Getty Realty Corp. — 2021 Q3 Form 10-Q Summary
Business context and reporting period
Getty Realty Corp. is an internally managed REIT focused on acquiring, financing and developing convenience, automotive and other single-tenant retail real estate. The unaudited filing covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
- Portfolio: 1,021 properties across 36 states and Washington, D.C.; 972 owned and 49 leased from third-party landlords.
- Net lease portfolio: 1,011 properties leased primarily on a triple-net basis.
- Vacancies: five properties; five properties were under active redevelopment.
Financial performance and key metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenues | $40.1 million | $37.9 million | $116.1 million | $110.3 million |
| Net earnings | $14.0 million | $11.9 million | $44.8 million | $35.6 million |
| Diluted EPS | $0.30 | $0.27 | $0.98 | $0.83 |
| Operating income | $20.0 million | $18.2 million | $62.9 million | $54.7 million |
| Operating margin | 50.0% | 48.0% | 54.2% | 49.6% |
| Net margin | 35.0% | 31.4% | 38.6% | 32.2% |
| FFO | $22.0 million | $20.8 million | $64.0 million | $59.3 million |
| AFFO | $22.9 million | $20.2 million | $66.0 million | $58.1 million |
| AFFO per diluted share | $0.50 | $0.47 | $1.45 | $1.37 |
- Rental-property revenue increased 6.6% in Q3 and 6.2% for the first nine months, primarily from acquisitions and contractual rent increases.
- Interest expense declined to $6.2 million in Q3 and $18.5 million for the nine-month period, compared with $6.7 million and $20.1 million, respectively.
- Property costs declined, while general and administrative expense increased to $4.7 million in Q3 and $15.3 million year to date.
- Environmental expense rose materially in Q3 to $0.8 million from $18,000, but increased only modestly year to date to $1.3 million from $1.1 million.
Cash flow, balance sheet, debt and liquidity
- Net cash provided by operating activities was $58.7 million for the first nine months, up from $53.6 million.
- Investing cash outflow was $119.7 million, including $126.6 million for acquisitions and $12.3 million of construction-loan funding; proceeds from real estate dispositions were $11.1 million.
- Financing cash flow was $13.0 million, including $49.0 million of net ATM equity proceeds, $52.7 million of cash dividends and net borrowings under the credit agreement.
- Cash, cash equivalents and restricted cash declined to $9.0 million at September 30, 2021, from $57.1 million at year-end 2020; unrestricted cash and cash equivalents were $7.3 million.
- Total debt was $567.5 million, or $566.0 million net of issuance costs, compared with $550.0 million at December 31, 2020. Debt consisted of $42.5 million drawn on the revolving facility and $525.0 million of senior unsecured notes.
- The revolving facility had a $300.0 million capacity and was scheduled to mature in March 2022 at quarter-end. The company stated that it complied with all material debt covenants.
- On October 27, 2021, after quarter-end, the company amended and restated the credit agreement, extending the revolving facility maturity to October 2025, reducing borrowing spreads and retaining an accordion feature of up to $300.0 million, subject to conditions.
- Dividends paid during the first nine months were $52.8 million, or $1.17 per share. Future dividends are not assured and remain subject to cash flow, debt covenants, market conditions and other factors.
Material changes versus the prior comparable period
- Net earnings increased 17.9% in Q3 and 26.1% for the first nine months.
- FFO increased 6.1% in Q3 and 7.8% year to date; AFFO increased 13.2% and 13.5%, respectively.
- The company acquired 77 properties for $126.6 million in the first nine months of 2021, versus 24 properties for $104.8 million in the prior-year period.
- Equity issuance increased: 1.668 million shares were issued under ATM programs for $49.0 million of net proceeds, compared with 1.326 million shares and $38.5 million in 2020.
- Real estate assets, net, increased to $1.153 billion from $1.060 billion at year-end 2020; total assets increased to $1.402 billion from $1.350 billion.
- Six properties were sold during the first nine months, producing aggregate gains of $9.6 million. Gains on dispositions were $9.6 million versus $1.1 million in the prior-year period.
Guidance, outlook, commentary and risks
The filing does not provide formal quantitative earnings or acquisition guidance. Management expects to continue pursuing acquisitions, redevelopment and growth, funded primarily through operating cash flow, the revolving facility and ATM equity offerings, but cautions that COVID-19 could moderate or suspend the strategy.
- COVID-19 had not materially adversely affected reported results through September 30, 2021, but future effects on tenants, rent collections, operations and liquidity remained uncertain.
- Tenant concentration is significant: Global Partners represented 16% of nine-month revenue, ARKO 15%, United Oil 11% and Chestnut Petroleum 9%.
- Environmental remediation obligations were $47.8 million, including $36.2 million for preexisting unknown contamination. Management stated that actual future expenditures could be substantially higher than recorded amounts.
- Material environmental and MTBE litigation remains unresolved, including matters involving the Lower Passaic River and claims in Pennsylvania and Maryland. The company believes a material operating impact is not reasonably likely based on currently known facts, but acknowledges that ultimate liability could be material.
- Environmental, tenant-credit, petroleum-industry, interest-rate, lease-renewal, capital-market, impairment, REIT qualification and dividend-payment risks remain material.
- The company had a $50.0 million aggregate-limit pollution liability insurance policy, subject to retentions and other limitations.
- The filing states that disclosure controls were effective as of September 30, 2021, with no material changes in internal control over financial reporting.
Important facts for investors to verify
- Execution and funding of the October 27, 2021 credit-agreement amendment, including the lower borrowing spreads and extended maturity.
- Liquidity after substantial acquisition spending, dividends and the decline in cash balances.
- Tenant concentration, rent collections and exposure to convenience-store and petroleum-market performance.
- Changes in environmental remediation estimates, litigation accruals and potential liabilities beyond the $47.8 million recorded obligation.
- Sustainability of AFFO, dividend coverage and future ATM equity issuance, including dilution.
- Whether acquisition and redevelopment activity continues without increasing leverage or pressuring covenant compliance.