Getty Realty Corp. 2020 Form 10-K Summary
Business Context and Reporting Period
Getty Realty Corp. is a U.S. REIT focused on acquiring, owning, leasing, financing and redeveloping convenience stores, gasoline stations, car washes and other automotive-related and retail properties. This filing covers the fiscal year ended December 31, 2020, with comparisons primarily to 2019.
- Portfolio: 959 properties in 35 states and Washington, D.C.; 901 owned and 58 leased from third parties.
- 946 properties were subject to triple-net leases, with a contractual weighted-average lease term of approximately 9.5 years, excluding renewal options.
- Seven properties were vacant and six were under active redevelopment at year-end.
- The portfolio is concentrated in the Northeast and Mid-Atlantic; New York, Massachusetts and Connecticut represented 43.6% of properties.
Financial Performance and Key Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenues | $147.3 million | $140.7 million | +4.8% |
| Rental property revenue | $144.6 million | $137.7 million | +$6.9 million |
| Operating income | $75.6 million | $66.8 million | +13.2% |
| Net earnings | $69.4 million | $49.7 million | +39.5% |
| Diluted earnings per share | $1.62 | $1.19 | +$0.43 |
| FFO | $99.3 million | $77.8 million | +27.6% |
| AFFO | $79.1 million | $71.8 million | +10.2% |
| Diluted AFFO per share | $1.84 | $1.72 | +7.0% |
| Cash flow from operations | $82.8 million | $76.8 million | +7.9% |
| Dividends paid | $62.6 million | $56.9 million | +10.1% |
- Approximate operating margin was 51.3%, compared with 47.5% in 2019; approximate net margin was 47.1%, compared with 35.4%.
- Rental revenue growth was primarily attributable to $6.1 million of revenue from properties acquired in 2020.
- Property costs declined to $23.5 million from $25.0 million, while general and administrative expense increased to $17.3 million from $15.4 million.
- Interest expense increased to $26.1 million from $24.6 million due to higher average borrowings.
- Other income included $21.3 million from legal settlements and judgments, compared with $2.7 million in 2019.
- Impairment charges were $4.3 million, compared with $4.0 million in 2019.
Cash Flow, Debt and Liquidity
- Operating cash flow was $82.8 million. Investing activities used $127.4 million, primarily reflecting $150.0 million of property acquisitions. Financing activities provided $78.0 million.
- Cash, cash equivalents and restricted cash increased to $57.1 million at year-end from $23.7 million.
- Total debt was $550.0 million, compared with $470.0 million at year-end 2019; total debt net of issuance costs was $547.7 million.
- Debt consisted of $25.0 million drawn under the $300.0 million revolving facility and $525.0 million of senior unsecured notes. The revolving facility was scheduled to mature in March 2022, with an option to extend to March 2023 subject to conditions.
- The company issued $175.0 million of Series I, Series J and Series K notes, redeemed the $100.0 million Series A Notes early and repaid $75.0 million under the revolving facility. The transaction generated a $1.2 million loss on extinguishment of debt.
- The company issued 2.2 million shares through its ATM program and received $63.2 million of net proceeds.
- Management stated that operating needs for the next twelve months were expected to be met through operating cash flow, the revolving facility, ATM proceeds and available cash. The company was in compliance with material debt covenants at December 31, 2020.
Material Changes Versus 2019
- Acquisitions increased to 34 properties for $150.0 million from 27 properties for $87.2 million, including car wash portfolios in Kansas City and San Antonio and convenience-store properties in Texas.
- Six redevelopment projects commenced rent in 2020, compared with four in 2019; six properties remained under active redevelopment.
- Net earnings benefited materially from $21.3 million of legal settlement proceeds, including a $20.5 million payment from the settled Lukoil Americas case.
- The New Jersey MTBE litigation was settled for $13.5 million, within the previously established litigation reserve, and the case was dismissed.
- Environmental remediation obligations declined to $48.1 million from $50.7 million. Environmental litigation accruals declined to $4.3 million from $17.8 million.
- Dividends paid increased to $1.48 per share from $1.40 per share.
- Common shares outstanding increased to 43.6 million from 41.4 million, primarily due to ATM issuance.
Outlook, Risks and Unusual Items
Management expected to continue its overall growth strategy in 2021 but noted that the COVID-19 pandemic could require a reassessment or suspension of acquisitions and redevelopment. The filing did not provide formal quantitative 2021 earnings or AFFO guidance.
- COVID-19 created uncertainty regarding tenant sales, rent collection, lease concessions, tenant bankruptcies, property values and covenant compliance. The company granted a small number of short-term rent or mortgage payment deferrals.
- Revenue is highly concentrated among petroleum-related tenants and depends on the petroleum marketing industry. Four major tenant groups represented approximately 53% of 2020 revenue: Global Partners 16%, Arko 15%, United Oil 12% and Chestnut 10%.
- Environmental obligations remain material and are subject to uncertain remediation costs, regulatory requirements, insurance recoveries and tenant solvency. The company cautioned that actual future expenditures could substantially exceed recorded amounts.
- Pending matters include MTBE litigation in Pennsylvania and Maryland, the Lower Passaic River/ Newark Superfund proceedings and Uniondale, New York litigation. Losses could exceed recorded accruals, although the company could not estimate ranges of additional loss with certainty.
- The Lower Passaic River remedy remains subject to EPA decisions, allocation proceedings, negotiations and potential litigation. The company stated that its ultimate liability could be material.
- The company had $25.0 million of LIBOR-based borrowings at year-end and disclosed uncertainty regarding the transition to a replacement reference rate.
- As a REIT, the company must generally distribute at least 90% of taxable income; debt agreements may restrict dividends or additional borrowing during defaults or covenant breaches.
Most Important Facts for Investors to Verify
- Tenant rent collections, deferrals, credit quality and concentration, particularly for Global, Arko, United Oil and Chestnut.
- Refinancing or repayment plans for the revolving facility maturity in March 2022 and compliance with leverage, coverage and net-worth covenants.
- Progress and eventual cost allocation for the Lower Passaic River proceedings and the pending Pennsylvania, Maryland and Uniondale environmental cases.
- Whether environmental remediation reserves of $48.1 million adequately reflect future UST removal and contamination costs and expected state-fund recoveries.
- The recurring portion of AFFO excluding the $21.3 million of legal settlement proceeds and other unusual items.
- Whether acquisition growth, redevelopment activity and increased equity issuance translate into sustainable per-share AFFO growth.
- The effect of COVID-19 on tenant operations, rent payments, vacancies, impairments and future acquisition activity.