-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G6hqtSmP6BHAcWI6B8oDEMvGyi0lsneWkHzt6UJrqEffp1yH2zJ2bYXMfnG+6HLa k/zGDBuskqXELjPG/+fesQ== 0000950137-06-002990.txt : 20060314 0000950137-06-002990.hdr.sgml : 20060314 20060314153715 ACCESSION NUMBER: 0000950137-06-002990 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060314 DATE AS OF CHANGE: 20060314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GETTY REALTY CORP /MD/ CENTRAL INDEX KEY: 0001052752 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 113412575 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13777 FILM NUMBER: 06684986 BUSINESS ADDRESS: STREET 1: 125 JERICHO TURNPIKE CITY: JERICHO STATE: NY ZIP: 11753 BUSINESS PHONE: 5163382600 MAIL ADDRESS: STREET 1: 125 JERICHO TURNPIKE CITY: JERICHO STATE: NY ZIP: 11753 10-K 1 c02135e10vk.txt ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 001-13777 GETTY REALTY CORP. ------------------ (Exact name of registrant as specified in its charter) Maryland 11-3412575 - -------- ---------- (State or other jurisdiction of incorporation or organization) (I.R.S. employer identification no.) 125 Jericho Turnpike, Suite 103, Jericho, New York 11753 - -------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (516) 478-5400 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ------------------ ----------------------------------------- Common Stock, $0.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The aggregate market value of common stock held by non-affiliates (17,558,887 shares of common stock) of the Company was $486,381,170 as of June 30, 2005. The registrant had outstanding 24,717,114 shares of common stock as of March 1, 2006. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF FORM 10-K - ----------------------------------------------------------------------- ---------------------------- Annual Report to Shareholders for the year ended December 31, 2005 (the I and II "Annual Report") Definitive Proxy Statement for the 2006 Annual Meeting of Stockholders III (the "Proxy Statement") which will be filed by the registrant on or prior to 120 days following the end of the registrant's year ended December 31, 2005 pursuant to Regulation 14A.
PART I Item 1. Business Recent Developments On February 28, 2006, we completed the acquisition of eighteen retail motor fuel and convenience store properties located in Western New York for approximately $13.5 million. Simultaneous with the closing on the acquisition, we entered into a triple-net lease with a single tenant for all of the properties. The lease provides for annual rentals at a competitive rate and provides for escalations thereafter. The lease has an initial term of fifteen years and provides the tenant options for three renewal terms of five years each. The lease also provides that the tenant is responsible for all existing and future environmental conditions at the properties. Overview Getty Realty Corp., a Maryland corporation, is the largest publicly-traded real estate investment trust ("REIT") in the United States specializing in the ownership and leasing of retail motor fuel and convenience store properties and petroleum distribution terminals. As of December 31, 2005, we owned eight hundred fourteen properties and leased two hundred forty-one additional properties in thirteen states located principally in the Northeast United States. Nearly all of our properties are leased or sublet to distributors and retailers engaged in the sale of gasoline and other motor fuel products, convenience store products and automotive repair services who are responsible for the payment of taxes, maintenance, repair, insurance and other operating expenses and for managing the actual operations conducted at these properties. As of December 31, 2005, we leased approximately 89% of our owned and leased properties on a long-term basis to Getty Petroleum Marketing Inc. ("Marketing"). Marketing is wholly owned by a subsidiary of OAO LUKoil ("Lukoil"), one of Russia's largest integrated oil companies. Marketing operates the petroleum distribution terminals but typically does not itself directly operate the retail motor fuel and convenience store properties it leases from us. Rather, Marketing subleases nearly all of our retail properties to distributors and retailers who are responsible for the actual operations at the locations. We are self-administered and self-managed by our experienced management team, which has over ninety years of combined experience in owning, leasing and managing retail motor fuel and convenience store properties. Our executive officers are engaged exclusively in the day-to-day business of the Company. We administer nearly all management functions for our properties, including leasing, legal, data processing, finance and accounting. We have invested, and will continue to invest, in real estate and real estate related investments, such as mortgage loans, when such opportunities arise. The History of Our Company Our founders started the business in 1955 with the ownership of one gasoline service station in New York City and combined real estate ownership, leasing and management with actual service station operation and petroleum distribution. We held our initial public offering in 1971 under the name Power Test Corp. In 1985, we acquired from Texaco the petroleum distribution and marketing assets of Getty Oil Company in the Northeast United States along with the Getty(R) name and trademark for use in connection with our 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 motor fuel and convenience store properties and petroleum distribution terminals. Marketing was formed to facilitate the spin-off of our petroleum marketing business to our shareholders, which was completed in 1997. At that time, our shareholders received a tax-free dividend of one share of common stock of Marketing for each share of our common stock. Following the spin-off, Marketing held the assets and liabilities of our petroleum marketing operations and a portion of our home heating oil business, and we continued operating primarily as a real estate company specializing in the ownership and leasing of retail motor fuel and convenience store properties and petroleum distribution terminals. In 1998, we acquired Power Test Investors Limited - 1 - Partnership (the "Partnership"), thereby acquiring fee title to two hundred ninety-five properties we had previously leased from the Partnership and which the Partnership had acquired in 1985 from Texaco. 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 in the petroleum marketing industry. In December 2000, Marketing was acquired by a U.S. subsidiary of Lukoil. In connection with Lukoil's acquisition of Marketing, we renegotiated our long-term master lease ("Master Lease") with Marketing. As of December 31, 2005, Marketing leased from us, under the Master Lease and a coterminous supplemental lease for one property (collectively the "Marketing Leases"), nine hundred twenty-eight retail motor fuel and convenience store properties and ten petroleum distribution terminals. The Marketing Leases have an initial term expiring in December 2015, and generally provide Marketing with three renewal options of ten years each and a final renewal option of three years and ten months extending to 2049. Each of the renewal options may be exercised only on an "all or nothing" basis. We expect to receive $60.3 million in lease rental payments from Marketing in 2006, with annual 2% rental increases in subsequent years. The Marketing Leases are "triple-net" leases, pursuant to which Marketing is responsible for the payment of taxes, maintenance, repair, insurance and other operating expenses. We have licensed the Getty(R) trademarks to Marketing on an exclusive basis in its Northeast U.S. marketing territory as of December 2000. We have also licensed the trademarks to Marketing on a non-exclusive basis outside that territory, subject to a gallonage-based royalty, although to date, Marketing has not used the trademark outside that territory. We elected to be taxed as a REIT beginning January 1, 2001. 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 shareholders annually a substantial portion of its otherwise taxable income. As a REIT, we are required to distribute at least ninety percent of our taxable income to our shareholders each year and would be subject to corporate level federal income taxes on any taxable income that is not distributed. Real Estate Business The operators of our properties are primarily distributors and retailers engaged in the sale of gasoline and other motor fuel products, convenience store 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 store products, has helped provide one-stop shopping for consumers and we believe represents a driving force behind the industry's growth in recent years. Revenues from rental properties for the year ended December 31, 2005 were $71.4 million which is comprised of $67.2 million of lease payments received and $4.2 million of deferred rental income recognized due to the straight-line method of accounting for the leases with Marketing and certain of our other tenants. We received lease payments from Marketing aggregating approximately $59.6 million (or 89%) of the $67.2 million lease payments received. We are materially dependent upon the ability of Marketing to meet its monetary obligations under the Marketing Leases. Marketing's financial results depend largely on retail petroleum marketing margins and rental income from subtenants who operate our properties. The petroleum marketing industry has been and continues to be volatile and highly competitive. Marketing has made all required monthly rental payments under the Marketing Leases when due. You can find more information about our revenues, profits and assets by referring to the financial statements and supplemental financial information in our Annual Report to Shareholders. As of December 31, 2005, we owned fee title to eight hundred seven retail motor fuel and convenience store properties and seven petroleum distribution terminals. We also leased two hundred thirty-eight retail motor fuel and convenience store properties and three petroleum distribution terminals. Our typical property used as a retail motor fuel and convenience store is located on between one-half and three quarters of an acre of land in a metropolitan area in the Northeast United States. Approximately two-thirds of our retail motor fuel properties have repair bays - 2 - (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 name of Leemilt's Petroleum, Inc., Getty CT Leasing, Inc., Getty NY Leasing, Inc., Getty VA Leasing, Inc., Getty Properties Corp. or Power Test Realty Company Limited Partnership, each of which is our wholly owned subsidiary. Leemilt's Petroleum Inc. and Getty Properties Corp. are the lessees of substantially all of the properties we lease from third parties. In addition, we lease four thousand one hundred square feet of office space at 125 Jericho Turnpike, Jericho, New York, which is used for our corporate headquarters. We believe our network of retail motor fuel and convenience store properties and terminal properties across the Northeast United States is unique and that comparable networks of 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, we believe that 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. However, the real estate industry is highly competitive, and we compete for tenants with a large number of property owners. Our principal means of competition are rents charged in relation to the income producing potential of the location. In addition, we expect other major real estate investors with significant capital will compete with us for attractive acquisition 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. As part of our overall growth strategy we regularly review opportunities to acquire additional properties and we expect to continue to pursue acquisitions that we believe will benefit our financial performance. To the extent that our current sources of liquidity are not sufficient to fund such acquisitions we will require other sources of capital, which may or may not be available on favorable terms or at all. Trademarks We own the right to use the Getty(R) name and trademark in connection with our real estate and petroleum marketing operations in the United States, and have licensed the Getty(R) trademarks to Marketing on an exclusive basis in its Northeast U.S. marketing territory as of December 2000. We have also licensed the trademarks to Marketing on a non-exclusive basis outside that territory, subject to a gallonage-based royalty, although to date, Marketing has not used the trademark outside that territory. The trademark licenses with Marketing are coterminous with the Marketing Leases. Regulation We are subject to numerous existing federal, state and local laws and regulations including matters related to the protection of the environment such as the remediation of known contamination and the retirement and decommissioning or removal of long-lived assets including buildings containing hazardous materials, USTs and other equipment. The costs related to compliance with those laws and regulations have not had, and are not expected to have, a material adverse effect on our long-term financial position, although these costs may have a significant impact on our results of operations or liquidity for any single fiscal year or interim period. Petroleum properties are governed by numerous federal, state and local environmental laws and regulations. These laws have included (i) requirements to report to governmental authorities discharges of petroleum products into the environment and, under certain circumstances, to remediate the soil and/or groundwater contamination pursuant to governmental order and directive, (ii) requirements to remove and replace underground storage tanks that have exceeded governmental-mandated age limitations and (iii) the requirement to provide a certificate of financial responsibility with respect to claims relating to underground storage tank failures. Environmental expenses are principally attributable to remediation costs which include installing, operating, maintaining and decommissioning remediation systems, monitoring contamination, and governmental agency reporting incurred in connection with contaminated properties. In accordance with leases with certain tenants, we agreed to bring the leased properties with known environmental contamination to within applicable standards and to regulatory or contractual closure ("Closure") in an efficient and economical manner. Generally, upon achieving - 3 - Closure at an individual property, our environmental liability under the lease for that property will be satisfied and future remediation obligations will be the responsibility of our tenant. We have agreed to pay all costs relating to, and to indemnify Marketing for, certain environmental liabilities and obligations that are scheduled in the Master Lease. We will continue to seek reimbursement from state UST remediation funds related to these environmental expenditures where available. As of December 31, 2005, we have regulatory approval for remediation action plans in place for three hundred two (95%) of the three hundred eighteen properties for which we retain remediation responsibility and have not received a no further action letter and the remaining sixteen properties (5%) were in the assessment phase. For additional information please refer to "Liquidity and Capital Resources", "Environmental Matters" and "Contractual Obligations" in "Management's Discussion and Analysis of Financial Condition and Results of Operations." We believe that we are in substantial compliance with federal, state and local provisions enacted or adopted pertaining to environmental matters. Although we are unable to predict what legislation or regulations may be adopted in the future with respect to environmental protection and waste disposal, existing legislation and regulations have had no material adverse effect on our competitive position. See "Item 3. Legal Proceedings." Personnel As of December 31, 2005, we had sixteen employees. Access to our filings with the Securities and Exchange Commission and Corporate Governance Documents Our website address is www.gettyrealty.com. Our address, phone number and a list of our officers is available on our website. Our website contains a hyperlink to the SEC's EDGAR database at www.sec.gov where you can access, free-of-charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after such reports are filed. Our website also contains our business conduct guidelines, corporate governance guidelines and the charters of the Compensation, Nominating/Corporate Governance and Audit Committees of our Board of Directors. We also will provide copies of these reports and corporate governance documents free-of-charge upon request, addressed to Getty Realty Corp., 125 Jericho Turnpike, Suite 103, Jericho, NY 11753, Attn: Investor Relations. Information available on or accessible through our website shall not be deemed to be a part of this Annual Report on Form 10-K. You may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Special Factors Regarding Forward-Looking Statements Certain statements in this Annual Report on Form 10-K may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. When we use the words "believes", "expects", "plans", "projects", "estimates" and similar expressions, we intend to identify forward-looking statements. Examples of forward-looking statements include statements regarding our expectations regarding future payments from Marketing, including $60.3 million in lease rental payments in 2006; the expected effect of regulations on our long-term performance; our expected ability to maintain compliance with applicable regulations; our ability to renew expired leases; the adequacy of our current and anticipated cash flows; our ability to maintain our REIT status; our belief that we do not have a material liability for offers and sales of our securities made pursuant to registration statements that did not contain the financial statements or summarized financial data of Marketing; our expectations regarding future acquisitions; the impact of the covenants included in the Credit Agreement on our current business practices; the probable outcome of litigation or regulatory actions; our expected recoveries from underground storage tank funds; our exposure to environmental remediation expenses; our estimates regarding remediation costs and accretion expense; our expectations as to the long-term effect of environmental liabilities on our financial condition; our exposure to interest rate fluctuations; our expectations regarding corporate level federal income taxes; the indemnification obligations of the Company and others; our intention to consummate future acquisitions; our assessment of the likelihood of future competition; the anticipated impact of changes in accounting for stock-based compensation; assumptions regarding the future applicability of accounting estimates, assumptions and policies; our intention to - 4 - pay future dividends; our belief that our corporate headquarters will be adequate for the immediate future; and our beliefs about the reasonableness of our accounting estimates, judgments and assumptions. These forward-looking statements are based on our current beliefs and assumptions and information currently available to us, and involve known and unknown risks (including the risks described below and other risks that we describe from time to time in our SEC filings), uncertainties and other factors which may cause our actual results, performance and achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. 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. Item 1A. Risk Factors We are subject to various risks, many of which are beyond our control, which could have a negative effect on the Company and its financial condition. As a result of these and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect our business, financial condition, operating results and stock price. An investment in our stock involves various risks, including those mentioned below and elsewhere this Annual Report on Form 10-K and those that are detailed from time to time in our other filings with the Securities and Exchange Commission. 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 many of which are beyond our control. In addition to general risks related to owning properties used in the petroleum marketing industry, our risks include, among others: - our liability as a lessee for long-term lease obligations regardless of our revenues, - deterioration in regional and local economic and real estate market conditions, - potential changes in supply of, or demand for rental properties similar to ours, - competition for tenants and changes in rental rates, - difficulty in reletting properties on favorable terms or at all, - impairments in our ability to collect rent payments when due, - increases in interest rates and adverse changes 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, - adverse changes in zoning laws and other regulations, and - acts of terrorism and war. Each of these factors could cause a material adverse effect on our financial condition and results of operations. In addition, real estate investments are relatively illiquid, which means that our ability to vary our portfolio of properties in response to changes in economic and other conditions may be limited. Our revenues are primarily dependent on the performance of Getty Petroleum Marketing Inc., our primary tenant. Although we periodically receive and review financial statements and other financial information from Marketing, some of the information is not publicly available. We may not have sufficient information to identify a deterioration of the financial performance or condition of Marketing, or have sufficient time to advise our shareholders of such deterioration prior to any default by Marketing on its monetary obligations to us that may result from such deterioration. If Marketing does not fulfill its monetary obligations to us, our financial condition and results of operations will be materially adversely affected. Substantially all of our revenues (89% for the year ended December 31, 2005) are derived from the Marketing Leases. Accordingly, our revenues are dependent to a large degree on the economic performance of Marketing and of the petroleum marketing industry and any factor that adversely affects Marketing or our other lessees may have a material adverse effect on our financial condition and results of operations. In the event that Marketing cannot or - 5 - will not perform its monetary obligations under the Marketing Leases with us, our financial condition and results of operations would be materially adversely affected. Although Marketing is wholly owned by a subsidiary of Lukoil, one of the largest integrated Russian oil companies, no assurance can be given that Lukoil will cause Marketing to fulfill any of its obligations under the Marketing Leases. We periodically receive and review Marketing's financial statements and other financial data. We receive this information from Marketing pursuant to the terms of the Master Lease. Certain of this information is not publicly available and the terms of the Master Lease prohibit us from including this financial information in our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q or in our Annual Reports to Shareholders. The financial performance of Marketing may deteriorate, and Marketing may ultimately default on its monetary obligations to us before we receive financial information from Marketing that would indicate the deterioration or before we would have the opportunity to advise our shareholders of any increased risk of default. Additionally, any financial data of Marketing that we are able to provide in our periodic reports is derived from financial data provided by Marketing and neither we, nor our auditors, have been involved with the preparation of such data and as a result can provide no assurance thereon. Additionally, our auditors have not been engaged to review or audit such data. As part of a periodic review by the Division of Corporation Finance of the Securities and Exchange Commission ("SEC") of our Annual Report on Form 10-K for the year ended December 31, 2003, we received and responded to a number of comments. The only comment that remains unresolved pertains to the SEC's position that we must include the financial statements and summarized financial data of Marketing in our periodic filings. The SEC subsequently indicated that, unless we file Marketing's financial statements and summarized financial data with our periodic reports: (i) it will not consider our Annual Reports on Forms 10-K for the years beginning with fiscal 2000 to be compliant; (ii) it will not consider us to be current in our reporting requirements; (iii) it will not be in a position to declare effective any registration statements we may file for public offerings of our securities; and (iv) we should consider how the SEC's conclusion impacts our ability to make offers and sales of our securities under existing registration statements and if we have a liability for such offers and sales made pursuant to registration statements that did not contain the financial statements of Marketing. We believe that the SEC's position is based on their interpretation of certain provisions of their internal Accounting Disclosure Rules and Practices Training Material, Staff Accounting Bulletin No. 71 and Rule 3-13 of Regulation S-X. We do not believe that any of this guidance is clearly applicable to our particular circumstances and that, even if it were, we believe that we should be entitled to certain relief from compliance with such requirements. Marketing subleases our properties to approximately nine hundred independent, individual service station/convenience store operators (subtenants), most of whom were our tenants when Marketing was spun-off to our shareholders. Consequently, we believe that we, as the owner of these properties and the Getty brand, and our prior experience with Marketing's tenants, could relet these properties to the existing subtenants or others at market rents. Because of this particular aspect of our landlord-tenant relationship with Marketing, we do not believe that the inclusion of Marketing's financial statements in our filings is necessary to evaluate our financial condition. Our position was included in a written response to the SEC. To date, the SEC has not accepted our position regarding the inclusion of Marketing's financial statements in our filings. We are endeavoring to achieve a resolution of this issue that will be acceptable to the SEC. We can not accurately predict the consequences if we are ultimately unsuccessful in achieving an acceptable resolution. We do not believe that offers or sales of our securities made pursuant to existing registration statements that did not or do not contain the financial statements of Marketing constitute, by reason of such omission, a violation of the Securities Act of 1933, as amended or the Exchange Act. Additionally, we believe that, if there ultimately is a determination that such offers or sales, by reason of such omission, resulted in a violation of those securities laws, we would not have any material liability as a consequence of any such determination. Certain financial and other information concerning Marketing is available from Dun & Bradstreet and may be accessed by their web site (www.dnb.com) upon payment of their fee. If Marketing does not fulfill its monetary obligations to us under the Marketing Leases, our financial condition and results of operations will be materially adversely affected. Based on our review of the financial statements and other financial data Marketing has provided to us to date, we believe that Marketing has the liquidity and financial ability to continue to pay timely its monetary obligations to us under the Marketing Leases, as it has since the inception of the Master Lease in 1997. Marketing's earnings and cash flow from operations depend upon rental income from its tenants and the sale of refined petroleum products at margins in excess of its fixed and variable expenses. A large, rapid increase in wholesale 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. Petroleum products are commodities whose prices depend on numerous factors that affect the supply of and demand for petroleum products. The prices paid by Marketing and other petroleum marketers for products are affected by global, national and regional factors. We cannot be certain how these factors will affect petroleum product prices or supply in the future, or how in particular they will affect Marketing or our other tenants. Substantially all of our tenants depend on the same industries for their revenues. We derive substantially all of our revenues from leasing, primarily on a triple-net basis, retail motor fuel and convenience store properties and petroleum distribution terminals to tenants in the petroleum marketing industry. Accordingly, our revenues will be dependent on the economic success of the petroleum marketing industry, and any factors that adversely affect that industry could also have a material adverse effect on our financial condition and results of operations. The success of participants in that industry depends upon the sale of refined petroleum products at margins in excess of fixed and variable expenses. A large, rapid increase in wholesale petroleum prices would adversely affect the profitability and cash flows of Marketing and our other tenants if the increased cost of petroleum products could not be passed on to their customers or if automobile consumption of gasoline were to - 6 - significantly decline. Petroleum products are commodities whose prices depend on numerous factors that affect the supply of and demand for petroleum products. The prices paid by Marketing and other petroleum marketers for products are affected by global, national and regional factors. We cannot be certain how these factors will affect petroleum product prices or supply in the future, or how in particular they will affect Marketing or our other tenants. Property taxes on our properties may increase without notice. Each of the properties we own is subject to real property taxes. The real property taxes on our properties and any other properties that we develop or acquire in the future may increase as property tax rates change and as those properties are assessed or reassessed by tax authorities. To the extent that our tenants are unable or unwilling to pay such increase in accordance with their leases, our net operating expenses may increase. 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, including matters relating to the protection of the environment. Under certain environmental 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, or the timing or cause of the contamination, 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 property 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 property 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 property. The properties owned or controlled by us are leased primarily as retail motor fuel and convenience store properties, and therefore may 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 our properties may be subject to regulations regarding the retirement and decommissioning or removal of long-lived assets including buildings containing hazardous materials, USTs and other equipment. Some of the properties may be adjacent to or near properties that have contained or currently contain underground storage tanks ("USTs") 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. There may be other environmental problems associated with our properties of which we are unaware. These problems may make it more difficult for us to relet or sell our properties on favorable terms or at all. We have agreed to provide limited environmental indemnification to Marketing, capped at $4.25 million and expiring in 2010, for certain pre-existing conditions at six of the terminals we own and lease to Marketing. Under the agreement, Marketing will pay the first $1.5 million of costs and expenses incurred in connection with remediating any such pre-existing conditions, Marketing will share equally with us the next $8.5 million of those costs and expenses and Marketing will pay all additional costs and expenses over $10.0 million. We have accrued $0.3 million as of December 31, 2005 in connection with this indemnification agreement. As of December 31, 2005 we had accrued $17.4 million as management's best estimate of the fair value of reasonably estimable environmental remediation costs and we had also recorded $4.3 million as management's best estimate for recoveries from state UST remediation funds, net of allowance, related to environmental obligations and liabilities. Environmental expenditures were $5.8 million and recoveries from underground storage tank funds were $2.3 million for the year ended December 31, 2005. In view of the uncertainties associated with environmental expenditures, however, we believe it is possible that the fair value of future actual net expenditures could be substantially higher than these estimates. Adjustments to accrued liabilities for environmental remediation costs will be reflected in our financial statements as they become probable and a reasonable estimate of fair value can be made. Although future environmental costs may have a - 7 - 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 long-term 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. We cannot predict whether state underground storage tank fund programs will be administered and funded in the future in a manner that is consistent with past practices or whether future environmental spending will continue to be eligible for reimbursement under these programs. 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 that of our tenants, and could require substantial additional expenditures for future remediation. For additional information with respect to environmental remediation costs and estimates see "Environmental Matters" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and note 5 to our consolidated financial statements, both of which appear in our Annual Report to Shareholders filed as exhibit 13 to this Annual Report on Form 10-K and are incorporated by reference herein. We are defending pending lawsuits and claims and are subject to material losses. We are subject to various lawsuits and claims, including litigation related to environmental matters, damages resulting from leaking UST and toxic tort claims. The ultimate resolution of certain matters cannot be predicted because considerable uncertainty exists both in terms of the probability of loss and the estimate of such loss. Our ultimate liabilities resulting from such lawsuits and claims, if any, may be material to our results of operations in the period in which they are recognized. Our properties are concentrated in the Northeast 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 Northeast 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 Marketing Leases) 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 Northeast 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 and other companies that sublet properties. Our principal means of competition are rents charged in relation to the income producing potential of the location. In addition, we expect other major real estate investors, some with much greater resources than we have, will compete with us for attractive acquisition 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 financial distress of our tenants may lead to vacancies at our properties, that leases may not be renewed, that locations may not be relet or that 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 - 8 - adversely affected and the resale values or our properties could decline. The Marketing Leases have an initial term expiring in December 2015, and generally provide Marketing with three renewal options of ten years each and a final renewal option of three years and ten months extending to 2049. Each of the renewal options 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 may not succeed in consummating desired acquisitions or in completing developments on time or within our budget. We also may 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, and other tenants, as the lessees of our properties, are required to provide insurance for such properties, including casualty, liability, fire and extended coverage in amounts and on other terms as set forth in our master leases. We carry insurance against certain risks and in such amounts as we believe are 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 (such as certain environmental liabilities, earthquakes, hurricanes, floods and civil disorder) 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. The destruction of, or significant damage to, or significant liabilities arising out of conditions at, our 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. Failure to qualify as a REIT would have adverse consequences to our shareholders. We elected to be taxed as a REIT beginning January 1, 2001. We cannot, however, guarantee that we will 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, we will again be subject to federal income tax at regular corporate rates, and could be subject to the federal alternative minimum tax, we would be required to pay significant income taxes and would have less money available for our operations and distributions to shareholders. This would likely have a significant adverse effect on the value of our securities. We could also be precluded from treatment as a REIT for four taxable years following the year in which we lost the qualification, and all distributions to stockholders would be taxable as regular corporate dividends to the extent or our current and accumulated earnings and profits. Loss of our REIT status would also cause a default under our Credit Agreement, requiring immediate repayment of all outstanding balances thereunder. As a REIT, we are dependent on external sources of capital which may not be available on favorable terms. To maintain our status as a REIT, we must distribute to our shareholders each year at least ninety percent of our net taxable income, excluding any net capital gain. Because of these distribution requirements, it is not likely that we will be able to fund all future capital needs, including acquisitions, from income from operations. Therefore, we will have to rely on third-party sources of capital, which may or may not be available on favorable terms or at all. We may be unable to pursue equity offerings until we resolve with the SEC the issue regarding disclosure of Marketing's information. Moreover, additional equity offerings may result in substantial dilution of shareholders' interests, and additional debt financing may substantially increase our leverage. 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, limitations on future indebtedness imposed under our Credit Agreement and the market price of our common stock. - 9 - The loss of certain members of our management team could adversely affect our business. We depend upon the skills and experience of our executive officers. Loss of the services of any of them could have a material adverse effect on our business and financial condition. We do not have employment agreements with any of our executives. Our business operations may not generate sufficient cash for distributions or debt service. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to make distributions on our common stock, to pay our indebtedness, or to fund our other liquidity needs. We may not be able to repay or refinance existing indebtedness on favorable terms, which could force us to dispose of properties on disadvantageous terms (which may also result in losses) or accept financing on unfavorable terms. Borrowings under the Credit Agreement bear interest at a floating rate. Accordingly, an increase in interest rates will increase the amount of interest we must pay under our Credit Agreement and a significant increase in interest rates could also make it more difficult to find alternative financing on desirable terms. Our ability to meet the financial and other covenants relating to our Credit Agreement may be dependent on the performance of our tenants. Failure to comply with these covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all or a substantial portion of our indebtedness under our Credit Agreement. We may be unable to pay dividends and our equity may not appreciate. Under the Maryland General Corporation 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 plus the amount that would be needed, if we were to be dissolved, to satisfy the rights of any shareholders with liquidation preferences. There currently are no shareholders with liquidation preferences. No assurance can be given that our financial performance in the future will permit our payment of any dividends. In particular, our Credit Agreement prohibits the payments of dividends during certain events of default. 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. Terrorist attacks and other acts of violence or war may affect the market on which our common stock trades, the markets in which we operate, our operations and our results of operations. Terrorist attacks or armed conflicts could affect our business or the businesses of our tenants or of Marketing or its parent. The consequences of armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business. More generally, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in the U.S. and worldwide financial markets and economy. They also could be a factor resulting in, or a continuation of, an economic recession in the U.S. or abroad. Any of these occurrences could have a significant adverse impact on our operating results and revenues and may result in volatility of the market price for our common stock. Item 1B. Unresolved Staff Comments As part of a periodic review by the Division of Corporation Finance of the Securities and Exchange Commission ("SEC") of our Annual Report on Form 10-K for the year ended December 31, 2003, we received and responded to a number of comments. The only comment that remains unresolved pertains to the SEC's position that we must include the financial statements and summarized financial data of Marketing in our periodic filings. The SEC subsequently indicated that, unless we file Marketing's financial statements and summarized financial data with our periodic reports: (i) it will not consider our Annual Reports on Forms 10-K for the years beginning with fiscal 2000 to be compliant; (ii) it will not consider us to be current in our reporting requirements; (iii) it will not be in a - 10 - position to declare effective any registration statements we may file for public offerings of our securities; and (iv) we should consider how the SEC's conclusion impacts our ability to make offers and sales of our securities under existing registration statements and if we have a liability for such offers and sales made pursuant to registration statements that did not contain the financial statements of Marketing. We believe that the SEC's position is based on their interpretation of certain provisions of their internal Accounting Disclosure Rules and Practices Training Material, Staff Accounting Bulletin No. 71 and Rule 3-13 of Regulation S-X. We do not believe that any of this guidance is clearly applicable to our particular circumstances and that, even if it were, we believe that we should be entitled to certain relief from compliance with such requirements. Marketing subleases our properties to approximately nine hundred independent, individual service station/convenience store operators (subtenants), most of whom were our tenants when Marketing was spun-off to our shareholders. Consequently, we believe that we, as the owner of these properties and the Getty brand, and our prior experience with Marketing's tenants, could relet these properties to the existing subtenants or others at market rents. Because of this particular aspect of our landlord-tenant relationship with Marketing, we do not believe that the inclusion of Marketing's financial statements in our filings is necessary to evaluate our financial condition. Our position was included in a written response to the SEC. To date, the SEC has not accepted our position regarding the inclusion of Marketing's financial statements in our filings. We are endeavoring to achieve a resolution of this issue that will be acceptable to the SEC. We can not accurately predict the consequences if we are ultimately unsuccessful in achieving an acceptable resolution. We do not believe that offers or sales of our securities made pursuant to existing registration statements that did not or do not contain the financial statements of Marketing constitute, by reason of such omission, a violation of the Securities Act of 1933, as amended or the Exchange Act. Additionally, we believe that, if there ultimately is a determination that such offers or sales, by reason of such omission, resulted in a violation of those securities laws, we would not have any material liability as a consequence of any such determination. Item 2. Properties The following table summarizes the geographic distribution of our properties at December 31, 2005. The table also identifies the number and location of properties we lease from third-parties and which Marketing leases from us under the Marketing Leases. In addition, we lease four thousand one hundred square feet of office space at 125 Jericho Turnpike, Jericho, New York, which is used for our corporate headquarters, which we believe will remain suitable and adequate for such purposes for the immediate future.
OWNED BY GETTY REALTY LEASED BY GETTY REALTY ---------------------------- --------------------------- TOTAL PERCENT MARKETING OTHER MARKETING OTHER PROPERTIES OF TOTAL AS TENANT (1) TENANTS AS TENANT (2) TENANTS BY STATE PROPERTIES -------------- ------- -------------- ------- --------- ---------- New York 231 13 (3) 94 3 341 32.3% New Jersey 107 10 40 3 160 15.2 Massachusetts 130 -- 24 1 155 14.7 Pennsylvania 111 10 15 2 138 13.1 Connecticut 59 28 20 10 117 11.1 New Hampshire 28 -- 3 -- 31 2.9 Virginia 4 24 17 -- 45 4.2 Maine 17 1 3 1 22 2.1 Rhode Island 15 1 3 -- 19 1.8 Delaware 10 2 1 -- 13 1.2 Maryland 4 2 1 -- 7 0.7 Florida -- 6 -- -- 6 0.6 Vermont 1 -- -- -- 1 0.1 --- --- --- --- ----- ----- Total 717 97 221 20 1,055 100.0% === === === === ===== =====
(1) Includes seven terminal properties owned in New York, New Jersey, Connecticut and Rhode Island. (2) Includes three terminal properties leased in New York. (3) Excludes eighteen properties acquired on February 28, 2006. The properties that we lease have a remaining lease term, including renewal option terms, averaging over twelve years. The following table sets forth information regarding lease expirations, including renewal and extension option terms, for properties that we lease from third parties:
PERCENT NUMBER OF OF TOTAL PERCENT LEASES LEASED OF TOTAL CALENDAR YEAR EXPIRING PROPERTIES PROPERTIES - ------------- -------- ---------- ---------- 2006 15 6.2 1.4 2007 17 7.1 1.6 2008 11 4.6 1.0 2009 19 7.9 1.8 2010 9 3.7 0.9 --- ----- ---- Subtotal 71 29.5 6.7 --- ----- ---- Thereafter 170 70.5 16.1 --- ----- ---- Total 241 100.0% 22.8% === ===== ====
We have rights-of-first refusal to purchase or lease one hundred ninety-four of the properties we lease. Although there can be no assurance regarding any particular property, historically we generally have been successful in renewing or entering into new leases when lease terms expire. Approximately 67% of our leased properties are subject to automatic renewal or extension options. In the opinion of our management, our relationships with our landlords are good and our owned and leased properties 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 - 11 - and on other terms satisfactory to us. We have no plans for material improvements to any of our properties. However, our tenants frequently make improvements to the properties leased from us at their expense. Two of our owned retail motor fuel and convenience store properties, with a net book value of approximately $1.3 million at December 31, 2005, are secured by mortgages with an aggregate principal balance of approximately $0.2 million at a weighted average interest rate of 4.4% per annum. No other material mortgages, liens or encumbrances exist on our properties. We lease nine hundred twenty-eight retail motor fuel and convenience store properties and our ten petroleum distribution terminals to Marketing under the Marketing Leases. The Master Lease is a unitary lease and has an initial term expiring in 2015, and generally provides Marketing with three renewal options of ten years each and a final renewal option of three years and ten months extending to 2049. Each of the renewal options may be exercised only on an "all or nothing" basis. The Marketing Leases are "triple-net" leases, under which Marketing is responsible for the payment of taxes, maintenance, repair, insurance and other operating expenses. If Marketing fails to pay rent, taxes or insurance premiums when due under the Marketing Leases and the failure is not cured by Marketing within a specified time after receipt of notice, we have the right to terminate the Marketing Leases and to exercise other customary remedies against Marketing. If Marketing fails to comply with any other obligation under the Marketing Leases after notice and opportunity to cure, we do not have the right to terminate the Marketing Leases. Alternatively, our available remedies under the Marketing Leases are to seek to obtain an injunction or other equitable relief requiring Marketing to comply with its obligations under the Marketing Leases and to recover damages from Marketing resulting from the failure. If any lease we have with a third-party landlord for properties that we lease to Marketing 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. 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, except at twelve identified locations where Marketing has the exclusive right to negotiate with the third-party landlord until six months before the lease expires. We have also agreed that if we decide to sell any property leased to Marketing under the Marketing Leases, we will first offer to sell that property to Marketing pursuant to procedures set forth in the Marketing Leases. We have also agreed to provide limited environmental indemnification to Marketing, capped at $4.25 million and expiring in 2010, for certain pre-existing conditions at six of the terminals we lease to Marketing. Under the agreement, Marketing will pay the first $1.5 million of costs and expenses incurred in connection with remediating any pre-existing terminal condition, Marketing will share equally with us the next $8.5 million of those costs and expenses and Marketing will pay all additional costs and expenses over $10.0 million. We have accrued $0.3 million as of December 31, 2005 in connection with this indemnification agreement. Under the Master Lease, we continue to have additional ongoing environmental remediation obligations for two hundred forty-two scheduled sites and our agreements with Marketing provide that Marketing otherwise remains liable for all environmental matters. Item 3. Legal Proceedings In 1988 and 1989, we were named as defendants in three separate lawsuits by multiple owners of adjacent properties seeking compensatory and punitive damages for personal injury and property damages having common allegations that a leak of an underground gasoline storage tank occurred in November 1985, at one of our retail motor fuel properties. Although the first action was dismissed in January 1992 and the second action was dismissed in 1995, there is a possibility that the remaining defendants in this action, in the future, may assert claims against us for contribution or indemnity. We are not aware that any such claims have been asserted. The third action is still pending in New York Supreme Court, Suffolk County, remains in the pleadings stage and has remained dormant for more than ten years. We have been advised that these plaintiffs no longer will assert claims for personal injuries, and that the property has been sold. If this litigation resumes, we will assert third-party claims against the party we believe is responsible for the contamination. - 12 - In 1991, the State of New York brought an action in the New York State Supreme Court in Albany against our former heating oil subsidiary seeking reimbursement for cleanup costs claimed to have been incurred at a retail motor fuel property in connection with a gasoline release. The State also is seeking penalties plus interest. Although there has been no activity in this proceeding in the past several years, in January 2002, we received a letter from the State's attorney indicating that the State intends to continue prosecuting the action. To date, we are not aware that the State has taken any additional actions in connection with this claim. In 1997, an action was commenced in the New York Supreme Court in Schenectady, naming us as defendants, and seeking to recover monetary damages for personal injuries allegedly suffered from the release of petroleum and vapors from one of our retail motor fuel properties. This action has not been pursued by the Plaintiff for more than six years. In June 1998, we were sued as a third-party defendant in the Superfund case of U.S. v. Champion Chemical Co. and Imperial Oil Co., pending in the U.S. District Court for New Jersey. Our defense is being conducted by Texaco Inc., which has agreed to fully indemnify us. In August 1998, we were sued as a third-party defendant in the Superfund case of U.S. v. Manzo, pending in the U. S. District Court for New Jersey. Our defense is also being conducted by Texaco Inc., which has agreed to fully indemnify us. Both matters involve periods prior to 1985, the year we purchased the properties from Texaco Inc. pursuant to an agreement under which Texaco is obligated to indemnify us for environmental matters of this kind. In December 1998, the New York State Department of Environmental Conservation filed an administrative complaint against us for civil penalties for alleged groundwater contamination and gasoline migration into a building basement in April 1997. In January 1999, an action was commenced in United States District Court ("SDNY") by the owner of the property, seeking compensatory and punitive damages. In December 2004, we settled the private claims of liability in consideration for a payment by us of $97,500, and payments by others to be made in the first quarter of 2006. In June 1999, an action was commenced in the New York Supreme Court in Nassau County against Marketing. The plaintiff is seeking monetary damages and alleges that he contracted acute myelogenous leukemia ("AML") as a result of exposure to benzene-containing gasoline, between 1992 and 1998, when he worked periodically at an independently owned and operated retail motor fuel property which we supplied with gasoline. The plaintiff brought another case against Mobil Oil Corporation and Island Transportation Corp. alleging that he worked at another retail motor fuel property at which Mobil gasoline was sold and that his AML was caused by his exposure to that gasoline as well. The cases have been consolidated. We are not named in the cases. However, we are indemnifying Marketing pursuant to written agreements. In September 2005 we were advised that the case was dismissed, with prejudice. However, in October 2005 the plaintiff filed an appeal of this dismissal. In September 1999, we brought a case against one of our tenants in the United States District Court, District of New Jersey, seeking the return of the property we leased to them and the cleanup of all contamination caused by them. Our tenant filed a counterclaim alleging that all or part of the contamination was attributable to contamination from underground storage tanks for which we were responsible. The State of New Jersey Department of Environmental Protection (the "NJDEP") has notified the tenant that it is responsible for the cleanup and remediation of contamination resulting from a petroleum release. Discovery is complete. The court referred the matter to mediation, which we expect to continue until the court sets a new trial date. In February 2002, the owner of a retail motor fuel property in Wareham, Massachusetts commenced an action in the Plymouth Superior Court against us and a former tenant at the property to recover cleanup costs and other incidental damages. The matter was settled in December 2004 in exchange for a payment of $125,000 that we shared equally with our co-defendant. Our $62,500 share of the total settlement was paid in March 2005. In September 2002, an action was commenced against us in the United States District Court for the Eastern District of Rhode Island to recover legal fees incurred in connection with a pending Rhode Island litigation, based on a Guarantee and Indemnity Agreement. In January, 2002, we filed a counterclaim against the plaintiff in that earlier suit for recovery of our legal fees pursuant to a 1985 Settlement Agreement. Discovery has been completed and summary judgment motions were filed by both parties in the third quarter of 2004 and heard in November 2004. A decision denying both motions was rendered and neither party filed an appeal of that decision. - 13 - In December 2002, the State of New York commenced an action in the New York Supreme Court in Albany County against us and Marketing to recover costs claimed to have been expended by the State to investigate and remediate a petroleum release into the Ossining River commencing approximately in 1996. We are indemnifying Marketing and have filed a claim against a potentially responsible party who is upstream of the release. In January 2003, an action was commenced against us in the New York Supreme Court in Westchester County, alleging that we owe the Plaintiff rent in consideration for access to his property to continue on-going remediation of contamination allegedly due to spills at the property, formerly supplied by us with gasoline. The matter was settled in exchange for a payment by us of $17,500 in June 2005. In February 2003, an action was commenced against us, Marketing and others by the owners of an adjacent property in the Pennsylvania Court of Common Pleas in Lancaster County, asserting claims relating to a discharge of gasoline allegedly emanating from our property. The complaint states that the plaintiffs first became aware of a problem upon detecting gasoline vapors in their basement in 1996, yet did not file suit until February 28, 2003. The case is in its early stages. In April 2003, we were named in a class action, filed in the New York Supreme Court in Dutchess County, NY, arising out of alleged contamination of ground water with methyl tertiary butyl ether (a fuel derived from methanol, which we refer to as MTBE). We served an answer that denied liability and asserted numerous affirmative defenses. The plaintiffs have not responded to our demands and there has not been any activity in the case for a considerable period. In April 2003, we received a Request for Reimbursement from the State of Maine Department of Environmental Protection seeking reimbursement of costs claimed to have been incurred by them in connection with the remediation of contamination claimed to have originated at a former retail motor fuel property supplied by us with gasoline in 1988. We discovered evidence that indicates that the contamination may not have originated from that property and submitted a written response to the Request for Reimbursement, denying liability for the claim. The matter was settled in January 2005 in exchange for a payment of $600,000 which was accrued for as of December 31, 2004 and paid in March 2005. In July 2003, we were notified by the State of Rhode Island Department of Environmental Management of their Notice to Enforce compliance with a Letter of Responsibility issued by the Department in connection with a suspected petroleum release at a property that abuts property owned by us and leased to Marketing. We responded to the State's Notice in August 2003. Marketing is obligated to defend the matter and indemnify us pursuant to the Master Lease. In July 2003, we received a Request for Reimbursement from the State of Maine Department of Environmental Protection seeking reimbursement of costs claimed to have been incurred by them in connection with the remediation of contamination found at a retail motor fuel property, purportedly linked to numerous gasoline spills in the late 1980's. We have discovered substantial evidence that links the contamination to gasoline releases of another company who has operated at the property since we discontinued our operations at the property and are in the process of finalizing our response to the Request for Reimbursement that will deny liability for the claim. In September 2003, we were notified by the NJDEP that we are one of approximately sixty potentially responsible parties for natural resources damages resulting from discharges of hazardous substances into the Lower Passaic River. The definitive list of potentially responsible parties and their actual responsibility for the alleged damages, the aggregate cost to remediate the Lower Passaic River, the amount of natural resource damages and the method of allocating such amounts among the potentially responsible parties have not been determined. In September 2004, we received a General Notice Letter from the United States Environmental Protection Agency (the "EPA") (the "EPA Notice"), advising us that we may be a potentially responsible party for costs of remediating certain conditions resulting from discharges of hazardous substances into the Lower Passaic River. ChevronTexaco received the same EPA Notice regarding those same conditions. We believe that ChevronTexaco is obligated to indemnify us, pursuant to an indemnification agreement, regarding the conditions at the property identified by the NJDEP and the EPA and that, accordingly, our ultimate legal and financial liability, if any, cannot be estimated with any certainty at this time. - 14 - In September 2003, we were notified by the NJDEP that we may be responsible for damages to natural resources ("NRD") by reason of a petroleum release, more than fifteen years ago, at a retail motor fuel property formerly operated by us in Egg Harbor, NJ. We have been actively remediating the resulting contamination at the property in accordance with a plan approved by the State. In addition, we have responded to the notice and met with the Department to determine whether, and to what extent, we may be responsible for NRD regarding this property and our other properties formerly supplied by us with gasoline in New Jersey. The State's right to pursue NRD, the viability of defenses to NRD, generally, and the State's method for calculating NRD are subject to ongoing litigation in the State. We are not a party to such litigation. However, the outcome of that litigation likely will affect the State's claim against us for NRD with regard to this property and, generally, our other properties in New Jersey. In October 2003, an action was commenced in the New York Supreme Court in Nassau County seeking money damages against us arising out of a petroleum release that occurred prior to 1985, at a property in Valley Stream, NY, which was later supplied by us with gasoline. We were dismissed from this action in January 2006. From October 2003 through September 2005 we were made a party to thirty-eight cases in Connecticut, Florida, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Vermont, Virginia, and West Virginia, brought by local water providers or governmental agencies. These cases allege various theories of liability due to contamination of groundwater with MTBE as the basis for claims seeking compensatory and punitive damages. Each case names as defendants approximately fifty petroleum refiners, manufacturers, distributors and retailers of MTBE, or gasoline containing MTBE. The accuracy of the allegations as they relate to us, our defenses to such claims, the aggregate amount of damages, the definitive list of defendants and the method of allocating such amounts among the defendants have not been determined. Accordingly, our ultimate legal and financial liability, if any, cannot be estimated with any certainty at this time. In November 2003, we received a demand from the State of New York for reimbursement of cleanup and removal costs claimed to have been incurred by the New York Environmental Protection and Spill Compensation Fund regarding contamination it alleges emanated from one of our retail motor fuel properties in 1997. We have responded to the State's demand and have denied responsibility for reimbursement of such costs, as being attributable to contamination that emanated from other properties owned and operated by others. In September 2004, the State of New York commenced an action against us and others in New York Supreme Court in Albany County seeking recovery of such costs. The case is in its initial stages. In November 2003, an action was commenced in the New York Supreme Court in Westchester County seeking money damages against us arising out of a petroleum release in 1996 at a former retail motor fuel property of ours. Our defense is being conducted by the company that sold us the property, and they have agreed to fully indemnify us pursuant to the purchase agreement, which calls for indemnification for environmental matters of this kind. In July 2005, we were notified that an action was commenced against Getty Petroleum Marketing Inc. ("Marketing"), in the United States District Court, Northern District of New York, by a property owner regarding certain discharges of petroleum that are alleged to have originated, in whole or in part, from a property we own and lease to Marketing. Pursuant to the terms of the lease for this property, Marketing has requested and we have agreed to provide the defense and indemnify Marketing for this matter. The case was settled in January 2006 for a payment by the Company of approximately $10,000. In July 2005, we received a demand from a property owner for reimbursement of cleanup and soil removal costs, at a former retail motor fuel property located in Brooklyn, New York supplied by us with gasoline, that the owner expects to incur in connection with the proposed development of its property. The owner claims that the costs will be reimbursable pursuant to an Indemnity Agreement that we entered into with the property owner. Although we have acknowledged responsibility for the contaminated soil, and have been engaged in the remediation of the same, we have denied responsibility for the full extent of the costs estimated to be incurred. Litigation has not been commenced and discussions regarding the demand are in their early stages. - 15 - In September 2005, we received a demand from a property owner for reimbursement of cleanup and soil removal costs claimed to have been incurred by it in connection with the development of its property located in Philadelphia, Pennsylvania, that, in part, is a former retail motor fuel property supplied by us with gasoline. The current owner claims that the costs are reimbursable pursuant to an Indemnity Agreement that we entered into with the prior property owner. Although we have acknowledged responsibility for a portion of the contaminated soil, and were engaged in the remediation of the same, we have denied responsibility for the full extent of the costs estimated to be incurred. Litigation has not been commenced and discussions regarding the demand are in their early stages. In October 2005, the State of New York commenced an action in the New York Supreme Court in Albany County against us and Marketing to recover costs claimed to have been funded by the state to remediate a petroleum release emanating from property we acquired in 1999. The seller, who is also party to the action, has agreed to defend and indemnify us (and Marketing) regarding the release and funds have been escrowed to cover a portion of the remediation expenses. In November 2005, we were notified that an action had been commenced in the Superior Court in Passaic County, New Jersey, in August 2005, by a property owner, seeking compensation from us on behalf of a class not yet certified, based upon the installation of a monitoring well on the property of the property owner. The NJDEP also is named as a defendant. The accuracy of the allegations as they relate to us, our defenses to such claims, and the aggregate amount of damages has not been determined. Accordingly, our ultimate legal and financial liability, if any, cannot be estimated with any certainty at this time. In December 2005, an action was commenced against us in the Superior Court in Providence, Rhode Island, by the owner of a pier that is adjacent to one of our terminals that is leased to Marketing seeking monetary damages of approximately $500,000 representing alleged costs related to the ownership and maintenance of the pier for the period from January 2003 through September 2005. We do not believe that we have any legal, contractual or other responsibility for such costs. In February 2006, an action was commenced in the Supreme Court in Westchester County, New York against us and Marketing to recover cleanup and remediation costs related to a petroleum release and for damages in excess of $1.0 million for, among other things, lost rent and diminution of property value. Although we have conducted, and continue to conduct, remediation activities at the property, we are unable at this time to estimate with any certainty our ultimate legal and financial liability, if any, for the damages claimed in the litigation. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of security holders during the three months ended December 31, 2005. - 16 - PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Information in response to this item is incorporated herein by reference to information under the headings "Capital Stock" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" in our Annual Report to Shareholders. Item 6. Selected Financial Data Information in response to this item is incorporated herein by reference to information under the heading "Getty Realty Corp. and Subsidiaries - Selected Financial Data" in our Annual Report to Shareholders. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Information in response to this item is incorporated herein by reference to information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report to Shareholders. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Information in response to this item is incorporated herein by reference to information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Disclosures about Market Risk" in our Annual Report to Shareholders. Item 8. Financial Statements and Supplementary Data Information in response to this item is incorporated herein by reference to the financial statements and supplementary financial information in our Annual Report to Shareholders. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Disclosure Controls and Procedures The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports filed or submitted pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. - 17 - As required by the Exchange Act Rule 13a-15(b), the Company has carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2005. Management's Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2005. PricewaterhouseCoopers LLP, our independent registered public accounting firm which audited the financial statements included in this Annual Report on Form 10-K, has issued an attestation report on management's assessment of our internal control over financial reporting which is included herein. There have been no changes in the Company's internal control over financial reporting during the latest fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Item 9B. Other Information None. - 18 - PART III Item 10. Directors and Executive Officers of the Registrant Information with respect to compliance with section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by reference to information under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement. Information with respect to directors in response to this item is incorporated herein by reference to information under the headings "Election of Directors" and "Directors' Meetings, Committees and Executive Officers" in the Proxy Statement. The following table lists our executive officers, their respective ages, and the offices and positions held.
NAME AGE POSITION OFFICER SINCE - ------------------- --- ----------------------------------------------------- ------------- Leo Liebowitz 78 Chairman and Chief Executive Officer 1971 Andrew M. Smith 53 President, Secretary and Chief Legal Officer 2003 Kevin C. Shea 46 Executive Vice President 2001 Thomas J. Stirnweis 47 Vice President, Treasurer and Chief Financial Officer 2001
Mr. Liebowitz has been Chief Executive Officer of Getty since 1985. He was the President of Getty from May 1971 to May 2004. Mr. Liebowitz served as Chairman, Chief Executive Officer and a director of Getty Petroleum Marketing Inc. from October 1996 until December 2000. He is also a director of the Regional Banking Advisory Board of J.P. Morgan Chase & Co. Mr. Smith has been with Getty since 2003 and has served as President, Secretary and Chief Legal Officer since May 2004 and was Vice President, General Counsel and Corporate Secretary since December 2003. Prior thereto, he was General Counsel and Corporate Secretary. Prior to joining Getty, he was in private law practice from 1999 to 2003. From 1997 to 1999 he served as the Vice President of Real Estate, General Counsel and Secretary of Discovery Zone, Inc., an international site-based children's entertainment company. From 1995 to 1996, Mr. Smith was Vice President of Operations and General Counsel of Influence, Inc., a medical device developer and manufacturer. From 1986 to 1994, Mr. Smith was a partner in the international law firm of Weil, Gotshal & Manges LLP. Mr. Shea has been with Getty since 1984 and has served as Executive Vice President since May 2004 and was Vice President since January 2001. Prior thereto, he was Director of National Real Estate Development. Mr. Stirnweis joined Getty in January 2001 as Corporate Controller and Treasurer and has served as Vice President, Treasurer and Chief Financial Officer since May 2003. 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 November 1988. Management is not aware of any family relationships between any of its directors or executive officers. The Getty Realty Corp. Business Conduct Guidelines ("Code of Ethics"), which applies to all employees, including our chief executive officer and chief financial officer, is available on our website at www.gettyrealty.com. Item 11. Executive Compensation Information in response to this item is incorporated herein by reference to information under the headings "Directors' Meetings, Committees and Executive Officers", "Compensation" through "Report of the Compensation Committee" and "Stock Performance Graph" in the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information in response to this item is incorporated herein by reference to information under the heading "Beneficial Ownership of Capital Stock" and "Equity Compensation Plan Information" in the Proxy Statement. - 19 - Item 13. Certain Relationships and Related Transactions None. Item 14. Principal Accountant Fees and Services Information in response to this item is incorporated herein by reference to information under the heading "Ratification of Appointment of Independent Registered Public Accounting Firm" in the Proxy Statement. - 20 - PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Financial Statements The financial statements listed in the Index to Financial Statements and Financial Statement Schedules on page 22 are incorporated herein by reference to our Annual Report to Shareholders. 2. Financial Statement Schedules The financial statement schedules listed in the Index to Financial Statements and Financial Statement Schedules on page 22 are filed as part of this Annual Report on Form 10-K. 3. Exhibits The exhibits listed in the Exhibit Index are filed (or furnished, as applicable) as part of this Annual Report on Form 10-K. - 21 - GETTY REALTY CORP. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES COVERED BY REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Items 15(a) 1 & 2
REFERENCE ------------------------------ 2005 ANNUAL 2005 ANNUAL REPORT ON REPORT TO FORM 10-K SHAREHOLDERS (PAGES) (PAGES) ----------- ------------ Data incorporated by reference from attached 2005 Annual Report to Shareholders of Getty Realty Corp. Report of Independent Registered Public Accounting Firm 35 Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003 21 Consolidated Balance Sheets as of December 31, 2005 and 2004 22 Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003 23 Notes to Consolidated Financial Statements 24-34 Report of Independent Registered Public Accounting Firm on Financial Statement Schedules 23 Schedule II - Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2005, 2004 and 2003 24 Schedule III - Real Estate and Accumulated Depreciation and Amortization 25-40
All other schedules are omitted for the reason that they are either not required, not applicable, not material or the information is included in the consolidated financial statements or notes thereto. The financial statements listed in the above index which are included in the 2005 Annual Report to Shareholders are hereby incorporated by reference. - 22 - REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of Getty Realty Corp.: Our audits of the consolidated financial statements, of management's assessment of the effectiveness of internal control over financial reporting and of the effectiveness of internal control over financial reporting referred to in our report dated March 9, 2006 appearing in the 2005 Annual Report to Shareholders of Getty Realty Corp. (which report, consolidated financial statements and assessment are incorporated by reference in this Annual Report on Form 10-K) also included an audit of these financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP New York, New York March 9, 2006 - 23 - GETTY REALTY CORP. and SUBSIDIARIES SCHEDULE II -- VALUATION and QUALIFYING ACCOUNTS and RESERVES for the years ended December 31, 2005, 2004 and 2003 (in thousands)
BALANCE AT BALANCE BEGINNING AT END OF YEAR ADDITIONS DEDUCTIONS OF YEAR ----------- ----------- ---------- ---------- December 31, 2005: Allowance for mortgages and accounts receivable $ 5 $ 24 $ -- $ 29 Allowance for recoveries from state underground storage tank funds $ 910 $ -- $ 160 $ 750 December 31, 2004: Allowance for mortgages and accounts receivable $ 355 $ -- $ 350 $ 5 Allowance for recoveries from state underground storage tank funds $ 580 $ 330 $ -- $ 910 December 31, 2003: Allowance for mortgages and accounts receivable $ 278 $ 116 $ 39 $ 355 Allowance for recoveries from state underground storage tank funds $ 500 $ 80 $ -- $ 580
- 24 - GETTY REALTY CORP. and SUBSIDIARIES SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION for the years ended December 31, 2005, 2004 and 2003 (in thousands) The summarized changes in real estate assets and accumulated depreciation are follows:
2005 2004 2003 ---------- ---------- ----------- Investment in real estate: Balance at beginning of year $ 346,590 $ 318,222 $ 308,054 Acquisitions 29,566 29,812 14,186 Capital expenditures 7 756 80 Sales and condemnations (1,434) (1,131) (2,960) Lease terminations (4,234) (1,069) (1,138) ---------------------------------------------------- Balance at end of year $ 370,495 $ 346,590 $ 318,222 ==================================================== Accumulated depreciation and amortization: Balance at beginning of year $ 106,463 $ 100,488 $ 93,986 Depreciation and amortization expense 8,113 7,490 8,411 Sales and condemnations (542) (446) (771) Lease terminations (4,234) (1,069) (1,138) ---------------------------------------------------- Balance at end of year $ 109,800 $ 106,463 $ 100,488 ====================================================
Two of our owned retail motor fuel and convenience store properties, indicated by an asterisk (*) in the table below, with a net book value of approximately $1.3 million as of December 31, 2005 are secured by mortgages with an aggregate principal balance of approximately $0.2 million at a weighted average interest rate of 4.4% per annum. No other material mortgages, liens or encumbrances exist on our properties.
Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- BROOKLYN, NY $282,104 $301,052 $176,292 $406,864 $583,156 $331,748 1967 JAMAICA, NY 12,000 295,750 12,000 295,750 307,750 157,298 1970 REGO PARK, NY 33,745 281,380 23,000 292,125 315,125 197,262 1974 BROOKLYN, NY 74,808 125,120 30,694 169,234 199,928 161,973 1967 BRONX, NY 60,000 353,955 60,800 353,155 413,955 234,630 1965 CORONA, NY 114,247 300,172 112,800 301,619 414,419 170,730 1965 BRONX, NY 124,600 251,284 124,600 251,284 375,884 211,695 1965 OCEANSIDE, NY 40,378 169,929 40,000 170,307 210,307 123,271 1970 BLUEPOINT, NY 96,163 118,524 96,068 118,619 214,687 106,131 1972 BRENTWOOD, NY 253,058 84,485 125,000 212,543 337,543 181,948 1968 BAY SHORE, NY 47,685 289,972 0 337,657 337,657 334,362 1969 ALBERTSON, NY 41,023 114,970 40,000 115,993 155,993 113,140 1969 OSSINING, NY 70,557 83,939 43,357 111,139 154,496 103,714 1977 PELHAM MANOR, NY 127,304 85,087 75,800 136,591 212,391 114,183 1972 VALLEY COTTAGE, NY 63,145 90,284 63,945 89,484 153,429 83,631 1965 BRONX, NY 0 293,507 0 293,507 293,507 165,621 1972 BROOKLYN, NY 0 365,767 0 365,767 365,767 271,687 1970
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Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- POUGHKEEPSIE, NY 32,885 168,354 35,904 165,335 201,239 151,161 1971 CARMEL, NY 20,419 158,943 20,750 158,612 179,362 150,989 1970 KINGSTON, NY 68,341 115,961 44,379 139,923 184,302 134,084 1971 WAPPINGERS FALLS, NY 114,185 159,162 111,785 161,562 273,347 144,556 1971 STONY POINT, NY 59,329 203,448 55,800 206,977 262,777 192,020 1971 KINGSTON, NY 29,010 159,986 12,721 176,275 188,996 161,134 1972 POUGHKEEPSIE, NY 63,030 158,415 26,226 195,219 221,445 193,454 1972 LAGRANGEVILLE, NY 129,133 101,140 64,626 165,647 230,273 162,061 1972 BRONX, NY 128,419 221,197 100,681 248,935 349,616 165,418 1972 RAHWAY, NJ 89,157 65,483 48,083 106,557 154,640 98,996 1972 STATEN ISLAND, NY 40,598 256,262 26,050 270,810 296,860 161,499 1973 BRONX, NY 141,322 141,909 86,800 196,431 283,231 170,667 1972 NEW YORK, NY 125,923 168,772 78,125 216,570 294,695 207,161 1972 JAMAICA, NY 95,713 59,943 68,400 87,256 155,656 78,767 1972 MIDDLE VILLAGE, NY 130,684 73,741 89,960 114,465 204,425 101,590 1972 LONG ISLAND CITY, NY 90,895 91,386 60,030 122,251 182,281 105,873 1972 BROOKLYN, NY 100,000 254,503 66,890 287,613 354,503 206,678 1972 ROCKAWAY BEACH, NY 110,676 51,519 79,200 82,995 162,195 79,641 1972 BROOKLYN, NY 135,693 91,946 100,035 127,604 227,639 96,674 1972 BROOKLYN, NY 147,795 228,379 103,815 272,359 376,174 205,391 1972 STATEN ISLAND, NY 101,033 371,591 75,650 396,974 472,624 218,713 1972 STATEN ISLAND, NY 25,000 351,829 0 376,829 376,829 217,450 1972 BRONX, NY 543,833 693,438 473,695 763,576 1,237,271 731,164 1970 BRONX, NY 98,234 54,956 53,234 99,956 153,190 96,869 1975 BRONX, NY 90,176 183,197 40,176 233,197 273,373 179,942 1976 BRONX, NY 82,141 106,173 32,941 155,373 188,314 137,404 1972 BRONX, NY 92,207 120,758 47,207 165,758 212,965 127,192 1972 BRONX, NY 105,176 70,736 40,176 135,736 175,912 107,499 1968 BRONX, NY 45,044 196,956 10,044 231,956 242,000 181,537 1976 BRONX, NY 128,049 315,917 83,849 360,117 443,966 209,552 1972 BRONX, NY 130,396 184,222 90,396 224,222 314,618 182,139 1972 BRONX, NY 118,025 290,298 73,025 335,298 408,323 240,800 1972 BRONX, NY 70,132 322,265 30,132 362,265 392,397 225,346 1972 BRONX, NY 78,168 450,267 65,680 462,755 528,435 283,116 1972 BRONX, NY 69,150 300,279 34,150 335,279 369,429 206,385 1972 YONKERS, NY 291,348 170,478 216,348 245,478 461,826 203,365 1972 SLEEPY HOLLOW, NY 280,825 102,486 129,744 253,567 383,311 238,698 1969 OLD BRIDGE, NJ 85,617 109,980 56,190 139,407 195,597 133,417 1972 BREWSTER, NY 117,603 78,076 72,403 123,276 195,679 109,972 1972 FLUSHING, NY 118,309 280,435 78,309 320,435 398,744 185,185 1973 VALLEY COTTAGE, NY 68,997 87,862 69,797 87,062 156,859 76,718 1972 BRONX, NY 0 278,517 0 278,517 278,517 176,195 1976 STATEN ISLAND, NY 173,667 133,198 113,369 193,496 306,865 163,582 1976 BRIARCLIFF MANOR, NY 652,213 103,753 501,687 254,279 755,966 193,930 1976 BRONX, NY 84,268 81,701 56,285 109,684 165,969 91,599 1976 BRONX, NY 95,328 102,639 73,750 124,217 197,967 108,429 1976 BRONX, NY 88,865 193,679 63,315 219,229 282,544 211,396 1976 NEW YORK, NY 106,363 103,035 79,275 130,123 209,398 120,572 1976 NEW YORK, NY 85,037 76,357 58,286 103,108 161,394 92,487 1976 NEW YORK, NY 146,159 407,286 43,461 509,984 553,445 321,331 1976
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Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- GLENDALE, NY 124,438 287,907 86,160 326,185 412,345 230,246 1976 OZONE PARK, NY 57,289 331,799 44,715 344,373 389,088 244,934 1976 LONG ISLAND CITY, NY 106,592 151,819 73,260 185,151 258,411 134,223 1976 RIDGE, NY 276,942 73,821 200,000 150,763 350,763 102,962 1977 LAKE RONKONKOMA, NY 0 176,622 0 176,622 176,622 160,966 1977 KEYPORT, NJ 62,702 92,856 38,452 117,106 155,558 114,615 1977 NEW CITY, NY 180,979 100,597 109,025 172,551 281,576 168,122 1978 W. HAVERSTRAW, NY 194,181 38,141 140,000 92,322 232,322 74,643 1978 PIERMONT, NY 151,125 31,470 90,675 91,920 182,595 91,920 1978 STATEN ISLAND, NY 0 301,713 0 301,713 301,713 158,413 1978 BROOKLYN, NY 74,928 250,382 44,957 280,353 325,310 167,322 1978 WEST ISLIP, NY 87,103 84,057 44,957 126,203 171,160 122,409 1978 RONKONKOMA, NY 76,478 208,121 46,057 238,542 284,599 227,877 1978 STONY BROOK, NY 175,921 44,529 105,000 115,450 220,450 110,695 1978 MILLER PLACE, NY 110,000 103,160 66,000 147,160 213,160 138,949 1978 LAKE RONKONKOMA, NY 87,097 156,576 51,000 192,673 243,673 182,099 1978 E. PATCHOGUE, NY 57,049 210,390 34,213 233,226 267,439 226,522 1978 AMITYVILLE, NY 70,246 139,953 42,148 168,051 210,199 168,051 1978 BETHPAGE, NY 210,990 38,356 126,000 123,346 249,346 121,503 1978 HUNTINGTON STATION, NY 140,735 52,045 84,000 108,780 192,780 105,267 1978 BALDWIN, NY 101,952 106,328 61,552 146,728 208,280 100,899 1978 ELMONT, NY 388,848 114,933 231,000 272,781 503,781 224,120 1978 NORTH BABYLON, NY 91,888 117,066 59,059 149,895 208,954 141,498 1978 CENTRAL ISLIP, NY 103,183 151,449 61,435 193,197 254,632 192,938 1978 WHITE PLAINS, NY 120,393 67,315 0 187,708 187,708 170,326 1979 WOODSIDE, NY 0 152,740 0 152,740 152,740 93,561 1978 OZONE PARK, NY 0 217,234 0 217,234 217,234 123,257 1978 STATEN ISLAND, NY 0 222,525 0 222,525 222,525 118,796 1981 BROOKLYN, NY 116,328 232,254 75,000 273,582 348,582 154,488 1980 LONG ISLAND CITY, NY 191,420 390,783 116,554 465,649 582,203 262,666 1981 BAY SHORE, NY 156,382 123,032 85,854 193,560 279,414 180,575 1981 N. WHITE PLAINS, NY 0 154,131 0 154,131 154,131 115,904 1983 BRIDGEPORT, CT 58,956 106,709 24,000 141,665 165,665 130,465 1982 BRISTOL, CT 108,808 81,684 44,000 146,492 190,492 137,574 1982 CROMWELL, CT 70,017 183,119 24,000 229,136 253,136 229,136 1982 EAST HARTFORD, CT 208,004 60,493 84,000 184,497 268,497 182,835 1982 FRANKLIN, CT 50,904 168,470 20,232 199,142 219,374 196,562 1982 MANCHESTER, CT 65,590 156,628 64,750 157,468 222,218 156,086 1982 MERIDEN, CT 207,873 39,829 84,000 163,702 247,702 161,141 1982 NEW MILFORD, CT 113,947 121,174 0 235,121 235,121 228,102 1982 NORWALK, CT 257,308 128,940 104,000 282,248 386,248 278,511 1982 NORWICH, CT 107,632 50,507 44,000 114,139 158,139 113,785 1982 WAUREGAN, CT 84,605 85,768 34,000 136,373 170,373 135,910 1982 SOUTHINGTON, CT 115,750 158,561 70,750 203,561 274,311 202,674 1982 SOUTH WINDSOR, CT 82,308 75,784 34,000 124,092 158,092 120,787 1982 TERRYVILLE, CT 182,308 98,911 74,000 207,219 281,219 206,859 1982 TOLLAND, CT 107,902 100,178 44,000 164,080 208,080 157,462 1982 WATERBURY, CT 107,308 57,267 44,000 120,575 164,575 119,324 1982 WATERFORD, CT 76,981 133,059 0 210,040 210,040 192,182 1982 WEST HAVEN, CT 185,138 48,619 74,000 159,757 233,757 156,226 1982
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Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- WOODBRIDGE, CT 87,612 196,264 0 283,876 283,876 272,093 1982 AGAWAM, MA 65,000 120,665 0 185,665 185,665 180,370 1982 GRANBY, MA 58,804 232,477 24,000 267,281 291,281 166,277 1982 GREAT BARRINGTON, MA 30,000 124,074 6,000 148,074 154,074 130,793 1982 HADLEY, MA 119,276 68,748 36,080 151,944 188,024 144,278 1982 NORTH ADAMS, MA 97,301 54,567 49,777 102,091 151,868 89,066 1982 NORTH ADAMS, MA 97,126 57,922 40,000 115,048 155,048 110,243 1982 PITTSFIELD, MA 97,153 87,874 40,000 145,027 185,027 143,040 1982 PITTSFIELD, MA 123,167 118,273 50,000 191,440 241,440 188,534 1982 SOUTH HADLEY, MA 232,445 54,351 90,000 196,796 286,796 187,374 1982 SPRINGFIELD, MA 139,373 239,713 50,000 329,086 379,086 207,582 1983 SPRINGFIELD, MA 0 239,087 0 239,087 239,087 152,025 1984 SPRINGFIELD, MA 122,787 105,706 50,000 178,493 228,493 174,185 1982 WESTFIELD, MA 123,323 96,093 50,000 169,416 219,416 163,983 1982 OSSINING, NY 140,992 104,761 97,527 148,226 245,753 136,569 1982 FREEHOLD, NJ 494,275 68,507 402,834 159,948 562,782 77,029 1978 HOWELL, NJ 9,750 174,857 0 184,607 184,607 183,369 1978 LAKEWOOD, NJ 130,148 77,265 70,148 137,265 207,413 126,547 1978 NORTH PLAINFIELD, NJ 227,190 239,709 175,000 291,899 466,899 272,916 1978 SOUTH AMBOY, NJ 299,678 94,088 178,950 214,816 393,766 211,741 1978 ANDOVER, NJ 81,368 83,049 37,997 126,420 164,417 122,445 1982 GLEN HEAD, NY 234,395 192,295 102,645 324,045 426,690 323,575 1982 NEW ROCHELLE, NY 188,932 34,649 103,932 119,649 223,581 117,469 1982 ELMONT, NY 108,348 85,793 64,290 129,851 194,141 83,757 1982 NORTH BRANFORD, CT 130,057 23,436 83,088 70,405 153,493 69,752 1982 MERIDEN, CT 126,188 106,805 72,344 160,649 232,993 141,571 1982 PLAINVILLE, CT 80,000 290,433 0 370,433 370,433 278,634 1983 FRANKLIN SQUARE, NY 152,572 121,756 137,315 137,013 274,328 80,616 1978 SEAFORD, NY 32,000 157,665 0 189,665 189,665 143,163 1978 BROOKLYN, NY 276,831 376,706 168,423 485,114 653,537 295,020 1978 NEW HAVEN, CT 1,469,710 56,420 955,320 570,810 1,526,130 220,393 1985 BRISTOL, CT 359,906 0 0 359,906 359,906 41,990 2004 BRISTOL, CT 1,594,129 0 1,036,184 557,945 1,594,129 26,038 2004 BRISTOL, CT 297,389 0 193,303 104,086 297,389 4,857 2004 BRISTOL, CT 365,028 0 237,268 127,760 365,028 5,962 2004 COBALT, CT 395,683 0 0 395,683 395,683 46,163 2004 DURHAM, CT 993,909 0 0 993,909 993,909 115,956 2004 ELLINGTON, CT 1,294,889 0 841,678 453,211 1,294,889 21,149 2004 ENFIELD, CT 259,881 0 0 259,881 259,881 35,670 2004 FARMINGTON, CT 466,271 0 303,076 163,195 466,271 7,616 2004 HARTFORD, CT 664,966 0 432,228 232,738 664,966 10,862 2004 HARTFORD, CT 570,898 0 371,084 199,814 570,898 9,325 2004 MERIDEN, CT 1,531,772 0 989,165 542,607 1,531,772 26,020 2004 MIDDLETOWN, CT 1,038,592 0 675,085 363,507 1,038,592 16,963 2004 NEW BRITAIN, CT 390,497 0 253,823 136,674 390,497 6,378 2004 NEWINGTON, CT 953,512 0 619,783 333,729 953,512 15,574 2004 NORTH HAVEN, CT 405,389 0 251,985 153,404 405,389 9,089 2004 PLAINVILLE, CT 544,503 0 353,927 190,576 544,503 8,894 2004 PLYMOUTH, CT 930,885 0 605,075 325,810 930,885 15,204 2004 SOUTH WINDHAM, CT 644,141 0 418,692 225,449 644,141 10,521 2004
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Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- SOUTH WINDSOR, CT 544,857 0 336,737 208,120 544,857 15,411 2004 SUFFIELD, CT 237,401 602,635 200,878 639,158 840,036 52,612 2004 VERNON, CT 1,434,223 0 0 1,434,223 1,434,223 167,326 2004 WALLINGFORD, CT 550,553 0 334,901 215,652 550,553 12,536 2004 WALLINGFORD, CT 310,314 0 0 310,314 310,314 36,203 2004 WATERBURY, CT 804,040 0 516,387 287,653 804,040 14,699 2004 WATERBURY, CT 515,172 0 334,862 180,310 515,172 8,414 2004 WATERBURY, CT 468,469 0 304,505 163,964 468,469 7,652 2004 WATERTOWN, CT 924,586 0 566,986 357,600 924,586 26,450 2004 WETHERSFIELD, CT 446,610 0 0 446,610 446,610 52,105 2004 WEST HAVEN, CT 1,214,831 0 789,640 425,191 1,214,831 19,843 2004 WESTBROOK, CT 344,881 0 0 344,881 344,881 40,236 2004 WILLIMANTIC, CT 716,782 0 465,908 250,874 716,782 11,708 2004 WINDSOR, CT 1,042,081 0 669,804 372,277 1,042,081 43,433 2004 WINDSOR LOCKS, CT 1,433,330 0 0 1,433,330 1,433,330 167,222 2004 WINDSOR LOCKS, CT 360,664 0 0 360,664 360,664 16,832 2004 BLOOMFIELD, CT 141,452 54,786 90,000 106,238 196,238 88,291 1986 SIMSBURY, CT 317,704 144,637 206,700 255,641 462,341 150,587 1985 RIDGEFIELD, CT 535,140 33,590 347,900 220,830 568,730 88,160 1985 BRIDGEPORT, CT 349,500 56,209 227,600 178,109 405,709 89,976 1985 NORWALK, CT 510,760 209,820 332,200 388,380 720,580 181,067 1985 BRIDGEPORT, CT 313,400 20,303 204,100 129,603 333,703 52,348 1985 STAMFORD, CT 506,860 15,635 329,700 192,795 522,495 69,270 1985 BRIDGEPORT, CT 245,100 20,652 159,600 106,152 265,752 45,082 1985 BRIDGEPORT, CT 313,400 24,314 204,100 133,614 337,714 54,723 1985 BRIDGEPORT, CT 377,600 83,549 245,900 215,249 461,149 124,740 1985 BRIDGEPORT, CT 526,775 63,505 342,700 247,580 590,280 118,003 1985 BRIDGEPORT, CT 338,415 27,786 219,800 146,401 366,201 61,676 1985 NEW HAVEN, CT 538,400 176,230 350,600 364,030 714,630 234,572 1985 DARIEN, CT 667,180 26,061 434,300 258,941 693,241 96,875 1985 WESTPORT, CT 603,260 23,070 392,500 233,830 626,330 83,845 1985 STAMFORD, CT 603,260 112,305 392,500 323,065 715,565 172,832 1985 STAMFORD, CT 506,580 40,429 329,700 217,309 547,009 90,755 1985 GUILFORD, CT 147,071 28,486 30,000 145,557 175,557 83,253 1993 STRATFORD, CT 301,300 70,735 196,200 175,835 372,035 93,799 1985 STRATFORD, CT 285,200 14,728 185,700 114,228 299,928 44,178 1985 CHESHIRE, CT 490,200 19,050 319,200 190,050 509,250 72,194 1985 MILFORD, CT 293,512 43,846 191,000 146,358 337,358 71,561 1985 FAIRFIELD, CT 430,000 13,631 280,000 163,631 443,631 58,018 1985 HARTFORD, CT 233,000 32,563 151,700 113,863 265,563 53,326 1985 NEW HAVEN, CT 217,000 23,889 141,300 99,589 240,889 45,956 1985 RIDGEFIELD, CT 401,630 47,610 166,861 282,379 449,240 262,520 1985 BRIDGEPORT, CT 346,442 16,990 230,000 133,432 363,432 113,529 1985 WILTON, CT 518,881 71,425 337,500 252,806 590,306 117,894 1985 MIDDLETOWN, CT 133,022 86,915 131,312 88,625 219,937 88,347 1987 EAST HARTFORD, CT 555,826 13,797 301,322 268,301 569,623 39,346 1991 WATERTOWN, CT 351,771 58,812 204,027 206,556 410,583 86,143 1992 AVON, CT 730,886 0 402,949 327,937 730,886 52,030 2002 WILMINGTON, DE 309,300 67,834 201,400 175,734 377,134 86,082 1985 ST. GEORGES, DE 498,200 222,596 324,725 396,071 720,796 244,609 1985 WILMINGTON, DE 313,400 103,748 204,100 213,048 417,148 115,235 1985 WILMINGTON, DE 242,800 32,615 158,100 117,315 275,415 59,438 1985 WILMINGTON, DE 381,700 156,704 248,600 289,804 538,404 138,855 1985 CLAYMONT, DE 237,200 30,878 151,700 116,378 268,078 58,789 1985 NEWARK, DE 578,600 166,781 376,800 368,581 745,381 189,634 1985 NEWARK, DE 405,800 35,844 264,300 177,344 441,644 77,560 1985 WILMINGTON, DE 369,600 38,077 240,700 166,977 407,677 76,482 1985 WILMINGTON, DE 446,000 33,323 290,400 188,923 479,323 79,765 1985 WILMINGTON, DE 337,500 21,971 219,800 139,671 359,471 57,573 1985 SOUTH PORTLAND, ME 176,700 6,938 115,100 68,538 183,638 24,746 1985
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Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- LEWISTON, ME 341,900 89,500 222,400 209,000 431,400 124,791 1985 PORTLAND, ME 325,400 42,652 211,900 156,152 368,052 62,188 1985 BIDDEFORD, ME 723,100 8,009 470,900 260,209 731,109 87,437 1985 AUBURN, ME 93,078 59,561 55,431 97,208 152,639 87,004 1986 SACO, ME 204,006 37,173 150,694 90,485 241,179 89,260 1986 SANFORD, ME 265,523 9,178 201,316 73,385 274,701 73,115 1986 WESTBROOK, ME 93,345 193,654 50,431 236,568 286,999 162,795 1986 WISCASSET, ME 156,587 33,455 90,837 99,205 190,042 97,783 1986 AUBURN, ME 105,908 77,928 105,908 77,928 183,836 76,962 1986 SOUTH PORTLAND, ME 180,689 84,980 110,689 154,980 265,669 154,444 1986 LEWISTON, ME 180,338 62,629 101,338 141,629 242,967 138,217 1986 N. WINDHAM, ME 161,365 53,923 86,365 128,923 215,288 128,331 1986 BALTIMORE, MD 474,100 176,067 308,700 341,467 650,167 149,659 1985 RANDALLSTOWN, MD 590,600 33,594 384,600 239,594 624,194 98,440 1985 EMMITSBURG, MD 146,949 73,613 101,949 118,613 220,562 117,850 1986 MILFORD, MA 0 214,331 0 214,331 214,331 127,738 1985 AGAWAM, MA 209,555 63,621 136,000 137,176 273,176 82,716 1985 S. WEYMOUTH, MA 562,500 44,893 366,300 241,093 607,393 100,711 1985 WESTFIELD, MA 289,580 38,615 188,400 139,795 328,195 69,219 1985 WEST ROXBURY, MA 490,200 23,134 319,200 194,134 513,334 70,505 1985 MAYNARD, MA 735,200 12,714 478,800 269,114 747,914 90,889 1985 GARDNER, MA 1,008,400 73,740 656,700 425,440 1,082,140 165,256 1985 STOUGHTON, MA 775,300 34,554 504,900 304,954 809,854 113,441 1985 ARLINGTON, MA 518,300 27,906 337,500 208,706 546,206 82,750 1985 METHUEN, MA 379,664 64,941 245,900 198,705 444,605 102,301 1985 BELMONT, MA 301,300 27,938 196,200 133,038 329,238 58,150 1985 RANDOLPH, MA 743,200 25,069 484,000 284,269 768,269 102,937 1985 ROCKLAND, MA 534,300 23,616 347,900 210,016 557,916 80,769 1985 WATERTOWN, MA 357,500 296,588 321,030 333,058 654,088 162,919 1985 READING, MA 261,100 12,829 170,000 103,929 273,929 36,175 1985 WEYMOUTH, MA 643,297 36,516 418,600 261,213 679,813 99,814 1985 DEDHAM, MA 225,824 19,150 125,824 119,150 244,974 116,213 1987 HINGHAM, MA 352,606 22,484 242,520 132,570 375,090 123,877 1989 ASHLAND, MA 606,700 17,424 395,100 229,024 624,124 78,117 1985 WOBURN, MA 507,600 294,303 507,600 294,303 801,903 105,750 1985 BELMONT, MA 389,700 28,871 253,800 164,771 418,571 67,544 1985 HYDE PARK, MA 499,175 29,673 321,800 207,048 528,848 86,570 1985 EVERETT, MA 269,500 190,931 269,500 190,931 460,431 91,444 1985 PITTSFIELD, MA 281,200 51,100 183,100 149,200 332,300 77,709 1985 NORTH ATTLEBORO, MA 662,900 16,549 431,700 247,749 679,449 86,684 1985 WORCESTER, MA 497,642 67,806 321,800 243,648 565,448 124,452 1985 NEW BEDFORD, MA 522,300 18,274 340,100 200,474 540,574 71,233 1985 TAUNTON, MA 0 180,724 0 180,724 180,724 98,568 1989 FALL RIVER, MA 859,800 24,423 559,900 324,323 884,223 113,110 1985 WORCESTER, MA 385,600 21,339 251,100 155,839 406,939 61,698 1985 WEBSTER, MA 1,012,400 67,645 659,300 420,745 1,080,045 173,869 1985 CLINTON, MA 586,600 52,725 382,000 257,325 639,325 108,086 1985 FOXBOROUGH, MA 426,593 34,403 325,000 135,996 460,996 108,995 1990 CLINTON, MA 385,600 95,698 251,100 230,198 481,298 133,154 1985 HYANNIS, MA 650,800 42,552 423,800 269,552 693,352 113,585 1985
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Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- HOLYOKE, MA 329,500 38,345 214,600 153,245 367,845 69,610 1985 NEWTON, MA 691,000 42,832 450,000 283,832 733,832 107,185 1985 FALMOUTH, MA 519,382 43,841 458,461 104,762 563,223 99,841 1988 METHUEN, MA 490,200 16,282 319,200 187,282 506,482 69,957 1985 ROCKLAND, MA 578,600 185,285 376,800 387,085 763,885 180,036 1985 WILLIAMSTOWN, MA 221,000 54,948 143,900 132,048 275,948 67,558 1985 FAIRHAVEN, MA 725,500 48,828 470,900 303,428 774,328 124,944 1985 BELLINGHAM, MA 734,189 132,725 476,200 390,714 866,914 193,846 1985 NEW BEDFORD, MA 482,275 95,553 293,000 284,828 577,828 166,413 1985 SEEKONK, MA 1,072,700 29,112 698,500 403,312 1,101,812 138,989 1985 WALPOLE, MA 449,900 20,586 293,000 177,486 470,486 63,214 1985 NORTH ANDOVER, MA 393,700 220,132 256,400 357,432 613,832 170,047 1985 LOWELL, MA 360,949 83,674 200,949 243,674 444,623 241,922 1985 AUBURN, MA 175,048 30,890 125,048 80,890 205,938 80,106 1986 METHUEN, MA 147,330 188,059 50,731 284,658 335,389 209,173 1986 GEORGETOWN, MA 145,712 27,144 100,718 72,138 172,856 69,184 1986 IPSWICH, MA 138,918 46,831 95,718 90,031 185,749 83,411 1986 SALISBURY, MA 119,698 59,615 80,598 98,715 179,313 82,454 1986 BEVERLY, MA 275,000 150,741 175,000 250,741 425,741 187,694 1986 BILLERICA, MA 400,000 135,809 250,000 285,809 535,809 252,741 1986 HAVERHILL, MA 400,000 17,182 225,000 192,182 417,182 191,027 1986 CHATHAM, MA 275,000 197,302 175,000 297,302 472,302 204,560 1986 HARWICH, MA 225,000 12,044 150,000 87,044 237,044 82,695 1986 IPSWICH, MA 275,000 19,161 150,000 144,161 294,161 140,916 1986 LEOMINSTER, MA 200,000 49,592 100,000 149,592 249,592 144,614 1986 LOWELL, MA 375,000 175,969 250,000 300,969 550,969 212,075 1986 METHUEN, MA 300,000 50,861 150,000 200,861 350,861 197,357 1986 ORLEANS, MA 260,000 37,637 185,000 112,637 297,637 104,928 1986 PEABODY, MA 400,000 200,363 275,000 325,363 600,363 253,114 1986 QUINCY, MA 200,000 36,112 125,000 111,112 236,112 106,745 1986 REVERE, MA 250,000 193,854 150,000 293,854 443,854 220,136 1986 SALEM, MA 275,000 25,393 175,000 125,393 300,393 122,211 1986 TEWKSBURY, MA 125,000 90,338 75,000 140,338 215,338 122,277 1986 FALMOUTH, MA 150,000 322,942 75,000 397,942 472,942 258,090 1986 WEST YARMOUTH, MA 225,000 33,165 125,000 133,165 258,165 131,152 1986 WESTFORD, MA 275,000 196,493 175,000 296,493 471,493 208,144 1986 WOBURN, MA 350,000 45,681 200,000 195,681 395,681 190,610 1986 YARMOUTHPORT, MA 300,000 26,940 150,000 176,940 326,940 176,269 1986 BRIDGEWATER, MA 190,360 36,762 140,000 87,122 227,122 69,202 1987 STOUGHTON, MA 0 235,794 0 235,794 235,794 138,970 1990 WORCESTER, MA 476,102 174,233 309,466 340,869 650,335 116,476 1991 AUBURN, MA 369,306 27,792 240,049 157,049 397,098 35,361 1991 BARRE, MA 535,614 163,028 348,149 350,493 698,642 108,319 1991 WORCESTER, MA 275,866 11,674 179,313 108,227 287,540 21,362 1992 BROCKTON, MA 275,866 194,619 179,313 291,172 470,485 121,336 1991 CLINTON, MA 177,978 29,790 115,686 92,082 207,768 32,170 1992 WORCESTER, MA 167,745 275,852 167,745 275,852 443,597 112,153 1991 DUDLEY, MA 302,563 141,993 196,666 247,890 444,556 73,572 1991 FITCHBURG, MA 311,808 16,384 202,675 125,517 328,192 25,895 1991 FRANKLIN, MA 253,619 18,437 164,852 107,204 272,056 26,073 1988
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Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- WORCESTER, MA 342,608 11,101 222,695 131,014 353,709 22,370 1991 HYANNIS, MA 222,472 7,282 144,607 85,147 229,754 15,504 1991 LEOMINSTER, MA 195,776 177,454 127,254 245,976 373,230 108,274 1991 WORCESTER, MA 231,372 157,356 150,392 238,336 388,728 100,284 1991 NORTHBOROUGH, MA 404,900 18,353 263,185 160,068 423,253 29,522 1993 WEST BOYLSTON, MA 311,808 28,937 202,675 138,070 340,745 36,264 1991 WORCESTER, MA 186,877 33,510 121,470 98,917 220,387 34,729 1993 SOUTHBRIDGE, MA 0 172,279 0 172,279 172,279 105,159 1991 SOUTH YARMOUTH, MA 275,866 49,961 179,313 146,514 325,827 46,299 1991 STERLING, MA 476,102 165,998 309,466 332,634 642,100 106,466 1991 SUTTON, MA 714,159 187,355 464,203 437,311 901,514 135,785 1993 WORCESTER, MA 275,866 150,472 179,313 247,025 426,338 97,197 1991 FRAMINGHAM, MA 297,568 203,147 193,419 307,296 500,715 130,063 1992 UPTON, MA 428,498 24,611 278,524 174,585 453,109 38,421 1991 WESTBOROUGH, MA 311,808 205,994 202,675 315,127 517,802 130,112 1991 HARWICHPORT, MA 382,653 173,989 248,724 307,918 556,642 110,810 1991 WORCESTER, MA 547,283 205,733 355,734 397,282 753,016 135,717 1991 WORCESTER, MA 978,880 191,413 636,272 534,021 1,170,293 140,412 1991 FITCHBURG, MA 390,276 216,589 253,679 353,186 606,865 130,855 1992 WORCESTER, MA 146,832 140,589 95,441 191,980 287,421 84,853 1991 LEICESTER, MA 266,968 197,898 173,529 291,337 464,866 111,287 1991 NORTH GRAFTON, MA 244,720 35,136 159,068 120,788 279,856 37,498 1991 SOUTHBRIDGE, MA 249,169 62,205 161,960 149,414 311,374 64,869 1993 OXFORD, MA 293,664 9,098 190,882 111,880 302,762 19,116 1993 WORCESTER, MA 284,765 45,285 185,097 144,953 330,050 51,437 1991 ATHOL, MA 164,629 22,016 107,009 79,636 186,645 24,066 1991 FITCHBURG, MA 142,383 194,291 92,549 244,125 336,674 105,044 1992 WORCESTER, MA 271,417 183,331 176,421 278,327 454,748 113,015 1991 ORANGE, MA 476,102 4,015 309,466 170,651 480,117 20,322 1991 FRAMINGHAM, MA 400,449 22,280 260,294 162,435 422,729 33,788 1991 MILFORD, MA 0 262,436 0 262,436 262,436 134,357 1991 AUBURN, MA 0 167,147 0 167,147 167,147 79,739 1996 MANCHESTER, NH 249,100 22,857 162,200 109,757 271,957 42,551 1985 MANCHESTER, NH 261,100 36,404 170,000 127,504 297,504 52,533 1985 CONCORD, NH 233,400 68,292 151,700 149,992 301,692 86,124 1985 DERRY, NH 417,988 16,295 157,988 276,295 434,283 274,683 1987 PLAISTOW, NH 300,406 117,924 244,694 173,636 418,330 155,807 1987 SOMERSWORTH, NH 180,800 60,497 117,700 123,597 241,297 55,221 1985 SALEM, NH 743,200 19,847 484,000 279,047 763,047 96,483 1985 LONDONDERRY, NH 703,100 31,092 457,900 276,292 734,192 104,089 1985 ROCHESTER, NH 972,200 12,775 633,100 351,875 984,975 116,594 1985 HAMPTON, NH 193,103 26,449 135,598 83,954 219,552 82,029 1986 MERRIMACK, NH 151,993 205,823 100,598 257,218 357,816 163,203 1986 NASHUA, NH 197,142 219,639 155,837 260,944 416,781 160,614 1986 PELHAM, NH 169,182 53,497 136,077 86,602 222,679 74,874 1986 PEMBROKE, NH 138,492 174,777 100,837 212,432 313,269 126,254 1986 ROCHESTER, NH 179,717 208,103 100,000 287,820 387,820 201,119 1986 ROCHESTER, NH 110,598 43,142 80,598 73,142 153,740 68,578 1986 SOMERSWORTH, NH 210,805 15,012 157,520 68,297 225,817 67,428 1986
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Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- EXETER, NH 113,285 149,265 65,000 197,550 262,550 169,218 1986 CANDIA, NH 130,000 184,004 80,000 234,004 314,004 223,142 1986 EPPING, NH 170,000 131,403 120,000 181,403 301,403 141,946 1986 EPSOM, NH 220,000 96,022 155,000 161,022 316,022 135,173 1986 EXETER, NH 160,000 44,343 105,000 99,343 204,343 75,967 1986 MILFORD, NH 190,000 41,689 115,000 116,689 231,689 108,724 1986 PORTSMOUTH, NH 235,000 20,257 150,000 105,257 255,257 104,192 1986 PORTSMOUTH, NH 225,000 228,704 125,000 328,704 453,704 222,589 1986 SALEM, NH 450,000 47,484 350,000 147,484 497,484 135,135 1986 SEABROOK, NH 199,780 19,102 124,780 94,102 218,882 93,063 1986 PELHAM, NH 0 234,915 0 234,915 234,915 97,360 1996 MCAFEE, NJ 670,900 15,711 436,900 249,711 686,611 86,173 1985 HAMBURG, NJ 598,600 22,121 389,800 230,921 620,721 85,279 1985 WEST MILFORD, NJ 502,200 31,918 327,000 207,118 534,118 85,847 1985 LIVINGSTON, NJ 871,800 30,003 567,700 334,103 901,803 122,086 1985 TRENTON, NJ 373,600 9,572 243,300 139,872 383,172 48,661 1985 WILLINGBORO, NJ 425,800 29,928 277,300 178,428 455,728 76,532 1985 BAYONNE, NJ 341,500 18,947 222,400 138,047 360,447 53,862 1985 CRANFORD, NJ 342,666 29,222 222,400 149,488 371,888 65,522 1985 TRENTON, NJ 466,100 13,987 303,500 176,587 480,087 63,961 1985 WALL TOWNSHIP, NJ 336,441 55,709 121,441 270,709 392,150 260,626 1986 UNION, NJ 490,200 41,361 319,200 212,361 531,561 87,836 1985 CRANBURY, NJ 606,700 31,467 395,100 243,067 638,167 95,458 1985 HILLSIDE, NJ 225,000 31,552 150,000 106,552 256,552 91,213 1987 SPOTSWOOD, NJ 466,675 69,036 303,500 232,211 535,711 118,655 1985 LONG BRANCH, NJ 514,300 22,951 334,900 202,351 537,251 79,762 1985 ELIZABETH, NJ 405,800 18,881 264,300 160,381 424,681 61,228 1985 BELLEVILLE, NJ 397,700 39,410 259,000 178,110 437,110 78,830 1985 NEPTUNE CITY, NJ 269,600 0 175,600 94,000 269,600 29,768 1985 BASKING RIDGE, NJ 362,172 32,960 200,000 195,132 395,132 98,589 1986 DEPTFORD, NJ 281,200 24,745 183,100 122,845 305,945 53,313 1985 CHERRY HILL, NJ 357,500 13,879 232,800 138,579 371,379 51,814 1985 SEWELL, NJ 551,912 48,485 355,712 244,685 600,397 100,136 1985 FLEMINGTON, NJ 546,742 17,494 346,342 217,894 564,236 76,820 1985 WILLIAMSTOWN, NJ 156,879 7,776 130,000 34,655 164,655 33,675 1988 BLACKWOOD, NJ 401,700 36,736 261,600 176,836 438,436 80,144 1985 TRENTON, NJ 684,650 33,275 444,800 273,125 717,925 107,767 1985 EAST ORANGE, NJ 421,508 37,977 272,100 187,385 459,485 85,985 1985 FREEHOLD, NJ 240,642 0 0 240,642 240,642 139,260 1995 BELMAR, NJ 630,800 22,371 410,800 242,371 653,171 89,427 1985 MOORESTOWN, NJ 470,100 27,064 306,100 191,064 497,164 76,831 1985 SPRING LAKE, NJ 345,500 42,194 225,000 162,694 387,694 70,572 1985 HILLTOP, NJ 329,500 16,758 214,600 131,658 346,258 50,988 1985 CLIFTON, NJ 301,518 6,413 150,000 157,931 307,931 74,179 1987 SEWELL, NJ 405,800 12,338 264,300 153,838 418,138 55,451 1985 FRANKLIN TWP., NJ 683,000 30,257 444,800 268,457 713,257 104,370 1985 FLEMINGTON, NJ 708,160 33,072 460,500 280,732 741,232 102,155 1985 CLEMENTON, NJ 562,500 27,581 366,300 223,781 590,081 88,242 1985 BRADLEY BEACH, NJ 240,642 0 0 240,642 240,642 139,260 1995 ASBURY PARK, NJ 418,966 18,038 272,100 164,904 437,004 64,880 1985
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Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- MIDLAND PARK, NJ 201,012 4,080 150,000 55,092 205,092 39,675 1989 PATERSON, NJ 619,548 16,765 402,900 233,413 636,313 83,734 1985 FREEHOLD, NJ 450,300 7,822 293,200 164,922 458,122 56,052 1985 OCEAN CITY, NJ 843,700 113,162 549,400 407,462 956,862 203,165 1985 WHITING, NJ 447,199 3,519 167,090 283,628 450,718 282,181 1989 HILLSBOROUGH, NJ 237,122 7,729 100,000 144,851 244,851 51,153 1985 PRINCETON, NJ 703,100 40,615 457,900 285,815 743,715 115,652 1985 NEPTUNE, NJ 455,726 39,090 293,000 201,816 494,816 86,951 1985 NEWARK, NJ 3,086,592 164,432 2,005,800 1,245,224 3,251,024 505,657 1985 OAKHURST, NJ 225,608 46,405 100,608 171,405 272,013 164,715 1985 BELLEVILLE, NJ 215,468 38,163 149,237 104,394 253,631 100,549 1986 PINE HILL, NJ 190,568 39,918 115,568 114,918 230,486 108,705 1986 TUCKERTON, NJ 224,387 132,864 131,018 226,233 357,251 217,824 1987 WEST DEPTFORD, NJ 245,450 50,295 151,053 144,692 295,745 138,304 1987 ATCO, NJ 153,159 85,853 131,766 107,246 239,012 106,067 1987 SOMERVILLE, NJ 252,717 254,230 200,500 306,447 506,947 145,013 1987 CINNAMINSON, NJ 326,501 24,931 176,501 174,931 351,432 170,135 1987 RIDGEFIELD PARK, NJ 273,549 0 150,000 123,549 273,549 64,993 1997 BRICK, NJ 1,507,684 0 1,000,000 507,684 1,507,684 168,804 2000 LAKE HOPATCONG, NJ 1,305,034 0 800,000 505,034 1,305,034 206,623 2000 BERGENFIELD, NJ 381,590 36,271 300,000 117,861 417,861 107,108 1990 ORANGE, NJ 281,200 24,573 183,100 122,673 305,773 53,027 1985 BLOOMFIELD, NJ 695,000 21,021 452,600 263,421 716,021 97,708 1985 IRVINGTON, NJ 271,200 79,011 176,600 173,611 350,211 99,551 1985 UNION, NJ 441,900 36,198 287,800 190,298 478,098 190,298 1985 SCOTCH PLAINS, NJ 331,063 14,455 214,600 130,918 345,518 50,570 1985 NUTLEY, NJ 433,800 48,677 282,500 199,977 482,477 91,874 1985 PLAINFIELD, NJ 470,100 29,975 306,100 193,975 500,075 75,056 1985 MOUNTAINSIDE, NJ 664,100 31,620 431,700 264,020 695,720 98,297 1985 WATCHUNG, NJ 449,900 20,339 293,000 177,239 470,239 66,649 1985 GREEN VILLAGE, NJ 277,900 44,471 127,900 194,471 322,371 187,035 1985 IRVINGTON, NJ 409,700 54,841 266,800 197,741 464,541 99,025 1985 JERSEY CITY, NJ 438,000 51,856 285,200 204,656 489,856 92,689 1985 BLOOMFIELD, NJ 441,900 32,951 287,800 187,051 474,851 79,618 1985 DOVER, NJ 606,700 30,153 395,100 241,753 636,853 92,328 1985 PARLIN, NJ 441,900 29,075 287,800 183,175 470,975 76,167 1985 UNION CITY, NJ 799,500 3,440 520,600 282,340 802,940 91,759 1985 COLONIA, NJ 253,100 3,395 164,800 91,695 256,495 31,358 1985 NORTH BERGEN, NJ 629,527 81,006 409,527 301,006 710,533 141,241 1985 WAYNE, NJ 490,200 21,766 319,200 192,766 511,966 73,439 1985 HASBROUCK HEIGHTS, NJ 639,648 19,648 416,000 243,296 659,296 86,244 1985 COLONIA, NJ 952,200 74,451 620,100 406,551 1,026,651 169,698 1985 OLD BRIDGE, NJ 319,521 24,445 204,621 139,345 343,966 59,233 1985 RIDGEWOOD, NJ 703,100 36,959 457,900 282,159 740,059 107,176 1985 HAWTHORNE, NJ 245,100 10,967 159,600 96,467 256,067 37,689 1985 WAYNE, NJ 474,100 42,926 308,700 208,326 517,026 94,266 1985 WASHINGTON TOWNSHIP, NJ 912,000 21,261 593,900 339,361 933,261 118,721 1985 PARAMUS, NJ 381,700 42,394 248,600 175,494 424,094 83,315 1985 JERSEY CITY, NJ 401,700 43,808 261,600 183,908 445,508 86,959 1985 FORT LEE, NJ 1,245,500 39,408 811,100 473,808 1,284,908 172,197 1985 MONMOUTH BEACH, NJ 133,500 33,987 100,125 67,362 167,487 38,694 1985 AUDUBON, NJ 421,800 12,949 274,700 160,049 434,749 58,779 1985 TRENTON, NJ 337,500 69,461 219,800 187,161 406,961 106,135 1985 STRATFORD, NJ 215,597 0 0 215,597 215,597 160,417 1995 MAGNOLIA, NJ 329,500 26,488 214,600 141,388 355,988 62,425 1985 BEVERLY, NJ 470,100 24,003 306,100 188,003 494,103 71,991 1985 PISCATAWAY, NJ 269,200 28,232 175,300 122,132 297,432 55,006 1985 WEST ORANGE, NJ 799,500 34,733 520,600 313,633 834,233 122,388 1985 ROCKVILLE CENTRE, NY 350,325 315,779 201,400 464,704 666,104 288,978 1985 GLENDALE, NY 368,625 159,763 235,500 292,888 528,388 135,422 1985 BELLAIRE, NY 329,500 73,358 214,600 188,258 402,858 88,830 1985 BROOKLYN, NY 0 178,082 0 178,082 178,082 95,880 1987 BAYSIDE, NY 245,100 202,833 159,600 288,333 447,933 140,648 1985
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Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- YONKERS, NY 153,184 67,266 76,592 143,858 220,450 64,141 1987 DOBBS FERRY, NY 670,575 33,706 434,300 269,981 704,281 104,070 1985 NORTH MERRICK, NY 510,350 141,506 332,200 319,656 651,856 144,525 1985 GREAT NECK, NY 500,000 24,468 450,000 74,468 524,468 72,451 1985 GLEN HEAD, NY 462,468 45,355 300,900 206,923 507,823 95,347 1985 GARDEN CITY, NY 361,600 33,774 235,500 159,874 395,374 69,229 1985 HEWLETT, NY 490,200 85,618 319,200 256,618 575,818 92,287 1985 EAST HILLS, NY 241,613 21,070 241,613 21,070 262,683 19,129 1986 YONKERS, NY 111,300 80,000 65,000 126,300 191,300 99,448 1988 LEVITTOWN, NY 502,757 42,113 327,000 217,870 544,870 93,854 1985 LEVITTOWN, NY 546,400 113,057 355,800 303,657 659,457 127,841 1985 ST. ALBANS, NY 329,500 87,250 214,600 202,150 416,750 104,121 1985 RIDGEWOOD, NY 278,372 38,578 277,606 39,344 316,950 17,798 1986 BROOKLYN, NY 626,700 282,677 408,100 501,277 909,377 260,154 1985 BROOKLYN, NY 476,816 272,765 306,100 443,481 749,581 220,438 1985 SYOSSET, NY 139,686 37,407 65,982 111,111 177,093 103,049 1986 SEAFORD, NY 325,400 83,257 211,900 196,757 408,657 72,739 1985 BAYSIDE, NY 470,100 246,576 306,100 410,576 716,676 183,247 1985 BAY SHORE, NY 188,900 26,286 123,000 92,186 215,186 43,670 1985 ELMONT, NY 389,700 90,633 253,800 226,533 480,333 86,069 1985 WHITE PLAINS, NY 258,600 60,120 164,800 153,920 318,720 76,487 1985 SCARSDALE, NY 257,100 102,632 167,400 192,332 359,732 102,516 1985 EASTCHESTER, NY 614,700 34,500 400,300 248,900 649,200 99,170 1985 NEW ROCHELLE, NY 337,500 51,741 219,800 169,441 389,241 76,325 1985 BROOKLYN, NY 421,800 270,436 274,700 417,536 692,236 208,706 1985 COMMACK, NY 321,400 25,659 209,300 137,759 347,059 59,058 1985 SAG HARBOR, NY 703,600 36,012 458,200 281,412 739,612 112,683 1985 EAST HAMPTON, NY 663,100 39,313 431,800 270,613 702,413 103,663 1985 MASTIC, NY 313,400 110,180 204,100 219,480 423,580 144,757 1985 BRONX, NY 390,200 329,357 251,100 468,457 719,557 222,739 1985 YONKERS, NY 1,020,400 61,875 664,500 417,775 1,082,275 164,192 1985 GLENVILLE, NY 343,723 98,299 219,800 222,222 442,022 121,906 1985 YONKERS, NY 202,826 42,877 144,000 101,703 245,703 68,804 1986 MINEOLA, NY 341,500 34,411 222,400 153,511 375,911 69,415 1985 NEW YORK, NY 0 164,351 0 164,351 164,351 94,579 1989 ALBANY, NY 404,888 104,378 261,600 247,666 509,266 144,993 1985 LONG ISLAND CITY, NY 1,646,307 259,443 1,071,500 834,250 1,905,750 425,533 1985 ALBANY, NY 142,312 36,831 91,600 87,543 179,143 52,277 1985 RENSSELAER, NY 1,653,500 514,444 1,076,800 1,091,144 2,167,944 697,058 1985 RENSSELAER, NY 683,781 0 286,504 397,277 683,781 23,172 2004 PORT JEFFERSON, NY 400,725 63,743 259,000 205,468 464,468 104,918 1985 ROTTERDAM, NY 140,600 100,399 91,600 149,399 240,999 101,758 1985 OSSINING, NY 231,100 44,049 149,200 125,949 275,149 62,732 1985 ELLENVILLE, NY 233,000 53,690 151,700 134,990 286,690 71,902 1985 CHATHAM, NY 349,133 131,805 225,000 255,938 480,938 153,181 1985 HYDE PARK, NY 253,100 12,015 164,800 100,315 265,115 39,044 1985 SHRUB OAK, NY 1,060,700 81,807 690,700 451,807 1,142,507 185,178 1985 NEW YORK, NY 0 229,435 0 229,435 229,435 151,073 1985 BROOKLYN, NY 237,100 125,067 154,400 207,767 362,167 93,564 1985
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Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- STATEN ISLAND, NY 301,300 288,603 196,200 393,703 589,903 200,218 1985 STATEN ISLAND, NY 357,904 39,588 230,300 167,192 397,492 78,296 1985 STATEN ISLAND, NY 349,500 176,590 227,600 298,490 526,090 146,220 1985 BRONX, NY 93,817 120,396 67,200 147,013 214,213 105,288 1985 BRONX, NY 104,130 360,410 90,000 374,540 464,540 245,732 1985 OZONE PARK, NY 0 193,968 0 193,968 193,968 97,801 1986 MT. VERNON, NY 117,440 37,529 72,440 82,529 154,969 76,504 1985 PELHAM MANOR, NY 136,791 78,987 75,000 140,778 215,778 125,002 1985 FREEPORT, NY 119,745 30,930 65,000 85,675 150,675 76,664 1986 EAST MEADOW, NY 425,000 86,005 325,000 186,005 511,005 118,665 1986 STATEN ISLAND, NY 389,700 88,922 253,800 224,822 478,622 122,345 1985 MERRICK, NY 477,498 77,925 240,764 314,659 555,423 100,854 1987 WANTAGH, NY 0 180,017 0 180,017 180,017 140,022 1988 MASSAPEQUA, NY 333,400 53,696 217,100 169,996 387,096 86,947 1985 TROY, NY 225,000 60,569 146,500 139,069 285,569 69,746 1985 BALDWIN, NY 290,923 5,007 151,280 144,650 295,930 33,977 1986 NEW YORK, NY 0 605,891 0 605,891 605,891 323,686 1986 MIDDLETOWN, NY 751,200 166,411 489,200 428,411 917,611 165,627 1985 OCEANSIDE, NY 313,400 88,863 204,100 198,163 402,263 73,417 1985 WANTAGH, NY 261,814 85,758 175,000 172,572 347,572 98,306 1985 NORTHPORT, NY 241,100 33,036 157,000 117,136 274,136 58,164 1985 BALLSTON, NY 160,000 134,021 110,000 184,021 294,021 178,907 1986 BALLSTON SPA, NY 210,000 105,073 100,000 215,073 315,073 207,064 1986 COLONIE, NY 245,150 28,322 120,150 153,322 273,472 147,318 1986 DELMAR, NY 150,000 42,478 70,000 122,478 192,478 115,555 1986 ELLENVILLE, NY 170,000 72,869 70,000 172,869 242,869 148,902 1986 FORT EDWARD, NY 225,000 65,739 150,000 140,739 290,739 133,705 1986 FT. PLAIN, NY 122,008 43,370 72,008 93,370 165,378 75,598 1986 QUEENSBURY, NY 225,000 105,592 165,000 165,592 330,592 157,210 1986 GLOVERSVILLE, NY 200,000 52,696 100,000 152,696 252,696 146,348 1986 HALFMOON, NY 415,000 205,598 228,100 392,498 620,598 367,107 1986 HANCOCK, NY 100,000 109,470 50,000 159,470 209,470 148,962 1986 HYDE PARK, NY 300,000 59,198 175,000 184,198 359,198 167,600 1986 LATHAM, NY 275,000 68,160 150,000 193,160 343,160 175,884 1986 MALTA, NY 190,000 91,726 65,000 216,726 281,726 203,754 1986 MELROSE, NY 105,000 69,624 55,000 119,624 174,624 105,382 1986 MILLERTON, NY 175,000 123,063 100,000 198,063 298,063 170,574 1986 NEW WINDSOR, NY 150,000 94,791 75,000 169,791 244,791 141,143 1986 NISKAYUNA, NY 425,000 35,421 275,000 185,421 460,421 176,295 1986 PLEASANT VALLEY, NY 398,497 115,129 240,000 273,626 513,626 183,040 1986 POUGHKEEPSIE, NY 250,000 82,485 150,000 182,485 332,485 156,970 1986 POUGHKEEPSIE, NY 175,000 0 175,000 0 175,000 0 1986 QUEENSBURY, NY 230,000 65,245 155,000 140,245 295,245 122,933 1986 ROTTERDAM, NY 132,287 166,077 0 298,364 298,364 208,174 1995 SCHENECTADY, NY 225,000 298,103 150,000 373,103 523,103 358,251 1986 S. GLENS FALLS, NY 325,000 58,892 225,000 158,892 383,892 142,961 1986 TROY, NY 175,000 65,690 75,000 165,690 240,690 145,834 1986 HUDSON FALLS, NY 190,000 55,750 65,000 180,750 245,750 164,861 1986 ALBANY, NY 206,620 87,949 81,620 212,949 294,569 201,215 1986 NEWBURGH, NY 430,766 25,850 150,000 306,616 456,616 292,616 1989
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Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- JERICHO, NY 0 332,687 0 332,687 332,687 156,514 1998 CATSKILL, NY 321,446 0 125,000 196,446 321,446 17,156 2004 CATSKILL, NY 305,285 99,076 203,523 200,838 404,361 107,310 1989 GREENVILLE, NY 77,153 105,325 77,152 105,326 182,478 95,687 1989 QUARRYVILLE, NY 35,917 168,199 35,916 168,200 204,116 156,104 1988 MENANDS, NY 150,580 60,563 49,999 161,144 211,143 140,358 1988 HOOSICK FALLS, NY 0 151,535 0 151,535 151,535 139,444 1988 BREWSTER, NY 302,564 44,393 142,564 204,393 346,957 196,376 1988 VALATIE, NY 165,590 394,981 90,829 469,742 560,571 365,635 1989 CAIRO, NY 191,928 142,895 46,650 288,173 334,823 271,021 1988 RED HOOK, NY 0 226,787 0 226,787 226,787 215,624 1991 WEST TAGHKANIC, NY 202,750 117,540 121,650 198,640 320,290 123,417 1986 RAVENA, NY 0 199,900 0 199,900 199,900 188,042 1991 SAYVILLE, NY 528,225 0 300,000 228,225 528,225 67,707 1998 WANTAGH, NY 640,680 0 370,200 270,480 640,680 80,240 1998 CENTRAL ISLIP, NY 572,244 0 357,500 214,744 572,244 63,597 1998 FLUSHING, NY 516,110 0 320,125 195,985 516,110 57,972 1998 NORTH LINDENHURST, NY 341,530 0 192,000 149,530 341,530 44,275 1998 WYANDANCH, NY 453,131 0 279,500 173,631 453,131 51,362 1998 NEW ROCHELLE, NY 415,180 0 251,875 163,305 415,180 48,116 1998 FLORAL PARK, NY 616,700 0 356,400 260,300 616,700 77,092 1998 RIVERHEAD, NY 723,346 0 431,700 291,646 723,346 86,376 1998 AMHERST, NY 223,009 0 173,451 49,558 223,009 20,347 2000 BUFFALO, NY 312,426 0 150,888 161,538 312,426 50,005 2000 KENMORE, NY 160,000 0 110,000 50,000 160,000 12,833 2000 GRAND ISLAND, NY 350,849 0 247,348 103,501 350,849 37,993 2000 HAMBURG, NY 298,805 0 168,680 130,125 298,805 33,398 2000 LACKAWANNA, NY 250,030 0 129,870 120,160 250,030 38,533 2000 LEWISTON, NY 205,000 0 125,000 80,000 205,000 20,533 2000 TONAWANDA, NY 189,296 0 147,122 42,174 189,296 10,825 2000 TONAWANDA, NY 304,762 11,493 211,337 104,918 316,255 26,930 2000 WEST SENECA, NY 257,142 0 184,385 72,757 257,142 18,678 2000 WILLIAMSVILLE, NY 211,972 0 176,643 35,329 211,972 9,067 2000 PHILADELPHIA, PA 687,000 25,017 447,400 264,617 712,017 97,167 1985 PHILADELPHIA, PA 237,100 205,495 154,400 288,195 442,595 138,201 1985 ALLENTOWN, PA 357,500 76,385 232,800 201,085 433,885 84,821 1985 NORRISTOWN, PA 241,300 78,419 157,100 162,619 319,719 68,593 1985 BRYN MAWR, PA 221,000 59,832 143,900 136,932 280,832 76,375 1985 CONSHOHOCKEN, PA 261,100 77,885 170,000 168,985 338,985 91,656 1985 PHILADELPHIA, PA 281,200 34,285 183,100 132,385 315,485 61,786 1985 HUNTINGDON VALLEY, PA 421,800 36,439 274,700 183,539 458,239 79,399 1985 FEASTERVILLE, PA 510,200 160,144 332,200 338,144 670,344 180,912 1985 PHILADELPHIA, PA 285,200 65,498 185,700 164,998 350,698 84,616 1985 PHILADELPHIA, PA 289,300 50,010 188,400 150,910 339,310 77,644 1985 PHILADELPHIA, PA 405,800 221,269 264,300 362,769 627,069 205,867 1985 PHILADELPHIA, PA 417,800 210,406 272,100 356,106 628,206 156,587 1985 PHILADELPHIA, PA 369,600 276,720 240,700 405,620 646,320 217,064 1985 HATBORO, PA 285,200 61,979 185,700 161,479 347,179 89,112 1985 HAVERTOWN, PA 402,000 22,660 253,800 170,860 424,660 77,376 1985
- 37 -
Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- MEDIA, PA 326,195 24,082 191,000 159,277 350,277 88,174 1985 PHILADELPHIA, PA 389,700 28,006 253,800 163,906 417,706 69,601 1985 MILMONT PARK, PA 343,093 32,840 222,400 153,533 375,933 70,334 1985 PHILADELPHIA, PA 341,500 224,647 222,400 343,747 566,147 167,163 1985 ALDAN, PA 281,200 45,539 183,100 143,639 326,739 68,779 1985 BRISTOL, PA 430,500 82,981 280,000 233,481 513,481 121,806 1985 TREVOSE, PA 215,214 16,382 150,000 81,596 231,596 58,632 1987 HAVERTOWN, PA 265,200 24,500 172,700 117,000 289,700 48,984 1985 ABINGTON, PA 309,300 43,696 201,400 151,596 352,996 71,704 1985 HATBORO, PA 289,300 61,371 188,400 162,271 350,671 85,279 1985 CLIFTON HGTS., PA 428,201 63,403 256,400 235,204 491,604 136,278 1985 ALDAN, PA 433,800 21,152 282,500 172,452 454,952 66,190 1985 SHARON HILL, PA 411,057 39,574 266,800 183,831 450,631 84,157 1985 MEDIA, PA 474,100 5,055 308,700 170,455 479,155 57,433 1985 ROSLYN, PA 349,500 173,661 227,600 295,561 523,161 191,527 1985 CLIFTON HGTS, PA 213,000 46,824 138,700 121,124 259,824 63,331 1985 PHILADELPHIA, PA 369,600 273,642 240,700 402,542 643,242 245,383 1985 MORRISVILLE, PA 377,600 33,522 245,900 165,222 411,122 72,983 1985 PHILADELPHIA, PA 302,999 220,313 181,497 341,815 523,312 251,355 1985 FAIRLESS HILLS, PA 215,600 16,975 140,400 92,175 232,575 40,789 1985 PHOENIXVILLE, PA 413,800 17,561 269,500 161,861 431,361 62,091 1985 LANGHORNE, PA 122,202 69,328 50,000 141,530 191,530 87,326 1987 POTTSTOWN, PA 430,000 48,854 280,000 198,854 478,854 93,548 1985 BOYERTOWN, PA 233,000 5,373 151,700 86,673 238,373 31,119 1985 QUAKERTOWN, PA 379,111 89,812 243,300 225,623 468,923 118,536 1985 SOUDERTON, PA 381,700 172,170 248,600 305,270 553,870 153,991 1985 LANSDALE, PA 243,844 200,458 243,844 200,458 444,302 97,882 1985 CHALFONT, PA 296,500 12,019 193,100 115,419 308,519 44,763 1985 FURLONG, PA 175,300 151,150 175,300 151,150 326,450 84,347 1985 DOYLESTOWN, PA 405,800 32,659 264,300 174,159 438,459 74,814 1985 PENNDEL, PA 137,429 31,015 90,000 78,444 168,444 59,891 1988 WEST CHESTER, PA 421,800 21,935 274,700 169,035 443,735 67,505 1985 NORRISTOWN, PA 175,300 120,786 175,300 120,786 296,086 54,052 1985 TRAPPE, PA 377,600 44,509 245,900 176,209 422,109 84,710 1985 GETTYSBURG, PA 157,602 28,530 67,602 118,530 186,132 116,882 1986 PARADISE, PA 132,295 151,188 102,295 181,188 283,483 113,205 1986 LINWOOD, PA 171,518 22,371 102,968 90,921 193,889 86,993 1987 READING, PA 750,000 49,125 0 799,125 799,125 781,444 1989 ELKINS PARK, PA 275,171 17,524 200,000 92,695 292,695 86,477 1990 NEW OXFORD, PA 1,044,707 13,500 18,687 1,039,520 1,058,207 597,416 1996 HANOVER, PA 108,435 417,763 108,435 417,763 526,198 408,133 1958 GLEN ROCK, PA 20,442 166,633 20,442 166,633 187,075 133,318 1961 BOILING SPRINGS, PA 14,792 167,641 14,792 167,641 182,433 137,025 1961 NORTH KINGSTOWN, RI 211,835 25,971 89,135 148,671 237,806 144,156 1985 MIDDLETOWN, RI 306,710 16,364 176,710 146,364 323,074 144,494 1987 WARWICK, RI 376,563 39,933 205,889 210,607 416,496 205,498 1989 PROVIDENCE, RI 231,372 191,647 150,392 272,627 423,019 96,642 1991 EAST PROVIDENCE, RI 2,297,435 568,241 1,495,700 1,369,976 2,865,676 440,801 1985 ASHAWAY, RI 618,609 0 402,096 216,513 618,609 10,105 2004
- 38 -
Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- EAST PROVIDENCE, RI 309,950 49,546 202,050 157,446 359,496 76,803 1985 PAWTUCKET, RI 212,775 161,188 118,860 255,103 373,963 183,626 1986 WARWICK, RI 434,752 24,730 266,800 192,682 459,482 94,137 1985 CRANSTON, RI 466,100 12,576 303,500 175,176 478,676 62,970 1985 PAWTUCKET, RI 237,100 2,990 154,400 85,690 240,090 29,179 1985 BARRINGTON, RI 490,200 213,866 319,200 384,866 704,066 213,287 1985 WARWICK, RI 253,100 34,400 164,800 122,700 287,500 56,237 1985 N. PROVIDENCE, RI 542,400 61,717 353,200 250,917 604,117 119,183 1985 EAST PROVIDENCE, RI 486,675 13,947 316,600 184,022 500,622 66,070 1985 WAKEFIELD, RI 413,800 39,616 269,500 183,916 453,416 72,313 1985 READING, PA 34,620 121,446 10,433 145,633 156,066 105,183 1990 EPHRATA, PA 183,477 96,937 136,809 143,605 280,414 104,468 1990 DAUPHIN, PA 156,076 6,025 134,167 27,934 162,101 24,328 1990 DOUGLASSVILLE, PA 178,488 23,321 154,738 47,071 201,809 41,732 1990 YORK, PA 170,304 390 134,946 35,748 170,694 35,726 1990 GETTYSBURG, PA 170,642 7,230 134,111 43,761 177,872 40,437 1990 POTTSVILLE, PA 162,402 82,769 43,471 201,700 245,171 174,218 1990 POTTSVILLE, PA 451,360 19,361 147,740 322,981 470,721 312,453 1990 LANCASTER, PA 208,677 24,347 78,254 154,770 233,024 154,770 1989 BETHLEHEM, PA 208,677 42,927 130,423 121,181 251,604 114,612 1989 EASTON, PA 113,086 199,385 0 312,471 312,471 239,524 1989 BETHLEHEM, PA 115,636 97,776 0 213,412 213,412 180,426 1989 LANCASTER, PA 642,000 17,993 300,000 359,993 659,993 359,993 1989 HAMBURG, PA 219,280 75,745 130,423 164,602 295,025 144,518 1989 READING, PA 182,592 82,812 104,338 161,066 265,404 132,696 1989 MOUNTVILLE, PA 195,635 19,506 78,254 136,887 215,141 136,887 1989 EBENEZER, PA 147,058 88,474 68,804 166,728 235,532 128,178 1989 BETHLEHEM, PA 130,423 88,995 52,169 167,249 219,418 128,882 1989 INTERCOURSE, PA 311,503 81,287 157,801 234,989 392,790 73,909 1989 REINHOLDS, PA 176,520 83,686 82,017 178,189 260,206 128,856 1989 COLUMBIA, PA 225,906 13,206 75,000 164,112 239,112 113,111 1989 OXFORD, PA 191,449 118,321 65,212 244,558 309,770 196,043 1989 POTTSTOWN, PA 166,236 16,010 71,631 110,615 182,246 78,403 1989 EPHRATA, PA 208,604 52,826 30,000 231,430 261,430 134,848 1989 ROBESONIA, PA 225,913 102,802 70,000 258,715 328,715 183,020 1989 LANCASTER, PA 152,564 25,866 75,000 103,430 178,430 38,989 1998 KENHORST, PA 143,466 94,592 65,212 172,846 238,058 136,828 1989 NEFFSVILLE, PA 234,761 45,637 91,296 189,102 280,398 181,522 1989 LEOLA, PA 262,890 102,007 131,189 233,708 364,897 75,057 1989 EPHRATA, PA 187,843 9,400 65,212 132,031 197,243 130,710 1989 SHREWSBURY, PA 132,993 126,898 52,832 207,059 259,891 154,674 1989 RED LION, PA 221,719 29,788 52,169 199,338 251,507 196,090 1989 READING, PA 129,284 137,863 65,352 201,795 267,147 135,356 1989 ROTHSVILLE, PA 169,550 25,188 52,169 142,569 194,738 142,569 1989 HANOVER, PA 231,028 13,252 70,000 174,280 244,280 127,946 1989 LANCASTER, PA 156,507 19,215 52,169 123,553 175,722 123,553 1989 HARRISBURG, PA 399,016 347,590 198,740 547,866 746,606 295,643 1989 ADAMSTOWN, PA 213,424 108,844 100,000 222,268 322,268 133,059 1989 LANCASTER, PA 308,964 83,443 104,338 288,069 392,407 256,900 1989
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Initial Cost Cost Gross Amount at Which Carried Date of of Leasehold Capitalized at Close of Period Initial or Acquisition Subsequent --------------------------------------- Leasehold or Investment to to Initial Building and Accumulated Acquisition Description Company (1) Investment Land Improvements Total Depreciation Investment (1) - ----------- ----------- ---------- -------- ------------ -------- ------------ -------------- NEW HOLLAND, PA 313,015 106,839 143,465 276,389 419,854 233,985 1989 CHRISTIANA, PA 182,593 11,178 65,212 128,559 193,771 128,559 1989 WYOMISSING HILLS, PA 319,320 113,176 76,074 356,422 432,496 313,321 1989 LAURELDALE, PA 262,079 15,550 86,941 190,688 277,629 185,262 1989 REIFFTON, PA 338,250 5,295 43,470 300,075 343,545 300,075 1989 W.READING, PA 790,432 68,726 387,641 471,517 859,158 447,093 1989 ARENDTSVILLE, PA 173,759 101,020 32,603 242,176 274,779 205,244 1989 MOHNTON, PA 317,228 56,374 66,425 307,177 373,602 282,875 1989 MCCONNELLSBURG, PA 155,367 145,616 69,915 231,068 300,983 100,235 1989 BLACKSBURG, VA 23,644 206,308 0 229,952 229,952 126,074 1990 RICH CREEK, VA 37,509 217,310 0 254,819 254,819 141,511 1990 ROANOKE, VA 91,281 206,221 0 297,502 297,502 192,216 1990 STANLEYTOWN, VA 29,750 130,167 0 159,917 159,917 100,082 1990 ROANOKE, VA 30,000 142,340 0 172,340 172,340 116,427 1990 RICHMOND, VA 120,818 167,895 0 288,713 288,713 209,500 1990 DALEVILLE, VA 36,123 122,998 0 159,121 159,121 103,113 1990 CHESAPEAKE, VA 1,184,759 25,382 604,983 605,158 1,210,141 62,101 1990 PORTSMOUTH, VA 562,255 17,106 221,610 357,751 579,361 338,544 1990 NORFOLK, VA 534,910 6,050 310,630 230,330 540,960 222,443 1990 CHESAPEAKE, VA 883,685 26,247 325,508 584,424 909,932 554,649 1990 ASHLAND, VA 839,997 0 839,997 0 839,997 0 2005 FARMVILLE, VA 1,226,505 0 621,505 605,000 1,226,505 18,150 2005 FREDERICKSBURG, VA 1,279,280 0 469,280 810,000 1,279,280 24,300 2005 FREDERICKSBURG, VA 1,715,914 0 995,914 720,000 1,715,914 21,600 2005 FREDERICKSBURG, VA 1,273,098 0 798,444 474,654 1,273,098 25,909 2005 FREDERICKSBURG, VA 3,623,228 0 2,828,228 795,000 3,623,228 23,850 2005 GLEN ALLEN, VA 1,036,585 0 411,585 625,000 1,036,585 18,750 2005 GLEN ALLEN, VA 1,077,402 0 322,402 755,000 1,077,402 22,650 2005 KING GEORGE, VA 293,638 0 293,638 0 293,638 0 2005 KING WILLIAM, VA 1,687,540 0 1,067,540 620,000 1,687,540 18,600 2005 MECHANICSVILLE, VA 1,124,769 0 504,769 620,000 1,124,769 18,600 2005 MECHANICSVILLE, VA 902,892 0 272,892 630,000 902,892 18,900 2005 MECHANICSVILLE, VA 1,476,043 0 876,043 600,000 1,476,043 18,000 2005 MECHANICSVILLE, VA 957,418 0 324,158 633,260 957,418 35,631 2005 MECHANICSVILLE, VA 193,088 0 193,088 0 193,088 0 2005 MECHANICSVILLE, VA 1,677,065 0 1,157,065 520,000 1,677,065 15,600 2005 MECHANICSVILLE, VA 1,042,870 0 222,870 820,000 1,042,870 24,600 2005 MONTPELIER, VA 2,480,686 0 1,725,686 755,000 2,480,686 22,650 2005 PETERSBURG, VA 1,441,374 0 816,374 625,000 1,441,374 18,750 2005 RICHMOND, VA 1,131,878 0 546,878 585,000 1,131,878 17,550 2005 RUTHER GLEN, VA 466,341 0 31,341 435,000 466,341 13,050 2005 SANDSTON, VA 721,651 0 101,651 620,000 721,651 18,600 2005 SPOTSYLVANIA, VA 1,290,239 0 490,239 800,000 1,290,239 24,000 2005 CHESAPEAKE, VA 1,026,115 7,149 407,026 626,238 1,033,264 601,523 1990 BENNINGTON, VT 309,300 154,480 201,400 262,380 463,780 109,593 1985 JACKSONVILLE, FL 559,514 0 296,434 263,080 559,514 67,522 2000 JACKSONVILLE, FL 485,514 0 388,434 97,080 485,514 24,915 2000 JACKSONVILLE, FL 196,764 0 114,434 82,330 196,764 21,130 2000 JACKSONVILLE, FL 201,477 0 117,907 83,570 201,477 21,450 2000 JACKSONVILLE, FL 545,314 0 256,434 288,880 545,314 74,144 2000 ORLANDO, FL 867,515 0 401,435 466,080 867,515 119,625 2000 Miscellaneous investments 6,237,598 12,263,515 3,225,803 15,275,310 18,501,113 13,470,827 ------------ ----------- ------------ ------------ ------------ ------------ $288,782,884 $81,712,116 $171,838,996 $198,656,004 $370,495,000 $109,800,000 ============ =========== ============ ============ ============ ============
(1) Initial cost of leasehold or acquisition investment to company represents the aggregate of the cost incurred during the year in which the company purchased the property for owned properties or purchased a leasehold interest in leased properties. Cost capitalized subsequent to initial investment also includes investments made in previously leased properties prior to their acquisition. (2) The aggregate cost for federal income tax purposes was approximately $275,208,000 at December 31, 2005. - 40 - EXHIBIT INDEX GETTY REALTY CORP. Annual Report on Form 10-K for the year ended December 31, 2005
EXHIBIT NO. DESCRIPTION - -------- ------------------------------------------------------------ 2.1 Agreement and Plan of Reorganization and Filed as Exhibit 2.1 to Company's Merger, dated as of December 16, 1997 Registration Statement on Form S-4, (the "Merger Agreement") by and among filed on January 12, 1998 (File No. Getty Realty Corp., Power Test Investors 333-44065), included as Appendix A To Limited Partnership and CLS General the Joint Proxy Statement/Prospectus Partnership Corp. that is a part thereof, and incorporated herein by reference. 3.1 Articles of Incorporation of Getty Filed as Exhibit 3.1 to Company's Realty Holding Corp. ("Holdings"), now Registration Statement on Form S-4, known as Getty Realty Corp., filed filed on January 12, 1998 (File No. December 23, 1997. 333-44065), included as Appendix D. to the Joint Proxy/Prospectus that is a part thereof, and incorporated herein by reference. 3.2 Articles Supplementary to Articles of Filed as Exhibit 3.2 to Company's Annual Incorporation of Holdings, filed January Report on Form 10-K for the fiscal year 21, 1998. ended January 31, 1998 (File No. 001-13777) and incorporated herein by reference. 3.3 By-Laws of Getty Realty Corp. Filed as Exhibit 3.3 to Company's Annual Report On Form 10-K for the year ended December 31, 2002 (File No. 001-13777) and incorporated herein by reference. 3.4 Articles of Amendment of Holdings, Filed as Exhibit 3.4 to Company's Annual changing its name to Getty Realty Corp., Report on Form 10-K for the fiscal year filed January 30, 1998. ended January 31, 1998 (File No. 001-13777) and incorporated herein by reference. 3.5 Amendment to Articles of Incorporation of Filed as Exhibit 99.2 to Company's Holdings, filed August 1, 2001. Current Report on Form 8-K dated August 1, 2001(File No. 001-13777) and incorporated herein by reference. 4.1 Dividend Reinvestment/Stock Purchase Plan. Filed under the heading "Description of Plan" on pages 4 through 17 to Company's Registration Statement on Form S-3D, filed on April 22, 2004 (File No.333-114730) and incorporated herein by reference. 10.1* Retirement and Profit Sharing Plan Filed as Exhibit 10.2(b) to Company's (amended and restated as of September Annual Report on Form 10-K for the fiscal 19, 1996), adopted by the Company on year ended January 31, 1997. (File No. December 16, 1997. 1-8059) and incorporated herein by reference.
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EXHIBIT NO. DESCRIPTION - -------- ------------------------------------------------------------ 10.1(a)* Retirement and Profit Sharing (amended Filed as Exhibit 10.1(a) to Company's and restated as of January 1, 2002), Annual Report on Form 10-K for the year adopted by the Company on September 3, ended December 31, 2002 (File No. 2002. 001-13777) and incorporated herein by reference. 10.2* 1998 Stock Option Plan, effective as of Filed as Exhibit 10.1 to Company's January 30, 1998. Registration Statement on Form S-4, filed on January 12, 1998 (File No. 333-44065), included as Appendix H to the Joint Proxy Statement/Prospectus that is a part thereof, and incorporated herein by reference. 10.3 Asset Purchase Agreement among Power Filed as Exhibit 2(a) to the Current Test Corp. (now known as Getty Report on Form 8-K of Power Test Corp., Properties Corp.), Texaco Inc., Getty filed February 19, 1985 (File No. Oil Company and Getty Refining and 1-8059) and incorporated herein by Marketing Company, dated as of December reference. 21, 1984. 10.4 Trademark License Agreement among Power Filed as Exhibit 2(b) to the Current Test Corp., Texaco Inc., Getty Oil Report on Form 8-K of Power Test Corp., Company and Getty Refining and Marketing filed February 19, 1985 (File No. Company, dated as of February 1, 1985. 1-8059) and incorporated herein by reference. 10.5* Form of Indemnification Agreement Filed as Exhibit 10.15 to Company's between the Company and its directors. Annual Report on Form 10-K for the fiscal year ended January 31, 1998 (File No. 001-13777) and incorporated herein by reference. 10.6* Supplemental Retirement Plan for Filed as Exhibit 10.22 to the Annual Executives of the Company (then known as Report on Form 10-K for the fiscal year Getty Petroleum Corp.) and Participating ended January 31, 1990 (File No. 1-8059) Subsidiaries (adopted by the Company on of Getty Petroleum Corp. and December 16, 1997). incorporated herein by reference. 10.7* Form of Agreement dated December 9, 1994 Filed as Exhibit 10.23 to the Annual between Getty Petroleum Corp. and its Report on Form 10-K for the fiscal year non-director officers and certain key ended January 31, 1995 (File No. 1-8059) employees regarding compensation upon of Getty Petroleum Corp. and change in control. incorporated herein by reference. 10.8* Form of Agreement dated as of March 7, Filed as Exhibit 10.27 to the Annual 1996 amending Agreement dated as of Report on Form 10-K for the fiscal year December 9, 1994 between Getty Petroleum ended January 31, 1996 (File No. 1-8059) Corp. (now known as Getty Properties of Getty Petroleum Corp. and Corp.) and its non-director officers and incorporated herein by reference. certain key employees regarding compensation upon change in control (See Exhibit 10.11). 10.9* Form of letter from Getty Petroleum Filed as Exhibit 10.19 to Company's Corp. dated April 8, 1997, confirming Annual Report on Form 10-K for the fiscal that a change of control event had year ended January 31, 1998 (File No. occurred pursuant to the change of 001-13777) and incorporated herein by control agreements. (See Exhibits 10.7 reference. and 10.8).
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EXHIBIT NO. DESCRIPTION - -------- ------------------------------------------------------------ 10.10* Form of Agreement dated March 9, 1998, Filed as Exhibit 10.20 to Company's from the Company to certain officers and Annual Report on Form 10-K for the fiscal key employees, adopting the prior change year ended January 31, 1998 (File No. of control agreements, as amended, and 001-13777) and incorporated and further amending those agreements. (See incorporated herein by reference. Exhibits 10.7, 10.8 and 10.9). 10.11 Form of Reorganization and Distribution Filed as Exhibit 10.29 to the Annual Agreement between Getty Petroleum Corp. Report on Form 10-K for the fiscal year (now known as Getty Properties Corp.) ended January 31, 1997 (File No. 1-8059) and Getty Petroleum Marketing Inc. dated of Getty Petroleum Corp. and as of February 1, 1997. incorporated herein by reference 10.12 Form of Tax Sharing Agreement between Filed as Exhibit 10.32 to the Annual Getty Petroleum Corp (now known as Report on Form 10-K for the fiscal year Getty. Properties Corp.) and Getty ended January 31, 1997 (File No. 1-8059) Petroleum Marketing Inc. of Getty Petroleum Corp. and incorporated herein by reference. 10.13* Form of Stock Option Reformation Filed as Exhibit 10.33 to the Annual Agreement made and entered into as of Report on Form 10-K for the fiscal year March 21, 1997 by and between Getty ended January 31, 1997 (File No. 1-8059) Petroleum Corp. (now known as Getty of Getty Petroleum Corp. and Properties Corp.) and Getty Petroleum incorporated herein by reference. Marketing Inc. 10.14 Consolidated, Amended and Restated Filed as Exhibit 10.21(a) to Company's Master Lease Agreement dated November 2, Quarterly Report on Form 10-Q dated 2000 between Getty Properties Corp. and December 15, 2000 (File No. 001-13777) Getty Petroleum Marketing Inc. and incorporated herein by reference. 10.15 Environmental Indemnity Agreement dated Filed as Exhibit 10.30 to Company's November 2, 2000 between Getty Quarterly Report on Form 10-Q dated Properties Corp. and Getty Petroleum December 15, 2000 (File No. 001-13777) Marketing Inc. and incorporated herein by reference. 10.17 Amended and Restated Trademark License Filed as Exhibit 10.23(a) to Company's Agreement, dated November 2, 2000, Quarterly Report on Form 10-Q dated between Getty Properties Corp. and Getty December 15, 2000 (File No. 001-13777) Petroleum Marketing Inc. and incorporated herein by reference. 10.18 Trademark License Agreement, dated Filed as Exhibit 10.23(b) to Company's November 2, 2000, between Getty (TM) Quarterly Report on Form 10-Q dated Corp. and Getty Petroleum Marketing Inc. December 15, 2000 (File No. 001-13777) and incorporated herein by reference. 10.19* 2004 Getty Realty Corp. Omnibus Incentive Compensation Plan. Filed as Appendix B to the Definitive Proxy Statement of Getty Realty Corp., filed April 9, 2004 (File No. 001-13777) and incorporated herein by Reference.
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EXHIBIT NO. DESCRIPTION - -------- ------------------------------------------------------------ 10.19.1* Form of restricted stock unit grant award under the 2004 Getty Filed as Exhibit 10.20.1 to the Company's Annual Realty Corp. Omnibus Incentive Compensation Plan. Report on Form 10-K for the year ended December 31, 2004 (File No. 001-13777) and incorporated herein by reference 13 Annual Report to Shareholders for the (b) fiscal year ended December 31, 2005. 14 The Getty Realty Corp. Business Conduct Filed as Exhibit 14 to Company's Guidelines (Code of Ethics). Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 001-13777) and incorporated herein by reference. 21 Subsidiaries of the Company. (a) 23 Consent of Independent Registered Public Accounting Firm. (a) 31(i).1 Rule 13a-14(a) Certification of Chief Financial Officer. (a) 31(i).2 Rule 13a-14(a) Certification of Chief Executive Officer. (a) 32.1 Section 1350 Certification of Chief Executive Officer. (c) 32.2 Section 1350 Certification of Chief Financial Officer. (c)
- ---------------------------- (a) Filed herewith. (b) With the exception of information expressly incorporated herein by direct reference thereto, the Annual Report to Shareholders for the fiscal year ended December 31, 2005 is not deemed to be filed as part of this Annual Report on Form 10-K or incorporated therein. (c) Furnished herewith. These certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. Section. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. * Management contract or compensatory plan or arrangement. - 44 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Getty Realty Corp. (Registrant) By: /s/ Thomas J. Stirnweis -------------------------- Thomas J. Stirnweis, Vice President, Treasurer and Chief Financial Officer March 9, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Leo Liebowitz By: /s/ Thomas J. Stirnweis ------------------- ------------------------ Leo Liebowitz Thomas J. Stirnweis Chairman, Chief Executive Vice President, Treasurer and Officer and Director Chief Financial Officer (Principal Executive (Principal Financial and Officer) Accounting Officer) March 9, 2006 March 9, 2006 By: /s/ Milton Cooper By: /s/ Philip E. Coviello ------------------- ---------------------- Milton Cooper Philip E. Coviello Director Director March 9, 2006 March 9, 2006 By: /s/ Howard Safenowitz By: /s/ Warren G. Wintrub --------------------- --------------------- Howard Safenowitz Warren G. Wintrub Director Director March 9, 2006 March 9, 2006 - 45 - EX-13 2 c02135exv13.txt ANNUAL REPORT TO SHAREHOLDERS . . . EXHIBIT 13 GETTY REALTY CORP. AND SUBSIDIARIES SELECTED FINANCIAL DATA (in thousands, except per share amounts and number of properties)
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------------------- 2005 2004 2003 2002 2001 ------------- -------------- ------------- ------------- ---------- OPERATING DATA: Revenues from rental properties $ 71,377 $ 66,331 $ 66,601 $ 67,157 $ 68,322 Earnings before income taxes 43,954 39,352 36,887 36,163 32,083 Income tax benefit 1,494 (a) -- -- -- 36,648 (a) ------------- ------------- ------------- ------------- ----------- Net earnings 45,448 39,352 36,887 36,163 68,731 Diluted earnings per common share 1.84 1.59 1.49 (b) 1.44 3.18 Diluted weighted average common 24,729 24,721 23,082 21,446 16,244 shares outstanding Cash dividends declared per share: Common 1.760 1.700 1.675 1.650 5.275 (c) Preferred -- -- 1.159 1.866 5.975 (c) FUNDS FROM OPERATIONS (d): Net earnings 45,448 39,352 36,887 36,163 68,731 Preferred stock dividends -- -- (2,538) (5,350) (5,088) (e) ------------- ------------- ------------- ------------- ----------- Net earnings applicable to common shareholders 45,448 39,352 34,349 30,813 63,643 Depreciation and amortization of real estate assets (f) 8,113 7,490 8,411 9,016 9,281 Gains on sales of real estate (1,309) (618) (928) (1,153) (990) Cumulative effect of accounting change -- -- 550 -- -- ------------- ------------- ------------- ------------- ----------- Funds from operations available to common shareholders 52,252 46,224 42,382 38,676 71,934 Deferred rental revenue (straight-line rent) (4,170) (4,464) (5,537) (6,728) (8,388) Income tax benefit (1,494) (a) -- -- -- (36,648) (a) ------------- ------------- ------------- ------------- ----------- Adjusted funds from operations available to common shareholders 46,588 41,760 36,845 31,948 26,898 BALANCE SHEET DATA (AT END OF YEAR): Real estate before accumulated depreciation and amortization 370,495 346,590 318,222 308,054 311,352 Total assets 299,981 290,728 272,003 282,491 288,188 Debt 34,224 24,509 844 923 997 Shareholders' equity 227,883 225,503 228,025 233,426 237,773 ============= ============= ============= ============= =========== NUMBER OF PROPERTIES: Owned 814 795 772 739 744 Leased 241 250 256 310 335 ------------- ------------- ------------- ------------- ----------- Total properties 1,055 1,045 1,028 1,049 1,079 ------------- ------------- ------------- ------------- -----------
- --------------------- (a)Represents a tax benefit recognized in 2005 due to a net reduction in amounts accrued for uncertain tax positions and, in 2001, due to the reversal of previously accrued income taxes that that we would no longer be required to pay as a real estate investment trust ("REIT"). These accruals related to the Company being taxed as a C-corp. prior to its election to be taxed as a REIT in 2001. (b)Diluted earnings per common share of $1.51 before the impact of the cumulative effect of accounting change. (c)Includes $4.20 and $4.15 per share "earnings and profits" cash distribution paid on August 2, 2001 to preferred and common shareholders, respectively. (d)In addition to measurements defined by generally accepted accounting principles ("GAAP"), our management also focuses on funds from operations available to common shareholders ("FFO") and adjusted funds from operations available to common shareholders ("AFFO") to measure our performance. FFO is generally considered to be an appropriate supplemental non-GAAP measure of the performance of real estate investment trusts ("REITs"). FFO is defined by the National Association of Real Estate Investment Trusts as net earnings before depreciation and amortization of real estate assets, gains or losses on sales of real estate, non-FFO items reported in discontinued operations, extraordinary items, and cumulative effect of accounting change. Other REITs may use definitions of FFO and AFFO that are different than ours and, accordingly, may not be comparable. We believe that FFO is helpful to investors in measuring our performance because FFO excludes various items included in GAAP net earnings that do not relate to, or are not indicative of, our fundamental operating performance such as gains or losses from property sales and depreciation and amortization of real estate assets. In our case, however, GAAP net earnings and FFO include the significant impact of deferred rental revenue (straight-line rental revenue) on our recognition of revenue from rental properties, which results primarily from fixed rental increases scheduled under certain leases with our tenants. In accordance with GAAP, the aggregate minimum rent due over the initial term of these leases is recognized on a straight-line basis rather than when due. GAAP net earnings and FFO also include income tax benefits recognized due to a net reduction in amounts accrued for uncertain tax positions related to the Company being taxed as a C-corp. prior to 2001 (see note (a) above). As a result, management pays particular attention to AFFO, a supplemental non-GAAP performance measure that we define as FFO less straight-line rental revenue and income tax benefit. Income taxes have not had a significant impact on our earnings since 2001 when we first elected to be taxed as a REIT, and accordingly, has not recently appeared as a separate item in our statements of operations or reconciliation of AFFO from net earnings. In management's view, AFFO provides a more accurate depiction than FFO of the impact of the scheduled rent increases under these leases and our election to be taxed as a REIT beginning in 2001. Neither FFO nor AFFO represent cash generated from operating activities calculated in accordance with generally accepted accounting principles and therefore should not be considered an alternative for GAAP net earnings or as a measure of liquidity. (e)Excludes $4.20 per share "earnings and profits" cash distribution paid on August 2, 2001 to preferred shareholders. (f)Depreciation and amortization expense as reflected in our Consolidated Statements of Operations also includes depreciation on non-real estate assets. - 7 - GETTY REALTY CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS of Financial Condition and Results of Operations RECENT DEVELOPMENTS On February 28, 2006, we completed the acquisition of eighteen retail motor fuel and convenience store properties located in Western New York for approximately $13.5 million. Simultaneous with the closing on the acquisition, we entered into a triple-net lease with a single tenant for all of the properties. The lease provides for annual rentals at a competitive rate and provides for escalations thereafter. The lease has an initial term of fifteen years and provides the tenant options for three renewal terms of five years each. The lease also provides that the tenant is responsible for all existing and future environmental conditions at the properties. GENERAL We are a real estate investment trust specializing in the ownership and leasing of retail motor fuel and convenience store properties and petroleum distribution terminals. We elected to be taxed as a REIT under the federal income tax laws beginning January 1, 2001. As a REIT, we are not subject to federal corporate income tax on the taxable income we distribute to our shareholders. In order to continue to qualify for taxation as a REIT, we are required, among other things, to distribute at least 90% of our taxable income to shareholders each year. We lease or sublet our properties primarily to distributors and retailers engaged in the sale of gasoline and other motor fuel products, convenience store products and automotive repair services. These tenants are responsible for the payment of taxes, maintenance, repair, insurance and other operating expenses and for managing the actual operations conducted at these properties. As of December 31, 2005, we leased nine hundred thirty-eight of our one thousand fifty-five properties on a long-term basis under a master lease (the "Master Lease") and a coterminous supplemental lease for one property, (collectively the "Marketing Leases") to Getty Petroleum Marketing Inc. ("Marketing") which was spun-off to our shareholders as a separate publicly held company in March 1997. In December 2000, Marketing was acquired by a subsidiary of OAO Lukoil ("Lukoil"), one of Russia's largest integrated oil companies. Substantially all of our revenues (89% for the year ended December 31, 2005), are derived from the Marketing Leases. Accordingly, our revenues are dependent to a large degree on the economic performance of Marketing and of the petroleum marketing industry and any factor that adversely affects Marketing or our other lessees may have a material adverse effect on our financial condition and results of operations. Marketing's financial results depend largely on retail petroleum marketing margins and rental income from subtenants who operate our properties. The petroleum marketing industry has been and continues to be volatile and highly competitive. Factors that could adversely affect Marketing or our other lessees include those described under Part I, Item 1A, "Risk Factors", in our Annual Report on Form 10-K. In the event that Marketing cannot or will not perform its monetary obligations under the Marketing Leases with us, our financial condition and results of operations would be materially adversely affected. Although Marketing is wholly owned by a subsidiary of Lukoil, no assurance can be given that Lukoil will cause Marketing to fulfill any of its monetary obligations under the Marketing Leases. We periodically receive and review Marketing's financial statements and other financial data. We receive this information from Marketing pursuant to the terms of the Master Lease. Certain of this information is not publicly available and the terms of the Master Lease prohibit us from including this financial information in our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q or in our Annual Reports to Shareholders. The financial performance of Marketing may deteriorate, and Marketing may ultimately default on its monetary obligations to us before we receive financial information from Marketing that would indicate the deterioration or before we would have the opportunity to advise our shareholders of any increased risk of default. Certain financial and other information concerning Marketing is available from Dun & Bradstreet and may be accessed by their web site (www.dnb.com) upon payment of their fee. - 8 - The most recent selected financial data of Marketing which is publicly available is provided below. Neither we, nor our auditors, were involved in the preparation of this data and as a result can provide no assurance thereon. Additionally, our auditors have not been engaged to review or audit this data. Getty Petroleum Marketing Inc. Selected Financial Data
For the years ended December 31, --------------------------------------- 2004 2003 2002 ----------- ----------- ----------- (unaudited, in thousands) OPERATING DATA: Total revenues $ 2,696,102 $ 1,297,042 $1,029,926 Total expenses 2,670,282 1,290,439 1,038,385 ----------- ----------- ----------- Earnings (loss) before provision (credit) for income taxes 25,820 6,603 (8,459) Provision (credit) for income taxes 10,784 3,157 (3,389) ----------- ----------- ----------- Net earnings (loss) $ 15,036 $ 3,446 ($ 5,070) =========== =========== =========== BALANCE SHEET DATA (AT END OF YEAR): ASSETS: Cash and equivalents $ 76,485 $ 44,210 $ 18,678 Other current assets 161,901 68,971 62,448 ----------- ----------- ----------- Total current assets 238,386 113,181 81,126 Property and equipment, net 367,453 134,792 139,477 Other assets 54,292 3,956 5,338 ----------- ----------- ----------- Total assets $ 660,131 $ 251,929 $ 225,941 =========== =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY: Total current liabilities $ 214,171 $ 125,940 $ 107,362 Long-term liabilities 318,091 62,419 58,438 ----------- ----------- ----------- Total liabilities 532,262 188,359 165,800 Total stockholder's equity 127,869 63,570 60,141 ----------- ----------- ----------- Total liabilities and stockholder's equity $ 660,131 $ 251,929 $ 225,941 =========== =========== ===========
If Marketing does not fulfill its monetary obligations to us under the Marketing Leases, our financial condition and results of operations will be materially adversely affected. Based on our review of the financial statements and other financial data Marketing has provided to us to date, we believe that Marketing has the liquidity and financial ability to continue to pay timely its monetary obligations under the Marketing Leases, as it has since the inception of the Master Lease in 1997. As part of a periodic review by the Division of Corporation Finance of the Securities and Exchange Commission ("SEC") of our Annual Report on Form 10-K for the year ended December 31, 2003, we received and responded to a number of comments. The only comment that remains unresolved pertains to the SEC's position that we must include the financial statements and summarized financial data of Marketing in our periodic filings. The SEC subsequently indicated that, unless we file Marketing's financial statements and summarized financial data with our periodic reports: (i) it will not consider our Annual Reports on Forms 10-K for the years beginning with 2000 to be compliant; (ii) it will not consider us to be current in our reporting requirements; (iii) it will not be in a - 9 - position to declare effective any registration statements we may file for public offerings of our securities; and (iv) we should consider how the SEC's conclusion impacts our ability to make offers and sales of our securities under existing registration statements and if we have a liability for such offers and sales made pursuant to registration statements that did not contain the financial statements of Marketing. We believe that the SEC's position is based on their interpretation of certain provisions of their internal Accounting Disclosure Rules and Practices Training Material, Staff Accounting Bulletin No. 71 and Rule 3-13 of Regulation S-X. We do not believe that any of this guidance is clearly applicable to our particular circumstances and that, even if it were, we believe that we should be entitled to certain relief from compliance with such requirements. Marketing subleases our properties to approximately nine hundred independent, individual service station/convenience store operators (subtenants), most of whom were our tenants when Marketing was spun-off to our shareholders. Consequently, we believe that we, as the owner of these properties and the Getty brand, and our prior experience with Marketing's tenants, could relet these properties to the existing subtenants or others at market rents. Because of this particular aspect of our landlord-tenant relationship with Marketing, we do not believe that the inclusion of Marketing's financial statements in our filings is necessary to evaluate our financial condition. Our position was included in a written response to the SEC. To date, the SEC has not accepted our position regarding the inclusion of Marketing's financial statements in our filings. We are endeavoring to achieve a resolution of this issue that will be acceptable to the SEC. We can not accurately predict the consequences if we are ultimately unsuccessful in achieving an acceptable resolution. We do not believe that offers or sales of our securities made pursuant to existing registration statements that did not or do not contain the financial statements of Marketing constitute, by reason of such omission, a violation of the Securities Act of 1933, as amended or the Exchange Act. Additionally, we believe that, if there ultimately is a determination that such offers or sales, by reason of such omission, resulted in a violation of those securities laws, we would not have any material liability as a consequence of any such determination. In August 2003, we called for redemption of all our outstanding preferred stock. Prior to the September 24, 2003 redemption date, shareholders with 98% of the preferred stock exercised their right to convert their shares of preferred stock into 3.2 million shares of common stock. The remaining shares of outstanding preferred stock were redeemed for an aggregate amount, of $1.2 million. We manage our business to enhance the value of our real estate portfolio and, as a REIT, place particular emphasis on minimizing risk and generating cash sufficient to make required distributions to shareholders of at least ninety percent of our taxable income each year. In addition to measurements defined by generally accepted accounting principles ("GAAP"), our management also focuses on funds from operations available to common shareholders ("FFO") and adjusted funds from operations available to common shareholders ("AFFO") to measure our performance. FFO is generally considered to be an appropriate supplemental non-GAAP measure of performance of REITs. FFO is defined by the National Association of Real Estate Investment Trusts as net earnings before depreciation and amortization of real estate assets, gains or losses on sales of real estate, non-FFO items reported in discontinued operations, extraordinary items and cumulative effect of accounting change. Other REITs may use definitions of FFO and AFFO that are different than ours and, accordingly, may not be comparable. We believe that FFO is helpful to investors in measuring our performance because FFO excludes various items included in GAAP net earnings that do not relate to, or are not indicative of, our fundamental operating performance such as gains or losses from property sales and depreciation and amortization of real estate assets. In our case, however, GAAP net earnings and FFO include the significant impact of deferred rental revenue (straight-line rental revenue) on our recognition of revenues from rental properties, which results primarily from fixed rental increases scheduled under certain leases with our tenants. In accordance with GAAP, the aggregate minimum rent due over the initial term of these leases are recognized on a straight-line basis rather than when due. GAAP net earnings and FFO also include the income tax benefit recognized due to a net reduction in amounts accrued for uncertain tax positions related to being taxed as a C-Corp. prior to 2001. As a result, management pays particular attention to AFFO, a supplemental non-GAAP performance measure that we define as FFO less straight-line rental revenue and income tax benefit. Income taxes have not had a significant impact on our earnings since the year ended December 31, 2001, when we first elected to be taxed as a REIT, and accordingly have not recently appeared as a separate item in our statement of operations or reconciliation of AFFO from net earnings. In management's view, AFFO provides a more accurate depiction than FFO of the impact of scheduled rent increases under these leases and our election to be taxed as a REIT beginning in 2001. Neither FFO nor AFFO represent cash generated from operating activities calculated in accordance with generally accepted accounting principles and therefore should not be considered an alternative for GAAP net earnings or as a measure of liquidity. FFO and AFFO are reconciled to net earnings in Selected Financial Data on page 7. RESULTS OF OPERATIONS Year ended December 31, 2005 compared to year ended December 31, 2004 Revenues from rental properties were $71.4 million for the year ended December 31, 2005 compared to $66.3 million for 2004. We received approximately $59.6 million in 2005 and $58.9 million in 2004 from properties leased to Marketing under the Marketing Leases. We also received rent of $7.6 million in 2005 and $2.9 million in 2004 from other tenants. The increase in rent received was primarily due to rent from properties acquired in November 2004 and March 2005, and rent escalations, partially offset by the effect of lease terminations and property dispositions. In addition, revenues from rental properties include deferred rental revenue of $4.2 million in 2005 and $4.5 million in 2004, recorded as required by GAAP, related to fixed rent increases scheduled under certain leases with tenants and includes $0.6 million due to lease terminations recorded in the fourth quarter of 2005. The aggregate minimum rent due over the initial fifteen-year term of the Master Lease is recognized on a straight-line basis rather than when due. - 10 - Rental property expenses, which are principally comprised of rent expense and real estate and other state and local taxes, were $11.8 million for 2005, as compared to $9.8 million for 2004. Rental property expenses include an adjustment of $1.5 million recorded in the fourth quarter of 2005 for a change in accounting for rent expense from a contractual to a straight-line basis. The increase in rental property expenses was also due to rent expense on properties acquired in November 2004 of $0.4 million partially offset by property dispositions. Environmental expenses, net for 2005 were $2.4 million, a decrease of $3.6 million from 2004. The decrease was due to a $1.6 million reduction in litigation related expenses as well as a $1.9 million reduction in the change in estimated environmental costs, net of estimated recoveries, and accretion expense as compared to the prior year period. Environmental expenses for 2005 include a $0.6 million net credit for environmental litigation expense due to net reductions in litigation loss reserve estimates. The net change in estimated environmental expenses and accretion expense aggregated $1.4 million for 2005 compared to $3.3 million recorded in 2004. General and administrative expenses were $4.9 million for 2005, which was comparable to the $5.0 million recorded for 2004. Depreciation and amortization expense for 2005 was $8.3 million, as compared to the $7.5 million recorded for 2004. The increase was primarily due to depreciation and amortization of properties acquired in November 2004 and March 2005 partially offset by property dispositions. Other income, net was $1.6 million for 2005, as compared with $1.5 million for 2004. Other income, net for 2005 includes $1.3 million of gains on dispositions of properties, which includes $1.1 million recorded in the fourth quarter resulting from properties taken by eminent domain related to road improvement projects, as compared to $0.6 million of gains for 2004. The $0.7 million increase in gains on dispositions of properties was offset by a $0.3 million reduction in interest income from mortgages notes receivable and short-term investments and a $0.3 million reduction in other items. Other items for 2004 include $0.4 million of income due to the elimination of reserves for late paying mortgage note receivable accounts and late fees recognized related to mortgage notes that were renegotiated in 2004. Interest expense, principally related to borrowings used to finance the acquisition of properties in November 2004 and March 2005, was $1.6 million during 2005 and was insignificant for 2004. The tax benefit of $1.5 million recorded in 2005 was recognized due a net reduction in the amount accrued for uncertain tax positions to the extent that the uncertainties regarding these exposures have been resolved. During the fourth quarter of 2005, we recorded a reduction in net earnings of $0.7 million as a result of adjustments which should have been recorded in prior years or earlier quarterly periods of 2005 and are included in the results of operations for 2005 discussed above. The adjustments consisted of: (a) $0.1 million of rental income for lease terminations that related to prior years and $0.2 million related to earlier quarters of 2005; (b) $1.5 million of rent expense for a change in accounting for rent expense from a contractual to a straight-line basis, which is related to prior years, and; (c) $0.5 million of gains on dispositions of real estate resulting from a property taken by eminent domain that should have been recorded in the second quarter of 2005. We believe that these adjustments are not material to any previously issued financial statements and that the impacts of recording these adjustments are not material, individually or in the aggregate, to the quarter or year ended December 31, 2005. As a result, net earnings were $45.4 million for 2005 as compared to $39.4 million for 2004. Net earnings for 2005 increased by 15.2%, or $6.0 million, over 2004 due to the items discussed above. FFO increased $6.0 million, or 13.0%, to $52.3 million or slightly less than the increase in net earnings since the increase in gains on sales of real estate of $0.7 million were almost entirely offset by the increase in depreciation and amortization of real estate assets of $0.6 million (both of which are included in net earnings but are excluded from FFO and AFFO). AFFO - 11 - increased $4.8 million, or 11.6%, to $46.6 million in 2005. FFO increased more than AFFO on both a dollar and percentage basis due to the $1.5 million income tax benefit recorded in 2005 which was partially offset by a $0.3 million decrease in deferred rental revenue (both of which are included in net earnings and FFO but are excluded from AFFO) recorded for 2005 as compared to 2004. Diluted earnings per share for 2005 increased $0.25 per share or 15.7% to $1.84 per share, as compared to 2004. Diluted FFO per share increased $0.24 per share, or 12.8%, to $2.11 per share, as compared to 2004 and diluted AFFO per share for 2005 increased $0.19 per share, or 11.2%, to $1.88 per share, as compared to 2004. Year ended December 31, 2004 compared to year ended December 31, 2003 Revenues from rental properties were $66.3 million for the year ended December 31, 2004, as compared to $66.6 million for 2003. We received rent of approximately $58.9 million in 2004 and $58.7 million in 2003 from properties leased to Marketing under the Marketing Leases. We also received rent of $2.9 million in 2004 and $2.3 million in 2003 from other tenants. The increase in rent received was primarily due to $0.5 million of rent from properties acquired in November 2004 and rent escalations and was partially offset by the effect of lease terminations and property dispositions. In addition, revenues from rental properties include deferred rental revenue of $4.5 million in 2004 and $5.5 million in 2003. Rental property expenses, which are principally comprised of rent expense and real estate and other state and local taxes, were $9.8 million for 2004, a decrease of $0.8 million from 2003. The decrease was primarily due to a reduction in rent expense of $0.8 million as a result of the full year impact of 43 lease purchase options exercised in 2003 and an additional 8 lease purchase options exercised in 2004, partially offset by $0.1 million of rent expense from leasehold interests acquired in November 2004. Environmental expenses, net were $6.0 million for 2004, a decrease of $1.6 million from 2003. Environmental expenses for 2004 include a net change in estimated remediation costs and accretion expense aggregating $3.3 million, a $2.1 million decrease from the change in estimate recorded during the prior year. The decrease in the net change in estimated environmental costs was principally due to increases in expected recoveries from underground storage tank funds related to both past and future environmental spending, partially offset by increases in changes in estimated remediation costs. The decrease in the net change in estimated remediation costs was partially offset by an increase in the amount accrued for environmental litigation of $0.5 million. General and administrative expenses were $5.0 million for 2004, as compared to $4.1 million for 2003. The increase was primarily caused by approximately $0.4 million of higher legal and audit expenses, including internal controls review costs, incurred in 2004, primarily due to compliance with various requirements of the Sarbanes-Oxley Act of 2002. The increase was also due to a smaller credit to insurance loss reserves recorded in 2004 as compared to 2003 and higher insurance premiums. A credit of $0.5 million was recorded in 2003 and a smaller credit of $0.3 million was recorded in 2004. The insurance loss reserves were established under our self funded insurance program that was terminated in 1997. Depreciation and amortization expense was $7.5 million for 2004, a decrease of $0.9 million from 2003 as a result of certain assets becoming fully depreciated and dispositions of properties, partially offset by $0.2 million of depreciation and amortization expense on properties and leasehold interests acquired in November 2004. Other income, net was $1.5 million for 2004, as compared with $1.7 million for 2003. The $0.2 million decrease was due to lower gains on dispositions of properties, investment income and other items, partially offset by $0.4 million of income recorded in the fourth quarter of 2004 due to the elimination of reserves for late paying mortgage note receivable accounts and late fees recognized related to mortgage notes that were renegotiated in 2004. The cumulative effect of accounting change recorded for 2003 is due to the adoption of Statement of Financial Accounting Standards No. ("SFAS") 143 effective January 1, 2003. Accrued environmental remediation costs and the related recoveries from state underground storage tank funds were adjusted to their estimated fair value resulting in a one-time cumulative effect of change in accounting charge of $0.6 million in 2003 (see "Environmental Matters" below). - 12 - As a result, net earnings of $39.4 million in 2004 increased $2.5 million, or 6.7%, over 2003 due to the items discussed above. FFO increased $3.8 million, or 9.1%, to $46.2 million in 2004, principally due to the elimination of $2.5 million in preferred stock dividends partially offset by the impact of lower depreciation expense recorded in 2004 and the one-time accounting charge recorded in 2003. The preferred stock dividends were eliminated as a result of the conversion of 98% of our outstanding convertible preferred stock into 3.2 million common shares and the redemption of the remaining preferred shares in September 2003. AFFO increased $4.9 million, or 13.3%, to $41.8 million in 2004. AFFO increased more than FFO on both a dollar and percentage basis due to $1.1 million in lower deferred rental revenue (which is included in FFO, but excluded from AFFO) recorded in 2004 as compared to 2003. Diluted earnings per common share in 2004 increased 6.7% to $1.59 per share, as compared to $1.49 per share in 2003. Diluted FFO per common share increased 2.8% to $1.87 per share in 2004, as compared to $1.82 per share in 2003 and diluted AFFO per common share increased 6.3% to $1.69 per share in 2004, as compared to $1.59 per share in 2003. The percentage changes in FFO per common share and AFFO per common share are different than the respective percentage changes in FFO and AFFO, when compared to the prior year period, since the diluted per share amounts for 2004 reflect the actual September 2003 conversion and redemption of our preferred shares discussed above, while the per share amounts for 2003 reflect the assumed conversion of our outstanding preferred stock as if the conversion had occurred at the beginning of the year. Accordingly, preferred stock dividends of $2.5 million were added back to FFO and AFFO in calculating FFO and AFFO per share amounts in 2003. The effect of the potential dilution from the assumed conversion utilizing the two class method in computing earnings per share would have been anti-dilutive and was not assumed. There were no preferred shares outstanding during the year ended 2004. LIQUIDITY AND CAPITAL RESOURCES Our principal sources of liquidity are the cash flows from our business, funds available under a revolving credit agreement that matures in 2008 and available cash and equivalents. Management believes that dividend payments and cash requirements for our business for the next twelve months, including environmental remediation expenditures, capital expenditures and debt service, can be met by cash flows from operations, borrowings under the credit agreement and available cash and equivalents. On June 30, 2005, we entered into an unsecured three-year senior revolving $100.0 million credit agreement ("Credit Agreement") with a group of six domestic commercial banks. Subject to the terms of the Credit Agreement, we have the right to increase the Credit Agreement by $25.0 million and to extend the term of the Credit Agreement for one additional year. Borrowings under the Credit Agreement bear interest at a rate equal to the sum of a base rate or a LIBOR rate plus an applicable margin based on our leverage ratio and ranging from 0.25% to 1.75%. The annual commitment fee on the unused Credit Agreement will range from 0.10% to 0.20% based on the amount of borrowings. The Credit Agreement includes customary terms and conditions, including financial covenants such as leverage and coverage ratios and other customary covenants, including limitations on our ability to incur debt and pay dividends and maintenance of tangible net worth, and events of default, including a change of control and failure to maintain REIT status. We do not believe that these covenants will limit our current business practices. Total borrowings outstanding under the Credit Agreement at December 31, 2005 were $34.0 million, bearing interest at a rate of 5.6% per annum. Total borrowings increased to $47.5 million as of March 1, 2006 principally due to additional borrowings used to pay $11.0 million of dividends that were accrued as of December 31, 2005 and paid in January 2006 and $13.5 used for the properties acquired on February 28, 2005, net of repayments from positive cash flows provided by rental operations. Accordingly, we had $52.5 million available under the terms of the Credit Agreement as of March 1, 2006 or available $77.5 million available assuming we had exercised our right to increase the credit agreement by $25.0 million. We elected to be taxed as a REIT under the federal income tax laws with the year beginning January 1, 2001. As a REIT, we are required, among other things, to distribute at least 90% of our taxable income to shareholders each year. Payment of dividends is subject to market conditions, our financial condition and other factors, and therefore cannot be assured. Dividends declared for our common and preferred shareholders aggregated $43.5 million, $42.0 million and $41.2 million for 2005, 2004 and 2003, respectively. We presently intend to pay common stock dividends of $0.455 per share each quarter ($1.82 per share on an annual basis), and commenced doing so with the quarterly dividend declared on February 16, 2006. - 13 - Since we generally lease our properties on a triple-net basis and we do not capitalize environmental remediation equipment, we do not incur significant capital expenditures other than those related to acquisitions. Capital expenditures, including acquisitions, for 2005, 2004 and 2003 amounted to $29.6 million, $30.6 million and $14.3 million, respectively. As part of our overall growth strategy, we regularly review opportunities to acquire additional properties and we expect to continue to pursue acquisitions that we believe will benefit our financial performance. To the extent that our current sources of liquidity are not sufficient to fund such acquisitions we will require other sources of capital, which may or may not be available on favorable terms or at all. CONTRACTUAL OBLIGATIONS Our significant contractual obligations and commitments are comprised of borrowings under the Credit Agreement, long-term debt, operating lease payments due to landlords and estimated environmental remediation expenditures, net of estimated recoveries from state underground storage tank funds. In addition, as a REIT we are required to pay dividends equal to at least ninety percent of our taxable income in order to continue to qualify as a REIT. Our contractual obligations and commitments as of December 31, 2005 are summarized below (in thousands):
TOTAL 2006 2007 2008 ----------- ---------- ---------- ----------- Operating leases $ 35,488 $ 8,640 $ 7,220 $ 6,054 Borrowing under the Credit Agreement (a) 34,000 34,000 Long-term debt (a) 224 30 31 33 Estimated environmental remediation expenditures (b) 17,350 6,348 3,807 2,251 Estimated recoveries from state underground storage tank funds (b) (4,264) (1,120) (1,144) (546) ----------- ---------- ---------- ---------- Estimated net environmental remediation expenditures (b) 13,086 5,228 2,663 1,705 ----------- ---------- ---------- ---------- Total $ 82,798 $ 13,898 $ 9,914 $ 41,792 =========== ========== ========== ========== 2009 2010 2011 THEREAFTER --------- --------- ---------- ---------- Operating leases $ 4,408 $ 2,769 $ 1,654 $ 4,743 Borrowing under the Credit Agreement (a) Long-term debt (a) 27 21 22 60 Estimated environmental remediation expenditures (b) 1,314 808 555 2,267 Estimated recoveries from state underground storage tank funds (b) (397) (299) (200) (558) --------- --------- --------- ---------- Estimated net environmental remediation expenditures (b) 917 509 355 1,709 --------- --------- --------- ---------- Total $ 5,352 $ 3,299 $ 2,031 $ 6,512 ========= ========= ========= ==========
(a) Excludes related interest payments. See "Liquidity and Capital Resources" above and "Disclosures About Market Risk" below. (b) Estimated environmental remediation expenditures and estimated recoveries from state underground storage tank funds have been adjusted for inflation and discounted to present value. Generally the leases with our tenants are "triple-net" leases, with the tenant responsible for the payment of taxes, maintenance, repair, insurance, environmental remediation and other operating expenses. We estimate that Marketing makes annual real estate tax payments for properties leased under the Marketing Leases of approximately $11.8 million and makes additional payments for other operating expenses related to our properties, including environmental remediation costs other than those liabilities that were retained by us. These costs are not reflected in our consolidated financial statements. We have no significant contractual obligations not fully recorded on our Consolidated Balance Sheets or fully disclosed in the Notes to our Consolidated Financial Statements. We have no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The consolidated financial statements included in this Annual Report include the accounts of Getty Realty Corp. and our wholly-owned subsidiaries. The preparation of financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that affect amounts reported in its financial statements. Although we have made our best estimates, judgments and assumptions regarding future uncertainties relating to the information included in our financial statements, giving due consideration to the accounting policies selected and materiality, actual results could differ from these estimates, judgments and assumptions. We do not believe that there is a great likelihood that materially different amounts would be reported related to the application of the accounting policies described below. - 14 - Estimates, judgments and assumptions underlying the accompanying consolidated financial statements include, but are not limited to, deferred rent receivable, recoveries from state underground storage tank funds, environmental remediation costs , real estate, depreciation and amortization, impairment of long-lived assets, litigation, accrued expenses, income taxes and exposure to paying an earnings and profits deficiency dividend. The information included in our financial statements that is based on estimates, judgments and assumptions is subject to significant change and is adjusted as circumstances change and as the uncertainties become more clearly defined. Our accounting policies are described in note 1 to the consolidated financial statements. We believe the following are our critical accounting policies: Revenue recognition -- We earn revenue primarily from operating leases with Marketing and other tenants. We recognize income under the Master Lease with Marketing, and with other tenants, on the straight-line method, which effectively recognizes contractual lease payments evenly over the initial term of the leases. A critical assumption in applying this accounting method is that the tenant will make all contractual lease payments during the initial lease term and that the deferred rent receivable of $29.3 million recorded as of December 31, 2005 will be collected when due, in accordance with the annual rent escalations provided for in the leases. Historically our tenants have generally made rent payments when due. However, we may be required to reverse, or provide reserves for, a portion of the recorded deferred rent receivable if it becomes apparent that a property may be disposed of before the end of the initial lease term or if the tenant fails to make its contractual lease payments when due. Impairment of long-lived assets -- Real estate assets represent "long-lived" assets for accounting purposes. We review the recorded value of long-lived assets for impairment in value whenever any events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. We may become aware of indicators of potentially impaired assets upon tenant or landlord lease renewals, upon receipt of notices of potential governmental takings and zoning issues, or upon other events that occur in the normal course of business that would cause us to review the operating results of the property. We believe our real estate assets are not carried at amounts in excess of their estimated net realizable fair value amounts. Income taxes -- Our financial results generally do not reflect provisions for current or deferred federal income taxes since we elected to be taxed as a REIT effective January 1, 2001. Our intention is to operate in a manner that will allow us to continue to be taxed as a REIT and, as a result, we do not expect to pay substantial corporate-level federal income taxes. Many of the REIT requirements, however, are highly technical and complex. If we were to fail to meet the requirements, we may be subject to federal income tax, excise taxes, penalties and interest or we may have to pay a deficiency dividend to eliminate any remaining accumulated earnings and profits that were not distributed in 2001. Certain states do not follow the federal REIT rules and we have included provisions for these taxes in rental property expenses. Environmental costs and recoveries from state underground storage tank funds -- We provide for the estimated fair value of future environmental remediation costs when it is probable that a liability has been incurred and a reasonable estimate of fair value can be made (see "Environmental Matters" below). Since environmental exposures are difficult to assess and estimate and knowledge about these liabilities is not known upon the occurrence of a single event, but rather is gained over a continuum of events, we believe that it is appropriate that our accrual estimates are adjusted as the remediation treatment progresses, as circumstances change and as environmental contingencies become more clearly defined and reasonably estimable. Recoveries of environmental costs from state underground storage tank remediation funds, with respect to past and future spending, are accrued as income, net of allowance for collection risk, based on estimated recovery rates developed from our experience with the funds when such recoveries are considered probable. A critical assumption in accruing for these recoveries is that the state underground storage tank fund programs will be administered and funded in the future in a manner that is consistent with past practices and that future environmental spending will be eligible for reimbursement at historical rates under these programs. Effective January 1, 2003, environmental liabilities and related recoveries are measured based on their expected future cash flows which have been adjusted for inflation and discounted to present value. Litigation -- Legal fees related to litigation is expensed as legal services are performed. We provide for litigation reserves, including certain environmental litigation (see "Environmental Matters" below), when it is probable that a liability has been incurred and a reasonable estimate of the liability can be made. If the best estimate of the liability can only be identified as a range, and no amount within the range is a better estimate than any other amount, the minimum of the range is accrued for the liability. In certain environmental matters, the effect on future financial - 15 - results is not subject to reasonable estimation because considerable uncertainty exists both in terms of the probability of loss and the estimate of such loss. The ultimate liabilities resulting from such lawsuits and claims, if any, may be material to our results of operations in the period in which they are recognized. ENVIRONMENTAL MATTERS We are subject to numerous existing federal, state and local laws and regulations, including matters relating to the protection of the environment such as the remediation of known contamination and the retirement and decommissioning or removal of long-lived assets including buildings containing hazardous materials, USTs and other equipment. In accordance with the leases with certain of our tenants, we have agreed to bring the leased properties with known environmental contamination to within applicable standards and to regulatory or contractual closure ("Closure") in an efficient and economical manner. Generally, upon achieving Closure at an individual property, our environmental liability under the lease for that property will be satisfied and future remediation obligations will be the responsibility of our tenant. We will continue to seek reimbursement from state UST remediation funds related to these environmental liabilities where available. Generally the liability for the retirement and decommissioning or removal of USTs and other equipment is the responsibility of our tenant. We are contingently liable for these obligations in the event that our tenants do not satisfy their responsibilities. A liability has not been recognized for obligations that are the responsibility of our tenants. We have also agreed to provide limited environmental indemnification to Marketing, capped at $4.25 million and expiring in 2010, for certain pre-existing conditions at six of the terminals owned by us. Under the indemnification agreement, Marketing will pay the first $1.5 million of costs and expenses incurred in connection with remediating any such pre-existing conditions, Marketing will share equally with us the next $8.5 million of those costs and expenses and Marketing will pay all additional costs and expenses over $10.0 million. We have accrued $0.3 million as of December 31, 2005 in connection with this indemnification agreement. The estimated future costs for known environmental remediation requirements are accrued when it is probable that a liability has been incurred and a reasonable estimate of fair value can be made. The environmental remediation liability is estimated based on the level and impact of contamination at each property. Recoveries of environmental costs from state underground storage tank remediation funds, with respect to both past and future environmental spending, are accrued at fair value as income, net of allowance for collection risk, based on estimated recovery rates developed from our experience with the funds when such recoveries are considered probable. The accrued liability is the aggregate of the best estimate for the fair value of cost for each component of the liability. In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations." SFAS 143 requires that legal obligations associated with the retirement of tangible long-lived assets be recognized at their fair value if the asset retirement obligation results from the normal operation of those assets and a reasonable estimate of fair value can be made. Due to the adoption of SFAS 143 effective January 1, 2003, accrued environmental remediation costs and recoveries from state underground storage tank funds were adjusted to their estimated fair value resulting in a one-time cumulative effect of change in accounting charge of $550,000. Environmental liabilities and related assets are currently measured based on their expected future cash flows which have been adjusted for inflation and discounted to present value. Prior to the adoption of SFAS 143 generally accepted accounting principles required that if the best estimate of cost for a component of the liability could only be identified as a range, and no amount within the range was a better estimate than any other amount, the minimum of the range was accrued for that cost component. Historically, such accruals were not adjusted for inflation or discounted to present value. 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 property by - 16 - property basis, we consider among other things, enacted laws and regulations, assessments of contamination and surrounding geology, quality of information available, currently available technologies for treatment, alternative methods of remediation and prior experience. These accrual estimates are subject to significant change, and are adjusted as the remediation treatment progresses, as circumstances change and as these contingencies become more clearly defined and reasonably estimable. As of December 31, 2005, we have remediation action plans in place for three hundred two (95%) of the three hundred eighteen properties for which we retain remediation responsibility and have not received a no further action letter and the remaining sixteen properties (5%) were in the assessment phase. As of December 31, 2005, 2004 and 2003 and January 1, 2002, we had accrued $17.4 million, $20.6 million, $23.6 million and $29.4 million, respectively, as management's best estimate of the fair value of reasonably estimable environmental remediation costs. As of December 31, 2005, 2004 and 2003 and January 1, 2003, we had also recorded $4.3 million, $5.4 million, $7.5 million and $14.3 million, respectively, as management's best estimate for net recoveries from state UST remediation funds, net of allowance, related to environmental obligations and liabilities. The net environmental liabilities of $15.2 million as of December 31, 2004, $16.1 million as of December 31, 2003 and $15.1 million as of January 1, 2003 were subsequently accreted for the change in present value due to the passage of time, and accordingly, $0.9 million, $1.1 million and $1.3 million of accretion expense is included in environmental expenses for 2005, 2004 and 2003, respectively. Environmental expenditures and recoveries from underground storage tank funds were $6.8 million and $2.4 million, respectively, for 2005. The decrease in accrued environmental costs and net recoveries during 2005 were primarily due to payments made and cash received during the year, respectively, partially offset by changes in estimated expenditures and recoveries, respectively. Environmental liabilities and related assets are currently measured at fair value based on their expected future cash flows which have been adjusted for inflation and discounted to present value. We also use probability weighted alternative cash flow forecasts to determine fair value. We assumed a 50% probability factor that the actual environmental expenses will exceed engineering estimates for an amount assumed to equal one year of net expenses aggregating $5.3 million. Accordingly, the environmental accrual as of December 31, 2005 was increased by $2.1 million, net of assumed recoveries and before inflation and present value discount adjustments. The resulting net environmental accrual as of December 31, 2005 was then further increased by $1.2 million for the assumed impact of inflation using an inflation rate of 2.75%. Assuming a credit-adjusted risk-free discount rate of 7.0%, we then reduced the net environmental accrual, as previously adjusted, by a $2.5 million discount to present value. Had we assumed an inflation rate that was 0.5% higher and a discount rate that was 0.5% lower, net environmental liabilities as of December 31, 2005 would have increased by $0.2 million and $0.1 million, respectively, for an aggregate increase in the net environmental accrual of $0.3 million. However, the aggregate net change in environmental estimates and accretion expense recorded during the year ended December 31, 2005 would not have changed significantly if these changes in the assumptions were made effective December 31, 2004. In view of the uncertainties associated with environmental expenditures, however, we believe it is possible that the fair value of future actual net expenditures could be substantially higher than these estimates. Adjustments to accrued liabilities for environmental remediation costs will be reflected in our financial statements as they become probable and a reasonable estimate of fair value can be made. For 2005, 2004 and 2003, the aggregate of the net change in estimated remediation costs and accretion expense included in our consolidated statements of operations amounted to $1.4 million, $3.3 million and $5.5 million, respectively, which amounts were net of probable recoveries from state UST remediation funds. Although future 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 long-term 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. We cannot predict if state underground storage tank fund programs will be administered and funded in the future in a manner that is consistent with past practices and if future environmental spending will continue to be eligible for reimbursement at historical recovery rates under these programs. 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 that of our tenants, and could require substantial additional expenditures for future remediation. - 17 - In September 2003, we were notified by the State of New Jersey Department of Environmental Protection that we are one of approximately 60 potentially responsible parties for natural resource damages resulting from discharges of hazardous substances into the Lower Passaic River. The definitive list of potentially responsible parties and their actual responsibility for the alleged damages, the aggregate cost to remediate the Lower Passaic River, the amount of natural resource damages and the method of allocating such amounts among the potentially responsible parties have not been determined. In September 2004, we received a General Notice Letter from the United States Environmental Protection Agency (the "EPA")(the "EPA Notice"), advising us that we may be a potentially responsible party for costs of remediating certain conditions resulting from discharges of hazardous substances into the Lower Passaic River. ChevronTexaco received the same EPA Notice regarding those same conditions. We believe that ChevronTexaco is obligated to indemnify us, pursuant to an indemnification agreement regarding the conditions at the property identified by the DEP and EPA and accordingly, our ultimate legal and financial liability, if any, cannot be estimated with any certainty at this time. From October 2003 through September 2005 we were notified that we were made party to 38 cases in Connecticut, Florida, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Vermont, Virginia and West Virginia brought by local water providers or governmental agencies. These cases allege various theories of liability due to contamination of groundwater with MTBE as the basis for claims seeking compensatory and punitive damages. Each case names as defendants approximately 50 petroleum refiners, manufacturers, distributors and retailers of MTBE, or gasoline containing MTBE. The accuracy of the allegations as they relate to us, our defenses to such claims, the aggregate amount of damages, the definitive list of defendants and the method of allocating such amounts among the defendants have not been determined. Accordingly, our ultimate legal and financial liability, if any, cannot be estimated with any certainty at this time. DISCLOSURES ABOUT MARKET RISK We do not use derivative financial or commodity instruments for trading, speculative or any other purpose. We had no outstanding derivative instruments as of December 31, 2005 or December 31, 2004 or at any time during the years then ended. We do not have any foreign operations, and are therefore not exposed to foreign currency exchange rate risks. We are exposed to interest rate risks, primarily as a result of our $100.0 million Credit Agreement. We manage our exposure to this risk by minimizing, to the extent feasible, our overall borrowing and monitoring available financing alternatives. Our interest rate risk has increased due to increased average outstanding borrowings under the Credit Agreement as compared to December 31, 2004. We do not foresee any significant changes in our exposure or in how we manage this exposure in the near future. We use borrowings under the Credit Agreement, which expires in June 2008, to finance acquisitions and for general corporate purposes. Our Credit Agreement bears interest at a rate equal to the sum of a base rate or a LIBOR rate plus an applicable margin based on our leverage ratio and ranging from 0.25% to 1.75%. At December 31, 2005 we had total borrowings of $34.0 million under our Credit Agreement bearing interest at a rate of 5.6% per annum, and had not entered into any instruments to hedge our resulting exposure to interest-rate risk. Based on our average outstanding borrowings under the Credit Agreement projected for 2006, if market interest rates for 2006 increase by an average of 0.5% more than the weighted average interest rate of 5.6% as of December 31, 2005, the additional annualized interest expense would decrease 2006 net income and cash flows by $0.3 million. This amount was determined by calculating the effect of a hypothetical interest rate change on our Credit Agreement borrowings and assumes that the $36.6 million average outstanding borrowings during the fourth quarter of 2005 plus $13.5 million for the acquisition completed in February 2006 is indicative of our future average borrowings for 2006 before considering additional borrowings required for future acquisitions. The calculation also assumes that there are no other changes in our financial structure or the terms of our borrowings. Management believes that the fair value of the debt equals its carrying value at December 31, 2005 and 2004. Our exposure to fluctuations in interest rates will increase or decrease in the future with increases or decreases in the outstanding amount under our Credit Agreement. - 18 - In order to minimize our exposure to credit risk associated with financial instruments, we place our temporary cash investments with high-credit-quality institutions. Temporary cash investments, if any, are held in an institutional money market fund and short-term federal agency discount notes. FORWARD-LOOKING STATEMENTS Certain statements in this Annual Report may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. When we use the words "believes," "expects," "plans," "projects," "estimates" and similar expressions, we intend to identify forward-looking statements. Examples of forward-looking statements include statements regarding our expectations regarding future payments from Marketing, including $60.3 million in lease rental payments in 2006; the expected effect of regulations on our long-term performance; our expected ability to maintain compliance with applicable regulations; our ability to renew expired leases; the adequacy of our current and anticipated cash flows; our belief that we do not have a material liability for offers and sales of our securities made pursuant to registration statements that did not contain the financial statements or summarized financial data of Marketing; our expectations regarding future acquisitions; the impact of the covenants included in the Credit Agreement on our current business practices; our ability to maintain our REIT status; the probable outcome of litigation or regulatory actions; our expected recoveries from underground storage tank funds; our exposure to environmental remediation expenses; our estimates regarding remediation costs and accretion expense; our expectations as to the long-term effect of environmental liabilities on our financial condition; our exposure to interest rate fluctuations; our expectations regarding corporate level federal income taxes; the indemnification obligations of the Company and others; our intention to consummate future acquisitions; our assessment of the likelihood of future competition; the anticipated impact of changes in accounting for stock-based compensation; assumptions regarding the future applicability of accounting estimates, assumptions and policies; our intention to pay future dividends; and our beliefs about the reasonableness of our accounting estimates, judgments and assumptions. These forward-looking statements are based on our current beliefs and assumptions and information currently available to us and involve known and unknown risks (including the risks described herein and other risks that we describe from time to time in our filings with the Securities and Exchange Commission), uncertainties and other factors which may cause our actual results, performance and achievements to be materially different from any future results, performance or achievements, expressed or implied by these forward-looking statements. These factors include, but are not limited to: risks associated with owning and leasing real estate generally; dependence on Marketing as a tenant and on rentals from companies engaged in the petroleum marketing and convenience store businesses; our unresolved SEC comment; competition for properties and tenants; risk of tenant non-renewal; the effects of taxation and other regulations; potential litigation exposure; our expectations as to the cost of completing environmental remediation; the risk of loss of our management team; the impact of our electing to be taxed as a REIT, including subsequent failure to qualify as a REIT; risks associated with owning real estate concentrated in one region of the United States; risks associated with potential future acquisitions; losses not covered by insurance; future dependence on external sources of capital; our potential inability to pay dividends and terrorist attacks and other acts of violence and war. As a result of these and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect our business, financial condition, operating results and stock price. An investment in our stock involves various risks, including those mentioned above and elsewhere in this report and those that are detailed from time to time in our other filings with the Securities and Exchange Commission. 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 reflect the occurrence of unanticipated events. - 19 - - 20 - GETTY REALTY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
YEAR ENDED DECEMBER 31, ------------------------------------------------- 2005 2004 2003 --------------- --------------- --------------- Revenues from rental properties $ 71,377 $ 66,331 $ 66,601 Expenses: Rental property expenses 11,770 9,814 10,662 Environmental expenses, net 2,428 6,027 7,594 General and administrative expenses 4,925 5,006 4,074 Depreciation and amortization expense 8,255 7,490 8,411 --------------- --------------- --------------- Total expenses 27,378 28,337 30,741 --------------- --------------- --------------- Operating income 43,999 37,994 35,860 Other income, net 1,578 1,485 1,705 Interest expense (1,623) (127) (128) --------------- --------------- --------------- Earnings before income tax benefit and cumulative effect of accounting change 43,954 39,352 37,437 Income tax benefit 1,494 -- -- --------------- --------------- --------------- Earnings before cumulative effect of accounting change 45,448 39,352 37,437 Cumulative effect of accounting change -- -- (550) --------------- --------------- --------------- Net earnings 45,448 39,352 36,887 Preferred stock dividends -- -- 2,538 --------------- --------------- --------------- Net earnings applicable to common shareholders $ 45,448 $ 39,352 $ 34,349 =============== =============== =============== Net earnings per common share: Basic $ 1.84 $ 1.59 $ 1.49 Diluted $ 1.84 $ 1.59 $ 1.49 Weighted average common shares outstanding: Basic 24,711 24,679 23,063 Stock options and restricted stock units 18 42 19 --------------- --------------- --------------- Diluted 24,729 24,721 23,082 =============== =============== =============== Dividends declared per share: Common $ 1.76 $ 1.700 $ 1.675 Preferred $ -- $ -- $ 1.159
The accompanying notes are an integral part of these consolidated financial statements. - 21 - GETTY REALTY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
DECEMBER 31, ----------------------------------- 2005 2004 ---------------- ---------------- ASSETS: Real Estate: Land $ 171,839 $ 156,571 Buildings and improvements 198,656 190,019 ---------------- ---------------- 370,495 346,590 Less -- accumulated depreciation and amortization (109,800) (106,463) ---------------- ---------------- Real estate, net 260,695 240,127 Deferred rent receivable 29,287 25,117 Cash and equivalents 1,247 15,700 Recoveries from state underground storage tank funds, net 4,264 5,437 Mortgages and accounts receivable, net 3,129 3,961 Prepaid expenses and other assets 1,359 386 ---------------- ---------------- Total assets $ 299,981 $ 290,728 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY: Debt $ 34,224 $ 24,509 Environmental remediation costs 17,350 20,626 Dividends payable 11,009 10,495 Accounts payable and accrued expenses 9,515 9,595 ---------------- ---------------- Total liabilities 72,098 65,225 ---------------- ---------------- Commitments and contingencies (notes 2, 3, 5 and 6) Shareholders' equity: Common stock, par value $.01 per share; authorized 50,000,000 shares; issued 24,716,614 at December 31, 2005 and 24,694,071 at December 31, 2004 247 247 Paid-in capital 257,766 257,295 Dividends paid in excess of earnings (30,130) (32,039) ---------------- ---------------- Total shareholders' equity 227,883 225,503 ---------------- ---------------- Total liabilities and shareholders' equity $ 299,981 $ 290,728 ================ ================
The accompanying notes are an integral part of these consolidated financial statements. - 22 - GETTY REALTY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
YEAR ENDED DECEMBER 31, ------------------------------------------------- 2005 2004 2003 --------------- ---------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 45,448 $ 39,352 $ 36,887 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization expense 8,255 7,490 8,411 Deferred rental revenue (4,170) (4,464) (5,537) Gain on dispositions of real estate (1,309) (618) (928) Accretion expense 925 1,054 1,284 Cumulative effect of accounting change -- -- 550 Stock-based employee compensation expense 134 25 -- Changes in assets and liabilities: Recoveries from state underground storage tank funds, net 1,557 2,512 7,559 Mortgages and accounts receivable, net 497 238 (1,528) Prepaid expenses and other assets (1,115) 306 300 Environmental remediation costs (4,585) (4,474) (7,824) Accounts payable and accrued expenses 1,414 495 (739) Accrued income taxes (1,494) -- -- --------------- --------------- --------------- Net cash provided by operating activities 45,557 41,916 38,435 --------------- --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Property acquisitions and capital expenditures (29,573) (30,568) (14,266) Collection of mortgages receivable, net 335 1,366 1,156 Proceeds from dispositions of real estate 2,201 1,303 3,117 --------------- --------------- --------------- Net cash used in investing activities (27,037) (27,899) (9,993) --------------- --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends paid (43,025) (41,951) (41,115) Borrowings under credit lines, net 10,000 24,000 -- Repayment of mortgages payable, net (285) (335) (79) Preferred stock redemption and conversion -- -- (1,224) Proceeds from stock issued 337 64 155 --------------- --------------- --------------- Net cash used in financing activities (32,973) (18,222) (42,263) --------------- --------------- --------------- Net decrease in cash and equivalents (14,453) (4,205) (13,821) Cash and equivalents at beginning of year 15,700 19,905 33,726 --------------- --------------- --------------- Cash and equivalents at end of year $ 1,247 $ 15,700 $ 19,905 =============== =============== =============== Supplemental disclosures of cash flow information Cash paid (refunded) during the year for: Interest $ 1,464 $ 114 $ 127 Income taxes, net 582 571 949 Recoveries from state underground storage tank funds (2,304) (2,362) (2,135) Environmental remediation costs 5,822 6,776 6,642
The accompanying notes are an integral part of these consolidated financial statements. - 23 - GETTY REALTY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The consolidated financial statements include the accounts of Getty Realty Corp. and its wholly-owned subsidiaries (the "Company"). The Company is a real estate investment trust ("REIT") specializing in the ownership and leasing of retail motor fuel and convenience store properties and petroleum distribution terminals. The Company manages and evaluates its operations as a single segment. All significant inter-company accounts and transactions have been eliminated. Use of Estimates, Judgments and Assumptions: The financial statements have been prepared in conformity with GAAP, which requires management to make its best estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. While all available information has been considered, actual results could differ from those estimates, judgments and assumptions. Estimates, judgments and assumptions underlying the accompanying consolidated financial statements include, but are not limited to, deferred rent receivable, recoveries from state underground storage tank funds, environmental remediation costs, real estate, depreciation and amortization, impairment of long-lived assets, litigation, accrued expenses, income taxes and exposure to paying an earnings and profits deficiency dividend. Out of Period Adjustments: During the fourth quarter of 2005, the Company recorded a reduction in net earnings of $693,000 as a result of adjustments which should have been recorded in prior years or earlier quarterly periods of 2005. The adjustments consisted of: (a) $115,000 of rental income for lease terminations that related to prior years and $185,000 related to earlier quarters of 2005; (b) $1,534,000 of rent expense for a change in accounting for rent expense from a contractual to a straight-line basis, which is related to prior years, and; (c) $541,000 of gains on sale of real estate resulting from a property taken by eminent domain that should have been recorded in the second quarter of 2005. Management believes that these adjustments are not material to any previously issued financial statements and that the impacts of recording these adjustments are not material, individually or in the aggregate, to the quarter or year ended December 31, 2005. Real Estate: Real estate assets are stated at cost less accumulated depreciation and amortization. Upon acquisition of real estate operating properties and leasehold interests, the Company estimates the fair value of acquired tangible assets (consisting of land, buildings and improvements) "as if vacant" and identified intangible assets and liabilities (consisting of leasehold interests, above and below-market leases, in-place leases and tenant relationships) and assumed debt. Based on these estimates, the Company allocates the purchase price to the applicable assets and liabilities. 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 sixteen to twenty-five years for buildings and improvements, or the term of the lease if shorter. Leasehold interests, capitalized above and below-market leases, in-place leases and tenant relationships are amortized over the remaining term of the underlying lease. Cash and Equivalents: The Company considers highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Deferred Rent Receivable and Revenue Recognition: The Company earns rental income under operating leases with tenants. Minimum lease rentals and lease termination payments are recognized on a straight-line basis over the term of the leases. The cumulative difference between lease revenue recognized under this method and the contractual lease payment terms is recorded as deferred rent receivable on the consolidated balance sheet. Lease termination fees are recognized as rental income when earned upon the termination of a tenant's lease and relinquishment of space in which the Company has no further obligation to the tenant. Environmental Remediation Costs and Recoveries from State Underground Storage Tank Funds, Net: The estimated future costs for known environmental remediation requirements are accrued when it is probable that a liability has been incurred and a reasonable estimate of fair value can be made. The environmental remediation liability is estimated based on the level and impact of - 24 - contamination at each property. The accrued liability is the aggregate of the best estimate of the fair value of cost for each component of the liability. Recoveries of environmental costs from state underground storage tank ("UST") remediation funds, with respect to both past and future environmental spending, are accrued at fair value as income, net of allowance for collection risk, based on estimated recovery rates developed from prior experience with the funds when such recoveries are considered probable. Environmental liabilities and related assets are currently measured based on their expected future cash flows which have been adjusted for inflation and discounted to present value. In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 143, "Accounting for Asset Retirement Obligations." SFAS 143 requires that legal obligations associated with the retirement of tangible long-lived assets be recognized at their fair value if the asset retirement obligation results from the normal operation of those assets and a reasonable estimate of fair value can be made. Due to the adoption of SFAS 143 effective January 1, 2003, accrued environmental remediation costs and recoveries from state underground storage tank funds were adjusted to their estimated fair value resulting in a one-time cumulative effect of change in accounting charge of $550,000, or $0.02 per diluted common share, in the year ended December 31, 2003. Prior to the adoption of SFAS 143, GAAP required that if the best estimate of cost for a component of the liability could only be identified as a range, and no amount within the range was a better estimate than any other amount, the minimum of the range was accrued for that cost component. Historically, such accruals were not adjusted for inflation or discounted to present value. In January 2005 the FASB issued FIN 47 "Accounting for Conditional Asset Retirement Obligations" to clarify the use of that term in SFAS 143. The adoption of FIN 47 effective December 31, 2005 did not have a significant effect on the Company's financial position or results of operations. 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 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 disposition costs. Litigation: Legal fees related to litigation are expensed as legal services are performed. The Company provides for litigation reserves, including certain litigation related to environmental matters, when it is probable that a liability has been incurred and a reasonable estimate of the liability can be made. If the best estimate of the liability can only be identified as a range, and no amount within the range is a better estimate than any other amount, the minimum of the range is accrued for the liability. Income Taxes: The Company and its subsidiaries file a consolidated federal income tax return. Effective January 1, 2001, the Company elected to qualify, and believes it is operating so as to qualify, as a REIT for federal income tax purposes. Accordingly, the Company generally will not be subject to federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under the Internal Revenue Code. If the Company sells any property within ten years after its REIT election that is not exchanged for a like-kind property, it will be taxed on the built-in gain realized from such sale at the highest corporate rate. This ten-year built-in gain tax period will end in 2011. 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. The weighted average number of shares outstanding for the year ended December 31, 2003 gives effect to the conversion of Series A Participating Convertible Redeemable Preferred Stock into 3,186,000 shares of common stock as if the conversion had occurred at the beginning of the year (see note 7). There were no preferred shares outstanding during 2005 or 2004. Diluted earnings per common share also gives effect to the potential dilution from the exercise of stock options and the issuance of common shares in settlement of restricted stock units. Diluted earnings before cumulative effect of accounting change per common share were $1.51 for the year ended December 31, 2003. Stock-Based Compensation: In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure -- an amendment of SFAS 123" ("SFAS 148"). In December 2004, the FASB amended and reissued SFAS 123, "Share-Based Payment" ("SFAS 123R"). The Company adopted SFAS 148 effective December 31, 2002 and SFAS 123R effective January 1, 2005. The effects of applying these accounting standards for recognizing compensation cost and providing pro forma disclosures during their initial phase-in periods may not be representative of the effects on reported net income for future years. However, the impact of the accounting for stock-based compensation is, and is expected to be, immaterial to the Company's financial position and results of operations. - 25 - Effective January 1, 2003, the Company voluntarily changed to the fair value basis of accounting for all stock-based employee compensation for awards granted subsequent to January 1, 2003. The Company continued to account for options granted under its stock option plan prior to January 1, 2003 using the intrinsic value method until January 1, 2005 when it adopted SFAS 123R and the fair value basis of accounting for the unvested portion of the outstanding stock options granted prior to January 1, 2003 (see note 8). Historically, the exercise price of options granted by the Company was the same as the market price at the grant date and stock-based compensation expense was not included in reported net earnings. There were no stock-based employee compensation awards granted in 2003. On March 1, 2005 and June 1, 2004, the Company granted 12,550 and 10,800 restricted stock units, respectively, under its 2004 Omnibus Incentive Compensation Plan (the "2004 Plan") which was approved at the Annual Meeting of Shareholders on May 20, 2004, (see note 8). Accordingly, $134,000 and $25,000 of stock-based employee compensation expense is included in general and administrative expense for the years ended December 31, 2005 and 2004, respectively. The expense for 2005 includes $32,000 related to options granted under the Company's stock option plan prior to January 1, 2003. Had compensation cost for the Company's stock-based compensation plans been accounted for using the fair value method for all grants, the Company's total stock-based employee compensation expense using the fair value method, pro-forma net earnings and pro-forma net earnings per share on a basic and diluted basis would have been as follows (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31, --------------------------- 2004 2003 ------------ ------------ Net earnings, as reported $ 39,352 $ 36,887 Add: Stock-based employee compensation expense included in reported net earnings 25 -- Deduct: Total stock-based employee compensation expense using the fair value method 118 133 ------------ ------------ Pro-forma net earnings $ 39,259 $ 36,754 ============ ============ Net earnings per common share: As reported $ 1.59 $ 1.49 Pro-forma $ 1.59 $ 1.48
2. LEASES The Company leases or sublets its properties primarily to distributors and retailers engaged in the sale of gasoline and other motor fuel products, convenience store products and automotive repair services who are responsible for the payment of taxes, maintenance, repair, insurance and other operating expenses and for managing the actual operations conducted at these properties. The Company's properties are primarily located in the Northeast and Mid-Atlantic regions of the United States. The Company and Getty Petroleum Marketing Inc. ("Marketing"), are parties to an amended and restated Master Lease Agreement (the "Master Lease"), which became effective on December 9, 2000, and a coterminous supplemental lease for a single property (collectively the "Marketing Leases"). As of December 31, 2005, the Marketing Leases included nine hundred twenty-eight retail motor fuel and convenience store properties and ten distribution terminals, two hundred twenty-one of which are leased by the Company from third parties. The Master Lease has an initial term of fifteen years commencing December 9, 2000, and generally provides Marketing with options for three renewal terms of ten years each and a final renewal option of three years and ten months extending to 2049 (or such shorter initial or renewal term as the underlying lease may provide). The Marketing Leases include provisions for 2% annual rent escalations. The Master Lease is a unitary lease and, accordingly, Marketing's exercise of renewal options must be on an "all or nothing" basis. The Company estimates that Marketing makes annual real estate tax payments for properties leased under the Marketing Leases of approximately $11.8 million and makes additional payments for other operating expenses related to these properties, including environmental remediation costs other than those liabilities that were retained by the Company. These costs, which have been assumed by Marketing under the terms of the Marketing Leases, are not reflected in the consolidated financial statements. - 26 - Revenues from rental properties for the years ended December 31, 2005, 2004 and 2003 were $71,377,000, $66,331,000 and $66,601,000, respectively, of which $59,590,000, $58,938,000 and $58,723,000, respectively, were received from Marketing under the Marketing Leases. In addition, revenues from rental properties for the years ended December 31, 2005, 2004 and 2003 includes $4,170,000, $4,464,000 and $5,537,000, respectively, of deferred rental revenue accrued due to recognition of rental revenue on a straight-line basis. Future minimum annual rentals receivable from Marketing under the Marketing Leases and from other tenants, which have terms in excess of one year as of December 31, 2005, are as follows (in thousands):
OTHER YEAR ENDING DECEMBER 31, MARKETING TENANTS TOTAL (a) - ------------------------ --------- --------- ----------- 2006 $ 60,270 $ 8,037 $ 68,307 2007 60,162 7,836 67,998 2008 60,763 7,784 68,547 2009 61,071 7,492 68,563 2010 61,107 7,317 68,424 Thereafter 304,296 71,679 375,975
(a) Includes $121,693 of future minimum annual rentals receivable under subleases. Rent expense, substantially all of which consists of minimum rentals on non-cancelable operating leases, amounted to $10,765,000, $8,928,000 and $9,704,000 for the years ended December 31, 2005, 2004 and 2003, respectively, and is included in rental property expenses using the straight-line method for 2005 and when contractually due for 2004 and 2003, which approximated the straight-line method. Rent expense of $10,765,000 for the year ended December 31, 2005 includes an adjustment of $1,534,000 recorded in the fourth quarter of 2005 for a change in accounting for rent expense to a straight-line basis (see footnote 1). Rent received under subleases for the years ended December 31, 2005, 2004 and 2003 was $15,240,000, $14,943,000 and $17,305,000, respectively. The Company has obligations to lessors under non-cancelable operating leases which have terms (excluding renewal term options) in excess of one year, principally for gasoline stations and convenience stores. Substantially all of these leases contain renewal options and rent escalation clauses. The leased properties have a remaining lease term averaging over twelve years, including renewal options. Future minimum annual rentals payable under such leases, excluding renewal options, are as follows (in thousands):
YEAR ENDING DECEMBER 31, - ----------------------- 2006 $ 8,640 2007 7,220 2008 6,054 2009 4,408 2010 2,769 Thereafter 6,397
3. COMMITMENTS AND CONTINGENCIES 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. Temporary cash investments, if any, are held in an institutional money market fund and federal agency discount notes. As of December 31, 2005, the Company leased nine hundred thirty-eight of its one thousand fifty-five properties on a long-term net basis to Marketing under the Marketing Leases (see note 2). Marketing operated substantially all of the Company's petroleum marketing businesses when it was spun-off to the Company's shareholders as a separate publicly held company in March 1997. In December 2000, Marketing was acquired by a subsidiary of OAO Lukoil, one of Russia's largest integrated oil companies. The Company's financial results - 27 - 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 Marketing Leases. Substantially all of the deferred rental revenue of $29,287,000 recorded as of December 31, 2005 is due to recognition of rental revenue on a straight-line basis under the Marketing Leases. Marketing's financial results depend largely on retail petroleum marketing margins and rental income from its dealers. The petroleum marketing industry has been and continues to be volatile and highly competitive. Marketing has made all required monthly rental payments under the Marketing Leases when due. Under the Master Lease, the Company has also agreed to provide limited environmental indemnification to Marketing, capped at $4,250,000 and expiring in 2010, for certain pre-existing conditions at six of the terminals which are owned by the Company. Under the agreement, Marketing will pay the first $1,500,000 of costs and expenses incurred in connection with remediating any such pre-existing conditions, Marketing and the Company will share equally the next $8,500,000 of those costs and expenses and Marketing will pay all additional costs and expenses over $10,000,000. The Company has accrued $300,000 as of December 31, 2005 in connection with this indemnification agreement. 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 the petroleum marketing business. As of December 31, 2005 and 2004 the Company had accrued $2,667,000 and $3,623,000, respectively, for certain of these matters which it believes are appropriated based on information currently available. The ultimate resolution of these matters is not expected to have a material adverse effect on the Company's financial condition or results of operations. In September 2003, the Company was notified by the State of New Jersey Department of Environmental Protection that the Company is one of approximately sixty potentially responsible parties for natural resource damages resulting from discharges of hazardous substances into the Lower Passaic River. The definitive list of potentially responsible parties and their actual responsibility for the alleged damages, the aggregate cost to remediate the Lower Passaic River, the amount of natural resource damages and the method of allocating such amounts among the potentially responsible parties have not been determined. In September 2004, the Company received a General Notice Letter from the United States Environmental Protection Agency (the "EPA") (the "EPA Notice"), advising the Company that it may be a potentially responsible party for costs of remediating certain conditions resulting from discharges of hazardous substances into the Lower Passaic River. ChevronTexaco received the same EPA Notice regarding those same conditions. Additionally, the Company believes that ChevronTexaco is contractually obligated to indemnify the Company, pursuant to an indemnification agreement, for the conditions at the property identified by the New Jersey Department of Environmental Protection and the EPA. Accordingly, the ultimate legal and financial liability of the Company, if any, cannot be estimated with any certainty at this time. From October 2003 through September 2005 the Company was notified that the Company was made party to thirty-eight cases, in Connecticut, Florida, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Vermont, Virginia and West Virginia brought by local water providers or governmental agencies. These cases allege various theories of liability due to contamination of groundwater with MTBE as the basis for claims seeking compensatory and punitive damages. Each case names as defendants approximately fifty petroleum refiners, manufacturers, distributors and retailers of MTBE, or gasoline containing MTBE. The accuracy of the allegations as they relate to the Company, its defenses to such claims, the aggregate amount of damages, the definitive list of defendants and the method of allocating such amounts among the defendants have not been determined. Accordingly, the ultimate legal and financial liability of the Company, if any, cannot be estimated with any certainty at this time. 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. As of December 31, 2005 and 2004, the Company's consolidated balance sheets included, in accounts payable and accrued expenses, $291,000 and $500,000, respectively, relating to insurance obligations. The Company estimates its loss reserves for claims, including claims incurred but not reported, by utilizing actuarial valuations provided annually by its insurance carriers. The Company is required to deposit funds for these loss reserves with its insurance carriers, and may be entitled to refunds of amounts previously funded, as the claims are evaluated on an annual basis. Although future loss reserve adjustments may have a significant impact on - 28 - 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 long-term financial position. The Company's consolidated statements of operations for the years ended December 31, 2005, 2004 and 2003 included, in general and administrative expenses, credits of $150,000, $312,000 and $500,000, respectively, for self-insurance. Since the spin-off, the Company has maintained insurance coverage subject to certain deductibles. 4. DEBT As of December 31, 2005, debt consists of $34,000,000 in borrowings under the Credit Agreement, described below, bearing interest at 5.6% and $224,000 of real estate mortgages, bearing interest at a weighted average interest rate of 4.4% per annum, due in varying amounts through May 1, 2015. Aggregate principal payments in subsequent years for real estate mortgages are as follows: 2006 -- $30,000; 2007 -- $31,000; 2008 -- $33,000; 2009 -- $27,000; 2010 -- $21,000 and $82,000 thereafter. These mortgages payable are collateralized by real estate having an aggregate net book value of approximately $1,312,000 as of December 31, 2005. On June 30, 2005, the Company entered into an unsecured three-year senior revolving $100,000,000 Credit Agreement ("Credit Agreement") with a group of six domestic commercial banks which replaced the Company's outstanding $50,000,000 uncommitted line of credit with one bank. The Credit Agreement matures on June 30, 2008 and does not provide for scheduled reductions in the principal balance prior to its maturity. Subject to the terms of the Credit Agreement, the Company has the right to increase the Credit Agreement by $25,000,000 and to extend the term of the Credit Agreement for one additional year. Borrowings under the Credit Agreement bear interest at a rate equal to the sum of a base rate or a LIBOR rate plus an applicable margin based on the Company's leverage ratio and ranging from 0.25% to 1.75%. The annual commitment fee on the unused Credit Agreement will range from 0.10% to 0.20% based on usage. The Credit Agreement includes customary terms and conditions, including financial covenants such as leverage and coverage ratios and other customary covenants, including limitations on the Company's ability to incur debt and pay dividends and maintenance of tangible net worth and events of default, including a change of control and failure to maintain REIT status. The Company does not believe that these covenants will limit its current business practices. 5. ENVIRONMENTAL EXPENSES The Company is subject to numerous existing federal, state and local laws and regulations, including matters relating to the protection of the environment such as the remediation of known contamination and the retirement and decommissioning or removal of long-lived assets including buildings containing hazardous materials, USTs and other equipment. Environmental expenses are principally attributable to remediation costs which include installing, operating, maintaining and decommissioning remediation systems, monitoring contamination, and governmental agency reporting incurred in connection with contaminated properties. Environmental remediation liabilities and related assets are measured at fair value based on their expected future cash flows which have been adjusted for inflation and discounted to present value. The aggregate of the net changes in estimated remediation costs and accretion expense included in environmental expenses in the Company's consolidated statements of operations were $1,415,000, $3,346,000 and $5,450,000 for 2005, 2004 and 2003, respectively, which amounts were net of changes in estimated recoveries from state underground storage tank ("UST") remediation funds. Environmental expenses also include project management fees, legal fees and provisions for environmental litigation loss reserves. In accordance with the leases with certain tenants, the Company has agreed to bring the leased properties with known environmental contamination to within applicable standards and to regulatory or contractual closure ("Closure") in an efficient and economical manner. Generally, upon achieving Closure at each individual property, the Company's environmental liability under the lease for that property will be satisfied and future remediation obligations will be the responsibility of our tenants. Generally the liability for the retirement and decommissioning or removal of USTs and other equipment is the responsibility of our tenants. The Company is contingently liable for these obligations in the event that the tenants do not satisfy their responsibilities. A liability has not been recognized for obligations that are the responsibility of the tenants. - 29 - The Company has agreed to pay all costs relating to, and to indemnify Marketing for, certain environmental liabilities and obligations for two hundred forty-two properties that are scheduled in the Master Lease. The Company will continue to seek reimbursement from state UST remediation funds related to these environmental expenditures where available. The estimated future costs for known environmental remediation requirements are accrued when it is probable that a liability has been incurred and a reasonable estimate of fair value can be made. The environmental remediation liability is estimated based on the level and impact of contamination at each property. The accrued liability is the aggregate of the best estimate of the fair value of cost for each component of the liability. Recoveries of environmental costs from state UST remediation funds, with respect to both past and future environmental spending, are accrued at fair value as income, net of allowance for collection risk, based on estimated recovery rates developed from prior experience with the funds when such recoveries are considered probable. 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 the Company's liability for probable and reasonably estimable environmental remediation costs, on a property by property basis, the Company considers among other things, enacted laws and regulations, assessments of contamination and surrounding geology, quality of information available, currently available technologies for treatment, alternative methods of remediation and prior experience. These accrual estimates are subject to significant change, and are adjusted as the remediation treatment progresses, as circumstances change and as these contingencies become more clearly defined and reasonably estimable. As of December 31, 2005, the Company has remediation action plans in place for 302 (95%) of the 318 properties for which it retained environmental responsibility and has not received a no further action letter and the remaining 16 properties (5%) remain in the assessment phase. As of December 31, 2005, 2004, 2003 and January 1, 2003, the Company had accrued $17,350,000, $20,626,000, $23,551,000 and $29,426,000 respectively, as management's best estimate of the fair value of reasonably estimable environmental remediation costs. As of December 31, 2005, 2004, 2003 and January 1, 2003, the Company had also recorded $4,264,000, $5,437,000, $7,454,000 and $14,348,000, respectively, as management's best estimate for recoveries from state UST remediation funds, net of allowance, related to environmental obligations and liabilities. The net environmental liabilities of $15,189,000, $16,097,000 and 15,078,000 as of December 31, 2004, 2003 and January 1, 2003, respectively, were subsequently accreted for the change in present value due to the passage of time and, accordingly, $925,000, $1,054,000 and $1,284,000 of accretion expense is included in environmental expenses for the years ended December 31, 2005, 2004 and 2003, respectively. In view of the uncertainties associated with environmental expenditures, however, the Company believes it is possible that the fair value of future actual net expenditures could be substantially higher than these estimates. Adjustments to accrued liabilities for environmental remediation costs will be reflected in the Company's financial statements as they become probable and a reasonable estimate of fair value can be made. Although future environmental expenses 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 long-term financial position. 6. INCOME TAXES Net cash paid for income taxes for the years ended December 31, 2005, 2004 and 2003 of $582,000, $571,000 and $949,000, respectively, includes amounts related to state and local income taxes for jurisdictions that do not follow the federal tax rules, which are provided for in rental property expenses in the Company's consolidated statements of operations. Net cash paid for income taxes also includes audit settlements which were provided for in the periods prior to 2001 when the Company was taxed as a C-corp. Earnings and profits (as defined in the Internal Revenue Code) is used to determine the tax attributes of dividends paid to stockholders and will differ from income reported for financial statement purposes due to 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. Earnings and profits were - 30 - $38,200,000, $31,900,000 and $30,400,000 for the years ended December 31, 2005, 2004 and 2003, respectively. The federal tax attributes of the common dividends for the years ended December 31, 2005, 2004 and 2003 were: ordinary income of 88.8%, 75.3% and 70.4%; capital gains distributions of 0.04%, 0.8% and 0.6%; and non-taxable distributions of 11.2%, 23.9% and 29.0%, respectively. In order to qualify as a REIT, among other items, the Company paid a $64,162,000 special one-time earnings and profits cash distribution to shareholders in August 2001. Determination of accumulated earnings and profits for federal income tax purposes is extremely complex. Should the Internal Revenue Service successfully assert that the Company's accumulated earnings and profits were greater than the amount distributed, the Company may fail to qualify as a REIT; however, the Company may avoid losing its REIT status by paying a deficiency dividend to eliminate any remaining accumulated earnings and profits. The Company may have to borrow money or sell assets to pay such a deficiency dividend. As of December 31, 2005 and 2004 the Company had accrued $1,100,000 and $2,594,000, respectively, for this and certain other tax matters which it believes were appropriate based on information then currently available. The accrual for uncertain tax positions is adjusted as circumstances change and as the uncertainties become more clearly defined, such as when audits are settled or exposures expire. Accordingly, an income tax benefit of $1,494,000 was recorded in 2005 due to the net reduction in the amount accrued for uncertain tax positions to the extent that the uncertainties regarding these exposures have been resolved. The ultimate resolution of these matters may have a significant impact on the results of operations for any single fiscal year or interim period. 7. SHAREHOLDERS' EQUITY A summary of the changes in shareholders' equity for the years ended December 31, 2005, 2004, and 2003 is as follows (in thousands, except per share amounts):
PREFERRED STOCK COMMON STOCK DIVIDENDS PAID ------------------ --------------- PAID-IN IN EXCESS SHARES AMOUNT SHARES AMOUNT CAPITAL OF EARNINGS TOTAL ------ --------- ------ ------ ----------- -------------- ---------- BALANCE, DECEMBER 31, 2002 2,866 $ 71,644 21,442 $ 214 $ 186,664 $ (25,096) $ 233,426 Net earnings 36,887 36,887 Cash dividends: Common -- $1.675 per share (38,681) (38,681) Preferred -- $1.159 per share (2,538) (2,538) Preferred stock redemption and conversion (2,866) (71,644) 3,186 32 70,388 (1,224) Stock options 36 1 154 155 ----- --------- ------ ------ ----------- ---------- ---------- BALANCE, DECEMBER 31, 2003 -- -- 24,664 247 257,206 (29,428) 228,025 ----- -------- ------ ------ ----------- ---------- ---------- Net earnings 39,352 39,352 Cash dividends: Common -- $1.70 per share (41,963) (41,963) Stock-based compensation 25 25 Stock options 30 - 64 64 ----- -------- ------ ------ ----------- ---------- ---------- BALANCE, DECEMBER 31, 2004 -- -- 24,694 247 257,295 (32,039) 225,503 ----- -------- ------ ------ ----------- ---------- ---------- Net earnings 45,448 45,448 Cash dividends: Common -- $1.76 per share (43,539) (43,539) Stock-based compensation 134 134 Stock options 23 - 337 337 ------ --------- ------ ------ ----------- ---------- ---------- BALANCE, DECEMBER 31, 2005 -- $ -- 24,717 $ 247 $ 257,766 $ (30,130)(a) $ 227,883 ====== ========= ====== ====== =========== ========== ==========
(a) Net of $103,803 transferred from retained earnings to common stock and paid-in capital as a result of accumulated stock dividends. In August 2003, the Company notified holders of Series A Participating Convertible Redeemable Preferred Stock that the preferred stock would be redeemed on September 24, 2003 for $25.00 per share plus a mandatory redemption dividend of $0.271 per share. Prior to the redemption date, shareholders with 98% of the preferred stock exercised their right to convert 2,816,919 shares of - 31 - preferred stock into 3,186,355 shares of common stock at the conversion rate of 1.1312 shares of common stock for each share of preferred stock so converted, and received cash in lieu of fractional shares of common stock. The remaining 48,849 shares of the outstanding preferred stock were redeemed for an aggregate amount, including accrued dividends through the call date, of approximately $1,234,000. Each share of preferred stock was convertible into 1.1312 shares of common stock of the Company and paid stated cumulative dividends of $1.775 per annum, or if greater on an "as converted basis," the cash dividends declared per share of common stock for the calendar year. The Company is authorized to issue 20,000,000 shares of preferred stock, par value $.01 per share, for issuance in series, of which none were issued as of December 31, 2005, 2004 and 2003. 8. 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 (the "Supplemental Plan"). Under the terms of these plans, the annual discretionary contributions to the plans are determined by the Compensation Committee of 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 fifty percent of such contributions but in no event more than three percent of the employee's eligible compensation. Under the Supplemental Plan, a participating executive may receive an amount equal to ten percent of eligible compensation, reduced by the amount of any contributions allocated to such executive under the Retirement Plan. Contributions, net of forfeitures, under the retirement plans approximated $141,000, $139,000 and $125,000 for the years ended December 31, 2005, 2004 and 2003, respectively. These amounts are included in the accompanying consolidated statements of operations. The Getty Realty Corp. 2004 Omnibus Incentive Compensation Plan (the "2004 Plan") became effective upon its approval at the Annual Meeting of Shareholders held May 20, 2004. The 2004 Plan provides for the grant of restricted stock, restricted stock units, performance awards, dividend equivalents, stock payments and stock awards to all employees and members of the Board of Directors. The 2004 Plan authorizes the Company to grant awards with respect to an aggregate of 1,000,000 shares of common stock through 2014. The aggregate maximum number of shares of common stock that may be subject to awards granted under the 2004 Plan during any calendar year is 80,000. On March 1, 2005 and June 1, 2004, the Company awarded 12,550 and 10,800 restricted stock units ("RSUs") and dividend equivalents to employees, respectively. All of the 23,350 RSUs awarded were outstanding as of December 31, 2005. On the settlement date each RSU will have a value equal to one share of common stock and may be settled, in the sole discretion of the Compensation Committee, in cash or by the issuance of one share of common stock. The RSUs do not provide voting or other shareholder rights unless and until the RSU is settled for a share of common stock. The RSUs are settled subsequent to the termination of employment with the Company. Presently, 16,600 of the RSUs vest starting one year from the date of grant, on a cumulative basis at the annual rate of twenty percent of the total number of RSUs covered by the award, and 6,750 of the RSUs vest on the fifth anniversary of their grant. The dividend equivalents represent the value of the dividend paid per common share paid multiplied by the number of RSUs covered by the award. The dividend equivalents awarded in 2004 originally vested over a five year period but were modified to be fully vested in March 2005. The fair values of the RSUs were determined based on the closing market price of the Company's stock on the date of grant. The fair value of the 2004 award included a reduction for the discounted value of the dividends that would not have been paid during the vesting period of the dividend equivalents. The fair values of the RSUs granted on March 1, 2005 and June 1, 2004 were estimated at $26.95 and $19.91 per unit on the date of grant with an aggregate fair value estimated at $338,000 and $215,000, respectively. The modification to the 2004 award increased its fair value by $3.02 per unit or $33,000. The fair value of the grants will be recognized as compensation expense ratably over the five year vesting period of the RSUs and the remaining four year vesting period for the modification to the 2004 award. As of December 31, 2005, there was $455,000 of total unrecognized compensation cost related to RSUs granted under the 2004 Plan. - 32 - The fair value of the 1,560 RSUs which vested during the year ended December 31, 2005 was $36,000 and their intrinsic value as of December 31, 2005 was $41,000. For the years ended December 31, 2005 and 2004, dividend equivalents aggregating approximately $41,000 and $1,000, respectively, were charged against retained earnings when common stock dividends were declared. The Company has a stock option plan (the "Stock Option Plan") which authorizes the Company to grant options to purchase shares of the Company's common stock within ten years of the grant date (see note 1). The aggregate number of shares of the Company's common stock which may be made the subject of options under the Stock Option Plan may not exceed 1,100,000 shares, subject to further adjustment for stock dividends and stock splits. The Stock Option Plan provides that options are exercisable starting one year from the date of grant, on a cumulative basis at the annual rate of twenty-five percent of the total number of shares covered by the option. The following is a schedule of stock option prices and activity relating to the Stock Option Plan:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------------------ 2005 2004 2003 ------------------------------------------------------------------------------------------------ WEIGHTED- WEIGHTED- AVERAGE AGGREGATE WEIGHTED- WEIGHTED- AVERAGE REMAINING INTRINSIC AVERAGE AVERAGE NUMBER EXERCISE CONTRACTUAL VALUE NUMBER EXERCISE NUMBER EXERCISE OF SHARES PRICE TERM (IN THOUSANDS) OF SHARES PRICE OF SHARES PRICE --------- --------- ----------- -------------- --------- --------- --------- --------- Outstanding at beginning of year 110,549 $ 18.64 173,085 $ 18.19 358,773 $ 19.12 Exercised (a) (23,374) 15.50 (60,344) 16.40 (153,412) 19.10 Cancelled (2,797) 19.94 (2,192) 24.06 (32,276) 24.06 ------- --------- ------- --------- -------- --------- Outstanding at end of year 84,378 $ 19.48 4.9 $ 2,196 110,549 $ 18.64 173,085 $ 18.19 ======= ========= === ======= ======= ========= ======== ========= Exercisable at end of year (b) 69,503 $ 19.73 4.4 $ 1,808 66,299 $ 18.63 91,023 $ 18.63 ======= ========= === ======= ======= ========= ======== ========= Available for grant at end of year 665,870 663,073 660,881 ======= ======= ========
(a) The total intrinsic value of the options exercised during the years ended December 31, 2005, 2004 and 2003 was $276,000, $676,000 and $666,000, respectively. (b) Of the 44,250 non-vested options outstanding as of December 31, 2004, 29,375 vested in 2005 and the remaining 14,875 outstanding as of December 31, 2005 are scheduled to vest in 2006. As of December 31, 2005, there was $8,000 of total unrecognized compensation cost related to non-vested options granted under the Option Plan, which expense will be recognized in 2006. The total fair value of the options vested during the years ended December 31, 2005, 2004 and 2003 was $35,000, $91,000 and $128,000, respectively. The following table summarizes information concerning options outstanding and exercisable at December 31, 2005:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------------------- -------------------------------- WEIGHTED-AVERAGE REMAINING RANGE OF NUMBER CONTRACTUAL WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE - --------------- --------------- ------------------- ---------------- ------------- ---------------- $14.50 5,938 5 $ 14.50 5,938 $ 14.50 16.15 - 18.30 50,500 7 17.52 35,625 17.20 24.06 27,940 1 24.06 27,940 24.06 ------ ------ 84,378 4.9 69,503 ====== === ======
- 33 - 9. QUARTERLY FINANCIAL DATA The following is a summary of the quarterly results of operations for the years ended December 31, 2005 and 2004 (unaudited as to quarterly information) (in thousands, except per share amounts):
THREE MONTHS ENDED -------------------------------------------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, 2005 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, - ------------------------------------------- ----------- -------------- ------------- ------------- ------------- Revenues from rental properties $ 17,396 $ 17,872 $ 17,768 $ 18,341 $ 71,377 Net earnings before income tax benefit 11,436 10,214 (a) 11,272 11,032 (a) 43,954 Net earnings 11,436 10,214 (a) 12,766 11,032 (a) 45,448 Diluted earnings per common share .46 .41 .52 .45 1.84
THREE MONTHS ENDED -------------------------------------------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, 2004 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, - ------------------------------------------- ----------- -------------- ------------- ------------- ------------- Revenues from rental properties $ 16,511 $ 16,443 $ 16,425 $ 16,952 $ 66,331 Net earnings 9,157 9,367 9,969 10,859 (b) 39,352 Diluted earnings per common share .37 .38 .40 .44 1.59
(a) The quarter ended December 31, 2005 includes adjustments (see footnote 1) which reduced net earnings by $693 comprised of: (a) a charge of $1,534 for rent expense related to prior years (see footnote 2); offset by income aggregating $300 for: (b) lease terminations of $115 related to prior years and $185 related to earlier quarters in 2005, and; (c) $541 of gains on sales of real estate resulting from a property taken by eminent domain related to the quarter ended June 30, 2005. (b) Includes credits which increased earnings by $686 for reductions in insurance and mortgage receivable reserves. 10. PROPERTY ACQUISITIONS On March 25, 2005, the Company acquired twenty-three convenience store and retail motor fuel properties in Virginia for approximately $29,000,000. All of the properties are triple-net-leased to a single tenant who previously leased the properties from the seller and operates the locations under its proprietary convenience store brand in its network of over 200 locations. The lease provides for annual rentals at a competitive rate and provides for escalations thereafter. The lease has an initial term of fifteen years and provides the tenant options for three renewal terms of five years each. The lease also provides that the tenant is responsible for all existing and future environmental conditions at the properties. On November 1, 2004, the Company acquired thirty-six convenience store and retail motor fuel properties located in Connecticut and Rhode Island for approximately $25.7 million. Simultaneously with the closing on the acquisition, the Company entered into a triple-net lease with a single tenant for all of the properties. The lease provides for annual rentals at a competitive rate and provides for escalations thereafter. The lease has an initial term of fifteen years and provides the tenant options for three renewal terms of five years each. The lease also provides that the tenant is responsible for all existing and future environmental conditions at the properties, including those properties where remediation activities are ongoing. On May 1, 2003, the Company completed the acquisition of forty-one retail motor fuel and convenience store properties that it had been leasing for the prior twelve years. The aggregate purchase price for these properties was approximately $13.0 million, excluding transaction costs. Forty of the locations are subleased to Marketing under the Master Lease through at least 2015. Annual rent expense of approximately $1.3 million, and future rent escalations scheduled through 2056, will be eliminated as a result of the acquisition. Since the seller has agreed to indemnify the Company for historical environmental costs, and the seller's indemnity is supported by an escrow fund established solely for that purpose, the Company's exposure to environmental remediation expenses should not change because of the acquisition. 11. SUBSEQUENT EVENTS On February 28, 2006, the Company completed the acquisition of eighteen retail motor fuel and convenience store properties located in Western New York for approximately $13,500,000. Simultaneous with the closing on the acquisition, the Company entered into a triple-net lease with a single tenant for all of the properties. The lease provides for annual rentals at a competitive rate and provides for escalations thereafter. The lease has an initial term of fifteen years and provides the tenant options for three renewal terms of five years each. The lease also provides that the tenant is responsible for all existing and future environmental conditions at the properties. - 34 - REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Getty Realty Corp.: We have completed integrated audits of Getty Realty Corp.'s December 31, 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its December 31, 2003 consolidated financial statements in accordance with standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below: Consolidated financial statements 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 its subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements 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. Internal control over financial reporting Also, in our opinion, management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP New York, New York March 9, 2006 - 35 - MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING, CAPITAL STOCK AND CERTIFICATIONS MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2005. PricewaterhouseCoopers LLP, our independent registered public accounting firm which audited the financial statements included in this Annual Report, has issued an attestation report on management's assessment of our internal control over financial reporting which is included herein. CAPITAL STOCK Our common stock is traded on the New York Stock Exchange (symbol: "GTY"). There were approximately 12,500 shareholders of our common stock as of December 31, 2005, of which 1,400 were holders of record. The price range of our common stock and cash dividends declared with respect to each share of common stock during the years ended December 31, 2005 and 2004 was as follows:
PRICE RANGE CASH ----------------- DIVIDENDS PERIOD ENDING HIGH LOW PER SHARE - ----------------------------- ------- ------- --------- December 31, 2005 $ 28.94 $ 25.25 $ .4450 September 30, 2005 30.70 27.01 .4450 June 30, 2005 29.35 24.81 .4350 March 31, 2005 28.78 24.75 .4350 December 31, 2004 $ 30.10 $ 26.04 $ .4250 September 30, 2004 26.22 22.75 .4250 June 30, 2004 25.52 21.35 .4250 March 31, 2004 27.47 25.27 .4250
Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for a discussion of potential limitations on our ability to pay future dividends. CERTIFICATIONS Compliance with NYSE Corporate Governance Listing Standards On June 10, 2005, in accordance with Section 303A.12 of the Listed Company Manual of the New York Stock Exchange, our Chief Executive Officer certified to the New York Stock Exchange that he was not aware of any violation by our Company of New York Stock Exchange corporate governance listing standards as of that date. Rule 13a-14(a) Certifications of Chief Executive Officer and Chief Financial Officer On March 9, 2006, our Chief Executive Officer and Chief Financial Officer each filed the certification required by Section 302 of the Sarbanes-Oxley Act of 2002 as an exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2005. - 36 - EX-21 3 c02135exv21.txt SUBSIDIARIES OF THE COMPANY . . . EXHIBIT 21. SUBSIDIARIES OF THE COMPANY
STATE OF SUBSIDIARY INCORPORATION - ---------------------------------------------- ------------- Getty Properties Corp. Delaware AOC Transport, Inc. Delaware Getty CT Leasing, Inc. New York Getty NY Leasing, Inc. New York Getty VA Leasing, Inc. New York Getty TM Corp. Maryland GettyMart Inc. Delaware Leemilt's Flatbush Avenue, Inc. New York Leemilt's Petroleum, Inc. New York Slattery Group Inc. New Jersey Power Test Realty Company Limited Partnership* New York
*ninety-nine percent owned by the Company, representing the limited partner units, and one percent owned by Getty Properties Corp., representing the general partner interest. EX-23 4 c02135exv23.txt CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXHIBIT 23. CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-115672, 333-45249 and 333-45251) and on Form S-3 (No. 333-114730) of Getty Realty Corp. of our report dated March 9, 2006 relating to the financial statements, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated March 9, 2006 relating to the financial statement schedules, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP New York, New York March 14, 2006 EX-31.(I).1 5 c02135exv31wxiyw1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31(i).1 RULE 13a-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Thomas J. Stirnweis, certify that: 1. I have reviewed this Annual Report on Form 10-K of Getty Realty Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 9, 2006 By: /s/ THOMAS J. STIRNWEIS ----------------------- Thomas J. Stirnweis Vice President, Treasurer and Chief Financial Officer EX-31.(I).2 6 c02135exv31wxiyw2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31(i).2 RULE 13a-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Leo Liebowitz, certify that: 1. I have reviewed this Annual Report on Form 10-K of Getty Realty Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 9, 2006 By: /s/ LEO LIEBOWITZ --------------------------------- Leo Liebowitz Chairman and Chief Executive Officer EX-32.1 7 c02135exv32w1.txt SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 32.1 SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Getty Realty Corp. (the "Company") hereby certifies, to such officer's knowledge, that: (i) the Annual Report on Form 10-K of the Company for the annual period ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (subject to the resolution of the remaining SEC comment, as more fully described in the Report); and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 9, 2006 By: /s/ LEO LIEBOWITZ ------------------------------- Leo Liebowitz Chairman and Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to Getty Realty Corp. and will be retained by Getty Realty Corp. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. EX-32.2 8 c02135exv32w2.txt SECTION 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 32.2 SECTION 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Getty Realty Corp.(the "Company") hereby certifies, to such officer's knowledge, that: (i) the Annual Report on Form 10-K of the Company for the annual period ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (subject to the resolution of the remaining SEC comment, as more fully described in the Report); and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 9, 2006 By: /s/ THOMAS J. STIRNWEIS --------------------------------- Thomas J. Stirnweis Vice President, Treasurer and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Getty Realty Corp. and will be retained by Getty Realty Corp. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. -----END PRIVACY-ENHANCED MESSAGE-----