Over the years, Warren Buffett has primarily made investments in dividend-paying firms with increasing cashflows.
Not that he doesn’t understand the real estate industry, but he has kept his investments in the real estate investment trust (“REIT”) sector minimal.
The other important criterion he has revolves around his experience with the firm, but cashflow has been a big focus and a must for a company to recoup its investment over time.
As a result, when Warren Buffett invests in a REIT, people should pay attention because it does not happen frequently.
When you look at the wealth that today’s billionaires have accumulated around the world, one thing you will notice in many of their tales is how much money they made from investing in real estate.
Many billionaires’ paths to achieving financial success have involved real estate.
According to a PWC survey, between 21 and 40 percent of all billionaires’ net worth will be invested in real estate by the year 2020, regardless of the industry from which they come.
Although Warren Buffett has never actively invested in real estate, his long-standing business buddy Charlie Munger is one of the billionaires who has benefited from doing so over the years.
That is until he started making REIT investments.
The REIT Good Enough for Berkshire Hathaway
STORE Capital Corporation (NYSE:STOR) received a $377 million investment from Berkshire Hathaway (NYSE:BRK.A, BRK.B) in 2017, which at the time constituted a 9.8% interest in the real estate investment trust. It’s equivalent to about 18.6 million shares in this investment. At the time, the cost basis was $20.25.
Shares of STOR are currently trading at $28, which indicates a 35% increase in value.
After the significant COVID pullback in 2020, the Oracle of Omaha increased his STOR position once more by buying an additional 5.8 million shares, bringing his total shares to 24.4 million.
The first STOR share sale by BRK.B occurred in Q1 2022, when 9.7 million shares were sold.
Although Berkshire only owns a little portion of the overall BRK.B portfolio at this time—14,754,811 shares with a $415.2 million market value—it is currently the sole REIT included in the portfolio.
Why STORE Capital?
The public markets are still relatively new to STORE Capital, which went public in 2014. The business is a net-lease REIT that specializes in the middle-market real estate market.
Chris Volk, the former CEO of STORE Capital, claims that Warren Buffett researched the REIT for three years before making a purchase.
Over 3,000 properties make up STOR’s diverse portfolio, which has increased by 18% over the previous two years as the business grows. The portfolio is leased out to 579 various clients in 124 different businesses.
Recently, STOR released its Q2 financial results, which beat experts’ predictions. $223.8 million was the total revenue the company generated, up 16.5% from the same time last year. Revenues have increased by 19.1% throughout the first six months of the year.
AFFO for the quarter was $0.58 per share, up 16% over the previous year. The company’s AFFO has been rising steadily each year, which contributes to the expanding dividend.
Currently, many analysts agree with Berkshire Hathaway and have rated the shares of STOR as a BUY.
Featured Image: Megapixl @Jetcityimage
