STORE Capital Corporation

Good day, and welcome to the STAAR Capital second quarter 2021 earnings webcast and conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference cover to Ms. Lisa Mueller, Investor Relations for Store Capital. Ms. Mueller, the floor is yours, ma'am.

Thank you, Operator, and thank you all for joining us today to discuss Store Capital's second quarter 2021 financial results. This morning, we issued our earnings release and quarterly investor presentation, which includes supplemental information for today's call. These documents are available in the Investor Relations section of our website at ir.storecapital.com under News and Results, Quarterly Results. I'm here today with Mary Fitawa, President and Chief Executive Officer of Store, Kathy Long, Chief Financial Officer, Craig Barnett, EVP of Underwriting and Portfolio Management, and Tyler Mertz, EVP of Acquisitions. On today's call, management will provide prepared remarks, and then we will open up the call for your questions. In order to maximize participation while keeping our call to an hour, we will be observing a two-question limit during the Q&A portion of the call. Participants can then reenter the queue if you have follow-up questions. Before we begin, I would like to remind you that today's comments will include forward-looking statements under the federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical facts, such as statements about our expected acquisitions, dispositions, or our ASFO per share guidance for 2021 are also forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-K and Form 10-Q. With that, I would now like to turn the call over to Mary Fedewa, STOR's Chief Executive Officer. Mary, please go ahead.

Thank you, Lisa. Good morning, everyone, and thank you for joining us today. I'll begin the call with an overview of our second quarter performance and discuss our growth strategy. Craig will provide an update on what we added to the portfolio this quarter, as well as our portfolio management activities, and Kathy will review our second quarter financial results. We will then all be available to answer your questions. As you saw in our press release, we delivered strong operational results for the second quarter. Through our selective acquisition strategy, we attained a weighted average cap rate of 7.8% on our acquisitions of $341 million in Profit Center real estate. We also delivered AFFO of 50 cents per share, reflecting the strong level of growth in revenues from our investment portfolio. We continue to see cash collections increasing, with July cash collections at 98% reflecting both the strength of our diverse portfolio and our belief that the financial impact from the unprecedented pandemic is now largely behind us. On the acquisition front, we continue to see increasing demand for our customized financing solutions as businesses are becoming more confident in their outlook and M&A activity is picking up momentum due to continued low interest rates, monetary stimulus, and pent-up demand. We have a robust investment pipeline of $12.5 billion, which allows us to be highly selective in making acquisitions that are good for our customers, good for shareholders, and good for store. Our portfolio is in great shape and remains highly diversified with our largest tenant continuing to account for only 3% of base rent and interest. we have contractual built-in rent growth from our annual rent escalations of 1.9%, which provides a nice hedge against inflation. Our weighted average lease term remains long at 14 years, and we have virtually no near-term lease expirations. We closed the quarter with an occupancy rate of 99.6%, which has remained consistent over the past five years. As you all know, sustained low interest rates coupled with the historic attractive yield opportunities in the net lease sector are serving to attract an influx of new capital. This is causing some cap rate compression, which can also result in increased real estate prices. At Storr, we are continuing to be deliberate in our acquisition strategy and believe the value add we bring to our customers continue to result in above market cap rates and attracted risk adjusted returns. As always, we remain committed to our disciplined approach to providing real estate capital to our customers, including an extensive review of the real estate during our underwriting process to ensure we are paying what we believe is the right price. On last quarter's call, as I stepped into the CEO role, I provided some broad observations of where we see store heading. I mentioned that one of my primary objectives is scaling store to the next level of growth and success in collaboration with our experienced leadership team. I also mentioned that we would be open to new avenues of growth. Today, I want to provide some additional color on our plans. Over the past 10 years, we have been focused on building the front end of our business, our acquisition engine, and developing valuable customer relationships. Today, we have a highly diversified $10 billion real estate portfolio, an installed base of more than 500 customer relationships, a proven business model, an experienced team of more than 100 professionals, and a proprietary leading-edge technology platform that supports every aspect of our business. As we see it, STOR has reached an important inflection point. We can now accelerate our growth by fully leveraging the platform we have in place today to scale our business through increased volume while continuing to generate the strong risk-adjusted returns we've delivered since our inception. To achieve that, we have mapped out a three-pronged approach. First, we will continue to focus on organic growth. The addressable market for profit center real estate is estimated to be about $4 trillion, comprised of over 2 million properties. We have a very strong pipeline, which more than exceeds the size of our current portfolio. Leveraging our proven strategy, we will remain focused on owning profit center real estate while continuing to take a disciplined approach to build a diverse portfolio with the right real estate assets purchased at the right price with the right cap rates. Our direct origination and customer relationship model will always be central to our strategy. It's our secret sauce. Years in the making and hard to replicate. We know our customers and their businesses down to the profitability at the property level. Every quarter, our team checks in with our customers to evaluate the state of their business, mutually identifying issues and opportunities and strengthening our partnership. This is a high-touch approach. It mitigates risk and allows us to play a vital role in helping our customers grow their businesses. Second, we now have the scale, platform, and expertise to consider more transactions from outside our traditional origination channels. If opportunities that fit our business model and meet our shareholder return hurdles are presented, such as through larger portfolio transactions, we will consider them. We have the experience and the resources to lead and drive these types of strategic growth initiatives. Third, our strategy includes continuing to invest in our technology platform and leveraging our proprietary data analytics. For the past 10 years, we have been building this proprietary technology platform. We have collected a substantial amount of valuable information that gives us a 360-degree view of our customers and supports every aspect of our business, from origination to portfolio management. We are now able to utilize data analytics to drive volume and strong risk-adjusted returns. I want to say that I've never been more excited about STOR and our prospects for growth and success. Now turning to our dividend, which has always been an important part of our total return. As you know, our board evaluates our dividend policy at each board meeting and considers raising it at least annually. In light of our strong operational performance and positive outlook, as well as our relatively low dividend payout ratio, you can anticipate that our board will consider a meaningful dividend increase as we complete the third quarter. And finally, before I turn the call over to Craig, I want to provide a quick update on our search for Kathy's successor. We are on track. We always knew Kathy would be here at least through second quarter earnings. We are pleased with the slate of highly qualified candidates and are moving through the process in a diligent and thorough manner. With that, I'll turn the call over to Craig.