Getty Realty Corp. — Q1 2021 Form 10-Q Summary
Business Context and Reporting Period
Getty Realty Corp. is a REIT focused on acquiring, owning, leasing, financing and redeveloping convenience stores, gasoline stations, car washes, automotive service centers, automotive parts retailers and related retail properties. For the quarter ended March 31, 2021, the portfolio comprised 960 properties in 35 states and Washington, D.C., including 902 owned properties and 58 properties leased from third-party landlords. Substantially all properties are leased under triple-net arrangements.
Financial Results and Key Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenues | $37.3 million | $35.4 million | 5.4% increase |
| Rental property revenue | $37.0 million | $34.7 million | 6.6% increase |
| Operating income | $24.0 million | $18.9 million | 27.1% increase |
| Net earnings | $17.9 million | $12.7 million | 41.1% increase |
| Diluted EPS | $0.40 | $0.30 | Increase of $0.10 |
| FFO | $19.9 million | $20.0 million | 0.2% decrease |
| AFFO | $20.9 million | $19.3 million | 8.6% increase |
| Operating cash flow | $19.4 million | $17.9 million | 8.6% increase |
- Operating margin was approximately 64.3%, compared with 53.4% in the prior-year quarter; net margin was approximately 48.1%, compared with 35.9%.
- Results benefited from a $7.2 million gain on real estate dispositions, versus $0.9 million in Q1 2020. Five properties were sold and a condemnation produced a $0.1 million loss.
- Rental revenue growth reflected properties acquired during the prior nine months and contractual rent increases. Contractual rental income increased to $33.5 million from $31.4 million.
- Property acquisitions totaled $21.9 million for six properties, all car wash properties. The company also funded $8.4 million of construction loans outstanding at quarter-end.
- Cash, cash equivalents and restricted cash totaled $33.8 million at March 31, 2021, compared with $57.1 million at December 31, 2020.
- Total debt was $525.0 million, or $523.0 million net of debt issuance costs, compared with $550.0 million at year-end 2020. The $300.0 million revolving facility was undrawn.
- Stockholders’ equity increased to $680.5 million from $659.6 million, partly reflecting $20.3 million of net ATM equity proceeds.
- The quarterly dividend was $0.39 per share, totaling $17.3 million in cash payments. Management noted that future dividends are subject to financial condition, covenants, market conditions and other factors.
Material Changes Versus the Prior Comparable Period
- Revenue increased primarily from acquisitions and contractual rent escalations, partly offset by a larger negative revenue-recognition adjustment.
- General and administrative expense rose to $5.5 million from $4.1 million, driven by $0.5 million of retirement costs, higher employee-related expense and increased legal and professional fees.
- Depreciation and amortization increased to $8.4 million from $7.1 million due primarily to acquired properties.
- Interest expense declined to $6.1 million from $6.7 million because of lower average borrowings and lower average interest rates.
- FFO was broadly stable, while AFFO increased due to higher operating performance and adjustments for nonrecurring items, including retirement costs and environmental items.
- Investing cash outflows declined to $19.8 million from $53.1 million because acquisitions were lower than in Q1 2020. Financing cash flow shifted to a $22.9 million use of cash from a $49.5 million source, primarily because Q1 2020 included substantial credit-facility borrowings.
Guidance, Outlook, Commentary and Risks
- The filing does not provide formal quantitative earnings or revenue guidance. Management expects to continue its growth strategy in 2021, funded by property cash flows, the revolving facility, ATM equity proceeds and available cash, but cautions that COVID-19 could moderate or suspend acquisitions and redevelopment.
- Management stated that COVID-19 had not materially adversely affected reported Q1 2021 results, but future effects remain uncertain, particularly regarding tenant payment capacity, business closures and economic conditions.
- Environmental remediation obligations were $48.7 million at March 31, 2021, including $36.3 million for future liabilities related to preexisting unknown contamination. The filing warns that actual costs could substantially exceed recorded amounts.
- The company had accrued $4.3 million for certain legal matters. Material contingencies include Lower Passaic River litigation and remediation, MTBE litigation in Pennsylvania and Maryland, and Uniondale, New York environmental litigation. Potential losses beyond accrued amounts cannot be estimated clearly.
- Tenant concentration is material: Global Partners and ARKO each represented 15% of total revenue; United Oil represented 12%; and Chestnut represented 9% for Q1 2021.
- The company was in compliance with material debt covenants. Debt maturities include $75.0 million in 2023, $50.0 million in 2025 and $400.0 million thereafter. The revolving facility is scheduled to mature in March 2022, with an optional one-year extension subject to conditions.
- Interest-rate exposure was limited at quarter-end because there were no variable-rate borrowings outstanding. LIBOR transition, tenant creditworthiness, petroleum-sector volatility, environmental obligations, litigation, property impairment and REIT qualification remain significant risks.
- Six properties were under active redevelopment and five properties had signed leases or letters of intent pending transfer to redevelopment. The company had five vacant properties.
Most Important Facts to Verify
- Reconcile reported net earnings growth with the $7.2 million disposition gain and assess recurring AFFO of $20.9 million.
- Review tenant concentration, lease guarantees, rent coverage and payment performance, particularly for Global Partners, ARKO, United Oil and Chestnut.
- Evaluate the March 2022 revolving-facility maturity, optional extension, covenant compliance and refinancing capacity.
- Assess the adequacy of the $48.7 million environmental remediation reserve and the potential exposure from Lower Passaic River, MTBE and Uniondale litigation.
- Monitor the effect of COVID-19 on tenant operations, rent collections, acquisitions and redevelopment activity.
- Consider dilution from the new $250 million ATM program; 743,000 shares were issued for $20.3 million of net proceeds during the quarter.
- Confirm dividend sustainability against AFFO, operating cash flow, required REIT distributions and debt-service obligations.