Getty Realty Corp. — Q2 2021 Form 10-Q Summary
Business context and reporting period
Getty Realty is an internally managed REIT focused on acquiring, financing and developing convenience, automotive and other single-tenant retail real estate. For the quarter ended June 30, 2021, the portfolio comprised 1,005 properties across 35 states and Washington, D.C.; 994 properties were leased under triple-net leases. The filing presents unaudited results for the three and six months ended June 30, 2021, compared with the same periods in 2020.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenues | $38.7 million | $37.0 million | $76.0 million | $72.4 million |
| Net earnings | $12.9 million | $11.0 million | $30.8 million | $23.7 million |
| Net earnings per diluted share | $0.28 | $0.26 | $0.68 | $0.56 |
| Operating income | $18.8 million | $17.6 million | $42.8 million | $36.5 million |
| Operating margin | 48.7% | 47.5% | 56.4% | 50.4% |
| Net margin | 33.3% | 29.7% | 40.6% | 32.7% |
| FFO | $22.0 million | $18.6 million | $42.0 million | $38.6 million |
| AFFO | $22.1 million | $18.6 million | $43.1 million | $37.9 million |
| AFFO per share | $0.49 | $0.44 | $0.96 | $0.90 |
Rental-property revenue increased primarily from 2021 and late-2020 acquisitions and contractual rent increases. Interest expense declined to $6.2 million in the quarter and $12.3 million for the six-month period, reflecting lower average borrowings and interest rates.
- Net cash provided by operating activities was $40.0 million for the six months, versus $32.8 million in the prior-year period.
- Net cash used in investing activities was $62.1 million, including $63.3 million for acquisitions and $11.1 million of construction-loan funding.
- Net cash used in financing activities was $14.1 million, compared with $35.6 million provided in the prior-year period. Financing included $35.0 million of dividends and $29.6 million of net ATM-equity proceeds.
- Cash, cash equivalents and restricted cash totaled $20.8 million at June 30, 2021, versus $57.1 million at December 31, 2020.
- Total debt was $542.5 million, or $540.7 million net of issuance costs, versus $550.0 million and $547.7 million, respectively, at year-end 2020. Debt consisted of $17.5 million under the revolving facility and $525.0 million of senior unsecured notes.
- The $300.0 million revolving facility had a March 2022 maturity, with an option to extend to March 2023, subject to compliance with its terms. The company reported compliance with all material debt covenants.
- Stockholders’ equity was $685.8 million, compared with $659.6 million at December 31, 2020. The company had 44.7 million common shares outstanding as of July 29, 2021.
Material changes versus the prior comparable period
- Six-month total revenue increased 5.0%, net earnings increased 30.2%, FFO increased 8.8% and AFFO increased 13.6%.
- Rental-property revenue increased 5.9% for the six months, while interest income on notes and mortgages receivable declined to $0.7 million from $1.4 million.
- Property costs and environmental expenses declined, while general and administrative expense rose to $10.6 million from $8.6 million, including higher employee-related and retirement costs.
- The company acquired 55 properties for $63.3 million, compared with 15 properties for $68.7 million in the prior-year period. The acquisitions included 46 oil-change centers and nine car-wash properties.
- The company sold five properties and received proceeds from two condemnations, generating a combined $7.5 million gain on dispositions, compared with a $1.1 million gain in the prior-year period.
- The company issued 1.032 million shares under its ATM programs for $29.6 million of net proceeds during the first six months. A new $250 million ATM program was established in February 2021.
- Quarterly dividends increased to $0.39 per share from $0.37; six-month dividends paid were $0.78 per share versus $0.74.
Guidance, outlook, commentary and risks
The filing provides no formal quantitative earnings or acquisition guidance. Management expects to continue its growth strategy during 2021, funded by operating cash flow, the revolving facility, ATM proceeds and available cash, but cautions that COVID-19 developments could cause the company to moderate or suspend acquisitions and redevelopment activity.
- COVID-19 had not materially adversely affected reported results through June 30, 2021, but future effects on tenants’ businesses and rent payments remained uncertain.
- Tenant concentration is material: Global Partners and ARKO each represented 15% of six-month revenue, United Oil represented 12%, and Chestnut represented 9%. Tenant performance is substantially tied to convenience-store and petroleum-marketing conditions.
- Environmental remediation obligations totaled $47.9 million, including $36.0 million for future liabilities related to preexisting unknown contamination. Management stated that actual future expenditures could be substantially higher than recorded amounts.
- The company had accrued $4.3 million for certain legal matters. Significant contingencies include Lower Passaic River litigation and remediation, MTBE litigation in Pennsylvania and Maryland, and the not-yet-finalized settlement of Uniondale, New York litigation.
- Environmental and property estimates use significant judgment; changes in remediation assumptions resulted in $1.5 million of impairment charges during the six months.
- The company had five vacant properties, six properties under active redevelopment and a remaining commitment of up to $6.7 million for certain tenant capital improvements.
- The filing identifies interest-rate, refinancing, tenant-credit, lease-renewal, capital-market, REIT-qualification, cybersecurity, impairment, environmental and dividend-payment risks.
Most important facts for investors to verify
- Progress toward refinancing or extending the revolving facility before its March 2022 maturity.
- Tenant rent collections, financial condition and concentration exposure, particularly Global Partners, ARKO, United Oil and Chestnut.
- Actual environmental remediation spending and developments in Lower Passaic River, MTBE and Uniondale matters.
- Whether acquisition-driven revenue and AFFO growth continues without excessive ATM dilution or higher leverage.
- COVID-19 effects on tenant operations, rent payments, acquisition activity and dividend capacity.
- The sustainability of dividends relative to AFFO, taxable income and debt-covenant requirements.