Getty Realty Keeps Pumping Out Cash (NYSE:GTY) – Seeking Alpha | CarTailz

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REITs come in all shapes, sizes and shapes. While there are some like Armada Hoffler Properties (AHH) that are diversified into different property classes, there are others like Simon Property Group (SPG) and Getty real estate company (NYSE:GTY) are more of a pure-play type.

It’s been a few months since I last reported on Getty Realty and the stock has performed admirably since then, delivering a total return of 10.4%, driving the S&P 500 (SPY) up 1.6%. has far surpassed. While GTY has gotten more expensive, I’ll show why it’s still worth considering for high-income growth investors, so let’s get started.

Why GTY?

Getty Realty is an internally managed REIT with an enterprise value of $2.0 billion, making it the largest REIT dedicated to the acquisition and development of convenience, automotive and other single-tenant properties. It currently has a large portfolio of 1,021 freestanding properties spread across 38 US states plus Washington DC

What sets GTY apart from many other net-leasing REITs is its sheer focus primarily on auto-related assets, many of which come with a convenience-store component. This allows management to focus on their core competency with fewer distractions.

Additionally, 71% of GTY’s properties are in corner areas with the most traffic, and 65% of its properties are in the top 50 US MSAs. which accounts for 73% of the portfolio’s annual base rent, versus contaminated sites and repairs, which now account for 11%.

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GTY portfolio mix (investor presentation)

If there is such a thing as a recession-resistant REIT sector, it seems that convenience stores are. As shown below, C-Store’s sales have grown steadily over the past 40 years through a variety of economically challenging times.

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C-Store Sales (Presentation for Investors)

GTY benefits from the fact that its properties are economically imperative and recession-proof, considering gas stations are a staple for most consumers, much like groceries from the store. Also, the fact that GTY is a net-lease landlord means it receives a constant rental payment regardless of fluctuations in fuel purchases during and outside of peak travel periods. This is reflected in the fact that GTY’s tenants average a healthy rental coverage of 2.7 and the leases have a long weighted average term of 8.6 years.

Meanwhile, GTY continues to demonstrate strong portfolio fundamentals with an occupancy rate of 99.6% at the end of the third quarter. The core property base continues to grow, with GTY acquiring 24 properties on a YTD basis for $80.5 million, including a mix of car washes and convenience stores. In addition, GTY has a robust investment pipeline of over $150 million to acquire and develop 44 convenience stores, auto repair shops and car washes.

This is supported by a strong BBB Fitch rated balance sheet, with a low net debt to EBITDA ratio of 4.9x, accompanied by a strong fixed cost recovery ratio of 4.0x. Also encouraging is that GTY’s now higher share price now supports the potential for more value-added capital increases. Management highlighted its attractive investment pipeline during the recent conference call:

The dedicated efforts of our team have resulted in a net increase in our investment pipeline to more than $150 million from the acquisition and development of industry-new convenience stores, auto service centers and car washes, which we expect to fund over the next year or so.

Equally important, our strong cash position and select capital raising activities will allow us to lock in attractive investment spreads and fund these transactions with value additions. Brian will elaborate further on this in his comments, but we have already obtained or identified financing for approximately 75% of this transactional activity at costs well within prevailing market rates.

Our strategy continues to emphasize owning quality properties and partnering with growing regional and national operators in the convenience and automotive retail sectors. With our relationships, underwriting expertise and a growing range of opportunities, we are confident in our ability to continue executing our investment strategy and further diversify our portfolio while operating in an environment where asset pricing is currently undergoing significant changes changes, stay disciplined.

In particular, some believe that the gas station could one day go down the do-do route as electrification advances. However, I believe that EV growth may be overstated considering that there have been early adopters in recent years, while middle of the road adopters will be harder to convince, particularly given the environmental concerns and supply constraints surrounding lithium, a key component of car batteries. This has led to automaker Toyota Motor(TM) warning against going all-electric and retaining its range of gas-powered cars for the foreseeable future.

Meanwhile, GTY is currently yielding an attractive 5.3% and the dividend is well backed by an AFFO payout ratio of 79.6% (based on AFFO per share of $0.54 in Q3). It also comes with 8 years of uninterrupted growth and a respectable 5-year dividend CAGR of 7.9%, one of the highest in the net-league sector.

While GTY is no longer very cheap at the current price of $32.76, it still trades lower than its Net Lease peers with an expected P/FFO of just 14.1. For reference, Realty Income (O) is currently trading at a P/FFO of 16.2 and Agree Realty Corp. (ADC) comes in at a P/FFO of 17.9. While GTY lacks the storied history of these two REITs, it does have a comparatively strong balance sheet, and the sheer focus means management can be more focused in its strategy.

Investor Takeaway

Income investors would do well to take a closer look at Getty Realty to increase exposure and diversification of the net lease sector. With its strong balance sheet, attractive dividend yield, and solid growth prospects, GTY looks like a promising earnings idea over the long term.

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