Q3 2020 Getty Realty Corp Earnings Call
[music].
Good morning, everyone and welcome to Getty Realtys earnings Conference call. The third quarter of 2020. This call is being recorded.
Prior to starting the call Joshua Dicker Executive Vice President General Counsel and Secretary that the company will read a safe Harbor statement.
Information about non-GAAP financial measures. Please.
Go ahead.
Thank you operator, I would like to thank you all for joining us for Getty Realty's third quarter earnings Conference call Yesterday afternoon. The company released its financial results for the quarter ended September 32024 make eight earnings release are available in the Investor Relations section of our website Getty.
Realty Dot com.
Certain statements made during the course of this call are not based on historical information and May constitute forward looking statements. These statements are based on management's current expectations and beliefs.
Subject to trends events, and uncertainties that could cause actual results to differ materially from.
It was described in the forward looking statements. Examples of forward looking statements include our 2020 guidance and May also include statements made by management in their remarks and in response to questions, including regarding the company's response to the coal with 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 us and that 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, 2090, or subsequent quarterly reports filed on form 10-K.
And our other filings made with the FCC for a more detailed discussion of the risks and other factors that could cause actual results to differ materially from those expressed or implied in any forward looking statements that are 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 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 eight at that problem and a 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 third quarter end to 2020.
With Josh and me on the call today are Mark <unk>, our Chief operating officer, and Danion Fielding our Chief Financial Officer.
Similar to prior quarters in 2020, we will provide an update on our business in the context of the ongoing COVID-19 pandemic and also provide our quarterly review of our portfolio and financial statements.
Regarding corporate Knights Union I am pleased to report that our third quarter results are further evidence of the stability of our triple net lease rents and growth platform.
Portfolio convenient stores gas stations and other automotive assets produced another strong quarter of recollections operating performance the growth agenda.
Hi, I'm, especially proud of our company as we achieved our results during a difficult time for the overall U.S. economy related challenges to many aspects of the retail real estate sector.
Tire Getty team is working hard to continue what has been a very strong year for our company. We are proud of our accomplishments year to date and expect continued executing on all of our initiatives for the remainder of 2012.
Turning to our results we benefited from the stability of our triple net lease rents in our active and accretive acquisition program.
As a result, our third quarter revenues from rental properties increased by more than 4% to 37.2 million and our AFFO per share by more than 9% to 47 cents per share.
The success of our acquisition strategy year to date has been a key contributor to our earnings growth, including transactions that closed just after the third quarter ended getting has acquired 32 properties for approximately 140 million so far this year.
These high quality assets are located in numerous markets across the country to include portfolios of both convenience and gas assets as well as car washes.
Well the COVID-19 pandemic caused disruptions in transaction activity across the commercial real estate sector.
He has been able to maintain momentum they close on several opportunities, which we had underwritten earlier in the year.
In addition, as Mark mentioned, we completed our redevelopment projects with 711, and the Dallas Fort Worth I must say for a remodel commencing gas locations, bringing our total number of completed projects to 18 since the inception of our redevelopment.
Let me now share some additional details on gauge performance during the pandemic for the third quarter the performance of the convenience and gas and other automotive asset classes in general our portfolio more specifically was strong.
Our collections have continued to improve during the quarter, we collected 98% of our rent and mortgage payments and agreed to a small number of short term deferrals for rent and mortgage payments.
Perhaps more importantly, we receive substantially all of the deferred rent and mortgage payments, which were due to be repaid during the third quarter.
Looking ahead to the fourth quarter as of today, our collections rate currently remains at 98% for the month of October.
We are continuing to collect substantially all the cobra related rent or the mortgage deferrals that were due to be repaid this month.
Although uncertainty remains regarding the forward impact of COVID-19 to the broader economy. We are encouraged by the strength exhibited by our tenants and assets since the beginning of the pent up.
We will continue to be vigilant in monitoring the health of our tenants as we believe the severity of the COVID-19 pandemic or the U.S. economy will continue to impact consumer retail activity generally and therefore could negatively affect getty's recollections and financial results.
The operating environment for our tenants remains stressed as many tenants continue to adjust their operations to reflect ongoing health and safety challenges.
Despite these challenges most of our properties and tenants are performing well during this difficult time.
Nationally fuel volumes continue to recover and are now down 17% year over year compared to the 50% decline we saw at the height of the pandemic impact during the second quarter.
In addition fuel margins remain elevated on a national basis for comparable periods in 2019, meaning that on an average operators are making more money on a cents per gallon basis.
The net impact of fuel gross profit remains highly regional.
With certain of our tenants experiencing year over year declines and others reporting increases annual fuel gross profit that.
The convenience store side of the business has generally performed well across the board during the pandemic, where the majority of our tenants reporting that results are slightly ahead of the prior year's performance.
[noise] you touch on our balance sheet and liquidity position. We ended the quarter with 58 million of cash on hand, and 190 million of availability on our revolving credit facility with with some of the cash on hand being used to fund acquisitions, we have already closed during the fourth quarter.
We believe we have sufficient access to capital at this point in time to execute on our business plan.
Turning to our dividend given our performance I am pleased to report that our board approved an increase of 5.4% to 39 cents per share in our quarterly dividend. This represents the seventh straight year with a dividend increase.
Our board believes this annual increases appropriate as it may change the stable payout ratio is tied to the company's growth over the past year.
Looking ahead, while the situation remains fluid we are continuing to effectively navigate this uncertain environment.
At our execution of our strategic objectives over the last several years the essential nature of our tenants businesses. The net lease structure of our leases are stable balance sheet, all position us well.
Furthermore, we believe there will continue to be opportunities for Getty to grow its business.
We're confident that our targeted investment strategy, which focuses on the largely internet resistant service oriented convenience and gas and other automotive sectors across metropolitan markets in this country.
Continue to create value for our shareholders over the long term.
We remain committed to an active approach in managing our portfolio of net leased assets expanding our portfolio through acquisitions and selective redevelopment projects. We are confident in our ability to continue to successfully execute on our strategic objectives over the long term this up.
This approach and focus on these critical components should result in driving additional shareholder value as we move through the remainder of 2020 and beyond.
Before turning the call to Marc Let me just address our recently announced executive transition Danny.
Danion fielding our CFO is going to be leaving the Getty team for personal reasons I'd like to thank Dan for his dedication to get you over the last four plus years, yes.
Daniel let his team and the company's finances, and what the key part getting success.
We expect that Danion will leave with you before year end I mean were suspended him well in his future endeavors to serve.
The search is underway and we anticipate a smooth transition of the CFO role.
With that I will turn the call over to Mark olear to discuss our portfolio and investment activities.
Thank you Chris in terms of our investment activities for the third quarter and the first two weeks of October we were very active in that trend transaction market.
During the quarter, we invested $36.1 million for the acquisition of nine properties.
Subsequent to the end of the quarter, we invested an additional $36.6 million for the acquisition of eight profit.
The majority of our completed acquisitions during the third quarter stemmed from acquisition leaseback transaction with a subsidiary of go Carwash approach.
The properties acquired are subject to a unitary triple net lease with the 15 year base term and multiple renewal options.
These properties are located within San Antonio and let's say.
Properties, we acquired have an average lot side. The two acres in that average total lack of more than 160 feet, both of which we believe enhance the quality and diversity of our portfolio.
We invested $28 million at closing and expect to generate a cash yield that is in line with our historic acquisition cap rate range.
Additionally, we closed on the acquisition of two newly constructed Carwash locations in North Carolina and Ohio.
And the sites are subject to a 15 year triple net lease with Zips Carwash.
Getty aggregate initial cash yield on our second quarter.
Acquisitions was 7.2%.
Subsequent to quarter end, we completed a sale leaseback with spikes wholesale one of the leading independent convenience store operators in southern and setting United States in the trial.
In the transaction getting acquired six properties for 28.6 million.
The properties acquired are subject to a unitary triple net lease with a 15 year base terror and multiple renewal options.
Properties are located throughout the state of Texas the profit.
The properties, we acquired have an average lot size of 2.7 acres at an average store size in excess of 5300 square feet, which reflected the assets. We acquired have all the attributes of today's modern full service convenience stores are in it.
Our initial cash yield is in line with our historical acquisition cap rate range.
We also closed on the acquisition a two car wash locations in the Kansas City, and San Antonio mindset.
Thanks were added to our 15 year Triple net lease with go Carwash.
We remain highly committed to growing our portfolio in the coming to gas sector as well as in our other oil related categories, including car washes out a motive service centers.
While the COVID-19 pandemic continues to impact the overall transaction market.
As conditions for our target asset classes have stabilized and we are seeing an increase in the transaction transaction activity in the marketplace.
As a result, we expect that we will remain active in the underwriting that acquiring an inquiry assets yes.
We will remain committed to its core principles acquiring high quality real estate and partner with strong tenants in our target asset classes.
Moving to our redevelopment platform for the call.
For the quarter, we invested approximately $8.6 million in both completed projects and sites, which are in progress.
In the third quarter, we returned one redevelopment project back to our net lease portfolio specifically in July. It project was returned to the portfolio and the Dallas Fort worth and let's say, where we leased a safety 711.
State of the art convincing gas location.
Total investment in this project is zero point $8 million and we expect to generate a return on our investment of 18%.
In terms of redevelopment leasing we ended the quarter with 12 signed leases, which includes seven active projects and five signed leases on properties, which are currently subject to triple net leases.
Which had not yet been recaptured from the current tenants.
All these projects are continuing to advance to the redevelopment process again, I know that due to the impact of the COVID-19 pandemic. We continued to experience delays in certain of our projects as contractor suppliers municipalities yes.
With restrictions on business and regulatory activities, social distancing requirements and other impediments to normal functions.
In total we have invested approximately $1.5 million in the 12 redevelopment projects in our pipeline, we expect that one additional rent commencement in Q4 2020.
From a capital investment perspective, we expect that these 12 projects will require total investment by getting out of 7.9 billion and will generate incremental returns to the company and its in excess of where we could have invested these funds in the acquisition market today.
For 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 continue to anticipate redevelopment opportunities over the next five years, possibly involving between five and 10% of our current portfolio with targeted Unlevered and Levered redevelopment program yields a greater than 10%.
Turning to dispositions, we sold one non core property during the third quarter, realizing proceeds of approximately 2.2 million.
We also exited one property, which we previously leased from a third a third party landlord as.
As we look ahead, we continue to selectively dispose of properties, where we have made a determination that the properties no longer competitive as a CNG location and does not have redevelopment potential.
As a result of our activity we ended the quarter with 939 net lease properties seven active redevelopment sites and eight vacant properties are.
Our weighted average lease term is approximately 10 years and our overall occupancy excluding active redevelopments increased to 99.2% with that.
With that I will turn the call over to Dan.
Thank you Paul.
For the third quarter total revenues were 37.9 billion, an increase of 4% over the prior years quarter, and our rental income, which excludes tenant reimbursements and interest on those mortgages receivable also grew 5.3% to 31.9 billion.
Our growth in rental income continues to be driven by rent escalators in our leases plus additional rent from recently completed acquisitions.
Yes.
During the third quarter as Twentytwenty, we benefited from a reduction in both property costs and environmental expenses offset by an increase in general and administrative expenses due to increases in employee.
These expenses and legal and other professional fees.
More information on specific expense guidance. Please refer lets get stay off net earnings release.
FFO for the quarter was $20.8 million.
The eight cents a share as compared to 19.1 million or 46 cents per share for the prior year's quarter.
Both.
20.2 million as compared to $18.1 million in the problem is cool.
On a per share basis.
Oh, It was 47 cents up 9% and 43 cents in the prior year.
Turning to the balance sheet and capital markets activities. We ended the third quarter Twentytwenty with 560 million total borrowings, which includes a 110 million under our credit agreement and 450 million of long term fixed rate debt.
Our weighted average borrowing cost is 4.3% weighted average maturity of our debt is 4.5 years with 80% of thought that's being fixed right.
And its debt maturity remains a 100 million series, which features in Fabry Twentytwenty one.
We are in the process of refinancing this upcoming debt maturity and will provide an update at the profit.
As of today, we have 109.
Okay.
Capacity on our revolving credit facility, which can be used to fund operations also grows on the net.
Yes.
At quarter end, our debt to total capitalization stood at 34%.
Debt to total asset value was 41% and our net debt to EBITDA ratio was 4.9 times.
Additionally, we utilize our ATM program in the quarter and efficiently raise permanent capital.
For the quarter, we raised $27 million at an average price of $29.41 per share which helped to fund.
Our low leverage profile.
We still have $40 million exists.
To our existing programs.
Program.
As we look ahead and think about our capital needs, we will make commitments.
Well I did.
Full capital structure.
Our environmental liability ended the quarter at 49 money down 1.7 million for the year.
For the quarter Companys net environmental remediation spending was approximately 1 million.
Well tenants and getting the fed well, so coffee the subject not cheap.
Unsettling emphasis with the risk of possible reimplementation of shelter in place restrictions.
And depth of economic impact Thats economy businesses.
We grew up 2028 cents per share guidance license in conjunction with our first quarter Twentytwenty results. Given the continued uncertainty related to the code 90 dynamic we are not being second guidance at this time.
With that I will turn the call. Thanks, Chris.
Thank you, Dan and with that I'll ask the operator to open the call for questions.
And at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation code will indicate your line is in the question.
You May press Star two if you had to remove your question from acute.
Participants using speaker equipment, it may be necessary to picket your answer before Christmas parties. One moment, please while we pull for questions.
Our first question is from Todd Thomas with Keybanc capital markets. Please proceed with your question.
Hi, Thanks, good morning.
First good morning, and in terms of acquisition. So it sounded like some of the deal flow in the third quarter and then October was attributable to to deals that you are pursuing sort of pre pre co that were there any changes in the prices paid today compared to the pre coded pricing that youre negotiating and then can you just talk about.
For new investments more broadly and how that's trending.
Yeah, I'll answer both those with one once that in which is.
Our view.
What's been closed on what we're underwriting it there there really hasn't been too much of a change.
And the range of the cap rates that we're we're offering a tenant expectations et cetera.
No if anything the sectors performed quite well right results were very strong balance sheets in our sector remain fairly strong so we.
We don't see a whole lot of change and the cap rate environment.
For our types of assets.
Okay and.
Can you describe what the acquisition pipeline looks like today and.
Maybe can you discuss whether you expect to have any additional closings by year end and and sort of how big I guess pipeline is really heading into 2021.
Yeah, we really.
Don't typically provide that.
Level for forward expectation, what I, what I could say is the team is continuing to underwrite.
We have a series of.
Opportunities, both one off and multi property in the pipeline.
I said in my remarks, I think we feel very confident that we're going to continue to execute on all of our strategies and I'm one of those.
Okay and to acquire attractive asset both in the CNG sector, and then cut another automotive asset bubbles.
Okay, and just just lastly.
In terms of the balance sheet. It can you just provide an update on on sort of the timing at any price.
Pricing.
Spectators that you have today on the.
Larry The series a notes yes.
Yes, I mean were.
Dan mentioned in his remarks, we are in the middle of.
Working through.
A refinancing of the upcoming February 21.
Maturities and.
No again, we certainly expect that to be up pretty positive event for the company but.
Yes, it's not prepared to offer sort of a.
The level of price their coupon today.
Okay. Thank you.
And our next question is from John Max.
So with Ladenburg Thalmann. Please proceed with your question.
Good morning.
Hi, Josh.
So maybe touching on acquisitions again.
I mean, if we think about.
That other automotive bucket, which is kind of in a lot of car washes in recent quarters versus kind of more of the traditional C store investments.
Big is the cap rate spread between those if at all I mean, I'm, just thinking or cap rates.
On T. source kind of trading significantly inside of our losses or is it kind of right on top of each other.
Yes.
One of the reasons, we like the the other automotive extension is pricing is fairly consistent between CNG and some of the other automotive buckets.
Yes, well I think there are small variations, it's not a significant gap.
[laughter].
Then with the deal that was closed subsequent to quarter end Im sorry, I missed the tenant and maybe kind of how did that deal.
Come to the team.
So the tenant this bikes wholesale they operate their C stores under the brand SEKCO CE FCO there.
They are probably the 200 locations across the southern United States.
We have an existing relationship.
With the management team there they've certainly been a write off.
Right, operator, who has been growing organically right and who has from time to time news.
Just back to the kind of Rightsized our balance sheet.
And they really had been really does.
Really developing on our own balance sheet and then.
Reloading for the next tranche.
Okay I understood.
And then maybe shifting gears a little bit.
With that kind of August announcement about the settlement around MTBC withstand new Jersey, how could potential future settlements potentially impact.
And the kind of environmental obligation that on the balance sheet and just thinking given the dynamic between what's kind of an uncertain obligation kind of certain obligation just.
Some of that excess uncertain obligation go away as more.
Kind of losses related to environmental contamination are settled.
So the the remediation obligations, which are the which is the $49 million on our balance sheet that is separate from our environmental litigation matters.
So the.
I'll answer your question about litigation right.
Getty wants to get out of the environmental litigation business.
These litigation matters that are on in our filings and in our disclosure.
Paul stem from the time.
The time when Getty was an operator.
Pre become every pad.
We have been working hard to settle with it and resolve all the litigations that are out there.
Yet there the company.
And this settlement is from a case that's been out there for a very long time, and it's fully reserved on our balance sheet and.
Of our strategy to move on from some of the legacy issues that.
We deal with as a company here.
Okay, and then I guess broadly speaking how much is kind of reserved for any other outstanding kind of.
Legacy, let just let.
Litigation and maybe awareness that following the rules.
Well, it's it's a crude as a liability on our books.
Balance sheet, right and as we take additional accruals that flows through the PML.
I think at quarter end.
Then you may have the exact number but I think its 17.8 lets talk with folks on our balance sheet.
Yes, 79 press.
Okay.
That's it for me. Thank you all very much.
Sure.
Okay.
And again, if anyone has any questions during May press star one on your telephone keypad, one so places us in the question queue.
And our next question is from.
And they could eventually with Jpmorgan. Please proceed with your question.
Hey, good morning, guys.
Can you talk a little bit about what is happening with the rent coverage at the store level in cannot economics. There. Obviously you collections have been very good.
To Seattle profits being squeezed by Tony So I know you mentioned Chris.
The gas station to come back, but still not fully back to Prequaled loans can you talk a little about that yes, so our coverage.
Published on our Investor presentation. This morning, our coverage on its way on trailing 12 months was 2.7 that is.
Very strong number for Getty, it's actually an increase from what was published last quarter. The primary driver behind that was the rolling off of a relatively challenged quarter in the middle of 2019.
But what what you see there is as I mentioned my remark.
As I mentioned my remarks, the C store part of the business is actually up year over year and.
And depending on where.
Our tenants operate.
The effect of the higher fuel margin has offset.
Most if not all of the reduction in volume and so that the gas side of the business.
Again highly regional in sub certain markets, it certainly off a little bit but in other markets, it's actually Uh huh.
Higher than where it was going.
Going into 2020.
It really really is a very strong.
Almost historically strong and stable margin environment for many of our tenants today, which is driving that increase in coverage forgetting.
Gotcha.
No. The deal flow has been very good fleet three Q and post Q is there anything behind the deal flow is it's something we're working on for a while is it just the timing hopton, so or do you actually see more activity on that side and also what the competitors are.
The changed between the last six to nine months.
Yes. So again there are two or three questions in there. The first question was what's been driving the the kind of recurrent deal flow I think too thin.
Two things there if you go all the way back to the.
End of last year, right, we had a really busy fourth quarter of 19, a really busy first quarter of 2020.
Pre coveted and we had a number of opportunities, which we were working on many of those opportunities. We're just put on hold as operators in transactions normally we're assessing.
Assessing the damage.
And in that context of coated.
Those opportunities all came back in and Thats, what you see closing this quarter.
And so far in the fourth quarter, but our one of our goals as a team as to be.
Be more consistent constant acquire out in the markets both in the CNG market and other automotive market I think you're seeing.
Seeing some of that those efforts start to pay off at Gary.
And then your second question as competition.
We are certainly seeing a lot of competition from.
Our rig peers other institutional real estate investors.
The 10 31 market is still very strong given the interest rate environment.
So I don't think theres been a decrease in competition.
Either pre or post cobot.
Well what about the sales today are those any different today than pre coated.
Also not front have you seen any distressed market.
I I wouldn't use the word distress I think what I would say is.
Having access to capital.
Is certainly at the forefront of many of our tenants mines.
If you're public or larger operators, you certainly have more access to capital than if you write a small regional operator so.
Some of our opportunities that would close this year are.
Tenants or operators that have a lot of real estate on our balance sheet, and we're able to monetize that right to free up capital for other areas of our business and that's a trend that we have been saying for a while that we think will continue I think coal would probably accelerate at that.
Got you and maybe one last question from Daniel and then you know you leveraged balance sheet total well over time and the company has so its been very conservative position.
Taking a longer term basis theres opportunity, we'll get it to maybe to call the leverage to do a little bit more deals.
How do you see the balance sheets from now on.
That question again, we've been very consistent in articulating, we view our leverage in a conservative manner and.
We have indicated that off net debt will be within a range of 4.5 to 5.5 times.
As you know they were telling me.
We knew that is recall excess capacity to do acquisitions.
As we pursue off.
So our growth, we don't really see as a mechanism to.
Increased leverage a full financial engineering offices. So we will continue to measure manage the balance sheet in that concepted way to maintain that strength and flexibility on a go forward basis.
Okay. Thank you then.
At this time, we have no further questions I would like to return to.
Mr constant for any closing remarks.
Thank you operator.
Thank you everyone for your interest in the Getty.
We look forward to getting back in front of everybody. When we report our year end numbers in February.
And appreciate your interest in the company. Thank you.
This now concludes our conference call you may disconnect at this time.