Getty Realty Corp (GTY) 2007 Q3 法說會逐字稿

Good morning everyone and welcome to the Getty Realty's conference call for the third quarter and nine months ended September 30, 2007. Today's conference call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to Mr. Andrew Smith, President, Secretary and Chief Legal Officer for Getty Reality Corp. Mr. Smith, please go ahead sir.

Thank you. Thank you all for joining us for Getty Realty's conference call. Before we begin I would like to read into the record the Safe Harbor Statement.

The statements made during the course of this conference may include our hopes and intentions, beliefs, expectations or projections of the future that, along with other statements that are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. An example of such forward-looking statements would be management's estimation as to the accretive effect of a particular acquisition transaction.

It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those forward-looking statements can be found in our annual report on Form 10-K for the fiscal year ended December 31, 2006 as well as in our other filings with the SEC. You should not place undue reliance on forward-looking statements, which reflect our view only as of the days hereof and we under take no obligation to publicly release revisions to these forward-looking statements to reflect future events or circumstances or reflect the occurrence of unanticipated events.

Now I would like to introduce the officers of the Company who are present during this call and are prepared to answer your questions. Mr. Leo Liebowitz, Chairman and CEO, will comment on our Press Release that was issued yesterday after the close of business. Also available to answer questions are Thomas Stirnweis, the Company's Vice President, Treasurer and Chief Financial Officer and Mr. Kevin Shea, Executive Vice President with principle responsibility for real estate acquisitions, asset management and environmental matters. I will now turn the call over to Mr. Liebowitz.

Good morning everyone. For those who have missed or not received the Press Release, which went out after the close of business yesterday, October 30th, we reported the results of our third quarter and nine months ended September 30th, 2007. With regard to the Press Release I will mention some of the highlights and afterwards we will be happy to answer your questions.

Rent received increased by $2 million for the quarter and $4.2 million for the nine months ended September 30th, 2007 over the comparable prior year periods. These increases were due to property acquisitions and rent escalations. Our financial results for the third quarter, nine months ended September 30th, 2007 included the positive impact of the previously ordered acquisition from trust REIT properties. The increased rental income from the acquisition was partly offset by additional depreciation and amortization expense and incremental interest expense.

Net earnings were $12.8 million for the quarter ended September 30th, 2007 as compared to $11.3 million for the quarter ended September 30th, 2006, an increase of $1.5 million. Net earnings were $33.3 million for the nine months ended September 30th, 2007 as compared with $32.9 million for the nine months ended September 30th, 2006, an increase of $400,000.

Gains on dispositions of real estate from continuing and discontinued operations increased by $3.3 million for the quarter ended September 30th, 2007 and $4.2 million for the nine-month period.

Regarding interest expense, items interest expense increased by $1.3 million for the quarter and by $2.9 million for the nine months ended September 30th, 2007 as compared to the respective prior year periods. Interest expense increased primarily due to the additional borrowings used to finance the acquisition of properties.

Environmental expenses increased by $1.2 million for the quarter and by $3.3 million for the nine months as compared to the respective prior year periods. Increases were primarily due to increases in project scope or duration and related cost forecasts at a limited number of properties, including one site that we agreed to remediate as part of a legal settlement with the State of New York and another where regulators mandated a more costly approach than had been previously contemplated. However, we remain close to our target for the year with our environmental program despite expected quarter-to-quarter expense fluctuations.

In conclusion, we remain optimistic that our Company will continue to increase shareholder value. With that said, Tom Stirnweis, Andy Smith and Kevin Shea and I are ready to answer any of your questions. Please state your name and company before you ask a question.

And this does begin our question and answer session. (Operator Instructions) We will pause just moment. We will take our first question from Joshua Barber with Stifel Nicolaus.

Good morning. Leo, this is the second quarter in a row that there was some sort of flare-up with environmental expenses. I know that it's kind of hard to predict on a quarter-to-quarter basis, but being that there is two more sites that you are having some litigation with the government, how much further to you see into the future do you see some issues with state governments and further flare-ups coming?

Well, you know it depends on the jurisdiction and the individual that's on the government side of those issues but I think that for the year we're going to be okay, but let me turn it over to Kevin since he's responsible on a day-to-day basis with that.

Well, as Leo had said, it's hard to predict how any particular governmental agency is going to behave. This site in New York that we've settled this quarter, we've been going back and forth with the State for about six years on this and we settled on the advice of our outside counsel. We didn't really believe that the State had that strong a case against us, but on the advice of our outside counsel felt it would cost us more to litigate it and we'd have no certainty of the outcome, be more conservative to just settle with the State. We did so and the cost to remediate this one particular site is going to be $900,000. We don't really have anything else on the horizon of that magnitude.

Is there anything of smaller magnitude?

There's-- yes sure. There's day-to-day garden variety issues, again, nothing of even close to this magnitude.

Okay, just changing tacks for a minute, you guys made some acquisitions this quarter through the 1031 market. Are you seeing a lot of just general one off deals there or do you think there is a potential for some portfolios like earlier in the year?

There is a lot of opportunity out there for some sizable acquisitions. We've looked at them, looking at them but we're not actively pursuing anything of great magnitude at this time, kind of going to wait until the capital markets settle out. So, we are going to continue to basically recycle our portfolio, take some properties that when we get them back from our primary tenant, Getty Petroleum Marketing, sell those and then reinvest in better properties.

Okay great and could you also, just as a last question can you give us the life cycle rundown?

Sure, [predonation] we have 2 sites in assessment, 17 remedial action plan implementation, 8 sites operation and maintenance. 84 sites closure activities, 174 and that should total 285 sites with open incidents.

Great, thank you.

We'll take our next question from George Auerbach with Merrill Lynch.

Kevin, could you maybe give us some more color on the issue at the New York site?

Sure, this was an old terminal property that we'd purchased over 20 some odd years ago. We'd never operated it as a terminal but we got in a chain of title and we've sold off pretty much the entire property. I think we still have one little parcel but we'd sold it off 10-15 years ago and the State started an investigation, I believe somewhere around 8 or 9 years ago, and had come to us, as I had said earlier, about 6 years ago and we explained to them that we'd never operated the site. We-- it came as part of the package with a group of properties that we bought and because we were in the chain of title, I guess it was a deep pockets theory as well. They were the only ones that we-- we were the only ones that they could get their hands on. And again, on the advice of our outside counsel it appeared to be more cost effective for us to settle with the State, take on the remediation, than it would be to litigate it with no certainty of the outcome of the litigation.

When we sold these, by the way, they were sold for non-petroleum use so they have not had any petroleum use either by us or by any of the buyers of these properties.

Okay, great and I guess in general, given the growing focus in the media on environment issues, do you guys expect a higher run rate of environmental expenses going forward?

We don't expect it. As I had said earlier in the call, we have-- on any given day we have a number of routine, garden variety claims made against us by municipalities or private property owners and they usually don't amount to much dollar wise and we've done a good job of defending ourselves against these claims and when we are the responsible party, stepping up to the plate and remediating them in accordance with the applicable laws but again, there's nothing on the horizon of this magnitude.

Okay, and finally, your other income one item was $1.4 million, sort of spiked up this quarter. What sort of one-time items were in that number?

That's primarily the disposition of a property that we had sold located in New York, Kingston, New York.

What was the approximate, I guess, gain on that property?

It was about a $1.1 million, $1.2 million.

That's great, thank you.

(Operator Instructions) We will go next to David Cohen with Athena Capital Management.

Leo, you've been at this a long time and you have seen lots of different environments for making acquisitions. I would have thought, given the freeze-up in the financing market this summer that this would be an extremely good market for you to be looking around in and yet I got the sense from some earlier comments on this call that you guys are hanging back a little bit. And, I'm wondering, in particularly I assume the major oil companies are focused on other pieces of their supply chain right now as being much more profitable. I'm wondering how you would characterize the opportunity set presently relative to times over the last decade or two? Thanks.

You're right. Kevin did comment that we're standing by the sidelines at the moment. The opportunities clearly are there but with what's happening in the market I think the opportunities will be even greater. As you know, we are quite conservative. We're very slow to put on additional debt and we're there. Those opportunities are there. I think they're going to be there for a while and we certainly want to enhance the portfolio and there are good properties that are available. We'll just-- we're biding our time.

Thanks.

(Operator Instructions) At this time we have no further questions. I would like to return the call back to Mr. Liebowitz for any closure or further remarks.

Well, okay. Thank you all for participating in the call and we wish you all a good day.

This does conclude today's conference call. We appreciate your participation. You may disconnect at this time.