Store Capital's CASE STUDY

The realm of real estate investment trusts (REITs) has seen a myriad of players, but few have managed to carve a niche as distinct and successful as Store Capital. As a leading REIT specializing in single-tenant operational real estate, we've established a robust business model that not only addresses the liquidity needs of businesses but also ensures stable and predictable returns for our investors. Here's an in-depth look into what makes Store Capital distinct, and the strategies we've employed to achieve sustained growth.

Our Journey

Founded in 2011 and headquartered in Scottsdale, Arizona, Store Capital embarked on a mission to provide bespoke, long-term sale-leaseback and build-to-suit financing solutions. Over the years, we've grown to cater to a diversified tenant base spanning over 100 industries. Our core focus remains on middle-market and larger companies that seek customized financial solutions tied intricately to their operational real estate. The landscape of real estate investments was cluttered with standard practices, but we envisioned a different path—one that emphasized diversification, tenant quality, and stringent underwriting practices.

Business Model and Revenue Streams

Our business model revolves around acquiring and managing a portfolio of real estate properties leased to a wide array of industries, including manufacturing, service, and retail sectors. This model involves a strategic approach to acquiring properties through sale-leaseback transactions. Essentially, businesses sell their real estate assets to us and lease them back under long-term agreements. This transaction provides businesses with much-needed liquidity for growth while ensuring we secure stable, long-term revenue streams. One of the defining features of our revenue model is the reliance on triple-net leases. In these arrangements, the tenant is responsible for property expenses such as taxes, insurance, and maintenance. This lease structure not only reduces operational costs for us but also guarantees steady rental income with minimal expenditure. According to our most recent financial report, 100% of our leases have embedded contractual rent escalations (Store Capital, 2023). These incremental rent increases provide an organic growth component to our revenue stream, ensuring long-term financial sustainability. Additionally, we engage in selective property dispositions to optimize our portfolio, selling underperforming or non-strategic assets and reinvesting the proceeds into higher-yield opportunities. This dynamic approach allows us to continuously enhance the performance of our portfolio and maximize shareholder value.

Strategic Risk Management

Risk management forms the backbone of our operational strategy. Our emphasis on tenant diversification and property quality is designed to minimize investment risks and enhance the predictability of returns. We are committed to rigorous due diligence processes that ensure each acquisition aligns with our strategic objectives and risk management criteria. We carefully monitor tenant credit and property performance to proactively address potential issues. Our transparent and straightforward business operations aim to build trust and foster long-term relationships with our tenants.

Case Study: A Real-world Application

To better elucidate our business model, let’s delve into a specific case study that highlights our approach and its impact. In 2018, we acquired a portfolio of manufacturing facilities from a leading automotive parts manufacturer for $300 million through a sale-leaseback transaction. The manufacturer needed the liquidity to expand its production capabilities amid rising demand. After the acquisition, the manufacturer leased back the properties under a long-term triple-net lease agreement. This transaction exemplified a win-win situation; the manufacturer unlocked the capital necessary for growth while retaining operational control of the properties. For us, it meant adding high-quality assets to our portfolio with stable, long-term rental income. Coupled with contractual rent escalations averaging 2% per annum, this acquisition contributed significantly to our revenue growth.

Store Capital’s Unique Factors

Several factors make Store Capital stand out in the crowded REIT arena: 1. Strategic Partnering: We collaborate with key partners such as real estate developers, financial institutions, and property management firms to source and manage high-quality assets. According to industry expert Dr. David Barker, "Partnerships with these entities provide Store Capital with competitive advantage in property acquisition and management" (Harvard Business Review, 2022). 2. Diversification: Our focus on a diversified tenant base spanning over 100 industries mitigates economic fluctuations and industry-specific risks. Figures from our 2022 financial statements highlight that no single tenant represents more than 3% of our total rental revenue (Store Capital, 2022). 3. Customized Financing Solutions: Our customized long-term leases are tailored to meet the specific needs of our tenants, ranging from sale-leaseback to build-to-suit arrangements. Such flexibility ensures we attract and retain high-quality tenants. 4. Prudent Underwriting and Due Diligence: We leverage advanced analytics and market research tools to make informed investment decisions. Our stringent underwriting practices ensure that each property we acquire aligns with our strategic objectives and risk management criteria. 5. Triple-Net Leases: By structuring our leases as triple-net, we offload the burden of property expenses to our tenants, ensuring predictable and steady cash flows. Economist Robert T. Latham notes, "Triple-net lease structures have proven to be highly efficient for REITs, particularly in terms of reducing operational costs and ensuring stable income" (Latham, 2023).

Conclusion

Store Capital’s journey from inception to becoming a leading net-lease REIT is a testament to our strategic vision and agile business model. Our focus on tenant diversification, quality acquisitions, and tailored financial solutions has set us apart in the competitive REIT landscape. As we look ahead, our commitment to driving value through targeted investments in properties integral to our tenants' fundamental business operations remains unwavering. By continuing to refine our strategies and strengthen our partnerships, we are well-positioned to deliver sustained growth and stability for our investors and stakeholders alike. Store Capital is not just a case study in successful REIT management but a beacon of innovation, resilience, and strategic foresight in the real estate investment sector.