Getty Keeps Sights on Growth

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Getty Keeps Sights on Growth

By Melissa Kress, Convenience Store News - 07/28/2017

JERICHO, N.Y. — Getty Realty Corp. continued to work on its growth strategy during the second quarter of 2017, closing acquisitions and progressing on several redevelopment projects. 

According to CEO Christopher Constant, the company's second-quarter performance "exemplified" Getty's commitment toward implementing its growth strategy, which is comprised of three aspects of value creation: generate consistent organic growth from its existing net-leased portfolio; the ongoing pursuit of accretive acquisitions; and unlocking embedded value in the company's portfolio through selective opportunities for redevelopment.

"We are very pleased with our progress on each of these fronts, particularly in terms of acquisitions where we recently increased our activity," Constant said during Getty's second-quarter earnings call held July 27.

As reported by the chief executive, Getty produced another quarter of steady results with modest growth over the prior year's quarter, "which displays the continued stability of our net-leased portfolio and the health of the convenience store and gas station industry."

At the same time, the company made significant progress on its strategic goal of growing and enhancing its portfolio through disciplined acquisitions and redevelopment projects.

On the portfolio front, Getty acquired five "high-quality, well-located" properties for $11.6 million during the second quarter. In addition, the company subsequently announced two additional portfolio acquisitions for almost $200 million:

  • A 49-property acquisition leaseback transaction with Dallas-based Empire Petroleum Partners LLC for $123 million; and
  • A 42-property acquisition leaseback transaction with Applegreen plc, a publicly traded c-store operator based in Ireland, for $70.1 million. 

"We continue to evaluate a robust pipeline of actionable acquisition opportunities, which include both single-unit and portfolio transactions," Constant explained. "We are seeking to partner with strong operators to acquire real estate that meets our underwriting criteria and that has strong operating fundamentals located in geographic regions which either enhance our current holdings or where we are targeting new investments."

As for its redevelopment program, Getty began the redevelopment of two new projects during the quarter — both of which are new-to-industry convenience store and gas station sites. This brings the number of Getty's active redevelopment projects to nine, "with another six leases executed and in various stages of redevelopment," the CEO said.

"We are excited about our accomplishments year to date and our business prospects for the remainder of the year. We are focused on executing on our stated growth strategies, which we believe will drive additional shareholder value as we move through 2017 and beyond," Constant said.

ACTIVITY CLOSEUP

Year to date, Getty has completed or announced the acquisition of 101 properties for a total purchase price of $210.9 million, shared Mark Olear, the company's executive vice president and chief operating officer. 

During the second quarter, the company purchased five properties located in Arizona, Georgia and Oregon for a total of roughly $11.6 million. These deals included a small portfolio and two triple-net leased properties, he said.

As for the Empire and Applegreen deals, Olear noted the properties meet Getty's "disciplined approach to both underwriting real estate and credit worthiness of the future tenants."

The Empire transaction comprises assets in seven states, including Arizona, Colorado, Florida and Texas. The properties have an average lot size of 1.3 acres and an average store size of approximately 2,700 square feet, "both of which compare favorably to the industry as a whole," he added.

Getty expects to fund $123 million at closing and recognize an initial year rent of approximately $9 million. The deal is expected to close before the end of the third quarter.

The Applegreen transaction includes the acquisition of 38 fee properties and four leasehold interests in the greater Columbia, S.C., market. Of the 42 properties, 34 are c-store/gas stations — many of which contain Burger King, Subway or Blimpie outlets inside the stores. The remaining eight properties are standalone Burger King restaurants.

Similar to the Empire properties, these sites compare favorably to the overall industry with an average lot size of 1.7 acres and an average store size of 2,900 square feet, Olear said.

"This transaction marks a significant strategic expansion by Applegreen into the U.S. market and we are happy to be their partner in South Carolina," he added.

Getty expects to fund $70.1 million at closing and recognize an initial year rent of roughly $5 million for its investment in the fee properties, along with $200,000 of net operating income for the four leasehold properties. The Applegreen transaction is expected to close before the end of the year.

"While the acquisition market continues to be competitive in the convenience and gas sector, and 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 additional acquisition opportunities for both single assets and portfolios," Olear said.

Also during the second quarter, Getty sold two properties for $1 million in the aggregate. In addition, it ended the quarter with 15 signed leases and letters of intent, which include nine active redevelopment projects and six additional projects on properties that are currently included in the company's net-leased portfolio, the COO reported. 

The company expects, substantially, all the projects to be completed over the next two to three years. In total, Getty has invested approximately $1.2 million in the 15 projects to date, and it expects to begin collecting rent at two sites later this year. 

On the capital spending side, Getty estimates the 15 projects will require total investment by the company of $11.2 million and will generate "incremental returns to the company in excess of where we can invest these funds in the acquisition market today," Olear noted.

Jericho-based Getty Realty is a publicly traded real estate investment trust in the United States specializing in the ownership, leasing and financing of convenience store and gasoline station properties. As of June 30, the company owned 739 properties and leased 86 properties from-third party landlords in 25 states and Washington, D.C.