Gyrodyne, LLC — Q3 2021 Form 10-Q
Reporting period: Quarter ended September 30, 2021; financial activity discussed primarily for the nine months ended that date. The company manages and seeks entitlements for medical-office and industrial real estate in Flowerfield and Cortlandt Manor, New York, with the stated objective of selling its remaining properties, distributing proceeds and dissolving.
Financial position and key metrics
Gyrodyne reports on the liquidation basis of accounting, so it does not present conventional income statements, operating margins or a statement of cash flows. Assets are stated at estimated net realizable value and liabilities at estimated settlement amounts; these estimates may differ materially from actual results.
| Metric | September 30, 2021 | December 31, 2020 |
|---|---|---|
| Real estate held for sale | $38.55 million | $39.05 million |
| Cash and cash equivalents | $6.02 million | $1.63 million |
| Total assets | $44.64 million | $40.91 million |
| Loans payable | $10.09 million | $5.16 million |
| Total liabilities | $22.13 million | $18.42 million |
| Net assets in liquidation | $22.51 million | $22.49 million |
| Estimated liquidation value per share | $15.18 | $15.17 |
Net assets increased $25,025, or about $0.01 per share, during the nine months. The increase reflected higher rental receipts, lower general and administrative costs and other income, offset by interest and loan closing/prepayment charges, property costs and selling costs. The filing does not provide a clear conventional profit or margin figure.
Management reported nine-month cash receipts of $1.98 million from rents and reimbursements, with $1.23 million of property operating costs and $92,546 of capital expenditures. Other reported cash-flow items included $1.36 million of corporate expenditures, $226,672 of interest expense, $184,062 of non-recurring loan closing fees, $492,672 of entitlement costs, $430,702 of net real-estate sale proceeds and $4.93 million of net proceeds from debt facilities. These are management’s summarized cash-flow items; the filing does not present a cash-flow statement under its liquidation accounting.
Changes and significant transactions
- Sold approximately five acres of non-contiguous vacant land in April 2021 for $500,000.
- Two previously agreed property sales terminated: a nine-acre Flowerfield parcel for $16.8 million and approximately 4.5 acres in Cortlandt Manor for $5.72 million. Earnest-money deposits were returned.
- The $2.5 million Cortlandt working-capital line was repaid and closed in September. It was refinanced with a $4.95 million mortgage loan bearing 3.75% interest for an initial five-year term, secured by a 5.01-acre Cortlandt property. Prepayment charges apply, subject to stated exceptions.
- Two Flowerfield facilities, with outstanding balances of $2.2 million and $3.0 million, converted to amortizing permanent loans at a current 3.85% rate. Both are secured by Flowerfield industrial-park assets.
- Leasing activity included seven new leases, 18 renewals, two expansions and one termination during the nine months. Three largest tenants accounted for approximately 23%, 22% and 10% of rental income, respectively.
Outlook, risks and contingencies
Management estimates net assets in liquidation of $22.51 million, or approximately $15.18 per share, based on 1,482,680 shares. It estimates completion of liquidation by December 31, 2022 and expects to incur about $998,000 in further entitlement costs through that date. The per-share amount is an estimate, not a promised distribution; final proceeds and timing depend on sales, liabilities, costs and Board decisions. Management also estimates gross real-estate sale proceeds of $38.55 million.
The company is pursuing subdivision and land-use approvals to seek higher sale values, not to develop the properties. Flowerfield subdivision approvals were progressing through local review; Cortlandt approvals remained dependent on environmental review, municipal action and anticipated subdivision decisions. Management cautions that approval timing, permitted uses and density, community opposition, possible litigation, market conditions and entitlement expenses could affect value and delay liquidation.
COVID-19 continued to pose uncertainty for tenants, property operations, real-estate demand and municipal approval timelines. Tenants unaffiliated with a major hospital represent approximately 39% of projected 2021 rental revenue. About $94,000 of rent had been deferred under alternate arrangements and was expected to be collected, but collection is not assured. The company also notes that remote work and telemedicine could affect occupancy and rents.
A settlement of a putative class action requires property sales to be arm’s-length transactions at or above the properties’ 2014 appraised values. Management states that the remaining properties’ aggregate appraised value exceeded those respective values as of September 30, 2021. Other ordinary-course legal proceedings were not expected by management to result in material losses. The company has employment and severance commitments and a retention-bonus plan tied to qualifying property-sale proceeds.
Important facts for investors to verify
- Whether the $15.18-per-share liquidation estimate remains supportable after actual sale prices, entitlement costs, debt service and liquidation expenses are known.
- Progress and final approvals for Flowerfield and Cortlandt subdivision and entitlement applications, including any community or legal challenges.
- Whether replacement buyers or other sale strategies emerge after termination of the $16.8 million and $5.72 million purchase agreements.
- Debt balances, collateral, repayment terms and prepayment fees, particularly if properties are sold before loan maturity.
- Rental collections, tenant renewals and exposure to the largest tenants and COVID-affected businesses.
- Timing of asset sales, distributions and dissolution; management’s December 31, 2022 target is subject to significant uncertainty.