Last week, a hedge fund PM I know sent a message suggesting that I take a look at Spirit Realty Capital SRC, a triple-net lease REIT like Realty Income (which represented our first foray into REIT valuation and investing) and STORE Capital STOR (Valuation Waterfall, Video series).
I have been looking through its financials and presentations, and the story sounds very interesting to me. Not the least attractive feature is its dividend yield, which is north of 9%.
Figure 1. Source: YCharts
As luck would have it, Framework Member and contributor, Robert Ruggirello, CFA, is attending an industry conference this week at which Spirit is presenting, and he promised to take notes.
Spirit Realty is a company in transition. In late-2016, it hired Jackson Hsieh, former vice-chairman of investment banking at Morgan Stanley (and at UBS before that) as Chief Operating Officer. In May 2017, after Spirit’s stock was caught in a brutal downdraft, the CEO, Tom Nolan — who had been CEO since the company returned to the public market in 2012 — was fired and Mr. Hsieh stepped in.
Figure 2. Source: YCharts
Hsieh has added rigor and discipline to the Spirit’s business strategy (he seems to be a fan of Michael Porter’s “Five Forces” model), and recently took a big step in the direction of making Spirit a stronger company with a better balance sheet.
Namely, last week, it spun off assets and liabilities associated with a struggling retailer, ShopKo, into a separate entity, SMTA REIT. Spirit will still be exposed to ShopKo’s business problems indirectly, since it will receive a fee for managing the SMTA properties, but spinning the ShopKo business off at least allows it to get some dodgy assets and potentially dangerous liabilities off its balance sheet.
I will be posting a valuation waterfall for Spirit after I get a chance to speak with Robert, but in the meantime, I will leave you with the presentation Spirit made to the industry conference this week. It does a good job of explaining the changes being undertaken now.
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