Getty Realty Corp. (NYSE: GTY) is a diversified net lease real estate investment trust (REIT) that specializes in the acquisition, financing, and development of convenience, automotive, and other single-tenant retail properties. The company's portfolio includes 1,124 properties located across 42 states and Washington, D.C., with a focus on well-located, freestanding assets that support automobility and provide convenience and service to consumers.

Business Overview

Getty Realty's business model is centered around triple-net leases, where the majority of its tenants are responsible for property-level expenses such as taxes, maintenance, repairs, and environmental obligations. This structure provides the company with a reliable and growing stream of rental income, as evidenced by its strong financial performance.

Financials

For the full year 2023, Getty Realty reported annual net income of $60,151,000, annual revenue of $185,846,000, annual operating cash flow of $105,298,000, and annual free cash flow of $104,989,000. These figures demonstrate the company's ability to generate consistent and substantial cash flows, which it has used to fund its growth initiatives and maintain a healthy balance sheet.

In the second quarter of 2024, the company reported funds from operations (FFO) of $0.58 per share, beating the Zacks Consensus Estimate of $0.57 per share. Revenues for the quarter came in at $48.72 million, surpassing the Zacks Consensus Estimate by 0.43%. These results highlight Getty Realty's continued operational excellence and its ability to deliver value to shareholders.

Portfolio Diversification

The company's portfolio is well-diversified across its four primary asset classes: convenience stores, express tunnel car washes, automotive service centers, and certain other freestanding retail properties, including drive-thru quick service restaurants and automotive parts retailers. This diversification has been a key driver of Getty Realty's growth, as it has allowed the company to capitalize on opportunities across various sectors of the retail landscape.

Recent Investments

During the first half of 2024, Getty Realty invested $103.8 million in gross acquisitions at an initial cash yield of 7.9%, expanding its presence in its target markets and asset classes. The company's investment pipeline remains robust, with more than $53 million of acquisitions and development funding transactions currently under contract at average yields approaching the mid-8% range.

Management Expertise

Getty Realty's management team has a proven track record of successfully navigating market cycles and identifying accretive investment opportunities. The company's deep industry relationships, underwriting expertise, and disciplined capital allocation have enabled it to consistently grow its portfolio and deliver strong financial results.

Outlook

Looking ahead, the company has provided full-year 2024 AFFO guidance in the range of $2.30 to $2.32 per share, representing growth of approximately 2.7% over the prior year. This guidance reflects the company's confidence in its ability to continue executing its growth strategy and generating value for shareholders.

Tenant Quality

One of the key strengths of Getty Realty's business model is its focus on high-quality, institutional-grade tenants. The company's top three tenants – Global Partners LP, ARKO Corp., and APRO, LLC – account for a significant portion of its total revenues, underscoring the creditworthiness and stability of its tenant base.

Geographic Focus

Furthermore, Getty Realty's portfolio is strategically concentrated in the Northeast and Mid-Atlantic regions of the United States, which the company believes offer unique and not readily available acquisition opportunities. This geographic focus has allowed the company to build a portfolio of well-located, freestanding properties that serve as critical infrastructure for its tenants' operations.

Risks and Challenges

The company's environmental obligations and liabilities are another important aspect of its business. Getty Realty has established robust processes and procedures to manage its environmental responsibilities, including the allocation of these costs to its tenants through its triple-net lease structure. The company's proactive approach to environmental stewardship has helped it mitigate risks and maintain a strong financial position.

Liquidity

In terms of liquidity and capital structure, Getty Realty is well-positioned to fund its growth initiatives. As of June 30, 2024, the company had more than $315 million of available liquidity, including $280 million in undrawn capacity on its revolving credit facility and $36 million in unsettled forward equity. This ample liquidity, combined with the company's investment-grade credit profile and prudent leverage management, provides Getty Realty with the financial flexibility to capitalize on attractive investment opportunities while maintaining a strong balance sheet.

Conclusion

Overall, Getty Realty's diversified portfolio, experienced management team, and disciplined approach to capital allocation have positioned the company for continued success. As the company navigates the evolving retail landscape, its focus on high-quality, mission-critical properties and creditworthy tenants is expected to drive sustainable growth and deliver value to its shareholders.