Gyrodyne, LLC — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Gyrodyne manages medical-office and industrial properties in Cortlandt Manor and Flowerfield, New York, while pursuing entitlements and property sales ahead of an eventual liquidation and dissolution. The company reports on a liquidation basis; conventional income statements and cash-flow statements are not presented.
Key financial metrics
| Metric | March 31, 2022 | December 31, 2021 |
|---|---|---|
| Real estate held for sale | $42.545 million | $42.545 million |
| Cash and cash equivalents | $5.296 million | $5.671 million |
| Total assets | $47.946 million | $48.284 million |
| Loans payable | $9.961 million | $10.029 million |
| Total liabilities | $24.885 million | $25.256 million |
| Net assets in liquidation | $23.061 million | $23.028 million |
| Estimated liquidation value per share | $15.55 | $15.53 |
Net assets increased $33,159 during the quarter. The change reflected approximately $66,000 of additional estimated revenue, offset by approximately $33,000 of additional property operating expenses; the estimated liquidation value of real estate did not change. Per-share estimates use 1,482,680 shares outstanding.
Management’s reported Q1 operating activity included $747,648 in rent and reimbursements, $494,566 in operating costs, and $253,082 in net operating income. Other reported outflows included $498,189 of corporate expenditures, $104,883 of interest expense, $84,237 of non-entitlement capital expenditures, and $113,167 of entitlement costs. The filing does not provide conventional quarterly revenue, profit, margin, or net cash-flow totals.
Estimated liquidation and operating costs, net of estimated receipts, were $12.250 million. Management’s liquidation estimate includes approximately $42.55 million of gross real estate proceeds, $3.22 million of selling costs, $3.28 million of retention bonuses, and $1.53 million of final liquidation and dissolution costs. These are estimates, not guaranteed proceeds or distributions.
Material changes and business developments
- Cash declined approximately $375,000 from year-end, while loans payable declined approximately $67,000. Total liabilities fell approximately $371,000.
- On March 30, 2022, Smithtown’s Planning Board unanimously granted preliminary approval, subject to conditions, to divide Flowerfield into eight lots. Final subdivision and site-plan approvals remained outstanding.
- On April 26, 2022, the Village of Head of the Harbor and others filed an Article 78 proceeding seeking to overturn the environmental findings and preliminary Flowerfield approval. Gyrodyne and the Town intend to defend the approvals. The company notes the case could take two years or more, including appeals.
- Management continued to project final subdivision approvals for Flowerfield and Cortlandt Manor during 2022 and completion of property sales and liquidation by year-end 2024, while cautioning that the timetable is uncertain.
- During the quarter, the company signed one new lease and six renewals covering approximately 3,100 and 8,100 square feet, respectively. Reported annual rent was approximately $48,000 for the new lease and $87,000 for renewals.
Liquidity, debt, outlook, and risks
Debt consists principally of two Flowerfield loans and a Cortlandt Manor mortgage. The Flowerfield facilities carry fixed interest rates of 3.85%; the $4.95 million Cortlandt mortgage bears 3.75% interest. The mortgage has a five-year term and a conditional five-year extension option. The company reported compliance with loan covenants at March 31, 2022. Scheduled debt payments include $276,233 in the twelve months ending March 31, 2023, with substantial balances thereafter; the reported debt balance was $9.961 million.
Management expects existing cash and access to credit facilities, together with rent and property-sale proceeds, to fund entitlements, operations, liabilities, and liquidation. It estimates approximately $1.25 million of additional entitlement costs through the projected liquidation date. It also states that rental income net of property expenses is below combined annual corporate, capital, and entitlement costs, resulting in a net use of cash before property-sale proceeds.
- The estimated $15.55 per-share liquidation value depends on uncertain property values, entitlement outcomes, sale timing, costs, claims, and liabilities. The company cautions that actual distributions may be lower, delayed, or eliminated.
- Flowerfield’s preliminary approval is subject to litigation. Community opposition, regulatory approvals, environmental review, land-use application backlogs, labor shortages, and climate-related concerns could delay or limit value-enhancement efforts.
- COVID-19 and changes in demand for office space, including remote work and telemedicine, may affect occupancy, rents, operating results, and sale timing. Tenants not affiliated with a major hospital represent about 41% of projected 2022 rental revenue. The three largest tenants contributed approximately 22%, 22%, and 9% of Q1 rental income.
- A 2015 class-action settlement requires arm’s-length property sales at or above the properties’ 2014 appraised values. The filing says remaining property values exceeded those appraised values as of March 31, 2022.
- On May 6, 2022, the Board amended the retention bonus plan to limit future amendments or termination that could materially impair participant benefits and to revise certain post-separation eligibility terms.
- Disclosure controls were deemed ineffective because of a material weakness in controls over estimating real estate values. Management reported no resulting material misstatement and described remediation steps, but had not yet concluded that the weakness was remediated.
Most important facts for investors to verify
- Whether the Flowerfield Article 78 challenge affects preliminary approval, final approvals, marketing, or the projected 2024 liquidation timetable.
- How appraisals, sales evidence, and entitlement assumptions support the $42.545 million real estate value and the estimated $15.55 per-share liquidation value.
- Progress toward Cortlandt Manor and Flowerfield approvals, actual sale agreements and closing conditions, and realized sale prices and costs.
- Cash runway, debt repayment and refinancing terms, vendor deferrals, and whether available funds will cover operating, entitlement, legal, and liquidation obligations.
- Tenant renewals, rent collections, concentration and credit risks, and any changes in occupancy or projected rental income.
- Remediation and testing of the material weakness in real estate valuation controls, along with changes to estimated liabilities and retention-plan costs.