Joshua Dicker - SVP, General Counsel and Corporate Secretary Christopher Constant - CEO Mark Olear - COO Danion Fielding - CFO.

Peter Lunenburg - JMP Securities Brett Reiss - Janney Montgomery Scott.

Good day and welcome to the Getty Realty Corp. Third Quarter 2016 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Joshua Dicker, Senior Vice President, General Counsel and Corporate Secretary. Please go ahead, sir..

Thank you. I would like to thank you all for joining us for Getty Realty’s quarterly earnings conference call. Yesterday afternoon, the Company released its financial results for the quarter ended September 30, 2016. Form 8-K and earnings release are available in the Investor Relations section of our website at gettyrealty.com.

Certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements.

These statements are based on management’s current expectations and beliefs and are subject to trends, events and uncertainties that could cause actual results to differ materially from those described in the forward-looking statement.

Examples of forward-looking statements include our 2016 guidance, and may also include statements made by management in their remarks and in response to questions including regarding lease restructurings, future Company operations, future financial performance and the Company’s acquisition or redevelopment plans and opportunities.

We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially.

I refer you to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2015 as well as our quarterly reports on Form 10-Q and our other filings with the SEC for a more detailed discussion of the risks and other factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

You should not place undue reliance on forward-looking statements which reflect our view only as of the date hereof. The Company undertakes no duty to update any forward-looking statements that may be made in the course of this call.

Also please refer to our earnings release for a discussion of our use of non-GAAP financial measures including FFO and AFFO and our reconciliation of those measures to net earnings. With that, let me turn the call over to Christopher Constant, our Chief Executive Officer..

Thank you, Josh. Good morning, everyone, and welcome to our call for the third quarter of 2016. With Josh and me, on the call today are Mark Olear, our Chief Operating Officer, and Danion Fielding, our Chief Financial Officer.

I will begin today’s call by reviewing our performance for the third quarter of 2016 and then pass the call to Mark to discuss our portfolio in more detail, and after Mark, Danion will was discuss our financial results.

The third quarter of 2016 was another excellent quarter for the Company and continued our positive performance in 2016 which demonstrates the Company’s earnings capability now that we have a strong core portfolio of properties leased to healthy and growing regional and national tenants.

These results demonstrate the steady progress we continue to make on repositioning our portfolio to higher quality tenants and more productive sites.

We delivered quarterly AFFO of $0.45 per share, which represents meaningful growth over the prior year’s quarter even when adjusted for certain notable items which will be not expected to recur on a consistent basis.

When we exclude those items, our normalized AFFO was $0.43 per share for the quarter ended September 2016 as compared to $0.38 per share for the quarter ended September 2015, representing growth of more than 13% quarter-over-quarter.

While our rental income for the quarter was relatively flat, the key drivers of the Company’s performance were $300,000 reduction in property cost excluding tenant reimbursement and $900,000 of G&A savings coming from reduced personnel, legal and professional costs. We also made progress on several of our strategic initiatives this quarter.

As Mark will discuss, we completed $1.9 million of investments, which we expect to produce above market returns. We also signed six redevelopment leases, bringing our total redevelopment leases to 12 year-to-date. Our future tenants included a number of high quality national and regional brands in the retail restaurant and service categories.

We believe this progress demonstrates the significant demand that exists by tenants for well-located real estate and the potential we have to enhance the value of our existing assets. Our balance sheet ended the quarter in great shape.

We have $300 million in debt outstanding and after taking into account funds raised through our ATM program; we now have leverage of four times net debt to EBITDA. This figure is consistent with our historical leverage and is in line with our stated goal of maintaining conservative credit metrics.

Lastly, we continue to make steady progress on reducing our environmental liability in the quarter. We began the year at $84.3 million and ended the third quarter at $78.5 million.

The reported $5.8 million net reduction implies an even greater productivity by our Company and reduction of our overall environmental liability when one considers that the GAAP adjustments we make, create upward pressure on the reported figure.

In total, I am very happy with the Company’s performance year-to-date including our strong results for the quarter. As a result, we are raising our 2016 AFFO per share guidance, as Danion will discuss in a few minutes.

In addition, as we announced yesterday, our Board of Directors unanimously approved a 12% increase in our annual cash dividend per share, bringing our annual dividend from $1 per share to $1.12 per share.

As we look ahead, we remain energized and encouraged by the results from our net lease portfolio and our growing pipeline of investment opportunities. With that I will turn the call over to Mark Olear to discuss our portfolio of investments..

Thank you, Chris. I will start by reviewing our investments for the quarter. During the quarter, we purchased a leasehold interest in Westchester County, New York for $1.7 million. The property is currently part of one of our unitary leases and a net result that we expect our rent for that lease to increase by 9% of our additional investment.

We also purchased an adjacent parcel to one of our properties in Pennsylvania. Purchase of the land was required in order to complete one of our redevelopment projects and we expect the return for the entire project to be in line with our current criteria for this project.

While the acquisition market continues to be very competitive in the convenience and gas sector, we remain disciplined in our underwriting criteria. Our pipeline of actionable opportunities continues to grow and we are in the process of reviewing and pursuing a number of growth opportunities.

Moving to our redevelopment platform, we signed six leases during the quarter for properties, which will eventually be redeveloped into non-gas, standalone retail stores. Through the first nine months of the year, we have entered into 12 leases in total. The tenants in many of these leases include high-quality national and regional branded retailers.

In total, we have invested approximately $1.5 million in various projects thus far and we expect to have rent commencement at several of these projects in 2017 and 2018. We remain quite enthusiastic about the opportunity to transform our own real estate and look forward to discussing future projects with you as they develop.

We also continue to make progress in our transitional prosperities. During the third quarter of 2016, we completed three sales for $425,000 and commenced two long-term triple net leases. These efforts resulted in approximately $60,000 at annualized incremental rental income.

In addition, we added two properties to our transitional list during the quarter as a result of these sites becoming severed from existing unitary leases. The net result is that we ended the quarter with 35 transitional properties of which we presently expect to dispose of 20 and redevelop or lease 15.

The cumulative result of our transaction and leasing activities is that we ended the quarter with 800 net leased properties and 35 transitional properties. Our weighted average lease term is approximately 11 years, and our overall occupancy is approximately 97%. With that, I will turn the call over to Danion..

Thank you, Mark. Now turning to our results. For the quarter, our total revenues from continuing operations and revenues from rental properties which exclude tenant reimbursements and interest income were $28.5 million and $24.3 million, respectively. Our rental income for the quarter was in line with the same period in 2015.

On the expense front, property costs excluding tenant reimbursements improved by 14% for the quarter to $1.8 million from $2.1 million. This reduction can be attributed to declines in rent and maintenance expenses. Our environmental expense decreased by $700,000 for the quarter relative to the same period last year.

The reduction was primarily due to $700,000 decrease in environmental mediation cost. It is worth noting that there are several non-cash items flowing through this line which cause the reported amounts to vary from quarter to quarter.

For the quarter, G&A was down by $900,000; the decrease was primarily due to decreases in legal and professional fees and employee-related expenses. As Chris mentioned earlier, our goals for the quarter ended September 30, 2016 were impacted by several notable items which cause our reported amounts to differ from recurring operations.

Results for the quarter ended September 30, 2016 included environmental insurance reimbursement, recoveries of uncollectable account and other non-recurring income which resulted in a net benefit to the Company of $800,000 or $0.02 per share in the aggregate.

Our reported FFO per the quarter was $16.2 million or $0.47 per share as compared to $14.2 million or $0.42 per share for the same period last year. After taking the notable items into account, our normalized FFO for the quarter was $15.5 million or $0.45 per share, which represents an increase of 70% [ph] from the prior quarter.

Our reported AFFO for the quarter was $15.4 million or $0.45 per share as compared to $12.8 million or $0.38 per share for the same period last year. After taking the notable items into account, our normalized AFFO for the quarter was $14.7 million or $0.43 per share, an increase of 13% from the prior year quarter. Turning to the balance sheet.

We ended the quarter with $300 million of borrowings, $125 million on our credit agreement and $175 million of long-term fixed rate debt. Our debt to total capitalization currently stands approximately 29% and our net debt to EBITDA ratio as defined in our loan agreement was four times at quarter-end.

Our weighted average borrowing cost was 4.7% at quarter-end and the weighted average maturity of our debt is approximately 4.1 years with 58% of our debt being fixed rate. We also judiciously used our ATM program during the quarter and sold 122,000 shares at an average price of $23.80 per share.

Our environmental liability ended the quarter at $78.5 million, down $5.8 million so far this year. For the quarter ended September 30, 2016, the Company’s net environmental remediation spending was approximately $3.3 million.

It is important to note that the net number on our balance sheet is also impacted by additions to the principal amount of the liability and accretion since GAAP requires us to book the liability on the present value basis.

Finally, as a result of the notable items I previously discussed and our strong operating performance year-to-date, we are raising our 2016 AFFO per share guidance to a range of $155 to $160 per share. Note that our guidance includes a net benefit of $0.04 per share of notable items year-to-date which we do not expect to reoccur on a regular basis.

Additionally, in the fourth quarter, we anticipate incurring certain [ph] maintenance cost at one of our remaining transitional properties and we expect to begin to feel the impact of taking properties offline for redevelopment projects.

While the loss of income from certain properties will be felt in the near term, it would subsequently be highly accretive upon project completion. Furthermore, the guidance does not assume any acquisition or capital market activities, although it does reflect our expectations that we will continue to execute on our leasing and disposition activities.

That concludes our prepared remarks. So, let me ask the operator to open the call for questions..

Thank you. [Operator Instructions] We’ll go first to Peter Lunenburg at JMP Securities..

Hi guys, great quarter.

I guess this one is more for Mark, but is there any change -- are you guys seeing any change in the transaction market dynamics today or kind of what’s making you guys more comfortable? And then any commentary on the pipeline change quarter-over-quarter?.

Is that specific to -- which pipeline, the acquisition activity we mentioned or…?.

Yes, acquisition..

We’re seeing a healthy activity of offerings various sizes and various geographies that at least meet our initial screening feasibility. And so, the pool of opportunities continues to grow. And keeping in line with our underwriting discipline we’re getting closer to portfolios and individual deals that might make sense for us..

Okay.

And then any additional info on the six new leases signed during the quarter or kind of the tenant mix you guys are looking at going forward?.

Yes. It’s mix of national and regional more traditional retail tenants. They range from automotive uses to quick service restaurants, in those categories. They’re coming online and they’re advancing through our development process with regard to the feasibility and entitlements and we hope to get those in service and late 2017 and early 2018..

Great. Thanks so much..

[Operator Instructions] We’ll go next to Brett Reiss at Janney Montgomery Scott..

Good morning, gentlemen.

Could you give us some more color of how the pipeline of redevelopment projects look going forward? I mean, how many do you have on the plate for 2017 and how many do you think you can complete?.

So, Brett, we’ve done so far this year is the 12 leases we’ve signed plus the one project that we’ve put in the service beginning in the year. What we’ve said publicly about the overall scope of our redevelopment is that we think over time we can redeveloped somewhere between 5% and 10% of our portfolio by number of properties.

And I guess last thing I would say to that is that as I think you can observe from the progress we’ve made this year, development projects take time. So that it will be multi-year plan on our part to redevelop that 5% to 10%; it’s not going to be felt in the near-term..

Okay, great.

If the infrastructure gets built out for battery recharging stations, is that an opportunity or threat to Getty?.

The electric vehicle charging world certainly approached a number of operators in our sector including some of our tenants; it is yet another avenue for the operators to drive traffic into the stores and inside the store is where the higher margin product is. So, I would say it’s more of an opportunity for them..

The navigation of that is -- it’s really the tenant that handles that or is there any help or aid that you would give or it’s really left up to the individual tenant operator to figure out?.

It starts with the operator, Brett, but obviously if there is a way for us to invest and improve our profits, we would evaluate that..

Okay. And the trends on environmental costs of lat have trended down.

Do you think that that can carry through -- can I extrapolate that out into the future?.

If you recall, couple years ago, we put a fairly sizable reserve for future environmental liability on our balance sheet. And what I think you are saying is that we were somewhat accurate in terms of the amount that we put on the books. And that’s why you’re seeing environmental liability trend downward..

Great. Good quarter. And thank you for fielding my questions..

No problem..

And there are no further questions at this time. I’ll turn the conference back over to management for any concluding remarks..

Thank you. Well, thank you everybody for joining us for the third quarter. We look forward to talking to everyone again in 2017 when we report our results for the fourth quarter and year-ended 2026..

Thank you. And that does conclude today’s conference. Again, thank you for your participation..