Getty Realty Charts Steady Growth Pace
JERICHO, N.Y. -- Getty Realty Corp. is seeing the payoff from its transition activity over the past few years and is readying itself for future growth.
"Our second-quarter results continue to reflect the steady progress we think we're making," said CEO David B. Driscoll during Thursday's Q2 2014 financial earnings call. "While the quarter was relatively quiet, we're pleased that we continue to execute on the final pieces of our portfolio repositioning activities. To that end, we sold an additional 21 locations during the quarter and leased 13 locations into long-term triple-net leases."
He added that with a few distractions, locally based Getty produced stable operating results which illustrate the progress the company is making.
The company reported net earnings for the quarter ended June 30 of $6.6 million, as compared to net earnings of $12.7 million for the same quarter in 2013. It reported net earnings for the six months ended June 30 of $16.3 million as compared to net earnings of $23.1 million for the year-ago period. Results for both the quarter and six months ended June 30, 2013 included a benefit from the settlement of litigation brought by Getty Petroleum Marketing Inc. (GPMI) against Lukoil of approximately $6.6 million, Driscoll explained.
"We did produce significant year-over-year financial improvement with AFFO [adjusted funds from operations] per share increasing by 59 percent after adjusting downward for the effect on one-time receipts generated by the successful legal action against Lukoil, the former parent of GPMI," he said. "However, our consistent quarter-to-quarter sequential results of 27 cents per share of AFFO is more reflective of our overall investment objectives and the asset class we operate."
He added that figure "demonstrates the type of steady result we expect to achieve going forward. While we diligently work to conclude our transitional activity and pursue growth by accretive acquisitions and other means, we believe that our results this quarter are approaching a good base line for the performance of our core current portfolio."
Getty's revenue for the quarter increased by $700,000 to $25 million -- primarily driven by the impact of a full quarter's revenue from the May 2013 Capitol Petroleum Group LLC (CPG) acquisition and the impact of the commencement of the triple net leases on the 13 properties. The $72.5-million CPG deal gave Getty 36 properties in the Northeast and Mid-Atlantic.
On the expense side, the company continued to see reductions in rental property expenses and general overhead. It benefited from a $10-million reduction in rental property expenses that was driven largely by the reposition activities during the last year.
In addition, Getty purchased five properties that it had previously leased. These transactions will result in a roughly 10-percent cash return after everything is counted, Driscoll said.
On the administrative overhead side, legal and professional fees declined by $1.1 million for the quarter while employee-related costs and public company expenses were relatively constant.
"As we move forward, we will continue to focus on gaining operating expense leverage as we conclude our repositioning and redeployment process," the chief executive said.
He added that Getty may need to invest capital to successfully reposition a number of locations and that the company will focus most of that investment on capturing measurable improvement that will also contribute measurably to its cash flow.
"While we have made great progress, we still have challenges that we are working through, and we expect in the coming quarters that we will begin to harvest some of the work and the capital that we have put in," Driscoll said.
Throughout the earnings call, Driscoll stressed that the company was working on improving its steady performance through accretive acquisitions in an increasingly competitive landscape.
"We are by nature a long-term investor focused on long-term returns. This is an unusually low interest rate environment and in that environment competition for income-producing assets is quite heated. The result is that values are very high and returns are historical lows," he said. "Our response to this competition is to stay disciplined and focused on executing only on the best opportunities while being mindful of our cost of capital and return thresholds.
"As a result, we cannot control the timing of acquisitions, but the flow of potential opportunities remains good and we remain confident that by being patient and disciplined in our approach, over time we will be able to grow our portfolio," Driscoll added.
Getty is also turning its focus to internal growth opportunities inside its existing portfolio of more than 900 locations, he said.
"During the past few years most of our activity within the portfolio has centered on leasing and dispositions. Moving forward, we expect to see more opportunities to redevelop and reposition properties for higher and better uses to increase our return on these properties," Driscoll explained.
He acknowledged that Getty may face future challenges, but the company's team is "adept at navigating and overcoming difficulties."