Prepared remarks
Good morning, and welcome to Getty Realty's Second Quarter 2026 Earnings Call. 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 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, 2026. The Form 8-K and earnings release are available on 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 2026 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 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, 2025, 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 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 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 2026. Joining us on the call today are Brian Dickman, our Chief Financial Officer; and RJ Ryan, our Chief Investment Officer. I will lead off today's call by providing highlights of Getty's quarterly financial performance and investment activity. RJ will then discuss our portfolio and investments in greater detail, and Brian will provide additional information regarding our earnings, balance sheet and 2026 AFFO per share guidance. Getty continues to differentiate itself through its focused investment strategy and relationship-driven sale-leaseback approach to deal origination. Our investment platform is producing consistent external growth, while our in-place portfolio generates durable cash flows. Our results for the second quarter reflect both of these dynamics as we increased our annualized base rent by 15%, grew our AFFO per share by 5.1% and increased our full year 2026 earnings guidance for the second time this year. The foundation of our results remains our in-place portfolio, which was largely constructed over the last decade through direct sale-leaseback transactions featuring appropriate initial rents, long initial lease terms and contractual rent escalators. The portfolio is essentially fully occupied, has an average remaining lease term of more than 10 years and continues to produce stable rent coverage. Despite the economic volatility driven by geopolitical events, our tenants and their businesses have once again proven their resilience and ability to perform during rapidly changing operating conditions. Looking at our portfolio, based on site level reporting we received from our convenience store tenants, fuel margins averaged $0.46 per gallon for the first quarter of 2026, which was an increase of more than 10% compared to fuel margins they reported in the first quarter of 2025. Equally important, the challenging macro conditions have not resulted in a material deterioration in consumer demand across our core categories. Public company operators have reported modest increases in same-store sales and recent market level data indicates continued year-over-year growth in both convenience-oriented retail sales and automotive service revenue. Turning to our investment activities. Year-to-date, we have deployed more than $172 million at an initial cash yield of 7.6%. Beyond what we have closed, we have approximately $95 million of investments under contract as well as a robust pipeline of transactions under signed nonbinding letters of intent. The transaction market for convenience and automotive retail properties remains constructive, and we continue to see an acceleration in the pace of our sourcing and underwriting, which we expect to translate into additional closings as we move through the balance of the year. We are also in an excellent capital position as our recent capital markets activities have provided us with significant liquidity and an attractive cost of capital to fund our 2026 business plan. We currently have more than $190 million of unsettled forward equity and significant capacity under our $450 million revolver. When we look at the spectrum of opportunities under contract and in our pipeline, we are confident that we can deploy this capital in a productive and accretive manner. As we think about our prospects for the rest of 2026 and beyond, I take comfort in the quality of our portfolio, including its proven durability and ongoing diversification. And I'm confident that the direct sale-leaseback platform we've built can drive disciplined growth as we lean into our differentiated expertise in sourcing, underwriting and closing investments and our core convenience and automotive retail sectors. We remain committed to our disciplined underwriting approach, which prioritizes owning high-quality assets in densely populated or growing metro areas with strong access, visibility and retail synergies, which is leased to both established and emerging creditworthy operators. With that, I'll let RJ discuss our portfolio and investment activities.
Thank you, Chris. At quarter end, our lease portfolio included 1,220 net lease properties and 1 active redevelopment site. Excluding the active redevelopment, occupancy was 99.8% and our weighted average lease term was 10.3 years. Our net lease portfolio spans 46 states plus Washington, D.C., with 59% of our annualized base rent coming from top 50 MSAs and 75% coming from top 100 MSAs. Our rents are well covered with a trailing 12-month rent coverage ratio of 2.5x. Turning to our investment activities. For the quarter, we invested $128.3 million, which included the acquisition of 35 properties for $117.7 million and the incremental development funding of $10.6 million. The initial cash yield on these investments was 7.4%. The weighted average lease term on acquired assets for the quarter was 18.3 years. Two highlights from this quarter's investment activity include: one, the continued expansion of our investment efforts as 28 of the acquired properties, representing approximately 60% of ABR acquired were either automotive service or drive-thru QSR assets; and two, the addition of 6 new tenants to the portfolio, furthering our tenant diversification. Subsequent to quarter end, we invested an additional $13.5 million, bringing our year-to-date total investments to $172.1 million at a 7.6% initial cash yield. Looking ahead, as Chris mentioned, we currently have approximately $95 million of investments under contract and a significant pipeline of investments under executed letters of intent. The majority of assets under contract are in the auto service sector, followed by drive-thru QSRs and convenience stores. These are primarily or predominantly development funding transactions with initial cash yields in the high 7% area. The pipeline of investments under executed LOIs includes opportunities across all of our convenience and automotive retail sectors with the majority representing traditional relationship sale-leaseback transactions in the convenience store space. Moving to our redevelopment platform. During the quarter, rent commenced on redevelopment property in Bergen County, New Jersey that is now leased to a Take 5 Oil Change franchisee. We invested approximately $0.4 million in this project and expect to generate a return on invested capital of 18%. At quarter end, we had 4 signed leases for redevelopments and had additional projects in various stages of negotiation in our pipeline. With respect to our asset management activities, we extended 1 unitary lease by 10 years during the quarter. The lease generates $2.9 million of ABR or 1.3% of total ABR, and the new expiration date is December 31, 2039. The net result of this extension, combined with our first quarter leasing activities and recent acquisitions is an increase to our weighted average lease term and a further reduction in ABR expiring through the end of 2027, which is now approximately 2% of total ABR. In addition, we sold 4 properties during the quarter for gross proceeds of $8.2 million. With that, I will turn the call over to Brian to discuss our financial results.
Thanks, RJ. Good morning, everyone. Starting with headline earnings. AFFO per share was $0.62 in Q2 2026 and $1.25 for the first half of 2026, representing growth of 5.1% and 5%, respectively, over the prior year period. A more detailed description of our quarterly and year-to-date results, including AFFO and net income 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. Moving to G&A expenses. Management focuses on the ratio of G&A, excluding stock-based compensation and nonrecurring retirement costs to cash rental and interest income. That ratio was 9.3% for Q2 2026 and 9.2% for the first half of 2026, representing decreases of 60 basis points and 100 basis points, respectively, as compared to the prior year period. As mentioned on prior calls, we expect full-year G&A growth to be less than 2% and for our G&A ratio to fall below 9% as we continue to benefit from our efforts to scale the company while maintaining appropriate levels of overhead. Turning to the balance sheet and liquidity. As of June 30, net debt to EBITDA was 5.3x or 4.3x, including unsettled forward equity, which is well within our stated target leverage of 4.5x to 5.5x. Fixed charge coverage for the quarter was 4x. We ended the quarter with approximately $1.1 billion of total debt outstanding, including $1 billion of senior unsecured notes with a weighted average interest rate of 4.6% and a weighted average maturity of 5.5 years and $73 million drawn on our $450 million revolver. We have no debt maturities until June 2028. During the quarter, we settled approximately 1.5 million shares of common stock subject to outstanding forward sale agreements for net proceeds of approximately $39.8 million. We also entered into new forward agreements to sell approximately 1.8 million shares of common stock for anticipated gross proceeds of $60.6 million. In total, we currently have 5.8 million shares of common stock subject to outstanding forward sale agreements, which upon settlement are anticipated to raise gross proceeds of approximately $190.5 million. We continue to be in a very strong capital position with more than $570 million of total liquidity at quarter end and have more than sufficient capital to fund our under contract pipeline and additional investment activity as we move through 2026. With respect to our earnings outlook, as a result of our year-to-date investment activity, we are increasing our full year 2026 AFFO per share guidance to a range of $2.52 to $2.54 from our prior guidance of $2.50 to $2.52. As a reminder, our guidance reflects the current run rate from our in-place portfolio with certain expense and credit loss variability and does not include any prospective investment or capital activities. We think this approach remains appropriate for our business and look forward to updating everyone on the positive impact our investment activity has on our earnings as we move through the balance of the year. With that, I'll ask the operator to open the call up for questions.
Questions and answers
And our first question will come from Mitch Germain with Citizens Bank.
Nice quarter. Chris, I know that I believe a couple of years ago, you brought someone on focusing on the QSR industry. You've seen significant momentum there. Have you expanded that team? Is it just a population of the deals that have hit your underwriting? Is there anything specific that you point out with regards to the momentum you're seeing now?
I would just say, I think it's the success of the person we brought on to focus on that sector. It takes time to build relationships in this sector through traditional and other forms of business development. What we're starting to see is quarter-to-quarter success in that sector, similar to other sectors we've focused on. We're really happy with how that's progressed. As the year goes on, we anticipate balanced volumes across the investment program, meaning our automotive retail asset classes that we focus on.
Great. That's super helpful. I think the last quarter, RJ has spoken about cap rates kind of mid- to high 7% range. It looks like, obviously, for the quarter, they were at the lower end of that range. Was there any specific transaction that kind of brought the cap rate lower than what you've been seeing recently? Or is that just really more broadly the market kind of correcting itself there?
No, I think our view is there's a lot of volume in that mid-7% range. This is just one quarter of activity, so some of that might be based on the volume of one transaction or several transactions. Generally, I still think we see cap rates in that plus-or-minus 7.5% range, and there will be deals that Getty does that touch 8% like we did at the start of the third quarter. We anticipate blending additional volume into that middle 7% area.
Thank you, Mitch. I would add that it's important to acknowledge the improving cost of capital over the better part of this year and how that opens up opportunities for us to compete for a wider swath of transactions, many of which we couldn't compete for a year ago in the low- to mid-7% area. If you take what Chris said and expand it a little bit, we're going to continue to execute as we have been for several years in the mid- to high-7s. With the improving cost of capital, we have an opportunity to compete for a greater range of transactions, and you'll continue to see this blend in the mid-7s. From our perspective, this is exactly where we want to be given the magnitude and increase of activity. While the cap rate blend has come down a little bit, our spreads have largely remained constant or even increased slightly in some instances.
And our next question will come from Jana Galan with Bank of America.
This is Dan Byun on for Jana Galan. Could you clarify if that $19.3 million advanced aggregate funding is included in that $95 million pipeline?
No, that would have already been deployed. That's just the balance of capital that's been deployed for those projects, and it would be incremental funding to that that's in the $95 million. When those projects are completed, it will no longer be mortgage notes receivable; it will be real estate subject to a long-term lease.
And also just kind of talking about the rent coverage, you held it at 2.5, but the sub-1x bucket rose by 70 basis points. Are there any specific tenants or sectors driving that? Are you seeing any softening at all to note?
No, certainly no softening. We've seen really stable coverage across tenants, leases, sectors. That bucket continues to be the same portfolio of ramping, new-to-industry car washes. There's just some incremental individual units that aged into our reporting this quarter. So same portfolio, ramping car washes. We acknowledge they're ramping maybe at a little bit of a slower rate than some other new-to-industry car washes that we funded, but they're, on average, just over two years into their operating histories. We're seeing a decent trajectory there. Nothing is causing any great concern at this point as they continue to move into their third year where they typically stabilize.
And we'll go next to Upal Rana with KeyBanc Capital Markets.
I just want to get a sense on your investment pool today. Given the improved cost of capital, has your pool meaningfully increased in terms of what you're looking at? Or is this really just the same pool that you can now just move down the risk curve given the improved cost of capital?
It's RJ. Certainly, the improved cost of capital, as Brian and Chris mentioned, is opening up more opportunities. Our underwriting pace so far this year is at or above a record pace, and some of the velocity you're seeing reflects that. In short, the improved cost of capital opens opportunities that a year ago we couldn't really act on; that's now opening up opportunities and leading to increased velocity.
Got you. Okay. And then maybe just on the pace and the visibility in the back half. Obviously, at this point, you've completed and what you have committed already in the pipeline, you're kind of near last year's volume. So just wanted to get a sense of what the back half could potentially look like.
We're sitting here in July with visibility into roughly what we did last year and still several months before we get to the end of the year. So we feel very good about our ability to continue to source, bring deals in and get those closed before year-end. What we've done over the last couple of years we view as the floor. We have the team and systems in place and, combined with RJ's underwriting pace and Brian's comments regarding cost of capital, we see upside to that floor in 2026 and beyond.
And moving on to Rob Stevenson with Huntington.
Chris, any new sort of tangential types of assets that you don't already own today that you guys are underwriting today to any significant degree?
The sectors we invest in are large, fragmented and healthy, and there's a lot to work on. We're always looking at ways to extend, but our success has come from building knowledge and relationships and the opportunity set and users of sale-leaseback financing. I'm not going to say we're not looking at new asset classes, Rob, but we are being thoughtful about extending beyond the four asset classes we focus on today. There's a lot to work on in the four we have. We're happy with the team, the pace and the opportunities we've closed on. We're always thinking about how we continue to scale. Our goals are growth, diversification and scaling the business into a much larger platform.
Okay. And speaking of scaling, how do you view the opportunity to potentially scale the development program over the next couple of years versus where you are today and the partners that you have? Where do you think that goes over time?
We came up with development funding as a way to provide a product for tenants in the sectors we invest in and to grow with certain partners that want to build their prototype stores rather than refinance their balance sheet or grow through acquisition. It's a product we offer to tenants. We're happy if there's a sale-leaseback component and happy if there's a development component. There may be a slight premium on the development side, but there's also a time lag before that capital is fully deployed. It takes time for it to come onto the balance sheet and put all that money to work. We view it as another path to fee ownership and another path to growth. We're trying to work with our partners and figure out what's best for them and how we can finance that accretively for us.
Okay. Said another way, is the demand there accelerating at this point? Or is it pretty much what it is from your partner standpoint on that?
It flows. It depends on how our tenant or operating partner thinks about their growth. If someone likes to grow through acquisition, we have a product for them. If a partner is focused on site selection and developing prototype stores, they can use our balance sheet to accelerate growth. Sometimes we have transactions in the collision sector where they want to build prototypes, and some of the second quarter transactions were more traditional sale-leasebacks. From Getty's standpoint, it's accretive fundings in the sectors we know with tenants we like, and eventually we get to the same place: fee ownership with a partner on a long-term lease.
Okay. A couple of quick ones. Were the sales in the quarter more defensive? Or did you just get offers on those 4 properties that were attractive to you guys?
Rob, it was selection. It was just about $8 million and a handful of properties. We've been pretty selective with dispositions over the years and will continue to be. As the portfolio has gotten larger and more diverse, we have a more strategic view around dispositions. In the quarter, it was a mix: a couple disposed of more tactically, and a couple were former redevelopments that we were able to round-trip and get attractive valuations in the disposition market versus the equity markets.
Okay. And then last one for you, Brian. If you wanted to term out some debt following the next massive acquisitions, where is the best source for you today? And where would that be pricing?
Great question. As the credit markets continue to move around, they're definitely open and constructive. Spreads are on the tighter side, but benchmarks are on the wider side. A 10-year note for us, which is our base case financing, would be about 6.25%, driven primarily by the increase in the 10-year treasury. We printed a 5.75% at the end of last year. Spreads have come in maybe about 5 basis points, but treasury is up about 50 to 60 basis points. That's our Plan A and base case. We have in the past looked at term loan financing, shorter-term 5- and 7-year private placements. There's only $73 million on the revolver line right now, so that's sub-20% utilization. We're not feeling pressure in the near term to term that out. We would look across those markets: term loan, private placement, different durations. We prefer long-term fixed-rate debt given the nature of our cash flows, but if circumstances drive shorter-term debt or a different execution, we've done that and can execute going forward.
And Michael Goldsmith with UBS has our next question.
Pipeline remains healthy and you guys continue to invest beyond what you report in the prior quarter for the pipeline. Can you talk a little bit about the level — how we should think about the level of visibility into acquisitions in the quarter, what kind of opportunities pop up through the period just to get a sense of the upside to the acquisition opportunity given that you've been beating what you've seen and reported ahead of the quarter?
Michael, our pipeline is what we have under contract when we report. As we've discussed in the past, there's always things that close that never hit the pipeline. If you think about the normal cycle of a transaction, anything we sign under contract at the front side of a quarter will generally close within that inter-quarter and never hit the pipeline. That happens every quarter and happened this quarter. So our pipeline is a decent proxy for activity, but I wouldn't get hyper-focused on incremental movements up or down because so much activity transpires in the quarter that never hits that pipeline.
Got it. I'll try to control my excitement there. And then Brian, you've got good funding, which should carry you through the year and into next year. But can you talk about your philosophy on the right level of forward liquidity for your business model? We've seen some net lease REITs build up large forwards and have strong visibility through the end of next year. You guys seem a bit more measured. Can you discuss that philosophy?
Great question and topical given recent activity in the net lease space. Philosophically, the best word is balance. Prefunding pipelines or partially prefunding them gives our acquisition team clarity around pricing and cost of capital. The ATM and forward execution are beneficial for all net lease platforms, including ours. Where we may have a differentiated view is the order of magnitude. If we execute, grow earnings and create shareholder value, the share price should be higher in 9 to 15 months than it is today. So we aim to strike a balance: reduce funding risk, ensure significant liquidity and demonstrated access to capital, but avoid being too long on equity at a lower price such that we miss an opportunity to generate better spreads and earnings growth in future years.
Moving on to Anthony Paolone with JPMorgan.
I have one question. The 2.5x store-level coverage that you talked about is a quarter lag and trailing. As we roll that forward and incorporate what's happened to oil prices this year, does that number go up or down? You mentioned fuel margins being up in the first quarter, but what should we expect with coverage?
I referenced earlier that Q1 margins for our portfolio were $0.46 per gallon. That is very healthy and better than Q1 2025. That supported the performance growth of C-store tenants in our portfolio. Looking ahead, national margins continue to hold, and our tenants have been able to pass through price changes and continue to make healthy profits at the pump. Public companies that report monthly same-store sales show results generally plus or minus a couple of percent. We haven't seen in the C-store business, which is the lion's share of our reporting, any significant fluctuation. The portfolio is resilient and includes habitual and nondiscretionary pieces. On the auto side, repairs, oil changes and tire work are largely nondiscretionary. We're not expecting any massive fluctuation given market data and tenant feedback, but that's as far as we can go without seeing further data.
Our next question comes from Michael Gorman with BTIG.
Chris, staying on that for a second, it's been a robust transaction environment. Is any of that driven by the strength of the margins you're seeing at the C-store level? Does that tend to increase transaction activity either from the seller or buyer side as people underwrite these assets? Also, are you seeing any impact from the geopolitical instability at all?
On the broader consolidation or M&A market, I don't think today's margin environment is what's driving increased M&A. The sector itself, including other pieces of our portfolio, continues to be healthy. Large operators want to grow for economies of scale, both on fuel purchasing and store operations. The health of core businesses will continue to fuel desire to grow through new store development or further consolidation.
Okay. That's helpful. One quick one, Brian: can you give an update on credit losses year-to-date, where that stands relative to guidance? Have you changed the underlying assumption for credit losses for the full year in the updated guidance range?
You didn't miss it. No realized credit losses to date. We continue to use a 25 basis point assumption in our models, but we roll that forward to reflect more of a half year than a full year, so that drives a little variability. When we provide that guidance range, it's really driven by the credit loss assumption as well as some expense variability and occasional dead deal costs. To date, we have not realized any credit losses. There are always situations we're monitoring, but nothing rising to the level of a formal watch list at this time.
We'll go next to Wes Golladay with Baird.
I want to go back to the comment about the accelerating pace of underwriting. Is that more due to deal volume, or do you have new systems in place?
Candidly, it's both. We've invested in people, processes and how we underwrite and execute. That's a key factor, coupled with market conditions. The products we offer are probably more attractive to counterparties than they have been recently. Those two things are converging and providing a strong universe for us to underwrite and address.
This now concludes our question-and-answer session. I would like to turn the floor back over to Christopher Constant for closing comments.
Thank you, operator. I just want to thank everyone for joining the call today and for your interest in Getty, and we look forward to getting back to everybody when we report our Q3 earnings in October.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.