September 19, 2022

The Ramifications of STORE Capital's 'Monster' Deal

In a move that woke up the often “staid” net lease real estate sector, REIT STORE Capital Corp. is being acquired by a partnership between global institutional investor GIC and Oak Street, a division of net lease investor Blue Owl, in an all-cash deal worth $14 billion, GlobeSt.com reported Thursday.

Industry followers said that this represents a “monster” transaction in the net lease sector that provides substantial additional scale to one of the largest existing players in Oak Street and a relatively new net lease investor in GIC.

Jeff Cox, Northmarq managing partner, tells GlobeSt.com that given the challenges of rising capital costs and potential economic headwinds, “it makes sense that parties involved would pursue this relationship. It also suggests that net lease product remains in high demand and continues to grow as a favored asset class among investors.”

Would Make It Third-Largest REIT

Scott Merkle, managing partner for SLB Capital Advisors, a real estate advisory specializing in sale leasebacks, tells GlobeSt.com that “in the normally staid net lease real estate world, this is a monster transaction” that, if consummated, will result in the take-private of the third largest publicly traded net lease REIT.

“GIC and Oak Street are acquiring one of the most prolific sale-leaseback investors that regularly deploys well north of $1 billion a year.”

As one of the largest sovereign wealth funds in the world, Singaporean-based GIC has been particularly active in U.S. real estate.

The STORE transaction represents GIC’s second investment in the U.S. net lease sector following the formation in 2021 of a new net lease retail real estate platform with RPT Realty.

Oak Street, which had $16.6 billion in AUM as of June 30, 2022, has continued its rapid growth in the sale-leaseback arena, which has been bolstered by its acquisition by Blue Owl in 2021

This year’s Q2 registered the strongest Q2 period sale-leaseback performance in both deal count (236 discrete transactions) and deal volume ($10.2bn) since SLB Capital Advisors began tracking the market.

“While sale-leasebacks are not immune to broader market choppiness, it continues to be an outstanding time for corporate owners of real estate to consider monetizing owned facilities,” Merkle said.

Deal a Bit ‘Unexpected’

David Auerbach, managing director at Armada ETF Advisors, says that the transaction highlights the demand for net lease properties as investors seek yield in the REIT space.

“With so many net lease players, I would not have expected STORE to be the first one acquired, but the move is significant since STORE is an S&P MidCap 400 constituent and follows on the heels of the O/VER merger back in November of last year.

“The transaction is significant as two of the largest players in private equity/sovereign wealth funds are partnering on the transaction and diversifying both parties’ portfolios into desirable net lease assets.”

Colleague Al Otero, portfolio manager at Armada ETF Advisors, notes that “It’s good to see a large real estate transaction come back into the marketplace as activity has slowed precipitously since the Federal Reserve started raising interest rates earlier in the year.

“The willingness of sophisticated investors to step back into the market at this time is a testament to the operating platform, underwriting prowess and asset quality that has been established at Store Capital since its inception.”