HomeMost PopularGetty Realty: Real Estate Investments with a 5.7% Dividend Yield

Getty Realty: Real Estate Investments with a 5.7% Dividend Yield

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A Shell gas station at dusk in Irving, Texas, USA

Getty Realty (NYSE:GTY) recently announced a quarterly cash dividend of $0.43 per share, maintaining its previous payment and resulting in a dividend yield of 5.7%. This internally managed real estate investment trust specializes in single-tenant convenience and automotive retail properties. It currently owns 1,053 properties with a 99.6% occupancy rate. These properties have an annual rent escalation of 1.7% and an average remaining lease term of approximately 8.7 years.

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Getty Realty has a low risk profile, with a net debt to EBITDA ratio of 4.9x and a net debt to capital ratio of 44.56% as of the end of its second quarter. This is 11% lower than its peer group median. The company has consistently increased its dividend for common shareholders, with a compound annual growth rate of 5.2% over the past three years, surpassing its peer groupโ€™s median growth rate of 4.2%.

The Premium To Book

However, Getty Realty is currently trading at a significant 77% premium to its book value of $860 million, which amounts to approximately $17.03 per share. This lack of margin of safety is notable considering the current market environment where many REITs are experiencing a growing discount to book value. It is important to consider this premium when evaluating the investment. Additionally, Getty Realty has a 6% short interest in its common shares, indicating bearish sentiment.

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Getty Realty owns properties across 39 states and Washington, D.C., providing diversification. However, its focus on automotive-related retail properties poses a unique risk in light of long-term macro trends, such as the rise of electric vehicles (EVs). The company was originally part of the Getty Oil Company and spun off its real estate assets after a 1985 sale. Approximately 70% of the companyโ€™s ABR (annual base rent) is derived from convenience and gas stations, while car washes represent 15% and legacy gas and repair facilities account for 10%.

US EV sales growth

Electric vehicles are the future of transportation, with EV sales in the US reaching 809,000 units in 2022, accounting for 5.7% of total car sales. This trend is expected to continue, with EV sales projected to surpass one million units in 2023. Many states, including California, have set dates for phasing out new internal combustion engine vehicle sales, further driving the adoption of EVs.

Revenue Beats and Future Dividend Hikes

Getty Realty Fiscal 2023 Second Quarter Income Statement

In the second quarter, Getty Realty generated revenue of $43.66 million, a 7% increase compared to the previous year, exceeding consensus estimates by $1.03 million. Adjusted funds from operations (FFO) per share amounted to $0.56, representing a 5.7% growth over the prior year. The company invested $50 million across 26 properties during the quarter. Despite a 7% increase in diluted average common shares outstanding, Getty Realty has a healthy coverage ratio for its dividend, with second-quarter adjusted FFO covering it by 130%. With ongoing acquisitions and a strong coverage ratio, dividend growth is expected in the future.

Getty Realty raised $100 million in gross proceeds through the offering of 3 million shares in March. It ended the quarter with $675 million of total debt outstanding, primarily in the form of senior unsecured notes with favorable interest rates and maturities. The company still has access to ample liquidity through a $300 million revolving credit facility. It recently closed on the acquisition of 12 new properties worth $52.5 million and has a committed investment pipeline of approximately $140 million for the development and acquisition of 44 properties. Given these factors, maintaining a hold on the stock is recommended.

Source: Seekingalpha.com

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