Gyrodyne, LLC — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Gyrodyne is managing and seeking entitlements for its remaining medical-office and industrial real estate in Flowerfield and Cortlandt Manor, New York, with the intention of selling the assets, distributing remaining proceeds and dissolving. It reports on the liquidation basis of accounting; conventional income-statement and cash-flow-statement measures are not presented.
Financial position and key metrics
| Metric | March 31, 2023 | December 31, 2022 |
|---|---|---|
| Real estate held for sale | $53.67 million | $53.67 million |
| Cash and cash equivalents | $3.68 million | $4.08 million |
| Total assets | $57.52 million | $57.89 million |
| Total liabilities | $27.21 million | $27.52 million |
| Net assets in liquidation | $30.31 million | $30.37 million |
| Estimated net assets per share | $20.44 | $20.48 |
Net assets decreased $58,060, or approximately $0.04 per share, during the quarter. The company attributed the reduction primarily to additional general and administrative costs, partly offset by interest income and tenant reimbursements. These are liquidation estimates, not guaranteed proceeds or distributions; real estate values rely in part on management estimates and Level 3 inputs.
Cash and operating activity: Management reported $784,548 of rents and reimbursements, $444,010 of property operating costs and $340,538 of net operating income for the quarter. Other reported cash-flow items included $553,930 of corporate expenditures, $76,813 of interest expense net of interest income, $94,791 of capital expenditures excluding entitlement costs, and $252,825 of entitlement costs. The filing does not present conventional revenue, net income, margin or operating cash flow totals under its liquidation accounting.
Debt and liquidity: Loans payable totaled $9.69 million: approximately $2.06 million and $2.81 million under Flowerfield credit lines, both at a fixed 3.85% rate, and $4.82 million under the Cortlandt Manor mortgage, at 3.75%. The Flowerfield loans mature in 2028; the mortgage has a five-year term and an extension option subject to lender conditions. Cash declined about $399,000 from year-end. Management considers current cash and expected asset-sale proceeds adequate for the liquidation plan, but is also considering a new credit facility, rights offering or other funding. The company says rents net of property expenses are below combined annual overhead, capital and entitlement costs, resulting in cash use before asset-sale proceeds.
Material changes and business developments
- On March 20, 2023, Cortlandt adopted its Medical Oriented Zoning District, designating total density of 154,000 square feet: 150,000 square feet for medical use and 4,000 square feet for retail. Further subdivision and site-plan approvals remain necessary.
- Flowerfield received preliminary approval in 2022 for an eight-lot subdivision, but a pending Article 78 court proceeding seeks to annul the related environmental findings and approval. The company and Town of Smithtown are defending the approvals.
- During the quarter, the company reported five lease renewals covering about 6,700 square feet and approximately $96,000 in annual revenue, two expansions covering about 1,027 square feet and approximately $26,000 in annual revenue, and one land-tenant termination that reduced monthly rent by $6,260.
- Signature Bank, lender on the Cortlandt mortgage, was closed in March 2023. The company reported approximately $61,000 in deposits and $97,000 in a real-estate-tax escrow account there, and expected access to the funds under the federal authorities’ depositor protection announcement. No undrawn amounts remained on the mortgage.
Outlook, risks and contingencies
- Management aims to complete property sales and liquidation by year-end 2024, but emphasizes that approvals, litigation, market conditions and other matters outside its control could delay completion. It estimates net assets of approximately $30.31 million, or $20.44 per share, based on March 31 values and assumptions; this is not a promise of a distribution.
- The filing gives differing timing expectations for Cortlandt subdivision approval: one passage says by the middle of 2024, while another says by the middle of 2023. The text does not provide a consistent forecast. Flowerfield final subdivision approval was expected in the second half of 2023, subject to the litigation and agency review.
- Estimated additional entitlement costs through the projected liquidation date are approximately $952,000; approximately $253,000 was incurred in Q1. The company cautions that enhanced entitlements may not increase sale proceeds enough to exceed their costs.
- The Article 78 case could take two years or more, including potential appeals. A 2015 settlement also requires property sales to be arm’s-length and at or above 2014 appraised values.
- Management cites commercial real estate conditions, inflation, higher interest rates, recession risk, labor shortages, environmental and regulatory concerns, tenant concentration, remote work and telemedicine as risks to property values, rental income and the liquidation timeline. The three largest tenants contributed approximately 24%, 21% and 8% of Q1 rental income.
- Star Equity Fund, which reported owning approximately 5.4% of shares, nominated two director candidates for the 2023 annual meeting. If no agreement is reached, the company expects a contested election.
- Estimated retention-bonus payments associated with property sales are included in liquidation estimates; no plan payments were made in Q1. The filing also reports $439,000 of management and employee severance/bonus contingencies, excluding retention-plan payments.
Investor facts to verify
- Progress and outcome of the Flowerfield Article 78 proceeding, final subdivision approvals and any related appeals.
- Final Cortlandt subdivision and site-plan timing, given the inconsistent approval forecasts in the filing.
- Actual sale prices, entitlement costs and other liquidation expenses compared with the $53.67 million real estate estimate and the projected $20.44 per-share net asset value.
- Cash runway, any supplemental financing, debt repayment or refinancing terms, and whether deferred vendor payments become due before property sales.
- Tenant renewals, rent collections and occupancy, particularly given tenant concentration and the reported loss of monthly rent from a terminated tenant.
- Outcome of the Star Equity director nominations and any effects on the company’s liquidation strategy or timing.