Q4 2019 Earnings Call
All is being recorded part of starting the call Joshua Dicker Executive Vice President General Counsel and Secretary of the company will read the Safe Harbor statement and provide information about our non-GAAP financial measures. Please go ahead Mr. Decker.
Thank you operator, I would like to thank you all for joining us for Getty Realtys fourth quarter and yearend earnings conference call.
Yesterday afternoon. The company released its financial results for the core and year ended December 31 2019.
Form 8-K and earnings release are available in the Investor Relations section of our website at Getty Realty Dot com.
Certain statements made in the course of this call not based on historical information and May constitute forward looking statements. These statements are based on management's current expectations and beliefs and are subject to trends events and uncertainties that could cause actual results could differ materially from those described in the forward looking statements.
Samples are forward looking statements include our 2020 guidance.
May also include statements made by management in their remarks out in response to questions.
Putting regarding future company operations future financial performance on the Companys acquisition or redevelopment.
The opportunities we caution you that such statements reflect our best judgment based on factors currently known to US and then actual events or results could differ materially I refer you to the company's annual report on form 10-K for the year ended December 31, 2018, subsequent quarterly reports filed on form 10-Q, and other filings made with the S.
He see for a more detailed discussion of the risks and other factors that could cause actual results could differ materially from those expressed or implied in any forward looking statements made today you should not place undue reliance on forward looking statements, which reflect our view only as of the date hereof. The company undertakes no duty to update any forward looking statements.
Maybe made in the course of this call also please refer to our earnings release for a discussion of our use non-GAAP financial measures, including our definition of adjusted funds from operations or a at Petrobras and a reconciliation of those measures to net earnings with that let me turn the call over to Christopher constant our chief executive.
Thank you Josh good morning, everyone and welcome to our call for the fourth quarter and year ended 2019.
Well, it's Josh and me on the call today are Mark <unk>, our Chief operating officer, Danion Fielding our Chief Financial Officer.
I will begin today's call by providing an overview of our fourth quarter at year end 2019 performance touch on our 2020 strategic objectives and then we'll pass the call tomorrow to discuss our portfolio in more detail and the Daniel will discuss our financial results.
Yeah. He had a very active fourth quarter punctuated by the acquisition of 13 properties for 48 43.8 million in a combination of individual and portfolio transactions, both the convenience and gas and other automotive sectors. In addition, during the quarter our core net lease portfolio continued to display.
The strength and stability that we expect from our long term triple net leases and continue to make progress on our redevelopment projects.
As we close out 2019, and looking ahead to 2000, it's one of our team is more focused than ever on executing on each of our growth initiatives heating realizing internal growth from our operating assets.
Anthony our portfolio through accretive acquisitions, and unlocking embedded value through selective redevelopment.
We're confident that our targeted investment strategy, which includes focusing on the largely internet resistant service oriented convenience and gas other automotive sectors in metropolitan markets across the country.
Tenure to create value for our shareholders over the long term.
Furthermore, we will do so while maintaining a conservative in flexible balance sheet position.
Turning to our results for the quarter. We grew our revenue net earnings after FFO and at that though for the quarter any year as compared to the same periods for the prior year on a per share basis. Our after felt was inline with our expectations and increased slightly year over year, which also reflect our successful capital raising activities during.
2000, and my chair.
In addition, we made the decision to recur certain expenses in our redevelopment program for our environmental litigation matters, which weighed on our profitability during a year.
Finally, the timing of our acquisitions in 2019 was such that much of the financial benefit will be felt beginning in 2020 and beyond.
As I mentioned earlier, we continue to underwriting acquire new properties for the year. Our total investment was nearly 90 million.
Wired 27 high quality convenience and gas and other automotive locations during the year.
This activity demonstrates our proactive yet disciplined underwriting approach to growing our portfolio.
The past three years, we have acquired a 168 properties for investment of approximately 380 million.
Im, particularly proud of the fact that we continue to grow our relationships with established convenience and gas operators.
But then they can be answered gas business for very long time in our success proves that maintaining and growing relationships such as these are one of the keys to our ongoing ability to source accretive growth opportunities.
Convincing gas sector continues to evolve chain store operators are taking market share at the expansion individual sites and has the industry consolidates, we're afforded regular opportunities to review new investment opportunities. We expect to continue to partner with chain store operators, who share our growth oriented vision for the sector in the coming years.
In addition, 2019 was a year forget east in which we establishing group relationships with several other automotive operators and made progress and expanding our investments to active related sectors, such as car washes and automotive parts and services businesses.
An example, we completed our first of transactions with both Zips and go Carwash during the year and continue to expand our relationship with one of the largest chicken leap franchisees in the U.S. as well.
These types of assets are highly complimentary to our existing portfolio. Because they are generally are located in similar regional areas occupies similar locations in size and have similar economic profiles.
Over the long term our goal remains to focus on acquiring high quality real estate and to partner with tenants who share our commitment to the growth in evolution of it could mean to gas and other automotive business.
Turning to our redevelopment program rent commenced on four projects. During 2019. These projects included new to industry convenience and gas as well as other retail users. This brings our total completed redevelopment is to 13 since commencing this program at this platform matures, we expect to have a steady stream of completed.
Projects on an annual basis, while also maintaining a pipeline of additional opportunities, which will move through the development progress overtime.
Utilizing the financial flexibility that we've worked hard to create we were able to finance our our growth in 2019 with a combination of debt and selective equity, including our September 125 million 10 year unsecured debt private placement and measured use of our ATM program.
We place a premium on being conservatively leveraged and are committed to maintaining a well laddered flexible capital structure as we look to grow the company.
Looking ahead, we remain committed to an active approach to managing our portfolio of net leased assets.
Expanding our portfolio through acquisitions.
As well a selective redevelopment program projects, we are confident that we'll be able to continue to successfully execute our strategic objectives. Throughout 2020. This approach and focus on these critical components should result in driving additional shareholder value as we move through this this year and beyond.
I will turn the call over to Mark earlier to discuss our portfolio investment activities.
Thank you Chris in terms of our investment activities, we had a productive fourth quarter, and which we were able to invest three 3.8 million and 13 high quality convenience and gas and other auto related assets when combined with our acquisition activity from earlier in the year.
Total we acquired 27 properties for 87.2 million.
Staying on acquisitions during 2019 getty's underwriting of potential transactions grew as we added resources to focus on convenience and gas opportunities and made additional inroads in other automotive categories.
For the year, we reviewed approximately $1.5 billion effect of opportunities, which met our initial screening process.
Convincing gas opportunities represented 63% and other automotive represented 37% of the total.
As we had mentioned in prior calls we remain highly committed to growing our portfolio and the convenience and gas sector with that said, we view the categories of Carwash automotive cert services as highly complimentary to our portfolio as these property types share many similar attributes.
Going forward, we anticipate growing both area areas of our underwriting platform.
Added resource to support our expanded efforts.
To review a few highlights of our investment activities.
For the fourth quarter, we acquired five convenience and gas location.
Locations in individual transactions for 15.7 million and eight Carwash properties for 28.1 billion.
In aggregate the return for the sites acquired during the fourth quarter was in line with remainder of our 2019 activity and broader historical pricing, adding a weighted average initial return of 7.2%.
Finally, the weighted average initial lease term for the properties acquired and this quarter was 13.6 years.
For the year, we for advanced our goal of diversifying our revenue by expanding our relationships with circle K Irving oil and come and go and entering suit into new relationships ships with two of the fastest growing expressed carwash operators in the U.S. Zips and go Carwash.
Our transaction activity in the quarter and year further expand our geographic reach and remain centered around major metropolitan markets, including in Los Angeles, and Las Vegas MSR days.
The net result is that we are now represented 33 states, plus Washington, DC and 50% of 57% of our annualized base rent comes from the top 25 national and assays.
Additionally, after the quarter ended we closed on the acquisition of 11 properties for 53.4 million.
All of these sites are carwash facilities and are subject to 15 year Triple net leases with Zips and go Carwash.
Overall, our team remains busy sourcing and underwriting potential investment investments and we continue to feel strongly at the volume of opportunities. We are underwriting will produce additional growth as we progress throughout the year.
Moving to our redevelopment platform for the year, we invested approximately 2.4 million and both are completed projects and sites, which are in progress.
In the fourth quarter, we returned one redevelopment project back into the Triple net lease portfolio.
Our total for completed rent commenced projects to four in 2019.
And 13 since the inception of this initiative.
Specifically in December rent can that's going to project, where we ground lease they say to a retail develop or for a retail use in this project we invested.
Point, Fourmillion and we expect to generate a return on investment of more than 30%.
In terms of redevelopment projects, we ended the quarter with 14 signed leases or letters of intent, which include five active projects and seven sign leases on properties, which are currently subject to triple net leases.
What's but which have not yet the recapture from the current tenants and signed letters of intent on two vacant properties. All these projects are continuing to advance through the redevelopment process. We six we expect substantially all these projects will be completed over the next one to three years.
In total we have invested approximately 2.8 million in the 14 redevelopment projects in our pipeline and we expect that rent commencement at several sites during 2020.
On the capital spending side, we estimate that for that these 14 projects will will require total investment by Getty of 10.3 million.
Generate incremental returns to the company in excess of where we can invest these funds in the acquisition market today.
For more detailed information on the redevelopment pipeline. Please refer to page 14 of our investor presentation, which can be found that our website.
We remain committed to optimize your portfolio and continue anticipate redevelopment opportunities over the next five years, possibly involving between five and 10% of our current portfolio with targeted Unlever redevelopment program yields at greater than 10%.
Turning to dispositions, we sold nine properties during 2019, realizing proceeds of approximately 2.7 million.
The property sold were vacant or returned to us by tenants for the terms of their lease agreements. We expect the net financial impact of these dispositions will be minimal.
In addition, during the year, we exited five properties, which we previously leased from third party landlords.
As we look ahead, we continue to selectively dispose of properties, where we have made the determination at the property is no longer.
Competitive as CNG location. It is now and it's not have redevelopment potential.
As a result of all of our activity. We ended the year with 931 net lease properties.
Five active redevelopment sites and nine vacant properties.
Our weighted average lease term is approximately 10 years and our overall occupancy excluding active redevelopment remained consistent at 99%, 99% with that I'd turn it over the call over to Daniel. Thank you Mark for the full quota of total revenues with 35.9 billion, an increase of 2.4% over the prior.
This quarter and our rental income, which excludes tenant reimbursement interests on notes the mortgage receivables grew 4.3% to 30.7 million.
Both inventory income continues to be driven by our rent escalators.
Leases plus incremental growth from completed acquisition and lead development projects.
Should be noted that due to the timing of on acquisition activity in 2019 being weighted towards the end of the yet we expect to realize full quarterly revenue contribution to these acquisitions beginning in Q1 of Twentytwenty.
During the fourth quarter of 29 team, we incurred one time costs related to our decision to proactively terminate a redevelopment project.
Hi than projected legal fees related to certain of our environmental litigation, where we are nearing settlement.
For more information on specific expense management, please refer to yesterday's earnings release.
Ill focus for the quarter was 21.2 million well 51 cents per share this compared to 20.3 million 49 cents per share for the probably is quota.
As opposed to the quarter was 18 million 43 cents per share as compared to 17.6 million 43 cents per shift for the product is caught up.
For the year ended 2019 total revenues and our rental income which includes tenant reimbursement and interest some notes and moved your receivables grew by 3.3 person to 140.7 billion and 3.4% to 120.3 million respectively.
Again this growth stems from the escalated in our net leases and successful execution of both acquisitions and redevelopment.
For the year ended 2019 operating expenses increased the primary driver.
Driver for the increases with professional fees and other redevelopment cost included in property cost increases in our environmental expense line item, which can can we see highly variable.
Our FFO for the year with 77.8 million $1.86 cents per share as compared to 73.6 million $1.80 cents per ship the product yet.
FFO for the year was 71.8 million.
$1.72 cents per share as compared to 69.7 million or $1.70, 1% for the prior yet.
Turning to the balance sheet capital markets activities. We ended 2019 with 470 million of borrowings, which includes 20 million Undrawn credit agreement at 450 million of long term fixed rate debt.
Our weighted average borrowing cost at 4.97, the weighted average maturity of our debt is 5.8 years and 96% about that is fixed rate.
Yes debt maturity remains twentytwenty one.
Our debt to total capitalization covenants that has a 27% our debt to total asset value is 41% and our net debt to EBITDA as a conservative 4.4 times.
In addition, we utilize all at the market equity program during the quarter and issued 5.5 million of capital at an average price $33.04, but yet.
For the year Weve late 14.5 million through our ATM program at an average price at $32.29, but yet.
Our environmental liability ended the quarter and yet at 50.7 million down 9.1 million for the year.
The Dakota, India ended December 31st 2080, the company's net environmental remediation spending was approximately 2.3 million and 7.5 million respectively.
Finally, we are introducing our twentytwenty AFFO per share guidance at a range of $1.75 cents to $1.80 cents per ship.
Hi. This includes all transaction activity as of this date, but no. It does not assume any potential future acquisitions, all capital markets activities for the remainder of Twentytwenty. Although it does reflect our expectations that we will continue to execute on our redevelopment leasing and disposition activity.
I think factors, which impacts our guidance. This year include our expectation that we will go run when we recaptured properties will be development, our expectation that cost of borrowings will increase in twentytwenty. The full year impacted the dilution associated with the company's 2019 capital raising activities and our expectation that we will remain.
Active in pursuing acquisitions and redevelopment, which could result in additional expenses, but deal with ultimately no completed.
Is that what's on the call back to Chris.
Thank you that concludes our prepared remarks, let me ask the operator to open the call for questions.
Thank you, ladies and gentlemen, we will now be conducting the question and answer session. If he would like to ask a question. Please press star one on your telephone keypad.
Indicate that your line is in the question Q you May press Star too if you would like to move your question from the Q.
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Please poll for questions.
Thank you. Our first question comes from Nikita belly with Jpmorgan. Please proceed with your question.
Good morning, guys, what's embedded in your 2020 guidance for environmental Carlos and Ginny.
Thanks.
While our overall AFFO guidance is $1.75 to $1.80. We typically don't provide any sort of additional breakdown other than I would say that we don't expect anything.
To materially change year over year.
2019.
Yes.
And on the pipeline to you guys look right now so you mentioned 29 teams split between Ses tours and.
Order was 60 40 do lend to maintain that split or.
Sounds like maybe you will be doing a little bit more orderly terms of just 2% of splits of your total deal flow.
Yes, I think.
Our view as we're continuing to underwrite convincing gas opportunities as well as the other automotive opportunities.
And where we feel.
That's right opportunity for us what we're planning on acting on that so we're not targeting any specific split.
Any given year, but what really what we think we have as we have two areas.
We're comfortable underwriting a comfortable investing.
And growing both aspects of our portfolio, but there's really no no shift or or target specific number that we have for either asset class.
Oh and discuss the acquisition volume losses pick talk so we see pass through some quarters as ocular in your date.
Can you give us a little bit of understanding why that is is it because of the pricing is just the timing doctoral type of deals the youre looking at the came through.
This is mark Alere, yes, it's more a factor of just the timing of the transactions as they progress through 2019.
So basically what you're saying.
You know shouldn't extrapolate deal flow from your full Q1 Q into the future. If we were to make that assumption, yes, I mean, our transaction activity historically has been lumpier we are.
We are.
Underwriting a significant amount to every every year and we hope to.
I will be more consistent overtime, but I think it's.
We're not going to make any comment on.
Recurring level on any given quarter.
Right, so less personal tenant so according to watch list the comments on a.
We maintain a process here to monitor are not only at the health of our tenants, but also to review the coverages of our individual assets.
We do have a property specific watch list, which we've spoken to people about in the past and there's really nothing of note that that's where the to bring up on the call.
Thank you very much.
Thank you. Our next question comes from John Masako with Ladenburg Thalmann. Please proceed with your question.
Good morning.
Hi, John I was wondering if maybe you could provide a little color on.
How you kind of source the transactions during the quarter and subsequent quarter end both the.
Carwash deal and the C store transactions.
Sure well first off each every transactions a little different so some up some have velocity that's.
Those long much faster and some some takes more time and.
[music].
I'll, let mark answer maybe more specifically, but.
Within the CNG sector, because of our relationships and because of the history were.
Routinely.
Afforded the opportunity to looked at deals we're very active in sourcing in that market and I think as we.
Yes, more experience and have more of a presence and the other automotive sectors were starting to see that that same trend accelerate.
Put onto our comps.
Hi, just regarding sourcing it's just a continued commitment to what we've been doing in the past we've grown some internal resources dedicated to business development. It's direct outreach to tenants that we have research that are growing in the various sectors. It's following up with our existing growing.
Relationships with our existing tenant base.
Widely marketed.
Broker deals or sponsored deals trade shows.
Standard just commitment to two sourcing new opportunities that we've been doing for last few years and just staying on top of that.
Okay, and then just for Q1, Q I mean, how many transactions.
It's kind of implied in that acquisition activity.
Well.
In the fourth quarter. It was one portfolio sale lease back and non individual transactions.
And then the beginning of this year, it's one portfolio sale lease back in one individual transaction.
That makes sense and then you guys mentioned on your and your prepared remarks that one development deal was kind of removed from the pipeline can you maybe provide a little more color on that.
Yes, as as the developer program.
The entire portfolio of the development program.
These through.
The development entitlement process.
There are there are deals that will not achieve the required entitlements are permits to to put it into development and we make a strategic decision to terminate those efforts and and.
Focus on yet on the rest of the pipeline. So it's there are deals at risk that we make decisions to just terminate the activity our.
And when that progress is terminated I mean does that go back to being kind of an original C store asset or do you kind of find.
An alternative solution for the property.
It's different each property if it's if it's in a net lease portfolio, it's likely stay there if its vacant property. We continue to work on the best in highs.
Strategic plan on a property level. So it really depends on where it currently is where it comes from and the various buckets of our.
Of the portfolio so.
It's not it's not a one size fits all answer there it's kind of the right decision for each property.
Okay.
On the balance sheet.
It's still decently far out but is there any potential to maybe prepay. The 100 million dollar private placement notes its going to churn 2021, particularly given kind of where interest rates are today.
John it's down hit on those nodes that all make whole provisions in that so we have to do the analysis to look at.
Issuance costs saw.
Relative to that obviously that is something that is top of mind.
As we progress during the yet.
And so you'll probably hear from later this year on that.
Okay.
That's it for me thank you very much.
Yes.
Thank you. Our next question comes from Craig Melman with Keybanc capital markets. Please proceed with your question.
Yes.
I know, we've talked a bit last year car washes or something you guys were we're more interested in but pricing was a little bit tougher.
Could you just talked about what has made you guys a little bit more competitive to kind of get the deals in fourq, you and one Q here so far.
Well I think.
The market continues to be competitive.
I think some of its relationship driven I.
I think some of it is.
You know, where where we're targeting in terms of various MSR days.
But I don't think anything has really changed in the overall competitive dynamic.
And I think all boats in the parties, we mentioned im sure have multiple relationships across institutional real estate.
Companies and will be competing in the future.
What was the yield that you guys column.
2020 acquisitions.
Yes. The yields you are very similar to where we've been talking about Craig so.
We've always said if the market, where we're looking at us really kind of high sixs to mid seven so think six in three quarters to southern and a half.
And nothing's really deviated from that overall.
And then.
Pro forma the one Q deals kind of how much capital do you guys think you can deploy and remain within your your leverage targets.
Well some of that depends on our ability to to act issue on the ATM, if we choose to use that product but.
Certainly have ample capacity remaining under the line.
And if you look at kind of our activity pace over the last couple of years.
Hey, maybe an average of that I think I think we feel we've got ample capacity to continue to grow at that same rate.
Obviously, the ability to to issue under the ATM and.
Given where our wherever the stock price maybe is what only add to that.
Okay, great. Thank you, but just a real just to be clear when there is no. There's no planned for us to materially deviated from where our leverage has been over the last several years, what we maintain a historical leverage profile and there's no. There's no real plan to deviate from that right. Now I was just trying to get that how much you can deploy before you would need to do.
You know figure equity raise your portfolio came about.
100 million 150 million you guys feel comfortable putting out the door before you would need substantial equity.
I think we've got well north of 200 million available under the revolver.
Obviously, we do have the ATM program, which was somewhat mitigate our need to go do a larger equity deal. If there were a large portfolio. So.
Again, we look at we've done larger equity deals we look at all all of our.
Sources of capital as we kind of look to grow the business. So I think theres been our minds as a REIT tool for.
Or each type of transaction that's out there.
Great. Thanks.
Thank you at this time, we have no further questions. So I'd like to return back to Mr. constant for any closing for further remarks.
Well first off thanks, everybody for being on the call today.
We look forward to getting back on the phone whether at the end of the first quarter 2020 at the end of April.
Yeah, I appreciate your interest and get a royalty.
Thank you. This now concludes our conference call you may disconnect at this time.
Thanks.