Is Buffett To Blame For Store Capital Downgrade?

Store Capital Corp STOR announced Monday that the company sold 18.6 million shares to National Indemnity Co, a subsidiary of Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B).

"Berkshire Hathaway's investment solidly positions STORE for continued growth, while adding measurably to our already strong financial position. An investment in our company from one of history's most admired investors represents a vote of confidence in our experienced leadership team and an affirmation of our profit-center real estate investment and management approach," Store Capital CEO Christopher Volk said in a statement.

The stock jumped nearly 11 percent after the announcement, and Mizuho managing director Haendel St. Juste now sees Store Capital Corp shares as fairly valued. Thus, he downgraded the stock to Neutral but raised his price target to $24.

Buffett’s Investment: Good Sign For Store’s Business Model

“Beyond the buzz the Buffett stake in STOR has generated, we see ‘perceptual value’ as well as we think it validates STOR's business model of generating "above average" investment yields by providing financing solutions for landlords in the sizable real estate asset-backed middle market,” St. Juste noted.

While he noted Buffett's intentions are not very clear, none of his current Buffett's REIT investments have resulted in a takeover.

Did Buffett Get Too Good Of A Deal?

While he did state that there is “strategic value” involved in the deal with Buffett, “the stock was sold at 84% of NAV - we generally don't like equity raises so far below NAV - and the low issue price is less accretive to STOR's near-term AFFO.”

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