Gyrodyne, LLC — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Gyrodyne manages and seeks entitlements for medical-office and industrial properties in Cortlandt Manor and Flowerfield, New York, with the intention of selling its remaining real estate, distributing proceeds after settling obligations, and dissolving. The company reports on the liquidation basis of accounting; its asset values and estimated distributions are not assured realizable amounts.
Financial position and operating metrics
| Metric | March 31, 2021 | December 31, 2020 |
|---|---|---|
| Total assets | $41.71 million | $40.91 million |
| Real estate held for sale | $39.05 million | $39.05 million |
| Cash and cash equivalents | $2.37 million | $1.63 million |
| Restricted cash | $169,000 | $169,000 |
| Loans payable | $6.25 million | $5.16 million |
| Total liabilities | $19.15 million | $18.42 million |
| Net assets in liquidation | $22.56 million | $22.49 million |
| Estimated liquidation value per share | $15.22 | $15.17 |
The quarter’s $72,115 increase in net assets reflected remeasurement of estimated assets and liabilities, not a reported operating profit. Under liquidation accounting, conventional income, profit-margin and cash-flow statements are not presented; the filing does not provide a clear quarterly revenue or net-income figure. Management reported $634,806 in rent and reimbursements, $431,814 in property operating costs, $548,544 in corporate expenditures, $174,095 in entitlement costs, and $1.09 million of debt-facility proceeds during the quarter.
Three largest tenants generated approximately 24%, 17% and 9% of rental income, respectively. New leases and renewals signed during the quarter covered approximately 2,900 and 5,200 square feet and represented annual revenue of about $42,000 and $67,000, respectively.
Changes and significant events
- Net assets increased $72,115, or about $0.05 per share, from year-end. Management attributed the change mainly to corporate-cost savings and additional rental revenue, partly offset by property operating expenses and selling costs.
- Loans payable rose by approximately $1.09 million. A Flowerfield facility was fully drawn in January and was being converted to a permanent loan; an amended Cortlandt credit line had $1.45 million remaining available at the lender’s discretion.
- Buyers terminated two previously announced property purchase agreements: a $16.8 million Flowerfield land sale in March and a $5.72 million Cortlandt sale in February. Earnest-money deposits were returned.
- After quarter-end, on April 26, the company sold a separate, non-contiguous five-acre parcel for $500,000. The parcel was not part of the Flowerfield complex.
Outlook, risks and contingencies
- Management’s plan assumes liquidation by December 31, 2022. It estimates approximately $22.56 million, or $15.22 per share, in liquidating value using March 31 estimates, before any interim distributions. These are estimates, not guidance on a guaranteed distribution or payment date; actual proceeds may differ materially.
- Management expects about $1.3 million of additional entitlement costs through the end of the planned liquidation period. The company is pursuing approvals to improve sale value but does not intend to develop the properties; entitlement costs or delays may not produce value increases.
- Flowerfield’s subdivision environmental impact statement was accepted by the Town of Smithtown in March. Subsequent to quarter-end, the Suffolk County Planning Commission voted on May 5 to approve the matter for local determination; further town findings and subdivision approvals remained necessary. Cortlandt’s revised plan proposes 184,600 square feet of medical office space and 1,500 square feet of retail; management anticipated a Medical Oriented District designation in early 2022.
- COVID-19 had reduced operating gross profit and delayed entitlement and sale processes, according to management. Tenants representing about 37% of projected 2021 rental revenue were identified as particularly exposed. Approximately $97,000 of rent had been deferred, which management expected to collect under alternate arrangements.
- Property valuations rely substantially on management estimates and Level 3 inputs. Sales timing, market conditions, approvals, tenant performance, costs, and the duration of liquidation could change estimated net assets. The company also must comply with a class-action settlement requiring arm’s-length sales at or above the properties’ 2014 appraised values; management said remaining properties exceeded those values at quarter-end.
- The company stated that available cash, asset-sale proceeds and credit facilities were expected to fund obligations and liquidation, but cautioned that insufficient funds could eliminate distributions. Debt is secured by property, with some cross-collateralization. Management reported compliance with loan covenants.
- Management reported effective disclosure controls and internal control over financial reporting, with no material quarterly change identified.
Important facts for investors to verify
- Whether Flowerfield and Cortlandt obtain the required entitlements and subdivision approvals, and how those decisions affect sale values and timing.
- Whether the terminated transactions are replaced by completed sales at prices supporting the recorded $39.05 million real-estate value.
- Actual debt availability, conversion terms, collateral arrangements and cash needs as entitlement and liquidation costs are incurred.
- Tenant rent collections, renewals and the status of the approximately $97,000 in deferred rent.
- How actual asset-sale proceeds, liabilities, retention bonuses and liquidation expenses compare with the estimated $22.56 million net assets and $15.22-per-share liquidation value.