Getty Realty Corp (GTY) 2014 Q1 法說會逐字稿

Please stand by we are about to begin.

Good day, and welcome to the Getty Realty Corp First Quarter 2014 Earnings Conference Call. Today's conference is being recorded.

At this time I would like to turn the conference over to Mr. Joshua Dicker, Senior Vice President, General Counsel, and Corporate Secretary.

Please go ahead sir.

Thank you.

I would like to thank you all for joining us for Getty Realty's Quarterly Earnings Conference Call.

Yesterday evening the company released its financial results for the quarter ended March 31st 2014.

The Form 8-K and earnings release are available in the investor relations section of our website at gettyrealty.com.

Certain statements in the course of this call are not based on historical information, and may constitute forward looking statements.

Statements are based on management's current expectations and beliefs, and are subject to trends, events, and uncertainties that could cause actual results to differ materially from those described in the forward looking statements.

Examples of forward looking statements include those made by Mr. Driscoll regarding lease restructuring, future company operations, financial performance, and the company's acquisition, or redevelopment opportunities. We caution you that such dates, such as our best judgment dates on factors currently known to us, and that actual events or results could differ materially.

I refer you to the company's annual report on form 10K for the fiscal year ended December 31 2013, as well as our other filings with the SEC for a more detailed discussion of the risk and factors that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.

You should not place undue reliance on forward looking statements, which reflect our views only as the date hereof. So, the company undertakes no duty to update any forward looking statements that will be made in the course of this call.

With that let me turn the call over to David Driscoll, our Chief Executive Officer.

Thank you Josh, and good morning everyone.

Welcome to our call for the first quarter of 2014. Our first quarter results reflect the steady progress we are making to achieve the objectives we set out at the beginning of last year; lease or sale transitional properties, reduce operating expenses, redeploy capital, and accretively grow our company.

What is noteworthy about this quarter is we had a quiet quarter with little to distract us from our operating results. The noise that so influenced our results during the past 24 to 36 months is finally subsiding, and our improved results speak for themselves.

Not only are we driving significant year over year financial improvement, but our sequential quarterly results also show slow but steady improvement. AFFO per share increased to $0.27 per share, a 13% increase from the $0.24 of the prior quarter on revenues of approximately $24 million. In year over year our AFFO per share increased by 50%.

Thus far in 2014 we continue to execute on these transitional activities with an additional 45 locations sold, 11 locations placed into long triple net lease.

The quarter also benefited from a variety of tail winds including an overall reduction in our operating costs reflected from these repostition activities completed in this quarter and prior quarters. As we move forward we anticipate continued reductions in operating expenses, which have been inflated as a result of our having to maintain control of low control -- for low contribution sites during the repositioning, and deployment process.

The expenses that we've had to incur are in the nature of property taxes, maintenance, utility charges, and professional costs.

We recognize that repositioning work still remains in a number of locations, and while additional capital expenditures also maybe required we continue to look forward to maximizing our return on invested capital, and focus on capturing measurable improvements from the ongoing work.

The great news is we are able to focus on the assets we own, and on selectively adding assets that will contribute to our cash flow.

While we have made great progress we still have a few challenges that we are working through. One item which we discussed in prior calls is the NECG portfolio, which has been impacted by litigation in Connecticut.

Unlike our transitional properties that were marginal contributed to the company results, the NECG portfolio, even today, is contributing positively to our results, all be it not as much as we originally anticipated when the NECG lease was first entered into in 2013. This is reflected in ongoing gap adjustments in our income statements.

Now, to our environmental remediation efforts. Our overall environmental liability declined in the quarter by approximately $1.5 million to approximately $42 million. As usually I want to underscore that environmental costs and accruals vary considerably from period to period, and should be evaluated based on long term multiyear trends rather than quarter to quarter.

We also continue to be very actively seeking external growth. The challenge, however for us and other investors focused on long term returns is in this unusually low interest rate regime there is ferocious competition for income producing assets. Our response to this competition is to stay disciplined and focused on executing on only the best opportunities, bearing in mind our cost of capital return threshold.

So, while we will remain disciplined, we will continue to also investigate internal growth opportunities inside our own portfolio for the 900 locations. During the past few years most of this activity has focused on dispositions to drive down costs, and move out slower growth assets.

Today, however, we believe we have opportunities to extract additional value from the existing portfolio. One focus will be exploring redeveloping opportunities for certain locations for higher and better uses to increase our returns on the property. We will also evaluate investing capital to upgrade existing properties, and/or simply harvest high value locations.

At the present time we are also exceptionally well positioned to execute on these growth opportunities from a balance sheet perspective. Our balance sheet affords us meaningful capacity and flexibility to support any growth we undertake.

At quarter end our net debt was less than $135 million, which remains at its lowest level in three years.

The ongoing transformation of Getty into a company that produces constituent internal and external growth is progressing well. We know there will be challenges, but we have proven that we are quite capable of overcoming adversity, and positioning the company for success.

We will continue to recycle noncontributing and slower growth assets to lower our operating costs, thereby improving our bottom line performance.

In summary we are energized by both the internal and external growth opportunities we continue to peruse. We acknowledge that there will still be challenges ahead of us in the transitional process, but we believe we are in the later stages of this process, and are already realizing the benefits from the progress made to date. We are well capitalized, and have a low leverage balance sheet. We will continue to work to enhance shareholder value in 2014 and beyond.

That concludes my prepared remarks, and I would ask the operator now to open up the line for questions to see if we can clarify the situation further.

(Operator Instructions)

And we will take our first question from Tony Paolone from JPMorgan.

Thanks, good morning.

Can you give us the cash environmental costs in the quarter just compared to the $881,000 that you booked for gaps -- what those numbers were?

I am not sure I understand the question, Tony. Good morning. Did you say detached?

No, I'm sorry. Maybe I didn't state it very well.

Just trying to understand the cash environmental costs in the first quarter.

No, no, no. I thought you said detached and you said cash. So, now I've got it.

So, we spent approximately $4 million in the quarter.

And was that -- like if I were to take the $881,000 that you book on a gap basis -- if I just ignore that completely, that would be about $4 million? And to get to what the real cash is?

Okay

No, no, the real cash number was $4 million. That is what I am saying. It was just under $4 million, $3.9 million, to more precise.

Okay. Any -- I know it is an impossible question to some extent, but just any outlook for that number? Does that seem like it is settling in to a certain area or not?

I think that -- frankly I think it is consistent will all our numbers, which are -- the variability in the number is just getting less, and less, and less. So, it's getting steadier, and steadier, and steadier, and I think these numbers are close to what they end up with going forward. More and more consistency.

Okay, and again on...

I want to be clear on environmental, though. That can vary a lot. Seasonal to seasonal, quarter to quarter, but the rest of the numbers are getting very steady now.

Right, okay.

On NECG what was the -- I guess you wrote off the Straight line to some extent it seems like, but what was the cash contribution for that?

It is hard to answer that. I think the annualized cash contribution from NECG is somewhere between $2 million and $3 million a year. So, you can quarterlies that if you want to. And that is a pretty steady number.

And that's where it is right now even with the issues.

Yes, that is where it is. That's the point I was trying to make in the awkwardly phrased remark in -- or paragraph in the comment that it is not like this is a property that is costing us money. It is contributing. It's just not contributing as much, and since gap basically makes us overstate our revenues, and then take reserves down below it looks like it's causing all sorts of problems, but it is generating cash.

And what's the magnitude of the dispute there? Is it $5 million number, what is sort of the difference?

You know I think the dispute is around occupancy. So, you can't -- it isn't like there's an award, or any cash that is going to come out of it. What we will be able to do then once we win is we will be able to establish occupancy in the properties.

Once you have occupancy in the properties, then our tenant can go in and start to upgrade and redevelop the properties. That requires the ability to enter it into long term field supply contracts with the suppliers who supply a great deal of the money and the branding incentives to be able to make -- help that upgrade go forward.

So, is the obstruction in the ability to redevelop and improve the properties that's been the significant problem all along?

Okay, got it.

And then the impairment, where was that on the income statement? Was that in [discrops], or somewhere else? Did I miss it?

I am going to ask Chris Constant to...

There was very impairment in continuing most of the impairment for the quarter as in discontinue.

Anthony Paolone: Okay, got it.

That's all I had. Thank you.

You're welcome.

(Operator Instructions)

And it appears there are not further questions at this time.

I would like to turn the conference back to management for any additional closing remarks.

Well, we just want to thank everybody for their continued interest in the company, and we look forward to seeing you in three months to talk about our second quarter results.

Have a great day today.

And ladies and gentlemen this does conclude today's conference, and we thank you for your participation.