Joshua Dicker - Senior Vice President, General Counsel and Corporate Secretary David Driscoll - President, Chief Executive Officer, Director.

John Deysher - Pinnacle Capital Kevin Oro-Hahn - Ingalls & Snyder.

Good day and welcome to the Getty Realty Corp. third quarter 2014 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Joshua Dicker, Senior Vice President, General Counsel and Corporate Secretary. Please go ahead..

Thank you. I would like to thank you all for joining us for Getty Realty's quarterly earnings conference call. Yesterday evening, the company released its financial results for the quarter ended September 30, 2014. The Form 8-K and earnings release are available in the Investor Relations section of our website at gettyrealty.com.

Certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements.

These statements are based on management's current expectations and beliefs and are subject to trends, events and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Examples of forward-looking statements may include those made by Mr.

Driscoll regarding lease restructuring, future company operations, future financial performance and the company's acquisition or redevelopment opportunities. We caution you that such statements reflect our best judgment based on factors currently known to us and that actual results or events could differ materially.

I refer you to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 as well as our quarterly reports on Form 10-Q and our other filings with the SEC for a more detailed discussion of the risk and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

You should not place undue reliance on forward-looking statements, which reflect our view only as of the date hereof. The company undertakes no duty to update any forward-looking statements that may be made in the course of this call. With that, let me turn the call over to David Driscoll, our Chief Executive Officer..

Thank you, Josh. Good morning, everybody and welcome to our call for the third quarter of 2014. Our third quarter results continues to reflect our steady progress repositioning our portfolio to improve our operating results.

Results this quarter showed strong advancements towards that objective as we reported significant sequential AFFO per share increasing by more than 25%.

This improvement, in part, resulted from solid and broad-based reductions in our G&A, property management and other expenses that are a direct result of all the repositioning work and initiatives we put into place over the past few years.

However, to be clear, approximately $0.03 per share of our improvement was the result of one time non-cash adjustments and movements in accruals for environmental obligations.

Certainly, these can swing also in an adverse direction in future quarters, especially in our environmental remediation program which historically has been subject to considerable quarter-to-quarter volatility.

Our repositioning work continues and even after we complete the major work, on some level asset repositioning will always be a part of what we do in a portfolio as big as ours, as we continually strive for additional incremental improvement over time. For the quarter ended September 30, our revenues were $24.8 million.

On a GAAP basis, this was down 13% from the prior year period, which included $3.1 million of other revenue received as part of our settlement of the Lukoil litigation.

After removing our GAAP adjustments and pass-through real estate taxes, our rental income from our properties increased by $600,000 for the quarter to $19.5 million from $18.9 million. On expenses, we continued to see broad-based reductions in rental property expenses and general overheads.

Rental property costs were 20% lower at $5.7 million given the cumulative repositioning impact from re-leasing a number of sites from a triple-net basis along with our disposition efforts. In the general and administrative category, we lowered our costs by 39.2%.

For the quarter, the major drivers were $1.3 million reduction in professional fees and $1.2 million improvement in employee related expenses. The reduction legal and professional fees was due to the fact that we incurred significant costs in the third quarter of 2013, stemming from matters related to GPMI bankruptcy and the Lukoil litigation.

These reductions are very much in-line with our long-term expectations and we believe they reflect the progress we have made towards lowering our expenses. As we move forward, we will remain disciplined and are committed to focusing on margins and operating expense leverage as we continue our repositioning and redeployment process.

The majority of the cost that we think we can positively impact include property taxes, maintenance cost, utility charges and professional fees. Turning to our environmental remediation efforts. Our overall environmental liability increased in the quarter by approximately $1 million to approximately $42.

As usual, I want to underscore again, the environmental cost and accruals vary considerably from period-to-period and they are hard to predict. It should be evaluated based on long-term multiyear trends rather than a quarter-to-quarter comparison. Turning to growth.

One way we are continuing to seek and generate growth is by focusing on our internal opportunities in the existing portfolio of approximately 875 locations. During the past few years, most of our activity in the portfolio has focused on leasing and dispositions.

Moving forward, we foresee some very good opportunities to redevelop and reposition properties for higher and better uses to increase our returns on these properties.

As we reposition a number of locations to alternative and better uses, we will focus most of our capital investment on capturing measurable improvements that will contribute positively to our future cash flows.

The cycle for most of these convergence and investment is, unfortunately, longer than 18 months, but we are beginning to make investments now that we think will enhance the yield of the existing portfolio for years to come.

As I mentioned earlier, in addition to harvesting growth from our current portfolio, we are working to improve our steady performance also by growing through accretive acquisitions. We are, by nature, a long term investor focused on long term returns. Today, the environment for acquisitions is highly competitive.

There are larger companies that compete with us that have lower cost of capital than ours and other investors, even individuals, that measure their cost of capital differently from us. Those factors make finding good investment more difficult in this unusually low interest rate environment.

But it is not in our nature just to put capital to work for the sake of doing deals. We will stay disciplined and focused on executing only qualified opportunities that meet our investment criteria while being mindful of our cost of capital, risks and return thresholds.

We continue to evaluate and make offers on a large volume of perspective opportunities but we cannot predict the volume of acquisitions that we may consummate or the returns that we may achieve. I want to emphasize, however, that our conservative balance sheet is exceptionally well positioned to execute on opportunities as they arise.

At the quarter end, our net debt was less than $112 million which remains at its lowest level in more than three years. And our net debt to EBITDA stood at approximately 2.5 times. This permits us meaningful capacity and flexibility to advance our growth initiatives as opportunities arise.

In my view, Getty is making progress, we remain patient and focused on maximizing our returns and the results we produce. We have both internal and external growth opportunities that should drive our financial performance over the long term. Of course, challenges exist, but our team has proven adept at navigating and overcoming those challenges.

It positions our company to succeed and improve our performance and I am happy where we are. With our low leverage balance sheet, stable cash flow and multiple growth avenues, we are excited by the progress we have made and are even more eager to create further value for our shareholders in the coming years.

That concludes my prepared remarks that I was reading. If the operator would open it up for questions, we are very happy to take them at this time..

(Operator Instructions). Since there are no questions at this time, I would like to turn it back to management for any additional -- we do have a question from John Deysher with Pinnacle Capital..

Hi. Good morning..

Good morning, John..

Two questions.

One for the two properties you acquired, I think, for a total $4 million, what was the estimated cap rate on those properties?.

Generally, we are seeing cap rates that range in the 6% to high 7% range, depending on the credit quality of the particular tenant. I don't recall whether those two properties were property we acquired out of the portfolio or whether those were properties that we acquired in third-party transactions.

So its hard to put a particular cap rate on it, but the specific cap rates we are seeing range from, let's say, the mid-6% to the mid-7%..

So 6.5% to 7.5%. Okay..

Yes. Well, I think that's pretty good..

Okay. Fair enough.

And secondly, we are all hearing about lower gasoline prices and I realize you are just a landlord who collects rent checks, but how does that speak to the underlying health of your tenants? Or what impact do lower gasoline prices have on their financial viability?.

Generally lower gas prices are a very good thing for our tenant. There are two effects that occur. One in the short term, as prices come down, margins on the street widen so that as prices come down, our tenants tend to lower pricing less tax than (inaudible) do for them.

And then in the longer-term, as prices go down, volume goes up because people use more gas, and that's also good for our tenants..

Okay.

Because your tenants, I guess, mark each gallon of gasoline up on a fixed price base?.

Generally, our tenants live off of margin between what they buy the gas for and what they sell the gas for. When the price of gas is going up, it's hard for them to raise the prices on the street as fast as their suppliers are rating it to them, but the opposite occurs when the prices are going down. That's a short-term effect.

The longer-term effect is the volume effect. Certainly, for example, when we saw gas prices get up over $4, you began to see across-the-board volume decreases as people would not go to the shopping center. They wait, then go once a week, as opposed to two or three times a week.

You are also going to see that, I suspect, in the car sales as they get announced, just because (inaudible) big auto manufacturers, you are going to see more sales of pickup trucks than SUVs which of course consume more gas per mile than some of the smaller cars..

Right. Okay. That makes sense.

And then finally, is there update on the NECG lease at this point?.

No. It continues to plug along, and I think that it's stable where it is. We will restructure that lease as we move forward but I don't expect any significant change in the cash flow that we are currently recognizing from it. However, it gets restructured in the future..

And what's the timing on the restructuring?.

That depends on the Supreme Court of the state of Connecticut..

Okay..

Which is basically unpredictable..

Okay. Very good. Thank you..

And we will take a question from Kevin Oro-Hahn with Ingalls & Snyder..

Good morning, David..

Good morning, Kevin..

I had a question regarding the dividend.

As kind of operating improvements come through kind of as you are expecting, wonder if you have thoughts about a future path of dividend payouts?.

Sure. Like all companies, we would like to see dividends increase over time as our cash flow increases over time. But dividend is something that's up to the Board and not up to me. And the Board considers the dividend on a regular basis and will make the decisions based on what it sees. Beyond that, it's kind of hard for me to comment on it..

Sure. Understood. Thank you..

And we have no further questions. I would like to turn it back to management for any additional or closing remarks..

Well, thank you all for joining us on the call. We appreciate your being with us and we look forward to talking to again when there is snow on the ground next in three months. Thank you..

And this does conclude today's conference. Thank you for your participation..