GETTY REALTY CORP /MD/ - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

COMMISSION FILE NUMBER 001-13777

GETTY REALTY CORP.
------------------
(Exact name of registrant as specified in its charter)

Maryland 11-3412575
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(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification no.)
125 Jericho Turnpike, Suite 103, Jericho, New York 11753
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 478-5400
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
Common Stock, $0.01 par value New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None
(Title of Class)

Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The aggregate market value of common stock held by non-affiliates (17,566,673
shares of common stock) of the Company was $441,977,493 as of June 30, 2004.

The registrant had outstanding 24,712,861 shares of common stock as of March 11,
2005.

DOCUMENTS INCORPORATED BY REFERENCE

PART I

Item 1. Business

The History of Our Company

Getty Realty Corp., a Maryland corporation, is the largest publicly-traded
real estate investment trust ("REIT") in the United States specializing in the
ownership and leasing of retail motor fuel and convenience store properties and
petroleum distribution terminals. As of December 31, 2004, we owned seven
hundred ninety-five properties and leased two hundred fifty additional
properties in thirteen states located principally in the Northeast United
States.

We are self-administered and self-managed by our experienced management
team, which has over eighty-six years of combined experience in owning, leasing
and managing retail motor fuel and convenience store properties. Our executive
officers are engaged exclusively in the day-to-day business of the Company. We
administer nearly all management functions for our properties, including
leasing, legal, data processing, finance and accounting. We have invested, and
will continue to invest, in real estate and real estate related investments,
such as mortgage loans, when such opportunities arise.

Our founders started the business in 1955 with the ownership of one
gasoline service station in New York City and combined real estate ownership,
leasing and management with actual service station operation. We held our
initial public offering in 1971 under the name Power Test Corp. In 1985, we
acquired from Texaco the petroleum distribution and marketing assets of Getty
Oil Company in the Northeast United States along with the Getty(R) name and
trademark for use in connection with our real estate and petroleum marketing
operations in the United States. We became one of the largest independent
owner/operators of petroleum marketing assets in the country, serving retail and
wholesale customers through a distribution and marketing network of Getty and
other branded retail motor fuel and convenience store properties and petroleum
distribution terminals.

Nearly all of our properties are leased or sublet to third-party operators
who are responsible for the payment of taxes, maintenance, repair, insurance and
other operating expenses and for managing the actual operations conducted at
these properties. We lease approximately 91% of our owned and leased properties
on a long-term basis to Getty Petroleum Marketing Inc. ("Marketing"). Marketing
is wholly owned by a subsidiary of OAO LUKoil ("Lukoil"), one of Russia's
largest integrated oil companies. Marketing operates the petroleum distribution
terminals but typically does not itself directly operate the retail motor fuel
and convenience store properties it leases from us. Rather, Marketing subleases
nearly all of our retail properties to third-party operators who are responsible
for the actual operations at the locations.

In 1997, we completed the spin-off of our petroleum marketing business to
our shareholders, who received a tax-free dividend of one share of common stock
of Marketing for each share of our common stock. Following the spin-off,
Marketing held the assets and liabilities of our petroleum marketing operations
and a portion of our home heating oil business, and we continued operating
primarily as a real estate company specializing in the ownership and leasing of
retail motor fuel and convenience store properties and petroleum distribution
terminals. In 1998, we acquired Power Test Investors Limited Partnership (the
"Partnership"), thereby acquiring fee title to two hundred ninety-five
properties we had previously leased from the Partnership and which the
Partnership had acquired in 1985 from Texaco. We later sold the remaining
portion of our home heating oil business. As a result, we are now exclusively
engaged in the ownership, leasing and management of real estate assets,
principally in the petroleum marketing industry.

In December 2000, Marketing was acquired by a U.S. subsidiary of Lukoil. In
connection with Lukoil's acquisition of Marketing, we renegotiated our long-term
master lease ("Master Lease") with Marketing. As of December 31, 2004, Marketing
leases from us, under the Master Lease and a coterminous supplemental lease for
one property (collectively the "Marketing Leases"), nine hundred thirty-nine
retail motor fuel and convenience store properties and ten petroleum
distribution terminals. The Marketing Leases have an initial term expiring in
December 2015, and generally provides Marketing with three renewal options of
ten years each and a final renewal option of three years and ten months
extending to 2049. Each of the renewal options may be exercised only on an "all
or nothing" basis. We expect to receive $59.7 million in lease rental payments
from Marketing in 2005, with annual 2% rental increases in subsequent years. The
Marketing Leases are "triple-net" leases, pursuant to which Marketing

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is responsible for the payment of taxes, maintenance, repair, insurance and
other operating expenses. We have licensed the Getty(R) trademarks to Marketing
on an exclusive basis in its Northeast U.S. marketing territory as of December
2000. We have also licensed the trademarks to Marketing on a non-exclusive basis
outside that territory, subject to a gallonage-based royalty, although to date,
Marketing has not used the trademark outside that territory.

In August 2001, we completed a public offering of 8,855,000 shares of our
common stock. We used a portion of the net proceeds of the offering to pay a
special one-time "earnings and profits" (as defined by the Internal Revenue
Code) cash distribution of $64.1 million to preferred and common shareholders.
In addition, our shareholders approved a charter amendment to include
restrictions on the ownership of our stock which are typical of REITs.
Accordingly, we elected to be taxed as a REIT beginning January 1, 2001. A REIT
is a corporation, or a business trust that would otherwise be taxed as a
corporation, which meets the requirements of the Internal Revenue Code. The
Internal Revenue Code permits a qualifying REIT to deduct dividends paid,
thereby effectively eliminating corporate level federal income tax and making
the REIT a pass-through vehicle for federal income tax purposes. To meet the
requirements of the Internal Revenue Code, a REIT must, among other things,
invest substantially all of its assets in interests in real estate (including
mortgages and other REITs) or cash and government securities, derive most of its
income from rents from real property or interest on loans secured by mortgages
on real property, and distribute to shareholders annually a substantial portion
of its otherwise taxable income. As a REIT, we are required to distribute at
least ninety percent of our taxable income to our shareholders each year and
would be subject to corporate level federal income taxes on any taxable income
that is not distributed.

Real Estate Business

The operators of our properties are primarily distributors and retailers
engaged in the sale of gasoline and other motor fuel products, convenience store
products and automotive repair services. Over the past decade, these lines of
business have matured into a single industry as operators increased their
emphasis on co-branded locations with multiple uses. The combination of
petroleum product sales with other offerings, particularly convenience store
products, has helped provide one-stop shopping for consumers and we believe
represents a driving force behind the industry's growth in recent years.

Revenues from rental properties for the year ended December 31, 2004 were
$66.3 million which includes $4.5 million of deferred rental income recognized
due to the straight-line method of accounting for the leases with Marketing and
certain of our other tenants. We received lease payments from Marketing
aggregating approximately $58.9 million (or 95% of the $61.9 million total lease
payments we received from all our rental properties in 2004). We are materially
dependent upon the ability of Marketing to meet its monetary obligations under
the Marketing Leases. Marketing's financial results depend largely on retail
petroleum marketing margins and rental income from subtenants who operate our
properties. The petroleum marketing industry has been and continues to be
volatile and highly competitive. Marketing has made all required monthly rental
payments under the Marketing Leases when due.

As of December 31, 2004, we owned fee title to seven hundred eighty-eight
retail motor fuel and convenience store properties and seven petroleum
distribution terminals. We also leased two hundred forty-seven retail motor fuel
and convenience store properties and three petroleum distribution terminals. Our
typical property used as a retail motor fuel and convenience store is located on
between one-half and three quarters of an acre of land in a metropolitan area in
the Northeast United States. Approximately two-thirds of our retail motor fuel
properties have repair bays (typically two or three bays per station) and nearly
half have convenience stores, canopies or both. The title to substantially all
of our owned properties is in the name of Leemilt's Petroleum, Inc., Getty CT
Leasing, Inc, Getty Properties Corp. or Power Test Realty Company Limited
Partnership, each of which is our wholly owned subsidiary. Leemilt's Petroleum
Inc. and Getty Properties Corp., are the lessees of substantially all of the
properties we lease from third parties. In addition, we lease four thousand one
hundred square feet of office space at 125 Jericho Turnpike, Jericho, New York,
which is used for our corporate headquarters.

We believe our network of retail motor fuel and convenience store
properties and terminal properties across the Northeast United States is unique
and comparable networks of properties are not readily available for purchase or
lease from other owners or landlords. Many of our properties are located at
highly trafficked urban intersections or conveniently close to highway on- and
off-ramps. Furthermore, obtaining the permits necessary to operate a network of
petroleum marketing properties such as ours would be a difficult, time consuming
and costly process for any

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potential competitor. However, the real estate industry is highly competitive,
and we compete for tenants with a large number of property owners. Our principal
means of competition are rents charged in relation to the income producing
potential of the location. In addition, we expect other major real estate
investors with significant capital will compete with us for attractive
acquisition opportunities. These competitors include petroleum manufacturing,
distributing and marketing companies, other REITs, investment banking firms and
private institutional investors. This competition has increased prices for
commercial properties and may impair our ability to make suitable property
acquisitions on favorable terms in the future.

Trademarks

We have licensed the Getty(R) trademarks to Marketing on an exclusive basis
in its Northeast U.S. marketing territory as of December 2000. We have also
licensed the trademarks to Marketing on a non-exclusive basis outside that
territory, subject to a gallonage-based royalty, although to date, Marketing has
not used the trademark outside that territory.

Regulation

We are subject to numerous federal, state and local laws and regulations.
The costs related to compliance with those laws and regulations have not had,
and are not expected to have, a material adverse effect on our long-term
financial position, although these costs may have a significant impact on our
results of operations or liquidity for any single fiscal year or interim period.

Petroleum properties are governed by numerous federal, state and local
environmental laws and regulations. These laws have included (i) requirements to
report to governmental authorities discharges of petroleum products into the
environment and, under certain circumstances, to remediate the soil and/or
groundwater contamination pursuant to governmental order and directive, (ii)
requirements to remove and replace underground storage tanks that have exceeded
governmental-mandated age limitations and (iii) the requirement to provide a
certificate of financial responsibility with respect to claims relating to
underground storage tank failures.

In recent years, environmental expenses have been attributable to
remediation, monitoring, and governmental agency reporting incurred in
connection with contaminated sites. In prior periods, a larger portion of the
expenses also included soil disposal and the replacement or upgrading of
underground storage tank systems ("USTs") to meet federal, state and local
environmental standards. Under the Master Lease with Marketing, and in
accordance with leases with other tenants, we agreed to bring the leased
properties with known environmental contamination to within applicable standards
and to regulatory or contractual closure ("Closure") in an efficient and
economical manner. Generally, upon achieving Closure at an individual property,
our environmental liability under the lease for that property will be satisfied
and future remediation obligations will be the responsibility of our tenant.

We have agreed to pay all costs relating to, and to indemnify Marketing
for, certain environmental liabilities and obligations that are scheduled in the
Master Lease. We will continue to seek reimbursement from state UST remediation
funds related to these environmental expenditures where available. As of
December 31, 2004, we have regulatory approved remediation action plans in place
for three hundred sixteen (92%) of the three hundred forty-five properties for
which we retain remediation responsibility and have not received a no further
action letter and the remaining twenty-nine properties (8%) were in the
assessment phase.

For additional information please refer to "Liquidity and Capital
Resources" and "Environmental Matters" in "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

We believe that we are in substantial compliance with federal, state and
local provisions enacted or adopted pertaining to environmental matters.
Although we are unable to predict what legislation or regulations may be adopted
in the future with respect to environmental protection and waste disposal,
existing legislation and regulations have had no material adverse effect on our
competitive position. See "Legal Proceedings."

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Personnel

As of December 31, 2004, we had sixteen employees.

Access to our filings with the Securities and Exchange Commission and Corporate
Governance Documents

Our website address is www.gettyrealty.com. Our address, phone number and a
list of our officers is available on our website. Our website contains a
hyperlink to the SEC's EDGAR database at www.sec.gov where you can access,
free-of-charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
current reports on Form 8-K, and all amendments to these reports as soon as
reasonably practicable after such reports are filed. Our website also contains
our business conduct guidelines, corporate governance guidelines and the
charters of the Compensation, Nominating/Corporate Governance and Audit
Committees of our Board of Directors. We also will provide copies of these
reports and corporate governance documents free-of-charge upon request,
addressed to Getty Realty Corp., 125 Jericho Turnpike, Suite 103, Jericho, NY
11753, Attn: Investor Relations. Information available on or accessible through
our website shall not be deemed to be a part of this Annual Report on Form 10-K.
You may read and copy any materials that we file with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330.

Special Factors Regarding Forward-Looking Statements

Certain statements in this Annual Report on Form 10-K may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. When we use the words "believes", "expects",
"plans", "projects", "estimates" and similar expressions, we intend to identify
forward-looking statements. Examples of forward-looking statements include
statements regarding our expectations regarding future payments from Marketing,
including $59.7 million in lease rental payments in 2005; the expected effect of
regulations on our long-term performance; our expected ability to maintain
compliance with applicable regulations; our ability to renew expired leases; the
adequacy of our current and anticipated cash flows; our ability to maintain our
REIT status; our ability to obtain additional financing from JPMorgan on the
terms described in this Annual Report on Form 10-K, or at all; the probable
outcome of litigation or regulatory actions; our expected recoveries from
underground storage tank funds; our exposure to environmental remediation
expenses; our expectations regarding corporate level federal income taxes; the
indemnification obligations of the Company and others; our intention to
consummate future acquisitions; assumptions regarding the future applicability
of accounting estimates, assumptions and policies and our intention to pay
future dividends.

These forward-looking statements are based on our current beliefs and
assumptions and information currently available to us, and involve known and
unknown risks (including the risks described below and other risks that we
describe from time to time in our SEC filings), uncertainties and other factors
which may cause our actual results, performance and achievements to be
materially different from any future results, performance or achievements
expressed or implied by these forward-looking statements. You should not place
undue reliance on forward-looking statements, which reflect our view only as of
the date hereof. We undertake no obligation to publicly release revisions to
these forward-looking statements that reflect future events or circumstances or
the occurrence of unanticipated events.

Risks and Uncertainties

We are subject to various risks that could have a negative effect on the
Company and its financial condition, many of which are beyond our control. As a
result of these and other factors, we may experience material fluctuations in
future operating results on a quarterly or annual basis, which could materially
and adversely affect our business, financial condition, operating results and
stock price. An investment in our stock involves various risks, including those
mentioned below and elsewhere in this Annual Report on Form 10-K and those that
are detailed from time to time in our other filings with the Securities and
Exchange Commission.

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We are subject to risk inherent in owning and leasing real estate.

We are subject to varying degrees of risk generally related to leasing and
owning real estate many of which are beyond our control. In addition to general
risks related to owning properties used in the petroleum marketing industry,
risks include, among others, liability for long-term lease obligations, changes
in regional and local economic and real estate market conditions; changes in
supply of, or demand for rental properties similar to ours; competition for
tenants and changes in rental rates; our ability to relet properties on
favorable terms or at all; our ability to collect rent payments when due;
changes in interest rates and in the availability, cost and terms of financing;
the potential for uninsured casualty and other losses, the impact of present or
future environmental legislation and compliance with environmental laws; adverse
changes in zoning laws and other regulations; and acts of terrorism and war. In
addition, real estate investments are relatively illiquid, which means that our
ability to vary our portfolio of properties in response to changes in economic
and other conditions may be limited.

Our revenues are primarily dependent on the performance of Getty Petroleum
Marketing Inc., our primary tenant. Although we periodically receive and review
financial statements and other financial information from Marketing, such
information is not publicly available. We may not have sufficient information to
identify a deterioration of the financial performance or condition of Marketing,
or have sufficient time to advise our shareholders of such deterioration prior
to any default by Marketing on its monetary obligations to us that may result
from such deterioration. If Marketing does not fulfill its monetary obligations
to us, our financial condition and results of operations will be materially
adversely affected.

We rely upon the revenues from leasing retail motor fuel and convenience
store properties and petroleum distribution terminals, primarily to Marketing,
for substantially all of our revenues (95.5% for the year ended December 31,
2004). Accordingly, our revenues will be dependent to a large degree on the
economic performance of Marketing and of the petroleum marketing industry, and
any factor that adversely affects Marketing may have a material adverse effect
on our financial condition and results of operations. Marketing is wholly owned
by a subsidiary of Lukoil, one of the largest integrated Russian oil companies.
In the event that Marketing cannot or will not perform its monetary obligations
under the Marketing Leases with us, our financial condition and results of
operations would be materially adversely affected. Although Marketing is wholly
owned by a subsidiary of Lukoil, no assurance can be given that Lukoil will
cause Marketing to fulfill any of its obligations under the Marketing Leases.

We periodically receive and review Marketing's financial statements and
other financial data. We receive this information from Marketing pursuant to the
terms of the Master Lease. This information is not publicly available and the
terms of the Master Lease prohibit us from including this financial information
in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q or in our
Annual Report to Shareholders. As a result, the financial performance of
Marketing may deteriorate, and Marketing may ultimately default on its monetary
obligations to us before we receive financial information from Marketing that
would indicate the deterioration or before we would have the opportunity to
advise our shareholders of any increased risk of default.

Certain financial and other information concerning Marketing is available
from Dun & Bradstreet and may be accessed by their web site (www.dnbsearch.com)
upon payment of their fee.

If Marketing does not fulfill its monetary obligations to us under the
Marketing Leases, our financial condition and results of operations will be
materially adversely affected. Based on our review of the financial statements
and other financial data Marketing has provided to us to date, we believe that
Marketing has the ability to make its rent payments to us under the Marketing
Leases timely when due.

Marketing's earnings and cash flow from operations depend upon rental
income from its tenants and the sale of refined petroleum products at margins in
excess of its fixed and variable expenses. A large, rapid increase in wholesale
petroleum prices would adversely affect Marketing's profitability and cash flow
if the increased cost of petroleum products could not be passed on to
Marketing's customers or if automobile consumption of gasoline were to
significantly decline. Petroleum products are commodities whose prices depend on
numerous factors that affect the supply of and demand for petroleum products.
The prices paid by Marketing and other petroleum marketers for products are
affected by global, national and regional factors. We cannot be certain how
these factors will affect

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petroleum product prices or supply in the future, or how in particular they
will affect Marketing or our other tenants. We believe that Marketing currently
relies on various suppliers for the purchase of refined petroleum products.

Substantially all of our tenants depend on the same industries for their
revenues.

We derive substantially all of our revenue from leasing, primarily on a
triple-net basis, retail motor fuel and convenience store properties and
petroleum distribution terminals to tenants in the petroleum marketing industry.
Accordingly, our revenues will be dependent on the economic success of the
petroleum marketing industry, and any factors that adversely affect that
industry could also have a material adverse effect on our financial condition
and results of operations. The success of participants in that industry depends
upon the sale of refined petroleum products at margins in excess of fixed and
variable expenses. A large, rapid increase in wholesale petroleum prices would
adversely affect the profitability and cash flows of Marketing and our other
tenants if the increased cost of petroleum products could not be passed on to
their customers or if automobile consumption of gasoline were to significantly
decline. Petroleum products are commodities whose prices depend on numerous
factors that affect the supply of and demand for petroleum products. The prices
paid by Marketing and other petroleum marketers for products are affected by
global, national and regional factors. We cannot be certain how these factors
will affect petroleum product prices or supply in the future, or how in
particular they will affect Marketing or our other tenants. We believe that
Marketing currently relies on various suppliers for the purchase of refined
petroleum products.

Property taxes on our properties may increase without notice.

Each of our owned properties is subject to real property taxes. The real
property taxes on our properties and any other properties that we develop or
acquire in the future may increase as property tax rates change and as those
properties are assessed or reassessed by tax authorities. To the extent that our
tenants are unable or unwilling to pay such increase in accordance with their
leases, our net operating expenses may increase.

Compliance with environmental regulations may be costly.

The real estate business and the petroleum products industry are subject to
numerous federal, state and local laws and regulations, including matters
relating to the protection of the environment. Under certain environmental laws,
a current or previous owner or operator of real estate may be liable for
contamination resulting from the presence or discharge of hazardous or toxic
substances or petroleum products at, on or under such property, and may be
required to investigate and clean-up such contamination. Such laws typically
impose liability and clean-up responsibility without regard to whether the owner
or operator knew of or caused the presence of the contaminants, or the timing or
cause of the contamination, and the liability under such laws has been
interpreted to be joint and several unless the harm is divisible and there is a
reasonable basis for allocation of responsibility. For example, liability may
arise as a result of the historical use of a property or from the migration of
contamination from adjacent or nearby properties. Any such contamination or
liability may also reduce the value of the property. In addition, the owner or
operator of a property may be subject to claims by third parties based on
injury, damage and/or costs, including investigation and clean-up costs,
resulting from environmental contamination present at or emanating from a
property. The properties owned or controlled by us are leased primarily as
retail motor fuel and convenience store properties, and therefore may contain,
or may have contained, underground storage tanks for the storage of petroleum
products and other hazardous or toxic substances, which creates a potential for
the release of such products or substances. Some of the properties may be
adjacent to or near properties that have contained or currently contain
underground storage tanks used to store petroleum products or other hazardous or
toxic substances. In addition, certain of the properties are on, adjacent to or
near properties upon which others have engaged or may in the future engage in
activities that may release petroleum products or other hazardous or toxic
substances. There may be other environmental problems associated with our
properties of which we are unaware. These problems may make it more difficult
for us to relet or sell our properties on favorable terms or at all.

We have agreed to provide limited environmental indemnification, capped at
$4.25 million and expiring in 2010, to Marketing for certain pre-existing
conditions at six of the terminals we lease to Marketing. Under the
indemnification agreement, Marketing will pay the first $1.5 million of costs
and expenses incurred in connection with remediating any such pre-existing
conditions, Marketing will share equally with us the next $8.5 million of those
costs and expenses and Marketing will pay all additional costs and expenses over
$10.0 million. We have not

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accrued a liability in connection with this indemnification agreement since it
is uncertain that any significant amounts will be required to be paid under the
agreement.

As of December 31, 2004 we had accrued $20.6 million as management's best
estimate of the fair value of reasonably estimable environmental remediation
costs and we had also recorded $5.4 million as management's best estimate for
recoveries from state UST remediation funds, net of allowance, related to
environmental obligations and liabilities. Environmental expenditures were $6.8
million and recoveries from underground storage tank funds were $2.4 million for
the year ended December 31, 2004. For 2004, net changes in estimated remediation
costs and accretion expense included in our consolidated statements of
operations amounted to $3.3 million, which was net of probable recoveries from
state UST remediation funds. During 2005, we estimate that our net environmental
spending will be approximately $5.0 million and our business plan for 2005
reflects a net change in estimated remediation costs and accretion expense of
approximately $3.6 million.

In view of the uncertainties associated with environmental expenditures,
however, we believe it is possible that the fair value of future actual net
expenditures could be substantially higher than these estimates. Adjustments to
accrued liabilities for environmental remediation costs will be reflected in our
financial statements as they become probable and a reasonable estimate of fair
value can be made. Although future environmental costs may have a significant
impact on results of operations for any single fiscal year or interim period, we
believe that such costs will not have a material adverse effect on our long-term
financial position.

We cannot predict what environmental legislation or regulations may be
enacted in the future, or how existing laws or regulations will be administered
or interpreted with respect to products or activities to which they have not
previously been applied. We cannot predict whether state underground storage
tank fund programs will be administered and funded in the future in a manner
that is consistent with past practices or whether future environmental spending
will continue to be eligible for reimbursement under these programs. Compliance
with more stringent laws or regulations, as well as more vigorous enforcement
policies of the regulatory agencies or stricter interpretation of existing laws
which may develop in the future, could have an adverse effect on our financial
position, or that of our tenants, and could require substantial additional
expenditures for future remediation.

For additional information with respect to environmental remediation costs
and estimates see "Environmental Matters" in "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and note 5 to the
financial statements in our Annual Report to Shareholders filed as Exhibit 13 to
this Annual Report on Form 10-K and incorporated by reference herein.

We are defending pending lawsuits and claims and are subject to material losses.

We are subject to various lawsuits and claims, including litigation related
to environmental matters, damages resulting from leaking UST and toxic tort
claims. The ultimate resolution of certain matters cannot be predicted because
considerable uncertainty exists both in terms of the probability of loss and the
estimate of such loss. Our ultimate liabilities resulting from such lawsuits and
claims, if any, may be material to our results of operations in the period in
which they are recognized.

Our properties are concentrated in the Northeast United States, and adverse
conditions in that region, in particular, could negatively impact our
operations.

A significant portion of the properties we own and lease are located in the
Northeast United States. Because of the concentration of our properties in that
region, in the event of adverse economic conditions in that region, we would
likely experience higher risk of default on payment of rent payable to us
(including under the Marketing Leases) than if our properties were more
geographically diversified. Additionally, the rents on our properties may be
subject to a greater risk of default than other properties in the event of
adverse economic, political, or business developments or natural hazards that
may affect the Northeast United States and the ability of our lessees to make
rent payments. In the event of any natural disaster, our ability to pay
dividends could be adversely affected.

-8-

We are in a competitive business.

The real estate industry is highly competitive. Where we own properties, we
compete for tenants with a large number of real estate property owners and other
companies that sublet properties. Our principal means of competition are rents
charged in relation to the income producing potential of the location. In
addition, we expect other major real estate investors, some with much greater
resources, will compete with us for attractive acquisition opportunities. These
competitors include petroleum manufacturing, distributing and marketing
companies, other REITs, investment banking firms and private institutional
investors. This competition has increased prices for commercial properties and
may impair our ability to make suitable property acquisitions on favorable terms
in the future.

Our future cash flow is dependent on renewal of leases and reletting of our
space.

We are subject to risks that financial distress of our tenants may lead to
vacancies at our properties, that leases may not be renewed, that locations may
not be relet or that the terms of renewal or reletting (including the cost of
required renovations) may be less favorable than current lease terms. In
addition, numerous properties compete with our properties in attracting tenants
to lease space. The number of competitive properties in a particular area could
have a material adverse effect on our ability to lease our properties or newly
acquired properties and on the rents charged. If we were unable to promptly
relet or renew the leases for all or a substantial portion of these locations,
or if the rental rates upon such renewal or reletting were significantly lower
than expected, our cash flow could be adversely affected and the resale values
or our properties could decline. The Marketing Leases have an initial term
expiring in December 2015, and generally provide Marketing with three renewal
options of ten years each and a final renewal option of three years and ten
months extending to 2049. Each of the renewal options may be exercised only on
an "all or nothing" basis.

We may acquire or develop new properties, and this may create risks.

We may acquire or develop properties or acquire other real estate companies
when we believe that an acquisition or development matches our business
strategies. We may not succeed in consummating desired acquisitions or in
completing developments on time or within our budget. We also may not succeed in
leasing newly developed or acquired properties at rents sufficient to cover
their costs of acquisition or development and operations.

We are subject to losses that may not be covered by insurance.

Marketing, and other tenants, as the lessee of our properties, are required
to provide insurance for such properties, including casualty, liability, fire
and extended coverage in amounts and on other terms as set forth in our master
leases. We carry insurance against certain risks and in such amounts as we
believe are customary for businesses of our kind. However, as the costs and
availability of insurance change, we may decide not to be covered against
certain losses (such as certain environmental liabilities, earthquakes,
hurricanes, floods and civil disorders) where, in the judgment of management,
the insurance is not warranted due to cost or availability of coverage or the
remoteness of perceived risk. There is no assurance that our insurance against
loss will be sufficient. The destruction of, or significant damage to, or
significant liabilities arising out of conditions at our properties due to an
uninsured cause would result in an economic loss and could result in us losing
both our investment in, and anticipated profits from, such properties. When a
loss is insured, the coverage may be insufficient in amount or duration, or a
lessee's customers may be lost, such that the lessee cannot resume its business
after the loss at prior levels or at all, resulting in reduced rent or a default
under its lease. Any such loss relating to a large number of properties could
have a material adverse effect on our financial condition.

Failure to qualify as a REIT would have adverse consequences to our
shareholders.

We elected to be taxed as a REIT beginning January 1, 2001. We cannot,
however, guarantee that we will continue to qualify in the future as a REIT. In
order to initially qualify for REIT status, we were required, among other items,
to make a distribution to shareholders in an amount at least equal to our
accumulated "earnings and profits" (as defined by the Internal Revenue Code)
from the years we operated as a taxable corporation. On August 1, 2001, we paid
the earnings and profits distribution to our shareholders in an amount that we
estimated was required in order for us to qualify as a REIT. Determination of
accumulated earnings and profits for federal income

-9-

tax purposes is extremely complex. Should the Internal Revenue Service
successfully assert that our accumulated earnings and profits were greater than
the amount distributed, we may fail to qualify as a REIT; however, we may avoid
losing our REIT status by paying a deficiency dividend to eliminate any
remaining accumulated earnings and profits. We may have to borrow money or sell
assets to pay such a deficiency dividend. We cannot give any assurance that new
legislation, regulations, administrative interpretations or court decisions will
not significantly change the requirements relating to our qualification. If we
fail to qualify as a REIT, we will again be subject to federal income tax at
regular corporate rates, and could be subject to the federal alternative minimum
tax, we would be required to pay significant income taxes and would have less
money available for our operations and distributions to shareholders. This would
likely have a significant adverse effect on the value of our securities. We
could also be precluded from treatment as a REIT for four taxable years
following the year in which we lost the qualification, and all distributions to
stockholders would be taxable as regular corporate dividends to the extent or
our current and accumulated earnings and profits.

As a REIT, we are dependent on external sources of capital which may not be
available on favorable terms.

To maintain our status as a REIT, we must distribute to our shareholders
each year at least ninety percent of our net taxable income, excluding any net
capital gain. Because of these distribution requirements, it is not likely that
we will be able to fund all future capital needs, including acquisitions, from
income from operations. Therefore, we will have to rely on third-party sources
of capital, which may or may not be available on favorable terms or at all.
Moreover, additional equity offerings may result in substantial dilution of
shareholders' interests, and additional debt financing may substantially
increase our leverage. Our access to third-party sources of capital depends upon
a number of factors, including general market conditions, the market's
perception of our growth potential, our current and potential future earnings
and cash distributions and the market price of our common stock.

The loss of certain members of our management team could adversely affect our
business.

We depend upon the skills and experience of our executive officers. Loss of
the services of any of them could have a material adverse effect on our business
and financial condition. We do not have employment agreements with any of our
executives.

Our business operations may not generate sufficient cash for distributions or
debt service.

We cannot assure you that our business will generate sufficient cash flow
from operations or that future borrowings will be available to us in an amount
sufficient to enable us to make distributions on our common stock, to pay our
indebtedness, or to fund our other liquidity needs. We may not be able to repay
or refinance existing indebtedness on favorable terms, which could force us to
dispose of properties on disadvantageous terms (which may also result in losses)
or accept financing on unfavorable terms.

In March 2005 we entered into a Commitment Letter with JPMorgan Chase Bank
("JPMorgan") for an unsecured three-year senior revolving credit facility
("Credit Facility"). While the Commitment Letter is non-binding, is subject to
JPMorgan's successful syndication of a substantial portion of the Credit
Facility, and execution of definitive agreements containing customary terms and
conditions, we believe that it will contain financial covenants that will
require us to maintain certain financial ratios and limit the amount of
distributions payable by us to our shareholders. Our ability to meet the
financial and other covenants relating to the Credit Facility may be dependent
on the performance of our tenants. Failure to comply with these covenants could
result in an event of default that, if not cured or waived, could result in the
acceleration of all or a substantial portion of our indebtedness to JPMorgan.

We may be unable to pay dividends and our equity may not appreciate.

Under the Maryland General Corporation Law, our ability to pay dividends
would be restricted if, after payment of the dividend, (1) we would not be able
to pay indebtedness as it becomes due in the usual course of business or (2) our
total assets would be less than the sum of our liabilities plus the amount that
would be needed, if we were to be dissolved, to satisfy the rights of any
shareholders with liquidation preferences. There currently are no shareholders
with liquidation preferences. No assurance can be given that our financial
performance in the future will permit our payment of any dividends. As a result
of the factors described above, we may experience material

-10-

fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect our business, stock price and ability to
pay dividends.

Terrorist attacks and other acts of violence or war may affect the market on
which our common stock trades, the markets in which we operate, our operations
and our results of operations.

Terrorist attacks or armed conflicts could affect our business or the
businesses of our tenants or of Marketing or its parent. The consequences of
armed conflicts are unpredictable, and we may not be able to foresee events that
could have an adverse effect on our business. More generally, any of these
events could cause consumer confidence and spending to decrease or result in
increased volatility in the U.S. and worldwide financial markets and economy.
They also could be a factor resulting in, or a continuation of, an economic
recession in the U.S. or abroad. Any of these occurrences could have a
significant adverse impact on our operating results and revenues and may result
in volatility of the market price for our common stock.

Item 2. Properties

The following table summarizes the geographic distribution of our
properties at December 31, 2004. The table also identifies the number and
location of properties we lease from third-parties and which Marketing leases
from us under the Marketing Leases.

(1) Includes seven terminal properties owned in New York, New Jersey,
Connecticut and Rhode Island.

(2) Includes three terminal properties leased in New York.

The properties that we lease have a remaining lease term, including renewal
option terms, averaging over twelve years. The following table sets forth
information regarding lease expirations, including renewal and extension option
terms, for properties that we lease from third parties:

-11-

We have rights-of-first refusal to purchase or lease one hundred
ninety-eight of the properties we lease. Although there can be no assurance
regarding any particular property, historically we generally have been
successful in renewing or entering into new leases when lease terms expire.
Approximately 67% of our leased properties are subject to automatic renewal or
extension options.

In the opinion of our management, our relationships with our landlords are
good and our owned and leased properties are adequately covered by casualty and
liability insurance. In addition, we require our tenants to provide insurance
for all properties they lease from us, including casualty, liability, fire and
extended coverage in amounts and on other terms satisfactory to us. Currently,
we have no plans for material improvements to any of our properties. However,
our tenants frequently make improvements to the properties leased from us at
their expense.

Three of our owned retail motor fuel and convenience store properties, with
a net book value of approximately $1.9 million at December 31, 2004, are secured
by mortgages with an aggregate principal balance of approximately $0.5 million
at a weighted average interest rate of 5.7% per annum. No other material
mortgages, liens or encumbrances exist on our properties.

We lease nine hundred thirty-nine retail motor fuel and convenience store
properties and our ten petroleum distribution terminals to Marketing under the
Marketing Leases. The Master Lease is a unitary lease and has an initial term
expiring in 2015, and generally provides Marketing with three renewal options of
ten years each and a final renewal option of three years and ten months
extending to 2049. Each of the renewal options may be exercised only on an "all
or nothing" basis. The Marketing Leases are "triple-net" leases, under which
Marketing is responsible for the payment of taxes, maintenance, repair,
insurance and other operating expenses.

If Marketing fails to pay rent, taxes or insurance premiums when due under
the Marketing Leases, and the failure is not cured by Marketing within a
specified time after receipt of notice, we have the right to terminate the
Marketing Leases and to exercise other customary remedies against Marketing. If
Marketing fails to comply with any other obligation under the Marketing Leases
after notice and opportunity to cure, we do not have the right to terminate the
Marketing Leases. Alternatively, our available remedies under the Marketing
Leases are to seek to obtain an injunction or other equitable relief requiring
Marketing to comply with its obligations under the Marketing Leases and to
recover damages from Marketing resulting from the failure.

If any lease we have with a third-party landlord for properties that we
lease to Marketing is terminated as a result of our default and the default is
not caused by Marketing, we have agreed to indemnify Marketing for its losses
with respect to the termination. Where we lease a property from a third-party
landlord under a lease which is about to expire and does not contain options to
renew, we and Marketing each have a non-exclusive right to negotiate with that
third-party landlord, except at fifteen identified locations where Marketing has
the exclusive right to negotiate with the third-party landlord until six months
before the lease expires. We have also agreed that if we decide to sell any
property leased to Marketing under the Marketing Leases, we will first offer to
sell that property to Marketing pursuant to procedures set forth in the
Marketing Leases.

We have also agreed to provide limited environmental indemnification,
capped at $4.25 million and expiring in 2010, to Marketing for certain
pre-existing conditions at six of the terminals we lease to Marketing. Under the
agreement, Marketing will pay the first $1.5 million of costs and expenses
incurred in connection with remediating any pre-existing terminal condition,
Marketing will share equally with us the next $8.5 million of those costs and
expenses and Marketing will pay all additional costs and expenses over $10.0
million. We have not accrued a liability in connection with this indemnification
agreement since it is uncertain that any significant amounts will be required to
be paid under the agreement. Under the Master Lease, we continue to have
additional ongoing environmental remediation obligations for two hundred
sixty-four scheduled sites and our agreements with Marketing provide that
Marketing otherwise remains liable for all environmental matters.

Item 3. Legal Proceedings

In 1988 and 1989, we were named as defendants in three separate lawsuits by
multiple owners of adjacent properties seeking compensatory and punitive damages
for personal injury and property damages having common allegations that a leak
of an underground gasoline storage tank occurred in November 1985, at one of our
retail

-12-

motor fuel properties. Although the first action was dismissed in January 1992
and the second action was dismissed in 1995, there is a possibility that the
remaining defendants in this action, in the future, may assert claims against us
for contribution or indemnity. We are not aware that any such claims have been
asserted. The third action is still pending in New York Supreme Court, Suffolk
County, remains in the pleadings stage and has remained dormant for more than
ten years. We have been advised that these plaintiffs no longer will assert
claims for personal injuries, and that the property has been sold. If this
litigation resumes, we will assert third-party claims against the party we
believe is responsible for the contamination.

In 1991, the State of New York brought an action in the New York State
Supreme Court in Albany against our former heating oil subsidiary seeking
reimbursement for cleanup costs claimed to have been incurred at a retail motor
fuel property in connection with a gasoline release. The State also is seeking
penalties plus interest. Although there has been no activity in this proceeding
in the past several years, in January 2002, we received a letter from the
State's attorney indicating that the State intends to continue prosecuting the
action. To date, we are not aware that the State has taken any additional
actions in connection with this claim.

In 1995, Pennsauken Solid Waste Management Authority, its
successor-in-interest, the Pollution Control Financing Authority of Camden
County and the Township of Pennsauken, New Jersey commenced an action for
unspecified amounts against certain defendants for all costs and damages claimed
to have been incurred for the remediation of the Pennsauken Sanitary Landfill.
The claims against us were settled in November 2003, in exchange for a payment
of $5,000 made in June 2004.

In 1997, the State of Rhode Island commenced an action against us to
recover damages resulting from an accident which occurred in March 1994,
regarding an oil tanker truck which tipped over and exploded in Providence, RI.
The State alleged damages to the highway area as well as the surrounding area
and nearby overpass. The case was dismissed in June 2004.

In 1997, an action was commenced in New York Supreme Court in Schenectady,
naming us as defendants, and seeking to recover monetary damages for personal
injuries allegedly suffered from the release of petroleum and vapors from one of
our retail motor fuel properties. This action has not been pursued by the
Plaintiff for more than six years.

In June 1998, we were sued as a third-party defendant in the Superfund case
of U.S. v. Champion Chemical Co. and Imperial Oil Co., pending in the U.S.
District Court for New Jersey. Our defense is being conducted by Texaco Inc.,
which has agreed to fully indemnify us. In August 1998, we were sued as a
third-party defendant in the Superfund case of U.S. v. Manzo, pending in the U.
S. District Court for New Jersey. Our defense is also being conducted by Texaco
Inc., which has agreed to fully indemnify us. Both matters involve periods prior
to 1985, the year we purchased the properties from Texaco Inc. pursuant to an
agreement under which Texaco is obligated to indemnify us for environmental
matters of this kind.

In December 1998, the New York State Department of Environmental
Conservation filed an administrative complaint against us for civil penalties
for alleged groundwater contamination and gasoline migration into a building
basement in April 1997. In January 1999, an action was commenced in United
States District Court (SDNY) by the owner of the property, seeking compensatory
and punitive damages. We are vigorously defending the private claims of
liability. In September 2004, our motion for summary judgment was granted as to
all claims other than plaintiff's claim for compensatory damages resulting from
an alleged diminution in property value.

In June 1999, a case was commenced in New York Supreme Court in Nassau
County against Marketing. The plaintiff is seeking monetary damages and alleges
that he contracted acute myelogenous leukemia (AML) as a result of exposure to
benzene-containing gasoline, between 1992 and 1998, when he worked periodically
at an independently owned and operated retail motor fuel property which we
supplied with gasoline. The plaintiff brought another case against Mobil Oil
Corporation and Island Transportation Corp. alleging that he worked at another
retail motor fuel property at which Mobil gasoline was sold and that his AML was
caused by his exposure to that gasoline as well. The cases have been
consolidated. We are not named in the cases. However, we are indemnifying
Marketing pursuant to written agreements.

-13-

In September 1999, we brought a case against one of our tenants in the
United States District Court, District of New Jersey, seeking the return of the
property we leased to them and the cleanup of all contamination caused by them.
Our tenant filed a counterclaim alleging that all or part of the contamination
was attributable to contamination from underground storage tanks for which we
were responsible. A trial is expected to be scheduled in the first half of 2005.

In July 1999, the New Jersey Department of Environmental Protection
("NJDEP") issued a Directive and Notice to Insurers to several parties,
including the Company regarding environmental contamination at a retail motor
fuel property located in New Jersey. We signed an Administrative Consent Order
and settlement agreement with our insurers in December 2003 that required the
insurers to pay the State, under a reservation of rights, for past costs and
take over responsibility for the completion of the remediation. The settlement
agreement required us to pay $70,000 to the State and $15,000 toward the
settlement that the insurers reach with the State regarding natural resource
damages. These payments were made in May 2004.

In August 2000, the State of New York commenced an action against us in the
New York State Supreme Court in Albany County, seeking reimbursement of costs
claimed to have been incurred to clean up a gasoline release that occurred in
1987. The matter was settled in June 2004, in exchange for a payment of
$580,000, made in July 2004.

In February 2002, the owner of a retail motor fuel property in Wareham,
Massachusetts commenced an action in the Plymouth Superior Court against us and
a former tenant at the property to recover cleanup costs and other incidental
damages. The matter was settled in December 2004 in exchange for a payment of
$125,000 that we will share equally with our co-defendant. The payment is
expected to be made in 2005.

In September 2002, a suit was brought against us in the United States
District Court for the Eastern District of New York to recover legal fees
incurred in connection with a pending Rhode Island litigation, based on a
Guarantee and Indemnity Agreement. In January, 2002, we filed a counterclaim
against the plaintiff in that earlier suit for recovery of our legal fees
pursuant to a 1985 Settlement Agreement. Discovery has been completed, summary
judgment motions were filed by both parties in the third quarter of 2004, and
heard in November 2004. No decision on the motions has been rendered to date.

In December 2002, the State of New York commenced an action in New York
Supreme Court in Albany County against us and Marketing to recover costs claimed
to have been expended by the State to investigate and remediate a petroleum
release into the Ossining River commencing approximately in 1996. We are
indemnifying Marketing and have filed a claim against a potentially responsible
party who is upstream.

In January 2003, a claim was brought against us in New York Supreme Court
in Westchester County, alleging that we owe the Plaintiff rent in consideration
for access to his property to continue on-going remediation of contamination
allegedly due to spills at the property, formerly supplied by us with gasoline.
The case is in its early stages.

In February 2003, a case was filed against us, Marketing and others by the
owners of an adjacent property in the Pennsylvania Court of Common Pleas in
Lancaster County, asserting claims relating to a discharge of gasoline allegedly
emanating from our property. The complaint states that the plaintiffs first
became aware of a problem upon detecting gasoline vapors in their basement in
1996, yet did not file suit until February 28, 2003. The case is in its early
stages.

In April 2003, we were named in a class action, filed in New York Supreme
Court in Dutchess County, NY, arising out of alleged contamination of ground
water with methyl tertiary butyl ether (a fuel derived from methanol, which we
refer to as MTBE). We served an answer that denied liability and asserted
numerous affirmative defenses. The plaintiffs have not responded to our demands
and there has not been any activity in the case for a considerable period.

In April 2003, we received a Request for Reimbursement from the State of
Maine Department of Environmental Protection seeking reimbursement of costs
claimed to have been incurred by them in connection with the remediation of
contamination claimed to have originated at a former retail motor fuel property
supplied by us with gasoline in 1988. We discovered evidence that indicates that
the contamination may not have originated from that

-14-

property and submitted a written response to the Request for Reimbursement,
denying liability for the claim. In September 2004, we received a response from
the Office of the Attorney General for the State of Maine rejecting our
evidence. The matter was settled in January 2005 in exchange for a payment of
$600,000 which was accrued for as of December 31, 2004 and is expected to be
made in the first quarter of 2005.

In July 2003, we were notified by the State of Rhode Island Department of
Environmental Management of their Notice to Enforce compliance with a Letter of
Responsibility issued by the Department in connection with a suspected petroleum
release at a property that abuts property owned by us and leased to Marketing.
We responded to the State's Notice in August 2003. Marketing is obligated to
defend the matter and indemnify us pursuant to the Master Lease.

In July 2003, we received a Request for Reimbursement from the State of
Maine Department of Environmental Protection seeking reimbursement of costs
claimed to have been incurred by them in connection with the remediation of
contamination found at a retail motor fuel property, purportedly linked to
numerous gasoline spills in the late 1980's. We have discovered substantial
evidence that links the contamination to gasoline releases of another company
who has operated at the property since we discontinued our operations at the
property and are in the process of finalizing our response to the Request for
Reimbursement that will deny liability for the claim.

In September 2003, we were notified by the State of New Jersey Department
of Environmental Protection (the "DEP") that we are one of approximately sixty
potentially responsible parties for natural resources damages resulting from
discharges of hazardous substances into the Lower Passaic River. The definitive
list of potentially responsible parties and their actual responsibility for the
alleged damages, the aggregate cost to remediate the Lower Passaic River, the
amount of natural resource damages and the method of allocating such amounts
among the potentially responsible parties have not been determined. In September
2004, we received a General Notice Letter from the US EPA (the "EPA Notice"),
advising us that we may be a potentially responsible party for costs of
remediating certain conditions resulting from discharges of hazardous substances
into the Lower Passaic River. ChevronTexaco received the same EPA Notice
regarding those same conditions. We believe that ChevronTexaco is obligated to
indemnify us, pursuant to an indemnification agreement, regarding the conditions
at the property identified by the DEP and the EPA and that accordingly, our
ultimate legal and financial liability, if any, cannot be estimated with any
certainty at this time.

In September 2003, we were notified by the State of New Jersey Department
of Environmental Protection that we may be responsible for damages to natural
resources ("NRD") by reason of a petroleum release, more than fifteen years ago,
at a retail motor fuel property formerly operated by us in Egg Harbor, NJ. We
have been actively remediating the resulting contamination at the property in
accordance with a plan approved by the State. In addition, we have responded to
the notice and met with the Department to determine whether, and to what extent,
we may be responsible for NRD regarding this property and our other properties
formerly supplied by us with gasoline in New Jersey. The State's right to pursue
NRD, the viability of defenses to NRD, generally, and the State's method for
calculating NRD are subject to ongoing litigation in the State. We are not a
party to such litigation. However, the outcome of that litigation likely will
affect the State's claim against us for NRD with regard to this property and,
generally, our other properties in New Jersey.

In October 2003, an action was commenced in New York Supreme Court in
Nassau County seeking money damages against us arising out of a petroleum
release that occurred prior to 1985, at a property in Valley Stream, NY, which
was later supplied by us with gasoline. We have denied responsibility and are
defending this matter. The case is in its initial stages.

From October 2003 through February 2004 we were made a party to thirty-six
cases, and one additional case in the fourth quarter of 2004, in Connecticut,
Florida, Massachusetts, New Hampshire, New Jersey, New York, Vermont, Virginia,
and West Virginia, brought by local water providers or governmental agencies.
These cases allege various theories of liability due to contamination of
groundwater with MTBE as the basis for claims seeking compensatory and punitive
damages. Each case names as defendants approximately fifty petroleum refiners,
manufacturers, distributors and retailers of MTBE, or gasoline containing MTBE.
The accuracy of the allegations as they relate to us, our defenses to such
claims, the aggregate amount of damages, the definitive list of defendants and
the method of allocating such amounts among the defendants have not been
determined. Accordingly, our ultimate legal and financial liability, if any,
cannot be estimated with any certainty at this time.

-15-

In November 2003, we received a demand from the State of New York for
reimbursement of cleanup and removal costs claimed to have been incurred by the
New York Environmental Protection and Spill Compensation Fund regarding
contamination it alleges emanated from one of our retail motor fuel properties
in 1997. We have responded to the State's demand and have denied responsibility
for reimbursement of such costs, as being attributable to contamination that
emanated from other properties owned and operated by others. In September 2004,
the State of New York commenced an action against us and others in New York
Supreme Court in Albany County seeking recovery of such costs. The case is in
its initial stages.

In November 2003, an action was commenced in New York Supreme Court in
Westchester County seeking money damages against us arising out of a petroleum
release in 1996 at a former retail motor fuel property of ours. Our defense is
being conducted by the company that sold us the property, and they have agreed
to fully indemnify us pursuant to the purchase agreement, which calls for
indemnification for environmental matters of this kind.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of security holders during the three
months ended December 31, 2004.

-16-

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities

Information in response to this item is incorporated herein by reference to
information under the headings "Capital Stock" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Subsequent Events"
in our Annual Report to Shareholders.

Item 6. Selected Financial Data

Information in response to this item is incorporated herein by reference to
information under the heading "Selected Financial Data" in our Annual Report to
Shareholders.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Information in response to this item is incorporated herein by reference to
information under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our Annual Report to Shareholders.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We do not use derivative financial or commodity instruments for trading,
speculative or any other purpose. We had no outstanding derivative instruments
as of December 31, 2004 or December 31, 2003 or at any time during the years
then ended. We do not have any foreign operations, and are therefore not exposed
to foreign currency exchange rate risks.

We are exposed to interest rate risks, primarily as a result of our line of
credit with JPMorgan Chase Bank. We manage our exposure to this risk by
minimizing, to the extent feasible, our overall borrowing and monitoring
available financing alternatives. Our interest rate risk has changed due to
increased average outstanding borrowings under the line as compared to December
31, 2003, but we do not foresee any significant changes in our exposure or in
how we manage this exposure in the near future. We use borrowings under the line
of credit, which expires in June 2005, to finance acquisitions and for general
corporate purposes. We had no borrowings against the line of credit prior to
November 2004. Our line of credit bears interest at the prime rate or, at our
option, LIBOR plus 1.25%. At December 31, 2004 we had total borrowings of $24.0
million under our line of credit, and had not entered into any instruments to
hedge our resulting exposure to interest-rate risk.

Based on our average outstanding borrowings under the line of credit of
$11.5 million, and assuming $30.0 million of additional borrowings required to
finance a pending acquisition on March 31, 2005 (see "Subsequent Events" in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"), if market interest rates for 2005 increase by an average of 0.5%
more than the average interest rate for the last two months of 2004, the
additional annualized interest expense would decrease 2005 net income and cash
flows by $0.8 million attributable to increased borrowings and an additional
$0.2 million attributable to higher interest rates. These amounts were
determined by calculating the effect of a hypothetical interest rate on our line
of credit borrowings and assumes that the average outstanding borrowings during
the three month period from November 2004 through January 2005 is indicative of
our future average borrowings for 2005 before considering additional borrowings
required for acquisitions. The calculation also assumes that there are no other
changes in our financial structure or the terms of our borrowings. Management
believes that the fair value of the debt equals its carrying value at December
31, 2004 and 2003. Our exposure to fluctuations in interest rates will increase
or decrease in the future with increases or decreases in the outstanding amount
under our line of credit.

In order to minimize our exposure to credit risk associated with financial
instruments, we place our temporary cash investments with high-credit-quality
institutions. Temporary cash investments are held in an institutional money
market fund and short-term federal agency discount notes.

-17-

Item 8. Financial Statements and Supplementary Data

Information in response to this item is incorporated herein by reference to
the financial statements and supplementary financial information in our Annual
Report to Shareholders.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the Commission's rules and forms, and that such information
is accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation,
under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and the Company's Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the period covered
by this Annual Report on Form 10-K. Based on the foregoing, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective at the reasonable assurance
level.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our assessment under the framework in Internal Control -
Integrated Framework, our management concluded that our internal control over
financial reporting was effective as of December 31, 2004.

PricewaterhouseCoopers LLP, our independent registered public accounting
firm which audited the financial statements included in this Annual Report on
Form 10-K, has issued an attestation report on management's assessment of our
internal control over financial reporting which is included herein.

There have been no changes in the Company's internal control over financial
reporting during the latest fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.

Item 9B. Other Information

None.

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PART III

Item 10. Directors and Executive Officers of the Registrant

Information with respect to compliance with Section 16(a) of the Securities
Exchange Act of 1934 is incorporated herein by reference to information under
the heading "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Proxy Statement. Information with respect to directors in response to this item
is incorporated herein by reference to information under the headings "Election
of Directors" and "Directors' Meetings, Committees and Executive Officers" in
the Proxy Statement. The following table lists our executive officers, their
respective ages, and the offices and positions held.

Mr. Liebowitz has been Chief Executive Officer of Getty since 1985. He was
the President of Getty from May 1971 to May 2004. Mr. Liebowitz served as
Chairman, Chief Executive Officer and a director of Getty Petroleum Marketing
Inc. from October 1996 until December 2000. He is also a director of the
Regional Banking Advisory Board of J.P. Morgan Chase & Co.

Mr. Smith has been with Getty since 2003 and has served as President and
Secretary since May 2004 and was Vice President, General Counsel and Corporate
Secretary since December 2003. Prior thereto, he was General Counsel and
Corporate Secretary. Prior to joining Getty, he was in private law practice from
1999 to 2003. From 1997 to 1999 he served as the Vice President of Real Estate,
General Counsel and Secretary of Discovery Zone, Inc., an international
site-based children's entertainment company that commenced a Chapter 11
proceeding in April 1999. From 1995 to 1996, Mr. Smith was Vice President of
Operations of Influence, Inc., a medical device developer and manufacturer. From
1986 to 1994, Mr. Smith was a partner in the real estate practice of Weil,
Gotshal & Manges LLP, an international law firm.

Mr. Shea has been with Getty since 1984 and has served as Executive Vice
President since May 2004 and was Vice President since January 2001. Prior
thereto, he was Director of National Real Estate Development.

Mr. Stirnweis joined Getty in January 2001 as Corporate Controller and
Treasurer and has served as Vice President, Treasurer and Chief Financial
Officer since May 2003. Prior to joining Getty, he was Manager of Financial
Reporting and Analysis of Getty Petroleum Marketing Inc., where he provided
services to Getty under a services agreement since the spin-off of Marketing in
March 1997. Prior thereto, he held the same position at Getty since November
1988.

Management is not aware of any family relationships between any of its
directors or executive officers.

The Getty Realty Corp. Business Conduct Guidelines ("Code of Ethics"),
which applies to all employees, including our chief executive officer and chief
financial officer, is available on our website at www.gettyrealty.com.

Item 11. Executive Compensation

Information in response to this item is incorporated herein by reference to
information under the headings "Directors' Meetings, Committees and Executive
Officers", "Compensation" through "Report of the Compensation Committee" and
"Stock Performance Graph" in the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

Information in response to this item is incorporated herein by reference to
information under the heading "Beneficial Ownership of Capital Stock" and
"Equity Compensation Plan Information" in the Proxy Statement.

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Item 13. Certain Relationships and Related Transactions

None.

Item 14. Principal Accountant Fees and Services

Information in response to this item is incorporated herein by reference to
information under the heading "Ratification of Appointment of Independent
Registered Public Accounting Firm" in the Proxy Statement.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) 1. Financial Statements

The financial statements listed in the Index to Financial Statements and
Financial Statement Schedules on page 22 are incorporated herein by
reference to the 2004 Annual Report to Shareholders as part of this Annual
Report on Form 10-K.

2. Financial Statement Schedules

The financial statement schedules listed in the Index to Financial
Statements and Financial Statement Schedules on page 22 are filed as part
of this Annual Report on Form 10-K.

3. Exhibits

The exhibits listed in the Exhibit Index are filed (or furnished, as
applicable) as part of this Annual Report on Form 10-K.

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GETTY REALTY CORP. INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES COVERED BY REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Items 15(a) 1 & 2

All other schedules are omitted for the reason that they are either not
required, not applicable, not material or the information is included in the
consolidated financial statements or notes thereto.

The financial statements listed in the above index which are included in
the 2004 Annual Report to Shareholders are hereby incorporated by reference.

-22-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULES

To the Board of Directors of Getty Realty Corp.:

Our audits of the consolidated financial statements, of management's assessment
of the effectiveness of internal control over financial reporting and of the
effectiveness of internal control over financial reporting referred to in
our report dated March 11, 2005 appearing in the 2004 Annual Report to
Shareholders of Getty Realty Corp. (which report, consolidated financial
statements and assessment are incorporated by reference in this Annual Report on
Form 10-K) also included an audit of the financial statement schedules listed in
Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement
schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.

/s/ PricewaterhouseCoopers LLP

New York, New York March 11, 2005

-23-

GETTY REALTY CORP. and SUBSIDIARIES
SCHEDULE II -- VALUATION and QUALIFYING ACCOUNTS and RESERVES
for the years ended December 31, 2004, 2003 and 2002
(in thousands)

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GETTY REALTY CORP. and SUBSIDIARIES
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
for the years ended December 31, 2004, 2003 and 2002
(in thousands)

The summarized changes in real estate assets and accumulated depreciation are as
follows:

Three of our owned retail motor fuel and convenience store properties,
indicated by an asterisk(*) in the table below, with a net book value of
approximately $1.9 million as of December 31, 2004 are secured by mortgages with
an aggregate principal balance of approximately $0.5 million at a weighted
average interest rate of 5.7% per annum. No other material mortgages, liens or
encumbrances exist on our properties.

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(1) Initial cost of leasehold or acquisition investment to company represents
the aggregate of the cost incurred during the year in which the Company
purchased the property for owned properties or purchased a leasehold interest in
leased properties. Cost capitalized subsequent to initial investment also
includes investments made in previously leased properties prior to their
acquisition.

(2) The aggregate cost for federal income tax purposes was approximately
$253,000,000 at December 31, 2004.

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EXHIBIT INDEX

GETTY REALTY CORP.
Annual Report on Form 10-K
for the year ended December 31, 2004

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- -----------
(a) Filed herewith.

(b) With the exception of information expressly incorporated herein by direct
reference thereto, the Annual Report to Shareholders for the fiscal year ended
December 31, 2004 is not deemed to be filed as part of this Annual Report on
Form 10-K or incorporated therein.

(c) Furnished herewith. These certifications are being furnished solely to
accompany the Report pursuant to 18 U.S.C. Section. 1350, and are not being
filed for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, and are not to be incorporated by reference into any filing of the
Company, whether made before or after the date hereof, regardless of any general
incorporation language in such filing.

* Management contract or compensatory plan or arrangement.

-46-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.

Getty Realty Corp.
(Registrant)
By: /s/ Thomas J. Stirnweis
-----------------------
Thomas J. Stirnweis,
Vice President, Treasurer and
Chief Financial Officer
March 11, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.

By: /s/ Leo Liebowitz By: /s/ Thomas J. Stirnweis
----------------- -----------------------
Leo Liebowitz Thomas J. Stirnweis
Chairman, Chief Executive Vice President, Treasurer and
Officer and Director Chief Financial Officer
March 11, 2005 (Principal Financial and
Accounting Officer)
March 11, 2005

By: /s/ Milton Cooper By: /s/ Philip E. Coviello
----------------- ----------------------
Milton Cooper Philip E. Coviello
Director Director
March 11, 2005 March 11, 2005

By: /s/ Howard Safenowitz By: /s/ Warren G. Wintrub
--------------------- ---------------------
Howard Safenowitz Warren G. Wintrub
Director Director
March 11, 2005 March 11, 2005

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