Why Buffett likes this REIT

By Charles SizemoreMarketsCovestor

Up-and-coming triple-net retail REIT STORE Capital (STOR) got a major boost when the company announced that Warren Buffett’s Berkshire Hathaway (BRK.B) had recently purchased nearly 10% of the company.

Prior to the announcement, STORE had been having a rough year. Amazon’s (AMZN) assault on traditional brick-and-mortar retail has been unrelenting, and investors have responded by dumping high-quality, triple-net retail REITs like STORE.

Continue Reading Below

Hey, I get it. As we saw with Spirit Realty Capital (SRC),  a struggling retail tenant can cause major headaches for a landlord, and investors worry that this is only the tip of the iceberg.

Service Focus

But as is typical, they’ve overreacted and thrown out the baby with the bathwater in my opinion.

To start, about two thirds of STORE’s portfolio is invested in properties that cater to services, including everything from movie theaters to preschools.

The remaining third is split roughly evenly between retail properties and light industrial properties.

Amazon-Proof

Unless Jeff Bezos can find a way to deliver your children via aerial drone to Amazon-operated preschools, STORE would seem pretty close to Amazon-proof in my view.

It’s also worth noting that STORE’s insiders have been steady buyers of the stock.

While I would never buy a stock purely because its insiders were buying, I definitely see this as a major positive.

Challenges

In my opinion, the people running the company are generally going to have a better grasp of its competitive challenges than passive investors reacting to news headlines. 

At any rate, it will be interesting to see if Mr. Buffett’s purchase causes a wide-scale reevaluation of triple-net retail REITs or if this was simply a one-off event that will quickly fade.

But while we’re waiting for the market to handicap all of this, investors in STORE will continue collecting the 5.6% dividend.

Photo Credit: DonkeyHotey via Flickr Creative Commons

The post Why Buffett likes this REIT appeared first on Smarter InvestingCovestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures.