Getty Petroleum Marketing Inc. and its subsidiaries, which manage and operate nearly 800 convenience store/service stations in the Northeast, filed a voluntary petition for Chapter 11 bankruptcy reorganization.
Calling its action "forced," Getty Petroleum sought the reorganization as a way to block eviction by its landlord, Getty Realty Corp., and at the same time get its landlord to undertake environmental remediation efforts at its properties called for under its master lease. In its bankruptcy filings Getty Petroleum said the landlord has failed to undertake required remediations and told the landlord it would withhold portions of monthly rental payments until next summer to cover those costs.
Last week, Getty Realty formally sought to evict Getty Petroleum from nearly 800 of its gas station/convenience store properties following an uncured default by Getty Petroleum Marketing, which failed to make full November rent payment.
Getty Petroleum said it believes that Getty Realty had no legal basis to terminate the lease and that it believes that Getty Realty breached the master lease by failing to perform its obligations of remediating environmental contamination at certain properties that are subject to the master lease.
The two entities operated as one up until 1997 when the real estate holding company was spun off. It later became a REIT in 2001. Getty Petroleum was sold to new owners in February 2011. Both entities still operate out of the same building in Jericho, NY.
The 800 properties under lease to Getty Petroleum represent about 70% of the REIT's portfolio of properties in 21 states. Under the master lease, Getty Petroleum pays Getty Realty an annual rent of $59 million, with $4.9 million paid monthly.
In its bankruptcy filings, Getty Petroleum CEO and chairman, Bjorn Q. Aaserod, said: "The debtors believe their businesses can be restructured to be profitable. As stated, in order to accomplish profitability, the debtors would need to prevent Getty Realty from terminating the Getty Lease, and to resolve the dispute relating to the remediation of environmental contamination at the properties. Once these issues are resolved, the debtors believe they would be able to obtain the necessary funding to improve the condition of the Getty gas stations, which would translate into increased revenues from higher rent and substantially increased sales of its gasoline."
Getty Realty president and CEO, David B. Driscoll, said, "We welcome the fact that the process will now have structure and the supervision of the Bankruptcy Court to protect the value of our estate. We plan to continue our efforts to repossess our properties. Over time we intend to reposition the portfolio of properties subject to the master lease in order to maximize the value of the portfolio.
"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," Driscoll said "It is also likely that the company will incur significant costs associated with proceedings against [Getty Petroleum] Marketing and a repositioning of the master lease portfolio."
Driscoll said it has not determined those amounts but that the developments could materially adversely affect the company's business and financial condition.
Since its announcement last week that it was terminating the leases, Getty Realty's stock price has fallen by about $3/share and now trades at about $13/share. That is down about 50% from its trading price four months ago.
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