a5636415.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): March 15, 2008
Getty
Realty Corp.
(Exact
name of registrant as specified in charter)
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Maryland
(State
of
Organization)
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001-13777
(Commission
File
Number)
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11-3412575
(IRS
Employer
Identification
No.)
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125
Jericho Turnpike, Suite 103
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Jericho, New
York
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11753
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
Telephone Number, including area code: (516)
478-5400
Not
Applicable
(Former
name or former address, if changed since last report.)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
[ ]
Written communications pursuant to Rule 425 under the Securities
Act
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act
Item
2.02 Results of Operations and Financial Condition.
On March
18, 2008, Getty Realty Corp. (“Getty” or
the “Company”) issued
a press release (the “Press
Release”) disclosing that as a result of events arising subsequent to its
announcement on February 5, 2008 of the Company’s preliminary results of
operations for the quarter and year ended December 31, 2007, the Company revised
its preliminary results of operations for those periods. The Company
disclosed that the continued deterioration in the financial condition and
results of operations of Getty Petroleum Marketing Inc. (“Marketing”),
the Company’s primary tenant, and other developments described in Item 8.01
hereof, have caused the Company to take a non-cash $10.5 million reserve for the
full amount of the deferred rent receivable recorded as of December 31, 2007 for
approximately 40% of the properties (the “Subject
Properties”) under leases with Marketing (the “Marketing
Leases”). This reserve is reflected in the Company’s results
of operations for the fourth quarter and year ended December 31,
2007. Net earnings decreased by $8.8 million to $33.9 million for the
year ended December 31, 2007, as compared to $42.7 million for the year ended
December 31, 2006. The Company incurred a net loss of $0.6 million
for the quarter ended December 31, 2007 as compared net earnings of $9.8 million
for the quarter ended December 31, 2006.
Taking
this non-cash reserve negatively impacts the Company’s results of operation for
the quarter and year ended December 31, 2007. As a result, the
Company cautions its investors, shareholders and other parties that the
preliminary results of operations of the Company included in the February 5,
2008 press release and the related information discussed on the conference call
on February 6, 2008 should not be relied upon.
A copy of
the press release announcing the revised results of operations of the Company
for the quarter and year ended December 31, 2007 is attached as Exhibit 99.1 and
incorporated herein by reference.
Item
2.06. Material Impairments.
On March
15, 2008, the Audit Committee of the Company’s Board of Directors, upon the
recommendation of management, concluded that based on recent developments
regarding Marketing, as explained in Item 8.01 below, the Company should revise
its previously announced preliminary results of operations for the quarter and
year ended December 31, 2007. The Company is, accordingly, taking a
non-cash $10.5 million reserve for the full amount of the deferred rent
receivable recorded as of December 31, 2007 related to the Subject Properties
under the Marketing Leases. This non-cash reserve has been reflected
in the Company’s results of operations for the fourth quarter and year ended
December 31, 2007. After recording this reserve, the Company had a
net deferred rent receivable balance of $24.9 million. The Company
presently does not believe that any material amount of the deferred rent
receivable impairment charge will result in future cash
expenditures.
The
information provided in Item 8.01 of this Current Report on Form 8-K is
incorporated herein by reference.
Item
8.01 Other Events.
A
substantial portion of our revenues (76% for the three months ended December 31,
2007 and 78% for the year ended December 31, 2007) are derived from leases (the
“Marketing Leases”) with our primary tenant, Getty Petroleum Marketing Inc.
(“Marketing”). Accordingly, our revenues are dependent to a large
degree on the economic performance of Marketing and of the petroleum marketing
industry, and any factor that adversely affects Marketing, or our relationship
with Marketing, may have a material adverse effect on us. Through
March 2008, Marketing has made all required monthly rental payments under the
Marketing Leases when due, although there is no assurance that it will continue
to do so. Even though Marketing is wholly-owned by a subsidiary of
OAO LUKoil (“Lukoil”), one of the largest integrated Russian oil companies,
Lukoil is not a guarantor of the Marketing Leases and there can be no assurance
that Lukoil will continue to provide credit enhancement or additional capital to
Marketing in the future.
In
accordance with generally accepted accounting principles (“GAAP”), the aggregate
minimum rent due over the current terms of the Marketing Leases, substantially
all of which are scheduled to expire in December 2015, is recognized on a
straight-line basis rather than when the cash payment is due. We have
recorded as deferred rent receivable on our consolidated balance sheet the
cumulative difference between lease revenue recognized under this straight line
accounting method and the lease revenue recognized when the payment is due under
the contractual payment terms. We provide reserves for a portion of the recorded
deferred rent receivable if circumstances indicate that a property may be
disposed of before the end of the current lease term or if it is not reasonable
to assume that a tenant will make all of its contractual lease payments when due
during the current lease term. Our assessments and assumptions
regarding the recoverability of the deferred rent receivable related to the
properties subject to the Marketing Leases are reviewed on a quarterly basis and
such assessments and assumptions are subject to change.
We have
had periodic discussions with representatives of Marketing regarding potential
modifications to the Marketing Leases and in the course of such discussions
Marketing has proposed to (i) remove approximately 40% of the properties (the
“Subject Properties”) from the Marketing Leases and eliminate payment of rent to
us, and eliminate or reduce payment of operating expenses, with respect to the
Subject Properties, and (ii) reduce the aggregate amount of rent payable to us
for the approximately 60% of the properties that would remain under the
Marketing Leases (the “Remaining Properties”). In light of these
developments, and Marketing’s financial performance, which continued to
deteriorate in the fourth quarter and for the year ended December 31, 2007 (as
discussed below), we intend to attempt to negotiate with Marketing for a
modification of the Marketing Leases which removes the Subject Properties from
the Marketing Leases. Following any such modification, we intend
either to relet the Subject Properties or to sell the Subject Properties and
reinvest the proceeds in new properties. Any such modification would
likely significantly reduce the amount of rent we receive from Marketing and
increase our operating expenses. We cannot accurately predict if or
when the Marketing Leases will be modified or what the terms of any agreement
may be if the Marketing Leases are modified. We also cannot
accurately predict what actions Marketing and Lukoil may take, and what our
recourse may be, whether the Marketing Leases are modified or not.
Representatives
of Marketing have also indicated to us that they are considering significant
changes to Marketing’s business model. We intend to attempt to
negotiate with Marketing for a modification of the Marketing Leases to remove
the Subject Properties; however if Marketing ultimately determines that its
business strategy is to exit all of the properties it leases from us or to
divest a composition of properties different from the properties comprising the
Subject Properties, it is our intention to cooperate with Marketing in
accomplishing those objectives to the extent that is prudent for us to do so by
seeking replacement tenants or buyers for the properties subject to the
Marketing Leases, either individually, in groups of properties, or by seeking a
single tenant for the entire portfolio of properties subject to the Marketing
Leases. Although we are the fee or leasehold owner of the properties
subject to the Marketing Leases and the owner of the Getty® brand and have prior
experience with tenants who operate their gas stations, convenience stores,
automotive repair services or other businesses at our properties, in the event
that the Subject Properties or other properties are removed from the Marketing
Leases, we cannot accurately predict if, when, or on what terms, such properties
could be re-let or sold.
In
February 2008 we received Marketing’s unaudited financial statements for the
year ended December 31, 2007 and became aware that the previously disclosed
deterioration in Marketing’s financial performance had continued to a point
where, in conjunction with our intention to attempt to negotiate with Marketing
for a modification of the Marketing Leases to remove the Subject Properties, we
can no longer reasonably assume that we will collect all of the rent due to us
related to the Subject Properties for the remainder of the current lease
terms. In reaching this conclusion, we relied on various indicators,
including, but not limited to, the following: (i) Marketing’s significant
operating losses, (ii) its negative cash flow from operating activities, (iii)
its asset impairment charges for underperforming assets, and (iv) its negative
earnings before interest, taxes, depreciation, amortization and rent payable to
the Company. Based upon our assessments and assumptions, we believe
that it is probable at this time that Lukoil would not allow Marketing to fail
to perform its obligations under the Marketing Leases. Should our
assessments and assumptions prove to be incorrect, the conclusions reached by
the Company relating to (i) recoverability of the deferred rent receivable for
the Remaining Properties and (ii) Marketing’s ability to pay its environmental
liabilities (as discussed below) would likely change.
Based upon
our belief that Marketing desires to have the Subject Properties removed from
the Marketing Leases, and our intention to attempt to negotiate a modification
of the Marketing Leases to such end, we believe that Marketing will not make all
contractual lease payments when due for the entire current term of the Marketing
Leases with respect to the Subject Properties. Accordingly, we have
reserved approximately $10.5 million of the deferred rent receivable recorded as
of December 31, 2007, which is the full amount of the deferred rent receivable
related to the Subject Properties. This non-cash reserve has been
reflected in our results of operations for the fourth quarter and year ended
December 31, 2007 based on information that became available to us from
Marketing after we announced our results of operations for those
periods. Providing this $10.5 million reserve reduces our net
earnings and our funds from operations but does not impact our cash flow from
operating activities or adjusted funds from operations since the impact of the
straight-line method of accounting is not included in our determination of
adjusted funds from operations. For additional information regarding funds from
operations and adjusted funds from operations, which are non-GAAP measures, see
“General – Supplemental Non-GAAP Measures” in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and “Selected
Financial Data” both of which appear in our Annual Report to Shareholders filed
as exhibit 13 in our 2007 Annual Report on Form 10-K and are incorporated by
reference herein. While we believe it is no longer reasonable to
assume that Marketing will make all contractual lease payments when due for the
entire current term of the Marketing Leases with respect to the Subject
Properties, after considering Marketing’s financial condition, our intention to
negotiate a modification of the Marketing Leases, and certain other factors,
including but not limited to those described above, we continue to believe that
it is probable that we will collect the deferred rent receivable recorded as of
December 31, 2007 related to the Remaining Properties. In addition,
based upon our evaluation of the carrying value of the Subject Properties, we
believe that no impairment adjustment is necessary for the Subject Properties as
of December 31, 2007 pursuant to the provisions of Statement of Financial
Accounting Standards No. 144. We intend to regularly review our assumptions that
affect the accounting for rental revenue related to the Remaining Properties
subject to the Marketing Leases and our assumptions regarding potential
impairment of the Subject Properties and, if appropriate, to consider adjusting
our reserves. Beginning in the first quarter of 2008, we anticipate
that the rental revenue for the Remaining Properties will continue to be
recognized on a straight-line basis and the rental revenue for the Subject
Properties will be recognized when paid under the contractual payment
terms.
As the
operator of our properties under the Marketing Leases, Marketing is directly
responsible to pay for the remediation of environmental contamination it causes
and to comply with various environmental laws and regulations. In
addition, the Marketing Leases and various other agreements between Marketing
and us allocate responsibility for known and unknown environmental liabilities
between Marketing and us relating to the properties subject to the Marketing
Leases. Based on various factors, including our assessments and
assumptions at this time that Lukoil would not allow Marketing to fail to
perform its obligations under the Marketing Leases, we believe that Marketing
will continue to pay for substantially all environmental contamination and
remediation costs allocated to it under the Marketing Leases. It is
possible that our assumptions regarding the ultimate allocation methods and
share of responsibility that we used to allocate environmental liabilities may
change as a result of the factors discussed above, or otherwise, which may
result in adjustments to the amounts recorded for environmental litigation
accruals, environmental remediation liabilities and related
assets. We may ultimately be responsible to directly pay for
environmental liabilities as the property owner if Marketing fails to pay
them. We are required to accrue for environmental liabilities that we
believe are allocable to Marketing under the Marketing Leases and various other
agreements if we determine that it is probable that Marketing will not pay its
environmental obligations.
Based upon
our assessment of Marketing's financial condition and certain other factors,
including but not limited to those described above, we believe at this time that
it is not probable that Marketing will not pay the environmental liabilities
allocable to it under the Marketing Leases and various other agreements and,
therefore, have not accrued for such environmental liabilities. Our assessments
and assumptions that affect the recording of environmental liabilities related
to the properties subject to the Marketing Leases are reviewed on a quarterly
basis and such assessments and assumptions are subject to change.
We cannot
provide any assurance that Marketing will continue to pay its debts or meet its
rental, environmental or other obligations under the Marketing Leases prior or
subsequent to any potential modification to the Marketing Leases discussed
above. Additionally, we may be required to (i) reserve additional amounts of the
deferred rent receivable at a later time, (ii) accrue for environmental
liabilities that we believe are allocable to Marketing under the Marketing
Leases and various other agreements, or (iii) record an impairment charge
related to the Subject Properties as a result of the proposed modification of
the Marketing Leases. In the event that Marketing cannot or will not
perform its rental, environmental or other obligations under the Marketing
Leases; if the Marketing Leases are modified significantly or terminated; if we
determine that it is probable that Marketing will not meet its environmental
obligations and we accrue for such liabilities; if we are unable to relet or
sell the properties subject to the Marketing Leases; or if we change our
assumptions that affect the accounting for rental revenue or environmental
liabilities related to the Marketing Leases; our business, financial condition,
revenues, operating expenses, results of operations, liquidity, ability to pay
dividends and stock price may be materially adversely affected.
For
additional information regarding factors that could adversely affect us relating
to Marketing, see “Part I, Item 1A. Risk Factors” in our 2007 Annual Report on
Form 10-K.
CERTAIN STATEMENTS IN THIS CURRENT
REPORT ON FORM 8-K MAY CONSTITUTE “FORWARD LOOKING STATEMENTS” WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WHEN THE WORDS
“BELIEVES,” “EXPECTS,”
“PLANS,” “INTENDS,” “PROJECTS,” “ESTIMATES” AND SIMILAR EXPRESSIONS ARE USED,
THEY IDENTIFY FORWARD-LOOKING STATEMENTS. STATEMENTS
IN THIS CURRENT
REPORT ON FORM 8-K THAT
ARE FORWARD-LOOKING INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS
ABOUT (A) THE COMPANY’S BELIEF THAT ANY MATERIAL AMOUNT OF THE DEFERRED
RENT RECEIVABLE IMPAIRMENT CHARGE WILL NOT RESULT IN FUTURE CASH EXPENDITURES,
(B) THE COMPANY’S
STATEMENTS RELATING TO MARKETING’S ABILITY TO MAKE CONTRACTUAL LEASE PAYMENTS
WHEN DUE FOR THE ENTIRE CURRENT TERM OF THE MARKETING LEASES, AND (C) THE
COMPANY’S INTENTION WITH RESPECT TO ASSISTING LUKOIL AND MARKETING IF MARKETING
DECIDES TO EXIT ALL OR SOME PART OF THE RETAIL MOTOR FUEL AND CONVENIENCE STORE
BUSINESS IT IS CURRENTLY ENGAGED IN WITH RELATION TO THE PROPERTIES IT LEASES
FROM THE COMPANY. THESE FORWARD-LOOKING STATEMENTS ARE
BASED ON MANAGEMENT’S CURRENT BELIEFS AND ASSUMPTIONS AND INFORMATION CURRENTLY
AVAILABLE TO MANAGEMENT AND INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING
STATEMENTS. INFORMATION CONCERNING FACTORS THAT COULD CAUSE THE
COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THESE FORWARD-LOOKING
STATEMENTS CAN BE FOUND IN PERIODIC REPORTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT FUTURE EVENTS OR
CIRCUMSTANCES OR REFLECT THE OCCURRENCE OF UNANTICIPATED
EVENTS.
Item
9.01. Financial Statements and Exhibits.
(d) Exhibits
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Exhibit
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Number
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Description
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99.1
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Press
Release, dated March 18, 2008, issued by Getty Realty
Corp.
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The information contained in Item 2.02
and Exhibit 99.1 to this Current Report on Form 8-K is being furnished and shall
not be deemed “filed” for the purposes of Section 18 of the Securities Exchange
Act of 1934, as amended, or otherwise subject to the liabilities of that
Section. Such information in this Current Report on Form 8-K shall
not be incorporated by reference into any registration statement or other
document pursuant to the Securities Act of 1933, as amended, except as shall be
expressly set forth by specific reference in any such filing.
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 hereunto duly
authorized.
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GETTY
REALTY CORP.
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Date: March 18,
2008
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By:
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/s/ Thomas J.
Stirnweis |
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Thomas J.
Stirnweis |
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Vice
President, Treasurer and
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Chief Financial
Officer |
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