The Keg Royalties Income Fund Announces Third Quarter 2021 Results
The Keg Royalties Income Fund
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VANCOUVER, B.C., Nov. 09, 2021 (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, 2021 (the “quarter”) and for the nine months ended September 30, 2021 (“YTD”).
HIGHLIGHTS
Royalty Pool sales up 43.4% to $152.3M for the quarter and up 4.9% to $280.1M YTD
KRL system sales up 42.0% to $153.5M for the quarter and up 3.9% to $281.4M YTD
Distributable cash up 82.9% to 15.7 cents/Fund unit government mandated for the quarter and down 35.9% to 34.2 cents/Fund unit YTD
Payout ratio was 133.7% for the quarter and 127.3% YTD
Royalty Pool sales reported by the 106 Keg restaurants in the Royalty Pool were $152,274,000 for the quarter, an increase of $46,108,000 or 43.4% from the comparable quarter of the prior year. Year-to-date, Royalty Pool sales were $280,147,000, an increase of $13,135,000 or 4.9%. The increase in Royalty Pool sales during the third quarter of 2021 was primarily due to less onerous government mandated restrictions on restaurant operations while open in the third quarter of 2021, as compared with the third quarter of 2020.
Royalty income increased by $1,795,000 or 41.8% from $4,296,000 in the three months ended September 30, 2020 to $6,091,000 in the three months ended September 30, 2021. Year-to-date, royalty income increased by $452,000 or 4.2% from $10,754,000 for the nine months ended September 30, 2020 to $11,206,000 for the nine months ended September 30, 2021.
Distributable cash available to pay distributions to public unitholders increased by $808,000 from $975,000 (8.6 cents/Fund unit) to $1,783,000 (15.7 cents/Fund unit) for the quarter, and decreased by $2,173,000 from $6,053,000 (53.3 cents/Fund unit) to $3,880,000 (34.2 cents/Fund unit) year-to-date. The Fund’s payout ratio was 133.7% for the third quarter of 2021 and 127.3% year-to-date.
The Fund remains financially well-positioned with cash on hand of $2,622,000 and a positive working capital balance of $3,794,000 as at September 30, 2021.
“We believe the third quarter represents a very strong indication that The Keg can expect our sales levels to return to pre-COVID levels and beyond.” said David Aisenstat, CEO of The Keg. “As the last of the restaurant capacity restrictions are eliminated, and labour shortages ease, we remain confident that future sales will continue to improve. We thank our amazing Keggers for their enthusiasm as they welcome our equally enthusiastic guests back to enjoy the legendary Keg hospitality.” added Aisenstat.
FINANCIAL HIGHLIGHTS
($000’s except per unit amounts)
Jul. 1 to Sept. 30, 2021
Jul. 1 to Sept. 30, 2020
Jan. 1 to Sept. 30, 2021
Jan. 1 to Sept. 30, 2020
Restaurants in the Royalty Pool
106
106
106
106
Royalty Pool sales (1)
$
152,274
$
106,166
$
280,147
$
267,012
Royalty income (2)
$
6,091
$
4,296
$
11,206
$
10,754
Interest income (3)
1,078
1,075
3,197
3,209
Total income
$
7,169
$
5,371
$
14,403
$
13,963
Administrative expenses (4)
(106
)
(115
)
(328
)
(315
)
Interest and financing expenses (5)
(105
)
(104
)
(301
)
(342
)
Operating income
$
6,958
$
5,152
$
13,774
$
13,306
Distributions to KRL (6)
(2,876
)
(2,272
)
(6,450
)
(6,187
)
Profit before fair value gain (loss) and income taxes
$
4,082
$
2,880
$
7,324
$
7,119
Fair value gain (loss) (7)
4,548
11,620
(9,122
)
39,696
Income tax recovery (expense) (8)
(1,093
)
(775
)
(1,972
)
(1,920
)
Profit (loss) and comprehensive income (loss)
$
7,537
$
13,725
$
(3,770
)
$
44,895
Distributable cash before SIFT tax (9)
$
2,861
$
1,733
$
5,805
$
7,923
Distributable cash (10)
$
1,783
$
975
$
3,880
$
6,053
Distributions to Fund unitholders (11)
$
2,384
$
1,192
$
4,939
$
5,606
Payout ratio (12)
133.7
%
122.3
%
127.3
%
92.6
%
Per Fund unit information (13)
Profit before fair value gain (loss) and income taxes
$
.360
$
$ .254
$
.645
$
.627
Profit (loss) and comprehensive income (loss)
$
.664
$
1.209
$
(.332
)
$
3.954
Distributable cash before SIFT tax (9)
$
.252
$
.153
$
.511
$
.698
Distributable cash (10)
$
.157
$
.086
$
.342
$
.533
Distributions to Fund unitholders (11)
$
.210
$
.105
$
.435
$
.494
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, 2021, the Royalty Pool includes 106 Keg restaurants, 51 of which are owned and operated by KRL and its subsidiaries, (41 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).
(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 September 30, 2021 were 11,353,500 (three months ended September 30, 2020 – 11,353,500), and for nine months ended September 30, 2021 were 11,353,500 (nine months ended September 30, 2020 – 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 seventeen 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.
CONTACT: For further information: Neil Maclean, Chief Financial Officer Tel: (604) 821-6416 neilm@kegrestaurants.com www.kegincomefund.com
