Property Acquisitions

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Property Acquisitions

7. PROPERTY ACQUISITIONS

During the nine months ended September 30, 2014, we acquired fee title to seven gasoline stations and convenience store properties in separate transactions for an aggregate purchase price of $6,800,000.

We accounted for these acquisitions as business combinations. We estimated the fair value of acquired tangible assets (consisting of land, buildings and equipment) “as if vacant.” Based on these estimates, we allocated $6,455,000 of the purchase price to land, buildings and equipment and $345,000 to in-place leases, favorable financing and other intangible assets. We incurred transaction costs of $53,000 directly related to the acquisitions which are included in general and administrative expenses in our consolidated statements of operations. As of September 30, 2014, our allocations of the purchase price among the assets acquired are preliminary and subject to change.

On May 9, 2013, we acquired 16 Mobil-branded gasoline station and convenience store properties in the metro New York region and 20 Exxon- and Shell-branded gasoline station and convenience store properties located within the Washington, D.C. “Beltway” for $72,500,000 in two sale/leaseback transactions with subsidiaries of Capitol Petroleum Group, LLC (“Capitol”). The two new triple-net unitary leases have an initial term of 15 years plus three renewal options with provisions for rent escalations during the initial and renewal terms. As triple-net lessees, our tenants are required to pay all expenses pertaining to the properties subject to the unitary leases, including environmental expenses, taxes, assessments, licenses and permit fees, charges for public utilities and all governmental charges. We utilized $11,500,000 of proceeds from 1031 exchanges, $57,500,000 of borrowings under our Credit Agreement and cash on hand to fund this acquisition.

We accounted for these transactions as business combinations. We estimated the fair value of acquired tangible assets (consisting of land, buildings and equipment) “as if vacant.” Based on these estimates, we allocated $62,365,000 of the purchase price to land, buildings and equipment, $6,267,000 to direct financing leases and $3,868,000 to in-place leases and other intangible assets. We incurred transaction costs of $480,000 directly related to the acquisition which are included in general and administrative expenses in our consolidated statements of operations.

Unaudited Pro Forma Condensed Consolidated Financial Information

The following unaudited pro forma condensed consolidated financial information has been prepared utilizing our historical financial statements and the combined effect of additional revenue and expenses from the properties acquired from Capitol assuming that the acquisitions had occurred as of the beginning of the earliest period presented, after giving effect to certain adjustments including: (a) rental income adjustments resulting from the straight-lining of scheduled rent increases; and (b) rental income adjustments resulting from the recognition of revenue under direct financing leases over the lease term using the effective interest rate method which produces a constant periodic rate of return on the net investment in the leased properties. The following information also gives effect to the additional interest expense resulting from the assumed increase in borrowings outstanding under the Credit Agreement to fund the acquisition and the elimination of acquisition costs. The unaudited pro forma condensed financial information is not indicative of the results of operations that would have been achieved had the acquisition from Capitol reflected herein been consummated on the dates indicated or that will be achieved in the future.

(in thousands, except per share data)	Nine months ended September 30, 2013
Revenues	$	78,011
Net earnings	$	66,257
Basic and diluted net earnings per common share	$	1.98