STOR - Earnings call transcript Q3 2019

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Operator

Welcome to STORE Capital’s Q3 2019 Earnings Webcast. [Operator Instructions] Please note, today’s event is being recorded. I would now like to turn the call over to Lisa Mueller. Please go ahead, ma’am.

Lisa Mueller

Thank you, operator and thank you all for joining us today to discuss STORE Capital’s third quarter 2019 financial results. our information and for issued which investor we supplemental include today’s morning, earnings quarterly release presentation, This call. Quarterly under These Investor documents and ir.storecapital.com Relations the Results, News section of are our website available Results. in at I am President Executive Chief Officer; of Officer Financial Operating Chris Officer. Mary Chief Cathy and Fedewa, Chief STORE; and today here with Volk, Long,

to In portion On if an during keeping the call up questions. we will today’s call, open be while will management we the the follow-up call. participation will your hour, provide can order questions. observing prepared our limit queue maximize then reenter have call remarks of and then two-question Participants to for you a the Q&A

statements I we laws. would securities like begin, include today’s Before forward-looking the under you federal remind that to comments will

identified as as that expected phrases. about and XXXX intend, statements will, comparable or XXXX statements. for such by Statements acquisitions, are anticipate per or Forward-looking AFFO such also and facts be, statements other forward-looking historical words and expect, believe, AFFO our share words guidance dispositions our are not are

and materially of statements contained Our that condition reports our of and in cause SEC XX-K factors XX-Q. from to forward-looking statements. results by forward-looking financial operations Discussion the materially may could results filings, including our those from actual these contemplated differ vary such our are on Form

to like to over call would Chris please the I turn go Chris, that, ahead. now With Volk.

Chris Volk

Chief everyone Lisa Officer Fedewa, and Operating Earnings Capital’s morning our to Officer. Mary our and With Financial Cathy Quarter much, are Call. good Long, and Thanks today so XXXX welcome Third me STORE Chief

our address third to but on of you, our the meeting through market to we needs almost activity success for. and continue that the that the $XXX happy with will with we’re numbers in front, more the existing million maintain investment the ongoing while the be investment very in detail adhering penetrating we of run we’re active customers. large the Mary diversity known granularity while with On focus quarter, during

divested profitably market. $XXX estate transactions estate, we approximately in included During acquisitions which our exchange billion have real XXXX approximately invested $X.X million real $XXX of million sold have in Year-to-date, and the also investments. quarter, first well over in we the

investment reflect estate of investments based divest consistently that extremely ability and upon to methodology. rate real shareholders. Our of accretive quality and our property At off rated remains sales contracts the our in time, to our in in the and same invest healthy, about our grade net are ways STORE portfolio XX% Score an with XX.X% occupancy assets lease

You a will highly third to the hear X.X% more of With payout months investment shareholders our AFFO the protected year, us for on AFFO with per enables year. adjusted growth about healthy same our We dividend raised first X and ratio reported our by even the and of last provide serving increase from nonetheless operations, share our dividend. dividend conservative quarter portfolio funds sales X.X% approximated from of our improve about to the and Mary. from quarter, our so, dividend our payout ratio property activity XX% health during

Importantly, with retain X% with that rent AFFO the of to ratio, the activity majority cash same-store fund increases We per our such tenant our of we’ve drive maintaining a nearly investment low pair a meaningful on been expected annual contractual reinvestment able growth. historical portion dividend to flow. share to focus payout our of

profile a was which, third conservative for conclusion below issuances past guidance that will illustrate, growth new As accretively our external with funded through have the funded at for enabled leverage internal is have X to maintain Cathy consistently program. us range quarter, our of X.Xx. at-the-market efficient issuances the Such at equity also years, which, this share been combine we growth successfully the

public facility. activity Our newly credit from XXXX note issued of our retained first through was equity, limited ATM asset revolving quarter use and from flows, term proceeds combination our sales, a funded cash investment unsecured operating proceeds issuance of the

well quarter, the at third our gross conclusion remains unencumbered the about assets of stood At of positioned. sheet pool or XX% investments. of $X.X Balance our billion

our wide lowest has particular enviable profiles consistency, REIT that we financing leverage with equity asset our unencumbered Given unsecured options. amongst note, performance we of of. flexibility STORE know and the noteholders, debt a across array Of have

to some statistics Now third as do each activity. quarter, I relative investment quarter our that are here are

Our and escalation quarter average of quarter under the last was made just were get XX%, of below quarter. corporate costs after With contractual with which will rate return area leverage the in we weighted net average Add return of the investments during lease gross for lease annual our where in rate X.X%, the XX% a is returns you operating XX%, the slightly X.X% of investor in during approximate range. levered X.X%.

cost been investor from having predecessor and spreads are of lease our four rates which property return. variables essential to the annual to cost of level why mostly outperforming compute as investment borrowings which investment our driven of from and a assets, enable that expected the to of long-term rates percentage by contractual operating investment is escalators, we you have yields, take a Our returns favorable public companies return, time STORE disclose

Score with rating or The at potent BaaX. median favorable for credit tenant contract quarter was quarter unit XX median lease of approximately during primary incorporates more coverages at the RiskCalc X.X:X. level during made BaX. was our charge median contract It assets fixed-charge be purchased The fixed Moody’s investments for level ratio the far years. rating to the coverage long investment investments post The and weighted new continues term new STORE average overhead new

replacement for critical our fact to XX% ability of master reporting level required new the seniority Our with contract the estate was well made as level evaluate all the as investment access that leases, to the lease multiunit quality financial capital. to properties and investments our approximately our This within unit we are of during to XX XX% XX% financial unit to statements, net is assets cost, real new and to quarter average of quarter that during us acquired were subject made deliver providing portfolio. are us

With I to Mary. turn that, call will over the

Mary Fedewa

Chris estate almost bringing good million morning you, had at year-to-date strong acquisitions a weighted with nearly our acquisitions X.X%, billion. real everyone. in We cap $XXX of quarter a Thank $X.X third and average to rate

net STORE third in new our and transaction of vacancies the than the XXX rated a lease remained and lease. more and only based Our an investments of separate Score customers, this quarter relationships added our strong assets. methodology. our locations size further closed portfolio not vacant portfolio our of XX contracts net on are three-fourth the subject Approximately to with customer at more quarter were granular million. diversifying transactions partnerships our spread active across of $XX.X XX Delinquencies We due X,XXX low property average end X lease than quarter, At quality continued and management. to investment-grade tenant were of

selling on opportunistic we properties take call, XXXX half we of second our the to anticipated our As in more mentioned portfolio. balance of gains last to and advantage

over million. million, resulting that acquisition properties, original sold which cost approximately Of properties, cost, our in third activities XX% sales sales $XX the ongoing over quarter, were the original were $XXX over in cost, costs. resulted remaining and sales opportunistic of cost an an we and were from resulted X% recovery net over strategic gain XX net XX generating management a During property gain XX property XX gains a original and had of XX% the in

experiential remained third our XX% with the Now, highlights, quarter in the turning presence, end the in of substantial properties remaining sector our at XX% in to mix manufacturing. retail our consistent the service-driven and portfolio portfolio XX% a of online performance with and service

annual X% more single Our customer our portfolio with remained revenues. of diversified highly no representing than

customer, Group, rents represented our of Fleet largest single Farm Our X.X% just interest. and annualized

XX% from annualized XX from top And quarter. the customers the XX of quarter, realized Our rents interest. end were top was unchanged at the and last of revenue

As we for quarter, value. to while for value highly in enter our remains robust, and our getting the investments us creating customers that selective our acquisition be allowing quite pipeline fourth paid

new a unique of across opportunities identify continues diversified industries variety origination that Our portfolio. team reinforce will direct attractive our to

Before up Forum, annual Inside our here I turn to XX January over that call the fourth mention coming XX conference, Track Cathy, the January I Scottsdale. to want on in is to customer

Jon food and long-time to our We speaker that thrilled the a keynote industry announce of host Popular and be consultant. Taffer, will are beverage Bar Rescue Show TV

help addition have and our event, inside In a will we year’s get customers another markets XXXX. for Mr. to Taffer, stellar of this the economist, for lineup track including who several experts capital industry-leading speakers futurist an

turn results. our discuss to call And I’ll now to Cathy the financial

Cathy Long

review will guidance our and the capital Thank performance begin third XXXX. discussing and balance introduce you, by I Mary. our our update XXXX by quarter updated financial an our activity markets on then for sheet guidance for of I XXXX followed for will

the $XX million. quarter The income revenues rent million at portfolio third our $XXX $XXX.X quarter increased third third in compared annualized XX% XX% statement, place our expenses to from to million were increased generated September base quarter $XXX in and by year-ago interest XX Total million. for with of the Beginning quarter the the as to XXXX.

higher a and to million portfolio. amortization of was real over due related to expense third our increase depreciation the larger Just $XX estate

$X.X fund increased debt addition, pipeline of primarily to our $XX.X to to by due growing expense million long-term used In additional interest million, acquisitions.

portfolio year ago, $XX.X were staff associated continued reflecting the additions. and million G&A of million, expenses the $XX.X third growth quarter our for from a up

As million require Property lease standards lease and assets ground average up, annualized new was a year XX from assets accounting assets, items average with basis basis expenses, ago. compensation, Half in such portfolio G&A quarter, basis, on costs. basis property a present by to about taxes rental as the percentage lease year-over-year. points as basis costs and due points property to average points behalf of taxes. tenants on gross equity to gross decreased XX excluding excluding both the portfolio $X.X last accounting from XX year impounded to revenue property increase primarily that slight the of non-cash our this amount of totaled of of portfolio that us make On increased related impact the property cost a a payments our an of

and quarter, we were the termination dispositions on near sell income of to to million million properties lease future, properties. we provision. or fee to these are Both items termination realized serves $X.X related the of the recorded recovery in augment our $X.X fee of and the impairment During income sold likely that a

AFFO, lease from operations. these termination AFFO fee from While the we’ve impairments core also part chosen are consider to our don’t income be as we to of exclude excluded FFO and fees

we gain on quarter, which basis, resulted As properties XX $XX.X book Mary a sale. sold in the a on noted, in million third

As we of half higher that and in the expected property occurred be mentioned on to much sales we XXXX, last quarter’s in activity second call, of September.

per was Chris increase, already time, out manage that exchange proceeds while quarter our mentioned part but ago. the AFFO have Of increased per transaction. dividend payout see some same and to monitor increase On XXXX QX at in assets. basis, likely the share to a properties the point $X.XX sales maintaining million IPO $XX.X smaller per ratio tax-deferred a just a replacement share in from a per actively AFFO dividend diluted a activity portfolio, our these and, acquire share, dividend X.X% of $XXX.X leverage. a since I’ll and low as we to from ago. by well XX XX year used we $X.XX XXXX we share our continue so XX% a sold, diluted year We in third may million increased We sales amount. XX% reducing were from the our

Now from balance flow our program. we acquisition and turning of from cash quarter strong our with to equity sheet, funded from proceeds proceeds credit and ATM property our capital volume markets the sales, under activity availability combination operations, of another facility

million. under an of issued X share, proceeds per million. at we’ve average $XX.XX of raising third price proceeds per $XX.XX approximately share, of average of an of common stock issued the stock shares During price of quarter, million at Year-to-date, shares $XXX approximately over raising over $XXX common XX net net we ATM the million

for program acquisitions. our granular ATM the us of effective raise to size very a remains capital, Our way given

long-term at well rate The laddered. fixed weighted our all the long-term end consistent maturities Substantially, debt borrowings and of our at third X.X%. average are interest quarter debt rate the are our year-over-year remained on

and no is annual $XXX maturities. we meaningful median maturity near-term Our have million, debt debt

more any next rate flow, which in our cash plus coming quarter operations run real cash sales, flexibility. We target one giving our range low expect us for from the At unencumbered, on or a basis net at debt-to-EBITDA will from end, of free represents gross September debt dividends net year approximately considerable that maturities several less leverage basis. proceeds was of cover at XX, our end years. estate our portfolio at X.Xx our at property XX% than ratio debt-to-cost around least due the a was on XX% And financing

our As large access fourth pipeline the into debt and we equity investment have to leverage we head remains and of options quarter, to fund attractive variety of conservative, opportunities. our a

under addition the has our have which to capacity million facility, of our million $XXX In also ATM, an full we accordion $XXX credit feature.

provide update strong I are for investment quarter, an guidance third then we XXXX. Due to Now XXXX. the updating our will for guidance introduce XXXX our on guidance our activity our and in for

also sensitive, dispositions only but the timing to $X.XX per property in range to capital $X.XX range of activities. the in AFFO period not up share is We’re of markets AFFO $X.XX. and per the acquisitions, now to projecting previous share amount the $X.XX, of from any

In the quarter, current end share results per impact period. weighted which is the addition, of real in estate to towards in often little acquisition AFFO volume the

AFFO equates to share amortization, losses per for Our share, expected share guidance real on to or $X.XX items share and anticipated per rents, straight-line of per property depreciation costs. deferred compensation such to per sales, related income equity $X.XX $X.XX $X.XX financing and gains estate plus XXXX plus as net excluding of

the Based property we remainder will per billion, in $X.XX of real for of for on volume $X.X expect XXXX, guidance turn currently $X.XX. XXXX. the is our acquisition of plus the estimated share current for which range initial AFFO I for projections XXXX estate of projected Finally, net sales to to our acquisitions

based run X.Xx rate on new a of is and cap debt-to- a guidance of acquisitions leverage to ratio net AFFO weighted Our on the average rate X.X% EBITDA. target range Xx in

to amortization, financing net plus or of compensation per AFFO straight cost guidance sales Our excluding approximately to deferred per losses real gains on $X.XX estate per share per equates expected $X.XX to $X.XX as equity share property items such share, to share and of amortization. $X.XX for income, rents, XXXX $X.XX related anticipated plus line and depreciation

now And back the Chris. I to will turn call

Chris Volk

Thank Cathy. much, you so

disclosure a the turning for to the presentation. Before over I the to quarterly want added in to some of questions, moment highlight operator call our take investor

governance elected we for tab often insert on corporate which are the quarter, as ESG, to environmental, This referred marketplace social initiatives, a our in responsibility and to investor matters.

so corporate page is corporate to that. a our added the effort With of front tab naturally I to simply employees, our we we a responsibility is suppliers responsibility presentation, communities always corporate a the should customers, our around the which impacts slides that creditors, corporate many limited governance, responsibility back, and prior country those And corporate stakeholders the we’ve Sometime point and the shareholders, of were prefer Candidly, that continuation to notion of which impact. of shareholders. website regard include to corporate ideally discussion many benefit something our our excelled essential which our all successes this stakeholders. of ESG because is

characterized disclosed results the metric un-levered in the the model today is highly highest compound return we and market peers rates borrowings. business of emphasized which investment a by be which ISS The in of note is outset between in resulted leadership and our able creation economic we’ve rates highest our in teams. that of has value-added their and a effort growth, of STORE consistent disciplined been our to I value-added appendix, been growth cost of gross performance and spread corporate evaluation this leader by a of would those also has the from return that amongst

commitment new shareholders, to In we included slides to have illustrate stakeholders. of other responsibility addition behalf our work corporate our hard to our on

We durations included comparative information extensive this on quarter. lease more also

years. originated of relative comparative the This past direct also emphasis. portfolio next master the illustrate stability new the reset consistently a the On youth the term, maturities our we primary lowest Page over our which newly comparative few eight XX X of terms we owes our from use which seasoned in longest with quarters, to the of more presentation, the companies, upon the newly on often among leaders corporate lease consistently of and of terms leases, originated been market-leading lease a origination to realizing lease results investments, has near-term our from lease volatility and there company STORE The primary ever importance maturity amongst over to defensive be STORE low make maintaining leadership investment amongst insulate levels profile of a lease recession. properties. is should more to addition itself

XX, slide profiles. Page included diversity on Finally, we that tenant direct lease comparative a illustrates and originations,

market we net highly our the our list and that the slides the to We illustrates within business some place portfolios to that of have STORE XX diversified important investment enabled of a and lease Slide deliver in have most position high-performing this differentiations and have that number amongst unique illustrate sector. adds model industry.

comments, the to those questions. with I And call over will turn operator the for

Operator

Yes, thank you.

begin We the Crossett [Operator question-and-answer comes first Berenberg. question the with Instructions] will Nate now from And session.

Nate Crossett

Hey, you guys. are How doing?

Cathy Long

How Nate. are you? Hey,

Nate Crossett

give the can in? in trends any new areas was of us the of on in were new or what strategic. disposition It the were they color industries? What some some that then you terms X said industries? sounded were And the Maybe tenants Good. like there you on X side, the customers were quarter,

there is any appreciated? help So

Mary Fedewa

Yes, hey, Nate, it’s Mary.

a customers net X were number. the actually So it – actually was

So, added like of plethora was just customers we classes, actually new and XX asset always do. we a that across

and the is strategic or you rebalancing portfolio manufacturing In terms a were down that see the in the result yes, dispositions, portion that. do to came will of from big I the probably XX.X portfolio biggest in of we them primarily did on X.X think

Nate Crossett

Okay.

did it in? was or be just an want tenant specific that a to it you was So area

Mary Fedewa

plethora a tenants. again, of Yes,

Nate Crossett

can remind if the us amount, in put as you people you the slide you you people, this Okay. have I those direct guys just Maybe how continue do departments, how you that ramp sales space? looks as in can the looks to scale? anyone you on and how you that many on most underwriting of one curious because that just in just am that origination

Chris Volk

XX.

Mary Fedewa

Okay.

XX have each underwriting. about those actually and on So we end front the in departments, sales

Nate Crossett

Or And what to there guys be enough any year? I’m want to next outlook next then is just – you need adds? for do have for you a the year, are

Chris Volk

some there expect will be We adds.

Mary Fedewa

Yes.

Chris Volk

huge the looking not we billion. They to will be you It’s $X.X look is number net be the year, if margin. a going this not at Actually, are do to Nate, – number.

So are and we’ll beat this mean, different guidance, us, would to beat year. a last activity if from your if year, the But the we guidance. sales I we do acquisition keeping the see to for yourself, lot whole given target year isn’t can we that total it’s had that like you can math up we’ve this it. but

depending So in, on last year, This year. for the $X.X the well a we in same code. that the where little year, in acquisitions did we could be sales of over come billion whole very zip come kind

guidance is you if The difference. number initial this up of which $X.X gross net, a maybe for like number, number is year. our were – basically maybe billion gross that the number net X% a year, sales, that’s from X% at just Next the looking

of doing in acquisition a are we quantum looking investment not terms or activity. So at leap

going credit people. you are new new so or to a not people quantum leap in see sales terms of us do hiring And

Nate Crossett

guys. into queue. Okay, Thanks, will back get thanks. I

Chris Volk

Thank you.

Operator

from question And comes with you. next Thank Sachs. Caitlin Burrows the Goldman

Caitlin Burrows

I grade to your your exposure downturn. portfolio non-investment good of Because the risk concerned in think a of some are morning. sometimes Hi, investors tenants, case your in about

of response? time there other that some know that go your wondering talked about answer perceived long probably the you just of I long earnings this was a I type is aspects could strategy maybe call So, Thanks. mitigate we but important have a through some if risk.

Chris Volk

no worries. Yes,

recession in our But if or be economic which grade a are there So Catlin, not tenants. downturn. an bias, the they tenants. with you might you leading true somehow loaded with with investment-grade investment in massive of are I more is That industries suggest if that are to cognitive that will a fact, don’t loaded start investment-grade vulnerable were have you tenants, event

handful to else’s in other So you’re out investment-grade grade would fitness up companies, early seem of I are in clinics. investment during the are investment-grade There the looking put no grade our of of they there investing recession. that centers clubs. clubs, a just are recession. investment restaurant any fact at And companies boat. restaurant portfolio if business profit companies. are no put the tells that ahead going a fitness be time in anybody There a fact, no you veterinarian portfolio to we childhood never There with but we’re education

doing So just cost centers. we are not the

new or We’re of our and because from that then about just terms most the doing a a the like recession, our that slide the and deck finally, to walk be we industry. enhancements away term, might recession profit look have. might credit we’ve enhancements the have are centers. leases there’s additional master away if at able leases And our in important far lease And And added in you in lease the leases. longest that’s people then

on next have when we common reasons re-characterize leases Over actually master new so And none. one for the many is leases it’s term to we master add have since virtually the properties. us keep of leases, very because years, we we long these X

mean lease grade And you added is so added lease kind keep all extend I jobs out FYI, we’ve which companies. by in the then the companies. our there not and who They the of added mean at portfolio. look And all last terms, why jobs, middle-market great were investment if those recession consistent by term I finally, say able just we were been large to

I ease. So puts that at hope you

Caitlin Burrows

volumes has that been thinking regarding impact the strong through acquisition on if any, activity? year. funding price you maybe has, could STORE Got it. pretty and this of And what then Can comment, you go if this share team’s

Chris Volk

interesting. it’s Yes,

Street real notion lot whole so multiple marketplace, net estate. somehow when So to is asking the a get space when multiple this and year, that people the the multiple of has expansion the expansion buy expansion, you people is lease get gotten

$XXX will net that about activity acquisition quarter, this note You was our million.

we fact, clear to of way important mitigating the in So adding beginning out we risk. of or cash, very the we which internal real selling and at game and an would our ourselves for estate we the recycling to plan stuck the that were also that is growth set be year,

about biggest here company, being are growing not acquisition the fastest all not the perspective. an We from

We highest are about investment add of mean offer share and you’re return sort the per share growth, create to the AFFO from I to that trying you risk-adjusted of creating the different opportunities two And added. could per the multiples that basically market mean almost the rates accretion and actually anything highest growth The totally things. value most are risk-adjusted add best economic high AFFO rates most could of doesn’t and an they fog mirror perspective, value-added, return. generating tell buy you, you a that

our I just for we are want market accretive. So created just STORE going mean knitting accretive, had and because most for right XXXX, our the of investments are has to and and chase most through stakeholders had and wealth make hugely multiples our to in that just this value to just not it benefit bandwidth we added. continued before. they the We we stuck were middle investors in deals create the

Caitlin Burrows

Got you. Thank it.

Operator

Mailman Capital Thank question you. comes And Markets. KeyBanc the Craig with from next

Craig Mailman

of to are quarter up next your and would trying guys just of trend and maybe you the of little as where maybe think bit should curious, where I about just into maybe Hey, keep back that to am heading lower that of year. in we movement? the are kind equity raising cost you a fourth kind guys lower a here capital of end is anticipate and your buying type incremental at guys. leverage we again you guys little the are of range we or range, versus cycle, you expect kind Cathy, the into bit middle versus you where curious target mentioned

Cathy Long

our Hi, target the Craig, it’s comfortable feel at range. end Yes, at are very moment. We lower of with range the Cathy. we our

is of advantage debt. take issue us a see know, issue the to all of good ATM nice equity as you’ll the is during being great, And use market So opportunities year. debt. This make you too. market said, we That to our

are the don’t So will range. at feel we mindful I think it range. that the leverage we current keeping of comfortable take lower, within We our though.

where are, comfortable. we very, that we are think I very

Chris Volk

the our And Craig, mean, this think is XX% of is at leverage quarter today, opposed... I Chris. as end I the

Cathy Long

XX%. Yes,

Chris Volk

cost this basis which and on probably are if way a at trying so about you is to basis cost looking pretty – go XX%, a it. good are you companies, is compare to

we even financing. to It’s the range So we about if been on have is leverage just secured Not of and close A+ well. leverage, just of sort basis. AAA And insane at are a as ridiculously XX% only cost you we in think XX% our XX%. XX% number. to a low I mean, it’s XX%. And get single

backside. financing as AAA XX% leverage a have to We

XX% this, a at quarter, about levered the are unencumbered mean are I end assets, whopping of our our of which think this So assets XX%.

which because with would returns, the So doesn’t then us our shareholders guidance our them secured something drop is XX% I assets, lower or to leverage our leverage our if ask shouldn’t help it like and is our think same, keeping we guidance XX% you unencumbered which are to down important. on really XX%

Craig Mailman

just blended you sequentially. you consistent Are That of bit makes guys had sense. compression came guys Then the quarter XXXX. you kind down with for to It’s cap seeing are where be viewing in a what specific conservative? a or are function of guys back coming just parts little trying XX-year are putting it you guys you deal capital and rate guys this the a more is of bit out in

Chris Volk

at close out for rate cap but XX-year around cap an was guidance the of I treasury roughly, said our like expecting am this at would abundance year not this at time. The we of did cap XXX. our probably ago compression, a a around XXX. year time, are We X% be that seeing we we’ll year. rate today, around And rate somewhere

likely number. of the we’re So fall short to XXX

this saw you quarter, XXX. at As we’re

like trend is So on there’s slight what’s this. happening a

cap the on that’s side. rate Now

senior do same debt be we the borrowing this we’d year in probably million XXX. XXX. the Today, were if side, of with to On the a debt, we at cost that issued quarter first $XXX sub

in So basis come rates our cap points. have X

Our in at come XXX cost of points. basis debts

basically points better. is And XXX way, does spread our So matter. basis the by the numerator

We’re business. spread just in not the

rates away is and rates And the low. it we an deal X to X a all matters financing, correlation in at pay treasury the as that whether a those all money. or cover. XX% And number doing a say were. that we see top fact our as to I or and of gets of are mind they with of people to adds those levels using But, that cap, the cap line that between are rates loose investors so function cap XXX that spreads So than are higher the at public secured done from spreads. affects juicier to all returns, because, attention leverage we assets a you as price nonetheless, X for it’s If companies debt really keep are people can obviously, really and year, than are do would are. that well lot need marketplace cap XX-year which we borrow the next There

lower leverage XX% on So cost higher right, basis they respects, in way companies. than than transaction in a with have capital them fact, which, helps much public of more some

we treasury to get see cycle, The to start thing will falls, the compressed equal, question. assets, cost finance rates the going to those is of where rates concerned you are other tend going be nervous are in getting or get stop XX-year people the since focusing if to that if that debt cap fall able is space. being and on are the banks which all to they be throughout So the things about the LIBOR

recession, concerned the they’re they then elevate about So may spreads.

So in give take see have then If are that nicest years is the going on we hopefully. our think spread of to some had have and doable for next a this. year. the spreads hold, number We one we XXX we’ll history,

Craig Mailman

you. thank Okay,

Operator

you. next Morgan Thank comes Stanley. question with the Malhotra from Vikram And

Kevin Egan

for Hi, on everyone. Vikram. is This Kevin

question quick a Just here.

as higher a there it it percentage rent change, if X% was look the I just was of GAAP little a and rent question went first the understand over a but GAAP terms I quarter. an for third obviously the thought of be up take The in would expenses, it accounting so estate XXXX, that we noticed real than was bit around at of I

is forward, of really would you to as of about a going to determine? a and or run-rate kind of GAAP real see X% it hard of fluctuate to that expect is looking rents of Just kind estate kind expenses percentage

Cathy Long

It’s Cathy.

range. I of we as of look have it it as had portfolio a basis basis of our X our of XX – as itself kind as we assets assets. a percentage as percentage mean of does assets low points high So, quarters points at the and and as

but not X as low not as are we XX, high year, either. as projecting next projecting So we as projecting are

way if think you model. easier think So assets, it I as of of that a probably it’s for to percentage you

Chris Volk

year. is of of a – accounting it accounting it other the thing relating some to The this lot lease is driven

Cathy Long

half of it. Right, about

Chris Volk

reimbursable. was it half About of

they because reimbursables. looking were comparable you are out compared year, have to back if at you So last the to that, of not really it

Kevin Egan

of really some then doing disclose terms kind and of just portfolio is, credit but of helpful. at just looking to of additional And and looking one, I kind Got some guess us you opportunistic, tenant was any understand am in portfolio? what give the just assets of makes idea I was it of that if relative scores I just the can were of you. looking you one strategic, just it. of where STORE are also into, those the managing kind some disposed pruning median or sense? at Thank am just at the Very I And the

Mary Fedewa

Kevin. is Mary, Yes, this

our across. is strategy as know, you So disposition

sales, probably would have opportunistic is portfolio we then and some correct the in so you sales some make strategic that that better, strategic to area I we And particular, property management. assume hold say looking case. we that are are always You the the in can

done looking isn’t On we buy are business, may who are that stronger a opportunistic the but maybe like a have the as someone times, we bit upgrade portfolio, with yes This definitely calling inquiry, side, – the little doing credit different customer. the and this a a repeat – are to customer. to we would reverse be haven’t we’re – going to on mission, opportunistic a we in lot looking same side, we won’t business property, It’s but make we of portfolio. someone is that a at

Kevin Egan

lot. a Thanks Great. Very helpful.

Operator

Deutsche comes Thank Sood next with Shivani from question you. And the Bank.

Shivani Sood

might tenant Hi, good you and can morning. be Apologies on on more just the exposure was Cathy, but if I some us remaining color missed this highlighted, earlier, what the there? that who lease termination give the you

Chris Volk

to you So Volk. the plane. higher Cathy And think will this I all that. can can answer a But We I want question. I take – to answer Chris is

to were range So, fees this about individual They to three in the nonperforming It’s assets quarter lease to amounted to that tenants. of are and sold. related termination be million, $X $X million. related the

the properties from the a because we of include a really AFFO, not trying were are part thought common perspective, did sales they termination of of practice, into fees is lease can assets. looking principal liquidate to reasons were associated that. and we be lease termination with One mean we that our fees which at I

of you so buying. picture, sold at points so $XXX.X for And going million, XX actually, cost. here, which we on rate cap than to at big less million basis you $XX.X that a at is year, I’m worth sold cap was take look about if we off the thought number gain was cost. – assets thought about gain some And that just that our important the last food on more a is were the XX.X% The we rate which give though,

strategy notions accounting property I’m of an to the loss at when when impairments. really And gain doing does that. finance we were this to fortunate impairing be selling way, $X I’m $XX.X And were point million not are million, $XXX.X not but impairments been basis it XX able quarter. convention, The ignore that is I’m we’ve sold cost include assets. fees, just Year-to-date, cost. in Loss about over It’s a convention. a to going timing Like buying the there was there termination that this, gain. the but new do all by we’ve be the issues. lease accretion a So for million part the next which quarter,

giving encompasses the sort accounting. just is the all of I’m you raw which what So financing,

So we had XXX.X cost at assets.

or cost probably gain. not X.X% original was – and thought But either cost back AFFO, have We even which to $X though lot And fees gains million, gets the proper it. not do thinking a that over $XX.X in we we people are lease are chose add million that is our X.X% if for the losses was gain add not in of gain. acceptable. us you that we been to it a we about in and do think Our way disposition because – in it AFFO then fee, adding that to would termination just and a you

Shivani Sood

get Appreciate to to tenant I color trying if was and just is on there more actual that. exposure the tenant? more the

Chris Volk

done. a The tenants. answer to no. There no exposure the is is They are

So three there are individual assets.

Shivani Sood

just service component numerator a exposure if a And Okay, I like traffic it as given sub-sector we looks the we full of an to or was can on out down impact. of wasn’t give where sort seeing but then are you and pipeline, softer great. space ticked It how you had sure about are restaurant come the update us of just a cycle? in that the thinking that are denominator – the

Mary Fedewa

a talked Chris They us. what class. lot They earlier, a And gets It well-heeled for we done, this. the of quarter. we a grow. This lot and about restaurants most denominator and away are them. are actually Mary. correct. probably So is this XX% get of have People Again, mentioned gets of activity. it’s pipeline asset too, a part, But you like effect, combo down done yes, from as is

sort of bidding got a of you restaurants. on So people lot

spots. our pick we So

our are We to are having for we that vision own on. able to the get paid contracts, our units, of so stick be good and going to profitable risk creating taking

don’t we we space we in oftentimes, see look to our So much We a like I And a but we say play any don’t spots take and restaurant the pick win. don’t result, the as and space. would get concerns.

Shivani Sood

Mary. Thanks,

Mary Fedewa

Welcome.

Operator

And next the Thank Haendel comes from you. St. question

Juste with Mizuho.

Haendel St. Juste

of level quarter, the guess bit incrementally of the on plans much I Hi, rate the about budgeted any or a sold? can on the maybe in it include sales bulk many cap your portfolio or assets what you and dispositions Do they was talk how versus was opportunistic? sort

Cathy Long

the the would guidance the Hi, year, Haendel. we were year. gave I will start. anticipating When we that for in first earlier sales occur

generated so that able sales the in we so more outperforming mix in we that. of fortunate will to we the AFFO by bulk that comment the Mary were on and being of for quarter quarter, that let expected keep portfolio where be then September, the was I are and things the so happened And the activity like to

Mary Fedewa

Yes.

sales I as will in to coming the mentioned So XX.X manufacturing what you see result portfolio Haendel, earlier, third biggest the our were from quarter XX.X. of down

wrapped of than lease to So about rate are we some bit basis just still It’s sell XX, on more it in you’ll side a XX but lower mentioned lot rebalancing are strategic cap Chris acquiring see at. assets at A of was that portfolio. rebalancing. what able was earlier, opportunistic certainly the a little there. the that as we point And

some disposition So rate. for I cap will give you feel

Chris Volk

the really on small we far are do varies. stuff, are but portfolio at as comment these we don’t as then do, how tend sometimes – acquisitions. And to individual I groups, it we whether we mean

Haendel St. Juste

Got I I you and it. of use on that channel see Fair channel, bit using a channel? of maybe how outline some the may the then enough. And maybe use that of you benefits the XXXX curious much going of am guess forward

Chris Volk

get issue assets, some this. on assets more company give the of that specific and as declines at is basis selling we’re But a level, tax seasoned So, over we Cathy the a you as high time. numbers will

of a purposes basis. your ratio fundamental – And be. the what funds so or And payout the needs for sort your of the operations pinnings from dividend cost for underlying on exceeds gain your gain gains are those to tax AFFO

taxable out income, So the pay not dictated we income. GAAP are dividends by that

you And the have so do to are you income, do go to minimize the same that able be doesn’t income. that through tools issue taxable where there REITs It the wholesale XXXX exchanges, can of most one taxable you ways one UPREITs. is of be the to able doesn’t to of of it, kind – does say it big basically let’s the give out

assets those have all tax lower So their basis but REIT. start we they have lower tax some but just basis we our the tax not case, on to you will hyper some And underlying In gains. to incredibly of on low, to don’t, basis, we low much – defer over decide as to them can doing just as the as time we XXXX long be infinitely defer keep assets exchanges. pretty essentially assets you XXXX able

Cathy Long

is Haendel, And Cathy. this

million the used already was about to there transaction. this So And through where have deferred that the proceeds able it gain replaced and the properties $XX for was assets. be we gain tax we deferred were XX properties, replacement

So and and will that’s be watching will forward it we we move forward. done going

Haendel St. Juste

curious there unchanged, thinking ST feeling Art just about about other could And one Thanks. curious top X be is you that talk how your here, to last exposure still Van Van, like tenant bit a looks you of the – a are Art looks exposure? today. Thanks. wanting of about of or maybe lot you to sell, a one on X a about about like so people seem revenue Great. It X% top market, how

Mary Fedewa

this Mary. Hey, is

Lee. on. They They So and other as furniture H. have Thomas I well. they bought – companies strategy you will are Art is you working tell integration an that have also – know by Van they as sponsored acquisition

integration. So they And sometimes and take are as that some through can integrations working you know, difficult time. be

from perspective, they being are to committed that and So with have working through partner that. them we a

are would with I that’s where we So say it.

Chris Volk

doing. about are feel good We what they

are Just Vans you Art not of our Vans. all know, Art

Art but Levin. and in name, actually Wolf So it includes Vans

to some geographic diversify it we We had the Vans sure diversified footprint. Art did we on, early that and of and off. So, sold make

Haendel St. Juste

it. it, Got got

you. thank Okay,

Operator

And Thank question comes Rob with the Stevenson next Janney. you. from

Rob Stevenson

to that In much year plus increase of much growth was close taxable thought of over how was required about guys of how or morning you you you XXX% payout Chris, how Good were strong the and words, board the decision? run-rate the about did last guys. when the increase? earnings afternoon versus other making X% their discretionary earnings dividend can how talk because

Cathy Long

Hi, this is actually. Cathy,

income. taxable thinking Gains is So, there. all and right. gains taxable and dividends we much are the property that payout hard And have about the you on the gains, sale do predict. of to to are you consider of issue of payout Part do course create income of when pretty our

to help? able So, your you one year. have to increase we dividends XXXX to to in use gains Does tools transactions a looking is of the because so happen be the taxable that – the you those defer having to lot not that do at of gains are gains

Rob Stevenson

mean much gains, to increase do other I maintain et with guess, discretionary was, to I Yes. the was need thing the X% cetera? going of what do were how standpoint, and needed to XXX% – versus from you you your the whatever payout

Chris Volk

you’re REIT could just to what order off haven’t close Board been to asking really because dividends I’m increase to of going issue because this. taxable meet status. at really here discussed the meeting be say little wasn’t that our to the having – but I thinking in bit we way a I’m –

lawful – that the gains is issue from move payout on So we have talking want sale. room we Cathy is to issue lower if that we the the our ratio. The could about

all. no been gains So AFFO more you we issues core of on and if you’re core looking There at fine. sales FFO have have sort from been or have activity, operations would at would

been that, to a have and avail sale, which market. So picture make if yourself we done raise dividend less, want we dividend. XXXX But much we you is raise on gains you altogether, different that to to – have included creates might could why able if not the then of the our wanted less how our

Rob Stevenson

of And out when just moves versus okay. a what’s it? your ratio you then, dark to it success been Sure, in or deciding days goes releasing these terms terms tenant Mary, property of in sell guys

Mary Fedewa

wrap. an recovery actually had we’ve Year-to-date, XX%

Chris Volk

Okay. equivalent And in sales... the

Mary Fedewa

to... leads That

Chris Volk

And have we’re would agnostic so I and whether lease you say which we be. on them, to sell would

calculate when and way it the everybody we we necessarily else don’t does. we if – calculate recoveries, So

may The that have we million, can what you’re and recovery million recovery. costs the not say is back let’s reinvesting. you by That defined it. for we So, example, a do $X $X XXX% proceeds get with property for it and be

focusing on growth AFFO really per share. We’re

we in recovery. XX% it’s have rent that’s million and $X replace a So if – the million it, $X get rent costs XX% in back XX% and reinvesting a and from we in, the it, rent, we have of property we we money we sell get $XXX,XXX with and recovery. then it If we coming reinvest

to So going which AFFO share, to it is from perspective, goal. maximize per the try that we’re whole the looking and we’re at

Operator

comes question from Ki the Kim with Bin And next SunTrust.

Ki Bin Kim

to go maybe and I’m to tenant to of to year this recovery about this or tenants? trying want leakage, time. earlier wanted how over the casual often get the ratios. just are to question, kind answer back I of not quality that leakage, rent but past sense the occur relief the over topics a X Just might sure you how years, you giving

Chris Volk

down we average on Well, the have an we losses basis. answer on – whole is that once a in year slide our we it book, a actually and put do

in Page we process. on XX, do presentation have annual includes you’re it for just annual Work so management. in on all you work you process about. the property also basis an of have basis. losses on that So the sort corporate of an don’t And leakage talking But in

everything. include So you to want

asset. that’s at good servicing, break it’s are we’re there get treating optimally just – because of that, than properties – if it. like how rent are vacancies. and we’re the special somebody vacant it’s treating a are. not less And consistent it’s same that. something many So way that reporting Net And paying net a way to giving just to lease tend no XX% or companies companies going What report lease there’s in And you’re included a loss. vacant as doing

sort do then for you. basically So what we average and year-to-year. we it on swing you, for from of calculate we It’s to going do annual is this an

the can meaningful. be sometimes swings And

get not year doesn’t we Now – to and at it a that’s avoid looking that’s one quarter of tried year, part people of the that does going if also the to to It’s have a bad of cycle. just business not cycle. a this mean business XX things business cycle. months Like is that you huge A in some sort on. trend secular because some equate there’s business

cycle. a from issue in nonperformance having business we’re what quarter So going to a a not is be portfolio

our reason is the to. cumulative nonperformance disclose we So

Cathy Long

Ever to date.

Chris Volk

date. to Ever

Cathy Long

once date, to ever a It’s year.

Chris Volk

out to have we’ve of instances, that And let’s paid I bankrupt people would nonperforming It’s XX-some to for, XX portfolio, us tenants went us. see. people never of for And that been, tenants say recoveries just – it’s including it’s instances, left the that over been collectively, there and these they’re years. had of like all XX-plus that there whole - on you the say, X

Ki Bin Kim

Page said Is what You looking that you’re at? XX.

Chris Volk

Yes, yes.

Ki Bin Kim

And... Okay.

Chris Volk

we in ticking XXXX – At those numbers, an than that happened so And mean doing we’re XX on this the end it you XX. it had QX, Page be see numbers we update previously. tick Page Oh, on for see it will of the that XXXX year, more you’ll and up. it’ll activity up, have if

know trend can next you’ll And So ask on that the it. about was then you call, quarter’s us higher. earnings

Ki Bin Kim

to ratio, Okay. how or age, at time, whichever and right? your as come that? from learned normal How overtime, XXXX lessons credit coverage look time, the A at, cohort is little you business. down to you metric in a over want X-wall look similar kind investments, how That’s investments there’s quality. ages the question. credit tendency over credit quality meaning that bit the quality When But the a obviously natural XXXX median cash that probably resilient cohort any age of quality just credit

Chris Volk

at And business the stuff. the everyday. mean alignment like And the do look this have thing conclusion, from important. we those and level are. if – is, lessons I and to issues, we’re management all the on And Credit is, things to we’re the those come to have that issues look two things, learn is, that leadership big team coverages. to really time. the try – people we you’re a at business in?" we we’re of they mean are that Bin, learn we at third good We I Ki the really unit is at And what One interest. stuff. second whenever moves model. the the looking at "Do – of the I’ve we focusing look course, of around try we looking like are looking think

changed. and a to companies individually, hovered lot at really has time capital profile credit then private equity and spent they other credit sell stack firms that then issues. up were So looking credits great of We their

the each at, years’ you’re looking onto an whole looks if basis, some you portfolio pool Slide gaps a of going going at little of which for you’re worth So, credit other, EDF be has to that will example, profile the are idea on X there of time, give sort of you out will histograms bit. where, Moody’s see score gapped XX, which how over a credit give to overlaid

better other in in we XXXX. XXXX words, So in pool we than as a were are

– driven our by question tenants. the are A What is, of them so then And would of lot cause "Why those issues?" growth

a of of year’s have don’t i.e., have a driven, growth we that less full we a year’s just but reflects full worth revenues. they’re than debt worth So revenues, stack

of it. a that’s So piece big

you of gone at the really haven’t changed STORE they’ve that pretty tenants some part that’s mean is flat. Score, have all. corporate if the recaps Another piece of our Scores But some look it. at of it I the of and STORE been through,

come that Scores. things be in we’re the years capital-adjusted to to the going of STORE to looking are going One be at

unsecured by the lot So, massive credit that grade tick probably credit that on a would effectively credit lot perspective, bottom up. better. for and of those equity-like under-secured performance from way perspective have the EDF way a notches us, of would or is X which up move tenants sort of And numbers the corporate I behind a our from example, borrowings just think make are amounts a which

more using We’ve So looking to of Tableau and you’ll looking become that been the and investing BI stuff, trend evident come. how of spend of in a see to a to and SAP systems, lot at time lot fruits start this we through this. years at the

Ki Bin Kim

Chris. Thanks Alright.

Chris Volk

Sure.

Operator

Thalmann. [Operator question John Instructions] from comes And the Ladenburg with next Massocca

John Massocca

afternoon. Good

given the a Just a you kind XXXX expect, little – volumes level in expect kind elevated? to more your guidance, XXXX, disposition XXXX, doing of question, remain more do should you’re you what versus XXXX in of do

Cathy Long

Yes, We is Cathy. do. this

John Massocca

ability x again management and portfolio XX, Okay. growth it’s fair the internal of just am I number to kind a is trended And prior where kind kind the Ki portfolio. on in if kind the of this presentation And un-levered that to entire you for of think then on of about SSNOI guys, kind Slide trying realize gains dispositions. years? – that the a history Is that were has of question, you then saying touching measurement of of growth result, XX of Bin’s the kind assumption? of number the as maybe backing a your a Page quickly, essentially Because maybe into an to

Chris Volk

lease if average you our So look at capped escalation number, X.X%, it’s X.X%.

happens of X.X%. be that X.X% take in But could is X.X% way, the on your the inflation it or X.X% by that’s about too, if and X.X%, also, in to gotten We in. the And rest below which, issues. every going that X.X% it lumpy, years. – have years would the and other dip – always create you happens, X mostly comes of XX% X of historically the when mind that But every year terms keep sometimes then not average, or basically it because it’s

office that And, are the in kind your you would Long-run of your you X.X. that’s the compare NOI. top basis losses internal take is XX at if be it if so of you fact points, X.X, how property all effectively you average in of you that and look do would then process, mean then add you you subtract So at losses which okay, management, with from which this to what from on REITs or growth work I looking then to were your else, X.X%, X.X%, more same-store you we’re gets anything X.X%, same-store, subtract reinvesting of it. trying course, is get AFFO same-store but

John Massocca

Okay.

comes to the the portfolio? So history of of is fairly in that today out entire comparable XX Slide X.X that kind

Chris Volk

seeing it don’t we’re beginning say we’re of less in comments it happens watch than But – in some list XXXX anything have I versus views would the in specific. We make year that’s where we a in about in not what we XXXX And is. And strange. seeing, obviously on was fact, the that’s XXXX of assets.

John Massocca

Okay, that’s you Thank very it for much. me.

Operator

Spenser Thank with you. Advisors. question the And next Green Allaway comes from Street

Spenser Allaway

Hi, thank you.

Chris, same-property annual going NOI provided number. realize provide kind discussion, and guys Just the show us average that credit you same-property a that NOI back I disclosure or realize I to the the of helps reflective into think would that of business realizes not but having on just the is true business transparency quarterly? said, disclosure But from you back annual and not investment why how average, obviously cycle, loss enhanced – enhanced the the the I community number and doing – it’s a quarter-to-quarter? benefit full

Chris Volk

question. consider I’ve gotten it. We’ve we Well, will that –

REIT way, the of by to – If walk. else do we’re give on Page the walk revenue space revenue wants think you the to everybody and to XX. sort only got it’s net a be lease cash I even in

it’s an revenue got So AFFO be to of walk. sort

which of in stuff stuff, non-cash the stuff. revenue is all a lot there out non-cash the back to got You’ve

ballpark that have, of the gross business don’t should of always Since it’s very you’re you my you’re I’m not try stuff on big and back a the so you what their construction. be. other if asset rents it non-cash and where you’re We your some asking store – our what is but stuff rents, number to up – in. volatility For looking the construction. getting the and in in hand, of that XX% undertaking revenue it includes we result in see accruing you’re from then of take why and capital. on doesn’t business or get chair example, But divide take the will fixed to for the side, back it on at saying, it pronounced the sitting the into going NOI, to we’re – is yield be going to because is, think the if this you’re quarter-to-quarter

Spenser Allaway

of just the the transparency It’s a think on I an enhanced the And Right. best said, construction the be laid I good, quarter-to-quarter. volatile, and industry I think out, quarter-to-quarter. practice think, just there’s just deferrals non-deferrals. it But leader for being lot from components I certainly comes disclosure obviously, you front. or that there’s that varies something obviously, in understand, business to

Chris Volk

you. thank Yes,

under We will take it advice.

Operator

the And Mings comes Thank the also with last and James. Mings – next with you. question Collin Collin from question Raymond

Collin Mings

Thank there everyone. you. morning Good out

Mary Fedewa

are How Collin. Hi you?

Collin Mings

disposition I front, wanted further But on rubber up comments to the I rebalancing Mary. already. into plastic your products just decrease of we’ve like just know in a there looks covered notable then follow there I ground in bucket the It the growth quarter-over-quarter was drill want discussion. manufacturing specifically, a lot to metal fabrication. on but quickly and

Just that refinements? – just want further in most I opportunity there together the pipeline, a the to potential for tying with about think for category sense the you broader that and get where better is how

Mary Fedewa

Yes.

We at great at starting sort it We types. portfolio. Okay, really We call and industry question. just of, really into, our like manufacturing look didn’t to we don’t look – overall that. just get it a

product. we’re for center, profit you a manufacturing that know, looking make assets As

bit from quarter quarter. to happen roofing a fab fences chain But spoke the anywhere from come or a to metal pet we this lot beds Again, a our finished for being manufacturing to so trend. in a link a metal good And goes up good, not to about to supplying high-rises. steel little making

it different the I tell. industry say of goes like disposition would And industries, So can was a that. specific lot as not across you

Collin Mings

Okay, thank you.

Mary Fedewa

Welcome.

Operator

And like comments. to closing time, Christopher any at the for would return I floor Volk this to

Chris Volk

operator. much, very Well, thank you

Just up here. to to Halloween everybody say, Happy

We’re going November XX. Los to and NAREIT Angeles on XX at in be

that, we to an us, not set appointment If you see up to already goodbye. seeing you and have look with forward then

Operator

The you. presentation. you for now has concluded. today’s conference Thank attending Thank

You now lines. disconnect your may

Store Capital (STOR) 1 Nov 192019 Q3 Earnings call transcript