STORE Capital (STOR) announced operating results for the second quarter ended June 30, 2020. STOR Capital is an internally managed net-lease real estate investment trust (REIT) that invests in Single Tenant Operational Real Estate.Highlights For the quarter ended June 30, 2020:
- Total revenues of $168.3 million
- Net income of $40.6 million, or $0.16 per basic and diluted share, including an aggregate net gain of $0.5 million on dispositions of real estate
- AFFO of $108.7 million, or $0.44 per basic and diluted share
- Declared a regular quarterly cash dividend per common share of $0.35
- Invested $135.4 million in 21 properties at a weighted average initial cap rate of 8.7%
- Raised $176.9 million in net proceeds from the sale of an aggregate of approximately 8.8 million common shares under the Company’s at-the-market equity program
- Total revenues of $346.2 million
- Net income of $103.3 million, or $0.42 per basic and diluted share, including an aggregate net gain of $3.3 million on dispositions of real estate
- AFFO of $228.8 million, or $0.93 per basic and diluted share
- Declared regular cash dividends per common share aggregating $0.70
- Invested $399.5 million in 78 properties at a weighted average initial cap rate of 7.9%
- Raised $325.5 million in net proceeds from the sale of an aggregate of approximately 12.9 million common shares under the Company’s at-the-market equity program
“We entered the second quarter at a time of great uncertainty, with commerce broadly curtailed. What our team has accomplished since then is impressive,” said Chris Volk, President and Chief Executive Officer of STORE Capital. “We have worked closely with our tenants and realized rent collections for the second quarter of 73% of contract rents and interest, with less than 2% of our rents unresolved. Today, 92% of our properties are open for our tenants to conduct business, up from just 65% in April. The result has been a steady increase in rent collections to 85% for the month of July. At the same time, our sustained investment activity offers attractive investor returns and we have reduced corporate leverage to historic lows. Our rent collections trajectory has been made all the better by our sector-leading investment yields and our low dividend payout ratio at the outset. An important outcome of this performance was the June reaffirmation of our $0.35 quarterly dividend. As we look ahead, we are confident in the prospects of our tenants and the sectors in which they participate. We expect that our collective hard work will allow us to benefit from deferred and lost rent collections, continued accretive investment activity and sustained dividend stability.”
Financial Results
COVID-19 Update
The second quarter of 2020 saw disruption in commercial business activity for many of the Company’s tenants who operate in industries that were highly impacted during various government-mandated shelter-in-place and social distancing orders that were put in place in response to the novel coronavirus (COVID-19) pandemic. Within the Company’s portfolio, the industries most adversely impacted by the limitations on their business activities were restaurants, movie theaters, education, family entertainment, health clubs and furniture retailers. The Company received tenant requests for rent relief, primarily through short-term rent deferrals or lease modifications, some of which resulted in reporting lower revenues during the quarter. Nearly three-quarters of the rent relief requests came from tenants operating in the highly impacted industries. Other financial impacts from COVID-19 include an increase in property costs related to underperforming tenants in the highly impacted industries and an increase in interest expense related to the Company’s draw down of the full amount of its revolving credit facility in order to maintain excess liquidity on its balance sheet during the period of uncertainty surrounding the pandemic.
Total Revenues
Total revenues were $168.3 million for the second quarter of 2020, an increase of 2.7% from $163.8 million for the second quarter of 2019.
Total revenues for the first half of 2020 were $346.2 million, an increase of 8.0% from $320.4 million for the first half of 2019. The increase was driven primarily by the growth in the size of STORE Capital’s real estate investment portfolio, which grew from $8.3 billion in gross investment amount representing 2,389 property locations and 456 customers at June 30, 2019 to $9.2 billion in gross investment amount representing 2,554 property locations and 503 customers at June 30, 2020. Partially offsetting the revenue increases generated by the growth in the Company’s portfolio was the financial impact of the COVID-19 pandemic as previously noted.
Net Income
Net income was $40.6 million, or $0.16 per basic and diluted share, for the second quarter of 2020, as compared to $68.0 million, or $0.30 per basic and diluted share, for the second quarter of 2019. Net income for the second quarter of 2020 included an aggregate net gain on dispositions of real estate of $0.5 million, as compared to an aggregate net gain on dispositions of real estate of $15.0 million for the same period in 2019.
Net income includes such items as gain or loss on dispositions of real estate and provisions for impairment, which can vary from quarter to quarter and impact net income and period-to-period comparisons.
Net income for the six months ended June 30, 2020 was $103.3 million, or $0.42 per basic and diluted share, compared to $113.5 million, or $0.50 per basic and diluted share, for the six months ended June 30, 2019. Net income for the first half of 2020 included an aggregate net gain on dispositions of real estate of $3.3 million as compared to $13.1 million for the same period in 2019.
Adjusted Funds from Operations (AFFO)
AFFO decreased 4.8% to $108.7 million, or $0.44 per basic and diluted share, for the second quarter of 2020, compared to AFFO of $114.2 million, or $0.50 per basic and diluted share, for the second quarter of 2019.
AFFO for the six months ended June 30, 2020 was $228.8 million, or $0.93 per basic and diluted share, an increase of 3.0% from $222.0 million, or $0.99 per basic share and $0.98 per diluted share, for the six months ended June 30, 2019.
AFFO for the three- and six-month periods in 2020 rose on additional rental revenues and interest income generated by the growth in the Company’s real estate investment portfolio and were offset, most notably in the second quarter, by the impact of the COVID-19 pandemic as noted above.
AFFO for both the three and six months ended June 30, 2020, included approximately $38.2 million of revenue that is subject to temporary deferral arrangements with tenants primarily operating in industries most impacted by government shelter-in-place and social distancing orders in response to the COVID-19 pandemic. The Company accounts for these deferral arrangements as rental revenue and a corresponding increase in lease receivables as tenant payments are accrued.
Dividend Information
As previously announced, STORE Capital declared a regular quarterly cash dividend per common share of $0.35 for the second quarter ended June 30, 2020. This dividend, totaling $88.7 million, was paid on July 15, 2020 to stockholders of record on June 30, 2020.
Real Estate Portfolio Highlights
Investment Activity
As a result of the onset of the COVID-19 pandemic in the first quarter of 2020, the Company reduced its acquisition activity, originating $135.4 million of gross investments representing 21 property locations during the latter part of the second quarter of 2020. These origination and other activities resulted in the creation of 15 new customer relationships. The investments had a weighted average initial cap rate of 8.7%. Total investment activity for the first half of 2020 was $399.5 million representing 78 property locations with a weighted average initial cap rate of 7.9%. The Company defines “initial cap rate” for property acquisitions as the initial annual cash rent divided by the purchase price of the property. STORE’s leases customarily have lease escalations, most of which are tied to the consumer price index and subject to a cap. For acquisitions made during the second quarter of 2020, the weighted average stated lease escalation cap was 1.8%.
Disposition Activity
During the six months ended June 30, 2020, the Company sold 25 properties and recognized an aggregate net gain on the dispositions of real estate of $3.3 million; 16 of these 25 properties were sold in the second quarter for an aggregate net gain of $0.5 million. For the six months ended June 30, 2020, proceeds from the dispositions of real estate aggregated $63.8 million as compared to an aggregate original investment amount of $75.7 million.
Portfolio
At June 30, 2020, STORE Capital’s real estate portfolio totaled $9.2 billion representing 2,554 property locations. Approximately 93% of the portfolio represents commercial real estate properties subject to long-term leases, 7% represents mortgage loans and financing receivables on commercial real estate properties and a nominal amount represents loans receivable secured by the tenants’ other assets. The weighted average non-cancelable remaining term of the leases at June 30, 2020 was approximately 14 years with leases representing less than 3% of our portfolio scheduled to expire in the next five years.