Getty Realty Corp. (NYSE: GTY) | Christopher Constant, Brian Dickman, Mark Olear

We have ticker GTY, it's Getty Realty Trust. And I see there's one, there's another, there's another. We have three guests here, ladies and gentlemen. Three execs on the stream for you from Getty. We have Chris Constant, we have Brian Dickman, and Mark Olier. I hope I got the last name right, Mark. How you guys doing today? Thanks for joining.

Oh, thank you. Yeah, we're doing great. Appreciate you guys having us on today.

Absolutely. And it looks like you guys are all in different locations there, but that is fine. That's what this digital world is about today. I'll let you guys take it away and tell us a little bit about Getty.

Great. We've got a presentation which I think is up there. It is. But before we begin, I just wanted to say that I've been at Getty for more than ten years. It's been a pleasure to watch the company's portfolio evolve over the years. We've got an excellent team at Getty that's constantly working hard to grow our business for the benefit of all of our stakeholders. It's been a real joy over the last decade or so. We're a triple net lease REIT that owns more than a thousand freestanding properties across the U.S. We specialize in owning retail properties which serve both the convenience store sector. Said differently, properties which are associated with spending when consumers are in their cars. And we also own automotive retail real estate which serves the needs of consumers who spend on their cars. We have a long history of investing in the convenience and gas sector. More recently, we began adding investments across the broader automotive retail landscape. As we think about allocating capital to our target asset classes, we're encouraged by the health and growth of both the convenience and automotive retail sectors. Our tenants' businesses and our properties are essential and have consistently met the day-to-day needs of the retail consumer. The convenience and automotive sectors have proven to be quite resilient across economic cycles and in fact grew last year in 2020 despite the government. In addition, our target industries are evolving due to changes in consumer demand and technology, which create opportunities for us to invest alongside growing branded retailers that continue to embrace these changes and increase their market share through either new store builds or M&A. To elaborate further on our target asset classes, the C-store sector continues to grow as our tenants are increasing their in-store profits, which now make up roughly 60 percent of their gross profit. What does this increase in business? It can be attributed to expanded offerings such as packaged or made-to-order hot food and beverages, which adds to their already profitable traditional convenience stores and fueling businesses. Additionally, tenants have enjoyed success in driving additional customer visits to their stores through the use of various rewards programs and loyalty apps. Similarly, the broader automotive sectors we focus on continue to grow as vehicle registrations and the average age of vehicles in the U.S. are both at all-time highs, meaning that consumers are holding cars longer and spending more to maintain these vehicles. Many of these automotive sectors, specifically the car wash business, are driving profitability through brand awareness initiatives and membership work. These sectors remain highly fragmented, which provides opportunities for Getty. So turning to our portfolio, our typical property is between one to two acres and houses a three to five thousand square foot building. Generally, our assets are located on a corner or in a high traffic retail corridor. Today, roughly 75 percent of our base rent is derived from convenience gas properties, with the balance of our income coming from either express tunnel car wash operators or other automotive service tenants. We prioritize properties in high density and growing metropolitan areas. Our portfolio spans roughly 35 states, with 65 percent of our rent coming from the top 50 MSAs in the U.S. If you look at slide eight of our presentation, my two big takeaways for investors are: first, that we have grown our presence across several high growth markets in the southern half of the U.S., which was a key initiative for Getty when I became CEO a little more than five years ago. The second is the growth over the same period has focused largely on five major markets which now represent a significant portion of our base rent: Columbia, South Carolina; Denver; Kansas City; Phoenix; and San Antonio. With that, I'm going to turn it over to Mark for a few additional slides in our presentation.

Yeah, thanks Chris. I'll be taking us through slides nine through fourteen. From a tenant perspective, we focus on national and regional multi-store operators across the convenience and automotive retail landscape. These organizations are a mix of publicly traded and private companies, but all have the scale, access to capital, and operational experience to succeed in this rapidly evolving business in the different verticals in which they operate. As a net lease company, our typical lease terms require that all occupancy expenses in excess of base rent are the responsibility of tenants, with the portfolio of properties covered by unitary or master leases. These leases contain annual rent escalators and site level reporting, which gives us great visibility into the performance of the operating businesses. To that, on page 9 you'll see our various metrics which highlight the healthy tenant rent coverage ratio of 2.6 times. In our acquisition model, we typically underwrite to about a two times rent coverage threshold, so broadly speaking, the site level performance of our tenants is outpacing our assumptions and our acquisition underwriting. I would also add that this rent coverage ratio of 2.6 times has been relatively steady, including throughout the pandemic. If we move to page 10, as Chris touched on our investment thesis as it relates to convenience and automotive retail real estate, I'll just restate that these are essential businesses which are both e-commerce and recession resistant, and that meet the evolving consumer demand for convenience, service, and speed across varied geographies and demographics. Additionally, we place a significant weight on real estate fundamentals including the broader market characteristics and individual site attributes which help drive the underlying land value and potential for ultimate use. The retail verticals we target are currently highly fragmented, and consolidation by the operators has and will continue to provide Getty great opportunity to continue to deploy our capital. All combined, our focused investment strategy, detailed underwriting process, and lease structure deliver attractive risk-adjusted investments. Turning to page 11, our investment platform is highly targeted and we have proven we can grow the company through a broad set of investment capabilities. We originate sale-leaseback transactions, we acquire existing leases, we provide funding for new store construction which then transitions to fee ownership upon project completion. We maintain an active asset management and redevelopment program which allows us to deliver premium returns on investments from our older legacy assets. On pages 12 and 13, we highlight some of our recent investment activity. We've deployed over 600 million dollars since the beginning of 2016, which has further diversified our tenant base, our geographic presence, and retail sectors within our portfolio, and has continued proof of our capabilities to execute across all of our asset classes. Regarding our development and redevelopment activities summarized on page 14, we have successfully delivered four to six rent commencement projects over the last few years per year, and we expect to continue that in the near term. Returns we are generating on redevelopment invested capital for these projects continue to outpace what we could achieve in the acquisition market today, and we continue to identify additional opportunities in our existing portfolio. Our redevelopment program allows us to add high quality tenant diversity and also validates the strength of our underlying real estate thesis and markets in which we own our current portfolio. With that, I'll turn it over to Brian to talk about our balance sheet and other corporate items.

Can you guys hear me? Hey, thanks a lot guys. Nice presentation that you had there. I do have a few questions. So, just listening in, looking at some of the graphs and maps you guys were showing, definitely seems like your properties are all around the nation. I've been kind of asking this question to a few of our other companies and execs today: which regions do you see the most reopening happening right now?

Well, we've been prioritizing dense markets and high growth markets over the last several years. I mentioned in my pages there that we've been focusing on across the southern half of the U.S. When the pandemic hit in early 2020, the markets that were hit the hardest were the Northeast and the West Coast. We've seen those markets steadily come back from a traffic and a store business account. But I think you're really seeing two pieces of the country now. Across the middle of the country, the southern areas of the country, you really never saw that much of a slowdown in fuel volume and store visit count, so those areas have been very strong and pretty resilient throughout. Then, West Coast, East Coast, again you've seen reopening. You're seeing a lot of people take summer road trips, which is helpful for our asset classes. Obviously, with the surge in the Delta variant, you're seeing more people delaying their office openings. So if you're a suburban commuter, you use one of our locations, perhaps that's a little delayed. But I think you've seen from the bottom a little more than a year ago, you've certainly seen traffic and fuel come back up, but it's not all the way back to pre-pandemic on the coastal regions.

Gotcha. Thanks, Chris. Cool question here from someone in the audience on our YouTube audience: How do you see the shift to electric vehicles affecting gas station businesses? Do you think gas stations are ready for a change? Or I don't know if it's on you guys to try to help gas stations make those changes, but any quick thoughts there about electric vehicles?

Yeah, it's something that we spent a lot of time thinking about obviously, and we talk to our tenants all the time. I think what you've seen over the last decade, or as I've seen in my time at Getty, is a steady evolution of the business that's been preparing for any sort of lost income from fuel operation. Did you say convenience? Chris? Convenience, yeah. Okay. When you think convenience, you're thinking of your traditional store items, you're thinking of beverages, you're thinking of food. So what we saw in the pandemic was more carry out, more prepackaged food. During the pandemic and I think post-pandemic, you're going to continue to see the rise of convenience stores that offer made-to-order or more sophisticated food operations where you can actually go in and order your breakfast, lunch, dinner. That's going to drive additional profitability for our tenants. So if we do find ourselves in a scenario where there is lost income from the fuel side due to EVs, which we think is a little bit of a longer term trend, the profitability for our assets is going to be more than offset by that food income source.

Good to know. And if a Subway goes into a gas station that is one of your tenants, is that something that you guys would directly benefit from?

Absolutely. So when we look at new assets to acquire, a lot of our assets either have a branded QSR inside the store or maybe adjacent to the store, which becomes one of our tenants, or they are creating a private label fast food business inside their store. As we look at underwriting, what the appropriate rent is for a location, any income source that a sub tenant would have, whether it be a drive-through or QSR or coffee location, is certainly helpful for our business and for the business of our tenants.

Thanks a lot for answering those, Chris. I appreciate it. And appreciate you, Brian, and also Mark. Guys from Getty Realty, that's ticker GTY. Thanks a bunch for joining, gentlemen. You guys have a good rest of your day.

Thank you. Appreciate it as well.

Awesome. Again, ticker GTY.