Gyrodyne, LLC — Q1 2017 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2017. Gyrodyne is liquidating its real estate portfolio and plans to sell its remaining properties, distribute proceeds after settling obligations, and dissolve. It owns medical-office properties in Cortlandt Manor and Port Jefferson, plus the Flowerfield industrial park in St. James, New York. The company reports on the liquidation basis of accounting, so its principal statements are net assets and changes in net assets—not conventional income or cash-flow statements.
Key financial metrics
| Metric | March 31, 2017 | December 31, 2016 / Q1 change |
|---|---|---|
| Real estate held for sale | $31.03 million | $31.03 million |
| Cash and cash equivalents | $7.15 million | $3.77 million |
| Marketable securities | None | $4.09 million |
| Total assets | $38.28 million | $38.99 million |
| Total liabilities | $10.16 million | $10.88 million |
| Net assets in liquidation | $28.13 million | $28.11 million |
| Estimated liquidation value per share | $18.97 | $18.96 |
Net assets increased $17,379 in Q1: a $25,918 increase in the market value of securities and an $8,539 negative remeasurement of assets and liabilities. The company sold all its mortgage-backed securities for approximately $3.98 million and received $129,587 in principal payments. Cash increased as those investments were converted to cash. The filing does not provide a clear conventional quarterly revenue, net income, operating cash flow, or margin figure. No interest-bearing debt is shown in the presented liabilities; the filing does not state a separate debt total.
Q1 leasing activity included three new leases totaling about 5,100 square feet and approximately $98,000 in annual revenue, plus two renewals with approximately $28,000 in annual revenue. Two lease terminations represented about 5,400 square feet and $78,000 in annual revenue. Average effective rent was $16.96 per square foot, compared with $17.15 at year-end 2016. The three largest tenants generated approximately 14%, 10%, and 8% of rental income.
Material changes and developments
- Estimated liquidation costs in excess of receipts declined from $9.89 million at year-end to $8.73 million at March 31.
- The company signed a $2.0 million agreement to sell two Port Jefferson buildings, subject to a buyer evaluation/termination period; closing was expected in May 2017. Two other buildings in the park remained for sale.
- After quarter-end, Gyrodyne acquired an adjoining 0.3-acre Cortlandt Manor residential property for $319,512 plus closing costs, intended to support access, parking, and potential development yield.
- CEO Frederick C. Braun agreed to separate effective April 30, 2017; CFO Gary Fitlin was appointed President and CEO effective May 1. The filing cites cost-reduction discussions and reports $285,000 of separation commitments to Braun.
Outlook, risks, and unusual items
Management anticipates completing liquidation by the end of 2018, but gives no assurance on timing or distributions. Its estimate is approximately $28.1 million of distributable cash, or $18.97 per share, before future interim distributions. This estimate is based on current asset values and projected costs; it excludes any additional property value from entitlement efforts. The company expects to spend about $3.05 million on entitlement work through liquidation and believes it may improve sale values, but acknowledges the benefits may not exceed the costs.
Gyrodyne is pursuing zoning and entitlement plans for Flowerfield and Cortlandt Manor rather than developing the sites itself. Entitlement decisions depend on municipal authorities and may take an estimated six to twenty-one months. The reported $31.03 million real-estate value relies substantially on management estimates and Level 3 valuation inputs; actual sale proceeds and liabilities may differ materially. Other risks include commercial-property market conditions, tenant credit and healthcare-sector regulation, potential delays or costs in winding up, contingent claims, and insufficient sale proceeds to meet obligations and fund distributions. The company states that available cash and sale proceeds are expected to cover obligations, but distributions could be reduced or eliminated if they do not.
A prior class-action settlement requires property sales to be arms-length and at or above December 2014 appraised values. As of March 31, 2017, the aggregate value of remaining unsold properties was reported as $550,000 below those appraised values. The filing also reports the settlement and release of the claims and payment of $650,000 in legal fees in 2016.
Important facts for investors to verify
- Whether the Port Jefferson $2.0 million sale closed, and the terms and status of sales of the remaining properties.
- Progress, municipal approvals, costs, and expected value impact of the Flowerfield and Cortlandt Manor entitlement plans.
- Assumptions behind the $18.97-per-share liquidation estimate, including real-estate valuations, liquidation timing, and estimated liabilities and costs.
- Compliance with the settlement’s appraisal-price requirement given the reported $550,000 shortfall versus December 2014 appraisals.
- Actual distributions, severance and retention-bonus obligations, and any subsequent changes in liquidity or contingent liabilities.