While it isn’t necessarily “news-news” the net lease REITs have enjoyed a good ride lately. These REITs, which run with less operating leverage, have attracted many investors, affecting all subgroups. The high interest has influenced much hyped companies, such as O and NNN, as well as stocks with a bit of baggage, such as Spirit Realty and Getty Realty. As expected, it has also affected STORE Capital Corporation, a middle of the pack REIT in regards to valuation multiple and market size.
So far this year, STORE Capital has already gone through four public offerings. Oaktree Capital Management, LP., a former major shareholder, promoted three offerings in order to exit its position. STORE Capital will not receive any of the proceeds. In turn, STORE has recently promoted another offering, which was upsized and demonstrated a good bit of interest from investors.
Like its freestanding peers, STORE Capital’s share price has rallied over the past few months. The stock return has exceeded 10%. Currently, the share price is hovering around $26. The company has achieved high marks for its occupancy of 99.9% and its diversified tenant base. STORE is a net release REIT that serves middle market and larger non-rated tenants. A significant portion of STORE’s tenants are restaurants, movie theaters, health clubs, and early childhood education centers.
Something unique to STORE Capital is that it has developed its own methodology to rate lease income, primarily relying on profitability metrics of its properties. Rather than only assessing the tenant credit, they also evaluate the business unit operating at the leased site. This is referred to as its STORE Score.
The signs that the stock has already been priced correctly include that it is trading at the average dividend yield for the sector (4.2%) and its multiple is just north of 16 times AFFO.
In summary, the stock has demonstrated several signs that it is correctly valued or overvalued, most notably by the several offerings, including the three from its former shareholder.
Source: STORE Capital Corporation(NYSE:STOR), Fast Graphs, Yahoo!Finance
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