Store Capital (STOR) 10-Q 2015 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2015.

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .  

Commission File No. 001-36739

STORE CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

Maryland	45-2280254
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

8501 East Princess Drive, Suite 190, Scottsdale, Arizona 85255

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (480) 256-1100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐	Accelerated Filer ☐
Non-accelerated Filer ☒	Smaller Reporting Company ☐
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  YES ☐ NO ☒

As of November 12, 2015, there were 126,858,765 shares of the registrant’s $0.01 par value common stock outstanding.

TABLE OF CONTENTS

Part I. - FINANCIAL INFORMATION	Page
Item 1.     Financial Statements	3
Condensed Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014	3
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2015 and 2014 (unaudited)	4
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and 2014 (unaudited)	5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 (unaudited)	6
Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.     Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.     Controls and Procedures	39
Part II. - OTHER INFORMATION
Item 1.     Legal Proceedings	40
Item 1A.  Risk Factors	40
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.     Defaults Upon Senior Securities	40
Item 4.     Mine Safety Disclosures	40
Item 5.     Other Information	40
Item 6.     Exhibits	40
Signatures	40
Exhibit Index	41

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

STORE Capital Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

	September 30,		December 31,
	2015		2014
	(unaudited)		(audited)
Assets
Investments:
Real estate investments:
Land and improvements	$	1,116,373	$	843,843
Buildings and improvements		2,333,346		1,790,530
Intangible lease assets		74,910		60,184
Total real estate investments		3,524,629		2,694,557
Less accumulated depreciation and amortization		(160,341)		(98,671)
		3,364,288		2,595,886
Loans and direct financing receivables		197,249		111,354
Net investments		3,561,537		2,707,240
Cash and cash equivalents		28,969		136,313
Deferred costs, net		42,870		37,136
Other assets		38,082		32,923
Total assets	$	3,671,458	$	2,913,612
Liabilities and stockholders’ equity
Liabilities:
Credit facility	$	192,000	$	—
Non-recourse debt obligations of consolidated special purpose entities, net		1,635,886		1,284,151
Dividends payable		34,252		13,123
Accounts payable and accrued expenses		28,234		30,486
Other liabilities		5,565		3,168
Total liabilities		1,895,937		1,330,928
Stockholders’ equity:
Common stock, $0.01 par value per share, 375,000,000 shares authorized, 126,858,765 and 115,212,541 shares issued and outstanding, respectively		1,269		1,152
Capital in excess of par value		1,864,231		1,636,203
Distributions in excess of retained earnings		(89,493)		(54,405)
Accumulated other comprehensive loss		(486)		(266)
Total stockholders’ equity		1,775,521		1,582,684
Total liabilities and stockholders’ equity	$	3,671,458	$	2,913,612

See accompanying notes.

3

STORE Capital Corporation

Condensed Consolidated Statements of Income

(unaudited)

(In thousands, except share and per share data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Revenues:
Rental revenues	$	70,813	$	48,820	$	195,313	$	128,963
Interest income on loans and direct financing receivables		3,938		2,092		9,753		5,941
Other income		40		16		84		375
Total revenues		74,791		50,928		205,150		135,279
Expenses:
Interest		21,391		19,081		59,257		50,123
Transaction costs		137		460		1,003		2,018
Property costs		471		256		1,122		401
General and administrative		7,138		4,960		20,983		14,026
Depreciation and amortization		23,271		15,480		63,731		40,190
Provision for impairment of real estate		—		—		1,000		—
Total expenses		52,408		40,237		147,096		106,758
Income from continuing operations before income taxes		22,383		10,691		58,054		28,521
Income tax expense		72		69		238		171
Income from continuing operations		22,311		10,622		57,816		28,350
Income from discontinued operations		—		19		—		1,115
Income before gain on dispositions of real estate		22,311		10,641		57,816		29,465
Gain on dispositions of real estate		687		114		1,882		1,251
Net income	$	22,998	$	10,755	$	59,698	$	30,716
Net income per share of common stock—basic and diluted:
Continuing operations	$	0.18	$	0.13	$	0.50	$	0.40
Discontinued operations		—		—		—		0.02
Net income	$	0.18	$	0.13	$	0.50	$	0.42
Weighted average common shares outstanding:
Basic		126,281,114		82,931,635		119,516,758		72,196,315
Diluted		126,281,114		82,931,635		119,516,758		72,196,315
Dividends declared per common share	$	0.2700	$	0.2870	$	0.7700	$	0.7720

See accompanying notes.

4

STORE Capital Corporation

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

(In thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Net income	$	22,998	$	10,755	$	59,698	$	30,716
Other comprehensive (loss) income:
Change in unrealized losses on cash flow hedges		(235)		66		(451)		(274)
Cash flow hedge losses reclassified to interest expense		77		81		231		240
Total other comprehensive (loss) income		(158)		147		(220)		(34)
Total comprehensive income	$	22,840	$	10,902	$	59,478	$	30,682

See accompanying notes.

5

STORE Capital Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

	Nine Months Ended
	September 30,
	2015		2014
Operating activities
Net income	$	59,698	$	30,716
Adjustments to net income:
Depreciation and amortization		63,731		40,190
Provision for impairment of real estate		1,000		—
Amortization of deferred financing costs and other noncash interest expense		4,843		5,687
Amortization of equity-based compensation		3,450		1,697
Gain on dispositions of real estate		(1,882)		(2,220)
Noncash revenue and other		(65)		(1,315)
Changes in operating assets and liabilities:
Deferred costs		(1,248)		(1,135)
Other assets		(2,086)		878
Accounts payable and other liabilities		3,144		(1,091)
Net cash provided by operating activities		130,585		73,407
Investing activities
Acquisition of and additions to real estate		(863,723)		(773,464)
Investment in loans and direct financing receivables		(90,633)		(40,829)
Collections of principal on loans and direct financing receivables		4,705		6,047
Proceeds from disposition of real estate		26,998		20,374
Transfers (to) from restricted deposits		(72)		4,158
Net cash used in investing activities		(922,725)		(783,714)
Financing activities
Borrowings under credit facilities		553,000		565,080
Repayments under credit facilities		(361,000)		(367,080)
Borrowings under non-recourse debt obligations of consolidated special purpose entities		385,964		286,089
Repayments under non-recourse debt obligations of consolidated special purpose entities		(33,834)		(13,222)
Financing costs paid		(9,951)		(11,435)
Proceeds from the issuance of common stock		234,142		290,412
Offering costs paid		(9,865)		(1,064)
Dividends paid		(73,660)		(55,889)
Net cash provided by financing activities		684,796		692,891
Net decrease in cash and cash equivalents		(107,344)		(17,416)
Cash and cash equivalents, beginning of period		136,313		61,814
Cash and cash equivalents, end of period	$	28,969	$	44,398
Supplemental disclosure of noncash investing and financing activities:
Accrued tenant improvement advances included in real estate investments	$	10,985	$	5,224
Acquisition of collateral property securing a mortgage note receivable	$	—	$	1,939
Non-recourse debt obligations assumed in conjunction with acquisition of property	$	—	$	27,458
Accrued financing costs	$	51		255
Accrued offering costs	$	—		1,880
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of amounts capitalized	$	53,609	$	43,932
Cash paid during the period for income and franchise taxes	$	1,003	$	540

See accompanying notes.

6

STORE Capital Corporation

Notes to Condensed Consolidated Financial Statements

September 30, 2015

1. Organization and Formation Activities

STORE Capital Corporation (STORE Capital or the Company) was formed in Maryland on May 17, 2011 to acquire single‑tenant operational real estate to be leased on a long‑term, net basis to companies that operate across a wide variety of industries within the service, retail and industrial sectors of the United States economy. From time to time, it may also provide mortgage financing to its customers.

On November 21, 2014, the Company completed the initial public offering (IPO) of its common stock.  The shares began trading on the New York Stock Exchange on November 18, 2014 under the ticker symbol “STOR”.  The Company was originally formed as a wholly-owned subsidiary of STORE Holding Company, LLC (STORE Holding), a Delaware limited liability company. In March 2015, STORE Holding redeemed all of its Series A membership interests that were held by members of the Company’s board and senior management through the distribution of common shares of the Company to those members. Following this redemption, the voting interests of STORE Holding are entirely owned by entities managed by a global investment management firm. In June 2015, the Company completed a follow-on stock offering in which the Company issued and sold 11,562,500 shares of common stock and STORE Holding sold 9,712,500 shares from its holdings of the Company’s common stock.  At September 30, 2015, there were 126,858,765 shares of the Company’s common stock outstanding, of which 72,436,144 shares were held by STORE Holding, representing a 57.1% ownership of the Company.

STORE Capital has made an election to qualify, and believes it is operating in a manner to continue to qualify, as a real estate investment trust (REIT) for federal income tax purposes beginning with its initial taxable year ended December 31, 2011. As a REIT, it will generally not be subject to federal income taxes to the extent that it distributes all of its taxable income to its stockholders and meets other specific requirements.

2. Summary of Significant Accounting Principles

Basis of Accounting and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (SEC). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of interim periods are not necessarily indicative of the results for the entire year.  Certain information and note disclosures, normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted from these statements and, accordingly, these statements should be read in conjunction with the Company’s audited consolidated financial statements as filed with the SEC in its Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

These consolidated statements include the accounts of STORE Capital and its subsidiaries which are wholly‑owned and controlled by the Company through its voting interest. One of the Company’s wholly‑owned subsidiaries, STORE Capital Advisors, LLC, provides all of the general and administrative services for the day‑to‑day operations of the consolidated group, including property acquisition and lease origination, real estate portfolio management and marketing, accounting and treasury services. The remaining subsidiaries were formed to acquire and hold real estate investments or to facilitate non‑recourse secured borrowing activities. Generally, the initial operations of the real estate subsidiaries are funded by an interest‑bearing intercompany loan from STORE Capital, and such intercompany loan is repaid when the subsidiary issues long‑term debt secured by its properties. All intercompany account balances and transactions have been eliminated in consolidation.

7

Certain of the Company’s wholly‑owned consolidated subsidiaries were formed as special purpose entities. Each special purpose entity is a separate legal entity and is the sole owner of its assets and liabilities. The assets of the special purpose entities are not available to pay or otherwise satisfy obligations to the creditors of any owner or affiliate of the special purpose entity. At September 30, 2015 and December 31, 2014, assets totaling $3.2 billion and $2.5 billion, respectively, were held and third-party liabilities totaling $1.7 billion and  $1.3 billion, respectively, were owed by these special purpose entities and are included in the accompanying consolidated balance sheets.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Although management believes its estimates are reasonable, actual results could differ from those estimates.

Segment Reporting

The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) Topic 280, Segment Reporting, established standards for the manner in which enterprises report information about operating segments. The Company views its operations as one reportable segment.

Accounting for Real Estate Investments

STORE Capital records the acquisition of real estate properties at cost, including acquisition and closing costs. The Company allocates the cost of real estate properties to the tangible and intangible assets and liabilities acquired based on their estimated relative fair values. Real estate properties subject to an existing in‑place lease at the date of acquisition are recorded as business combinations and each tangible and intangible asset and liability acquired is recorded at fair value. Management uses multiple sources to estimate fair value, including independent appraisals and information obtained about each property as a result of its pre‑acquisition due diligence and its marketing and leasing activities. The Company expenses transaction costs associated with real estate acquisitions accounted for as business combinations in the period incurred.

In‑place lease intangibles are valued based on management’s estimates of lost rent and carrying costs during the time it would take to locate a tenant if the property were vacant, considering current market conditions and costs to execute similar leases. In estimating lost rent and carrying costs, management considers market rents, real estate taxes, insurance, costs to execute similar leases including leasing commissions and other related costs. The value assigned to in‑place leases is amortized on a straight‑line basis as a component of depreciation and amortization expense typically over the remaining term of the related leases.

The fair value of any above‑market and below‑market leases is estimated based on the present value of the difference between the contractual amounts to be paid pursuant to the in‑place lease and management’s estimate of current market lease rates for the property, measured over a period equal to the remaining term of the lease. Capitalized above‑market lease intangibles are amortized over the remaining term of the respective leases as a decrease to rental revenue. Below‑market lease intangibles are amortized as an increase in rental revenue over the remaining term of the respective leases plus the fixed‑rate renewal periods on those leases, if any. Should a lease terminate early, the unamortized portion of any related lease intangible is immediately recognized in operations.

The Company’s real estate portfolio is depreciated using the straight‑line method over the estimated remaining useful life of the properties, which generally ranges from 30 to 40 years for buildings and is 15 years for land improvements. Properties classified as held for sale are recorded at the lower of their carrying value or their fair value, less anticipated closing costs. Any properties classified as held for sale are not depreciated.

8

Impairment

STORE Capital reviews its real estate investments and related lease intangibles periodically for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through operations. Management considers factors such as expected future undiscounted cash flows, estimated residual value, market trends (such as the effects of leasing demand and competition) and other factors including bona fide purchase offers received from third parties in making this assessment. These factors are classified as Level 3 inputs within the fair value hierarchy. An asset is considered impaired if the carrying value of the asset exceeds its estimated undiscounted cash flows and the impairment is calculated as the amount by which the carrying value of the asset exceeds its estimated fair value. Estimating future cash flows is highly subjective and such estimates could differ materially from actual results. 

Revenue Recognition

STORE Capital leases real estate to its tenants under long‑term net leases that are predominantly classified as operating leases. Direct costs associated with lease origination, offset by any lease origination fees received, are deferred and amortized over the related lease term as an adjustment to rental revenue. Substantially all of the leases are triple‑net, which provide that the lessees are responsible for the payment of all property operating expenses, including property taxes, maintenance and insurance. The Company may collect property taxes from its customers and remit those taxes to governmental authorities; such property taxes are presented on a net basis in the consolidated income statements.

The Company’s leases generally provide for rent escalations throughout the lease terms. For leases that provide for specific contractual escalations, rental revenue is recognized on a straight‑line basis so as to produce a constant periodic rent over the term of the lease. Accordingly, accrued rental revenue, calculated as the aggregate difference between the rental revenue recognized on a straight‑line basis and scheduled rents, represents unbilled rent receivables that the Company will receive only if the tenants make all rent payments required through the expiration of the lease. The Company provides an estimated reserve for uncollectible straight‑line rental revenue based on management’s assessment of the risks inherent in those lease contracts, giving consideration to industry default rates for long‑term receivables. There was $8.3 million and $4.7 million of accrued straight‑line rental revenue, net of allowances of $2.9 million and $1.7 million, at September 30, 2015 and December 31, 2014, respectively, included in other assets on the consolidated balance sheets.  Leases that have contingent rent escalators indexed to future increases in the Consumer Price Index (CPI) may adjust over a one‑year period or over multiple‑year periods. Generally, these escalators increase rent at the lesser of (a) 1 to 1.25 times the increase in the CPI over a specified period or (b) a fixed percentage. Because of the volatility and uncertainty with respect to future changes in the CPI, the Company’s inability to determine the extent to which any specific future change in the CPI is probable at each rent adjustment date during the entire term of these leases and the Company’s view that the multiplier does not represent a significant leverage factor, increases in rental revenue from leases with this type of escalator are recognized only after the changes in the rental rates have actually occurred.

For leases that have contingent rentals that are based on a percentage of the tenant’s gross sales, the Company recognizes contingent rental revenue when the threshold upon which the contingent lease payment is based is actually reached. Less than 1.5% of the Company’s investment portfolio is subject to leases that provide for contingent rent based on a percentage of the tenant’s gross sales.

The Company suspends revenue recognition if the collectibility of amounts due pursuant to a lease is not reasonably assured or if the tenant’s monthly lease payments become more than 60 days past due, whichever is earlier. The Company reviews its rent receivables for collectibility on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area where the property is located. In the event that the collectibility of a receivable with respect to any tenant is in doubt, a provision for uncollectible amounts will be established or a direct write‑off of the specific rent receivable will be made. As of September 30, 2015, the Company had a $0.5 million provision for uncollectible contractual rent payments due from tenants; there was no provision at December 31, 2014.

9

Loans Receivable

STORE Capital holds its loans receivable for long‑term investment. Loans receivable are carried at amortized cost, including related unamortized discounts or premiums, if any.

Revenue Recognition

The Company recognizes interest income on loans receivable using the effective‑interest method applied on a loan‑by‑loan basis. Direct costs associated with originating loans are offset against any related fees received and the balance, along with any premium or discount, is deferred and amortized as an adjustment to interest income over the term of the related loan receivable using the effective interest method. A loan receivable is placed on nonaccrual status when the loan has become 60 days past due, or earlier if management determines that full recovery of the contractually specified payments of principal and interest is doubtful. While on nonaccrual status, interest income is recognized only when received. As of September 30, 2015 and December 31, 2014, there were no loans on nonaccrual status.

Impairment and Provision for Loan Losses

The Company periodically evaluates the collectibility of its loans receivable, including accrued interest, by analyzing the underlying property‑level economics and trends, collateral value and quality and other relevant factors in determining the adequacy of its allowance for loan losses. A loan is determined to be impaired when, in management’s judgment based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Specific allowances for loan losses are provided for impaired loans on an individual loan basis in the amount by which the carrying value exceeds the estimated fair value of the underlying collateral less disposition costs. There was no allowance for loan losses at September 30, 2015 or December 31, 2014.

Direct Financing Receivables

Certain of the Company’s real estate investment transactions are accounted for as direct financing leases. The Company records the direct financing receivables at their net investment, determined as the aggregate minimum lease payments and the estimated residual value of the leased property less unearned income. The unearned income is recognized over the life of the related contracts so as to produce a constant rate of return on the net investment in the asset.

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investment securities with maturities at acquisition of three months or less. The Company invests cash primarily in money‑market funds of a major financial institution, consisting predominantly of U.S. Government obligations.

Restricted Cash and Escrow Deposits

The Company had $16.1 million and $15.4 million of restricted cash and deposits in escrow at September 30, 2015 and December 31, 2014, respectively, which were included in other assets on the consolidated balance sheets.

Deferred Costs

Deferred costs consist principally of financing costs related to the issuance of the Company’s debt. Deferred financing costs are amortized as an increase to interest expense over the term of the related debt instrument using the effective interest method.  Deferred costs also include lease origination costs, which are amortized as a decrease to rental revenue over the term of the respective lease.

10

Derivative Instruments and Hedging Activities

The Company may enter into derivatives contracts as part of its overall financing strategy to manage the Company’s exposure to changes in interest rates associated with current and/or future debt issuances. The Company does not use derivatives for trading or speculative purposes. The Company records its derivatives on the balance sheet at fair value as either an asset or liability. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the earnings effect of the hedged forecasted transactions in a cash flow hedge. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss). Amounts reported in accumulated other comprehensive income (loss) related to cash flow hedges are reclassified to operations as an adjustment to interest expense as interest payments are made on the hedged debt transaction.

As of September 30, 2015, the Company had entered into two interest rate swap agreements with current notional amounts of $12.5 million and $6.5 million that were designated as cash flow hedges associated with the Company’s secured, variable‑rate mortgage note payable due in 2019 (Note 4).

Fair Value Measurement

The Company estimates fair value of financial and non-financial assets and liabilities based on the framework established in fair value accounting guidance.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The hierarchy described below prioritizes inputs to the valuation techniques used in measuring the fair value of assets and liabilities. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs to be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

· Level 1—Quoted market prices in active markets for identical assets and liabilities that the Company has the ability to access.

· Level 2—Significant inputs that are observable, either directly or indirectly. These types of inputs would include quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets in inactive markets and market‑corroborated inputs.

· Level 3—Inputs that are unobservable and significant to the overall fair value measurement of the assets or liabilities. These types of inputs include the Company’s own assumptions.

11

Share‑based Compensation

Certain directors and employees of the Company have been granted long‑term incentive awards, including restricted shares and stock units of the Company’s common stock and profits interest units issued by STORE Holding, which provide them with equity interests as an incentive to remain in the Company’s service and align executives’ interests with those of the Company’s equity holders.

During the nine months ended September 30, 2015, the Company granted restricted share awards (RSAs) representing 86,746 shares of restricted common stock to its executive officers and certain directors and other employees.  During the same period, 161,979 shares of restricted stock vested and 3,022 shares of restricted stock were forfeited. As of September 30, 2015, the Company had 577,651 shares of restricted common stock outstanding. The Company estimates the fair value of RSAs at the date of grant and recognizes that amount in general and administrative expense ratably over the vesting period at the greater of the amount amortized on a straight‑line basis or the amount vested. The fair value of the RSAs is based on the per-share price of the common stock on the date of the grant. Prior to the Company’s IPO, the fair value was based on the per‑share price of the common stock issued in the Company’s private equity offerings.

In March 2015, the Company issued 348,220 restricted stock units (RSUs) with both a market condition and a service condition to its executive officers.  The number of common shares to be received at vesting will range from zero to 100% of the total RSUs granted based on total shareholder return (TSR) on the Company’s common stock measured against the benchmark TSR of a peer group over a three-year performance period ending December 31, 2017.  The TSR is a measure of stock price appreciation plus dividends paid during the measurement period.  To the extent market and service conditions are met, the RSUs vest 50% at the end of 2017 and, subject to continued employment, 50% at the end of 2018. The Company valued the RSUs using a Monte Carlo simulation model on the date of grant which resulted in a grant date fair value of $4.4 million.  The Monte Carlo simulation was computed based on a volatility assumption of 23.51%, a risk-free interest rate of 0.84% and a dividend yield of zero. The RSUs accrue dividend equivalents which are paid only if the award vests. At September 30, 2015, there were 348,220 RSUs outstanding.

Income Taxes

As a REIT, the Company generally will not be subject to federal income tax; however, it is still subject to state and local income taxes and to federal income and excise tax on its undistributed income. STORE Investment Corporation is the Company’s wholly‑owned taxable REIT subsidiary (TRS) created to engage in non‑qualifying REIT activities. The TRS is subject to federal, state and local income taxes.

Management of the Company determines whether any tax positions taken or expected to be taken meet the “more‑likely‑than‑not” threshold of being sustained by the applicable federal, state or local tax authority. Certain state tax returns filed for 2011 and tax returns filed for 2012 through 2014 are subject to examination by these jurisdictions. As of September 30, 2015 and December 31, 2014, management concluded that there is no tax liability relating to uncertain income tax positions. The Company’s policy is to recognize interest related to any underpayment of income taxes as interest expense and to recognize any penalties as operating expenses. There was no accrual for interest or penalties at September 30, 2015 or December 31, 2014.

12

Net Income Per Common Share

Net income per common share has been computed pursuant to the guidance in the FASB ASC Topic 260, Earnings Per Share. The guidance requires the classification of the Company’s unvested restricted common stock, which contain rights to receive non‑forfeitable dividends, as participating securities requiring the two‑class method of computing net income per common share. The following table is a reconciliation of the numerator and denominator used in the computation of basic and diluted income per common share (dollars in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Numerator:
Net income	$	22,998	$	10,755	$	59,698	$	30,716
Less: preferred stock dividends		—		—		—		(8)
Net income attributable to common stockholders		22,998		10,755		59,698		30,708
Less: earnings attributable to unvested restricted shares		(157)		(139)		(442)		(375)
Net income used in basic and diluted income per share	$	22,841	$	10,616	$	59,256	$	30,333
Denominator:
Weighted average common shares outstanding		126,858,765		83,417,633		120,096,234		72,657,686
Less: Weighted average number of shares of unvested restricted stock		(577,651)		(485,998)		(579,476)		(461,371)
Weighted average shares outstanding used in basic income per share		126,281,114		82,931,635		119,516,758		72,196,315
Effects of dilutive securities:
Add: Treasury stock method impact of potentially dilutive securities (a)		—		—		—		—
Weighted average shares outstanding used in diluted income per share		126,281,114		82,931,635		119,516,758		72,196,315

(a) For the three months ended September 30, 2015 and 2014, excludes 179,540 shares and 86,238 shares, respectively, and for the nine months ended September 30, 2015 and 2014, excludes 183,426 shares and 74,736 shares, respectively, related to unvested restricted shares as the effect would be antidilutive.

13

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or the SEC. The Company adopts the new pronouncements as of the specified effective date. When permitted, the Company may elect to early adopt the new pronouncements. Unless otherwise discussed, these new accounting pronouncements include technical corrections to existing guidance or introduce new guidance related to specialized industries or entities and therefore will have minimal, if any, impact on the Company’s financial position or results of operations upon adoption.

In May 2014, the FASB issued Accounting Standards Update (ASU) 2014‑09, Revenue from Contracts with Customers: Topic 606. This new guidance establishes a principles‑based approach for accounting for revenue from contracts with customers. Lease contracts covered by Topic 840, Leases, are excluded from the scope of this new guidance. At the time of issuance, this new standard was effective for public companies for annual reporting periods beginning after December 15, 2016 and early adoption was not permitted. On July 9, 2015, the FASB decided to defer by one year the effective date of the standard for public companies which will now be effective for annual reporting periods beginning after December 15, 2017 and early adoption is permitted but only as of an annual reporting period beginning after December 15, 2016.  As leases are excluded from this guidance, the Company does not anticipate this standard to have a material impact on its financial position, results of operations and cash flows.

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs.  This guidance was issued to simplify the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding debt liability and, therefore, make the presentation of debt issuance costs consistent with the presentation of debt discounts or premiums.  This new standard is effective for public companies for annual reporting periods beginning after December 15, 2015, with early adoption permitted.  Upon adoption, the new guidance is required to be applied retrospectively.  The Company is currently evaluating the impact of the adoption of this new standard which is expected to result in reclassifications of certain deferred costs on the Company’s balance sheets but will not have an impact on its results of operations or cash flows. 

In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which clarifies the treatment of debt issuance costs from line-of-credit arrangements after adoption of ASU 2015-03. ASU 2015-15 clarifies that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company will plan to adopt the provisions of ASU 2015-15 upon adoption of ASU 2015-03 (discussed above).

14

3. Investments

At September 30, 2015, STORE Capital had investments in 1,246 property locations representing 1,232 owned properties (of which 24 are accounted for as direct financing receivables), nine ground lease interests and five properties which secure certain mortgage loans. The gross investment portfolio totaled $3.72 billion at September 30, 2015 and consisted of the gross acquisition cost of the real estate investments totaling $3.52 billion and loans and direct financing receivables with an aggregate carrying amount of $197.2 million. As of September 30, 2015, a substantial portion of these investments are assets of consolidated special purpose entity subsidiaries and are pledged as collateral under the non‑recourse obligations of these special purpose entities (Note 4).

During the nine months ended September 30, 2015, the Company had the following gross real estate and loan activity (dollars in thousands):

	Number of	Dollar
	Investment	Amount of
	Locations	Investments (a)
Gross investments, December 31, 2014	947	$	2,805,911
Acquisition of and additions to real estate (b)(c)	293		858,866
Investment in loans and direct financing receivables	15		90,633
Sales of real estate	(7)		(27,193)
Principal collections on loans and direct financing receivables	(1)		(4,705)
Provision for impairment of real estate			(1,000)
Other	(1)		(634)
Gross investments, September 30, 2015			3,721,878
Less accumulated depreciation and amortization			(160,341)
Net investments, September 30, 2015	1,246	$	3,561,537

(a) The dollar amount of investments includes the investment in land, buildings, improvements and lease intangibles related to real estate investments as well as the carrying amount of the loans and direct financing receivables.

(b) Includes $0.6 million of interest capitalized to properties under construction.

(c) Excludes $15.8 million of tenant improvement advances disbursed in 2015 which were accrued as of December 31, 2014.

15

The following table shows information regarding the diversification of the Company’s total investment portfolio among the different industries in which its tenants and borrowers operate as of September 30, 2015 (dollars in thousands):

				Percentage of
	Number of	Dollar		Total Dollar
	Investment	Amount of		Amount of
	Locations	Investments (a)		Investments
Restaurants	615	$	992,236	27	%
Health clubs	48		266,727	7
Movie theaters	33		264,832	7
Early childhood education centers	129		249,744	7
Furniture stores	26		166,610	4
Sporting goods stores	16		131,584	4
Colleges and professional schools	6		79,101	2
All other service industries	229		865,409	23
All other retail industries	59		247,431	7
All industrial	85		458,204	12
	1,246	$	3,721,878	100	%

(a) The dollar amount of investments includes the investment in land, buildings, improvements and lease intangibles related to real estate investments as well as the carrying amount of the loans and direct financing receivables.

Significant Credit and Revenue Concentration

STORE Capital’s real estate investments are leased or financed to 288 customers geographically dispersed throughout 46 states. Only one state, Texas (12%), accounted for 10% or more of the total dollar amount of STORE Capital’s investment portfolio at September 30, 2015. None of the Company’s 288 customers represented more than 10% of the Company’s real estate investment portfolio at September 30, 2015, with the largest customer representing less than 3% of the total investment portfolio. On an annualized basis, the largest customer also represented less than 3% of the Company’s annualized investment portfolio revenues as of September 30, 2015. The Company’s customers operate their businesses across 274 concepts and the largest of these concepts represented 3% of the Company’s annualized investment portfolio revenues as of September 30, 2015.

Intangible Lease Assets

The following details intangible lease assets and related accumulated amortization (in thousands):

	September 30,		December 31,
	2015		2014
In-place lease assets	$	57,165	$	47,359
Above-market lease assets		10,273		5,526
Ground lease interest assets		7,472		7,299
Total intangible lease assets		74,910		60,184
Accumulated amortization		(10,377)		(6,006)
Net intangible lease assets	$	64,533	$	54,178

16

Aggregate lease intangible amortization included in expense was $1.4 million and $1.1 million during the three months ended September 30, 2015 and 2014, respectively, and was $4.2 million and $2.8 million during the nine months ended September 30, 2015 and 2014, respectively. The amount amortized as a decrease to rental revenue for capitalized above‑market lease intangibles was $0.3 million and $0.2 million during the three months ended September 30, 2015 and 2014, respectively, and was $0.8 million and $0.4 million for the nine months ended September 30, 2015 and 2014, respectively.  

Based on the balance of the intangible assets at September 30, 2015, the aggregate amortization expense is expected to be $1.4 million for the remainder of 2015, $5.7 million in 2016, $5.6 million in 2017, $5.4 million in 2018, $5.1 million in 2019 and $4.6 million in 2020 and the amount expected to be amortized as a decrease to rental revenue is expected to be $0.3 million for the remainder of 2015 and $1.2 million in each of the next five years. The weighted average remaining amortization period is approximately ten years for the in‑place lease intangibles, approximately eight years for the above‑market lease intangibles and approximately 75 years for the amortizing ground lease interests.

Real Estate Investments

The Company’s investment properties are leased to tenants under long‑term operating leases that typically include one or more renewal options. The weighted average remaining noncancelable lease term at September 30, 2015 was approximately 15 years. Substantially all of the leases are triple‑net, which provide that the lessees are responsible for the payment of all property operating expenses, including property taxes, maintenance and insurance; therefore, STORE Capital is generally not responsible for repairs or other capital expenditures related to the properties. At September 30, 2015, two of the Company’s properties were vacant and not subject to a lease.

Scheduled future minimum rentals to be received under the remaining noncancelable term of the operating leases at September 30, 2015, are as follows (in thousands):

Remainder of 2015	$	73,287
2016		293,954
2017		294,160
2018		294,234
2019		294,189
2020		292,410
Thereafter		2,815,257
Total future minimum rentals	$	4,357,491

Since lease renewal periods are exercisable at the option of the lessee, the preceding table presents future minimum lease payments due during the initial lease term only. In addition, the future minimum lease payments do not include any contingent rentals such as lease escalations based on future changes in CPI.

Loans and Direct Financing Receivables

At September 30, 2015, the Company held 13 loans receivable with an aggregate carrying amount of $92.6 million. Ten of the loans are mortgage loans secured by land and/or buildings and improvements on the mortgaged property. The three other loans are secured by the tenant’s equipment. One of the mortgage loans is a short‑term loan that requires monthly interest‑only payments with a  balloon payment at maturity. The remaining mortgage loans receivable generally require the borrowers to make monthly principal and interest payments based on a 40‑year amortization period with balloon payments, if any, at maturity or earlier upon the occurrence of certain other events. The other secured loans typically require the borrower to make monthly interest‑only payments for an established period and then either monthly principal and interest payments through maturity or a  balloon payment at maturity.

17

The Company’s loans and direct financing receivables are summarized below (dollars in thousands):

	Stated
	Interest		Maturity	September 30,		December 31,
Type	Rate		Date	2015		2014
Mortgage loan receivable	8.50	%		$	—	$	4,300
Mortgage loan receivable	9.09	%	Jan. 2017		1,933		1,933
Mortgage loan receivable	8.35	%	Jan. 2028		3,765		3,775
Mortgage loan receivable	8.75	%	Jul. 2032		23,924		23,998
Mortgage loan receivable	7.45	%	Jan. 2035		495		—
Mortgage loan receivable	9.00	%	Mar. 2053		14,558		14,595
Mortgage loan receivable	8.75	%	Jun. 2053		6,341		6,357
Mortgage loan receivable	8.50	%	Jun. 2053		6,743		6,697
Mortgage loan receivable	8.25	%	Aug. 2053		3,328		3,337
Mortgage loans receivable (a)	8.50	%	Feb. 2055		28,457		—
Total mortgage loans receivable					89,544		64,992
Equipment loan receivable	10.00	%			—		94
Equipment loan receivable	7.75	%	Mar. 2017		1,063		—
Equipment loan receivable	8.75	%	May 2022		642		—
Equipment loan receivable	7.00	%	Aug. 2023		250		—
Total principal amount outstanding—loans receivable					91,499		65,086
Unamortized loan origination costs					1,092		497
Direct financing receivables					104,658		45,771
Total loans and direct financing receivables				$	197,249	$	111,354

(a) Represents two  mortgage loans receivable secured by a single property.  The loans have an initial interest rate of 8.50% and are subject to increases over the term of the loans.  The loans allow for prepayment in whole, but not in part, with penalties ranging from 20% to 70% depending on the timing of the prepayment.

The long‑term mortgage loans receivable generally allow for prepayments in whole, but not in part, without penalty or with penalties typically ranging from 1% to 5%, depending on the timing of the prepayment, except as noted in the table above. All other loans receivable allow for prepayments in whole or in part without penalty. Absent prepayments, scheduled maturities are expected to be as follows (in thousands):

	Scheduled		Balloon		Total
	Principal		Payments		Payments
Remainder of 2015	$	88	$	—	$	88
2016		357		—		357
2017		449		2,996		3,445
2018		535		—		535
2019		583		—		583
2020		634		—		634
Thereafter		61,988		23,869		85,857
Total principal repayments	$	64,634	$	26,865	$	91,499

As of September 30, 2015, the Company had $104.7 million of investments in transactions accounted for as direct financing leases; the components of the investments accounted for as direct financing receivables were as follows (in thousands):

Minimum lease payments receivable	$	270,982
Estimated residual value of leased assets		12,405
Unearned income		(178,729)
Net investment	$	104,658

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4. Debt

Credit Facilities

In September 2015, the Company expanded its $300 million unsecured revolving credit facility with a group of lenders to $400 million. The  facility, which began in September 2014, is used to partially fund real estate acquisitions pending the issuance of long-term, fixed-rate debt.

The amended facility, which includes an expanded accordion feature that allows the size of the facility to be increased up to $800 million, matures in September 2019 and includes a one-year extension option subject to certain conditions and the payment of a 0.15% extension fee. The facility is recourse to the Company and includes a guaranty from STORE Capital Acquisitions, LLC, one of the Company’s direct wholly-owned subsidiaries. Borrowings under this facility require monthly payments of interest at a rate selected by the Company of either (1) one-month LIBOR plus a credit spread ranging from 1.35% to 2.15%, or (2) the Base  Rate, as defined in the credit agreement, plus a credit spread ranging from 0.35% to 1.15%. The credit spread used is based on the Company’s leverage ratio as defined in the credit agreement. Based on leverage ratio calculations in effect at the time of the amendment, borrowings under the facility made on or after September 22, 2015 generally bear interest at one-month LIBOR plus 1.35%. The Company must also pay a  non-use fee of 0.15% or 0.25% on the unused portion of the facility, depending upon the amount of borrowings outstanding.  Previous to the amendment, borrowings under this facility required monthly payments of interest at a rate selected by the Company of either (1) one-month LIBOR plus a credit spread ranging from 1.75% to 2.50%, or (2) the Base Rate, as defined in the agreement, plus a credit spread ranging from 0.75% to 1.50%.

Borrowing availability under the facility is limited to 50% of the value of the Company’s eligible unencumbered assets at any point in time. At September 30, 2015, the Company had $192 million of borrowings outstanding and  a pool of unencumbered assets aggregating approximately $1.36 billion, most of which are eligible unencumbered assets as defined in the credit agreement.

The Company is subject to various financial and nonfinancial covenants under the amended unsecured revolving credit facility including a maximum leverage of 65%, a  minimum EBITDA to fixed charges ratio of 1.5 to 1, minimum consolidated net worth of $1 billion plus 75% of additional equity raised after September 2015, and a maximum dividend payout ratio limited to 95% of Funds from Operations, all as defined in the credit agreement. As of September 30, 2015, the Company was in compliance with these covenants.

On April 8, 2015, the Company entered into a four-month (including the one-month extension option), $50 million unsecured loan facility with a bank as a temporary supplement to borrowing capacity under its unsecured revolving credit facility.  This loan facility was subject to the same borrowing limitations and covenants as the unsecured revolving credit facility discussed above and borrowings under this loan facility required monthly payments of interest at a rate selected by the Company of either (1) one-month LIBOR plus 2.00%, or (2) the Base Rate, as defined in the agreement.  This facility expired in accordance with its terms in July 2015.

Prior to September 19, 2014, the Company had two bank credit facilities, which aggregated $300 million, that were secured by real estate properties which were pledged as collateral under the facilities as well as the Company’s equity interests in certain of its special purpose entity subsidiaries and the Company’s holdings of the Class B notes issued under its STORE Master Funding debt program discussed below. These previous secured credit facilities bore interest at one-month LIBOR plus a credit spread ranging from 2.45% to 3.00%.

The financing costs related to the establishment of the Company’s credit facilities are deferred and amortized to interest expense over the term of the credit facilities. At September 30, 2015 and December 31, 2014, unamortized financing costs related to the Company’s credit facility totaled $3.4 million and $2.4 million, respectively.

19

Non‑Recourse Debt Obligations of Consolidated Special Purpose Entities

During 2012, the Company implemented the STORE Master Funding debt program pursuant to which certain of its consolidated special purpose entities issue multiple series of non‑recourse net‑lease mortgage notes from time to time that are collateralized by the assets owned by these entities and their related leases (collateral). One of the principal features of the program is that, as additional series of notes are issued, new collateral is contributed to the collateral pool thereby increasing the size and diversity of the collateral pool for the benefit of all noteholders, including those who invested in prior series. Another feature of the program is the ability to substitute collateral from time to time subject to meeting certain prescribed conditions and criteria. The notes are generally segregated into Class A amortizing notes and Class B non‑amortizing notes. The Company has retained each of the Class B notes which aggregate $108.0 million at September 30, 2015.

The Class A notes require monthly principal and interest payments with a balloon payment due at maturity and these notes may be prepaid at any time, subject to a yield maintenance prepayment premium. As of September 30, 2015, the aggregate collateral pool securing the net‑lease mortgage notes is comprised primarily of single tenant commercial real estate properties with an aggregate investment amount of approximately $2.0 billion.

A number of additional consolidated special purpose entity subsidiaries of the Company have financed their real estate properties with traditional first mortgage debt. The notes generally require monthly principal and interest payments with balloon payments due at maturity. In general, these mortgage notes payable can be prepaid in whole or in part upon payment of a yield maintenance premium. The mortgage notes payable are collateralized by real estate properties owned by these consolidated special purpose entity subsidiaries with an aggregate investment amount of approximately $327.8 million at September 30, 2015.

The mortgage notes payable, which are obligations of the consolidated special purpose entities as described in Note 2, contain various covenants customarily found in mortgage notes, including a limitation on the issuing entity’s ability to incur additional indebtedness on the underlying real estate. Although this mortgage debt generally is non‑recourse, there are customary limited exceptions to recourse for matters such as fraud, misrepresentation, gross negligence or willful misconduct, misapplication of payments, bankruptcy and environmental liabilities. Certain of the mortgage notes payable also require the posting of cash reserves with the lender or trustee if specified coverage ratios are not maintained by the Company or one of its tenants. As of September 30, 2015, the Company had one variable-rate mortgage note (outstanding principal balance of $19.0 million) which had effectively been converted to a fixed-rate note through the use of two interest rate swaps. The Company has an agreement with the counterparty to the interest rate swaps which contains a provision that, if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, the Company could also be declared in default on its interest rate swap obligations. As of September 30, 2015, the termination value of the Company’s interest rate swaps was a liability of approximately $0.5 million.

Financing costs related to the issuance of the non‑recourse debt obligations are deferred and amortized to interest expense over the terms of the related notes. As of September 30, 2015 and December 31, 2014, unamortized financing costs related to all non‑recourse debt obligations of the consolidated special purpose entities totaled $34.7 million and $30.9 million, respectively.

20

The non‑recourse debt obligations of the consolidated special purpose entity subsidiaries are summarized below (dollars in thousands):

		Coupon		Outstanding Balance
	Maturity	Interest		September 30,		December 31,
	Date	Rate		2015		2014
Non-recourse net-lease mortgage notes:
Series 2012-1, Class A	Aug. 2019	5.77	%	$	205,057	$	207,503
Series 2013-1, Class A-1	Mar. 2020	4.16	%		144,001		145,876
Series 2013-2, Class A-1	Jul. 2020	4.37	%		103,477		104,740
Series 2013-3, Class A-1	Nov. 2020	4.24	%		74,873		75,767
Series 2014-1, Class A-1	Apr. 2021	4.21	%		119,200		119,650
Series 2015-1, Class A-1	Apr. 2022	3.75	%		94,802		—
Series 2013-1, Class A-2	Mar. 2023	4.65	%		97,921		99,196
Series 2013-2, Class A-2	Jul. 2023	5.33	%		93,806		94,951
Series 2013-3, Class A-2	Nov. 2023	5.21	%		97,238		98,398
Series 2014-1, Class A-2	Apr. 2024	5.00	%		139,067		139,592
Series 2015-1, Class A-2	Apr. 2025	4.17	%		269,438		—
Non-recourse mortgage notes payable:
$21,443 note issued July 2005; assumed in June 2014	Aug. 2015	5.26	%		—		18,956
$4,000 note issued August 2006 (a)	Sept. 2016	6.33	% (a)		3,245		3,326
$3,800 note issued September 2006 (b)	Oct. 2016	6.47	% (b)		3,469		3,512
$7,088 note issued April 2007 (c)	May 2017	6.00	% (c)		6,597		6,676
$4,400 note issued August 2007 (d)	Sept. 2017	6.7665	% (d)		3,728		3,807
$8,000 note issued January 2012; assumed in December 2013	Jan. 2018	4.778	%		7,311		7,511
$20,530 note issued December 2011 and amended February 2012	Jan. 2019	5.275	% (e)		18,968		19,317
$6,500 note issued December 2012	Dec. 2019	4.806	%		6,096		6,207
$2,956 note issued June 2013	Jun. 2020	3.1986	% (f)		2,772		2,827
$16,100 note issued February 2014	Mar. 2021	4.83	%		15,603		15,857
$13,000 note issued May 2012	May 2022	5.195	%		12,112		12,326
$14,950 note issued July 2012	Aug. 2022	4.95	%		13,598		13,863
$26,000 note issued August 2012	Sept. 2022	5.05	%		24,376		24,805
$6,400 note issued November 2012	Dec. 2022	4.707	%		6,017		6,127
$11,895 note issued March 2013	Apr. 2023	4.7315	%		11,279		11,478
$17,500 note issued August 2013	Sept. 2023	5.46	%		16,833		17,091
$10,075 note issued March 2014	Apr. 2024	5.10	%		9,878		9,984
$21,125 note issued July 2015	Aug. 2025	4.36	%		21,125		—
$7,750 note issued February 2013	Mar. 2038	4.81	% (g)		7,339		7,468
$6,944 notes issued March 2013	Apr. 2038	4.50	% (h)		6,560		6,684
					1,635,786		1,283,495
Unamortized net premium					100		656
Total non-recourse debt obligations of consolidated special purpose entities				$	1,635,886	$	1,284,151

(a) Note was assumed in July 2012 at a premium; estimated effective yield at assumption of 5.15%.

(b) Note was assumed in April 2014 at a premium; estimated effective yield at assumption of 3.88%.

(c) Note was assumed in December 2013 at a premium; estimated effective yield at assumption of 4.45%.

(d) Note was assumed in September 2014 at a premium; estimated effective yield at assumption of 3.40%.

(e) Note is a variable‑rate note which resets monthly at one‑month LIBOR + 3.50%. The Company has entered into two interest rate swap agreements that effectively convert the floating rate on a $12.5 million portion and a $6.5 million portion of this mortgage note payable to fixed rates of 5.299% and 5.230%, respectively.

(f) Note is a variable‑rate note which resets monthly at one‑month LIBOR + 3.00%; rate shown is effective rate at September 30, 2015.

(g) Interest rate is effective for first 10 years and will reset to greater of (1) initial rate plus 400 basis points or (2) Treasury rate plus 400 basis points.

(h) Interest rate is effective for first 10 years and will reset to the lender’s then prevailing interest rate.

21

As of September 30, 2015, the scheduled debt maturities, including balloon payments, during the next five years and thereafter are as follows (in thousands):

	Scheduled		Balloon
	Principal		Payments		Total
Remainder of 2015	$	5,282	$	—	$	5,282
2016		21,613		6,549		28,162
2017		22,450		9,921		32,371
2018		23,236		6,665		29,901
2019		21,946		213,539		235,485
2020		16,137		295,988		312,125
Thereafter		45,172		947,288		992,460
	$	155,836	$	1,479,950	$	1,635,786

5. Stockholders’ Equity

On November 3, 2014, the Company’s board of directors declared a 1.67‑for‑one split of its common stock effected through a dividend to its stockholders. The stock dividend was treated as a stock split for accounting purposes; the $0.01 par value of the common stock was unchanged. The Company declared dividends payable to common stockholders totaling $94.8 million and $55.9 million during the nine months ended September 30, 2015 and 2014, respectively.  

On March 30, 2015, STORE Holding redeemed all of its Series A membership interests that were held by members of the Company’s board and senior management through the distribution of 653,382 common shares of the Company to those members.  In June 2015, the Company completed a follow-on stock offering in which the Company issued and sold 11,562,500 shares of common stock and STORE Holding sold 9,712,500 shares from its holdings of the Company’s common stock.  The Company received $224.7 million in proceeds, net of both underwriters’ discount and offering expenses, in connection with this offering. STORE Holding held 72,436,144 of the Company’s common shares at September 30, 2015 and 82,802,026 common shares at December 31, 2014.    

6. Income from Discontinued Operations

Periodically, the Company may sell real estate properties it owns. Effective January 1, 2014, the Company adopted ASU No. 2014‑08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014‑08), under which only disposals representing a strategic shift in operations of the Company and that have (or will have) a major effect on the Company’s operations and financial results are to be presented as discontinued operations. The Company was required to continue to classify any property disposal or property classified as held for sale as of December 31, 2013 as discontinued operations prospectively; therefore, the gains and losses from these property dispositions and all operations from these properties were reclassified to discontinued operations, net of any related income tax, in the consolidated statements of income. This presentation has no impact on net income or cash flow. The Company did not classify any additional property disposals as discontinued operations subsequent to December 31, 2013.

Amounts reclassified to discontinued operations during the three months ended September 30, 2014 included $19,000 of income from real estate operations and, during the nine months ended September 30, 2014, included $146,000 of income from real estate operations and  $969,000 of gain on disposition of properties related to assets that had been classified as held for sale prior to the Company’s adoption of ASU 2014‑08.

7. Commitments and Contingencies

In the normal course of business, the Company enters into various types of commitments to purchase real estate properties. These commitments are generally subject to the Company’s customary due diligence process and, accordingly, a number of specific conditions must be met before the Company is obligated to purchase the properties. At

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the time the Company purchases a property, the Company may also agree to fund future improvements to the property. As of September 30, 2015, the Company had approximately $57.4 million in commitments to fund improvements to real estate properties previously acquired which will generally result in increases to the rental revenue due under the related contracts.

The Company has employment agreements with each of its executive officers which will expire in November 2018.  The agreements provide for minimum annual base salaries and annual incentive compensation based on the satisfactory achievement of reasonable performance criteria and objectives to be adopted by the Company’s Board of Directors each year.  In addition, each officer is eligible to receive equity awards as determined by the Company’s Board of Directors. In the event an executive officer is terminated without cause or terminates employment for good reason, the Company is liable for a lump‑sum severance payment in an amount equal to, in the case of the Company’s Chief Executive Officer, the sum of (i) two times his base salary and (ii) two times the target cash bonus for which he was eligible in the prior fiscal year (whether or not received); and, in the case of the Company’s other executive officers, the sum of (i) 1.5 times his or her base salary and (ii) 1.5 times the target cash bonus for which he or she was eligible in the prior fiscal year (whether or not received); plus, in the case of all executive officers, certain other specified termination benefits.  In the event of a termination without cause, as defined in the employment agreements, the executive officer is entitled to immediate vesting of any and all outstanding unvested shares of the Company’s restricted stock that he or she has been awarded as part of the Company’s incentive compensation program.  For unvested RSUs, in the event of a qualified termination, as defined in the award agreement, the executive officer is entitled to a portion of any earned award, as determined under the award agreement, based on the elapsed performance period.

8. Fair Value of Financial Instruments

The Company’s derivatives are required to be measured at fair value in the Company’s consolidated financial statements on a recurring basis.  Derivatives are measured under a market approach, using prices obtained from a nationally recognized pricing service and pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy. The fair value of the Company’s derivatives  (interest rate swaps) at September 30, 2015 and December 31, 2014 was a liability of $486,000 and $266,000, respectively, included in other liabilities on the consolidated balance sheets.

In addition to the disclosures for assets and liabilities required to be measured at fair value at the balance sheet date, companies are required to disclose the estimated fair values of all financial instruments, even if they are not carried at their fair value. The fair values of financial instruments are estimates based upon market conditions and perceived risks at September 30, 2015 and December 31, 2014. These estimates require management’s judgment and may not be indicative of the future fair values of the assets and liabilities.

Financial assets and liabilities for which the carrying values approximate their fair values include cash and cash equivalents, restricted cash and escrow deposits, accounts receivable, accounts payable and tenant deposits. Generally these assets and liabilities are short‑term in duration and are recorded at fair value on the consolidated balance sheets.  The Company believes the carrying value of the borrowings on its credit facility approximate fair value based on their nature, terms and variable interest rate. Additionally, the Company believes the carrying values of its fixed‑rate loans receivable approximate fair values based on market quotes for comparable instruments or discounted cash flow analysis using estimates of the amount and timing of future cash flows, market rates and credit spreads.

The estimated fair values of the non‑recourse debt obligations of consolidated special purpose entities have been derived based on market observable inputs such as interest rates and discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads. These measurements are classified as Level 2 within the fair value hierarchy. At September 30, 2015,  these debt obligations had a carrying value of $1,635.9 million and an estimated fair value of $1,673.6 million. At December 31, 2014, these debt obligations had a carrying value of $1,284.2 million and an estimated fair value of $1,349.0 million.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Such forward-looking statements include, without limitation, statements concerning our business and growth strategies, investment, financing and leasing activities and trends in our business, including trends in the market for long-term, triple-net leases of freestanding, single-tenant properties.  Words such as “expects,” “anticipates,” “intends,” “plans,” “likely,” “will,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements.  Such statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.  Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this quarterly report may not prove to be accurate.  In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.  For a further discussion of these and other factors that could impact future results, performance or transactions, see “Item 1A.Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission on March 10, 2015.

Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this quarterly report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.

Business Overview

We were formed in 2011 to invest in and manage Single Tenant Operational Real Estate, or STORE Properties, which is our target market and the inspiration for our name.  A STORE Property is a property location at which a company operates its business and generates sales and profits, which makes the location a profit center and, therefore, fundamentally important to that business. Examples of operational real estate include restaurants, health clubs, movie theaters, early childhood education centers, furniture stores, sporting goods stores and colleges and professional schools.  By acquiring the real estate from the operators and then leasing the real estate back to them, they become our long‑term tenants, and we refer to them as our customers. We provide a source of long‑term capital to our customers by enabling them to avoid the need to incur debt and employ equity in order to finance the real estate that is essential to their business.

We are a Maryland corporation organized as an internally managed real estate investment trust, or REIT.  As a REIT, we will generally not be subject to federal income tax to the extent that we distribute all of our taxable income to our stockholders and meet other requirements. 

The growth of our Company from inception in May 2011 until November 2014 was privately funded by STORE Holding Company, LLC, or STORE Holding, a Delaware limited liability company, all of which is owned, directly or indirectly, by certain investment funds managed by Oaktree Capital Management, L.P.  In November 2014, we took the Company public on the New York Stock Exchange and now our common stock trades under the ticker symbol “STOR”.  In November 2014, prior to our initial public offering, or IPO, our board of directors declared a stock split effected through the distribution of 1.67 shares for each share of common stock then outstanding; accordingly, all share and per share information included in this report has been retroactively restated to take into account the effect of the stock split.  In June 2015, we completed a follow-on stock offering in which the Company issued and sold 11,562,500 shares of our common stock and STORE Holding sold 9,712,500 shares from its holdings of the Company’s common stock.  STORE Holding is still our primary stockholder, owning approximately 57% of our outstanding common stock as of September 30, 2015.

Since our inception in 2011, we have selectively originated a real estate investment portfolio totaling $3.7 billion as of September 30, 2015, consisting of investments in 1,246 property locations across 46 states. All of the

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real estate we acquire is held by our wholly-owned subsidiaries, many of which are special purpose bankruptcy remote entities formed to facilitate the financing of our real estate. We predominantly acquire our single‑tenant properties directly from our customers in sale‑leaseback transactions where our customers sell us their operating properties and then simultaneously enter into long‑term triple‑net leases with us to lease the properties back. Accordingly, our properties are fully occupied and under lease from the moment we acquire them.

We generate our cash from operations primarily through the monthly lease payments, or “base rent”, we receive from our customers under their long‑term leases with us. We also receive interest payments on loans receivable, which are a small part of our portfolio. We refer to the monthly scheduled lease and interest payments due from our customers as “base rent and interest”. Most of our leases contain lease escalations every year or every several years that are based on the lesser of the increase in the Consumer Price Index, or CPI, or a stated percentage (if expressed on an annual basis, currently averaging approximately 1.7%), which allows the monthly lease payments we receive to rise somewhat in an inflationary economic environment. As of September 30, 2015, approximately 97% of our leases (based on annualized base rent) are referred to as “triple net”, which means that our customer is responsible for all of the maintenance, insurance and property taxes associated with the properties they lease from us, including any increases in those costs that may occur as a result of inflation. The remaining leases have some landlord responsibilities, generally related to maintenance and structural component replacement that may be required on such properties in the future, although we do not currently anticipate incurring significant capital expenditures or property costs under such leases. Since our properties are single‑tenant properties under long‑term leases, it is not necessary for us to perform any significant ongoing leasing activities on our properties. As of September 30, 2015, the weighted average remaining term of our leases (calculated based on annualized base rent) was approximately 15 years, excluding renewal options, which are exercisable at the option of our tenants upon expiration of their base lease term. Leases approximating 98% of our base rent as of that date provide for tenant renewal options (generally two to four five‑year options) and leases approximating 7% of our base rent provide our tenant the option, at their election, to purchase the property from us at a specified time or times (generally at the greater of the then‑fair market value or our cost).

Liquidity and Capital Resources

At the beginning of 2015, our real estate investment portfolio totaled $2.8 billion, consisting of investments in 947 property locations with base rent and interest due from our customers aggregating approximately $19.8 million per month, excluding future rent payment escalations. By September 30, 2015, our investment portfolio had grown to $3.7 billion, consisting of investments in 1,246 property locations with base rent and interest aggregating approximately $26.0 million per month. Substantially all of our cash from operations is generated by our real estate portfolio.

Our primary cash expenditures are the monthly principal and interest payments we make on the debt we use to finance our real estate investment portfolio and the general and administrative expenses of managing the portfolio and operating our business. Since substantially all of our leases are triple net, our tenants are generally responsible for the maintenance, insurance and property taxes associated with the properties they lease from us.  When a property becomes vacant through a tenant default or expiration of the lease term with no tenant renewal, we would incur these property costs during the time it would take to locate a substitute tenant.  Also, we will occasionally incur nominal property‑level expenses that are not paid by our customers, such as the costs of periodically making site inspections of our properties. During the first nine months of 2015, leases associated with three properties due to expire in 2015 were renewed by the tenant and one property, which was vacated upon lease expiration, has since been leased to another of our tenants.  As of September 30, 2015, two of our 1,246 property locations were vacant and not subject to a lease which represents a 99.8% occupancy rate.  We expect that we will incur some property costs from time to time during periods that vacant properties are being remarketed; however, we do not anticipate that such costs will be significant.

We intend to continue to grow primarily through additional real estate investments. To accomplish this objective, we must continue to identify real estate acquisitions which are consistent with our underwriting guidelines and raise future additional capital. We acquire real estate with a combination of debt and equity capital and with cash from operations that is not otherwise distributed to our stockholders in the form of dividends. 

Our debt capital is provided on a temporary basis through our variable‑rate unsecured revolving credit facility with a group of banks, until our short-term borrowings are sufficiently large to enable the economic issuance of long-term fixed-rate notes. By matching the expected cash inflows from our long‑term real estate leases with the expected

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cash outflows of our long‑term fixed‑rate debt, we “lock in”, for as long as is economically feasible, the expected positive difference between our scheduled cash inflows on the leases and the cash outflows on our debt payments. By “locking in” this difference, or “spread”, we seek to reduce the risk that increases in interest rates would adversely impact our profitability. In addition, we may use various financial instruments designed to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies such as interest rate caps, depending on our analysis of the interest rate environment and the costs and risks of such strategies. We target a level of debt within a range of six to seven times our earnings before interest, taxes, depreciation and amortization.

To date, our primary long-term debt financing strategy has involved our STORE Master Funding secured debt program described below. We also, from time to time, obtain fixed-rate non‑recourse mortgage financing from banks and insurance companies secured by specific property we pledge as collateral. With our recent receipt of an investment-grade credit rating of BBB- from Fitch Ratings, we have positioned STORE Capital to also have the ability to issue senior unsecured long-term debt, which we expect to do for the first time as early as the fourth quarter of 2015.  

The availability of debt to finance commercial real estate in the United States can, at times, be impacted by economic and other factors that are beyond our control. An example of this is the period during the recession of 2007 to 2009 when availability of debt capital for commercial real estate was significantly curtailed. We seek to reduce the risk that long‑term debt capital may be unavailable to us by limiting the period between the time we acquire our real estate and the time we finance our real estate with long‑term debt. In addition, we have arranged our short‑term debt facility (described below) to have a multi‑year term in order to reduce the risk that short‑term real estate financing would not be available to us. As we grow our real estate portfolio, we also intend to manage our debt maturities to reduce the risk that a significant amount of our debt will mature in any single year in the future. As of September 30, 2015, we had no significant near-term debt maturities, with no balloon payments due during the remainder of 2015 and just $23.1 million due in the following three years. Our weighted average debt maturity is approximately seven years. As our outstanding debt matures, we may refinance this maturing debt as it comes due or choose to repay it using cash and cash equivalents or our revolving credit facility. In July 2015, we refinanced debt that was scheduled to mature in August 2015 with $21.1 million in nonrecourse fixed-rate debt due in August 2025. Because our long-term debt generally requires monthly payments of principal, in addition to the monthly interest payments, the resulting principal amortization reduces our refinancing risk upon maturity of the debt. The long-term debt we have issued as of September 30, 2015 is comprised, almost exclusively, of secured non-recourse borrowings with a weighted average loan-to-cost ratio of approximately 70% and approximately 64% of our portfolio serves as collateral for this long-term debt.  The remaining portfolio properties, aggregating approximately $1.36 billion, are unencumbered and this unencumbered pool of properties provides us flexibility for future secured or unsecured borrowings or as substitute collateral for existing indebtedness. 

We intend to raise debt capital through several different markets, including the asset‑backed and commercial mortgage‑backed securities markets, as well as the market for senior unsecured term debt financing. We believe that having access to multiple debt markets increases our financing flexibility because different debt markets may attract different debt investors, thus increasing our access to a potentially larger pool of debt investors. Also, a particular debt market may be more competitive than another at any particular point in time.

Typically, we use our unsecured credit facility to acquire our real estate properties, until those borrowings are sufficiently large to warrant the economic issuance of long-term fixed-rate debt, the proceeds from which we use to repay the amounts outstanding under our revolving credit facility. In September 2015, we expanded our $300 million unsecured revolving credit facility to $400 million. The amended facility, which includes an expanded accordion feature that allows the size of the facility to be increased up to $800 million, matures in September 2019 and includes a one-year extension option subject to certain conditions and the payment of a 0.15% extension fee. The amended facility bears interest at a rate selected by us equal to either (1) one-month LIBOR plus a leverage-based credit spread ranging from 1.35% to 2.15%, or (2) the Base Rate, as defined in the credit agreement, plus a leverage-based credit spread ranging from 0.35% to 1.15% and also includes a fee of either 0.15% or 0.25% assessed on the average unused portion of the facility, depending upon the amount of borrowings outstanding. Availability under the facility is limited to 50% of the value of our eligible unencumbered assets at any point in time. At September 30, 2015, we had $192 million of borrowings outstanding on this credit facility and we had a pool of unencumbered assets aggregating approximately $1.36 billion, substantially all of which is eligible as collateral under the credit facility.  Covenants under this facility include: maximum leverage of 65%, minimum EBITDA to fixed charges ratio of 1.5 to 1, minimum net worth of $1 billion plus 75% of new net equity proceeds, and a maximum dividend payout ratio limited to 95% of Funds from

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Operations, all as defined in the credit agreement. The facility is recourse to us and includes a guaranty from STORE Capital Acquisitions, LLC, one of our direct wholly‑owned subsidiaries. We remain in compliance with these covenants.

As of September 30, 2015, essentially all of our long‑term debt was fixed‑rate debt, or was effectively converted to a fixed‑rate for the term of the debt. Substantially all of our long‑term debt issued to date is through our own debt conduit, STORE Master Funding, which we began to use in 2012. As summarized below, just over half of our real estate investment portfolio serves as collateral for outstanding borrowings under this debt program. Through this debt program, we arrange for bankruptcy remote, special purpose entity subsidiaries to issue multiple series of investment‑grade asset‑backed net‑lease mortgage notes, or ABS notes, from time to time as additional collateral is added to the collateral pool. The ABS notes are generally issued to institutional investors through the asset‑backed securities market. These ABS notes are issued in two classes, Class A and Class B. The Class A notes, which represent approximately 70% of the appraised value of the underlying real estate collateral, are currently rated A+ by Standard & Poor’s Ratings Services. The Class A notes generally require monthly payments of principal and interest with balloon payments due at their respective maturity dates, either seven or 10 years from the date of issuance. We have historically retained the Class B notes, which are subordinated to the Class A notes as to principal repayment. The Class B notes, currently rated BBB by Standard & Poor’s Rating Services, aggregate $108.0 million in principal amount outstanding at September 30, 2015 and are held by one of our bankruptcy remote, special purpose entity subsidiaries. The Class B notes are not reflected in our financial statements because they eliminate in consolidation. Since these Class B notes are issued and outstanding, they provide us with additional financial flexibility in that we may sell them to a third party in the future or use them as collateral for short‑term borrowings as we have done from time to time in the past.

The ABS notes outstanding at September 30, 2015 totaled $1.4 billion in Class A principal amount supported by a collateral pool valued at $2.0 billion representing 795 property locations operated by 177 customers.  The amount of debt that can be issued in any new series is determined by the structure of the transaction and the amount of collateral that has been added to the pool. In addition, the issuance of each new series of notes is subject to the satisfaction of several conditions, including that there is no event of default on the existing note series and that the issuance will not result in an event of default on, or the credit rating downgrade of, the existing note series.

A significant portion of our cash flows is generated by the special purpose entities comprising our STORE Master Funding debt program. For the nine months ended September 30, 2015, excess cash flow, after payment of debt service and servicing and trustee expenses, totaled $53 million on cash collections of $117 million, which represents an overall ratio of cash collections to debt service of greater than 1.80 to 1 on the STORE Master Funding program. If at any time the debt service coverage ratio (as defined in the STORE Master Funding program documents) generated by the collateral pool is less than 1.3 to 1, excess cash flow from the STORE Master Funding entities will be deposited into a reserve account to be used for payments to be made on the net‑lease mortgage notes, to the extent there is a shortfall. We anticipate that the debt service coverage ratio for the STORE Master Funding program will remain well above program minimums.

To complement STORE Master Funding, we also obtain debt in discrete transactions through other bankruptcy remote, special purpose entity subsidiaries, which debt is solely secured by specific real estate assets and is generally non‑recourse to us (subject to certain customary limited exceptions). These discrete borrowings are generally in the form of traditional mortgage notes payable, with principal and interest payments due monthly and balloon payments due at their respective maturity dates, which typically range from seven to 10 years from the date of issuance. We generally obtain discrete secured borrowings from institutional commercial mortgage lenders, who subsequently securitize (that is, sell) the loans within the commercial mortgage‑backed securities, or CMBS, market. We have also occasionally used similar types of financing from insurance companies and commercial banks. Our secured borrowings contain various covenants customarily found in mortgage notes, including a limitation on the issuing entity’s ability to incur additional indebtedness on the underlying real estate. Certain of the notes also require the posting of cash reserves with the lender or trustee if specified coverage ratios are not maintained by the special purpose entity or the tenant. In addition, as noted earlier, we have recently received an investment-grade credit rating of BBB- from Fitch Ratings, providing us with the ability to also issue senior unsecured long-term debt, which we expect to do for the first time as early as the fourth quarter of 2015.

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As of September 30, 2015, the long‑term, non‑recourse debt of our consolidated special purpose entities had an aggregate outstanding principal balance of approximately $1.6 billion, a weighted average maturity of 6.9 years and a weighted average interest rate of 4.70%.  The following is a summary of the outstanding balance of our borrowings as well as a summary of the portion of our real estate investment portfolio that is either pledged as collateral for these borrowings or is unencumbered as of September 30, 2015:

			Gross Investment Amount
			Special Purpose
	Outstanding		Entity		All Other
(In millions)	Borrowings		Subsidiaries		Subsidiaries		Total
STORE Master Funding net-lease mortgage notes payable	$	1,439	$	2,038	$	—	$	2,038
Other mortgage notes payable		197		328		—		328
Total long-term debt		1,636		2,366		—		2,366
Unsecured credit facility		192		—		—		—
Unencumbered real estate assets		—		935		421		1,356
	$	1,828	$	3,301	$	421	$	3,722

Our decision to use STORE Master Funding, other non‑recourse traditional mortgage loan borrowings or senior unsecured term debt depends on borrowing costs, debt terms, debt flexibility and the tenant and industry diversification levels of the real estate pool. As we continue to acquire real estate, we expect to balance the overall degree of leverage on our portfolio by growing a pool of portfolio assets that are unencumbered. A growing pool of unencumbered assets will increase our financial flexibility by providing us with assets that could support senior unsecured financing or that could serve as substitute collateral for existing debt. Should market factors, which are beyond our control, adversely impact our access to these debt sources at economically feasible rates, our ability to grow through additional real estate acquisitions will be limited to any undistributed amounts available from our operations and any additional equity capital raises.

On June 9, 2015, we completed a follow-on stock offering in which the Company issued and sold 11,562,500 shares of our common stock and STORE Holding sold 9,712,500 shares from its holdings of the Company’s common stock at a price to the public of $20.25 per share.  We generated approximately $225 million of net proceeds from this offering which were used to pay down $100 million of borrowings outstanding under our credit facility and the remainder was used to fund real estate acquisition transactions.    

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As shown in the table below, net cash provided by operating activities rose primarily due to the increase in the size of our real estate investment portfolio. Our real estate investing activities have grown in volume as we continue to make headway into our target market by identifying and acquiring real estate, primarily through sale‑leaseback transactions. Real estate investment activity in the first nine months of 2015 was primarily funded with a combination of cash on hand from our November 2014 IPO, cash from operations, proceeds from the April 2015 issuance of notes under our STORE Master Funding debt program, proceeds from our follow-on common stock offering in June 2015 and borrowings on our credit facility.  During the nine months ended September 30, 2014, real estate investment activity was funded with cash from operations and proceeds from the issuance of STORE Master Funding notes, as well as with proceeds from the issuance of common stock in our private stock offerings and borrowings on our revolving credit facility. Dividends paid during the nine months ended September 30, 2015 totaled $73.7 million, including dividends paid in January of 2015 totaling $13.1 million and representing a pro-rated dividend for the period from the closing of the IPO through December 31, 2014. Dividends paid during the nine months ended September 30, 2014 totaled $55.9 million. Cash and cash equivalents totaled $29.0 million and $136.3 million at September 30, 2015 and December 31, 2014, respectively.

	Nine Months Ended
	September 30,
(In thousands)	2015		2014
Net cash provided by operating activities	$	130,585	$	73,407
Net cash used in investing activities		(922,725)		(783,714)
Net cash provided by financing activities		684,796		692,891
Net decrease in cash and cash equivalents		(107,344)		(17,416)
Cash and cash equivalents, beginning of period		136,313		61,814
Cash and cash equivalents, end of period	$	28,969	$	44,398

Management believes that the cash generated by our operations, our current borrowing capacity on our expanded revolving credit facility and our access to long‑term debt capital, will be sufficient to fund our operations for the foreseeable future and allow us to acquire the real estate for which we currently have made commitments. In order to continue to grow our real estate portfolio in the future beyond the excess cash generated by our operations and our ability to borrow, we intend to raise additional equity capital through the sale of our common stock.

Real Estate Portfolio Information

As of September 30, 2015, our total investment in real estate and loans approximated $3.7 billion, representing investments in 1,246 property locations, substantially all of which are profit centers for our customers.  These investments generate cash flows from more than 400 contracts predominantly structured as net leases, mortgage loans and combinations of leases and mortgage loans, or hybrid leases.  As of September 30, 2015, only two of our single‑tenant properties were vacant and not subject to leases. The weighted average non‑cancellable remaining term of our leases was approximately 15 years.

Our real estate portfolio is highly diversified.  As of September 30, 2015, our 1,246 property locations were operated by 288 customers across 46 states.  None of our customers represented more than 3% of our portfolio at September 30, 2015, and our top ten largest customers represented less than 18% of annualized base rent and interest.  Our customers operate their businesses across 274 brand names or business concepts in more than 80 industries.  Our top five concepts as of September 30, 2015 were Ashley Furniture HomeStore, Gander Mountain, Applebee’s, Popeyes Louisiana Kitchen and Starplex Cinemas; combined, these concepts represented 13% of annualized base rent and interest.  Our top five industries as of September 30, 2015 are restaurants, health clubs, movie theaters, early childhood education centers and furniture stores.  Combined, these industries represented 52% of annualized base rent and interest. 

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The following tables summarize the diversification of our real estate portfolio based on the percentage of base rent and interest, annualized based on rates in effect on September 30, 2015, for all of our leases, loans and direct financing receivables in place as of that date.

Diversification by Customer

As of September 30, 2015, our 1,246 property locations were operated by 288 customers and the following table identifies our ten largest customers:

	% of
	Annualized
	Base Rent		Number
	and		of
Customer	Interest		Properties
Gander Mountain Company	2.92	%	13
SMH Theatres, Inc. (1)  (Starplex/Showplex)	2.32		10
RMH Franchise Holdings, Inc.  (Applebee's)	2.10		33
O'Charley's LLC	1.83		30
Sailormen, Inc.  (Popeyes Louisiana Kitchen)	1.47		41
FreedomRoads, LLC  (Camping World)	1.44		8
Rainbow Early Education Holding, LLC	1.41		36
Bellisio Foods, Inc.	1.36		2
Hill Country Holdings, LLC  (Ashley Furniture HomeStore)	1.14		6
Conn's, Inc.	1.14		7
All other (278 customers)	82.87		1,060
Total	100.00	%	1,246

(1) SMH Theatres, Inc. has announced that it has entered into an agreement to be acquired by AMC Entertainment Holdings, Inc., subject to regulatory approval and customary closing conditions.

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Diversification by Concept

As of September 30, 2015, our customers operated their businesses across 274 concepts and the following table identifies the top ten concepts:

	% of
	Annualized
	Base Rent		Number
	and		of
Customer Business Concept	Interest		Properties
Ashley Furniture HomeStore	3.28	%	19
Gander Mountain	2.92		13
Applebee's	2.61		42
Popeyes Louisiana Kitchen	1.95		57
Starplex Cinemas	1.92		8
O'Charley's	1.83		30
FreedomRoads/Camping World	1.44		8
Rainbow Child Care Center	1.41		36
Captain D's	1.38		65
KFC	1.37		49
All other (264 concepts)	79.89		919
Total	100.00	%	1,246

Diversification by Industry

As of September 30, 2015, our customers’ business concepts were diversified across more than 80 industries within the service, retail and industrial sectors of the U.S. economy.  The following table summarizes those industries:

	% of
	Annualized			Building
	Base Rent		Number	Square
	and		of	Footage
Customer Industry	Interest		Properties	(in thousands)
Service:
Restaurants—full service	16.76	%	287	2,071
Restaurants—limited service	9.66		328	940
Health clubs	7.17		48	1,574
Movie theaters	7.04		33	1,296
Early childhood education centers	6.82		129	1,342
Colleges and professional schools	2.53		6	466
Automotive repair and maintenance facilities	1.76		42	168
Family entertainment centers	1.55		6	336
All other service (34 industries)	19.67		181	5,706
Total service:	72.96		1,060	13,899
Retail:
Furniture stores	4.55		26	1,574
Sporting goods stores	3.41		16	1,050
All other retail (11 industries)	6.63		59	2,542
Total retail:	14.59		101	5,166
Industrial:
All industrial (26 industries)	12.45		85	8,893
Total	100.00	%	1,246	27,958

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Diversification by Geography

Our portfolio is also highly diversified by geography, as our 1,246 property locations can be found in 46 of the 50 states (excluding Alaska, Delaware, Hawaii and Rhode Island).  The following table details the top ten geographical locations of the properties as of September 30, 2015:

	% of
	Annualized
	Base Rent
	and		Number of
State	Interest		Properties
Texas	12.31	%	96
Illinois	7.51		88
Georgia	5.93		89
Ohio	5.69		71
Tennessee	5.64		78
Florida	4.58		66
California	4.42		21
Arizona	4.28		45
North Carolina	3.86		83
Pennsylvania	3.85		32
All other (36 states) (1)	41.93		577
Total	100.00	%	1,246

(1) Includes one property in Ontario, Canada which represents less than 0.2% of annualized base rent and interest.

Contract Expirations

The following table sets forth the schedule of our lease, loan and direct financing receivable expirations as of September 30, 2015:

	% of
	Annualized
	Base Rent
	and		Number of
Year of Lease Expiration or Loan Maturity (1)	Interest		Properties (2)
Remainder of 2015	—	%	—
2016	—		—
2017	0.33		4
2018	0.40		3
2019	0.90		9
2020	0.67		4
2021	1.18		7
2022	0.33		5
2023	2.84		38
2024	1.85		21
Thereafter	91.50		1,153
Total	100.00	%	1,244

(1) Expiration year of contracts in place as of September 30, 2015 and excludes any tenant option renewal periods.

(2) Excludes two properties which were vacant and not subject to a lease as of September 30, 2015.

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Recently Issued Accounting Pronouncements

See Note 2 to the September 30, 2015 unaudited condensed consolidated financial statements.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires our management to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the time, our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our condensed consolidated financial statements. From time to time, we reevaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have not made any material changes to these policies during the periods covered by this quarterly report.

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Results of Operations

Overview

As of September 30, 2015, our real estate investment portfolio had grown to $3.7 billion. Approximately 95% of the real estate investment portfolio represents commercial real estate properties subject to long‑term leases, 5% represents mortgage loans and direct financing receivables primarily on commercial real estate buildings (located on land we own and lease to our customers) and a nominal amount represents loans receivable secured by our tenants’ other assets. Of our 1,246 property locations, only two properties were vacant and not subject to a lease as of September 30, 2015.

Three and Nine months Ended September 30, 2015 Compared to Three and Nine months Ended September 30, 2014

	Three Months Ended						Nine Months Ended
	September 30,				Increase		September 30,				Increase
(In thousands)	2015		2014		(Decrease)		2015		2014		(Decrease)
Total revenues	$	74,791	$	50,928	$	23,863	$	205,150	$	135,279	$	69,871
Expenses:
Interest		21,391		19,081		2,310		59,257		50,123		9,134
Transaction costs		137		460		(323)		1,003		2,018		(1,015)
Property costs		471		256		215		1,122		401		721
General and administrative		7,138		4,960		2,178		20,983		14,026		6,957
Depreciation and amortization		23,271		15,480		7,791		63,731		40,190		23,541
Provision for impairment of real estate		—		—		—		1,000		—		1,000
Total expenses		52,408		40,237		12,171		147,096		106,758		40,338
Income from continuing operations before income taxes		22,383		10,691		11,692		58,054		28,521		29,533
Income tax expense		72		69		3		238		171		67
Income from continuing operations		22,311		10,622		11,689		57,816		28,350		29,466
Income from discontinued operations		—		19		(19)		—		1,115		(1,115)
Income before gain on dispositions of real estate		22,311		10,641		11,670		57,816		29,465		28,351
Gain on dispositions of real estate		687		114		573		1,882		1,251		631
Net income	$	22,998	$	10,755	$	12,243	$	59,698	$	30,716	$	28,982

Revenues

The increase in revenues period over period is driven primarily by the growth in the size of our real estate investment portfolio, which generated additional rental revenues and interest income. The weighted average real estate investment amounts outstanding during the three-month periods were $3.57 billion in 2015 and $2.41 billion in the comparable period of 2014.  During the nine-month periods, the weighted average real estate investment amounts outstanding were $3.26 billion in 2015 and $2.11 billion in 2014. Our real estate investment portfolio grew from $1.7 billion in gross investment amount representing 622 properties at the beginning of 2014 to $3.7 billion in gross investment amount representing 1,246 properties at September 30, 2015. Our real estate investments were made throughout the periods presented and were not all outstanding for the entire periods presented; accordingly, the vast majority of the increase in revenues between periods is primarily related to recognizing revenue in 2015 for acquisitions that were made during the latter part of 2014 and early 2015. Similarly, the full revenue impact of acquisitions made during the first nine months of 2015 will not be seen until 2016. 

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The initial rental or capitalization rates we receive on sale‑leaseback transactions, calculated as the initial annualized base rent divided by the purchase price of the properties, vary from transaction to transaction based on many factors, such as the terms of the lease, the property type including the property’s real estate fundamentals and the market rents in the area on the various types of properties we target across the United States. The majority of our transactions are sale‑leaseback transactions where we acquire the property and simultaneously negotiate a lease directly with the tenant based on their business needs. There are also online commercial real estate auction marketplaces for real estate transactions; properties acquired through these online marketplaces are often subject to existing leases and offered by third‑party sellers. In general, because we provide tailored customer lease solutions in sale-leaseback transactions, our lease rates historically have been higher and subject to less short-term market influences than what we have seen in the auction marketplace as a whole. In addition, since our real estate leases represent an alternative for our customers to other forms of corporate capitalization, lease rates can also be influenced by changes in interest rates and overall capital availability. During 2015, we have experienced a small decrease in the weighted average lease rate achieved as compared to the same period in 2014 and our expectations for the future do include the possibility that we may continue to see some compression in lease rates similar to our more recent experience.  The weighted average initial real estate capitalization rate on the properties we acquired during the three months ended September 30, 2015 and 2014 was approximately 7.8% and 8.2%, respectively, and was approximately 8.1% and 8.4%, respectively, during the nine months ended September 30, 2015 and 2014.

Interest Expense

The increases in interest expense, as summarized in the table below, are due primarily to an increase in long‑term borrowings used to partially fund the acquisition of properties for our growing real estate investment portfolio. We funded the growth in our real estate investment portfolio with added equity and long‑term fixed-rate debt, using our credit facilities to temporarily finance the properties we acquired.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2015			2014			2015			2014
Interest expense— credit facilities (includes non-use fees)	$	480		$	755		$	1,326		$	2,274
Interest expense—non-recourse debt obligations of consolidated special purpose entities		19,297			15,798			53,684			42,509
Capitalized interest		(178)			(347)			(596)			(347)
Amortization of deferred financing costs and other		1,792			2,875			4,843			5,687
Total interest expense	$	21,391		$	19,081		$	59,257		$	50,123
Credit facilities:
Average debt outstanding	$	61,674		$	67,239		$	51,418		$	68,503
Average interest rate (includes non-use fees)		3.1	%		4.5	%		3.4	%		4.4	%
Non-recourse debt obligations of consolidated special purpose entities:
Average debt outstanding	$	1,637,692		$	1,289,733		$	1,501,276		$	1,155,440
Average interest rate		4.7	%		4.9	%		4.8	%		4.9	%

The average amount of long-term debt outstanding was $1.64 billion during the three months ended September 30, 2015, up from $1.29 billion during the same period in 2014 and, for the nine months ended September 30, 2015, the average amount of long-term debt outstanding was $1.50 billion up from $1.16 billion for the same period in 2014.  The increase in debt outstanding is the primary driver for the increase in interest expense on long-term debt for the periods presented.  Long-term debt added after September 30, 2014 included the April 2015 series of STORE Master Funding net‑lease mortgage notes payable aggregating $365 million in principal amount and $21.1 million of traditional mortgage debt added in July 2015 when we refinanced maturing secured debt.

The average debt outstanding on our credit facilities decreased from $67.2 million during the three months ended September 30, 2014 to $61.7 million during the same period in 2015, primarily due to cash proceeds from the follow-on common stock offering in June 2015. The average debt outstanding on our credit facilities decreased from

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$68.5 million during the nine months ended September 30, 2014 to $51.4 million during the same period in 2015 primarily due to the availability of net equity proceeds from our IPO that we used to make real estate investments during the first quarter of 2015.  From time to time, we may have construction activities on one or more of our real estate properties; interest capitalized as a part of those activities represented $0.2 million and $0.6 million during the three and nine months ended September 30, 2015, respectively, and $0.3 million during both the three and nine months ended September 30, 2014. 

Interest expense was also impacted by lower weighted average interest rates on both our long-term debt and our credit facilities in 2015, as compared to 2014.  For example, we were able to achieve a lower weighted average borrowing cost of 4.1% on the April 2015 issuance of STORE Master Funding notes as compared to the 4.6% weighted average rate of our STORE Master Funding notes issued in May of 2014.  In addition, interest expense in 2014 includes a $1.2 million charge to accelerate the amortization of deferred financing costs associated with our two previous secured credit facilities which were replaced with our unsecured credit facility in September 2014.

Transaction Costs

Our real estate acquisitions have been predominantly sale‑leaseback transactions in which acquisition and closing costs were capitalized as part of the investment in the property. We also occasionally acquire properties subject to an existing lease. Costs incurred on real estate transactions where we acquired properties that are subject to an existing lease were expensed to operations as incurred. Transaction costs expensed during the three and nine months ended September 30, 2015 totaled $0.1 million and $1.0 million, respectively, as compared to $0.5 million and $2.0 million, respectively, incurred during the same periods in 2014. Whether the real estate we acquire is subject to an existing lease or not determines how we account for the related transaction costs and, accordingly, may cause variability in the level of such costs expensed to operations from year to year.

Property Costs

Approximately 97% of our leases are triple-net, meaning that our tenants are generally responsible for the property-level operating costs such as taxes, insurance and maintenance. Accordingly, we generally do not expect to incur property-level operating costs or capital expenditures, except during any period where one or more of our properties is no longer under lease. Our need to expend capital on our properties is further reduced due to the fact that some of our tenants will periodically refresh the property at their own expense to meet their business needs or in connection with franchisor requirements.  As of September 30, 2015, only two of our properties were vacant and not subject to a lease and we have no scheduled lease maturities during the remainder of 2015; we expect to incur some property costs related to the vacant properties until such time as those properties are either leased or sold. 

General and Administrative Expenses

General and administrative expenses include compensation and benefits; professional fees such as portfolio servicing, legal and accounting fees; and general office expenses such as insurance, office rent and travel costs. General and administrative costs totaled $7.1 million and $21.0 million for the three and nine months ended September 30, 2015, respectively, as compared to $5.0 million and $14.0 million, respectively, for the same periods in 2014 with the increase being primarily due to the growth of our portfolio and related staff additions, and to the increased costs of being a public company since our initial public offering in November 2014. Expenses, such as property‑related insurance costs and the costs of servicing the properties and loans comprising our real estate portfolio, increase in direct proportion to the increase in the size of the portfolio. Personnel were added to expand our portfolio management and servicing team and other operations support functions, which contributed to the increase in compensation and employee benefits expense. Our number of employees grew from 48 employees at September 30, 2014 to 58 employees as of September 30, 2015.  A portion of the increase in general and administrative expenses was due to costs related to being a public company, including the costs of public company governance and reporting and meeting other regulatory requirements. We expect that general and administrative expenses will continue to rise in some measure as our real estate investment portfolio grows; however, we expect that such expenses as a percentage of the portfolio will decrease over time due to efficiencies and economies of scale.

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Depreciation and Amortization Expense

Depreciation and amortization expense, which increases in proportion to the increase in the size of our real estate portfolio, rose from $15.5 million and $40.2 million for the three and nine months ended September 30, 2014, respectively, to $23.3 million and $63.7 million, respectively, for the comparable periods in 2015.

Net Income

For the three months ended September 30, 2015, our net income rose to $23.0 million from the $10.8 million in net income reported for the comparable period in 2014. Our net income rose to $59.7 million for the nine months ended September 30, 2015 from the $30.7 million in net income reported for the same period 2014. The increase in net income is primarily due to the growth in the size of our real estate investment portfolio, which generated additional rental revenues and interest income.  Net income for the nine months ended September 30, 2015, includes the impact of a $1.0 million provision for impairment of one property recognized in the first quarter based on the likelihood that the property would be sold in the near term; this property was sold in the third quarter. 

We sell properties from time to time in order to enhance the diversity and quality of our real estate portfolio.  For the nine months ended September 30, 2015, net income includes a $1.9 million gain from the sale of seven properties; three of these properties were sold in the third quarter of 2015 and represented a gain of $0.7 million.  Similarly, during the nine months ended September 30, 2014, net income includes a $2.2 million gain on the sale of eight properties; two of these eight properties were sold in the third quarter of 2014 and represented a gain of $0.1 million.

Non‑GAAP Measures

Our reported results are presented in accordance with GAAP. We also disclose Funds from Operations, or FFO, and Adjusted Funds from Operations, or AFFO, both of which are non‑GAAP measures. We believe these two non‑GAAP financial measures are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs. FFO and AFFO do not represent cash generated from operating activities and are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income as a performance measure or cash flows from operations as reported on our statement of cash flows as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures.

We compute FFO in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as GAAP net income, excluding gains (or losses) from extraordinary items and sales of depreciable property, real estate impairment losses and depreciation and amortization expense from real estate assets, including the pro rata share of such adjustments of unconsolidated subsidiaries. To derive AFFO, we modify the NAREIT computation of FFO to include other adjustments to GAAP net income related to non‑cash revenues and expenses such as straight‑line rents, amortization of deferred financing costs and stock‑based compensation. In addition, in deriving AFFO, we exclude transaction costs associated with acquiring real estate subject to existing leases.

FFO is used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers primarily because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. Management believes that AFFO provides more useful information to investors and analysts because it modifies FFO to exclude additional non-cash revenues and expenses such as straight‑line rents, amortization of deferred financing costs and stock‑based compensation as such items may cause short-term fluctuations in net income but have no impact on operating cash flows or long-term operating performance. Additionally, in deriving AFFO, we exclude transaction costs associated with acquiring real estate subject to existing leases. We view transaction costs to be a part of our investment in the real estate we acquire, similar to the treatment of acquisition and closing costs on our sale-leaseback transactions, which are capitalized as a part of the investment in the asset. We believe that transaction costs are not an ongoing cost of the portfolio in place at the end of each reporting period and, for these reasons, we add back the portion expensed when

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computing AFFO.  As a result, we believe AFFO to be a more meaningful measurement of ongoing performance that allows for greater performance comparability.  Therefore, we disclose both FFO and AFFO and reconcile them to the most appropriate GAAP performance metric, which is net income.  STORE Capital’s FFO and AFFO may not be comparable to similarly titled measures employed by other companies.

The following is a reconciliation of net income (which we believe is the most comparable GAAP measure) to FFO and AFFO.

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2015		2014		2015		2014
Net income	$	22,998	$	10,755	$	59,698	$	30,716
Depreciation and amortization of real estate assets		23,181		15,403		63,474		39,968
Provision for impairment of real estate		—		—		1,000		—
Gain on dispositions of real estate		(687)		(114)		(1,882)		(2,220)
Funds from Operations		45,492		26,044		122,290		68,464
Adjustments:
Straight-line rental revenue, net		(414)		(694)		(1,513)		(2,196)
Transaction costs		137		460		1,003		2,018
Non-cash equity-based compensation		1,290		557		3,450		1,697
Non-cash interest expense		1,792		2,875		4,843		5,687
Amortization of lease-related intangibles and costs		292		30		847		479
Adjusted Funds from Operations	$	48,589	$	29,272	$	130,920	$	76,149

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Our interest rate risk management objective is to limit the impact of future interest rate changes on our earnings and cash flows. We seek to match the cash inflows from our long‑term leases with the expected cash outflows on our long‑term debt. To achieve this objective, our consolidated subsidiaries primarily borrow on a fixed‑rate basis for longer‑term debt issuances. At September 30, 2015, substantially all of our outstanding long‑term debt carried a fixed interest rate and the weighted average debt maturity was approximately seven years. We are exposed to interest rate risk between the time we enter into a sale‑leaseback transaction and the time we finance the related real estate with long‑term fixed‑rate debt. In addition, when that long‑term debt matures, we may have to refinance the real estate at a higher interest rate. Market interest rates are sensitive to many factors that are beyond our control.

We address interest rate risk by employing the following strategies to help insulate us from any adverse impact of rising interest rates:

· We seek to minimize the time period between acquisition of our real estate and the ultimate financing of that real estate with long‑term fixed‑rate debt.

· By using serial issuances of long-term debt, we intend to ladder out our debt maturities to avoid a significant amount of debt maturing during any single period.

· We choose long‑term debt that generally provides for some amortization of the principal balance over the term of the debt, which serves to reduce the amount of refinancing risk at debt maturity to the extent that we can refinance the reduced debt balance over a revised long-term amortization schedule. 

· We strive to grow our free cash flow such that, over time, our cash flow from operating activities, after principal payments on our debt, plus cash flows from property sales and principal collected on our loans receivable, each year exceeds that year’s scheduled debt maturities.

See our Annual Report on Form 10-K for the year ended December 31, 2014 under the heading “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for a more complete discussion of our interest rate sensitive assets and liabilities.  As of September 30, 2015, our market risk has not changed materially from the amounts reported in our Annual Report on Form 10-K for the year ended December 31, 2014.

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Item 4.  Controls and Procedures.

Disclosure Controls and Procedures

The disclosure controls and procedures of the Company are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. As a result, our disclosure controls and procedures are designed to provide reasonable assurance that such disclosure controls and procedures will meet their objectives.

As of September 30, 2015, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures of the Company as defined in Rule 13a-15(e) under the Exchange Act.  Based on this evaluation, the Chief Executive Officer and Chief Financial Officer of the Company concluded that the Company’s design and operation of these disclosure controls and procedures are effective at the reasonable assurance level described above.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third fiscal quarter to which this report relates that materially affected, or are reasonably likely to materially affect, the internal control over financial reporting of the Company.

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PART II – OTHER INFORMATION

Item 1.  Legal Proceedings.

From time to time, we become party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business and the business of our tenants.   Since our organization in May 2011, we have not been a party, as plaintiff or defendant, to any legal proceedings that we believe to be material or which, individually or in the aggregate, would be expected to have a material effect on our business, financial condition or results of operations if determined adversely to us.

Item 1A.  Risk Factors.

There have been no material changes to the risk factors as disclosed in the section entitled “Risk Factors” beginning on page 11 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and filed with the Securities and Exchange Commission.  Please review the Risk Factors set forth in the Form 10-K.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

During the three months ended September 30, 2015, the Company did not repurchase any of its equity securities, nor did it sell any equity securities that were not registered under the Securities Act of 1933, as amended.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

None.

Item 5.  Other Information.

None.

Item 6.  Exhibits

The exhibits filed or furnished with this Report are set forth in the Exhibit Index.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	STORE CAPITAL CORPORATION
	(Registrant)
Date:  November 13, 2015	By:	/s/ Catherine Long
		Catherine Long
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	Description
10.1	First Amendment to the Fourth Amended and Restated Property Management and Servicing Agreement effective as of July 10, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2015, filed with the SEC on August 14, 2015 (Commission File No. 001-36739)).
10.2	Credit Agreement dated as of September 19, 2014, by and among STORE Capital Corporation, as Borrower, KeyBank National Association, the other Lenders which are parties thereto and other Lenders that may become parties thereto, KeyBank National Association, as Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, BMO Harris Bank, N.A. and Regions Bank, as Co-Documentation Agents, and KeyBanc Capital Markets Inc. and Wells Fargo Securities, LLC as Joint Lead Arrangers and Joint Book Runners (incorporated by reference to Exhibit 10.21 to Amendment No. 1 to the Company’s Registration Statement on Form S-11 dated and filed with the SEC as of September 23, 2014 (File No. 333-198486)).
10.3	First Amendment to Credit Agreement and other Loan Documents, dated as of September 22, 2015(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 22, 2015 and filed with the SEC on September 25, 2015 (Commission File No. 001-36739)).
31.1	Rule 13a-14(a) Certification of the Chief Executive Officer.
31.2	Rule 13a-14(a) Certification of the Chief Financial Officer.
32.1	Section 1350 Certification of the Chief Executive Officer.
32.2	Section 1350 Certification of the Chief Financial Officer.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Definition Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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