Getty Realty Corp (GTY) 2009 Q4 法說會逐字稿

Good morning, everyone, and welcome to Getty Realty's conference call for the fourth quarter and year ended December 31, 2009. Today's conference is being recorded. At this time for opening remarks and introductions I would like to turn the call over to Mr. Joshua Dicker, Vice President, Secretary and General Counsel for Getty Realty Corp. Please go ahead, sir.

Thank you. Thank you all for joining 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 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.

Examples of such forward-looking statements would include management's estimation as to the financial impact of a particular transaction or management's beliefs regarding the business activities of the Company's tenants and management's expectations regarding the future performance of such tenants.

It is important to note that the Company's actual results could differ materially from those projected in any forward-looking statements. Information concerning factors that could cause actual results to differ materially from forward-looking statements can be found in our annual report on Form 10-K for the fiscal year ended December 31, 2009, our quarterly reports on Form 10-Q for the fiscal quarter ended March 31, 2009, June 30, 2009 and September 30, 2009, 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.

Also, our remarks will include discussion of certain non-GAAP financial measures. We have provided a reconciliation to our most comparable GAAP measures in our earnings release. 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 on Thursday, February 18, 2010 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 principle responsibility for real estate acquisitions and dispositions, asset management and environmental matters. I will now turn the call over to Mr. Liebowitz.

Good morning, everyone. To those listeners who have not received the press release, which went out after the close of business Thursday, February 18, we reported the results of our fourth quarter and our year ended January 31, 2009. With regard to the press release, I will mention some of the highlights and afterwards we'll be happy to answer your questions. Before I do, however, let me offer some preliminary comments.

Although the current economic conditions have proven to be the worst in decades, I believe it's fair to say that although motor fuel consumption in the US is down slightly, the gasoline and convenient store sector has not been as severely affected as other sectors. The use of the automobile is more of a necessity than a luxury and as such the gas and convenience store industry has not suffered as much when compared to the overall economy.

Getty Realty is in an enviable position as compared with other REITs. We continue to reserve virtually all of our scheduled rents on time. As a result our cash flow from operations has essentially not been adversely affected by the general economic downturn. Our company has also shown an ability to achieve growth in this challenging economy.

As we previously reported to you last September, we acquired the real estate assets of 36 Exxon branded gas stations and convenience store properties located in Maryland for $49 million. These are high quality properties; we acquired them in a simultaneous transaction involving Exxon Mobil, White Oak Petroleum and Getty Realty, whereby White Oak acquired the properties and related businesses from Exxon Mobil and simultaneously completed a sale leaseback of all 36 properties with us.

The properties are leased by us to White Oak under a unitary triple net lease which has an initial term of 20 years and provides White Oak with renewal options. This is unitary triple net lease includes annual rent escalations and it also makes White Oak responsible for all existing and future environmental conditions at the properties.

As we previously stated, we had expected that this acquisition would be immediately accretive to our annual earnings. Getty Realty's financial results for the fourth quarter of 2009 include the results of this acquisition.

Now as regarding our major tenant, Getty Petroleum Marketing -- as you know, we have held periodic discussions with GPMI regarding removal of a substantial number of properties from the master lease with GPMI. And as we have reported, we have been successful in removing individual locations from the master lease when mutually beneficial opportunities are negotiated. However, we have not to date been able to reach a common understanding with GPMI that would form the basis for a modification of the master lease.

As we previously reported to you, representatives of GPMI have in the past indicated to us that they were considering significant changes to GPMI's business model. In that regard, in the fourth quarter of 2009 GPMI announced a restructuring of its business that included the sale to its affiliates including LUKOIL North America of all assets unrelated to the property GPMI leases from us.

According to its press release GPMI has paid off debt guaranteed by the LUKOIL, its parent company. GPMI also took steps to reduce operating costs including closing two marketing regions and eliminating jobs. We believe that GPMI is significantly reducing its business of directly supplying fuel to its subtenants in favor of entering into subleases with petroleum distributors who supply fuel to their own facilities as well as those operated by others.

Approximately 250 locations comprising substantially all of the retail locations in New England that we lease to GPMI being subleased by GPMI to a single distributor who is rebranding these stations to BP. We also believe that GPMI has entered into a sublease with a distributor in New Jersey for approximately 85 of the properties we lease to GPMI.

We continue to monitor a GPMI's business developments; we also continue our efforts to establish a meaningful dialogue with GPMI that may allow for removal of properties from the master lease upon mutually beneficial terms. In the meantime GPMI continues to pay its monthly rent on time.

Despite the difficult economic conditions, Getty Realty's operating performance has remained on track for 2009 as follows -- for the year ended December 31, 2009 Getty Realty paid regular cash dividends on its common shares in the aggregate amount of $46.8 million. For the fifth consecutive year Getty Realty has increased its dividend to its shareholders.

Net earnings increased by $5.2 million to $47 million for 2009 as compared to $41.8 million for 2008. The increase in net earnings from 2009 is primarily due to the increase in rental revenues, gains on real estate sales, the reduction in interest expense and our acquisition of the Exxon portfolio in Maryland.

Rental revenues for 2009 increased by $1.7 million to $84.5 million as compared to $82.8 million in 2008. The increase of rental revenues resulted primarily from the acquisitions we completed during 2009 and the rent escalations.

Funds from operations or FFO for 2009 increased by $1.7 million to $52.6 million for 2009, an increase of $3.3 million as compared to $50.9 million for 2008. Adjusted funds from operation, or AFFO, increased by $3.4 million to $51.7 million for 2009, an increase of 7% as compared to $48.3 million for 2008. Certain items which are included in the changes in net earnings are excluded from the changes in FFO and AFFO.

Net environmental expense increased by $1.5 million for the 12 months ended December 31, 2009 as compared to the prior year. The increase was primarily as a result of an increase in litigation loss reserve partially offset by a reduction in estimated remediation costs.

In conclusion, I'm proud to say that Getty Realty Corp. has continued to execute its business plan in this difficult economy and has met the challenges head on. We remain optimistic that our company will increase shareholder value in these volatile financial times. And with that said, Tom Stirnweis, Kevin Shea, Josh Dicker and I are ready to answer any of your questions.

(Operator Instructions). [Brett Reiss], Janney Montgomery Scott.

Good morning, gentlemen. The subleases that Getty Marketing is entering into, that can be done without your consent?

Yes, under the terms of our lease they can sublet to any property. In reality the way they operate now is they sublease to individual operators who run each of those gas stations anyway. So, in this case they're subletting it to a distributor, or a group of them to a distributor. But they have that right and they need to have that right in order to operate the business.

Right, right. Do you know whether the amount that they're subleasing it is equivalent to, less or greater than your pro rata portion of the lease to them?

We really have not been given any specific information. We've not seen their lease, so we can't answer that question with any real knowledge.

Is the 250 in New England, that subject of the sublease, and the 85 contemplated you think in New Jersey, is that where the problem stations for Getty Marketing are concentrated?

No, not necessarily. I mean those are -- there are some very good locations up there as there are in Jersey. We don't know -- we don't believe there are any serious problems in locations that are included in that.

If Getty Marketing did decide to walk away from the unitary master lease, do you then -- the benefit of the subleasing arrangement that they've worked out for the 250 properties in New England and possibly the 85 in New Jersey, to you then stand in their shoes and get the benefit from that arrangement?

The only benefit we have is that these people are investing some money in the properties and they have a stake in it and would obviously like to continue to stay. If something were to happen to the master lease they are in jeopardy.

Thank you for answering my questions and I'll step back in the queue.

Thank you.

At this time there are no additional questions in the queue. (Operator Instructions). [Brett Reiss].

We can't hear him.

And he just left the queue.

Give him a chance to reconnect if he wants to.

And at this time there are no additional questions.

Okay.

So I'd be happy to turn the call back over to the host for closing remarks.

Well, since we have no further questions, I thank you all for joining us at this time.

And once again, with that, that does conclude your conference for today. Thank you for your participation.