Getty Realty
G E T T Y R E A L T Y C O R P .
2 0 1 3
A n n u A l
R e p o Rt
F i nA nci A l H igH l igH t s
(in thousands, except per share amounts)
Total revenues
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Diluted net earnings per common share
Funds from operations(g)
Diluted funds from operations per common share(g)
Adjusted funds from operations(g)
Diluted adjusted funds from operations per common share(g)
Cash dividends declared per common share
Years ended December 31,
2013(a)
2012
2011(b)
$ 102,463(c)
$ 95,755
$ 93,711
27,667(d)
13,513(e)
8,888(f)
42,344
(1,066)
3,568
70,011
12,447
12,456
2.08
0.37
0.37
47,858
33,223
42,050
1.43
0.99
1.26
44,734
28,790
62,679
1.33
0.85
0.86
0.375
1.88
1.46
(a) Includes (from the date of the acquisition) the effect of the $72.5 million acquisition of 16 Mobil-branded gasoline station and convenience store properties
and 20 Exxon- and Shell-branded gasoline station and convenience store properties in two sale/leaseback transactions with subsidiaries of Capitol
Petroleum Group, LLC which were acquired on May 9, 2013.
(b) 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.
(c) Includes $3.1 million of other revenue recorded in 2013 for the partial recovery of damages stemming from Marketing’s default of its obligations under the
Master Lease, which was received as a result of the Lukoil Settlement.
(d) Includes the effect of a $15.3 million net credit for bad debt expense primarily related to receiving funds from the Marketing Estate and the Litigation
Funding Agreement, the effect of a $9.4 million increase in provisions for environmental litigation losses, the effect of a $4.2 million non-cash allowance
for deferred rent receivable and the effect of a $3.3 million impairment charge.
(e) Includes the effect of a $12.0 million accounts receivable reserve and the effect of a $5.1 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.”)
(f) Includes the effect of a $16.5 million non-cash allowance for deferred rent receivable, the effect of a $6.5 million accounts receivable reserve and the
effect of a $12.7 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.”)
(g) In addition to measurements defined by accounting principles generally accepted in the United States of America (“GAAP”), we also focus on funds from
operations (“FFO”) and adjusted funds from operations (“AFFO”) to measure our performance. FFO is generally considered to be an appropriate supple-
mental 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 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.
We pay 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 items. In our 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 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.
CEO a n d Pr E Si dEn t ’ S M E S S agE
1
Fellow Shareholders,
Getty continued to make transformational progress in 2013. Our team maintained its
considerable efforts to maximize the value of our current portfolio of more than 950
locations throughout many geographic markets in the United States, while selectively
adding assets that were immediately accretive to our long-term cash flow. The year
featured some significant achievements and ended with many of our previous
challenges receding further into the past.
At risk of being repetitious, I want to highlight some of the progress made by the
Company during the year. We:
• Successfully refinanced our balance sheet with a new $175 million credit facility
and a $100 million long-term, fixed-rate term loan, which materially extended our
maturities and reduced our exposure to increasing interest rates;
• Disposed of approximately 150 locations which did not meet our long-term
growth profile;
• Recycled more than $40 million of proceeds from non-core asset sales into new
higher growth locations; and
• Raised quarterly cash dividend to $0.20 per share.
The ongoing transformation of pruning and improving the quality of our portfolio
resulted in meaningful reductions of our real estate taxes and maintenance costs.
Successfully refinanced our balance sheet with
a new $175 million credit facility and a $100 million
long-term, fixed-rate term loan, which materially
extended our maturities and reduced our exposure
to increasing interest rates.
2 0 1 3
a n n u a l
r E P O r t
2
CEO a n d Pr E Si dEn t ’ S M E S S agE
Notably, the dispositions included most of our major terminals, which materially
lowered operating costs by eliminating carrying costs associated with these terminals,
and one of our Manhattan locations which generated approximately $23 million and
reportedly set a record for the highest dollar per square foot sale ever generated in
New York City.
During the year, we strengthened our portfolio with the accretive acquisition of 36
well located properties in the highly desirable greater New York and Washington, DC
metropolitan areas for approximately $72.5 million. The structure of the acquisition
was equally important, as our team utilized forward and reverse 1031 exchanges
enabling us to defer gains on virtually all of our dispositions during the year.
We also moved further away from the challenges of Lukoil and saw a positive result
from the legal action taken by the Marketing Liquidating Trust. The Company invested
a lot of time, effort and capital into the Lukoil action during the last eighteen
months. The result was a settlement in August for approximately $93 million. Getty
immediately received an aggregate of approximately $32 million from that settlement.
It was accounted for in a variety of ways, but this immediate participation in the
settlement mainly resulted from our decision to fund the lawsuit in return for a
participation in its outcome. Importantly, we still anticipate receiving additional funds
representing our pro-rata share of unsecured claims to be satisfied from liquidation
of the Marketing Estate. We are pleased to get some recovery but equally mindful
disposed of approximately 150 locations which did
not meet our long-term growth profile.
gEtty
r E a l t y
C O r P.
CEO a n d Pr E Si dEn t ’ S M E S S agE
3
that these amounts do not come close to fully compensating us for the losses inflicted
by Marketing. However, we have moved on and are focused on strengthening our
business and improving the long-term cash flows.
As we move forward, we continue to see considerable opportunity for growth within
our sector. The challenge is to execute on that growth in an accretive manner. Getty
competes as we all do in an “easy money” macro economic climate characterized
by ample liquidity, low current and short-term interest rates and an expectation of
higher rates to come; we believe this climate means we must remain diligent and
selective in our investment approach. We are competing with many old and new
providers of capital in a specialized industry where our expertise leads us to remain
disciplined and to refrain from following the “crowd.”
We remain committed to our core objectives:
• Generating current cash dividends;
• Increasing cash flow that will enable us to increase our dividend and reduce our
payout ratio over time; and
• Realizing residual value appreciation over the long term.
These objectives will drive our scrutiny of acquisition growth prospects in the
coming years.
acquired 36 well located properties in the highly
desirable greater new york and Washington, dC
metropolitan areas for approximately $72.5 million.
2 0 1 3
a n n u a l
r E P O r t
4
CEO a n d Pr E Si dEn t ’ S M E S S agE
We also have opportunities to drive growth and cash flow generation in our existing
portfolio and we intend to redouble our efforts here. Opportunities include:
• Investments and redevelopments to higher and better uses;
• Maximizing, through investments and redevelopments, higher returns from
existing uses;
• Recycling capital through dispositions of non- and low-performing assets; and
• Purchases, early terminations and the exercise of rights of first refusal or purchase
options on leased locations.
We intend to actively cultivate opportunistic activity from our dynamic portfolio of
more than 950 locations in order to improve returns and shareholder value.
This is an exciting time for Getty. The dedicated team we have in place is striving
to improve our approach and ultimately the value we create for our stakeholders.
As always, I want to close this letter by expressing my thanks and gratitude to our
shareholders for their patience and support and to our team for all of their hard work
in 2013, and the effort they have already put forth in 2014.
Sincerely,
David B. Driscoll
Chief Executive Officer and President
raised quarterly cash dividend
to $0.20 per share.
gEtty
r E a l t y
C O r P.
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, 2013
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)
Smaller reporting company
Accelerated filer
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 (25,614,572 shares of common stock) of the Company was $528,941,000 as of
June 30, 2013.
The registrant had outstanding 33,397,260 shares of common stock as of March 17, 2014.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT
Selected Portions of Definitive Proxy Statement for the 2014 Annual Meeting of Stockholders (the “Proxy Statement”), which will be
filed by the registrant on or prior to 120 days following the end of the registrant’s year ended December 31, 2013 pursuant to
Regulation 14A.
PART OF
FORM 10-K
III
Item Description
Cautionary Note Regarding Forward-Looking Statements
TABLE OF CONTENTS
1 Business
1A Risk Factors
1B Unresolved Staff Comments
2
Properties
3
Legal Proceedings
4 Mine Safety Disclosures
PART I
PART II
Selected Financial Data
5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
6
7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A Quantitative and Qualitative Disclosures About Market Risk
8
9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9A Controls and Procedures
9B Other Information
Financial Statements and Supplementary Data
PART III
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
10 Directors, Executive Officers and Corporate Governance
11
12
13 Certain Relationships and Related Transactions, and Director Independence
14
Principal Accountant Fees and Services
15
Exhibits and Financial Statement Schedules
Signatures
Exhibit Index
PART IV
Page
3
5
9
19
20
21
24
25
27
29
42
44
72
72
72
73
73
74
74
74
74
94
95
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K may constitute “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. When we use the words “believes,” “expects,” “plans,” “projects,” “estimates,”
“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: our network of retail motor fuel and convenience store properties; our efforts, expectations and ability to
reposition the remaining transitional properties that were previously subject to the Master Lease; our expectations that we may receive
additional distributions from the Marketing Estate to satisfy our remaining general unsecured claims against the Marketing Estate; our
beliefs regarding the amount of revenue we expect to realize from our properties; our expectations regarding incurring costs associated
with repositioning our remaining transitional properties including, but not limited to, Property Expenditures, environmental costs and
potential capital expenditures; our expectations regarding incurring costs associated with the Marketing bankruptcy proceeding and
taking control of our properties; our expectations regarding eviction proceedings initiated to take control of our properties; our
expectations regarding a restructuring of the NECG Lease; the impact of the developments related to the 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 beliefs about our critical accounting policies; 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 beliefs about loan loss reserves or allowances; our belief
that our accruals for environmental and litigation matters including matters related to our former Newark, New Jersey Terminal and
the Lower Passaic River and the MTBE multi-district litigation case, were appropriate based on the information then available;
compliance with federal, state and local provisions enacted or adopted pertaining to environmental matters; our beliefs about the
settlement proposals we receive and 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 the indemnification
obligations of others; our expectations about our investment strategy and its 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 covenants in our Credit Agreement and Prudential Loan Agreement; our
belief that certain environmental liabilities can be allocated to others under various agreements; our belief that our real estate assets are
not carried at amounts in excess of their estimated net realizable fair value amounts; and our ability to maintain our federal tax status
as a REIT.
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 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; the performance of our tenants of their lease obligations,
renewal of existing leases and re-letting or selling our transitional properties; our ability to obtain favorable terms on any properties
that we sell or re-let; the uncertainty of our estimates, judgments, projections 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 and our ability to successfully manage our investment strategy; owning and leasing real
estate generally; adverse developments in general business, economic or political conditions; substantially all of our tenants depending
on the same industry for their revenues; property taxes; compliance with environmental legislation and regulations and costs of
complying with such laws 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; the real estate industry; 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 failure to qualify
as a REIT and paying taxes, penalties, interest or a deficiency dividend; changes in interest rates and our ability to manage or mitigate
this risk effectively; dilution as a result of future issuances of equity securities; our dividend policy and ability to pay dividends;
changes in market conditions; provisions in our charter; 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; terrorist attacks and other acts of violence and war; our information systems; future impairment charges and our investors’
ability to determine the creditworthiness of our tenants.
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. Our properties are
located in 20 states across the United States and Washington, D.C., 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 when appropriate opportunities arise.
Company Operations
As of December 31, 2013, we owned 840 properties and leased 125 properties from third-party landlords. 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. In addition, many
of our properties are located at highly trafficked urban intersections or conveniently close to highway entrances or exit ramps. We
believe our network of retail motor fuel and convenience store 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.
The majority of our properties are leased on a triple-net basis primarily to petroleum distributors and, to a lesser extent,
individual operators. Generally our tenants supply fuel and either 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. Retail
motor fuel and convenience store properties are an integral component of the transportation infrastructure supported by highly
inelastic demand for petroleum products and day-to-day consumer goods and convenience foods. 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.
• Core Net Lease Portfolio. As of December 31, 2013, we leased 755 properties to tenants under long-term triple-net
leases. Our core net lease portfolio consists of 676 properties leased to approximately 20 regional and national fuel
distributor tenants under unitary or master triple-net leases and 79 properties leased as single unit triple-net leases.
Our triple-net leases generally provide for initial terms of 15 years with options for successive renewal terms of up to 20
years and include provisions for rental increases during the initial and any renewal terms of the lease. As of December 31,
2013, our average lease term including month-to-month license agreements (described below), weighted by the number of
underlying properties, was approximately 10.7 years excluding renewal options. Our triple-net tenants are responsible for
the payment of all taxes, maintenance, repairs, insurance and other operating expenses relating to our properties, and are
also responsible for environmental contamination occurring during the terms of their leases and in certain cases also for
preexisting environmental contamination.
Since the termination of our master lease with Getty Petroleum Marketing, Inc. (“Marketing”) on April 30, 2012, we have
entered into 12 long-term triple-net unitary leases re-letting, in the aggregate, 462 operating properties that were
previously leased to Marketing. The majority of the leases provide for additional rent based on the aggregate volume of
petroleum products sold. In addition, the majority of the leases require the tenants to make capital expenditures at our
properties substantially all of which are related to the replacement of underground storage tanks that are owned by our
tenants. We have committed to co-invest up to $14.5 million in the aggregate with our tenants for a portion of such capital
expenditures and, as of December 31, 2013, we have invested $0.3 million of our capital commitment.
• Transitional Properties. As of December 31, 2013, we had 210 transitional properties in our portfolio, substantially all
of which were previously leased to Marketing. Ninety of these properties are subject to month-to-month license
agreements under which the licensees (substantially all of whom were Marketing’s former subtenants) pay us a licensing
fee to occupy and use these properties as gas stations, convenience stores, automotive repair service facilities or other
businesses. As of December 31, 2013, we also categorized the 84 properties subject to a lease with NECG Holdings Corp
(“NECG” or the “NECG Lease” as appropriate) as transitional. Some of the properties included in the NECG Lease
remain subject to eviction proceedings against Marketing’s former subtenants (or sub-subtenants) who continue to occupy
these properties. These ongoing eviction proceedings have materially adversely impacted NECG. (For more information
5
regarding NECG and the NECG Lease, see “Property Evictions” below and note 2 to our consolidated financial statements).
Finally, thirty six transitional properties were vacant as of December 31, 2013.
Our month-to-month license agreements differ from our triple-net lease arrangements in that, among other things, we receive
monthly occupancy payments directly from the licensees while we remain responsible for certain costs associated with the
properties. These month-to-month license agreements, which are intended as interim occupancy arrangements while more
definitive repositioning of the subject properties are completed by us, allow the licensees to occupy and use the properties as gas
stations, convenience stores or automotive repair service facilities. Under our month-to-month license agreements we are
responsible for the payment of operating expenses such as maintenance, repairs, real estate taxes, insurance and general upkeep
(“Property Expenditures”) and certain environmental compliance costs. From May 1, 2012 through September 30, 2013, we
required the licensees under our month-to-month license agreements to sell fuel provided exclusively by a third-party, with
whom we had contracted for interim fuel supply. Under our agreement with the third-party fuel supplier, the third-party fuel
supplier was required to pay us a fee based in part on gallons sold and we paid to the third-party fuel supplier a monthly
administrative service fee. The interim fuel supply agreement was cancelled on October 1, 2013 and from that date all of our
licensees who operate gas stations source their fuel directly from wholesalers.
In the aggregate, Property Expenditures and environmental costs exceed licensing revenues for transitional properties occupied
under month-to-month license agreements, or which are vacant. We will continue to be responsible for such Property
Expenditures until these properties are sold or leased on a triple-net basis. For the quarter and year ended December 31, 2013,
we incurred $1.7 million and $8.3 million, respectively, of Property Expenditures related to these transitional properties. In
addition, in connection with the repositioning of properties previously leased to Marketing, we have increased the number of our
tenants significantly, and we are performing property related functions previously performed by Marketing, both of which have
resulted in increases in our annual operating expenses. The incurrence of these various expenses may materially negatively
impact our cash flow and ability to pay dividends. In addition, 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.
As described in more detail below, we continue to reposition our transitional properties and expect that we will either sell, enter
into new leases or modify existing leases on the remaining transitional properties over time. We are reviewing select
opportunities for capital expenditures, redevelopment and alternative uses for transitional properties that were previously leased
to Marketing and which are not currently subject to long-term triple-net leases. Although we are currently working on
repositioning these transitional properties, the timing of pending or anticipated transactions may be affected by factors beyond
our control and we cannot predict when or on what terms sales or leases will ultimately be consummated.
•
Property Dispositions. During the year ended December 31, 2013, we sold 145 transitional properties for $83.1
million in the aggregate. Included in the 2013 totals are the sale of five terminals for approximately $22.8 million
and the sale of a property in Manhattan for $23.5 million. Subsequent to December 31, 2013, we have sold 25
transitional properties for $8.6 million in the aggregate.
• Properties Held for Sale. We are continuing a process of disposing of transitional properties which we have
determined are not part of our core business. In accordance with Generally Accepted Accounting Principles
(“GAAP”), 115 properties have met the criteria to be classified as held for sale as of December 31, 2013.
•
Leasing Activities. As of December 31, 2013, we were negotiating long-term, triple-net leases for approximately
38 transitional properties previously leased to Marketing. Generally these properties are operating as gas stations
and are occupied under month-to-month license agreements. We expect to lease substantially all of these
remaining transitional properties, either individually or in small portfolios. We may make investments in certain
of these transitional properties by contributing to capital expenditures required to be made by our new tenants. We
cannot predict the timing or the terms of any future leases. It is likely that we will dispose of properties within this
group that are not leased.
• Property Evictions. As of the date of this Annual Report on Form 10-K, we are pursuing evictions on 18 of our
transitional properties. The most significant eviction action is against a group of former Marketing subtenants (or
sub-subtenants) who continue to occupy certain properties in the State of Connecticut which are subject to the
NECG Lease. These ongoing eviction proceedings have materially adversely impacted NECG. In June 2013, the
Connecticut Superior Court ruled in our favor with respect to all 24 locations involved in the proceedings.
However, in July 2013, the operators against whom these Superior Court rulings were made appealed the
decisions. As of the date of this Annual Report on Form 10-K, 13 of the original 24 operators against whom
eviction proceedings were brought have reached agreements with NECG to either remain in the properties as bona
fide subtenants or vacate the premises, and have withdrawn their appeals. Eleven of the operators remain in
occupancy of the subject sites during the pendency of their appeal. We remain confident that we will prevail in the
remaining appeals and, although no assurances can be given, we anticipate a favorable resolution of this matter in
2014. We expect that we will enter into a restructuring of the NECG Lease after a final resolution to the eviction
proceedings is determined.
In addition to the Connecticut evictions, we are pursuing eviction proceedings involving seven of our other properties in
various jurisdictions against Marketing’s former subtenants who have not vacated our properties and most of whom have
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not entered into 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.
Investment Strategy and Activity
As part of our overall growth strategy, we regularly review acquisition and financing opportunities to invest in additional retail
motor fuel and convenience store properties, and we expect to continue to pursue investments that we believe will benefit our financial
performance. Our investment strategy seeks to generate current income and benefit from long-term appreciation in the underlying
value of our real estate. To achieve that goal we seek to invest in high quality individual properties and real estate portfolios that will
promote our geographic diversity. A key element of our investment strategy is to invest in properties in strong primary markets that
serve high density population centers. In addition to traditional sale/leaseback and other real estate acquisitions, our investments may
also include purchase money mortgages or loans relating to our leasehold portfolios. We cannot provide any assurance that we will be
successful making additional investments, that investments will be available which meet our investment criteria or that our current
sources of liquidity will be sufficient to fund such investments.
In 2013, we acquired 16 Mobil-branded gasoline station and convenience store properties in the metro New York region and 20
Exxon- and Shell-branded gasoline station and convenience store properties located within the Washington, D.C. “Beltway” for $72.5
million in two sale/leaseback transactions with subsidiaries of Capitol Petroleum Group, LLC (“Capitol”). In addition, in 2013, we
acquired fee or leasehold title to three gasoline station and convenience store properties in separate transactions valued at $0.8 million.
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.
Over the last ten years, we have acquired approximately 440 properties in various states in transactions valued at approximately
$600 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.
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. In 1985, we acquired from Texaco 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.
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.
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.
Marketing and the Master Lease
Approximately 590 of the properties we own or lease as of December 31, 2013 were previously leased to Marketing pursuant to
the Master Lease. In December 2011, Marketing filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court. The Master
Lease was terminated effective April 30, 2012, and in July 2012, the Bankruptcy Court approved Marketing’s Plan of Liquidation and
appointed a trustee (the “Liquidating Trustee”) to oversee liquidation of the Marketing estate (the “Marketing Estate”).
In December 2011, the Marketing Estate filed a lawsuit (the “Lukoil Complaint”) against Marketing’s former parent, Lukoil
Americas Corporation, and certain of its affiliates (collectively, “Lukoil”). In October 2012, we entered into an agreement with the
Marketing Estate to make loans and otherwise fund up to an aggregate amount of $6.7 million to prosecute the Lukoil Complaint and
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for certain other expenses incurred in connection with the wind-down of the Marketing Estate (the “Litigation Funding Agreement”).
We ultimately advanced $6.5 million in the aggregate to the Marketing Estate pursuant to the Litigation Funding Agreement. The
Litigation Funding Agreement also provided that we were entitled to be reimbursed for up to $1.3 million of our legal fees incurred in
connection with the Litigation Funding Agreement.
On July 29, 2013, the Bankruptcy Court approved a settlement of the claims made in the Lukoil Complaint (the “Lukoil
Settlement”). The terms of the Lukoil Settlement included a collective payment to the Marketing Estate of $93.0 million. In August
2013, the settlement payment was received by the Marketing Estate of which $25.1 million was distributed to us pursuant to the
Litigation Funding Agreement and $6.6 million was distributed to us in full satisfaction of our post-petition priority claims related to
the Master Lease.
We believe that we will receive additional distributions from the Marketing Estate to satisfy our remaining general unsecured
claims. We cannot provide any assurance as to our proportionate interest in any Marketing Estate assets, or the amount or timing of
recoveries, if any, with respect to our remaining general unsecured claims against the Marketing Estate.
Major Tenants
As of December 31, 2013, we had two groups of major tenants. (For information regarding factors that could adversely affect us
relating to our lessees, see “Part I, Item 1A. Risk Factors.)
As of December 31, 2013, we leased 142 gasoline station and convenience store properties in two separate unitary leases to
subsidiaries of Chestnut Petroleum Dist. Inc. We lease 58 properties to CPD NY Energy Corp. (“CPD NY”) and 84 properties to
NECG. CPD NY and NECG together represented 21%, 18% and 12% of our rental revenues for the years ended December 31, 2013,
2012 and 2011, respectively. Although we have separate, non-cross defaulted leases with each of these subsidiaries, because such
subsidiaries are affiliated with one another and under common control, a material adverse impact on one subsidiary, or failure of such
subsidiary to perform its rental and other obligations to us, may contribute to a material adverse impact on the other subsidiaries
and/or failure of the other subsidiaries to perform its rental and other obligations to us.
In addition, as of December 31, 2013, we leased 97 gasoline station and convenience store properties in four separate unitary
leases to subsidiaries of Capitol. We lease 37 properties to White Oak Petroleum, LLC, 24 properties to Hudson Petroleum Realty,
LLC, 20 properties to Dogwood Petroleum Realty, LLC and 16 properties to Big Apple Petroleum Realty, LLC. In aggregate, these
Capitol affiliates represented 15%, 7% and 6% of our rental revenues for the years ended December 31, 2013, 2012 and 2011,
respectively. Although we have separate, non-cross defaulted leases with each of these subsidiaries, because such subsidiaries are
affiliated with one another and under common control, a material adverse impact on one subsidiary, or failure of such subsidiary to
perform its rental and other obligations to us, may contribute to a material adverse impact on the other subsidiaries and/or failure of
the other subsidiaries to perform its rental and other obligations to us.
Competition
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.
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 and licensees to use the Getty® trademarks at properties that they lease from us.
Regulation
Our properties are subject to numerous 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. 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 potential 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 our properties 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
8
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 between the parties responsibility for known and unknown
environmental liabilities at or relating to the subject premises. We are contingently liable for these environmental obligations in the
event that the counterparty to the agreement does not satisfy them.
For all of our triple-net leases, our tenants are directly responsible for compliance with various environmental laws and
regulations as the operators of our properties, for the retirement and decommissioning or removal of all or a negotiated percentage of
USTs and other equipment and for remediation of environmental contamination that arises during the term of their tenancy. Under the
terms of our leases covering properties previously leased to Marketing, we have agreed to be responsible for environmental
contamination at the premises that is known at the time the lease commences and for contamination that existed at the premises prior
to commencement of the lease and is discovered by the tenant (other than as a result of a voluntary site investigation) during the first
ten years of the lease term. After expiration of such ten year period, responsibility for all newly discovered contamination (irrespective
of when the contamination first arose) is allocated to our tenant. Under most of our other triple-net leases, responsibility for
remediation of all environmental contamination discovered during the term of the lease (including known and unknown contamination
that existed prior to commencement of the lease) is the responsibility of our tenant.
For additional information please refer to “Item 1A. Risk Factors” and to “Liquidity and Capital Resources,” “Environmental
Matters” and “Contractual Obligations” in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” which appear in Item 7. and note 5 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 17, 2014, we had 29 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.
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 transitional 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
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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 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 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 notes 3 and 5 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 between the parties responsibility for known and unknown
environmental liabilities at or relating to the subject premises. We are contingently liable for these environmental obligations in the
event that the counterparty to the agreement does not satisfy them.
For all of our triple-net leases, our tenants are directly responsible for compliance with various environmental laws and
regulations as the operators of our properties, for the retirement and decommissioning or removal of all or a negotiated percentage of
USTs and other equipment and for remediation of environmental contamination that arises during the term of their tenancy. Under the
terms of our leases covering properties previously leased to Marketing, we have agreed to be responsible for environmental
contamination at the premises that is known at the time the lease commences and for contamination that existed at the premises prior
to commencement of the lease and is discovered by the tenant (other than as a result of a voluntary site investigation) during the first
ten years of the lease term. After the expiration of such ten year period, responsibility for all newly discovered contamination
(irrespective of when the contamination first arose) is allocated to our tenant. Under most of our other triple-net leases, responsibility
for remediation of all environmental contamination discovered during the term of the lease (including known and unknown
contamination that existed prior to commencement of the lease) is the responsibility of our tenant.
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. We adjust our environmental remediation liability quarterly to reflect
changes in projected expenditures, accretion and reductions associated with actual expenditures incurred during each quarter. As of
December 31, 2013, 2012 and 2011, we had accrued $43.5 million, $46.2 million and $57.7 million, respectively, as our best estimate
of the fair value of reasonably estimable environmental remediation obligations net of estimated recoveries and obligations to remove
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USTs. Environmental liabilities are accreted for the change in present value due to the passage of time and, accordingly, $3.2 million,
$3.2 million and $0.9 million of net accretion expense was recorded for the years ended December 31, 2013, 2012 and 2011,
respectively, which is included in environmental expenses. In addition, during the years ended December 31, 2013 and 2012, we
recorded credits to environmental expenses included in continuing operations and to earnings from operating activities in discontinued
operations in our consolidated statements of operations aggregating $3.0 million and $4.2 million, respectively, 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 losses.
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 consolidated 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 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.
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 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.
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 $175.0 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 $100.0 million senior secured 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.
Each of the Credit Agreement and the Prudential Loan Agreement contains customary financial and other 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. The Prudential Loan Agreement
contains customary events of default, including default under the Credit Agreement and failure to maintain REIT status. Our ability to
meet these 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
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Loan Agreement, there can be no assurance that our lenders would waive such non-compliance. This could have a material adverse
effect on our business, financial condition, results of operation, liquidity, ability to pay dividends or stock price.
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.
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. We also enter into agreements to acquire and sell
properties which allocate responsibility for certain costs to the counterparty. Our most significant counterparties include, but are not
limited to the members of the Bank Syndicate related to our Credit Agreement, the lender that is the counterparty to the Prudential
Loan Agreement and two of our major tenants from whom we derive a significant amount of rental 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, is likely to have a material adverse
effect on us. As of December 31, 2013, we leased 142 gasoline station and convenience store properties in two separate unitary leases
to subsidiaries of Chestnut Petroleum Dist., CPD NY Energy Corp. (“CPD NY”) and NECG Holdings Corp. (“NECG”). We lease 58
properties to CPD NY and 84 properties to NECG. CPD NY and NECG together represented 21%, 18% and 12% of our rental
revenues for the years ended December 31, 2013, 2012 and 2011, respectively. It is possible that as a result of either acquiring
additional properties from Chestnut Petroleum Dist. or as a result of disposing some of our existing properties, Chestnut Petroleum
Dist. could account for a greater percentage of our rental revenues. In addition, as of December 31, 2013, we leased 97 gasoline
station and convenience store properties in four separate unitary leases to subsidiaries of Capitol Petroleum Group, LLC (“Capitol”).
We lease 37 properties to White Oak Petroleum, LLC, 24 properties to Hudson Petroleum Realty, LLC, 20 properties to Dogwood
Petroleum Realty, LLC and 16 properties to Big Apple Petroleum Realty, LLC. In aggregate, these Capitol affiliates represented 15%,
7% and 6% of our rental revenues for the years ended December 31, 2013, 2012 and 2011, respectively. It is possible that as a result
of either acquiring additional properties from Capitol or as a result of disposing some of our existing properties, Capitol could account
for a greater percentage of our rental revenues. We may also undertake additional transactions with our other existing tenants which
would further concentrate our sources of revenues. Although we have separate, non-cross defaulted leases with each of these
subsidiaries, because such subsidiaries are affiliated with one another and under common control, a material adverse impact on one
subsidiary, or failure of such subsidiary to perform its rental and other obligations to us, may contribute to a material adverse impact
on the other subsidiaries and/or failure of the other subsidiaries to perform its rental and other obligations to us. The failure of a major
tenant or their default in their rental and other obligations to us 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 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 than previously
received from Marketing. 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 continuing to reposition the properties that were previously leased to Getty Petroleum Marketing Inc. (“Marketing”)
pursuant to a master lease (the “Master Lease”) and expect that we will sell and lease these properties over time. As of December 31,
2013, we had 210 transitional properties in our portfolio. Ninety of these properties are subject to month-to-month license agreements
allowing the licensees (substantially all of whom were Marketing’s former subtenants) to pay us a licensing fee to occupy and use
these properties as gas stations, convenience stores, automotive repair service facilities or other businesses. As of December 31, 2013,
we also categorized the 84 properties subject to a lease with NECG Holdings Corp (“NECG” or the “NECG Lease” as appropriate) as
transitional. Some of the properties included in the NECG Lease remain subject to eviction proceedings against Marketing’s former
subtenants (or sub-subtenants) who continue to occupy these properties. These ongoing eviction proceedings have materially
adversely impacted NECG. (For more information regarding NECG and the NECG Lease, see note 2 to our consolidated financial
statements). Finally, thirty six transitional properties were vacant as of December 31, 2013. We continue to reposition these properties
and expect that we will sell, enter into new leases or modify existing leases on these transitional properties over time. Although we are
currently working on repositioning these transitional properties, the timing of pending or anticipated transactions may be affected by
factors beyond our control and we cannot predict when or on what terms sales or leases will ultimately be consummated.
In the aggregate, Property Expenditures and environmental costs exceed licensing revenues for transitional properties occupied
under month-to-month license agreements, or which are vacant. We will continue to be responsible for such Property Expenditures
until these properties are sold or leased on a triple-net basis. For the quarter and year ended December 31, 2013, we incurred $1.7
million and $8.3 million, respectively, of Property Expenditures related to these transitional properties. In addition, in connection with
the repositioning of properties previously leased to Marketing, we have increased the number of our tenants significantly, and we are
performing property related functions previously performed by Marketing, both of which have resulted in increases in our annual
operating expenses.
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As of the date of this Annual Report on Form 10-K, we are pursuing evictions on 18 of our transitional properties. The most
significant eviction action is against a group of former Marketing subtenants (or sub-subtenants) who continue to occupy certain
properties in the State of Connecticut which are subject to the NECG Lease. These ongoing eviction proceedings have materially
adversely impacted NECG. In June 2013, the Connecticut Superior Court ruled in our favor with respect to all 24 locations involved in
the proceedings. However, in July 2013, the operators against whom these Superior Court rulings were made appealed the decisions.
As of the date of this Annual Report on Form 10-K, 13 of the original 24 operators against whom eviction proceedings were brought
have reached agreements with NECG to either remain in the properties as bona fide subtenants or vacate the premises, and have
withdrawn their appeals. Eleven of the operators remain in occupancy of the subject sites during the pendency of their appeal. We
remain confident that we will prevail in the remaining appeals and, although no assurances can be given, we anticipate a favorable
resolution of this matter in 2014. We expect that we will enter into a restructuring of the NECG Lease after a final resolution to the
eviction proceedings is determined.
In addition to the Connecticut evictions, we are pursuing eviction proceedings involving seven of our other properties in various
jurisdictions against Marketing’s former subtenants who have not vacated our properties and most of whom have not entered into
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.
We are currently generating less net revenue from the leasing of these transitional properties and we expect that following the
completion of the repositioning process, we will continue to generate less net revenue from the properties that were previously leased
to Marketing than previously received from Marketing. 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. In
addition, 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.
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 may be 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.
We believe that we will receive additional distributions from the Marketing Estate to satisfy our remaining general unsecured claims.
We cannot provide any assurance as to our proportionate interest in any Marketing Estate assets, or the amount or timing of
recoveries, if any, with respect to our remaining general unsecured claims against the Marketing Estate.
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.
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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.
We may not be able to successfully implement our investment strategy.
We may not be able to successfully implement our investment strategy. We cannot assure you that our portfolio of properties
will expand at all, or if it will expand at any specified rate or to any specified size. As part of our overall growth strategy, we regularly
review acquisition and financing opportunities to invest in additional retail motor fuel and convenience store properties, and we expect
to continue to pursue investments that we believe will benefit our financial performance. We cannot assure you that investment
opportunities will be available which meet our investment criteria. Acquisitions of properties we acquire 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 costs. 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. 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,
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•
•
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.
Certain significant expenditures generally do not change in response to economic or other conditions, including: (i) debt service,
(ii) real estate taxes and (iii) operating and maintenance costs. The combination of variable revenue and relatively fixed expenditures
may result, under certain market conditions, in reduced earnings and could have an adverse effect on our financial condition.
Each of the factors listed above 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 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 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, contamination of groundwater with methyl tertiary butyl ether (a fuel derived from methanol, commonly referred to as
“MTBE”) and releases of motor fuel into the environment, and toxic tort claims. For example, we are currently involved in several
proceedings described in “Item 3. Legal Proceedings” in this Annual Report on Form 10-K. 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 the lawsuits and claims we face 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
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notes 3 and 5 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 and approximately 60% of our properties are concentrated in three states (New York, Massachusetts and Connecticut). 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.
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.
Because our tenants are not rated and their financial information is not available to you, it may be difficult for our investors to
determine their creditworthiness.
The majority of our properties are leased to tenants who are not rated by any nationally recognized statistical rating
organization. In addition, our tenant’s financial information is not generally available to our investors. It is, therefore, difficult for our
investors to assess the creditworthiness of our tenants and to determine the ability of a tenant to meet its obligations to us. It is possible
that we may be required to increase reserves for bad debts, record allowances for deferred rent receivable or record additional
expenses if our tenants are unable to meet their obligations to us.
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. Furthermore,
there are certain types of losses, such as losses resulting from wars, terrorism or certain acts of God, that generally are not insured
because they are either uninsurable or not economically insurable. There is no assurance that the existing 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. Uncertain
tax matters may have a significant impact on the results of operations for any single fiscal year or interim period or may cause us
to fail to qualify as a REIT.
We elected to be treated as a REIT under the federal income tax laws 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. 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.
Many of the REIT requirements are highly technical and complex. If we were to fail to meet the requirements, or if the Internal
Revenue Service were to successfully assert that our earnings and profits were greater than the amount distributed, we may be subject
16
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. We may have to borrow money or sell assets to pay such a deficiency dividend.
We cannot 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.
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 7A. 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. 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
17
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.
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.
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.
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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 consolidated financial statements are subject to the application of Generally Accepted Accounting Principles (“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.
Our assets may be subject to impairment charges.
We periodically evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the
existence of impairment indicators is based on GAAP, and includes a variety of factors such as market conditions, our assumptions
and the accumulation of asset retirement costs as a result of increases in estimated environmental liabilities, the status of significant
leases, the financial condition of major tenants and other factors that could affect the cash flow from or fair value of our properties.
During the years ended December 31, 2013 and 2012, we incurred $13.4 million and $13.9 million, respectively, of non-cash
impairment charges. We may be required to take similar non-cash impairment charges, which could affect the implementation of our
current business strategy and have a material adverse effect on our financial condition and results of operations.
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.
We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that
technology could harm our business.
We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic
information and to manage or support a variety of our business processes, including financial transactions and maintenance of records,
which may include personal identifying information of tenants and lease data. We rely on commercially available systems, software,
tools and monitoring to provide security for processing, transmitting and storing confidential tenant information, such as individually
identifiable information relating to financial accounts. Although we have taken steps to protect the security of the data maintained in
our information systems, it is possible that our security measures will not be able to prevent the systems’ improper functioning, or the
improper disclosure of personally identifiable information such as in the event of cyber attacks. Security breaches, including physical
or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or
unauthorized disclosure of confidential information. Any failure to maintain proper function, security and availability of our
information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and
could materially and adversely affect us.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
Nearly all 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.
The following table summarizes the geographic distribution of our properties at December 31, 2013. 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.
New York
Massachusetts
Connecticut
New Jersey
Pennsylvania
New Hampshire
Virginia
Maryland
Texas
Rhode Island
Hawaii
Maine
California
Florida
North Carolina
Delaware
Ohio
Arkansas
Washington, D.C.
Illinois
North Dakota
Total
OWNED
BY
GETTY
REALTY
258
139
82
75
66
47
45
42
17
14
10
10
8
6
6
4
4
3
2
1
1
840
LEASED
BY
GETTY
REALTY
57
24
17
13
2
4
3
2
—
1
—
—
1
—
—
1
—
—
—
—
—
125
TOTAL
PROPERTIES
BY STATE
PERCENT
OF TOTAL
PROPERTIES
315
163
99
88
68
51
48
44
17
15
10
10
9
6
6
5
4
3
2
1
1
965
32.6%
16.9
10.3
9.1
7.1
5.3
5.0
4.6
1.8
1.6
1.0
1.0
0.9
0.6
0.6
0.5
0.4
0.3
0.2
0.1
0.1
100.0%
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
2014
2015
2016
2017
2018
Subtotal
Thereafter
Total
NUMBER OF
LEASES
EXPIRING
PERCENT
OF TOTAL
LEASED
PROPERTIES
PERCENT
OF TOTAL
PROPERTIES
7
6
6
6
4
29
96
125
5.60%
4.80
4.80
4.80
3.20
23.20
76.80
100.00%
0.72%
0.62
0.62
0.62
0.42
3.00
9.95
12.95%
20
We have rights-of-first refusal to purchase or lease 80 of the properties we lease from third-parties. Approximately 70% of the
properties we lease from third-parties are subject to automatic renewal or extension options.
Revenues from rental properties included in continuing and discontinued operations for the year ended December 31, 2013 were
$100.9 million with respect to 1,028 average rental properties held during the year for an average revenue per rental property of
approximately $98,000. Revenues from rental properties included in continuing and discontinued operations for the year ended
December 31, 2012 were $104.8 million with respect to 1,128 average rental properties held during the year for an average annual
revenue per rental property of approximately $93,000.
Rental unit expirations and the annualized contractual rent as of December 31, 2013 are as follows (in thousands, except for the
number of rental units data):
CALENDAR YEAR
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Thereafter
Total
NUMBER OF
RENTAL
UNITS
EXPIRING (a)
104
22
23
37
25
64
39
42
2
17
623
998
ANNUALIZED
CONTRACTUAL
RENT(b)
PERCENTAGE
OF TOTAL
ANNUALIZED
RENT
$
$
4,812
676
1,386
1,900
1,930
5,552
4,203
3,208
152
1,292
56,474
81,585
5.9%
0.8
1.7
2.3
2.4
6.8
5.2
3.9
0.2
1.6
69.2
100.00%
(a) 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.
(b) Represents the monthly contractual rent due from tenants under existing leases as of December 31, 2013 multiplied by 12. This amount
excludes real estate tax reimbursements which are billed to the tenant when paid.
We believe that most of our owned and leased properties are adequately covered by casualty and liability insurance. In addition,
we generally require our tenants, which exclude our month-to-month licensees, 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 reviewing select opportunities for capital expenditures, redevelopment and alternative uses for transitional properties that were
previously subject to the Master Lease. 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 $14.5 million in
capital improvements in our properties and, as of December 31, 2013, we have co-invested $0.3 million of our capital commitment.
As of December 31, 2013, 148 of our fee owned properties are encumbered by mortgages. These mortgages provide security for
our $175.0 million senior secured revolving credit agreement (the “Credit Agreement”) with a group of commercial banks led by
JPMorgan Chase Bank, N.A. and our $100.0 million senior secured 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.
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.
Many of these legal proceedings involve claims relating to alleged discharges of petroleum into the environment at current and former
gas stations. We routinely assess our liabilities and contingencies in connection with these matters based upon the latest available
information. 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. As of December 31, 2013 and
2012, we had accrued $11.4 million and $3.6 million, respectively, for certain of these matters which accruals we believe were
appropriate based on information then currently available. It is possible that losses related to these proceedings could result in a loss in
21
excess of the amount accrued as of December 31, 2013 and such additional losses could cause a material adverse effect on our
business, financial condition, results of operations, liquidity, ability to pay dividends or stock price.
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 for reimbursement of costs, interest and statutory penalties under the Navigation Law. In
2013, we reevaluated this case and determined that Kingston Oil Supply Corp. (ownership of which was transferred in 2009 by
Marketing to Lukoil North America LLC), should be defending the action on behalf of itself and its Amos Post division, and we
therefore made a demand to Kingston Oil Supply Corp. that it be responsible for the action. Kingston Oil Supply Corp. consented to
the substitution of its law firm in place of our law firm as the attorneys for Kingston Oil Supply Corp. and in January 2014 the
substitution was confirmed by order of the Court. As a result, we are no longer defending this matter.
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 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 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. This action was settled in December 2013 based on contributions by all defendants to
an aggregate payment negotiated with the State of New York, of which our contribution was $0.1 million. The settlement included a
release from the State of New York and a discontinuance of all cross claims by defendants against each other. The State of New York
had 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 the
Company and M&A Realty, Inc. in the settled action. We answered the complaint in the second action, denying liability and 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 this second case is ongoing.
MTBE Litigation
We are a party to a case involving a large number of gas station sites throughout the State of New Jersey brought by various
governmental agencies of the State of New Jersey, including the NJDEP. This New Jersey case (the “New Jersey MDL Proceedings”)
are 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 New Jersey MDL Proceedings 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. New Jersey is seeking reimbursement of significant clean-up and remediation costs arising out of
the alleged release of MTBE containing gasoline in the State of New Jersey and is asserting various natural resource damage claims as
well as liability against the owners and operators of gas station properties from which the releases occurred. The New Jersey MDL
Proceedings name us as a defendant along with approximately fifty petroleum refiners, manufacturers, distributors and retailers of
22
MTBE, or gasoline containing MTBE, several of which have already settled, including Atlantic Richfield Company, BP America,
Inc., BP Amoco Chemical Company, BP Products North America, Inc., Chevron Corporation, Chevron U.S.A., Inc., Citgo Petroleum
Corporation, ConocoPhillips Company, Cumberland Farms, Inc., Duke Energy Merchants, LLC, ExxonMobil Corporation,
ExxonMobil Oil Corporation, Getty Petroleum Marketing, Inc., Gulf Oil Limited Partnership, Hess Corporation, Lyondell Chemical
Company, Lyondell-Citgo Refining, LP, Lukoil Americas Corporation, Marathon Oil Corporation, Mobil Corporation, Motiva
Enterprises, LLC, Shell Oil Company, Shell Oil Products Company LLC, Sunoco, Inc., Unocal Corporation, Valero Energy
Corporation, and Valero Refining & Marketing Company. Although the ultimate outcome of the New Jersey MDL Proceedings
cannot be ascertained at this time, we believe it is probable that this litigation will be resolved in a manner that is unfavorable to us.
Preliminary settlement communications from the plaintiffs indicated that they were seeking $88.0 million collectively from us,
Marketing and Lukoil. Subsequent communications from the plaintiffs indicate that they are seeking approximately $24.0 million
from us. We have countered with a settlement offer on behalf of the Company only, which was rejected. We do not believe that
plaintiffs’ settlement proposal is realistic given the legal theories and facts applicable to our activities and gas stations, and affirmative
defenses available to us, all of which we believe have not been sufficiently developed in the proceedings. We continue to engage in a
settlement negotiation and a dialogue to educate the plaintiff’s counsel on the unique nature of the Company and our business as
compared to other defendants in the litigation. In addition, we are pursuing claims for insurance coverage that we believe is provided
under pollution insurance policies previously obtained by Marketing and under which we are entitled to coverage, however, we have not yet
confirmed whether and to what extent such coverage may actually be available. We are unable to estimate the range of loss in excess of the
amount accrued with certainty for the New Jersey MDL Proceedings as we do not believe that plaintiffs’ settlement proposal is realistic and
there remains uncertainty as to the allegations in this case as they relate to us, our defenses to the claims, our rights to indemnification or
contribution from other parties and the aggregate possible amount of damages for which we may be held liable. It is possible that losses
related to the New Jersey MDL Proceedings in excess of the amounts accrued as of December 31, 2013 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 former 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. The NJDEP alleges that our liability arises from alleged discharges originating from our former Newark,
New Jersey Terminal site (which was sold in October 2013). We responded to the Directive by asserting that we were not liable. There
has been no material activity and/or communications by the NJDEP with respect to the Directive since early after its issuance.
In May 2007, the United States Environmental Protection Agency (“EPA”) entered into an Administrative Settlement
Agreement and Order on Consent (“AOC”) with over 70 parties, most of which are also members of a Cooperating Parties Group
(“CPG”) who have collectively agreed to perform a Remedial Investigation and Feasibility Study (“RI/FS”) for a 17 mile stretch of the
Lower Passaic River in New Jersey. 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 2014. Subsequently, the members of the CPG 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. The EPA also issued a Unilateral Order to Occidental
Chemical Corporation (“Occidental”) directing Occidental to participate and contribute to the cost of the river mile 10.9 work.
Concurrently, the EPA is finalizing a Focused Feasibility Study (“FFS”) that the EPA claims will address sediment issues in the lower
23
eight miles of the Lower Passaic River. The RI/FS AOC and 10.9 AOC do not resolve liability issues for remedial work or the
restoration of or compensation for alleged natural resource damages to the Lower Passaic River, which are not known at this time. 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.
In December 2005, the State of New Jersey (through the NJDEP, the Commissioner of the NJDEP and the Administrator of the
New Jersey Spill Compensation Fund and hereinafter collectively the “State”) brought suit in the Superior Court of New Jersey, Law
Division (the “Action”) against Occidental, Tierra Solutions, Inc. (“Tierra”), Maxus Energy Corporation (“Maxus”) and related
entities for various past and future damages on account of discharges of hazardous substances to the Passaic River by Occidental and
its predecessors-in-interest from a facility formerly located at 80 and 120 Lister Avenue in Newark, New Jersey (the “Lister Ave.
Facility”). In February 2009, two of the original defendants, Maxus and Tierra, filed third-party complaints which named
approximately 300 additional parties to the Action, including us. The third-party complaints alleged that the third-party entities were
responsible for discharges of hazardous substances to the Newark Bay Complex from hundreds of sites in the area, and therefore were
liable for some or all of the environmental cleanup costs and damages at issue in the Action.
In March 2013, the State and most of the third-party defendants, including us, negotiated a settlement agreement to resolve the
Action for the participating third-party defendants (hereinafter the “Settling Parties”). Under the terms of the settlement, each public
third-party defendant agreed to pay the State $0.1 million and each private third-party defendant, including us, agreed to pay the State
$0.2 million. The State published notice of the proposed settlement, and the mandatory public comment period expired on July 31,
2013. On October 28, 2013, the State filed a motion with the court seeking approval of the third-party settlement. The third-party
settlement was approved by the Court following a hearing on the motion on December 12, 2013 and an order was entered which
dismissed the pending claims against the Settling 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 have engaged in
discussions with Chevron/Texaco regarding our demands for indemnification. To facilitate said discussions, in October 2009, the
parties 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.
Item 4. Mine Safety Disclosures
None.
24
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Capital Stock
Our common stock is traded on the New York Stock Exchange (symbol: “GTY”). There were approximately 16,900 beneficial
holders of our common stock as of March 17, 2014, of which approximately 1,100 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, 2013
and 2012 was as follows:
QUARTER ENDED
March 31, 2012
June 30, 2012
September 30, 2012
December 31, 2012
March 31, 2013
June 30, 2013
September 30, 2013
December 31, 2013
PRICE RANGE
CASH
DIVIDENDS
HIGH
$ 18.06
19.41
19.94
18.88
21.99
23.00
22.09
19.96
LOW
PER SHARE
$
$ 13.62
15.02
17.28
15.65
17.97
19.50
17.99
17.73
—
.1250
.1250
.1250
.2000
.2000
.2000
.2500
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.
25
Stock Performance Graph
Comparison of Five-Year Cumulative Total Return*
Source: Value Line Publishing LLC
Getty Realty Corp.
Standard & Poors 500
Peer Group
12/31/2008
100.00
100.00
100.00
12/31/2009
122.67
126.46
134.01
12/31/2010
171.85
145.51
173.01
12/31/2011
12/31/2012
82.73
148.58
184.10
109.37
172.35
214.47
12/31/2013
115.08
228.18
228.27
Assumes $100 invested at the close of the last day of trading on the New York Stock Exchange on December 31, 2008 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.
26
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
Earnings from continuing operations
Earnings (loss) from discontinued operations
Net earnings
Diluted earnings per common share:
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 (h):
Net earnings
Depreciation and amortization of real estate assets
Gains on dispositions/acquisition 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 amortization
Total assets
Debt
Shareholders’ equity
NUMBER OF PROPERTIES:
Owned
Leased
Total properties
2013(a)
2012
2011(b)
2010
2009(c)
FOR THE YEARS ENDED DECEMBER 31,
$ 102,463(d)
27,667(e)
42,344
70,011
0.82
2.08
33,397
0.850
70,011
9,927
(45,505)
13,425
47,858
(8,379)
4,775
480
44,734
$ 95,755
$ 93,711
13,513(f)
(1,066)
12,447
0.40
0.37
33,395
0.375
12,447
13,700
(6,866)
13,942
33,223
(4,433)
—
—
28,790
8,888(g)
3,568
12,456
0.26
0.37
33,172
1.46
12,456
10,336
(968)
20,226
42,050
(1,163)
19,758
2,034
62,679
$ 69,531
33,162
18,538
51,700
$ 65,669
27,298
19,751
47,049
1.19
1.84
27,953
1.91
51,700
9,738
(1,705)
—
59,733
(1,487)
—
—
58,246
1.10
1.89
24,767
1.89
47,049
11,027
(5,467)
1,135
53,744
(2,065)
—
—
51,679
$ 570,275
682,402
158,000
415,091
$ 562,316
640,581
172,320
372,749
$ 615,854
635,089
170,510
372,169
$ 504,587
423,178
64,890
314,935
$ 503,874
428,990
175,570
207,669
840
125
965
946
135
1,081
996
153
1,149
907
145
1,052
910
161
1,071
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Includes (from the date of the acquisition) the effect of the $72.5 million acquisition of 16 Mobil-branded gasoline station and convenience store
properties and 20 Exxon- and Shell-branded gasoline station and convenience store properties in two sale/leaseback transactions with subsidiaries of
Capitol Petroleum Group, LLC which were acquired on May 9, 2013.
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 $3.1 million of other revenue recorded in 2013 for the partial recovery of damages stemming from Marketing’s default of its obligations
under the Master Lease, which was received as a result of the Lukoil Settlement.
Includes the effect of a $15.3 million net credit for bad debt expense primarily related to receiving funds from the Marketing Estate and the Litigation
Funding Agreement (both defined below), the effect of a $9.4 million increase in provisions for environmental litigation losses, the effect of a $4.2
million non-cash allowance for deferred rent receivable and the effect of a $3.3 million impairment charge.
Includes the effect of a $12.0 million accounts receivable reserve and the effect of a $5.1 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 $16.5 million non-cash allowance for deferred rent receivable, the effect of a $6.5 million accounts receivable reserve and the
effect of a $12.7 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”), we also focus 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
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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 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.
We pay 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 items. In our 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 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.
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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 I entitled “Item 1A. Risk Factors”; the selected financial data in in Part II entitled “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 retail motor fuel and
convenience store properties. As of December 31, 2013, we owned 840 properties and leased 125 properties from third-party
landlords. 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.
Our Retail Petroleum Marketing Assets
The majority of our properties are leased on a triple-net basis primarily to petroleum distributors and, to a lesser extent,
individual operators. Generally our tenants supply fuel and either 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. Our triple-
net tenants are responsible for the payment of all taxes, maintenance, repairs, insurance and other operating expenses relating to our
properties, and are also responsible for environmental contamination occurring during the terms of their leases and in certain cases
also for preexisting environmental contamination. 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. (For additional information
regarding our real estate business, our properties and environmental matters, see “Item 1. Business — Company Operations” and
“Item 2. Properties” and “Environmental Matters” below.)
Investment Strategy and Activity
As part of our overall growth strategy, we regularly review acquisition and financing opportunities to invest in additional retail
motor fuel and convenience store properties, and we expect to continue to pursue investments that we believe will benefit our financial
performance. Our investment strategy seeks to generate current income and benefit from long-term appreciation in the underlying
value of our real estate. To achieve that goal we seek to invest in high quality individual properties and real estate portfolios that will
promote geographic diversity. A key element of our investment strategy is to invest in properties in strong primary markets that serve
high density population centers. In addition to traditional sale/leaseback and other real estate acquisitions, our investments may also
include purchase money mortgages or loans relating to our leasehold portfolios. We cannot provide any assurance that we will be
successful making additional investments, that investments will be available which meet our investment criteria or that our current
sources of liquidity will be sufficient to fund such investments.
In 2013, we acquired 16 Mobil-branded gasoline station and convenience store properties in the metro New York region and 20
Exxon- and Shell-branded gasoline station and convenience store properties located within the Washington, D.C. “Beltway” for $72.5
million in two sale/leaseback transactions with subsidiaries of Capitol Petroleum Group, LLC (“Capitol”). In addition, in 2013, we
acquired fee or leasehold title to three gasoline station and convenience store properties in separate transactions valued at $0.8 million.
Core Net Lease Portfolio
As of December 31, 2013, we leased 755 properties to tenants under long-term triple-net leases. Our core net lease portfolio
consists of 676 properties leased to approximately 20 regional and national fuel distributor tenants under unitary or master triple-net
leases and 79 properties leased as single unit triple-net leases. These leases generally provide for initial terms of 15 years with options
for successive renewal terms of up to 20 years and periodic rent escalations. Certain leases also provide for additional rent based on
the aggregate volume of fuel sold. Certain leases require our tenants to invest capital in our properties.
Transitional Properties
As of December 31, 2013, we had 210 transitional properties in our portfolio, substantially all of which were previously leased
to Getty Petroleum Marketing Inc. (“Marketing”) pursuant to a master lease (the “Master Lease”). Ninety of these properties are
subject to month-to-month license agreements allowing the licensees (substantially all of whom were Marketing’s former subtenants)
to occupy and use these properties as gas stations, convenience stores, automotive repair service facilities or other businesses. As of
December 31, 2013, we also categorized the 84 properties subject to a lease with NECG Holdings Corp (“NECG” or the “NECG
Lease” as appropriate) as transitional. Some of the properties included in the NECG Lease remain subject to eviction proceedings
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against Marketing’s former subtenants (or sub-subtenants) who continue to occupy these properties. These ongoing eviction
proceedings have materially adversely impacted NECG. We expect that we will enter into a restructuring of the NECG Lease after a
final resolution to the eviction proceedings is determined. (For more information regarding NECG and the NECG Lease, see note 2 to
our consolidated financial statements). Finally, thirty six transitional properties were vacant as of December 31, 2013.
We continue to reposition our transitional properties and expect that we will either sell, enter into new leases or modify existing
leases on these transitional properties over time. Although we are currently working on repositioning these transitional properties, the
timing of pending or anticipated transactions may be affected by factors beyond our control and we cannot predict when or on what
terms sales or leases will ultimately be consummated.
In the aggregate, operating expenses such as maintenance, repairs, real estate taxes, insurance and general upkeep (“Property
Expenditures”) and environmental costs exceed licensing revenues for transitional properties occupied under month-to-month license
agreements, or which are vacant. We will continue to be responsible for such Property Expenditures until these properties are sold or
leased on a triple-net basis. For the quarter and year ended December 31, 2013, we incurred $1.7 million and $8.3 million,
respectively, of Property Expenditures related to these transitional properties. In addition, in connection with the repositioning of
properties previously leased to Marketing, we have increased the number of our tenants significantly, and we are performing property
related functions previously performed by Marketing, both of which have resulted in increases in our annual operating expenses. The
incurrence of these various expenses may materially negatively impact our cash flow and ability to pay dividends. In addition, 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.
Our estimates, judgments, assumptions and beliefs regarding our properties affect the amounts reported in our consolidated
financial statements and are subject to change. Actual results could differ from these estimates, judgments and assumptions and such
differences could be material. If we are unable to re-let or sell our properties upon terms that are favorable to us, if the amounts
realized from the disposition of assets held for sale vary significantly from our estimates of fair value, 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 be materially adversely affected or adversely affected to a greater extent than we have
experienced.
Marketing and the Master Lease
Approximately 590 of the properties we own or lease as of December 31, 2013 were previously leased to Marketing pursuant to
the Master Lease. In December 2011, Marketing filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court. The Master
Lease was terminated effective April 30, 2012, and in July 2012, the Bankruptcy Court approved Marketing’s Plan of Liquidation and
appointed a trustee (the “Liquidating Trustee”) to oversee liquidation of the Marketing estate (the “Marketing Estate”). We incurred
significant costs associated with Marketing’s bankruptcy, including legal expenses, of which $3.7 million and $2.6 million,
respectively, are included in general and administrative expense for the years ended December 31, 2013 and 2012.
In December 2011, the Marketing Estate filed a lawsuit (the “Lukoil Complaint”) against Marketing’s former parent, Lukoil
Americas Corporation, and certain of its affiliates (collectively, “Lukoil”). In October 2012, we entered into an agreement with the
Marketing Estate to make loans and otherwise fund up to an aggregate amount of $6.7 million to prosecute the Lukoil Complaint and
for certain other expenses incurred in connection with the wind-down of the Marketing Estate (the “Litigation Funding Agreement”).
We ultimately advanced $6.5 million in the aggregate to the Marketing Estate pursuant to the Litigation Funding Agreement. The
Litigation Funding Agreement also provided that we were entitled to be reimbursed for up to $1.3 million of our legal fees incurred in
connection with the Litigation Funding Agreement.
On July 29, 2013, the Bankruptcy Court approved a settlement of the claims made in the Lukoil Complaint (the “Lukoil
Settlement”). The terms of the Lukoil Settlement included a collective payment to the Marketing Estate of $93.0 million. In August
2013, the settlement payment was received by the Marketing Estate of which $25.1 million was distributed to us pursuant to the
Litigation Funding Agreement and $6.6 million was distributed to us in full satisfaction of our post-petition priority claims related to
the Master Lease.
We believe that we will receive additional distributions from the Marketing Estate to satisfy our remaining general unsecured
claims. We cannot provide any assurance as to our proportionate interest in any Marketing Estate assets, or the amount or timing of
recoveries, if any, with respect to our remaining general unsecured claims against the Marketing Estate.
Asset Impairment
We perform an impairment analysis for the carrying amount of our properties in accordance with GAAP when indicators of
impairment exist. We reduced the carrying amount to fair value, and recorded in continuing and discontinued operations, non-cash
impairment charges aggregating $13.4 million and $13.9 million for the years ended December 31, 2013 and 2012, respectively,
where the carrying amount of the property exceeds the estimated undiscounted cash flows expected to be received during the assumed
holding period which includes the estimated sales value expected to be received at disposition. The non-cash impairment charges were
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attributable to reductions in the assumed holding period used to test for impairment, reductions in our estimates of value for properties
held for sale and the accumulation of asset retirement costs as a result of increases in estimated environmental liabilities which
increased the carrying value of certain properties in excess of their fair value. The evaluation of and estimates of anticipated cash
flows used to conduct our impairment analysis are highly subjective and actual results could vary significantly from our estimates.
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 GAAP, we also focus 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 from 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 items.
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 Revenue
Recognition Adjustments (as defined below) 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 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 items are not reflective of normal operations.
We pay 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 items. In our 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
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”.
2013, 2012 and 2011 Acquisitions
On May 9, 2013, we acquired 16 Mobil-branded gasoline station and convenience store properties in the metro New York
region and 20 Exxon- and Shell-branded gasoline station and convenience store properties located within the Washington, D.C.
“Beltway” for $72.5 million in two sale/leaseback transactions with subsidiaries of Capitol. The two new triple-net unitary leases have
an initial term of 15 years plus three renewal options with provisions for rent escalations during the initial and renewal terms. As
triple-net lessees, our tenants are required to pay all expenses pertaining to the properties subject to the unitary leases, including
environmental expenses, taxes, assessments, licenses and permit fees, charges for public utilities and all governmental charges. We
utilized $11.5 million of proceeds from 1031 exchanges, $57.5 million of borrowings under our Credit Agreement and cash on hand to
fund this acquisition.
In addition, in 2013, we acquired fee or leasehold title to three gasoline station and convenience store properties in separate
transactions for an aggregate purchase price of $0.8 million.
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.
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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 station 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 expenses pertaining to the properties subject to the CPD Lease, including environmental expenses, 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, 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 expenses pertaining to the properties subject to the Nouria Lease, including environmental
expenses, taxes, assessments, licenses and permit fees, charges for public utilities and all governmental charges.
RESULTS OF OPERATIONS
Lukoil Settlement
On July 29, 2013, the Bankruptcy Court approved a settlement of the claims made in the Lukoil Complaint (the “Lukoil
Settlement”). The terms of the Lukoil Settlement included a collective payment to the Marketing Estate of $93.0 million of which
$25.1 million was distributed to us pursuant to the Litigation Funding Agreement and $6.6 million was distributed to us in full
satisfaction of our post-petition priority claims related to the Master Lease. Of the $25.1 million received by us in the third quarter of
2013 pursuant to the Litigation Funding Agreement, $8.0 million was applied to the advances made to the Marketing Estate plus
accrued interest; $14.0 million was applied to unpaid rent and real estate taxes due from Marketing and the related bad debt reserve
was reversed of which $8.1 million and $5.9 million was included in continuing operations and discontinued operations, respectively,
as a reversal of bad debt expense and the remainder of $3.1 million was recorded as additional income attributed to the partial
recovery of damages resulting from Marketing’s default of its obligations under the Master Lease and is reflected in continuing
operations in our consolidated statements of operations as other revenue.
Year ended December 31, 2013 compared to year ended December 31, 2012
Revenues from rental properties included in continuing operations increased by $3.0 million to $95.9 million for the year ended
December 31, 2013, as compared to $92.9 million for the year ended December 31, 2012. The increase in revenues from rental
properties included in continuing operations for the year ended December 31, 2013 was primarily due additional rental revenues
received from our May 2013 acquisition and an increase in “pass-through” real estate taxes and other municipal charges we paid and
billed to tenants pursuant to their triple-net lease agreements. Revenues from rental properties and rental property expense included
$15.4 million for the year ended December 31, 2013, as compared to $10.9 million for the year ended December 31, 2012 for “pass-
through” real estate taxes and other municipal charges paid by us and reimbursable by our tenants pursuant to their triple-net lease
agreements. Revenues from rental properties for the year ended December 31, 2012 included $16.9 million in rent contractually due or
received from Marketing under the Master Lease (for which bad debt reserves of $10.3 million were provided and are included in
general and administrative expenses in our consolidated statements of operations). Revenues from rental properties included in
continuing operations for the year ended December 31, 2013 were reduced by a $1.4 million loss from interim fuel supply agreements,
as compared to a net gain of $1.8 million for the year ended December 31, 2012. Total revenue from continuing operations for the
year ended December 31, 2013 also includes $3.1 million of additional income, which was received as a result of the Lukoil
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Settlement. Interest income from notes and mortgages receivable increased by $0.5 million to $3.4 million for the year ended
December 31, 2013, as compared to $2.9 million the year ended December 31, 2012 due to a net increase in mortgage receivables
outstanding as a result of the issuance of mortgage notes in connection with property dispositions.
In accordance with GAAP, we recognize revenues from rental properties 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
$7.8 million for the year ended December 31, 2013 and $4.4 million for the year ended December 31, 2012.
Rental property expenses included in continuing operations, which are primarily comprised of rent expense, real estate and other
state and local taxes and maintenance expense, were $29.3 million for the year ended December 31, 2013, as compared to $28.6
million for the year ended December 31, 2012. The increase in rental property expenses is principally due to an increase in “pass-
through” real estate taxes and other municipal charges we paid and billed to tenants pursuant to their triple-net lease agreements offset
by lower rent and maintenance expenses paid by us resulting from the cumulative effect of leasing an increasing number of properties
on a triple-net basis and our disposition efforts.
Non-cash impairment charges of $3.3 million are included in continuing operations for the year ended December 31, 2013, as
compared to $5.1 million for the year ended December 31, 2012. Impairment charges are incurred when the carrying value of a
property is reduced to fair value. The non-cash impairment charges in continuing operations for the years ended December 31, 2013
and 2012 were attributable to reductions in estimated undiscounted cash flows expected to be received during the assumed holding
period and the accumulation of asset retirement costs as a result of increases in estimated environmental liabilities which increased the
carrying value of certain properties in excess of their fair value.
Environmental expenses included in continuing operations for the year ended December 31, 2013 increased by $11.1 million, to
$12.0 million, as compared to $0.9 million for the year ended December 31, 2012. The increase in environmental expenses for the
year ended December 31, 2013 was primarily due to a higher provision for litigation losses and legal fees, which increased by $9.4
million for the year ended December 31, 2013 and a change in the provision for estimated environmental remediation obligations,
which increased by $1.8 million for the year ended December 31, 2013. 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 decreased by $22.5 million to $5.1 million for the year
ended December 31, 2013, as compared to $27.6 million for the year ended December 31, 2012. The decrease in general and
administrative expenses was principally due to a $27.3 million decrease in reserves for bad debts primarily related to receiving funds
from the Lukoil Settlement, partially offset by higher employee related expenses, legal fees associated with the Lukoil Complaint and
eviction proceedings and professional fees associated with our May 2013 acquisition. We reduced previously provided reserves for
bad debts and recorded in continuing operations a net credit for bad debt expense of $15.3 million for the year ended December 31,
2013, as compared to a net charge of $12.0 million for the year ended December 31, 2012.
As a result of the developments (described above) related to the NECG Lease, we concluded that it was probable that we would
not receive from NECG the entire amount of the contractual lease payments owed to us under the NECG Lease for the likely removal
of properties and for rent payment deferrals previously agreed to related to the year ended December 31, 2013. Therefore, during the
year, we recorded a $4.2 million non-cash allowance for deferred rent receivable in continuing operations. This non-cash allowance
reduced our net earnings but did not impact our cash flow from operating activities.
Depreciation and amortization expense included in continuing operations was $9.3 million for the year ended December 31,
2013, as compared to $10.6 million for the year ended December 31, 2012. The decrease was primarily due to the effect of certain
assets becoming fully depreciated, lease terminations and dispositions of real estate partially offset by depreciation charges related to
asset retirement costs and properties acquired.
As a result, total operating expenses from continuing operations decreased by approximately $9.6 million for the year ended
December 31, 2013, as compared to the year ended December 31, 2012.
Other income, net, included in income from continuing operations was $0.1 million for the year ended December 31, 2013, as
compared to $0.5 million for the year ended December 31, 2012.
Interest expense was $11.7 million for the year ended December 31, 2013, as compared to $9.9 million for the year ended
December 31, 2012. The increase was due to an increase in the weighted-average interest rate on borrowings outstanding and higher
average borrowings outstanding for the year ended December 31, 2013, as compared to the year ended December 31, 2012.
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As a result, earnings from continuing operations were $27.7 million for the year ended December 31, 2013, as compared to
$13.5 million for the year ended December 31, 2012 and net earnings increased by $57.6 million to $70.0 million for the year ended
December 31, 2013, as compared to $12.4 million for the year ended December 31, 2012.
We report as discontinued operations the results of 115 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 2013 have been classified as discontinued operations. The operating results of such properties for the years ended
December 31, 2012 and 2011 have also been reclassified to discontinued operations to conform to the 2013 presentation. Earnings
from discontinued operations increased by $43.4 million to $42.3 million for the year ended December 31, 2013, as compared to a loss
of $1.1 million for the year ended December 31, 2012. The increase was primarily due to a reduction in loss from operating activities
and an increase in gains on dispositions/acquisition of real estate. Gains from dispositions/acquisition of real estate included in
discontinued operations were $45.5 million for the year ended December 31, 2013 and $6.9 million for the year ended December 31,
2012. For the year ended December 31, 2013, there were 145 property dispositions. For the year ended December 31, 2012, there were
54 property dispositions. Gains on dispositions/acquisition 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, 2013, FFO increased by $14.7 million to $47.9 million, as compared to $33.2 million for the year
ended December 31, 2012, and AFFO increased by $15.9 million to $44.7 million, as compared to $28.8 million for the prior year. The
increase in FFO for the year ended December 31, 2013 was primarily due to the changes in net earnings but excludes a $0.5 million decrease
in impairment charges, a $3.8 million decrease in depreciation and amortization expense and a $38.6 million increase in gains on
dispositions/acquisition of real estate. The increase in AFFO for the year ended December 31, 2013 also excludes a $4.8 million increase in
the allowance for deferred rental revenue, a $0.5 million increase in acquisition costs and a $4.0 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 were $2.08 per share for the year ended December 31, 2013, as compared to $0.37 per share for the
year ended December 31, 2012. Diluted FFO per share for the year ended December 31, 2013 was $1.43 per share, as compared to
$0.99 per share for the year ended December 31, 2012. Diluted AFFO per share for the year ended December 31, 2013 was $1.33 per
share, as compared to $0.86 per share for the year ended December 31, 2012.
Year ended December 31, 2012 compared to year ended December 31, 2011
Revenues from rental properties included in continuing operations increased by $1.8 million to $92.9 million for the year ended
December 31, 2012, as compared to $91.1 million for the year ended December 31, 2011. Revenues from rental properties include
$69.8 million and $45.0 million for the years ended December 31, 2012 and 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 years ended December 31, 2012 and 2011,
include $16.9 million and $43.7 million, respectively, in rent contractually due or received from Marketing under the Master Lease
(for which bad debt reserves of $10.3 million and $6.2 million, respectively, were provided and are included in general and
administrative expenses in our consolidated statements of operations). The increase in revenues from rental properties included in
continuing operations for the year ended December 31, 2012 was primarily due to an increase in “pass-through” real estate taxes and
other municipal charges we paid and billed to Marketing through April 30, 2012, the date the Master Lease was terminated, and from
other tenants pursuant to their triple-net lease agreements and additional rental income from properties we acquired from, and leased
back to, Nouria in March 2011 offset by the fact that we are generated 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. As a result of
Marketing’s bankruptcy filing, beginning in the first quarter of 2012, we began paying past due real estate taxes and other municipal
charges for 2011 and 2012, which taxes Marketing historically paid directly. Revenues from rental properties and rental property
expense included $10.9 million for the year ended December 31, 2012, as compared to $6.2 million for the year ended December 31,
2011 for “pass-through” real estate taxes and other municipal charges paid by us and reimbursable by our tenants pursuant to their
triple-net lease agreements. Revenues from rental properties included in continuing operations for the year ended December 31, 2012
includes a net gain from interim fuel supply agreements of $1.8 million. 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 a net increase in mortgage receivables outstanding as a result of the issuance of mortgage notes in
connection with property dispositions.
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
34
leased properties. Rental revenue includes Revenue Recognition Adjustments which increased rental revenue by $4.4 million for the
year ended December 31, 2012 and $2.3 million for the year ended December 31, 2011.
Rental property expenses included in continuing operations, which are primarily comprised of rent expense and real estate and other
state and local taxes and maintenance expense, were $28.6 million for the year ended December 31, 2012, as compared to $15.5 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 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
“pass-through” real estate taxes and other municipal charges from our tenants is included in revenues from rental properties in our
consolidated statements of operations. We provided bad debt reserves for the real estate taxes and other municipal charges reimbursable from
Marketing since we did not expect to receive payment of taxes from Marketing.
Non-cash impairment charges of $5.1 million are included in continuing operations for the year ended December 31, 2012, as
compared to $12.7 million 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 in continuing operations for the year ended December 31, 2012 were attributable to
reductions in estimated undiscounted cash flows expected to be received during the assumed holding period 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 in continuing operations 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.
Environmental expenses included in continuing operations for the year ended December 31, 2012 decreased by $4.5 million, to $0.9
million, as compared to $5.4 million for the year ended December 31, 2011. The decrease in net environmental expenses for the year ended
December 31, 2012 was primarily due to a lower provision for litigation losses and legal fees which decreased by $2.6 million for 2012, and
a change in the provision for estimated environmental remediation obligations which decreased by an aggregate $2.4 million to a credit of
$0.2 million for the year ended December 31, 2012, as compared to an expense of $2.2 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 $6.6 million to $27.6 million for the year ended
December 31, 2012, as compared to $21.0 million for the year ended December 31, 2011. The increase in general and administrative
expenses was principally due to a $5.5 million increase in reserves for bad debts primarily attributable to Marketing’s nonpayment of its
obligations due under the Master Lease, a $2.6 million increase in 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, 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, 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 the year ended December 31, 2011, we increased our reserve by recording additional non-cash
allowances for deferred rent receivable of $16.5 million 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.
Depreciation and amortization expense included in continuing operations was $10.6 million for the year ended December 31, 2012, as
compared to $8.6 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 from continued operations decreased by approximately $6.9 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 $0.5 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
December 31, 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 increased by $4.6 million to $13.5 million for the year ended December 31, 2012, as
compared to $8.9 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.
The operating results and gains from certain dispositions of real estate sold in 2013 have been classified as discontinued operations.
The operating results of such properties for the year ended December 31, 2012 and 2011 have also been reclassified to discontinued
operations to conform to the 2013 presentation. Earnings from discontinued operations decreased by $4.7 million to a loss of $1.1 million for
35
the year ended December 31, 2012, as compared to earnings of $3.6 million for the year ended December 31, 2011. The decrease was
primarily due to lower earnings from operating activities offset by higher gains on dispositions of real estate. Gains from dispositions
of real estate included in discontinued operations were $6.9 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 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 excludes 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 excludes 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 were $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.
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. Our business operations and liquidity are
dependent on our ability to generate cash flow from our properties. We believe 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.
Our cash flow activities for the years ended December 31, 2013, 2012 and 2011 are summarized as follows (in thousands):
Net cash flow provided by operating activities
Net cash flow (used in)/provided by investing activities
Net cash flow (used in)/provided by financing activities
YEAR ENDED DECEMBER 31,
2013
$ 43,678
$ (6,847)
$ (41,672)
2012
$ 15,885
$ 3,551
$ (10,258)
2011
$ 60,755
$ (193,144)
$ 133,965
Operating Activities
Cash flow from operating activities increased by $27.8 million for the year ended December 31, 2013 to $43.7 million, as
compared to $15.9 million for the year ended December 31, 2012. The increase was primarily due to an increase in operating income
attributable to cash flow from our existing portfolio of rental properties, cash flow from our May 2013 acquisition and the effect of our
2013 leasing activities as well as changes in accounts receivable primarily related to the receipt of funds from the Lukoil Settlement.
Investing Activities
Our investing activities are primarily real estate-related transactions. Since we generally lease our properties on a triple-net
basis, we have not historically incurred significant capital expenditures other than those related to investments in real estate. During
the year ended December 31, 2013, we invested $67.2 million for property acquisitions and $6.3 million for investment in direct
financing leases. As a result, for the year ended December 31, 2013, our cash flows from investing activities decreased by $10.4
million to a use of $6.8 million, as compared to $3.6 million provided by investing activities for the year ended December 31, 2012.
The change resulted primarily from: (i) an increase in property acquisitions and investment in direct financing leases of $69.3 million,
(ii) an increase in proceeds from the sale of rental properties of $56.4 million, (iii) an increase in cash held for property acquisitions of
$14.9 million and (iv) an increase in collections of notes and mortgages receivable of $19.1 million.
Financing Activities
During the year ended December 31, 2013, we repaid $150.3 million of borrowings outstanding under the prior credit agreement
and $22.0 million of borrowings outstanding under a prior term loan with proceeds from the Credit Agreement and the Prudential
Loan Agreement. As a result, for the year ended December 31, 2013, our cash flow from financing activities decreased by $31.4
36
million to a use of $41.7 million, as compared to a use of $10.3 million for the year ended December 31, 2012. The change resulted
primarily from: (i) an increase in the repayment of the prior credit agreement and term loan of $170.1 million, (ii) an increase of
$154.0 million in net borrowings under our new financing agreements and (iii) an increase in dividends paid on common stock of
$16.0 million.
Debt Refinancing
As of December 31, 2012, we were a party to a $175.0 million amended and restated senior secured revolving credit agreement
with a group of commercial banks led by JPMorgan Chase Bank, N.A. and a $25.0 million 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
$150.3 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 (as
defined below).
Credit Agreement
On February 25, 2013, we entered into a $175.0 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 $25.0 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. The annual commitment fee on the undrawn funds under the Credit Agreement
is 0.30% to 0.40% based on 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 December 23, 2013, we amended the Credit Agreement to change certain definitions and financial covenant calculations
provided for in the agreement.
Prudential Loan Agreement
On February 25, 2013, we entered into a $100.0 million senior secured 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.
On December 23, 2013, we amended the Prudential Loan Agreement to change certain definitions and financial covenant
calculations provided for in the agreement.
37
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 years ended December 31, 2013, 2012 and 2011 amounted to $73.4 million, $4.1
million and $167.5 million, respectively, substantially all of which was for acquisitions. We are reviewing select opportunities for
capital expenditures, redevelopment and alternative uses for properties that were previously subject to the Master Lease with
Marketing and which are not currently subject to long-term triple-net 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. We have committed to co-invest as much as $14.5
million in the aggregate in capital improvements in our properties and, as of December 31, 2013, we have co-invested $0.3 million of
our capital commitment. (For additional information regarding capital expenditures related to the properties previously 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.
On May 9, 2013, we acquired 16 Mobil-branded gasoline station and convenience store properties in the metro New York
region and 20 Exxon- and Shell-branded gasoline station and convenience store properties located within the Washington, D.C.
“Beltway” for $72.5 million in two sale/leaseback transactions with Capitol. The two new triple-net unitary leases have an initial term
of 15 years plus three renewal options with provisions for rent escalations during the initial and renewal terms. As triple-net lessees,
our tenants are required to pay all expenses pertaining to the properties subject to the unitary leases, including environmental
expenses, taxes, assessments, licenses and permit fees, charges for public utilities and all governmental charges. We utilized $11.5
million of proceeds from 1031 exchanges, $57.5 million of borrowings under our Credit Agreement and cash on hand to fund this
acquisition.
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 $24.4 million, $8.4 million and $63.4 million, for the years ended December 31, 2013, 2012 and 2011,
respectively. There can be no assurance that we will continue to pay cash dividends at historical rates.
CONTRACTUAL OBLIGATIONS
Our significant contractual obligations and commitments as of December 31, 2013 were comprised of borrowings under the
Credit Agreement and the Prudential Loan Agreement, operating lease payments due to landlords, estimated environmental
remediation expenditures and co-investing with our tenants in capital improvements at our properties. The aggregate maturity of the
Credit Agreement and the Prudential Loan Agreement is as follows: 2015 — $58.0 million and 2021 — $100.0 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, 2013 are summarized below (in thousands):
38
Operating leases
Borrowings under the Credit Agreement (a)
Borrowings under the Prudential Loan Agreement (a)
Estimated environmental remediation expenditures (b)
Capital improvements (c)
Total
TOTAL
$ 31,135
58,000
100,000
43,472
14,225
$ 246,832
LESS
THAN-
ONE YEAR
7,296
$
—
—
13,633
—
$ 20,929
ONE-TO
THREE
YEARS
$ 11,816
58,000
—
18,596
14,225
$102,637
MORE
THAN
FIVE
YEARS
THREE
TO
FIVE
YEARS
$ 6,794 $ 5,229
—
—
100,000
—
7,319
3,924
—
—
$10,718 $ 112,548
(a) Excludes related interest payments. (See “Liquidity and Capital Resources” above and “Item 7A. Quantitative and Qualitative
Disclosures About Market Risk” for additional information.)
(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 consolidated financial statements in
accordance with GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in our consolidated
financial statements. Although we have made estimates, judgments and assumptions regarding future uncertainties relating to the
information included in our consolidated 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 consolidated 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, direct financing leases, impairment of long-lived assets,
income taxes, environmental remediation obligations, 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 $16.9 million recorded as of December 31, 2013 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 and NECG, 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.
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
39
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.
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 counterparty 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 counterparties 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.
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.
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.
ENVIRONMENTAL MATTERS
General
We are subject to numerous 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 $3.1 million a ten-
year pollution legal liability insurance policy covering all of our properties for pre-existing unknown environmental liabilities and new
40
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.
We enter into leases and various other agreements which allocate between the parties responsibility for known and unknown
environmental liabilities at or relating to the subject premises. We are contingently liable for these environmental obligations in the event that
the counterparty to the agreement does not satisfy them.
For all of our triple-net leases, our tenants are directly responsible for compliance with various environmental laws and regulations as
the operators of our properties, for the retirement and decommissioning or removal of all or a negotiated percentage of USTs and other
equipment and for remediation of environmental contamination that arises during the term of their tenancy. Under the terms of our leases
covering properties previously leased to Marketing, we have agreed to be responsible for environmental contamination at the premises that is
known at the time the lease commences and for contamination that existed at the premises prior to commencement of the lease and is
discovered by the tenant (other than as a result of a voluntary site investigation) during the first ten years of the lease term. After the
expiration of such ten year period, responsibility for all newly discovered contamination (irrespective of when the contamination first arose)
is allocated to our tenant. Under most of our other triple-net leases, responsibility for remediation of all environmental contamination
discovered during the term of the lease (including known and unknown contamination that existed prior to commencement of the lease) is the
responsibility of our tenant.
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 remediation of environmental contamination Marketing caused and all
unknown environmental liabilities discovered during the term of the Master Lease (collectively, the “Marketing Environmental Liabilities”).
As a result of Marketing’s bankruptcy, in the fourth quarter of 2011, we accrued for the Marketing Environmental Liabilities because we
concluded that Marketing would not be able to perform them. A liability has not been accrued for environmental obligations that are the
responsibility of any of our current tenants based on our tenant’s history of paying such obligations and/or our assessment of their financial
ability and intent to pay 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.
As part of the triple-net leases whose term commenced through December 31, 2013, 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, we removed $12.6 million of asset retirement obligations and
$10.4 million of net asset retirement costs related to USTs from our balance sheet through December 31, 2013. The net amount 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.
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.
Adjustments to accrued liabilities for environmental remediation obligations will be reflected in our consolidated financial statements as they
become probable and a reasonable estimate of fair value can be made.
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. We adjust our environmental remediation liability quarterly to reflect changes in
projected expenditures, accretion and reductions associated with actual expenditures incurred during each quarter. As of December 31, 2013,
2012 and 2011, we had accrued $43.5 million, $46.2 million and $57.7 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, $3.2 million and $0.9 million
of net accretion expense was recorded for the years ended December 31, 2013, 2012 and 2011, respectively, which is included in
environmental expenses. In addition, during the years ended December 31, 2013 and 2012, we recorded credits to environmental expenses
included in continuing operations and to earnings from operating activities in discontinued operations in our consolidated statements of
41
operations aggregating $3.0 million and $4.2 million, respectively, 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 losses.
During the years ended December 31, 2013 and 2012, we increased the carrying value of certain of our properties by $12.4
million and $5.7 million, 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. 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 continuing operations and earnings from operating activities
in discontinued operations in our consolidated statements of operations for the years ended December 31, 2013 and 2012 included
$2.0 million and $5.4 million, respectively, of depreciation related to capitalized asset retirement costs. Capitalized asset retirement
costs were $18.3 million and $23.5 million as of December 31, 2013 and 2012, 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 consolidated 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.
Environmental Litigation
We are subject to various legal proceedings and claims which arise in the ordinary course of our business. As of December 31,
2013 and December 31, 2012, we had accrued an aggregate $11.4 million and $3.6 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 our
former 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” and note 3 to our consolidated financial statements for additional information with respect to these
and other pending environmental lawsuits and claims.)
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
42
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 as of December 31, 2013 were $58.0 million.
We manage our exposure to interest rate risk by minimizing, to the extent feasible, our overall borrowings and monitoring
available financing alternatives. We reduced our interest rate risk on February 25, 2013, as compared to December 31, 2012, by
repaying floating interest rate debt with the proceeds of a $100.0 million senior secured 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 $58.0 million for 2014, an increase in
market interest rates of 0.50% for 2014 would decrease our 2014 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 $58.0 million outstanding borrowings under the Credit Agreement is indicative of our future average floating interest rate
borrowings for 2014 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.
43
Item 8. Financial Statements and Supplementary Data
GETTY REALTY CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
(PAGES)
45
46
47
48
49
71
44
GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Revenues:
Revenues from rental properties
Interest on notes and mortgages receivable
Other revenue
Total revenues
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/acquisition 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
YEAR ENDED DECEMBER 31,
2013
2012
2011
$ 95,940
3,397
3,126
$ 92,873
2,882
—
$ 91,053
2,658
—
102,463
95,755
93,711
29,326
3,296
12,021
5,071
4,206
9,311
28,637
5,133
860
27,634
—
10,567
15,514
12,715
5,362
20,981
16,529
8,613
63,231
72,831
79,714
39,232
102
(11,667)
22,924
520
(9,931)
13,997
16
(5,125)
27,667
13,513
8,888
(3,161)
45,505
(7,946)
6,880
2,620
948
42,344
(1,066)
3,568
$ 70,011
$ 12,447
$ 12,456
$
$
$
0.82
1.26
2.08
$
$
$
.40
(.03)
.37
$
$
$
.26
.11
.37
33,397
—
33,395
—
33,171
1
33,397
33,395
33,172
The accompanying notes are an integral part of these consolidated financial statements.
45
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,
2013
2012
2011
$ 70,011
$ 12,447
$ 12,456
—
—
1,153
$ 70,011
$ 12,447
$ 13,609
The accompanying notes are an integral part of these consolidated financial statements.
46
GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS:
Real Estate:
Land
Buildings and improvements
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 $4,775 at December 31, 2013 and $0 at December 31,
2012)
Cash and cash equivalents
Restricted cash
Notes and mortgages receivable
Accounts receivable (net of allowance of $3,248 at December 31, 2013 and $25,371 at December 31,
2012)
Prepaid expenses and other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Borrowings under credit line
Term loan
Environmental remediation obligations
Dividends payable
Accounts payable and accrued liabilities
Total liabilities
Commitments and contingencies (notes 2, 3, 4 and 5)
Shareholders’ equity:
Common stock, par value $.01 per share; authorized 50,000,000 shares; issued 33,397,260 at
December 31, 2013 and 33,396,720 at December 31, 2012
Paid-in capital
Dividends paid in excess of earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
DECEMBER 31,
2013
2012
$ 342,944
196,607
539,551
(95,712)
443,839
22,984
466,823
97,147
16,893
12,035
1,000
28,793
5,106
54,605
$ 318,814
208,325
527,139
(106,931)
420,208
25,340
445,548
91,904
12,448
16,876
—
32,928
8,937
31,940
$ 682,402
$ 640,581
$ 58,000
100,000
43,472
8,423
57,416
$ 150,290
22,030
46,150
4,202
45,160
267,311
267,832
—
—
334
462,397
(47,640)
334
461,426
(89,011)
415,091
372,749
$ 682,402
$ 640,581
The accompanying notes are an integral part of these consolidated financial statements.
47
GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings
Adjustments to reconcile net earnings to net cash flow provided by operating activities:
Depreciation and amortization expense
Impairment charges
Gains on dispositions/acquisition of real estate
Deferred rent receivable, net of allowance
Allowance for accounts receivable
Amortization of above-market and below-market leases
Amortization of credit line and term loan 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 operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Property acquisitions and capital expenditures
Investment in direct financing leases
Proceeds from dispositions of real estate
Change in cash held for property acquisitions
Change in restricted cash
Amortization of investment in direct financing leases
Issuance of notes, mortgages and other receivables
Collection of notes and mortgages receivable
Net cash flow (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit line
Repayments under credit line
Borrowings under term loan
Repayments under term loan
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 (used in) provided by financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest paid
Income taxes
Environmental remediation obligations
Non-cash transactions
Issuance of mortgages related to property dispositions
YEAR ENDED DECEMBER 31,
2013
2012
2011
$ 70,011
$ 12,447
$ 12,456
9,927
13,425
(45,505)
(4,445)
(20,854)
160
1,650
3,214
971
20,847
(201)
(15,611)
10,089
43,678
(67,174)
(6,267)
66,349
(16,467)
(1,000)
1,025
(4,138)
20,825
(6,847)
130,400
(222,690)
100,000
(22,030)
(220)
(24,419)
(2,842)
—
129
—
(41,672)
(4,841)
16,876
$ 12,035
13,700
13,942
(6,866)
(4,368)
15,903
(285)
3,396
3,174
757
(15,848)
(8,004)
(9,009)
(3,054)
15,885
(4,148)
—
9,855
(1,615)
—
728
(2,972)
1,703
3,551
4,000
(1,410)
—
(780)
(152)
(8,404)
(4,144)
(18)
650
—
(10,258)
9,178
7,698
$ 16,876
10,336
20,226
(968)
19,305
9,121
(685)
207
899
643
(14,890)
151
(1,981)
5,935
60,755
(99,926)
(67,569)
2,317
(750)
—
505
(30,400)
2,679
(193,144)
247,253
(140,853)
—
(780)
(59)
(63,436)
(175)
—
29
91,986
133,965
1,576
6,122
$ 7,698
$ 9,563
173
12,396
$ 6,293
810
4,889
$ 5,523
267
3,598
8,714
4,568
1,068
The accompanying notes are an integral part of these consolidated financial statements.
48
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. The accompanying consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America (“GAAP”). We do not distinguish our principal business or
our operations on a geographical basis for purposes of measuring performance. Accordingly, 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 consolidated 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 consolidated 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. Application of these estimates and assumptions requires exercise of judgment as to future
uncertainties, and as a result, actual results could differ materially from these estimates.
Subsequent Events: We evaluated subsequent events and transactions for potential recognition or disclosure in our consolidated
financial statements.
Fair Value Hierarchy: The preparation of consolidated 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 consolidated 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 had a receivable of $2,972,000 as of December 31, 2012, that was measured at fair value on a recurring basis using Level 3
inputs. Pursuant to the terms of the Litigation Funding Agreement (as defined below), in the third quarter of 2013, we received a
payment of $25,096,000 related to this receivable. We elected to account for the advances, accrued interest and litigation
reimbursements due to 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 the 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 included 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 (as such capitalized terms are defined below). 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. Please refer to note 2 of our
accompanying consolidated financial statements for additional information regarding Marketing and the Master Lease.
We have mutual fund assets that are measured at fair value on a recurring basis using Level 1 inputs. We have a Supplemental
Retirement Plan for executives and other senior management employees. The amounts held in trust under the Supplemental
Retirement Plan may be used to satisfy claims of general creditors in the event of our or any of our subsidiaries’ bankruptcy. We have
liability to the employees participating in the Supplemental Retirement Plan for the participant account balances equal to the aggregate
of the amount invested at the employees’ direction and the income earned in such mutual funds.
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, 2013 and 2012 of $9,590,000 and $4,967,000, 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.
49
The following summarizes as of December 31, 2013 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:
Level 1
Level 2
Level 3
Total
$ —
$ 3,275
$ —
$ —
$ —
$ —
$ —
$ 3,275
Deferred compensation
$ —
$ 3,275
$ —
$ 3,275
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:
Level 1
Level 2
Level 3
Total
$ —
$ 3,013
$ —
$ —
$ 2,972
$ —
$ 2,972
$ 3,013
Deferred compensation
$ —
$ 3,013
$ —
$ 3,013
Fair Value Disclosure of Financial Instruments: All of our financial instruments are reflected in the accompanying consolidated
balance sheets at amounts which, in our estimation based upon an interpretation of available market information and valuation
methodologies, reasonably approximate their fair values, except those separately disclosed in the notes to our consolidated financial
statements.
Discontinued Operations and Assets Held-for-Sale: We report as discontinued operations 115 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. All results of these discontinued operations are included in a separate component of income on the
consolidated statements of operations under the caption Discontinued Operations. This has resulted in certain amounts related to
discontinued operations in 2012 and 2011 being reclassified to conform to the 2013 presentation.
Real estate held for sale consisted of the following at December 31:
(in thousands)
Land
Buildings and improvements
Accumulated depreciation and amortization
Real estate held for sale, net
December
2013
2012
$ 15,586
15,138
30,724
(7,740)
$ 17,409
17,768
35,177
(9,837)
$ 22,984
$ 25,340
The revenue from rental properties, impairment charges, other operating expenses and gains from dispositions/acquisition 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/acquisition of real estate
Year ended December 31,
2013
2012
2011
$ 4,939
(10,129)
2,029
(3,161)
45,505
$ 11,898
(8,809)
(11,035)
$ 19,388
(7,511)
(9,257)
(7,946)
6,880
2,620
948
Earnings (loss) from discontinued operations
$ 42,344
$ (1,066)
$ 3,568
50
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 allocate the estimated fair value to the
applicable assets and liabilities. Fair value is determined based on an exit price approach, which contemplates the price that would be
received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. We expense transaction costs associated with business combinations in the period incurred. 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.
(See note 10 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 (“UST” or “USTs”) 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 and in-place leases 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.
We recorded non-cash impairment charges aggregating $13,425,000 and $13,942,000 for the years ended December 31, 2013 and
2012, 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 exceeds 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 years ended December 31, 2013 and 2012 were attributable to reductions in the assumed
holding period used to test for impairment, reductions in our estimates of value for properties held for sale and the accumulation of asset
retirement costs as a result of increases 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 from the sale of 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 three months or less
to be cash equivalents.
Restricted Cash: Restricted cash consists of cash that is contractually restricted or held in escrow pursuant to various agreements
with counterparties. At December 31, 2013, restricted cash of $1,000,000 consists of an escrow account established in conjunction
with the sale of one of our terminal properties.
Notes and Mortgages Receivable: Notes and mortgages receivable consists of loans originated by us in conjunction with
property dispositions and funding provided to tenants in conjunction with property acquisitions. 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
51
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 our
consolidated balance sheets. 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. We make
estimates of the collectability of our accounts receivable related to revenue from rental properties. We analyze accounts receivable and
historical bad debt levels, customer creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful
accounts. Additionally, with respect to tenants in bankruptcy, we estimate the expected recovery through bankruptcy claims and increase the
allowance for amounts deemed uncollectible. If our assumptions regarding the collectability of accounts receivable prove incorrect, we could
experience write-offs of the accounts receivable or deferred rent receivable in excess of our allowance for doubtful accounts. 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.
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 2010, 2011 and 2012, and tax returns which will be filed for the year ended 2013, remain
open to examination by federal and state tax jurisdictions under the respective statute of limitations, except as noted in the following
paragraph, 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, 2013 or 2012.
In the third quarter of 2013, we submitted to the Internal Revenue Service (“IRS”) a request seeking a ruling that a portion of the
payments we received from the Marketing Estate, including amounts related to the Litigation Funding Agreement (see note 2 for additional
information regarding the Lukoil Settlement and the Litigation Funding Agreement), be treated either as qualifying income or excluded from
gross income for the purposes of the REIT qualification gross income tests either as a matter of law or pursuant to the discretionary authority
granted by Congress to the IRS to determine whether certain types of income are an outgrowth of a REIT’s business of owning and operating
real estate. In January 2014, we received a favorable ruling from the IRS indicating that a portion of the payments received from the
Marketing Estate will be treated as qualifying income and the remainder will be excluded from gross income for the purposes of the REIT
qualification gross income tests. Therefore, none of the cash flow received from the Marketing Estate, including amounts related to the
Litigation Funding Agreement, will be treated as non-qualifying income for purposes of the REIT qualification gross income tests.
52
Interest Expense and Interest Rate Swap Agreement: In April 2006 we entered into a $45,000,000 LIBOR based interest rate
swap agreement with JPMorgan Chase Bank, N.A. as the counterparty, 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, 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. We have not entered into financial
instruments for trading or speculative purposes.
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. Changes in the fair value of the Swap Agreement were included in the consolidated
statements of comprehensive income and would have been recorded in the consolidated statements of operations if the Swap
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 (“RSU” or “RSUs”) 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.
(in thousands):
Earnings from continuing operations
Less dividend equivalents attributable to RSUs outstanding
Earnings from continuing operations attributable to common
shareholders
Earnings (loss) from discontinued operations
Less dividend equivalents attributable to RSUs outstanding
Earnings (loss) from discontinued operations attributable to common
Year ended December 31,
2013
$ 27,667
(252)
27,415
42,344
(392)
2012
$ 13,513
(87)
13,426
(1,066)
(47)
2011
$ 8,888
(235)
8,653
3,568
(14)
shareholders
41,952
(1,113)
3,554
Net earnings attributable to common shareholders used for basic and
diluted earnings per share calculation
$ 69,367
$ 12,313
$ 12,207
Weighted-average number of common shares outstanding:
Basic
Stock options
Diluted
RSUs outstanding at the end of the period
33,397
—
33,397
296
33,395
—
33,395
33,171
1
33,172
216
171
Stock-Based Compensation: Compensation cost for our stock-based compensation plans using the fair value method was
$971,000, $757,000 and $643,000 for the years ended December 31, 2013, 2012 and 2011, respectively, and is included in general and
administrative expense in the accompanying consolidated statements of operations.
Reclassifications: Certain amounts related to discontinued operations for 2012 and 2011 have been reclassified to conform to
the 2013 presentation.
Revisions: As discussed in note 9, we revised our quarterly statements of operations for the quarters ended March 31, June 30
and September 30, 2013 to recognize $222,000, $571,000 and $933,000 of rental property expenses as from continuing operations.
These expenses were previously inappropriately recognized as discontinued operations.
New Accounting Pronouncement: There are currently no recently issued accounting pronouncements that are expected to have a
material effect on our financial condition or results of operations in future periods.
53
2. LEASES
The majority of our properties are leased on a triple-net basis primarily to petroleum distributors and, to a lesser extent, individual
operators. Generally our tenants supply fuel and either 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. Our triple-net tenants are
responsible for the payment of all taxes, maintenance, repairs, insurance and other operating expenses relating to our properties, and are also
responsible for environmental contamination occurring during the terms of their leases and in certain cases also for preexisting environmental
contamination. (See note 5 for additional information regarding environmental obligations.) 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. As of December 31,
2013, we owned 840 properties and leased 125 properties from third-party landlords. Our 965 properties are located in 20 states across the
United States and Washington, D.C., with concentrations in the Northeast and Mid-Atlantic regions.
Revenues from rental properties included in continuing operations for the years ended December 31, 2013, 2012 and 2011 were
$95,940,000, $92,873,000 and $91,053,000, respectively. For the year ended December 31, 2013, we recorded $3,126,000 of revenue from
rental properties attributable to the partial recovery of damages resulting from Marketing’s default of its obligations under the Master Lease,
which was received as a result of the Lukoil Settlement (as described in more detail below). Revenues from rental properties contractually
due or received from Marketing under the Master Lease through its termination on April 30, 2012 (as described in more detail below) were
$16,850,000 and $43,731,000, respectively, for the years ended December 31, 2012 and 2011. Revenues from rental properties contractually
due or received from other tenants were $89,504,000, $69,827,000 and $45,044,000, respectively, for the years ended December 31, 2013,
2012 and 2011. Revenues from rental properties and rental property expenses included in continuing operations included $15,405,000,
$10,854,000 and $6,243,000 for the years ended December 31, 2013, 2012 and 2011, respectively, for “pass-through” real estate taxes and
other municipal charges paid by us which were reimbursable by our tenants pursuant to the terms of triple-net lease agreements. Revenues
from rental properties included in continuing operations for the year ended December 31, 2013 also include a net loss of $1,374,000 for
amounts realized under interim fuel supply agreements, as compared to a net gain of $1,763,000 for the year ended December 31, 2012.
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 $7,810,000, $4,433,000 and $2,278,000 for the years
ended December 31, 2013, 2012 and 2011, 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.
The components of the $97,147,000 net investment in direct financing leases as of December 31, 2013 are minimum lease payments
receivable of $203,438,000 plus unguaranteed estimated residual value of $13,979,000 less unearned income of $120,270,000.
Future contractual minimum annual rentals receivable from our tenants, which have terms in excess of one year as of December 31,
2013, are as follows (in thousands):
YEAR ENDING
DECEMBER 31,
2014
2015
2016
2017
2018
Thereafter
OPERATING LEASES
70,577
$
68,195
68,642
68,103
67,080
506,281
DIRECT
FINANCING
LEASES
$
11,945
12,121
12,308
12,622
12,872
141,570
TOTAL(a)
$ 82,522
80,316
80,950
80,725
79,952
647,851
(a)
Includes $85,524,000 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 $7,092,000,
$7,903,000 and $8,009,000 for the years ended December 31, 2013, 2012 and 2011, respectively, and is included in rental property expenses
using the straight-line method. Rent received under subleases for the years ended December 31, 2013, 2012 and 2011 was $10,715,000,
$11,809,000 and $13,325,000, respectively.
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 11 years, including renewal options.
Future minimum annual rentals payable under such leases, excluding renewal options, are as follows: 2014 — $7,296,000, 2015 —
$6,417,000, 2016 — $5,399,000, 2017 — $3,931,000, 2018 — $2,863,000 and $5,229,000 thereafter.
54
Marketing and the Master Lease
Approximately 590 of the properties we own or lease as of December 31, 2013 were previously leased to Getty Petroleum
Marketing Inc. (“Marketing”) pursuant to a master lease (the “Master Lease”). In December 2011, Marketing filed for Chapter 11
bankruptcy protection in the U.S. Bankruptcy Court. The Master Lease was terminated effective April 30, 2012, and in July 2012, the
Bankruptcy Court approved Marketing’s Plan of Liquidation and appointed a trustee (the “Liquidating Trustee”) to oversee liquidation
of the Marketing estate (the “Marketing Estate”). We incurred significant costs associated with Marketing’s bankruptcy, including
legal expenses, of which $3,700,000 and $2,600,000, respectively, are included in general and administrative expense for the years
ended December 31, 2013 and 2012.
In December 2011, the Marketing Estate filed a lawsuit (the “Lukoil Complaint”) against Marketing’s former parent, Lukoil
Americas Corporation, and certain of its affiliates (collectively, “Lukoil”). In October 2012, we entered into an agreement with the
Marketing Estate to make loans and otherwise fund up to an aggregate amount of $6,725,000 to prosecute the Lukoil Complaint and
for certain other expenses incurred in connection with the wind-down of the Marketing Estate (the “Litigation Funding Agreement”).
We ultimately advanced $6,526,000 in the aggregate to the Marketing Estate pursuant to the Litigation Funding Agreement. The
Litigation Funding Agreement also provided that we were entitled to be reimbursed for up to $1,300,000 of our legal fees incurred in
connection with the Litigation Funding Agreement.
On July 29, 2013, the Bankruptcy Court approved a settlement of the claims made in the Lukoil Complaint (the “Lukoil
Settlement”). The terms of the Lukoil Settlement included a collective payment to the Marketing Estate of $93,000,000. In August
2013, the settlement payment was received by the Marketing Estate of which $25,096,000 was distributed to us pursuant to the
Litigation Funding Agreement and $6,585,000 was distributed to us in full satisfaction of our post-petition priority claims related to
the Master Lease.
Of the $25,096,000 received by us in the third quarter of 2013 pursuant to the Litigation Funding Agreement, $7,976,000 was
applied to the advances made to the Marketing Estate plus accrued interest; $13,994,000 was applied to unpaid rent and real estate
taxes due from Marketing and the related bad debt reserve was reversed; and the remainder of $3,126,000 was recorded as additional
income attributed to the partial recovery of damages resulting from Marketing’s default of its obligations under the Master Lease and
is reflected in continuing operations in our consolidated statements of operations as other revenue.
In accordance with GAAP, we recognized in revenue from rental properties in our consolidated statements of operations the full
contractual rent and real estate obligations due to us by Marketing during the term of the Master Lease and provided bad debt reserves
included in general and administrative expenses and in earnings (loss) from discontinued operations in our consolidated statements of
operations for our estimate of uncollectible amounts due from Marketing. During the year ended December 31, 2013 we received
$34,251,000 of funds from the Marketing Estate from our post-petition priority claims and the Lukoil Settlement thereby eliminating
the previously provided reserves. The reduction in our bad debt reserve for uncollectible amounts due from Marketing for the year
ended December 31, 2013 of $22,782,000 is reflected in our consolidated statements of operations by reducing general and
administrative expenses in continuing operations by $16,851,000 and increasing earnings from operating activities included in
discontinued operations by $5,931,000.
During the year ended December 31, 2012 we had a net increase in our bad debt reserves related to Marketing and the Master
Lease of $13,980,000. The increase was related to $16,428,000 of uncollected rent and real estate taxes due from Marketing offset by
$2,448,000 received from the Marketing Estate pursuant to our post-petition priority claims related to the Master Lease. The net
increase in our bad debt reserve for uncollectible amounts due from Marketing for the year ended December 31, 2012 of $13,980,000
is reflected in our consolidated statements of operations by increasing general and administrative expenses in continuing operations by
$10,340,000 and decreasing earnings from operating activities included in discontinued operations by $3,640,000.
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.
We believe that we will receive additional distributions from the Marketing Estate to satisfy our remaining general unsecured
claims. We cannot provide any assurance as to our proportionate interest in any Marketing Estate assets, or the amount or timing of
recoveries, if any, with respect to our remaining general unsecured claims against the Marketing Estate.
55
Leasing Activities
As of December 31, 2013, we have entered into long-term triple-net leases with petroleum distributors for 12 separate property
portfolios comprising 462 properties in the aggregate that were previously leased to Marketing. We have also entered into month-to-
month license agreements with occupants of 90 properties previously leased to Marketing (substantially all of whom were Marketing’s
former subtenants) allowing such occupants to continue to occupy and use these properties as gas stations, convenience stores,
automotive repair service facilities or other businesses. Under our month-to-month license agreements, we receive monthly licensing
fees and are responsible for the payment of certain Property Expenditures (as defined above) and environmental costs.
The long-term triple-net leases with petroleum distributors 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 aggregate volume of petroleum products sold. In addition, the majority of the leases require the tenants to make capital
expenditures at our properties substantially all of which are related to the replacement of underground storage tanks (“USTs”) that are
owned by our tenants. We have committed to co-invest up to $14,532,000 in the aggregate with our tenants for a portion of such
capital expenditures, which deferred expense is recognized on a straight-line basis as a reduction of rental revenue in our consolidated
statements of operations over the terms of the various leases. As of December 31, 2013, we have invested $308,000 of our capital
commitment. As part of these triple-net leases, 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. We remain contingently liable for this obligation in the event that our tenants do not satisfy
their responsibilities. Accordingly, we removed $12,648,000 of asset retirement obligations and $10,435,000 of net asset retirement
costs related to USTs from our balance sheet through December 31, 2013. The net amount of $2,213,000 is recorded as deferred rental
revenue and is recognized on a straight-line basis as additional revenues from rental properties over the terms of the various leases.
We incurred $365,000 and $3,147,000 of lease origination costs for the years ended December 31, 2013 and 2012, respectively, which
deferred expense is recognized on a straight-line basis as amortization expense in our consolidated statements of operations over the
terms of the various leases. For the year ended December 31, 2011, we did not incur any lease origination costs.
Chestnut Petroleum Dist. Inc.
As of December 31, 2013, we leased 142 gasoline station and convenience store properties in two separate unitary leases to
subsidiaries of Chestnut Petroleum Dist. Inc. We lease 58 properties to CPD NY Energy Corp. (“CPD NY”) and 84 properties to
NECG. CPD NY and NECG together represented 21%, 18% and 12% of our rental revenues for the years ended December 31, 2013,
2012 and 2011, respectively. Although we have separate, non-cross defaulted leases with each of these subsidiaries, because such
subsidiaries are affiliated with one another and under common control, a material adverse impact on one subsidiary, or failure of such
subsidiary to perform its rental and other obligations to us, may contribute to a material adverse impact on the other subsidiaries
and/or failure of the other subsidiaries to perform its rental and other obligations to us.
The selected combined audited financial data of CPD NY (from inception on January 13, 2011) and NECG (from inception on
May 1, 2012), which has been prepared by Chestnut Petroleum Dist. Inc.’s management, is provided below.
(in thousands)
Operating Data:
Total revenue
Gross profit
Net income
Balance Sheet Data:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
2013
$ 451,145
28,721
229
Year ended
December 31,
2012
$ 424,519
26,616
1,968
2011
$ 385,406
25,764
9,111
December 31,
2013
December 31,
2012
$
10,944
28,852
13,985
16,043
$
12,942
23,405
5,107
21,641
Eviction proceedings are ongoing against a group of former Marketing subtenants (or sub-subtenants) who continue to occupy
properties in the State of Connecticut which are subject to the NECG Lease. These ongoing eviction proceedings have materially
adversely impacted NECG. In June 2013, the Connecticut Superior Court ruled in our favor with respect to all 24 locations involved in
the proceedings. However, in July 2013, the operators against whom these Superior Court rulings were made appealed the decisions.
As of the date of this Annual Report on Form 10-K, 13 of the 24 former operators against whom eviction proceedings were
56
brought have reached agreements with NECG to either remain in the properties as bona fide subtenants or vacate the premises, and
have withdrawn their appeals. Eleven of the operators remain in occupancy of the subject sites during the pendency of their appeal.
We remain confident that we will prevail in the remaining appeals and, although no assurances can be given, we anticipate a favorable
resolution of this matter in 2014. We expect that we will enter into a restructuring of the NECG Lease after a final resolution to the
eviction proceedings is determined.
In August 2013, we entered into an agreement to modify the NECG Lease. This lease modification agreement includes
provisions under which we can recapture and sever from the NECG Lease up to 26 properties and, as of December 31, 2013, these
properties are accounted for as held for sale. As a result of the disruption and costs associated with the litigation, NECG was not
current in its rent and certain other obligations due to us under the NECG Lease. We increased our accounts receivable bad debt
reserves by approximately $1,015,000 in 2013 so that the total bad debt reserve related to NECG as of December 31, 2013 is
approximately $1,765,000 in aggregate.
As a result of the developments with NECG described above, we concluded that it was probable that we would not receive from
NECG the entire amount of the contractual lease payments owed to us under the NECG Lease for the likely removal of properties and
for rent payment deferrals previously agreed to related to the year ended December 31, 2013. Accordingly, during the year ended
2013, we recorded a non-cash allowance for deferred rent receivable which resulted in a full reserve of the outstanding balance of
$4,775,000. This non-cash allowance reduced our net earnings for the year ended December 31, 2013, but did not impact our cash
flow from operating activities.
Capitol Petroleum Group
As of December 31, 2013, we leased 97 gasoline station and convenience store properties in four separate unitary leases to
subsidiaries of Capitol Petroleum Group, LLC. We lease 37 properties to White Oak Petroleum, LLC, 24 properties to Hudson
Petroleum Realty, LLC, 20 properties to Dogwood Petroleum Realty, LLC and 16 properties to Big Apple Petroleum Realty, LLC. In
aggregate, these Capitol affiliates represented 15%, 7% and 6% of our rental revenues for the years ended December 31, 2013, 2012
and 2011, respectively. Although we have separate, non-cross defaulted leases with each of these subsidiaries, because such
subsidiaries are affiliated with one another and under common control, a material adverse impact on one subsidiary, or failure of such
subsidiary to perform its rental and other obligations to us, may contribute to a material adverse impact on the other subsidiaries
and/or failure of the other subsidiaries to perform its rental and other obligations to us.
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.
Legal Proceedings
We are subject to various legal proceedings and claims which arise in the ordinary course of our business. As of December 31,
2013 and December 31, 2012, we had accrued $11,423,000 and $3,615,000, respectively, for certain of these matters which we
believe were appropriate based on information then currently available. We have recorded provisions for litigation losses aggregating
$7,956,000 and $92,000 for certain of these matters during the years ended December 31, 2013 and 2012, respectively. 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
former 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 former 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”). 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. The NJDEP alleges that our liability arises from alleged discharges originating from our
former Newark, New Jersey Terminal site (which was sold in October 2013). We responded to the Directive by asserting that we were
not liable. There has been no material activity and/or communications by the NJDEP with respect to the Directive since early after its
issuance.
57
In May 2007, the United States Environmental Protection Agency (“EPA”) entered into an Administrative Settlement
Agreement and Order on Consent (“AOC”) with over 70 parties, most of which are also members of a Cooperating Parties Group
(“CPG”) who have collectively agreed to perform a Remedial Investigation and Feasibility Study (“RI/FS”) for a 17 mile stretch of the
Lower Passaic River in New Jersey. 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 2014. Subsequently, the members of the CPG 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. The EPA also issued a Unilateral Order to Occidental
Chemical Corporation (“Occidental”) directing Occidental to participate and contribute to the cost of the river mile 10.9 work.
Concurrently, the EPA is finalizing a 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 AOC and 10.9 AOC do not resolve liability issues for remedial work or the
restoration of or compensation for alleged natural resource damages to the Lower Passaic River, which are not known at this time. 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.
In December 2005, the State of New Jersey (through the NJDEP, the Commissioner of the NJDEP and the Administrator of the
New Jersey Spill Compensation Fund and hereinafter collectively the “State”) brought suit in the Superior Court of New Jersey, Law
Division (the “Action”) against Occidental, Tierra Solutions, Inc. (“Tierra”), Maxus Energy Corporation (“Maxus”) and related
entities for various past and future damages on account of discharges of hazardous substances to the Passaic River by Occidental and
its predecessors-in-interest from a facility formerly located at 80 and 120 Lister Avenue in Newark, New Jersey (the “Lister Ave.
Facility”). In February 2009, two of the original defendants, Maxus and Tierra, filed third-party complaints which named
approximately 300 additional parties to the Action, including us. The third-party complaints alleged that the third-party entities were
responsible for discharges of hazardous substances to the Newark Bay Complex from hundreds of sites in the area, and therefore were
liable for some or all of the environmental cleanup costs and damages at issue in the Action.
In March 2013, the State and most of the third-party defendants, including us, negotiated a settlement agreement to resolve the
Action for the participating third-party defendants (hereinafter the “Settling Parties”). Under the terms of the settlement, each public
third-party defendant agreed to pay the State $95,000 and each private third-party defendant, including us, agreed to pay the State
$195,000. The State published notice of the proposed settlement, and the mandatory public comment period expired on July 31, 2013.
On October 28, 2013, the State filed a motion with the court seeking approval of the third-party settlement. The third-party settlement
was approved by the Court following a hearing on the motion on December 12, 2013 and an order was entered which dismissed the
pending claims against the Settling Parties.
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, an aggregate of $2,025,000 to settle two plaintiff classes covering 52 cases and another brought by the City of New
York. 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 (the “New Jersey MDL Proceedings”). The State
of New Jersey is seeking reimbursement of significant clean-up and remediation costs arising out of the alleged release of MTBE
containing gasoline in the State of New Jersey and is asserting various natural resource damage claims as well as liability against the
owners and operators of gas station properties from which the releases occurred. Although the ultimate outcome of the New Jersey
MDL Proceedings cannot be ascertained at this time, we believe it is probable that this litigation will be resolved in a manner that is
unfavorable to us. Preliminary settlement communications from the plaintiffs indicated that they were seeking $88,000,000
collectively from us, Marketing and Lukoil. Subsequent communications from the plaintiffs indicate that they are seeking
approximately $24,000,000 from us. We have countered with a settlement offer on behalf of the Company only, which was rejected.
We do not believe that plaintiffs’ settlement proposal is realistic given the legal theories and facts applicable to our activities and gas
stations, and affirmative defenses available to us, all of which we believe have not been sufficiently developed in the proceedings. We
continue to engage in a settlement negotiation and a dialogue to educate the plaintiff’s counsel on the unique nature of the Company
and our business as compared to the other defendants in the litigation. In addition, we are pursuing claims for insurance coverage that
we believe is provided under pollution insurance policies previously obtained by Marketing and under which we are entitled to
58
coverage; however, we have not yet confirmed whether and to what extent such coverage may actually be available. We are unable to
estimate the range of loss in excess of the amount accrued with certainty for the New Jersey MDL Proceedings as we do not believe
that plaintiffs’ settlement proposal is realistic and there remains uncertainty as to the allegations in this case as they relate to us, our
defenses to the claims, our rights to indemnification or contribution from other parties and the aggregate possible amount of damages
for which we may be held liable. Our best estimate of the loss within a range of loss has been accrued for; however, it is possible that
losses related to the New Jersey MDL Proceedings could result in a loss in excess of the amount accrued as of December 31, 2013 and
such additional losses could cause a material adverse effect on our business, financial condition, results of operations, liquidity, ability
to pay dividends or stock price.
4. CREDIT AGREEMENT AND PRUDENTIAL 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).
Credit Agreement
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 on 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. As of December 31, 2013, borrowings under the Credit Agreement
were $58,000,000 bearing interest at a rate of approximately 3.2% per annum.
The Credit Agreement provides for security in the form of, among other items, mortgage liens on certain of our properties. As of
December 31, 2013, the mortgaged properties had an aggregate net book value of approximately $154,117,000. 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 December 23, 2013, we amended the Credit Agreement to change certain definitions and financial covenant calculations
provided for in the agreement.
Prudential Loan Agreement
On February 25, 2013, we entered into a $100,000,000 senior secured 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.
59
On December 23, 2013, we amended the Prudential Loan Agreement to change certain definitions and financial covenant
calculations provided for in the 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 December 31, 2013, is as follows: 2015 — $58,000,000 and 2021 —
$100,000,000.
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. As of December 31, 2013, the carrying value of the borrowings
outstanding under the Credit Agreement and the Prudential Loan Agreement approximated fair value. The fair value of the borrowings
outstanding as of December 31, 2013 and 2012 was determined using a discounted cash flow technique that incorporates a market
interest yield curve with adjustments for duration, optionality, risk profile and projected average borrowings outstanding or
borrowings outstanding, which are based on unobservable inputs within Level 3 of the Fair Value Hierarchy.
5. ENVIRONMENTAL OBLIGATIONS
We are subject to numerous 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.
We enter into leases and various other agreements which allocate between the parties responsibility for known and unknown
environmental liabilities at or relating to the subject properties. We are contingently liable for these environmental obligations in the
event that the counterparty to the agreement does not satisfy them.
For all of our triple-net leases, our tenants are directly responsible for compliance with various environmental laws and
regulations as the operators of our properties, for the retirement and decommissioning or removal of all or a negotiated percentage of
USTs and other equipment and for remediation of environmental contamination that arises during the term of their tenancy. Under the
terms of our leases covering properties previously leased to Marketing, we have agreed to be responsible for environmental
contamination at the premises that is known at the time the lease commences and for contamination that existed at the premises prior
to commencement of the lease and is discovered by the tenant (other than as a result of a voluntary site investigation) during the first
ten years of the lease term. After expiration of such ten year period, responsibility for all newly discovered contamination (irrespective
of when the contamination first arose) is allocated to our tenant. Under most of our other triple-net leases, responsibility for
remediation of all environmental contamination discovered during the term of the lease (including known and unknown contamination
that existed prior to commencement of the lease) is the responsibility of our tenant.
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 remediation of environmental contamination Marketing caused
and all unknown environmental liabilities discovered during the term of the Master Lease (collectively, the “Marketing Environmental
Liabilities”). As a result of Marketing’s bankruptcy filing, in the fourth quarter of 2011, we accrued for the Marketing Environmental
Liabilities because we concluded that Marketing would not be able to perform them. A liability has not been accrued for
environmental obligations that are the responsibility of any of our current tenants based on our tenant’s history of paying such
obligations and/or our assessment of their financial ability and intent to pay 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.
As part of the triple-net leases whose term commenced through December 31, 2013, 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, through December 31, 2013, we
removed $12,648,000 of asset retirement obligations and $10,435,000 of net asset retirement costs related to USTs from our balance
sheet. The cumulative net amount of $2,213,000 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.)
60
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. Adjustments to accrued liabilities for environmental
remediation obligations will be reflected in our consolidated financial statements as they become probable and a reasonable estimate
of fair value can be made.
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. We adjust our environmental remediation liability quarterly to reflect
changes in projected expenditures, accretion and reductions associated with actual expenditures incurred during each quarter. As of
December 31, 2013, 2012 and 2011, we had accrued $43,472,000, $46,150,000 and $57,700,000, 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, $3,214,000,
$3,174,000 and $899,000 of net accretion expense was recorded for the years ended December 31, 2013, 2012 and 2011, respectively,
which is included in environmental expenses. In addition, during the years ended December 31, 2013 and 2012, we recorded credits to
environmental expenses included in continuing operations and to earnings from operating activities in discontinued operations in our
consolidated statements of operations aggregating $2,956,000 and $4,215,000, respectively, 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 losses.
During the years ended December 31, 2013 and 2012, we increased the carrying value of certain of our properties by
$12,371,000 and $5,710,000, 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. 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 continuing operations and earnings from operating activities
in discontinued operations in our consolidated statements of operations for the years ended December 31, 2013 and 2012 included
$2,009,000 and $5,371,000, respectively, of depreciation related to capitalized asset retirement costs. Capitalized asset retirement
costs were $18,281,000 and $23,549,000 as of December 31, 2013 and 2012, 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 consolidated 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.
61
6. INCOME TAXES
Net cash paid for income taxes for the years ended December 31, 2013, 2012 and 2011 of $173,000, $810,000 and $267,000,
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 statements 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 statements purposes. Earnings and profits
were $29,957,000, $7,814,000 and $63,472,000 for the years ended December 31, 2013, 2012 and 2011, respectively. The federal tax
attributes of the common dividends for the years ended December 31, 2013, 2012 and 2011 were: ordinary income of 94.4%, 10.0%
and 98.3%, capital gain distributions of 5.6%, 61.3% and 1.7% and non-taxable distributions of 0.0%, 28.7% and 0.0%, 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 IRS 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 2010, 2011 and 2012, and tax returns which will be filed for the year ended 2013, remain open to examination by federal
and state tax jurisdictions under the respective statute of limitations, except as noted in the following paragraph, 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, 2013 or 2012. However, uncertain tax matters may have a significant impact on the results of operations for any single
fiscal year or interim period.
In the third quarter of 2013, we submitted to the IRS a request seeking a ruling that a portion of the payments we received from
the Marketing Estate, including amounts related to the Litigation Funding Agreement (see note 2 for additional information regarding
the Lukoil Settlement and the Litigation Funding Agreement), be treated either as qualifying income or excluded from gross income
for the purposes of the REIT qualification gross income tests either as a matter of law or pursuant to the discretionary authority
granted by Congress to the IRS to determine whether certain types of income are an outgrowth of a REIT’s business of owning and
operating real estate. In January 2014, we received a favorable ruling from the IRS indicating that a portion of the payments received
from the Marketing Estate will be treated as qualifying income and the remainder will be excluded from gross income for the purposes
of the REIT qualification gross income tests. Therefore, none of the cash flow received from the Marketing Estate, including amounts
related to the Litigation Funding Agreement, will be treated as non-qualifying income for purposes of the REIT qualification gross
income tests.
7. SHAREHOLDERS’ EQUITY
A summary of the changes in shareholders’ equity for the years ended December 31, 2013, 2012 and 2011 is as follows (in
thousands, except per share amounts):
62
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
Net earnings
Dividends — $0.850 per share
Stock-based compensation
BALANCE, DECEMBER 31, 2013
COMMON STOCK
SHARES
29,944
AMOUNT
299
$
PAID-IN
CAPITAL
$ 368,093
643
3,450
35
91,951
33,394
334
460,687
3
33,397
739
461,426
334
—
33,397
—
334
$
971
$ 462,397
$
DIVIDEND
PAID
IN EXCESS
OF EARNINGS
(52,304)
$
12,456
(49,004)
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
$
(1,153)
(88,852)
12,447
(12,606)
(89,011)
70,011
(28,640)
—
(47,640)
1,153
—
$
—
—
TOTAL
$ 314,935
12,456
(49,004)
643
—
91,986
1,153
372,169
12,447
(12,606)
739
372,749
70,011
(28,640)
971
$ 415,091
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, 2013, 2012 and 2011.
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.
8. 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.
In addition, in April 2012, the Compensation Committee of the Board of Directors adopted, for 2012 only, a performance-based
incentive compensation feature to our compensation program for named executive officers (“NEOs”) and other executives. By adding this
performance-based incentive compensation feature, the Compensation Committee intended to incentivize management’s efforts associated
with achieving our business objectives and financial performance in 2012. To do so, the Compensation Committee approved a program under
which certain NEOs and other executives would be eligible to receive restricted stock units (“RSUs”) (including dividend equivalents paid
with respect to such RSUs) in 2013 contingent on the level of achievement of several financial performance goals in 2012 and on a subjective
qualitative evaluation of the performance of the executive in 2012. Under the 2012 performance-based incentive compensation program, the
RSUs that were granted, were granted on terms substantially consistent with the 2004 Plan, except for the relative vesting schedules: RSUs
granted under the 2012 performance-based incentive compensation program vest on a cumulative basis, with the first 20% vesting occurring
on May 1, 2013, and an additional 20% vesting on each May 1 thereafter, through May 1, 2017; while the traditional discretionary RSU
awards vest on a cumulative basis ratably over a five-year period with the first 20% vesting occurring on the first anniversary of the date of
the grant. In February 2013, the Compensation Committee granted a total of 35,000 RSUs to NEOs and other executives under the 2012
performance-based incentive compensation program. All such RSU grants include related dividend equivalents.
We awarded to employees and directors 79,500 (including 35,000 RSUs issued under the 2012 performance-based incentive
compensation program), 52,125 and 47,625 RSUs and dividend equivalents in 2013, 2012 and 2011, 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, 2013, 2012 and 2011, dividend equivalents aggregating
approximately $251,000, $82,000 and $249,000, respectively, were charged against retained earnings when common stock dividends were
declared.
63
The following is a schedule of the activity relating to RSUs outstanding:
RSUs OUTSTANDING AT DECEMBER 31, 2010
Granted
RSUs OUTSTANDING AT DECEMBER 31, 2011
Granted
Settled
Cancelled
RSUs OUTSTANDING AT DECEMBER 31, 2012
Granted
RSUs OUTSTANDING AT DECEMBER 31, 2013
NUMBER OF
RSUs
OUTSTANDING
123,200
47,625
170,825
52,125
(2,780)
(3,820)
216,350
79,500
295,850
FAIR VALUE
AMOUNT
$ 1,043,000
$ 864,000
70,000
$
88,000
$
$ 1,439,110
AVERAGE
PER RSU
$
$
$
$
$
21.90
16.57
25.31
23.10
18.10
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, 2013, 2012 and 2011 was $962,000, $746,000 and $638,000, respectively, and is
included in general and administrative expense in our consolidated statements of operations. As of December 31, 2013, there was
$2,302,000 of unrecognized compensation cost related to RSUs granted under the 2004 Plan and the 2012 performance-based
incentive compensation program, which cost is expected to be recognized over a weighted average period of approximately 3.2 years.
The aggregate intrinsic value of the 295,850 outstanding RSUs and the 136,135 vested RSUs as of December 31, 2013 was
$5,435,000 and $2,501,000, respectively.
The following is a schedule of the vesting activity relating to RSUs outstanding:
RSUs VESTED AT DECEMBER 31, 2010
Vested
RSUs VESTED AT DECEMBER 31, 2011
Vested
Settled
RSUs VESTED AT DECEMBER 31, 2012
Vested
RSUs VESTED AT DECEMBER 31, 2013
NUMBER
OF RSUs
VESTED
45,400
21,400
66,800
29,205
(2,780)
93,225
42,910
136,135
FAIR
VALUE
$505,000
$734,000
$ 70,000
$844,000
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 $238,000, $270,000 and $239,000 for the years ended December 31, 2013, 2012 and 2011,
respectively. These amounts are included in general and administrative expense in our 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. As of December 31, 2013, there were 5,000 options outstanding which were
exercisable at $27.68 with a remaining contractual life of five years. As of December 31, 2013, the 5,000 options outstanding had no
intrinsic value.
9. QUARTERLY FINANCIAL DATA
During the preparation of the consolidated financial statements for the year ended December 31, 2013, we identified and
corrected an error in which we inappropriately classified certain property expenses as discontinued operations. The error resulted in a
reclassification of rental property expenses on our consolidated statements of operations for the quarters ended March 31, June 30 and
September 30, 2013 of $222,000, $571,000 and $933,000, respectively, to continuing operations. These rental property expenses were
64
previously inappropriately recorded as a part of discontinued operations. The effect of this error had no impact on our net income or
consolidated balance sheets or statements of cash flows. We assessed the materiality of this error on the consolidated financial
statements in connection with previously-filed periodic reports in accordance with ASC 250 (SEC Staff Accounting Bulletin No. 99,
Materiality) and have determined that these adjustments are not material to our consolidated financial statements for any of the
affected quarterly periods. However, we determined that recording the cumulative error in the quarter ended December 31, 2013
would have been significant and accordingly, we will revise the quarters ended March 31, June 30 and September 30, 2013 in future
Quarterly Reports on Form 10-Q the next time such financial statements are filed. For purposes of this Annual report on Form 10-K
for the year ended December 31, 2013, we have revised the quarterly information presented below. Certain reclassifications have been
made to the prior period amounts to conform to the current period presentation for properties sold during 2013 and 2012 and
properties classified as held for sale as of December 31, 2013.
The following is a summary of the quarterly results of operations (as reported and as revised) for the years ended December 31,
2013 and 2012 (unaudited as to quarterly information) (in thousands, except per share amounts):
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, 2013(a)
Revenues from rental properties
Earnings from continuing operations
Net earnings
Diluted earnings per common share:
MARCH 31
JUNE 30,
(as reported)
(as reported)
$ 22,357 $ 23,232
7,413
12,739
5,523
10,350
SEPTEMBER 30,
(as reported)
DECEMBER 31,
25,470
1,762
5,045
28,007 $
14,695
41,877
Earnings from continuing operations
Net earnings
.16
.31
.22
.38
.44
1.25
.05
.15
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, 2013(a)
Revenues from rental properties
Earnings from continuing operations(b)
Net earnings
Diluted earnings per common share:
MARCH 31
(as revised)
$ 22,357 $
5,301
10,350
JUNE 30,
(as revised)
23,232
6,842
12,739
SEPTEMBER 30,
(as revised)
DECEMBER 31,
25,470
1,762
5,045
28,007 $
13,762
41,877
$
$
Earnings from continuing operations
Net earnings
.16
.31
.20
.38
.41
1.25
.05
.15
YEAR ENDED DECEMBER 31, 2012(c)
Revenues from rental properties
Earnings from continuing operations
Net earnings (loss)
Diluted earnings (loss) per common share:
Earnings from continuing operations
Net earnings (loss)
(a)
Includes for the respective periods the effect of:
JUNE 30,
SEPTEMBER 30,
MARCH 31,
$ 25,487
5,004
6,485
$ 23,819 $
1,785
3,626
21,172 $
2,717
(3,465)
DECEMBER 31,
22,395
4,007
5,801
.16
.19
.07
.11
.05
(.10)
.13
.17
• Revenue (from the date of the acquisition) related to our $72,500,000 acquisition of 16 Mobil-branded gasoline station
and convenience store properties in the metro New York region and 20 Exxon- and Shell-branded gasoline station and
convenience store properties located within the Washington, D.C. “Beltway” in two sale/leaseback transactions with
subsidiaries of Capitol Petroleum Group, LLC.
• $3,126,000 of additional income, which was received as a result of the Lukoil Settlement.
• A $20,854,000 net credit for bad debt expense primarily related to receiving funds from the Marketing Estate and the
•
Litigation Funding Agreement. (See note 2 for additional information.)
Impairment charges of $13,425,000 recorded for the year ended December 31, 2013, of which $5,708,000 was recorded in
the quarter ended December 31, 2013. (See note 1 for additional information.)
• A non-cash allowance for deferred rent receivable of $4,775,000 for the year ended December 31, 2013.
(b) Earnings from continuing operations are approximately $222,000, $571,000 and $933,000 lower than the amounts previously
reported in our Form 10-Q for the quarterly periods ended March 31, June 30 and September 30, 2013, respectively, with
corresponding increases to earnings from discontinued operations.
Includes for the respective periods the effect of:
(c)
• 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 note 2 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 note 1 for additional information.)
•
65
10. PROPERTY ACQUISITIONS
Capitol Sale/Leaseback
On May 9, 2013, we acquired 16 Mobil-branded gasoline station and convenience store properties in the metro New York
region and 20 Exxon- and Shell-branded gasoline station and convenience store properties located within the Washington, D.C.
“Beltway” for $72,500,000 in two sale/leaseback transactions with subsidiaries of Capitol Petroleum Group, LLC (“Capitol”). The
two new triple-net unitary leases have an initial term of 15 years plus three renewal options with provisions for rent escalations during
the initial and renewal terms. As triple-net lessees, our tenants are required to pay all expenses pertaining to the properties subject to
the unitary leases, including environmental expenses, taxes, assessments, licenses and permit fees, charges for public utilities and all
governmental charges. We utilized $11,500,000 of proceeds from 1031 exchanges, $57,500,000 of borrowings under our Credit
Agreement and cash on hand to fund this acquisition.
We accounted for these transactions as business combinations. We estimated the fair value of acquired tangible assets
(consisting of land, buildings and equipment) “as if vacant.” Based on these estimates, we allocated $62,365,000 of the purchase price
to land, buildings and equipment, $6,267,000 to direct financing leases and $3,868,000 to in-place leases and other intangible assets.
We incurred transaction costs of $480,000 directly related to the acquisition which are included in general and administrative expenses
in our consolidated statements of operations.
In addition, in 2013, we acquired fee or leasehold title to three gasoline station and convenience store properties in separate
transactions for an aggregate purchase price of $750,000.
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 station 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 expenses pertaining to the properties subject to the CPD Lease, including environmental expenses, 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 and mortgages receivable. 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 are included in general and administrative expenses on our
consolidated statements 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.
66
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 expenses pertaining to the properties subject to the Nouria Lease, including environmental
expenses, 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 accounted for in notes and mortgages receivable. 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 are included in general and administrative expenses on our
consolidated statements of operations.
Acquired Intangible Assets
Acquired above-market and below-market leases are included in prepaid expenses and other assets and had a balance of
$3,784,000 and $4,304,000 (net of accumulated amortization of $2,727,000 and $2,209,000, respectively) at December 31, 2013 and
2012, respectively. Acquired above-market and below-market leases are included in accounts payable and accrued liabilities and had a
balance of $8,685,000 and $9,666,000 (net of accumulated amortization of $8,940,000 and $7,788,000, respectively) at December 31,
2013 and 2012, respectively. Above-market and below-market leases are amortized and recorded as either an increase (in the case of
below-market leases) or a decrease (in the case of above-market leases) to rental revenue over the remaining term of the associated
lease in place at the time of purchase, when we are a lessor. In-place leases are included in prepaid expenses and other assets and had a
balance of $5,169,000 and $1,694,000 (net of accumulated amortization of $2,290,000 and $1,882,000, respectively) at December 31,
2013 and 2012, respectively. Above-market and below-market leases are amortized and recorded as either an increase (in the case of
above-market leases) or a decrease (in the case of below-market leases) to rental expense over the remaining term of the associated
lease in place at the time of purchase, when we are a lessee. Rental income included amortization from acquired leases of $986,000,
$1,113,000 and $1,215,000 for the years ended December 31, 2013, 2012 and 2011, respectively. Rent expense included amortization
from acquired leases of $353,000, $529,000 and $533,000 for the years ended December 31, 2013, 2012 and 2011, respectively. The
value associated with in-place leases and lease origination costs are amortized into depreciation and amortization expense over the
remaining life of the lease. Depreciation and amortization expense included amortization from in-place leases of $408,000, $241,000
and $256,000 for the years ended December 31, 2013, 2012 and 2011, respectively.
The amortization for acquired intangible assets during the next five years and thereafter, assuming no early lease terminations, is
as follows:
As Lessor:
Year ending December 31,
2014
2015
2016
2017
2018
Thereafter
Above-Market
Leases
Below-Market
Leases
In-Place
Leases
$ 159,000
155,000
155,000
142,000
40,000
50,000
$ 1,114,000
1,056,000
1,037,000
973,000
918,000
3,587,000
$ 472,000
450,000
444,000
430,000
403,000
2,970,000
$ 701,000
$ 8,685,000
$5,169,000
67
As Lessee:
Year ending December 31,
2014
2015
2016
2017
2018
Thereafter
Below-Market
Leases
$
333,000
333,000
333,000
320,000
317,000
1,447,000
$ 3,083,000
Unaudited Pro Forma Condensed Consolidated Financial Information
The following unaudited pro forma condensed consolidated financial information for the years ended December 31, 2013, 2012
and 2011 has been prepared utilizing our historical consolidated financial statements and the combined effect of additional revenue
and expenses from the properties acquired 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 the Credit Agreement 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 acquisitions herein been consummated on the dates
indicated or that will be achieved in the future.
(in thousands, except per share amounts):
Revenues
Net earnings
Year ended December 31,
2013
2012
2011
$ 104,710
$ 102,086
$ 102,322
$ 71,277
$ 15,792
$ 17,991
Basic and diluted net earnings per common share
$
2.11
$
0.47
$
0.54
11. SUPPLEMENTAL CONDENSED COMBINING FINANCIAL INFORMATION
Condensed combining financial information for the year ended December 31, 2011 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 termination 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 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 termination of the Master Lease on April 30, 2012, we have omitted the condensed combining financial
information as of December 31, 2013 and 2012 and for the years ended December 31, 2013 and 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.
68
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, 2011 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 the period 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
Operating expenses:
Rental property expenses
Impairment charges
Environmental expenses
General and administrative expenses
Allowance for deferred rent receivable
Depreciation and amortization expense
Getty
Petroleum
Marketing
$ 42,953
—
Other
Tenants
$ 48,100
2,489
Corporate
Consolidated
$ —
169
$
42,953
50,589
169
(7,602)
(11,452)
(5,240)
(7,815)
(16,529)
(3,336)
(7,271)
(1,263)
(122)
(1,783)
—
(5,231)
(641)
—
—
(11,383)
—
(46)
Total operating expenses
(51,974)
(15,670)
(12,070)
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
(9,021)
641
—
(8,380)
2,874
—
2,874
34,919
(621)
—
(11,901)
(4)
(5,125)
34,298
(17,030)
(254)
948
694
—
—
—
Net earnings (loss)
$
(5,506)
$ 34,992
$ (17,030)
$
12,456
69
91,053
2,658
93,711
(15,514)
(12,715)
(5,362)
(20,981)
(16,529)
(8,613)
(79,714)
13,997
16
(5,125)
8,888
2,620
948
3,568
The condensed combining statement of cash flows of Getty Realty Corp. for the year ended December 31, 2011 is as follows (in
thousands):
Getty
Petroleum
Marketing
Other
Tenants
Corporate
Consolidated
$
(5,506)
$ 34,992
$ (17,030)
$
12,456
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 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
Investments in direct financing leases
Proceeds from dispositions of real estate
Change in cash held for property acquisitions
Amortization of investment in direct financing leases
Issuance of notes, mortgages and other receivables
Collection of notes and mortgages receivable
5,024
18,676
(641)
21,221
8,802
—
—
879
—
(14,851)
—
(1,304)
3,040
35,340
—
—
1,604
—
—
—
—
5,266
1,550
(327)
(1,916)
319
(685)
—
20
—
(39)
(68)
(677)
692
46
—
—
—
—
—
207
—
643
—
219
—
2,203
39,127
(13,712)
(99,902)
(67,569)
1,781
—
505
(30,400)
2,415
(24)
—
(1,068)
(750)
—
—
264
(1,578)
Net cash flow provided by (used in) investing activities
1,604
(193,170)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit line
Repayments under credit line
Repayments under term loan line
Payments of capital lease obligations
Payments of cash dividends
Payments of loan origination costs
Security deposits received
Net proceeds from issuance of common stock
Cash consolidation- Corporate
—
—
—
—
—
—
—
—
(36,944)
—
—
—
(59)
—
—
29
—
154,073
247,253
(140,853)
(780)
—
(63,436)
(175)
—
91,986
(117,129)
Net cash flow (used in) provided by financing activities
(36,944)
154,043
16,866
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
—
—
—
—
1,576
6,122
Cash and cash equivalents at end of year
$ —
$ —
$
7,698
$
70
10,336
20,226
(968)
19,305
9,121
(685)
207
899
643
(14,890)
151
(1,981)
5,935
60,755
(99,926)
(67,569)
2,317
(750)
505
(30,400)
2,679
(193,144)
247,253
(140,853)
(780)
(59)
(63,436)
(175)
29
91,986
—
133,965
1,576
6,122
7,698
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, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2013 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,
2013 based on criteria established in Internal Control — Integrated Framework (1992) 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. 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 17, 2014
71
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, 2013.
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 (1992) 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,
2013.
The effectiveness of our internal control over financial reporting as of December 31, 2013, 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.
72
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
AGE
POSITION
OFFICER SINCE
David B. Driscoll
Joshua Dicker
Kevin C. Shea
Christopher J. Constant
59 President, Chief Executive Officer and Director
53 Senior Vice President, General Counsel and Secretary
54 Executive Vice President
35 Vice President, Chief Financial Officer and Treasurer
2010
2008
2001
2012
Mr. Driscoll was appointed to the position of President of the Company, effective 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 previously 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 at 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. 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 the Company 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. Constant has served as Vice President, Chief Financial Officer and Treasurer since December 2013. Mr. Constant joined the
Company in November 2010 as Director of Planning and Corporate Development and was later promoted to Treasurer in May 2012
and Vice President in May 2013. Prior to joining the Company, Mr. Constant was a Vice President in the corporate finance department
at Morgan Joseph & Co. Inc. and 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.
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.
73
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, 2013.
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.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) (1) Financial Statements
Information in response to this Item is included in “Item 8. Financial Statements and Supplementary Data”.
(a) (2) Financial Statement Schedules
74
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, 2013, 2012 and 2011
Schedule III — Real Estate and Accumulated Depreciation and Amortization as of December 31, 2013
Schedule IV — Mortgage Loans on Real Estate as of December 31, 2013
PAGES
76
76
77
91
(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.
75
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 17, 2014 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 17, 2014
GETTY REALTY CORP. and SUBSIDIARIES
SCHEDULE II — VALUATION and QUALIFYING ACCOUNTS and RESERVES
for the years ended December 31, 2013, 2012 and 2011
(in thousands)
BALANCE AT
BEGINNING
OF YEAR
ADDITIONS
DEDUCTIONS
December 31, 2013:
Allowance for deferred rent receivable
Allowance for accounts receivable
Allowance for deposits held in escrow
December 31, 2012:
Allowance for deferred rent receivable
Allowance for accounts receivable
Allowance for deposits held in escrow
December 31, 2011:
Allowance for deferred rent receivable
Allowance for accounts receivable
Allowance for deposits held in escrow
$
$
$
$
$
$
$
$
$
—
25,371
—
25,630
9,480
377
8,170
361
377
$
$
$
$
$
$
$
$
$
4,775
4,027
—
—
15,903
—
17,460
9,121
—
$
$
$
$
$
$
$
$
$
76
BALANCE
AT END
OF YEAR
$ 4,775
$ 3,248
$ —
$ —
$ 25,371
$ —
—
26,150
—
25,630
12
377
—
2
—
$ 25,630
$ 9,480
377
$
GETTY REALTY CORP. and SUBSIDIARIES
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
As of December 31, 2013
(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/settlements
Balance at end of year
Accumulated depreciation and amortization:
Balance at beginning of year
Depreciation and amortization expense
Impairment
Sales and condemnations
Lease expirations/settlements
Balance at end of year
2013
2012
2011
$ 562,316
76,016
(23,238)
(42,884)
(1,935)
$ 615,854
10,976
(23,354)
(40,381)
(779)
$ 504,587
151,090
(35,246)
(3,219)
(1,358)
$ 570,275
$ 562,316
$ 615,854
$ 116,768
9,231
(9,813)
(11,474)
(1,260)
$ 137,117
13,375
(9,412)
(23,533)
(779)
$ 144,217
10,080
(15,020)
(802)
(1,358)
$ 103,452
$ 116,768
$ 137,117
The properties in the table below indicated by an asterisk (*), with an aggregate net book value of approximately $154,117,000
as of December 31, 2013, 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 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.
77
Brookland, AR
Jonesboro, AR
Jonesboro, AR
Bellflower, CA
Benicia, CA
Coachella, CA
El Cajon, CA
Fillmore, CA
Hesperia, CA
La Palma, CA
Poway, CA
San Dimas, CA
Avon, CT
Bloomfield, CT
Bridgeport, CT
Bridgeport, CT
Bridgeport, CT
Bridgeport, CT
Bridgeport, CT
Bridgeport, CT
Bristol, CT
Bristol, CT
Bristol, CT
Bristol, CT
Bristol, CT
Brookfield, CT
Cheshire, CT
Cobalt, CT
Darien, CT
Durham, CT
East Hartford, CT
East Hartford, CT
Ellington, CT
Enfield, CT
Fairfield, CT
Farmington, CT
Franklin, CT
Hartford, CT
Hartford, CT
Hartford, CT
Manchester, CT
Meriden, CT
Meriden, CT
Middletown, CT
Middletown, CT
Milford, CT
New Britain, CT
New Haven, CT
New Haven, CT
New Haven, CT
New Milford, CT
Newington, CT
North Branford, CT
North Haven, CT
Norwalk, CT
Initial Cost
of Leasehold
or Acquisition
Investment to
Company (1)
1,468
$
2,985
869
1,370
2,223
2,235
1,292
1,354
1,643
1,972
1,439
1,941
731
141
350
313
313
378
338
346
109
360
1,594
254
365
58
490
396
667
994
208
347
1,295
260
430
466
51
665
571
233
66
208
1,532
1,039
133
294
391
1,413
538
217
114
954
130
405
257
Cost
Capitalized
Subsequent
to Initial
Investment
0
$
0
0
0
0
0
0
0
0
0
0
0
107
98
56
51
24
114
22
12
113
0
0
0
0
339
(69)
0
333
0
70
14
0
0
10
0
174
0
0
33
214
63
0
0
308
45
0
(701)
175
23
170
0
181
0
157
Gross Amount at Which Carried
at Close of Period
Building and
Improvements
1,319
$
2,655
695
459
1,166
1,018
512
404
794
582
1,439
1,192
434
149
178
160
134
246
141
128
178
360
558
104
128
376
155
396
566
994
194
60
453
260
160
163
204
233
200
114
215
187
543
364
310
147
137
143
363
99
284
334
228
153
310
Total
$ 1,468
2,985
869
1,370
2,223
2,235
1,292
1,354
1,643
1,972
1,439
1,941
837
239
406
364
338
492
361
358
222
360
1,594
254
365
396
421
396
1,000
994
278
361
1,295
260
440
466
224
665
571
266
280
271
1,532
1,039
441
338
390
712
713
240
284
954
311
405
414
Land
$ 149
330
173
910
1,058
1,217
780
950
849
1,389
0
749
403
90
228
204
204
246
220
230
44
0
1,036
150
237
20
267
0
434
0
84
301
842
0
280
303
20
432
371
152
65
84
989
675
131
191
254
569
351
141
0
620
83
252
104
78
Date of
Initial
Leasehold or
Acquisition
Investment (1)
2007
2007
2007
2007
2007
2007
2007
2007
2007
2007
2007
2007
2002
1986
1985
1985
1985
1985
1985
1985
1982
2004
2004
2004
2004
1985
1985
2004
1985
2004
1982
1991
2004
2004
1985
2004
1982
2004
2004
1985
1982
1982
2004
2004
1987
1985
2004
1985
1985
1985
1982
2004
1982
2004
1982
Accumulated
Depreciation
339
$
744
188
166
441
359
164
146
265
207
442
365
189
113
134
90
94
173
98
128
152
330
205
38
47
137
10
363
233
911
188
32
166
260
106
60
200
85
73
84
166
166
204
133
122
107
50
7
295
72
240
122
103
67
287
Norwalk, CT
Norwalk, CT
Old Greenwich, CT
Plainville, CT
Plymouth, CT
Ridgefield, CT
Ridgefield, CT
Simsbury, CT
South Windham, CT
South Windsor, CT
Southington, CT
Stamford, CT
Stamford, CT
Stamford, CT
Stratford, CT
Suffield, CT
Terryville, CT
Vernon, CT
Wallingford, CT
Waterbury, CT
Waterbury, CT
Waterbury, CT
Waterbury, CT
Watertown, CT
Watertown, CT
West Haven, CT
West Haven, CT
Westbrook, CT
Westport, CT
Wethersfield, CT
Willimantic, CT
Wilton, CT
Windsor Locks, CT
Windsor Locks, CT
Cromwell, CT
Washington, DC
Washington, DC
Claymont, DE
Newark, DE
Wilmington, DE
Jacksonville, FL
Jacksonville, FL
Jacksonville, FL
Orlando, FL
Haleiwa, HI
Honolulu, HI
Honolulu, HI
Honolulu, HI
Honolulu, HI
Kaneohe, HI
Kaneohe, HI
Waianae, HI
Waianae, HI
Waipahu, HI
Arlington, MA
*
*
*
*
*
*
*
*
*
*
Initial Cost
of Leasehold
or Acquisition
Investment to
Company (1)
511
0
0
545
931
535
402
318
644
545
116
507
603
507
285
237
182
1,434
551
107
804
515
468
925
352
185
1,215
345
603
447
717
519
1,433
1,030
70
940
848
237
406
382
560
486
545
868
1,522
1,539
1,769
1,070
9,211
1,978
1,364
1,997
1,520
2,459
518
Cost
Capitalized
Subsequent
to Initial
Investment
60
658
945
0
0
122
36
(59)
1,398
0
171
16
58
103
15
603
173
0
0
192
0
0
0
0
59
49
0
0
12
0
0
75
0
0
183
0
0
31
(110)
40
0
0
0
0
0
0
0
13
0
20
0
0
0
0
27
Gross Amount at Which Carried
at Close of Period
Building and
Improvements
238
256
325
191
326
309
271
110
1,444
208
216
193
268
280
114
639
281
1,434
216
256
288
180
164
358
207
160
425
345
223
447
251
257
1,433
361
229
277
430
116
57
173
263
97
289
466
464
320
577
103
1,017
524
542
1,126
872
1,513
208
Total
570
658
945
545
931
657
438
259
2,042
545
286
523
661
609
300
840
355
1,434
551
300
804
515
468
925
411
234
1,215
345
616
447
717
594
1,433
1,030
253
940
848
268
296
421
560
486
545
868
1,522
1,539
1,769
1,084
9,211
1,998
1,364
1,997
1,520
2,459
545
Land
332
402
620
354
605
348
167
149
598
337
71
330
393
330
186
201
74
0
335
44
516
335
305
567
204
74
790
0
393
0
466
338
0
670
24
664
418
152
239
249
296
388
256
401
1,058
1,219
1,192
981
8,194
1,473
822
871
648
945
338
79
Date of
Initial
Leasehold or
Acquisition
Investment (1)
1985
1988
1969
2004
2004
1985
1985
1985
2004
2004
1982
1985
1985
1985
1985
2004
1982
2004
2004
1982
2004
2004
2004
2004
1992
1982
2004
2004
1985
2004
2004
1985
2004
2004
1982
2013
2013
1985
1985
1985
2000
2000
2000
2000
2007
2007
2007
2007
2007
2007
2007
2007
2007
2007
1985
Accumulated
Depreciation
155
86
94
70
119
167
271
0
375
93
207
129
178
163
78
413
218
1,315
98
121
112
66
60
164
144
160
156
316
147
447
92
187
1,314
132
229
11
14
87
5
124
152
56
167
269
207
112
185
49
338
183
203
364
280
467
142
Ashland, MA
Auburn, MA
Auburn, MA
Auburn, MA
Auburn, MA
Auburn, MA
Auburn, MA
Barre, MA
Bedford, MA
Bellingham, MA
Belmont, MA
Belmont, MA
Billerica, MA
Bradford, MA
Bridgewater, MA
Burlington, MA
Burlington, MA
Chatham, MA
Chelmsford, MA
Clinton, MA
Clinton, MA
Clinton, MA
Danvers, MA
Dedham, MA
Dracut, MA
Everett, MA
Fall River, MA
Falmouth, MA
Fitchburg, MA
Fitchburg, MA
Fitchburg, MA
Foxborough, MA
Framingham, MA
Franklin, MA
Gardner, MA
Gardner, MA
Hanover, MA
Harwich, MA
Harwichport, MA
Hingham, MA
Hyannis, MA
Hyannis, MA
Hyde Park, MA
Leominster, MA
Lowell, MA
Lowell, MA
Lynn, MA
Lynn, MA
Marlborough, MA
Maynard, MA
Melrose, MA
Methuen, MA
Methuen, MA
Methuen, MA
Methuen, MA
Initial Cost
of Leasehold
or Acquisition
Investment to
Company (1)
607
600
625
725
800
175
369
536
1,350
734
301
390
400
650
190
600
1,250
275
715
587
386
178
400
226
450
270
343
519
247
390
142
427
400
0
550
1,008
241
225
383
353
651
222
499
571
361
375
850
400
550
735
600
650
380
490
300
Cost
Capitalized
Subsequent
to Initial
Investment
6
0
0
0
0
79
137
10
0
73
134
29
158
0
37
0
0
(8)
0
48
(117)
48
0
18
0
191
(104)
44
40
33
218
17
23
271
0
225
0
6
18
25
(339)
7
44
0
84
9
0
0
0
7
0
0
64
16
51
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Gross Amount at Which Carried
at Close of Period
Building and
Improvements
218
0
0
0
800
129
266
198
0
331
292
165
308
0
87
0
0
117
715
253
116
110
0
118
0
191
0
105
84
169
268
118
163
106
0
576
126
81
152
135
51
85
221
372
244
134
0
0
0
263
0
0
198
187
201
Total
613
600
625
725
800
254
506
546
1,350
807
436
419
558
650
227
600
1,250
267
715
635
269
226
400
244
450
460
239
563
287
423
361
443
423
271
550
1,233
241
231
401
378
312
230
543
571
445
384
850
400
550
742
600
650
444
506
351
Accumulated
Depreciation
141
0
0
0
197
84
110
87
0
238
16
115
269
0
87
0
0
116
90
178
0
46
0
118
0
139
0
105
54
91
203
118
82
55
0
301
8
81
76
133
0
41
143
26
244
134
0
0
0
170
0
0
150
125
201
Land
395
600
625
725
0
125
240
348
1,350
476
144
254
250
650
140
600
1,250
150
0
382
153
116
400
126
450
270
239
458
203
254
93
325
260
165
550
657
115
150
249
243
261
145
322
199
201
250
850
400
550
479
600
650
246
319
150
80
Date of
Initial
Leasehold or
Acquisition
Investment (1)
1985
2011
2011
2011
2011
1986
1991
1991
2011
1985
1985
1985
1986
2011
1987
2011
2011
1986
2012
1985
1985
1992
2011
1987
2011
1985
1985
1988
1991
1992
1992
1990
1991
1988
2011
1985
2013
1986
1991
1989
1985
1991
1985
2012
1985
1986
2011
2011
2011
1985
2011
2011
1985
1985
1986
Initial Cost
of Leasehold
or Acquisition
Investment to
Company (1)
522
482
691
394
663
245
405
260
294
650
550
400
123
200
574
1,300
579
600
275
1,073
450
400
232
276
476
775
714
1,200
429
900
450
358
1,012
312
490
450
312
123
275
1,300
600
508
350
400
300
550
500
498
386
276
168
343
231
276
547
Cost
Capitalized
Subsequent
to Initial
Investment
(203)
96
26
33
(343)
35
12
75
9
0
0
41
118
180
123
0
45
0
24
(434)
0
0
39
46
2
(493)
127
0
25
0
11
118
238
29
71
0
21
161
51
0
0
304
46
0
0
0
0
138
(96)
9
103
(68)
13
17
10
New Bedford, MA
New Bedford, MA
Newton, MA
North Andover, MA
North Attleboro,MA
North Grafton, MA
Northborough, MA
Orleans, MA
Oxford, MA
Peabody, MA
Peabody, MA
Peabody, MA
Pittsfield, MA
Quincy, MA
Randolph, MA
Revere, MA
Rockland, MA
Salem, MA
Salem, MA
Seekonk, MA
Shrewsbury, MA
Shrewsbury, MA
South Hadley, MA
South Yarmouth, MA
Sterling, MA
Stoughton, MA
Sutton, MA
Tewksbury, MA
Upton, MA
Wakefield, MA
Walpole, MA
Watertown, MA
Webster, MA
West Boylston, MA
West Roxbury, MA
Westborough, MA
Westborough, MA
Westfield, MA
Westford, MA
Wilmington, MA
Wilmington, MA
Woburn, MA
Woburn, MA
Worcester, MA
Worcester, MA
Worcester, MA
Worcester, MA
Worcester, MA
Worcester, MA
Worcester, MA
Worcester, MA
Worcester, MA
Worcester, MA
Worcester, MA
Worcester, MA
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Gross Amount at Which Carried
at Close of Period
Building and
Improvements
52
285
267
170
52
121
154
195
112
0
0
166
191
255
266
0
247
0
124
104
0
0
181
143
169
45
377
0
175
0
168
154
591
138
242
0
130
234
151
0
0
304
196
0
0
0
0
313
63
105
103
65
94
114
202
Total
320
578
717
426
320
280
417
335
303
650
550
441
241
380
696
1,300
624
600
299
639
450
400
271
322
479
282
841
1,200
453
900
461
475
1,250
341
561
450
333
284
326
1,300
600
811
396
400
300
550
500
635
290
285
271
274
244
293
557
Accumulated
Depreciation
0
228
180
120
0
72
73
98
53
0
0
166
191
108
179
0
174
0
124
0
0
0
181
87
74
0
146
0
89
0
111
109
302
75
138
0
68
176
129
0
0
195
196
0
0
0
0
190
0
50
51
0
47
58
92
Land
268
293
450
256
268
159
263
140
191
650
550
275
50
125
430
1,300
377
600
175
535
450
400
90
179
309
237
464
1,200
279
900
293
321
659
203
319
450
203
50
175
1,300
600
508
200
400
300
550
500
322
226
179
168
210
150
179
356
81
Date of
Initial
Leasehold or
Acquisition
Investment (1)
1985
1985
1985
1985
1985
1991
1993
1986
1993
2011
2011
1986
1982
1986
1985
2011
1985
2011
1986
1985
2011
2011
1982
1991
1991
1985
1993
2011
1991
2011
1985
1985
1985
1991
1985
2011
1991
1982
1986
2011
2011
1985
1986
2011
2011
2011
2011
1985
1985
1992
1991
1991
1991
1991
1991
Initial Cost
of Leasehold
or Acquisition
Investment to
Company (1)
979
285
271
300
692
429
2,259
802
1,130
731
525
1,050
571
1,084
628
651
536
445
479
388
895
147
1,039
422
1,153
491
594
1,358
457
753
662
822
2,523
1,415
1,530
1,267
1,210
696
1,256
788
582
468
377
673
331
845
449
618
342
180
181
449
395
350
1,232
Cost
Capitalized
Subsequent
to Initial
Investment
8
44
16
25
0
163
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
109
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(114)
8
90
50
88
0
0
83
0
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Worcester, MA
Worcester, MA
Worcester, MA
Yarmouthport, MA
Accokeek, MD
Baltimore, MD
Baltimore, MD
Baltimore, MD
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
Ellicott City, MD
Emmitsburg, MD
Forestville, MD
Fort Washington, MD
Greenbelt, MD
Hyattsville, MD
Hyattsville, MD
Landover Hills, MD
Landover Hills, MD
Landover, MD
Landover, 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
Augusta, ME
Biddeford, ME
Lewiston, ME
Lewiston, ME
South Portland, ME
Kernersville, NC
Madison, NC
New Bern, NC
Belfield, ND
Date of
Initial
Leasehold or
Acquisition
Investment (1)
1991
1991
1991
1986
2010
1985
2007
2007
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2007
1986
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
1991
1985
1985
1986
1986
2007
2007
2007
2007
Accumulated
Depreciation
154
87
57
175
0
236
484
271
0
0
0
0
0
0
0
0
0
0
0
0
318
127
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
13
391
166
137
156
70
128
84
499
Gross Amount at Which Carried
at Close of Period
Building and
Improvements
350
144
111
175
0
283
1,537
802
0
0
0
0
0
0
0
0
0
0
0
0
895
154
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
133
391
209
137
158
111
350
243
850
Total
987
329
288
325
692
592
2,259
802
1,130
731
525
1,050
571
1,084
628
651
536
445
479
388
895
256
1,039
422
1,153
491
594
1,358
457
753
662
822
2,523
1,415
1,530
1,267
1,210
696
1,256
788
582
468
377
673
331
845
335
626
431
231
269
449
395
433
1,232
Land
636
185
176
150
692
309
722
0
1,130
731
525
1,050
571
1,084
628
651
536
445
479
388
0
102
1,039
422
1,153
491
594
1,358
457
753
662
822
2,523
1,415
1,530
1,267
1,210
696
1,256
788
582
468
377
673
331
845
202
235
222
94
111
338
46
190
382
82
Allenstown, NH
Bedford, NH
Candia, NH
Concord, NH
Concord, NH
Derry, NH
Derry, NH
Dover, NH
Dover, NH
Dover, NH
Epping, NH
Epsom, NH
Exeter, NH
Goffstown, NH
Hooksett, NH
Hooksett, NH
Kingston, NH
Londonderry, NH
Londonderry, NH
Manchester, NH
Milford, NH
Nashua, NH
Nashua, NH
Nashua, NH
Nashua, NH
Nashua, NH
Nashua, NH
Northwood, NH
Plaistow, NH
Portsmouth, NH
Portsmouth, NH
Raymond, NH
Rochester, NH
Rochester, NH
Rochester, NH
Rochester, NH
Salem, NH
Salem, NH
Somersworth, NH
Basking Ridge, NJ
Belleville, NJ
Belleville, NJ
Belmar, NJ
Bergenfield, NJ
Bloomfield, NJ
Brick, NJ
Cherry Hill, NJ
Cherry Hill, NJ
Colonia, NJ
Cranbury, NJ
Deptford, NJ
Dover, NJ
Eatontown, NJ
Elizabeth, NJ
Flemington, NJ
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Initial Cost
of Leasehold
or Acquisition
Investment to
Company (1)
1,787
2,301
130
675
900
950
418
1,200
650
300
170
220
113
1,737
1,562
336
1,500
703
1,100
550
190
197
825
750
1,750
500
550
500
300
225
525
550
939
1,400
1,600
700
743
450
211
362
398
215
566
382
442
1,508
358
272
720
607
281
577
118
406
547
Cost
Capitalized
Subsequent
to Initial
Investment
0
0
206
0
0
0
15
0
0
0
77
44
274
0
0
0
0
30
0
0
42
29
0
0
0
0
0
0
98
9
0
0
12
0
0
0
19
47
15
66
(84)
46
89
29
69
0
83
0
(263)
(101)
25
(160)
144
161
17
Gross Amount at Which Carried
at Close of Period
Building and
Improvements
1,320
1,030
256
0
0
0
275
0
0
0
127
109
322
1,040
738
336
0
275
0
0
117
71
0
0
0
0
0
0
154
109
0
0
351
0
0
0
278
147
68
228
55
112
245
111
223
508
208
71
280
217
123
106
174
340
218
Total
1,787
2,301
336
675
900
950
433
1,200
650
300
247
264
387
1,737
1,562
336
1,500
733
1,100
550
232
227
825
750
1,750
500
550
500
398
234
525
550
951
1,400
1,600
700
762
497
226
428
314
261
656
411
511
1,508
441
272
457
506
306
418
262
566
564
Accumulated
Depreciation
462
397
239
0
0
0
275
0
0
0
127
107
147
131
447
90
0
186
0
0
117
71
0
0
0
0
0
0
154
109
0
0
228
0
0
0
184
147
68
147
0
105
164
108
155
338
108
3
251
39
87
9
46
55
145
Land
467
1,271
80
675
900
950
158
1,200
650
300
120
155
65
697
824
0
1,500
458
1,100
550
115
156
825
750
1,750
500
550
500
245
125
525
550
600
1,400
1,600
700
484
350
158
200
259
149
411
300
288
1,000
233
202
177
289
183
311
87
227
346
83
Date of
Initial
Leasehold or
Acquisition
Investment (1)
2007
2007
1986
2011
2011
2011
1987
2011
2011
2011
1986
1986
1986
2012
2007
2011
2011
1985
2011
2011
1986
1986
2011
2011
2011
2011
2011
2011
1987
1986
2011
2011
1985
2011
2011
2011
1985
1986
1986
1986
1985
1986
1985
1990
1985
2000
1985
2013
1985
1985
1985
1985
1985
1985
1985
Fort Lee, NJ
Franklin Twp., NJ
Freehold, NJ
Green Village, NJ
Hasbrouck Heights, NJ
Hawthorne, NJ
Hillsborough, NJ
Irvington, NJ
Jersey City, NJ
Lake Hopatcong, NJ
Livingston, NJ
Long Branch, NJ
Mcafee, NJ
Midland Park, NJ
Neptune City, NJ
Neptune, NJ
North Bergen, NJ
North Lindenhurst, NY
North Plainfield, NJ
Nutley, NJ
Ocean City, NJ
Paramus, NJ
Parlin, NJ
Paterson, NJ
Pine Hill, NJ
Plainfield, NJ
Princeton, NJ
Ridgewood, NJ
Sewell, NJ
Somerville, NJ
Spring Lake, NJ
Trenton, NJ
Trenton, NJ
Trenton, NJ
Trenton, NJ
Trenton, NJ
Union, NJ
Wall Township, NJ
Washington
Township, NJ
Watchung, NJ
Wayne, NJ
Wayne, NJ
West Orange, NJ
Naples, NY
Perry, NY
Prattsburg, NY
Rochester, NY
Albany, NY
Alfred Station, NY
Amherst, NY
Astoria, NY
Avoca, NY
Batavia, NY
Bay Shore, NY
Bay Shore, NY
Initial Cost
of Leasehold
or Acquisition
Investment to
Company (1)
1,246
683
494
278
640
245
237
410
402
1,305
872
514
671
201
270
456
630
295
227
434
844
382
418
620
191
470
703
703
552
253
346
374
466
685
1,303
338
437
336
912
450
490
474
800
1,257
1,444
553
853
405
714
223
1,684
936
684
48
156
Cost
Capitalized
Subsequent
to Initial
Investment
75
221
96
51
324
60
167
55
(6)
0
37
30
12
178
0
(164)
120
67
377
82
(295)
35
(139)
17
65
(85)
(184)
100
54
35
88
26
14
45
0
76
(91)
56
25
(186)
121
103
336
0
0
0
0
144
0
0
0
(1)
0
275
123
Gross Amount at Which Carried
at Close of Period
Building and
Improvements
510
459
188
201
548
146
304
198
272
505
341
209
246
229
94
57
340
170
430
233
181
168
76
233
189
79
326
345
250
87
209
157
177
285
157
194
106
271
343
38
323
269
615
430
400
250
550
287
300
50
579
300
320
323
194
Total
1,321
904
591
329
964
305
404
465
395
1,305
909
544
683
379
270
291
750
362
605
516
548
417
279
636
256
385
519
803
606
288
434
400
480
730
1,303
414
345
392
937
264
611
577
1,136
1,257
1,444
553
853
549
714
223
1,684
935
684
323
279
Accumulated
Depreciation
319
218
114
186
227
65
126
146
37
376
224
139
161
92
60
7
260
94
308
147
25
106
7
155
115
0
0
202
148
71
124
97
118
188
10
146
7
271
224
3
0
190
245
135
125
78
172
236
94
37
22
94
100
323
194
Land
811
445
403
128
416
160
100
267
124
800
568
335
437
150
176
234
410
192
175
283
367
249
203
403
67
306
193
458
356
201
225
243
304
445
1,146
220
239
121
594
226
288
309
521
827
1,044
303
303
262
414
173
1,105
635
364
0
86
84
Date of
Initial
Leasehold or
Acquisition
Investment (1)
1985
1985
1978
1985
1985
1985
1985
1985
1985
2000
1985
1985
1985
1989
1985
1985
1985
1998
1978
1985
1985
1985
1985
1985
1986
1985
1985
1985
1985
1987
1985
1985
1985
1985
2012
1985
1985
1986
1985
1985
1985
1985
1985
2006
2006
2006
2006
1985
2006
2000
2013
2006
2006
1969
1981
Bayside, NY
Bayside, NY
Bellaire, NY
Bethpage, NY
Brentwood, NY
Brewster, NY
Brewster, NY
Briarcliff Manor, NY
Bronx, NY
Bronx, NY
Bronx, NY
Bronx, NY
Bronx, NY
Bronx, NY
Bronx, NY
Bronx, NY
Bronx, NY
Bronx, NY
Bronx, NY
Bronx, NY
Bronx, NY
Bronxville, NY
Brooklyn, NY
Brooklyn, NY
Brooklyn, NY
Brooklyn, NY
Brooklyn, NY
Brooklyn, NY
Brooklyn, NY
Brooklyn, NY
Brooklyn, NY
Buffalo, NY
Byron, NY
Cairo, NY
Castile, NY
Central Islip, NY
Central Islip, NY
Chatham, NY
Chester, NY
Churchville, NY
Colonie, NY
Commack, NY
Corona, NY
Corona, NY
Cortland Manor, NY
Dobbs Ferry, NY
Dobbs Ferry, NY
East Hampton, NY
East Hills, NY
East Islip, NY
East Pembroke, NY
Eastchester, NY
Eastchester, NY
Ellenville, NY
Elmont, NY
*
*
*
*
*
*
Initial Cost
of Leasehold
or Acquisition
Investment to
Company (1)
245
470
330
211
253
789
303
652
141
90
78
89
390
104
423
1,049
1,910
953
884
2,407
877
1,232
282
148
75
116
277
627
477
422
237
312
969
192
307
103
572
349
1,158
1,011
245
321
114
2,543
1,872
671
1,345
659
242
89
787
534
1,724
233
389
Cost
Capitalized
Subsequent
to Initial
Investment
225
81
38
38
49
0
47
454
166
145
528
194
54
382
0
0
0
0
0
0
0
0
206
215
272
253
25
56
74
88
89
0
0
181
0
151
17
171
0
0
164
26
322
0
0
73
0
39
78
377
0
(154)
0
92
92
Gross Amount at Which Carried
at Close of Period
Building and
Improvements
310
245
152
123
177
0
207
605
221
195
540
219
193
396
0
564
561
0
0
696
0
0
312
259
302
295
133
275
245
235
172
162
300
326
175
193
232
295
0
410
318
138
323
640
0
309
0
271
78
379
250
91
0
174
250
Total
470
551
367
249
302
789
350
1,106
308
235
606
283
444
486
423
1,049
1,910
953
884
2,407
877
1,232
488
363
347
370
302
683
551
510
326
312
969
373
307
255
589
520
1,158
1,011
409
347
436
2,543
1,872
744
1,345
698
319
466
787
380
1,724
325
481
Land
160
306
215
126
125
789
143
502
87
40
66
63
251
90
423
485
1,349
953
884
1,712
877
1,232
176
104
45
75
168
408
306
275
154
151
669
47
132
61
358
225
1,158
601
91
209
113
1,903
1,872
434
1,345
428
242
87
537
289
1,724
152
231
85
Date of
Initial
Leasehold or
Acquisition
Investment (1)
1985
1985
1985
1978
1968
2011
1988
1976
1972
1976
1972
1976
1985
1985
2013
2013
2013
2013
2013
2013
2013
2011
1967
1972
1978
1980
1978
1985
1985
1985
1985
2000
2006
1988
2006
1978
1998
1985
2011
2006
1986
1985
1965
2013
2011
1985
2011
1985
1986
1972
2006
1985
2011
1985
1978
Accumulated
Depreciation
255
183
111
123
177
0
194
299
200
192
461
219
141
373
0
22
23
0
0
25
0
0
309
159
276
272
133
192
182
179
76
103
94
299
55
193
134
250
0
128
0
97
292
24
0
224
0
187
29
128
78
11
0
144
236
Initial Cost
of Leasehold
or Acquisition
Investment to
Company (1)
0
1,453
1,793
617
516
1,947
2,479
1,936
1,273
153
393
362
1,508
234
462
124
369
344
500
1,018
294
100
1,626
0
2,084
1,163
990
0
1,084
129
87
1,028
503
546
107
2,717
190
1,429
333
313
151
751
1,281
719
175
1,448
1,907
985
2,316
971
189
1,887
1,084
126
527
Cost
Capitalized
Subsequent
to Initial
Investment
230
0
0
48
0
0
0
0
0
99
0
14
0
192
45
128
34
(103)
24
0
0
141
0
235
0
0
0
380
0
190
157
0
42
86
194
0
123
0
29
110
82
33
0
0
147
0
0
0
0
0
44
0
0
175
0
Elmsford, NY
Elmsford, NY
Fishkill, NY
Floral Park, NY
Flushing, NY
Flushing, NY
Flushing, NY
Flushing, NY
Forrest Hill, NY
Franklin Square, NY
Friendship, NY
Garden City, NY
Garnerville, NY
Glen Head, NY
Glen Head, NY
Glendale, NY
Glendale, NY
Glenville, NY
Great Neck, NY
Greigsville, NY
Hamburg, NY
Hancock, NY
Hartsdale, NY
Hawthorne, NY
Hawthorne, NY
Hopewell Junction, NY
Hyde Park, NY
Jericho, NY
Katonah, NY
Lagrangeville, NY
Lake Ronkonkoma, NY
Lakeville, NY
Levittown, NY
Levittown, NY
Long Island City, NY
Long Island City, NY
Malta, NY
Mamaroneck, NY
Massapequa, NY
Mastic, NY
Menands, NY
Middletown, NY
Middletown, NY
Middletown, NY
Millerton, NY
Millwood, NY
Mount Kisco, NY
Mount Vernon, NY
Nanuet, NY
New Paltz, NY
New Rochelle, NY
New Rochelle, NY
New Windsor, NY
New York, NY
Newburgh, NY
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Gross Amount at Which Carried
at Close of Period
Building and
Improvements
230
0
0
309
196
542
677
523
0
115
350
140
0
324
207
166
168
52
74
815
130
197
0
235
0
0
0
380
0
255
193
825
218
277
227
1,534
248
0
145
219
182
295
0
0
222
0
0
0
0
0
129
0
0
223
0
Total
230
1,453
1,793
665
516
1,947
2,479
1,936
1,273
252
393
376
1,508
427
508
252
403
241
524
1,018
294
241
1,626
235
2,084
1,163
990
380
1,084
319
244
1,028
545
633
300
2,717
313
1,429
362
424
232
784
1,281
719
322
1,448
1,907
985
2,316
971
233
1,887
1,084
301
527
Accumulated
Depreciation
127
0
0
171
121
19
24
20
0
93
110
94
0
324
148
166
122
0
74
294
75
0
0
4
0
0
0
267
0
169
193
300
154
174
227
49
221
0
103
180
160
199
0
0
199
0
0
0
0
0
123
0
0
216
0
Land
0
1,453
1,793
356
320
1,405
1,801
1,413
1,273
137
43
236
1,508
103
301
86
236
189
450
203
164
44
1,626
0
2,084
1,163
990
0
1,084
64
51
203
327
356
73
1,183
65
1,429
217
204
50
489
1,281
719
100
1,448
1,907
985
2,316
971
104
1,887
1,084
78
527
86
Date of
Initial
Leasehold or
Acquisition
Investment (1)
1971
2011
2011
1998
1998
2013
2013
2013
2013
1978
2006
1985
2011
1982
1985
1976
1985
1985
1985
2008
2000
1986
2011
1986
2011
2011
2011
1998
2011
1972
1978
2008
1985
1985
1976
2013
1986
2011
1985
1985
1988
1985
2011
2011
1986
2011
2011
2011
2011
2011
1982
2011
2011
1972
2011
Initial Cost
of Leasehold
or Acquisition
Investment to
Company (1)
1,192
431
425
92
510
241
141
231
2,207
1,035
399
1,015
941
657
387
33
591
1,020
1,340
1,306
1,355
1,232
215
34
2,784
204
723
559
595
350
1,605
76
872
704
1,314
345
257
1,301
225
1,061
281
749
330
174
0
301
358
350
390
956
1,389
1,650
63
641
114
Cost
Capitalized
Subsequent
to Initial
Investment
0
148
35
130
150
33
199
56
0
0
154
0
0
(422)
61
208
0
0
0
0
0
0
82
275
0
195
0
0
0
66
0
208
0
35
0
0
133
0
38
253
400
0
66
92
244
77
38
44
89
0
0
0
171
0
144
Newburgh, NY
Newburgh, NY
Niskayuna, NY
North Babylon, NY
North Merrick, NY
Northport, NY
Ossining, NY
Ossining, NY
Peekskill, NY
Pelham, NY
Pleasant Valley, NY
Port Chester, NY
Port Chester, NY
Port Ewen, NY
Port Jefferson, NY
Poughkeepsie, NY
Poughkeepsie, NY
Poughkeepsie, NY
Poughkeepsie, NY
Poughkeepsie, NY
Poughkeepsie, NY
Poughkeepsie, NY
Queensbury, NY
Rego Park, NY
Rego Park, NY
Rhinebeck, NY
Riverhead, NY
Rochester, NY
Rochester, NY
Rockville Centre, NY
Rokaway Park, NY
Ronkonkoma, NY
Rye, NY
Sag Harbor, NY
Savona, NY
Sayville, NY
Scarsdale, NY
Scarsdale, NY
Schenectady, NY
Shrub Oak, NY
Sleepy Hollow, NY
Spring Valley, NY
St. Albans, NY
Staten Island, NY
Staten Island, NY
Staten Island, NY
Staten Island, NY
Staten Island, NY
Staten Island, NY
Tarrytown, NY
Thornwood, NY
Tuchahoe, NY
Valley Cottage, NY
Wantagh, NY
Wappingers Falls, NY
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Gross Amount at Which Carried
at Close of Period
Building and
Improvements
0
429
185
162
329
117
243
170
0
0
313
0
941
146
203
205
0
0
0
0
0
0
201
286
679
297
292
400
290
215
0
239
0
281
350
45
267
0
128
623
551
0
181
153
244
182
166
166
225
0
1,389
0
170
270
146
Total
1,192
579
460
221
661
274
340
287
2,207
1,035
553
1,015
941
235
448
241
591
1,020
1,340
1,306
1,355
1,232
297
309
2,784
399
723
559
595
417
1,605
285
872
739
1,314
345
390
1,301
263
1,313
681
749
396
266
244
378
396
393
479
956
1,389
1,650
234
641
258
Accumulated
Depreciation
0
305
185
150
219
83
136
31
0
0
287
0
166
0
152
204
0
0
0
0
0
0
40
133
25
48
180
125
78
176
0
239
0
192
110
27
0
0
0
343
261
0
139
153
229
143
118
122
175
0
216
0
99
167
146
Land
1,192
150
275
59
332
157
98
117
2,207
1,035
240
1,015
0
89
246
36
591
1,020
1,340
1,306
1,355
1,232
96
23
2,104
102
432
159
305
201
1,605
46
872
458
964
300
123
1,301
135
691
130
749
215
113
0
196
230
228
254
956
0
1,650
64
370
112
87
Date of
Initial
Leasehold or
Acquisition
Investment (1)
2011
1989
1986
1978
1985
1985
1982
1985
2011
2011
1986
2011
2011
2007
1985
1971
2011
2011
2011
2011
2011
2011
1986
1974
2013
2007
1998
2006
2008
1985
2013
1978
2011
1985
2006
1998
1985
2011
1986
1985
1969
2011
1985
1976
1981
1985
1985
1985
1985
2011
2011
2011
1965
1998
1971
Initial Cost
of Leasehold
or Acquisition
Investment to
Company (1)
452
1,488
990
1,049
247
936
203
0
259
1,458
415
0
291
1,020
203
1,907
2,365
1,202
921
1,950
2,580
281
434
358
1,500
431
221
213
428
261
275
510
175
219
399
289
402
265
422
209
642
309
262
326
317
378
313
1,375
1,045
241
175
237
281
289
406
Cost
Capitalized
Subsequent
to Initial
Investment
0
0
0
0
0
0
383
509
101
0
(110)
579
177
100
18
0
0
0
0
0
0
36
17
30
0
(172)
50
25
(109)
83
14
107
151
76
212
(54)
22
24
36
53
18
4
16
120
11
39
13
0
(226)
28
128
25
27
49
133
*
*
*
*
*
*
Wappingers Falls, NY
Wappingers Falls, NY
Warsaw, NY
Warwick, NY
Wellsville, NY
West Nyack, NY
West Taghkanic, NY
White Plains, NY
White Plains, NY
White Plains, NY
Wyandanch, NY
Yaphank, NY
Yonkers, NY
Yonkers, NY
Yonkers, NY
Yonkers, NY
Yorktown Heights, NY
Crestline, OH
Mansfield, OH
Mansfield, OH
Monroeville, OH
Aldan, PA
Aldan, PA
Allentown, PA
Allison Park, PA
Bristol, PA
Bryn Mawr, PA
Clifton Hgts, PA
Clifton Hgts., PA
Conshohocken, PA
Elkins Park, PA
Feasterville, PA
Furlong, PA
Hamburg, PA
Harrisburg, PA
Hatboro, PA
Havertown, PA
Havertown, PA
Huntingdon
Valley, PA
Lancaster, PA
Lancaster, PA
Lancaster, PA
Laureldale, PA
Media, PA
Mohnton, PA
Morrisville, PA
New Holland, PA
New Kensington, PA
New Oxford, PA
Norristown, PA
Norristown, PA
Philadelphia, PA
Philadelphia, PA
Philadelphia, PA
Philadelphia, PA
Gross Amount at Which Carried
at Close of Period
Building and
Improvements
452
0
300
0
247
0
465
206
195
0
44
204
252
456
77
0
0
917
590
1,250
2,095
134
168
155
650
46
127
99
102
174
89
285
151
165
412
59
170
116
184
184
360
209
191
255
262
171
182
700
800
112
128
108
125
150
275
Total
452
1,488
990
1,049
247
936
586
509
360
1,458
306
579
469
1,121
221
1,907
2,365
1,202
921
1,950
2,580
317
451
388
1,500
259
271
238
319
344
289
617
326
295
611
235
424
289
458
262
660
313
278
446
328
417
326
1,375
818
269
303
262
308
338
539
Accumulated
Depreciation
121
0
94
0
77
0
203
133
130
0
4
7
235
327
77
0
0
239
144
290
453
98
113
109
192
0
96
72
13
137
89
220
117
165
289
0
121
83
154
159
360
209
191
138
262
116
182
114
747
75
87
78
90
113
223
Land
0
1,488
690
1,049
0
936
122
303
165
1,458
262
375
216
665
144
1,907
2,365
285
332
700
485
183
283
233
850
213
144
139
217
170
200
332
175
130
199
176
254
173
275
78
300
104
87
191
66
246
143
675
19
157
175
154
183
188
264
88
Date of
Initial
Leasehold or
Acquisition
Investment (1)
2011
2011
2006
2011
2006
2011
1986
1972
1985
2011
1998
1993
1972
1985
1986
2011
2011
2008
2008
2009
2009
1985
1985
1985
2010
1985
1985
1985
1985
1985
1990
1985
1985
1989
1989
1985
1985
1985
1985
1989
1989
1989
1989
1985
1989
1985
1989
2010
1996
1985
1985
1985
1985
1985
1985
Philadelphia, PA
Philadelphia, PA
Philadelphia, PA
Philadelphia, PA
Philadelphia, PA
Philadelphia, PA
Philadelphia, PA
Phoenixville, PA
Pottstown, PA
Pottsville, PA
Pottsville, PA
Reading, PA
Reading, PA
Souderton, PA
Trappe, PA
Trevose, PA
Ashaway, RI
Barrington, RI
Cranston, RI
East Providence, RI
East Providence, RI
N. Providence, RI
North Kingstown, RI
Providence, RI
Wakefield, RI
Warwick, RI
Warwick, RI
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
Alexandria, VA
Alexandria, VA
Alexandria, VA
Alexandria, VA
Alexandria, VA
Alexandria, VA
Alexandria, VA
Alexandria, VA
Annandale, VA
Arlington, VA
Arlington, VA
Arlington, VA
Arlington, VA
Initial Cost
of Leasehold
or Acquisition
Investment to
Company (1)
418
370
390
342
370
303
1,252
384
430
162
451
750
183
382
378
215
619
490
466
2,297
487
542
212
231
356
377
435
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
649
1,327
735
1,582
656
1,388
1,757
712
1,718
2,062
2,013
1,083
1,464
Cost
Capitalized
Subsequent
to Initial
Investment
58
95
27
40
136
50
0
(39)
49
68
1
49
127
38
44
20
0
85
(203)
(1,503)
(208)
62
115
14
(106)
37
25
0
0
0
0
0
0
0
0
0
0
0
0
(10)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Gross Amount at Which Carried
at Close of Period
Building and
Improvements
203
224
163
159
265
172
438
140
199
187
304
799
205
171
175
85
217
256
47
169
20
251
237
95
107
207
193
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
0
0
0
432
247
368
444
0
0
459
498
0
379
Total
476
465
417
381
506
353
1,252
345
479
231
452
799
309
420
421
235
619
575
263
794
278
604
327
246
250
413
459
2,368
462
3,510
353
2,115
2,052
1,689
2,507
494
429
314
1,954
2,396
4,396
3,884
649
1,327
735
1,582
656
1,388
1,757
712
1,718
2,062
2,013
1,083
1,464
Accumulated
Depreciation
138
171
114
116
218
172
81
11
144
187
304
798
185
122
127
82
79
193
0
0
0
182
165
49
12
207
141
504
82
600
113
437
744
430
497
134
143
69
515
400
1,158
1,011
0
0
0
16
10
15
18
0
0
17
19
0
15
Land
272
241
254
222
241
182
814
205
280
43
148
0
104
249
246
150
402
319
217
625
258
353
89
150
143
206
267
738
274
1,595
113
866
588
224
996
110
72
126
251
1,205
337
894
649
1,327
735
1,150
409
1,020
1,313
712
1,718
1,603
1,516
1,083
1,085
89
Date of
Initial
Leasehold or
Acquisition
Investment (1)
1985
1985
1985
1985
1985
1985
2009
1985
1985
1990
1990
1989
1989
1985
1985
1987
2004
1985
1985
1985
1985
1985
1985
1991
1985
1989
1985
2007
2007
2007
2007
2007
2007
2007
2007
2008
2007
2007
2007
2007
2007
2007
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
Ashland, VA
Chesapeake, VA
Chesapeake, VA
Fairfax, VA
Fairfax, VA
Fairfax, VA
Fairfax, 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
Norfolk, VA
Petersburg, VA
Portsmouth, VA
Richmond, VA
Ruther Glen, VA
Sandston, VA
Spotsylvania, VA
Springfield, VA
Miscellaneous
Initial Cost
of Leasehold
or Acquisition
Investment to
Company (1)
840
780
1,004
3,348
4,454
1,825
2,077
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
535
1,441
562
1,132
466
722
1,290
4,257
28,220
Cost
Capitalized
Subsequent
to Initial
Investment
0
(185)
7
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(114)
6
0
33
0
0
0
0
0
1,842
Gross Amount at Which Carried
at Close of Period
Land
840
398
385
2,351
3,370
1,190
1,365
622
469
996
798
2,828
412
322
294
1,068
505
273
876
324
1,157
223
1,612
311
816
222
547
31
102
490
2,969
11,254
Building and
Improvements
0
196
626
997
1,084
635
713
605
810
720
491
795
625
755
0
620
620
630
600
633
520
820
755
230
625
374
585
435
620
800
1,288
18,808
Total
840
594
1,011
3,348
4,454
1,825
2,077
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
2,367
541
1,441
595
1,132
466
722
1,290
4,257
30,062
$ 541,753
$ 28,522
$ 358,530
$ 211,745 $570,275
Date of
Initial
Leasehold or
Acquisition
Investment (1)
2005
1990
1990
2013
2013
2013
2013
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
1990
2005
1990
2005
2005
2005
2005
2013
various
Accumulated
Depreciation
0
16
626
35
39
24
23
212
284
252
187
278
219
264
0
217
217
221
210
253
182
287
264
230
219
358
205
152
217
280
45
13,315
$ 103,452
(1)
(2)
(3)
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 includes investments made in previously leased properties prior to their acquisition.
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. Leasehold interests are
amortized over the remaining term of the underlying lease.
The aggregate cost for federal income tax purposes was approximately $568,146,000 at December 31, 2013.
90
GETTY REALTY CORP. and SUBSIDIARIES
SCHEDULE IV—MORTGAGE LOANS ON REAL ESTATE
As of December 31, 2013
(in thousands)
Description
Location(s)
Interest
Rate
Final
Maturity
Date
Periodic
Payment
Terms (a)
Prior
Liens
Face Value
at
Inception
Amount of
Principal
Unpaid at
Close of Period
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
Borrower V
Borrower W
Borrower X
Borrower Y
Borrower Z
Borrower AA
Borrower AB
Borrower AC
Borrower AD
Borrower AE
Borrower AF
Borrower AG
Borrower AH
Ipswich, MA
Seller financing S. Weymouth, MA
Seller financing Horsham, PA
Seller financing Green Island, NY
Seller financing Uniondale, NY
Seller financing Concord, NH
Seller financing
Irvington, NJ
Seller financing Kernersville/Lexington, NC
Seller financing Wantagh, NY
Seller financing Fullerton Hts, MD
Seller financing
Seller financing Springfield, MA
Seller financing E. Patchogue, NY
Seller financing Manchester, NH
Seller financing Union City, NJ
Seller financing Worcester, MA
Seller financing Dover, PA
Seller financing Bronx, NY
Seller financing Seaford, NY
Seller financing Spotswood, NJ
Seller financing Clifton, NJ
Seller financing Miller Place, NY
Seller financing Freeport, NY
Seller financing Pleasant Valley, NY
Seller financing Fairhaven, MA
Seller financing Baldwin, NY
Seller financing Leicester, MA
Seller financing Worcester, MA
Seller financing Valley Cottage, NY
Seller financing Penndel, PA
Seller financing Ephrata, PA
Seller financing Piscataway, NJ
Seller financing Reiffton, PA
Seller financing Westfield, MA
Seller financing Kenmore, NY
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% 12/2019
9.0% 1/2020
9.0% 1/2020
9.0% 1/2020
9.0% 7/2020
9.0% 5/2020
9.0% 10/2020
9.0% 10/2020
9.0% 10/2020
9.0% 11/2020
9.0% 11/2020
9.0% 11/2020
9.0% 11/2020
9.0% 11/2020
9.0% 12/2020
9.0% 12/2020
9.0% 12/2020
9.0% 12/2020
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 —
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 —
$
$
240
237
298
180
210
300
568
455
225
200
131
200
225
800
325
210
240
488
306
284
225
206
230
458
300
268
280
431
118
265
121
108
165
200
228
179
179
33
186
216
455
440
178
195
128
194
220
789
318
206
214
478
300
279
223
204
229
455
299
267
277
430
117
264
121
108
165
200
91
Type of
Loan/Borrower
Borrower AI
Borrower AJ
Borrower AK
Borrower AL
Borrower AM
Borrower AN
Borrower AO
Borrower AP
Borrower AQ
Borrower AR
Borrower AS
Borrower AT
Borrower AU
Borrower AV
Borrower AW
Borrower AX
Borrower AY
Borrower AZ
Borrower BA
Borrower BB
Borrower BC
Borrower BD
Description
Location(s)
Seller financing Wilmington, DE
Seller financing Gettysburg, PA
Seller financing Marlborough, NY
Seller financing Kenmore, NY
Seller financing West Haverstraw, NY
Seller financing Weymouth, MA
Seller financing Oakhurst, NJ
Seller financing Stafford Springs, CT
Seller financing Latham, NY
Seller financing Magnolia, NJ
Seller financing Colonia, NJ
Seller financing Jersey City, NJ
Seller financing Catskill, NY
Seller financing Elmont, NY
Seller financing Leola, PA
Seller financing Littz/Rothsville, PA
Seller financing Bayonne, NJ
Seller financing Ridge, NY
Seller financing Lansdale, PA
Seller financing Ballston, NY
Seller financing Sharon Hill, PA
Seller financing Kenhorst, PA
Final
Maturity
Date
Interest
Rate
9.0% 12/2020
9.0% 12/2020
9.0% 12/2020
9.0%
1/2021
9.0% 12/2020
9.0%
1/2021
9.0%
2/2021
9.0%
2/2021
9.0%
2/2021
9.0%
5/2020
9.0%
6/2020
9.0%
7/2018
9.0%
8/2018
9.0%
2/2020
9.0%
3/2020
9.0%
3/2020
9.0%
3/2020
9.0%
3/2020
9.0%
4/2020
9.0%
5/2020
9.0%
5/2020
9.0%
5/2020
Periodic
Payment
Terms (a)
Prior
Liens
Face Value
at
Inception
Amount of
Principal
Unpaid at
Close of Period
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
P & I
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
84
69
214
74
352
390
250
232
169
53
320
500
200
450
220
180
308
413
207
225
230
200
84
69
214
74
351
390
250
232
169
52
318
496
198
449
217
178
303
402
205
223
227
198
Note receivable
Total (c)
Purchase/leaseb
ack
Various-NY
9.5%
1/2021
I(b)
14,837
14,073
18,400
14,720
$ 33,237
$
28,793
(a) P & I = Principal and interest paid monthly.
(b)
(c) The aggregate cost for federal income tax purposes approximates the amount of principal unpaid.
I = Interest only paid monthly with principal deferred.
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. As of
December 31, 2013, we had one loan aggregating $449,000 which was in default for nonpayment of principal and interest. We
assessed this loan and determined that the estimated fair value of the underlying collateral exceeded the carrying value as of December
92
31, 2013. 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:
New mortgage loans
Deductions:
Loan repayments
Collection of principal
Balance at December 31,
2013
2012
2011
$ 22,333
$ 18,638
$ 1,274
8,714
4,568
19,468
(480)
(1,774)
$ 28,793
(300)
(573)
$ 22,333
(107)
(1,997)
$ 18,638
93
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:
By:
/S/ CHRISTOPHER J. CONSTANT
Christopher J. Constant
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
March 17, 2014
/S/ EUGENE SHNAYDERMAN
Eugene Shnayderman
Chief Accounting Officer and Controller
(Principal Accounting Officer)
March 17, 2014
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:
/S/ DAVID B. DRISCOLL
David B. Driscoll
President, Chief Executive Officer and Director
(Principal Executive Officer)
March 17, 2014
/S/ LEO LIEBOWITZ
Leo Liebowitz
Director and Chairman of the Board
March 17, 2014
/S/ MILTON COOPER
Milton Cooper
Director
March 17, 2014
By:
By:
By:
/S/ HOWARD SAFENOWITZ
Howard Safenowitz
Director
March 17, 2014
/S/ PHILIP E. COVIELLO
Philip E. Coviello
Director
March 17, 2014
/S/ RICHARD E. MONTAG
Richard E. Montag
Director
March 17, 2014
94
EXHIBIT INDEX
GETTY REALTY CORP.
Annual Report on Form 10-K
for the year ended December 31, 2013
EXHIBIT NO.
DESCRIPTION
3.1
3.2
3.3
3.4
3.5
4.1
Articles of Incorporation of Getty Realty Holding Corp.
(“Holdings”), now known as Getty Realty Corp., filed
December 23, 1997.
Articles Supplementary to Articles of Incorporation of
Holdings, filed January 21, 1998.
By-Laws of Getty Realty Corp.
Articles of Amendment of Holdings, changing its name to
Getty Realty Corp., filed January 30, 1998.
Amendment to Articles of Incorporation of Holdings, filed
August 1, 2001.
Dividend Reinvestment/Stock Purchase Plan.
10.1*
Retirement and Profit Sharing Plan (restated as of December 1,
2012).
10.2*
1998 Stock Option Plan, effective as of January 30,1998.
Form of Indemnification Agreement between the Company and
its directors.
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).
2004 Getty Realty Corp. Omnibus Incentive Compensation
Plan.
10.3*
10.4*
10.6*
10.7*
10.8*
Filed as Exhibit 3.1 to Company’s Registration
Statement on Form S-4, filed on January 12, 1998 (File
No. 333- 44065), included as Appendix D. to the Joint
Proxy/Prospectus that is a part thereof, and incorporated
herein by reference.
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.
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.
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.
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.
Filed as Exhibit 10.1 to Company’s Annual Report on
Form 10-K for the year ended December 31, 2012 (File
No. 001-13777) and incorporated herein by reference.
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.
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 10.3 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.
95
EXHIBIT NO.
10.10**
DESCRIPTION
Unitary Net Lease Agreement between GTY NY
Leasing, Inc. and CPD NY Energy Corp., dated as of
January 13, 2011.
10.11
10.13**
10.14**
10.15*
10.16
10.17
10.18
14
21
23
31(i).1
31(i).2
32.1
32.2
101.INS
101.SCH
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.
Credit Agreement, dated as of February 25, 2013, among
Getty Realty Corp., Lenders named therein and JP
Morgan Chase Bank, N.A. as Administrative Agent and
Collateral Agent.
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.
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.
Filed as Exhibit 10.1 to Company’s Quarterly
Report on Form 10-Q filed May 10, 2013 (File No.
001-13777) and incorporated herein by reference.
Note Purchase and Guarantee Agreement, dated as of
February 25, 2013, among Getty Realty Corp. and the
Prudential Insurance Company of America.
Filed as Exhibit 10.2 to Company’s Quarterly
Report on Form 10-Q filed May 10, 2013 (File No.
001-13777) and incorporated herein by reference.
Form of incentive restricted stock unit grant award under
the 2004 Getty Realty Corp. Omnibus Incentive
Compensation Plan, as amended.
Filed as Exhibit 10.3 to Company’s Quarterly
Report on Form 10-Q filed May 10, 2013 (File No.
001-13777) and incorporated herein by reference.
Amendment to Credit Agreement, dated as of December
23, 2013, by among Getty Realty Corp., the lenders
party thereto and JPMorgan Chase Bank, N.A., as
administrative agent.
Amendment No. 1 to Note Purchase and Guarantee
Agreement, dated as of December 23, 2013, among
Getty Realty Corp. (the “Company”), each of the
Company’s subsidiaries party thereto as guarantors, the
Prudential Insurance Company of America and
Prudential Retirement Insurance and Annuity Company.
Filed as Exhibit 10.1 to Company’s Current Report
on Form 8-K filed December 30, 2013 (File No.
001-13777) and incorporated herein by reference.
Filed as Exhibit 10.2 to Company’s Current Report
on Form 8-K filed December 30, 2013 (File No.
001-13777) and incorporated herein by reference.
Severance Agreement and General Release between
Getty Realty Corp. and Thomas J. Stirnweis dated
November 29, 2013.
Filed as Exhibit 10.1 to Company’s Current Report
on Form 8-K filed December 02, 2013 (File No.
001-13777) and incorporated herein by reference.
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.
Section 1350 Certification of Chief Financial Officer.
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EXHIBIT NO.
DESCRIPTION
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(a)
(a)
(a)
(a)
(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.
* 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 2013 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 2013 Annual Report on
Form 10-K.
97
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.
GTY-CPG (VA/DC) Leasing, Inc.
GTY-CPG (QNS/BX) Leasing, Inc.
GTY-VPS (IN/MA/OH) Leasing, Inc.
Getty LFA, LLC
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
Delaware
Delaware
Delaware
Delaware
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.
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 17,
2014 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 17, 2014
EXHIBIT 31(i).1 RULE 13a-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Christopher J. Constant, 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 consolidated 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 consolidated
financial statements for external purposes in accordance with generally accepted accounting principles;
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 17, 2014
By: /s/ CHRISTOPHER J. CONSTANT
Christopher J. Constant
Vice President,
Chief Financial Officer and Treasurer
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 consolidated 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 consolidated
financial statements for external purposes in accordance with generally accepted accounting principles;
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 17, 2014
By: /s/ DAVID B. DRISCOLL
David B. Driscoll
President and Chief Executive Officer
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, 2013 (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 17, 2014
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.
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, 2013 (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 17, 2014
By: /s/ CHRISTOPHER J. CONSTANT
Christopher J. Constant
Vice President, Chief Financial Officer and
Treasurer
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.
coR p oR At e DAtA
BoARD oF DiRectoRs
Milton Cooper
Chairman of the Board of Kimco Realty Corporation
Philip E. Coviello
Retired Partner of Latham & Watkins LLP
David B. Driscoll
Chief Executive Officer and President of Getty Realty Corp.
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
David B. Driscoll
Chief Executive Officer and President
Kevin C. Shea
Executive Vice President
Joshua Dicker
Senior Vice President, General Counsel and Secretary
Christopher J. Constant
Vice President, Chief Financial Officer and Treasurer
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com
coRpoRAte HeADquARteRs
Getty Realty Corp.
125 Jericho Turnpike
Jericho, New York 11753
(516) 478-5400
www.gettyrealty.com
ABout ouR stock
Our Common Stock is listed on the New York Stock
Exchange under the symbol GTY.
ABout ouR sHAReHolDeRs
As of March 17, 2014, we had 33,397,260 outstanding
shares of Common Stock owned by approximately
16,900 shareholders.
AnnuAl Meeting
All shareholders are cordially invited to attend our annual
meeting on May 13, 2014 at 3:30 p.m. at the offices
of JPMorgan Chase & Co., located at 277 Park Avenue,
17th Floor Conference Center, New York, New York. Holders
of common stock of record at the close of business on
March 28, 2014, 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
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