Gyrodyne, LLC — Q3 2018 Form 10-Q
Reporting period: Quarter ended September 30, 2018; financial changes and operating data are generally presented for the nine months ended September 30, 2018. The company manages medical-office and industrial properties in Suffolk and Westchester Counties, New York, and is pursuing their sale and its eventual dissolution. It reports on the liquidation basis of accounting.
Financial position and key metrics
| Metric | September 30, 2018 | December 31, 2017 |
|---|---|---|
| Real estate held for sale | $32.676 million | $33.017 million |
| Cash and cash equivalents | $3.757 million | $5.265 million |
| Total assets | $36.569 million | $38.402 million |
| Total liabilities | $9.939 million | $11.764 million |
| Net assets in liquidation | $26.630 million | $26.637 million |
| Estimated liquidation value per common share | $17.96 | $17.97 |
- The filing presents statements of net assets and changes in net assets, not conventional income, balance-sheet, or cash-flow statements. It does not provide a clear total revenue, net profit, operating cash flow, or margin figure for the period.
- For the nine months, net assets decreased by $7,434: a $459,335 increase in the estimated real estate value was more than offset by a $466,769 remeasurement of assets and liabilities.
- Cash declined by approximately $1.51 million from year-end 2017. The company reported $1.1 million borrowed under its credit facility and $720,562 of proceeds from the sale of 11 Medical Drive. It also reported capital expenditures of $1.128 million and entitlement costs of approximately $812,000.
- Mortgage debt was $1.1 million at September 30, 2018. The secured, non-revolving facility allows borrowing up to $3 million; $1.9 million remained available. The company said it was in compliance with covenants.
Operating developments and comparison with the prior period
- The final building at Port Jefferson Professional Park was sold on August 31, 2018, for $800,000. The remaining properties are Flowerfield Industrial Park and Cortlandt Manor Medical Center.
- During the nine months, the company signed four new leases covering about 7,000 square feet, eleven renewals covering about 15,000 square feet, and one expansion, partly offset by a downsizing and four terminations. New leases generated about $104,000 in annual revenue; renewals about $195,000; the expansion about $112,000, offset by about $30,000 from the downsizing. The filing reports about $3.8 million of total lease commitments for the new, renewed, expanded, and downsized leases.
- New and amended leases with Stony Brook University and affiliated institutions carry approximately $4.1 million in rent commitments and require about $1.45 million in tenant improvements. Approximately $1.1 million of improvements had been completed; the remainder was expected by early 2019.
- Cash and real estate values declined from December 2017, while liabilities also declined; net assets and estimated liquidation value per share were nearly unchanged. Real estate value increased by $459,335 during the third quarter, reflecting tenant-improvement costs associated with leases.
Outlook, risks, contingencies, and unusual items
- Management estimated completion of liquidation by December 31, 2019, and estimated net assets available for liquidation at approximately $26.6 million, or $17.96 per share, based on September 30 values and assumptions. The estimate excludes potential additional proceeds from entitlement efforts and is not a guarantee of distributions or their timing.
- The company expected to spend approximately $1.7 million on remaining entitlement work through the liquidation period; it incurred about $812,000 during the first nine months of 2018. Management believes entitlements may increase sale values, but warns they may not produce value exceeding their cost, or any increase at all.
- Entitlement decisions depend on municipal review, environmental processes, and other factors outside the company’s control. Cortlandt’s environmental review was underway; Smithtown had issued a positive environmental declaration for Flowerfield and the company was responding to comments on its environmental impact statement.
- Estimated property values rely substantially on management assumptions and Level 3 inputs. Actual sale proceeds, costs, timing, and liabilities could differ materially. The company cautioned that inadequate proceeds to cover obligations could reduce or eliminate distributions; shareholders could also be required to return distributions if creditors remain unpaid.
- Rental income is concentrated: the three largest tenants represented approximately 20%, 19%, and 6% of rental income for the nine-month period. The company also cited healthcare-sector regulatory and reimbursement risks that could affect medical tenants.
- On October 30, 2018, after quarter-end, the board amended the retention bonus plan so that bonuses on individual subdivided lots are not payable until aggregate sale proceeds for the relevant property exceed a specified floor based on its 2013 appraisal plus development costs.
- The previously settled shareholder class action required property sales to be arm’s-length and at or above December 2014 appraised values. The company reported that each remaining unsold property exceeded its respective 2014 appraised value as of September 30, 2018. Management said other pending legal matters were not expected to result in material losses.
Important facts for investors to verify
- Whether the estimated $17.96 per-share liquidation value is supported by realized sale prices and updated liability and liquidation-cost estimates.
- Progress, costs, and municipal outcomes for Flowerfield and Cortlandt Manor entitlement applications, including the timing of environmental reviews.
- Completion and financing costs of the Flowerfield tenant improvements, lease performance, and the remaining availability and terms of the secured credit facility.
- Any changes in the expected liquidation timeline, retention-bonus obligations, contingencies, or assumptions underlying the estimated distributable value.