The Compound and Friends - When Berkshire Invests In Your Company, James Altucher Is A Genius, STORE Capital CEO Chris Volk

Episode Date: August 21, 2020

What does it feel like when Warren Buffett's Berkshire Hathaway makes an investment in your company? STORE Capital President and CEO Christoper Volk joins Josh to explain, plus insights on what's happening on Main Street USA with business owners, services business, restaurants and stores. Plus! New York City may be down, but it's not out! It's never out. Josh's take on the James Altucher post that went viral this week. Leave us a rating + review! They go a long way, we appreciate it! Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey guys, it's Josh. Listen, you got to stop sending me this James Altucher blog post. Stop sending it to me. And the New York Post article that was based on it, the thing where he'sucher, let me explain something to you. James Altucher is a genius. You know what he's a genius of? He's a genius of triggering you, triggering me. That's what he does. James Altucher is a genius at getting attention by any means possible. He's a genius. He's like the Leonardo da Vinci at getting attention by any means possible. He's a genius. He's like the Leonardo da Vinci of getting attention.

He's like the Kanye West of blogging. He's also a very good writer. And he knows exactly how to do a blog post that gets half the audience in a rage, just in an absolute lather. And the other half of the audience has tears in their eyes. And James is really, really good at that. I know James Althacher for 10 years. Let me tell you the story of how I met him. I get a call from the Wall Street Journal,

and this is like a year or two into my blogging career at the Reform Broker. And the journal's like, listen, we want to do this thing for financial advisors. It's called the Financial Advisor Column. It's not in print, though. It's online. And it's basically like a blog at the Wall Street Journal. We set you up with WordPress. You log in once a day. And we want you to do like a link like a link fest like five links to stories

that you think financial advisors want to read because i was really good at it at that time i was doing a daily link fest for the reform broker every morning so like we just want you to do that for us and this is when this is so early this is like 2010 when the Wall Street Journal had like great journalists. They had reporters, real reporters. But they saw that like blogging was going to be a much bigger deal and they hadn't retrained any of their journalists to become bloggers. Obviously, they have some of the best bloggers that exist now. But this is, again, a decade ago. So they're like, all right, you're going to do this.

And I'm like, okay, this is amazing. It was like, it was a great gig for me. I love the Wall Street Journal. And I loved being able to say that I was a Wall Street Journal contributor and having the ability to shape the conversation and send financial advisors to all these great links that I was reading. So I was all in. And then right before I was going to start, they're like, oh, by the way, we hired someone else. You're going to do every other day. You're going to alternate with this other guy who's going to help out on the financial advisor column. And I'm like, okay, great. Less work. I love it. Who's going to be doing the alternating days? They're like, oh, it's this guy, James Altucher, Who's going to be doing the alternating days? They're like, oh, it's this guy, James Altucher, who was at thestreet.com.

And now he's going to be – so I'm like, James Altucher. Oh, Barry's friends with him. I know him. I remember his columns at thestreet.com. They were awesome. So I was like a fan of James Altucher. And they're like, it's going to be you and James. And I'm like, but wait a minute.

James isn't a financial advisor. They're like, it's going to be you and James. And I'm like, but wait a minute. James isn't a financial advisor. They're like, yeah, yeah, yeah. But he's like, you know, he's this personality and he's going to do videos with us and all this stuff. So I'm like, all right, cool. So I meet James. I don't remember if we had coffee or like the first time. But I swear to God, within like 10 minutes of us getting together, he's already explained and he had already started like a week before me doing this link fest. He had the whole game figured out in a way that it's almost like Professor Moriarty.

It's like an evil genius. He explains to me how he is going to use this Wall Street Journal column or daily blog post to send traffic to his own blog. So here's what he explains. He's like, look, every day I look on Yahoo Finance for the stock that has the least amount of legitimate headlines like real news but has the highest amount of messages. Back then, Yahoo Finance messages, like Twitter was barely a thing, finance Twitter. So Yahoo Finance messages were extremely important. So if you could find a stock where there's almost no news on it ever, but there's a ton of message board volume, then you know millions of people are checking that ticker every day. So James was going to work that company into his column, into his blog post. So I'm just going to make up a name. Let's say it's like a company called XYZ Biotech, and it's like a $4 stock, and there's maybe news on it once a month, like legitimate news.

So the rest of the month, there are no headlines being posted to Yahoo Finance, but there's a ton of message board volume. Like millions of traders are on there fighting with each other over this stupid XYZ biotech. All right. So James is going to like work that XYZ biotech into his column. in the backend, in the WSJ WordPress interface, he can put that ticker symbol in as one of the relevant ticker symbols to his blog post at Wall Street Journal. So then when he hits publish, all of a sudden his column is in the news headlines for that ticker.

And so all these millions of people who are looking at that ticker every minute of the day, they see that, oh, there's news on it. And they click over and they get James's Wall Street Journal column. And he's not really writing a column about that stock. He's just mentioning it in a headline and linking to some other nonsense that doesn't mean anything about it. But in that same column, so he's putting up like three links or five links. So one of them is for XYZ bio just so he could use the ticker. And then another one is to his blog, jamesalthechur.com or whatever it is. So he gets the millions of lunatics who are obsessing over this small cap

biotech stock to see this Wall Street Journal post that has a link back to his blog. And it works. Like he can send himself tens of thousands of readers just by doing that. And all kidding aside, I swear, I think he did this for like six months. And whatever like the most buzzed about stock was, he would find a way to work it into his column so he could use the ticker to get a link to his column on Yahoo Finance. And at that time, you have to understand Yahoo Finance was the center of the universe for financial content. It's like where almost every investor started their day, ended their day.

It's where they listed all their stocks. So like Yahoo Finance was the lifeblood of the street. And James knew this from working at thestreet.com. Yahoo Finance was the lifeblood of thestreet.com, CNN Money, CNBC.com even. Like everybody, Wall Street Journal, Forbes, Fortune, go down the list. Everyone seeking alpha was feeding off of Yahoo Finance ticker pages, Motley Fool. And to this day, to some extent, you still see some of that. Although these days, it's a lot more Zacks and a lot more articles that are generated by a computer. And it's a lot of ticker spam.

And I guess they just kind of like – they live with it. And they're getting paid per click or whatever. But so James had this whole thing figured out before anyone else. So that answered my question like why does James Altucher want to write a column at the Wall Street Journal for financial advisors and do link fest for them? Like what does he need to do that for? Oh, now I get it. So we're literally talking about an evil, I don't even want to say evil,

because for me, James is lovable, but he's a genius. And that's why I never get triggered by him. I never get mad at him. And I actually laugh when other people get triggered by him, because I know he has a huge smile on his face even when he's writing the most outrageously heart-rending stuff like for example what he wrote this week how the greatest city in the world isn't going to survive 2020 and that it's dead forever and now my Facebook lit up everyone's like, what do you think of this? What do you think of this? My wife's friends are like texting it to me. Like, did you read this? So he succeeded.

He got everyone in the world to read this thing, or at least everybody in the New York area. And by the way, the trick is that a lot of what he says in his blog post is actually true. There's an 80% rise in shootings in New York City this year. It's a fact. It's not his opinion. I've been in Midtown. The streets are desolate in Midtown during the week. So when you would normally see ordinarily millions of office workers in the East 30s, 40s, 50s, you would see on the West side, millions of tourists, Times Square. You would see shoppers up and down Madison Avenue, up and down Fifth Avenue. There's almost none of it. And there's a lot of homeless people.

And, you know, there are a lot of reasons to say the city is looking pretty rough right now. So all of that's real. And by the way, I also know a ton of New Yorkers who are all out in the Hamptons this summer living a fantasy life. And every one of them are telling themselves and telling me, that's it. I'm done. I'm never going back. To which I say, my friend, the summer is going to end at some point.

And then sometime after, the vaccine is going to arrive. You may not be back in Manhattan in September. And you may not be back in Manhattan in September and you may not be back five days a week, but you're also not going to be in this Hamptons fantasy land all winter taking calls on the beach. And you're not going to be doing zooms from the yacht club, you know, in November or in January. It's just not going to happen. But I think James has captured the zeitgeist of how everyone's feeling right now. But forever? Dead forever? Come on. So he says these undeniable things about the current conditions of New York. But then, like the Altucher move is he stretches it into the

most clickable headline he can possibly come up with because James is an attention artist. So dead forever. And everyone clicked it and everyone sent it to their friends and everyone shared it on Facebook and everyone got upset. But the joke is on them. And I am in on the joke. I was in on the joke when Altucher went from screaming about how Wall Street is bad for investors to then starting a penny stock newsletter for Porter Stansberry. I was in on the joke when Altucher jumped headlong into the Bitcoin mania and he started doing like an alternative coin of the week and he started buying ads all over Twitter, all over Facebook. I was in on the joke when people were putting price targets on Bitcoin, like $25,000 per coin and $50,000 per

coin. And then James comes out on TV and he goes, f**k it. My price target for Bitcoin is $1 million. Dude, I was rolling on the floor. The host of the show, I think it was on CNBC, was actually taking him seriously. And I couldn't breathe because I understand what James is doing. I was in on the joke when Altucher got himself on TV by screaming, don't ever invest in a 401k, which is perhaps the all-time worst personal finance advice that has ever been given publicly. Financial advisors were flipping out. It was so mad, scribbling their little blog posts. Here's why James Altucher is wrong. And I was just picturing James probably in a fit of laughter about how much traffic all these blogging financial advisors sent to his blog just by like yelling at him. Like, here's a link to the worst thing I've ever read. And people were like,

people were heated. I was in on the joke when Altucher said, buying a house is the worst investment you could make. Again, all the homeowners got triggered and all the renters were like, see, I told you so. Look how smart I am. James Altucher agrees with me. And then they forwarded that to their mother-in-law or whatever. But the whole post was like, I had a bad experience buying a house. Therefore, you shouldn't buy one either. And I was just dead reading that. It was just amazing. You should have seen the uproar that week.

All my friends in the RIA crowd were all up in arms. And I'm like, no, no, no, guys, you don't understand. This is what he does. Like, calm down. Let's all calm down. Who cares what he thinks about buying a house? But I want you to be in on the joke too. So maybe James believes that New York City is truly dead forever or maybe he's just genuinely, legitimately sad about what it's like today.

And I am too. And he felt like writing about it. But then the headline ran away from him. And in true Altucher fashion, he found the headline that would trigger the biggest response. And what I would say to you is try not to get yourself triggered by the master. All right. Understand what's going on here. And James, if you're listening, I truly do think you're a genius and I miss you, bud. So I want to tell you, stay healthy. And I think you'll be wrong. And I think I will see you in New York City someday soon. And I look forward to it. All right. I got a great show for you guys today. Right after the break, the president and CEO of Store Capital, his name is Christopher Volk. He's going to be joining us

and he's going to tell us what it's like when Berkshire Hathaway comes along and makes a big investment in your company, what that feels like. He's going to go into the true state of affairs for small and mid-sized businesses, which are his customers. And we'll talk about what store capital is. And he's also going to talk about the future of doing business on Main Street USA. Like what will change, what will stay the same. So it's going to be a great show. I'm really looking forward to hearing that. So why don't you stick around, dunk and play the music and let's go. Welcome to the compound show with downtown Josh Brown. Josh is the CEO of Ritholtz Wealth Management. All opinions expressed by Josh or

any podcast guest are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. All opinions expressed by Josh or any podcast guest are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. The number one topic of the summer is the vast disconnect between the real world economy on Main Street and the blistering rally in Wall Street stocks. My guest today is someone who sits at the crossroads of this discussion. I've asked him to come on today to tell us what's really happening with small and mid-sized businesses across the country, the current state of the consumer, and what we should

expect as the children go back to school this fall, and Main Street continues to reopen in defiance of the virus. Christopher Volk co-founded Store Capital in May 2011, and currently serves as the company's president and CEO. Store is a real estate investment trust, trades on the New York Stock Exchange. Just a little full disclosure, I have been a shareholder of Store for years, and this discussion is for informational purposes,

not meant as an investment recommendation of any kind. Storr Capital operates in the net lease space. They will buy a standalone building, often from a small business, unlocking capital for that small business to use for expansion or advertising or whatever. Storr then becomes the landlord, but shifts the property taxes, the building insurance, that small business to use for expansion or advertising or whatever. Store then becomes the landlord, but shifts the property taxes, the building insurance and the maintenance over to the tenant who is responsible for making those payments. These three expenses are why this sort of arrangement is known as triple net lease. Store shareholders get a dividend distribution of these lease payments on a quarterly basis.

Store's portfolio currently consists of just under 2,400 property locations and 456 business owners who are customers, and they're located in towns and cities all over America. Chris Voigt, thank you for coming on The Compound Show. How did I do with my introduction? Hey, Josh, you're brilliant. I was going to say, I think we own over 2,500 locations today. Okay. Outside of that, we're 2,554 as of Q2.

Okay. I thought I was going by your last quarterly report. So you sit at a really interesting space because your customers are essentially business owners who are operating in all different verticals, mostly serving consumers. There is some retail in there, but then there are a lot of other things. So do you want to talk a little bit about what your customers look like and where they are? Sure. So we have today 504 customers and they're in 49 states. We, as I said, own 2,554 locations. Our customers run 36,000 locations.

So we own sort of a piece of what they do. Our customers in aggregate employ two and a half million people and they hired about 300,000 people in 2019. Their revenue increase in 2019 averaged around 12%. So these are vital businesses. And about two-thirds of what we do is centered in the service space. And service space will include everything from restaurants to fitness centers to early child education, veterinary clinics, and the like, things that can't be bought over the internet. They're not hard goods. They're really services. And then the rest of our early child education, veterinary clinics, and the like, things that can't be bought over the internet. They're not hard goods, they're really services. And then the rest of our portfolio is really divided kind of evenly between

retail, where you can't buy a hard good. So names in the retail would include people like Bass Pro, Fleet Farm out of the Midwest. And then you have manufacturing, which is the other half of the remaining portfolio. So we are massively diversified. We're across really 110 plus industries and we don't have more than 5% exposure to any industry except for four of them. And so we're hugely diversified in that respect. And then we're diversified by tenant because most of our tenants, I mean, the vast majority we have less than 1% exposure to, and our top 10 tenants are 17%, which is probably twice the exposure you get in amongst most of our peer companies. Now, Chris, when the pandemic first hit of all the companies in my portfolio that I

thought about, I said to myself, store is probably going to get hit the hardest, at least initially, I said to myself, store is probably going to get hit the hardest, at least initially, just because so many businesses that are located on Main Street in towns and cities do require people leaving their homes, coming to visit. And even if we're talking about someone getting their nails done or someone getting their haircut or somebody visiting their personal trainer at his or her gym. else done or someone getting their haircut or somebody visiting their personal trainer at his or her gym. So I said to myself, okay, Wall Street is going to punish this stock, at least initially, which was fine because I understood why they would. Is that the way you saw it as the pandemic began to materialize? Was that your first instinct is that people are going to overestimate the

impact across our whole portfolio and just sell? I think that's fair. I mean, I think people always think the worst, right? They plan for the worst and they're hoping for the best. And that's kind of an investor mentality in some respects. If you looked at our portfolio, the part that got hurt the most was exactly the service space. And the service space is built to be resilient in the sense that it's not technologically dependent. So it's sectors that are designed to be around for a very long time. But in a pandemic where you're dealing with social gathering spots, the service space got hit the worst. And we had a lot of service space. So we had 65% exposure to service. So if you look

in the month of April, for example, we were collecting, call it 62% of our service rents. Meanwhile, the retail space, a lot better. In April, that was, you know, 82%. The manufacturing space, 92%. Today, we're kind of like 100% manufacturing is paying. We're almost, we're at 95% of the retail is paying. So that's fine. It's the service space is coming up. You know, today we're kind of around 80% overall. And the aggregate we just announced this morning, and you probably saw the press release that we had collected 86% of our rents to date for August. And hopefully we'll have a small tick up through the rest of the month. I did, I did see that. And I was so happy to see that. And not just because of whatever my investments might be. I think that

those numbers are just so important for overall confidence. And every time they tick up, even if it's just by a percentage point or two, like the way I picture it is, it's probably an extra 10,000 businesses being allowed to survive all over the country. So I like the fact that that's happening and I hope it can continue. Simon Properties said in their last earnings report that they currently have something like 92% occupancy in their malls. And I know you don't operate in the mall space, but they say that that's roughly in line with their historical average. So what I want to ask you is, why do you think people think that this situation

is so much worse than it really is? Do you think that there's this take on Main Street and retail and malls, et cetera, that because it's the highest profile tenants like Sears and JCPenney, who so visibly have gone under, that people just assume it's terrible across the board? Where does that opinion emanate from, if you had to guess? Well, I think a lot of investors are centered in large urban areas. So you have folks centered in New York City or Boston or Chicago or San Francisco, to name just a few major urban areas where there are a lot of investors and money managers. And they see what's happening in those areas and how hard pressed it is.

On the other hand, when you get out and you start looking around the country, and of course, store is spread across 49 states, and we're really spread across metropolitan statistical areas. They're outside of the top 25 MSAs. And in those areas, social distancing is more feasible, complying with some of the rules that we have to in this COVID environment is much more feasible. And so the companies are able to be open and conduct business in ways where it's much harder to conduct business in major urban areas. That's an interesting point. Like a lot

of the people that are investors or analysts writing about companies or chief strategists that are writing about the economy for brokerage firms, they're in Boston, they're in New York City, they're in Chicago, and they have a take that maybe doesn't accord with what a company like yours is seeing. And you guys are not really concentrated in the top 10 metropolitan areas. No. And so what's happened with us is in March, we had 77 percent of our locations open at the end of March. By the end of April, that had gone down to 65 percent. So that's kind of the worst of our portfolio. By May, it was 85 percent. June, 91. July, 92, August, 93. Now, at some markets, we've seen some retraction. So, for example, retrenchment. So, like Phoenix, Arizona, where the market that I live in, we've seen some retrenchment where health clubs and fitness clubs have closed down, and we've had some exposure to that. But we've seen things opening up in other states. So overall, the portfolio has done fine. And what we're finding is

the rents that we're receiving are really tending to be a function of the prior month opening. So if July had 92% open, then August is going to do that much better and so on and so forth. And the rents that we're getting have been in the last two months averaging 86%. So for July, we got 86%, but the June openings were 91%. August, 86. July openings, 92%. So there's a small delta there. We're not getting 92% or 91% of the rents. And I think a part of that is because some of our tenants, like in the early childhood education space and even the fitness space,

can't really fully open. And still in the restaurant space, they can't fully open. So that's impairing their ability to pay us completely. But I expect that to go away as the COVID runs its course. So I heard you on a conference call in the midst of the maelstrom, I guess, during the second quarter. And an analyst asked about whether or not you were seeing a lot of customers. I think he referred to them as tenants, but you guys call them customers. Whether or not you were seeing a lot of them come to you and look for forbearance or to rework a lease agreement or anything like that. And I think at the time you, you had mentioned that it really wasn't a large part of,

of what you guys do. Like it wasn't a big number. I trust that's still the case. Yeah. I mean, for the second quarter, we collected 73% of our rents in the aggregate. And so that means that we had to work out deferral agreements with 27% of our, and, and we did that. I mean, the, That means that we had to work out deferral agreements with 27% of our tenants. And we did that. And of the tenants, of that 27%, we were able to negotiate and document transactions with

93% of those tenants. So we still have 7% outstanding. They're not quite finished yet. We'll get that done. If you compare that to other companies in our space, you'll find oftentimes that they still haven't had yet to negotiate with 70 or 80 percent of their tenants. And a lot of this is because of the closeness we have with our tenants. You said we call them customers. They are like customers. I mean, we are sort of a business partner with them. We are providing a real estate capital solution for them. They could own or rent their real estate. They're likely to have a landlord instead of a banker. And so that relationship

has allowed us to be able to work with our customers through this and to document these deferral arrangements. And we expect to get substantially paid back on most of the deferral arrangements that we've got. Now, it's really smart to do that because it's not so easy to have what you consider to be a high quality customer and then just replace them. It's not like a gym closes down in Corona summer and another gym comes and takes the space. So it's obviously it's good business in addition to being the right thing to do, I guess, emotionally, spiritually. Um, when you do a deferral, ultimately you expect to see that money back at some point. You're just not seeing it on time. And and that's just, I guess, a better solution

than losing the customer. You see it that way? Totally. I mean, in in a normal time period, let's say you're going through a recession or there's an economic reversal. Normally, we'll have some tenants that don't pay us. It's part of the business that we're in, which is like being in a bank or something. So it's part of what we do. And sometimes, and very oftentimes, a tenant that's having issues is part of the solution. They're not part of the problem. So you're trying to figure out if a tenant's going to be there and they're part of the solution. In this case, it was a very easy choice. The coronavirus pandemic impacted a lot of our tenants through no fault of their own. They had perfectly good businesses. And in fact, their ability to cover our rent going into the pandemic

was about two times over. So they could afford on a normal day to lose 30 to 40% of their sales and still pay us. But companies are not built to have no business. They're built to withstand some downturn, but they're not willing, they're not built to have no business. And that is what happened to a lot of companies as this pandemic unfolded. Now you had fortuitously raised some money, I think in January, February, not that you had the ability to see anything like this coming, but that came in handy when you were talking to investors and institutions who own your shares,

right? It did. I mean, sometimes you have opportunities. We had an opportunity to issue some stock a little bit early and get out ahead of our Q1 investment activity. So during Q1, we did over $300 million worth of investment activity, which was actually light for what we'd expect to do. So, Chris, investment activity is you guys are always making changes in the portfolio of properties you have. So, you might sell some things, you might buy. Yeah. Okay. And we were buying real estate.

So, we were buying real estate locations in Q1. And during the course of a year, I mean, last year, we bought about, we invested about $1.2 billion net, you know, and we sold about $500 million of the real estate. So it was 1.7 gross, sold 500. So we were at $1.2 billion net. So we expected to do a lot of activity this year. And on a normal quarter, we're going to do $300 to $400 million worth of transactions. We shut down our Q1 in March because of the COVID

pandemic. Q2, we were shut down in April and most of May. And then sort of at the end of May and beginning of June, we had some opportunities. So we invested $135 million in Q2. And by the way, really interesting yield. So our yield for that $135 million was 8.7% in a 10-year treasury market where your treasuries are at 60 basis points. Yes, I was going to ask you about that. You're in a position where you're able to buy real estate from people that can no longer hold it for one reason or the other. So is it fair to say that as difficult as this time period is and will be for the tenants, store has the ability to capitalize to some extent and take advantage of the environment that exists right now?

Well, the dynamic usually is that our tenants can hold it if they want to. So they could go to a bank. No, no, no. People that you're buying properties from. But this is true. Right, right. So people that we're buying properties from, and we're usually typically buying properties from our tenants. So they're selling properties and renting them back. So our tenants oftentimes could keep owning them.

They choose to rent them because it's just more efficient and they lowers their cost of capital. What we found in the second quarter was that our tenants had been lining up acquisition opportunities. And a lot of our tenants had been lining up acquisition opportunities. A lot of our tenants are growing through acquisition. So they're veterinary clinics that are buying other veterinary clinic operators. They're early child education people that are buying other early child education folks. So as we're seeing some of that happen, we found that our tenants were able to negotiate much better purchase prices in Q2. Sometimes transactions, Josh, just have to happen for varying different reasons. And so our tenants were able to get great

transactions. And then we too were able to get a nice return for our investors. So if I had to ask in a sentence or two, what you see as the current environment for the small and mid-sized customers that you have, and by extension, the situation at large? How would you describe the situation today versus the second quarter? So we're focusing on mostly middle markets. Our median tenant has about $50 million in revenue, which sounds small in New York City, but when you're not on Wall Street, if you're on Main Street,

$50 million in revenue is a lot of money. And our average dollar is going out to people who have well over $800 million in revenue. And I would say these customers slash tenants have come to us, and they're, by and large, optimistic. Some of them have actually benefited from the COVID pandemic. So if you're selling camping gear, I mean, you look at a company like Camping World, they practically hit an all-time high. Or at home, we have a few of those locations, and they hit an all-time high, two-week high

today. So some companies are doing well in this pandemic. Some companies less well, but they're seeing the end zone. And on top of that, the pandemic has given companies the chance to essentially re-engineer themselves in a way that they might not have done so otherwise. So I think that you'll see companies coming out of this pandemic operating with a higher level of efficiency than they did going into it. Well, I hope that's the case. It's great to hear from you. the fact that I think you're the only real estate investment trust in Berkshire Hathaway's portfolio,

at least currently. So just to take a step back, Berkshire Hathaway invested initially in 2017. They bought $377 million worth of store capital, which worked out to 9.8% of your shares outstanding. They just put a 13F out last week, and they indicated that they'd grown their position in store by 31% during the quarter, which you told me makes you guys one of three or four public companies where they increased because they were selling things like JP Morgan. And I went and looked at some of the sales they had made. So it looks like they remain positive on you guys. I wanted to ask you, so despite the fact that you've done share offerings over the years, there's still about 9.5% of store capital, Berkshire Hathaway.

So I wanted to ask you, just like personally, what does it feel like when the greatest investor of all time, Warren Buffett makes an investment in your company? How much notice do you have before that gets filed publicly? Do you throw a party that night? Like what, what, what is that feeling like? All right. So I just, I should give you some background. So in 2014, before we were even a public company, I sent Warren Buffett a cold email, just completely cold, to Berkshire at Berkshire.com. And he responded to me in three hours. I had a thought of an idea of a transaction to do with him. And so then we started a dialogue.

And he has a gentleman that works with him named Ted Wexler. He's got a few investors, and you probably know Ted. So we started having extensive conversations and ultimately they didn't do the transaction I had in mind, but what they did do was they followed our stock. And when Berkshire follows a stock, they follow it. They read every single transcript. They look at every single queue. You came public in 14? Yeah, I came public in 14. Okay. So in 17, our stock hit a reverse in terms of where the share price was at the time. And Ted called up and said they'd like to buy 10% of the company. And so they ended up buying 9.8, but we actually issued primary stocks. So we did a primary share issuance.

I would say that, yeah, it was a very exciting moment to have an iconic investor like that buy your stock. There are a lot of investors, and you know this very well. I mean, there are a lot of really good value investors out there, and we have a number of them in our stock. But this particular company is just a household name, and they hold stocks for a long time in general. And when they buy companies, they buy them with the same thought process they would do if they were owning them. They think like an owner. And for those guys, they bought us because they really liked our business model and they liked the leadership team. And so we were gratified. And over the years, after 17, they kept the stock

the same. And then when the stock got hurt in the COVID pandemic and Q2 especially, they started collecting more and more shares. And they built their position right back up to where it was as a percentage of the company. And prior to coming public, I think you were seeded by Howard Marks. Did I read that somewhere? Yeah, no, we were. That's right. Oak Tree Capital. Okay. I mean, you've had investors with outstanding pedigrees involved in your stock for years now.

So when you're thinking about shareholders, a lot of people think about shareholders abstractly, but small business owners who are private, they know their shareholders. Like they're on first name basis with their shareholders. So you have a shareholder in Berkshire Hathaway that's kind of a legendary shareholder in the base. So I've always wanted to ask you, how does it feel knowing that when you report results, reporting results to Buffett, at least indirectly? You know, I just feel terrific about it. First of all, you know, stores, stores, basically value investors. If you think about what we do, we're, you know, we're value investors through and through. We, our, our lease yields are tend to be higher than everybody else's.

Our lease escalators tend to be higher than everybody else's. We manage our risk through diversity and by creating contract seniority. And so we're basically trying to make more money than the risk we take, which is always the goal of a value investor. And so to have the recognition of another value investor that's so well known and, um, uh, so iconic. It's been, uh, uh, beyond gratifying. And I, uh, you know, I, and the rest of the team are, uh, we're thrilled about it when they owned our stock and we've had a chance to, to meet with, uh, Ted in person. And, and, um, uh, we talked to him, uh, frequently. So we talked to him at least once a quarter. Uh, and you know, they're the kind of investor you not just talk with you, you, from. It's just great to have shareholders like that. I read somewhere that another corporation can't own more than 10% of a REIT's outstanding shares because it would trigger a change in how they do their own accounting.

Is that accurate? It's a tax issue. So if Berkshire Hathaway owns more than 10% of us and they also own more than 10% of any of our tenants, then the rent income that we get from those tenants will be bad income from a REIT perspective. So it'll be just sort of like, you know, income that doesn't qualify for REIT purposes. And we have a basket for that. But, you know, a lot of times these companies like Berkshire are so big, they don't know exactly what they own, you know, so they could have a tenant, uh, and, and, uh, and, and not be able to tell us, uh, or an investment, a tenant, not be able to tell us. So, uh, it's safer to stay under 10%, but it's not to say you can't do it. I mean, they could be a 20% or 25%. Right. Cause conceivably they're now in, in used cars, they're in a real estate, real estate brokerages. So that's, that's how something like that could end up overlapping.

Yeah. And we could own a Dairy Queen or whatever. Seize candy or something. Okay. I want to talk about the future of physical real estate and storefronts and mainstream commerce in general. I wanted to ask your take on how much will really change and then what will always stay the same in your view? Well, to start with, I would say we feel pretty good about the relevancy of the portfolio that we've assembled. So as we get out of COVID, if you look today, about three quarters of the deferral requests that we have from tenants are aligned with five service industries. Those five service industries would be fitness, theaters, education, family entertainment,

and restaurants. I left out restaurants. That's basically three quarters of the request. We feel good about those sectors. We think they're going to come back. We don't think that there's going to be any issues about this stuff long-term. We do think that there could be some shifts in how people behave. For example, on early childhood education, it's conceivable that if people are telecommuting more, the question will be, do they use early childhood education the same way? Do they leave their children off every single day? If people are telecommuting more, do they buy as many cars? Do they repair their cars as frequently? Is that going to affect new car sales? We have some car dealerships that we have. So the good news is that when we went into this pandemic, our coverage is, median coverage is kind of two to one.

So you can lose 30 to 40% of our sales. When you own a company like Storr, sometimes it's good to think like a debt investor. I mean, Howard Marks is a debt investor. And that's where you got to start is to stress that. And we're not an equity investor. We don't own the stock of at home. We own a couple of locations. So our claim is senior to the shareholders. So they can afford to lose some sales and still pay us the rent. And on average, our tenants can afford to lose 30% to 40% of sales and still pay us the rent. So to the extent that there are some adverse consequences that happen, we still expect to get paid the rent.

But we'll keep our eye out on these industries. Meanwhile, there are industries we don't have that we're happy we don't have right now. We don't have any convenience stores, for example. There are a lot of reasons we don't have that we're happy we don't have right now. We don't have any convenience stores, for example. There are a lot of reasons we don't have convenience stores. And part of it is we don't like buying assets for more than replacement costs. We want to have unit-level P&Ls. We want to have master leases. And so some of those chains that we like, we can't get those.

But also, you get nervous about if people are driving less, there'll be less gas pumped in the country. If you're looking at alternative fuel vehicles, which is not a COVID issue, but if you're looking at alternative fuel vehicles and there are lots of those on the horizon, that could change these stores too. Yeah, they're working toward 300 miles per charge is like the benchmark that they're all trying to get to. That's not great if you're a convenience store at a gas station. That's not great if you're a convenience store at a gas station. No, and there's a car called Luma that's being made out of Phoenix that is going to be out allegedly in 2021 that will have a 500-mile range. So it's a big deal.

All right, so you dodged a few bullets. No water parks in the portfolio? No, we got a couple of them. I wish we did. Oh, you do? We have a couple of them. We've got a ski hill. We have Durango Mountain Ski Resort. It's called Purgatory in Colorado. We have another one in Colorado as well. And, you know, I think we feel pretty good about that stuff. The water parks have been hit this time around, but we think they'll come back.

this time around, but we think they'll come back. Okay. The CEO of Walmart this morning, after reporting what can only be described as a blowout quarter, said the following, and I just want to get your reaction. He said, my sense is that the order of tailwinds that impacted the business were one, stimulus, two, eating at home, three, being at home, and all the things that you wanted to have the indoors and outdoors be more pleasurable. He's crushing Wall Street expectations in a moment where people still need to buy things and still need to get things in order to live their lives. They just might be spending money differently now and not traveling and doing things like that. But he put the stimulus first. So I wanted to ask you, as of this recording, we still don't have a deal between Congress and the White House on what they want to do to bring back the stimulus program that I think was really successful in the spring and summer.

How important is that for your tenants, for the small and mid-sized businesses and for main street, uh, in your view? Well, the stimulus came in a couple, couple, uh, ways. First you had the PPP money and for some of our tenants, I think that helped them, you know, um, and, uh, um, although if you were to look at some of the sectors that I mentioned that were the problems, if you're looking at, or health clubs or movie theaters or family entertainment, they pretty much got no PPP money. And so their ability to pay us has been just totally eternally generated. The people who have been furloughed or laid off, of which there are millions, tens of millions, those people have benefited heavily from the

stimulus. And I think that the lack of that stimulus as we keep this level of unemployment could be harmful to retail businesses. I mean, without question, it is going to lower discretionary income potentially substantially. And I think that people in the near term are nervous about that and hoping that Washington will get us back together. Chris, if you could wave a wand, what would you want them to focus on? If they could only pass some part of the proposed trillion dollar new stimulus bill, what would you tell them? This is the most effective thing that you've done. Do it again. What would be your preference? I think the expansion of unemployment This is the most effective thing that you've done. Do it again. Like what would be your preference? I think the expansion of unemployment benefits is the number one thing.

I would agree probably for the most part because it gets to the people who need it the most right now. And all of the other things are useful. But that seems to be the most acutely useful by families today. So I would agree. today. So I would agree. Well, I really appreciate your take on what's happening on Main Street and amongst the businesses that you guys serve. And I've told you this, I thought for a company that in many ways was in the epicenter of the pandemic this spring, I thought you've done a really good job keeping shareholders updated and communicating. So I want to say thank you for that. I think

what I take away most from this is that I hope your sense that things will get back to normal and we haven't seen such complete permanent change just because of the pandemic. I hope that ends up being the case. So I appreciate your insights on that. And I just want to thank you on behalf of the audience. Well, Josh, it's a thrill. Thank you very much for having me. Oh, it's my pleasure. And we'll talk soon, my friend.

All right. Everyone, that's been Chris Volk. And you can learn more about Store Capital at their website. Are you storecapital.com? Yes. Okay. All right, Chris, thanks a lot. Thanks for listening.

Check us out at thecompoundnews.com for daily. Thanks for listening. Check us out at the compound news.com for daily investing and market insights. You can watch all of our videos at youtube.com slash the compound RWM. Talk to you next week.