# A&W Income fund



## Sherlock (Apr 18, 2010)

I was at A&W's website trying to see when the $1.50 mama burger deal was expiring, and I noticed a link to this.

What do yall think about it? It's at about $20/share and it pays 11.7 cents a share distribution every month. Distributions have steadily increased since inception and never decreased.

http://www.google.ca/finance?q=TSE:AW.UN

Since I eat there often anyways, I could buy this and then in a way I'd be eating there for free.


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## slacker (Mar 8, 2010)

Maybe you can get your dividend through a DRIP of root beers.


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## Eder (Feb 16, 2011)

I hate A&W food....all precooked/frozen/inedible without adding too much salt.....much like Pizza Pizza....but I find Boston Pizza food not bad.
So BPF.UN was my choice long ago.
(Second Cup coffee is gross)


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## Cal (Jun 17, 2009)

More importantly, where can I order a giant inflatable burger, like the one in the commercial.


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## phrenk (Mar 14, 2011)

I don't know about A&W specifically, but i want to point out that Priszm Income Fund (TSE:QSR.UN) recently filed for bankruptcy. Priszm is an income fund for KFC, Pizza Hut and Taco Bells in Canada.

Might be worth looking into why Priszm failed and is it possible that A&W will suffer / are suffering the same difficulties.

I've always had the opinion that for strong dividend yields, real estate is the best option, as the cash flows stem from signed & contractual leases, while in the food segment, cash flow varies day to day.


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## Dmoney (Apr 28, 2011)

Also look at the fund's structure in terms of what drives the income, and what happens when new restaurants are added or removed. I bought BPF.UN because the Fund's income relies entirely on top line numbers (4% of system-wide revenue) and at the same time, when a non-performing store is removed from the group, the parent company loses 92.5% of the royalty, while the average unitholder only loses 7.5%. Upside is limited by the same structure wherein if a new store opens and generates 100K in royalties, 92.5K goes to the parent company while only 7.5K goes to the other unitholders. (Done by increasing/decreasing parent's stake in fund). 

Due to this structure, all that matters for investors is that same store sales increase, which can be done with increased volume, or increased prices. Anyone ever seen menu prices go down???


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## fersure (Apr 19, 2009)

*Taxation of distributions for restaurant trusts*

In a non-registered account, how are the distributions for aw, bpf, keg, and pza taxed in this post-trust world?


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## Potato (Apr 3, 2009)

phrenk said:


> I don't know about A&W specifically, but i want to point out that Priszm Income Fund (TSE:QSR.UN) recently filed for bankruptcy. Priszm is an income fund for KFC, Pizza Hut and Taco Bells in Canada.
> 
> Might be worth looking into why Priszm failed and is it possible that A&W will suffer / are suffering the same difficulties.



Priszm was an operating restaurant fund, so pretty much the opposite of A&W and Pizza Pizza, which collect a percentage of top-line revenue from the restaurants for the use of their respective trademarks. Priszm instead paid a franchise fee to Yum brands, and had all the exposure to the ups and downs of the restaurant business (i.e.: distributions were from the bottom-line).

Priszm had a couple of issues. They had a fair bit of debt/leverage, but not enough to ring alarm bells for me at the time (3-4X EBITDA). The trick was, they didn't have it as a series of rolling 5-year notes or anything (i.e., it wasn't laddered): it was all due in one balloon payment in 2010. So the imagined safety of that debt-to-EBITDA ratio wasn't actually there. If another company had run into problems rolling their debt, then they could shovel all the cash flow at each tranche as it matured, and just delever in bad financial times. Priszm didn't have that option with their one big loan.

The other big issue was that EBITDA is often a suitable measure for these types of businesses because -- though you can't ignore amortization/depreciation forever -- you can usually put off renovating your restaurant for a few years if there's a global financial crisis and you need to focus on paying down your debt. Except the decision of whether and when to renovate restaurants didn't lie with Priszm: Yum brands told them they had to renovate certain restaurants in order to keep their franchise rights, which added insult to injury.

So a totally different set of risks and issues than with the royalty trusts.

(And as you may be able to tell, I lost money on Priszm at one point)


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## Potato (Apr 3, 2009)

fersure said:


> In a non-registered account, how are the distributions for aw, bpf, keg, and pza taxed in this post-trust world?


You can look those up with each company. E.G., here's the recent release from A&W, indicating it's a non-eligible dividend.


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## fersure (Apr 19, 2009)

Potato said:


> You can look those up with each company. E.G., here's the recent release from A&W, indicating it's a non-eligible dividend.


Thanks Potato,
It's the language used in the corporate press releases, contrasted with the baffling Canadian tax regime that is ultimately confusing me. 

My understanding is that in a non-registered account, a non-eligible "dividend" is essentially interest, and taxed at one's marginal rate. Non-eligible means that the retail investor doesn't get the benefit of the dividend tax credit. Therefore, these restaurant trusts are best held in a TFSA or RRSP.


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## andrewf (Mar 1, 2010)

^ Yup.

The reason that it is non-eligible is because income funds don't pay tax on their income before distributions.


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## Dmoney (Apr 28, 2011)

andrewf said:


> ^ Yup.
> 
> The reason that it is non-eligible is because income funds don't pay tax on their income before distributions.


As of January 2011 they have to pay a tax if they maintain the SIFT structure. According to the Boston Pizza Fund's site, after paying this tax, the dividends are now eligible Canadian dividends. Not sure if this applies across the board or not though, but it seems that it should.


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## andrewf (Mar 1, 2010)

I'm no tax lawyer, but I thought several trusts had build up substantial tax shields so that they would not pay any net tax for the next few years under the new rules. Not sure if distributions under these shields are then eligible dividends or taxed as income.

I should be careful to say that ineligible dividends are those from CCPCs (usually small business), so in my last post I should have said income.


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## Dmoney (Apr 28, 2011)

I know some of the energy trusts are in a position where they will not be taxable for several years due to hefty tax shields. How the distributions are treated, I'm not 100% positive, but it is a huge consideration when buying. I'd be looking into the tax structure and makeup of distributions (ROC, income, eligible dividend) to make sure that my yield wasn't going to be cut in half due to taxes.


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## Financial Cents (Jul 22, 2010)

@andrewf,

Can I assume you don't own any restuarant trusts? (I don't). 

Higher yield, higher risk, but....we know the end of that line...

I'd be curious to know how many folks in this forum own these types of investments.


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## Sherlock (Apr 18, 2010)

I'm looking to add something to my TFSA that's a bit higher risk and higher reward, and wanted to know whether people here think this fund (or others like it) are a good idea.


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## andrewf (Mar 1, 2010)

No, I don't own any restaurant royalty trusts. I wouldn't say that they are inherently riskier--their payout ratios are higher than, say, a bank, so they may be subject to a dividend cut if sales for the chain falls.

It's a pretty mechanical business where they get a percentage of every sale. Not a huge amount of execution risk.


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## dagman1 (Mar 3, 2010)

I wouldn't touch it. Ask yourself: where is the growth in the dividend going to come from? The distribution isn't that great as it stands so you must be betting on its growth.

I'm sure you're aware that fast food is a fiercely competitive industry, especially when it comes to a burgers and fries type menu. I don't see A&W as having any "moat of protection". I also haven't heard of A&W (although I don't know) making headway into any developing countries, nor do I see how, if it was, it would have any competitive advantage.

I'll just add that the main point of competition here is price (rather than service, we are talking fast-food, or product, we are talking burgers and fries). How are they going to increase their prices to increase your distribution (or lower their costs or expand their customer base)?


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## Retired at 31 (Apr 20, 2009)

I have roughly 5,000 units of BPF and am very happy with it. All purchased in the $8-11 range.

Also have a smaller position in PZA (bought at just over $6)

Up about 55% appreciation and around 90% with distributions.

Mostly held in a non-registered account, so the distribution "cut" didn't matter to me as they're now eligible dividends....

Both have a smallish (around 10-15%) portion of the proceeds as ROC, which has a tangible benefit in non-registered accounts, but none in registered.

I wouldn't buy more at today's prices, but am happy holding and hopeful for some more sale prices in the future


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## Mark Rose (Jun 14, 2011)

As far as fast food companies go, this is one I'd pick, based on where most of its restaurants are: western Canada. As commodity prices continue to rise long term, the western provinces will continue to do well economically, and that means money for eating out. Go to any town out west, and you're more likely to find an A&W than a McDonalds. And they're busy.

Is growth likely? Probably not so much. They hardly exist any longer west of Thunder Bay. Will existing restaurants continue to do well? Most likely.


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## blade9876 (Oct 18, 2013)

I have held shares of A and W for some time, I love the dividend, currently over 6% and pays monthly. Nothing beats getting more shares every month.


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## Tourist9394 (Jun 11, 2015)

Any thoughts of this company? One of the fastest growing fast-food restaurant in Canada.


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## gibor365 (Apr 1, 2011)

I was watching this one from time to time, but it always seems too expensive to me.... My biggest holding in Canadian eating place are SRV.UN. I don't really like Jack Astor's , but it always full  .. more likely I'll buy more SRV or KEG than initiate position in AW


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## londoncalling (Sep 17, 2011)

I would like to own this at the right price. I currently own Boston Pizza and missed an opportunity to add in the early spring. IMO A&W is a great business and seems to be a good stock.


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## Eder (Feb 16, 2011)

It's had a good pull back...I already own a full trough of this though so won't buy here.


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