Getty Realty 'Moving On' From GPMI

Settlement will "refocus" REIT on operations, opportunities

Greg Lindenberg, Editor, CSP

JERICHO, N.Y. -- Getty Realty Corp. "achieved a number of significant milestones" in the quarter ended June 30, 2013, president and CEO David B. Driscoll said during the company's earnings call on Thursday, but "the biggest event" was the settlement of the litigation between Getty Petroleum Marketing Inc. (GPMI) and Lukoil.

"We expect the settlement to result in approximately $32.5 million of gross proceeds and possibly more later as unsecured claims are adjudicated and distributed to unsecured creditors," he said. "We are satisfied with the results and are moving on."

A bankruptcy judge in late July signed off on a deal for Russian oil giant Lukoil to pay $93 million to its former GPMI unit to resolve lawsuits concerning GPMI's Dec. 2011 bankruptcy and East Meadow, N.Y-based GPMI's 2009 and 2011 gas station deals with Lukoil North America. GPMI previously leased approximately 800 stations from Getty Realty, which terminated GPMI's leases in Dec. 2011 when GPMI was unable to pay the rents, and Getty Realty has since re-leased the properties.

In the real-estate investment trust's (REIT) earnings release, Driscoll said, "The settlement will enable management to refocus its efforts on operations and accretive opportunities as we move forward. ... While we still have work to do, more of our attention is being directed towards growing the company and our long-term sustainable cash flow."

During the call, he said the company's acquisition "pipeline" is facing "what is undeniably a frosty financing market. ... There are fewer large portfolios coming to market than they were in the past few years. We are mindful that we are a long-term investors and intend to respond to these factors by increasing our marketing efforts, stepping up our creativity and remaining disciplined."

Getty Realty reported net earnings for the quarter and six months ended June 30, 2013, of $12.7 million and $23.1 million, which increased by $9.1 million and $13 million, respectively, as compared to net earnings of $3.6 million and $10.1 million, for the quarter and six months ended June 30, 2012, respectively.

The company's results continued to be materially affected by events surrounding GPMI including the Lukoil settlement, legal costs associated with that litigation, ongoing eviction proceedings, impairment charges and elevated operating expenses related to properties previously leased to GPMI, which are still in transition. The company anticipates many of these elevated operating costs will decrease as the ongoing repositioning of the properties previously leased to GPMI begins to draw to a close in the coming quarters.

Also during the period, Getty Realty "successfully completed an accretive acquisition of 36 properties for approximately $72.5 million," said Driscoll, referring to two sale/leaseback transactions with Capitol Petroleum Group LLC. "These properties are located in highly desirable metropolitan areas around New York City and Washington, D,C. We are particularly thrilled with this milestone as it marks our return towards accretive acquisition growth. Going forward, we remain committed to growing the company. We intend to look at both existing and new paths to achieve that growth while staying mindful of our core industry focus, the macro environment and the competitive landscape that we operate in."

During the six months ended June 30, 2013, the company sold 77 properties, including two terminals, for $26.7 million in the aggregate. Subsequent to June 30, 2013, the company has sold three properties for $24.5 million in the aggregate, including a property in Manhattan for $23.5 million, and one terminal. Getty Realty is continuing a process of disposing of assets that do not meet the long-term criterion of its core portfolio. Since the start of Jan. 2012 and through Aug. 7, 2013, the company has sold 134 properties. It currently has 141 properties classified as held for sale.

Getty Realty also is pursuing eviction proceedings involving approximately 40 of its properties in various jurisdictions against GPMI's former subtenants who have not vacated properties and most of whom have not accepted license agreements with the company or have not entered into new agreements with the company's distributor tenants and therefore occupy the properties without right.

Eviction proceedings involving 26 of Getty Realty's properties in Connecticut have materially adversely impacted its tenant, NECG Holdings Corp. As of Aug. 6, 2013, the Superior Court of the State of Connecticut in which these eviction actions were tried ruled in Getty Realty's favor in substantially all of these locations. Marketing's former subtenants (or sub-subtenants) have appealed these rulings. The company remains confident that it will prevail in any appeal; however, it said it can't predict when such appeal will be resolved or when it will be able to deliver occupancy of the properties to its tenant, NECG. As a result of the disruption and costs associated with the litigation, NECG is not current in its rent and certain other obligations due to Getty Realty under its lease.

It has commenced discussions with NECG to restructure the lease including a modification which the company believes is likely to result in the removal of approximately 25 to 30 properties.

Jericho, N.Y.-based Getty Realty specializes in ownership, leasing and financing of convenience store and gas station properties. The company owns and leases approximately 1,040 properties nationwide.