Gyrodyne, LLC — Q2 2017 Form 10-Q
Reporting period: Quarter ended June 30, 2017; the filing presents liquidation-basis financial statements and a statement of changes in net assets for the six months ended June 30, 2017. Gyrodyne is liquidating its real estate portfolio, pursuing entitlements to enhance property values, and intends to distribute remaining proceeds and dissolve. Traditional income-statement and cash-flow statements are not presented under its liquidation accounting.
Financial position and key metrics
| Metric | June 30, 2017 | December 31, 2016 |
|---|---|---|
| Total assets | $36.48 million | $38.99 million |
| Real estate held for sale | $29.08 million | $31.03 million |
| Cash and cash equivalents | $7.30 million | $3.77 million |
| Marketable securities | None | $4.09 million |
| Total liabilities | $9.98 million | $10.88 million |
| Net assets in liquidation | $26.50 million | $28.11 million |
| Estimated liquidation value per share | $17.87 | $18.96 |
Liabilities include $7.46 million of estimated liquidation and operating costs, net of receipts, and $1.48 million of distributions payable. No borrowings are listed. Revenue, profit, operating margins, and conventional cash-flow figures are not provided in the filing’s liquidation-basis statements.
For the six months, net assets declined by $1.61 million: a $128,937 net decrease from changes in asset and liability estimates, plus a $1.48 million liquidating distribution payable. The company sold its mortgage-backed securities for approximately $3.98 million and received $129,587 in principal payments. Cash increased during the period, substantially reflecting those proceeds and property-sale proceeds.
Material activity and changes
- Gyrodyne sold two Port Jefferson Professional Park buildings on June 15 for $2.0 million. It sold another building for $800,000 on August 4, after quarter-end; one approximately 3,500-square-foot building remained and was being marketed.
- The company declared a $1.00-per-share special distribution, totaling $1.48 million, payable July 7. The June 30 estimated liquidation value per share was $17.87; management also described the decline from the prior year-end as approximately $0.09 after adjusting for the $1.00 distribution.
- Management reported $1.1 million of entitlement costs during the first half, including approximately $343,000 for an adjacent Cortlandt Manor property. It estimated a further $2.27 million of entitlement costs through liquidation.
- Four new leases and 13 renewals were signed during the first half; three terminations represented approximately 8,000 square feet and $113,000 in annual rent. After June 30, five additional terminations were reported, representing approximately 9,600 square feet and $285,000 in annual rent. Separately, a tenant representing 10% of first-half rental income gave notice of termination effective August 31.
- CEO Frederick C. Braun separated effective April 30; Gary Fitlin became President and CEO on May 1.
Outlook, risks, and contingencies
- Management estimated liquidation could continue through December 31, 2018. Based on June 30 estimates, it projected approximately $26.5 million in cash before future distributions, or about $17.87 per share. This estimate excludes potential incremental value from entitlement efforts and is not a guarantee of proceeds or timing.
- The company is pursuing rezoning and entitlements at Flowerfield and Cortlandt Manor rather than developing the properties itself. It said the estimated remaining $2.27 million expenditure could improve sale values, but there is no assurance the added value will exceed the costs.
- On August 2, the Suffolk County Planning Commission approved the Flowerfield subdivision application without conditions. The application remained subject to Town of Smithtown review, including SEQRA; timing and approval were uncertain. Management said the broader entitlement process could take up to 18 months.
- Property valuations rely substantially on management estimates and Level 3 inputs. Actual sale proceeds, expenses, claims, entitlement costs, and the liquidation timeline may differ materially. Insufficient proceeds could reduce or eliminate shareholder distributions.
- A settlement of a previously filed class action requires property sales to be arm’s-length and at or above December 2014 appraised values. As of June 30, 2017, remaining unsold properties’ aggregate value based on 2016 appraisals was $550,000 below their 2014 appraised values. The settlement was approved and the $650,000 fee award had been paid in 2016.
- Management said available cash and anticipated asset-sale proceeds were expected to fund the liquidation, but rental receipts net of property costs were below combined annual general and administrative, capital-expenditure, and entitlement costs. The filing identifies real estate market, regulatory, tenant, litigation, and contingent-liability risks.
Important facts for investors to verify
- Whether Flowerfield and Cortlandt Manor receive the required approvals, the schedule and total cost of entitlement work, and whether it improves net sale proceeds.
- Actual sale prices and timing for remaining properties, including compliance with the class-action settlement’s appraisal-price condition.
- The impact of tenant departures and lease activity on rental cash flow and property values.
- Whether liquidation costs, claims, retention bonuses, severance, and other liabilities remain within management’s estimates, and whether distributions approach the estimated $17.87 per share.
- The filing contains inconsistent wording in some discussion of per-share changes; reconcile reported figures to the $26.50 million net-assets balance, share count, and declared distribution.