Business Context and Reporting Period
Gyrodyne, LLC filed this unaudited Form 10-Q for the quarter ended September 30, 2019. The company is liquidating its New York medical-office and industrial property portfolio, pursuing entitlements and lease improvements to enhance sale values. Its financial statements use the liquidation basis of accounting; they do not present conventional operating statements or a cash flow statement.
Financial Position and Key Metrics
- At September 30, 2019, total assets were $47.02 million, including real estate held for sale of $44.63 million and cash of $2.28 million. Total liabilities were $17.25 million, leaving net assets in liquidation of $29.77 million.
- Estimated liquidation value was approximately $20.08 per share, based on 1,482,680 shares outstanding. This is an estimate, not a declared distribution.
- Loan payable was $3.28 million. The company reported compliance with loan covenants; approximately $1.92 million remained available under the second credit line, net of stated closing costs and the $1.0 million draw.
- For the nine months, management reported $1.92 million in rent and reimbursements and $1.13 million in operating costs. The filing does not provide a clear total revenue, profit, cash-flow statement, or margin measure for the period.
- Estimated liquidation and operating costs, net of estimated receipts, were $12.94 million. The company estimated $44.63 million of gross real-estate proceeds and $29.77 million of net assets in liquidation.
Changes Versus the Prior Comparable Information
Net assets in liquidation increased $2.92 million from December 31, 2018, when they were $26.85 million; estimated value per share rose from $18.11 to $20.08. The increase reflected an $8.43 million increase in real-estate value, partly offset by a $5.50 million adverse remeasurement of assets and liabilities. The filing attributes the remeasurement primarily to an 18-month extension of the expected liquidation timeline, entitlement costs, and higher selling costs and retention bonuses. Cash declined from $3.05 million at year-end to $2.28 million. The filing does not provide a prior-year nine-month operating comparison.
Outlook, Commentary, and Risks
- The company expects the entitlement, sale, liquidation, and dissolution process could extend through December 31, 2021, but timing is uncertain and depends partly on municipal approvals.
- Gyrodyne signed an agreement to sell approximately nine acres at Flowerfield for $16.8 million. The sale had not closed and remained subject to buyer diligence, subdivision approval, and site-plan conditions, among other termination rights.
- Management estimated approximately $1.8 million of additional entitlement costs through the expected liquidation date. It does not intend to develop the properties, but to pursue approvals and sell them at potentially higher pre-construction values.
- The estimated distribution depends on uncertain property values, sale timing, approval outcomes, rental operations, costs, and contingent liabilities. Management cautioned that actual proceeds and distributions could be materially lower than estimates; there is no assurance that entitlement efforts will increase value enough to offset their costs.
- Rental income is concentrated: the three largest tenants represented approximately 23%, 20%, and 6% of nine-month rental income. Healthcare-sector regulation and tenant financial conditions may affect property operations and marketability.
- The company reported $431,716 of employment and other severance contingencies. A previously disclosed shareholder class action was settled and its $650,000 fee award paid in 2016; management said other pending legal matters were not expected to be material.
Important Facts for Investors to Verify
- Whether the $16.8 million Flowerfield sale satisfies its approval and diligence conditions and closes, and the resulting net proceeds.
- Progress and costs for Smithtown and Cortlandt Manor entitlements, and whether approvals support the assumed sale values and 2021 liquidation timetable.
- Changes in the $12.94 million estimated cost reserve, real-estate valuations, retention bonuses, and the estimated $20.08-per-share liquidation value.
- Cash needs, remaining credit-line availability, debt terms and covenants, and the timing and amount of any shareholder distributions.