Getty Realty Corp. (GTY) Earnings Call Transcript & Summary

Welcome to the 2020 Annual Meeting for Getty Realty Corp. Our host for today's call is Christopher Constant, Chief Executive Officer and President. [Operator Instructions] I will now turn the call over to your host. Mr. Constant, you may begin, sir.

Good afternoon, everyone, and welcome to the 2020 Annual Meeting of the Stockholders of Getty Realty Corp. I am Christopher Constant, the company's Chief Executive Officer and President and a member of the Board of Directors. It is a pleasure to welcome you today for this meeting, which is being held virtually this year because of the COVID-19 pandemic. I would like to formally call this 2020 Annual Meeting of the Stockholders of Getty Realty Corp. to order. We will conduct the business portion of our meeting first, and then I will provide some brief remarks regarding the state of the business and answer appropriate questions at the end of the meeting. Joining me today virtually are my fellow directors currently serving as your Board and who, together with myself, are nominees for reelection for the 7 Board of Director positions to be filled at this annual meeting. I would like to introduce them to you: Leo Liebowitz, our Co-founder and Chairman of the Board; Howard Safenowitz, our Lead Independent Director; Milton Cooper; Philip Coviello; Richard Montag; and Mary Lou Malanoski. Also joining today virtually are a number of the key members of Getty's management team, including Mark Olear, your Executive Vice President, Chief Operating Officer and Chief Investment Officer; Joshua Dicker, your Executive Vice President, General Counsel and Secretary; Danion Fielding, your Vice President, Chief Financial Officer and Treasurer; Eugene Shnayderman, your Vice President, Chief Accounting Officer and Assistant Treasurer; [ Robert Ryan ], your Vice President of Acquisitions; and Brad Fisher, your Assistant Vice President and Director of Environmental. Also joining us today are representatives of PricewaterhouseCoopers LLP, the company's independent registered public accounting firm. Mr. Dicker, the company's Secretary, will file the proof of mailing of notice of this meeting with the minutes. He has informed me that there is a quorum present. Stockholders who voted by proxy need not cast ballots in the voting today unless they wish to change their vote. Mr. Dicker has been appointed as inspector of elections to conduct the voting at this meeting. His oath will be filed with the minutes. There are 3 items in the order of business. After the formal meeting has been adjourned, we will provide time for general questions. Only validated stockholders may ask questions in the designated field on the web portal. [Operator Instructions] Please note that this meeting is being recorded. However, no one attending via the webcast or telephone is permitted to use any audio recording device. Proposal #1 concerns the election of directors to the company's Board. Proposal #2 is the advisory approval of the company's executive compensation, commonly referred to as the say-on-pay vote. Proposal #3 is to ratify the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for 2020. The polls are now open for voting. Stockholders who have not yet voted or wish to change their vote may do so by clicking on the voting button on the web portal and following the instructions there. Stockholders who have sent in proxies or voted via telephone or Internet and do not want to change their vote do not need to take any further action. We will now pause for voting. [Voting]

The polls are now closed, and we will ask the inspector to now tabulate the votes. Mr. Dicker, do we have preliminary voting results?

Yes, we do.

The inspector has now completed his tally of the votes cast.

As inspector of elections, I report that a preliminary vote count has been completed; and that, as to proposal #1, each of the nominees for election to the Board of Directors has received the affirmative vote of a plurality of the total votes cast. Accordingly, all the nominees have been elected. As to proposal #2, to approve, on an advisory basis, the company's executive compensation. This proposal has received the affirmative vote of a majority of all the votes cast on this proposal at the meeting. The Board will give the stockholder vote due consideration. As to proposal #3, to ratify the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for 2020. This proposal has received the affirmative vote of a majority of all the votes cast on this proposal at the meeting. Accordingly, proposal #3 has passed.

The inspector will make a final report, which will be included in the company's Form 8-K to be filed with the Securities and Exchange Commission. There being no further business to come before the meeting, the formal portion of our annual meeting of the stockholders is now adjourned. I will now turn to my report on the state of the business, after which, we will open the floor for a brief question-and-answer period. Before I provide my remarks, let me once again welcome you to the 2020 Annual Meeting for Getty Realty Corp. I would also like to take another moment to recognize the members of our Board of Directors, all of whom are in attendance today, and thank them for their leadership. In addition, I would like to thank Bill Staffieri and the entire PricewaterhouseCoopers team, who have also joined us for this meeting. Finally, I would like to thank all of our stockholders who have joined us virtually during this unique time. I will begin by reflecting on the company's achievements from the last year before I comment on the impact of COVID-19 on Getty's business. 2019 was another successful year for Getty as our team continued to grow our portfolio with high-quality real estate, driving increases in earnings and creating value for our shareholders. We benefited from the performance of our core net lease portfolio and our acquisition and redevelopment investment activities. We were also able to efficiently issue long-term debt and raise permanent equity capital to improve our already conservative balance sheet. The net result of our efforts was continued growth in our adjusted funds from operations or AFFO per share and an increase in our recurring annual cash dividend paid to stockholders. During 2019, we remained focused on our core activities of owning and triple-net leasing properties in the convenience and gas and other automotive-related sectors. Our portfolio of more than 945 properties continues to be primarily located in dense urban markets and higher-growth areas of the U.S. Currently, we generate 57% of our annual rental income from properties located in top 25 MSAs, and our portfolio remains 99% occupied. We selectively grew our company through acquisitions in 2019; and were able to add high-quality, well-located real estate to our portfolio and partner with existing tenants and new operators in the convenience and gas and other automotive-related sectors. We maintained our strict underwriting criteria, which places an emphasis on acquiring properties which are well located in retail corridors in top-tier national markets. The net result of our activities for 2019 was the accretive acquisition of 27 properties for approximately $87 million, all of which are located in strong metropolitan areas or highly sought-after core markets. We also had a very active start to 2020. And as previously disclosed, we acquired 11 properties for $53 million through the first 2 months of the year and maintain an active transaction pipeline. Although, as I will touch on later, the impacts of the current health crisis have had a disruptive effect on the entire net lease acquisition market. Our redevelopment program also progressed steadily in 2019 as we completed 4 projects and signed a number of new leases with national retail tenants. The completed projects included new-to-industry convenience and gas locations and sites leased for other retail uses. We invested a total of $1.1 million in these 4 projects and expect to generate incremental returns on our investment of more than 40%. In terms of our redevelopment outlook, we maintain a solid pipeline, ending the year with 14 signed leases. We continue to believe that between 5% and 10% of our current portfolio can be redeveloped for either new convenience and gas uses or alternative retail uses at attractive risk-adjusted returns and with improved credit quality. Turning to our balance sheet. We were able to finance our investment activity with long-term and permanent capital while maintaining a conservative leverage profile. We place a premium on having a conservative and flexible capital structure and believe we are well positioned, particularly in light of the current uncertain environment. During 2019, we issued $125 million of 10-year 3.52% senior unsecured notes to AIG, Mass Mutual and Prudential. As a result of this issuance, Getty ended 2019 with the smallest percentage of floating-rate debt in the company's history at less than 5%. We also partially financed our growth in 2019 through the timely issuance of common equity through the use of our ATM program. The ATM program remains a cost-efficient and valuable tool for our company as it allows us to match fund our acquisitions and redevelopment projects. The net result of our operating results, capital-raising activity to fund our growth and deployment of capital into attractive investments was growth in our 2019 AFFO per share to $1.72 per share. Finally, due to this progress, in October 2019, our Board raised our recurring annual cash dividend by 6% to $1.48 per share, making 2019 the fifth consecutive year that the company rewarded shareholders with a significant increase in its recurring cash dividend rate. The dividend remains well covered, and its increase stems from the stability of our current portfolio, along with our ability to continue to grow our AFFO. Now let me make some observations about the current coronavirus health crisis and its impacts upon Getty's business. As we moved into 2020, Getty's acquisition pipeline was robust and our tenants' operations were strong, as evidenced by our portfolio rent coverage ratio of 2.3x, the highest level we have seen over the prior 5 years. The COVID-19 impacts began to be felt by the C&G industry in March as travel restrictions and stay-at-home orders removed cars from the road and ultimately reduced fuel volumes and customer visits. While our tenants' businesses, which translate to 95% or more of our assets, have been deemed essential under all stay-at-home orders and thus remained open and operating, the adverse impact on their businesses has been significant. We have been proactive in our communications with all of our tenants regarding these impacts and have already engaged in deferral and/or abatement workouts in a minority of cases where our tenant's ability to sustain their business has been materially affected by the coronavirus' impact on the retail economy. During this unprecedented time, Getty has been focused on the health and safety of our employees and the efficient and effective management of our business. The process is fluid and subject to change as public health developments and economic information become available. We will provide additional information regarding the impact of COVID-19 on our 2020 financial results during our upcoming earnings call on May 6. Looking to the future, we believe that as the country begins to reopen and economic activity resumes, our tenants' operating performance will rebound. The pace of this recovery will depend on the timing and scale of reopening in each market where we operate. Retail gasoline sales and convenience store items have historically been recession resistant due to the necessity nature of gasoline sales and demand of convenience store purchases. Looking ahead, we believe we are in a strong position financially and operationally as an organization. We anticipate the resumption of growth activity in 2020. And when we do, we will remain focused on executing a highly targeted strategy to deliver consistent operating performance and enhanced long-term shareholder value. We have a strong team in place who are committed to Getty's success and the implementation of our long-term growth strategies. I would like to conclude by personally thanking our management and employees for all of their hard work both in 2019 and especially for their dedication during this very challenging period in 2020. I would also like to thank our Board and shareholders for their continued support. With that, I will open the floor for questions, which can be entered through the virtual Broadridge site. [indiscernible] I would now be happy to entertain any appropriate questions you may have concerning the company or its business. We will take stockholders' questions that are being entered on the web portal. [Operator Instructions] Before we begin the question-and-answer period, I would like to ask Mr. Dicker to read a safe harbor statement into the record.

Thank you. Certain statements made by management in response to questions may not be 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 may include statements made by management regarding future company operations, future financial performance, the impact of COVID-19 on the company 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. Please refer to the company's annual report on Form 10-K for the year ended December 31, 2019, and our 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 that may be 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 question-and-answer period. With that, let me turn the meeting back to Christopher Constant, our Chief Executive Officer.

Thank you, Josh. Please read the first question.

Okay. Mr. Constant, there's a question from the carpenters union. Carpenter union pension funds, with a combined assets of 70 billion, have a collective ownership position of [ 3,024 ] shares of company common stock. As long-term shareholders, we appreciate the efforts of the company to address the difficulties faced by employees, customers and other important stakeholders during the COVID-19 pandemic. The recent growth in the size of passive mutual funds' corporate ownership interests in U.S. corporations has been dramatic, raising important public policy and corporate governance issues. Currently, BlackRock holds 14% and Vanguard holds 12% of Getty's outstanding shares. Does the Board see this growing ownership concentration as a positive or negative development as regards long-term corporate planning and performance?

Thank you, Josh. Sure. I'll answer that question. At this point, we're comfortable with our current shareholder base. We believe we have a diverse set of both institutional shares, retail shareholders, ownership by our Board. I think, like all things, we would monitor additional ownership by the passive funds and take appropriate action if we saw any significant change.

Mr. Constant, there are no more questions.

Thank you, Josh. It appears that we have answered all questions presented. With that, ladies and gentlemen, this concludes our annual meeting. I want to thank you for attending and for your interest in the affairs of our company.

This now concludes the meeting. Thank you for joining, and have a pleasant day.