Getty Realty Corp. (GTY) Q2 2024 Earnings Call Transcript

Getty Realty Corp. (NYSE:GTY) Q2 2024 Earnings Conference Call July 25, 2024 8:30 AM ET

Company Participants

Joshua Dicker - Executive Vice President, General Counsel and Secretary
Christopher Constant - President and Chief Executive Officer
Mark Olear - Executive Vice President and Chief Operating Officer
Brian Dickman - Executive Vice President, Chief Financial Officer and Treasurer

Conference Call Participants

Farrell Granath - Bank of America
Brad Heffern - RBC Capital Markets
Wes Golladay - Baird
Akhil Guntupalli – J.P. Morgan
Michael Gorman - BTIG
Upal Rana - KeyBanc Capital Markets
Mitch Germain - Citizens JMP Securities

Operator

Good morning, and welcome to Getty Realty's Second Quarter 2024 Earnings Call. This call is being recorded. After the presentation, there will be an opportunity to ask questions.

Prior to the starting 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.

Joshua Dicker

Thank you, operator. I would like to thank you all for joining us for Getty Realty's Second Quarter Earnings Conference Call. Yesterday, the company released its financial and operating results for the quarter ended June 30, 2024. 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 2024 guidance and may also include statements made by management including those regarding the company's future company operations, future financial performance or investment plan 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, 2023, 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.

Christopher Constant

Thank you, Josh. Good morning, everyone, and welcome to our Earnings Call for the Second Quarter of 2024. Joining us on the call today are Mark Olear, our Chief Operating Officer; and Brian Dickman, our Chief Financial Officer.

I will lead off today's call by summarizing our financial results and year-to-date investment activities, and we'll provide commentary on the continued resilience of our convenient store and car wash tenants. Mark will then take you through our portfolio and Brian will further discuss our financial results and guidance.

Last night we reported a strong quarter which was headlined by a 15% year-over-year increase in annualized base rent, a 3.6% increase year-over-year in our AFFO per share, more than $100 million of year-to-date investments and an increase in our full year earnings guidance.

Our investment activity in the quarter continues to demonstrate the benefits of our differentiated platform, including our deep network of industry relationships and underwriting expertise within the convenience and automotive retail sectors. We completed nearly $62 million of investments in the second quarter across 23 properties that were diversified across our four primary convenience and automotive retail asset classes, being convenience stores, express tunnel car washes, auto service centers and drive-thru quick service restaurants.

Consistent with prior years, approximately 90% of our investments year-to-date were direct transactions and we added three new national names to our growing tenant roster, while also expanding our relationships with six existing tenants. We continue to be well positioned to create value for shareholders throughout market cycles, both through the strength of our in-place portfolio, which delivers reliable rental income and our ability to source and close new investment opportunities that further advance our growth and portfolio diversification efforts. To that end, we currently have an investment pipeline of more than $53 million of assets under contract at a blended cap rate approaching the mid 8% area. In addition, thanks to the efforts of our investments team, we continue to underwrite a steady flow of potential acquisition opportunities to add to our pipeline.

I'm quite pleased with our recent financial results and investment activity. In general, and in light of market conditions over the last several quarters, and I want to again emphasize the consistent and thoughtful manner in which we approach our business. Our success is driven by our targeted investment strategy, our deep industry knowledge and relationships, our strict underwriting criteria and the strength of the Getty team that works tirelessly to manage our in-place portfolio and execute our growth strategy.

We also continue to benefit from the strong fundamentals across our target retail sectors and the performance of our institutional tenants who are maintaining healthy profit margins and rent coverage ratios. With regard to the convenience store industry, the National Association of Convenience Stores recently published their state of the industry report for 2023. Overall, the report which compiled survey data for convenience stores across every region of the United States, demonstrated both the stability of the convenience store industry and the increasing importance of inside sales and foodservice. For 2023, total inside store sales grew more than 8% to a record $328 billion. The standout figure from the report was a more than 10% average monthly gross profit from foodservice sales.

Other key highlights from the report were continued healthy fuel margins despite pulling back from record high levels in 2022, stable fuel volumes and slowing expense growth inside the store, which also contributed to the year-over-year increase in overall gross profitability.

With respect to the car wash sector, the recent performance of our tenants further demonstrates the resiliency of the express tunnel car wash business. We've been selective in adding car wash tenants to our portfolio over the last few years and have chosen to work with either top 20 national operators or companies that have a dominant regional market position. Based on the site level data Getty receives, car wash coverage ratios increased for substantially all of our tenants with sites that have been operating our portfolio for at least one full year. The growth in revenues for this sector continues to be driven by unlimited wash memberships.

Before I turn the call over to Mark, I'll close by noting that despite the recent CPI report subsequent run up in net lease REIT share prices, we expect continued challenges in the transaction in capital markets as we move through the remainder of 2024.

There is still considerable uncertainty with respect to interest rates, material bid-ask spreads between buyers and sellers that has led to a significant increase in for sale inventory of net leased assets and we are in a geopolitical environment that seems to surprise almost daily.

Nevertheless, as I said at the beginning of my remarks, we believe that Getty is well positioned to continue to execute and create value for our shareholders. Our in-place portfolio continues to generate reliable and growing rental income. Our balance sheet is in great shape with leverage in the middle of our target range and ample liquidity and the more than $100 million of investments closed year-to-date plus the $53 million of investments we have under contract will drive additional earnings growth. Meanwhile, as I mentioned a number of times, our team here at Getty continues to work hard to source new investment opportunities and actively manage our portfolio and balance sheet.

With that, I will turn the call over to Mark to discuss our portfolio and investment activity.

Mark Olear

Thank you, Chris. As of the end of the quarter, our lease portfolio included 119 net lease properties and two active redevelopment sites. Excluding the active redevelopments, occupancy was at 99.7% and our weighted average lease term remained at 9.2 years. Our portfolio spans 42 states plus Washington, D.C. with 59% of our annualized base rent coming from the top 50 MSAs and 75% coming from the top 100 MSAs. Our rents are well covered with a trailing 12-month tenant rent coverage ratio of 2.6 times, which has generally been consistent over the last four to five years, demonstrating the resiliency of our tenant’s businesses despite macroeconomic volatility we've experienced in that timeframe.

Turning to our investment activities, we had another strong quarter. We saw Getty invest $61.7 million across all of our target sectors in attractive MSAs around the country. Highlights of this quarter's investment include the acquisition of nine auto service center properties located primarily in the Southeastern U.S. were $26 million, seven express tunnel car washes located in various markets in the U.S. were $30.2 million which $9.4 million was funded in previous quarters, One Drive through QSR in Missouri for $5.1 million and one convenience store located in Arkansas for $4.3 million. We also advanced incremental development funding in the amount of $5.5 million construction of five new to industry convenience stores, express tunnel car washes and auto service centers. These assets are either already owned by the company construction or will be acquired via sale leaseback transaction at the end of the projects with respect to construction period.

For the quarter, the aggregate initial yield on our investment activity was 8.1% and the weighted average lease term for acquired properties is more than 14.5 years. Subsequent to quarter end, we invested $1.5 million towards the development and/or acquisition of several express tunnel car washes. The cumulative results of our investment activity year to date is gross investments of $103.8 million at an initial cash yield of 7.9% spread across our four target industries.

In addition, we currently have more than $53 million of acquisitions and development funding transactions under contract at average yields that are nearly 50 points wider than our year-to-date performance. We expect the majority of these transactions to close over approximately next six months. Moving to our redevelopment platform, during the quarter we invested approximately $490,000 in projects which are in various stages in our pipeline.

We ended the quarter with three signed leases for redevelopment projects and are seeing renewed interest from retailers whose expansion plans overlap with the footprint in our portfolio. As a result, we are expecting increased leasing activity over the next several quarters that will drive new development projects for the next few years.

Turning to our asset management activities, we did not have any disposition in the quarter, but did exit one lease property. Overall and notwithstanding the recent equity market activity for net lease REITs, there has not been a lot of change in market sentiment across our asset sectors. Seller expectations for lower cap rates persist and have resulted in an overall reduction of transaction volumes and increase in inventory of assets for sale. That said, our activity to date demonstrates that Getty can source opportunities in our target sectors at higher cap rates to reflect our view of current market pricing. While we remain disciplined with respect to capital deployment, we continue to benefit from our relationship based strategy, which prioritizes direct business with new and repeat tenants. As Chris mentioned, we are underwriting a variety of potential investment opportunities and we are confident that we will be able to accretively deploy capital as we move through remainder of the year.

With that, I will turn the call over to Brian.

Brian Dickman

Thanks, Mark. Good morning, everyone. Let me start with two sort of housekeeping items before we jump in. First, my remarks this quarter will attempt to focus on information that is incremental to that, which is provided in our earnings release. Our release is relatively detailed and includes a fair amount of commentary on our financial results, so we encourage everyone to read through it if you haven't already.

And second, last night, we posted a refreshed corporate profile to our website. That's not a complete overhaul, but there is some new material in there, and we made references from time-to-time. So I wanted everyone to be aware of the new presentation.

With that, yesterday, we reported AFFO per share of $0.58 for Q2 2024, representing an increase of 3.6% over Q2 2023. For the six-month period ended June 30, AFFO per share was $1.15 up 2.7% compared to the prior year period. Importantly, we were able to increase our full year 2024 AFFO guidance to a range of $2.30 to $2.32 per share, which implies growth at the midpoint of 2.7% over 2023.

While that implied growth rate is inside of the mid-single digit growth we've delivered on average over the last several years, the trajectory is encouraging and we think reflects positively on our business model given the challenging market conditions that have persisted for our sector.

As a reminder, our guidance includes only transaction and capital markets activity that has occurred to date and does not otherwise assume any acquisitions, dispositions or capital markets activities for the remainder of 2024.

Primary factors impacting our outlook include variability with respect to certain operating expenses, deal pursuit costs and the timing of anticipated demolition costs for redevelopment projects, which run through property costs on our P&L.

A summary of our earnings and dividend per share growth over the five years, along with information illustrating the stability and increased diversification within our portfolio over that same time frame can be found on Pages 8 and 9 of the updated presentation I referenced earlier.

A couple of other P&L related items that we focus on are annualized base rent or ABR and our G&A load. ABR as of June 30, 2024, was $185 million an increase of 15.6% over the $160 million, we reported as of June 30, 2023.

While AFFO per share growth is our primary objective, top line rental growth is a significant part of that, something we've been able to accelerate over the last few years as we've enhanced our acquisitions platform.

With respect to G&A, we typically look at two ratios, total G&A as a percentage of total revenue and G&A excluding stock based compensation and nonrecurring retirement severance costs, which is the G&A that flows through AFFO, we look at that as a percentage of cash rental income and interest income.

For Q2 2024, total G&A as a percentage of total revenue was 12.4%, down 80 basis points from 13.2% in Q2 2023 and what I'll call AFFO G&A as a percentage of cash rental income and interest income was 9.8% in Q2 2024, down 110 basis points from 10.9% in the prior year period. We continue to anticipate that G&A dollar amount increases will moderate and the G&A ratios we just discussed will decrease as we continue to scale the company.

Moving to some thoughts on the balance sheet and liquidity. As of June 30, 2024, net debt to EBITDA was 5.1 times or 4.9 times taking into account unsettled forward equity. Both metrics are right around the midpoint of our target range of 4.5x to 5. 5x, which is a level that we've been able to maintain for many years now. Fixed charge coverage was a healthy 3.9 times as of June 30.

Looking at access to capital. As of June 30, we have more than $315 million of available liquidity, including approximately $36 million, of unsettled forward equity and more than $280 million, of capacity on our unsecured revolving credit facility. Relative to our $53 million pipeline of acquisitions under contract, we have more than sufficient capital available to fund those transactions.

Some thoughts on debt maturities as we do have a few in 2025, starting with $50 million of unsecured notes in February. Those notes are currently at 4.75% and given the small notional amount, our thinking today is that we'll look to refinance that debt with either five or seven-year private placement and add the amount to other maturities in those out years or simply utilize the revolver to repay that debt until we're in a position to do a new larger 10 year notes offering. In any case, we don't see any refinancing risk today. Pricing is likely to be a little bit higher than the current coupon, it will have a nominal impact on earnings due to this small notional amount.

Our revolving credit facility and term loan also mature in 2025, both in October, although both have extension options that can take the maturities out to October 2026. We'll work with our bank partners and evaluate our options with respect to both of those facilities. We have ample time to do so and as of today, don't anticipate any issues recasting the revolver or addressing the term loan upon maturity, whether that's in 2025 or 2026.

In general, as we think about capital, we're committed to maintaining our target leverage levels and our investment grade credit profile, and we'll continue to evaluate all capital sources to ensure that we're meeting those objectives as well as to ensure that we're funding investments in an accretive manner.

An overview of our capital raising and deployment over the last five years, which we think highlights our capabilities as thoughtful capital allocators can be found on Page 10 of that refreshed corporate profile.

With that, I'll ask the operator to open the call for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. Our first question is from the line of Joshua Dennerlein with Bank of America. Please go ahead.

Farrell Granath

Hi, good morning. This is Farrell Granath on behalf of Josh. I just wanted to ask specifically about the pipeline that you're speaking about that you're seeing around the mid-eight caps, and I was curious across your investment segments, where are you seeing the best pricing?

Mark Olear

So the pipeline is very well distributed across all our asset classes. We've been able to maintain that pricing and align our view of value with those sellers in and around that mid-eight range. I would say that if you had to put a range on across our assets, the quick service restaurants continue to be near to the bottom of that range and the other assets are pretty consistently more consistent across the assets, but the quick service restaurants continue to demand a little higher value if within those asset classes.

Farrell Granath

Great. And are you seeing any increased competition excuse me -- increased competition across the investment space?

Mark Olear

I think the competitive landscape has remained generally the same over the last number of years. It's our REIT peers, other investors in the space. Again, our investment team has been challenged with sourcing opportunities with sellers and sellers that offer repeat business that align with our opinion value, and I think our pipeline growth in addition to the closings we've announced for the quarter generating a higher pipeline over what we announced last quarter is a testament to those efforts.

Farrell Granath

Great. Thank you so much.

Operator

Thank you. Our next question is from the line of Brad Heffern with RBC Capital Markets. Please go ahead.

Brad Heffern

Yeah. Hey, everybody, good morning. Thanks. For deals that you're pricing today, how do the spreads to the cost of capital compare to what you would consider to be normal? And how much does that change just given the rally over the past month?

Brian Dickman

Hey, Brad, it's Brian. But that obviously very fluid on both fronts and that run up in the equity prices is very, very fresh. I'd say about two weeks perhaps to the day. I'd say the things that we've closed on are in that 100 basis point area that we've been articulating for the better part of the last several quarters. Some of the assets under contract that are closer to that mid-eight area are certainly wide of that, and that's probably how I would sum it up in terms of point in time. Obviously, seeing the run up in the share price, we would need to see it stabilize at those levels to really change any views that we had in terms of where we're deploying capital. Could that lead to opportunities to increase a little bit of volume, perhaps some deals that aren't penciling today may pencil as that cost of capital flows through or I think more than likely and what you've heard from Chris and Mark, the efforts of the team to really push cap rates is can we generate some higher investment spreads and drive earnings that way.

As a sector, we all typically talk about or certainly Getty does being at 100 basis points to 150 basis point range on spread. We've been operating at the lower end of that range for a while now. And it would be certainly a nice development from our perspective if we can push up towards the wider end, but specific to your question, I'd say closed deals around that 100 basis point area, deals under contract a little bit wider than that and we'll see what we can deliver going forward.

Brad Heffern

Okay. Got it. And then on the 8% cap rates, I guess I'm a little surprised that the figure is up so much from the year-to-date figure. Is that some form of seller capitulation? And do you expect that that will ultimately end up being the peak just given that expectations for rates to go down have crystallized a little more?

Christopher Constant

Yes. I think so 8. 1% for the quarter and 7. 9% year to date. I think the real driver of that is at the Q1, we had some development fundings that were coming to their end, right? And those deals just because they're typically they're priced 12 months to 18 months ago, had some different cap rates as opposed to what a sale leaseback would be if we had signed it in 2024 or even late 2023. So I think that's what's really driving that. We've been consistently offering in the 8% range to 8% plus range for the balance of the year this year.

Brad Heffern

Okay. And do you expect that to be the peak? Or do you think that there's more upside potentially?

Christopher Constant

I think our team is tasked with finding fantastic opportunities and sourcing them and closing them at cap rates that create that spread that Brian just referenced.

Brad Heffern

Okay. Thank you.

Operator

Thank you. Our next question is from the line of Wes Golladay with Baird. Please go ahead.

Wes Golladay

Hey, good morning, everyone. Maybe a question for Brian. How are you thinking about the cost of equity versus the cost of debt? Will there be any, I guess, change in funding mix more equity or is it going to be an even balance for the deal?

Brian Dickman

Really consistent, Wes. We have a 65-35 kind of baseline equity-to-debt, capital funding model as it were. We historically haven't deviated much from that, and we don't anticipate deviating much from that. Every once in a while, you'll see situations like we saw, I guess, now 18 months ago, where the cost of equity and debt were sort of on top of each other, and we over equitized the balance sheet a little bit at that time. So we want to be thoughtful about how we're raising capital and where we're raising it, but from a general philosophy standpoint, I would say nothing has really changed and as I said in my remarks, we're going to keep those leverage levels within that range and we're going to try to execute opportunistically or as needed to maximize the investment spreads on the other side of what the guys are doing in terms of deploying the capital.

Wes Golladay

Okay. And then you mentioned you've been highly targeted on the car wash top 20 operators. Can you talk about how you're approaching the QSRs?

Christopher Constant

Yes. I mean, I think that's our newest sector, Wes. And if you think about how we approach any sector, right, for us, it's about building up that knowledge base, the underwriting, getting that database of opportunities to really understand the differences between any concepts or regions or size of restaurants or multiple drive through lanes or all those different factors. Our success in that space will be driven by how successful we are at creating relationships and getting to direct transactions with either corporate or large franchisees that meet our underwriting criteria. So again, I think we've been somewhat successful this year and kind of really making some inroads there, but it's a process. Started investing in car wash in 2019, auto service more in earnest to 2021. QRS really start in 2023. So I would make the argument we're 12 months, 18 months in there or less. It's just going to take some time, but the approach for us remains the same, focusing on sale leasebacks, supplementing that with some purchases of leases, which has been about 10% of our business or less over the last couple of years but we really need to be direct in order to build up scale in that sector.

Wes Golladay

And I guess when you're using the car wash as an example, you built the relationships and it really took off in the last few years, became a big part of the pipeline. Do you think these other sectors will be a big part of the pipeline next year? Is it going to be more really making its way into the pipeline on the acquisitions maybe at 26 items?

Christopher Constant

I think we want to be balanced across all four, right, at the end of the day. I think what we're seeing and I'll use auto service as an example, right? What we're seeing there is a lot of consolidation, There's some M&A happening in that sector. There's new store development happening in that sector and that creates opportunities for us to invest, and I'd say in the QSR space, right, we're talking to a number of folks that are looking at opening new stores, maybe more new store development as opposed to M&A, but that again, that new store growth for certain concepts is starting to create opportunities for Getty to invest.

Wes Golladay

Great. Thanks for the time, everyone.

Operator

Thank you. Our next question is from the line of Akhil Guntupalli with J.P. Morgan. Please go ahead.

Akhil Guntupalli

Good morning, everyone. I'm Akhil Goonthupalli from J.P. Morgan. Can you comment on how yields during transaction are and how do they turn out after they enter into an actual sale leaseback? How do the dynamics play out here?

Christopher Constant

Sorry, can you repeat that? Sorry, we broke up a little bit.

Akhil Guntupalli

I'm sorry, I couldn't hear you.

Christopher Constant

Can you repeat that question? We were it broke up a little.

Akhil Guntupalli

Yes. Can you comment on how yields during construction are and how do they turn out after they enter into an actual sale leaseback with you guys? And what dynamics play out here?

Christopher Constant

You're asking about the yields on the development projects and how actual results are comparing to the underwriting?

Akhil Guntupalli

Yes.

Christopher Constant

So we can get a modest premium on yields for development funding. One is because of the forward commitment for future deals that we hedge against market movement. So there is a premium over a standard sale leaseback that might close in a shorter duration of time and we feel that we should be compensated for that commitment on a go forward basis. That said that is a strong program for us that when we if you listen to our comments about relationship management, repeat business, growing with active operators, we like to be a reliable source of funding to partner in lockstep with their growth, while both protecting our interest against the time horizon and the forward commitment. With development funding, I'm sorry, the second part of the question was.

Brian Dickman

Yes, I think the part, Akhil, where you're going was on the yields. The way the program is structured, it's not a situation where we have a rent and we're exposed to cost overruns such that realized yields could be less than underwritten yields. Again, if I think that's what you're asking. We're structured at applying a yield to the final construction cost, right, where we protected ourselves from cost overruns and the rent is set at that level. So from a yield perspective, the realized yields are what the underwritten yields were. Relative to the underlying property performance, the site level performance and I think we've referenced this maybe on our last call. We have several examples of stores that are exceeding the initial underwriting and then there's many that are still ramping up. A lot of these stores are very new to the portfolio. We have, believe it or not, fewer that have been operating for the full three year stabilized period or what's typically considered the stabilization period than those that are inside that timeframe. There's a long way of saying we have a lot of ramping stores and as you would expect, we're seeing some mixed performance there, but the yields that we underwrote are the yields that we're achieving from a rent perspective and on balance, I think we're seeing generally good ramp up and some properties in particular exceeding the underwritten projections.

Akhil Guntupalli

Got it. Yes, that was my question. Yes, thank you. And one last question. Does any part of your revenue growth as a function of adverse weather considering the recent hurricanes in Houston?

Mark Olear

There has been no impact from anything that's going on in Houston. I think sorry, Akhil, I think we have a little bit of a bad connection. I think if you're asking if there was any impact from some of the weather related incidents and the answer there is no. We've had no interruption of any kind of rent collections and no knowledge of any property damage or anything to that effect.

Akhil Guntupalli

Got it. Thank you for taking my questions.

Operator

Thank you. Our next question is from the line of Michael Gorman with BTIG. Please go ahead.

Michael Gorman

Yeah, thanks. Good morning, Brian. I'm sorry if I missed it, but did you lay out kind of what the market looks like if you were to go into it today to replace the $50 million in maturities for next year, both if you kind of kept it on the smaller private placement side and went to 5% to 7% or if you went to a larger 10 year offering?

Brian Dickman

No. We didn't get into any kind of pricing there. I would say, on the shorter end, we'd have to get some indicators on that level around those timeframes those durations, excuse me. Ten year, we're probably in the low 6s at this point, call it 200 plus or minus over treasury. So that would give you a 10 year and you can kind of extrapolate as to what something inside of that may look like.

Michael Gorman

Great. That's helpful, and then maybe Chris on some of the deal flow, what is the profile of the sellers look like in the market here that's north of 8% and maybe kind of what's the competitive financing market look like for them right now that's driving them into that 8% grade range?

Christopher Constant

So it's a mix, right, of like what I'd say a small M&A, but a lot of new store development, Mike, is what's driving some of that or some simple balance sheet management. I think in general, what we've seen is the smaller M&A, it's a small operator, has built up 5, 10, 15 stores and is looking to exit and typically that works with one of our kind of regional -- super regional tenants, right, they can do sort of a tuck in acquisition there, and the competitive market, right, tends to be the bank market, right, in a various form that that can take, right? So if you think about where floating rates are and what have you that kind of mid 8% number is pretty competitive. So it's a nice -- we're in a nice spot there in terms of being able to work with some existing tenants, help them continue to grow and provide what we think is competitively priced capital.

Michael Gorman

Got it. That's helpful. Thanks, and then maybe just one last one zooming out a little bit and more strategically. When you think about the geographical footprint of the portfolio as you expand more into the other product types, is the geographical footprint that you're targeting or as you think about it the same across all of them? Are you does what you target for the car wash portfolio look different than the National C-Store portfolio footprint? And just how should we think about the weightings geographically amongst the different parts of the portfolio?

Mark Olear

Yes. I mean, we still lead with real estate, Mike. So that's going to take a look at what market is the property or portfolio in, is it a top fifty or top 100 MSA? And then where are the properties themselves weighted? So excuse me, located within that market. So I don't think there's any difference in the weighting of the portfolio between any of the assets that we're buying. If you look at most of what we've done over the last five or six years, it has been across the southern half of the country, but we've got some in the Midwest as well. As long as it's got strong metrics, good credit on the lease, we're certainly going to underwrite that and if it makes sense to bring it into the portfolio.

Michael Gorman

Yes, that makes sense. I guess I was just thinking about it from the behavioral aspect of like are you seeing differences in consumer trends with car washes in like the southern half of the U.S. versus the Northeast and things like that?

Mark Olear

Yes. It depends. Our car washes in the Northeast, some are located at the base of ski mountains and things like that that drive customer visits. So and maybe across the southern half of the U.S., it's more of a car wash culture. So there's definitely drivers for customer visits in different areas of the country and those may not always be the same, but anything we're looking at doing regardless of where it's in the country, right, we're underwriting that market and we're working with the tenants to understand their business model or how they're going to attract memberships or customers at the site. So I think, again, it's not always the same and certain portfolios maybe look a little bit different than others, but strong revenue producers across different areas of the country.

Michael Gorman

Great. Thanks for the time, guys.

Operator

Thank you. Our next question is from the line of Upal Rana with KeyBanc Capital Markets. Please go ahead.

Upal Rana

Hey, good morning. Thanks for taking my question. Most of my questions were answered already, but Chris, you mentioned that there's still some uncertainty in the transaction market and there's still a material bid ask spread. Could you give a little more color on that regarding your comments?

Mark Olear

Yes. This is Mark. So listen, there's endless amount of views on the as Chris mentioned, the macroeconomic factors, the current political landscape. So if a buyer is sitting there with the view of value that may be enhanced in their favor because of the conditions in the greater market or the political landscape and the timing is just not right. We can't do anything to force that transaction or create value in our favor. We have a model where we are confident that we can underwrite the value as we see it, and when and if those things align that's when we transact both with talked about geography, talked about asset classes, we talked about types of tenants.

So I think that there are just situations where the bid ask is just too wide to bridge, but despite that we like where not only our pipeline is, but the volume of underwriting we're seeing that has not been advanced to the disclosed pipeline. It's going through our valuation process. We're trading indications of interest with engaged sellers that they're value aligned with ours, and we're in a good spot where we think we could keep the pipeline going.

Brian Dickman

I would just say, this is Brian. Maybe to summarize it, I think what we're trying to communicate today is really a balanced message. The team here has been doing a wonderful job uncovering great opportunities. As Mark went through and Chris mentioned in his remarks, we see some additional of those opportunities in the pipeline and things that we're excited about. So we're getting a lot of traction in the market. In our view, on the one hand, obviously the stock price movement and the impact by cost of capital is also a positive. So those are the good things and those are things we're excited about and that's what we're moving forward with. On the other hand, you do have the dynamics that Mark just went through and that's unlikely to change just because there's been a run up in stock prices for two weeks, and so we're just trying to be measured with our commentary that the net lease market has undergone a fair amount of dislocation over several quarter period here and a lot of that still going to have to shake out.

Upal Rana

Okay, got it. That was helpful, and then there's been a number of tenant credit concerns across the retail space impacting some of your peers and I was wondering are there any tenants that you have concerns with within your portfolio and maybe give us an update on your existing watch list?

Christopher Constant

Yes. I'll go back to Mark's, this is Chris. I'll go back to Mark's section. Our tenant rent coverage has been fairly consistent over the last four or five years at that 2.6 level. We do have an active dialogue because of our strategy with respect to asset management and growth of dialogue with our unitary lease tenants. So there's no one on a specific watch list today that we're concerned about from a credit perspective. Given that we have more than 1100 properties, there's a constant dialogue with those tenants about individual assets, and do we put capital in? Do we move them for redevelopment or some other option during the term of that lease, but it's really the way we look at the watch list, it's really on almost a site level basis and it's been fairly consistent, but credit concerns in the portfolio today, there's nothing that's noteworthy.

Upal Rana

Okay, got it. And what do you normally bake into your guidance in terms of credit loss?

Mark Olear

Yes. We use about a 10 basis point assumption for that and it's actually something we have in the refreshed corporate profile I referenced, if you look at page eight, you can see over the last five years, actual uncollected rent is less than that, but so it's been de minimis and that's a good thing of course, but we use roughly 10 basis points in our projections.

Upal Rana

Okay, great. Thanks for taking my questions.

Operator

Thank you. Our next question is from the line of Mitch Germain with Citizens JMP Securities. Please go ahead.

Mitch Germain

Hey, thanks. Chris, you mentioned the word balance when you talked about the four asset classes you're investing in. So is it kind of the long term view to kind of even everything out over time?

Christopher Constant

Yes. I think from a new investment perspective, Mitch, that would be our ultimate goal, right? We're certainly not there. If you look at our underwriting, it's certainly still weighted probably towards C-Store. Car wash and auto service would be depending on quarter to quarter, second and third just given the various opportunities that come in or that are sourced by us. So longer term, I think new investments we'd love to see be more balanced and obviously, there'll be some variability in that year to year just given our business model. With all that said, given that we several years ago, we were at 99% convenience assets, we will be weighted towards the C-Store for a very long time, but going forward, we're building out the team, building up our capabilities that new investments should be far more balanced.

Mitch Germain

Okay. I understand now, and then to that point, we're not seeing a lot of traction in the C-Store investment front. Is it a function of pricing or are you making it a little bit of -- is it a little bit intentional that you're not allocating capital to that sector today?

Christopher Constant

Yes, it's certainly not intentional. As I said a moment ago, most probably the majority of our underwriting continues to be the C-Stores sector. I'll go back to our model, right? I mean, there's a lot that we see in the sector that maybe is a fantastic operation that doesn't fit our real estate underwriting criteria. Maybe it's not in the top 50 or top 100 market. We passed on a transaction for any other reason. It really I wouldn't read too much into what closes in any given quarter or even any six-month period. There's a lot out there to work on in all of the sectors. And again, we continue to like the C-Store and want to grow our C-Store portfolio, and that's the plan going forward.

Mitch Germain

Thank you.

Operator

Thank you. As there are no further questions, I now hand the conference over to Christopher Constant for his closing comments.

Christopher Constant

Thank you, operator. Thank you everyone for joining us for our call today. We look forward to getting back out with anybody in late October when we report our Q3 results and we appreciate your interest in Getty.

Operator

Thank you. The conference of Getty Realty has now concluded. [Operator Closing Remarks].