Getty Realty (GTY) - 2020 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements (Unaudited) Getty Realty Corp. reported increased revenues and total assets for H1 2020, while net earnings slightly decreased, with significant investing outflows funded by borrowings and stock issuance Consolidated Balance Sheets Total assets increased to $1.265 billion, driven by real estate growth, while liabilities rose to $670.3 million due to increased borrowings Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $1,264,800 | $1,211,777 | | Real estate, net | $998,522 | $947,759 | | Cash and cash equivalents | $25,111 | $21,781 | | Total Liabilities | $670,292 | $622,338 | | Borrowings under credit agreement | $75,000 | $20,000 | | Senior unsecured notes, net | $449,146 | $449,065 | | Total Stockholders' Equity | $594,508 | $589,439 | Consolidated Statements of Operations Q2 2020 revenues from rental properties grew to $36.3 million, but net earnings declined to $11.0 million, with H1 2020 revenues increasing to $71.0 million while net earnings slightly decreased to $23.7 million Key Operating Results (in thousands, except per share amounts) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenues from rental properties | $36,336 | $33,560 | $70,986 | $66,847 | | Total revenues | $37,004 | $34,288 | $72,367 | $68,337 | | Operating income | $17,593 | $17,680 | $36,473 | $34,348 | | Net earnings | $10,973 | $13,198 | $23,673 | $24,125 | | Diluted EPS | $0.26 | $0.32 | $0.56 | $0.58 | Consolidated Statements of Cash Flows H1 2020 operating cash flow remained stable at $32.8 million, while investing activities saw a significant increase in cash outflow to $65.0 million, offset by $35.6 million in financing activities Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash flow provided by operating activities | $32,789 | $33,255 | | Net cash flow (used in) investing activities | $(64,965) | $(27,178) | | Net cash flow provided by (used in) financing activities | $35,632 | $(27,314) | | Change in cash, cash equivalents and restricted cash | $3,456 | $(21,237) | Notes to Consolidated Financial Statements The notes detail the company's REIT business model, accounting policies, and specifics on leases, debt, environmental obligations, and equity, including the adoption of a new credit loss standard and ongoing property acquisitions - The company is a REIT specializing in owning, leasing, and financing convenience store and gasoline station properties, with 946 properties across 35 states and Washington, D.C. as of June 30, 2020[18] - On January 1, 2020, the company adopted ASU 2016-13 (Credit Losses), recording a credit loss reserve of $578,000 for direct financing leases and $309,000 for notes and mortgages receivable[29][32][48] - As of June 30, 2020, the company's three largest tenants by revenue were subsidiaries of Global Partners LP (16%), United Oil (12%), and Chestnut Petroleum (10%)[64][65] - The company has accrued $49.3 million for environmental remediation obligations and $17.8 million for certain legal proceedings as of June 30, 2020[69][109] - During the first six months of 2020, the company acquired 15 properties for an aggregate purchase price of $68.7 million[132] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth from acquisitions and rent increases, stable rent collection despite COVID-19, continued investment, increased AFFO, strong liquidity, and significant environmental liabilities Results of Operations Q2 2020 revenues from rental properties increased by $2.7 million due to acquisitions, but net earnings declined due to higher expenses, while H1 2020 revenues rose by $4.2 million, with net earnings slightly down year-over-year - Q2 2020 revenues from rental properties increased by $2.7 million year-over-year, primarily due to $2.8 million of revenue from newly acquired properties and contractual rent increases[175] - H1 2020 revenues from rental properties increased by $4.2 million year-over-year, primarily due to $4.8 million of revenue from properties acquired in the second half of 2019 and in 2020[186] - The increase in interest expense for both the three and six-month periods was due to higher average borrowings outstanding, partially offset by lower average interest rates[184][195] Supplemental Non-GAAP Measures The company utilizes FFO and AFFO as key performance indicators, with H1 2020 FFO increasing to $38.6 million and AFFO, representing core operating performance, rising to $37.9 million Reconciliation of Net Earnings to FFO and AFFO (in thousands) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Net earnings | $10,973 | $13,198 | $23,673 | $24,125 | | Funds from operations (FFO) | $18,618 | $19,623 | $38,577 | $37,471 | | Adjusted funds from operations (AFFO) | $18,623 | $18,145 | $37,907 | $35,665 | - Management pays particular attention to AFFO, believing it provides a more accurate depiction of core operating performance and is useful for comparing sustainability with other real estate companies[170][171] Liquidity and Capital Resources The company's liquidity is supported by cash from operations, a $300 million revolving credit facility, and an ATM equity program, funding $68.7 million in acquisitions and $31.2 million in dividends in H1 2020 - Principal sources of liquidity are cash flows from operations, the Revolving Facility (matures March 2022), and the ATM Program[197] - In H1 2020, net cash used in investing activities increased by $37.8 million year-over-year, primarily due to a $39.0 million increase in property acquisitions[202] - In H1 2020, net cash from financing activities increased by $62.9 million year-over-year, driven by a $60.0 million increase in net borrowings and a $5.2 million increase in net proceeds from the ATM program[203] Environmental Matters The company faces extensive environmental laws and has accrued $49.3 million for remediation obligations and $17.8 million for material environmental lawsuits, with liabilities subject to change based on new information - As of June 30, 2020, the company accrued a total of $49.3 million for prospective environmental remediation obligations[236] - The company is contingently liable for environmental obligations contractually assigned to tenants if they fail to perform[230] - The company faces material litigation related to its former Newark, NJ Terminal, the Lower Passaic River, and MTBE contamination in several states[245] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its variable-rate debt, with a hypothetical 1.0% increase in rates potentially decreasing 2020 net income and cash flows by $0.4 million - The primary market risk is interest rate risk from the $300 million senior unsecured revolving credit facility, which had $75.0 million in borrowings outstanding at variable rates as of June 30, 2020[246] - A hypothetical 1.0% increase in market interest rates would decrease 2020 net income and cash flows by an estimated $0.4 million, based on outstanding borrowings at June 30, 2020[247] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during Q2 2020 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, at a reasonable assurance level[251] - There were no changes in internal control over financial reporting during the second quarter of 2020 that have materially affected, or are reasonably likely to materially affect, internal controls[252] PART II—OTHER INFORMATION Legal Proceedings The company reports no new material legal proceedings or developments since its 2019 Annual Report on Form 10-K, referring to Note 4 for further details - There have been no new material legal proceedings or material developments in previously disclosed legal proceedings since the Annual Report for the year ended December 31, 2019[255] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2019 Annual Report on Form 10-K and its Q1 2020 Quarterly Report on Form 10-Q - No material changes have occurred to the risk factors previously disclosed in the 2019 Form 10-K and the Q1 2020 Form 10-Q[256] Other Information There is no other information to report for this item - None[257] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The exhibits filed include certifications from the CEO and CFO pursuant to the Securities Exchange Act of 1934 and various XBRL data files[259]