Joshua Dicker - Executive Vice President, General Counsel and Secretary Christopher Constant - Chief Executive Officer Mark Olear - Chief Operating Officer Danion Fielding - Chief Financial Officer.

Mitch Germain - JMP Securities Anthony Paolone - JPMorgan John Deysher - Pinnacle Research.

Good day, everyone. And welcome to the Getty Realty's Earnings Conference Call for the Fourth Quarter and Year End 2017. This call is being recorded.

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 our non-GAAP financial measures. Please go ahead, Mr. Dicker..

Thank you, Operator. I would like to thank you all for joining us for Getty Realty's fourth quarter and year-end earnings conference call. This afternoon, the Company released its financial results for the quarter and year ended December 31, 2017.

The Form 8-K and earnings release are available in the Investor Relations section of our Web site 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 2018 guidance and they 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, subsequent quarterly reports filed on Form 10-Q and other filings made with the SEC for a more detailed discussion of 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 definition of AFFO, which was revised at the end of the quarter and year 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. Welcome to our call for the fourth quarter and year-end 2017. With Josh and me on the call today are Mark Olear, our Chief Operating Officer, and Danion Fielding, our Chief Financial Officer.

I will begin today's call by providing an overview of our fourth quarter and year-end 2017 performance, touch on our 2018 strategic objectives, and then we'll pass the call to Mark to discuss our portfolio in more detail, and then Danion will discuss our financial results.

Our results of business activities in the fourth quarter capped off what was a strong year all around for the company in 2017.

We are pleased that our portfolio of properties and roaster of tenants grew significantly during the year and more importantly, we are encouraged that the fundamentals of the convenience and gasoline station sector remain among the healthiest in the entire retail landscape.

As we closed out 2017 and look ahead to 2018, we remain focused on creating shareholder value by executing on each of our stated growth initiatives including, utilizing organic growth from our operating assets, enhancing our portfolio to accretive acquisitions and unlocking embedded value to our selected redevelopment, all of which we believe we demonstrated throughout 2017.

Turning to our results for the quarter. We gain produced growth in net earnings FFO and AFFO for the quarter as compared to the same period for the prior year.

On a per share basis, which takes into accounts our capital raising activities during 2017, our quarterly AFFO per share was $0.43, which was $0.01 per share ahead of our performance for the prior year's quarter.

And for the year end 2017, we reported AFFO per share of $1.66, which exceeded the high end of our revised 2017 guidance range of $1.64 per share. The strength with our quarter and year stems from our success in executing on growth both in terms of acquisitions and redevelopment.

On the acquisitions front, we invested $214 million to acquire 103 properties during the quarter in a combination of portfolio of individual transactions. With respect to redevelopment, rent commenced on two redevelopments during 2017, including a new-to-industry convenience and gas location, which we delivered in the fourth quarter.

In addition to our recently completed transactions, we have a pipeline of acquisition opportunities and a growing number of redevelopment projects, which are expected to come online in 2018 and beyond.

Utilizing the financial flexibility that we work hard to create we were able to finance our growth in 2017 with a combination of debt and equity, including a long term fixed rate debt private placement and measured use of our ATM program.

We placed a premium on being conservatively leveraged and are committed to maintaining a well lateral flexible capital structure as we look to grow the company.

Looking ahead, we remain focused on our two pronged growth platform, consisting of a combination of stable growth supported by asset management activities in our core net lease portfolio, expanding our portfolio for acquisitions in the convenience, gas and auto related sectors and selective redevelopment projects.

We are confident that we will be able to continue to successfully execute on our strategy throughout 2018. We will remain diligent in our underwriting standard as we look forward.

As such, we will continue to be focused on acquiring high quality real estate and partnering with tenants we share our commitments to the growth and evolution of the convenience and gas sector. But these are critical components to driving additional shareholders value as we move through 2018 and beyond.

With that, I will turn the call over to Mark Olear to discuss our portfolio of investment activities..

Thank you, Chris. In terms of our investment activities, we had a very productive year as we added high quality assets to the portfolio both including those with gas and convenience uses, as well as properties with potential for alternative use.

Substantially, all the properties acquired have full service fee stores and competitive gas operation and many had either in line or standalone QSR offerings, which add to site’s earnings potential. During 2017, Getty's pipeline of potential transaction increased significantly.

For the year, we underwrote more than $1.3 billion opportunities, which meet our initial screening process. The result of which was the acquisition of 103 properties for the year ended 2017. Our total acquisition volume was approximately $214 million. Our weighted average return exceeded 7.3% and the weighted average initial lease term was 14.4 years.

To review a few highlights of our investment activities, for the year, we added six new high quality tenants to the portfolio, including Applegreen, Circle K, Empire Petroleum, and Jiffy Lube among others further advancing our goal of diversifying our rental income by addition of tenants with strong operations and financial quality.

We also added several new geographic areas to our portfolio, chiefly our expansion into both the south eastern and south western United States. We are now representing 28 states. Moreover, post our 2017 investment activity, we now have 62% of our rental income coming from the top 25 national MSAs.

While the acquisition market continues to be competitive in the convenience and gas sector, we remain disciplined in our underwriting criteria. Our pipeline of actionable opportunities remained strong and we are in the process of reviewing and pursuing several additional acquisition opportunities for both single assets and portfolios.

Moving to our redevelopment platform. We delivered our third redevelopment project during the quarter. In December, rent commenced for a new industry convenience and gas location leased to [indiscernible] and Central Pennsylvania.

Our total investment in the project was $392,000 and we will generate a return on this investment of more than 20% on an incremental basis.

In terms of redevelopment projects, we ended the quarter with 13 signed leases and LOIs, which includes nine active projects and four additional projects on properties which are currently included in our net lease portfolio. All these projects are continuing to advance through the redevelopment process.

We expect substantially all of these projects will be complete over the next one to three years. In total, we’ve invested approximately $1.1 million in the 13 redevelopment projects in our pipeline, and we expect to have rent commencements at several sites during 2018.

On the capital spending side, we estimate that these 13 projects will require total investment by Getty of $10.5 million and will generate incremental returns in company in excess of where we could invest these funds in the acquisition market today.

For more detailed information on the redevelopment pipeline, please refer to page 14 of our investor presentation, which can be found on our Web site. We remain committed to transforming selective sites in our portfolio and look forward to updating everyone as we make progress.

As a result of all of our activity, we ended the year with 890 net lease properties, nine active redevelopment sites and eight vacant properties. Our weighted average lease term is approximately 11 years and our overall occupancy, excluding our nine active redevelopment, remain constant at 99.1%. With that, I turn the call over to Danion..

one, the full year impact of earnings from the Empire and Applegreen transaction; two, our expectation that we will forego rent when we recapture properties for redevelopment; three, our expectation that our cost of borrowings will increase in 2018; and four, the full year impact of the dilution associated with the Company's 2017 capital raising activities.

With that, I will turn the call back over to Chris..

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

Thank you [Operator Instructions]. We'll go first to Mitch Germain from JMP Securities. Your line is open..

So I recognized your weighted average maturity just over three years, your lease term 11. Is there a comfort level that is, do you want to push it out a little more.

How do you think about matching the two a little more closely?.

We're certainly mindful of our maturity schedule and the percentage of debt that's floating versus fixed. The floating percentage is elevated this quarter, because the closing of the Applegreen inside of the quarter.

I think as we look forward, we're certainly evaluating additional balance sheet transactions to reduce our exposure to rates and also extend our debt maturities to more closely align with where our leases are maturing..

So should we be assuming some private notes offering in the year? Is that contemplated in guidance or....

It's not contemplated in the guidance. I'd say right now, we're evaluating a few different alternatives for more long term capital. So I think that -- get into this one on the call. .

And then how do you view liquidity? And I say that with regards to your -- what's available today and then factoring in where the pipeline stands.

It seems like activity is picking up a bit there?.

We certainly believe, sitting here today, we have access the capital that we need to achieve our growth plans, both in terms of rate and additional debt and/or equity and potentially utilizing our ATM program further. On the debt side, we maintained sub-4 times debt-to-EBITDA level on a pro forma basis.

The Applegreen and Empire at year-end, we said publicly that we can operate at a higher leverage level of about 4.5 to 5.5 times. With that said, Getty has always been conservative from a leverage standpoint. And I don't think that we were planned to deviate from that philosophy.

On the ATM side, we plan to continue to use the program where we have opportunities to issue our prices, which we find attractive and where there are immediate usage for that capital in terms of growth either from the acquisitions pipeline or from the redevelopment portfolio.

And we do believe that as we look into 2018, we believe we can execute that into some of our projects -- completing during the year..

And then you guys -- it sounds like based upon Mark’s comments, you guys had about 15% capture rate on your acquisitions that you underwrote throughout the year.

I'm curious if that is a percentage that is consistent with history or has the competitive environment gotten a bit more challenging?.

It's really hard to say that there is a particular number that 15% or plus or minus in various other years. And our portfolio acquisitions generally stem from industry M&A where we're partnering with an operator who's acquiring and operating business.

So the level of transactions that we have historically reviewed has moved from year-to-year and obviously transactions are competitive and historically been competitive. So the rate of actually closing on industry M&A has been higher in certain years and we think quite frankly lower in others, just given the lumpiness of the M&A in the industry.

But I would add to the comment that was a little apart from your question as I do think that as a company, our growth in the industry has been recognizing that we are seeing more opportunities. We continue to be very selective and have a real focus on certain markets and acquiring certain types of real estate.

So has nothing changed from underwriting perspective, but I do think we are seeing more activity, which we're excited about..

And are you seeing these larger, I guess those MLPs and some private equity? Are you seeing a lot of these deals still in pipeline?.

Considering out of the markets, some of that's across the capital team. I think that the MLP market has comeback a little bit and their cost of capital is maybe less competitive than others. There is certainly private equity and private real estate funds that are very active in the sector that we see quite often.

And we continue to see other REITs or public and private REITs that like the sector and are often looking at similar assets through the ones that we're trying to acquire..

[Operator Instructions] We'll go next to Anthony Paolone from JPMorgan. Your line is open..

Just following up on some of the discussion with Mitch. Can you talk about cap rates and what you're seeing out there? And I think you mentioned over $1 billion of stuff that you've looked over the course of 2017.

So can you talk also a little bit more about just the range of things that you looked at and what that buy box looks like?.

Let's start with that piece of the question first, Tony. That figure of 1.3 that Mark quoted includes everything from single tenant lease acquisitions where we're looking at acquiring existing triple-net lease for assets that met our initial real estate screening. So obviously, there is a ton of one-off net lease activity in the market.

But it has to lead our initial screening in order to get to more extreme in terms of underwriting. All the way up to some of the larger M&A deals in the sector where we looked at it. The Empire deal was north of $100 million, so that certainly qualifies as a larger portfolio transaction.

But other similar transactions in terms of size to the Empire deal, we certainly looked at. So there’s quite a broad range of different types of transactions with these acquisition as well as M&A and sale leaseback opportunities that we're trying to generate during the year..

In terms of cap rates, what I would say is we continue to see a significant amount of capital looking at deals on our asset class coming from all types of either institutional buyers and/or the 10/31 markets. I think the cap rates continue to be aggressive.

And while there’s certainly been a recent spike in rates and you would expect to see cap rates moving along with that. I think there is certainly a lag in the market as we've not seen cap rates slide up to meet that increase in borrowing cost..

What would be the range for….

The market for credit transactions has been in the mid-to-high 6s, so call it 6.75 up through 7.75. The range I’ve quoted in the past and I really don't think you’ve seen a tremendous amount of movement across that yet.

I mean obviously I’d expect there to be some at some point, but I do think given the size of the assets, the strength of the 10/31 market, I think you’ll see maybe more of a delay than you would otherwise expect..

And has your acquisition criteria been solely focused on C-stores with fuel or gas stations or have you widened it out a bit, anything else?.

Well, we typically lead with convenience and gas, that’s the backbone of the company, that’s the history of the company. We certainly widened it to look at more auto-related themes.

We’ve looked at and acquired during the year, some other auto-related sites such as the Jiffy Lube which Mark talked about, the Applegreen deal included five standalone Burger King restaurants, so those are now six properties that are in the portfolio.

So we certainly cast a little bit of wider net, the carwash sector is one that we've been studying and that we’re somewhat familiar with given that a lot of our CNG locations have carwashes on them. So we're certainly casting a bit of wider net, but still being at the core of the convenience and gas stations..

And then last question.

Did you actually give, I mean I missed it, when you're talking about the debt and duration in that discussion, a target net debt-to-EBITDA for the company over time?.

We said we’re comfortable operating in the 4.5 to 5.5 range. We were just under four on a fully pro forma basis at year-end. So I think there's a lot of room to run on the leverage, but the company has always been conservative and I don't think that's something that we anticipate changing..

And next we’ll go to John Deysher from Pinnacle..

I just have a quick on the income statement.

The other income number was up substantially and I was just curious what exactly is embedded in that number?.

That’s a great question. The other income number this year for the year was $8.5 million, a lot of that was money that we took in from either insurance reimbursements or legal settlements and judgments.

If you look at the last page in our earnings release where there’s a reconciliation of net earnings to AFFO, you can see the big swing, biggest of which was $6.381 million from legal settlements and judgments and that’s the geography on the income statement..

So that’s probably not going to stay at those elevated rates going forward?.

Those are income streams that are due to individual cases or individual matters that are hard to predict the timing of and quite frankly those which are one-off in nature and that we don't expect to recur with any frequency or predictability..

And we have no further questions. So at this time, I'd like to turn the call back to Mr. Constant for any further remarks..

Thank you all for joining us for our year-end conference call for the year 2017. We look forward to a productive 2018 and look forward to speaking to everyone again when we our first quarter in May..

And that does conclude our call for today. Thank you for your participation. You may now disconnect..