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This content is a press release from our partner Business Wire. The AP newsroom and editorial departments were not involved in its creation.

STORE Capital Announces Fourth Quarter and Full Year 2018 Operating Results

February 21, 2019

SCOTTSDALE, Ariz.--(BUSINESS WIRE)--Feb 21, 2019--STORE Capital Corporation (NYSE: STOR, “STORE Capital” or the “Company”), an internally managed net-lease real estate investment trust (REIT) that invests in S ingle T enant O perational R eal E state, today announced operating results for the fourth quarter and full year ended December 31, 2018.

Highlights

For the quarter ended December 31, 2018:

For the year ended December 31, 2018:

Management Commentary

“STORE posted new records in all key performance metrics in 2018, including real estate investment activity, AFFO and AFFO per share. We also delivered our fourth consecutive year of double-digit returns to our stockholders, in part due to our fourth dividend increase in as many years,” said Christopher Volk, Chief Executive Officer of STORE Capital. “During the year, we acquired 418 properties for a total of $1.63 billion at sector leading average investment yields of 7.9%, further diversifying our tenant base to 434 customers across the United States. From a capital markets perspective, we strengthened our financing flexibility and reduced our cost of capital with the successful completion of our inaugural public unsecured note offering, together with the first-ever AAA rated real estate master funding issuance. In 2019, we look forward to building on these accomplishments to achieve another year of record financial performance that contributes to continued success for all of our stakeholders.”

Financial Results

Total Revenues

Total revenues were $146.7 million for the fourth quarter of 2018, an increase of 22.1% from $120.1 million for the fourth quarter of 2017.

Total revenues for 2018 were $540.8 million, an increase of 19.4% from $452.8 million for 2017. The increase was driven primarily by the growth in the size of STORE Capital’s real estate investment portfolio, which grew from $6.2 billion in gross investment amount representing 1,921 property locations and 397 customers at December 31, 2017 to $7.6 billion in gross investment amount representing 2,255 property locations and 434 customers at December 31, 2018.

Net Income

Net income was $56.6 million, or $0.26 per basic and diluted share, for the fourth quarter of 2018, an increase from $41.0 million, or $0.21 per basic and diluted share, for the fourth quarter of 2017. Net income for the fourth quarter of 2018 includes an aggregate net gain on dispositions of real estate of $14.7 million as compared to $3.8 million for the same period in 2017.

Net income includes such items as gain or loss on dispositions of real estate and provisions for impairment, which can vary from quarter to quarter and impact net income and period-to-period comparisons.

Net income for the year ended December 31, 2018 was $217.0 million, or $1.06 per basic and diluted share, an increase of 33.9% from $162.0 million, or $0.90 per basic and diluted share, for 2017. Net income for 2018 includes an aggregate net gain on dispositions of real estate of $45.5 million as compared to $39.6 million for 2017. Net income for 2018 included $9.9 million of non-cash charges consisting of a $2.1 million charge to interest expense for the accelerated amortization of deferred financing costs primarily related to the $233.3 million prepayment of STORE Master Funding notes in the fourth quarter and an aggregate $7.8 million of provisions for impairment. Net income for 2017 included $20.0 million of non-cash charges consisting of a $4.6 million charge to revenue related to the accelerated amortization of lease incentives, a $2.0 million charge to interest expense related to the accelerated amortization of deferred financing costs associated with STORE Master Funding prepayments in 2017 and an aggregate $13.4 million of provisions for impairment.

Adjusted Funds from Operations (AFFO)

AFFO increased 25.8% to $103.4 million, or $0.48 per basic and diluted share, for the fourth quarter of 2018, compared to AFFO of $82.2 million, or $0.43 per basic and diluted share, for the fourth quarter of 2017.

AFFO for 2018 was $377.9 million, or $1.85 per basic share and $1.84 per diluted share, an increase of 23.5% from $306.1 million, or $1.71 per basic and diluted share, for 2017. The year-over-year increase in AFFO was primarily driven by additional rental revenues and interest income generated by the growth in the Company’s real estate investment portfolio.

Dividend Information

As previously announced, STORE Capital declared a regular quarterly cash dividend per common share of $0.33 for the fourth quarter of 2018. This dividend, totaling $73.0 million, was paid on January 15, 2019 to stockholders of record on December 31, 2018. For the year ended December 31, 2018, the Company declared regular cash dividends per common share aggregating $1.28 which included a 6.5% increase in the third quarter.

Real Estate Portfolio Highlights

Investment Activity

The Company originated $460.0 million of gross investments representing 75 property locations during the fourth quarter of 2018, adding 13 net new customers. These investments had a weighted average initial cap rate of 8.0%. Total investment activity for the year was $1.63 billion representing 418 property locations with a weighted average initial cap rate of 7.9%. The Company defines “initial cap rate” for property acquisitions as the initial annual cash rent divided by the purchase price of the property. STORE’s leases customarily have lease escalations, most of which are tied to the consumer price index and subject to a cap. For acquisitions made in 2018, the weighted average annual lease escalation was 1.8%.

Disposition Activity

During the year ended December 31, 2018, the Company sold 80 properties and recognized an aggregate net gain of $45.5 million on the dispositions; 25 of these 80 properties were sold in the fourth quarter for an aggregate net gain of $14.7 million. For the year ended December 31, 2018, proceeds from the dispositions of real estate aggregated $251.4 million as compared to an aggregate original investment amount of $227.8 million for the properties sold.

Portfolio

At December 31, 2018, STORE Capital’s real estate portfolio totaled $7.6 billion representing 2,255 property locations. Approximately 95% of the 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 the Company owns and leases to its customers) and a nominal amount represents loans receivable secured by the tenants’ other assets. As of December 31, 2018, the portfolio’s annualized base rent and interest (based on rates in effect on December 31, 2018 for all lease and loan contracts) totaled $614.5 million as compared to $501.0 million a year ago. The weighted average non-cancelable remaining term of the leases at December 31, 2018 was approximately 14 years.

The Company’s portfolio of real estate investments is highly diversified across customers, brand names or business concepts, industries and geography. The following table presents a summary of the portfolio.

Capital Transactions

The Company established a $750 million “at the market” equity distribution program, or ATM Program, in November 2018, and terminated its previous program. During the fourth quarter of 2018, the Company sold an aggregate of approximately 9.2 million common shares at a weighted average share price of $29.57 and raised approximately $268.1 million in net proceeds after the payment of sales agents’ commissions and offering expenses. For the year ended December 31, 2018, the Company sold approximately 27.1 million common shares at a weighted average share price of $27.79 and raised approximately $741.7 million in net proceeds after the payment of sales agents’ commissions and offering expenses.

In October 2018, certain of the Company’s consolidated special purpose entities issued the eighth series, Series 2018-1, of net-lease mortgage notes under the Company’s STORE Master Funding debt program, separated into four tranches as summarized below.

The Series 2018-1 transaction marked the Company’s inaugural issuance of AAA rated notes. The net proceeds from the issuance were primarily used to pay down outstanding balances on the Company’s credit facility and to prepay, without penalty, the STORE Master Funding Series 2013-1 Class A-1 notes and the Series 2013-2 Class A-1 notes; these notes had an aggregate outstanding principal balance of $233.3 million at the time of prepayment, were scheduled to mature in 2020 and bore interest rates of 4.16% and 4.37%, respectively.

In March 2018, the Company completed its first public debt offering, issuing $350 million in aggregate principal amount of its unsecured, investment-grade rated 4.50% Senior Notes, due March 2028. The net proceeds from the issuance were primarily used to pay down amounts outstanding under the Company’s credit facility.

In February 2018, the Company expanded its unsecured revolving credit facility from $500 million to $600 million and the accordion feature from $300 million to $800 million for a total maximum borrowing capacity of $1.4 billion. The amended credit facility matures in February 2022 and includes two six-month extension options, subject to certain conditions.

2019 Guidance

Affirming its 2019 guidance initially presented in November 2018, the Company currently expects 2019 AFFO per share to be within a range of $1.90 to $1.96, based on projected 2019 annual real estate acquisition volume, net of projected property sales, of approximately $1.1 billion. This AFFO per share guidance equates to anticipated net income, excluding gains or losses on sales of property, of $0.88 to $0.91 per share, plus $0.96 to $0.98 per share of expected real estate depreciation and amortization, plus approximately $0.06 to $0.07 per share related to noncash items. The midpoint of our AFFO per share guidance is based on a weighted average initial cap rate on new acquisitions of 7.85% and target leverage in the range of 5½ to 6 times run-rate net debt to EBITDA. AFFO per share is sensitive to the timing and amount of real estate acquisitions, property dispositions and capital markets activities during the year, as well as to the spread achieved between the lease rates on new acquisitions and the interest rates on borrowings used to finance those acquisitions.

Conference Call and Webcast

A conference call and audio webcast with analysts and investors will be held later today at 12:00 p.m. Eastern Time / 10:00 a.m. Scottsdale, Arizona Time, to discuss fourth quarter and full year ended December 31, 2018 operating results and answer questions.

http://ir.storecapital.com/webcasts

About STORE Capital

STORE Capital Corporation is an internally managed net-lease real estate investment trust, or REIT, that is the leader in the acquisition, investment and management of Single Tenant Operational Real Estate, which is its target market and the inspiration for its name. STORE Capital is one of the largest and fastest growing net-lease REITs and owns a large, well-diversified portfolio that consists of investments in 2,255 property locations, substantially all of which are profit centers, in 49 states. Additional information about STORE Capital can be found on its website at www.storecapital.com.

Forward-Looking Statements

Certain statements contained in this press release that are not historical facts contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to the “safe harbor” created by those sections. Forward-looking statements can be identified by the use of words such as “estimate,” “anticipate,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “seek,” “approximate” or “plan,” or the negative of these words and phrases or similar words or phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. For more information on risk factors for STORE Capital’s business, please refer to the periodic reports the Company files with the Securities and Exchange Commission from time to time. These forward-looking statements herein speak only as of the date of this press release and should not be relied upon as predictions of future events. STORE Capital expressly disclaims any obligation or undertaking to update or revise any forward-looking statements contained herein, to reflect any change in STORE Capital’s expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except as required by law.

Non-GAAP Financial Measures

FFO and AFFO

STORE Capital’s reported results are presented in accordance with U.S. generally accepted accounting principles, or GAAP. The Company also discloses Funds from Operations, or FFO, and Adjusted Funds from Operations, or AFFO, both of which are non-GAAP measures. Management believes 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 to cash flows from operations as reported on a statement of cash flows as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures.

The Company computes 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, the Company modifies the NAREIT computation of FFO to include other adjustments to GAAP net income related to certain non-cash revenues and expenses that have no impact on the Company’s long-term operating performance, such as straight-line rents, amortization of deferred financing costs and stock-based compensation. In addition, in deriving AFFO, the Company excludes certain other costs not related to its ongoing operations, such as the amortization of lease-related intangibles.

FFO is used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among the Company’s 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 certain additional non-cash revenues and expenses such as straight-line rents, including construction period rent deferrals, and the amortization of deferred financing costs, stock-based compensation and lease-related intangibles as such items may cause short-term fluctuations in net income but have no impact on long-term operating performance. The Company believes that these costs are not an ongoing cost of the portfolio in place at the end of each reporting period and, for these reasons, the portion expensed is added back when computing AFFO. As a result, the Company believes AFFO to be a more meaningful measurement of ongoing performance that allows for greater performance comparability. Therefore, the Company discloses both FFO and AFFO and reconciles 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.

STORE Capital Corporation

Investment Portfolio

December 31, 2018

Real Estate Portfolio Information

As of December 31, 2018, STORE Capital’s total investment in real estate and loans approximated $7.6 billion, representing investments in 2,255 property locations, substantially all of which are profit centers for its customers. The Company’s real estate portfolio is highly diversified. The following tables summarize the diversification of the real estate portfolio based on the percentage of base rent and interest, annualized based on rates in effect on December 31, 2018, for all leases, loans and direct financing receivables in place as of that date.

Diversification by Customer

STORE Capital has a diverse customer base. At December 31, 2018, the Company’s property locations were operated by 434 customers. The largest single customer represented 2.7% of annualized base rent and interest and the top ten customers totaled 18.1% of annualized base rent and interest. The following table identifies STORE Capital’s ten largest customers as of December 31, 2018:

STORE Capital Corporation

Investment Portfolio

December 31, 2018

Diversification by Concept

STORE Capital’s customers operate their businesses under a wide range of brand names or business concepts. Of the more than 600 concepts represented in the Company’s investment portfolio as of December 31, 2018, the largest single concept represented 2.4% of annualized base rent and interest and the top ten concepts totaled 16.0% of annualized base rent and interest. The following table identifies the top ten customer business concepts as of December 31, 2018:

STORE Capital Corporation

Investment Portfolio

December 31, 2018

Diversification by Industry

The business concepts of STORE Capital’s customers are diversified across more than 100 industries within the service, retail and manufacturing sectors of the U.S. economy. The following table summarizes these industries, by sector, into 74 industry groups as of December 31, 2018:

STORE Capital Corporation

Investment Portfolio

December 31, 2018

Diversification by Geography

STORE Capital’s portfolio is also highly diversified by geography, as the Company’s property locations can be found in every state except Delaware. The following table details the top ten geographical locations of the properties as of December 31, 2018:

(1) Includes one property in Ontario, Canada which represents 0.3% of annualized base rent and interest.

STORE Capital Corporation

Investment Portfolio

December 31, 2018

Contracts and Expirations

The Company focuses on long-term, triple-net leases with built-in lease escalators and uses master leases, where appropriate. As of December 31, 2018, 98% of the Company’s investment portfolio was subject to triple-net leases. Where the Company owns multiple properties leased to a single customer, 91% of this portion of the investment portfolio was subject to master leases. Leases and loans representing approximately 16.1% of the annualized base rent and interest will expire in the next ten years (before 2029). The following table sets forth the schedule of lease, loan and direct financing receivable expirations as of December 31, 2018:

(1) Expiration year of contracts in place as of December 31, 2018, excluding any tenant renewal option periods. (2) Excludes eight properties which were vacant and not subject to a lease as of December 31, 2018.

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CONTACT: Investor and Media Contacts:

Financial Profiles, Inc.

Moira Conlon, 310-622-8220

Tricia Ross, 310-622-8226

STORECapital@finprofiles.com

KEYWORD: UNITED STATES NORTH AMERICA ARIZONA

INDUSTRY KEYWORD: REIT CONSTRUCTION & PROPERTY OTHER CONSTRUCTION & PROPERTY

SOURCE: STORE Capital Corporation

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PUB: 02/21/2019 06:45 AM/DISC: 02/21/2019 06:45 AM

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