Good morning, everyone. Welcome to Getty Realty's earnings conference call for the first quarter of 2020. This call is being recorded. 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 our non-GAAP financial measures. Please go ahead, Mr. Dicker.
Thank you, operator. I would like to thank you all for joining us for Getty Realty's first quarter earnings conference call. This morning, the company released its financial results for the quarter ended March 31, 2020. The 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 2020 guidance and may also include statements made by management in their remarks and in response to questions, including regarding the company's response to the COVID-19 pandemic, 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 events or results could differ materially. I refer you to the company's annual report on Form 10-K for the year ended December 31, 2019, subsequent quarterly reports filed on Form 10-Q, and other filings made 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. 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.
Thank you, Josh. Good morning, everyone. Welcome to our call for the first quarter of 2020. With Josh and me on the call today are Mark Olear, our Chief Operating Officer, and Danion Fielding, our Chief Financial Officer. This morning's call is slightly modified from our typical prepared remarks. I will provide a general update on our business. Mark and Danion will provide their standard quarterly review of our portfolio and financial matters. We will also spend a significant portion of the call discussing the impact of the COVID-19 pandemic on our business, our financial strength, and our tenants' operational and financial health.
Getty had a very successful start to 2020. We completed the acquisition of 12 properties for $57 million in the first quarter. When combined with our productive fourth quarter of 2019, we have invested more than $100 million over the past six months in high-quality, well-located properties. In addition, we completed two redevelopment projects in the first quarter, bringing our total of completed projects to 15 since the inception of our redevelopment effort.
Additionally, during the quarter, our core net lease portfolio continued to display the strength and stability that we expect from our long-term triple net leases. Turning to our results, we grew our revenue, net earnings, FFO, and AFFO for the quarter as compared to the same period for the prior year. On a per-share basis, our AFFO increased by 9.5%, which reflects the successful execution of all of our growth strategies. Let me now share some perspective on the impacts Getty has experienced from the COVID-19 pandemic and the steps we have taken to respond.
In March, we began to implement plans for our business and employees to move to a virtual working environment. I am pleased to report that all of our employees and Board members are healthy, and our team has been working efficiently and productively at home for the past eight weeks. I am proud of the strength and resolve our employees have shown during this stressful period. We are executing on all levels within the company and are maintaining Getty's high-quality standards under difficult circumstances.
Prior to the COVID-19 pandemic, our tenants' businesses were performing well. The convenience and gas sector began to feel the adverse effects of the public health crisis in March as several large states on the East and West coasts instituted travel restrictions and stay-at-home orders. Fortunately, the vast majority of our properties are convenience stores and gasoline stations, which are retail sectors that have been deemed essential under state and federal guidelines, meaning that more than 95% of our assets remain operational while COVID-related restrictions are in place.
It should be noted that while our tenants are open for business, they are facing operational, health, and safety challenges. Nationally, the COVID-19 pandemic has had a significant negative impact on motor vehicle use, and as a result, fuel volumes have declined significantly year-over-year, with the extent of the decline varying by region. Certain of our tenants are located in the most severely affected regions of the country and are experiencing fuel volume declines of as much as 70%.
While it is impossible to replace the lost revenue from our lower fuel volumes, it is noteworthy that our tenants have at the same time benefited from historically high retail fuel margins. Meaning the gross profit made on a per gallon basis. This increase in retail fuel margins, which was driven by the considerable drop in oil prices, has partially offset the pressure on fuel-related revenue caused by volume declines. In contrast to fuel-related challenges, our tenants' convenience store businesses have shown greater stability in revenue during the public health crisis.
While convenience sales are down overall, certain well-located sites have reported strong sales of grocery items and household products. I am pleased that to date, the net result of the COVID-19 pandemic on Getty's business is that we have not experienced a meaningful negative financial impact to our business. Due to the timing of the rollout of stay-at-home directives, we did not experience any material rent collection issues in the first quarter of 2020. For the month of April, we received 97% of contractual base rent and mortgage payments and granted deferrals for an additional 1.8% of expected base rent and mortgage payments.
These deferrals were granted to select tenants and mortgage holders whose businesses have been deemed non-essential or who, due to COVID-19 related impacts, have experienced economic difficulty and requested relief. In most of these cases, the base rent or mortgage payment deferrals will continue for May and June, and then will be due over the course of the following 6- 12 months, depending on the particular arrangement. In general, the relief requests have come from our one-off tenants and mortgage holders and from our smaller unitary tenants with properties located on the East and West coasts.
The remainder of uncollected payments due to the company for April, representing approximately 1.2% of scheduled rent and mortgage payments, have been abated or deemed to be uncollectible. This uncollectible portion of our rent and mortgage payments is attributable to select retail businesses that are currently closed and smaller one-off and unitary tenants and mortgagees with properties located in markets which have been severely impacted by the COVID-19 pandemic. With respect to requests related to May and June, to the extent decisions have not already been made, the company continues to evaluate these requests, and has been seeking appropriate financial information to support its decision-making process.
As of this morning, we anticipate that for May, we will receive between 92% and 95% of May contractual base rental and mortgage payments, with rent and mortgage payment deferrals ranging from 2%- 5%. We will continue to work on a case-by-case basis with tenants during the COVID-19 pandemic who demonstrate a need for assistance. Our strategy over the last several years to diversify our tenant base with quality tenants has been productive, with approximately 34% of our ABR now coming from public companies. As a result of our hard work, we believe that we are better positioned to weather the current public health storm.
We think we can effectively navigate this uncertain environment due to the essential businesses of our tenants, the net lease structure of our leases, and our stable balance sheet position. However, it is important to recognize that the greater the duration and more restrictive the terms of the COVID-19 shelter-in-place directives, the greater the risk that there will be economic impact on consumer and retail activity generally, and therefore, to our 2020 financial performance in particular.
Our conservative balance sheet continues to be a strength during these uncertain times. We place a premium on being lower leveraged. We are committed to maintaining a well-laddered and flexible capital structure. We believe we have sufficient access to capital as we sit here today through cash on hand, funds available under our revolver, and our ATM program. Looking ahead, we believe there will continue to be opportunities for Getty to grow its business. We are confident that our targeted investment strategy, which focuses on the largely essential and internet-resistant, service-oriented, convenience and gas, and other automotive sectors in metropolitan markets across the country, will continue to create value for our shareholders over the long term.
We remain committed to an active approach to managing our portfolio of net leased assets, expanding our portfolio through acquisitions in the convenience, gas, and auto-related sectors, and selective redevelopment projects. We are confident in our ability to continue to successfully execute on our strategic objectives over the long term. This approach and focus on these critical components should result in driving additional shareholder value as we move through 2020 and beyond. With that, I will turn the call over to Mark Olear to discuss our portfolio and investment activities.
Thank you, Chris. In terms of our investment activity, we had a very busy first quarter in which we were able to invest $57 million in 12 high-quality other auto-related assets. During the quarter, Getty acquired 10 properties in an acquisition leaseback transaction with Go Car Wash. The properties acquired are subject to a unitary triple net lease with a 15-year base term and multiple renewal options. The properties are located in the greater Kansas City MSA. The properties acquired have an average lot size of 1.4 acres and an average tunnel length of 145 ft, both of which we believe enhance the quality and diversity of our portfolio.
We invested $50 million at closing and expect to generate a cash yield that is in line with our historical acquisition cap rate range. Additionally, we closed on the acquisition of two properties for $7 million during the quarter. Both sites are car wash facilities located in Virginia and Kentucky and are subject to 15-year triple net lease with Zips Car Wash. We remain highly committed to growing our portfolio in the convenience and gas sector, as well as our newer categories, including car washes and automotive service centers.
I note, however, that the COVID-19 pandemic is currently impacting the overall transaction market on various levels, and accordingly, we believe many of the acquisition opportunities in our pipeline will be delayed. Moving to our redevelopment platform, for the quarter, we invested approximately $0.5 million in both completed projects and sites which are in progress. In the first quarter, we returned two redevelopment projects back to our net lease portfolio. Specifically, in February, rent commenced on a project in the Bronx, New York, where we leased a site to Wendy's for a quick-service restaurant use.
In this project, we invested $1.6 million, and we expect to generate a return on our investment of 11%. The second completed project was a lease to AutoZone in Philadelphia, Pennsylvania, our second completed project with this tenant. In this project, we invested $0.3 million, and we expect to generate a return on our investment of 39%. In terms of redevelopment leasing, we ended the quarter with 11 signed leases or letters of intent, which includes four active projects, six signed leases on properties which are currently subject to triple net leases, but which have not yet been recaptured from the current tenants, and signed letters of intent on one vacant property.
All these projects are continuing to advance through the redevelopment process. Again, I note that due to the impact of the COVID-19 pandemic, we are seeing some delays in certain of our projects as contractors, suppliers, and municipalities deal with the shutdown orders, social distancing requirements, and other impediments to normal functioning. In total, we have invested approximately $1.2 million in the 11 redevelopment projects in our pipeline, and we expect to have rent commencement at several additional projects during 2020. On the capital spending side, we estimate that these 11 projects will require a total investment by Getty of $6.8 million and will generate incremental returns to the company in excess of where we could invest these funds in the acquisition market today.
For more detailed information on the redevelopment pipeline, please refer to page 15 of our investor presentation, which can be found on our website. We remain committed to optimizing our portfolio and continue to anticipate redevelopment opportunities over the next five years, possibly involving between 5% and 10% of our current portfolio with targeted unlevered redevelopment program yields of greater than 10%.
Turning to dispositions, we sold four properties during the first quarter of 2020, realizing proceeds of approximately $1.7 million. The properties sold were vacant or were returned to us by tenants per the terms of their lease agreements. We expect the net financial impact of these dispositions will be minimal. In addition, during the quarter, we exited six properties, which we previously leased from third-party landlords.
As we look ahead, we will continue to selectively dispose of properties where we have made the determination that the property is no longer competitive as a C&G location and does not have redevelopment potential. As a result of all of our activity, we ended the quarter with 934 net leased properties, four active redevelopment sites, and nine vacant properties. Our weighted average lease term is approximately 10 years, and our overall occupancy, excluding active redevelopments, remains constant at 99%. With that, I turn the call over to Danion.
Thank you, Mark. For the first quarter, our total revenues were $35.4 million, an increase of 4% over the prior year's quarter. Our rental income, which excludes tenant reimbursement and interest on notes and mortgages receivables, grew 6% to $31.3 million. Our growth in rental income continues to be driven by rent escalated in our leases, plus additional rent from recently completed acquisitions and redevelopment projects. During the first quarter of 2020, we benefited from reductions in both property costs and environmental expenses while maintaining a steady level of general and administrative overhead.
For more information on specific expense movements, please refer to this morning's earnings release. Our FFO for the quarter was $20 million, or $0.47 per share, as compared to $17.8 million, or $0.43 per share for the prior year's quarter. Our AFFO for the quarter was $19.3 million or $0.46 per share as compared to $17.5 million or $0.42 per share for the prior year's quarter. Turning to the balance sheet and our capital markets activity, we ended the first quarter of 2020 with $535 million of total borrowings, which includes $85 million under our credit agreement and $450 million of long-term fixed-rate debt.
Our weighted average borrowing cost is 4.6%. The weighted average maturity of our debt is 5.1 years, and 84% of our debt is fixed rate. Our earliest debt maturity remains our $100 million Series A debt maturity in February of 2021. As of today, we have $215 million of undrawn capacity on our revolving credit facility, which we can use to fund operations or for growth over the near to medium term. At quarter end, our debt to total capitalization stood at 36%.
Our debt to total asset value was 43%, and our net debt to EBITDA was 5x . Lastly, for the quarter, we did not utilize our ATM. We have $80 million available to us under our existing at-the-market equity program, should we need to raise additional capital. Our environmental liability ended the quarter and year at $50.4 million, down $0.3 million for the year. For the quarter, the company's net environmental remediation spending was approximately $1.3 million. Finally, we have withdrawn our 2020 AFFO per share guidance range, given the uncertainty related to the COVID-19 pandemic and the unknown length and depth of impact to the U.S. economy. With that, I will turn the call back to Chris.
Thanks, Danion. That concludes our prepared remarks. Let me ask the operator to open the call for questions.
We will now begin the question- and- answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Craig Mailman with KeyBanc Capital Markets. Please go ahead.
Hey, good morning, guys.
Morning.
Just curious here, very good collections in April, assuming some fall off here in May. Could you just talk about in May, is that being driven by your core C-stores, or is it some of your recent non-C-store acquisitions kind of driving that? Just give a little bit of color.
One thing we mentioned in our remarks, is the first quarter was very strong for our operators. April, we really didn't see too much of an impact as illustrated by the 97% collection rate. When you start to look at May, it's really a combination of both, Craig. We do have some non-essential, non C&G properties in the portfolio. Interestingly enough, the car wash properties that we've acquired are all open and operating. We're really not focusing on those in that category today. There are certainly some C&G sites that make up the amount that was not collected. It's really a combination of both non-essential closed properties as well as certain C&G sites that are struggling.
Okay. That's helpful. On the write-offs, are you guys taking back those properties, or are you just basically saying it's an abatement?
It's, again, a combination of both. There are certain properties that are closed that we've just elected to waive for a short amount of time. There are certain properties that I think will ultimately have to be re-leased, or that we may eventually sell over time.
Okay.
Again, Craig, one thing I would leave you with on that comment is that that's a pretty small number at this point. I wouldn't really say it's having a material impact on us sitting here today.
No, that's helpful. Just as we think about some of the remedies you guys have, can you just remind us, security deposits, Letters of Credit, are you guys drawing down on any of those as part of the deferral agreement? From an AFFO perspective, you may be kind of whole, or is this you guys are just not there?
From an accounting standpoint, we've elected to for deferrals, I'm speaking of at this point. We have elected to continue to treat that as payments good during the term of the lease. Therefore, you really wouldn't see too much of an impact on an FFO, AFFO basis for properties that are in the abatement or uncollectible category. We're certainly evaluating our security deposits and LCs. Those properties have gone to a cash basis at this point. Any action we do take there, again, you'd see that in the second quarter or beyond.
Okay. Just moving on. I know it's very early in this, and just curious, the acquisition market, kind of your thoughts here on when maybe that becomes open and functioning again, and maybe what you are expecting to see on the opportunity set side and also just on the return side.
Sure. This is Mark. We continue to do our best to underwrite the pipeline that we had been working on. There are certainly some physical challenges to processing any new opportunities with regard to proper due diligence. Many of the parties involved with the transactions are properly focused on the operational side and the health and safety side of their business right now. Any new opportunities are somewhat on a pause right now. That said, we continue to stay engaged with all the sources that we receive marketing from our sale leaseback and acquisition leaseback partners that we've worked with over the years. We continue to position ourselves to be ready to act when the market is able to reengage.
Do you think there's any material movement in returns, or is it just too early to know?
I just think it's too early to know at this point.
Great. Thanks, guys.
Thanks, Craig.
Our next question will come from Anthony Paolone with JPMorgan. Please go ahead.
Yeah, thanks. Good morning.
Morning.
On some of the deferrals or abatements, was that disproportionately at all in GPMI, or was it fairly well spread across the portfolio?
Well, probably fairly well spread across the portfolio, quite frankly. Some of those where we abated rent or deferred rent, in both cases, were some non-C&G properties, so those certainly wouldn't touch the old legacy GPMI portfolio. With that said, the GPMI portfolio is really Northeast Mid-Atlantic, right? Those are some of the areas that have been hit the hardest with the travel restrictions, or I guess they were some of the earliest areas to really kind of move to a shelter in place. Certainly some of those deferments are coming from the old GPMI portfolio, but again, it's a combination of both.
Okay. You mentioned the gas margins actually being pretty good. Is that something that you think is sustainable if oil prices remain low for an extended period of time, or is that elevated margin something that's more transitory?
Yeah. Typically, pre-COVID, right, margins were strong. Obviously with the price of oil, the rapid decline in the price of oil, that's where you saw the margin expansion. I anticipate that that will float down, and maybe eventually get back down towards a more of a normal level. It's really hard to predict when and how fast that'll ultimately happen.
Okay. Then with regards to the EBITDA coverage, I think that was 2.1x that you showed in the deck, and would imagine that drops down just naturally as the next few quarters flow through. Where do you think that number needs to be to feel like the operator's getting enough profits to have skin in the game and to continue to operate, or where should we think about that number, I guess, over time and where the comfort level should be?
Well, again, you should certainly expect to see that number tighten, right, given what's happening in their business. I think certainly when we underwrite portfolios, you're looking at a minimum of 1.5 , right? I think anything tighter than really that 1.5. for a sustained period of time would be difficult for an operator to really feel good about being there and investing in those properties long term. Again, Tony, I think that's a long term view, right? Obviously, we'll see where it shakes out over the next couple of quarters.
No, I understand the next few quarters will be pretty different. Okay. That's all I had. Thank you.
Remember, if you'd like to ask a question, it is star, then one. Star, then one to ask a question. Our next question will come from John Massocca with Ladenburg Thalmann . Please go ahead.
Good morning.
Hey, John.
Yep. Just kind of touching on kind of acquisitions again. Just to kind of clarify, is your kind of view on the acquisition market that you would be aggressive, or not aggressive necessarily, but that you would be active if transactions materialize? There's no kind of pause necessarily from your perspective, either due to kind of uncertainty in the market or your view of your cost of capital that you're kind of on the sidelines? It's really more just you need the deal volume to be out there in order to kind of re-accelerate acquisitions?
I think for right now the market is just naturally on pause. As Mark mentioned, right, there's physical challenges. You have buyers and sellers who are struggling with their own operational issues and health and safety and kind of doing their day jobs. From a long-term perspective, I think our balance sheet's in great shape. I think we certainly continue to underwrite and continue to look at a number of opportunities.
As Mark said, we had a pretty strong pipeline going into this. Again, I think once the natural pause kind of unwinds and businesses normalize, right? There'll be the fact of underwriting whatever this last couple of years' performance looked like and combining that with the stress of the COVID period, and there'll be probably some issues around pricing and terms coming out of that. I do expect the transaction market to reengage at some point, probably over the next couple of months.
Is there any thought process on your end maybe to being more active in that market or even necessarily aggressive in that market, just given there's probably going to be high demand for the type of assets you target from other investors, given the fact that they are kind of deemed essential in the new world we kind of live in, where that's going to be an important factor?
I think we at least believe we're always active and always being aggressive on our team that works under Mark, right, is still out there reviewing opportunities. Again, it's hard to comment on the activity level or what pricing will really be just given that, A, you don't know when that market's going to reopen, and quite frankly, it's kind of difficult to assess what the new normal will be.
Oh, that's it for me. Thank you guys very much.
Our next question will come from Joshua Dennerlein with Bank of America. Please go ahead.
Hey, good morning, everyone. Hope everyone's doing well. Just curious if you had any color on maybe the decline of the in-the-box sales at C- stores trended over April, and if you think this new lower level maybe at month-end kind of persists for a while and how that might feed into coverage ratios going forward?
Yeah. It's really anecdotal feedback from our tenants and from the market in general, but I think we're hearing C-store sales, depending on where you are, down anywhere from 5%-20%.
5%-20%. Okay.
You know.
And then any-
Sorry, Joshua. One thing I would add to that, is if you're a neighborhood convenience store, you're probably doing pretty well at this point. People are walking and shopping there and using it for grocery-type items. If you're a site that's on a natural commuting path or most of your traffic's driven by people driving to and from work, that's where you're seeing probably those larger declines. There's just flat out less people commuting by car to their offices.
Okay. Yeah, that makes a lot of sense. For the C- stores with the QSRs attached, is it similar declines or are they performing?
They're doing the same thing that the standalone QSRs are. They're doing takeout. Some people are experimenting with delivery. That portion of their business is doing their best to create sales volume.
Okay. Thanks, Chris. Appreciate it.
This will conclude our question and answer session.
Great.
At this time, I would like to turn the call back to Mr. Constant for any closure or further remarks.
Thank you. Thanks again for joining us for the first quarter call. Hope everybody continues to be healthy and stay safe. We look forward to getting back to.