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

Mitch Germain - JMP Securities Laura Dickson - KeyBanc John Massocca - Ladenburg Thalmann Tony Paolone - JPMorgan.

Good morning, everyone and welcome to Getty Realty’s Earnings Conference Call for the Second Quarter of 2018. 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. Mr.

Dicker, please go ahead..

Thank you. I would like to thank you all for joining us for Getty Realty’s second quarter conference call. Yesterday afternoon, the company released its financial results for the quarter ended June 30, 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 statements.

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 periodic reports filed 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 maybe 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 second 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 second quarter 2018 performance, investment activities and balance sheet initiatives and then I will pass the call to Mark to discuss our portfolio in more detail and finally, Danion will discuss our financial results.

The second quarter continued our trend of steady performance from our core net lease portfolio. As expected, our revenues and adjusted funds from operations both increased significantly due to our investment activities completed in the second half of 2017 and in 2018 year-to-date.

For the second quarter, we reported net income of $13.5 million, funds from operations of $17.6 million and adjusted funds from operation of $17.4 million, which grew by more than $2.5 million or more than 17% over prior year, up $0.43, increased by $0.01 per share or 2.4% over the prior quarter’s quarter.

We executed on both our acquisition and redevelopment platform during the second quarter. We acquired 32 convenience, gas and auto-related properties for $55 million in the quarter. As Mark will discuss in more detail, our previously announced foreclosure transaction expanded our footprint in the Southern U.S.

and our partnership with GPM Investments, which is now our sixth largest tenant. Turning to our redevelopment program, rent commenced on two projects during the quarter bringing our total number of completed projects to 5 in addition to our pipeline of 14 projects, which are detailed in our investor presentation.

We continue to underwrite additional transactions and the convenience, gas and auto-related sectors. Overall, the volume of opportunities available for these types of assets remains strong and we continue to see competition from both our REIT peers and other institutional real estate investors.

With that said, we are staying true to our underwriting criteria. 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.

In addition, we are pursuing additional redevelopment projects and selectively disclosing our properties where we have made the determination that the property is no longer competitive as the convenience and gas locations and does not have redevelopment potential.

During the quarter, we also completed $100 million 10-year private placement with Prudential, a long time capital partner of the company and MetLife a new relationship for us.

With the completion of this debt transaction the company announced approximately 80% of its debt being fixed rate, the highest level in the history of the company and we do not have any debt maturities until 2021.

As we move through the second half of 2018 and beyond, we continued to benefit from the stability of our cash flow from our core net lease portfolio and our conservative balance sheet.

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

We remain confident that we will 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 investment activities..

Thank you, Chris. I will start by reviewing our investment activities and provide additional detail on our redevelopment projects and portfolios in general. During the quarter, we acquired 32 properties for $55.3 million. 30 of the properties we acquired was part of our transaction with GPM investments that we discussed on our last call.

As a reminder the 30 properties portfolio is located in Texas, Arkansas, Oklahoma and Louisiana, but approximately one-third of the properties being on the Dallas-Fort Worth MSA. The properties we acquired have an average lot size of 28 acres and average door size of 2,800 square feet. Both of which enhanced the quality and diversity of our portfolio.

We expect to recognize initial full year rents of approximately $3.8 million. In addition, during the quarter we acquired two properties in individual transactions for $2.7 million in the aggregate. The first property is a convenience and gas site in North Carolina, the other property is an auto parts store in the Greater Chicago market.

Turning to our redevelopment program, during the quarter, rent commenced on two projects. The first was a long-term triple net lease with AutoZone, a publicly traded parts retailer. In this project our total investment is approximately $400,000 and we achieved an incremental return on our investment of 17%.

Our second rent commencement this quarter was a long-term triple net lease to TruMark Financial, a regional credit union. In this project, we invested approximately $500,000 and achieved an incremental return on our investments of 27%. To-date we have completed five projects with an aggregate incremental return on investment of 18%.

Turning to our redevelopment pipeline, we ended the quarter with 14 signed leases and LOIs which includes nine active projects and five projects on properties which are currently included in triple net leases that which would be removed when we receive various approvals required to commence construction.

Our pipeline includes a wide range of retail use and such as enhanced convenience stores and gas stations, specialty parts and service and quick serve and fast casual restaurants. All of our projects are continuing to advance through the redevelopment process.

We expect substantially all of these projects will be completed over the next 1 year to 3 years with several additional projects moving to rent commencement in 2018.

To-date, we have invested approximately $4.5 million in both completed and in progress redevelopment projects with $1 million occurring during the second quarter of 2018 and we estimate that the anticipated total investment through completion for the 14 projects currently in progress by Getty will be approximately $12.6 million.

The investment in these redevelopment projects will generate incremental returns to the company in excess of what we could expect if 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 continued to anticipate redevelopment opportunities over the next 5 years possibly involving between 5% and 10% of our current portfolio with targeted un-levered redevelopment program yields greater than 10%.

Finally, during the quarter we disposed the two non-core locations for $3.7 million of proceeds. As a result of our portfolio activities we ended the quarter with 918 net leased properties, 9 active redevelopment sites and 5 vacant properties.

Our weighted average lease term is approximately 11 years and our overall occupancy, not including our 9 active redevelopments increased to 99.5%. With that, I turn the call to Danion..

Thank you, Mark. Turning to our financial results, for the second quarter of 2018, our total revenues and revenues from rental properties, which excludes tenant expense reimbursements and interest income, grew 18% to $34.2 million and 19% to $29 million respectively.

The primary drivers of the increase over the prior year’s quarter were the impact of rent received from our investment activity in the second half of 2017 and 2018 year-to-date. During the second quarter of 2018, our property cost increased by $1.2 million primarily due to reimbursable real estate taxes, which are due from our tenants.

In addition, our environmental expense, which can be variable at times, was up $1.1 million as compared to the second quarter of 2017 primarily due to increases in legal and professional fees, associated with environmental litigation matters. For more information on specific expense movements, please refer to yesterday afternoon earnings release.

Our FFO for the quarter was $17.6 million or $0.43 per share as compared to $19.9 million or $0.57 per share for the prior year’s quarter. Our AFFO for the quarter was $17.4 million or $0.43 per share as compared to $14.9 million or $0.42 per share for the prior year’s quarter.

Turning to the balance sheet, as Chris mentioned, we issued the company's first ever 10-year fixed rate note during the quarter to $100 million notes split evenly between potential MetLife bear interest at 5.47%. The proceeds from another issuance we used to repay floating rate borrowings on our credit facility.

We ended the quarter with $450 million of borrowings, which includes $90 million under our credit agreement and $325 million of long-term fixed rate debt. Our weighted average borrowing cost was 5.1% and the weighted average maturity of our debt is 5.7 years, with approximately 80% of our debt being fixed rate.

Credit facility refinancing, we do not have a debt maturity until 2021. Our debt to total capitalization currently stands at 27%. Our total debt to total asset value is 37% and our net debt to EBITDA was 4.6 times. In addition, we used our ATM program during the quarter and issued $14.1 million of capital at an average price of $26.20 per share.

Our environmental liability ended the quarter at $61.8 million, down $1.7 million so far this year. For the quarter, the company’s net environmental remediation spending was approximately $3 million.

Finally, we are reaffirming our 2018 AFFO per share guidance of $1.68 to $1.74 per share, which includes the impact of 2018 acquisition activities year-to-date and our $100 million debt private placement.

As a reminder, our guidance does not assume any future acquisitions or capital markets activities, although it does, which impact our guidance, one, the full year impact of earnings from 2017 acquisition; two, our expectation that we will forego rent when we recapture properties from our net lease portfolio for redevelopment; three, our expectation at 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 and 2018 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..

Certainly. [Operator Instructions] We will hear first from Mitch Germain with JMP Securities. Please go ahead..

Good morning.

Chris, you are sticking with your underwriting and I am curious is that a comment that you are seeing any pricing changes within the market?.

Not really, it’s primarily the volume of opportunity is primarily related to the consolidation that going on in the convenience and gas sector. It continues to be strong, but in our opinion, some opportunities that are better for operators are not necessarily real estate that we want to purchase and hold long-term.

So it really is the comment on being selective in terms of how we think about acquiring real estate that we would be expect to own for very long time..

Got it. And then with regards to how fragmented the industry is, maybe a couple of questions there, number one, is the current pricing environment making the decision to sell or state planning decisions, a little more I guess quicker to take advantage of where pricing is.

And then two, any change in the competitive landscape in terms of who you are bidding against for some of these deals?.

So your first question is I think each situation in terms of who the seller is unique or can be unique, so I am not sure there is an central theme to why there is really an acceleration of the M&A in the sector other than there are large companies out there that have become serial acquirers that really are consulting the industry and enhancing the deal for our store products and it’s really growing their overall store base.

The second question, since I forgot your second question….

Competitive landscape?.

I think we think about convenience and gas and the other auto related sectors, I think there is a significant amount of capital both from our public REIT peers or many of your public REIT peers, but also other institutional real estate capital that has been active in the sector for the last years and quite frankly I only see that base increasing, so..

Okay. Thanks..

Thank you. We will move next to Craig Mailman with KeyBanc..

Hey everyone, this is Laura Dickson here with Craig.

I saw that you issued equity in the quarter, you are trading at a premium to NAV in our estimates, so just I was wondering how that makes you think about using the ATM like continuing to use the ATM at these levels and does that help to make some more deals pent up?.

Well, we invested $55 million in acquisitions plus another $1 million in redevelopments during the quarter.

And we have talked about kind of continuing to maintain a very strong conservative balance sheet so with making additional investments, we thought we could use the ATM to continue to maintain the profiles from a leverage perspective that will come forward.

Really, what we think we have the balance sheet that will afford as the opportunity, continue to grow and the ATM can certainly be part of that going forward..

Okay, thank you.

And then just following-up on the acquisition environment, are you able to quantify what’s in the acquisition pipeline currently?.

We don’t disclose that any level of detail. I won’t say that we are – I would say on track to probably review the same type of – in terms of volume of opportunities this year that we underwrote last year.

And again I would say that the pipeline is strong, but there continues to be portfolio transactions and one-off transactions that are coming in that what we are reviewing and we are really sticking to our underwriting criteria and hoping that we can find deals that fits up that model and we can close..

Okay, great. Thank you..

[Operator Instructions] We will hear next from John Massocca with Ladenburg Thalmann. Please go ahead..

Good morning everyone..

Good morning..

So kind of going on the acquisition front again, GPM has been pretty active, I mean they have recently did a deal with Champlain Oil, I mean is that the type of transaction that you could be involved or are those assets potentially to really be attractive to you?.

So the Champlain Oil deal was Global who is one of our other tenants not GPM. And it’s really we have ongoing dialogues with all of our tenants, Global, who have us, their largest are GPM who is now our sixth largest tenant.

And there is – there are wonderful operations such as the Champlain Oil transaction that we certainly have taken a look at that maybe don’t necessarily split some of the underwriting criteria from a real estate perspective that we would like to see, but each situation John is unique and we will certainly take a look at it and work with our existing tenant base of our new tenants to see if purchasing properties and entering into a new lease makes sense..

Understood.

And just kind of interested you completed development with the leading auto parts retailer and you did one granular acquisition with the auto parts retailer, is the development program a source and kind of a way for you to generate relationships in that space that could future acquisition activity?.

Yes, I think that’s certainly one of the benefits we are seeing from the redevelopment program. We happen to have a portfolio of properties, many of which are in the Northeast and Mid-Atlantic that are all very, very well located, primarily on corners and fairly dense markets. And those properties can fit a lot of standalone retail uses.

I think Mark talked about some of the other auto sectors, some of the other sort of quick-serve and fast casual restaurants or other specialty retail.

And when you have a property that fits kind of some of the attributes that a lot of those leading retailers are looking at, it certainly help start a dialogue and that leads to perhaps other redevelopment opportunities or further down the line perhaps acquisition opportunities..

Could you see acquisition opportunities in some of tenant developments, the assets that you are developing that maybe aren’t really in that auto parts, gasoline, kind of silo that you have primarily been in?.

From a net lease acquisition standpoint, I think we are really trying to stay focused on our convenience and gas and other auto-related sectors. I really – I think that’s the history of the company, I think that’s where our relationships are. I am not sure if it makes sense for us to really branch too far away from that..

Understood.

And then kind of last little detailed question, the Millerton development project, what kind of happen to that, it came off the list this quarter, Millerton, New York?.

Yes. Sure, this is this part of development. We had a signed lease for that with a well-known retailer. We needed some land use approvals on the local level, which we get the project that’s kind of off the table at this point.

So we are reevaluating Millerton and we will find the best home for that property and keep adding new projects to the redevelopment portfolio this quarter and in future quarters..

It makes sense. That’s it for me. Thank you guys very much..

[Operator Instructions] We will go now to Tony Paolone with JPMorgan..

Thanks. Good morning.

I think in your comments you mentioned, I think it was 5% to 10% for the portfolio over time being up redevelopment and then I can’t remember what the timeline was, but I am just curious what the gating factors are for that given the returns are pretty high wondering, why not accelerate that?.

Tony, it’s really a lot of our properties are subject to long-term triple net leases where it’s we may not have access to the property or we may have to negotiate with our tenant to recapture the property and those types of negotiations on 15-year leases can be challenging.

So I think what we have talked about is the 5% to 10% is properties whether either being currently held in development, are currently held vacant, while we are completing our redevelopment lease, but also the leases where we have actually negotiated a contractual right to be able to recapture properties based on a formula, so not all of our leases have that same recapture feature to them, which is why I think you are seeing us kind of hold to that 5% to 10% of our overall portfolio..

Okay. So, that’s what I guess it will take a while to see it there. Okay.

The other item is on the environmental side, something that’s kind of faded a bit over the last couple of years, are those costs at this point still all related to legacy assets for, do other assets go into that mix over time and wondering when there is a point of time in the future where that’s just – which is going on and no longer part of the story?.

Well, the vast, vast majority of our environmental liability is associated with our legacy properties and we continue to believe it is in our best interest to spend significant sums to reduce that liability, it’s really pure construction or digging and monitoring over time and we do hope to get to a place, Tony, where at the end of the day, we are not on these types of calls talking about environmental, but I think the nice feature from our side of environmental is again it’s all related to legacy properties.

It all dates back to when this company or the history of this company used to be an operator and we have direct responsibility in our other properties, which we have acquired which were not part of our history. We have not had any significant experience whether it’s been environmental liability that comes back to our balance sheet..

Okay.

I mean is the number of properties associated with the liability continuing to shrink, is there progress to be made there?.

Yes. We don’t disclose the overall number of properties that are inside of our environmental liabilities, but yes, that number of open incidents continues to come down quarter-over-quarter..

Okay, great. Thank you..

You are welcome..

And at this time, we have no further questions. I’d like to turn the call back to Mr. Constant for any closure or further remarks..

Well, thank you everyone for being on the call today and for your interest in the company and we look forward to speaking to everyone when we report our third quarter in late October..

This now concludes our conference call. You may disconnect at this time..