Good morning, and welcome to Getty Realty's Earnings Conference Call for the Second Quarter 2023. This call is being recorded. After the presentation, there will be an opportunity to ask questions. Prior to the start of 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 results for the quarter ended June 30, 2023. 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 2023 guidance and may also include statements regarding the company'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, 2022, and our subsequent filings made with the SEC, for a more detailed discussion of the risks and other factors that could cause actual results to differ materially from those expressed or implied in any forward-looking 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 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 definition of adjusted funds from operations, or AFFO, and our reconciliation of those measures to net earnings. With that, let me turn the call over to Christopher Constant, our Chief Executive Officer.

Thank you, Josh. Good morning, everyone. And welcome to our earnings call for the second quarter of 2023. Joining us on our call today are Mark Olear, our Chief Operating Officer, and Brian Dickman, our Chief Financial Officer. I will lead off today's call by providing commentary on our financial results and investment activities and provide perspective on the company's year-to-date accomplishments. As usual, Mark will then take you to our portfolio and Brian will further discuss our financial results and guidance. In the second quarter, we witnessed healthy AFFO per share growth of 5.7% which combined with our first quarter performance results in a first half of 2023 earnings growth of a strong 6.7% over the first half of 2022. This growth was driven by our robust investment activity and thoughtful capital markets execution over the past year, which we are particularly pleased with, given the uncertain economic environment in which we've been operating. Year-to-date, we've invested more than $163 million, including $50 million in the second quarter and $52.5 million thus far in the third quarter. We were also able to increase our committed investment pipeline, net of our aforementioned year-to-date activity, to more than $140 million under contract for the development and/or acquisition of convenience stores, auto service centers, express tunnel car washes, and QSRs, all of which we expect to fund over the next nine to twelve months. In addition to driving our earnings growth, these investments reflect our continued emphasis on scaling and diversifying our portfolio. I am particularly proud of our investments this year given the choppy transaction market. The team continues to identify high-quality opportunities to acquire our target asset types in top MSAs around the country, over many disciplines, and true to our rigorous underwriting standards. With respect to diversification, we've increased the percentage of our ABR from our newer asset classes thus far in 2023, as more than 85% of our investments year-to-date have been directed to non-convenience stores. We've also added eight new tenants to the portfolio this year, all of whom are strong operators with plans to grow their businesses. Given our increasing success in finding new investment opportunities through established relationships, we will also seek to source additional transactions with these new tenants in 2023 and beyond. When we look at our pipeline, we have a strong alignment of interests with our tenants and appreciate the incremental diversity that they bring to our portfolio. On the capital side, our year-to-date capital markets activity has provided us with attractively priced permitted capital that continues to support accretive investments. We ended the quarter with approximately $120 million of unsettled forward equity and undrawn revolver and a conservative leverage profile that provides additional flexibility and access to capital. With regard to the health of the convenience store industry, the National Association of Convenience Stores recently published their state of the industry report for 2022. Based on an annual survey of convenience stores across every region of the United States, last year was another record year for inside store sales, with industry-wide sales growing more than 9% and topping $300 billion for the first time. The NEXT survey highlights increases in transaction counts for both gasoline sales and convenience store transactions, as well as growth in gross profits for fuel merchandise and goods services. Foodservice, in particular, continues to be a key driver of inside sales. On the expense side, convenience store operators were not immune to significant increases in direct store operating costs, with employer-related expenses and credit card fees both rising substantially. Despite these headwinds, the key takeaways from the report are the resilience of operators in the convenience store sector, who have invested in branding, technology, and store operations that help overcome these challenges, while continuing to drive increased sales and profits. As we move through the balance of 2023, our team remains focused on growing earnings while scaling and diversifying our portfolio. We believe that in this market environment, we benefit from the targeted nature of our investment strategy and the competitive advantages resulting from our sector expertise and the direct relationships we have with operators in our space. Our disciplined approach, which emphasizes owning high-quality real estate in major metro areas and partnering with growing regional and national operators, continues to yield attractive acquisition and development funding opportunities. We will continue to carefully underwrite each opportunity's real estate characteristics, site level operations, and tenant credit. Importantly, our conservatively leveraged balance sheet and demonstrated access to capital continue to support this investment activity and create additional value for our shareholders. With that, I'll turn the call over to Mark to discuss our portfolio and investment activities.

Thank you, Chris. As of the end of the quarter, our leased portfolio included 1,045 net lease properties and four active redevelopment sites. Excluding the active redevelopment occupancy, it was 99.6%, and our weighted average lease term was 8.7 years. Our portfolio spans 39 states plus Washington DC, with 64% of our annualized base rent coming from the top 50 MSAs and 82% coming from the top 100 MSAs. Our rents are well covered with a trailing 12-month tenant rent coverage ratio of 2.7x. Turning to our investment activities, we had another strong quarter, which allowed Getty to invest $50 million across a number of different property types and attractive MSAs. Highlights of this quarter’s investment activities include the acquisition of three carwash properties located in diverse markets across the US for $15.1 million, one drive-thru quick service restaurant in Louisiana for $2.7 million, and three under-construction carwash properties in Southern California for $6.4 million. As part of this acquisition, we will provide additional funding during the construction period to complete these projects. We also advanced development funding in the amount of $25.7 million, including accrued interest for the construction of new industry carwashes, convenience stores, and auto service centers. As part of these funding transactions, we will accrue interest on our investments during the construction phase of the project and acquire these properties via sale-leaseback upon completion and final funding. In the second quarter, the aggregate initial cash yield on our investment activity is approximately 7.2%. The weighted average lease term for acquired properties was 17.2 years. Subsequent to the quarter end, we invested an additional $52.5 million for the acquisition or development of 12 convenience stores and carwash properties in various markets across the US. The cumulative result of our investment activity year-to-date is gross investments of $63.2 million at an initial cash yield of 7.2% spread across four of our targeted industries. Looking ahead regarding the $140 million of commitments to fund acquisitions and developments that Chris referenced, we expect to fund these transactions in the next 9 to 12 months with average initial yields consistent with our year-to-date activities. We continue to evaluate and underwrite a variety of potential investment opportunities across our target asset classes. Cap rates have expanded approximately 75 basis points and averaged over the last 18 months, with variability depending on asset class and tenant profile. As the market continues to adjust to the changes in the economic landscape and tighter access to credit, we are pleased that we are sourcing the vast majority of opportunities through our broad network, which includes repeat business with several high-quality tenants, and leverage our reputation and proven ability to perform to create new relationships. We believe we are well-positioned to invest accretively as we move through the remainder of 2023. Moving to our redevelopment platform, during the quarter, we invested approximately $1 million in projects that are in various stages in our pipeline. We completed one redevelopment project where rent commenced on a new convenience store in the Austin, MSA, which is leased to Kwik Trip. We invested a total of $1.2 million in the project, which included the acquisition of adjacent land and generated a return on invested capital of 10.5%. We ended the quarter with four properties under active redevelopment and others in various stages of feasibility planning for potential recapture from our net lease portfolio, and expect to continuously complete projects over the next few years. Turning to our asset management activities for the second quarter, we exited one leased property and there were no property dispositions.

Thanks, Mark. Good morning, everyone. Last night, we reported AFFO per share of $0.56 for Q2 2023, representing a 5.7% increase over the $0.53 per share we recorded in Q2 2022. AFFO and net income for the quarter were $0.52 and $0.26 per share, respectively. Our total revenues were $44.7 million for the second quarter, representing an 8.5% increase over the prior year. Base rental income, which excludes tenant reimbursements and GAAP revenue adjustments, grew 7.6% to $39.6 million. This growth continues to be driven by our acquisition activity and recurring rent escalators in our leases, with additional contributions for rent commencements and completed redevelopment projects. On the expense side, G&A costs were $5.9 million in the second quarter as compared to $5.3 million in the second quarter of 2022. The change in G&A was primarily due to increased personnel costs, including non-cash stock-based compensation. Total property costs were $4.8 million for the quarter as compared to $5.3 million for the second quarter of 2022. Property operating expenses declined by $400,000 due to reductions in rent expense and reimbursable real estate taxes. Leasing and redevelopment expenses also declined slightly due to reductions in demolition costs for redevelopment projects. Environmental expenses, which are highly variable due to a number of estimates and non-cash adjustments, were $300,000 in the quarter as compared to a credit of $15.9 million for the second quarter of 2022. As a reminder, the credit in 2022 was due to the removal of previously accrued reserves for unknown environmental liabilities at certain properties. Turning to the balance sheet and our capital markets activities. We ended the quarter with $675 million of total debt outstanding, consisting entirely of senior unsecured notes with a weighted average interest rate of 3.9% and a weighted average maturity of seven years. As of June 30, net debt to EBITDA was 4.9x and total debt to total capitalization was 28%. While total indebtedness to total asset value, as calculated pursuant to our credit agreement, was 35%. Taking into account unsettled forward equity of $120 million, net debt to EBITDA would be approximately 4x. Our $300 million revolving credit facility was completely undrawn at quarter end, and our nearest maturity is in 2025. Moving to the ATM program, during the quarter, we settled approximately 1 million shares of common stock subject to forward sale agreements for net proceeds of $31.2 million. We also entered into new forward sale agreements for approximately 218,000 shares of common stock, which will generate anticipated gross proceeds of $7.6 million. We currently have a total of 3.7 million shares subject to sale agreements, which upon settlement are anticipated to raise gross proceeds of approximately $120 million. Returning to the $140 million committed investment pipeline, as Chris mentioned, we anticipate funding these transactions through proceeds from our outstanding forward equity agreements, as well as our undrawn revolver. Pro Forma for these investments in capital activity, we expect our balance sheet to remain well positioned to support continued growth. Leverage is expected to remain in line with our target range of 4.5x to 5.5x net debt to EBITDA, and we expect to maintain ample capacity under our revolving credit facility. As our investment pipeline evolves, we will continue to evaluate all capital sources to ensure that we're funding transactions in an accretive manner while maintaining our investment-grade profile. With respect to our environmental liability, we end the quarter at $22.9 million, which was a reduction of $238,000 since the end of 2022. Our net environmental remediation spending in the second quarter was approximately $1.2 million. Lastly, we are narrowing our 2023 AFFO per share guidance to a range of $2.23 to $2.24 from our previous range of $2.22 to $2.24. As a reminder, our outlook includes transaction and capital markets activities to date, but does not otherwise assume any potential acquisitions, dispositions, or capital markets activities for the remainder of the year. Specific factors which continue to impact our guidance include variability with respect to certain operating expenses and deal pursuit costs, and approximately $300,000 of anticipated demolition costs for redevelopment projects, which run through property costs on our P&L. With that, I will ask the operator to open the call for questions.

The first question comes from Joshua Dennerlein from Bank of America.

Hi, this is Farrell Granite on behalf of Josh Dennerlein. My question is about specifically your investment pipeline. Considering what you've already announced for closing in Q3, I'm curious if you can make a comment about maybe the pacing for the rest of the year.

Farrell, it’s a little bit hard to hear you. I think you're asking about the pipeline and what we expect to deploy for the balance of the year?

Yes, especially considering the pace that has already been announced for Q3.

So we stayed in the pipeline. On a go-forward basis, we expect those transactions to close over the next 9 to 12 months. Some of that pacing is dependent upon our development funding program, the timing of construction completion, permits, and the actual close out of those particular transactions. But that's a forward look over the next three or four quarters, I would say.

Yes, Farrell, we typically guide when we put out that pipeline. The timing for deployment best estimate is usually going to be some kind of straight-line deployment. Those that are acquisitions will come out a little bit sooner. As Mark pointed out, those which involve development funding will be a little bit later. However, from a modeling perspective, we generally assume that deployment will happen relatively evenly throughout that period.

Next question comes from the line of Todd Thomas from KeyBanc Capital Markets.

Hi, thanks. Good morning. First question. You commented that the investment yield on acquisitions was 7.2% in the quarter. Sounds like that's what’s anticipated on the committed pipeline moving forward. Do you see any additional upside in investment yields moving forward as you underwrite new deals? Or do you expect pricing to remain stable at these levels? At those price levels, I guess it appears investment activity is picking up a little bit. Can you just talk about the pipeline and volume of deals that you're seeing?

Yes, I would say with respect to yield, there might be a modest expansion over the balance of the year. I think the movement we referenced that we've seen over the last 12 to 18 months has moderated slightly. That said, within different asset classes, we will continue to push pricing. Some assets are stickier than others. But I think specific to your question — the yields of that 7ish percent are probably a good baseline for the forward pipeline.

Okay, so 7.2 is the right yield to think about for the committed pipeline, but new deals that you might put under contract, there could be a little bit of additional cap rate expansion moving —

Yes, there could be some modest expansion there, but I wouldn't expect it at the same pace as we have seen the 18-month look back and at 75 basis points; it's going to be much more modest. In many of our asset classes, those categories have somewhat stabilized.

Okay, and then can you remind us or talk about how the yield that you achieve on developments, development funding, and properties that you'll acquire at completion, how those yields compare to the pricing on stabilized acquisitions? What the spread looks like? And is there a preference in terms of how you allocate capital between those two buckets?

Yes, a couple of questions, I guess. So, the blended return that we referenced includes, obviously, the traditional sale leaseback deals and development funding deals. Specific to the range within those two types of deal structures, we'll see anywhere from roughly a 25 basis point premium on development funding, because of the value we offer to it, the forward commitment, and some of the timing of the deployment of those funds. There are some collars for deals that go out further to protect against market fluctuations. With regard to our preference, they're both good products for us and for our tenant partners that are developing as a great source of capital and a forward committed basis for their new industry instruction. Over a year, I would say it's roughly balanced between both products, pretty close to evenly across all investments.

Okay, and then I know it's a small tick down in occupancy, but occupancy across the portfolio decreased another 10 basis points; it was the second straight quarter. I was just wondering if you could talk about that. You have very limited roll in the next two or three years; it's less than 2% of ABR through ‘24. But just curious what you're seeing and whether you expect any additional occupancy loss or any move out or anything of that nature.

Todd, this is Chris. I wouldn't read too much into that. We're talking about one property for a quarter. As you said, our portfolio is largely leased, and there is very little rollover in the next 12 to 24 months. Again, we don't expect that number to move materially in the near term.

Next question comes from the line of Mitchell Germain with JMP Securities.

Good morning. I think you mentioned 85% of investments are in other assets rather than convenience stores. Is the lack of deal activity in the convenience store front a function of pricing, competition, or inventory? Is there anything to read there?

Again, I wouldn't read too much into that. It's been our focus over the last couple of years to underwrite and acquire across all the various asset classes that we're focused on here. We value size and diversity, so we're pleased that we're able to bring in, as we said, eight new tenants and diversify our ABR across tenants and asset classes. As mentioned before, if one of our existing partners or a new partner in convenience stores wants to utilize our capital, we would certainly increase the percentage of convenience store investments for the balance of the year.

Got you. And then to that point, Chris, is there like a targeted mix when you look at the different asset classes that you own?

Yes, I think we're still in the scaling up phase, especially in the drive-thru and auto service sectors. If we look out, we'd certainly like to be more balanced. I'd say the majority of our underwriting has been in convenience stores and car washes year-to-date. However, as we ramp up those other two verticals, our plans internally are to balance them as we look out over the next several years.

Great. Last one for me, it seems like you're getting a little longer lease term on some of the more recent investments, obviously development. Is the lease structure similar in terms of the kind of escalators you're getting?

Yes. It's really — some base terms average either 15 or 20 years. So you're really seeing it depends on the deal specifics quarter to quarter.

Next question comes from the line of Akhil Tampali with JP Morgan.

Hi, good morning. I am Akhil from JP Morgan. My first question, can you elaborate on the overall current credit and anything on the watchlist at this time?

Yes, we've talked about this in the past. For us, given the level of reporting we get, we really tend to look at property-specific sites as our watchlist. So big picture is we do not have any tenants on a watchlist at this point. However, within the portfolio, there are always several properties that we're discussing with our tenants about whether or not they're candidates for redevelopment, re-leasing, or potential disposition. The number of properties that we're evaluating hasn't moved substantially quarter to quarter. Again, I referenced the NEXT state of industry data; tenants continue to perform very well in this current environment. Our carwash tenants are continuing to perform well. We're fortunate that we own properties in these sectors. With that said, we're always looking at a handful of properties and discussing with our tenants the best outcome for those sites.

Thank you. And one last question. With a number of the deals in the pipeline being used for these tenants, how long does it take for the assets to stabilize and lease the targeted rent coverage?

Yes, we typically in our underwriting model assume anywhere from two to three years, depending on the asset class, and then we track those from grand opening on a quarterly basis. We've had some recent successes where they've stabilized earlier than two years. However, for our initial underwriting on a pro forma basis, we generally look at anywhere from a two to three year initial ramp-up to stabilize sales, followed by typical industry growth thereafter.

Next question comes from the line of Alex Saigon with Baird.

Hi, guys, thank you for taking my question. The first is on the investment pipeline. Out of the 44 properties you have in there, what's kind of the mix between acquisitions and development?

It's roughly half, half-ish. As I said earlier, the pipeline is a snapshot in time; the transactions kind of ebb and flow out of a closed acquisition down the pipeline. But as of today, the program you can probably look at it as about equally blending between traditional sale-leaseback and development funding.

Okay, thank you for that. And to go back to the watchlist question. I know you guys don't track tenants; you have it like site-level reporting. But out of the 8% that don't report, how do you track those properties? And what kind of properties are they?

Yes, this is Brian. And just to clarify, it's not that we don't track our tenants. We just don't have any tenants on our watchlist. So just to make sure that point is clear. We obviously do monitor it. Look, we do the best we can with tenants where we have less visibility at the site level, while we're capturing well over 90% of rent. Probably the most important thing is that those other 8% are paying rent timely, right? So that's an obvious indicator of how they're managing their business. Additionally, as part of our everyday asset management activities, our team reaches out to tenants periodically to check in on them and their businesses.

Next question comes from the line of Brett Reiss with Janney Montgomery Scott.

Good morning. Thanks for the opportunity to ask a question. In the Wall Street Journal today, there's a lead story about how the automotive companies are forming a joint venture to invest a billion dollars to build out charging stations. I'm curious, what's your view on the impact on the service station component of our portfolio, may or may not be, with respect to that investment by the carmakers?

I think the themes that we talked about in the state industry report are still what’s really driving the industry forward. Our tenants are focused on growing their convenience stores, expanding the products they offer at those stores, and driving customer visits, regardless of whether folks need gas or need to charge their vehicle. They are also seeing expanded profits from those categories. Certainly, we follow the industry; our tenants are aware of all the trends related to the growing share of EVs in the market. However, so far, tenants have been very successful at driving additional visits and profits from the store segment. We expect that trend to continue as we look out over the next several years. Thank you. There are no further questions at this time. I would like to turn the floor back over to Christopher Constant for closing comments. Great. Thank you, operator. And thank you everyone for listening in on our call this morning. We look forward to getting back on in October, when we report our third quarter and updating everybody on our activity at that point.

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