Gyrodyne, LLC — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Gyrodyne manages and pursues entitlements for medical-office and industrial properties in Suffolk and Westchester Counties, New York. It reports on the liquidation basis of accounting and intends to sell its real estate, settle liabilities, distribute remaining proceeds, and dissolve. Accordingly, conventional income-statement, margin, and cash-flow-statement results are not presented.
Financial position and key metrics
| Metric | March 31, 2020 | December 31, 2019 |
|---|---|---|
| Real estate held for sale | $48.270 million | $48.270 million |
| Cash and cash equivalents | $1.713 million | $2.213 million |
| Total assets | $50.082 million | $50.588 million |
| Total liabilities | $18.642 million | $19.218 million |
| Loan payable | $3.780 million | $3.780 million |
| Net assets in liquidation | $31.440 million | $31.370 million |
| Estimated liquidation value per share | $21.20 | $21.16 |
- Net assets increased $70,334 during Q1, recorded as remeasurement of assets and liabilities in liquidation—not as operating profit.
- Cash declined approximately $501,000. Reported Q1 cash-flow activity included $629,077 of rent and reimbursements, $396,248 of property operating costs, $512,720 of corporate expenditures, and approximately $358,000 of entitlement costs.
- The filing estimates $48.27 million of gross real-estate proceeds and approximately $31.44 million of eventual distributable cash, before any interim distributions. These are liquidation estimates, not guaranteed sale proceeds or distributions.
- No revenue, net income, operating margin, or conventional operating cash-flow total is presented in the liquidation-basis financial statements.
Changes and operating developments
- Estimated liquidation value rose $0.04 per share from year-end, mainly due to net rental cash inflow while a property sale was delayed. Real-estate carrying value and loan payable were unchanged.
- Q1 leasing activity included two new leases totaling about 1,100 square feet and $13,800 in annual revenue, five renewals totaling about 7,400 square feet and $108,500 in annual revenue, and three terminations totaling about 4,000 square feet and $37,600 in annual revenue.
- Three tenants generated approximately 24%, 20%, and 8% of Q1 rental income. Small-business and not-for-profit tenants represented about 39% of projected 2020 rental revenue, or approximately $834,000.
Outlook, risks, and unusual items
- Management anticipated completing liquidation by December 31, 2021, subject to property sales, entitlement approvals, and other factors. The company estimated about $1.49 million of additional entitlement costs through that date; it does not intend to develop the properties itself.
- Two significant property-sale agreements remained conditional and unclosed at quarter-end: approximately 9 acres at Flowerfield for $16.8 million and approximately 4.5 acres at Cortlandt Manor for $5.72 million. Both depend on investigation and governmental approvals, among other conditions.
- After quarter-end, on May 11, a subsidiary signed a conditional $500,000 agreement to sell an approximately 5-acre non-contiguous parcel. The buyer may terminate under specified conditions, including during its investigation period and if required approvals are not obtained.
- COVID-19 created uncertainty around tenant rent payments, local real-estate values, sale timing, and municipal entitlement reviews. Management said both properties were open and operating in compliance with applicable guidance; it also warned that the pandemic’s effect on net asset value could be significant and could not be reliably predicted.
- At March 31, the company had $1.71 million in cash and reported $2.22 million available under existing credit facilities, including $800,000 restricted to certain capital improvements. A proposed third credit line of up to $2.5 million was expected to close in Q2, subject to conditions. The company said it was covenant-compliant.
- Subsequent to quarter-end, the company received an $82,100 Paycheck Protection Program loan at 1% interest, due April 2022, potentially forgivable subject to program requirements.
- Estimated liquidation value depends on uncertain property values, future operating and liquidation costs, retention bonuses, entitlement spending, and timing. The company cautioned that actual proceeds and distributions could differ materially and that distributions could be reduced or eliminated if cash and sale proceeds are insufficient to satisfy obligations.
- The company accrued $4.68 million for retention-plan payments in its liquidation estimates; payments are tied to property-sale proceeds and plan terms. Certain vendors agreed to defer approximately $416,000 until the first post-subdivision lot sale.
Important facts for investors to verify
- Whether the Flowerfield and Cortlandt Manor sale agreements satisfy their approval and other contingencies, and when any closings occur.
- Whether the May 2020 parcel sale closes and whether the proposed $2.5 million credit line is completed and available under its conditions.
- Actual rent collections, tenant credit performance, and the impact of COVID-19 on leasing, property values, and municipal approval timelines.
- Progress and costs of Flowerfield and Cortlandt Manor entitlement processes, including whether any value uplift exceeds the remaining estimated $1.49 million spend.
- Changes to the $21.20-per-share liquidation estimate, including debt repayment, sale costs, retention bonuses, contingent liabilities, and the duration of liquidation.