Good morning, everyone, and welcome to Getty Realty's Earnings Conference Call for the Third Quarter Of 2020. This call is being recorded. Prior to starting the call, Joshua Dicker, Executive Vice President, General Counsel and Secretary of the company, will read a Safe Harbor statement and provide information about our non-GAAP financial measures. Please go ahead, Mr. Dicker.

Thank you, Operator. I would like to thank you all for joining us for Getty Realty's Third Quarter Earnings Conference Call. Yesterday afternoon the company released its financial results for the quarter ended September 30, 2020. The Form 8-K and earnings release are available in the Investor Relations section of our Web site 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 the actual results to differ materially from those described in the forward-looking statements. Examples of forward-looking statements include our 2020 guidance, and may also include statements made by management in their remarks and in response to questions, including regarding the company's response to the COVID-19 pandemic, future company operations, future financial performance, and the company's acquisition or redevelopment plans and opportunities. We caution you that such statements reflect our best judgment based on factors currently known to us, and that actual events or results could differ materially. I refer you to the company's annual report on Form 10-K for the year ended December 31, 2019, our subsequent quarterly reports filed on Form 10-K, and other filings made with the SEC for a more detailed discussion of the risks and other factors that could cause the actual results to differ materially from those expressed or implied in any forward-looking statements that are made today. You should not place undue reliance on forward-looking statements, which reflect our view only as of the date hereof. The company undertakes no duty to update any forward-looking statements that may be made in the course of this call. Also, please refer to our earnings release for a discussion of our use of non-GAAP financial measures, including our 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 call for the third quarter ended 2020. With Josh and me on the call today are Mark Olear, our Chief Operating Officer; and Danion Fielding, our Chief Financial Officer. Similar to prior quarters in 2020, we will provide an update on our business in the context of the ongoing COVID-19 pandemic, and also provide our quarterly review of our portfolio and financial statements. Regarding COVID-19, I am pleased to report that our third quarter results are further evidence of the stability of our triple-net lease rents and growth platform. Our portfolio of convenience stores, gas stations, and other automotive assets produced another strong quarter of rent collections, operating performance, and growth at Getty. I am especially proud of our company as we achieved our results during a difficult time for the overall U.S. economy and related challenges to many aspects of the retail real estate sector. The entire Getty team is working hard to continue what has been a very strong year for our company. We are proud of our accomplishments year-to-date, and expect to continue executing on all of our initiatives for the remainder of 2020. Turning to our results, we benefited from the stability of our triple-net lease rents and our active and accretive acquisition program. As a result, our third quarter revenues from rental properties increased by more than 4% to $37.2 million, and our AFFO per share by more than 9% to $0.47 per share. The success of our acquisition strategy year-to-date has been a key contributor to our earnings growth, including transactions that closed just after the third quarter ended. Getty has acquired 32 properties for approximately $140 million so far this year. These high-quality assets are located in numerous markets across the country, and…

Thank you, Chris. In terms of our investment activities for the third quarter and first two weeks of October, we were very active in the transaction market. Going to quarter, we invested $36.1 million for the acquisition of nine properties. Subsequent to the end of the quarter, we invested an additional $36.6 million for the acquisition of eight properties. A majority of our complete acquisition during the third quarter comes from the acquisition lease back transaction it a subsidiary of Go Car Wash. The properties acquired are subject to a unitary triple net lease with a 15-year base term and multiple renewal options. These properties are located within the San Antonio MSA. Properties we acquired have an average life size of 2 acres and average tunnel length of more than 160 feet. Both of which we believe enhance the quality and diversity of our portfolio. We invested $28 million closing and expect to generate a cash yield that is in line with line with our historic acquisition cap rate range. Additionally, we closed on the acquisition of two newly constructed car wash locations in North Carolina and Ohio. The site is subjected to a 15-year triple net lease with Zips Car Wash. Getty's aggregate initial cash yield on our second quarter acquisitions was 7.2%. Subsequent to the quarter end, we completed a sale leaseback with five sole sale one of the leading independent convenience store operators in the Southern United States. In the transaction, Getty acquired six properties for $28.6 million. The properties acquired are subject to the unitary triple net lease with a 15-year base term and multiple renewal options. The properties are located throughout the state of Texas. The properties we acquired have an average life size of 2.7 acres and an average store size in excess of…

Thank you, Mark. For the third quarter, our total revenues were $37.9 million, an increase of 4% over the prior year's quarter and our rental income, which excludes tenant reimbursements and interest on notes and mortgages receivable also grew 5.3% to $31.9 million. Our growth and rental income continues to be driven by rent escalators in our leases, plus additional rent from recently completed acquisitions and redevelopment projects. During the third quarter of 2020, we've benefited from a reduction in both property costs and environmental expenses, offset by an increase in general and administrative expenses due to increases in employee-related expenses and legal and other professional fees. For more information on specific expense movements, please refer to yesterday afternoon's earnings release. Our FFO for the quarter was $20.8 million or $0.48 per share, as compared to $19.1 million, or $0.46 per share for the prior year's quarter. Our AFFO for the quarter was $20.2 million as compared to $18.1 million in the prior year's quarter. On a per share basis, our AFFO was $0.47, up 9%, and $0.43 in the prior year. Turning to the balance sheet and capital markets activities, we ended the third quarter 2020 with $560 million of total borrowings, which includes $110 million under our credit agreement, and $450 million of long-term fixed rate debt. Our weighted average borrowing cost is 4.3%, the weighted average maturity of our debt is 4.5 years with 80% of our debt being fixed rate, and our earliest debt maturity remains at $100 million Series A, which matures in February 2021. We are in the process of refinancing this upcoming debt maturity, and we'll provide an update at the appropriate time. As of today, we have $190 million of un-drawn capacity on our revolving credit facility, which can be used to…

Thank you, Danion. With that, I'll ask the Operator to open the call for questions.

And at this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

Hi, thanks. Good morning.

Good morning, Todd.

Good morning. In terms of acquisition, so it sounded like some of the deal flow in the third quarter and in October was attributable to deals that you were pursuing sort of pre-COVID. Were there any changes in the prices paid today compared to the pre-COVID pricing that you were negotiating, and then can you just talk about pricing for new investments more broadly and how that's trending.

Yes, I'll answer both those with one statement, which is our view with both what's been closed and what we're underwriting is there really hasn't been too much of a change in the range of the cap rates that we're offering tenant expectations, et cetera. If anything, the sector has performed quite well, right, results were very strong; balance sheets in our sector remain fairly strong. So we don't see a whole lot of change around the cap rate environment for our types of assets.

Okay, and can you describe what the acquisition pipeline looks like today, and maybe can you discuss whether you expect to have any additional closings by year-end, and sort of how big the pipeline is really heading into 2021?

Yes, we really don't typically provide that level of forward expectation. What I could say is the team is continuing to underwrite, we have a series of opportunities, both one-off and multi-property in the pipeline, and as I said in my remarks, I think we feel very confident that we're going to continue to execute on all of our strategies, and one of those is continuing to acquire attractive assets both in the C&G sector and in Other Automotive asset classes.

Okay, and just lastly in terms of the balance sheet, can you just provide an update on sort of the timing and any pricing expectations that you have today on the February -- the Series A notes

Yes, I mean we're, as Danion mentioned in his remarks, we are in the middle of working through a refinancing of the upcoming February 21 debt maturity, and again, we certainly expect that to be a pretty positive event for the company, but again, I'm not prepared to offer sort of any level of pricing or coupon today.

Okay, thank you.

And our next question is from John Massocca with Ladenburg Thalmann. Please proceed with your question.

Good morning.

Hi, John.

So, maybe touching on acquisitions again, I mean as we think about that other automotive bucket, which is kind of in a lot of carwashes in recent quarters versus kind of more the traditional C-store investment, how big is the cap rate spread between those, if at all? I mean I'm just thinking, are cap rates on C-stores kind of trading significantly inside of carwashes or is it kind of right on top of each other?

Yes, and one of the reasons we like the Other Automotive extension is pricing is fairly consistent between C&G and some of the other automotive buckets. So while I think there are small variations, it's not a significant gap.

Okay, and then with the deal that was closed subsequent to quarter-end, I'm sorry, I missed the tenant, and maybe kind of how did that deal come to the team?

So the tenant is Fikes Wholesale, they operate their C-stores under the brand CEFCO, C-E-F-C-O, and they're a -- they probably have 200 locations across the Southern United States. We have an existing relationship with the management team there. They've certainly been an operator who has been growing organically, right, and who has from time to time used sales leaseback to kind of right-size their balance sheet, and they've really -- they've been redeveloping on their own balance sheet, and then kind of reloading for the next tranche.

Okay, understood, and then maybe shifting gears a little bit, with the August announcement about the settlement around MTBE with State of New Jersey, how could potential future settlements potentially impact the kind of environmental obligation that's on the balance sheet, and just thinking due to the dynamic between what's kind of this uncertain obligation and kind of certain obligation, just could some of that excess uncertain obligation go away as more kind of losses related to environmental contamination are settled?

Well, so the remediation obligations, which are the -- which is the $49 million on our balance sheet, that that is separate from our environmental litigation matters. So the -- I'll answer your question about litigation, right. Getty wants to get out of the environmental litigation business. These litigation matters that are on -- in our filings and in our disclosure all stem from the time when Getty was an operator, pre becoming a REIT, and we have been working hard to settle and resolve all the litigations that are out there, and we expect to ultimately get there as a company, and this settlement is from a case that's been out there for a very long time, and it's fully reserved on our balance sheet, and part of our strategy to move on from some of the legacy issues that we deal with as a company here.

Okay, and then so I guess broadly speaking how much is reserved for any other outstanding kind of legacy litigation, and maybe where is that flowing through?

Well, it's accrued as a liability on our balance sheet, right, and we take additional accruals it flows through the P&L, and I think at quarter end, Danion may have the exact number, but I think it's 17.8. Was what was on our balance sheet?

Yes, it's 17.9, Chris.

Okay.

Okay, that's it for me. Thank you all very much.

Thanks, John.

[Operator Instructions] And our next question is from Nikita Bely with JP Morgan. Please proceed with your question.

Hi, good morning, guys. Can you talk a little bit about what's happening with the rent coverage at the store level and economics there? Obviously your collections have been very good, but do you see at all profits being squeezed by tenants? I know you mentioned, Chris, that the gas stations are coming back but still not fully back to pre-COVID levels. Can you talk a little bit about that?

Yes, so our coverage, we published our investor presentation this morning. Our coverage on a trailing 12 months was 2.7. That is a very strong number for Getty. It's actually an increase from what was published last quarter. The primary driver behind that was the rolling off of a relatively challenged quarter in the middle of 2019, but what you see there is, as I mentioned in my remarks, the C-store part of the business is actually up year-over-year, and depending on where our tenants operate, the effect of the higher fuel margin has offset most, if not all of the reduction in volume, and so, the gas side of the business, again highly regional. In certain markets, it's certainly off a little bit, but in other markets, it's actually higher than where it was going into 2020. Really it's a very strong, almost historically strong and stable margin environment for many of our tenants today, which is driving that increasing coverage for Getty.

Got you. What about the deal flow? This has been very good for you 3Q and post 4Q, is there anything behind that deal flow, is it something that we're working on for a while, and just the timing happened so, or do you actually see more activity on the side, and also who are the competitors, have they changed between the last six to nine months -- [multiple speakers]

There are three questions in there. The first question was what's been driving the kind of recurring deal flow? I think two things there, if you'd go all the way back to the end of last year, right, we had a really busy fourth quarter of '19, a really busy first quarter of 2020, kind of pre-COVID, and we've had a number of opportunities, which we were working on. Many of those opportunities were just put on hold as operators and transactions normally were kind of assessing the damage in the context of COVID. Those opportunities all came back, and that's what you see closing in this quarter, and so far in the fourth quarter, but one of our goals as a team is to be more consistent, be a constant acquirer out in the markets, both in the C&G market and other automotive market, and I think you're seeing some of those efforts start to pay off at Getty. And then, your second question is competition, I think we're certainly seeing a lot of competition from our repeaters, other institutional real estate investors, the 1031 market is still very strong, given the interest rate environment. So, I don't think there's been any decrease in competition, either pre or post-COVID.

But what about the sales today, are those any different today than pre-COVID, and have you also not front, are you seeing any distress in the market?

I wouldn't use the word, "Distress." I think what I would say is having access to capital is certainly at the forefront of many of our tenant's minds. If you're a public or a larger operator, you certainly have more access to capital than if you're a small regional operator. Some of our opportunities that we've closed this year are tenants or operators that have a lot of real estate on our balance sheet, and we're able to monetize that, right, to free up capital for other areas of our business, and that's a trend that we have been saying for a while that we think will continue, and I think COVID probably accelerated that.

Got you, and maybe one last question for Danion; Danion you've managed the balance sheet very well over time, and the company has been very in conservative position, do you think on a longer term basis, there's opportunity for Getty to maybe take off the leverage a bit to do a little bit more deals, how do you see the balance sheet from now on?

Nice question, Nikita. We've been very consistent in articulating that we feel our leverage in a conservative manner, and we've indicated that our net debt will be within a range of 4.5 to 5.5 times. As you know, today we're currently at 4.9 times. The way we knew that it provides us capacity to do acquisitions as we pursue our growth, we don't really see as a mechanism to increase leverage for financial engineering purposes. So, we will continue to manage the balance sheet in that conservative way to maintain that strength and flexibility on a go-forward basis.

Thank you, Danion.

And at this time we have no further questions, I would like to return to Mr. Constant for any closure or further remarks.

Thank you, Operator. Thank you everyone for your interest in Getty. We look forward to getting back in front of everybody when we report our year-end numbers in February, and I appreciate your interest in the company. Thank you. Bye.

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