UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark one)

For the quarterly period ended March 31,June 30, 2015

OR

For the transition period from                    to                    

Commission file number001-13777

GETTY REALTY CORP.

(Exact name of registrant as specified in its charter)

Two Jericho Plaza, Suite 110

Jericho, New York 11753

(Address of principal executive offices)

(Zip Code)

(516) 478 - 5400

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See the definitions of “larger accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Registrant had outstanding 33,419,99933,421,802 shares of Common Stock, par value $.01 per share, as of May 11,August 10, 2015.

GETTY REALTY CORP.

INDEX

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

GETTY REALTY CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

GETTY REALTY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

GETTY REALTY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

GETTY REALTY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. GENERAL

Basis of Presentation: The consolidated financial statements include the accounts of Getty Realty Corp. and its wholly-owned subsidiaries. We are a real estate investment trust (“REIT”) specializing in the ownership, leasing and financing of retail motor fuel and convenience store properties. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). We do not distinguish our principal business or our operations on a geographical basis for purposes of measuring performance. We manage and evaluate our operations as a single segment. All significant intercompany accounts and transactions have been eliminated.

Unaudited, Interim Consolidated Financial Statements: The consolidated financial statements are unaudited but, in our opinion, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the results for the periods presented. These statements should be read in conjunction with the consolidated financial statements and related notes which appear in our Annual Report on Form 10-K for the year ended December 31, 2014.

Use of Estimates, Judgments and Assumptions:The consolidated financial statements have been prepared in conformity with GAAP, which requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the period reported. Estimates, judgments and assumptions underlying the accompanying consolidated financial statements include, but are not limited to, receivables, deferred rent receivable, net investment in direct financing leases, environmental remediation costs, real estate, depreciation and amortization, impairment of long-lived assets, litigation, environmental remediation obligations, accrued liabilities, income taxes and the allocation of the purchase price of properties acquired to the assets acquired and liabilities assumed. Application of these estimates and assumptions requires exercise of judgment as to future uncertainties and, as a result, actual results could differ materially from these estimates.

Subsequent Events: On MarchAugust 3, 2015, we entered into a settlement agreementterminated our unitary triple-net lease (the “Settlement Agreement”“Ramoco Lease”) with Hanuman Business, Inc. (d/b/a “Ramoco”), and sold or repositioned the Liquidating Trustee61 properties subject to the Ramoco Lease, all of which we had previously designated as transitional properties. As part of this transaction (the “Ramoco Transaction”), we (i) sold to Ramoco affiliates 48 of the Marketing Estate (both defined below) to resolve claims asserted by us in Getty Petroleum Marketing Inc.’s bankruptcy case. The Settlement Agreement was approved by an order of the U.S. Bankruptcy Court, and, on April 22, 2015, we received an interim distribution from the Marketing Estate of $6,800,000 on account of our general unsecured claims. We expect to receive additional distributions from the Marketing Estate during 2015 on account of our general unsecured claims, however, we cannot provide any assurance asproperties that had been subject to the timing or the total amount of such future distributions.

The Settlement Agreement also resolved a dispute relatingRamoco Lease, (ii) re-subleased to Ramoco three properties which we lease from third-party landlords and which had been subject to the balance of payment dueRamoco Lease, and (iii) recaptured for redevelopment and re-letting ten properties that had been subject to us pursuant to our agreement to fund the lawsuit that was brought by the Liquidating Trustee against Lukoil Americas Corporation and related entities and individualsRamoco Lease. The total consideration for the benefit of Getty Petroleum Marketing Inc.’s creditors. 48 properties we sold to Ramoco, including seller financing, was $15,000,000.

As a result on April 22, 2015, we also received an additional distribution of $550,000 from the Marketing Estate in full resolution of the funding agreement dispute.Ramoco Transaction and the sale of four additional transitional properties subsequent to June 30, 2015, our total portfolio consists of 875 properties as of August 10, 2015. Our core net lease portfolio includes 772 properties consisting of 685 properties leased to approximately 23 regional and national fuel distributor tenants under unitary or master triple-net leases and 87 properties leased as single unit triple-net leases, and our 103 transitional properties include (i) 46 properties, which are either subject to month-to-month license agreements, or which are vacant; and (ii) 57 properties, which are currently subject to a unitary triple-net lease which we are in the process of restructuring.

New Accounting Pronouncement: In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). This guidance defines a discontinued operation as a component or group of components disposed or classified as held for sale that represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results; the guidance states that a strategic shift could include a disposal of a major geographical area of operations, a major line of business, a major equity method investment or other major parts of an entity. The guidance also provides for additional disclosure requirements in connection with both discontinued operations and other dispositions not qualifying as discontinued operations. The guidance will be effective for annual and interim periods beginning on or after December 15, 2014. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. We elected to early adopt this standard effective with the interim period beginning July 1, 2014. Prior to July 1, 2014 properties identified as held for sale and/or disposed of were presented in discontinued operations for all periods presented.

In May 2014, the FASB issued ASU 2014-09 Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. ASU 2014-09 iswas effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption iswas not permitted. On July 9, 2015, the FASB decided to delay the effective date of ASU 2014-09 by one year making it effective for the first interim period within annual reporting periods beginning after December 15, 2017. Early adoption is permitted as of the original effective date. We are currently in the process of evaluating the impact the adoption of ASU 2014-09 will have on our financial position or results of operations.

In August 2014, the FASB issued guidance ASU 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This guidance requires management to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and, if so, disclose that fact. This guidance is effective for annual periods ending after December 15, 2016, including interim reporting periods thereafter. The new guidance affects disclosures only and is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

In April 2015, the FASB issued ASU 2015-03, which amends Topic 835,Other Presentation Matters. The amendments in ASU 2015-03 require that debt issuance costs be reported on the balance sheet as a direct reduction of the face amount of the debt instrument they relate to, and should not be classified as a deferred charge, as was previously required under the Accounting Standards Codification. ASU 2015-03 is effective, on a retrospective basis, for interim and annual periods beginning after December 15, 2015, and early adoption is permitted. We do not expect the adoption of ASU 2015-03 to have a material impact on our consolidated financial statements.

Fair Value Hierarchy: The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates of fair value that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the period reported using a hierarchy (the “Fair Value Hierarchy”) that prioritizes the inputs to valuation techniques used to measure the fair value. The Fair Value Hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The levels of the Fair Value Hierarchy are as follows: “Level 1”-inputs that reflect unadjusted quoted prices in

active markets for identical assets or liabilities that we have the ability to access at the measurement date; “Level 2”-inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; and “Level 3”-inputs that are unobservable. Certain types of assets and liabilities are recorded at fair value either on a recurring or non-recurring basis. Assets required or elected to be marked-to-market and reported at fair value every reporting period are valued on a recurring basis. Other assets not required to be recorded at fair value every period may be recorded at fair value if a specific provision or other impairment is recorded within the period to mark the carrying value of the asset to market as of the reporting date. Such assets are valued on a non-recurring basis.

We have mutual fund assets that are measured at fair value on a recurring basis using Level 1 inputs. We have a Supplemental Retirement Plan for executives and other senior management employees. The amounts held in trust under the Supplemental Retirement Plan using Level 2 inputs may be used to satisfy claims of general creditors in the event of our or any of our subsidiaries’ bankruptcy. We have liability to the employees participating in the Supplemental Retirement Plan for the participant account balances equal to the aggregate of the amount invested at the employees’ direction and the income earned in such mutual funds.

We have certain real estate assets that are measured at fair value on a non-recurring basis using Level 3 inputs as of March 31,June 30, 2015 and December 31, 2014 of $7,776,000$3,499,000 and $9,266,000, respectively, where impairment charges have been recorded. Due to the subjectivity inherent in the internal valuation techniques used in estimating fair value, the amounts realized from the sale of such assets may vary significantly from these estimates.

The following summarizes as of March 31,June 30, 2015 our assets and liabilities measured at fair value on a recurring basis by level within the Fair Value Hierarchy:

The following summarizes as of December 31, 2014 our assets and liabilities measured at fair value on a recurring basis by level within the Fair Value Hierarchy:

Fair Value Disclosure of Financial Instruments: All of our financial instruments are reflected in the accompanying consolidated balance sheets at amounts which, in our estimation based upon an interpretation of available market information and valuation methodologies, reasonably approximate their fair values, except those separately disclosed in the notes to our consolidated financial statements.

Discontinued Operations and Assets Held-for-Sale: We report as discontinued operations 1613 properties which meetmet the criteria to be accounted for as held for sale in accordance with GAAP as of June 30, 2014 and certain properties disposed of during the periods presented that were previously classified as held for sale as of June 30, 2014. All results of these discontinued operations are included in a separate component of income on the consolidated statements of operations under the caption discontinued operations. This has resulted in certain amounts related to discontinued operations in 2014 being reclassified to conform to the 2015 presentation. We elected to early adopt ASU 2014-08 effective July 1, 2014 and, as a result, the results of operations for all qualifying disposals and properties classified as held for sale that were not previously reported in discontinued operations as of June 30, 2014 are presented within income from continuing operations in our consolidated statements of income.

For the threesix months ended March 31,June 30, 2015, we sold twofive properties resulting in a loss of $194,000$133,000 that previously did not meet the criteria to be classified as held for sale, and received funds from atwo partial condemnationproperty condemnations resulting in a loss of $24,000.$22,000 and recognized a loss on capital lease termination of $103,000. We determined that the twofive properties sold did not represent a strategic shift in our operations as defined in ASU 2014-08 and, as a result, the loss on dispositions of real estate for the twofive properties were not reflected in our earnings from discontinuedcontinuing operations.

Real estate held for sale consisted of the following at March 31,June 30, 2015 and December 31, 2014:

The revenue from rental properties, impairment charges, other operating expenses and gains on dispositions of real estate related to these properties are as follows:

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of: Assets are written down to fair value when events and circumstances indicate that the assets might be impaired and the projected undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. We review and adjust as necessary our depreciation estimates and method when long-lived assets are tested for recoverability. Assets held for disposal are written down to fair value less estimated disposition costs.

We recorded non-cash impairment charges aggregating $7,913,000$2,883,000 and $1,663,000$10,796,000 for the three and six months ended March 31,June 30, 2015, respectively, and $2,014,000 and $3,677,000 for the three and six months ended June 30, 2014, respectively, in continuing operations and in discontinued operations. Our estimated fair values, as it relates to property carrying values were primarily based upon (i) estimated sales prices from third-party offers based on signed contracts, letters of intent or indicative bid and/or consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence (this method was used to determine $5,127,000$7,015,000 of the $7,913,000$10,796,000 in impairments recognized during the threesix months ended March 31,June 30, 2015), for which we do not have access to the unobservable inputs used to determine these estimated fair values, (ii) discounted cash flow models (this method was used to determine $3,000$242,000 of the $7,913,000$10,796,000 in impairments recognized during the threesix months ended March 31,June 30, 2015) and (iii) the accumulation of asset retirement costs as a result of increases in

estimated environmental liabilities which increased the carrying value of certain properties in excess of their fair value (this method was used to determine $2,783,000$3,539,000 of the $7,913,000$10,796,000 in impairments recognized during the threesix months ended March 31,June 30, 2015). The non-cash impairment charges recorded during the three and six months ended March 31,June 30, 2015 and 2014 were attributable to reductions in estimated undiscounted cash flows expected to be received during the assumed holding period, reductions in our estimates of value for properties held for sale and the accumulation of asset retirement costs as a result of increases in estimated environmental liabilities which increased the carrying value of certain properties in excess of their fair value. The estimated fair value of real estate is based on the price that would be received from the sale of the property in an orderly transaction between market participants at the measurement date. In general, we consider multiple internal valuation techniques when measuring the fair value of a property, all of which are based on unobservable inputs and assumptions that are classified within Level 3 of the Fair Value Hierarchy. These unobservable inputs include assumed holding periods ranging up to 15 years, assumed average rent increases of 2.0% annually, income capitalized at a rate of 8.0% and cash flows discounted at a rate of 7.0%. These assessments have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future rental rates and operating expenses that could differ materially from actual results in future periods. Where properties held for use have been identified as having a potential for sale, additional judgments are required related to the determination as to the appropriate period over which the projected undiscounted cash flows should include the operating cash flows and the amount included as the estimated residual value. This requires significant judgment. In some cases, the results of whether impairment is indicated are sensitive to changes in assumptions input into the estimates, including the holding period until expected sale.

Deferred Rent Receivable and Revenue Recognition: We earn rental income under operating and direct financing leases with tenants. Minimum lease payments from operating leases are recognized on a straight-line basis over the term of the leases. The cumulative difference between lease revenue recognized under this method and the contractual lease payment terms is recorded as deferred rent receivable on our consolidated balance sheets. We provide reserves for a portion of the recorded deferred rent receivable if circumstances indicate that it is not reasonable to assume that the tenant will make all of its contractual lease payments when due during the current term of the lease. We make estimates of the collectability of our accounts receivable related to revenue from rental properties. We analyze accounts receivable and historical bad debt levels, customer creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. Additionally, with respect to tenants in bankruptcy, we estimate the expected recovery through bankruptcy claims and increase the allowance for amounts deemed uncollectible. If our assumptions regarding the collectability of accounts receivable prove incorrect, we could experience write-offs of the accounts receivable or deferred rent receivable in

excess of our allowance for doubtful accounts. Lease termination fees are recognized as rental income when earned upon the termination of a tenant’s lease and relinquishment of space in which we have no further obligation to the tenant. The present value of the difference between the fair market rent and the contractual rent for above-market and below-market leases at the time properties are acquired is amortized into revenue from rental properties over the remaining lives of the in-place leases.

Direct Financing Leases: Income under direct financing leases is included in revenues from rental properties and is recognized over the lease terms using the effective interest rate method which produces a constant periodic rate of return on the net investments in the leased properties. The investments in direct financing leases are increased for interest income earned and amortized over the life of the leases and reduced by the receipt of lease payments. We consider direct financing leases to be past-due or delinquent

when a contractually required payment is not remitted in accordance with the provisions of the underlying agreement. We evaluate each account individually and set up an allowance when, based upon current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms, and the amount can be reasonably estimated.

We review our direct financing leases at least annually to determine whether there has been an-other-than-temporary decline in the current estimate of residual value of the property. The residual value is our estimate of what we could realize upon the sale of the property at the end of the lease term, based on market information and third-party estimates where available. If this review indicates that a decline in residual value has occurred that is other-than-temporary, we recognize an impairment charge. There were no impairments of any of our direct financing leases during the three and six months ended March 31,June 30, 2015 and 2014.

When we enter into a contract to sell properties that are recorded as direct financing leases, we evaluate whether we believe it is probable that the disposition will occur. If we determine that the disposition is probable and therefore the property’s holding period is reduced, we record an allowance for credit losses to reflect the change in the estimate of the undiscounted future rents. Accordingly, the net investment balance is written down to fair value.

Notes and Mortgages Receivable:Notes and mortgages receivable consists of loans originated by us in conjunction with property dispositions and funding provided to tenants in conjunction with property acquisitions. Notes and mortgages receivable are recorded at stated principal amounts. We evaluate the collectability of both interest and principal on each loan to determine whether it is impaired. A loan is considered to be impaired when, based upon current information and events, it is probable that we will be unable to collect all amounts due under the existing contractual terms. When a loan is considered to be impaired, the amount of loss is calculated by comparing the recorded investment to the fair value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the fair value of the underlying collateral, if the loan is collateralized. Interest income on performing loans is accrued as earned. Interest income on impaired loans is recognized on a cash basis. We do not provide for an additional allowance for loan losses based on the grouping of loans as we believe the characteristics of the loans are not sufficiently similar to allow an evaluation of these loans as a group for a possible loan loss allowance. As such, all of our loans are evaluated individually for impairment purposes.

Environmental Remediation Obligations: We record the fair value of a liability for an environmental remediation obligation as an asset and liability when there is a legal obligation associated with the retirement of a tangible long-lived asset and the liability can be reasonably estimated. Environmental remediation obligations are estimated based on the level and impact of contamination at each property. The accrued liability is the aggregate of the best estimate of the fair value of cost for each component of

the liability. The accrued liability is net of recoveries of environmental costs from state underground storage tank (“UST” or “USTs”) remediation funds with respect to both past and future environmental spending based on estimated recovery rates developed from prior experience with the funds. Net environmental liabilities are currently measured based on their expected future cash flows which have been adjusted for inflation and discounted to present value. We accrue for environmental liabilities that we believe are allocable to other potentially responsible parties if it becomes probable that the other parties will not pay their environmental remediation obligations.

Income Taxes: We and our subsidiaries file a consolidated federal income tax return. Effective January 1, 2001, we elected to qualify, and believe we are operating so as to qualify, as a REIT for federal income tax purposes. Accordingly, we generally will not be subject to federal income tax on qualifying

REIT income, provided that distributions to our shareholders equal at least the amount of our taxable income as defined under the Internal Revenue Code. We accrue for uncertain tax matters when appropriate. The accrual for uncertain tax positions is adjusted as circumstances change and as the uncertainties become more clearly defined, such as when audits are settled or exposures expire. Tax returns for the years 2011, 2012 and 2013, and tax returns which will be filed for the year ended 2014, remain open to examination by federal and state tax jurisdictions under the respective statute of limitations.

Earnings per Common Share: Basic earnings per common share gives effect, utilizing the two-class method, to the potential dilution from the issuance of common shares in settlement of restricted stock units (“RSU” or “RSUs”) which provide for non-forfeitable dividend equivalents equal to the dividends declared per common share. Basic earnings per common share is computed by dividing net earnings less dividend equivalents attributable to RSUs by the weighted-average number of common shares outstanding during the year. Diluted earnings per common share, also gives effect to the potential dilution from the exercise of stock options utilizing the treasury stock method. There were 5,000 stock options excluded from the earnings per share calculations below as they were anti-dilutive as of March 31,June 30, 2015 and 2014, respectively.

		Three months ended June 30,								Six months ended June 30,
(in thousands)		2015				2014				2015				2014
Earnings from continuing operations		$	11,758			$	6,874			$	11,696			$	14,567
Less dividend equivalents attributable to RSUs outstanding			(139	)			(66	)			(179	)			(128	)
Earnings from continuing operations attributable to common shareholders			11,619				6,808				11,517				14,439
(Loss) earnings from discontinued operations			(139	)			(237	)			(1,214	)			1,708
Less dividend equivalents attributable to RSUs outstanding			—				—				—				(15	)
(Loss) earnings from discontinued operations attributable to common shareholders			(139	)			(237	)			(1,214	)			1,693
Net earnings attributable to common shareholders used for basic and diluted earnings per share calculation		$	11,480			$	6,571			$	10,303			$	16,132
Weighted-average number of common shares outstanding:
Basic			33,420				33,403				33,419				33,400
Stock options			—				—				—				—
Diluted			33,420				33,403				33,419				33,400
RSUs outstanding at the end of the period			406				333				406				333

Dividends:For the threesix months ended March 31,June 30, 2015 and 2014, we paid cash dividends of $12,150,000$19,592,000 or $0.36$0.58 per share (which consisted of a $7,425,000$14,867,000 or $0.22$0.44 per share from regular quarterly cash dividenddividends and a $4,725,000 or $0.14 per share special cash dividend) and $8,423,000$15,175,000 or $0.25$0.45 per share (which consisted of a $6,738,000$13,490,000 or $0.20$0.40 per share from regular quarterly cash dividenddividends and a $1,685,000 or $0.05 per share special cash dividend), respectively.

Out-of-Period Adjustment:During the three months ended March 31, 2014, we corrected a misstatement in our recording of prepaid real estate taxes and real estate tax expense for the year ended 2013. We concluded that these adjustments were not material to our results for this or any of the prior periods and, as such, we recorded an out-of-period adjustment to decrease our net earnings by $420,000 for the three months ended March 31, 2014.

2. LEASES

As of March 31,June 30, 2015, we owned 751823 properties and leased 106104 properties from third-party landlords. Our 857927 properties are located in 1923 states across the United States and Washington, D.C., with concentrations in the Northeast and Mid-Atlantic regions. Substantially all of our properties are leased on a triple-net basis primarily to petroleum distributors and, to a lesser extent, individual operators. Generally our tenants supply fuel and either operate our properties directly or sublet our properties to operators who operate their gas stations, convenience stores, automotive repair service facilities or other businesses at our properties. Our triple-net 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. (See note 5 for additional information regarding environmental obligations.) Substantially all of our tenants’ financial results depend on the sale of refined petroleum products and 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. During the terms of our leases, we monitor the credit quality of our triple-net tenants by reviewing their published credit rating, if available, reviewing publicly available financial statements, or reviewing financial or other operating statements which are delivered to us pursuant to applicable lease agreements, monitoring news reports regarding our tenants and their respective businesses, and monitoring the timeliness of lease payments and the performance of other financial covenants under their leases.

Revenues from rental properties included in continuing operations for the three and six months ended March 31,June 30, 2015 were $25,461,000 and $49,381,000, respectively. Revenues from rental properties included in continuing operations for the three and six months ended June 30, 2014 were $23,920,000$24,350,000 and $23,757,000,$48,108,000, respectively. Rental income contractually due or received from our tenants included in revenues from rental properties in continuing operations was $19,833,000$21,337,000 and $18,853,000$41,169,000 for the three and six months ended March 31,June 30, 2015, respectively, and $19,445,000 and $38,270,000 for the three and six months ended June 30, 2014, respectively. “Pass-through” real estate taxes and other municipal charges paid by us which were reimbursable by our tenants pursuant to the terms of triple-net lease agreements included in revenues from rental properties and rental property expenses in continuing operations totaled $3,512,000$3,345,000 and $2,722,000$6,858,000 for the three and six months ended March 31,June 30, 2015, respectively, and $3,395,000 and $6,117,000 for the three and six months ended June 30, 2014, respectively.

In accordance with GAAP, we recognize rental revenue in amounts which vary from the amount of rent contractually due or received during the periods presented. As a result, revenues from rental properties include non-cash adjustments recorded for deferred rental revenue due to the recognition of

rental income on a straight-line (or average) basis over the current lease term, the net amortization of above-market and below-market leases, recognition of rental income recorded under direct financing leases using the effective interest method which produces a constant periodic rate of return on the net investments in the leased properties and the amortization of deferred lease incentives (the “Revenue Recognition Adjustments”). Revenue Recognition Adjustments included in revenues from rental properties in continuing operations were $575,000$779,000 and $2,182,000$1,354,000 for the three and six months ended

June 30, 2015, respectively, and $1,542,000 and $3,724,000 for the three and six months ended March 31, 2015 andJune 30, 2014, respectively. We provide reserves for a portion of the recorded deferred rent receivable if circumstances indicate that a tenant will not make all of its contractual lease payments during the current lease term. Our assessments and assumptions regarding the recoverability of the deferred rent receivable are reviewed on an ongoing basis and such assessments and assumptions are subject to change.

The components of the $95,380,000$94,968,000 net investment in direct financing leases as of March 31,June 30, 2015 are minimum lease payments receivable of $188,482,000$185,452,000 plus unguaranteed estimated residual value of $13,979,000 less unearned income of $107,081,000.$104,463,000. The components of the $95,764,000 net investment in direct financing leases as of December 31, 2014 were minimum lease payments receivable of $191,491,000 plus unguaranteed estimated residual value of $13,979,000 less unearned income of $109,706,000.

Marketing and the Master Lease

Approximately 480475 of the properties we own or lease as of March 31,June 30, 2015 were previously leased to Getty Petroleum Marketing Inc. (“Marketing”) pursuant to a master lease (the “Master Lease”). In December 2011, Marketing filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court. The Master Lease was terminated effective April 30, 2012, and in July 2012, the Bankruptcy Court approved Marketing’s Plan of Liquidation and appointed a trustee (the “Liquidating Trustee”) to oversee liquidation of the Marketing estate (the “Marketing Estate”).

As part of Marketing’s bankruptcy proceeding, we maintained significant pre-petition and post-petition unsecured claims against Marketing. On March 3, 2015, we entered into the Settlement Agreementa settlement agreement with the Liquidating Trustee of the Marketing Estate to resolve claims asserted by us in Marketing’s bankruptcy case.case (the “Settlement Agreement”). The Settlement Agreement was approved by an order of the U.S. Bankruptcy Court, and, on April 22, 2015, we received an interima distribution from the Marketing Estate of $6,800,000 on account of our general unsecured claims. We expect to receive additional distributions from the Marketing Estate during 2015 on account of our general unsecured claims, however, we cannot provide any assurance as to the timing or the total amount of such future distributions.

The Settlement Agreement also resolved a dispute relating to the balance of payment due to us pursuant to our agreement to fund the lawsuit that was brought by the Liquidating Trustee against Lukoil Americas Corporation and related entities and individuals for the benefit of Marketing’s creditors. As a result, on April 22, 2015, we also received an additional distribution of $550,000 from the Marketing Estate in full resolution of the funding agreement dispute.

The funds received from the Marketing Estate are included in Other Income on our Consolidated Statements of Operations.

Leasing Activities

As of March 31,June 30, 2015, we have entered into long-term triple-net leases with petroleum distributors for 15 separate property portfolios comprising approximately 442440 properties in the aggregate that were previously leased to Marketing. We have also entered into month-to-month license agreements with occupants of 2116 properties previously leased to Marketing (substantially all of whom were former tenants of Marketing) allowing such occupants to continue to occupy and use these properties as gas stations,

convenience stores, automotive repair service facilities or other businesses. These month-to-month license agreements are intended as interim occupancy arrangements until these properties are sold or leased on a triple-net basis. Under our month-to-month license agreements, we receive monthly licensing fees and are responsible for the payment of operating expenses such as maintenance, repairs and real estate taxes (“Property Expenditures (as defined below)Expenditures”), certain environmental compliance costs and costs associated with any environmental remediation.

The long-term triple-net leases with petroleum distributors are unitary triple-net lease agreements generally with an initial term of 15 to 20 years, and options for successive renewal terms of up to 20 years. Rent is scheduled to increase at varying intervalsduring both the initial and renewal terms of up to five years on the anniversary of the commencement date of theour leases. Several of the leases provide for additional rent based on the aggregate volume of fuel sold. In addition, the majority of the leases require the tenants to make capital expenditures at our properties substantially all of which are related to the replacement of USTs that are owned by our tenants. As of March 31,June 30, 2015, we have a remaining commitment to co-invest as much as $13,287,000$12,945,000 in the aggregate with our tenants for a portion of such capital expenditures within the next approximately five years. Our commitment provides us with the option to either reimburse our tenants, or to offset rent when these capital expenditures are made. This deferred expense is recognized on a straight-line basis as a reduction of rental revenue in our consolidated statements of operations over the terms of the various leases.

As part of the triple-net leases for properties previously leased to Marketing, we transferred title of the USTs to our tenants, and the obligation to pay for the retirement and decommissioning or removal of USTs at the end of their useful life or earlier if circumstances warranted was fully or partially transferred to our new tenants. We remain contingently liable for this obligation in the event that our tenants do not satisfy their responsibilities. Accordingly, through March 31,June 30, 2015, we removed $12,954,000$13,033,000 of asset retirement obligations and $10,538,000$10,555,000 of net asset retirement costs related to USTs from our balance sheet. The cumulative net amount of $2,416,000$2,478,000 is recorded as deferred rental revenue and will be recognized on a straight-line basis as additional revenues from rental properties over the terms of the various leases. We incurred $90,000 and $60,000 of lease origination costs for the threesix months ended March 31,June 30, 2015 and 2014, respectively, which deferred expense is recognized on a straight-line basis as amortization expense in our consolidated statements of operations over the terms of the various leases. For the three months ended March 31, 2014, we did not incur any lease origination costs.

Chestnut Petroleum Dist. Inc.Major Tenants

As of March 31,June 30, 2015, we leased 117had three significant tenants by revenue:

United Oil Transaction

On June 3, 2015, we acquired fee simple interests in 77 convenience store and retail motor fuel stations from affiliates of Pacific Convenience and Fuels LLC and simultaneously leased the properties to Apro, LLC (d/b/a “United Oil”), a leading regional convenience store and gas station operator, under three separate cross-defaulted long-term triple-net unitary leases (the “United Oil Transaction”). The selected combined unaudited financial dataproperties are located in Northern California, Southern California, Colorado, Washington, Nevada and Oregon. The acquired properties operate under several well recognized brands including 76, Conoco, Circle K, 7-11 and My Goods Market. The total purchase price for the acquisition was approximately $214,500,000, which was funded with proceeds from the Credit Agreement and Restated Prudential Note Purchase Agreement.

The leases governing the properties are unitary triple-net lease agreements with initial terms of CPD NY20 years and NECG, which has been prepared by Chestnut Petroleum Dist. Inc.’s managementoptions for up to three successive five year renewal options. The unitary leases require United Oil to pay a fixed annual rent plus all amounts pertaining to the properties including environmental expenses, real estate taxes, assessments, license and permit fees, charges for public utilities and all other governmental charges. Rent is provided below:contractually scheduled to increase at various intervals over the course of the initial and renewal terms of the leases.

Lease Restructurings

Eviction proceedings against a holdover group of former Marketing subtenants who continued to occupy properties in the State of Connecticut which are subject to our unitary lease with NECG (the “NECG Lease”) had a material adverse impact on NECG’s operations and profitability. In June 2013, the Connecticut Superior Court ruled in our favor with respect to all 24 locations involved in these proceedings. However, in July 2013, a majority of the operators against whom these Superior Court rulings were made appealed the decisions. Following the Superior Court ruling, 16 of the 24 former operators against whom eviction proceedings were brought either reached agreements with NECG to remain at their properties or voluntarily vacated them, and in either case their appeals were withdrawn. Eight of the operators remained in contested occupancy of the subject sites during the pendency of their appeal. On January 27, 2015, the Connecticut Supreme Court, in a written opinion, affirmed the Superior Court rulings in favor of NECG and us. As a result, we or NECG have regained possession of substantially all of the locations that were still subject to appeal.

In August 2013, we entered into an agreement to modify the NECG Lease and, as part of such agreement, we deferred portions of the scheduled rent payments due from NECG. This lease modification agreement also included provisions under which we can recapture and sever properties from the NECG Lease and, as of March 31,June 30, 2015, we have removed 2527 of the original 84 properties from the NECG Lease. As a result of the disruption and costs associated with the holdover litigation, NECG was not current in its rent and certain other obligations to us under the NECG Lease. As of March 31,June 30, 2015, we have a total accounts receivable bad debt reserve related to the NECG Lease of $1,608,000$1,561,000 for amounts which we do not believe we will collect from NECG.

As a result of the developments with NECG described above, we concluded that it was probable that we would not receive from NECG the entire amount of the contractual lease payments owed to us under the NECG Lease. Accordingly, as of March 31,June 30, 2015, we have fully reserved for the outstanding deferred rent receivable balance of $6,265,000.$6,190,000. Allowances for deferred rent receivable reduce our net earnings, but do not impact our cash flow from operating activities.

We continue to be engaged in discussions with NECG about additional modifications to the NECG Lease, which will likely include the removal of additional properties from the NECG Lease. Our discussions with NECG are ongoing and we cannot predict the ultimate outcome of these discussions and their impact on the final size of the portfolio or future rental income associated with the NECG Lease. As of March 31,June 30, 2015, and the date of this Quarterly Report on Form 10-Q, NECG is current in its rent payments to us under the NECG Lease, as amended.

Capitol Petroleum Group, LLC

As of March 31,June 30, 2015, we leased 97 gasoline station and convenience store properties in four separate unitary leases to subsidiaries of Capitol Petroleum Group, LLC (“Capitol”). We lease 37 properties to White Oak Petroleum, LLC, 24 properties to Hudson Petroleum Realty, LLC, 20 properties to Dogwood Petroleum Realty, LLC and 16 properties to Big Apple Petroleum Realty, LLC. In aggregate, these Capitol affiliates represented 16% of our rental revenues for the three months ended March 31, 2015 and 2014. Although we have separate, non-cross defaulted leases with each of these subsidiaries, because such subsidiaries are affiliated with one another and under common control, a material adverse impact on one subsidiary, or failure of one subsidiary to perform its rental and other obligations to us, may contribute to a material adverse impact on one or more of the other subsidiaries and/or failure of one or more of the other subsidiaries to perform its rental and other obligations to us.

The selected combined unaudited financial data of White Oak Petroleum, LLC, Hudson Petroleum Realty, LLC, Dogwood Petroleum Realty, LLC and Big Apple Petroleum Realty, LLC, which has been prepared by Capitol’s management is provided below:

Hanuman Business, Inc.

As of March 31, 2015, we havehad a portfolio of 61 operating properties located in Southern New Jersey and Eastern Pennsylvania, which arewere subject to a unitary triple-net lease (the “Ramoco Lease”) with Hanuman Business, Inc. (d/b/a “Ramoco”). We havehad entered into a forbearance and modification agreement with Ramoco whereby we have agreed to defer a portion of monthly rent due to us under the Ramoco Lease, subject to certain conditions. As a result of the developments with Ramoco, we concluded that it was probable that we would not receive from Ramoco the entire amount of the contractual lease payments owed to us under the Ramoco Lease. Accordingly, as of March 31,June 30, 2015, we have fully reserved for the outstanding deferred rent receivable balance of $754,000.$814,000. Allowances for deferred rent receivable reduce our net earnings, but do not impact our cash flow from operating activities.

We are engaged in ongoing discussions with Ramoco about additional modifications toOn August 3, 2015, we terminated the Ramoco Lease and sold or repositioned the 61 properties subject thereto, all of which we anticipate will include the removalhad previously designated as transitional properties. (See note 1 – General – Subsequent Events for a description of properties from the Ramoco Lease. We cannot predict the ultimate outcome of these discussions and their impact on the final size of the portfolio or future rental income associated with the Ramoco Lease. As of March 31, 2015, and the date of this Quarterly Report on Form 10-Q, Ramoco is current in its rent payments to us under the Ramoco Lease, as amended.Transaction.)

3. COMMITMENTS AND CONTINGENCIES

Credit Risk

In order to minimize our exposure to credit risk associated with financial instruments, we place our temporary cash investments, if any, with high credit quality institutions. Temporary cash investments, if any, are currently held in an overnight bank time deposit with JPMorgan Chase Bank, N.A. and these balances, at times, exceed federally insurable limits.

Legal Proceedings

We are subject to various legal proceedings and claims which arise in the ordinary course of our business. As of March 31,June 30, 2015 and December 31, 2014, we had accrued $11,140,000$11,340,000 and $11,040,000, respectively, for certain of these matters which we believe were appropriate based on information then currently available. We have recorded provisions for litigation losses aggregating $100,000$309,000 and $10,000$35,000 for certain of these matters during the threesix months ended March 31,June 30, 2015 and 2014, respectively. We are unable to estimate ranges in excess of the amount accrued with any certainty for these matters. 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 and MTBE litigations in the states of New Jersey and Pennsylvania, 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

In September 2003, we received a directive (the “Directive”) issued by the New Jersey Department of Environmental Protection (“NJDEP”) under the New Jersey Spill Compensation and Control Act. The Directive indicated that we are one of approximately 66 potentially responsible parties for alleged natural resource damages (“NRD” or “NRDs”) resulting from the discharges of hazardous substances along the lower Passaic River (the “Lower Passaic River”). The Directive provided, among other things, that the recipients thereof must conduct an assessment of the natural resources that have been injured by the discharges into the Lower Passaic River and must implement interim compensatory restoration for the injured natural resources. The NJDEP alleges that our liability arises from alleged discharges originating from our former Newark, New Jersey Terminal site (which was sold in October 2013). We responded to the Directive by asserting that we were not liable. There has been no material activity and/or communications by the NJDEP with respect to the Directive since early after its issuance.issuance in 2003.

In May 2007, the United States Environmental Protection Agency (“EPA”) entered into an Administrative Settlement Agreement and Order on Consent (“AOC”) with over 70 parties, most of which are also members of a Cooperating Parties Group (“CPG”) who have collectively agreed to perform a Remedial Investigation and Feasibility Study (“RI/FS”) for a 17 mile stretch of the Lower Passaic River in New Jersey. We are a party to the AOC and are a member of the CPG. The RI/FS is intended to address the investigation and evaluation of alternative remedial actions with respect to alleged damages to the Lower Passaic River, which is currently scheduled to be completed in 2015. Subsequently, certain members of the CPG entered into an Administrative Settlement Agreement and Order on Consent (“10.9 AOC”) effective June 18, 2012 to perform certain remediation activities, including removal and capping of sediments at the river mile 10.9 area and certain testing. The EPA also issued a Unilateral Order to Occidental Chemical Corporation (“Occidental”) directing Occidental to participate and contribute to the cost of the river mile 10.9 work. On April 11, 2014, the EPA issued a Focused Feasibility Study (“FFS”) with proposed remedial alternatives to address cleanup of the lower 8-mile stretch of the Lower Passaic River. While the EPA’s preferred approach would involve bank-to-bank dredging and installing an engineered cap, the FFS is subject to public comments and/or objections that must be considered by the EPA before a final remedial approach is selected and thus many uncertainties remain with respect to the final proposed remedy for the lower 8-miles of the Lower Passaic River. The FFS, RI/FS, AOC and 10.9 AOC do not resolve liability issues for remedial work or the restoration of or compensation for alleged natural resource damages to the Lower Passaic River, which are not known at this time. Our ultimate liability, if any, in the pending and possible future proceedings pertaining to the Lower Passaic River is uncertain and subject to numerous contingencies which cannot be predicted and the outcome of which are not yet known.

MTBE Litigation – State of New Jersey

We are defending against a lawsuit brought by various governmental agencies of the State of New Jersey, including the NJDEP alleging various theories of liability due to contamination of groundwater with methyl tertiary butyl ether (a fuel derived from methanol, commonly referred to as “MTBE”)

involving multiple locations throughout the State of New Jersey (the “New Jersey MDL Proceedings”). The complaint names as defendants approximately 50 petroleum refiners, manufacturers, distributors and retailers of MTBE or gasoline containing MTBE. The State of New Jersey is seeking reimbursement of significant clean-up and remediation costs arising out of the alleged release of MTBE containing gasoline in the State of New Jersey and is asserting various natural resource damage claims as well as liability against the owners and operators of gas station properties from which the releases occurred. Although the ultimate outcome of the New Jersey MDL Proceedings cannot be ascertained at this time, we believe it is probable that this litigation will be resolved in a manner that is unfavorable to us. Preliminary settlement communications from the plaintiffs indicated that they were seeking $88,000,000 collectively from us, Marketing and Lukoil. Subsequent communications from the plaintiffs indicate that they are seeking approximately $24,000,000 from us. We have countered with a settlement offer on behalf of the Company only, which was rejected. We do not believe that plaintiffs’ settlement proposal is realistic given the legal theories and facts applicable to our activities and gas stations, and affirmative defenses available to us, all of which we believe have not been sufficiently developed in the proceedings. We continue to engage in a settlement negotiation and a dialogue to educate the plaintiff’s counsel on the unique nature of the Company and our business as compared to the other defendants in the litigation. In addition, we are pursuing claims for reimbursement of monies expended in the defense and settlement of certain MTBE cases under pollution insurance policies previously obtained by Marketing and under which we believe we are entitled to coverage; however, we have not yet confirmed whether and to what extent such coverage

may actually be available. We are unable to estimate with certainty the amount of possible loss in excess of the amount accrued for the New Jersey MDL Proceedings as we do not believe that plaintiffs’ settlement proposal is realistic and there remains uncertainty as to the allegations in this case as they relate to us, our defenses to the claims, our rights to indemnification or contribution from other parties and the aggregate possible amount of damages for which we may be held liable. Our best estimate of the loss within a range of loss has been accrued for; however, it is possible that losses related to the New Jersey MDL Proceedings could result in a loss in excess of the amount accrued as of March 31,June 30, 2015 and such additional losses could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price.

MTBE Litigation – State of Pennsylvania

On June 19, 2014, the Commonwealth of Pennsylvania filed a complaint in the Court of Common Pleas, Philadelphia County alleging various theories of liability due to alleged statewide MTBE contamination in Pennsylvania (the “Complaint”).

The Complaint names us and more than 50 other defendants, including but not limited to Exxon Mobil, various BP entities, Chevron, Citgo, Gulf, Lukoil Americas, Getty Petroleum Marketing Inc., Marathon, Hess, Shell Oil, Texaco, Valero, as well as other smaller petroleum refiners, manufacturers, distributors and retailers of MTBE or gasoline containing MTBE.

The Complaint seeks compensation, among other asserted causes of action, for NRDs and for injuries sustained as a result of “defendants’ unfair and deceptive trade practices and acts in the marketing of MTBE and gasoline containing MTBE.” Plaintiffs also seek to recover costs paid or incurred by the State of Pennsylvania to detect, treat and remediate MTBE from public and private water wells and groundwater. Plaintiffs have recently filed an amended Complaint asserting additional causes of action against the defendants. We have joined with other defendants in filing motions to dismiss the claims against us, which remain pending with the Court.

We intend to defend vigorously against the Complaint. Our ultimate liability, if any, in this proceeding is uncertain and subject to numerous contingencies which cannot be predicted and the outcome of which are not yet known.

4. CREDIT AGREEMENT AND PRUDENTIAL LOAN AGREEMENT

Credit AgreementDebt Refinancing

On February 25, 2013,As of December 31, 2014, we entered intowere a party to a $175,000,000 senior secured revolving credit agreement (the “Credit Agreement”) with a group of commercial banks led by JPMorgan Chase Bank, N.A. which was scheduled to mature in August 2015. As of December 31, 2014, borrowings under the credit agreement were $25,000,000 bearing interest at a rate of approximately 2.7%. On June 2, 2015, the borrowings then outstanding under such credit agreement were repaid with proceeds of the Credit Agreement (as defined below) and the prior credit agreement was terminated. In addition, as a result of entering into the Credit Agreement, mortgage liens and other security interests on certain of our properties and assets held by the prior bank group under our prior credit agreement were released.

Credit Agreement

On June 2, 2015, we entered into a $225,000,000 senior unsecured credit agreement (the “Credit Agreement”) with a group of banks led by Bank of America, N.A. (the “Bank Syndicate”). The Credit Agreement consists of a $175,000,000 revolving facility (the “Revolving Facility”), which is scheduled to mature in August 2015.June 2018 and a $50,000,000 term loan (the “Term Loan”), which is scheduled to mature in June 2020. Subject to the terms of the Credit Agreement and our continued compliance with its provisions, we have the option to (a) extend the term of the Credit AgreementRevolving Facility for one additional year to August 2016. The Credit Agreement allocates $25,000,000 of the total Bank Syndicate commitment to a term loanJune 2019 and $150,000,000 to a revolving credit facility. Subject to the terms of the Credit Agreement, we have the option to(b) increase by $50,000,000$75,000,000 the amount of the revolving credit facilityRevolving Facility to $200,000,000. $250,000,000.

The Credit Agreement incurs interest and fees at various rates based on our net debt to EBITDA ratio (as defined in the Credit Agreement) at the end of each quarterly reporting period. The Revolving Facility permits borrowings at an interest rate equal to the sum of a base rate plus a margin of 1.50%0.95% to 2.00%2.25% or a LIBOR rate plus a margin of 2.50%1.95% to 3.00% based on our leverage at the end of

each quarterly reporting period.3.25%. The annual commitment fee on the undrawn funds under the Credit AgreementRevolving Facility is 0.30%0.25% to 0.40% based on our leverage0.30%. The Term Loan bears interest at a rate equal to the endsum of each quarterly reporting period.a base rate plus a margin of 0.90% to 2.20% or a LIBOR rate plus a margin of 1.90% to 3.20%. The Credit Agreement does not provide for scheduled reductions in the principal balance prior to its maturity. As of March 31,June 30, 2015, borrowings under the Revolving Facility were $116,000,000 and borrowings under the Term Loan were $50,000,000 and, as of December 31, 2014, borrowings under the Credit Agreementour prior credit agreement were $31,500,000 and $25,000,000, respectively.$25,000,000. The interest rate on Credit Agreement borrowings at March 31,June 30, 2015 was approximately 2.7%3.4% per annum.

The Credit Agreement provides for collateral in the form of, among other items, mortgage liens on certain of our properties. As of March 31, 2015 and December 31, 2014, the mortgaged properties had an aggregate net book value of $153,652,000 and $153,741,000, respectively. The parties to the Credit Agreement and the Prudential Loan Agreement (as defined below) share the collateral pursuant to the terms of an inter-creditor agreement. On December 23, 2013, we amended the Credit Agreement to change certain definitions and financial covenant calculations provided for in the agreement. The Credit Agreement contains customary financial covenants such as loan to value,availability, leverage and coverage ratios and minimum tangible net worth, as well as limitations on restricted payments, which may limit our ability to incur additional debt or pay dividends. The Credit Agreement contains customary events of default, including cross default provisions under the Restated Prudential LoanNote Purchase Agreement (as defined below), change of control and failure to maintain REIT status. Any event of default, if not cured or waived in a timely manner, would increase by 200 basis points (2.00%) the interest rate we pay under the Credit Agreement and prohibit us from drawing funds against the Credit Agreement

and could result in the acceleration of our indebtedness under the Credit Agreement and could also give rise to an event of default and could result in the acceleration of our indebtedness under the Restated Prudential LoanNote Purchase Agreement. We may be prohibited from drawing funds against the revolving credit facilityRevolving Facility if there is a material adverse effect on our business, assets, prospects or condition.

Prudential Loan Agreement

On February 25, 2013,June 2, 2015, we entered into a $100,000,000an amended and restated note purchase agreement (the “Restated Prudential Note Purchase Agreement”) amending and restating our existing senior secured term loannote purchase agreement with theThe Prudential Insurance Company of America (the “Prudential Loan Agreement”(“Prudential”), which matures and an affiliate of Prudential. Pursuant to the Restated Prudential Note Purchase Agreement, Prudential and its affiliate released the mortgage liens and other security interests held by Prudential and its affiliate on certain of our properties and assets, redenominated the existing notes in the aggregate amount of $100,000,000 issued under the existing note purchase agreement as Series A Notes, and issued $75,000,000 of Series B Notes bearing interest at 5.35% and maturing in June 2023 to Prudential and certain affiliates of Prudential. The Series A Notes will continue to bear interest at 6.0% and will mature in February 2021. The Restated Prudential Loan Agreement bears interest at 6.00%. The Prudential LoanNote Purchase Agreement does not provide for scheduled reductions in the principal balance of either the Series A Notes or the Series B Notes prior to its maturity. their respective maturities. As of June 30, 2015, borrowings under the Restated Prudential Note Purchase Agreement were $175,000,000 and, as of December 31, 2014, borrowings under the prior senior secured note purchase agreement were $100,000,000.

The parties to the Credit Agreement and theRestated Prudential Loan Agreement share the collateral described above pursuant to the terms of an inter-creditor agreement. On December 23, 2013, we amended the Prudential Loan Agreement to change certain definitions and financial covenant calculations provided for in the agreement. The Prudential LoanNote Purchase Agreement contains customary financial covenants such as loan to value, leverage and coverage ratios and minimum tangible net worth, as well as limitations on restricted payments, which may limit our ability to incur additional debt or pay dividends. The Restated Prudential LoanNote Purchase Agreement contains customary events of default, including default under the Credit Agreement and failure to maintain REIT status. Any event of default, if not cured or waived, would increase by 200 basis points (2.00%) the interest rate we pay under the Restated Prudential LoanNote Purchase Agreement and could result in the acceleration of our indebtedness under the Restated Prudential LoanNote Purchase Agreement and could also give rise to an event of default and could result in the acceleration of our indebtedness under our Credit Agreement. As of March 31, 2015 and December 31, 2014, borrowings under the Prudential Loan Agreement were $100,000,000.

As of March 31,June 30, 2015, we are in compliance with all of the material terms of the Credit Agreement and Restated Prudential LoanNote Purchase Agreement, including the various financial covenants described above.

The aggregate maturity ofdate and amounts outstanding under the Credit Agreement and the Restated Prudential LoanNote Purchase Agreement as of March 31, 2015, isare as follows: 2015 — $31,500,000 and 2021 — $100,000,000.

As of March 31,June 30, 2015, and December 31, 2014, the carrying value of the borrowings outstanding under the Credit Agreement and the Prudential Series B Notes approximated fair value.value, and the fair value of the borrowings under the Prudential Series A Notes was $106,349,000. As of MarchDecember 31, 2015,2014, the carrying value of our prior credit agreement approximated fair value, and the fair value of borrowings outstanding under the Prudential Loan Agreement was $107,900,000 and, as of December 31, 2014, the fair value of the borrowings outstanding under the Prudential Loan AgreementSeries A Notes was $106,527,000. The fair value of the borrowings outstanding as of March 31,June 30, 2015 and December 31, 2014 was determined using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality, risk profile and projected average borrowings outstanding or borrowings outstanding, which are based on unobservable inputs within Level 3 of the Fair Value Hierarchy.

5. ENVIRONMENTAL OBLIGATIONS

We are subject to numerous federal, state and local laws and regulations, including matters relating to the protection of the environment such as the remediation of known contamination and the retirement and decommissioning or removal of long-lived assets including buildings containing hazardous materials, USTs and other equipment. Environmental costs are principally attributable to remediation costs which include removing USTs, excavation of contaminated soil and water, installing, operating, maintaining and decommissioning remediation systems, monitoring contamination and governmental agency compliance reporting incurred in connection with contaminated properties. We seek reimbursement from state UST remediation funds related to these environmental costs where available. In July 2012, we purchased a ten-year pollution legal liability insurance policy covering all of our properties for preexisting unknown environmental liabilities and new environmental events. The policy has a $50,000,000 aggregate limit and is subject to various self-insured retentions and other conditions and limitations. Our intention in purchasing this policy is to obtain protection predominantly for significant events. No assurances can be given that we will obtain a net financial benefit from this investment.

The estimated future costs for known environmental remediation requirements are accrued when it is probable that a liability has been incurred and a reasonable estimate of fair value can be made. The accrued liability is the aggregate of the best 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.

We enter into leases and various other agreements which contractually allocate responsibility between the parties for known and unknown environmental liabilities at or relating to the subject properties. We are contingently liable for these environmental obligations in the event that the counterparty to the lease or other agreement does not satisfy them. 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 material adjustments to the amounts recorded for environmental litigation accruals and environmental remediation liabilities. We are required to accrue for environmental liabilities that we believe are allocable to others under leases and other agreements if we determine that it is probable that the counterparty will not meet its environmental obligations. We may ultimately be responsible to pay for environmental liabilities as the property owner if the counterparty fails to pay them. As a result of Marketing’s bankruptcy filing, we accrued for significant additional environmental liabilities because we concluded that Marketing would not be able to perform them. A liability has not been accrued for environmental obligations that are the responsibility of any other current

tenants based on those tenant’s history of paying such obligations and/or our assessment of their financial ability and intent to pay such costs. However, there can be no assurance that our assessments are correct or that our tenants who have paid their obligations in the past will continue to do so. The ultimate resolution of these matters could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price.

For all of our triple-net leases, our tenants are contractually responsible for compliance with environmental laws and regulations, removal of USTs at the end of their lease term and remediation of any environmental contamination that arises during the term of their tenancy. Under the terms of our leases covering properties previously leased to Marketing, we have agreed to be responsible for environmental contamination at the premises that was known at the time the lease commenced, and that existed prior to commencement of the lease and is discovered (other than as a result of a voluntary site investigation) during the first ten years of the lease term. After expiration of such ten year period, responsibility for all newly discovered contamination, even if it relates to periods prior to commencement of the lease, is contractually allocated to our tenant. Our tenants at properties previously leased to Marketing are in all cases responsible for the cost of any remediation of contamination that results from their use and occupancy of our properties. Under substantially all of our other triple-net leases, responsibility for remediation of all environmental contamination discovered during the term of the lease (including known and unknown contamination that existed prior to commencement of the lease) is the responsibility of our tenant.

We anticipate that a majority of the USTs at properties previously leased to Marketing will be replaced over the next decade 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 ten 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 contamination. For our transitional properties occupied under month-to-month license agreements, or which are vacant, we are responsible for costs associated with UST removals and for the cost of remediation of contamination found during the removal of USTs. We have also agreed to be responsible for environmental contamination that existed prior to the sale of certain properties assuming the contamination is discovered (other than as a result of a voluntary site investigation) during the first five years after the sale of the properties.

After the termination of the Master Lease, we commenced a process to take control of our properties and to reposition them. A substantial portion of these properties had USTs which were either at or near the end of their useful lives. For properties that we sold, we elected to remove certain of these USTs and in the course of re-letting properties, we made lease concessions to reimburse our tenants at operating gas stations for certain capital expenditures including UST replacements. In the course of these UST removals and replacements, previously unknown environmental contamination has been and continues to be discovered. As a result of these developments, we began to assess our prospective future environmental liability resulting from preexisting unknown environmental contamination which we believe may be discovered during removal and replacement of USTs at properties previously leased to Marketing in the future.

At December 31, 2014, we developed a reasonable estimate of fair value for the prospective future environmental liability resulting from preexisting unknown environmental contamination and accrued for these estimated costs. These estimates are based primarily upon 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. Our accrual of the additional liability represents the best 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 the ten 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 new environmental contamination. Based on these estimates, along with relevant economic and risk factors, at March 31,June 30, 2015, we have $47,999,000$46,197,000 accrued for these future environmental liabilities related to preexisting unknown contamination. Our estimates are based upon facts that are known to us at this time and an assessment of the possible ultimate remedial action outcomes. It is possible that our assumptions, which form the basis of our estimates, regarding our ultimate environmental liabilities may change, which may result in our providing an accrual, or adjustments to the amounts recorded, for environmental remediation liabilities. Among the many uncertainties that impact the estimates are our assumptions, the necessary regulatory approvals for, and potential modifications of remediation plans, the amount of data available upon initial assessment of contamination, 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 additional claims. Additional environmental liabilities could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price.

Environmental exposures are difficult to assess and estimate for numerous reasons, including the extent 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, 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, enacted 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 which are subject to significant change, and are adjusted as the remediation treatment progresses, as circumstances change and as environmental contingencies become more clearly defined and reasonably estimable. We expect to adjust the accrued liabilities for environmental remediation obligations reflected in our consolidated financial statements as they become probable and a reasonable estimate of fair value can be made.

We measure our environmental remediation liability 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 liability 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 March 31,June 30, 2015, we had accrued a total of $94,945,000$93,057,000 for our prospective environmental remediation liability. This accrual includes (a) $46,946,000,$46,860,000, which was our best estimate of reasonably estimable environmental remediation obligations and obligations to remove USTs for which we are the title owner, net of estimated recoveries and (b) $47,999,000$46,197,000 for future environmental liabilities related to preexisting unknown contamination. As of December 31, 2014, we had accrued a total of $91,566,000 for our prospective environmental remediation liability. This accrual includes (a) $41,866,000, which was our best estimate of reasonably estimable environmental remediation obligations and obligations to remove USTs for which we are the title owner, net of estimated recoveries and (b) $49,700,000 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, $1,169,000$2,398,000 and $620,000$1,286,000 of net accretion expense was recorded for the threesix months ended March 31,June 30, 2015 and 2014, respectively, which is included in environmental expenses. In addition, during the threesix months ended March 31,June 30, 2015 and 2014, we recorded credits to environmental expenses included in continuing operations and to earnings from operating activities in discontinued operations in our consolidated statements of operations aggregating $49,000$864,000 and $359,000,$13,000, 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 provisions for environmental litigation losses.

During the threesix months ended March 31,June 30, 2015 and 2014, we increased the carrying value of certain of our properties by $5,279,000$6,753,000 and $2,598,000,$4,959,000, respectively, due to increases in estimated environmental remediation costs. The recognition and subsequent changes in estimates in environmental liabilities and the increase or decrease in carrying value of the properties are non-cash transactions which do not appear on the face of the consolidated statements of cash flows. We recorded non-cash impairment charges aggregating $4,805,000$6,610,000 and $1,242,000$2,720,000 for the threesix months ended March 31,June 30, 2015 and 2014, respectively, in continuing operations and in discontinued operations for capitalized asset retirement costs. Capitalized asset retirement costs are being depreciated over the estimated remaining life of the UST, a ten 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 included in continuing operations and earnings from discontinued operations in our consolidated statements of operations for the threesix months ended March 31,June 30, 2015 and 2014 included $1,636,000$3,222,000 and $335,000,$690,000, respectively, of depreciation related to capitalized asset retirement costs. Capitalized asset retirement costs were $59,357,000$58,097,000 and $59,809,000 as of March 31,June 30, 2015 and December 31, 2014, respectively.

As part of the triple-net leases for properties previously leased to Marketing, we transferred title of the USTs to our tenants, and the obligation to pay for the retirement and decommissioning or removal of USTs at the end of their useful life or earlier if circumstances warranted was fully or partially transferred to our new tenants. We remain contingently liable for this obligation in the event that our tenants do not satisfy their responsibilities. Accordingly, through March 31,June 30, 2015, we removed $12,954,000$13,033,000 of asset retirement obligations and $10,538,000$10,555,000 of net asset retirement costs related to USTs from our balance sheet. The cumulative net amount of $2,416,000$2,478,000 is recorded as deferred rental revenue and will be recognized on a straight-line basis as additional revenues from rental properties over the terms of the various leases. (See note 2 for additional information.)

We cannot predict what environmental legislation or regulations may be enacted in the future or how existing laws or regulations will be administered or interpreted with respect to products or activities to which they have not previously been applied. We cannot predict if state UST fund programs will be administered and funded in the future in a manner that is consistent with past practices and if future environmental spending will continue to be eligible for reimbursement at historical recovery rates under these programs. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies or stricter interpretation of existing laws, which may develop in the future, could have an adverse effect on our financial position, or that of our tenants, and could require substantial additional expenditures for future remediation.

In light of the uncertainties associated with environmental expenditure contingencies, we are unable to estimate ranges in excess of the amount accrued with any certainty; however, we believe 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. Future environmental expenses could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price.

6. SHAREHOLDERS’ EQUITY

A summary of the changes in shareholders’ equity for the threesix months ended March 31,June 30, 2015 is as follows (in thousands, except share amounts):

On March 2, 2015, our Board of Directors granted 79,250 restricted stock units to our employees under our 2004 Omnibus Incentive Compensation Plan.

We are authorized to issue 20,000,000 shares of preferred stock, par value $.01 per share, of which none were issued as of March 31,June 30, 2015 or December 31, 2014.

During six months ended June 30, 2015, we acquired fee title to 78 gasoline stations and convenience store properties for an aggregate purchase price of $216,900,000.

On June 3, 2015, we acquired fee simple interests in 77 convenience store and retail motor fuel stations from affiliates of Pacific Convenience and Fuels LLC and simultaneously leased the properties to Apro, LLC (d/b/a “United Oil”), a leading regional convenience store and gas station operator, under three separate cross-defaulted long-term triple-net unitary leases (the “United Oil Transaction”). The properties are located in Northern California, Southern California, Colorado, Washington, Nevada and Oregon. The acquired properties operate under several well recognized brands including 76, Conoco, Circle K, 7-11 and My Goods Market. The total purchase price for the acquisition was approximately $214,500,000, which was funded with proceeds from the Credit Agreement and Restated Prudential Note Purchase Agreement.

The leases governing the properties are unitary triple-net lease agreements with initial terms of 20 years and options for up to three successive five year renewal options. The unitary leases require United Oil to pay a fixed annual rent plus all amounts pertaining to the properties including environmental

expenses, real estate taxes, assessments, license and permit fees, charges for public utilities and all other governmental charges. Rent is contractually scheduled to increase at various intervals over the course of the initial and renewal terms of the leases.

We accounted for these transactions as business combinations. We estimated the fair value of acquired tangible assets (consisting of land, buildings and equipment) “as if vacant.” Based on these estimates, we allocated $142,357,000 of the purchase price to land, $75,664,000 to buildings and equipment, $112,000 to above market leases, $19,552,000 to below market leases, which is accounted for as a deferred liability, and $16,136,000 to in-place leases and other intangible assets. We incurred transaction costs of $413,000 directly related to the acquisition which are included in general and administrative expenses in our consolidated statements of operations. As of June 30, 2015, our allocations of the purchase price among the assets acquired are preliminary and subject to change.

Unaudited Pro Forma Condensed Consolidated Financial Information

The following unaudited pro forma condensed consolidated financial information has been prepared utilizing our historical financial statements and the combined effect of additional revenue and expenses from the properties acquired assuming that the acquisitions had occurred as of the beginning of the earliest period presented, after giving effect to certain adjustments resulting from the straight-lining of scheduled rent increases. The following information also gives effect to the additional interest expense resulting from the assumed increase in borrowings outstanding under the Credit Agreement and the Restated Prudential Note Purchase Agreement to fund the acquisition and the elimination of acquisition costs. The unaudited pro forma condensed financial information is not indicative of the results of operations that would have been achieved had the acquisition reflected herein been consummated on the dates indicated or that will be achieved in the future.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the sections entitled “Part I, Item 1A. Risk Factors” and “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” which appear in our Annual Report on Form 10-K for the year ended December 31, 2014; and “Part I, Item 1. Financial Statements” and “Part II, Item 1A. Risk Factors” which appear in this Quarterly Report on Form 10-Q.

GENERAL

Real Estate Investment Trust

We are a real estate investment trust (“REIT”) specializing in the ownership, leasing and financing of retail motor fuel and convenience store properties. As of March 31,June 30, 2015, we owned 751823 properties and leased 106104 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 shareholders. In order to continue to qualify for taxation as a REIT, we are required, among other things, to distribute at least 90% of our ordinary taxable income to our shareholders each year.

Our Retail Petroleum Marketing Assets

Substantially all of our properties are leased on a triple-net basis primarily to petroleum distributors and, to a lesser extent, individual operators. Generally our tenants supply fuel and either operate our properties directly or sublet our properties to operators who operate their gas stations, convenience stores, automotive repair service facilities or other businesses at our properties. Our triple-net tenants are contractually 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 and 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. During the terms of our leases, we monitor the credit quality of our triple-net tenants by reviewing their published credit rating, if available, reviewing publicly available financial statements, or reviewing financial or other operating statements which are delivered to us pursuant to applicable lease agreements, monitoring news reports regarding our tenants and their respective businesses, and monitoring the timeliness of lease payments and the performance of other financial covenants under their leases. (For additional information regarding our real estate business, our properties and environmental matters, see “Item 1. Business — Company Operations” and “Item 2. Properties” which appear in our Annual Report on Form 10-K for the year ended December 31, 2014 and “Environmental Matters” below.)

Investment Strategy

As part of our overall growth strategy, we regularly review acquisition and financing opportunities to invest in additional retail motor fuel and convenience store properties, and we expect to continue to pursue investments that we believe will benefit our financial performance. 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 will promote geographic diversity. A key element of our investment strategy is to invest in properties in strong primary markets that serve high density population centers. In addition to traditional sale/leaseback and other real estate acquisitions, our investments may also include purchase money mortgages or loans relating to our leasehold portfolios and recapture and redevelopment of existing properties for alternative uses. In order to execute on significant acquisitions, we may need to access the capital markets. We cannot provide any assurance that we will be successful making additional investments, that investments will be available which meet our investment criteria or that our current sources of liquidity will be sufficient to fund such investments.investments or sources of capital available to us on favorable terms, or at all.

Core Net Lease Portfolio

As of March 31,June 30, 2015, we leased 698769 properties to tenants under long-term triple-net leases. Our core net lease portfolio consists of 614685 properties leased to approximately 2223 regional and national fuel distributor tenants under unitary or master triple-net leases and 84 properties leased as single unit triple-net leases. These leases generally provide for initial terms of 15 to 20 years with options for successive renewal terms of up to 20 years and periodic rent escalations. Several of our leases covering properties previously leased to Getty Petroleum Marketing, Inc. (“Marketing”) also provide for additional rent based on the aggregate volume of fuel sold. Certain leases require our tenants to invest capital in our properties.

Transitional Properties

We periodically evaluate our portfolio of properties and, as of March 31,June 30, 2015, we had two groups of properties, which we consider transitional: (i) 3940 properties, which arewere either subject to month-to-month license agreements, or which arewere vacant; and (ii) 120118 properties, which are currentlywere subject to two unitary triple-net leases that arewhich as of such date were in the process of being restructured.

As of March 31,June 30, 2015, we have 21had 16 properties subject to month-to-month license agreements. Our month-to-month license agreements allow the licensees (substantially all of whom were former tenants of Marketing) to occupy and use these properties as gas stations, convenience stores, automotive repair service facilities or other businesses. These month-to-month license agreements are intended as interim occupancy arrangements until these properties are sold or leased on a triple-net basis. Under our month-to-month license agreements we are responsible for the payment of operating expenses such as maintenance, repairs and real estate taxes (“Property Expenditures”), certain environmental compliance costs and costs associated with any environmental remediation. In the aggregate, Property Expenditures and environmental costs exceed the licensing revenues we receive for transitional properties occupied under month-to-month license agreements. As of March 31,June 30, 2015, we also have 18had 24 vacant transitional properties where we are responsible for Property Expenditures, environmental compliance costs and costs associated with environmental remediation. We will continue to be responsible for Property Expenditures and environmental costs for these transitional properties until the properties are sold or leased on a triple-net basis. Under many of the agreements pertaining to the sale or leasing of these transitional properties, we will continue to be responsible for certain environmental costs. The incurrence of these various expenses may materially negatively impact our cash flow and ability to pay dividends.

As of March 31,June 30, 2015, the 5957 remaining properties subject to a unitary triple-net lease with NECG Holdings Corp. (“NECG”) continue to be transitional. Certain of the properties included in our unitary lease with NECG (the “NECG Lease”) were subject to eviction proceedings against former subtenants of Marketing who continued to occupy these properties after the termination of the Master Lease. As of March 31,June 30, 2015, we have removed 2527 of the original 84 properties from the NECG Lease and agreed to defer

portions of rent due to us under the NECG Lease. We continue to be engaged in discussions with NECG about potential modifications to the NECG Lease, which will likely include the removal of additional properties from the NECG Lease. Our discussions with NECG are ongoing and we cannot predict the ultimate outcome of these discussions and their impact on the final size of the portfolio or future rental income associated with the NECG Lease.

In addition, as of March 31,June 30, 2015, we categorized as transitional 61 properties located in Southern New Jersey and Eastern Pennsylvania, which arewere then subject to a unitary triple-net lease (the “Ramoco Lease”) with Hanuman Business, Inc. (d/b/a “Ramoco”). We havehad entered into a forbearance and modification agreement with Ramoco whereby we have agreed to defer a portion of monthly rent due to us under the Ramoco Lease, subject to certain conditions. We are engaged in ongoing discussions with

On August 3, 2015, we terminated the Ramoco about additional modificationsLease, and sold or repositioned the 61 properties subject to the Ramoco Lease. As part of this transaction (the “Ramoco Transaction”), we (i) sold to Ramoco affiliates 48 of the properties that had been subject to the Ramoco Lease, (ii) re-subleased to Ramoco three properties which we anticipate will includelease from third-party landlords and which had been subject to the removal of certainRamoco Lease, and (iii) recaptured for redevelopment and re-letting ten properties fromthat had been subject to the Ramoco Lease. We cannot predictThe total consideration for the ultimate outcome of these discussions and their impact on the final size of the portfolio and future rental income associated with the48 properties we sold to Ramoco, Lease.including seller financing, was $15.0 million.

During the threesix months ended March 31,June 30, 2015, we sold six12 properties for $1.8$3.1 million in the aggregate. Subsequent to March 31,June 30, 2015, we have sold twofour additional transitional properties for $0.7$1.3 million in the aggregate. We continue to reposition our transitional properties and expect that we will either sell, enter into new leases or modify existing leases on these transitional properties over time. Although we are currently working on repositioning these transitional properties, the timing of pending or anticipated transactions may be affected by factors beyond our control and we cannot predict when or on what terms sales or leases will ultimately be consummated.

As a result of the Ramoco Transaction and the sale of four additional transitional properties subsequent to June 30, 2015, our total portfolio consists of 875 properties as of August 10, 2015. Our core net lease portfolio includes 772 properties consisting of 685 properties leased to approximately 23 regional and national fuel distributor tenants under unitary or master triple-net leases and 87 properties leased as single unit triple-net leases, and our 103 transitional properties include (i) 46 properties, which are either subject to month-to-month license agreements, or which are vacant; and (ii) 57 properties, which are currently subject to a unitary triple-net lease which we are in the process of restructuring.

Our estimates, judgments, assumptions and beliefs regarding our properties affect the amounts reported in our consolidated financial statements and are subject to change. Actual results could differ from these estimates, judgments and assumptions and such differences could be material. If we are unable to re-let or sell our properties upon terms that are favorable to us, if the amounts realized from the disposition of assets held for sale vary significantly from our estimates of fair value, or if we change our estimates, judgments, assumptions and beliefs, our business, financial condition, revenues, operating expenses, results of operations, liquidity, ability to pay dividends and stock price may be materially adversely affected or adversely affected to a greater extent than we have experienced.

Marketing and the Master Lease

Approximately 480475 of the properties we own or lease as of March 31,June 30, 2015 were previously leased to Marketing pursuant to the Master Lease. In December 2011, Marketing filed for Chapter 11 bankruptcy protection in the Bankruptcy Court. The Master Lease was terminated effective April 30, 2012, and in July 2012, the Bankruptcy Court approved Marketing’s Plan of Liquidation and appointed the Liquidating Trustee to oversee liquidation of the Marketing Estate.

As part of Marketing’s bankruptcy proceeding, we maintained significant pre-petition and post-petition unsecured claims against Marketing. On March 3, 2015, we entered into the Settlement Agreement with the Liquidating Trustee of the Marketing Estate to resolve claims asserted by us in Marketing’s bankruptcy case. The Settlement Agreement was approved by an order of the U.S. Bankruptcy Court, and, on April 22, 2015, we received an interima distribution from the Marketing Estate of $6.8 million on account of our general unsecured claims. We expect to receive additional distributions from the Marketing Estate during 2015 on account of our general unsecured claims, however, we cannot provide any assurance as to the timing or the total amount of such future distributions.

The Settlement Agreement also resolved a dispute relating to the balance of payment due to us pursuant to our agreement to fund the lawsuit that was brought by the Liquidating Trustee against Lukoil Americas Corporation and related entities and individuals for the benefit of Marketing’s creditors. As a result, on April 22, 2015, we also received an additional distribution of approximately $0.6 million from the Marketing Estate in full resolution of the funding agreement dispute.

Asset Impairment

We perform an impairment analysis for the carrying amount of our properties in accordance with GAAP when indicators of impairment exist. We reduced the carrying amount to fair value, and recorded in continuing and discontinued operations, non-cash impairment charges aggregating $7.9$2.8 million and $1.7$10.8 million for the three and six months ended March 31,June 30, 2015, respectively, and $2.0 million and $3.7 million for the three and six months ended June 30, 2014, respectively, where the carrying amount of the property exceeds 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 non-cash impairment charges were attributable to reductions in estimated undiscounted cash flows expected to be received during the assumed holding period, reductions in our estimates of value for properties held for sale and the accumulation of asset retirement costs as a result of increases in estimated environmental liabilities which increased the carrying value of certain properties in excess of their fair value. The evaluation of and estimates of anticipated cash flows used to conduct our impairment analysis are highly subjective and actual results could vary significantly from our estimates.

Supplemental Non-GAAP Measures

We manage our business to enhance the value of our real estate portfolio and, as a REIT, place particular emphasis on minimizing risk and generating cash sufficient to make required distributions to shareholders of at least 90% of our ordinary taxable income each year. In addition to measurements defined by GAAP, we also focus on funds from operations available to common shareholders (“FFO”) and adjusted funds from operations available to common shareholders (“AFFO”) to measure our performance. FFO is generally considered to be an appropriate supplemental non-GAAP measure of the performance of REITs. FFO is defined by the National Association of Real Estate Investment Trusts as net earnings before depreciation and amortization of real estate assets, gains or losses on dispositions of real estate, non-cash impairment charges, extraordinary items and cumulative effect of accounting change. Other REITs may use definitions of FFO and/or AFFO that are different from ours and, accordingly, may not be comparable.

FFO and AFFO are not in accordance with, or a substitute for measures prepared in accordance with GAAP. In addition, FFO and AFFO are not based on any comprehensive set of accounting rules or principles. Neither FFO nor AFFO represent cash generated from operating activities calculated in accordance with GAAP and therefore these measures should not be considered an alternative for GAAP net earnings or as a measure of liquidity. These measures should only be used to evaluate our performance in conjunction with corresponding GAAP measures.

We believe that FFO and AFFO are helpful to investors in measuring our performance because both FFO and AFFO exclude various items included in GAAP net earnings that do not relate to, or are not indicative of, our fundamental operating performance. Our assessment of our operations is focused on long-term sustainability and not on non-cash items, which may cause short-term fluctuations in net income but have no impact on cash flows. FFO excludes various items such as gains or losses on property dispositions, depreciation and amortization of real estate assets and non-cash 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, 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. Deferred rental revenue results primarily from fixed rental increases scheduled under certain leases with our tenants. In accordance with GAAP, the aggregate minimum rent due over the current term of these leases are recognized on a straight-line (or average) basis rather than when payment is contractually due. The present value of the difference between the fair market rent and the contractual rent for in-place leases at the time properties are acquired is amortized into revenue from rental properties over the remaining lives of the in-place leases. Income from direct financing leases is recognized over the lease terms using the effective interest method which produces a constant periodic rate of return on the net investments in the leased properties. The amortization of deferred lease incentives represents our co-investment 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 also include non-cash environmental accretion expense and non-cash changes in environmental estimates, which do not impact our recurring cash flow. GAAP net earnings and FFO from time to time may also include property acquisition costs or other unusual items. Property acquisition costs are expensed, generally in the period when properties are acquired, and are not reflective of recurring operations. Other unusual items are not reflective of recurring operations.

We pay particular attention to AFFO, a supplemental non-GAAP performance measure that we believe best represents our recurring financial performance. Beginning in the fourth quarter of 2014, we revised our definition of AFFO to exclude non-cash environmental accretion expense and non-cash changes in environmental estimates as these items do not impact our recurring cash flow. AFFO for all periods presented has been restated to conform to our revised definition.

Our revised definition of AFFO is defined as FFO less Revenue Recognition Adjustments (net of allowances), acquisition costs, non-cash environmental accretion expense and non-cash changes in environmental estimates and other unusual items. In our view, AFFO provides a more accurate depiction than FFO of our fundamental operating performance as AFFO removes non-cash Revenue Recognition Adjustments related to: (i) scheduled rent increases from operating leases, net of related collection reserves; (ii) the rental revenue earned from acquired in-place leases; (iii) rent due from direct financing leases; and (iv) the amortization of deferred lease incentives. Our definition of AFFO also excludes non-cash, or non-recurring items such as: (i) non-cash environmental accretion expense and non-cash changes in environmental estimates, (ii) costs expensed related to property acquisitions; and (iii) other unusual

items. By providing AFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies.

A reconciliation of net earnings to FFO and AFFO for the three and six months ended March 31,June 30, 2015 and 2014 is as follows (in thousands, except per share amounts):

RESULTS OF OPERATIONS

Three months ended March 31,June 30, 2015 compared to the three months ended March 31,June 30, 2014

Total revenues included in continuing operations increased by $0.2$1.1 million to $24.7$26.2 million for the three months ended March 31,June 30, 2015, as compared to $24.5$25.1 million for the three months ended March 31,June 30, 2014. The increase in total revenues for the three months ended March 31,June 30, 2015 was primarily due to increases in rentalapproximately $1.4 million of revenues from our existing portfolio of rental properties and increasesthe United Oil Transaction in “pass-through” expenses paid by us and reimbursable by tenants, partiallyJune 2015, offset by decreasesreductions in Revenue Recognition Adjustments. Revenues from rental properties included in continuing operations were $23.9$25.4 million and $23.8$24.3 million for the three months ended March 31,June 30, 2015 and 2014, respectively. Rental income contractually due or received from our tenants included in revenues from rental properties in continuing operations was $19.8$21.3 million for the three months ended March 31,June 30, 2015, as compared to $18.9$19.4 million for the three months ended March 31,June 30, 2014. Revenues from rental properties and rental property expenses included $3.5$3.3 million and $2.7$3.4 million for the three months ended March 31,June 30, 2015 and 2014, respectively, of “pass-through” real estate taxes and other municipal charges paid by us and reimbursable by our tenants pursuant to their triple-net lease agreements. Interest income on notes and mortgages receivable was $0.8 million for the three months ended March 31,June 30, 2015 as comparedand 2014, respectively.

In accordance with GAAP, we recognize revenues from rental properties in amounts which vary from the amount of rent contractually due or received 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 $0.7the 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 included in continuing operations includes Revenue Recognition Adjustments which increased rental revenue by $0.8 million for the three months ended March 31,June 30, 2015 and $1.5 million for the three months ended June 30, 2014.

Rental property expenses included in continuing operations, which are primarily comprised of rent expense, real estate and other state and local taxes and maintenance expense, were $5.5 million for the three months ended June 30, 2015, as compared to $6.0 million for the three months ended June 30, 2014. The decline in rental property expenses for the three months ended June 30, 2015 was primarily attributable to reductions in maintenance and other property related expenses paid by us.

Non-cash impairment charges included in continuing operations were $2.0 million for the three months ended June 30, 2015, as compared to $0.4 million for the three months ended June 30, 2014. Impairment charges are recorded when the carrying value of a property is reduced to fair value. The non-cash impairment charges in continuing operations for the three months ended June 30, 2015 and 2014 were primarily attributable to 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 the effect of adding asset retirement costs as a result of increases in our environmental liabilities, which increased the carrying value of certain properties in excess of their fair value.

Environmental expenses included in continuing operations for the three months ended June 30, 2015 were $1.8 million, as compared to $1.7 million for the three months ended June 30, 2014. Environmental expenses vary from period to period and, accordingly, undue reliance should not be placed on the magnitude or the direction of change in reported environmental expenses for one period, as compared to prior periods.

General and administrative expenses included in continuing operations increased by $1.0 million to $4.8 million for the three months ended June 30, 2015, as compared to $3.8 million for the three months ended June 30, 2014. The increase in general and administrative expenses for the three months ended June 30, 2015 was principally due to a $0.7 million increase in professional fees, including $0.4 million of expenses related to the United Oil Transaction.

Allowance for uncollectible accounts included in continuing operations for the three months ended June 30, 2015 was $0.4 million, as compared to $1.6 million for the three months ended June 30, 2014. The allowances for the three months ended June 30, 2014 were primarily related to reserves associated with the NECG Lease.

Depreciation and amortization expense included in continuing operations was $4.0 million for the three months ended June 30, 2015, as compared to $2.3 million for the three months ended June 30, 2014. The increase was primarily due to depreciation charges related to asset retirement costs of $1.2 million for environmental liabilities and properties acquired offset by the effect of certain assets becoming fully depreciated, lease terminations and dispositions of real estate.

Other income, net for the three months ended June 30, 2015 was $7.4 million. The income received during the three months ended June 30, 2015 was primarily attributable to a $6.8 million distribution from the Marketing Estate on account of our general unsecured claims, and approximately $0.6 million received from the Marketing Estate in full resolution of a dispute regarding our agreement to fund the lawsuit that was brought against Lukoil Americas Corporation.

Interest expense was $3.4 million for the three months ended June 30, 2015, as compared to $2.4 million for the three months ended June 30, 2014. The increase was due to higher average borrowings outstanding and the incurrence of new indebtedness required to fund the United Oil Transaction during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014.

We report as discontinued operations the results of 13 properties accounted for as held for sale in accordance with GAAP as of June 30, 2015 and certain properties disposed of during the periods presented that were previously classified as held for sale. The operating results and gains on dispositions of real estate sold during the three months ended June 30, 2014 have been classified as discontinued operations to conform to the 2015 presentation. Loss from discontinued operations was $0.1 million for the three months ended June 30, 2015, as compared to a loss of $0.2 million for the three months ended June 30, 2014. The decrease in loss was primarily due to a reduction in loss from operating activities offset by lower gains on dispositions of real estate. Gains on dispositions of real estate included in discontinued operations were $32 thousand for the three months ended June 30, 2015 and $1.2 million for the three months ended June 30, 2014. For the three months ended June 30, 2015, there were three property dispositions recorded in discontinued operations. For the three months ended June 30, 2014, there were 21 property dispositions recorded in discontinued operations. The non-cash impairment charges recorded in discontinued operations during the three months ended June 30, 2015 and 2014 of $0.9 million and $1.6 million, respectively, were attributable to reductions in our estimates of value for properties held for sale and the accumulation of asset retirement costs as a result of increases in estimated environmental liabilities which increased the carrying value of certain properties above their fair value. Gains on disposition of real estate and impairment charges vary from period to period and, accordingly, undue reliance should not be placed on the magnitude or the directions of change in reported gains and impairment charges for one period, as compared to prior periods.

For the three months ended June 30, 2015 FFO was $18.5 million, as compared to $9.8 million for the three months ended June 30, 2014. FFO for the three months ended June 30, 2015 was impacted by changes in net earnings as well as a $0.9 million increase in impairment charges, a $1.7 million increase

in depreciation and amortization expense and a $1.2 million decrease in gains on dispositions of real estate. AFFO increased by $8.4 million to $18.5 million, as compared to $10.1 million for the prior period. In addition to the factors affecting net earnings and FFO, AFFO for the three months ended June 30, 2015 was also impacted by a $0.8 million decrease in the allowance for deferred rental revenue, a $0.6 million increase in non-cash environmental expenses, accretion and credits, a $0.1 million decrease in allowance for mortgage receivable and a $0.8 million decrease in Rental Revenue Adjustments which cause our reported revenues from rental properties to vary from the amount of rent payments contractually due or received by us during the periods presented (which are included in net earnings and FFO but are excluded from AFFO).

Diluted earnings per share was $0.34 per share for the three months ended June 30, 2015, as compared to $0.20 per share for the three months ended June 30, 2014. Diluted FFO per share was $0.55 per share for the three months ended June 30, 2015, as compared to $0.29 per share for the three months ended June 30, 2014. Diluted AFFO per share for the three months ended June 30, 2015 was $0.55 per share, as compared to $0.30 per share for the three months ended June 30, 2014.

Six months ended June 30, 2015 compared to the six months ended June 30, 2014

Total revenues included in continuing operations increased by $1.3 million to $50.9 million for the six months ended June 30, 2015, as compared to $49.6 million for the six months ended June 30, 2014. The increase in total revenues for the three months ended June 30, 2015 was primarily due to approximately $1.4 million of revenues from the United Oil Transaction in June 2015, offset by reductions in Revenue Recognition Adjustments. Revenues from rental properties included in continuing operations were $49.3 million and $48.1 million for the six months ended June 30, 2015 and 2014, respectively. Rental income contractually due or received from our tenants included in revenues from rental properties in continuing operations was $41.1 million for the six months ended June 30, 2015, as compared to $38.3 million for the six months ended June 30, 2014. Revenues from rental properties and rental property expenses included $6.8 million and $6.1 million for the six months ended June 30, 2015 and 2014, respectively, of “pass-through” real estate taxes and other municipal charges paid by us and reimbursable by our tenants pursuant to their triple-net lease agreements. Interest income on notes and mortgages receivable was $1.6 million for the six months ended June 30, 2015, as compared to $1.5 million for the six months ended June 30, 2014.

In accordance with GAAP, we recognize revenues from rental properties in amounts which vary from the amount of rent contractually due or received 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 included in continuing operations includes Revenue Recognition Adjustments which increased rental revenue by $0.6$1.4 million for the threesix months ended March 31,June 30, 2015 and $2.2$3.7 million for the threesix months ended March 31,June 30, 2014.

Rental property expenses included in continuing operations, which are primarily comprised of rent expense, real estate and other state and local taxes and maintenance expense, were $6.1$11.6 million for the threesix months ended March 31,June 30, 2015, as compared to $6.0$12.0 million for the threesix months ended March 31,June 30, 2014. The increasedecrease in rental property expenses for the threesix months ended March 31,June 30, 2015 was dueprimarily attributable to an increasereductions in “pass-through” real estate taxesmaintenance and other municipal chargesproperty related expenses paid by us and reimbursable by our tenants partially offset by a reduction in real estate taxes paid by us and maintenance expenses.us.

Non-cash impairment charges included in continuing operations were $6.7$8.7 million for the threesix months ended March 31,June 30, 2015, as compared to $0.2$0.6 million for the threesix months ended March 31,June 30, 2014. Impairment charges are recorded when the carrying value of a property is reduced to fair value. The non-cash impairment charges in continuing operations for the threesix months ended March 31,June 30, 2015 and 2014 were primarily attributable to 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 the effect of adding asset retirement costs as a result of increases in our environmental liabilities, which increased the carrying value of certain properties in excess of their fair value, and reductions in estimated sales prices from third-party offers based on signed contracts, letters of intent or indicative bids for certain of our transitional properties.value.

Environmental expenses included in continuing operations for the threesix months ended March 31,June 30, 2015 increased by $1.0$1.1 million to $1.9$3.7 million, as compared to $0.9$2.6 million for the threesix months ended March 31,June 30, 2014. The increase in environmental expenses for the threesix months ended March 31,June 30, 2015 was principally due to a $0.3$0.2 million increase in litigation losses and legal fees and $0.8$0.9 million of increases in environmental remediation costs. Environmental expenses vary from period to period and, accordingly, undue reliance should not be placed on the magnitude or the direction of change in reported environmental expenses for one period, as compared to prior periods.

General and administrative expenses included in continuing operations increased by $0.1$0.6 million to $3.8$8.6 million for the threesix months ended March 31,June 30, 2015, as compared to $3.7$8.0 million for the threesix months ended March 31,June 30, 2014. The increase in general and administrative expenses for the three months ended March 31,June 30, 2015 was principally due to a $0.1$0.9 million increase in professional fees, including $0.4 million of expenses related to the United Oil Transaction, offset by declines in employee related expenses.

Allowance for uncollectible accounts included in continuing operations for the threesix months ended March 31,June 30, 2015 was $50 thousand,$0.4 million, as compared to $1.3$2.3 million for the threesix months ended March 31,June 30, 2014. The allowances for the threesix months ended March 31,June 30, 2014 were primarily related to reserves associated with the NECG Lease.

Depreciation and amortization expense included in continuing operations was $3.6$7.6 million for the threesix months ended March 31,June 30, 2015, as compared to $2.3$4.7 million for the threesix months ended March 31,June 30, 2014. The increase was primarily due to depreciation charges related to asset retirement costs of $1.0$2.5 million for environmental liabilities related to preexisting unknown contamination and properties acquired offset by the effect of certain assets becoming fully depreciated, lease terminations and dispositions of real estate.

Other income, net for the six months ended June 30, 2015 was $7.4 million, as compared to $0.2 million for the six months ended June 30, 2014. The income received during the six months ended June 30, 2015 was primarily attributable to a $6.8 million distribution from the Marketing Estate on account of our general unsecured claims, and approximately $0.6 million received from the Marketing Estate in full resolution of a dispute regarding our agreement to fund the lawsuit that was brought against Lukoil Americas Corporation.

Interest expense was $2.4$5.7 million for the threesix months ended March 31,June 30, 2015, as compared to $2.6$5.0 million for the threesix months ended March 31,June 30, 2014. The decreaseincrease was due to lowerhigher average borrowings outstanding forand the threeincurrence of new indebtedness required to fund the United Oil Transaction during the six months ended March 31,June 30, 2015, as compared to the threesix months ended March 31,June 30, 2014.

We report as discontinued operations the results of 1613 properties accounted for as held for sale in accordance with GAAP as of March 31,June 30, 2015 and certain properties disposed of during the periods presented that were previously classified as held for sale. The operating results and gains on dispositions of real estate sold during the first threesix months ofended June 30, 2014 have been classified as discontinued

operations to conform to the 2015 presentation. EarningsLoss from discontinued operations decreased by $3.0 million to a loss of $1.1was $1.2 million for the threesix months ended March 31,June 30, 2015, as compared to income from discontinued operations of $1.9$1.7 million for the threesix months ended March 31,June 30, 2014. The decrease was primarily due to lower gains on dispositions of real estate.estate offset by a reduction in loss form operating activities. Gains on dispositions of real estate included in discontinued operations were $0.1 million for the threesix months ended March 31,June 30, 2015 and $3.2$4.4 million for the threesix months ended March 31,June 30, 2014. For the threesix months ended March 31,June 30, 2015, there were fourseven property dispositions recorded in discontinued operations. For the threesix months ended March 31,June 30, 2014, there were 2849 property dispositions recorded in discontinued operations. The non-cash impairment charges recorded in discontinued operations during the threesix months ended March 31,June 30, 2015 and 2014 of $1.2$2.1 million and $1.5$3.1 million,

respectively, were attributable to reductions in our estimates of value for properties held for sale and the accumulation of asset retirement costs as a result of increases in estimated environmental liabilities which increased the carrying value of certain properties above their fair value. Gains on disposition of real estate and impairment charges vary from period to period and, accordingly, undue reliance should not be placed on the magnitude or the directions of change in reported gains and impairment charges for one period, as compared to prior periods.

For each of the threesix months ended March 31,June 30, 2015 and 2014 FFO was $10.5 million.$29.0 million, as compared to $20.2 million for the six months ended June 30, 2014. FFO for the threesix months ended March 31,June 30, 2015 was impacted by changes in net earnings as well as a $6.2$7.1 million increase in impairment charges, a $1.3$2.9 million increase in depreciation and amortization expense and a $3.3$4.5 million decrease in gains on dispositions of real estate. AFFO increased by $1.7$10.2 million to $11.0$29.6 million, as compared to $9.3$19.4 million for the prior period. In addition to the factors affecting net earnings and FFO, AFFO for the threesix months ended March 31,June 30, 2015 was also impacted by a $0.8$1.6 million decrease in the allowance for deferred rental revenue, a $0.8$0.3 million increase in non-cash environmental expenses, accretion and credits, and a $1.6$2.5 million decrease in Rental Revenue Adjustments which cause our reported revenues from rental properties to vary from the amount of rent payments contractually due or received by us during the periods presented (which are included in net earnings and FFO but are excluded from AFFO).

Diluted earnings/(loss)earnings per share was a loss of $0.04$0.31 per share for the threesix months ended March 31,June 30, 2015, as compared to earnings of $0.29$0.48 per share for the threesix months ended March 31,June 30, 2014. Diluted FFO per share was a $0.86 per share for the threesix months ended March 31,June 30, 2015, and 2014 was $0.31as compared to $0.60 per share.share for the six months ended June 30, 2014. Diluted AFFO per share for the threesix months ended March 31,June 30, 2015 was $0.33$0.87 per share, as compared to $0.28$0.58 per share for the threesix months ended March 31,June 30, 2014.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are the cash flows from our operations, funds available under the Revolving Facility of our Credit Agreement that matures in August 2015June 2018 (described below) 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 Credit Agreement and available cash and cash equivalents.

Our cash flow activities for the threesix months ended March 31,June 30, 2015 and 2014 are summarized as follows (in thousands):

Operating Activities

Cash flow from operating activities decreasedincreased by $1.7$9.8 million for the threesix months ended March 31,June 30, 2015 to $6.3$23.6 million, as compared to $8.0$13.8 million for the threesix months ended March 31,June 30, 2014. The change in cash provided by operations for the threesix months ended March 31,June 30, 2015 and 2014 is primarily the result of changes inthe receipt of a distribution from the Marketing Estate and the acquisition of operating assetsproperties during 2015 and liabilities associated with the timing of payments.2014.

Investing Activities

Our investing activities are primarily real estate-related transactions. Since 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. Cash flows from investing activities decreased by $8.5$231.8 million for the threesix months ended March 31,June 30, 2015 to $2.9a use of $210.8 million, as compared to $11.4$21.0 million for the threesix months ended March 31,June 30, 2014. The decrease was primarily due to an increase in property acquisitions of $214.0 million, a decrease in cash held for property acquisitions of $4.3$12.7 million and a decrease in proceeds from the sale of rental properties of $5.5$6.3 million.

Financing Activities

Cash flows from financing activities increased by $17.8$233.1 million for the threesix months ended March 31,June 30, 2015 to a use of $5.7$193.9 million, as compared to a use of $23.5$39.2 million for the threesix months ended March 31,June 30, 2014. The increase was primarily due to (i) net borrowings under the Credit Agreement, Restated Prudential Note Purchase Agreement and the prior credit agreement of $6.5$216.0 million for the threesix months ended March 31,June 30, 2015, as compared to net repayments of the Credit Agreementprior credit agreement of $15.0$24.0 million for the threesix months ended March 31,June 30, 2014 offset by an increase in dividends paid on common stock of $3.8$4.4 million and an increase in loan origination costs of $2.4 million.

Credit AgreementDebt Refinancing

On February 25, 2013,As of December 31, 2014, we entered intowere a party to a $175.0 million senior secured revolving credit agreement (the “Credit Agreement”) with a group of commercial banks led by JPMorgan Chase Bank, N.A. which was scheduled to mature in August 2015. As of December 31, 2014, borrowings under the credit agreement were $25.0 million bearing interest at a rate of approximately 2.7%. On June 2, 2015, the borrowings then outstanding under such credit agreement were repaid with proceeds of the Credit Agreement (as defined below) and the prior credit agreement was terminated. In addition, as a result of entering into the Credit Agreement, mortgage liens and other security interests on certain of our properties and assets held by the prior bank group under our prior credit agreement were released.

Credit Agreement

On June 2, 2015, we entered into a $225.0 million senior unsecured credit agreement (the “Credit Agreement”) with a group of banks led by Bank of America, N.A. (the “Bank Syndicate”). The Credit

Agreement consists of a $175.0 million revolving facility (the “Revolving Facility”), which is scheduled to mature in August 2015.June 2018 and a $50.0 million term loan (the “Term Loan”), which is scheduled to mature in June 2020. Subject to the terms of the Credit Agreement and our continued compliance with its provisions, we have the option to (a) extend the term of the Credit AgreementRevolving Facility for one additional year to

August 2016. The Credit Agreement allocates $25.0 million of the total Bank Syndicate commitment to a term loan June 2019 and $150.0 million to a revolving credit facility. Subject to the terms of the Credit Agreement, we have the option to(b) increase by $50.0$75.0 million the amount of the revolving credit facilityRevolving Facility to $200.0$250.0 million.

The Credit Agreement incurs interest and fees at various rates based on our net debt to EBITDA ratio (as defined in the Credit Agreement) at the end of each quarterly reporting period. The Revolving Facility permits borrowings at an interest rate equal to the sum of a base rate plus a margin of 1.50%0.95% to 2.00%2.25% or a LIBOR rate plus a margin of 2.50%1.95% to 3.00% based on our leverage at the end of each quarterly reporting period.3.25%. The annual commitment fee on the undrawn funds under the Credit AgreementRevolving Facility is 0.30%0.25% to 0.40% based on our leverage0.30%. The Term Loan bears interest at a rate equal to the endsum of each quarterly reporting period.a base rate plus a margin of 0.90% to 2.20% or a LIBOR rate plus a margin of 1.90% to 3.20%. The Credit Agreement does not provide for scheduled reductions in the principal balance prior to its maturity. As of March 31,June 30, 2015, borrowings under the Revolving Facility were $116.0 million and borrowings under the Term Loan were $50.0 million and, as of December 31, 2014, borrowings under the Credit Agreementour prior credit agreement were $31.5 million and $25.0 million, respectively.

The Credit Agreement provides for security in the form of, among other items, mortgage liens on certain of our properties. The parties to the Credit Agreement and the Prudential Loan Agreement (as defined below) share the security pursuant to the terms of an inter-creditor agreement. On December 23, 2013, we amended the Credit Agreement to change certain definitions and financial covenant calculations provided for in the agreement. The Credit Agreement contains customary financial covenants such as loan to value,availability, leverage and coverage ratios and minimum tangible net worth, as well as limitations on restricted payments, which may limit our ability to incur additional debt or pay dividends. The Credit Agreement contains customary events of default, including cross default provisions under the Restated Prudential LoanNote Purchase Agreement (as defined below), change of control and failure to maintain REIT status. Any event of default, if not cured or waived in a timely manner, would increase by 200 basis points (2.00%) the interest rate we pay under the Credit Agreement and prohibit us from drawing funds against the Credit Agreement and could result in the acceleration of our indebtedness under the Credit Agreement and could also give rise to an event of default and could result in the acceleration of our indebtedness under the Restated Prudential LoanNote Purchase Agreement. We may be prohibited from drawing funds against the revolving credit facilityRevolving Facility if there is a material adverse effect on our business, assets, prospects or condition.

Prudential Loan Agreement

On February 25, 2013,June 2, 2015, we entered into a $100.0 millionan amended and restated note purchase agreement (the “Restated Prudential Note Purchase Agreement”) amending and restating our existing senior secured term loannote purchase agreement with theThe Prudential Insurance Company of America (the “Prudential Loan Agreement”(“Prudential”), which matures and an affiliate of Prudential. Pursuant to the Restated Prudential Note Purchase Agreement, Prudential and its affiliate released the mortgage liens and other security interests held by Prudential and its affiliate on certain of our properties and assets, redenominated the existing notes in the aggregate amount of $100.0 million issued under the existing note purchase agreement as Series A Notes, and issued $75.0 million of Series B Notes bearing interest at 5.35% and maturing in June 2023 to Prudential and certain affiliates of Prudential. The Series A Notes will continue to bear interest at 6.0% and will mature in February 2021. The parties to the Credit Agreement and theRestated Prudential Loan Agreement share the security described above pursuant to the terms of an inter-creditor agreement. The Prudential Loan Agreement bears interest at 6.00%. The Prudential LoanNote Purchase Agreement does not provide for scheduled reductions in the principal balance of either the Series A Notes or the Series B Notes prior to its maturity. Ontheir respective maturities. As of June 30, 2015, borrowings under the Restated Prudential Note Purchase Agreement were $175.0 million and, as of December 23, 2013, we amended31, 2014, borrowings under the prior senior secured note purchase agreement were $100.0 million.

The Restated Prudential Loan Agreement to change certain definitions and financial covenant calculations provided for in the agreement. The Prudential LoanNote Purchase Agreement contains customary financial covenants such as loan to value, leverage and coverage ratios and minimum tangible net worth, as well as limitations on restricted payments, which may limit our ability to incur additional debt or pay dividends. The Restated Prudential Loan

Note Purchase Agreement contains customary events of default, including default under the Credit Agreement and failure to maintain REIT status. Any event of default, if not cured or waived, would increase by 200 basis points (2.00%) the interest rate we pay under the Restated Prudential LoanNote Purchase Agreement and could result in the acceleration of our indebtedness under the Restated Prudential LoanNote Purchase Agreement and could also give rise to an event of default and could result in the acceleration of our indebtedness under our Credit Agreement. As of March 31, 2015 and December 31, 2014, borrowings under the Prudential Loan Agreement were $100.0 million.

As of March 31,June 30, 2015, we are in compliance with all of the material terms of the Credit Agreement and Restated Prudential LoanNote Purchase Agreement, including the various financial covenants described above.

The maturity date and amounts outstanding under the Credit Agreement and the Restated Prudential Note Purchase Agreement are as follows: