Store Capital: Warren Buffett's REIT Pick
Charles Sizemore | Jun 27, 2017 11:44AM ET
Thank you, Mr. Warren Buffett.
On Tuesday, up-and-coming triple-net retail REIT STORE Capital (NYSE:STOR) got a major boost when the company announced that Buffett’s Berkshire Hathaway (NYSE:BRKa) (NYSE:BRKb) recently purchased nearly 10% of the company.
Prior to the announcement, STORE had been having a rough year. Amazon’s (NASDAQ:AMZN) assault on traditional brick-and-mortar retail has been unrelenting and investors have responded by dumping high-quality, triple-net retail REITs like STORE.
Hey, I get it. As we saw with Spirit Realty Capital (NYSE:SRC), a struggling retail tenant can cause major headaches for a landlord, and investors worry that this is only the tip of the iceberg. But as is typical, they’ve overreacted and thrown out the baby with the bathwater.
To start, about two thirds of STORE’s portfolio is invested in properties that cater to services, including everything from movie theaters to preschools. The remaining third is split roughly evenly between retail properties and light industrial properties.
Unless Jeff Bezos can find a way to deliver your children via aerial drone to Amazon-operated preschools — it could happen — STORE would seem pretty close to Amazon-proof.
It’s also worth noting that STORE’s insiders have been steady buyers of the stock.
While I would never buy a stock purely because its insiders were buying, I definitely see it as a major positive. The people running the company are generally going to have a better grasp of its competitive challenges than passive investors reacting to news headlines.
At any rate, it will be interesting to see if Mr. Buffett’s purchase causes a wide-scale reevaluation of triple-net retail REITs or if this was simply a one-off event that will quickly fade. But while we’re waiting for the market to handicap all of this, I’m happy to continue collecting the 5.6% dividend indefinitely.
Disclosures: I’m long STORE Capital via my Dividend Growth portfolio.
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