Getty Realty Corp. 10-Q Summary
Business Context and Reporting Period
Getty Realty Corp. is an internally managed REIT focused on acquiring, financing, developing and leasing convenience, automotive and other single-tenant retail properties. The unaudited report covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods.
- Portfolio: 1,053 properties in 39 states and Washington, D.C.; 1,014 owned and 39 leased from third-party landlords.
- Most properties are leased on a triple-net basis, with tenants generally responsible for taxes, maintenance, insurance and operating expenses.
- Weighted average remaining lease term, excluding renewal options, was 8.7 years.
Financial Metrics
| Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 |
|---|---|---|---|---|
| Total revenues | $44.7 million | $41.2 million | $87.7 million | $80.5 million |
| Net earnings | $13.5 million | $30.7 million | $27.6 million | $49.4 million |
| Operating income | $20.6 million | $37.3 million | $42.0 million | $62.5 million |
| Basic EPS | $0.26 | $0.64 | $0.55 | $1.03 |
| FFO | $26.5 million | $39.8 million | $51.0 million | $63.1 million |
| AFFO | $28.5 million | $25.4 million | $55.7 million | $50.2 million |
- Revenue growth was 8.5% in Q2 and 9.0% for the six-month period, primarily from acquired properties, redevelopment rent commencements, contractual rent increases and higher interest income.
- Q2 operating margin was approximately 46.1%, compared with 90.7% in 2022; the prior-year margin benefited from a $15.9 million environmental expense credit. Six-month operating margin was approximately 47.8%, compared with 77.7%.
- Q2 net margin was approximately 30.3%, compared with 74.5%; six-month net margin was approximately 31.5%, compared with 61.4%.
- Rental property revenue increased to $43.7 million in Q2 and $86.0 million for six months. Interest income from notes and mortgages receivable increased to $1.0 million and $1.7 million, respectively.
- Net cash provided by operating activities was $48.5 million for the six months, compared with $43.4 million in 2022.
- Net cash used in investing activities was $99.4 million, including $73.3 million of property acquisitions and $41.6 million of new notes and mortgages receivable issuance.
- Dividends paid were $41.5 million, or $0.86 per share, during the six months.
Balance Sheet, Debt and Liquidity
- Total assets were $1.64 billion at June 30, 2023, up from $1.56 billion at December 31, 2022. Real estate, net, was $1.39 billion.
- Total debt was $675.0 million before issuance costs, compared with $695.0 million at year-end; debt, net, was $671.5 million.
- The Revolving Facility had no borrowings and $300.0 million of availability at June 30, 2023. It matures in October 2025 and may be extended by two six-month periods, subject to conditions.
- Senior unsecured notes totaled $675.0 million, with $50.0 million maturing in 2025 and the remaining $625.0 million maturing thereafter. The weighted debt rates disclosed range from 3.43% to 5.47%.
- Cash and cash equivalents were $8.9 million; cash, cash equivalents and restricted cash totaled $10.2 million at June 30, 2023.
- Management stated that the company was in compliance with material debt covenants at quarter-end.
Material Changes Versus the Prior Comparable Period
- Net earnings declined by 55.9% in Q2 and 44.2% for the six months, primarily because 2022 included substantial environmental expense credits and higher real estate disposition gains.
- Environmental expense was $0.3 million in Q2 2023 and $0.7 million for six months, compared with environmental credits of $15.9 million and $16.1 million, respectively, in 2022.
- Impairment charges increased to $2.5 million in Q2 and $3.0 million for six months, compared with $0.4 million and $1.4 million in the comparable periods.
- Interest expense increased to $7.1 million in Q2 and $14.6 million for six months, reflecting higher average borrowings and interest rates.
- FFO declined, but AFFO increased because the prior-year AFFO included a significant environmental adjustment. Q2 AFFO per share rose to $0.56 from $0.53; six-month AFFO per share rose to $1.12 from $1.05.
- The company invested $111.6 million across 40 properties during the first six months, compared with $59.3 million across 19 properties in 2022.
- Financing activity included $114.1 million of net proceeds from settlement of forward-sale shares, $125.0 million of senior note proceeds and $75.0 million of senior note repayments. The company issued new 3.65% notes due 2033 and used proceeds primarily to repay 5.35% notes due 2023.
Guidance, Outlook, Commentary and Risks
- No formal earnings or operating guidance was provided in the filing.
- Management expects short-term liquidity needs to be funded through operating cash flow, Revolving Facility availability, forward-sale proceeds and cash on hand. Longer-term needs may be funded through operations, debt or equity issuance and property sales.
- At quarter-end, approximately 3.7 million shares remained subject to forward-sale agreements, expected to generate approximately $120.1 million of gross proceeds upon settlement. The company also had a $350 million ATM program.
- Four properties were under active redevelopment, four properties were vacant, and rent commenced on one redevelopment during the six months.
- Environmental remediation obligations totaled $22.9 million, including $10.5 million of known liabilities and $12.4 million related to unknown contamination. Management cautioned that actual future expenditures could be substantially higher.
- The company remains involved in Lower Passaic River and MTBE litigation. Approval of a proposed $150 million Lower Passaic River consent decree would provide contribution protection; the company’s settlement contribution is confidential and aligned with previously established reserves. If the decree is not approved, ultimate liability remains uncertain.
- Key operating risks include tenant creditworthiness and concentration, dependence on convenience and automotive industries, lease renewals and re-leasing, interest-rate changes, access to external capital, environmental obligations, litigation, impairment charges, dilution from equity issuance and maintenance of REIT status.
- The company stated that its disclosure controls were effective and that there were no material changes to internal control over financial reporting.
Important Facts for Investors to Verify
- Reconcile reported AFFO with dividends, including the impact of environmental adjustments, non-cash revenue items and stock compensation.
- Monitor settlement and dilution from the February 2023 Forward Offering and outstanding ATM forward-sale agreements.
- Review tenant concentration: ARKO represented 16.0% of total revenue, Global Partners 14.0% and APRO 10.0% as of June 30, 2023.
- Track the timing and terms of the $50.0 million 2025 note maturity and the October 2025 Revolving Facility maturity.
- Assess changes in environmental reserves, insurance coverage, litigation outcomes and potential exposure beyond recorded liabilities.
- Evaluate whether acquisition and redevelopment activity continues to produce rent growth and recurring cash flow sufficient to support dividends and debt service.