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Exclusive: STORE Capital CEO Chris Volk On REITs And The Year Ahead

Exclusive: STORE Capital CEO Chris Volk On REITs And The Year Ahead

“This is as close as a businessman can get to the sort of feeling you might have if you were a pro athlete winning a third major in something,” said STORE Capital Corp (NYSE: STOR) CEO, Chris Volk.

Speaking to Benzinga from New York where he and fellow STORE Capital executives had just become the first company to ring the opening bell on the New York Stock Exchange for 2015, Volk knows that “third time around” feeling.

Related Link: What's In STORE For This Oaktree Capital-Backed REIT IPO?

That’s because STORE Capital represents the third company Volk has taken public since 1994.

It’s a process that does not get easier with time according to Volk.

“The bar for doing it [going public] just gets higher and higher,” he said, “because you have to create a company that has a real reason for existing."

Providing Capital And Customer Service

First, Volk said, STORE Capital provides capital for profit center real estate.

Beyond that, and in Volk’s view equally important, is ongoing service following funding.

“People look at companies like ours,” he said, “and they see that on the left side of our balance sheet we have $2.8 billion worth of real estate – and we do. The first piece of that is to service the customer.”

Typical Customer

STORE mostly partners with private middle market companies with sales between $25 million and $300 million.

For a variety of reasons, these companies choose to rent real estate rather than own it, Volk said.

Why Go REIT?

“First is that they are trying to lock in long-term interest rates,” he said.

Second, according to Volk, is the fact that a real estate lease becomes a debt and equity substitute.

In other words, when a company chooses to rent its property, it doesn't have to put up much equity into the real estate.

Finally, Volk said, because leasing is a debt and equity substitute, “contractual payment obligations with the term of the lease tend to be less than any kind of financing they could otherwise get.”

Assets Or Cash Flow?

Investors can become confused about whether they are investing in assets or cash flow when considering publicly traded REITs.

Kiplinger called REITs “chameleons,” saying, “When bonds are in favor, investors reward REITs by treating them as if they were bonds. When bonds fade and stocks ascend, the market regards REITs as if they were dividend-paying growth stocks.”

Despite this, according to Volk, most REIT research talks about net asset value – what the real estate is worth.

STORE Capital had 65 percent growth last year, and analysts expect about 27 percent balance sheet growth in 2015.

As far as the overall REIT sector is concerned, a dividend paying stock that shows healthy growth would likely provide a better risk-adjusted rate of return.

Looking Ahead

With publicly traded real estate companies representing an equity market capitalization of about $2 trillion and with boards of directors – not to mention activist investors – constantly reevaluating whether owing real estate is the most efficient way to be capitalized. Volk is hopeful about opportunities for REITs in general – and STORE Capital in particular -- in the coming new year.

“To date, there have been some companies like Darden Restaurants,” Volk said, “that did a sale-lease back with its Red Lobster portfolio. Hopefully STORE will play a constructive role in helping companies right-size their balance sheets.”

Related Link: UPDATE: Stifel Raises PT On STORE Capital On Strong Balance Sheet

Reason To Be Optimistic

“We’ve done $1.1 billion worth of investments,” Volk said.“It’s a significant number.”

“The fact that we’ve done the kind of buying we have shows that we are hitting a nerve,” he noted. “We’re meeting a need in the marketplace and we’re looking forward to this year with great excitement.”

At the time of this writing, Jim Probasco had no position in any mentioned securities.


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