JERICHO, N.Y. -- Getty Realty Corp. said that it is terminating the master lease of Getty Petroleum Marketing Inc. as a result of the uncured default by Getty Petroleum Marketing of its nonpayment of November 2011 rent. The company announced yesterday that it has served Getty Petroleum Marketing with a formal notice of termination and has notified Getty Petroleum Marketing that it was exercising its right to take possession of the premises underlying the master lease effective December 12, 2011.
Getty Realty Corp. is the largest publicly traded real-estate investment trust (REIT) in the United States specializing in ownership, leasing and financing of retail motor fuel and convenience store properties and petroleum distribution terminals. The company owns and leases approximately 1,155 properties nationwide.
Prior to this announcement, it leased approximately 70% of its properties on a long-term basis to Getty Petroleum Marketing, an unrelated entity.
Following termination of the master lease, Getty Realty intends to reposition the portfolio subject of the master lease in order to maximize its long-term value, it said. This repositioning may result in long-term leases on subgroups of properties with multiple distributors or suppliers, individual leases with existing or new dealers or the sale of locations.
As a result of the foregoing developments, it is likely that the company will be required to increase the deferred rent receivable reserve, record additional impairment charges, accrue for environmental liabilities and incur significant costs associated with proceedings against Getty Petroleum Marketing and a repositioning of the master lease portfolio.
The company has not determined the amounts of any such potential adjustments to its financial statements.
Getty Realty's properties are located in 20 states across the United States with concentrations in the Northeast and the Mid-Atlantic regions. Getty Realty owns the Getty trademark and trade name in connection with its real estate and the petroleum marketing business in the United States. It properties are operated under a variety of brands including Getty, BP, Exxon, Mobil, Shell, Chevron, Valero, Fina and Aloha.
Nearly all of its properties are leased or sublet to distributors and retailers who are responsible for managing the operations conducted at these properties including the payment of taxes, maintenance, repair, insurance and other operating expenses.
In third-quarter 2011, Getty Realty increased its reserve by recording a noncash allowance for deferred rental revenue of $11 million on the possibility that as a result of the continued deterioration of Getty Petroleum Marketing's financial condition or other factors, the company would be required to take additional charges related to Getty Petroleum Marketing and the master lease.
In August and September 2011, Getty Petroleum Marketing failed to pay its monthly fixed rent due under the master lease. Getty Realty sent default notices to it, and in each instance, it ultimately paid the entire amount due including applicable interest. In late August 2011, Getty Petroleum Marketing sent the Getty Realty a notice alleging that it was in default of certain of its obligations under the master lease by failing to perform certain environmental remediation and, therefore, it intended to offset the full amount of its monthly rental payments due to the company under the master lease for October and November 2011.
Getty Realty said at the time that it believes the alleged default is wholly without merit, that Getty Petroleum Marketing has no right to offset rent under the master lease based on the allegations and that Getty Realty is in compliance with its environmental obligations under the master lease.
In an action brought by Getty Petroleum Marketing seeking to enjoin Getty Realty from terminating the master lease for non-payment of October 2011 rent and also seeking a right to withhold payment of October 2011 rent, the New York State Supreme Court granted Getty Petroleum Marketing's request for an injunction, and at the same time ordered it to pay an aggregate amount equal to the entire October 2011 rent in two parts; with approximately $4 million required to be paid to Getty Realty and the balance (of approximately $900,000) required to be paid to the court to be held in escrow until a final determination can be made. Getty Petroleum Marketing has complied with this order.