Getty Realty Corp. 2022 Form 10-K Summary
Business Context and Reporting Period
Getty Realty Corp. is an internally managed net-lease REIT focused on convenience stores, car washes, automotive service centers, automotive parts retailers and other freestanding retail properties. This Form 10-K covers the fiscal year ended December 31, 2022; it is an annual filing rather than a standalone 2022 fourth-quarter filing.
- Portfolio: 1,039 properties across 38 states and Washington, D.C.; 997 owned and 42 leased from third parties.
- 1,034 properties were leased under primarily triple-net leases, with a weighted-average remaining lease term of 8.8 years excluding renewal options.
- Annualized base rent was $154.1 million at December 31, 2022. New York, Massachusetts, Maryland and Connecticut together represented 34.4% of annual base rent.
Financial Performance and Key Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenues | $165.6 million | $155.4 million | +$10.2 million |
| Rental property revenues | $163.9 million | $153.9 million | +$10.0 million |
| Operating income | $117.3 million | $86.5 million | +$30.8 million |
| Net earnings | $90.0 million | $62.9 million | +$27.2 million |
| Diluted earnings per share | $1.88 | $1.37 | +$0.51 |
| FFO | $117.1 million | $86.1 million | +$31.0 million |
| AFFO | $102.5 million | $95.0 million | +$7.5 million |
| Diluted AFFO per share | $2.14 | $2.08 | +$0.06 |
| Cash flow from operating activities | $93.1 million | $86.8 million | +$6.3 million |
Based on reported figures, the operating margin was approximately 70.8% and the net earnings margin was approximately 54.4%. These margins benefited materially from a $22.2 million net environmental expense credit related to revisions to preexisting contamination reserves.
- Net real estate was $1.347 billion at year-end, compared with $1.271 billion in 2021.
- Total assets were $1.562 billion and stockholders’ equity was $759.9 million.
- Total debt was $695.0 million before $3.5 million of unamortized debt issuance costs, compared with $585.0 million before issuance costs in 2021.
- Cash and cash equivalents were $8.7 million; cash, cash equivalents and restricted cash totaled $11.2 million. Revolving Facility availability was $230.0 million.
- Regular quarterly dividends paid totaled $78.3 million, or $1.64 per share, compared with $70.8 million, or $1.56 per share, in 2021.
Material Changes Versus the Prior Comparable Period
- Investment activity declined to $157.5 million across 52 properties from $200.0 million across 100 properties in 2021. Fee-simple acquisitions totaled $137.3 million for 40 properties, supplemented by $20.2 million of construction-loan advances.
- The Company sold 24 properties for approximately $26.0 million of gross proceeds, versus 16 property sales in 2021.
- Rental income increased primarily from acquired properties, redevelopment rent commencements and contractual rent increases, partially offset by dispositions.
- Interest expense increased to $27.7 million from $24.7 million due to higher average borrowings and interest rates.
- Environmental expense shifted from $3.5 million of expense in 2021 to a $20.9 million credit in 2022. The Company removed $23.5 million of previously recorded unknown-contamination reserves and retained $11.1 million of such reserves for selected properties.
- Net cash provided by operations increased, while investing cash outflows decreased to $139.1 million from $169.7 million.
- No common shares were issued directly under the ATM program in 2022. However, the Company entered forward sale agreements for 3.7 million shares at anticipated gross proceeds of $117.6 million; no shares had been settled by year-end.
Debt, Liquidity and Capital Structure
- The unsecured Revolving Facility has $300.0 million of commitments, matures in October 2025 and had $70.0 million outstanding at December 31, 2022. Borrowings transitioned from LIBOR-based rates to SOFR-based rates in December 2022.
- Scheduled debt maturities at year-end included $75.0 million of senior notes due in 2023, $120.0 million in 2025, and $500.0 million thereafter. In January 2023, the Company issued $125.0 million of 3.65% senior notes due 2033 and used proceeds to repay the $75.0 million of 5.35% notes due June 2023 and fund investments.
- The Company reported compliance with the material covenants of its credit agreement and senior unsecured notes as of December 31, 2022.
- A hypothetical 1% increase in market interest rates was estimated to reduce 2023 net income and cash flow by approximately $0.7 million based on $70.0 million of floating-rate borrowings.
Outlook, Commentary, Risks and Unusual Items
- Management intends to continue acquiring and developing convenience, automotive and other single-tenant retail properties, with emphasis on diversification and major metropolitan markets.
- Three properties were under active redevelopment and two properties were vacant at year-end. Management expects redevelopment may increase property values, but identified risks include permitting, construction costs, financing, environmental conditions and leasing performance.
- Major tenant concentration remains material: Global Partners represented 16% of 2022 revenue, ARKO 14% and United Oil 11%.
- Key risks include tenant creditworthiness and defaults, concentration in petroleum-related businesses, geographic concentration, interest-rate exposure, inflation, capital-market access, REIT qualification, environmental liabilities and litigation.
- Environmental remediation obligations totaled $23.2 million at year-end, including $12.4 million related to preexisting unknown contamination. Management cautioned that future actual expenditures could substantially exceed recorded amounts.
- The Company is involved in MTBE litigation in Pennsylvania and Maryland and Lower Passaic River environmental proceedings. A proposed consent decree would require 85 settling parties collectively to pay $150.0 million; the Company’s contribution is confidential and was stated to be consistent with established reserves. Court approval remained pending, and ultimate liability could exceed accrued amounts.
- The Company’s prior $50.0 million aggregate-limit pollution liability policy expired in July 2022. A new five-year policy with a $25.0 million aggregate limit covers a subset of higher-risk properties, subject to retentions and limitations.
- FFO and AFFO are non-GAAP measures and should not be viewed as substitutes for GAAP earnings or operating cash flow.
Most Important Facts for Investors to Verify
- Reconcile recurring AFFO and operating cash flow with the reported 2022 net earnings, particularly excluding the unusually large environmental reserve release.
- Review tenant concentration, lease expirations and tenant credit quality, especially for Global Partners, ARKO and United Oil.
- Confirm the January 2023 refinancing of the $75.0 million 5.35% notes and the resulting debt maturities, interest expense and covenant headroom.
- Review the terms, settlement timing and potential dilution associated with the 3.7 million forward-sale shares.
- Assess the proposed Lower Passaic River consent decree, MTBE claims and the adequacy of environmental and litigation reserves.
- Verify the amount and availability of cash, restricted cash and the $230.0 million revolving credit capacity, including applicable covenant restrictions.
- Evaluate whether future acquisitions, redevelopment spending and dividends can be funded while maintaining leverage and REIT distribution requirements.