Getty Realty (GTY) - 2020 Q4 - Annual Report

Part I Item 1. Business The company is a REIT specializing in owning and leasing convenience store and gas station properties under a triple-net model - Getty Realty is a leading REIT in the U.S. specializing in convenience stores and automotive-related retail real estate, with a portfolio of 959 properties as of year-end 2020[12][13] - The company operates primarily through a triple-net lease model, minimizing its operating expenses as tenants are responsible for most costs[17] Portfolio Status as of December 31, 2020 | Category | Number of Properties | | :--- | :--- | | Total Properties | 959 | | Owned Properties | 901 | | Leased Properties | 58 | | Net Lease Properties | 946 | | Properties under Redevelopment | 6 | | Vacant Properties | 7 | Property Acquisition Activity (2019-2020) | Year | Properties Acquired | Aggregate Purchase Price | | :--- | :--- | :--- | | 2020 | 34 | $150.0 million | | 2019 | 27 | $87.2 million | - A key strategy involves redeveloping properties for new uses; rent commenced on six completed redevelopment projects in 2020, up from four in 2019[27][28] Major Tenant Revenue Concentration (FY 2020) | Tenant | Leased Properties | % of Total Revenue | | :--- | :--- | :--- | | Global Partners LP | 150 | 16% | | Arko Corp. | 129 | 15% | | United Oil | 77 | 12% | | Chestnut Petroleum | 74 | 10% | Item 1A. Risk Factors The company faces operational, environmental, financial, and strategic risks, including impacts from the COVID-19 pandemic - Business risks include tenant defaults, reliance on the petroleum industry, and geographic concentration, with 43.6% of properties in the Northeast[44][53][69] - The company faces significant environmental risks and has accrued $48.1 million for environmental remediation obligations as of December 31, 2020[55][62] - Financial risks include dependence on external capital, exposure to interest rate changes, and potential for adverse economic conditions to impact cash flow[45][90][97] - The COVID-19 pandemic presents a material risk, with potential impacts on tenants' ability to pay rent and the company's debt covenant compliance[87][88] - Failure to maintain REIT status would result in significant adverse tax consequences, including federal corporate income tax[46][105] Item 2. Properties The portfolio comprises 959 properties concentrated in the Northeast, with a weighted average lease term of 9.5 years Geographic Distribution of Properties (Top 5 States) | State | Owned Properties | Leased Properties | Total Properties | % of Total | | :--- | :--- | :--- | :--- | :--- | | New York | 204 | 35 | 239 | 24.9% | | Massachusetts | 99 | 8 | 107 | 11.2% | | Connecticut | 65 | 7 | 72 | 7.5% | | Texas | 64 | 0 | 64 | 6.7% | | New Jersey | 45 | 4 | 49 | 5.1% | | Total Portfolio | 901 | 58 | 959 | 100.0% | - The company's corporate headquarters is located in approximately 11,100 square feet of leased office space in New York, New York[120] Rental Property Lease Expiration Schedule (by Annualized Rent) | Year | Annualized Contractual Rent (in thousands) | % of Total | | :--- | :--- | :--- | | 2021 | $2,047 | 1.5% | | 2022 | $2,815 | 2.1% | | 2023 | $3,617 | 2.7% | | 2024 | $3,712 | 2.7% | | 2025 | $7,074 | 5.2% | | Thereafter | $114,188 | 84.8% | | Total | $135,252 | 100.0% | Item 3. Legal Proceedings The company is involved in various legal proceedings, primarily related to environmental contamination at its properties - Legal accruals decreased significantly from $17.8 million in 2019 to $4.3 million as of December 31, 2020, due to a major case settlement[124] - In 2020, the company settled the New Jersey MTBE Multi-District Litigation with a payment of $13.5 million, which was within its established reserve[126] - Ongoing material litigation includes MTBE contamination cases in Pennsylvania and Maryland, where ultimate liability is uncertain[127][129] - The company is a Potentially Responsible Party in the Diamond Alkali Superfund Site case but does not expect a material impact on its operations[132][139] - In December 2020, the company settled a lawsuit it had filed against Lukoil Americas Corporation, which included a payment to Getty Realty[141] Item 4. Mine Safety Disclosures This section is not applicable to the company's business operations - None[142] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock (NYSE: GTY) has outperformed the S&P 500 and its peer group over the last five years - The company's common stock is listed on the New York Stock Exchange (NYSE) with the trading symbol GTY[145] Comparison of Five-Year Cumulative Total Return (assumes $100 invested on 12/31/2014) | Group | Value as of 12/31/2020 | | :--- | :--- | | Getty Realty Corp. | $204.25 | | Standard & Poor's 500 | $203.04 | | Peer Group | $151.26 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong 2020 performance, liquidity management, and key operational focus areas Results of Operations Revenues and net earnings grew significantly in 2020, driven by acquisitions and income from legal settlements Key Financial Performance (2020 vs. 2019) | Metric (in millions, except per share) | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Revenues from rental properties | $144.6 | $137.7 | +5.0% | | Net earnings | $69.4 | $49.7 | +39.6% | | Diluted EPS | $1.62 | $1.19 | +36.1% | | Funds from operations (FFO) | $99.3 | $77.8 | +27.6% | | Adjusted funds from operations (AFFO) | $79.1 | $71.8 | +10.2% | - The increase in net earnings was significantly impacted by a rise in 'Other income' to $21.1 million, primarily from $21.3 million received in legal settlements[185] - Environmental expenses decreased to $1.1 million in 2020 from $5.4 million in 2019, mainly due to a major litigation settlement[181] Liquidity and Capital Resources The company maintained strong liquidity through operating cash flow, its credit facility, and equity issuance Cash Flow Summary (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $82,827 | $76,774 | | Net cash used in investing activities | ($127,417) | ($82,553) | | Net cash provided by (used in) financing activities | $77,980 | ($19,299) | - In 2020, the company utilized its ATM program to issue 2.2 million shares, raising net proceeds of $63.2 million[209] Debt Outstanding as of Dec 31, 2020 (in thousands) | Debt Instrument | Amount Outstanding | | :--- | :--- | | Revolving Facility | $25,000 | | Senior Unsecured Notes | $525,000 | | Total Debt | $550,000 | - In December 2020, the company issued $175 million of new senior unsecured notes and used the proceeds to redeem older notes and repay its credit facility[201][205] Environmental Matters The company holds a significant accrued liability of $48.1 million for environmental remediation obligations Environmental Remediation Obligations (in millions) | Date | Total Accrual | | :--- | :--- | | December 31, 2020 | $48.1 | | December 31, 2019 | $50.7 | - The accrual is based on the fair value of expected future net cash flows, adjusted for inflation and discounted to present value[241] - For properties previously leased to Getty Petroleum Marketing Inc, Getty is responsible for certain pre-existing contamination discovered within the first 10 years of new leases[238] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The primary market risk is interest rate exposure from its variable-rate revolving credit facility - The main market risk is interest rate risk associated with the $300 million revolving credit facility, which had $25.0 million outstanding at year-end[250][251] - A sensitivity analysis indicates that a 1.0% increase in market interest rates would decrease net income by approximately $0.3 million for 2021[252] Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements and notes for the year ended December 31, 2020 Consolidated Financial Statements The statements show growth in total assets to $1.35 billion and a 39.6% increase in net earnings for 2020 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Real Estate, net | $1,059,527 | $947,759 | | Total Assets | $1,349,512 | $1,211,777 | | Total Debt, net | $547,693 | $467,051 | | Total Liabilities | $689,911 | $622,338 | | Total Stockholders' Equity | $659,601 | $589,439 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Total Revenues | $147,346 | $140,655 | | Operating Income | $75,577 | $66,762 | | Net Earnings | $69,388 | $49,723 | Notes to Consolidated Financial Statements The notes detail key accounting policies, major tenant concentration, debt, and environmental obligations - Note 2 (Leases): Four major tenants represented 53% of total revenues for 2020 (16%, 15%, 12%, and 10% respectively)[319] - Note 4 (Debt): As of Dec 31, 2020, total debt was $550 million, with maturities extending to 2030 following refinancing activities[339] - Note 5 (Environmental Obligations): The company accrued $48.1 million for environmental liabilities, measured at fair value based on expected future cash flows[362] - Note 13 (Property Acquisitions): The company acquired 34 properties for an aggregate purchase price of $149.96 million in 2020[396] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[434] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on the COSO framework[435] Part III Item 10. Directors, Executive Officers and Corporate Governance This section provides information on executive officers and incorporates director information by reference Executive Officers as of February 25, 2021 | Name | Age | Position | | :--- | :--- | :--- | | Christopher J. Constant | 42 | President, Chief Executive Officer and Director | | Joshua Dicker | 60 | Executive Vice President, General Counsel and Secretary | | Brian Dickman | 45 | Executive Vice President, Chief Financial Officer and Treasurer | | Mark J. Olear | 56 | Executive Vice President and Chief Operating Officer | Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the company's proxy statement - Information regarding executive compensation is incorporated by reference from the Proxy Statement[446] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated by reference from the company's proxy statement - Information regarding security ownership is incorporated by reference from the Proxy Statement[447] Item 13. Certain Relationships and Related Transactions, and Director Independence No related party transactions were reported for 2020, and director independence is incorporated by reference - There were no relationships or transactions to report for the year ended December 31, 2020[448] Item 14. Principal Accountant Fees and Services Information on accountant fees is incorporated by reference from the company's proxy statement - Information regarding principal accountant fees and services is incorporated by reference from the Proxy Statement[449] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the annual report - This item includes the financial statements from Item 8, financial statement schedules (Schedule II, III, IV), and a list of all exhibits filed with the report[450][451]