STORE Capital (STOR 3.48%) was certainly disrupted by the COVID-19 pandemic, as about one-third of its tenants are restaurants, movie theaters, family entertainment centers, and other business types that have struggled. But with low borrowing rates and excellent returns on retail properties, STORE's management appears to be in all-out growth mode. In this Fool Live video clip, recorded on Feb. 16, Millionacres real estate analyst Matt Frankel, CFP, and editor Deidre Woollard discuss STORE's surprising 2020 buying spree and why management might be so eager to put money to work.
Deidre Woollard: Yeah, I would agree with that. They're safe. But yeah, what's interesting is they kept buying pretty much right through the pandemic and so they invested more than $800 million during 2020, which was above their guidance range, which is really exciting to see because I think a lot so many companies really took a step back, but they didn't have to, partly because there was that ongoing demand. I think that's really an important thing.
Matt Frankel: There was definitely a lot of demand. Like you just said, to beat your 2020 acquisition target, given what was going on in the world, that's pretty impressive. They did it at pretty impressive cap rates, they call them, which is the initial yield of the property. Not only is STORE investing a lot, but they're getting good deals. They're borrowing money at a very low interest rate like everyone else is right now, and they're buying these retail properties. If they're borrowing money at 3%, I saw their cap rate is over 8% right now, so that means they're buying properties that are yielding more than 8% with this cheap capital they're getting. You got to buy as much as you can if you can get those kind of terms. If you could tell me I can get a guaranteed 8% yield on money I could borrow at 3%, I would be maxing out my credit lines right now. It doesn't work that way in the real world, for people like us, anyway. Maybe for STORE Capital it does. The cost of capital in the retail real estate, especially for net lease is just fantastic right now and STORE seems very willing to take advantage.
Woollard: This one seems to be probably the one that's recovered most of the ones we're talking about in terms of stock price. It seems like it's not back to where it was before the pandemic, but it's pretty close.
Frankel: Yeah. This is the one of the four that I bought before the pandemic, and I'm actually up on, so I can personally attest to what you just said there. [laughs] They've recovered pretty nicely. They're not quite at their pre-pandemic high yet, but they've done pretty well. Like I said, they have the Buffett factor going for them too. Berkshire (BRK.A 0.73%)(BRK.B 0.75%) doubled down on STORE, bumped the stake up to just under 10% during the pandemic, so that certainly added to the popularity. All of STORE's executives bought more shares during the pandemic. One of the few REITs we put out, a special report to members a while ago, if you remember, about which REITs saw a lot of insider buying during the pandemic and STORE was I think the most active and pretty much every executive bought more shares.