Why GTY Stock Is Compelling
Real estate investment trusts (REITs) have been on the back burner for many investors. Why? Rising interest rates make it more expensive to borrow, and REITs generally have aggressive acquisition strategies. Moreover, record-high consumer debt and fears of a long-promised recession have spooked investors.
But with the Federal Reserve pausing its interest rate hikes, hopes for a rate cut in mid-2024 and expectations that a recession will be avoided have put REITs like Getty Realty Corp. (NYSE:GTY) back into focus.
And for good reason. The company recently reported strong third-quarter financial results, reported record year-to-date investment activity, raised its quarterly dividend for the 12th straight year, and increased its full-year 2023 earnings guidance.
The best part? Getty Realty stock is trading at its lowest price level since October 2022, and analysts say GTY stock has double-digit upside.
What’s the big deal about Getty Realty stock?
Getty Realty Corp. is the leading publicly traded U.S. REIT that specializes in the ownership, leasing, and financing of real estate for convenience stores, gas stations, and other single-tenant retailers (e.g., car washes, auto service centers, and auto parts retailers). (Source: “Corporate Profile: October 2023, “Getty Realty Corp., last accessed November 22, 2023.)
Getty Realty’s $2.3-billion real estate portfolio includes 1,080 properties in 40 U.S. states and D.C. The majority (68.5%) of the properties have convenience stores and gas stations on them, followed by car washes (16.8%), legacy gas and repair centers (9.8%), auto service centers (3.1%), drive-through retailers (1.1%), and auto parts retailers (0.7%).
Getty Realty Corp.’s properties are in 61% of the top metropolitan statistical areas, with 69% of them on corner lots. With a 99.7% occupancy rate, the company’s e-commerce-resistant and recession-resistant retail business properties come with 1.7% annual rent escalations.
A few of its tenants are 7-Eleven, BP plc (NYSE:BP), CrossAmerica Partners LP (NYSE:CAPL), Global Partners LP (NYSE:GLP), and Valvoline Inc (NYSE:VVV).
Getty Realty Corp.’s active acquisition strategy helps diversify its tenant base, property types, and geographic reach. In 2022, the REIT invested $157.5 million in 52 properties. In the first three months of 2023, it invested approximately $266.0 million in 102 properties.
Record-High Year-to-Date Investment Activity
For the third quarter ended September 30, Getty Realty announced that its net earnings increased by 20.5% year-over-year to $16.03 million, or $0.31 per share. (Source: “Getty Realty Corp. Announces Third Quarter 2023 Results,” Getty Realty Corp., October 25, 2023.)
Its funds from operations (FFO) went up by about 17% year-over-year to $27.72 million, or $0.53 per share. Its adjusted FFO (AFFO) advanced 17% year-over-year to $29.4 million, or $0.57 per share.
During the third quarter, the company’s rental income grew by 12% year-over-year to $41.31 million, while its revenues from rental properties climbed by 17.5% year-over-year to $48.84 million.
During the quarter, Getty Realty Corp. invested $155.5 million in 50 properties.
Subsequent to the end of the third quarter, the REIT invested $3.3 million in one property, bringing its year-to-date investment activity to $269.0 million.
As of October 25, Getty Realty Corp. had a committed investment pipeline of more than $95.0 million for the development and/or acquisition of 42 car wash, convenience store, and auto service properties. The company expects to fund this investment activity, which includes multiple transactions with nine tenants, over the next six to nine months.
Thanks to the company’s wonderful results, management increased its full-year AFFO guidance to the range of $2.24 to $2.25 per diluted share (from its prior guidance range of $2.23 to $2.24 per diluted share).
Commenting on the results, Christopher J. Constant, Getty Realty Corp.’s president and CEO, said, “We are pleased with our strong results for the quarter and $269 million of year-to-date investments, which reflect our continued efforts to accretively scale and diversify our portfolio.” (Source: Ibid.)
Getty Realty Corp. Raised Dividends for 12 Straight Years
Constant said Getty Realty’s convenience store and automotive retail properties “provide essential goods and services to the mobile consumer leading to durable rental income, strong rent coverage ratios, and stable tenant credit profiles.” (Source: Ibid.)
This helps the REIT provide GTY stockholders with reliable, growing, high-yield dividends.
On November 24, Getty Realty Corp.’s board declared a cash dividend of $0.45 per share, a 4.7% increase over the $0.43 the company paid out in the previous quarter. The new dividend works out to a yield of 6.26%.
The $0.45-per-share dividend is payable on January 11, 2024 to shareholders of record as of December 28, 2023.
Getty Realty Stock Up 9% in One Month
Investors liked what they saw in Getty Realty Corp.’s third-quarter earnings report.
They’re probably also pleased that the Federal Reserve said on November 1 that it would be keeping its interest rates between 5.25% and 5.5%. The Fed didn’t rule out announcing another interest rate hike when it meets in December, but stock traders seem pretty confident that the Fed is done raising its rates for this cycle.
That has helped boost GTY stock in the near term. As of this writing, it’s up by roughly nine percent over the last month. That’s the good news. The bad news is that, since the start of the year, Getty Realty stock is down by about 11%.
The outlook for GTY stock is bullish, though. Conservative Wall Street analysts are calling for Getty Realty stock to rally by as much as 14% over the coming quarters to a high of $33.00.
Chart courtesy of StockCharts.com
The Lowdown on Getty Realty Corp.
There are many great things going on at Getty Realty.
The company operates in an industry that has proven to be both recession-resistant and pandemic-resistant.
From 2015 to 2022, its AFFO margin increased by 16.1%, its AFFO per share expanded at a compound annual growth rate (CAGR) of 5.2%, and its dividends per share rallied at a CAGR of 5.4%. For the third quarter of 2023, Getty Realty Corp. reported earnings, FFO, and AFFO growth. It also reported record-high year-to-date investment activity and raised its full-year earnings guidance.
For yield hogs, the REIT recently increased GTY stock’s high-yield dividend for the 12th straight year.