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Barron's is an American weekly newspaper published by Dow Jones & Company, a property of News Corp. that covers US financial information, market developments, and relevant statistics. Each issue provides a summary of the previous week's market activity as well as news reports and an informative outlook on the week to come. The Top 100 Independent Advisors as identified by Barron’s is published annually. Scoring for the publication reflects the assessment of data provided by the nation’s most productive advisors. Investment performance is not an explicit component because not all advisors have audited results and because performance figures often are influenced more by clients’ risk tolerance than by an advisor’s investment-picking ability. Barron’s states that ranking reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms and the quality of the advisors' practices. Furthermore that the scoring systems assigns a top score of 100 and rates the rest by comparing them with the top-ranked advisor. Anchor Capital did not provide data to Barron’s to be included in this assessment and receipt of this designation is no way indicative of any individual client or investor’s experience with the Company or of any client, investor or fund’s future performance. Anchor Capital is not affiliated with Barron’s in any way.

STORE Capital

STOR: NYSE

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.[1] 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. [2] The company increased its dividend 16% from its IPO in 2014 to 2016 and on average, has yielded over 5% this month. [3]

Investment thesis

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. [4] These businesses are underserved by the market and regulations make it difficult for traditional banks to lend to them.[5] STORE estimates this target market to exceed $2.6 trillion in market value and to include more than 1.6 million properties.[6] 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. [7] 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.[8]

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.[9] STORE remains disciplined with 2x median coverage and diversified with the largest customer representing less than 3% of annualized base rent and interest.[10] The company’s debt was recently upgraded to BBB with a stable outlook from both S&P and Fitch Ratings.[11]

Variant Perception

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.