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Office Hours: STORE Capital (STOR) Review

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After Robert Ruggirello, CFA’s perfect valuation of and prescient call on Gramercy Property Trust GPT, when he said that there was an interesting story about another REIT called STORE Capital STOR, my ears perked up.

Robert published a model and a Valuation Waterfall for STORE on May 15, a few days after we talked about it in our Office Hour session. Since we spoke, the price has moved up by about a dollar, and it is no longer a compelling value. Certainly something good to keep on one’s radar, however.

There are a lot of interesting things about the company. First, it is part-owned by Warren Buffett, who bought his shares in a private transaction at a price of $20.25. Robert mentions that Buffett watched the company for several years before it hit a 52-week low, and he sprung into action.

Second, it is a Triple Net Lease REIT like Realty Income O, a company on which we have published a ChartBook. If you’re not familiar with the verbiage, see the first video, where Robert explains what makes Triple Net Lease REITs interesting.

Last, STORE’s management seems like it has refined its risk management practices such that it has what Robert describes as “contract alpha”. Watch the second video, which is longer, for a description of what he means by that.

Triple Net Lease REIT Explanation

REIT-land has a lot of jargon. This is a good bit of jargon to understand.

STORE Capital Fundamentals

This is an excerpt of our longer conversation. We discuss the characteristics of the tenants to which STORE leases, what the tenants gain from the relationship, how STORE performs the function of a liaison between its tenants and the capital markets, and what STORE does to control risk, so that it can generate “contract alpha.”