Greetings, and welcome to Getty Realty Third Quarter Results Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to your host, Mr.

Joshua Dicker, Executive Vice President, General Counsel. Please go ahead, sir..

Thank you, operator. I would like to thank you all for joining us for Getty Realty's third quarter conference call. Yesterday afternoon the company released its financial results for the quarter ended September 30, 2019. The Form 8-K and our 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 the 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 2018, as well as our periodic reports filed 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 third quarter of 2019. With Josh and me on the call today, are Mark Olear, our Chief Operating Officer and Danion Fielding, our Chief Financial Officer.

Let me begin today’s call by providing an overview of our third quarter 2019 performance, investments and balance sheet activities and our strategic objectives for the remainder of the year. And then I’ll pass the call to Mark to discuss our portfolio in more detail and finally, Danion will discuss our financial results.

Our results for the quarter were strong, and once again in line with our expectations.

During the quarter, our net leased portfolio displays the ongoing strength and stability that we have consistently demonstrated from our long-term triple net leases, and we continue to selectively add properties to our portfolio and invest in properties in our redevelopment pipeline.

Our total revenue for the third quarter was 36.4 million, which represents 5% growth over the prior year's quarter and our rental income, which excludes GAAP revenue recognition adjustments and tenant reimbursements grew by 3.8% and 13.2 million for the quarter.

Primarily due to intimacy from properties acquired our contract for rent increases and the completion of several of our redevelopment project. For the third quarter reported net income of 11.9 million, FFO of 19.1 million, and AFFO of 18.1 million, all of which represent growth over the prior year's quarter.

The continued growth in an AFFO, which we believe best demonstrates the performance of our core business, reflected not only the increases in revenue and rental income I mentioned a moment ago, but it's also attributable to our ability to maintain an efficient operating cost structure.

On a per share basis, our AFFO was $0.43 cents, which was in line with our expectations for the quarter. We had another active quarter in terms of our growth strategy, as we execute on both our acquisition and redevelopment platform.

During the quarter, we acquired five properties for 13.6 million and we have also had an active start to acquire new sites in the fourth quarter.

As Mark will discuss in more detail these acquisitions we both convenience and gas sites as well as other automotive properties, and are all strong assets which align with our stated goals of acquiring high quality, well located properties in the convenience and gas sector, as well as expanding our investment criteria to include the various segments of what we call the other automotive sector.

While the volume and timing of acquisition activity can vary from quarter-to-quarter, I am very pleased with the volumes we are currently sourcing and underwriting. We are seeing a number of portfolio and smaller transactions and convenience gas and other automotive related sectors.

Overall, the types of opportunities and the quality of the assets we're underwriting within our sectors remain in line with the types of transactions we have completed over the past several years. We also continue to gain momentum and sourcing underwriting high quality opportunities within the automotive sector.

As we had continuously demonstrated, we will be disciplined when reviewing opportunities and are focused on acquiring high quality real estate and either dense in established metropolitan areas or high growth markets. As we believe a portfolio of well-located properties will drive additional long-term shareholder value.

In addition to the external growth we pursue with acquisitions, we have distinct opportunities to unlock additional value within our existing portfolio as we execute on a redevelopment program. During the third quarter, we completed two redevelopment projects bringing our total of complete a redevelopment to 12 since the inception of the strategy.

In addition, we signed leases or letters of intent on three new projects during the quarter which brings our current pipeline of products to 14. We also continue to take steps to strengthen our balance sheet. As we announced in September, the company issued 125 million, a 3.5% 10-year notes in a debt private placement with three insurance companies.

We'll use the proceeds of the note insurance pay-off all of our floating rate debt and extend our weighted average debt maturity to more than six years. The issuance marks a significant milestone for Getty as this is the first time in the company's history that all of our deadness has been completely at fixed rate.

We're also very pleased that we have 300 million of debt capacity available to us through our revolving credit facility to draw upon to fund our future growth. In addition, we partially funded our growth during the quarter and year-to-date with proceeds raised by our aftermarket equity program.

Looking ahead, capital market conditions remain favorable for our company and we will look to continue to fund the company's growth with long-term and permanent capital. We plan to maintain our conservative balance sheet and are committed to having a well ladder flexible capital structure.

Turning to our dividend, as we announced yesterday, our Board approved a 5.7% increase in our recurring quarterly cash dividend from $0.35 per share to $0.37 per share. Our Board believes this annual increase as appropriate as it maintains a stable payout ratio and is tied to the company's growth over the prior year.

Finally, we are excited about our accomplishments year-to-date and confident in our outlook for the remainder of the year. We continue to benefit from the health and the growth of the convenience store industry.

Stable [ph] cash flows received from our net lease portfolio and our conservative balance sheet, which provides us both stability and flexibility.

We remain focused on our three-pronged strategy consisting of, stable growth supported by asset management activities and our lease [ph] portfolio, expanding our portfolios through acquisitions in the convenience, gas and auto related sectors and selected redevelopment projects.

We are confident that we'll be able to continue to successfully execute in our strategic objectives throughout the remainder of 2019 and beyond. With that, I will turn the call over to Mark Olear to discuss our portfolio and investment activities..

Thank you, Chris. I will start by reviewing our investment activities and provide additional detail on our redevelopment projects and our portfolio in general. During the quarter, we acquired five properties with 13.6 million.

As we mentioned on our last call, one of the properties which was acquired for 4.1 million, is a newly constructed car wash facility in khaki, such as subject to a 15 year triple net lease with Zips Car Wash and one site which was acquired for 4.6 million is a newly constructed Collision Center in the Minneapolis St.

Paul MSA [ph] subject to a 15 year triple net lease with Caliber Collision. We also acquired three additional properties during the quarter for 4.9 million in the aggregate. Two of these properties are convenience and gas location located in Georgia and New York, which released the Circle K and Global Partners respectively.

The final site which is in Georgia is team Car Care Jiffy Lube franchising. In aggregate, we expect to generate full year rent of approximately 1 million from the properties choir during the quarter. Additionally, after the quarter-ended, we closed on the acquisition of two additional properties for 6.2 million.

Both sites are car wash facility facilities located in Arkansas and North Carolina, and are subject to 15-year triple net lease with Zips Car Wash. Turning to our redevelopment program. During the quarter, rent commenced on two projects.

The first was a triple net ground lease for a new to industry convenience and gas site with Big Y, one of the largest independently owned supermarket chains in New England. In this project, our total investment was approximately 100,000 and we achieved an incremental return, our investment of 29%.

Our second rent commenced this quarter was on a project where we ground leased these sites where regional developer for automotive use. In this project, we invested 384,000 and achieved an incremental return on investment of 29%.

To-date, our redevelopment program has completed 12 projects representing a total investment by Getty is 10.4 million, which we have generated in aggregate incremental return on investment of 15%.

In addition, during the quarter, we signed leases or letters of intent on three new projects where we plan to redevelop these properties for alternative retail or mixed uses.

In total, we ended the quarter with 14 signed leases, or letters of intent, which includes six active projects and eight projects on properties which are either vacant or currently subject to triple net leases, but which will be recaptured from the currently leases when we receive various approvals required to commence our construction.

Our pipeline includes a wide range of retail uses such as enhanced convenience stores and gas station, specialty retail such as automotive parts and service, quick serve and fast casual restaurant. All of our projects are continuing to advance through the redevelopment process.

We expect substantially all these projects will be completed over the next one to three years with several additional projects moving to run commencement before year and 2019.

To-date, we have invested approximately 13.3 million in both completed and in progress redevelopment projects with 400,000 occurring here in the third quarter of 2019 and we anticipate the total investment for completion for the 14 projects currently in progress will be approximately 11.4 million.

Investment in these redevelopment projects will generate incremental returns to the company in excess of what we could expect if we invested these funds in the acquisition market today. For more detailed information on Getty's redevelopment projects, please refer to page 14 of our investor presentation, which can be found on our website.

We remain committed to optimizing our portfolio and continue to anticipate redevelopment opportunities over the next five years, possibly involving because between 5% and 10% of our current portfolio with targeting unlevered redevelopment program yields at greater than 10%.

Finally, there are no property dispositions during the quarter, but we did exit one property which we've previously leased from its third-party landlord. As a result of our portfolio activities, we ended the quarter with 922 net lease properties, six active redevelopment sites, eight vacant properties.

Our weighted average lease terms approximately are 10 years and our overall occupancy not including our six active redevelopments remain stable at 99.1%. With that, I turn the call over to Danion..

Thank you, Mark. Turning to our financial results, in the third quarter, our total revenues were 36.4 million and increased 5% over the prior year's quarter, and our rental income, which excludes tenant reimbursement and interest on mortgages receivables grew 3.8% to 30.2 million.

Our growth and rental income continue to be driven by rent escalated in our leases, plus incremental growth from completed acquisitions and redevelopment projects.

During the third quarter, as expected, the company's results were impacted by increases in property costs, which then primarily from additional professional fees associated with our redevelopment efforts, and from additional environmental legal fees and expenses, and environmental litigation accruals.

For more information on specific expense movements, please refer to yesterday afternoon's earnings release. Our FFO for the quarter was 19.1 million, or $0.46 per share, as compared to 17.9 million or $0.44 per share to the prior year's quarter.

Our AFFO for the quarter was 18.1 million or $0.43 per share as compared to 17.9 million or $0.44 per share in the prior year's quarter.

Turning to balance sheet and our capital markets activities, as Chris mentioned, we issued 125 million 10-year fixed rate note during the quarter, the notes which mature in 2029 bear interest at 3.52% and we're split between potential Prudential. AIG and Mass Mutual.

The proceeds from our note issuance will use to repay all of the companies floating rate borrowings on our credit facility.

As a result, we ended the quarter with 450 million of long-term fixed rate debt, our weighted average borrowing costs is 4.9%, the weighted average maturity is our debt is approximately 6.2 years with 100% of our debt being fixed rate and our earliest debt maturity is 2021.

Our debt to total capitalization currently stands at 27%, our debt to total asset value is 39% and our net debt to EBITDA is 4.5 times. In addition, we use our ATM programs during the quarter and issued 2.2 million of capital at an average price of $31.64 per share.

Our environmental liability ended the quarter at 58.8 million, down 1 million so far this year. For the quarter, the company's net environmental remediation spending was approximately 1.4 million. Finally, we reaffirm our 2019 AFFO per share guidance at a range of 171 to 175 per share.

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

Specific factors which impact our guidance this year include one, our expectation that we will forego rent when we recapture properties for redevelopment. Two, our expectation and our cost of buying's will increase due to long-term debt financing announced in the third quarter 2019.

Three, the full-year impact of the dilution associated with the company's 2018 and 2019 equity capital raising activities. And four, our expectation that we will remain active in pursuing acquisitions and redevelopment, which could result in additional expenses but deals ultimately not completed. With that, I will turn the call back to Chris..

Thank you, Dan. And with that, we will open the question -- open the call up for questions. Thank you..

Thank you. At this time will be conducting a question-and-answer session. [Operator Instructions] The first question is from Nikita Bely, JPMorgan. Please go ahead, ma'am..

Who to see as the biggest competitive for deals right now for you? I mean you're competing against all the reeds and 1031 buyers and private folks, what's the landscape looking like right now?.

Well, I think we certainly feel like we always compete with other net lease rates are active in the sectors that we are investing in. But we also tend to compete especially for larger portfolio transactions with a number of strategic buyers or corporate buyers a little bit further fairly active over the last sort of 12 to 24 months..

On that point, what's kind of the range or sizes for the portfolio deals you cannot like overall more smaller do you prefer to do large ones?.

Well, traditionally we've done larger or chunkier salaries by transactions but as we've talked about over the last several calls, in addition to looking at large portfolio transactions similar to those types of deals we’ve completed over the past five or six years.

We’re also looking at small portfolios and we do acquire individual sites, if we like the characters of the real estate and location themselves..

Okay.

And the cap rates are they different on large deals and on one-offs?.

Yes, again the range of cap rates, I feel really hasn’t moved for the types of profits we’re looking for, so we’ve talked prior about a range that’s high 6 or 6.75 to about 7.5 similar to where the range is, where we’re looking at..

Got it, and maybe if I can squeeze one if you don’t mind.

Can you talk a little bit in general about the volume of the deals you have to look at for the transaction you already closed this quarter, and also on some information Danion, maybe on the portfolio credit metrics such as store-level EBITDA coverage?.

This is Mark Olear. Through three quarter of the year, we’ve seen in the gas and convenience sector, a volume in place of opportunities presented to us consistent with the last few years, and we continue to grow, gain momentum in the other automotive, so that sector is certainly larger and the opportunities we looked at over the prior years.

We expect to continue to grow that as part of our underwriting exercises, so we’re pretty much on phase 2, first three quarters, as we’ve been through the last few years and the similar three-quarter period.

I'm sorry, the second part of the question?.

Coverage?.

Yes, the coverage Nikhil, it’s Danion here, is consistent this quarter with the prior quarter at 2.2.

Did we answer your questions there?.

I'm sorry, it shows that the gentlemen have left the line..

Okay..

The next question is from Mitch Germain, JMP Securities. Please go ahead, sir..

Hi, good morning.

Is the lease structure any different for the non-sea store transactions, I mean the teams like they partially have a little more term, is that the way to think about it?.

Well, typically we’re looking at day terms, until lease back to reorginate, with 15 or 20 years with multiple there are five- or ten-year renewals. So, they really haven’t, sort of big change in terms of the way we’re structuring our long-term net leases in either the C&G or the other automotive yields that we’re originating..

Great. And Chris, is it safe to say that, your level of softness toward the deal pipeline seems to be a little more positive today than it’s been. I mean, you talked about some smaller portfolios and seeing a lot of transactions.

Has there been any change in the size of the pipeline of the opportunities that are being presented to you?.

Right, I think Mark sum it up, yeah, we think we’re right on page to see a similar amount of total volume underwritten by the company within the CNG sector for the year. I think the biggest difference for us is by opening sort of our underwriting to the other automotive, right.

Where we’re adding several different asset classes that the company has not historically underwritten, so internally, we’re far busier that we’ve been historically. And like Mark said, we remain confident that there are opportunities that we’re going to be able to execute on.

But I really think, it’s just a matter of being consistent within the convenience and gas sector, but also adding additional volume to underwrite the other automotive asset process..

Are those other automotive asset classes as fragmented from an ownership perspective as you see the traditional sea-store?.

Yeah, it’s Mark, yes, the answer is yes.

With the car wash set there is actually very fragmented, the percent of large aggregators of portfolios versus the total number of units out there is relatively small similar to -- we also feel the tire and battery and the quick lube and other automotive uses is highly fragmented and is a is an opportunity for consolidation going forward..

Right. Last one for me I think Danion and I apologize I missed your comments on the equity capital raising in the quarter if I can just get that from your publisher marks again? I apologize..

Yes, it was 2.2 million on the ATM in the quarter, Mitch..

And what was the average price?.

The average price was 31.64..

Thank you..

The next question is from Joshua Dennerlein, from Bank of America Merrill Lynch. Please go ahead, sir. I'm sorry. Mr. Dennerlein has taken himself out of the question queue. The next question is from John Massocca with Ladenburg Thalmann. Please go ahead, sir..

Good morning, everyone..

Hi. John..

And so, I know within those sea store segment, your focus has largely been on kind of infill properties and kind of big MSAs. Does that same underwriting philosophy hold as you look at kind of investments and the other automotive segments. Typically, that seems to be kind of growing as a percentage of your pipeline..

Yes. The short answer is yes. When we started looking at different asset classes to invest in that had similar real estate characteristics to CNG.

From a big picture standpoint, we're still going to invest in the MSA is in the areas of the country that we believe in, but within the individual markets like these types of properties are located in many cases in on the same corner.

Our next door to convenience and gas properties so that the traffic and the demand is driven by many of the same characteristics as you would see for convenience and gas. So, if we feel it very closely aligns to the way we've underwritten historically, and this is sort of a natural extension for us..

Okay. And then within the redevelopment kind of pipeline, what are maybe the gating factors to potentially accelerating the kind of execution on that pipeline and obviously, the long-term goal is to do 5% to 10%.

But is there any way to kind of potentially ramps that those opportunities?.

Yes, it's Mark.

So, the pace of the redevelopment is somewhat governed by the -- where the property are embedded in existing leases, the timing of the marketing of the properties, but also, the entitlement and permitting process, most of these properties go through the entire municipal level process or state level process in order to gain the appropriate zoning, planning and permitting.

And as much effort as we put into them, we can only control that enforce that as much as possible. So that the timing horizon is quite long on taking these through that process and that's probably the biggest governor of the pace of delivering those back into right commencement..

But in terms of maybe just getting your project to that starting point where you start the permitting and, and the entitlement process, I mean, is there anything that keeps you from moving that 5% in immediately or really trying to ramp? I know, obviously, you need counterparties to be -- kind of the other side of that deal and take over operating with the redeveloped property but is there any, anything kind of getting that done quicker?.

Yes, sure. There are certain issues John, I take that right and some of our leases, the timing and paste that somewhere arm's length negotiation somewhere the timing of the exiting of the property by existing. So, we would do as much as we can as fast as we can, and we're pushing it as hard as we can.

So, it's not a, it's a pace we're pushing is I think, as hard as we think we can..

Again, as a reminder, the kind of give back in the take back, right, so you wonder those largely expire..

They're all in the leases that worked on with a former Getty petroleum marketing property and these are based terms of those leases generally run through late 2027 and beyond.

So, there's as Mark was saying, one of the challenges in terms of accelerating to your point at that 5% to today is the take back rights, which obviously would generate additional redevelopment project forth are staggered per year, right.

So, it can impact our tenant business to a significant amount in any given year, which also works to our benefits, we don’t want to impact our tenants coverage right, on the rest of the property for our benefit for redeveloping say, one side or something like that.

So, it’s a staggered John, which is what’s kind of leading to the steady pace of delivering projects and adding projects, but I don’t think to Mark Olear point, you’re going to see all of a sudden -- have a pipeline in our investor deck of 25 projects as we’re exercising our project any one given year..

Okay.

And then one last very quick one, the agreement between kind of Apple Green and - CrossAmerica with regards to managing properties, that CrossAmerica was running previously, does that impact you guys at all?.

No, they’re both tenants of ours and separate leases. I don’t want to comment on any other company’s particular strategy but CrossAmerica right is effectively outsourcing the operations to highly skilled C star operator and I think it works to everyone's benefit..

Okay, but CrossAmerica is the ultimate credit the end of your lease right, still?.

Correct, yes..

Okay, that’s it for me. Thank you very much..

We have a question from Brett Reiss, Janney Montgomery Scott. Please go ahead, sir..

Morning gentlemen..

Hi, Brett..

Hi, could you just give us a little color on what the difference is and similarity of the counterparty risk in leasing to a car wash and lube center versus the gas station leases, that’s been historically more in the wheelhouse of the company?.

Sure, well I think, maybe I’ll talk about the counterparties in a second, but in terms of underwriting the real estate, right, again we started with the markets we want to be in and within the individual markets where the properties themselves are located and what’s driving traffic and demand for those sites.

But the primary difference in terms of the underwriting of the individual locations themselves is, they are different businesses on the four walls, whereas the convenience and gas site has, gas volumes and margins inside sea-store sales, car washes and lube centers have car wash sales and auto change in tires and batteries et cetera.

Both of those steps as we believe are continuing to be in-house resistant so, which is one of the reasons that we’ve expanded into the other automotive. But the credit underwriting, which is also part of our process, remains the same.

We’re looking for stronger counterparties, right, with the history of operating and success and we’re looking to grow and continue to consolidate the industries. From a balance sheet and credit perspective, the tenant footprint fairly similar..

Okay, thank you..

We have a question from Joshua Dennerlein, Bank of America Merrill Lynch. Please go ahead..

What’s underlying the high and low end of your 2019 guidance range, seems like a light variance with one quarter left?.

Yes, good question. I think, there are certain items in our P&L which do bounce around a little bit. We have certain costs related to our development program, within some of the timing there, it’s hard to predict as to when we’re going to get permits and approvals, etcetera.

And then, on the environmental side, some of those costs which stay in AFFO, that are not backed up, again some of that spend is a little hard for us to predict in our business.

So, those are the general reasons that we keep a scale of wide range, again the core business right of leasing and - renting after the expenses from our tenants is fairly predictable. Getty does have a few new launches which require sort of a wider range..

Got it, thank you. I’ll leave it there..

At this time, we have reached there are no further questions. I would like to turn the conference back over to Mr. Chris Constant for closing remarks. Please go ahead, sir..

Thank you to everyone for being on our call for the third quarter. We look forward to an active fourth quarter to being back on the phone with everybody when we announced our fourth quarter and year and 2019 results..

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation and have a good day..