The stock market remained on the defensive Thursday, as the Dow Jones Industrial Average (^ DJI -0.56%), S&P500 (^GSPC -1.13%)and Nasdaq Compound (^IXIC 0.00%) continued to lose ground after Tuesday’s latest economic report on consumer prices. Nervousness about the likely course of Federal Reserve monetary policy and the impact of rising interest rates on the future outlook for the economy weighed on investor sentiment.


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Stock prices across the market have fallen enough that many value-seeking investors are starting to see bargains they can’t resist. Often, the best sign of attractive investment opportunities comes when institutional investors begin to make strategic acquisitions of assets they believe are undervalued. The latest announcement from STORE Capital (STOCK 19.89%) early Thursday provided evidence that real estate investment trusts could be an area investors looking for bargains should take a closer look at for possible ideas.

STORE Capital goes private

Shares of STORE Capital closed the day up 20%. The mid-market net-lease REIT received an offer too good to be turned down by institutional investors seeking to take it private.

STORE Capital’s board of directors has accepted an offer from global investment institution GIC and net-lease investment specialist Oak Street to acquire the REIT for $14 billion. Under the terms of the agreement, current STORE Capital shareholders will receive $32.25 per share in cash, giving them a nice boost from the share’s closing price of $26.79 on Wednesday before the announcement of the agreement.

Buyers gave the best bullish case for STORE Capital’s business. A GIC executive noted that STORE is one of the largest real estate companies dedicated to single-tenant leasehold properties in the U.S. market, and its focus on serving middle-market businesses to meet their real estate needs should continue to grow. produce solid growth well into the future. Oak Street agreed, noting that it already has exposure to the triple net rental asset class and indicating its confidence that STORE can continue to follow its successful sale-leaseback business model to generate strong returns for it. and its partners at GIC.

Good news for long-term investors?

Getting an immediate 20% increase in stocks sounds like a nice win. But it’s important to put the move into perspective. Even with the winnings, the trade price is over 20% underneath where the REIT’s shares traded in 2019.

Granted, that was before the global pandemic sent the housing market tumbling. The impact of the takeover now, however, is that REIT shareholders will not have the opportunity to remain long-term investors in STORE and participate in the full recovery hoped for for the industry.

Meanwhile, interest in STORE has some opportunistic investors wondering if the rest of the real estate sector might be ready for further consolidation. Movements among some of the top REITs in the industry have been relatively subdued, with Real estate income (O -3.03%) 3% drop over the day, specialist in single-tenant industrial SCPIs STAG Industrial (STAG 0.91%) picking up only 1%, and retail REITs Simon Real Estate Group (GPS -0.49%) half percent lower easing.

Despite attractive dividend yields and reasonable valuations, these REITs come with risks. With interest rates rising and the threat of economic disruption ahead, recessionary conditions could lead to higher default rates which could jeopardize some of the income generated from these investments. However, with STORE Capital acquirers willing to take on this risk, you may want to take a second look at the Real Estate Investment Trust space to research other promising companies in the space.

Dan Caplinger has no position in the stocks mentioned. The Motley Fool fills positions and recommends STORE Capital and Stag Industrial. The Motley Fool recommends Simon Property Group. The Motley Fool has a disclosure policy.