|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
(in
thousands)
|
|
|
(unaudited)
|
|
| |
|
|
|
| |
|
Nine
months ended September 30,
|
|
| |
|
2007
|
|
|
2006
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
33,307
|
|
|
$ |
32,919
|
|
|
Adjustments
to reconcile net earnings to
|
|
|
|
|
|
|
|
|
|
net
cash flow provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
expense
|
|
|
7,186
|
|
|
|
5,803
|
|
|
Deferred
rental
revenue
|
|
|
(1,922 |
) |
|
|
(2,345 |
) |
|
Net
amortization of above-market and below-market leases
|
|
|
(942 |
) |
|
|
-
|
|
|
Gains
on dispositions of real
estate
|
|
|
(5,386 |
) |
|
|
(1,152 |
) |
|
Accretion
expense
|
|
|
648
|
|
|
|
576
|
|
|
Stock-based
employee compensation expense
|
|
|
188
|
|
|
|
137
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Recoveries
from state
underground storage tank funds, net
|
|
|
(287 |
) |
|
|
457
|
|
|
Mortgages
and accounts
receivable, net
|
|
|
(1,402 |
) |
|
|
(1,000 |
) |
|
Prepaid
expenses and other
assets
|
|
|
323
|
|
|
|
354
|
|
|
Environmental
remediation
costs
|
|
|
1,455
|
|
|
|
(935 |
) |
|
Accounts
payable and accrued expenses
|
|
|
474
|
|
|
|
(207 |
) |
|
Accrued
income
taxes
|
|
|
-
|
|
|
|
(700 |
) |
|
Net
cash flow provided by operating activities
|
|
|
33,642
|
|
|
|
33,907
|
|
| |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Property
acquisitions and
capital expenditures
|
|
|
(89,354 |
) |
|
|
(15,512 |
) |
|
Collection
(issuance) of
mortgages receivable, net
|
|
|
230
|
|
|
|
(84 |
) |
|
Proceeds
from dispositions of
real estate
|
|
|
7,138
|
|
|
|
1,813
|
|
|
Net
cash flow used in investing activities
|
|
|
(81,986 |
) |
|
|
(13,783 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Borrowings
under credit
agreement, net
|
|
|
83,650
|
|
|
|
12,500
|
|
|
Cash
dividends
paid
|
|
|
(34,112 |
) |
|
|
(33,542 |
) |
|
Credit
agreement origination costs
|
|
|
(863 |
) |
|
|
-
|
|
|
Repayment of
mortgages
payable
|
|
|
(24 |
) |
|
|
(23 |
) |
|
Proceeds
from stock options
exercised
|
|
|
2
|
|
|
|
647
|
|
|
Net
cash flow provided by (used in) financing activities
|
|
|
48,653
|
|
|
|
(20,418 |
) |
| |
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
309
|
|
|
|
(294 |
) |
|
Cash
and cash equivalents at beginning of period
|
|
|
1,195
|
|
|
|
1,247
|
|
| |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
1,504
|
|
|
$ |
953
|
|
| |
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
Cash
paid (refunded) during the
year for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
3,961
|
|
|
$ |
1,785
|
|
|
Income
taxes, net
|
|
|
490
|
|
|
|
472
|
|
|
Recoveries
from state underground storage tank funds
|
|
|
(1,244 |
) |
|
|
(1,396 |
) |
|
Environmental
remediation costs
|
|
|
3,779
|
|
|
|
3,283
|
|
| |
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
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
the Company’s 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 materially 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 certain dispositions of real estate are
reclassified as discontinued operations. The operating results of such
properties for the three and nine months ended September 30, 2006 have been
reclassified to discontinued operations to conform to the 2007 presentation.
Discontinued operations for the quarter and nine months ended September 30,
2007
are primarily comprised of gains or losses from five and seven property
dispositions, respectively. The revenue from rental properties and expenses
related to these properties are insignificant for the three and nine months
ended September 30, 2007 and 2006.
The
consolidated financial statements are unaudited but, in the Company’s opinion,
reflect all adjustments (consisting of normal recurring accruals) necessary
for
a fair statement of the results for the periods presented. These statements
should be read in conjunction with the consolidated financial statements
and
related notes, which appear in 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 overnight
bank time deposits and an institutional money market fund.
As
of
September 30, 2007, the Company leased eight hundred ninety-five of its one
thousand eighty-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). A
substantial portion of our revenues (75% for the three months ended
September 30, 2007), are derived from the Marketing Leases. 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 rent receivable,
$32,041,000 of the $34,219,000 recorded as of September 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 sub-tenants who operate their
convenience store, automotive repair services or other businesses at the
Company’s properties, most of whom were the Company’s tenants when Marketing was
spun-off to the Company’s shareholders. 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 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.
While
the
initial term of the Marketing Leases are effective through December 2015,
representatives of Marketing have indicated to the Company their desire to
modify the Marketing Leases to (i) remove a significant number of properties
from the Marketing Leases and eliminate Marketing’s payment of rent to the
Company with respect to those properties and eliminate or reduce Marketing’s
direct payment of operating expenses with respect to those properties, and
(ii)
reduce the aggregate amount of rent paid to the Company for the properties
remaining under the Marketing Leases. The effect of any such modification
may
significantly reduce the amount of rent we receive from Marketing and increase
the Company’s operating expenses. We can not accurately predict whether or when
the Marketing Leases will be modified or, what the terms of any such agreement
may be if the Marketing Leases are modified.
The
Company continues to believe that the deferred rent receivable recorded under
the straight-line method of accounting for the Marketing Leases referred
to
above is collectable when due. Given the uncertainties regarding a possible
modification to the Marketing Leases, the Company believes it is reasonably
possible that its assumption that Marketing will make all contractual lease
payments during the initial term of the Marketing Leases when due, when applying
the straight-line method of accounting for rental revenue, may change, which
may
result in an adjustment to the deferred rent receivable that
could
be material to the Company’s financial condition or results of operations for
any single fiscal year or interim period. Although the Company is the owner
of
the properties and the Getty brand and has prior experience with Marketing’s
tenants, in the event that properties are removed from the Marketing Leases,
the
Company can not accurately predict whether, when or on what terms such
properties could be re-let or sold. Accordingly, a significant modification
of
the Marketing Leases could materially adversely affect the Company’s financial
condition, revenues, operating expenses and results of
operations.
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 September
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.
The Company accrues its allocable share of joint and several environmental
liabilities based on its estimate of the ultimate allocation method and
percentage that will be used by the responsible parties. As of September
30,
2007 and December 31, 2006 the Company had accrued $2,632,000 and $2,822,000,
respectively, for certain of these matters which it believes were appropriate
based on information then currently available. The Company has not accrued
for
approximately $950,000 in costs allegedly incurred by the current property
owner
in connection with removal of USTs and soil remediation at a property that
was
leased to and operated by Marketing. Marketing is responsible for such costs
under the terms of the Master Lease but Marketing has denied its liability
for the claim and its responsibility to defend against, and indemnify the
Company for, the claim. It is reasonably possible that the Company’s assumption
that Marketing will be ultimately responsible for the claim may change, which
may result in the Company providing an accrual for this matter. Although
the ultimate resolution of these matters may have a significant impact on
results of operations for any single fiscal year or interim period, the Company
currently believes that such matters will not have a material adverse effect
on
the Company’s long-term financial position.
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 September 2007 the Company was notified that the Company
was made party to forty-nine cases, in Connecticut, Florida, Massachusetts,
New
Hampshire, New Jersey, New York, Pennsylvania, Vermont, Virginia and West
Virginia brought by local water providers or governmental agencies. These
cases
allege various theories of liability due to contamination of groundwater
with
MTBE as the basis for claims seeking compensatory and punitive damages. Each
case names as defendants approximately fifty petroleum refiners, manufacturers,
distributors and retailers of MTBE, or gasoline containing MTBE. The accuracy
of
the allegations as they relate to the Company, its defenses to such claims,
the
aggregate amount of damages, the definitive list of defendants and the method
of
allocating such amounts among the defendants have not been determined.
Accordingly, the ultimate legal and financial liability of the Company, if
any,
cannot be estimated with any certainty at this time.
Prior
to
the spin-off, the Company was self-insured for workers’ compensation, general
liability and vehicle liability up to predetermined amounts above which
third-party insurance applies. As of September 30, 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 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.
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.
The
Company enters into leases and various other agreements which define its
share
of joint and several environmental liabilities and commitments by establishing
the percentage and method of allocating responsibility between the parties.
Uncertainties related to the determination of the Company’s share of net
environmental costs include, among others, determining when known environmental
contamination may have occurred and the effectiveness of remediation efforts
to
date, determining when costs associated with asset retirement obligations
will
be incurred and predicting who the responsible party will be at that time
and
the interpretation and enforceability of, or potential modifications to,
the
various agreements, including the Marketing Leases. It is possible that the
Company’s assumptions regarding the ultimate allocation method and its share of
responsibility that are used when accruing its allocable share of joint and
several environmental liabilities, may change, which may result in adjustments
to the amounts recorded for environmental litigation accruals, environmental
remediation liabilities and related assets. Although
the ultimate resolution of these matters may have a significant impact on
results of operations for any single fiscal year or interim period, the Company
currently believes that such matters will not have a material adverse effect
on
the Company’s long-term financial position.
Environmental
remediation liabilities and related assets are measured at fair value based
on
their expected future cash flows which have been adjusted for inflation and
discounted to present value. For the three and nine months ended September
30,
2007, the net
change in estimated
remediation costs included in environmental expenses in the Company’s
consolidated statements of operations were $1,899,000 and $4,352,000,
respectively, as compared to $1,159,000 and $1,985,000, respectively, for
the
comparable prior year periods, which amounts were net of changes in estimated
recoveries from state underground storage tank (“UST”) remediation funds. In
addition to net change in estimated remediation costs, 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
eight hundred ninety-five 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 September 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.
The
estimated future costs for known environmental remediation requirements are
accrued when it is probable that a liability has been incurred and a reasonable
estimate of fair value can be made. The environmental remediation liability
is
estimated based on the level and impact of contamination at each property.
The
accrued liability is the aggregate of the best estimate of the fair value
of
cost for each component of the liability. Recoveries of environmental costs
from
state UST remediation funds, with respect to both past and future environmental
spending, are accrued at fair value as income, net of allowance for collection
risk, based on estimated recovery rates developed from prior experience with
the
funds when such recoveries are considered probable.
Environmental
exposures are difficult to assess and estimate for numerous reasons, including
the extent of contamination, alternative treatment methods that may be applied,
location of the property which subjects it to differing local laws and
regulations and their interpretations, as well as the time it takes to remediate
contamination. In developing the Company’s liability for probable and reasonably
estimable environmental remediation costs, on a property by property basis,
the
Company considers among other things, enacted laws and regulations, assessments
of contamination and surrounding geology, quality of information available,
currently available technologies for treatment, alternative methods of
remediation and prior experience. These accrual estimates are subject to
significant change, and are adjusted as the remediation treatment progresses,
as
circumstances change and as these contingencies become more clearly defined
and
reasonably estimable. As of September 30, 2007, the Company had remediation
action plans in place for two hundred sixty-six (93%) of the two hundred
eighty-five properties for which it retained environmental responsibility
and
has not received a “no further action” letter and the remaining nineteen
properties (7%) remain in the assessment phase.
As
of
September 30, 2007, December 31, 2006 and December 31, 2005, the Company
had
accrued $19,581,000, $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 September 30, 2007, December 31, 2006 and December
31,
2005, the Company had also recorded $4,409,000, $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, $648,000 and $576,000 of net accretion
expense is included in the net change in estimated remediation costs for
the
nine months ended September 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.
4. Shareholders'
Equity:
A
summary
of the changes in shareholders' equity for the nine months ended September
30,
2007 is as follows (in thousands, except share amounts):
| |
|
|
|
|
|
|
|
Dividends
|
|
|
Accumulated
|
|
|
|
|
| |
|
|
|
|
|
|
|
Paid
In
|
|
|
Other
|
|
|
|
|
| |
|
Common
Stock
|
|
|
Paid-in
|
|
|
Excess
Of
|
|
|
Comprehensive
|
|
|
|
|
| |
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Total
|
|
|
Balance,
December
31, 2006
|
|
|
24,764,765
|
|
|
$ |
248
|
|
|
$ |
258,647
|
|
|
$ |
(32,499
|
) |
|
$ |
(821 |
) |
|
$ |
225,575
|
|
|
Net
earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,307
|
|
|
|
|
|
|
|
33,307
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,366 |
) |
|
|
|
|
|
|
(34,366 |
) |
|
Stock-based
employee
compensation
expense
|
|
|
|
|
|
|
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
188
|
|
|
Net
unrealized loss on
interest
rate swap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(403 |
) |
|
|
(403 |
) |
|
Stock
issued
|
|
|
110
|
|
|
|
-
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
Balance,
September
30,2007
|
|
|
24,764,875
|
|
|
$ |
248
|
|
|
$ |
258,837
|
|
|
$ |
(33,558 |
) |
|
$ |
(1,224 |
) |
|
$ |
224,303
|
|
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 September 30, 2007 or December
31, 2006.
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 of 0.0% or 0.25%
or
a LIBOR rate plus a margin of 1.0%, 1.25% or 1.5%. The applicable margin
is
based on the Company's leverage ratio, as defined in the Credit Agreement.
Based
on the Company’s leverage ratio as of September 30, 2007, the applicable margin
is 0.0% for base rate borrowings and 1.25% for LIBOR rate borrowings. The
benefit of the 0.25% reduction in the interest rate margin effective with
the
amendment of the Credit Agreement was offset by the increase in the Company’s
leverage ratio caused by an increase its outstanding borrowings used for
the
acquisition discussed in note 7, resulting in no net change in the LIBOR
rate
margin.
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, 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.
6. Other
Income
Other
income, net, is substantially comprised of certain gains on dispositions
of real
estate and leasehold interests that have not been reclassified to discontinuing
operations including two property dispositions, one partial land
taking under eminent domain and increased awards for two takings that occurred
in prior years recorded in the nine months ended September 30, 2007, as compared
to four property dispositions and seven partial land takings under eminent
domain recorded in the prior year period.
7. 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 September 30, 2007 is subject to change. The purchase
price has been allocated between assets, liabilities and intangible assets
based
on the estimates of fair value. These allocations 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 fourth
quarter 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.
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
|
|
$ |
83,404
|
|
|
Allocated
transaction costs
|
|
|
1,131
|
|
| |
|
|
|
|
|
Total
Consideration
|
|
$ |
84,535
|
|
| |
|
|
|
|
|
Assets
Acquired:
|
|
|
|
|
|
Real
estate investment properties
|
|
$ |
89,908
|
|
|
Above-market
leases
|
|
|
1,955
|
|
|
Leases
in place
|
|
|
3,396
|
|
| |
|
|
|
|
|
Total
|
|
|
95,259
|
|
| |
|
|
|
|
|
Liabilities
Assumed:
|
|
|
|
|
|
Below-market
leases
|
|
|
10,724
|
|
| |
|
|
|
|
|
Net
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 financial information assumes 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 unaudited pro forma condensed
consolidated financial 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 September
|
|
|
Nine
Months Ended September
|
|
| |
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
$ |
20,255
|
|
|
$ |
20,891
|
|
|
$ |
61,705
|
|
|
$ |
62,873
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
12,846
|
|
|
$ |
11,726
|
|
|
$ |
33,761
|
|
|
$ |
34,595
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.52
|
|
|
$ |
0.47
|
|
|
$ |
1.36
|
|
|
$ |
1.40
|
|
|
Diluted
|
|
$ |
0.52
|
|
|
$ |
0.47
|
|
|
$ |
1.36
|
|
|
$ |
1.40
|
|
8. Subsequent
Event
Effective
on October 31, 2007, Andrew M. Smith resigned his positions as President,
Secretary and Chief Legal Officer of the Company. The Company expects to
enter
into a Severance Agreement and General Release with Mr. Smith. The estimated
severance cost is not expected to be material to the Company's financial
condition or results of operations for any single fiscal year or interim
period.
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 “Part I, Item 1. Financial
Statements” and “Part II, Item 1A. Risk Factors,” 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 7 to our unaudited consolidated financial statements included in
this
Quarterly Report on Form 10-Q.
Effective
on October 31, 2007, Andrew M. Smith resigned his positions as President,
Secretary and Chief Legal Officer of the Company. We expect to enter into
a
Severance Agreement and General Release with Mr. Smith. The estimated cost
is
not expected to be material to our financial condition or results of operations
for any single fiscal year or interim period.
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 September
30, 2007, we leased eight hundred ninety-five of our one thousand eighty-five
properties on a long-term basis under a unitary 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 (75% for the three months ended September
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, or our relationship with Marketing, 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 convenience store, automotive
repair services or other 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 and “Part II, Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q.
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 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.
While
the
initial term of the Marketing Leases are effective through December 2015,
representatives of Marketing have indicated to us their desire to modify
the
Marketing Leases to (i) remove a significant number of properties from the
Marketing Leases and eliminate Marketing’s payment of rent to us with respect to
those properties and eliminate or reduce Marketing’s direct payment of operating
expenses with respect to those properties, and (ii) reduce the aggregate
amount
of rent paid to us for the properties remaining under the Marketing Leases.
The
effect of any such modification may significantly reduce the amount of rent
we
receive from Marketing and increase our operating expenses. We can not
accurately predict whether or when the Marketing Leases will be modified
or what
the terms of any such agreement may be if the Marketing Leases are
modified.
We
believe
that the $32.0 million deferred rent receivable recorded under the straight-line
method of accounting for the Marketing Leases as of September 30, 2007 is
collectable when due. Given the uncertainties regarding a possible modification
to the Marketing Leases, we believe it is reasonably possible that our
assumption that Marketing will make all contractual lease payments during
the
initial term of the Marketing Leases when due, when applying the straight-line
method of accounting for rental revenue, may change, which may result in
an
adjustment to the deferred rent receivable that could be material to our
financial condition or results of operations for any single fiscal year or
interim period. Although we are the owner of the properties and the Getty
brand
and have prior experience with Marketing’s tenants, in the event that properties
are removed from the Marketing Leases, we can not accurately predict whether,
when or on what terms such properties could be re-let or sold. A significant
modification of the Marketing Leases could materially adversely affect our
financial condition, revenues, operating expenses, results of operations,
ability to pay dividends and stock price.
Marketing
continues to pay timely its rental and other financial obligations under
the
Marketing Leases, as it has since the inception of the Master Lease in 1997,
although no assurance can be given that they will continue to do
so.
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 and our shareholders receive financial information
from Marketing that would indicate the deterioration.
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. Certain of this financial information 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.
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 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
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.
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 based on our
prior
experience with Marketing’s tenants, could relet these properties to the
existing subtenants who operate their convenience store, automotive repair
services or other businesses at our properties or others at market rents
although we can not accurately predict whether, when or on what terms such
properties would be re-let or sold. Because of this particular aspect of
our
landlord-tenant relationship with Marketing, we do not believe that the
inclusion of Marketing’s financial statements in our filings is necessary to
evaluate our financial condition. Our position was included in a written
response to the SEC. To date, the SEC has not accepted our position regarding
the inclusion of Marketing’s financial statements in our filings. We are
endeavoring to achieve a resolution of this issue that will be acceptable
to the
SEC. We can not accurately predict the consequences if we are ultimately
unsuccessful in achieving an acceptable resolution.
We
do not
believe that offers or sales of our securities made pursuant to existing
registration statements that did not or do not contain the financial statements
of Marketing constitute, by reason of such omission, a violation of the
Securities Act of 1933, as amended, or the Exchange Act. Additionally, we
believe that, if there ultimately is a determination that such offers or
sales,
by reason of such omission, resulted in a violation of those securities laws,
we
would not have any material liability as a consequence of any such
determination.
We
manage
our business to enhance the value of our real estate portfolio and, as a
REIT,
place particular emphasis on minimizing risk and generating cash sufficient
to
make required distributions to shareholders of at least ninety percent of
our
taxable income each year. In addition to measurements defined by generally
accepted accounting principles (“GAAP”), our management also focuses on funds
from operations available to common shareholders (“FFO”) and adjusted funds from
operations available to common shareholders (“AFFO”) to measure our performance.
FFO is generally considered to be an appropriate supplemental non-GAAP measure
of the performance of REITs. FFO is defined by the National Association of
Real
Estate Investment Trusts as net earnings before depreciation and amortization
of
real estate assets, gains or losses on dispositions of real estate, non-FFO
items reported in discontinued operations and extraordinary items and cumulative
effect of accounting change. Other REITS may use definitions of FFO and/or
AFFO
that are different than ours and, accordingly, may not be
comparable.
We
believe
that FFO is helpful to investors in measuring our performance because FFO
excludes various items included in GAAP net earnings that do not relate to,
or
are not indicative of, our fundamental operating performance such as gains
or
losses from property dispositions and depreciation and amortization of real
estate assets. In our case, however, GAAP net earnings and FFO include the
significant impact of deferred rental revenue (straight-line rental revenue)
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
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., rather than as a REIT, prior to 2001. As a result,
management pays particular attention to AFFO, a supplemental non-GAAP
performance measure that we define as FFO less straight-line rental revenue,
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 nine months
ended September 30, 2007 and 2006 is as follows (in thousands, except per
share
amounts):
| |
|
|
|
|
|
|
| |
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
| |
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Net
earnings
|
|
$ |
12,846
|
|
|
$ |
11,276
|
|
|
$ |
33,307
|
|
|
$ |
32,919
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of real estate assets
|
|
|
2,598
|
|
|
|
1,886
|
|
|
|
7,164
|
|
|
|
5,787
|
|
|
Gains
on dispositions of real estate
|
|
|
(1,350 |
) |
|
|
(695 |
) |
|
|
(1,615 |
) |
|
|
(1,152 |
) |
|
Non-FFO
items reported in discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of real estate assets
|
|
|
16
|
|
|
|
5
|
|
|
|
22
|
|
|
|
16
|
|
|
Gains
on dispositions of real estate
|
|
|
(2,598 |
) |
|
|
-
|
|
|
|
(3,771 |
) |
|
|
-
|
|
|
Funds
from operations
|
|
|
11,512
|
|
|
|
12,472
|
|
|
|
35,107
|
|
|
|
37,570
|
|
|
Deferred
rental revenue (straight-line rent)
|
|
|
(647 |
) |
|
|
(732 |
) |
|
|
(1,997 |
) |
|
|
(2,354 |
) |
|
Net
amortization of above-market and below-market leases
|
|
|
(374 |
) |
|
|
-
|
|
|
|
(928 |
) |
|
|
-
|
|
|
Income
tax benefit
|
|
|
-
|
|
|
|
(700 |
) |
|
|
-
|
|
|
|
(700 |
) |
|
Non-AFFO
items reported in discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
rental revenue (straight-line rent)
|
|
|
76
|
|
|
|
(17 |
) |
|
|
75
|
|
|
|
9
|
|
|
Amortization
of below-market leases
|
|
|
(14 |
) |
|
|
-
|
|
|
|
(14 |
) |
|
|
-
|
|
|
Adjusted
funds from operations
|
|
$ |
10,553
|
|
|
$ |
11,023
|
|
|
$ |
32,243
|
|
|
$ |
34,525
|
|
|
Diluted
per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
$ |
0.52
|
|
|
$ |
0.46
|
|
|
$ |
1.34
|
|
|
$ |
1.33
|
|
|
Funds
from operations per share
|
|
$ |
0.46
|
|
|
$ |
0.50
|
|
|
$ |
1.42
|
|
|
$ |
1.52
|
|
|
Adjusted
funds from operations per share
|
|
$ |
0.43
|
|
|
$ |
0.45
|
|
|
$ |
1.30
|
|
|
$ |
1.39
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
24,792
|
|
|
|
24,764
|
|
|
|
24,788
|
|
|
|
24,752
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of
operations
Three
months ended September 30, 2007 compared to the three months ended September
30,
2006
Revenues
from rental properties were $20.3 million for the three months ended September
30, 2007 as compared to $18.0 million for the three months ended September
30,
2006. We received approximately $15.0 million in the three months ended
September 30, 2007 and $14.9 million in the three months ended September
30,
2006 from properties leased to Marketing under the Marketing Leases. We also
received rent of $4.3 million in the three months ended September 30, 2007
and
$2.4 million in the three months ended September 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 $0.6 million for the three months ended
September 30, 2007 as compared to $0.7 million for the three months ended
September 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
$0.4
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 $2.3 million for the three months ended
September 30, 2007 and were comparable to $2.4 million recorded for the three
months ended September 30, 2006.
Environmental
expenses, net for the three months ended September 30, 2007 were $2.8 million
as
compared to $1.6 million for the three months ended September 30, 2006. The
increase was primarily due to a $0.7 million increase in change in estimated
environmental costs, net of estimated recoveries from state underground storage
tank funds, and a $0.4 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 September 30, 2007
was
due to the increase in project scope or duration and related cost forecasts
at a
limited number of properties including one site that we agreed to remediate as a
result of a legal settlement, with the State of New York, at which recent
testing revealed significantly more contamination than was previously estimated
and another site where regulators mandated a more costly approach than had
been
previously contemplated. The increase in environmental related litigation
expenses was due to $0.2 million of higher legal fees and $0.2 million of
higher
litigation loss reserves.
General
and administrative expenses for the three months ended September 30, 2007
were
$1.5 million as compared to $1.4 million recorded for the three months ended
September 30, 2006. The increase was caused by a credit of $0.1 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 $2.6 million for the three months ended September
30, 2007 as compared to $1.9 million recorded for the three months ended
September 30, 2006. The increase was primarily due to properties acquired
in
2007 offset by the effect of dispositions in real estate and lease
expirations.
As
a
result, total operating expenses increased by approximately $1.9 million
for the
three months ended September 30, 2007, as compared to the three months ended
September 30, 2006.
Other
income, net, substantially all of which is comprised of certain gains on
dispositions of real estate and leasehold interests, was $1.4 million for
the
three months ended September 30, 2007 and $0.8 million for the three months
ended September 30, 2006. Gains on dispositions of real estate from discontinued
operations, was $2.6 million for three months ended September 30, 2007. Gains
on
dispositions of real estate for three months ended September 30, 2007 increased
by an aggregate of $3.3 million to $3.9 million as compared to the prior
year
period. For the three months ended September 30, 2007, there were six property
dispositions, including one property that was mutually agreed to be removed
from
the Marketing Leases prior to its scheduled lease expiration, and an increase
in
the award for a partial land taking under eminent domain that occurred in
a
prior year, as compared to two property dispositions, a partial land taking
and
an increase in the award for a total land taking that occurred in a prior
year
recorded in the prior year period.
Interest
expense was $2.3 million for the three months ended September 30, 2007 as
compared to $1.0 million for the three months ended September 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 $12.8 million for the three months ended September
30,
2007 as compared to the $11.3 million for the prior year period. For the
same
period, FFO decreased to $11.5 million as compared to $12.5 million for prior
year period and AFFO decreased by $0.5 million, to $10.6 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 $3.3 million increase in gains on dispositions
of
real estate. The decrease in AFFO for the quarter also excludes the $0.7
million
decrease in income tax benefit, a $0.2 million decrease in deferred rental
revenue and a $0.4 million increase in net amortization of above-market and
below-market leases (which are included in net earnings and FFO but are excluded
from AFFO).
Diluted
earnings per share increased by $0.06 per share to $0.52 per share for the
three
months ended September 30, 2007 as compared to $0.46 per share for the three
months ended September 30, 2006. Diluted FFO per share for the three months
ended September 30, 2007 was $0.46 per share, a decrease of $0.04 per share,
as
compared to the three months ended September 30, 2006. Diluted AFFO per share
for the three months ended September 30, 2007 was $0.43 per share, a decrease
of
$0.02 per share as compared to the three months ended September 30,
2006.
Results
of
operations
Nine
months ended September 30, 2007 compared to the nine months ended September
30,
2006
Revenues
from rental properties were $58.8 million for the nine months ended September
30, 2007 as compared to $54.1 million for the nine months ended September
30,
2006. We received approximately $45.1 million for the nine months ended
September 30, 2007 and $44.9 million in the nine months ended September 30,
2006
from properties leased to Marketing under the Marketing Leases. We also received
rent of $10.8 million in the nine months ended September 30, 2007 and $6.8
million in the nine months ended September 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 $2.0
million
for the nine months ended September 30, 2007 as compared to $2.4 million
for the
nine months ended September 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 $0.9 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 $7.1 million for the nine months ended
September 30, 2007 as compared to $7.4 million recorded for the nine months
ended September 30, 2006. The decrease was principally due to a $0.3 million
reduction in rent expense due to lease expirations.
Environmental
expenses, net for the nine months ended September 30, 2007 were $6.9 million
as
compared to $3.5 million for the nine months ended September 30, 2006. The
increase was primarily due to a $2.4 million increase in change in estimated
environmental costs, net of estimated recoveries from state underground storage
tank funds, and a $0.9 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 nine months ended September 30, 2007
was
due to the increase in project scope or duration and related cost forecasts
at a
limited number of properties including one
site that we
agreed to remediate as part of a legal settlement, with the State of New
York,
and regulator mandated project changes at other sites. The increase
in
environmental related litigation expenses was due to $0.3 million of higher
legal fees and $0.6 million of higher litigation loss reserves.
General
and administrative expenses for the nine months ended September 30, 2007
were
$4.8 million as compared to $4.1 million recorded for the nine months ended
September 30, 2006. The increase was caused by approximately $0.2 million
of
higher professional fees and a charge of $0.1 million to insurance loss reserves
recorded in 2007 as compared to a credit of $0.3 million 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 nine months ended September 30, 2007 was
$7.2
million as compared to $5.8 million recorded for the nine months ended September
30, 2006. The increase was primarily due to properties acquired in 2007 offset
by the effect of dispositions in real estate and lease expirations.
As
a
result, total operating expenses increased by approximately $5.1 million
for the
nine months ended September 30, 2007, as compared to the nine months ended
September 30, 2006.
Other
income, net, substantially all of which is comprised of certain gains on
dispositions of real estate and leasehold interests, was $1.8 million for
the
nine months ended September 30, 2007 and $1.4 million for the nine months
ended
September 30, 2006. Gains on dispositions of real estate from discontinued
operations were $3.8 million for the nine months ended September 30, 2007.
Gains
on dispositions of real estate for the nine months ended September 30, 2007
increased by an aggregate of $4.2 million to $5.4 million as compared to
the
prior year period. For the nine months ended September 30, 2007, there were
nine
property dispositions, including two properties that were mutually agreed
to be
removed from the Marketing Leases prior to their scheduled lease expiration,
a
partial land taking under eminent domain and an increase in the awards for
two
takings that occurred in prior years, as compared to three property
dispositions, a total land taking and seven partial land takings recorded
in the
prior year period.
Interest
expense was $5.5 million for the nine months ended September 30, 2007 as
compared to $2.6 million for the nine months ended September 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.
As
a
result, net earnings increased by $0.4 million to $33.3 million for the nine
months ended September 30, 2007, as compared to the $32.9 million for the
prior
year period. For the same period, FFO decreased to $35.1 million as compared
to
$37.6 million for prior year period and AFFO decreased by $2.3 million, to
$32.2
million. The decrease in FFO for the nine months was primarily due to the
changes in net earnings described above but excludes the $1.4 million increase
in depreciation and amortization expense and the $4.2 million increase in
gains
on dispositions of real estate. The decrease in AFFO for the nine months
also
excludes the $0.7 million decrease in income tax benefit, a $0.4 million
decrease in deferred rental revenue and a $0.9 million increase in net
amortization of above-market and below-market leases (which are included
in net
earnings and FFO but are excluded from AFFO).
Diluted
earnings per share increased by $0.01 per share to $1.34 per share for the
nine
months ended September 30, 2007 as compared to $1.33 per share for the nine
months ended September 30, 2006. Diluted FFO per share for the nine months
ended
September 30, 2007 was $1.42 per share, a decrease of $0.10 per share, as
compared to the nine months ended September 30, 2006. Diluted AFFO per share
for
the nine months ended September 30, 2007 was $1.30 per share, a decrease
of
$0.09 per share as compared to the nine months ended September 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 of 0.0% or 0.25%
or
a LIBOR rate plus a margin of 1.0%, 1.25% or 1.5%. The applicable margin
is
based on our leverage ratio, as defined in the Credit Agreement. Based on
our
leverage ratio as of September 30, 2007, the applicable margin is 0.0% for
base
rate borrowings and 1.25% for LIBOR rate borrowings. The benefit of the 0.25%
reduction in the interest rate margin effective with the amendment of the
Credit
Agreement was offset by the increase in our leverage ratio caused by an increase
our outstanding borrowings used for the Trustreet acquisition, resulting
in no
net change in the LIBOR rate margin.
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.
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 September 30, 2007, $45.0
million of our LIBOR based borrowings under the Credit Agreement bear interest
at an effective rate of 6.69%.
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 September 30, 2007 were $128.7 million, bearing interest
at an average effective rate of 6.54% per annum. Total borrowings were $131.5
million as of November 1, 2007. Accordingly, we had $43.5 million available
under the terms of the Credit Agreement as of November 1, 2007 or $168.5
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 $34.1 million for
the
nine months ended September 30, 2007 and $33.5 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
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 and deferred rent receivable, 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. We enter into leases and various other agreements
which define our share of joint and several environmental liabilities and
commitments by establishing the percentage and method of allocating
responsibility between the parties. Uncertainties related to the determination
of our share of net environmental costs include, among others, determining
when
known environmental contamination may have occurred and the effectiveness
of
remediation efforts to date, determining when costs associated with asset
retirement obligations will be incurred and predicting who the responsible
party
will be at that time and the interpretation and enforceability of, or potential
modifications to, the various agreements, including the Marketing Leases.
It is
possible that our assumptions of the ultimate allocation method and share
of
responsibility that are used when accruing our allocable share of joint and
several environmental liabilities, may change, which may result in adjustments
to the amounts recorded for environmental litigation accruals, environmental
remediation liabilities and related assets. Although
the ultimate resolution of these matters may have a significant impact on
results of operations for any single fiscal year or interim period, we currently
believe that such matters will not have a material adverse effect on
our long-term financial position.
In
accordance with the leases with certain of our tenants, we have agreed to
bring
the leased properties with known environmental contamination to within
applicable standards and to regulatory or contractual closure (“Closure”) in an
efficient and economical manner. Generally, upon achieving Closure at an
individual property, our environmental liability under the lease for that
property will be satisfied and future remediation obligations will be the
responsibility of our tenant. We will continue to seek reimbursement
from state UST remediation funds related to these environmental liabilities
where available. Generally the liability for the retirement and decommissioning
or removal of USTs and other equipment is the responsibility of our tenants.
We
are contingently liable for these obligations in the event that our tenants
do
not satisfy their responsibilities. A liability has not been accrued for
obligations that are the responsibility of our tenants.
As
of
September 30, 2007, the Company had remediation action plans in place for
two
hundred sixty-six (93%) of the two hundred eighty-five properties for which
it
retained environmental responsibility and has not received a “no further action”
letter and the remaining nineteen properties (7%) remain in the assessment
phase. As of September 30, 2007, we had accrued $19.6 million as management’s
best estimate of the fair value of reasonably estimable environmental
remediation costs. As of September 30, 2007 we had also recorded $4.4 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 $3.8 million and $1.2 million, respectively, for the nine month period
ended September 30, 2007.
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 $6.6
million. Accordingly, the environmental accrual as of September 30, 2007
was
increased by $2.6 million, net of assumed recoveries and before inflation
and
present value discount adjustments. The resulting net environmental accrual
as
of September 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 $2.1 million discount to present value. Had we
assumed an inflation rate that was 0.5% higher and a discount rate that was
0.5%
lower, net environmental liabilities as of September 30, 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 nine
months
ended September 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 nine months ended September 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
$4.4
million and $2.0 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.
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,”
“predict” and similar expressions, we intend to identify forward-looking
statements. Examples of forward-looking statements include statements regarding
our expectations regarding future payments from Marketing; the recovery of
the deferred rent receivable recorded under the straight line method
of accounting for the Marketing Leases and the probability that our assumptions
which affect the amount of the deferred rent receivable recorded may change;
the
impact of any modification of the Marketing Leases on our business and ability
to pay dividends or our stock price; our belief that Lukoil is currently
providing credit enhancement to Marketing; our ability to predict whether
or
when the Marketing Leases will be modified, the terms of any such modification
or what actions Marketing and Lukoil will take and what our recourse will
be
whether the Marketing Leases are modified or not; 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 ability to relet properties at market rents; 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 fourth
quarter 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
and “Part II, Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q, 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;
risks associated with a significant modification of the Marketing Leases;
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.
As
a
result of these and other factors, we may experience material fluctuations
in
future operating results on a quarterly or annual basis, which could materially
and adversely affect our business, financial condition, operating results
and
stock price. An investment in our stock involves various risks, including
those
mentioned above and elsewhere in this report and those that are detailed
from
time to time in our other filings with the Securities and Exchange
Commission.
You
should
not place undue reliance on forward-looking statements, which reflect our
view
only as of the date hereof. We undertake no obligation to publicly release
revisions to these forward-looking statements to reflect future events or
circumstances or reflect the occurrence of unanticipated events.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
Prior
to
April 2006, we had not used derivative financial or commodity instruments
for
trading, speculative or any other purpose, and had not entered into any
instruments to hedge our exposure to interest rate risk. We do not have
any foreign operations, and are therefore not exposed to foreign currency
exchange rate risks.
We
are
exposed to interest rate risk, primarily as a result of our $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 of 0.0% or 0.25% or a LIBOR rate plus a margin of 1.0%, 1.25% or 1.5%.
The applicable margin is based on our leverage ratio, as defined in the Credit
Agreement. Based on our leverage ratio as of September 30, 2007, the applicable
margin is 0.0% for base rate borrowings and 1.25% for LIBOR rate borrowings.
At
September 30, 2007, we had borrowings outstanding of $128.7 million under
our
Credit Agreement bearing interest at an average rate of 6.51% per annum (or
an
average effective rate of 6.54% 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 September 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 September 30, 2007, $45.0 million of our LIBOR based borrowings
under the Credit Agreement bear interest at an effective rate of 6.69%. As
a
result, we will be exposed to interest rate risk to the extent that our
borrowings exceed the $45.0 million notional amount of the interest rate
swap.
As of September 30, 2007, our borrowings exceeded the notional amount of
the
interest rate swap by $83.7 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.
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 September 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 $105,000.
This amount is the effect of a hypothetical interest rate change on the portion
of our average outstanding borrowings of $83.7 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 September
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 overnight
bank time deposits and an institutional money market fund.
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 September
30,
2007.
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.
In
1997,
representatives of the County of Lancaster, Pennsylvania contacted the Company
regarding alleged petroleum contamination of property owned by the County
adjoining a property owned by the Company. No litigation has been
instituted as a result of this potential claim and the Company is actively
remediating the contamination. In 2005, the County requested reimbursement
of
legal fees pursuant to the Access Agreement between the parties. A
substantial portion of the fees remains in dispute.
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.
From
January 2007 through September 2007 we have been made party to
fourteen 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. The cases to which we are a party, together
with other cases, have been removed to the federal court and consolidated
for
pre-trial purposes as federal multidistrict litigation in the Southern District
of New York. The removal and consolidation has been challenged
successfully by the plaintiffs. However it is not clear how this will affect
our
matters. At this time, two of the New York cases to which we
are a party have been set for trial in March 2008. We are vigorously defending
these matters. In June 2006, we were served with a Toxic Substance
Control Act (“TSCA”) Notice Letter (“Notice Letter”), advising us that
“prospective plaintiffs” listed on a schedule to the Notice Letter intend to
file a TSCA citizens’ civil action against the entities listed on a schedule to
the Notice Letter, including the Company’s subsidiaries, based upon alleged
failure by such entities to provide information to the United States
Environmental Protection Agency regarding MTBE as may be required by the
TSCA
and declaring that such action will be filed unless such information is
delivered. We do not believe that we have any such information
Accordingly, our ultimate legal and financial liability, if any, in connection
with the existing litigation or any future civil litigation pursuant to the
Notice Letter cannot be estimated with any certainty at this time.
In
July
2003, we were notified by the State of Rhode Island Department of Environmental
Management of their Notice to Enforce compliance with a Letter of Responsibility
issued by the Department in connection with a suspected petroleum release
at a
property that abuts property owned by us and leased to Marketing. We responded
to the State’s Notice in August 2003 and do not believe that we have any
liability for the contamination, which appears to be unrelated to the products
we stored at the property.
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 in June 2007, in consideration for a payment by the Company of $985,000
on that date.
In
November 2005, we were notified that an action had been commenced in the
Superior Court in Passaic County, New Jersey, in August 2005, by a property
owner, seeking compensation from us on behalf of a class not yet certified,
based upon the installation of a monitoring well on the property of the property
owner. The NJDEP also is named as a defendant. The matter was settled
in the first quarter, in consideration for a payment by the Company of an
amount
less than $10,000.
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
February 2006, an action was commenced in the Supreme Court in Westchester
County, New York against us and Marketing to recover cleanup and remediation
costs related to a petroleum release and for damages in excess of $1.0 million
for, among other things, lost rent and diminution of property
value. The matter was settled in consideration for a payment by the
Company of $50,000 in May, 2007.
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.
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. In July, 2007, 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
sub-landlord pertaining to an alleged underpayment of rent by our subsidiary
for
a period of time exceeding fifteen years. In June 2007, the Company
commenced an action against the sub-landlord seeking an injunction that would
preclude the sub-landlord 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
sub-landlord’s claim imposed by the applicable statute of
limitations. The Court issued the injunction, and in doing so,
acknowledged that the Company was likely to prevail on the merits. The matter
remains pending.
In
July
2007, subsidiaries of the Company were notified of the commencement of three
actions by the NJDEP seeking “Natural Resource Damages” (“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 have not been determined.
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.
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. Other than the risk factors
below, there have been no material changes in the risk factors disclosed
in Part
I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended
December 31, 2006.
Our
revenues are primarily dependent on the performance of Getty Petroleum Marketing
Inc., our primary tenant. Although we periodically receive and review financial
statements and other financial information from Marketing, some of the
information is not publicly available. We and our shareholders may not have
sufficient information to identify a deterioration of the financial performance
or condition of Marketing prior to any default by Marketing on its monetary
obligations to us that may result from such deterioration. If Marketing does
not
fulfill its monetary obligations to us, our financial condition and results
of
operations could be materially adversely affected. Representatives of Marketing
have indicated to us their desire to modify the Marketing Leases which may
significantly reduce the amount of rent we receive from Marketing and increase
our operating expenses. A significant modification of the Marketing Leases
could
materially adversely affect our financial condition, results of operations,
ability to pay dividends and stock price.
A
substantial portion of our revenues (75% for the three months ended September
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 relationship with Marketing may have a material adverse effect on our
financial condition and results of operations. In the event that Marketing
cannot or will not perform its monetary obligations under the Marketing Leases
with us, our financial condition and results of operations may be materially
adversely affected. Although Marketing is wholly owned by a subsidiary of
Lukoil, one of the largest integrated Russian oil companies, 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 in the
future,
or otherwise cause Marketing to fulfill any of its obligations under the
Marketing Leases.
While
the
initial term of the Marketing Leases are effective through December 2015,
representatives of Marketing have indicated to us their desire to modify
the
Marketing Leases to (i) remove a significant number of properties from the
Marketing Leases and eliminate Marketing’s payment of rent to us with respect to
those properties and eliminate or reduce Marketing’s direct payment of operating
expenses with respect to those properties, and (ii) reduce the aggregate
amount
of rent paid to us for the properties remaining under the Marketing Leases.
The
effect of any such modification may significantly reduce the amount of rent
we
receive from Marketing and increase our operating expenses. We can not
accurately predict whether or when the Marketing Leases will be modified,
or
what the terms of any such agreement may be if the Marketing Leases are
modified, or what actions Marketing and Lukoil will take and what our recourse
may be whether the Marketing Leases are modified or not. Given the uncertainties
regarding a possible modification to the Marketing Leases, we believe it
is
reasonably possible that our assumption that Marketing will make all contractual
lease payments during the initial term of the Marketing Leases when due,
when
applying the straight-line method of accounting for rental revenue, may change,
which may result in an adjustment to the deferred rent receivable that could
be
material to our financial condition or results of operations for any single
fiscal year or interim period. Although we are the owner of the properties
and
the Getty brand and have prior experience with Marketing’s tenants, in the event
that properties are removed from the Marketing Leases, we can not accurately
predict whether, when or on what terms such properties could be re-let or
sold.
A significant modification of the Marketing Leases could materially adversely
affect our financial condition, revenues, operating expenses, results of
operations, ability to pay dividends and stock price.
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 and our shareholders receive financial information
from Marketing that would indicate the deterioration. Additionally, any
financial data of Marketing that we are able to provide in our periodic reports
is derived from financial data provided by Marketing and neither we, nor
our
auditors, have been involved with the preparation of such data and as a result
can provide no assurance thereon. Additionally, our auditors have not been
engaged to review or audit such data.
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. Certain of this financial information 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.
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.
If
Marketing does not fulfill its monetary obligations to us under the Marketing
Leases, our financial condition and results of operations may be materially
adversely affected. Based on our review of the recent financial statements
and
other financial data Marketing has provided to us to date, we have observed
a
significant decline in Marketing’s annual financial results from the prior
periods presented. 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. 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 that
it
will continue to do so.
Marketing’s
earnings and cash flow from operations depend largely upon the sale of refined
petroleum products at margins in excess of its fixed and variable expenses
and
rental income from its subtenants who operate their convenience store,
automotive repair services or other businesses at our properties. The petroleum
marketing industry has been, and continues to be volatile and highly
competitive. A large, rapid increase in wholesale petroleum prices would
adversely affect Marketing’s profitability and cash flow if the increased cost
of petroleum products could not be passed on to Marketing’s customers or if the
consumption of gasoline for automotive use were to significantly decline.
Petroleum products are commodities whose prices depend on numerous factors
that
affect supply and demand. The prices paid by Marketing and other petroleum
marketers for products are affected by global, national and regional factors.
We
cannot be certain how these factors will affect petroleum product prices
or
supply in the future, or how in particular they will affect Marketing or
our
other tenants.
We
received a comment letter from the SEC that contains one comment that remains
unresolved.
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, which is prohibited by the terms of the Master Lease.
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 fiscal
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.
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 based on our
prior
experience with Marketing’s tenants, could relet these properties to the
existing subtenants who operate their convenience store, automotive repair
services or other businesses at our properties or others at market rents
although we can not accurately predict whether, when or on what terms such
properties would be re-let or sold. 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.
| |
|
Exhibit
No. |
|
Description
of Exhibit |
|
| |
|
|
|
|
|
| |
|
31(i).1
|
|
Rule
13a-14(a) Certification of Chief Financial Officer
|
|
| |
|
|
|
|
|
| |
|
31(i).2
|
|
Rule
13a-14(a) Certification of Chief Executive Officer
|
|
| |
|
|
|
|
|
| |
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. § 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. |
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
GETTY
REALTY CORP.
(Registrant)
| |
Dated:
November 9, 2007 |
|
BY:
|
/s/
Thomas J. Stirnweis |
|
| |
|
|
|
(Signature)
|
|
| |
|
|
|
THOMAS
J. STIRNWEIS |
|
| |
|
|
|
Vice
President, Treasurer and |
|
| |
|
|
|
Chief
Financial Officer
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
Dated:
November 9, 2007 |
|
BY:
|
/s/
Leo Liebowitz |
|
| |
|
|
|
(Signature)
|
|
| |
|
|
|
LEO
LIEBOWITZ |
|
| |
|
|
|
Chairman
and Chief Executive |
|
| |
|
|
|
Officer
|
|
-40-