‌

The Keg Royalties Income Fund Announces First Quarter Financial Results

May 15th 2012

Vancouver, BC - The Keg Royalties Income Fund (TSX:KEG.UN) (the "Fund") has reported its financial results for the three months ended March 31, 2012.

The gross sales reported by the 102 Keg restaurants in the Royalty Pool were $124,366,000 for the quarter, an increase of $3,762,000 or 3.1% from the comparable quarter of the prior year. These gross sales reflect the sales of the new Keg restaurants which opened during the period from October 3, 2010 through October 2, 2011, which were added to the Royalty Pool on January 1, 2012, and same store sales increases of 1.8% for the quarter.

The Keg's same store sales (sales of restaurants that operated during the entire 13-week period of both the current and prior years) increased by 1.7% in Canada and by 1.2% 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 13-week periods increased 1.8%. The average exchange rate moved from 0.99 in the first quarter of 2011 to 1.00 in the first quarter of 2012, slightly increasing the Canadian dollar equivalent of the U.S. restaurant sales.

Royalty income increased by $125,000 or 2.6% from $4,867,000 in the three months ended March 31, 2011 to $4,992,000 in the three months ended March 31, 2012.

Distributable cash before SIFT tax increased by $240,000 from $3,839,000 (34.8 cents/Fund unit) to $4,079,000 (35.9 cent/Fund unit) for the quarter. Distributable cash available to pay distributions to public unitholders increased from $2,913,000 (26.4 cents/Fund unit) to $3,183,000 (28.0 cents/Fund unit) during the comparable quarter.

The Fund remains financially well positioned with surplus cash on hand of $706,000 and a positive working capital balance of $1,985,000 as of March 31, 2012.

"With The Keg's focus on operational excellence, our same store sales continue to increase," said David Aisenstat, President & CEO of Keg Restaurants Ltd. "We are very pleased with the financial results of the Fund for the quarter, particularly the increases in royalty income and distributable cash available to pay distributions to the Fund's unitholders."

($000's except per unit amounts)		Jan. 1 to Mar. 31, 2012			Jan. 1 to Mar. 31, 2011
Restaurants in the Royalty Pool		102			102
Gross sales reported by restaurants in the Royalty Pool	$	124,366		$	120,604

Royalty income⁽¹⁾	$	4,992		$	4,867
Interest income⁽²⁾		1,066			1,055
Total income	$	6,058		$	5,922
Administrative expenses⁽³⁾		(104	)		(100	)
Interest and financing expenses⁽⁴⁾		(173	)		(174	)
Operating income	$	5,781		$	5,648
Distributions to KRL⁽⁵⁾		(2,041	)		(1,996	)
Distributions declared to Fund unitholders⁽⁶⁾		-			-
Profit (loss) before market value adjustment and income taxes	$	3,740		$	3,652
Market value adjustment⁽⁷⁾		(5,571	)		(684	)
Income taxes⁽⁸⁾		(947	)		(1,138	)
Profit (loss)	$	(2,778	)	$	1,830

Distributable cash before SIFT tax⁽⁹⁾	$	4,079		$	3,839
Distributable cash⁽¹⁰⁾	$	3,183		$	2,913
Distributions paid to Fund unitholders	$	2,725		$	2,945
Payout Ratio⁽¹¹⁾		85.6	%		101.1	%

Per Fund unit information⁽¹²⁾
Profit (loss) before market value adjustment and income taxes	$	.329		$	.331
Profit (loss)	$	(.245	)	$	.166
Distributable cash before SIFT tax⁽⁹⁾	$	.359		$	.348
Distributable cash⁽¹⁰⁾	$	.280		$	.264
Distributions paid to Fund unitholders	$	.240		$	.267

Notes:

(1)   The Fund, indirectly through the Partnership, earns royalty income equal to 4% of gross sales of Keg restaurants in the Royalty Pool.

(2)   The Fund directly earns interest income on the $57.0 million Keg Loan, with interest income accruing at 7.5% per annum, payable monthly.

(3)   The Fund, indirectly through the Partnership, incurs administrative expenses and interest on the operating line of credit, to the extent utilized.

(4)   The Fund, indirectly through the Trust, incurs interest expense on the $14.0 million term loan and amortization of deferred financing charges.

(5)   Represents the distributions of the Partnership attributable to KRL during the respective periods on the Exchangeable and Class C units held by KRL. The Class A, entitled Class B and Class D Partnership units are exchangeable into Fund units on a one-for-one basis ("Exchangeable units"). These distributions are presented as interest expense in the financial statements.

(6)   Represents the distributions declared on the publicly traded Fund units during the period. The distributions declared to the Fund's public unitholders since January 1, 2011 have been recorded as distributions and charged to unitholder's equity whereas the distributions declared prior to December 31, 2010 were expensed as interest.

(7)   Market value adjustment is the non-cash increase or decrease 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 market 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 during the same period.

(8)   Income taxes for the quarter ended March 31, 2012, include SIFT tax expense of $896,000 (quarter ended March 31, 2011 - $926,000) and non-cash deferred taxes of $51,000 (quarter ended March 31, 2011 - $212,000). The obligation to pay SIFT tax came into effect on January 1, 2011.

(9)   Distributable cash before SIFT tax, is defined as the periodic cash flows from operating activities as reported in the IFRS financial statements, including the effects of changes in non-cash working capital, plus SIFT tax paid (including current year instalments), less the earnings of the Partnership 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)   Payout ratio is computed as the ratio of aggregate cash distributions paid during the period (numerator) to the aggregate distributable cash of the period (denominator).

(12)   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, 2012 was 11,353,500 (three months ended March 31, 2011 - 11,036,833). For comparative purposes, the earnings (loss) per Fund unit calculations for reporting periods prior to and including December 31, 2010 have been adjusted to exclude distributions declared to Fund unitholders, which were previously recorded as interest (prior to December 20, 2010) as a result of the adoption of IFRS.

(13)   Same Store Sales Growth ("SSSG") is the overall increase or decrease in gross sales from Keg restaurants (that operated during the entire period of both the current and the prior year) as compared to gross sales for the same period of the prior year. SSSG is not an IFRS financial measure and 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 SSSG provides useful information regarding the increase or decrease in gross sales for comparable restaurants.
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, Keg Restaurants Ltd 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 the 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 ten 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 information contact:

Karyn Byrne
Investor Relations Manager
(416) 646-4960
karynb@kegrestaurants.com
www.kegincomefund.com

‌