Q1 2021 Getty Realty Corp Earnings Call
Good morning, and welcome to Getty Realty's earnings Conference call for the first quarter of 2021 and this call is being recorded after the presentation, there will be and opportunity to ask questions.
Prior to starting the call and Joshua Dicker Executive Vice President General Counsel and Secretary of the company will read a safe Harbor statement and provide information about non-GAAP financial measures. Please go ahead and Mr. Tucker.
Thank you operator, I would like to thank you all for joining us for Getty Realty's first quarter earnings Conference call yesterday afternoon. The company released its financial results for the quarter ended March 31 2021.
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 are 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 and the forward looking statements exam.
The forward looking statements include our 2000 and 'twenty one guidance and May also include statements made by management and their remarks and in response to questions, including regarding the company's response to the COVID-19 pandemic future company operations and 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 results could.
Could differ materially I refer you to the company's annual report on form 10-K for the year ended December 31, 2020, and other filings made with the SEC for a more detailed discussion of the risks and other factors that could cause actual results to differ materially from those expressed or implied and and any.
Any forward looking statements made today, you should not place undue reliance on forward looking statements, which reflect our view only as of the day hereof and 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 operation or a F F O 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 first quarter of 2021 earnings call.
With Josh and me on the call today are Mark Olear, our Chief operating officer, and Brian Dickman, Our Chief Financial Officer.
I will begin today's call by providing an overview of our performance for the first quarter of 2021.
Touch on our strategic objectives for the remainder of the year and then we'll pass the call to Mark and Brian and discuss our portfolio and financial results in more detail.
We delivered another quarter of solid results as our net lease portfolio and our tenants operating businesses continued to display the strength and stability that we saw throughout the prior year.
We had no issues with rent collections this quarter, including collecting small amounts of rent, which we agree to defer and 2020.
Do you view the strength of our collections as a continuation of recent quarter's performance as our business was quite strong throughout all of last year.
The net result of our stable and placed portfolio and the continued execution of our investment strategies with a five 4% increase and total revenues and eight 6% increase and our adjusted funds from operations and Dave.
And two 2% increase and our <unk> per share.
We also continued to execute on our growth strategy during the first quarter.
Yes.
$3 million and accommodations.
And construction funding for new to industry and locations.
Our investment activity for the quarter was again focused on both the convenience store and car wash and businesses.
In addition, our team continues to source and underwrite numerous opportunities and the convenience and auto related sectors.
And <unk> by the number of attractive opportunities.
And our investment pipelines.
And if you look ahead, we remain focused on three primary areas.
The first is maintaining a healthy portfolio and high rent collections. We are pleased with the continued performance of our C store and auto related tenants as evidenced by our steady and strong rent coverage ratios.
The asset class is included in our portfolio have proven to be resilient and growing despite the impact of the pandemic.
But that said, we will continue to monitor tenant health and the impact of the COVID-19 pandemic on our portfolio and the economy.
Our second priority as we move from this year executing and or just grow evolve and enhance our portfolio.
By making accretive acquisitions, and convenience stores and other automotive related and retail assets.
By unlocking embedded value interest selective redevelopments.
And by maximizing the quality of our in place portfolio through continued active asset management.
We are confident and our targeted investment asset classes and believe that acquiring high quality real estate and metropolitan markets.
The country will continue to drive additional shareholder value.
Finally, we remain committed to maintaining our stable and flexible balance sheet.
We ended the quarter with significant availability on our revolving credit line and during the quarter, we filed a new $250 million ATM program, both of which we believe provide us with access to capital to grow our company, while maintaining and well ladder and flexible capital structure.
That I will turn the call over to Mark to discuss our portfolio and investment activities.
Thank you Chris.
As at the end of the quarter our portfolio includes 949 net lease properties.
Six active redevelopment sites and five vacant properties.
Our weighted average lease term is approximately $9 one years and our overall occupancy excluding active redevelopments increased to 99, 5%.
Our portfolio remains spread over 35 States, plus Washington D C annualized base rents, 65% of which come from the top 50, Msas and the U S continued.
Continued continue to be well covered as our trailing 12 month tenant rent coverage ratio increased to two seven times.
In terms of our investment activities, we had and active start to the year.
During the quarter, we invested 33 million and nine properties.
And our completed acquisitions during the first quarter stemmed from acquisition leaseback transactions with three separate tenants operating and expressed hill Carwash business.
We acquired one same with Zips car wash and the Louisville, Kentucky, MSA for $4 8 million.
One site with go car wash and San Antonio MSA for $3 1 million. In addition, we completed our first sale leaseback with Whitewater Express, where we acquired four properties in Ohio and Kentucky.
Aggregate purchase price of $13 9 million.
All of the acquired properties are subject to triple net leases with 15 year initial terms and.
Our aggregate initial cash yield on the six sites acquired with slightly more than 7%.
Getty also funded eight 4 million and construction loan for three new to industry convenience stores with refuel a 90 unit C store operator with locations across the southeastern U S.
As part of these transactions, we will accrue interest on our investments during the construction phase of the project, we expect to acquire the properties via sale leaseback transaction at the end of the construction period.
We ended the quarter with a strong investment pipeline and remain highly committed to continuing to grow our portfolio in terms of both the convenience store industry and other automotive related retail assets.
We expect that we will pursue direct sale leasebacks acquisitions, and net lease properties and funding from music industry construction.
Finally, we remain committed to our core underwriting principles.
<unk> high quality real estate, and partnering and strong tenants and our target and asset class.
Moving to our redevelopment platform during the quarter, we invested approximately 100000 sites, which are in our pipeline.
At this time, we have 11 signed leases or letters of intent which include six active projects.
<unk> signed leases and properties, which are currently subject and triple net leases, but which have not yet been recaptured from the current tenants.
And one signed letter of intent on a vacant property.
We expect to have rent commencement at several sites during 2021.
On the capital spending side, we have invested approximately $1 9 million and 11 redevelopment projects and our pipeline and estimate that these projects will require a total investment by Getty of seven 5 million.
We project these redevelopments will generate incremental returns to the company and excess where we could invest these funds and the acquisition market today.
For more detailed information on the redevelopment pipeline. Please refer to pages 14, and 15 of our investor presentation, which can be found on our website.
Turning to dispositions.
We sold five properties during the quarter, realizing proceeds of $8 4 million.
Three of the properties sold representing a vast majority of realized proceeds from our previously leased to a local developer and the remaining two sites were vacant.
We expect the net financial impact of these dispositions will be minimal.
As we look ahead, we will continue to selectively dispose the properties, where we have made the determination that the property is no longer competitive as a convenience store location and does not have redevelopment potential.
With that I will turn the call over to Brian to discuss our financial results.
Thanks, Mark good morning, everyone.
Start with a recap of earnings hopefully, you've all had a chance to see yesterday's release.
<unk>, which we believe best reflects the Companys core operating performance was <unk> 47 per share for the first quarter, representing a year over year increase of two 2% and addition, SSO was <unk> 44 per share for the quarter.
Our total revenues and the first quarter were $37 3 million, representing a year over year increase of five 4%.
Net income, which excludes tenant reimbursements and interest on notes and mortgages receivables grew six 7% to $33 5 billion.
Acquisition activity rent escalators, and our leases and the completion of redevelopment projects all contributed to the growth and our rental income.
On the expense side property cost increase and the quarter, primarily due to increases and Reimbursable real estate taxes and <unk>.
Rental expense is also increased this quarter as a result of noncash changes and environmental remediation costs and estimates the portion of.
And environmental expenses, which flowed through to our <unk> were down quarter over quarter as a result of lower professional fees and related expenses.
As we note each quarter and environmental expenses are subject to a number of estimates and non cash adjustments and will continue to be highly variable.
And finally, G&A expenses increased this quarter as well due to nonrecurring retirement costs as well as other employee related expenses and certain professional fees.
Let me turn to the balance sheet and our capital markets activities. We ended the quarter with $525 million of debt outstanding comprised entirely of long term fixed rate unsecured notes, our $300 million revolver was completely undrawn at quarter end.
Our weighted average borrowing cost was four 2% and a weighted average maturity of our debt was seven three years. In addition, our total debt to total market capitalization was 29% of total debt to total asset value was 38% and our net debt to EBITDA was five times.
We have no maturity no debt maturities until June of 2023, other than our credit facility, which matures in March of next year, but has a one year extension option at our election.
With respect to our ATM program, we are selective with our issuance during the quarter ultimately raising $20 8 million at an average price of $20 <unk> per share as.
As we look ahead and think about our capital needs, we remain committed to maintaining a conservative well matter and flexible capital structure.
With respect to our environmental liability we ended the quarter at $48 7 million, which was an increase of 600000 from the end of 2020 for the quarter net environmental remediation spending was approximately $600000.
Finally, we reaffirmed our 2021 <unk> per share guidance at a range of $1 86 to $1 80 per share our.
Our guidance includes transaction activity to date, but does not otherwise assume any potential acquisitions or capital markets activities for the remainder of 2021.
And specific factors, which may impact our guidance. This year include the impact of our 2020 and first quarter 2021 investment and capital raising activities.
Our expectation that operating costs will generally continue to increase our expectation that we will forego rent when we recapture properties for redevelopment.
And our expectation that we will remain active and pursuing acquisitions and Redevelopments, which could result in additional expenses for deals ultimately not completed.
With that I'll turn it back to Chris.
Thank you Brian.
That concludes our prepared remarks, so let me ask the operator to open the call for questions.
Thank you at this time will be and we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate your line is and the question queue. You May press star two if he would like to remove your question from accounts for those using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
The first question is from Michael Gorman from <unk>. Please go ahead.
Hey, Thanks, good morning.
Good morning.
Chris I was wondering if you could talk a little bit about what.
And what the environment is like right now on the tenant side in terms of.
Consolidation or are you seeing continued moves towards consolidating the C store space and how that plays into how your acquisition pipeline looks like or what your acquisition pipeline looks like over the balance of the year.
Well sure maybe I'll comment on that and the net add something as well, which is I think the median store industry.
And we'll continue to consolidate as it has been over the last several years.
And the reality is.
And with it.
Store evolving and becoming more part merchandize part quick serve restaurant Park coffee.
Sure.
The operations are incredibly sophisticated and when you add loyalty programs and apps on top of that.
There are small to mid size operators spread that probably are not willing to or maybe cannot compete with some of the larger chain stores. So youre going to continue to see.
And then you'd offer convenient consolidation.
Whether it's a small player selling to a regional player or even some of the more national transactions that you've seen over the last couple of years.
The other thing I would add Mike, which is probably not related to your question, but we're also seeing is that there are a number of.
Call it medium to larger sized chains that are also.
Quite frankly building their own locations and growing organically.
And their target markets are and adjacent markets.
And we think Thats also a source of potential transactions for Getty.
These operators are looking to.
Source capital to fund organic growth as well as M&A growth.
That's great actually yeah feeds feeds right into my next question about the construction loans during the quarter.
Curious if you could spend a little bit more time talking about kind of how you source those how you underwrote those and maybe.
What kind of additional opportunities that you kind of just mentioned there are for either funding.
New development through construction loans or maybe even taking your redevelopment skill set into ground up development can you just kind of lay out the field of opportunity there.
Yeah, So dovetails to what I was just saying a moment ago. We've done this and a couple of transactions before right, where we have been effectively a development partner with a tenant where they have.
Identified a site.
To do their prototype Newbuild program. So in this case refill.
Refuel is a large operator across the southern U S. They've got a new store.
Program and they are looking for capital to help them fund along the way and then the way our agreements are structured is we anticipate buying location upon completion against important to Getty right at the end of the day that we become the owner of the property.
But if there's a way for us to partner with and operator and help fund the organic growth. We certainly think that's an opportunity for us and this case and others as well.
Great and then maybe just last one from me.
And your conversations with your tenants any kind of updated thoughts on the relationship between.
What's been going on with convenience store sales, which seem to be pretty strong and then what's going on and on the gas side of things and whether.
Thank you.
Historically, it's been kind of that 50, maybe 60% range of C store sales don't involve and gas transaction is that changing at all.
It is gradually increasing right. So there we have a stat and our investor materials that says approximately 50% of customer visits our non-GAAP weighted business.
Anecdotally and conversations with our tenants, we have seen that 50% number growing right and it does vary by industry.
Certainly if you're in an area, that's maybe more suburban or maybe.
And our spread out right and you're seeing more visits and sometimes the same customer visiting multiple times per day.
And I think that's a trend that will continue.
Convenience store becomes good morning destination or afternoon destination and certain cases out of the year.
Test and Asia for dinner.
That's what our tenants are focused on is driving customer visits for food and traditional merchandise.
And when Ocwen.
Consumers do not stop for gas.
Excellent thanks for the time.
Yes.
The next question is from Todd Thomas from Keybanc. Please go ahead.
Hi, Thanks, good morning.
First question for Bryan in terms of the guidance.
Which does not include future investments.
You're close to $22 million at a slightly more than 7% initial yield you extended some construction financing I was just curious what the offset was.
And with the guidance range and the AF and <unk>.
Firm.
What the offset was relative to the investments that were completed during the quarter.
Good morning, Todd Fair question is we obviously did have some investment activity and the quarter.
It is really the ATM issuance and.
I can't say that we were.
Active outwardly in the market during the quarter, but there were a couple of opportunities.
And that were brought to us that we felt made sense to transact on.
As you weigh the different considerations of issuing equity we thought that made sense for us, particularly over the long term acknowledging that it does put a little bit and the short term pressure.
On the.
Earnings per share number and <unk> <unk> per share, but the short answer to your question is the equity issuance and and we felt that was the right thing to do notwithstanding the impact on on the per share numbers.
Okay and then.
Just back to back to investments I was just curious if there's an update and if you can comment at all regarding the Couche tard and process the circle K portfolio and Getty is interest in those assets.
Yes, there's not really any up there.
Thoughts that I can provide.
At this time.
Okay.
And what about the disposition outlook, what's that look like should we expect more term and more near term asset sales I mean, how should we think about dispositions.
We move forward throughout the year.
If you look at our recent.
And many of the past two or three years, we've certainly been seller.
And I'll call. It 10 to 15 properties a year.
And typically some of those properties had been vacant.
And they can see us from those properties were coming out of leases or lease term was expiring.
I think thats, a good run rate for Getty.
We don't see interest.
Brian.
Okay.
Alright, thank you.
Yes.
The next question is from Nikita day Lee of Jpmorgan.
And the hedge.
Hey, Good morning, guys did you provide the yields on these loans.
So well advanced.
And these construction loans just curious.
Unfortunately, we cant disclose the exact yield on that but.
Is that the.
And interest rate during the construction period is certainly consistent with where.
And he's been investing over the last several years.
So it is consistent to the cap rates and the second question was what do you think the expected cap rate will be down the line. When you eventually do acquire those properties.
Again, I can't really provide specific numbers, but I would.
You too.
The range of cap rate and good quoted in the past.
Okay.
And on the deal pipeline, and though you talked a little bit about that in terms of just put some numbers and brackets around it.
And a little bit more consistent and <unk>.
Recent quarters with the deal volume do you think that 30 to 40 and $50 million of deals per quarter is a realistic number do you think you aspire to and overtime.
Put forward that on a consistent basis.
I'm not going to provide a specific number but what I would say it's been one of our goal to become more of a consistent acquirer.
Right.
And we've had a number of resources and Mark's group right to help with that.
Our results have shown that we have certainly.
And acquiring at a steady pace over the last several years.
Perfect.
Alright.
Last question. If you don't mind, you did some car washes and the quarter and you just talk a little bit about how big of an opportunity that is as a percentage of the total deal pipeline currently.
Sure This is mark.
And I think it's growing to the point as we expand our relationships and develop.
And new opportunities and the space, it's a highly fragmented industry, which is receiving a lot of attention for consolidation right now.
And I think it will.
<unk> be somewhat equal to or near the opportunity set for convenience stores right now it's not quite there, but we're working on it every day and and right now, we're still probably heavily weighted slightly weighted towards convenience stores, but.
Not only in Carwash, but and all the other automotive experience retail centers, where we're working to grow the pie is big as possible.
And for opportunities for acquisitions and investments and all those retail verticals.
And.
Hello, and thanks, guys.
This concludes the question and answer session and I'd like to turn the call back over to Chris constant for closing remarks.
Great. Thank you operator.
We appreciate everyone joining us this morning for our first quarter call.
And for interest and Getty, and we look forward and background with everybody.
The end of the second quarter.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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