Joshua Dicker - SVP, General Counsel and Corporate Secretary Christopher Constant - CEO Mark Olear - COO Danion Fielding - CFO.

Peter Lunenburg - JMP Securities Gene Nusinzon - JPMorgan Mitch Germain - JMP Securities.

Good day and welcome to the Getty Realty Fourth Quarter 2016 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Joshua Dicker, SVP, General Counsel and Corporate Secretary. Please go ahead, sir..

Thank you, operator. I would like to thank you all for joining us for Getty Realty’s fourth quarter and yearend earnings conference call. Yesterday afternoon, the Company released its financial results for the quarter and year ended December 31, 2016.

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 statement.

Examples of forward-looking statements include our 2017 guidance, and may also include statements made by management in their remarks and in response to questions including regarding 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 year ended December 31, 2016 as well as 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, let me turn the call over to Christopher Constant, our Chief Executive Officer..

Thank you, Josh. Good morning, everyone, and welcome to our call for the fourth quarter and year ended 2016. With Josh and me, on the call today are Mark Olear, our Chief Operating Officer, and Danion Fielding, our Chief Financial Officer.

I'll begin today's call by providing an overview of our 2016 performance and our 2017 business prospects and we'll pass the call to Mark to discuss our portfolio in more detail, and then Danion will discuss our financial results and our 2017 guidance. We produced solid results for the fourth quarter, which closed out a strong year for us in 2016.

I am pleased that the quarter continued its trend of stable growth for the company, which demonstrated the earnings capability of our net leased portfolio. We reported quarterly AFFP of $0.43 per share, which represent meaningful growth over the prior year's quarter even when adjusted for certain nonrecurring notable items which Danion will discuss.

Excluding notable items, our normalized AFFO per share was $0.41 for the quarter ended December 2016, as compared to $0.36 per share for the quarter ended December 2015, representing growth of 14% quarter-over-quarter.

For the year ended 2016 we reported AFFO of $1.69 per share, which also included several items which had a positive, but nonrecurring impact on our reported figures. After removing notable items in both 2016 and 2015, our AFFO per share was $1.64 and $1.39 respectively, which represents growth of 18% year-over-year.

Moving to our portfolio, we ended the year with a portfolio of 829 properties of which 808 are subject to triple net leases, six are actively being redeveloped and 15 are vacant.

More importantly, I am pleased to report that with the disposition and leasing activity completed during the year, we have essentially completed the repositioning of former transitional properties, which has been one of our primary strategic initiatives over the past several years.

As such, going forward, we will no longer characterize properties as transitional. As a reminder, this phrase was attributed to certain properties formerly leased to Getty Petroleum Marketing, which we took back when GPMI filed for bankruptcy.

In years that followed, we have either repositioned or sold hundreds of these transitional assets finally leaving us at the end of the 2016 with a quality portfolio absent any additional overhang in this difficult chapter in our history.

Due to the successful efforts of the entire Getty Organization, we are now at the point where our resources can be fully dedicated to growing our portfolio. I next want to comment on our outlook and strategic emphasis for 2017 as we seem to redevelop several of our existing properties and harvest our pipeline of potential acquisitions.

We currently have 13 redevelopment projects with signed leases or LOIs and they continue to evaluate our portfolio for other redevelopment opportunities.

In terms of external growth, we remain active in the market for potential acquisitions and our core asset class, we are seeing mix of single unit and portfolio acquisition opportunities in geographic regions, which overlap with our existing sites and in several markets where we've been looking to add assets.

Taking this all into consideration, we view 2017 as a building year for Getty. Absent acquisitions which we do not include in our guidance, our core business is stable and growing.

With that said, there are a few items, which are initially dilutive but will be critical for the company as we look further into the future, but first is with respect to our redevelopment initiatives, throughout the year we intend to take several income-producing properties off-line in order to start redevelopment and construction.

Additionally, we've taken steps to bolster our capital structure in order to fund our business plans, including utilizing our ATM and issuing long-term fixed rate debt pay down, floating-rate debt on our revolver. Providing attractive total returns for our shareholders is one of our key objectives.

This past October, our Board increased the recurring quarterly cash dividend to $0.28 per share or an annual run rate of a $1.12 increase at a recurring rate for the year.

Getty is in the strongest position, the company has been in for many years with a solid portfolio of assets delivering consistent growth and supported by a very flexible balance sheet, we're well positioned to pursue value-enhancing opportunities.

As we move forward, we will virtually build upon our stable growth, continue to enhance the quality of our net leased portfolio. We remain executing about our business prospects and our focus on executing our stated growth strategies, which we believe will drive additional shareholder value as we move through 2017 and beyond.

With that, I'll turn the call to Mark Olear to discuss our portfolio and investment activity..

Thank you, Chris. I'll start by reviewing our investment for the quarter. During the quarter, we purchased two racetrack properties in the Houston Texas Metro area for $5.8 million in the aggregate with an initial cash yield of approximately 7%.

For the year, we completed $7.7 million of acquisitions including one parcel of land adjacent to an existing property for a redevelopment project. The weighted average initial return on investments was 7.2% and the sites have averaged initial remaining lease term of 11 years.

While the acquisition market continues to be very competitive in the gas sector, we remain disciplined in our underwriting criteria, our pipeline of actionable opportunities continues to grow and we are in the process of reviewing and pursuing several growth opportunities.

To that end, we have acquired three properties subsequent to yearend for $3.4 million with an initial weighted average return of more than 8%. Moving to our redevelopment platform, we ended the year with 13 signed leases and LOIs, which include six active projects and seven properties, which are currently included in our net leased portfolio.

All leased projects are continuing to advance through a development process. We expect substantially all of these projects will be completed over the next two years. And further we've invested approximately $1.7 million in a redevelopment projects to date and we expect to have rent commencement at several of these projects in late 2017 and 2018.

As these redevelopment problems become a bigger part of our portfolio, we will look to help you better understand our progress. To that end, we've added a new disclosure regarding our current pipeline of signed redevelopment projects in our latest Investor Presentation, which you can find on our website.

We remain committed to transforming certain sites in our portfolio and look forward to updating everyone as we make progress. Turning to dispositions and leasing, during the quarter, we sold four properties for $2.2 million in the aggregate and for the year, we sold 14 properties for $5.4 million.

We entered into eight leases for community gas properties during the year, which generated $300,000 of incremental rental income. As a result of our activity, we ended the year with 808 net leased properties, six active redevelopment sites in 15 vacant properties.

Our weighted average lease term is approximately 11 years and our overall occupancy is approximately 98.2% as compared to 97.3% at the start of the year. With that, I'll turn the call over to Danion..

Thank you, Mark. Turning to our results, as Chris mentioned, we had a great quarter and a great year.

For the fourth quarter, our total revenues from continuing operations and revenues from rental properties, which excludes tenant expense reimbursement and interest income were $29.7 million and $25.1 million respectively, which was consistent with the reported figures in the fourth quarter of 2015.

During the fourth quarter of 2016, our results were positively impacted by a reduction in environmental and G&A expenses, which both declined by $1 million quarter-over-quarter.

The decline in environmental expenses for the quarter was driven by decreases in legal and professional fees and a decline in G&A, which was primarily attributable to the increases in nonrecurring employee costs. Our reported FFO for the quarter was $17.9 million or $0.52 per share.

Our results for the fourth quarter of 2016 and 2015 also includes several notable items, which we highlight as they are not part of the core operations of our company. For the fourth quarter 2016, notable items were $0.02 per share. For the fourth quarter 2015, notable items were $0.32 per share.

For more information on notable items, please refer to last night's earning release. After removing these notable items for each period, our normalized FFO per share for the quarter increased 11% over the prior year's quarter. Our reported AFFO for the quarter was $14.9 million or $0.43 per share.

Our moving notable items from each period, our normalized AFFO per share for the quarter increased by 14% over the prior year's quarter. For the year, our total revenues and revenues from rental properties were $115.3 million and $97.9 million, which represents growth of 4.1 and 5.4 respectively over annual figures in 2015.

During 2016, our results were also positively impacted by reductions in property, environmental and G&A expenses. Results for the year end of 2015 and 2015 also included a benefit due to notable items of $0.05 and $0.54 per share respectively. Our reported FFO for the year ended 2016 was $64.2 million or $1.87 per share.

After taking notable items into account, our normalized FFO per share for the year ended 2016 increased 21% over our normalized FFO per share for the year ended 2015. Our reported AFFO for the year was $58 million or $1.69 per share.

After taking notable items into account, our normalized AFFO per share for the year ended 2016 increased by 18% over our normalized AFFO per share for the year ended 2015.

Now turning to the balance sheet and capital markets activity, we ended the year with $300 million of borrowings, $125 million on our credit agreement and $175 million of long-term fixed rate debt.

Subsequent to the end of the quarter, we issued $50 million of 4.75% fixed-rate eight-year term debt and repaid borrowing under our credit facility as we felt it was important to extend and continue to led our debt maturities and reduce our overall exposure to floating rate debt.

On a pro forma basis, including this newly issued debt, our weighted average borrowing cost is 5% and the weighted average maturity of our debt is approximately five years, with 75% of our debt being fixed rate. Our debt to total capitalization currently stands at approximately 23% and our net debt to EBITDA at year-end was 3.7 times.

In addition, we used our ATM program during the quarter and issued $12 million of equity at an average net selling price of $23.50 per share. Our environmental liability ended the year at $74.5 million, down $9.8 million for the year.

For the quarter ended December 31, 2016, company's environmental remediation spending was approximately $7.6 million and for the year, our environmental remediation spending was $17.6 million. Finally, we are introducing 2017 AFFO per share guidance at a range of $1.54 to $1.60 per share.

Our guidance does not assume any acquisition or capital markets activity although it does reflect our expectation that we will continue to execute on our redevelopment, leasing and disposition activity.

Specific factors, which impact our guidance this year include our expectation that we will temporarily forego rent when we recapture properties for redevelopment and a decrease in interest income associated with the early retirement of a mortgage note which was paid off in 2016, which combined contribute to $0.03 to $0.04 per share as expected lost earnings in 2017.

Also, additional interest expense related to our recently announced debt refinancing and dilution associated with our use of the ATM program since its inception are also expected to contribute to a combined $0.04 to $0.05 negative impact to our 2017 earnings relative to our 2016 results. With that, I'll turn the call back to Chris..

Thank you. That concludes our prepared remarks. So, let me ask the operator to open the call for questions..

[Operator instructions] We'll take our first question from Peter Lunenburg with JMP Securities..

Hey guys. Congrats on the year..

Thanks Peter..

I guess just for us just how should we think about the key drivers of guidance for 2017, just looking at the normalized result over the year gets us to about $1.64, I get the moving parts, but what really gets us to the low end here?.

Yes, it's really impacted primarily by the timing of when we choose to recapture properties for redevelopment. So as those properties move through the program entitlement and permitting etcetera, everything hits as planned as we recapture sooner in the year than later and that has a larger negative impact on the reduction over the course of 2017..

Right. Appreciate the new slides on that too by the way. Also, how should we think about what's left in that bucket? We see seven in various stages of the pipeline today..

Nothing has changed really in terms of what we think the overall program looks like, what we said is 5% to 10% of our portfolio by number of properties we think have potential for redevelopment.

What we provided in this in the investor deck this morning, is properties that are -- either have signed leases or signed LOIs and are far enough along what we feel pretty good about the progress and the timing and the amount of total investment.

So, I think what we hope to happen over time is we hope that slide becomes larger right and the number of projects we can publicly talk about will grow also in terms of the active projects and the pipeline project, but nothing has really changed in terms of our view of what the overall potential for the program is..

Great. Thanks. And final one for me just any color you can give us on pricing on the acquisition side. Do you guys think you'll still be most competitive on portfolios or anything out in the market that you're looking at today, thanks..

Yes, we're really focused on both what I'll call individual acquisition and portfolio deals. I think that pricing hasn’t moved a tremendous amount. Were still seeing that I think are in the high sixes to mid seven and where we certainly evaluate all transactions and put forth our best effort there.

But I think that it is competitive but there are opportunities that are in our pipeline, which we feel pretty good about..

Great. Thanks so much..

[Operator instructions] We'll take our next question from Gene Nusinzon with JPMorgan..

Good morning, guys. Just a few questions on guidance and growth.

How much do plan to spend on redevelopment?.

Say that again. You broke up a little bit..

How much do you plan to spend on redevelopment in '17?.

We haven’t put that figure out publicly. I think what you see is a total spend of $6.9 million. I think we'll expect to spend a great deal of that in 2017 in order to bring the projects on from the start to the end of 2017 and into '18..

Got it.

And then you're guiding new acquisitions, but just given where your cost of capital is, how much do you think you could queue given the current environment?.

We typically don't put out a range of acquisitions. Our acquisition volume over the last five to six years has been lumpy. We've done portfolio deals and then we've done one-off deals and when we're able to close on a portfolio deal, you'll see a spike in our total deal volume in terms of dollars spent.

What I'll say is that we have a pipeline of both individual opportunities, which you can see the values of $1 million to $3 million on the high side, per individual site, but the portfolio deals obviously would create a spike in that figure.

So, I think what we would like to say is looking at our last several years in terms of the recurring small volume and the spike with the larger type -- larger portfolio thank you, portfolio acquisition and we think we're going to be able to execute on some of those bulk types of opportunities during the year..

Got it.

But do you feel more, your competitive position now has become very stronger than I guess the last couple of years given high six and seven capital target?.

Yeah, I think a couple of things have helped us. Number one, we've kind of moved past the root positioning that we've got more resources dedicated to growth both in terms of development and acquisition.

I think internally as we increased the operating results and make some moves in the capital market side that's positioned us to be more competitive, Again, the pricing where we're seeing just today I think is pricing that works for us. So yes, this is the short answer to your questions. I think we've a more competitive situation this year..

Got it. Thank you. And on the properties coming offline, did you have or do you have an option to execute renewals on those, are those bonds been taking off-line or….

The seven sites in the pipeline which are still included in the net lease portfolio, those leases have recapture provision is this. So, this is being done at our option where we think we can opportunistically invest in those properties and make an outsized return..

And the 10-plus yield that you've got in the Investor presentation, is that on top of the existing yield what those properties are generating?.

That's incremental yield, that's correct..

And just on growth, the racetrack that you got in 4Q, what was that?.

We bought two racetrack sites in the Houston Metro Area. I think that 11 years left on the leases and about a seven cap..

Got it. Thanks. And looking ahead with the repositioning of some of your assets, what other asset classes do you think could be added to the portfolio aside from just gas stations and convenience stores..

Yeah, I think our sites ran themselves to a standalone small retail shops fixed restaurant, bank branches or financial services really on three quarters to an acre of land, there are a number of different retail formats that can sit on there.

So, we're looking at opportunities to redevelop or really going into it with locations driving what type of retailers are interested in being there..

Got it. Thank you. That's it for me..

[Operator instructions] We'll take our next question from Peter Lunenburg with JMP Securities..

Hey guys. This is Mitch here. I was curious you've been talking about being a little more competitive in the acquisition markets. Is that a function of just having less capital for may be larger deals, non-traded REIT capital also dried up a bit.

Are you seeing any changes in the bidding pool?.

I think it's still pretty competitive. When we're looking at acquisitions in addition to the REIT, you're seeing MLPs, you're seeing some large corporates that are out there.

I think the absence in certain cases of the nontraded REITs have certainly helped pricing and makes us more competitive, but there's still other competitors out there that have fairly attractive cost of capital..

Got you and last for me, in terms of just the tenants, any concerns on the credit side?.

It's a relatively good time to be in an operator in our business. I think right now you've got fairly strong consumer data coming out. So, the sites are still, volume is still holding steady. In store visits are still holding steady and when you look at four wall coverage for our tenants and that really hasn't changed.

So, we think it's a pretty good time to be in the sector and we haven’t seen any major moves there..

Thank you..

You're welcome..

And we have no further questions in queue at this time. I would now like to turn the conference back over to Mr. Constant for any additional or closing remarks..

Thank you all for joining us for our fourth quarter call. We look forward to reporting our results for the end of the first quarter of 2017 and thank you for your interest in the company..

This does conclude today's conference call. Thank you all for your participation and you may now disconnect..