Getty Realty (GTY) - 2022 Q1 - Quarterly Report

PART I Item 1. Financial Statements (Unaudited) For the first quarter of 2022, Getty Realty Corp. reported total revenues of $39.3 million and net earnings of $18.7 million, an increase from $37.3 million and $17.9 million respectively in the prior year period. Total assets grew to $1.50 billion from $1.47 billion at year-end 2021, primarily due to new senior unsecured notes. The financial statements also detail the company's portfolio of 1,014 properties, significant debt refinancing activities, and ongoing environmental obligations Consolidated Balance Sheets As of March 31, 2022, total assets increased to $1.501 billion compared to $1.467 billion at the end of 2021. This was driven by a $100 million increase in senior unsecured notes, which also led to a rise in total liabilities to $756.4 million. Stockholders' equity remained relatively stable at $744.8 million Consolidated Balance Sheet Highlights (in thousands of US dollars) | Account | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Total Assets | $1,501,234 | $1,466,948 | | Real estate, net | $1,263,586 | $1,271,083 | | Cash and cash equivalents | $56,983 | $24,738 | | Total Liabilities | $756,417 | $721,840 | | Borrowings under credit agreement | $— | $60,000 | | Senior unsecured notes, net | $623,313 | $523,850 | | Total Stockholders' Equity | $744,817 | $745,108 | Consolidated Statements of Operations For the three months ended March 31, 2022, total revenues increased to $39.3 million from $37.3 million year-over-year, driven by higher rental property revenue. Net earnings rose to $18.7 million from $17.9 million in the prior-year period. Diluted earnings per share were $0.39, slightly down from $0.40 in Q1 2021 Consolidated Statements of Operations Highlights (in thousands of US dollars, except per share amounts) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | Revenues from rental properties | $38,984 | $36,951 | | Total revenues | $39,321 | $37,280 | | Total operating expenses | $20,279 | $20,507 | | Operating income | $25,195 | $23,992 | | Net earnings | $18,749 | $17,927 | | Diluted earnings per common share | $0.39 | $0.40 | Consolidated Statements of Cash Flows Net cash from operating activities increased to $20.8 million in Q1 2022 from $19.4 million in Q1 2021. Net cash used in investing activities decreased significantly to $7.9 million from $19.8 million, mainly due to lower property acquisitions. Financing activities provided $19.3 million in cash, a reversal from a $22.9 million use of cash in the prior year, driven by proceeds from new senior unsecured notes Consolidated Cash Flow Summary (in thousands of US dollars) | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | Net cash flow provided by operating activities | $20,830 | $19,407 | | Net cash flow used in investing activities | $(7,916) | $(19,785) | | Net cash flow provided by (used in) financing activities | $19,316 | $(22,866) | | Change in cash, cash equivalents and restricted cash | $32,230 | $(23,244) | Notes to Consolidated Financial Statements The notes provide detailed information on the company's operations, accounting policies, and financial position. As of March 31, 2022, the company's portfolio consisted of 1,014 properties. Three major tenants—Global Partners, ARKO Corp., and United Oil—accounted for 15%, 15%, and 12% of total revenues, respectively. The company engaged in significant debt refinancing, issuing $100 million in new senior notes in February 2022. Accrued environmental remediation obligations stood at $47.0 million, and the company is involved in ongoing legal proceedings concerning environmental matters - As of March 31, 2022, the company's portfolio included 1,014 properties located in 38 states and Washington, D.C., specializing in convenience, automotive, and other single-tenant retail real estate[17][18] - The company has significant tenant concentration, with three tenants representing a combined 42% of total revenues for Q1 2022: Global Partners LP (15%), ARKO Corp. (15%), and Apro, LLC (d/b/a "United Oil") (12%)[59] - In February 2022, the company issued $100 million of new 3.45% Series L-N Guaranteed Senior Notes due 2032 and entered into agreements for future note issuances to refinance existing debt[89][90][91] - As of March 31, 2022, the company had accrued $47.0 million for prospective environmental remediation obligations, primarily related to underground storage tanks (USTs) and contamination at properties[103] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion attributes the $2.0 million year-over-year increase in Q1 2022 rental revenue to acquisitions and contractual rent escalations. The company's non-GAAP metrics showed growth, with Adjusted Funds from Operations (AFFO) increasing to $24.9 million from $22.1 million in Q1 2021. Liquidity is considered strong, supported by cash from operations, a $300 million revolving credit facility, and an ATM program. The company continues to manage significant environmental liabilities, with an accrued total of $47.0 million as of quarter-end Results of Operations Comparing Q1 2022 to Q1 2021, revenues from rental properties rose by $2.0 million to $39.0 million, primarily from new property acquisitions and rent increases. Property costs decreased by $0.7 million, while general and administrative expenses fell by $0.4 million due to non-recurring severance costs in the prior year. These positive factors were partially offset by a $1.0 million decrease in gains on real estate dispositions and a $0.4 million increase in interest expense Key Changes in Results of Operations (Q1 2022 vs Q1 2021, in millions of US dollars) | Item | Change (in millions of US dollars) | Reason | | :--- | :--- | :--- | | Revenues from rental properties | +$2.0 | Acquisitions and contractual rent increases | | Property costs | -$0.7 | Reductions in rent expense and real estate taxes | | General and administrative expense | -$0.4 | Non-recurring severance costs in Q1 2021 | | Gains on dispositions of real estate | -$1.0 | Fewer property sales and lower gains | | Interest expense | +$0.4 | Higher average borrowings outstanding | Liquidity and Capital Resources The company's main sources of liquidity are cash from operations ($20.8 million in Q1 2022), its $300 million revolving credit facility (undrawn at quarter-end), and an ATM program (no shares issued in Q1 2022). In February 2022, the company issued $100 million in new senior unsecured notes and amended its credit agreement, extending the maturity to October 2025. Management believes these sources are sufficient to meet operating and long-term liquidity needs - Principal liquidity sources include cash flows from operations, the $300 million Revolving Facility, and proceeds from the ATM Program[170] - In October 2021, the company amended and restated its credit agreement, extending the maturity of its $300 million revolving facility to October 2025[180] - In February 2022, the company issued $100 million in new senior unsecured notes and entered into agreements to issue an additional $125 million in January 2023 to refinance existing debt[186][187][188][189] Supplemental Non-GAAP Measures The company reported growth in its key non-GAAP performance metrics. Funds From Operations (FFO) for Q1 2022 was $23.3 million, or $0.49 per diluted share, up from $19.9 million, or $0.44 per share, in Q1 2021. Adjusted Funds From Operations (AFFO) was $24.9 million, or $0.52 per diluted share, up from $22.1 million, or $0.49 per share, in the prior-year period Reconciliation of Net Earnings to FFO and AFFO (in thousands of US dollars) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | Net earnings | $18,749 | $17,927 | | Funds from operations (FFO) | $23,262 | $19,921 | | Adjusted funds from operations (AFFO) | $24,851 | $22,095 | Per Share Non-GAAP Metrics (Diluted) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | FFO per share | $0.49 | $0.44 | | AFFO per share | $0.52 | $0.49 | Environmental Matters The company continues to manage significant environmental liabilities, primarily related to underground storage tanks (USTs). As of March 31, 2022, the total accrued liability for environmental remediation was $47.0 million, a slight decrease from $47.6 million at year-end 2021. The company is also involved in material environmental litigation related to its former Newark, NJ Terminal and MTBE contamination, for which it has accrued $1.9 million - As of March 31, 2022, the company had accrued a total of $47.0 million for prospective environmental remediation obligations, down from $47.6 million at December 31, 2021[212] - The company is involved in significant environmental litigation, including matters related to the Lower Passaic River and MTBE contamination in Pennsylvania and Maryland, which could have a material adverse effect[220] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate fluctuations on its $300 million variable-rate revolving credit facility. However, as of March 31, 2022, there were no borrowings outstanding under this facility, mitigating immediate risk. The company also acknowledges the ongoing uncertainty and potential negative financial impact of the COVID-19 pandemic - The primary market risk is interest rate risk associated with the $300 million revolving credit facility, which has a variable interest rate based on LIBOR[222] - As of March 31, 2022, there were no borrowings outstanding under the variable-rate credit facility, minimizing current exposure to interest rate changes[222] Item 4. Controls and Procedures Based on an evaluation conducted by management, including the CEO and CFO, the company's disclosure controls and procedures were concluded to be effective at a reasonable assurance level as of March 31, 2022. No material changes were made to the company's internal control over financial reporting during the first quarter of 2022 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2022[226] - There were no changes in internal control over financial reporting during the first quarter of 2022 that have materially affected, or are reasonably likely to materially affect, internal controls[227] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company reports no new material legal proceedings or material developments in previously disclosed legal proceedings during the quarter. It refers stakeholders to its 2021 Annual Report on Form 10-K and Note 4 of this report for information on existing material litigation - There have been no new material legal proceedings or material developments in previously disclosed legal proceedings since the 2021 Annual Report[230] Item 1A. Risk Factors There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to the risk factors previously disclosed in the 2021 Form 10-K have occurred[231] Item 5. Other Information The company reported no information under this item for the period - None[232] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q. Key exhibits include several amended and new note purchase and guarantee agreements related to the company's debt financing activities, as well as certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Filed exhibits include amended and new note purchase agreements with Prudential, AIG, MassMutual, and New York Life, along with required CEO and CFO certifications[233]