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

Good afternoon, everyone, and welcome to the 2021 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 2021 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 6 Board of Director positions to be filled at this annual meeting. I would like to introduce them to you: Howard Safenowitz, our Lead Independent Director; Milton Cooper; Philip Coviello; Richard Montag; and Mary Lou Malanoski. Also joining us 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; Brian Dickman, your Executive Vice President and 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 4 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 2021. And proposal 4 is to improve the company's third amended and restated 2004 Omnibus Incentive Compensation Plan. 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. 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 the 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 as needed. The Board will take this stockholder vote into consideration. As to proposal 3, to ratify the appointment of PricewaterhouseCoopers LLP as the company's registered public accounting firm for 2021, 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. As to proposal 4, to approve the company's third amended and restated 2004 Omnibus Incentive Compensation Plan, this proposal has received the affirmative vote of a majority of all the votes cast on this proposal at the meeting. Accordingly, proposal 4 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 2021 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 today. Finally, I would like to thank all of our stockholders who have joined us for our virtual meeting. Prior to providing commentary on the year ended 2020, as well as some thoughts regarding our future, I would like to take a moment to recognize our recently retired Co-Founder and Chairman, Leo Liebowitz. Leo was our Chairman for more than 50 years. Leo co-founded the company, along with Milton Safenowitz, through the acquisition of a single gas station in New York City in 1955. From there, they've built a significant portfolio of gas and service stations, which eventually went public in 1971 and grew to become the largest independent gasoline distributor on the East Coast. In 1985, Leo led the acquisition of the Northeastern gasoline stations from the Getty Oil Company, and changed the name of our predecessor company to Getty Petroleum Corp. In 1997, the company spun off the petroleum marketing and distribution business to a newly created public company unlocking significant value for stockholders at the time. And Getty Realty was established to manage and lease the company's retained real estate portfolio. Many of the properties which this company owns today were amassed during Lee's tenure as CEO and remain valuable and profitable assets within our existing portfolio. On a personal note, I want to thank Leo for his many years of dedicated and distinguished service to the company. Leo always made himself available to all of us, and his deep knowledge of our industry has been critical to our understanding of our tenants' businesses, making us better investors as a result. We will miss having him in the office and on our Board of Directors and wish him the best in his retirement. We anticipate that we will replace Leo on our Board of Directors this year. As part of our selection process, our Board is committed to prioritizing a qualified independent director with relevant experience, who also increases the diversity of our existing Board. Turning to our performance throughout 2020. I am proud to report to our stockholders that despite the numerous challenges brought upon us by COVID-19, Getty achieved substantially all of its business objectives and produced growth of both revenues from rental properties, which increased by 5% for the year, and adjusted funds from operations, or AFFO per share, which grew by 7% for the year. We were also able to efficiently issue long-term debt and raise permanent capital to improve our already conservative balance sheet. I am especially pleased with the strength and resiliency displayed by the entire Getty team throughout the year. Our employees are the foundation for our success. There were multiple instances during this past year when public health concerns and the health and safety of our employees necessitated quick action to establish remote working capabilities and transition our organization to a fully remote working environment, which I am proud to say we were able to accomplish without losing a step in the continued execution of our strategic objectives. I cannot thank my fellow executives and staff enough for their dedication to our company this past year. As one would expect, COVID-related issues were at the forefront for Getty during much of the year. We benefited from the fact that we entered 2020 in an excellent position to continue the successful execution of our business strategy. Our investment pipeline and balance sheet were primed for growth, and we had a strong first quarter, where we deployed capital into high-quality assets through both our acquisition and redevelopment initiatives. However, beginning in March of 2020, the repercussions from COVID-19 affected both our company and our tenants' businesses. Much of our growth pipeline was put on hold, and our team's focus turned to asset management and rent collection. Looking back on this difficult period, we can observe that the challenge proved to be a learning experience and that we gained a number of important insights about our portfolio, our asset classes and our internal processes. A few noteworthy takeaways include the following. First, we now know that substantially all of our convenience stores, gasoline stations and other automotive assets were and can be expected to remain characterized as essential businesses because of the kinds of goods and services offered and sold at our properties, meaning that substantially all of our tenants were open and able to operate throughout the pandemic. Second, we benefited from the exceptional performance of our tenants' businesses during this otherwise challenging period. In many cases, our tenants overcame numerous operational hurdles to serve consumers throughout the pandemic. Whether it be hiring workers, sourcing PPE and cleaning supplies or just any open store our customers could purchase basic grocery and household goods, our tenants' convenience stores met critical consumer needs during this difficult time. Third, the widespread economic downturn caused by COVID-19 did not derail the ongoing growth of the convenience store sector. In fact, industry data, which has been published for 2020, indicates that it will be another record year for industry-wide sales and profits. Finally, at Getty, our internal underwriting capabilities proved critical as we evaluated and responded to numerous requests for rent relief with the net result being comparative outperformance of our portfolio as we collected more than 98% of contractual rent and mortgage payments for the year and also collected substantially all of our COVID-related rent and mortgage deferrals, which were due in 2020. Although uncertainty still remains regarding the forward impact of COVID-19 to the broader economy, we are encouraged by the strength exhibited by our tenants and our assets since the beginning of the pandemic. We will continue to be vigilant in monitoring the health of our tenants' businesses as we believe the pandemic will continue to impact consumer retail activity in 2021. As we move further into 2020, the stability of our portfolio and our confidence in the performance of our tenants allowed us to refocus on our growth strategies. The acquisition program at Getty remains our primary growth driver. In 2020, we acquired 34 high-quality properties for $150 million through a combination of portfolio and individual transactions. This activity reflected our disciplined investment approach, which carefully considers real estate attributes as well as the operational and credit quality of our prospective tenants. Included in our acquisitions are 2 portfolio sale-leaseback transactions with Go Car Wash in Kansas City and San Antonio MSAs as well as a portfolio transaction with CITGO convenience stores throughout the state of Texas. As we move to 2021, we remain committed to growing our portfolio in terms of both the convenience industry, which offers consumers food, traditional merchandise and fuel and with related assets, which support auto mobility. Our redevelopment program continues to mature in 2020 as we completed 6 projects and signed 8 new leases for future deals with national tenants. The completed projects in 2020 were leased to high-quality national retailers, including 7-Eleven, AutoZone, Bank of America [indiscernible]. We invested a total of $3.6 million in these projects and generated an incremental return on our investment of approximately 20%. In terms of our redevelopment outlook, we maintain a solid pipeline ending the year with signed leases on 10 projects in total for new retail uses. We continue to believe that the redevelopment program demonstrates the embedded value of our in-place portfolio and that by strategically investing in our assets, we can generate attractive risk-adjusted returns, improve the credit quality of our portfolio and diversify our retail tenant base. The net result of our growth in asset management was a portfolio of 959 properties across 35 states at year-end, which was 99.3% occupied with 65% of our annualized base rents coming from the top 50 national MSAs. Turning to our balance sheet. We continue to place a premium on having a conservative and flexible capital structure. In 2020, we maintained our conservative leverage profile by successfully financing our investments with long-term and permanent capital. Specific to this philosophy, during 2020, we issued $175 million of 10-year, 3.4% senior unsecured notes to AIG, MassMutual and Prudential. And a portion of this issuance was used for the early retirement of our $100 million 6% Series A notes, which were coming due in early 2021. As of today, Getty has a net debt-to-EBITDA ratio of less than 5x and a revolving credit facility that is completely undrawn, meaning that we have significant capacity to fund our growth plans as we look ahead. We have no debt maturities until 2023, and the weighted average term of our indebtedness is the longest in the company's history of more than 7 years. We also partially financed our growth in 2020 through the timely issuance of $64 million of common equity through the use of our at-the-market or ATM program. During the first quarter of this year, we refreshed and upsized our ATM program as we continue to believe that the ATM is a valuable tool for our company to match fund our acquisitions and redevelopment projects. The net result of our strong execution during 2020, including our operating results, capital raising activity and deployment of capital to attract investments, was our Board's decision to raise our recurring annual cash dividend by more than 5% to $1.56 per share, making 2020 the sixth consecutive year that the company has rewarded shareholders, with a significant increase in its recurring cash dividend rate. Getty remains well covered and its increase stems from our stability as well as our ability to continue to grow our AFFO. Looking ahead, our team is more focused than ever on executing each of our growth initiatives, which are enhancing our portfolio through accretive acquisitions, unlocking embedded value from selective redevelopments and maximizing the quality of our in-place portfolio through continued active asset management. We remain focused on executing a highly targeted strategy, and we believe we are in a strong position as an organization, both financially and operationally to deliver consistent performance to enhance long-term shareholder value. We have a strong team in place comprised of people who are committed to Getty's success and to the implementation of our long-term growth strategies. I would like to conclude by again thanking our management and employees for all of their continued hard work at Getty. And I would also like to thank our Board and stockholders for their continued support. With that, I'll open the floor for questions, which can be entered through the virtual brokerage website.

Chris, before we begin the question-and-answer period, may I take the opportunity to read a safe harbor statement into the record?

Please do.

Certain statements made by management today 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 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 results could differ materially. Please refer to the company's annual report on Form 10-K for the year ended December 31, 2020, and our subsequent 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 are 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.

Chris, I'd like to advise you that there are no stockholder questions. So we can -- I can ask you to, at this point, conclude our annual meeting.

Excellent. 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.