Gyrodyne, LLC — Q2 2023 Form 10-Q
Reporting period: Quarter ended June 30, 2023; financial activity discussed primarily covers the six months ended that date. Gyrodyne is pursuing entitlements and sales of its remaining medical-office and industrial properties, then intends to distribute remaining proceeds and dissolve. It reports on a liquidation basis, so conventional income statements and cash-flow statements are not presented.
Financial position and key metrics
| Metric | June 30, 2023 | December 31, 2022 |
|---|---|---|
| Real estate held for sale | $53.67 million | $53.67 million |
| Cash and cash equivalents | $3.10 million | $4.08 million |
| Total assets | $56.91 million | $57.89 million |
| Loans payable | $9.62 million | $9.76 million |
| Total liabilities | $27.04 million | $27.52 million |
| Net assets in liquidation | $29.87 million | $30.37 million |
| Estimated distribution per share | $20.14 | $20.48 |
Net assets fell $501,044, or $0.34 per share, during the six months. The filing attributes the decline mainly to shareholder-activism response costs and professional fees related to financing operations during liquidation. Real estate values were unchanged in the reported estimates.
For the six months, the filing reports $1.56 million of rent and reimbursements, $830,575 of property operating costs, and $731,543 of net operating income. Other reported cash-flow items include $1.49 million of corporate expenditures, $160,584 of net interest expense, $115,531 of capital expenditures, and $342,478 of entitlement costs. These figures are not a substitute for a reported net profit or formal cash-flow statement, which the liquidation-basis presentation does not provide.
Debt consists of two Flowerfield loans at 3.85% fixed interest and a Cortlandt Manor mortgage at 3.75% through its initial term. The loans are secured by property; the company reported covenant compliance. Cash decreased about $980,000 from year-end. Management says current cash is expected to fund the process, but is also considering a new credit facility, rights offering, or other funding.
Material developments, outlook and risks
- Entitlements: Cortlandt’s Medical Oriented Zoning District was approved in March 2023, allowing designated density of 154,000 square feet: 150,000 medical and 4,000 retail. Flowerfield received preliminary approval for an eight-lot subdivision in 2022; final approvals remain pending.
- Litigation: An Article 78 proceeding seeks to overturn the Flowerfield environmental findings and preliminary subdivision approval. Gyrodyne and the Town of Smithtown are defending the approvals; the case could take two years or more, including appeals.
- Timeline and value: Management targets Flowerfield subdivision approval in late 2023, Cortlandt subdivision approval around mid-2024, and completion of property sales and liquidation by year-end 2024. These are expectations, not assurances. The company estimates $862,000 of additional entitlement costs through the liquidation period.
- Estimated proceeds: The company estimates $53.67 million of gross real-estate proceeds and $29.87 million of net assets/distributable cash, or $20.14 per share, based on June 30 estimates and assuming liquidation by December 31, 2024. Estimates use significant judgment and do not include all potential entitlement-related value. Actual proceeds and distributions may differ materially.
- Other risks: Rising rates, inflation, recession, commercial real-estate conditions, remote work and telemedicine, tenant concentration, approval delays, and the costs of litigation and liquidation could affect value and timing. A 2015 settlement restricts property sales to arm’s-length transactions at or above applicable 2014 appraised values. The filing also describes a shareholder nomination contest; a cooperation agreement and board appointment followed in July 2023.
Important facts for investors to verify
- Progress and final outcomes in the Flowerfield Article 78 case and both properties’ approval processes.
- Whether property sale prices support the estimated $53.67 million gross value and $20.14 per-share liquidation estimate.
- Updated entitlement, legal, operating, selling, retention-bonus, and final liquidation costs, and whether additional funding is needed.
- Debt terms, maturity and repayment requirements, and the effect of any property-sale delays on liquidity.
- Tenant renewals and concentration: the three largest tenants generated approximately 26%, 19%, and 8% of six-month rental income, respectively.