Q1 2020 Earnings Call
Good morning, everyone and welcome to Getty Realtys earnings Conference call first quarter.
This call is being recorded.
Prior to starting in the call Josh let ticker executive Vice President General Counsel and Secretary of the company worried a safe Harbor statement.
Information about our non-GAAP financial <unk>. Please go ahead mr.
Thank you operator, I would like to thank you all for joining us for Getty Realtys first quarter earnings conference call.
This morning, the company released its financial results for the quarter ended March 31 Twentytwenty.
Form 8-K in earnings release are available in the Investor Relations section of our website <unk> Getty Realty Dotcom.
Certain statements made in the course of this call or 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 to differ materially from those described in the forward looking statements. Examples of forward looking statements include our Twentytwenty guidance and May also include statements made by management in their remarks, adding responses.
Questions, including regarding the company's response to the covert 19 pandemic future company operations future financial performance and the company's acquisition or redevelopment plans and opportunities. We caution you that such statements reflect our best judgment based on factors currently known to watch and that actual events or results could differ a month.
Serially I refer you to the company's annual report on form 10-K for the year ended December 31, 2019. Subsequent quarterly reports filed on form 10-Q, and other filings made with the FCC for more detailed discussion of the risks and other factors that could cause actual results to differ materially from that.
It was 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 you're up the company undertakes no duty to update any forward looking statements that may be made in the course of this call also please refer to our earnings release for a discussion of our use of non-GAAP.
Financial measures, including our definition of adjusted funds from operations or a football and our reconciliation of those measures to net earnings with that let me turn the call over to Christopher constant our Chief Executive Officer.
Thank you Josh good morning, everyone and welcome to our call for the first quarter of 2000. This morning.
With Josh and me on the call today, our market leadership, our Chief operating officer, and Danion Fielding our Chief Financial Officer.
This morning's call it slightly modified from our typical prepared remarks, I'll provide a general update on our business and Mark in Danion will provide their standard court order view of our portfolio and financial matters.
We will also spend a significant portion of the call discussing the impact of the cobot 19 pandemic on our business our financial strength.
And our tenants operational and financial help.
Good he had a very successful start to 2020, we completed the acquisition of 12 properties for 57 million in the first quarter.
When combined with our productive fourth quarter 2019, we have invested more than 100 million over the past six months and high quality well located properties.
In addition, we completed two redevelopment projects in the first quarter, bringing our total of completed projects to 15 since the inception of our redevelopment effort.
Additionally, during the quarter, our core net lease portfolio continued to display the strength and stability that you expect from our long term triple net leases.
Turning to our results we grew our revenue net earnings after a thorough and at that though for the quarter as compared to the same period for the prior year.
On a per share basis, our assets, our increased by 9.5%, which reflects the successful execution of all of our growth strategies.
Let me now share some perspective on the impacts yeah. He has experience from the covert 19 pandemic and the steps we have taken to respond.
In March we began to implement plans for our business employees to move to a virtual working environment I am pleased to report that all of our employees and board members are healthy and our team has been working efficiently and productively at home for the past eight weeks.
Im proud of the strength and resolve our employees have shown during the stressful period.
We are executing on all levels within the company and our maintaining getty's high quality standards under difficult circumstances.
Prior to the covert 19 pandemic, our tenants businesses were performing well the convenience and gas sector began to feel the adverse effects of the public health crisis in March several large states on the east and west coasts instituted travel restrictions and stay at home orders.
Fortunately the vast majority of our properties, our convenience stores and gasoline stations, which our retail sectors I had been deemed essential under state and federal guidelines, meaning that more than 95% of our assets remain operational walk cobot related restrictions are in place.
It should be noted that while our tenants are open for business. They are facing operational health and safety challenges.
Nationally the Cobot 19 pandemic has had a significant negative impact on motor vehicle use and as a result fuel volumes have declined significantly year over year would be expected the decline varying by region.
Certain of our tenants are located in the most severely affected regions of the country and are experiencing fuel volume declines of as much a 70%.
While it is impossible to replace the lost revenue from our lower fuel volumes. It is noteworthy that our tenants have at the same time benefited from historically high retail fuel margins, meaning the gross profit made on a per gallon basis.
This increase in retail fuel margins, which was was driven by the considerable drop in oil prices has partially offset the pressure on fuel related revenue caused by volume declines.
In contrast to fuel related challenges our tenants convenience store businesses have shown a greater stability and revenue during the public health crisis.
Well convenience sales are down overall certain well located sites are reporting strong sales of grocery items and household products.
I am pleased that to date. The net result of the Tobin 19 pandemic on get his business is that we had not experienced a meaningful negative financial impact to our business.
Due to the timing of the rollout of stayed home directives, we did not experience any material right collection issues in the first quarter 2020.
For the month of April we received 97% of contractual base rent in mortgage payments and granted deferrals for additional 1.8% of expected base rent and mortgage payments.
These deferrals were granted to select tenants and mortgage horse.
Whose businesses have been deemed non essential or who do to cobot 19 related impacts have experienced economic difficulty and requested relief.
In most of these cases, the base rent or mortgage payment deferrals will continue for May and June and then we'll be due over the course of the following six to 12 months, depending on the particular arrangement.
In general release requests have come from our one off tenants in mortgage ores and from our smaller unitary tenants will properties located on the east and West Coast.
The remainder of I collected payments due to the company for April representing approximately 1.2% of scheduled rents and mortgage payments have been abated are deemed to be on collectible.
Uncollectable portion of our rent in mortgage payments is attributable to select retail businesses that are currently closed and smaller one off in the military tenants and mortgages with properties located in markets, which have been severely impacted by the cobot 19.
With respect to request related to May engineering to the extent decisions have not already been made the company continues to Dahlia Wei. These requests and has been seeking appropriate financial information to support its decision making process.
As of this morning, we anticipate that for made we will receive between 90% to 95% of make contractual base rental and mortgage payments.
Rented mortgage payment deferrals, ranging from 2% to 5%.
We will continue to work on a case by case basis with tenants during the cobot matching endemic who demonstrate a need for assistance.
Our strategy over the last several years to diversify our tenant base for quality tenants has been productive with approximately 34% of our hbr not covered for public companies.
As a result of our hard work, we believe that we're better positioned to whether the current public health storm.
If we can effectively navigate this uncertain environment due to the essential businesses of our tenants net lease structure of our leases in our stable balance sheet position.
However, it is important to recognize that the greater the duration and more restrictive the terms of the cobot 19 shelter in place directives, the greater the risk that there'll be economic impacts on consumer retail activity generally and therefore to our 2020 financial performance in particular.
Our conservative balance sheet continues to be a strength during these uncertain times.
It's a premium on being lower leverage we're committed to maintaining a well laddered and flexible capital structure.
We believe we have sufficient access the capital as we sit here today through cash on hand.
Funds available under our revolver and our ATM program.
Looking ahead, we believe there will continue to be opportunities for gay to grow its business. We are confident that our targeted investment strategy, which focuses on the largely essential internet resistant service oriented convenience and gas and other automotive sectors in metropolitan markets across the country will continue to create value for our shares.
All this over the long term.
We remain committed to it and active approach to managing our portfolio of net leased assets expanding our portfolio through acquisitions, and the convenience gas and auto related sectors.
And selective redevelopment projects, we are confident in our ability to continue to successfully execute on our strategic objectives over the long term.
This approach and focus on is critical components should result in driving additional shareholder value as we move through 2020 and beyond.
With that I will turn the call over to Mark over here to discuss our portfolio and investment activities.
Thank you Chris.
Turns our investment activity, we had a very busy first quarter in which we were able to invest 57 million in 12 high quality other auto related assets.
During the quarter Getty acquired 10 properties in an acquisition leaseback transaction was go Carwash. The properties acquired are subject to unitary triple net lease that the 15 year based care and multiple renewal options.
The properties are located in the greater Kansas City, and let's say.
The properties, we acquired at an average lot size of 1.4 acres and average total of 145 feet, both of which we believe enhance the quality and diversity of our portfolio.
We invested $50 million at the close at closing expected generated cash yield that is in line with our historical acquisition cap rate range.
Additionally, we closed on the acquisition that two properties for $7 million during the quarter.
Both sides are carwash facilities, located in Virginia, and Kentucky and are subject to 15 year Triple net lease with Zips Carwash.
We remain highly committed to growing our portfolio into clean gas sector as well as our newer categories, including Carwash is automotive service centers I note. However that decode 19 pandemic is currently impacting the overall transaction market on various levels and accordingly, we believe many of the acquisition.
Cds and our pipeline will be delayed.
Moving to our redevelopment platform for the quarter, we invested approximately 8.5 million in both completed projects and sites, which are in progress.
In the first quarter, we returned to redevelopment projects back to where net lease portfolio.
Specifically in February rent commenced on a project in the Bronx, New York, where we leased a say two wendy's for a quick service restaurant use.
In this project, we invested 1.6 million and we expect to generate return on investment of 11%.
The second completed project was a lease to Autozone, Philadelphia, Pennsylvania, Our second completed project with this 10.
And this project, we invested point Threemillion and we expect to generate a return on investment of 39%.
In terms of redevelopment leasing we ended the quarter with 11 signed leases where letters of intent, which includes four active projects six signed leases that properties, which are currently subject to triple net leases, but which not have yet which had not yet been recaptured from the current tenants.
And signed letters of intent on one vacant properties.
All these projects are continuing to advance through the redevelopment process again I note that due to the impact of the code 19 pandemic, we're seeing some delays in certain of our projects as contractors suppliers and these municipalities deal with the shutdown owners social distance requirements and other impediments to normal functioning.
In total we have invested approximately 1.2 million 11 redevelopment projects in our pipeline and we expect that rent commencement and several additional projects during 2020.
On the capital spending side, we estimate that these 11 projects will require a total investment by Getty of 6.8 million and will generate incremental reinsurance to the company in excess of where we could invest these funds in the acquisition market today.
For a more detailed information on the redevelopment pipeline. Please refer to page 15 of our investor presentation, which can be found on our website.
We remain committed to optimizing our portfolio and continued to anticipate redevelopment opportunities over the next five years, possibly involving between five and 10% of our current portfolio with targeted unlever redevelopment program yields of greater than 10%.
Turning to dispositions you sold four properties during the first quarter of 2020, realizing proceeds approximately 1.7 million.
The properties sold were vacant or we will return to us by tenants per the terms of their lease agreements.
We expect the net financial impact of these these dispositions will be minimal.
In addition, during the quarter, we exited six properties, which we previously leased from a third from third party landlords.
As we look at we will continue to selectively dispose of properties, where we have made the determination the properties no longer competitive as the CNG location and does not have redevelopment potential.
As a result of all of our activity. We ended the quarter with 934 net lease properties for active redevelopment sites and nine vacant properties. Our weighted average lease term is approximately 10 years and our overall occupancy excluding active redevelopment remained constant at 99%.
With that I turn the call over to Dan.
Thank you Mark.
First quarter I'll total revenues.
5.4 million, an increase of 4% over the prior years quarter.
And our rental income, which excludes tenant reimbursement and interest notes in mortgages receivables grew 6% to 31.3 minute.
Our growth at rental income continues to be driven quite rent escalators in our leases plus additional run from recently completed acquisition and redevelopment.
During the first quarter Twentytwenty, we benefited from reductions in both property costs and environmental expenses, while maintaining a steady level of general and administrative overhead.
More information on specific expense declines please refer to this morning's earnings release.
Our as opposed to the quota was $20 million.47 per share as compared to 17.8 million 43 cents per shares to the probably is quarter.
Our AFFO for the quota was 19.3 billion.
Centsper share as compared to 17.5 million to 42 cents, but yes, it probably is quota.
Turning to the balance sheet capital markets activity.
We ended the first quarter 2020, 535 million total borrowings, which includes 85 million under our credit agreement and 450 million of long term fixed rate debt.
Our weighted average borrowing cost at 4.6%.
Weighted average maturity of our debt is 5.1 is an 84% offset in fixed right.
Now, let's debt maturity remains on 100, many on Saturday debt maturity in February of 2020.
As of today, we have 215 million of Undrawn capacity on our revolving credit facility, which we can use to fund operations all for growth over the near to medium term.
At quarter end.
Migrations to 36%.
Our debt to total asset value 43%.
Our net debt EBITDA lifetime.
Also for the quarter, we didnt utilize our ATM.
We have 80 million available to us.
This thing at the market equity program should what needs to raise additional capital.
Our environmental liability ended the quarter at 50.4 million.
Point 3 million per year.
For the quarter the company net environmental remediation spending with approximately 1.3 million.
Finally, we had withdrawn off 20 to 20, Eightth AFFO per share guidance range, given the uncertainty related to covert 19 patent that.
No debt put them back to the U.S. economy.
With that of what's on the call back to Chris.
Thanks, Dan.
That concludes our prepared remarks, so let me ask the operator to open the call for questions.
We will now begin the question answer session ask your question plus Star then one on your Touchtone phone.
Using speakerphone, please pick up your handset before passing the key.
Withdraw your question. Please press Star then too.
This time, we'll pause momentarily to assemble roster.
First question.
We will come from Craig Mailman with Keybanc capital markets. Please go ahead.
Hey, good morning, guys.
Just curious.
Just curious here.
Very good collections in April and then assuming some fall off here in May could you just talk about it may is that being driven by your core C stores or is it you know some of your recent non C store acquisitions kind of driving that just give a little bit of color.
Yeah. So.
One thing we mentioned our remarks right as the first quarter was very strong for our operators.
So.
April we really didnt see too much of an impact as illustrated by the 97% collection rate. When you start to look at May it's really a combination of both Greg but.
We do have some non essential non CNG properties in the portfolio.
Interestingly enough the Carwash properties that we've acquired.
Our all open and operating.
So we're really not focusing on though is in that category today.
But there are certainly some CNG sites that make up the amount that was not collected so it's really.
A combination of both their nonessential closed properties as well as certain.
CNG sites.
That are struggling.
Okay. That's helpful. Then on the write offs are you guys taking back those properties or you just basically saying, it's an abatement.
It's a comp again, a combination of both right. So there are certain properties that are closed right that we'd just elected to wave for a short amount of time and then there are certain properties that I think will ultimately have to be released.
Or that we may eventually sell overtime.
Okay, and then but again I just wanted I just Craig one thing I would leave you with on that comment is that that's a pretty small number at this point.
So I wouldn't really.
Right.
Having material impact on us sitting here today.
No. That's helpful. Then just as we think about some of the remedies you guys have I mean.
Can you just remind us security deposits letters of credits of it are you guys drawing down on on any of those as partners that deferral agreement. So from a half of all perspective, you may be kind a whole or is this you guys are just so you're from an accounting standpoint, right. We've elected to for deferrals I'm speaking up at this point right.
We have elected to continue to treat that as.
As you know payments good during the term of the lease and therefore, you really wouldn't see too much of an impact on a on an FFO and AFFO basis for properties that are in the Bateman, our uncollectible category.
We are certainly evaluating our security deposits and Lcs right.
But those properties have gone.
Cash basis at this point so.
We do actually we do take there.
Right, you you'd see that the second quarter or beyond.
Okay and then just.
Moving on just I know, it's very early in this and.
Just curious.
The acquisition market kind of your thoughts here on when maybe that becomes open and functioning again and maybe what you are expecting to see.
On the opportunity set side and also just on the return side.
Sure. So this is mark.
We continue to do our best to underwrite the pipeline that we had been working on there are certainly.
Some physical challenges to processing any new opportunities with regard to proper due diligence.
Many of the parties involved with the.
With the transactions are are properly.
Focused on the operational side in the health and safety side of business right now so the.
Right.
Any new opportunity any new opportunities are somewhat pause right now that said, we continue to stay engaged with all the.
Sources that we receive marketing from.
Our our sale lease back and acquisition leaseback partners that we work with over the years and we continue to position ourselves to be ready to to act.
When the market.
Is able to reengage.
Do you think during any material movement in returns or is it just too early in now.
I just seems too early to know at this point.
Great. Thanks, guys.
That's correct.
Our next question will come from Anthony Polo with JP Morgan. Please go ahead.
Yes. Thanks, good morning are winning on on some of the deferrals or abatements was that disproportionately at all and GPM by or was it fairly well spread across the portfolio.
Well, probably fairly well spread across the portfolio quite frankly.
Again some of those.
Where we abated ran door or deferred rent in both cases for some non.
CNG properties that goes certainly wouldn't touch the old legacy GTN my portfolio, but with that said the GPM our portfolio.
It's really northeast mid Atlantic right and those are some of the areas that have been hit the hardest with the travel restrictions or I guess, there that some of the earliest areas to really kind of moved to a shelter in place. So certainly some of those deferments are.
Coming from the old GTN my portfolio, but again, it's a combination of both.
Okay and then.
You mentioned the gas margins actually being pretty good like is that something that you think is sustainable if oil prices remain low for an extended period of time or is that elevated margin something that that's that's more transitory. It typically typically well pre pre co bid right at margins were.
Strong and obviously with the price of oil.
The rapid decline in the price of all that's where you saw the margin expansion I anticipate.
But that will.
Float down.
Maybe eventually get back down towards a more of a normal level, but.
It's really hard to predict when and how fast that ultimately happened.
Okay, and then with regards to the EBITDAR coverage I think that was 2.1 times that that you showed in the deck.
And I would imagine that that drops down just naturally as the next few quarters or through the like where where do you think that number needs to be too.
I feel like the operators getting enough profits to taps get any game into continued operator like where should we think about that number I guess over time and where the the comfort level should be.
Well.
Again, you should certainly expect to see that number Titan right given what's happening in their business.
You know I think certainly when we underwrite portfolios you're looking at.
A minimum of one and a half right.
So I think anything tighter than really that one and a half.
Our sustained period of time will would be difficult.
For an operator really built feel good about.
Thank you Aaron investing in those properties long term.
But again you got to why don't I think that's a long term view right, obviously, we'll see where it shakes out over the next couple of quarters.
Yes, I understand the next few quarters should be pretty different okay. That's all I had thank you.
Remember if you'd like to ask your question Star then one.
Star then one ask your question.
Our next question will come from John Massocca with Ladenburg Thalmann. Please go ahead.
Good morning.
Yes.
Just quickly touching on kind of acquisitions again, just kind of clarify is you are kind of view on the acquisition market that you'd be aggressive we're not aggressive necessarily but would you be active it's kind of transactions materialize, there's no kind of pause necessarily from your perspective.
Either due to kind of and yeah.
Uncertainty in the market or your view of your cost of capital that you're kind of on the sidelines. It's really more just you need to deal volume to be out there in order to kind of Reaccelerate acquisitions I think for right now that the market is just naturally on pause.
As Mark mentioned bread, there's the physical challenges buyers and sellers who are.
Sellers and are struggling with their own operational issues and health and safety and.
Kind of doing their day jobs.
But.
From a long term perspective.
I think our balance sheets in great shape I think.
Certainly.
You to underwrite and continue to look at a number of opportunities as Mark said, we've got a pretty strong pipeline going into this so I again, I think once the national pause.
You know kind of on wines and you know.
Businesses normalized right, we'll be back to underwriting.
Whatever the.
Just last couple of years performance looked like it combining that would be the stress of the covert period and they'll be a.
Publicly some some issues around pricing and terms coming out of that but I do expect the transaction market to reengage at some point property.
Over the next couple of months.
And is there any thought process on your end, maybe can being more active in that market or or even necessarily aggressive in that market. Just given just probably any high demand for the type of assets you target from other investors given.
And the fact that they are kind of deemed essential in the new world They kind of living where that's going to be an important factor.
Yes, I think were.
We at least believe we're always active and always being aggressive.
On our team that works under Mark Wright is still out there we're viewing opportunities, but again, it's hard to comment on.
The activity level or or what pricing will really be just given that.
Hey, you don't know one that market's going on to reopen and quite frankly, it kind of difficult to assess what the new normal will be.
Okay. That's it for me. Thank you guys very much.
Our next question will come from Joshua Sutherland with Bank of America. Please go ahead.
Hey, good morning, everyone hope everyone's doing well.
I just curious if you had any color on maybe.
The decline in.
In the box sales at C stores.
Trended over April and died we typically kind of this new lower level and yet month, then kind of persist for a while that's.
How that night feed into a coverage ratios going forward.
It's really anecdotal feedback from our tenants and from from the market in general, but I think we're hearing C store sales, depending on what where you are down anywhere from 5% to 20%.
Hi, Good morning, Okay and then.
John This is Josh one thing I would add to that right is if you're a neighborhood convenience store right, you're probably doing pretty well at this point.
People are walking and shopping there and using it as for grocery type items, if you're a.
Europe site, that's on a natural commuting path for most of your traffic driven by people driving to and from work, that's where you're seeing probably those larger declines as there is just what I'll, let people commuting by car to their offices.
Okay. Okay, yes that makes a lot of sense and then for the C stores with the QSR is attached to that similar declines or.
There you know that they're doing the same thing that the the Standalone QSR as our right Theyre doing pick out there not some people are experimenting with delivery.
In other there.
Businesses are doing their best to or that portion of their business doing their best to create.
Sales volume right.
Okay. Thanks, Chris I appreciate it.
This will conclude our question and answer session.
At this time I would like to turn the call back to Mr. constant Rodney closure or Furthermore.
Thank you thanks again for joining us for the first quarter call.
Hope everybody continues to be a healthy and stay safe and we look forward to getting back on the end of the second quarter in July.
Okay.
The conference has now concluded. Thank you for totaling today's presentation you may now disconnect.