Joshua Dicker – Executive Vice President-General Counsel and Secretary Christopher Constant – Chief Executive Officer Mark Olear – Chief Operating Officer Danion Fielding – Chief Financial Officer.

Laura Dickson – KeyBanc Capital Markets Anthony Paolone – JPMorgan Mitchell Germain – JMP Securities Joshua Dennerlein – Bank of America Merrill Lynch John Massocca – Ladenburg Thalmann.

Good morning, everyone, and welcome to Getty Realty’s Earnings Conference Call for the First Quarter of 2018. This call is being recorded.

Prior to starting the call, Joshua Dicker, our 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. I would like to thank you all for joining us for Getty Realty’s first quarter conference call. Yesterday afternoon, the company released its financial results for the quarter ended March 31, 2018. 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 statement.

Examples of forward-looking statements include our 2018 guidance and may also include statements made by management in their remarks and in response to questions, including regarding 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, 2017, as well as our 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 statement 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 our revised definition of AFFO, which was revised at the end of 2017 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 first quarter of 2018. With Josh and me on the call today are Mark Olear, our Chief Operating Officer; and Danion Fielding, our Chief Financial Officer.

Let me begin today’s call by providing an overview of our first quarter 2018 performances and growth initiatives and then I’ll pass the call to Mark to discuss our portfolio in more detail and then Danion will discuss our financial results.

We began 2018 with a solid quarter which reflected both the steady performance of our core net lease portfolio and the additional income we generate from our 2017 acquisition activity.

For the first quarter we reported net income of $10 million, FFO of $17.8 million and AFFO of $16.8 million, which grew by $2.6 million or more than 18% over the prior year’s quarter. Our quarterly AFFO per share of $0.42 increased by $0.02 per share, or 5% over the prior year’s quarter.

Moving to our portfolio, we remained active in evaluating potential acquisition opportunities, pursuing redevelopment projects and selected recycling capital. During the first quarter, we sold four non-core properties and we continue to invest in several redevelopment projects.

Subsequent to quarter end, we acquired a portfolio of 30 properties in a $52 million acquisition of leaseback transaction in the GPM Investments.

This transaction further enhanced the company’s presence in the Southern United States and we continue to pursue additional attractive opportunities, which would further strengthen and diversify our portfolio.

We remain diligent in our underwriting standards as such we continue to be focused on acquiring high quality real estate and partnering with tenants who share our commitment to the growth and evolution of the convenience and gas sector, we believe these are critical components to driving additional shareholder value as we move through 2018 and beyond.

During the quarter, we also completed several important steps to fortify our balance sheet. First, we’ve refreshed our $125 million ATM program. Secondly, we completed an up sizably finance of our existing credit facility, which pushed out our near-term debt maturities and significantly improved the terms and pricing of our borrowing.

And finally in the second quarter we received the company’s first ever investment grade debt rating from Fitch.

I’m particularly pleased by the company’s new debt rating as it reflects years of hard work by our staff and management team in terms refinement and successful repositioning of our portfolio, adequate effort of strong leasing and distribution activity over the last five years, our approach has enabled us to maintain a low leverage and flexible unsecured balance sheet and in terms support our proven ability to accretively grow interest by our portfolio.

As we look ahead, we believe that the stability of cash flow from our core net lease portfolio and our conservative balance sheet will continue to afford us with the opportunity to focus our efforts on growing our business at a lower cost of capital.

We remain focused on our three-pronged growth platform consisting of a combination of stable growth, supported by asset management activities and our core net lease portfolio, expanding our portfolio through acquisitions in the convenience, gas and auto-related sectors and selected redevelopment projects.

We remain confident that we’ll be able to continue to successfully execute on our strategic objectives throughout the remainder of 2018. With that, I will turn the call over to Mark Olear, to discuss our portfolio and investment activity..

Thank you, Chris. I will start by reviewing our first quarter activity and then we’ll turn to our portfolio acquisition, which closed after quarter end. During the quarter we dispose the four non-core locations for $1.4 million of proceeds.

In terms of redevelopment projects added for the quarter, we executed two new leases with tenants who will operate one property as a new to industry convenience and gas use and the other property as a automotive part store.

This brings our total redevelopment projects with signed leases and LOIs to 16, which includes 10 active projects and six additional projects and properties which are currently included in our net lease portfolio.

All these projects to continue to advance through the redevelopment process, we expect substantially all of these projects will be completed over the next one to three years with several projects moving through rent commencement of 2018.

In total, we have invested approximately $1.5 million in these redevelopment projects with $300,000 occurring during Q1 of 2018 and we estimate that the total capital, investment through completion by Getty of approximately $13 million.

The investment in these redevelopment projects will generate incremental returns to the company in excess of what we could expect that we invested these funds in the acquisition market today. For more detailed information on Getty’s redevelopment projects, please refer to Page 18 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%.

As a result of our portfolio activities, we ended the quarter with 887 net lease properties, 10 active redevelopment sites and five vacant properties.

Our weighted average lease term remained approximately 11 years and our overall occupancy, not including our 10 active redevelopment increased by 30 basis points to 99.4%, as compared to 99.1% at the end of 2017.

Subsequent to quarter end, we completed the acquisition leaseback of 30 properties as part of a larger transaction, whereby our tenant GPM Investments acquired the business operations in real estate of E-Z Mart, a privately-held convenience and gas operator headquartered in Texas.

With 30 property portfolio which we acquired includes 17 sites in Texas, 7 in Arkansas, 3 in Oklahoma and 3 in Louisiana. GPM Investments is our tenant in the transaction is one of our largest convenience and gas operators in the United States and has been friend of ours in other portfolios since 2004.

The properties that we acquired have an average lot size of 0.8 acres and average store size of 2,800 square feet, which both enhance the quality and diversity of our portfolio. We funded $52.2 million at closing and expected to recognize initial full year rent of approximately $3.8 million.

While the acquisition market continues to be competitive in the convenience and gas sector, our pipeline of actual opportunities remains strong and we are in the process reviewing, pursuing several additional acquisition opportunities for both single assets and portfolio transactions.

That said, as we have in the past, we remain disciplined in our underwriting to ensure or making accretive acquisition. With that, I will turn the call over to Danion..

one, the full year impact of earnings from 2017 acquisition.

Two, our expectation that we will forego rent when we recapture properties for redevelopment, three, our expectation in our weighted average cost of borrowings will increase in 2018; and four, the full year impact of the dilution associated with the company’s 2017 capital raising activities. With that, I will turn the call back to Chris..

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

Hi, everyone. This is Laura Dickson here with Craig.

Just wanted to confirm on guidance since your reaffirming, even though, it includes impact of the acquisition, what are the other moving parts there?.

Well, I think we’re still relatively early in the year. I think we expect to continue our – the rest of the performance of the business, so I want to kind of think as the year progresses well, we’ll continue to evaluate what we think the appropriate guidance range is..

Okay. So no offsets.

So just being conservative really in the year?.

That’s correct..

Okay. And then for the GPM deal, it sounds like, can you discuss, Chris, how deals marketed and sounds like that came in at all low 7% cap rate.

Is that correct?.

So we expect to fund the recognized $3.8 million on $52.2 million of invested capital. So that’s our initial cash year rent on the deal. The deal was priced kind of in the range that we talked about for long time, which is sort of 100 basis point range of 63.25% to 73.25%. How the deal came to us. GPM, it’s been tenant of ours for over 10 years.

We have two existing portfolios with them in other areas of the countries, so we looked, we certainly we know each other quite well. And we were part of that deal, we bought 30 properties and I think in total GPM acquired over 250 locations as part of the operations side of the deal.

So happy to do a deal with an existing tenant, who we like, we had successful relationship with for a long time..

Okay, great. So I guess that pro forma of the acquisition.

Where would they stand on your top tenant list?.

Yes. They would be in our top five..

Of five.

And how comfortable would you be doing more deals with them given that exposure?.

Yes. Well, one of our goals that we’ve talked about is diversifying our revenue, right. We obviously, have that intent of that ever been in the teen and as high as 20%. So what we are looking, deal is continue to diversify revenue and the extent, we continue to do deals with long term partners and keep them sort of sub 20% or sub 15%.

We would certainly look at that..

Okay. Thank you..

We will take our next question from Anthony Paolone of JPMorgan. Please go ahead..

Okay. Thanks, good morning. Just to confirm on the last point on guidance. So the $55 million, you didn’t change your guidance for the year, but the $55 million that you’ve actually done is in that number effectively already..

Correct..

And then can you comment on the contractual bonds that you got on the $52 million deal?.

Yes, the annual contractual bonds at 1.5% a year..

Okay. And as think about like the last couple years, you guys have done a few portfolio trades and you’ve been really changing the compression the portfolio now. Can you talk to – how many of your stores are bond C-stores with gas versus some of the legacy properties that really just had – not much of a store out period.

Can you gives it is characteristics?.

Sure. Well, this morning we published our new investment deck on Slide 11, we have actually laid that detail out for the first time. So just to talk about what’s on that slide is, as of today excluding the deal – as of the end of Q1, excuse me – excluding that the GPM deal, 74% of our properties have a convenience store.

And out of that about 74%, 23% have some sort of a C-store QSR combo. And when we say QSR combo, you’re talking not only about either a nationally branded QSR such as a Dunkin or Subway inside the store but also private label prepared or hot food that our tenants are actually preparing themselves..

Okay. Got it. And sorry, I didn’t see the deck yet. So maybe answer this one straight way. What – now what portion of the portfolio are you receiving financial statements or have a sense of EBITDA are covered.

Just kind of credit financial stuff?.

Yes. We received site level, tenant level financials on about 60% of the portfolio. Today, obviously, as we do more transactions at something that we were – I’ve been increasing over time. All of our recent deals, we do debt site level or tenant level financials on those.

In addition to the 60% that we get today is probably another 25% of the portfolio where we get corporate guarantee of a public company. So we don’t necessarily see the site level but we have an idea, is to how the company is performing..

Got it. Any brackets around the rough EBITDA or coverage of the stores that you’re gaining financial on..

Well, it’s in our deck as well. This where we get site level financial discovered [Audio Dip]..

Okay.

And then last question, I think your comments, you mentioned in the deal pipeline, auto-related sectors what was adding in compass?.

Yes. That’s the auto service, whether that tire and battery, oil chains, lub, some of the publicly traded parts stores. We view that as sort of a national extension kind of our underwriting..

Okay, great. Thank you..

We will take our next question from Mitchell Germain of JMP Securities. Please go ahead..

Hi, good morning. If I would ask Tony’s question in different way, right. Obviously, some of the deals that you done, recently have improved the credit profile of your tenant base is there anything that right now that’s of concern to you.

Whether it be a customer or performance of a certain store that’s concerning?.

We have a pretty active dialogue with all of our major portfolio tenants, in a portfolio of 900 plus properties at this point of time, there’s always a handful that we’re working through with them or amidst all of our five vacancies that we’re still working through. So we definitely have a watchlist that our asset management team will work to mark.

There is a lot of time kind of working on. But there’s nothing of any significance that concerns us at this point..

Great.

What’s the capital plan now that we’ve got the deal out there? How do you guys envision the balance sheet looking kind of post deal?.

Yes. I think that the big focus for us will be to continue to work on reducing our percentage of flowing rate at this point..

Got you. And facilitated through the new Fitch Ratings is that where we think about..

We certainly say, that’s going to be helpful as we look to raise that capital, yes..

And if you can just remind me of longer-term targets on leverage..

Well, we’ve said a numerous times that we will be comfortable running in the 4.5% to 5% debt to EBITDA levels. I think for the quarter we were 4.2%, post quarter with the acquisition obviously that’s probably going to tick up a little bit but we’re still at the low end of where we’re comfortable at this point in time..

Great. Last one for me. Obviously we’ve been hearing that a little of horizon some development type cost labor that short of thing. Is the economics of your redeployment change at all, or is it still kind of the same returns you’ve always been targeting..

Yes. Nothing has really changed for us there, but we’re still targeting kind of 300 basis points premium over the acquisition market for the entire program. And if you look at what’s been completed to date, I think our three completed projects to stay at 16% as average, is 16% incremental yield and we’re still targeting the same levels internal..

You said – on those you said, 16%..

There are three projects we have completed the average incremental yield is 16%, target – program wide we’re targeting north of 10%..

Great. That’s really good. Thank you..

Thank you..

We’ll then now take our next question from Joshua Dennerlein of Bank of America Merrill Lynch. Please go ahead..

Good morning, guys..

Good morning..

Is there any large historical portfolio out in the market that you might be looking at or….

Well, there’s definitely a host of activity – I don’t think there’s anything as large, say that the Kroger transaction was traded earlier in the year that’s out there at this time but there’s certainly a host of one-off and small portfolios and medium sized portfolios that were in the process of reviewing..

Okay. And have you seen any move kind of in cap rate since the start of the year, you know where interest rates have gone..

Yes. My view there is that they continue to be pretty sticky. There’s certainly especially for the smaller deals there are certainly a lot of money chasing them in the sector, which is keeping them – cap rate sort of compressed.

Our view is that it’s going to take a little bit of time for that to rise in the 10 year to filter through to the cap rate – the market for acquisitions in cap rates sort of towards the end of the year..

Okay. And then how do you guys think about your cost of capital..

What we view as our on-time cost of equity and our cost issue long term fixed rate debt. And if you look at this, we think the appropriate with us for our business. We’re proud of our leverage metrics and I think it’s relatively consistent for us since the start of the year.

And I think we can still invest accretively in both the acquisition market and the redevelopment market..

Okay. Thanks..

Thank you. We’ll now take our next question from John Massocca of Ladenburg Thalmann. Please go ahead. Your line is open..

Good morning everyone.

I think your larger competitors closed sizable transaction with 7-Eleven, is this something you looked at and this is a type of transaction you would pursue given its what kind of a brand name, IG10 or does pricing make – or given pricing does it make more sense to maybe pursue transactions there with little less brand name versus 7-Eleven..

Well, 7-Eleven is a tenant of ours, and we certainly like them as a credit in our portfolio. And I’d say just broadly speaking to the extend we can do transactions that make financial sense for us with investment grade tenants, we would certainly like to do that.

But we also believe in our ability to underwrite tenancy or maybe not rated in the sector and underwrite their credit and their performance of the stores and the real estate itself. So we certainly look at both types of transaction..

And those 7-Eleven in your portfolio are those things you purchased as the 7-Eleven or those things that maybe became 7-Eleven either via this Sunoco purchase or other kind of purchases by 7-Eleven..

Both, the short answer is both. So 7-Eleven has been very acquisitive, so we’ve certainly benefited from that. But we’ve acquired 7-Eleven and then we’ve the operators that acquired..

And then kind of roughly speaking, how much potential do you think there is for continued credit upgrades within the portfolio from operator M&A? Operator M&A is quite up externally but maybe internal….

That’s a great question. I really think that you’re going to see the top 20 participants in the industry continue to consolidate the next year down or several layers down. So I would expect to continue to see some consolidation within our tenant mix just given who the bigger acquirers are at this point in time.

I think that we would get a credit upgrade in the portfolio for some of those transactions..

All right. That’s it for me. Thank you very much..

We’ve got another question from Craig Mailman from KeyBanc Capital Markets. Please go ahead..

Hey everyone, it’s Laura again, sort of quick follow-up question about the debt issuance potentially in the year. You’ve got about $150 million outstanding on the line. I’m just wondering what you’re modeling in terms of potentially terming it out in terms like size and like what rate do you think you could issue at..

Well, I think the recent rating with Fitch certainly helps what we think – where we think we can issue out. I don’t want to comment specifically on what our – what we think our cost is. But I think we’re looking to term out a significant portion of our floating rate borrowings for the balance of the year..

Okay.

Do you have any sense of timing?.

No, I don’t want to comment on this call..

Okay. Thank you..

Thank you. At this time we have no further questions. I’d like to turn back to Mr. Constant for any closure or further remarks..

Great. Thank you all for joining us. We appreciate your interest in the company and we look forward to speaking to everyone in July when we report our second quarter..

Thank you. That will conclude today’s conference call. Thank you for your participation ladies and gentlemen, you may know disconnect..