Gyrodyne, LLC — FY2019 Form 10-K
Reporting period: Year ended December 31, 2019; filed March 26, 2020. This is an annual report, not a standalone Q4 filing. Gyrodyne is winding down: it plans to obtain entitlements, sell its remaining real estate, settle liabilities, distribute the residual proceeds, and dissolve. Its financial statements use the liquidation basis of accounting, so conventional income-statement and cash-flow-statement results are not presented.
Business and financial position
- The remaining portfolio comprises Flowerfield in St. James and Cortlandt Manor in Westchester County: 161,352 rentable square feet, 36 tenants, and 82% occupancy at year-end, versus 85% and 40 tenants at December 31, 2018.
- 2019 rent and tenant reimbursements were approximately $2.60 million; property operating costs were approximately $1.54 million. Year-end annual base rent was approximately $2.20 million. The filing does not provide a clear conventional revenue, profit, or margin measure under its liquidation-basis presentation.
- Cash and cash equivalents were $2.21 million, down from $3.05 million. Real estate held for sale was valued at $48.27 million, up from $36.20 million. Total assets were $50.59 million; total liabilities were $19.22 million, including a $14.35 million estimated liability for liquidation and operating costs net of receipts.
- Mortgage and credit-line borrowings totaled $3.78 million at year-end, compared with $1.10 million a year earlier. The loans are secured by Flowerfield property; the company reported compliance with loan covenants. A further credit line of up to $2.5 million was committed for Cortlandt, subject to conditions and scheduled to close in Q2 2020.
- Net assets in liquidation were $31.37 million, or an estimated $21.16 per share, versus $26.85 million, or $18.11 per share, in 2018. These are management estimates, not guaranteed distributions.
Changes and transactions
- Net assets in liquidation increased by approximately $4.52 million. The $12.07 million increase in real estate value was partly offset by a $7.55 million adverse remeasurement of assets and liabilities, mainly reflecting an 18-month extension to the estimated liquidation timeline, entitlement costs, selling costs, and retention bonuses.
- Two property-sale agreements were signed: a 9-acre Flowerfield parcel for $16.8 million and approximately 4.5 acres at Cortlandt for $5.72 million. Both transactions remained subject to approvals and other conditions, including purchaser termination rights; neither should be treated as a completed sale based on this filing.
- 2019 leasing activity resulted in a net decrease of approximately $135,500 in annual lease commitments and 4,375 rented square feet. 27 leases representing about 36.5% of gross annual rental revenue were scheduled to expire in 2020.
- Land-entitlement costs were approximately $1.42 million in 2019. The company estimated a further $1.8 million of costs through the end of 2021.
Outlook, risks, and unusual items
- Management estimated approximately $31.4 million of cash available at the end of liquidation, currently targeted for December 31, 2021, before any future special distributions. The estimate equates to $21.16 per share using year-end 2019 assumptions and is subject to substantial uncertainty. The company projected gross real-estate proceeds of $48.27 million and estimated $3.50 million of selling costs.
- The principal strategy is to sell properties after pursuing zoning, subdivision, and other entitlements; management says it does not intend to develop them. Entitlement decisions, community opposition, buyer approvals, market conditions, and the timing of sales could delay or reduce proceeds. A settlement also bars sales below the properties’ respective December 2014 appraised values.
- COVID-19 was identified as a material subsequent-event risk: some tenants experienced lower demand, and small businesses and not-for-profits represented an estimated 39% ($834,000) of projected 2020 rental revenue. New York’s eviction moratorium and disruption to municipal processes could affect collections, approvals, sales timing, and asset values. The ultimate impact was not clear in the filing.
- Tenant concentration is significant: Stony Brook University Hospital and affiliates were expected to provide approximately 30% of 2020 rental revenue; one Cortlandt medical tenant was expected to provide approximately 22%. Healthcare regulation, tenant credit, and local economic conditions are additional risks.
- Liquidating distributions may be delayed or reduced by unpaid or contingent claims, operating and entitlement costs, failed sale agreements, or lower property values. The company warns shareholders could be required to return distributions if reserves prove inadequate to pay creditors.
Investor verification priorities
- Confirm whether the $16.8 million Flowerfield and $5.72 million Cortlandt agreements closed, and whether all subdivision, zoning, and site-plan conditions were satisfied.
- Review the assumptions behind the $48.27 million real-estate valuation and the $21.16-per-share liquidation estimate, including selling costs, entitlement expenses, retention bonuses, and timing.
- Track actual rent collections, tenant renewals and departures, occupancy, and exposure to the concentrated tenants and COVID-affected small businesses.
- Verify outstanding debt, availability and terms of credit facilities, collateral and cross-collateralization, and the company’s ability to meet obligations through liquidation.
- Monitor entitlement approvals, community and environmental issues, litigation or creditor claims, and any changes to the December 31, 2021 liquidation target.