What happened
Shares of STORE Capital (STOR +0.00%) increased 16% in September, according to data provided by S&P Global Market Intelligence. The real estate investment trust (REIT) agreed to be acquired by GIC in partnership with Oak Street, a Division of Blue Owl Capital, for a 20% premium over its price at the time of the announcement, making it a no-brainer buy with an almost guaranteed gain.
So what
STORE Capital owns more than 3,000 properties in various industries with a 99.5% occupancy rate. It runs a singe-tenant net lease operation, and it typically buys properties from companies and then leases them back for long-term leases with the tenant responsible for most of the maintenance.
It has posted impressive performance over the past few years, with a 5.9% compound annual growth rate in adjusted funds from operations (AFFO) since its initial public offering in November 2014. Its stock has gained 60% since that time, although it's trading about 25% below a high of over $40 before the pandemic.
Warren Buffett bought STORE stock in 2017 totaling 9.8% of outstanding shares, and it's the only REIT in the Berkshire Hathaway portfolio. He continued to add shares during the 2020 market crash, but sold some of his position in 2022 as he bought up other stocks with tanking prices.
STORE sees a $3.9 trillion market opportunity of 2 million single-tenant properties with a target market of 215,000 quality companies. However, according to the announcement detailing the acquisition, the near-term real estate market is challenging, bringing management to the decision to be acquired.
Now what
The benefit of buying shares was obvious, and there was an immediate run-up in the price to the full 20% premium that the shares would be acquired for. The price has since declined slightly.
The deal comes along with a 30 day "go-shop" period that ends Oct. 15. During this time, the company can seek out better offers. This is an unlikely scenario, since management probably already considered any other offers. The merger is set to go through in the 2023 first quarter, subject to approval by shareholders.
It looks like the benefits of owning shares and getting the premium are already passed. There's the unlikely chance the deal falls through or STORE gets a better acquisition deal from another company. At this point, it doesn't look like there's any reason to buy shares of STORE Capital, but investors looking for passive income should consider adding other REITS to their portfolios.
