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STORE's Rent Collection Improves to 85% in July Despite Rise in COVID Case Levels

On Monday, STORE reported that as of July 17 it had received 85% of rent due this month. That's up from 71% in April, 68% in May, and 78% in June.

The improved collection rate was driven by higher rent collected from tenants in the restaurant (14% of rent), education (7%), and furniture (6%) sectors.

About 40% of STORE's rent comes from industries that faced temporary closures due to COVID-19, and those three sectors represent the REIT's highest exposures.

Management estimates that 92% of STORE's locations are currently open for business, including the most recently mandated business closures, which is slightly ahead of where STORE was in June (91%) and well ahead of April (65%).

While some sectors are facing renewed closure mandates, such as indoor dining in restaurants, other areas, such as education, are showing some promising trends.

It's also possible that the government's Paycheck Protection Program (PPP) is helping with rent collections (6.5% of STORE's tenants used PPP funds in June), but STORE didn't address this in its press release.

Importantly, management believes that nearly 90% of STORE's rent is from tenants "located in markets exhibiting low COVID case levels."

In areas with higher infection rates, STORE said it generally has low exposure to industries that have been subject to renewed closure mandates.

Despite its exposure to several hot spots, including Texas (10.6% of rent), Florida (5.4%), Georgia (5.1%), California (5%), and Arizona (4.6%), STORE's tenant, geographic, and sector diversity are helping its overall results.

We previously estimated that STORE's rent revenue could fall about 22% before cash flow would no longer cover the dividend, so July's 85% collection rate is encouraging to see.

One month doesn't make a trend, especially with how choppy the retail environment will be as some state's pause or reverse their reopening plans, but STORE's short-term outlook continues stabilizing.

STORE reports second-quarter results on August 5 and will share more details on its performance. We plan to maintain STORE's Borderline Safe Dividend Safety Score until its rent collection improves to more normalized levels.

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