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Item 2. Management’s Discussion and Analysis

2021-04-29 compared with 2020-10-22 · 125 added, 165 removed, 264 unchanged (52% of the section changed)

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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;

the impact of the novel coronavirus (“COVID-19”) pandemic on our business and results of operations;

our expectations regarding our growth strategy;

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the reasonableness of our estimates, judgments, projections and assumptions used regarding our accounting policies and methods;

the proceeds from the sale of shares of our common stock through the ATM Program;

our critical accounting policies;

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loan loss reserves or allowances;

our belief that our accruals for environmental and litigation matters including matters related to our former Newark, New Jersey Terminal and the Lower Passaic River, our MTBE multi-district litigation cases in the states of New Jersey, Pennsylvania and Maryland, and our lawsuit with the State of New York pertaining to a property formerly owned by us in Uniondale, New York, were appropriate based on the information then available;

our belief that our accruals for environmental and litigation matters including matters related to our former Newark, New Jersey Terminal and the Lower Passaic River, our MTBE multi-district litigation cases in the states of Pennsylvania and Maryland, and our lawsuit with the State of New York pertaining to a property formerly owned by us in Uniondale, New York, were appropriate based on the information then available;

our claims for reimbursement of monies expended in the defense and settlement of certain MTBE cases under pollution insurance policies;

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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;

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failure to maintain effective internal controls over financial reporting;

and negative impacts from the continued spread of the novel coronavirus (“COVID-19”) pandemic, including on the global economy or on our or our tenants’ businesses, financial position or results of operations .

and negative impacts from the continued spread of the COVID-19 pandemic, including on the global economy or on our or our tenants’ businesses, financial position or results of operations .

As a result of these and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect our business, financial condition, operating results, ability to pay dividends or stock price.

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Real Estate Investment Trust

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

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

We are a REIT specializing in the acquisition, ownership, leasing, redevelopment and financing of convenience store, gasoline station and other automotive-related and retail real estate, including express car washes, instant oil change centers, automotive service centers, automotive parts retailers and select other properties.

As of March 31, 2021, we owned 902 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.

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The impact from the rapidly changing market and economic conditions due to the COVID-19 pandemic remains uncertain.

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 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.

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 fourth quarter of 2020 or thereafter.

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 future 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 our tenants’ facilities.

Additionally, while we expect to continue our overall growth strategy during 2021 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.

Risk Factors” in our Annual Report on Form 10-K for additional information.

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.

Substantially all of our properties are leased on a triple-net basis to convenience store operators, petroleum distributors and other automotive-related and retail tenants.

Our tenants either operate their businesses at our properties directly or sublet our properties and supply fuel to third parties who operate the convenience store and gasoline station businesses.

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.

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

As a result, our tenants’ financial results are highly dependent on the performance of the petroleum marketing industry, which is highly competitive and subject to volatility.

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Our Properties

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

As of March 31, 2021, we leased 949 of our properties to tenants under triple-net leases.

Our net lease properties include 834 properties leased under 32 separate unitary or master triple-net leases and 115 properties leased under single unit triple-net leases.

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Redevelopment .

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.

As of March 31, 2021, we were actively redeveloping six of our properties either for new convenience and gasoline use or for alternative single-tenant net lease retail uses.

As of March 31, 2021, five of our properties were vacant.

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

Investment Strategy and Activity

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 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.

We primarily pursue sale-leaseback transactions and other real estate acquisitions that result in us owning fee simple interests in our properties.

Our investment activities may also 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.

To achieve that goal, we seek to invest in high quality individual properties and real estate portfolios that are in strong primary markets that serve high density population centers.

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 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.

A key element of our investment strategy is to invest in properties that will enhance our geographic and tenant diversification.

During the three months ended March 31, 2021, we acquired fee simple interests in six properties for an aggregate purchase price of $21.9 million.

During the three months ended March 31, 2020, we acquired fee simple interests in 12 properties for an aggregate purchase price of $57.3 million.

From time to time, we may originate construction loans for the construction of income-producing properties, which we expect to purchase via sale leaseback transactions at the end of the construction period.

During the three months ended March 31, 2021, we funded, and had outstanding as of March 31, 2021, such construction loans in the amount of $8.4 million, including accrued interest .

At the end of the construction period, the construction loans will be repaid with the proceeds from the sale of the properties.

Redevelopment Strategy and Activity

We believe that certain of our properties are located in geographic areas which, together with other factors, may make them well-suited for a new convenience and gasoline use or for alternative single-tenant net lease retail uses, such as quick service restaurants, automotive parts and service stores, specialty retail stores and bank branch locations.

We believe that certain of our properties are well-suited for either new convenience store use or for alternative single-tenant net lease retail uses, such as automotive parts and service, quick service restaurants, specialty retail stores and bank branches.

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

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.

During the three months ended March 31, 2020, rent commenced on two 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 19 redevelopment projects.

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 .

During the three months ended March 31, 2020, we transferred $1.2 million of construction-in-progress to buildings and improvements on our consolidated balance sheets.

As of March 31, 2021, we had six properties under active redevelopment and others in various stages of feasibility planning for potential recapture from our net lease portfolio, including five properties for which we have signed new leases or letters of intent and which will be transferred to redevelopment when the appropriate entitlements, permits and approvals have been secured.

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 $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.

We reduced the carrying amounts to fair value, and recorded impairment charges aggregating $0.8 million for the three months ended March 31, 2021 and $1.0 million for the three months ended March 31, 2020, 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 (i) the effect of adding asset retirement costs to certain properties due to changes in estimates associated with our environmental liabilities, which increased the carrying values of these properties in excess of their fair values, (ii) reductions in estimated undiscounted cash flows expected to be received during the assumed holding period for certain of our properties, and (iii) reductions in estimated sales prices from third-party offers based on signed contracts, letters of intent or indicative bids for certain of our properties.

The evaluation and estimates of anticipated cash flows used to conduct our impairment analysis are highly subjective and actual results could vary significantly from our estimates.

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FFO is defined by the National Association of Real Estate Investment Trusts as GAAP net earnings before depreciation and amortization of real estate assets, gains or losses on dispositions of real estate, impairment charges and cumulative effect of accounting changes.

Our definition of AFFO is defined as FFO less (i) Revenue Recognition Adjustments (net of allowances), (ii) changes in environmental estimates, (iii) accretion expense, (iv) environmental litigation accruals, (v) insurance reimbursements, (vi) legal settlements and judgments, (vii) acquisition costs expensed and (viii) other unusual items that are not reflective of our core operating performance.

Our definition of AFFO is defined as FFO less (i) certain revenue recognition adjustments (defined below), (ii) changes in environmental estimates, (iii) accretion expense, (iv) environmental litigation accruals, (v) insurance reimbursements, (vi) legal settlements and judgments, (vii) acquisition costs expensed and (viii) other unusual items that are not reflective of our core operating performance.

Other REITs may use definitions of FFO and/or AFFO that are different from ours and, accordingly, may not be comparable.

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FFO excludes various items such as depreciation and amortization of real estate assets, gains or losses on dispositions of real estate, and impairment charges.

In our case, however, GAAP net earnings and FFO typically include the impact of revenue recognition adjustments comprised of deferred rental revenue (straight-line rental revenue), the net amortization of above-market and below-market leases, adjustments recorded for recognition of rental income recognized from direct financing leases on revenues from rental properties and the amortization of deferred lease incentives, as offset by the impact of related collection reserves.

However, GAAP net earnings and FFO typically include certain other items that we exclude from AFFO, including the impact of revenue recognition adjustments comprised of deferred rental revenue (straight-line rental revenue), the net amortization of above-market and below-market leases, adjustments recorded for the recognition of rental income from direct financing leases and the amortization of deferred lease incentives (collectively, “Revenue Recognition Adjustments”) that do not impact our recurring cash flow and which are not indicative of our core operating performance.

Deferred rental revenue results primarily from fixed rental increases scheduled under certain leases with our tenants.

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The amortization of deferred lease incentives represents our funding commitment in certain leases, which deferred expense is recognized on a straight-line basis as a reduction of rental revenue.

GAAP net earnings and FFO include non-cash changes in environmental estimates and environmental accretion expense, which do not impact our recurring cash flow.

GAAP net earnings and FFO also include environmental litigation accruals, insurance reimbursements, and legal settlements and judgments, which items are not indicative of our core operating performance.

GAAP net earnings and FFO from time to time may also include property acquisition costs expensed and other unusual items that are not reflective of our core operating performance.

Acquisition costs are expensed, generally in the period when properties are acquired and are not reflective of our core operating performance.

GAAP net earnings and FFO also include non-cash and/or unusual items such as changes in environmental estimates, environmental accretion expense, allowances for credit loss on notes and mortgages receivable and direct finance leases, environmental litigation accruals, insurance reimbursements, legal settlements and judgments, property acquisition costs expensed and loss on extinguishment of debt, that do not impact our recurring cash flow and which are not indicative of our core operating performance.

We pay particular attention to AFFO, as we believe it best represents our core operating performance.

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Depreciation and amortization of real estate assets

(Gain) loss on dispositions of real estate

Gain on dispositions of real estate

Funds from operations

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Legal settlements and judgments

Retirement costs

Adjusted funds from operations

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Weighted average common shares outstanding:

Dividends paid and undistributed earnings allocated, if any, to unvested restricted stockholders are deducted from FFO and AFFO for the computation of the per share amounts.

The following amounts were deducted:

Three Months Ended

Results of Operations

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.

We evaluated each rent or mortgage payment relief request on an individual basis, considering a number of factors.

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 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 $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 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 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 $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 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 $4.2 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.

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 $13.3 million and $13.0 million for the nine months ended September 30, 2020 and 2019, respectively.

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.

The following discussion describes our results of operations for the three months ended March 31, 2021.

While the COVID-19 pandemic did not have a material adverse effect on our reported results for the three months ended March 31, 2021, we are actively monitoring the impact of COVID-19, which may negatively impact our business and results of operations for subsequent quarters.

Three months ended March 31, 2021, compared to the three months ended March 31, 2020

Revenues from rental properties increased by $2.3 million to $37.0 million for the three months ended March 31, 2021, as compared to $34.7 million for the three months ended March 31, 2020.

The increase in revenues from rental properties was primarily due to revenue from newly acquired properties during the last nine months of 2020 along with contractual rent increases, partially offset by a decrease in Revenue Recognition Adjustments of $0.2 million.

Rental income contractually due from our tenants included in revenues from rental properties was $33.5 million for the three months ended March 31, 2021, as compared to $31.4 million for the three months ended March 31, 2020.

Tenant 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 $3.8 million and $3.3 million for the three months ended March 31, 2021 and 2020, respectively.

Interest income on notes and mortgages receivable was $0.3 million for the three months ended March 31, 2021, as compared to $0.7 million for the three months ended March 31, 2020.

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 $0.3 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.

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 de creased rental revenue by $ 0.

3 million and $69 thousand f or the three months ended March 31, 2021 and 2020 , 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 $5.3 million for the three months ended March 31, 2021, as compared to $4.9 million for the three months ended March 31, 2020.

The increase in property costs for the three months ended March 31, 2021, was principally due to an increase in rent expense, professional fees and maintenance expense related to property redevelopments.

Impairment charges were $0.8 million for the three months ended March 31, 2021, as compared to $1.0 million for the three months ended March 31, 2020.

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

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.

Impairment charges for the three months ended March 31, 2021 and 2020, were attributable to (i) the effect of adding asset retirement costs to certain properties due to changes in estimates associated with our environmental liabilities, which increased the carrying values of these properties in excess of their fair values, (ii) 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 (iii) 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 March 31, 2021 were $0.5 million, as compared to $0.2 million for the three months ended March 31, 2020.

The increase in environmental expenses for the three months ended March 31, 2021, was principally due to a $0.5 million increase in net environmental remediation costs and estimates, partially offset by a $0.2 million decrease in environmental legal and professional fees.

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.

General and administrative expense was $5.5 million for the three months ended March 31, 2021, as compared to $4.1 million for the three months ended March 31, 2020.

The increase in general and administrative expense for the three months ended March 31, 2021, was principally due to an increase of $0.5 million in non-recurring expenses attributable to retirement costs, $0.4 million in employee-related expenses and $0.3 million in legal and other professional fees.

Depreciation and amortization expense was $8.4 million for the three months ended March 31, 2021, as compared to $7.1 million for the three months ended March 31, 2020.

The increase in depreciation and amortization expense for the three months ended March 31, 2021, 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.

Gains on dispositions of real estate were $7.2 million for the three months ended March 31, 2021, as compared to $0.9 million for the three months ended March 31, 2020.

The gains were the result of the sale of five and four properties during the three months ended March 31, 2021 and 2020, respectively.

Other income was $0.1 million for the three months ended March 31, 2021, as compared to $0.5 million for the three months ended March 31, 2020.

For the three months ended March 31, 2020, other income was primarily attributable to $0.4 million received from a legal settlement.

Interest expense was $6.1 million for the three months ended March 31, 2021, as compared to $6.7 million for the three months ended March 31, 2020.

The decrease was due to lower average borrowings outstanding and a decrease in average interest rates on borrowings outstanding for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020.

For the three months ended March 31, 2021, FFO was $19.9 million, as compared to $20.0 million for the three months ended March 31, 2020.

For the three months ended March 31, 2021, AFFO increased by $1.6 million to $20.9 million, as compared to $19.3 million for the three months ended March 31, 2020.

FFO for the three months ended March 31, 2021, was impacted by changes in net earnings but excludes a $6.3 million increase in gain on dispositions of real estate, a $1.3 million increase in depreciation and amortization expense and a $0.2 million decrease in impairment charges.

The increase in AFFO for the three months ended March 31, 2021, also excludes a $0.5 million decrease in environmental estimates and accretion expense, a $0.3 million increase in Revenue Recognition Adjustments, a $29 thousand increase in insurance reimbursements and $0.5 million increase in retirement costs.

Liquidity and Capital Resources

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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 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,

Our cash flow activities for the three months ended March 31, 2021 and 2020 , are summarized as follows (in thousands):

Three Months Ended

Net cash flow provided by operating activities

Net cash flow used in investing activities

Net cash flow provided by (used in) financing activities

Net cash flow (used in) provided by financing activities

Operating Activities

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 flow from operating activities increased by $1.5 million for the three months ended March 31, 2021, to $19.4 million, as compared to $17.9 million for the three months ended March 31, 2020.

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 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.

The change in net cash flow provided by operating activities for the three months ended March 31, 2021 and 2020, 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 $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.

Net cash flow used in investing activities decreased by $33.3 million for the three months ended March 31, 2021, to a use of $19.8 million, as compared to a use of $53.1 million for the three months ended March 31, 2020.

The decrease in net cash flow used in investing activities for the three months ended March 31, 2021, was primarily due to a decrease of $35.4 million for property acquisitions, an increase of $7.6 million in proceeds from dispositions of real estate and a decrease of $1.0 million in deposits on property acquisitions, partially offset by an increase of $8.4 million in issuance of notes and mortgages receivable and a decrease of $2.2 million in collection of notes and mortgages receivables.

Financing Activities

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.

Net cash flow used in financing activities increased by $72.4 million for the three months ended March 31, 2021, to a use of $22.9 million, as compared to funds provided of $49.5 million for the three months ended March 31, 2020.

The increase in net cash flow used in financing activities was primarily due to a decrease in net borrowings under credit agreement of $90.0 million and an increase in dividends paid of $2.1 million, partially offset by an increase in net proceeds under the ATM agreement of $20.3 million.

Credit Agreement

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Pursuant to the Restated Credit Agreement, we (a) increased the borrowing capacity under the Revolving Facility from $175.0 million to $250.0 million, (b) extended the maturity date of the Revolving Facility from June 2018 to March 2022, (c) extended the maturity date of the Term Loan from June 2020 to March 2023 and (d) amended certain financial covenants and provisions.

On September 19, 2018, we entered into an amendment (the “First Amendment”) of our Restated Credit Agreement.

The First Amendment modifies the Restated Credit Agreement to, among other things:

(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 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.

The Second Amendment modifies the Restated Credit Agreement to, among other things, (a) increase our borrowing capacity under the Revolving Facility from $250.0 million to $300.0 million and (b) decrease lender commitments under the Term Loan to $0.0 million.

Subject to the terms of the Restated Credit Agreement and our continued compliance with its provisions, we have the option to (a) extend the term of the Revolving Facility for one additional year to March 2023 and (b) request that the lenders approve an increase of up to $300.0 million in the amount of the Revolving Facility to $600.0 million in the aggregate.

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The annual commitment fee on the undrawn funds under the Revolving Facility is 0.15% to 0.25%.

The Term Loan, prior to its repayment pursuant to a subsequent amendment to the Restated Credit Agreement, bore interest equal to the sum of a base rate plus a margin of 0.45% to 1.25% or a LIBOR rate plus a margin of 1.45% to 2.25%.

On September 19, 2018, we entered into an amendment (the “First Amendment”) of our Restated Credit Agreement.

The First Amendment modifies the Restated Credit Agreement to, among other things:

and certain of its affiliates;

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.

On December 14, 2020, we used a portion of the net proceeds from the Series I Notes, Series J Notes and Series K Notes (each as described below) to repay $75.0 million of borrowings outstanding under our Restated Credit Agreement.

Senior Unsecured Notes

On September 12, 2019, we entered into a fourth amended and restated note purchase and guarantee agreement (the “Fourth Restated Prudential Note Purchase Agreement”) amending and restating our existing senior note purchase agreement with Prudential and certain of its affiliates.

Pursuant to the Fourth Restated Prudential Note Purchase Agreement, we agreed that our (a) 6.0% Series A Guaranteed Senior Notes due February 25, 2021, in the original aggregate principal amount of $100.0 million (the “Series A Notes”), (b) 5.35% Series B Guaranteed Senior Notes due June 2, 2023, in the original aggregate principal amount of $75.0 million (the “Series B Notes”), (c) 4.75% Series C Guaranteed Senior Notes due February 25, 2025, in the aggregate principal amount of $50.0 million (the “Series C Notes”) and (d) 5.47% Series D Guaranteed Senior Notes due June 21, 2028, in the aggregate principal amount of $50.0 million (the “Series D Notes”) that were outstanding under the existing senior note purchase agreement would continue to remain outstanding under the Fourth Restated Prudential Note Purchase Agreement and we authorized and issued our 3.52% Series F Guaranteed Senior Notes due September 12, 2029, in the aggregate principal amount of $50.0 million (the “Series F Notes” and, together with the Series A Notes, Series B Notes, Series C Notes and Series D Notes, the “Notes”).

The Fourth Restated Prudential Note Purchase Agreement does not provide for scheduled reductions in the principal balance of the Notes prior to their respective maturities.

On December 4, 2020, we entered into a fifth amended and restated note purchase and guarantee agreement (the “Fifth Amended and Restated Prudential Agreement”) with Prudential and certain of its affiliates amending and restating our existing fourth amended and restated note purchase agreement.

Pursuant to the Fifth Amended and Restated Prudential Agreement, we agreed that our (a) 6.0% Series A Guaranteed Senior Notes due February 25, 2021, in the original aggregate principal amount of $100.0 million (the “Series A Notes”), (b) 5.35% Series B Guaranteed Senior Notes due June 2, 2023, in the original aggregate principal amount of $75.0 million (the “Series B Notes”), (c) 4.75% Series C Guaranteed Senior Notes due February 25, 2025, in the aggregate principal amount of $50.0 million (the “Series C Notes”) and (d) 5.47% Series D Guaranteed Senior Notes due June 21, 2028, in the aggregate principal amount of $50.0 million (the “Series D Notes”) and (e) 3.52% Series F Guaranteed Senior Notes due September 12, 2029, in the aggregate principal amount of $50.0 million (the “Series F Notes”) that were outstanding under the existing fourth restated prudential note purchase agreement would continue to remain outstanding under the Fifth Amended and Restated Prudential Agreement and we authorized and issued our 3.43% Series I Guaranteed Senior Notes due November 25, 2030, in the aggregate principal amount of $100.0 million (the “Series I Notes” and, together with the Series A Notes, Series B Notes, Series C Notes, Series D Notes and Series F Notes, the “Notes”) to Prudential.

On December 4, 2020 , we completed the early redemption of our 6.0% Series A Notes due February 25, 2021, in the original aggregate principal amount of $100.0 million .

As a result of the early redemption, we recognized a $1.2 million loss on extinguishment of debt on our consolidated statement of operations for the year ended December 31, 2020.

The Fifth Amended and Restated Prudential Agreement does not provide for scheduled reductions in the principal balance of the Series I Notes, or any of our previously issued Series B Notes, Series C Notes, Series D Notes, or Series F Notes prior to their respective maturities.

On June 21, 2018, we entered into a note purchase and guarantee agreement (the “MetLife Note Purchase Agreement”) with MetLife and certain of its affiliates.

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

On September 12, 2019, we entered into a note purchase and guarantee agreement (the “AIG Note Purchase Agreement”) with American General Life Insurance Company.

Pursuant to the AIG Note Purchase Agreement, we authorized and issued our 3.52% Series G Guaranteed Senior Notes due September 12, 2029, in the aggregate principal amount of $50.0 million (the “Series G Notes”).

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

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”).

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

On December 4, 2020, we entered into a first amendment to note purchase and guarantee agreement (the “First Amended and Restated AIG Agreement”) with American General Life Insurance Company amending and restating our existing note purchase and guarantee agreement.

Pursuant to the First Amended and Restated AIG Agreement, we agreed that our 3.52% Series G Guaranteed Senior Notes due September 12, 2029, in the aggregate principal amount of $50.0 million (the “Series G Notes”) that were outstanding under the existing note purchase and guarantee agreement would continue to remain outstanding under the First Amended and Restated AIG Agreement and we authorized and issued our $50.0 million of 3.43% Series J Guaranteed Senior Notes due November 25, 2030 (the “Series J Notes”) to AIG.

The First Amended and Restated AIG Agreement does not provide for scheduled reductions in the principal balance of the Series J Notes or any of our previously issued Series G Notes prior to their respective maturities.

On December 4, 2020, we entered into a first amended and restated note purchase and guarantee agreement (the “First Amended and Restated MassMutual Agreement”) amending and restating our existing note purchase and guarantee agreement.

Pursuant to the First Amended and Restated MassMutual Agreement, we agreed that 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”) that were outstanding under the existing note purchase and guarantee agreement would continue to remain outstanding under the First Amended and Restated MassMutual Agreement and we authorized and issued our $25.0 million of 3.43% Series K Guaranteed Senior Notes due November 25, 2030 (the “Series K Notes”) to MassMutual.

The First Amended and Restated MassMutual Agreement does not provide for scheduled reductions in the principal balance of the Series K or any of our previously issued Series H Notes prior to their respective maturities.

We used the net proceeds from the issuance of the Series I Notes, Series J Notes and Series K Notes to prepay in full our Series A Notes due February 25, 2021, and repay $75.0 million of borrowings outstanding under our Restated Credit Agreement.

The Notes, the Series E Notes, the Series G Notes, the Series H Notes, the Series I Notes, the Series J Notes and, the Series K Notes, respectively issued thereunder, are collectively referred to as the “senior unsecured notes.”

In March 2018, we established an at-the-market equity offering program (the “2018 ATM Program”), pursuant to which we are able to issue and sell shares of our common stock with an aggregate sales price of up to $125.0 million through a consortium of banks acting as agents.

The 2018 ATM Program was terminated in January 2021.

In February 2021, we established a new at-the-market equity offering program (the “ATM Program”), pursuant to which we are able to issue and sell shares of our common stock with an aggregate sales price of up to $250.0 million through a consortium of banks acting as agents.

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 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.

During the three months ended March 31, 2021, we issued a total of 743,000 shares of common stock and received net proceeds of $20.3 million under the 2018 ATM Program and the ATM Program.

During the three months ended March 31, 2020, no shares of common stock were issued under the 2018 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.

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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.

During the three months ended March 31, 2021, we acquired fee simple interests in six properties for an aggregate purchase price of $21.9 million.

During the three months ended March 31, 2020, we acquired fee simple interests in 12 properties for an aggregate purchase price of $57.3 million.

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 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 19 redevelopment projects.

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

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.

As of March 31, 2021, we have a remaining commitment to fund up to $6.8 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 nine months ended September 30, 2020, were $47.0 million, or $1.11 per share.

Regular quarterly dividends paid to our stockholders for the three months ended March 31, 2021, were $17.3 million, or $0.39 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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We anticipate that a majority of the USTs at properties previously leased to Marketing will be replaced over the next several years because these USTs are either at or near the end of their useful lives.

For long-term, triple-net leases covering sites previously leased to Marketing, our tenants are responsible for the cost of removal and replacement of USTs and for remediation of contamination found during such UST removal and replacement, unless such contamination was found during the first 10 years of the lease term and also existed prior to commencement of the lease.

For long-term, triple-net leases covering sites previously leased to Marketing, our tenants are responsible for the cost of removal and replacement of USTs and for remediation of

contamination found during such UST removal and replacement, unless such contamination was found during the first 10 years of the lease term and also existed prior to commencement of the lease.

In those cases, we are responsible for costs associated with the remediation of such preexisting contamination.

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

As of March 31, 2021, we had accrued a total of $48.7 million for our prospective environmental remediation obligations.

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) $36.3 million for future environmental liabilities related to preexisting unknown contamination.

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This accrual consisted of (a) $11.7 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) $36.4 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, $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 liabilities are accreted for the change in present value due to the passage of time and, accordingly, $0.5 million of net accretion expense was recorded for the three months ended March 31, 2021 and 2020, which is included in environmental expenses.

In addition, during the three months ended March 31, 2021 and 2020, we recorded credits to environmental expenses aggregating $0.3 million and $0.8 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 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.

During the three months ended March 31, 2021 and 2020, we increased the carrying values of certain of our properties by $0.9 million and $0.8 million, respectively, due to changes in estimated environmental remediation costs.

The recognition and subsequent changes in estimates in environmental liabilities and the increase or decrease in carrying values of the properties are non-cash transactions which do not appear on our consolidated statements of cash flows.

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 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.

Capitalized asset retirement costs are being depreciated over the estimated remaining life of each 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 was $1.0 million for each of the three months ended March 31, 2021 and 2020.

Capitalized asset retirement costs were $39.2 million (consisting of $23.4 million of known environmental liabilities and $15.8 million of reserves for future environmental liabilities) as of March 31, 2021, and $39.6 million (consisting of $23.6 million of known environmental liabilities and $16.0 million of reserves for future environmental liabilities) as of December 31, 2020.

We recorded impairment charges aggregating $0.7 million and $0.9 million for the three months ended March 31, 2021 and 2020, 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.

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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Environmental Litigation

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

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.

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

As of March 31, 2021 and December 31, 2020, we had accrued $4.3 million 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.

Matters related to our former Newark, New Jersey Terminal and the Lower Passaic River, our MTBE litigations in the states of New Jersey, Pennsylvania and Maryland, and our lawsuit with the State of New York pertaining to a property formerly owned by us in Uniondale, New York, in particular, could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price.

Matters related to our former Newark, New Jersey Terminal and the Lower Passaic River, our MTBE litigations in the states of Pennsylvania and Maryland, and our lawsuit with the State of New York pertaining to a property formerly owned by us in Uniondale, New York, in particular, could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price.

For additional information with respect to these and other pending environmental lawsuits and claims, see “Item 3.

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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