Vancouver: January 13, 2010 – The Keg Royalties Income Fund (the "Fund") (TSX:KEG.UN) and Keg Restaurants Ltd. ("KRL") are pleased to announce that as of January 1, 2010, the gross sales of six new Keg restaurants, opened during the period October 3, 2008 through October 2, 2009 (the “Period”), will be added to the royalty pool (the "Royalty Pool") on which the Fund earns royalty revenue. The gross sales of these six new restaurants have been estimated at $25.5 million annually. Six permanently closed Keg restaurants with annual sales of $17.1 million were removed from the Royalty Pool, resulting in an estimated net increase in Royalty Pool sales of $8.4 million annually. The total number of restaurants in the Royalty Pool will remain the same at 102.
During the Period, five restaurants were closed due to lease expiries as part of an ongoing property rationalization. Of these, two franchised restaurants have already been relocated to far superior sites.
“We are pleased to report that the new Kegs which are bring rolled into the Fund have performed even better than expected” said David Aisenstat, The Keg’s President and CEO. “It is very encouraging to see that these new restaurants have been so well received by our guests, despite the challenging economic times which we all experienced this past 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 Fund’s 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 were permanently closed during the preceding calendar 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 estimated net royalty revenue added to the Royalty Pool, divided by the annual yield of the Fund units, divided by the weighted average unit price of the Fund units. KRL receives 80% of the estimated Additional Entitlement initially, with the balance determined and awarded when the actual full-year performance of the new restaurants is known with certainty with effect from January 1st of that year.
As a result of the January 1, 2010 contribution of the additional net sales to the Royalty Pool, and assuming 100% of the estimated Additional Entitlement is received, KRL’s Additional Entitlement will be equivalent to 242,070 Fund units, being 1.73% of the Fund units on a fully diluted basis. On January 1, 2010, KRL received 80% of this entitlement representing the equivalent of 193,656 Fund units, being 1.38% of the Fund units on a fully diluted basis. KRL will also receive a proportionate increase in monthly distributions from the Partnership. Including the initial portion of the Additional Entitlement described above, KRL will have the right to exchange its units in the capital of the Partnership for 4,280,891 Fund units representing 30.61% of the Fund units on a fully diluted basis. The balance of the Additional Entitlement will be adjusted to be effective January 1, 2010 once the actual performance of the new restaurants has been confirmed.
Also, the January 1, 2009 addition of new restaurant sales to the Royalty Pool has been finalized. The actual sales for the eight new restaurants added to the Royalty Pool were $37.9 million, for a net sales increase of $33.3 million, approximately 3.9% less than the amount originally estimated. This resulted in KRL receiving an entitlement equivalent to 163,836 Fund units. Combined with the January 1, 2010 Additional Entitlement, and assuming receipt of 100% of that Additional Entitlement, KRL will be entitled to the equivalent of 4,329,305 Fund units, representing 30.85% of the Fund units on a fully diluted basis.
Management of KRL has advised the Trustees of the Fund that it expects to open five restaurants prior to October 2, 2010: 3 corporate and 1 franchised restaurant in Canada, as well as 1 franchised restaurant in the United States. Management of KRL has further advised the Trustees that it will continue to monitor economic conditions and intends to regularly review the timing of its scheduled restaurant openings and adjust these as necessary.
Vancouver-based Keg Restaurants Ltd. 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. Keg Restaurants Ltd. has been named one of the “50 Best Employers in Canada” by the Globe and Mail's Report on Business Magazine for the past eight years.
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 contact:
Investor Relations Manager
Tel: (416) 646-4960