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spk01: After the presentation, there will be an opportunity to ask questions. Prior to starting the call, Joshua Dicker, Executive Vice President, General Counsel, and Secretary of the company, will read a safe harbor statement and provide information about non-GAAP financial measures. Please go ahead, Mr. Dicker.
spk00: Thank you. I would like to thank you all for joining us for Getty Realty's second quarter earnings conference call. Yesterday afternoon, the company released its financial results for the quarter ended June 30, 2021. The Form 8K 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. 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 2021 guidance and may also include statements made by management in their remarks and in response to questions, including regarding the company's response to the COVID-19 pandemic, future company operations, and 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 year ended December 31, 2020, our subsequent quarterly report on Form 10-Q, and our other filings made 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 applied 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 definition of Adjusted Funds from Operations, or AFFO, and our reconciliation of those measures to net earnings. With that, let me turn the call over to Christopher Constant, our Chief Executive Officer. Thank you, Josh.
spk02: Good morning, everyone, and welcome to our earnings call for the second quarter of 2021. With Josh and me on the call today are Mark O'Gear, our Chief Operating Officer, and Brian Dickman, our Chief Financial Officer. I will begin today's call by providing an overview for the second quarter of 2021 and highlight the continued execution of our growth initiatives. And then we'll pass the call to Mark and Brian to discuss our portfolio and financial results in more detail. The net results of our stable in-place portfolio and the continued execution of our investment strategies was a 4.5% increase in total revenues, an almost 19% increase in adjusted funds from operations, and an 11.4% increase in AFFO per share. The company invested $44.1 million for the quarter and another $4.6 million just after quarter end, bringing our year-to-date total investment activity to $79 million in aggregate. The quarter was highlighted by the growing and steady pace of our investment activity and the convenience of automotive retail assets. We continue to successfully execute on our multiple investment strategies which include traditional sale leasebacks, creative acquisitions of net leased properties, and construction loans for new to industry assets. We also broadened our portfolio further during the quarter by adding both new geographies, as we added the state of Michigan, and new tenants, as we added both Valvoline and Mavis tires to our roster. The company also continues to benefit from the strong performance of target asset classes, as evidenced by our stable rent coverage of 2.6 times. Once again, Getty realized full normalized collections of our recurring rental income during the quarter, as well as the COVID-related deferments we agreed to in 2020, which were due this quarter. More broadly, industry data published this month by the National Association of Communion Stores further demonstrates the health of the overall communion store sector and another record year of profits in 2020, despite the COVID pandemic. As we enter the second half of the year, we are pleased that our year-to-date investment activity has positioned the company to raise our AFFO guidance at quarter end. Looking ahead, we are committed to maintaining our healthy portfolio through active asset management. In addition, our team continues to work diligently to source and underwrite new opportunities to invest in our target asset classes, including community stores, car washes, and automotive-related retail properties, and by unlocking embedded value through selected redevelopments. We remain encouraged by the growing opportunities in our investment pipelines. We are confident in our targeted investment approach, which prioritizes acquiring real estate in strong metropolitan markets across the We'll continue to drive additional shareholder value as we move through 2021 and beyond. Finally, I would like to formally welcome Evelyn Infern to our board of directors. Evelyn has a long track record of advising and investing in real estate companies and REITs, and I'm excited about the value she will bring to our company. I look forward to working with her for years to come. With that, I will turn the call over to Warren to discuss our portfolio and investment activities.
spk07: Thank you, Chris. At the end of the quarter, our portfolio includes 994 net lease properties, 6 active redevelopment sites and 5 vacant properties. Our weighted average lease term was approximately 8.9 years and our overall occupancy, excluding active redevelopments, remained constant at 99.5%. Our portfolio remains spread over 35 states plus Washington, D.C. in our annualized base rents, 65% of which come from the top 15 MSAs in the U.S. We continue to be well covered by our trailing 12-month tenant coverage ratio of 2.6 times. In terms of our investment activities, we had another busy quarter in which we invested $44.1 million in 53 properties, And subsequent to the quarter end, we acquired one additional property for $4.6 million, bringing our year-to-date investment activity to $79 million across 60 properties. Our completed acquisitions during the second quarter included the purchase of 46 Babylon branded oil change centers for $31 million. The triple net leases, which are guaranteed by Babylon Inc., were acquired with 11.5 years of remaining base term and have multiple renewal options. The properties are located primarily throughout the Detroit Grand Rapids, Lansing MSAs in Michigan, and the Toledo metropolitan area in Ohio. Additionally, we've closed on the acquisition of three additional car wash properties for 10.4 million during the quarter. These properties were added to our existing unitary lease Whitewater Express car wash and have approximately 15 years remaining of the base term with multiple renewal options. These properties are located in Cincinnati, Ohio. Subsequent to the quarter end, the company acquired a Mavis Tire Center located in the Chicago, Illinois MSA for $4.6 million. In the aggregate, we expect all of our completed acquisitions to generate cash yields that are in line with our historical quoted acquisition cap rate range for our targeted asset classes. Getty also funded an additional $2.7 million of construction loans for four new industry convenience stores with refuel, a C-store operated with more than 100 locations across the Southeast United States and Texas. bringing the total amount funded by Getty to $11.1 million year-to-date. As part of this transaction, we will accrue interest on our investment during the construction phase of the project and we expect to acquire the properties via a sale-leaseback transaction at the end of the construction period. We ended the quarter with a strong investment pipeline and remain highly committed to continuing to grow our portfolio with convenience and automotive retail real estate. We expect that we will continue to pursue direct sale lease back, acquisitions of net lease properties, and funding for new to industry construction. Moving to our redevelopment platform, during the quarter we invested approximately $200,000 in sites which are in our pipeline. At quarter end, we had 11 signed leases with letters of intent, which includes six active projects, four signed leases on properties which are currently subject to triple net leases, but which have not yet been recaptured from the current tenants, and one signed letter of intent on a vacant property. At quarter end, rent commenced on a redevelopment project leased at 7-Eleven, Baltimore, Maryland MSA. We invested approximately $125,000 in the project, expect to generate a return of nearly 40% on that investment. The company expects rent to commence at a number of additional redevelopment sites during the second half of 2021. In total, we have invested approximately $2.1 million in the 11 redevelopment projects in our pipeline and estimate that these projects will require a total investment by Getty of $7.8 million. We project these redevelopments will generate incremental returns to the company in excess where we can invest these funds in the acquisition market today. Turning to our asset management activities for the quarter, the company did not sell any properties, but did exit four lease properties, which had a de minimis impact on our financial results. As we look ahead, we will continue to selectively expose the properties that we've determined are no longer competitive in their current format and do not have compelling redevelopment potential. With that, I will turn the call over to Brian to discuss our financial results.
spk03: Thanks, Mark. Good morning, everyone. Start with a recap of earnings. AFFO, which we believe best reflects the company's core operating performance, was $0.49 per share for the second quarter, representing a year-over-year increase of 11.9%. Bayreuth FFO was also $0.49 per share for the quarter. Our total revenues were $38.7 million, representing a year-over-year increase of 4.5%. Rental income, which excludes tenant reimbursement and interest on notes and mortgages receivables grew more than 8% to $34.4 million. Strong acquisition activity over the last 12 months, recurring rents and rent increases were the primary drivers of the increase, with no contribution from rent collectors. On the expense side, G&A costs increased in the quarter primarily due to employee-related expenses, including stock-based compensation and non-recurring retirement costs. Property costs and environmental expenses both decreased in the quarter. The reduction in property costs was largely driven by decreases in real estate taxes and certain professional fees related to redevelopment activities, and the decline in environmental expenses was mostly attributable to lower professional fees and related expenses that flow through to AFFO. As we note each quarter, environmental expenses are subject to a number of estimates and non-cast adjustments and will continue to be highly variable. Turning to the balance sheet and our capital markets activities, we ended the quarter with $542.5 million of total debt outstanding, including $525 million of long-term, fixed-rate, unsecured notes, and $17.5 million drawn against our $300 million revolving credit facility. Our weighted average borrowing cost was 4.2%, and the weighted average maturity of our debt was 6.8 years. In addition, our total debt to total market capitalization was 29%, our total debt to total asset value was 38%, and our net debt to EBITDA was five times. Each of these leverage metrics are calculated according to the terms of our loan agreements. We have no debt maturities until June of 2023, other than our revolving credit facility, which matures in March of 2022, but has a one-year extension option there. We were selected with equity issuance under our ATM program during the quarter, raising $9.5 million at an average price of $32.94 per share. Year to date, we've raised a total of $30.3 million through the ATM program. In general, as we think about our future capital needs, we're committed to maintaining a strong credit profile, including meaningful liquidity and access to capital, low to moderate leverage, and a well-laddered and flexible capital structure. With respect to our environmental liability, we ended the quarter at $47.9 million, which was a decrease of $150,000 from the end of 2020. For the quarter, net environmental remediation spending was approximately $1.4 million. Finally, as a result of our investment and capital markets activities in the first half of the year, we're raising our 2021 AFFO guidance to a range of $1.89 to $1.91, a $0.03 per share increase from a prior guide. This guidance includes transaction activity completed year to date. It does not otherwise assume potential acquisitions or capital markets activities for the remainder of 2021. Specific factors which may impact our guidance include variability with respect to certain operating costs, including environmental expenses, variability with respect to the recapturing of properties for redevelopment, which results in foregoing rent, and our expectation that we will remain active in pursuing acquisitions and redevelopments, which could result in additional expenses, including certain property demolition costs and transaction costs for deals that are not ultimately completed. And with that, I'll turn the call back to Chris.
spk02: Go ahead. Operator, we'll take questions.
spk01: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Confirmation polls indicate your line within the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from Todd Thomas with KeyBank. Please proceed with your question.
spk06: Hi, thanks. Good morning. First question I have is just on investment activity, which increased in the quarter compared to the first quarter. But it looks like closings have slowed a little bit in the last one to two months since the last update. I realize there's no incremental investment activity in the guidance, but just curious if you can comment generally on the pipeline and the pace of investments going forward as we move further into the second half of the year.
spk07: So this is Mark. As we broaden our investment strategy that we announced recently to include all other automotive asset classes, we're pretty comfortable, in addition to C&G opportunities, we're pretty comfortable with the current state of our pipeline, the pace of opportunities, both inbound and opportunities that we've been generating for our business development. I think that some of the closings are just merely a factor of timing in the pace of the deal, each individual deal. But I think we're pretty comfortable where the pipeline is right now.
spk06: Okay. And I think you indicated that initial yields or cap rates are in line with the market. What does that look like today? What were the cap rates for the acquisitions completed in the quarter? And can you talk about cap rate trends? in terms of the future here? Sure.
spk07: So our acquisitions have been in the mid to high 6% range. Some of that compression is due to kind of the overall market tightening as well as I just referenced our broadening of our investment targets through different automotive verticals and some of those being more mature and more competitive. But we continue to feel comfortable that we'll be able to deliver creative acquisitions as we've done over the last few years.
spk06: Okay. And then just on the construction loans, can you just talk about that opportunity that you have there, your desire to originate more construction loans? And also, can you just remind us what kind of... premium spread on pricing through the sale and leasebacks you're achieving relative to market pricing?
spk02: Yeah, I think on the loan program, broadly speaking, the industries that we target have been consolidating. Obviously, multiples are high, as you'd expect. And certain of our operators have chosen to really focus on their organic growth pipelines. And as we partner with existing relationships or new relationships, it's really a way to continue for our operators to grow their business and for Getty to find a path to the ownership at the end of the construction period. So I think the opportunity will continue to grow for us. We're quite comfortable that we have the redevelopment capabilities in-house, and this is a natural extension from that team, so we're pretty comfortable operating there. In terms of premium yield, there's certainly a premium over the acquisition market. I wouldn't call it significant, and it does vary a little bit by sector, but again, we like the opportunity. We think it's going to continue to grow, and it's certainly applicable to all of the target asset classes that we're focused on.
spk06: And is that an opportunity, though, that you, you know, do you have an opportunity, you feel, to ramp that program up more meaningfully?
spk02: I think it's going to continue to grow over time. I don't want to put a number on it or a target range behind the top, but I certainly feel like it's an avenue for getting people to deploy capital accretively.
spk03: Brian, the one thing I would add, I think we spoke about it, the objective, and somewhat reiterated what Chris said, is not to build a large loan portfolio per se. That's not the business that we're looking to get into. It's ways that we can add value to our partners, to our tenant partners, and continue to work with them to help grow their platforms, which obviously helps us grow as well. And as Chris, you know, said explicitly, it gives us another path, you know, to see simple ownership of the type of assets we want to own. And, you know, that's probably key.
spk06: Those last two pieces are really key components to it. Okay. All right. Thank you.
spk01: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from John Massica with Ladenburg-Bellman. Please proceed with your questions.
spk04: Good morning. So maybe just a little more on the kind of construction loan opportunity set and ultimately trying to pull those assets onto your balance sheet. I mean, are those type of transactions you're looking at primarily kind of Greenfield, DeNovo construction, or is that like redevelopment where you're kind of coming in and kind of funding a developer's redevelopment of an existing, maybe out-of-date kind of C-Store concept and You know, they're revamping that.
spk07: Yes, it's Mark. We've done a little bit of both, both with our existing in-place tenants where they want to put material capital improvements into our lease properties. We'll partner with them to bring them up to industry standards. I would say it's more heavily tilted towards the greenfield, as you said, the de novo buildings where it's a net new property. operation for our part our tenant partners where it is truly state-of-the-art so in addition to all the you know the financial metrics that were just discussed you know it's kind of a reinforcement of our partnership with operators that want to be on the leading edge and beauty industry delivering all the latest and greatest in meeting the consumer demand so these are not only state-of-the-art facilities, but obviously have a tremendously long, useful life, present well, look great, and the program is repeatable with these key partners where it's an easy relationship to rinse and repeat on their new program, and we've become kind of a dependable partner for them in that process.
spk04: And I guess maybe big picture, I mean, how big is the opportunity set in terms of, you know, essentially how much kind of de novo construction is there out there in the C-Store space right now? Is it just given it does seem like some of the M&A activity is going to be a little bit, you know, more muted, I guess, maybe in the near term?
spk02: Todd has sort of a similar question, so I don't want to put a box around it, John, but what I would tell you is if you look across the C-Store sector, car wash sector, in particular, there is a significant amount of growth with what we call chain store operators. So as the traditional mom-and-pop C-store operator or car wash is maybe going away, there's an opportunity for tenants in the space to grow their brand with their prototype store that Mark was talking about, the state-of-the-art facility, whether that's an express car wash tunnel or whether that's a 5-, 6,000-square-foot C-store with a QSR inside of it. know the opportunity is certainly there for sea stores car washes to create a brand recognition which also has the loyalty on the upside of it um where you know it becomes sort of that go-to destination that the consumers before right across their uh specific region or a chunk of the country so um again i think it's certainly repeatable but i'm not going to put a time frame or a dollar amount behind, but I think the opportunities.
spk04: Okay. And then on the balance sheet side of things, I mean, how should we think about ATM issuance going forward? I think if I heard correctly, you should, you know, $9 million during the quarter in terms of dollar amount, which would seem, you know, on a gross invested basis, maybe a little bit kind of light versus kind of the, you know, in-place portfolio today, but I know that can kind of be variable quarter to quarter, but should we kind of still expect maybe on a net debt to EBITDA, this 5% range to be a good target, sorry, 5X range to be a good target going forward?
spk03: Yeah, John, I think the ATM issuance itself is obviously a function of a number of different factors. Leverage metrics, as you alluded to, liquidity at the time in terms of unbalanced sheets. obviously stock price and investment pipeline and all the rest. What we're really focused on, as I said in my prepared remarks, is ensuring that we maintain strong liquidity, access to capital, that we keep low to moderate leverage. And if you just go back to the end of 2020, we ended the year, I think it was just under five times on leverage. The revolver was undrawn completely, or was early January when we paid off the year-end balance. And as a result of some asset sales and legal settlements, there was a lot of cash on the balance sheet. So if you go back to, again, the end of the year, you'll see that back pattern. And I think that back pattern led to us being a little bit less active on the ATM in this first half of the year. And so I think as you go forward, we'll continue, as we have, as we've stated, and a number of our peers do, to utilize the ATM. It's a great tool for our business. leverage is right down the middle. I think we've typically said, you know, four and a half to five and a half, you know, maybe at different points in time, five to six times, but we're, you know, low to middle end of that range. And, you know, that's definitely what we're looking at as we execute. Thank you.
spk01: Our next question comes from Joshua Dennerlein with Bank of America. Please proceed with your question.
spk05: Hey, good morning, everyone. I guess I was just curious on maybe an impact on inflation on your portfolio. Could you remind us maybe what percent of your portfolio has escalators linked to, like, the CPI or SPICs? Just trying to get a sense of what we can see in acceleration earnings as a result of more inflation.
spk03: Sure. This is Brian, Josh. One fact I'll start with is upwards of 97, 98% of our leases do have some escalator in them. So the bulk of the portfolio does have escalators. Of that, roughly two-thirds is annual escalators. And then the balance is your typical 10% every five years or something thereabouts. On a CPI basis, it's de minimis. There might be one or two leases. That's not a typical structure in our leases, at least to date. So the blend of all that is about 1.6% annual. I think it's a nice way to start off each year. Obviously, growth in our earnings and our value creation will be acquisition and redevelopment based, as it is for most in our space. But I think that you know, going into a year with that level of escalator is helpful. And then the other thing I'll add, you know, given that the majority of our activity is sale leaseback activity, as Mark and Chris said, we have and will continue to buy existing leases. But at least when you're originating your own leases, in my humble opinion, it gives us at least some opportunity, right, if the environment and the market's really changing from where it is and where it's been to, you know, at least have that conversation with tenants and prospective tenants about getting either different levels or different types or frequency of escalators in the leases. So a little bit more control over our destiny, so to speak, than if we were only acquiring existing leases.
spk05: Yeah, interesting. Have those conversations changed a lot, maybe in the last year or two, as far as what you would want in a lease?
spk07: I would think that if you're talking specifically about escalators, it's more, as Brian just mentioned, we strive for annuals, do our best to get an annual increase, if not something certainly near term, but not a material change in the dynamic of those conversations. Okay.
spk05: Awesome. Thanks, guys. We'll leave it there.
spk01: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Mr. Christopher Constant for closing remarks.
spk02: Great. Thank you, Operator. Thank you, everyone, for participating in our call this morning. We look forward to getting back on. We report our Q3 earnings in October, and we appreciate your interest in getting.
spk01: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
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