<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

(Mark one)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended JUNE 30, 2006

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 001-13777

                               GETTY REALTY CORP.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                          <C>
             MARYLAND                                             11-3412575
  (State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                            Identification No.)
</TABLE>

                         125 JERICHO TURNPIKE, SUITE 103
                             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 is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [ ] Accelerated Filer [X] Non-Accelerated Filer [ ]

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 24,731,465 shares of Common Stock, par value $.01 per
share, as of August 1, 2006.

<PAGE>

                               GETTY REALTY CORP.

                                      INDEX
<TABLE>
<CAPTION>
                                                                           Page
                                                                          Number
                                                                          ------
<S>                                                                       <C>
Part I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

   Consolidated Balance Sheets as of June 30, 2006 and
      December 31, 2005                                                      1

   Consolidated Statements of Operations for the Three and
      Six Months ended June 30, 2006 and 2005                                2

   Consolidated Statements of Cash Flows for the Six months
      ended June 30, 2006 and 2005                                           3

   Notes to Consolidated Financial Statements                                4

Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations                                           11

Item 3. Quantitative and Qualitative Disclosures about Market Risk          22

Item 4. Controls and Procedures                                             24

Part II. OTHER INFORMATION

Item 1. Legal Proceedings                                                   25

Item 1A. Risk Factors                                                       26

Item 4. Submission of Matters to a Vote of Security Holders                 26

Item 6. Exhibits                                                            27

Signatures                                                                  28
</TABLE>

<PAGE>

Part I.  FINANCIAL INFORMATION

Item 1. Financial Statements

                       GETTY REALTY CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                               June 30,   December 31,
                                                                 2006         2005
                                                              ---------   ------------
<S>                                                           <C>         <C>
Assets:
Real Estate:
   Land                                                       $ 180,602    $ 171,839
   Buildings and improvements                                   204,340      198,656
                                                              ---------    ---------
                                                                384,942      370,495
   Less - accumulated depreciation and amortization            (113,170)    (109,800)
                                                              ---------    ---------
      Real estate, net                                          271,772      260,695

Deferred rent receivable                                         30,883       29,287
Cash and equivalents                                                862        1,247
Recoveries from state underground storage tank funds, net         4,010        4,264
Mortgages and accounts receivable, net                            3,908        3,129
Prepaid expenses and other assets                                 1,307        1,359
                                                              ---------    ---------
      Total assets                                            $ 312,742    $ 299,981
                                                              =========    =========
Liabilities and Shareholders' Equity:
Debt                                                          $  48,509    $  34,224
Environmental remediation costs                                  16,751       17,350
Dividends payable                                                11,269       11,009
Accounts payable and accrued expenses                             8,724        9,515
                                                              ---------    ---------
      Total liabilities                                          85,253       72,098
                                                              ---------    ---------
Commitments and contingencies
Shareholders' equity:
   Common stock, par value $.01 per share; authorized
      50,000,000 shares; issued 24,731,465 at June 30, 2006
      and 24,716,614 at December 31, 2005                           247          247
   Paid-in capital                                              258,085      257,766
   Dividends paid in excess of earnings                         (31,020)     (30,130)
   Accumulated other comprehensive income                           177           --
                                                              ---------    ---------
      Total shareholders' equity                                227,489      227,883
                                                              ---------    ---------
      Total liabilities and shareholders' equity              $ 312,742    $ 299,981
                                                              =========    =========
</TABLE>

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


                                      -1-
<PAGE>

                       GETTY REALTY CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                 Three months         Six months
                                                ended June 30,      ended June 30,
                                              -----------------   -----------------
                                                2006      2005      2006     2005
                                              -------   -------   -------   -------
<S>                                           <C>       <C>       <C>       <C>
Revenues from rental properties               $18,180   $17,872   $36,247   $35,268
Expenses:
   Rental property expenses                     2,488     2,560     4,972     5,184
   Environmental expenses, net                    810     1,348     1,911     1,411
   General and administrative expenses          1,333     1,289     2,740     2,600
   Depreciation and amortization expense        1,996     2,065     3,912     4,014
                                              -------   -------   -------   -------
      Total expenses                            6,627     7,262    13,535    13,209
                                              -------   -------   -------   -------
                                               11,553    10,610    22,712    22,059
Operating income
   Other income, net                              477        55       559       191
   Interest expense                              (918)     (451)   (1,628)     (600)
                                              -------   -------   -------   -------
Net earnings                                  $11,112   $10,214   $21,643   $21,650
                                              =======   =======   =======   =======
Net earnings per common share:
   Basic                                      $   .45   $   .41   $   .88   $   .88
   Diluted                                    $   .45   $   .41   $   .87   $   .88
Weighted average shares outstanding:
   Basic                                       24,725    24,714    24,721    24,707
   Stock options and restricted stock units        22        14        25        14
                                              -------   -------   -------   -------
   Diluted                                     24,747    24,728    24,746    24,721
                                              =======   =======   =======   =======
Dividends declared per share                  $  .455   $  .435   $  .910   $  .870
</TABLE>

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


                                      - 2 -

<PAGE>

                       GETTY REALTY CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                    Six months
                                                                  ended June 30,
                                                               -------------------
                                                                 2006       2005
                                                               --------   --------
<S>                                                            <C>        <C>
Cash flows from operating activities:
Net earnings                                                   $ 21,643   $ 21,650
Adjustments to reconcile net earnings to
   net cash provided by operating activities:
   Depreciation and amortization expense                          3,912      4,014
   Deferred rental revenue                                       (1,596)    (1,885)
   Gain on dispositions of real estate                             (457)       (72)
   Accretion expense                                                348        420
   Stock-based employee compensation expense                         87         64
Changes in assets and liabilities:
   Recoveries from state underground storage tank funds, net        416        660
   Mortgages and accounts receivable, net                          (659)        58
   Prepaid expenses and other assets                                229     (1,092)
   Environmental remediation costs                               (1,109)      (929)
   Accounts payable and accrued expenses                           (791)    (1,776)
                                                               --------   --------
      Net cash provided by operating activities                  22,023     21,112
                                                               --------   --------
Cash flows from investing activities:
   Property acquisitions and capital expenditures               (15,358)   (29,571)
   Collection (issuance) of mortgages receivable, net              (120)       142
   Proceeds from dispositions of real estate                        826        785
                                                               --------   --------
      Net cash used in investing activities                     (14,652)   (28,644)
                                                               --------   --------
Cash flows from financing activities:
   Cash dividends paid                                          (22,273)   (21,255)
   Borrowings under credit agreement, net                        14,300     13,700
   Repayment of mortgages payable                                   (15)      (271)
   Proceeds from stock issued                                       232        309
                                                               --------   --------
      Net cash used in financing activities                      (7,756)    (7,517)
                                                               --------   --------
Net decrease in cash and equivalents                               (385)   (15,049)
Cash and equivalents at beginning of period                       1,247     15,700
                                                               --------   --------
Cash and equivalents at end of period                          $    862   $    651
                                                               ========   ========
Supplemental disclosures of cash flow information
   Cash paid (refunded) during the period for:
      Interest                                                 $  1,362   $    611
      Income taxes, net                                             328        217
      Recoveries from state underground storage tank funds         (859)    (1,033)
      Environmental remediation costs                             2,030      2,174
</TABLE>

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


                                      - 3 -
<PAGE>

                       GETTY REALTY CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1. General:

     The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America ("GAAP"). The consolidated financial statements include the accounts of
Getty Realty Corp. and its wholly-owned subsidiaries (the "Company"). The
Company is a real estate investment trust ("REIT") specializing in the ownership
and leasing of retail motor fuel and convenience store properties and petroleum
distribution terminals. The Company manages and evaluates its operations as a
single segment. All significant intercompany accounts and transactions have been
eliminated.

     The financial statements have been prepared in conformity with GAAP, which
requires management to make its best 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 financial statements and
revenues and expenses during the period reported. While all available
information has been considered, actual results could differ from those
estimates, judgments and assumptions. Estimates, judgments and assumptions
underlying the accompanying consolidated financial statements include, but are
not limited to, deferred rent receivable, recoveries from state underground
storage tank funds, environmental remediation costs, real estate, depreciation
and amortization, impairment of long-lived assets, litigation, accrued expenses,
income taxes and exposure to paying an earnings and profits deficiency dividend.

     The consolidated financial statements are unaudited but, in the opinion of
management, reflect all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation. These statements should be read in
conjunction with the consolidated financial statements and related notes, which
appear in the Company's Annual Report on Form 10-K for the year ended December
31, 2005.

2. Commitments and Contingencies:

     In order to minimize the Company's exposure to credit risk associated with
financial instruments, the Company places its temporary cash investments with
high credit quality institutions. Temporary cash investments, if any, are held
in an institutional money market fund or federal agency discount notes.

     As of June 30, 2006, the Company leased nine hundred twenty-nine of its one
thousand sixty-four properties on a long-term net basis to Getty Petroleum
Marketing Inc. ("Marketing") under a master lease ("Master Lease") and a
coterminous supplemental lease for one property (collectively the "Marketing
Leases") (see note 2 to the consolidated financial statements which appear in
the Company's Annual Report on Form 10-K for the year ended December 31, 2005).
Marketing operated substantially all of the Company's petroleum marketing
businesses when it was spun-off to the Company's shareholders as a separate
publicly held company in March 1997 (the "Spin-Off"). In December 2000,
Marketing was acquired by a subsidiary of OAO Lukoil, one of Russia's largest
oil companies. The Company's financial results depend largely on rental income
from Marketing, and


                                      -4-

<PAGE>

to a lesser extent on rental income from other tenants, and are therefore
materially dependent upon the ability of Marketing to meet its obligations under
the Marketing Leases. Substantially all of the deferred rental revenue of
$30,883,000 recorded as of June 30, 2006 is due to recognition of rental revenue
on a straight-line basis under the Marketing Leases. Marketing's financial
results depend largely on retail petroleum marketing margins and rental income
from its dealers. The petroleum marketing industry has been and continues to be
volatile and highly competitive. Marketing has made all required monthly rental
payments under the Marketing Leases when due.

     Under the Master Lease, the Company has agreed to provide limited
environmental indemnification to Marketing, capped at $4,250,000 and expiring in
2010, for certain pre-existing conditions at six of the terminals which are
owned by the Company. Under the agreement, Marketing will pay the first
$1,500,000 of costs and expenses incurred in connection with remediating any
such pre-existing conditions, Marketing and the Company will share equally the
next $8,500,000 of those costs and expenses and Marketing will pay all
additional costs and expenses over $10,000,000. The Company has accrued $300,000
as of June 30, 2006 and December 31, 2005 in connection with this
indemnification agreement.

     The Company is subject to various legal proceedings and claims which arise
in the ordinary course of its business. In addition, the Company has retained
responsibility for all pre-spin-off legal proceedings and claims relating to the
petroleum marketing business. As of June 30, 2006 and December 31, 2005 the
Company had accrued $2,645,000 and $2,667,000, respectively, for certain of
these matters which it believes were appropriate based on information then
currently available. The ultimate resolution of these matters is not expected to
have a material adverse effect on the Company's financial condition or results
of operations.

     In September 2003, the Company was notified by the State of New Jersey
Department of Environmental Protection that the Company is one of approximately
sixty potentially responsible parties for natural resource damages resulting
from discharges of hazardous substances into the Lower Passaic River. The
definitive list of potentially responsible parties and their actual
responsibility for the alleged damages, the aggregate cost to remediate the
Lower Passaic River, the amount of natural resource damages and the method of
allocating such amounts among the potentially responsible parties have not been
determined. In September 2004, the Company received a General Notice Letter from
the United States Environmental Protection Agency (the "EPA Notice"), advising
the Company that it may be a potentially responsible party for costs of
remediating certain conditions resulting from discharges of hazardous substances
into the Lower Passaic River. ChevronTexaco received the same EPA Notice
regarding those same conditions. Additionally, the Company believes that
ChevronTexaco is contractually obligated to indemnify the Company, pursuant to
an indemnification agreement, for most of the conditions at the property
identified by the New Jersey Department of Environmental Protection and the EPA.
Accordingly, the ultimate legal and financial liability of the Company, if any,
cannot be estimated with any certainty at this time.

     From October 2003 through June 2006 the Company was notified that the
Company was made party to thirty-nine cases in Connecticut, Florida,
Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Vermont,
Virginia and West Virginia brought by local water providers or governmental
agencies. These cases allege various theories of liability due to contamination
of groundwater with MTBE as the basis for claims seeking compensatory and
punitive damages. Each


                                      -5-

<PAGE>

case names as defendants approximately fifty petroleum refiners, manufacturers,
distributors and retailers of MTBE, or gasoline containing MTBE. The accuracy of
the allegations as they relate to the Company, its defenses to such claims, the
aggregate amount of damages, the definitive list of defendants and the method of
allocating such amounts among the defendants have not been determined.
Accordingly, the ultimate legal and financial liability of the Company, if any,
cannot be estimated with any certainty at this time.

     Prior to the spin-off, the Company was self-insured for workers'
compensation, general liability and vehicle liability up to predetermined
amounts above which third-party insurance applies. As of June 30, 2006 and
December 31, 2005, the Company's consolidated balance sheets included, in
accounts payable and accrued expenses, $335,000 and $291,000 relating to
insurance obligations. The Company estimates its loss reserves for claims,
including claims incurred but not reported, by utilizing actuarial valuations
provided annually by its insurance carriers. The Company is required to deposit
funds for these loss reserves with its insurance carriers, and may be entitled
to refunds of amounts previously funded, as the claims are evaluated on an
annual basis. Although future loss reserve adjustments may have a significant
impact on results of operations for any single fiscal year or interim period,
the Company currently believes that such costs will not have a material adverse
effect on the Company's long-term financial position. Since the spin-off, the
Company has maintained insurance coverage subject to certain deductibles.

     In order to qualify as a REIT, among other items, the Company paid a
$64,162,000 special one-time "earnings and profits" (as defined in the Internal
Revenue Code) cash distribution to shareholders in August 2001. Determination of
accumulated earnings and profits for federal income tax purposes is extremely
complex. Should the Internal Revenue Service successfully assert that the
Company's accumulated earnings and profits were greater than the amount
distributed, the Company may fail to qualify as a REIT; however, the Company may
avoid losing its REIT status by paying a deficiency dividend to eliminate any
remaining accumulated earnings and profits. The Company may have to borrow money
or sell assets to pay such a deficiency dividend. As of June 30, 2006 and
December 31, 2005 the Company had accrued $701,000 for this and certain other
uncertain tax matters which it believes was appropriate based on information
then currently available. 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. In June 2006 the Financial
Accounting Standards Board (FASB") issued FASB Interpretation No. 48 ("FIN 48")
"Accounting for Uncertainty in Income Taxes." FIN 48 addresses the recognition
and measurement of tax positions taken or expected to be taken in a tax return.
The Company does not believe that the adoption of FIN 48 in January 2007 will
have a material impact on the Company's financial position or results of
operation.

3. Environmental Expenses

     The Company is subject to numerous existing 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 building
containing hazardous material, UST's and other equipment. Environmental expenses
are primarily attributable to remediation costs which include installing,
operating, maintaining and decommissioning remediation systems, monitoring
contamination, and governmental agency reporting incurred in connection with
contaminated properties. Environmental remediation liabilities


                                      -6-

<PAGE>

and related assets are measured at fair value based on their expected future
cash flows which have been adjusted for inflation and discounted to present
value. For the three and six months ended June 30, 2006, the net changes in
estimated remediation costs included in environmental expenses in the Company's
consolidated statements of operations were $331,000 and $826,000, respectively,
as compared to $1,025,000 and $1,292,000, respectively, for the comparable prior
year periods, which amounts were net of changes in estimated recoveries from
state underground storage tank ("UST") remediation funds. Environmental expenses
also include project management fees, legal fees and provisions for
environmental litigation loss reserves.

     In accordance with leases with certain tenants, the Company has agreed to
bring the leased properties with known environmental contamination to within
applicable standards and to regulatory or contractual closure ("Closure") in an
efficient and economical manner. Generally, upon achieving Closure at each
individual property, the Company's environmental liability under the lease for
that property will be satisfied and future remediation obligations will be the
responsibility of the Company's tenant. Generally, the liability for the
retirement and decommissioning or removal of UST's and other equipment is the
responsibility of the tenants. The Company is contingently liable for these
obligations in the event that the tenants do not satisfy their responsibilities.
A liability has not been recognized for obligations that are the responsibility
of our tenants. Of the nine hundred twenty-nine properties leased to Marketing
as of June 30, 2006, the Company has agreed to pay all costs relating to, and to
indemnify Marketing for, certain environmental liabilities and obligations for
the remaining two hundred thirty-four properties that are scheduled in the
Master Lease and have not achieved Closure. The Company will continue to seek
reimbursement from state UST remediation funds related to these environmental
expenditures where available.

     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 environmental remediation
liability is 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. Recoveries of
environmental costs from state UST remediation funds, with respect to both past
and future environmental spending, are accrued at fair value as income, net of
allowance for collection risk, based on estimated recovery rates developed from
prior experience with the funds when such recoveries are considered probable.

     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. In developing the Company's liability for
probable and reasonably estimable environmental remediation costs, on a property
by property basis, the Company considers 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. These accrual estimates
are subject to significant change, and are adjusted as the remediation treatment
progresses, as circumstances change and as these contingencies become more
clearly defined and reasonably estimable. As of June 30, 2006, the Company had
remediation action plans in place for 292 (94%) of the 312 properties for which
it retained environmental responsibility and has not received a no further
action letter and the remaining 20 properties (6%) remain in the assessment
phase.


                                      -7-

<PAGE>

     As of June 30, 2006, December 31, 2005 and December 31, 2004, the Company
had accrued $16,751,000, $17,350,000, and $20,626,000, respectively, as
management's best estimate of the fair value of reasonably estimable
environmental remediation costs. As of June 30, 2006, December 31, 2005 and
December 31, 2004, the Company had also recorded $4,010,000, $4,264,000 and
$5,437,000, respectively, as management's best estimate for recoveries from
state UST remediation funds, net of allowance, related to environmental
obligations and liabilities. Accrued environmental remediation costs and
recoveries from state UST remediation funds have been accreted for the change in
present value due to the passage of time and, accordingly, $348,000 and $420,000
of net accretion expense is included in environmental expenses for the six
months ended June 30, 2006 and 2005, respectively.

     In view of the uncertainties associated with environmental expenditures,
however, the Company believes it is possible that the fair value of future
actual net expenditures could be substantially higher than these estimates.
Adjustments to accrued liabilities for environmental remediation costs will be
reflected in the Company's financial statements as they become probable and a
reasonable estimate of fair value can be made. Although future environmental
expenses may have a significant impact on results of operations for any single
fiscal year or interim period, the Company currently believes that such costs
will not have a material adverse effect on the Company's long-term financial
position.

4. Shareholders' Equity:

     A summary of the changes in shareholders' equity for the six months ended
June 30, 2006 is as follows (in thousands, except share amounts):

<TABLE>
<CAPTION>
                                                              Dividends    Accumulated
                                 Common Stock                  Paid In        Other
                             -------------------    Paid-in   Excess Of   Comprehensive
                               Shares     Amount    Capital    Earnings       Income        Total
                             ----------   ------   --------   ---------   -------------   --------
<S>                          <C>          <C>      <C>        <C>         <C>             <C>
Balance, December 31, 2005   24,716,614    $247    $257,766   $(30,130)        $ --       $227,883
Net earnings                                                    21,643                      21,643
Dividends                                                      (22,533)                    (22,533)
Stock-based employee
   compensation expense                                  87                                     87
Net unrealized gain on
   interest rate swap                                                           177            177
Stock issued                     14,851                 232                                    232
                             ----------    ----    --------   ---------        ----       --------
Balance, June 30, 2006       24,731,465    $247    $258,085   $(31,020)        $177       $227,489
                             ==========    ====    ========   =========        ====       ========
</TABLE>

     The Company is authorized to issue 20,000,000 shares of preferred stock,
par value $.01 per share, of which none were issued as of December 31, 2005 or
June 30, 2006.


                                      -8-

<PAGE>

5. Acquisitions

     On February 28, 2006, the Company acquired eighteen retail motor fuel and
convenience store properties located in Western New York for $13,389,000.
Simultaneous with the closing on the acquisition, the Company entered into a
triple-net lease with a single tenant for all of the properties. The lease
provides for annual rentals at a competitive rate and provides for escalations
thereafter. The lease has an initial term of fifteen years and provides the
tenant options for three renewal terms of five years each. The lease also
provides that the tenant is responsible for all existing and future
environmental conditions at the properties.

     On March 25, 2005 the Company acquired twenty-three convenience store and
retail motor fuel properties in Virginia for $28,960,000. All of the properties
are triple-net-leased to a single tenant who previously leased the properties
from the seller and operates the locations under its proprietary convenience
store brand in its network of over 200 locations. The lease provides for annual
rentals at a competitive rate and provides for escalations thereafter. The lease
has an initial term of fifteen years and provides the tenant options for three
renewal terms of five years each. The lease also provides that the tenant is
responsible for all existing and future environmental conditions at the
properties.

6. Derivative Financial Instruments

     In April 2006 the Company entered into a $45,000,000 LIBOR based interest
rate swap, effective May 1, 2006 through June 30, 2011. The interest rate swap
is intended to hedge the Company's current exposure to market interest rate risk
by effectively fixing, at 5.44%, the LIBOR component of the interest rate
determined under its existing credit agreement or future exposure to variable
interest rate risk due to borrowing arrangements that may be entered into prior
to the expiration of the interest rate swap. The Company's borrowings under its
credit agreement bear interest at a rate equal to the sum of a base rate or a
LIBOR rate plus an applicable margin based on the Company's leverage ratio and
ranging from 0.25% to 1.75%. Effective May 1, 2006, $45,000,000 of the Company's
LIBOR based borrowings under the credit agreement bear interest at a 6.69%
effective rate.

     The Company entered into the $45,000,000 notional five year interest rate
swap agreement designated and qualifying as a cash flow hedge to reduce its
exposure to the variability in future cash flows attributable to changes in the
LIBOR rate. The Company's primary objective when undertaking hedging
transactions and derivative positions is to reduce its variable interest rate
risk by effectively fixing a portion of the interest rate for existing debt and
anticipated refinancing transactions.

     The Company determined, as of both the hedging instrument's inception and
as of June 30, 2006, that the derivative used in the hedging transaction is
highly effective in offsetting changes in cash flows associated with the hedged
items and that no gain or loss was required to be recognized in earnings during
the quarter representing the hedge's ineffectiveness. At June 30, 2006, the
Company's consolidated balance sheets included, in prepaid expenses and other
assets, derivatives with a fair value of $177,000. The fair value of the
interest rate swap is based upon the estimated amounts the Company would receive
or pay to terminate the contract at the reporting date and is determined using
interest rate market pricing models. For the three months ended June 30, 2006,
the


                                      -9-

<PAGE>

Company has recorded the change in fair value of the swap contract related to
the effective portion of the interest rate contract totaling approximately
$177,000 in accumulated other comprehensive income in the Company's consolidated
balance sheets. The accumulated comprehensive income will be reclassified as a
reduction in interest expense over the term of the five year interest rate swap
agreement since it is expected that the Credit Agreement will be refinanced with
variable interest rate debt at its maturity. The Company does not expect to
settle the interest rate swap prior to its maturity and expects to reclassify
approximately $35,000 of the amount recorded in accumulated other comprehensive
income relating to the interest rate swap contract as a reduction in interest
expense within the next twelve months. The Company will reclassify the amount
recorded in accumulated other comprehensive income relating to the interest rate
swap into earnings if the interest rate swap agreement is not effective for
accounting purposes or if the $45,000,000 notional amount of the interest rate
swap agreement exceeded the Company's projected debt outstanding under variable
interest rate borrowing arrangements.


                                      -10-
<PAGE>

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

     This 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, 2005, and the
unaudited consolidated financial statements and related notes which appear in
this Quarterly Report on Form 10-Q.

General

     We are a real estate investment trust specializing in the ownership and
leasing of retail motor fuel and convenience store properties and petroleum
distribution terminals. We elected to be taxed as a REIT under the federal
income tax laws beginning January 1, 2001. 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 ninety percent of our
taxable income to shareholders each year.

     We lease or sublet our properties primarily to distributors and retailers
engaged in the sale of gasoline and other motor fuel products, convenience store
products and automotive repair services. These tenants are responsible for the
payment of taxes, maintenance, repair, insurance and other operating expenses
and for managing the actual operations conducted at these properties. As of June
30, 2006, we leased nine hundred twenty-nine of our one thousand sixty-four
properties on a long-term basis under a master lease (the "Master Lease") and a
coterminous supplemental lease for one property, (collectively the "Marketing
Leases") to Getty Petroleum Marketing Inc. ("Marketing") which was spun-off to
our shareholders as a separate publicly held company in March 1997. In December
2000, Marketing was acquired by a subsidiary of OAO Lukoil ("Lukoil"), one of
Russia's largest integrated oil companies.

     Substantially all of our revenues (87% for the six months ended June 30,
2006), are derived from the Marketing Leases. Accordingly, our revenues are
dependent to a large degree on the economic performance of Marketing and of the
petroleum marketing industry and any factor that adversely affects Marketing or
our other lessees may have a material adverse effect on our financial condition
and results of operations. Marketing's financial results depend largely on
retail petroleum marketing margins and rental income from subtenants who operate
our properties. The petroleum marketing industry has been and continues to be
volatile and highly competitive. Factors that could adversely affect Marketing
or our other lessees include those described under "Part I, Item 1A. Risk
Factors", in our Annual Report on Form 10-K. In the event that Marketing cannot
or will not perform its monetary obligations under the Marketing Leases with us,
our financial condition and results of operations would be materially adversely
affected. Although Marketing is wholly owned by a subsidiary of Lukoil, no
assurance can be given that Lukoil will cause Marketing to fulfill any of its
monetary obligations under the Marketing Leases.

     We periodically receive and review Marketing's financial statements and
other financial data. We receive this information from Marketing pursuant to the
terms of the Master Lease. Certain of this


                                      -11-

<PAGE>

information is not publicly available and the terms of the Master Lease prohibit
us from including this financial information in our Annual Reports on Form 10-K,
our Quarterly Reports on Form 10-Q or in our Annual Reports to Shareholders. The
financial performance of Marketing may deteriorate, and Marketing may ultimately
default on its monetary obligations to us before we receive financial
information from Marketing that would indicate the deterioration or before we
would have the opportunity to advise our shareholders of any increased risk of
default.

     Certain financial and other information concerning Marketing is available
from Dun & Bradstreet and may be accessed by their web site (www.dnb.com) upon
payment of their fee.

     Selected balance sheet data of Marketing at December 31, 2004, 2003 and
2002 and selected operating data of Marketing for each of the three years in
the period ending December 31, 2004, which is publicly available, has been
provided in "Part II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations," which appears in our Annual Report on
Form 10-K for the year ended December 31, 2005.

     The audited consolidated financial statements of Marketing for their
fiscal year ended December 31, 2005 have been provided to us. Selected balance
sheet data of Marketing at December 31, 2005 is publicly available and is
provided below. Selected operating data of Marketing for the year ended
December 31, 2005 is not publicly available. Neither we, nor our auditors, were
involved in the preparation of any of Marketing's financial data and as a
result can provide no assurance thereon. Additionally, our auditors have not
been engaged to review or audit this data.

                         Getty Petroleum Marketing Inc.
                          Selected Balance Sheet Data
                           (unaudited, in thousands)

<TABLE>
<CAPTION>
                                                 December 31,
                                                     2005
                                                 ------------
<S>                                              <C>
ASSETS:
Cash and equivalents                              $ 103,815
Other assets                                        625,947
                                                  ---------
Total assets                                      $ 729,762
                                                  =========

LIABILITIES AND STOCKHOLDER'S EQUITY:
Total liabilities                                 $ 617,780
Total stockholder's equity                          111,982
                                                  ---------
Total liabilities and stockholder's equity        $ 729,762
                                                  =========
</TABLE>

     Based on our review of the financial statements and other financial data
Marketing has provided to us to date, we believe that Marketing has the
liquidity and financial ability to continue to pay timely its monetary
obligations under the Marketing Leases, as it has since the inception of the
Master Lease in 1997.

     As part of a periodic review by the Division of Corporation Finance of the
Securities and Exchange Commission ("SEC") of our Annual Report on Form 10-K for
the year ended December 31, 2003, we received and responded to a number of
comments. The only comment that remains unresolved pertains to the SEC's
position that we must include the financial statements and summarized financial
data of Marketing in our periodic filings. The SEC subsequently indicated that,
unless we file Marketing's financial statements and summarized financial data
with our periodic reports: (i) it will not consider our Annual Reports on Forms
10-K for the years beginning with 2000 to be compliant; (ii) it will not
consider us to be current in our reporting requirements; (iii) it will not be in
a position to declare effective any registration statements we may file for
public offerings of our securities; and (iv) we should consider how the SEC's
conclusion impacts our ability to make


                                      -12-

<PAGE>

offers and sales of our securities under existing registration statements and if
we have a liability for such offers and sales made pursuant to registration
statements that did not contain the financial statements of Marketing.

     We believe that the SEC's position is based on their interpretation of
certain provisions of their internal Accounting Disclosure Rules and Practices
Training Material, Staff Accounting Bulletin No. 71 and Rule 3-13 of Regulation
S-X. We do not believe that any of this guidance is clearly applicable to our
particular circumstances and that, even if it were, we believe that we should be
entitled to certain relief from compliance with such requirements. Marketing
subleases our properties to approximately nine hundred independent, individual
service station/convenience store operators (subtenants), most of whom were our
tenants when Marketing was spun-off to our shareholders. Consequently, we
believe that we, as the owner of these properties and the Getty brand, and our
prior experience with Marketing's tenants, could relet these properties to the
existing subtenants or others at market rents. Because of this particular aspect
of our landlord-tenant relationship with Marketing, we do not believe that the
inclusion of Marketing's financial statements in our filings is necessary to
evaluate our financial condition. Our position was included in a written
response to the SEC. To date, the SEC has not accepted our position regarding
the inclusion of Marketing's financial statements in our filings. We are
endeavoring to achieve a resolution of this issue that will be acceptable to the
SEC. We can not accurately predict the consequences if we are ultimately
unsuccessful in achieving an acceptable resolution.

     We do not believe that offers or sales of our securities made pursuant to
existing registration statements that did not or do not contain the financial
statements of Marketing constitute, by reason of such omission, a violation of
the Securities Act of 1933, as amended, or the Exchange Act. Additionally, we
believe that, if there ultimately is a determination that such offers or sales,
by reason of such omission, resulted in a violation of those securities laws, we
would not have any material liability as a consequence of any such
determination.

     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 ninety
percent of our taxable income each year. In addition to measurements defined by
generally accepted accounting principles ("GAAP"), our management also focuses
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-FFO items reported in discontinued operations and extraordinary
items and cumulative effect of accounting change. Other REITS may use
definitions of FFO and/or AFFO that are different than ours and, accordingly,
may not be comparable.

     We believe that FFO is helpful to investors in measuring our performance
because FFO excludes various items included in GAAP net earnings that do not
relate to, or are not indicative of, our fundamental operating performance such
as gains or losses from property dispositions and depreciation and amortization
of real estate assets. In our case, however, GAAP net earnings and FFO include
the significant impact of deferred rental revenue (straight-line rental revenue)
on our recognition of revenues from rental properties, which results primarily
from fixed rental


                                      -13-

<PAGE>

increases scheduled under certain leases with our tenants. In accordance with
GAAP, the aggregate minimum rent due over the initial term of these leases are
recognized on a straight-line basis rather than when due. GAAP net earnings and
FFO may also include an income tax provision or benefit recognized due to
adjustments in amounts accrued for uncertain tax positions related to being
taxed as a C-Corp., rather than as a REIT, prior to 2001. As a result,
management pays particular attention to AFFO, a supplemental non-GAAP
performance measure that we define as FFO less straight-line rental revenue and
income taxes. Income taxes did not have a significant impact on our earnings for
the periods presented, and accordingly, do not appear as a separate item in our
statement of operations or our reconciliation of AFFO from net earnings. In
management's view, AFFO provides a more accurate depiction than FFO of the
impact of scheduled rent increases under these leases and our election to be
taxed as a REIT beginning in 2001. Neither FFO nor AFFO represent cash generated
from operating activities calculated in accordance with generally accepted
accounting principles and therefore these measures should not be considered an
alternative for GAAP net earnings or as a measure of liquidity.

     A reconciliation of net earnings to FFO and AFFO for the three and six
months ended June 30, 2006 and 2005 is as follows (in thousands, except per
share amounts):

<TABLE>
<CAPTION>
                                                      Three months ended    Six months ended
                                                            June 30,            June 30,
                                                      ------------------   -----------------
                                                        2006      2005       2006      2005
                                                      -------   --------   -------   -------
<S>                                                   <C>       <C>        <C>       <C>
Net earnings                                          $11,112   $10,214    $21,643   $21,650
Depreciation and amortization of real estate assets     1,996     2,065      3,912     4,014
Gains on dispositions of real estate                     (423)       --       (457)      (72)
                                                      -------   -------    -------   -------
Funds from operations                                  12,685    12,279     25,098    25,592
Deferred rental revenue (straight-line rent)             (773)     (985)    (1,596)   (1,885)
                                                      -------   -------    -------   -------
Adjusted funds from operations                        $11,912   $11,294    $23,502   $23,707
                                                      =======   =======    =======   =======
Diluted per share amounts:
   Earnings per share                                 $   .45   $   .41    $  0.87   $  0.88
   Funds from operations per share                    $   .51   $   .50    $  1.01   $  1.04
   Adjusted funds from operations per share           $   .48   $   .46    $  0.95   $  0.96
Diluted weighted average shares outstanding            24,747    24,728     24,746    24,721
</TABLE>


                                      -14-

<PAGE>

Results of operations
Three months ended June 30, 2006 compared to the three months ended June 30,
2005.

     Revenues from rental properties were $18.2 million for the three months
ended June 30, 2006 compared to $17.9 million for the three months ended June
30, 2005. We received approximately $15.0 million in the three months ended June
30, 2006 and $14.9 million in the three months ended June 30, 2005, from
properties leased to Marketing under the Marketing Leases. We also received rent
of $2.4 million in the three months ended June 30, 2006 and $2.0 million in the
three months ended June 30, 2005 from other tenants. The increase in rent
received was primarily due to rent from properties acquired in February 2006 and
rent escalations, partially offset by the effect of dispositions of real estate.
In addition, revenues from rental properties include deferred rental revenues of
$0.8 million for the three months ended June 30, 2006 as compared to $1.0
million for the three months ended June 30, 2005, recorded as required by GAAP,
related to the fixed rent increases scheduled under certain leases with tenants.
The aggregate minimum rent due over the initial term of these leases are
recognized on a straight-line basis rather than when due.

     Rental property expenses, which are primarily comprised of rent expense and
real estate and other state and local taxes, were $2.5 million for the three
months ended June 30, 2006, which was comparable to $2.6 million recorded for
the three months ended June 30, 2005.

     Environmental expenses, net for the three months ended June 30, 2006 were
$0.8 million as compared to $1.3 million for the three months ended June 30,
2005. The decrease was primarily due to a $0.7 million decrease in the change in
estimated environmental costs, net of estimated recoveries.

     General and administrative expenses for the three months ended June 30,
2006 were $1.3 million which was comparable to the three months ended June 30,
2005.

     Depreciation and amortization expense for the three months ended June 30,
2006 was $2.0 million which was comparable to the three months ended June 30,
2005.

     As a result, total operating expenses decreased by approximately $0.6
million for the three months ended June 30, 2006, as compared to the three
months ended June 30, 2005.

     Other income, net was $0.5 million for the three months ended June 30, 2006
and $0.1 million for the three months ended June 30, 2005. The increase was
primarily due to $0.4 million of increased gains on dispositions of real estate.

     Interest expense, primarily related to borrowings used to finance the
acquisition of properties, was $0.9 million for the three months ended June 30,
2006 as compared to $0.5 million for the three months ended June 30, 2005. The
increase was primarily due to increased borrowings used to finance the
acquisition of properties. Interest expense also increased due to higher
interest rates which averaged 6.48% for the three months ended June 30, 2006 as
compared to 4.25 % for the three months ended June 30, 2005.

     In April 2006 we entered into a $45.0 million LIBOR based interest rate
swap, effective May 1, 2006 through June 30, 2011. The interest rate swap is
intended to hedge our current exposure to


                                      -15-

<PAGE>

market interest rate risk by effectively fixing, at 5.44%, the LIBOR component
of the interest rate determined under our existing credit agreement or future
exposure to variable interest rate risk due to borrowing arrangements that may
be entered into prior to the expiration of the interest rate swap. Our
borrowings under the credit agreement bear interest at a rate equal to the sum
of a base rate or a LIBOR rate plus an applicable margin based on our leverage
ratio and ranging from 0.25% to 1.75%. Effective May 1, 2006, $45.0 million of
our LIBOR based borrowings under the credit agreement bear interest at a 6.69%
effective rate.

     As a result, net earnings increased by 8.8%, or $0.9 million, to $11.1
million for the three months ended June 30, 2006, as compared to $10.2 million
for the comparable prior year period. For the same period, FFO was $12.7
million, an increase of $0.4 million, or 3.3% and AFFO was $11.9 million, an
increase of $0.6 million, or 5.5%. The increases in FFO and AFFO for the quarter
were primarily due to the changes in net earnings described above but exclude
the improvement in earnings due to higher gains on dispositions of properties of
$0.4 million. AFFO increased more than FFO on both a dollar and percentage basis
due to a $0.2 million decrease in deferred rental revenue (which is included in
net earnings and FFO but is excluded from AFFO) recorded for the three months
ended June 30, 2006 as compared to the three months ended June 30, 2005.

     Diluted earnings per share for the three months ended June 30, 2006 was
$0.45 per share, which increased $0.04 per share, or 9.8%, as compared to the
three months ended June 30, 2005. Diluted FFO per share for the three months
ended June 30, 2006 was $0.51 per share, which increased $0.01 per share, or
2.0%, as compared to the three months ended June 30, 2005. Diluted AFFO per
share for the three months ended June 30, 2006 was $0.48 per share, which
increased $0.02 per share, or 4.3%, as compared to the three months ended June
30, 2005.

Results of operations
Six months ended June 30, 2006 compared to the six months ended June 30, 2005

     Revenues from rental properties were $36.2 million for the six months ended
June 30, 2006 compared to $35.3 million for the six months ended June 30, 2005.
We received approximately $30.1 million in the six months ended June 30, 2006
and $29.8 million in the six months ended June 30, 2005, from properties leased
to Marketing under the Marketing Leases. We also received rent of $4.5 million
in the six months ended June 30, 2006 and $3.6 million in the six months ended
June 30, 2005 from other tenants. The increase in rent received was primarily
due to rent from properties acquired in March 2005 and February 2006 and rent
escalations, partially offset by the effect of dispositions of real estate. In
addition, revenues from rental properties include deferred rental revenues of
$1.6 million for the six months ended June 30, 2006 as compared with $1.9
million for the six months ended June 30, 2005.

     Rental property expenses, which are primarily comprised of rent expense and
real estate and other state and local taxes, were $5.0 million for the six
months ended June 30, 2006, which was comparable to $5.2 million recorded for
the three months ended June 30, 2005.

     Environmental expenses, net for the six months ended June 30, 2006 were
$1.9 million as compared to $1.4 million for the six months ended June 30, 2005.
The increase was primarily due to a $0.9 million increase in legal fees and
litigation related expenses as compared to the prior year period offset by a
$0.5 million decrease in change in estimated environmental costs, net of
estimated


                                      -16-

<PAGE>

recoveries. Legal fees and litigation related expenses were $0.7 million for the
six months ended June 30, 2006 compared to a credit of $0.3 million for 2005,
which prior period includes a net reduction in litigation loss reserve
estimates.

     General and administrative expenses for the six months ended June 30, 2006
were $2.7 million which was comparable to the $2.6 million recorded for the six
months ended June 30, 2005.

     Depreciation and amortization expense for the six months ended June 30,
2006 was $3.9 million which was comparable to the $4.0 million recorded for the
six months ended June 30, 2005.

     As a result, total operating expenses increased by approximately $0.3
million for the six months ended June 30, 2006, as compared to the six months
ended June 30, 2005.

     Other income, net was $0.6 million for the six months ended June 30, 2006
and $0.2 million for the six months ended June 30, 2005. The increase was
primarily due to $0.4 million of increased gains on dispositions of real estate.

     Interest expense, primarily related to borrowings used to finance the
acquisition of properties, was $1.6 million for the six months ended June 30,
2006 as compared with $0.6 million for the six months ended June 30, 2005. The
increase was primarily due to increased borrowings used to finance the
acquisition of properties. Interest expense also increased due to higher
interest rates which averaged 6.13% for the six months ended June 30, 2006 as
compared to 4.14% for the six months ended June 30, 2005.

     As a result, net earnings were $21.6 million for the six months ended June
30, 2006 which was comparable to the $21.7 million reported for the prior year
period. For the same period, FFO was $25.1 million, a decrease of $0.5 million,
or 1.9%, and AFFO was $23.5 million, a decrease of $0.2 million, or 1.0%. The
decreases in FFO and AFFO for the six months ended June 30, 2006 were primarily
due to the changes in net earnings described above but exclude the improvement
in earnings due to higher gains on dispositions of properties of $0.4 million.
FFO decreased more than AFFO on both a dollar and percentage basis due to a $0.3
million decrease in deferred rental revenue (which is included in net earnings
and FFO but is excluded from AFFO) recorded for the six months ended June 30,
2006 as compared to the six months ended June 30, 2005.

     Diluted earnings per share for the six months ended June 30, 2006 was $0.87
per share, a decrease of $0.01 per share, or 1.0%, compared to the six months
ended June 30, 2005. Diluted FFO per share for the six months ended June 30,
2006 was $1.01 per share, a decrease of $0.03 per share or, 2.9%, as compared to
the six months ended June 30, 2005. Diluted AFFO per share for the six months
ended June 30, 2006 was $0.95 per share, a decrease of $0.01 per share, or 1.0%,
as compared to the six months ended June 30, 2005.

Liquidity and Capital Resources

     Our principal sources of liquidity are the cash flows from our business,
funds available under a revolving credit agreement that matures in 2008 and
available cash and equivalents. Management believes that dividend payments and
cash requirements for our business for the next twelve months, including
environmental remediation expenditures, capital expenditures and debt service,
can be met by cash flows from operations, borrowings under the credit agreement
and available cash and equivalents.


                                      -17-

<PAGE>

     On June 30, 2005, we entered into an unsecured three-year senior revolving
$100.0 million credit agreement ("Credit Agreement") with a group of six
domestic commercial banks. Subject to the terms of the Credit Agreement, we have
the right to increase the Credit Agreement by $25.0 million and to extend the
term of the Credit Agreement for one additional year. Borrowings under the
Credit Agreement bear interest at a rate equal to the sum of a base rate or a
LIBOR rate plus an applicable margin based on our leverage ratio and ranging
from 0.25% to 1.75%. The annual commitment fee on the unused Credit Agreement
will range from 0.10% to 0.20% based on the amount of borrowings. The Credit
Agreement includes customary terms and conditions, including financial covenants
such as leverage and coverage ratios and other customary covenants, including
limitations on our ability to incur debt and pay dividends and maintenance of
tangible net worth, and events of default, including a change of control and
failure to maintain REIT status. We do not believe that these covenants will
limit our current business practices.

     In April 2006 we entered into a $45.0 million LIBOR based interest rate
swap, effective May 1, 2006 through June 30, 2011. The interest rate swap is
intended to hedge our current exposure to market interest rate risk by
effectively fixing, at 5.44%, the LIBOR component of the interest rate
determined under our existing credit agreement or future exposure to variable
interest rate risk due to borrowing arrangements that may be entered into prior
to the expiration of the interest rate swap. Effective May 1, 2006, $45.0
million of our LIBOR based borrowings under the Credit Agreement bear interest
at a 6.69% effective rate.

     Total borrowings outstanding under the Credit Agreement at June 30, 2006
were $48.3 million, bearing interest at an effective rate of 6.68% per annum.
Total borrowings increased to $50.7 million as of August 1, 2006 primarily due
to additional borrowings used to pay $11.0 million of dividends that were
accrued as of June 30, 2006 and paid in July 2006, net of repayments from
positive cash flows provided by rental operations. Accordingly, we had $49.3
million available under the terms of the Credit Agreement as of August 1, 2006
or $74.3 million available assuming we had exercised our right to increase the
Credit Agreement by $25.0 million.

     We elected to be taxed as a REIT under the federal income tax laws with the
year beginning January 1, 2001. As a REIT, we are required, among other things,
to distribute at least ninety percent of our taxable income to shareholders each
year. Payment of dividends is subject to market conditions, our financial
condition and other factors, and therefore cannot be assured. Dividends paid to
our shareholders aggregated $22.3 million for the six months ended June 30, 2006
and $21.3 million for the prior year period. We presently intend to pay common
stock dividends of $0.455 per share each quarter ($1.82 per share on an annual
basis), and commenced doing so with the quarterly dividend declared in February
2006.

     As part of our overall growth strategy, we regularly review opportunities
to acquire additional properties and we expect to continue to pursue
acquisitions that we believe will benefit our financial performance. To the
extent that our current sources of liquidity are not sufficient to fund such
acquisitions we will require other sources of capital, which may or may not be
available on favorable terms or at all.


                                      -18-
<PAGE>

Critical Accounting Policies

     Our accompanying unaudited interim consolidated financial statements
include the accounts of Getty Realty Corp. and our wholly-owned subsidiaries.
The preparation of financial statements in accordance with GAAP requires
management to make estimates, judgments and assumptions that affect amounts
reported in its financial statements. Although we have made our best estimates,
judgments and assumptions regarding future uncertainties relating to the
information included in our financial statements, giving due consideration to
the accounting policies selected and materiality, actual results could differ
from these estimates, judgments and assumptions. We do not believe that there is
a great likelihood that materially different amounts would be reported related
to the application of the accounting policies described below.

     Estimates, judgments and assumptions underlying the accompanying
consolidated financial statements include, but are not limited to, deferred rent
receivable, recoveries from state underground storage tank funds, environmental
remediation costs, real estate, depreciation and amortization, impairment of
long-lived assets, litigation, accrued expenses, income taxes and exposure to
paying an earnings and profits deficiency dividend. The information included in
our financial statements that is based on estimates, judgments and assumptions
is subject to significant change and is adjusted as circumstances change and as
the uncertainties become more clearly defined. Our accounting policies are
described in note 1 to the consolidated financial statements that appear in our
Annual Report on Form 10-K for the year ended December 31, 2005. We believe that
the more critical of our accounting policies relate to revenue recognition,
impairment of long-lived assets, income taxes, environmental costs and
recoveries from state underground storage tank funds and litigation, each of
which is discussed in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our Annual Report on Form 10-K for the
year ended December 31, 2005.

     In June 2006 the Financial Accounting Standards Board (FASB") issued FASB
Interpretation No. 48 ("FIN 48") "Accounting for Uncertainty in Income Taxes."
FIN 48 addresses the recognition and measurement of tax positions taken or
expected to be taken in a tax return. We do not believe that the adoption of FIN
48 in January 2007 will have a material impact on our financial position or
results of operation.

Environmental Matters

     We are subject to numerous existing 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. In accordance with the leases
with certain of our tenants, we have agreed to bring the leased properties with
known environmental contamination to within applicable standards and to
regulatory or contractual closure ("Closure") in an efficient and economical
manner. Generally, upon achieving Closure at an individual property, our
environmental liability under the lease for that property will be satisfied and
future remediation obligations will be the responsibility of our tenant. We will
continue to seek reimbursement from state UST remediation funds related to these
environmental liabilities where available. Generally the liability for the
retirement and decommissioning or removal of USTs and other equipment is the
responsibility of our tenants. We are contingently liable for these obligations
in the event that our


                                      -19-

<PAGE>

tenants do not satisfy their responsibilities. A liability has not been
recognized for obligations that are the responsibility of our tenants. As of
June 30, 2006, we had remediation action plans in place for 292 (94%) of the 312
properties for which we retained environmental responsibility and the remaining
20 properties (6%) remain in the assessment phase.

     As of June 30, 2006, December 31, 2005 and December 31, 2004, we had
accrued $16.8 million, $17.4 million, and $20.6 million, respectively, as
management's best estimate of the fair value of reasonably estimable
environmental remediation costs. As of June 30, 2006, December 31, 2005 and
December 31, 2004, we had also recorded $4.0 million, $4.3 million and $5.4
million, respectively, as management's best estimate for net recoveries from
state UST remediation funds, net of allowance, related to environmental
obligations and liabilities. The net environmental liabilities of $13.1 million
as of December 31, 2005 and $15.2 million as of December 31, 2004 were
subsequently accreted for the change in present value due to the passage of time
and, accordingly, $0.3 and $0.4 million of accretion expense is included in
environmental expenses for each of the six month periods ended June 30, 2006 and
2005. Environmental expenditures and recoveries from underground storage tank
funds were $2.0 million and $0.9 million, respectively, for the six month period
ended June 30, 2006.

     Environmental liabilities and related assets are currently measured at fair
value based on their expected future cash flows which have been adjusted for
inflation and discounted to present value. We also use probability weighted
alternative cash flow forecasts to determine fair value. We assumed a 50%
probability factor that the actual environmental expenses will exceed
engineering estimates for an amount assumed to equal one year of net expenses
aggregating $5.6 million. Accordingly, the environmental accrual as of June 30,
2006 was increased by $2.2 million, net of assumed recoveries and before
inflation and present value discount adjustments. The resulting net
environmental accrual as of June 30, 2006 was then further increased by $1.1
million for the assumed impact of inflation using an inflation rate of 2.75%.
Assuming a credit-adjusted risk-free discount rate of 7.0%, we then reduced the
net environmental accrual, as previously adjusted, by a $2.2 million discount to
present value. Had we assumed an inflation rate that was 0.5% higher and a
discount rate that was 0.5% lower, net environmental liabilities as of June 30,
2006 would have increased by $0.2 million and $0.1 million, respectively, for an
aggregate increase in the net environmental accrual of $0.3 million. However,
the aggregate net change in environmental estimates recorded during the six
months ended June 30, 2006 would not have changed significantly if these changes
in the assumptions were made effective December 31, 2005.

     In view of the uncertainties associated with environmental expenditures,
however, we believe it is possible that the fair value of future actual net
expenditures could be substantially higher than these estimates. Adjustments to
accrued liabilities for environmental remediation costs will be reflected in our
financial statements as they become probable and a reasonable estimate of fair
value can be made. For the six months ended June 30, 2006 and 2005, the
aggregate of the net change in estimated remediation costs included in our
consolidated statement of operations amounted to $0.8 million and $1.3 million,
respectively, which amounts were net of probable recoveries from state UST
remediation funds. Although future environmental costs may have a significant
impact on results of operations for any single fiscal year or interim period, we
believe that such costs will not have a material adverse effect on our long-term
financial position.


                                      -20-

<PAGE>

     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 underground storage tank
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.

     Our discussion of environmental matters should be read in conjunction with
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" which appears in the Company's Annual Report on Form 10-K for the
year ended December 31, 2005 and the unaudited consolidated financial statements
and related notes (including notes 2 and 3) which appear in this Quarterly
Report on Form 10-Q.

Forward Looking Statements

     Certain statements in this Quarterly Report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. When we use the words "believes," "expects," "plans," "projects,"
"estimates" and similar expressions, we intend to identify forward-looking
statements. Examples of forward-looking statements include statements regarding
our expectations regarding future payments from Marketing; the expected effect
of regulations on our long-term performance; our expected ability to maintain
compliance with applicable regulations; our ability to renew expired leases; the
adequacy of our current and anticipated cash flows; our belief that we do not
have a material liability for offers and sales of our securities made pursuant
to registration statements that did not contain the financial statements or
summarized financial data of Marketing; our expectations regarding future
acquisitions; the impact of the covenants included in the Credit Agreement on
our current business practices; our ability to maintain our REIT status; the
probable outcome of litigation or regulatory actions; our expected recoveries
from underground storage tank funds; our exposure to environmental remediation
expenses; our estimates regarding remediation costs; our expectations as to the
long-term effect of environmental liabilities on our financial condition; our
exposure to interest rate fluctuations; our expectations regarding corporate
level federal income taxes; the indemnification obligations of the Company and
others; our intention to consummate future acquisitions; our assessment of the
likelihood of future competition; assumptions regarding the future applicability
of accounting estimates, assumptions and policies; our intention to pay future
dividends; and our beliefs about the reasonableness of our accounting estimates,
judgments and assumptions.

     These forward-looking statements are based on our current beliefs and
assumptions and information currently available to us and involve known and
unknown risks, uncertainties and other factors, which may cause our actual
results, performance and achievements to be materially different from any future
results, performance or achievements, expressed or implied by these
forward-looking statements. Information concerning factors that could cause our
actual results to materially differ from those forward looking results can be
found in "Part I, Item 1A. Risk Factors" of our Annual Report on Form 10-K for
the year ended December 31, 2005, as well as in other filings we make with the
Securities and Exchange Commission and include, but are not limited to risks


                                      -21-

<PAGE>

associated with owning and leasing real estate generally; dependence on
Marketing as a tenant and on rentals from companies engaged in the petroleum
marketing and convenience store businesses; our unresolved SEC comment;
competition for properties and tenants; risk of tenant non-renewal; the effects
of taxation and other regulations; potential litigation exposure; our
expectations as to the cost of completing environmental remediation; the risk of
loss of our management team; the impact of our electing to be taxed as a REIT,
including subsequent failure to qualify as a REIT; risks associated with owning
real estate concentrated in one region of the United States; risks associated
with potential future acquisitions; losses not covered by insurance; future
dependence on external sources of capital; our potential inability to pay
dividends and terrorist attacks and other acts of violence and war.

     As a result of these and other factors, we may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect our business, financial condition,
operating results and stock price. An investment in our stock involves various
risks, including those mentioned above and elsewhere in this report and those
that are detailed from time to time in our other filings with the Securities and
Exchange Commission.

     You should not place undue reliance on forward-looking statements, which
reflect our view only as of the date hereof. We undertake no obligation to
publicly release revisions to these forward-looking statements to reflect future
events or circumstances or reflect the occurrence of unanticipated events.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     Prior to April 2006, we had not used derivative financial or commodity
instruments for trading, speculative or any other purpose, and had not entered
into any instruments to hedge our exposure to interest rate risk. We do not have
any foreign operations, and are therefore not exposed to foreign currency
exchange rate risks.

     We are exposed to interest rate risk, primarily as a result of our $100.0
million Credit Agreement. Our Credit Agreement, which expires in June 2008,
bears interest at a rate equal to the sum of a base rate or a LIBOR rate plus an
applicable margin based on our leverage ratio and ranging from 0.25% to 1.75%.
At June 30, 2006, we had borrowings outstanding of $48.3 million under our
Credit Agreement bearing interest at a rate of 6.68% per annum. We use
borrowings under the Credit Agreement to finance acquisitions and for general
corporate purposes.

     We manage our exposure to interest rate risk by minimizing, to the extent
feasible, our overall borrowing and monitoring available financing alternatives.
Our interest rate risk as of June 30, 2006 increased due to increased borrowings
under the Credit Agreement as compared to December 31, 2005. Due to the
increased exposure, in April 2006 we entered into a $45.0 million LIBOR based
interest rate swap, effective May 1, 2006 through June 30, 2011, to manage a
portion of our interest rate risk. The interest rate swap is intended to hedge
our current exposure to variable interest rate risk by effectively fixing, at
5.44%, the LIBOR component of the interest rate determined under our existing
Credit Agreement or future exposure to variable interest rate risk due to
borrowing arrangements that may be entered into prior to the expiration of the
interest rate swap. Effective May 1, 2006, $45.0 million of our LIBOR based
borrowings under the Credit Agreement bear interest at a 6.69% effective rate.
As a result, we will be exposed to interest rate risk to the extent that our


                                      -22-

<PAGE>

borrowings exceed the $45.0 million notional amount of the interest rate swap.
As of June 30, 2006, our borrowings exceeded the notional amount of the interest
rate swap by $3.3 million. We do not foresee any significant changes in our
exposure or in how we manage this exposure in the near future.

     We entered into the $45,000,000 notional five year interest rate swap
agreement designated and qualifying as a cash flow hedge to reduce our exposure
to the variability in future cash flows attributable to changes in the LIBOR
rate. Our primary objective when undertaking hedging transactions and derivative
positions is to reduce our variable interest rate risk by effectively fixing a
portion of the interest rate for existing debt and anticipated refinancing
transactions. This in turn, reduces the risks that the variability of cash flows
imposes on variable rate debt. Our strategy protects us against future increases
in interest rates. While this agreement is intended to lessen the impact of
rising interest rates, it also exposes us to the risk that the other party to
the agreement will not perform, the agreement will be unenforceable and the
underlying transactions will fail to qualify as a highly-effective cash flow
hedge for accounting purposes.

     In the event that we were to settle the interest rate swap prior to its
maturity, if the corresponding LIBOR swap rate for the remaining term of the
agreement is below the 5.44% fixed strike rate at the time we settle the swap,
we would be required to make a payment to the swap counter-party; if the
corresponding LIBOR swap rate is above the fixed strike rate at the time we
settle the swap, we would receive a payment from the swap counter-party. The
amount that we would either pay or receive would equal the present value of the
basis point differential between the fixed strike rate and the corresponding
LIBOR swap rate at the time we settle the swap.

     Based on our projected average outstanding borrowings under the Credit
Agreement for 2006, if market interest rates increase by an average of 0.5% more
than the market interest rates as of June 30, 2006, the additional annualized
interest expense caused by market interest rate increases since December 31,
2005 would decrease 2006 net income and cash flows by approximately $152,000.
This amount is the sum of (i) the actual impact of increased market interest
rates for the six months ended June 30, 2006 of $138,000 and (ii) $14,000 for
the effect of a hypothetical interest rate change on the portion of our average
outstanding borrowings of $50.5 million projected for the remainder of 2006
under our Credit Agreement that is not covered by our $45.0 million interest
rate swap. The projected average outstanding borrowings are before considering
additional borrowings required for future acquisitions. The calculation also
assumes that there are no other changes in our financial structure or the terms
of our borrowings. Management believes that the fair value of its debt equals
its carrying value at June 30, 2006 and December 31, 2005. Our exposure to
fluctuations in interest rates will increase or decrease in the future with
increases or decreases in the amount of borrowings outstanding under our Credit
Agreement.

     In order to minimize our exposure to credit risk associated with financial
instruments, we place our temporary cash investments with high-credit-quality
institutions. Temporary cash investments, if any, are held in an institutional
money market fund and short-term federal agency discount notes.



                                      -23-

<PAGE>

Item 4. Controls and Procedures

     The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's reports
filed under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Commission's rules and forms, and that such information is accumulated and
communicated to the Company's management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

     As required by Rule 13a-15(b), the Company carried out an evaluation, under
the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and the Company's Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the quarter
covered by this report. Based on the foregoing, the Company's Chief Executive
Officer and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures were effective at a reasonable assurance level as of
June 30, 2006.

     There have been no changes in the Company's internal control over financial
reporting during the latest fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.


                                      -24-

<PAGE>

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     In February 2006, an action was commenced in the Supreme Court in
Westchester County, New York against us and Marketing to recover cleanup and
remediation costs related to a petroleum release and for damages in excess of
$1.0 million for, among other things, lost rent and diminution of property
value. Although we have conducted, and continue to conduct, remediation
activities at the property, we are unable at this time to estimate with any
certainty our ultimate legal and financial liability, if any, for the damages
claimed in the litigation.

     In May 2006, we were advised of an action in the Superior Court of New
Jersey, Middlesex County, filed by a property owner claiming damages for
remediation of contaminated soil. It is not clear from the summons why we have
been made a party to the action and we are in the process of determining whether
there is any basis at all for the claim against us. Accordingly, we are unable
at this time to estimate with any certainty our ultimate legal and financial
liability, if any, for the damages claimed in the litigation.

     In May 2006, we were advised of third party complaint filed in an action in
the Superior Court of New Jersey, Essex County, against Getty Oil, Inc. and John
Doe Corporations, filed by a property owner seeking to impose upon third parties
(that may include a subsidiary of the Company) responsibility for damages it may
suffer in the action for claims brought against it under federal environmental
laws, the State's Spill Act, the State's Water Pollution Act and other theories
of liability. It is not clear at this time whether the Company or any of its
subsidiaries would have any liability for the asserted claims or whether or to
what extent such liability would be covered by the Company's settlement
agreement with ChevronTexaco in connection with pre-1985 contamination at the
Newark Terminal property, which is near the property that is the subject of the
litigation. Accordingly, we are unable at this time to estimate with any
certainty our ultimate legal and financial liability, if any, for the damages
claimed in the litigation.

     In June 2006, we were served with a Toxic Substance Control Act Notice
Letter, advising us that "prospective plaintiffs" listed on a schedule to the
Notice Letter intend to file a TSCA citizens' civil action against the entities
listed on a schedule to the Notice Letter, including the Company's subsidiaries,
based upon alleged failure by such entities to provide information to the United
States Environmental Protection Agency regarding MTBE as may be required by the
Toxic Substance Control Act, and declaring that such action will be filed unless
such information is delivered. We do not believe that we have any such
information.

     Please refer to "Item 3. Legal Proceedings" of our Annual Report on Form
10-K for the year ended December 31, 2005 and note 3 to our consolidated
financial statements in such Form 10-K and note 2 to our accompanying unaudited
consolidated financial statements which appear in this Form 10-Q for additional
information.




                                      -25-

<PAGE>
Item 1A. Risk Factors

     See "Part I, Item 1A. Risk Factors" of our Annual Report on Form 10-K for
the year ended December 31, 2005 for factors that could affect the Company's
results of operations, financial condition and liquidity. There has been no
material change in such factors since December 31, 2005.

Item 4. Submission of Matters to a Vote of Security Holders

     We held our annual meeting of stockholders on May 16, 2006. There were
24,719,465 shares of our common stock outstanding and entitled to vote at our
annual meeting, and 23,275,570 shares were represented in person or by proxy.
The following matters were voted upon at the annual meeting:

     The five directors listed below were elected to serve an additional
one-year term:

<TABLE>
<CAPTION>
Nominee               Votes For   Votes Withheld
--------             ----------   --------------
<S>                  <C>          <C>
Milton Cooper        23,188,638        86,932
Philip E. Coviello   23,040,120       235,450
Leo Liebowitz        23,189,955        85,615
Howard Safenowitz    23,044,649       230,921
Warren G. Wintrub    22,661,285       614,285
</TABLE>

     It is with deep sorrow that we mourn the death of Warren Wintrub.  Mr.
Wintrub served as a member of the Board of Directors from 1994 until his death
on June 13, 2006. His creativity, dedication and inspiration contributed greatly
to the success of the Company. The Board of Directors and the Officers of the
Company, on behalf of all Company employees, express their sincerest condolences
to Warren's wife, Toby, and his family on their loss.

     The appointment of PricewaterhouseCoopers LLP as our independent registered
public accounting firm for the fiscal year ending December 31, 2006 was
ratified:

<TABLE>
<CAPTION>
 Votes For   Votes Against   Abstentions
----------   -------------   -----------
<S>          <C>             <C>
23,121,672       48,003        105,895
</TABLE>

     There were no broker non-votes at the Annual Meeting.



                                      -26-

<PAGE>
Item 6. Exhibits

<TABLE>
<CAPTION>
Exhibit No.   Description of Exhibit
-----------   ----------------------
<S>           <C>
31(i).1       Rule 13a-14(a) Certification of Chief Financial Officer

31(i).2       Rule 13a-14(a) Certification of Chief Executive Officer

32.1          Certification of Chief Executive Officer pursuant to 18 U.S.C.
              Section 1350 (a)

32.2          Certifications of Chief Financial Officer pursuant to 18 U.S.C.
              Section 1350 (a)
</TABLE>

(a)  These certifications are being furnished solely to accompany the Report
     pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of
     Section 18 of the Securities Exchange Act of 1934, as amended, and are not
     to be incorporated by reference into any filing of the Company, whether
     made before or after the date hereof, regardless of any general
     incorporation language in such filing.




                                      -27-
<PAGE>


                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        GETTY REALTY CORP.
                                        (Registrant)


Dated: August 4, 2006                   BY: /s/ Thomas J. Stirnweis
                                            ------------------------------------
                                            (Signature)
                                            THOMAS J. STIRNWEIS
                                            Vice President, Treasurer and
                                            Chief Financial Officer


Dated: August 4, 2006                   BY: /s/ Leo Liebowitz
                                            ------------------------------------
                                            (Signature)
                                            LEO LIEBOWITZ
                                            Chairman and Chief Executive Officer


                                      -28-