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Getty Realty Corp. Announces Second Quarter 2018 Results

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Getty Realty Corp. (NYSE:GTY) ("Getty" or the "Company") announced today
its financial results for the quarter ended June 30, 2018.

Highlights For The Second Quarter

  • Net earnings of $0.33 per share
  • Funds From Operations (FFO) of $0.43 per share
  • Adjusted Funds From Operations (AFFO) of $0.43 per share
  • Acquired 32 properties for $55.3 million
  • Issued $100.0 million of 10-year senior unsecured notes

Christopher J. Constant, Getty's President & Chief Executive Officer
stated, "During the second quarter we exhibited ongoing progress in each
of our strategic priorities. From an operational perspective, our stable
triple-net lease portfolio delivered another quarter of increased AFFO
per share. In terms of investment activities, we added 32 high-quality
properties to our portfolio, which further diversified our portfolio
geographically, and had rent commence on two redevelopment projects.
Additionally, we further enhanced our balance sheet as we completed a
private placement of $100 million of unsecured notes. With a healthy
balance sheet and a growing pipeline of acquisition and redevelopment
projects, we believe we are well-positioned for continued growth."

Net Earnings

The Company reported net earnings for the quarter ended June 30, 2018,
of $13.5 million, or $0.33 per share, as compared to net earnings of
$15.1 million, or $0.43 per share, for the same period in 2017. The
Company reported net earnings for the six months ended June 30, 2018, of
$23.6 million, or $0.58 per share, as compared to net earnings of $24.8
million, or $0.71 per share, for the same period in 2017.

Funds From Operations (FFO) and Adjusted Funds From Operations
(AFFO)

FFO for the quarter ended June 30, 2018, was $17.6 million, or $0.43 per
share, as compared to $19.9 million, or $0.57 per share, for the same
period in 2017. FFO for the six months ended June 30, 2018, was $35.4
million, or $0.88 per share, as compared to $38.1 million, or $1.09 per
share, for the same period in 2017.

AFFO for the quarter ended June 30, 2018, was $17.4 million, or $0.43
per share, as compared to $14.9 million, or $0.42 per share, for the
same period in 2017. AFFO for the six months ended June 30, 2018, was
$34.2 million, or $0.85 per share, as compared to $29.0 million, or
$0.83 per share, for the same period in 2017.

All per share amounts in this press release are presented on a fully
diluted per common share basis, unless stated otherwise. FFO and AFFO
are defined and reconciled to net earnings in the financial tables at
the end of this release. During the fourth quarter of 2017, the Company
revised its definition of AFFO
. See "Non-GAAP Financial Measures"
below.

Results of Operations

Revenues from rental properties increased by $4.6 million to $29.0
million for the quarter ended June 30, 2018, as compared to $24.4
million for the same period in 2017. Revenues from rental properties
increased by $9.0 million to $57.3 million for the six months ended
June 30, 2018, as compared to $48.3 million for the same period in 2017.
The increase in revenues from rental properties for the quarter and six
months ended June 30, 2018, was primarily due to revenue from properties
acquired by the Company in 2018 and the second half of 2017.

Property costs were $6.4 million for the quarter ended June 30, 2018, as
compared to $5.3 million for the same period in 2017. Property costs
were $11.4 million for the six months ended June 30, 2018, as compared
to $10.1 million for the same period in 2017. The increase in property
costs for the quarter ended June 30, 2018, was principally due to an
increase in reimbursable real estate taxes. The increase in property
costs for the six months ended June 30, 2018, was principally due to an
increase in reimbursable real estate taxes, offset by a decrease in
maintenance expenses.

Environmental expenses included in continuing operations were $1.4
million for the quarter ended June 30, 2018, as compared to $0.4 million
for the same period in 2017. Environmental expenses included in
continuing operations were $2.7 million for the six months ended
June 30, 2018, as compared to a credit of $0.1 million for the same
period in 2017. The increase in environmental expenses for the quarter
and six months ended June 30, 2018, was principally due to increases in
environmental legal and professional fees and net environmental
remediation costs. Environmental expenses vary from period to period
and, accordingly, undue reliance should not be placed on the magnitude
or the direction of change in reported environmental expenses for one
period, as compared to prior periods.

General and administrative expenses were $3.9 million for the quarter
ended June 30, 2018, as compared to $3.7 million for the same period in
2017. General and administrative expenses were $7.4 million for the six
months ended June 30, 2018, as compared to $7.2 million for the same
period in 2017. The increase in general and administrative expenses for
the quarter and six months ended June 30, 2018, was principally due to
an increase in public company and employee related expenses.

Impairment charges included in continuing operations were $0.8 million
for the quarter ended June 30, 2018, as compared to $0.9 million for the
same period in 2017. Impairment charges included in continuing
operations were $3.3 million for the six months ended June 30, 2018, as
compared to $4.4 million for the same period in 2017. Impairment charges
in continuing operations for the quarter and six months ended June 30,
2018 and 2017, were primarily attributable to the effect of adding asset
retirement costs due to changes in estimates associated with the
Company's environmental liabilities and reductions in estimated sales
prices from third-party offers based on signed contracts, letters of
intent or indicative bids for certain of its properties.

Portfolio Activities

On April 17, 2018, the Company acquired fee simple interests in 30
properties for $52.6 million and entered into a unitary triple-net lease
with GPM Investments, LLC. In addition, during the quarter ended June
30, 2018, the Company acquired fee simple interests in two properties
for a purchase price of $2.7 million in the aggregate.

Redevelopment Activities

As of June 30, 2018, the Company is actively redeveloping nine of its
former convenience store and gasoline station properties either as a new
convenience and gasoline use or for alternative single-tenant net lease
retail uses. As of June 30, 2018, the Company had signed leases on five
additional properties, that are currently part of its net lease
portfolio. These properties are expected to be recaptured from their
current leases and transferred to redevelopment when the appropriate
entitlements, permits and approvals have been secured. During the
quarter ended June 30, 2018, rent commenced on two redevelopment
projects.

Balance Sheet

On June 21, 2018, the Company issued $100.0 million of senior unsecured
notes maturing in 2028 bearing interest at a fixed rate of 5.47%. The
senior unsecured notes were issued in a private placement with The
Prudential Insurance Company of America and certain of its affiliates
(collectively, "Prudential") and the Metropolitan Life Insurance Company
and certain of its affiliates and are subject to substantially similar
terms and conditions as the Company's existing senior unsecured notes
with Prudential. Proceeds from the transaction were used to repay
outstanding indebtedness on the Company's floating rate unsecured
revolving credit facility.

As of June 30, 2018, the Company had $415.0 million of outstanding
indebtedness with a weighted average interest rate of 5.1%. The
Company's indebtedness consisted of $90.0 million in aggregate
borrowings under the credit agreement and an aggregate principal amount
of $325.0 million of senior unsecured notes. Total cash and cash
equivalents were $19.4 million as of June 30, 2018.

2018 Guidance

The Company reaffirms its 2018 AFFO guidance at a range of $1.68 to
$1.74 per diluted share. The Company's guidance does not assume any
potential future acquisitions or capital markets activities. The
guidance is based on current plans and assumptions and is subject to
risks and uncertainties more fully described in this press release and
the Company's periodic reports filed with the Securities and Exchange
Commission.

Conference Call Information

Getty will hold its Second Quarter Earnings Conference Call on Thursday,
July 26, 2018, at 8:30 a.m. EDT. To participate in the call, please dial
(800) 289-0438, or (323) 794-2423 for international participants, ten
minutes before the scheduled start time. Participants may also access
the call via live webcast by visiting the investors section of the
Company's website at ir.gettyrealty.com.

A replay will be available on Thursday, July 26, 2018, beginning at
11:30 a.m. EDT through 11:59 p.m. EDT, Thursday, August 2, 2018. To
access the replay, please dial (844) 512-2921, or (412) 317-6671 for
international participants, and reference pass code 6598192.

About Getty Realty Corp.

Getty Realty Corp. is the leading publicly-traded real estate investment
trust in the United States specializing in the ownership, leasing and
financing of convenience store and gasoline station properties. As of
June 30, 2018, the Company owned 854 properties and leased 78 properties
from third-party landlords in 30 states across the United States and
Washington, D.C.

Non-GAAP Financial Measures

In addition to measurements defined by accounting principles generally
accepted in the United States of America ("GAAP"), the Company also
focuses on Funds From Operations ("FFO") and Adjusted Funds From
Operations ("AFFO") to measure its performance. FFO and AFFO are
generally considered by analysts and investors to be appropriate
supplemental non-GAAP measures of the performance of REITs. FFO and AFFO
are not in accordance with, or a substitute for, measures prepared in
accordance with GAAP. In addition, FFO and AFFO are not based on any
comprehensive set of accounting rules or principles. Neither FFO nor
AFFO represent cash generated from operating activities calculated in
accordance with GAAP and therefore these measures should not be
considered an alternative for GAAP net earnings or as a measure of
liquidity. These measures should only be used to evaluate the Company's
performance in conjunction with corresponding GAAP measures.

FFO is defined by the National Association of Real Estate Investment
Trusts as GAAP net earnings before depreciation and amortization of real
estate assets, gains or losses on dispositions of real estate,
impairment charges and cumulative effect of accounting change. The
Company's definition of AFFO is defined as FFO less (i) Revenue
Recognition Adjustments (net of allowances), (ii) non-cash changes in
environmental estimates, (iii) non-cash environmental accretion expense,
(iv) environmental litigation accruals, (v) insurance reimbursements,
(vi) legal settlements and judgments, (vii) acquisition costs expensed
and (viii) other unusual items that are not reflective of the Company's
core operating performance. Other REITs may use definitions of FFO
and/or AFFO that are different than the Company's and, accordingly, may
not be comparable.

Beginning in the fourth quarter of 2017, the Company revised its
definition of AFFO to exclude three additional items – environmental
litigation accruals, insurance reimbursements, and legal settlements and
judgments – because the Company believes that these items are not
indicative of its core operating performance. While the Company does not
label excluded items as non-recurring, the Company believes that
excluding items from its definition of AFFO that are either non-cash or
not reflective of its core operating performance provides analysts and
investors the ability to compare its core operating performance between
periods. AFFO for the quarter and six months ended June 30, 2017, has
been restated to conform to the Company's revised definition.

FFO excludes various items such as depreciation and amortization of real
estate assets, gains or losses on dispositions of real estate and
impairment charges. In the Company's case, however, GAAP net earnings
and FFO typically include the impact of revenue recognition adjustments
comprised of deferred rental revenue (straight-line rental revenue), the
net amortization of above-market and below-market leases, adjustments
recorded for recognition of rental income recognized from direct
financing leases on revenues from rental properties and the amortization
of deferred lease incentives, as offset by the impact of related
collection reserves. Deferred rental revenue results primarily from
fixed rental increases scheduled under certain leases with the Company's
tenants. In accordance with GAAP, the aggregate minimum rent due over
the current term of these leases is recognized on a straight-line basis
rather than when payment is contractually due. The present value of the
difference between the fair market rent and the contractual rent for
in-place leases at the time properties are acquired is amortized into
revenue from rental properties over the remaining lives of the in-place
leases. Income from direct financing leases is recognized over the lease
terms using the effective interest method, which produces a constant
periodic rate of return on the net investments in the leased properties.
The amortization of deferred lease incentives represents the Company's
funding commitment in certain leases, which deferred expense is
recognized on a straight-line basis as a reduction of rental revenue.
GAAP net earnings and FFO include non-cash changes in environmental
estimates and environmental accretion expense, which do not impact the
Company's recurring cash flow. GAAP net earnings and FFO also include
environmental litigation accruals, insurance reimbursements, and legal
settlements and judgments, which items are not indicative of the
Company's core operating performance. GAAP net earnings and FFO from
time to time may also include acquisition costs expensed and other
unusual items that are not reflective of the Company's core operating
performance. Acquisition costs are expensed, generally in the period
when properties are acquired and are not reflective of our core
operating performance.

The Company pays particular attention to AFFO, as the Company believes
it best represents its core operating performance. In the Company's
view, AFFO provides a more accurate depiction than FFO of its core
operating performance. By providing AFFO, the Company believes that it
is presenting useful information that assists analysts and investors to
better assess its core operating performance. Further, the Company
believes that AFFO is useful in comparing the sustainability of its core
operating performance with the sustainability of the core operating
performance of other real estate companies.

Forward-Looking Statements

CERTAIN STATEMENTS CONTAINED HEREIN MAY CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. WHEN THE WORDS "BELIEVES," "EXPECTS," "PLANS,"
"PROJECTS," "ESTIMATES," "ANTICIPATES," "PREDICTS" AND SIMILAR
EXPRESSIONS ARE USED, THEY IDENTIFY FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS ARE BASED ON MANAGEMENT'S CURRENT BELIEFS AND
ASSUMPTIONS AND INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT AND
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH
MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY
TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS.
EXAMPLES OF FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO,
THOSE REGARDING THE COMPANY'S 2018 AFFO PER SHARE GUIDANCE, THOSE MADE
BY MR. CONSTANT, STATEMENTS REGARDING THE RECAPTURE AND TRANSFER OF
CERTAIN NET LEASE RETAIL PROPERTIES, AND STATEMENTS REGARDING THE
ABILITY TO OBTAIN APPROPRIATE PERMITS AND APPROVALS.

INFORMATION CONCERNING FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS CAN
BE FOUND IN THE COMPANY'S PERIODIC REPORTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY
RELEASE REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT FUTURE
EVENTS OR CIRCUMSTANCES OR REFLECT THE OCCURRENCE OF UNANTICIPATED
EVENTS.

         

GETTY REALTY CORP.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except per share amounts)

 
June 30,

2018

December 31,

2017

ASSETS:
Real estate:
Land $ 619,750 $ 589,497
Buildings and improvements 396,329 379,785
Construction in progress   2,392   1,682
1,018,471 970,964
Less accumulated depreciation and amortization   (141,159 )   (133,353 )
Real estate, net 877,312 837,611
Investment in direct financing leases, net 88,138 89,587
Notes and mortgages receivable 34,244 32,366
Cash and cash equivalents 18,208 19,992
Restricted cash 1,179 821
Deferred rent receivable 35,853 33,610
Accounts receivable, net of allowance of $1,760 and $1,840,
respectively
2,989 3,712
Prepaid expenses and other assets   57,358   55,055
Total assets $ 1,115,281 $ 1,072,754
LIABILITIES AND SHAREHOLDERS' EQUITY:
Borrowings under credit agreement, net $ 86,863 $ 154,502
Senior unsecured notes, net 324,351 224,656
Environmental remediation obligations 61,828 63,565
Dividends payable 13,025 12,846
Accounts payable and accrued liabilities   62,545   63,490
Total liabilities   548,612   519,059
Commitments and contingencies
Shareholders' equity:

Preferred stock, $0.01 par value; 20,000,000 and 10,000,000 shares
authorized,
respectively; unissued

Common stock, $0.01 par value; 100,000,000 and 60,000,000 shares
authorized,
respectively; 40,262,274 and 39,696,110 shares
issued and outstanding, respectively

403 397
Additional paid-in capital 620,183 604,872
Dividends paid in excess of earnings   (53,917 )   (51,574 )
Total shareholders' equity   566,669   553,695
Total liabilities and shareholders' equity $ 1,115,281 $ 1,072,754
 
         

GETTY REALTY CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

 
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
Revenues:
Revenues from rental properties $ 29,022 $ 24,365 $ 57,307 $ 48,261
Tenant reimbursements 4,461 3,924 7,529 6,917
Interest on notes and mortgages receivable   759   748   1,522   1,507
Total revenues   34,242   29,037   66,358   56,685
Operating expenses:
Property costs 6,429 5,251 11,363 10,061
Impairments 831 914 3,259 4,382
Environmental 1,442 429 2,689 (112 )
General and administrative 3,855 3,673 7,442 7,166
Allowance (recoveries) for uncollectible accounts (119 ) (71 ) 7 61
Depreciation and amortization   5,907   4,394   11,501   8,787
Total operating expenses   18,345   14,590   36,261   30,345
Operating income 15,897 14,447 30,097 26,340
Gain (loss) on dispositions of real estate 3,016 507 3,665 176
Other income, net 224 3,876 588 4,111
Interest expense   (5,314 )   (4,279 )   (10,365 )   (8,359 )
Earnings from continuing operations   13,823   14,551   23,985   22,268
Discontinued operations:        
Earnings (loss) from discontinued operations   (283 )   555   (413 )   2,542
Net earnings $ 13,540 $ 15,106 $ 23,572 $ 24,810
 
Basic earnings per common share:
Earnings from continuing operations $ 0.34 $ 0.41 $ 0.59 $ 0.64
Earnings (loss) from discontinued operations   (0.01 )   0.02   (0.01 )   0.07
Net earnings $ 0.33 $ 0.43 $ 0.58 $ 0.71
Diluted earnings per common share:
Earnings from continuing operations $ 0.34 $ 0.41 $ 0.59 $ 0.64
Earnings (loss) from discontinued operations   (0.01 )   0.02   (0.01 )   0.07
Net earnings $ 0.33 $ 0.43 $ 0.58 $ 0.71
Weighted average common shares outstanding:
Basic 39,901 34,634 39,806 34,594
Diluted 39,914 34,634 39,817 34,594
 
Dividends declared per common share $ 0.32 $ 0.28 $ 0.64 $ 0.56
 
         

GETTY REALTY CORP.

RECONCILIATION OF NET EARNINGS TO

FUNDS FROM OPERATIONS AND

ADJUSTED FUNDS FROM OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

 

Three Months Ended
June 30,

Six Months Ended
June 30,

2018     2017 2018     2017
Net earnings $ 13,540 $ 15,106 $ 23,572 $ 24,810
Depreciation and amortization of real estate assets 5,907 4,394 11,501 8,787
(Gain) loss on dispositions of real estate (3,016 ) (507 ) (3,665 ) (176 )
Impairments   1,160   914   3,977   4,651
Funds from operations 17,591 19,907 35,385 38,072
Revenue recognition adjustments (598 ) (526 ) (1,380 ) (945 )
Changes in environmental estimates (96 ) (1,402 ) (608 ) (5,719 )
Accretion expense 616 762 1,308 1,795
Environmental litigation accruals 3 (70 )
Insurance reimbursements (94 ) (3,873 ) (309 ) (4,092 )
Legal settlements and judgments       (147 )  
Adjusted funds from operations $ 17,419 $ 14,871 $ 34,249 $ 29,041
Basic per share amounts:
Earnings per share $ 0.33 $ 0.43 $ 0.58 $ 0.71
Funds from operations per share 0.43 0.57 0.88 1.09
Adjusted funds from operations per share $ 0.43 $ 0.42 $ 0.85 $ 0.83
Basic weighted average common shares outstanding 39,901 34,634 39,806 $ 34,594
Diluted per share amounts:
Earnings per share $ 0.33 $ 0.43 $ 0.58 $ 0.71
Funds from operations per share 0.43 0.57 0.88 1.09
Adjusted funds from operations per share $ 0.43 $ 0.42 $ 0.85 $ 0.83
Diluted weighted average common shares outstanding 39,914 34,634 39,817 34,594
 

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