distributable cash before SIFT tax (9) | $ | 4,168 | $ | 4,417 | $ | 13,599 | $ | 13,721 | ||||||||
| Distributable cash (10) | $ | 3,036 | $ | 3,234 | $ | 10,110 | $ | 10,175 | ||||||||
| Distributions to Fund unitholders (11) | $ | 3,222 | $ | 3,222 | $ | 9,666 | $ | 9,666 | ||||||||
| Payout Ratio (12) | 106.1% | 99.6% | 95.6% | 95.0% | ||||||||||||
| Per Fund unit information (13) | ||||||||||||||||
| Profit before fair value gain (loss) and income taxes | $ | .374 | $ | .392 | $ | 1.163 | $ | 1.176 | ||||||||
| Profit (loss) and comprehensive income (loss) | $ | .537 | $ | .254 | $ | .729 | $ | 1.672 | ||||||||
| Distributable cash before SIFT tax (9) | $ | .367 | $ | .389 | $ | 1.198 | $ | 1.209 | ||||||||
| Distributable cash (10) | $ | .267 | $ | .285 | $ | .890 | $ | .896 | ||||||||
| Distributions to Fund unitholders (11) | $ | .284 | $ | .284 | $ | .851 | $ | .851 | ||||||||
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, 2019, the Royalty Pool includes 105 Keg restaurants, 49 of which are owned and operated by KRL and its subsidiaries, (39 in Canada and 10 in the United Sates), and 56 Keg restaurants which are owned and operated by Keg franchisees (all of which are in Canada). As of September 30, 2019, 101 of these restaurants are open and operating, while four others were permanently closed, and are now subject to Make-whole Payments. |
| (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, 2019, include SIFT tax expense of $1,132,000 (three months ended September 30, 2018 – $1,183,000) and a non-cash deferred tax recovery of $6,000 (three months ended September 30, 2018 – deferred tax expense of $15,000). Income taxes for the nine months ended September 30, 2019, include SIFT tax expense of $3,489,000 (nine months ended September 30, 2018 – $3,546,000) and a non-cash deferred tax recovery of $5,000 (nine months ended September 30, 2018 – deferred tax expense of $1,000). |
| (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, 2019 were 11,353,500 (three months ended September 30, 2018 – 11,353,500), and for the nine months ended September 30, 2019 were 11,353,500 (nine months ended September 30, 2018 – 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
www.kegincomefund.com