Warren Buffett Buys $377 Million of Rental REIT (BRK.A, STOR)

Warren Buffett Buys $377 Million of Rental REIT (BRK.A, STOR)

Warren Buffett Buys $377 Million of Rental REIT (BRK.A, STOR)

The big question to ask here is why Warren Buffett and his team would take such a keen interest in a commercial real estate investment trust (REIT) when other investors have developed cold feet.

Store said that Berkshire's National Indemnity Co unit spent $377.1 million on 18.62 million shares at $20.25 each, giving it a 9.8 per cent stake.

A number of investment brokers have recently updated their price targets on shares of Berkshire Hathaway (NYSE:BRK-B). So, most stocks that are involved with brick-and-mortar retail have fallen as well, and REITs that own retail real estate have not been spared.

Store is a Scottsdale, Arizona-based real estate investment trust whose portfolio includes more than 1,750 properties in 48 US states. Two research analysts have rated the stock with a sell rating, two have assigned a hold rating and one has assigned a buy rating to the company's stock.

Despite the modest dilution in 2017, we believe the Berkshire investment provides an important highlight of the value in STORE's portfolio as well as its platform.

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One possible reason is that Berkshire is betting that not all retail is in trouble - specifically service-based businesses that have little to worry about in terms of e-commerce headwinds.

Store Capital shares were down about 16.5% in 2017 before the Buffett investment. They were prepared to take advantage of an attractive buying opportunity in the market and they did so. Shares rose 10% Monday to $22.83.

Berkshire, which held $96.5 billion in cash as of March 31, is actively seeking new investments for its growing war chest. Mr. Buffett responded within hours, he said, asking for more information. It is not clear who at the company is directly responsible for the Store Capital investment. The company's Market capitalization reached to $3.76 billion, $418.90 million outstanding shares. Camping World Holdings Inc., also a Store Capital customer, won a bankruptcy auction for some of Gander Mountain's assets.

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