Getty Realty
Annual Report 2012

Plain-text annual report

Getty Realty G E T T Y R E A L T Y C O R P . A n n u A l R e p o R t 2012F in A nci A l HigHl igH ts 2 01 2 A n n uA l R e p oRt (in thousands, except per share amounts) Total revenues Earnings from continuing operations(b) Earnings from discontinued operations Net earnings Diluted net earnings per common share Funds from operations(c) Diluted funds from operations per common share(c) Adjusted funds from operations(c) Diluted adjusted funds from operations per common share(c) Cash dividends declared per common share Years ended December 31, 2012 2011(a) 2010 $ 102,168 $ 102,921 $ 78,360 13,808 (1,361) 9,424 3,032 40,867 10,833 12,447 12,456 51,700 0.37 0.37 1.84 33,223 42,050 59,733 0.99 1.26 2.13 28,790 62,679 58,246 0.86 0.375 1.88 1.46 2.08 1.91 (a) Includes (from the respective dates 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) For 2012, includes the effect of a $13.5 million accounts receivable reserve and the effect of a $6.3 million impairment charge, which are included in earnings from continuing operations primarily related to certain properties previously leased to Getty Petroleum Marketing Inc. under the Master Lease. For 2011, includes the effect of a $19.3 million non-cash deferred rent receivable reserve, the effect of a $7.6 million accounts receivable reserve, and the effect of a $15.9 million impairment charge, which are included in earnings from continuing operations primarily related to certain properties previously 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 2012 Annual Report on Form 10-K.) (c) 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 appro- priate 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 ten- ants. 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 operat- ing 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 there- fore 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 2012 Annual Report on Form 10-K.) CEO a nd PrE sidEn t’s M EssagE G e t t y R e a lt y C oRp. Fellow Shareholders, As I sat down to write this letter, I took some time to reflect on how just how far our Company has progressed from the uncertainty we faced during the past 18 months. We made remarkable progress during 2012 in managing our business through the challenges resulting from the bankruptcy of our largest tenant (Marketing) at the end of 2011. And while we still have work ahead, we ended 2012 with our Company already on a path towards resuming growth to drive increased cash flow. In 2012 Getty: • Prevailed against Marketing and repossessed our portfolio of properties from them in an orderly manner; • Navigated through a complex set of economic and regulatory issues to preserve underlying value in our portfolio; • Refinanced our credit facilities on market terms without additional damage to our portfolio or equity value at what proved to be a time of significant uncertainty in Marketing’s bankruptcy; • Materially improved our overall diversification and the credit quality of our tenant base with newly signed leases; • Entered into ten new long-term triple net leases covering more than 440 locations previously leased to Marketing with eight tenants including three NYSE listed companies and three other proven long-term partners; • Purchased a ten-year $50 million aggregate environmental insurance policy protecting against unknown environmental liabilities; and • Sold 54 properties for $14.4 million. As difficult as things were in 2011, the circumstances provided a catalyst for change and our Board and management team seized upon the opportunity to pursue a transformation of our tenant base. The result of these efforts has made Getty a more diversified, stronger and agile company than we were previously while preserving meaningful opportunity for upside in our future as we restart our pursuit of accretive growth to build sustainable value. Pa g e 1 CEO a nd PrE sidEn t’s M EssagE 2 01 2 a n n ua l R e p oRt As we moved into 2013 with a lot of the repositioning accomplished, we were able to refinance our Company’s debt again, but this time from a position of far greater strength. Our renewed financial stability enabled us to secure, at more favorable terms, a combination of bank and long- term fixed rate debt. This recent 2013 refinancing lengthened our maturities, reduced our exposure to variable interest rates and, most important of all, provided us with more than $100 million of capacity to help pursue continued growth of the Company. The benefits of our efforts are beginning to be reflected in our ability to support dividends. In 2012 we paid our shareholders $0.375 per common share during the year. Based on the progress we have made to date, in the first quarter of 2013 we declared a regular quarterly dividend of $0.20 per common share representing a 60% increase in the dividend rate over the immediately prior quarter. In 2013, we are continuing to strengthen our portfolio and improve the quality of our cash flow by further refining our asset base. Almost all of our new leases have provisions for funding improve- ments in our properties. Contributions to fund these improvements are made by both Getty and our new tenants. Most of these improvements will occur during the next five years and will result in our portfolio being newer, more competitive and having greater underlying value. In addition, we plan to continue our efforts to reposition our portfolio to maximize its value. To that end as of this writing we have already sold 50 properties this year, including one terminal, for $18.3 million in the aggregate. We anticipate that reinvestment of the proceeds from these sales will yield enhanced returns in the coming years. Ended 2012 with our Company already on a path towards resuming growth to drive increased cash flow. Entered into ten new long-term triple-net leases covering 440 locations. Pa g e 2 CEO a nd PrE sidEn t’s M EssagE G e t t y R e a lt y C oRp. We are also engaged in numerous other activities to drive enhanced value that we believe will contribute to our performance in the years to come. Beyond just optimizing our existing portfolio, we are returning our attention toward accretive growth via select acquisitions. In light of everything we have been through, I think it is useful to take a moment to articulate some of our most fundamental thoughts as they relate to our growth objectives. Our mission is to deliver a secure and growing stream of dividends. We also want to provide a measure of inflation protection by participating in residual rights in real properties. Our focus is investments in the convenience and gas sector. This sector is highly specialized with unique risks, but we believe our management team has the expertise to successfully navigate the sector. The sector possesses certain inherent characteristics that we find attractive including inelastic demand at the customer level and real property with portfolio qualities and multiple alternative uses. We are generally indifferent regarding store format, preferring locations where the delivery of fuel, whether fossil fuel as it is today or a mix or blend of renewable fuels, natural gas or even electricity in the future, is an integral part of the business conducted on-site. At the end of the day, we are agnostic about specific fuels, rather preferring to concentrate on the real estate and focusing on locations convenient to vital highway and transportation routes that will drive customer visits to get fuel regardless of the specific fuel option or store format in a location. Materially improved our overall diversification and the credit quality of our tenant base with newly signed leases. 54 properties sold in 2012 and 50 to date in 2013. Pa g e 3 CEO a nd PrE sidEn t’s M EssagE 2 01 2 a n n ua l R e p oRt this team continues to work tirelessly to deliver results. We are optimistic we can execute on our business plan to build steady and rising dividends. We will also continue to employ leverage on a conservative basis and intend to continue using modest amounts of leverage to enhance shareholder returns in the future. We are optimistic we can execute on our business plan to build steady and rising dividends with enhanced residual values of our properties to build rising shareholder value over time. I want to close as I always do by thanking my colleagues for their hard work, dedication and good humor over the past year. This team continues to work tirelessly to deliver results and going forward is committed to building on the progress that has been made to date. I thank our team for their efforts and our shareholders for their patience and with that, may 2013 be filled (up) with success. Sincerely, David B. Driscoll Chief Executive Officer and President Pa g e 4 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012 OR  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 001-13777 GETTY REALTY CORP. (Exact name of registrant as specified in its charter) Maryland (State or other jurisdiction of incorporation or organization) 125 Jericho Turnpike, Suite 103, Jericho, New York (Address of principal executive offices) 11-3412575 (I.R.S. employer identification no.) 11753 (Zip Code) Registrant’s telephone number, including area code: (516) 478-5400 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS Common Stock, $0.01 par value NAME OF EACH EXCHANGE ON WHICH REGISTERED New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No  Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes  No  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer  Non-accelerated filer  (Do not check if a smaller reporting company) Accelerated filer  Smaller reporting company  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No  The aggregate market value of common stock held by non-affiliates (25,649,418 shares of common stock) of the Company was $491,186,000 as of June 30, 2012. The registrant had outstanding 33,396,790 shares of common stock as of March 18, 2013. DOCUMENTS INCORPORATED BY REFERENCE DOCUMENT Selected Portions of Definitive Proxy Statement for the 2013 Annual Meeting of Stockholders (the “Proxy Statement”), PART OF FORM 10-K which will be filed by the registrant on or prior to 120 days following the end of the registrant’s year ended December 31, 2012 pursuant to Regulation 14A. III Item Description Cautionary Note Regarding Forward-Looking Statements .............................................................................. Page 3 TABLE OF CONTENTS 1 1A 1B 2 3 4 5 6 7 7A 8 9 9A 9B 10 11 12 13 14 15 PART I 5 Business ............................................................................................................................................................ Risk Factors ....................................................................................................................................................... 8 Unresolved Staff Comments ............................................................................................................................. 18 Properties .......................................................................................................................................................... 18 Legal Proceedings ............................................................................................................................................. 21 Mine Safety Disclosures.................................................................................................................................... 23 PART II Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ........................................................................................................................................................... 24 Selected Financial Data ..................................................................................................................................... 26 Management’s Discussion and Analysis of Financial Condition and Results of Operations ............................ 28 Quantitative and Qualitative Disclosures About Market Risk .......................................................................... 45 Financial Statements and Supplementary Data ................................................................................................. 46 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................ 75 Controls and Procedures ................................................................................................................................... 75 Other Information .............................................................................................................................................. 75 PART III Directors, Executive Officers and Corporate Governance ................................................................................ 76 Executive Compensation ................................................................................................................................... 77 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .......... 77 Certain Relationships and Related Transactions, and Director Independence .................................................. 77 Principal Accountant Fees and Services ........................................................................................................... 77 Exhibits and Financial Statement Schedules ...................................................................................................... 78 Signatures ........................................................................................................................................................... 95 Exhibit Index ...................................................................................................................................................... 96 PART IV Cautionary Note Regarding Forward-Looking Statements Certain statements in this Annual Report on Form 10-Kmay 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,” “anticipates,” “predicts” and similar expressions, we intend to identify forward-looking statements. (All capitalized and undefined terms used in this section shall have the same meanings hereafter defined in this Annual Report on Form 10-K.) Examples of forward-looking statements included in this Annual Report on Form 10-K include, but are not limited to, statements regarding: Marketing and our efforts, expectations, and ability to reposition the properties that were previously subject to the Master Lease; our expectations that we may receive funds from the liquidation of the Marketing Estate to satisfy our claims against the Marketing Estate; our expectations that we may collect amounts we advance under the Litigation Funding Agreement; our beliefs regarding the amount of revenue we expect to realize from our properties; our expectations regarding incurring costs associated with repositioning of our properties; our expectations regarding incurring costs associated with the Marketing bankruptcy proceeding and the process of taking control of our properties, including, but not limited to, the Property Expenditures and the Capital Improvements; our expectations regarding eviction proceedings initiated to take control of our properties; the impact of the developments related to repositioning of our properties on our business and ability to pay dividends or our stock price; the reasonableness of and assumptions used regarding our accounting estimates, judgments, assumptions and beliefs; our exposure and liability due to and our estimates and assumptions regarding our environmental liabilities and remediation costs including the Marketing Environmental Liabilities and other environmental remediation costs; our belief that our accruals for environmental and litigation matters were appropriate based on the information then available; compliance with federal, state and local provisions enacted or adopted pertaining to environmental matters; the probable outcome of litigation or regulatory actions and their impact on us; our expected recoveries from underground storage tank funds; our expectations regarding our indemnification obligations and others; future acquisitions and financing opportunities and their impact on our financial performance; the adequacy of our current and anticipated cash flows from operations, borrowings under our Credit Agreement and available cash and cash equivalents; our expectation as to our continued compliance with the financial covenants in our Credit Agreement and Prudential Loan Agreement; and our ability to maintain our federal tax status as a real estate investment trust. These forward-looking statements are based on our current beliefs and assumptions and information currently available to us, and involve known and unknown risks (including the risks described below in “Item 1A. Risk Factors” and in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein, and other risks that we describe from time to time in this and our other filings with the Securities and Exchange Commission (“SEC”)), 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. These risks include, but are not limited to risks associated with: repositioning our properties that were previously subject to the Master Lease and the adverse impact such repositioning may have on our cash flows and ability to pay dividends; our estimates and assumptions regarding expenses, claims and accruals relating to pre-petition and post-petition claims against Marketing, the process of taking control of our properties, including the likelihood of our success in the eviction proceedings we have commenced, and repositioning such properties; the liquidation of the Marketing Estate and risks associated with prosecuting the Lukoil Complaint, including our obligations under the Litigation Funding Agreement; the performance of our tenants of their lease obligations, renewal of existing leases and re-letting or selling our vacant properties; our ability to obtain favorable terms on any properties that we sell or re-let; the uncertainty of our estimates, judgments and assumptions associated with our accounting policies and methods; our dependence on external sources of capital; our business operations generating sufficient cash for distributions or debt service; potential future acquisitions; our ability to acquire new properties; owning and leasing real estate generally; substantially all of our tenants depending on the same industry for their revenues; property taxes; costs of completing environmental remediation and of compliance with environmental legislation and regulations; potential exposure related to pending lawsuits and claims; owning real estate primarily concentrated in the Northeast and Mid-Atlantic regions of the United States; counterparty risk; expenses not covered by insurance; the impact of our electing to be treated as a REIT under the federal income tax laws, including subsequent failure to qualify as a REIT; changes in interest rates and our ability to manage or mitigate this risk effectively; our dividend policy and ability to pay dividends; dilution as a result of future issuances of equity securities; changes in market conditions; Maryland law discouraging a third-party takeover; adverse effect of inflation; the loss of a member or members of our management team; changes in accounting standards that may adversely affect our financial position; and terrorist attacks and other acts of violence and war. 3 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, ability to pay dividends or stock price. An investment in our stock involves various risks, including those mentioned above and elsewhere in this Annual Report on Form 10-K and those that are described from time to time in our other filings with the SEC. 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 that reflect future events or circumstances or reflect the occurrence of unanticipated events. 4 Item 1. Business Company Profile PART I Getty Realty Corp., a Maryland corporation, is the leading publicly-traded real estate investment trust (“REIT”) in the United States specializing in the ownership, leasing and financing of retail motor fuel and convenience store properties and petroleum distribution terminals. Our properties are located in 21 states across the United States with concentrations in the Northeast and the Mid-Atlantic regions. Our properties are operated under a variety of brands including Getty, BP, Exxon, Mobil, Shell, Chevron, Valero and Aloha. We own the Getty® trademark and trade name in connection with our real estate and the petroleum marketing business in the United States. We are self-administered and self-managed by our management team, which has extensive experience in owning, leasing and managing retail motor fuel and convenience store properties. We have invested, and will continue to invest, in real estate and real estate related investments, such as mortgage loans, when appropriate opportunities arise. The History of Our Company Our founders started the business in 1955 with the ownership of one gasoline service station in New York City and combined real estate ownership, leasing and management with service station operation and petroleum distribution. We held our initial public offering in 1971 under the name Power Test Corp. We acquired, from Texaco in 1985, the petroleum distribution and marketing assets of Getty Oil Company in the Northeast United States along with the Getty® name and trademark in connection with our real estate and the petroleum marketing business in the United States. We became one of the leading independent owner/operators of petroleum marketing assets in the country, serving retail and wholesale customers through a distribution and marketing network of Getty® and other branded retail motor fuel and convenience store properties and petroleum distribution terminals. Getty Petroleum Marketing, Inc. (“Marketing”) was formed to facilitate the spin-off of our petroleum marketing business to our shareholders which was completed in 1997. Marketing was acquired by a U.S. subsidiary of OAO Lukoil (“Lukoil”) in December 2000. In connection with Lukoil’s acquisition of Marketing, we renegotiated our long-term unitary triple-net lease (the “Master Lease”) with Marketing. On December 5, 2011, Marketing filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court, Southern District of New York (the “Bankruptcy Court”). Marketing rejected the Master Lease pursuant to an Order issued by the Bankruptcy Court, effective April 30, 2012 and possession of the then 788 properties subject to the Master Lease was returned to us. As of December 31, 2012, more than 700 properties that we own or lease were previously leased to Marketing. During 2012, we entered into ten long-term triple-net unitary leases re-letting, in the aggregate, 443 operating properties previously leased to Marketing. The new leases generally have 15 year initial terms with provisions for renewal terms and annual rent escalations. We sold 54 properties for $15.4 million in the aggregate during 2012. As of the date of this filing on Form 10-K, in 2013, we have sold an additional 42 properties for $17.5 million in the aggregate, including one terminal. Certain of the properties previously leased to Marketing are subject to month-to-month licensing agreements and our temporary fuel supply agreement (described in more detail below). The balance of the remaining properties previously leased to Marketing are accounted for as held for sale and are either subject to month-to-month licensing agreements, or are vacant. Since May 2003, we have acquired approximately 400 properties in various states in transactions valued at approximately $523 million. These acquisitions include single property transactions and portfolio transactions ranging in size from 18 properties with an aggregate value of approximately $13 million up to a portfolio comprised of 59 properties with an aggregate value of approximately $111 million. Company Operations As of December 31, 2012, we owned 946 properties and leased 135 properties. Our typical property is used as a retail motor fuel outlet and convenience store, and is located on between one-half and three quarters of an acre of land in a metropolitan area. The properties that we have acquired since 2007 are generally located on larger parcels of land. We believe our network of retail motor fuel and convenience store properties and terminal properties across the Northeast and the Mid-Atlantic regions of the United States is unique and that comparable networks of properties are not readily available for purchase or lease from other owners or landlords. Many of our properties are located at highly trafficked urban intersections or conveniently close to highway entrance or exit ramps. 5 Our business model is to lease our properties on a triple-net basis primarily to petroleum distributors and to a lesser extent to individual operators. Our tenants operate our properties directly or sublet our properties to operators who operate their gas stations, convenience stores, automotive repair service facilities or other businesses at our properties. These tenants are responsible for the operations conducted at these properties. Our triple-net tenants are generally responsible for the payment of all taxes, maintenance, repairs, insurance and other operating expenses relating to our properties. In addition, with respect to certain properties that we are repositioning, we have entered into month-to-month license agreements and interim fuel supply arrangements. We receive monthly occupancy payments directly from the licensee- operators while we remain responsible for certain costs associated with the properties. These month-to-month license agreements allow the licensees to occupy and use the properties as gas stations, convenience stores or automotive repair service facilities, and require the licensee-operators to sell fuel provided exclusively by a third party, with whom we have contracted for interim fuel supply. Under our agreement with the third party fuel supplier, the third party fuel supplier is required to pay us a fee based in part on gallons sold and we pay to the third party fuel supplier a monthly administrative service fee. Our month-to-month license agreements differ from our triple-net lease arrangements in that, among other things, we are responsible for the payment of certain environmental compliance costs and property operating expenses including maintenance and real estate taxes. We intend to reposition these properties in order to maximize their value to us taking into account each property’s intermediate and long-term investment requirements and potential. As a result of this process, we expect that we may dispose of or lease these remaining properties, either individually or in small portfolios. We also may make investments in certain of these properties in anticipation of leasing them or by contribution to capital expenditures required to be made by our tenants. We cannot predict the timing or the terms of any future sales or leases. Substantially all of our tenants’ financial results depend on the sale of refined petroleum products and rental income from their subtenants. As a result, our tenants’ financial results are highly dependent on the performance of the petroleum marketing industry, which is highly competitive and subject to volatility. In those instances where we determine that the best use for a property is no longer as a gas station, we will seek an alternative tenant or buyer for the property. As of December 31, 2012, approximately 20 of our properties are leased for uses such as quick serve restaurants, automobile sales and other retail purposes, excluding approximately 40 properties previously subject to the Master Lease with Marketing which are currently held for sale and which have temporary occupancies. (For additional information regarding our real estate business and our properties, see “Item 1. Business — Real Estate Business” and “Item 2. Properties”.) One of our tenants, CPD NY Energy Corp., a subsidiary of Chestnut Petroleum Dist. (together with its affiliates, “CPD”), represents 18% and 12% of our revenues from rental properties for 2012 and 2011, respectively, and 26% and 12% of our annualized rental revenues from rental properties for 2012 and 2011, respectively. (For information regarding factors that could adversely affect us relating to our lessees, see “Part II, Item 1A. Risk Factors.) The sector of the real estate industry in which we operate is highly competitive. In addition, we expect major real estate investors with significant capital will continue to compete with us for attractive acquisition opportunities. These competitors include petroleum manufacturing, distributing and marketing companies, other REITs, public and private investment funds and other individual and institutional investors. Generally, we seek leases with tenants that have an initial term of 15 years and include provisions for rental increases during the term of the lease. As of December 31, 2012, our average lease term including month-to-month license agreements, weighted by the number of underlying properties, was in excess of 9.8 years excluding renewal options. Retail motor fuel properties are an integral component of the transportation infrastructure. Stability within the retail motor fuel and convenience store industry is driven by highly inelastic demand for petroleum products and day-to-day consumer goods and fast foods, which supports our tenants. We elected to be treated as a REIT under the federal income tax laws beginning January 1, 2001. A REIT is a corporation, or a business trust that would otherwise be taxed as a corporation, which meets certain requirements of the Internal Revenue Code. The Internal Revenue Code permits a qualifying REIT to deduct dividends paid, thereby effectively eliminating corporate level federal income tax and making the REIT a pass-through vehicle for federal income tax purposes. To meet the applicable requirements of the Internal Revenue Code, a REIT must, among other things, invest substantially all of its assets in interests in real estate (including mortgages and other REITs) or cash and government securities, derive most of its income from rents from real property or interest on loans secured by mortgages on real property, and distribute to shareholders annually a substantial portion of its otherwise taxable income. As a REIT, we are required to distribute at least 90% of our taxable income to our shareholders each year and would be subject to corporate level federal income taxes on any taxable income that is not distributed. 6 Acquisition Strategy and Activity As part of our overall growth strategy, we regularly review acquisition and financing opportunities to acquire additional properties, and we expect to continue to pursue acquisitions that we believe will benefit our financial performance. Our investment strategy is aimed at achieving a high quality real estate portfolio and geographic diversification. We employ investment personnel to pursue acquisitions that are consistent with this strategy. A key element of our investment strategy is to acquire properties in strong primary markets that serve high density population centers. We review such opportunities on an ongoing basis and may have one or more potential acquisitions under consideration at any point in time, which may be at varying stages of the negotiation and due diligence review process. 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. In 2012, we acquired fee or leasehold title to five gasoline station and convenience store properties in separate transactions valued at $5.2 million. In 2011, we acquired fee or leasehold title to 125 gasoline station and convenience store properties in two separate transactions valued at $198.6 million. Since May 2003, we have acquired approximately 400 properties in various states in transactions valued at approximately $523 million. These acquisitions include single property transactions and portfolio transactions ranging in size from 18 properties with an aggregate value of approximately $13 million up to a portfolio comprised of 59 properties with an aggregate value of approximately $111 million. Trademarks We own the Getty® name and trademark in connection with our real estate and the petroleum marketing business in the United States and we permit certain of our tenants to use the Getty® trademarks at properties that they lease from us. Regulation We are subject to numerous existing federal, state and local laws and regulations including matters related 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, underground storage tanks (“UST” or “USTs”) and other equipment. Petroleum properties are governed by numerous federal, state and local environmental laws and regulations. These laws have included: (i) requirements to report to governmental authorities discharges of petroleum products into the environment and, under certain circumstances, to remediate the soil and/or groundwater contamination pursuant to governmental order and directive, (ii) requirements to remove and replace USTs that have exceeded governmental-mandated age limitations, and (iii) the requirement to provide a certificate of financial responsibility with respect to claims relating to UST failures. Our tenants are directly responsible for compliance with various environmental laws and regulations as the operators of our properties. We believe that we are in substantial compliance with federal, state and local provisions enacted or adopted pertaining to environmental matters. Although we are unable to predict what legislation or regulations may be adopted in the future with respect to environmental protection and waste disposal, existing legislation and regulations have had no material adverse effect on our competitive position. (For additional information with respect to pending environmental lawsuits and claims see “Item 3. Legal Proceedings”.) 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. We seek reimbursement from state UST remediation funds related to these environmental expenses where available. We enter into leases and various other agreements which allocate responsibility for known and unknown environmental liabilities by establishing the percentage and method of allocating responsibility between the parties. In accordance with leases with certain tenants, we have agreed to bring the leased properties with known environmental contamination to within applicable standards, and to either regulatory or contractual closure (“Closure”) in an efficient and economical manner. Generally, upon achieving Closure at each 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. 7 Our tenants are directly responsible to pay for (i) remediation of environmental contamination they cause and compliance with various environmental laws and regulations as the operators of our properties, and (ii) environmental liabilities allocated to them under the terms of our leases and various other agreements. Generally, the liability for the retirement and decommissioning or removal of USTs and other equipment is the responsibility of our triple-net 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 (other than Marketing’s environmental obligations which we accrued in the fourth quarter of 2011). However, there can be no assurance that our assessments are correct or that our tenants who have paid their obligations in the past will continue to do so. For additional information please refer to “Item 1A. Risk Factors” and to “Liquidity and Capital Resources,” “Environmental Matters”, ”Contractual Obligations” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which appear in Item 7. and note 6 in “Item 8. Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements.” in this Annual Report on Form 10-K. Personnel As of March 18, 2013, we had 37 employees. Access to our filings with the Securities and Exchange Commission and Corporate Governance Documents Our website address is www.gettyrealty.com. Our address, phone number and a list of our officers is available on our website. Our website contains a hyperlink to the EDGAR database of the Securities and Exchange Commission (the “SEC”) at www.sec.gov where you can access, free-of-charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after such reports are filed. Our website also contains our business conduct guidelines, corporate governance guidelines and the charters of the Compensation, Nominating/Corporate Governance and Audit Committees of our Board of Directors. We also will provide copies of these reports and corporate governance documents free-of-charge upon request, addressed to Getty Realty Corp., 125 Jericho Turnpike, Suite 103, Jericho, NY 11753, Attn: Investor Relations. Information available on or accessible through our website shall not be deemed to be a part of this Annual Report on Form 10-K. You may read and copy any materials that we file with the Securities and Exchange Commission at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. Item 1A. Risk Factors We are subject to various risks, many of which are beyond our control. As a result of these and other factors, we may experience material fluctuations in our future operating results on a quarterly or annual basis, which could materially and adversely affect our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. An investment in our stock involves various risks, including those mentioned below and elsewhere in this Annual Report on Form 10-K and those that are described from time to time in our other filings with the SEC. We are repositioning our properties that were previously leased to Marketing. We expect to incur significant costs associated with repositioning these properties and we expect to generate less net revenue after leasing or selling these properties. The incurrence of these costs and receipt of less net revenue may materially negatively impact our cash flow and ability to pay dividends. We are in the process of repositioning the properties that were previously leased to Getty Petroleum Marketing Inc. (“Marketing”) comprising a unitary premises pursuant to a master lease (the “Master Lease”). During 2012, we have entered into long-term triple-net leases with respect to 443 of these properties. In addition, we have entered into month-to-month license agreements and interim fuel supply arrangements with respect to our operating properties. The remaining properties previously leased to Marketing are accounted for as held for sale, and are either subject to month-to-month licensing agreements or are vacant. Our month-to-month license agreements allow the licensee to occupy and to use the properties for gas stations, convenience stores, automotive repair service facilities or other businesses. We receive monthly payments from the licensee-operators while remaining responsible for all operating expenses, including maintenance, repairs, real estate taxes, insurance and general upkeep (“Property Expenditures”) and environmental costs. Dependent on factors related to each site, we expect to directly pay for varying types of costs over a period of years for deferred maintenance, required renovations, replacement of underground storage tanks and related equipment and zoning and permitting costs (“Capital Improvements”). It is possible we may enter into additional long-term triple-net leases for certain of these properties with tenants who are actively engaged in the business of retail petroleum marketing. 8 We, or our tenants, have commenced eviction proceedings involving approximately 40 properties in various jurisdictions against Marketing’s former subtenants (or sub-subtenants) who have not vacated our properties and occupy our properties without rights. We are incurring significant costs, primarily legal expenses, in connection with such proceedings. We are currently generating less net revenue from the leasing of these properties and we expect that following the completion of the repositioning process, we will continue to generate less net revenue from these properties than previously received from Marketing. In addition, dependent on factors related to each site we expect to directly pay for Property Expenditures during the repositioning process and possibly thereafter and for Capital Improvements over a period of years. It is possible that issues involved in re-letting or repositioning these properties may require significant management attention that would otherwise be devoted to our ongoing business. The incurrence of these costs and receipt of less net revenue from our properties that were subject to the Master Lease may materially negatively impact our cash flow and ability to pay dividends. Our future cash flow is dependent on the performance of our tenants of their lease obligations, renewal of existing leases and either re-letting or selling our vacant properties. We are subject to risks that financial distress, default or bankruptcy of our tenants may lead to vacancy at our properties or disruption in rent receipts as a result of partial payment or nonpayment of rent or that expiring leases may not be renewed. Under unfavorable general economic conditions, there can be no assurance that our tenants’ level of sales and financial performance generally will not be adversely affected, which in turn, could impact the reliability of our rent receipts. We are subject to risks that the terms governing renewal or re-letting of our properties (including the cost of required renovations, replacement of underground storage tanks and related equipment or environmental remediation) may be less favorable than current lease terms (or prior lease terms in the case of vacant properties). We are also subject to the risk that we may receive less net proceeds from the properties we sell as compared to their current carrying value or that the value of our properties may be adversely affected by unfavorable general economic conditions. Unfavorable general economic conditions may also negatively impact our ability to re-let or sell our properties. Numerous properties compete with our properties in attracting tenants to lease space. The number of available or competitive properties in a particular area could have a material adverse effect on our ability to lease or sell our properties and on the rents we are able to charge. In addition to the risk of disruption in rent receipts, we are subject to the risk of incurring real estate taxes, maintenance, environmental and other expenses at vacant properties. The financial distress, default or bankruptcy of our tenants may also lead to protracted and expensive processes for retaking control of our properties than would otherwise be the case, including, eviction or other legal proceedings related to or resulting from the tenant’s default. These risks are greater with respect to certain of our tenants who lease multiple properties from us. If a tenant files for bankruptcy protection it is possible that we would recover substantially less than the full value of our claims against the tenant. If our tenants do not perform their lease obligations; or we are unable to renew existing leases and promptly recapture and re-let or sell vacant locations; or if lease terms upon renewal or re-letting are less favorable than current lease terms; or if the values of properties that we sell are adversely affected by market conditions; or if we incur significant costs or disruption related to or resulting from tenant financial distress, default or bankruptcy; then our cash flow could be significantly adversely affected. We are continuing our efforts to sell certain properties. We cannot predict the terms or timing of any such property dispositions. If we do not obtain favorable terms on such dispositions, our operations and financial performance maybe negatively impacted. We are continuing our efforts to sell properties, including those properties which are accounted for as held for sale. While we have dedicated considerable effort designed to increase sales activity, we cannot predict if or when property dispositions will close and whether the terms of any such disposition will be favorable to us. It is likely that we will retain environmental liabilities that exist with respect to that property or group of properties prior to the date of sale, to the extent there is no third-party responsible therefor. If we do not obtain favorable terms on such dispositions, our operations and financial performance will be negatively impacted. We maintain significant pre-petition and post-petition claims against Marketing. We cannot provide any assurance that our claims will be accepted or paid As part of Marketing’s bankruptcy proceeding, we maintain significant pre-petition and post-petition claims against Marketing. Certain of our claims are considered administrative claims and have priority over other claims. We have agreed to cap our aggregate priority administrative claims at the amount of $10.5 million, together with interest from May 1, 2012 until 9 paid at the rate provided in the Master Lease. As of the date of this filing on Form 10-K, the outstanding unpaid principal amount of our Administrative Claim is $7.4 million. We cannot predict how much of these unpaid obligations we will ultimately collect, if any. We have agreed to advance funds to the liquidating trustee of the Marketing Estate. We cannot give any assurance that we will be repaid any amounts of our loans or be reimbursed for our legal fees. The Bankruptcy Court has appointed a liquidating trustee to oversee the liquidation of the Marketing estate (the “Marketing Estate”). In December 2011, the Marketing Estate filed a lawsuit against Marketing’s former parent, Lukoil Americas Corporation, and certain of its affiliates (collectively, “Lukoil”), as well as the former directors and officers of Marketing (the “Lukoil Complaint”). The Lukoil Complaint asserts, among other claims, that Marketing’s sale of assets to Lukoil in November 2009 constituted a fraudulent conveyance, and that the assets or their value can be recovered from Lukoil. In addition, the Lukoil Complaint asserts that the former directors and officers violated their fiduciary duties to Marketing in approving and effectuating the challenged sale, and are liable for money damages. The Liquidating Trustee is pursuing these claims for the benefit of the Marketing Estate. In October 2012, we entered into an agreement with the Marketing Estate to make loans and otherwise fund up to an aggregate amount of $6.4 million to fund the prosecution of the Lukoil Complaint and certain expenses incurred by the Marketing Estate (the “Litigation Funding Agreement”). It is possible that we may agree to advance amounts in excess of $6.4 million. We advanced $1.7 million in the fourth quarter of 2012 and $0.1 million in the first quarter of 2013 to the Marketing Estate pursuant to the Litigation Funding Agreement. The Litigation Funding Agreement also provides that we are entitled to be reimbursed for up to $1.3 million of our legal fees in connection with the Litigation Funding Agreement. Based on the terms of the Litigation Funding Agreement, we have recorded a receivable of $3.0 million as of December 31, 2012, which includes amounts advanced and amounts due for reimbursable legal fees we incurred in connection with the Litigation Funding Agreement. Payments that we receive pursuant to the Litigation Funding Agreement will not reduce our Administrative Claim or our other pre-petition and post-petition claims against Marketing. A portion of the payments we receive pursuant to the Litigation Funding Agreement may be subject to federal income taxes. We cannot provide any assurance that we will be repaid any amounts we advance pursuant to the Litigation Funding Agreement or the reimbursable legal fees we have incurred. Our accounting policies and methods are fundamental to how we record and report our financial position and results of operations, and they require management to make estimates, judgments and assumptions about matters that are inherently uncertain. Our accounting policies and methods are fundamental to how we record and report our financial position and results of operations. We have identified several accounting policies as being critical to the presentation of our financial position and results of operations because they require management to make particularly subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be recorded under different conditions or using different assumptions. We cannot provide any assurance that we will not make subsequent significant adjustments to our consolidated financial statements. Estimates, judgments and assumptions underlying our consolidated financial statements include, but are not limited to, receivables and related reserves, deferred rent receivable, income under direct financing leases, asset retirement obligations including environmental remediation obligations, real estate, depreciation and amortization, impairment of long-lived assets, litigation, accrued liabilities, income taxes and allocation of the purchase price of properties acquired to the assets acquired and liabilities assumed. If our accounting policies, methods, judgments, assumptions and allocations prove to be incorrect, or if circumstances change, our business, financial condition, revenues, operating expense, results of operations, liquidity, ability to pay dividends or stock price may be materially adversely affected. We are dependent on external sources of capital which may not be available on favorable terms, or at all. We are dependent on external sources of capital to maintain our status as a REIT and must distribute to our shareholders each year at least 90% of our net taxable income, excluding any net capital gain. Because of these distribution requirements, it is not likely that we will be able to fund all future capital needs, including acquisitions, from income from operations. Therefore, we will have to continue to rely on third-party sources of capital, which may or may not be available on favorable terms, or at all. 10 Our principal sources of liquidity are our cash flows from operations, funds available under our Credit Agreement that matures in August 2015, and available cash and cash equivalents. On February 25, 2013, we entered into a $175 million senior secured revolving credit agreement (the “Credit Agreement”) with a group of commercial banks led by JPMorgan Chase Bank, N.A. (the “Bank Syndicate”), which is scheduled to mature in August 2015 and a $100 million senior secured long-term loan agreement with the Prudential Insurance Company of America (the “Prudential Loan Agreement”), which matures in February 2021. On February 25, 2013, we also repaid and terminated our existing credit agreement with a group of commercial banks led by JPMorgan Chase Bank, N.A. and our term loan agreement with TD Bank. For additional information, please refer to “Credit Agreement” and “Prudential Loan Agreement” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” which appears in this Annual Report on Form 10-K. Our ability to meet the financial and other covenants relating to our Credit Agreement and our Prudential Loan Agreement is dependent on our continued ability to meet certain criteria as further described in note 4 in “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements” and the performance of our tenants. If we are not in compliance with one or more of our covenants, which could result in an event of default under our Credit Agreement or our Prudential Loan Agreement; there can be no assurance that our lenders would waive such non-compliance. This could have a material adverse affect on our business, financial condition, results of operation, liquidity, ability to pay dividends or stock price. As part of our overall growth strategy, we regularly review acquisition and financing 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. Our access to third-party sources of capital depends upon a number of factors including general market conditions, the market’s perception of our growth potential, financial stability, our current and potential future earnings and cash distributions, covenants and limitations imposed under our Credit Agreement and our Prudential Loan Agreement and the market price of our common stock. Our business operations may not generate sufficient cash for distributions or debt service. There is no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay dividends on our common stock, to pay our indebtedness, or to fund our other liquidity needs. We may not be able to repay or refinance existing indebtedness on favorable terms, which could force us to dispose of properties on disadvantageous terms (which may also result in losses) or accept financing on unfavorable terms. We may acquire new properties, and this may create risks. We may acquire or develop properties when we believe that an acquisition or development matches our business strategies. These properties may have characteristics or deficiencies currently unknown to us that affect their value or revenue potential. It is possible that the operating performance of these properties may decline after we acquire them, they may not perform as expected and, if financed using debt or new equity issuances, may result in shareholder dilution. Our acquisition of properties will expose us to the liabilities of those properties, some of which we may not be aware of at the time of acquisition. We face competition in pursuing these acquisitions and we may not succeed in leasing acquired properties at rents sufficient to cover their costs of acquisition and operations. Newly acquired properties may require significant management attention that would otherwise be devoted to our ongoing business. We may not succeed in consummating desired acquisitions. Consequences arising from or in connection with any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. While we seek to grow through accretive acquisitions, acquisitions of properties may be dilutive and may not produce the returns that we expect and we may not be able to successfully integrate acquired properties into our portfolio or manage our growth effectively, which could have a material adverse effect on our results of operations, financial condition and growth prospects. Acquisitions of properties may initially be dilutive to our net income, and such properties may not perform as we expect or produce the returns that we anticipate (including, without limitation, as a result of tenant bankruptcies, tenant concessions, our inability to collect rents and higher than anticipated operating expenses). Further, we may not successfully integrate one or more of these property acquisitions into our existing portfolio without operating disruptions or unanticipated 11 costs. Additionally, to the extent we increase the size of our portfolio, we may not be able to adapt our management, administrative, accounting and operational systems, or hire and retain sufficient operational staff to integrate acquired properties into our portfolio or manage any future acquisitions of properties without operating disruptions or unanticipated costs. Moreover, our continued growth will require increased investment in management personnel, professional fees, other personnel, financial and management systems and controls and facilities, which will result in additional operating expenses. Under the circumstances described above, our results of operations, financial condition and growth prospects may be materially and adversely affected. We are subject to risks inherent in owning and leasing real estate. We are subject to varying degrees of risk generally related to leasing and owning real estate many of which are beyond our control. In addition to general risks applicable to us, our risks include, among others: • • • • • • • • • • • • • • • our liability as a lessee for long-term lease obligations regardless of our revenues, deterioration in national, regional and local economic and real estate market conditions, potential changes in supply of, or demand for, rental properties similar to ours, competition for tenants and declining rental rates, difficulty in selling or re-letting properties on favorable terms or at all, impairments in our ability to collect rent or other payments due to us when they are due, increases in interest rates and adverse changes in the availability, cost and terms of financing, uninsured property liability, the impact of present or future environmental legislation and compliance with environmental laws, adverse changes in zoning laws and other regulations, acts of terrorism and war, acts of God, the potential risk of functional obsolescence of properties over time, the need to periodically renovate and repair our properties, and physical or weather-related damage to our properties. Each of these factors could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. In addition, real estate investments are relatively illiquid, which means that our ability to vary our portfolio of properties in response to changes in economic and other conditions may be limited. Adverse developments in general business, economic, or political conditions could have a material adverse effect on us. Adverse developments in general business and economic conditions, including through recession, downturn or otherwise, either in the economy generally or in those regions in which a large portion of our business is conducted, could have a material adverse effect on us and significantly increase certain of the risks we are subject to. The general economic conditions in the United States are, and for an extended period of time may be, significantly less favorable than that of prior years. Among other effects, adverse economic conditions could depress real estate values, impact our ability to re-let or sell our properties and have an adverse effect on our tenants’ level of sales and financial performance generally. Our revenues are dependent on the economic success of our tenants and any factors that adversely impact our tenants could also have a material adverse effect on our business, financial condition and results of operations, liquidity, ability to pay dividends or stock price. Substantially all of our tenants depend on the same industry for their revenues. We derive substantially all of our revenues from leasing, primarily on a triple-net basis, and financing retail motor fuel and convenience store properties to tenants in the petroleum marketing industry. Accordingly, our revenues are substantially dependent on the economic success of the petroleum marketing industry, and any factors that adversely affect that industry, such as disruption in the supply of petroleum or a decrease in the demand for conventional motor fuels due to conservation, technological advancements in petroleum-fueled motor vehicles, or an increase in the use of alternative fuel vehicles, or “green technology” could also have a material adverse effect on our business, financial condition and results of operations, liquidity, ability to pay dividends or stock price. The success of participants in the petroleum marketing industry depends upon the sale of refined petroleum products at margins in excess of fixed and variable expenses. The petroleum marketing 12 industry is highly competitive and volatile. Petroleum products are commodities, the prices of which depend on numerous factors that affect supply and demand. The prices paid by our tenants and other petroleum marketers for products are affected by global, national and regional factors. A large, rapid increase in wholesale petroleum prices would adversely affect the profitability and cash flows of our tenants if the increased cost of petroleum products could not be passed on to their customers or if automobile consumption of gasoline was to decline significantly. We cannot be certain how these factors will affect petroleum product prices or supply in the future, or how in particular they will affect our tenants. Property taxes on our properties may increase without notice. Each of the properties we own or lease is subject to real property taxes. The leases for certain of the properties that we lease from third parties obligate us to pay real property taxes with regard to those properties. The real property taxes on our properties and any other properties that we acquire or lease in the future may increase as property tax rates change and as those properties are assessed or reassessed by tax authorities. To the extent that our tenants are not responsible for property taxes pursuant to their contractual arrangements with us or are unable or unwilling to pay such increase in accordance with their leases, our net operating expenses may increase. We incur significant operating costs as a result of environmental laws and regulations which costs could significantly rise and reduce our profitability. We are subject to numerous existing federal, state and local laws and regulations, including matters relating to the protection of the environment. Under certain environmental laws, a current or previous owner or operator of real estate may be liable for contamination resulting from the presence or discharge of hazardous or toxic substances or petroleum products at, on, or under, such property, and may be required to investigate and clean-up such contamination. Such laws typically impose liability and clean-up responsibility without regard to whether the owner or operator knew of or caused the presence of the contaminants, or the timing or cause of the contamination, and the liability under such laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. For example, liability may arise as a result of the historical use of a property or from the migration of contamination from adjacent or nearby properties. Any such contamination or liability may also reduce the value of the property. In addition, the owner or operator of a property may be subject to claims by third parties based on injury, damage and/or costs, including investigation and clean-up costs, resulting from environmental contamination present at or emanating from a property. The properties owned or controlled by us are leased primarily as retail motor fuel and convenience store properties, and therefore may contain, or may have contained, USTs for the storage of petroleum products and other hazardous or toxic substances, which creates a potential for the release of such products or substances. Some of our properties may be subject to regulations regarding the retirement and decommissioning or removal of long-lived assets including buildings containing hazardous materials, USTs and other equipment. Some of the properties may be adjacent to or near properties that have contained or currently contain USTs used to store petroleum products or other hazardous or toxic substances. In addition, certain of the properties are on, adjacent to, or near properties upon which others have engaged or may in the future engage in activities that may release petroleum products or other hazardous or toxic substances. There may be other environmental problems associated with our properties of which we are unaware. These problems may make it more difficult for us to re-let or sell our properties on favorable terms, or at all. For additional information with respect to pending environmental lawsuits and claims, and environmental remediation obligations and estimates see “Item 3. Legal Proceedings”, “Environmental Matters” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 6 in “Item 8. Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements” in this Annual Report on Form 10-K. We enter into leases and various other agreements which allocate responsibility for known and unknown environmental liabilities by establishing the percentage and method of allocating responsibility between the parties. Our tenants are directly responsible to pay for (i) remediation of environmental contamination they cause and compliance with various environmental laws and regulations as the operators of our properties, and (ii) environmental liabilities allocated to them under the terms of our leases and various other agreements. Generally, the liability for the retirement and decommissioning or removal of USTs and other equipment is the responsibility of our triple-net 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 (other than amounts accrued for the Marketing Environmental Liabilities accrued in the fourth quarter of 2011). However, there can be no assurance that our assessments are correct or that our tenants who have paid their obligations in the past will continue to do so. 13 We cannot provide any assurance that the programs under which we are reimbursed from state UST remediation funds will continue to be available to us. 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 our liability for estimated environmental remediation obligations on a property by property basis, we consider 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. Environmental accruals are based on estimates which are subject to significant change, and are adjusted as the remediation treatment progresses, as circumstances change and as environmental contingencies become more clearly defined and reasonably estimable. Adjustments to accrued liabilities for environmental remediation obligations will be reflected in our financial statements as they become probable and a reasonable estimate of fair value can be made. It is possible that our assumptions regarding the ultimate allocation methods and share of responsibility that we used to allocate environmental liabilities may change, which may result in adjustments to the amounts recorded for environmental litigation accruals and environmental remediation liabilities. We will be required to accrue for environmental liabilities that we believe are allocable to others under various other agreements if we determine that it is probable that the counterparty will not meet its environmental obligations. We may ultimately be responsible to pay for environmental liabilities as the property owner if the counterparty fails to pay them. We cannot predict what environmental legislation or regulations may be enacted in the future, or if 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 whether state UST 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. As a result of the factors discussed above, or others, compliance with environmental laws and regulations could have a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. We are defending pending lawsuits and claims and are subject to material losses. We are subject to various lawsuits and claims, including litigation related to environmental matters, such as those arising from leaking USTs and releases of motor fuel into the environment, and toxic tort claims. The ultimate resolution of certain matters cannot be predicted because considerable uncertainty exists both in terms of the probability of loss and the estimate of such loss. Our ultimate liabilities resulting from such lawsuits and claims, if any, could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. For additional information with respect to pending environmental lawsuits and claims and environmental remediation obligations and estimates see “Item 3. Legal Proceedings” and “Environmental Matters” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and notes 3 and 6 in “Item 8. Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements” in this Annual Report on Form 10-K. A significant portion of our properties are concentrated in the Northeast and Mid-Atlantic regions of the United States, and adverse conditions in those regions, in particular, could negatively impact our operations. A significant portion of the properties we own and lease are located in the Northeast and Mid-Atlantic regions of the United States. Because of the concentration of our properties in those regions, in the event of adverse economic conditions in those regions, we would likely experience higher risk of default on payment of rent to us than if our properties were more geographically diversified. Additionally, the rents on our properties may be subject to a greater risk of default than other properties in the event of adverse economic, political, or business developments or natural hazards that may affect the Northeast or Mid-Atlantic United States and the ability of our lessees to make rent payments. This lack of geographical diversification could have a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. 14 We are in a competitive business. The real estate industry is highly competitive. Where we own properties, we compete for tenants with a large number of real estate property owners and other companies that sublet properties. Our principal means of competition are rents we are able to charge in relation to the income producing potential of the location. In addition, we expect other major real estate investors, some with much greater financial resources or more experienced personnel than we have, will compete with us for attractive acquisition opportunities. These competitors include petroleum manufacturing, distributing and marketing companies, other REITs, public and private investment funds and other individual and institutional investors. This competition has increased prices for properties we seek to acquire and may impair our ability to make suitable property acquisitions on favorable terms in the future. We are exposed to counterparty risk and there can be no assurances that we will effectively manage or mitigate this risk. We regularly interact with counterparties in various industries. The types of counterparties most common to our transactions and agreements include, but are not limited to, landlords, tenants, vendors and lenders. Our most significant counterparties include, but are not limited to the members of the Bank Syndicate related to our Credit Agreement and the lender that is the counterparty to the Prudential Loan Agreement and one of our tenants from whom we derive a significant amount of revenue. The default, insolvency or other inability of a significant counterparty to perform its obligations under an agreement or transaction, including, without limitation, as a result of the rejection of an agreement or transaction in bankruptcy proceedings, could have a material adverse effect on us. One of our tenants, CPD NY Energy Corp., a subsidiary of Chestnut Petroleum Dist. (together with its affiliates, “CPD”), represents 18% and 12% of our revenues from rental properties for 2012 and 2011, respectively, and 26% and 12% of our annualized rental revenues from rental properties for 2012 and 2011, respectively. It is possible that as a result of either acquiring additional properties from CPD or as a result of disposing some of our existing properties, CPD could account for a greater percentage of our revenues from rental properties. We may also undertake additional transactions with our other existing tenants which would further concentrate our sources of revenues. Therefore, the failure of a major tenant is likely to have a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. We are subject to losses that may not be covered by insurance. We, and certain of our tenants, carry insurance against certain risks and in such amounts as we believe are customary for businesses of our kind. However, as the costs and availability of insurance change, we may decide not to be covered against certain losses (such as certain environmental liabilities, earthquakes, hurricanes, floods and civil disorder) where, in the judgment of management, the insurance is not warranted due to cost or availability of coverage or the remoteness of perceived risk. There is no assurance that these insurance coverages are or will be sufficient to cover actual losses incurred. The destruction of, or significant damage to, or significant liabilities arising out of conditions at, our properties due to an uninsured cause would result in an economic loss and could result in us losing both our investment in, and anticipated profits from, such properties. When a loss is insured, the coverage may be insufficient in amount or duration, or a lessee’s customers may be lost, such that the lessee cannot resume its business after the loss at prior levels or at all, resulting in reduced rent or a default under its lease. Any such loss relating to a large number of properties could have a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. Failure to qualify as a REIT under the federal income tax laws would have adverse consequences to our shareholders. We elected to be treated as a REIT under the federal income tax laws beginning January 1, 2001. We cannot; however, guarantee that we will continue to qualify in the future as a REIT. We cannot give any assurance that new legislation, regulations, administrative interpretations or court decisions will not significantly change the requirements relating to our qualification. If we fail to qualify as a REIT, we would not be allowed a deduction for distributions to shareholders in computing our taxable income and will again be subject to federal income tax at regular corporate rates, we could be subject to the federal alternative minimum tax, we could be required to pay significant income taxes and we would have less money available for our operations and distributions to shareholders. This would likely have a significant adverse effect on the value of our securities. We could also be precluded from treatment as a REIT for four taxable years following the year in which we lost the qualification, and all distributions to shareholders would be taxable as regular corporate dividends to the extent of our current and accumulated earnings and profits. Loss of our REIT status could have a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. 15 We are exposed to interest rate risk and there can be no assurances that we will manage or mitigate this risk effectively. We are exposed to interest rate risk, primarily as a result of our Credit Agreement. Borrowings under our Credit Agreement bear interest at a floating rate. Accordingly, an increase in interest rates will increase the amount of interest we must pay under our Credit Agreement. Our interest rate risk may materially change in the future if we increase our borrowings under the Credit Agreement, or amend our Credit Agreement or Prudential Loan Agreement, seek other sources of debt or equity capital or refinance our outstanding debt. A significant increase in interest rates could also make it more difficult to find alternative financing on desirable terms. (For additional information with respect to interest rate risk, see “Item 3. Quantitative and Qualitative Disclosures About Market Risks,” as filed with this Annual Report on Form 10-K.) Future issuances of equity securities could dilute the interest of holders of our equity securities. Our future growth will depend upon our ability to raise additional capital. If we were to raise additional capital through the issuance of equity securities, we could dilute the interest of holders of our common stock. The interest of our common stockholders could also be diluted by the issuance of shares of common stock pursuant to stock incentive plans. Accordingly, the Board of Directors may authorize the issuance of equity securities that could dilute, or otherwise adversely affect, the interest of holders of our common stock. We may change our dividend policy and the dividends we pay may be subject to significant volatility. The decision to declare and pay dividends on our common stock in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our Board of Directors and will depend on such factors as the Board of Directors deems relevant. In addition, our Credit Agreement and our Prudential Loan Agreement prohibit the payments of dividends during certain events of default. During 2011 and 2012, the Board of Directors significantly reduced, eliminated and then reinstated at a significantly reduced rate, our quarterly dividend. (See the table of cash dividends declared in 2011 and 2012 in “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities” for additional information.) No assurance can be given that our financial performance in the future will permit our payment of any dividends or that the amount of dividends we pay, if any, will not fluctuate significantly. Under the Maryland General Corporation Law, our ability to pay dividends would be restricted if, after payment of the dividend, (1) we would not be able to pay indebtedness as it becomes due in the usual course of business or (2) our total assets would be less than the sum of our liabilities plus the amount that would be needed, if we were to be dissolved, to satisfy the rights of any shareholders with liquidation preferences. There currently are no shareholders with liquidation preferences. To qualify for taxation as a REIT, we must, among other requirements such as those related to the composition of our assets and gross income, distribute annually to our stockholders at least 90% of our taxable income, including taxable income that is accrued by us without a corresponding receipt of cash. We cannot provide any assurance that our cash flows will permit us to continue paying cash dividends. The Internal Revenue Service (“IRS”) has allowed the use of a procedure, as a result of which we could satisfy the REIT income distribution requirement by making a distribution on our common stock comprised of (i) shares of our common stock having a value of up to 80% of the total distribution and (ii) cash in the remaining amount of the total distribution, in lieu of paying the distribution entirely in cash. In order to use this procedure, we would need to seek and obtain a private letter ruling of the IRS to the effect that the procedure is applicable to our situation. Without obtaining such a private letter ruling, we cannot provide any assurance that we will be able to satisfy our REIT income distribution requirement by making distributions payable in whole or in part in shares of our common stock. It is also possible that instead of distributing 100% of our taxable income on an annual basis, we may decide to retain a portion of our taxable income and to pay taxes on such amounts as permitted by the IRS. In the event that we pay a portion of a dividend in shares of our common stock, taxable U.S. shareholders would be required to pay tax on the entire amount of the dividend, including the portion paid in shares of common stock, in which case such shareholders might have to pay the tax using cash from other sources. If a U.S. shareholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to non-U.S. shareholders, we may be required to withhold U.S. tax with respect to such dividend, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our shareholders sell shares of our common stock in order to pay taxes owed on dividends, such sales would put downward pressure on the market price of our common stock. 16 As a result of the factors described herein and elsewhere in this Annual Report on Form 10-K and those that are described from time to time in our other filings with the SEC., 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, revenues, operating expenses, results of operations, liquidity, ability to pay dividends or our stock price. Changes in market conditions could adversely affect the market price of our publicly traded common stock. As with other publicly traded securities, the market price of our publicly traded common stock depends on various market conditions, which may change from time-to-time. Among the market conditions that may affect the market price of our publicly traded common stock are the following: • • • • • • • our financial condition and performance and that of our significant tenants, the market’s perception of our growth potential and potential future earnings, the reputation of REITs generally and the reputation of REITs with portfolios similar to us, the attractiveness of the securities of REITs in comparison to securities issued by other entities (including securities issued by other real estate companies), an increase in market interest rates, which may lead prospective investors to demand a higher distribution rate in relation to the price paid for publicly traded securities, the extent of institutional investor interest in us, and general economic and financial market conditions. In order to preserve our REIT status, our charter limits the number of shares a person may own, which may discourage a takeover that could result in a premium price for our common stock or otherwise benefit our stockholders. Our charter, with certain exceptions, authorizes our Board of Directors to take such actions as are necessary and desirable to preserve our qualification as a REIT for federal income tax purposes. Unless exempted by our Board of Directors, no person may actually or constructively own more than 5% (by value or number of shares, whichever is more restrictive) of the outstanding shares of our common stock or the outstanding shares of any class or series of our preferred stock, which may inhibit large investors from desiring to purchase our stock. This restriction may have the effect of delaying, deferring, or preventing a change in control, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for our common stock or otherwise be in the best interest of our stockholders. Maryland law may discourage a third-party from acquiring us. We are subject to the provisions of Maryland Business Combination Act (the “Business Combination Act”) which prohibits transactions between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder for 5 (five) years after the most recent date on which the interested stockholder becomes an interested stockholder. Generally, pursuant to the Business Combination Act, an “interested stockholder” is a person who, together with affiliates and associates, beneficially owns, directly or indirectly, 10% or more of a Maryland corporation’s voting stock. These provisions could have the effect of delaying, preventing or deterring a change in control of our company or reducing the price that certain investors might be willing to pay in the future for shares of our capital stock. Additionally, the Maryland Control Share Acquisition Act may deny voting rights to shares involved in an acquisition of one-tenth or more of the voting stock of a Maryland corporation. In our charter and bylaws, we have elected not to have the Maryland Control Share Acquisition Act apply to any acquisition by any person of shares of stock of our Company. However, in the case of the control share acquisition statute, our Board of Directors may opt to make this statute applicable to us at any time by amending our bylaws, and may do so on a retroactive basis. Finally, the “unsolicited takeovers” provisions of the Maryland General Corporation Law permit our Board of Directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain provisions that may have the effect of inhibiting a third-party from making an acquisition proposal for our Company or of delaying, deferring or preventing a change in control of our Company under circumstances that otherwise could provide the holders of our common stocks with the opportunity to realize a premium over the then current market price or that stockholders may otherwise believe is in their best interests. 17 Inflation may adversely affect our financial condition and results of operations. Although inflation has not materially impacted our results of operations in the recent past, increased inflation could have a more pronounced negative impact on any variable rate debt we incur in the future and on our results of operations. During times when inflation is greater than increases in rent, as provided for in our leases, rent increases may not keep up with the rate of inflation. Likewise, even though our triple-net leases reduce our exposure to rising property expenses due to inflation, substantial inflationary pressures and increased costs may have an adverse impact on our tenants if increases in their operating expenses exceed increases in revenue, which may adversely affect the tenants’ ability to pay rent. The loss of certain members of our management team could adversely affect our business. We depend upon the skills and experience of our executive officers. Loss of the services of any of them could have a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. Except for the employment agreement with our President and Chief Executive Officer, David B. Driscoll, we do not have employment agreements with any of our executives. Amendments to the Accounting Standards Codification made by the Financial Accounting Standards Board (the “FASB”) or changes in accounting standards issued by other standard-setting bodies may adversely affect our reported revenues, profitability or financial position. Our financial statements are subject to the application of GAAP in accordance with the Accounting Standards Codification, which is periodically amended by the FASB. The application of GAAP is also subject to varying interpretations over time. Accordingly, we are required to adopt amendments to the Accounting Standards Codification or comply with revised interpretations that are issued from time-to-time by recognized authoritative bodies, including the FASB and the SEC. Those changes could adversely affect our reported revenues, profitability or financial position. Terrorist attacks and other acts of violence or war may affect the market on which our common stock trades, the markets in which we operate, our operations and our results of operations. Terrorist attacks or other acts of violence or war could affect our business or the businesses of our tenants. The consequences of armed conflicts are unpredictable, and we may not be able to foresee events that could have a material adverse effect on us. More generally, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in the United States and worldwide financial markets and economy. Terrorist attacks also could be a factor resulting in, or a continuation of, an economic recession in the United States or abroad. Any of these occurrences could have a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. Item 1B. Unresolved Staff Comments None. Item 2. Properties Nearly all of our properties are leased or sublet to petroleum distributors and retailers engaged in the sale of gasoline and other motor fuel products, convenience store products and automotive repair services who are responsible for the operations conducted at these properties and for the payment of taxes, maintenance, repair, insurance and other operating expenses relating to our properties. In those instances where we determine that the best use for a property is no longer as a retail motor fuel outlet, we will seek an alternative tenant or buyer for the property. As of December 31, 2012, we lease or sublet approximately 20 of our properties for uses such as quick serve restaurants, automobile sales and other retail purposes, excluding approximately 40 properties previously subject to the Master Lease with Marketing which are currently held for sale and which have temporary occupancies. 18 The following table summarizes the geographic distribution of our properties at December 31, 2012. The table also identifies the number and location of properties we lease from third-parties. In addition, we lease 5,800 square feet of office space at 125 Jericho Turnpike, Jericho, New York, which is used for our corporate headquarters, which we believe will remain suitable and adequate for such purposes for the immediate future. OWNED BY GETTY REALTY LEASED BY GETTY REALTY TOTAL PROPERTIES BY STATE New York ........................................................................ Massachusetts.................................................................. New Jersey ...................................................................... Connecticut ..................................................................... Pennsylvania ................................................................... New Hampshire ............................................................... Maryland ......................................................................... Virginia ........................................................................... Rhode Island ................................................................... Texas ............................................................................... Maine .............................................................................. Hawaii ............................................................................. California ........................................................................ Delaware ......................................................................... North Carolina ................................................................. Florida ............................................................................. Ohio................................................................................. Arkansas .......................................................................... Illinois ............................................................................. North Dakota ................................................................... Vermont .......................................................................... Total ......................................................................... 296 150 108 86 96 47 42 27 15 17 12 10 8 8 8 6 4 3 1 1 1 946 61 24 16 18 2 5 2 3 2 — — — 1 1 — — — — — — — 135 357 174 124 104 98 52 44 30 17 17 12 10 9 9 8 6 4 3 1 1 1 1,081 PERCENT OF TOTAL PROPERTIES 33.0% 16.1 11.5 9.6 9.1 4.8 4.1 2.8 1.6 1.6 1.1 0.9 0.8 0.8 0.7 0.5 0.4 0.3 0.1 0.1 0.1 100.0% (1) Includes nine terminal properties which are being marketed for sale owned in New York, New Jersey, Connecticut and Rhode Island. The properties that we lease from third-parties have a remaining lease term, including renewal option terms, averaging over 11 years. The following table sets forth information regarding lease expirations, including renewal and extension option terms, for properties that we lease from third-parties: CALENDAR YEAR 2013 ............................................................................................................. 2014 ............................................................................................................. 2015 ............................................................................................................. 2016 ............................................................................................................. 2017 ............................................................................................................. Subtotal ........................................................................................................ Thereafter ..................................................................................................... Total ............................................................................................................. NUMBER OF LEASES EXPIRING 9 3 7 4 6 29 106 135 PERCENT OF TOTAL LEASED PROPERTIES 6.67 2.22 5.19 2.96 4.44 21.48 78.52 100.00 % PERCENT OF TOTAL PROPERTIES 0.83 0.28 0.65 0.37 0.55 2.68 9.81 12.49% We have rights-of-first refusal to purchase or lease 90 of the properties we lease from third-parties. Approximately 71% of the properties we lease from third-parties are subject to automatic renewal or extension options. For the year ended December 31, 2012 revenues from rental properties in continuing and discontinued operations included $104.8 million of rent contractually due or received with respect to 1,128 average rental properties held during the year or an average annual rent contractually due or received of approximately $93,000 per rental property. For the year ended December 31, 2011 revenues from rental properties in continuing and discontinued operations included $110.4 million of rent contractually due or received with respect to 1,154 average rental properties held during the year or an average annual rent contractually due or received of approximately $96,000 per rental property. The net revenue we are realizing from the properties that were previously subject to the Master Lease is less than the contractual rent we received from Marketing under the Master Lease. 19 Rental unit expirations and the annualized contractual rent as of December 31, 2012 are as follows (in thousands, except for the number of rental units data): CALENDAR YEAR 2013 ....................................................................................................... 2014 ....................................................................................................... 2015 ....................................................................................................... 2016 ....................................................................................................... 2017 ....................................................................................................... 2018 ....................................................................................................... 2019 ....................................................................................................... 2020 ....................................................................................................... 2021 ....................................................................................................... 2022 ....................................................................................................... Thereafter ............................................................................................... Total ....................................................................................................... NUMBER OF RENTAL UNITS EXPIRING (b) 244 29 22 17 35 14 66 39 43 2 576 1,087 $ ANNUALIZED CONTRACTUAL RENT(a) PERCENTAGE OF TOTAL ANNUALIZED RENT 13.7 2.3 0.9 1.7 2.3 2.0 7.0 5.3 4.2 0.2 60.4 100.00% 10,543 1,776 668 1,269 1,742 1,550 5,382 4,076 3,241 147 46,315 76,709 (a) Represents the monthly contractual rent due from tenants under existing leases as of December 31, 2012 multiplied by 12. This amount excludes real estate tax reimbursements which are billed to the tenant when paid. (b) Rental units include properties subdivided into multiple premises with separate tenants. Rental units also include individual properties comprising a single “premises” as such term is defined under a unitary master lease related to such properties. With respect to a unitary master lease that includes properties that we lease from third-parties, the expiration dates for rental units refers to the dates that the leases with the third-parties expire and upon which date our tenant must vacate those properties, not the expiration date of the unitary master lease itself. In the opinion of our management, our owned and leased properties are adequately covered by casualty and liability insurance. In addition, we generally require our tenants to provide insurance for all properties they lease from us, including casualty, liability, pollution legal liability, fire and extended coverage in amounts and on other terms satisfactory to us. We are evaluating potential capital expenditures and funding sources for properties that were previously subject to the Master Lease and which are not currently subject to long-term leases. We have no current plans to make material improvements to any of our properties other than the properties previously subject to the Master Lease with Marketing. However, our tenants frequently make improvements to the properties leased from us at their expense. In certain of our new leases, we have committed to co-invest as much as $14.1 million in capital improvements in our properties. We are not aware of any material liens or encumbrances on any of our properties. During 2012, we sold 54 properties for $15.4 million in the aggregate and as of the date of this filing, in 2013, we have sold an additional 42 properties for $17.5 million in the aggregate, including one terminal. We are continuing our efforts to sell approximately 60 properties that have previously had their underground storage tanks removed and eight petroleum distribution terminals although alternatively we may seek to re-let some of these properties and terminals. With respect to the terminals we own, it may be costly and time consuming for us or potential tenants or buyers to upgrade the terminal facilities to competitive standards within the industry, obtain or renew operating permits and attract customers to store their petroleum products at these locations. With respect to retail properties that are vacant or have had underground storage tanks and related equipment removed, it may be more difficult or costly to re-let or sell such properties as gas stations because of capital costs or possible zoning or permitting rights that are required and that may have lapsed during the period since gasoline was last sold at the property. Conversely, it may be easier to re-let or sell properties where underground storage tanks and related equipment have been removed if the property will not be used as a retail motor fuel outlet or if environmental contamination has been or is being remediated. In accordance with Generally Accepted Accounting Principles, substantially all of these properties have met the criteria to be classified as held for sale. Since the Master Lease was structured as a “triple-net” lease, Marketing (as the lessee) had the responsibility for the maintenance, repair, real estate taxes, insurance and general upkeep of these properties (“Property Expenditures”) during the term of the Master Lease. Marketing failed to meet many of its obligations to undertake the Property Expenditures related to our properties. In addition to having to incur the costs of the Property Expenditures, Marketing did not pay any additional Property Expenditures for the period after termination of the Master Lease. We expect to incur significant costs over a period of years to upgrade the properties to competitive standards within the industry for required renovations, replacement of underground storage tanks and related equipment or environmental remediation, zoning and permitting (“Capital 20 Improvements”). We anticipate incurring significant Property Expenditures and Capital Improvement costs. It is also possible that our estimates for environmental remediation and tank removal expenses relating to these properties will be higher than the Marketing Environmental Liabilities that we have accrued and that issues involved in re-letting or repositioning these properties may require significant management attention that would otherwise be devoted to our ongoing business. Item 3. Legal Proceedings We are engaged in a number of legal proceedings, many of which we consider to be routine and incidental to our business. The following is a description of material legal proceedings, including those involving private parties and governmental authorities under federal, state and local laws regulating the discharge of materials into the environment. We are vigorously defending all of the legal proceedings involving us, including each of the legal proceedings matters listed below. In 1991, the State of New York commenced an action in the Supreme Court, Albany County, against Kingston Oil Supply Corp. (our former heating oil subsidiary), Charles Baccaro and Amos Post, Inc. The action seeks recovery for reimbursement of investigation and remediating costs incurred by the New York Environmental Protection and Spill Compensation Fund, together with interest and statutory penalties under the New York Navigation Law. We answered the complaint on behalf of Kingston Oil Supply Corp. and Amos Post Inc. Thereafter, from approximately 1993 to November 2011, the case remained dormant except for a brief period in 2002 when the State of New York indicated an intention to prosecute the lawsuit. In November 2011, the State of New York recommenced efforts to pursue its claims against us for reimbursement of costs, interest and statutory penalties under the Navigation Law. We are asserting defenses to liability and to damages. In September 2004, the State of New York commenced an action against us, United Gas Corp., Costa Gas Station, Inc., The Ingraham Bedell Corporation, Exxon Mobil Corporation, Shell Oil Company, Shell Oil Products Company, Motiva Enterprises, LLC, and related parties, in New York Supreme Court in Albany County seeking recovery for reimbursement of investigation and remediation costs claimed to have been incurred by the New York Environmental Protection and Spill Compensation Fund relating to contamination it alleges emanated from various retail motor fuel properties located in the same vicinity in Uniondale, N.Y., including a site formerly owned by us and at which a petroleum release and cleanup occurred. The complaint also seeks future costs for remediation, as well as interest and penalties. We have served an answer to the complaint denying responsibility. Discovery in this case is ongoing. In October 2007, we received a demand from the State of New York to pay costs allegedly arising from investigation and remediation of petroleum spills that occurred at a property formerly owned by us and taken by eminent domain by the State of New York in 1991. We responded to the State of New York’s demand and denied responsibility for reimbursement of such costs. In August 2010, the State of New York’s commenced a lawsuit in New York Supreme Court, Albany County against us, Bryant Taconic Corp. and related parties seeking damages under the New York Navigation Law. We have interposed an answer asserting numerous affirmative defenses. Discovery in this case is ongoing. In September 2008, we received a directive and notice of violation from the New Jersey Department of Environmental Protection (“NJDEP”) calling for a remedial investigation and cleanup, to be conducted by us and Gary and Barbara Galliker, individually and trading as Millstone Auto Service, Auto Tech, and other named parties, of petroleum-related contamination found at a retail motor fuel property located in Millstone Township, New Jersey. We did not own or lease this property, but did supply gas to the operator of this property in 1985 and 1986. We responded to the NJDEP, denying liability. In November 2009, the NJDEP issued an Administrative Order and Notice of Civil Administrative Penalty Assessment (the “Order and Assessment”) to us, Marketing and Gary and Barbara Galliker, individually and trading as Millstone Auto Service. We have filed a request for a hearing to contest the allegations of the Order and Assessment, but the date of the hearing has not yet been scheduled. In November 2009, an action was commenced by the State of New York in the Supreme Court, Albany County, seeking the recovery of costs incurred in remediating alleged petroleum contamination down gradient of a gasoline station formerly owned by us, and gasoline stations that were allegedly owned or operated by other named defendants, including M&A Realty, Inc., Gas Land Petroleum, Inc., and Mid-Valley Oil Company. We answered the complaint, denying liability and asserting affirmative defenses and cross claims against co-defendants. We have also tendered the matter to M&A Realty Inc. for defense and indemnification as relates to discharges of petroleum that were reported on or after July 1994 at the site which is the subject of allegations against us. This site was leased by us to M&A Realty Inc. in 1994 and sold to M&A Realty Inc. in 2002. M&A Realty Inc. demanded defense and indemnity from us for contamination at this site as of 1994. The State of New York has also commenced a separate but related action in the Supreme Court, Albany County, against us and M&A Realty, Inc. seeking recovery of costs for clean-up of petroleum contamination at the site of the gas station which is the subject of allegations against us and M&A Realty, Inc. in the first action. We answered the complaint, denying liability and 21 asserting affirmative defenses and cross claims against M&A Realty, Inc. We also tendered the matter to M&A Realty, Inc. for indemnity on the same basis as in the first action, and M&A Realty, Inc. likewise has demanded defense and indemnity from us on the same basis as it put forth in the first action. Discovery in these cases is ongoing. MTBE Litigation During 2010, we were defending 53 lawsuits brought on behalf of private and public water providers and governmental agencies located in Connecticut, Florida, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Vermont, Virginia, and West Virginia. A majority of these cases were among the more than one hundred cases that were transferred from various state and federal courts throughout the country and consolidated in the United States District Court for the Southern District of New York for coordinated Multi-District Litigation (“MDL”) proceedings. The balance of these cases against us were pending in the Supreme Court of New York, Nassau County. All of the cases against us alleged (and, as described below with respect to one remaining case, continue to allege) various theories of liability due to contamination of groundwater with methyl tertiary butyl ether (a fuel derived from methanol, commonly referred to as “MTBE”) as the basis for claims seeking compensatory and punitive damages. The cases named us as a defendant along with approximately fifty petroleum refiners, manufacturers, distributors and retailers of MTBE, or gasoline containing MTBE, including Irving Oil Corporation, Mobil Oil Corporation, Sunoco, Inc., Texaco, Inc., Tosco Corporation, Unocal Corporation, Valero Energy Corporation, Marathon Oil Company, Shell Oil Company, Giant Yorktown, Inc., BP Amoco Chemical Company, Inc., Atlantic Richfield Company, Coastal Oil New England, Inc., Chevron Texaco Corporation, Amerada Hess Corp., Chevron U.S.A., Inc., CITGO Petroleum Corporation, ConocoPhillips Company, Exxon Mobil Corporation, Getty Petroleum Marketing Inc., and Gulf Oil Limited Partnership. During 2010, we reached agreements to settle two plaintiff classes covering 52 of the 53 pending cases. A settlement payment of $1.3 million was made during the third quarter of 2010 covering 27 cases and a settlement payment of $0.5 million was made during the first quarter of 2011 covering 25 cases. Presently we remain a defendant in one MTBE case involving multiple locations throughout the State of New Jersey brought by various governmental agencies of the State of New Jersey, including the NJDEP. This case is still in discovery stages. We have provided a litigation reserve as to this remaining MDL case; however, there remains uncertainty as to the accuracy of the allegations in this MTBE case as they relate to us, our defenses to the claims, and the aggregate possible amount of damages for which we might be held liable. Matters related to our Newark, New Jersey Terminal and the Lower Passaic River In September 2003, we received a directive (the “Directive”) issued by the NJDEP under the New Jersey Spill Compensation and Control Act. The Directive indicated that we are one of approximately 66 potentially responsible parties for alleged Natural Resource Damages (“NRD” or “NRDs”) resulting from the discharges of hazardous substances along the lower Passaic River (the “Lower Passaic River”). Other named recipients of the Directive are 360 North Pastoria Environmental Corporation, Amerada Hess Corporation, American Modern Metals Corporation, Apollo Development and Land Corporation, Ashland Inc., AT&T Corporation, Atlantic Richfield Assessment Company, Bayer Corporation, Benjamin Moore & Company, Bristol Myers-Squibb, Chemical Land Holdings, Inc., Chevron Texaco Corporation, Diamond Alkali Company, Diamond Shamrock Chemicals Company, Diamond Shamrock Corporation, Dilorenzo Properties Company, Dilorenzo Properties, L.P., Drum Service of Newark, Inc., E.I. Dupont De Nemours and Company, Eastman Kodak Company, Elf Sanofi, S.A., Fine Organics Corporation, Franklin-Burlington Plastics, Inc., Franklin Plastics Corporation, Freedom Chemical Company, H.D. Acquisition Corporation, Hexcel Corporation, Hilton Davis Chemical Company, Kearny Industrial Associates, L.P., Lucent Technologies, Inc., Marshall Clark Manufacturing Corporation, Maxus Energy Corporation, Monsanto Company, Motor Carrier Services Corporation, Nappwood Land Corporation, Noveon Hilton Davis Inc., Occidental Chemical Corporation, Occidental Electro-Chemicals Corporation, Occidental Petroleum Corporation, Oxy- Diamond Alkali Corporation, Pitt-Consol Chemical Company, Plastics Manufacturing Corporation, PMC Global Inc., Propane Power Corporation, Public Service Electric & Gas Company, Public Service Enterprise Group, Inc., Purdue Pharma Technologies, Inc., RTC Properties, Inc., S&A Realty Corporation, Safety-Kleen Envirosystems Company, Sanofi S.A., SDI Divestiture Corporation, Sherwin Williams Company, SmithKline Beecham Corporation, Spartech Corporation, Stanley Works Corporation, Sterling Winthrop, Inc., STWB Inc., Texaco Inc., Texaco Refining and Marketing Inc., Thomasset Colors, Inc., Tierra Solution, Incorporated, Tierra Solutions, Inc., and Wilson Five Corporation. The Directive provided, among other things, that the recipients thereof must conduct an assessment of the natural resources that have been injured by the discharges into the Lower Passaic River and must implement interim compensatory restoration for the injured natural resources. NJDEP alleges that our liability arises from alleged discharges originating from our Newark, New Jersey Terminal site. We responded to the Directive by asserting that we were not liable. There has been no material activity and/or communications by NJDEP with respect to the Directive since early after its issuance. 22 Effective May 2007, the United States Environmental Protection Agency (“EPA”) entered into an Administrative Settlement Agreement and Order on Consent (“AOC”) with over 70 parties comprising a Cooperating Parties Group (“CPG”) (many of whom are also named in the Directive) who have collectively agreed to perform a Remedial Investigation and Feasibility Study (“RI/FS”) for the Lower Passaic River. We are a party to the AOC and are a member of the CPG. The RI/FS is intended to address the investigation and evaluation of alternative remedial actions with respect to alleged damages to the Lower Passaic River, and is scheduled to be completed in or about 2015. In connection with the RI/FS work, the CPG has sampled river sediments at river mile 10.9. Subsequently, all members of the CPG except Occidental Chemical Corporation (“Occidental”) entered into an Administrative Settlement Agreement and Order on Consent (“10.9 AOC”) effective June 18, 2012 to perform certain remediation activities, including removal and capping of sediments at the river mile 10.9 area and certain testing. Similar to the RI/FS work, the CPG entered into an interim allocation for the costs of the river mile 10.9 work. EPA issued a Unilateral Order to Occidental directing Occidental to participate and contribute to the cost of the river mile 10.9 work and discussions regarding Occidental’s participation in the river mile 10.9 work are ongoing. Concurrently, the EPA is preparing a proposed Focused Feasibility Study (“FFS”) that the EPA claims will address sediment issues in the lower eight miles of the Lower Passaic River. Based on the results of such sampling, the EPA may require interim remediation activities at river mile 10.9 prior to the completion of the RI/FS, although the scope and allocation of costs for such activities is not known at this time. The RI/FS and 10.9 AOC do not resolve liability issues for remedial work or restoration of, or compensation for, natural resource damages to the Lower Passaic River, which are not known at this time. As to such matters, separate proceedings or activities are currently ongoing. In a related action, in December 2005, the State of New Jersey through various state agencies brought suit in the Superior Court of New Jersey, Law Division, against certain parties to the Directive, Occidental Chemical Corporation, Tierra Solutions, Inc., Maxus Energy Corporation and related entities which the State of New Jersey alleges are responsible for various categories of past and future damages resulting from discharges of hazardous substances to the Passaic River by a manufacturing facility located on Lister Avenue in Newark, NJ. In February 2009, certain of these defendants filed third- party complaints against approximately 300 additional parties, including us and other members of the CPG, seeking contribution for such parties’ proportionate share of response costs, cleanup and removal costs, and other damages, based on their relative contribution to pollution of the Passaic River and adjacent bodies of water. We have answered the complaint, denying responsibility for any discharges of hazardous substances released into the Passaic River. The litigation is still in a pre-trial stage with a significant amount of discovery remaining, particularly as to third-parties. We have made a demand upon Chevron/Texaco for indemnity under certain agreements between us and Chevron/Texaco that allocate environmental liabilities for the Newark Terminal site between the parties. In response, Chevron/Texaco has asserted that the proceedings and claims are still not yet developed enough to determine the extent to which indemnities apply. We are engaged in discussions with Chevron/Texaco regarding our demands for indemnification, and, to facilitate said discussions, in October 2009 entered into a Tolling/Standstill Agreement which tolls all claims by and among Chevron/Texaco and us that relate to the various Lower Passaic River matters from May 8, 2007, until either party terminates such Tolling/Standstill Agreement. Our ultimate liability, if any, in the pending and possible future proceedings pertaining to the Lower Passaic River is uncertain and subject to numerous contingencies which cannot be predicted and the outcome of which are not yet known. Item 4. Mine Safety Disclosures None. 23 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity PART II Securities Capital Stock Our common stock is traded on the New York Stock Exchange (symbol: “GTY”). There were approximately 18,600 beneficial holders of our common stock as of March 18, 2013, of which approximately 1,200 were holders of record. The price range of our common stock and cash dividends declared with respect to each share of common stock during the years ended December 31, 2012 and 2011 was as follows: QUARTER ENDED March 31, 2011 ....................................................................................................... $ June 30, 2011 .......................................................................................................... September 30, 2011 ................................................................................................ December 31, 2011 ................................................................................................. March 31, 2012 ....................................................................................................... June 30, 2012 .......................................................................................................... September 30, 2012 ................................................................................................ December 31, 2012 ................................................................................................. PRICE RANGE HIGH LOW CASH DIVIDENDS PER SHARE 31.89 $ 26.47 26.33 16.74 18.06 19.41 19.94 18.88 21.01 $ 22.75 14.42 12.22 13.62 15.02 17.28 15.65 .4800 .4800 .2500 .2500 — .1250 .1250 .1250 For a discussion of potential limitations on our ability to pay future dividends see “Item 1A. Risk Factors – We may change our dividend policy and the dividends we pay may be subject to significant volatility,” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”. Issuer Purchases of Equity Securities None. Sales of Unregistered Securities None. 24 Comparison of Five-Year Cumulative Return* Getty Realty Corp. Standard & Poors 500 Peer Group $107.31 $100.71 $79.67 $87.48 $75.15 $63.00 $161.18 $108.58 $95.67 $150.34 $130.02 $138.35 $91.67 $93.60 $72.37 Stock Performance Graph $200.00 $150.00 $100.00 $100.00 $50.00 $0.00 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 Getty Realty Corp. .......................................... Standard & Poors 500 ..................................... Peer Group ...................................................... 12/31/2007 100.00 100.00 100.00 12/31/2008 87.48 63.00 75.15 12/31/2009 107.31 79.67 100.71 12/31/2010 150.34 91.67 130.02 12/31/2011 72.37 93.60 138.35 12/31/2012 95.67 108.58 161.18 Assumes $100 invested at the close of the last day of trading on the New York Stock Exchange on December 31, 2007 in Getty Realty Corp. common stock, Standard & Poors 500, and Peer Group. * Cumulative total return assumes reinvestment of dividends. We have chosen as our Peer Group the following companies: National Retail Properties, Entertainment Properties Trust, Realty Income Corp. and Hospitality Properties Trust. We have chosen these companies as our Peer Group because a substantial segment of each of their businesses is owning and leasing commercial properties. We cannot assure you that our stock performance will continue in the future with the same or similar trends depicted in the graph above. We do not make or endorse any predictions as to future stock performance. This performance graph and related information shall not be deemed filed for the purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section and shall not be deemed to be incorporated by reference into any filing that we make under the Securities Act or the Exchange Act. 25 Item 6. Selected Financial Data GETTY REALTY CORP. AND SUBSIDIARIES SELECTED FINANCIAL DATA (in thousands, except per share amounts and number of properties) OPERATING DATA: Total Revenues ............................................................... $ 102,168 Earnings from continuing operations .............................. Earnings (loss) from discontinued operations................. Net earnings .................................................................... Diluted earnings per common share: 13,808(c) (1,361) 12,447 2012 Earnings from continuing operations ................... Net earnings ......................................................... Diluted weighted-average common shares outstanding .. Cash dividends declared per share .................................. FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATION (e): Net earnings .................................................................... Depreciation and amortization of real estate assets ........ Gains on dispositions of real estate ................................ Impairment charges ........................................................ Funds from operations .................................................... Revenue Recognition Adjustments ................................. Allowance for deferred rental revenue ........................... Acquisition costs ............................................................ Adjusted funds from operations ...................................... BALANCE SHEET DATA (AT END OF YEAR): Real estate before accumulated depreciation and 0.41 0.37 33,395 0.375 12,447 13,700 (6,866) 13,942 33,223 (4,433) — — 28,790 amortization ............................................................. $ 562,316 640,581 172,320 372,749 Total assets ..................................................................... Debt ................................................................................ Shareholders’ equity ....................................................... NUMBER OF PROPERTIES: Owned ............................................................................ Leased ............................................................................. Total properties ............................................................... FOR THE YEARS ENDED DECEMBER 31, 2009(b) 2011(a) 2010 $ 102,921 $ 9,424(d) 3,032 12,456 0.27 0.37 33,172 1.46 12,456 10,336 (968) 20,226 42,050 (1,163) 19,758 2,034 62,679 78,360 $ 74,326 $ 40,867 10,833 51,700 33,810 13,239 47,049 1.46 1.84 27,953 1.91 1.37 1.89 24,767 1.89 51,700 9,738 (1,705) — 59,733 (1,487) — — 58,246 47,049 11,027 (5,467) 1,135 53,744 (2,065) — — 51,679 2008 70,603 30,993 10,817 41,810 1.25 1.68 24,767 1.87 41,810 11,875 (2,787) — 50,898 (2,593) — — 48,305 $ 615,854 635,089 170,510 372,169 $ 504,587 $ 503,874 $ 473,567 387,813 130,250 205,897 423,178 428,990 64,890 175,570 314,935 207,669 946 135 1,081 996 153 1,149 907 145 1,052 910 161 1,071 878 182 1,060 (a) (b) (c) (d) (e) Includes (from the respective dates 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. 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. Includes the effect of a $13.5 million accounts receivable reserve and the effect of a $6.3 million impairment charge, which are included in earnings from continuing operations primarily related to certain properties previously leased to Marketing under the Master Lease. (For additional information regarding Marketing and the Master Lease, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation – General – Marketing and the Master Lease”.) Includes the effect of a $19.3 million non-cash deferred rent receivable reserve, the effect of a $7.6 million accounts receivable reserve, and the effect of a $15.9 million impairment charge, which are included in earnings from continuing operations primarily related to certain properties previously leased to Marketing under the Master Lease. (For additional information regarding Marketing and the Master Lease, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations –General – Marketing and the Master Lease”.) 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 26 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. 27 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the “Cautionary Note Regarding Forward- Looking Statements”; the sections in Part II entitled “Item 1A. Risk Factors”; the selected financial data in “Item 6. Selected Financial Data”; and the consolidated financial statements and related notes in “Item 8. Financial Statements and Supplementary Data”. GENERAL Real Estate Investment Trust We are a real estate investment trust (“REIT”) specializing in the ownership, leasing and financing of gas stations, convenience stores, automotive repair service facilities and petroleum distribution terminals. As of December 31, 2012, we owned 946 properties and leased from third parties 135 properties. 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 90% of our ordinary taxable income to our shareholders each year. Retail Petroleum Marketing Business Our business model is to lease our properties on a triple-net basis primarily to petroleum distributors and to a lesser extent to individual operators. Our tenants operate our properties directly or sublet our properties to operators who operate their gas stations, convenience stores, automotive repair service facilities or other businesses at our properties. These tenants are responsible for the operations conducted at these properties. Our triple-net tenants are generally responsible for the payment of all taxes, maintenance, repairs, insurance and other operating expenses relating to our properties. Substantially all of our tenants’ financial results depend on the sale of refined petroleum products and rental income from their subtenants. As a result, our tenants’ financial results are highly dependent on the performance of the petroleum marketing industry, which is highly competitive and subject to volatility. In those instances where we determine that the best use for a property is no longer as a gas station, we will seek an alternative tenant or buyer for the property. As of December 31, 2012, approximately 20 of our properties are leased for uses such as quick serve restaurants, automobile sales and other retail purposes, excluding approximately 40 properties previously subject to the Master Lease with Marketing which are currently held for sale and which have temporary occupancies. (For additional information regarding our real estate business and our properties, see “Item 1. Business — Real Estate Business” and “Item 2. Properties”.) (For information regarding factors that could adversely affect us relating to our lessees, see “Part II, Item 1A. Risk Factors.) Repositioning the Marketing Portfolio More than 700 of the properties we own or lease as of December 31, 2012 were previously leased to Getty Petroleum Marketing Inc. (“Marketing”) comprising a unitary premises pursuant to a master lease (the “Master Lease”) and we derived a majority of our revenues from the leasing of these properties under the Master Lease. On December 5, 2011, Marketing filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). Marketing rejected the Master Lease pursuant to an Order issued by the Bankruptcy Court effective April 30, 2012. Our efforts to reposition the Master Lease portfolio to date have resulted in the following:  Long-Term Triple-Net Leases. During the fourth quarter of 2012, we entered into four triple-net lease agreements covering 161 operating properties with affiliates of Capital Petroleum Group, Lehigh Gas Partners, Global Partners and BP North America. The properties subject to the leases are located in New York City and the surrounding New York and New Jersey metropolitan areas. The leases have 15 year initial terms with provisions for renewal terms and annual rent escalations. During 2012, we entered into ten long-term triple-net unitary leases re-letting, in the aggregate, 443 operating properties previously leased to Marketing. We entered into six of these leases covering 282 properties in the second quarter of 2012 and four of these leases covering 161 properties in the fourth quarter of 2012. While we anticipate that we may ultimately enter into additional triple-net leases on smaller portfolios in 2013, we believe we have now completed all of the significant portfolio leases related to the repositioning of the portfolio of properties previously leased to Marketing. 28  Remaining Operating Properties. Approximately 155 properties previously leased to Marketing and operating as gas stations are subject to month-to-month license agreements and interim fuel supply arrangements. We receive monthly occupancy payments directly from the licensee-operators while we remain responsible for certain costs associated with the properties. These month-to-month license agreements allow the licensees to occupy and use the properties as gas stations, convenience stores or automotive repair service facilities, and require the licensee-operators to sell fuel provided exclusively by Global Partners, with whom we have contracted for interim fuel supply. Under our agreement with Global, Global is the exclusive supplier of fuel to these licensee operators and is required to pay us a fee based in part on gallons sold and we pay to Global a monthly administrative service fee. Our month-to-month license agreements differ from our triple- net lease arrangements in that, among other things, we are responsible for the payment of certain environmental compliance costs and property operating expenses including maintenance and real estate taxes. During the next 12 months, we intend to reposition these properties in order to maximize their value to us taking into account each property’s intermediate and long-term investment requirements and potential. As a result of this process, we expect that we may dispose of or lease these remaining properties, either individually or in small portfolios. We also may make investments in certain of these properties in anticipation of leasing them or by contribution to capital expenditures required to be made by our tenants. We cannot predict the timing or the terms of any future sales or leases.  Property Dispositions. For the year ended December 31, 2012 we sold, for $15.4 million in aggregate, 54 properties previously leased to Marketing which had their underground storage tanks removed by Marketing. As of the date of this Annual Report on Form 10-K, in 2013, we have sold an additional 42 properties for $17.5 million, including one terminal. We continue a process of selling substantially all of the remaining approximately 60 properties with underground storage tanks removed and eight terminals we own; however, the timing of pending transactions may be affected by factors beyond our control and we cannot predict the timing or terms of any future dispositions or leases. In accordance with GAAP, substantially all of these properties have met the criteria to be classified as held for sale. We are generating less net revenue from the leasing of properties that were previously subject to the Master Lease than the contractual rent historically due from Marketing under the Master Lease. We expect that following the completion of the repositioning process, we will continue to generate less net revenue from these properties than previously received from Marketing under the Master Lease. In 2012, we commenced paying operating expenses such as maintenance, repairs, real estate taxes, insurance and general upkeep related to these properties (“Property Expenditures”) and certain environmental related liabilities and expenses which Marketing was responsible to pay for (the “Marketing Environmental Liabilities”). Subject to various site- specific factors, we expect to continue to pay for varying types of Property Expenditures, and capital improvements, including replacing underground storage tanks and related equipment or other renovations (“Capital Improvements”), and Marketing Environmental Liabilities over a period of years relating to the properties previously subject to the Master Lease. In addition, we increased our number of tenants significantly and are performing property related functions previously performed by Marketing, both of which have resulted in permanent increases in our annual operating expenses. Costs involved with re-letting or repositioning properties formerly leased to Marketing and pursuit of our claims in connection with Marketing’s bankruptcy resulted in temporary increases to our 2012 operating expenses. We incurred significant costs associated with Marketing’s bankruptcy, including $3.9 million in legal and litigation expenses incurred for the year ended December 31, 2012, of which $2.6 million is included in general and administrative expense and $1.3 million has been recorded as a receivable as reimbursable to us pursuant to the Litigation Funding Agreement (defined below). We expect certain costs, including repositioning costs and legal and litigation costs, to remain elevated in 2013. We, or our tenants, have commenced eviction proceedings involving approximately 40 of our properties in various jurisdictions against Marketing’s former subtenants (or sub-subtenants) who have not vacated our properties and most of whom have not accepted license agreements with us or have not entered into new agreements with our distributor tenants and therefore occupy our properties without right. We are incurring significant costs, primarily legal expenses, in connection with such proceedings. 29 Marketing and the Master Lease As described above, on December 5, 2011, Marketing filed for Chapter 11 bankruptcy protection in the Bankruptcy Court. On March 7, 2012, we entered into a stipulation with Marketing and with the Official Committee of Unsecured Creditors in the Bankruptcy proceedings (the “Creditors Committee”), which was approved and made an Order by the Bankruptcy Court on April 2, 2012 (the “Stipulation”). Pursuant to the terms of the Stipulation, in addition to our other pre- petition and post-petition claims, we are entitled to recover an administrative claim capped at $10.5 million for the partial payment of fixed rent and performance of other obligations due from Marketing under the Master Lease from December 5, 2011 until possession of the properties subject to the Master Lease was returned to us effective April 30, 2012 (the “Administrative Claim”). Our Administrative Claim has priority over the claims of other creditors and certain of our other claims. As of the date of this filing on Form 10-K, the outstanding unpaid principal amount of our Administrative Claim is $7.4 million. The Bankruptcy Court has appointed a liquidating trustee (the “Liquidating Trustee”) to oversee the liquidation of the Marketing estate (the “Marketing Estate”). The Liquidating Trustee continues to oversee the Marketing Estate and pursue claims for the benefit of its creditors, including those related to the recovery of various deposits, including surety bonds, insurance policy claims and claims made to state funded tank reimbursement programs. We received distributions reducing our Administrative Claim of $1.3 million in the third and fourth quarters of 2012 and $1.7 million in the first quarter of 2013, from the Marketing Estate. As a result, in 2012, we reversed portions of our bad debt reserve for uncollectible amounts due from Marketing and reduced bad debt expense included in general and administrative expenses on our consolidated statement of income. We cannot provide any assurance that we will ultimately collect any additional claims against or unpaid amounts due from the Marketing Estate pursuant to the Plan of Liquidation, or otherwise. In December 2011, the Marketing Estate filed a lawsuit against Marketing’s former parent, Lukoil Americas Corporation, and certain of its affiliates (collectively, “Lukoil”), as well as the former directors and officers of Marketing (the “Lukoil Complaint”). The Lukoil Complaint asserts, among other claims, that Marketing’s sale of assets to Lukoil in November 2009 constituted a fraudulent conveyance, and that the assets or their value can be recovered from Lukoil. In addition, the Lukoil Complaint asserts that the former directors and officers violated their fiduciary duties to Marketing in approving and effectuating the challenged sale, and are liable for money damages. The Liquidating Trustee is pursuing these claims for the benefit of the Marketing Estate. It is possible that the Liquidating Trustee will obtain a favorable judgment or will settle with the defendants, and therefore it is possible that we may ultimately recover a portion of our claims against Marketing, including our Administrative Claim, which has priority over most other creditors’ claims, and our additional pre- petition and post-petition claims. In October 2012, we entered into an agreement with the Marketing Estate to make loans and otherwise fund up to an aggregate amount of $6.4 million to fund the prosecution of the Lukoil Complaint and certain Liquidating Trustee expenses incurred in connection with the wind-down of the Marketing Estate (the “Litigation Funding Agreement”). This agreement provides that we are entitled to receive proceeds, if any, from the successful prosecution of the Lukoil Complaint in an amount equal to the sum of (i) all funds advanced for wind-down costs and expert witness and consultant fees plus interest accruing at 15% per annum on such advances made by us; plus (ii) the greater of all funds advanced for legal fees and expenses relating to the prosecution of the Lukoil Complaint plus interest accruing at 15% per annum on such advances made by us, or 24% of the gross proceeds from any settlement or favorable judgment obtained by the Liquidating Trustee due to the Lukoil Complaint. It is possible that we may agree to advance amounts in excess of $6.4 million. We advanced $1.7 million in the fourth quarter of 2012 and $0.1 million in the first quarter of 2013 to the Marketing Estate pursuant to the Litigation Funding Agreement. The Litigation Funding Agreement also provides that we are entitled to be reimbursed for up to $1.3 million of our legal fees in connection with the Litigation Funding Agreement. Based on the terms of the agreement, we have recorded a receivable of $3.0 million as of December 31, 2012, which includes amounts advanced and amounts due for reimbursable legal fees we incurred in connection with the Lukoil Litigation Agreement. Payments that we receive pursuant to the Litigation Funding Agreement will not reduce our Administrative Claim or our other pre-petition and post- petition claims against Marketing. A portion of the payments we receive pursuant to the Litigation Funding Agreement may be subject to federal income taxes. We cannot provide any assurance that we will be repaid any amounts we advance pursuant to the Litigation Funding Agreement or the reimbursable legal fees we have incurred. Under the Master Lease, Marketing was responsible to pay for certain environmental related liabilities and expenses. As a result of Marketing’s bankruptcy filing, we have accrued for the Marketing Environmental Liabilities and commenced funding remediation activities during the second quarter of 2012 related to such accruals. We do not expect to be reimbursed by Marketing for any such remediation activities except as a result of realizing a claim deriving from the Lukoil Complaint. We expect to continue to incur and fund costs associated with the Marketing bankruptcy proceedings and associated eviction proceedings as well as costs associated with repositioning properties previously leased to Marketing. We incurred $3.1 30 million of lease origination costs in 2012, which deferred expense is recognized on a straight-line basis as a reduction of revenues from rental properties over the terms of the various leases. We expect to continue to incur operating expenses such as maintenance, repairs, real estate taxes, insurance and general upkeep related to these properties for vacant properties and properties subject to our month-to-month license agreements. In certain of our new leases, we have also agreed to co-invest as much as $14.1 million with our tenants to fund capital improvements including replacing underground storage tanks and related equipment or renovating some of the properties previously leased to Marketing. It is possible that our estimates for the Marketing Environmental Liabilities and other expenses relating to the properties previously leased to Marketing will be higher than the amounts we have accrued and that issues involved in re- letting or repositioning these properties may require significant management attention that would otherwise be devoted to our ongoing business. In addition, we increased our number of tenants significantly and are performing property related functions previously performed by Marketing, both of which have resulted in permanent increases in our annual operating expenses. The incurrence of these various expenses may materially negatively impact our cash flow and ability to pay dividends. Our estimates, judgments, assumptions and beliefs regarding Marketing and the Master Lease affect the amounts reported in our financial statements and are subject to change. Actual results could differ from these estimates, judgments and assumptions and such differences could be material. If our actual expenditures for the Marketing Environmental Liabilities are greater than the amounts accrued, if we incur significant costs and operating expenses relating to the properties comprising the Master Lease portfolio; if the repositioning of the properties comprising the Master Lease portfolio leads to a protracted and expensive process for taking control and or re-letting our properties; if re-letting the properties comprising the Master Lease portfolio requires significant management attention that would otherwise be devoted to our ongoing business; if the Bankruptcy Court takes actions that are detrimental to our interests; if we are unable to re-let or sell the properties comprising the Master Lease portfolio at all or upon terms that are favorable to us; or if we change our estimates, judgments, assumptions and beliefs; our business, financial condition, revenues, operating expenses, results of operations, liquidity, ability to pay dividends and stock price may continue to be materially adversely affected or adversely affected to a greater extent than we have experienced. (For information regarding factors that could adversely affect us relating to our lessees, including Marketing, see “Part II, Item 1A. Risk Factors.”) Asset Impairment We perform an impairment analysis for the carrying amount of our properties in accordance with GAAP when indicators of impairment exist. During the years ended December 31, 2012 and 2011, we reduced the carrying amount to fair value, and recorded in continuing and discontinued operations, non-cash impairment charges aggregating $13.9 million and $20.2 million, respectively, where the carrying amount of the property exceeded the estimated undiscounted cash flows expected to be received during the assumed holding period and the estimated net sales value expected to be received at disposition. The non-cash impairment charges for the year ended December 31, 2012 were attributable to reductions in estimated selling prices and increases in the carrying value for certain properties in conjunction with recording environmental remediation obligations and related environmental asset retirement costs. The non-cash impairment charges for the year ended December 31, 2011 were attributable to recording the Marketing Environmental Liabilities in the fourth quarter of 2011, reductions in real estate valuations and reductions in the assumed holding period used to test for impairment and reductions in estimated selling prices. Supplemental Non-GAAP Measures 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 90% of our ordinary taxable income each year. 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 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. In accordance with the National Association of Real Estate Investment Trusts’ modified guidance for reporting FFO, we have restated reporting of FFO for all periods presented 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. Beginning in 2011, we revised our definition of AFFO to exclude direct expensed costs related to property acquisitions and other unusual or infrequently occurring items. 31 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 and 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 the “Revenue Recognition Adjustments” comprised 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 our recognition of revenues from rental properties, as offset by the impact of related collection reserves. GAAP net earnings and FFO from time to time may also include property acquisition costs or other unusual or infrequently recurring 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 average) basis rather than when 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. Property acquisition costs are expensed, generally in the period when properties are acquired, and are not reflective of normal operations. Other unusual or infrequently occurring items are not reflective of normal operations. Management pays particular attention to AFFO, a supplemental non-GAAP performance measure that we define as FFO less Revenue Recognition Adjustments, property 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, net of related collection reserves; (ii) the rental revenue earned from acquired in-place leases; (iii) the impact of rent due from direct financing leases; (iv) our operating expenses (exclusive of direct expensed operating property acquisition costs); and (v) 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. For a reconciliation of FFO and AFFO, see “Item 6. Selected Financial Data”. 2012, 2011 and 2010 Acquisitions In 2012, we acquired fee or leasehold title to five gasoline station and convenience store properties in separate transactions for an aggregate purchase price of $5.2 million. On January 13, 2011, we acquired fee or leasehold title to 59 Mobil-branded gasoline station and convenience store properties and also took a security interest in six other Mobil-branded gasoline stations and convenience store properties in a sale/leaseback and loan transaction with CPD NY Energy Corp. (“CPD NY”), a subsidiary of Chestnut Petroleum Dist. Inc. Our total investment in the transaction was $111.6 million including acquisition costs, which was financed entirely with borrowings under our revolving credit facility. The properties were acquired or financed in a simultaneous transaction among ExxonMobil, CPD NY and us whereby CPD NY acquired a portfolio of 65 gasoline station and convenience stores from ExxonMobil and simultaneously completed a sale/leaseback of 59 of the acquired properties and leasehold interests with us. The lease between us, as lessor, and CPD NY, as lessee, governing the properties is a unitary triple-net lease agreement (the “CPD Lease”), with an initial term of 15 years, and options for up to three successive renewal terms of ten years each. The CPD Lease requires CPD NY to pay a fixed annual rent for the properties (the “Rent”), plus an amount equal to all rent due to third party landlords pursuant to the terms of third party leases. The Rent is scheduled to increase on the third anniversary of the date of the CPD Lease and on every third anniversary thereafter. As a triple-net lessee, CPD NY is required to pay all amounts pertaining to the properties subject to the CPD Lease, including taxes, assessments, licenses and permit fees, charges for public utilities and all governmental charges. Partial funding to CPD NY for the transaction was also provided by us under a secured, self- amortizing loan having a 10-year term (the “CPD Loan”). On March 31, 2011, we acquired fee or leasehold title to 66 Shell-branded gasoline station and convenience store properties in a sale/leaseback transaction with Nouria Energy Ventures I, LLC (“Nouria”), a subsidiary of Nouria Energy Group. Our total investment in the transaction was $87.0 million including acquisition costs, which was financed entirely with borrowings under our revolving credit facility. The properties were acquired in a simultaneous transaction among Motiva Enterprises LLC (“Shell”), Nouria and us whereby Nouria acquired a portfolio of 66 gasoline station and convenience stores from Shell and simultaneously completed a sale/leaseback of the 66 acquired properties and leasehold interests with us. The lease between us, as lessor, and Nouria, as lessee, governing the properties is a unitary triple-net lease agreement (the “Nouria Lease”), with an initial term of 20 years, 32 and options for up to two successive renewal terms of ten years each followed by one final renewal term of five years. The Nouria Lease requires Nouria to pay a fixed annual rent for the properties (the “Rent”), plus an amount equal to all rent due to third party landlords pursuant to the terms of third party leases. The Rent is scheduled to increase on every annual anniversary of the date of the Nouria Lease. As a triple-net lessee, Nouria is required to pay all amounts pertaining to the properties subject to the Nouria Lease, including taxes, assessments, licenses and permit fees, charges for public utilities and all governmental charges. In 2010, we purchased three gasoline station and convenience store properties in separate transactions for an aggregate purchase price of $3.6 million. RESULTS OF OPERATIONS Year ended December 31, 2012 compared to year ended December 31, 2011 Revenues from rental properties included in continuing operations decreased by $1.0 million to $99.3 million for the year ended December 31, 2012, as compared to $100.3 million for the year ended December 31, 2011. Revenues from rental properties include approximately $73.0 million and $45.5 million for the year ended December 31, 2012 and December 31, 2011, respectively, in rent contractually due or received from tenants other than Marketing including rent for May 2012 through December 2012 related to properties repositioned from the Master Lease. Revenues from rental properties included in continuing operations for the year ended December 31, 2012 include approximately $20.1 million and, for the year ended December 31, 2011, $52.6 million in rent contractually due or received from Marketing under the Master Lease (for which bad debt reserves of $11.5 million and $7.3 million were provided and are included in general and administrative expenses in our consolidated statement of operations for the years ended December 31, 2012 and 2011, respectively). The decrease in revenues from rental properties for the year ended December 31, 2012 was primarily due to the fact that we are generating less net revenue from the leasing of properties that were previously subject to the Master Lease than the contractual rent historically due from Marketing under the Master Lease. The decrease in revenues from rental properties was partially offset by rental income from properties we acquired from, and leased back to, Nouria Energy Ventures I, LLC (“Nouria”) in March 2011 and an increase in the real estate taxes we paid and billed to Marketing through April 30, 2012, the date the Master Lease was rejected, and from other tenants pursuant to triple-net leases thereafter. As a result of Marketing’s bankruptcy filing, beginning in the first quarter of 2012, we began paying past due real estate taxes for 2011 and 2012, which taxes Marketing historically paid directly. Revenues from rental properties and rental property expense included $11.3 million for the year ended December 31, 2012 as compared to $6.6 million for the year ended December 31, 2011 for real estate taxes paid by us which were due from Marketing through the date the Master Lease was rejected as well as from other tenants who are contractually obligated to reimburse us for the payment of real estate taxes pursuant to the terms of triple-net lease agreements. The decrease in rent contractually due or received from Marketing and other tenants for the year ended December 31, 2012 was also due, to a lesser extent, the effect of dispositions and lease expirations partially offset by rent escalations. In accordance with GAAP, we recognize rental revenue in amounts which vary from the amount of rent contractually due or received during the periods presented. As a result, revenues from rental properties include Revenue Recognition Adjustments comprised of non-cash adjustments recorded for deferred rental revenue due to the recognition of rental income on a straight-line basis over the current lease term, net amortization of above-market and below-market leases and recognition of rental income under direct financing leases using the effective interest rate method which produces a constant periodic rate of return on the net investments in the leased properties. Rental revenue includes Revenue Recognition Adjustments which increased rental revenue by $4.4 million for the year ended December 31, 2012 and $2.1 million for the year ended December 31, 2011. Interest income from notes and mortgages receivable increased by $0.2 million to $2.9 million for the year ended December 31, 2012 as compared to $2.7 million the year ended December 31, 2011 due to the issuance of $4.6 million of mortgage notes in connection with 2012 property dispositions. Rental property expenses included in continuing operations, which are primarily comprised of rent expense and real estate and other state and local taxes, were $30.2 million for the year ended December 31, 2012 as compared to $16.0 million for the year ended December 31, 2011. The increase in rental property expenses is principally due to additional maintenance expense and real estate tax expenses paid by us and reimbursable by our tenants related to properties and leasehold interests acquired in 2011 and real estate taxes historically paid by Marketing directly, which taxes we began paying in the first quarter of 2012. The reimbursement of real estate taxes from our tenants is included in revenues from rental properties in our consolidated statement of operations. We provide bad debt reserves for the taxes reimbursable from Marketing since do not expect to receive payment of taxes from the Marketing Estate. 33 Non-cash impairment charges of $6.3 million are included in continuing operations for the year ended December 31, 2012 as compared to $15.9 million recorded for the year ended December 31, 2011. Impairment charges are incurred when the carrying value of a property is reduced to fair value. The non-cash impairment charges for the year ended December 31, 2012 were attributable to reductions in estimated selling prices and increases in the carrying value for certain properties in conjunction with recording environmental remediation obligations and related environmental asset retirement costs. The non- cash impairment charges for the year ended December 31, 2011 were attributable to recording the Marketing Environmental Liabilities in the fourth quarter of 2011, reductions in real estate valuations and reductions in the assumed holding period used to test for impairment and reductions in estimated selling prices. Environmental expenses included in continuing operations for the year ended December 31, 2012 decreased by $4.8 million, to $0.8 million, as compared to $5.6 million for the year ended December 31, 2011. The decrease in environmental expenses for the year ended December 31, 2012 was due to a lower provision for litigation loss reserves and legal fees, which decreased by $2.6 million for 2012, and a lower provision for estimated environmental remediation obligations, which decreased by an aggregate $2.6 million to a credit of $0.3 million for the year ended December 31, 2012, as compared to $2.3 million for the year ended December 31, 2011, partially offset by a $0.5 million increase in professional fees. Environmental expenses vary from period to period and, accordingly, undue reliance should not be placed on the magnitude or the direction of change in reported environmental expenses for one period as compared to prior periods. General and administrative expenses included in continuing operations increased by $7.0 million to $29.1 million for the year ended December 31, 2012 as compared to $22.1 million recorded for the year ended December 31, 2011. The increase in general and administrative expenses was principally due to an increase of $5.9 million of reserve for bad debts primarily attributable to nonpayment of rent and real estate taxes due from Marketing that we do not expect to collect, $2.6 million of legal and professional fees incurred related to Marketing’s defaults of its obligations under the Master Lease and bankruptcy filing, higher employee related expenses recorded in the year ended December 31, 2012, partially offset by a $2.0 million decrease in property acquisition costs. As a result of Marketing’s material monetary default under the Master Lease and Marketing’s bankruptcy filing, in 2011 we concluded that it was probable that we would not receive the contractual lease payments when due from Marketing for the entire initial term of the Master Lease. Therefore, during 2011, we increased our reserve by recording additional non- cash allowances for deferred rent receivable, of which $19.3 million is included in continuing operations. These non-cash allowances reduced our net earnings and funds from operations for the year ended December 31, 2011, but did not impact our cash flow from operating activities or adjusted funds from operations since the impact of the straight line method of accounting is not included in our determination of adjusted funds from operations. Depreciation and amortization expense included in continuing operations for 2012 was $12.5 million for the year ended December 31, 2012, as compared to $9.5 million for the year ended December 31, 2011. The increase was primarily due to depreciation charges related to asset retirement costs and properties acquired, partially offset by the effect of certain assets becoming fully depreciated, lease terminations and dispositions of real estate. As a result, total operating expenses decreased by approximately $9.4 million for the year ended December 31, 2012, as compared to the year ended December 31, 2011. Other income, net, included in income from continuing operations was $0.6 million for the year ended December 31, 2012, as compared to $0.016 million for the year ended December 31, 2011. Interest expense was $9.9 million for the year ended December 31, 2012, as compared to $5.1 million for the year ended December 31, 2011. The increase was due to an increase in the weighted-average interest rate on borrowings outstanding, loan origination costs incurred in March 2012 amortized over the one year extension of our debt agreements, and higher average borrowings outstanding for the year ended December31, 2012, as compared to the year ended December 31, 2011, partially offset by the expiration of the Swap Agreement on June 30, 2011. As a result, earnings from continuing operations were $13.8 million for the year ended December 31, 2012, as compared to $9.4 million for the year ended December 31, 2011 and net earnings decreased by $0.1 million to $12.4 million for the year ended December 31, 2012, as compared to $12.5 million for the year ended December 31, 2011. We report as discontinued operations the results of approximately 111 properties accounted for as held for sale as of the end of the current period and certain properties disposed of during the periods presented. The operating results and gains from certain dispositions of real estate sold in 2012 have been classified as discontinued operations. The operating results of such properties for the years ended December 31, 2011 and 2010 have also been reclassified to discontinued operations to 34 conform to the 2012 presentation. Earnings from discontinued operations decreased by $4.4 million to a loss of $1.4 million for the year ended December 31, 2012, as compared to earnings of $3.0 million for the year ended December 31, 2011. The decrease was primarily due to lower rental revenue and higher operating costs, including higher impairment charges, partially offset by higher gains on dispositions of real estate. Gains from dispositions of real estate included in discontinued operations were $6.8 million for the year ended December 31, 2012 and $0.9 million for the year ended December 31, 2011. For the year ended December 31, 2012, there were 54 property dispositions. For the year ended December 31, 2011, there were 10 property dispositions. Gains on disposition of real estate and impairment charges vary from period to period and accordingly, undue reliance should not be placed on the magnitude or the directions of change in reported gains and impairment charges for one period as compared to prior periods. For the year ended December 31, 2012, FFO decreased by $8.9 million to $33.2 million, as compared to $42.1 million for the year ended December 31, 2011, and AFFO decreased by $33.9 million to $28.8 million, as compared to $62.7 million for the prior year. The decrease in FFO for the year ended December 31, 2012 was primarily due to the changes in net earnings but exclude a $6.3 million decrease in impairment charges, a $3.4 million increase in depreciation and amortization expense and a $5.9 million increase in gains on dispositions of real estate. The decrease in AFFO for the year ended December 31, 2012 also exclude a $19.8 million decrease in the allowance for deferred rental revenue, a $2.0 million decrease in acquisition costs and a $3.2 million increase in Rental Revenue Adjustments which cause our reported revenues from rental properties to vary from the amount of rent payments contractually due or received by us during the periods presented (which are included in net earnings and FFO but are excluded from AFFO). Diluted earnings per share was $0.37 per share for the years ended December 31, 2012 and 2011. Diluted FFO per share for the year ended December 31, 2012 was $0.99 per share, as compared to $1.26 per share for the year ended December 31, 2011. Diluted AFFO per share for the year ended December 31, 2012 was $0.86 per share, as compared to $1.88 per share for the year ended December 31, 2011. Year ended December 31, 2011 compared to year ended December 31, 2010 Revenues from rental properties included in continuing operations were $100.3 million for the year ended December 31, 2011, as compared to $78.2 million for the year ended December 31, 2010. Revenues from rental properties include approximately $52.6 million and $50.1 million in rent contractually due or received for the years ended December 31, 2011 and December 31, 2010, respectively, from properties leased to Marketing under the Master Lease and approximately $45.5 million and $26.4 million for the years ended December 31, 2011 and 2010, respectively, contractually due or received from other tenants. The increase in rent contractually due or received from other tenants for the year ended December 31, 2011 was primarily due to rental income from properties we acquired from, and leased back to, CPD NY in January 2011 and Nouria in March 2011. The increase in the rent contractually due or received from Marketing for the year ended December 31, 2011 was primarily due to an increase in the real estate taxes we pay (or accrue) and bill to Marketing. As a result of Marketing’s bankruptcy filing, beginning in the first quarter of 2012, we began paying past due real estate taxes for 2011 and 2012, which taxes Marketing historically paid directly. Revenues from rental properties and rental property expense included $6.6 million for the year ended December 31, 2011 as compared to $1.8 million for the year ended December 31, 2010 for real estate taxes paid (or accrued) by us which were due from Marketing as well as from other tenants who are contractually obligated to reimburse us for the payment of real estate taxes pursuant to the terms of triple-net lease agreements. The increase in rent received for the year ended December 31, 2011 was primarily due to rental income from properties we acquired from, and leased back to, CPD in January 2011 and Nouria in March 2011 and, to a lesser extent, due to rent escalations, partially offset by the effect of dispositions of real estate and lease expirations. In accordance with GAAP, we recognize rental revenue in amounts which vary from the amount of rent contractually due or received during the periods presented. As a result, revenues from rental properties include Revenue Recognition Adjustments comprised of non-cash adjustments recorded for deferred rental revenue due to the recognition of rental income on a straight-line basis over the current lease term, net amortization of above-market and below-market leases and recognition of rental income under direct financing leases using the effective interest rate method which produces a constant periodic rate of return on the net investments in the leased properties. Rental revenue includes Revenue Recognition Adjustments which increased rental revenue by $2.1 million for the year ended December 31, 2011 and $1.7 million for the year ended December 31, 2010. Interest income from notes and mortgages receivable increased by $2.6 million to $2.7 million for the year ended December 31, 2011 as compared to $0.1 million for the year ended December 31, 2010 primarily due to the issuance of $30.4 million of notes receivable substantially all in connection with the acquisitions completed in 2011. 35 Rental property expenses included in continuing operations, which are primarily comprised of rent expense and real estate and other state and local taxes, were $16.0 million for the year ended December 31, 2011 as compared to $10.1 million for the year ended December 31, 2010. The increase in rental property expenses is principally due to additional real estate tax and rent expenses paid by us and reimbursable by our tenants related to properties and leasehold interests acquired in 2011 and accrued past due real estate taxes historically paid by Marketing directly, which taxes we began paying in the first quarter of 2012. The reimbursement of such expenses from our tenants is included in revenues from rental properties in our consolidated statement of operations. We provided a bad debt reserve for the taxes reimbursable from Marketing since do not expect to receive payment of taxes from the Marketing Estate. Non-cash impairment charges of $15.9 million are included in continuing operations for the year ended December 31, 2011 as compared to no impairment charges recorded for the year ended December 31, 2010. The non-cash impairment charges related to the properties leased to Marketing were primarily attributable to significant increases in the carrying value for certain of the properties in conjunction with recording the Marketing Environmental Liabilities. In the fourth quarter of 2011, we accrued $47.9 million as the aggregate Marketing Environmental Liabilities since we could no longer assume that Marketing will be able to meet its environmental remediation obligations and its obligations to remove underground storage tanks at the end of their useful life. In accordance with GAAP, we increased the carrying value for each of the affected properties by the amount of the related estimated environmental obligation which resulted in simultaneously recording impairment charges in continuing operations and discontinued operations aggregating $17.0 million where the increased carrying value of the property exceeded its estimated fair value. The non-cash impairment charges recorded earlier in the year resulted from reductions in real estate valuations and the reductions in the assumed holding period used to test for impairment. Environmental expenses included in continuing operations for the year ended December 31, 2011 increased by $0.2 million, to $5.6 million, as compared to $5.4 million for the year ended December 31, 2010. The increase in net environmental expenses for the year ended December 31, 2011 was primarily due to a higher provision for litigation loss reserves and legal fees which increased by $0.6 million for 2011, partially offset by a lower provision for estimated environmental remediation obligations which decreased by an aggregate $0.4 million to $2.3 million for the year ended December 31, 2011, as compared to $2.7 million for the year ended December 31, 2010. Environmental expenses vary from period to period and, accordingly, undue reliance should not be placed on the magnitude or the direction of change in reported environmental expenses for one period as compared to prior periods. General and administrative expenses included in continuing operations were $22.1 million for the year ended December 31, 2011, as compared to $8.2 million recorded for the year ended December 31, 2010. The increase in general and administrative expenses was principally due to $7.6 million of reserve for bad debts primarily attributable to nonpayment of pre-petition rent and real estate taxes due from Marketing that we do not expect to collect, $2.0 million of property acquisition costs, $1.5 million of legal and professional fees incurred related to Marketing’s defaults of its obligations under the Master Lease and bankruptcy filing and higher employee related expenses and legal fees recorded in the year ended December 31, 2011. As a result of Marketing’s material monetary default under the Master Lease and Marketing’s bankruptcy filing, we previously concluded that it was probable that we would not receive the contractual lease payments when due from Marketing for the entire initial term of the Master Lease. Therefore, during 2011, we increased our reserve by recording additional non-cash allowances for deferred rent receivable of $19.3 million. These non-cash allowances reduced our net earnings and funds from operations for the year ended December 31, 2011, but did not impact our cash flow from operating activities or adjusted funds from operations since the impact of the straight line method of accounting is not included in our determination of adjusted funds from operations. Depreciation and amortization expense included in continuing operations was $9.5 million for the year ended December 31, 2011, as compared to $9.0 million for the year ended December 31, 2010. The increase was primarily due to depreciation charges related to asset retirement costs and properties acquired, partially offset by the effect of certain assets becoming fully depreciated, lease terminations and dispositions of real estate. As a result, total operating expenses increased by approximately $55.8 million for the year ended December 31, 2011, as compared to the year ended December 31, 2010. Other income, net, included in income from continuing operations was $0.016 million for the year ended December 31, 2011, as compared to $0.2 million for the year ended December 31, 2010. 36 Interest expense was $5.1 million for each of 2011 and 2010. While there was no significant change in interest expense recorded for the year ended December 31, 2011 as compared to the prior year period, the weighted average interest rate on borrowings outstanding decreased due to changes in the relative amounts of debt outstanding under our borrowing agreements and average borrowings outstanding for the year ended December 31, 2011 were higher than average borrowings outstanding for the year ended December 31, 2010. The average borrowings outstanding in 2011 were impacted by, among other things, $113.0 million drawn under a revolving credit facility to finance the transaction with CPD NY, $92.1 million drawn under a revolving credit facility to finance the transaction with Nouria and the repayment of borrowings outstanding under our revolving credit facility with substantially all of the net proceeds of $92.0 million received in 2011 from a 3.45 million share common stock offering. As a result, earnings from continuing operations decreased by $31.5 million to $9.4 million for the year ended December 31, 2011, as compared to $40.9 million for the year ended December 31, 2010 and net earnings decreased by $39.2 million to $12.5 million for the year ended December 31, 2011, as compared to $51.7 million for the year ended December 31, 2010. The operating results and gains from certain dispositions of real estate sold in 2012 have been classified as discontinued operations. The operating results of such properties for the year ended December 31, 2011 and 2010 have also been reclassified to discontinued operations to conform to the 2012 presentation. Earnings from discontinued operations decreased by $7.8 million to $3.0 million for the year ended December 31, 2011, as compared to $10.8 million for the year ended December 31, 2010. The decrease was primarily due to lower earnings from operating activities and lower gains on dispositions of real estate. Gains from dispositions of real estate included in discontinued operations were $0.9 million for the year ended December 31, 2011 and $1.7 million for the year ended December 31, 2010. For the year ended December 31, 2011, there were 10 property dispositions. For the year ended December 31, 2010, there were six property dispositions. Other income, net and gains on disposition of real estate vary from period to period and accordingly, undue reliance should not be placed on the magnitude or the directions of change in reported gains for one period as compared to prior periods. For the year ended December 31, 2011, FFO decreased by $17.6 million to $42.1 million, as compared to $59.7 million for the year ended December 31, 2010, and AFFO increased by $4.5 million to $62.7 million, as compared to $58.2 million for the prior year. The decrease in FFO for the year ended December 31, 2011 was primarily due to the changes in net earnings but excludes a $20.2 million increase in impairment charges, a $0.6 million increase in depreciation and amortization expense and a $0.7 million decrease in gains on dispositions of real estate. The increase in AFFO for the year ended December 31, 2011 also excludes a $19.8 million increase in the allowance for deferred rental revenue, a $2.0 million increase in acquisition costs and a $0.3 million decrease in Rental Revenue Adjustments which cause our reported revenues from rental properties to vary from the amount of rent payments contractually due or received by us during the periods presented (which are included in net earnings and FFO but are excluded from AFFO). The calculations of net earnings per share, FFO per share, and AFFO per share for the year ended December 31, 2011 were impacted by an increase in the weighted average number of shares outstanding as a result of the issuance of shares of common stock in 2010 and 2011. The weighted average number of shares outstanding in our per share calculations increased by 5.2 million shares, or 18.7%, for the year ended December 31, 2011, as compared to the prior year period. Accordingly, the percentage or direction of the changes in net earnings, FFO and AFFO discussed above may differ from the changes in the related per share amounts. Diluted earnings per share was $0.37 per share for the year ended December 31, 2011 as compared to $1.84 per share for the year ended December 31, 2010. Diluted FFO per share for the year ended December 31, 2011 was $1.26 per share, as compared to $2.13 per share for the year ended December 31, 2010. Diluted AFFO per share for the year ended December 31, 2011 was $1.88 per share, as compared to $2.08 per share for the year ended December 31, 2010. LIQUIDITY AND CAPITAL RESOURCES Our principal sources of liquidity are the cash flows from our operations, funds available under our Credit Agreement that matures in August 2015, described below, and available cash and cash equivalents. Management believes that our operating cash needs for the next twelve months can be met by cash flows from operations, borrowings under our Credit Agreement and available cash and cash equivalents. Net cash flow provided by operating activities reported on our consolidated statement of cash flows for 2012, 2011 and 2010 were $15.9 million, $60.8 million and $57.1 million, respectively. Our business operations and liquidity is dependent on our ability to generate cash flow from our properties. 37 Debt Refinancing As of December 31, 2012, we were a party to a $175 million amended and restated senior secured revolving credit agreement with a group of commercial banks led by JPMorgan Chase Bank, N.A. and a $25 million amended term loan agreement with TD Bank, both of which were scheduled to mature in March 31, 2013. As of December 31, 2012, borrowings under the credit agreement were $150.3 million bearing interest at a rate of 3.25% per annum and borrowings under the term loan agreement were $22.0 million bearing interest at a rate of 3.50% per annum. On February 25, 2013, the borrowings then outstanding under such credit agreement and term loan agreement were repaid with cash on hand and proceeds of the Credit Agreement and the Prudential Loan Agreement (both defined below). Credit Agreement On February 25, 2013, we entered into a $175 million senior secured revolving credit agreement (the “Credit Agreement”) with a group of commercial banks led by JPMorgan Chase Bank, N.A. (the “Bank Syndicate”), which is scheduled to mature in August 2015. Subject to the terms of the Credit Agreement, we have the option to extend the term of the Credit Agreement for one additional year to August 2016. The Credit Agreement allocates $25 million of the total Bank Syndicate commitment to a term loan and $150 million to a revolving credit facility. Subject to the terms of the Credit Agreement, we have the option to increase by $50 million the amount of the revolving credit facility to $200 million. The Credit Agreement permits borrowings at an interest rate equal to the sum of a base rate plus a margin of 1.50% to 2.00% or a LIBOR rate plus a margin of 2.50% to 3.00% based on our leverage at the end of each quarterly reporting period. The annual commitment fee on the undrawn funds under the Credit Agreement is 0.30% to 0.40% based our leverage at the end of each quarterly reporting period. The Credit Agreement does not provide for scheduled reductions in the principal balance prior to its maturity. The Credit Agreement provides for security in the form of, among other items, mortgage liens on certain of our properties. The parties to the Credit Agreement and the Prudential Loan Agreement (as defined below) share the security pursuant to the terms of an inter-creditor agreement. The Credit Agreement contains customary financial covenants such as loan to value, leverage and coverage ratios and minimum tangible net worth, as well as limitations on restricted payments, which may limit our ability to incur additional debt or pay dividends. The Credit Agreement contains customary events of default, including default under the Prudential Loan Agreement, change of control and failure to maintain REIT status. Any event of default, if not cured or waived, would increase by 200 basis points (2.00%) the interest rate we pay under the Credit Agreement and prohibit us from drawing funds against the Credit Agreement and could result in the acceleration of our indebtedness under the Credit Agreement and could also give rise to an event of default and could result in the acceleration of our indebtedness under the Prudential Loan Agreement. We may be prohibited from drawing funds against the revolving credit facility if there is a material adverse effect on our business, assets, prospects or condition. Prudential Loan Agreement On February 25, 2013, we entered into a $100 million senior secured long-term loan agreement with the Prudential Insurance Company of America (the “Prudential Loan Agreement”), which matures in February 2021. The parties to the Credit Agreement and the Prudential Loan Agreement share the security described above pursuant to the terms of an inter- creditor agreement. The Prudential Loan Agreement bears interest at 6.00%. The Prudential Loan Agreement does not provide for scheduled reductions in the principal balance prior to its maturity. The Prudential Loan Agreement contains customary financial covenants such as loan to value, leverage and coverage ratios and minimum tangible net worth, as well as limitations on restricted payments, which may limit our ability to incur additional debt or pay dividends. The Prudential Loan Agreement contains customary events of default, including default under the Credit Agreement and failure to maintain REIT status. Any event of default, if not cured or waived, would increase by 200 basis points (2.00%) the interest rate we pay under the Prudential Loan Agreement and could result in the acceleration of our indebtedness under the Prudential Loan Agreement and could also give rise to an event of default and could result in the acceleration of our indebtedness under our Credit Agreement. Property Acquisitions and Capital Expenditures Since we generally lease our properties on a triple-net basis, we have not historically incurred significant capital expenditures other than those related to acquisitions. As part of our overall business 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. Our property acquisitions and capital expenditures for the year ended December 31, 2012, 2011 and 2010 amounted to $4.1 million,$167.5 million and $4.7 million, respectively, substantially all of which was for acquisitions. We are evaluating potential capital expenditures for properties that were previously subject to the Master Lease with Marketing and which are not currently subject to long-term leases. We have no current plans to make material improvements 38 to any of our properties other than the properties previously subject to the Master Lease with Marketing. However, our tenants frequently make improvements to the properties leased from us at their expense. In certain of our new leases, we have committed to co-invest as much as $14.1 million in capital improvements in our properties. (For additional information regarding capital expenditures related to the properties subject to the Master Lease, see “Item 2. Properties”). To the extent that our sources of liquidity are not sufficient to fund acquisitions and capital expenditures, we will require other sources of capital, which may or may not be available on favorable terms or at all. Dividends We elected to be treated as a REIT under the federal income tax laws with the year beginning January 1, 2001. To qualify for taxation as a REIT, we must, among other requirements such as those related to the composition of our assets and gross income, distribute annually to our stockholders at least 90% of our taxable income, including taxable income that is accrued by us without a corresponding receipt of cash. We cannot provide any assurance that our cash flows will permit us to continue paying cash dividends. The Internal Revenue Service (“IRS”) has allowed the use of a procedure, as a result of which we could satisfy the REIT income distribution requirement by making a distribution on our common stock comprised of (i) shares of our common stock having a value of up to 80% of the total distribution and (ii) cash in the remaining amount of the total distribution, in lieu of paying the distribution entirely in cash. In order to use this procedure, we would need to seek and obtain a private letter ruling of the IRS to the effect that the procedure is applicable to our situation. Without obtaining such a private letter ruling, we cannot provide any assurance that we will be able to satisfy our REIT income distribution requirement by making distributions payable in whole or in part in shares of our common stock. It is also possible that instead of distributing 100% of our taxable income on an annual basis, we may decide to retain a portion of our taxable income and to pay taxes on such amounts as permitted by the IRS. Payment of dividends is subject to market conditions, our financial condition, including but not limited to, our continued compliance with the provisions of the Credit Agreement and the Prudential Loan Agreement and other factors, and therefore is not assured. In particular, our Credit Agreement and Prudential Loan Agreement prohibit the payment of dividends during certain events of default. Cash dividends paid to our shareholders aggregated $8.4 million, $63.4 million and $52.3 million, for the years ended December 31, 2012, 2011 and 2010, respectively. We reduced our quarterly dividend rate to $0.125 per share in the quarter ended June 30, 2012. In February 2013, we increased our quarterly dividend rate to $0.20 per share. There can be no assurance that we will be able to continue to pay cash dividends at the rate of $0.20 per share per quarter in cash or a combination of cash and our stock, if at all. CONTRACTUAL OBLIGATIONS Our significant contractual obligations and commitments as of December 31, 2012 were comprised of borrowings under an amended credit agreement and an amended term loan agreement, operating lease payments due to landlords, estimated environmental remediation expenditures, co-investing with our tenants in capital improvements at our properties and our obligations pursuant to the Litigation Funding Agreement. We repaid our debt outstanding as of December 31, 2012 with borrowings under the Credit Agreement and the Prudential Loan Agreement entered into in February 2013. The aggregate maturity of the Credit Agreement and the Prudential Loan Agreement, is as follows: 2015 — $71.9 million and 2021 — $100 million. In addition, as a REIT, we are required to pay dividends equal to at least 90% of our taxable income in order to continue to qualify as a REIT. Our contractual obligations and commitments as of December 31, 2012 are summarized below (in thousands): TOTAL LESS THAN- ONE YEAR ONE-TO THREE YEARS THREE TO FIVE YEARS MORE THAN FIVE YEARS Operating leases .................................................................... $ Borrowings under the prior credit agreement (a) .................. Borrowings under the prior term loan agreement (a) ............ Estimated environmental remediation expenditures (b) ....... Capital improvements (c) ...................................................... Litigation Funding Agreement .............................................. Total ...................................................................................... $ 270,701 $ 33,398 $ 150,290 22,030 46,150 14,080 4,753 7,826 $ 150,290 22,030 16,223 — 4,753 201,122 $ 12,461 $ — — 15,790 14,080 — 5,866 — — 9,045 — — 42,331 $ 12,337 $ 14,911 7,245 $ — — 5,092 — — (a) Excludes related interest payments. (See “Liquidity and Capital Resources” above and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for additional information.) We repaid our debt outstanding as of 39 December 31, 2012 with cash on hand and proceeds from the Credit Agreement and Prudential Loan Agreement entered into in February 2013. (b) Estimated environmental remediation expenditures have been adjusted for inflation and discounted to present value. (c) The actual timing of co-investing with our tenants in capital improvements is dependent on the timing of such capital improvement projects and the terms of our leases. We expect that substantially all of such credits will be issued within five years. Generally, the leases with our tenants are “triple-net” leases, with the tenant responsible for the operations conducted at these properties and for the payment of taxes, maintenance, repair, insurance, environmental remediation and other operating expenses. We have no significant contractual obligations not fully recorded on our consolidated balance sheets or fully disclosed in the notes to our consolidated financial statements. We have no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the Exchange Act. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The consolidated financial statements included in this Annual Report on Form 10-K have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in its financial statements. Although we have made 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 and such differences could be material. Estimates, judgments and assumptions underlying the accompanying consolidated financial statements include, but are not limited to, receivables, deferred rent receivable, income under direct financing leases, environmental remediation obligations, real estate, depreciation and amortization, impairment of long-lived assets, litigation, accrued liabilities, environmental remediation obligations, income taxes and allocation of the purchase price of properties acquired to the assets acquired and liabilities assumed. 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 of Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements”. We believe that the more critical of our accounting policies relate to revenue recognition and deferred rent receivable and related reserves, impairment of long-lived assets, income taxes, environmental costs, allocation of the purchase price of properties acquired to the assets acquired and liabilities assumed and litigation as described below: Revenue recognition — We earn revenue primarily from operating leases with our tenants. We recognize income under leases with our tenants, on the straight-line method, which effectively recognizes contractual lease payments evenly over the current term of the leases. 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. A critical assumption in applying the straight-line accounting method is that the tenant will make all contractual lease payments during the current lease term and that the net deferred rent receivable of $12.4 million recorded as of December 31, 2012 will be collected when the payment is due, in accordance with the annual rent escalations provided for in the leases. Historically our tenants, other than Marketing, with leases that are material to our financial results have generally made rent payments when due. However, we may be required to reverse, or provide reserves for a portion of the recorded deferred rent receivable if it becomes apparent that the tenant may not make all of its contractual lease payments when due during the current term of the lease. The straight-line method requires that rental income related to those properties for which a reserve was specifically provided is effectively recognized in subsequent periods when payment is due under the contractual payment terms. (See “General — Marketing and the Master Lease” above for additional information.) Direct financing leases — Income under direct financing leases is included in revenues from rental properties and is recognized over the lease terms using the effective interest rate method which produces a constant periodic rate of return on the net investments in the leased properties. Net investment in direct financing leases represents the investments in leased assets accounted for as direct financing leases. The investments are reduced by the receipt of lease payments, net of interest income earned and amortized over the life of the leases. 40 Impairment of long-lived assets — Real estate assets represent “long-lived” assets for accounting purposes. We review the recorded value of long-lived assets for impairment in value whenever any events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. We may become aware of indicators of potentially impaired assets upon tenant or landlord lease renewals, upon receipt of notices of potential governmental takings and zoning issues, or upon other events that occur in the normal course of business that would cause us to review the operating results of the property. We believe our real estate assets are not carried at amounts in excess of their estimated net realizable fair value amounts. Income taxes — Our financial results generally do not reflect provisions for current or deferred federal income taxes since we elected to be treated as a REIT under the federal income tax laws effective January 1, 2001. Our intention is to operate in a manner that will allow us to continue to be treated as a REIT and, as a result, we do not expect to pay substantial corporate-level federal income taxes. Many of the REIT requirements; however, are highly technical and complex. If we were to fail to meet the requirements, we may be subject to federal income tax, excise taxes, penalties and interest or we may have to pay a deficiency dividend to eliminate any earnings and profits that were not distributed. Certain states do not follow the federal REIT rules and we have included provisions for these taxes in rental property expenses. Environmental remediation obligations — We provide for the estimated fair value of future environmental remediation obligations when it is probable that a liability has been incurred and a reasonable estimate of fair value can be made. (See “— Environmental Matters” below for additional information). Environmental liabilities net of related recoveries are measured based on their expected future cash flows which have been adjusted for inflation and discounted to present value. Since environmental exposures are difficult to assess and estimate and knowledge about these liabilities is not known upon the occurrence of a single event, but rather is gained over a continuum of events, we believe that it is appropriate that our accrual estimates are adjusted as the remediation treatment progresses, as circumstances change and as environmental contingencies become more clearly defined and reasonably estimable. A critical assumption in accruing for these liabilities is that the state environmental laws and regulations will be administered and enforced in the future in a manner that is consistent with past practices. Environmental liabilities are estimated net of recoveries of environmental costs from state UST remediation funds, with respect to past and future spending based on estimated recovery rates developed from our experience with the funds when such recoveries are considered probable. A critical assumption in accruing for these recoveries is that the state UST fund programs will be administered and funded in the future in a manner that is consistent with past practices and that future environmental spending will be eligible for reimbursement at historical rates under these programs. We accrue environmental liabilities based on our share of responsibility as defined in our lease contracts with our tenants and under various other agreements with others or if circumstances indicate that the counter-party may not have the financial resources to pay its share of the costs. It is possible that our assumptions regarding the ultimate allocation method and share of responsibility that we used to allocate environmental liabilities may change, which may result in material adjustments to the amounts recorded for environmental litigation accruals and environmental remediation liabilities. We may ultimately be responsible to pay for environmental liabilities as the property owner if our tenants or other counter-parties fail to pay them. In certain environmental matters the effect on future financial results is not subject to reasonable estimation because considerable uncertainty exists both in terms of the probability of loss and the estimate of such loss. The ultimate liabilities resulting from such lawsuits and claims, if any, may be material to our results of operations in the period in which they are recognized. Litigation — Legal fees related to litigation are expensed as legal services are performed. We provide for litigation reserves, including certain environmental litigation. (See “— Environmental Matters” below for additional information), when it is probable that a liability has been incurred and a reasonable estimate of the liability can be made. If the estimate of the liability can only be identified as a range, and no amount within the range is a better estimate than any other amount, the minimum of the range is accrued for the liability. Allocation of the purchase price of properties acquired — Upon acquisition of real estate and leasehold interests, we estimate 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, in-place leases and tenant relationships) and assumed debt. Based on these estimates, we allocate the purchase price to the applicable assets and liabilities. ENVIRONMENTAL MATTERS General 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. Environmental 41 costs 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. We seek reimbursement from state UST remediation funds related to these environmental costs where available. In July 2012, we purchased for $3.1 million a ten-year pollution legal liability insurance policy covering all of our properties for pre-existing unknown environmental liabilities and new environmental events. The policy has a $50.0 million aggregate limit and is subject to various self-insured retentions and other conditions and limitations. Our intention in purchasing this policy is to obtain protection predominantly for significant events. No assurances can be given that we will obtain a net financial benefit from this investment. Historically we did not maintain pollution legal liability insurance to protect from potential future claims related to known and unknown environmental liabilities. We enter into leases and various other agreements which allocate responsibility for known and unknown environmental liabilities by establishing the percentage and method of allocating responsibility between the parties. In accordance with the leases with certain tenants, we have agreed to bring the leased properties with known environmental contamination to within applicable standards, and to either regulatory or contractual closure (“Closure”). Generally, upon achieving Closure at each 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. Generally, our tenants are directly responsible to pay for: (i) the retirement and decommissioning or removal of USTs and other equipment, (ii) remediation of environmental contamination they cause and compliance with various environmental laws and regulations as the operators of our properties, and (iii) environmental liabilities allocated to them under the terms of our leases and various other agreements. We are contingently liable for these obligations in the event that our tenants do not satisfy their responsibilities. Under the Master Lease, Marketing was responsible to pay for the retirement and decommissioning or removal of USTs at the end of their useful life or earlier if circumstances warranted as well as all environmental liabilities discovered during the term of the Master Lease, including: (i) remediation of environmental contamination Marketing caused and compliance with various environmental laws and regulations as the operator of our properties, and (ii) known and unknown environmental liabilities allocated to Marketing under the terms of the Master Lease and various other agreements with us relating to Marketing’s business and the properties it leased from us (collectively the “Marketing Environmental Liabilities”). A liability has not been accrued for obligations that are the responsibility of our tenants (other than the Marketing Environmental Liabilities accrued in the fourth quarter of 2011) based on our tenants’ history of paying such obligations and/or our assessment of their financial ability and intent to pay their share of such costs. However, there can be no assurance that our assessments are correct or that our tenants who have paid their obligations in the past will continue to do so. In the fourth quarter of 2011, since we could no longer assume that Marketing would be able to meet its environmental remediation obligations at 246 properties and its obligations to remove all underground storage tanks at the end of their useful life or earlier if circumstances warrant, we accrued $47.9 million as the aggregate Marketing Environmental Liabilities. In conjunction with recording the Marketing Environmental Liabilities, we increased the carrying value for each of the properties by the amount of the related estimated environmental obligation and simultaneously recorded impairment charges aggregating $17.0 million where the accumulation of asset retirement costs increased the carrying value of the property above its estimated fair value. As part of certain triple-net leases whose term commenced through December 31, 2012, we transferred title of the USTs to our tenants and the obligation to pay for the retirement and decommissioning or removal of USTs at the end of their useful life or earlier if circumstances warranted was fully or partially transferred to our new tenants. Accordingly, during the year ended December 31, 2012, we removed $11.2 million of asset retirement obligations and $9.8 million of net asset retirement costs related to USTs from our balance sheet. The net amount of $1.4 million is recorded as deferred rental revenue and will be recognized as additional revenues from rental properties over the terms of the various leases. (See note 2 for additional information.) It is possible that our assumptions regarding the ultimate allocation method and share of responsibility that we used to allocate environmental liabilities may change, which may result in material adjustments to the amounts recorded for environmental litigation accruals and environmental remediation liabilities. We are required to accrue for environmental liabilities that we believe are allocable to others under various other agreements if we determine that it is probable that the counterparty will not meet its environmental obligations. The ultimate resolution of these matters could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. 42 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 accrued liability is the aggregate of the best estimate of the fair value of cost for each component of the liability net of estimated recoveries from state UST remediation funds considering estimated recovery rates developed from prior experience with the funds. 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 our liability for estimated environmental remediation obligations on a property by property basis, we consider 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. Environmental accruals are based on estimates which are subject to significant change, and are adjusted as the remediation treatment progresses, as circumstances change and as environmental contingencies become more clearly defined and reasonably estimable. Environmental remediation obligations are initially measured at fair value based on their expected future net cash flows which have been adjusted for inflation and discounted to present value. As of December31, 2012, 2011 and 2010, we had accrued $46.2 million, $57.7 million and $10.9 million, respectively, as our best estimate of the fair value of reasonably estimable environmental remediation obligations net of estimated recoveries and obligations to remove USTs. Environmental liabilities are accreted for the change in present value due to the passage of time and, accordingly, $3.2 million, $0.9 million and $0.8 million of net accretion expense was recorded for the years ended December 31, 2012, 2011 and 2010, respectively, which is included in environmental expenses. In addition, during the year ended December 31, 2012 we recorded credits aggregating $4.2 million to environmental expenses and earnings from discontinued operating activities where decreases in estimated remediation costs exceeded the depreciated carrying value of previously capitalized asset retirement costs. Environmental expenses also include project management fees, legal fees and provisions for environmental litigation loss reserves. During the year ended December 31, 2012 and 2011, we increased the carrying value of certain of our properties by $5.7 million and $47.9 million, respectively, due to increases in estimated remediation costs. We simultaneously record impairment charges where the increased carrying value of the property exceeds its estimated fair value. Capitalized asset retirement costs are being depreciated over the estimated remaining life of the underground storage tank, a ten year period if the increase in carrying value related to environmental remediation obligations or such shorter period if circumstances warrant, such as the remaining lease term for properties we lease from others. Depreciation and amortization expense included in our consolidated statements of operations for the year ended December 31, 2012 and 2011 includes $5.4 million and $0.9 million, respectively, of depreciation related to capitalized asset retirement costs of $23.5 million and $35.3 million as of December 31, 2012 and 2011, respectively. 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 UST 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. In view of the uncertainties associated with environmental expenditure contingencies, we are unable to estimate ranges in excess of the amount accrued with any certainty; however, we believe it is possible that the fair value of future actual net expenditures could be substantially higher than amounts currently recorded by us. Adjustments to accrued liabilities for environmental remediation obligations will be reflected in our financial statements as they become probable and a reasonable estimate of fair value can be made. Future environmental expenses could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. 43 Environmental litigation We are subject to various legal proceedings and claims which arise in the ordinary course of our business. As of December 31, 2012 and December 31, 2011, we had accrued $3.6 million and $4.2 million, respectively, for certain of these matters which we believe were appropriate based on information then currently available. It is possible that our assumptions regarding the ultimate allocation method and share of responsibility that we used to allocate environmental liabilities may change, which may result in our providing an accrual, or adjustments to the amounts recorded, for environmental litigation accruals. Matters related to the our Newark, New Jersey Terminal and Lower Passaic River and the MTBE multi-district litigation case, in particular, could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. (See “Item 3. Legal Proceedings” for additional information with respect to these and other pending environmental lawsuits and claims.) Matters related to our Newark, New Jersey Terminal and the Lower Passaic River In September 2003, we received a directive (the “Directive”) from the State of New Jersey Department of Environmental Protection (the “NJDEP”) notifying us that we are one of approximately 66 potentially responsible parties for natural resource damages resulting from discharges of hazardous substances into the Lower Passaic River. The Directive calls for an assessment of the natural resources that have been injured by the discharges into the Lower Passaic River and interim compensatory restoration for the injured natural resources. There has been no material activity with respect to the NJDEP Directive since early after its issuance. The 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. Effective May 2007, the United States Environmental Protection Agency (“EPA”) entered into an Administrative Settlement Agreement and Order on Consent (“AOC”) with over 70 parties comprising a Cooperating Parties Group (“CPG”) (many of whom are also named in the Directive) who have collectively agreed to perform a Remedial Investigation and Feasibility Study (“RI/FS”) for the Lower Passaic River. We are a party to the AOC and are a member of the CPG. The RI/FS is intended to address the investigation and evaluation of alternative remedial actions with respect to alleged damages to the Lower Passaic River, and is scheduled to be completed in or about 2015. On June 18, 2012, all members of the CPG except Occidental Chemical Corporation (“Occidental”) entered into an Administrative Settlement Agreement and Order on Consent (“10.9 AOC”) to perform certain remediation activities, including removal and capping of sediments at the river mile 10.9 area and certain testing. Similar to the RI/FS work, the CPG entered into an interim allocation for the costs of the river mile 10.9 work. The EPA issued a Unilateral Order to Occidental directing Occidental to participate and contribute to the cost of the river mile 10.9 work and discussions regarding Occidental’s participation in the river mile 10.9 work are ongoing. Concurrently, the EPA is preparing a proposed Focused Feasibility Study (“FFS”) that the EPA claims will address sediment issues in the lower eight miles of the Lower Passaic River. The RI/FS and 10.9 AOC do not resolve liability issues for remedial work or restoration of, or compensation for, natural resource damages to the Lower Passaic River, which are not known at this time. In a related action, in December 2005, the State of New Jersey through various state agencies brought suit against certain companies which the State alleges are responsible for various categories of past and future damages resulting from discharges of hazardous substances to the Passaic River. In February 2009, certain of these defendants filed third party complaints against approximately 300 additional parties, including us, seeking contribution for such parties’ proportionate share of response costs, cleanup and other damages, based on their relative contribution to pollution of the Passaic River and adjacent bodies of water. We believe that ChevronTexaco is contractually obligated to indemnify us, pursuant to an indemnification agreement, for most if not all of the conditions at the property identified by the NJDEP and the EPA. Accordingly, our ultimate legal and financial liability, if any, cannot be estimated with any certainty at this time. MTBE Litigation During 2011, we were defending against one remaining lawsuit of many brought by or on behalf of private and public water providers and governmental agencies. These cases alleged (and, as described below with respect to one remaining case, continue to allege) various theories of liability due to contamination of groundwater with methyl tertiary butyl ether (a fuel derived from methanol, commonly referred to as “MTBE”) as the basis for claims seeking compensatory and punitive damages, and name as defendant approximately 50 petroleum refiners, manufacturers, distributors and retailers of MTBE, or gasoline containing MTBE. During 2010, we agreed to, and subsequently paid, $1.7 million to settle two plaintiff classes covering 52 pending cases. Presently, we remain a defendant in one MTBE case involving multiple locations throughout the State of New Jersey brought by various governmental agencies of the State of New Jersey, including the NJDEP. 44 As of December 31, 2012 and December 31, 2011, we maintained a litigation reserve relating to the remaining MTBE case in an amount which we believe was appropriate based on information then currently available. However, we are unable to estimate with certainty our liability for the case involving the State of New Jersey as there remains uncertainty as to the accuracy of the allegations in this case as they relate to us, our defenses to the claims, our rights to indemnification, and the aggregate possible amount of damages for which we may be held liable. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Prior to April 2006, when we entered into a swap agreement with JPMorgan Chase, N.A. (the “Swap Agreement”), 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. The Swap Agreement expired on June 30, 2011 and we currently do not intend to enter into another swap agreement. We do not have any foreign operations, and are therefore not exposed to foreign currency exchange rate. Total floating interest rate borrowings outstanding as of December 31, 2012 under the prior credit agreement and the prior term loan agreement, which were terminated and repaid on February 25, 2013, were $150.3 million and $22.0 million, respectively, bearing interest at a weighted-average rate of 3.28% per annum. The weighted-average effective rate was based on (i) $150.3 million of LIBOR rate borrowings outstanding under the prior credit agreement floating at market rates plus a margin of 3.00%, and (ii) $22.0 million of LIBOR based borrowings outstanding under the prior term loan agreement floating at market rates (subject to a 30 day LIBOR floor of 0.40%) plus a margin of 3.10%. We are exposed to interest rate risk, primarily as a result of our $175.0 million senior secured revolving credit agreement (the “Credit Agreement”) entered into on February 25, 2013 with a group of commercial banks led by JPMorgan Chase Bank, N.A. (the “Bank Syndicate”), which is scheduled to mature in August 2015. The Credit Agreement allocates $25.0 million of the total Bank Syndicate commitment to a term loan and $150.0 million to a revolving credit facility. Subject to the terms of the Credit Agreement, we have the option to increase by $50.0 million the amount of the revolving credit facility to $200.0 million. The Credit Agreement permits borrowings at an interest rate equal to the sum of a base rate plus a margin of 1.50% to 2.00% or a LIBOR rate plus a margin of 2.50% to 3.00% based on our leverage at the end of each quarterly reporting period. We use borrowings under the Credit Agreement to finance acquisitions and for general corporate purposes. Borrowings outstanding at floating interest rates under the Credit Agreement subsequent to the refinancing were approximately $72.0 million. 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 December 31, 2012 remained the same as compared to December 31, 2011. We reduced our interest rate risk on February 25, 2013 by repaying floating interest rate debt with the proceeds of a $100 million senior secured long-term loan agreement with the Prudential Insurance Company of America (the “Prudential Loan Agreement”), which matures in February 2021. The Prudential Loan Agreement bears interest at 6.00%. The Prudential Loan Agreement does not provide for scheduled reductions in the principal balance prior to its maturity. Our interest rate risk may materially change in the future if we seek other sources of debt or equity capital or refinance our outstanding debt. Based on our average outstanding borrowings under the Credit Agreement projected at approximately $72.0 million for 2013, an increase in market interest rates of 0.50% effective February 25, 2013 for 2013 would decrease our 2013 net income and cash flows by $0.3 million. This amount was determined by calculating the effect of a hypothetical interest rate change on our borrowings floating at market rates, and assumes that the approximately $72.0 million outstanding borrowings under the Credit Agreement is indicative of our future average floating interest rate borrowings for 2013 before considering additional borrowings required for future acquisitions or repayment of outstanding borrowings from proceeds of future equity offerings. The calculation also assumes that there are no other changes in our financial structure or the terms of our borrowings. Our exposure to fluctuations in interest rates will increase or decrease in the future with increases or decreases in the outstanding amount under our Credit Agreement and with increases or decreases in amounts outstanding under borrowing agreements entered into with interest rates floating at market rates. 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 currently held in an overnight bank time deposit with JPMorgan Chase Bank, N.A. 45 Item 8. Financial Statements and Supplementary Data GETTY REALTY CORP. INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Statements of Operations for the years ended December 31, 2012, 2011 and 2010 ........................... Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010 ............................................................................................................................................................... Consolidated Balance Sheets as of December 31, 2012 and 2011 ............................................................................ Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010 .......................... Notes to Consolidated Financial Statements ............................................................................................................. Report of Independent Registered Public Accounting Firm ..................................................................................... (PAGES) 47 48 49 50 51 74 46 GETTY REALTY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) YEAR ENDED DECEMBER 31, 2011 2012 2010 Revenues: Revenues from rental properties .................................................................... $ Interest on notes and mortgages receivable ................................................... Total revenues ............................................................................ 99,286 $ 2,882 102,168 100,263 $ 2,658 102,921 Operating expenses: Rental property expenses ..................................................................... Impairment charges .............................................................................. Environmental expenses....................................................................... General and administrative expenses ................................................... Allowance for deferred rent receivable ................................................ Depreciation and amortization expense ............................................... Total operating expenses ............................................................ Operating income .......................................................................................... Other income, net .......................................................................................... Interest expense ............................................................................................. Earnings from continuing operations ............................................................. Discontinued operations: Earnings (loss) from operating activities ............................................. Gains on dispositions of real estate ...................................................... Earnings (loss) from discontinued operations................................................ Net earnings ................................................................................................... $ Basic and diluted earnings per common share: Earnings from continuing operations ................................................... $ Earnings (loss) from discontinued operations ...................................... $ Net earnings ......................................................................................... $ Weighted average shares outstanding: Basic ..................................................................................................... Stock options ........................................................................................ Diluted ................................................................................................. 30,232 6,328 774 29,116 — 12,541 78,991 23,177 562 (9,931) 13,808 (8,199) 6,838 (1,361) 12,447 $ .41 $ (.04) $ .37 $ 33,395 — 33,395 16,023 15,904 5,597 22,065 19,288 9,511 88,388 14,533 16 (5,125) 9,424 2,084 948 3,032 12,456 $ .28 $ .09 $ .37 $ 33,171 1 33,172 78,227 133 78,360 10,053 — 5,371 8,178 — 8,997 32,599 45,761 156 (5,050) 40,867 9,128 1,705 10,833 51,700 1.46 .39 1.84 27,950 3 27,953 The accompanying notes are an integral part of these consolidated financial statements. 47 GETTY REALTY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Net earnings ........................................................................................................... $ Other comprehensive gain: Net unrealized gain on interest rate swap ............................................................... Comprehensive income .......................................................................................... $ YEAR ENDED DECEMBER 31, 2011 12,456 $ 2012 12,447 $ 2010 — 12,447 $ 1,153 13,609 $ 51,700 1,840 53,540 The accompanying notes are an integral part of these consolidated financial statements. 48 GETTY REALTY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data) DECEMBER 31, 2012 2011 ASSETS: Real Estate: Land ..................................................................................................................................... $ 318,814 $ 208,325 Buildings and improvements ................................................................................................ 527,139 (106,931) 420,208 25,340 445,548 91,904 Less — accumulated depreciation and amortization ..................................................................... Real estate held for use, net .................................................................................................. Real estate held for sale, net ................................................................................................. Real estate, net ..................................................................................................................... Net investment in direct financing leases ...................................................................................... Deferred rent receivable (net of allowance of $0 at December 31, 2012 and $25,630 at 345,473 270,381 615,854 (137,117) 478,737 — 478,737 92,632 December 31, 2011) .................................................................................................................. Cash and cash equivalents ............................................................................................................. Notes, mortgages and accounts receivable (net of allowance of $25,371 at December 31, 2012 12,448 16,876 8,080 7,698 and $9,480 at December 31, 2011) ........................................................................................... Prepaid expenses and other assets ................................................................................................. 41,865 31,940 Total assets ........................................................................................................................... $ 640,581 $ 36,083 11,859 635,089 LIABILITIES AND SHAREHOLDERS’ EQUITY: Borrowings under credit line ......................................................................................................... $ 150,290 $ 22,030 Term loan ...................................................................................................................................... 46,150 Environmental remediation obligations ......................................................................................... 4,202 Dividends payable ......................................................................................................................... 45,160 Accounts payable and accrued liabilities ....................................................................................... 267,832 Total liabilities ..................................................................................................................... Commitments and contingencies (notes 2, 3, 5 and 6) .................................................................. — Shareholders’ equity: Common stock, par value $.01 per share; authorized 50,000,000 shares; issued 147,700 22,810 57,700 — 34,710 262,920 — 334 33,396,720 at December 31, 2012 and 33,394,395 at December 31, 2011 ..................... 461,426 Paid-in capital ................................................................................................................................ (89,011) Dividends paid in excess of earnings ............................................................................................. Total shareholders’ equity .................................................................................................... 372,749 Total liabilities and shareholders’ equity ............................................................................. $ 640,581 $ 334 460,687 (88,852) 372,169 635,089 The accompanying notes are an integral part of these consolidated financial statements. 49 GETTY REALTY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings ........................................................................................................................ $ 12,447 $ 12,456 $ 51,700 Adjustments to reconcile net earnings to net cash flow provided by operating activities: YEAR ENDED DECEMBER 31, 2010 2011 2012 Depreciation and amortization expense ................................................................... Impairment charges .................................................................................................. Gains on dispositions of real estate .......................................................................... Deferred rent receivable, net of allowance ............................................................... Allowance for deferred rent and accounts receivable .............................................. Amortization of above-market and below-market leases ......................................... Amortization of credit agreement origination costs ................................................. Accretion expense .................................................................................................... Stock-based employee compensation expense ......................................................... 13,700 13,942 (6,866) (4,368) 15,903 (285) 3,396 3,174 757 10,336 20,226 (968) (453) 28,879 (685) 207 899 643 Changes in assets and liabilities: Accounts receivable, net .......................................................................................... Prepaid expenses and other assets ............................................................................ Environmental remediation obligations ................................................................... Accounts payable and accrued liabilities ................................................................. Net cash flow provided by operating activities ............................................... (15,848) (8,004) (9,009) (3,054) 15,885 (14,890) 151 (1,981) 5,935 60,755 CASH FLOWS FROM INVESTING ACTIVITIES: Property acquisitions and capital expenditures ........................................................ Proceeds from dispositions of real estate ................................................................. (Increase) decrease in cash held for property acquisitions ....................................... Amortization of (accretion in) investment in direct financing leases ....................... Issuance of notes, mortgages and other receivables ................................................. Collection of notes and mortgages receivable .......................................................... Net cash flow provided by (used in) investing activities................................. (4,148) (167,495) 2,317 9,855 (750) (1,615) 505 728 (30,400) (2,972) 1,703 2,679 3,551 (193,144) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under credit agreement ......................................................................... Repayments under credit agreement ........................................................................ Repayments under term loan agreement .................................................................. Payments of capital lease obligations ....................................................................... Payments of cash dividends ..................................................................................... Payments of loan origination costs .......................................................................... Cash paid in settlement of restricted stock units ...................................................... Security deposits received ........................................................................................ Net proceeds from issuance of common stock ......................................................... Net cash flow provided by (used in) financing activities ................................ 9,178 Net increase in cash and cash equivalents ........................................................................... Cash and cash equivalents at beginning of year .................................................................. 7,698 Cash and cash equivalents at end of year ............................................................................ $ 16,876 $ Supplemental disclosures of cash flow information Cash paid (refunded) during the period for: Interest paid .............................................................................................................. $ 6,293 $ 810 Income taxes, net ..................................................................................................... 4,889 Environmental remediation obligations ................................................................... Non-cash transactions .............................................................................................. Issuance of mortgages related to property dispositions ............................................ 4,000 247,253 (1,410) (140,853) (78)0 (59) (63,436) (175) — 29 91,986 (10,258) 133,965 1,576 6,122 7,698 $ (780) (152) (8,404) (4,144) (18) 650 — 4,568 9,738 — (1,705) 96 229 (1,260) 304 775 480 (189) (379) (2,512) (213) 57,064 (4,725) 2,858 2,665 (323) — 158 633 163,500 (273,400) (780) — (52,332) — — 182 108,205 (54,625) 3,072 3,050 6,122 5,523 $ 267 3,598 4,863 365 4,667 1,068 — The accompanying notes are an integral part of these consolidated financial statements. 50 GETTY REALTY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The consolidated financial statements include the accounts of Getty Realty Corp. and its wholly- owned subsidiaries. We are a real estate investment trust (“REIT”) specializing in the ownership, leasing and financing of retail motor fuel and convenience store properties and petroleum distribution terminals. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). We manage and evaluate our operations as a single segment. All significant intercompany accounts and transactions have been eliminated. Use of Estimates, Judgments and Assumptions: The financial statements have been prepared in conformity with GAAP, which requires management to make 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. Estimates, judgments and assumptions underlying the accompanying consolidated financial statements include, but are not limited to, receivables, deferred rent receivable, net investment in direct financing leases, environmental remediation costs, real estate, depreciation and amortization, impairment of long-lived assets, litigation, environmental remediation obligations, accrued liabilities, income taxes and the allocation of the purchase price of properties acquired to the assets acquired and liabilities assumed. Subsequent events: We evaluated subsequent events and transactions for potential recognition or disclosure in our consolidated financial statements. Fair Value Hierarchy: The preparation of financial statements in accordance with GAAP requires management to make estimates of fair value that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements and revenues and expenses during the period reported using a hierarchy (the “Fair Value Hierarchy”) that prioritizes the inputs to valuation techniques used to measure the fair value. The Fair Value Hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The levels of the Fair Value Hierarchy are as follows: “Level 1”-inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date; “Level 2”-inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; and “Level 3”-inputs that are unobservable. Certain types of assets and liabilities are recorded at fair value either on a recurring or non-recurring basis. Assets required or elected to be marked-to-market and reported at fair value every reporting period are valued on a recurring basis. Other assets not required to be recorded at fair value every period may be recorded at fair value if a specific provision or other impairment is recorded within the period to mark the carrying value of the asset to market as of the reporting date. Such assets are valued on a non-recurring basis. We have a receivable that is measured at fair value on a recurring basis using Level 3-inputs of $2,972,000 as of December 31, 2012. Due to the subjectivity inherent in the internal valuation techniques used in estimating fair value, the amount ultimately received from this receivable may vary significantly from our estimate. We have certain real estate assets that are measured at fair value on a non-recurring basis using Level 3-inputs as of December 31, 2012 and December 31, 2011 of $4,967,000 and $19,214,000, respectively, where impairment charges have been recorded. Due to the subjectivity inherent in the internal valuation techniques used in estimating fair value, the amounts realized from the sale of such assets may vary significantly from these estimates. The following summarizes as of December 31, 2012 our assets and liabilities measured at fair value on a recurring basis by level within the Fair Value Hierarchy: (in thousands) Assets: Receivable...................................................................... $ Mutual funds .................................................................. $ Liabilities: Deferred Compensation ................................................. $ Level 1 Level 2 Level 3 Total — 3,013 3,013 $ $ $ — — $ $ 2,972 $ $ — 2,972 3,013 — $ — $ 3,013 51 The following summarizes as of December 31, 2011 our assets and liabilities measured at fair value on a recurring basis by level within the Fair Value Hierarchy: (in thousands) Assets: Mutual funds .................................................................. $ Liabilities: Deferred Compensation ................................................. $ Level 1 Level 2 Level 3 Total 2,744 $ — $ — $ 2,744 2,744 $ — $ — $ 2,744 Discontinued Operations: We report as discontinued operations approximately 111 properties which meet the criteria to be accounted for as held for sale in accordance with GAAP as of the end of the current period and certain properties disposed of during the periods presented. Discontinued operations, including gains and losses, impairment charges and the operating results for properties disposed of in 2012, 2011 and 2010 and impairment charges and operating results of properties classified as held for sale, are included in a separate component of income on the consolidated statement of operations. The operating results and impairment charges of such properties for the years ended 2011 and 2010 have also been reclassified to discontinued operations to conform to the 2012 presentation. The properties currently being marketed for sale have a net carrying value aggregating $25,340,000 and are included in real estate held for sale, net in our consolidated balance sheets. The revenue from rental properties, impairment charges, other operating expenses and gains from dispositions of real estate related to these properties are as follows: (in thousands) Revenues from rental properties ................................................................ $ Impairment charges ................................................................................... Other operating expenses ........................................................................... Earnings (loss) from operating activities ................................................... Gains from dispositions of real estate ........................................................ Earnings (loss) from discontinued operations ............................................ $ Year ended December 31, 2012 2011 2010 5,485 $ (7,614) (6,070) (8,199) 6,838 (1,361) $ 10,178 $ (4,322) (3,772) 2,084 948 3,032 $ 10,172 — (1,044) 9,128 1,705 10,833 Real Estate: Real estate assets are stated at cost less accumulated depreciation and amortization. Upon acquisition of real estate and leasehold interests, we estimate 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, in-place leases and tenant relationships) and assumed debt. Based on these estimates, we record the applicable assets and liabilities at their fair value. When real estate assets are sold or retired, the cost and related accumulated depreciation and amortization is eliminated from the respective accounts and any gain or loss is credited or charged to income. We evaluate real estate sale transactions where we provide seller financing to determine sale and gain recognition in accordance with GAAP. Expenditures for maintenance and repairs are charged to income when incurred. When accounting for business combinations, the amounts recorded for the fair value of assets acquired and liabilities assumed for above-market and below-market leases, leasehold interests as lessee and capital lease obligations are non-cash transactions which do not appear on the face of the consolidated statements of cash flows. (See note 11 for additional information regarding property acquisitions.) Depreciation and Amortization: Depreciation of real estate is computed on the straight-line method based upon the estimated useful lives of the assets, which generally range from 16 to 25 years for buildings and improvements, or the term of the lease if shorter. Asset retirement costs are depreciated over the remaining useful lives of underground storage tanks (“USTs” or “UST”) or 10 years for asset retirement costs related to environmental remediation obligations, which costs are attributable to the group of assets identified at a property. Leasehold interests, in-place leases and tenant relationships are amortized over the remaining term of the underlying lease. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of: Assets are written down to fair value when events and circumstances indicate that the assets might be impaired and the projected undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. We review and adjust as necessary our depreciation estimates and method when long-lived assets are tested for recoverability. Assets held for disposal are written down to fair value less estimated disposition costs. 52 We recorded non-cash impairment charges aggregating $13,942,000 and $20,226,000 for the years ended December 31, 2012 and 2011, respectively, in continuing operations and in discontinued operations. We record non-cash impairment charges and reduce the carrying amount of properties held for use to fair value where the carrying amount of the property exceeded the projected undiscounted cash flows expected to be received during the assumed holding period which includes the estimated sales value expected to be received at disposition. We record non-cash impairment charges and reduce the carrying amount of properties held for sale to fair value less disposal costs. The non-cash impairment charges recorded during the year ended December 31, 2012 were attributable to reductions in our estimates of value for properties held for sale and the accumulation of asset retirement costs as a result of an increase in estimated environmental liabilities which increased the carrying value of certain properties in excess of their fair value. Impairment charges recorded during the year ended December 31, 2011 were attributable to reductions in our estimates of value for properties marketed for sale, reductions in the assumed holding period used to test for impairment and the accumulation of asset retirement costs as a result of an increase in estimated environmental liabilities which increased the carrying value of certain properties in excess of their fair value. The estimated fair value of real estate is based on the price that would be received to sell the property in an orderly transaction between market participants at the measurement date. The internal valuation techniques that we used included discounted cash flow analysis, an income capitalization approach on prevailing or earnings multiples applied to earnings from the property, analysis of recent comparable lease and sales transactions, actual leasing or sale negotiations, bona fide purchase offers received from third parties and/or consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence. In general, we consider multiple internal valuation techniques when measuring the fair value of a property, all of which are based on unobservable inputs and assumptions that are classified within Level 3 of the fair value hierarchy. These unobservable inputs include assumed holding periods ranging up to 15 years, assumed average rent increases ranging up to 2.0% annually, income capitalized at a rate of 8.0% and cash flows discounted at a rate of 7.0%. These assessments have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future rental rates and operating expenses that could differ materially from actual results in future periods. Where properties held for use have been identified as having a potential for sale, additional judgments are required related to the determination as to the appropriate period over which the projected undiscounted cash flows should include the operating cash flows and the amount included as the estimated residual value. This requires significant judgment. In some cases, the results of whether impairment is indicated are sensitive to changes in assumptions input into the estimates, including the holding period until expected sale. Cash and Cash Equivalents: We consider highly liquid investments purchased with an original maturity of 3 (three) months or less to be cash equivalents. Notes and Mortgages Receivable: Notes and mortgages receivables consist of loans originated by us related to seller financing and funding provided to two tenants in conjunction with properties acquired in 2011. Notes and mortgages receivable are recorded at stated principal amounts. We evaluate the collectability of both interest and principal on each loan to determine whether it is impaired. A loan is considered to be impaired when, based upon current information and events, it is probable that we will be unable to collect all amounts due under the existing contractual terms. When a loan is considered to be impaired, the amount of loss is calculated by comparing the recorded investment to the fair value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the fair value of the underlying collateral if the loan is collateralized. Interest income on performing loans is accrued as earned. Interest income on impaired loans is recognized on a cash basis. We do not provide for an additional allowance for loan losses based on the grouping of loans as we believe the characteristics of the loans are not sufficiently similar to allow an evaluation of these loans as a group for a possible loan loss allowance. As such, all of our loans are evaluated individually for impairment purposes. Deferred Rent Receivable and Revenue Recognition: We earn rental income under operating and direct financing leases with tenants. Minimum lease payments from operating leases are recognized on a straight-line basis over the term of the leases. The cumulative difference between lease revenue recognized under this method and the contractual lease payment terms is recorded as deferred rent receivable on the consolidated balance sheet. We provide reserves for a portion of the recorded deferred rent receivable if circumstances indicate that it is not reasonable to assume that the tenant will make all of its contractual lease payments when due during the current term of the lease. The straight-line method requires that rental income related to those properties for which a reserve was provided is effectively recognized in subsequent periods when payment is due under the contractual payment terms. Lease termination fees are recognized as rental income when earned upon the termination of a tenant’s lease and relinquishment of space in which we have no further obligation to the tenant. The present value of the difference between the fair market rent and the contractual rent for above-market and below-market leases at the time properties are acquired is amortized into revenue from rental properties over the remaining lives of the in- place leases. 53 Direct Financing Leases: Income under direct financing leases is included in revenues from rental properties and is recognized over the lease terms using the effective interest rate method which produces a constant periodic rate of return on the net investments in the leased properties. Net investment in direct financing leases represents the investments in leased assets accounted for as direct financing leases. The investments in direct financing leases are increased for interest income earned and amortized over the life of the leases and reduced by the receipt of lease payments. Environmental Remediation Obligations: The estimated future costs for known environmental remediation requirements are accrued when it is probable that a liability has been incurred, including legal obligations associated with the retirement of tangible long-lived assets if the asset retirement obligation results from the normal operation of those assets and a reasonable estimate of fair value can be made. Environmental remediation obligations are 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. The accrued liability is net of recoveries of environmental costs from state underground storage tank (“UST” or “USTs”) remediation funds, with respect to both past and future environmental spending based on estimated recovery rates developed from prior experience with the funds. Net environmental liabilities are currently measured based on their expected future cash flows which have been adjusted for inflation and discounted to present value. We accrue for environmental liabilities that we believe are allocable to other potentially responsible parties if it becomes probable that the other parties will not pay their environmental remediation obligations. Litigation: Legal fees related to litigation are expensed as legal services are performed. We provide for litigation reserves, including certain litigation related to environmental matters, when it is probable that a liability has been incurred and a reasonable estimate of the liability can be made. If the estimate of the liability can only be identified as a range, and no amount within the range is a better estimate than any other amount, the minimum of the range is accrued for the liability. We accrue our share of environmental liabilities based on our assumptions of the ultimate allocation method and share that will be used when determining our share of responsibility. Income Taxes: We and our subsidiaries file a consolidated federal income tax return. Effective January 1, 2001, we elected to qualify, and believe we are operating so as to qualify, as a REIT for federal income tax purposes. Accordingly, we generally will not be subject to federal income tax on qualifying REIT income, provided that distributions to our shareholders equal at least the amount of our taxable income as defined under the Internal Revenue Code. We accrue for uncertain tax matters when appropriate. 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. Although tax returns for the years 2009, 2010 and 2011, and tax returns which will be filed for the year ended 2012 remain open to examination by federal and state tax jurisdictions under the respective statute of limitations, we have not currently identified any uncertain tax positions related to those years and, accordingly, have not accrued for uncertain tax positions as of December 31, 2012 or 2011. Interest Expense and Interest Rate Swap Agreement: In April 2006 we entered into an interest rate swap agreement with JPMorgan Chase Bank, N.A. as the counterparty, designated and qualifying as a cash flow hedge, to reduce our variable interest rate risk by effectively fixing a portion of the interest rate for existing debt and anticipated refinancing transactions. We have not entered into financial instruments for trading or speculative purposes. The fair value of the interest rate swap obligation was based upon the estimated amounts we would receive or pay to terminate the contract and was determined using an interest rate market pricing model. Changes in the fair value of the agreement were included in the consolidated statements of comprehensive income and would have been recorded in the consolidated statements of operations if the agreement was not an effective cash flow hedge for accounting purposes. Earnings per Common Share: Basic earnings per common share gives effect, utilizing the two-class method, to the potential dilution from the issuance of common shares in settlement of restricted stock units (“RSUs” or “RSU”) which provide for non-forfeitable dividend equivalents equal to the dividends declared per common share. Basic earnings per common share is computed by dividing net earnings less dividend equivalents attributable to RSUs by the weighted-average number of common shares outstanding during the year. Diluted earnings per common share, also gives effect to the potential dilution from the exercise of stock options utilizing the treasury stock method. 54 (in thousands): Earnings from continuing operations .................................................................................. $ 13,808 $ 9,424 $ 40,867 2012 2010 Year ended December 31, 2011 Less dividend equivalents attributable to restricted stock units outstanding ............... (82) (249) (228) Earnings from continuing operations attributable to common shareholders used for basic earnings per share calculation ................................................................................ 13,726 Earnings (loss) from discontinued operations ..................................................................... Net earnings attributable to common shareholders used for basic earnings per share (1,361) 9,175 3,032 40,639 10,833 calculation ....................................................................................................................... $ 12,365 $ 12,207 $ 51,472 Weighted-average number of common shares outstanding: Basic ............................................................................................................................ 33,395 Stock options ............................................................................................................... — Diluted ......................................................................................................................... 33,395 216 Restricted stock units outstanding at the end of the period ................................................. 33,171 1 33,172 171 27,950 3 27,953 123 Stock-Based Compensation: Compensation cost for our stock-based compensation plans using the fair value method was $757,000, $643,000 and $480,000 for the years ended December 31, 2012, 2011 and 2010, respectively, and is included in general and administrative expense. The impact of the accounting for stock-based compensation is, and is expected to be, immaterial to our financial position and results of operations. Reclassifications: Certain amounts related to discontinued operations for 2011 and 2010 have been reclassified to conform to the 2012 presentation. New Accounting Pronouncement: In May 2011, the FASB issued Accounting Standards Update No. 2011-04, "Fair Value Measurements and Disclosures (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS" ("ASU 2011-04"). ASU 2011-04 clarifies the application of existing fair value measurement requirements, changes certain principles related to measuring fair value and requires additional disclosures about fair value measurements. Required disclosures are expanded under the new guidance, especially for fair value measurements that are categorized within Level 3 of the fair value hierarchy, for which quantitative information about the unobservable inputs used, and a narrative description of the valuation processes in place and sensitivity of recurring Level 3 measurements to changes in unobservable inputs is required. Entities will also be required to disclose the categorization by level of the fair value hierarchy for items that are not measured at fair value in the balance sheet but for which the fair value is required to be disclosed. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011, and is applied prospectively. The adoption of this guidance in 2012 resulted in expanded disclosures on fair value measurements but did not have an impact to our measurements of fair value. 2. LEASES Our business model is to lease our properties on a triple-net basis primarily to petroleum distributors and to a lesser extent to individual operators. Our tenants operate our properties directly or sublet our properties to operators who operate their gas stations, convenience stores, automotive repair service facilities or other businesses at our properties. These tenants are responsible for the operations conducted at these properties. Our triple-net tenants are generally responsible for the payment of all taxes, maintenance, repairs, insurance and other operating expenses relating to our properties. Substantially all of our tenants’ financial results depend on the sale of refined petroleum products and rental income from their subtenants. As a result, our tenants’ financial results are highly dependent on the performance of the petroleum marketing industry, which is highly competitive and subject to volatility. In those instances where we determine that the best use for a property is no longer as a gas station, we will seek an alternative tenant or buyer for the property. As of December 31, 2012, approximately 20 of our properties are leased for uses such as quick serve restaurants, automobile sales and other retail purposes, excluding approximately 40 properties previously subject to the Master Lease with Marketing which are currently held for sale and which have temporary occupancies. Our 1,081 properties are located in 21 states across the United States with concentrations in the Northeast and Mid-Atlantic regions. More than 700 of the properties we own or lease as of December 31, 2012 were previously leased to Getty Petroleum Marketing Inc. (“Marketing”) comprising a unitary premises pursuant to a master lease (the “Master Lease”) and we derived a majority of our revenues from the leasing of these properties under the Master Lease. On December 5, 2011, Marketing filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). Marketing rejected the Master Lease pursuant to an Order issued by the Bankruptcy Court effective April 30, 2012. In accordance with GAAP, we recognize in revenue from rental properties in our consolidated statement of 55 operations the full contractual rent and real estate obligations due to us by Marketing during the term of the Master Lease and provide bad debt reserves included in general and administrative expenses and in earnings (loss) from discontinued operations in our consolidated statement of operations for our estimate of uncollectible amounts due from Marketing. As a result, we provided net bad debt reserves related to uncollected rent and real estate taxes due from Marketing of $8,802,000 in the fourth quarter of 2011 and $13,980,000 for the year ended December 31, 2012. The reserve provided in the year ended December 31, 2012 is net of a reduction of $1,348,000 as a result of receiving cash from a partial liquidation of the Marketing bankruptcy estate. We have provided bad debt reserves aggregating $22,782,000 for all outstanding rent and real estate tax obligations due from Marketing as of December 31, 2012 substantially all of which remain unpaid as of the filing of this Annual Report on Form 10-K. (See note 3 for additional information regarding Marketing and the Master Lease.) As a result of Marketing’s bankruptcy filing and Marketing’s rejection of the Master Lease, we commenced a process to reposition the portfolio of properties that were subject to the Master Lease after the properties became available to us free of Marketing’s tenancy. As a result of that process, as of December31, 2012, we have entered into long-term triple-net leases with petroleum distributors for ten separate property portfolios comprising 443 properties in the aggregate and month-to-month license agreements with occupants of approximately 155 properties (substantially all of whom were Marketing’s former sub- tenants) allowing such occupants to continue to occupy and use these properties as gas stations, convenience stores, automotive repair service facilities or other businesses. The month-to-month license agreements require the operators to sell fuel provided exclusively by petroleum distributors with whom we have contracted for interim fuel supply and from whom we receive a fee based on gallons sold. We have also entered into additional month-to-month license agreements at approximately 40 properties which have had their underground storage tanks removed and are being used for various retail uses other than as a gas station. These properties are currently marketed for sale. Our month-to-month license agreements differ from our typical triple-net lease agreements in that we are responsible for the payment of certain environmental costs and property operating expenses including real estate taxes. Approximately 60 properties previously subject to the Master Lease are currently vacant, the majority of which have had their underground storage tanks removed and are being marketed for sale. The long-term triple-net leases with petroleum distributors for ten separate property portfolios comprising 443 properties in the aggregate are unitary triple-net lease agreements generally with an initial term of 15 years, and options for successive renewal terms of up to 20 years. Rent is scheduled to increase at varying intervals of up to three years on the anniversary of the commencement date of the leases. The majority of the leases provide for additional rent based on the volume of petroleum products sold. As triple-net lessees, the tenants are required to pay all amounts pertaining to the properties subject to the leases, including taxes, assessments, licenses and permit fees, charges for public utilities and all other governmental charges. In addition, the majority of the leases require the tenants to make capital expenditures at our properties substantially all of which is related to the replacement of underground storage tanks that are the property our tenants. In certain of our new leases, we have committed to co-invest up to $14,080,000 with our tenants for a portion of such capital expenditures, which deferred expense is recognized on a straight-line basis as a reduction of revenues from rental properties over the terms of the various leases. As part of certain of the triple-net leases we have entered into through December 31, 2012, we transferred title of the USTs to our tenants and the obligation to pay for the retirement and decommissioning or removal of USTs at the end of their useful life or earlier if circumstances warranted at the 443 sites was fully or partially transferred to our new tenants. We remain contingently liable for this obligation in the event that our tenants do not satisfy their responsibilities. Accordingly, during the year ended December 31, 2012, we removed $11,153,000 of asset retirement obligations and $9,795,000 of net asset retirement costs related to USTs from our balance sheet. The net amount of $1,358,000 is recorded as deferred rental revenue and will be recognized on a straight-line basis as additional revenues from rental properties over the terms of the various leases. We incurred $3,146,000 of lease origination costs in 2012, which deferred expense is recognized on a straight-line basis as a reduction of revenues from rental properties over the terms of the various leases. Revenues from rental properties included in continuing operations for the years ended December 31, 2012,2011 and 2010 was $99,286,000, $100,263,000 and $78,227,000, respectively, of which $20,136,000, $52,646,000 and $50,135,000, respectively, was contractually due or received from Marketing under the Master Lease through its rejection on April 30, 2012 and $72,954,000, $45,515,000 and $26,426,000, respectively, were contractually due or received from other tenants including rent for May 2012 through December 2012 related to properties repositioned from the Master Lease. Revenues from rental properties and rental property expenses included in continuing operations included $11,263,000 for the year ended December 31, 2012, $6,639,000 for the year ended December 31, 2011 and $1,849,000, for the year ended December 31, 2010 for real estate taxes paid by us which were reimbursable by tenants (which includes amounts related to properties previously subject to the Master Lease discussed in the following paragraph). Revenues from rental properties included in continuing operations for the year ended December 31, 2012 also include $1,763,000 for amounts realized under interim fuel supply agreements. 56 As a result of Marketing’s bankruptcy filing, beginning in the first quarter of 2012, we began paying past due real estate taxes for 2011 and 2012, which taxes Marketing historically paid directly. Real estate taxes that we pay and were due from Marketing through April 30, 2012, the date the Master Lease was rejected, and from certain other tenants who are contractually obligated to reimburse us for the payment of real estate taxes pursuant to the terms of triple-net lease agreements are included in revenues from rental properties and in rental property expense in our consolidated statement of operations. Revenues from rental properties and rental property expense included in continuing operations included $11,263,000, $6,639,000 and $1,849,000 for the year ended December 31, 2012, 2011 and 2010, respectively, for real estate taxes paid by us which were due from Marketing and other tenants. Marketing also made additional direct payments for other operating expenses related to these properties, including environmental remediation obligations other than those liabilities that were retained by us. Costs paid directly by Marketing under the terms of the Master Lease are not reflected in revenues from rental properties or rental property expense in our consolidated financial statements. We continue to incur costs associated with the Marketing bankruptcy and we anticipate paying directly other Property Expenditures (as defined below) historically paid by Marketing under the terms of the Master Lease for the foreseeable future. In accordance with GAAP, we recognize rental revenue in amounts which vary from the amount of rent contractually due or received during the periods presented. As a result, revenues from rental properties include non-cash adjustments recorded for deferred rental revenue due to the recognition of rental income on a straight-line (or average) basis over the current lease term, net amortization of above-market and below-market leases and recognition of rental income recorded under direct financing leases using the effective interest method which produces a constant periodic rate of return on the net investments in the leased properties (the “Revenue Recognition Adjustments”). Revenue Recognition Adjustments included in continuing operations increased rental revenue by $4,433,000, $2,102,000 and $1,666,000 for the years ended December 31, 2012, 2011 and 2010, respectively. We provide reserves for a portion of the recorded deferred rent receivable if circumstances indicate that a tenant will not make all of its contractual lease payments during the current lease term. Our assessments and assumptions regarding the recoverability of the deferred rent receivable are reviewed on an ongoing basis and such assessments and assumptions are subject to change. As of December 31, 2011, the gross deferred rent receivable attributable to the Master Lease of $25,630,000 was fully reserved. As a result of the developments described above, we previously concluded that it was probable that we would not receive from Marketing the entire amount of the contractual lease payments owed to us under the Master Lease. Accordingly, during the third and fourth quarters of 2011, we recorded non-cash allowances for deferred rental revenue in continuing and discontinued operations aggregating $11,043,000 and $8,715,000, respectively, fully reserving in the fourth quarter of 2011 for the deferred rent receivable relating to the Master Lease. These non-cash allowances reduced our net earnings for the applicable periods in 2011, but did not impact our cash flow from operating activities. The gross deferred rent receivable and the reserve relating to the Master Lease were derecognized in the second quarter of 2012 upon termination of the Master Lease. The components of the $91,904,000 net investment in direct financing leases as of December 31, 2012, are minimum lease payments receivable of $203,869,000 plus unguaranteed estimated residual value of $11,991,000 less unearned income of $123,956,000. Future contractual minimum annual rentals receivable from our tenants, which have terms in excess of one year as of December 31, 2012, are as follows (in thousands): YEAR ENDING DECEMBER 31, 2013 ..................................................................................................... $ 2014 ..................................................................................................... 2015 ..................................................................................................... 2016 ..................................................................................................... 2017 ..................................................................................................... Thereafter ............................................................................................. OPERATING LEASES DIRECT FINANCING LEASES 67,940 $ 61,160 60,572 60,624 59,993 495,195 11,035 $ 11,286 11,462 11,640 11,942 146,506 TOTAL(a) 78,975 72,446 72,034 72,264 71,935 641,701 (a) Includes $89,392,000 of future minimum annual rentals receivable under subleases. Rent expense, substantially all of which consists of minimum rentals on non-cancelable operating leases, amounted to $7,903,000, $8,009,000 and $7,007,000 for the years ended December 31, 2012, 2011 and 2010, respectively, and is included in rental property expenses using the straight-line method. Rent received under subleases for the years ended December 31, 2012, 2011 and 2010 was $11,809,000, $13,325,000 and $11,868,000, respectively. 57 We have obligations to lessors under non-cancelable operating leases which have terms in excess of one year, principally for gasoline stations and convenience stores. The leased properties have a remaining lease term averaging over 10 years, including renewal options. Future minimum annual rentals payable under such leases, excluding renewal options, are as follows: 2013 — $7,826,000, 2014 — $6,830,000, 2015 — $5,631,000, 2016 — $4,474,000, 2017 - $2,771,000 and $5,866,000 thereafter. 3. COMMITMENTS AND CONTINGENCIES CREDIT RISK In order to minimize our exposure to credit risk associated with financial instruments, we place our temporary cash investments, if any, with high credit quality institutions. Temporary cash investments, if any, are currently held in an overnight bank time deposit with JPMorgan Chase Bank, N.A. MARKETING AND THE MASTER LEASE On December 5, 2011, Marketing filed for Chapter 11 bankruptcy protection in the Bankruptcy Court. On March 7, 2012, we entered into a stipulation with Marketing and with the Official Committee of Unsecured Creditors in the Bankruptcy proceedings (the “Creditors Committee”), which was approved and made an Order by the Bankruptcy Court on April 2, 2012 (the “Stipulation”). Pursuant to the terms of the Stipulation, in addition to our other pre-petition and post- petition claims, we are entitled to recover an administrative claim capped at $10,500,000 for the partial payment of fixed rent and performance of other obligations due from Marketing under the Master Lease from December 5, 2011 until possession of the properties subject to the Master Lease was returned to us effective April 30, 2012 (the “Administrative Claim”). Our Administrative Claim has priority over the claims of other creditors and certain of our other claims. As of the date of this filing on Form 10-K, the outstanding unpaid principal amount of our Administrative Claim is $7,443,000. The Bankruptcy Court has appointed a liquidating trustee (the “Liquidating Trustee”) to oversee the liquidation of the Marketing estate (the “Marketing Estate”). The Liquidating Trustee continues to oversee the Marketing Estate and pursue claims for the benefit of its creditors, including those related to the recovery of various deposits, including surety bonds, insurance policy claims and claims made to state funded tank reimbursement programs. We received distributions reducing our Administrative Claim of $1,348,000 in the third and fourth quarters of 2012 and $1,709,000 in the first quarter of 2013, from the Marketing Estate. As a result, in 2012, we reversed portions of our bad debt reserve for uncollectible amounts due from Marketing and reduced bad debt expense included in general and administrative expenses on our consolidated statement of income. We cannot provide any assurance that we will ultimately collect any additional claims against or unpaid amounts due from the Marketing Estate pursuant to the Plan of Liquidation, or otherwise. In December 2011, the Marketing Estate filed a lawsuit against Marketing’s former parent, Lukoil Americas Corporation, and certain of its affiliates (collectively, “Lukoil”), as well as the former directors and officers of Marketing (the “Lukoil Complaint”). The Lukoil Complaint asserts, among other claims, that Marketing’s sale of assets to Lukoil in November 2009 constituted a fraudulent conveyance, and that the assets or their value can be recovered from Lukoil. In addition, the Lukoil Complaint asserts that the former directors and officers violated their fiduciary duties to Marketing in approving and effectuating the challenged sale, and are liable for money damages. The Liquidating Trustee is pursuing these claims for the benefit of the Marketing Estate. It is possible that the Liquidating Trustee will obtain a favorable judgment or will settle with the defendants, and therefore it is possible that we may ultimately recover a portion of our claims against Marketing, including our Administrative Claim, which has priority over most other creditors’ claims, and our additional pre- petition and post-petition claims. In October 2012, we entered into an agreement with the Marketing Estate to make loans and otherwise fund up to an aggregate amount of $6,425,000 to fund the prosecution of the Lukoil Complaint and certain Liquidating Trustee expenses incurred in connection with the wind-down of the Marketing Estate (the “Litigation Funding Agreement”). This agreement provides that we are entitled to receive proceeds, if any, from the successful prosecution of the Lukoil Complaint in an amount equal to the sum of (i) all funds advanced for wind-down costs and expert witness and consultant fees plus interest accruing at 15% per annum on such advances made by us; plus (ii) the greater of all funds advanced for legal fees and expenses relating to the prosecution of the Lukoil Complaint plus interest accruing at 15% per annum on such advances made by us, or 24% of the gross proceeds from any settlement or favorable judgment obtained by the Liquidating Trustee due to the Lukoil Complaint. We advanced $1,672,000 in the fourth quarter of 2012 and $143,000 in the first quarter of 2013 to the Marketing Estate pursuant to the Litigation Funding Agreement. It is possible that we may agree to advance amounts in excess of $6,425,000. The Litigation Funding Agreement also provides that we are entitled to be reimbursed for up to $1,300,000 of our legal fees incurred in connection with the Litigation Funding Agreement. Based on the terms 58 of the Litigation Funding Agreement, we have recorded a receivable of $2,972,000 as of December 31, 2012, which includes amounts advanced and amounts due for reimbursable legal fees we incurred in connection with the Litigation Funding Agreement. Payments that we receive pursuant to the Litigation Funding Agreement will not reduce our Administrative Claim or our other pre-petition and post-petition claims against Marketing. A portion of the payments we receive pursuant to the Litigation Funding Agreement may be subject to federal income taxes. We cannot provide any assurance that we will be repaid any amounts we advance pursuant to the Litigation Funding Agreement or the reimbursable legal fees we have incurred. We have elected to account for the advances, accrued interest and litigation reimbursements due us pursuant to the Litigation Funding Agreement on a fair value basis. We used unobservable inputs based on comparable transactions when determining the fair value of Litigation Funding Agreement. We concluded that the terms of the Litigation Funding Agreement are within a range of terms representing the market for such arrangements when considering the unique circumstances particular to the counterparties to such funding agreements. These inputs include the potential outcome of the litigation related to the Lukoil Complaint including the probability of the Marketing Estate prevailing in its lawsuit and the potential amount that may be recovered by the Marketing Estate from Lukoil Americas Corporation. We also applied a discount factor commensurate with the risk that the Marketing Estate may not prevail in its lawsuit. We considered that fair value is defined as an amount of consideration that would be exchanged between a willing buyer and seller. Accordingly, we believe that a market participant would likely purchase our rights from us for approximately the amounts currently due us under the terms of the Litigation Funding Agreement. Under the Master Lease, Marketing was responsible to pay for certain environmental related liabilities and expenses. As a result of Marketing’s bankruptcy filing, we have accrued for certain environmental liabilities (the “Marketing Environmental Liabilities”) and commenced funding remediation activities during the second quarter of 2012 related to such accruals. We do not expect to be reimbursed by Marketing for any such remediation activities except as a result of realizing a claim deriving from the Lukoil Complaint. We expect to continue to incur and fund costs associated with the Marketing bankruptcy proceedings and associated eviction proceedings as well as costs associated with repositioning properties previously leased to Marketing. We expect to continue to incur operating expenses such as maintenance, repairs, real estate taxes, insurance and general upkeep related to these properties (“Property Expenditures”) for vacant properties and properties subject to our month-to-month license agreements. In certain of our new leases, we have also agreed to co-invest with our tenants to fund capital improvements including replacing underground storage tanks and related equipment or renovating some of the properties previously leased to Marketing (“Capital Improvements”). It is possible that our estimates for the Marketing Environmental Liabilities relating to the properties previously leased to Marketing will be higher than the amounts we have accrued and that issues involved in re-letting or repositioning these properties may require significant management attention that would otherwise be devoted to our ongoing business. In addition, we increased our number of tenants significantly and are performing property related functions previously performed by Marketing, both of which have resulted in permanent increases in our annual operating expenses. The incurrence of these various expenses may materially negatively impact our cash flow and ability to pay dividends. Our estimates, judgments, assumptions and beliefs regarding Marketing and the Master Lease affect the amounts reported in our financial statements and are subject to change. Actual results could differ from these estimates, judgments and assumptions and such differences could be material. If our actual expenditures for the Marketing Environmental Liabilities are greater than the amounts accrued, if we incur significant costs and operating expenses relating to the properties comprising the Master Lease portfolio; if the repositioning of the properties comprising the Master Lease portfolio leads to a protracted and expensive process for taking control and or re-letting our properties; if re-letting the properties comprising the Master Lease portfolio requires significant management attention that would otherwise be devoted to our ongoing business; if the Bankruptcy Court takes actions that are detrimental to our interests; if we are unable to re-let or sell the properties comprising the Master Lease portfolio at all or upon terms that are favorable to us; or if we change our estimates, judgments, assumptions and beliefs; our business, financial condition, revenues, operating expenses, results of operations, liquidity, ability to pay dividends and stock price may continue to be materially adversely affected or adversely affected to a greater extent than we have experienced. (For information regarding factors that could adversely affect us relating to our lessees, including Marketing, see “Part II, Item 1A. Risk Factors.”) 59 LEGAL PROCEEDINGS We are subject to various legal proceedings and claims which arise in the ordinary course of our business. As of December 31, 2012 and December 31, 2011, we had accrued $3,615,000 and $4,242,000, respectively, for certain of these matters which we believe were appropriate based on information then currently available. We are unable to estimate ranges in excess of the amount accrued with any certainty for these matters. It is possible that our assumptions regarding the ultimate allocation method and share of responsibility that we used to allocate environmental liabilities may change, which may result in our providing an accrual, or adjustments to the amounts recorded, for environmental litigation accruals. Matters related to our Newark, New Jersey Terminal and the Lower Passaic River and the MTBE multi-district litigation case, in particular, could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. Matters related to our Newark, New Jersey Terminal and the Lower Passaic River In September 2003, we received a directive (the “Directive”) from the State of New Jersey Department of Environmental Protection (the “NJDEP”) notifying us that we are one of approximately 66 potentially responsible parties for natural resource damages resulting from discharges of hazardous substances into the Lower Passaic River. The Directive calls for an assessment of the natural resources that have been injured by the discharges into the Lower Passaic River and interim compensatory restoration for the injured natural resources. There has been no material activity with respect to the NJDEP Directive since early after its issuance. The 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. Effective May 2007, the United States Environmental Protection Agency (“EPA”) entered into an Administrative Settlement Agreement and Order on Consent (“AOC”) with over 70 parties comprising a Cooperating Parties Group (“CPG”) (many of whom are also named in the Directive) who have collectively agreed to perform a Remedial Investigation and Feasibility Study (“RI/FS”) for the Lower Passaic River. We are a party to the AOC and are a member of the CPG. The RI/FS is intended to address the investigation and evaluation of alternative remedial actions with respect to alleged damages to the Lower Passaic River, and is scheduled to be completed in or about 2015. On June 18, 2012, all members of the CPG except Occidental Chemical Corporation (“Occidental”) entered into an Administrative Settlement Agreement and Order on Consent (“10.9 AOC”) to perform certain remediation activities, including removal and capping of sediments at the river mile 10.9 area and certain testing. Similar to the RI/FS work, the CPG entered into an interim allocation for the costs of the river mile 10.9 work. The EPA issued a Unilateral Order to Occidental directing Occidental to participate and contribute to the cost of the river mile 10.9 work and discussions regarding Occidental’s participation in the river mile 10.9 work are ongoing. Concurrently, the EPA is preparing a proposed Focused Feasibility Study (“FFS”) that the EPA claims will address sediment issues in the lower eight miles of the Lower Passaic River. The RI/FS and 10.9 AOC do not resolve liability issues for remedial work or restoration of, or compensation for, natural resource damages to the Lower Passaic River, which are not known at this time. In a related action, in December 2005, the State of New Jersey through various state agencies brought suit against certain companies which the State alleges are responsible for various categories of past and future damages resulting from discharges of hazardous substances to the Passaic River. In February 2009, certain of these defendants filed third-party complaints against approximately 300 additional parties, including us, seeking contribution for such parties’ proportionate share of response costs, cleanup and other damages, based on their relative contribution to pollution of the Passaic River and adjacent bodies of water. We believe that ChevronTexaco is contractually obligated to indemnify us, pursuant to an indemnification agreement, for most if not all of the conditions at the property identified by the NJDEP and the EPA. Accordingly, our potential range of loss including our ultimate legal and financial liability, if any, cannot be made with any certainty at this time MTBE Litigation We are defending against one remaining lawsuit of many brought by or on behalf of private and public water providers and governmental agencies. These cases alleged (and, as described below with respect to one remaining case, continue to allege) various theories of liability due to contamination of groundwater with methyl tertiary butyl ether (a fuel derived from methanol, commonly referred to as “MTBE”) as the basis for claims seeking compensatory and punitive damages, and name as defendant approximately 50 petroleum refiners, manufacturers, distributors and retailers of MTBE, or gasoline containing MTBE. During 2010, we agreed to, and subsequently paid, $1,725,000 to settle two plaintiff classes covering 52 pending cases. Presently, we remain a defendant in one MTBE case involving multiple locations throughout the State of New Jersey brought by various governmental agencies of the State of New Jersey, including the NJDEP. 60 As of December 31, 2012 and December 31, 2011, we maintained a litigation reserve representing our best estimate of loss relating to the remaining MTBE case in an amount which we believe was appropriate based on information then currently available. We are unable to estimate ranges in excess of the amount accrued with any certainty for the case involving the State of New Jersey as there remains uncertainty as to the accuracy of the allegations in this case as they relate to us, our defenses to the claims, our rights to indemnification and the aggregate possible amount of damages for which we may be held liable. 4. CREDIT AGREEMENT AND TERM LOAN AGREEMENT As of December 31, 2012, we were a party to a $175,000,000 amended and restated senior secured revolving credit agreement with a group of commercial banks led by JPMorgan Chase Bank, N.A. and a $25,000,000 amended term loan agreement with TD Bank, both of which were scheduled to mature in March 2013. As of December 31, 2012, borrowings under the credit agreement were $150,290,000 bearing interest at a rate of 3.25% per annum and borrowings under the term loan agreement were $22,030,000 bearing interest at a rate of 3.50% per annum. Loan origination costs incurred in March 2012 of $4,144,000 were amortized over the one year extended term of these debt agreements. On February 25, 2013, the borrowings then outstanding under such credit agreement and term loan agreement were repaid with cash on hand and proceeds of the Credit Agreement and the Prudential Loan Agreement (both defined below). On February 25, 2013, we entered into a $175,000,000 senior secured revolving credit agreement (the “Credit Agreement”) with a group of commercial banks led by JPMorgan Chase Bank, N.A. (the “Bank Syndicate”), which is scheduled to mature in August 2015. Subject to the terms of the Credit Agreement, we have the option to extend the term of the Credit Agreement for one additional year to August 2016. The Credit Agreement allocates $25,000,000 of the total Bank Syndicate commitment to a term loan and $150,000,000 to a revolving credit facility. Subject to the terms of the Credit Agreement, we have the option to increase by $50,000,000 the amount of the revolving credit facility to $200,000,000. The Credit Agreement permits borrowings at an interest rate equal to the sum of a base rate plus a margin of 1.50% to 2.00% or a LIBOR rate plus a margin of 2.50% to 3.00% based on our leverage at the end of each quarterly reporting period. The annual commitment fee on the undrawn funds under the Credit Agreement is 0.30% to 0.40% based our leverage at the end of each quarterly reporting period. The Credit Agreement does not provide for scheduled reductions in the principal balance prior to its maturity. The Credit Agreement provides for security in the form of, among other items, mortgage liens on certain of our properties. The parties to the Credit Agreement and the Prudential Loan Agreement (as defined below) share the security pursuant to the terms of an inter-creditor agreement. The Credit Agreement contains customary financial covenants such as loan to value, leverage and coverage ratios and minimum tangible net worth, as well as limitations on restricted payments, which may limit our ability to incur additional debt or pay dividends. The Credit Agreement contains customary events of default, including default under the Prudential Loan Agreement, change of control and failure to maintain REIT status. Any event of default, if not cured or waived, would increase by 200 basis points (2.00%) the interest rate we pay under the Credit Agreement and prohibit us from drawing funds against the Credit Agreement and could result in the acceleration of our indebtedness under the Credit Agreement and could also give rise to an event of default and could result in the acceleration of our indebtedness under the Prudential Loan Agreement. We may be prohibited from drawing funds against the revolving credit facility if there is a material adverse effect on our business, assets, prospects or condition. On February 25, 2013, we entered into a $100,000,000 senior secured long-term loan agreement with the Prudential Insurance Company of America (the “Prudential Loan Agreement”), which matures in February 2021. The Prudential Loan Agreement bears interest at 6.00%. The Prudential Loan Agreement does not provide for scheduled reductions in the principal balance prior to its maturity. The parties to the Credit Agreement and the Prudential Loan Agreement share the security described above pursuant to the terms of an inter-creditor agreement. The Prudential Loan Agreement contains customary financial covenants such as loan to value, leverage and coverage ratios and minimum tangible net worth, as well as limitations on restricted payments, which may limit our ability to incur additional debt or pay dividends. The Prudential Loan Agreement contains customary events of default, including default under the Credit Agreement and failure to maintain REIT status. Any event of default, if not cured or waived, would increase by 200 basis points (2.00%) the interest rate we pay under the Prudential Loan Agreement and could result in the acceleration of our indebtedness under the Prudential Loan Agreement and could also give rise to an event of default and could result in the acceleration of our indebtedness under our Credit Agreement. We repaid the then outstanding borrowings related to our debt outstanding as of December 31, 2012 partially with cash on hand and proceeds from the Credit Agreement and the Prudential Loan Agreement entered into in February 2013. The aggregate maturity of the Credit Agreement and the Prudential Loan Agreement as of February 25, 2013, is as follows: 2015 — $71,900,000 and 2021 - $100,000,000. 61 Due to the near-term maturity of our outstanding debt as of December 31, 2012, the carrying value of the borrowings outstanding as of December 31, 2012 approximated fair value which was determined using a discounted cash flow technique that incorporates a market interest yield curve based on market data obtained from sources independent of us that are observable at commonly quoted intervals and are defined by GAAP as Level 2 inputs in the Fair Value Hierarchy with adjustments for duration, optionality, risk profile and projected average borrowings outstanding or borrowings outstanding, which are based on unobservable Level 3 inputs. We classified our valuations of the borrowings outstanding under the amended credit agreement and the amended term loan agreement entirely within Level 3 of the Fair Value Hierarchy. 5. INTEREST RATE SWAP AGREEMENT We were a party to a $45,000,000 LIBOR based interest rate swap, effective through June 30, 2011 (the “Swap Agreement”). The Swap Agreement was intended to effectively fix, at 5.44%, the LIBOR component of the interest rate determined under our LIBOR based loan agreements. We entered into the Swap Agreement with JPMorgan Chase Bank, N.A., 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 the hedging transaction and derivative position was to reduce our variable interest rate risk by effectively fixing a portion of the interest rate for existing debt and anticipated refinancing transactions. We determined that the derivative used in the hedging transaction was highly effective in offsetting changes in cash flows associated with the hedged item and that no gain or loss was required to be recognized in earnings during the year ended December 31, 2011 representing the hedge’s ineffectiveness. The fair values of the Swap Agreement obligation were determined using (i) discounted cash flow analyses on the expected cash flows of the Swap Agreement, which were based on market data obtained from sources independent of us consisting of interest rates and yield curves that are observable at commonly quoted intervals and are defined by GAAP as Level 2 inputs in the Fair Value Hierarchy, and (ii) credit valuation adjustments, which were based on unobservable Level 3 inputs. We classified our valuations of the Swap Agreement entirely within Level 2 of the Fair Value Hierarchy since the credit valuation adjustments were not significant to the overall valuations of the Swap Agreement. 6. ENVIRONMENTAL OBLIGATIONS 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. Environmental costs 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. We seek reimbursement from state UST remediation funds related to these environmental costs where available. In July 2012, we purchased for $3,062,000 a ten-year pollution legal liability insurance policy covering all of our properties for pre-existing unknown environmental liabilities and new environmental events. The policy has a $50,000,000 aggregate limit and is subject to various self-insured retentions and other conditions and limitations. Our intention in purchasing this policy is to obtain protection predominantly for significant events. No assurances can be given that we will obtain a net financial benefit from this investment. Historically we did not maintain pollution legal liability insurance to protect from potential future claims related to known and unknown environmental liabilities. We enter into leases and various other agreements which allocate responsibility for known and unknown environmental liabilities by establishing the percentage and method of allocating responsibility between the parties. In accordance with the leases with certain tenants, we have agreed to bring the leased properties with known environmental contamination to within applicable standards, and to either regulatory or contractual closure (“Closure”). Generally, upon achieving Closure at each 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. Generally, our tenants are directly responsible to pay for: (i) the retirement and decommissioning or removal of USTs and other equipment, (ii) remediation of environmental contamination they cause and compliance with various environmental laws and regulations as the operators of our properties, and (iii) environmental liabilities allocated to them under the terms of our leases and various other agreements. We are contingently liable for these obligations in the event that our tenants do not satisfy their responsibilities. Under the Master Lease, Marketing was responsible to pay for the retirement and decommissioning or removal of USTs at the end of their useful life or earlier if circumstances warranted as well as all environmental liabilities discovered during the term of the Master Lease, including: (i) remediation of environmental contamination Marketing caused and compliance with various environmental laws and regulations as the operator of our properties, and (ii) known and unknown environmental liabilities allocated to Marketing under the terms of the Master Lease and various other agreements with us relating to Marketing’s business and the properties it leased from us (collectively the 62 “Marketing Environmental Liabilities”). A liability has not been accrued for obligations that are the responsibility of our tenants (other than the Marketing Environmental Liabilities accrued in the fourth quarter of 2011) based on our tenants’ history of paying such obligations and/or our assessment of their financial ability and intent to pay their share of such costs. However, there can be no assurance that our assessments are correct or that our tenants who have paid their obligations in the past will continue to do so. In the fourth quarter of 2011, since we could no longer assume that Marketing would be able to meet its environmental remediation obligations at 246 properties and its obligations to remove all underground storage tanks at the end of their useful life or earlier if circumstances warrant, we accrued $47,874,000 as the aggregate Marketing Environmental Liabilities. In conjunction with recording the Marketing Environmental Liabilities, we increased the carrying value for each of the properties by the amount of the related estimated environmental obligation and simultaneously recorded impairment charges aggregating $17,017,000 where the accumulation of asset retirement costs increased the carrying value of the property above its estimated fair value. As part of certain triple-net leases whose term commenced through December 31, 2012, we transferred title of the USTs to our tenants and the obligation to pay for the retirement and decommissioning or removal of USTs at the end of their useful life or earlier if circumstances warranted was fully or partially transferred to our new tenants. Accordingly, during the year ended December 31, 2012, we removed $11,153,000 of asset retirement obligations and $9,795,000 of net asset retirement costs related to USTs from our balance sheet. The net amount of $1,358,000 is recorded as deferred rental revenue and will be recognized on a straight-line basis as additional revenues from rental properties over the terms of the various leases. (See note 2 for additional information.) It is possible that our assumptions regarding the ultimate allocation method and share of responsibility that we used to allocate environmental liabilities may change, which may result in material adjustments to the amounts recorded for environmental litigation accruals and environmental remediation liabilities. We are required to accrue for environmental liabilities that we believe are allocable to others under various other agreements if we determine that it is probable that the counterparty will not meet its environmental obligations. The ultimate resolution of these matters could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. 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 accrued liability is the aggregate of the best estimate of the fair value of cost for each component of the liability net of estimated recoveries from state UST remediation funds considering estimated recovery rates developed from prior experience with the funds. 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 our liability for estimated environmental remediation obligations on a property by property basis, we consider 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. Environmental accruals are based on estimates which are subject to significant change, and are adjusted as the remediation treatment progresses, as circumstances change and as environmental contingencies become more clearly defined and reasonably estimable. Environmental remediation obligations are initially measured at fair value based on their expected future net cash flows which have been adjusted for inflation and discounted to present value. As of December 31, 2012, 2011, 2010 and 2009, we had accrued $46,150,000, $57,700,000, $10,908,000 and $12,645,000, respectively, as our best estimate of the fair value of reasonably estimable environmental remediation obligations net of estimated recoveries and obligations to remove USTs. Environmental liabilities are accreted for the change in present value due to the passage of time and, accordingly, $3,174,000, $899,000 and $775,000 of net accretion expense was recorded for the years ended December 31, 2012, 2011 and 2010, respectively, which is included in environmental expenses. In addition, during the year ended December 31, 2012 we recorded credits aggregating $4,154,000 to environmental expenses where decreases in estimated remediation costs exceeded the depreciated carrying value of previously capitalized asset retirement costs. Environmental expenses also include project management fees, legal fees and provisions for environmental litigation loss reserves. During the years ended December 31, 2012 and 2011, we increased the carrying value of certain of our properties by $5,710,000 and $47,874,000, respectively, due to increases in estimated remediation costs. The recognition, and subsequent changes in estimates, in environmental liabilities and the increase or decrease in carrying value of the properties are non-cash transactions which do not appear on the face of the consolidated statements of cash flows. 63 Capitalized asset retirement costs are being depreciated over the estimated remaining life of the underground storage tank, a ten year period if the increase in carrying value related to environmental remediation obligations or such shorter period if circumstances warrant, such as the remaining lease term for properties we lease from others. Depreciation and amortization expense included in our consolidated statements of operations for the years ended December 31, 2012 and 2011 include $5,371,000 and $855,000, respectively, of depreciation related to capitalized asset retirement costs of $23,549,000 and $35,321,000 as of December 31, 2012 and 2011, respectively. 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 UST 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. In view of the uncertainties associated with environmental expenditure contingencies, we are unable to estimate ranges in excess of the amount accrued with any certainty; however, we believe it is possible that the fair value of future actual net expenditures could be substantially higher than amounts currently recorded by us. Adjustments to accrued liabilities for environmental remediation obligations will be reflected in our financial statements as they become probable and a reasonable estimate of fair value can be made. Future environmental expenses could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price. 7. INCOME TAXES Net cash paid for income taxes for the years ended December 31, 2012, 2011 and 2010 of $810,000, $267,000 and $365,000, respectively, includes amounts related to state and local income taxes for jurisdictions that do not follow the federal tax rules, which are provided for in rental property expenses in our consolidated statements of operations. Earnings and profits (as defined in the Internal Revenue Code) are used to determine the tax attributes of dividends paid to stockholders and will differ from income reported for financial statement purposes due to the effect of items which are reported for income tax purposes in years different from that in which they are recorded for financial statement purposes. Earnings and profits were $7,814,000, $63,472,000 and $50,563,000 for the years ended December 31, 2012, 2011 and 2010, respectively. The federal tax attributes of the common dividends for the years ended December 31, 2012, 2011 and 2010 were: ordinary income of 10.0%, 98.3% and 97.5%, capital gain distributions of 61.3%, 1.7% and 0.4% and non-taxable distributions of 28.7%, 0.0% and 2.1%, respectively. To qualify for taxation as a REIT, we, among other requirements such as those related to the composition of our assets and gross income, must distribute annually to our stockholders at least 90% of our taxable income, including taxable income that is accrued by us without a corresponding receipt of cash. We cannot provide any assurance that our cash flows will permit us to continue paying cash dividends. The Internal Revenue Service (“IRS”) has allowed the use of a procedure, as a result of which we could satisfy the REIT income distribution requirement by making a distribution on our common stock comprised of (i) shares of our common stock having a value of up to 80% of the total distribution and (ii) cash in the remaining amount of the total distribution, in lieu of paying the distribution entirely in cash. In order to use this procedure, we would need to seek and obtain a private letter ruling of the IRS to the effect that the procedure is applicable to our situation. Without obtaining such a private letter ruling, we cannot provide any assurance that we will be able to satisfy our REIT income distribution requirement by making distributions payable in whole or in part in shares of our common stock. Should the Internal Revenue Service successfully assert that our earnings and profits were greater than the amount distributed, we may fail to qualify as a REIT; however, we may avoid losing our REIT status by paying a deficiency dividend to eliminate any remaining earnings and profits. We may have to borrow money or sell assets to pay such a deficiency dividend. Although tax returns for the years 2009, 2010 and 2011, and tax returns which will be filed for the year ended 2012 remain open to examination by federal and state tax jurisdictions under the respective statute of limitations, we have not currently identified any uncertain tax positions related to those years and, accordingly, have not accrued for uncertain tax positions as of December 31, 2012 or 2011. However, uncertain tax matters may have a significant impact on the results of operations for any single fiscal year or interim period. 64 8. SHAREHOLDERS’ EQUITY A summary of the changes in shareholders’ equity for the years ended December 31, 2012, 2011 and 2010 is as follows (in thousands, except per share amounts): COMMON STOCK AMOUNT SHARES PAID-IN CAPITAL 248 $ 259,459 $ 1 2 5,175 BALANCE, DECEMBER 31, 2009 ............ 24,766 $ Net earnings ................................................. Dividends — $1.91 per share ....................... Stock-based compensation ........................... Stock options exercised ................................ Proceeds from issuance of common stock.... Net unrealized gain on interest rate swap ..... BALANCE, DECEMBER 31, 2010 ............ Net earnings ................................................. Dividends — $1.46 per share ....................... Stock-based compensation ........................... Stock options exercised ................................ Proceeds from issuance of common stock.... Net unrealized gain on interest rate swap ..... BALANCE, DECEMBER 31, 2011 ............ Net earnings ................................................. Dividends — $0.375 per share ..................... Stock-based compensation ........................... BALANCE, DECEMBER 31, 2012 ............ 33,397 $ 29,944 33,394 3,450 3 DIVIDEND PAID IN EXCESS OF EARNINGS ACCUMULATED OTHER COMPREHENSIVE LOSS TOTAL (49,045) $ 51,700 (54,959) (52,304) 12,456 (49,004) (88,852) $ 12,447 (12,606) (89,011) $ (2,993) $207,669 51,700 (54,959) 480 — 108,205 1,840 1,840 (1,153) 314,935 12,456 (49,004) 643 — 91,986 1,153 372,169 12,447 (12,606) 739 — $372,749 1,153 — 480 51 108,154 299 368,093 643 35 91,951 334 460,687 739 334 $ 461,426 $ We are authorized to issue 20,000,000 shares of preferred stock, par value $.01 per share, of which none were issued as of December 31, 2012, 2011 and 2010. In the first quarter of 2011, we completed a public stock offering of 3,450,000 shares of our common stock, of which 3,000,000 shares were issued in January 2011 and 450,000 shares, representing the underwriter’s over-allotment, were issued in February 2011. Substantially all of the aggregate $91,986,000 net proceeds from the issuance of common stock (after related transaction costs of $267,000) was used to repay a portion of our outstanding indebtedness and the remainder was used for general corporate purposes. During the second quarter of 2010, we completed a public stock offering of 5,175,000 shares of our common stock. The $108,205,000 net proceeds from the issuance of common stock (after related transaction costs of $522,000) was used in part to repay a portion of our outstanding indebtedness and the remainder was used for general corporate purposes. 9. EMPLOYEE BENEFIT PLANS The Getty Realty Corp. 2004 Omnibus Incentive Compensation Plan (the “2004 Plan”) provides for the grant of restricted stock, restricted stock units, performance awards, dividend equivalents, stock payments and stock awards to all employees and members of the Board of Directors. The 2004 Plan authorizes us to grant awards with respect to an aggregate of 1,000,000 shares of common stock through 2014. The aggregate maximum number of shares of common stock that may be subject to awards granted under the 2004 Plan during any calendar year is 80,000. We awarded to employees and directors 52,125, 47,625 and 37,600 restricted stock units (“RSUs”) and dividend equivalents in 2012, 2011 and 2010, respectively. RSUs granted before 2009 provide for settlement upon termination of employment with the Company or termination of service from the Board of Directors and RSUs granted in 2009 and thereafter upon the earlier of 10 (ten) years after grant or termination. On the settlement date each vested RSU will have a value equal to one share of common stock and may be settled, at the sole discretion of the Compensation Committee, in cash or by the issuance of one share of common stock. The RSUs do not provide voting or other shareholder rights unless and until the RSU is settled for a share of common stock. The RSUs vest starting one year from the date of grant, on a cumulative basis at the annual rate of 20% of the total number of RSUs covered by the award. The dividend equivalents represent the value of the dividends paid per common share multiplied by the number of RSUs covered by the award. For the years ended December 31, 2012, 2011 and 2010, dividend equivalents aggregating approximately $82,000, $249,000 and $228,000, respectively, were charged against retained earnings when common stock dividends were declared. 65 The following is a schedule of the activity relating to the restricted stock units outstanding: RSUs OUTSTANDING AT DECEMBER 31, 2009 ............................................ Granted ....................................................................................................... RSUs OUTSTANDING AT DECEMBER 31, 2010 ............................................ Granted ....................................................................................................... RSUs OUTSTANDING AT DECEMBER 31, 2011 ............................................ Granted ....................................................................................................... Settled ........................................................................................................ Cancelled.................................................................................................... RSUs OUTSTANDING AT DECEMBER 31, 2012 ............................................ FAIR VALUE AMOUNT AVERAGE PER RSU NUMBER OF RSUs OUTSTANDING 85,600 37,600 $ 864,000 $ 22.97 123,200 47,625 $ 1,043,000 $ 21.90 170,825 52,125 $ (2,780) $ (3,820) $ 864,000 $ 70,000 $ 88,000 $ 16.57 25.31 23.10 216,350 The fair values of the RSUs were determined based on the closing market price of our stock on the date of grant. The fair value of the grants is recognized as compensation expense ratably over the five-year vesting period of the RSUs. Compensation expense related to RSUs for the years ended December 31, 2012, 2011 and 2010 was $746,000, $638,000 and $466,000, respectively, and is included in general and administrative expense in the accompanying consolidated statements of operations. As of December 31, 2012, there was $1,825,000 of unrecognized compensation cost related to RSUs granted under the 2004 Plan which cost is expected to be recognized over a weighted average period of approximately 2.6 years. The aggregate intrinsic value of the 216,350 outstanding RSUs and the 93,225 vested RSUs as of December 31, 2012 was $3,907,000 and $1,684,000, respectively. The following is a schedule of the vesting activity relating to the restricted stock units outstanding: NUMBER OF RSUs VESTED FAIR VALUE RSUs VESTED AT DECEMBER 31, 2009 ....................................................................... Vested ....................................................................................................................... RSUs VESTED AT DECEMBER 31, 2010 ....................................................................... Vested ....................................................................................................................... RSUs VESTED AT DECEMBER 31, 2011 ....................................................................... Vested ....................................................................................................................... Settled ....................................................................................................................... RSUs VESTED AT DECEMBER 31, 2012 ....................................................................... $ 29,800 15,600 45,400 21,400 66,800 29,205 $ (2,780) $ 93,225 $ 379,000 505,000 734,000 70,000 We have a retirement and profit sharing plan with deferred 401(k) savings plan provisions (the “Retirement Plan”) for employees meeting certain service requirements and a supplemental plan for executives (the “Supplemental Plan”). Under the terms of these plans, the annual discretionary contributions to the plans are determined by the Compensation Committee of the Board of Directors. Also, under the Retirement Plan, employees may make voluntary contributions and we have elected to match an amount equal to fifty percent of such contributions but in no event more than three percent of the employee’s eligible compensation. Under the Supplemental Plan, a participating executive may receive an amount equal to ten percent of eligible compensation, reduced by the amount of any contributions allocated to such executive under the Retirement Plan. Contributions, net of forfeitures, under the retirement plans approximated $270,000, $239,000 and $220,000 for the years ended December 31, 2012, 2011 and 2010, respectively. These amounts are included in general and administrative expense in the accompanying consolidated statements of operations. We have a stock option plan (the “Stock Option Plan”). Our authorization to grant options to purchase shares of our common stock under the Stock Option Plan has expired. During the year ended December 31, 2010, 5,250 options were exercised with an intrinsic value of $76,000. As of December 31, 2012, there were 5,000 options outstanding which were exercisable at $27.68 with a remaining contractual life of five years. As of December 31, 2012, the 5,000 options outstanding had no intrinsic value. 66 10. QUARTERLY FINANCIAL DATA The following is a summary of the quarterly results of operations for the years ended December 31, 2012 and 2011 (unaudited as to quarterly information) (in thousands, except per share amounts): MARCH 31, THREE MONTHS ENDED SEPTEMBER 30, JUNE 30, YEAR ENDED DECEMBER 31, DECEMBER31, YEAR ENDED DECEMBER 31, 2012(a) Revenues from rental properties .................... $ Earnings from continuing operations ............. Net earnings (loss) ......................................... Diluted earnings (loss) per common share: 28,035 $ 25,434 $ 2,357 3,626 5,307 6,485 Earnings from continuing operations ...... Net earnings (loss) .................................. .16 .19 .07 .11 22,324 $ 1,782 (3,465) .05 (.10) 23,493 $ 4,362 5,801 .13 .17 99,286 13,808 12,447 .41 .37 YEAR ENDED DECEMBER 31, 2011(b) Revenues from rental properties .................... $ Earnings (loss) from continuing operations ... Net earnings (loss) ......................................... Diluted earnings (loss) per common share: Earnings (loss) from continuing operations ............................................ Net earnings (loss) .................................. MARCH 31, THREE MONTHS ENDED SEPTEMBER 30, JUNE 30, DECEMBER 31, 23,444 $ 24,502 $ 10,231 13,016 11,386 15,202 24,724 $ 2,635 5,350 YEAR ENDED DECEMBER31, 100,263 9,424 12,456 27,593 $ (16,458) (19,482) .31 .35 .39 .45 .08 .16 (.49) (.58) .28 .37 (a) Includes for the respective periods the effect of: - - An accounts receivable reserve of $13,980,000, related to Marketing, recorded in the year ended December 31, 2012, net of a partial reversal of $1,781,000 recorded in the quarter ended December 31, 2012. (See footnotes 2 and 3 for additional information.) Impairment charges of $13,942,000 recorded for the year ended December 31, 2012, of which $3,390,000 was recorded in the quarter ended December 31, 2012. (See footnote 3 for additional information.) (b) Includes for the respective periods the effect of: - - - - The January 13, 2011 acquisition of gasoline station and convenience store properties in a sale/leaseback and loan transaction with CPD NY Energy Corp. for $111,621,000 and the March 31, 2011 acquisition of gasoline station and convenience store properties in a sale/leaseback transaction with Nouria Energy Ventures I, LLC for $87,047,000. (See footnote 11 for additional information.) Allowances for deferred rent receivables of $8,715,000 and $11,043,000, related to Marketing, which were recorded in the quarters ended September 30, 2011 and December 31, 2011, respectively. (See footnotes 2 and 3 for additional information.) An accounts receivable reserve of $8,802,000, related to Marketing, recorded in the quarter ended December 31, 2011. (See footnotes 2 and 3 for additional information.) Impairment charges of $20,200,000 recorded for the year ended December 31, 2011, of which $17,132,000 was recorded in the quarter ended December 31, 2011. (See footnote 3 for additional information.) 67 11. PROPERTY ACQUISITIONS In 2012, we acquired fee or leasehold title to five gasoline station and convenience store properties in separate transactions for an aggregate purchase price of $5,159,000. CPD NY SALE/LEASEBACK On January 13, 2011, we acquired fee or leasehold title to 59 Mobil-branded gasoline station and convenience store properties and also took a security interest in six other Mobil-branded gasoline stations and convenience store properties in a sale/leaseback and loan transaction with CPD NY Energy Corp. (“CPD NY”), a subsidiary of Chestnut Petroleum Dist. Inc. Our total investment in the transaction was $111,621,000 including acquisition costs, which was financed entirely with borrowings under our revolving credit facility. The properties were acquired or financed in a simultaneous transaction among ExxonMobil, CPD NY and us whereby CPD NY acquired a portfolio of 65 gasoline station and convenience stores from ExxonMobil and simultaneously completed a sale/leaseback of 59 of the acquired properties and leasehold interests with us. The lease between us, as lessor, and CPD NY, as lessee, governing the properties is a unitary triple-net lease agreement (the “CPD Lease”), with an initial term of 15 years, and options for up to three successive renewal terms of ten years each. The CPD Lease requires CPD NY to pay a fixed annual rent for the properties (the “Rent”), plus an amount equal to all rent due to third-party landlords pursuant to the terms of third-party leases. The Rent is scheduled to increase on the third anniversary of the date of the CPD Lease and on every third anniversary thereafter. As a triple-net lessee, CPD NY is required to pay all amounts pertaining to the properties subject to the CPD Lease, including taxes, assessments, licenses and permit fees, charges for public utilities and all governmental charges. Partial funding to CPD NY for the transaction was also provided by us under a secured, self- amortizing loan having a 10-year term (the “CPD Loan”). We accounted for this transaction as a business combination. We estimated the fair value of acquired tangible assets (consisting of land, buildings and equipment) “as if vacant” and intangible assets consisting of above-market and below- market leases. Based on these estimates, we allocated $60,610,000 of the purchase price to land, net above-market and below-market leases related to leasehold interests as lessee of $953,000 which is accounted for as a deferred asset, net above- market and below-market leases related to leasehold interests as lessor of $2,516,000 which is accounted for as a deferred liability, $38,752,000 allocated to direct financing leases and capital lease assets, and $18,400,000 which is accounted for in notes, mortgages and accounts receivable, net. In connection with the acquisition of certain leasehold interests, we also recorded capital lease obligations aggregating $5,768,000. We also incurred transaction costs of $1,190,000 directly related to the acquisition which is included in general and administrative expenses on the consolidated statement of operations. NOURIA SALE/LEASEBACK On March 31, 2011, we acquired fee or leasehold title to 66 Shell-branded gasoline station and convenience store properties in a sale/leaseback transaction with Nouria Energy Ventures I, LLC (“Nouria”), a subsidiary of Nouria Energy Group. Our total investment in the transaction was $87,047,000 including acquisition costs, which was financed entirely with borrowings under our revolving credit facility. The properties were acquired in a simultaneous transaction among Motiva Enterprises LLC (“Shell”), Nouria and us whereby Nouria acquired a portfolio of 66 gasoline station and convenience stores from Shell and simultaneously completed a sale/leaseback of the 66 acquired properties and leasehold interests with us. The lease between us, as lessor, and Nouria, as lessee, governing the properties is a unitary triple-net lease agreement (the “Nouria Lease”), with an initial term of 20 years, and options for up to two successive renewal terms of ten years each followed by one final renewal term of five years. The Nouria Lease requires Nouria to pay a fixed annual rent for the properties (the “Rent”), plus an amount equal to all rent due to third-party landlords pursuant to the terms of third-party leases. The Rent is scheduled to increase on every annual anniversary of the date of the Nouria Lease. As a triple-net lessee, Nouria is required to pay all amounts pertaining to the properties subject to the Nouria Lease, including taxes, assessments, licenses and permit fees, charges for public utilities and all governmental charges. We accounted for this transaction as a business combination. We estimated the fair value of acquired tangible assets (consisting of land, buildings and equipment) “as if vacant” and intangible assets consisting of above-market and below- market leases. Based on these estimates, we allocated $37,875,000 of the purchase price to land, net above-market and below-market leases relating to leasehold interests as lessee of $3,895,000, which is accounted for as a deferred asset, net above-market and below-market leases related to leasehold interests as lessor of $3,768,000, which is accounted for as a deferred liability, $37,315,000 allocated to direct financing leases and capital lease assets and $12,000,000 which is 68 accounted for in notes, mortgages and accounts receivable, net. In connection with the acquisition of certain leasehold interests, we also recorded capital lease obligations aggregating $1,114,000. We also incurred transaction costs of $844,000 directly related to the acquisition which is included in general and administrative expenses on the consolidated statement of operations. In 2010, we purchased fee title to three gasoline and convenience store properties in separate transactions for an aggregate purchase price of $3,567,000. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma condensed consolidated financial information for the years ended December 31, 2011 and 2010 have been prepared utilizing the historical financial statements of Getty Realty Corp. and the combined effect of additional revenue and expenses from the properties acquired from both CPD NY and Nouria assuming that the acquisitions had occurred as of the beginning of the earliest period presented, after giving effect to certain adjustments including: (a) rental income adjustments resulting from the straight-lining of scheduled rent increases; (b) rental income adjustments resulting from the recognition of revenue under direct financing leases over the lease term using the effective interest rate method which produces a constant periodic rate of return on the net investment in the leased properties; (c) rental income adjustments resulting from the amortization of above-market leases with tenants; and (d) rent expense adjustments resulting from the amortization of below-market leases with landlords. The following information also gives effect to the additional interest expense resulting from the assumed increase in borrowings outstanding under its revolving credit facility to fund the acquisitions and the elimination of acquisition costs. The unaudited pro forma condensed financial information is not indicative of the results of operations that would have been achieved had the acquisition from CPD NY and Nouria reflected herein been consummated on the date indicated or that will be achieved in the future. (in thousands) Revenues ............................................................................................................................ $ Net earnings ....................................................................................................................... $ Basic and diluted net earnings per common share ............................................................. $ Year Ended December 31, 2010 2011 102,844 $ 14,647 $ 0.44 $ 99,363 69,422 2.48 12. SUPPLEMENTAL CONDENSED COMBINING FINANCIAL INFORMATION Condensed combining financial information as of December 31, 2011 and for the years ended December 31, 2011 and 2010 has been derived from our books and records and is provided below to illustrate, for informational purposes only, the net contribution to our financial results that were realized from the Master Lease with Marketing and from properties leased to other tenants. As a result of the rejection of the Master Lease on April 30, 2012, our financial results are no longer materially dependent on the performance of Marketing to meet its obligations to us under the Master Lease. The condensed combining financial information set forth below presents the results of operations, net assets and cash flows related to Marketing and the Master Lease, our other tenants and our corporate functions necessary to arrive at the information for us on a combined basis. The assets, liabilities, lease agreements and other leasing operations attributable to the Master Lease and other tenant leases are not segregated in legal entities. However, we generally maintain our books and records in site specific detail and have classified the operating results which are clearly applicable to each owned or leased property as attributable to Marketing or our other tenants or to non-operating corporate functions. The condensed combining financial information has been prepared by us using certain assumptions, judgments and allocations. In our prior filings, each of our properties were classified as attributable to Marketing, other tenants or corporate for all periods presented based on the property’s use as of the latest balance sheet date included in such filing or the property’s use immediately prior to its disposition or third-party lease expiration. As a result of the rejection of the Master Lease on April 30, 2012, we have omitted the condensed combining financial information as of December 31, 2012 and for the year ended December 31, 2012 since our financial results are no longer materially dependent on the performance of Marketing to meet its obligations to us under the Master Lease. For the historical condensed combining financial information set forth below, each of the properties were classified based on the property’s use as of December 31, 2011. 69 Environmental remediation expenses have been attributed to Marketing or other tenants on a site specific basis and environmental related litigation expenses and professional fees have been attributed to Marketing or other tenants based on the pro rata share of specifically identifiable environmental expenses for the period from January 1, 2010 through December 31, 2011. The heading “Corporate” in the statements below includes assets, liabilities, income and expenses attributed to general and administrative functions, financing activities and parent or subsidiary level income taxes, capital taxes or franchise taxes which were not incurred on behalf of our leasing operations and are not reasonably allocable to Marketing or other tenants. With respect to general and administrative expenses, we have attributed those expenses clearly applicable to Marketing and other tenants. We considered various methods of allocating to Marketing and other tenants amounts included under the heading “Corporate” and determined that none of the methods resulted in a reasonable allocation of such amounts or an allocation of such amounts that more clearly summarizes the net contribution to our financial results realized from the leasing operations of properties previously leased to Marketing and of properties leased to other tenants. Moreover, we determined that each of the allocation methods we considered resulted in a presentation of these amounts that would make it more difficult to understand the clearly identifiable results from our leasing operations attributable to Marketing and other tenants. We believe that the segregated presentation of assets, liabilities, income and expenses attributed to general and administrative functions, financing activities and parent or subsidiary level income taxes, capital taxes or franchise taxes provides the most meaningful presentation of these amounts since changes in these amounts are not fully correlated to changes in our leasing activities. While we believe these assumptions, judgments and allocations are reasonable, the condensed combining financial information is not intended to reflect what the net results would have been had assets, liabilities, lease agreements and other operations attributable to Marketing or our other tenants been conducted through stand-alone entities during any of the periods presented. The condensed combining statement of operations of Getty Realty Corp. for the year ended December 31, 2011 is as follows (in thousands): Revenues from rental properties ..................................... Interest on notes and mortgages receivable .................... Total revenues .................................................. $ $ 52,163 — 52,163 $ 48,100 2,489 50,589 $ — 169 169 100,263 2,658 102,921 Getty Petroleum Marketing Other Tenants Corporate Consolidated Operating expenses: Rental property expenses ......................................... Impairment charges ................................................. Environmental expenses .......................................... General and administrative expenses ....................... Allowance for deferred rent receivable ................... Depreciation and amortization expense ................... Total operating expenses .................................. Operating income (loss) .................................................. Other income, net ............................................................ Interest expense .............................................................. Earnings (loss) from continuing operations .................... Discontinued operations: Income (loss) from operating activities ................... Gains on dispositions of real estate.......................... Earnings from discontinued operations .......................... Net earnings (loss) .......................................................... (8,111) (14,641) (5,475) (8,899) (19,288) (4,234) (60,648) (8,485) 641 — (7,844) 2,338 — 2,338 $ (5,506) $ (7,271) (1,263) (122) (1,783) — (5,231) (15,670) 34,919 (621) — 34,298 (641) — — (11,383) — (46) (12,070) (11,901) (4) (5,125) (17,030) (254) 948 694 34,992 $ — — — (17,030) $ (16,023) (15,904) (5,597) (22,065) (19,288) (9,511) (88,388) 14,533 16 (5,125) 9,424 2,084 948 3,032 12,456 70 The condensed combining statement of operations of Getty Realty Corp. for the year ended December 31, 2010 is as follows (in thousands): Revenues from rental properties .......................................... Interest on notes and mortgages receivable ......................... Total revenues ....................................................... $ $ 48,755 — 48,755 29,472 — 29,472 $ — 133 133 Getty Petroleum Marketing Other Tenants Corporate $ Consolidated 78,227 133 78,360 Operating expenses: Rental property expenses .............................................. Environmental expenses ............................................... General and administrative expenses ............................ Depreciation and amortization expense ........................ Total operating expenses ....................................... Operating income (loss) ....................................................... Other income, net ................................................................. Interest expense ................................................................... Earnings (loss) from continuing operations ......................... Discontinued operations: Loss from operating activities ...................................... Gains (loss) on dispositions of real estate ..................... Earnings (loss) from discontinued operations ...................... Net earnings (loss) ............................................................... (7,024) (5,244) (146) (3,548) (15,962) 32,793 (172) — 32,621 (2,551) (127) (135) (5,412) (8,225) 21,247 172 — 21,419 (478) — (7,897) (37) (8,412) (8,279) 156 (5,050) (13,173) 9,042 1,857 10,899 43,520 $ 86 (152) (66) $ 21,353 — — — (13,173) $ $ (10,053) (5,371) (8,178) (8,997) (32,599) 45,761 156 (5,050) 40,867 9,128 1,705 10,833 51,700 The condensed combining balance sheet of Getty Realty Corp. as of December 31, 2011 is as follows (in thousands): Getty Petroleum Marketing Other Tenants Corporate Consolidated ASSETS: Real Estate: Land ............................................................................... Buildings and improvements ......................................... $ Less — accumulated depreciation and amortization ............ Real estate held for use, net ........................................... Net investment in direct financing leases ............................. Deferred rent receivable, net ................................................. Cash and cash equivalents .................................................... Notes, mortgages and accounts receivable, net ..................... Prepaid expenses and other assets......................................... Total assets .................................................................... LIABILITIES: Borrowings under credit line ................................................ Term loan .............................................................................. Environmental remediation obligations ................................ Dividends payable ................................................................ Accounts payable and accrued liabilities .............................. Total liabilities ............................................................... Net assets (liabilities) ............................................................ $ 131,076 170,553 301,629 (107,480) 194,149 — — — 5,743 — 199,892 $ 214,397 99,479 313,876 (29,446) 284,430 92,632 8,080 — 28,262 7,611 421,015 — $ 349 349 (191) 158 — — 7,698 2,078 4,248 14,182 — — 57,368 — 4,002 61,370 138,522 — — 332 — 19,564 19,896 $ 401,119 147,700 22,810 — — 11,144 181,654 $ (167,472) $ $ 71 345,473 270,381 615,854 (137,117) 478,737 92,632 8,080 7,698 36,083 11,859 635,089 147,700 22,810 57,700 — 34,710 262,920 372,169 The condensed combining statement of cash flows of Getty Realty Corp. for the year ended December 31, 2011 is as follows (in thousands): CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) ...................................................................... Adjustments to reconcile net earnings (loss) to net cash flow provided by operating activities: Depreciation and amortization expense ............................... Impairment charges ............................................................. Gains on dispositions of real estate...................................... Deferred rent receivable, net of allowance .......................... Allowance for deferred rent and accounts receivable .......... Amortization of above-market and below-market leases .... Amortization of credit agreement origination costs ............. Accretion expense ................................................................ Stock-based employee compensation expense .................... Changes in assets and liabilities: Accounts receivable, net ...................................................... Prepaid expenses and other assets ....................................... Environmental remediation obligations ............................... Accounts payable and accrued liabilities ............................. Net cash flow provided by (used in) operating Getty Petroleum Marketing Other Tenants Corporate Consolidated $ (5,506) $ 34,992 $ (17,030) $ 12,456 5,024 18,676 (641) 1,463 28,879 — — 879 — (14,851) — (1,304) 3,040 5,266 1,550 (327) (1,916) — (685) — 20 — (39) (68) (677) 692 46 — — — — — 207 — 643 — 219 — 2,203 10,336 20,226 (968) (453) 28,879 (685) 207 899 643 (14,890) 151 (1,981) 5,935 activities .................................................................... 35,659 38,808 (13,712) 60,755 CASH FLOWS FROM INVESTING ACTIVITIES: Property acquisitions and capital expenditures .................... Proceeds from dispositions of real estate ............................. Decrease in cash held for property acquisitions .................. Amortization of investment in direct financing leases......... Issuance of notes and mortgages receivable ........................ Collection of notes and mortgages receivable ..................... Net cash flow provided by (used in) investing — 1,604 — — — — (167,471) 1,781 — 505 (30,400) 2,415 (24) (1,068) (750) — — 264 (167,495) 2,317 (750) 505 (30,400) 2,679 activities .................................................................... 1,604 (193,170) (1,578) (193,144) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under credit agreement ..................................... Repayments under credit agreement .................................... Repayments under term loan agreement .............................. Payments on capital lease obligations ................................. Cash dividends paid ............................................................. Payments of loan origination costs ...................................... Security deposits received ................................................... Net proceeds from issuance of common stock .................... Cash consolidation- Corporate ............................................ Net cash flow (used in) provided by financing — — — — — — — — (37,263) — — — (59) — — 29 — 154,392 247,253 (140,853) (780) — (63,436) (175) — 91,986 (117,129) activities .................................................................... Net increase in cash and cash equivalents .................................. Cash and cash equivalents at beginning of year ......................... Cash and cash equivalents at end of year .................................... $ (37,263) 154,362 — — — $ — — — $ 16,866 1,576 6,122 7,698 $ 247,253 (140,853) (780) (59) (63,436) (175) 29 91,986 — 133,965 1,576 6,122 7,698 72 The condensed combining statement of cash flows of Getty Realty Corp. for the year ended December 31, 2010 is as follows (in thousands): Getty Petroleum Marketing Other Tenants Corporate Consolidated $ 43,520 $ 21,353 $ (13,173) $ 51,700 4,229 — (1,685) 1,580 — — — 758 — (15) — (3,062) 42 45,367 5,472 — (20) (1,484) 229 (1,260) — 17 — (174) 467 550 (455) 24,695 37 — — — — — 304 — 480 — (846) — 200 (12,998) — 2,623 — — — 2,623 (4,629) 235 — (323) — (4,717) (96) — 2,665 — 158 2,727 — — — — — — — — 182 — (47,990) (20,160) (47,990) (19,978) — — — — — $ — $ $ 163,500 (273,400) (780) (52,332) — 108,205 68,150 13,343 3,072 3,050 6,122 $ 9,738 — (1,705) 96 229 (1,260) 304 775 480 (189) (379) (2,512) (213) 57,064 (4,725) 2,858 2,665 (323) 158 633 163,500 (273,400) (780) (52,332) 182 108,205 — (54,625) 3,072 3,050 6,122 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) ...................................................................................... Adjustments to reconcile net earnings (loss) to net cash flow provided by operating activities: Depreciation and amortization expense ............................................... Impairment charges ............................................................................. Gains on dispositions of real estate...................................................... Deferred rent receivable ...................................................................... Allowance for accounts receivable ...................................................... Amortization of above-market and below-market leases .................... Amortization of credit agreement origination costs ............................. Accretion expense ................................................................................ Stock-based employee compensation expense .................................... Changes in assets and liabilities: Accounts receivable, net ...................................................................... Prepaid expenses and other assets ....................................................... Environmental remediation obligations ............................................... Accounts payable and accrued liabilities ............................................. Net cash flow provided by (used in) operating activities ............. CASH FLOWS FROM INVESTING ACTIVITIES: Property acquisitions and capital expenditures .................................... Proceeds from dispositions of real estate ............................................. Decrease in cash held for property acquisitions .................................. Amortization of investment in direct financing leases......................... Collection of mortgages receivable, net .............................................. Net cash flow provided by (used in) investing activities .............. CASH FLOWS FROM FINANCING ACTIVITIES: Borrowing under credit agreement ...................................................... Repayments under credit agreement .................................................... Repayments under term loan agreement .............................................. Cash dividends paid ............................................................................. Security deposits received ................................................................... Net proceeds from issuance of common stock .................................... Cash consolidation- Corporate ............................................................ Net cash flow (used in) provided by financing activities ............. Net increase in cash and cash equivalents .................................................. Cash and cash equivalents at beginning of year ......................................... Cash and cash equivalents at end of year .................................................... 73 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Getty Realty Corp.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income and cash flows present fairly, in all material respects, the financial position of Getty Realty Corp. and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP New York, New York March 18, 2013 74 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or furnished pursuant to the 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 our management, including our 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 the Exchange Act Rule 13a-15(b), we have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2012. There have been no changes in our internal control over financial reporting during the latest fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2012. The effectiveness of our internal control over financial reporting as of December 31, 2012, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in “Item 8. Financial Statements and Supplementary Data”. There have been no changes in our internal control over financial reporting during the latest fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. 75 PART III Item 10. Directors, Executive Officers and Corporate Governance Information with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to information under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement. Information with respect to directors, the audit committee and the audit committee financial expert, and procedures by which shareholders may recommend to nominees to the board of directors in response to this item is incorporated herein by reference to information under the headings “Election of Directors” and “Directors’ Meetings, Committees and Executive Officers” in the Proxy Statement. The following table lists our executive officers, their respective ages, and the offices and positions held. NAME David B. Driscoll ................... Leo Liebowitz ........................ Joshua Dicker ......................... Kevin C. Shea......................... Thomas J. Stirnweis ............... Christopher J. Constant .......... POSITION AGE 58 President, Chief Executive Officer and Director 85 Director and Chairman of the Board 52 Senior Vice President, General Counsel and Secretary 53 Executive Vice President 54 Vice President and Chief Financial Officer 34 Asst. Vice President, Director of Planning and Treasurer OFFICER SINCE 2010 1971 2008 2001 2001 2012 Mr. Driscoll was appointed to the position of President of the Company, effective in April 2010. In addition, Mr. Driscoll was appointed as the Company’s Chief Executive Officer, effective May 2010. Mr. Driscoll is also a Director of the Company. Mr. Driscoll was a Managing Director at Morgan Joseph and Co. Inc. where he was a founding shareholder. Prior to his work at Morgan Joseph, Mr. Driscoll was a Managing Director for ING Barings, where he was Global Coordinator of the real estate practice and prior to ING Barings, Mr. Driscoll was the founder of the real estate group at Smith Barney, which he ran for more than a decade. Mr. Liebowitz co-founded the Company in 1955 and served as Chief Executive Officer from 1985 until May 2010. He was the President of the Company from May 1971 to May 2004. Mr. Liebowitz served as Chairman, Chief Executive Officer and a director of Marketing from October 1996 until December 2000. He is also a director of the Regional Banking Advisory Board of J.P. Morgan Chase & Co. Mr. Liebowitz is also Chairman of the Company’s Board of Directors and will retain an active role in the Company through May 2013 at which time he intends to retire. Mr. Dicker has served as Senior Vice President, General Counsel and Secretary since 2012. He was Vice President, General Counsel and Secretary since February 2009. Prior to joining Getty in 2008, he was a partner at the law firm Arent Fox, LLP, resident in its New York City office, specializing in corporate and transactional matters. Mr. Shea has been with the Company since 1984 and has served as Executive Vice President since May 2004. He was Vice President since January 2001 and Director of National Real Estate Development prior thereto. Mr. Stirnweis has been with the Company or Getty Petroleum Marketing Inc. since 1988 and has served as Vice President and Chief Financial Officer of the Company since May 2012 and Vice President, Treasurer and Chief Financial Officer from May 2003 to May 2012. He joined the Company in January 2001 as Corporate Controller and Treasurer. Prior to joining the Company, Mr. Stirnweis was Manager of Financial Reporting and Analysis of Marketing. Mr. Constant has served as Assistant Vice President, Director of Planning and Treasurer since May 2012. Prior to joining the Company in November 2010, Mr. Constant was a Vice President in the corporate finance department of Morgan Joseph & Co. Inc. Prior to joining Morgan Joseph in 2001, Mr. Constant began his career in the corporate finance department at ING Barings. There are no family relationships between any of the Company’s directors or executive officers. The Getty Realty Corp. Business Conduct Guidelines (“Code of Ethics”), which applies to all employees, including our chief executive officer and chief financial officer, is available on our website at www.gettyrealty.com. 76 Item 11. Executive Compensation Information in response to this item is incorporated herein by reference to information under the heading “Executive Compensation” in the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information in response to this item is incorporated herein by reference to information under the heading “Beneficial Ownership of Capital Stock” and “Executive Compensation — Compensation Discussion and Analysis — Equity Compensation — Equity Compensation Plan Information” in the Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence There were no such relationships or transactions to report for the year ended December 31, 2012. Information with respect to director independence is incorporated herein by reference to information under the heading “Directors’ Meetings, Committees and Executive Officers - Independence of Directors” in the Proxy Statement. Item 14. Principal Accountant Fees and Services Information in response to this item is incorporated herein by reference to information under the heading “Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement. 77 Item 15. Exhibits and Financial Statement Schedules (a) (1) Financial Statements PART IV Information in response to this Item is included in “Item 8. Financial Statements and Supplementary Data”. (a) (2) Financial Statement Schedules GETTY REALTY CORP. INDEX TO FINANCIAL STATEMENT SCHEDULES Item 15(a)(2) Report of Independent Registered Public Accounting Firm on Financial Statement Schedules ............................... Schedule II — Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2012, 2011 and 2010 ...................................................................................................................................................... Schedule III — Real Estate and Accumulated Depreciation and Amortization as of December 31, 2012 ............... Schedule IV — Mortgage Loans on Real Estate as of December 31, 2012 .............................................................. PAGES 79 80 81 94 (a) (3) Exhibits Information in response to this Item is incorporated herein by reference to the Exhibit Index on page 96 of this Annual Report on Form 10-K. 78 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of Getty Realty Corp.: Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated March 18, 2013 appearing in Item 8 of this Annual Report on Form 10-K also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP New York, New York March 18, 2013 79 GETTY REALTY CORP. and SUBSIDIARIES SCHEDULE II — VALUATION and QUALIFYING ACCOUNTS and RESERVES for the years ended December 31, 2012, 2011 and 2010 (in thousands) BALANCE AT BEGINNING OF YEAR ADDITIONS DEDUCTIONS BALANCE AT END OF YEAR December 31, 2012: Allowance for deferred rent receivable ................................. Allowance for mortgages and accounts receivable ............... Allowance for deposits held in escrow ................................. December 31, 2011: Allowance for deferred rent receivable ................................. Allowance for mortgages and accounts receivable ............... Allowance for deposits held in escrow ................................. December 31, 2010: Allowance for deferred rent receivable ................................. Allowance for mortgages and accounts receivable ............... Allowance for deposits held in escrow ................................. $ $ $ 25,630 $ 9,480 $ 377 $ — $ 15,903 $ — $ 25,630 $ 12 $ 377 $ $ $ $ $ $ $ 8,170 $ 361 $ 377 $ 9,389 $ 135 $ 377 $ 17,460 $ 9,121 $ — $ — $ 226 $ — $ — $ 2 $ — $ 1,219 $ — $ — $ — 25,371 — 25,630 9,480 377 8,170 361 377 80 GETTY REALTY CORP. and SUBSIDIARIES SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION As of December 31, 2012 (in thousands) The summarized changes in real estate assets and accumulated depreciation are as follows: Investment in real estate: Balance at beginning of year .............................................................. Acquisitions and capital expenditures ......................................... Impairment .................................................................................. Sales and condemnations ............................................................. Lease expirations ......................................................................... Balance at end of year ......................................................................... Accumulated depreciation and amortization: Balance at beginning of year .............................................................. Depreciation and amortization expense ....................................... Impairment .................................................................................. Sales and condemnations ............................................................. Lease expirations ......................................................................... Balance at end of year ......................................................................... $ $ $ $ 2012 2011 2010 $ $ $ 615,854 10,976 (23,354) (40,381) (779) 562,316 137,117 13,375 (9,412) (23,533) (779) $ 116,768 504,587 $ 151,090 (35,246) (3,219) (1,358) 615,854 $ 144,217 $ 10,080 (15,020) (802) (1,358) 137,117 $ 503,874 3,664 — (1,819) (1,132) 504,587 136,669 9,346 — (666) (1,132) 144,217 The properties in the table below indicated by an asterisk (*), with an aggregate net book value of approximately $158,608,000 as of December 31, 2012, are encumbered by mortgages. As of December 31, 2012, these mortgages provided security for our prior credit agreement and our prior term loan agreement. As of February 25, 2013, these mortgages provide security for our $175,000,000 senior secured revolving credit agreement (the “Credit Agreement”) with a group of commercial banks led by JPMorgan Chase Bank, N.A. and our $100,000,000 senior secured long-term loan agreement with the Prudential Insurance Company of America (the “Prudential Loan Agreement”). The parties to the Credit Agreement and the Prudential Loan Agreement share the security pursuant to the terms of an inter-creditor agreement. For additional information, see Note 4 in “Item 8. Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements.” No other material mortgages, liens or encumbrances exist on our properties. 81 Initial Cost of Leasehold or Acquisition Investment to Company (1) Cost Capitalized Subsequent to Initial Investment Gross Amount at Which Carried at Close of Period Building and Improvements Total Land Accumulated Depreciation BROOKLYN, NY REGO PARK, NY CORONA, NY OCEANSIDE, NY BRENTWOOD, NY BAY SHORE, NY EAST ISLIP, NY WHITE PLAINS, NY WAPPINGERS FALLS, NY STONY POINT, NY LAGRANGEVILLE, NY BRONX, NY NEW YORK, NY BROOKLYN, NY BRONX, NY BRONX, NY BRONX, NY YONKERS, NY SLEEPY HOLLOW, NY OLD BRIDGE, NJ STATEN ISLAND, NY BRIARCLIFF MANOR, NY BRONX, NY NEW YORK, NY GLENDALE, NY LONG ISLAND CITY, NY RIDGE, NY OLD GREENWICH, CT NEW CITY, NY W. HAVERSTRAW, NY BROOKLYN, NY RONKONKOMA, NY BETHPAGE, NY BALDWIN, NY ELMONT, NY CENTRAL ISLIP, NY BROOKLYN, NY BAY SHORE, NY CROMWELL, CT EAST HARTFORD, CT MANCHESTER, CT MERIDEN, CT NEW MILFORD, CT NORWALK, CT SOUTHINGTON, CT TERRYVILLE, CT SOUTH HADLEY, MA WESTFIELD, MA FREEHOLD, NJ NORTH PLAINFIELD, NJ SOUTH AMBOY, NJ GLEN HEAD, NY NEW ROCHELLE, NY NORTH BRANFORD, CT FRANKLIN SQUARE, NY BROOKLYN, NY NEW HAVEN, CT BRISTOL, CT BRISTOL, CT BRISTOL, CT $ 282 $ 34 114 40 253 48 89 0 114 59 129 141 126 148 544 70 78 291 281 86 174 652 89 146 124 107 277 0 181 194 75 76 211 102 389 103 116 156 70 208 66 208 114 257 116 182 232 123 494 227 300 234 189 130 153 277 1,413 360 1,594 254 176 $ 23 113 33 125 0 87 303 112 56 65 87 78 104 474 30 66 216 130 56 113 502 63 43 86 73 200 620 109 140 45 46 126 62 231 61 75 86 24 84 65 84 0 104 71 74 90 50 403 175 94 103 104 83 137 168 569 0 1,036 150 229 $ 281 322 342 49 275 391 570 144 204 131 167 167 239 922 364 525 194 184 203 92 429 193 428 330 193 108 914 131 69 272 209 38 274 120 151 254 124 183 79 200 53 151 157 181 151 39 182 85 353 (31) 193 72 181 141 24 (700) 0 0 0 82 335 $ 292 323 349 177 323 393 267 146 207 195 221 215 283 992 404 537 269 335 233 153 579 219 531 368 227 185 294 203 123 302 239 123 314 278 193 295 194 229 203 201 177 265 310 226 259 181 255 176 405 175 324 157 228 157 133 144 360 558 104 511 $ 315 436 382 302 323 480 570 258 263 260 308 293 387 1,466 434 603 485 465 289 266 1,081 282 574 454 300 385 914 312 263 347 285 249 376 509 254 370 280 253 287 266 261 265 414 297 333 271 305 579 580 269 427 261 311 294 301 713 360 1,594 254 307 114 276 0 177 323 93 169 146 207 170 198 215 144 791 356 440 247 246 145 153 263 219 474 334 208 154 81 177 96 262 239 123 144 237 193 272 194 229 187 161 165 237 285 205 212 181 169 108 321 0 324 126 88 91 133 0 294 182 34 Date of Initial Leasehold or Acquisition Investment (1) 1967 1974 1965 1970 1968 1969 1972 1972 1971 1971 1972 1972 1972 1972 1970 1972 1972 1972 1969 1972 1976 1976 1976 1976 1976 1976 1977 1969 1978 1978 1978 1978 1978 1978 1978 1978 1980 1981 1982 1982 1982 1982 1982 1982 1982 1982 1982 1982 1978 1978 1978 1982 1982 1982 1978 1978 1985 2004 2004 2004 Initial Cost of Leasehold or Acquisition Investment to Company (1) Cost Capitalized Subsequent to Initial Investment Gross Amount at Which Carried at Close of Period Building and Improvements Total Land BRISTOL, CT COBALT, CT DURHAM, CT ELLINGTON, CT ENFIELD, CT FARMINGTON, CT HARTFORD, CT HARTFORD, CT MERIDEN, CT MIDDLETOWN, CT NEW BRITAIN, CT NEWINGTON, CT NORTH HAVEN, CT PLAINVILLE, CT PLYMOUTH, CT SOUTH WINDHAM, CT SOUTH WINDSOR, CT SUFFIELD, CT VERNON, CT WALLINGFORD, CT WATERBURY, CT WATERBURY, CT WATERBURY, CT WATERTOWN, CT WETHERSFIELD, CT WEST HAVEN, CT WESTBROOK, CT WILLIMANTIC, CT WINDSOR LOCKS, CT WINDSOR LOCKS, CT SIMSBURY, CT RIDGEFIELD, CT BRIDGEPORT, CT NORWALK, CT BRIDGEPORT, CT STAMFORD, CT BRIDGEPORT, CT BRIDGEPORT, CT BRIDGEPORT, CT BRIDGEPORT, CT NEW HAVEN, CT DARIEN, CT WESTPORT, CT STAMFORD, CT STAMFORD, CT STRATFORD, CT STRATFORD, CT CHESHIRE, CT MILFORD, CT FAIRFIELD, CT BROOKFIELD, CT NORWALK, CT HARTFORD, CT RIDGEFIELD, CT BRIDGEPORT, CT WILTON, CT MIDDLETOWN, CT EAST HARTFORD, CT WATERTOWN, CT AVON, CT WILMINGTON, DE 365 396 994 1,295 260 466 665 571 1,532 1,039 390 954 405 545 931 644 545 237 1,434 551 804 515 468 925 447 1,215 345 717 1,433 1,030 318 535 350 511 313 507 313 378 527 338 538 667 603 603 507 301 285 490 294 430 58 0 233 402 346 519 133 347 352 731 309 237 0 0 842 0 303 432 371 989 675 254 620 252 354 605 598 337 201 0 335 516 335 305 567 0 790 0 466 0 670 176 348 228 332 204 330 204 246 285 220 351 434 393 393 330 196 186 289 191 280 20 402 152 167 230 338 131 301 204 403 201 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 1,398 0 603 0 0 0 0 1 0 0 0 0 0 0 1 2 112 56 52 49 16 25 113 (180) 23 176 346 13 61 85 71 15 (6) 44 10 342 641 33 36 12 76 258 14 59 125 68 83 128 396 994 453 260 163 233 200 543 364 137 334 153 191 326 1,444 208 639 1,434 216 288 180 164 358 447 425 345 251 1,433 361 144 299 178 231 158 193 134 245 62 141 363 579 223 271 262 176 114 195 147 160 380 239 114 271 128 257 260 60 207 453 176 365 396 994 1,295 260 466 665 571 1,532 1,039 391 954 405 545 931 2,042 545 840 1,434 551 804 515 469 925 447 1,215 345 717 1,433 1,031 320 647 406 563 362 523 338 491 347 361 714 1,013 616 664 592 372 300 484 338 440 400 641 266 438 358 595 391 361 411 856 377 Accumulated Depreciation 42 323 812 148 250 53 76 65 182 119 45 109 62 62 106 317 86 368 1,171 88 100 59 54 152 447 139 282 82 1,171 118 6 152 129 147 89 122 90 165 0 94 287 192 138 167 151 133 74 8 102 100 108 73 81 271 128 179 104 30 139 166 132 Date of Initial Leasehold or Acquisition Investment (1) 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 2004 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1988 1985 1985 1985 1985 1987 1991 1992 2002 1985 Initial Cost of Leasehold or Acquisition Investment to Company (1) Cost Capitalized Subsequent to Initial Investment Gross Amount at Which Carried at Close of Period Building and Improvements Total Land WILMINGTON, DE CLAYMONT, DE NEWARK, DE LEWISTON, ME BIDDEFORD, ME SOUTH PORTLAND, ME AUGUSTA, ME BELTSVILLE, MD* BELTSVILLE, MD* BELTSVILLE, MD* BELTSVILLE, MD* BLADENSBURG, MD* BOWIE, MD* CAPITOL HEIGHTS, MD* CLINTON, MD* COLLEGE PARK, MD* COLLEGE PARK, MD* DISTRICT HEIGHTS, MD* DISTRICT HEIGHTS, MD* FORESTVILLE, MD* FORT WASHINGTON, MD* GREENBELT, MD* HYATTSVILLE, MD* HYATTSVILLE, MD* LANDOVER, MD* LANDOVER, MD* LANDOVER HILLS, MD* LANDOVER HILLS, MD* LANHAM, MD* LAUREL, MD* LAUREL, MD* LAUREL, MD* LAUREL, MD* LAUREL, MD* LAUREL, MD* OXON HILL, MD* RIVERDALE, MD* RIVERDALE, MD* SEAT PLEASANT, MD* SUITLAND, MD* SUITLAND, MD* TEMPLE HILLS, MD* UPPER MARLBORO, MD* ACCOKEEK, MD* BALTIMORE, MD EMMITSBURG, MD AUBURN, MA* AUBURN, MA* AUBURN, MA* AUBURN, MA* BEDFORD, MA* BRADFORD, MA* BURLINGTON, MA* BURLINGTON, MA* CHELMSFORD, MA* DANVERS, MA* DRACUT, MA* GARDNER, MA* LEOMINSTER, MA* LYNN, MA* LYNN, MA* 382 237 406 342 618 181 449 1,130 731 525 1,050 571 1,084 628 651 536 445 479 388 1,039 422 1,153 491 594 753 662 1,358 457 822 2,523 1,415 1,530 1,267 1,210 696 1,256 788 582 468 377 673 331 845 692 429 147 600 625 725 800 1,350 650 600 1,250 715 400 450 550 571 850 400 249 152 239 222 235 111 202 1,130 731 525 1,050 571 1,084 628 651 536 445 479 388 1,039 422 1,153 491 594 753 662 1,358 457 822 2,523 1,415 1,530 1,267 1,210 696 1,256 788 582 468 377 673 331 845 692 309 102 600 625 725 0 1,350 650 600 1,250 0 400 450 550 199 850 400 40 31 (110) 89 8 89 (114) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 163 148 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 84 173 116 57 209 391 159 133 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 283 193 0 0 0 800 0 0 0 0 715 0 0 0 372 0 0 422 268 296 431 626 270 335 1,130 731 525 1,050 571 1,084 628 651 536 445 479 388 1,039 422 1,153 491 594 753 662 1,358 457 822 2,523 1,415 1,530 1,267 1,210 696 1,256 788 582 468 377 673 331 845 692 592 295 600 625 725 800 1,350 650 600 1,250 715 400 450 550 571 850 400 Accumulated Depreciation 119 84 2 161 391 156 6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 234 128 0 0 0 116 0 0 0 0 43 0 0 0 5 0 0 Date of Initial Leasehold or Acquisition Investment (1) 1985 1985 1985 1985 1985 1986 1991 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2010 1985 1986 2011 2011 2011 2011 2011 2011 2011 2011 2012 2011 2011 2011 2012 2011 2011 Initial Cost of Leasehold or Acquisition Investment to Company (1) Cost Capitalized Subsequent to Initial Investment Gross Amount at Which Carried at Close of Period Building and Improvements Total Land MARLBOROUGH, MA* MELROSE, MA* METHUEN, MA* PEABODY, MA* PEABODY, MA* REVERE, MA* SALEM, MA* SHREWSBURY, MA* SHREWSBURY, MA* TEWKSBURY, MA* WAKEFIELD, MA* WESTBOROUGH, MA* WILMINGTON, MA* WILMINGTON, MA* WORCESTER, MA* WORCESTER, MA* WORCESTER, MA* WORCESTER, MA* AGAWAM, MA WESTFIELD, MA WEST ROXBURY, MA MAYNARD, MA GARDNER, MA STOUGHTON, MA ARLINGTON, MA METHUEN, MA BELMONT, MA RANDOLPH, MA ROCKLAND, MA WATERTOWN, MA WEYMOUTH, MA HINGHAM, MA ASHLAND, MA WOBURN, MA BELMONT, MA HYDE PARK, MA EVERETT, MA NORTH ATTLEBORO, MA WORCESTER, MA NEW BEDFORD, MA WORCESTER, MA WEBSTER, MA CLINTON, MA FOXBOROUGH, MA CLINTON, MA HYANNIS, MA HOLYOKE, MA NEWTON, MA FALMOUTH, MA METHUEN, MA ROCKLAND, MA FAIRHAVEN, MA BELLINGHAM, MA NEW BEDFORD, MA SEEKONK, MA WALPOLE, MA NORTH ANDOVER, MA LOWELL, MA BILLERICA, MA CHATHAM, MA LEOMINSTER, MA 550 600 650 650 550 1,300 600 450 400 1,200 900 450 1,300 600 400 300 550 500 210 290 490 735 1,008 775 518 380 301 574 438 358 643 353 607 508 390 499 270 663 498 522 386 1,012 587 427 386 651 232 691 519 490 579 546 734 482 1,073 450 394 361 400 275 185 550 600 650 650 550 1,300 600 450 400 1,200 900 450 1,300 600 400 300 550 500 136 188 319 479 657 505 338 246 144 430 228 321 362 243 395 508 254 322 270 432 322 340 251 659 382 325 251 424 117 450 458 319 377 202 476 293 699 293 256 201 250 175 85 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 63 70 68 7 74 25 28 64 121 130 (129) 126 (184) 28 6 295 29 28 191 17 108 18 35 140 48 16 84 43 38 26 44 16 45 (267) 73 96 21 11 32 84 164 16 115 85 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 137 172 239 263 425 295 208 198 278 274 81 163 97 138 218 295 165 205 191 248 284 200 170 493 253 118 219 270 153 267 105 187 247 77 331 285 395 168 170 244 314 116 215 550 600 650 650 550 1,300 600 450 400 1,200 900 450 1,300 600 400 300 550 500 273 360 558 742 1,082 800 546 444 422 704 309 484 459 381 613 803 419 527 461 680 606 540 421 1,152 635 443 470 694 270 717 563 506 624 279 807 578 1,094 461 426 445 564 291 300 Accumulated Depreciation 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 108 105 125 160 284 186 135 145 17 169 15 103 3 133 133 183 110 136 133 154 176 127 101 276 170 118 165 178 153 170 105 118 166 1 228 222 244 104 115 244 265 116 174 Date of Initial Leasehold or Acquisition Investment (1) 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1989 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1990 1985 1985 1985 1985 1988 1985 1985 1985 1985 1985 1985 1985 1985 1985 1986 1986 1986 Initial Cost of Leasehold or Acquisition Investment to Company (1) Cost Capitalized Subsequent to Initial Investment Gross Amount at Which Carried at Close of Period Building and Improvements Total Land LOWELL, MA METHUEN, MA ORLEANS, MA PEABODY, MA SALEM, MA WESTFORD, MA WOBURN, MA YARMOUTHPORT, MA AUBURN, MA BARRE, MA WORCESTER, MA BROCKTON, MA WORCESTER, MA FITCHBURG, MA FRANKLIN, MA WORCESTER, MA NORTHBOROUGH, MA WEST BOYLSTON, MA SOUTH YARMOUTH, MA STERLING, MA SUTTON, MA WORCESTER, MA UPTON, MA WESTBOROUGH, MA HARWICHPORT, MA WORCESTER, MA WORCESTER, MA FITCHBURG, MA LEICESTER, MA NORTH GRAFTON, MA OXFORD, MA WORCESTER, MA FITCHBURG, MA WORCESTER, MA FRAMINGHAM, MA JONESBORO, AR BELLFLOWER, CA BENICIA, CA COACHELLA, CA EL CAJON, CA FILLMORE, CA HESPERIA, CA LA PALMA, CA POWAY, CA SAN DIMAS, CA HALEIWA, HI* HONOLULU, HI* HONOLULU, HI* HONOLULU, HI* HONOLULU, HI* KANEOHE, HI* KANEOHE, HI* WAIANAE, HI* WAIANAE, HI* WAIPAHU, HI* COTTAGE HILLS, IL BALTIMORE, MD BALTIMORE, MD ELLICOTT CITY, MD KERNERSVILLE, NC KERNERSVILLE, NC 375 300 260 400 275 275 350 300 369 536 276 276 168 247 0 343 405 312 276 476 714 276 428 312 383 547 979 390 267 245 294 285 142 271 400 2,985 1,370 2,223 2,235 1,292 1,354 1,643 1,972 1,439 1,941 1,522 1,539 1,769 1,070 9,211 1,978 1,364 1,997 1,520 2,459 249 2,259 802 895 297 449 250 150 185 275 175 175 200 150 240 348 179 179 168 203 165 223 263 203 179 309 464 179 279 203 249 356 636 254 174 159 191 185 93 176 260 330 910 1,058 1,217 780 950 849 1,389 0 749 1,058 1,219 1,192 981 8,194 1,473 822 871 648 945 26 722 0 0 73 338 9 51 23 41 24 28 46 25 111 9 8 194 103 40 271 8 12 29 46 2 132 17 26 21 18 11 7 33 220 35 9 44 219 16 27 0 (1) 1 0 0 0 0 (1) 0 0 0 0 0 0 0 (1) 0 0 0 (1) 0 0 0 0 0 0 86 134 201 98 166 124 128 196 175 240 197 105 291 103 84 106 128 154 138 143 169 382 114 175 130 152 202 350 169 313 121 112 144 268 111 167 2,655 459 1,166 1,018 512 404 794 582 1,439 1,192 464 320 577 89 1,017 504 542 1,126 872 1,513 223 1,537 802 895 224 111 384 351 283 441 299 303 396 325 480 545 284 470 271 287 271 351 417 341 322 478 846 293 454 333 401 558 986 423 487 280 303 329 361 287 427 2,985 1,369 2,224 2,235 1,292 1,354 1,643 1,971 1,439 1,941 1,522 1,539 1,769 1,070 9,211 1,977 1,364 1,997 1,520 2,458 249 2,259 802 895 297 449 Accumulated Depreciation 134 201 98 166 124 128 196 175 96 79 46 232 48 53 52 54 67 71 84 67 124 55 83 63 70 84 140 85 221 68 49 83 198 53 76 634 142 376 306 140 124 226 176 376 311 176 95 158 41 288 155 173 310 239 398 79 413 231 271 66 60 Date of Initial Leasehold or Acquisition Investment (1) 1986 1986 1986 1986 1986 1986 1986 1986 1991 1991 1992 1991 1991 1991 1988 1991 1993 1991 1991 1991 1993 1991 1991 1991 1991 1991 1991 1992 1991 1991 1993 1991 1992 1991 1991 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 Initial Cost of Leasehold or Acquisition Investment to Company (1) Cost Capitalized Subsequent to Initial Investment Gross Amount at Which Carried at Close of Period Building and Improvements Total Land MADISON, NC NEW BERN, NC WALKERTOWN, NC WALNUT COVE, NC WINSTON SALEM, NC BELFIELD, ND ALLENSTOWN, NH BEDFORD, NH HOOKSETT, NH AUSTIN, TX AUSTIN, TX AUSTIN, TX BEDFORD, TX FT WORTH, TX HARKER HEIGHTS, TX HOUSTON, TX KELLER, TX LEWISVILLE, TX MIDLOTHIAN, TX N RICHLAND HILLS, TX SAN MARCOS, TX TEMPLE, TX THE COLONY, TX WACO, TX BROOKLAND, AR JONESBORO, AR DERRY, NH PLAISTOW, NH SALEM, NH LONDONDERRY, NH ROCHESTER, NH EXETER, NH CANDIA, NH EPSOM, NH SALEM, NH CONCORD, NH* CONCORD, NH* DERRY, NH* DOVER, NH* DOVER, NH* DOVER, NH* GOFFSTOWN, NH* HOOKSETT, NH* KINGSTON, NH* LONDONDERRY, NH* MANCHESTER, NH* NASHUA, NH* NASHUA, NH* NASHUA, NH* NASHUA, NH* NASHUA, NH* NORTHWOOD, NH* PORTSMOUTH, NH* RAYMOND, NH* ROCHESTER, NH* ROCHESTER, NH* ROCHESTER, NH* MCAFEE, NJ HAMBURG, NJ LIVINGSTON, NJ TRENTON, NJ 395 350 315 560 434 1,232 1,787 2,301 1,562 2,368 462 3,510 353 2,115 2,052 1,689 2,507 494 429 314 1,954 2,406 4,396 3,884 1,468 869 418 300 743 703 939 113 130 220 450 675 900 950 650 1,200 300 1,737 336 1,500 1,100 550 825 750 1,750 500 550 500 525 550 1,400 1,600 700 671 599 872 374 46 190 315 514 252 382 467 1,271 824 738 274 1,595 113 866 588 224 996 110 72 126 251 1,215 337 894 149 173 158 245 484 458 600 65 80 155 350 675 900 950 650 1,200 300 697 0 1,500 1,100 550 825 750 1,750 500 550 500 525 550 1,400 1,600 700 437 390 568 243 1 62 0 0 0 0 0 0 0 0 0 1 0 0 (1) 0 0 0 0 1 0 (1) 0 0 0 (1) 15 137 20 30 12 224 210 44 47 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12 194 62 25 87 350 222 0 46 182 850 1,320 1,030 738 1,630 188 1,916 240 1,249 1,463 1,465 1,511 384 357 189 1,703 1,190 4,059 2,990 1,319 695 275 192 279 275 351 272 260 109 147 0 0 0 0 0 0 1,040 336 0 0 0 0 0 0 0 0 0 0 0 0 0 0 246 403 366 156 396 412 315 560 434 1,232 1,787 2,301 1,562 2,368 462 3,511 353 2,115 2,051 1,689 2,507 494 429 315 1,954 2,405 4,396 3,884 1,468 868 433 437 763 733 951 337 340 264 497 675 900 950 650 1,200 300 1,737 336 1,500 1,100 550 825 750 1,750 500 550 500 525 550 1,400 1,600 700 683 793 934 399 Accumulated Depreciation 109 65 0 26 99 425 394 338 381 430 70 511 96 372 634 367 423 111 122 59 439 341 986 861 282 156 275 154 174 176 215 143 236 107 147 0 0 0 0 0 0 65 57 0 0 0 0 0 0 0 0 0 0 0 0 0 0 151 162 216 90 Date of Initial Leasehold or Acquisition Investment (1) 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2007 2008 2007 2007 2007 2007 2007 2007 2007 2007 1987 1987 1985 1985 1985 1986 1986 1986 1986 2011 2011 2011 2011 2011 2011 2012 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 1985 1985 1985 1985 Initial Cost of Leasehold or Acquisition Investment to Company (1) Cost Capitalized Subsequent to Initial Investment Gross Amount at Which Carried at Close of Period Building and Improvements Total Land BAYONNE, NJ CRANFORD, NJ NUTLEY, NJ TRENTON, NJ WALL TOWNSHIP, NJ UNION, NJ CRANBURY, NJ HILLSIDE, NJ LONG BRANCH, NJ ELIZABETH, NJ BELLEVILLE, NJ PISCATAWAY, NJ NEPTUNE CITY, NJ BASKING RIDGE, NJ DEPTFORD, NJ CHERRY HILL, NJ SEWELL, NJ FLEMINGTON, NJ TRENTON, NJ LODI, NJ EAST ORANGE, NJ BELMAR, NJ SPRING LAKE, NJ HILLTOP, NJ FRANKLIN TWP., NJ MIDLAND PARK, NJ PATERSON, NJ OCEAN CITY, NJ HILLSBOROUGH, NJ PRINCETON, NJ NEPTUNE, NJ NEWARK, NJ OAKHURST, NJ BELLEVILLE, NJ PINE HILL, NJ ATCO, NJ SOMERVILLE, NJ CINNAMINSON, NJ RIDGEFIELD PARK, NJ BRICK, NJ LAKE HOPATCONG, NJ TRENTON, NJ BERGENFIELD, NJ SCOTCH PLAINS, NJ NUTLEY, NJ PLAINFIELD, NJ WATCHUNG, NJ GREEN VILLAGE, NJ IRVINGTON, NJ JERSEY CITY, NJ BLOOMFIELD, NJ DOVER, NJ PARLIN, NJ COLONIA, NJ NORTH BERGEN, NJ WAYNE, NJ HASBROUCK HEIGHTS, NJ COLONIA, NJ RIDGEWOOD, NJ HAWTHORNE, NJ WAYNE, NJ 342 343 0 466 336 437 607 225 514 406 398 106 270 362 281 358 552 547 685 0 422 566 346 330 683 201 620 844 237 703 456 3,087 226 215 191 153 253 327 274 1,508 1,305 1,303 382 331 434 470 450 278 410 438 442 577 418 253 630 490 640 720 703 245 474 87 222 329 304 121 239 289 150 335 227 259 50 176 200 183 233 356 346 445 232 161 411 225 215 445 150 403 367 100 458 234 1,590 101 149 116 132 201 177 150 1,000 800 1,146 300 215 283 306 226 128 267 218 288 311 203 165 410 319 416 535 458 160 309 (55) 97 658 15 56 (117) (88) 32 30 141 81 353 0 60 25 82 34 17 46 350 (136) 93 69 59 243 183 42 (297) 192 576 (159) (237) 503 73 82 118 29 25 64 0 0 0 26 45 58 72 (186) 35 55 62 50 (174) (138) 11 123 295 324 81 80 52 93 88 200 218 329 177 271 81 230 107 209 320 220 409 94 222 123 207 230 218 286 118 125 248 190 174 481 234 259 180 329 821 63 1,260 628 139 157 139 81 175 188 508 505 157 108 161 209 236 38 185 198 282 204 92 77 99 343 466 548 266 325 137 258 287 440 658 481 392 320 519 257 544 547 479 459 270 422 306 440 586 564 731 350 286 659 415 389 926 384 662 547 429 1,279 297 2,850 729 288 273 271 282 352 338 1,508 1,305 1,303 408 376 492 542 264 313 465 500 492 403 280 264 753 785 964 801 783 297 567 Accumulated Depreciation 0 109 82 111 271 5 20 107 131 43 145 128 56 139 83 96 138 137 177 1 0 151 113 108 214 75 149 12 126 241 2 0 240 114 138 112 69 175 123 322 364 0 108 89 139 150 1 187 140 21 146 4 3 56 235 162 187 253 187 70 165 Date of Initial Leasehold or Acquisition Investment (1) 1985 1985 1986 1985 1986 1985 1985 1987 1985 1985 1985 1993 1985 1986 1985 1985 1985 1985 1985 1988 1985 1985 1985 1985 1985 1989 1985 1985 1985 1985 1985 1985 1985 1986 1986 1987 1987 1987 1997 2000 2000 2012 1990 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 Initial Cost of Leasehold or Acquisition Investment to Company (1) Cost Capitalized Subsequent to Initial Investment Gross Amount at Which Carried at Close of Period Building and Improvements Total Land WASHINGTON TWNSHP, NJ PARAMUS, NJ JERSEY CITY, NJ FORT LEE, NJ TRENTON, NJ BEVERLY, NJ WEST ORANGE, NJ ROCKVILLE CENTRE, NY GLENDALE, NY BELLAIRE, NY BAYSIDE, NY YONKERS, NY DOBBS FERRY, NY NORTH MERRICK, NY GREAT NECK, NY GLEN HEAD, NY GARDEN CITY, NY HEWLETT, NY EAST HILLS, NY LEVITTOWN, NY LEVITTOWN, NY ST. ALBANS, NY BROOKLYN, NY BROOKLYN, NY BAYSIDE, NY ELMONT, NY WHITE PLAINS, NY SCARSDALE, NY EASTCHESTER, NY NEW ROCHELLE, NY BROOKLYN, NY COMMACK, NY SAG HARBOR, NY EAST HAMPTON, NY MASTIC, NY BRONX, NY YONKERS, NY GLENVILLE, NY YONKERS, NY MINEOLA, NY ALBANY, NY LONG ISLAND CITY, NY RENSSELAER, NY RENSSELAER, NY PORT JEFFERSON, NY ROTTERDAM, NY OSSINING, NY ELLENVILLE, NY CHATHAM, NY SHRUB OAK, NY BROOKLYN, NY STATEN ISLAND, NY STATEN ISLAND, NY STATEN ISLAND, NY BRONX, NY EAST MEADOW, NY STATEN ISLAND, NY MASSAPEQUA, NY TROY, NY BALDWIN, NY MIDDLETOWN, NY 912 382 402 1,246 338 470 800 350 369 330 245 153 671 510 500 462 362 490 242 503 546 330 627 477 470 360 259 257 534 338 422 321 704 659 313 390 1,020 344 203 342 405 1,646 1,654 684 387 141 231 233 349 1,061 237 301 358 350 104 383 390 333 225 291 751 594 249 124 811 220 255 521 201 236 215 160 77 434 332 450 301 236 255 242 327 356 215 408 306 306 224 165 123 289 220 275 209 458 428 204 251 665 220 144 222 262 1,072 1,077 287 246 92 117 152 225 691 154 196 230 228 90 325 254 217 147 151 489 64 31 (12) 39 76 (160) 181 66 35 37 225 108 75 117 24 46 14 (87) 38 42 88 127 56 74 289 91 96 171 (154) 83 88 26 35 40 110 54 104 114 82 34 147 260 289 0 62 142 38 95 174 239 21 77 36 44 382 128 89 29 61 47 33 89 382 164 266 474 194 55 460 215 168 152 310 184 312 295 74 207 140 148 38 218 278 242 275 245 453 227 190 305 91 201 235 138 281 271 219 193 459 238 141 154 290 834 866 397 203 191 152 176 298 609 104 182 164 166 396 186 225 145 139 187 295 976 413 390 1,285 414 310 981 416 404 367 470 261 746 627 524 508 376 403 280 545 634 457 683 551 759 451 355 428 380 421 510 347 739 699 423 444 1,124 458 285 376 552 1,906 1,943 684 449 283 269 328 523 1,300 258 378 394 394 486 511 479 362 286 338 784 Accumulated Depreciation 234 100 7 299 140 0 234 171 116 106 240 115 198 207 74 142 88 4 25 147 162 175 182 174 346 152 127 28 6 125 172 93 182 177 175 134 297 173 120 105 213 603 423 173 147 150 16 124 226 312 71 138 113 117 364 166 170 98 107 119 189 Date of Initial Leasehold or Acquisition Investment (1) 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1987 1985 1985 1985 1985 1985 1985 1986 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1986 1985 1985 1985 1985 2004 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1986 1985 1985 1985 1986 1985 Initial Cost of Leasehold or Acquisition Investment to Company (1) Cost Capitalized Subsequent to Initial Investment Gross Amount at Which Carried at Close of Period Building and Improvements Total Land OCEANSIDE, NY NORTHPORT, NY BREWSTER, NY* BRONXVILLE, NY* CORTLAND MANOR, NY* DOBBS FERRY, NY* EASTCHESTER, NY* ELMSFORD, NY* GARNERVILLE, NY* HARTSDALE, NY* HAWTHORNE, NY* HOPEWELL JUNCTION, NY* HYDE PARK, NY* MAMARONECK, NY* MIDDLETOWN, NY* MILLWOOD, NY* MOUNT KISCO, NY* MOUNT VERNON, NY* CHESTER, NY* NEW PALTZ, NY* NEW ROCHELLE, NY* NEW WINDSOR, NY* NEWBURGH, NY* NEWBURGH, NY* PEEKSKILL, NY* PELHAM, NY* PORT CHESTER, NY* PORT CHESTER, NY* POUGHKEEPSIE, NY* POUGHKEEPSIE, NY* POUGHKEEPSIE, NY* POUGHKEEPSIE, NY* POUGHKEEPSIE, NY* POUGHKEEPSIE, NY* RYE, NY* SCARSDALE, NY* SPRING VALLEY, NY* TARRYTOWN, NY* THORNWOOD, NY* TUCHAHOE, NY* WAPPINGERS FALLS, NY* WAPPINGERS FALLS, NY* WARWICK, NY* WEST NYACK, NY* YONKERS, NY* YORKTOWN HEIGHTS, NY* FISHKILL, NY* MIDDLETOWN, NY* NANUET, NY* WHITE PLAINS, NY* KATONAH, NY* BALLSTON, NY BALLSTON SPA, NY COLONIE, NY DELMAR, NY HALFMOON, NY HANCOCK, NY LATHAM, NY MALTA, NY MILLERTON, NY NEW WINDSOR, NY 313 241 789 1,232 1,872 1,345 1,724 1,453 1,508 1,626 2,084 1,163 990 1,429 1,281 1,448 1,907 985 1,158 971 1,887 1,084 527 1,192 2,207 1,035 1,015 941 591 1,020 1,340 1,306 1,355 1,232 872 1,301 749 956 1,389 1,650 452 1,488 1,049 936 1,907 2,365 1,793 719 2,316 1,458 1,084 160 210 245 150 415 100 275 190 175 150 204 157 789 1,232 1,872 1,345 1,724 1,453 1,508 1,626 2,084 1,163 990 1,429 1,281 1,448 1,907 985 1,158 971 1,887 1,084 527 1,192 2,207 1,035 1,015 0 591 1,020 1,340 1,306 1,355 1,232 872 1,301 749 956 0 1,650 0 1,488 1,049 936 1,907 2,365 1,793 719 2,316 1,458 1,084 110 100 120 70 197 50 150 65 100 75 117 33 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 244 148 70 157 (145) 274 182 123 166 137 90 226 117 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 941 0 0 0 0 0 0 0 0 0 0 1,389 0 452 0 0 0 0 0 0 0 0 0 0 294 258 195 237 73 324 307 248 241 212 430 274 789 1,232 1,872 1,345 1,724 1,453 1,508 1,626 2,084 1,163 990 1,429 1,281 1,448 1,907 985 1,158 971 1,887 1,084 527 1,192 2,207 1,035 1,015 941 591 1,020 1,340 1,306 1,355 1,232 872 1,301 749 956 1,389 1,650 452 1,488 1,049 936 1,907 2,365 1,793 719 2,316 1,458 1,084 404 358 315 307 270 374 457 313 341 287 Accumulated Depreciation 138 83 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 111 0 0 0 0 0 0 0 0 0 0 144 0 81 0 0 0 0 0 0 0 0 0 0 213 237 175 145 0 194 223 220 222 192 Date of Initial Leasehold or Acquisition Investment (1) 1985 1985 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 1986 1986 1986 1986 1986 1986 1986 1986 1986 1986 Initial Cost of Leasehold or Acquisition Investment to Company (1) Cost Capitalized Subsequent to Initial Investment Gross Amount at Which Carried at Close of Period Building and Improvements Total Land NISKAYUNA, NY PLEASANT VALLEY, NY QUEENSBURY, NY ROTTERDAM, NY SCHENECTADY, NY WARRENSBURG, NY NEWBURGH, NY JERICHO, NY RHINEBECK, NY PORT EWEN, NY CATSKILL, NY HUDSON, NY BREWSTER, NY CAIRO, NY WEST TAGHKANIC, NY SAYVILLE, NY WANTAGH, NY CENTRAL ISLIP, NY FLUSHING, NY NORTH LINDENHURST, NY WYANDANCH, NY NEW ROCHELLE, NY FLORAL PARK, NY RIVERHEAD, NY BUFFALO, NY HAMBURG, NY LACKAWANNA, NY TONAWANDA, NY WEST SENECA, NY ALFRED STATION , NY AVOCA, NY BATAVIA, NY BYRON, NY CASTILE, NY CHURCHVILLE, NY EAST PEMBROKE, NY FRIENDSHIP, NY NAPLES , NY ROCHESTER , NY PERRY, NY PRATTSBURG, NY SAVONA , NY WARSAW , NY WELLSVILLE, NY ROCHESTER, NY LAKEVILLE, NY GREIGSVILLE, NY ROCHESTER, NY PHILADELPHIA, PA ALLENTOWN, PA NORRISTOWN, PA BRYN MAWR, PA CONSHOHOCKEN, PA PHILADELPHIA, PA HUNTINGDON VALLEY, PA FEASTERVILLE, PA PHILADELPHIA, PA PHILADELPHIA, PA PHILADELPHIA, PA PHILADELPHIA, PA HATBORO, PA 425 398 215 132 225 115 431 0 204 657 405 286 303 192 203 345 641 572 516 295 415 395 617 723 312 294 250 264 257 714 936 684 969 307 1,011 787 393 1,257 559 1,444 553 1,314 990 247 853 1,028 1,018 595 237 358 241 221 261 281 422 510 289 406 418 370 285 275 240 96 0 150 69 150 0 102 162 354 109 143 47 122 300 370 358 320 192 262 252 356 432 151 164 130 211 184 414 635 364 669 132 601 537 43 827 159 1,044 303 964 690 0 303 203 203 305 154 233 157 144 170 183 275 332 188 264 272 241 186 35 158 88 166 340 186 60 370 191 (230) 0 27 75 181 386 27 (1) 18 22 31 (82) 40 93 1 1 0 97 31 56 0 (1) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 25 30 29 51 84 27 37 107 49 133 50 93 189 91 185 316 207 298 415 232 341 370 293 265 51 204 235 326 467 72 270 232 218 134 71 183 354 292 162 130 217 84 129 300 300 320 300 175 410 250 350 430 400 400 250 350 300 247 550 825 815 290 108 155 113 128 175 125 184 285 150 275 196 222 288 460 556 303 298 565 301 491 370 395 427 405 313 378 373 589 372 640 590 538 326 333 435 710 724 313 294 347 295 313 714 935 684 969 307 1,011 787 393 1,257 559 1,444 553 1,314 990 247 853 1,028 1,018 595 262 388 270 272 345 308 459 617 338 539 468 463 474 Accumulated Depreciation 185 264 32 283 394 39 311 232 48 0 12 3 208 294 173 29 156 125 114 83 5 115 178 168 97 70 84 52 43 82 82 87 82 48 112 68 96 118 109 109 68 96 82 68 150 248 243 64 74 105 70 92 133 86 148 213 109 216 131 165 141 Date of Initial Leasehold or Acquisition Investment (1) 1986 1986 1986 1995 1986 1986 1989 1998 2007 2007 2007 1989 1988 1988 1986 1998 1998 1998 1998 1998 1998 1998 1998 1998 2000 2000 2000 2000 2000 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2008 2008 2008 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 Initial Cost of Leasehold or Acquisition Investment to Company (1) Cost Capitalized Subsequent to Initial Investment Gross Amount at Which Carried at Close of Period Building and Improvements Total Land HAVERTOWN, PA MEDIA, PA PHILADELPHIA, PA PHILADELPHIA, PA ALDAN, PA BRISTOL, PA HAVERTOWN, PA HATBORO, PA CLIFTON HGTS., PA ALDAN, PA SHARON HILL, PA PHILADELPHIA, PA MORRISVILLE, PA PHILADELPHIA, PA PHOENIXVILLE, PA POTTSTOWN, PA QUAKERTOWN, PA SOUDERTON, PA LANSDALE, PA FURLONG, PA DOYLESTOWN, PA PENNDEL, PA NORRISTOWN, PA TRAPPE, PA READING, PA ELKINS PARK, PA NEW OXFORD, PA PHILADELPHIA, PA ALLISON PARK, PA NEW KENSINGTON NORTH KINGSTOWN, RI WARWICK, RI EAST PROVIDENCE, RI ASHAWAY, RI EAST PROVIDENCE, RI PAWTUCKET, RI WARWICK, RI CRANSTON, RI PAWTUCKET, RI BARRINGTON, RI WARWICK, RI N. PROVIDENCE, RI EAST PROVIDENCE, RI POTTSVILLE, PA LANCASTER, PA LANCASTER, PA HAMBURG, PA READING, PA EPHRATA, PA ROBESONIA, PA KENHORST, PA LEOLA, PA RED LION, PA HARRISBURG, PA ADAMSTOWN, PA LANCASTER, PA NEW HOLLAND, PA LAURELDALE, PA REIFFTON, PA MOHNTON, PA CRESTLINE, OH 402 326 390 342 281 431 265 289 428 434 411 370 378 303 384 430 379 382 244 175 406 137 175 378 750 275 1,045 1,252 1,500 1,375 212 377 2,297 619 310 213 435 466 207 490 253 542 487 451 209 642 219 183 209 226 143 263 222 399 213 309 313 262 338 317 1,202 254 191 254 222 183 280 173 188 217 283 267 241 246 181 205 280 193 249 244 175 264 90 175 246 0 200 19 814 850 675 89 206 1,496 402 202 119 267 304 154 319 165 353 317 148 78 300 130 104 30 70 65 131 52 199 100 104 143 87 43 66 285 22 108 27 39 36 82 24 103 (117) 17 40 136 37 50 (122) 49 (125) 38 210 151 105 192 128 43 49 14 (227) 0 0 0 84 36 569 0 33 194 25 17 45 85 79 62 12 1 53 18 76 128 87 103 125 102 35 212 168 4 12 16 5 11 0 92 170 243 163 159 134 233 116 204 94 168 184 265 169 172 57 199 61 171 210 151 247 239 128 175 799 89 799 438 650 700 207 207 1,370 217 141 288 193 179 98 256 167 251 182 304 184 360 165 207 266 259 203 234 205 412 281 209 182 191 300 262 917 424 434 417 381 317 513 289 392 311 451 451 506 415 353 262 479 254 420 454 326 511 329 303 421 799 289 818 1,252 1,500 1,375 296 413 2,866 619 343 407 460 483 252 575 332 604 499 452 262 660 295 311 296 329 268 365 257 611 381 313 325 278 343 328 1,202 Accumulated Depreciation 115 125 108 111 94 173 79 144 6 107 126 213 110 172 3 138 0 116 143 113 123 115 82 122 798 89 708 61 142 83 161 207 966 71 97 261 135 110 71 186 109 175 151 304 158 360 165 179 206 256 176 147 200 281 231 209 182 191 300 262 193 Date of Initial Leasehold or Acquisition Investment (1) 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1985 1988 1985 1985 1989 1990 1996 2009 2010 2010 1985 1989 1985 2004 1985 1986 1985 1985 1985 1985 1985 1985 1985 1990 1989 1989 1989 1989 1989 1989 1989 1989 1989 1989 1989 1989 1989 1989 1989 1989 2008 Initial Cost of Leasehold or Acquisition Investment to Company (1) Cost Capitalized Subsequent to Initial Investment Gross Amount at Which Carried at Close of Period Building and Improvements Total Land Accumulated Depreciation MANSFIELD, OH MANSFIELD, OH MONROEVILLE, OH RICHMOND, VA CHESAPEAKE, VA PORTSMOUTH, VA NORFOLK, VA ASHLAND, VA FARMVILLE, VA FREDERICKSBURG, VA FREDERICKSBURG, VA FREDERICKSBURG, VA FREDERICKSBURG, VA GLEN ALLEN, VA GLEN ALLEN, VA KING GEORGE, VA KING WILLIAM, VA MECHANICSVILLE, VA MECHANICSVILLE, VA MECHANICSVILLE, VA MECHANICSVILLE, VA MECHANICSVILLE, VA MECHANICSVILLE, VA MONTPELIER, VA PETERSBURG, VA RICHMOND, VA RUTHER GLEN, VA SANDSTON, VA SPOTSYLVANIA, VA CHESAPEAKE, VA BENNINGTON, VT JACKSONVILLE, FL JACKSONVILLE, FL JACKSONVILLE, FL ORLANDO, FL Miscellaneous 921 1,950 2,580 121 780 562 535 840 1,227 1,279 1,716 1,289 3,623 1,037 1,077 294 1,688 1,125 903 1,476 957 1,677 1,043 2,481 1,441 1,132 466 722 1,290 1,004 309 560 486 545 868 39,552 515,325 $ 332 1 700 0 485 0 0 210 398 (163) 222 54 311 6 840 0 622 0 469 0 996 0 798 0 2,828 0 412 0 322 0 294 0 1,068 0 505 0 273 0 876 0 324 0 1,157 0 223 0 1,726 0 816 0 547 0 31 0 102 0 490 0 385 39 181 (24) 296 (1) 388 (1) 256 0 401 (1) 7,236 18,824 46,991 $ 336,223 $ 922 590 1,950 1,250 2,580 2,095 331 331 617 219 616 394 541 230 840 0 1,227 605 1,279 810 1,716 720 1,289 491 3,623 795 1,037 625 1,077 755 294 0 1,688 620 1,125 620 903 630 1,476 600 957 633 1,677 520 1,043 820 2,481 755 1,441 625 1,132 585 466 435 722 620 1,290 800 1,043 658 285 104 559 263 485 97 545 289 867 466 27,964 46,788 226,093 $ 562,316 $ 117 231 351 311 14 367 230 0 188 251 223 169 246 194 234 0 192 192 195 186 230 161 254 234 194 181 135 192 248 631 21 141 52 155 250 20,854 116,768 $ Date of Initial Leasehold or Acquisition Investment (1) 2008 2009 2009 1990 1990 1990 1990 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 2005 1990 1985 2000 2000 2000 2000 various (1) Initial cost of leasehold or acquisition investment to company represents the aggregate of the cost incurred during the year in which we purchased the property for owned properties or purchased a leasehold interest in leased properties. Cost capitalized subsequent to initial investment also includes investments made in previously leased properties prior to their acquisition. (2) Depreciation of real estate is computed on the straight-line method based upon the estimated useful lives of the assets, which generally range from sixteen to 25 years for buildings and improvements, or the term of the lease if shorter. Leasehold interests are amortized over the remaining term of the underlying lease. (3) The aggregate cost for federal income tax purposes was approximately $546,959,000 at December 31, 2012. 93 GETTY REALTY CORP. and SUBSIDIARIES SCHEDULE IV—MORTGAGE LOANS ON REAL ESTATE As of December 31, 2012 (in thousands) Description Location(s) Interest Rate Final Maturity Date Periodic Payment Terms (a) Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing Seller financing S. Weymouth, MA Horsham, PA Green Island, NY Uniondale, NY Concord, NH Irvington, NJ Kernersville/Lexington, NC Wantagh, NY Fullerton Hts, MD Ipswich, MA Springfield, MA E. Patchogue, NY Manchester, NH Union City, NJ Worcester, MA Dover, PA Neffsville, PA Bronx, NY Seaford, NY Spotswood, NJ Clifton, NJ 9.0% 3/2031 10.0% 7/2024 11.0% 8/2018 10.0% 3/2015 9.5% 8/2028 10.0% 12/2019 8.0% 7/2026 9.0% 5/2032 9.0% 5/2019 9.5% 6/2019 9.0% 7/2019 9.0% 8/2019 9.5% 9/2019 9.0% 9/2019 9.0% 10/2019 9.0% 11/2017 9.0% 12/2017 9.0% 12/2019 9.0% 1/2020 9.0% 1/2020 9.0% 1/2020 P & I P & I P & I P & I P & I P & I P & I P & I P & I P & I P & I P & I P & I P & I P & I P & I P & I P & I P & I P & I P & I Type of Loan/Borrower Mortgage Loans: Borrower A Borrower B Borrower C Borrower D Borrower E Borrower F Borrower G Borrower H Borrower I Borrower J Borrower K Borrower L Borrower M Borrower N Borrower O Borrower P Borrower Q Borrower R Borrower S Borrower T Borrower U Note receivable Purchase/leaseback Various-NY 9.5% 1/2021 I(b) Total (c) (a) P & I = Principal and interest paid monthly. (b) I = Interest only paid monthly with annual principal payments due in ten equal installments. (c) The aggregate cost for federal income tax purposes approximates the amount of principal unpaid. Prior Liens — — — — — — — — — — — — — — — — — — — — — Amount of Principal Unpaid at Close of Period $ 233 188 205 55 191 239 508 450 212 198 130 199 224 798 324 209 480 240 487 306 284 6,160 16,173 $ 22,333 We review payment status to identify performing versus non-performing loans. Interest income on performing loans is accrued as earned. A non-performing loan is placed on non-accrual status when it is probable that the borrower may be unable to meet interest payments as they become due. Generally, loans 90 days or more past due are placed on non-accrual status unless there is sufficient collateral to assure collectability of principal and interest. Upon the designation of non-accrual status, all unpaid accrued interest is reserved against through current income. Interest income on non-performing loans is generally recognized on a cash basis. None of our loans were in default as of December 31, 2012 for nonpayment of interest only or principal and interest. We have not recognized any impairment charges related to our loans. The summarized changes in the carrying amount of mortgage loans are as follows: Balance at January 1, ................................................................................. Additions: 2012 2011 2010 $ 18,638 $ 1,274 $ 1,432 New Mortgage Loans ......................................................................... 4,568 19,468 0 Deductions: Loan repayments................................................................................. Collection of principal ........................................................................ Balance at December 31, ........................................................................... (300) (573) $ 22,333 $ (107 ) (1,997 ) 18,638 $ (8) (150) 1,274 94 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES Getty Realty Corp. (Registrant) By: /s/ THOMAS J. STIRNWEIS Thomas J. Stirnweis, Vice President and Chief Financial Officer March 18,2013 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: By: By: By: /s/ DAVID B. DRISCOLL David B. Driscoll President, Chief Executive Officer and Director (Principal Executive Officer) March 18,2013 /s/ LEO LIEBOWITZ Leo Liebowitz Director and Chairman of the Board March 18,2013 /s/ MILTON COOPER Milton Cooper Director March 18,2013 /s/ HOWARD SAFENOWITZ Howard Safenowitz Director March 18,2013 By: By: By: /s/ THOMAS J. STIRNWEIS Thomas J. Stirnweis Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) March 18,2013 /s/ PHILIP E. COVIELLO Philip E. Coviello Director March 18,2013 /s/ RICHARD E. MONTAG Richard E. Montag Director March 18,2013 95 EXHIBIT INDEX GETTY REALTY CORP. Annual Report on Form 10-K for the year ended December 31, 2012 EXHIBIT NO. DESCRIPTION 2.1 3.1 3.2 3.3 3.4 3.5 4.1 10.1* 10.2* Agreement and Plan of Reorganization and Merger, dated as of December 16, 1997 (the “Merger Agreement”) by and among Getty Realty Corp., Power Test Investors Limited Partnership and CLS General Partnership Corp. Filed as Exhibit 2.1 to Company’s Registration Statement on Form S-4, filed on January 12, 1998 (File No. 333- 44065), included as Appendix A To the Joint Proxy Statement/Prospectus that is a part thereof, and incorporated herein by reference. Articles of Incorporation of Getty Realty Holding Corp. (“Holdings”), now known as Getty Realty Corp., filed December 23, 1997. Filed as Exhibit 3.1 to Company’s Registration Statement on Form S-4, filed on January 12, 1998 (File No. 333- Joint 44065), Proxy/Prospectus that is a part thereof, and incorporated herein by reference. included as Appendix D. the to Articles Supplementary to Articles of Incorporation of Holdings, filed January 21, 1998. Filed as Exhibit 3.2 to Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001- 13777) and incorporated herein by reference. By-Laws of Getty Realty Corp. Filed as Exhibit 3.3 to Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001- 13777) and incorporated herein by reference. Articles of Amendment of Holdings, changing its name to Getty Realty Corp., filed January 30, 1998. Filed as Exhibit 3.4 to Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001- 13777) and incorporated herein by reference. Amendment to Articles of Incorporation of Holdings, filed August 1, 2001. Dividend Reinvestment/Stock Purchase Plan. Filed as Exhibit 3.5 to Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001- 13777) and incorporated herein by reference. Filed under the heading “Description of Plan” on pages 4 through 17 to Company’s Registration Statement on Form S-3D, filed on April 22, 2004 (File No. 333-114730) and incorporated herein by reference. Retirement and Profit Sharing Plan (restated as of December 1, 2012). (a) 1998 Stock Option Plan, effective as of January 30,1998. Filed as Exhibit 10.1 to Company’s Registration Statement on Form S-4, filed on January 12, 1998 (File No. 333- 44065), included as Appendix H to the Joint Proxy Statement/Prospectus that is a part thereof, and incorporated herein by reference. Filed as Exhibit 10.5 to Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001- 13777) and incorporated herein by reference. 10.3* Form of Indemnification Agreement between the Company and its directors. 96 EXHIBIT NO. 10.4* 10.5* 10.6* 10.7* 10.8* 10.9* 10.10** 10.11 10.12 14 21 23 31(i).1 31(i).2 32.1 DESCRIPTION Amended and Restated Supplemental Retirement Plan for Executives of the Getty Realty Corp. and Participating Subsidiaries (adopted by the Company on December 16, 1997 and amended and restated effective January 1, 2009). Letter Agreement dated June 12, 2001 by and between Getty Realty Corp. and Thomas J. Stirnweis regarding compensation upon change in control. 2004 Getty Realty Corp. Omnibus Incentive Compensation Plan. Filed as Exhibit 10.6 to Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001- 13777) and incorporated herein by reference. Filed as Exhibit 10.7 to Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001- 13777) and incorporated herein by reference. Filed as Exhibit 10.3 to Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009 (File No. 001-13777) and incorporated herein by reference. Form of restricted stock unit grant award under the 2004 Getty Realty Corp. Omnibus Incentive Compensation Plan, as amended. Filed as Exhibit 10.15 to Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-13777) and incorporated herein by reference. Amendment to the 2004 Getty Realty Corp. Omnibus Incentive Compensation Plan dated December 31, 2008. Filed as Exhibit 10.19 to Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-13777) and incorporated herein by reference. Amendment dated December 31, 2008 to Letter Agreement dated June 12, 2001 by and between Getty Realty Corp. and Thomas J. Stirnweis regarding compensation upon change of control. (See Exhibit 10.7). Filed as Exhibit 10.20 to Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-13777) and incorporated herein by reference. Unitary Net Lease Agreement between GTY NY Leasing, Inc. and CPD NY Energy Corp., dated as of January 13, 2011. Filed as Exhibit 10.1 to Company’s Quarterly Report on Form 10-Q filed April, 12, 2011 (File No. 001-13777) and incorporated herein by reference. Stipulation and order Deferring Rents Owing to Getty Properties, Establishing Procedures for the Administration of the Chapter 11 Cases, Extending the Time for the Debtors to Assume or Reject the Master Lease and Other Matters. Filed as Exhibit 99.2 to Company’s Current Report on Form 8-K filed March 9, 2012 (File No. 001-13777) and incorporated herein by reference. Letter Agreement dated October 3, 2012 by and between Getty Properties Corp. and The Getty Petroleum Liquidating Trust. (a) The Getty Realty Corp. Business Conduct Guidelines (Code of Ethics). Filed as Exhibit 10.3 to Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009 (File No. 001-13777) and incorporated herein by reference. Subsidiaries of the Company. Consent of Independent Registered Public Accounting Firm. Rule 13a-14(a) Certification of Chief Financial Officer. Rule 13a-14(a) Certification of Chief Executive Officer. Section 1350 Certification of Chief Executive Officer. (a) (a) (b) (b) (b) 97 EXHIBIT NO. 32.2 DESCRIPTION Section 1350 Certification of Chief Financial Officer. 101.INS XBRL Instance Document 101.SCH 101.CAL XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase (b) (c) (c) (c) 101.DEF XBRL Taxonomy Extension Definition Linkbase (c) 101.LAB 101.PRE XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase (c) (c) (a) Filed herewith (b) Furnished herewith. These certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. Section. 1350, and are not being filed for purposes of Section 18 of the Exchange Act, 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. (c) Filed herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. * Management contract or compensatory plan or arrangement. ** Confidential treatment has been granted for certain portions of this Exhibit pursuant to Rule 24b-2 under the Exchange Act, which portions are omitted and filed separately with the SEC. The exhibits listed in this Exhibit Index which were filed or furnished with our 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission are available upon payment of a $25 fee per exhibit, upon request from us, by writing to Investor Relations addressed to Getty Realty Corp., 125 Jericho Turnpike, Suite 103, Jericho, NY 11753. Our website address is www.gettyrealty.com. Our website contains a hyperlink to the EDGAR database of the Securities and Exchange Commission at www.sec.gov where you can access, free-of-charge, each exhibit that was filed or furnished with our 2012 Annual Report on Form 10-K. 98 EXHIBIT 21. SUBSIDIARIES OF THE COMPANY SUBSIDIARY AOC Transport, Inc. GettyMart, Inc. Getty HI Indemnity, Inc. Getty Leasing, Inc. Getty Properties Corp. Getty TM Corp. GTY MA/NH Leasing, Inc. GTY MD Leasing, Inc. GTY NY Leasing, Inc. Leemilt’s Flatbush Avenue, Inc. Leemilt’s Petroleum, Inc. Power Test Realty Company Limited Partnership* Slattery Group, Inc. STATE OF INCORPORATION Delaware Delaware New York Delaware Delaware Maryland Delaware Delaware Delaware New York New York New York New Jersey * ninety-nine percent owned by the Company, representing the limited partner units, and one percent owned by Getty Properties Corp., representing the general partner interest 99 EXHIBIT 23. CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Nos. 333-115672, 333-45249 and 333-45251), Form S-3 (No. 333-174156) and Form S-3D (No. 333-114730) of Getty Realty Corp. of our reports dated March 18, 2013 relating to the financial statements and the financial statement schedules and the effectiveness of internal control over financial reporting, which appear in this Form 10-K. /s/ PricewaterhouseCoopers LLP New York, New York March 18, 2013 100 EXHIBIT 31(i).1 RULE 13a-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Thomas J. Stirnweis, certify that: 1. I have reviewed this Annual Report on Form 10-K of Getty Realty Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America; c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 18, 2013 By: /s/ THOMAS J. STIRNWEIS Thomas J. Stirnweis Vice President and Chief Financial Officer 101 EXHIBIT 31(i).2 RULE 13a-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, David B. Driscoll, certify that: 1. I have reviewed this Annual Report on Form 10-K of Getty Realty Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America; c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 18, 2013 By: /s/ DAVID B. DRISCOLL David B. Driscoll President and Chief Executive Officer 102 EXHIBIT 32.1 SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Getty Realty Corp. (the “Company”) hereby certifies, to such officer’s knowledge, that: (i) the Annual Report on Form 10-K of the Company for the annual period ended December 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 18, 2013 By: /s/ DAVID B. DRISCOLL David B. Driscoll President and Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to Getty Realty Corp. and will be retained by Getty Realty Corp. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is 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. 103 EXHIBIT 32.2 SECTION 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Getty Realty Corp. (the “Company”) hereby certifies, to such officer’s knowledge, that: (i) the Annual Report on Form 10-K of the Company for the annual period ended December 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 18, 2013 By: /s/ THOMAS J. STIRNWEIS Thomas J. Stirnweis Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Getty Realty Corp. and will be retained by Getty Realty Corp. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is 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. 104 coRp oR At e D AtA G e t t y R e A lt y C oRp. BoARd of diReCtoRs Milton Cooper Chairman of the Board of Kimco Realty Corporation Philip E. Coviello Retired Partner of Latham & Watkins LLP CoRpoRAte HeAdquARteRs Getty Realty Corp. 125 Jericho Turnpike Jericho, New York 11753 (516) 478-5400 www.gettyrealty.com David B. Driscoll Chief Executive Officer and President of Getty Realty Corp. ABout ouR stoCk Our Common Stock is listed on the New York Stock Exchange under the symbol GTY. Leo Liebowitz Chairman of the Board of Directors of Getty Realty Corp. Richard E. Montag Former Senior Executive of the Richard E. Jacobs Group Howard Safenowitz President, Safenowitz Family Corp. exeCutive offiCeRs Leo Liebowitz Chairman of the Board of Directors David B. Driscoll Chief Executive Officer and President Joshua Dicker Senior Vice President, General Counsel and Secretary Kevin C. Shea Executive Vice President Thomas J. Stirnweis Vice President and Chief Financial Officer Christopher J. Constant Assistant Vice President, Director of Planning and Treasurer ABout ouR sHAReHoldeRs As of March 28, 2013, we had 33,396,790 outstanding shares of Common Stock owned by approximately 18,600 shareholders. AnnuAl MeetinG All shareholders are cordially invited to attend our annual meeting on May 14, 2013 at 3:30 p.m. at the offices of JPMorgan Chase & Co., located at 270 Park Avenue, 11th Floor, New York, New York. Holders of common stock of record at the close of business on March 28, 2013, 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 

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