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spk03: in their remarks and in response to questions, including regarding the company's 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 and for the year ended December 31, 2021, and our subsequent 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 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 updated 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.
spk04: Good morning, everyone, and welcome to our earnings call for the fourth quarter of the Joining us on the call today are Mark O'Lear, our Chief Operating Officer, and Brian Dickman, our Chief Financial Officer. I will lead off today's call by providing commentary on our financial results and investment activities for both the fourth quarter and the full year ended December 31st. I will also discuss the company's strong position heading into 2023, and as usual, Mark will then take you through our portfolio, and Brian will further discuss our financial results and guidance. 2022 was a unique but successful year for Getty Realty. Our financial results exceeded the high end of our guidance range, and we continue to make progress towards two of our other key objectives, which are to grow and further diversify our portfolio. Beyond being proud of our overall accomplishments, I am particularly pleased that the team at Getty remained disciplined throughout the year as we worked through volatile capital markets in a transaction market that was slow to adapt. That patience was rewarded as we ended the year with a very active and successful fourth quarter. For the year and quarter, our base rental income grew 6% and 7.5% respectively, and our adjusted funds from operations or AFFO per share increased 1.9% and 2.9% respectively. For the year, we invested $157.5 million in 52 properties, including more than $83 million in the fourth quarter. Our investments in 2022 reflect our continued emphasis on diversifying our portfolio by property type, geography, and tenant, as we leverage our expertise to invest in high-quality real estate across convenience and automotive retail sectors. In 2022, more than 70% of our investments were in property types other than convenience stores, including express car washes, auto service centers, and drive-through quick service restaurants. We also expanded our presence in a number of attractive high-growth metro areas, including Austin, Charleston, Charlotte, Las Vegas, and San Antonio, and continued to expand our tenant roster through both our acquisitions and redevelopment programs. In 2022, we increased our activity with Refuel, a high-growth C-Store operator, and Go Car Wash and Splash Car Wash, two of the best and largest operators in the business. and we look forward to continuing to expand with these brands in 2023. We also completed redevelopment projects throughout the year and added Chase Bank and Murphy USA as tenants by completing value-add projects in the Boston and Dallas-Fort Worth MSAs. As we look ahead, we are excited about our committed investment pipeline of more than $110 million for the acquisition and development of new to industry convenience stores, auto centers, and car wash properties. which we expect to fund over the next approximately 12 months. Equally important, our proactive capital raising activities in 2022 will enable us to accretively fund these transactions while maintaining our conservative leverage profile. Supported by our strong financial position, our team continues to underwrite opportunities across our target asset classes. Our disciplined strategy continues to emphasize owning high quality real estate in major metro areas, and partnering with growing regional and national operators across the convenience and automotive retail sectors. Our knowledge of these sectors in which we invest, our underwriting expertise, and our deep industry relationships continue to drive an increasing set of transaction opportunities for Getty. To these points, we are confident in our ability to continue executing on our investment strategy and to grow and further diversify our portfolio. Lastly, I want to thank the dedicated team at Getty for their outstanding efforts in 2022 and their enthusiasm to start 2023. I believe we are poised for continued success due to this experienced team, our solid balance sheet, and our differentiated investment strategy. Our focus on providing real estate financing solutions to the convenience and automotive retail sectors, combined with our funded investment pipeline, positions us well for success in 2023 and beyond. that, I will turn the call over to Mark to discuss our portfolio and investment activities.
spk07: Thank you, Chris. As of the end of the year, our occupied portfolio included 1,034 net lease properties and three active redevelopment sites. Our weighted average lease term was 8.8 years, and our overall occupancy, excluding active redevelopments, increased to 99.8%. Our portfolio spans 38 states plus Washington, D.C., with 65% of our annualized base rent coming from top 50 MSAs and 83% coming from top 100 MSAs. Our rents are well covered with a trailing 12-month tenant rent coverage ratio of 2.7 times. We have invested in our platform to accelerate our growth, and we are starting to see returns on these investments in our people, processes, and systems as we experienced a significant increase in the volume and diversity of potential transactions that we underwrote in 2022. For the year, we evaluated a record $6.4 billion of opportunities to acquire freestanding convenience automotive retail real estate. Convenience stores represented approximately 58% of our underwriting, with the remaining 42% being focused on other convenience and automotive retail property types. In terms of our investment activities, we had a very strong quarter in which we acquired or provided development funding for 36 properties totaling $83.3 million, bringing our full year totals to 52 properties and $157.5 million. Highlights of this quarter's investments include the acquisition of six convenience stores located in the Las Vegas MSA for $35.7 million, 13 auto service centers located primarily in the Charlotte MSA for $21.2 million. Three car wash properties located in Austin, Las Vegas, and San Antonio MSAs for $12.4 million. And one drive-through QSR located in the Charlotte MSA for $3 million. In addition, we have provided approximately $9.3 million, including accrued interest for the development of 12 new to industry properties, including convenience stores in the Charleston and Austin MSAs, and car wash properties in the Jacksonville, New Haven, Newburgh, Raleigh, and Richmond MSAs. As part of these funding transactions, we will accrue interest on our investments during the construction phase of the project, and will acquire the properties via sale-leaseback upon completion of final funding. For the fourth quarter, the aggregate initial cash yield on our investment activity was approximately 6.9%, and the weighted average lease term for acquired properties was 17.3 years. For the year ended 2022, we acquired 40 properties for $137 million, did weighted average initial lease term of 16.2 years, and aggregate initial cash yield of approximately 6.8%. In addition, we advanced $20.2 million in construction loans for new to industry developments, which are accruing interest at 6.9%. Subsequent to year-end, we invested $5.6 million for the development and acquisition of six car wash properties located in various markets across the U.S. Looking ahead, regarding the $110 million of commitments to fund acquisitions and developments that Chris referenced, We expect to fund these transactions throughout the next approximate 12 months at an average initial yield of between 10 and 20 basis points in excess of where we closed acquisitions in 2022. We continue to evaluate and underwrite a variety of potential investment opportunities across our target asset class. Pricing for retail properties is moving, and we believe the market continues to adjust to reflect the changing economic landscape and tighter credit markets. We are pleased that we are sourcing the vast majority of these activities through our broad network, and we believe we are well-positioned to invest accretively as we move through 2023. Moving to our redevelopment platform, during the quarter, we invested approximately $140,000 in projects which are in various stages in our pipeline. We completed one redevelopment project where rent commenced on a new convenience store in the Dallas-Fort Worth MSA, which is leased to Murphy USA. We invested $400,000 in this project and generated a return on invested capital of 28%. We ended the quarter with six signed leases, which includes three active projects and three projects at properties that are currently subject to triple net leases and have not yet been recaptured from the current tenants. The company expects rent to commence at these and other projects over the next couple of years, including in 2023. Turning to our asset management activities for the fourth quarter, we sold five properties realizing $13 million in gross proceeds and exited one leased property. For the year, we sold 24 properties realizing $26 million in gross proceeds and exited five leased properties. We will continue to pursue dispositions of non-core properties that we have determined are no longer competitive in their current format, do not have compelling redevelopment potential, which we believe have attractive valuations that may allow us to recycle capital as part of managing our balance sheet and sources of capital. With that, I turn the call over to Brian to discuss our financial results.
spk06: Thanks, Mark. Good morning, everyone. Last night, we reported AFFO per share of $0.55 for Q4 2022, representing an increase of 1.9% versus the $0.54 per share we reported in Q4 2021. FFO and net income for the fourth quarter were $0.63 and $0.57 per share, respectively. For the full year 2022, FFO per share was $2.14, representing an increase of 2.9% versus the $2.08 per share we reported in 2021. FFO and net income for 2022 were $2.44 and $1.88 per share, respectively. Our total revenues were $43.1 million for the fourth quarter and $165.6 million for the year, representing year-over-year growth of 9.6% and 6.6% respectively. Base rental income, which excludes tenant reimbursements, gap revenue adjustments, and any additional rent, grew 6% to $37.8 million in the fourth quarter and 7.5% to $147.8 million in 2022. Strong acquisition activity over the last 12 months and recurring rent escalators in our leases were the primary drivers of the increase, with additional contribution from rent commencements at completed redevelopment projects. On the expense side, G&A costs increased 7.5% to $5.2 million in the fourth quarter, and only 2.3% to $20.6 million for the year, as we were able to manage overhead relatively well during 2022. Increased GNA is being driven primarily by employee-related expenses, including stock-based compensation. Property costs increased in the fourth quarter primarily due to increases in reimbursable expenses for taxes and other municipal charges. Property costs decreased for the full year due to lower rent expense and non-reimbursable expenses as we continue to exit lease sites and sell or redevelop other legacy properties. This decrease was partially offset by higher costs associated with our redevelopment program, specifically increased demolition costs for active projects, which runs through property costs on our P&L. Environmental expenses, which are highly variable due to a number of estimates and non-cash adjustments, declined to a credit of $5.5 million for the quarter and a credit of $20.9 million for the year. The reduction in both periods versus 2021 was primarily due to our estimates related to unknown environmental liabilities. Specifically, during the quarter and year, we concluded that there was no material continued risk of having to satisfy obligations relating to pre-existing unknown environmental contamination at certain properties. And accordingly, we removed $6.4 million and $23.5 million, respectively, of unknown reserve liabilities which had previously been accrued for these properties. Turning to the balance sheet in our capital markets activities, we ended the year with $695 million of total debt outstanding, consisting primarily of $625 million of senior unsecured notes with a weighted average interest rate of 4.1% and a weighted average maturity of 6.1 years. We also had $70 million borrowed under our revolving credit facility at year end. As of December 31st, net debt to EBITDA was 5.1 times and total debt to total capitalization was 31%. while total indebtedness to total asset value calculated pursuant to our credit agreement was 38%. Taking into account unsettled forward equity of approximately $115 million, that debt to EBITDA was 4.2 times at the end of the year. Subsequent to quarter end, we closed on our previously announced unsecured notes offering, raising $125 million at 3.65% and maturing in January, 2033. We used the proceeds to repay in full $75 million of unsecured notes maturing in June of this year and to reduce amounts outstanding on our revolving credit facility. Pro forma for this transaction, we had $675 million of senior unsecured notes outstanding with a weighted average interest rate of 3.9% and a weighted average maturity of approximately 7.5 years. Moving to our ATM program, during the quarter, we entered into forward sale agreements to sell 3 million shares, which will generate anticipated gross proceeds of $96.1 million. For the year, we entered into forward sale agreements to sell 3.7 million shares for anticipated gross proceeds of $117.6 million. To date, no shares subject to forward sale agreements have been settled. Returning to our $110 million committed investment pipeline, I want to emphasize that these transactions are fully funded through our unsettled forward equity agreements, and we have additional liquidity beyond that from certain assets that are under contract for sale, cash and 1031 proceeds on our balance sheet, and our revolving credit facility. Pro forma for this investment and capital activity, we expect our balance sheet to remain well positioned to support continued growth. Leverage is expected to remain in line with our target range of 4.5 to 5.5 times net debt to EBITDA, and we expect to maintain ample capacity under our revolver. As our investment pipeline evolves, we will continue to evaluate all capital sources to ensure that we're funding transactions in an accretive manner while maintaining our investment grade profile. With respect to our environmental liability, we ended the year at $23.2 million, which was a reduction of $24.4 million from the end of 2021. The primary driver of the improvement was the removal of $23.5 million of unknown reserve liabilities as discussed earlier. As a reminder, these reserves were related to legacy properties where we retained the responsibility to clean up pre-existing unknown environmental contamination that was discovered during defined look-back periods, which expired during 2022. We concluded that there was no material continued risk of having to satisfy contractual obligations at these properties, and accordingly, remove the unknown reserve liabilities which had previously been accrued. Our net environmental remediation spending in the fourth quarter was approximately $1.1 million, and for the full year, it was approximately $4.3 million. Lastly, we are reaffirming our 2023 AFFO guidance of $2.19 to $2.21 per share, which we introduced earlier this year. As a reminder, our outlook includes transaction activity to date, but does not otherwise assume any potential acquisitions, dispositions, or capital markets activities for the remainder of 2023. Specific factors which continue to impact our AFFO guidance this year include variability with respect to certain operating expenses and deal pursuit costs, and approximately $400,000 of anticipated demolition costs for redevelopment projects, which costs run through our P&L. With that, I will ask the operator to open the call for questions.
spk08: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star two 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 keys.
spk10: One moment, please, while we poll for questions.
spk08: We have a first question from the line of Brad Heffern with RBC Capital Markets. Please go ahead.
spk00: Hey, everybody. Good morning. So the development funding pipeline obviously expanded significantly last year, and it seems like you've been able to keep that at a relatively consistent level since then. I'm curious if that's the way that you expect the business to run from here on out, or is it really just the environment that we're in where construction loan availability isn't there in the traditional way?
spk04: Yeah, I think going forward, we expect to see a mix of what I'll call traditional which is the company's core product, along with development funding. We view it as two products to offer tenants or potential partners who are looking at how they grow their businesses. So if they're looking at acquisitions, Salee's Back works there and growth for new store development, we have a product that can help them facilitate that as well. So really, we view it as two lines of investment activity for Getty, and we expect that to continue.
spk00: Okay, got it. And then, Brian, just a clarification on the guidance. You know, I know you typically don't include things that haven't closed yet, but I'm curious for like the $110 million pipeline, I would assume some of that is you know, under contract or at least firmed up on like the development funding side and it just hasn't been funded yet. So I'm curious, like, is any of that $110 million in the guidance or is it all excluded?
spk06: Yeah, thanks, Brad. So just to be clear, when we talk about our investment pipeline, that is all under contract. We do have other deals under LOI, pending LOI, shadow pipeline, and all the rest of the activities. So that is under contract. And really just to be consistent with how we've historically provided guidance. We do not include any of that in the guidance we put forth. So none of the under contract activity, nor do we include any settlement of forward equity. So we've tried to be very consistent over time as we've enhanced some of our disclosure around pipeline, but keeping the guidance to really a run rate number as a point of time.
spk00: Okay. Okay. And then I think probably also for you, Brian, can you talk about how you see the funding for the year playing out, and where would you peg the cost of debt, incremental cost of debt, as we sit here today?
spk06: Yeah, it's a good question. You know, similar to some of our peers, I guess I'll hit the last question first, and it does depend on the day, but our debt and equity costs are relatively on top of each other. Again, it depends where the stock's trading and where, you know, rates are, but you know, somewhere in that mid-6% area, plus or minus, again, depending on the day. So when you look at that, I think, again, not dissimilar to, you know, some of our peers. You know, we're really thinking about how we utilize different funding sources, when it makes sense to take on and lock in additional permanent debt. We do have capacity from a leverage perspective. But I think as we sit here point in time today, we have the forward equity agreement. We have some of the other capital sources I mentioned. We have significant capacity under the line and leverage that's low. So I would really look to those as sources of capital to fund the activity that we have visibility into. And, of course, we'll look elsewhere, you know, as the investment pipeline evolves. But that's what we're looking at today, Brad.
spk10: Okay. Thank you. Thank you.
spk08: We take a next question from the line of Josh Dennerlin with Bank of America. Please go ahead.
spk01: Hi, this is Farrell Granitz with Josh Dannerlein. I quickly just wanted to point on the shares that are outstanding. Can you just provide some color on perhaps the timing and the funding of that, I think it was 110 million acquisitions under contract?
spk06: Yeah, I'll give you two perspectives on it. I'll make sure I understand the question because you go hand in hand. You know, that 110 million is predominantly development funding today. That does vary by quarter, again, depending on what we have under contract. We expect that, as we stated, to be deployed over roughly the next 12 months. I would think of that as a little bit more back ended just from what we've seen the nature of the products, the cadence of the development. So I would lean towards a back end awaiting, but we'll be funding throughout that next year. And we will utilize our revolver and settling the forward equity as we manage our balance sheet, source of the capital, leverage, utilization of the revolver, et cetera, over that year to fund those investments.
spk01: Great. Thank you.
spk08: Thank you. We'll take the next question from the line of Mitch German with GMP Securities. Please go ahead.
spk05: Yeah, good morning. So, Brian, just to that point on guidance, is it the goal to just update it per quarter as the year materializes?
spk06: Yeah, Mitch, that's what we've been doing for, you know, as far back certainly as I know, a couple of years. And I think before then, you know, we're always open to conversations with analysts such as yourself, investors, if we can improve the disclosure to ensure that we're, you know, articulating our activity and our plans appropriately. But But that's worked well for us, I think, in the past, and certainly in the environment we're in, even though we do have some visibility, we continue to think that makes sense. So, yeah, that should be the expectation.
spk05: Great, great. And then I know you bought, there's only one QSR, but is, you know, kind of how is that strategy materializing with you guys? Are you putting any investment behind trying to grow that part of your portfolio?
spk07: Yeah, Mitch, it's Mark. Yes, the answer is yes. We've dedicated some resources in that asset vertical to try and create some momentum as we've done. If you think years back where we've entered the car wash space from kind of a flat foot start to a very healthy program, we hope to get that same momentum in all our assets that we are targeting. So we've gotten some dedicated resources. We're attacking that as we do the other asset verticals with, you know, business development, trade shows, you know, business relationship management. And, you know, we hope to see some momentum in balancing out the investments across all the asset classes.
spk04: Thank you so much. Yeah, Mitch, just to add on to this, Chris, to add on, I think one of the things that appeals to us, right, is that it's a natural extension of our underwriting. The real estate, generally the same position on the street, same size, same sort of general investment per unit. So I think there's a lot of logic to extending to our broader, what we call convenience and automotive industry asset classes. Thank you.
spk08: Thank you. Participants who wishes to ask a question at this time, press star one on your touchstone phone now. We take a next question from the lineup, Alec Fagan with Baird. Please go ahead.
spk09: Hi. Quick question for me. Does your 2023 guidance assume any GNA or bad debt? And if so, can you go on?
spk06: Alec, what was the second part of your question, GNA and what? and bad debt? So no bad debt in the G&A number, but there is a small amount, excuse me, of bad debt in the guidance overall, but I would say it's de minimis. If you look at our collections over time, including during the pandemic and general health of tenants, coverage ratios, et cetera, I would call that de minimis. In terms of G&A, absolutely. We do have G&A running through there. We are seeing some increases in G&A, both what I'll call it the AFFO level, which is G&A that excludes stock-based compensation as primarily labor inflation, whether it's our personnel, compensation, benefits as we look to retain and reward and invest in our team, but also the flow-through of G&A. professional services that employ people, audit, tax, legal. So we are bearing the burden of some of that. And then in addition, at the P&L level, you will see a material increase as a result of stock-based compensation. which is simply because the stock has performed very well over the last 12 months. And I think from when we would have priced last year's restricted stock awards versus when we do this year, the stock is up 20%, 25%, and that's really a direct flow through to the G&A line item as you look at the P&L. Again, we back that out for AFFO, but you'll see that in the headline number.
spk09: Okay. Thank you for that. And if I can ask one more. what do you think the cash GNA part of guidance would be?
spk06: Yeah, we're looking at probably just under $17 million, which is up just about a million dollars or 7% from what that was in 2022. Okay, thank you.
spk10: Thank you.
spk08: Ladies and gentlemen, we have reached the end of the question and answer session, and I'd now like to turn the floor back over to Christopher Constant for closing comments. Over to you, sir.
spk04: Thank you, Operator, and thanks, everyone, for joining us for our fourth quarter call. We appreciate your interest in Getty and look forward to getting back on with everybody when we report our first quarter of 2023 in late April.
spk10: Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time.
spk08: Thank you for your participation.
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