After notching a total return of nearly 37% in 2019 (share price plus dividends paid), STORE Capital (STOR +0.00%) is off to another strong start in 2020. Shares of the real estate investment trust (or REIT) are up another 3% even as global stock markets sell-off due to worry over the novel coronavirus, and the fourth quarter 2019 report offered up plenty to be happy about for this commercial real estate owner.
With a strong pipeline of new acquisitions for the new year and a dividend currently yielding 3.7%, this remains one of my favorite ways to play the retail and commercial real estate industries.
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A solid end to a solid year
STORE Capital exceeded its own guidance during Q4. Total revenue came in at $173.5 million, an 18% year-over-year increase. Adjusted funds from operations (AFFO, the preferred measure of profitability for real estate) were $120.0 million, a 16% increase. Added to results from the rest of 2019, STORE's activities led to an 8% increase in AFFO per share, beating management's expectation for full-year numbers by a couple of cents.
|
Metric |
12 Months Ended Dec. 31, 2019 |
12 Months Ended Dec. 31, 2018 |
Change |
|---|---|---|---|
|
Revenue |
$666 million |
$541 million |
23% |
|
Total expenses |
$464 million |
$369 million |
26% |
|
Adjusted funds from operations |
$458 million |
$378 million |
21% |
|
Adjusted funds from operations per share |
$1.99 |
$1.84 |
8% |
|
Net investment in new property |
$1.24 billion |
$1.38 billion |
(10%) |
Data source: STORE Capital.
STORE purchased $1.69 billion worth of new property in 2019 compared with $1.63 billion in 2018 -- although more asset sales led to an overall slowdown in net new property growth. In total, 350 new properties were purchased at an average initial cap rate (initial rent divided by property purchase price) of 7.8%, with an average lease escalation cap rate of 1.9%.
At year-end, 99.5% of STORE's 2,504 properties were occupied, one of the highest rates around in spite of tough going for other areas of the commercial real estate industry. STORE focuses on single-tenant long-term occupants, with the top five property types consisting of the following: Nearly 15% of the portfolio were restaurants, 6% early childhood education facilities, 6% health clubs, 5% auto repair, and 4% movie theaters. Various retailers made up 19% of the portfolio and manufacturing contributed 16%. That makes for one diversified mix of real estate holdings that is weathering the digital economy storm.
A fast-growing real estate play
At the end of Q4, STORE's management said its pipeline of property deals was $12.1 billion, far exceeding the $8.8 billion value of the portfolio overall. That means there is plenty of room for the company to be picky with its future acquisitions, maintaining its focus on quality long-term partners.
As to specifics, 2020 guidance was reiterated from the same numbers given a few months prior: Net acquisitions of $1.2 billion and average initial cap rates of 7.7%, leading to AFFO per share of $2.05 to $2.09. Based on those numbers, STORE shares currently trade for 18.4 times forward AFFO per share.
Real estate isn't the fastest-growing industry around, but this REIT is finding plenty of room to expand its reach. Shares trade for a reasonable premium and the dividend yield is a powerful annual bonus for those investors looking to hold for the long haul. With a new decade just beginning, STORE Capital looks well-positioned to continue growing in the digital age.
