Getty Realty Corp. 2020 Q3 Form 10-Q Summary
Business context and reporting period
Getty Realty Corp. is a publicly traded REIT focused on owning, leasing and financing convenience store, gasoline station, car wash and automotive-related properties. As of September 30, 2020, it owned 896 properties and leased 58 properties from third-party landlords across 35 states and Washington, D.C. The filing covers the three and nine months ended September 30, 2020, compared with the corresponding 2019 periods.
Financial performance and key metrics
| Metric | Q3 2020 | Q3 2019 | Change |
|---|
| Total revenues | $37.9 million | $36.4 million | +$1.5 million |
| Operating income | $18.2 million | $12.5 million | +$5.7 million |
| Net earnings | $11.9 million | $11.9 million | Essentially unchanged |
| Diluted EPS | $0.27 | $0.28 | -$0.01 |
| FFO | $20.8 million | $19.1 million | +$1.6 million |
| AFFO | $20.2 million | $18.1 million | +$2.1 million |
| AFFO per diluted share | $0.47 | $0.43 | +$0.04 |
- Rental-property revenue increased 4.2% to $37.2 million, primarily from acquired properties and contractual rent increases, partly offset by lower revenue-recognition adjustments.
- Operating margin was approximately 48.0%, compared with 34.3% in the prior-year quarter, primarily reflecting materially lower environmental expenses.
- Net margin was approximately 31.4%, compared with 32.6% in Q3 2019. The comparison was affected by lower other income and higher interest and depreciation expense.
- Environmental expense fell to $18 thousand from $5.7 million. Other income declined to $0.4 million from $5.6 million because 2019 included substantial environmental insurance reimbursements and legal settlements.
- Interest expense increased to $6.7 million from $6.2 million, primarily because of higher average borrowings.
Nine-month financial results and liquidity
| Metric | Nine months 2020 | Nine months 2019 | Change |
|---|
| Total revenues | $110.3 million | $104.8 million | +$5.5 million |
| Operating income | $54.7 million | $46.8 million | +$7.8 million |
| Net earnings | $35.6 million | $36.0 million | -$0.5 million |
| Cash flow from operations | $53.6 million | $58.0 million | -$4.4 million |
| FFO | $59.3 million | $56.6 million | +$2.7 million |
| AFFO | $58.1 million | $53.8 million | +$4.3 million |
- Investing activities used $98.2 million, including $104.8 million for acquisitions of 24 properties versus $43.3 million for 14 properties in the prior-year period.
- Financing activities provided $81.3 million, including $90.0 million of net borrowings under the revolving credit facility and $38.5 million of net ATM equity proceeds, partly offset by $46.5 million of dividends paid.
- Cash, cash equivalents and restricted cash totaled $60.4 million at September 30, 2020, compared with $23.7 million at December 31, 2019.
- Total debt was $560.0 million, or $557.8 million net of issuance costs, compared with $470.0 million and $467.1 million, respectively, at December 31, 2019. Debt consisted of $110.0 million under the revolving facility and $450.0 million of senior unsecured notes.
- The company reported compliance with its material debt covenants. The revolving facility had a $300.0 million capacity and matured in March 2022, with an option to extend to March 2023 subject to applicable conditions.
- Scheduled debt maturities include $100.0 million of senior notes in 2021, $110.0 million of revolving borrowings in 2022 and $75.0 million of senior notes in 2023.
Material changes versus the prior comparable period
- The company acquired 24 properties for $104.8 million during the first nine months of 2020, including 17 car wash properties for $78.6 million, compared with 14 properties for $43.3 million in the first nine months of 2019.
- Property assets, net, increased to $1.026 billion from $948 million at December 31, 2019, while total assets increased to $1.324 billion from $1.212 billion.
- The company issued 1.326 million shares under its ATM program and received $38.5 million of net proceeds, compared with 283 thousand shares and $8.8 million in the prior-year period.
- Quarterly dividends declared increased to $0.37 per share from $0.35 per share. Dividends declared for the first nine months totaled $1.11 per share.
- The company adopted the current expected credit loss standard on January 1, 2020, recording cumulative retained-earnings adjustments of $578 thousand for direct financing leases and $309 thousand for notes and mortgages receivable.
- Environmental remediation obligations declined to $49.0 million from $50.7 million at year-end 2019, while environmental litigation accruals increased slightly to $17.9 million from $17.8 million.
Guidance, outlook, risks and unusual items
- Management provided no formal earnings or revenue guidance. It expects to continue its acquisition and redevelopment strategy but may moderate or suspend those activities because of COVID-19 uncertainty.
- The company reported receiving contractual base rent and mortgage payments from 98% of tenants or mortgagors for the third quarter and, as of October 22, 2020, for October. Management cautioned that these collection levels may not predict future periods.
- The company granted a small number of short-term rent or mortgage payment relief requests, primarily deferrals. Further deferrals, abatements, tenant defaults or bankruptcies could reduce revenue, increase impairments and affect liquidity, covenant compliance and dividends.
- The New Jersey MTBE litigation settlement contemplated a payment of $13.5 million. The amount had been fully accrued, but the settlement remained subject to federal court approval and potential objections.
- Material environmental contingencies remain, including the Lower Passaic River proceedings, MTBE litigation in Pennsylvania and Maryland, and Uniondale, New York litigation. The company stated that ultimate liabilities could exceed accrued amounts and cannot be estimated reliably beyond recorded accruals.
- Environmental remediation obligations are sensitive to assumptions regarding contamination, tenant responsibility, recoveries, inflation and discount rates. Future actual expenditures could substantially exceed recorded amounts.
- A 1% increase in market interest rates on the $110.0 million of variable-rate borrowings was estimated to reduce 2020 net income and cash flows by approximately $0.3 million, excluding changes in future borrowings.
- Unusual items affecting comparability included 2019 environmental insurance reimbursements and legal settlements, 2020 legal settlement income, environmental estimate changes, impairment charges and property disposition gains.
Important facts for investors to verify
- Timing and funding of the $100.0 million senior-note maturity in February 2021 and the $110.0 million revolving-facility maturity in March 2022.
- Subsequent changes in tenant collections, rent deferrals, tenant credit quality and COVID-19 effects on convenience, fuel and car wash operators.
- Status and final amount of the $13.5 million New Jersey MTBE settlement and potential exposure from the remaining environmental proceedings.
- Whether the company can sustain dividends while funding acquisitions, redevelopment, environmental obligations and debt maturities.
- Future borrowing levels, ATM equity issuance and the resulting effects on leverage, interest expense and per-share results.
- Reasonableness of environmental remediation, litigation, impairment and credit-loss estimates, including the $49.0 million environmental remediation accrual.
