Shares of real estate investment trust (REIT) STORE Capital (STOR) advanced 23% in June according to data from S&P Global Market Intelligence. That follows a general uptrend over the last couple of months after a disastrous decline earlier in the year (between late February and late March). In fact, at one point, the stock was down more than 60%. Despite a strong recovery from those lows, the stock was still off by more than a third through the first six months of the year.
STORE owns retail properties. When the government attempted to slow the spread of COVID-19 by shutting down non-essential businesses and asking people to stay at home, STORE's properties were materially impacted. The company only collected 68% of its April rents. Thus the sharp price decline earlier in the year. That's important because it sets the stage for the current stock advance.
Notably, the economic reopening process has begun across the country. This should allow for STORE's lessees to reopen and, in turn, should lead to better rent collection numbers. Investors have, understandably, become more upbeat on STORE's shares. It's worth remembering that, because it operates using a net lease structure, the REIT's lessees are responsible for most of the operating costs of the properties they occupy. Thus, STORE really doesn't face much of a cost impact from the coronavirus. It just has to wait until its lessees are back up and running again and then collect rent.
However, the path of the recovery process will be a big issue. And, at best, it has been rough, especially as COVID-19 cases are on the rise again. That helps explain why STORE's shares rose sharply into early June, then sold off, and have basically flatlined since. It's highly likely that the reopening process will be slow and bumpy, which means it is too soon to tell when STORE's rent collections will improve to pre-COVID-19 levels. So things have improved, but just how much is hard to tell, and could change with the progress of the broader U.S. reopening process.
STORE Capital's IPO was in late 2014, well after the last recession ended. As such, there isn't much history to look at to see how management has handled adversity in the past. Granted, COVID-19 is a unique situation, but long-term investors might want to err on the side of caution here and go with net lease peers that have lived through adversity before.