A $495 million IPO in store for STORE Capital; Oaktree-backed REIT IPO sets terms

STORE Capital, a retail REIT formed by Oaktree Capital with 850 single-tenant properties, announced terms for its IPO on Wednesday. The Scottsdale, AZ-based company plans to raise $495 million by offering 27.5 million shares at a price range of $17 to $19. At the midpoint of the proposed range, STORE Capital would command a fully diluted market value of $2.0 billion.

Business
STORE's 201 customers lease 850 properties across 46 states. The REIT owns movie theaters, childhood education centers, department stores, health clubs, truck stops, supermarkets and auto parts stores but its top five concepts include Gander Mountain, Applebee's, Ashley Furniture Homestore, Popeyes Louisiana Kitchen and Starplex Cinemas. Oaktree Capital (NYSE: OAK) has invested over $500 million since the company's 2011 blind pool formation. STORE's management team previously founded Spirit Finance Corporation and Franchise Finance Corporation of America, both of which were previously traded on the NYSE.

Financials
Revenue spiked 79% to $135 million during the nine months ended September 30, 2014 due to a much larger investment portfolio, which had an average rental and loan interest rate of 8.5% compared to 8.7% in the prior year period. At $50 million, interest represented its largest expense (37% of revenue) and nearly doubled from last year as STORE added debt to fund property investments. Its adjusted funds from operations rose to $76 million, a 75% increase over last year.

As of September 30, 2014, STORE carried about $2.5 billion worth of investments in real estate and loans on its balance sheet. It will use IPO proceeds to pay debt down to $1.3 billion with about $250 million remaining for future property acquisitions.

2014 REITs
Only three REITs have gone public this year (CIO, FPI, BRG) and each raised less than $75 million, down from 19 by this time in 2013. Each this year has priced below the midpoint and together average -11%. However, REIT filings have picked up recently, including the largest ever proposed REIT IPO, Paramount Group (PGRE), which could raise $2.6 billion. Along those lines, Landmark Infrastructure Partners LP (LMRK), an MLP owning cell towers and billboards, set terms for a $60 million IPO pricing on Thursday, November 13.

STORE Capital, which was founded in 2011 and booked $169 million in sales for the 12 months ended September 30, 2014, plans to list on the NYSE under the symbol STOR. Goldman Sachs, Credit Suisse and Morgan Stanley are the joint bookrunners on the deal. It has not selected a pricing date.