Getty Realty Corporation

Good morning and welcome to Getty Realty's second 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 second quarter earnings conference call. Yesterday afternoon, the company released its financial and operating results for the quarter ended June 30, 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 company's future operations, future financial performance, or investment plans and opportunities. We caution you that such statements reflect our best could differ materially I refer you to the company's annual report on form 10 K for the year ended December 31 2024 as well as any subsequent 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 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 AFFO and the 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 second 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 highlighting our quarterly financial results, accelerating investment activity, and recent tenant performance. Mark will then discuss our portfolio and investment activities, And Brian will provide additional details on our earnings, balance sheet, and 2025 AFFO guidance. Getty had a strong quarter and grew its annualized base rent by 9.9% to approximately $204 million during the second quarter. And we also produced AFFO per share of $0.59, an increase of 1.7% compared to the prior year. Our consistent financial results continue to be driven by the steady performance of our in-place portfolio. With nearly 100% rent collections, annual rent increases averaging 1.8%, and stable rent coverage, our in-place portfolio provides a base for reliable and growing cash rental income. We further enhance that income growth with a creative investment activity supported by prudent balance sheet management. Our pace of underwriting and closing transactions showed acceleration as we moved through the second quarter. Year-to-date, we have closed $95.5 million of investments at an initial cash yield of 8.1%, and operators are taking a noticeably more constructive stance towards moving deals forward. We're also energized by the increasing diversity of opportunities we're seeing and our ability to close transactions across our investable universe. We've deployed meaningful amounts of capital into each of our target property types this year and continue to add new tenants to the portfolio while expanding our geographic footprint. Our acquisitions team is doing an excellent job of identifying transactions that meet our investment criteria with both larger, more established tenants that have broad store networks and emerging high growth tenants that are building platforms across the U.S. Our 90-plus million investment pipeline and the deals we are currently underwriting both reflect this increased transaction activity and diversity of prospects. Our pipeline includes acquisitions or development funding in all of our target sectors, with the majority allocated to automotive service centers. Importantly, the increase in transaction activity that we saw at the end of the second quarter has continued as we move through the third quarter. Coming back to our in-place portfolio and the steady, resilient performance we've consistently seen from our tenants, we reported strong trailing 12 months rent coverage of 2.6 times this quarter. Rent coverage improved for nearly all of our convenience store portfolios, driven by healthy fuel margins, stable fuel volumes, and expanding profit margins inside the store. Additionally, rent coverage for our car wash portfolio showed noticeable improvement for the second consecutive quarter as new to industry sites continued to mature and operators focused on profitability. As we think about recent performance, the evolution of our platform over the last few years, and the opportunities we see ahead, we have more conviction than ever in the sectors in which we invest and in our ability to further scale the company. Our strategy to focus on well-located convenience and automotive retail properties is proven. These are largely recession-resistant businesses providing non-discretionary goods and services to mobile consumers that prioritize convenience, speed, and service. Our approach to underwriting and structuring investments is effective. We emphasize market and real estate fundamentals and strong lease terms to support our investment decisions and mitigate the credit risk real or perceived, inherent in a net lease business. And our results are compelling. Our earnings growth, dividend growth, and leverage compare favorably to peers, as do our portfolio metrics such as occupancy, remaining lease term, tenant rent coverage, and rent collections. Looking ahead, we're going to keep executing on strategy and focus on what we can control. We've demonstrated that we can effectively allocate capital, drive out performance, and create shareholder value We are confident the market will recognize our success. With that, I will let Mark discuss our portfolio and investment activities.

Thank you, Chris. At quarter end, our lease portfolio included 1,132 net lease properties and two active redevelopment sites. Excluding the active redevelopments, occupancy was 99.7%, and our weighted average lease term remained at 10 years. Our portfolio spans 44 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 2.6 times. Turning to our investment activities for the quarter, we invested $66.1 million at an initial cash yield of 8.1%, The weighted average lease term on acquired assets for the quarter was 15.9 years. Highlights of this quarter's investments include the acquisitions of nine drive-through QSRs for $14.9 million, six automotive service centers for $7.9 million, five convenience stores for $33.3 million, and four express tunnel car washes for $5.5 million, net amounts funded in prior periods. We also advanced incremental development funding in the amount of $4 million for the construction of three auto service centers and one express tunnel car wash. 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 $18.5 million bringing our year-to-date total investments to $95.5 million at an 8.1% initial cash yield. Beyond our disclosed pipeline of more than $90 million of investments under contract, the majority of which we expect to fund over the next six to nine months at average initial cash yields in the high 7% area, we continue to source actionable opportunities that are priced at accretive spreads and will be additive to our portfolio as we look to further scale and diversify our business. Moving on to our redevelopment platform, we advanced several projects this quarter, which are in various stages of the redevelopment process. At quarter end, we had four signed leases for new to industry oil change locations, of which two are under construction, and we have additional projects in various stages in our pipeline. Continuing with our asset management efforts, during the quarter, we sold three properties for $3.2 million. As it relates to the 12 express tunnel car wash assets that were previously leased to Zips Car Wash, we have effectively concluded the repositioning of this portfolio, and the results were in line with our previous disclosures. Zips remains are tenant at six properties, and five of the sites are now subject to new leases with two new experienced car wash operators. While both operators are new to Getty's portfolio, each has an existing presence in the market where they acquired assets. And we look forward to developing these relationships moving forward. The remaining properties under contract to be sold, which we expect to close by year end. With that, I'll turn it over to Brian.

Thanks, Mark. Good morning, everyone. Chris went through the earnings highlights and his opening remarks, and a more detailed description of our quarterly results can be found in our earnings release. Our corporate presentation also contains additional information regarding our earnings and dividend per share growth over the last several years. Looking at G&A a little more closely, management focuses on the ratio of G&A excluding stock-based compensation and non-recurring retirement costs to cash rental and interest income. This ratio was 9.9% for the quarter ended June 30th, 2025, and 10.2% for the six months ended June 30th, 2025. both of which were essentially flat to the comparable periods in 2024. For the full year 2025, we do expect to see an improvement versus full year 2024. And in general, we remain focused on improving overhead efficiency and expect our relative G&A burden to decrease further as we continue to scale the company. Moving to the balance sheet and liquidity, at quarter end, net debt to EBITDA was 5.2 times or 4.6 times, taking into account unsettled forward equity. We continue to target leverage of 4.5 to 5.5 times net debt to EBITDA and are well positioned to maintain those levels going forward. Fixed charge coverage was 3.9 times for the quarter. As of June 30, 2025, the company's weighted average debt maturity was 5.1 years, and the weighted average cost of our debt was 4.5%. As a result of our debt financings earlier this year, we have no debt maturities until 2028. During the second quarter, we settled approximately 1.2 million shares of common stock subject to forward sales agreements for net proceeds of approximately $32.8 million. At quarter end, we had approximately 3.9 million shares of common stock subject to forward sales agreements, which upon settlement are anticipated to raise gross proceeds of approximately $118.8 million. We continue to be in a strong capital position with more than $400 million of total liquidity at quarter end, including unsettled forward equity, capacity in our revolver, and cash on the balance sheet. Our under-contract investment pipeline is fully funded, and we have capacity to fund additional investment activity as we move through 2025. With respect to guidance, as a result of our year-to-date investment activity and the repositioning of the ZIPS portfolio, we are increasing our full-year 2025 AFO per share guidance to a range of $2.40 to $2.41, from our prior guidance of 2038 cents to 2041 cents. As a reminder, our outlook includes completed transaction activity as of the date of our earnings release, but does not include assumptions for prospective acquisitions, dispositions, or capital markets activities, including the settlement of outstanding forward sales agreements. Primary factors impacting our 2025 guidance include variability with respect to certain operating expenses, certain transaction-related costs, and the timing of anticipated demolition costs for redevelopment projects, which run through property costs on our P&L. With that, I'll ask the operator to open the call for questions.

Thank you. 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 while we pull for questions. Our first question is from Brad Heffern with RBC Capital Markets. Please proceed.

Hi, morning, everyone. You called up the accelerating investment activity and the prepared remarks. What do you attribute that to? Is it just people getting comfortable with the tariffs? Is it seasonality or is it something else?

Yes, Mark, I think we've definitely seen a more willingness to get back into the transaction market. Those companies that are looking to continue to grow need sources of capital. We're a good option for that. We talked about some pricing, which remains kind of in line with earlier in the year, but our team's been able to source and use its relationship building with our existing tenants, source some new tenants, spread out the investments across all of our asset classes. And yeah, I think it's just the more willingness for those, the market to transact. And we've been, you know, staying on those relationships through the entire cycle and, you know, we're ready to partner with them.

Okay. Thanks for that. And then now that Zips is in the rear view mirror, can you just talk about your overall comfort level on the car wash space? And is there anything of note at this point on the watch list?

So I'll start with the back half of that question, which is there's nothing of note on our watch list with respect to our car wash tenants. We said this on prior calls, and we continue to be very comfortable with the express tunnel car wash as part of our investment thesis, right? It's a mobile consumer. I think the model has proven to be working throughout the last several years. The majority of our tenants or the vast majority of our tenants are large operators with networks that are primarily focused either on a region or even national. And we're actually very happy that we've seen probably a slowdown in new store count, right, and more focus on the profitability and letting these newer industry stores mature. So we're comfortable with where we are.

executive quarters for the sector. Okay. Thank you.

Our next question is from Mitch Germain with Citizens JMP. Please proceed.

Thank you. So, the more constructive stance, Chris, toward investments or toward deals, I guess you said, is that a suggestion that we're seeing a narrowing of that bid-ask? Sellers now embracing this higher interest rate kind of pricing paradigm?

I think I'll echo what Mark said, which is I think there was a lot of noise just generally in the first quarter of the year. When you look at the performance of our tenants, right, there continue to be healthy businesses operating. or through new store builds. You know, we've been a very consistent capital provider in our target markets. And I think what we're seeing now is folks are kind of returning towards growth. And some of our consistent presence and dialogue with repeat business and existing tenants and even new tenants, we're starting to see that flow through various stages in our pipeline.

And I know you've made some investments, particularly on the acquisition side. Are we seeing the benefits of those investments in the numbers today? Or do you think that that's still really kind of in the future that you'll really begin to see some of those, you know, kind of that?

No, we've added personnel to look at deals across the four sectors that we invest in. We've invested in technology. I think you're starting to see those pay off. You know, we're business going forward.

Gotcha. Last one for me. Any change in lease structure in terms of, you know, your ability to maybe get higher escalators or, you know, are you requiring, you know, some sort of security, you know, just to avoid any credit issues in the future? Anything that has shifted there?

So, broadly speaking, no change to our lease structure. We continue to prioritize our Unitary master leases, escalations generally are hovering in that 2% area today. We're mindful, especially being sale leaseback providers, where we're structuring the transaction and negotiating the lease on our form. You've got to have an operator that can grow that business in order to support an increasing rent over time. So we're not necessarily trying to push for significantly higher rent bumps there. You know, security guarantees, all the other attributes of a true triple net lease on our form. Now, there's definitely some negotiation by transaction, but we get various enhancements, again, through our business model, consistent with how we've always done it, Mitch, to be honest with you.

Thank you.

Our next question is from Upal Rana with KeyBank Capital Markets. Please proceed.

Great. Thank you. Chris, you mentioned that you're all set up well for the back half in terms of investment spend. Could you give us a sense of how the back half may play out? Earlier this year, you mentioned most of the investment spend for 25 will mostly be back half weighted. Is that still the case?

So, you know, we got on the phone last quarter, right? It was actually our slowest closing quarter since the fourth quarter of 2019. Some of that was because Our pipeline at that point in time was a lot of development funding, which has a natural lag. I think what you saw this quarter and even into some of our pipeline deals is that a lot more acquisition activity is flowing through our business, right? Whether it's in the pipeline or under contract or not closed. So we're at 95.5 year to date. We've obviously number. So I'll just go back to what Mark said. I think people are looking to grow their businesses. We're a consistent capital provider to these sectors. And we're really happy with how we're seeing more activity in all stages of our pipeline across all the sectors that we invest in.

Okay, great. That was helpful. And then, you know, on the cash cap rates and your investment spend in the quarter, you know, you saw an increase to 8.1. You know, what was driving that, and should we expect similar cap rates going forward into the back half?

Yeah, we haven't seen a lot of change. We've said that the market is there in the kind of mid to high sevens, touching eight. Again, certain transactions may have been just north of eight, which is what drove the number this quarter. But in Mark's remarks, you know, he said that the $90-plus million in the pipeline is priced Again, for Getty, our view has been that's where the market is for the first half of this year, and that's where we'll continue to be as we move through the balance of the year.

Okay, great. Thank you.

Our next question is from Daniel Buhn with Bank of America. Please proceed.

Hello. It was mentioned that the bid-ask price was, or the bid-ask spread was tightening and you're seeing cap rates around the high sevens for the $90 million pipeline. Are you seeing any heightened competition within the buyer pool?

Boy, you know, the sectors that we invest in, I think if you look across net lease portfolios, we have a lot of competition in the public markets. There's obviously a big private market as well. You know, we are a, primarily direct sale ease back provider where we're not necessarily always looking at the marketed deals. We're trying to generate business through traditional business development or through repeat business or relationships that we have in the sector. So I think there's always been competition. We think we can find transactions that are compelling for our portfolio that may be less competitive. And again, just to go back to Mark's comments, we've had a view of pricing and I think what we're seeing now is Tenants are looking to transact and grow their businesses, and that's why you've seen some accelerating activity for us.

Got it. Thank you. And just to kind of follow up on the improved rent coverage and car wash, is that mainly the ZIPS resolution, or is there anything underlying that we should be aware of?

Daniel, it's Brian. Actually, Zips was not in our numbers last quarter either, given the situation there. So this was really organic, fundamental improvement across the portfolio. As Chris mentioned in his remarks, it was the second quarter we've seen this type of improvement. I think what we're looking at, there's the magnitude of improvement, sure, but it's really across the portfolio and in each of our leases. And I think that breadth of improvement is what we find encouraging. And then Chris mentioned also that we do have a significant portion of that portfolio that are relative new builds in that stabilization period. Again, just to remind you, we put properties in our data when they've been open for a year. Car wash is typically stabilized closer to three years. And so you are seeing that ramping of those operations having a positive impact on coverage.

Got it. Thank you so much.

Our next question is from Wes Galladay with Baird. Please proceed.

Hey, good morning, guys. If you were to source more traditional acquisitions, what is the lag time typically between identifying the deal for the pipeline and an acquisition?

When you say traditional, like a net lease existing property or a sale lease back?

An acquisition or sell lease back versus a development. I just want to exclude the developments from the conversation.

I'm sorry, yeah, excluding development. I would say that, you know, from initiation of the first conversation through letter of intent, due diligence, you know, the contract process, that can be anywhere from you know, accelerated 60-day period to 120-day period. You know, each deal is slightly different. Sometimes we're subject to the, you know, buyer-seller transaction on the business side, but we're, you know, we always keep pace with the deal and try and get them done as quickly as possible.

Okay, and when you look at your existing pipeline of the $90 million plus, is there a lot of new relationships in the pipeline?

I mean, it's a healthy blend. Again, the team has done a really good job of not only maintaining relationships with our existing tenant roster and being selective as they become more selective. Chris mentioned there's a return to focus on just growing the business, perfecting the business, and being more selective on some of the de novo developments, but also through our business development, our industry reach, people becoming more and more aware as we get more momentum in the verticals that we're newer to. You know, we like to think that not only geographically, tenant-wise and vertical-wise, it's a pretty good blend.

Okay, and last one for me. When you look at the one big, beautiful bill, is there anything there that could spur more demand for you?

Yeah, I think, you know, just looking across at our operators, right, you know, lower taxes,

our tenant base generally does not have a large exposure to tariffs, you know, especially some of the automotive service sectors could actually benefit, right? You know, a lot of C-store supply chains aren't necessarily tied to some of the countries that are more at risk from a tariff perspective. I think, quite frankly, Wes, certainty that in for the next year or two, or I guess for the next several years, that's been very helpful, right, just in terms of knowing the playing field for them and then that they can then think through how they want to continue to operate and grow their businesses.

Okay. Thanks for the time, guys.

Our next question is from Michael Gorman with BTIG. Please proceed.

Yeah, thanks. Good morning. Just had a question maybe going with the car washes again here. Chris, I'm curious your thoughts. You talked about focusing on profitability, the operators. Where are we in the competitive cycle with the express tunnel car washes, right? I'm still seeing headlines of new entrants into the industry, but I guess that's just my question. Where are we in the evolution? Are we going to get some consolidation here from existing operators? And how do you think about that as you're constructing the portfolio?

Yeah, but I think you've seen some consolidation, right? You know, obviously Whistle bought the Driven US platform earlier this year. So that was, Whistle is the number one operator. You know, what I think has been interesting is there's been some acquisitions like Circle K made a significant acquisition, is now a big player. Quick Quack was a private equity, but that was a big transaction earlier this year. So I think you've started to see some consolidation, some recaps. in the sector. You know, I think like any business, there's always going to be new entrants. Again, what we've done for Getty is really tried to focus on the larger, more established platforms, right? I think you've got to be a good operator. You've got to know how to manage a network. You've got to have a good handle on your membership or subscription program. So I think, yes, I think new entrants have slowed down. Yes, I think new stores have maybe slowed down, but Again, in our view, I echo what I said earlier, which is focusing on profitability and perfecting your membership or subscription program and how you're kind of working with the consumer. We don't think that's a bad thing, right? And I think that's what you're seeing as our coverage is ticked up inside our portfolio.

That's helpful. And I apologize if I missed it, but as you think about the pipeline and the deals that you've done year to date, is there a major stratification or a meaningful stratification in the cap rates between the different verticals that you're looking at or the competition levels that you're seeing in the different property types, you know, amongst the QSRs, the auto service, the car wash and the C-stores?

So there's not a significant stratification on cap rate, right? You know, again, I'll call it mid sevens through into the low eights. this year. Competition, Mark, do you want to? I don't think there's that much of a difference in terms of competition by the class.

Yeah, I think the competitive landscape has remained generally unchanged recently. As Chris said, the attractiveness of the verticals that we invest in are part of other parties' investment programs also. And that's something we've dealt with. not only recently, but for years. And, you know, it's our job to continue to position ourselves to keep that pipeline filled with the creative deals and consistent with our strategy, our underwriting standards. So, you know, you can view it as competition is a validation of our thesis of how strong we think those asset classes are. We just continue to keep that pipeline filled.

Great. Thank you.

Our next question is from Michael Goldsmith with UBS. Please proceed.

Good morning. Thanks a lot for taking my question. In the press release, Chris, you said that you were identifying new investment opportunities. I just want to clarify, is that within your existing verticals, or does that identifying new investment opportunities suggest that you're looking kind of outside of some of the stated verticals that you already have exposure to?

No, there's no current plans for us to expand beyond our four primary target sectors. My comments were really that the team's doing a great job of, you know, bringing in repeat business, new relationships. We've added more than 40 new tenants to the portfolio over the last several years. So we're really, you know, diversifying the business, whether that's by sector, by tenant, geographically. But we think these are large, addressable markets, healthy tenants, growing tenants that need capital to execute their business plans.

Got it. Thanks for that. And my follow-up is, there was a large environmental expense accrual taken during the period. I think that's backed out of AFFO, so it doesn't influence guidance, but would influence Can you just provide a little bit of what's going on there and just kind of the history of these type of accruals and how we should be thinking about them going forward? Thanks.

Sure, Michael. This is Brian. So that accrual is related to one of the litigation cases that are disclosed in our 10-Q. There's been some lengthy disclosure in our filings for 10, 12, 15 years on some of these cases. It goes back to when Getty was an owner-operator decades ago. Most of these have been resolved. The remaining ones, again, are disclosed in our filings. I think our perspective on this is it is a positive that this case has progressed to the point where we can estimate a potential settlement and sort of put an order of magnitude around that, obviously subject to you know, all the accounting standards on how to estimate and book these accruals. But, again, it's related to one of those cases that are disclosed in the filings, and we think it's a positive that is progressing and allows us to book an accrual to put an order of magnitude around it.

Great. Thanks for that, Brian. Good luck in the back half. Thanks. Thanks, Michael.

If there are no further questions at this time, I would like to turn the conference back over to Christopher for closing remarks. Thank you, operator.

Thank you, everyone, for joining us this morning. We appreciate your interest in Getty, and we look forward to getting back on with you when we report our third quarter at the end of October.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.