Getty Realty (US:GTY) seekingalpha.comยท2024-05-20 22:53Core Viewpoint - Getty Realty has underperformed in the market despite stable business fundamentals, with a focus on maintaining a secure dividend yield and managing acquisition growth in a challenging financing environment [1][22]. Financial Performance - In Q1, Getty generated $0.57 in adjusted funds from operations (FFO), exceeding consensus estimates, with revenue increasing by 14% to $49 million [2]. - FFO per share increased by 1.8% year-over-year, but actual FFO rose by 15.9%, primarily due to a 13.4% increase in shares outstanding [2][4]. - The company has a 99.7% occupancy rate and an average tenant rent coverage of 2.6x, indicating strong cash flow resilience [4][8]. Business Model and Strategy - Getty Realty owns over 1,000 properties, primarily convenience and gas stores, and is diversifying into car washes and auto-service locations [3][10]. - The company has a weighted average lease term of 9.2 years, with most leases expiring in 2032 or later, providing cash flow certainty [7][8]. - Getty has a 1.7% annual rent escalator, which helps protect cash flow against inflation [5][6]. Investment Activity - In Q1, Getty invested $41 million in new properties, including 12 car washes and seven auto centers, with an initial cash yield of 7.7% [12]. - The company has $44 million under contract for additional properties, targeting a blended cap rate in the high 7% range [12][14]. - Getty's investment strategy has led to a significant increase in average acquired property size and rent [11]. Valuation and Market Position - Getty's shares currently have an 8% FFO yield, which is considered attractive compared to industry peers [19][22]. - The company trades at a discount to the sector, with a lower debt/assets ratio and a higher dividend yield, making it an appealing investment option [20][22]. - The target price for Getty is set at $31, reflecting a 5-8% discount to the sector, which is deemed reasonable given its size and associated risks [24].