The Trouble With Getty Realty

 | Jun 13, 2012 | 3:30 PM EDT
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Since I last wrote about Getty Realty (GTY), the company's situation has improved and the stock is up about 18%. Getty is the largest real estate investment trust specializing in gas stations, convenience stores and petroleum distribution terminals.

The shares were hammered between July and March, falling 45% after Getty's largest tenant, Getty Petroleum Marketing (GPMI), missed a lease payment last August. In January, GPMI, which had a master lease covering 69% of Getty's 1149 properties, filed for bankruptcy protection.

Along the way, Getty had to cut its quarterly dividend to $0.25 from $0.48 before ultimately deferring a decision on future dividends. It's unclear when the dividend will be reinstated. REIT owners typically get into these names for the dividends, and in Getty's case, going from a $1.92 annual dividend, and 8% average yield over the past five years, to no yield has been devastating.

But there has been progress righting the ship. Last month, the company took a step forward in resolving the GPMI fiasco by repossessing the 788 properties that had been part of the master lease agreement. Getty also entered into new leases on 282 locations, and a fuel supply and services agreement covering 254 locations. In addition, Getty sold five properties for about $1.5 million. There's still more work to be done, though.

Investors are left with a distressed situation, but one that should ultimately be worked through; the shares are priced accordingly. Getty owns 991 properties, and with a current enterprise value of just over $700 million, much of the perceived current value is from those assets alone. (A list of properties for sale or recently sold is available on Getty's website.)

When the company can again begin generating sufficient funds from operations to reinstate the dividend, I'd expect shares to get a decent boost. It's unclear when that might be, or at what level, but there should be an update from management when Getty reports second-quarter earnings July 23.

Finally, the Getty story is a great example of why not to trust everything you read, especially as it relates to data. I've seen several references recently to Getty's "high dividend yield," both in published pieces as well as in data reported by financial data providers, which currently report a yield of 6.42%. Getty does not currently have a yield. In my view, a dividend deferral is the same thing as no dividend at all.



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