Gyrodyne, LLC — Q2 2021 Form 10-Q
Reporting period: Quarter ended June 30, 2021; financial activity and changes in net assets are reported for the six months ended June 30, 2021. Gyrodyne manages medical-office and industrial properties in Suffolk and Westchester Counties, New York, and is pursuing entitlements and property sales before liquidation and dissolution. It reports on the liquidation basis of accounting, not as a continuing operating company.
Financial position and key metrics
- Net assets in liquidation: $22.47 million, or approximately $15.15 per share, compared with $22.49 million, or $15.17 per share, at December 31, 2020. The filing cautions that these are estimates, not guaranteed distributions.
- Assets: $41.19 million, including real estate held for sale of $38.55 million, cash and cash equivalents of $2.41 million, and restricted cash of $169,000.
- Liabilities: $18.72 million, including $6.23 million of loans payable and $10.40 million of estimated liquidation and operating costs net of estimated receipts.
- Revenue, profit, cash-flow totals and margins: Conventional income-statement and cash-flow statements are not presented under liquidation accounting; clear comparable quarterly revenue, profit and margin figures are not provided. The filing reports $1.29 million of rent and reimbursements received during the six-month period, alongside $815,748 of operating costs, $43,491 of capital expenditures and $1.08 million of corporate expenditures.
- Debt and liquidity: Outstanding loans payable rose from $5.16 million at year-end to $6.23 million. Cash increased from $1.63 million to $2.41 million. The company said cash and access to credit facilities were expected to fund its entitlement, sale and liquidation plans; some undrawn credit availability remained subject to lender discretion.
Changes and significant activity
- Net assets declined $19,063, or about $0.02 per share, from year-end. The change reflected remeasurement of estimated liquidation costs and receipts; the reported change in liquidation value of real estate was zero.
- Real estate held for sale was $38.55 million, versus $39.05 million at December 31, 2020. The company sold two non-contiguous, vacant Flowerfield parcels totaling five acres for $500,000 on April 26, 2021.
- Two proposed property sales terminated: a Flowerfield parcel sale for $16.8 million and a Cortlandt Manor sale for $5.72 million. Deposits were returned. The company said it would continue marketing the properties while pursuing approvals.
- Two Flowerfield credit facilities, with balances of $2.2 million and $3.0 million, converted to permanent amortizing loans in April and May, respectively, at a current fixed rate of 3.85%. The Cortlandt credit line had $1.05 million drawn and $1.45 million potentially available at the lender’s discretion.
- Leasing activity included four new leases, 13 renewals, two expansions and one termination during the six months. The filing reports approximately $730,000 of combined annual revenue from new leases, renewals and expansions, and approximately $70,600 of annual revenue associated with the termination.
Outlook, risks and unusual items
- Management estimated liquidation could be completed by December 31, 2022, subject to sales and government approvals. The estimated $15.15 per-share distribution is based on June 30 values and assumptions; actual amount and timing could differ materially.
- The company planned approximately $1.11 million in additional entitlement costs through the estimated liquidation date, after incurring about $384,000 during the first half. It does not intend to develop the properties, but to seek approvals that may improve sale values. There is no assurance that value gains will exceed these costs.
- Flowerfield’s subdivision application had advanced through environmental review, with further local findings and approvals still required. Cortlandt Manor’s proposed Medical Oriented District and site plan approvals remained pending; the company anticipated key Town action in early 2022.
- COVID-19, possible new variants, tenant finances and changes in demand for office and medical-office space could affect rents, occupancy, property values, entitlement schedules and sales. Three largest tenants accounted for approximately 23%, 22% and 9% of first-half rental income. Tenants outside the medical/SBU-affiliated group and not-for-profit tenants represented about 40% of projected 2021 rental revenue.
- A class-action settlement requires property sales to be arm’s-length transactions at or above applicable 2014 appraised values. Community opposition and potential legal challenges to approvals could delay the plan. Management reported that other pending legal proceedings were not expected to result in material losses.
- Subsequent event: In August 2021, the company received a commitment letter for a $4.95 million Cortlandt mortgage loan, expected to close in the third quarter. It was intended partly to refinance existing debt. The loan carries a 3.75% initial rate and may impose prepayment fees, with a 50% reduction if the property is sold to a bona fide third party within the first two years.
Important facts for investors to verify
- Whether the $38.55 million estimated real estate value and $15.15-per-share liquidation estimate are supported by eventual sale proceeds and actual liquidation costs.
- The status, timing and outcome of Flowerfield and Cortlandt Manor entitlements, including potential community or court challenges.
- Whether the proposed $4.95 million mortgage closed, its final terms, and the effect of refinancing and prepayment fees on net distributions.
- Tenant rent collections, renewals, occupancy and exposure to concentrated tenants and COVID-19-related disruption.
- Compliance with the class-action settlement’s sale-price requirements and the adequacy of reserves for known, contingent and liquidation liabilities.