Getty Realty Corp. ($GTY)

Good morning, and welcome to the Getty Realty First Quarter 2026 Earnings Call. This call is being recorded. [Operator Instructions] 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, sir.

Thank you, operator. I would like to thank you all for joining us for Getty Realty's First Quarter Earnings Conference Call. Yesterday afternoon, the company released its financial and operating results for the quarter ended March 31, 2026. The Form 8-K 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 2026 guidance and may include statements made by management, including those regarding the company's future financial performance, future operations 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 first 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 first quarter 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. I am pleased to report that Getty is off to a strong start in 2026, highlighted by a 13.1% year-over-year increase in our annualized base rent, a 6.8% increase in our AFFO per share and an increase to our full year 2026 earnings guidance. The foundation for this growth is our in-place portfolio, which is essentially fully occupied, achieved 100% rent collections and continues to demonstrate stable rent coverage. Despite volatility driven by current geopolitical events, our tenants and their businesses have once again proved their resilience and ability to perform during rapidly changing operating conditions. Building on that foundation is the impact of the capital we deployed in 2025 and year-to-date. We are seeing the benefits of investments we've made in our platform to accelerate growth, including a larger investment team, new technologies and improved processes. And we expect to capitalize on constructive transaction markets for convenience and automotive retail properties throughout the year. Year-to-date, we have invested more than $34 million at an initial cash yield of 8%. Beyond that -- beyond what we have closed, we have approximately $125 million of investments under contract as well as a pipeline of transactions under signed nonbinding letters of intent that is in excess of the pipeline, which was disclosed at the time of our recent equity offering. This pipeline is supported by a robust capital position as our recent capital markets activities have provided us with significant liquidity and attractive cost of capital to fund our 2026 business plans. We currently have more than $170 million of unsettled forward equity and our $450 million revolver is completely undrawn. When we look at the spectrum of opportunities under contract and in our pipeline, we are confident that we can deploy this capital accretively as we move through the year. As we think about the rest of 2026 and beyond, I take great comfort in the quality of our portfolio, including its proven durability and ongoing diversification. I have no doubt that the platform we've built can drive disciplined growth as we continue to lean into our expertise in sourcing, underwriting and closing investments in our core, convenience and automotive retail sectors. We remain committed to our disciplined underwriting approach, which prioritizes owning real estate in high density or growing metro areas with excellent access and visibility in retail markets and which is leased to creditworthy operators under our long-term triple net leases. The sectors we invest in are large and fragmented and benefit from prevailing consumer demand -- consumer trends for demand, convenience, speed and service. As these industries continue to consolidate and become more institutional, we believe our direct sale-leaseback approach and deep relationships in our target segments uniquely positions Getty to grow with both established and emerging retailers. With that, I'll let RJ discuss our portfolio and investment activities.

Thank you, Chris. At quarter end, our lease portfolio included 1,186 net lease properties and 2 active redevelopment sites. Excluding the active redevelopments, occupancy was 99.7%, and our weighted average lease term was 10.1 years. Our net lease portfolio spans 45 states plus Washington, D.C., with 61% of our annualized base rent coming from top 50 MSAs and 77% coming from top 100 MSAs. Our rents continue to be well covered with a trailing 12-month tenant rent coverage ratio of 2.5x. Turning to our investment activities. For the quarter, we invested $30.3 million across 29 properties at an initial cash yield of 8%. The weighted average lease term on acquired assets for the quarter was 8.8 years. Highlights for this quarter's investments include the acquisition of 22 properties for $27.3 million, including 16 auto service centers and 6 drive-thru quick service restaurants and $3 million of incremental development funding for the construction of multiple new auto service centers and drive-thru quick service restaurants. Subsequent to quarter end, we invested an additional $4.1 million, bringing our year-to-date total investments to $34.4 million at an 8% initial cash yield. Our year-to-date activity included the acquisition of several existing net leases that we view as a complement to our core sale-leaseback business. This drove a shorter weighted average lease term than our typical investment activity, but also led to us adding 11 new tenants to the portfolio and executing granular acquisitions with an average $1.2 million purchase price. Looking ahead, as Chris mentioned, we currently have approximately $125 million of investments under contract and a significant pipeline of investments under signed letters of intent. These transactions are spread across our 4 convenience and automotive retail sectors and are predominantly relationship sale leasebacks and development funding opportunities with new 15- to 20-year lease terms. The initial cash yields for these investment opportunities are in the mid- to high 7% area. Moving to our asset management activities. As previously announced, we extended 5 unitary leases totaling $11.3 million of ABR or 5% of total ABR during the first quarter. The net benefit of these lease extensions was an increase to our weighted average lease term and a significant reduction in ABR expiring in 2027. In addition, we sold 2 properties during the quarter for gross proceeds of $3.7 million. With that, I will turn the call over to Brian to discuss our financial results.

Thanks, RJ. Good morning, everyone. For the first quarter of 2026, we reported AFFO per share of $0.63, a 6.8% increase over Q1 2025. FFO and net income for the quarter were $0.69 and $0.43 per share, respectively. A more detailed description of our quarterly results can be found in our earnings release and our corporate presentation contains additional information regarding our earnings and dividend per share growth over the last several years. Starting with some color on 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 9.2% for the quarter ended March 31, 2026, a 130 basis point improvement over the same period in 2025. As we mentioned on our last call, we expect G&A growth to be less than 2% in 2026 and for our G&A ratio to fall below 9% as we focus on controlling expenses and continuing to scale the company. Moving to the balance sheet and liquidity. As of March 31, net debt-to-EBITDA was 5.1x or 4.2x, including the impact of unsettled forward equity, both of which compared favorably to our target leverage of 4.5x to 5.5x. Fixed charge coverage for the quarter was 4x. During the first quarter, we received $250 million from our previously announced unsecured notes issuance and used the proceeds to repay borrowings under our revolving credit facility. We ended the quarter with $1 billion of total unsecured notes outstanding with a weighted average interest rate of 4.5% and a weighted average maturity of 6 years. We have full borrowing capacity under our $450 million revolving credit facility and no debt maturities until June 2028. In February, driven by our growing investment pipeline and the strong performance of our stock to start the year, we raised $130 million of new common equity in an overnight offering. Those shares were sold on a forward basis, and we currently have a total of 5.5 million shares subject to outstanding forward sales agreements, which upon settlement are anticipated to raise gross proceeds of approximately $171.5 million. As Chris mentioned, we are in a very strong capital position with more than $625 million of total liquidity and have more than sufficient capital to fund our under contract pipeline and additional investments as we continue to source new opportunities. With respect to our earnings outlook, as a result of our year-to-date activities, we are increasing our full year 2026 AFFO per share guidance to a range of $2.50 to $2.52 from the prior range of $2.48 to $2.50. 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 investments or capital markets activities. We think this approach remains appropriate for our business and look forward to updating everyone on the positive impact that our investment program has on our earnings as we move through the year. With that, I'll ask the operator to open the call for questions.

[Operator Instructions] The first question we have comes from Mitch Germain of Citizens Bank.

Congrats on the quarter. Chris, what do you think is driving the increased momentum in the investment pipeline? Obviously, I know you've made some investments in people. Is it more kind of sellers kind of rationalizing what their pricing expectations are? Are you -- is there anything you can point out to?

I think it's a little bit all of the above, right? Obviously, with more deal makers at Getty, right, there's more business development activity. As the portfolio has grown, we obviously have more relationships that we can tap into. But I do think there's an element of businesses are growing, the theme around consolidation certainly continues in all the sectors we invest in. And as folks are looking at their capital needs, I do think the sale-leaseback market is becoming more attractive. And it's a complement in certain cases to their other capital sources like debt or even equity. So I think it's a mix, Mitch, but what I would say is that most of our conversations are around growth and folks are constructive, right, in terms of what the current pricing dynamic looks like across the sectors, and we certainly feel that in our portfolio and in our pipeline. And I think that's why you hear the positive tone in our language in the script and in the quarter.

Are you becoming any more selective with regards to what sectors you're allocating capital to? Or are you open for business across everything that you're investing in?

We're focused investors, right? So I think by nature, that makes us sort of selective. But within the 4 sectors that we invest in, we're equally excited about all 4 of them. And the broader pipeline under contract and what's behind that includes numerous opportunities across all those verticals.

Great. Last one for me. Brian, you talked about scalability of the platform. Can you highlight maybe some of the things that you guys are -- have accomplished to kind of get a little more efficient?

Yes. I think you've heard both Chris and RJ and even in past calls, Mark talked about some of the things we've been doing around technology, around process improvement. So certainly, I think those things are having an impact. But also, I think we all understand that net lease platforms are inherently very scalable. We've been investing in the platform for a number of years. And combined with some of the market dynamics Chris went through, we're just, I think, really starting to bear the fruit of those efforts.

The next question we have comes from Upal Rana of KeyBanc Capital Markets.

Chris, with the pipeline growing, I'm just curious on what you're seeing out there in terms of larger portfolio deals?

Yes. I mean I think, obviously, what we closed this quarter was more granular in terms of maybe some more individual asset acquisitions, but the broader pipeline and the opportunities that we're underwriting has a mix of what I would call midsized to larger portfolios. And again, it just goes back to what I said on the earlier question, which is our operators are looking to continue to grow and consolidate. And that kind of mid-market M&A transaction or a larger portfolio certainly feels like there's a component for sale-leaseback financing to help get those deals done.

Okay. Great. And then, Brian, your cost of capital hasn't materially improved this year, and you have nearly $170 million in the forward equity and also the revolver. So I just want to get your thoughts on your strategy on use of capital as we go through '26 and maybe any additional appetite to raise even more capital?

Yes. Thanks, Upal. Fair certainly observations and not lost on us the cost of capital. But I would say that our strategy as it were around capital -- raising capital allocation really hasn't changed, right? We're going to maintain leverage in that 4.5 to 5.5x range. We're going to look to keep the pipeline at least partially funded so that we know we have some certainty around that cost of capital. And so I think those fundamental components haven't changed. As you look to this year, I think you'll see us draw on the revolver for the debt piece and settle that equity again to maintain leverage. And then as far as additional equity behind that or beyond that, I think as always, it's going to be a combination of the pipeline, the magnitude of that pipeline, where those deals are being priced and then where the stock is trading and where our cost of capital is. But I guess it's kind of a long-winded way of saying I don't see any change in strategy. I think if you look over the last several years, that's how we've executed, and I would anticipate us doing the same thing throughout this year and beyond.

The next question we have comes from Michael Goldsmith of UBS.

Can you just talk a little bit about bad debt? Are you seeing any challenges within the portfolio? And then also, can you update us on how bad debt is baked into your 2026 guidance and if that changed since the start of the year?

Michael, it's Brian. I'll touch on that. So working backwards, we used about 25 basis points assumption for credit loss. We didn't experience any of that in the first quarter. I would say that is also conservative relative to looking back over longer periods of time. So that continues to be what's baked into the guidance on a go forward. And then the portfolio itself, quite healthy. There's nothing that rises to a level of a watch list for us, and there's nothing that we're anticipating in the near, medium term that gives us any significant concerns around credit loss in the portfolio. As we know, these are nondiscretionary defensive essential type businesses. Obviously, there's a lot of geopolitical and macro noise. But as we sit here today, the tenants continue to perform, the businesses continue to perform. And while we do think it's prudent to have an assumption in our guidance for credit loss, there's nothing imminent that gives us any concern, as I said.

And just a follow-up. I think this was touched on, on some of the other net lease earnings calls, but 7-Eleven closing some stores and more of the smaller locations, but just wanted to get a sense of how that in any way kind of influences your portfolio or how you're thinking about your portfolio to be positioned in the C-store space going forward?

Sure. I'll start and maybe RJ wants to add a few comments here. So 7-Eleven is a tenant of ours. They're not in our top 20. But on a broader scale, Michael, like this is a trend that we've been talking about with investors for years. The C-store is getting larger. It's getting more complex, the importance of food, beverage and brand to drive customer visits inside the store. This is not a new trend. With a portfolio the size of 7-Eleven's, of course, they have stores that are smaller and they're focused on the larger store to compete with other brands that may be slightly ahead of where they are. So from our standpoint, given that we've been around the C-store business for a very long time, this is very consistent with what our tenants are doing. If you look at the acquisition activity that we closed in C-store last year, I think our big transaction in the fourth quarter, the average store size was like either 7,000 or 8,000 square feet. That is what the modern C-store looks like, heavy food, importance of brand, loyalty programs. And of course, they do still sell fuel, right? They do still sell traditional merchandise, but it's far more than just the old line C-store. The other thing I'd say is that we do have some of the older assets that were part of the legacy business. Those are the leases that got renewed this quarter, right? So I guess, still profitable. When you have a really well-located, maybe slightly smaller store, like those still make money for our tenants. We were really pleased to get those leases extended and our tenants wanted to stay there.

I'd echo what Chris says, 7-Eleven did announce those closures. And I would highlight, they also announced about 1/3 of those closures numerically as planned reopening or a new stores in that larger format. I think it's a reflection not only of the industry, but frankly, with Getty's investment strategy and what we've executed on certainly over the last several years, if not beyond, and how our portfolio has evolved, and it just shows the evolution of the C&G space and where we and others are focused.

[Operator Instructions] The next question we have comes from Brad Heffern of RBC Capital Markets.

Question about the soaring gas prices. I know most of the C-store margin is inside the store, but sometimes they do struggle to pass on higher gas prices right away or maybe customers have less money to spend inside the store. There can be a working capital draw too. I'm just curious, do you think there will be any net impact on your tenants from this? Or do you think that they'll be able to withstand it?

Yes. It's a great question and one that we've gotten in a lot of our meetings recently. I think the -- if you going into the, I think the nice part about our business on the fuel side is that we were starting at retail fuel prices that were less than $3 a gallon nationally. We also entered the year at probably fuel margins on average that were north of $0.40, maybe $0.45. So that's not a historical like record high, but that's a very healthy number. And you're right, typically, our tenants have struggled to pass on 100% of the increase, where there's been a rapid movement up in oil. What I would tell you is that if you look at some of the national data, almost all of that increase has been passed on. So if margins were in the high 40s, they're still nationally above $0.40. And then what does happen on the back side of that is when the price of oil does come down, typically, our tenants are able to maybe widen out their margin a little bit or hold retail pricing. So I think to date, Brad, tenants continue to -- the fuel margin, the fuel side of the business continues to be healthy. I think the conversations we've had with tenants, right, are more about the duration of this, the health of the consumer, continuing to drive traffic in the store. And -- but we're having those conversations on a regular basis with tenants. And again, what you see in our portfolio is the C-store business is still highly profitable. The gas piece is still highly profitable. And again, tenants are just trying to drive traffic in the store for the higher-margin side of their business.

Okay. Got it. And then, Brian, on the guidance, -- you obviously closed acquisitions in the first quarter. It doesn't seem like enough to make the guide go up by 1%. So can you walk through what drove that? I'm assuming part of it was the equity raise, but anything else you would call out?

Yes. So there's really 2 components. The equity in and of itself wouldn't have impacted the first quarter. You do have the impact of the investment activity. You also have the, I guess, actualization of whatever was assumed around the credit loss and expense variability that we speak to as driving the variability in the range. And again, we had no credit loss in the first quarter and expenses generally came in at or below budget. So I think it's really the combination of those 2 things, the just actual performance against what was forecasted plus the investment activity. And then also, candidly, Brad, sometimes when you're dealing in hundredths here and dealing in pennies, sometimes the rounding also will get you. So it may not have been a full $0.02, but certainly on the round, that's where it came out for us.

The next question we have comes from Wes Golladay of Baird.

When you look at the cap rates, I think you're guiding to mid- to high 7s, it's a little bit lower. Just wondering if that was versus what you've done in the last few quarters. Is that primarily just due to a mix where there's fewer developments or just different categories in the pipeline?

Yes, I think it's all of the above. Obviously, with the equity that we raised, there are a lot more transactions broadly speaking in the market that are maybe in and around that 7.5%. This allows us to grab some of those deals, again, maintain that healthy spread that we're looking for plus blend those with the deals that are in the high 7s approaching 8. I think that's why maybe you saw our pipeline go up and talk about some of the activity behind that. Do you want to add to that, RJ?

No. I think that's the range we've been operating in and around for quite some time. To Chris' point, I expect to still be quite active in that mid- to high 7 range, but we do have an opportunity to kind of expand our activity on the lower end and still blend in that mid- to high 7% range. We feel pretty confident in our ability to do so.

Okay. And just one housekeeping question. What are you looking at for G&A for the full year?

It should be right around $20 million, Wes, plus/minus. And that's on the cash G&A number. Just to be clear, I think we're at $5.2 million in the quarter, right? First and second quarter tend to be a little elevated over the second half of the year. So that's that $20 million range within the cash G&A number.

The next question we have comes from Jana Galan of Bank of America.

Congrats on the first quarter. Can you broadly break down how much of the $125 million pipeline is acquisitions and how much is development funding? And if you can remind us, developments, is that typically kind of like a 3-, 4-, 5-quarter construction time line?

So Jana, it's RJ. The $125 million pipeline is -- and it echoes what we said in our last call about 60 days ago. It is tilted towards the development funding, which is generally that 3- to 12-month time horizon. We have added additional more traditional sale-leaseback, acquisition leaseback type transactions. But the pipeline itself, as it sits, is skewed more towards that development funding.

The final question we have comes from Michael Gorman of BTIG.

Just a quick one for me. Obviously, rent coverage remained pretty strong in the quarter versus the fourth quarter of last year, but there were some kind of noticeable moves within the different buckets that you break out in the presentation. Anything specific to point out there in terms of tenant trends moving between those different categories or anything in particular that you're seeing on the consumer side that may be driving some of those moves between the different buckets that you break out?

Mike, it's Brian. The short answer is no. One thing I would just highlight, right, we are on a 3-month lag. So the data we're looking at is through 12/31. So it would not have captured the first quarter performance, although Chris referenced some of the conversations and anecdotal type of information we're getting from tenants such that we're not expecting significant changes in Q1 either. But back to the data that you were referencing, no, when we look at it at a slightly more granular level, look at it by lease, look at it by property type, very, very consistent results versus the prior quarter. Sometimes a tenant or a lease will just flip on one side or the other of where the breakpoints are. And we actually see that quite a bit, a tenant that's around 2.5x might be 2.4 one period and 2.6 the next. And you do see that more than you might expect around some of those breakpoints. But from the high-level perspective, very similar, very consistent, very stable quarter-over-quarter across all 4 property types.

At this stage, there are no further questions. I would like to turn the floor back over to Christopher Constant for closing comments. Please go ahead, sir.

Thank you, operator, and thanks to everybody for participating on our call this morning. We're really pleased with the start of the year, and we look forward to getting back on phone to everybody when we report our second quarter in July.

Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.