Good morning everyone, and welcome to the Getty Realty’s Earning Conference Call for the Fourth Quarter and Year-End 2018. 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. I would like to thank you all for joining us for Getty Realty’s fourth quarter and year-end earnings conference call. Yesterday afternoon, the company released its financial results for the quarter and year-ended December 31, 2018.

Form 8-K and earnings release are available on the Investor Relations section of our website at gettyrealty.com. Certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements.

These statements are based on management’s current expectations and beliefs and are subject to trends, events and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

Examples of forward-looking statements include our 2019 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, 2017, subsequent quarterly reports filed on Form 10-Q and 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 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 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. Good morning, everyone, and welcome to our call for the fourth quarter and year-ended 2018. 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 2018 performance, touch on our 2019 strategic objectives and then will pass the call to Mark to discuss our portfolio in more detail, and then Danion will discuss our financial results.

Our fourth quarter 2018 results and business activities concluded another strong year for Getty.

During the quarter, our portfolio continued to display the strength and stability that we expect from our long-term triple net leases and just as important, we continue to execute on our growth strategies with the acquisition of two properties and the conclusion of three redevelopment projects.

As we close out 2018, and look ahead to 2019, we continue to benefit from the overall health of the convenience and gas sector, and we remain focused on creating shareholder value by executing on each of our stated growth initiatives, including realizing internal growth from our operating assets, enhancing our portfolio to accretive acquisitions and unlocking embedded value through selective redevelopments, all of which we further demonstrated throughout 2018.

Turning to our results for the quarter, we continue to grow our revenue, 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 account our capital raising activities during 2018, our quarterly AFFO per share was $0.43, and for the year-ended 2018 we reported AFFO per share of $1.71, which was 3% higher than our results for the prior year and which doubled on our revised guidance.

As I mentioned earlier, we continued to underwrite and acquire new properties during the quarter. For the year, our total investment was approximately 87 million. We acquired 41 high quality convenience and gas and other automotive locations during the year. This demonstrates our proactive yet disciplined underwriting approaching to grow our portfolio.

Over the past two years, we have acquired 144 properties for investments for approximately 300 million. Of note, we completed three portfolio transactions over this time and established relationships with new high-quality growth-oriented tax. Relationships such as these are one of the keys to our ongoing ability to source accretive growth opportunity.

As an example, subsequent to our initial transaction with Applegreen, in 2017, we partnered with them to acquire another portfolio in 2018. In addition, rent commenced on six redevelopments during 2018. These projects included new to industry convenience and gas, automotive retail, financial services, food services, urgent care uses.

This brings our total completed redevelopment to 9 since commencing this program. We also maintain an attractive pipeline of both acquisition and redevelopment projects, which are scheduled to come on line in 2019 and beyond.

Utilizing the financial flexibility that we have worked hard to create, we were able to finance our growth in 2018 with a combination of debt and equity, including a 10-year unsecured 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-added flexible capital structure as we look to grow the [company].

Looking ahead, we remain committed to an active approach to managing our portfolio of net-leased assets, expanding our portfolio through acquisitions in the convenient gas and auto-related sectors, and selective redevelopment projects.

We are confident that we will be able to continue to successfully execute on our strategic objectives throughout 2019. We will continue to be focused on acquiring high quality real estate and partnering with tenants who share a commitment to the growth and evolution of the convenience and gas and other automotive related sectors.

This approach and focus on these critical components should result in driving additional shareholder value as we move through 2019 and beyond. With that, I will turn the call over to Mark Olear to discuss our portfolio and investment activities..

Thank you, Chris. In terms of our investment activities, we had a productive year, where we were able to both add high quality convenience and gas and other auto-related assets to the portfolio, as well as move redevelopment projects back into our net lease portfolio of following right commencement.

During 2018, Getty’s pipeline of potential transaction remains consistent with prior years’ experience. For the year, we underwrote approximately 1 billion of opportunities, which met our initial screening process. The result of which was the acquisition of 41 properties for $78 million.

The weighted average return exceeded 7.25%, and the weighted average initial lease term was 14.1 years. To review a few highlights of our investment activities, for the fourth quarter we acquired two convenience and gas locations for $3.2 million with an average initial return of more than 7.2%.

For the year, we further advanced our goal of diversifying our revenue by expanding our relationships with three tenants, Applegreen, Circle K, and GPM Investments. We displayed high quality operations and strong credit quality.

We also expanded the company’s presence in the Southern U.S., primarily through our portfolio transaction with GPM, which had one-third of the site in the Dallas-Fort Worth MSA, and for our second transaction with Applegreen, where all of these sites are located in the Columbia South Carolina metropolitan market.

The net result is that we are now represented in 30 states, plus Washington DC, and 60% of our annualized based rent comes from the top 25 national MSA. Overall, the pipeline of opportunities, we are underwriting for convenience and gas and other automotive use sites remains robust.

Moving to our redevelopment platform, for the year, we invested approximately 9 million in both our completed projects and sites, which are in progress.

As Chris mentioned, in the fourth quarter, we returned three re-development projects back to the net lease portfolio bringing our total for rent-commenced projects to 6 in 2018 and 9 since the inception of this initiative. Specifically, in November, rent commenced rate build-to-suit urgent care location leased to ConvenientMD in Massachusetts.

Our total investment in the project was $2.1 million and we expect to generate a return on investment of more than 10%. In December, we funded, we raised and re-builded a convenience and gas site with our global partners on Long Island, New York.

In this project, our total investment was 3.1 million and we expect to generate a return on our investment of 7.5%. Finally, in December rent commenced on a project where we ground leased a site to a regional developer for a food service use.

In this project, we invested $0.3 million and we expect to generate a return on our investment of more than 20%. In terms of redevelopment projects, we ended the quarter with 13 signed leases.

Of these redevelopment projects, 6 are on properties, not currently included in our net lease portfolio, and 7 are on properties, which are included in our net lease portfolio. All of these projects are continued to advance through the re-development process, we expect substantially all these projects will be completed over the next 1 to 3 years.

In total, we have invested approximately $2.1 million in these 13 re-development projects in our pipeline and we expect to have rent commencements at several sites during 2019.

On the capital spending side, we estimate that these 13 projects will require a total investment by Getty of $8.2 million and will generate incremental returns to the company in excess of where we can invest these funds in the acquisition markets today.

For more detail information of the re-development pipeline, please refer to Page 14 of our investor presentation, which is found on our website. We remain committed to transforming selective sites in our portfolio and look forward to updating everyone as we make progress.

Turning to dispositions, we sold 10 properties during 2018 realizing proceeds of approximately $7.2 million. The properties sold were vacant or returned to us by our tenants for the terms of their lease agreements. We expect the net financial impact of these dispositions will be minimal.

As we look ahead, we continue to selectively dispose properties where we have made the determination that the properties aren't competitive as a gas convenience location and does not have re-development potential.

As a result of all of our activity, we ended the year with 918 net lease properties, 6 active re-development sites, and 9 vacant properties. Our weighted average lease term is approximately 10 years and our overall occupancy, excluding active redevelopments remains constant at 99%. With that, I turn the call over to Danion..

One, our expectation that we forego rent when we recapture properties for redevelopment. Two, our expectation that our cost of borrowings will increase in 2019. Three, the full-year impact of the dilution associated with the company's 2018 capital raising activities.

And four, our expectation that we will remain active in pursuing acquisition and redevelopments, which could result in additional expenses for deals ultimately not completed. With that, I will turn the call back to Chris..

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 Craig Mailman with KeyBanc Capital Markets. Please go ahead, sir..

Hi guys. Good morning..

Good morning..

Dan, anything else in guidance, any other big variances as we look year-to-year? Do you guys have any impact from the new lease accounting impact on G&A at all, year-over-year?.

Craig, we're not expecting in our guidance a big impact on that at the moment..

Okay. And then just bigger picture. I know acquisitions are a little bit more volatile for you guys. You guys are north of $200 million in 2017 and about $80 million in 2018.

Just – as you guys look at what's in the pipeline, the competitiveness of the market, I mean, do you think that 2019 could be more like 2018 or 2017 in terms of volume?.

Well, I think if you look at our track record of portfolio acquisitions and one-off acquisitions, we think we've been successful in executing both portfolio and one-off deals. Really, it's a matter of two factors, which is, a lot of our activities being driven by industry M&A and consolidation, and we expect that trend to continue.

And secondly, we have an underwriting-criteria which replaces an emphasis on being in certain markets and where those sites are located within those markets. And any transaction that we ultimately pursue has to fit its way into our underwriting model for us to move forward with it.

So, those are two things that I think will impact any deal that we looked at sort of this year and beyond..

Maybe another way to ask it.

The investment pipeline today, how does that look relative to maybe the beginning of last year?.

Yes, I think it's consistent. We disclosed a year ago this time that we underwrote $1.3 billion last year and last year, we underwrote $1 billion, so a slight difference. But the volume of opportunities that we continue to see, which make it through our initial screen is fairly consistent..

And what are you guys seeing on the competitive side, and how is that impacting yields that you're able to get in the market on acquisitions?.

Well, I think there's no doubt that there is definitely competition from other REITs and from other institutional real estate investors for convenience and gas assets. This sector is quite healthy and it is consolidated. We are seeing a lot more activity there.

In general, our view is that pricing has been pretty disciplined across the – especially, the public REIT market for our type of assets. So, I don't really think it impacts pricing on our side. I do think it does make the sector a little more crowded just from the number of people looking at every deal..

Great. Thank you..

Welcome..

[Operator Instructions] We'll take our next question from Mitch Germain with JMP Securities..

I just wanted to follow up on Craig's question regarding the deal pipeline. I mean, more or less what deals you saw. 2017, I think you said 1.3 or so.

Last year, one; closed on a smaller amount in 2018, did you guys make any sort of shift in your underwriting just to account for the rate environment or the – where we sit in the cycle? Was there any kind of shift that you guys made personally that might have caused a smaller amount of acquisition activity?.

No, our model has been pretty consistent in terms of the way we value the real estate, the way we price transactions internally. I think, really, it's the acquisition, so certain transactions closed and certain transactions that we really liked didn't close for various reasons.

And that's really the thing that I would point to in terms of the delta between 2017 and 2018. We think, we've been pretty consistent in terms of generating new activity in terms of our underwriting model and our internal processing. We think we can continue to do that.

Looking ahead, the volume of opportunities will be fairly consistent from where it was in 2017 and 2018..

Got you. And then any new players emerged? I mean, obviously, you've got some big retail focus funds or – I don't even know if we want to call them non-traded REITs again. But that's sort of a product is certainly reemerging again.

Is that – is the competitive environment changed in any way, shape or form?.

Look, similar to my answer to Craig's question, the convenience and gas sector has definitely become more mainstream in terms of the retail, real estate landscape side. The competition, I think has been increasing over the last three to five years.

And we decide where it is and we've been able to execute with more competition over the last several years..

Did the tax reform made any shift to house some of the private owners are approaching some of the generational issues in terms of state planning and what not?.

I think if you look at some of the industry data that's out there, there is an immense amount of real estate that's owned by these companies or by families who have built up their businesses over time.

And a lot of the M&A activity or what we generally refer to as industry M&A activity is driven by succession or state planning and really, a family or small private business that's reached the end of their risk tolerance to continue to grow their business on their own balance sheet.

And there are large acquirers out there, many of which we've partnered with, for seizing that opportunity to grow their business and expand, either within their region or nationally as a result of a family that's sort of looking to monetize or transition out of the business..

Thank you..

Welcome..

We'll take our next question from John Massocca with Ladenburg Thalmann Financial Services..

Good morning..

Hi, John..

So, what drove sort of kind of the decline in properties leased from third-party landlords? It came down by about three. If I think about the owned ones, it kind of makes sense based on what you bought when you sold.

But was that movement, maybe some landlords taking those properties back or maybe transfer of those into you guys having full ownership of them?.

Sure. So, I'll answer the question in a few different ways, right? So, there are certain leased properties, right, that we have acquired over time, where we want to eventually own the real estate and we're able to come to an agreement with our landlords.

The flip side to that is, there is a number of leases where we're coming to the end of our term and either, we were not able to buy the property or we chose not to renew the lease for economic reasons and we let the lease expire. That's really – those are the two moving pieces with the lease portfolio..

How many of those lease properties are coming to that kind of decision in the next, maybe one to two years?.

Yes. The schedule is in the 10-K. We'll need to pull it up here. Sorry..

No, if [it isn't there], I can….

We have 74 leases. There are seven, which we expect to – which come up for expiration in 2019..

Okay..

It's a steady stream of properties for you there, but the initial term is coming due, and why they want to buy the property, in certain cases, we'll look to extend the lease, if we have a long-term tenant up there and in other cases, we'll exit the leases..

Okay. And then maybe switching to the acquisition front again. There has been a lot of talk of operator transaction activity up in Canada.

Is that a place where you guys feel you can invest and will be willing to invest?.

We've looked at Canada a little bit over the years. I think our focus really is on the U.S., and we think there is ample opportunity for us to continue to do acquisitions within the 50 states..

And then, one kind of clarifying point on guidance.

Is it correct in kind of the way you were describing it that you're assuming costs of pursuing the transactions this year, but no NOI from closing any transactions?.

So, the reference that Danion made to those costs, that's really a cost that we expect to incur with respect to the developments, right? And certain costs that are expensed as part of our development projects and then certain deal-related costs, again, for development. We have not traditionally included acquisitions as part of our guidance.

Obviously, to the extent we are successful throughout the year, we'll update the guidance and that will reflect any additional costs coming from those acquisitions..

That makes sense. That's it from me. Thank you very much..

Thank you..

At this time, I'd like to turn the call back over to our management for any additional or closing remarks..

Great. Well, thank you all for attending the call and for your interest in Getty. And we look forward to our first quarter conference call for 2019..

This concludes our conference call. You may now disconnect at this time..