Gyrodyne, LLC — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2017; the financial statements and most operating activity described cover the nine months ended September 30, 2017. Gyrodyne is winding down, managing and selling its real estate while pursuing entitlements intended to increase sale values. It reports on the liquidation basis of accounting, so the filing does not present conventional income statements or cash flow statements.
Financial position and key metrics
| Metric | September 30, 2017 | December 31, 2016 |
|---|---|---|
| Real estate held for sale | $28.675 million | $31.025 million |
| Cash and cash equivalents | $5.871 million | $3.771 million |
| Marketable securities | None | $4.087 million |
| Total assets | $34.704 million | $38.988 million |
| Total liabilities | $8.712 million | $10.876 million |
| Net assets in liquidation | $25.992 million | $28.112 million |
| Estimated net assets per share | $17.53 | $18.96 |
The filing lists no borrowings on the statement of net assets; it says the planned Flowerfield tenant improvements may be financed with a credit facility. The principal liability is estimated liquidation and operating costs net of receipts, reported at $7.751 million. Revenue, profit, operating cash flow, and margins are not provided as conventional period metrics.
During the nine months, net assets declined by $2.120 million, including a $1.483 million liquidating distribution ($1.00 per share). Before that distribution, the reported net decrease in liquidation value was $637,107: real estate value increased by $450,000, securities value increased by $25,918, and asset/liability remeasurement reduced net assets by $1.113 million.
Changes and operating activity
- Gyrodyne sold three Port Jefferson buildings for $2.8 million in aggregate; reported net proceeds were approximately $2.591 million. One 3,500-square-foot building remains there and is being marketed.
- The company sold all its mortgage-backed securities for approximately $3.984 million and received $129,587 in principal payments. Cash increased while the securities balance fell to zero.
- It acquired an adjacent 0.3-acre Cortlandt Manor property for approximately $343,000, including closing costs.
- Five new leases covered approximately 7,500 square feet and about $126,000 in annual revenue; 15 renewals covered approximately 17,100 square feet and about $280,500 in annual revenue. Eleven lease terminations covered approximately 19,000 square feet and about $437,000 in annual revenue.
- Management reported an estimated effective rental revenue of $16.13 per square foot at September 30, versus $16.37 at December 31, 2016, adjusted for buildings sold.
Outlook, risks, and notable items
- Management anticipates completing liquidation by the end of 2018, but provides no assurance on timing. It estimates approximately $26 million of distributable cash, or about $17.53 per share, before future distributions, based on September 30 estimates and 1,482,680 shares outstanding.
- Approximately $2.04 million of additional entitlement costs are estimated through the end of 2018 for Flowerfield and Cortlandt Manor. These costs and any resulting uplift in property values are not reflected in the reported real estate values or estimated per-share distribution. Management says the value enhancement may not exceed its costs.
- Flowerfield tenant improvements to support an expanding relationship with Stony Brook University are estimated at approximately $840,000; management expects likely to use credit financing, but financing availability and terms are uncertain.
- Flowerfield’s subdivision application received an unconditional approval vote from the Suffolk County Planning Commission, but still requires Town of Smithtown review, including the SEQRA process. Cortlandt Manor’s proposed development application also remains subject to municipal review. Entitlement approvals and timing are uncertain.
- The estimated liquidation value depends on property sale prices, leasing and operating costs, entitlement spending, selling costs, liabilities, and the duration of liquidation. Management warns that actual proceeds could be materially lower and distributions could be reduced or eliminated if assets are insufficient to cover obligations and claims.
- The company’s prior class action settlement was approved in 2016, with $650,000 of fees paid. The settlement requires property sales to be arm’s-length and at or above December 2014 appraised values; the filing says the aggregate 2016-appraised value of remaining unsold properties was $150,000 below their 2014 appraised values.
- CEO Frederick C. Braun separated effective April 30, 2017; Gary Fitlin became CEO on May 1. On November 7, the advisory agreement with the largest shareholder’s manager was extended to November 2018 and the quarterly fee increased from $2,500 to $7,500.
Important facts for investors to verify
- Whether the $28.675 million estimated real estate value and $17.53 per-share liquidation estimate are supported by current market evidence and remain appropriate as sale and entitlement processes progress.
- Whether Flowerfield and Cortlandt Manor obtain the required approvals on the expected timeline, and whether the estimated $2.04 million remaining entitlement spend improves net sale proceeds.
- Whether the $840,000 Flowerfield improvements require borrowing, and the financing terms and expected tenant economics if undertaken.
- Whether lease terminations, tenant concentration, sale timing, liquidation expenses, and contingent liabilities alter the company’s projected cash available for distributions.