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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarter ended MARCH 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 001-13777
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GETTY REALTY CORP.
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(Exact name of registrant as specified in its charter)
MARYLAND 11-3412575
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 JERICHO TURNPIKE, JERICHO, NEW YORK 11753
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(Address of principal executive offices) (Zip Code)
(516) 338 - 2600
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Registrant had outstanding 12,548,287 shares of Common Stock, par value $.01 per
share, and 2,865,768 shares of Series A Participating Convertible Redeemable
Preferred Stock, par value $.01 per share, as of May 1, 2001.
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GETTY REALTY CORP.
INDEX
Part I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2001 and
December 31, 2000 1
Consolidated Statements of Operations for the three
months ended March 31, 2001 and 2000 2
Consolidated Statements of Cash Flows for the
three months ended March 31, 2001 and 2000 3
Notes to Consolidated Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6 - 10
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
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GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
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March 31, December 31,
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Assets: 2001 2000
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(unaudited)
Real Estate:
Land $135,322 $135,349
Buildings and improvements 178,034 177,688
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313,356 313,037
Less - accumulated depreciation and amortization 83,340 80,971
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Real estate, net 230,016 232,066
Cash and equivalents 511 723
Mortgages and accounts receivable, net 5,014 5,472
Deferred rent receivable 2,097 -
Recoveries from state underground storage tank funds 11,440 11,957
Prepaid expenses and other assets 3,243 5,507
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Total assets $252,321 $255,725
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Liabilities and Stockholders' Equity:
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Borrowings under credit lines $ 24,000 $ 27,000
Mortgages payable 22,413 22,969
Accounts payable and accrued expenses 12,936 14,109
Environmental remediation costs 22,483 23,371
Deferred income taxes 41,212 40,177
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Total liabilities 123,044 127,626
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Stockholders' equity:
Preferred stock, par value $.01 per share; authorized
20,000,000 shares for issuance in series of which
3,000,000 shares are classified as Series A Participating
Convertible Redeemable Preferred; issued 2,888,798 at
March 31, 2001 and December 31, 2000 72,220 72,220
Common stock, par value $.01 per share; authorized
50,000,000 shares; issued 13,567,335 at March 31, 2001
and December 31, 2000 136 136
Paid-in capital 67,036 67,036
Retained earnings 2,597 1,419
Preferred stock held in treasury, at cost (23,030 shares at
March 31, 2001 and December 31, 2000) (430) (430)
Common stock held in treasury, at cost (1,019,048 shares at
March 31, 2001 and December 31, 2000) (12,282) (12,282)
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Total stockholders' equity 129,277 128,099
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Total liabilities and stockholders' equity $252,321 $255,725
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See accompanying notes.
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GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
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Three months ended March 31,
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2001 2000
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Revenues:
Revenues from rental properties $17,146 $14,724
Other income 232 153
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17,378 14,877
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Rental property expenses 2,796 3,052
Environmental expenses 2,759 3,033
General and administrative expenses 1,017 603
Depreciation and amortization 2,369 2,511
Interest expense 898 770
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9,839 9,969
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Earnings before provision for income taxes 7,539 4,908
Provision for income taxes 3,207 2,196
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Net earnings 4,332 2,712
Preferred stock dividends 1,272 1,280
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Net earnings applicable to common stockholders $ 3,060 $ 1,432
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Net earnings per common share:
Basic $ 0.24 $ 0.11
Diluted $ 0.24 $ 0.11
Weighted average common shares outstanding:
Basic 12,548 13,420
Diluted 12,553 13,421
See accompanying notes.
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GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Three months ended March 31,
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2001 2000
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Cash flows from operating activities:
Net earnings $ 4,332 $ 2,712
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 2,369 2,511
Deferred income taxes 1,035 3,626
Gain on dispositions of real estate (88) (112)
Deferred rent receivable (2,097) -
Changes in assets and liabilities:
Mortgages and accounts receivable 458 (23)
Recoveries from state underground storage tank funds 517 (3,442)
Prepaid expenses and other assets 2,264 95
Accounts payable and accrued expenses (1,173) (618)
Environmental remediation costs (888) 2,879
Income taxes payable - (1,831)
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Net cash provided by operating activities 6,729 5,797
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Cash flows from investing activities:
Capital expenditures (346) (288)
Property acquisitions - (155)
Proceeds from dispositions of real estate 115 222
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Net cash used in investing activities (231) (221)
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Cash flows from financing activities:
Borrowings (repayments) under credit lines, net (3,000) 6,100
Repayment of mortgages payable (556) (1,210)
Cash dividends (3,154) (3,202)
Stock options, common and treasury stock, net - (3,525)
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Net cash used in financing activities (6,710) (1,837)
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Net (decrease) increase in cash and equivalents (212) 3,739
Cash and equivalents at beginning of period 723 (4,162)
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Cash and equivalents at end of period $ 511 $ (423)
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Supplemental disclosures of cash flow information
Cash paid (refunded) during the period for:
Interest $ 908 $ 926
Income taxes, net (99) 401
See accompanying notes.
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GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General:
The accompanying consolidated financial statements include the accounts of
Getty Realty Corp. and its wholly-owned subsidiaries (the "Company"). The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and include amounts that are based on
management's best estimates and judgments. While all available information has
been considered, actual amounts could differ from those estimates. The
consolidated financial statements are unaudited but, in the opinion of
management, reflect all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation. These statements should be read in
conjunction with the consolidated financial statements and related notes, which
appear in the Company's Annual Report on Form 10-K for the year ended December
31, 2000.
The Consolidated Statements of Operations and Cash Flows for the first
quarter of 2000 have been recast to include the three months ended March 31,
2000 as a result of the change in the Company's year-end to December 31 from
January 31.
2. Revenue recognition:
Rental revenue under the Amended and Restated Master Lease ("Master
Lease") with Getty Petroleum Marketing Inc. ("Marketing"), which became
effective December 9, 2000, is recognized on a straight-line basis over the
initial fifteen-year lease term. The cumulative difference between lease revenue
recognized under this method and contractual lease payment terms is recorded as
deferred rent receivable.
3. Earnings per common share:
Basic earnings per common share is computed by dividing net earnings less
preferred dividends by the weighted average number of common shares outstanding
during the period. Diluted earnings per common share also gives effect to the
potential dilution from the exercise of stock options in the amount of 5,000 and
1,000 shares for the quarters ended March 31, 2001 and 2000, respectively.
For the quarters ended March 31, 2001 and 2000, conversion of the Series A
Participating Convertible Redeemable Preferred stock into common stock utilizing
the if-converted method would have been antidilutive and therefore conversion
was not assumed for purposes of computing diluted earnings per common share.
4. Contingency
On November 2, 2000, the Company entered into the Master Lease, which
became effective upon the acquisition of a controlling interest in Marketing by
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a subsidiary of OAO Lukoil. The amendment of the Master Lease and a related
amendment of a lease between two of the Company's subsidiaries (together, the
"Amended Lease Agreements") is alleged by Fleet National Bank ("Fleet"or the
"Lenders") to have caused a non-monetary default under a loan agreement between
one of those subsidiaries, Power Test Realty Company Limited Partnership, and
Fleet (the "Loan Agreement"). Prior to the Company executing the Amended Lease
Agreements, the Lenders issued a 90-day waiver of any potential default caused
by the Amended Lease Agreements which expired on January 31, 2001. Fleet advised
the Company that the Company was in default on February 8, 2001, and thereafter
converted the loan from a LIBOR based loan to a prime rate loan retroactive to
February 1, 2001. The Company has always made all required payments under the
Loan Agreement, including principal and interest payments when due. While
reserving its rights against Fleet to take any and all actions permitted at law
or in equity to protect its interests, the Company has continued to make all
required payments on the loan since February 1, 2001. Nonetheless, if the
Lenders should seek to enforce any remedies that they believe they may be
entitled to, they could attempt to accelerate the remaining principal balance of
the loan of approximately $20.5 million and seek to institute foreclosure
proceedings on some or all of the 265 mortgaged properties. While the Company
would vigorously oppose and defend against any potential actions initiated by
the Lenders, there can be no assurance that the Lenders would not ultimately
prevail. The Company has agreed to indemnify Marketing for any loss with respect
to the properties on which there are mortgage liens as a result of actions taken
by the Lenders. The Company has advised the Lenders that it presently intends to
refinance the outstanding loan as soon as practicable. However, there can be no
assurance on the timing of the refinancing or that it can be accomplished on
commercially reasonable terms. If the Company is unable to timely refinance the
outstanding loan or if the Lenders were to initiate and ultimately prevail in
foreclosure proceedings, the loss of some or all of the properties
collateralizing the Loan Agreement could have a material adverse effect on the
Company's financial position, results of operations or cash flows. However,
management believes that the ultimate resolution of this matter will not have
such a material adverse effect.
5. Stockholders' equity:
A summary of the changes in stockholders' equity for the three months ended
March 31, 2001 is as follows (in thousands, except per share amounts):
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Preferred Common
Stock Held Stock Held
Preferred Common Paid-in Retained in Treasury, in Treasury,
Stock Stock Capital Earnings at Cost at Cost Total
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Balance, December 31, 2000 $72,220 $136 $67,036 $ 1,419 $(430) $(12,282) $128,099
Net earnings 4,332 4,332
Cash dividends:
Common -- $.15 per share (1,882) (1,882)
Preferred -- $.44375 per share (1,272) (1,272)
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Balance, March 31, 2001 $72,220 $136 $67,036 $ 2,597 $(430) $(12,282) $129,277
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We are a real estate company specializing in the ownership and leasing of
service stations, convenience stores and petroleum marketing terminals. We lease
most of our properties on a long-term net basis to Getty Petroleum Marketing
Inc. ("Marketing"), which was spun-off to our stockholders on March 21, 1997. On
December 8, 2000, a subsidiary of OAO Lukoil ("Lukoil"), Russia's largest
vertically integrated oil company, acquired approximately 72% of the outstanding
common stock of Marketing in a tender offer and acquired the remaining equity of
Marketing through a merger on January 25, 2001. In connection with Lukoil's
acquisition of Marketing, we amended several of our agreements with Marketing,
which one of our lenders alleges caused a default under a loan agreement of one
of our subsidiaries. See "- Liquidity and Capital Resources."
On December 13, 2000, our Board of Directors approved a change in our
fiscal year end to December 31 from January 31. The Board of Directors also
indicated that it would continue to evaluate the merits of converting to a Real
Estate Investment Trust ("REIT") in 2001. If we were to elect REIT status, we
would not be subject to federal corporate income tax on the net income we
distribute to our stockholders. As a REIT, we would be required to distribute at
least 90% of our taxable income to stockholders each year. In order to qualify
for REIT status, however, we would be required to make a distribution to our
stockholders in an amount at least equal to our accumulated "earnings and
profits" (as defined in the Internal Revenue Code) from the years we have
operated as a taxable corporation. Our accumulated "earnings and profits" were
approximately $55.0 million (or approximately $3.48 per common share and $3.94
per preferred share) as of December 31, 2000. The entire amount of the
distribution would be taxable to the recipient as dividend income in the year it
is made, even though the distribution may take the form of cash, securities or a
combination of cash and securities. In addition, we will need to finance all or
a portion of the distribution to be paid in cash. We cannot assure the recipient
that any portion of the distribution will be payable in cash or that the
recipient will be able to sell or otherwise monetize any securities we may
distribute in order to pay any tax the recipient may owe.
The Board of Directors has not made any determination regarding electing
REIT status for 2001 or for future years, and we cannot assure you that we will
elect or be able to qualify for REIT status or as to the amount or timing of any
"earnings and profits" distribution.
Our financial results largely depend on rental income from Marketing and
other tenants. Our financial results are materially dependent upon the ability
of Marketing to meet its obligations under the master lease entered into on
February 1, 1997 and amended and restated effective December 9, 2000 (the
"Master Lease"); however, based on the information currently available to us, we
do not anticipate that Marketing will have difficulty in making required rental
payments under the Master Lease in the foreseeable future.
Results of Operations - Quarter ended March 31, 2001 compared
with the quarter ended March 31, 2000
The financial results for the first quarter of 2000 have been recast to
include the three months
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ended March 31, 2000 as a result of the change in the Company's year-end to
December 31 from January 31.
Revenues from rental properties for the quarter ended March 31, 2001 were
$17.1 million, compared to $14.7 million for the quarter ended March 31, 2000.
Approximately $16.5 million and $14.1 million of these rentals for the quarters
ended March 31, 2001 and 2000, respectively, were from properties leased to
Marketing under a Master Lease. The increase in rental income is primarily due
to $2.1 million of deferred rent receivable recognized in the current period, as
required by generally accepted accounting principles, related to the 2% future
annual rent increases due from Marketing under the terms of the amended and
restated Master Lease which became effective on December 9, 2000. These fixed
rent increases are recognized on a straight-line basis over the initial
fifteen-year term of the Master Lease rather than when received. Previously,
rent increases were based on the Consumer Price Index and would have been
recognized when such increases were due. Rental income from Marketing also
increased during the current quarter by $.3 million due to a 4% rent increase
effective December 9, 2000, net of a reduction in the number of properties
leased compared to the prior period.
Other income of $.2 million for the quarter ended March 31, 2001 was
comparable to the quarter ended March 31, 2000.
Rental property expenses, which are principally comprised of rent expense
and real estate taxes, were $2.8 million for the quarter ended March 31, 2001,
compared to $3.1 million for the quarter ended March 31, 2000. The $.3 million
reduction was due to real estate tax refunds received and reductions in rent
paid for leased properties due to termination of leases with third party
landlords.
Environmental expenses for the quarter ended March 31, 2001 were $2.8
million, a decrease of $.3 million from the prior period. The current period
included a $2.4 million change in estimated remediation costs associated with
contamination discovered at sites where we retain responsibility for
environmental remediation and revisions to estimates at other sites where
remediation is ongoing. The prior period included an environmental charge of
$3.0 million, of which $2.3 million represented a change in estimated
remediation costs or revisions to prior estimates. The prior period also
included $.7 million of charges related to environmental litigation.
Certain environmental expenses recognized in the current period increased,
in part, due to the transition of environmental management responsibility to
Delta Environmental Consultants from Marketing personnel. The increased expenses
were attributable to revised estimated remediation costs recognized due to
changes in strategies resulting from a detailed review and consultation with
environmental service providers performed by Delta on a site by site basis and
due to fees paid to Delta and those service providers involved with the
transition.
As of March 31, 2001, we had accrued $22.5 million as management's best
estimate for probable and reasonable estimable environmental remediation costs
and had recorded $11.4 million as management's best estimate for recoveries from
state underground storage tank remediation funds related to environmental
obligations and liabilities. Such accruals are reviewed on a regular basis and
any changes will be reflected in our financial statements as they become known.
General and administrative expenses for the quarter ended March 31, 2001
were $1.0 million, an increase of $.4 million as compared with the quarter ended
March 31, 2000. The
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increase was due to employee-related expenses and legal fees. Included in
general and administrative expenses for each of the quarters ended March 31,
2001 and 2000 are $159,000 of net fees paid to Marketing for certain
administrative and technical services performed under a services agreement.
Substantially all of these services have been discontinued as of April 1, 2001.
Depreciation and amortization was $2.4 million and $2.5 million,
respectively, for the quarters ended March 31, 2001 and 2000. The decrease was
primarily the result of assets becoming fully depreciated and real estate
dispositions.
Interest expense for the three months ended March 31, 2001 was $.9 million
as compared with $.8 million for the quarter ended March 31, 2000. The increase
was due to higher average borrowings outstanding and higher interest rates.
Liquidity and Capital Resources
As previously discussed in the Annual Report on Form 10-K for the year
ended December 31, 2000, on November 2, 2000 we amended the Master Lease with
Marketing, which became effective on December 9, 2000 upon the acquisition of a
controlling interest in Marketing by Lukoil. The amendment of the Master Lease
and a related amendment of a lease between two of our subsidiaries (together,
the "Amended Lease Agreements") are alleged by Fleet National Bank ("Fleet") to
have caused a non-monetary default under a loan agreement between one of those
subsidiaries, Power Test Realty Company Limited Partnership ("PTR"), and Fleet
(the "Loan Agreement").
On February 8, 2001, Fleet advised us by letter that we were in default of
certain non-monetary covenants under the Loan Agreement. On February 23, 2001,
Fleet informed us that under the terms of the Loan Agreement the loan would
convert to a Prime Rate loan from a LIBOR-based loan, effective retroactive to
February 1, 2001. A Prime Rate loan currently bears interest at 7.5% per annum.
Fleet offered us a waiver through July 30, 2001 based on conditions that are
unacceptable to us (including, among other things, increased loan pricing and
fees, restrictions on payment of regular dividends, cash segregation and
additional financial covenants). On March 8, 2001, we advised Fleet by letter
that we reserved all of our rights to take any and all actions permitted at law
or in equity to protect our interests.
The Loan Agreement was originally entered into by PTR in December 1986 for
$45.0 million. As of March 31, 2001, the remaining balance was $20.5 million.
The loan is collateralized by primary and secondary mortgage liens on 265
service station properties with a net book value of approximately $122 million.
The Company and PTR have always made all required payments under the Loan
Agreement, including all principal and interest payments when due. While
reserving our rights against Fleet, we have continued to make all required
payments on the loan since February 1, 2001 on the basis of a Prime Rate loan.
Nonetheless, if Fleet under the Loan Agreement should seek to enforce any
remedies that they believe they may be entitled to, they could attempt to
accelerate the remaining principal balance of the loan and seek to institute
foreclosure proceedings on the mortgaged properties. While we would vigorously
oppose and defend any potential actions initiated by Fleet, we cannot assure you
that Fleet would not ultimately prevail. We have agreed
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to indemnify Marketing for any loss with respect to the properties on which
there are mortgage liens as a result of actions taken by Fleet under the Loan
Agreement. As we have advised Fleet under the Loan Agreement, we presently
intend to refinance the outstanding loan as soon as practicable. However, there
can be no assurance on the timing of the refinancing or that it can be
accomplished on commercially reasonable terms. If we are unable to timely
refinance the outstanding loan or if Fleet were to initiate and ultimately
prevail in foreclosure proceedings, the loss of some or all of the properties
securing the Loan Agreement could have a material adverse effect on our
financial position, results of operations or cash flows. However, management
believes that the ultimate resolution of the Loan Agreement matter will not have
such a material adverse effect.
Our principal sources of liquidity are cash flows from our business and
short-term uncommitted lines of credit with two banks other than the lenders
discussed above. Management believes that cash requirements for our business,
including capital expenditures, can be met by cash flows from operations,
available cash and equivalents and credit lines. As of March 31, 2001, we had
lines of credit amounting to $35 million, of which $24.0 million was utilized
for short-term borrowings and $3.3 million in connection with outstanding
letters of credit. Borrowings under the lines of credit are unsecured and bear
interest at the prime rate or, at our option, LIBOR plus 1.0% to 1.1%. The lines
of credit are subject to annual renewal at the discretion of the banks. Although
we expect that the existing sources of liquidity will be sufficient to meet our
expected business requirements, we will be required to renew or replace the
lines of credit and to obtain additional sources of capital in the future in
order to refinance the Loan Agreement and in connection with any potential REIT
conversion.
During the three months ended March 31, 2001 and 2000, the Company
declared quarterly preferred stock dividends of $.44375 per share and quarterly
cash common stock dividends of $.15 per share. These dividends aggregated $3.2
million for the three months ended March 31, 2001 and 2000.
Capital expenditures for the three months ended March 31, 2001 were $.3
million.
Special Factors Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q 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", "estimates" and similar expressions, we intend to identify
forward-looking statements. These forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance and achievements to be materially different from any future
results, performance or achievements expressed or implied by these
forward-looking statements. These factors include, but are not limited to: risks
associated with owning and leasing real estate generally; dependence on
Marketing as a tenant and on rentals from companies engaged in the petroleum
marketing and convenience store businesses; competition for locations and
tenants; risk of tenant non-renewal; the effects of regulation; our need to
refinance the Loan Agreement with Fleet National Bank; and our expectations as
to the cost of completing environmental remediation.
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
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business, financial condition, operating results and stock prices. An investment
in our stock involves various risks, including those mentioned above and
elsewhere in this report and those that are detailed from time to time in
filings with the Securities and Exchange Commission.
You should not place undue reliance on forward-looking statements, which
reflect our view only as of the date hereof. We undertake no obligation to
publicly release revisions to these forward-looking statements that reflect
future events or circumstances or reflect the occurrence of unanticipated
events.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Designation of Exhibit
in this Quarterly Report
on Form 10-Q Description of Exhibit
------------------------ ----------------------
none.
(b) Reports filed on Form 8-K:
none.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GETTY REALTY CORP.
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(Registrant)
Dated: May 15, 2001 BY: /s/ THOMAS J. STIRNWEIS
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(Signature)
THOMAS J. STIRNWEIS
Corporate Controller and
Treasurer
(Principal Financial and
Accounting Officer)
Dated: May 15, 2001 BY: /s/ LEO LIEBOWITZ
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(Signature)
LEO LIEBOWITZ
President and Chief Executive
Officer
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