Getty Realty Corp (GTY) 2010 Q3 法說會逐字稿

Good morning, everyone, and welcome to Getty Realty's conference call for quarter ended September 30, 2010. This call is being recorded. Prior to starting this call, Joshua Dicker, Vice President, General Counsel and Secretary of the Company, will read a Safe Harbor statement. Please go ahead, Mr. Dicker.

Thank you. I would like to thank you all for joining us for Getty Realty's quarterly conference call. Now, as we formally begin the conference call, I will read into the record the Safe Harbor statement.

The statements made during the course of this conference call may include our hopes, intentions, beliefs, expectations or projections of the future that, along with other statements that are not historical facts, are forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are usually identified by words such as will, should, could, expect and belief, and other words with forward-looking connotations.

Examples of such forward-looking statements would include management's statements about the nature of the Company's acquisition pipeline or acquisition prospects, or statements about expected financial results. It is important to note that the Company's actual results could differ materially from those anticipated in such forward-looking statements.

Information concerning factors that could cause actual results to differ materially from those forward-looking statements can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 as well as in our quarterly and other filings with the SEC. You should not place undue reliance on forward-looking statements, which reflect our view only as of the date hereof. We undertake no obligation to publicly release revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.

David Driscoll, our Chief Executive Officer, will now comment on our press release issued after the close of business yesterday.

Thank you, Josh. Prior to starting my formal statement, I want to introduce the other officers of the Company, who are with me on the phone today. They include Josh Dicker, our General Counsel, who you just heard from; Mr. Leo Liebowitz, our Co-Founder and Chairman; Chief Financial Officer, Tom Stirnweis; and Kevin Shea, our Executive Vice President.

Last night's press release reported our results for the third-quarter ending September 30, 2010. It is available on our website, the SEC Edgar website, and many other news and financial websites. If you cannot obtain it, otherwise please feel free to call us directly and we'll send you a copy of it.

Highlights include revenues from rental properties increased by $1.2 million to $21.9 million this quarter compared to $20.8 million during Q3 2009. The increase was primarily due to rental income from the acquisition we made last September of 36 Exxon properties acquired from White Oak Petroleum. Our net earnings increased by $1.2 million to $13.4 million this quarter compared to Q3 2009, an increase by $3.5 million to $39.2 million for the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009.

Earnings from [continuing] operations increased this quarter by $2.8 million to $13.5 million as compared to Q3 2009, an increase by $6.9 million to $37.7 million for the nine months ended September 30, 2010 versus $30.8 million for the nine months ended September 30, 2009. The increases in earnings from continuing operations for the quarter and the nine months ended September 30, 2010 as compared to the prospective prior periods were principally due to increased rental income and net reductions in operating expenses.

Adjusted Funds From Operations, or AFFO, this quarter was $0.52 or the same as Q3 last year, a slightly significant increase in our share count as a result of the equity offering we completed last May. For the nine months, we increased AFFO by $0.04 per share from $1.57 to $1.61 for the nine months ended September 30, 2010.

Environmental expenses declined in the quarter and for the nine-month period. However, as we have previously stated, environmental expenses vary considerably from quarter to quarter, and accordingly, undue reliance should not be placed on the magnitude or direction of short-term changes like these. We continue to remain open to negotiating with our major tenant, Getty Petroleum Marketing Corporation, for the removal of properties from the unitary lease or other measures. However, progress in this quarter remains slow.

As a whole, our operating results were in line with our expectations. Our major focus during the quarter and now, and/or we expect for the next few months, will be on investment opportunities in our sector, the convenience and gas sector. On a macro basis, the sector is benefiting from improved capital and liquidity, and continues to experience cap rate compression like all sectors in the real estate market.

Nevertheless, we continue to see transaction volume and investment opportunities. including opportunities currently in our pipeline that we believe are attractive. We are aggressively pursuing the attractive opportunities and we are also growing our capacity to source and close a greater volume of transactions. I'm comfortable we will be able to make accretive acquisitions in the coming months.

With all of that, we are happy to entertain any questions you might have and I will turn it over to our operator, David. You want to explain the procedure to callers? And we can go forward.

(Operator Instructions). Anthony Paolone, JPMorgan.

On the acquisition pipeline, can you put some parameters around just maybe the size of that pipeline? Are they portfolios? Are they one-offs? And then maybe discuss a bit about cap rates.

Sure. I think we have a policy and we'll continue the policy, Tony, of not commenting specifically on what the pipeline is, because the pipeline, as I'm sure you understand, is a dynamic thing. However, for the most part, we're looking at portfolios. I don't -- I think there will be an occasional one-off, but they don't really move the dial.

We're really focused on portfolios. They range in size [to] very material to smaller transactions. Cap rates have continued to compress and I would say that the market now clearly is into single digits, but I don't want to be any more specific than that. You've seen transactions that have come down that are with our competitors, certainly, or rumors of transactions that are well below double digits. But again, we're not going to comment on exactly where we can get things done until we make the announcement of the actual acquisition.

What do you think -- as I think back over this year, you did your equity deal earlier and your pipeline was pretty large at that point. Nothing's closed yet; just wondering what has the process been like and how close are we to seeing something hit?

Well, you know, I think when we -- yes, you're correct; when we did the equity offering, we had a lot in our pipeline. We continue to have a lot in our pipeline. And a lot of that is what we had in our pipeline when we did the equity offering.

The process, the speed of the process, if you will, a lot of that has to do with the fact that, as we mentioned before, these are portfolio acquisitions. And when you talk about multiple unit acquisitions, there's a lot of groundwork kind of things that need to be worked out, and they don't happen quickly. It's a slow process to make these acquisitions, but we're on track. We continue to be on track and we're comfortable that we'll be able to make acquisitions that will be accretive.

Okay. You mentioned that dialogue with marketing was slow. Should we take from that that at least there's some dialogue going on? Or can you give us any more color on that front?

Yes, there is always dialogue going on at different levels. I think that at this point, the vast majority of the dialogue that's going on is right down at the property level, it's routine, day-to-day stuff. You know, it's a large portfolio. We do talk to one another about things like that.

The strategic conversation is slow at this point. We think it will pick up and we have some ideas on how to make it pick up, and we're pursuing those.

Okay. And lastly on the environmental side, it's been a couple of quarters now that the environmental expenses have been running at least lower than what we expected. Can you maybe give us a sense as to what's going on there and whether that likely trend -- stays down at these levels or goes back up maybe closer to the $2 million range you'd been running at before?

Kevin, do you want to talk a little bit about the environmental?

Sure. We've -- our environmental expenses, as you know, correctly, have been lower than they have historically. It's kind of lumpy predicting environmental. You can have expenses where expenses come in line with your expectation for an extended period of time. And then you get an unexpected, unanticipated expense.

We are hopeful that this trend will continue, but as I said, it's a lumpy process. There's a lot of factors that influence expense regulators, new laws, evolving technologies for cleaning up environmental contamination. So, it's, like I said, it's lumpy and we're hopeful that this trend will continue, but we're not going to make an affirmative statement that it's going to.

Okay. How many -- can you give us an update on the NFAs that you've gotten year-to-date and how that's come out relative to your expectations there?

Sure. Year-to-date, we've got -- we received 10 NFAs. We have another 21 that are -- have been submitted to state regulators and are pending their approval. We're hopeful that we'll see another 10 or so in the remaining few months of the year.

Like I said, the human factor plays into this as much as anything else does. Some of these requests have been sitting with regulators for a couple of months while the regulating agencies are understaffed, and they review these things when they get to them, kind of. They're not under any obligation in most states to review them within a specific timeline. So we're sort of at their whim as to when they get around to them.

Okay. Thank you.

(Operator Instructions). At this time we have no further questions. I'd like to return the call back to Mr. Driscoll for any closure or further remarks.

Well, thank you and we thank you all for being on the call. We thank you for your continued support, and we hope to see you all in a few weeks at the NAREIT convention, and we'll be able to talk more and provide more details to everybody soon. Thank you very much.

This now concludes our conference call. You may disconnect at this time.