REIT status would allow the company to avoid paying corporate taxes, on condition that it distributes at least 90% of its earnings to shareholders as dividends and receives the bulk of its revenue from passive income such as rent.
It could also allow the company to take advantage of investors’ current enthusiasm for the investment vehicle.
Safe and Predictable
Indeed, investments that offer safe, predictable earnings from businesses that cater to people’s basic needs, such as REITs, become increasingly popular when the stock market weakens.
Between January and July this year, net-lease REITs returned 34% on average, including dividends, with tenants in the gasoline and convenience store area, such as Getty, outperforming their peers, according to the National Association of Real Estate Investment Trusts (NARIET).
Getty filed to sell 7.7 million common shares to raise the cash needed to pay down debt and make a special distribution to shareholders, its first step towards becoming a REIT.
Getty Realty owns more than 700 service stations and gas storage terminals in in the US. More than 90% of the properties are leased to Getty Petroleum Marketing Inc, which it split from in 1997, on a triple net lease basis.
This type of lease requires the tenant to pay all operating expenses, real estate taxes and insurance in addition to rent, which lowers any potential risk to the landlord.
When OAO LUKOIL acquired Getty Petroleum in January, long-term leases were signed with the new entity, through 2015 with renewal options through 2048. Speculation that the company would move towards converting to a REIT has abounded, driving up the share price.
Shareholders will be asked to approve the conversion on August. If approved, the company will assume REIT status retroactive to the beginning of 2001.