What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-22 compared with 2020-07-23 · 128 added, 126 removed, 301 unchanged (46% of the section changed)

16 unchanged sentences

our prospective future environmental liabilities, including those resulting from preexisting unknown environmental contamination;

the impact of the COVID-19 pandemic on our business and results of operations;

our expectations regarding our growth strategy;

quantifiable trends, which we believe allow us to make reasonable estimates of fair value for the future costs of environmental remediation resulting from the removal and replacement of USTs;

the impact of our redevelopment efforts related to certain of our properties;

the origination of certain construction loans for the construction of income-producing properties;

the amount of revenue we expect to realize from our properties;

26 unchanged sentences

complying with environmental laws and regulations and the costs associated with complying with such laws and regulations;

substantially all of our tenants depending on the same industry for their revenues;

substantially all of our tenants depending on the same

industry for their revenues;

the creditworthiness of our tenants;

39 unchanged sentences

We are a REIT specializing in the ownership, leasing and financing of convenience store and gasoline station properties.

As of June 30, 2020, we owned 887 properties and leased 59 properties from third-party landlords.

As of September 30, 2020, we owned 896 properties and leased 58 properties from third-party landlords.

As a REIT, we are not subject to federal corporate income tax on the taxable income we distribute to our stockholders.

3 unchanged sentences

While we have not incurred significant disruptions to our financial results thus far from the COVID-19 pandemic, we are unable to accurately predict the impact that COVID-19 will have on our business, operations and financial result due to numerous evolving factors, including the severity of the disease, the duration of the pandemic, actions that may be taken by governmental authorities, the impact to our tenants, including the ability of our tenants to make their rental payments and any closures of tenants’ facilities.

Additionally, while we expect to resume our overall growth strategy during the third quarter of 2020 and to fund our business operations from cash flows from our properties and our Revolving Facility, the rapid developments and fluidity of COVID-19 may cause us to re-evaluate, if not suspend, our growth strategy and/or to rely more heavily on borrowings under our Revolving Facility, proceeds from the sale of shares of our common stock under our ATM Program, or other sources of liquidity.

We will continue to evaluate the nature and extent of the impact of this situation to our business, consolidated results of operations, liquidity and financial condition and whether or to what extent we need to adjust our business, operations or investment, financing, redevelopment or growth strategies during the third quarter of 2020 or thereafter.

Additionally, while we expect to continue our overall growth strategy during the fourth quarter of 2020 and to fund our business operations from cash flows from our properties and our Revolving Facility, the rapid developments and fluidity of COVID-19 may cause us to re-evaluate, if not suspend, our growth strategy and/or to rely more heavily on borrowings under our Revolving Facility, proceeds from the sale of shares of our common stock under our ATM Program, or other sources of liquidity.

Our Triple-Net Leases

Substantially all of our properties are leased on a triple-net basis primarily to petroleum distributors, convenience store retailers and, to a lesser extent, automotive service and other retail operators.

Generally, our tenants supply fuel and either operate our properties directly or sublet our properties to operators who operate their convenience stores, gasoline stations, automotive service or other retail businesses at our properties.

Our triple-net lease tenants are responsible for the payment of all taxes, maintenance, repairs,

insurance and other operating expenses relating to our properties, and are also responsible for environmental contamination occurring during the terms of their leases and in certain cases also for environmental contamination that existed before their leases commenced.

Generally, our tenants supply fuel and either operate our properties directly or sublet our properties to operators who operate their convenience stores, gasoline stations, automotive service or

other retail businesses at our properties.

Our triple-net lease tenants are responsible for the payment of all taxes, maintenance, repairs, insurance and other operating expenses relating to our properties, and are also responsible for environmental contamination occurring during the terms of their leases and in certain cases also for environmental contamination that existed before their leases commenced.

Substantially all of our tenants’ financial results depend on the sale of refined petroleum products, convenience store sales or rental income from their subtenants.

5 unchanged sentences

Our Properties

As of June 30, 2020, we leased 929 of our properties to tenants under triple-net leases.

As of September 30, 2020, we leased 939 of our properties to tenants under triple-net leases.

Our net lease properties include 820 properties leased under 29 separate unitary or master triple-net leases and 119 properties leased under single unit triple-net leases.

3 unchanged sentences

Redevelopment .

As of June 30, 2020, we were actively redeveloping six of our properties either as a new convenience and gasoline use or for alternative single-tenant net lease retail uses.

As of June 30, 2020, eleven of our properties were vacant.

As of September 30, 2020, we were actively redeveloping seven of our properties either as a new convenience and gasoline use or for alternative single-tenant net lease retail uses.

As of September 30, 2020, eight of our properties were vacant.

We expect that we will either sell or enter into new leases on these properties over time.

1 unchanged sentence

As part of our overall growth strategy, we regularly review acquisition and financing opportunities to invest in additional convenience store and gasoline station, and other automotive related properties.

While we expect to continue to pursue investments that we believe will benefit our financial performance consistent with our overall growth strategy, we are continuing to monitor the impact of COVID-19 to our business, and the rapid developments and fluidity of this situation may cause us to moderate, if not suspend, our acquisition activities or reevaluate our financing activities.

In addition to sale/leaseback and other real estate acquisitions, our investment activities include purchase money financing with respect to properties we sell, and real property loans relating to our leasehold portfolios.

While we expect to continue to pursue investments that we believe will benefit our financial performance consistent with our overall growth strategy, we are continuing to monitor the impact of COVID-19 on our business, and the rapid developments and fluidity of this situation may cause us to moderate, if not suspend, our acquisition activities or reevaluate our financing activities.

In addition to sale/leaseback and other real estate acquisitions, our investment activities include purchase money financing with respect to properties we sell, real property loans relating to our leasehold portfolios and construction loans.

Our investment strategy seeks to generate current income and benefit from long-term appreciation in the underlying value of our real estate.

1 unchanged sentence

A key element of our investment strategy is to invest in properties that will promote geographic and tenant diversity in our property portfolio.

During the six months ended June 30, 2020, we acquired fee simple interests in 15 convenience store and gasoline station, and other automotive related properties for an aggregate purchase price of $68.7 million.

During the six months ended June 30, 2019, we acquired fee simple interests in nine convenience store and gasoline station, and other automotive related properties for an aggregate purchase price of $29.7 million.

During the nine months ended September 30, 2020, we acquired fee simple interests in 24 convenience store and gasoline station, and other automotive related properties for an aggregate purchase price of $104.8 million.

During the nine months ended September 30, 2019, we acquired fee simple interests in 14 convenience store and gasoline station, and other automotive related properties for an aggregate purchase price of $43.3 million.

Redevelopment Strategy and Activity

1 unchanged sentence

We believe that the redeveloped properties can be leased or sold at higher values than their current use.

For the six months ended June 30, 2020, rent commenced on four completed redevelopment projects that were placed back into service in our net lease portfolio.

For the nine months ended September 30, 2020, rent commenced on five completed redevelopment projects that were placed back into service in our net lease portfolio.

Since the inception of our redevelopment program in 2015, we have completed 18 redevelopment projects.

During the six months ended June 30, 2020, we transferred $1.2 million of construction-in-progress to buildings and improvements on our consolidated balance sheets.

As of June 30, 2020, we were actively redeveloping six of our properties either as a new convenience and gasoline use or for alternative single-tenant net lease retail uses.

In addition to the six properties currently classified as redevelopment, we are in various stages of feasibility and planning for the recapture of select properties from our net lease portfolio that are suitable for redevelopment to either a new convenience and gasoline use or for alternative single-tenant net lease retail uses.

As of June 30, 2020, we have signed leases on three properties, that are currently part of our net lease portfolio, which will be recaptured and transferred to redevelopment when the appropriate entitlements, permits and approvals have been secured.

While we expect to continue to pursue our

redevelopment strategy, we are continuing to monitor the impact of COVID-19 to our business, and the rapid developments and fluidity of this situation may cause us to moderate, if not suspend, our redevelopment activities .

During the nine months ended September 30, 2020, we transferred $1.2 million of construction-in-progress to buildings and improvements on our consolidated balance sheets.

As of September 30, 2020, we were actively redeveloping seven of our properties either as a new convenience and gasoline use or for alternative single-tenant net lease retail uses.

In addition to the seven properties currently classified as redevelopment, we are in various stages of feasibility and planning for the recapture of select properties from our net lease portfolio that are suitable for redevelopment to either a new convenience and gasoline use or for alternative single-tenant net lease retail uses.

As of September 30, 2020, we have signed leases on five properties, that are currently part of our net lease portfolio, which will be recaptured and

transferred to redevelopment when the appropriate entitlements, permits and approvals have been secured .

While we expect to continue to pursue our redevelopment strategy, we are continuing to monitor the impact of COVID-19 to our business, and the rapid developments and fluidity of this situation may cause us to moderate, if not suspend, our redevelopment activities .

Asset Impairment

We perform an impairment analysis for the carrying amounts of our properties in accordance with GAAP when indicators of impairment exist.

We reduced the carrying amounts to fair value, and recorded impairment charges aggregating $0.5 million and $1.5 million for the three and six months ended June 30, 2020, respectively, and $0.7 million and $1.5 million for the three and six months ended June 30, 2019, where the carrying amounts of the properties exceed the estimated undiscounted cash flows expected to be received during the assumed holding period which includes the estimated sales value expected to be received at disposition.

We reduced the carrying amounts to fair value, and recorded impairment charges aggregating $1.3 million and $2.9 million for the three and nine months ended September 30, 2020, respectively, and $0.9 million and $2.4 million for the three and nine months ended September 30, 2019, where the carrying amounts of the properties exceed the estimated undiscounted cash flows expected to be received during the assumed holding period which includes the estimated sales value expected to be received at disposition.

The impairment charges were attributable to the effect of adding asset retirement costs due to changes in estimates associated with our environmental liabilities, which increased the carrying values of certain properties in excess of their fair values, reductions in estimated undiscounted cash flows expected to be received during the assumed holding period for certain of our properties, and reductions in estimated sales prices from third-party offers based on signed contracts, letters of intent or indicative bids for certain of our properties.

25 unchanged sentences

In our view, AFFO provides a more accurate depiction than FFO of our core operating performance .

By providing AFFO, we believe that we are

presenting useful information that assists analysts and investors to better assess our core operating performance.

By providing AFFO, we believe that we are presenting useful information that assists analysts and investors to better assess our core operating performance.

Further, we believe that AFFO is useful in comparing the sustainability of our core operating performance with the sustainability of the core operating performance of other real estate companies.

1 unchanged sentence

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Depreciation and amortization of real estate assets

18 unchanged sentences

Results of Operations

The following discussion describes our results of operations for the three months ended June 30, 2020.

While the COVID-19 pandemic did not have a material adverse effect on our reported results for our fiscal first and second quarters of 2020, we are actively monitoring the impact of COVID-19, which may negatively impact our business and results of operations for subsequent quarters.

During the quarter ended June 30, 2020, we received contractual base rent and mortgage payments from 96% of our tenants or mortgagors, as applicable.

The following discussion describes our results of operations for the three and nine months ended September 30, 2020.

While the COVID-19 pandemic did not have a material adverse effect on our reported results for the nine months ended September 30, 2020, we are actively monitoring the impact of COVID-19, which may negatively impact our business and results of operations for subsequent quarters.

During the quarter ended September 30, 2020, we received contractual base rent and mortgage payments from 98% of our tenants or mortgagors, as applicable.

We granted a small number of short-term rent or mortgage payment relief requests, most of them in the form of deferral of payments.

1 unchanged sentence

Not all of the requests made to the Company resulted in agreements and, except for short term payment deferrals or, in a limited number of cases, abatements, we did not waive any of our contractual rights under our lease agreements or mortgages.

As of July 23, 2020, we received contractual base rent and mortgage payments from 98% of our tenants or mortgagors, as applicable.

July collections and rent or mortgage payment relief requests to date may not be indicative of collections or requests in any future period.

Accordingly, the full impact of COVID-19 on our rental revenue or interest income for the third quarter of 2020 and thereafter cannot be definitively determined at present.

Three months ended June 30, 2020, compared to the three months ended June 30, 2019

Revenues from rental properties increased by $2.7 million to $36.3 million for the three months ended June 30, 2020, as compared to $33.6 million for the three months ended June 30, 2019.

As of October 22, 2020, we had received October contractual base rent and mortgage payments from 98% of our tenants or mortgagors, as applicable.

October collections and rent or mortgage payment relief requests to date may not be indicative of collections or requests in any future period.

Accordingly, the full impact of COVID-19 on our rental revenue or interest income for the fourth quarter of 2020 and thereafter cannot be definitively determined at present.

Three months ended September 30, 2020, compared to the three months ended September 30, 2019

Revenues from rental properties increased by $1.5 million to $37.2 million for the three months ended September 30, 2020, as compared to $35.7 million for the three months ended September 30, 2019.

The increase in revenues from rental properties was primarily due to $2.5 million of revenue from newly acquired properties along with contractual rent increases, partially offset by a decrease in revenue recognition adjustments of $0.3 million.

Rental income contractually due from our tenants included in revenues from rental properties was $31.8 million for the three months ended June 30, 2020, as compared to $29.5 million for the three months ended June 30, 2019.

were $ 4.6 million and $ 3.

9 million for the three months ended June 30, 2020 and 2019 , respectively.

Rental income contractually due from our tenants included in revenues from rental properties was $32.0 million for the three months ended September 30, 2020, as compared to $30.1 million for the three

months ended September 30, 2019 .

T enant reimbursements, which are included in revenues from rental properties, and which consist of real estate taxes and other municipal charges paid by us which are reimbursable by our tenants pursuant to the terms of triple-net lease agreements , were $ 5.3 million and $ 5.4 million for the three months ended September 30, 2020 and 2019 , respectively.

Interest income on notes and mortgages receivable was $0.

7 million for the three months ended June 30, 2020 and 2019 .

7 million for the three months ended September 30, 2020 and 2019 .

In accordance with GAAP, we recognize revenues from rental properties in amounts which vary from the amount of rent contractually due during the periods presented.

As a result, revenues from rental properties include Revenue Recognition Adjustments comprised of non-cash adjustments recorded for deferred rental revenue due to the recognition of rental income on a straight-line basis over the current lease term, the net amortization of above-market and below-market leases, recognition of rental income under direct financing leases using the effective interest rate method which produces a constant periodic rate of return on the net investments in the leased properties and the amortization of deferred lease incentives.

Revenues from rental properties includes Revenue Recognition Adjustments which decreased rental revenue by $0.1 million and increased rental revenue by $0.2 million for the three months ended June 30, 2020 and 2019, respectively.

Property costs, which are primarily comprised of rent expense, real estate and other state and local taxes, municipal charges, professional fees, maintenance expense and reimbursable tenant expenses, were $6.4 million for the three months ended June 30, 2020, as compared to $5.6 million for the three months ended June 30, 2019.

The increase in property costs for the three months ended June 30, 2020, was principally due to an increase in reimbursable real estate taxes and professional fees related to properties.

Impairment charges were $0.5 million for the three months ended June 30, 2020, as compared to $0.7 million for the three months ended June 30, 2019.

Property costs, which are primarily comprised of rent expense, real estate and other state and local taxes, municipal charges, professional fees, maintenance expense and reimbursable tenant expenses, were $6.6 million for the three months ended September 30, 2020, as compared to $7.3 million for the three months ended September 30, 2019.

The decrease in property costs for the three months ended September 30, 2020, was principally due to a decrease in rent expense, professional fees and maintenance expense related to property redevelopments.

Impairment charges were $1.3 million for the three months ended September 30, 2020, as compared to $0.9 million for the three months ended September 30, 2019.

Impairment charges are recorded when the carrying value of a property is reduced to fair value.

Impairment charges for the three months ended June 30, 2020 and 2019, were attributable to the effect of adding asset retirement costs due to changes in estimates associated with our environmental liabilities, which increased the carrying values of certain properties in excess of their fair values, reductions in estimated undiscounted cash flows expected to be received during the assumed holding period for certain of our properties, and reductions in estimated sales prices from third-party offers based on signed contracts, letters of intent or indicative bids for certain of our properties.

Environmental expenses for the three months ended June 30, 2020 were $0.8 million, as compared to $0.9 million for the three months ended June 30, 2019.

The decrease in environmental expenses for the three months ended June 30, 2020, was principally due to a $0.3 million decrease in net environmental remediation costs and estimates, offset by $0.2 million increase in environmental legal and professional fees.

Impairment charges for the three months ended September 30, 2020 and 2019, were attributable to the effect of adding asset retirement costs due to changes in estimates associated with our environmental liabilities, which increased the carrying values of certain properties in excess of their fair values, reductions in estimated sales prices from third-party offers based on signed contracts, letters of intent or indicative bids for certain of our properties, and reductions in estimated undiscounted cash flows expected to be received during the assumed holding period for certain of our properties.

Environmental expenses for the three months ended September 30, 2020 were $18 thousand, as compared to $5.7 million for the three months ended September 30, 2019.

The decrease in environmental expenses for the three months ended September 30, 2020, was principally due to a $4.6 million decrease in environmental litigation accruals, a $0.6 million decrease in net environmental remediation costs and estimates and a $0.5 million decrease in environmental legal and professional fees.

Environmental expenses vary from period to period and, accordingly, undue reliance should not be placed on the magnitude or the direction of changes in reported environmental expenses for one period, as compared to prior periods.

General and administrative expense was $4.5 million for the three months ended June 30, 2020, as compared to $3.7 million for the three months ended June 30, 2019.

The increase in general and administrative expense for the three months ended June 30, 2020, was principally due to a $0.4 million increase in employee-related expenses and a $0.3 million increase in legal and other professional fees.

Depreciation and amortization expense was $7.3 million for the three months ended June 30, 2020, as compared to $6.2 million for the three months ended June 30, 2019.

The increase in depreciation and amortization expense for the three months ended June 30, 2020, was primarily due to depreciation and amortization of properties acquired, partially offset by the effect of certain assets becoming fully depreciated and dispositions of real estate.

Other income was $0.1 million for the three months ended June 30, 2020, as compared to $1.5 million for the three months ended June 30, 2019.

For the three months ended June 30, 2020, other income was primarily attributable to $0.1 million received from insurance carriers for reimbursement of environmental costs.

For the three months ended June 30, 2019, other income was primarily attributable to $1.4 million received from a legal settlement.

Interest expense was $6.7 million for the three months ended June 30, 2020, as compared to $6.0 million for the three months ended June 30, 2019.

The increase was due to higher average borrowings outstanding partially offset by a decrease in average interest rates on borrowing outstanding for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019.

For the three months ended June 30, 2020, FFO was $18.6 million, as compared to $19.6 million for the three months ended June 30, 2019.

For the three months ended June 30, 2020, AFFO increased by $0.5 million to $18.6 million, as compared to $18.1 million for the three months ended June 30, 2019.

FFO for the three months ended June 30, 2020, was impacted by changes in net earnings but excludes a $0.2 million decrease in impairment charges, a $0.2 million decrease in gain on dispositions of real estate and a $1.1 million increase in depreciation and amortization expense.

The increase in AFFO for the three months ended June 30, 2020, also excludes a $0.3 million decrease in environmental estimates and accretion expense, a $1.4 million decrease in legal settlements and judgements, and a $0.3 million decrease in Revenue Recognition Adjustments.

Six months ended June 30, 2020, compared to the six months ended June 30, 2019

Revenues from rental properties increased by $4.2 million to $71.0 million for the six months ended June 30, 2020, as compared to $66.8 million for the six months ended June 30, 2019.

The increase in revenues from rental properties was primarily due to $4.8 million of revenue from properties acquired in second half of 2019 and 2020, along with contractual rent increases.

Rental income contractually due from our tenants included in revenues from rental properties was $63.2 million for the six months ended June 30,

2020 , as compared to $ 5 8.6 million for the six months ended June 30, 2019 .

Tenant reimbursements, which consist of real estate taxes and other municipal charges paid by us which are reimbursable by our tenants pursuant to the terms of triple-net lease agreements , were $ 8.0 million and $ 7.

6 million for the six months ended June 30, 2020 and 2019 , respectively.

Interest income on notes and mortgages receivable was $ 1.

4 million and $1.5 million for the six months ended June 30, 2020 and 2019 , respectively .

General and administrative expense was $4.2 million for the three months ended September 30, 2020, as compared to $3.7 million for the three months ended September 30, 2019.

The increase in general and administrative expense for the three months ended September 30, 2020, was principally due to a $0.2 million increase in employee-related expenses and a $0.3 million increase in legal and other professional fees.

Depreciation and amortization expense was $7.6 million for the three months ended September 30, 2020, as compared to $6.3 million for the three months ended September 30, 2019.

The increase in depreciation and amortization expense for the three months ended September 30, 2020, was primarily due to depreciation and amortization of properties acquired, partially offset by the effect of certain assets becoming fully depreciated and dispositions of real estate.

Other income was $0.4 million for the three months ended September 30, 2020, as compared to $5.6 million for the three months ended September 30, 2019.

For the three months ended September 30, 2020, other income was primarily attributable to $0.4 million received from a legal settlement.

For the three months ended September 30, 2019, other income was primarily attributable to $4.5 million received from insurance carriers for reimbursement of environmental costs and $1.1 million received from a legal settlement.

Interest expense was $6.7 million for the three months ended September 30, 2020, as compared to $6.2 million for the three months ended September 30, 2019.

The increase was due to higher average borrowings outstanding partially offset by a decrease in average interest rates on borrowing outstanding for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.

For the three months ended September 30, 2020, FFO was $20.8 million, as compared to $19.1 million for the three months ended September 30, 2019.

For the three months ended September 30, 2020, AFFO increased by $2.1 million to $20.2 million, as compared to $18.1 million for the three months ended September 30, 2019.

FFO for the three months ended September 30, 2020, was impacted by changes in net earnings but excludes a $0.4 million increase in impairment charges, a $0.1 million increase in gain on dispositions of real estate and a $1.3 million increase in depreciation and amortization expense.

The increase in AFFO for the three months ended September 30, 2020, also excludes a $0.6 million decrease in environmental estimates and accretion expense, a $4.6

million decrease in environmental litigation accruals, a $4.5 million decrease in insurance reimbursements, a $ 0.8 million de crease in legal settlements and judgements and a $0.

3 million de crease in Revenue Recognition Adjustments .

Nine months ended September 30, 2020, compared to the nine months ended September 30, 2019

Revenues from rental properties increased by $5.7 million to $108.2 million for the nine months ended September 30, 2020, as compared to $102.5 million for the nine months ended September 30, 2019.

The increase in revenues from rental properties was primarily due to $6.0 million of revenue from properties acquired in fourth quarter of 2019 and the nine months ended September 30, 2020, along with contractual rent increases, partially offset by a decrease in revenue recognition adjustments of $1.1 million.

Rental income contractually due from our tenants included in revenues from rental properties was $95.2 million for the nine months ended September 30, 2020, as compared to $88.7 million for the nine months ended September 30, 2019.

Interest income on notes and mortgages receivable was $2.1 million and $2.2 million for the nine months ended September 30, 2020 and 2019, respectively.

In accordance with GAAP, we recognize revenues from rental properties in amounts which vary from the amount of rent contractually due during the periods presented.

Revenues from rental properties includes Revenue Recognition Adjustments which decreased rental revenue by $0.2 million and increased rental revenue by $0.6 million for the six months ended June 30, 2020 and 2019, respectively.

Property costs, which are primarily comprised of rent expense, real estate and other state and local taxes, municipal charges, professional fees, maintenance expense and reimbursable tenant expenses, were $11.3 million for the six months ended June 30, 2020, as compared to $11.1 million for the six months ended June 30, 2019.

The increase in property costs for the six months ended June 30, 2020, was principally due to an increase in reimbursable and non-reimbursable real estate taxes and professional fees related to properties, partially offset by a decrease in rent expense and professional fees related to property redevelopments.

Impairment charges were $1.5 million for the six months ended June 30, 2020 and 2019.

Revenues from rental properties includes Revenue Recognition Adjustments which decreased rental revenue by $0.3 million and increased rental revenue by $0.8 million for the nine months ended September 30, 2020 and 2019, respectively.

Property costs, which are primarily comprised of rent expense, real estate and other state and local taxes, municipal charges, professional fees, maintenance expense and reimbursable tenant expenses, were $18.0 million for the nine months ended September 30, 2020, as compared to $18.4 million for the nine months ended September 30, 2019.

The decrease in property costs for the nine months ended September 30, 2020, was principally due to a decrease in rent expense and professional fees related to property redevelopments, partially offset by an increase in real estate taxes and other professional fees.

Impairment charges were $2.9 million for the nine months ended September 30, 2020, as compared to $2.4 million for the nine months ended September 30, 2019.

Impairment charges are recorded when the carrying value of a property is reduced to fair value.

Impairment charges for the six months ended June 30, 2020 and 2019, were attributable to the effect of adding asset retirement costs due to changes in estimates associated with our environmental liabilities, which increased the carrying values of certain properties in excess of their fair values, reductions in estimated undiscounted cash flows expected to be received during the assumed holding period for certain of our properties, and reductions in estimated sales prices from third-party offers based on signed contracts, letters of intent or indicative bids for certain of our properties.

Environmental expenses for the six months ended June 30, 2020, decreased by $0.7 million to $1.1 million, as compared to $1.8 million for the six months ended June 30, 2019.

The decrease in environmental expenses for the six months ended June 30, 2020, was principally due to a decrease in net environmental estimates and accretion, partially offset by an increase in environmental legal and professional fees.

Impairment charges for the nine months ended September 30, 2020 and 2019, were attributable to the effect of adding asset retirement costs due to changes in estimates associated with our environmental liabilities, which increased the carrying values of certain properties in excess of their fair values, reductions in estimated sales prices from third-party offers based on signed contracts, letters of intent or indicative bids for certain of our properties, and reductions in estimated undiscounted cash flows expected to be received during the assumed holding period for certain of our properties.

Environmental expenses for the nine months ended September 30, 2020, decreased by $6.3 million to $1.1 million, as compared to $7.4 million for the nine months ended September 30, 2019.

The decrease in environmental expenses for the nine months ended September 30, 2020, was principally due to a $4.6 million decrease in environmental litigation accruals, a $1.3 million decrease in net environmental estimates and accretion, and a $0.4 million decrease in environmental legal and professional fees.

General and administrative expense was $8.6 million for the six months ended June 30, 2020, as compared to $7.7 million for the six months ended June 30, 2019.

The increase in general and administrative expense for the six months ended June 30, 2020, was principally due to $0.8 million increase in employee-related expenses and a $0.2 million increase in legal and other professional fees, partially offset by a $0.3 million decrease of non-recurring employee-related expenses attributable to retirement costs.

Depreciation and amortization expense was $14.4 million for the six months ended June 30, 2020, as compared to $12.3 million for the six months ended June 30, 2019.

The increase in depreciation and amortization expense for the six months ended June 30, 2020, was primarily due to depreciation and amortization charges related to properties acquired, partially offset by the effect of certain assets becoming fully depreciated and dispositions of real estate.

Other income was $0.6 million for the six months ended June 30, 2020, as compared to $1.7 million for the six months ended June 30, 2019.

For the six months ended June 30, 2020, other income was primarily attributable to $0.4 million received from a legal settlement and $0.1 million received from insurance carriers for reimbursement of environmental costs.

For the six months ended June 30, 2019, other income was primarily attributable to $1.4 million received from a legal settlement and $0.3 million received from insurance carriers for reimbursement of environmental costs.

Interest expense was $13.4 million for the six months ended June 30, 2020, as compared to $11.9 million for the six months ended June 30, 2019.

The increase was due to higher average borrowings outstanding partially offset by a decrease in average interest rates on borrowings outstanding for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019.

For the six months ended June 30, 2020, FFO increased by $1.1 million to $38.6 million as compared to $37.5 million for the prior period.

For the six months ended June 30, 2020, AFFO increased by $2.2 million to $37.9 million, as compared to $35.7 million for the prior period.

FFO for the six months ended June 30, 2020, was impacted by the changes in net earnings but excludes a $0.7 million increase in gains on dispositions of real estate and a $2.1 million increase in depreciation and amortization expense.

The increase in AFFO for the six months ended June 30, 2020, also excludes a $1.0 million decrease in legal settlements and judgements, and $0.8 million decrease in Revenue Recognition Adjustments, a $0.8 million decrease in environmental estimates and accretion expense and a $0.2 million decrease in insurance reimbursements.

General and administrative expense was $12.8 million for the nine months ended September 30, 2020, as compared to $11.5 million for the nine months ended September 30, 2019.

The increase in general and administrative expense for the nine months ended September 30, 2020, was principally due to a $0.8 million increase in employee-related expenses and a $0.4 million increase in legal and other professional fees.

Depreciation and amortization expense was $22.1 million for the nine months ended September 30, 2020, as compared to $18.6 million for the nine months ended September 30, 2019.

The increase in depreciation and amortization expense for the nine months ended September 30, 2020, was primarily due to depreciation and amortization charges related to properties acquired, partially offset by the effect of certain assets becoming fully depreciated and dispositions of real estate.

Other income was $0.9 million for the nine months ended September 30, 2020, as compared to $7.3 million for the nine months ended September 30, 2019.

For the nine months ended September 30, 2020, other income was primarily attributable to $0.8 million received from legal settlements and $0.1 million received from insurance carriers for reimbursement of environmental costs.

For the nine months ended September 30, 2019, other income was primarily attributable to $4.8 million received from insurance carriers for reimbursement of environmental costs and $2.6 million received from legal settlements.

Interest expense was $20.1 million for the nine months ended September 30, 2020, as compared to $18.2 million for the nine months ended September 30, 2019.

The increase was due to higher average borrowings outstanding partially offset by a decrease in

average interest rates on borrowings outstanding for the nine months ended September 30, 2020 , as compared to the nine months ended September 30, 2019 .

For the nine months ended September 30, 2020, FFO increased by $2.7 million to $59.3 million, as compared to $56.6 million for the prior period.

For the nine months ended September 30, 2020, AFFO increased by $4.3 million to $58.1 million, as compared to $53.8 million for the prior period.

FFO for the nine months ended September 30, 2020, was impacted by the changes in net earnings but excludes a $0.7 million increase in gains on dispositions of real estate, a $3.5 million increase in depreciation and amortization expense and a $0.5 million increase in impairment charges.

The increase in AFFO for the nine months ended September 30, 2020, also excludes a $1.8 million decrease in legal settlements and judgements, a $1.1 million decrease in Revenue Recognition Adjustments, a $1.3 million decrease in environmental estimates and accretion expense, a $4.6 million decrease in environmental litigation accruals and a $4.7 million decrease in insurance reimbursements.

Liquidity and Capital Resources

Our principal sources of liquidity are the cash flows from our operations, funds available under our Revolving Facility (which is scheduled to mature in March 2022), proceeds from the sale of shares of our common stock through offerings from time to time under

our ATM Program , and available cash and cash equivalents.

Our business operations and liquidity are dependent on our ability to generate cash flow from our properties.

We believe that our operating cash needs for the next twelve months can be met by cash flows from operations, borrowings under our Revolving Facility, proceeds from the sale of shares of our common stock under our ATM Program and available cash and cash equivalents.

While we expect during the third quarter of 2020 to continue to fund our business operations from our cash flows from our properties, and funds available under our Revolving Facility, consistent with the quarter ended June 30, 2020, the rapid developments and fluidity of COVID-19 may cause us to rely more heavily on borrowings under our Revolving Facility or other sources of liquidity than in prior periods.

Our cash flow activities for the six months ended June 30, 2020 and 2019, are summarized as follows (in thousands):

Six Months Ended

While we expect during the fourth quarter of 2020 to continue to fund our business operations from our cash flows from our properties, and funds available under our Revolving Facility, consistent with the quarter ended September 30, 2020, the rapid developments and fluidity of COVID-19 may cause us to rely more heavily on borrowings under our Revolving Facility or other sources of liquidity than in prior periods.

Our cash flow activities for the nine months ended September 30, 2020 and 2019, are summarized as follows (in thousands):

Nine Months Ended

September 30,

Net cash flow provided by operating activities

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Operating Activities

Net cash flow from operating activities decreased by $0.5 million for the six months ended June 30, 2020, to $32.8 million, as compared to $33.3 million for the six months ended June 30, 2019.

Net cash flow from operating activities decreased by $4.4 million for the nine months ended September 30, 2020, to $53.6 million, as compared to $58.0 million for the nine months ended September 30, 2019.

Net cash provided by operating activities represents cash received primarily from rental and interest income less cash used for property costs, environmental expense, general and administrative expense and interest expense.

The change in net cash flow provided by operating activities for the six months ended June 30, 2020 and 2019, is primarily the result of changes in revenues and expenses as discussed in “Results of Operations” above and the other changes in assets and liabilities on our consolidated statements of cash flows.

The change in net cash flow provided by operating activities for the nine months ended September 30, 2020 and 2019, is primarily the result of changes in revenues and expenses as discussed in “Results of Operations” above and the other changes in assets and liabilities on our consolidated statements of cash flows.

Investing Activities

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Because we generally lease our properties on a triple-net basis, we have not historically incurred significant capital expenditures other than those related to investments in real estate and our redevelopment activities.

Net cash flow used in investing activities increased by $37.8 million for the six months ended June 30, 2020, to a use of $65.0 million, as compared to a use of $27.2 million for the six months ended June 30, 2019.

The increase in net cash flow used in investing activities for the six months ended June 30, 2020, was primarily due to an increase of $39.0 million for property acquisitions and an increase of $1.6 million in issuance of notes and mortgages receivable, partially offset by an increase of $1.0 million in collection of notes and mortgages receivables, a $0.9 million increase in deposits on property acquisitions and an increase of $0.6 million in proceeds from dispositions of real estate.

Net cash flow used in investing activities increased by $59.2 million for the nine months ended September 30, 2020, to a use of $98.2 million, as compared to a use of $39.0 million for the nine months ended September 30, 2019.

The increase in net cash flow used in investing activities for the nine months ended September 30, 2020, was primarily due to an increase of $61.5 million for property acquisitions and an increase of $2.4 million in issuance of notes and mortgages receivable, partially offset by an increase of $3.4 million in collection of notes and mortgages receivables, a $0.6 million decrease in deposits on property acquisitions and an increase of $0.8 million in proceeds from dispositions of real estate.

Financing Activities

Net cash flow provided by financing activities increased by $62.9 million for the six months ended June 30, 2020, to $35.6 million, as compared to funds used of $27.3 million for the six months ended June 30, 2019.

The increase in net cash flow provided by financing activities was primarily due to an increase in net borrowings under credit agreement of $60.0 million and an increase in net proceeds under the ATM agreement of $5.2 million, partially offset by an increase in dividends paid of $2.5 million.

Net cash flow provided by financing activities increased by $111.4 million for the nine months ended September 30, 2020, to $81.3 million, as compared to funds used of $30.1 million for the nine months ended September 30, 2019.

The increase in net cash flow provided by financing activities was primarily due to an increase in net borrowings under credit agreement of $210.0 million and an increase in net proceeds under the ATM agreement of $29.7 million, partially offset by a decrease in proceeds from senior unsecured notes of $125.0 million and an increase in dividends paid of $3.9 million.

Credit Agreement

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(i) reflect that we had previously entered into (a) an amended and restated note purchase and guarantee agreement with The Prudential Insurance Company of America (“Prudential”) and certain of its affiliates and (b) a note purchase and guarantee agreement with the Metropolitan Life Insurance Company (“MetLife”) and certain of its affiliates;

and (ii) permit borrowings under each of the Revolving Facility and the Term Loan at three different

interest rates, including a rate based on the LIBOR Daily Floating Rate (as defined in the First Amendment) plus the Applicable Rate (as defined in the First Amendment) for such f acility .

and (ii) permit borrowings under each of the Revolving Facility and the Term Loan at three different interest rates, including a rate based on the LIBOR Daily Floating Rate (as defined in the First Amendment) plus the Applicable Rate (as defined in the First Amendment) for such facility.

On September 12, 2019, in connection with prepayment of the Term Loan, we entered into a consent and amendment (the “Second Amendment”) of our Restated Credit Agreement.

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On September 12, 2019, we entered into a note purchase and guarantee agreement (the “MassMutual Note Purchase Agreement”) with Massachusetts Mutual Life Insurance Company and certain of its affiliates.

Pursuant to the MassMutual Note Purchase Agreement, we authorized and issued our 3.52% Series H Guaranteed Senior Notes due September 12, 2029, in the aggregate principal amount of $25.0 million (the “Series H Notes”).

Pursuant to the MassMutual Note

Purchase Agreement, we authorized and issued our 3.52% Series H Guaranteed Senior Notes due September 12, 2029, in the aggregate principal amount of $25 .0 million (the “Series H Notes”).

The MassMutual Note Purchase Agreement does not provide for scheduled reductions in the principal balance of the Series H Notes prior to their maturity.

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Sales of the shares of common stock may be made, as needed, from time to time in at-the-market offerings as defined in Rule 415 of the Securities Act, including by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or as otherwise agreed to with the applicable agent.

During the three and six months ended June 30, 2020, we issued a total of 404,000 shares of common stock and received net proceeds of $11.9 million under the ATM Program.

During the three and six months ended June 30, 2019, we issued 213,000 shares of common stock and received net proceeds of $6.7 million under the ATM Program.

Future sales, if any, will depend on a variety of

factors to be determined by us from time to time, including among others, market conditions, the trading price of our common stock, determinations by us of the appropriate sources of funding for us and potential uses of funding available to us.

During the three and nine months ended September 30, 2020, we issued a total of 922,000 and 1,326,000 shares of common stock and received net proceeds of $26.6 million and $38.5 million, respectively, under the ATM Program.

During the three and nine months ended September 30, 2019, we issued 70,000 and 283,000 shares of common stock and received net proceeds of $2.2 million and $8.8 million, respectively, under the ATM Program.

Future sales, if any, will depend on a variety of factors to be determined by us from time to time, including among others, market conditions, the trading price of our common stock, determinations by us of the appropriate sources of funding for us and potential uses of funding available to us.

Property Acquisitions and Capital Expenditures

As part of our overall business strategy, we regularly review opportunities to acquire additional properties and we expect to continue to pursue acquisitions that we believe will benefit our financial performance.

We accounted for the acquisitions of fee simple interests as asset acquisitions.

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We are also seeking to recapture select properties from our net lease portfolio to redevelop such properties either for a new convenience and gasoline use or for alternative single-tenant net lease retail uses.

For the six months ended June 30, 2020, rent commenced on four completed redevelopment projects that were placed back into service in our net lease portfolio.

For the nine months ended September 30, 2020, rent commenced on five completed redevelopment projects that were placed back into service in our net lease portfolio.

Since the inception of our redevelopment program in 2015, we have completed 18 redevelopment projects.

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However, our tenants frequently make improvements to the properties leased from us at their expense.

As of June 30, 2020, we have a remaining commitment to fund up to $7.0 million in the aggregate in capital improvements in certain properties previously leased to Marketing and now subject to unitary triple-net leases with other tenants.

As of September 30, 2020, we have a remaining commitment to fund up to $6.9 million in the aggregate in capital improvements in certain properties previously leased to Marketing and now subject to unitary triple-net leases with other tenants.

We elected to be treated as a REIT under the federal income tax laws with the year beginning January 1, 2001.

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In particular, the Restated Credit Agreement and our senior unsecured notes prohibit the payment of dividends during certain events of default.

Regular quarterly dividends paid to our stockholders for the six months ended June 30, 2020, were $31.2 million, or $0.74 per share.

Regular quarterly dividends paid to our stockholders for the nine months ended September 30, 2020, were $47.0 million, or $1.11 per share.

There can be no assurance that we will continue to pay dividends at historical rates, if at all.

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The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in our consolidated financial statements.

Although we have made estimates, judgments and assumptions regarding future uncertainties relating to the information included in our consolidated financial statements, giving due consideration to the accounting policies selected and materiality, actual results could differ from these estimates, judgments and assumptions and such differences could be material.

Although we have made estimates, judgments and assumptions regarding future uncertainties relating to the

information included in our consolidated financial statements, giving due consideration to the accounting policies selected and materiality, actual results could differ from these estimates, judgments and assumptions and such differences could be material.

Estimates, judgments and assumptions underlying the accompanying consolidated financial statements include, but are not limited to, real estate, receivables, deferred rent receivable, direct financing leases, depreciation and amortization, impairment of long-lived assets, environmental remediation obligations, litigation, accrued liabilities, income taxes and the allocation of the purchase price of properties acquired to the assets acquired and liabilities assumed.

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FRR 60 considers an accounting policy to be critical if it is important to our financial condition and results of operations and requires significant judgment and estimates on the part of management in its application.

of the purchase price of properties acquired to the assets acquired and liabilities assumed (collectively, our “Critical Accounting Policies”), each of which is discussed in “Item 7.

We believe that our most critical accounting policies relate to revenue recognition and deferred rent receivable, direct financing leases, impairment of long-lived assets, environmental remediation obligations, litigation, income taxes, and the allocation of the purchase price of properties acquired to the assets acquired and liabilities assumed (collectively, our “Critical Accounting Policies”), each of which is discussed in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019.

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Our accrual of the additional liability represents our estimate of the fair value of cost for each component of the liability, net of estimated recoveries from state UST remediation funds considering estimated recovery rates developed from prior experience with the funds.

In arriving at our accrual, we analyzed the ages

of USTs at properties where we would be responsible for preexisting contamination found within 10 years after commencement of a lease (for properties subject to long-term triple-net leases) or five years from a sale (for divested properties), and projected a cost to closure for preexisting unknown environmental contamination.

In arriving at our accrual, we analyzed the ages of USTs at properties where we would be responsible for preexisting contamination found within 10 years after commencement of a lease (for properties subject to long-term triple-net leases) or five years from a sale (for divested properties), and projected a cost to closure for preexisting unknown environmental contamination.

We measure our environmental remediation liabilities at fair value based on expected future net cash flows, adjusted for inflation (using a range of 2.0% to 2.75%), and then discount them to present value (using a range of 4.0% to 7.0%).

We adjust our environmental remediation liabilities quarterly to reflect changes in projected expenditures, changes in present value due to the passage of time and reductions in estimated liabilities as a result of actual expenditures incurred during each quarter.

As of June 30, 2020, we had accrued a total of $49.3 million for our prospective environmental remediation obligations.

As of September 30, 2020, we had accrued a total of $49.0 million for our prospective environmental remediation obligations.

This accrual consisted of (a) $11.9 million, which was our estimate of reasonably estimable environmental remediation liability, including obligations to remove USTs for which we are responsible, net of estimated recoveries and (b) $37.1 million for future environmental liabilities related to preexisting unknown contamination.

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This accrual consisted of (a) $12.4 million, which was our estimate of reasonably estimable environmental remediation liability, including obligations to remove USTs for which we are responsible, net of estimated recoveries and (b) $38.3 million for future environmental liabilities related to preexisting unknown contamination.

Environmental liabilities are accreted for the change in present value due to the passage of time and, accordingly, $0.9 million and $1.0 million of net accretion expense was recorded for the six months ended June 30, 2020 and 2019, respectively, which is included in environmental expenses.

In addition, during the six months ended June 30, 2020 and 2019, we recorded credits to environmental expenses aggregating $1.2 million and $0.6 million, respectively, where decreases in estimated remediation costs exceeded the depreciated carrying value of previously capitalized asset retirement costs.

Environmental liabilities are accreted for the change in present value due to the passage of time and, accordingly, $1.4 million and $1.5 million of net accretion expense was recorded for the nine months ended September 30, 2020 and 2019, respectively, which is included in environmental expenses.

In addition, during the nine months ended September 30, 2020 and 2019, we recorded credits to environmental expenses aggregating $2.1 million and $0.9 million, respectively, where decreases in estimated remediation costs exceeded the depreciated carrying value of previously capitalized asset retirement costs.

Environmental expenses also include project management fees, legal fees and environmental litigation accruals.

During the six months ended June 30, 2020 and 2019, we increased the carrying values of certain of our properties by $1.4 million and $2.3 million.

During the nine months ended September 30, 2020 and 2019, we increased the carrying values of certain of our properties by $2.3 million and $3.7 million.

respectively, due to changes in estimated environmental remediation costs.

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Capitalized asset retirement costs are being depreciated over the estimated remaining life of the UST, a 10-year period if the increase in carrying value is related to environmental remediation obligations or such shorter period if circumstances warrant, such as the remaining lease term for properties we lease from others.

Depreciation and amortization expense related to capitalized asset retirement costs in our consolidated statements of operations for the six months ended June 30, 2020 and 2019, was $2.0 million and $2.1 million, respectively.

Capitalized asset retirement costs were $39.6 million (consisting of $22.7 million of known environmental liabilities and $16.9 million of reserves for future environmental liabilities) as of June 30, 2020, and $39.7 million (consisting of $22.2 million of known environmental liabilities and $17.5 million of reserves for future environmental liabilities) as of December 31, 2019.

We recorded impairment charges aggregating $1.4 million for the six months ended June 30, 2020 and 2019, for capitalized asset retirement costs.

Depreciation and amortization expense related to capitalized asset retirement costs in our consolidated statements of operations for the nine months ended September 30, 2020 and 2019, was $3.0 million and $3.1 million, respectively.

Capitalized asset retirement costs were $40.0 million (consisting of $23.6 million of known environmental liabilities and $16.4 million of reserves for future environmental liabilities) as of September 30, 2020, and $39.7 million (consisting of $22.2 million of known environmental liabilities and $17.5 million of reserves for future environmental liabilities) as of December 31, 2019.

We recorded impairment charges aggregating $2.1 million and $2.4 million for the nine months ended September 30, 2020 and 2019, respectively, for capitalized asset retirement costs.

Environmental exposures are difficult to assess and estimate for numerous reasons, including the amount of data available upon initial assessment of contamination, alternative treatment methods that may be applied, location of the property which subjects it to differing local laws and regulations and their interpretations, changes in costs associated with environmental remediation services and equipment, the availability of state UST remediation funds and the possibility of existing legal claims giving rise to allocation of responsibilities to others, as well as the time it takes to remediate contamination and receive regulatory approval.

In developing our liability for estimated environmental remediation obligations on a property by property basis, we consider, among other things, laws and regulations, assessments of contamination and surrounding geology, quality of information available, currently available technologies for treatment, alternative methods of remediation and prior experience.

technologies for treatment, alternative methods of remediation and prior experience.

Environmental accruals are based on estimates derived upon facts known to us at this time, which are subject to significant change as circumstances change, and as environmental contingencies become more clearly defined and reasonably estimable.

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however, we believe that it is possible that the fair value of future actual net expenditures could be substantially higher than amounts currently recorded by us.

Adjustments to accrued liabilities for environmental remediation

obligations will be reflected in our consolidated financial statements as they become probable and a reasonable estimate of fair value can be made.

Adjustments to accrued liabilities for environmental remediation obligations will be reflected in our consolidated financial statements as they become probable and a reasonable estimate of fair value can be made.

Environmental Litigation

We are subject to various legal proceedings and claims which arise in the ordinary course of our business.

As of June 30, 2020 and December 31, 2019, we had accrued $17.8 million for certain of these matters which we believe were appropriate based on information then currently available.

As of September 30, 2020 and December 31, 2019, we had accrued $17.9 million and $17.8 million, respectively, for certain of these matters which we believe were appropriate based on information then currently available.

It is possible that our assumptions regarding the ultimate allocation method and share of responsibility that we used to allocate environmental liabilities may change, which may result in our providing an accrual, or adjustments to the amounts recorded, for environmental litigation accruals.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis