On Monday, Realty Income (O) released earnings and reported that 83% of rent was collected in April. Given the circumstances, April rent collection was better than expected and beat that of all other retail REITs we've studied. Source: Company Press Releases The top four industries in Realty Income's portfolio have fared well during coronavirus-related shutdowns so far. Convenience stores (11.9% of rent), drug stores (9.0%), dollar stores (8.0%), and grocery stores (7.7%) all remain open and provide essential goods at low price points to consumers.

Leggett & Platt (LEG) has weathered many challenges over its 137-year existence while managing to increase its dividend for nearly 50 consecutive years. But the coronavirus pandemic could be a perfect storm for the dividend. After digesting the company's earnings call on Tuesday, we believe there is elevated risk that management could cut the dividend, potentially as soon as this month. Based on our analysis below, we are downgrading Leggett & Platt's Dividend Safety Score to Unsafe. Leggett & Platt's revenue reached a low point in the first week of April, down 60% versus the weekly average. Trends have been recovering since then, but sales in the third week of April were still down 45% compared to the weekly average. For [...]

Welltower (WELL) reported earnings after the market closed today and announced plans to reduce its dividend by 30%: The financial headwinds resulting from the pandemic will create significant pressure on our near-term cash flow, leading to the difficult, but prudent decision to reduce our quarterly dividend to 70% of pre-COVID levels. Based on WELL's closing price, the stock's new forward yield is 5.4%. As we discussed in our note yesterday when we downgraded Welltower's Dividend Safety Score to Borderline Safe, it wasn't clear how management might respond to the headwinds facing the business:  The company has the balance sheet and liquidity to maintain its dividend during this period, but management may choose not to without more clarity on the depth and duration of these coronavirus-related [...]

National Retail Properties (NNN) reported earnings yesterday and revealed that a dismal 48% of rent went uncollected in April. May could be even worse than April as shutdowns persist and more businesses grapple with reduced economic activity and no return to normalcy in sight. Troubling NNN is the firm's high exposure to several industries impacted heavily by the pandemic, namely restaurants (19.9% of rent), family entertainment centers (6.7%), gyms (5.2%), and theaters (4.7%). Source: NNN Supplemental NNN's focus on non-investment grade tenants may be hurting performance as well. Management noted that they were more successful collecting rent from investment grade tenants, who comprise only 18% of NNN's portfolio.

On April 10, we published a note reviewing Welltower's (WELL) dividend safety and exposure to the coronavirus pandemic. More information about the state of the senior housing market has trickled in since then, and it's been worse than expected. As a result of these headwinds, we believe Welltower's cash flow may no longer cover its dividend for at least a couple of quarters. The company has the balance sheet and liquidity to maintain its dividend during this period, but management may choose not to without more clarity on the depth and duration of these coronavirus-related headwinds. In light of these mounting challenges and the uncertainty they create for the payout, we are downgrading Welltower's Dividend Safety Score to Borderline Safe.

Brookfield Property Partners L.P. (BPY) is a major owner, operator, and investor in commercial real estate. In 2019, the firm generated approximately 46% of its net operating income (NOI) from retail assets, 35% from offices, and 19% from equity investments in Brookfield-sponsored real estate opportunity funds. We expect the coronavirus pandemic to impact each of these income sources, pressuring Brookfield Property's credit metrics and causing its distribution to no longer be covered by cash flow in at least the short to medium term. As a result, we are downgrading Brookfield Property's Dividend Safety Score from a low Borderline Safe score to Unsafe. Brookfield Property's office portfolio (35% of NOI) will likely be the most resilient. These properties are primarily located in gateway markets [...]

The coronavirus pandemic creates several challenges for Iron Mountain (IRM). The business seems likely to remain a cash cow and has reasonable liquidity, but these emerging issues have potential to reduce the REIT's financial flexibility. This could be problematic given Iron Mountain's ongoing investments to evolve its business model for the digital world, plus the firm's already elevated leverage profile. The dividend is central to Iron Mountain's investment case. But depending on the severity and duration of COVID-19 headwinds that impact the business, it's not out of the question that management could reduce the dividend to protect the firm's balance sheet as it continues investing in its future. Based on our analysis below, we are downgrading Iron Mountain's Dividend Safety [...]

W.P. Carey (WPC) reported earnings this morning. Thanks to its diversified footprint, favorable retail exposure, and disciplined underwriting, the REIT collected over 95% of April rents and reiterated support for its dividend: Our capital needs in the near term are minimal, and we continue to expect that our earnings will more than cover our dividend. W.P. Carey owns over 1,200 net-leased properties focused on industrial (24% of rent), office (23%), warehouse (22%), retail (17%), and self-storage (5%) markets. Only 2% of the company's rent is from retail markets that are most impacted by COVID-19 lockdowns: fitness facilities, theaters, and restaurants. Almost none of that rent was paid. About two-thirds of W.P. Carey's retail rent comes either from do-it-yourself retailers or from grocery, [...]

Royal Dutch Shell (RDS.B) announced plans to reduce its dividend by 66%, marking its first cut since World War II. Shares of Shell are down about 13% in early trading. Based on their current price and the new payout, shares have a dividend yield near 4%. Shell had a low (45) Borderline Safe Dividend Safety Score prior to this announcement. The company's murky score reflected Shell's elevated leverage and poor dividend coverage in the short term, partially offset by management's past commitment to the payout and the firm's ability to borrow for a period of time until prices improved.

Caterpillar (CAT) reported earnings on Tuesday, and the coronavirus pandemic's impact was already evident in its results; sales fell 21% and profits tumbled 39%.  Management said that the impact of COVID-19 on Caterpillar's business "has been significantly more severe and chaotic than any cyclical downturn we had envisioned." But this isn't Caterpillar's first rodeo, and the company enters this downturn with the financial and operational strength necessary to continue supporting its dividend: "We continue to expect our strong financial position to support the dividend. As a reminder, Caterpillar has paid a quarterly dividend every year since 1933 through a variety of challenging business conditions. We remain committed to returning substantially all our free cash flow to shareholders through the cycles." – CEO [...]