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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For quarter ended OCTOBER 31, 1999 Commission file number 001-13777
GETTY REALTY CORP.
(Exact name of registrant as specified in its charter)
MARYLAND 11-3412575
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 JERICHO TURNPIKE, JERICHO, NEW YORK 11753
(Address of principal executive offices) (Zip Code)
(516) 338 - 2600
(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
Registrant had outstanding 13,567,335 shares of Common Stock, par value $.01 per
share, and 2,888,798 shares of Series A Participating Convertible Redeemable
Preferred Stock, par value $.01 per share, as of October 31, 1999.
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GETTY REALTY CORP.
INDEX
Part I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated Balance Sheets as of October 31, 1999 and
January 31, 1999 1
Consolidated Statements of Operations for the three and
nine months ended October 31, 1999 and 1998 2
Consolidated Statements of Cash Flows for the
nine months ended October 31, 1999 and 1998 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)
October 31, January 31,
Assets: 1999 1999
(unaudited)
Real Estate:
Land $ 136,027 $ 131,976
Buildings and improvements 179,757 175,817
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315,784 307,793
Less - accumulated depreciation and amortization 72,413 68,045
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Real estate, net 243,371 239,748
Cash and equivalents 673 657
Mortgages and accounts receivable, net 5,907 6,975
Recoveries from state underground storage tank funds 9,249 10,369
Prepaid expenses and other assets 2,730 3,335
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Total assets $ 261,930 $ 261,084
========= =========
Liabilities and Stockholders' Equity:
Borrowings under credit lines $ 12,500 $ 4,500
Mortgages payable 30,624 35,242
Accounts payable and accrued expenses 12,670 18,042
Environmental remediation costs 28,071 34,251
Deferred income taxes 35,773 30,210
Income taxes payable 674 808
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Total liabilities 120,312 123,053
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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
October 31, 1999 and January 31, 1999 72,220 72,220
Common stock, par value $.01 per share; authorized
50,000,000 shares; issued 13,567,335 at October 31, 1999
and 13,566,233 at January 31, 1999 136 136
Paid-in capital 67,036 67,021
Retained earnings (deficit) 2,226 (1,346)
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Total stockholders' equity 141,618 138,031
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Total liabilities and stockholders' equity $ 261,930 $ 261,084
========= =========
See accompanying notes.
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GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three months ended October 31, Nine months ended October 31,
1999 1998 1999 1998
------------------------------ -----------------------------
Revenues:
Revenues from rental properties $ 14,628 $ 14,711 $ 44,054 $ 44,239
Other income 2,530 652 4,921 2,133
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17,158 15,363 48,975 46,372
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Rental property expenses 2,986 3,218 9,085 9,717
Environmental expenses 1,672 5,835 5,851 12,294
General and administrative expenses 1,536 1,817 4,431 4,703
Depreciation and amortization 2,552 2,344 7,794 6,801
Interest expense 702 663 1,995 2,097
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9,448 13,877 29,156 35,612
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Earnings from continuing operations before
provision for income taxes 7,710 1,486 19,819 10,760
Provision for income taxes 3,250 625 8,330 4,545
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Net earnings from continuing operations 4,460 861 11,489 6,215
Net loss from discontinued operations -- (137) -- (61)
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Net earnings 4,460 724 11,489 6,154
Preferred stock dividends 1,282 1,282 3,846 3,846
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Net earnings (loss) applicable to
common stockholders $ 3,178 ($ 558) $ 7,643 $ 2,308
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Basic and diluted earnings (loss) per common share:
Continuing operations $ .23 ($ .03) $ .56 $ .17
Discontinued operations -- (.01) -- --
Net earnings (loss) $ .23 ($ .04) $ .56 $ .17
Weighted average common shares outstanding:
Basic 13,567 13,566 13,567 13,566
Diluted 13,570 13,566 13,569 13,572
See accompanying notes.
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GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended
October 31,
---------------------
1999 1998
Cash flows from operating activities:
Net earnings $ 11,489 $ 6,154
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 7,794 6,801
Deferred income taxes 5,563 227
Net loss from discontinued operations -- 61
Gain on dispositions of real estate (3,280) (1,314)
Changes in assets and liabilities, net of effect of
acquisitions and dispositions:
Mortgages and accounts receivable 1,068 679
Recoveries from state underground storage tank funds 1,120 4,402
Prepaid expenses and other assets 482 (1,249)
Accounts payable and accrued expenses (5,372) (1,651)
Environmental remediation costs (6,180) (3,373)
Income taxes payable (134) --
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Net cash provided by continuing operating activities 12,550 10,737
Net cash provided by discontinued operations -- 511
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Net cash provided by operating activities 12,550 11,248
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Cash flows from investing activities:
Capital expenditures (4,355) (14,139)
Property acquisitions (9,684) (751)
Proceeds from dispositions of real estate 6,025 2,981
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Net cash used in investing activities (8,014) (11,909)
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Cash flows from financing activities:
Borrowings under credit lines 8,000 3,000
Repayment of mortgages payable (4,618) (4,044)
Cash dividends (7,917) (7,915)
Stock options and common stock 15 43
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Net cash used in financing activities (4,520) (8,916)
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Net increase (decrease) in cash and equivalents 16 (9,577)
Cash and equivalents at beginning of period 657 10,032
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Cash and equivalents at end of period $ 673 $ 455
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Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 1,994 $ 2,137
Income taxes 2,901 4,392
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 fiscal year ended
January 31, 1999.
2. Discontinued operations:
In December 1998, the Company sold its heating oil and propane business.
Summary operating results of the discontinued heating oil operations for the
three and nine months ended October 31, 1998 are as follows (in thousands):
Three Months Nine Months
ended ended
October 31, 1998 October 31, 1998
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Revenues $ 5,132 $ 16,270
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Loss before credit for income taxes $ (236) $ (105)
Credit for income taxes (99) (44)
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Net loss $ (137) $ (61)
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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 amounts of 3,000
shares for the quarter ended October 31, 1999, and 2,000 shares and 6,000 shares
for the nine months ended October 31, 1999 and 1998, respectively. For the
quarters and nine months ended October 31, 1999 and 1998, conversion of the
Series A Participating Convertible Redeemable Preferred stock into common stock
utilizing the if-converted method would have been anti-dilutive and therefore
conversion was not assumed for purposes of computing diluted earnings per common
share.
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4. Stockholders' equity:
A summary of the changes in stockholders' equity for the nine months ended
October 31, 1999 is as follows (in thousands, except per share amounts):
Retained
Preferred Common Paid-in Earnings
Stock Stock Capital (Deficit) Total
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Balance,
January 31, 1999 $72,220 $136 $67,021 ($1,346) $138,031
Net earnings 11,489 11,489
Cash dividends:
Common - $.30
per share (4,071) (4,071)
Preferred - $1.3313
per share (3,846) (3,846)
Stock options 15 15
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Balance,
October 31, 1999 $72,220 $136 $67,036 $2,226 $141,618
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company is a real estate company specializing in the ownership and leasing
of service stations, convenience stores and petroleum marketing terminals. The
Company leases most of its properties on a long-term net basis to Getty
Petroleum Marketing Inc. ("Marketing"), which was spun-off to the Company's
stockholders on March 21, 1997. Therefore, the Company's financial results are
materially dependent upon the ability of Marketing to meet its lease
obligations; however, the Company does not anticipate that Marketing will have
difficulty making all required rental payments in the foreseeable future.
Results of Operations - Quarter ended October 31, 1999 compared
with quarter ended October 31, 1998
Revenues from rental properties for the quarters ended October 31, 1999
and 1998 principally represent rental income received from Marketing ($14.0
million and $14.1 million, respectively) with the remainder from other lessees
and sublessees.
Other income was $2.5 million for the three months ended October 31,
1999 as compared with $.7 million for the quarter ended October 31, 1998. The
increase in other income was principally due to $2.0 million of higher gains on
the disposition of real estate.
Rental property expenses, which are principally comprised of rent
expense and real estate taxes, were $3.0 million and $3.2 million for the
quarters ended October 31, 1999 and 1998, respectively. The decrease was due to
a reduction in the number of properties leased from third parties.
Under the lease agreement with Marketing, the Company assumed certain
obligations for environmental remediation expense and tank replacement capital
expenditures at certain of the leased properties until such properties meet
certain established conditions. Environmental expenses for the quarter ended
October 31, 1999 were $1.7 million as compared with $5.8 million for the quarter
ended October 31, 1998, which included in the current quarter an increase in
estimated environmental costs of $1.4 million as compared to a $5.4 million
increase in estimated costs recorded during the prior year quarter. These
charges resulted from additional contamination discovered during work performed
to meet certain federal underground storage tank standards and revisions to
estimates at other sites. As of October 31, 1999, the Company's consolidated
balance sheet reflected an accrual of $28.1 million representing management's
best estimate for future environmental remediation costs and $9.2 million as
management's best estimate for recoveries from state underground storage tank
remediation funds. Such amounts are reviewed on a regular basis and any
revisions thereto are reflected in the Company's financial statements as they
become known.
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General and administrative expenses for the quarter ended October 31,
1999 amounted to $1.5 million, a decrease of $.3 million as compared with the
quarter ended October 31, 1998, principally due to lower legal and professional
fees, partially offset by a higher retrospective insurance charge relating to
the spun-off petroleum marketing business. Included in general and
administrative expenses for each of the respective periods are $.2 million of
net fees paid by the Company to Marketing for certain administrative and
technical services performed under a services agreement.
Depreciation and amortization was $2.6 million for the quarter ended
October 31, 1999, an increase of $.2 million over the quarter ended October 31,
1998 as a result of capital expenditures and property acquisitions.
Interest expense for the three months ended October 31, 1999 amounted
to $.7 million, which was comparable to the quarter ended October 31, 1998.
Results of Operations - Nine months ended October 31, 1999 compared with nine
months ended October 31, 1998
Revenues from rental properties for the nine months ended October 31,
1999 and 1998 principally represent rental income received from Marketing ($42.2
million and $42.4 million, respectively) with the remainder from other lessees
and sublessees.
Other income was $4.9 million for the nine months ended October 31,
1999 as compared with $2.1 million for the nine months ended October 31, 1998.
The increase in other income of $2.8 million was principally due to $2.0 million
of higher gains on the disposition of real estate and a settlement of a lawsuit
resulting in the elimination of a $1.2 million reserve, partially offset by
lower investment income.
Rental property expenses, which are principally comprised of rent
expense and real estate taxes, were $9.1 million and $9.7 million, respectively,
for the nine months ended October 31, 1999 and 1998. The decrease was due to a
reduction in the number of properties leased from third parties.
Environmental expenses for the nine months ended October 31, 1999 were
$5.9 million as compared with $12.3 million for the nine months ended October
31, 1998. The current nine month period included a change in estimated
remediation costs of $4.4 million as compared to $10.5 million during the prior
year nine month period. These charges are the result of contamination discovered
during work performed to meet certain federal underground storage tank standards
and revisions to estimates at other sites.
General and administrative expenses were $4.4 million for the nine
months ended October 31, 1999 as compared with $4.7 million for the nine months
ended October 31, 1998. The decrease was principally due to lower legal and
professional fees, partially offset by a higher retrospective insurance charge
relating to its spun-off petroleum marketing business. Included in general and
administrative expenses for the nine months ended October 31, 1999 and 1998 are
$.6 million and $.7 million, respectively, of net fees paid by the Company to
Marketing for certain administrative and technical services performed under a
services agreement.
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Depreciation and amortization was $7.8 million for the nine months
ended October 31 1999, an increase of $1.0 million over the nine months ended
October 31, 1998 as a result of capital expenditures and property acquisitions.
Interest expense for the nine months ended October 31, 1999 amounted to
$2.0 million as compared with $2.1 million for the nine months ended October 31,
1998. The decrease in interest expense was principally due to lower interest
costs.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash flows from
operating activities and its short-term uncommitted lines of credit with two
banks. Management believes that cash requirements for operations, capital
expenditures and debt service can be met by cash flows from operating
activities, available cash and equivalents and credit lines. As of October 31,
1999, such lines of credit amounted to $25 million, of which $12.5 million was
utilized for short-term borrowings and $3.8 million was utilized in connection
with outstanding letters of credit principally relating to prior insurance
obligations of the spun-off petroleum marketing business. Borrowings under such
lines of credit are unsecured and bear interest at LIBOR plus 1.0% to 1.1%. Such
lines of credit are subject to renewal at the discretion of the banks. Although
it is expected that the existing sources of liquidity will be sufficient to meet
its expected operating and debt service requirements, the Company may be
required to obtain additional sources of capital in the future to fund property
acquisitions, which capital sources it believes are available.
During the nine months ended October 31, 1999 and 1998, the Company
declared quarterly preferred stock dividends of $.44375 per share and quarterly
cash common stock dividends of $.10 per share. Such dividends aggregated $7.9
million for each of the nine months ended October 31, 1999 and 1998.
The Company's capital expenditures, excluding acquisitions, for the
nine months ended October 31, 1999 amounted to $4.4 million, primarily related
to the replacement of underground storage tanks and vapor recovery facilities at
certain gasoline stations. Expenditures with respect to certain tank
replacements required to meet federal environmental standards and certain
environmental liabilities and obligations have continued to be the
responsibility of the Company since the spin-off. As of October 31, 1999, the
Company estimates that in connection therewith, it will expend $.7 million in
capital expenditures and $18.8 million, net of estimated recoveries, for
environmental remediation obligations.
During the nine months ended October 31, 1999, the Company acquired 17
retail service station and convenience store properties in the greater Buffalo,
New York area, six properties located in Florida, three properties in New Jersey
and one property in Pennsylvania for an aggregate of $9.7 million. The
properties, except for those located in Florida, are being leased to Marketing
pursuant to long-term triple net master leases.
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Year 2000
The Year 2000 issue has arisen because for many years some computer
software programs and systems have utilized only two digits to specify the year.
As a result, these programs and systems may not be able to recognize and process
dates beyond 1999, which may cause these programs to malfunction or not be able
to accurately process information.
Marketing provides the Company with data processing services pursuant
to the administrative services agreement. In connection therewith, a Year 2000
program has been implemented for internal systems and equipment relating to
information technology systems and non-information technology systems which has
four phases: (1) identification; (2) assessment; (3) remediation (including
modification, upgrading and replacement); and (4) testing. All four phases of
the program have been completed.
The Company has reviewed the Year 2000 readiness of third parties who
provide services which are essential to the Company's operations. The Company
has had formal communications with material third parties in order to determine
the extent to which the Company is vulnerable to any failure by such third
parties to remediate their respective Year 2000 problems and resolve such
problems to the extent practicable.
The Company is finalizing a contingency plan to address issues specific
to the Year 2000 problem. The Plan includes performing certain processes
manually, obtaining replacement systems as well as other appropriate measures.
The Company's senior management and the Board of Directors receive
regular updates on the status of the Company's Year 2000 program. The cost of
these Year 2000 efforts has not been material since most of the work is being
performed by Marketing personnel under the administrative services agreement.
The Year 2000 issue presents a number of risks and uncertainties that
could affect the Company or Marketing, which include, but are not limited to,
the availability of qualified personnel and other information technology
resources; the ability to identify and remediate all date sensitive lines of
computer code or to replace embedded computer chips in affected systems or
equipment; and the ability of third parties to remediate their respective
systems. The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers and customers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition.
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
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use the words "believes", "expects", "plans", "estimates" and similar
expressions, we intend to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance and achievements
of the Company 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 lessee 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; the Company's expectations as to the cost of
completing environmental remediation; the Company's expectations as to its Year
2000 program as well as its Year 2000 contingency plan; and the Company's belief
that the internal systems and equipment will be Year 2000 compliant in a timely
manner.
As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely effect its business, financial
condition, operating results and stock prices. An investment in the Company
involves various risks, including those mentioned above and elsewhere in this
report and those which are detailed from time to time in the Company's other
filings with the Securities and Exchange Commission.
Readers should not place undue reliance on forward-looking statements,
which reflect the Company's view only as of the date hereof. The Company
undertakes no obligation to publicly release revisions to these forward-looking
statements that reflect events or circumstances after the date hereof 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
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27 Financial Data Schedule
(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.
(Registrant)
Dated: December 14, 1999 BY: /s/ John J. Fitteron
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(Signature)
JOHN J. FITTERON
Senior Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Dated: December 14, 1999 BY: /s/ Leo Liebowitz
------------------------------------
(Signature)
LEO LIEBOWITZ
President and Chief Executive
Officer
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