Berkshire bulks up in real estate with Store Capital stake

[June 27, 2017]  By Jonathan Stempel

NEW YORK (Reuters) - Berkshire Hathaway Inc has taken a nearly 10 percent stake in the real estate investment trust Store Capital Corp, adding to bets in the sector by the conglomerate controlled by billionaire Warren Buffett.

Store, which invests in single tenant properties, said Berkshire's National Indemnity Co unit spent $377.1 million on 18.62 million shares at $20.25 each, giving it a 9.8 percent stake.

The stake was announced four days after Berkshire said it would invest up to C$400 million for a 38.4 percent equity stake in struggling Canadian lender Home Capital Corp and provide a C$2 billion credit line.

Shares of Store were up $2.20, or 10.6 percent, at $22.97 in afternoon trading, likely reflecting Buffett's imprimatur.

Christopher Volk, Store's chief executive, in an interview said the Berkshire investment was three years in the making, beginning with his 2014 email to Buffett, when the REIT was still private, to gauge his interest.

He said Buffett responded within three hours, and put him in touch with a deputy, Ted Weschler.

"Over the years, they followed every earnings release, every conference call, every presentation, every investor supplement, and became very familiar with the company and our investment strategy," Volk said.

"Then about 10 days ago, I got a call from Ted Weschler, and he said he would like to make an investment," Volk added. "I was not expecting his call."

Berkshire did not immediately respond to a request for comment. The investment makes it Store's third-largest investor, after Vanguard Group and Fidelity Management & Research.

Berkshire Hathaway CEO Warren Buffett talks to reporters prior to the Berkshire annual meeting in Omaha, Nebraska, U.S. on May 2, 2015. REUTERS/Rick Wilking/File Photo - RTS1883U

Store's portfolio includes more than 1,750 properties in 48 U.S. states, including such customers as AMC Entertainment and the second-largest Applebee's restaurant franchisee.

Berkshire's other investments tied to real estate include HomeServices of America, the second-largest U.S. residential real estate brokerage, and Clayton Homes, which makes manufactured housing.

The Omaha, Nebraska-based conglomerate has more than 90 other business units.

Store shares had fallen as much as 27 percent after November's U.S. presidential election, a decline Volk attributed to worries about rising interest rates and the retail sector.

But he said Store generates most revenue from the service and manufacturing sectors, and just 18 percent from retail.

"The quality of the contracts we create is incredible, and the spreads between lease rates and the costs of our borrowings is our highest in memory," Volk said.

Store plans to use proceeds from the offering to buy properties, repay debt and other purposes.

(Reporting by Jonathan Stempel in New York; editing by Jennifer Ablan, Bernard Orr)

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