GYRODYNE, LLC Cautionary Statement Concerning Forward-Looking Statements
The statements made in this Form 10-K, other materials the Company has filed or
may file with the
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New factors emerge from time to time, and it is not possible for us to predict which factors will affect future results. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. In particular, it is difficult to fully assess the impact of COVID-19, the risk of inflation, rising interest rates, the banking crisis and possible recession at this time. The Company assumes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.
Overview
When we use the terms "Gyrodyne," the "Company," "we," "us," and "our," we mean
As of
Factors Which May Influence Future Operations
Our operating focus is on maximizing cashflows and market value of our operating
properties while we are securing entitlements with the objective of increasing
development flexibility with respect to our remaining properties and maximizing
distributions to our shareholders as soon as reasonably practicable. As of
Our leasing strategy for 2023 includes focusing on leasing vacant space, negotiating early renewals for leases scheduled to expire through 2024 and identifying new tenants or existing tenants seeking additional space.
Lease Expirations
The following is a summary of lease expirations and related revenues of leases
in place on December 31, 2022 . This table assumes that none of the tenants'
exercise renewal options or early termination rights, if any, at or prior to the
scheduled expirations:
% of Gross Annual
Number of Square Total Rental Revenues
Leases Feet Annual Represented
Fiscal Year End Expiring Expiring Rent By Such Leases
2023 15 20,000 $ 387,000 15.02 %
2024 10 14,000 240,000 9.30 %
2025 5 35,000 757,000 29.35 %
2026 6 33,000 881,000 34.16 %
2027 4 13,000 138,000 5.36 %
Thereafter 1 17,000 176,000 6.82 %
The success of our leasing strategy will be dependent upon the general economic
conditions and more specifically real estate market conditions and trends in
We actively manage the renewal process. Historically, this has resulted in a very low turnover rate with our tenants. As a result, the Company continues to actively manage lease termination dates and often approaches tenants up to one year in advance to gauge renewal interest and negotiate related leases. Where a termination is likely, the Company begins marketing the property prior to termination to timely identify the market rent for the specific space, expected vacancy period and market demanded tenant concessions and incentives.
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The Company may offer tenant concessions in the form of rent abatements rather than tenant improvements to maximize its working capital position. However, tenant improvement incentives may be offered in certain cases where concessions are not effective in meeting the demands of the existing or prospective tenant.
During 2022, the Company did not incur any leasing fees other than commissions.
Commissions paid on new leases were approximately
Critical Accounting Policies
Gyrodyne intends to dissolve after we complete the disposition of all of our
real property assets, apply the proceeds of such dispositions first to settle
any debts and claims, pending or otherwise, against Gyrodyne, and then pay
distributions to holders of Gyrodyne common shares. Therefore, effective
Principles of consolidation - The consolidated financial statements include the accounts of Gyrodyne and all subsidiaries. All consolidated subsidiaries are wholly owned. All inter-company balances and transactions have been eliminated.
Basis of Presentation - Liquidation Basis of Accounting - Under the liquidation basis of accounting the consolidated balance sheet and consolidated statements of operations, equity, comprehensive income and cash flows are no longer presented. The consolidated statements of net assets and changes in net assets are the principal financial statements presented under the liquidation basis of accounting.
Under the liquidation basis of accounting, all the Company's assets have been
stated at their estimated net realizable value, or liquidation value, (which
represents the estimated amount of cash that Gyrodyne will collect on the
disposal of assets as it carries out the plan of liquidation), which is based on
independent third-party appraisals, estimates and other indications of sales
value. All liabilities of the Company, including those estimated costs
associated with implementing the plan of liquidation, have been stated at their
estimated settlement amounts. These amounts are presented in the accompanying
statements of net assets. These estimates are periodically reviewed and adjusted
as appropriate. There can be no assurance that these estimated values will be
realized. Such amounts should not be taken as an indication of the timing or
amount of future distributions or our actual dissolution. The valuation of
assets at their net realizable value and liabilities at their anticipated
settlement amount represent estimates, based on present facts and circumstances,
of the net realizable value of the assets and the costs associated with carrying
out the plan of liquidation. The actual values and costs associated with
carrying out the plan of liquidation may differ from amounts reflected in the
accompanying consolidated financial statements because of the plan's inherent
uncertainty. These differences may be material. In particular, the estimates of
our costs will vary with the length of time necessary to complete the plan of
liquidation, which is currently anticipated to be completed by
The Company is in the process of pursuing entitlements and density approvals, and our ability to obtain required permits and authorizations is subject to factors beyond our control, including environmental concerns of governmental entities, community groups and purchasers. The process has involved extensive analysis at the government entity level, as well as between government entities such as town planning departments and Gyrodyne and or purchasers, and will continue up until such time as entitlement and density decisions are made by the relevant government entities. The Company hopes to secure favorable decisions on entitlements, and density so that we can then seek the sale of our remaining properties with increased development flexibility. Any deviation in use or density between what we are pursuing in our entitlement efforts and what is ultimately permitted could have a material impact on value.
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On
An Article 78 proceeding could take two years or more to run its course given
the likelihood of appeal and the impact the ongoing pandemic has had on the
court system. Nevertheless, the Company remains confident that the process of
negotiating purchase agreements, securing final subdivision approval and final
unappealable site plan approval and consummating the sale of our properties will
culminate by year-end 2024, although there can be no assurance that the Company
and the
The Flowerfield subdivision will remain subject to the Article 78 Proceeding
unless Gyrodyne and the
Various other factors will continue to impact the timeline to achieve final
approvals, including the backlog of land use applications, labor shortages and
environmental concerns. Nevertheless, although there can be no assurances, the
Company believes, for Flowerfield, subdivision approval will be received in the
second half of 2023, and for
Based on the aforementioned factors, the Company believes the process of
negotiating purchase agreements, securing final approvals and consummating the
sale of our properties will culminate by year-end 2024. The Company intends to
aggressively market its properties and negotiate contracts in an effort to
complete the process as soon as practicable with the ultimate timeline being
largely dependent on factors outside the Company's control, and therefore there
can be no assurance that the Company will be able to meet such earlier timeline
or even our formal stated deadline of
The Company's assumptions and estimates (including the sales proceeds of all its
real estate holdings, selling costs, retention bonus payments, rental revenues,
rental expenses, capital expenditures, land entitlement costs, litigation fees,
general and administrative fees, director and officer liability and
reimbursement, post liquidation insurance tail coverage policy and final
liquidation costs) are based on completing the liquidation by
Management Estimates - In preparing the consolidated financial statements in
conformity with
The most significant estimates are the estimates on the net realizable value from the sale of our real estate, the estimated costs/time to pursue entitlements, litigation fees and the related timeline to complete the liquidation.
Cash equivalents - The Company considers all certificates of deposits, money market funds, treasury securities and other highly liquid debt instruments purchased with short-term maturities to be cash equivalents.
Allowance for doubtful accounts - Rent receivable is carried at net realizable value. Management makes estimates of the collectability of rents receivable. Management specifically analyzes receivables and historical bad debts, tenant concentrations, tenant creditworthiness, current economic trends, including the impact of the outbreak of the novel strain of coronavirus (COVID-19) on tenants' business and changes in tenant payment patterns when evaluating the adequacy of the allowance for doubtful accounts.
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Fair Value Measurements - The Company believes the concepts for determining net realizable value are consistent with the guidance for measuring fair value. As a result, the Company follows the guidance of FASB Accounting Standards Codification, Fair Value Measurements and Disclosures to determine the fair value of financial and non-financial instruments. The guidance defines fair value, establishes a hierarchy framework for measuring fair value and expands disclosures related to the fair value. The guidance establishes a hierarchy breaking down observable and unobservable inputs into three levels: Level 1 - observable inputs in an active market on or around the measurement date, Level 2 - observable inputs that are based on prices not quoted on active markets but corroborated by market data and Level 3 - unobservable inputs utilized when no other data is available.
Estimated Distributions per Share - Under the liquidation basis of accounting, the Company reports estimated distributions per share data by dividing net assets by the number of shares outstanding.
New accounting pronouncements - Management has evaluated the impact of newly
issued accounting pronouncements, whether effective or not as of
Discussion of the Statement of Net Assets
Net assets in liquidation on
The cash balance at the end of the liquidation period (currently estimated to be
1. The estimated cash receipts from the operation of the properties net of rental
property related expenditures as well as costs expected to be incurred to preserve or improve the net realizable value of the property at their estimated gross sales proceeds.
2. Net proceeds from the sale of all the Company's real estate holdings.
3. The general and administrative expenses and or liabilities associated with
operations and the liquidation of the Company including severance, director and officer liability coverage including post liquidation tail policy coverage, and financial and legal fees to complete the liquidation.
4. Costs for the pursuit of the entitlement of the Flowerfield and
Manor properties and associated litigation.
5. Retention bonus amounts.
6. Principal payments on the Company's credit facilities.
The Company estimates the net realizable value of its real estate assets by using income and market valuation techniques. The Company may estimate net realizable values using market information such as broker opinions of value, appraisals, and recent sales data for similar assets or discounted cash flow models, which primarily rely on Level 3 inputs, as defined under FASB ASC Topic No. 820, Fair Value Measurement. The cash flow models include estimated cash inflows and outflows over a specified holding period. These cash flows may include contractual rental revenues, projected future rental revenues and expenses and forecasted capital improvements and lease commissions based upon market conditions determined through discussion with local real estate professionals and relevant Company experience with its current and previously owned properties. Capitalization rates and discount rates utilized in these models are estimated by management based upon rates that management believes to be within a reasonable range of current market rates for the respective properties based upon an analysis of factors such as property and tenant quality, geographical location, local supply and demand observations and no sewage treatment plants. To the extent the Company underestimates or overestimates forecasted cash outflows (capital improvements, excluding any costs for sewage treatment plants, lease commissions and operating costs) or overestimates or underestimates forecasted cash inflows (rental revenue rates), the estimated net realizable value of its real estate assets could be overstated or understated.
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The Company estimates that it will incur approximately
The net assets as of
The following table summarizes the estimates to arrive at the Net Assets in
Liquidation as of
December 31, 2022 cash and cash equivalents balance$ 4.08 Principal payments on loan (9.76 ) Free cash flow from rental operations 2.18 (i) General and administrative expenses (4.74 ) (ii)
Land entitlement costs in pursuit of the highest and best use (1.20 ) Gross real estate proceeds
53.67
Selling costs on real estate (3.82 )
Retention bonus plan for directors, officers and employees (5.69 ) Final liquidation and dissolution costs
(1.53 ) (iii)
Other (2.82 ) (iv)
Net Assets $ 30.37 (i) The Company estimates the cash proceeds from rental operations net
commissions and rental costs, inclusive of expenditures to preserve or
improve the properties at its current estimated market value will total
$2.18 .
(ii) The general and administrative expenses, excluding final liquidation costs,
is estimated to be (
(iii) The costs represent all anticipated costs to liquidate the Company
including D&O tail, severance and professional fees.
(iv) The Company estimates interest income will be offset by interest expense and
the settlement of its working capital accounts resulting in a balance of
($2.82 ).
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Discussion of Changes in Net Assets
Gyrodyne's strategy is to enhance the value of
Net assets onJanuary 1, 2021 $ 22,487,944
Changes in net assets from
(3,455,174 )
Change in value of real estate 3,995,000
Total change in net assets 539,826 (a)
Net assets on December 31, 2021 23,027,770
Changes in net assets for the year ended
(3,803,771 )
Change in value of real estate 11,143,500
Total change in net assets 7,339,729 (b)
Net assets on December 31, 2022 $ 30,367,499 (a)The increase in net assets in liquidation during 2021 was the result of an increase in real estate value offset by the two-year extension in timeline and an increase in selling costs and retention bonus payments (both of which are due to the increase in real estate value).
(b) The increase in net assets in liquidation during 2022 was the result of an increase in real estate value offset by an increase in selling costs and retention bonus payments (both of which are due to the increase in real estate value) as well as an increase in legal fees mainly attributable to the Article 78 proceeding.
Liquidity and Capital Resources
Cash Flows:
As we pursue our plan to sell our properties strategically, including certain
enhancement efforts, we believe that a main focus of management is to
effectively manage our net assets through cash flow management of our tenant
leases, maintaining or improving occupancy, and enhance the value of the
As the Company executes on the liquidation plan, it will review its capital needs and make prudent distribution decisions regarding any excess cash. Upon completion of these activities, Gyrodyne will distribute the remaining cash to its shareholders and then proceed to complete the dissolution of the Company, delist its shares from Nasdaq or other exchange platform and terminate its registration and reporting obligations under the Securities Exchange Act of 1934, as Amended (the "Exchange Act"). Gyrodyne is required to make adequate provisions to satisfy its known and unknown liabilities which could substantially delay or limit its ability to make future distributions to shareholders. The process of accounting for liabilities, including those that are currently unknown or whose amounts are uncertain may involve difficult valuation decisions which could adversely impact the amount or timing of any future distributions.
We generally finance our operations through cash on hand. The Company is also
considering seeking supplemental funding in the form of a new credit facility, a
pro-rata rights offering or other appropriate funding mechanism to fortify our
cash position to ensure we are operating through a position of strength through
the duration of the liquidation to negotiate and enforce purchase agreements and
defend our property rights in the Article 78 proceeding and in any other such
proceeding that may arise. Certain of the Company's major vendors have agreed
to defer payment on 50% of their fees until the first subdivided lot is sold.
Additionally, on
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As of
The Company's primary sources of funds are as follows:
? current cash and cash equivalents;
? rents and tenant reimbursements received on our remaining real estate
operating assets;
? sale of assets; and
Excluding gross proceeds from the sale of assets, the Company's gross rents and tenant reimbursements net of rental expenses is less than the combined total annual general and administrative costs, capital expenditures and land entitlement costs creating a net use of cash on an annual basis through the liquidation process. The Company believes the cash and cash equivalents plus the proceeds from the sale of assets will exceed the costs to complete the liquidation of the Company. In addition, the Company has and will continue to review operating activities for possible cost reductions and additional capital/credit needs throughout the liquidation process.
Major elements of the Company's cashflows for the year ended
Operating Cashflows: ?$3,075,436 in rent and reimbursements. ? ($1,812,364 ) in operating costs. ?$1,263,072 in net operating income.
Nonoperating Cashflows:
?$18,500 in proceeds from an easement agreement. ? ($109,883 ) of land entitlement costs incurred for theCortlandt Manor property. ? ($205,573 ) of land entitlement costs incurred for the Flowerfield property. ? ($129,511 ) of capital expenditures on the real estate portfolio excluding those costs incurred for land entitlement. ? ($2,683,261 ) of corporate expenditures including interest expense. ? ($268,439 ) of principal payments on our loans. ?$527,175 in changes in working capital.
Major elements of the Company's cashflows for the year ended
Operating Cashflows: ?$2,656,374 in rent and reimbursements. ? ($1,628,665 ) in operating costs. ?$1,027,709 in net operating income.
Nonoperating Cashflows:
?$4,868,689 in loan proceeds. ?$430,702 in proceeds from the sale of real estate. ? ($176,136 ) of land entitlement costs incurred for theCortlandt Manor property. ? ($391,279 ) of land entitlement costs incurred for the Flowerfield property. ? ($113,540 ) of capital expenditures on the real estate portfolio excluding those costs incurred for land entitlement. ? ($2,156,888 ) of corporate expenditures including interest expense. ? ($185,643 ) of costs incurred to secure non-revolving credit line. ?$169,000 in restricted cash. ?$565,626 in changes in working capital. Dispositions:
Flowerfield - On
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Termination of Purchase Agreements:
Flowerfield. On
On
The SC Agreement provided that
On
COVID-19:
The following discussion is intended to provide shareholders with certain
information regarding the impacts of the COVID-19 pandemic on the Company's
business and management's efforts to respond to those impacts. Unless otherwise
specified, the statistical and other information regarding the Company's
properties and tenants are estimates based on information available currently to
the Company may change, potentially significantly, going forward, and may not be
indicative of the actual impact of the COVID-19 pandemic on the Company's
business, operations, cash flows and financial condition for the year ended
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The spread of COVID-19 had, and to a lesser extent, is expected to continue to
have, a significant impact on the global economy, the
? As of the date of this Annual Report on Form 10-K, both of the Company's
properties are open and the Company believes are operating in compliance with
federal, state and local COVID-19 guidelines and mandates. Both of the
Company's properties feature tenants designated as "essential".
? Approximately 39% of the Company's tenants (based on 2023 projected annual
revenues) are not-for-profit corporations or tenants that are neither medical
offices nor part of or affiliated with Stony Brook University "(SBU") or SBU
Hospital .
The COVID-19 pandemic has adversely impacted, and is expected to continue to impact, adversely, the timeliness of local government in granting required approvals. Accordingly, COVID-19 has caused, and is expected to continue to cause, the completion of important stages in our efforts to secure entitlements to be delayed.
Until recently, the
The Company has taken a number of proactive measures to maintain the strength of its business and manage the impact of COVID-19 on the Company's operations and liquidity, including the following:
? Along with the Company's tenants and the communities they and the Company
together serve, the health and safety of the Company's employees and their
families is a top priority. The Company has adapted its operations to protect
employees, including by implementing a work from home policy, and the
Company's IT systems have enabled its team to work seamlessly.
? On September 15, 2021 , the Company secured a loan for $4.95 million . Part of
the proceeds were used to payoff the existing working capital GSD Cortlandt
loan.
? The Company has taken proactive measures to manage costs, including securing
agreements from certain of the Company's major service vendors to defer
approximately $1,164,000 of land development fees and other professional fees
incurred to date plus approximately $231,000 of forecasted land development
fees until the first post subdivision property lot is sold. The only
significant expenditures the Company plans to make at this time on our
properties relate to obtaining entitlements. Further, the Company expects that
the only material capital expenditures at the Company's properties will be
tenant improvements and/or other leasing costs associated with existing and
new leases.
? We adopted a Deferred Compensation Plan effective as of January 1, 2020
pursuant to which officers and directors may elect to defer a portion of their
compensation until the earlier of December 15, 2026 or adoption of a Plan of
Liquidation, together with interest on such deferred payments at a fixed rate
of 5% (per annum). As of December 31, 2022 , directors have deferred $1,065,971
(inclusive of interest) and have committed to an additional $288,000 , plus
interest through 2023.
The pandemic has resulted in a significant shift toward commercial acceptance of remote working and telemedicine which may adversely impact our occupancy rate and average rate per square foot. The Company's ability to operate seamlessly and limit any adverse impact on its forecasted net asset value will also depend, in part, on whether any of its key employees or key advisers are infected by the Coronavirus and become ill from COVID-19.
The extent of the impact of these public health and macroeconomic risks on the Company's operational and financial performance and ultimately its Net Asset Value, will depend on current and future developments, including the duration and spread of the outbreak and related governmental or other regulatory actions and the effectiveness of the COVID-19 vaccine program and other mitigation efforts, and the extent to which interest rate hikes to combat inflation and the banking crisis have a recessionary effect.
As a result of the foregoing developments, we are unable to determine what the ultimate impact will be on our timeline for seeking entitlements and selling properties, and ultimately on the amount proceeds and distributions from those sales. For more information and risks relating to the pandemic on us and our business, see Part I, Item 1A, "Risk Factors - Our business, operations and timelines for pursuing entitlements, property sales and distributions of proceeds could be adversely affected by the Coronavirus pandemic".
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Healthcare:
Our tenants in our
Our tenants are subject to extensive federal, state, and local licensure laws, regulations and industry standards governing business operations, the physical plant and structure, patient rights and privacy and security of health information. Our tenants' failure to comply with any of these laws could result in loss of licensure, denial of reimbursement, imposition of fines or other penalties, suspension or exclusion from the government sponsored Medicare and Medicaid programs, loss of accreditation or certification, or closure of the facility. In addition, efforts by third-party payors, such as the Medicare and Medicaid programs and private insurance carriers, including health maintenance organizations and other health plans, impose greater discounts and more stringent cost controls upon healthcare provider operations (through changes in reimbursement rates and methodologies, discounted fee structures, the assumption by healthcare providers of all or a portion of the financial risk or otherwise). Our tenants may also face significant limits on the scope of services reimbursed and on reimbursement rates and fees, all of which could impact their ability to pay rent or other obligations to us.
Property Value Enhancement
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