GTY
#Thank you.
I would like to thank you all for joining us for Getty Realty's quarterly earnings conference call.
Yesterday afternoon the Company released its financial results for the quarter ended June 30, 2016.
Form 8-K and earnings release are available in the investor relations section of our website at GettyRealty.com.
Certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements.
These statements are based on Management's current expectations and beliefs and are subject to trends, events and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
Examples of forward-looking statements include our 2016 guidance, and may also include statements made by management in their remarks and in response to questions including regarding lease restructurings, future Company operations, future financial performance and the Company's acquisition or redevelopment plans and opportunities.
We caution you that such statements reflect our best judgment based on factors currently known to us and that actual results or events could differ materially.
I refer you to the Company's annual report on form 10-K for the fiscal year ended December 31, 2015 as well as our quarterly reports on form 10-Q and our other filings with the SEC.
For a more detailed discussion of the risks and other factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.
You should not place undue reliance on forward-looking statements which reflect our view only as of the date hereof.
The Company undertakes no duty to update any forward-looking statements that may be made in the course of this call.
Also please refer to our earnings release for a discussion of our use of non-GAAP financial measures including FFO and AFFO and our reconciliation of those measures to net earnings.
With that let me turn the call over to <UNK> <UNK>, our Chief Executive Officer.
Thank you, Josh.
Good morning, everyone, and welcome to our call for the second quarter of 2016.
With Josh and me, on the call today are <UNK> <UNK>, our Chief Operating Officer, and <UNK> <UNK>, our Chief Financial Officer.
I will begin today's call by reviewing our performance for the second quarter of 2016 and then pass the call to <UNK> to discuss our portfolio in more detail, and after <UNK>, <UNK> will was discuss our financial results.
The second quarter of 2016 continued a trend of strong and steady performance for the company which once again was largely driven by a core net leased portfolio.
These results demonstrate the steady progress we continue to make on repositioning our portfolio to higher-quality, higher productivity sites including the institutional quality United Oil properties which we acquired in June of last year.
We delivered quarterly AFFO of $0.42 per share which represents very strong growth over the prior year's quarter when adjusted for certain notable items which we do not expect to recur on a consistent basis.
When we exclude those items, our normalized FFO per share was $0.40 for the quarter ended June 2016 and $0.33 per share for the quarter ended June 2015 representing growth of more than 20% year-over-year.
The key drivers for our performance stem from 9% quarterly revenue growth driven primarily from our 2015 mid-year acquisition and a $1 million reduction in our overhead costs, which in large, measure reflects many of the internal changes we made to our operations at the beginning of the year.
I am pleased that this out performance to date coupled with our stronger outlook for the remainder of the year has allowed us to raise our guidance for 2016, and while we remain focused on producing stable earnings growth from our existing portfolio, we are also diligently working on our strategic plan to position Getty for strong performance and growth in the quarters and years to come.
During the quarter we sold one property and since quarter end we have sold three additional properties which are all part of our effort to remove assets from our portfolio that no longer fit with our long term growth criteria.
We are also seeking to enhance our portfolio through selective acquisitions and redevelopments.
We have been doing a significant amount of work to build our acquisition pipeline, to evaluate prospects to determine if they fit within our underwriting criteria and to analyze our portfolio for redevelopment opportunities.
This is an in-depth and comprehensive process that will take time to execute.
However, we are confident that our investment strategy will contribute to our growth and performance as we move ahead.
We have also been active in enhancing our financial flexibility as we previously announced during the quarter we implemented a $125 million aftermarket equity issuance program.
We believe the ATM program provides an efficient capital raising platform that fits our redevelopment and acquisition strategy where we could match-fund our growth opportunities.
Lastly we continue to make steady progress on reducing our overall environmental liability.
We began the year at $84.3 million and ended the second quarter at $81.1 million.
The reported $3.2 million net reduction belies an even greater productivity by our Company and reduction of our overall environmental liability when one considers that the GAAP adjustments we make create upward pressure on the reported figure.
As we look to the second half of the year we are energized and encouraged by the results from our net lease portfolio and our emerging pipeline of investment opportunities.
With that I will turn the call over to <UNK> <UNK> to discuss our portfolio and investments.
Thank you, <UNK>.
Turning to our results.
As Chris mentioned we had a another steady and strong quarter of financial results.
For the quarter, our total revenues from continuing operations and revenues from rental properties, which exclude tenant expense reimbursements and interest income, both increased by 9% to $28.6 million from $24.1 million respectively.
Rental income growth for the quarter was primarily driven by the impact of our midyear, 2015 acquisitions.
On the expense front, property costs excluding tenant expense reimbursements decreased by 4.5% from $2.2 million to $2.1 million.
This reduction can be attributed to declines in rent and maintenance expenses.
Our environmental expense decreased by $0.9 million for the quarter relative to the same period last year.
The reduction was primarily due to $1.6 million decreases in environmental remediation costs, offset by a $0.7 million environmental litigation loss reserve.
It is worth noting that there are several non-cash items flowing through this line which caused the reported amounts to vary from quarter to quarter.
For the quarter, G&A was down by approximately $1 million.
The decrease was primarily due to decreases in legal and professional fees offset by employee related expenses.
As Chris mentioned earlier, our results for the quarters ended June 30, 2016 and 2015 were impacted by several notable items which cause our reported amounts to differ from recurring operations.
Results for the quarter ended June 30, 2016 included $0.5 million of environmental insurance reimbursements, $0.7 million of recoveries of uncollectible amounts and $0.3 million of other income, offset by a $0.7 million environmental litigation reserve which resulted in a net benefit to the Company of $0.8 million or $0.02 per share in the aggregate.
Results for the quarter ended June 30, 2015 included $7.4 million or $0.22 per share of income received from the marketing estate.
Our reported FFO per the quarter was $16 million or $0.47 per share as compared to $18.5 million or $0.55 per share for the same period last year.
After taking the notable items into account, our normalized FFO for the quarter was $15.2 million or $0.45 per share as compared to $11.1 million or $0.33 per share representing an increase of 36%.
Our reported AFFO for the quarter was $14.5 million or $0.42 per share as compared to $18.5 million or $0.55 per share for the same period last year.
After taking the notable items into account, our normalized AFFO for the quarter was $13.7 million or $0.40 per share as compared to $11.1 million or $0.33 per share representing an increase of 21%.
Turning to the balance sheet.
We ended the quarter with $304 million of borrowings, $129 million on our credit agreement and $175 million of long-term unsecured fixed rate debt.
The $19 million reduction in outstanding indebtedness during the quarter was due primarily to the receipt of funds from the payoff of a mortgage from a company financed sale of properties to a former tenant.
Our debt to total capitalization currently stands at approximately 29%, and our net debt to EBITDA ratio is defined in our loan agreements with 4.2 times at quarter end.
Our weighted average borrowing cost was 4.6% at quarter end, and the weighted average maturity of our debt is approximately 4.4 years with 58% of our debt being fixed rate.
Our environmental liability ended the quarter at $81.1 million down $3.2 million so far this year.
For the quarter ended June 30, 2016 the Company's net environmental remediation spending was approximately $3 million.
It is important to note that the net number on our balance sheet is also impacted by additions to the principal amount of the liability and accretion since GAAP requires us to book the liability on a present value basis.
Finally, as a result of the notable items I previously discussed and our strong first half operating performance, we are raising our 2016 AFFO per share guidance to a range of $1.50 to $1.55 per share.
Note that our guidance does not assume any acquisitions or capital markets activity although it does reflect our expectation that we will continue to execute on our leasing and disposition activities.
That concludes our prepared remarks.
So, let me ask the operator to open the call for questions.
Pretty comfortable with where the balance sheet is right now.
We like the ATM program a lot.
We think that depending on the size of the opportunities and the amount of capital we are putting into the development program, we will fund it with a combination of debt and debt and equity, to try to keep the capital structure somewhere near where it is today.
Excellent well thank you very much for joining us.
We look forward to speaking to everyone next quarter.
And thank you for your interest in the Company.
