Getty Realty Corporation

Good morning and welcome to Getty Realty First Quarter 2025 Earnings Call. This call is being recorded. After the presentation, there will be an opportunity to ask questions. 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 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. Yesterday afternoon, the company released its financial and operating results for the quarter ended March 31, 2025. The form 8K and earnings release are available in the investor relations section of our website at gettyrealty.com. Certain statements made during this call are not based on historical information and may constitute forward-looking statements. These statements reflect 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 2025 guidance and may include statements made by management, including those regarding the conference's future operations, future financial performance, or investment 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, 2024 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 today. The company undertakes no duty to update any forward-looking statements that may be made during this call. Also, 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 ASFO 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 earnings call for the first quarter of 2025. Joining us on the call today are Mark O'Lear, our Chief Operating Officer, and Brian Dickman, our Chief Financial Officer. I will lead off today's call by summarizing our financial results and investment activities, and we'll provide commentary on how to continue to execute our strategy in a thoughtful and disciplined manner despite the latest macroeconomic uncertainties. Mark will then discuss our portfolio, and Brian will address our financial results and guidance. For the quarter, Getty grew its annualized base rent by 11.2% over the prior year to approximately $199 million. And we reported AFFO per share of $0.59, an increase of 3.5% compared to the prior year's quarterly result. The growth in base rent in AFFO was driven by rental increases in our in-place portfolio and the impact of our prior year's investment activity. Importantly, our convenience and automotive retail tenants continue to perform well despite the challenging operating environment. Our tenants' businesses are largely recession resistant and provide non-discretionary goods and services to consumers, particularly mobile consumers that prioritize convenience, speed, and service. Let me now take a moment to elaborate a bit more on how we track performance for our tenants. Between the site-level financials we receive on 72 percent of our annualized base rent and publicly available financial data for our listed tenants, we're able to actively monitor the performance of nearly 95 percent of our ABR. And what we're currently seeing is the same stability the same resilience that we've consistently seen from these businesses throughout prior market cycles. Within the convenience store sector, rent coverage for our assets was consistent with prior quarters. Within the car wash sector, rent coverage increased at varying levels for each of our car wash portfolios. In fact, the reports we received from our car wash tenants revealed a strong quarter overall as profitability grew, New to industry sites continue to ramp at or ahead of expected pace, customer visits increased, and subscriptions remained a source of strength. With regard to Zips Car Wash, our tenant that filed bankruptcy in February, we have made material progress towards a resolution, which Mark will discuss further in his remarks. As a reminder, Zips represented 12 sites or 1.8% of our ABR and is our first tenant credit issue since 2011. Moving on to investment activity, the pace of closed transactions to start 2025 was more modest than prior quarters, but in line with our expectations. Approximately 85 percent of the pipeline we disclosed at year end was for development funding transactions, which typically have a 9- to 12-month spending horizon and sales effects that can be variable from quarter to quarter in terms of investment volumes. With that said, we are pleased that we were able to increase our committed investment pipeline to more than $110 million. This pipeline represents a solid distribution of opportunities across our four target sectors, with approximately 50% of the pipeline being in auto service and the balance across convenience stores, drive-through QSRs, and express telecar washes. Approximately two-thirds of the pipeline is development funding transaction, and the balance is predominantly sale-leaseback. Importantly, our pipeline remains fully funded and we have capital to fund additional transactions as we move through 2025. The economic and political uncertainty that has dominated the news for the last several weeks has, broadly speaking, created significant volatility in the transaction and capital markets and has translated into headwinds for closing deals in our target retail sectors. Regardless of market conditions, our job remains to source opportunities that fit our investment thesis and underwriting criteria and which can be financed accretively. Our acquisitions team continues to do an excellent job of identifying transactions with a mix of large and established tenants and emerging high-growth tenants who are building strong platforms across the U.S. Importantly, we remain committed to our disciplined approach to acquisitions, which prioritizes owning real estate in high-density or growing metro areas, with excellent access and visibility in retail markets, and which has leased to credit-worthy operators under a long-term triple net leases. We are confident that our relationship-based sale-leaseback strategy will generate continued opportunities for getting to acquire assets in our targeted convenience and automotive retail sectors as we move through 2025. With that, I'll let Mark discuss our portfolio and investment activities.

Thank you, Chris. At quarter end, our leased portfolio included 1,115 net leased properties and one active redevelopment site. Excluding the active redevelopment, occupancy was 99.7%, and our weighted average lease term was 10 years. Our portfolio spans 42 states plus Washington, D.C., with 61 of our annualized base rent coming from the top 50 MSAs and 76% coming from the top 100 MSAs. Our rents continue to be well covered with a trailing 12 month tenant rent coverage ratio of 2.5 times. Turning to our investment activities for the quarter, we invested 10.9 million across six properties at an initial cash yield of 7.8%. The weighted average lease term on acquired assets for the quarter was 14 years. Highlights of this quarter's investments include the acquisition of three drive-through quick service restaurant properties in the Memphis, Tennessee MSA for $4.4 million, one express tunnel car wash property located in New York for $4 million, and the acquisition of the land associated with a development funding project for a new industry collision center in the Kansas City MSA for $1.5 million. We also advanced incremental development funding in the amount of $1.1 million for the construction of two new industry auto service centers. These assets are either already owned by the company and are under construction or will be acquired via sale-leaseback transaction at the end of the project's respective construction period. Subsequent to quarter end, we invested an additional $6.4 million, bringing our year-to-date total investments to $17.3 million at a 7.7 initial cash yield. As Chris mentioned, we currently have more than $110 million of investments under contract, which we expect to fund over the next 9 to 12 months at an average initial yield in the high 7% area. Beyond our disclosed pipeline, we continue to source actionable opportunities which are priced at a creative spread in which we believe will benefit our portfolio as we look to scale and further diversify our business. Moving to our redevelopment platform, we funded $500,000 towards a revenue-enhancing CapEx project for one of our legacy gas and repair properties in the first quarter. As part of our agreement with our tenant at the property, we received incremental rent for our investment and extended the base term of the five-property unitary lease. At quarter end, we had four signed leases for new to industry oil change locations, of which one is under construction, and we have additional projects in various stages in our pipeline. Continuing with our asset management efforts, during the quarter, we sold two properties or $500,000, we also made considerable progress towards repositioning the 12 assets that were previously leased through Zips Car Wash. It is our current expectation that Zips will remain our tenant at six of the properties and that we will release five of the sites to two regional car wash operators and we will dispose of the one remaining property. While we are in various stages of documentation, we expect to be substantially complete with repositioning of these assets by the end of the second quarter, subject to all of the typical qualifiers regarding pending transactions. Upon execution, we expect to recover approximately 70 percent of the AVR previously generated by ZIPS, and our downtime would be limited to less than one quarter for the assets being leased to the new tenants.

With that, I'll turn the call over to Brian. Thanks, Mark. Good morning, everyone. For the first quarter of 2025, we generated FFO per share of 59 cents, a 3.5% increase over Q1 2024. FFO and net income for the quarter were 56 cents and 25 cents per share, respectively. A more detailed description of our quarterly results can be found in our earnings release, and our corporate presentation contains additional information regarding our earnings and dividend per share growth over the last several years. Annualized base rent, or ABR, as of March 31st, 2025, was $199 million, an increase of 11.2% over the $179 million we reported as of March 31st, 2024. For the quarter, total G&A as a percentage of total revenue was 13.2%, a 40 basis point improvement over the first quarter of 2024. And G&A excluding stock-based compensation and non-recurring retirement costs as a percentage of cash, rental income, and interest income was 10.5 percent for the first quarter, a 10 basis point improvement over Q1 2024. Management believes the second metric provides a better gauge of performance since it adjusts for certain non-cash and non-recurring items over which we have limited control in both the numerator and denominator. We continue to anticipate G&A dollar increases will moderate, and G&A ratios will further improve as we scale the company. Moving to the balance sheet and liquidity, at quarter end, net debt to EBITDA was 5.2 times, or 4.4 times, taking into account unsettled forward equity. We continue to target leverage of 4.5 to 5.5 times net debt to EBITDA that are well positioned to maintain those levels going forward. Fixed charge coverage for the quarter was 3.5 times. During the first quarter, as previously announced, we funded $125 million of new unsecured notes, proceeds of which were used to repay $50 million of notes that matured in February and to repay borrowings under our revolving credit facility. Also, as previously communicated, we refinanced our revolving credit facility in the first quarter. The revolver was set to mature in October 2025, and as part of the transaction, we upsized the facility to $450 million and extended the term to January 2029 or January 2030, including extension options. We used the increased capacity to repay our $150 million term loan, which was also due in October 2025, allowing us to address that maturity in the near term while giving ourselves flexibility with respect to the ultimate refinancing of those borrowings. We now have no debt maturities until June 2028. As of March 31st, 2025, the company's weighted average debt maturity was 5.4 years, and the weighted average cost of our debt was 4.5%. During the first quarter, we settled 400,000 shares of common stock subject to forward sales agreements for net proceeds of approximately $11 million. At quarter end, we had 5 million shares of common stock subject to outstanding forward sales agreements, which upon settlement are anticipated to raise gross proceeds of approximately $153 million. We continue to be in a strong capital position with more than $450 million of total liquidity at quarter end, including unsettled forward equity, capacity on our revolver, and cash and 1031 proceeds on our balance sheet. We have more than sufficient capital to fund our under contract pipeline, as well as additional investment activity as we move through 2025. A couple of additional notes on ZIPS. We've received all rent due through April of this year, other than the period between February 1st and when ZIPS filed for Chapter 11 on February 5th. The 70 percent ABR recovery and less than one-quarter downtime mentioned by Mark were both within the range of potential outcomes assumed in our 2025 earnings guidance. There are also no TIs associated with those releasing efforts. With respect to guidance, we are reaffirming an AFFO per share range of $2.38 to $2.41. As a reminder, our outlook includes completed transaction activity as of the date of our earnings release, but does not include assumptions for any prospective acquisitions, dispositions, or capital markets activities, including the settlement of outstanding forward sales agreements. Primary factors impacting our 2025 guidance include the finalization of the anticipated ZIPS resolution and variability with respect to uncollectible rent, certain operating expenses, and transaction-related costs. and the timing of anticipated demolition costs for redevelopment projects that run through property costs on our P&L.

With that, I will ask the operator to open the call for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.

Thank you.

Our first question comes from the line of Daniel Berm with Bank of America. Please proceed.

Daniel Berm Good morning. For the 110 million investment pipeline, can you describe the cadence of capital deployment in the next 9 to 12 months?

Hey, Daniel. This is Brian. Happy to. As Chris mentioned in his prepared remarks, about two-thirds of that pipeline is development funding. Those projects we typically estimate at 9 to 12 months from when we sign them up until completion. Some can be a little shorter. Some can go as long as 15 months. but that's generally why we put that range out there. So I think what you can anticipate is the acquisition activity, the sell-leaseback activity is typically going to be within the next quarter and change, and the balance that development funding will be over the rest of this year and into the early part of next year.

Got it. Thank you. And while we're on that, just given the macro uncertainty, could you just describe the development demand today?

Yeah, I mean, I think, you know, we're having a lot of conversations with operators who were looking at kind of accelerating their new store growth programs in 2025. I think at this point, it's probably too certain to make any calls. Although, you know, people are evaluating all the various inputs to construction and on the situation and we'll be able to work with certain tenants to continue to source deals in that area.

Got it. Thank you so much.

Thank you. Our next question comes from the line of Mitch Germain with Citizens JMP. Please proceed.

Good morning, guys. Chris, did I hear you kind of reference the fact that deals are taking a bit longer. Is that consistent with what you were trying to discuss in your comments?

I think each transaction is a bit unique, Mitch. You know, there's certain transactions, I'll go back to last quarter, right? There's certain transactions where it never touched our committed pipeline, right? Just a quick M&A closing where we were part of the capital structure. I think some of the prior question right around a little bit of the uncertainty that's in the market today, right? We're just having a lot more conversations with folks, and there might be some of our counterparties that are just kind of evaluating next steps at this point in time. But I would just say each transaction, given the direct nature, can have its own cadence, right, and its own time period where you initiate the discussion all the way through closings.

And Mitch, just real quick, as Brian and I would add, just remember that our sellers, our counterparties, right, of real estate, they're not simply selling real estate from a return orientation, right? They're making long-term financing decisions, right, as they think about how to fund their growth and manage their capital structure. So it's a little bit of a, I think, different decision-making process when you're doing a sale-leaseback versus just, you know, acquiring an asset that may be on the market for sale.

It's helpful. Are you seeing more motivation out of the PE capital to place capital rather than lose it at this perspective, or is activity from them still a bit choppy?

Yeah, I'd say there's definitely a lot of transactions on the market right now that we're having conversations with. management teams, owners, some of that includes private equity. You know, I think that there's no shortage of potential opportunities out there. Part of the challenge, right, is obviously pricing, timing, expectations for growth in 2025 by our operators. So, yeah, I haven't noticed any sort of slowdown or increase. I just think there's a lot to work on at this point in time for us.

That's great. Okay, last one for me. How should we think about the timing of how the Zips rent income kind of hits the income statement? Is that really more of a late 2Q, early 3Q, or is it 3Q? How should we think about the cadence? Because obviously you've already received rents for April.

Mitch, I would caveat everything I'm about to say about the fact that these are in-process negotiations. We wanted to provide an update to the market and give some clarity and some transparency where we had it, but all still subject to being pending discussions. But I think, as you said, we received rent through April for the sites that would stay with Zips. We would assume just a continuation throughout the year with no interruption there. And then for the handful of sites that will be released to other operators, as Mark mentioned in his remarks, we expect those to be in place, those tenants to be in place by the end of this quarter. And then the one asset that will likely sell, that may go into the second half of the year. But it's a longer way of saying that if we're able to execute according to what we anticipate is the outcome here, this should really be resolved by the end of the second quarter and move on with the rest of our business from there.

And is Zips, the car washes that they are retaining, are the rents lower on those as well? Is that part of the whole 70% recapture? Is that the way you think about it?

Yeah, there were adjustments, or there's anticipated to be adjustments across all the 11 properties that will stay in the portfolio, and they vary by order of magnitude depending on the performance of the underlying property.

Thank you.

Thank you. Our next question comes from the line of Upal Rana with KeyBank Capital Markets. Please proceed.

Great, thank you. Chris, regarding the tariffs, have you seen any impact on your existing tenant base, especially given the nature of your auto's centered portfolio?

Yeah, that's a good question. I think any impact of tariffs by our tenants is truly to be determined right now. The positive thing for us is that our assets aren't tied to being clothing or other manufacturing. And depending on each one of our tenants and each one of the sectors, I think there's varying levels of inputs or products sourced internationally. The indirect impact, of course, that people are having conversations about is on the consumers. And while our assets have traditionally performed well during periods of slower economic growth, and we take great comfort that our tenants provide essential goods and services to the consumer, I think this is definitely a unique environment that we're in today. What I would just say is we're having a lot of discussions with our tenants in our portfolio on this topic. And what we're hearing back from them today is it's just really too soon to make a definitive statement on what impact, if any, tariffs are going to have on their sourcing of product, sales product, on the consumer spending that they see in their stores. So, you know, we're certainly spending a lot of time with them. And I know our tenants are thinking about this, but I don't want to make any definitive statements on the impact to the portfolio right now.

Okay, great. That was helpful. And then, Brian, could you remind us where your cost of capital is today and what your investment spreads are looking like on your recent investments?

Yeah, happy to. You know, on a spot basis, and this, you know, changes, you know, daily by definition, but I would say we're probably in that, you know, maybe low to mid sevens area, just given where treasuries are, where spreads are, and where the stock price has been. But I think importantly, capital that we have raised and is currently being deployed, the debt that we funded in the first quarter, the equity that we mentioned that's unsettled, that's well inside of that spot cost of capital. I would put that in kind of the mid-high sixes area. So, you know, call that 6.6, 6.8, you know, kind of range. And, you know, given the pipeline in the high sevens pushing eight, you know, that would tell you that that spread is kind of in the low, you know, 100, 110, 120 basis points area.

Okay, great. And then just last one from me would be just, you know, given the volatility in the 10-year, you know, is there – what's your expectation on where the cap rates could trend in 2Q at least?

Yeah, I mean, it's a great question. You know, I think we're really not seeing any change – in cap rates right now based on comments in the first quarter and in the first couple of weeks of Q2. Just as a reminder, we thought that there was depth in the market in that mid to high seven range, approaching eight, with the market kind of getting a little thinner as you get much north of that 8% range. Again, I'll go back to almost a similar comment on tariffs. I think people are digesting the news for the last couple of weeks. And, you know, in our minds, it's a little too early to say that there's been a substantial movement in cap rates. But time will tell. And again, we're continuing to have those conversations with our counterparties on transactions, whether they're in our portfolio or prospective tenants. And, you know, I'll just echo that we're pleased that the pipeline increased and we're able to finance those deals accretively with the capital we've raised and feel good about being able to grow this year.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Wes Goloday with Baird. Please proceed.

Hey, good morning, guys. Can you talk about the credit file of your new car wash tennis, and did you get any new relationships?

There were no new relationships this quarter, Wes. You said the credit profile of our car wash tennis, is that what you were speaking on?

The new ones, yeah, with the people taking over the Zips, were any of those new to the portfolio? Are they bigger, better operators?

Yeah. You know, I think what we feel good about for those, sorry, Wes, I misunderstood your question. On the Zips assets, the two new tenants that we're negotiating with, I think what we like about those tenants is they're in the markets where those properties are today. They know how to operate in those markets. I would call that they're two different size companies. One is truly a regional operator that's in that market and is growing, and the other is a larger, more established operator who happens to be new to our portfolio, but again, in the market, strong company, and we think it's going to be a good partner for us long-term.

Okay, and then I guess getting rid of Zips, you cleaned up the left tail of the portfolio on the coverage perspective. I think you just over 1% for sub-1.5% coverage. Is there anything concerning in that bucket, or are these just stabilizing assets?

Hey, Wes, it's Brian. You know, usually around that question, we'll point to the one car wash portfolio, and then we have a C-store portfolio that just simply operates in that range. And I'm talking, you know, 12, 15-plus years. That's just where they operate on a stabilized basis, so no concerns with that portfolio.

Okay, and then... David, can you talk about your tenant, ARCO? How are they doing on a coverage perspective for you?

Yeah, so we have five leases with ARCO. They're our largest tenant. They're public, so I'll just refer everybody to their public information. We continue to see consistent coverage. They're in the C-store, as I said in my comments. They're in the process of a strategic plan in their business, but from Getty's perspective, it doesn't change anything contractually. We look to Arco. They expect to generate the similar profits from their stores at the end of this transition. And we still feel good about having them as a tenant. And they've been a partner of us for almost 20 years and have a very long track record of performing under all their leases for us.

Okay. And then last one for me. line of credit just under $160 million. Are you looking at terming that out sometime this year?

Yeah. So the big piece there, Wes, is the $150 million that came over from the term loan. And we have swaps on that, fixing the interest rate at the 6.1% until October of 2026. And then, of course, the maturity now is until January of 2029. So as a general response, Yes, we would want to turn that out. You know, as you know, we typically prefer long-term fixed-rate debt, the 10-year notes. But given that we're fixed through October of next year and we have maturity beyond that, I'd say we'd be, you know, more opportunistic than, you know, feel any real urgency to do that, especially, you know, point in time, given where both, you know, 10-year and spreads are. So I would say, yeah, in due time, we'll be opportunistic around turning that out. But no, nothing to anticipate in the near term.

Okay. Thanks for the time.

Thank you. Our next question comes from the line of Brad Hepburn with RBC. Please proceed.

Hey, thanks. Morning, everybody. On ZIPS, can you give what the coverage was pre-bankruptcy and then what it is pro forma for the leases that you'll presumably sign?

Yeah, Brad, it's Brad. So pro forma, what we had said is, you know, we stratify the coverage. So they were in the one to one and a half range as a 12 property portfolio. say, in the midpoint typically, plus or minus of that range. And then for the new operators, just premature, right? I want to make sure we get those signed up and give those operators a chance to run those facilities. I think directionally it would be fair to say we would expect it to be improved, both with the new operators hopefully driving top-line growth and then with the rent adjustments to set those sites up for longer-term sustainability. But too early to get into what we would expect that to be.

Okay, got it. And I mean, I think the market perception was that Zips was, you know, largely a sort of balance sheet corporate problem and not necessarily a site level problem. Did you like see an issue with those sites covering at that level? And if so, like, did you just think you couldn't get out of them? I'm assuming you were getting quarterly financials. I guess I'm just wondering why. maybe you couldn't be more proactive about it or maybe there just wasn't a way to get out of them.

Yeah. You know, I think one of the things we've mentioned on the Zips portfolio is that we went back and looked at them as car wash sites and felt good about the 11 and the 12 that are staying in the portfolio being long-term producing assets for us. You know, by bringing new tenants into the portfolio who are in those markets, we think that they're going to be able to grow the top line there, and obviously with the rents being adjusted, right, that certainly gives them a little bit more cushion. But I wouldn't say that these were really, you know, truly underperforming locations. I do concur with what you're saying. I think the overall ZIPS issue was a balance sheet issue.

And, Brad, just one additional comment as it relates to coverage. It was fairly stable at those levels, so it wasn't a situation where we saw higher coverage, higher performance, better performance deteriorating over time. It was a portfolio that just was kind of operating at that level.

Okay. Thank you.

Thank you. Our next question comes from the line of Michael Goldsmith with UBS. Please proceed.

Good morning. Thanks a lot for taking my question. A lot of discussion on ZIPS here. I just wanted to clarify, you know, what exactly did you bake into your guidance as for the resolution of it and how has, you know, I recognize also that, you know, the situation is still fluid, but how does this kind of pending resolution compare to what you had baked into your outlook for the year? Thanks.

Yeah, sure, Michael. So what we had said on our February call is we looked at a range of outcomes on both downtime and rent adjustments. We didn't get into specifics, and we'd still rather not, just given the live nature of the situation. But again, assume a range of rental adjustments, some more draconian than others, and a range of downtime the same. And as I said in my remarks, the anticipated resolution that we outlined is within that range of outcomes, which is why we left the guidance unchanged. I think that when we're coming back here in July, you know, hopefully this is fully resolved and then we can get a little bit more fine with our guidance and, you know, restating that if and as necessary. We were hesitant to do that at this time given, again, just where we are in the act of negotiation. So a little bit of a longer way of saying what what's been proposed or what we've articulated here is is uh as well within what we had laid out again as those range of outcomes and i would just end with if you take a little bit of a step back right we think a pretty favorable outcome right if you can uh you know have downtime of less than a quarter on half of the portfolio with the other half continuing through rent recovery in that 70% area, no TIs, new tenants that are active in the market. Just as a general kind of holistic picture, we're pleased with where this is headed and really looking forward to focusing on other parts of the business.

I believe earlier Upal asked about the impact of tariffs on the underlying tenants, but maybe you can talk a little bit about the impact of tariffs on the redevelopment and how, you know, the potential inflationary costs may impact that segment and external growth maybe more generally.

Yeah, I mean, I think, you know, if you are referring to our redevelopment program and just new construction in general, I mean, the expectation is across the board from our tenants that construction or any sort of CapEx that's going into any of our properties, the cost of all the inputs will go up. That timing may also be impacted. Certainly that impacts returns as we like to invest in those locations. But just the way we've structured our development funding program and the way we structure our redevelopments, I think, you know, we're going into those with sort of the proper protections, whether it be a cap on how much we'll advance or, steps in cap rates, if there are delays along the way in development funding projects such that it protects us from committing to an investment that ultimately wouldn't lead to the same level of accretion that we thought it would going into it.

Yeah, this is Mark. I'd also add that on the Getty side of the transaction, the scope of work that we're exposed to, the cost of that work is fairly well defined and contained. So things that might be affected by market conditions, you know, steel, glass, cement, things like that, typically are not on our side of the transaction. But that said, our deals contain a, when we underwrite the deals and look at the return on investment, we feel an appropriate contingency in those budgets for cost creep over time because the development deals are even a longer horizon than some of the development funding deals because of the permit process. So, you know, we're looking out anywhere from 12 to sometimes 24 to 30 months, and we build an appropriate contingencies for cost cream. And then we stay current through our professionals and our development process with the incoming tenant on the evolution of their budgets and their approvals and designs. So we've got a pretty good view to that.

I appreciate that. And if I can squeeze one more in, what's your appetite for QSR? That was the dominant tenant type that you acquired during the quarter, and you brought your percentage ABR up from 1% to 2%. So what's your thought on this segment going forward? Is there a level of exposure that you're targeting over the intermediate term, let's say?

Yeah, no defined. Obviously, it's gone from 1% to 2%, so it's portfolio. We don't necessarily have a defined basket for that sector. What I would point out, though, is again, we're sort of 18-ish months into looking at the sector, starting to develop relationships in the sector, and we're pleased that we're starting to make inroads and we're starting to have that direct type of transaction in that sector and the conversations to generate more opportunities and generate potential investments for Getty to bring onto our balance sheet that increase our exposure there, bring in some new tenants and other diversification. So I think it's the natural evolution of how we get into a

Thank you very much. Good luck in the second quarter.

Thank you.

Thank you. Our next question comes from the line of Michael Gorman with BTIG. Please proceed.

Yeah, thanks. Good morning. Just one quick one for me on ZIPS. Brian, I appreciate the color that the outcome is well within the range for guidance. I'm curious if we step back How does the outcome compare to how you think about these assets when you underwrite the new investments, right? Chris, you mentioned first credit event since I think 2011. Obviously, the car wash is a new business line since that time. So when you think about underwriting new car wash investments and the potential risk there, how does the recovery from this credit event compare to how you think about recovery in an underwriting scenario? And has that led to any changes about how you're thinking about it for new investments going forward?

Yeah, I think as we, I'll just, Chris, sorry, I'll start and then I'll let Mark and Brian fill in what I missed here. But I think as we underwrite, we're always looking at alternative scenarios, whether it be re-tenanting, whether it be is there a higher or better use or an alternate use for a site. It sort of starts with the markets we invest in, the positioning of the assets, whether it's on a corner or just off a corner. It's one of the reasons that we focus on all that in our disclosure. As we think about re-tenanting sites, which we've done in the C-Store sector, we're always saying, okay, who's the highest and best user for that location? In this particular scenario, given where that portfolio has settled in, I think the rents that we re-cut on these are appropriate. They give the tenant the ability to grow that top line in the business and to be a profitable set of properties in our portfolio. I think each scenario Given that the 11 of the 12 are going to remain car washes in our portfolio, I think the new rents that we set are sustainable.

Also, you want to look at it possibly as a validation of the underwriting process where they're going to continue as operating car washes. So for the intended use that we acquired for, they'll continue in that sector. You can look at the profile of the incoming tenant. the value that they viewed in those properties. But I guess the answer to the direct question, it doesn't give us any pause on how we underwrite properties. We haven't deviated. We continue to stress test that on a recurring basis and refine our model, our proprietary underwriting value model. But no, it didn't give us any cause for concern in how we look at future opportunities.

Mike, I'll just add one more thing and kind of build up what Mark said is we're always evaluating and reevaluating, you know, how we underwrite. And, you know, certainly from 2019, you know, through the last five, six years that we've been in the sector, you know, whether it's been as cost of new development have gone up or as new competition has come into the market, you know, we're always, as I said, assessing and reassessing our model. We do underwrite car washes to a higher coverage level today than we did five, six years ago. But that wasn't as a result of Zips. I think that's the key takeaway, right? We're always looking to refine and improve, you know, how we look at properties. So that has been happening even before the Zips event. And then I think, yeah, to Mark's point, it arguably validates, you know, how we've approached this and, you know, doesn't give us any pause in terms of, of that approach going forward.

Okay, and then maybe just one follow-up. When you think about the sites that are staying in the portfolio but not going to Zips, were those offered to Zips at the reduced rent that the new tenants are taking them, or was there a choice there to reduce exposure to Zips and find new operators, even if Zips would have kept the sites at the lower rent?

I think it's a holistic negotiation. I wouldn't necessarily think of it as a direct offer. Don't forget that the starting point from their initial filing, Zips had rejected seven of the 12 and had indicated that they would stay in five. So that was sort of the starting point. And from that, we got to a situation where they were able to stay in or potentially, as we're laying it out, stay in six. and then five got released and one would be sold. So I wouldn't think of it as a, you know, one or the other and kind of playing them off each other. The team went out and talked to several operators and brought in, you know, a variety of different offers for lease, for acquisition, disposition from our perspective, some willing to put in capital, others looking for capital. So there was, I would say there was good interest in the site's And where we are looking to land and what we've articulated was just a sort of good blended outcome, good aggregate outcome across the 12 sites that we thought that we identified the right either counterparty in the case of the different leases or in the one case, the sale for the 12 property portfolio.

Great. Thanks for the time, guys.

Thank you. There are no further questions at this time. I'd like to pass the call back over to Christopher for any closing remarks.

Great. Thank you, Operator. Thanks, everybody, for being on the call this morning and for your interest in the company, and we look forward to getting back on with everybody in July when we report our second quarter results.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.