Gyrodyne, LLC — Q2 2016 Form 10-Q
Business context and reporting period. This report covers the quarter ended June 30, 2016; the principal changes-in-net-assets statement covers the six months ended that date. Gyrodyne is pursuing an orderly liquidation of its real estate, while seeking zoning and entitlement improvements for its Flowerfield and Cortlandt Manor properties. It uses liquidation-basis accounting, so the filing does not present conventional income statements or cash-flow statements for the period.
Key financial metrics
| Metric | June 30, 2016 | December 31, 2015 |
|---|---|---|
| Total assets | $40.86 million | $57.89 million |
| Real estate held for sale | $31.41 million | $46.95 million |
| Cash and cash equivalents | $4.32 million | $5.88 million |
| Marketable securities | $4.69 million | $5.00 million |
| Total liabilities | $10.87 million | $14.44 million |
| Net assets in liquidation | $29.99 million | $43.46 million |
- Net assets in liquidation equated to an estimated $20.23 per common share at June 30, based on 1,482,680 shares outstanding. This is an estimate, not a guaranteed distribution.
- For the six months, net assets increased by $248,114 before distributions, including a $134,979 increase in real estate liquidation value and a $115,068 increase in marketable securities value. A $13.715 million special cash distribution ($9.25 per share) brought the overall six-month decline in net assets to $13.467 million.
- Q2 rental revenue was $708,439, versus $1.210 million in Q1 2016 and $1.207 million in Q4 2015. The filing attributes the decrease primarily to property sales. It does not provide a clear Q2 profit or operating cash-flow figure.
- Occupancy at June 30 was 75% overall: 70% at the industrial park and 85% across the medical parks. Average effective rent was $18.31 per square foot, down from $19.75 in Q1.
- The filing lists no borrowings in the statement of net assets; liabilities include estimated liquidation and operating costs of $9.72 million. Cash plus marketable securities totaled about $9.0 million. Management said available cash and operating cash flow should fund the plan over the next 12 months.
Material changes and transactions
- Gyrodyne closed the sale of Fairfax Medical Center on May 4 for $14.015 million, $300,000 below the original contracted price. The company also sold two Port Jefferson buildings during the first half for $850,000 and $820,000.
- After June 30, two further Port Jefferson building sales closed for $900,000 and $876,000. A sale agreement for another building at $800,000 remained subject to the buyer’s evaluation and termination rights at the report date.
- Lease commitments fell to $6.75 million from $16.04 million at year-end, primarily reflecting the Fairfax and Port Jefferson disposals. During the first half, Gyrodyne reported 21 renewals, two expansions, eight new leases and six terminations.
- During the first half, the company acquired four adjacent undeveloped acres for approximately $210,000, including closing costs, as part of its Flowerfield value-enhancement effort.
Outlook, risks and unusual items
- Management anticipates completing liquidation during 2018, but says timing and distributions are uncertain. Its estimates assume approximately $3.15 million of land-development and entitlement costs; about $600,000 had been incurred through June 30. The company says it intends to position—not develop—the properties for sale.
- Management’s liquidation estimate indicates approximately $30 million, or $20.23 per share, before future distributions, based on its assumptions. It excludes any additional sale value attributable to the entitlement spending. Actual proceeds, costs and distributions could differ materially.
- Risks include localized real estate market conditions, leasing and occupancy pressure, tenant defaults, financing availability, interest-rate and broader economic changes, and possible effects of Brexit. The portfolio is geographically concentrated in New York’s Suffolk and Westchester Counties.
- The Fairfax sale leaves a company-guaranteed master lease obligation, estimated at approximately $71,000 after subsequent leasing activity, payable through May 2018. Employment and severance contingencies totaled approximately $677,100 at June 30.
- A shareholder class-action settlement received court approval in April. Gyrodyne paid $650,000 in legal fees and expenses and received an approximately $399,000 insurance reimbursement. It also paid $1.006 million in retention bonuses during the first half.
- The company’s 10.12% interest in Callery Judge Grove had a carrying value of $0; any potential distribution is uncertain and was not included in net assets.
Important facts for investors to verify
- Whether pending property sales close, and the net proceeds after closing adjustments, selling costs and retention bonuses.
- Whether Flowerfield and Cortlandt Manor obtain the contemplated entitlements, and whether resulting value gains justify the planned spending.
- Assumptions behind the $20.23-per-share estimate, including property values, liquidation duration, operating receipts, expenses and contingent liabilities.
- Changes in occupancy, effective rents, lease commitments and the Fairfax master-lease exposure as properties are sold or re-leased.
- The timing and amount of future liquidating distributions; the filing provides no assurance that distributions will equal the current estimate.