Getty Realty - Q2 2024
July 25, 2024
Transcript
Operator (participant)
Good morning, and welcome to Getty Realty Second Quarter 2024 Earnings Call. This call is being recorded. After the presentation, there will be an opportunity to ask questions. 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.
Joshua Dicker (EVP, General Counsel and Secretary)
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 operating results for the quarter ended June 30, 2024. The Form 8-K and earnings release are available in the investor relations section of our website at gettyrealty.com. Certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. These statements 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 2024 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, 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 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.
Christopher Constant (CEO)
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 will provide commentary on the continued resilience of our convenience 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-through 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, 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 compiles 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 food service.
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% increase in average monthly gross profit from food service 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 in our portfolio for at least one full year. The growth in revenues for the 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 and subsequent run-up in net lease REIT share prices, we expect continued challenges in the transaction and 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've 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 (COO)
Thank you, Chris. As of the end of the quarter, our lease portfolio included 1,119 net lease properties and 2 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 4-5 years, demonstrating the resiliency of our tenants' businesses despite macroeconomic volatility we've experienced in that timeframe.
Turning to our investment activities, we had another strong quarter, which 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., $26 million. Seven express tunnel car washes located in various markets in the U.S. for $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 and are under construction or will be acquired via sale-leaseback transaction at the end of the project's respective 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 was 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 4 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 the 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 3 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 dispositions in the quarter, but did exit one lease property.
Overall, 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 an increase in the 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, which 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 the remainder of the year.
With that, I will turn the call over to Brian.
Brian Dickman (CFO)
Thanks, Mark. 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 may reference it from time to time, so 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 30th, 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-$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 last 5 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 30th, 2024, was $185 million, an increase of 15.6% over the $160 million we reported as of June 30th, 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 non-recurring retirement and severance costs, which is the G&A that flows through at 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. I'd also 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 30th, 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 4.5-5.5 times, 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 30th. Looking at access to capital, and as of June 30th, we had 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, with 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 a 5- or 7-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. And while pricing is likely to be at least a little bit higher than the current coupon, it'll have a nominal impact on earnings due to the 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 will ask the operator to open the call for questions.
Operator (participant)
Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question is from the line of Joshua Dennerlein with Bank of America. Please go ahead.
Farrell Granath (Equity Research Associate)
Hi, good morning. This is Farrell Granath on behalf of Josh. I just wanted to ask specifically about the pipeline that you were speaking about, that you're seeing around the mid-eight caps. I was curious, across your investment segments, where are you seeing the best pricing?
Mark Olear (COO)
So, the pipeline is very well distributed across all our asset classes. You know, we've been able to maintain that pricing and, you know, 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 nearer to the bottom of that range, and the other assets are pretty consistently, you know, more consistent across the assets. But, the quick service restaurants continue to demand a little higher value if within those asset classes.
Farrell Granath (Equity Research Associate)
Great. Are you seeing any increased competition, excuse me, increased competition across, the investment space?
Mark Olear (COO)
I think the competitive landscape has remained generally the same over the last number of years. You know, it's our REIT peers, other investors in the space. Again, our investment team has been challenged with, you know, sourcing opportunities, with sellers and sellers that want to repeat business that align with our opinion of value. I think our pipeline, 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 (Equity Research Associate)
Great. Thank you so much.
Operator (participant)
Thank you. Our next question is from the line of Brad Heffern with RBC Capital Markets. Please go ahead.
Brad Heffern (Director)
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 (CFO)
Hey, Brad, it's Brian. But obviously very fluid on both fronts. And that run-up in the equity prices is very, very fresh. I'd say, you know, about 2 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. You know, obviously, seeing the run-up in the share price, we would need to see it, you know, stabilize at those levels to really change any views that we had in terms of where we're deploying capital.
You know, 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, you know, push cap rates is, can we generate some higher investment spreads and drive earnings that way? You know, as a sector, we all typically talk about, or certainly Getty does, you know, being at a 100-150 basis point range on spread, and we've been operating at the lower end of that range for a while now, and it would be, you know, 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 points area, deals under contract a little bit wider than that, and we'll see what we can deliver going forward.
Brad Heffern (Director)
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'll ultimately end up being the peak, just given that, you know, expectations for rates to go down have crystallized a little more?
Christopher Constant (CEO)
Yeah, I think, you know, so 8.1% for the quarter and 7.9% year to date. I think the real driver of that is that the first quarter, we had some development fundings that were coming to their end, right? And those deals, just because they're typically, they're priced, you know, 12-18 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, we've been consistently offering in the 8% range to 8%+ range for the balance of the year, this year.
Brad Heffern (Director)
Okay. And do you expect that to be the peak, or do you think that there's more upside potentially?
Christopher Constant (CEO)
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 (Director)
Okay, thank you.
Operator (participant)
Thank you. Our next question is from the line of Wes Golladay with Baird. Please go ahead.
Wesley Golladay (Senior Research Analyst)
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 gonna be an even balance for the deal?
Brian Dickman (CFO)
... Really consistent, Wes. We have a 65-35 kind of baseline equity to debt, you know, capital funding model, as it were. We historically haven't deviated much from that, and we don't anticipate deviating much from that. You know, 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 wanna be thoughtful about how we're raising capital and where we're raising it. But from a general philosophy standpoint, I would say, you know, nothing has really changed.
You know, as I said in my remarks, we're gonna keep those leverage levels within that range, and we're gonna try to execute opportunistically or as needed to maximize the investment spreads, you know, on the other side of what the guys are doing in terms of deploying the capital.
Wesley Golladay (Senior Research Analyst)
Okay. And then you, you mentioned you've been highly targeted on the car wash, you know, top 20 operators. Can you talk about how you're approaching the QSRs?
Christopher Constant (CEO)
Yeah, I mean, I think, you know, so certainly that's our newest sector, Wes. And, you know, if you think about how we approach any sector, right, for us, it's about building up that knowledge base, you know, 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. You know, so I, again, I think we've been somewhat successful this year in kind of really making some inroads there. But it's a process.
You know, started investing in car wash in 2019, auto service more in earnest in 2021. QSR, we really started in 2023. So I, I would make the argument we're 12-18 months in there and more or less, it's just gonna take some time. But it, the approach for us remains the same: focusing on sale-leasebacks, supplementing that with some purchases of leases, which has been about, you know, 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.
Wesley Golladay (Senior Research Analyst)
I guess when you're using a car wash as an example, you built the relationships, and then it really took off through 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 gonna be more, you know, really making its way into the pipeline on the acquisitions, maybe a 26 item?
Christopher Constant (CEO)
Yeah. I think we wanna be balanced across all four, right? At the end of the day. You know, I think what we're seeing in... I'll use auto service as an example, right, is 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 getting to invest.
Wesley Golladay (Senior Research Analyst)
Great. Thanks for the time, everyone.
Operator (participant)
Thank you. Our next question is from the line of Akhil Guntupalli with JPMorgan. Please go ahead.
Akhil Guntupalli (Equity Research Analyst)
Good morning, everyone. I'm Akhil Guntupalli from JPMorgan. Can you comment on how yields during construction are, and how do they turn out after they enter into an actual sale-leaseback? How do the dynamics play out here?
Christopher Constant (CEO)
Sorry, can you repeat that? Sorry, we broke up a little bit, Akhil.
Operator (participant)
I'm sorry, I couldn't hear you.
Christopher Constant (CEO)
Can you repeat that question? We were. It broke up on our end.
Akhil Guntupalli (Equity Research Analyst)
Yeah, yeah, got it. 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? What dynamics play out here?
Brian Dickman (CFO)
You're asking about the yields on the development projects and how actual results are comparing to the underwriting?
Akhil Guntupalli (Equity Research Analyst)
Yeah.
Christopher Constant (CEO)
So we do get a modest premium on yields for development funding. One is because of a forward commitment for future deals that we hedge against market, you know, 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, you know, that commitment on a go-forward basis. That said, that is a strong program for us that, you know, if you listen to our comments about relationship management, you know, repeat business, you know, growing with active operators, you know, we like to be a reliable source of funding to partner in lockstep with their growth, while both protecting, you know, our interest against the, you know, the time horizon and the forward commitment.
With development funding, I'm sorry, the second part of the question was?
Brian Dickman (CFO)
Yeah, I think, I think the part, Akhil, where you were going was on the yields. You know, 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, you know, we're structured at applying a yield to the final construction cost. Right, where we've 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. Which is 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.
You know, on balance, I think we're seeing generally good ramp up, and some properties in particular exceeding the underwritten projections.
Akhil Guntupalli (Equity Research Analyst)
Oh, got it. Yeah, that was my question. Yeah, thank you. And one last question. Does any part of your revenue growth a function of adverse weather, considering the recent hurricanes in Houston?
Brian Dickman (CFO)
There has been no impact from anything that was going on in Houston. I think. Sorry, can we have a little bit of a bad connection with you? But 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.
Christopher Constant (CEO)
Got it. Thank you for taking my questions.
Brian Dickman (CFO)
Thank you.
Operator (participant)
Thank you. Our next question is from the line of Michael Gorman with BTIG. Please go ahead.
Michael Gorman (Managing Director)
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 5-7, or if you went to a larger 10-year offering?
Brian Dickman (CFO)
No, we didn't get into any kind of pricing there. I would say on the shorter end, we'd have to get some indicatives on that level, you know, around those time frames, those durations, excuse me. You know, 10-year, we're probably in the low sixes at this point. You know, call it 200 ± 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 (Managing Director)
Great, that's helpful. And then, maybe, Chris, on some of the deal flow, what does the profile of the sellers look like in the market here that's north of 8%? And maybe kind of what's their-- what's the competitive financing market look like for them right now that's driving them into that 8% cap rate range?
Christopher Constant (CEO)
Yeah.
So, it's a mix, right, of, 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, or some simple balance sheet management. You know, I, I think in general, you know, what we've seen is, you know, the smaller M&A, it is—it's a small operator, you know, has built up, you know, 5, 10, 15 stores and is looking to exit. And typically, that, that works with one of our kind of regional, super regional tenants, right? They can do sort of a tuck-in acquisition there. And, you know, the competitive market, right, tends to be the bank market, right, in, in any various form that that can take, right?
So if you think about where, you know, floating rates are and what have you, you know, off that kind of mid-8% number is pretty competitive. So it's a nice... Yeah, 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 (Managing Director)
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, is the geographical footprint that you're targeting, or as you think about it, the same across all of them? Or does what you target for the car wash portfolio look different than the national C-store portfolio footprint? And, and just how should we think about the weightings geographically amongst the different parts of the portfolio?
Christopher Constant (CEO)
Yeah, I mean, we still, we still lead with real estate, Mike. So, you know, what, that's gonna take a look at, you know, what market is the property or portfolio in? Is it a top 50 or top 100 MSA? And then, and then where are the properties themselves weighted? So, excuse me, located within that market. So I, I don't think there's any difference in the weighting of the portfolio between any of the, the assets that we're buying. You know, if you look at most of what we've done over the last, you know, five or six years, it has been across the southern half of the country. But we've, we've done some in the Midwest as well.
You know, as long as it's got strong, strong metrics, you know, good credit on the lease, you know, we're certainly, you know, gonna underwrite that, and if it makes sense to bring it into the portfolio.
Michael Gorman (Managing Director)
Yeah, 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, and things like that?
Christopher Constant (CEO)
Yeah, you know, 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 any, you know, 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 tenant to understand, you know, that 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 you know, certain portfolios maybe look a little bit different than others, but strong, you know, strong revenue producers across different areas of the country.
Michael Gorman (Managing Director)
Great. Thanks for the time, guys.
Operator (participant)
Thank you. Our next question is from the line of Upal Rana with KeyBanc Capital Markets. Please go ahead.
Upal Rana (Director and Equity Research Analyst)
Hey, good morning. Thanks for taking my question. Most of my questions were answered already, but, you know, Chris, you mentioned that there's still some uncertainty in the transaction market, and there's still a material bid-ask spread. You know, could you give a little more color on that, regarding your comments?
Mark Olear (COO)
Yeah, this is Mark. So listen, you know, there's an endless amount of views on the... As Chris mentioned, the macroeconomic factors, the current political landscape. So, you know, if a buyer is sitting there with a 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's just not right, we can't do anything to force that transaction or create value in our favor. You know, 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, you know, we talked about geography, we talked about asset classes, we talked about types of tenants.
So, you know, I think that there are just situations where the bid-ask is just too wide to bridge. But, you know, despite that, you know, 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, where we're trading indications of interest with engaged sellers, that their value align with ours, and, you know, we're in a good, good spot where we think we could keep the pipeline going, keep the pipeline going.
Brian Dickman (CFO)
Yeah. Well, I would just say, this is Brian, you know, to maybe summarize, 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, you know, 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 on 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, you know, 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, you know, with our commentary that the net lease market, you know, has undergone a fair amount of dislocation over a several quarter period here, and a lot of that's still gonna have to shake out.
Upal Rana (Director and Equity Research Analyst)
Okay, got it. That, that was helpful. And then, you know, there's been a number of tenant credit concerns across the retail space impacting some of your peers. And, you know, I was wondering, are there any tenants in that you have concerns with within your portfolio? And maybe give us an update on your existing watchlist.
Christopher Constant (CEO)
Yeah, I mean, it's. This is Chris. I'll go back to Mark's section. I mean, our tenant rent coverage has been fairly consistent over the last four or five years at that 2.6 level. You know, we do have an active dialogue because of our strategy with respect to asset management and growth, dialogue with our unitary lease tenants. So, there's no one on a specific watchlist today that we're concerned about from a credit perspective. Given that we have more than 1,100 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 watchlist, 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 (Director and Equity Research Analyst)
Okay, got it. What do you normally bake into your guidance in terms of credit loss?
Brian Dickman (CFO)
Yeah, 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 8, you can see over the last 5 years actual uncollected rent is less than that. But so it, 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 (Director and Equity Research Analyst)
Okay, great. Thanks for taking my questions.
Operator (participant)
Thank you. Our next question is from the line of Mitch Germain with JMP Securities. Please go ahead.
Mitch Germain (Managing Director)
Hey, thanks. Chris, you mentioned the word balance when you talked about the four asset classes you're investing in. So is it, you know, kind of the long-term view to kind of even everything out over time?
Christopher Constant (CEO)
Yeah, 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, you know, 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, be more balanced, and, 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%, you know, convenience assets, you know, we, we will be weighted towards the C-store for a very long time.
But going forward, we're building out the team and building up our capabilities, that new investments should be far more balanced.
Mitch Germain (Managing Director)
Okay, I understand now. And then, to that point, you know, we're not seeing a lot of traction in the C-store investment front. Is it a function of pricing? Or is it a little bit intentional that you're not allocating capital to that sector today?
Christopher Constant (CEO)
Yeah, it's certainly not intentional. You know, we're-- as I said a moment ago, most, probably the majority of our underwriting continues to be the C-store sector. I'll go back to our model, right? I mean, a lot-- 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, you know, or we pass on a transaction for any other reason. It really... I wouldn't read too much into, you know, what closes in any given quarter or even any six-month period. There's a lot out there to work on in all 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 (Managing Director)
Thank you.
Operator (participant)
Thank you. As there are no further questions, I now hand the conference over to Christopher Constant for his closing comments.
Christopher Constant (CEO)
Thank you, operator. And thank you, everyone, for joining us for our call today. We look forward to getting back on with anybody in late October when we report our third quarter results, and we appreciate your interest in Getty.
Operator (participant)
Thank you. The conference of Getty Realty has now concluded. Thank you for your participation. You may now disconnect your lines.