Re: Our top picks by sector for 2020- put GTY on watch list
Question about GTY. I have owned it off and on for over 20 years and I am really puzzled that the market is accepting such a low yield.
GTY owns gas stations. They have purchased a lot of new ones in recent years (sale/leasebacks) but they still have a lot of the original stations they owned 20 years ago. The 2018 10-K contained 3 pages of discussion of the environmental risks and liabilities related to these stations. A lot of the risk is shifted to the lessees (but GTY still has a bunch of the responsibility) and GTY has all sorts of insurance.
Until GTY started growing in recent years, these exposures were pretty significant. Now, they are a smaller risk to a larger company, but they aren't immaterial.
The expense is growing. In 2018, environmental costs doubled to $ 5 million and this year, they are doubling again, to about $ 10 million. I assume GTY is charging higher rents to cover the costs, so I don't think this is a huge deal. I'm just puzzled that a 4.5% yield adequately compensates for the risk.