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What the $14B GIC-Oak Street Buy Means for Net Lease

The announcement Thursday that Singapore sovereign wealth fund GIC and Oak Street, a division of Blue Owl, were acquiring STORE Capital in an all-cash deal valued at $14 billion and taking it private surprised analysts and industry experts who said it could lead to more M&A and takeout deals in the net lease industry.

Under the terms of the definitive merger agreement, STORE shareholders will receive $32.25 per share in cash, a roughly 20 percent premium to the company’s closing price on Sept. 14.

The agreement includes a 30-day period expiring Oct. 15 in which STORE can seek other offers. The transaction, which was unanimously approved by the STORE Capital Board of Directors, needs approval of STORE Capital’s stockholders.

If approved, the deal is expected to close in the first quarter of 2023. Once the deal closes, STORE Capital will be taken private by new owners and no longer trade on the New York Stock Exchange.

With investments in more than 3,000 properties across the U.S. and a portfolio valued at approximately $11.4 billion, Scottsdale, Ariz.,-based STORE Capital is one of the largest and fastest-growing net-lease REITs. Its portfolio includes properties used by restaurants, health clubs, medical office, manufacturing facilities and auto dealerships.

“The STORE Capital privatization is a surprise given the rising rate environment and worsening economic backdrop,” Spenser Allaway, a Green Street senior analyst and sector head of net lease, gaming & self-storage, told Commercial Property Executive. “STORE’s management team and board deserve kudos for striking a great deal for shareholders, which was struck at a roughly 20 percent premium to unaffected share price and an approximate 30 percent premium to Green Street’s NAV/share estimate.”

In a note to investors, Haendel St. Juste, a managing director and analyst with Mizuho Securities USA, said the news was surprising to analysts, investors and other managements. He said he was surprised by both the timing given rising interest rates and recession concerns and the size of the planned transaction because of recent commentary about transactions being put on hold due to tighter and more costly debt. St. Juste was among those who said this deal, expected to close in the first quarter of 2023, could spur other transactions.

“We believe this rekindles M&A/takeout spirits, provides support for STORE’s peers (Essential Properties Realty Trust, Spirit Realty Capital etc.) and could lead to more net lease privatizations as many companies trade near NAV and investors search for yield,” St. Juste wrote in his report shared with CPE.

Randy Blankstein, president of The Boulder Group, a net lease advisory firm, told CPE he also expects more activity in the wake of this deal.

“The amount of equity focusing on the net lease sector today far outpaces the amount of quality offerings available and it makes sense that institutional investors would target REITs. The net lease market remains supply constrained in the near term and thus the expectation is that there will likely be more REIT transactions in the coming months,” Blankstein said.

Noting that the deal “sets an interesting blueprint,” St. Juste said in his investors’ report to watch for more privatizations in the space despite the current debt challenges. He stated rising and attractive yields in the subsector could tempt other private buyers, including sovereign wealth and pension funds, to increase their exposure to net lease.

Complementary Portfolio

Tawn Kelly, chairman of STORE Capital’s board of directors, said in prepared remarks the all-cash transaction delivers a meaningful premium that provides immediate and certain value to the REIT’s shareholders in a challenging market environment while simultaneously positioning the company, its customers and partners for continued success.

STORE Capital CEO & President Mary Fedewa said in prepared remarks the planned deal is also an endorsement by two leading real estate investors with significant access to capital of the strength of the platform, its experienced leadership and disciplined investment approach.

Lee Kok Sun, chief investment officer of real estate at GIC, pointed to STORE Capital’s impressive cash flow profile, long-weighted average lease term and highly diversified portfolio with strong rent coverage in his prepared comments on the planned merger.

Marc Zahr, president of Oak Street, stated in prepared remarks they believe the STORE Capital platform complements Oak Street’s exposure to the triple-net industry and focus on sale-leasebacks. Zahr said the potential scale of this combination and partnership can deliver one of the most diversified, unique and long dated net lease platforms across the globe.

Several analysts contacted by CPE also commented on the STORE’s portfolio and what it could add to both GIC and Oak Street’s holdings.

“The company’s unique business model does seem like a good fit with the buyer,” Allaway told CPE.

St. Juste stated in his report the acquisition would give GIC and Oak Street exposure to a diverse net lease portfolio with attractive yields and steady cash flow. He also noted the deal would give GIC, a leading global investment firm, entry into the single tenant net lease space and give both firms an established net lease investment platform and infrastructure.