~ A n n u A l R e p o R t ~ 2011 Getty Realty G E T T Y R E A L T Y C O R P . ~ F I n A n C I A l H I G H lI G H t S ~ (in thousands, except per share amounts) total revenues earnings from continuing operations(c) earnings from discontinued operations net earnings Diluted net earnings per common share Funds from operations(d) Diluted funds from operations per common share(d) Adjusted funds from operations(d) Diluted adjusted funds from operations per common share(d) Cash dividends declared per common share Years ended December 31, 2011(a) 2010 2009(b) $ 112,876 $ 88,192 $ 84,170 11,610 49,971 41,439 846 1,729 5,610 12,456 51,700 47,049 0.37 1.84 1.89 42,050 59,733 53,744 1.26 2.13 2.16 62,679 58,246 51,679 1.88 1.46 2.08 1.91 2.09 1.89 (a) Includes (from the respective date of the acquisition), the effect of the $111.6 million acquisition of 59 Mobil-branded gasoline station and convenience store properties in a sale/leaseback and loan transaction with CpD ny energy Corp. which were acquired on January 13, 2011, and the effect of the $ 87.0 million acquisition of 66 Shell-branded gasoline station and convenience store properties in a sale/leaseback transaction with nouria energy Ventures I, llC which were acquired on March 31, 2011. (b) Includes (from the date of the acquisition) the effect of the $49.0 million acquisition of the real estate assets and improvements of 36 convenience store properties from White oak petroleum llC which were acquired on September 25, 2009. (c) Includes the effect of a $19.8 million non-cash deferred rent receivable reserve, the effect of a $8.8 million accounts receivable reserve, and the effect of a $20.2 million impairment charge, which are included in earnings from continuing operations related to certain properties leased to Getty petroleum Marketing Inc. under the Master lease. (For additional information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of operations—General—Marketing and the Master lease” in our accompanying 2011 Annual Report on Form 10-K.) (d) In addition to measurements defined by accounting principles generally accepted in the united States of America (“GAAp”), our management also focuses on funds from operations (“FFo”) and adjusted funds from operations (“AFFo”) to measure our performance. FFo is generally considered to be an appropriate supplemental non-GAAp measure of the performance of real estate investment trusts (“ReIts”). In accordance with the national Association of Real estate Investment trusts’ modified guidance for reporting FFo, we have restated reporting of FFo to exclude non-cash impairment charges. 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 (including such non-FFo items reported in discontinued operations), non-cash impairment charges, extraordinary items, and cumulative effect of accounting change. other ReIts may use definitions of FFo and/or AFFo that are different than ours and; accordingly, may not be comparable. We believe that FFo and AFFo are helpful to investors in measuring our performance because both FFo and AFFo exclude various items included in GAAp net earnings that do not relate to, or are not indicative of, our fundamental operating performance. FFo excludes various items such as gains or losses from property dispositions, depreciation and amortization of real estate assets, and non-cash impairment charges. In our case, however, GAAp net earnings and FFo typically include the impact of deferred rental revenue (straight-line rental revenue), the net amortization of above-market and below-market leases and income recognized from direct financing leases on the recognition of revenue from rental properties (collectively the “Revenue Recognition Adjustments”), as offset by the impact of related collection reserves. GAAp net earnings and FFo from time to time may also include other unusual or infrequently occurring items. Deferred rental revenue results primarily from fixed rental increases scheduled under certain leases with our tenants. In accordance with GAAp, the aggregate minimum rent due over the current term of these leases are recognized on a straight-line (or an average) basis rather than when the payment is contractually due. the present value of the difference between the fair market rent and the contractual rent for in-place leases at the time properties are acquired is amortized into revenue from rental properties over the remaining lives of the in-place leases. Income from direct financing leases is recognized over the lease terms using the effective interest method which produces a constant periodic rate of return on the net investments in the leased properties. Management pays particular attention to AFFo, a supplemental non-GAAp performance measure that we define as FFo less Revenue Recognition Adjustments, allowance for deferred rental revenue, acquisition costs, and other unusual or infrequently occurring items. In management’s view, AFFo provides a more accurate depiction than FFo of our fundamental operating performance related to: (i) the impact of scheduled rent increases from operating leases; (ii) the rental revenue from acquired in-place leases; (iii) the impact of rent due from direct financing leases; and (iv) the impact of other unusual or infrequently occurring items. neither FFo nor AFFo represent cash generated from operating activities calculated in accordance with GAAp and therefore these measures should not be considered an alternative for GAAp net earnings or as a measure of liquidity. (FFo and AFFo are reconciled to net earnings in “Item 6. Selected Financial Data” in our accompanying 2011 Annual Report on Form 10-K.) ~ C E O A n D P r Es I D En t ’ s M Es s A G E ~ Dear Fellow Shareholders, As I reflect back on 2011, it was a year that certainly close, we are not going to have to wait until 2015 provided great challenges for us to overcome as a to reduce the Marketing overhang because we management team and as a Company. We entered are repositioning the Marketing portfolio with new the year with our largest tenant, Getty Petroleum tenants today. As a result, we anticipate we will Marketing, Inc., which I will refer to as “Marketing,” have moved well beyond Marketing by the time accounting for two-thirds of our revenues. As the we get to 2015. year went on we acquired almost $200 million of assets and raised approximately $90 million of capital. When the year ended, Marketing had filed for bankruptcy but accounted for less than 55% of our revenues. Having a tenant go bankrupt is never a good thing, and our short-term results clearly show the negative impact on our earnings. However, longer- term we are mindful that as we gain resolution of the Mar keting situation, we will be a different We believe Marketing’s bankruptcy represents a Company, able to move forward and continue on step forward and a transitional opportunity for our our growth path. Company because, while we still have much work in front of us, we are finally in a position to begin repositioning the portfolio of properties that Market- ing has been leasing from us. Marketing has been reporting poor results for many years and the uncer- tainty around the outcome and timing for this repo- sitioning had become a meaningful overhang for our Company. As a “proof of concept,” the acquisition program we commenced several years ago meaningfully contributed to our 2011 results. Lost in all the spe- cial charges and accounting adjustments during the year ended December 31st is the fact that last year’s acquisitions added more than $10 million to our net earnings, FFO and AFFO. While we will work towards generating revenues from reposition- Based on the Master Lease with Marketing, it ing the Marketing portfolio, it is gratifying to have appeared that this overhang would be with us at proven our ability to positively impact our perfor- least through the end of 2015. I am pleased to mance through accretive acquisitions. share that as the first quarter 2012 draws to a ~ 1 ~ ~ C E O A n D P r Es I D En t ’ s M Es s A G E ~ Our overall 2011 reported financial results were 2010. Additionally, per share results were impacted materially affected by Marketing’s fourth quarter by an almost 20% higher weighted average share bankruptcy filing. the main impact came from count year-over-year due to stock issuances in 2010 several accounting-related charges we booked and 2011. during and at the end of the year including: • approximately $20 million in aggregate non-cash deferred rent receivable charges to reverse the effect of straight-line rents we no longer believe we will collect; • approximately $20 million in aggregate non-cash impairment charges resulting primarily from our recognition of Marketing’s environmental and tank removal liabilities which will require cash outlays in future years; and • approximately $9 million in accounts receivable reserves which reflects so called “pre-petition” obligations owed to us by Marketing that we do Funds from operations (“FFO”)1 per share for the year were $1.26 versus $2.13 in 2010 as FFO reflects less impact from charges than net earn- ings mainly because it excludes the impairment charges as well as depreciation and amortization. Adjusted funds from operations (“AFFO”)1 excludes all of the non-cash charges and rental recognition adjustments required by GAAP but does not exclude the $8.8 million accounts receivable reserve. Accordingly, AFFO actually increased 7.7% or $4.5 million year-over-year to $62.7 mil- lion, although on a per share basis there was a decline of $0.20 to $1.88 in 2010 because of the not anticipate being able to collect. the accounts higher share count. receivable reserve is for essentially november 2011 rent plus unpaid real estate taxes that accrued prior to the bankruptcy filing. As a result of the aforementioned charges, the Company’s 2011 net earnings were approximately $12.5 million versus $51.7 million in the prior year, and on a per share basis, $0.37 versus $1.84 in As of December 31st, Marketing leased approximately 800 properties from the Company. the long-term objective of our repositioning project is to maximize the income we can realize from these properties either in the hands of new tenants or though prop- erty sales, the proceeds of which we intend to reinvest into newer and better positioned properties. ~ 2 ~ ~ C E O A n D P r Es I D En t ’ s M Es s A G E ~ Undoubtedly, the repositioning will take time, yet in need of capital investment. Part of the solution when completed, we anticipate having multiple is to work with our prospective tenants to identify new “portfolio” tenants and perhaps as many as a process to rationally finance these important several hundred individual tenant locations. investments. the process to solicit new distributor tenants is well nevertheless, despite all of our efforts, it is apparent underway and has resulted in numerous qualified to us that we will not be able to realize the amount distributors emerging as potential candidates. We of triple net rent from this portfolio that we were expect to make tangible progress toward our repo- able to realize from Marketing historically. Our net sitioning initiatives throughout 2012 and beyond. earnings, FFO and AFFO will also be adversely near-term, we will work with petroleum suppliers impacted by additional operating expenses, specifi- to keep properties operating and generating reve- cally: environmental, G&A and interest costs. net nue for the Company while we sort through our environmental expenses and outlays will increase longer-term opportunities. significantly starting in 2012 because we are now It is apparent that the best opportunity to achieve rental values closest to those paid previously by largely primarily responsible for the remediation costs that used to be Marketing’s. Marketing is in our urban and infill locations. Given We also anticipate incurring additional non-recurring that these locations provide us with more “higher costs associated with Marketing and the portfolio and better” use alternatives, we intend to work to repositioning during 2012. While these expenditures maximize the value of these locations in a deliberate should begin to dissipate beyond that, most likely manner to maintain flexibility so we can maximize there will be ongoing expenses associated with our results considering our short, intermediate and the Company asserting its rights against LUKoil, long-term alternatives and opportunities. Marketing’s prior owner, for several years. We are also quite aware that the portfolio has suf- We successfully obtained an extension of our credit fered from substantial deferred maintenance and is facility and term loan in the first quarter of 2012, ~ 3 ~ ~ C E O a n d P r Es i d En t ’ s M Es s a g E ~ and we are gratified in the show of confidence and year. However, we have a solid foundation in place support from our banks. Part of our comprehensive and we are taking the necessary steps to ensure strategy is a recycling of capital that will be utilized that the Company can grow again. in the meantime, in the repositioning efforts, and later for select during 2012 we should start to realize improved acquisitions. to that end, we are making progress cash flow and visibility. with our property dispositions. there are many fac- tors affecting the speed at which we can conclude these sales including local government permitting, due diligence and other factors. However, we now have a number of properties under contract and expect closings to start occurring during 2012. Finally, i want to personally thank our employees for all of their enormous contributions and sacrifice this past year and our shareholders for supporting our efforts. Our employees continue to work self- lessly on behalf of the Company as we navigate through this challenging period. We understand that getty still has many challenges, but we also understand that the Marketing portfolio sincerely, is valuable and will contribute meaningful cash flow as we successfully reposition the Marketing assets to maximize their potential. there is no question the Company and our share- David B. Driscoll holders have endured significant stress this past Chief Executive Officer and President 1Funds from operations and adjusted funds from operations are non-GAAP measures of our financial performance and are reconciled to net earnings in “Item 6, Selected Financial Data” in our accompanying 2011 Annual Report on Form 10-K. ~ 4 ~ ~ C o R p o R A t e D A t A ~ Board of directors executive officers leo liebowitz Chairman of the Board of Directors of Getty Realty Corp. leo liebowitz Chairman Milton Cooper Chairman of the Board of Kimco Realty Corporation david b. driscoll Chief executive officer and president philip e. Coviello Retired partner of latham & Watkins llp kevin C. shea executive Vice president david b. driscoll Chief executive officer and president of Getty Realty Corp. Joshua dicker Vice president, General Counsel and Secretary richard e. Montag Former Senior executive of the Richard e. Jacobs Group thomas J. stirnweis Vice president, treasurer and Chief Financial officer Howard safenowitz president, Safenowitz Family Corp. Corporate Headquarters Getty Realty Corp. 125 Jericho turnpike Jericho, new york 11753 (516) 478-5400 www.gettyrealty.com about our stoCk our Common Stock is listed on the new york Stock exchange under the symbol Gty. about our sHareHolders As of March 29, 2012, we had 33,394,395 outstanding shares of Common Stock owned by approximately 18,100 shareholders. annual Meeting All shareholders are cordially invited to attend our annual meeting on May 24, 2012 at 3:30 p.m. at 383 Madison Avenue, new york, new york. Holders of common stock of record at the close of business on March 29, 2012, are entitled to vote at the meeting. A notice of meeting, proxy statement and proxy were mailed to our shareholders with this report. investor relations inforMation Shareholders are informed about Company news through the issuance of press releases. Shareholders inquiries, comments or suggestions concerning Getty Realty Corp. are welcome. Investors, brokers, securities analysts and others desiring financial information should contact Investor Relations at (516) 478-5400 or by writing to: investor relations Getty Realty Corp. 125 Jericho turnpike Jericho, new york 11753 our website address is www.gettyrealty.com. our website contains a hyperlink to the eDGAR database of the Securities and exchange Commission where you can access, without charge, the reports we file with the Securities and exchange Commission as soon as reasonably practicable after such reports are filed. transfer agent and dividend reinvestMent plan inforMation Registrar and transfer Company 10 Commerce Drive Cranford, new Jersey 07016 (800) 368-5948 www.rtco.com Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com Getty Realty G E T T Y R E A L T Y C O R P . 125 Jericho turnpike Suite 103 Jericho, ny 11753 ( 516 ) 478 - 5400 GTY 2 0 1 1 A n n u A l R e p o R t G e t t y R e A l t y C o R p .