Getty Realty (NYSE:GTY) Q3 2025 Earnings Call October 23, 2025 08:30 AM ET Speaker1Good morning and welcome to Getty Realty Corp.'s 3Q 2025 earnings call. This call is being recorded. After the presentation, there will be an opportunity to ask questions. Prior to starting the call, Joshua Dicker, Executive Vice President, General Counsel, and Secretary of the Company, will read a safe harbor statement and provide information about non-GAAP financial measures. Please go ahead, Mr. Dicker.Speaker4Thank you, O ...

Core Insights - W.P. Carey (WPC) is expected to report second-quarter 2025 results on July 29, with anticipated year-over-year increases in revenues and funds from operations (FFO) per share [1][9] Financial Performance - In the last reported quarter, WPC posted a core FFO per share of $1.17, missing the Zacks Consensus Estimate of $1.20, due to revenue impacts from dispositions, although net investment activity and lease structuring provided some support [2] - Over the past four quarters, WPC's core FFO per share surpassed the Zacks Consensus Estimate twice, met once, and missed once, with an average beat of 0.01% [3] Factors Influencing Performance - The company's performance in the second quarter is likely to benefit from its focus on sale-leaseback transactions, which involve acquiring critical real estate and leasing it back to the seller on a long-term, triple-net basis, leading to higher occupancy and better risk-adjusted returns [3] - Long-term net leases with built-in rent escalations and strategic portfolio rebalancing are expected to contribute to higher revenue generation during the quarter [4] Revenue Estimates - The Zacks Consensus Estimate for WPC's lease revenues is $354.7 million, reflecting a growth of 9.44% from the prior year, while total revenues are estimated at $414.1 million, indicating a rise of 6.27% year-over-year [5] - However, tenant bankruptcies may have resulted in rent losses, negatively impacting the company's top line for the reported quarter [5][9] Analyst Sentiment - The Zacks Consensus Estimate for quarterly FFO per share has remained unchanged at $1.23 over the past two months, suggesting a 5.13% increase year-over-year [6] - Current predictions do not indicate a surprise in FFO per share for WPC this quarter, with an Earnings ESP of 0.00% and a Zacks Rank of 3 [7] Comparative Analysis - Other REITs such as American Tower (AMT) and Cousins Properties (CUZ) are highlighted as potential stocks to consider, with AMT having an Earnings ESP of +0.95% and a Zacks Rank of 2, while CUZ has an Earnings ESP of +0.36% and a Zacks Rank of 3 [8][10]

Core Viewpoint - W.P. Carey (WPC) is strategically positioned to leverage its high-quality, mission-critical, diversified portfolio of single-tenant net-lease commercial real estate, primarily in the U.S. and Northern and Western Europe, with a focus on long-term sale-leaseback transactions that ensure steady revenue generation [1] Financial Performance - In Q1 2025, W.P. Carey reported an adjusted FFO per share of $1.17, slightly below the Zacks Consensus Estimate of $1.19, but reflecting a 2.6% improvement year-over-year [2] - The Zacks Consensus Estimate for WPC's 2025 AFFO per share has been revised upward by 1% to $4.88 over the past month, with WPC shares rising 2.5% in the last three months, outperforming the industry growth of 0.4% [3] Portfolio Strength - W.P. Carey boasts one of the largest portfolios of single-tenant net lease commercial real estate, focusing on high-quality assets critical to tenant operations [4] - The company specializes in sale-leaseback transactions, achieving a portfolio occupancy rate of 98.3% as of March 31, 2025, which supports better risk-adjusted returns [5] Revenue Generation - The portfolio is diversified across tenants, industries, property types, and geographies, with the top 10 tenants accounting for 19.2% of annualized base rent (ABR). The company experienced a contractual same-store rent growth of 2.4% in Q1 2025 [6] Expansion Strategy - In Q1 2025, W.P. Carey invested $275.1 million primarily through sale-leaseback transactions and disposed of nine assets valued at approximately $129.8 million [7] - For 2025, management anticipates total investments between $1 billion and $1.5 billion and total dispositions between $500 million and $1 billion, focusing on non-core assets to fund value-accretive investments [8] Balance Sheet and Liquidity - As of March 31, 2025, W.P. Carey had total liquidity of $2.0 billion, including $1.8 billion available under its senior unsecured credit facility and $187.8 million in cash. The pro rata net debt to adjusted EBITDA ratio stood at 5.8X, with investment-grade ratings of BBB+ from S&P and Baa1 from Moody's [10] Dividend Policy - W.P. Carey reduced its dividend to $0.86 in December 2023 from $1.07, a strategic move to exit office assets. The company has since maintained a disciplined capital distribution strategy, increasing its dividend three times, indicating sustainability in the current operating environment [11][12]

Financial Data and Key Metrics Changes - The company reported core FFO of $0.86 per share and AFFO of $0.87 per share for Q1 2025, each up 3.6% year-over-year, while annualized base rent increased over 5% year-over-year [14][15] - The NOI margin was 95.9% for the quarter, and G&A as a percentage of total revenues was 5.6% [15][19] - Free cash flow after dividends was approximately $55 million for the quarter [15] Business Line Data and Key Metrics Changes - The company successfully resolved 15 out of 35 vacant furniture stores through leasing or sale, with significant interest in the remaining properties [4] - For restaurant assets, the company gained full possession and has leased or sold 38 out of 69 properties, with strong interest in the remaining 31 [4][5] - Overall leasing activity was strong with 25 renewals and 8 new leases completed, achieving a blended rent recapture rate of 98% [16][17] Market Data and Key Metrics Changes - Occupancy at the end of the quarter was 97.7%, slightly below the long-term average of approximately 98% [5][10] - The company experienced limited to no credit losses within the portfolio during the first quarter [6][10] - The initial cash cap rate for acquisitions was 7.4%, with expectations of some cap rate pressure in 2025 compared to the previous year [8][9] Company Strategy and Development Direction - The company focuses on acquiring well-located properties with strong regional and national tenants at appropriate rents, supported by a strong balance sheet [10][22] - The acquisition strategy remains selective, prioritizing sale leaseback transactions with established tenant relationships [7][8] - The company aims to maintain its 2025 acquisition guidance of $500 to $600 million, with 40% of the acquisition volume already completed [10][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's ability to deliver excellent long-term performance despite current macroeconomic uncertainties [6][13] - The company has a strong balance sheet and is well-positioned for long-term success, having weathered past economic downturns [13][19] - Management anticipates minimal impact from tenant defaults, projecting less than a 1% effect on annual FFO per share [4][18] Other Important Information - The company ended the first quarter with nearly $1.1 billion available on its $1.2 billion line of credit, reinforcing its self-funding model [10][19] - A quarterly dividend of $0.58 per share was announced, equating to a 5.4% annualized dividend yield [20] Q&A Session Summary Question: Acquisition pace in Q1 was higher than expected; can you expand on that? - Management noted that all transactions except one were sale leaseback deals, driven by timing and relationships, and they remain competitive in the market [26][27] Question: Expected pace of acquisitions moving forward? - Management maintains guidance of $500 to $600 million for acquisitions but is cautious due to macroeconomic uncertainties [28][29] Question: Tenant appetite for growth amid economic volatility? - Tenants are reevaluating growth plans, with some deals canceled, but there is still interest in growth opportunities [32][33] Question: Changes to tenant rent coverages due to tariffs? - Rent coverages have remained stable, with 85% of ABR coming from service and non-discretionary tenants [35][36] Question: Impact of Frisch's and Badcock on OpEx outlook? - Guidance for net real estate expenses is higher due to vacancies from these tenants, but improvements are expected as properties are leased or sold [42][43] Question: Lease termination income and its predictability? - Lease termination fees are unpredictable, with a historical average of $2 to $3 million per year, but recent years have seen higher amounts [74][76] Question: Performance outlook for new tenants in former Frisch's locations? - New tenants are performing well during the initial phase, but management remains optimistic about their long-term performance [79] Question: Plans to reduce exposure to specific retail concepts? - The company has a watch list for tenants to reduce exposure, but selling these assets can be challenging [87][88]

Financial Data and Key Metrics Changes - The company reported an AFFO per share of $0.45, representing a 7% increase compared to Q1 2024 [23] - Total AFFO for the quarter was $85.7 million, up $14.6 million or 21% year-over-year [24] - The company declared a cash dividend of $0.295, resulting in an AFFO payout ratio of 66% [25] - Pro forma net debt to annualized adjusted EBITDAre was 3.4 times at quarter-end [29] Business Line Data and Key Metrics Changes - The company invested $308 million through 21 transactions at a weighted average cash yield of 7.8% [13] - The weighted average lease term was 14 years, with only 5.4% of annual base rent expiring over the next five years [12] - The weighted average unit level coverage ratio was 3.5 times, indicating strong tenant profitability [12] Market Data and Key Metrics Changes - The company ended the quarter with investments in 2,138 properties leased to 423 tenants across 16 industries [11] - Same-store rent growth was 1.5%, slightly up from the previous quarter [17] - The carwash industry exposure was reduced to 13.9% of annual base rent, below the soft ceiling of 15% [20] Company Strategy and Development Direction - The company continues to focus on middle market sale leasebacks with growing operators in targeted industries [8] - The investment pipeline supports the upper half of the guidance range of $900 million to $1.1 billion for 2025 [11] - The company aims to maintain a well-capitalized balance sheet with low leverage and significant liquidity to support growth [29] Management's Comments on Operating Environment and Future Outlook - The operating environment remains favorable despite a choppy capital markets backdrop [7] - The company expects modest cap rate compression in 2025, but competition has been less than anticipated due to market volatility [10] - Management reaffirmed the 2025 AFFO per share guidance range of $1.85 to $1.89, indicating over 7% growth at the midpoint [31] Other Important Information - The company issued over $300 million of equity and upsized its credit facility, resulting in liquidity of $1.5 billion [9] - The company sold 11 properties for $24.3 million in net proceeds during the quarter [20] - The company has a strong focus on tenant relationships, with 90% of investments being sale leaseback transactions [14] Q&A Session Summary Question: Impact of ongoing tariff situation on tenant health - Management believes the impact will be minimal as 93% of their portfolio is service and experience-based [35] Question: Competition levels across target industries - Competition is more pronounced in larger transactions, while smaller transactions remain less competitive [37] Question: Factors for not raising acquisition guidance - Management indicated it is still early in the year and visibility on the pipeline is limited to 60-90 days [45] Question: Details on Dave and Buster's acquisition - The investment was based on a long-standing relationship and favorable terms due to less competition [49][50] Question: Current watch list and evolving dynamics - The watch list is down 50 basis points quarter-over-quarter, indicating a stable credit environment [62] Question: Transaction environment and competition - Management noted that while competition has decreased, there is still active dialogue with new relationships [108] Question: Leverage and potential scenarios for increase - Management anticipates remaining conservative on leverage, with sufficient liquidity to avoid increasing leverage [90] Question: Trends in car wash tenants - Coverage and average unit volumes were flat across car wash operators [117] Question: Overall economic outlook and tenant base resilience - Management expressed confidence in the tenant base's ability to withstand economic pressures due to strong rent coverage [165]