Using STORE Capital Proceeds To Buy Alexandria Real Estate

Summary

  • STORE Capital agreed to an all-cash deal to be taken private worth $14 billion.
  • The REIT will still be paying the Q3 dividend, one in which they recently increased 7%.
  • I am using my proceeds from STOR to add a new REIT to my portfolio.
  • Looking for more investing ideas like this one? Get them exclusively at iREIT on Alpha. Learn More »

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On Thursday, September 15th, STORE Capital (STOR) revealed that they had signed a definitive agreement with real estate firms GIC and Oak Street to take the REIT private in an all-cash deal worth $14 billion. On a per share basis, this values STOR shares at $32.25.

On the news, shares of STOR jumped 20%, but still trade a few percentage points below the pending sale price. The deal is expected to close in Q1 2023.

On the news, many STOR shareholders sold out of their position considering they got most of the value on the day the deal was announced. However, some sold too fast as the company also announced they would still be paying out the Q3 dividend.

The week following the news, STOR declared a $0.41/quarterly dividend, which was a 6.5% increase over the most recent quarter. The dividend is payable on October 17th with an ex-dividend date of September 29th.

STOR had been a vital part of my portfolio for a number of years, but that road is coming to an end based on the transaction. Once the ex-dividend date passes, I will most likely sell my shares.

So, what will I use those proceeds for.

Well, that has already been answered as I have been waiting to purchase shares of blue-chip REIT Alexandria Real Estate (NYSE:ARE).

Let's take a closer look at ARE.

Alexandria Real Estate Equities: Not Your Typical Office REIT

Alexandria Real Estate (ARE) is an office REIT, which could scare investors right off the bat. However, they are not like the office REITs you may be thinking of.

In a time when many businesses are taking up the idea of "work from home," the demand for office space in certain parts of the country has dropped. This is directly showing in the share prices of typical office REITs with many seeing price declines of 40%, 50%, or even 60%.

Alexandria on the other hand is not your typical office REIT. Instead, they focus on biotech and life science office buildings that are leased out to large public companies and investment grade tenants.

Some of those tenants include:

  • Bristol-Myers Squibb (BMY)
  • Moderna (MRNA)
  • Eli Lilly (LLY)

These are all very strong investment grade companies. In fact, 50% of the company's Annual Base Rent, or ABR, comes from investment grade or publicly traded large-cap tenants. Of the company's top 20 tenants, 86% of them are investment grade.

https://www.are.com/fs/2022q2.pdf

ARE Q2 Supplemental Information

As you can see from the chart below, the company has strong pricing power with rental rate increases of 45% seen in Q2 representing the second highest growth rate in the company’s history.

https://www.are.com/fs/2022q2.pdf

ARE Q2 Supplemental Information

This pricing power is exactly what has allowed the company to continue growing its operating income in order to fuel a growing dividend. In fact, the dividend has been growing for 11 consecutive years and over those years the growth rate has been 6.8% per year.

https://www.are.com/fs/2022q2.pdf

ARE Q2 Supplemental Information

ARE is in a mission critical sector and they are a best in class REIT within the sector as well. The company has a top 10% credit rating among all publicly traded US REITs with a BBB+/Baa1 rating from S&P and Moody's.

https://www.are.com/fs/2022q2.pdf

ARE Q2 Supplemental Information

On the year, shares of ARE are down nearly 40%, which has created a great buying opportunity for investors that have been waiting on the sideline.

https://ycharts.com/charts/fund_chart_creator/seeking_alpha/#/?chartAnnotations=&annotations=&annualizedReturns=false&calcs=id:price,include:true,,&chartType=&chartId=&correlations=&dateSelection=range&displayDateRange=&endDate=&format=indexed&legendOnChart=false&nameInLegend=name_and_ticker&note=&partner=seeking_alpha_635&quoteLegend=false&recessions=false&scaleType=linear&securities=id:ARE,include:true,type:security,,&securityGroup=&securitylistName=&securitylistSecurityId=&source=false&splitType=single&startDate=&title=&units=false&useCustomColors=false&useEstimates=false&zoom=ytd

ycharts

In terms of valuation, shares of Alexandria Real Estate are now trading at a low AFFO multiple of 21.5x. However, this is well below their 5-year avg of 30x.

https://app.fastgraphs.com/fastgraphs/fv/historical/d?ticker=ARE:US&divcode=dvxps&hpeov=&op=fcflps&investAmt=10000&reinv=false&isLog=false&splits=splitspinoffadj&cticker=SPY:US

FastGraphs

Over the next two years, analysts are expecting AFFO growth of 9% and 11%, respectively.

In my opinion, shares of ARE are very attractive at these levels.

Disclaimer: This article is intended to provide information to interested parties. I have no knowledge of your individual goals as an investor, and I ask that you complete your own due diligence before purchasing any stocks mentioned or recommended.

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This article was written by

Mark Roussin profile picture
7.69K Followers
Author of iREIT on Alpha
The #1 Service For Safe and Reliable REIT Income

Mark Roussin is an active Certified Public Accountant (CPA) in the state of California. Mark has worked as a CPA, serving both public and private Real Estate corporations for over 10 years. Today, he provides his followers insights to both undervalued dividend stocks mixed with high-growth opportunities with a goal of them reaching financial freedom in the long-term. Mark tends to invest primarily in dividend stocks with a strong emphasis on Real Estate Investment Trusts (REITs). 


Mark has partnered with "iREIT on Alpha”, which is the premiere marketplace service that provides the best daily in-depth REIT research. The service boasts a community of like minded investors that also receive complete access to our various portfolios that you can track in real-time. Come check out all the exclusive content today!

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DISCLAIMER: Mark is not a Registered Investment Advisor or Financial Planner. The Information in his articles and his comments on SeekingAlpha.com or elsewhere is provided for information purposes only. He asks that you perform your own due diligence or seek the advice of a qualified professional. You are responsible for your own investment decisions. 

Disclosure: I/we have a beneficial long position in the shares of STOR, ARE either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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