THE KEG ROYALTIES INCOME FUND ANNOUNCES INCREASE TO ROYALTY POOL

Vancouver, BC – February 19, 2015 – The Keg Royalties Income Fund (the "Fund") (TSX:KEG.UN) and Keg Restaurants Ltd. ("KRL") are pleased to announce that as of January 1, 2015, an estimated $5.6 million in annual net sales were added to the Royalty Pool. 

 

Four new restaurants that opened during the period from October 3, 2013 through October 2, 2014, with estimated gross sales of $23.0 million annually, were added to the Royalty Pool. Five permanently closed Keg restaurants with annual sales of $17.4 million were removed from the Royalty Pool. The total number of restaurants in the Royalty Pool decreased to 102.

 

“The performance of the new Kegs which will be added to the Fund's Royalty Pool has once again exceeded expectations,” said David Aisenstat, The Keg's President and CEO. “The average annual sales of these restaurants is estimated to be in excess of $5.7 million, which we view as a great endorsement of the strength of The Keg brand.” 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 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, 2015 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 the equivalent of 160,941 Fund units. This will represent 1.09% of the issued and outstanding Fund units on a fully diluted basis. These Fund units were calculated using a weighted average unit price of $16.66, which resulted in a pre-tax yield of 7.78%. The yield has been adjusted to reflect the SIFT tax now payable by the Fund.

On January 1, 2015, KRL received 80% of this entitlement, representing the equivalent of 128,753 Fund units, being 0.87% of the Fund units on a fully diluted basis. KRL will also receive a proportionate increase in monthly distributions. 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 3,403,979 Fund units, representing 23.07% of the Fund units on a fully diluted basis.