Getty Realty Corp (GTY) 2008 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, 2008. Today's conference is being recorded.

At this time, for opening remarks and introductions, I'd like to turn the conference call over to Mr. Joshua Dicker, Secretary and Chief Legal Officer General Counsel for Getty Realty Corporation. Please go ahead, Mr. Dicker.

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 call may include our hopes, intentions, beliefs, expectations, or projections in 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 financial impact or anticipated developments arising from a particular 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, 2007, our quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2008, and June 30, 2008, and 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 date hereof. We undertake 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 who 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 Kevin Shea, Executive Vice President with principal responsibility for real estate acquisitions, asset management, and environmental matters.

I will now turn the call over to Mr. Liebowitz.

Thank you very much, Josh. Good morning, everyone.

For those listeners who have not received the press release, which went out after the close of business yesterday, October 28, we have reported the results of our third quarter and nine months ended September 30, 2008. With regard to that press release, I will mention some of the highlights. And afterwards we will be happy to answer your questions.

Our financial results for the three months and the nine months ended September 30, 2008 included the benefit of the $84.6 million acquisition of convenience stores and gas station properties from Trustreet Properties, that was substantially completed at the end of the first quarter of 2007, which was partially offset by a reduction in gains on dispositions of real estate recorded in 2008 as compared to 2007.

Earnings from continued operations were $10 million for the quarter ended September 30, 2008 as compared to $9.9 million for the quarter ended September 30, 2007, an increase of $100,000.

Earnings from continued operations were $30.3 million for the nine months which ended September 30 as compared to $28.6 million for the nine months ended September 30, 2007, an increase of $1.7 million.

Rent revenues increased by $2.7 million to $60.8 million for the nine months ended September 30, 2008. The increase in earnings from continuing operations and rent income will break the full effect of the rental revenue attributable to properties acquired in 2007, which was as I said previously, offset by additional depreciation and amortization expense and the interest expense on the borrowings related to such acquisitions.

Earnings from continued operations exclude the operating results and gains from the disposition of properties sold in 2008 and 2007, which results have been reclassified and are included in earnings from discontinued operations.

Earnings from discontinued operations consist primarily of gains on dispositions of real estate, and decreased by $2.4 million for the quarter and by $2.5 million for the nine months ended September 30 as compared to the respective prior year periods. As a result, net earnings decreased by $2.3 million to $10.5 million for the quarter ended September 30, 2008 as compared to $12.8 million for the quarter ended September 30, 2007.

Net earnings decreased by $0.8 million to $32.5 million for the nine months ended September 30, 2008 as compared to $33.3 million for the nine months ended September 30, 2007.

Our Adjusted Funds From Operations, or AFFO, for the quarter ended September 30, 2008 increased by $1.6 million to $12.2 million, and increased by $4.7 million to $36.9 million for the nine months which ended September 30th, 2008.

Net environmental expense decreased by $0.5 million and $1.9 million for the quarter and the nine months ended September 30, 2008 as compared to the same 2007 period periods. We remain close to our target for the year with our environmental programs, in spite of expected quarter-to-quarter expense fluctuations. You should not assume that future environmental expense and changes in accrued estimated remediation expense will be of the same magnitude as we experienced in the periods which ended September 30th.

Interest expense decreased by $600,000 for the quarter and by $200,000 for the nine months which ended September 30, 2008 as compared to the respective prior-year periods. Interest expense decreased primarily due to reduction in interest rates.

With regard to our major tenant, Getty Petroleum Marketing, a wholly-owned subsidiary of LUKOIL, although we remain open to and have been making preparations to negotiate with them, there have not been any material developments in regard to such negotiations during this past quarter.

In conclusion we remain optimistic that our Company will continue to increase shareholder value in these volatile financial times. That said, Thomas Stirnweis, Kevin Shea, Josh Dicker, and I are ready to answer any of your questions. Please state your name and your company before you ask a question.

(Operator Instructions). David Fick, Stifel Nicolaus.

Can you review for us any correspondence or conversations you have had with LUKOIL? I understand there's nothing material, but have they made any further statements to you, either writing or orally, regarding their intentions?

No, they have not. We have had a couple of discussions through the quarter, but none of them have been meaningful, nothing outstanding that's different from what we've had in the past.

Okay. And then when you look at the store-level performance, the reduction in gas prices I presume is a good thing for them. With oil below $70 a barrel, how is Getty Marketing doing from your perspective?

Well, as we've previously told to all of you, we do not have day-to-day location performance. But the overall industry, the retail side of the gasoline distribution industry, is experiencing excellent, excellent profit margins at this time. And we are sure -- we're absolutely sure that Getty Marketing is experiencing the same thing.

Is it your assessment based on your knowledge of the financials of Getty that they would be profitable at this point?

I would think so.

Okay. And then I have two more questions. In the case of a temporary lease reduction while you are backfilling (technical difficultly), what would happen to your covenants? How close are you to your covenants at this point?

Tom, would you want to respond?

We're -- we've got plenty of room under our covenants.

Tell us what those covenants are.

What those covenants are? There are some coverage ratios of earnings to fixed costs. There's dividend covenants. There's covenants for leverage ratios, etc.

Sorry. We'll follow back with you on the specifics of what those might be. And I guess lastly, if you could just (multiple speakers)

But Tom, am I correct that we have no problems with our covenants?

No. We're -- we've got plenty of room currently under all of our covenants.

All right. And if you were to say have a 10% reduction in rent overall, would you still have that kind of cushion?

David, I can't give you an analysis off the cuff.

We'll talk off-line. And then lastly, just review where we are in terms of the environmental life cycle, but also your assessment of where you stand and what see going forward in terms of both legislative and regulatory change. Are there any risks that might be there?

Certainly. David, this is Kevin Shea speaking. I'll run down our life-cycle phases first. We have a total of 271 sites with open incidents, two of which are in predelineation. We have 14 in assessment. We have four in a remedial action plan implementation, 74 in operation and maintenance, and 177 in closure activities.

We received four no-further-action letters this quarter, and we had one comeback site, which we'll be able to close we believe next quarter for less than $5,000. So we're in pretty good shape with our environmental projects.

As you can see, our spending was down, and our estimated changes are also down. However, as we have said, it fluctuates from quarter to quarter, and we can't expect change of this magnitude in future quarters.

As far as the regulatory environment, they are getting tougher. New Jersey, especially, continues to tighten the regs down there. They've lowered the criteria for soil standards. And they continue to, as I said, tighten the regs in New Jersey.

New York also to some degree is tightening up their standards. We haven't calculated just yet. We haven't completed our calculations on the impact of these regulation changes. But we should have that done by the end of the year.

Think that that would increase your accrual?

There is a likelihood that it will have an impact on our approval, yes.

But just to make it clear, any incidents post (technical difficulty) would accrue to LUKOIL or Getty Marketing.

David, we lost you for a moment.

I'm sorry. Any incidents that have occurred since you signed a lease and spun off Getty Marketing would continue to go to LUKOIL, and anything that's new, even from a regulatory perspective, would only apply to things that occur prior to -- is that 1998?.

Actually, it was 2000 when we signed the lease with GPMI. That's correct. Any new incidents that occur are the responsibility of GPMI.

I did have one other thing for Leo. It's a recurring theme with us. Everybody would like to see you diversify your credit risk by having more non-LUKOIL stations. What are you seeing in terms of availability of investments at this point, and do you think your Board is going to be amenable to some acquisitions?

We see that there are real growth opportunities. We've been very conservative, and that's especially true in this financial economic climate. But Management would certainly like to grow it further, and we're doing that with some sales and some 1031 exchanges with additional properties. But overall, the total number has remained the same, and we will see what the opportunities are as we go forward.

What are you seeing in terms of pricing? I think when you first converted to a REIT, you could buy stations for about a 14 cap, and then that came down into the sort of nine-cap range. Have we moved back closer to 14 at this point, with the environment?

I don't know that we're closer to -- well, we're not close to 14. We believe the market is in the double-digits though, 10 to 12 range at this time.

Andrew Dakos, Full Value Partners.

I have two questions. In the press release, Leo, in your comments, you make reference to -- that -- the fact that we continued our internal review of a number of possible proposals to negotiate a modification of the unitary master lease with Marketing. When you say review a number of proposals, has Marketing made proposals to Getty Realty? Or are these proposals that you've come up with for the consideration of Marketing?

As we have said in our previous press releases, Marketing has in fact come to us with a proposal and a list of properties that they would like to remove from the unitary master lease. That's been the only proposal that they've come with. Since they've not come with any other proposals, we have worked internally on a variety of potential counterproposals, depending upon what they might be receptive to. But as of today, nothing has really happened.

Okay. And the second question I have is, has the improvement in the retail spreads in the business taken the edge off Marketing in terms of their -- how aggressive their -- they were pursuing some kind of a modification to the lease, in your view? Since it appears kind of from the outside looking in that things have slowed down and there hasn't been a lot of developments over the last several months. And just wondering if that is kind of a product of what's going on in the market right now with profitability?

We don't know what's driving Marketing, but it is true that they've been relatively quiet.

(Operator Instructions).

Obviously, there are no more questions. Since there are no more questions, I thank all of you for participating. And this concludes our conference call. Thank you all.

At this time, this does conclude our conference call. You may now disconnect. Have a great day.