STORE Capital (STOR) is a single tenant operational real estate company. It was founded in the early 2000s by Mort Fleischer and Christopher Volk, who have been investing in this type of real estate for over 35 years. The company focuses on long-term, triple-net leases with built in lease escalators. Its customers operate across a wide range of industries, including movie theaters, health clubs, restaurants, early education, and furniture.  The company increased its dividend 16% from its IPO in 2014 to 2016 and on average, has yielded over 5% this month. 
We felt that STORE differentiated itself by providing a long-term, lower-cost way for middle-market businesses to improve their capital structures. STORE focuses on larger, unrated bank-dependent companies.  These businesses are underserved by the market and regulations make it difficult for traditional banks to lend to them. STORE estimates this target market to exceed $2.6 trillion in market value and to include more than 1.6 million properties. We were convinced that STORE could offer its customers better terms than banks, but we were unclear as to why other real estate companies couldn’t win the business.
Confirmation through research
In our initial research we realized that over 80% of STORE’s deals are sourced through direct calling efforts and that less than 20% are sourced through real estate broker relationships.  Given the size of the market, we believe that STORE is able to call on the best potential customers, who are often overlooked by others, and partner with them. The company states that this results in higher lease rates, lower prices, longer terms, smaller transaction sizes, greater diversity, stronger contracts and greater value for shareholders.
Our research indicated that STORE is conservative, disciplined and committed to long term growth and returns. STORE takes a property-level cash flow approach to due diligence, which drives valuation decisions. Deals are internally sourced by the direct calling origination platform and are scored using the STORE Score, which reflects both the credit risk and the profitability of the operations. STORE remains disciplined with 2x median coverage and diversified with the largest customer representing less than 3% of annualized base rent and interest. The company’s debt was recently upgraded to BBB with a stable outlook from both S&P and Fitch Ratings.
In our final correspondence with management, we asked how STORE differed from its single-tenant peers. Volk provided us a very direct and clear response. He said STORE is more diversified, has a corporate credit rating, better IT systems, and a larger front-end devoted to business generation and relationship management. Given his experience in the industry and our return estimates, we felt that STORE would be a strong long term holding for Anchor.