JERICHO, N.Y. -- Getty Realty Corp. said that its board has designated David Driscoll as the lead independent director to work with management to attempt to negotiate a modification of the company's leases with its principal tenant, Getty Petroleum Marketing Inc., the U.S. arm of the Russian oil giant Lukoil, which said recently that it wants to shed nearly half of the gas stations it leases from Getty, reported Newsday.
Getty Petroleum leases approximately 890 properties from Getty Realty—a real-estate investment trust (REIT) specializing in leasing convenience stores and gas stations&[image-nocss] mdash;under several leases, principally under a unitary triple-net master lease with an initial 15-year term that continues through 2015 and covers virtually all of the properties.
The REIT has been locked in a battle over leases with its primary tenant, Getty Petroleum Marketing, East Meadow, N.J., which has been owned since 2000 by OAO Lukoil, Russia's largest non-state oil producer, said the newspaper.
Getty Petroleum wants to get rid of 40% of the 890 gas stations in the Northeast it leases from Getty Realty, the report said.
As previously disclosed in the company's annual report on Form 10-K for the year ended Dec. 31, 2007, Getty Petroleum's financial performance continued to deteriorate in 2007 and Getty Petroleum has proposed to the company the removal of approximately 40% of the properties from the Getty Petroleum leases and a reduction of rent for the remaining properties.
Getty Realty did not accept Getty Petroleum's proposal, however. The company said it anticipates that as lease modification discussions continue, the parties will regularly exchange communications as part of a negotiation process.
Getty Petroleum recently sent a letter to Getty Realty in which it said that its views regarding the terms upon which it would engage in negotiations with the company regarding the Getty Petroleum leases differed in substance from the company's view; that its parent, OAO Lukoil, will not continue to provide ongoing financial support to Getty Petroleum in the event Getty Petroleum is not self-supporting on its own;, and that it did not understand the basis for the $10.5 million non-cash deferred rent receivable reserve taken by the company in connection with the Getty Petroleum leases and its belief that the reserve was inadequate.
The REIT has responded to Getty Petroleum's letter stating that it re-confirms its accounting and other disclosures in its annual report. In addition, the company reiterated to Getty Petroleum its willingness to continue discussions regarding the removal of properties from the Getty Petroleum leases, steps it was taking to facilitate those discussions and its view that such discussions would be beneficial to both parties. Driscoll said that "the company's management team and I are looking forward to holding further discussions with Getty Petroleum in the near future to try to achieve a mutually satisfactory modification of the [Getty Petroleum] leases." However, there can be no assurance that an acceptable modification to the Getty Petroleum leases will be negotiated, he added.
Leo Liebowitz, Getty Realty's chairman and CEO, said, "The company and Getty Petroleum have already established a record over the years of successfully negotiating the removal of properties from the [Getty Petroleum] leases on mutually agreed upon terms and, in fact, over the past few years over 25 properties have been removed from the [Getty Petroleum] leases by mutual agreement. The company in certain cases did not exercise options to extend the term of the underlying leases, and in other cases sold the recaptured properties in tax-free exchanges and reinvested the proceeds in new properties for lease to others."
He added, "Over the past several months, the company has entered into various letter agreements with [Getty Petroleum] to remove approximately 25 additional properties from the [Getty Petroleum] leases. The company has identified potential purchasers for most of these properties and in many cases, has purchase and sales contracts in place. In addition, we have successfully relet certain properties to new tenants after [Getty Petroleum's] tenancy with respect to those properties expired."
Liebowitz noted that Getty Petroleum continues to be current on its rent payments under the leases.
Getty Realty is the largest publicly traded REIT in the United States specializing in ownership and leasing of convenience store/gas station properties and petroleum distribution terminals. The company owns and leases approximately 1,100 properties throughout the United States.
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