Business Overview and History

Getty Realty Corp. (GTY) is a net lease real estate investment trust (REIT) that has solidified its position as a leading player in the convenience and automotive retail real estate sectors. With a diversified portfolio spanning 42 states and Washington D.C., Getty has strategically expanded its reach, delivering strong financial performance and shareholder returns over the years.

Getty Realty was originally founded in 1955 and went public in 1997, listing its shares on the New York Stock Exchange. The company elected to be treated as a REIT for federal income tax purposes beginning in 2001, allowing it to operate as a pass-through entity and distribute the majority of its taxable income to shareholders.

Getty Realty has evolved from its origins as a petroleum marketing company to become a specialized net lease REIT focusing on the acquisition, financing, and development of convenience, automotive, and other single-tenant retail properties. In 2012, the company faced a significant challenge when its largest tenant at the time, Getty Petroleum Marketing Inc., filed for bankruptcy. Getty Realty successfully navigated this difficult situation by selling or re-leasing the majority of the impacted properties to new tenants.

Throughout the 2010s, Getty Realty continued to grow its portfolio of convenience store, gasoline station, and automotive service properties, taking advantage of consolidation trends in these industries. The company maintained a strong occupancy rate and weighted average lease term during this period, demonstrating the stability of its tenant base and real estate assets.

In the early 2020s, Getty Realty took steps to further diversify its portfolio beyond its traditional focus on convenience and gasoline properties. The company began acquiring more express tunnel car washes, automotive service centers, and other freestanding retail properties, mirroring the changing consumer preferences for convenience, speed, and service-oriented retail real estate. This diversification strategy has helped the company expand its tenant roster and geographic footprint in recent years.

As of December 31, 2024, the company's portfolio included 1,114 net lease properties, with 99.7% occupancy and a weighted average lease term of 10.2 years. The majority of these properties are leased on a triple-net basis to convenience store operators, petroleum distributors, express tunnel car wash operators, and other automotive-related and retail tenants. These triple-net leases generally have an initial term of 15 or 20 years, with options for successive renewal terms of up to 20 years, and periodic rent escalations.

Financial Performance and Metrics

Getty Realty's financial performance has been consistently strong, with the company reporting impressive growth in key metrics. In the fiscal year ended December 31, 2024, the company generated revenues of $203.39 million, net income of $71.06 million, or $1.25 per diluted share, and adjusted funds from operations (AFFO) of $130.79 million, or $2.34 per diluted share. This represented a 4% increase in AFFO per share compared to the prior year, exceeding the high end of their guidance range.

Operating cash flow for 2024 was $130.50 million, while free cash flow reached $129.63 million. The company's most recent quarter (Q4 2024) saw revenue of $53.02 million and net income of $22.30 million, representing year-over-year increases of 11.4% and 47.1%, respectively. This growth was primarily driven by the company's active investment program, which included the acquisition of 21 new properties during the quarter.

Financials

The company's balance sheet remains healthy, with a net debt-to-EBITDA ratio of 5.2x as of December 31, 2024, or 4.2x when accounting for unsettled forward equity. Getty's fixed charge coverage ratio was a robust 3.8x, underscoring its ability to service its debt obligations. The debt-to-equity ratio stood at 0.96 at the end of 2024, while both the current ratio and quick ratio were 0.70.

Liquidity

The company's liquidity position was further strengthened by the $125 million in new unsecured notes it issued in November 2024, the proceeds of which were used to refinance near-term maturities and fund future investment activities. As of December 31, 2024, Getty had $9.48 million in cash and cash equivalents and $217.50 million available under its $300 million unsecured revolving credit facility.

Diversification and Investment Activity

A key driver of Getty's success has been its strategic diversification efforts, which have expanded the company's property types and tenant base beyond its historical focus on convenience stores and gas stations. In 2024, the company's investment activity was well-balanced, with convenience stores representing 41% of transaction volume, express tunnel car washes at 33%, auto service centers at 21%, and drive-thru quick service restaurants at 5%.

During the year ended December 31, 2024, Getty invested $209 million across 78 properties at an initial cash yield of 8.3%. This included the acquisition of 31 express tunnel car washes, 19 automotive service centers, 17 convenience stores, and 4 drive-thru quick service restaurants. The company also provided $10.6 million in development funding for the construction of new-to-industry express tunnel car washes.

Getty's investment strategy focuses on generating current income and benefiting from long-term appreciation in the underlying value of its real estate. The company primarily pursues sale-leaseback transactions with existing and prospective tenants and provides forward commitments to acquire new-to-industry construction, as well as acquiring assets with in-place leases.

In addition to property acquisitions, Getty also maintains an active redevelopment program. The company believes certain of its properties, primarily those currently used as gas and repair businesses, are well-suited to be redeveloped as modern convenience stores or other single-tenant convenience and automotive retail uses. During 2024, rent commenced on one completed redevelopment that was placed back into the company's net lease portfolio.

Outlook and Guidance

For the full year 2025, Getty Realty provided initial AFFO guidance in the range of $2.38 to $2.41 per share. This range reflects the potential impact of the Zips Car Wash bankruptcy, which affected 7 of the company's 12 Zips-leased properties, representing approximately 1.8% of total annualized base rent. Getty is working to re-lease these properties to new operators and expects to recapture a significant majority of the lost rent.

The guidance includes a 15 basis point loss factor for uncollectible rents, which is a prudent assumption not tied to any specific tenant. It also incorporates completed transaction activity as of the earnings release date, as well as the issuance and repayment of $125 million in unsecured notes, but does not include assumptions for any prospective acquisitions, dispositions or capital markets activities.

Despite the Zips situation, Getty remains well-positioned for continued growth, with a strong pipeline of acquisition and development opportunities, a healthy balance sheet, and a diversified portfolio of high-quality convenience and automotive retail properties.

Industry Trends and Market Position

The convenience, automotive, and retail sectors that Getty operates in have seen steady growth, benefiting from increasing consumer demand for convenience and service. Industry analysts expect these sectors to continue growing at a mid-single digit CAGR over the next 5 years, providing a favorable backdrop for Getty's expansion strategy.

Getty's portfolio is concentrated in the Northeast and Mid-Atlantic regions, but the company has been actively diversifying its geographic footprint. This strategic expansion, combined with the company's focus on high-quality, well-located properties, positions Getty to capitalize on evolving consumer trends and the ongoing consolidation in the convenience and automotive retail sectors.

Risks and Challenges

As with any investment, Getty Realty is subject to various risks and challenges that investors should consider. These include:

1. Tenant concentration risk: A significant portion of the company's revenue is derived from a limited number of large tenants, such as ARKO Corp., Global Partners LP, and Apro, LLC dba United Oil.

2. Environmental liability: As the owner of properties that may have had underground storage tanks, Getty is exposed to environmental remediation obligations, which could result in significant costs.

3. Competition: The net lease real estate sector is highly competitive, with the company facing rivalry from publicly-traded and non-traded REITs, as well as other institutional and individual investors.

4. Interest rate risk: As a net lease REIT, Getty's financial performance is sensitive to changes in interest rates, which could impact the company's cost of capital and the valuations of its properties.

5. Tenant bankruptcy risk: As demonstrated by the recent Zips Car Wash bankruptcy, Getty faces the risk of tenant financial distress, which can impact rental income and property occupancy.

Conclusion

Getty Realty has established itself as a leading player in the net lease REIT space, delivering consistent growth and shareholder returns through its diversified portfolio of convenience and automotive retail properties. The company's strategic focus on expanding its property types and tenant base, coupled with its strong financial position and disciplined investment approach, position it well for continued success in the years ahead.

With a robust pipeline of acquisition and development opportunities, a healthy balance sheet, and a proven track record of navigating industry challenges, Getty Realty appears well-equipped to capitalize on the ongoing trends in the convenience and automotive retail sectors. While risks remain, the company's proactive management approach and diversification strategy provide a solid foundation for long-term growth and value creation for shareholders.