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PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 3, 2001)
7,700,000 SHARES
[GETTY LOGO]
GETTY REALTY CORP.
COMMON STOCK
----------------------
We are selling 7,700,000 shares of our common stock, which is listed on
the New York Stock Exchange under the symbol "GTY". On July 26, 2001, the last
reported sale price of our common stock on the NYSE was $20.94 per share.
Getty Realty Corp. is one of the largest real estate companies in the
United States specializing in the ownership, leasing and management of gasoline
station/convenience store properties. We are self-administered and self-managed
through our management, which has owned, leased and managed gasoline stations
and convenience store properties for more than 45 years. As of June 30, 2001, we
owned 749 properties and leased 339 additional properties in 13 states located
principally in the northeastern United States.
In order for us to qualify to elect to be taxed as a real estate
investment trust, or REIT, under the Internal Revenue Code, we have declared a
special distribution of approximately $64.1 million to holders of record of our
common stock and series A participating convertible redeemable preferred stock
at the close of business on July 25, 2001. The special distribution represents
our "earnings and profits" accumulated from prior years and relating to the
current year, and its payment is conditioned on the closing of this offering.
Purchasers of common stock offered by this prospectus supplement will not
receive any portion of this "earnings and profits" distribution on any of the
shares of common stock they purchase.
Subject to stockholder approval at our August 1, 2001 special
stockholders' meeting, the common stock will be subject to limitations on direct
or beneficial ownership and restrictions on transfer. These limitations and
restrictions on transfer will also apply to our existing series A preferred
stock and other equity securities we may issue in the future. These limitations
are customary and appropriate to permit us to elect and thereafter preserve our
status as a REIT for federal income tax purposes. Additional information on
these ownership and transfer restrictions is set forth under "Description of Our
Securities -- Restrictions on Ownership."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS, INCLUDING THOSE DISCUSSED
UNDER "RISK FACTORS" BEGINNING ON PAGE S-12.
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PER SHARE TOTAL
--------- -----
Public offering price...................................... $16.00 $123,200,000
Underwriting discount...................................... $.84 $6,468,000
Proceeds, before expenses, to Getty........................ $15.16 $116,732,000
The underwriters may also purchase up to an additional 1,155,000 shares
at the public offering price, less the underwriting discount, within 30 days
from the date of this prospectus supplement to cover any over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The shares of common stock will be ready for delivery on or about August
1, 2001.
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MERRILL LYNCH & CO.
LEGG MASON WOOD WALKER
INCORPORATED
----------------------
The date of this prospectus supplement is July 26, 2001.
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[LOGO]
[GRAPHIC DISPLAYS THE EASTERN UNITED STATES, THE AGGREGATE NUMBER OF OWNED AND
LEASED PROPERTIES IN EACH STATE AND THE LOCATIONS OF OUR PETROLEUM TERMINALS
AND HEADQUARTERS; PHOTOS OF A REPRESENTATIVE GASOLINE STATION AND TERMINAL
OWNED OR LEASED BY US AS OF JUNE 30, 2001]
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You should rely only on the information contained or incorporated by
reference in the prospectus and this prospectus supplement. We have not, and the
underwriters have not, authorized any other person to provide you with different
or additional information. If anyone provides you with different or additional
information, you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information appearing
in the prospectus and this prospectus supplement is accurate only as of the date
on their respective front covers. Our business, financial condition, results of
operations and prospects may have changed since each of those dates.
Unless otherwise indicated, all information contained in this prospectus
supplement assumes the underwriters' over-allotment option is not exercised and
the terms "Getty," "we," "us," and "our" refer to Getty Realty Corp. and, where
appropriate, our subsidiaries.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Prospectus Supplement Summary and under the
headings "Risk Factors," "Business and Properties," "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and elsewhere in this
prospectus supplement and the accompanying prospectus and the information
incorporated by reference herein and therein constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. These
factors include, among others, the following: risks associated with owning and
leasing real estate generally; risks related to our businesses and our lessees;
renewal of leases and re-letting of properties; risks relating to potential REIT
election and failure to qualify after such an election; uninsured losses;
environmental matters; risks relating to the payment of dividends and
appreciation of equity; those items set forth under the headings "Risk Factors";
and other factors referenced in the prospectus and this prospectus supplement
and the information incorporated by reference herein and therein.
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 that reflect
future events or circumstances or the occurrence of unanticipated events.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... S-1
PROSPECTUS SUPPLEMENT SUMMARY............................... S-3
RISK FACTORS................................................ S-12
USE OF PROCEEDS............................................. S-16
CAPITALIZATION.............................................. S-17
PRICE RANGE OF COMMON STOCK AND DIVIDENDS PAID.............. S-18
SELECTED FINANCIAL DATA..................................... S-19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. S-22
BUSINESS AND PROPERTIES..................................... S-28
OUR POLICIES WITH RESPECT TO CERTAIN ACTIVITIES............. S-33
OUR DIRECTORS AND MANAGEMENT................................ S-36
DESCRIPTION OF OUR SECURITIES............................... S-38
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.... S-40
UNDERWRITING................................................ S-53
LEGAL MATTERS............................................... S-55
EXPERTS..................................................... S-56
WHERE CAN YOU FIND MORE INFORMATION......................... S-56
INCORPORATION OF INFORMATION WE FILE WITH THE SEC........... S-56
CONSOLIDATED FINANCIAL STATEMENTS........................... F-1
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PROSPECTUS
PAGE
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THE COMPANY................................................. 1
USE OF PROCEEDS............................................. 2
DESCRIPTION OF COMMON STOCK................................. 2
DESCRIPTION OF PREFERRED STOCK.............................. 3
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS........................................... 8
PLAN OF DISTRIBUTION........................................ 8
LEGAL MATTERS............................................... 9
EXPERTS..................................................... 9
WHERE CAN YOU FIND MORE INFORMATION......................... 9
INCORPORATION OF INFORMATION WE FILE WITH THE SEC........... 10
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PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights important information regarding our business and
this offering. Because this is only a summary, it does not contain all the
information that may be important to you. You should read the entire prospectus
and this prospectus supplement carefully, including "Risk Factors" and our
financial statements and related notes, as well as the documents incorporated by
reference in the prospectus and this prospectus supplement, before deciding to
invest in our common stock.
THE COMPANY
We are one of the largest real estate companies in the United States
specializing in the ownership, leasing and management of gasoline
station/convenience store properties. As of June 30, 2001, we owned 749
properties and leased 339 additional properties in 13 states located principally
in the northeastern United States. Substantially all of our properties are
triple-net leased on a long-term basis to Getty Petroleum Marketing Inc., a
wholly owned subsidiary of OAO LUKoil, Russia's largest vertically integrated
oil company. Marketing is responsible for managing the actual operations
conducted at these properties.
Our predecessors trace back to 1955 with the ownership of one gasoline
service station in New York City. As our business grew, we combined real estate
ownership, leasing and management with actual service station operation. We
became a public company in 1971 under the name Power Test Corp. In 1985, we
acquired from Texaco the petroleum marketing assets of Getty Oil Company in the
northeastern United States, and assumed the Getty name. In addition, we acquired
the Getty(R) trademarks for use in real estate and petroleum marketing
operations in the United States. We became one of the largest independent
owner/operators of petroleum marketing assets in the country, serving retail and
wholesale customers through a distribution and marketing network of Getty and
other branded retail service stations.
In 1997, we reorganized our businesses and completed the spin-off of our
petroleum marketing business to our stockholders, who received a tax-free
dividend of one share of common stock of Getty Petroleum Marketing Inc. for each
share of our common stock. Following the reorganization and spin-off, Marketing
held the assets and liabilities of our petroleum marketing operations and a
portion of our home heating oil business. In 1998, we reorganized as a Maryland
corporation and acquired Power Test Investors Limited Partnership, thereby
acquiring fee title to 295 properties we had previously leased from the
Partnership and which the Partnership had acquired in 1985 from Texaco. In that
transaction, we issued to the former unitholders of the Partnership shares of
our series A participating convertible redeemable preferred stock, which trades
on the New York Stock Exchange under the symbol "GTY-PrA". We later sold the
remaining portion of our home heating oil business. As a result, we are now
exclusively engaged in the ownership, leasing and management of real estate
assets, principally used in the petroleum marketing industry.
Over the past five years ended December 31, 2000, Marketing, our major
tenant, has distributed on average over one billion gallons of petroleum
products per year. Marketing purchases petroleum products principally from
refiners and distributes them via its network of 9 terminal facilities, 36
throughput and exchange locations and approximately 1,300 retail outlets.
Marketing leases approximately 1,000 retail outlets and 9 terminal facilities
from us. Marketing reported annual sales and operating revenue of $832 million,
$661 million and $891 million for its fiscal years ended January 31, 2000, 1999
and 1998, respectively. Based on Marketing's publicly available audited
financial information, we believe that Marketing generated average annual
EBITDAR (earnings before interest, taxes, depreciation, amortization and rent
expense) of approximately $77 million during this three-year period, and its
ratio of EBITDAR to the sum of its rent and interest expense averaged 1.32x.
In December 2000, Marketing was acquired by a U.S. subsidiary of OAO
LUKoil. Lukoil has operations in oil and gas exploration and production,
refining, sales of crude oil products and transportation in 40 regions in Russia
and 25 other countries, according to its 1999 annual report. In Lukoil's 1998
and 1999 audited financial statements prepared according to U.S. generally
accepted accounting principles, it
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reported total revenues of $6.6 billion and $7.4 billion and net income of $0.7
billion and $1.1 billion, respectively. Lukoil's most recent U.S. GAAP earnings
release reported total revenues of $6.2 billion and net income of $1.5 billion
for the first six months of 2000.
In connection with Lukoil's acquisition of Marketing, we renegotiated our
long-term master lease and other arrangements with Marketing. The master lease
has an initial term expiring in December 2015, and generally provides Marketing
with renewal options extending to 2048 that may be exercised only on an "all or
nothing" basis. We expect to receive approximately $57.5 million in lease rental
payments from Marketing in 2001, and thereafter the master lease provides for
annual 2% rental increases. The master lease is a "triple-net" lease, under
which Marketing is responsible for the cost of all taxes, maintenance, repair,
insurance and other operating expenses. Certain financial obligations of
Marketing under the master lease for at least the first three years of the lease
are guaranteed by Lukoil (subject to governmental approvals) and an Austrian
subsidiary of Lukoil.
We own the Getty(R) trademarks for use in real estate and petroleum
marketing operations in the United States, which we have licensed to Marketing
on an exclusive basis in its current northeastern U.S. marketing territory. We
have also licensed the trademarks to Marketing on a non-exclusive basis outside
that territory, subject to a gallonage based royalty.
We are self-administered and self-managed through our management, which has
owned, leased and managed gasoline stations and convenience store properties for
more than 45 years. Our executive officers are engaged in the day-to-day
management of our real estate exclusively. We administer nearly all management
functions for our properties, including leasing, legal, data processing, finance
and accounting. We intend to invest in real estate and real estate related
investments when such opportunities arise consistent with our current investment
portfolio.
Following completion of this offering, we intend to elect to be taxed as a
REIT beginning with the current fiscal year. We have scheduled a special
stockholders' meeting for August 1, 2001 in order to solicit stockholder
approval of stock ownership and transfer restrictions that would be incorporated
into our charter in order to provide protection in our meeting the stock
ownership distribution requirement applicable to REITs, among other reasons. No
assurance can be given that those ownership and transfer restrictions will be
approved by our stockholders. A REIT is a corporation, or a business trust that
would otherwise be taxed as a corporation, which meets the requirements of the
Internal Revenue Code. The Internal Revenue Code permits a qualifying REIT to
deduct dividends paid, thereby effectively eliminating corporate level federal
income tax and making the REIT a pass-through vehicle for federal income tax
purposes. To meet the requirements of the Internal Revenue Code, a REIT must,
among other things, invest substantially all of its assets in interests in real
estate (including mortgages and other REITs) or cash and government securities,
derive most of its income from rents from real property or interest on loans
secured by mortgages on real property, and distribute to stockholders annually a
substantial portion of its otherwise taxable income. If we elect REIT status, we
will not be subject to federal corporate income tax on the net income we
distribute to our stockholders. As a REIT, we would be required to distribute at
least 90% of our taxable income to our stockholders each year.
In order to qualify for REIT status, we have declared a special
distribution of approximately $64.1 million to holders of record of our common
stock and series A preferred stock at the close of business on July 25, 2001.
The special distribution ($4.15 per common share and $4.20 per series A
preferred share) represents our "earnings and profits" accumulated from prior
years and relating to the current year, and its payment is conditioned on the
closing of this offering. Purchasers of common stock offered by this prospectus
supplement will not receive any portion of the special distribution on any of
the shares of common stock they purchase. We expect that the shares of our
common stock sold in this offering will trade at prices that reflect the fact
that they are not entitled to the special distribution. On July 26, 2001, the
closing price of our common stock on the NYSE was $20.94 per share.
Our executive offices are located at 125 Jericho Turnpike, Suite 103,
Jericho, New York 11753, and our telephone number is 516-338-2600.
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THE OFFERING
Securities offered............ 7,700,000 shares of Getty Realty Corp. common
stock, assuming that the underwriters' option
to purchase an additional 1,155,000 shares of
common stock is not exercised.
Shares to be outstanding after
this offering................. 20,253,138
Ownership limitations......... In order to elect to be taxed as a REIT, not
more than 50% in value of our outstanding
equity securities may be owned actually or
constructively by five or fewer individuals. To
assist us in satisfying this requirement on an
on-going basis, a special stockholders' meeting
has been scheduled for August 1, 2001 to
solicit approval of amendments to our charter
that will contain restrictions that limit any
one holder's actual or constructive ownership
of our equity securities to no more than 5% of
any class of our equity securities, including
the series A preferred stock. Our board of
directors intends to grant exemptions from the
ownership limitations to certain stockholders
(Messrs. Leo Liebowitz, Howard Safenowitz and
Milton Cooper, each a director, and their
affiliated trusts and partnerships) who
currently own equity securities in excess of
the proposed ownership limitations. No
assurance can be given that stockholder
approval of these restrictions will be
obtained.
Use of proceeds............... We will use approximately $36.3 million of the
net proceeds of this offering to repay
substantially all of our existing debt.
Thereafter, in order for us to qualify to elect
REIT status, we will make a special
distribution to our stockholders at least equal
to our accumulated "earnings and profits"
(within the meaning of the Internal Revenue
Code) from the years we have operated as a
taxable corporation and through the date of
this offering. Approximately $64.1 million of
the remaining net proceeds (or approximately
$4.15 per common share and $4.20 per series A
preferred share) will be used for this
distribution. The distribution is payable to
holders of record at the close of business on
July 25, 2001. Payment of the distribution is
conditioned on the closing of this offering and
is expected to be made on August 2, 2001.
Purchasers of common stock offered by this
prospectus supplement will not receive any
portion of the special distribution on any of
the shares of common stock they purchase. Any
remaining net proceeds will be used for general
corporate purposes.
New York Stock Exchange
symbol........................ GTY (the shares issued in this offering will be
listed under the symbol GTY.T on a temporary
basis until the "earnings and profits"
distribution is paid, which is expected to
occur on August 2, 2001)
The number of shares to be outstanding after this offering as shown above
is based on the shares of our common stock outstanding as of July 11, 2001. As
of that date, we also had outstanding options granted under our stock option
plan for 385,990 shares of our common stock.
As of July 11, 2001, we had 2,865,768 shares of series A preferred stock
outstanding, which are convertible into 3,241,757 shares of our common stock.
Upon our liquidation, dissolution or winding-up,
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the holders of our series A preferred stock will have the right to receive
$25.00 per share, plus accrued and unpaid dividends before any payment is made
to the holders of our common stock. In addition, the series A preferred stock
ranks senior to our common stock with respect to the payment of dividends and
distributions.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following sets forth our summary consolidated financial and operating
information on an historical basis and, for certain indicated periods, on a pro
forma basis to give effect to this offering and the application of the net
proceeds herefrom. The following information should be read in conjunction with
our consolidated financial statements and notes thereto included elsewhere or
incorporated by reference in the prospectus and this prospectus supplement. In
contemplation of our electing to be taxed as a REIT, on December 12, 2000, our
board of directors approved a change in our fiscal year end to December 31 from
January 31. The change resulted in an eleven month accounting period ended
December 31, 2000. The summary consolidated historical financial and operating
information as of and for the three months ended March 31, 2001 and 2000, and as
of and for the eleven months ended December 31, 1999 has been derived from our
historical unaudited consolidated financial statements. The summary consolidated
historical financial and operating information as of and for the eleven months
ended December 31, 2000, and as of and for each of the three years in the period
ended January 31, 2000 has been derived from our historical consolidated
financial statements audited by PricewaterhouseCoopers LLP, independent
auditors, whose report with respect thereto is included elsewhere in this
prospectus supplement.
Unaudited pro forma operating information for the three months ended March
31, 2001 and the eleven months ended December 31, 2000 is presented as if this
offering occurred on February 1, 2000; unaudited pro forma balance sheet data is
presented as if this offering had occurred on March 31, 2001; and, therefore,
incorporates certain assumptions that are described in the notes to the pro
forma consolidated financial statements included elsewhere herein. The pro forma
information does not purport to represent what our financial position or results
of operations would actually have been if this offering and the application of
the net proceeds herefrom had, in fact, occurred on such date or at the
beginning of the period indicated, or to project our financial position or
results of operations at any future date or for any future period.
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THREE MONTHS ENDED ELEVEN MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,(A) JANUARY 31,
----------------------------- --------------------------------- ---------------------------
PRO FORMA PRO FORMA
2001 2001 2000 2000 2000 1999 2000 1999 1998(B)
--------- ------- ------- --------- ------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA:
Revenues:
Total revenues from rental
properties............... $17,146 $17,146 $14,724 $53,916 $53,916 $53,983 $58,889 $58,869 $59,449
Other income............... 232 232 153 378 378 5,026 4,970 2,472 3,368
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues............. 17,378 17,378 14,877 54,294 54,294 59,009 63,859 61,341 62,817
------- ------- ------- ------- ------- ------- ------- ------- -------
Expenses:
Rental property expenses... 2,796 2,796 3,052 10,980 10,980 11,259 12,126 12,910 13,583
Environmental expenses..... 2,759 2,759 3,033 8,498 8,498 5,980 6,813 17,320 8,634
General and administrative
expenses................. 1,017 1,017 603 3,257 3,257 5,265 5,642 6,129 13,297(c)
Depreciation and
amortization............. 2,369 2,369 2,511 9,196 9,196 9,589 10,425 9,418 9,514
Interest expense........... 51 898 770 365 3,413 2,489 2,748 2,726 5,008
Change of control charge... -- -- -- -- -- -- -- -- 2,166(d)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total expenses............. 8,992 9,839 9,969 32,296 35,344 34,582 37,754 48,503 52,202
------- ------- ------- ------- ------- ------- ------- ------- -------
Equity in earnings of
Marketing.................. -- -- -- -- -- -- -- -- 2,931
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings from continuing
operations before provision
for income taxes........... 8,386 7,539 4,908 21,998 18,950 24,427 26,105 12,838 13,546
Provision for income taxes... -- 3,207 2,196 -- 7,875 10,378 11,091 5,337 5,697
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings from continuing
operations................. 8,386 4,332 2,712 21,998 11,075 14,049 15,014 7,501 7,849
------- ------- ------- ------- ------- ------- ------- ------- -------
Discontinued operations(e):
Earnings (loss) from
operations, net of income
taxes...................... -- -- -- -- -- -- -- (119) 95
Gain on disposal, net of
income taxes............. -- -- -- -- -- -- -- 2,674 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings from
discontinued
operations............... -- -- -- -- -- -- -- 2,555 95
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings................. 8,386 4,332 2,712 21,998 11,075 14,049 15,014 10,056 7,944
Series A preferred stock
dividends.................. 1,272 1,272 1,280 5,098 5,098 5,128 5,128 5,128 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings applicable to
common stockholders........ $ 7,114 $ 3,060 $ 1,432 $16,900 $ 5,977 $ 8,921 $ 9,886 $ 4,928 $ 7,944
======= ======= ======= ======= ======= ======= ======= ======= =======
Basic earnings per common
share:
Continuing operations...... $ .35 $ .24 $ .11 $ .82 $ .47 $ .66 $ .73 $ .17 $ .60
Discontinued operations.... -- -- -- -- -- -- -- .19 .01
Net earnings............... .35 .24 .11 .82 .47 .66 .73 .36 .60
Diluted earnings per common
share:
Continuing operations...... .35 .24 .11 .82 .47 .66 .73 .17 .59
Discontinued operations.... -- -- -- -- -- -- .19 .01
Net earnings............... .35 .24 .11 .82 .47 .66 .73 .36 .60
Weighted average common
shares outstanding (in
thousands):
Basic...................... 20,248 12,548 13,420 20,518 12,818 13,567 13,563 13,566 13,152
Diluted.................... 20,253 12,553 13,421 20,518 12,818 13,569 13,565 13,571 13,348
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ELEVEN
MONTHS
ENDED
DECEMBER
THREE MONTHS ENDED MARCH 31, 31,(A)
--------------------------------- --------- YEAR ENDED JANUARY 31,
PRO FORMA ---------------------------------
2001 2001 2000 2000 2000 1999 1998(B)
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA
(AT END OF PERIOD):
Investment in real estate after
accumulated depreciation............. $230,016 $230,016 $240,169 $232,066 $241,500 $239,748 $225,069
Total assets........................... 258,421 252,321 259,846 255,725 260,752 261,084 265,661
Mortgage debt and revolving lines of
credit............................... 1,913 46,413 44,486 49,969 43,993 39,742 40,526
Total liabilities...................... 35,160 123,044 122,356 127,626 118,941 123,053 127,068
Series A preferred stock............... 72,220 72,220 72,220 72,220 72,220 72,220 72,220
Common stock and paid-in capital....... 163,753 67,172 67,172 67,172 67,172 67,157 67,221
OTHER DATA:
Funds from operations ("FFO")(f)....... 7,298 6,451 6,027 21,942 28,147 15,633 19,399
Cash flows provided by operating
activities........................... 6,729 5,797 17,292 15,736 16,059 11,640
Cash flows provided by (used in)
investing activities................. (231) (221) 1,591 (8,759) (14,142) (7,268)
Cash flows used in financing
activities........................... (6,710) (1,837) (18,811) (6,983) (11,292) (5,723)
Repurchase of series A preferred stock
and common stock..................... -- (3,525) (12,017) (695) -- --
NUMBER OF PROPERTIES AT PERIOD END:
Owned................................ 752 756 753 757 740 736
Leased............................... 341 355 344 361 379 404
-------- -------- -------- -------- -------- --------
Total................................ 1,093 1,111 1,097 1,118 1,119 1,140
======== ======== ======== ======== ======== ========
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(a) Our board of directors approved a change in our fiscal year end to December
31 from January 31. The change resulted in an eleven-month accounting
period ended December 31, 2000.
(b) Includes the financial results of the petroleum marketing business for the
period prior to the spin-off from February 1, 1997 through March 21, 1997
on a one-line equity basis. Includes $3,710,000 of capitalized lease
interest recorded prior to the merger with Power Test Investors Limited
Partnership on January 30, 1998. Subsequent to the merger, the intercompany
lease transactions were eliminated in consolidation.
(c) Includes $8,683,000 of stock compensation expense.
(d) Represents a charge relating to certain "change of control" agreements
related to the spin-off of the petroleum marketing business.
(e) In December 1998, we sold our heating oil and propane business.
(f) Our "funds from operations" ("FFO") is computed as net earnings available
to common stockholders before provision for income taxes (computed in
accordance with generally accepted accounting principles), plus real estate
related depreciation and amortization and excludes gains (or losses) from
sales of property and straight line rent. We believe FFO is helpful to
investors as a measure of the performance of an equity REIT because, along
with our statements of financial condition, results of operations and cash
flows, it provides investors with an understanding of our ability to incur
and service debt and make capital expenditures. FFO should not be
considered as an alternative to net earnings (determined in accordance with
generally accepted accounting principles), as an indication of our
financial performance, to cash flows from operating activities (determined
in accordance with generally accepted accounting principles) or as a
measure of our liquidity, nor is it indicative of funds available to fund
our cash needs, including our ability to make distributions. Pro forma
"funds from operations" for the eleven months ended December 31, 2000 were
$24,990,000.
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The following is an estimate of "cash available for distribution" and is
not intended to be a projection or forecast of our results of operations or our
liquidity, nor is the methodology upon which such adjustments were made
necessarily intended to be a basis for determining future distributions.
We believe that our estimate of "cash available for distribution"
constitutes a reasonable basis for estimating our dividend rates for the
calendar year following the completion of this offering. Our actual dividend
rates will depend upon our actual results of operations, economic conditions and
other factors that could differ materially from the assumptions used in our
estimate. Our actual results of operations will be affected by a number of
factors, including the revenue received from our properties, our operating
expenses, interest expense and unanticipated expenditures. This estimate assumes
that the underwriters' over-allotment option is not exercised. No assurance can
be given that our estimate will prove accurate. Actual results may vary
substantially from the estimate.
The following table assumes we were operated as a REIT beginning on January
1, 2001, and describes (a) the calculation of annualized pro forma "funds from
operations" before preferred stock dividends for the twelve months ending
December 31, 2001 and (b) the adjustments thereto used in estimating pro forma
"funds from operations" before preferred stock dividends and "cash available for
distribution" for the twelve months ending December 31, 2002:
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
-------------------------
Pro forma net earnings for the three months ended March 31,
2001...................................................... $ 8,386
Less: Gain on sale of real estate for the three months
ended March 31, 2001................................... (88)
Less: Straight line rent for the three months ended March
31, 2001............................................... (2,097)
Plus: Real estate depreciation and amortization for the
three months ended March 31, 2001...................... 2,369
-------
Pro forma "funds from operations" before preferred stock
dividends for the three months ended March 31, 2001 (1)... $ 8,570
=======
Annualized pro forma "funds from operations" before
preferred stock dividends for the twelve months ending
December 31, 2001......................................... $34,280
Adjustments:
Net increase in contractual rental revenue (2)............ 625
Net decrease in contractual rent expense (3).............. 469
Elimination of change in estimated remediation costs
(4).................................................... 9,696
-------
Estimated pro forma "funds from operations" before preferred
stock dividends for the twelve months ending December 31,
2002...................................................... $45,070
Adjustments:
Estimated annual environmental expenditures, net (5)...... (2,720)
-------
Estimated "cash available for distribution" for the twelve
months ending December 31, 2002 (6)....................... $42,350
=======
Estimated annual series A preferred stock cash
dividend ($1.8665 per share) (7).......................... $ 5,349
Estimated annual common stock cash dividend ($1.65 per
share) (8)................................................ 33,426
-------
Estimated total dividends................................... $38,775
=======
Payout ratio to stockholders based on estimated "cash
available for distribution" (9)........................... 91.6%
---------------
(1) Our "funds from operations" ("FFO") is computed as net earnings available
to common stockholders before provision for income taxes (computed in
accordance with generally accepted
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accounting principles), plus real estate related depreciation and
amortization and excludes gains (or losses) from sales of property and
straight line rent. We believe FFO is helpful to investors as a measure of
the performance of an equity REIT because, along with our statements of
financial condition, results of operations and cash flows, it provides
investors with an understanding of our ability to incur and service debt
and make capital expenditures. In evaluating FFO and the trends it depicts,
investors should consider the major factors affecting FFO. Growth in FFO
will result from increases in revenue or decreases in related operating
expenses. Conversely, FFO will decline if revenues decline or related
operating expenses increase. FFO does not represent amounts available for
management's discretionary use because of needed capital replacement or
expansion, debt service obligation, or other commitments and uncertainties.
FFO should not be considered as an alternative to net earnings (determined
in accordance with generally accepted accounting principles), as an
indication of our financial performance, to cash flows from operating
activities (determined in accordance with generally accepted accounting
principles) or as a measure of our liquidity, nor is it indicative of funds
available to fund our cash needs, including our ability to make
distributions.
(2) The net increase in contractual rental revenue represents the 2.0% increase
in rental revenues for 2002 payable by Marketing under the master lease net
of reductions in sublet revenues caused by scheduled lease terminations.
(3) Represents the net decrease in contractual rent expense for rent
escalations, net of reductions for scheduled lease terminations.
(4) Represents the elimination of the annualized non-cash change in the
estimated remediation cost accrual included in the annualized pro forma
"funds from operations" before preferred stock dividends for the twelve
months ending December 31, 2001. Although we do not anticipate a material
change in the estimated remediation cost accrual for the twelve months
ending December 31, 2002, it is possible that such expenditures could be
substantially higher and may have a significant impact on our results of
operations.
(5) Represents management's best estimate of expected cash expenditures for
remediation costs of $7,457,000 based on a site-by-site review, net of
$4,737,000 of anticipated recoveries from state underground storage tank
remediation funds related to current and prior year expenditures. These
estimates for cash expenditures are subject to significant change as the
remediation treatment progresses. The timing of the receipt for recoveries
is difficult to predict and is based on numerous factors outside of our
control. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Environmental Matters."
(6) We expect to fund nonrecurring capital expenditures, tenant improvements,
leasing commissions and differences from estimated net environmental cash
expenditures from cash reserves, borrowings, cash flow from operating
activities or other working capital sources.
(7) Based on a total of 2,865,768 shares of series A preferred stock
outstanding as of July 11, 2001. The estimated preferred stock dividend
reflects participation in common stock dividends in excess of $1.5691 per
share. See "-- Dividend Policy."
(8) Based on a total of 12,553,138 shares of common stock outstanding as of
July 11, 2001 and the shares to be sold in this offering.
(9) Calculated as estimated annual cash dividends to our stockholders divided
by estimated "cash available for distribution" for the twelve months ending
December 31, 2002. The payout ratio to common stockholders based on
estimated adjusted pro forma "funds from operations" after preferred stock
dividends for the twelve months ending December 31, 2002 is 84.2%.
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DIVIDEND POLICY
We intend to pay regular quarterly dividends on our common stock and series
A preferred stock.
We presently intend to pay a dividend on our common stock of approximately
$1.65 per share on an annual basis, commencing with the quarterly dividend
expected to be declared in September 2001. Payment of this dividend is subject
to our stockholders' approval of the transfer restrictions on our stock as
described in "Description of Our Securities," the completion of this offering,
our financial condition, market conditions, the dividend preference of the
series A preferred stock, the distribution requirements under federal income tax
provisions for qualification as a REIT, and such other factors as our board of
directors may deem relevant.
The holders of our series A preferred stock are entitled to receive
cumulative cash dividends in an amount per share equal to the greater of (a)
$1.775 per calendar year or (b) the cash dividends declared per share of our
common stock, or the portion thereof into which a share of our series A
preferred stock is convertible, for that calendar year. Each share of preferred
stock is currently convertible into 1.1312 shares of common stock. Accordingly,
the cumulative annual dividend on our series A preferred stock will not be
greater than $1.775 per share unless the cumulative annual per share dividend on
our common stock is greater than $1.5691. We presently intend to pay quarterly
dividends of $0.44375 per share of preferred stock until dividends declared per
share of common stock in any calendar year exceed $1.5691, after which preferred
stockholders will participate in the higher common stock dividend for the
balance of that calendar year. At the current conversion rate, based on our
presently intended annual common stock dividend rate of approximately $1.65 per
share, series A preferred stockholders would receive annual dividends of
approximately $1.8665 per preferred share.
In order for us to qualify to elect REIT status under the Internal Revenue
Code, we have declared an "earnings and profits" distribution of approximately
$64.1 million payable to stockholders of record at the close of business on July
25, 2001. Common stockholders will receive approximately $4.15 per common share
in the distribution. Series A preferred stockholders will receive approximately
$4.20 per preferred share, based on the formula described above and the series A
preferred stock dividends paid in 2001 and expected to be paid for the final two
calendar quarters of 2001. Payment of the distribution is conditioned on the
closing of this offering and is expected to be made on August 2, 2001.
Purchasers of common stock offered by this prospectus supplement will not
receive any portion of the "earnings and profits" distribution on any of the
shares of common stock they purchase.
RECENT DEVELOPMENTS
Our second quarter ended on June 30, 2001. On a preliminary basis, revenues
from rental properties for the quarter were $17.1 million, including $2.1
million of deferred rent receivable recognized during the period related to
future annual rent increases under the master lease with Marketing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations." Pre-tax earnings are estimated at $9.3
million for the current year quarter compared to $6.0 million for the same
quarter last year. Our FFO available to common stockholders for the quarter
ended June 30, 2001, defined as described in note (f) to " -- Summary
Consolidated Financial Data" above, is estimated at $7.7 million, as compared to
$6.8 million for the quarter ended June 30, 2000. Our FFO before preferred stock
dividends for the quarter ended June 30, 2001 is estimated at $9.0 million, as
compared to $8.1 million for the quarter ended June 30, 2000. These current
quarter amounts are preliminary and may be modified as our quarterly review
process is completed.
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RISK FACTORS
An investment in our common stock involves risks. Before investing, you
should carefully consider and evaluate all of the information included in or
incorporated by reference in the prospectus and this prospectus supplement,
including the following risk factors.
WE ARE SUBJECT TO RISKS INHERENT IN OWNING AND LEASING REAL ESTATE.
We are subject to varying degrees of risk generally related to leasing and
owning real estate. In addition to general risks related to owning properties
used in the petroleum marketing industry, risks include, among others, liability
for long-term lease obligations, changes in regional and local economic
conditions, local real estate market conditions, changes in interest rates and
in the availability, cost and terms of financing, the potential for uninsured
casualty and other losses, the impact of present or future environmental
legislation and compliance with environmental laws (as discussed below), and
adverse changes in zoning laws and other regulations, many of which are beyond
our control. Moreover, real estate investments are relatively illiquid, which
means that our ability to vary our portfolio of service station properties in
response to changes in economic and other conditions may be limited.
OUR REVENUES ARE PRIMARILY DEPENDENT ON THE PERFORMANCE OF THE PETROLEUM
MARKETING INDUSTRY AND GETTY PETROLEUM MARKETING INC.
We rely on leasing service station properties, primarily to Marketing, for
substantially all of our revenues (96% for the eleven months ended December 31,
2000). Accordingly, our revenues will be 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 other lessees may have a material
adverse effect on us. Marketing is wholly owned by a subsidiary of Lukoil.
Although Lukoil is Russia's largest vertically integrated oil company, it has a
limited history of operating in the United States. No assurance can be given
that Lukoil's acquisition of Marketing will not adversely affect the operations
of Marketing. In the event that Marketing were unable to perform its obligations
under its master lease with us, our financial results would be materially
adversely affected. Although Marketing is a wholly owned subsidiary of Lukoil,
no assurance can be given that Lukoil would cause Marketing to fulfill all of
its obligations under the master lease.
Petroleum products are commodities whose prices depend on numerous factors
that affect the supply of and demand for petroleum products, such as changes in
domestic and foreign economies, political affairs and production levels, the
availability of imported oil, the marketing of competitive fuels, the extent of
government regulation and expected and actual weather conditions. We believe
that Marketing currently relies on various suppliers for the purchase of refined
petroleum products. The prices paid by Marketing and other petroleum marketers
for their products are affected by global, national and regional factors, such
as petroleum pipeline capacity, local market conditions and competition and the
level of operations of refineries. Marketing's earnings and cash flow from
operations depend upon rental income from dealers and the sale of refined
petroleum products at margins in excess of fixed and variable expenses. A large,
rapid increase in petroleum prices would adversely affect Marketing's
profitability and cash flow if the increased cost of petroleum products could
not be passed on to Marketing's customers or if automobile consumption of
gasoline were to significantly decline.
OUR PROPERTIES ARE CONCENTRATED IN THE NORTHEASTERN UNITED STATES, AND ADVERSE
CONDITIONS IN THAT REGION, IN PARTICULAR, COULD NEGATIVELY IMPACT OUR
OPERATIONS.
A significant portion of the properties we own and lease are located in the
northeastern United States. Because of the concentration of our properties in
that region, in the event of adverse economic conditions in that region, we
would likely experience higher risk of default on payment of rent payable to us
(including under the master lease) than if our properties were more
geographically diversified. Additionally, the rents on our properties may be
subject to a greater risk of default than other properties in the event of
adverse economic, political, or business developments or natural hazards that
may affect the
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northeastern United States and the ability of our lessees to make rent payments.
In the event of any natural disaster, our ability to pay dividends could be
adversely affected.
WE ARE IN A COMPETITIVE BUSINESS.
The real estate industry is highly competitive. Where we own properties, we
compete for tenants with a large number of real estate property owners.
Principal means of competition are rents charged and attractiveness of location.
In addition, we expect other major real estate investors with significant
capital will compete with us for attractive investment opportunities. These
competitors include petroleum manufacturing, distributing and marketing
companies, other REITs, investment banking firms and private institutional
investors. This competition has increased prices for commercial properties and
may impair our ability to make suitable property acquisitions on favorable terms
in the future.
OUR FUTURE CASH FLOW IS DEPENDENT ON RENEWAL OF LEASES AND RELETTING OF OUR
SPACE.
We are subject to risks that leases may not be renewed, locations may not
be relet or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. In addition,
numerous properties compete with our properties in attracting tenants to lease
space. The number of competitive properties in a particular area could have a
material adverse effect on our ability to lease our properties or newly acquired
properties and on the rents charged. If we were unable to promptly relet or
renew the leases for all or a substantial portion of these locations, or if the
rental rates upon such renewal or reletting were significantly lower than
expected, our cash flow could be adversely affected. The master lease has an
initial term expiring in December 2015, and generally provides Marketing with
renewal options extending to 2048 that may be exercised only on an "all or
nothing" basis.
WE MAY ACQUIRE OR DEVELOP NEW PROPERTIES, AND THIS MAY CREATE RISKS.
We may acquire or develop properties or acquire other real estate companies
when we believe that an acquisition or development matches our business
strategies. We might not succeed in consummating desired acquisitions or in
completing developments on time or within our budget. We also might not succeed
in leasing newly developed or acquired properties at rents sufficient to cover
their costs of acquisition or development and operations.
WE ARE SUBJECT TO LOSSES THAT MAY NOT BE COVERED BY INSURANCE.
Marketing, as the lessee of substantially all of the properties leased by
us, is required to provide insurance for such properties, including casualty,
liability, fire and extended coverage in amounts and on other terms as set forth
in the master lease. There are certain types of losses (such as certain
environmental liabilities, earthquakes, hurricanes, floods and civil disorders)
which are either uninsurable or not economically insurable in our judgment. The
destruction of, or significant damage to, properties due to an uninsured cause
would result in an economic loss and could result in us losing both our
investment in, and anticipated profits from, such properties. When a loss is
insured, the coverage may be insufficient in amount or duration, or a lessee's
customers may be lost, such that the lessee cannot resume its business after the
loss at prior levels or at all, resulting in reduced rent or a default under its
lease. Any such loss relating to a large number of properties could have a
material adverse effect on our financial condition. We carry insurance against
certain risks and in such amount as we believe is customary for businesses of
our kind. However, as the costs and availability of insurance change, we may
decide not to be covered against certain losses where, in the judgment of
management, the insurance is not warranted due to cost or availability of
coverage or the remoteness of perceived risk. There is no assurance that our
insurance against loss will be sufficient.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS MAY BE COSTLY.
The real estate business and the petroleum products industry are subject to
numerous federal, state and local laws and regulations relating to the
protection of the environment. Under certain environmental
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laws, a current or previous owner or operator of real estate may be liable for
contamination resulting from the presence or discharge of hazardous or toxic
substances or petroleum products at, on or under such property, and may be
required to investigate and clean-up such contamination. Such laws typically
impose liability and clean-up responsibility without regard to whether the owner
or operator knew of or caused the presence of the contaminants, and the
liability under such laws has been interpreted to be joint and several unless
the harm is divisible and there is a reasonable basis for allocation of
responsibility. For example, liability may arise as a result of the historical
use of a site or from the migration of contamination from adjacent or nearby
properties. Any such contamination or liability may also reduce the value of the
property. In addition, the owner or operator of a site may be subject to claims
by third parties based on injury, damage and/or costs, including investigation
and clean-up costs, resulting from environmental contamination present at or
emanating from a site. The properties owned or controlled by us are leased
primarily as gasoline service stations, and therefore may also contain, or may
have contained, underground storage tanks for the storage of petroleum products
and other hazardous or toxic substances, which creates a potential for the
release of such products or substances. Some of the properties may be adjacent
to or near properties that have contained or currently contain underground
storage tanks used to store petroleum products or other hazardous or toxic
substances. In addition, certain of the properties are on, adjacent to or near
properties upon which others have engaged or may in the future engage in
activities that may release petroleum products or other hazardous or toxic
substances. We have agreed to provide limited environmental indemnification to
Marketing with respect to six leased terminals, and limited indemnification
relating to compliance of properties with local laws. Our aggregate
indemnification liability to Marketing for these items is capped at a maximum of
$5.6 million. Under the master lease, we continue to have additional ongoing
environmental remediation obligations for scheduled sites.
As of March 31, 2001, we had accrued $22.5 million as management's best
estimate for probable and reasonably estimable environmental remediation costs
and had recorded $11.4 million as management's best estimate for recoveries from
state underground storage tank remediation funds related to environmental
obligations and liabilities. In view of the uncertainties associated with
environmental expenditures, however, we believe it is possible that such
expenditures could be substantially higher. These and other environmental costs
may have a significant impact on results of operations for any single fiscal
year or interim period.
IF WE ELECT REIT STATUS, A SUBSEQUENT FAILURE TO QUALIFY AS A REIT WOULD HAVE
ADVERSE CONSEQUENCES TO OUR STOCKHOLDERS.
If this offering is completed, we intend to elect to be taxed as a REIT
under the Internal Revenue Code beginning with the current fiscal year. If we
qualify for taxation as a REIT and elect REIT status, we plan to continue to
meet the requirements for taxation as a REIT. We cannot, however, guarantee that
we would continue to qualify in the future as a REIT. We cannot give any
assurance that new legislation, regulations, administrative interpretations or
court decisions will not significantly change the requirements relating to our
qualification. If we fail to qualify as a REIT after electing REIT status, we
would again be subject to federal income tax at regular corporate rates. Also,
unless the Internal Revenue Service granted us relief, we would remain
disqualified as a REIT for four years following the year in which we failed to
qualify. In the event that we failed to qualify as a REIT, we would be required
to pay significant income taxes and would have less money available for our
operations and distributions to stockholders. This would likely have a
significant adverse effect on the value of our securities.
In order to meet and maintain qualification as a REIT under the Internal
Revenue Code, we have scheduled a special stockholders' meeting for August 1,
2001 in order to solicit approval of amendments to our charter that would
provide that ownership of any class of our equity securities, including our
series A preferred stock and common stock, by any person or group of related
persons will be limited to 5% of the outstanding shares of that class, unless
special approval is granted by our board. Our board of directors intends to
grant an exemption from the 5% ownership limitation to Messrs. Liebowitz,
Safenowitz and Cooper, each of whom serve as directors of Getty, and their
respective affiliated trusts and partnerships,
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who currently own stock in excess of these proposed ownership limitations. No
assurance can be given that stockholder approval of these limitations will be
obtained.
IN ORDER TO QUALIFY FOR TAXATION AS A REIT, WE ARE REQUIRED TO DISTRIBUTE ALL OF
OUR PRIOR EARNINGS AND PROFITS, BUT WE CANNOT GUARANTEE THAT WE WILL BE ABLE TO
DO SO.
In order to qualify for taxation as a REIT for 2001, we are required to
distribute to our stockholders, prior to the end of 2001, all of our earnings
and profits that we accumulated prior to 2001. We believe that we will meet this
requirement once we pay the "earnings and profits" distribution. However, it is
very difficult to determine the exact level of our pre-2001 earnings and profits
because the determination depends on many factors. The complexity of the
determination is compounded by the fact that we started accumulating earnings
and profits in 1974. Also, it is difficult to value our distributions which have
not been made in cash, such as the distribution of Marketing common stock we
made in 1997. Therefore, we cannot guarantee that we will meet this requirement.
Latham & Watkins is not providing us with an opinion regarding the amount of our
earnings and profits or whether we meet this requirement. Moreover, for purposes
of their opinion that we qualify as a REIT, they relied on our statement that we
will meet this requirement.
ONCE WE QUALIFY FOR TAXATION AS A REIT, WE WILL BE DEPENDENT ON EXTERNAL SOURCES
OF CAPITAL.
To qualify as a REIT, we must distribute to our stockholders each year at
least 90% of our net taxable income, excluding any net capital gain. Because of
these distribution requirements, once we make the "earnings and profits"
distribution, it is not likely that we will be able to fund all future capital
needs, including acquisitions, from income from operations. We therefore will
have to rely on third party sources of capital, which may or may not be
available on favorable terms or at all. Our access to third party sources of
capital depends upon a number of factors, including general market conditions,
the market's perception of our growth potential, our current and potential
future earnings and cash distributions and the market price of our common stock.
Moreover, additional equity offerings may result in substantial dilution of
stockholders' interests, and additional debt financing may substantially
increase our leverage.
WE MAY BE UNABLE TO PAY DIVIDENDS AND OUR EQUITY MAY NOT APPRECIATE.
Under our charter, we may not pay any dividends on shares of our common
stock unless we have paid all cumulative dividends required to be declared on
shares of our series A preferred stock. In addition, under applicable Maryland
law, our ability to pay dividends would be restricted if, after payment of the
dividend, (1) we would not be able to pay indebtedness as it becomes due in the
usual course of business or (2) our total assets would be less than the sum of
our liabilities. No assurance can be given that our financial performance in the
future will permit our payment of any dividends, including dividends on our
series A preferred stock, at the times and in the amounts specified in our
charter. Moreover, no assurance can be given that the value of the shares of our
common stock will increase to levels which make it economically advantageous to
holders of our series A preferred stock to exercise their right to convert such
shares into our common stock. As a result of the factors described above, we may
experience material fluctuations in future operating results on a quarterly or
annual basis, which could materially and adversely affect our business, stock
price and ability to pay dividends.
CERTAIN OF OUR DIRECTORS AND THEIR AFFILIATES WILL CONTINUE TO OWN SUBSTANTIAL
AMOUNTS OF OUR SERIES A PREFERRED STOCK AND COMMON STOCK AND WILL THEREFORE HAVE
SIGNIFICANT INFLUENCE ON THE OUTCOME OF MOST STOCKHOLDER VOTES.
Messrs. Leo Liebowitz, Howard Safenowitz and Milton Cooper, each a
director, and their affiliates own approximately 47.0% of the voting power of
all outstanding shares of our common stock and series A preferred stock. After
the conclusion of this offering and giving effect to conversion of the series A
preferred stock, Messrs. Liebowitz, Safenowitz and Cooper and their affiliates
will own approximately 31.6% of the voting power of all outstanding shares of
our common stock. As a result, Messrs. Liebowitz, Safenowitz and Cooper,
individually and in conjunction with their affiliates, will be able to
significantly influence the outcome of most corporate actions requiring
stockholder approval.
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USE OF PROCEEDS
We intend to use the net proceeds from the sale of the common stock offered
by this prospectus supplement (which, after payment of the estimated expenses
and the financial advisory fee, will be approximately $114.7 million):
- to repay substantially all of our existing debt, specifically:
+to pay in full all amounts outstanding under the loan agreement between
our subsidiary, Power Test Realty Company Limited Partnership, and The
Chase Manhattan Bank -- approximately $19.8 million -- this loan
currently accrues interest at a rate of approximately 6.4% per annum and
matures on August 31, 2002;
+to pay in full all amounts (other than in support of outstanding letters
of credit) expected to be outstanding as of July 31, 2001 under our
credit lines with The Chase Manhattan Bank and Mellon Financial
Corporation -- aggregating approximately $16.5 million -- borrowings
under these lines of credit currently accrue interest at rates of 4.85%
and 6.5% per annum, respectively;
- to make a special distribution to our stockholders approximately equal to
our accumulated "earnings and profits" (as defined by the Internal
Revenue Code) of $64.1 million (or $4.15 per common share and $4.20 per
series A preferred share). The special distribution is payable to holders
of record of our common stock and series A preferred stock at the close
of business on July 25, 2001. Payment of the special distribution is
conditioned on the closing of this offering and is expected to be made on
August 2, 2001. Accordingly, purchasers of common stock offered by this
prospectus supplement will not receive any portion of the "earnings and
profits" distribution on any of the shares of common stock they purchase;
and
- for general corporate purposes.
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CAPITALIZATION
The following table shows our capitalization at March 31, 2001, and the
adjusted capitalization as of that date after giving effect to the sale of the
common stock offered by this prospectus supplement, the application of the net
proceeds from the sale and the effect on retained earnings of eliminating tax
liabilities upon conversion to a REIT. This information should be read together
with the information under "Use of Proceeds" and "Selected Financial Data"
herein and the consolidated financial statements and related notes included
elsewhere in this prospectus supplement.
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
DEBT:
Borrowings under credit lines............................. $ 24,000 $ --(*)
Mortgages payable......................................... 22,413 1,913
-------- --------
Total debt................................................ $ 46,413 $ 1,913
-------- --------
STOCKHOLDERS' EQUITY:
Series A participating convertible redeemable preferred
stock, par value $0.01 per share; 3,000,000 shares
designated; 2,888,798 shares issued.................... 72,220 72,220
Common stock, par value $0.01 per share; 50,000,000 shares
authorized; 13,567,335 and 21,267,335 issued,
respectively........................................... 136 213
Paid-in capital........................................... 67,036 163,540
Retained earnings......................................... 2,597 --
Series A preferred stock in treasury, at cost (23,030
shares)................................................ (430) (430)
Common stock in treasury, at cost (1,019,048 shares)...... (12,282) (12,282)
-------- --------
Total stockholders' equity................................ $129,277 $223,261
-------- --------
Total capitalization.............................. $175,690 $225,174
======== ========
---------------
(*) Does not include approximately $3.3 million of estimated letter of credit
reimbursement obligations that will remain outstanding under our credit
lines.
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS PAID
Our common stock is listed on the NYSE under the symbol "GTY". The price
range of our common stock and cash dividends paid with respect to each share of
our common stock during the quarters ended on the dates below were as follows:
PRICE RANGE
---------------- CASH DIVIDENDS
QUARTER ENDING HIGH LOW PER SHARE
-------------- ------ ------ --------------
September 30, 2001 (through July 26, 2001).......... $22.05 $18.90 --
June 30, 2001....................................... 21.79 14.00 $0.15
March 31, 2001...................................... 15.29 14.00 0.15
December 31, 2000 (two-month period)................ $15.13 $10.00 $0.15
October 31, 2000.................................... 12.00 9.88 0.15
July 31, 2000....................................... 12.31 10.31 0.15
April 30, 2000...................................... 13.44 9.81 0.15
January 31, 2000.................................... $13.00 $10.81 $0.10
October 31, 1999.................................... 17.44 12.06 0.10
July 31, 1999....................................... 14.88 13.31 0.10
April 30, 1999...................................... 15.63 12.50 0.10
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SELECTED FINANCIAL DATA
The following sets forth our selected consolidated financial and operating
information on an historical basis and, for certain indicated periods, on a pro
forma basis to give effect to this offering and the application of the net
proceeds herefrom. The following information should be read in conjunction with
our consolidated financial statements and notes thereto included elsewhere or
incorporated by reference in the prospectus and this prospectus supplement. In
contemplation of our electing to be taxed as a REIT, on December 12, 2000, our
board of directors approved a change in our fiscal year end to December 31 from
January 31. The change resulted in an eleven month accounting period ended
December 31, 2000. The selected consolidated historical financial and operating
information as of and for the three months ended March 31, 2001 and 2000, and as
of and for the eleven months ended December 31, 1999 has been derived from our
historical unaudited consolidated financial statements. The selected
consolidated historical financial and operating information as of and for the
eleven months ended December 31, 2000, and as of and for each of the three years
in the period ended January 31, 2000 has been derived from our historical
consolidated financial statements audited by PricewaterhouseCoopers LLP,
independent auditors, whose report with respect thereto is included elsewhere in
this prospectus supplement.
Unaudited pro forma operating information for the three months ended March
31, 2001 and the eleven months ended December 31, 2000 is presented as if this
offering occurred on February 1, 2000; unaudited pro forma balance sheet data is
presented as if this offering had occurred on March 31, 2001; and, therefore,
incorporates certain assumptions that are described in the notes to the pro
forma consolidated financial statements included elsewhere herein. The pro forma
information does not purport to represent what our financial position or results
of operations would actually have been if this offering and the application of
the net proceeds herefrom had, in fact, occurred on such date or at the
beginning of the period indicated, or to project our financial position or
results of operations at any future date or for any future period.
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22
THREE MONTHS ENDED ELEVEN MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,(A) JANUARY 31,
----------------------------- --------------------------------- ---------------------------
PRO FORMA PRO FORMA
2001 2001 2000 2000 2000 1999 2000 1999 1998(B)
--------- ------- ------- --------- ------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA:
Revenues:
Total revenues from rental
properties.................. $17,146 $17,146 $14,724 $53,916 $53,916 $53,983 $58,889 $58,869 $59,449
Other income.................. 232 232 153 378 378 5,026 4,970 2,472 3,368
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues................ 17,378 17,378 14,877 54,294 54,294 59,009 63,859 61,341 62,817
------- ------- ------- ------- ------- ------- ------- ------- -------
Expenses:
Rental property expenses...... 2,796 2,796 3,052 10,980 10,980 11,259 12,126 12,910 13,583
Environmental expenses........ 2,759 2,759 3,033 8,498 8,498 5,980 6,813 17,320 8,634
General and administrative
expenses.................... 1,017 1,017 603 3,257 3,257 5,265 5,642 6,129 13,297(c)
Depreciation and
amortization................ 2,369 2,369 2,511 9,196 9,196 9,589 10,425 9,418 9,514
Interest expense.............. 51 898 770 365 3,413 2,489 2,748 2,726 5,008
Change of control charge...... -- -- -- -- -- -- -- -- 2,166(d)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total expenses................ 8,992 9,839 9,969 32,296 35,344 34,582 37,754 48,503 52,202
------- ------- ------- ------- ------- ------- ------- ------- -------
Equity in earnings of
Marketing..................... -- -- -- -- -- -- -- -- 2,931
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings from continuing
operations before provision
for income taxes.............. 8,386 7,539 4,908 21,998 18,950 24,427 26,105 12,838 13,546
Provision for income taxes...... -- 3,207 2,196 -- 7,875 10,378 11,091 5,337 5,697
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings from continuing
operations.................... 8,386 4,332 2,712 21,998 11,075 14,049 15,014 7,501 7,849
------- ------- ------- ------- ------- ------- ------- ------- -------
Discontinued operations(e):
Earnings (loss) from operations,
net of income taxes........... -- -- -- -- -- -- -- (119) 95
Gain on disposal, net of
income taxes................ -- -- -- -- -- -- -- 2,674 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings from discontinued
operations.................. -- -- -- -- -- -- -- 2,555 95
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings.................... 8,386 4,332 2,712 21,998 11,075 14,049 15,014 10,056 7,944
Series A preferred stock
dividends..................... 1,272 1,272 1,280 5,098 5,098 5,128 5,128 5,128 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings applicable to
common stockholders........... $ 7,114 $ 3,060 $ 1,432 $16,900 $ 5,977 $ 8,921 $ 9,886 $ 4,928 $ 7,944
======= ======= ======= ======= ======= ======= ======= ======= =======
Basic earnings per common share:
Continuing operations......... $ .35 $ .24 $ .11 $ .82 $ .47 $ .66 $ .73 $ .17 $ .60
Discontinued operations....... -- -- -- -- -- -- -- .19 .01
Net earnings.................. .35 .24 .11 .82 .47 .66 .73 .36 .60
Diluted earnings per common
share:
Continuing operations......... .35 .24 .11 .82 .47 .66 .73 .17 .59
Discontinued operations....... -- -- -- -- -- -- -- .19 .01
Net earnings.................. .35 .24 .11 .82 .47 .66 .73 .36 .60
Weighted average common shares
outstanding (in thousands):
Basic......................... 20,248 12,548 13,420 20,518 12,818 13,567 13,563 13,566 13,152
Diluted....................... 20,253 12,553 13,421 20,518 12,818 13,569 13,565 13,571 13,348
S-20
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ELEVEN
THREE MONTHS ENDED MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31, JANUARY 31,
------------------------------- ------------ ------------------------------
PRO FORMA
2001 2001 2000 2000 2000 1999 1998
--------- -------- -------- ------------ -------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA
(AT END OF PERIOD):
Investment in real estate after
accumulated depreciation............... $230,016 $230,016 $240,169 $232,066 $241,500 $239,748 $225,069
Total assets............................. 258,421 252,321 259,846 255,725 260,752 261,084 265,661
Mortgage debt and revolving lines of
credit................................. 1,913 46,413 44,486 49,969 43,993 39,742 40,526
Total liabilities........................ 35,160 123,044 122,356 127,626 118,941 123,053 127,068
Series A preferred stock................. 72,220 72,220 72,220 72,220 72,220 72,220 72,220
Common stock and paid-in capital......... 163,753 67,172 67,172 67,172 67,172 67,157 67,221
OTHER DATA:
Funds from operations ("FFO")(f)......... 7,298 6,451 6,027 21,942 28,147 15,633 19,399
Cash flows provided by operating
activities............................. 6,729 5,797 17,292 15,736 16,059 11,640
Cash flows provided by (used in)
investing activities................... (231) (221) 1,591 (8,759) (14,142) (7,268)
Cash flows used in financing
activities............................. (6,710) (1,837) (18,811) (6,983) (11,292) (5,723)
Repurchase of series A preferred stock
and common stock....................... -- (3,525) (12,017) (695) -- --
NUMBER OF PROPERTIES AT PERIOD END:
Owned.................................. 752 756 753 757 740 736
Leased................................. 341 355 344 361 379 404
-------- -------- -------- -------- -------- --------
Total.................................. 1,093 1,111 1,097 1,118 1,119 1,140
======== ======== ======== ======== ======== ========
---------------
(a) Our board of directors approved a change in our fiscal year end to December
31 from January 31. The change resulted in an eleven-month accounting
period ended December 31, 2000.
(b) Includes the financial results of the petroleum marketing business for the
period prior to the spin-off from February 1, 1997 through March 21, 1997
on a one-line equity basis. Includes $3,710,000 of capitalized lease
interest recorded prior to the merger with Power Test Investors Limited
Partnership on January 30, 1998. Subsequent to the merger, the intercompany
lease transactions were eliminated in consolidation.
(c) Includes $8,683,000 of stock compensation expense.
(d) Represents a charge relating to certain "change of control" agreements
related to the spin-off of the petroleum marketing business.
(e) In December 1998, we sold our heating oil and propane business.
(f) Our "funds from operations" ("FFO") is computed as net earnings available to
common stockholders before provision for income taxes (computed in
accordance with generally accepted accounting principles), plus real estate
related depreciation and amortization and excludes gains (or losses) from
sales of property and straight line rent. We believe FFO is helpful to
investors as a measure of the performance of an equity REIT because, along
with our statements of financial condition, results of operations and cash
flows, it provides investors with an understanding of our ability to incur
and service debt and make capital expenditures. FFO should not be
considered as an alternative to net earnings (determined in accordance with
generally accepted accounting principles), as an indication of our
financial performance, to cash flows from operating activities (determined
in accordance with generally accepted accounting principles) or as a
measure of our liquidity, nor is it indicative of funds available to fund
our cash needs, including our ability to make distributions. Pro forma
"funds from operations" for the eleven months ended December 31, 2000 were
$24,990,000.
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24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Prior to the spin-off of our petroleum marketing business to our
stockholders on March 21, 1997, we were principally engaged in the ownership and
leasing of real estate as well as the marketing and distribution of petroleum
products. In December 1998, we sold our Pennsylvania and Maryland heating oil
business. The results of operations of the heating oil business have been
reclassified as discontinued in the accompanying financial statements for the
years ended January 31, 1999 and 1998. We are now a real estate company
specializing in service stations, convenience stores and petroleum marketing
terminals. We lease 994 of our 1,091 properties on a long-term net basis to
Marketing. On December 8, 2000, a U.S. subsidiary of Lukoil, Russia's largest
vertically integrated oil company, acquired approximately 72% of the outstanding
common stock of Marketing in a tender offer and acquired the remaining equity of
Marketing through a merger on January 25, 2001. In connection with Lukoil's
acquisition of Marketing, we amended several of our agreements with Marketing,
including the master lease and a related lease between two of our subsidiaries,
which one of our lenders alleges caused a default under a loan agreement of one
of those subsidiaries. See "-- Liquidity and Capital Resources."
On December 12, 2000, our board of directors approved a change in our
fiscal year end to December 31 from January 31. The change resulted in an eleven
month accounting period ended December 31, 2000. Our board of directors also
indicated that it would continue to evaluate the merits of electing to be taxed
as a REIT in 2001. If we were to elect to be taxed as a REIT, we would not be
subject to federal corporate income tax on the net income we distribute to our
stockholders. As a REIT, we would be required to distribute at least 90% of our
taxable income to stockholders each year. In order to qualify as a REIT,
however, we would be required to make a distribution to our stockholders in an
amount at least equal to our accumulated "earnings and profits" (as defined in
the Internal Revenue Code) from the years in which we operated as a taxable
corporation. We have declared a special distribution of approximately $64.1
million to holders of record of our common stock and series A preferred stock at
the close of business on July 25, 2001. Payment of the special distribution is
conditioned on the closing of this offering. Purchasers of common stock offered
by this prospectus supplement will not receive any portion of this "earnings and
profits" distribution on any of the shares of common stock they purchase. The
entire amount of the distribution will be taxable to the recipient as dividend
income.
If this offering is completed, our board of directors intends to elect to
have Getty be taxed as a REIT under the Internal Revenue Code beginning with the
current fiscal year. If we qualify for taxation as a REIT and elect REIT status,
we plan to continue to meet the requirements for taxation as a REIT. We cannot,
however, guarantee that we would continue to qualify in the future as a REIT.
In order to make the following discussion of our results of operations more
meaningful, the results of operations for the eleven months ended December 31,
2000 have been compared to the unaudited results of operations for the eleven
months ended December 31, 1999. In addition, the financial results of the
spun-off petroleum marketing business, and the sold heating oil business which
is shown as a discontinued operation, have been excluded from the narrative
presented below. The net earnings of Marketing for the period prior to its
spin-off, February 1, 1997 to March 21, 1997, was $1.7 million. The net earnings
of the discontinued heating oil business were $2.6 million and $0.1 million for
the fiscal years ended January 31, 1999 and 1998, respectively.
Our financial results largely depend on rental income from Marketing and
other tenants. Our financial results are materially dependent upon the ability
of Marketing to meet its obligations under the master lease; however, based on
the information currently available to us, we do not anticipate that Marketing
will have difficulty in making required rental payments under the master lease
in the foreseeable future.
S-22
25
RESULTS OF OPERATIONS
Quarter ended March 31, 2001 compared with the quarter ended March 31, 2000
(unaudited)
The financial results for the first quarter of 2000 have been recast to
include the three months ended March 31, 2000 as a result of the change in the
Company's year-end to December 31 from January 31.
Revenues from rental properties for the quarter ended March 31, 2001 were
$17.1 million, compared to $14.7 million for the quarter ended March 31, 2000.
Approximately $16.5 million and $14.1 million of these rentals for the quarters
ended March 31, 2001 and 2000, respectively, were from properties leased to
Marketing under the master lease. The increase in rental income is primarily due
to $2.1 million of deferred rent receivable recognized in the current period, as
required by generally accepted accounting principles, related to the 2% future
annual rent increases due from Marketing under the terms of the amended and
restated master lease which became effective on December 9, 2000. These fixed
rent increases are recognized on a straight-line basis over the initial 15-year
term of the master lease rather than when received. Previously, rent increases
were based on the Consumer Price Index and would have been recognized when such
increases were due. Rental income from Marketing also increased during the
current quarter by $0.3 million due to a 4% rent increase effective December 9,
2000, net of a reduction in the number of properties leased compared to the
prior period.
Other income of $0.2 million for the quarter ended March 31, 2001 was
comparable to the quarter ended March 31, 2000.
Rental property expenses, which are principally comprised of rent expense
and real estate taxes, were $2.8 million for the quarter ended March 31, 2001,
compared to $3.1 million for the quarter ended March 31, 2000. The $0.3 million
reduction was due to real estate tax refunds received and reductions in rent
paid for leased properties due to termination of leases with third party
landlords.
Environmental expenses for the quarter ended March 31, 2001 were $2.8
million, a decrease of $0.3 million from the prior period. The current period
included a $2.4 million change in estimated remediation costs associated with
contamination discovered at sites where we retain responsibility for
environmental remediation and revisions to estimates at other sites where
remediation is ongoing. The prior period included an environmental charge of
$3.0 million, of which $2.3 million represented a change in estimated
remediation costs or revisions to prior estimates. The prior period also
included $0.7 million of charges related to environmental litigation.
Certain environmental expenses recognized in the current period increased,
in part, due to the transition of environmental management responsibility to
Delta Environmental Consultants from Marketing personnel. The increased expenses
were attributable to revised estimated remediation costs recognized due to
changes in strategies resulting from a detailed review and consultation with
environmental service providers performed by Delta on a site by site basis and
due to fees paid to Delta and those service providers involved with the
transition.
As of March 31, 2001, we had accrued $22.5 million as management's best
estimate for probable and reasonably estimable environmental remediation costs
and had recorded $11.4 million as management's best estimate for recoveries from
state underground storage tank remediation funds related to environmental
obligations and liabilities. Such accruals are reviewed on a regular basis and
any changes will be reflected in our financial statements as they become known.
General and administrative expenses for the quarter ended March 31, 2001
were $1.0 million, an increase of $0.4 million as compared with the quarter
ended March 31, 2000. The increase was due to employee-related expenses and
legal fees. Included in general and administrative expenses for each of the
quarters ended March 31, 2001 and 2000 are $159,000 of net fees paid to
Marketing for certain administrative and technical services performed under a
services agreement. Substantially all of these services have been discontinued
as of April 1, 2001.
S-23
26
Depreciation and amortization was $2.4 million and $2.5 million,
respectively, for the quarters ended March 31, 2001 and 2000. The decrease was
primarily the result of assets becoming fully depreciated and real estate
dispositions.
Interest expense for the three months ended March 31, 2001 was $0.9 million
as compared with $0.8 million for the quarter ended March 31, 2000. The increase
was due to higher average borrowings outstanding and higher interest rates.
Eleven months ended December 31, 2000 compared to eleven months ended
December 31, 1999 (unaudited)
Revenues from rental properties for the eleven months ended December 31,
2000 ("fiscal December 2000") and 1999 ("fiscal December 1999") were $53.9
million and $54.0 million, respectively. Approximately $51.5 million and $51.7
million of these rentals for fiscal December 2000 and fiscal December 1999,
respectively, were from properties leased to Marketing under the master lease.
Other income was $0.4 million for fiscal December 2000 as compared with
$5.0 million for fiscal December 1999. The $4.6 million decrease was due to
lower gains on dispositions of real estate of $2.2 million, a severance charge
of $0.9 million and expenses related to the amendment of the master lease of
$0.6 million. In addition, fiscal December 1999 included the settlement of a
lawsuit resulting in the elimination of a $1.2 million reserve.
Rental property expenses, which are principally comprised of rent expense
and real estate taxes, decreased from fiscal December 1999 by $0.1 million to
$11.0 million for fiscal December 2000 due to a reduction in the number of
properties leased.
Environmental expenses for fiscal December 2000 increased by $2.4 million
from the prior period. The current period included an environmental charge of
$8.5 million, of which $6.8 million represented a change in estimated
remediation costs associated with contamination discovered at sites where we
retain responsibility for environmental remediation and revisions to estimates
at other sites where remediation is ongoing. The prior period included an
environmental charge of $6.1 million, of which $4.4 million represented a change
in estimated remediation costs or revisions to prior estimates. Fiscal December
2000 also included $1.2 million of charges related to environmental litigation
compared to $0.7 million for the prior period.
General and administrative expenses for fiscal December 2000 were $3.3
million, a decrease of $2.0 million from the prior period. The decrease was
principally due to a reduction in employee related expenses, legal fees and
retrospective insurance charges relating to the spun-off petroleum marketing
business. Included in general and administrative expenses for fiscal December
2000 and fiscal December 1999 are $582,000 and $696,000, respectively, of net
fees paid to Marketing for certain administrative and technical services
performed by Marketing under a services agreement.
Depreciation and amortization for fiscal December 2000 was $9.2 million, a
decrease of $0.4 million over the prior period as a result of certain assets
becoming fully depreciated and dispositions of real estate.
Interest expense was $3.4 million and $2.5 million for fiscal December 2000
and fiscal December 1999, respectively. The increase was due to higher average
borrowings outstanding and higher interest rates.
Fiscal year ended January 31, 2000 compared to fiscal year ended January
31, 1999
Revenues from rental properties for each of the years ended January 31,
2000 ("fiscal 2000") and 1999 ("fiscal 1999") were $58.9 million. Approximately
$56.4 million of these rentals for each fiscal year were from properties leased
to Marketing under the master lease.
Other income was $5.0 million for fiscal 2000 as compared with $2.5 million
for fiscal 1999. The $2.5 million increase was primarily due to higher gains on
dispositions of real estate of $1.8 million and
S-24
27
settlement of a lawsuit resulting in the elimination of a $1.2 million reserve,
partially offset by lower investment income.
Rental property expenses, which are principally comprised of rent expense
and real estate taxes, decreased from fiscal 1999 by $0.8 million (6.1%) to
$12.1 million for fiscal 2000 due to a reduction in the number of properties
leased.
Environmental expenses for fiscal 2000 were $6.8 million, a decrease of
$10.5 million from fiscal 1999. Fiscal 2000 included an environmental charge of
$6.6 million, of which $4.4 million represented a change in estimated
remediation costs associated with contamination discovered at sites where we
retain responsibility for environmental remediation and revisions to estimates
at other sites where remediation is ongoing. Fiscal 1999 included an
environmental charge of $16.9 million, of which $14.8 million represented a
change in estimated remediation costs or revisions to prior estimates.
General and administrative expenses for fiscal 2000 were $5.6 million, a
decrease of $0.5 million from fiscal 1999. The decrease was principally due to
lower legal and professional fees, partially offset by a higher retrospective
insurance charge relating to the spun-off petroleum marketing business. Included
in general and administrative expenses for fiscal 2000 and 1999 are $749,000 and
$960,000, respectively, of net fees paid to Marketing for certain administrative
and technical services performed by Marketing under a services agreement.
Depreciation and amortization for fiscal 2000 amounted to $10.4 million, an
increase of $1.0 million over fiscal 1999 as a result of capital expenditures
and property acquisitions.
Interest expense for fiscal 2000 amounted to $2.7 million, comparable to
fiscal 1999.
Fiscal year ended January 31, 1999 compared to fiscal year ended January
31, 1998
Revenues from rental properties for fiscal 1999 were $58.9 million, a 1.0%
decrease from the $59.4 million realized for the year ended January 31, 1998
("fiscal 1998"). Approximately $56.4 million and $57.0 million of these rentals
for fiscal 1999 and 1998, respectively, were from properties leased to Marketing
under the master lease.
Other income was $2.5 million for fiscal 1999 as compared with $3.4 million
for fiscal 1998. The $0.9 million decrease was primarily due to $0.7 million of
management fees for administrative and other services provided to Power Test
Investors Limited Partnership ("PTI") in fiscal 1998, which fees were eliminated
as a result of the merger of PTI into Getty on January 30, 1998.
Rental property expenses, which are principally comprised of rent expense
and real estate taxes, decreased from fiscal 1998 by $0.7 million (5.0%) to
$12.9 million for fiscal 1999 due to a decrease in the number of properties
leased.
Environmental expenses for fiscal 1999 amounted to $17.3 million, an
increase of $8.7 million from fiscal 1998. Fiscal 1999 included an environmental
charge of $16.9 million, of which $14.8 million represented a change in
estimated remediation costs associated with contamination discovered primarily
during work performed to meet the federal underground storage tank standards and
revisions to estimates on previously identified sites where remediation is
ongoing. Fiscal 1998 included an environmental charge of $8.3 million, of which
$6.2 million represented a change in estimated remediation costs or revisions to
prior estimates.
General and administrative expenses for fiscal 1999 were $6.1 million, a
decrease of $7.2 million from fiscal 1998. The decrease was principally due to a
charge of $8.7 million recorded during fiscal 1998 for stock compensation
resulting from a change in our stock price, partially offset by higher insurance
costs, legal and other professional fees for fiscal 1999.
Depreciation and amortization for fiscal 1999 was $9.4 million, comparable
to fiscal 1998.
S-25
28
Interest expense for fiscal 1999 was $2.7 million, a decrease of $2.3
million from fiscal 1998. The decrease was principally due to the elimination of
the capitalized lease obligations as a result of the merger of PTI into Getty on
January 30, 1998.
During fiscal 1998, we recorded a charge of $2.2 million related to change
of control agreements in connection with the spin-off.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash flows from operations and
short-term uncommitted lines of credit with two banks. Management believes that
cash requirements for operations, capital expenditures and debt service can be
met by cash flows from operations, available cash and equivalents and credit
lines. As of March 31, 2001, we had lines of credit amounting to $35.0 million,
which may be utilized for working capital borrowings and letters of credit. As
of March 31, 2001, we utilized $27.0 million of the lines of credit for
short-term borrowings and $2.4 million in connection with outstanding letters of
credit. We intend to repay all amounts outstanding under the lines of credit
(other than approximately $2.4 million of estimated letter of credit
obligations) with a portion of the net proceeds of this offering. We expect to
renew or replace our lines of credit at a maximum borrowing level of $25
million, and that we will have no borrowings outstanding under the credit lines
at the closing of this offering. However, the reimbursement obligations under
outstanding letters of credit will remain as discussed above. Although we expect
that the existing sources of liquidity will be sufficient to meet our expected
business requirements, there can be no assurance on the timing of our renewal or
entry into a new working capital facility or as to its terms.
In July 2001, The Chase Manhattan Bank purchased the interest of Fleet
National Bank under a loan agreement between one of our subsidiaries, Power Test
Realty Company Limited Partnership, and Fleet. The loan agreement was originally
entered into by Power Test Realty in December 1986 for $45.0 million. We and
Chase have restated the outstanding loan of approximately $19.8 million to bear
interest at the lower of the prime rate or 2.50% over 30-day LIBOR (the loan
currently bears interest of approximately 6.4% per annum) and to mature on
August 31, 2002. The loan is collateralized by primary and secondary mortgage
liens on 265 service station properties with a net book value of $122.3 million.
As a result of the loan restatement, the non-monetary default under the loan
agreement that had been alleged by Fleet due to our amending the master lease
with Marketing in December 2000 has been cured. We intend to repay all
outstanding amounts under the loan agreement with a portion of the net proceeds
of this offering.
During the three months ended March 31, 2001 and 2000, we declared
quarterly preferred stock dividends of $0.44375 per share and quarterly cash
common stock dividends of $0.15 per share. These dividends aggregated $3.2
million for the three months ended March 31, 2001 and 2000. We paid quarterly
cash common stock dividends of $0.15 per share during the 11 months ended
December 31, 2000 and $0.10 per share during fiscal 2000 and 1999. We also paid
quarterly preferred stock dividends of $0.44375 per share during each of these
fiscal periods. These dividends aggregated $12.8 million for the 11 months ended
December 31, 2000 and $10.6 million for each of fiscal 2000 and 1999.
In December 1999, our board of directors authorized the purchase, from time
to time, in the open market or in private transactions of up to an aggregate of
300,000 shares of common stock and series A preferred stock. In March and June
2000, the board of directors approved the purchase of up to an aggregate of
500,000 and 300,000 additional shares of common stock and series A preferred
stock, respectively. As of January 31, 2000, we had repurchased 60,016 shares of
common stock and 700 shares of series A preferred stock at an aggregate cost of
$0.7 million. During the eleven months ended December 31, 2000, we repurchased
959,282 additional shares of common stock and 22,330 additional shares of series
A preferred stock at an aggregate cost of $12.0 million. We have made no
repurchases in 2001.
Capital expenditures, including acquisitions, for the 11 months ended
December 31, 2000 and fiscal 2000, 1999 and 1998 amounted to $1.3 million, $15.0
million, $25.2 million and $11.3 million, respectively, which included $0.4
million, $4.7 million, $17.9 million and $8.0 million, respectively, for the
replacement
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29
of underground storage tanks and vapor recovery facilities at gasoline stations.
These tank replacement and vapor recovery facility costs and certain
environmental liabilities and obligations continued to be our responsibility
after the spin-off of Marketing. Capital expenditures for the three months ended
March 31, 2001 were $0.3 million, while expenditures for the replacement of
underground storage tanks and vapor recovery facilities were de minimis. The
decrease in capital expenditures is principally due to the near completion of
underground storage tank and vapor recovery facility replacement on properties
for which we were responsible under the master lease. We expect that our capital
expenditures, excluding acquisitions, will be relatively insubstantial for the
balance of 2001.
ENVIRONMENTAL MATTERS
We are subject to numerous existing federal, state and local laws and
regulations, including matters relating to the protection of the environment.
Environmental expenses have been attributable to remediation, monitoring, soil
disposal and governmental agency reporting incurred in connection with
contaminated sites and the replacement or upgrading of underground storage
tanks, related piping, underground pumps, wiring and monitoring devices
(collectively, "USTs") to meet federal, state and local environmental standards,
as well as routine monitoring and tank testing.
Under the master lease, we initiated a program to bring the leased
properties with known environmental contamination to regulatory closure in an
economical manner and, thereafter, transfer all future environmental risks to
Marketing. Upon achieving closure of each individual site, our environmental
liability under the master lease for that site will be satisfied, and future
remediation obligations will be the responsibility of Marketing. We have
retained the obligation to carry out environmental remediation at approximately
470 properties. We have also agreed to provide a limited environmental
indemnification to Marketing with respect to six leased terminals and limited
indemnification relating to compliance of properties with local laws. Our
aggregate indemnification liability for these items is capped at a maximum of
$5.6 million. We have agreed to pay all costs relating to, and to indemnify
Marketing for, environmental liabilities and obligations scheduled in the master
lease. We will also pursue recoveries from state UST remediation funds in those
states where reimbursement for expenses associated with UST-related remediation
is available.
Environmental exposures are difficult to assess and estimate for numerous
reasons, including the extent of contamination, alternative treatment methods
that may be applied, location of the property which subjects it to differing
local laws and regulations and their interpretations, as well as the time it
takes to remediate contamination. In developing our liability for probable and
reasonably estimable environmental remediation costs, on a site-by-site basis,
we consider among other things, enacted laws and regulations, current
assessments of contamination, including the quality of information available,
currently available technologies for treatment, alternative methods of
remediation and prior experience. These estimates are subject to significant
change as the remediation treatment progresses and these contingencies become
more clearly defined and reasonably estimable. For the eleven months ended
December 31, 2000, fiscal 2000, 1999 and 1998, net environmental expenses
included in our consolidated statements of operations amounted to $8.5 million,
$6.6 million, $16.9 million and $8.3 million, respectively, which amounts were
net of probable recoveries from state UST remediation funds.
Environmental expenses for the quarter ended March 31, 2001 were $2.8
million, a decrease of $0.3 million from the prior period. The current period
included a $2.4 million change in estimated remediation costs associated with
contamination discovered at sites where we retain responsibility for
environmental remediation and revisions to estimates at other sites where
remediation is ongoing. The prior period included an environmental charge of
$3.0 million, of which $2.3 million represented a change in estimated
remediation costs or revisions to prior estimates. The prior period also
included $0.7 million of charges related to environmental litigation. Certain
environmental expenses recognized in the current year period increased, in part,
due to the transition of environmental management responsibility to Delta
Environmental Consultants from Marketing personnel. The increased expenses were
attributable to revised estimated remediation costs recognized due to changes in
strategies resulting from a detailed review and consultation with environmental
service providers performed by Delta on a site by site basis and due to fees
paid to Delta and those service providers involved with the transition.
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As of December 31, 2000, January 31, 2000 and 1999, we had accrued $23.4
million, $26.4 million and $34.3 million, respectively, as management's best
estimate for probable and reasonably estimable environmental remediation costs.
As of December 31, 2000, January 31, 2000 and 1999, we had also recorded $12.0
million, $9.9 million and $10.4 million, respectively, as management's best
estimate for recoveries from state UST remediation funds related to
environmental obligations and liabilities. As of March 31, 2001, we had accrued
$22.5 million as management's best estimate for probable and reasonable
estimable environmental remediation costs and had recorded $11.4 million as
management's best estimate for recoveries from state underground storage tank
remediation funds related to environmental obligations and liabilities. In view
of the uncertainties associated with environmental expenditures, however, we
believe it is possible that such expenditures could be substantially higher. Any
additional amounts will be reflected in our financial statements as they become
probable and reasonably estimable. Although environmental costs may have a
significant impact on results of operations for any single fiscal year or
interim period, we believe that such costs will not have a material adverse
effect on our financial position.
We cannot predict what environmental legislation or regulations may be
enacted in the future or how existing laws or regulations will be administered
or interpreted with respect to products or activities to which they have not
previously been applied. Compliance with more stringent laws or regulations, as
well as more vigorous enforcement policies of the regulatory agencies or
stricter interpretation of existing laws which may develop in the future, could
have an adverse effect on our financial position or results of operations or
that of our tenants and could require substantial additional expenditures for
future remediation or the installation and operation of required environmental
or pollution control systems and equipment.
BUSINESS AND PROPERTIES
THE PETROLEUM PRODUCTS RETAIL INDUSTRY
Substantially all of our properties are leased by Marketing. The operators
of the properties leased by Marketing and our other tenants primarily consist of
retailers engaged in the sale of gasoline and other motor fuel products,
convenience products and automotive repair services. Over the past decade, these
lines of business have matured into a single industry as operators increased
their emphasis on co-branded locations with multiple uses. The combination of
petroleum product sales with other offerings, particularly convenience products,
has helped provide one-stop shopping for consumers and represents a driving
force behind the industry's growth in recent years.
According to the 2001 State of the Industry report, published by the
National Association of Convenience Stores (NACS), total convenience store
industry sales have increased to $269.4 billion in 2000, nearly an eight-fold
increase from sales 20 years ago ($33.7 billion in 1980). Motor fuel sales in
convenience stores rose to $165.3 billion, or comprising 61.4% of the industry's
total sales in 2000 and accounting for approximately 60% of all motor fuel
volume sold in the United States. NACS data also shows that convenience
merchandise sales as a percentage of total industry sales has decreased steadily
since 1986, while gasoline as a percentage of total sales has increased
steadily. This reflects the fact that more convenience stores now sell gasoline
and most petroleum marketers now operate convenience stores, as well as the
significant price increases for gasoline during 1999 and 2000. Other factors
that have contributed to the continued growth of the petroleum marketing and
convenience store industry include growth in disposable income, increased
travel, more and larger vehicles on the road (specifically light trucks and
SUVs), marketing trends designed to increase in-store sales, and price increases
in key categories.
The industry in which our tenants operate exhibits general characteristics
that have historically insulated us and our tenants from seasonality and
economic trends. These characteristics include a high percentage of sales from
necessary items such as gasoline, consumables and food, a small average
transaction size and the industry's convenient format. Although the gasoline
marketing business is typically prone to considerable volatility on a
month-to-month basis, industry results on an annual basis have
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demonstrated remarkable stability over the long term. According to NACS, over
the last five years average annual store margins on the sale of gasoline in the
United States ranged between 12.6 and 13.4 cents per gallon. Overall gasoline
consumption in the United States increased by approximately 1.6% annually
between 1998 and 2000, and demand is projected to increase 1.4% per year through
the year 2020 by the U.S. Energy Information Administration.
Statistics released by National Petroleum News indicate that the number of
all facilities selling gasoline decreased to approximately 176,000 in 2000 from
almost 203,000 in 1994, representing an average decline of 2.4% per year. This
decline in the number of stations can be attributed to several factors,
including competitive pressures towards consolidation in the industry and costly
federally mandated regulations which required operators to replace and/or
upgrade underground storage tanks by December 1998. However, during this same
period, the number of convenience store locations increased by approximately
4.3% per year on average, and most new construction involved gasoline operations
as well as a convenience store. According to NACS, a record 78% of the
approximately 120,000 convenience stores in operation in 2000 sold motor fuel,
accounting for more than half of all gasoline outlets and approximately 60% of
all motor fuel volume sold in the United States. While the number of traditional
gasoline stations has decreased in recent years, overall growth in the volume of
gasoline sold has been sustained through increases in average station size, the
number of available gasoline dispensers per location and the number of
convenience stores selling gasoline.
OUR PROPERTIES
As of June 30, 2001, we owned fee title to 743 gasoline station/convenience
stores and six petroleum distribution terminals. We also leased 335 gasoline
station/convenience stores and three bulk plants, as well as 32,000 square feet
of office space at 125 Jericho Turnpike, Jericho, New York, a portion of which
is used for our corporate headquarters and the majority of which is subleased to
Marketing. We believe our network of gasoline station/convenience store and
terminal properties across the northeastern United States is unique and
comparable properties are not readily available for purchase or lease from other
owners or landlords. Many of our properties are located at highly trafficked
urban intersections or conveniently close to highway on- and off-ramps.
Furthermore, obtaining the permits necessary to operate a network of petroleum
marketing properties such as ours would be a difficult, time consuming and
costly process for any potential competitor. Our typical property used as a
gasoline station/convenience store is located on between 1/2 and 3/4 acres of
land in metropolitan areas in the northeastern United States. Approximately
two-thirds of our properties used as gasoline stations have repair bays
(typically two or three bays per station) and nearly half have convenience
stores, canopies or both. The title to substantially all of our owned properties
is in the names of Leemilts Petroleum, Inc. and Power Test Realty Company
Limited Partnership, each of which is our wholly owned subsidiary. Leemilts and
Getty Properties Corp., also our wholly owned subsidiary, are the lessees of
substantially all of the properties we lease from third parties.
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The following table summarizes the geographic distribution of our
properties at June 30, 2001. The table also identifies the number and location
of properties we lease from third-parties and which Marketing leases from us
under the master lease. See "-- Our Relationship with Getty Petroleum Marketing
Inc."
OWNED BY GETTY REALTY LEASED BY GETTY REALTY
-------------------------- -------------------------- TOTAL PERCENT OF
MARKETING OTHER PARTIES MARKETING OTHER PARTIES PROPERTIES TOTAL
AS TENANT AS TENANT AS TENANT AS TENANT BY STATE PROPERTIES
--------- ------------- --------- ------------- ---------- ----------
New York............... 223 25 119 4 371 34.0%
New Jersey............. 110 15 50 2 177 16.3
Massachusetts.......... 91 1 68 2 162 14.9
Pennsylvania........... 108 18 25 3 154 14.2
Connecticut............ 56 3 25 -- 84 7.7
New Hampshire.......... 28 4 3 -- 35 3.2
Virginia............... 3 4 25 1 33 3.0
Maine.................. 17 3 3 1 24 2.2
Rhode Island........... 14 -- 5 -- 19 1.8
Delaware............... 10 3 2 -- 15 1.4
Maryland............... 4 2 1 -- 7 0.6
Florida................ -- 6 -- -- 6 0.6
Vermont................ 1 -- -- -- 1 0.1
--- -- --- -- ----- -----
Total........ 665(1) 84 326(2) 13 1,088 100.0%
=== == === == ===== =====
---------------
(1) Includes six terminal properties owned in New York, New Jersey, Connecticut
and Rhode Island.
(2) Includes three terminals/bulk plants related to Marketing's residential
fuels business based in the New York Mid-Hudson Valley.
The following table sets forth information regarding lease expirations for
properties that we lease from third parties:
NUMBER OF LEASES
CALENDAR YEAR EXPIRING(A) PERCENT OF TOTAL
------------- ---------------- ----------------
2001........................................................ 8(b) 2.4%
2002........................................................ 12 3.5
2003........................................................ 10 2.9
2004........................................................ 8 2.4
2005........................................................ 6 1.8
--- -----
Subtotal........................................ 44(c) 13.0
Thereafter.................................................. 295(d) 87.0
--- -----
339 100.0%
=== =====
---------------
(a) Includes the exercise of lease renewal and extension options.
(b) Number expiring between July 1 and December 31.
(c) We have rights-of-first refusal to purchase or lease 34 of these properties.
Although there can be no assurance regarding any particular property, our
experience has been that we are generally successful in renewing or entering
into new leases when any lease term expires.
(d) Approximately 87% are subject to automatic renewal or extension options.
These leases have a mean final expiration month of December 2021.
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We have been a tenant at these 339 properties for an average of 21 years.
In the opinion of our management, our relationships with our landlords are good
and all of our properties (including those that are fee owned) are adequately
covered by casualty and liability insurance. In addition, we require our tenants
to provide insurance for all properties they lease from us, including casualty,
liability, fire and extended coverage in amounts and on other terms satisfactory
to us.
Currently, we have no plans for material improvements to any of our
properties.
Primary and secondary mortgage liens currently exist on 265 of our owned
service station properties with a net book value of approximately $122.3
million. These mortgage liens secure the loan agreement between our subsidiary,
Power Test Realty Company Limited Partnership, and The Chase Manhattan Bank as
assignee of Fleet National Bank. The loan, due August 31, 2002, currently bears
interest at approximately 6.4% per annum and has a remaining balance of
approximately $19.8 million. We intend to repay all outstanding amounts under
this loan agreement using proceeds received from this offering as soon as
practicable following this offering. Nine of our other owned service station
properties with a net book value of approximately $3.0 million are secured by
mortgages at an average rate of 8.1% per annum with an aggregate principal
balance of approximately $1.9 million. No other material mortgages, liens or
encumbrances exist on our properties.
OUR RELATIONSHIP WITH GETTY PETROLEUM MARKETING INC.
In January 1997, we transferred our petroleum marketing business and a
portion of our home heating oil business to Marketing, a wholly owned
subsidiary. On March 21, 1997, we completed the spin-off of Marketing to our
stockholders, who received a tax-free dividend of one share of common stock of
Marketing for each share of our common stock.
Over the past five years ended December 31, 2000, Marketing has distributed
on average over one billion gallons of petroleum products per year. Marketing
purchases petroleum products principally from refiners and distributes them via
its network of 9 terminal facilities, 36 throughput and exchange locations and
approximately 1,300 retail outlets. Marketing leases approximately 1,000 retail
outlets and 9 terminal facilities from us. Marketing reported annual sales and
operating revenue of $832 million, $661 million and $891 million for its fiscal
years ended January 31, 2000, 1999 and 1998, respectively. Based on Marketing's
publicly available audited financial information, we believe that Marketing
generated average annual EBITDAR (earnings before interest, taxes, depreciation,
amortization and rent expense) of approximately $77 million during this
three-year period, and its ratio of EBITDAR to the sum of its rent and interest
expense averaged 1.32x.
On November 2, 2000, Marketing agreed to be acquired by a subsidiary of
Lukoil, Russia's largest vertically integrated oil company. On December 8, 2000,
a Lukoil subsidiary acquired approximately 72% of the outstanding common stock
of Marketing in a tender offer and acquired by merger the remaining common stock
of Marketing on January 25, 2001.
Lukoil has operations in oil and gas exploration and production, refining,
sales of crude oil products and transportation in 40 regions in Russia and 25
other countries, according to its 1999 annual report. In Lukoil's 1998 and 1999
audited financial statements prepared according to U.S. generally accepted
accounting principles, it reported total revenues of $6.6 billion and $7.4
billion and net income of $0.7 billion and $1.1 billion, respectively. Lukoil's
most recent U.S. GAAP earnings release reported total revenues of $6.2 billion
and net income of $1.5 billion for the first six months of 2000.
In connection with Lukoil's acquisition of Marketing, we entered into or
modified the following agreements with Marketing:
Master lease. Our wholly owned subsidiary, Getty Properties Corp., entered
into an amended master lease agreement with Marketing with respect to
approximately 1,000 service station and convenience store properties and our
nine distribution terminals and bulk plants. The master lease has an initial
term of fifteen years, and generally provides Marketing with renewal options
extending to 2048 that may be exercised only on an "all or nothing" basis. We
expect to receive approximately $57.5 million in lease
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rental from Marketing in 2001, and the master lease provides for annual 2%
increases. The master lease is a "triple-net" lease, under which Marketing is
responsible for the cost of all taxes, maintenance, repair, insurance and other
operating expenses. Certain financial obligations of Marketing under the master
lease for at least the first three years of the lease are guaranteed by Lukoil
(subject to governmental approvals) and an Austrian subsidiary of Lukoil.
If Marketing fails to pay rent, taxes or insurance premiums when due under
the master lease, and the failure is not cured by Marketing (or its creditor, if
any) within a specified time after receipt of notice, we have the right to
terminate the master lease and to exercise other customary remedies against
Marketing. If Marketing fails to comply with any other obligation under the
master lease after Marketing (and its creditor, if any) has been given notice
and opportunity to cure, we do not have the right to terminate the master lease.
Instead, our available remedies under the master lease are to obtain an
injunction or other equitable relief requiring Marketing to comply with its
obligations under the master lease and to recover damages from Marketing
resulting from the failure.
If any lease we have with a third party landlord is terminated as a result
of our default and the default is not caused by Marketing, we have agreed to
indemnify Marketing for its losses with respect to the termination. In addition,
if any lease we have with a third party landlord gives us the right to obtain a
non-disturbance agreement from the landlord's lender and we fail to do so, then
upon termination of our lease (resulting in a termination of the master lease
with respect to that property) in connection with the lender's exercise of its
remedies under its fee mortgage, we must either obtain a new lease for Marketing
from either Getty or the new landlord on substantially the same terms as the
master lease or pay Marketing a specified amount of damages for a five-year
period.
Where we lease a property from a third party landlord under a lease which
is about to expire and does not contain options to renew, we and Marketing each
have a non-exclusive right to negotiate with that third party landlord. However,
for up to 25 of these properties, Marketing may elect by giving us notice at
least 18 months prior to expiration of the lease to have the exclusive right to
negotiate with the third party landlord until six months prior to the expiration
of the lease.
We have agreed that if we decide to sell any property leased to Marketing
under the master lease, we will first offer to sell that property to Marketing
pursuant to procedures set forth in the master lease. Marketing may also elect
to make not more than 40 properties that we first offer to sell to Marketing
subject to a right of first refusal in Marketing's favor.
The amended master lease replaces and supercedes the original master lease
in its entirety so that we generally cannot declare a lease default for any
matters that arose prior to the December 2000 amendment of the master lease.
However, Marketing in general remains responsible for any violations of non-
environmental laws that existed prior to the time of the amendment of the master
lease. We have agreed to provide limited indemnification, capped at $1.375
million, for certain violations, subject to Marketing's right, if it reasonably
determines that curing the violation would be economically impractical, to
require us to cure the violation or to remove the affected property from the
master lease under certain circumstances. Our obligations with respect to
upgrading underground storage tanks and remediating pre-existing environmental
conditions remain the same as before the effective time of the amended master
lease, except that substantially all of the underground storage tank upgrades
have been completed (though we remain obligated for certain remediation related
expenses at sites where tank upgrades have been completed) and we have agreed to
provide a limited indemnity to Marketing regarding our owned terminals, as
described below. Marketing otherwise remains liable for all environmental
matters.
Environmental indemnity agreement. Getty Properties also entered into an
environmental indemnity agreement with Marketing. This agreement provides that
Getty Properties will indemnify Marketing for certain pre-existing environmental
conditions at the six terminals we own. Under the agreement, Marketing will pay
the first $1.5 million of costs and expenses incurred in connection with
remediating any pre-existing terminal conditions, Marketing and Getty Properties
will share equally the next $8.5 million of those costs and expenses and
Marketing will pay all additional costs and expenses over $10 million. Our
aggregate indemnification liability for these items is $4.25 million. Under the
master lease, we continue to have additional ongoing environmental remediation
obligations for scheduled sites.
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Trademark license agreements. Getty Properties and Marketing have a
trademark license agreement that grants Marketing an exclusive license of
certain of our trademarks, service marks and trade names (including the name
"Getty") used in connection with Marketing's business within 12 of Marketing's
13 state current marketing territory and the District of Columbia. Getty TM
Corp., our wholly owned subsidiary and the owner of those trademark rights in
the remaining United States, entered into a license agreement granting Marketing
a non-exclusive license in the remaining United States subject to a
gallonage-based royalty. In order to permit us to qualify to elect to be taxed
as a REIT, any gallonage-based royalties will be earned through a taxable REIT
subsidiary. The terms of these agreements are coterminous with the master lease.
OUR POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
INVESTMENT POLICIES
Subject to the provisions of our charter and bylaws, our board of directors
may from time to time adopt, amend, revise or terminate any policy or policies
with respect to our investments as it shall deem appropriate in its sole
discretion.
Investments in real estate or interests in real estate. We intend to focus
our growth in assets by making investments in petroleum marketing properties and
related facilities including: service stations, convenience stores, auto-repair
shops and gasoline and heating oil distribution terminals. We do not intend to
confine ourselves to investments in properties using the Getty brand and may
invest in other branded and unbranded properties. We may also make the Getty
brand available to operators in properties where we make investments outside the
current thirteen state area, where we have licensed the brand to Marketing on a
non-exclusive basis. From time to time, we may consider acquisitions that
include management personnel who could increase the breadth and depth of our
management team.
We generally intend to purchase a fee interest in properties and
improvements (although we will also purchase or enter into long term ground
leases where it is advantageous for us to do so). We will not operate these
properties directly, but will lease the properties to experienced operators.
We intend the term of our leases to be between five and fifteen years (with
renewal options) and expect that they will be triple-net. Triple-net leases
typically require the tenants to be responsible for property operating costs,
including property taxes, insurance and maintenance. In addition, operators will
be required to indemnify us against loss resulting from the tenant's use and
operation of the property and for any environmental liabilities caused by the
tenant's use and operation of the property. We also intend to provide for rent
increases either on a mandatory or Consumer Price Index basis or on a percentage
of gross revenues basis consistent with maintaining our future status as a REIT.
It is not our policy to acquire assets primarily for possible capital gain.
Rather, it is our policy to acquire assets primarily for income. We have no
limitation on the amount or percentage of assets which will be invested in any
specific property. Any policy as it relates to investments in real estate or
interests in real estate may be changed by our board of directors at any time
without a vote of the stockholders.
Investments in real estate mortgages. Although we intend to target
ownership of properties and have not invested in mortgage loans in the past, we
will consider investment in mortgages in target properties, particularly
participating and convertible mortgages which provide us with a portion of the
equity appreciation of a property and can be more tax efficient to a seller of
property. Any policy as it relates to mortgage loans may be changed by our board
of directors at any time without a vote of the stockholders. Our portfolio of
investments may include real estate mortgages that we obtain by selling our
properties and taking back a purchase money mortgage on the sold properties.
Currently, we hold 35 purchase money mortgages on properties we once owned.
Investments in other securities. Purchases of securities are made solely
for the purpose of holding cash until future real estate investments are
identified. At this time, no investments in securities are
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planned. Any policy as it relates to investments in other securities may be
changed by our board of directors at any time without a vote of the
stockholders.
Investments in securities of or interests in persons primarily engaged in
real estate activities. At this time, we do not own any securities of or
interests in persons primarily engaged in real estate activities and no
purchases of such securities are contemplated. Any policy as it relates to
investments in other securities may be changed by our board of directors at any
time without a vote of the stockholders.
OTHER POLICIES
The following information is a statement of our policies pertaining to the
described activities.
To issue senior securities. Under the terms of the series A preferred
stock, we are prohibited from issuing equity securities which are senior to the
series A preferred stock. The decision to issue equity securities senior to the
series A preferred stock requires approval of holders of two-thirds of the
outstanding shares of series A preferred stock and holders of a majority of all
of our outstanding shares voting as a single class.
To borrow money. We generally intend to obtain first mortgage indebtedness
or other secured or unsecured debt that is reasonable and commercially
available. The decision to make permitted investments or draw against our
working capital line of credit is vested solely in our board of directors and
may be changed without a vote of the stockholders. Over the past three fiscal
years, we have borrowed funds as follows:
DECEMBER 31, 2000 JANUARY 31, 2000 JANUARY 31, 1999
----------------- ---------------- ----------------
(IN THOUSANDS)
Borrowings under credit lines........ $27,000 $14,800 $ 4,500
Net increase....................... 12,200(*) 10,300 4,500
Mortgages payable.................... 22,969 29,193 35,242
Net decrease....................... (6,224) (6,049) (5,284)
---------------
(*) The increased borrowings were used primarily to make share repurchases as
set forth below.
To make loans to other persons. We have no present plans to make unsecured
loans to other persons. The decision to do so is vested solely in our board of
directors and may be changed without a vote of the stockholders.
To invest in the securities of other issuers for the purpose of exercising
control. Other than our current subsidiaries, we have not invested in the
securities of other entities for the purpose of exercising control over any such
entity and have no plans to do so. The decision to do so is vested solely in our
board of directors and may be changed without a vote of the stockholders.
To underwrite securities of other issuers. We have no plans to engage in
this activity. The decision to do so is vested solely in our board of directors
and may be changed without a vote of the stockholders.
To engage in the purchase and sale (or turnover) of investments. We have
no plans to engage in this activity. The decision to do so is vested solely in
our board of directors and may be changed without a vote of the stockholders.
To offer securities in exchange for property. We may issue shares of our
common stock or other preferred securities in exchange for property or other
investments. The decision to do so is vested solely in our board of directors
and may be changed without a vote of the stockholders.
To repurchase or otherwise re-acquire its shares or other securities. If
we elect to become a REIT, we intend to invest principally in real estate
assets. We are authorized, but not obligated, to repurchase our shares and have
and may do so from time to time if our board of directors deems such action to
be appropriate. In December 1999, our board of directors authorized the
purchase, from time to time, in the open market or in private transactions of up
to an aggregate of 300,000 shares of common stock and
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series A preferred stock. In March and June 2000, the Board approved the
purchase of up to an aggregate of 500,000 and 300,000 additional shares of
common stock and series A preferred stock, respectively. As of January 31, 2000,
we had repurchased 60,016 shares of common stock and 700 shares of series A
preferred stock at an aggregate cost of $0.7 million. During the eleven months
ended December 31, 2000, we repurchased 959,282 additional shares of common
stock and 22,330 additional shares of series A preferred stock at an aggregate
cost of $12.0 million. We have made no repurchases in 2001.
To make annual and other reports to stockholders. We are required to make
an annual report to stockholders. The annual report contains financial
statements certified by our independent auditors. We are currently required to
file annual and quarterly reports with the Securities and Exchange Commission.
The quarterly reports do not contain financial statements certified by our
independent auditors.
LEGAL PROCEEDINGS
We are subject to a number of routine legal proceedings, including actions
filed by governmental entities and private parties for remediation and clean-up
costs of gasoline and other petroleum product related damage to real property.
For more information on our legal proceedings, see Item 3(a) of our Transition
Report on Form 10-K for the transition period February 1, 2000 to December 31,
2000, which is incorporated herein by reference. We do not believe that the
results of any pending claims and litigation, individually or in the aggregate,
will have a material adverse effect on our business, financial position, or
results of operations.
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OUR DIRECTORS AND MANAGEMENT
Our directors, their respective ages, and the offices held in Getty and/or
principal occupations for the past five years are as follows:
NAME AGE PRINCIPAL OCCUPATIONS FOR PAST FIVE YEARS DIRECTOR SINCE
---- --- ----------------------------------------- --------------
Milton Cooper 72 Chairman of the Board of Kimco Realty May 1971
Corporation, a real estate investment
trust, for more than five years.
Director, Secretary and Assistant
Treasurer of CLS General Partnership
Corp., Director of Blue Ridge Real
Estate/Big Boulder Corporation, a real
estate management and land development
firm, and a Trustee of MassMutual
Corporate Investors and MassMutual
Participation Investors.
Philip E. Coviello 58 Partner of Latham & Watkins, an June 1996
international law firm, for more than
five years. Latham & Watkins has
performed legal services for us for
many years.
Leo Liebowitz 73 A founder, President and Chief Executive May 1971
Officer of Getty. Served as Chairman,
Chief Executive Officer and Director of
Marketing until December 11, 2000.
Director, President and Treasurer of
CLS General Partnership Corp. He is
also a director of the Regional Banking
Advisory Board of The Chase Manhattan
Bank.
Howard Safenowitz 42 Senior Vice President, Business Affairs December 1998
of Buena Vista Motion Pictures Group
and prior thereto Vice President,
Business Affairs of Walt Disney
Pictures and Television for more than
five years. Served as Director of
Marketing from December 1998 until
December 11, 2000.
Warren G. Wintrub 67 Retired Partner, former member of the June 1993
Executive Committee and former Chairman
of the Retirement Committee of Coopers
& Lybrand, an international
professional services organization, for
more than five years prior to his
retirement in January 1992. Director of
Chromcraft Revington, Inc., Corporate
Property Associates 10 Inc., Corporate
Property Associates 14 Inc. and Carey
Institutional Properties, Inc.
The following table lists our executive officers, their respective ages,
and the offices and positions held.
NAME AGE POSITION OFFICER SINCE
---- --- -------- -------------
Leo Liebowitz 73 President and Chief Executive Officer 1971
Randi Young Filip 40 Vice President, General Counsel and
Corporate Secretary 2001
Kevin C. Shea 41 Vice President 2001
Thomas J. Stirnweis 42 Corporate Controller and Treasurer 2001
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Ms. Filip has been with Getty since 1986 and has served as Vice President,
General Counsel and Corporate Secretary since January 1, 2001. Prior thereto,
she served as Assistant General Counsel and Corporate Secretary.
Mr. Shea has been with Getty since 1984 and has served as Vice President
since January 1, 2001. Prior thereto, he was Director of National Real Estate
Development.
Mr. Stirnweis joined Getty on January 1, 2001 as Corporate Controller and
Treasurer. Prior to joining Getty, he was Manager of Financial Reporting and
Analysis of Getty Petroleum Marketing Inc., where he provided services to Getty
under a services agreement since the spin-off of Marketing in March 1997. Prior
thereto, he held the same position at Getty since 1988. Mr. Stirnweis serves as
our principal financial and accounting officer.
SELECTION, MANAGEMENT AND CUSTODY OF OUR INVESTMENTS
All selection, management and custody of our investments is the
responsibility of our management and board of directors, as applicable.
OUR POLICIES WITH RESPECT TO CERTAIN TRANSACTIONS
It is our policy that no director, officer or advisor of Getty, or any
person affiliated with any such persons, shall sell any property or assets to us
or purchase any property or assets from us, directly or indirectly, nor shall
any such person receive any commission or other remuneration, except as it may
pertain to legal fees incurred in the normal course of business, directly or
indirectly, in connection with the purchase or sale of our assets, except
pursuant to transactions that are fair and reasonable to our stockholders and
that relate to:
- our acquisition of federally insured or guaranteed mortgages at prices
not exceeding the currently quoted prices at which the Federal National
Mortgage Association is purchasing comparable mortgages;
- our acquisition of other mortgages on terms not less favorable to us than
similar transactions involving unaffiliated parties; or
- our acquisition of other property at prices not exceeding, or disposition
of other property at prices not less than, the fair value thereof as
determined by independent appraisal.
All such transactions and all other transactions in which any such persons
have any direct or indirect interest shall be approved by a majority of our
directors (excluding any director who is a party to any such transaction).
LIMITATIONS OF LIABILITY
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers or persons controlling us
pursuant to the provisions set out below, we have been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
Article VIII of our charter provides as follows:
"To the maximum extent that Maryland law in effect from time to time
permits limitation of the liability of directors and officers of a
corporation, no director or officer of the Corporation shall be liable to
the Corporation or its stockholders for money damages. Neither the
amendment nor repeal of this Article VIII, nor the adoption or amendment of
any other provision of the charter or Bylaws inconsistent with this Article
VIII, shall apply to or affect in any respect the applicability of the
preceding sentence with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption."
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and Article XII of our bylaws provides as follows:
"To the maximum extent permitted by Maryland law in effect from time
to time, the Corporation shall indemnify and, without requiring a
preliminary determination of the ultimate entitlement to indemnification,
shall pay or reimburse reasonable expenses in advance of final disposition
of a proceeding to (a) any individual who is a present or former director
or officer of the Corporation and who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
director of the Corporation and at the request of the Corporation, serves
or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity. The Corporation may,
with the approval of its board of directors, provide such indemnification
and advance for expenses to a person who served a predecessor of the
Corporation in any of the capacities described in (a) or (b) above and to
any employee or agent of the Corporation or a predecessor of the
Corporation. Neither the amendment nor repeal of this Article, nor the
adoption or amendment of any other provision of the Bylaws or charter of
the Corporation inconsistent with this Article, shall apply to or affect in
any respect the applicability of the preceding paragraph with respect to
any act or failure to act which occurred prior to such amendment, repeal or
adoption."
DESCRIPTION OF OUR SECURITIES
The following description of the material terms of our stock is subject, in
all respects, and is qualified in its entirety by reference, to applicable
Maryland law and to the applicable provisions of our charter and bylaws.
AUTHORIZED STOCK
We have the authority to issue 50,000,000 shares of common stock, par value
$0.01 per share, and 20,000,000 shares of preferred stock, par value $0.01 per
share, of which 3,000,000 shares are designated as series A preferred stock. At
July 11, 2001, we had outstanding 12,553,138 shares of common stock and
2,865,768 shares of series A preferred stock.
RESTRICTIONS ON OWNERSHIP
Subject to approval by our stockholders of an amendment to our charter at a
special meeting to be held on August 1, 2001, all of our equity securities will
be subject to ownership restrictions that limit any one holder's actual or
constructive ownership of any class of our equity securities, including our
common stock and our series A preferred stock, to no more than 5% of the equity
securities within that class. No assurance can be given that such approval will
be obtained. The amendment will permit our board of directors to grant
exemptions from these ownership limits, and our board of directors intends to
grant an exemption from the 5% ownership limitation discussed above to Messrs.
Liebowitz, Safenowitz and Cooper (each of whom serves as a director of Getty)
and their respective affiliated trusts and partnerships, who currently own stock
in excess of these proposed ownership limitations. Messrs. Liebowitz, Safenowitz
and Cooper and their respective affiliated trusts and partnerships, as well as
any person who constructively owns shares of our stock owned by them, will be
exempt from the ownership and transfer restrictions so long as after the grant
of the exemption: (1) their actual or constructive ownership of shares of series
A preferred stock does not exceed the number of shares currently owned, actually
or constructively (786,493 shares for Mr. Liebowitz and his affiliates, 731,745
shares for Mr. Safenowitz and his affiliates and 253,831 shares for Mr. Cooper
and his affiliates); and (2) the value of our equity securities actually or
constructively owned by them does not at any time exceed 18% (for Mr. Liebowitz
and his affiliates), 15.7% (for Mr. Safenowitz and his affiliates) or 5.3% (for
Mr. Cooper and his affiliates) of the value of our outstanding equity
securities. The ownership limitations in clause (2) are approximately the
percentages of our equity securities that these stockholders will own upon
completion of this offering.
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These exemptions will be conditioned on the continued accuracy of
representations from the affected stockholders, including representations as to
actual or constructive ownership (if any) of our tenants.
Any violation of these limitations will cause a portion of such holder's
shares to be automatically transferred to a trust for the benefit of a
charitable organization or, under certain circumstances, a violative transfer
will be deemed void ab initio.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. For the election
of our board of directors, holders of common stock are not entitled to
cumulative voting rights. Our common stockholders are entitled to receive
ratably such dividends that we declare out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of Getty, holders of
our common stock have the right to a ratable portion of the assets remaining
after payment of liabilities and liquidation preferences of any outstanding
shares of our preferred stock. The holders of our common stock have no
preemptive rights or rights to convert their common stock into other securities.
All outstanding shares of common stock are fully paid and nonassessable. The
rights of the holders of our common stock will be subject to, and may be
adversely affected by, the rights of the holders of our preferred stock. Our
common stock is listed on the NYSE under the symbol "GTY".
SERIES A PREFERRED STOCK
On all matters submitted to a vote of the stockholders, the holders of
series A preferred stock are entitled to vote together as a single class with
the holders of our common and senior preferred stocks on an as-converted basis
for each share held of record. In addition, holders of series A preferred stock
are also entitled to a separate vote on any amendment, alteration or repeal of
any provision of our charter materially and adversely affecting their rights and
preferences as preferred stockholders.
Our charter provides that, so long as any shares of series A preferred
stock are outstanding, we shall not issue any class of stock which would entitle
the holders thereof to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of series A preferred stock.
Each share of series A preferred stock is convertible into 1.1312 shares of
our common stock, subject to adjustments under certain circumstances. Holders of
series A preferred stock are entitled to receive cash dividends per share of
$1.775, or if greater, the per share cash dividends declared on the number of
shares of common stock, or portion thereof, into which a share of series A
preferred stock is convertible during any fiscal year that the shares of the
series A preferred stock were outstanding. If the series A preferred stock is
outstanding for less than any full fiscal year, the dividend will be multiplied
by the ratio of the number of days the stock was outstanding in a 360-day year.
No dividends may be authorized or paid or set apart for payment or other
distribution of cash or other property authorized or made directly or indirectly
by us with respect to any shares of our common stock or other junior securities
of Getty unless the full cumulative dividends on all outstanding shares of
series A preferred stock shall have been paid or such dividends have been
authorized and set apart for payment with respect to the series A preferred
stock.
If, for any taxable year, we elect to designate as "capital gain dividends"
(as defined in Section 857 of the Internal Revenue Code) any portion of the
dividends (within the meaning of the Internal Revenue Code) paid or made
available for the year to holders of any class or series of stock, then the
portion of the capital gain amount that shall be allocable to the holders of our
series A preferred stock shall be the amount that the total dividends (within
the meaning of the Internal Revenue Code) paid or made available to the holders
of our series A preferred stock for the year bears to the total dividends.
We may redeem all or a portion of the series A preferred stock at a
purchase price of $25.00 per share, plus any accumulated, accrued and unpaid
dividends, if any, to the date of redemption, if the
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closing price of our common stock exceeds $22.10 per share for a period of ten
cumulative trading days within 90 days prior to the date on which notice of the
redemption is mailed to the holders of series A preferred stock. If we elect to
redeem all or a portion of the shares of series A preferred stock, we will
select the call date on which the redemption will occur and we will give notice
to all holders of series A preferred stock of record, at least 30 days, but no
more than 60 days prior to the call date.
In the event of a liquidation, dissolution or winding up of Getty, holders
of series A preferred stock will have the right to liquidation preferences in
the amount of $25.00 per share held, plus an amount equal to all accumulated,
accrued and unpaid dividends, before any payment will be made to our common
stockholders or holders of other junior securities of Getty. All outstanding
shares of series A preferred stock are fully paid and nonassessable.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the federal income tax considerations which
are anticipated to be material to purchasers of our common stock. The discussion
under the headings "-- Taxation of Getty," "-- Failure to Qualify" and "-- Tax
Aspects of the Partnerships" assumes that we will elect to be treated as a REIT
under Sections 856 through 860 of the Internal Revenue Code commencing with our
taxable year ending December 31, 2001. The discussion under the headings
"-- Taxation of Holders of Our Common Stock," "-- Taxation of Tax-Exempt
Stockholders" and "-- Taxation of Non-United States Stockholders" discusses the
consequences of holding our common stock generally, as well as the federal
income tax considerations which are anticipated to be material to purchasers of
our common stock if we elect to be treated as a REIT, commencing with our
taxable year ending December 31, 2001.
The information in this section is based on:
- the Internal Revenue Code of 1986, as amended;
- current, temporary and proposed Treasury Regulations promulgated under
the Internal Revenue Code;
- the legislative history of the Internal Revenue Code;
- current administrative interpretations and practices of the Internal
Revenue Service; and
- court decisions;
in each case, as of the date of this prospectus supplement. In addition, the
administrative interpretations and practices of the Internal Revenue Service
include its practices and policies as expressed in private letter rulings which
are not binding on the Internal Revenue Service, except with respect to the
particular taxpayers who requested and received these rulings. Future
legislation, Treasury Regulations, administrative interpretations and practices
and/or court decisions may adversely affect the tax considerations contained in
this discussion. Any change could apply retroactively to transactions preceding
the date of the change. We have not requested, and do not plan to request, any
rulings from the Internal Revenue Service concerning our tax treatment, and the
statements in this prospectus are not binding on the Internal Revenue Service or
any court. Thus, we can provide no assurance that the tax considerations
contained in this discussion will not be challenged by the Internal Revenue
Service or if challenged, will be sustained by a court.
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The summary below does not consider the effect of any foreign, state, local
or other tax laws that may be applicable to us or a purchaser of our common
stock. The summary below is for general information only and is not tax advice.
You are urged to consult your tax advisor regarding the specific tax
consequences to you of:
- the acquisition, ownership and sale or other disposition of the common
stock offered under this prospectus, including the federal, state, local,
foreign and other tax consequences;
- our election to be taxed as a real estate investment trust for federal
income tax purposes if we decide to make this election; and
- potential changes in the tax laws.
TAXATION OF GETTY
The following discussion is applicable if we elect to be taxed as a REIT.
General. We believe we have been organized and have operated in a manner
which allows us to qualify for taxation as a REIT under the Internal Revenue
Code commencing with our taxable year ended December 31, 2001. If we elect REIT
status, we intend to continue to operate in this manner. However, our
qualification and taxation as a REIT depends upon our ability to meet, through
actual annual operating results, asset diversification, distribution levels and
diversity of stock ownership, the various qualification tests imposed under the
Internal Revenue Code. Accordingly, there is no assurance that we have operated
or will continue to operate in a manner so as to qualify or remain qualified as
a real estate investment trust. See "-- Failure to Qualify."
The sections of the Internal Revenue Code that relate to the qualification
and operation as a real estate investment trust are highly technical and
complex. The following describes the material aspects of the sections of the
Internal Revenue Code that govern the federal income tax treatment of a real
estate investment trust. This summary is qualified in its entirety by the
Internal Revenue Code, relevant rules and Treasury Regulations promulgated under
the Internal Revenue Code, and administrative and judicial interpretations of
the Internal Revenue Code and these rules and Treasury Regulations. The law firm
of Latham & Watkins has acted as our tax counsel in connection with our possible
election to be taxed as a real estate investment trust. In the opinion of Latham
& Watkins, commencing with our taxable year ended December 31, 2001, assuming we
elect to be taxed as a real estate investment trust, we have been organized and
have operated in conformity with the requirements for qualification and taxation
as a real estate investment trust under the Internal Revenue Code, and our
proposed method of operation will enable us to meet the requirements for
qualification and taxation as a real estate investment trust under the Internal
Revenue Code. This opinion was rendered as of July 19, 2001, and Latham &
Watkins has no obligation to update its opinion subsequent to this date.
The opinion of Latham & Watkins is based on various assumptions and
representations made by us as to factual matters, including representations made
by us in this prospectus and a factual certificate provided by one of our
officers, and assumes that the actions described in this prospectus will be
completed by us in a timely fashion. Moreover, our qualification and taxation as
a real estate investment trust depends upon our ability to meet the various
qualification tests imposed under the Internal Revenue Code and discussed below,
relating to our actual annual operating results, asset diversification,
distribution levels, and diversity of stock ownership, the results of which have
not been and will not be reviewed by Latham & Watkins. Accordingly, neither
Latham & Watkins nor we can assure you that the actual results of our operations
for any particular taxable year will satisfy these requirements. See "-- Failure
to Qualify." Further, the anticipated income tax treatment described in this
prospectus may be changed, perhaps retroactively, by legislative, administrative
or judicial action at any time. With respect to the enforceability of the stock
ownership limits to be contained in our charter, Latham & Watkins has relied on
the opinion of Ballard Spahr Andrews & Ingersoll, LLP, our Maryland counsel.
If we qualify for taxation as a real estate investment trust, we generally
will not be required to pay federal corporate income taxes on our net income
that is currently distributed to our stockholders. This
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treatment substantially eliminates the "double taxation" that ordinarily results
from investment in a corporation. Double taxation means taxation once at the
corporate level when income is earned and once again at the stockholder level
when this income is distributed. We will be required to pay federal income tax,
however, as follows:
- We will be required to pay tax at regular corporate rates on any
undistributed "real estate investment trust taxable income," including
undistributed net capital gains.
- We may be required to pay the "alternative minimum tax" on our items of
tax preference.
- If we have: (a) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in
the ordinary course of business; or (b) other nonqualifying income from
foreclosure property, we will be required to pay tax at the highest
corporate rate on this income. Foreclosure property is generally defined
as property acquired through foreclosure or after a default on a loan
secured by the property or a lease of the property.
- We will be required to pay a 100% tax on any net income from prohibited
transactions. Prohibited transactions are, in general, sales or other
taxable dispositions of property, other than foreclosure property, held
primarily for sale to customers in the ordinary course of business.
- If we fail to satisfy the 75% gross income test or the 95% gross income
test discussed below, but nonetheless maintain our qualification as a
REIT because certain other requirements are met, we will be subject to a
tax equal to (a) the greater of (i) the amount by which 75% of our gross
income exceeds the amount qualifying under the 75% gross income test
described below and (ii) the amount by which 90% of our gross income
exceeds the amount qualifying under the 95% gross income test described
below, multiplied by (b) a fraction intended to reflect our
profitability.
- We will be required to pay a 4% excise tax on the excess of the required
distribution over the amounts actually distributed if we fail to
distribute during each calendar year at least the sum of (a) 85% of our
real estate investment trust ordinary income for the year, (b) 95% of our
real estate investment trust capital gain net income for the year, and
(c) any undistributed taxable income from prior periods.
- We will be required to pay a 100% tax on redetermined rents or other
items of income if our (or our tenants') agreements with our taxable REIT
subsidiaries are not on arms' length terms.
- If we dispose of any asset during the 10-year period beginning on the
first day of the first taxable year for which we qualified as a REIT, we
held the asset on the first day of the first taxable year for which we
qualified as a REIT and we recognize gain on the disposition of the
asset, then we will be required to pay tax at the highest regular
corporate tax rate on this gain to the extent of the excess of (a) the
fair market value of the asset over (b) our adjusted basis in the asset,
in each case determined as of the first day of the first taxable year for
which we qualified as a REIT. In addition, if we acquire any asset from a
corporation which is or has been a C corporation in a transaction in
which the basis of the asset in our hands is determined by reference to
the basis of the asset in the hands of the C corporation, and we
subsequently recognize gain on the disposition of the asset during the
ten-year period beginning on the date on which we acquired the asset,
then we will be required to pay tax at the highest regular corporate tax
rate on this gain to the extent of the excess of (a) the fair market
value of the asset over (b) our adjusted basis in the asset, in each case
determined as of the date on which we acquired the asset. A C corporation
is generally defined as a corporation required to pay full
corporate-level tax. The results described in this paragraph with respect
to the recognition of gain assume that we will make an election under
Treasury Regulation Section 1.337(d)-5T. We intend to make this election
in connection with our election to be taxed as a REIT with respect to
assets which we hold at that time.
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Requirements for qualification as a real estate investment trust. The
Internal Revenue Code defines a real estate investment trust as a corporation,
trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to
evidence beneficial ownership;
(3) that would be taxable as a domestic corporation but for Sections
856 through 860 of the Internal Revenue Code;
(4) that is not a financial institution or an insurance company within
the meaning of the Internal Revenue Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is
owned, actually or constructively, by five or fewer individuals, including
specified entities, during the last half of each taxable year; and
(7) that meets other tests, described below, regarding the nature of
its income and assets and the amount of its distributions.
The Internal Revenue Code provides that conditions (1) to (4) must be met
during the entire taxable year and that condition (5) must be met during at
least 335 days of a taxable year of twelve months, or during a proportionate
part of a taxable year of less than twelve months. Conditions (5) and (6) do not
apply until after the first taxable year for which an election is made to be
taxed as a real estate investment trust. For purposes of condition (6), pension
funds and other specified tax-exempt entities generally are treated as
individuals, except that a "look-through" exception applies with respect to
pension funds.
We believe that we have satisfied conditions (1) through (5) and condition
(7) during the relevant time periods and that, in part as a result of the
completion of this offering, we will satisfy condition (6) for the relevant time
periods. In addition, assuming that our stockholders approve the proposed
amendments to our charter, our charter will also provide for restrictions
regarding ownership and transfer of all classes of our stock. These restrictions
are intended to assist us in continuing to satisfy the share ownership
requirements described in (5) and (6) above. These ownership and transfer
restrictions are described above in "Description of Our Securities -- Ownership
Limitation." These restrictions, however, may not ensure that we will, in all
cases, be able to satisfy the share ownership requirements described in (5) and
(6) above. If we fail to satisfy these share ownership requirements during the
applicable period, except as provided in the next sentence, our status as a real
estate investment trust will terminate. If, however, we comply with the rules
contained in the Treasury Regulations that require us to ascertain the actual
ownership of our shares, and we do not know, or would not have known through the
exercise of reasonable diligence, that we failed to meet the requirement
described in condition (6) above, we will be treated as having met this
requirement. See "-- Failure to Qualify."
In addition, we may not maintain our status as a real estate investment
trust unless our taxable year is the calendar year. We have and will continue to
have a calendar taxable year.
Ownership of a partnership interest. We own some of our properties, and
may in the future own and operate additional properties, through partnerships.
Treasury Regulations provide that if we are a partner in a partnership, we will
be deemed to own our proportionate share of the assets of the partnership. Also,
we will be deemed to be entitled to our proportionate share of the income of the
partnership. The character of the assets and gross income of the partnership
retains the same character in our hands for purposes of Section 856 of the
Internal Revenue Code, including satisfying the gross income tests and the asset
tests. In addition, for these purposes, the assets and items of income of any
partnership in which we own a direct or indirect interest include such
partnership's share of assets and items of income of any partnership in which it
owns an interest. We have included a brief summary of the rules governing the
federal income taxation of partnerships and their partners below in "-- Tax
Aspects of the Partnerships." We have direct control of any partnership in which
we are a partner, and intend to continue to operate them in a manner
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consistent with the requirements for qualification as a real estate investment
trust. The treatment described above also applies with respect to the ownership
of interests in limited liability companies that are treated as partnerships for
tax purposes.
Ownership of subsidiaries. We own a number of properties through our
wholly owned subsidiaries that we believe will be treated as "qualified REIT
subsidiaries" under the Internal Revenue Code. A corporation will qualify as a
qualified REIT subsidiary if we own 100% of its outstanding stock and if we do
not elect with the subsidiary to treat it as a "taxable REIT subsidiary,"
described below. A corporation that is a qualified REIT subsidiary is not
treated as a separate corporation, and all assets, liabilities and items of
income, deduction and credit of a qualified REIT subsidiary are treated as
assets, liabilities and items of income, deduction and credit (as the case may
be) of the parent real estate investment trust for all purposes under the
Internal Revenue Code (including all real estate investment trust qualification
tests). Thus, in applying the requirements described in this prospectus
supplement, the subsidiaries in which we own a 100% interest (other than any
taxable REIT subsidiaries) will be ignored, and all assets, liabilities and
items of income, deduction and credit of such subsidiaries will be treated as
our assets, liabilities and items of income, deduction and credit. A qualified
REIT subsidiary is not subject to federal income tax and our ownership of the
stock of such a subsidiary will not violate the real estate investment trust
asset tests, described below under "-- Taxation of Getty -- Asset Tests."
Income tests. We must satisfy two gross income requirements annually to
maintain our qualification as a real estate investment trust:
- First, each taxable year we must derive directly or indirectly at least
75% of our gross income, excluding gross income from prohibited
transactions, from (a) investments relating to real property or mortgages
on real property, including "rents from real property" and, in some
circumstances, interest, or (b) some types of temporary investments; and
- Second, each taxable year we must derive at least 95% of our gross
income, excluding gross income from prohibited transactions, from (a) the
real property investments described above, or (b) dividends, interest and
gain from the sale or disposition of stock or securities or (c) any
combination of the foregoing.
For these purposes, the term "interest" generally does not include any
amount received or accrued, directly or indirectly, if the determination of all
or some of the amount depends in any way on the income or profits of any person.
An amount received or accrued generally will not be excluded from the term
"interest," however, solely by reason of being based on a fixed percentage or
percentages of receipts or sales.
Rents we receive from a tenant will qualify as "rents from real property"
in satisfying the gross income requirements for a real estate investment trust
described above only if all of the following conditions are met:
- The amount of rent must not be based in any way on the income or profits
of any person. An amount received or accrued generally will not be
excluded from the term "rents from real property" solely because it is
based on a fixed percentage or percentages of receipts or sales.
- We, or an actual or constructive owner of 10% or more of our stock, do
not actually or constructively own 10% or more of the interests in the
tenant.
- Rent attributable to personal property, leased in connection with a lease
of real property, is not greater than 15% of the total rent received
under the lease. If this condition is not met, then the portion of the
rent attributable to personal property will not qualify as "rents from
real property."
- We generally must not operate or manage our property or furnish or render
services to our tenants, subject to a 1% de minimis exception, other than
through an independent contractor from whom we derive no revenue. We may,
however, directly perform services that are "usually or customarily
rendered" in connection with the rental of space for occupancy only and
are not otherwise considered "rendered to the occupant" of the property.
Examples of these services include the
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provision of light, heat, or other utilities, trash removal and general
maintenance of common areas. Further, we are permitted to employ a
"taxable REIT subsidiary" which is wholly or partially owned by us, to
provide both customary and noncustomary services to our tenants without
causing the rent we receive from those tenants to fail to qualify as
"rents from real property."
We generally do not intend to receive rent which fails to satisfy any of
the above conditions. Notwithstanding the foregoing, we may have taken and may
continue to take actions which fail to satisfy one or more of the above
conditions to the extent that we determine, based on the advice of our tax
counsel, that those actions will not jeopardize our status as a real estate
investment trust.
We believe that the aggregate amount of our nonqualifying income, from all
sources, in any taxable year will not exceed the limit on nonqualifying income
under the gross income tests. If we fail to satisfy one or both of the 75% or
95% gross income tests for any taxable year, we may nevertheless qualify as a
real estate investment trust for the year if we are entitled to relief under the
Internal Revenue Code. Generally, we may avail ourselves of the relief
provisions if:
- our failure to meet these tests was due to reasonable cause and not due
to willful neglect;
- we attach a schedule of the sources of our income to our federal income
tax return; and
- any incorrect information on the schedule was not due to fraud with
intent to evade tax.
It is not possible, however, to state whether in all circumstances we would
be entitled to the benefit of these relief provisions. For example, if we fail
to satisfy the gross income tests because nonqualifying income that we
intentionally accrue or receive exceeds the limits on nonqualifying income, the
Internal Revenue Service could conclude that our failure to satisfy the tests
was not due to reasonable cause. If these relief provisions do not apply to a
particular set of circumstances, we will not qualify as a real estate investment
trust. As discussed above in "-- Taxation of Getty -- General," even if these
relief provisions apply, and we retain our status as a real estate investment
trust, a tax would be imposed with respect to our nonqualifying income. We may
not always be able to maintain compliance with the gross income tests for real
estate investment trust qualification despite our periodic monitoring of our
income.
Prohibited transaction income. Any gain that we realize on the sale of any
property held as inventory or other property held primarily for sale to
customers in the ordinary course of business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. Our gain would
include our share of any gain realized by any of the partnerships, limited
liability companies or qualified REIT subsidiaries in which we own an interest.
This prohibited transaction income may also adversely affect our ability to
satisfy the income tests for qualification as a real estate investment trust.
Under existing law, whether property is held as inventory or primarily for sale
to customers in the ordinary course of a trade or business depends on all the
facts and circumstances surrounding the particular transaction. We intend to
hold our properties for investment with a view to long-term appreciation and to
engage in the business of acquiring, developing and owning our properties. We
have and may in the future make occasional sales of the properties as are
consistent with our investment objectives. We do not intend to enter into any
sales that are prohibited transactions. The Internal Revenue Service may
contend, however, that one or more of these sales is subject to the 100% penalty
tax.
We have, and may in the future, dispose of properties in transactions
intended to qualify as like-kind exchanges under the Internal Revenue Code,
resulting in the deferral of gain for federal income tax purposes. The failure
of any such transaction to qualify as a like kind exchange could subject us to
federal income tax, possibly including the 100% prohibited transaction tax,
depending on the facts and circumstances surrounding the particular transaction.
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Asset tests. At the close of each quarter of our taxable year, we also
must satisfy three tests relating to the nature and diversification of our
assets:
- First, at least 75% of the value of our total assets, including assets
held by our qualified REIT subsidiaries and our allocable share of the
assets held by the partnerships and limited liability companies in which
we own an interest, must be represented by real estate assets, cash, cash
items and government securities. For purposes of this test, real estate
assets include stock or debt instruments that are purchased with the
proceeds of a stock offering or a public debt offering with a term of at
least five years, but only for the one-year period beginning on the date
we receive these proceeds;
- Second, not more than 25% of our total assets may be represented by
securities, other than those securities included in the 75% asset test;
and
- Third, (a) not more than 20% of the value of our total assets may be
represented by securities of one or more taxable REIT subsidiaries and
(b) except for the securities of a taxable REIT subsidiary and securities
included in the 75% asset test, (i) not more than 5% of the value of our
assets may be represented by securities of any one issuer, (ii) we may
not own more than 10% of any one issuer's outstanding voting securities
and (iii) we may not own more than 10% of the value of any one issuer's
securities. For purposes of the 10% value test, securities do not include
straight debt that we own if (x) the issuer is an individual, (y) neither
we nor any of our taxable REIT subsidiaries owns any security of the
issuer other than straight debt or (z) the issuer is a partnership, we
own at least 20% of a profits interest in the partnership. Straight debt
is any written unconditional promise to pay on demand or on a specified
date a fixed amount of money if the interest rate and interest payment
dates are not contingent on profits, the borrower's discretion or similar
factors and the debt is not convertible, directly or indirectly, into
stock.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a real estate investment trust for failure to
satisfy the asset tests at the end of a later quarter solely by reason of
changes in asset values. If we fail to satisfy the asset tests because we
acquire securities or other property during a quarter, we can cure this failure
by disposing of sufficient nonqualifying assets within 30 days after the close
of that quarter. For this purpose, an increase in our interests in any
partnership or limited liability company in which we own an interest will be
treated as an acquisition of a portion of the securities or other property owned
by that partnership or limited liability company. We believe we have maintained
and intend to continue to maintain adequate records of the value of our assets
to ensure compliance with the asset tests. In addition, we intend to take those
other actions within the 30 days after the close of any quarter as may be
required to cure any noncompliance. If we fail to cure any noncompliance with
the asset tests within this time period, we would cease to qualify as a real
estate investment trust.
Taxable REIT subsidiaries. A taxable REIT subsidiary is a corporation that
a real estate investment trust directly or indirectly owns stock in and which
jointly elects with the real estate investment trust to be treated as a "taxable
REIT subsidiary." Dividends from taxable REIT subsidiaries will be nonqualifying
income for purposes of the 75%, but not the 95%, gross income test. Other than
certain activities relating to lodging and health care facilities, a taxable
REIT subsidiary may generally engage in any business, including the provision of
customary or noncustomary services to tenants of its parent real estate
investment trust.
The Internal Revenue Code contains provisions generally intended to insure
that transactions between a real estate investment trust and its taxable REIT
subsidiary occur "at arm's length" and on commercially reasonable terms. These
requirements include a provision that prevents a taxable REIT subsidiary from
deducting interest on direct or indirect indebtedness to its parent real estate
investment trust if, under a specified series of tests, the taxable REIT
subsidiary is considered to have an excessive interest expense level and debt to
equity ratio. In some cases a 100% tax is imposed on the real estate investment
trust if its, or its tenants', rental, service and/or other agreements with its
taxable REIT subsidiary are not on arm's length terms.
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We own 100% of the outstanding stock of Getty TM Corp., which owns the
Getty trademarks for use in petroleum marketing operations in the United States,
other than in 12 of the 13 states where Marketing currently operates and the
District of Columbia. Getty TM Corp. has joined with us in making a taxable REIT
subsidiary election.
Annual distribution requirements. To maintain our qualification as a real
estate investment trust, we are required to distribute dividends, other than
capital gain dividends, to our stockholders in an amount at least equal to the
sum of:
- 90% of our "REIT taxable income"; and
- 90% of our after tax net income, if any, from foreclosure property; minus
- the excess of the sum of specified items of our noncash income items over
5% of "REIT taxable income" as described below.
Our "REIT taxable income" is computed without regard to the dividends paid
deduction and our net capital gain. In addition, for purposes of this test,
non-cash income means income attributable to leveled stepped rents, original
issue discount on purchase money debt, or a like-kind exchange that is later
determined to be taxable.
We must pay these distributions in the taxable year to which they relate,
or in the following taxable year if they are declared before we timely file our
tax return for that year and paid on or before the first regular dividend
payment following their declarations. Except as provided below, these
distributions are taxable to our stockholders, other than tax-exempt entities in
the year in which paid. This is so even though these distributions relate to the
prior year for purposes of our 90% distribution requirement. The amount
distributed must not be preferential. To avoid being preferential, every
stockholder of the class of stock to which a distribution is made must be
treated the same as every other stockholder of that class, and no class of stock
may be treated other than according to its dividend rights as a class. To the
extent that we do not distribute all of our net capital gain or distribute at
least 90%, but less than 100%, of our "REIT taxable income," as adjusted, we
will be required to pay tax on the undistributed amount at regular ordinary and
capital gain corporate tax rates. We plan to make timely distributions
sufficient to satisfy these annual distribution requirements.
We expect that our "REIT taxable income" will be less than our cash flow
because of depreciation and other non-cash charges included in computing our
"REIT taxable income." Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy our distribution
requirements. However, we may not have sufficient cash or other liquid assets to
meet these distribution requirements because of timing differences between the
actual receipt of income and actual payment of deductible expenses, and the
inclusion of income and deduction of expenses in determining our taxable income.
If these timing differences occur, we may need to arrange for short-term, or
possibly long-term, borrowings or need to pay dividends in the form of taxable
stock dividends in order to meet the distribution requirements.
We may be able to rectify an inadvertent failure to meet the 90%
distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which we may include in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we will be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends.
In addition, we will be required to pay a 4% excise tax on the excess of
the required distribution over the amounts, if any, by which our actual
distributions during a calendar year are less than the sum of 85% of our
ordinary income for the year, 95% of our capital gain net income for the year
plus, in each case, any undistributed ordinary income or capital gain net
income, as the case may be, from prior periods. Any taxable income or net
capital gain income on which this excise tax is imposed for any year is treated
as an amount distributed during that year for purposes of calculating the tax.
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Distributions with declaration and record dates falling in the last three
months of the calendar year, which are paid to our stockholders by the end of
January immediately following that year, will be treated for federal income tax
purposes as having been paid on December 31 of the prior year.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions of the Internal Revenue Code do not apply, we will be required
to pay tax, including any alternative minimum tax, on our taxable income at
regular corporate rates. Distributions to stockholders in any year in which we
fail to qualify as a REIT will not be deductible by us and except as provided in
our charter, we will not be required to distribute any amounts to our
stockholders. As a result, we anticipate that our failure to qualify as a REIT
would reduce the cash available for distribution by us to our stockholders. In
addition, if we fail to qualify as a REIT, all distributions to stockholders
will be taxable at ordinary income rates to the extent of our current and
accumulated earnings and profits. In this event, corporate distributees may be
eligible for the dividends-received deduction. Unless entitled to relief under
specific statutory provisions, we will also be disqualified from taxation as a
REIT for the four taxable years following the year in which we lose our
qualification. It is not possible to state whether in all circumstances we would
be entitled to this statutory relief.
TAX ASPECTS OF THE PARTNERSHIPS
General. We currently own interests in partnerships and may own interests
in additional partnerships in the future. Our ownership of an interest in such
partnerships involves special tax considerations. These special tax
considerations include, for example, the possibility that the Internal Revenue
Service might challenge the status of one or more of the partnerships in which
we own an interest as partnerships, as opposed to associations taxable as
corporations, for federal income tax purposes. If a partnership in which we own
an interest, or one or more of its subsidiary partnerships, were treated as an
association, it would be taxable as a corporation and therefore be subject to an
entity-level tax on its income. In this situation, the character of our assets
and items of gross income would change, and could prevent us from satisfying the
real estate investment trust asset tests and/or the real estate investment trust
income tests. This, in turn, would prevent us from qualifying as a real estate
investment trust. In addition, a change in the tax status of one or more of the
partnerships in which we own an interest might be treated as a taxable event. If
so, we might incur a tax liability without any related cash distributions.
Treasury Regulations that apply for tax periods beginning on or after
January 1, 1997, provide that a domestic business entity not otherwise organized
as a corporation and which has at least two members may elect to be treated as a
partnership for federal income tax purposes. Unless it elects otherwise, an
eligible entity in existence prior to January 1, 1997, will have the same
classification for federal income tax purposes that it claimed under the entity
classification Treasury Regulations in effect prior to this date. In addition,
an eligible entity which did not exist or did not claim a classification prior
to January 1, 1997, will be classified as a partnership for federal income tax
purposes unless it elects otherwise. All of the partnerships in which we own an
interest claim classification as partnerships under these Treasury Regulations.
As a result, we believe that these partnerships are classified as partnerships
for federal income tax purposes. The treatment described above also applies with
respect to our ownership of interests in limited liability companies that are
treated as partnerships for tax purposes.
DISTRIBUTION OF ACCUMULATED EARNINGS AND PROFITS
In addition to the above annual distribution requirements, a real estate
investment trust is not allowed to have, at the end of any taxable year,
accumulated earnings and profits attributable to non-real estate investment
trust years. In order to elect to be taxed as a REIT, we are required to make a
distribution to our stockholders in an amount at least equal to our accumulated
"earnings and profits" (within the meaning of the Internal Revenue Code) from
the years in which we operated as a taxable corporation. This distribution must
be made by December 31, 2001. We have declared a special distribution of
approximately $64.1 million to holders of record of our common stock and series
A preferred stock at the
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close of business on July 25, 2001. Payment of the special distribution is
conditioned on the closing of this offering and is expected to be made on August
2, 2001. Purchasers of common stock offered by this prospectus supplement will
not receive any portion of this "earnings and profits" distribution on any of
the shares of common stock they purchase.
The determination of the amount of our accumulated "earnings and profits"
from the years in which we operated as a taxable corporation was based on a
study of our past activities and tax returns. However, the calculation of
accumulated "earnings and profits" depends upon a number of factual and legal
interpretations related to our past activities and operations and is subject to
review and challenge by the Internal Revenue Service. There can be no assurance
that the Internal Revenue Service will not examine the calculation of our
accumulated "earnings and profits" and propose adjustments. Accordingly, there
can be no assurance that the requirement that we make a distribution to our
stockholders in an amount at least equal to our accumulated "earnings and
profits" will be met. Latham & Watkins has expressed no opinion as to the amount
of our accumulated "earnings and profits." Accordingly, for purposes of its
opinion as to our ability to meet the requirements for qualification and
taxation as a REIT, Latham & Watkins is relying upon a representation from us
that by the end of 2001, we will have eliminated all accumulated "earnings and
profits." If the Internal Revenue Service determines that we did not distribute
all of our accumulated earnings and profits prior to the end of 2001, we would
fail to qualify as a REIT unless we cure such failure by paying a "deficiency
dividend" to our stockholders, and an interest charge to the Internal Revenue
Service. See "-- Failure to Qualify."
TAXATION OF HOLDERS OF COMMON STOCK
Scope of Discussion. This general discussion of certain United States
federal income tax consequences applies to you if you are a United States holder
of our common stock and hold the senior preferred stock as a "capital asset,"
generally, for investment, as defined in section 1221 of the Internal Revenue
Code. This summary, however, does not consider state, local or foreign tax laws.
In addition, it does not include all of the rules which may affect the United
States tax treatment of your investment in our common stock. For example,
special rules not discussed here may apply to you if you are:
- not a United States stockholder;
- a broker-dealer, a dealer in securities or a financial institution;
- an S corporation;
- a bank;
- a thrift;
- an insurance company;
- a tax-exempt organization;
- subject to the alternative minimum tax provisions of the Internal Revenue
Code;
- holding the senior preferred stock as part of a hedge, straddle or other
risk reduction or constructive sale transaction;
- a person with a "functional currency" other than the United States
dollar; or
- a United States expatriate.
This discussion only represents our best attempt to describe certain
federal income tax consequences that may apply to you based on current United
States federal tax law. This discussion may in the end inaccurately describe the
federal income tax consequences which are applicable to you because the law may
change, possibly retroactively, and because the Internal Revenue Service or any
court may disagree with this discussion.
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When we use the term "United States stockholder," we mean a holder of
shares of our stock who is, for United States federal income tax purposes:
- a citizen or resident of the United States;
- a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any state or in the District of
Columbia, unless, in the case of a partnership, Treasury Regulations
provide otherwise;
- an estate which is required to pay United States federal income tax
regardless of the source of its income; or
- a trust whose administration is under the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in
Treasury Regulations, some trusts in existence on August 20, 1996, and
treated as United States persons prior to this date that elect to
continue to be treated as United States persons, shall also be considered
United States stockholders.
DISTRIBUTIONS GENERALLY
Distributions out of our current or accumulated earnings and profits, other
than capital gain dividends discussed below, will constitute dividends taxable
to our taxable United States stockholders as ordinary income. As long as we
qualify as a real estate investment trust, these distributions will not be
eligible for the dividends-received deduction in the case of United States
stockholders that are corporations. For purposes of determining whether
distributions to holders of our common stock are out of current or accumulated
earnings and profits, our earnings and profits will be allocated first to the
outstanding series A preferred stock and then to our common stock.
To the extent that we make distributions in excess of our current and
accumulated earnings and profits, these distributions will be treated first as a
tax-free return of capital to each United States stockholder. This treatment
will reduce the adjusted tax basis which each United States stockholder has in
his shares of stock by the amount of the distribution, but not below zero.
Distributions in excess of a United States stockholder's adjusted tax basis in
his shares will be taxable as capital gain, provided that the shares have been
held as capital assets. Such gain will be taxable as long-term capital gain if
the shares have been held for more than one year. If we elect to be classified
as REIT, dividends we declare in October, November or December of any year and
payable to a stockholder of record on a specified date in any of these months
will be treated as both paid by us and received by the stockholder on December
31 of that year, provided we actually pay the dividend on or before January 31
of the following year. Stockholders may not include in their own income tax
returns any of our net operating losses or capital losses.
If we do not elect to be treated as a REIT or if we fail to qualify as a
REIT, then the rules set forth in the preceding two paragraphs will apply except
as described in this paragraph. Specifically, a holder of our common stock that
is a corporation may be entitled to the dividend received deduction with respect
to distributions that are taxed as dividends. In determining entitlement to the
dividends received deduction, corporate holders should consider the provisions
of sections 243, 246(c), 246A and 1059 of the Internal Revenue Code, the
Treasury Regulations promulgated thereunder and Internal Revenue Service rulings
and administrative pronouncements relating to these provisions of the Internal
Revenue Code.
CAPITAL GAIN DISTRIBUTIONS
If we qualify as a REIT, distributions that we properly designate as
capital gain dividends will be taxable to our taxable United States stockholders
as gain, to the extent that such gain does not exceed our actual net capital
gain for the taxable year, from the sale or disposition of a capital asset.
Depending on the characteristics of the assets which produced these gains, and
on specified designations, if any, which we may make, these gains may be taxable
to non-corporate United States stockholders at a 20% or 25%
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rate. United States stockholders that are corporations may, however, be required
to treat up to 20% of some capital gain dividends as ordinary income.
PASSIVE ACTIVITY LOSSES AND INVESTMENT INTEREST LIMITATIONS
Distributions we make and gain arising from the sale or exchange by a
United States stockholder of our shares will not be treated as passive activity
income. As a result, United States stockholders generally will not be able to
apply any "passive losses" against this income or gain. Distributions we make,
to the extent they do not constitute a return of capital, generally will be
treated as investment income for purposes of computing the investment interest
limitation. Gain arising from the sale or other disposition of our shares,
however, may not be treated as investment income depending upon your particular
situation.
RETENTION OF NET LONG-TERM CAPITAL GAINS
If we qualify as a REIT, we may elect to retain, rather than distribute as
a capital gain dividend, our net long-term capital gains. If we make this
election, we would pay tax on our retained net long-term capital gains. In
addition, to the extent we designate, a United States stockholder generally
would:
- include its proportionate share of our undistributed long-term capital
gains in computing its long-term capital gains in its return for its
taxable year in which the last day of our taxable year falls;
- be deemed to have paid the capital gains tax imposed on us on the
designated amounts included in the United States stockholder's long-term
capital gains;
- receive a credit or refund for the amount of tax deemed paid by it;
- increase the adjusted basis of its common stock by the difference between
the amount of includable gains and the tax deemed to have been paid by
it; and
- in the case of a United States stockholder that is a corporation,
appropriately adjust its earnings and profits for the retained capital
gains as required by Treasury Regulations to be prescribed by the
Internal Revenue Service.
DISPOSITIONS OF COMMON STOCK
If you are a United States stockholder and you sell or dispose of your
shares of our common stock, you will recognize gain or loss for federal income
tax purposes in an amount equal to the difference between the amount of cash and
the fair market value of property you receive on the sale or other disposition
and your adjusted tax basis in the shares for tax purposes. Any gain or loss
will be treated as long-term capital gain or loss if you held the common stock
for more than one year. In addition, assuming we qualify as a REIT, if you
recognize loss upon the sale or other disposition and you held the stock for six
months or less, after applying specific holding period rules, the loss will be
treated as long-term capital loss to the extent you received distributions from
us which were required to be treated as long-term capital gains.
BACKUP WITHHOLDING
We report to our United States stockholders and the Internal Revenue
Service the amount of dividends paid during each calendar year and the amount of
any tax withheld. Under the backup withholding rules, a stockholder may be
subject to backup withholding at the rate of up to 31% with respect to dividends
paid unless the holder is a corporation or is otherwise exempt and, when
required, demonstrates this fact or provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with the backup withholding rules. A United States stockholder that
does not provide us with his correct taxpayer identification number may also be
subject to penalties imposed by the Internal Revenue Service. Backup withholding
is not an additional tax. Any amount paid as backup withholding will be
creditable against the stockholder's income tax liability. In
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addition, we may be required to withhold a portion of capital gain distributions
to any stockholders who fail to certify their non-foreign status. See
"-- Taxation of Non-United States Stockholders."
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The Internal Revenue Service has ruled that amounts distributed as
dividends by a qualified real estate investment trust do not constitute
unrelated business taxable income when received by a tax-exempt entity. Based on
that ruling if we elect to be classified as a REIT, except as described below,
dividend income from us and gain arising upon your sale of shares generally will
not be unrelated business taxable income to a tax-exempt stockholder. This
income or gain will be unrelated business taxable income, however, if the
tax-exempt stockholder holds its shares as "debt financed property" within the
meaning of the Internal Revenue Code or if the shares are used in a trade or
business of the tax-exempt stockholder. Generally, debt financed property is
property the acquisition or holding of which was financed through a borrowing by
the tax-exempt stockholder.
For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code,
respectively, income from an investment in our shares will constitute unrelated
business taxable income unless the organization is able to properly claim a
deduction for amounts set aside or placed in reserve for specific purposes so as
to offset the income generated by its investment in our shares. These
prospective investors should consult their tax advisors concerning these "set
aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" will be treated as unrelated business taxable income as to
some trusts that hold more than 10%, by value, of the interests of a real estate
investment trust. A real estate investment trust will not be a "pension held
REIT" if it is able to satisfy the "not closely held" requirement without
relying on the "look-through" exception with respect to certain trusts. As a
result of limitations on the transfer and ownership of stock to be contained in
our charter, we do not expect to be classified as a "pension-held REIT," and as
a result, the tax treatment described in this paragraph should be inapplicable
to our stockholders.
TAXATION OF NON-UNITED STATES STOCKHOLDERS
The preceding discussion does not address the rules governing United States
federal income taxation of the ownership and disposition of our common stock by
persons that are non-United States stockholders. When we use the term
"non-United States stockholder" we mean stockholders who are not United States
stockholders. In general, non-United States stockholders may be subject to
special tax withholding requirements on distributions from us and with respect
to their sale or other disposition of our common stock, except to the extent
reduced or eliminated by an income tax treaty between the United States and the
non-United States stockholder's country. A non-United States stockholder who is
a stockholder of record and is eligible for reduction or elimination of
withholding must file an appropriate form with us in order to claim such
treatment. Non-United States stockholders should consult their own tax advisors
concerning the federal income tax consequences to them of an acquisition of
shares of our common stock, including the federal income tax treatment of
dispositions of interests in and the receipt of distributions from us.
OTHER TAX CONSEQUENCES
We may be required to pay state or local taxes in various state or local
jurisdictions, including those in which we transact business and our
stockholders may be required to pay state or local taxes in various state or
local jurisdictions, including those in which they reside. Our state and local
tax treatment may not conform to the federal income tax consequences summarized
above. In addition, your state and local tax treatment may not conform to the
federal income tax consequences summarized above. Consequently, you should
consult your tax advisor regarding the effect of state and local tax laws on an
investment in our common stock.
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UNDERWRITING
We intend to offer the shares through the underwriters. Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Legg Mason Wood Walker, Incorporated are
acting as representatives of the underwriters named below. Subject to the terms
and conditions described in an underwriting agreement among us and the
underwriters, we have agreed to sell to the underwriters, and the underwriters
severally have agreed to purchase from us, the number of shares listed opposite
their names below.
NUMBER
OF SHARES
UNDERWRITER ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................. 3,780,000
Legg Mason Wood Walker, Incorporated................... 2,520,000
Advest, Inc............................................ 100,000
BB&T Capital Markets, a division of Scott &
Stringfellow, Inc.................................... 100,000
Robert W. Baird & Co. Incorporated..................... 100,000
Crowell, Weedon & Co................................... 100,000
Fahnestock & Co. Inc................................... 100,000
Janney Montgomery Scott LLC............................ 100,000
Edward D. Jones & Co., L.P............................. 100,000
McDonald Investments Inc............................... 100,000
Morgan Keegan & Company, Inc........................... 100,000
Raymond James & Associates, Inc........................ 100,000
The Robinson-Humphrey Company, LLC..................... 100,000
The Seidler Companies Incorporated..................... 100,000
Tucker Anthony Incorporated............................ 100,000
Wachovia Securities, Inc............................... 100,000
---------
Total..................................... 7,700,000
=========
The underwriters have agreed to purchase all of the shares sold under the
underwriting agreement if any of these shares are purchased. If an underwriter
defaults, the underwriting agreement provides that the purchase commitments of
the nondefaulting underwriters may be increased or the underwriting agreement
may be terminated.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.
Certain of the underwriters will be facilitating Internet distribution for
this offering to some Internet subscription customers. These underwriters may
allocate a limited number of shares for sale to their respective online
brokerage customers. An electronic prospectus and prospectus supplement is
available on the Web sites maintained by these underwriters. Other than the
prospectus and prospectus supplement in electronic format, the information on
these Web sites relating to this offering is not a part of this prospectus or
prospectus supplement.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the underwriting agreement, such as the receipt by the underwriters
of officers' certificates and legal opinions. The underwriters reserve the right
to withdraw, cancel or modify offers to the public and to reject orders in whole
or in part.
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COMMISSIONS AND DISCOUNTS
The underwriters have advised us that they propose initially to offer the
shares to the public at the initial public offering price on the cover page of
this prospectus supplement and to dealers at that price less a concession not in
excess of $.50 per share. The underwriters may allow, and the dealers may
reallow, a discount not in excess of $.10 per share to other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to us. The information assumes either no exercise
or full exercise by the underwriters of the over-allotment option.
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
Public offering price................................ $16.00 $123,200,000 $141,680,000
Underwriting discount................................ $.84 $6,468,000 $7,438,200
Proceeds, before expenses, to us..................... $15.16 $116,732,000 $134,241,800
The expenses of the offering, not including the underwriting discount, are
estimated to be $1,400,000 and are payable by us.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for those transactions. We will pay an advisory fee equal to 0.50%
of the gross proceeds of the offering (including any exercise of the
underwriters' over-allotment option) to Merrill Lynch in connection with
analysis, evaluation and structuring services related to our intended election
to be taxed as a REIT.
OVER-ALLOTMENT OPTION
We have granted an option to the underwriters to purchase up to 1,155,000
additional shares at the public offering price on the cover page of this
prospectus supplement, less the underwriting discount. The underwriters may
exercise the option for 30 days from the date of this prospectus supplement
solely to cover any over-allotments. If the underwriters exercise the option,
each will be obligated, subject to conditions contained in the underwriting
agreement, to purchase a number of additional shares proportionate to that
underwriter's initial amount reflected in the above table.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors have agreed, with exceptions,
not to sell or transfer any preferred stock or common stock for 90 days after
the date of this prospectus supplement without first obtaining the written
consent of Merrill Lynch. Specifically, we and these other individuals have
agreed not to directly or indirectly:
- offer, pledge, sell or contract to sell any preferred stock or common
stock;
- sell any option or contract to purchase any preferred stock or common
stock;
- purchase any option or contract to sell any preferred stock or common
stock;
- grant any option, right or warrant for the sale of any preferred stock or
common stock;
- lend or otherwise dispose of or transfer any preferred stock or common
stock;
- file a registration statement for any preferred stock or common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any preferred stock or
common stock whether any such swap or transaction is to be settled by
delivery of shares or other securities, in cash or otherwise.
S-54
57
This lockup provision applies to preferred stock and common stock and to
securities convertible into or exchangeable or exercisable for or repayable with
preferred stock or common stock. It also applies to preferred stock or common
stock owned now or acquired later by the person executing the agreement or for
which the person executing the agreement later acquires the power of
disposition. This lockup provision will not apply to:
- any option grant or exercise of any option granted pursuant to our 1998
Stock Option Plan;
- any shares of our common or preferred stocks issued in connection with
any petroleum marketing or related property acquisition (which shares, if
issued, will also be subject to these lock-up provisions); or
- any shares of our common stock issued upon conversion or exchange of
outstanding shares of our series A preferred stock.
NEW YORK STOCK EXCHANGE LISTING
The shares sold in this offering will be listed on the New York Stock
Exchange under the symbol "GTY". The shares will trade on a temporary basis
under the symbol "GTY.T" until the special distribution, in which purchasers in
this offering will not participate, is paid, which we expect will be on August
2, 2001.
PRICE STABILIZATION, SHORT POSITIONS
Until the distribution of the shares is completed, SEC rules may limit the
underwriters and selling group members from bidding for and purchasing our
common stock. However, the underwriters may engage in transactions that
stabilize the price of the common stock, such as bids or purchases to peg, fix
or maintain that price.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares of common stock
than are listed on the cover of this prospectus supplement, the underwriters may
reduce that short position by purchasing shares in the open market. The
underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment option described above. Purchases of the common stock
to stabilize its price or to reduce a short position may cause the price of the
common stock to be higher than it might be in the absence of such purchases.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the underwriters
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
LEGAL MATTERS
The validity of the common stock offered by this prospectus supplement will
be passed upon for us by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore,
Maryland, our Maryland counsel. Latham & Watkins, Chicago, Illinois and New
York, New York, will pass upon certain legal matters for us relating to the
offering, including tax matters described under "Material United States Federal
Income Tax Considerations." Sidley Austin Brown & Wood LLP, New York, New York,
will pass upon various legal matters for the underwriters relating to the
offering. Sidley Austin Brown & Wood LLP will rely on Ballard Spahr Andrews &
Ingersoll, LLP as to certain matters of Maryland law. Certain members of Latham
& Watkins and their families own beneficial interests in less than 1% of our
common stock. Philip E. Coviello, one of our directors, is a partner of Latham &
Watkins.
S-55
58
EXPERTS
The financial statements as of December 31, 2000, January 31, 2000 and 1999
and for the eleven months ended December 31, 2000 and for each of the three
years in the period ended January 31, 2000 included in this prospectus
supplement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE CAN YOU FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or the SEC. Our SEC
filings are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file with the SEC
at the SEC's public reference facility at:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
You may also obtain copies of the documents at prescribed rates by writing
to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Please call 1-800-SEC-0330 for further information on
the operations at the public reference facilities. Our SEC filings are also
available at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
This prospectus supplement constitutes part of a registration statement on
Form S-3 filed by us under the Securities Act. As allowed by SEC rules, this
prospectus supplement does not contain all the information you can find in the
registration statement or the exhibits to the registration statement.
Statements contained in this prospectus supplement as to the contents of
any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of that contract or other document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by that reference and the exhibits and schedules thereto. For
further information about us and the securities offered by this prospectus
supplement, you should refer to the registration statement and such exhibits and
schedules which may be obtained from the SEC at its principal office in
Washington, D.C. upon payment of the fees prescribed by the SEC.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The documents listed below have been filed by us under the Securities
Exchange Act of 1934, as amended, with the SEC and are incorporated by reference
in this prospectus supplement:
- Transition Report on Form 10-K for the transition period February 1, 2000
to December 31, 2000;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2001;
- Current Reports on Form 8-K filed July 16, 18 and 23, 2001; and
- Definitive proxy statement filed on April 27, 2001.
We are also incorporating by reference into this prospectus supplement all
documents that we have filed or will file with the SEC as prescribed by Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act since the date of this
prospectus supplement and prior to the termination of the sale of the securities
offered by this prospectus supplement.
This means that important information about us appears or will appear in
these documents and will be regarded as appearing in this prospectus supplement.
To the extent that information appearing in a
S-56
59
document filed later is inconsistent with prior information, the later statement
will control and the prior information, except as modified or superseded, will
no longer be a part of this prospectus supplement.
Copies of all documents which are incorporated by reference in this
prospectus supplement (not including the exhibits to such information, unless
such exhibits are specifically incorporated by reference) will be provided
without charge to each person, including any beneficial owner of the securities
offered by this prospectus supplement, to whom this prospectus supplement is
delivered, upon written or oral request. Requests should be directed to our
secretary, 125 Jericho Turnpike, Suite 103, Jericho, New York 11753,
516-338-2600.
S-57
60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of independent accountants........................... F-2
Consolidated balance sheets at December 31, 2000 and January
31, 2000 and 1999......................................... F-3
Consolidated statements of operations for the eleven months
ended December 31, 2000 and the years ended January 31,
2000, 1999 and 1998....................................... F-4
Consolidated statements of cash flows for the eleven months
ended December 31, 2000 and the years ended January 31,
2000, 1999 and 1998....................................... F-5
Notes to consolidated financial statements.................. F-6
Consolidated balance sheets at March 31, 2001 (unaudited)... F-19
Consolidated statements of operations for the three months
ended March 31, 2001 and 2000 (unaudited)................. F-20
Consolidated statements of cash flows for the three months
ended March 31, 2001 and 2000 (unaudited)................. F-21
Notes to consolidated financial statements (unaudited)...... F-22
Pro forma consolidated balance sheet as of March 31, 2001
(unaudited)............................................... F-24
Notes to pro forma consolidated balance sheet (unaudited)... F-26
Pro forma consolidated statements of operations for the
three months ended March 31, 2001 and for the eleven
months ended December 31, 2000 (unaudited)................ F-27
Notes to pro forma consolidated statements of operations
(unaudited)............................................... F-30
F-1
61
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Getty Realty Corp.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and cash flows present fairly, in
all material respects, the financial position of Getty Realty Corp. and
Subsidiaries (the "Company") at December 31, 2000, January 31, 2000 and 1999,
and the results of their operations and their cash flows for the eleven months
ended December 31, 2000 and for each of the three years in the period ended
January 31, 2000, in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As more fully discussed in Notes 5 and 6 to the consolidated financial
statements, a subsidiary of the Company has received notice from one of its
lenders that an amendment to the Master Lease has caused a non-monetary default
under a loan agreement between the lender and the Company.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 16, 2001
F-2
62
GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31,
DECEMBER 31, --------------------
2000 2000 1999
------------ -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS:
Real Estate:
Land................................................... $135,349 $136,039 $131,976
Buildings and improvements............................. 177,688 179,963 175,817
-------- -------- --------
313,037 316,002 307,793
Less -- accumulated depreciation and amortization...... 80,971 74,502 68,045
-------- -------- --------
Real estate, net......................................... 232,066 241,500 239,748
Cash and equivalents..................................... 723 651 657
Mortgages and accounts receivable, net................... 5,472 6,024 6,975
Recoveries from state underground storage tank funds..... 11,957 9,883 10,369
Prepaid expenses and other assets........................ 5,507 2,694 3,335
-------- -------- --------
Total assets................................... $255,725 $260,752 $261,084
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Borrowings under credit lines............................ $ 27,000 $ 14,800 $ 4,500
Mortgages payable........................................ 22,969 29,193 35,242
Accounts payable and accrued expenses.................... 14,109 12,440 18,042
Environmental remediation costs.......................... 23,371 26,424 34,251
Deferred income taxes.................................... 40,177 36,084 30,210
Income taxes payable..................................... -- -- 808
-------- -------- --------
Total liabilities.............................. 127,626 118,941 123,053
-------- -------- --------
Commitments and contingencies (Notes 4 and 5)
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized
20,000,000 shares for issuance in series of which
3,000,000 shares are classified as Series A
Participating Convertible Redeemable Preferred; issued
2,888,798 at December 31, 2000, January 31, 2000 and
1999................................................... 72,220 72,220 72,220
Common stock, par value $.01 per share; authorized
50,000,000 shares; issued 13,567,335 at December 31,
2000 and January 31, 2000, and 13,566,233 at January
31, 1999............................................... 136 136 136
Paid-in capital.......................................... 67,036 67,036 67,021
Retained earnings (deficit).............................. 1,419 3,114 (1,346)
Preferred stock held in treasury, at cost (23,030 shares
at December 31, 2000 and 700 shares at January 31,
2000).................................................. (430) (14) --
Common stock held in treasury, at cost (1,019,048 shares
at December 31, 2000 and 59,916 shares at January 31,
2000).................................................. (12,282) (681) --
-------- -------- --------
Total stockholders' equity..................... 128,099 141,811 138,031
-------- -------- --------
Total liabilities and stockholders' equity..... $255,725 $260,752 $261,084
======== ======== ========
See accompanying notes.
F-3
63
GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE ELEVEN FOR THE YEARS ENDED
MONTHS ENDED JANUARY 31,
DECEMBER 31, -----------------------------
2000 2000 1999 1998(*)
-------------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Revenues from rental properties........................... $53,916 $58,889 $58,869 $59,449
Other income.............................................. 378 4,970 2,472 3,368
------- ------- ------- -------
54,294 63,859 61,341 62,817
Equity in earnings of Getty Petroleum Marketing Inc. ....... -- -- -- 2,931
------- ------- ------- -------
54,294 63,859 61,341 65,748
------- ------- ------- -------
Rental property expenses.................................... 10,980 12,126 12,910 13,583
Environmental expenses...................................... 8,498 6,813 17,320 8,634
General and administrative expenses......................... 3,257 5,642 6,129 13,297
Depreciation and amortization............................... 9,196 10,425 9,418 9,514
Interest expense............................................ 3,413 2,748 2,726 5,008
Change of control charge.................................... -- -- -- 2,166
------- ------- ------- -------
35,344 37,754 48,503 52,202
------- ------- ------- -------
Earnings from continuing operations before provision for
income taxes.............................................. 18,950 26,105 12,838 13,546
Provision for income taxes.................................. 7,875 11,091 5,337 5,697
------- ------- ------- -------
Net earnings from continuing operations..................... 11,075 15,014 7,501 7,849
------- ------- ------- -------
Discontinued operations:
Earnings (loss) from operations, net of income taxes...... -- -- (119) 95
Gain on disposal, net of income taxes..................... -- -- 2,674 --
------- ------- ------- -------
Net earnings from discontinued operations................... -- -- 2,555 95
------- ------- ------- -------
Net earnings................................................ 11,075 15,014 10,056 7,944
Preferred stock dividends................................... 5,098 5,128 5,128 --
------- ------- ------- -------
Net earnings applicable to common stockholders.............. $ 5,977 $ 9,886 $ 4,928 $ 7,944
======= ======= ======= =======
Basic earnings per common share:
Continuing operations..................................... $ .47 $ .73 $ .17 $ .60
Discontinued operations................................... -- -- .19 .01
Net earnings.............................................. .47 .73 .36 .60
Diluted earnings per common share:
Continuing operations..................................... .47 .73 .17 .59
Discontinued operations................................... -- -- .19 .01
Net earnings.............................................. .47 .73 .36 .60
Weighted average common shares outstanding:
Basic..................................................... 12,818 13,563 13,566 13,152
Diluted................................................... 12,818 13,565 13,571 13,348
Pro forma net earnings per common share (unaudited):
Basic..................................................... $ 0.36
Diluted................................................... $ 0.36
Pro forma weighted average common shares outstanding
(unaudited):
Basic..................................................... 16,451
Diluted................................................... 16,451
---------------
(*) Includes financial results of the petroleum marketing business prior to the
spin-off to the Company's stockholders on March 21, 1997.
See accompanying notes.
F-4
64
GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE ELEVEN
MONTHS ENDED FOR THE YEARS ENDED JANUARY 31,
DECEMBER 31, -------------------------------
2000 2000 1999 1998
-------------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings........................................... $ 11,075 $ 15,014 $ 10,056 $ 7,944
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization........................ 9,196 10,425 9,418 9,514
Deferred income taxes................................ 4,093 5,874 491 (1,061)
Gain on dispositions of real estate.................. (1,106) (3,255) (1,495) (730)
Net earnings from discontinued operations............ -- -- (2,555) (95)
Stock option (credit) charge......................... -- -- (110) 6,432
Equity in net earnings of Getty Petroleum Marketing
Inc. .............................................. -- -- -- (1,731)
Change of control charge............................. -- -- -- 2,166
Changes in assets and liabilities, net of effect of
acquisitions and dispositions:
Mortgages and accounts receivable.................... 552 951 547 (940)
Recoveries from state underground storage tank
funds.............................................. (2,074) 486 5,018 830
Prepaid expenses and other assets.................... (3,060) 478 327 (1,184)
Accounts payable and accrued expenses................ 1,669 (5,602) (484) (1,878)
Environmental remediation costs...................... (3,053) (7,827) (4,046) (7,837)
Income taxes payable................................. -- (808) 808 (1,426)
-------- -------- -------- -------
Net cash provided by continuing operating
activities....................................... 17,292 15,736 17,975 10,004
Net cash (used in) provided by discontinued
operations....................................... -- -- (1,916) 1,636
-------- -------- -------- -------
Net cash provided by operating activities.......... 17,292 15,736 16,059 11,640
-------- -------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................. (1,133) (4,817) (18,860) (8,057)
Property acquisitions................................ (155) (10,162) (6,362) (3,202)
Proceeds from dispositions of real estate............ 2,879 6,220 3,419 2,234
Proceeds from disposition of discontinued
operations......................................... -- -- 7,661 --
Cash from acquisition of Power Test Investors Limited
Partnership, net................................... -- -- -- 1,757
-------- -------- -------- -------
Net cash provided by (used in) investing
activities....................................... 1,591 (8,759) (14,142) (7,268)
-------- -------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit lines........................ 12,200 10,300 4,500 --
Repayment of mortgages payable....................... (6,224) (6,049) (5,284) (5,287)
Cash dividends....................................... (12,770) (10,554) (10,554) (1,577)
Stock options, common and treasury stock, net........ (12,017) (680) 46 7,208
Payments under capital lease obligations............. -- -- -- (6,373)
Mortgage borrowings.................................. -- -- -- 306
-------- -------- -------- -------
Net cash used in financing activities.............. (18,811) (6,983) (11,292) (5,723)
-------- -------- -------- -------
Net increase (decrease) in cash and equivalents........ 72 (6) (9,375) (1,351)
Cash and equivalents at beginning of period............ 651 657 10,032 11,383
-------- -------- -------- -------
Cash and equivalents at end of period.................. $ 723 $ 651 $ 657 $10,032
======== ======== ======== =======
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest........................................... $ 3,721 $ 2,438 $ 2,794 $ 5,009
Income taxes, net.................................. 6,988 6,628 4,653 3,834
See accompanying notes.
F-5
65
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts
of Getty Realty Corp. and its wholly-owned subsidiaries (the "Company"). The
Company is a real estate company specializing in the ownership and leasing of
service stations, convenience stores and petroleum marketing terminals. All
significant intercompany accounts and transactions have been eliminated.
Prior to the spin-off of its petroleum marketing business to its
stockholders on March 21, 1997, the Company was principally engaged in the
ownership and leasing of real estate as well as the marketing and distribution
of petroleum products. In December 1998, the Company sold its heating oil
business, Aero Oil Company. The Company now leases most of its properties on a
long-term net basis to the spun-off company, Getty Petroleum Marketing Inc.
("Marketing"). The consolidated statement of operations of the Company for the
year ended January 31, 1998 includes the financial results of the Marketing
business under the caption "Equity in earnings of Getty Petroleum Marketing
Inc." for the period from February 1, 1997 to March 21, 1997. For additional
information regarding the spin-off, see Note 2. The results of operations of the
heating oil business have been reclassified as discontinued in the accompanying
financial statements for the years ended January 31, 1999 and 1998. For
additional information regarding the sold heating oil business, see Note 3.
Change in Year-End: On December 12, 2000, the Company's Board of Directors
approved a change in the fiscal year end to December 31 from January 31. The
change resulted in an eleven-month accounting period ended December 31, 2000.
For additional information regarding the change in year-end, see Note 12.
Use of Estimates: The financial statements have been prepared in
conformity with generally accepted accounting principles and include amounts
that are based on management's best estimates and judgments. While all available
information has been considered, actual results could differ from those
estimates.
Cash and Equivalents: The Company considers highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Real Estate: Real estate assets are stated at cost less accumulated
depreciation and amortization. When real estate assets are sold or retired, the
cost and related accumulated depreciation and amortization is eliminated from
the respective accounts and any gain or loss is credited or charged to income.
Expenditures for maintenance and repairs are charged to income when incurred.
Depreciation and Amortization: Depreciation of real estate is computed on
the straight-line method based upon the estimated useful lives of the assets
which generally range from 16 to 25 years for buildings and improvements.
Insurance: Prior to the spin-off, the Company was self-insured for
workers' compensation, general liability and vehicle liability up to
predetermined amounts above which third-party insurance applied. Since the
spin-off, the Company has maintained insurance coverage subject to modest
deductibles. Accruals are based on claims experience and actuarial assumptions
followed in the insurance industry. Due to uncertainties inherent in the
estimation process, actual losses could differ from accrued amounts.
Environmental Costs: The estimated future costs for known environmental
remediation requirements are accrued when it is probable that a liability has
been incurred and the amount of remediation costs can be reasonably estimated.
Recoveries of environmental costs, principally from state underground storage
tank remediation funds, are accrued as income when such recoveries are
considered probable. Accruals are adjusted as further information develops or
circumstances change.
Impairment of Long-lived Assets and Long-lived Assets to be Disposed
Of: Assets are written down to fair value when events and circumstances
indicate that the assets might be impaired and the projected
F-6
66
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amount of those assets. Assets held for disposal are written down
to fair value less costs to sell.
Income Taxes: Deferred income taxes are provided for the effect of items
which are reported for income tax purposes in years different from that in which
they are recorded for financial statement purposes.
Revenue Recognition: Revenue is recognized from rentals as earned.
Earnings per Common Share: Basic earnings per common share is computed by
dividing net earnings less preferred dividends by the weighted average number of
common shares outstanding during the year. Diluted earnings per common share
also gives effect to the potential dilution from the exercise of stock options
in the amounts of 2,000 shares, 5,000 shares and 196,000 shares for the years
ended January 31, 2000, 1999 and 1998, respectively.
For the eleven months ended December 31, 2000 and the years ended January
31, 2000 and 1999, conversion of the Series A Participating Convertible
Redeemable Preferred Stock (which was issued on January 30, 1998) into common
stock utilizing the if-converted method would have been antidilutive, and
therefore conversion was not assumed for purposes of computing diluted earnings
per common share.
Pro Forma Net Earnings per Common Share (Unaudited): Pro forma net
earnings per common share is presented to give effect to the dilution in net
earnings per common share caused by the issuance of common stock to fund the
accumulated "earnings and profits" distribution to pre-offering stockholders. In
connection with the offering, the Company will elect to be taxed as a real
estate investment trust and will be required to make the aforementioned
distribution. Pro forma net earnings per common share assumes the issuance of
approximately 3,633,000 shares of common stock at an offering price of $16.00
per share which would be utilized to fund the estimated "earnings and profits"
distribution of $64,100,000 after deducting the historical net earnings of
$5,977,000 applicable to common stockholders.
2. SPIN-OFF
On March 21, 1997, the Company spun-off its petroleum marketing business to
its stockholders. The Company retained its real estate business and leased most
of its properties on a long-term net basis to Marketing.
As part of the separation of the petroleum marketing business from the real
estate business, the Company and Marketing entered into various agreements which
addressed the allocation of assets and liabilities between them and govern
future relationships. These agreements include a Reorganization and Distribution
Agreement, Master Lease Agreement, Tax Sharing Agreement, Services Agreement and
Trademark License Agreement.
On November 2, 2000, Marketing agreed to be acquired by a subsidiary of OAO
Lukoil ("Lukoil"), a Russian open joint stock company, and the Company entered
into modifications to several of its agreements with Marketing. On December 8,
2000, the Lukoil subsidiary acquired in a tender offer approximately 72% of
Marketing's common stock. On January 25, 2001, the Lukoil subsidiary acquired by
merger the remaining common stock of Marketing.
Under the Services Agreement, Marketing provides certain administrative and
technical services to the Company and the Company provides certain limited
services to Marketing. The net fees paid by the Company to Marketing for
services performed (after deducting the fees paid by Marketing to the Company
for services provided by the Company) were $582,000 for the eleven months ended
December 31, 2000, $749,000 for the year ended January 31, 2000 and $960,000 for
each of the years ended January 31, 1999 and 1998, and are included in general
and administrative expenses in the
F-7
67
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consolidated statements of operations. The Company expects that substantially
all of the services provided pursuant to the Services Agreement will be
discontinued on or about April 1, 2001.
The following is a summary of the financial results of the Marketing
business included in the accompanying consolidated statement of operations for
the fiscal 1998 period from February 1, 1997 to March 21, 1997. The financial
information is presented for informational purposes only and is not necessarily
indicative of the financial results that would have occurred had Marketing been
operated as a separate, stand-alone entity during such period.
YEAR ENDED
JANUARY 31, 1998
----------------
(IN THOUSANDS)
Earnings before income taxes................................ $2,931
Provision for income taxes.................................. 1,200
------
Net earnings................................................ $1,731
======
3. DISCONTINUED OPERATIONS
In December 1998, the Company sold its heating oil and propane business,
Aero Oil Company. Proceeds from the sale were $7,661,000 and resulted in a
pre-tax gain of $4,576,000 ($2,674,000 after-tax).
Summary operating results of the discontinued heating oil operations is as
follows (in thousands):
YEARS ENDED JANUARY 31,
------------------------
1999 1998
-------- --------
Revenues.................................................... $18,169 $27,022
======= =======
Earnings before income taxes................................ $ 4,373(a) $ 164
Provision for income taxes.................................. 1,818 69
------- -------
Net earnings................................................ $ 2,555 $ 95
======= =======
---------------
(a) Includes pre-tax gain of $4,576 on disposal of the business.
4. LEASES
The Company and Marketing entered into an amended and restated Master Lease
Agreement (the "Master Lease") with respect to approximately 1,000 service
station and convenience store properties and 9 distribution terminals and bulk
plants, which became effective on December 9, 2000. The Master Lease has an
extended initial term of fifteen years (or periods ranging from one to fifteen
years with respect to approximately 335 properties leased by the Company from
third parties), and generally provides Marketing with renewal options extending
to 2048 (or with respect to such leased properties, such shorter period as the
underlying lease may provide). The Master Lease now provides for a 4% rent
increase effective December 9, 2000 and annual 2% escalations thereafter. In
addition, the amended provisions now require that the exercise of renewal
options be on an "all or nothing" basis. The Master Lease is a "triple-net"
lease, therefore Marketing is responsible for the cost of all taxes,
maintenance, repair, insurance and other operating expenses. The Company has
agreed to provide limited environmental indemnification to Marketing with
respect to six leased terminals, and limited indemnification relating to
compliance of properties with local laws. The Company's aggregate
indemnification liability for these items is capped at a maximum of $5.6
million. Under the Master Lease, the Company continues to have additional
ongoing environmental remediation obligations for scheduled sites.
F-8
68
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company and Marketing entered into revised trademark
license agreements providing for an exclusive license to Marketing for use of
certain of the Company's trademarks, service marks and trade names (including
the name "Getty") used in connection with Marketing's business within
Marketing's current marketing territory and a non-exclusive license in the
remaining United States subject to a gallonage-based royalty. The trademark
agreements have the same termination date as the Master Lease.
Revenues from rental properties for the eleven months ended December 31,
2000 and for the years ended January 31, 2000, 1999 and 1998 were $53,916,000,
$58,889,000, $58,869,000 and $59,449,000, respectively, of which $51,524,000,
$56,363,000, $56,411,000 and $57,001,000, respectively, was received from
Marketing under the Master Lease.
Future minimum annual rentals receivable from Marketing under the Master
Lease and from other tenants, which have terms in excess of one year as of
December 31, 2000, are as follows (in thousands):
OTHER
YEARS ENDING DECEMBER 31, MARKETING TENANTS TOTAL
------------------------- --------- ------- --------
2001................................................ $ 57,490 $ 2,355 $ 59,845
2002................................................ 58,029 1,873 59,902
2003................................................ 58,459 1,550 60,009
2004................................................ 58,935 1,260 60,195
2005................................................ 59,737 1,107 60,844
Thereafter.......................................... 605,378 4,216 609,594
-------- ------- --------
$898,028 $12,361 $910,389
======== ======= ========
The Company has obligations to lessors under noncancelable operating leases
which have terms (excluding options) in excess of one year, principally for
gasoline stations. Substantially all of these leases contain renewal options and
escalation clauses. Future minimum annual rentals payable under such leases are
as follows (in thousands):
YEARS ENDING DECEMBER 31,
-------------------------
2001........................................................ $10,576
2002........................................................ 9,369
2003........................................................ 8,068
2004........................................................ 6,776
2005........................................................ 5,225
Thereafter.................................................. 11,943
-------
$51,957
=======
5. COMMITMENTS AND CONTINGENCIES
On November 2, 2000, the Company entered into an amended Master Lease,
which became effective on December 9, 2000 upon the acquisition of a controlling
interest in Marketing by Lukoil. The amendment of the Master Lease and a related
amendment of a lease between two of the Company's subsidiaries (together, the
"Amended Lease Agreements") is alleged by Fleet National Bank ("Fleet" or the
"Lenders") to have caused a non-monetary default under a loan agreement between
one of those subsidiaries, Power Test Realty Company Limited Partnership, and
Fleet (the "Loan Agreement"). Prior to the Company executing the Amended Lease
Agreements, the Lenders issued a 90-day waiver of any potential default caused
by the Amended Lease Agreements which expired on January 31, 2001. Fleet advised
the Company that the Company was in default on February 8, 2001, and thereafter
converted the loan from a LIBOR based loan to a prime rate loan retroactive to
February 1, 2001. The Company has
F-9
69
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
always made all required payments under the Loan Agreement, including principal
and interest payments when due. While reserving its rights against Fleet to take
any and all actions permitted at law or in equity to protect its interests, the
Company has continued to make all required payments on the loan since February
1, 2001. Nonetheless, if the Lenders should seek to enforce any remedies that
they believe that they may be entitled to, they could attempt to accelerate the
remaining principal balance of the loan of approximately $21.0 million and seek
to institute foreclosure proceedings on some or all of the 265 mortgaged
properties. While the Company would vigorously oppose and defend against any
potential actions initiated by the Lenders, there can be no assurance that the
Lenders would not ultimately prevail. The Company has agreed to indemnify
Marketing for any loss with respect to the properties on which there are
mortgage liens as a result of actions taken by the Lenders. The Company has
advised the Lenders that it presently intends to refinance the outstanding loan
as soon as practicable. However, there can be no assurance on the timing of the
refinancing or that it can be accomplished on commercially reasonable terms. If
the Company is unable to timely refinance the outstanding loan or if the Lenders
were to initiate and ultimately prevail in foreclosure proceedings, the loss of
some or all of the properties collateralizing the Loan Agreement could have a
material adverse effect on the Company's financial position, results of
operations or cash flows. However, management believes that the ultimate
resolution of this matter will not have such a material adverse effect.
The Company is subject to various legal proceedings and claims which arise
in the ordinary course of its business. In addition, the Company has retained
responsibility for all pre-spin-off legal proceedings and claims relating to
Marketing's business. These matters are not expected to have a material adverse
effect on the Company's financial condition or results of operations.
In order to minimize the Company's exposure to credit risk associated with
financial instruments, the Company places its temporary cash investments with
high credit quality institutions and, by policy, limits the amount invested with
any one institution other than the U.S. Government.
Prior to the spin-off, the Company was self-insured for workers'
compensation, general liability and vehicle liability up to predetermined
amounts above which third-party insurance applies. Since the spin-off, the
Company has maintained insurance coverage subject to modest deductibles. The
Company's consolidated statements of operations for the eleven months ended
December 31, 2000 and for the fiscal years ended January 31, 2000, 1999 and 1998
included, in general and administrative expense, charges of $285,000,
$1,362,000, $518,000 and $161,000, respectively, for insurance. As of December
31, 2000, January 31, 2000 and 1999, the Company's consolidated balance sheets
included, in accounts payable and accrued expenses, $2,291,000, $2,269,000 and
$4,361,000, respectively, relating to insurance obligations arising prior to the
spin-off of the Marketing business.
The Company's financial results depend largely on rental income from
Marketing, and to a lesser extent on rental income from other tenants, and are
therefore materially dependent upon the ability of Marketing to meet its
obligations under the Master Lease. Marketing's financial results depend largely
on retail marketing margins and rental income from its dealers. The petroleum
marketing industry has been and continues to be volatile and highly competitive.
However, based on the information currently available to the Company, it does
not anticipate that Marketing will have difficulty in making required rental
payments under the Master Lease for the foreseeable future.
F-10
70
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT
Mortgages payable consists of (in thousands):
JANUARY 31,
DECEMBER 31, ------------------
2000 2000 1999
------------ ------- -------
Mortgage loan due through March 1, 2005............ $21,045 $22,970 $24,730
Mortgage loan due through November 1, 2000......... -- 4,184 8,344
Real estate mortgages, bearing interest at a
weighted average interest rate of 8.10%, due in
varying amounts through May 1, 2015.............. 1,924 2,039 2,168
------- ------- -------
$22,969 $29,193 $35,242
======= ======= =======
The mortgage loan due March 1, 2005, as amended on March 1, 2000, provides
for interest at LIBOR plus .75% to 1.75% per annum, depending on the ratio of
Funded Debt, as defined. Based on such ratio as of December 31, 2000, the
interest rate was LIBOR plus 1.25% which amounted to 8.07%. Principal payments
are scheduled at $175,000 per month, or $2,100,000 per year, through February 1,
2005, with the balance of $12,295,000 due on March 1, 2005. The Company
presently intends to refinance the outstanding loan as soon as practicable. On
February 8, 2001, the Lenders informed the Company that it was in default of
certain non-monetary covenants under the loan due to the amendment of the Master
Lease and a related amendment of a lease between two of the Company's
wholly-owned subsidiaries. The Lenders subsequently advised the Company that the
loan would convert from a LIBOR-based loan to a prime rate loan, effective
February 1, 2001, bearing interest at 8.0%. The loan is collateralized by
primary and secondary mortgage liens on 265 fee owned service station properties
with a net book value of approximately $122,306,000 at December 31, 2000. The
Company's rental income from these properties was $14,822,000 for the eleven
months ended December 31, 2000. See Note 5 for additional information regarding
the loan.
Aggregate principal payments in subsequent years for real estate mortgages,
excluding the mortgage loan discussed above, are as follows: 2001 -- $129,000;
2002 -- $582,000; 2003 -- $111,000; 2004 -- $188,000; 2005 -- $306,000 and
$608,000 thereafter. These mortgages payable are collateralized by real estate
having an aggregate net book value of approximately $3,026,000 as of December
31, 2000.
As of December 31, 2000, the Company had uncommitted lines of credit with
two banks other than the Lenders in the aggregate amount of $35,000,000, of
which $27,000,000 was utilized for short-term borrowings and $2,354,000 was
utilized in the form of outstanding letters of credit relating to insurance
obligations. Borrowings under these lines of credit are unsecured and bear
interest at the bank's prime rate or, at the Company's option, 1.0% to 1.1%
above LIBOR. These lines of credit are subject to annual renewal at the
discretion of each bank.
7. ENVIRONMENTAL REMEDIATION COSTS
The Company is subject to numerous existing federal, state and local laws
and regulations, including matters relating to the protection of the
environment. Environmental expenses have been attributable to remediation,
monitoring, soil disposal and governmental agency reporting incurred in
connection with contaminated sites and the replacement or upgrading of
underground storage tanks ("USTs") to meet federal, state and local
environmental standards, as well as routine monitoring and tank testing. For the
eleven months ended December 31, 2000 and for the years ended January 31, 2000,
1999 and 1998, net environmental expenses included in the Company's consolidated
statements of operations were $8,498,000, $6,648,000, $16,905,000 and
$8,255,000, respectively, which amounts were net of probable recoveries from
state UST remediation funds.
F-11
71
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the Master Lease with Marketing, the Company initiated a program to
bring the leased properties with known environmental contamination to regulatory
closure in an economical manner, and thereafter, transfer all future
environmental risks to Marketing. The Company has agreed to pay all costs
relating to, and to indemnify Marketing for environmental liabilities and
obligations scheduled in the Master Lease, as amended. The Company will also
collect recoveries from state UST remediation funds related to these
environmental obligations. The Company has also agreed to provide a limited
environmental indemnification to Marketing with respect to six leased terminals
and limited indemnification relating to compliance of properties with local
laws. The Company's aggregate indemnification liability for these items is
capped at a maximum of $5.6 million.
As of December 31, 2000, January 31, 2000 and 1999, the Company had accrued
$23,371,000, $26,424,000 and $34,251,000, respectively, as management's best
estimate for probable and reasonably estimable environmental remediation costs.
As of December 31, 2000, January 31, 2000 and 1999, the Company had also
recorded $11,957,000, $9,883,000 and $10,369,000, respectively, as management's
best estimate for recoveries from state UST remediation funds related to
environmental obligations and liabilities. In view of the uncertainties
associated with environmental expenditures, however, the Company believes it is
possible that such expenditures could be substantially higher. Any additional
amounts will be reflected in the Company's financial statements as they become
probable and reasonably estimable. Although future environmental expenditures
may have a significant impact on results of operations for any single fiscal
year or interim period, the Company currently believes that such costs will not
have a material adverse effect on the Company's financial position.
8. INCOME TAXES
The provision for income taxes is summarized as follows (in thousands):
FOR THE ELEVEN FOR THE YEARS ENDED
MONTHS ENDED JANUARY 31,
DECEMBER 31, ---------------------------
2000 2000 1999 1998
-------------- ------- ------ ------
Continuing operations............................. $7,875 $11,091 $5,337 $5,697
Discontinued operations:
Operations...................................... -- -- (84) 69
Disposal........................................ -- -- 1,902 --
------ ------- ------ ------
-- -- 1,818 69
------ ------- ------ ------
Provision for income taxes........................ $7,875 $11,091 $7,155 $5,766
====== ======= ====== ======
The provision for income taxes is comprised as follows (in thousands):
FOR THE ELEVEN FOR THE YEARS ENDED
MONTHS ENDED JANUARY 31,
DECEMBER 31, ---------------------------
2000 2000 1999 1998
-------------- ------- ------ ------
Federal:
Current......................................... $2,435 $ 2,260 $5,314 $2,697
Deferred........................................ 3,638 5,817 (120) 1,557
State and local:
Current......................................... 667 735 966 990
Deferred........................................ 1,135 2,279 995 522
------ ------- ------ ------
Provision for income taxes........................ $7,875 $11,091 $7,155 $5,766
====== ======= ====== ======
F-12
72
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences which comprise the deferred tax
assets and liabilities are as follows (in thousands):
JANUARY 31,
DECEMBER 31, --------------------
2000 2000 1999
------------ -------- --------
Real estate.............................................. $(46,891) $(46,893) $(44,028)
Environmental remediation costs, net..................... 6,784 11,080 13,257
Other accruals........................................... 3,024 2,723 1,576
Other.................................................... (3,094) (2,994) (1,015)
-------- -------- --------
Net deferred tax liabilities............................. $(40,177) $(36,084) $(30,210)
======== ======== ========
The following is a reconciliation of the expected statutory federal income
tax provision and the actual provision for income taxes (in thousands):
FOR THE ELEVEN FOR THE YEARS ENDED
MONTHS ENDED JANUARY 31,
DECEMBER 31, ---------------------------
2000 2000 1999 1998
-------------- ------- ------ ------
Expected provision at statutory federal income tax
rate............................................ $6,594 $ 9,137 $5,910 $4,661
State and local income taxes, net of federal
benefit......................................... 1,175 1,959 1,288 994
Other............................................. 106 (5) (43) 111
------ ------- ------ ------
Provision for income taxes........................ $7,875 $11,091 $7,155 $5,766
====== ======= ====== ======
F-13
73
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCKHOLDERS' EQUITY
A summary of the changes in stockholders' equity for the eleven months
ended December 31, 2000 and for the three years ended January 31, 2000 is as
follows:
PREFERRED STOCK COMMON STOCK RETAINED
---------------- ---------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
-----------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Balance, February 1, 1997........ -- $ -- 13,583 $1,358 $120,293 $(7,215)
Net earnings..................... 7,944
Spin-off of Marketing............ (56,272)
Cash dividends:
Common -- $.12 per share........ (1,577)
Issuance of treasury stock,
net............................. (1)
Stock options.................... 863 87 15,679
Merger transaction............... 2,889 72,220 (883) (1,309) (12,614)
-----------------------------------------------------------------------------------------------
Balance, January 31, 1998........ 2,889 72,220 13,563 136 67,085 (848)
Net earnings..................... 10,056
Cash dividends:
Common -- $.40 per share........ (5,426)
Preferred -- $1.775 per share... (5,128)
Issuance of common stock......... 2 33
Stock options.................... 1 (97)
-----------------------------------------------------------------------------------------------
Balance, January 31, 1999........ 2,889 72,220 13,566 136 67,021 (1,346)
Net earnings..................... 15,014
Cash dividends:
Common -- $.40 per share........ (5,426)
Preferred -- $1.775 per share... (5,128)
Purchase of preferred stock for
treasury........................
Purchase of common stock for
treasury, net...................
Stock options.................... 1 15
-----------------------------------------------------------------------------------------------
Balance, January 31, 2000........ 2,889 72,220 13,567 136 67,036 3,114
Net earnings..................... 11,075
Cash dividends:
Common -- $.60 per share........ (7,672)
Preferred -- $1.775 per share... (5,098)
Purchase of preferred stock for
treasury........................
Purchase of common stock for
treasury, net...................
-----------------------------------------------------------------------------------------------
Balance, December 31, 2000....... 2,889 $72,220 13,567 $ 136 $ 67,036 $ 1,419(a)
-----------------------------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK
HELD IN TREASURY, HELD IN TREASURY,
AT COST AT COST
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT TOTAL
--------------------------------- ---------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Balance, February 1, 1997........ -- $ -- (886) $(13,964) $100,472
Net earnings..................... 7,944
Spin-off of Marketing............ (56,272)
Cash dividends:
Common -- $.12 per share........ (1,577)
Issuance of treasury stock,
net............................. 3 41 40
Stock options.................... 15,766
Merger transaction............... 883 13,923 72,220
-----------------------------------------------------------------------------------------------
Balance, January 31, 1998........ -- -- -- -- 138,593
Net earnings..................... 10,056
Cash dividends:
Common -- $.40 per share........ (5,426)
Preferred -- $1.775 per share... (5,128)
Issuance of common stock......... 33
Stock options.................... (97)
-----------------------------------------------------------------------------------------------
Balance, January 31, 1999........ -- -- -- -- 138,031
Net earnings..................... 15,014
Cash dividends:
Common -- $.40 per share........ (5,426)
Preferred -- $1.775 per share... (5,128)
Purchase of preferred stock for
treasury........................ (1) (14) (14)
Purchase of common stock for
treasury, net................... (60) (681) (681)
Stock options.................... 15
-----------------------------------------------------------------------------------------------
Balance, January 31, 2000........ (1) (14) (60) (681) 141,811
Net earnings..................... 11,075
Cash dividends:
Common -- $.60 per share........ (7,672)
Preferred -- $1.775 per share... (5,098)
Purchase of preferred stock for
treasury........................ (22) (416) (416)
Purchase of common stock for
treasury, net................... (959) (11,601) (11,601)
-----------------------------------------------------------------------------------------------
Balance, December 31, 2000....... (23) $ (430) (1,019) $(12,282) $128,099
-----------------------------------------------------------------------------------------------
---------------
(a) Net of $103,803 transferred from retained earnings to common stock and
paid-in capital as a result of accumulated stock dividends.
On January 30, 1998, the Company and Power Test Investors Limited
Partnership (the "Partnership"), a publicly traded real estate limited
partnership, completed a merger transaction to combine their assets and
operations. In connection with the merger, unitholders of the Partnership
received 2,888,798 shares of Series A Participating Convertible Redeemable
Preferred Stock of Getty Realty Corp.
F-14
74
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in exchange for their Partnership units. Each share of preferred stock has
voting rights of and is convertible into 1.1312 shares of common stock of the
Company and pays stated cumulative dividends of $1.775 per annum, or if greater,
the per share dividends paid on common stock. Commencing February 1, 2001, the
Company may redeem all or a portion of the preferred stock at a purchase price
of $25.00 per share plus accumulated, accrued and unpaid dividends, if the
closing price of the Company's common stock exceeds $22.10 per share for a
period of ten cumulative trading days within 90 days prior to the date of notice
of redemption. In the event of a liquidation, dissolution or winding up of the
Company, holders of the preferred stock will have the right to liquidation
preferences in the amount of $25.00 per share, plus accumulated, accrued and
unpaid dividends, before any payment to holders of the Company's common stock.
10. EMPLOYEE BENEFIT PLANS
The Company has a retirement and profit sharing plan with deferred 401(k)
savings plan provisions (the "Retirement Plan") for employees meeting certain
service requirements and a Supplemental Plan for executives. Under the terms of
these plans, the annual discretionary contributions to the plans are determined
by the Board of Directors. Also, under the Retirement Plan, employees may make
voluntary contributions and the Company has elected to match an amount equal to
50% of such contributions but in no event more than 3% of the employee's
eligible compensation. Under the Supplemental Plan, a participating executive
may receive an amount equal to 10% of his compensation, reduced by the amount of
any contributions allocated to such executive under the Retirement Plan.
Contributions, net of forfeitures, under the plans approximated $87,000,
$102,000, $126,000 and $89,000 for the eleven months ended December 31, 2000 and
the years ended January 31, 2000, 1999 and 1998, respectively. These amounts are
included in the accompanying consolidated statements of operations.
The Company has a Stock Option Plan (the "Plan") which authorizes the
Company to grant options to purchase shares of the Company's common stock. The
aggregate number of shares of the Company's common stock which may be made the
subject of options under the Plan shall not exceed 1,100,000 shares, subject to
further adjustment for stock dividends and stock splits. The Plan provides that
options are exercisable starting one year from the date of grant, on a
cumulative basis at the annual rate of 25 percent of the total number of shares
covered by the option.
Immediately prior to the spin-off of its petroleum marketing business to
its stockholders, each holder of an option to acquire shares of the Company's
common stock received, in exchange therefor, two separately exercisable options:
one to purchase shares of the Company's common stock (a "Realty Option") and one
to purchase shares of Marketing common stock (a "Marketing Option"), each
exercisable for the same number of shares and containing substantially
equivalent terms as the pre-distribution option. The exercise price of each
Realty Option and Marketing Option was set so as to preserve the Aggregate
Spread (as defined below) in value attributed to the options currently held. The
"Aggregate Spread" was an amount representing the difference between the
exercise price of an option and the price of a share of Company common stock
immediately prior to the spin-off multiplied by the number of shares underlying
the option. Unexercisable options covering a total of 223,587 shares became
immediately exercisable at the date of the spin-off for persons covered by
change of control agreements. Accordingly, in the year ended January 31, 1998,
the Company recognized a charge to earnings of $2,166,000 at the date of the
spin-off equal to the product of the number of these options and the difference
between their exercise price and the then market price.
F-15
75
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule of stock option prices and activity relating to
the Company's stock option plans:
FOR THE ELEVEN
MONTHS ENDED FOR THE YEARS ENDED JANUARY 31,
DECEMBER 31, ---------------------------------------------------------------
2000 2000 1999 1998
------------------ ------------------ ------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE(A)
------- -------- ------- -------- ------- -------- --------- --------
Outstanding at
beginning of
period............... 373,740 $21.27 358,119 $22.63 363,553 $23.15 1,014,226 $10.28
Granted................ 53,750 14.50 41,750 11.13 --(b) -- 349,236 23.65
Exercised.............. -- -- (1,102) 13.23 (1,215) 10.89 (864,535) 10.15
Cancelled.............. (22,750) 23.64 (25,027) 24.06 (4,219) 22.43 (135,374) 11.06
------- ------ ------- ------ ------- ------ --------- ------
Outstanding at end of
period............... 404,740 $20.24 373,740 $21.27 358,119 $22.63 363,553 $23.15
======= ====== ======= ====== ======= ====== ========= ======
Exercisable at end of
period............... 319,678 $21.96 287,336 $22.91 277,706 $23.14 242,779 $23.29
======= ====== ======= ====== ======= ====== ========= ======
Available for grant at
end of period........ 692,943 723,943 740,666 736,447
======= ======= ======= =========
---------------
(a) In connection with the spin-off, each Realty Option was reformed into
separate options for Realty common stock and Marketing common stock. The
exercise price of each reformed Realty Option shown herein represents 77.29%
of the original exercise price.
(b) On December 14, 1998, the Company repriced 50,000 options granted in fiscal
1998 with an exercise price of $21.31 per share to $17.19 per share, as
compared to the then market price of $13.06 per share.
The following table summarizes information concerning options outstanding
and exercisable at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ---------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
-------- ----------- ---------------- -------- ----------- --------
$9.56-14.40 106,500 8 $12.76 28,938 $10.88
17.19 50,000 7 17.19 42,500 17.19
24.06 248,240 4 24.06 248,240 24.06
------- -------
404,740 319,678
======= =======
The Company accounts for its stock-based employee compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company recorded a stock compensation charge (credit) of
($199,000) and $8,683,000 for the years ended January 31, 1999 and 1998,
respectively, since certain options required variable plan accounting treatment.
F-16
76
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation cost for the Company's Plan been determined based upon the
fair value methodology prescribed under SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net earnings and net earnings per share
on a diluted basis would have been reduced as follows:
FOR THE ELEVEN MONTHS FOR THE YEARS ENDED JANUARY 31,
ENDED DECEMBER 31, ---------------------------------------------------------------------------
2000 2000 1999 1998
----------------------- ----------------------- ----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- --------- ----------- ---------
Net earnings (in
thousands)......... $11,075 $10,963 $15,014 $14,190 $10,056 $9,054 $7,944 $7,513
Net earnings per
common share....... .47(a) .46(a) .73(a) .67(a) .36(a) .29(a) .60 .56
---------------
(a) After giving effect to preferred stock dividends.
The fair value of the options granted during the eleven months ended
December 31, 2000 and the years ended January 31, 2000 and 1998 were estimated
as $4.11, $3.57 and $10.32 per share, respectively, on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
FOR THE YEARS
FOR THE ELEVEN ENDED
MONTHS ENDED JANUARY 31,
DECEMBER 31, --------------
2000 2000 1999
-------------- ----- -----
Expected dividend yield..................................... 4.1% 3.6% .5%
Expected volatility......................................... 35% 34% 35%
Risk-free interest rate..................................... 5.2% 6.7% 5.5%
Expected life of options (years)............................ 7 7 7
11. QUARTERLY FINANCIAL DATA
The following is a summary of the interim results of operations for the
eleven months ended December 31, 2000 and for the year ended January 31, 2000
(unaudited as to interim information):
TWO ELEVEN
THREE MONTHS ENDED MONTHS MONTHS
------------------------------------ ENDED ENDED
ELEVEN MONTHS ENDED DECEMBER 31, 2000: APRIL 30, JULY 31, OCTOBER 31, DECEMBER 31, DECEMBER 31,
-------------------------------------- --------- -------- ----------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues from rental properties....... $14,725 $14,700 $14,580 $9,911 $53,916
Earnings before income taxes.......... 6,003 5,574 5,397 1,976 18,950
Net earnings.......................... 3,455 3,257 3,125 1,238 11,075
Diluted earnings per common share(a)... .16 .16 .15 -- .47
THREE MONTHS ENDED YEAR
--------------------------------------------------- ENDED
YEAR ENDED JANUARY 31, 2000: APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, JANUARY 31,
---------------------------- --------- -------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues from rental properties....... $14,760 $14,666 $14,628 $14,835 $58,889
Earnings before income taxes.......... 5,759 6,350 7,710 6,286 26,105
Net earnings.......................... 3,343 3,686 4,460 3,525 15,014
Diluted earnings per common share(a)... .15 .18 .23 .17 .73
---------------
(a) After giving effect to quarterly preferred stock dividends aggregating
$5,098 and $5,128 for the eleven months ended December 31, 2000 and for the
year ended January 31, 2000, respectively.
F-17
77
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. TRANSITION PERIOD COMPARATIVE DATA
The following table presents certain financial information for the eleven
months ended December 31, 2000 and 1999 (in thousands, except per share data):
2000 1999
------- -----------
(UNAUDITED)
Revenues from rental properties............................. $53,916 $53,983
======= =======
Earnings before income taxes................................ $18,950 $24,427
Provision for income taxes.................................. 7,875 10,378
------- -------
Net earnings................................................ 11,075 14,049
Preferred stock dividends................................... 5,098 5,128
------- -------
Net earnings applicable to common stockholders.............. $ 5,977 $ 8,921
======= =======
Net earnings per common share:
Basic..................................................... $ .47 $ .66
Diluted................................................... $ .47 $ .66
Weighted average common shares outstanding:
Basic..................................................... 12,818 13,567
Diluted................................................... 12,818 13,569
F-18
78
GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, 2001
----------------------
HISTORICAL PRO FORMA
---------- ---------
(UNAUDITED)
ASSETS:
Real Estate:
Land...................................................... $135,322 $135,322
Buildings and improvements................................ 178,034 178,034
-------- --------
313,356 313,356
Less -- accumulated depreciation and amortization......... 83,340 83,340
-------- --------
Real estate, net....................................... 230,016 230,016
Cash and equivalents...................................... 511 511
Mortgages and accounts receivable, net.................... 5,014 5,014
Deferred rent receivable.................................. 2,097 2,097
Recoveries from state underground storage tank funds...... 11,440 11,440
Prepaid expenses and other assets......................... 3,243 3,243
-------- --------
Total assets...................................... $252,321 $252,321
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Borrowings under credit lines............................... $ 24,000 $ 24,000
Mortgages payable........................................... 22,413 22,413
Accounts payable and accrued expenses....................... 12,936 77,036
Environmental remediation costs............................. 22,483 22,483
Deferred income taxes....................................... 41,212 41,212
-------- --------
Total liabilities................................. 123,044 187,144
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; authorized
20,000,000 shares for issuance in series of which
3,000,000 shares are classified as Series A
Participating Convertible Redeemable Preferred; issued
2,888,798 at March 31, 2001............................ 72,220 72,220
Common stock, par value $.01 per share; authorized
50,000,000 shares; issued 13,567,335 at March 31,
2001................................................... 136 136
Paid-in capital........................................... 67,036 5,533
Retained earnings......................................... 2,597 --
Preferred stock held in treasury, at cost (23,030 shares
at March 31, 2001)..................................... (430) (430)
Common stock held in treasury, at cost (1,019,048 shares
at March 31, 2001)..................................... (12,282) (12,282)
-------- --------
Total stockholders' equity........................ 129,277 65,177
-------- --------
Total liabilities and stockholders' equity........ $252,321 $252,321
======== ========
See accompanying notes.
F-19
79
GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
------- -------
Revenues:
Revenues from rental properties........................... $17,146 $14,724
Other income.............................................. 232 153
------- -------
17,378 14,877
------- -------
Rental property expenses.................................... 2,796 3,052
Environmental expenses...................................... 2,759 3,033
General and administrative expenses......................... 1,017 603
Depreciation and amortization............................... 2,369 2,511
Interest expense............................................ 898 770
------- -------
9,839 9,969
------- -------
Earnings before provision for income taxes.................. 7,539 4,908
Provision for income taxes.................................. 3,207 2,196
------- -------
Net earnings................................................ 4,332 2,712
Preferred stock dividends................................... 1,272 1,280
------- -------
Net earnings applicable to common stockholders.............. $ 3,060 $ 1,432
======= =======
Net earnings per common share:
Basic..................................................... $ 0.24 $ 0.11
Diluted................................................... $ 0.24 $ 0.11
Weighted average common shares outstanding:
Basic..................................................... 12,548 13,420
Diluted................................................... 12,553 13,421
Pro forma net earnings per common share:
Basic..................................................... $ 0.19
Diluted................................................... $ 0.19
Pro forma weighted average common shares outstanding:
Basic..................................................... 16,363
Diluted................................................... 16,368
See accompanying notes.
F-20
80
GETTY REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
------- -------
Cash flows from operating activities:
Net earnings................................................ $ 4,332 $ 2,712
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 2,369 2,511
Deferred income taxes..................................... 1,035 3,626
Gain on dispositions of real estate....................... (88) (112)
Deferred rent receivable.................................. (2,097) --
Changes in assets and liabilities:
Mortgages and accounts receivable......................... 458 (23)
Recoveries from state underground storage tank funds...... 517 (3,442)
Prepaid expenses and other assets......................... 2,264 95
Accounts payable and accrued expenses..................... (1,173) (618)
Environmental remediation costs........................... (888) 2,879
Income taxes payable...................................... -- (1,831)
------- -------
Net cash provided by operating activities.............. 6,729 5,797
------- -------
Cash flows from investing activities:
Capital expenditures...................................... (346) (288)
Property acquisitions..................................... -- (155)
Proceeds from dispositions of real estate................. 115 222
------- -------
Net cash used in investing activities.................. (231) (221)
------- -------
Cash flows from financing activities:
Borrowings (repayments) under credit lines, net........... (3,000) 6,100
Repayment of mortgages payable............................ (556) (1,210)
Cash dividends............................................ (3,154) (3,202)
Stock options, common and treasury stock, net............. -- (3,525)
------- -------
Net cash used in financing activities.................. (6,710) (1,837)
------- -------
Net (decrease) increase in cash and equivalents............. (212) 3,739
Cash and equivalents at beginning of period................. 723 (4,162)
------- -------
Cash and equivalents at end of period....................... $ 511 $ (423)
======= =======
Supplemental disclosures of cash flow information
Cash paid (refunded) during the period for:
Interest............................................... $ 908 $ 926
Income taxes, net...................................... (99) 401
See accompanying notes.
F-21
81
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
The accompanying consolidated financial statements include the accounts of
Getty Realty Corp. and its wholly-owned subsidiaries (the "Company"). The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and include amounts that are based on
management's best estimates and judgments. While all available information has
been considered, actual amounts could differ from those estimates. The
consolidated financial statements are unaudited but, in the opinion of
management, reflect all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation. These statements should be read in
conjunction with the consolidated financial statements and related notes, which
appear in the Company's Transition Report on Form 10-K for the transition period
February 1, 2000 to December 31, 2000.
The Consolidated Statements of Operations and Cash Flows for the first
quarter of 2000 have been recast to include the three months ended March 31,
2000 as a result of the change in the Company's year-end to December 31 from
January 31.
2. REVENUE RECOGNITION:
Rental revenue under the Amended and Restated Master Lease ("Master Lease")
with Getty Petroleum Marketing Inc. ("Marketing"), which became effective
December 9, 2000, is recognized on a straight-line basis over the initial
fifteen-year lease term. The cumulative difference between lease revenue
recognized under this method and contractual lease payment terms is recorded as
deferred rent receivable.
3. EARNINGS PER COMMON SHARE:
Basic earnings per common share is computed by dividing net earnings less
preferred dividends by the weighted average number of common shares outstanding
during the period. Diluted earnings per common share also gives effect to the
potential dilution from the exercise of stock options in the amount of 5,000 and
1,000 shares for the quarters ended March 31, 2001 and 2000, respectively.
For the quarters ended March 31, 2001 and 2000, conversion of the Series A
Participating Convertible Redeemable Preferred stock into common stock utilizing
the if-converted method would have been antidilutive and therefore conversion
was not assumed for purposes of computing diluted earnings per common share.
4. CONTINGENCY
On November 2, 2000, the Company entered into the Master Lease, which
became effective upon the acquisition of a controlling interest in Marketing by
a subsidiary of OAO Lukoil. The amendment of the Master Lease and a related
amendment of a lease between two of the Company's subsidiaries (together, the
"Amended Lease Agreements") is alleged by Fleet National Bank ("Fleet" or the
"Lenders") to have caused a non-monetary default under a loan agreement between
one of those subsidiaries, Power Test Realty Company Limited Partnership, and
Fleet (the "Loan Agreement"). Prior to the Company executing the Amended Lease
Agreements, the Lenders issued a 90-day waiver of any potential default caused
by the Amended Lease Agreements which expired on January 31, 2001. Fleet advised
the Company that the Company was in default on February 8, 2001, and thereafter
converted the loan from a LIBOR based loan to a prime rate loan retroactive to
February 1, 2001. The Company has always made all required payments under the
Loan Agreement, including principal and interest payments when due. While
reserving its rights against Fleet to take any and all actions permitted at law
or in equity to protect its interests, the Company has continued to make all
required payments on the loan since February 1, 2001. Nonetheless, if the
Lenders should seek to enforce any remedies that they believe they may be
F-22
82
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
entitled to, they could attempt to accelerate the remaining principal balance of
the loan of approximately $20.5 million and seek to institute foreclosure
proceedings on some or all of the 265 mortgaged properties. While the Company
would vigorously oppose and defend against any potential actions initiated by
the Lenders, there can be no assurance that the Lenders would not ultimately
prevail. The Company has agreed to indemnify Marketing for any loss with respect
to the properties on which there are mortgage liens as a result of actions taken
by the Lenders. The Company has advised the Lenders that it presently intends to
refinance the outstanding loan as soon as practicable. However, there can be no
assurance on the timing of the refinancing or that it can be accomplished on
commercially reasonable terms. If the Company is unable to timely refinance the
outstanding loan or if the Lenders were to initiate and ultimately prevail in
foreclosure proceedings, the loss of some or all of the properties
collateralizing the Loan Agreement could have a material adverse effect on the
Company's financial position, results of operations or cash flows. However,
management believes that the ultimate resolution of this matter will not have
such a material adverse effect.
5. STOCKHOLDERS' EQUITY:
A summary of the changes in stockholders' equity for the three months ended
March 31, 2001 is as follows (in thousands, except per share amounts):
PREFERRED COMMON
STOCK HELD STOCK HELD
PREFERRED COMMON PAID-IN RETAINED IN TREASURY, IN TREASURY,
STOCK STOCK CAPITAL EARNINGS AT COST AT COST TOTAL
--------- ------ ------- -------- ------------ ------------ --------
Balance, December 31, 2000..... $72,220 $136 $67,036 $1,419 $(430) $(12,282) $128,099
Net earnings................... 4,332 4,332
Cash dividends:
Common -- $.15 per share..... (1,882) (1,882)
Preferred -- $.44375 per
share...................... (1,272) (1,272)
------- ---- ------- ------ ----- -------- --------
Balance, March 31, 2001........ $72,220 $136 $67,036 $2,597 $(430) $(12,282) $129,277
======= ==== ======= ====== ===== ======== ========
6. PRO FORMA PRESENTATION:
The Pro Forma Consolidated Balance Sheet as of March 31, 2001 gives effect
to the accrual for the estimated "earnings and profits" distribution of $64.1
million to the common and series A preferred stockholders. In connection with
the offering, the Company will elect to be taxed as a real estate investment
trust and will be required to make the aforementioned distribution.
Pro Forma Net Earnings per Common Share (Unaudited): Pro forma net
earnings per common share is presented to give effect to the dilution in net
earnings per common share caused by the issuance of common stock to fund the
accumulated "earnings and profits" distribution to pre-offering stockholders. In
connection with the offering, the Company will elect to be taxed as a real
estate investment trust and will be required to make the aforementioned
distribution. Pro forma net earnings per common share assumes the issuance of
approximately 3,815,000 shares of common stock at an offering price of $16.00
per share, which would be utilized to fund the estimated "earnings and profits"
distribution of $64,100,000 after deducting the historical net earnings of
$3,060,000 applicable to common stockholders.
F-23
83
GETTY REALTY CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2001
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following unaudited Pro Forma Consolidated Balance Sheet gives effect
to the proposed offering as if the offering had occurred on March 31, 2001.
The unaudited Pro Forma Consolidated Balance Sheet is presented for
comparative purposes only and is not necessarily indicative of what the actual
financial position of Getty Realty Corp. ("Getty" or the "Company") would have
been at March 31, 2001, nor does it purport to represent the future financial
position of Getty. This information should be read in conjunction with the
unaudited consolidated financial statements and other financial information
contained in Getty's Quarterly Report on Form 10-Q for the three months ended
March 31, 2001, including the notes thereto, included elsewhere in this
document.
F-24
84
GETTY REALTY CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2001
(UNAUDITED)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT FOR SHARE
AND PER SHARE DATA)
ASSETS
Real Estate:
Land.................................................... $135,322 $135,322
Buildings and improvements.............................. 178,034 178,034
-------- -------- --------
313,356 313,356
Less -- accumulated depreciation and amortization....... 83,340 83,340
-------- -------- --------
Real Estate, net.......................................... 230,016 230,016
Cash and equivalents...................................... 511 $114,700(A) 6,611
(24,000)(B)
(20,500)(C)
(64,100)(D)
Mortgages and accounts receivable, net.................... 5,014 5,014
Deferred rent receivable.................................. 2,097 2,097
Recoveries from state underground storage tank funds...... 11,440 11,440
Prepaid expenses and other assets......................... 3,243 3,243
-------- -------- --------
Total assets.................................... $252,321 $ 6,100 $258,421
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings under credit lines............................. $ 24,000 $(24,000)(B) $ --
Mortgages payable......................................... 22,413 (20,500)(C) 1,913
Accounts payable and accrued expenses..................... 12,936 (2,172)(E) 10,764
Environmental remediation costs........................... 22,483 22,483
Deferred income taxes..................................... 41,212 (41,212)(E) --
-------- -------- --------
Total liabilities............................... 123,044 (87,884) 35,160
-------- -------- --------
Stockholders' equity:
Preferred stock, par value $0.01 per share; authorized
20,000,000 shares for issuance in classes or series; of
which 3,000,000 shares are classified as Series A
Participating Convertible Redeemable Preferred; issued
2,888,798 at March 31, 2001............................. 72,220 72,220
Common stock, par value $0.01 per share; authorized
50,000,000 shares; issued 13,567,335 and 21,267,335 at
March 31, 2001 on an historical and pro forma basis,
respectively............................................ 136 77(A) 213
Paid-in capital........................................... 67,036 114,623(A) 163,540
(18,119)(D)
Retained earnings......................................... 2,597 (45,981)(D) --
43,384(E)
Preferred Stock held in treasury, at cost (23,030 shares
at March 31, 2001)...................................... (430) (430)
Common Stock held in treasury, at cost (1,019,048 shares
at March 31, 2001)...................................... (12,282) (12,282)
-------- -------- --------
Total stockholders' equity...................... 129,277 93,984 223,261
-------- -------- --------
Total liabilities and stockholders' equity...... $252,321 $ 6,100 $258,421
======== ======== ========
The accompanying notes are an integral part of this statement.
F-25
85
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying historical Consolidated Balance Sheet of Getty includes
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The unaudited Pro Forma Consolidated Balance Sheet gives effect to the
proposed offering and use of proceeds as if the offering had occurred on March
31, 2001.
2. PRO FORMA ADJUSTMENTS
(A) These adjustments represent the proceeds from the proposed offering of
7,700,000 shares of Common Stock, par value $.01 per share, at an offering price
of $16.00 per share; net of the estimated fees and other expenses relating to
the offering, including, but not limited to, investment banking fees, financial
advisory fees, legal and accounting fees, printing, filing and other related
costs aggregating approximately $8.5 million.
(B) The adjustment to borrowings under credit lines reflects the use of a
portion of the proceeds from this offering to repay in full all amounts
outstanding as of March 31, 2001 under the Company's credit lines.
(C) The adjustment to mortgages payable reflects the use of a portion of
the proceeds from the offering to repay in full all amounts outstanding under
the loan agreement between the Company's subsidiary, Power Test Realty Company
Limited Partnership, and The Chase Manhattan Bank.
(D) This adjustment reflects the use of a portion of the proceeds of the
offering to make an "earnings and profits" distribution to our stockholders
which will be required prior to election to be taxed as a real estate investment
trust ("REIT"). This amount represents management's estimate of the accumulated
"earnings and profits" of the Company during the current year and the years it
operated as a taxable corporation.
(E) The adjustments to accounts payable and accrued expenses and to
deferred income taxes reflect the Company's change in tax status from a C-Corp.
to a REIT, which will be effective January 1, 2001 but contingent upon the
completion of the offering, and the corresponding elimination of the Company's
accrual for income taxes and deferred tax liabilities as of March 31, 2001. It
is anticipated that the Company will continue to qualify as a REIT and pay
dividends sufficient to minimize corporate taxes in any given year, and that no
additional taxes will be due upon the reversal of previously deferred tax items.
F-26
86
GETTY REALTY CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 2000
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
The following unaudited Pro Forma Consolidated Statements of Operations for
the three months ended March 31, 2001 and for the eleven months ended December
31, 2000 give effect to the proposed offering and use of proceeds therefrom as
if the offering had occurred on February 1, 2000.
The unaudited Pro Forma Consolidated Statements of Operations are presented
for comparative purposes only and are not necessarily indicative of what the
actual operating results of Getty would have been for the three months ended
March 31, 2001 or for the eleven months ended December 31, 2000, nor does it
purport to represent the future operating results of Getty. This information
should be read in conjunction with the unaudited consolidated financial
statements contained in Getty's Quarterly Report on Form 10-Q for the three
months ended March 31, 2001 and the audited consolidated financial statements
and other financial information contained in Getty's Transition Report on Form
10-K for the transition period February 1, 2000 to December 31, 2000, including
the notes thereto, in each case included elsewhere in this document.
F-27
87
GETTY REALTY CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(UNAUDITED)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
REVENUES:
Revenues from rental properties............................ $17,146 $17,146
Other income............................................... 232 232
------- -------
Total revenues................................... 17,378 17,378
------- -------
EXPENSES:
Rental property expenses................................... 2,796 2,796
Environmental expenses..................................... 2,759 2,759
General and administrative expenses........................ 1,017 1,017
Depreciation and amortization.............................. 2,369 2,369
Interest expense........................................... 898 $ (847)(A) 51
------- ------- -------
Total expenses................................... 9,839 (847) 8,992
------- ------- -------
Earnings before provision for income taxes................. 7,539 847 8,386
Provision for income taxes................................. 3,207 (3,207)(B) --
------- ------- -------
Net earnings............................................... 4,332 4,054 8,386
Preferred stock dividends.................................. 1,272 -- 1,272
------- ------- -------
Net earnings applicable to common stockholders............. $ 3,060 $ 4,054 $ 7,114
======= ======= =======
Net earnings per common share:
Basic.................................................... $ 0.24 $ 0.35
Diluted.................................................. $ 0.24 $ 0.35
Weighted average common shares outstanding:
Basic.................................................... 12,548 20,248
Diluted.................................................. 12,553 20,253
The accompanying notes are an integral part of this statement.
F-28
88
GETTY REALTY CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 2000
(UNAUDITED)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
REVENUES:
Revenues from rental properties............................ $53,916 $53,916
Other income............................................... 378 378
------- -------
Total revenues................................... 54,294 54,294
------- -------
EXPENSES:
Rental property expenses................................... 10,980 10,980
Environmental expenses..................................... 8,498 8,498
General and administrative expenses........................ 3,257 3,257
Depreciation and amortization.............................. 9,196 9,196
Interest expense........................................... 3,413 $(3,048)(A) 365
------- ------- -------
Total expenses................................... 35,344 (3,048) 32,296
------- ------- -------
Earnings before provision for income taxes................. 18,950 3,048 21,998
Provision for income taxes................................. 7,875 (7,875)(B) --
------- ------- -------
Net earnings............................................... 11,075 10,923 21,998
Preferred stock dividends.................................. 5,098 -- 5,098
------- ------- -------
Net earnings applicable to common stockholders............. $ 5,977 $10,923 $16,900
======= ======= =======
Net earnings per common share:
Basic.................................................... $ 0.47 $ 0.82
Diluted.................................................. $ 0.47 $ 0.82
Weighted average common shares outstanding:
Basic.................................................... 12,818 20,518
Diluted.................................................. 12,818 20,518
The accompanying notes are an integral part of this statement.
F-29
89
GETTY REALTY CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
1. BASIS OF PRESENTATION
The Pro Forma Statements of Operations reflect the historical results of
Getty for the three months ended March 31, 2001 and the eleven months ended
December 31, 2000, as set forth in the Company's Quarterly Report on Form 10-Q
for the three months ended March 31, 2001 and the Company's Transition Report on
Form 10-K for the transition period February 1, 2000 to December 31, 2000,
respectively. Such historical results of Getty are adjusted to give effect to
the offering as if it had occurred on February 1, 2000.
2. PRO FORMA ADJUSTMENTS
(A) Adjustment represents the elimination of interest expense relating to
the use of a portion of the proceeds of the offering to pay in full the
Company's outstanding credit lines and the amounts outstanding under the loan
agreement with The Chase Manhattan Bank.
(B) Adjustment to eliminate the provision for income taxes relating to the
Company's change in tax status from a C-Corp. to a REIT, which will be effective
January 1, 2001 but contingent on the completion of the offering. It is
anticipated that the Company will continue to qualify as a REIT and pay
dividends sufficient to minimize corporate taxes in any given year and that no
additional taxes will be due upon the reversal of previously deferred tax items.
Upon change in tax status to a REIT, the Company will also record a nonrecurring
tax benefit of approximately $41 million to eliminate its deferred income tax
liability. Such adjustment is not reflected in the accompanying Pro Forma
Consolidated Statements of Operations.
F-30
90
PROSPECTUS
[GETTY LOGO]
GETTY REALTY CORP.
$150,000,000
PREFERRED STOCK AND COMMON STOCK
----------------------
We may from time to time offer an aggregate public offering price of up
to $150,000,000 of shares of our preferred stock, par value $0.01 per share, or
our common stock, par value $0.01 per share, on terms to be determined at the
time of the offering.
Our preferred stock or common stock may be offered separately or
together, in separate classes or series, in amounts, at prices and on terms to
be set forth in a supplement to this prospectus.
The specific terms of the securities offered by this prospectus will be
set forth in each prospectus supplement and will include, where applicable:
- in the case of our preferred stock, the specific title and stated
value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price; and
- in the case of our common stock, any initial public offering price.
In addition, the specific terms may include limitations on direct or
beneficial ownership and restrictions on transfer of the securities offered by
this prospectus. These limitations are customary and appropriate to permit us to
elect and thereafter preserve our status as a real estate investment trust, or
REIT, for federal income tax purposes.
Each prospectus supplement will also contain information, where
applicable, about United States federal income tax considerations, and any
exchange listing of, the securities covered by the prospectus supplement.
The securities offered by this prospectus may be offered directly or to
or through underwriters or dealers. If any underwriters are involved in the sale
of any of the securities offered by this prospectus, their names, and any
applicable purchase price, fee, commission or discount arrangement between or
among them, will be set forth, or will be calculable from the information set
forth, in the applicable prospectus supplement. None of the securities offered
by this prospectus may be sold without delivery of the applicable prospectus
supplement describing the method and terms of the offering of those securities.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------------
The date of this prospectus is July 3, 2001.
91
THE COMPANY
We are one of the largest real estate companies in the United States
specializing in the ownership, leasing and management of gasoline
station/convenience store properties. As of May 31, 2001, we owned 749
properties and leased 342 additional properties in 13 states located principally
in the northeastern United States. Substantially all of our properties are
triple-net leased on a long-term basis to Getty Petroleum Marketing Inc., a
wholly owned subsidiary of OAO LUKoil, Russia's largest vertically integrated
oil company. Marketing is responsible for managing the actual operations
conducted at these properties.
Our predecessors trace back to 1955 with the ownership of one gasoline
service station in New York City. As our business grew, we combined real estate
ownership, leasing and management with actual service station operation. We
became a public company in 1971 under the name Power Test Corp. In 1985, we
acquired from Texaco the petroleum marketing assets of Getty Oil Company in the
northeastern United States, and assumed the Getty name. In addition, we acquired
the Getty(R) trademarks for use in real estate and petroleum marketing
operations in the United States. We became one of the largest independent
owner/operators of petroleum marketing assets in the country, serving retail and
wholesale customers through a distribution and marketing network of Getty and
other branded retail service stations.
In 1997, we reorganized our businesses and completed the spin-off of our
petroleum marketing business to our stockholders, who received a tax-free
dividend of one share of common stock of Getty Petroleum Marketing Inc. for each
share of our common stock. Following the reorganization and spin-off, Marketing
held the assets and liabilities of our petroleum marketing operations and a
portion of our home heating oil business. In 1998, we reorganized as a Maryland
corporation and acquired Power Test Investors Limited Partnership, thereby
acquiring fee title to 295 properties we had previously leased from the
Partnership and which the Partnership had acquired in 1985 from Texaco. In that
transaction, we issued to the former unitholders of the Partnership shares of
our series A participating convertible redeemable preferred stock, which trades
on the New York Stock Exchange under the symbol "GTY-PrA". We later sold the
remaining portion of our home heating oil business. As a result, we are now
exclusively engaged in the ownership, leasing and management of real estate
assets, principally used in the petroleum marketing industry.
In December 2000, Marketing was acquired by a U.S. subsidiary of OAO
LUKoil. Over the past five years, Marketing has distributed on average over one
billion gallons of petroleum products per year. Marketing purchases petroleum
products principally from refiners and distributes them via its network of 9
terminal facilities, 36 throughput and exchange locations and approximately
1,300 retail outlets. Marketing leases approximately 1,000 retail outlets and 9
terminal facilities from us. Marketing reported annual sales and operating
revenue of $832 million, $661 million and $891 million for its fiscal years
ended January 31, 2000, 1999 and 1998, respectively. Based on Marketing's
publicly available audited financial information, we believe that Marketing
generated average annual EBITDAR (earnings before interest, taxes, depreciation,
amortization and rent expense) of approximately $77 million during this
three-year period, and its ratio of EBITDAR to the sum of its rent and interest
expense averaged 1.32x.
In connection with Lukoil's acquisition of Marketing, we renegotiated our
long-term master lease and other arrangements with Marketing. The master lease
has an initial term expiring in 2015, and generally provides Marketing with
renewal options extending to 2048 that may be exercised only on an "all or
nothing" basis. We expect to receive approximately $57.5 million in lease rental
from Marketing in 2001, and the master lease provides for annual 2% increases.
The master lease is a "triple-net" lease, under which Marketing is responsible
for the cost of all taxes, maintenance, repair, insurance and other operating
expenses. Certain financial obligations of Marketing under the master lease for
at least the first three years of the lease are guaranteed by Lukoil (subject to
governmental approvals) and an Austrian subsidiary of Lukoil.
We own the Getty(R) trademarks for use in real estate and petroleum
marketing operations in the United States, which we have licensed to Marketing
on an exclusive basis in its current northeastern U.S.
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marketing territory. We have also licensed the trademarks to Marketing on a
non-exclusive basis outside that territory, subject to a gallonage based
royalty.
We are self-administered and self-managed through our management, which has
owned, leased and managed gasoline stations and convenience store properties for
more than 45 years. Our executive officers are engaged in the day-to-day
management of our real estate exclusively. We administer nearly all management
functions for our properties, including leasing, legal, data processing, finance
and accounting. We intend to invest in real estate and real estate related
investments when such opportunities arise consistent with our current investment
portfolio.
As previously reported in our filings under the Securities Exchange Act of
1934, our board of directors continues to evaluate the merits of electing to be
taxed as a REIT. If we were to elect REIT status, we would be required to make a
special distribution in an amount at least equal to our accumulated "earnings
and profits" (as defined in the Internal Revenue Code) from the years during
which we have operated as a taxable corporation, which was approximately $55
million as of December 31, 2000. This distribution would be made to our common
and series A preferred stockholders, and may include additional amounts
representing our "earnings and profits" since January 1, 2001. If we determine
to elect REIT status, we expect to fund any "earnings and profits" distribution
with a portion of the net proceeds from a sale of securities offered by this
prospectus and an applicable prospectus supplement. Payment of the distribution
would be conditioned on the closing of such offering. If we declare an "earnings
and profits" distribution, purchasers of securities issued under this prospectus
would not receive any portion of the distribution.
Our executive offices are located at 125 Jericho Turnpike, Suite 103,
Jericho, New York 11753, and our telephone number is 516-338-2600.
USE OF PROCEEDS
Unless otherwise described in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of the securities offered by this
prospectus to repay outstanding indebtedness, to acquire additional petroleum
marketing properties and related facilities as suitable opportunities arise and
for general corporate purposes. If we determine to elect REIT status, we intend
to use a portion of the net proceeds from a sale of securities offered by this
prospectus and an applicable prospectus supplement to make an "earnings and
profits" distribution to our stockholders as more fully described above.
Purchasers of securities issued under this prospectus would not participate in
any "earnings and profits" distribution.
DESCRIPTION OF COMMON STOCK
We have the authority to issue 50,000,000 shares of common stock, par value
$0.01 per share. At April 19, 2001, we had outstanding 12,548,287 shares of
common stock. Our common stock is traded on the New York Stock Exchange under
the symbol "GTY". The registrar and transfer agent for our common stock is
Registrar and Transfer Company.
The following description of our common stock sets forth certain general
terms and provisions of the common stock to which any prospectus supplement may
relate, including a prospectus supplement providing that common stock will be
issuable upon conversion of our preferred stock. The statements below describing
the common stock are in all respects subject to and qualified in their entirety
by reference to the applicable provisions of our charter and bylaws.
Holders of our common stock will be entitled to receive dividends when, as
and if declared, out of assets legally available therefor. Payment and
declaration of dividends on the common stock and purchases of shares thereof by
us will be subject to certain restrictions if we fail to pay dividends on our
preferred stock. Upon our liquidation, dissolution or winding up, holders of
common stock will be entitled to share equally and ratably in any assets
available for distribution to them, after payment or provision for payment of
our debts and other liabilities and the preferential amounts owing with respect
to any of our outstanding
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preferred stock. The common stock will possess ordinary voting rights for the
election of directors and in respect of other corporate matters, with each share
entitling the holder thereof to one vote. Holders of common stock will not have
cumulative voting rights in the election of directors, which means that holders
of more than 50% of all of the shares of our common stock voting for the
election of directors will be able to elect all of the directors if they choose
to do so and, accordingly, the holders of the remaining shares will be unable to
elect any directors. Holders of shares of common stock will not have preemptive
rights, which means they have no right to acquire any additional shares of
common stock that may be issued by us at a subsequent date. The common stock
will, when issued, be fully paid and nonassessable and will not be subject to
preemptive or similar rights.
Under Maryland law and our charter, a distribution (whether by dividend,
redemption or other acquisition of shares) to holders of shares of our common
stock may be made only if, after giving effect to the distribution, our total
assets are greater than our total liabilities plus the amount necessary to
satisfy the preferential rights upon dissolution of stockholders whose
preferential rights on dissolution are superior to the holders of common stock.
We have complied with this requirement in all of our prior distributions to
holders of common stock.
DESCRIPTION OF PREFERRED STOCK
We are authorized to issue 20,000,000 shares of preferred stock, par value
$0.01, of which 3,000,000 shares are designated as series A participating
convertible redeemable preferred stock. At April 19, 2001, we had outstanding
2,865,768 shares of series A preferred stock.
Under our charter, our board of directors may from time to time establish
and issue one or more classes or series of preferred stock and fix the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications and terms
and conditions of redemption (including sinking fund provisions).
The following description of our preferred stock sets forth certain general
terms and provisions of our preferred stock to which any prospectus supplement
may relate. The statements below describing the preferred stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of our charter (including the applicable articles
supplementary) and bylaws.
GENERAL
Subject to limitations prescribed by Maryland law and our charter, our
board of directors is authorized to fix the number of shares constituting each
class or series of preferred stock and the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption. The
preferred stock will, when issued, be fully paid and nonassessable and will not
have, or be subject to, any preemptive or similar rights.
You should refer to the prospectus supplement relating to the class or
series of preferred stock offered thereby for specific terms, including:
(1) The class or series, title and stated value of that preferred stock;
(2) The number of shares of that preferred stock offered, the liquidation
preference per share and the offering price of that preferred stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to that preferred stock;
(4) Whether dividends on that preferred stock shall be cumulative or not
and, if cumulative, the date from which dividends on that preferred
stock shall accumulate;
(5) The procedures for any auction and remarketing, if any, for that
preferred stock;
(6) Provisions for a sinking fund, if any, for that preferred stock;
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(7) Provisions for redemption, if applicable, of that preferred stock;
(8) Any listing of that preferred stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which that preferred
stock will be convertible into our common stock, including the
conversion price (or manner of calculation thereof);
(10) A discussion of certain federal income tax considerations applicable
to that preferred stock;
(11) Any limitations on actual, beneficial or constructive ownership and
restrictions on transfer of that preferred stock and, if convertible,
the related common stock, in each case as may be appropriate to
preserve our status as a REIT; and
(12) Any other material terms, preferences, rights, limitations or
restrictions of that preferred stock.
RANK
Unless otherwise specified in the applicable prospectus supplement, the
preferred stock will, with respect to rights to the payment of dividends and
distribution of our assets and rights upon our liquidation, dissolution or
winding up, rank:
(1) senior to all classes or series of our common stock and to all of our
equity securities the terms of which provide that those equity
securities are subordinated to the preferred stock;
(2) on a parity with all of our equity securities other than those
referred to in clauses (1) and (3); and
(3) junior to all of our equity securities which the terms of that
preferred stock provide will rank senior to it.
DIVIDENDS
Holders of shares of our preferred stock of each class or series shall be
entitled to receive, when, as and if declared, out of our assets legally
available for payment, cash dividends at rates and on dates as will be set forth
in the applicable prospectus supplement. Each dividend shall be payable to
holders of record as they appear on our stock transfer books on the record dates
as shall be fixed by our board of directors.
Dividends on any class or series of our preferred stock may be cumulative
or non-cumulative, as provided in the applicable prospectus supplement.
Dividends, if cumulative, will accumulate from and after the date set forth in
the applicable prospectus supplement. If our board of directors fails to
authorize a dividend payable on a dividend payment date on any class or series
of our preferred stock for which dividends are noncumulative, then the holders
of that class or series of our preferred stock will have no right to receive a
dividend in respect of the dividend period ending on that dividend payment date,
and we will have no obligation to pay the dividend accrued for that period,
whether or not dividends on that class or series are declared payable on any
future dividend payment date.
If any shares of our preferred stock of any class or series are
outstanding, no full dividends shall be authorized or paid or set apart for
payment on our preferred stock of any other class or series ranking, as to
dividends, on a parity with or junior to the preferred stock of that class or
series for any period unless:
(1) if that class or series of preferred stock has a cumulative
dividend, full cumulative dividends have been or contemporaneously
are authorized and paid or authorized and a sum sufficient for the
payment thereof set part for that payment on the preferred stock
of that class or series for all past dividend periods and the then
current dividend period, or
(2) if that class or series of preferred stock does not have a
cumulative dividend, full dividends for the then current dividend
period have been or contemporaneously are authorized and paid or
authorized and a sum sufficient for the payment thereof set apart
for that payment on the preferred stock of that class or series.
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When dividends are not paid in full (or a sum sufficient for their full
payment is not so set apart) upon the shares of preferred stock of any class or
series and the shares of any other class or series of preferred stock ranking on
a parity as to dividends with the preferred stock of that class or series, all
dividends declared upon shares of preferred stock of that class or series and
any other class or series of preferred stock ranking on a parity as to dividends
with that preferred stock shall be authorized pro rata so that the amount of
dividends authorized per share on the preferred stock of that class or series
and that other class or series of preferred stock shall in all cases bear to
each other the same ratio that accrued and unpaid dividends per share on the
shares of preferred stock of that class or series (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if that
preferred stock does not have a cumulative dividend) and that other class or
series of preferred stock bear to each other. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments on preferred stock of that series that may be in arrears.
Except as provided in the immediately preceding paragraph, unless: (1) if
that class or series of preferred stock has a cumulative dividend, full
cumulative dividends on the preferred stock of that class or series have been or
contemporaneously are authorized and paid or authorized and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and the
then current dividend period; and (2) if that class or series of preferred stock
does not have a cumulative dividend, full dividends on the preferred stock of
that class or series have been or contemporaneously are authorized and paid or
authorized and a sum sufficient for the payment thereof set aside for payment
for the then current dividend period, then no dividends (other than in our
common stock or other stock ranking junior to the preferred stock of that class
or series as to dividends and upon our liquidation, dissolution or winding up)
shall be authorized or paid or set aside for payment or other distribution shall
be authorized or made upon our common stock or any of our other stock ranking
junior to or on a parity with the preferred stock of that class or series as to
dividends or upon liquidation, nor shall any common stock or any of our other
stock ranking junior to or on a parity with the preferred stock of such class or
series as to dividends or upon our liquidation, dissolution or winding up be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund for the redemption of any shares
of that stock) by us (except by conversion into or exchange for other of our
stock ranking junior to the preferred stock of that class or series as to
dividends and upon our liquidation, dissolution or winding up).
Any dividend payment made on shares of a class or series of preferred stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of that class or series which remains payable.
REDEMPTION
If the applicable prospectus supplement so states, the shares of preferred
stock will be subject to mandatory redemption or redemption at our option, in
whole or in part, in each case on the terms, at the times and at the redemption
prices set forth in that prospectus supplement.
The prospectus supplement relating to a class or series of preferred stock
that is subject to mandatory redemption will specify the number of shares of
that preferred stock that shall be redeemed by us in each year commencing after
a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if that preferred stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable prospectus supplement. If the
redemption price for preferred stock of any series is payable only from the net
proceeds of the issuance of our stock, the terms of that preferred stock may
provide that, if no such stock shall have been issued or to the extent the net
proceeds from any issuance are insufficient to pay in full the aggregate
redemption price then due, that preferred stock shall
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automatically and mandatorily be converted into shares of our applicable stock
pursuant to conversion provisions specified in the applicable prospectus
supplement. Notwithstanding the foregoing, unless:
(1) that class or series of preferred stock has a cumulative dividend, full
cumulative dividends on all outstanding shares of any class or series
of preferred stock shall have been or contemporaneously are authorized
and paid or authorized and a sum sufficient for the payment thereof set
apart for payment for all past dividend periods and the then current
dividend period; or
(2) that class or series of preferred stock does not have a cumulative
dividend, full dividends on the outstanding preferred stock of any
class or series have been or contemporaneously are authorized and paid
or authorized and a sum sufficient for the payment thereof set apart
for payment for the then current dividend period; then
(x) no shares of any class or series of preferred stock shall be redeemed unless
all outstanding shares of preferred stock of that class or series are
simultaneously redeemed; provided, however, that the foregoing shall not prevent
the purchase or acquisition of shares of preferred stock of that class or series
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding shares of preferred stock of that class or series; and (y) we
shall not purchase or otherwise acquire directly or indirectly any shares of
preferred stock of that class or series (except by conversion into or exchange
for our stock ranking junior to the preferred stock of that class or series as
to dividends and upon our liquidation, dissolution or winding up).
If fewer than all of the outstanding shares of preferred stock of any class
or series are to be redeemed, the number of shares to be redeemed will be
determined by us and those shares may be redeemed pro rata from the holders of
record of those shares in proportion to the number of those shares held by those
holders (with adjustments to avoid redemption of fractional shares) or any other
equitable method determined by us that will not violate any applicable stock
ownership restrictions.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of a share of preferred
stock of any class or series to be redeemed at the address shown on our stock
transfer books. Each notice shall state:
(1) the redemption date;
(2) the number of shares and class or series of the preferred stock to be
redeemed;
(3) the redemption price;
(4) the place or places where certificates for that preferred stock are to
be surrendered for payment of the redemption price;
(5) that dividends on the shares to be redeemed will cease to accrue on
that redemption date; and
(6) the date upon which the holder's conversion rights, if any, as to those
shares shall terminate.
If fewer than all the shares of preferred stock of any class or series are
to be redeemed, the notice mailed to each holder thereof shall also specify the
number of shares of preferred stock to be redeemed from each holder. If notice
of redemption of any shares of preferred stock has been given and if the funds
necessary for that redemption have been set apart by us in trust for the benefit
of the holders of any shares of preferred stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on those
shares of preferred stock, those shares of preferred stock shall no longer be
deemed outstanding and all rights of the holders of those shares will terminate,
except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon our voluntary or involuntary liquidation, dissolution or winding up,
then, before any distribution or payment shall be made to the holders of any
common stock or any other class or series of our stock ranking junior to that
class or series of preferred stock in the distribution of assets upon our
liquidation,
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dissolution or winding up, the holders of each class or series of preferred
stock shall be entitled to receive out of our assets legally available for
distribution to stockholders liquidating distributions in the amount of the
liquidation preference per share (set forth in the applicable prospectus
supplement), plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if that class or series of preferred stock does not have
a cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of that class or series of
preferred stock will have no right or claim to any of our remaining assets. If,
upon our voluntary or involuntary liquidation, dissolution or winding up, our
legally available assets are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of that class or series of preferred
stock and the corresponding amounts payable on all shares of other classes or
series of our stock ranking on a parity with that class or series of preferred
stock in the distribution of assets upon our liquidation, dissolution or winding
up, then the holders of that class or series of preferred stock and all other
classes or series of stock shall share ratably in that distribution of assets in
proportion to the full liquidating distributions to which they would otherwise
be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
shares of that class or series of preferred stock, our remaining assets shall be
distributed among the holders of any other classes or series of stock ranking
junior to that class or series of preferred stock upon our liquidation,
dissolution or winding up, according to their respective rights and preferences
and in each case according to their respective number of shares. For those
purposes, neither our consolidation or merger with or into any other corporation
nor the sale, lease, transfer or conveyance of all or substantially all of our
property or business shall be deemed to constitute our liquidation, dissolution
or winding up.
VOTING RIGHTS
Except as set forth below or as otherwise from time to time required by law
or as indicated in the applicable prospectus supplement, holders of preferred
stock will be entitled to vote together as a single class with the holders of
our common stock on an as-converted basis for each share held of record. Holders
of series A preferred stock have the voting rights as are set forth in our
charter.
Unless provided otherwise for any class or series of preferred stock,
whenever dividends on any shares of that class or series of preferred stock
shall be in arrears for six or more quarterly periods, regardless of whether
those quarterly periods are consecutive, the holders of those shares of that
class or series of preferred stock (voting separately as a class with all other
classes or series of preferred stock upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of two
additional directors to our board of directors (and our entire board of
directors will be increased by two directors) at a special meeting called by one
of our officers at the request of a holder of that class or series of preferred
stock or, if that special meeting is not called by that officer within 30 days,
at a special meeting called by a holder of that class or series of preferred
stock designated by the holders of record of at least 10% of the shares of any
of those classes or series of preferred stock (unless that request is received
less than 90 days before the date fixed for the next annual or special meeting
of the stockholders), or at the next annual meeting of stockholders, and at each
subsequent annual meeting until:
(1) if that class or series of preferred stock has a cumulative dividend,
then all dividends accumulated on those shares of preferred stock for
the past dividend periods and the then current dividend period shall
have been fully paid or declared and a sum sufficient for the payment
thereof set apart for payment, or
(2) if that class or series of preferred stock does not have a cumulative
dividend, then all dividends for the then current dividend period shall
have been fully paid or declared and a sum sufficient for the payment
thereof set apart for payment.
Unless provided otherwise for any series of preferred stock, so long as any
shares of preferred stock remain outstanding, we shall not, without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of each class or series of preferred stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (that class or series
voting separately as a class),
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(1) authorize or create, or increase the authorized or issued amount of,
any class or series of stock ranking senior to that class or series of
preferred stock with respect to payment of dividends or the
distribution of assets upon our liquidation, dissolution or winding up
or reclassify any of our authorized stock into those shares, or create,
authorize or issue any obligation or security convertible into or
evidencing the right to purchase those shares; or
(2) amend, alter or repeal the provisions of our charter in respect of that
class or series of preferred stock, whether by merger, consolidation or
otherwise, so as to materially and adversely affect any right,
preference, privilege or voting power of that class or series of
preferred stock or the holders thereof; provided, however, that any
increase in the amount of the authorized preferred stock or the
creation or issuance of any other class or series of preferred stock,
or any increase in the amount of authorized shares of that class or
series, in each case ranking on a parity with or junior to the
preferred stock of that class or series with respect to payment of
dividends and the distribution of assets upon liquidation, dissolution
or winding up, shall not be deemed to materially and adversely affect
those rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which that vote would otherwise be required shall
be effected, all outstanding shares of that class or series of preferred stock
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been irrevocably deposited in trust to effect that
redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any class or series
of preferred stock are convertible into common stock will be set forth in the
applicable prospectus supplement relating thereto. Such terms will include the
number of shares of common stock into which the preferred stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at our option or at the option of
the holders of that class or series of preferred stock, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of that class or series of preferred stock.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Our ratios of earnings to combined fixed charges and preferred stock
dividends for the three months ended March 31, 2001, for the eleven months ended
December 31, 2000 and for the years ended January 31, 2000, 1999 and 1998 was
2.3x, 1.6x, 2.1x, 1.3x and 2.5x, respectively. For the year ended January 31,
1997, which predates the spinoff of our petroleum marketing business, earnings
were inadequate to cover fixed charges by approximately $14.4 million.
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges to earnings from continuing operations before income taxes.
Fixed charges consist of interest costs, whether expensed or capitalized, the
interest component of rental expense, and amortization of issue costs, whether
expensed or capitalized.
PLAN OF DISTRIBUTION
We may sell the securities offered by this prospectus to one or more
underwriters for public offering and sale by them or we may sell the securities
offered by this prospectus to investors directly. Any underwriter involved in
the offer and sale of the securities offered by this prospectus will be named in
the applicable prospectus supplement.
Underwriters may offer and sell the securities offered by this prospectus
at a fixed price or prices, which may be changed, at prices related to the
prevailing market prices at the time of sale or at negotiated prices. We also
may, from time to time, authorize underwriters acting as our agents to offer and
sell the
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securities offered by this prospectus upon the terms and conditions as are set
forth in the applicable prospectus supplement. In connection with the sale of
securities offered by this prospectus, underwriters may be deemed to have
received compensation from us in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of securities
offered by this prospectus for whom they may act as agent. Underwriters may sell
the securities offered by this prospectus to or through dealers, and those
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by us to underwriters in connection with
the offering of the securities offered by this prospectus, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable prospectus supplement. Underwriters and
dealers participating in the distribution of the securities offered by this
prospectus may be deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of the securities
offered by this prospectus may be deemed to be underwriting discounts and
commissions, under the Securities Act. Underwriters and dealers may be entitled,
under agreements entered into with us, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with, and perform services for us and our subsidiaries in
the ordinary course of business.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be passed
upon for us by Latham & Watkins, Chicago, Illinois and Ballard Spahr Andrews &
Ingersoll, LLP, Baltimore, Maryland. Latham & Watkins and any counsel for any
underwriters or dealers will rely on Ballard Spahr Andrews & Ingersoll, LLP,
Baltimore, Maryland, as to certain matters of Maryland law. Certain members of
Latham & Watkins and their families own beneficial interests in less than 1% of
our common stock. Philip E. Coviello, one of our directors, is a partner of
Latham & Watkins.
EXPERTS
The financial statements incorporated in this prospectus by reference to
the Transition Report on Form 10-K for the transition period February 1, 2000 to
December 31, 2000, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE CAN YOU FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or the SEC. Our SEC
filings are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file with the SEC
at the SEC's public reference facility at:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
You may also obtain copies of the documents at prescribed rates by writing
to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Please call 1-800-SEC-0330 for further information on
the operations at the public reference facilities. Our SEC filings are also
available at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
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This prospectus constitutes part of a registration statement on Form S-3
filed by us under the Securities Act. As allowed by SEC rules, this prospectus
does not contain all the information you can find in the registration statement
or the exhibits to the registration statement.
Statements contained in this prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of that contract or other document filed as an exhibit to
the registration statement, each such statement being qualified in all respects
by that reference and the exhibits and schedules thereto. For further
information about us and the securities offered by this prospectus, you should
refer to the registration statement and such exhibits and schedules which may be
obtained from the SEC at its principal office in Washington, D.C. upon payment
of the fees prescribed by the SEC.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The documents listed below have been filed by us under the Securities
Exchange Act of 1934, as amended, with the SEC and are incorporated by reference
in this prospectus:
- Transition Report on Form 10-K for the transition period February 1, 2000
to December 31, 2000;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2001; and
- Definitive proxy statement filed on April 27, 2001.
We are also incorporating by reference into this prospectus all documents
that we have filed or will file with the SEC as prescribed by Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act since the date of this
prospectus and prior to the termination of the sale of the securities offered by
this prospectus.
This means that important information about us appears or will appear in
these documents and will be regarded as appearing in this prospectus. To the
extent that information appearing in a document filed later is inconsistent with
prior information, the later statement will control and the prior information,
except as modified or superseded, will no longer be a part of this prospectus.
Copies of all documents which are incorporated by reference in this
prospectus and the applicable prospectus supplement (not including the exhibits
to such information, unless such exhibits are specifically incorporated by
reference) will be provided without charge to each person, including any
beneficial owner of the securities offered by this prospectus, to whom this
prospectus or the applicable prospectus supplement is delivered, upon written or
oral request. Requests should be directed to our secretary, 125 Jericho
Turnpike, Suite 103, Jericho, New York 11753, 516-338-2600.
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7,700,000 SHARES
[GETTY REALTY CORP. LOGO]
GETTY REALTY CORP.
COMMON STOCK
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
LEGG MASON WOOD WALKER
INCORPORATED
JULY 26, 2001
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