Q3 2024 Getty Realty Corp Earnings Call
Yes.
Speaker Change: Prior to starting the call 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.
Speaker Change: Please go ahead Mr <unk>.
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 and operating results for the quarter ended September 32024, the form 8-K and earnings release are available in the Investor Relations section of our website at.
Speaker Change: Getty Realty Dot Com <unk>.
Speaker Change: Certain statements made during this call are not based on historical information and May constitute forward looking statements. These statements reflect 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 state.
Yeah.
Speaker Change: Good morning, and welcome to Getty Realty third quarter 2024 earnings call.
Speaker Change: Once include our 2020 for guidance and May include statements made by management, including those regarding the coverage the company's future operations future financial performance or investment plans and the 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.
Speaker Change: This call is being recorded after the presentation, there will be an opportunity to ask questions.
Speaker Change: Prior to starting the call 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.
Speaker Change: Really I refer you to the company's annual report on Form 10-K for the year ended December 31, 2023, as well with any subsequent filings 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 in any forward looking statements made today.
Speaker Change: Please go ahead Mr <unk>.
Joshua Dicker: 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 and operating results for the quarter ended September 32024, the form 8-K and earnings release are available in the Investor Relations section of our website.
Speaker Change: You should not place undue reliance on forward looking statements, which reflect our view only as of today. The company undertakes no duty to update any forward looking statements that may be made during this call.
Joshua Dicker: <unk> Dot com.
Joshua Dicker: Certain statements made during this call are not based on historical information and May constitute forward looking statements.
Speaker Change: 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 <unk> and our reconciliation of those measures to net earnings with that let me turn the call over to Christopher constant our Chief Executive Officer.
Joshua Dicker: This reflect management's current expectations and beliefs and on.
Christopher Constant: Thank you Josh good morning, everyone and welcome to our earnings call for the third quarter of 2024.
Christopher Constant: Joining us on the call today are Mark Olear, our Chief operating officer, and Brian Dickman, Our Chief Financial Officer.
Christopher Constant: I will lead off today's call by summarizing our financial results and quarterly business activities and will also provide commentary on our growth and diversification strategies within the convenience and automotive retail sectors.
Christopher Constant: Mark will then take you through our investment in asset management activities and Brian will further discuss our financial results and guidance.
We had another very productive quarter and continued to demonstrate our ability to execute across all facets of our business.
Christopher Constant: We grew and diversified our portfolio through accretive acquisitions.
Our asset management team advanced a number of redevelopment projects and extended two significant unitary leases.
Christopher Constant: And we further solidified our balance sheet and liquidity position through thoughtful capital markets activity.
Christopher Constant: We also raised our full year 2024, our earnings guidance and our board approved another annual dividend increase our 11th consecutive year of raising the dividend.
Christopher Constant: Overall, it was a strong performance from all components of the platform and I'm excited about how the team is working together to execute our strategy.
Joshua Dicker: Turning officer, and Brian Dickman, our Chief Financial Officer.
Joshua Dicker: I will lead off today's call by summarizing our financial results and quarterly business activities and will also provide commentary on our growth and diversification strategies within the convenience and automotive retail sectors.
We remain focused on growing diversifying and actively managing our portfolio of convenience in automotive retail assets and I believe that this quarter was a great representation of our capabilities.
Joshua Dicker: Mark will then take you through our investment in asset management activities and Brian will further discuss our financial results and guidance.
Christopher Constant: Last night, we released earnings our results were headlined by a 13, 1% increase in our.
Christopher Constant: Annualized base rent over the prior year and reported <unk> per share growth of three 5% for the quarter and three 6% year to date.
Joshua Dicker: We had another very productive quarter and continued to demonstrate our ability to execute across all facets of our business, we grew and diversified our portfolio through accretive acquisitions.
Christopher Constant: And as I mentioned, we were able to raise our full year 2024, <unk> per share guidance going into the entity.
Joshua Dicker: Our asset management team advanced a number of redevelopment projects and extended two significant unitary leases and we further solidified our balance sheet and liquidity position through thoughtful capital markets activity.
Christopher Constant: Year to date the company has invested approximately $148 million at an 8% initial cash yield or investment activity continues to reflect the benefits of our differentiated platform, including our deep network of industry relationships and underwriting expertise within the convenience and automotive retail sectors.
Joshua Dicker: We also raised our full year 2024 earnings guidance and our board approved another annual dividend increase our 11th consecutive year raising the dividend.
Christopher Constant: Consistent with prior years more than 90% of our investments in 2024 have been direct with tenants versus acquiring existing leases.
Joshua Dicker: Overall, it was a strong performance from all components of the platform and I'm excited about how the team is working together to execute our strategy.
Christopher Constant: We think the direct sale leaseback model has several benefits not the least of which is our ability to cultivate tenant relationships and underwrite site level performance and we expect to maintain this level of direct transaction activity going forward.
Joshua Dicker: We remain focused on growing diversifying and actively managing our portfolio of convenience in automotive retail assets and I believe that this quarter was a great representation of our capabilities.
Joshua Dicker: Last night, we released earnings our results were headlined by a 13, 1% increase in our annualized base rent over the prior year and reported <unk> per share growth of three 5% for the quarter and three 6% year to date.
Christopher Constant: We've been able to invest in all four of our primary convenience in automotive retail property types. This year, including convenience stores Express on a car washes auto service centers and drive through <unk> and we've added five new tenants to the portfolio, while expanding our relationships with nine existing tests.
Joshua Dicker: And as I mentioned, we were able to raise our full year 2024, <unk> per share guidance going into the end of the year.
Christopher Constant: Our deal teams efforts have also resulted in a growing investment pipeline. We currently have more than $70 million of assets under contract at a blended cap rate approaching the mid 8% area.
Joshua Dicker: Year to date the company has invested approximately $148 million at an 8% initial cash yield.
Christopher Constant: And we continue to see a steady flow of opportunities to underwrite and evaluate for protection investment.
Joshua Dicker: Our investment activity continues to reflect the benefits of our differentiated platform, including our deep network of industry relationships and underwriting expertise within the convenience and automotive retail sectors.
Christopher Constant: Our in place portfolio remains a source of strength for the company. In addition to excellent performance in terms of occupancy rent collections and rent coverage. We continue to identify additional redevelopment opportunities embedded in the portfolio and are seeing large unitary lease tenants extend their lease terms and further commit to the.
Joshua Dicker: Consistent with prior years more than 90% of our investments in 2024 have been direct with tenants versus acquiring existing leases.
Sites they operate.
Christopher Constant: With respect to redevelopment, we had our first rent commencement of the year in the third quarter as we completed a new Chipotle restaurant, and the Providence, Rhode Island and MSA.
Christopher Constant: Interest from automotive service tenants is driving future redevelopment opportunities, including three new signed leases with a large take five oil franchisee this quarter.
Christopher Constant: We anticipate additional demand from this type of abuse as it fits well with our geographic footprint and the physical characteristics of many of our legacy locations.
Christopher Constant: During the quarter, we also extended two material unitary leases, representing 11% of our ABR and year to date have extended four year tariff leases representing more than 13% of our ABR.
Christopher Constant: Both of these have contributed meaningfully to an increase in our weighted average lease terms for more than 10 years.
Christopher Constant: All of this portfolio activity was complemented by a strong quarter of capital raising as we raised more than $245 million of common equity and unsecured debt.
Christopher Constant: July we took advantage of our growing investment pipeline and improving investor sentiment to raise of $121 million of common equity through an overnight offering and.
Christopher Constant: And recently, we agreed to issue to certain investors $125 million of new senior unsecured notes.
Christopher Constant: Placement transaction.
Christopher Constant: Combined this capital will fund our investment pipeline refinance our only near term notes maturity and provide additional growth capital going into 2025.
Christopher Constant: Again, I think this was a very productive quarter for Getty and I'm excited about our platform and how we're executing.
Christopher Constant: Despite lingering uncertainty with respect to the economy and the upcoming election and materials. They ask spreads that persist for a net lease properties and our sectors, we remain well positioned to create value for our shareholders.
Joshua Dicker: Our ABR.
Christopher Constant: Our in place assets continue to generate reliable and growing rental income our balance sheet is in great shape with moderate leverage and significant liquidity in our investment activity is driving additional earnings growth, while scaling and diversifying the portfolio.
Joshua Dicker: Both of these have contributed meaningfully to an increase in our weighted average lease term to more than 10 years.
Joshua Dicker: All of this portfolio activity was complemented by a strong quarter of capital raising as we raised more than $245 million of common equity and unsecured debt.
Christopher Constant: Based on our recent performance and earnings growth expectations. Our board approved an increase of four 4% and our recurring quarterly dividend to <unk> 47 per share.
Joshua Dicker: In July we took advantage of our growing investment pipeline and improving investor sentiment to raise of $121 million of common equity through an overnight offering and.
Christopher Constant: This represents the 11th straight year, we have grown the dividend alongside our earnings our board believes this annual increase is appropriate as it maintains a stable payout ratio and continues to increase getty's retained cash flow to have more investable capital to meet our growth objectives.
Joshua Dicker: And recently, we agreed to issue to certain investors $125 million of new senior unsecured notes.
Joshua Dicker: Placement transaction.
Joshua Dicker: Combined this capital will fund our investment pipeline refinance our only near term notes maturity and provide additional growth capital going into 2025.
Christopher Constant: Before I turn the call over to Marc I'll close by noting that we've noticed an uptick in the REIT markets enthusiasm for the convenience in automotive retail sectors that we have been investing in for many years.
Joshua Dicker: Again, I think this was a very productive quarter for Getty and I'm excited about our platform and how we're executing.
Joshua Dicker: Despite lingering uncertainty with respect to the economy and the upcoming election and materials. They ask spreads that persist for a net lease properties and our sectors, we remain well positioned to create value for our shareholders.
Christopher Constant: As we've discussed in the past these are essentially used assets with strong real estate characteristics and an emphasis on speed convenience and service that resonates with today's consumer, particularly the mobile consumer.
Joshua Dicker: Our in place assets continue to generate reliable and growing rental income our balance sheet is in great shape with moderate leverage and significant liquidity in our investment activity is driving additional earnings growth, while scaling and diversifying the portfolio.
Christopher Constant: These attributes are all elements of our investment thesis and we believe our focused efforts and industry expertise are key differentiating factors forgetting.
Christopher Constant: We look forward to continuing to engage with the investment community on the merits of our strategy as we further grow and diversify our convenience in automotive retail portfolio.
Joshua Dicker: Based on our recent performance and earnings growth expectations. Our board approved an increase of four 4% and our recurring quarterly dividend to <unk> 47 per share.
Speaker Change: With that I'll, let mark discuss our portfolio and investment activities.
Joshua Dicker: This represents the 11th straight year, we have grown the dividend alongside our earnings our board believes this annual increase is appropriate as it maintains a stable payout ratio and continues to increase getty's retained cash flow to have more investable capital to meet our growth objectives.
Mark Olear: Thank you Chris.
Mark Olear: End of the quarter are leased.
Mark Olear: Portfolio included 1104, net lease properties and one active redevelopment site.
Mark Olear: Excluding the active redevelopment occupancy was 99, 7% and a weighted average lease term was 10 one years.
Joshua Dicker: Before I turn the call over to Marc I'll close by noting that we've noticed an uptick in the REIT markets enthusiasm for the convenience in automotive retail sectors that we have been investing in for many years.
Mark Olear: Our portfolio spans 42 States plus Washington D. C was 59% of our annualized base rent coming from the top 50, Msas and 75% coming from the top 100 Msas.
Mark Olear: Our rents are well covered with a trailing 12 month rent coverage ratio of two six times, which has been consistent over the last 45 years, demonstrating the resiliency of our tenants' businesses. Despite the macroeconomic volatility we've experienced over that timeframe.
Mark Olear: Turning to our investment activities getting invested $30 2 million across 16 properties at an initial cash yield of 8% during the third quarter.
Mark Olear: The average lease term on that acquired assets was $18 four years.
Mark Olear: Highlights of this quarter's investments include the acquisition of 10 Express town car washes located in various markets across the U S for $44 9 million of which $18 4 million was funded in previous quarters.
Mark Olear: One new to industry convenience store located in Austin, Texas for $7 million of which $4 9 million was previously funded.
Mark Olear: And one new newly constructed auto service center located in Washington D C MSA for $1 7 million.
Mark Olear: Of which $1 5 million as previously funded.
Mark Olear: We also advanced incremental development funding in the amount of $1 4 million for the construction of four new to industry Express pallet car washes and auto service centers.
Mark Olear: <unk> assets are either already owned by the company are under construction or will be acquired via sale leaseback back transactions at the end of the project's respected construction periods.
Mark Olear: After the quarter end, we invested an additional $15 1 million to acquire three convenience stores in the Houston MSA and one auto service Center in North Carolina.
Mark Olear: Overall, we remain very active in underwriting potential investments in our core convenience, how automotive retail sectors and expect to find opportunities to transact while maintaining the discipline. We've shown over the last couple of years as the transaction market reset to reflect rising capital cost.
Mark Olear: Material bid ask spreads between buyers and sellers persists and sellers now point to the Fed's recent cut commentary to justify substantial reduction reductions in asking cap rates are.
Mark Olear: Our belief is that pricing will be slower to adjust as there's still a fair amount of uncertainty with respect to the rate environment and cap rates never expand to capture the full increase capital costs borne by institutional investors.
Joshua Dicker: One of them.
Joshua Dicker: We also advanced incremental development funding in the amount of $1 4 million for the construction of four due to industry Express pallet car washes and auto service centers.
Mark Olear: That said our investment activity over the last several years demonstrates that getting to source opportunities in our target sectors of cap rates that reflect our view of current market pricing and allow us to deploy capital Accretively.
Joshua Dicker: <unk> assets are either already owned by the company are under construction or will be acquired via sale lease.
Joshua Dicker: Batch transactions at the end of the project's respected construction periods.
Joshua Dicker: After the quarter end, we invested an additional $15 1 million to acquire three convenience stores in the Houston MSA and one auto service Center in North Carolina.
Mark Olear: As we leverage our relationship based strategy and prioritize direct business with new and repeat tenants. We remain confident that we'll be able to maintain this accretive capital deployment as we remove things move through the remainder of the year into 2025.
Joshua Dicker: Overall, we remain very active in underwriting potential investments in our core convenience, so automotive retail sectors and expect to find opportunities to transact while maintaining the discipline.
Mark Olear: Moving to our redevelopment platform, we completed one project during the quarter for a new Chipotle Mexican grill in the Providence, Rhode Island Metro area.
Joshua Dicker: We've shown over the last couple of years as the transaction market reset to reflect rising capital cost.
Mark Olear: Our total investment in the project was just more than $2 2 million and the property is now subject to a long term triple net lease with Chipotle.
Joshua Dicker: Material bid ask spreads between buyers and sellers persists and sellers now point to the Fed's recent cut commentary to justify.
Mark Olear: In addition, we signed leases for three new redevelopment projects during the quarter and now have a total of five signed leases for redevelopment all for future Auto service centers.
Joshua Dicker: Substantial reduction reductions in asking cap rates are.
Joshua Dicker: Our belief is that pricing will be slower to adjust as there is still a fair amount of uncertainty with respect to the rate environment and cap rates never expand to capture the full increase in capital cost borne by institutional investors.
Mark Olear: Continuing with our asset management efforts I would like to share additional details about two unitary lease extensions, we executed this quarter, which represent more than 11% of our total ABR.
Joshua Dicker: That said our investment activity over the last several years demonstrates that getting to source opportunities in our target sectors of cap rates that reflect our view of current market pricing and allow us to deploy capital Accretively.
Mark Olear: <unk> energy, our fifth largest tenant exercise their renewal option, that's unitary lease covering 49 properties in New York and kept the Msas.
Mark Olear: The lease now has more than 11 years of term running through January 2036, and its two additional renewal options.
Joshua Dicker: As we leverage our relationship based strategy and prioritize direct business with new and repeat tenants. We remain confident that we'll be able to maintain this accretive capital deployment as we remove things move through the remainder of the year into 2025.
Mark Olear: We also negotiated an amendment to one of our unitary leases with global partners, our second largest tenant.
Mark Olear: We extended the current term but of the Leafs by seven years to August 2034.
Joshua Dicker: Moving to our redevelopment platform, we completed one project during the quarter for a new Chipotle Mexican grill in the Providence, Rhode Island Metro area.
Mark Olear: Increase the aggregate APR due under the lease by 300000 and reduced the number of properties under the lease from 93 to <unk> 70.
Joshua Dicker: Our total investment in the project was just more than $2 2 million and the property is now subject to a long term triple net lease which are Poland and.
Mark Olear: As part of this transaction, we sold 23 properties remove from unitary leased to global for $4 4 million and redeploy these proceeds into new income producing assets.
Mark Olear: We think this is a great outcome for Getty, which also resulted in 12 legacy gas repair sites being removed from the portfolio and ABR from legacy and gas repair sites reduced by 825000.
Mark Olear: As a result of these lease extensions and others that were extended early in the year plus our 2020 for acquisition activity Getty's portfolio weighted average lease term increased to 10, one years at quarter end as compared to $8 nine years at the end of 2023.
Speaker Change: With that I'll turn the call over to Brian.
Brian Dickman: Thanks, Mark Good morning, everyone yesterday, we reported <unk> per share of <unk> 59 for Q3 2024, representing an increase of three 5% over Q3 2023.
Speaker Change: For the nine months ended September 30th.
<unk> per share was $1 74.
Speaker Change: Of three 6% as compared to the prior year period.
Speaker Change: A more detailed description of our quarterly and year to date results can be found in last night's earnings release, and our corporate presentation contains additional information regarding our earnings and dividend per share growth over the last several years.
Speaker Change: A couple of other P&L related items that we focus on our annualized base rent or ABR and our G&A expenses AVR as of September 32024 was $190 million, an increase of 13, 1% over the $168 million, we reported as of September 32023.
Speaker Change: While <unk> per share growth remains our primary objective topline rental growth is a significant part of that and something we've been able to accelerate as we've enhanced our acquisitions platform.
Speaker Change: With respect to G&A, we typically look at two ratios total G&A as a percentage of total revenue and G&A, excluding stock based compensation and nonrecurring retirement and severance costs, which is the G&A that flows through <unk> in which we look at as a percentage of cash rental income and interest income.
Speaker Change: For the nine months ended September 32024, total G&A as a percentage of total revenue was 12, 5% a decrease of 50 basis points from the prior year period.
Speaker Change: <unk> F O G&A as a percentage of cash rental and interest income was nine 8% a decrease of 60 basis points from the prior year period.
Speaker Change: We continue to expect G&A dollar amount increases to moderate and G&A ratios to decrease as we scale the company.
Speaker Change: Moving to some thoughts on the balance sheet and liquidity as of September 32024, net debt to EBITDA was five times or $4 two times taking into account unsettled forward equity we continue to target leverage of four five times to 555 times net debt to EBITDA and are well positioned to maintain those levels.
Joshua Dicker: <unk> per share growth remains our primary objective topline rental growth is a significant part of that and something we've been able to accelerate as we've enhanced our acquisitions platform.
Speaker Change: Fixed charge coverage was a healthy three eight times as of September 30th.
Speaker Change: With respect to G&A, we typically look at two ratios total G&A as a percentage of total revenue and G&A, excluding stock based compensation and nonrecurring retirement and severance costs, which is the G&A that flows through <unk> in which we look at as a percentage of cash rental income and interest income.
Speaker Change: As Chris alluded to in his remarks, we had a busy quarter in the capital markets. In July we took advantage of our growing investment pipeline and improving equity market conditions to complete a 4 million share overnight offering and raised more than $121 million on a forward basis.
Speaker Change: For the nine months ended September 32024, total G&A as a percentage of total revenue was 12, 5% a decrease of 50 basis points from the prior year period.
Speaker Change: And towards the end of the quarter, we agreed to issue $125 million of new unsecured notes to certain investors in a private placement transaction.
Speaker Change: Proceeds will be used to repay our only near term notes maturity, which is $50 million that comes due in February 2025, as well as to fund investment activity. We anticipate this track transaction will close during the fourth quarter of this year and fund in the first quarter of 2025.
Speaker Change: And a F F O G&A as a percentage of cash rental and interest income was nine 8% a decrease of 60 basis points from the prior year period.
We continue to expect G&A dollar amount increases to moderate and G&A ratios to decrease as we scale the company.
Speaker Change: The new notes will include a $50 million tranche priced at five 5% and due in September 2029, and a $75 million tranche priced at five 7% and due in February 2032, and.
Speaker Change: Moving to some thoughts on the balance sheet and liquidity as of September 30th 2024, net debt to EBITDA was five times or $4 two times taking into account unsettled forward equity we continue to target leverage of four five times to 5.5, 0.5 times net debt to EBITDA and are well positioned to maintain those levels.
Speaker Change: In addition to addressing our upcoming notes maturity in funding investment activity. This transaction also allows us to get a little more efficient with our debt maturity schedule as both tranches will mature at the same time as other existing notes in 2029 and 2032.
Speaker Change: Fixed charge coverage was a healthy three eight times as of September 30th.
Speaker Change: As Chris alluded to in his remarks, we had a busy quarter on the capital markets. In July we took advantage of our growing investment pipeline and improving equity market conditions to complete a 4 million share overnight offering and raised more than $121 million on a forward basis.
Speaker Change: Our revolving credit facility and term loan also maturing 2025, both in October although both have extension options that can push the maturities to October 2026, we'll work with our bank partners to evaluate options with respect to both of those facilities and as of today, we don't anticipate any issues recasting the revolver or addressing the term loan upon mature.
Speaker Change: Towards the end of the quarter, we agreed to issue $125 million of new unsecured notes to certain investors in a private placement transaction.
Speaker Change: <unk>, whether that's in 2025 or 2026.
Speaker Change: Proceeds will be used to repay our only near term notes maturity, which is $50 million that comes due in February 2025, as well as to fund investment activity. We anticipate this track transaction will close during the fourth quarter of this year and fund in the first quarter of 2025.
Speaker Change: Our liquidity position at the end of the third quarter was as strong as it's been since I've been at getting with more than $495 million available capital, including $132 $5 million of unsettled forward equity $75 million of net new debt financing and $287 $5 billion of capacity on our unsecured revolving credit.
Speaker Change: <unk>.
Speaker Change: We have more than sufficient capital to fund the $65 million of investments, we have under contract and to fund additional investment activity beyond that.
Speaker Change: Yeah.
Speaker Change: In general as we think about capital, we're committed to maintaining our investment grade credit profile, including leverage within our target range and ample liquidity and we will evaluate all capital sources to ensure that we meet those objectives as well as to ensure that we're funding investment activity in an accretive manner.
Speaker Change: And finally with respect to our earnings guidance as a result of our year to date investment and capital markets activities. We are raising our 2024 and the full guidance to a range of $2 32 to 2033 cents per share from a previous range of $2 30 to $2 32 per share.
Speaker Change: As a reminder, our guidance includes only transaction and capital markets activity that has occurred to date and does not otherwise assume any acquisitions dispositions or capital markets activities for the remainder of 2024, including the closing of transactions under contract for the settlement of outstanding forward equity.
Speaker Change: Primary factors impacting our outlook include variability with respect to certain operating expenses deal pursuit costs and the timing of anticipated demolition costs for redevelopment projects, which run through property cost on our P&L.
Speaker Change: With that I'll ask the operator to open the call for questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session.
Speaker Change: If you'd like to ask a question. Please press star and one on the telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star and two if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Speaker Change: The first question is from the line of Joshua <unk> with Bank of America. Please go ahead.
Speaker Change: Hi, Good morning. This is powell granted on behalf of Josh.
Speaker Change: I just wanted to ask about.
Speaker Change: The transaction market I know last quarter, you were commenting that they're still very tight.
Speaker Change: And there was a large inventory of assets for sale would you still characterize the current market like that or have you been seeing a shift currently.
Speaker Change: I'll start and then you guys can fill in some details, but my sense is that.
Speaker Change: With with some of the news that's come out, but there is certainly a sense from the sellers that.
Speaker Change: Cap rates should be declining you know our view all along it's really been.
Speaker Change: Cap rates have been more inclined with longer term rates and we really haven't seen too much of a shift there. So from a pricing standpoint, I think we're aware that the market will move our model, which we haven't really seen a ton of movement in our in our pipeline at this point see we've got year to date activity at the eight <unk>.
Speaker Change: The first question is from the line of Joshua <unk> with Bank of America. Please go ahead.
Speaker Change: Evel, our pipeline is kind of in that mid <unk> level, but looking out I think certainly the market will start to move as we get into 'twenty five.
Speaker Change: Hi, Good morning. This is farrell granted on behalf of Josh.
Speaker Change: But again I think we used the word disconnect in our script, but I do think there is still a disconnect between buyers and sellers.
Speaker Change: First just wanted to ask about the transaction market I know last quarter, you were commenting that it is still very tight.
Speaker Change: Obviously, we think we're going to be able to continue to transact the way we have in the past with direct transactions and sale leasebacks, but.
Speaker Change: And there was a large inventory of assets for sale would you still characterize the current market like that or have you been seeing a shift currently.
Speaker Change: There's a lot of noise in the market.
Speaker Change: Around the direction of rates and what that does to cap rates.
Speaker Change: I'll start and then you guys can fill in some details but.
Speaker Change: Time will tell how fast those ultimately move.
Speaker Change: My sense is that.
You know with with some of the news has come out that there is certainly a sense from the sellers that.
Speaker Change: Okay. Thank you and I also just wanted to ask about your comment that you made that there's been an increased interest in kind of your area of focus at the convenience and auto services are you seeing this become more of a hunting larger competition for.
Speaker Change: Cap rates should be declining RV, all along it's really been you know.
Speaker Change: Cap rates the more inclined with longer term rates were really haven't seen too much of a shift there. So from a pricing standpoint, I think we're aware that the market will move our model, which we haven't really seen a ton of movement in our in our pipeline at this point see we've got year to date activity at the eight level.
Speaker Change: For these assets and is this impacting at all the deals that you're you're going after or closing.
Speaker Change: Yeah, I think the comment was really.
Speaker Change: We've been in and around these sectors for a very long time.
Speaker Change: Our pipeline is kind of in that mid eight level, but looking out I think certainly the market will start to move as we get into 'twenty five.
Speaker Change: What we have going for US right. It's these are very large fragmented sectors, where there's been not only a lot of new store growth, but also consolidation.
Speaker Change: But again I think we use the word disconnect in our script, but I do think there is still a disconnect between buyers and sellers.
Speaker Change:
Speaker Change: We really like to position ourselves as experts in these sectors and we have seen.
Speaker Change: Obviously, we think we're going to be able to continue to transact. The way we have in the past worked with direct transactions and sale leasebacks, but.
More interest from investors from other other public companies that are looking at our sectors and I think it makes sense. These are these are healthy sectors, we've seen growth and consolidation, which creates transaction opportunities.
Speaker Change: But certainly there is a lot of noise in the market.
Speaker Change: Round, the direction of rates and what that does to cap rates.
Time will tell how fast those ultimately move.
Speaker Change: I'll come back to just the way getting invest threat, which as you know.
Okay.
Speaker Change: Direct with tenants sale leaseback transactions long relationships and a lot of repeat business and I think while sure there may be more competition or new interest in this sector from other competitors, but we feel pretty good about how we've been able to transact and what the pipeline looks like and the opportunities. We are underwriting to continue to add to that.
Speaker Change: Portfolio.
Great. Thank you so much I appreciate the time.
Speaker Change: Thank you.
Speaker Change: The next question comes from Mitch Germain with citizens. Please go ahead.
Speaker Change: Hi, good morning.
Speaker Change: You provided a little bit more.
Mitch Germain: Around the sale of the properties to global I mean were those.
Mitch Germain: Or were they older skewing do they need some capex anything specific that stands out versus the ones that remain in your portfolio.
Speaker Change: Yeah, I mean, I think you know the global transaction involved a lot of properties. We're at 93 properties were in that lease. So I think you need to maybe to look at the sale component of that a little bit differently.
Speaker Change: There were issues around term around rents around which properties. We wanted to remain in our portfolio for a while so.
Speaker Change: Again, a lot of negotiation between Getty and global partners. There I think that's a good outcome for both both parties.
Speaker Change: Mark made the comment in his script that certain of these assets were legacy sites that maybe you didn't have a C store and were tougher right from a long term perspective, and global thought they would be better if they own those properties.
Speaker Change: So again.
Speaker Change: Makes a lot of moving pieces I think it's a good outcome for Getty.
Speaker Change: Also for global and we're happy to have them commit to these properties longer term and.
Speaker Change: We're obviously happy to maintain our rents at those sites and Mitch I would just add real quick to highlight the benefits of the unitary leases that are that we utilized right. So our tenants have the option upon renewal three new all or none of the lease spreads. So that's sort of the starting point.
Speaker Change: As Chris just went through global has some thoughts about how they may want to refine that portfolio.
Speaker Change: So that gave us an opportunity to engage with them extra.
Speaker Change: Extract some value if you will around term and proceeds and some of the other things we went through but just want to highlight the benefits of the unitary leases and the physician can put get in when when tenants are looking to renew.
Speaker Change: That's helpful I know, which you know.
Speaker Change: I believe you get for more than probably about three quarters or so of your leases you get site level performance anything.
Speaker Change: Warming I'd, probably more on your auto tenants.
Speaker Change: With regards to obviously, a little bit of a consumer pullback is there anything that stands out or is it just kind of operations as normal there.
Speaker Change: Yes.
Speaker Change: Across the portfolio of the highest level you know their coverage has been around that two six level for the better part of four or five years now.
Speaker Change: If you break apart the detail.
Speaker Change: I think certain sectors, especially some of our newer carwash assets that we're seeing ramping poor performance. There those are actually maybe.
Speaker Change: Coverage ratios that are starting to skew to the positive.
Speaker Change: And then within the C store sector.
Speaker Change: That sector is definitely cyclical right Q1 tends to be the slowest quarter for weather in certain parts of our portfolio. So we did see an uptick there, but what we've seen that over the last several years spread is.
Speaker Change: It will come out of the winter months and get into that spring summer driving season, So I'm really really nothing out of the ordinary from a copper standpoint from what we get from our tenants this quarter great.
Speaker Change: Great and last one for me.
Speaker Change: <unk> sort of consistent for the year give or take up obviously quarter over quarter, but you know.
Speaker Change: Some of the capital raising that you've done seems to really portray a bit of confidence that you guys will despite the.
Speaker Change: Volatility in the market that you'll be able to source. Some of these some deals you know coming into 2025 I mean you.
Speaker Change: What gives you confidence that those transactions will be able to transpire that meet your underwriting criteria.
Speaker Change: Yeah. If you go back now several years to.
Speaker Change: When we expanded the strategy beyond just the convenience store.
Speaker Change: If you look quarter to quarter, we've had very steady.
Investment volumes are at some quarters, obviously, it spikes up because of the nature of sale leasebacks as opposed to just buying someone else leases, but.
Speaker Change: Given that we've been able to execute for the better part of the last four or five years quarter to quarter to quarter right. When we see capital that can be raised at prices that we think works for our business. We're certainly going to go out and take that risk off the table and give our deal team some powder to go out and grow the business.
Obviously quarter over quarter, but you know some of the capital raising that you've done seems to really portray a bit of confidence that you guys will despite the call. It volatility in the market that you'll be able to source. Some of these some deals you know coming into 2025 I mean.
Speaker Change: Great great quarter. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question is from open Rama with Keybanc capital markets. Please go ahead.
Speaker Change: Great. Good morning, Thanks, taking my question.
Speaker Change: You know what gives you confidence that those transactions will be able to transpire that meet your underwriting criteria.
Speaker Change: You mentioned that bid ask spread continues to be widened and has this improved from earlier this year and do you think it could improve into 2025 I know you already are.
Speaker Change: Yeah. If you go back several years when we expanded the strategy beyond just the convenience store.
Speaker Change: Touched on this a little bit earlier, but I wanted to get some additional color on there.
Speaker Change: If you look quarter to quarter, we've had very steady.
Speaker Change: Yes. This is mark I mean, theres a lot of a lot of macro economic factors that the that the sell side continues to point to in those doesn't changed as we've progressed through the year. So the bid ask spread is still there.
Speaker Change: Investment volumes encores offices like soft because of the nature of sale leasebacks as opposed to just buying someone else leases, but.
Speaker Change: Given that we've been able to execute for the better part of the last four or five years quarter to quarter to quarter right. When we see capital that can be raised at prices that we think works for our business. We're certainly going to go out and take that risk off the table and give our field team some powder to go out and grow the business.
Speaker Change: But what I'd say is you know that's not really a new environment forgetting to try and transact and source deals.
Speaker Change: You look at our pipeline.
Speaker Change: The churn of the closings versus the growth in the pipeline the ability to source deals that meet our underwriting criteria, both for market tenant and operational quality plus support our investment thesis on our spread on our spreads.
Speaker Change: Great great quarter. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question is from <unk> Rama with Keybanc capital markets. Please go ahead.
Speaker Change: Our efforts.
Speaker Change: Again, the bid ask spread is still is still there, but we feel confident we're going to be able to to identify opportunities to transact in.
Speaker Change: Great. Good morning, Thanks, taking my question you know.
Speaker Change: Are you you mentioned that bid ask spread continues to be widened and has this improved from earlier this year and do you think it could improve into 2025 I know you already.
Speaker Change: Okay, Great and then you know this.
Speaker Change: This quarter did see some slight deceleration in cap rates.
Speaker Change: And based on your prepared remarks do you do you expect to see cap rates move down again in <unk> based on what you've already.
Speaker Change: You touched on this a little bit earlier, but wanted to get some additional color there.
Speaker Change: Subsequent to quarter close.
Speaker Change: Yeah, I mean, if you look at our pipeline.
Speaker Change: Yes. This is mark I mean, there's a lot of a lot of macro economic factors that the that the sell side continues to point to in those doesn't changed as we've progressed through the year. So the bid ask spread is still there but.
Speaker Change: We call it the mid eight area, which is actually north of where our year to date activity is so I think where you sort of look out to the closings of those transactions, which should happen over the next three to six months you actually may see an increase in that cap rate, but that's certainly a we're aware there's as.
Speaker Change: The transaction market evolves going into 25, whether it's first quarter or mid year right that cap rates may eventually come back down a little bit.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: Before we take the next question under reminder, to all participants you May press Star and one to ask a question.
The next question is from the line of Wes Golladay with Baird. Please go ahead.
Wes Golladay: Hey, good morning, everyone I'm, just curious if youre looking at any portfolios at the moment, we're just mainly sell leaseback.
Wes Golladay:
Speaker Change: Well I mean, I think when we talk sale leaseback, we're talking about portfolios of assets why so.
Speaker Change: Geddes, Gary will certainly by individual.
Speaker Change: <unk> bio sale lease back we do have about 10% of our business over the last couple of years, which is actually buying leases, but that's not necessarily core product, but typically what we like to do with with any of our given tenants is by a portfolio of properties that we can put into a unitary master lease.
Speaker Change: For all the reasons that Brian articulated earlier in the call. It does have some structural advantages for us.
Speaker Change: Okay, and then Arco has been in the news the potentially looking to exit the C stores would you have a preference for an existing tenant to be the buyer where would you like to have a new relationship it's a diversification.
Operator: Thank you, thank you. Before we take the next question, I remind that to all participants that you may press star and one to ask a question.
Speaker Change: Yes, certainly we've seen the same headlines and we feel pretty good about our portfolios of properties that we have leased darko.
Unknown Executive: The next question is on the line of rest quality, with a bed. Please go ahead.
Unknown Executive: Hey, good morning, everyone. I'm just curious if you're looking at any portfolios at the moment or just mainly sell these bags.
Speaker Change: It's a it's a growing a consolidated industry. So we have had certain of our tenants be acquired by other tenants over time, right, which has led to some some consolidation on our tenant roster.
Unknown Executive: Well, I mean, I think when we talk sell these bags, we're talking about portfolios of assets, so, you know, Getty will certainly buy individual sites by selling these bags. We do know about 10% of our business, so the last couple of years, which is actually buying leases, but that's not necessarily our core product. But, but typically, what we like to do with any of our given tenences by portfolio properties that we can put into a unitary master lease. For all the reasons that Brian articulated earlier in the call, it does have some structural advantages for us.
Speaker Change: Really I'd say at this point in time, I don't want to get too far down the line on that because it's it's only headlines in the news but.
Speaker Change: It would depend on who the counterparty is and how we feel about their their view of our properties and how strong that that company is as a counterparty forgetting.
Speaker Change: Okay. Thanks for the time.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: As there are no further questions I would now like to hand, the conference over to Chris constant for closing remarks.
Unknown Executive: Okay, and then, Arco has been in the news of the potentially looking to exit their seahors. Would you have a preference for an existing unit to be the buyer? Or would you like to have a new relationship and some diverse education?
Christopher Constant: Great. Thank you operator, I just want to thank everyone for joining us this morning on our third quarter call.
Christopher Constant: We're excited to get back on the phone with everybody in February when we release, our Q4 and full year results for the year of 2024 so.
Unknown Executive: Yes, certainly, we see in the same headlines, and we feel pretty good about our portfolios of properties that we have the Starco. You know, it's a growing and consolidated industry, so we have had certain of our tenants be acquired by other tenants over time, right, which has led to some consolidation in our tenant roster.
Christopher Constant: Thank you very much.
Speaker Change: Thank you. This concludes today's teleconference. You may disconnect your lines at this time.
For your participation.
Unknown Executive: Really, I'd say at this point in time, I don't want to get you forward down the line on that, because it's only headlines in the news, but it would depend on who the counterpart is and how we feel about their view of our properties and how strong that company is as a counterpart for getting.
Unknown Executive: Okay, thanks for the time. Thank you.
Chris Conchin: As there are no further questions, I would now like to hand the conference over to Chris Conchin for closing remarks. Great, thank you, Operator. I just want to thank everyone for joining us this morning on our third quarter call.
Chris Conchin: We're excited to get back on the phone, everybody in February when we released our Q4 and full year results for the year of 2024, so. Thank you very much.
Operator: Thank you. This concludes today's teleconference; you may disconnect your lines at this time. Thank you, pay a participation.
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