Company Quick10K Filing
Store Capital
Price37.24 EPS1
Shares235 P/E31
MCap8,744 P/FCF26
Net Debt3,252 EBIT399
TEV11,996 TEV/EBIT30
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-06
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-02-21
10-Q 2019-09-30 Filed 2019-11-01
10-Q 2019-06-30 Filed 2019-08-02
10-Q 2019-03-31 Filed 2019-05-03
10-K 2018-12-31 Filed 2019-02-22
10-Q 2018-09-30 Filed 2018-11-02
10-Q 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-05-04
10-K 2017-12-31 Filed 2018-02-23
10-Q 2017-09-30 Filed 2017-11-03
10-Q 2017-06-30 Filed 2017-08-04
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-02-24
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-05
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-02-25
10-Q 2015-09-30 Filed 2015-11-13
10-Q 2015-06-30 Filed 2015-08-14
10-Q 2015-03-31 Filed 2015-05-15
10-K 2014-12-31 Filed 2015-03-10
8-K 2020-09-09 Officers
8-K 2020-08-18 Regulation FD, Other Events, Exhibits
8-K 2020-08-05 Earnings, Regulation FD, Exhibits
8-K 2020-07-20 Regulation FD, Other Events, Exhibits
8-K 2020-06-15
8-K 2020-06-15
8-K 2020-05-28
8-K 2020-05-27
8-K 2020-05-05
8-K 2020-04-17
8-K 2020-03-26
8-K 2020-03-17
8-K 2020-03-16
8-K 2020-02-20
8-K 2020-02-13
8-K 2019-12-19
8-K 2019-12-16
8-K 2019-11-13
8-K 2019-11-01
8-K 2019-10-31
8-K 2019-09-10
8-K 2019-08-01
8-K 2019-06-17
8-K 2019-05-30
8-K 2019-05-24
8-K 2019-05-02
8-K 2019-03-15
8-K 2019-02-28
8-K 2019-02-25
8-K 2019-02-21
8-K 2019-02-13
8-K 2019-01-07
8-K 2018-12-17
8-K 2018-11-02
8-K 2018-11-01
8-K 2018-10-22
8-K 2018-09-11
8-K 2018-08-09
8-K 2018-08-02
8-K 2018-06-15
8-K 2018-05-31
8-K 2018-05-03
8-K 2018-03-15
8-K 2018-03-15
8-K 2018-03-08
8-K 2018-02-26
8-K 2018-02-22
8-K 2018-02-15
8-K 2018-02-09

STOR 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits
EX-31.1 stor-20200630xex31d1.htm
EX-31.2 stor-20200630xex31d2.htm
EX-32.1 stor-20200630xex32d1.htm
EX-32.2 stor-20200630xex32d2.htm

Store Capital Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02013201520172020
Assets, Equity
0.20.20.10.10.00.02013201520172020
Rev, G Profit, Net Income
0.40.20.0-0.1-0.3-0.52013201520172020
Ops, Inv, Fin

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission File No. 001-36739  

STORE CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

Maryland

 

45-2280254

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

8377 East Hartford Drive, Suite 100, Scottsdale, Arizona 85255

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (480) 256-1100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes  No 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

STOR

New York Stock Exchange

As of August 4, 2020, there were 253,443,949 shares of the registrant’s $0.01 par value common stock outstanding.

TABLE OF CONTENTS

Part I. - FINANCIAL INFORMATION

Page

Item 1. Financial Statements

3

Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and
December 31, 2019

3

Condensed Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019 (unaudited)

4

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended
June 30, 2020 and 2019 (unaudited)

5

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended
June 30, 2020 and 2019 (unaudited)

6

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (unaudited)

7

Notes to Condensed Consolidated Financial Statements (unaudited)

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3. Quantitative and Qualitative Disclosures About Market Risk

46

Item 4. Controls and Procedures

48

Part II. - OTHER INFORMATION

48

Item 1. Legal Proceedings

48

Item 1A. Risk Factors

48

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3. Defaults Upon Senior Securities

49

Item 4. Mine Safety Disclosures

49

Item 5. Other Information

49

Item 6. Exhibits

50

Signatures

51

2

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

STORE Capital Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

June 30,

    

December 31,

 

 

2020

2019

 

 

(unaudited)

(audited)

 

Assets

Investments:

Real estate investments:

Land and improvements

$

2,699,870

$

2,634,285

Buildings and improvements

 

5,752,354

 

5,540,749

Intangible lease assets

 

71,949

 

73,366

Total real estate investments

 

8,524,173

 

8,248,400

Less accumulated depreciation and amortization

 

(850,038)

 

(740,124)

 

7,674,135

 

7,508,276

Operating ground lease assets

24,069

24,254

Loans and financing receivables, net

 

618,462

 

582,267

Net investments

 

8,316,666

 

8,114,797

Cash and cash equivalents

 

699,165

 

99,753

Other assets, net

 

121,707

 

81,976

Total assets

$

9,137,538

$

8,296,526

Liabilities and stockholders’ equity

Liabilities:

Credit facility

$

600,000

$

Unsecured notes and term loans payable, net

1,263,447

1,262,553

Non-recourse debt obligations of consolidated special purpose entities, net

 

2,313,309

 

2,328,489

Dividends payable

88,654

83,938

Operating lease liabilities

29,230

29,347

Accrued expenses, deferred revenue and other liabilities

 

112,772

 

106,814

Total liabilities

 

4,407,412

 

3,811,141

Stockholders’ equity:

Common stock, $0.01 par value per share, 375,000,000 shares authorized, 253,298,352 and 239,822,900 shares issued and outstanding, respectively

 

2,533

 

2,398

Capital in excess of par value

 

5,109,408

 

4,787,932

Distributions in excess of retained earnings

 

(378,308)

 

(302,609)

Accumulated other comprehensive loss

 

(3,507)

 

(2,336)

Total stockholders’ equity

 

4,730,126

 

4,485,385

Total liabilities and stockholders’ equity

$

9,137,538

$

8,296,526

See accompanying notes.

3

STORE Capital Corporation

Condensed Consolidated Statements of Income

(unaudited)

(In thousands, except share and per share data)

Three Months Ended June 30,

Six Months Ended June 30,

 

    

2020

    

2019

    

2020

    

2019

 

Revenues:

    

    

    

    

Rental revenues

$

155,994

$

155,464

$

319,344

$

304,955

Interest income on loans and financing receivables

 

11,871

 

7,841

 

23,353

 

14,472

Other income

 

415

 

482

 

3,480

 

998

Total revenues

 

168,280

 

163,787

 

346,177

 

320,425

Expenses:

Interest

 

44,032

 

39,429

 

85,726

 

77,497

Property costs

 

5,290

 

2,014

 

11,294

 

4,598

General and administrative

 

13,134

 

14,266

 

21,013

 

26,249

Depreciation and amortization

 

60,296

 

55,000

 

119,634

 

108,716

Provisions for impairment

5,300

8,200

2,610

Total expenses

 

128,052

 

110,709

 

245,867

 

219,670

Net gain on dispositions of real estate

 

531

 

15,033

 

3,277

 

13,105

Income from operations before income taxes

40,759

68,111

103,587

113,860

Income tax expense

 

159

 

147

 

327

 

340

Net income

$

40,600

$

67,964

$

103,260

$

113,520

Net income per share of common stock—basic and diluted

$

0.16

$

0.30

$

0.42

$

0.50

Weighted average common shares outstanding:

Basic

 

248,265,906

 

227,702,281

 

245,810,696

 

224,958,759

Diluted

 

248,265,906

 

228,242,754

 

245,810,696

 

225,463,928

See accompanying notes.

4

STORE Capital Corporation

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

(In thousands)

Three Months Ended June 30,

Six Months Ended June 30,

 

2020

2019

2020

2019

 

Net income

    

$

40,600

    

$

67,964

    

$

103,260

    

$

113,520

Other comprehensive loss:

Unrealized losses on cash flow hedges

 

(158)

 

(874)

 

(1,421)

 

(1,168)

Cash flow hedge losses (gains) reclassified to interest expense

 

273

 

(225)

 

250

 

(817)

Total other comprehensive income (loss)

 

115

 

(1,099)

 

(1,171)

 

(1,985)

Total comprehensive income

$

40,715

$

66,865

$

102,089

$

111,535

See accompanying notes.

5

STORE Capital Corporation

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(In thousands, except share and per share data)

Distributions

Accumulated

 

Capital in

in Excess of

Other

Total

 

Common Stock

Excess of

Retained

Comprehensive

Stockholders’

 

Shares

Par Value

Par Value

Earnings

Loss

Equity

 

Three Months Ended June 30, 2020

Balance at March 31, 2020

 

244,158,477

$

2,442

$

4,930,148

$

(330,259)

$

(3,622)

$

4,598,709

Net income

 

40,600

 

40,600

Other comprehensive income

 

115

 

115

Issuance of common stock, net of costs of $2,811

 

8,767,154

88

176,791

 

176,879

Equity-based compensation

 

372,721

3

2,469

5

 

2,477

Common dividends declared ($0.35 per share)

(88,654)

(88,654)

Balance at June 30, 2020

 

253,298,352

$

2,533

$

5,109,408

$

(378,308)

$

(3,507)

$

4,730,126

Six Months Ended June 30, 2020

Balance at December 31, 2019

 

239,822,900

$

2,398

$

4,787,932

$

(302,609)

$

(2,336)

$

4,485,385

Adoption of ASC Topic 326, cumulative adjustment

(2,465)

(2,465)

Net income

 

103,260

 

103,260

Other comprehensive loss

 

(1,171)

 

(1,171)

Issuance of common stock, net of costs of $3,755

 

12,894,954

129

325,327

 

325,456

Equity-based compensation

 

715,478

6

(1,106)

5

 

(1,095)

Shares repurchased under stock compensation plan

(134,980)

(2,745)

(2,340)

(5,085)

Common dividends declared ($0.70 per share) and dividend equivalents on restricted stock units

 

(174,159)

 

(174,159)

Balance at June 30, 2020

 

253,298,352

$

2,533

$

5,109,408

$

(378,308)

$

(3,507)

$

4,730,126

Distributions

Accumulated

 

Capital in

in Excess of

Other

Total

 

Common Stock

Excess of

Retained

Comprehensive

Stockholders’

 

Shares

Par Value

Par Value

Earnings

Loss

Equity

 

Three Months Ended June 30, 2019

Balance at March 31, 2019

 

226,290,532

$

2,263

$

4,286,250

$

(298,331)

$

(1,027)

$

3,989,155

Net income

 

 

 

 

67,964

 

 

67,964

Other comprehensive loss

 

 

 

 

 

(1,099)

 

(1,099)

Issuance of common stock, net of costs of $2,163

 

4,027,136

 

40

 

135,665

 

 

 

135,705

Equity-based compensation

 

17,844

 

2

 

3,070

 

 

 

3,072

Shares repurchased under stock compensation plan

(5,189)

(2)

(100)

(79)

(181)

Common dividends declared ($0.33 per share) and dividend equivalents on restricted stock units

(76,127)

(76,127)

Balance at June 30, 2019

 

230,330,323

$

2,303

$

4,424,885

$

(306,573)

$

(2,126)

$

4,118,489

Six Months Ended June 30, 2019

Balance at December 31, 2018

 

221,071,838

$

2,211

$

4,129,082

$

(267,651)

$

(141)

$

3,863,501

Net income

 

 

 

 

113,520

 

 

113,520

Other comprehensive loss

 

 

 

 

 

(1,985)

 

(1,985)

Issuance of common stock, net of costs of $4,712

 

9,005,646

 

90

293,923

 

 

 

294,013

Equity-based compensation

 

403,995

 

4

 

4,753

 

14

 

 

4,771

Shares repurchased under stock compensation plan

(151,156)

(2)

(2,873)

(1,614)

(4,489)

Common dividends declared ($0.66 per share) and dividend equivalents on restricted stock units

(150,842)

(150,842)

Balance at June 30, 2019

 

230,330,323

$

2,303

$

4,424,885

$

(306,573)

$

(2,126)

$

4,118,489

See accompanying notes.

6

STORE Capital Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

Six Months Ended June 30,

 

2020

2019

 

Operating activities

    

    

    

Net income

$

103,260

$

113,520

Adjustments to net income:

Depreciation and amortization

 

119,634

108,716

Amortization of deferred financing costs and other noncash interest expense

 

4,228

4,253

Amortization of equity-based compensation

 

(1,099)

4,757

Provisions for impairment

8,200

2,610

Net gain on dispositions of real estate

 

(3,277)

(13,105)

Loss on defeasance of debt

735

Noncash revenue and other

 

(41,935)

(669)

Payments made in settlement of cash flow hedges

(6,735)

Changes in operating assets and liabilities:

Other assets

(6,227)

(1,860)

Accrued expenses, deferred revenue and other liabilities

 

1,054

6,059

Net cash provided by operating activities

 

183,838

 

218,281

Investing activities

Acquisition of and additions to real estate

 

(322,963)

(639,335)

Investment in loans and financing receivables

 

(58,015)

(123,552)

Collections of principal on loans and financing receivables

 

6,392

5,215

Proceeds from dispositions of real estate

 

60,671

95,075

Net cash used in investing activities

 

(313,915)

 

(662,597)

Financing activities

Borrowings under credit facility

 

600,000

431,100

Repayments under credit facility

 

(493,100)

Borrowings under unsecured notes and term loans payable

347,410

Borrowings under non-recourse debt obligations of consolidated special purpose entities

 

41,690

Repayments under non-recourse debt obligations of consolidated special purpose entities

 

(17,809)

(21,485)

Financing and defeasance costs paid

 

(84)

(4,676)

Proceeds from the issuance of common stock

 

329,210

298,724

Stock issuance costs paid

(3,775)

(4,784)

Shares repurchased under stock compensation plans

(5,085)

(4,489)

Dividends paid

(170,464)

(148,836)

Net cash provided by financing activities

 

731,993

 

441,554

Net increase (decrease) in cash, cash equivalents and restricted cash

 

601,916

 

(2,762)

Cash, cash equivalents and restricted cash, beginning of period

 

111,381

 

43,017

Cash, cash equivalents and restricted cash, end of period

$

713,297

$

40,255

Reconciliation of cash, cash equivalents and restricted cash:

Cash and cash equivalents

$

699,165

$

25,368

Restricted cash included in other assets

14,132

14,887

Total cash, cash equivalents and restricted cash

$

713,297

$

40,255

Supplemental disclosure of noncash investing and financing activities:

Accrued tenant improvements included in real estate investments

$

19,169

$

27,182

Seller financing provided to purchasers of real estate sold

3,176

Acquisition of collateral property securing a mortgage note receivable

16,086

13,574

Accrued financing and stock issuance costs

50

39

Supplemental disclosure of cash flow information:

Cash paid during the period for interest, net of amounts capitalized

$

80,715

$

67,018

Cash paid during the period for income and franchise taxes

1,770

1,805

See accompanying notes.

7

STORE Capital Corporation

Notes to Condensed Consolidated Financial Statements

June 30, 2020

1. Organization

STORE Capital Corporation (STORE Capital or the Company) was incorporated under the laws of Maryland on May 17, 2011 to acquire single-tenant operational real estate to be leased on a long-term, net basis to companies that operate across a wide variety of industries within the service, retail and manufacturing sectors of the United States economy. From time to time, it also provides mortgage financing to its customers.

On November 21, 2014, the Company completed the initial public offering of its common stock. The shares began trading on the New York Stock Exchange on November 18, 2014 under the ticker symbol “STOR”.

STORE Capital has made an election to qualify, and believes it is operating in a manner to continue to qualify, as a real estate investment trust (REIT) for federal income tax purposes beginning with its initial taxable year ended December 31, 2011. As a REIT, it will generally not be subject to federal income taxes to the extent that it distributes all of its taxable income to its stockholders and meets other specific requirements.

2. Summary of Significant Accounting Principles

Basis of Accounting and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (SEC). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of interim periods are not necessarily indicative of the results for the entire year. Certain information and note disclosures, normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted from these statements and, accordingly, these statements should be read in conjunction with the Company’s audited consolidated financial statements as filed with the SEC in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

These condensed consolidated statements include the accounts of STORE Capital and its subsidiaries, which are wholly owned and controlled by the Company through its voting interest. One of the Company’s wholly owned subsidiaries, STORE Capital Advisors, LLC, provides all of the general and administrative services for the day-to-day operations of the consolidated group, including property acquisition and lease origination, real estate portfolio management and marketing, accounting and treasury services. The remaining subsidiaries were formed to acquire and hold real estate investments or to facilitate non-recourse secured borrowing activities. Generally, the initial operations of the real estate subsidiaries are funded by an interest-bearing intercompany loan from STORE Capital, and such intercompany loan is repaid when the subsidiary issues long-term debt secured by its properties. All intercompany account balances and transactions have been eliminated in consolidation.

Certain of the Company’s wholly owned consolidated subsidiaries were formed as special purpose entities. Each special purpose entity is a separate legal entity and is the sole owner of its assets and liabilities. The assets of the special purpose entities are not available to pay or otherwise satisfy obligations to the creditors of any owner or affiliate of the special purpose entity. At June 30, 2020 and December 31, 2019, these special purpose entities held assets totaling $7.2 billion and $7.0 billion, respectively, and had third-party liabilities totaling $2.4 billion. These assets and liabilities are included in the accompanying condensed consolidated balance sheets.

8

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Although management believes its estimates are reasonable, actual results could differ from those estimates.

Segment Reporting

The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) Topic 280, Segment Reporting, established standards for the manner in which enterprises report information about operating segments. The Company views its operations as one reportable segment.

Investment Portfolio

STORE Capital invests in real estate assets through three primary transaction types as summarized below. Effective January 1, 2019, the Company adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) (ASC Topic 842) which had an impact on certain accounting related to the Company’s investment portfolio.

Real Estate Investments – investments are generally made through sale-leaseback transactions in which the Company acquires the real estate from the owner-operators and then leases the real estate back to them through long-term leases which are generally classified as operating leases; the operators become the Company’s long-term tenants (its customers). Certain of the lease contracts that are associated with a sale-leaseback transaction may contain terms, such as a tenant purchase option, which will result in the transaction being accounted for as a financing arrangement, due to the adoption of ASC Topic 842, rather than as an investment in real estate subject to an operating lease.
Mortgage Loans Receivable – investments are made by issuing mortgage loans to the owner-operators of the real estate that serve as the collateral for the loans and the operators become long-term borrowers and customers of the Company. On occasion, the Company may also make other types of loans to its customers, such as equipment loans.
Hybrid Real Estate Investments – investments are made through modified sale-leaseback transactions, where the Company acquires land from the owner-operators, leases the land back through long-term leases and simultaneously issues mortgage loans to the operators secured by the buildings and improvements on the land. Prior to 2019, these hybrid real estate investment transactions were generally accounted for as direct financing leases. Subsequent to the adoption of ASC Topic 842, new or modified hybrid real estate investment transactions are generally accounted for as operating leases of the land and mortgage loans on the buildings and improvements.

Impact of the COVID-19 Pandemic

As a result of the novel coronavirus (“COVID-19”) pandemic, during the second quarter of 2020, the Company provided certain tenants rent deferral arrangements in the form of both short-term notes and lease modifications. The FASB has provided accounting relief under which concessions provided to tenants in direct response to the COVID-19 pandemic are not required to be evaluated or accounted for as lease modifications in accordance with ASC 842. The Company has elected to apply this accounting relief to the COVID-19 rent deferral arrangements it has entered into with its tenants, which primarily affected the timing (but not the amount) of lease and loan payments due to the Company under its contracts. For the three and six months ended June 30, 2020, the Company recognized $38.2 million of revenue associated with these deferral arrangements with a corresponding increase in receivables that are included in other assets, net on the condensed consolidated balance sheet. These receivables are expected to be repaid over the next 36 months with the majority being repaid prior to the end of 2021.

9

Accounting for Real Estate Investments

Classification and Cost

STORE Capital records the acquisition of real estate properties at cost, including acquisition and closing costs. The Company allocates the cost of real estate properties to the tangible and intangible assets and liabilities acquired based on their estimated relative fair values. Intangible assets and liabilities acquired may include the value of existing in-place leases, above-market or below-market lease value of in-place leases and ground lease-related intangibles, as applicable. Management uses multiple sources to estimate fair value, including independent appraisals and information obtained about each property as a result of its pre-acquisition due diligence and its marketing and leasing activities. Certain of the Company’s lease contracts allow its tenants the option, at their election, to purchase the leased property from the Company at a specified time or times (generally at the greater of the then-fair market value or the Company’s cost, as defined in the lease contracts). Subsequent to the adoption of ASC Topic 842, for real estate assets acquired through a sale-leaseback transaction and subject to a lease contract which contains a purchase option, the Company will account for such acquisition as a financing arrangement and record the investment in loans and financing receivables on the condensed consolidated balance sheet; should the purchase option later expire or be removed from the lease contract, the Company would derecognize the asset accounted for as a financing arrangement and recognize the transferred leased asset in real estate investments.

In-place lease intangibles are valued based on management’s estimates of lost rent and carrying costs during the time it would take to locate a tenant if the property were vacant, considering current market conditions and costs to execute similar leases. In estimating lost rent and carrying costs, management considers market rents, real estate taxes, insurance, costs to execute similar leases (including leasing commissions) and other related costs. The value assigned to in-place leases is amortized on a straight-line basis as a component of depreciation and amortization expense typically over the remaining term of the related leases.

The fair value of any above-market or below-market lease is estimated based on the present value of the difference between the contractual amounts to be paid pursuant to the in-place lease and management’s estimate of current market lease rates for the property, measured over a period equal to the remaining term of the lease. Capitalized above-market lease intangibles are amortized over the remaining term of the respective leases as a decrease to rental revenue. Below-market lease intangibles are amortized as an increase in rental revenue over the remaining term of the respective leases plus the fixed-rate renewal periods on those leases, if any. Should a lease terminate early, the unamortized portion of any related lease intangible is immediately recognized in operations.

The Company’s real estate portfolio is depreciated using the straight-line method over the estimated remaining useful life of the properties, which generally ranges from 30 to 40 years for buildings and is generally 15 years for land improvements. Properties classified as held for sale are recorded at the lower of their carrying value or their fair value, less anticipated selling costs. Any properties classified as held for sale are not depreciated.

Revenue Recognition

STORE Capital leases real estate to its tenants under long-term net leases that are predominantly classified as operating leases. The Company’s leases generally provide for rent escalations throughout the lease terms. For leases that provide for specific contractual escalations, rental revenue is recognized on a straight-line basis so as to produce a constant periodic rent over the term of the lease. Accordingly, straight-line operating lease receivables, calculated as the aggregate difference between the rental revenue recognized on a straight-line basis and scheduled rents, represent unbilled rent receivables that the Company will receive only if the tenants make all rent payments required through the expiration of the leases; these receivables are included in other assets, net on the condensed consolidated balance sheets. The Company reviews its straight-line operating lease receivables for collectibility on a contract by contract basis and any amounts not considered substantially collectible are written off against rental revenues. As of June 30, 2020 and December 31, 2019, the Company had $31.8 million and $28.3 million, respectively, of straight-line operating lease receivables. Leases that have contingent rent escalators indexed to future increases in the Consumer Price Index (CPI) may adjust over a one-year period or over multiple-year periods. Generally, these escalators increase rent at the lesser of (a) 1 to 1.25 times the increase in the CPI over a specified period or (b) a fixed percentage. Because of the volatility and

10

uncertainty with respect to future changes in the CPI, the Company’s inability to determine the extent to which any specific future change in the CPI is probable at each rent adjustment date during the entire term of these leases and the Company’s view that the multiplier does not represent a significant leverage factor, increases in rental revenue from leases with this type of escalator are recognized only after the changes in the rental rates have actually occurred.

In addition to base rental revenue, certain leases also have contingent rentals that are based on a percentage of the tenant’s gross sales; the Company recognizes contingent rental revenue when the threshold upon which the contingent lease payment is based is actually reached. Approximately 4.2% of the Company’s investment portfolio is subject to leases that provide for contingent rent based on a percentage of the tenant’s gross sales; historically, contingent rent recognized has been less than 0.1% of rental revenues.

The Company reviews its operating lease receivables for