In a private placement, Berkshire subsidiary National Indemnity Co. received 18.6 million shares of the REIT at a price of $20.25 per share. This makes Berkshire Hathaway the third-largest shareholder in Store Capital, after Vanguard Group and Fidelity Management & Research.
The retail industry has been under tremendous pressure lately, with several high-profile bankruptcies and store-closure announcements in recent months. So, most stocks that are involved with brick-and-mortar retail have fallen as well, and REITs that own retail real estate have not been spared.
Store Capital owns 1,750 properties, with high concentrations in restaurants, movie theaters, and furniture stores, just to name a few. And prior to today’s surge, the stock had fallen 25% over the past year, including a drop of more than 13% since reporting disappointing first-quarter earnings in May.
We don’t yet know Berkshire’s exact reasons for the investment in Store Capital, or if the investment was initiated by Buffett himself or someone else.
One possible reason is that Berkshire is betting that not all retail is in trouble — specifically service-based businesses that have little to worry about in terms of e-commerce headwinds. More than two-thirds of Store’s portfolio is composed of service-based businesses, which are virtually immune to e-commerce competition, and the rest is widely diversified among more than 55 retail and manufacturing industries.
Whatever the specific reasons, Store Capital has been beaten down over the past year or so, and it’s fair to assume that Berkshire sees more value in the company than the market evidently does.