By John Egan, National Real Estate Investor
The investment signals Buffett’s confidence not only in Store, but also in net lease properties.
When billionaire investor Warren Buffett makes a deal, people take notice.
Such is the case with the recent purchase by Buffett’s conglomerate, Berkshire Hathaway, of a 9.8 percent stake in Scottsdale, Ariz.-based Store Capital Corp., a net lease REIT. The investment—in the form of 18.6 million privately-placed shares of common stock valued at $20.25 apiece—totals $377 million. Berkshire Hathaway is now Store’s third largest shareholder.
The investment signals Buffett’s confidence not only in Store, but also in net lease properties, says Ralph Cram, president and manager of Envoy Net Lease Partners LLC, a real estate finance company specializing in single-tenant, net leased assets. The cash infusion underscores the fact that the triple-net sector has hit bottom and is climbing back, Cram adds.
“We have seen buying activity of individual properties pick up significantly over the past 45 days,” he notes. “I believe that long-term rates falling recently has helped the triple-net market as well. So the worst has passed for now.”
The Buffett deal brings “favorable attention” to the net lease market, according to Michael Knott, managing director with Newport Beach, Calif.-based research firm Green Street Advisors. At Green Street, he tracks Store and competing net lease REITs Realty Income Corp. and National Retail Properties.
Looking solely at Store, Knott says it’s “a value investor haven” for Berkshire Hathaway. Why? He cites three reasons:
- Buffett’s company bought its stake in Store at just 11x earnings.
- Store represents “a safe earnings stream” backed by a diversified portfolio of properties operated by a diverse group of tenants.
- Store’s management team enjoys a lengthy track record of success. This is the team’s third REIT, with the previous two REITs having been sold.
“The deal suggests there is value in Store’s unique platform in a fragmented net lease industry, and in management’s demonstrated history of generating favorable results for shareholders,” Knott says.
According to Knott, Store carefully evaluates and monitors its investments, and produces solid returns by taking “intelligent risks” with its underlying real estate.
On the day Buffett’s investment was announced, a number of publicly-held shopping center and mall REITs benefited from a bounce in their stock prices. So will the Buffett deal have a more sustained ripple effect on those REITs?