Getty Realty Corp. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022; filed July 28, 2022. Getty is an internally managed REIT focused on acquiring, financing and developing convenience, automotive and other single-tenant retail real estate. At quarter-end, the portfolio included 1,024 properties in 38 states and Washington, D.C., including 979 owned and 45 leased properties.
Financial Results and Key Metrics
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Total revenues | $41.2 million | $38.7 million | $80.5 million | $76.0 million |
| Net earnings | $30.7 million | $12.9 million | $49.4 million | $30.8 million |
| Operating income | $37.3 million | $18.8 million | $62.5 million | $42.8 million |
| Net earnings per diluted share | $0.64 | $0.28 | $1.03 | $0.68 |
| FFO | $39.8 million | $22.0 million | $63.1 million | $42.0 million |
| AFFO | $25.4 million | $23.4 million | $50.2 million | $45.5 million |
| Net cash from operating activities | Not provided for quarter | Not provided for quarter | $43.4 million | $40.0 million |
Six-month net earnings margin was approximately 61.4%, compared with 40.6% in the prior-year period; the comparison was materially affected by a nonrecurring environmental credit. Six-month AFFO margin was approximately 62.4%, compared with 59.9% in 2021. The filing does not present a separate quarterly cash flow statement.
Balance Sheet, Debt and Liquidity
- Total assets were $1.496 billion at June 30, 2022, compared with $1.467 billion at December 31, 2021. Real estate, net, was $1.297 billion.
- Cash and cash equivalents were $20.1 million, with restricted cash of $1.7 million.
- Total debt was $625.0 million gross, or $621.0 million net of issuance costs, versus $585.0 million gross and $581.1 million net at year-end 2021.
- The $300.0 million unsecured revolving facility had no borrowings outstanding at quarter-end and matures in October 2025, with two six-month extension options subject to conditions.
- Senior unsecured notes totaled $625.0 million gross. Scheduled maturities include $75.0 million in 2023, $50.0 million in 2025 and $500.0 million thereafter. The company plans to issue $125.0 million of notes in January 2023 and use $75.0 million to repay the Series B Notes due June 2023.
- Management stated that the company was in compliance with material debt covenants at June 30, 2022.
- Stockholders’ equity was $757.1 million, compared with $745.1 million at December 31, 2021.
Material Changes Versus Prior Comparable Period
- Rental property revenue increased 6.7% for the quarter and 6.1% for the six months, primarily from newly acquired properties and contractual rent increases, partly offset by dispositions.
- Net earnings increased 138% for the quarter and 60% for the six months, largely because of a $16.3 million net environmental expense credit recognized in the second quarter.
- Environmental expense changed from a $0.1 million expense in the second quarter of 2021 to a $15.9 million credit in 2022. The company removed $16.8 million of previously accrued unknown environmental reserves after concluding that the related contractual exposure had materially declined as lookback periods expired.
- The company retained $29.5 million of prospective environmental remediation obligations at June 30, 2022, including $18.9 million for unknown contamination and $10.6 million for known obligations, compared with $47.6 million at year-end 2021.
- AFFO increased 10.5% for the six months but declined 3.1% for the quarter, reflecting that AFFO excludes certain unusual environmental adjustments.
- The company acquired 14 properties for $54.2 million in the first six months of 2022, compared with 55 properties for $63.3 million in the prior-year period. It sold 16 properties and recognized a $7.2 million aggregate gain.
- Operating cash flow increased $3.4 million to $43.4 million. Investing cash outflows declined to $47.6 million from $62.1 million, while financing cash outflows declined to $0.5 million from $14.1 million.
- Regular dividends paid increased to $0.82 per share for the first six months of 2022 from $0.78 per share in the prior-year period. No shares were issued under the ATM program in 2022, compared with $29.6 million of net ATM proceeds in the first six months of 2021.
Outlook, Risks and Unusual Items
- Management expects operating needs and longer-term liquidity requirements to be funded through operating cash flow, the revolving facility, potential ATM equity proceeds and available cash.
- The filing provides no specific earnings, FFO or acquisition guidance. Management expects to continue pursuing acquisitions and redevelopment, but notes that COVID-19 developments could moderate or suspend growth plans.
- Five properties were under active redevelopment and six properties were vacant at quarter-end. The company had a remaining commitment of up to $6.6 million for certain tenant capital improvements.
- Tenant concentration is material: Global Partners represented 16% of six-month revenue, ARKO 14% and United Oil 11%. Tenant performance depends substantially on convenience retail, petroleum and automotive industries.
- Environmental obligations remain a significant contingency. The company is involved in Lower Passaic River and MTBE litigation in Pennsylvania and Maryland and states that ultimate liability could exceed accrued amounts. Legal proceedings accrued were $1.9 million.
- The company maintains that COVID-19 had not materially adversely affected reported results through June 30, 2022, but cannot predict future effects on tenants, rent collections, liquidity or operations.
- Interest-rate exposure primarily relates to the undrawn revolving facility; no variable-rate borrowings were outstanding at quarter-end. The filing also identifies LIBOR transition risk.
- Net earnings, FFO and AFFO benefited from the $16.3 million environmental credit. This unusual item should not be treated as recurring operating performance.
Important Facts for Investors to Verify
- Reconcile reported net earnings, FFO and AFFO excluding the environmental reserve release to assess recurring performance.
- Review the timing and funding mechanics of the planned January 2023 note issuance and repayment of the $75.0 million Series B Notes.
- Assess environmental exposure beyond the $29.5 million recorded remediation liability, including Lower Passaic River and MTBE litigation.
- Monitor tenant concentration, tenant credit quality, lease renewals and exposure to convenience, petroleum and automotive market conditions.
- Evaluate dividend coverage using recurring AFFO and operating cash flow rather than GAAP earnings, which were unusually elevated by the environmental credit.
- Verify compliance with leverage, coverage, restricted-payment and other debt covenants as interest rates and property values change.