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JERICHO, N.Y. -- Getty Realty Corp. continues to encounter legal obstructions with several of its Connecticut properties, the company revealed during its 2014 fiscal first-quarter earnings call.
The properties in question are subdealers of NECG Holdings Corp., an affiliate of CPD Energy Corp., which leased 84 properties from Getty Realty on Dec. 20, 2012. The agreement was reached in the aftermath of the 2011 bankruptcy of Getty Petroleum Marketing Inc., which had leased 799 convenience stores and gas stations prior to its Chapter 11 filing. NECG was among eight companies that agreed to lease these sites from Getty Realty in late December 2012.
"Unlike our transitional properties that were marginal contributors to the company results, the NECG portfolio even today is contributing positively to our results, albeit not as much as we originally anticipated when the NECG lease was first entered into," David B. Driscoll, Getty Realty's CEO, stated Thursday.
As CSNews Online reported in March, the subdealers are fighting eviction in court, while NECG Holdings continues to be an excellent tenant and is in good standing, according to the real estate investment trust.
"What we will be able to do then, once we win, is we'll be able to establish occupancy on the properties. Once you have occupancy on the properties, then our tenants can go in and start to really upgrade and redevelop the properties," Driscoll explained during a question-and-answer session with investors. "That requires the ability to enter into long-term fuel supply contracts with the suppliers who supply a great deal of the money and the branding incentives to be able to help that upgrade go forward. So, it's the obstruction in the ability to redevelop and improve the properties that has been the significant problem all along."
Despite these setbacks, Getty Realty remains optimistic about its future.
"What is noteworthy about this quarter is that we had a quiet quarter with little to distract us from our operating results," said Driscoll. "The noise that so influenced our results during the past 24 to 36 months is finally subsided and our improved results speak for themselves."
During the first quarter ended March 31, Getty Realty completed the sale of 28 properties for $10.1 million in the aggregate. As of March 31, the company had 89 properties classified as held for sale. Subsequent to the end of the first quarter, Getty Realty sold 17 additional properties for $2.4 million in the aggregate.
The company is continuing its process of disposing assets that do not meet the long-term criteria of its core portfolio. "The great news is that we are able to focus on the assets we own and selectively add assets that can contribute to our cash flow," Driscoll explained.
Getty Realty is actively seeking external growth, and the challenge for the company and other investors is to focus on long-term returns facing an "unusually low" interest rate regime and "ferocious competition" for income-producing assets, according to the chief executive.
"Our response to this competition is to stay disciplined and focused, while executing on only the best opportunities, bearing in mind our cost of capital and in turn, thresholds," said Driscoll. "So while we will remain disciplined, we will continue to also investigate internal growth opportunities inside our own portfolio of more than 900 locations."
Companywide, Getty Realty reported first-quarter net earnings of $9.6 million, compared to $10.4 million for the year-ago period.
"The ongoing transformation of Getty into a company that produces consistent internal and external growth is progressing well. We know there will be challenges, but we have proven that we are quite capable of overcoming adversity and positioning the company for success," Driscoll concluded.