3 Regions Where Getty Realty Is Eager to Grow Next
By Greg Lindenberg on Jul. 31, 2017JERICHO, N.Y. -- In announcing the company’s positive second-quarter 2017 financial results, Christopher Constant, president and CEO of Getty Realty Corp., talked acquisitions and laid out the convenience-store real-estate investment trust’s (REIT) growth strategy, including where it might look to expand next.
“We produced another quarter of steady results with modest growth over the prior year's quarter, which displays the continued stability of our net lease portfolio and the health of the convenience-store and gas-station industry. At the same time, we made significant progress on our strategic goal of growing and enhancing our portfolio through disciplined acquisitions and redevelopment projects,” Constant said on the earnings call.
“Our second-quarter performance exemplified our commitment toward implementing our growth strategy, which is comprised of three aspects of value creation: generating consistent organic growth from our existing net lease portfolio, the ongoing pursuit of accretive acquisitions and unlocking embedded value in our portfolio through selective opportunities for redevelopment,” he said. “We are very pleased with our progress on each of these fronts, particularly in terms of acquisitions where we've recently increased our activity.”
Here are more details from the call …
Acquisition: Empire
“Year to date, we have completed or announced the acquisition of 101 properties, for a total purchase price of $210.9 million,” Getty COO Mark Olear said on the call.
During the quarter, Getty acquired fee-simple interests in five properties.
“We purchased five properties located in Arizona, Georgia and Oregon for a total purchase price of approximately $11.6 million,” said Olear. “These acquisitions have been the purchase of a small portfolio and two triple-net lease properties, all of which meet our underwriting standards for real-estate attributes, tenant credit and operational quality.”
During the six months, Getty acquired fee-simple interests in 10 properties for a total of $17.8 million.
On June 22, Getty entered into an agreement with Empire Petroleum Partners LLC to provide acquisition-leaseback funding for the purchase of fee-simple interests in 49 properties in seven states, including Arizona, Colorado, Florida and Texas, for $123 million. The properties have an average lot size of 1.3 acres and a store size of approximately 2,700 square feet. The deal is the result of the divestiture of properties stemming from Alimentation Couche-Tard Inc.’sacquisition of CST Brands.
Getty said it expects the transaction to close before the end of the third quarter, subject to conditions including the closing of the deal with Couche-Tard.
Acquisition: Applegreen
On July 10, Getty announced an acquisition leaseback transaction with a U.S. subsidiary of Dublin, Ireland-based Applegreen PLC to acquire interests in 38 fee-simple and four leasehold properties in the Columbia, S.C., market for $70.1 million. The properties have an average lot size of 1.7 acres and average store size of 2,900 square feet.
Getty said it expects the transaction to close before the end of the fourth quarter, subject to conditions including the closing of a separate purchase agreement under which Applegreen has agreed to purchase the properties from The Brandi Group, based in Columbia, S.C.
“We continue to evaluate a robust pipeline of actionable acquisition opportunities, which includes both single-unit and portfolio transactions,” said Constant.
During the quarter, Getty sold two properties for a total of $1.0 million. During the six months, it sold eight properties for a total of $2.4 million.
Acquisition opportunities
Getty's portfolio has been focused mostly in the Northeast. But recent acquisitions are changing that focus.
In early 2015, Getty executives said they were “looking for growth markets” and were getting ready to expand beyond the East Coast.
On the call, Constant reiterated that openness to grow in new markets.
“We're certainly looking at opportunities that overlap with the historic focus of the company, which is Northeast, Mid-Atlantic,” he said. “In 2015, we did a significant transaction which included an entrance into Colorado, Washington and Oregon. And then there's been expansion of our presence in California. There are certain areas of the country where we certainly spend a lot of time studying. The acquisition in 2015 was one of those.”
Getty acquired fee-simple interests in 77 c-stores and gas stations from affiliates of Pacific Convenience & Fuels LLC and simultaneously leased to United Oil for approximately $214 million.
For an acquisition, the company looks at the real-estate attributes, the credit of the tenant and what the operations are like. “So I think the coasts are certainly there,” he said. “The South is certainly there. But what I don't think you'll see us do is doing all 50 states. I think there are certain areas where we're just not as excited to invest.”
Redevelopment activities
Getty is redeveloping nine of its former c-store and gas-station properties for alternative single-tenant net lease retail uses. As of June 30, it had signed leases on six additional properties, which are part of its net lease portfolio, and it expects them to be recaptured and transferred to redevelopment when it secures the appropriate entitlements, permits and approvals.
“Regarding our redevelopment program, we commenced active redevelopments on two new projects in the quarter, both of which are new-to-industry [NTI] convenience stores and gas stations, bringing our number of active redevelopments to nine, with another six leases executed and in various stages of redevelopment,” said Constant.
Financials
Getty reported net earnings for the quarter ended June 30, 2017, of $15.1 million compared to net earnings of $13.6 million for the same period in 2016. It reported six-month net earnings of $24.8 million compared to net earnings of $21.3 million for the same period in 2016.
Revenues from rental properties in continuing operations were $24.8 million for the quarter compared to $24.1 million for the same period in 2016. Six-month revenues from rental properties in continuing operations were $49.1 million compared to $48.5 million for the same period in 2016. The increase in revenues was due mainly to revenue from the properties acquired during the six-month period.
Property costs from continuing operations were $5.3 million for the quarter compared to $5.7 million for the same period in 2016. Six-month property costs from continuing operations were $10.1 million compared to $11 million for the same period in 2016. The decline in property costs was due mainly to a reduction in reimbursable tenant expenses, real-estate taxes and other state and local taxes.
Jericho, N.Y.-based Getty is a publicly traded real-estate investment trust (REIT) specializing in the ownership, leasing and financing of convenience-store and gas-station properties. As of June 30, 2017, the company’s portfolio included 825 properties, owning 739 and leasing 86 from-third party landlords in 25 states and Washington, D.C.