Getty Realty Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 26, 2024

There are 11 speakers on the call.

Operator

Good morning, and welcome to Getty Realty First Quarter 2024 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 for the company will read a Safe Harbor statement and provide information about non GAAP financial measures. Please go ahead, Mr.

Operator

Dicker.

Speaker 1

Thank you. I would like to thank you all for joining us for Getty Realty's Q1 earnings conference call. Yesterday afternoon, the company released its financial and operating results for the quarter ended March 31, 2024. Form 8 ks 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.

Speaker 1

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 2024 guidance and may also include statements made by management, including those regarding the company's future company operations, future financial performance or investment plans and opportunities. We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially. I refer you to the company's annual report on Form 10 ks for the year ended December 31, 2020 3 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.

Speaker 1

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 our definition of adjusted funds from operations or AFFO and our reconciliation of those measures to net earnings. With that, let me turn the call over to Christopher Constant, our Chief Executive Officer.

Speaker 2

Thank you, Josh. Good morning, everyone, and welcome to our earnings call for the Q1 of 2024. Joining us on the call today are Mark O'Lear, our Chief Operating Officer and Brian Dickman, our Chief Financial Officer. I will lead off today's call by summarizing our financial results and investment activities and will provide commentary on how we continue to execute on our overall strategy in a thoughtful and disciplined manner despite the headwinds impacting all net lease companies. Mark will then take you to our portfolio and Brian will further discuss our financial results and guidance.

Speaker 2

We had a productive start to 2024 building on our momentum from last year. The combination of the investments made in 2023 and our year to date activity plus the successful capital markets activity that pre funded these investments positions us to deliver continued earnings growth in 2024 even as we remain patient in a still uncertain interest rate environment. In the Q1, we invested approximately $41,000,000 across 35 properties. We also continue to diversify our business by investing across our 4 primary convenience and automotive retail asset classes, including convenience stores, express tunnel car washes, auto service centers and drive through quick serve restaurants. In addition, the team at Getty continue to actively manage our in place portfolio by extending 2 material unitary leases with near term maturities, which resulted in an uptick in our weighted average lease term at quarter end.

Speaker 2

The net result of our excellent performance from the last year and our strong start to this year was a quarterly base rental income increase of 13.1 percent and a 1.8% growth in our quarterly AFFO per share. Looking ahead, Getty continues to be well positioned to create value for shareholders in the current environment, both through the strength of our in place portfolio and our ability to source and close investment opportunities, which will further advance our growth and portfolio diversification efforts. To that end, we currently have a committed investment pipeline of more than $44,000,000 under contract at a blended cap rate in the high 7% area, which is fully funded from our prior capital markets transactions. In addition, thanks to the efforts of our investments team, we are evaluating a steady flow of potential acquisition and redevelopment opportunities. Our target retail sectors institutional tenant base continue to perform well and maintain healthy profit margins and rent coverage ratios.

Speaker 2

Specific to the C store sector, the National Association of Convenience Stores recently published a summary of their annual state of the industry report showing that 2023 was another record year of sales for the industry. We also continue to benefit from our focused strategy relationships. Despite many operators in our target sectors prioritizing operations and or being more selective when it comes to growth, we've been steadily sourcing new opportunities to underwrite. Pricing these transactions remains a challenge as bid ask spreads persist, but we're pleased with the deal flow and trust that we'll be able to execute as the transaction market continues to adjust. Overall, we expect 2020 4 to be a challenging year for acquisitions of net leased properties in our sectors.

Speaker 2

However, we believe we have a clear path to generate earnings growth from the rent escalators in our in place portfolio, additional income from investments made in 2023 and those already completed in the Q1 as well as closings from our committed pipeline, which are expected to occur throughout 2024. With that, I'll turn the call over to Mark to discuss our portfolio and investment activities.

Speaker 3

Thank you, Chris. As of the end of the quarter, portfolio included 1103 net leased properties and 2 active redevelopment sites. Excluding the active redevelopments, occupancy was at 99.7% and our weighted average lease term increased to 9.2 years due to both our new investments and the early renewal of selected leases. Our portfolio spans 42 states plus Washington DC with 60% of our annualized base rent coming from the top 50 MSAs and 77% coming from the top 100 MSAs. Our rents are well covered with a trailing 12 month tenant rent coverage ratio of 2.6 times, which has generally been consistent over the last 4 years, demonstrating the resiliency of our tenants businesses despite macroeconomic uncertainty.

Speaker 3

Turning to our investment activities, we had a productive start to the year as we invested approximately $41,000,000 in the Q1. Highlights of this quarter's investment include the acquisition of 1 new to industry convenience store located in Florida for 7,600,000 dollars 2 drive thru QSRs for $3,000,000 7 auto service center properties located throughout the Southeastern U. S. For 13,700,000 dollars of which $12,600,000 was funded in the Q1 12 Express Tunnel Car Washes located in various market with concentrations in Virginia and North Carolina for $61,000,000 of which $9,900,000 was funded in the Q1. We also advanced incremental development funding in the amount of $7,800,000 for the construction of 13 new to industry convenience stores, express tunnel car washes and auto service centers.

Speaker 3

These assets are either already owned by the company and are under construction or will be acquired via sale leaseback transactions at the end of the project's respective construction periods. For the quarter, the aggregate initial cash yield on our investment activity was 7.7% and the weighted average lease term for acquired properties was more than 16 years. Subsequent to the quarter end, we invested $7,200,000 for the development and or acquisition of 1 convenience store and 2 express tunnel car washes. We currently have more than $44,000,000 of commitments to fund acquisitions and developments, the majority of which are we expect to deploy over the next 6 months at average initial yields that are consistent with our Q1 performance. Pipeline yields continue to reflect some older vintage transactions as well as current pricing for our new originations, which is generally north of 8%.

Speaker 3

Moving to our redevelopment platform. During the quarter, we invested approximately $500,000 in projects, which are in various stages in our pipeline. We ended the quarter with 3 signed leases for redevelopment and are seeing renewed interest from retailers whose expansion plans overlap with the footprint of our portfolio. We expect to continuously complete projects over the next few years. Turning to asset management activities.

Speaker 3

We sold 1 property in the Q1 for $1,200,000 As we look ahead, overall transaction market conditions are largely unchanged from the prior quarter as sellers are electing to hold assets with the hope that pricing improves later this year. However, we believe our focused strategy will afford us the opportunity to work on transaction opportunities with both our existing tenant partners as well as several new relationships as we move throughout the year. With that, I'll turn the call over to Brian.

Speaker 4

Thanks, Mark. Good morning, everyone. Last night, we reported AFFO per share of $0.57 for Q1 2024, representing an increase of 1.8 percent versus the $0.56 per share we reported in Q1 2023. FFO and net income for the quarter were $0.53 $0.30 per share respectively. Our total revenues for the quarter were $49,000,000 representing year over year growth of 14% versus the Q1 of 2023.

Speaker 4

Base rental income, which excludes tenant reimbursements, GAAP revenue adjustments and any additional rent increased by 13.1% to $43,900,000 This growth was driven primarily by our recent acquisition activity as well as recurring rent escalators in our leases and rent commencements and completed redevelopment projects. On the expense side, total G and A was $6,700,000 in the Q1 compared to $6,300,000 in the prior year period. Excluding non cash stock based compensation, G and A was $5,300,000 compared to $5,000,000 in Q1 2023. Increase in G and A was primarily due to employee related expenses, professional and legal fees and information technology expenses. We continue to anticipate the G and A increases will moderate and G and A as a percentage of our revenue and asset base will decrease as we continue to scale the company.

Speaker 4

Property costs were $3,700,000 for the quarter compared to $4,700,000 in the prior year period due primarily to lower reimbursable expenses, rent expense and demolition costs for redevelopment projects. Environmental expenses which are highly variable due to a number of estimates and non cash adjustments were a credit of $17,000 in the quarter as compared to an expense of $321,000 in the Q1 of 2023. Our balance sheet continues to be well positioned and we ended the quarter with $800,000,000 of total debt outstanding. This consisted primarily of $675,000,000 of senior unsecured notes with a weighted average interest rate of 3.9% and a weighted average maturity of 6.2 years. We also had a $75,000,000 unsecured term loan outstanding at a 6.1% interest rate and $50,000,000 drawn on our $300,000,000 total debt to total capitalization was 37%, while and total debt to total capitalization was 37%, while total indebtedness to total asset value as calculated pursuant to our credit agreement was 36%.

Speaker 4

Taking into account unsettled forward equity, net debt to EBITDA would be approximately 4.9 times. Subsequent to quarter end, we drew down the remaining $75,000,000 available under our delayed draw term loan and use the proceeds to repay all amounts outstanding on the revolving credit facility. The balance will be used for general corporate purposes including to partially fund our investment pipeline. There was no new equity capital markets activity in the Q1 and we currently have approximately 1,000,000 shares of common stock subject to outstanding forward sales agreements. Upon settlement, these shares are anticipated to raise gross proceeds of approximately $32,000,000 Returning to our committed investment pipeline, as Chris mentioned, these transactions are fully funded through a combination of cash on the balance sheet, proceeds from the recent term loan draw and proceeds from our outstanding forward equity agreements.

Speaker 2

Pro form

Speaker 4

a for these investments and capital activity, we expect our balance sheets remain well positioned to support continued growth and to maintain leverage near the midpoint of our target range of 4.5x to 5.5x net debt to EBITDA. As our investment pipeline evolves, we will continue to evaluate all capital sources to ensure that we're funding transactions in an accretive manner, while continuing to maintain our investment grade credit profile. With respect to our environmental liability, we ended the quarter at approximately $21,700,000 which was a reduction of approximately $700,000 since

Speaker 2

the end of

Speaker 4

2023. Our net environmental remediation spending for the first quarter was approximately $1,100,000 And finally, we are reaffirming our 2024 AFFO guidance of 2 point $2.9 to $2.31 per share. As a reminder, our outlook includes transaction and capital markets activity to date, including the recent $75,000,000 term loan draw, but does not otherwise assume any potential acquisitions, dispositions or capital markets activities for the remainder of the year. Primary factors impacting our AFFO guidance include variability with respect to certain operating expenses, deal pursuit costs and the timing of anticipated demolition costs for redevelopment projects, which run through property costs on our P and L. With that, I'll ask the operator to open the call for questions.

Operator

Thank Our first question is from Joshua Dennerlein with Bank of America. Please proceed.

Speaker 5

Hi. This is Farrell Burnet on behalf of Josh. Good morning. I wanted to ask if you make a few comments on the sale leaseback market set, what you're seeing in opportunity?

Speaker 3

Yes, this is Mark. So the opportunity coming in the 1st part of the year, we it remains the opportunities remain active. We're seeing a lot of product maybe at a more moderate pace than we had coming out of last year. That activity is around continuing to work the relationships with our existing long term partners to try and match their underwriting expectations and pricings on growth and also a mix of new relationships and new pretty encouraged by what we're seeing and it's just a matter of buyer and seller expectations coming into line.

Speaker 5

Great. And when thinking about investment pacing for the rest of the year, do you think that it may be even more back half weighted as people start figuring out the macro?

Speaker 4

Yes. I mean, we've said

Speaker 2

for a while, when there's some better certainty or clarity around where the economy is headed, we do think the transaction market will open back up. So I think you could certainly make an argument that towards the back half of this year, we do expect to see more opportunities.

Speaker 5

Great. Thank you so much.

Operator

Our next question is from Todd Thomas with KeyBanc Capital Markets. Please proceed.

Speaker 6

Hi, thanks. Good morning. Mark, maybe Brian can weigh in too. You talked about the yield on investments being 7.7% in the quarter, but indicated that the yield on deals in the pipeline is I think 8% you said. Does 8% get you a little bit more active again on capital deployment?

Speaker 6

Or do you see investment yields increasing or do you need to see investment yields increasing further relative to your current cost of capital? And then do you see potential upside to those yields just based on current conversations that you're having with sellers and tenants regarding sale leasebacks just given where interest rates are and expectation for rate cuts being priced out of the market a little bit more recently?

Speaker 3

Well, yes. So I could talk about the high 7%. There is a little bit of weight there to vintage deals from last year that where the development funding is a longer time horizon. So we'll cycle through those as this year progresses. The pipeline is weighted both with opportunities that we priced closer to the 8% range.

Speaker 3

And I would say that in the most current vintage deals in the underwriting, we're in and around that 8% above the 8% generally in those conversations. Again, the total volume of that might be more moderate than it had been previously. But where we can match up valuation of new opportunities with our tenant partners, both, as you said, existing relationships, new relationships, we expect to be able to transact on those opportunities.

Speaker 4

Hey, Todd. It's Brian. With respect to spreads, I think no different than a lot of the sector. We'd love to be closer to that 150 basis point area. Candidly, in the current market and for the prior last year and change, it's really been trying to get spreads closer to 100 basis points and north of that.

Speaker 4

And I think if you look at current cost of capital and where we're putting our paper today, I think that's something we can achieve. The deals that are under contract, the deals that Mark's been quoting, those are really matched against some capital we have in hand, right, that's at a lower cost. So we think we're achieving that spread when you match that funding against those deals. And as we look at putting out new paper and we're looking at spot cost of capital, we want to be north of 8 percent certainly on a blended basis, maybe into the low, if not mid 8s to really achieve that spread. But we also try not to put any bright red lines that will inhibit us from doing otherwise quality deals that make sense for the portfolio as long as they're accretive directionally.

Speaker 4

So hopefully that helps provide a little bit of color. But yes, to achieve the spreads we're looking for, which is generally around that 100 basis points area in this market, we're going to want to be north of 8%.

Speaker 6

Okay. Yes, that's helpful. And then, I think you mentioned that there are some new tenants that you're talking to that had not previously considered sale leasebacks. Is that sort of a new category or just new tenants, new credits within the C Store and Automotive Services segment?

Speaker 2

It's not new categories. I'd say it's tenants that previously had either been financing on their balance sheet or just hadn't really entertained sale leaseback conversations in the past. So it's folks that we've known for a long time who are certainly looking at how they can continue to manage their balance sheet and finance their growth. And we're certainly thrilled to have those conversations and would love to bring those types of tenants into the portfolio.

Speaker 6

Okay. And then just lastly, Chris, you touched on, the extension of 2 unitary leases, which bumped out the portfolio's wall. It looked like those leases might have been in 2025 and 2017 that you extended. But can you provide a little bit more detail there whether there were any sort of changes to economic or non economic terms pertaining to the lease, annual escalators, for example. And then looking out, I know it's a little early, but expirations do bump up quite a bit to 8% 12% in 2026 and 2027, which is rather meaningful.

Speaker 6

Any early thoughts on those expirations?

Speaker 2

Sure. Yes. So it's 2 leases, one that had an initial maturity in 2025. That in that particular instance, the tenant was looking to make some investments in those properties and wanted a much longer term. So they exercised an early option that lease went out 10 years.

Speaker 2

We get some additional rent bumps as part of that. And so we're really happy with that lease. And then one was the 27 expiration, which is an early contractual renewal. There are standard bumps in that renewal. So that was really just pushing out term by 10 years.

Speaker 2

We do have maturities. I'll focus mostly on 27 because that there's a lot of leases that make up the 27 maturity. Those are leases that came from the old Getty Petroleum Marketing assets. And so we are going to continue to work through those. Those are healthy performing leases and we have an active dialogue with those tenants as we get closer to their renewal notice date.

Speaker 2

We're certainly we expect those to renew and to have those properties in the portfolio long term.

Speaker 6

Okay, great. Thank you.

Operator

Our next question is from Anthony Paolone with JPMorgan. Please proceed.

Speaker 7

Thanks. Good morning. Just going back to cap rates and these numbers that the margin seem to be in the 8s. Is it like for like quality with what you were doing historically? Or do you have to go up or down the quality spectrum to kind of get into that zip code?

Speaker 7

I'm just trying to understand how to think about an 8 today versus what that had been say 2, 3 years ago?

Speaker 2

Yes. I'm actually glad you asked that question. We are buying the same assets that we've been buying for the entire time at this company, right? Convenience stores, car washes, auto service, same quality tenant, same quality assets in attractive markets, right? Real estate valuations for our properties have changed, right?

Speaker 2

We're not pushing rents or underwriting to the same coverages. It's these are tenants that have the ability to continue to grow their business. They need to finance that growth and we're there to provide that financing for them.

Speaker 7

Okay. So is it so basically this implies about 100 bps of cap rate back up in terms of what you've seen at this point in the market?

Speaker 2

Yes. I mean, you could argue from the trough, it's actually probably a little more than that, but probably 100 basis points to 125 basis points.

Speaker 7

Okay. And then just on the credit side, the 2.6 coverage you talked about, but can you dig in a bit further there? Are there any pockets where you feel like it warrants some concern or anything on your watch list? And then also along the same lines, can you maybe talk to how areas like car washes are doing particularly the new builds versus kind of what you underwrote?

Speaker 2

Yes. Go ahead. That's our coverage first.

Speaker 4

Yes. Hey, Tony, it's Brian. So your specifics of the coverage ratio and watch list, the short answer is no. There's no real tenants on the watch list. I mean, in general, just given macro environment, consumer environment, we're engaged with our tenants, making sure that we're understanding how they're operating their business.

Speaker 4

We are definitely hearing a lot of our tenants focus on operational excellence, cost savings, margin expansions, things like that, just as growth broadly speaking, as we've been talking about as well as slow down a little bit. So no particular tenants though beyond just that regular way kind of diligence, I would say. You may have noticed in the distribution of rent coverage in our deck, we did have 2 leases with not an immaterial amount of ABR move from one strata to the other, but that was really right around the 2 times coverage moving from one side of that to the other. And as you see from the total, it did not have a material impact on the 2.6. So that explains that.

Speaker 4

And then just within the different sectors, obviously, we have a lot more data, a lot more history with the C stores the tenants there and their performance. Car washes are a little bit new. I'd say if there's any trends, and this may be moderating again given some of the economic backdrop, but I'd say the car wash is probably on average have ramped up a little faster than our additional underwriting. And so we're seeing some good profitability there in the years 1 and 2 timeframe versus typically our tenants look to year 3 for stabilization. Again, whether that's a trend that continues or not, we'll see, but I'd say net net that's a positive.

Speaker 7

Okay. Thanks. And if I could just sneak one more in, just following up, I think on Todd's question, your answer around the 27 lease expirations, any sense as to whether those sit above or below market as of today?

Speaker 4

Well, from a rent perspective, so I don't feel they have contractual renewal options, excuse me. So regardless of where rents are compared to markets, it's not really relevant to the renewal decision. So what we're really focused on there is the profitability of the portfolios and these are unitary leases and that was really Chris's comment that as we look at them today and given their contribution to the tenants overall, profitability would be our expectation that they would renew and those would be add rents pursuant to the existing leases.

Speaker 7

Okay, got it. Thank you.

Operator

Our next question is from Alex Fagan with Baird. Please proceed.

Speaker 8

Hi, thank you for taking my question. First one is, are you seeing any more opportunities for developer takeouts? And if so, in which categories?

Speaker 3

So we have got some opportunities come our way. If you're asking about tenants that had previously used development services, that has been a difficult business. So if you were a tenant growing through like a merchant developer program, the total pro form a for that type of business has been really difficult to continue to deliver on. So we have tenants that had previously used other types of services to grow have come to us to explore our development funding and our sale leaseback product. If the question is about from developers who had previously been in the midst other entitlement and development process.

Speaker 3

We've had some conversations where they've come to us looking to us as a partner or a source of capital with again within our targeted asset classes, if they had intended to develop for a tenant we'd eventually like to have in our portfolio, we do have some of those conversations going on too. Hope that answers the question.

Speaker 8

Yes, it does. Thank you. And I guess second one for me is in Getty's diversification effort, what kind of upper bound, if any, of the portfolio would car washes get to kind of notice I think at 18.9% now?

Speaker 2

Yes. I mean, I think our ultimate goal with the diversification strategy has just become a more balanced portfolio. So given the history of the business where at one point C stores and gas stations made up 100% of rents or 99% of rents. Certainly, we're looking to balance that out more. I think what you saw with our activity over 2023 and in the Q1 of 2024, we're investing across all of the asset classes.

Speaker 2

And to Brian's earlier point, what we're seeing now is operators specifically in Car Wash Day being more focused on operations and ramping up some of these new store developments that we funded. So we expect to see, what I'll call more balanced underwriting and balanced closings across opportunities as we move through 2024.

Speaker 8

Got it. That's it for me. Thank you.

Operator

Our next question is from Mitch Germain with Citizens JMP. Please proceed.

Speaker 9

Thank you. I'm just curious, I know a lot of emphasis on leasing this call. Is the lease structure changed at all in terms of maybe financial reporting requirements or rent bumps and kind of maybe are you pushing those at all in terms of some of the new leases that you're signing?

Speaker 2

I mean, generally lease terms haven't changed over the last several months. I think when we started to see cap rates move, started to see inflation, one of the first things to move probably 15 or 18 months ago were rent bumps. So our rent bumps today that we're putting on paper on are 2% plus as opposed to maybe in the trough of they were sort of bottomed out at 1.5%, but other lease terms that really aren't changing.

Speaker 9

Great. And then is there any potential emphasis given where your cost of equity is today To maybe consider some asset sales, I know that you're still you own a bunch of legacy assets that may not be that I know they're performing well, but may not be completely aligned with the type of assets that you would buy today. So could you be pursuing any additional dispositions down the road?

Speaker 2

We certainly entertain that type of thought all the time. Several quarters ago, we sold a portfolio in upstate New York and reinvested that into assets in Austin, Texas. And should that align that type of transaction align in the future, we would consider it. We're fortunate today that being 99.7% occupied and having leases with healthy rent coverages and tenants that are performing well, right? We're not forced to look at asset sales.

Speaker 2

So it'd be really maybe more of an opportunistic transaction where we could maybe divest a portfolio and reinvest in a new set of assets. But we look at the portfolio all the time, Mitch, for value and certainly we expect to continue to do so and if that works, if the numbers work, we would transact on it.

Speaker 9

Great. Thanks so much.

Operator

Our next question is from Michael Gorman with BTIG. Please proceed.

Speaker 10

Yes, thanks. Good morning. Chris, I was wondering if you could talk a little bit about some of the new tenants or new relationships that you're looking at from the sale leaseback perspective and just the expectation side, if they're new to the market, are you finding that these are deals that take a longer time to get through to close? Are there expectations further off? Or kind of what the negotiation process is like there versus the existing market?

Speaker 10

And what their alternatives look like in the current financing environment?

Speaker 2

Yes. I think with some of the newer conversations, you're often our process and the way we like to transact being a unitary master lease as opposed to 1 off transactions, the first obstacle is always the conversation around pricing, what people could get on the one off basis in the 10/31 market versus where we think value is for a portfolio. So our number in the Q1 was 7.7%. Mark talked about putting deals out today that are 8% plus. There are still one off transactions that are happening probably that start with a 6% range if somebody is willing to transact one asset at a time.

Speaker 2

So I think that's where if we need to educate what a portfolio sale leaseback looks like to an institutional buyer as opposed to a retail transaction. So that does take some time. That is part of our process in terms of educating someone that hasn't been through a sale leaseback before. But I think our track record is such that we've been able to be there and provide that commitment to somebody whether it's a sale leaseback or whether it's to development funding where it makes sense for them to transact in a portfolio as opposed to taking the risk and the time that it takes to transact one off. So it does take time, Mike, but I think we've been really successful at really kind of educating tenants that haven't been through the sale leaseback process before and forming those new relationships and bringing those tenants into the portfolio.

Speaker 10

That's helpful. Thanks, Chris. And Brian, just quickly on the coverage side of things, you mentioned the 2 leases. Can you just give us a little bit more color in that kind of 1 to 2 bucket? What the breakdown of the properties and the property types in that bucket are?

Speaker 10

And then just generally, when you think about the portfolio, where do you look for the coverages based on product type as you're kind of thinking about the portfolio or thinking about underwriting?

Speaker 4

Yes, happy to. I'll work backwards there, Mike. We've been really consistent over the years with underwriting C stores to a 2 times coverage. Car washes, we will push 2.5 maybe upwards of 3 times depending on if it's a new build and we're looking off pro formas or whether there's an operating history to look at. So that's where the underwriting comes in.

Speaker 4

In terms of the actual performance, I'd say in that 1 to 2 times a bucket would be a mix of some ramping car washes, which I think we referenced on the call last time. So as things are coming into our data set, which we bring in after 12 months. And I mentioned earlier that typically the car wash target for stabilization is more like 36 months. So that is some of the 1 to 2. And then there's a couple C store portfolios that are definitely performing.

Speaker 4

They've been in the portfolio for a long time. As I mentioned, they were north of 2 at our last data set and they happen to drop just south of 2 for this data set, but not in such material way that it changed the overall average. So think of it as a mix of ramping car washes and some older, but very much performing C store portfolios that have been in our broader portfolio for a long period of time.

Speaker 10

Great. Thanks for the color.

Operator

We have reached the end of our question and answer session. I would like to turn the conference back over to Chris for closing remarks.

Speaker 2

Thank you, operator. Thank you everyone for being on the call this morning. We look forward to getting back on in July when we report our Q2 of 2024 results.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

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Key Takeaways

  • Q1 financial results: AFFO per share rose 1.8% to $0.57 with total revenues up 14% and base rental income increasing 13.1% year-over-year.
  • Strong investment activity: $41 million deployed across 35 properties in Q1, with an aggregated initial cash yield of 7.7% and a fully funded pipeline exceeding $44 million at blended cap rates in the high-7% to 8%+ range.
  • High-quality portfolio: 1,103 net-leased properties at 99.7% occupancy, a weighted average lease term of 9.2 years and a consistent 2.6x tenant rent coverage ratio across diversified convenience, automotive and QSR assets.
  • Conservative balance sheet: $800 million in total debt (37% leverage) at a weighted average interest rate of 3.9%, with pro forma net debt/EBITDA near 4.9x and ample liquidity to fund growth.
  • 2024 guidance reaffirmed: AFFO guidance maintained at $2.29 to $2.31 per share, reflecting expected earnings growth from rent escalators, recent investments and the current committed pipeline.
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Earnings Conference Call
Getty Realty Q1 2024
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