STORE Capital Announces Third Quarter 2019 Operating Results

Raises 2019 Guidance; Introduces 2020 Guidance

SCOTTSDALE, Ariz–(BUSINESS WIRE)–STORE Capital Corporation (NYSE: STOR, “STORE Capital” or the “Company”), an internally managed net-lease real estate investment trust (REIT) that invests in Single Tenant Operational Real Estate, today announced operating results for the third quarter and nine months ended September 30, 2019.

Highlights

For the quarter ended September 30, 2019:

  • Total revenues of $171.8 million
  • Net income of $111.6 million, or $0.48 per basic and diluted share, including an aggregate net gain of $59.3 million on dispositions of real estate
  • AFFO of $116.1 million, or $0.50 per basic and diluted share
  • Declared a regular quarterly cash dividend per common share of $0.35, representing a 6.1% increase over the prior quarter
  • Invested $395.5 million in 85 properties at a weighted average initial cap rate of 7.7%
  • Raised $158.7 million in net proceeds from the sale of an aggregate of approximately 4.4 million common shares under the Company’s at-the-market equity program

For the nine months ended September 30, 2019:

  • Total revenues of $492.3 million
  • Net income of $225.1 million, or $0.99 per basic and diluted share, including an aggregate net gain of $72.4 million on dispositions of real estate
  • AFFO of $338.1 million, or $1.49 per basic and $1.48 per diluted share
  • Declared regular cash dividends per common share aggregating $1.01
  • Invested $1,152.8 million in 247 properties at a weighted average initial cap rate of 7.8%
  • Raised $452.7 million in net proceeds from the sale of an aggregate of approximately 13.4 million common shares under the Company’s at-the-market equity program
  • Closed second public debt offering, issuing $350.0 million in aggregate principal amount of investment-grade senior unsecured notes in February 2019

Management Commentary

“Our third quarter results reflect the strength of our direct acquisition strategy, the quality of our real estate investment portfolio and the continued execution of our team,” said Chris Volk, President and Chief Executive Officer of STORE Capital. “We made nearly $400 million in granular real estate acquisitions during the quarter at an average cap rate of 7.7%. At the same time, we also profitably divested more than $290 million of real estate, resulting in net acquisition activity for the quarter of over $100 million. STORE has been a leader in enhancing growth in cash flow and shareholder value creation through capital recycling and portfolio optimization through strategic asset sales. Given our strong performance for the first nine months of the year, we are raising our 2019 AFFO guidance. Importantly during the quarter, we also announced our fifth consecutive annual dividend increase since our IPO, a 6.1% raise that elevated our cumulative dividend growth to 40%. All of us at STORE take pride in our ability to benefit our shareholders through sustained dividend growth, as well as increased protection of our dividends over time.”

Financial Results

Total Revenues

Total revenues were $171.8 million for the third quarter of 2019, an increase of 25.4% from $137.0 million for the third quarter of 2018.

Total revenues for the first nine months of 2019 were $492.3 million, an increase of 24.9% from $394.1 million for the first nine months of 2018. The increase was driven primarily by the growth in the size of STORE Capital’s real estate investment portfolio, which grew from $7.2 billion in gross investment amount representing 2,206 property locations and 421 customers at September 30, 2018 to $8.4 billion in gross investment amount representing 2,417 property locations and 464 customers at September 30, 2019.

Net Income

Net income was $111.6 million, or $0.48 per basic and diluted share, for the third quarter of 2019, as compared to $48.2 million, or $0.23 per basic and diluted share, for the third quarter of 2018. Net income for the third quarter of 2019 included an aggregate net gain on dispositions of real estate of $59.3 million as compared to an aggregate net gain on dispositions of real estate of $1.3 million for the same period in 2018.

Net income includes such items as gain or loss on dispositions of real estate and provisions for impairment, which can vary from quarter to quarter and impact net income and period-to-period comparisons.

Net income for the nine months ended September 30, 2019 was $225.1 million, or $0.99 per basic and diluted share, compared to $160.4 million, or $0.80 per basic and diluted share, for the nine months ended September 30, 2018. Net income for the first nine months of 2019 included an aggregate net gain on dispositions of real estate of $72.4 million as compared to $30.9 million for the same period in 2018.

Adjusted Funds from Operations (AFFO)

AFFO increased 19.1% to $116.1 million, or $0.50 per basic and diluted share, for the third quarter of 2019, compared to AFFO of $97.4 million, or $0.47 per basic and diluted share, for the third quarter of 2018.

AFFO for the nine months ended September 30, 2019 was $338.1 million, or $1.49 per basic and $1.48 per diluted share, an increase of 23.2% from $274.5 million, or $1.37 per basic and $1.36 per diluted share, for the nine months ended September 30, 2018. The year-over-year increase in AFFO for the three- and nine-month periods was primarily driven by additional rental revenues and interest income generated by the growth in the Company’s real estate investment portfolio.

Dividend Information

As previously announced, STORE Capital declared a regular quarterly cash dividend per common share of $0.35 for the third quarter ended September 30, 2019, representing a 6.1% increase over the quarterly cash dividend per common share declared for the prior quarter. This dividend, totaling $82.2 million, was paid on October 15, 2019 to stockholders of record on September 30, 2019.

Real Estate Portfolio Highlights

Investment Activity

The Company originated $395.5 million of gross investments representing 85 property locations during the third quarter of 2019. These origination and other activities resulted in the creation of 27 new customer relationships. The investments had a weighted average initial cap rate of 7.7%. Total investment activity for the first nine months of 2019 was $1,152.8 million representing 247 property locations with a weighted average initial cap rate of 7.8%. The Company defines “initial cap rate” for property acquisitions as the initial annual cash rent divided by the purchase price of the property. STORE’s leases customarily have lease escalations, most of which are tied to the consumer price index and subject to a cap. For acquisitions made during the first nine months of 2019, the weighted average stated lease escalation cap was 1.9%.

Disposition Activity

During the nine months ended September 30, 2019, the Company sold 80 properties and recognized an aggregate net gain on the dispositions of real estate of $72.4 million; 54 of these 80 properties were sold in the third quarter for an aggregate net gain of $59.3 million. For the nine months ended September 30, 2019, proceeds from the dispositions of real estate aggregated $409.9 million as compared to an aggregate original investment amount of $389.2 million for the properties sold.

Portfolio

At September 30, 2019, STORE Capital’s real estate portfolio totaled $8.4 billion representing 2,417 property locations. Approximately 95% of the portfolio represents commercial real estate properties subject to long-term leases, 5% represents mortgage loans and financing receivables on commercial real estate properties and a nominal amount represents loans receivable secured by the tenants’ other assets. As of September 30, 2019, the portfolio’s annualized base rent and interest (based on rates in effect on September 30, 2019 for all lease and loan contracts) totaled $678 million as compared to $578 million a year ago. The weighted average non-cancelable remaining term of the leases at September 30, 2019 was approximately 14 years.

The Company’s portfolio of real estate investments is highly diversified across customers, brand names or business concepts, industries and geography. The following table presents a summary of the portfolio.

 

 

 

 

Portfolio At A Glance – As of September 30, 2019

 

 

 

Investment property locations

 

2,417

 

States

 

50

 

Customers

 

464

 

Industries in which customers operate

 

112

 

Proportion of portfolio from direct origination

 

~80

%

Contracts with STORE-preferred terms*(1)

 

95

%

Weighted average annual lease escalation(2)

 

1.8

%

Weighted average remaining lease contract term

 

~14 years

 

Occupancy(3)

 

99.7

%

Properties not operating but subject to a lease(4)

 

27

 

Investment locations subject to a ground lease

 

21

 

Investment portfolio subject to NNN leases*

 

99

%

Investment portfolio subject to Master Leases*(5)

 

91

%

Average investment amount/replacement cost (new)(6)

 

81

%

Locations subject to unit-level financial reporting

 

98

%

Median unit fixed charge coverage ratio (FCCR)/4‑Wall coverage ratio(7)

 

2.2x/2.7x

 

Contracts rated investment grade(8)

 

~75

%

______________________________
*

Based on annualized base rent and interest.

(1)

Represents the percentage of lease contracts that were created by STORE or contain preferred contract terms such as unit-level financial reporting, triple-net lease provisions and, when applicable, master lease provisions.

(2)

Represents the weighted average annual escalation rate of the entire portfolio as if all escalations occurred annually. For escalations based on a formula including CPI, assumes the stated fixed percentage in the contract or assumes 1.5% if no fixed percentage is in the contract. For contracts with no escalations remaining in the current lease term, assumes the escalation in the extension term. Calculation excludes contracts representing 0.1% of annualized base rent and interest where there are no further escalations remaining in the current lease term and there are no extension options.

(3)

The Company defines occupancy as a property being subject to a lease or loan contract. As of September 30, 2019, eight of the Company’s properties were vacant and not subject to a contract.

(4)

Represents the number of the Company’s investment locations that have been closed by the tenant but remain subject to a lease.

(5)

Percentage of investment portfolio in multiple properties with a single customer subject to master leases. Approximately 87% of the investment portfolio involves multiple properties with a single customer, whether or not subject to a master lease.

(6)

Represents the ratio of purchase price to replacement cost (new) at acquisition.

(7)

STORE Capital calculates a unit’s FCCR generally as the ratio of (i) the unit’s EBITDAR, less a standardized corporate overhead expense based on estimated industry standards, to (ii) the unit’s total fixed charges, which are its lease expense, interest expense and scheduled principal payments on indebtedness (if applicable). The 4‑Wall coverage ratio refers to a unit’s FCCR before taking into account standardized corporate overhead expense. The weighted average unit FCCR and 4‑Wall coverage ratios were 2.8x and 3.6x, respectively.

(8)

Represents the percentage of the Company’s contracts that have a STORE Score that is investment grade. The Company measures the credit quality of its portfolio on a contract-by-contract basis using the STORE Score, which is a proprietary risk measure reflective of both the credit risk of the Company’s tenants and the profitability of the operations at the properties. As of September 30, 2019, STORE Capital’s tenants had a median tenant credit profile of approximately ‘Ba3’ as measured by Moody’s Analytics RiskCalc rating scale. Considering the profitability of the operations at each of its properties and STORE’s assessment of the likelihood that each of the tenants will choose to continue to operate at the properties in the event of their insolvency, the credit quality of its contracts, or STORE Score, is enhanced to a median of ‘Baa2’.

Capital Transactions

The Company established a $750.0 million “at the market” equity distribution program, or ATM Program, in November 2018, and terminated its previous program. During the third quarter of 2019, the Company sold an aggregate of approximately 4.4 million common shares at a weighted average share price of $36.28 and raised approximately $158.7 million in net proceeds after the payment of sales agents’ commissions and offering expenses. For the nine months ended September 30, 2019, the Company sold an aggregate of approximately 13.4 million common shares at a weighted average share price of $34.20 and raised approximately $452.7 million in net proceeds after the payment of sales agents’ commissions and offering expenses.

In February 2019, the Company completed its second public debt offering, issuing $350.0 million in aggregate principal amount of unsecured, investment-grade rated 4.625% Senior Notes, due March 2029. The net proceeds from the issuance were used primarily to pay down amounts outstanding under the Company’s credit facility.

2019 Guidance

The Company is maintaining its expected 2019 annual real estate acquisition volume guidance, net of projected property sales, at $1.1 billion and is raising its 2019 AFFO per share guidance. The Company currently expects 2019 AFFO per share to be within a range of $1.96 to $1.97, up from a range of $1.92 to $1.96. AFFO per share is sensitive to the timing and amount of real estate acquisitions, property dispositions and capital markets activities during the year, as well as to the spread achieved between the lease rates on new acquisitions and the interest rates on borrowings used to finance those acquisitions. This AFFO per share guidance equates to anticipated net income, excluding gains or losses on sales of property, of approximately $0.93 per share, plus $0.97 to $0.98 per share of expected real estate depreciation and amortization, plus approximately $0.06 per share related to such items as straight-line rent, the amortization of stock-based compensation and deferred financing costs.

2020 Guidance

The Company currently expects 2020 AFFO per share to be within a range of $2.05 to $2.09, based on the Company’s current projections for net real estate acquisitions for the remainder of 2019 plus projected 2020 annual real estate acquisition volume, net of projected property sales, of approximately $1.2 billion. This AFFO per share guidance equates to anticipated net income, excluding gains or losses on sales of property, of $1.02 to $1.05 per share, plus $0.95 to $0.96 per share of expected real estate depreciation and amortization, plus approximately $0.08 per share related to noncash items. The midpoint of the Company’s AFFO per share guidance is based on a weighted average initial cap rate on new acquisitions of 7.70% and target leverage in the range of 5½ to 6 times run-rate net debt to EBITDA. AFFO per share is sensitive to the timing and amount of real estate acquisitions, property dispositions and capital markets activities during the year, as well as to the spread achieved between the lease rates on new acquisitions and the interest rates on borrowings used to finance those acquisitions.

Conference Call and Webcast

A conference call and audio webcast with analysts and investors will be held later today at 12:00 p.m. Eastern Time / 9:00 a.m. Scottsdale, Arizona Time, to discuss third quarter ended September 30, 2019 operating results and answer questions.

  • Live conference call: 855‑656‑0920 (domestic) or 412‑542‑4168 (international)
  • Conference call replay available through November 14, 2019: 877‑344‑7529 (domestic) or 412‑317‑0088 (international)
  • Replay access code: 10135376
  • Live and archived webcast: http://ir.storecapital.com/CustomPage/Index?KeyGenPage=350222

About STORE Capital

STORE Capital Corporation is an internally managed net-lease real estate investment trust, or REIT, that is the leader in the acquisition, investment and management of Single Tenant Operational Real Estate, which is its target market and the inspiration for its name. STORE Capital is one of the largest and fastest growing net-lease REITs and owns a large, well-diversified portfolio that consists of investments in 2,417 property locations, substantially all of which are profit centers, in all 50 states. Additional information about STORE Capital can be found on its website at www.storecapital.com.

Forward-Looking Statements

Certain statements contained in this press release that are not historical facts contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to the “safe harbor” created by those sections. Forward-looking statements can be identified by the use of words such as “estimate,” “anticipate,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “seek,” “approximate” or “plan,” or the negative of these words and phrases or similar words or phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. For more information on risk factors for STORE Capital’s business, please refer to the periodic reports the Company files with the Securities and Exchange Commission from time to time. These forward-looking statements herein speak only as of the date of this press release and should not be relied upon as predictions of future events. STORE Capital expressly disclaims any obligation or undertaking to update or revise any forward-looking statements contained herein, to reflect any change in STORE Capital’s expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except as required by law.

Non-GAAP Financial Measures

FFO and AFFO

STORE Capital’s reported results are presented in accordance with U.S. generally accepted accounting principles, or GAAP. The Company also discloses Funds from Operations, or FFO, and Adjusted Funds from Operations, or AFFO, both of which are non‑GAAP measures. Management believes these two non‑GAAP financial measures are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs. FFO and AFFO do not represent cash generated from operating activities and are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income as a performance measure or to cash flows from operations as reported on a statement of cash flows as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures.

The Company computes FFO in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as GAAP net income, excluding gains (or losses) from extraordinary items and sales of depreciable property, real estate impairment losses, and depreciation and amortization expense from real estate assets, including the pro rata share of such adjustments of unconsolidated subsidiaries.

To derive AFFO, the Company modifies the NAREIT computation of FFO to include other adjustments to GAAP net income related to certain revenues and expenses that have no impact on the Company’s long-term operating performance, such as straight-line rents, amortization of deferred financing costs and stock-based compensation. In addition, in deriving AFFO, the Company excludes certain other costs not related to its ongoing operations, such as the amortization of lease-related intangibles.

FFO is used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among the Company’s peers primarily because it excludes the effect of real estate depreciation and amortization and net gains (or losses) on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. Management believes that AFFO provides more useful information to investors and analysts because it modifies FFO to exclude certain additional revenues and expenses such as straight-line rents, including construction period rent deferrals, and the amortization of deferred financing costs, stock-based compensation and lease-related intangibles as such items have no impact on long-term operating performance. As a result, the Company believes AFFO to be a more meaningful measurement of ongoing performance that allows for greater performance comparability. Therefore, the Company discloses both FFO and AFFO and reconciles them to the most appropriate GAAP performance metric, which is net income. STORE Capital’s FFO and AFFO may not be comparable to similarly titled measures employed by other companies.

STORE Capital Corporation

Condensed Consolidated Statements of Income

(In thousands, except share and per share data)

 

 

 

Three months ended

 

Nine months ended

 

 

September 30,

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

(unaudited)

 

(unaudited)

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenues

 

$

 

157,965

 

$

 

129,778

 

$

 

462,920

 

$

 

374,091

Interest income on loans and financing receivables

 

 

9,594

 

 

6,867

 

 

24,066

 

 

18,667

Other income

 

 

4,275

 

 

360

 

 

5,273

 

 

1,294

Total revenues

 

 

171,834

 

 

137,005

 

 

492,259

 

 

394,052

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

39,325

 

 

31,833

 

 

116,822

 

 

93,097

Property costs

 

 

3,162

 

 

755

 

 

7,760

 

 

2,837

General and administrative

 

 

13,566

 

 

11,509

 

 

39,815

 

 

33,212

Depreciation and amortization

 

 

55,919

 

 

45,781

 

 

164,635

 

 

132,307

Provisions for impairment

 

 

7,341

 

 

 

 

9,951

 

 

2,608

Total expenses

 

 

119,313

 

 

89,878

 

 

338,983

 

 

264,061

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain on dispositions of real estate

 

 

59,290

 

 

1,261

 

 

72,395

 

 

30,852

Income from operations before income taxes

 

 

111,811

 

 

48,388

 

 

225,671

 

 

160,843

Income tax expense

 

 

193

 

 

163

 

 

533

 

 

457

Net income

 

$

 

111,618

 

$

 

48,225

 

$

 

225,138

 

$

 

160,386

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share of common stock – basic and diluted:

 

$

 

0.48

 

$

 

0.23

 

$

 

0.99

 

$

 

0.80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

232,052,007

 

 

207,165,838

 

 

227,349,158

 

 

200,501,376

Diluted

 

 

232,645,531

 

 

207,932,531

 

 

227,882,523

 

 

201,039,328

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

 

0.35

 

$

 

0.33

 

$

 

1.01

 

$

 

0.95

STORE Capital Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

 

September 30, 2019

 

December 31, 2018

 

 

(unaudited)

 

(audited)

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Real estate investments:

 

 

 

 

 

 

Land and improvements

 

$

 

2,490,943

 

 

$

 

2,280,280

 

Buildings and improvements

 

 

5,293,880

 

 

 

4,888,440

 

Intangible lease assets

 

 

76,241

 

 

 

85,148

 

Total real estate investments

 

 

7,861,064

 

 

 

7,253,868

 

Less accumulated depreciation and amortization

 

 

(694,153

)

 

 

(585,913

)

 

 

 

7,166,911

 

 

 

6,667,955

 

Real estate investments held for sale, net

 

 

15,857

 

 

 

Operating ground lease assets

 

 

24,493

 

 

 

Loans and financing receivables

 

 

473,175

 

 

 

351,202

 

Net investments

 

 

7,680,436

 

 

 

7,019,157

 

Cash and cash equivalents

 

 

27,553

 

 

 

27,511

 

Other assets, net

 

 

105,438

 

 

 

67,303

 

Total assets

 

$

 

7,813,427

 

 

$

 

7,113,971

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Credit facility

 

$

 

 

$

 

135,000

 

Unsecured notes and term loans payable, net

 

 

1,262,044

 

 

 

916,720

 

Non-recourse debt obligations of consolidated special purpose entities, net

 

 

2,025,082

 

 

 

2,008,592

 

Dividends payable

 

 

82,181

 

 

 

72,954

 

Operating lease liabilities

 

 

30,042

 

 

 

Accrued expenses, deferred revenue and other liabilities

 

 

104,987

 

 

 

117,204

 

Total liabilities

 

 

3,504,336

 

 

 

3,250,470

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.01 par value per share, 375,000,000 shares authorized, 234,804,102 and 221,071,838 shares issued and outstanding, respectively

 

 

2,348

 

 

 

2,211

 

Capital in excess of par value

 

 

4,586,521

 

 

 

4,129,082

 

Distributions in excess of retained earnings

 

 

(277,405

)

 

 

(267,651

)

Accumulated other comprehensive loss

 

 

(2,373

)

 

 

(141

)

Total stockholders’ equity

 

 

4,309,091

 

 

 

3,863,501

 

Total liabilities and stockholders’ equity

 

$

 

7,813,427

 

 

$

 

7,113,971

 

Contacts

Financial Profiles, Inc.

STORECapital@finprofiles.com
Investors:

Moira Conlon, 310‑622‑8220

Lisa Mueller, 310-622-8231

or

Media:

Tricia Ross, 310‑622‑8226

STORECapital@finprofiles.com

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