Getty Realty Corp (GTY) 2015 Q3 法說會逐字稿

Good day, and welcome to the Getty Realty Corp third quarter 2015 earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Joshua Dicker, Vice President, General Counsel and Corporate Secretary. Please go ahead.

Thank you very much. I would like to thank you all for joining us for Getty Realty's quarterly earnings conference call.

Yesterday afternoon the Company released its financial results for the quarter ended September 30, 2015. The form 8-K and earnings release are available in the investor relations section of our website at gettyrealty.com.

Certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. These 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 our 2015 guidance, and may also include statements made by Mr. Driscoll or Mr. Constant in their remarks and in response to questions, including regarding lease restructuring, future company operations, future financial performance, and the Company's acquisition or redevelopment plans and opportunities. We caution you that such statements reflect our best judgment based 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 10-K for the fiscal year ended December 31, 2014, as well as our quarterly reports on form 10-Q and our other filings with the SEC for a more detailed discussion of the risks and other 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 view only as of the date hereof. The Company undertakes no duty to update any forward-looking statements that may be made in the course of this call. Also, please refer to our earnings release for a discussion of our use of non-GAAP financial measures, including our revised definition of AFFO and our reconciliation of those measures to net earnings.

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

Thank you, Josh. Good afternoon, everyone, and welcome to our call for the third quarter of 2015. This was another active quarter for Getty that continued to show consistent improvement in our operating results, represented by growth in FFO and AFFO per share.

The main headlines this quarter were dispositions of 60 locations for $19 million as part of our ongoing transitional activities; revenue increasing by 20%, which contributed to an AFFO-per-share increase of almost 9%; and our receipt of approximately $10.8 million as our final distribution from the GPMI estate. This distribution brings our total receipts from the GPMI lawsuit to more than $50 million and marks the end of that chapter.

In addition, yesterday afternoon I announced that I will retire as Chief Executive Officer of Getty and from our Board of Directors effective December 31, 2015. It has been both an honor and privilege to lead Getty through its transformation and the challenging circumstances that we faced. I want to thank the Board for giving me the opportunity and our employees for their dedication, hard work and support.

We also announced yesterday that our Chief Financial Officer, Chris Constant, will succeed me as Chief Executive Officer. Chris and I have worked closely together for nearly 15 years so I know he is both capable and ready to take on this challenge. And with that, to prove how confident I am in him, I want to turn this call over to him to let him walk you through the additional details of the quarter.

Thank you, David.

First off, I want to thank the Board for the opportunity to succeed David and lead the Company starting on January 1st. I also want to thank David for being an outstanding mentor and great friend during our five years together at Getty and many years before. The Company has been through a tremendous transformation during David's five-plus years at the helm and he is certainly leaving us in a better place. We wish him well on his future endeavors.

I'll now turn to an update on our portfolio. We ended the quarter with a total of 866 properties with 771 properties as core net lease, meaning they are subject to long-term triple net leases. The 95 remaining properties are considered transitional, meaning that the properties are either in the process of being sold or being leased, generally on a long-term triple net basis. There is a lot of activity in this part of our portfolio and I anticipate being able to report additional progress in the coming quarters.

For the quarter ended September 30, 2015 we acquired one property in Connecticut for $1.4 million, bringing our year-to-date activity to 79 properties acquired for $218.3 million. The majority of our acquisition activity this year stems from our APPRO acquisition in Q2 which added 77 locations in key markets such as California, Colorado, Oregon and Washington State.

As part of the capital recycling efforts David touched on earlier, we sold 60 properties during the quarter for $19 million, bringing our year-to-date activity to 72 properties sold for $22.2 million. The bulk of the activity in Q3 was the sale of 48 sites located in Southern New Jersey and Pennsylvania which we had previously identified as transitional.

The cumulative result of our acquisition and leasing activities in recent years, as well as for our year-to-date activity, is that we ended the quarter with a rent weighted average lease term of 12.1 years.

Turning to our results for the quarter, as David mentioned, we had another outstanding quarter. We produced 20% revenue growth to $30 million as compared to $24.9 million for the quarter ended September 2014. Rental income, which excludes reimbursements from our tenants, was also up 20% for the quarter, growing from $19.5 million to $23.5 million.

The growth in AFFO per share of 8.5% to $0.38 per share, as well as the revenue and rental income growth, was all largely driven by the APPRO acquisition and, to a lesser extent, growth in the core net lease portfolio.

On the expense front, rental property expenses increased slightly this quarter, excluding increases in tenant reimbursements. Our environmental expense was up about $400,000 quarter to quarter, due primarily to excess non-cash accretion expense which we exclude from our AFFO. Reported G&A was relatively flat as compared to last year, excluding a $600,000 one-time employee-related expense in the quarter.

Turning to our balance sheet, we ended the quarter with $331 million of borrowings, $156 million on our credit agreement, and $175 million of long-term fixed-rate indebtedness. Our debt to total capitalization stands at approximately 37% and our net debt to EBITDA at quarter end was a healthy 5 times.

Due to our refinancing transaction in the prior quarter, our weighted average borrowing cost was $4.6 million at quarter end and our weighted average maturity is approximately 5 years. More importantly, we ended the quarter with less than 50% of our debt being floating rate.

Our environmental liability ended the quarter at $91.3 million, about equal to our 2014 year-end figure of $91.6 million. For the quarter ended September 30, 2015 the Company spent approximately $4 million to reduce this liability, bringing our year-to-date net spend to $10.6 million. It's important to note that the net number on our balance sheet is also impacted by additions to the overall liability and accretion since GAAP requires us to book the liability on a present-value basis.

As we look forward, the team is excited about the Company's current position and its prospects. We have a strong core portfolio with contractual rent escalations and improved tenant credit quality which provides us with a stable base for growth. We continue to make progress on our transitional property repositioning and will provide an update on future calls. However, I think it's important to note that with a portfolio of more than 850 properties there will always be leasing and disposition activities.

We are also focused on using our available capital to generate the best possible returns for the Company. Given current pricing for quality assets in the convenience and gas sector and increased competition for attractive assets, we will remain disciplined first and opportunistic if the returns meet our investment thresholds.

We will also place renewed emphasis on redeveloping our existing assets for higher and better uses. We are in the process of assembling a pipeline of attractive opportunities for growth from our own portfolio that can be harvested through additional repositioning, redeveloping or repurposing in order to optimize yield in our existing portfolio. We are committed to unlocking the embedded growth from these assets and expect them to generate additional growth as we execute on our plans and bring them on line in the future.

Lastly, we will continue to be mindful of optimizing our operating cost structure.

Now, let me turn to our guidance. For the full-year 2015 we are reiterating our AFFO-per-share guidance at a range of $1.25 to $1.30 per share.

In summary, we are excited about our current position and our opportunities to grow the business and will continue to work to further enhance value for our shareholders in 2015 and beyond.

That concludes my prepared remarks, so let me ask the operator to open the call for questions.

(Operator instructions). Gene Nusinzon, JPMorgan.

Hey, Chris. Congratulations again on the promotion. I have a question on the guidance that you provided. It looked from the press release that your year-to-date AFFO is above 25. Can you just bridge what's been year-to-date and what we should expect in 4Q?

Well, so the year-to-date number has $0.22 of income from the GPMI estate. So when we give our guidance range we back that number out.

Got it. Then we should be looking at like $1.07 for the first nine months.

I think it's $1.03. Yes, $1.03.

Okay, got it. Just switching over to your new role, are there any changes that you want to make right away?

Other than finding a replacement for myself, not at this time, no.

Okay.

Well, I'm going to jump in on this one and say that I can tell looking around the table that we might lose ties as part of our decorum in the office.

Thank you for that. I'm going to ask one more question and get back into the queue. Just what kind of I guess growth opportunities are you seeing and what are you planning to use as a source of funding for growth that you're penciling in?

On the growth front I think-- I used the word opportunistic on the call. So from both an external acquisition and from a redevelopment perspective we'll look and see where we can achieve the highest returns. And at this point, I think we're pretty comfortable with our current capital structure. So we'll look to fund from either our current facility or our operations.

Got it. Okay, I'll get back in the queue.

Thank you. (Operator instructions). And there are no other questions at this time. Activity, we just had another question come in from Gene from JPMorgan.

Hi, Gene.

Hey. Can you quantify the development opportunities that you alluded to earlier?

Not right now. I think what you'll see is us try to be more transparent on that as we go forward.

Got it. Okay. And is there a specific debt-to-EBITDA or leverage metric that you're looking to manage the balance sheet?

I think we're very comfortable with where it is right now, so we'll monitor that, right, as we go forward. I don't think anyone around this table wants to run the business at a leverage level that's above what I'll say is the norm for our sector.

Got it. Okay. Thank you.

Peter Cooke, Logan Capital.

One question. Are there any properties that are still to be disposed of from the marketing-- the ones you got from marketing? Have they all been taken care of at this point? I know you had some up in Connecticut where there was some lawsuits involved where they didn't go along with the settlement. I was just curious. Has that all been pretty much taken care of now?

We will have 95 transitional properties. The majority of those are from the GPMI or Marketing portfolio and a portion of those we expect to sell over time.

Okay. Are you getting revenues out of some of those or are they--?

Yes. Yes.

Okay. Thanks.

And there are no other questions at this time. I'd like to turn the conference back over to Mr. Driscoll for any closing remarks.

I just want to thank everybody for listening in on the call and for all of the confidence and support over the years. And I'm sure that Chris will be more than up to the task of leading this company going forward. Thank you and have a great day.

Thank you, everyone. That does conclude today's conference. We thank you for your participation.

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