Getty Realty Corp. 2023 Form 10-K Summary
Business context and reporting period
Getty Realty is an internally managed net-lease REIT focused on convenience stores, express tunnel car washes, automotive service centers, automotive parts retailers, drive-thru quick-service restaurants and other freestanding retail properties. The filing covers the fiscal year ended December 31, 2023, with comparisons primarily to 2022.
- Portfolio: 1,093 properties in 40 states and Washington, D.C.; 1,056 owned and 37 leased from third-party landlords.
- 1,089 properties were leased under predominantly triple-net leases. Weighted average remaining lease term, excluding renewal options, was 8.9 years.
- Annualized base rent was $172.8 million at December 31, 2023. New York, Massachusetts, Maryland and Connecticut together represented 32.0% of annual base rent.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenues | $185.8 million | $165.6 million | +$20.3 million |
| Rental property revenues | $180.5 million | $163.9 million | +$16.6 million |
| Operating income | $91.1 million | $117.3 million | -$26.1 million |
| Net earnings | $60.2 million | $90.0 million | -$29.9 million |
| Diluted earnings per share | $1.15 | $1.88 | -$0.73 |
| FFO | $106.1 million | $117.1 million | -$11.0 million |
| AFFO | $115.8 million | $102.5 million | +$13.3 million |
| Diluted AFFO per share | $2.25 | $2.14 | +$0.11 |
| Net cash provided by operating activities | $105.3 million | $93.1 million | +$12.2 million |
| Dividends paid | $87.0 million | $78.3 million | +$8.7 million |
- Net earnings margin was approximately 32.4% of total revenue; operating margin was approximately 49.0%, although operating income included $4.6 million of real estate disposition gains.
- AFFO increased despite lower GAAP net earnings and FFO, reflecting the unusually favorable environmental adjustment in 2022 not recurring in 2023 and other non-cash or unusual items excluded from AFFO.
- Year-end total assets were $1.82 billion and stockholders’ equity was $955.6 million, compared with $1.56 billion and $759.9 million, respectively, in 2022.
- Real estate, net increased to $1.61 billion from $1.42 billion. Notes and mortgages receivable increased to $112.0 million from $34.3 million.
Material changes versus the prior comparable period
- Investment activity more than doubled to over $325.0 million from $157.5 million in 2022. Getty acquired 54 operating properties for $248.1 million, acquired interests in 14 properties under construction for $44.8 million, and advanced $70.7 million for development funding.
- The 2023 investment portfolio included 52 express tunnel car washes, 15 automotive service centers, 13 convenience stores and three drive-thru quick-service restaurants. Getty added ten tenants and expanded into two additional states.
- Getty sold nine properties for approximately $12.0 million, compared with 24 properties sold for approximately $26.0 million in 2022. Real estate disposition gains declined to $4.6 million from $16.4 million.
- Interest expense increased to $31.5 million from $27.7 million because of higher average borrowings and interest rates.
- Environmental expense was $1.3 million in 2023 versus a $20.9 million credit in 2022. The 2022 credit primarily reflected removal of $23.5 million of reserves for certain unknown environmental liabilities.
- Impairment charges increased to $5.2 million from $3.5 million. General and administrative expense increased to $23.7 million from $20.6 million, including $0.9 million of non-recurring retirement and severance costs.
- Getty raised approximately $226.2 million of net equity proceeds through a follow-on offering and settlement of prior ATM forward sales. An additional 1,049,050 shares remained subject to forward sale agreements at year-end, expected to generate approximately $32.2 million of gross proceeds upon settlement.
Cash flow, debt and liquidity
- Operating cash flow was $105.3 million. Investing cash flow was negative $310.7 million, primarily due to property acquisitions and $119.3 million of notes and mortgage receivable issuances.
- Financing cash flow was positive $199.4 million, supported by equity issuance and new borrowings, partly offset by debt repayments and $87.0 million of dividends.
- Total debt was $760.0 million, or $754.7 million net of unamortized issuance costs, compared with $695.0 million gross and $691.5 million net at December 31, 2022.
- Debt consisted of $10.0 million drawn on a $300.0 million revolving credit facility, $75.0 million drawn under a new $150.0 million term loan, and $675.0 million of senior unsecured notes.
- Available liquidity at year-end included $290.0 million of revolving facility availability, $75.0 million of undrawn term-loan capacity, approximately $32.2 million of expected gross proceeds from outstanding ATM forward agreements, and $3.3 million of cash and cash equivalents.
- The term loan and revolving facility mature in October 2025, subject to extension options. The next senior note maturity is $50.0 million in February 2025. Management stated that Getty was in compliance with material debt covenants at year-end.
- The term loan is hedged with interest-rate swaps fixing SOFR at a weighted average of 4.73%; its effective rate was approximately 6.13% at year-end.
- Regular quarterly dividends paid were $1.72 per share in 2023 versus $1.64 per share in 2022. Future dividends are not assured and are subject to financial performance, debt covenants and market conditions.
Guidance, outlook, commentary, risks and unusual items
Management did not provide a specific quantitative earnings or acquisition outlook in the supplied filing text. Management expects to fund short-term needs through operating cash flow, revolving-credit availability, undrawn term-loan capacity, settlement of forward equity agreements and cash on hand, while longer-term needs may be funded through operations, additional debt or equity issuance, asset sales and other financing sources.
- Management continues to target growth and diversification in convenience, automotive and other single-tenant retail real estate, including new-to-industry development and redevelopment of selected properties.
- Two properties were under active redevelopment and two properties were vacant at year-end. Three redevelopments and two revenue-enhancing capital projects commenced rent in 2023.
- Tenant concentration is material: ARKO represented 15% of 2023 revenue, Global Partners 14% and Apro/United Oil 10%.
- Key risks include tenant credit quality and defaults, concentration in the petroleum and convenience industries, geographic concentration in the Northeast and Mid-Atlantic, competition for acquisitions, interest rates, access to external capital, inflation, property impairments and REIT qualification.
- Environmental liabilities remain a significant contingency. Getty accrued $22.4 million for prospective environmental remediation obligations at year-end, including $12.5 million for future liabilities related to pre-existing unknown contamination. Management notes that actual future expenditures could substantially exceed recorded amounts.
- Getty is involved in MTBE litigation in Pennsylvania and Maryland and proceedings related to the Lower Passaic River. No amounts were accrued for certain environmental litigation at December 31, 2023, but potential losses could exceed recorded amounts and may be material.
- A proposed $150.0 million collective settlement for the Lower Passaic River matter remained subject to court approval after year-end. The filing states that Getty’s contribution was consistent with previously established legal reserves; the company’s individual contribution was not disclosed.
- PricewaterhouseCoopers LLP issued unqualified opinions on the financial statements and internal control over financial reporting. Management and the auditor concluded that internal controls were effective as of December 31, 2023.
Most important facts for investors to verify
- Confirm the timing and terms of the $50.0 million February 2025 senior-note maturity and the October 2025 maturities of the revolving facility and term loan.
- Monitor settlement of the 1,049,050 outstanding ATM forward-sale shares and the resulting dilution and cash proceeds.
- Assess tenant concentration, particularly ARKO, Global Partners and Apro/United Oil, including lease expirations and tenant credit information.
- Review environmental reserves, the Lower Passaic River consent decree, MTBE litigation and potential exposure beyond recorded liabilities.
- Evaluate whether AFFO growth and dividend coverage remain sustainable after considering interest costs, acquisitions, equity dilution and required REIT distributions.
- Verify the execution and expected returns of the 2023 acquisition and development pipeline, including under-construction car washes and development funding advances.
- Track the limited cash balance and reliance on revolving capacity, capital markets and asset sales to fund growth and debt obligations.