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Acquisitions and Dispositions

12 Months Ended

Sep. 30, 2021

Business Combination and Asset Acquisition [Abstract]

Acquisitions and Dispositions

15. Acquisitions and Dispositions

2019 Acquisitions

On November 1, 2018, the Company acquired the stock of a club in Chicago for $10.5 million with $6.0 million cash paid at closing and the $4.5 million in a 6-year seller-financed note with interest at 7%. The Company paid approximately $37,000 in acquisition-related costs for this transaction, which is included in selling, general and administrative expenses in our consolidated statement of operations. In fiscal 2019, the club generated revenue of approximately $5.0 million since acquisition date. In relation to this acquisition, on September 25, 2018, the Company borrowed $5.0 million through a credit facility with a bank lender. The loan has a 7% fixed interest rate with a maturity date in May 2019. The loan was fully paid as of June 30, 2019. Goodwill and SOB license for the Chicago acquisition are not amortized but are tested at least annually for impairment. Goodwill recognized for this transaction is not deductible for tax purposes. Noncompete is amortized on a straight-line basis over five years from acquisition date.

The following information summarizes the allocation of fair values assigned to the assets at acquisition date (in thousands):


Land and building		$	4,325
Inventory			57
Furniture and equipment			50
Noncompete			100
SOB license			5,252
Goodwill			2,003
Deferred tax liability			(1,287	)
Net assets		$	10,500

On November 5, 2018, the Company acquired the assets of a club in Pittsburgh for $15.0 million, with $7.5 million cash paid at closing and two seller notes payable. The first note is a 2-year 7% note for $2.0 million, and the second is a 10-year 8% note for $5.5 million. The Company paid acquisition-related costs for this transaction of approximately $134,000, which is included in selling, general and administrative expenses in our consolidated statement of operations. The club generated revenue of approximately $4.6 million since acquisition date. Goodwill for the Pittsburgh acquisition is not amortized but is tested at least annually for impairment. Goodwill recognized for this transaction is deductible for tax purposes. Noncompete is amortized on a straight-line basis over five years from acquisition date.

The following information summarizes the allocation of fair values assigned to the assets at acquisition date (in thousands):


Land and building		$	5,000
Inventory			23
Furniture and equipment			200
Noncompete			100
Goodwill			9,677
Net assets		$	15,000

2019 Dispositions

In October 2018, the Company sold its nightclub in Philadelphia for a total sales price of $1.0 million, payable $375,000 in cash at closing and a $625,000 9% note payable to us over a 10-year period. The note is payable interest-only for twelve months at the conclusion of which time a balloon payment of $250,000 is due, and then the remainder of the principal and interest is payable in 108 equal installments of $5,078 per month until October 2028. The buyer will lease the property from the Company’s real estate subsidiary under the following terms: $36,000 per month lease payments for ten years; renewal option for a succeeding ten years at a minimum of $48,000 per month; lessee has option to purchase the property for $6.0 million during a term beginning November 2023 and expiring in October 2028. The Company recorded a gain on the sale transaction of approximately $879,000, which is included in other charges (gains), net in our consolidated statement of operations during the quarter ended December 31, 2018. In July 2019, the Company and the buyer agreed to modify the promissory note to include in principal (i) rental payments from April to September 2019, (ii) accrued property taxes, (iii) accrued occupancy taxes, and (iv) two months of outstanding interest payments for a total principal balance of $879,085. The note, as modified, still bears interest at 9% and is payable in 108 equal monthly installments of $11,905, including principal and interest, until July 2028.

RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

15. Acquisitions and Dispositions - continued

In November 2018, the Company sold two assets held for sale in Houston and San Antonio, Texas for a combined sales price of $868,000. Net gain on the two transactions amounted to $273,000 after closing costs. The Company used the proceeds to pay down $945,000 in loans related to the properties.

On January 24, 2019, the Company sold a held-for-sale property in Dallas, Texas for a total sales price of $1.4 million, payable $163,000 in cash at closing, net of closing costs and property taxes of $87,000, and a $1.15 million 8% note payable over a three-year period. The note is payable $9,619 per month, principal and interest, for the first 35 months with the remaining balance payable at maturity. The buyer has the option to extend the maturity date by one year at least 60 days prior to maturity, as long as the buyer is not in default. The Company recorded a gain on the sale transaction of approximately $383,000.

On March 21, 2019, the Company sold a held-for-sale property adjacent to our Bombshells 249 location for a total sales price of $1.4 million in cash. Net gain on the transaction amounted to approximately $628,000 after closing costs. The Company used $980,000 of the proceeds to pay off a loan related to the property.

In April 2019, the Company sold another held-for-sale property adjacent to our Bombshells I-10 location for a total sales price of $1.1 million in cash. Net gain on the transaction amounted to approximately $331,000 after closing costs. The Company used $942,000 of the proceeds to pay off a loan related to the property.

In June 2019, the Company sold a property located in Lubbock, Texas for $350,000 in cash. Net loss on the transaction amounted to $376,000 after closing costs. The Company used $331,000 of the proceeds from the sale to pay down debt.

In June 2019, the Company sold an aircraft for $690,000 in cash. Net loss on the transaction amounted to $9,000 after closing costs. The Company used $666,000 of the proceeds from the sale to pay down related debt.

On July 23, 2019, the Company sold an aircraft for a total sales price of $382,000 for net gain of $16,000. Proceeds were used to pay off the remaining note payable balance of approximately $217,000.

On September 30, 2019, the Company sold its Bombshells Webster location for a total sales price of $85,000 in cash. Net loss on the transaction amounted to approximately $156,000.

2020 Dispositions

On April 1, 2020, the Company sold a corporate housing property to an employee for $375,000 in cash with an approximate gain of $20,000.

On May 22, 2020, the Company sold land adjacent to one of our Bombshells locations in Houston for $1.5 million in cash. Net gain on the transaction was $583,000 after closing costs. The net proceeds of $1.4 million were used to pay down related debt.

On August 6, 2020, the Company sold another corporate housing property for $176,000 in cash with an approximate gain of $26,000. The net proceeds of $160,500 were used to pay down related debt.

2021 Acquisitions

On December 28, 2020, the Company acquired the real estate and other business assets of a club in Centerville, Illinois for $500,000 in cash. The Company is leasing out this property to a club operator for $48,000 annually.

On January 26, 2021, the Company acquired land for a future Bombshells location in Arlington, Texas for $2.9 million. The Company paid approximately $754,000 in cash including closing costs and financed $2.175 million with a bank lender for a 20-year promissory note with an initial interest rate of 3.99% per annum. See Note 9.

On March 10, 2021, the Company acquired approximately 57,000-square foot of land across the street from our corporate office for $475,000 in cash. The Company plans to build a warehouse on that land in the coming months.

On March 22, 2021, the Company acquired land adjacent to a Bombshells location in Houston, Texas for $1.04 million in cash.

On April 7, 2021, the Company acquired land near our Bombshells location in Pearland, Texas for $1.275 million in cash.

2021 Dispositions

On May 7, 2021, the Company sold one of the properties held for sale for $3.1 million. The property had a carrying value of $2.3 million. We recorded a net gain of approximately $657,000 after closing costs and we paid related debt amounting to $2.0 million from the proceeds of the sale. See Note 7.

On September 21, 2021, the Company sold land where a club used to be operated for $2.25 million with a net gain of approximately $54,000 after closing costs. We paid $1.2 million of related debt with the proceeds of the sale.

RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

15. Acquisitions and Dispositions - continued

2022 Acquisitions

On October 18, 2021, we and certain of our subsidiaries completed our acquisition of eleven gentlemen’s clubs, six related real estate properties, and associated intellectual property for a total agreed acquisition price of $88.0 million (with a total consideration preliminary fair value of $88.4 million based on the Company’s stock price at acquisition date and discounted due to the lock-up period). The acquisition gives the Company presence in six additional states. We paid for the acquisition with $36.8 million in cash, $21.2 million in four seller-financed notes (see Note 9), and 500,000 shares of our common stock.

We have not completed our valuation of the assets acquired, therefore, we do not have an allocation of the acquisition price at this time.

In connection with the acquisition, we incurred acquisition-related expenses of approximately $347,000, of which $174,000 was expensed in fiscal 2021 and $173,000 will be expensed in fiscal 2022, and in both periods included in selling, general and administrative expenses in our consolidated statement of operations.

The following table presents the unaudited pro forma combined results of operations of the Company and the eleven acquired clubs and related assets as though the acquisition occurred at the beginning of fiscal 2021 (in thousands, except per share amount):

		For the Fiscal Year Ended September 30, 2021
Pro forma revenues		$	217,996
Pro forma net income attributable to RCIHH common stockholders		$	25,290
Pro forma earnings per share - basic and diluted		$	2.66

Pro forma weighted average number of common shares outstanding - basic and diluted			9,500

The above unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2021. The unaudited pro forma financial information reflects material, nonrecurring adjustments directly attributable to the acquisition including acquisition-related expenses, interest expense, and any related tax effects. Since we do not have a valuation of the assets that we acquired yet, the unaudited pro forma financial information does not have adjustments related to changes in recognized expenses caused by the fair value of assets acquired, such as depreciation and amortization and related tax effects. Pro forma net income and pro forma earnings per share include acquisition-related expenses that will be recorded in fiscal 2022 amounting to $173,000 and interest expense of $3.3 million related to the 28 private lender group notes and 4 seller-financed notes in the acquisition. Pro forma weighted average number of common shares outstanding includes the impact of 500,000 shares of our common stock issued as partial consideration for the acquisition.

On November 8, 2021, the Company acquired a club and related real estate in Newburgh, New York for a total purchase price of $3.5 million, by which $2.5 million was paid in cash at closing and $1.0 million through a seller-financed 7-year promissory note with an interest rate of 4.0% per annum. The note is payable $13,669 per month, including principal and interest. See Note 9. Since this acquisition is not material, we are not providing supplemental pro forma disclosures.

RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements