STORE Capital Corp (NYSE: STOR) is finding favour with investors again as the REIT’s shares surged by 4.2% on Monday.
Tim’s Take:
STORE Capital has been hit hard by the Covid-19 pandemic. STORE – which stands for Single Tenant Operational Real Estate – has seen its shares fall 25% so far in 2020 (although they’ve more than doubled off their March lows).
That’s not been a surprise. Its tenant base has been hard hit by the pandemic – the likes of restaurants, day-care centres, cinemas and health clubs, many of which were shut or operating at limited capacity during the worst of the lockdown in the US.
But is it time for investors to take a chance on this REIT? One thing in its favour is the fact that Warren Buffett’s Berkshire Hathaway Inc (NYSE: BRK.B) recently bought an additional 5.8 million shares of STORE Capital to add to the 18.6 million it already owned.
Operating in what’s known as the “Net Lease” sector, STORE Capital affords investors the ability to buy into REITs that own free-standing buildings with long-term lease contracts.
It’s an increasingly popular space for REITs to operate in given the broader reliability of rental income (in normal times anyway).
Recovering rental collections
In STORE’s case, the REIT is certainly recovering from its recent hammering. After having collected just 67% of rent in May, this has progressively picked up and hit 86% and 88%, respectively, in August and September, according to the company.
Meanwhile, its properties that were open for business rose to 98% in September, from 93% in August. The REIT’s portfolio has investments in over 2,500 properties across the US so it ticks the diversification box from the risk perspective.
Its latest second-quarter numbers saw adjusted funds from operations (FFO) of US$0.44 per share while it still paid out a dividend of US$0.35. That was amid a scenario where a number of tenants were not able to pay rent.
Currently yielding 5%, and having the honour of being the only REIT in Berkshire’s portfolio, the company looks like a strong recovery play once the US economy – eventually – fully recovers.
Investors could be waiting a while for that but real estate, and STORE’s dividend, don’t look like they’re going anywhere any time soon.
Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.
