Gyrodyne, LLC — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. Gyrodyne is a New York real estate company pursuing property entitlements, leasing and asset sales as it works toward liquidation and dissolution. Its remaining assets are Flowerfield Industrial Park in St. James and Cortlandt Medical Center in Cortlandt Manor. The filing uses liquidation-basis accounting; it does not present conventional income, cash-flow or margin statements.
Key financial position and operating metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Real estate held for sale | $36.20 million | $33.02 million |
| Cash and cash equivalents | $3.05 million | $5.27 million |
| Total assets | $39.38 million | $38.40 million |
| Total liabilities | $12.53 million | $11.76 million |
| Net assets in liquidation | $26.85 million | $26.64 million |
| Estimated liquidation value per share | $18.11 | $17.97 |
- Net assets increased $209,320 in 2018. The real estate valuation rose $3.98 million, substantially offset by a $3.78 million remeasurement of assets and liabilities and estimated liquidation costs.
- Rental income, net income, operating margins and historical operating cash flow are not clearly quantified in the supplied filing text. The company reports estimated annual base rent of about $2.26 million and 85% occupancy at December 31, 2018; a separate Flowerfield disclosure gives 72% occupancy before completion of tenant improvements and projects 82% afterward.
- Cash declined by about $2.22 million. The company reports $800,000 gross proceeds from its final Port Jefferson building sale and $1.1 million drawn on a secured credit line. It spent about $1.26 million on entitlements and $1.39 million on other real estate capital improvements.
- Mortgage debt was $1.1 million at year-end, secured by Flowerfield property. The company reported compliance with loan covenants. The estimated $10.19 million liability for liquidation and operating costs is included in total liabilities.
Material changes versus the prior period
- Occupancy increased to 85% from 68% on a pro forma comparison excluding sold assets, attributed mainly to expanded Stony Brook University and affiliate leasing and an athletic facility lease.
- Real estate net realizable value increased to $36.20 million from $33.02 million. The company sold its last Port Jefferson Professional Park building for $800,000; it no longer owns buildings in that park.
- Net assets per share rose $0.14, to $18.11. No liquidating distribution was paid in 2018; a $1.00-per-share distribution was paid in 2017.
- The estimated liquidation timeline was extended from year-end 2019 to June 30, 2020, increasing projected operating and administrative costs.
Outlook, risks and unusual items
- Management estimates net assets in liquidation of $26.85 million, or $18.11 per share, based on December 31, 2018 estimates. This is not a guaranteed distribution and excludes potential added sale value from entitlement efforts. The estimate assumes property dispositions and completion of liquidation by June 30, 2020.
- The company expects to spend about $1.5 million more on entitlements through June 30, 2020. Cortlandt’s proposed Medical Oriented District and Flowerfield’s subdivision and environmental review remain subject to municipal approvals, timing and potential additional costs.
- Under a January 2019 amendment, the existing credit line was extended, with a $3 million maximum; a second secured line of up to $3 million was also obtained for working capital. Both are secured by approximately 31.8 acres of Flowerfield. The stated interest-only rate has a 6.5% floor; the current indicated permanent-phase rate is 5.125%.
- A court-approved settlement requires remaining properties to be sold in arm’s-length transactions at or above December 2014 appraised values. This price floor may constrain sale timing or options. Management said remaining properties’ values exceeded those appraisals at year-end.
- Key risks include illiquid real estate, entitlement delays or denials, uncertain sale prices and costs, tenant concentration and lease expirations, local market and interest-rate conditions, healthcare-sector pressures, and possible claims or liabilities. Stony Brook-related leases are expected to represent about 29% of 2019 rental revenue.
- Subsequent to year-end, the company reported lease terminations totaling about 6,200 square feet and $153,000 in annual revenue. It also disclosed the January 2019 credit facilities described above.
- The auditor issued an unqualified opinion on the liquidation-basis financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Whether the $36.20 million estimated real estate value can be realized in actual sales, and how the settlement’s 2014 appraisal floor affects transaction choices.
- Whether Flowerfield and Cortlandt receive the required subdivision, zoning and environmental approvals on the assumed schedule, and whether incremental value exceeds entitlement costs.
- How the $18.11-per-share liquidation estimate changes with sale proceeds, liquidation timing, retention bonuses, expenses, debt repayment and contingent claims.
- Actual occupancy and rental revenue figures, given the filing’s differing Flowerfield occupancy disclosures, as well as lease renewals and tenant improvements.
- Drawdowns, interest costs, maturity terms and covenant compliance for both Flowerfield-secured credit facilities.
- Potential impact of tenant concentration, post-year-end lease terminations, and any creditor or other claims on distributions.