KEG ROYALTIES INCOME FUND/THE

April 13, 2007 | COMMENT

KEG.UN.T

The Keg Royalties Income Fund

125 WEEKS 26NOV04 - 12APR07
KEG ROYALTIES INCOME FUND/THE Rel. S&P/TSX COMPOSITE INDEX HI-15APR05 111.586
HI/LO DIFF -42.83%
100.00
CLOSE 73.068
80.00

(TSX: KEG.UN)
LO-15DEC06 63.792
2005 2006 2007
D J F M A M J J A S O N D J F M A M J J A S O N D J F M A
KEG ROYALTIES INCOME FUND/THE HI-3NOV06 14.800
LO/HI DIFF 44.25%

14.00

Outperform
13.30

12.60 CLOSE 13.340

11.90

Average Risk
11.20

10.50 LO-21OCT05 10.260

600

Sales Growth Momentum Continues in 2007;

PEAK VOL. 774.4
300
VOLUME 52.1

Positive Indicator for Restaurant Group

RBC Dominion Securities Inc.
Event
Walter Spracklin, CFA (Analyst)
(416) 842-7877 walter.spracklin@rbccm.com KEG reports Q1/07 same store sales growth (“SSSG”).
Dmitry Kushnir, CFA (Associate) Investment Opinion
(416) 842-7862 dmitry.kushnir@rbccm.com
x Strong SSSG continues despite difficult comparables. The Keg
reported stronger than expected Q1 SSSG of 7.6% and substantially higher
Price: $13.34 Price Target: $14.00 than our forecast of 5.0% over the same period in the prior year. We
believe this strong result is particularly noteworthy given the difficult
Implied Total Return 14.0%
2006 comparable of 8.1%. Although full financials were not provided,
52-Wk High: $14.80 52-Wk Low: $10.75 based on this growth rate we expect that FFO/unit in Q1/07 will come in at
Units O/S (MM): 12.1Mkt Cap (MM): $162 $0.33, in-line with our estimate.
Float (MMunits): 9.7Conv Debs (MM): $0 x Canadian strength drives sales growth. In discussions, management
Float ($MM): $129 Oth Debt (MM): $14 mentioned that Q1 sales growth was driven mainly by Canadian
Debt/EV: 8.0%EV(MM): $176 operations, with 8.1% SSSG in the quarter. Seeing as this result is on the
Debt/06 EBITDA: 0.7x
back of a difficult 9.4% SSSG in Canada in Q1/06, we are particularly
pleased with this indication of the Keg’s strong brand appeal as a leading
Avg Daily Vol (10 day): 14,191 steakhouse in Canada.
Strategic Unitholders: KRL - 20.1% x No F/X translation impact for the first time. This marks the first quarter
(FYDec 31) 2005 2006 2007E 2008E since the inception of the Fund that The Keg’s consolidated SSSG results
are not negatively impacted by a declining US dollar. In fact, the
EBITDA(MM): $17.0 $18.9 $20.4 $21.7
USD/CAD exchange rate was slightly positive compared to Q1 of 2006.
EV/EBITDA: 10.4x 9.3x 8.6x 8.1x In the past, Keg’s consolidated results were negatively impacted compared
Maint Capex (MM): $0.0 $0.0 $0.0 $0.0 to the company’s peers as the US dollar declined approximately 25% over
FFO/Unit: $1.13 $1.20 $1.27 $1.32 a 5-year period.
AFFO/Unit: $1.13 $1.20 $1.27 $1.32 x New stores performing well. Management also alluded to the impressive
P/AFFO 11.8x 11.2x 10.5x 10.1x performance of recently opened stores, which had a positive contribution
Dist/Unit: $1.09 $1.12 $1.21 $1.26
to the overall results. We view continued strong performance by new
restaurants as an important factor in improving the visibility and
Yield: 8.2% 8.4% 9.0% 9.4% attractiveness of Keg’s outlets to potential franchisees and a strong driver
Payout Ratio: 97% 94% 95% 95% in Keg’s restaurant development plans. At its current level of 95
Taxable Portion: 80% 85% n.a. n.a. restaurants, we see Keg as having an opportunity to grow within Canada
by leveraging its impressive brand appeal.
All valuesin$Cunlessotherwisenoted.
x Estimates. We are increasing our 2007E SSSG assumption to 5.7%, to
reflect the better than expected growth in Q1. As a result, our AFFO/unit
estimates for 2007E and 2008E increase slightly (by $0.01) to $1.27 and
$1.32 respectively. Our distribution estimates remain unchanged.
Priced as of prior trading day’s market
x Maintaining $14.00 target. On the back of impressive Q1/07 results, we
close, EST (unless otherwise stated).
reiterate our positive view of Keg’s units based on our “quality” ranking
For Required Disclosures, please see of trademark royalty trusts, resulting in our 7.5% target yield for the units
page 7. (See Exhibits 1 & 2 for more details). We are maintaining our Outperform,
Average Risk rating on KEG units.
RBC Capital Markets The Keg Royalties Income Fund

Same Store Sales Growth - Better Than Expected Q1 Despite Difficult Comparables
The Keg reported stronger than expected Q1 SSSG of 7.6% (See Exhibit 1) and substantially higher than our forecast of 5.0%
over the same period in the prior year. This strong result is particularly noteworthy given the difficult 2006 comparable of 8.1%.
Although full financials were not provided, based on this growth rate we expect that FFO/unit in Q1/07 will come in at $0.33,
in-line with our estimate.
Canadian strength drives sales growth. In discussions, management mentioned that Q1 sales growth was driven mainly by
Canadian operations, with 8.1% SSSG in the quarter. Seeing as this result is on the back of a difficult 9.4% SSSG in Canada in
Q1/06, we are particularly pleased with this indication of the Keg’s strong brand appeal as a leading steakhouse in Canada.
No F/X translation impact for the first time. This marks the first quarter since the inception of the Fund that The Keg’s
consolidated SSSG results are not negatively impacted by a declining US dollar. In fact, the USD/CAD exchange rate was
slightly positive compared to Q1 of 2006. In the past, Keg’s consolidated results were negatively impacted compared to the
company’s peers as the US dollar declined approximately 25% over a 5-year period.
New stores performing well. Management also alluded to the impressive performance of recently opened stores, which had a
positive contribution to the overall results. We view continued strong performance by new restaurants as an important factor in
improving the visibility and attractiveness of Keg’s outlets to potential franchisees and a strong driver in Keg’s restaurant
development plans. At its current level of 95 restaurants, we see Keg as having an opportunity to grow within Canada by
leveraging its impressive brand appeal.

Exhibit 1: Same Store Sales Growth

10%
7.9% 7.6%
8% 6.9%
6.5%
6.3% 5.7%
6% 5.0% 5.0% 5.0%
4.7%
4.3% 4.0%
3.1%
4%

2% 1.1%

0%

-2%
-2.4%
-4%
Q1/07

Q2/07E

Q3/07E

Q4/07E

2007E

2008E
1998

1999

2000

2001

2002

2003

2004

2005

2006

Source: Company reports; RBC Capital Markets estimates

Maintaining Outperform
Our $14.00/unit target price (unchanged) is derived by assigning KEG a target yield of 7.5% to our 2011E distribution
(discounted back and added to the present value of interim distributions received). Based on the estimated all-in return of
14.0%, we are maintaining our Outperform, Average risk recommendation on KEG units. The target yield used is one of the
lowest among the trademark royalty trust group, reflective of the company’s high score on “quality”, which we explain below.
Valuation methodology. We value restaurant trusts based on a target-yield approach due to the flow-through nature of the
Trademark Royalty Trust (“TRT”). The target yield is based on a spread to our benchmark Canada 10-year bond. Finally, the
spread is chosen based on the composite score for quality, which is shown in Exhibit 2. A lower spread is assigned to the TRT
with a higher composite score. The target yield we derive on this basis is shown in Exhibit 3.
The new federal tax that will apply to trusts in 2011 has created a twist on the methodology to our valuation. Instead of applying
the target yield described above to next year’s distribution, we apply it to our estimated distribution in 2011 – after the tax is
taken out. We then take the present value of that target price and add the present value of (non-taxed) distributions in the interim
period to derive our one-year target price for each TRT, which we provide in Exhibit 3. Our rating is then based on the total
estimated return to our target price (including distributions).

April 13, 2007 2

RBC Capital Markets The Keg Royalties Income Fund

KEG receives one of the highest scores on quality – and is therefore assigned the second lowest target yield. As shown in
Exhibit 2, KEG receives high marks across most of the criteria that we use in determining quality. KEG’s composite score of
3.8 is the second highest in the group, resulting in our assigning KEG a low target yield of 7.5% (as shown in Exhibit 3). An
explanation of KEG’s score for each criterion is as follows:
x SSSG trend: KEG receives high marks for its SSSG trend, reflective of its performance in the most recent years, and
moderated only by the negative impact the declining US dollar exchange rate had on it sales. SSSG is our most important
criteria (with a 35% weighting). The current Q1/07 SSSG of 7.6% reaffirms the rationale behind KEG’s high score in this
criterion.
x Float/Liquidity: At a market cap of $162MM, KEG ranks slightly above the group average of $157MM (Exhibit 4).
x Restaurant development: KEG vended in 9 net new restaurants over the past two years, and is around the industry
average at this pace. We consider a growing restaurant base to be indicative of high franchisee interest in the concept
and/or profitability of restaurant operations.
x Number of restaurants: KEG receives low marks in this criterion as its 95 restaurants in the royalty pool place it second
lowest in the group and well below the average of close to 300 for the other TRT’s (Exhibit 5). We consider this a negative
due to higher concentration risk.
x Level of competition: KEG receives the highest possible marks reflecting its leading Canadian steakhouse position in the
industry. This grants the company increased flexibility in terms of pricing power and product development.
x Geographic diversification: KEG receives the highest marks as a result of its well-diversified restaurant base, with
exposure to Western and Eastern Canada, as well as the US.
x Brand appeal: Top mark for KEG on brand appeal as the company is well focused on a single concept operation and
continues to grow brand awareness and image among its increasing customer base.
x Debt: KEG receives high marks reflecting its low use of debt.
x OpCo viability: KEG’s relatively low number of restaurants (higher concentration risk) is offset by its profitable
operations and a geographically well diversified restaurant base, resulting in average marks for OpCo viability.
x Extent of franchising: Keg receives average marks on franchising, as the company uses a “half and half” approach. We
generally view highly franchised operations as a positive due to being able to shift some of the costs onto the franchisees.

Exhibit 2: Measuring TRT Quality*

SSSG Float Restaurant # of Level of Geographic Brand Opco Extent of Composite
Trend Liquidity Development Rest. Competition Diversification Appeal Debt Viability Franchising Score Rank
Weighting = 35% 12% 10% 10% 8% 7% 5% 5% 5% 3% 100%

AW 3.5 4 4 5 1 4 3 4 3 5 3.6 3
BPF 5 5 5 3 2 4 3 4 5 5 4.3 1
EAT 1 1 1 2 2 2 1 5 2 5 1.6 7
KEG 4 4 3 2 5 5 5 4 3 3 3.8 2
PDM 2 2 3 3 3 3 1 1 3 5 2.4 6
PZA 3 5 4 4 2 1 4 3 4 5 3.4 4
SCU 3.5 2 2 3 1 4 2 3 3 5 2.9 5
SRV 1.5 1 2 1 3 1 1 4 2 1 1.6 8

* Score: 1 = Poor 5= Excellent

Source: RBC Capital Markets Research

April 13, 2007 3

RBC Capital Markets The Keg Royalties Income Fund

Exhibit 3: Target Price Derivation and Relative Ranking

Quality 10-Year Target Distributions Target Market Estimated
Score 1 Canada Spread Yield 2008 2009 2010 2011 Price Price Return Rating Risk

AW 3.6 4.0% 3.5% 7.5% 1.34 1.41 1.46 1.02 14.50 13.40 18.0% OP Avg
BPF 4.3 4.0% 3.0% 7.0% 1.43 1.48 1.53 1.07 16.00 15.00 15.7% OP Avg
EAT 1.6 4.0% 8.5% 12.5% 1.13 1.13 1.13 0.74 6.50 7.61 0.2% U AA
KEG 3.8 4.0% 3.5% 7.5% 1.26 1.35 1.42 1.00 14.00 13.34 14.0% OP Avg
PDM 2.4 4.0% 7.0% 11.0% 1.58 1.64 1.69 1.13 11.00 10.06 24.8% OP AA
PZA 3.4 4.0% 4.5% 8.5% 0.92 0.98 1.02 0.74 9.00 8.91 11.0% OP Avg
QSR n.a. 4.0% 7.5% 11.5% 1.33 1.32 1.33 1.04 9.50 11.61 -6.8% U AA
SCU 2.9 4.0% 5.5% 9.5% 1.13 1.17 1.21 0.85 9.50 9.95 6.4% SP Avg
SRV 1.6 4.0% 8.5% 12.5% 1.31 1.33 1.36 0.93 8.00 9.26 0.2% U AA
Average: 9.7%

Source: RBC Capital Markets estimates

Exhibit 4: Restaurant Trust Comparables

Distributions Y/Y Dist. Growth Yield (%)
2004 2005 curr. 2006 2007E 2008E 2004 2005 2006 2007E 2008E curr. 2006 2007E 2008E
Restaurant Trusts
4
A&W Revenue Royalties Income Fund 1.08 1.08 1.20 1.16 1.32 1.34 0.0% 0.0% 7.5% 13.9% 2.1% 9.0 8.6 9.8 10.0
Boston Pizza Royalties Income Fund 1.11 1.19 1.33 1.28 1.36 1.43 8.6% 8.0% 6.9% 6.4% 5.3% 8.9 8.5 9.1 9.5
The Keg Royalties Income Fund 1.08 1.09 1.18 1.12 1.21 1.26 0.0% 1.1% 2.9% 7.5% 4.4% 8.8 8.4 9.0 9.4
PDM Royalties Income Fund 0.62 1.39 1.44 1.44 1.56 1.58 n/a n/a 3.7% 8.3% 1.3% 14.3 14.3 15.5 15.7
Prime Restaurants Royalty Income Fund 1.13 1.13 1.13 1.13 1.13 1.13 0.0% 0.0% 0.0% 0.0% 0.0% 14.8 14.8 14.8 14.8
3
Priszm Canadian Income Fund 1.22 1.26 1.28 1.32 1.28 1.28 n/a 3.7% 5.0% -3.2% 0.0% 11.0 11.4 11.0 11.0
Pizza Pizza Royalty Income Fund n/a n/a 0.88 0.84 0.89 0.92 n/a n/a n/a 5.5% 3.4% 9.8 9.4 10.0 10.3
Second Cup Royalty Income Fund n/a 1.00 1.09 1.03 1.08 1.13 n/a n/a 3.0% 5.1% 4.6% 11.0 10.4 10.9 11.4
SIR Royalty Income Fund n/a 1.20 1.26 1.24 1.28 1.31 n/a n/a 2.9% 3.2% 2.4% 13.6 13.3 13.8 14.1
Average 11.2 11.0 11.5 11.8

S/O Float Mkt Cap Float 3-yr DI RBCCM RESEARCH

1 2
Symbol Price (MM units) ($MM) ($MM) Grth (%) Target ($) Rec Risk
Restaurant Trusts
A&W Revenue Royalties Income Fund AW.un 13.40 13.4 8.3 180.1 111.8 2.3 14.50 OP Avg
Boston Pizza Royalties Income Fund BPF.un 15.00 16.4 12.8 245.6 191.3 7.8 16.00 OP Avg
The Keg Royalties Income Fund KEG.un 13.34 12.1 9.7 162.0 129.4 1.3 14.00 OP Avg
PDM Royalties Income Fund PDM.un 10.06 8.4 7.3 84.8 73.4 n/a 11.00 OP AA
Prime Restaurants Royalty Income Fund EAT.un 7.61 9.3 6.1 70.8 46.5 0.0 6.50 U AA
Priszm Canadian Income Fund QSR.un 11.61 25.8 15.6 299.8 180.5 4.4 9.50 U AA
Pizza Pizza Royalty Income Fund PZA.un 8.91 23.5 18.0 209.0 160.0 n/a 9.00 OP Avg
Second Cup Royalty Income Fund SCU.un 9.95 9.7 9.7 96.6 96.6 n/a 9.50 SP Avg
SIR Royalty Income Fund SRV.un 9.26 6.8 5.4 63.1 49.6 n/a 8.00 U AA
Average 156.8 115.4 3.2

1 Investment ratings: TP (Top Pick); O (Outperform); SP (Sector Perform); U (Underperform); n.r. (not rated)
2 Risk ratings: Avg (Average); AA (Above Average); S (Speculative)
3 Priszm's 2006 Distribution includes a $0.06/unit special dividend
4 A&W 2007 Distribution includes a $0.08/unit special dividend

Source: RBC Capital Markets estimates

Company Profile
The Keg Royalty Income Fund was launched in May of 2002 with the purpose of providing unit holders with royalty income
from top line revenues of The Keg restaurants. Each restaurant is designed to provide diners with a casual atmosphere and
quality food at a reasonable price. The Keg has grown to be Canada’s leading steakhouse in the casual dining restaurant sector

April 13, 2007 4

RBC Capital Markets The Keg Royalties Income Fund

and currently has 95 restaurants operating in Canada and the United States. Operations are controlled by Keg Restaurants Ltd.
in Canada and by subsidiaries of KRL in the U.S.

Exhibit 5: Restaurant Key Metrics Summary

AW BPF EAT KEG PDM PZA 8 QSR SCU SRV 9

Trust Type Royalty Royalty Royalty Royalty Royalty Royalty Operating Royalty Royalty
Royalty drivers:
Royalty rate 3% 4% 3.25% 4% 4.9%10 6% n.a. 6.5% 6%
Sales inclusion 100% 80%1 100% 100% 100% 100% n.a. 100% 100%
Vend-in discount 7.5% 7.5% 7.5% 7.5% 7.5% 2 7.5% n.a. 7.5% 7.5%
7
Royalty pool restaurant units (2007) 660 266 156 95 261 531 486 351 38
Royalty pool sales (2006E) ($000's) 598,551 484,684 326,900 372,541 284,484 353,138 n.d. 189,287 149,481
Franchised locations 98% 99% 94% 55% 97% 97% n.a. 93%5 0%
5-year system sales growth 7.0% 18.3% 5.5% 8.8% 9.4% 5.1% 1.0% 0.0% 2.3%
Avg. revenue per outlet (2006) ($000's) 915 2,145 2,096 4,094 1,116 706 1,045 538 4,152
Average cheque/person ($) 6.00 15.94 17.65 28.00 13.15 n.a. 10.30 n.a. 20.004

Same Restaurant Sales Growth

4 year average (2003-2006) 4.6% 6.8% -1.2% 2.1% 1.6% 3.8% 1.3% 3.9% 0.9%
2003 1.8% 4.1% -3.8% -2.4% -0.6% -0.7% 2.2% -0.7% -1.4%
2004 3.9% 6.8% -1.6% 1.1% 3.6% 5.9% 0.5% 5.8% -3.1%
2005 5.2% 8.0% -0.8% 3.1% 2.1% 5.8% -0.2% 4.6% 2.5%
2006 7.4% 8.4% 1.5% 6.9% 1.4% 4.5% 2.7% 6.2% 5.9%
2007E 4.0% 6.0% 0.0% 5.7% 2.2% 3.5% 2.5% 5.0% 3.5%
2008E 3.0% 5.0% 0.0% 4.0% 2.1% 3.0% 2.5% 4.0% 2.5%

Geographic distribution of restaurants

Western Canada 60% 71% 13% 45% 1% 2% 28% 29% 0%
Central Canada 32% 26% 83% 35% 61% 96% 62% 68% 100%
Atlantic Canada 8% 4% 4% 2% 37% 2% 10% 3% 0%
United States 0% 0% 0% 18% 0% 0% 0% 0% 0%
Minority ownership 37.9% 20.0% 34.3% 20.1% 13.4% 23.5% 39.8% 15.5% 21.4%
Cash shortfall ($MM) - - 0.980 - n.d. n.d. - n.d. -

Subordination: Yes None Yes Yes None Yes Yes Yes Yes
% 37.9% n.a. 34.3% 20.1% n.a. 23.5% 20.0% 15.5% 21.4%
Base rate n.a. n.a. n.a. n.a. n.a. $0.80 $1.20 n.a. $1.20
Earliest subordination ending Perpetual n.a. Perpetual Perpetual n.a. 30-Jun-07 31-Dec-08 Perpetual 28-Aug-07
Arrears Perpetual n.a. Perpetual Perpetual n.a. 12 months 12 months Perpetual 12 months
1 6
Royalty pool excludes alcohol and tobacco sales Royalty pool sales for the year ended 2005
2 7
Subject to adjustment of the Class B Exchange Multiplier Total number of restaurants operated as of January 2006
3 8
For the period from 2001 to Q2/06 For the 2005 fiscal year ended October 2, 2005
4 9
Average cheque for Jack Astor's, which accounts for 23 of 38 restaurants in the r For year ended August 30
5 10
Represents the percentage of all cafes in the system that are franchised Pizza Delight and Mikes = 4%; Scores and Baton Rouge = 6%

Source: RBC Capital Markets estimates

April 13, 2007 5

RBC Capital Markets The Keg Royalties Income Fund

Exhibit 6: Financial Summary

THE KEG ROYALTIES INCOME FUND 2005 Q1/06 Q2/06 Q3/06 Q4/06 2006 Q1/07E Q2/07E Q3/07E Q4/07E 2007E 2008E
($000 unless otherwise indicated)

KEY ASSUMPTIONS
Total Outlets (During Year - Royalty Poo 86 91 91 91 91 91 95 95 95 95 95 98
Revenue Per Royalty Pool Outlet 3,787 1,032 970 1,007 1,084 4,094 1,107 1,032 1,073 1,156 4,370 4,570
Same Store Sales Growth 3.1% 8.1% 3.7% 7.3% 9.6% 6.9% 7.6% 5.0% 5.0% 5.0% 5.7% 4.0%

Total System Sales - Royalty Pool Outlet 325,717 93,957 88,300 91,600 98,684 372,541 105,200 98,067 101,978 109,862 415,107 447,844

Funds flow
Royalty income 13,138 3,761 3,564 3,734 4,038 15,097 4,208 3,923 4,079 4,394 16,604 17,914
Interest income 4,281 1,056 1,067 1,081 1,083 4,287 1,070 1,070 1,070 1,070 4,281 4,281
Total revenue 17,419 4,817 4,631 4,815 5,121 19,384 5,278 4,993 5,149 5,465 20,885 22,194
General and administrative 441 138 120 102 105 465 141 122 104 107 474 484
Interest 687 220 220 220 220 880 200 200 200 200 798 770
Other 6,965 1,823 1,726 1,880 1,876 7,305 1,824 1,846 1,853 1,877 7,399 8,137
Funds flow from operations 9,326 2,636 2,565 2,613 2,920 10,734 3,114 2,825 2,992 3,281 12,213 12,804
Per Unit 1.13 0.30 0.28 0.29 0.32 1.20 0.33 0.29 0.31 0.34 1.27 1.32
Capital Expenditures - Purchases of Ne (4,761) (8,927) - - - (8,927) (7,749) - - - (7,749) (5,658)
Capital Expenditures - Other - - - - - - - - - - - -
Total Capex (4,761) (8,927) - - - (8,927) (7,749) - - - (7,749) (5,658)
Net Equity Proceeds 4,761 8,927 - - - 8,927 7,749 - - - 7,749 5,658
Net Debt Issue - - - - - - - - - - - -
NWC and Other (323) (262) (20) (51) (323) (656) (446) 41 (97) (300) (802) (702)
Distributable income 15,968 4,197 4,271 4,442 4,473 17,383 3,422 3,642 3,679 3,788 14,530 15,958
Distributable income post non-controllin 9,003 2,374 2,545 2,562 2,597 10,078 2,735 2,911 2,940 3,027 11,613 12,226
Distributable income per Fund Unit 1.09 0.27 0.28 0.28 0.29 1.12 0.29 0.30 0.30 0.31 1.21 1.26
9,003 2,374 2,545 2,562 2,597 10,078 2,668 2,867 2,895 2,981 11,411 12,102
Units Outstanding (MM)
Public Units 8,404 9,054 9,054 9,054 9,054 9,054 9,704 9,704 9,704 9,704 9,704 9,704
% of Total 80.0% 78.6% 78.6% 78.6% 78.6% 78.6% 79.9% 79.9% 79.9% 79.9% 79.9% 76.6%

Total Minority Interest Units (Effective) 2,103 2,470 2,470 2,470 2,470 2,470 2,437 2,437 2,437 2,437 2,437 2,961
% of Total 20.0% 21.4% 21.4% 21.4% 21.4% 21.4% 20.1% 20.1% 20.1% 20.1% 20.1% 23.4%

Total Units (end of period) 10,506 11,524 11,524 11,524 11,524 11,524 12,140 12,140 12,140 12,140 12,140 12,665

Source: RBC Capital Markets estimates

Exhibit 7: Price Target Justifications and Impediments

Company
(Symbol) Valuation Target Price Impediments

A&W Revenue We are assigning a target yield of 7.5% to our 2011E
Royalties distribution (discounted back and added to the present value
Income Fund of interim distributions). This is well below the average
(AW.UN) target yield of just under 10% - reflecting the A&W's high
marks in our quality assessment criteria. We rate AW units
Outperform, Average risk.
Potential impediments include further changes in
the proposed tax treatment for trust structures,
lower disposable income due to slower economic
growth, health concerns, decreased tourism, brand
disassociation with baby boomers, trends away
from the QSR segment and external shocks.

Boston Pizza Our target price is derived through applying our 7.0% target-
Royalties yield to our estimated distribution in 2011 - after the tax is
Income Fund taken out. We then calculate the present value of that target
(BPF.UN) price and of (non-taxed) distributions in the interim period to
derive our one-year target price for BPF. We rate BPF units
Outperform, Average risk.
Investment risks include further changes in the
proposed tax treatment for trust structures, lower
disposable income associated with slower economic
growth, decreased tourism, health concerns,
potential execution risk associated with the
expansion strategy and variation in bar to food
sales.

The Keg Our target price is derived through applying our 7.5% target-
Royalties yield to our estimated distribution in 2011 - after the tax is
Income Fund taken out. We then calculate the present value of that target
(KEG.UN) price and of (non-taxed) distributions in the interim period to
derive our one-year target price for KEG. We rate KEG units
Outperform, Average Risk
Impediments include further changes in the
proposed tax treatment for trust structures, slower
economic growth, decreased tourism, reduced
customer traffic, loss of unique competitive
position, exchange rate risk and reduced sales due
to outbreaks, such as BSE.

PDM Royalties We assign PDM an above average target yield of 11% Risks include further changes in the proposed tax
Income Fund (reflective of PDM’s relative ranking among the other treatment for trust structures, slower economic
trademark royalty trusts) to our 2011E distribution growth, inability to generate higher SSSG at
April 13, 2007 6
RBC Capital Markets The Keg Royalties Income Fund

(PDM.UN) (discounted back and added to the present value of interim recently acquired brands, continued
distributions), and we derive a one-year target price which underperformance and Pizza Delight and Mikes, and
implies the highest estimated all-in return in our coverage difficulties related to managing a portfolio of
universe. We rank PDM units Outperform, Above Average risk. brands.

Prime We derive our target price by applying a 12.50% target yield
Restaurants to our 2011 estimated after-tax distribution. We then
Royalty Income calculate the present value of that target price and of (non-
Fund (EAT.UN) taxed) distributions in the interim period to derive our one-
year target price for EAT. We rate Prime units Underperform,
Above Average Risk.
Potential risks include further changes in the
proposed tax treatment for trust structures, slower
economic growth; decreased tourism, reduced
customer traffic; continued under performance by
East Side Mario's; and reduced sales due to
outbreaks such as H7 bird flu and BSE.

Priszm Canadian Our target price is derived by applying our 11.5% target yield
Income Fund to our estimated 2011E after-tax distribution, discounted
(QSR.UN) back and added to the present value of interim distributions.
We rate QSR units Underperform, Above Average risk.
Impediments include further changes in the
proposed tax treatment for trust structures, lower
disposable income, decreased tourism, a trend
away from the QSR segment by health conscious
consumers, loss of consumer connection with KFC
brands and reduced sales due to H7 bird flu.

Pizza Pizza PZA ranks in the top half among the other TRTs for quality -
Royalty Income based on its sizeable royalty pool, higher float and strong
Fund (PZA.UN) brand appeal. As a result we assign a target yield (of 8.5%) to
our 2011E distribution (discounted back and added to the
present value of interim distributions received). We rate PZA
units Outperform, Average risk.
Potential risks include further changes in the
proposed tax treatment for trust structures, slower
economic growth, resulting in lower disposable
income, decreased tourism, Ontario-based
economic shocks, and a shift in consumer attitudes
away from the QSR food segment.

Second Cup We are assigning a target yield of 9.50% to our 2011E Impediments include higher coffee prices, lower
Royalty Income distribution (discounted back and added to the present value disposable income associated with slower economic
Fund (SCU.UN) of interim distributions received). We rate SCU units Sector growth, decreased tourism leading to lower sales,
Perform, Average risk. increased competition, failure to develop new
products to complement coffee sales.

SIR Royalty SRV ranks lowest among the other TRTs by quality and we are
Income Fund assigning a target yield of 12.5% to our 2011E distribution
(SRV.UN) (discounted back and added to the present value of interim
distributions received. We rate SRV units Underperform,
Above Average risk.
Potential investment risks include further changes
in the proposed tax treatment for trust structures;
slower economic growth; failure to execute on
stated expansion strategy; reduced tourism; and
Ontario specific economic shocks.

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RBC Capital Markets The Keg Royalties Income Fund

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April 13, 2007 8