Priszm prepares fast-food trust IPO

Add tacos, fried chicken and lobster to the income trust menu, as Priszm Brandz Inc. prepares to raise more than $200-million by selling units of a trust that will hold an interest in more than 760 fast-food franchises.

Toronto-based Priszm owns the Canadian rights to many KFC, Taco Bell, Long John Silver's and Pizza Hut outlets. The firm, controlled by entrepreneur John Bitove, is expected to go to regulators next week with a prospectus for an initial public offering (IPO) that follows other successful restaurant-based trusts.

Boston Pizza Royalties Income Fund, Keg Royalties Income Fund, A&W Revenue Royalties Income Fund and Prime Restaurants Royalty Income Fund have all gone public in the past 18 months.

Fast-food restaurants make appealing trusts because they generate a steady, predictable amount of cash that can be handed out to income-hungry investors. Customers tend to be loyal, scarfing back low-priced meals in good economic times and bad. Boston Pizza has been the best performer, while two of these restaurant trusts, Keg and Prime, are now changing hands for less than their IPO price, and have since the mad-cow disease scare.

Like the other trusts, Priszm is expected to sell units for $10 each.

Priszm is private, and does not release its financial results, but the chain's Web site says annual sales are more than $800-million. It runs 768 restaurants, with nearly 16,000 employees, in more than 450 communities.

Its largest operation is KFC, which had revenue of $650-million last year from selling 25 million chickens, compared with rival Swiss Chalet's $379-million in sales. The company also bills Pizza Hut as the No. 1 chain in its sector, with $450-million of sales last year from 10 million pies, compared with Pizza Pizza's revenue of $233-million.

Priszm will pitch this trust as one that promises growth. It served 70 million customers last year, and boasts of plans to double the number of its outlets and serving one million customers a day by 2007.

The venture was created four years ago when Mr. Bitove merged the KFC outlets in his company, Scott's Restaurants Inc., with all the Canadian KFC, Taco Bell and Pizza Hut outlets owned by Tricon Global Restaurants Inc. That deal was valued at $500-million, with Tricon taking a share of future royalties from the restaurants as payment for its stake.

The trust sector has been under scrutiny of late. The resignation of Specialty Foods Group Income Fund's auditor raised questions on the tax treatment of companies with U.S. operations, and undermined the price of trusts in that sector. A host of internal problems cut into cash distributions from Atlas Cold Storage Income Trust, and knocked back the price of its units.

However, individual and institutional investors continue to snap up trusts, which are sold with the promise of monthly or quarterly cash distributions that are superior to bonds. In August, Yellow Pages Income Trust raised $1-billion for its owners, a deal that brought the total amount of trusts outstanding to more than $50-billion.