3 Ways Getty Realty Is Improving Its C-Store Portfolio

By 
Greg Lindenberg, Editor, CSP

Getty Realty

JERICHO, N.Y. -- Getty Realty Corp.’s three-part investment strategy helped it turn in an improved performance during its third quarter ending Sept. 30, 2017.

The real-estate investment trust (REIT) with significant holdings in convenience stores reported third-quarter net earnings of $9.3 million, compared to net earnings of $8.8 million for the same period in 2016. For the nine months ending Sept. 30, 2017, it reported net earnings of $34.2 million, compared to net earnings of $30.1 million for the same period in 2016.

“Getty's investment thesis is threefold, consisting of a combination of stable growth, supported by our healthy core net-lease portfolio, expanding our portfolio through acquisitions in the convenience, gas and auto-related sectors and selected redevelopment projects,” President and CEO Christopher Constant said on the company’s recent earnings call. “Our performance during the third quarter demonstrated each aspect of our strategy."

“We are pleased that the strength of our core net-lease business, bolstered by the success of our acquisition strategy, is allowing us to raise our guidance for the remainder of the year,” he said.

Here’s how that investment strategy played out for the quarter and first nine months of the year …

1. Healthy portfolio

Getty Realty

Revenues from Getty's portfolio of rental properties in continuing operations increased by $900,000 to $24.9 million for the quarter, compared to $24 million for the same period in 2016. Revenues from rental properties were $73.2 million for the nine-month period, compared to $71.9 million for the same period in 2016. The increase in revenues from rental properties for the quarter and nine months ending Sept. 30, 2017, was mainly because of revenue from the properties acquired during the nine-month period.

Property costs from continuing operations were $5.3 million for the quarter, compared to $5.2 million for the same period in 2016. Property costs declined by $900,000 to $15.4 million for the nine-month period, compared to $16.3 million for the same period in 2016. The decline in property costs for the nine-month period was mainly due to a reduction in reimbursable tenant expenses, real-estate taxes and other state and local taxes.

2. Acquisitions

Empire Petroleum

During the quarter, Getty Realty acquired fee-simple interests in 54 properties for a total of $126.1 million. During the nine-month period, it acquired fee-simple interests in 64 properties for a total of $143.9 million. As of Sept. 30, it had signed leases on four properties that are currently part of its net-lease portfolio.

On Sept. 6, the company completed its previously announced transaction with Empire Petroleum Partners LLC, acquiring fee-simple interests in 49 c-store and gas-station properties in Arizona, Colorado, Florida, Georgia, Louisiana, New Mexico and Texas for $123.1 million.

The company entered into a 15-year unitary lease with Empire Petroleum at the closing of the transaction. Mark Olear, Getty Realty’s executive vice president and COO, said he expects that lease to generate initial annual cash rental income of about $9 million.

The transaction with Getty Realty facilitates Empire’s purchase of a portfolio of c-stores from Alimentation Couche-Tard Inc., Laval, Quebec. Couche-Tard’s Circle K Stores Inc. agreed in June to sell a portfolio of 71 properties to Empire to satisfy compliance with regulatory requirements associated with its acquisition of CST Brands Inc.

“While the acquisition market continues to be competitive in the convenience and gas sector, we remain disciplined in our underwriting criteria,” Olear said. “Our pipeline of actionable opportunities remains strong, and we are in the process of reviewing and pursuing several additional acquisition opportunities for both single assets and portfolios.

“With the addition of 103 properties for $213.6 million, in the aggregate, to our portfolio year-to-date, we have significantly enhanced our convenience-store and gasoline-station portfolio, both in terms of geographic and tenant diversification,” Constant said.

During the quarter, the company sold one property for $400,000. During the nine-month period, it sold nine properties for a total of $2.8 million.

3. Redevelopment

Getty Realty

The company completed its second redevelopment project during third-quarter 2017. As of Sept. 30, it is actively redeveloping 10 of its former c-store and gas-station properties for alternative single-tenant net-lease retail uses.

“We continue to make steady progress in our ongoing program to convert certain locations to alternative single-tenant net-lease retail uses,” said Constant. “With a well-positioned balance sheet, along with a combination of organic and external growth opportunities, we believe we are poised to continue to deliver additional shareholder value.”

Getty Realty is a publicly traded REIT specializing in the ownership, leasing and financing of c-store and gas-station properties. As of Sept. 30, 2017, it owned 792 properties and leased 81 properties from third-party landlords in 27 states and Washington, D.C.