Investors have been on the hunt for value this year—and there’s plenty to be found in
STORE Capital Corporation
The Scottsdale, Ariz-based real estate investment trust is a favorite of GoodHaven Capital Management, which counts the company among its top 10 holdings. STORE’s (ticker: STOR) primary business is working with middle-market companies in “sale-leaseback transactions” where STORE buys a property and then rents it back. STORE, which is an acronym for Single Tenant Operational Real Estate, has nearly 3,000 investment property locations throughout the U.S. representing a diverse set of industries including restaurants, retail, and manufacturing.
Understandably, the REIT’s stock suffered at the onset of the pandemic as many of the businesses behind its investment properties were forced to close. But shares have mostly recovered from their pandemic trough and Larry Pitkowsky, manager of the GoodHaven fund, is optimistic about growth, since the REIT has been “battle tested.”
“You always wonder in any company how they will handle a downturn,” Pitkowsky says. “[Investors] got to see how they managed it, which was very well.”
Now, business is growing again. For 2022, STORE said it expects adjusted funds from operations, a measure of cash flows, to increase 9.3% from 2021, amounting to $2.15 per share to $2.20 per share. And for income-oriented investors, STORE has a 4.9% dividend yield.
“STORE is a well-managed REIT and its earnings are growing,” Pitkowsky says.
GoodHaven has been invested in the REIT for years but added even more shares during the pandemic-induced downturn in 2020—and it wasn’t the only one.
added to its position in the middle of 2020, and now holds roughly 9% of shares, according to recent regulatory filings.
Part of the reason for STORE’s success is its focus on properties that are profit centers for the companies they work with. That means that even in a weak economy, these are the properties companies will work hardest to maintain.
The REIT is also optimistic about future acquisitions. It has a market capitalization of $8.7 billion but estimates its total addressable market at $3.9 trillion, representing more than two million properties. Even gaining the tiniest sliver of the market could lead to gains.
Wall Street is generally optimistic about STORE. Some 29% of the analysts covering the stock surveyed by FactSet rate shares the equivalent of a Buy with the remainder having Hold ratings. The average price target is $36.94, which is up 16% from recent trading levels.
Investors can expect more of an update later this month when the REIT reports fourth-quarter results on Feb. 23.
“STORE is a company that hasn’t been fully understood,” Pitkowsky says, “It’s a very profitable business with a lot of growth potential.”
Write to Carleton English at [email protected]