**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D. C.  20549**





**FORM
      10-Q**


(Mark
      one)


**x**
            **QUARTERLY
              REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
              OF 1934**





For
      the
      quarterly period ended **June 30, 2007**




**OR**




**o**
            **TRANSITION
              PERIOD 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
            
            (I.R.S.
                Employerof
                incorporation or
            
            Identification
                No.)organization)





**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 24,764,875 shares of Common Stock, par value $.01 per share,
      as
      of August 9, 2007.









GETTY
        REALTY CORP.
  INDEX
  Part
                    I.  FINANCIAL INFORMATION
                
                Page
                    NumberItem
                    1. Financial Statements (unaudited)Consolidated
                    Balance Sheets as of June 30, 2007
                    andDecember
                    31, 2006
                
                1Consolidated
                    Statements of Operations for
                    theThree
                    and Six Months ended June 30, 2007 and
                    2006
                
                2Consolidated
                    Statements of Comprehensive Income for
                    theThree
                    and Six Months ended June 30, 2007 and
                    2006
                
                3Consolidated
                    Statements of Cash Flows for
                    theSix
                    months ended June 30, 2007 and
                    2006
                
                4Notes
                    to Consolidated Financial
                    Statements
                
                5Item
                    2. Management's Discussion and Analysis of Financial
                    Conditionand
                    Results of Operations
                
                13Item
                    3. Quantitative and Qualitative Disclosures about
                    Market Risk
                
                27Item
                    4. Controls and Procedures
                
                28Part
                    II. OTHER INFORMATIONItem
                    1. Legal Proceedings
                
                30Item
                    1A. Risk Factors
                
                31Item
                    4.  Submission of Matters to a Vote of
                    Security Holders
                
                31Item
                    6. Exhibits
                
                31Signatures
                
                32




GETTY
                  REALTY CORP. AND SUBSIDIARIESCONSOLIDATED
                  BALANCE SHEETS(in
                  thousands, except share data)(unaudited)*June
                  30,*
              
              
              *December
                  31,*Assets:
              
              *2007*
              
              
              *2006*Real
                  Estate:Land
              
              $
              222,300
              
              
              $
              180,409Buildings
                  and
                  improvements
              
              
              250,917
              
              
              
              203,149473,217
              
              
              
              383,558Less
–
accumulated
                  depreciation
                  and amortization
              
              
              (118,829
              )
              
              
              (116,089
              )Real
                  estate,
                  net
              
              
              354,388
              
              
              
              267,469Deferred
                  rent receivable
              
              
              33,648
              
              
              
              32,297Cash
                  and cash equivalents
              
              
              1,844
              
              
              
              1,195Recoveries
                  from state underground storage tank funds, net
              
              
              4,147
              
              
              
              3,845Mortgages
                  and accounts receivable, net
              
              
              4,317
              
              
              
              3,440Prepaid
                  expenses and other assets
              
              
              6,744
              
              
              
              1,037Total
                  assets
              
              $
              405,088
              
              
              $
              309,283Liabilities
                  and Shareholders' Equity:Debt
              
              $
              131,678
              
              
              $
              45,194Environmental
                  remediation costs
              
              
              18,392
              
              
              
              17,201Dividends
                  payable
              
              
              11,538
              
              
              
              11,284Accounts
                  payable and accrued expenses
              
              
              19,520
              
              
              
              10,029Total
                  liabilities
              
              
              181,128
              
              
              
              83,708Commitments
                  and contingencies
              
              
              --
              
              
              
              --Shareholders'
                  equity:Common
                  stock, par value $.01 per
                  share; authorized50,000,000
                  shares; issued
                  24,764,875 at June 30, 2007and 24,764,765 at December 31,
                  2006
              
              
              248
              
              
              
              248Paid-in
                  capital
              
              
              258,769
              
              
              
              258,647Dividends
                  paid in excess of
                  earnings
              
              
              (34,866
              )
              
              
              (32,499
              )Accumulated
                  other comprehensive
                  loss
              
              
              (191
              )
              
              
              (821
              )Total
                  shareholders'
                  equity
              
              
              223,960
              
              
              
              225,575Total
                  liabilities and
                  shareholders' equity
              
              $
              405,088
              
              
              $
              309,283
 
 *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
 
 -1-
  GETTY
                  REALTY CORP. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENTS OF OPERATIONS(in
                  thousands, except per share amounts)(unaudited)*Three
                  months ended June 30,*
              
              
              *Six
                  months ended June 30,**2007*
              
              
              *2006*
              
              
              *2007*
              
              
              *2006*Revenues
                  from rental properties
              
              $
              20,727
              
              
              $
              18,152
              
              
              $
              38,710
              
              
              $
              36,191Expenses:Rental
                  property expenses
              
              
              2,366
              
              
              
              2,488
              
              
              
              4,785
              
              
              
              4,972Environmental
                  expenses, net
              
              
              3,055
              
              
              
              810
              
              
              
              4,024
              
              
              
              1,911General
                  and administrative expenses
              
              
              1,780
              
              
              
              1,333
              
              
              
              3,233
              
              
              
              2,740Depreciation
                  and amortization expense
              
              
              2,706
              
              
              
              1,995
              
              
              
              4,569
              
              
              
              3,910Total
                  expenses
              
              
              9,907
              
              
              
              6,626
              
              
              
              16,611
              
              
              
              13,533Operating
                  income
              
              
              10,820
              
              
              
              11,526
              
              
              
              22,099
              
              
              
              22,658Other
                  income, net
              
              
              276
              
              
              
              477
              
              
              
              391
              
              
              
              559Interest
                  expense
              
              
              (2,224
              )
              
              
              (918
              )
              
              
              (3,188
              )
              
              
              (1,628
              )Net
                  earnings before discontinued operations
              
              
              8,872
              
              
              
              11,085
              
              
              
              19,302
              
              
              
              21,589Discontinued
                  operations:Net
                  earnings (loss) from discontinued operations
              
              
              (20
              )
              
              
              27
              
              
              
              (13
              )
              
              
              54Gains
                  on dispositions of real estate fromdiscontinued
                  operations
              
              
              1,172
              
              
              
              -
              
              
              
              1,172
              
              
              
              -Net
                  earnings
              
              $
              10,024
              
              
              $
              11,112
              
              
              $
              20,461
              
              
              
              21,643Basic
                  earnings (loss) per common share:Net
                  earnings before discontinued operations
              
              $
              .35
              
              
              $
              .45
              
              
              $
              .78
              
              
              $
              .88Discontinued
                  operations
              
              
              .05
              
              
              
              -
              
              
              
              .05
              
              
              
              -Net
                  earnings
              
              $
              .40
              
              
              $
              .45
              
              
              $
              .83
              
              
              $
              .88Diluted
                  earnings (loss) per common share:Net
                  earnings before discontinued operations
              
              $
              .35
              
              
              $
              .45
              
              
              $
              .78
              
              
              $
              .87Discontinued
                  operations
              
              
              .05
              
              
              
              -
              
              
              
              .05
              
              
              
              -Net
                  earnings
              
              $
              .40
              
              
              $
              .45
              
              
              $
              .83
              
              
              $
              .87Weighted
                  average shares outstanding:Basic
              
              
              24,765
              
              
              
              24,725
              
              
              
              24,765
              
              
              
              24,721Stock
                  options and restricted stock units
              
              
              22
              
              
              
              22
              
              
              
              21
              
              
              
              25Diluted
              
              
              24,787
              
              
              
              24,747
              
              
              
              24,786
              
              
              
              24,746Dividends
                  declared per share
              
              $
              .465
              
              
              $
              .455
              
              
              $
              .920
              
              
              $
              .910
  *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
  -2-
 
 GETTY
        REALTY CORP. AND SUBSIDIARIES
 CONSOLIDATED
        STATEMENTS OF COMPREHENSIVE INCOME
 (in
        thousands)
 (unaudited)
 *Three
                  months ended June 30,*
              
              
              *Six
                  months ended June 30,**2007*
              
              
              *2006*
              
              
              *2007*
              
              
              *2006*Net
                  earnings
              
              $
              10,024
              
              
              $
              11,112
              
              
              $
              20,461
              
              
              $
              21,643Other
                  comprehensive loss:Net
                  unrealized gain on interest rate swap
              
              
              815
              
              
              
              177
              
              
              
              630
              
              
              
              177Comprehensive
                  income
              
              $
              10,839
              
              
              $
              11,289
              
              
              $
              21,091
              
              
              $
              21,820
  *The
        accompanying notes are an integral part of these consolidated financial
        statements.*
  -3-
 
 GETTY
                  REALTY CORP. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENTS OF CASH FLOWS(in
                  thousands)(unaudited)*Six
                  months ended June 30,**2007*
              
              
              *2006**Cash
                  flows from operating activities:*Net
                  earnings
              
              $
              20,461
              
              
              $
              21,643*Adjustments
                  to reconcile net earnings to**net cash flow provided by operating activities:*Depreciation
                  and amortization
                  expense
              
              
              4,572
              
              
              
              3,912Deferred
                  rental
                  revenue
              
              
              (1,351
              )
              
              
              (1,596
              )Net
                  amortization of above-market and below-market leases
              
              
              (554
              )
              
              
              -Gains
                  on dispositions of real
                  estate
              
              
              (1,438
              )
              
              
              (457
              )Accretion
                  expense
              
              
              384
              
              
              
              348Stock-based
                  employee compensation expense
              
              
              120
              
              
              
              87*Changes
                  in assets and liabilities:*Recoveries
                  from state
                  underground storage tank funds, net
              
              
              (134
              )
              
              
              416Mortgages
                  and accounts
                  receivable, net
              
              
              (1,075
              )
              
              
              (659
              )Prepaid
                  expenses and other
                  assets
              
              
              244
              
              
              
              229Environmental
                  remediation
                  costs
              
              
              639
              
              
              
              (1,109
              )Accounts
                  payable and accrued
                  expenses
              
              
              86
              
              
              
              (791
              )Net
                  cash flow provided by operating activities
              
              
              21,954
              
              
              
              22,023*Cash
                  flows from investing activities:*Property
                  acquisitions and
                  capital expenditures
              
              
              (86,201
              )
              
              
              (15,358
              )Collection
                  of mortgages
                  receivable, net
              
              
              198
              
              
              
              (120
              )Proceeds
                  from dispositions of
                  real estate
              
              
              1,649
              
              
              
              826Net
                  cash flow used in investing activities
              
              
              (84,354
              )
              
              
              (14,652
              )*Cash
                  flows from financing activities:*Borrowings
                  under credit
                  agreement, net
              
              
              86,500
              
              
              
              14,300Cash
                  dividends
                  paid
              
              
              (22,574
              )
              
              
              (22,273
              )Credit
                  agreement origination costs
              
              
              (863
              )
              
              
              -Repayment of
                  mortgages
                  payable, net
              
              
              (16
              )
              
              
              (15
              )Proceeds
                  from stock options
                  exercised
              
              
              2
              
              
              
              232Net
                  cash flow provided by (used in) financing activities
              
              
              63,049
              
              
              
              (7,756
              )Net
                  increase in cash and cash equivalents
              
              
              649
              
              
              
              (385
              )Cash
                  and cash equivalents at beginning of period
              
              
              1,195
              
              
              
              1,247Cash
                  and cash equivalents at end of period
              
              $
              1,844
              
              
              $
              862Supplemental
                  disclosures of cash flow information*Cash
                  paid (refunded) during the
                  year for:*Interest
              
              $
              1,747
              
              
              $
              1,362Income
                  taxes, net
              
              
              329
              
              
              
              328Recoveries
                  from state underground storage tank funds
              
              
              (871
              )
              
              
              (859
              )Environmental
                  remediation costs
              
              
              2,434
              
              
              
              2,030*The
                  accompanying notes are an integral part of these consolidated financial
                  statements.*
  -4-
 
 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, and income taxes.
  The
        operating results and gains from the dispositions of real estate are
        reclassified as discontinued operations for properties that have been sold.
        The
        operating results of the properties disposed of in 2007 for the three and
        six
        months ended June 30, 2006 have been reclassified to discontinued operations
        to
        conform to the 2007 presentation. Discontinued operations for the quarter
        and
        six months ended June 30, 2007 are primarily comprised of gains from two
        property sales. The revenue from rental properties and expenses related to
        these
        properties are insignificant for the three and six months ended June 30,
        2007
        and 2006.
  The
        consolidated financial statements are unaudited but, in the opinion of
        management, reflect all adjustments (consisting of normal recurring accruals)
        necessary for a fair statement of the results for the periods presented.
        These
        statements should be read in conjunction with the consolidated financial
        statements and related notes, which appear in the Company’s Annual Report on
        Form 10-K for the year ended December 31, 2006.
 
 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 and federal agency discount notes.
  -5-
  As
        of June
        30, 2007, the Company leased nine hundred four of its one thousand ninety-five
        properties on a long-term net basis to Getty Petroleum Marketing Inc.
        (“Marketing”) under a master lease (“Master Lease”) and supplemental leases for
        four properties (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, 2006). 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 integrated 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,
        $31,761,000 of the $33,648,000 recorded as of June 30, 2007, 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. The Company has noted a continuing significant decline in Marketing’s
        annual financial results based on the financial statements and other financial
        data Marketing has provided to date. No assurance can be given that Marketing
        will have the ability to pay its debts and meet its rent and other financial
        obligations under the Marketing Leases as they become due. Although Marketing
        is
        wholly owned by a subsidiary of Lukoil and Lukoil has provided capital, and
        we
        believe currently provides credit enhancement, to Marketing, Lukoil is not
        a guarantor of the Marketing Leases and no assurance can be given that Lukoil
        will provide any credit enhancement or additional capital to Marketing for
        the remainder of the terms of the Marketing Leases, or otherwise cause
        Marketing to fulfill any of its rental or other financial obligations under
        the Marketing Leases.
  Under
        the
        Master Lease, the Company has also agreed to provide limited environmental
        indemnification to Marketing, capped at $4,250,000 and expiring in 2010,
        for
        certain pre-existing conditions at six of the terminals which are owned by
        the
        Company. Under the agreement, Marketing will pay the first $1,500,000 of
        costs
        and expenses incurred in connection with remediating any such pre-existing
        conditions, Marketing and the Company will share equally the next $8,500,000
        of
        those costs and expenses and Marketing will pay all additional costs and
        expenses over $10,000,000. The Company has accrued $300,000 as of June 30,
        2007
        and December 31, 2006 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 certain legal proceedings and claims relating to the
        petroleum marketing business that were identified at the time of the spin-off.
        As of June 30, 2007 and December 31, 2006 the Company had accrued $2,432,000
        and
        $2,822,000, 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.
  -6-
  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”) (the “EPA Notice”), advising the
        Company that it may be a potentially responsible party for costs of remediating
        certain conditions resulting from discharges of hazardous substances into
        the
        Lower Passaic River. ChevronTexaco received the same EPA Notice regarding
        those
        same conditions. Additionally, the Company believes that ChevronTexaco is
        contractually obligated to indemnify the Company, pursuant to an indemnification
        agreement, for most of the conditions at the property identified by the New
        Jersey Department of Environmental Protection and the EPA. Accordingly, the
        ultimate legal and financial liability of the Company, if any, cannot be
        estimated with any certainty at this time.
  From
        October 2003 through June 2007 the Company was notified that the Company
        was
        made party to forty-eight 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 June 30, 2007 and December 31, 2006,
        the
        Company’s consolidated balance sheets included, in accounts payable and accrued
        expenses, $313,000 and $332,000, respectively, relating to self-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
        substantially all of these loss reserves with its insurance carriers, and
        may be
        entitled to refunds of amounts previously funded, as the claims are evaluated
        on
        an annual basis. Although 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 adjustments 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 must pay out substantially
        all of its “earnings and profits” (as defined in the Internal Revenue Code) in
        cash distributions to shareholders each year. Should the Internal Revenue
        Service successfully assert that the Company’s earnings and profits were greater
        than the amounts required to be 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 earnings and profits. The
        Company
        may have to borrow money or sell assets to pay such a deficiency dividend.
        The
        Company accrues for this and other uncertain tax matters when appropriate
        based
        on information 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 adoption
        of
        FIN 48 in January 2007 did not have any impact on the Company’s financial
        position or results of operation.
 
 -7-
  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 buildings containing
        hazardous materials, USTs and other equipment. Environmental expenses are
        principally 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 six months ended June 30, 2007,and 2006 thenet
        changes in estimated
        remediation costs included in environmental expenses in the Company’s
        consolidated statements of operations were $1,638,000 and $2,069,000,
        respectively, as compared to $150,000 and $478,000, respectively, for the
        comparable prior year period, 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 the 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 USTs and other equipment is
        the
        responsibility of the Company’s 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 the Company’s tenants.
  Of
        the
        nine hundred four properties leased to Marketing, the Company has agreed
        to pay
        all costs relating to, and to indemnify Marketing for, certain environmental
        liabilities and obligations for two hundred nineteen properties that have
        not
        achieved Closure as of June 30, 2007 and are scheduled in the Master Lease.
        The
        Company will continue to seek reimbursement from state UST remediation funds
        related to these environmental expenditures where available.
  -8-
  The
        estimated future costs for known environmental remediation requirements are
        accrued when it is probable that a liability has been incurred and a reasonable
        estimate of fair value can be made. The environmental remediation liability
        is
        estimated based on the level and impact of contamination at each property.
        The
        accrued liability is the aggregate of the best estimate of the fair value
        of
        cost for each component of the liability. Recoveries of environmental costs
        from
        state UST remediation funds, with respect to both past and future environmental
        spending, are accrued at fair value as income, net of allowance for collection
        risk, based on estimated recovery rates developed from prior experience with
        the
        funds when such recoveries are considered probable.
  Environmental
        exposures are difficult to assess and estimate for numerous reasons, including
        the extent of contamination, alternative treatment methods that may be applied,
        location of the property which subjects it to differing local laws and
        regulations and their interpretations, as well as the time it takes to remediate
        contamination. In developing the Company’s liability for probable and reasonably
        estimable environmental remediation costs, on a property by property basis,
        the
        Company considers among other things, enacted laws and regulations, assessments
        of contamination and surrounding geology, quality of information available,
        currently available technologies for treatment, alternative methods of
        remediation and prior experience. These accrual estimates are subject to
        significant change, and are adjusted as the remediation treatment progresses,
        as
        circumstances change and as these contingencies become more clearly defined
        and
        reasonably estimable. As of June 30, 2007, the Company had remediation action
        plans in place for two hundred seventy-three (93%) of the two hundred ninety
        five properties for which it retained environmental responsibility and has
        not
        received a “no further action” letter and the remaining twenty-two properties
        (7%) remain in the assessment phase.
  As
        of June
        30, 2007, December 31, 2006 and December 31, 2005, the Company had accrued
        $18,392,000, $17,201,000 and $17,350,000, respectively, as management’s best
        estimate of the fair value of reasonably estimable environmental remediation
        costs. As of June 30, 2007, December 31, 2006 and December 31, 2005, the
        Company
        had also recorded $4,147,000, $3,845,000 and $4,264,000, 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, $384,000 and $348,000 of net accretion expense is included
        in
        environmental expenses for the six months ended June 30, 2007 and 2006,
        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.
  -9-
  4.      Shareholders'
        Equity:
  A
        summary
        of the changes in shareholders' equity for the six months ended June 30,
        2007 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, 2006
              
              
              24,764,765
              
              
              $
              248
              
              
              $
              258,647
              
              
              $
              (32,499
              )
              
              $
              (821
              )
              
              $
              225,575Net
                  earnings
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              20,461
              
              
              
              
              
              
              
              20,461Dividends
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (22,828
              )
              
              
              
              
              
              
              (22,828
              )Stock-based
                  employee
                compensation
                  expense
              
              
              
              
              
              
              
              
              
              
              120
              
              
              
              
              
              
              
              
              
              
              
              120Net
                  unrealized gain on
                interest
                  rate swap
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              630
              
              
              
              630Stock
                  issued
              
              
              110
              
              
              
              -
              
              
              
              2
              
              
              
              
              
              
              
              
              
              
              
              2Balance,
                  June 30,2007
              
              
              24,764,875
              
              
              $
              248
              
              
              $
              258,769
              
              
              $
              (34,866
              )
              
              $
              (191
              )
              
              $
              223,960
  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 June 30, 2007 or December
        31,
        2006.
  5.    
          Debt
  On
          March
          27, 2007, the Company entered into an amended and restated senior unsecured
          revolving credit agreement (the “Credit Agreement”) with a group of domestic
          commercial banks.
  The
          Credit
          Agreement, among other items, increases the aggregate amount of the Company’s
          credit facility by $75,000,000 to $175,000,000; reduces the interest rate
          margin
          on LIBOR based borrowings by 0.25% and extends the term of the Credit Agreement
          from June 2008 to March 2011. The Credit Agreement permits borrowings at
          an
          interest rate equal to the sum of a base rate plus a margin ranging from
          0.0% to
          0.25% or a LIBOR rate plus a margin ranging from 1.0% to 1.5%. The applicable
          margin is based on the Company's leverage ratio, as defined in the Credit
          Agreement.
  Subject
          to
          the terms of the Credit Agreement, the Company has options to extend the
          term of
          the Credit Agreement for one additional year and/or increase the amount
          of the
          credit facility available pursuant to the Credit Agreement by $125,000,000
          to
          $300,000,000, subject to approval by the Company’s Board of Directors and the
          Bank Syndicate. The Credit Agreement contains customary terms and conditions,
          including customary financial covenants such as leverage and coverage ratios
          and
          other customary covenants, including limitations on the Company’s ability to
          incur debt and pay dividends and maintenance of tangible net worth, and
          events
          of default, including change of control and failure to maintain REIT status.
          The
          Company believes that the Credit Agreement’s terms, conditions and covenants
          will not limit its current business practices.
 
 -10-
  6.    
        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.
  Effective
        March 31, 2007 the Company acquired fifty-nine convenience store and retail
        motor fuel properties in ten states for approximately $79,335,000 from various
        subsidiaries of FF-TSY Holding Company II, LLC (the successor to Trustreet
        Properties, Inc.) (“Trustreet”), a subsidiary of General Electric Capital
        Corporation, for cash with funds drawn under its Credit Agreement. Effective
        April 23, 2007, the Company acquired five additional properties from Trustreet
        for approximately $5,200,000. The aggregate cost of the acquisitions, including
        transaction costs, is approximately $84,535,000. Substantially all of the
        properties are triple-net-leased to tenants who previously leased the properties
        from the seller. The leases generally provide that the tenants are responsible
        for substantially all existing and future environmental conditions at the
        properties.
  The
        Company's allocation of the purchase price to the assets acquired and
        liabilities assumed as of June 30, 2007 is preliminary and subject to change.
        The purchase price has been allocated between assets, liabilities and intangible
        assets based on the initial estimates of fair value. These allocations are
        preliminary and may not be indicative of the final allocations. The Company
        continues to evaluate the existence of pre-acquisition contingencies and
        the
        assumptions used in valuing the real estate. The Company anticipates finalizing
        these allocations during the latter part of 2007. A change in the final
        allocation from what is presented may result in an increase or decrease in
        identified intangible assets and changes in depreciation, amortization or
        other
        expenses.
  The
        Company estimated the fair value of acquired tangible assets (consisting
        of
        land, buildings and improvements) “as if vacant” and identified intangible
        assets and liabilities (consisting of leasehold interests, above-market and
        below-market leases and in-place leases) and assumed liabilities.
  -11-
  Based
        on
        these estimates, the Company allocated the purchase price to the applicable
        assets and liabilities as follows (in thousands):
 
 Consideration:Purchase
                  price paid to Trustreet
              
              $
              83,404Allocated
                  transaction costs
              
              
              1,131Total
                  Consideration
              
              $
              84,535Assets
                  Acquired:Real
                  estate investment properties
              
              $
              89,908Above-market
                  leases
              
              
              1,955Leases
                  in place
              
              
              3,396Total
              
              
              95,259Liabilities
                  Assumed:Below-market
                  leases
              
              
              10,724Net
                  assets acquired
              
              $
              84,535
 
 The
        following unaudited pro forma condensed consolidated financial information
        has
        been prepared utilizing the historical financial statements of Getty Realty
        Corp. and the historical financial information of the properties acquired
        which
        was derived from the consolidated books and records of Trustreet. The unaudited
        pro forma condensed consolidated statements of earnings assume that the
        acquisitions had occurred as of the beginning of each of the periods presented,
        after giving effect to certain adjustments including (a) rental income
        adjustments resulting from (i) the straight-lining of scheduled rent increases;
        and (ii) the net amortization of the intangible assets relating to above-market
        leases and intangible liabilities relating to below-market leases over the
        remaining lease terms which average eleven years and (b) depreciation and
        amortization adjustments resulting from (i) the depreciation of real estate
        assets over their useful lives which average seventeen years and (ii) the
        amortization of intangible assets relating to leases in place  over
        the remaining lease terms. The following information also gives effect to
        the
        additional interest expense resulting from the assumed increase in borrowing
        outstanding drawn under the Credit Agreement to fund the acquisition. The
        unaudited pro forma condensed financial information is not indicative of
        the
        results of operations that would have been achieved had the acquisition from
        Trustreet reflected herein been consummated on the dates indicated or that
        will
        be achieved in the future.
 
 Three
                  Months Ended June
              
              
              Six
                  Months Ended June2007
              
              
              2006
              
              
              2007
              
              
              2006Revenues
              
              $
              20,784
              
              
              $
              20,716
              
              
              $
              41,489
              
              
              $
              41,499Net
                  income
              
              $
              10,033
              
              
              $
              11,554
              
              
              $
              21,021
              
              
              $
              22,655Net
                  earnings per shareBasic
              
              $
              0.41
              
              
              $
              0.47
              
              
              $
              0.85
              
              
              $
              0.92Diluted
              
              $
              0.41
              
              
              $
              0.47
              
              
              $
              0.85
              
              
              $
              0.91
  -12-
  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, 2006, and the unaudited consolidated
        financial statements and related notes which appear in this Quarterly Report
        on
        Form 10-Q.*
  Recent
        Developments
  On
        March
        31, 2007, we acquired fifty-nine convenience store and retail motor fuel
        properties in ten states from various subsidiaries of FF-TSY Holding Company
        II,
        LLC (the successor to Trustreet Properties, Inc.) (“Trustreet”), a subsidiary of
        General Electric Capital Corporation, for cash with funds drawn under our
        credit
        facility. On April 23, 2007 we acquired five additional properties from
        Trustreet. The aggregate cost of the acquisitions, including transaction
        costs,
        is approximately $84.5 million. Substantially all of the properties are
        triple-net leased to tenants who previously leased the properties from the
        seller. The leases generally provide that the tenants are responsible for
        substantially all existing and future environmental conditions at the
        properties. For more information with respect to the acquisition from Trustreet,
        see note 6 to our unaudited consolidated financial statements included 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 treated as a REIT under the federal income tax
        laws
        beginning January 1, 2001. As a REIT, we are not subject to federal corporate
        income tax on the taxable income we distribute to our shareholders. In order
        to
        continue to qualify for taxation as a REIT, we are required, among other
        things,
        to distribute at least ninety percent of our taxable income to shareholders
        each
        year.
  We
        lease
        or sublet our properties primarily to distributors and retailers engaged
        in the
        sale of gasoline and other motor fuel products, convenience store products
        and
        automotive repair services. These tenants are responsible for the payment
        of
        taxes, maintenance, repair, insurance and other operating expenses and for
        managing the actual operations conducted at these properties. As of June
        30,
        2007, we leased nine hundred four of our one thousand ninety-five properties
        on
        a long-term basis under a master lease (the “Master Lease”) and supplemental
        leases for four properties, (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 (80% for the six months ended June 30,
        2007), 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
        their businesses at 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, our financial condition and results of operations would
        be
        materially adversely affected. Although Marketing is wholly owned by a
        subsidiary of Lukoil and Lukoil has provided capital, and we believe currently
        provides credit enhancement, to Marketing, Lukoil is not a guarantor of the
        Marketing Leases and no assurance can be given that Lukoil will provide any
        credit enhancement  or additional capital to Marketing of the
        Marketing Leases, or otherwise cause Marketing to fulfill any of its rental
        ofor other financial obligations under the Marketing Leases. Marketing continues
        to pay timely its monetary obligations under the Marketing Leases, as it
        has
        since the inception of the Master Lease in 1997, although there is no assurance
        can be given that they will continue to do so.
  -13-
  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.
  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, 2005, 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, 2006. You should not rely on the selected balance
        sheet data or operating data related to prior years as representative of
        Marketing’s current financial condition or current results of operations.
  We
        have
        noted a continuing significant decline in  Marketing’s annual
        financial results from the prior periods presented based on the financial
        statements and other financial data Marketing has provided to us to date.
        Accordingly, no assurance can be given that Marketing will have the ability
        to
        pay its debts and meet its rental and other financial obligations under the
        Marketing Leases as they become due.
  As
        part of
        a periodic review by the Division of Corporation Finance of the Securities
        and
        Exchange Commission (“SEC”) of our Annual Report on Form 10-K for the year ended
        December 31, 2003, we received and responded to a number of comments. The
        only
        comment that remains unresolved pertains to the SEC’s position that we must
        include the financial statements and summarized financial data of Marketing
        in
        our periodic filings. The SEC subsequently indicated that, unless we file
        Marketing’s financial statements and summarized financial data with our periodic
        reports: (i) it will not consider our Annual Reports on Forms 10-K for the
        years
        beginning with  2000 to be compliant; (ii) it will not consider us to
        be current in our reporting requirements; (iii) it will not be in a position
        to
        declare effective any registration statements we may file for public offerings
        of our securities; and (iv) we should consider how the SEC’s conclusion impacts
        our ability to make offers and sales of our securities under existing
        registration statements and if we have a liability for such offers and sales
        made pursuant to registration statements that did not contain the financial
        statements of Marketing.
  -14-
  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 who operate their businesses at our properties 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.
  -15-
  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)
        and
        the net amortization of above-market and below-market leases on our recognition
        of revenues from rental properties. Deferred rental revenue results primarily
        from fixed rental increases scheduled under certain leases with our tenants.
        In
        accordance with GAAP, the aggregate minimum rent due over the initial term
        of
        these leases are recognized on a straight-line basis rather than when due.
        The
        present value of the difference between the fair market rent and the contractual
        rent for in-place leases at the time properties are acquired is amortized
        into
        revenue from rental properties over the remaining lives of the in-place leases.
        GAAP net earnings and FFO may also include income tax benefits recognized
        due to
        the elimination of, or a net reduction in, amounts accrued for uncertain
        tax
        positions related to being taxed as a C-corp., prior to 2001. Income taxes
        did
        not have a significant impact on our earnings for the periods presented,
        and
        accordingly, do not appear as a separate item in our statement of operations
        or
        reconciliation of AFFO from net earnings. 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, net amortization of
        above-market and below-market leases 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, rental revenue from in-place
        leases
        and our election to be treated as a REIT under the federal income tax laws
        beginning in 2001. Neither FFO nor AFFO represent cash generated from operating
        activities calculated in accordance with generally accepted accounting
        principles and therefore these measures should not be considered an alternative
        for GAAP net earnings or as a measure of liquidity.
  A
        reconciliation of net earnings to FFO and AFFO for the three and six months
        ended June 30, 2007 and 2006 is as follows (in thousands, except per share
        amounts):
  -16-
  *Three
                  months ended*
                *June
                  30,*
              
              
              *Six
                  months ended*
                *June
                  30,**2007*
              
              
              *2006*
              
              
              *2007*
              
              
              *2006*Net
                  earnings
              
              $
              10,024
              
              
              $
              11,112
              
              
              $
              20,461
              
              
              $
              21,643Depreciation
                  and amortization of real estate assets
              
              
              2,706
              
              
              
              1,995
              
              
              
              4,569
              
              
              
              3,910Gains
                  on dispositions of real estate
              
              
              (220
              )
              
              
              (423
              )
              
              
              (266
              )
              
              
              (457
              )Non-FFO
                  items reported in discontinued operations:Depreciation
                  and amortization of real estate assets
              
              
              1
              
              
              
              1
              
              
              
              3
              
              
              
              2Gains
                  on dispositions of real estate
              
              
              (1,172
              )
              
              
              -
              
              
              
              (1,172
              )
              
              
              -Funds
                  from operations
              
              
              11,339
              
              
              
              12,685
              
              
              
              23,595
              
              
              
              25,098Deferred
                  rental revenue (straight-line rent)
              
              
              (901
              )
              
              
              (772
              )
              
              
              (1,320
              )
              
              
              (1,594
              )Deferred
                  rental revenue (straight-line rent) reported indiscontinued
                  operations
              
              
              32
              
              
              
              (1
              )
              
              
              (31
              )
              
              
              (2
              )Net
                  amortization of above-market and below-market leases
              
              
              (554
              )
              
              
              -
              
              
              
              (554
              )
              
              
              -Adjusted
                  funds from operations
              
              $
              9,916
              
              
              $
              11,912
              
              
              $
              21,690
              
              
              $
              23,502Diluted
                  per share amounts:Earnings
                  per share
              
              $
              0.40
              
              
              $
              0.45
              
              
              $
              .83
              
              
              $
              0.87Funds
                  from operations per share
              
              $
              0.46
              
              
              $
              0.51
              
              
              $
              .95
              
              
              $
              1.01Adjusted
                  funds from operations per share
              
              $
              0.40
              
              
              $
              0.48
              
              
              $
              .88
              
              
              $
              0.95Diluted
                  weighted average shares outstanding
              
              
              24,787
              
              
              
              24,747
              
              
              
              24,786
              
              
              
              24,746
  -17-
 
 Results
        of
        operations
 *Three
        months ended June 30, 2007 compared to the three months ended June 30,
        2006*
  Revenues
        from rental properties were $20.7 million for the three months ended June
        30,
        2007 as compared to $18.2 million for the three months ended June 30, 2006.
        We
        received approximately $15.0 million for both the three months ended June
        30,
        2007 and three months ended June 30, 2006 from properties leased to Marketing
        under the Marketing Leases. We also received rent of $4.2 million in the
        three
        months ended June 30, 2007 and $2.4 million in the three months ended June
        30,
        2006 from other tenants. The increase in rent received was primarily due
        to rent
        from properties acquired in 2007 and rent escalations, partially offset by
        the
        effect of dispositions of real estate and lease expirations. In addition,
        revenues from rental properties include deferred rental revenues of $0.9
        million
        for the three months ended June 30, 2007 as compared to $0.8 million for
        the
        three months ended June 30, 2006, 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. Revenues from rental properties
        also
        include $0.6 million of net amortization of above-market and below-market
        leases
        due to the properties acquired in 2007. The present value of the difference
        between the fair market rent and the contractual rent for in-place leases
        at the
        time properties are acquired is amortized into revenue from rental properties
        over the remaining lives of the in-place leases.
  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
        June 30, 2007 and were comparable to $2.5 million recorded for the three
        months
        ended June 30, 2006.
  Environmental
        expenses, net for the three months ended June 30, 2007 were $3.1 million
        as
        compared to $0.8 million for the three months ended June 30, 2006. The increase
        was primarily due to a $1.5 million increase in change in estimated
        environmental costs, net of estimated recoveries from state underground storage
        tank funds, and a $0.7 million increase in environmental related litigation
        expenses as compared to the prior year period. The increase in the change
        in
        estimated environmental costs for the three months ended June 30, 2007 was
        due
        to the increase in project scope and cost forecasts at a limited number of
        properties, including one site where the estimated cost to complete the
        remediation was increased by approximately $1.3 million during the second
        quarter as a result of recently discovered off-site contamination and the
        decision to treat on-site contamination more aggressively than had been
        previously planned.
  General
        and administrative expenses for the three months ended June 30, 2007 were
        $1.8
        million as compared to $1.3 million recorded for the three months ended June
        30,
        2006. The increase was caused by approximately $0.3 million of higher
        professional fees in 2007 and a credit of $0.2 million to insurance loss
        reserves recorded in 2006. The insurance loss reserves were established under
        our self funded insurance program that was terminated in 1997.
  Depreciation
        and amortization expense was $2.7 million for the three months ended June
        30,
        2007 as compared to $2.0 million recorded for the three months ended June
        30,
        2006. The increase was primarily due to properties acquired in 2007 offset
        by
        the effect of dispositions of real estate and lease
        expirations.
  -18-
  As
        a
        result, total operating expenses increased by approximately $3.3 million
        for the
        three months ended June 30, 2007, as compared to the three months ended June
        30,
        2006.
  Other
        income, net, which includes certain gains on dispositions of real estate,
        was
        $0.3 million for the three months ended June 30, 2007 and $0.5 million for
        the
        three months ended June 30, 2006. Gains on dispositions of real estate from
        discontinued operations was $1.2 million for three months ended June 30,
        2007.
        Gains on dispositions of real estate increased by an aggregate of $1.0
        million to $1.4 million, as compared to the prior year
        period.
  Interest
        expense was $2.2 million for the three months ended June 30, 2007 as compared
        to
        $0.9 million for the three months ended June 30, 2006. The increase was
        primarily due to increased borrowings used to finance the acquisition of
        properties in 2007.
  As
        a
        result, net earnings were $10.0 million for the three months ended June 30,
        2007
        as compared to the $11.1 million for the prior year period. For the same
        period,
        FFO decreased to $11.3 million as compared to $12.7 million for prior year
        period and AFFO decreased by $2.0 million, to $9.9 million. The decrease
        in FFO
        for the quarter was primarily due to the changes in net earnings described
        above
        but excludes the $0.7 million increase in depreciation and amortization expense
        and the $1.0 million increase in gains on dispositions of real estate. The
        decrease in AFFO for the quarter also excludes adjustments which increased
        revenue from rental properties by $0.7 million comprised of a $0.1 million
        increase in deferred rental revenue and the $0.6 million of net amortization
        of
        above-market and below-market leases (which are included in net earnings
        and FFO
        but are excluded from AFFO) recorded for the three months ended June 30,
        2007 as
        compared to the three months ended June 30, 2006.
  Diluted
        earnings per share for the three months ended June 30, 2007 was $0.40 per
        share,
        a decrease of $0.05 per share as compared to the three months ended June
        30,
        2006. Diluted FFO per share for the three months ended June 30, 2007 was
        $0.46
        per share, a decrease of $0.05 per share, as compared to the three months
        ended
        June 30, 2006. Diluted AFFO per share for the three months ended June 30,
        2007
        was $0.40 per share, a decrease of $0.08 per share as compared to the three
        months ended June 30, 2006.
  Results
        of
        operations
 *Six
        months ended June 30, 2007 compared to the six months ended June 30,
        2006*
  Revenues
        from rental properties were $38.7 million for the six months ended June 30,
        2007
        as compared to $36.2 million for the six months ended June 30, 2006. We received
        approximately $30.2 million for the six months ended June 30, 2007 and $30.1
        million in the six months ended June 30, 2006 from properties leased to
        Marketing under the Marketing Leases. We also received rent of $6.6 million
        in
        the six months ended June 30, 2007 and $4.5 million in the six months ended
        June
        30, 2006 from other tenants. The increase in rent received was primarily
        due to
        rent from properties acquired in March and April 2007 and February 2006 and
        rent
        escalations, partially offset by the effect of dispositions of real estate
        and
        lease expirations. In addition, revenues from rental properties include deferred
        rental revenues of $1.3 million for the six months ended June 30, 2007 as
        compared to $1.6 million for the six months ended June 30, 2006, 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.
        Revenues from rental properties also include $0.6 million of net amortization
        of
        above-market and below-market leases due to the properties acquired in 2007.
        The
        present value of the difference between the fair market rent and the contractual
        rent for in-place leases at the time properties are acquired is amortized
        into
        revenue from rental properties over the remaining lives of the in-place
        leases.
  -19-
  Rental
        property expenses, which are primarily comprised of rent expense and real
        estate
        and other state and local taxes, were $4.8 million for the six months ended
        June
        30, 2007 and was comparable to $5.0 million recorded for the six months ended
        June 30, 2006.
  Environmental
        expenses, net for the six months ended June 30, 2007 were $4.0 million as
        compared to $1.9 million for the six months ended June 30, 2006. The increase
        was primarily due to a $1.6 million increase in change in estimated
        environmental costs, net of estimated recoveries from state underground storage
        tank funds, and a $0.5 million increase in environmental related litigation
        expenses as compared to the prior year period. Legal fees and litigation
        related
        expenses were $1.2 million for the six months ended June 30, 2007 compared
        to
        $0.7 million for 2006. The increase in the change in estimated environmental
        costs for the six months ended June 30, 2007 was due to the increase in project
        scope and cost forecasts at a limited number of properties, including one
        site
        where the estimated cost to complete the remediation was increased by
        approximately $1.3 million during the second quarter as a result of recently
        discovered off-site contamination and the decision to treat on-site
        contamination more aggressively than had been previously planned.
  General
        and administrative expenses for the six months ended June 30, 2007 were $3.2
        million as compared to $2.7 million recorded for the six months ended June
        30,
        2006. The increase was caused by approximately $0.3 million of higher
        professional fees and a credit of $0.2 million to insurance loss reserves
        recorded in 2006. The insurance loss reserves were established under our
        self
        funded insurance program that was terminated in 1997.
  Depreciation
        and amortization expense for the six months ended June 30, 2007 was $4.6
        million
        as compared to $3.9 million recorded for the six months ended June 30, 2006.
        The
        increase was primarily due to properties acquired in 2007 offset by the effect
        of dispositions of real estate and lease expirations.
  As
        a
        result, total operating expenses increased by approximately $3.1 million
        for the
        six months ended June 30, 2007, as compared to the six months ended June
        30,
        2006.
  Other
        income, net, which includes certain gains on disposition of real
        estate, was $0.4 million for the six months ended June 30, 2007 and $0.6
        million for the six months ended June 30, 2006. Gains on dispositions of
        real
        estate from discontinued operations was $1.2 million for the six months ended
        June 30, 2007. Gains on dispositions of real estate increased by an aggregate
        of
        $1.0 million as compared to the prior year period.
  Interest
        expense was $3.2 million for the six months ended June 30, 2007 as compared
        to
        $1.6 million for the six months ended June 30, 2006. The increase was primarily
        due to increased borrowings used to finance the acquisition of properties
        in
        March and April 2007 and February 2006.
 
 -20-
  As
        a
        result, net earnings were $20.5 million for the six months ended June 30,
        2007,
        as compared to the $21.6 million for the prior year period. For the same
        period,
        FFO decreased to $23.6 million as compared to $25.1 million for prior year
        period and AFFO decreased by $1.8 million, to $21.7 million. The decrease
        in FFO
        for the six months was primarily due to the changes in net earnings described
        above but excludes the $0.7 million increase in depreciation and amortization
        expense and the $1.0 million increase in gains on dispositions of real estate.
        The decrease in AFFO for the six months also excludes net adjustments which
        increased revenue from rental properties by $0.3 million comprised of the
        $0.6
        million net amortization of above-market and below-market leases offset by
        a
        $0.3 million decrease in deferred rental revenue (which are included in net
        earnings and FFO but are excluded from AFFO) recorded for the three months
        ended
        June 30, 2007 as compared to the three months ended June 30, 2006.
  Diluted
        earnings per share for the six months ended June 30, 2007 was $0.83 per share,
        a
        decrease of $0.04 per share as compared to the six months ended June 30,
        2006.
        Diluted FFO per share for the six months ended June 30, 2007 was $0.95 per
        share, a decrease of $0.06 per share, as compared to the six months ended
        June
        30, 2006. Diluted AFFO per share for the six months ended June 30, 2007 was
        $0.88 per share, a decrease of $0.07 per share as compared to the six months
        ended June 30, 2006.
  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 2011 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 cash equivalents.
  On
        March
        27, 2007, we entered into an amended and restated senior unsecured revolving
        credit agreement (the “Credit Agreement”) with a group of domestic commercial
        banks (the “Bank Syndicate”).
  The
        Credit
        Agreement, among other items, increases the aggregate amount of our credit
        facility by $75,000,000 to $175,000,000; reduces the interest rate margin
        on
        LIBOR based borrowings by 0.25% and extends the term of the Credit Agreement
        from July 2008 to March 2011. The Credit Agreement permits borrowings at
        an
        interest rate equal to the sum of a base rate plus a margin ranging from
        0.0% to
        0.25% or a LIBOR rate plus a margin ranging from 1.0% to 1.5%. The applicable
        margin is based on our leverage ratio, as defined in the Credit
        Agreement.
  Subject
        to
        the terms of the Credit Agreement, we have the options to extend the term
        of the
        Credit Agreement for one additional year and/or increase the amount of the
        credit facility available pursuant to the Credit Agreement by $125,000,000
        to
        $300,000,000, subject to approval by our Board of Directors and the Bank
        Syndicate. The Credit Agreement contains customary terms and conditions,
        including customary 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 change of control and failure to maintain REIT status. We believe
        that
        the Credit Agreement’s terms, conditions and covenants will not limit our
        current business practices.
 
 -21-
  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
        $45.0 million of our current exposure to variable 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. As of June 30, 2007, $45.0 million
        of our LIBOR based borrowings under the Credit Agreement bear interest at
        an
        effective rate of 6.44%.
  On
        March
        31, 2007, we acquired fifty-nine convenience store and retail motor fuel
        properties in ten states for approximately $79.3 million from Trustreet for
        cash
        with funds drawn under our Credit Agreement. Total borrowings outstanding
        under
        the Credit Agreement at June 30, 2007 were $131.5 million, bearing interest
        at
        an average effective rate of 6.40% per annum. Total borrowings were $133.5
        million as of August 1, 2007. Accordingly, we had $41.5 million available
        under
        the terms of the Credit Agreement as of August 1, 2007 or $166.5 million
        available assuming our Board of Directors and the Bank Syndicate were to
        approve
        our request to increase the Credit Agreement by $125.0 million. Increasing
        the
        Credit Agreement is also contingent upon the existing members of the Bank
        Syndicate increasing their commitment to the Credit Agreement, and/or additional
        members joining the Bank Syndicate to increase the availability committed
        under
        the line.
  We
        elected
        to be treated 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. In particular,
        our
        Credit Agreement prohibits the payment of dividends during certain events
        of
        default. Dividends paid to our shareholders aggregated $22.6 million for
        the six
        months ended June 30, 2007 and $22.3 million for the prior year period. We
        presently intend to pay common stock dividends of $0.465 per share each quarter
        ($1.86 per share on an annual basis), and commenced doing so with the quarterly
        dividend declared in May 2007.
  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
  -22-
  Our
        accompanying unaudited interim consolidated financial statements include
        the
        accounts of Getty Realty Corp. and our wholly-owned subsidiaries. The
        preparation of financial statements in accordance with GAAP requires management
        to make estimates, judgments and assumptions that affect amounts reported
        in its
        financial statements. Although we have made our best estimates, judgments
        and
        assumptions regarding future uncertainties relating to the information included
        in our financial statements, giving due consideration to the accounting policies
        selected and materiality, actual results could differ from these estimates,
        judgments and assumptions. We do not believe that there is a great likelihood
        that materially different amounts would be reported related to the application
        of the accounting policies described below.
  Estimates,
        judgments and assumptions underlying the accompanying consolidated financial
        statements include, but are not limited to, deferred rent receivable, recoveries
        from state underground storage tank funds, environmental remediation costs,
        real
        estate, depreciation and amortization, impairment of long-lived assets,
        litigation, accrued expenses, income taxes, allocation of the purchase price
        of
        properties acquired to the assets acquired and liabilities assumed, 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,
        2006.
        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, 2006.
 
 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 June
        30, 2007, we had remediation action plans in place for two hundred seventy-three
        (93%) of the two hundred ninety five properties for which we retained
        environmental responsibility and the remaining twenty-two properties (7%)
        remain
        in the assessment phase. As of June 30, 2007, we had accrued $18.4 million
        as
        management’s best estimate of the fair value of reasonably estimable
        environmental remediation costs. As of June 30, 2007 we had also recorded
        $4.1
        million as management’s best estimate for net recoveries from state UST
        remediation funds, net of allowance, related to environmental obligations
        and
        liabilities. Environmental expenditures and recoveries from underground storage
        tank funds were $2.4 million and $0.9 million, respectively, for the six
        month
        period ended June 30, 2007.
  -23-
  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 $6.3
        million. Accordingly, the environmental accrual as of June 30, 2007 was
        increased by $2.5 million, net of assumed recoveries and before inflation
        and
        present value discount adjustments. The resulting net environmental accrual
        as
        of June 30, 2007 was then further increased by $1.0 million for the assumed
        impact of inflation using an inflation rate of 2.75%. Assuming a credit-adjusted
        risk-free discount rate of 7.0%, we then reduced the net environmental accrual,
        as previously adjusted, by a $2.2 million discount to present value. Had
        we
        assumed an inflation rate that was 0.5% higher and a discount rate that was
        0.5%
        lower, net environmental liabilities as of June 30, 2007 would have increased
        by
        $0.2 million and $0.1 million, respectively, for an aggregate increase in
        the
        net environmental accrual of $0.3 million. However, the aggregate net change
        in
        environmental estimates recorded during the six months ended June 30, 2007
        would
        not have changed significantly if these changes in the assumptions were made
        effective December 31, 2006.
  In
        view of
        the uncertainties associated with environmental expenditures, however, we
        believe it is possible that the fair value of future actual net expenditures
        could be substantially higher than these estimates. Adjustments to accrued
        liabilities for environmental remediation costs will be reflected in our
        financial statements as they become probable and a reasonable estimate of
        fair
        value can be made. For the six months ended June 30, 2007 and 2006, the
        aggregate of the net change in estimated remediation costs, including accretion
        expense, included in our consolidated statement of operations amounted to
        $2.5
        million and $0.8 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.
  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.
  -24-
  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, 2006 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 are used, 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 expected ability to increase our available funding under the Credit
        Agreement; 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
        costs;
        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 and the manner in which we expect to manage this
        exposure; the expected reduction in interest-rate risk resulting from our
        interest-rate swap agreement and our expectation that we will not settle
        the
        interest-rate swap prior to its maturity; 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 the amounts thereof; our expectation that we will finalize
        the
        allocation of the purchase price for the properties acquired from Trustreet
        during the later portion of 2007; and our beliefs about the reasonableness
        of
        our accounting estimates, judgments and assumptions, including the preliminary
        allocation of the purchase price for the properties acquired from
        Trustreet.
  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, 2006,
        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; costs of completing environmental remediation and of
        compliance with environmental regulations; the risk of loss of our management
        team; the impact of our electing to be treated 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; the risk that our business operations may not
        generate sufficient cash for distributions or debt service; our potential
        inability to increase our available funding under the Credit Agreement; our
        potential inability to pay dividends; the risk that our estimates of the
        fair
        value of the properties acquired from Trustreet may be revised or that other
        accounting judgments or assumptions used in the allocation of the purchase
        price
        thereof may prove incorrect; and terrorist attacks and other acts of violence
        and war.
 
 -25-
  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.
 
 -26-
  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 $175.0 million
        Credit Agreement.  Our Credit Agreement, which expires in June 2011,
        permits borrowings at an interest rate equal to the sum of a base rate plus
        a
        margin ranging from 0.0% to 0.25% or a LIBOR rate plus a margin ranging from
        1.0% to 1.5%. The applicable margin is based on our leverage ratio, as defined
        in the Credit Agreement. At June 30, 2007, we had borrowings outstanding
        of
        $131.5 million under our Credit Agreement bearing interest at an average
        rate of
        6.38% per annum (or an average effective rate of 6.40% including the impact
        of
        the interest rate swap discussed below). We use borrowings under the Credit
        Agreement to finance acquisitions and for general corporate
        purposes.
  We
        manage
        our exposure to interest rate risk by minimizing, to the extent feasible,
        our
        overall borrowing and monitoring available financing alternatives. Our interest
        rate risk as of June 30, 2007 increased significantly due to increased
        borrowings under the Credit Agreement as compared to December 31, 2006. 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 $45.0 million of 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. As of June 30, 2007, $45.0 million of our LIBOR based borrowings
        under the Credit Agreement bear interest at an effective rate of 6.44%. 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 June 30, 2007, our borrowings exceeded the notional amount of the interest
        rate swap by $86.5 million. As a result of the increase in the funding available
        under the Credit Agreement from $100.0 million to $175.0 million, and the
        subsequent increase in our total borrowings, the interest rate swap covers
        a
        smaller percentage of our total borrowings that it did previously. We do
        not
        foresee any additional 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 partially 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.
 
 -27-
  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
        2007, if market interest rates increase by an average of 0.5% more than the
        market interest rates as of June 30, 2007, the additional annualized interest
        expense caused by market interest rate increases since December 31, 2006
        would
        decrease 2007 net income and cash flows by approximately $216,000. This amount
        is the effect of a hypothetical interest rate change on the portion of our
        average outstanding borrowings of $86.5 million projected for the remainder
        of
        2007 under our Credit Agreement that is not covered by our $45.0 million
        interest rate swap. The projected average outstanding borrowings are before
        considering additional borrowings required for future
        acquisitions.  The calculation also assumes that there are no other
        changes in our financial structure or the terms of our borrowings. Management
        believes that the fair value of its debt equals its carrying value at June
        30,
        2007 and December 31, 2006. Our exposure to fluctuations in interest rates
        will
        increase or decrease in the future with increases or decreases in the amount
        of
        borrowings outstanding under our Credit Agreement.
  In
        order
        to minimize our exposure to credit risk associated with financial instruments,
        we place our temporary cash investments with high-credit-quality
        institutions.  Temporary cash investments, if any, are held in an
        institutional money market fund and short-term federal agency discount
        notes.
 
 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
        or
        furnished pursuant to the Securities Exchange Act of 1934, as amended, is
        recorded, processed, summarized and reported within the time periods specified
        in the Commission's rules and forms, and that such information is accumulated
        and communicated to the Company's management, including its Chief Executive
        Officer and Chief Financial Officer, as appropriate to allow timely decisions
        regarding required disclosure. In designing and evaluating the disclosure
        controls and procedures, management recognized that any controls and procedures,
        no matter how well designed and operated, can provide only reasonable assurance
        of achieving the desired control objectives, and management necessarily was
        required to apply its judgment in evaluating the cost-benefit relationship
        of possible controls and procedures.
  As
        required by Rule 13a-15(b), the Company carried out an evaluation, under
        the
        supervision and with the participation of the Company's management, including
        the Company's Chief Executive Officer and the Company's Chief Financial Officer,
        of the effectiveness of the design and operation of the Company's disclosure
        controls and procedures as of the end of the quarter covered by this report.
        Based on the foregoing, the Company's Chief Executive Officer and Chief
        Financial Officer have concluded that the Company's disclosure controls and
        procedures were effective at a reasonable assurance level as of June 30,
        2007.
 
 -28-
  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.
  -29-
 PART
        II.  OTHER INFORMATION
  Item
        1. Legal Proceedings
  In
          December 2005, an action was commenced against us in the Superior Court
          in
          Providence, Rhode Island, by the owner of a pier that is adjacent to one
          of our
          terminals that is leased to Marketing seeking monetary damages of approximately
          $500,000 representing alleged costs related to the ownership and maintenance
          of
          the pier for the period from January 2003 through September 2005. We do
          not
          believe that we have any legal, contractual or other responsibility for
          such
          costs.  Additionally, we believe that, under the terms of the Master
          Lease that covers the property, Marketing is responsible for such costs
          and
          tendered the matter to them for defense and indemnification.  It is noted
          that Marketing has declined to accept the tender and have denied liability
          for
          the claim. We have filed a third party claim against Marketing seeking
          defense
          and indemnification that has been tolled, pending resolution of the underlying
          litigation.  In that regard, it is noteworthy that, at the pre-trial
          conference held in this matter, the Court advised the owner that there
          is
          binding legal precedent from prior litigation involving the pier that likely
          will defeat its claim.
  In
          August
          2006, we were notified by the New Jersey Schools Corporation (NJCC) of
          their
          discovery of abandoned USTs, and soil contamination, at a property that
          they
          acquired from our subsidiary, by condemnation. Prior to the taking, the
          property
          was leased to and operated by Marketing. NJCC is demanding reimbursement
          of
          costs allegedly incurred in connection with removal of the USTs and soil
          remediation (in the approximate amount of $950,000 in the
          aggregate).  We believe that, under the terms of the Master Lease that
          covered the property, Marketing is responsible for such costs and tendered
          the
          matter to them for defense and indemnification.  It is noted that they
          have declined to accept the tender and have denied liability for the
          claim.  We have filed a compulsory third party claim against Marketing
          seeking defense and indemnification.  Subsequent to end of the
          quarter, Marketing filed a claim against the Company seeking defense and
          indemnification.
 
 In
          May
          2007, the Company’s subsidiary received a lease default notice from its
          sublandlord pertaining to an alleged underpayment of rent by our subsidiary
          for
          a period of time exceeding 15 years.  In June 2007, the Company
          commenced an action against the sublandlord seeking an injunction that
          would
          preclude the sublandlord from taking any action to terminate its sublease
          with
          our subsidiary or collect the alleged underpayment of rent.  In
          support of the Company’s action for an injunction, the Company submitted a
          Memorandum of Law that fully briefed the issue of the limitation upon the
          sublandlord’s claim imposed by the applicable statute of
          limitations.  This limitation was informally acknowledged by the Court
          at the preliminary Court conference in the matter.  Additionally,
          further investigation of the relevant facts supports the claim by our subsidiary
          that parties agreed in writing to a modification of the rental provisions
          under
          the sublease and that there has been no underpayment of rent by our subsidiary
          or that any underpayment would have been the result of a mutual mistake
          by the
          parties upon which our subsidiary relied, in either case making it probable
          that
          our subsidiary would not suffer any loss in connection with this
          matter.
 
 In
          July
          2007, subsidiaries of the Company were notified of the commencement of
          three
          actions by the State of New Jersey (“NJDEP”) seeking “Natural Resource Damanges”
(“NRDs”) arising out of petroleum releases years ago.  The accuracy of
          the allegations as they relate to us, the legal right of the NJDEP to claim
          NRDs
          in these actions, the viability of our defenses to such claims, the legal
          basis
          for determining the amount of the NRDs, and the method of allocating damages,
          if
          any, between defendants has not been determined.
 
 In
          September 1999, we brought a case against one of our tenants in the United
          States District Court, District of New Jersey, seeking the return of the
          property we leased to them and the cleanup of all contamination caused
          by them.
          Our tenant filed a counterclaim alleging that all or part of the contamination
          was attributable to contamination from underground storage tanks for which
          we
          were responsible. The State of New Jersey Department of Environmental Protection
          (the “NJDEP”) has notified the tenant that it is responsible for the cleanup and
          remediation of contamination resulting from a petroleum release. The case
          has
          been settled without any payment by the Company.  As a part of the
          settlement, the tenant will buy the subject property, assume responsibility
          for
          the remediation of all environmental conditions and fully indemnify the
          Company
          and its affiliates respecting all environmental liability.
 
 In
          September 2005, we received a demand from a property owner for reimbursement
          of
          cleanup and soil removal costs claimed to have been incurred by it in connection
          with the development of its property located in Philadelphia, Pennsylvania,
          that, in part, is a former retail motor fuel property supplied by us with
          gasoline. The current owner claims that the costs are reimbursable pursuant
          to
          an Indemnity Agreement that we entered into with the prior property owner.
          Although we acknowledged responsibility for a portion of the contaminated
          soil,
          and were engaged in the remediation of the same, we denied responsibility
          for
          the full extent of the costs estimated to be incurred.  The matter was
          settled on June 29, 2007, in consideration for a payment by the Company
          of
          $985,000 on that date.
 
 In May 2006, we were advised of an action in the Superior Court of New
          Jersey,
          Middlesex County, against our subsidiary, filed by a property owner claiming
          damages for remediation of contaminated soil. The litigation is still in
          the
          initial discovery phase.  Although, initially, it was not clear from
          the pleadings in the matter that there was any basis at all for the claim
          against us, we have determined that it is likely that corporate successor
          liability could be the basis for prosecuting the claim against our
          subsidiary.  The Company believes that it has defenses to the claim
          and will vigorously defend the matter.
  From
        January 2007 through June  2007 we have been made party to nine
        additional actions that are nearly identical to the  thirty-five cases
        pending as of December 31, 2006 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.
  Please
        refer to “Item 3. Legal Proceedings” of our Annual Report on Form 10-K for the
        year ended December 31, 2006, and note 3 to our consolidated financial
        statements in such Form 10-K  and to note 2 to our accompanying
        unaudited consolidated financial statements which appear in  this
        Quarterly Report on Form 10-Q, for additional information.
 -30-
  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, 2006 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, 2006.
  Item
        4.  Submission of Matters to a Vote of Security
        Holders
  We
        held
        our annual meeting of stockholders on May 15, 2007. There were 24,764,815
        shares
        of our common stock outstanding and entitled to vote at our annual meeting,
        and
        23,603,345 shares were represented in person or by proxy. The following matters
        were voted upon at the annual meeting:
 
 The
        five
        directors listed below were elected to serve an additional one-year
        term:
 
 Nominee
              
              Votes
                  For
              
              
              Votes
                  WithheldMilton
                  Cooper
              
              
              23,483,651
              
              
              
              119,693Philip
                  E. Coviello
              
              
              23,488,157
              
              
              
              115,187Leo
                  Liebowitz
              
              
              23,478,778
              
              
              
              124,566Howard
                  Safenowitz
              
              
              22,454,758
              
              
              
              1,148,586David
                  B. Driscoll
              
              
              23,536,814
              
              
              
              66,530
 
 The
        appointment of PricewaterhouseCoopers LLP as our independent registered public
        accounting firm for the fiscal year ending December 31, 2007 was
        ratified:
 
 Votes
                  For
              
              
              Votes
                  Against
              
              
              Abstentions23,243,518
              
              
              
              66,683
              
              
              
              293,144
 
 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.
  -31-
  SIGNATURES
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  GETTY
          REALTY CORP.
 (Registrant)
 Dated:
                    August 9, 2007
                BY:
                /s/
                    Thomas J. Stirnweis(Signature)THOMAS
                    J. STIRNWEISVice
                    President, Treasurer andChief Financial OfficerDated:
                    August 9, 2007
                BY:
                /s/
                    Leo Liebowitz(Signature)LEO
                    LIEBOWITZChairman
                    and Chief ExecutiveOfficer




-32-