Getty Realty's Three-Prong Approach to Growth Pays Off
JERICHO, N.Y. — Getty Realty Corp. is steadily building up its presence in the convenience store industry with continued acquisition activities and redevelopment projects.
"Our third-quarter performance continued to demonstrate the health of our core net-leased portfolio, along with the progress we are making in executing on our growth strategy in terms of both acquisitions and redevelopments," Christopher Constant, president and CEO of Getty Realty Corp., said during the company's third-quarter earnings call Oct. 26.
According to Constant, Getty's investment thesis is threefold:
- A combination of stable growth supported by its healthy core net-leased portfolio;
- Expanding its portfolio through acquisitions in the convenience, gas and auto-related sectors; and
- Selected redevelopment projects.
"Our performance during the third quarter demonstrated each aspect of our strategy," he said.
Taking into account the transactions closed during the quarter, and subsequent to the third quarter, Getty added 93 properties to its portfolio for a total investment of $196 million.
"The closing of the Empire [Petroleum Partners LLC] transaction during the third quarter was an excellent acquisition for our company," Constant said. "We are pleased to have Empire as a new tenant and expand our geographic reach with 49 additional convenience store and gas station properties — all of which are high-quality assets."
In addition, Getty's transaction with Applegreen plc closed just after the close of the third quarter. "This acquisition further expands our geographic presence and allows us to add 38 excellent properties in the metropolitan area of Columbia, S.C.," Constant said.
ACQUISITIONS UP CLOSE
Year to date, Getty has acquired 103 properties for more than $213 million. Of these properties, 64 were acquired during the first nine months of 2017, and 39 have been acquired so far in the fourth quarter, according to Mark Olear, executive vice president and chief operating officer.
In all, Getty's year-to-date initial return on its investment is more than 7.3 percent, Olear reported.
The highlight of the third quarter was the Empire transaction, which closed Sept. 6. In this deal, Getty acquired 49 properties for $123 million. At closing, Getty entered into a 15-year unitary triple-net lease with Dallas-based Empire and expects to generate initial annual cash rental income of approximately $9 million.
The properties in the Empire deal are located in Arizona, Colorado, Florida, Georgia, Louisiana, New Mexico and Texas. The properties have an average lot size of 1.3 acres and a store size of approximately 2,700 square feet, Olear explained.
Also in the third quarter, Getty purchased five properties, which it had previously leased, for a total purchase price of $3 million in the aggregate. These sites were purchased for a weighted average initial cash return of more than 9 percent and had a weighted average initial lease term of 13.4 years, he said.
After the quarter ended, Getty sealed the deal on the Applegreen transaction, acquiring 38 fee properties for $68.3 million in the greater Columbia, S.C., market. Under the terms of the 15-year lease with Applegreen, Getty will receive initial rental cash income of approximately $5 million.
Of the 38 properties in the Applegreen deal, 33 are convenience/gas station sites — many of which contain Burger King, Subway or Blimpie restaurants — and five are standalone Burger King locations. The average lot size is 1.7 acres and the average store size is 2,900 square feet.
"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 remains strong and we are in the process of reviewing and pursuing several additional acquisitionable opportunities for both single assets and portfolios," Olear explained.
REDEVELOPMENT PLATFORM
On the redevelopment side, Getty completed its second redevelopment project during the quarter. In July, its rent commenced for a location in Westchester County, N.Y. The company invested roughly $400,000 into the site and expects to generate a return of 15 percent.
As for other redevelopment projects, Getty ended the quarter with 14 signed leases and letters of intent, which include 10 active projects and four additional projects on properties that are currently included in Getty's net-leased portfolio.
"All these projects are continuing to advance through the redevelopment process," noted Olear. "We expect, substantially, all of these projects will be completed over the next two to three years."
In total, Getty has invested $1 million in the 14 redevelopment projects in its pipeline. On the capital spend side, the company expects the 14 projects will require a total investment by Getty of $10.8 million and will generate incremental returns to the company "in excess of where we can invest these funds in the acquisition market today," Olear explained.
As a result of all this activity, Jericho-based Getty ended the third quarter with 855 net-leased properties, 10 active redevelopment sites, and eight vacant properties.
FINANCIAL RESULTS
Looking at its results, Getty reported net earnings for the quarter ended Sept. 30 of $9.3 million, compared to net earnings of $8.8 million for the same period in 2016.
The company reported net earnings for the nine months ended Sept. 30 of $34.2 million, compared to net earnings of $30.1 million, for the year-ago period.
"We are excited about our accomplishments year to date, and about our outlook for the remainder of the year," Constant said. "We remain focused on executing on our growth strategies, which we believe will drive additional shareholder value as we move through 2017 and beyond."
