Getty Realty: A High-Yield REIT Navigating Rate Hikes with Discipline and Growth

Getty Realty (GTY) has long been a cornerstone for income-focused investors, offering a compelling blend of high yield and defensive characteristics in a volatile market. As interest rates climb in 2025, REITs face heightened scrutiny for their ability to sustain dividends. Yet, Getty's disciplined capital management, conservative payout ratio, and strategic debt refinancing position it as a standout in the sector. Let's dissect why this high-yield REIT remains a compelling long-term opportunity.

Dividend Sustainability: A Balance of Generosity and Prudence

Getty's dividend yield of 6.98% as of July 2025 (with a share price of $26.95) is among the most attractive in the REIT space. Over the past decade, the company has grown its dividend from $0.125 in 2012 to $0.47 in 2025, reflecting a compound annual growth rate (CAGR) of ~11%. This consistency is critical for income investors seeking reliable returns.

However, the true test of sustainability lies in the payout ratio. While Getty's trailing twelve-month (TTM) payout ratio based on net income appears elevated at 153.7%, this metric is misleading for REITs, which are legally required to distribute at least 90% of taxable income. The more relevant metric is the payout ratio relative to Adjusted Funds From Operations (AFFO), a cash flow measure that accounts for non-cash expenses. In Q1 2025, Getty's AFFO was $0.59 per share, while its dividend was $0.47 per share, translating to a payout ratio of just 65% of AFFO. This conservative coverage provides a buffer against earnings volatility and ensures the dividend remains secure even in a rising rate environment.

Debt Management: A Shield Against Rate Risk

Getty's debt structure is a masterclass in risk mitigation. As of March 2025, the company had $907.5 million in total debt, with $750 million in senior unsecured notes and $157.5 million on its revolving credit facility. Key strengths include:
- Long-term maturities: The weighted average maturity of its senior notes is 5.7 years, with no debt maturities until June 2028. This eliminates near-term refinancing pressure.
- Fixed-rate dominance: The senior notes carry a weighted average interest rate of 4.1%, while $150 million of variable-rate debt is hedged with swaps locking in SOFR at 4.73% until October 2026.
- Liquidity fortress: Getty increased its credit facility to $450 million in January 2025 and has $153.4 million in unsettled forward equity agreements. Combined with $6.3 million in available cash and $7.4 million in 1031 disposition proceeds, the company has ample dry powder to fund operations and new investments.

These measures ensure Getty can navigate rate hikes without overleveraging. For context, the Real Estate sector average payout ratio is 163.4%, yet Getty's 65% AFFO payout ratio and conservative leverage (debt-to-EBITDA of ~5.8x) suggest it's better positioned than most peers to maintain its dividend.

Growth Potential: A Pipeline of Opportunities

Getty's investment pipeline underscores its growth outlook. As of April 2025, the company had a $110 million pipeline for 29 properties, including convenience stores, auto service centers, and drive-thru restaurants. These assets, leased to high-credit tenants like Valero Energy and Shell, are located in high-barrier markets with strong demand. The 7.8% average initial cash yield on Q1 investments highlights the company's ability to generate accretive returns.

Moreover, Getty's focus on long-term net-lease agreements (average term of 15 years) with rent escalators (typically 1–3% annually) ensures cash flow growth. Its portfolio of 1,119 properties is 98% occupied, with 98% of rent paid by tenants with investment-grade credit ratings or equivalents. This stability insulates the company from tenant default risks that plague other REITs.

Valuation and Investor Appeal

Getty's forward yield of 6.98% is supported by a 3.5% AFFO growth rate and a P/AFFO ratio of ~10.5x, which is in line with its 5-year average. While the stock has underperformed the S&P 500 over the past three years due to rising rates, its dividend resilience and disciplined balance sheet make it a compelling buy for income investors.

Conclusion: A REIT Built for the Long Haul

Getty Realty's ability to sustain its 6.98% yield in a rising rate environment is underpinned by its conservative payout ratio, hedged debt structure, and disciplined capital allocation. For investors seeking a high-yield REIT with a track record of dividend growth and a fortress balance sheet, GTY offers an attractive risk-reward profile. While rates may remain elevated, Getty's proactive refinancing, strong liquidity, and accretive investment pipeline suggest it's well-positioned to continue rewarding shareholders for years to come.

Investment Takeaway: Getty Realty is a buy for income-focused portfolios, particularly for those seeking REITs with a focus on defensive, high-occupancy assets. Monitor its Q3 2025 earnings for updates on the $110 million investment pipeline and forward equity settlements.