What happened

Shares of real estate investment trust (REIT) Realty Income (NYSE:O) fell a fairly dramatic 19% over the first six months of 2020, according to data from S&P Global Market Intelligence. But that isn't the full picture: At one point in that span, the stock was down a much more troubling 40% or so. While things have clearly gotten better from that point, there are still big issues facing this REIT.

So what

Realty Income is a bellwether name in the net lease space. Net lease REITs are fairly conservative in that they own properties but their tenants are responsible for most of the operating costs of the buildings they occupy. So in some ways, Realty Income is insulated from a lot of the costs associated with adjusting to the coronavirus pandemic. That's the good news.

The acronym REIT on a binder with the words real estate investment trust below it

Image source: Getty Images

The bad news is that roughly 85% of Realty Income's rent roll is tied to retail properties (the rest is largely in office and industrial properties). When the United States shut down nonessential businesses and asked people to stay at home in an attempt to slow the spread of COVID-19, retailers were hit particularly hard. Realty Income managed to collect only 83% of its rents in April -- a terrible number -- and investors reacted accordingly, selling the shares.    

The U.S. economy is reopening, and investors have become more upbeat. Thus, Realty Income's shares have bounced off their lows. But with the recent uptick in COVID-19 cases in states that were early to reopen, it's clear that the coronavirus issue is nowhere near over. And that means Realty Income could still face notable headwinds.

In fact, the best-case scenario appears to be a slow and drawn-out reopening. The worst case would be some return of shutdowns, which would again put many of the company's lessees in a position of having limited revenue coming in.

Now what

Realty Income is highly likely to muddle through the impact of COVID-19 in one piece. But there could still be a lot of volatility along the way to a new normal depending on the path the pandemic takes. At this point, that path looks increasingly turbulent. Realty Income is a well-run REIT, but right now it might keep risk-averse dividend investors up at night.