2023-08-28 00:54:41 ET
Summary
- Getty Realty last declared a quarterly cash dividend in line with its prior payment, offering a 5.7% dividend yield.
- GTY is quite low risk from a gearing perspective and has maintained a healthy pace of dividend hikes for its common shareholders.
- A 130% dividend coverage and a heavy pace of new property acquisitions have set the backdrop for more near-term dividend hikes.
Getty Realty ( GTY ) last declared a quarterly cash dividend of $0.43 per share , in line with its prior payment and for a 5.7% dividend yield. The internally managed net lease REIT has a distinct specialization on single-tenant convenience and automotive retail real estate. It owned 1,053 properties that held a 99.6% occupancy rate as of the end of its fiscal 2023 second quarter. These come with 1.7% annual rent escalators with a weighted average lease term remaining of around 8.7 years.
Critically, Getty is quite a low risk from a gearing perspective with a 4.9x net debt to EBITDA and a trailing 12-month 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. Is the REIT a buy? Depends. Getty has been heavy on maintaining a healthy pace of dividend hikes for its common shareholders with its quarterly cash dividend up by a 5.2% compound annual growth rate over the last 3 years. This is also ahead of its peer group's median dividend growth rate of 4.2%.
The Premium To Book
However, Getty is currently swapping hands at a significant 77% premium to a book value of $860 million, around $17.03 per share, as of the end of its second quarter. Hence, there is no inherent margin of safety against a REIT investment universe where a plethora of tickers have seen their discount to book and yield grow in tow as a response to a Fed that remains cautiously hawkish even with the Fed funds rate sitting at a 22-year high. Indeed, the REIT has always traded at a premium, but this gap has seemingly grown since the start of 2023 with a 6% short interest now built in the commons.
Getty is quite diversified in that it owns properties across 39 states and Washington, D.C. Bulls would also be right to flag that automobility remains the dominant form of consumer transportation with automotive retailers essentially being essential recession-resistant businesses. However, the REIT's explicit focus on automotive-related retail properties opens up a distinct type of risk around long-term macro trends from the rise of EVs. Getty was originally known as the Getty Oil Company, an oil marketing company, whose real estate assets were spun off from all the petroleum marketing and distribution assets after a 1985 sale of the original whole company to Texaco was litigated.
Cox Automotive
To be clear, we are still in extremely early days but 692 of Getty's properties representing $112.3 million of annualized based rents were tied to convenience and gas stations. With the REIT's ABR as of the end of its second quarter at $160 million, convenience and gas stations represented 70% of ABR, Car wash represented 15% of ABR, and legacy gas and repair represented 10% of ABR.
Critically, electric vehicles are the future of transport with US sales of 809,000 units in 2022. This was around 5.7% of total cars sold and was set against an 8% decline in the US new vehicle market last year. The decline of the internal combustion engine is a multi-decade trend with EV sales on track to surpass one million units in 2023. The EV future is real with more states including California instituting hard dates for the total phase-out of new ICE vehicle sales to eventually spark an infection point in EV adoption.
Revenue Beats As Further Dividend Hikes In View
Getty recorded second-quarter revenue of $43.66 million , up 7% over its year-ago comp and a beat by $1.03 million on consensus estimates. Funds from operations came in at $0.52 per share, down from $0.83 per share in the year-ago comp. However, this figure has to be adjusted for an unfavorable noncash environmental line item from a reduction in estimates related to environmental liabilities in the year-ago quarter. Adjusted FFO was $0.56 per share and grew 5.7% over its year-ago comp with Getty investing $50 million across 26 properties during the second quarter. Weighted diluted average common shares outstanding did increase 7% year-over-year to 49.989 million with Getty pushing through new equity sales earlier this year to diversify its funding stack away from just debt.
The REIT closed on the offering of 3 million shares for $100 million in gross proceeds in March and ended the quarter with $675 million of total debt outstanding, primarily senior unsecured notes with a weighted average interest rate of 3.9% and a weighted average maturity of seven years. Getty also still has access to significant liquidity with its $300 million revolving credit facility completely undrawn as of the end of the second quarter and with its nearest maturity in 2025. Growth is set to continue with the REIT closing on 12 new properties worth $52.5 million post-period end and with a committed investment pipeline of around $140 million for the development and acquisition of 44 properties. I like that the dividend is currently 130% covered by second-quarter adjusted FFO. This healthy coverage sets the backdrop for a future dividend raise especially with Getty keeping up the intensity with new acquisitions. The ticker forms a hold.
For further details see:
Getty Realty: A 5.7% Dividend Yield From Real Estate For Cars