Ok, I;m confused. I know he mentioned the REIT idea on the conference call but I haven't seen an announcement since. What has happened in the last couple of days to get everyone talking about this (and the stock spiking today)? Has there been some new news announced that I haven't heard of or is this all speculation?
Nope.....the last official word on the REIT was that they were still working through the process. I guess from the last conference call......it does sound like it will happen, and it seemed like they inferred it could happen in the next couple months. But there is no official word. I can't tell you why the focus on the board, except somebody brought it up and others decided to jump on the topic. There is some desire after so many years of the stock price going sideways, for investors to at least get some money back in the way of a dividend. But this is a no go for Eric, due to the double taxation issues. A REIT changes that, since the tax is passed through to the investor.
But we also have no idea of the specifics of the REIT, so some discussion is about that, too. If it is spun out to current investors, it should definitely create value for all holders at that time. If they IPO a separate security, and just swap the real estate equity for cash......the value creation component of a REIT is based on how they use that cash afterwards. Then there is the lease-back rate to Ricks from the REIT, how is that structured? Does Ricks just cover the interest expenses and expenses of the REIT, and any excess capital brought in from third party leases are distributed to REIT holders? Does Ricks just the interest expenses and expenses of the REIT, tack on 10% more and that is distributed to REIT holders? Or do they set the lease back rate each quarter based on what they wish to distribute to REIT holders?
Lots of unknowns and speculation, so far......today's pricing action is probably a result of someone who has been waiting to build a position in Ricks and decided to pull the trigger. Any major buyer will send the stock price rising since Ricks trades so thinly. If average volume is 30,000 shares a day, that is not even worth $270K of shares. Most funds would consider a $240K position a rounding error! You can acquire a 1% stake in Ricks for less than a million dollars!
I have been an investor for a long time - it seems to me that even without the REIT the shares are undervalued - next year' estimates are for something like 50% earnings growth - $1.20+ per share. RICK used to trade a few 100,000 shares a day, but it has gotten awefully quiet. So yeah, it is a "sin" stock so I don't expect the business to trade over 15x earnings even with all of that growth, but the current share price is ridiculous. I feel like 12-14 is where we "should" be even without a REIT and any potential negatives baked in. My hope is that the REIT is a catalyst that gets it there quicker, but this stock looks more undervalued than anything else I can find.