**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 **September
      30, 2006**





**OR**


**o
      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)




**MARYLAND**
            **11-3412575**(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                EmployerIdentification
                No.)




**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 o





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 o     
Accelerated Filer
x     
      Non-Accelerated Filer o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes
o
      No x





Registrant
      had outstanding 24,749,229 shares of Common Stock, par value $.01 per share,
      as
      of November 2, 2006.







GETTY
      REALTY CORP.





INDEX




Part
                  I. FINANCIAL INFORMATION
              Page
                  NumberItem
                  1. Financial Statements
                  (unaudited)Consolidated
                  Balance Sheets as of September 30, 2006 andDecember
                  31, 2005
              1Consolidated
                  Statements of Operations for theThree
                  and Nine Months ended September 30, 2006 and
                  2005
              2Consolidated
                  Statements of Cash Flows for theNine
                  months ended September 30, 2006 and
                  2005
              3Notes
                  to Consolidated Financial
                  Statements
              4Item
                  2. Management's Discussion and Analysis of Financial
                  Conditionand
                  Results of Operations
              11Item
                  3. Quantitative and Qualitative Disclosures about
                  Market Risk
              23Item
                  4. Controls and Procedures
              25Part
                  II.OTHER INFORMATIONItem
                  1. Legal Proceedings
              26Item
                  1A. Risk Factors
              28Item
                  6. Exhibits
              28Signatures
              29









Part
      I. FINANCIAL INFORMATION





Item
      1. Financial Statements





GETTY
                REALTY CORP. AND SUBSIDIARIESCONSOLIDATED
                BALANCE SHEETS(in
                thousands, except share data)(unaudited)*September
                30,*
            
            *December
                31,*Assets:
            
            *2006*
            
            *2005*Real
                Estate:Land
            
            $
            180,569
            
            $
            171,839Buildings
                and improvements
            
            
            203,694
            
            
            198,656384,263
            
            
            370,495Less
                - accumulated depreciation and amortization
            
            
            (114,520
            )
            
            (109,800
            )Real
                estate, net
            
            
            269,743
            
            
            260,695Deferred
                rent receivable
            
            
            31,632
            
            
            29,287Cash
                and equivalents
            
            
            953
            
            
            1,247Recoveries
                from state underground storage tank funds, net
            
            
            4,058
            
            
            4,264Mortgages
                and accounts receivable, net
            
            
            4,213
            
            
            3,129Prepaid
                expenses and other assets
            
            
            1,005
            
            
            1,359Total
                assets
            
            $
            311,604
            
            $
            299,981Liabilities
                and Shareholders' Equity:Debt
            
            $
            46,701
            
            $
            34,224Environmental
                remediation costs
            
            
            17,242
            
            
            17,350Dividends
                payable
            
            
            11,277
            
            
            11,009Accounts
                payable and accrued expenses
            
            
            9,502
            
            
            9,515Total
                liabilities
            
            
            84,722
            
            
            72,098Commitments
                and contingenciesShareholders'
                equity:Common
                stock, par value $.01 per share; authorized 50,000,000 shares;
                issued 24,749,166 at September 30,2006 and
                24,716,614 at December 31, 2005
            
            
            247
            
            
            247Paid-in
                capital
            
            
            258,550
            
            
            257,766Dividends
                paid in excess of earnings
            
            
            (31,021
            )
            
            (30,130
            )Accumulated
                other comprehensive loss
            
            
            (894
            )
            
            —Total
                shareholders' equity
            
            
            226,882
            
            
            227,883Total
                liabilities and shareholders' equity
            
            $
            311,604
            
            $
            299,981





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




-
          1
          -




GETTY
                REALTY CORP. AND SUBSIDIARIESCONSOLIDATED
                STATEMENTS OF OPERATIONS(in
                thousands, except per share amounts)(unaudited)*Three
                months ended September 30,*
            
            *Nine
                months ended September 30,**2006*
            
            *2005*
            
            *2006*
            
            *2005*Revenues
                from rental properties
            
            $
            18,087
            
            $
            17,768
            
            $
            54,334
            
            $
            53,036Operating
                expenses:Rental
                property expenses
            
            
            2,425
            
            
            2,551
            
            
            7,397
            
            
            7,735Environmental
                expenses, net
            
            
            1,642
            
            
            375
            
            
            3,553
            
            
            1,786General
                and administrative expenses
            
            
            1,383
            
            
            1,167
            
            
            4,123
            
            
            3,767Depreciation
                and amortization expense
            
            
            1,891
            
            
            2,015
            
            
            5,803
            
            
            6,029Total
                operating expenses
            
            
            7,341
            
            
            6,108
            
            
            20,876
            
            
            19,317Operating
                income
            
            
            10,746
            
            
            11,660
            
            
            33,458
            
            
            33,719Other
                income, net
            
            
            809
            
            
            179
            
            
            1,368
            
            
            370Interest
                expense
            
            
            (979
            )
            
            (567
            )
            
            (2,607
            )
            
            (1,167
            )Net
                earnings before income taxes
            
            
            10,576
            
            
            11,272
            
            
            32,219
            
            
            32,922Income
                tax benefit
            
            
            700
            
            
            1,494
            
            
            700
            
            
            1,494Net
                earnings
            
            $
            11,276
            
            $
            12,766
            
            $
            32,919
            
            $
            34,416Net
                earnings per common share:Basic
            
            $
            .46
            
            $
            .52
            
            $
            1.33
            
            $
            1.39Diluted
            
            $
            .46
            
            $
            .52
            
            $
            1.33
            
            $
            1.39Weighted
                average shares outstanding:Basic
            
            
            24,739
            
            
            24,715
            
            
            24,727
            
            
            24,710Stock
                options and restricted stock units
            
            
            25
            
            
            19
            
            
            25
            
            
            15Diluted
            
            
            24,764
            
            
            24,734
            
            
            24,752
            
            
            24,725Dividends
                declared per share
            
            $
            .455
            
            $
            .445
            
            $
            1.365
            
            $
            1.315





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




-
          2
          -




GETTY
                REALTY CORP. AND SUBSIDIARIESCONSOLIDATED
                STATEMENTS OF CASH
                FLOWS(in
                thousands)(unaudited)*Nine
                months ended September 30,**2006*
            
            *2005**Cash
                flows from operating activities:*Net
                earnings
            
            $
            32,919
            
            $
            34,416*Adjustments
                to reconcile net earnings to**net
                cash provided by operating activities:*Depreciation
                and amortization expense
            
            
            5,803
            
            
            6,029Deferred
                rental revenue
            
            
            (2,345
            )
            
            (2,738
            )Gain
                on dispositions of real estate
            
            
            (1,152
            )
            
            (177
            )Accretion
                expense
            
            
            576
            
            
            639Stock-based
                employee compensation expense
            
            
            137
            
            
            102*Changes
                in assets and liabilities:*Recoveries
                from state underground storage tank funds, net
            
            
            457
            
            
            856Mortgages
                and accounts receivable, net
            
            
            (1,000
            )
            
            1,241Prepaid
                expenses and other assets
            
            
            354
            
            
            (930
            )Environmental
                remediation costs
            
            
            (935
            )
            
            (2,196
            )Accounts
                payable and accrued expenses
            
            
            (207
            )
            
            (855
            )Accrued
                income taxes
            
            
            (700
            )
            
            (1,494
            )Net
                cash provided by operating activities
            
            
            33,907
            
            
            34,893*Cash
                flows from investing activities:*Property
                acquisitions and capital expenditures
            
            
            (15,512
            )
            
            (29,571
            )Collection
                (issuance) of mortgages receivable, net
            
            
            (84
            )
            
            308Proceeds
                from dispositions of real estate
            
            
            1,813
            
            
            895Net
                cash used in investing activities
            
            
            (13,783
            )
            
            (28,368
            )*Cash
                flows from financing activities:*Cash
                dividends paid
            
            
            (33,542
            )
            
            (32,016
            )Borrowings
                under credit agreement, net
            
            
            12,500
            
            
            10,700Repayment
                of mortgages payable
            
            
            (23
            )
            
            (278
            )Proceeds
                from stock issued
            
            
            647
            
            
            323Net
                cash used in financing activities
            
            
            (20,418
            )
            
            (21,271
            )Net
                decrease in cash and equivalents
            
            
            (294
            )
            
            (14,746
            )Cash
                and equivalents at beginning of period
            
            
            1,247
            
            
            15,700Cash
                and equivalents at end of period
            
            $
            953
            
            $
            954Supplemental
                disclosures of cash flow information*Cash
                paid (refunded) during the period for:*Interest
            
            $
            1,785
            
            $
            977Income
                taxes, net
            
            
            472
            
            
            446Recoveries
                from state underground storage tank funds
            
            
            (1,396
            )
            
            (1,495
            )Environmental
                remediation costs
            
            
            3,283
            
            
            3,534*The
                accompanying notes are an integral part of these financial
                statements.*





-
            3
            -





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.




In
      September
      2006, the staff of the Securities and Exchange Commission (the "Staff") issued
      Staff Accounting Bulletin No. 108 (“SAB 108”), "Considering the Effects of Prior
      Year Misstatements When Quantifying Misstatements in Current Year Financial
      Statements." In SAB 108, the Staff established an approach that requires
      quantification of financial statement misstatements based on the effects of
      the
      misstatements on each of the company's financial statements and the related
      financial statement disclosures. This model is commonly referred to as the
      "dual
      approach" because it requires quantification of errors under both the iron
      curtain and the roll-over methods. The roll-over method focuses primarily on
      the
      impact of a misstatement on the income statement—including the reversing effect
      of prior year misstatements—but its use can lead to the accumulation of
      misstatements in the balance sheet. The iron-curtain method focuses primarily on
      the effect of correcting the period-end balance sheet with less emphasis on
      the
      reversing effects of prior year errors on the income statement.




There
      currently are no financial statement misstatements that have been identified
      by
      the Company for which correcting adjustments have not been made. Historically
      the Company has used the dual approach for quantifying identified financial
      statement misstatements. The Company will initially apply the provisions of
      SAB
      108 in connection with the preparation of its annual financial statements for
      the year ending December 31, 2006. The Company does not expect that the
      provisions of SAB 108 will have any material impact on its financial position
      or
      results of operation.





-
          4
          -





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
      September 30, 2006, the Company leased nine hundred twenty- three
      of
      its one thousand fifty-eight 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 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.
      A
      substantial portion of the deferred rental revenue of $31,632,000 recorded
      as of
      September 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 September
      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 September 30, 2006 and December 31, 2005 the Company
      had accrued $2,795,000 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.




-5-




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 September 2006 the Company was notified that the Company was made
      party to forty 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 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 September 30, 2006 and December 31, 2005,
      the Company’s consolidated balance sheets included, in accounts payable and
      accrued expenses, $334,000 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 it may be entitled to refunds of
      amounts previously funded as the claims are evaluated on an annual basis.
      Although 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 December 31, 2005 the Company
      had $700,000 accrued for this and certain other uncertain tax matters which
      it
      believed 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. Accordingly, an income tax benefit of $700,000 was recorded
      in the third quarter of 2006 due to the elimination of the amount accrued for
      uncertain tax positions since the Company believes that the uncertainties
      regarding these exposures have been resolved or that it is no longer likely
      that
      the exposure will result in a liability upon review. However, the ultimate
      resolution of these matters may have a significant impact on the results of
      operations for any single fiscal year or interim period. 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.




-
          6
          -


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 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 nine months ended
      September 30, 2006, the net changes in estimated remediation costs included
      in
      environmental expenses in the Company’s consolidated statements of operations
      were $1,159,000 and $1,985,000, respectively, as compared to $46,000 and
      $1,338,000, 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 accrued for obligations that are the responsibility
      of
      its tenants. Of the nine hundred twenty-three properties leased to Marketing
      as
      of September 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 twenty-six 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.




-7-




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
      September 30, 2006, the Company had remediation action plans in
      place  for
      280 (94%)
      of the 299
      properties for which it retained environmental responsibility and has
      not received a no further action letter and the remaining 19 properties
      (6%) remain in the assessment phase.




As
      of
      September 30, 2006, December 31, 2005 and December 31, 2004, the Company had
      accrued $17,242,000, $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 September 30, 2006, December 31, 2005 and December
      31,
      2004, the Company had also recorded $4,058,000, $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, $576,000 and $639,000 of net accretion
      expense is included in environmental expenses for the nine months ended
      September 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.





-
          8
          -


4.  Shareholders'
      Equity:





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





Dividends
            
            AccumulatedPaid
                In
            
            OtherCommon
                Stock
            
            Paid-in
            
            Excess
                Of
            
            ComprehensiveShares
            
            Amount
            
            Capital
            
            Earnings
            
            Loss
            
            TotalBalance,
                December 31, 2005
            
            
            24,716,614
            
            $
            247
            
            $
            257,766
            
            $
            (30,130
            )
            $
            —
            
            $
            227,883Net
                earnings
            
            
            
            
            
            
            
            
            
            
            
            32,919
            
            
            
            
            
            32,919Dividends
            
            
            
            
            
            
            
            
            
            
            
            (33,810
            )
            
            
            
            
            (33,810
            )Stock-based
                employee
              compensation
                expense
            
            
            
            
            
            
            
            
            137
            
            
            
            
            
            
            
            
            137Net
                unrealized loss on
              interest
                rate swap
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (894
            )
            
            (894
            )Stock
                issued
            
            
            32,552
            
            
            
            
            
            647
            
            
            
            
            
            
            
            
            647Balance,
                September 30, 2006
            
            
            24,749,166
            
            $
            247
            
            $
            258,550
            
            $
            (31,021
            )
            $
            (894
            )
            $
            226,882








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 September
      30, 2006.





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.





-
            9
            -




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 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 an effective rate of
      6.69%.




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 September
      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 September 30, 2006, the
      Company’s consolidated balance sheets include, in accounts payable and accrued
      expenses, an obligation for the fair value of the derivative of $894,000. The
      fair value of the interest rate swap obligation is based upon the estimated
      amounts the Company would receive or pay to terminate the contract at the
      reporting date and is determined using an interest rate market pricing model.
      For the nine months ended September 30, 2006, the Company has recorded the
      loss
      in fair value of the swap contract related to the effective portion of the
      interest rate contract totaling approximately $894,000 in accumulated other
      comprehensive loss in the Company’s consolidated balance sheet. The accumulated
      comprehensive loss will be reclassified as an increase 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 $179,000 of the amount
      recorded in accumulated other comprehensive loss relating to the interest rate
      swap contract as an increase in interest expense within the next twelve months.
      The Company will reclassify the amount recorded in accumulated other
      comprehensive loss 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
            -


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 September
      30, 2006, we leased nine hundred twenty-three of our one thousand fifty-eight
      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.




A
      substantial
      portion of our revenues (86% for the nine months ended September 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 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.




-
          11
          -
 
 
 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)December
                  31, 2005ASSETS:Cash
                  and equivalents
              
              $
              103,815Other
                  assets
              
              
              625,947Total
                  assets
              
              $
              729,762LIABILITIES
                  AND STOCKHOLDER’S EQUITY:Total
                  liabilities
              
              $
              617,780Total
                  stockholder’s equity
              
              
              111,982Total
                  liabilities and stockholder’s equity
              
              $
              729,762




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 makeoffers
      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.




-
          12
          -
 
  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.





-
          13
          -
 
  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 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 for the three and nine months ended September 30, 2006
        and
        2005 also include income tax benefits recognized due to the elimination of,
        or
        net reduction in, amounts accrued for uncertain tax positions related to
        being
        taxed as a C-Corp., 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 tax benefit. 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 nine months
        ended September 30, 2006 and 2005 is as follows (in thousands, except per
        share
        amounts):




*Three
                  months endedSeptember 30,*
              
              *Nine
                  months ended September 30,**2006*
              
              *2005*
              
              *2006*
              
              *2005*Net
                  earnings
              
              $
              11,276
              
              $
              12,766
              
              $
              32,919
              
              $
              34,416Depreciation
                  and amortization of real estate assets
              
              
              1,891
              
              
              2,015
              
              
              5,803
              
              
              6,029Gains
                  on dispositions of real estate
              
              
              (695
              )
              
              (105
              )
              
              (1,152
              )
              
              (177
              )Funds
                  from operations
              
              
              12,472
              
              
              14,676
              
              
              37,570
              
              
              40,268Deferred
                  rental revenue (straight-line rent)
              
              
              (749
              )
              
              (853
              )
              
              (2,345
              )
              
              (2,738
              )Income
                  tax benefit
              
              
              (700
              )
              
              (1,494
              )
              
              (700
              )
              
              (1,494
              )Adjusted
                  funds from operations
              
              $
              11,023
              
              $
              12,329
              
              $
              34,525
              
              $
              36,036Diluted
                  per share amounts:Earnings
                  per share
              
              $
              .46
              
              $
              .52
              
              $
              1.33
              
              $
              1.39Funds
                  from operations per share
              
              $
              .50
              
              $
              .59
              
              $
              1.52
              
              $
              1.63Adjusted
                  funds from operations per share
              
              $
              .45
              
              $
              .50
              
              $
              1.39
              
              $
              1.46Diluted
                  weighted average shares outstanding
              
              
              24,764
              
              
              24,734
              
              
              24,752
              
              
              24,725


-
          14
          -





Results
      of
      operations




*Three
      months ended September 30, 2006 compared to the three months ended September
      30,
      2005*




Revenues
      from
      rental properties were $18.1 million for the three months ended September 30,
      2006 compared to $17.8 million for the three months ended September 30, 2005.
      We
      received approximately $15.0 million in the three months ended September 30,
      2006 and $14.9 million in the three months ended September 30, 2005 from
      properties leased to Marketing under the Marketing Leases. We also received
      rent
      of $2.4 million in the three months ended September 30, 2006 and $2.0 million
      in
      the three months ended September 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 $0.7 million for the three months ended September 30, 2006
      as
      compared to $0.9 million for the three months ended September 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 $2.4 million for the three months ended
      September 30, 2006 as compared to $2.6 million recorded for the three months
      ended September 30, 2005.




Environmental
      expenses, net for the three months ended September 30, 2006 were $1.6 million
      as
      compared to $0.4 million for the three months ended September 30, 2005. The
      increase was primarily due to a $0.2 million increase in environmental related
      litigation expenses as compared to the prior year period and a $1.1 million
      increase in change in estimated environmental costs, net of estimated
      recoveries. Environmental related litigation expenses and legal fees were $0.3
      million for the three months ended September 30, 2006 compared to $0.1 million
      for 2005, which prior period includes a $0.1 million net reduction in
      environmental related litigation loss reserve estimates.




General
      and
      administrative expenses for the three months ended September 30, 2006 were
      $1.4
      million as compared to $1.2 million recorded for the three months ended
      September 30, 2005.




Depreciation
      and amortization expense for the three months ended September 30, 2006 was
      $1.9
      million which was comparable to $2.0 million recorded for the three months
      ended
      September 30, 2005.




As
      a result,
      total operating expenses increased by approximately $1.2 million for the three
      months ended September 30, 2006, as compared to the three months ended September
      30, 2005.




Other
      income,
      net was $0.8 million for the three months ended September 30, 2006 as compared
      to $0.2 million for the three months ended September 30, 2005. The increase
      was
      primarily due to $0.6 million of increased gains on dispositions of real
      estate.




Interest
      expense was $1.0 million for the three months ended September 30, 2006 as
      compared to $0.6 million for the three months ended September 30, 2005. The
      increase was primarily due to increased
      borrowings used to finance the acquisition of properties in February 2006.
      Interest expense also increased due to higher interest rates which averaged
      6.74% for the three months ended September 30, 2006 as compared to 4.80 % for
      the three months ended September 30, 2005.




-
          15
          -
 
  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. Our
        b orrowings
        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
        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.
  Income
        tax
        benefit was $0.7 million for the three months ended September 30, 2006 as
        compared to $1.4 million for the prior year period. The tax benefit of $0.7
        million recorded in the third quarter of 2006 was recognized due to the
        elimination of the accrual for uncertain tax positions since management believes
        that the uncertainties regarding the exposures have been resolved or that it is
        no longer likely that the exposure will result in a liability upon review.
        However, the ultimate resolution of these matters may have a significant
        impact
        on the results of operations for any single fiscal year or interim
        period.
  As
        a result,
        net earnings were $11.3 million for the three months ended September 30,
        2006, a
        decreased of 11.7%, or $1.5 million as compared to $12.8 million for the
        comparable prior year period. For the same period, FFO decreased by 15.0%,
        or
        $2.2 million, to $12.5 million and AFFO decreased by 10.6%, or $1.3 million,
        to
        $11.0 million. The decreases 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 $0.6 million.
        AFFO
        decreased less than FFO on both a dollar and percentage basis due to a $0.9
        million aggregate decrease in deferred rental revenue and income tax benefit
        (which are included in net earnings and FFO but are excluded from AFFO) recorded
        for the three months ended September 30, 2006 as compared to the three months
        ended September 30, 2005.
  Diluted
        earnings per share for the three months ended September 30, 2006 was $0.46
        per
        share, a decrease of $0.06 per share, or 11.5%, as compared to the three
        months
        ended September 30, 2005. Diluted FFO per share for the three months ended
        September 30, 2006 was $0.50 per share, a decrease of $0.09 per share, or
        15.3%,
        as compared to the three months ended September 30, 2005. Diluted AFFO per
        share
        for the three months ended September 30, 2006 was $0.45 per share, a decrease
        of
        $0.05 per share, or 10.0%, as compared to the three months ended September
        30,
        2005.





-
            16
            -




Results
      of
      operations




*Nine
      months ended September 30, 2006 compared to the nine months ended September
      30,
      2005*




Revenues
      from
      rental properties were $54.3 million for the nine months ended September 30,
      2006 compared to $53.0 million for the nine months ended September 30, 2005.
      We
      received approximately $45.1 million in the nine months ended September 30,
      2006
      and $44.7 million in the nine months ended September 30, 2005 from properties
      leased to Marketing under the Marketing Leases. We also received rent of $6.9
      million in the nine months ended September 30, 2006 and $5.6 million in the
      nine
      months ended September 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 $2.3 million for the nine months ended
      September 30, 2006 as compared with $2.7 million for the nine months ended
      September 30, 2005.




Rental
      property expenses, which are primarily comprised of rent expense and real estate
      and other state and local taxes, were $7.4 million for the nine months ended
      September 30, 2006, as compared to $7.7 million recorded for the nine months
      ended September 30, 2005.




Environmental
      expenses, net for the nine months ended September 30, 2006 were $3.6 million
      as
      compared to $1.8 million for the nine months ended September 30, 2005. The
      increase was primarily due to a $1.1 million increase in environmental
      related litigation expenses and legal fees as compared to the prior year
      period and a $0.6 million increase in change in estimated environmental costs,
      net of estimated recoveries. Environmental related litigation expenses and
      legal fees were $1.0 million for the nine months ended September 30, 2006
      compared to a credit of $0.1 million for 2005, which prior period includes
      a
      $0.6 million net reduction in environmental related litigation loss reserve
      estimates.




General
      and
      administrative expenses for the nine months ended September 30, 2006 were $4.1
      million as compared to the $3.8 million recorded for the nine months ended
      September 30, 2005.




Depreciation
      and amortization expense for the nine months ended September 30, 2006 was $5.8
      million as compared to the $6.0 million recorded for the nine months ended
      September 30, 2005.




As
      a result,
      total operating expenses increased by approximately $1.6 million for the nine
      months ended September 30, 2006, as compared to the nine months ended September
      30, 2005.




Other
      income,
      net was $1.4 million for the nine months ended September 30, 2006 as compared
      to
      $0.4 million for the nine months ended September 30, 2005. The increase was
      primarily due to $1.0 million of increased gains on dispositions of real
      estate.




Interest
      expense was $2.6 million for the nine months ended September 30, 2006 as
      compared with $1.2 million for the nine months ended September 30, 2005. The
      increase was primarily due to increased borrowings used to finance the
      acquisition of properties in March 2005 and February 2006. Interest expense
      also
      increased due to higher interest rates which averaged 6.39% for the nine months
      ended September 30, 2006 as compared to 4.42% for the nine months ended
      September 30, 2005.





-
          17
          -




Income
      tax
      benefit was $0.7 million for the nine months ended September 30, 2006 as
      compared to $1.4 million for the prior year period. The tax benefit of $0.7
      million recorded in the third quarter of 2006 was recognized due to the
      elimination of the accrual for uncertain tax positions since management believes
      that the uncertainties regarding the exposures have been resolved or that it
      is
      no longer likely that the exposure will result in a liability upon review.
      However, the ultimate resolution of these matters may have a significant impact
      on the results of operations for any single fiscal year or interim
      period.




As
      a result,
      net earnings were $32.9 million for the nine months ended September 30, 2006
      a
      decrease of 4.4%, or $1.5 million as compared to $34.4 million reported for
      the
      prior year period. For the same period, FFO decreased by 6.7%, or $2.7 million,
      to $37.6 million and AFFO decreased by 4.2%, or $1.5 million, to $34.5 million.
      The decreases in FFO and AFFO for the nine months ended September 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
      $1.0 million. FFO decreased more than AFFO on both a dollar and percentage
      basis
      due to a $1.2 million aggregate decrease in deferred rental revenue and income
      tax benefit (which is included in net earnings and FFO but is excluded from
      AFFO) recorded for the nine months ended September 30, 2006 as compared to
      the
      nine months ended September 30, 2005.




Diluted
      earnings per share for the nine months ended September 30, 2006 was $1.33 per
      share, a decrease of $0.06 per share, or 4.3%, compared to the nine months
      ended
      September 30, 2005. Diluted FFO per share for the nine months ended September
      30, 2006 was $1.52 per share, a decrease of $0.11 per share or, 6.7%, as
      compared to the nine months ended September 30, 2005. Diluted AFFO per share
      for
      the nine months ended September 30, 2006 was $1.39 per share, a decrease of
      $0.07 per share, or 4.8%, as compared to the nine months ended September 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 expires 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.




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 ranging from 0.25% to 1.75%.
      The
      annual commitment fee on the unused Credit Agreement ranges 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.




-
          18
          -
 
  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 an  effective rate of 6.69%.
  Total
        borrowings outstanding under the Credit Agreement at September 30, 2006 were
        $46.5 million, bearing interest at an average effective rate of 6.70% per
        annum.
        Total borrowings increased to $48.6 million as of November 1, 2006 primarily
        due
        to additional borrowings used to pay $11.0 million of dividends that were
        accrued as of September 30, 2006 and paid in October 2006, net of repayments
        from positive cash flows provided by rental operations. Accordingly, we had
        $51.4 million available under the terms of the Credit Agreement as of November
        1, 2006 or $76.4 million available assuming exercise of 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 $33.5 million for the nine months ended September 30, 2006 and
        $32.0
        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.





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.





-
          19
          -




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.




In
      September
      2006, the staff of the Securities and Exchange Commission (the "Staff") issued
      Staff Accounting Bulletin No. 108 (“SAB 108”), "Considering the Effects of Prior
      Year Misstatements When Quantifying Misstatements in Current Year Financial
      Statements." In SAB 108, the Staff established an approach that requires
      quantification of financial statement misstatements based on the effects of
      the
      misstatements on each of the company's financial statements and the related
      financial statement disclosures. This model is commonly referred to as the
      "dual
      approach" because it requires quantification of errors under both the iron
      curtain and the roll-over methods. The roll-over method focuses primarily on
      the
      impact of a misstatement on the income statement—including the reversing effect
      of prior year misstatements—but its use can lead to the accumulation of
      misstatements in the balance sheet. The iron-curtain method focuses primarily
      on
      the effect of correcting the period-end balance sheet with less emphasis on
      the
      reversing effects of prior year errors on the income statement.




We
      currently
      do not have any financial statement misstatements that have been identified
      for
      which correcting adjustments have not been made. Historically we have used
      the
      dual approach for quantifying identified financial statement misstatements.
      We
      will initially apply the provisions of SAB 108 in connection with the
      preparation of our annual financial statements for the year ending December
      31,
      2006. We do not expect that the provisions of SAB 108 will have any 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 tenants do not satisfy their responsibilities. A liability
      has not been accrued for obligations that are the responsibility of our tenants.
      As of September 30, 2006, we had remediation action plans in place for 280
      (94%)
      of the 299 properties for which we retained environmental responsibility and
      the
      remaining 19 properties (6%) remain in the assessment phase.




-
          20
          -




As
      of
      September 30, 2006, December 31, 2005 and December 31, 2004, we had accrued
      $17.2 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 September 30, 2006, December 31, 2005 and December
      31,
      2004, we had also recorded $4.1 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,
      $0.6 million of accretion expense is included in environmental expenses for
      each
      of the nine month periods ended September 30, 2006 and 2005. Environmental
      expenditures and recoveries from underground storage tank funds were $3.3
      million and $1.4 million, respectively, for the nine month period ended
      September 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 $5.9 million.
      Accordingly, the environmental accrual as of September 30, 2006 was increased
      by
      $2.3 million, net of assumed recoveries and before inflation and present value
      discount adjustments. The resulting net environmental accrual as of September
      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 $2.3 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 September 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 nine months ended September 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 nine months ended September 30, 2006 and 2005, the
      aggregate of the net change in estimated remediation costs included in our
      consolidated statement of operations amounted to $2.0 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.




-21-


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.





-22-




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 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 ranging from 0.25% to 1.75%. 
At September 30, 2006, we had borrowings outstanding of $46.5 million under
      our
      Credit Agreement bearing interest at a rate of 6.70% per annum.  We use
      borrowings under the Credit Agreement to finance acquisitions and for general
      corporate purposes.




-23-


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 September 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 an effective rate of 6.69%. As
      a result, we will be exposed to interest rate risk to the extent that our
      borrowings exceed the $45.0 million notional amount of the interest rate swap. As
      of
      September 30, 2006, our borrowings exceeded the notional amount of the interest
      rate swap by $1.5 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 $45.0 million 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 September 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 $286,000. This amount
      is the sum of (i) the actual impact of increased market interest rates for
      the
      nine months ended September 30, 2006 of $279,000 and (ii) $7,000 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
      September 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.




-24-
 
  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.
  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 September 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.






-25-





PART
      II. OTHER INFORMATION




Item
      1.
      Legal Proceedings




In
      June 2006,
      we were notified by the New York State Department of Environmental Conservation
      (“NYDEC”) of the discovery of soil and groundwater contamination at a terminal
      property formerly owned by us and at an adjacent property. The NYDEC alleges
      that the contamination at the adjacent property emanated from the terminal
      property. Additionally, we have been notified by the current owner of the
      terminal property that, pursuant to an indemnification agreement entered into
      at
      the time of the sale of the terminal property to them, we are responsible for
      the costs of cleaning up and remediating such contamination.




In
      August
      2006, we were advised by the State of Maryland Department of the Environment
      of
      the discovery of contaminated soil at a retail motor fuel property that was
      supplied by us with gasoline. We believe that, under the terms of the Master
      Lease, Marketing is responsible for this liability.




In
      August
      2006, we were notified by the New Jersey Schools Corporation (NJSC) of their
      discovery of abandoned USTs and soil contamination at a retail motor fuel
      property that they acquired from us by eminent domain. NJSC is seeking
      reimbursement of cleanup costs allegedly incurred in connection with removal
      of
      the USTs and soil remediation. Prior to the taking the property was leased
      to
      and operated by Marketing. We believe that, under the terms of the Master Lease,
      Marketing is responsible for this liability.




In
      August
      2006, an action was commenced against us and our subsidiary in the Circuit
      Court, Madison County, Illinois seeking a recovery of damages arising out of
      the
      death of a person allegedly exposed to asbestos at our subsidiary’s premises. We
      do not believe that there is any basis for a claim against us and are in the
      process of determining whether there is any basis at all for the claim against
      our subsidiary.




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In
      September
      2006, we were made party to an action in the US District Court by South
      Huntington Water District that is nearly identical to the other thirty-nine
      cases pending 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 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 us, our 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, our ultimate
      legal and financial liability, if any, cannot be estimated with any certainty
      at
      this time.




In
      October
      2006, an action was commenced against us in the New York State Supreme Court
      in
      Albany County by a property owner seeking reimbursement of the costs of cleanup
      and remediation of petroleum contamination at property that was supplied by
      us
      with gasoline.




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, to our Quarterly Reports on Form 10-Q for 2006, and note 2
      to
      our accompanying unaudited consolidated financial statements which appear in
      such Quarterly Reports and in this Form 10-Q for additional
      information.




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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
      6. Exhibits




Exhibit
                  No.
              Description
                  of Exhibit31(i).1
              Rule
                  13a-14(a) Certification of Chief Financial Officer31(i).2
              Rule
                  13a-14(a) Certification of Chief Executive Officer32.1
              Certification
                  of Chief Executive Officer pursuant to 18 U.S.C. § 1350
                  (a)32.2
              Certifications
                  of Chief Financial Officer pursuant to 18 U.S.C. § 1350
                  (a)




(a)
      These
      certifications are being furnished solely to accompany the Report pursuant
      to 18
      U.S.C. § 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.





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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:
                  November 2, 2006
              BY:
                  /s/ Thomas J. Stirnweis(Signature)THOMAS
                  J. STIRNWEISVice
                  President, Treasurer andChief
                  Financial OfficerDated:
                  November 2, 2006
              BY:
                  /s/ Leo Liebowitz(Signature)LEO
                  LIEBOWITZChairman
                  and Chief ExecutiveOfficer






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