Rick's Cabaret Plans on Spinning Off Real Estate Holdings as a REIT

Jun 14, 2013 10:45 AM PST

HOUSTON — Rick's Cabaret International, which operates 37 gentlemen's clubs throughout the nation, plans on spinning off  its real estate holdings as a REIT before the end of the year.

The move could unlock shareholder value for the Houston-based publicly traded company because of Rick's vast real estate holdings. Rick's owns 57 properties — including the gentlemen's clubs and their parking lots — that it values at $100 million.

The move to create a REIT, or real estate investment trust, came about more than six months ago after management said that the stock price had been in a rut for the past two years ago.

Eric Langan, Rick's president and CEO, told shareholders in a conference call last December that the company was considering to boost share value by possibly entering into a master lease to rent the properties from the REIT, a company that wouldn't pay corporate income taxes.

The plan to start up a REIT for gentlemen's club properties would be a first, but already the idea has churned interest. Since Langan's announcement in December over a possible REIT, the stock price has risen nearly 10 percent.

Langan, who told stockholders at the conference call that the move would pay a dividend to stockholders through the REIT, said that the company really wants to look at "releasing the hidden real estate value."

"Anything that is not real estate backed debt or high interest debt; we are going to be looking at eliminating as we move forward," Langan said at the time.

"We are going to use our real estate portfolio and leverage that real estate going forward to raise capital, because with our stock at these prices we are not interested in issuing any equity at these prices," Langan said. "In fact any time the stock is under $8 we are going to probably be active in the market through our stock buy back program."

At post time, Rick's trades at $8.75 a share on the Nasdaq.

In the meantime, the company announced this week that it recently entered into a deal to extend the closing date of a purchase agreement for its 33rd Street property in New York where a Rick's Cabaret operates.

Rick's plans on acquiring the building and land it currently leases for $23 million.

Langan in December said that the deal, if completed, would give the company an additional bonus — air rights to build an additional 52, 000 square feet in New York.

Langan estimated those air rights to be as much as $300 and $350 a foot. 

"And so we are in negotiations with a couple of parties on possibly selling those air rights or developing those air rights," he said.

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