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No. of Recommendations: 8
STOR is the most recent addition to the Net Lease REIT group, paying its first dividend 1Q15.

Revenue growth and cash flow progression looked good up to 1Q20 with a noticeable drop 2Q20, that on a percent bases, was a larger decline than NNN, WPC or O. The drop in operational cash put it back to the level of 1Q and 2Q17, and this is not due to large changes in working capital....its due to a decline in revenue while operational expenses....particularly debt interest....continues.

As a relatively new REIT, STOR will carry a higher interest expense relative to operational cash in the early years as their properties mature and management develops their skills. STOR did drop this interest expense ratio down under 30% in early 2018 and held it reasonably constant at just over 25% for several quarters, but 2Q20 it jumped back up to over 28%, using rolling 4Q. O, NNN and WPC have kept consistently in the 20% to 22% range, even with the downturn of 2Q20. At a dividend to CFFO payout of 78%, there isn't any threat to the the dividend yet. But managerial efficiency (CFFO/Revenue) took a nose-dive from low 70% to 61%.

Dividend growth rate, as would be expected, is slowing and over 2020 (assuming Dec dividend remains unchanged) is more in line with its net lease REIT peers.

2016: 7.7%
2017: 7.1%
2018: 6.7%
2019: 6.2%
2020: 4.4%

This is the first cycle through cash-tightening for STOR management. Let's see how they handle it.

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