The Keg Royalties Income Fund Adds Restaurants to Royalty Pool

Vancouver, January 26, 2004 - The Keg Royalties Income Fund (the “Fund”) (TSX:KEG.UN) and Keg Restaurants Ltd. (“KRL”) are pleased to announce that as of January 1, 2004, the gross sales of seven new Keg restaurants, opened during the period October 3, 2002 through October 2, 2003, have been added to the royalty pool (the “Royalty Pool”) on which the Fund earns royalty revenue. The addition of these restaurants, after taking into account the permanent closure of two Keg Restaurants during the year and the removal of sales of these restaurants from the Royalty Pool, increases the total number of restaurants in the Royalty Pool to 86. 

The Royalty Pool has received an estimated increase in net gross sales of $20.6 million annually, due to the addition of $25.2 million in estimated gross sales from the seven new restaurants, less $4.6 million in annual gross sales from the two closed restaurants. 

“We are very pleased with the performance of the new Kegs which have now been added to the Fund’s Royalty Pool,” said David Aisenstat, the Keg’s President & CEO. “The average annual sales of these restaurants is estimated to be in excess of $3.6 million, which we view as a great endorsement of the strength of the Keg brand. Our successful expansion is continuing, and we expect to see an even larger addition to the Fund’s Royalty Pool next year.” 

The Fund indirectly owns certain trademarks, and other related intellectual property used by KRL in both the operation and franchise of its Keg restaurants in Canada and the United States. The trademarks are licensed to KRL for 99 years and in return KRL pays the Fund a top-line royalty of 4% of gross sales of Keg restaurants included in the Royalty Pool. 

Annually on January 1st, the Royalty Pool is adjusted to include the gross sales from new Keg restaurants that have opened on or before October 2nd of the prior year, after deducting the gross sales from any Keg restaurants that permanently closed that year. In return for adding these net sales to the Royalty Pool, KRL receives the right to indirectly acquire additional Fund units (the "Additional Entitlement"). This Additional Entitlement is determined based on 92.5% of the royalty revenue added to the Royalty Pool divided by the annual yield of the Fund units. KRL receives 80% of the estimated Additional Entitlement initially, with the balance received when the actual full-year performance of the new restaurants is known with certainty. 

As a result of the January 1, 2004 contribution of the additional net sales to the Royalty Pool and assuming receipt of 100% of the Additional Entitlement, KRL's Additional Entitlement will be 653,193 Fund units, being 6.52% of the issued and outstanding Fund units on a fully diluted basis. These Fund units were calculated using a weighted average unit price of $9.26 which resulted in a yield of 11.66%. KRL will also receive a proportionate increase in monthly distributions from the Fund. 

Including the January 1, 2004 Additional Entitlement described above, KRL will have an entitlement to 1,869,952 Fund units, representing 18.66% of the Fund units on a fully diluted basis. The Fund units obtained by KRL are subject to a contractual resale restriction, which expires on May 31, 2005. 

Also, the January 1, 2003 addition of restaurants to the Royalty Pool has been finalized. The actual sales for the three new restaurants added to the Royalty Pool for the 52 weeks ended September 28, 2003 was $13.2 million. This resulted in KRL receiving a prior year entitlement equivalent to 310,815 Fund units. 

Vancouver-based Keg Restaurants Ltd. is the leading operator and franchisor of steakhouse restaurants in Canada and has a substantial presence in certain 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. Keg Restaurants Ltd. was named Restaurant Company of the Year by Foodservice and Hospitality Magazine, and one of the 50 Best Employers in Canada by the Globe and Mail’s Report on Business Magazine. 

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 changes in market and competition, 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 my not be offered or sold in the United Sates absent registration or an application for exemption from the registration requirement under U.S. securities laws.