Better Buy: Weingarten Realty Investors vs. Getty Realty

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The term “essential business” took on a huge new meaning in 2020, as the coronavirus pandemic led to the shutdown of businesses that weren’t deemed “essential.” Weingarten Realty (NYSE: WRI) and Getty Realty (NYSE: GTY) both fall into the desirable “essential” space but in very different ways. Here’s some things investors need to think about when comparing these two real estate investment trusts (REITs).

1. Essentially different

Weingarten owns shopping centers, which are effectively open-air structures housing a collection of different stores. The big draw at most of this REIT’s 159 properties is a grocery store, which drives regular customer traffic to the centers. Sitting beside the grocery store is usually a collection of smaller stores that range from restaurants to hair salons to clothing stores, among many other tenants.

Getty Realty, meanwhile, owns a collection of nearly 1,000 gas stations and convenience stores. These properties are essential for a totally different reason, given that you need gas if you want to drive your internal combustion engine automobile anywhere. And while you’re there, well, you might as well buy some munchies, a coffee, or some cigarettes (if you smoke).

2. Change is in the air

That said, both of these landlords face long-term headwinds. Although grocery stores are a big draw, consumers are also increasingly willing to buy food online. That could reduce foot traffic and the business profile of Weingarten.

Gasoline, meanwhile, is increasingly being displaced by electricity as more and more people purchase electric vehicles. That will be a headwind for Getty. Neither is likely at risk of a dramatic near-term change in their businesses, but there is something to keep in mind for both.

3. Dividends

Getty Realty offers investors a 5% dividend yield today, backed by nine consecutive years of annual dividend increases. That includes a 5% increase in the fourth quarter of 2020, a sign of strength in the face of a year filled with coronavirus uncertainty.

Weingarten, meanwhile, cut its dividend in 2020 in an effort to preserve cash. It recently increased the dividend materially, but the payment remains nearly 25% below its pre-pandemic rate. Weingarten’s yield is currently 3.8%. Dividend investors looking for a REIT with a reliable dividend will probably prefer Getty on this one.

4. A fly in the ointment

So far, things have been pretty simple, but there’s a complexity here: Weingarten has just agreed to be acquired by shopping center peer Kimco (NYSE: KIM). Based on the deal, which is a mixture of stock and cash, the two stocks should trade in tandem until the deal is complete.

Once consummated, Weingarten shareholders will be shareholders of a much larger Kimco. In fact, the combined entity is expected to be the largest shopping center REIT by market cap, offering material exposure to Sun Belt locations and a significant backlog of internal redevelopment projects. It’s not a bad deal, but it means investors have to consider some outside factors when looking at Weingarten today.

If you are a glass-half-empty type (sometimes acquisitions don’t work out nearly as well as hoped), you’ll again probably prefer Getty. If you are a glass-half-full investor, however, the long-term growth prospects of the merger might draw you in. That said, Kimco cut its dividend in 2020 and offers an even smaller 3.3% yield as well, so even an optimistic dividend investor will still likely prefer Getty here.

5. Another look at growth

With the merger of Kimco and Weingarten, it’s likely acquisitions will be on the back burner for a little while. Instead, the combined company will be focused on integrating the two companies and trimming costs while taking advantage of internal redevelopment efforts. That’s not bad and will highlight the REIT’s internal growth prospects.

However, Getty will still be growing via acquisition. That’s a pretty notable avenue of opportunity, as well, with the company buying just over 200 properties between 2016 and 2020. And it has its own internal redevelopment opportunities as well as it modernizes convenience stores to drive increases in foot traffic. All in, Getty probably has the edge here as well.

And the winner is?

To be fair, Weingarten, Kimco, and Getty are all perfectly fine REITs. It’s not like an investor would be making a drastic mistake by buying any of them. However, given the trade-offs right now, it’s likely that most investors will lean toward Getty, given its higher yield, more impressive dividend history, and the growth prospects in its business. And the fact that it isn’t dealing with a transformational merger might actually be another plus for some investors.