Shares of STORE Capital (STOR 0.30%), a retail-focused net lease real estate investment trust (REIT), fell about 5% out of the gate on May 4. It then spiked downward, hitting a 10% decline, before just as quickly recovering some ground. By 11:30 a.m. EDT, the stock was trading with a roughly 6% decline. This type of movement a day before the REIT was scheduled to announce earnings on May 5 suggests that a large investor was looking to reduce its exposure to the stock prior to that release.
So far, 2020 has been a very tough year for STORE Capital shareholders, with the stock down by roughly 50%. One of the big problems here is that STORE's portfolio is heavily weighted toward retail. Many of its tenants have been considered nonessential during the COVID-19 business shutdowns as the government has looked to slow the spread of the novel coronavirus. In fact, first-quarter results are likely to include some very negative news.
For example, on an April 17 conference call, STORE announced that it had received just 64% of contracted rent for the month. Normally it would have expected to have received all of its April rents by that point. It worked with substantially all of the remaining tenants to sign short-term deferral deals. It's impressive that the REIT worked so quickly to address this issue, but it's troubling that the rent payment numbers are so low. The first quarter probably won't reflect much of a financial hit, since the period ended in March. It's the outlook to which investors are going to be paying the most attention, and the rent shortfall in April doesn't paint a great backdrop. Management is likely to get a lot of questions about May rents, even though it will still be early in the month.
That said, STORE believes it has ample cash on hand to cover its expenses for an extended period of time. And on the April 17 conference call, it stated that it is still within its debt covenant restrictions and doesn't appear to be worried that the current headwinds will result in it breaking them. However, management did state that the board will be examining the dividend throughout the rest of the year based on the COVID-19 issues it's facing, so a dividend cut isn't out of the picture.
STORE Capital has been pretty open about the issues it faces. So nothing in tomorrow's release should be all that surprising (even if it includes a dividend cut). Dividend investors, however, should be paying very close attention to the outlook when STORE reports earnings -- at this point, the future doesn't seem quite as strong as it once was. Although the COVID-19 pandemic is an extreme event, the fact that STORE stumbled in the face of it shouldn't be forgotten when you compare it to other potential investment candidates.