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Here's Why This REIT Is One of My Largest Investments

By Matthew Frankel, CFP® – Oct 25, 2021 at 6:18AM

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This stock isn't exactly a household name, but it could be worth a look for long-term investors.

Real estate investment trust STORE Capital (STOR -0.03%) isn't well known by many investors, but for investors focused on the long term, it's definitely one to put on their radar. In this Fool Live video clip, recorded on Oct. 11, contributor Matt Frankel explains why STORE Capital is one of the largest investments in his own retirement account.

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Matt Frankel: STORE Capital is my second-largest real estate holding, in that I own quite a few REITs. It's my favorite sector. It's my second-largest holding, became my second-largest holding over the past year. The more they execute on their business, the more I like it. If you're not familiar with STORE Capital, they are a real estate investment trust. They're what's called a net lease real estate investment trust, which basically means they own single-tenant properties. It's a special type of leasing arrangement. I don't want to get too much into the weeds on that.

But generally, it makes the most sense for when a company owns properties occupied by a single tenant, as opposed to like a mall or a shopping center, which are multitenant properties. For example, we'll go into the tenants in a minute, but for example, Camping World (CWH 0.21%) is one of their big tenants. They are the only tenant that occupies a Camping World property. Right now they own a little over 2,700 properties. Pretty much all of them are single tenant in nature, 64% of the portfolio is occupied by service-based businesses. Think restaurants, think preschools are a big target of theirs, auto repair businesses are a big tenant of theirs. Theater businesses, unfortunately, in 2020 are a big tenant of theirs, AMC (AMC -0.94%) is among their top tenants.

They have 17% of their portfolio occupied by retail businesses that sell a product as opposed to a service, furniture stores, outdoor stores. Bass Pro Shops is one of their big tenants, just to name another example. The other 19% of their portfolio is operated by manufacturing businesses. Some nice little diversification from the retail. Another pretty big differentiator.

Another big differentiator, STORE Capital is not the only REIT that does what it does. Realty Income (O 0.98%) is probably the most popular net lease REIT -- ticker symbol O -- that invest in single-tenant properties. One of the big differentiators is STORE Capital requires property-level profitability from all of its tenants. In other words, it demands property-level financials. Let's say Camping World leases 20 locations from them. They get the financials for each and every one of those 20 individual locations that gives them a real great insight into how profitable their tenants are, how the underlying businesses are doing, and it gives them a lot of foresight into predicting how their real estate is going to perform.

You can make the argument this is Warren Buffett's favorite REIT. Berkshire Hathaway (BRK.A -0.36%) (BRK.B -0.30%) owns just under 10% of STORE Capital. Great dividend stock. They went public in 2014. They've increased the dividend every year since including 2020, 4.7% dividend yield, which is pretty high, double the S&P's average. Great numbers, 99.6% occupancy, which is great for a real estate stock. They estimate their addressable property market universe to be $3.9 trillion in size. There are $3.9 trillion of properties that they could conceivably acquire.

They're not going to buy all of those, obviously, they don't have that much money. But the point is, this growth story can go on for a long time. They're growing quickly, they spent over $600 million on acquisitions so far in 2021 through the first half. For a company with a market cap below $9 billion, that's a pretty aggressive acquisition rate. I like this one.

Matthew Frankel, CFP® owns shares of Berkshire Hathaway (B shares), Realty Income, and STORE Capital. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends Camping World Holdings and STORE Capital and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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