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During the IPO season Francis Gaskins, editor of IPOdesktop.com & director of research for Equities.com, regularly appears on CNBC TV, Bloomberg, thestreet.com & other financial cable channels. On the day of the Visa IPO he appeared on four cable TV financial shows including Bloomberg & CNBC. Over the past five years he has been quoted over 500 times by such financial media as the Wall Street Journal, Bloomberg, Reuters, Associated Press, USA Today among others. Those quotes are available at IPOdesktop.com. His varied personal interests include violin playing. For example, he is concertmaster of the Palisades Symphony. He also holds an MBA from Harvard Business School (finance) and an AB from Princeton University (economics).

IPO Preview: STORE Capital Corporation


Summary
STOR is an internally managed net-lease real estate investment trust, or REIT, that is a leader in the acquisition, investment and management of Single Tenant Operational Real Estate, or STORE Properties, which is its target market and the inspiration for its name.

 

Valuation
Glossary
Valuation Ratios

Mrkt Cap ($mm)

Price /Sls

Expected yield

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Sept 9 mos

         

STORE Capital Corporation

$1,998

n/a

5.6%

1.3

1.4

25%

             

Compare

           

Realty Income (NYSE:O)

$10,490

n/a

4.7%

1.9

2.3

 
             

Conclusion
Neutral slightly plus

Because discount to Realty Income , see ‘valuation’ below

Expected yield is 5.6%

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business
STOR is an internally managed net-lease real estate investment trust, or REIT, that is a leader in the acquisition, investment and management of Single Tenant Operational Real Estate, or STORE Properties, which is its target market and the inspiration for its name.

STOR continues the investment activities of its senior leadership team, which has been investing in single-tenant operational real estate for over three decades.

STOR is one of the largest and fastest-growing net-lease REITs and own a large, well-diversified portfolio that consists of investments in 850 property locations operated by 201 customers in 46 states as of September 30, 2014.

STOR’s customers operate across a wide variety of industries within the service, retail and industrial sectors of the U.S. economy, with restaurants, health clubs, early childhood education centers, movie theaters and furniture stores representing the top industries in STOR’s portfolio.

STOR estimates the market for STORE Properties to be among the nation’s largest real estate sectors, exceeding $2 trillion in market value and including more than 1.5 million properties.

STOR provides net-lease solutions principally to middle-market and larger companies that own STORE Properties.

A STORE Property is a real property location at which a company operates its business and generates sales and profits, which makes the location a profit center and, therefore, fundamentally important to that business.

STOR’s net-lease solutions are designed to provide a long-term, lower-cost solution to improve its customers’ capital structures and, thus, be a preferred alternative to real estate ownership.

In addition to the value STOR provides its customers, STOR also seeks to create value for its stockholders by:

Originating real estate investments that provide superior returns. More than 75% of STOR’s investments (by dollar volume) have been originated by its internal origination team through direct customer relationships using its form financing documents.

STOR’s focus on direct originations allows it to offer custom-tailored financing solutions, superior customer service and greater certainty of execution for which STOR has received a higher lease rate.

The result has been that, since STOR’s founding, STOR has realized average initial lease and loan rates measurably higher than those available in the broad broker, or auction, marketplace.

For example, STOR’s weighted average net-lease capitalization rate exceeded the weighted average net-lease capitalization rate on leases of various national restaurant franchise .

STOR’s senior leadership team believes the difference in capitalization rate represents the value many of its restaurant customers paid for its custom-tailored financing solution, superior customer service and greater certainty of execution.

Competition
STOR faces competition in the acquisition and financing of STORE Properties from numerous investors, including traded and non-traded public REITs, private equity investors and institutional investment funds, some of which have greater financial resources than STOR does, a greater ability to borrow funds to acquire properties and the ability to accept more risk.

STOR also believes that competition for real estate financing comes from middle-market business owners themselves, many of whom have had a historic preference to own, rather than lease, the real estate they use in their businesses.

The competition STOR faces may increase the demand for STORE Properties and, therefore, reduce the number of suitable acquisition opportunities available to STOR or increase the price STOR must pay to acquire STORE Properties. This competition will increase if investments in real estate become more attractive relative to other forms of investment.

5% shareholders pre-IPO
STORE Holding Company, LLC 99.26%

Dividends
STOR intends to make a pro rata distribution with respect to the period commencing on the completion of this offering and ending on December 31, 2014, based on a distribution of $0.25 per share for a full quarter.

On an annualized basis, this would be $1.00 per share, or an annual distribution rate of approximately 5.6%, based on an assumed initial public offering price of $18.00 per share (the mid-point of the initial public offering price range).

Use of proceeds
STOR expects to receive $461 million from its IPO and use it for the following:

$198 million to repay amounts outstanding under its new unsecured, variable-rate revolving credit facility, which is used to temporarily fund its real estate acquisitions;

$125,000 to redeem all outstanding shares of its Series A Preferred Stock plus all accrued and unpaid dividends thereon; and

the remainder to fund property acquisitions subject to purchase contracts in the ordinary course of its business.

Disclaimer: This STOR IPO report is based on a reading and analysis of STOR’s S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

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