The Keg Royalties Income Fund Announces Fourth Quarter 2023 and Full Year 2023 Results

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

VANCOUVER, British Columbia, March 26, 2024 (GLOBE NEWSWIRE) -- The Keg Royalties Income Fund (the “Fund”) (TSX: KEG.UN) is pleased to announce its financial results for the three months ended December 31, 2023 (the “quarter”) and the twelve months ended December 31, 2023 (the “year”).

HIGHLIGHTS

• Royalty Pool Sales⁽¹⁾ up 12.8% to $202.5M for the quarter and up 9.7% to $741.7M for the year
• KRL’s Average Sales per Operating Week⁽¹⁾ up 8.6% to $140,000 for the quarter and up 5.7% to $134,000 for the year
• Same Store Sales⁽¹⁾ up 5.2% for the quarter and up 8.5% for the year
• Distributable Cash⁽¹⁾ down 12.1% to $0.238/Fund unit for the quarter and up 6.8% to $1.159/Fund unit for the year
• Declared a special cash distribution of $0.08/Fund unit on December 19, 2023
• Payout Ratio⁽²⁾ was 152.8% for the quarter and 104.9% for the year, excluding the special cash distribution the Payout Ratio would have been 98.0% for the year

The fiscal year end of Keg Restaurants Ltd. (“KRL”) falls on the last Sunday in December, in any year. As a result of the floating year-end date, approximately every sixth fiscal year contains 53 weeks of operation, and KRL’s fiscal 2023 is such a year. Therefore, KRL’s fourth quarter of 2023 contained 14 weeks of operation, and its fiscal year ended December 31, 2023 contained 53 weeks of operation. The Fund’s fourth quarter of 2023 included 14 weeks of Royalty Pool Sales and related royalty income and its fiscal year contained 53 weeks of Royalty Pool Sales and related royalty income.  

Royalty Pool Sales reported by the 107 Keg restaurants in the Royalty Pool⁽¹⁾ were $202,517,000 for the quarter, an increase of $23,054,000 or 12.8% from the comparable quarter of the prior year. The increase in Royalty Pool Sales during the fourth quarter of 2023 was due to the combination of the extra week of sales reported by KRL, and strong Same Store Sales growth of 5.2% generated in the comparable 13-week periods. For the year, Royalty Pool Sales were $741,698,000, an increase of $65,303,000 or 9.7%. The increase in Royalty Pool Sales during 2023 was due to the combination of the extra week of sales reported by KRL and strong Same Store Sales growth of 8.5% generated in the comparable 52-week periods. During the first quarter of 2022, KRL’s restaurants were closed for 218 Operating Weeks⁽¹⁾ because of temporary government-mandated restaurant closures related to the Covid-19 pandemic, whereas in the current year there were no such closures. The year-to-date Same Store Sales growth reported includes the benefit of those incremental Operating Weeks in 2023.

Royalty income increased by $922,000 or 12.8% from $7,179,000 in the three months ended December 31, 2022 to $8,101,000 in the three months ended December 31, 2023. For the year, royalty income increased by $2,612,000 or 9.7% from $27,056,000 for the twelve months ended December 31, 2022 to $29,668,000 for the twelve months ended December 31, 2023.

Distributable Cash available to pay distributions to public unitholders decreased by $373,000 from $3,076,000 ($0.271/Fund unit) to $2,703,000 ($0.238/Fund unit) for the quarter, and increased by $842,000 from $12,312,000 ($1.084/Fund unit) to $13,154,000 ($1.159/Fund unit) for the year. During the fourth quarter of 2023 distributions of $4,130,000 ($0.364/Fund unit) were declared to Fund unitholders compared to $3,222,000 ($0.284/Fund unit) declared in 2022. During 2023, distributions of $13,797,000 ($1.215/Fund unit) were declared to Fund unitholders, an increase of $908,000 from the prior year. The increase in distributions to Fund unitholders during the comparable three and twelve-month periods, was entirely due the special cash distribution of $0.08/Fund unit declared on December 19, 2023.

In any reporting period, the Fund’s Distributable Cash is affected, both positively and negatively, by any changes in non-cash working capital balances recognized in that reporting period. The decrease in the Fund’s Distributable Cash in the fourth quarter of 2023, was primarily attributable to the negative effects of changes in non-cash operating working capital balances at December 31, 2023, as the incremental operating cash flow associated with KRL’s 53rd week of operation in the 2023 fiscal year will not be received by the Fund until January 2024. The Fund’s first quarter of 2024 will therefore include this extra week of operating cashflow, thereby increasing Distributable Cash and decreasing the Payout Ratio in the first quarter of 2024.

The Payout Ratio was 152.8% for the fourth quarter of 2023 and 104.9% for the year, both of which were negatively impacted by the declaration of the special cash distribution to unitholders in December 2023. Excluding the special cash distribution of $0.08/Fund unit declared on December 19, 2023, the Payout Ratio would have been 119.2% for the quarter and 98.0% for the year.

The Fund remains financially well positioned with cash on hand of $2,523,000 and a positive working capital balance of $2,380,000 as at December 31, 2023.

⁽¹⁾ _{This is a non-IFRS supplementary financial measure. Please refer to the “non-GAAP and other financial measures disclosure (NI 52-112)” section of this press release.}
⁽²⁾ _{This is a non-IFRS ratio. Please refer to the “non-GAAP and other financial measures disclosure (NI 52-112)” section of this press release.}

“We are very pleased with the financial results of the Fund in 2023, and with KRL Management's continued focus and acceleration of its renovation program during the year,” said Kip Woodward, Chairman of the Fund. “The strong financial results allowed us to declare a special distribution of $0.08 per Fund unit in December 2023.”

“Management of KRL is pleased with the results achieved in 2023, showing same store sales improvements of 8.5%, combined with increased guest counts of 5.9% over 2022,” said Nick Dean, President of KRL. “Throughout 2023, KRL made significant capital investments, renovating high-performing locations in Canada and the United States, to uphold the high standards of the brand. Consumers are gravitating, more than ever, towards reliable brands that offer excellent price-value options, served in a polished casual atmosphere, by world-class hospitality experts. The Keg consistently meets these guest expectations, and these factors will continue to benefit KRL given its unmatched value proposition.”

NON-GAAP AND OTHER FINANCIAL MEASURES DISCLOSURE ("NI 52-112")

NI 52-112 prescribes disclosure requirements that apply to certain non-IFRS measures known as "specified financial measures". This press release makes reference to certain non-IFRS measures which provides important information regarding the Fund's financial performance and ability to pay distributions to unitholders. By considering these non-IFRS measures in combination with IFRS measures, the Fund believes that readers are provided with additional and more useful information about the Fund's financial performance as opposed to considering IFRS measures alone. The terms "Royalty Pool", "Royalty Pool Sales", “System Sales”, "Distributable Cash Before SIFT Tax", "Distributable Cash" and "Payout Ratio" are non-IFRS measures and non-IFRS ratios. These non-IFRS measures reported by the Fund do not have standardized meanings as prescribed by IFRS, and the Fund's method of calculating these measures may differ and may not be comparable to similar measures reported by other issuers.

"Royalty Pool" is a non-IFRS supplementary financial measure representing a specific pool of Keg restaurants for which System Sales is calculated, obligating KRL to make monthly royalty payments to the Partnership equal to 4% of these gross sales.

"Royalty Pool Sales" is a non-IFRS supplementary financial measure representing the total gross sales reported by Keg restaurants included in a specified Royalty Pool, for which the Fund receives a royalty of 4% on these reported gross sales in any period.

"System Sales" is a non-IFRS supplementary financial measure representing the gross sales of all corporate restaurants owned by KRL, and the gross sales reported to KRL by franchise restaurants without independent audit, in any period. The total System Sales of KRL are of interest to readers as it best reflects KRL’s overall sales performance.

"Operating Weeks" is a non-IFRS supplementary financial measure representing the number of weeks a restaurant is open for in-store dining, without significant capacity restrictions, during a respective period.

"Average Sales per Operating Week" is a non-IFRS supplementary financial measure and is defined as the sales generated by an average restaurant during those Operating Weeks when restaurants were fully open for in-store dining, during a respective period. This metric is calculated by dividing total System Sales for any financial period by the total Operating Weeks during the same financial period.

"Distributable Cash Before SIFT Tax" is a non-IFRS supplementary financial measure and 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" is a non-IFRS supplementary financial measure and is defined as 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.

"Payout Ratio" is a non-IFRS ratio and 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).

FINANCIAL HIGHLIGHTS

		Three months ended								Twelve months ended
		December 31,				December 31,				December 31,				December 31,
($000's expect per unit amounts)			2023				2022				2023				2022
Restaurants in the Royalty Pool			107				107				107				107
Royalty Pool Sales(1)		$	202,517			$	179,463			$	741,698			$	676,395
Royalty income(2)		$	8,101			$	7,179			$	29,668			$	27,056
Interest income(3)			1,106				1,098				4,383				4,305
Total income		$	9,207			$	8,277			$	34,051			$	31,361
Administrative expenses(4)			(106)				(107)				(480)				(474)
Interest and financing expenses(5)			(268)				(222)				(1,028)				(635)
Operating income		$	8,833			$	7,948			$	32,543			$	30,252
Distributions to KRL(6)			(3,572)				(3,565)				(13,414)				(12,860)
Profit before fair value gain (loss) and income taxes		$	5,261			$	4,383			$	19,129			$	17,392
Fair value gain (loss)(7)			(2,616)				(4,299)				11,119				(7,394)
Income tax recovery (expense)(8)			(1,439)				(1,189)				(5,091)				(4,695)
Profit (loss) and comprehensive income (loss)		$	1,206			$	(1,105)			$	25,157			$	5,303
Distributable Cash Before SIFT Tax(9)		$	4,107			$	4,251			$	18,260			$	16,950
Distributable Cash(10)		$	2,703			$	3,076			$	13,154			$	12,312
Distributions to Fund unitholders(11)		$	4,130			$	3,222			$	13,797			$	12,888
Payout Ratio(12)			152.8%				104.7%				104.9%				104.7%
Per Fund unit information(13)
Profit before fair value gain (loss) and income taxes		$	0.463			$	0.386			$	1.685			$	1.532
Profit (loss) and comprehensive income (loss)		$	0.106			$	(0.097)			$	2.216			$	0.467
Distributable Cash Before SIFT Tax(9)		$	0.362			$	0.374			$	1.608			$	1.493
Distributable Cash(10)		$	0.238			$	0.271			$	1.159			$	1.084
Distributions to Fund unitholders(11)		$	0.364			$	0.284			$	1.215			$	1.135

Notes:
(1)		Royalty Pool Sales are the gross sales reported by KRL included in the Royalty Pool in any period. As of December 31, 2023, the Royalty Pool includes 107 Keg restaurants, 105 of which are currently operating and 2 of which are permanently closed and will be removed from the Royalty Pool on January 1, 2024. Of the 105 Keg restaurants currently operating, 49 are owned and operated by KRL and its subsidiaries, (42 in Canada and 7 in the United Sates), and 56 Keg restaurants which are owned and operated by Keg franchisees (55 of which are in Canada, and 1 in the United States).
(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 (“KHT”), 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 and twelve months ended December 31, 2023 were 11,353,500 (three and twelve months ended December 31, 2022 – 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.

With approximately 10,000 employees, over 100 restaurants and annual System Sales exceeding $700 million, 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 the number one restaurant company to work for in Canada in the latest edition of Forbes "Canada's Best Employers 2024" survey, securing thirteenth place in the overall ranking across all industries in the country.

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, contact:
Investor Relations
Tel: [phone]
[e-mail]    https://www.thekeg.com/en/keg-income-fund