GTY - Fundamentals, Financials, History, and Analysis
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Getty Realty Corp (NYSE:GTY) is a publicly traded real estate investment trust (REIT) that specializes in the acquisition, financing, and development of convenience, automotive, and other single-tenant retail properties. With a diverse portfolio spanning 42 states and Washington, D.C., Getty Realty has established itself as a leading player in the net lease real estate market.

Business Overview and History

Getty Realty was founded in 1955 and went public in 1997, listing its shares on the New York Stock Exchange. The company's origins trace back to the acquisition and management of properties leased to Getty Petroleum Marketing Inc., a former major tenant. In the aftermath of Getty Petroleum's bankruptcy in 2012, Getty Realty successfully navigated the transition, re-leasing the majority of the affected properties to new tenants and diversifying its portfolio.

The company's history includes several significant milestones and challenges. In 2001, Getty Realty made the strategic decision to elect qualification as a real estate investment trust (REIT) for federal income tax purposes. This structural change provided certain tax advantages and allowed the company to focus on growing its portfolio of net lease properties.

Following the bankruptcy of Getty Petroleum Marketing Inc. in 2012, which was Getty Realty's largest tenant at the time, the company faced a significant challenge. To address this setback, Getty Realty embarked on a comprehensive strategy to diversify its portfolio and tenant base. This involved selling some properties and re-leasing others, while also expanding into new property types such as convenience stores, express tunnel car washes, and automotive service centers.

Throughout its history, Getty Realty has demonstrated a remarkable ability to adapt to changes in the market and make strategic decisions to position itself for long-term success. The company's diversification efforts and transition to a REIT structure have been crucial factors in its evolution over the past several decades.

Today, Getty Realty's portfolio consists of 1,104 net lease properties, with a focus on convenience stores, express tunnel car washes, automotive service centers, and other freestanding retail businesses. The company's weighted average lease term stands at 10.1 years, providing stable and predictable rental income.

Financial Performance and Metrics

Getty Realty has demonstrated consistent financial performance, with strong growth in key metrics. As of the latest quarter ended September 30, 2024, the company reported annualized base rent (ABR) of $190 million, representing a 13.1% increase over the prior year period. This growth has been driven by accretive acquisitions and successful lease extensions with existing tenants.

The company's adjusted funds from operations (AFFO), a key metric for REITs, grew by 3.5% in the third quarter of 2024 and 3.6% year-to-date. This sustained earnings growth has allowed Getty Realty to increase its quarterly dividend for the 11th consecutive year, raising the payout by 4.4% to $0.47 per share.

Financials

Getty Realty's financial performance has been solid, with revenue for the most recent fiscal year (2023) reaching $185.85 million. Net income for the same period was $60.15 million, while operating cash flow (OCF) and free cash flow (FCF) were $105.30 million and $104.99 million, respectively.

For the most recent quarter (Q3 2024), the company reported revenue of $51.47 million. However, net income for the quarter was negative at -$33.43 million, primarily due to higher impairment charges and interest expense, partially offset by higher revenues from rental properties. Despite this, the company maintained strong cash flows, with OCF of $34.63 million and FCF of $34.43 million for the quarter.

Getty Realty's balance sheet remains strong, with a net debt to EBITDA ratio of 5.0x as of September 30, 2024, or 4.2x when accounting for unsettled forward equity. The company's ample liquidity, with over $495 million in available capital, positions it well to continue its growth initiatives.

Liquidity

As of September 30, 2024, Getty Realty's financial position remained robust. The company reported a debt-to-equity ratio of 0.87, indicating a balanced capital structure. Cash on hand stood at $4.01 million, while the available credit line under the Revolving Credit Facility was $287.50 million, providing significant financial flexibility.

The company's current ratio of 1.53 suggests a healthy ability to meet short-term obligations, although the quick ratio of 0.20 indicates a relatively lower level of immediately available liquid assets. This is not uncommon for REITs, which typically have significant property assets rather than large cash reserves.

Investment Strategy and Diversification

Getty Realty's investment strategy focuses on building a diversified portfolio of convenience, automotive, and other single-tenant retail properties. The company has a strong track record of sourcing and executing accretive sale-leaseback transactions, with over 90% of its investments in 2024 derived from direct transactions with tenants.

During the first nine months of 2024, Getty Realty invested $148 million at an 8% initial cash yield, expanding its presence in key property types such as express tunnel car washes, auto service centers, and convenience stores. The company's ability to identify and underwrite attractive opportunities within its target sectors has been a key driver of its consistent growth.

Importantly, Getty Realty's portfolio is well-diversified, both by property type and geographic location. As of September 30, 2024, the company's top three tenants accounted for just 37% of annualized base rent, mitigating concentration risk. The portfolio's distribution across 42 states and Washington, D.C. further enhances its resilience to regional economic fluctuations.

Property Portfolio and Segment Analysis

Getty Realty operates in a single segment as a net lease REIT, with a diverse portfolio of properties across several key categories:

1. Convenience Stores: As of September 30, 2024, the company owned or leased 913 properties leased to convenience store operators on a triple-net basis. These properties form the core of Getty Realty's portfolio, with tenants' financial results largely dependent on convenience store sales.

2. Express Tunnel Car Washes: During the first nine months of 2024, Getty Realty acquired 29 express tunnel car wash properties for a total purchase price of $136.07 million. These properties are leased to tenants on a triple-net basis and represent a growing segment of the company's portfolio.

3. Automotive Service Centers: The company expanded its presence in this sector by acquiring 17 automotive service center properties during the first nine months of 2024 for a total purchase price of $41.37 million. These properties include gasoline and repair, oil and maintenance, tire and battery, and collision centers, all leased on a triple-net basis.

4. Drive-Thru Quick Service Restaurants (QSRs): Getty Realty added 3 drive-thru QSR properties to its portfolio during the first nine months of 2024, investing $8.20 million in this sector. These properties are also leased to tenants on a triple-net basis.

This diversified portfolio strategy allows Getty Realty to capitalize on various trends in the retail and automotive sectors while maintaining a focus on well-located, freestanding properties that support automobility and provide convenience to consumers.

Redevelopment and Asset Management

In addition to its acquisition strategy, Getty Realty actively manages its existing portfolio, identifying opportunities to redevelop or reposition certain properties. During the third quarter of 2024, the company completed a redevelopment project for a new Chipotle Mexican Grill restaurant, demonstrating its ability to create value through selective redevelopment initiatives.

The company's asset management team has also been successful in extending lease terms with key tenants, with four unitary leases representing over 13% of annualized base rent extended so far in 2024. These lease extensions, combined with the company's disciplined approach to capital allocation, have contributed to the growth in Getty Realty's weighted average lease term to 10.1 years.

Risks and Challenges

While Getty Realty has demonstrated resilience and consistent performance, the company is not without its risks and challenges. The competitive landscape in the net lease REIT sector has intensified, with increased investor interest in the convenience and automotive retail segments that Getty Realty specializes in. This could potentially impact the company's ability to source and acquire properties at favorable terms.

Additionally, macroeconomic factors such as rising interest rates and concerns about a potential economic slowdown could put pressure on the company's acquisition and redevelopment activities. Getty Realty's tenants, primarily operators of convenience stores and automotive-related businesses, could also be affected by broader consumer trends and spending patterns.

Outlook and Guidance

Despite the prevailing market uncertainties, Getty Realty remains well-positioned for continued growth. The company has raised its full-year 2024 AFFO guidance to a range of $2.32 to $2.33 per share, up from the previous range of $2.30 to $2.32 per share. This guidance reflects the company's robust investment activity and successful capital markets initiatives, including a $121 million common stock offering and a $125 million unsecured debt offering.

It's important to note that Getty Realty's updated guidance includes only transaction and capital markets activity that has occurred to date and does not assume any additional acquisitions, dispositions, or capital markets activities for the remainder of 2024. Factors that may impact the outlook include variability in certain operating expenses, deal pursuit costs, and the timing of anticipated demolition costs for redevelopment projects.

The company's strong performance is evident in its reported AFFO per share of $0.59 for Q3 2024, representing a 3.5% increase over Q3 2023. For the nine months ended September 30, 2024, AFFO per share was $1.74, up 3.6% compared to the prior year period.

Additionally, Getty Realty's strong balance sheet and ample liquidity provide the flexibility to navigate the current market environment and pursue strategic opportunities. The company's focus on diversification, asset management, and disciplined capital allocation should continue to drive long-term value for shareholders.

Conclusion

Getty Realty Corp has established itself as a leading net lease REIT, leveraging its expertise in the convenience and automotive retail sectors to deliver consistent growth and shareholder returns. The company's diversified portfolio, disciplined investment strategy, and proactive asset management approach have positioned it well to capitalize on the evolving real estate landscape.

With a solid financial foundation, a clear growth strategy, and a track record of successful acquisitions and redevelopments, Getty Realty is well-equipped to navigate the challenges and opportunities in the net lease market. As the company continues to execute on its growth initiatives and adapt to changing market conditions, investors can look forward to Getty Realty's continued contributions to the net lease REIT space and its potential for long-term value creation.

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