Berkshire Hathaway Buys 9.8% Stake in Store Capital -- 2nd Update
June 26 2017 - 3:11PM
Dow Jones News
By Nicole Friedman and Imani Moise
Warren Buffett's Berkshire Hathaway Inc. has made its second big
real estate bet in two weeks.
On Monday, real-estate investment trust Store Capital Corp.
disclosed Berkshire has purchased a 9.8% stake in the firm. The
$377 million investment from Berkshire is a wager that some types
of storefronts will continue to attract shoppers, even as online
shopping has forced the U.S. retail industry to close stores at a
record pace. The FTSE NAREIT Equity REIT Index is up 2.2% this
year, while the FTSE NAREIT index for retail REITs is down 15%
year-to-date.
Arizona-based Store Capital has some insulation from the ongoing
problems in traditional shopping retailers. Its largest investments
are in single-tenant properties such as chain restaurants,
veterinary clinics and fitness centers. The deal comes just a few
days after Berkshire invested about 400 million Canadian dollars
($302 million) in struggling Canadian mortgage lender Home Capital
Group Inc.
Berkshire bought 18.6 million newly issued shares of Store
Capital for $20.25 each, a 2.5% discount to the stock's Friday
closing price. Shares rose 10% Monday to $22.83.
Store Capital shares slid this past spring after the company
reported disappointing earnings.
Store Capital said Berkshire's investment represents a vote of
confidence in its leadership and business model. Store Capital's
real estate portfolio totaled $5.5 billion, representing 1,750
property locations in 48 states, as of March 31.
"We're devoted to doing service-sector investments...where you
can't buy these services through the internet," said Christopher
Volk, Store Capital's chief executive, in an interview. Berkshire
"saw an opportunity to invest at an attractive price, and they
believe in us."
Berkshire is broadly on the hunt for ways to invest its growing
cash pile. The conglomerate, which owns businesses ranging from
insurers to cooking supplies and also takes large stakes in public
companies, held $96.5 billion in cash as of March 31.
Mr. Buffett didn't immediately respond to a request for
comment.
Mr. Volk first contacted Berkshire in 2014 using its public
email address to suggest an investment opportunity. Mr. Buffett
responded within hours, he said, asking for more information. Mr.
Buffett put Mr. Volk in touch with Ted Weschler, one of Berkshire's
two portfolio managers, and Mr. Weschler continued to follow Store
Capital's financial results.
About 10 days ago, Mr. Weschler called Store Capital to say that
Berkshire wanted to make an investment, Mr. Volk said. The
transaction closed Friday.
Berkshire didn't request a seat on Store Capital's board, Mr.
Volk said.
Store Capital said last year that it plans to invest $900
million in real estate in 2017, but it could spend more than that
with Berkshire's investment, said Janney Montgomery Scott LLC in a
note.
The firm's biggest customers include a Midwestern furniture
retailer, movie-theater chain AMC Entertainment Holdings Inc. and a
chain of preschools.
"This deal signals that value investors may be taking a closer
look in order to start separating the wheat from the chaff" in the
retail real-estate sector, said KeyBanc Capital Markets analysts in
a note.
One of Store Capital's top customers, sporting-goods chain
Gander Mountain Co., filed for bankruptcy in March. Camping World
Holdings Inc., also a Store Capital customer, won a bankruptcy
auction for some of Gander Mountain's assets. Representatives for
Camping World didn't immediately respond to a request for
comment.
Mr. Buffett, Berkshire's chairman and chief executive, lamented
at Berkshire's May shareholder meeting that he "was too dumb to
realize" the rise of online shopping and failed to invest in
Amazon.com Inc. But he also said that Berkshire's wholly owned
furniture businesses have seen little effect from online
shopping.
Berkshire's investment makes it Store Capital's third-largest
shareholder, behind the Vanguard Group and Fidelity Management
& Research Co., according to data from FactSet.
Write to Nicole Friedman at nicole.friedman@wsj.com and Imani
Moise at imani.moise@wsj.com
(END) Dow Jones Newswires
June 26, 2017 14:56 ET (18:56 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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