In a report that has put pressure on a select number of its peers, Real Estate Investment Trust (REIT) Spirit Realty Capital (SRC 6.77, -2.15 -24.1%) reported worse than expected Q1 funds from operations, while also missing on revenues for the quarter.
Essentially, what SRC thinks the miss boils down to was their tenant market. SRC feels that given the record number of bankruptcies in consumer and retail related companies thus far in 2017, and given that Shopko is its largest tenant, they feel the need to adjust their outlook and approach for the balance of the year, including significantly reducing their acquisition activity. These issues notwithstanding, they remain confident that the company's portfolio remains financially strong.
Getting back to the results, SRC reported adjusted funds from operations of $0.20 on revenues which fell about 1.7% compared to a year ago to $165.42 million, both of which missed the mark. Additionally, the company sold 3 Shopko stores for $21.0 million in gross proceeds resulting in Shopko concentration now at 8.1% compared to 9.1% at March 31, 2016. Further, since the end of the first quarter, SRC has sold an additional 5 Shopko stores for $25.5 million in gross proceeds.
SRC also updates its 2017 AFFO per share guidance from that presented in November of 2016. The change is a result of two primary factors: first, increased credit losses, and second, the company withdrawing its prior $250 million net acquisition target. SRC believes that given the high number of retail and consumer industry related bankruptcies relative to recent years, and the fact that the company's largest tenant is a general merchandise retailer, it is not prudent to increase leverage in order to meet its previous net acquisition target. Based on these expectations, SRC currently anticipates 2017 AFFO per share to range from $0.80 to $0.84 per share. This guidance is a reduction compared to the $0.89-0.91 adjusted FFO guidance for the full year given in the Q4 earnings press release from February 22, 2017.
In summary, as a result of some unsavory commentary about its tenant market and some worse than expected results for the current quarter shares of SRC fall to all–time lows.