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 first quarter ended March 31, 2019.
Highlights
For the quarter ended March 31, 2019:
- Total revenues of $156.6 million
- Net income of $45.6 million, or $0.20 per basic and diluted share, including net loss of $1.9 million on dispositions of real estate
- AFFO of $107.8 million, or $0.48 per basic and diluted share
- Declared a regular quarterly cash dividend per common share of $0.33
- Invested $393.3 million in 83 properties at a weighted average initial cap rate of 7.8%
- Raised net proceeds of $158.3 million from the sale of an aggregate 5.0 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
“We had an active first quarter and a great start to the year with solid portfolio performance and investment activity of nearly $400 million at an average cap rate of 7.83%,” said Chris Volk, President and Chief Executive Officer of STORE Capital. “The granularity and steady pace of our investments enabled us to improve our level of portfolio diversity. At the same time, we grew our AFFO nearly 26%, continued to elevate our unencumbered assets, successfully executed our second public unsecured note offering, maintained our conservative balance sheet profile and improved our shareholder dividend protection with a conservative 69% dividend payout ratio. We are excited about the rest of the year as we look to grow and improve our market-leading platform.”
Financial Results
Total Revenues
Total revenues were $156.6 million for the first quarter of 2019, an increase of 24.5% from $125.8 million for the first quarter of 2018. The increase was driven primarily by the growth in the size of STORE Capital’s real estate investment portfolio, which grew from $6.5 billion in gross investment amount representing 2,000 property locations and 404 customers at March 31, 2018 to $8.0 billion in gross investment amount representing 2,334 property locations and 447 customers at March 31, 2019.
Net Income
Net income was $45.6 million, or $0.20 per basic and diluted share, for the first quarter of 2019, a decrease from $50.0 million, or $0.26 per basic and diluted share, for the first quarter of 2018. Net income for the first quarter of 2019 included an aggregate net loss on dispositions of real estate of $1.9 million as compared to an aggregate net gain on dispositions of real estate of $9.6 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.
Adjusted Funds from Operations (AFFO)
AFFO increased 25.5% to $107.8 million, or $0.48 per basic and diluted share, for the first quarter of 2019, compared to AFFO of $85.9 million, or $0.44 per basic and diluted share, for the first quarter of 2018. The year-over-year increase in AFFO 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 $0.33 for the first quarter ended March 31, 2019. This dividend, totaling $74.7 million, was paid on April 15, 2019 to stockholders of record on March 29, 2019.
Real Estate Portfolio Highlights
Investment Activity
The Company originated $393.3 million of gross investments representing 83 property locations during the first quarter of 2019, adding 13 net new customers. These investments had 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 three months of 2019, the weighted average annual lease escalation was 1.9%.
Disposition Activity
During the quarter ended March 31, 2019, the Company sold four properties and recognized an aggregate net loss of $1.9 million on the disposition of four properties.
Portfolio
At March 31, 2019, STORE Capital’s real estate portfolio totaled $8.0 billion representing 2,334 property locations. Approximately 96% of the portfolio represents commercial real estate properties subject to long-term leases, 4% represents mortgage loans and financing receivables primarily on commercial real estate buildings (located on land the Company owns and leases to its customers) and a nominal amount represents loans receivable secured by the tenants’ other assets. As of March 31, 2019, the portfolio’s annualized base rent and interest (based on rates in effect on March 31, 2019 for all lease and loan contracts) totaled $646.4 million as compared to $520.2 million a year ago. The weighted average non-cancelable remaining term of the leases at March 31, 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.
Capital Transactions
The Company established a $750 million “at the market” equity distribution program, or ATM Program, in November 2018, and terminated its previous program. During the first quarter of 2019, the Company sold an aggregate of approximately 5.0 million common shares at a weighted average share price of $32.31 and raised approximately $158.3 million in net proceeds after the payment of sales agents’ commissions and offering expenses. Since the start of the November 2018 program, the Company has sold approximately 13.2 million common shares at a weighted average share price of $30.73 and raised approximately $399.4 million in net proceeds after the payment of sales agents’ commissions and offering expenses.
In late 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.null
2019 Guidance
Affirming its 2019 guidance initially presented in November 2018, the Company currently expects 2019 AFFO per share to be within a range of $1.90 to $1.96, based on projected 2019 annual real estate acquisition volume, net of projected property sales, of approximately $1.1 billion. This AFFO per share guidance equates to anticipated net income, excluding gains or losses on sales of property, of $0.88 to $0.91 per share, plus $0.96 to $0.98 per share of expected real estate depreciation and amortization, plus approximately $0.06 to $0.07 per share related to noncash items. The midpoint of our AFFO per share guidance is based on a weighted average initial cap rate on new acquisitions of 7.85% 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 first quarter ended March 31, 2019 operating results and answer questions.
- Live conference call: 855-656-0920 (domestic) or 412-542-4168 (international)
- Conference call replay available through May 16, 2019: 877-344-7529 (domestic) or 412-317-0088 (international)
- Replay access code: 10130093
- Live and archived webcast: http://ir.storecapital.com/webcasts
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 2,334 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 non-cash 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 non-cash 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 may cause short-term fluctuations in net income but have no impact on long-term operating performance. The Company believes that these costs are not an ongoing cost of the portfolio in place at the end of each reporting period and, for these reasons, the portion expensed is added back when computing AFFO. 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
Investment Portfolio
March 31, 2019
Real Estate Portfolio Information
As of March 31, 2019, STORE Capital’s total investment in real estate and loans approximated $8.0 billion, representing investments in 2,334 property locations, substantially all of which are profit centers for its customers. The Company’s real estate portfolio is highly diversified. The following tables summarize the diversification of the real estate portfolio based on the percentage of base rent and interest, annualized based on rates in effect on March 31, 2019, for all leases, loans and financing receivables in place as of that date.
Diversification by Customer
STORE Capital has a diverse customer base. At March 31, 2019, the Company’s property locations were operated by 447 customers. The largest single customer represented 2.7% of annualized base rent and interest and the top ten customers totaled 18.0% of annualized base rent and interest. The following table identifies STORE Capital’s ten largest customers as of March 31, 2019:
STORE Capital Corporation
Investment Portfolio
March 31, 2019
Diversification by Concept
STORE Capital’s customers operate their businesses under a wide range of brand names or business concepts. Of the more than 630 concepts represented in the Company’s investment portfolio as of March 31, 2019, the largest single concept represented 2.4% of annualized base rent and interest and the top ten concepts totaled 16.8% of annualized base rent and interest. The following table identifies the top ten customer business concepts as of March 31, 2019:
STORE Capital Corporation
Investment Portfolio
March 31, 2019
Diversification by Industry
The business concepts of STORE Capital’s customers are diversified across more than 100 industries within the service, retail and manufacturing sectors of the U.S. economy. The following table summarizes these industries, by sector, into 74 industry groups as of March 31, 2019:
STORE Capital Corporation
Investment Portfolio
March 31, 2019
Diversification by Geography
STORE Capital’s portfolio is also highly diversified by geography, as the Company’s property locations can be found in all 50 states. The following table details the top ten geographical locations of the properties as of March 31, 2019:
STORE Capital Corporation
Investment Portfolio
March 31, 2019
Contracts and Expirations
The Company focuses on long-term, triple-net leases with built-in lease escalators and uses master leases, where appropriate. As of March 31, 2019, 98% of the Company’s investment portfolio was subject to triple-net leases. Where the Company owns multiple properties leased to a single customer, 91% of this portion of the investment portfolio was subject to master leases. Leases and loans representing approximately 15.3% of the annualized base rent and interest will expire in the next ten years (before 2029). The following table sets forth the schedule of lease, loan and financing receivable expirations as of March 31, 2019:
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