When we use the terms "Gyrodyne," the "Company," "we," "us," and "our," we mean
Gyrodyne, LLC and all entities owned or controlled by us, including
non-consolidated entities. References to "common shares" in this report refer to
Gyrodyne, LLC's common shares representing limited liability company interests.
References herein to our Quarterly Report are to this Quarterly Report on Form
10-Q for the nine-months ended September 30, 2022.
Cautionary Statements Concerning Forward-Looking Statements
The statements made in this Form 10-Q that are not historical facts, contain
"forward-looking information" within the meaning of the Private Securities
Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, both as amended, which can
be identified by the use of forward-looking terminology such as "may," "will,"
"anticipates," "expects," "projects," "estimates," "believes," "seeks," "could,"
"should," or "continue," the negative thereof, and other variations or
comparable terminology as well as statements regarding the evaluation of
strategic alternatives and liquidation contingencies. These forward-looking
statements are based on the current plans and expectations of management and are
subject to a number of risks and uncertainties that could cause actual results
to differ materially from those reflected in such forward-looking statements.
Such risks and uncertainties include, but are not limited to, risks and
uncertainties relating to our efforts to enhance the values of our remaining
properties and seek the orderly, strategic sale of such properties as soon as
reasonably practicable, risks associated with the Article 78 Proceeding against
the Company and any other litigation that may develop in connection with our
efforts to enhance the value of and sell our properties, strategically, ongoing
community activism, regulatory enforcement, risks inherent in the real estate
markets of Suffolk and Westchester Counties in New York, the ability to obtain
additional capital in order to enhance the value of the Flowerfield and
Cortlandt Manor properties, the potential effects of the ongoing COVID-19
pandemic, the risk of inflation, rising interest rates, recession and supply
chain constraints or disruptions, and other risks detailed from time to time in
the Company's SEC reports. These and other matters the Company discuss in this
Report, or in the documents it incorporates by reference into this Report, may
cause actual results to differ from those the Company describes. The Company
assumes no obligation to update or revise any forward-looking information,
whether as a result of new information, future events or otherwise.
New factors emerge from time to time, and it is not possible for us to predict
which factors will arise. 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 statements. In particular, it is difficult to fully assess
the impact of COVID-19, the risk of inflation, rising interest rates and
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.
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Overview
Gyrodyne, LLC (including its subsidiaries, "Gyrodyne", the "Company" or the
"Registrant") is a limited liability company formed under the laws of the State
of New York whose primary business is the management of a portfolio of medical
office and industrial properties and the pursuit of entitlements on such
properties located in Suffolk ("Flowerfield") and Westchester ("Cortlandt
Manor") Counties, New York.
Substantially all of our developed properties are subject to leases in which the
tenant reimburses the Company for a portion, all of or substantially all of the
costs and/or cost increases for utilities, insurance, repairs, maintenance and
real estate taxes. Certain leases provide that the Company is responsible for
certain operating expenses.
Gyrodyne's corporate strategy is to enhance the value of Flowerfield and
Cortlandt Manor by pursuing entitlement opportunities and enhancing the value of
its leases. The Board believes the aforementioned strategy will increase the
values for such properties. The value of the real estate reported in the
consolidated statement of net assets as of September 30, 2022 includes some, but
not all of the potential value impact that may result from such value
enhancement efforts. There can be no assurance that our value enhancement
efforts will result in property value increases that exceed the costs we incur
in such efforts, or even any increase at all.
Our efforts to generate the highest values for Flowerfield and Cortlandt Manor
may involve in limited circumstances various other strategies to manage risk and
or enhance the net value of Flowerfield and Cortlandt Manor to maximize the
returns for our shareholders. Gyrodyne intends to dissolve after we complete the
disposition of all of our real property assets, applies the proceeds of such
dispositions first to settle any debts and claims, pending or otherwise, against
Gyrodyne, and then pays liquidating distributions to holders of Gyrodyne common
shares. The process of seeking entitlements to enhance property values and the
amount and timing of distributions from proceeds of asset sales involve risks
and uncertainties. As such, it is impossible at this time to determine the
ultimate amount of proceeds that will actually be distributed to our
shareholders or the timing of such payments. Accordingly, no assurance can be
given that the distributions will equal or exceed the estimate of net assets
presented in our Consolidated Statements of Net Assets. The actual nature,
amount and timing of all distributions will be determined by Gyrodyne's Board in
its sole discretion and will depend in part upon the Company's ability to
convert our remaining assets into cash in compliance with our obligations under
the Stipulation of Settlement entered into in connection with the class action
lawsuit (See Item 1 - Legal Proceedings) and settle and pay our remaining
liabilities and obligations. Under Gyrodyne's Amended and Restated Limited
Liability Company Agreement (the "LLC Agreement"), dissolution of the Company
may be effected upon the vote of holders of a majority of Gyrodyne common shares
or, in the Board's discretion and without any separate approval by the holders
of Gyrodyne common shares, at any time the value of Gyrodyne's assets, as
determined by the Board in good faith, is less than $1,000,000.
We remain committed on (1) enhancing the net value of Flowerfield and Cortlandt
Manor to maximize the returns for our shareholders, (2) completing the
disposition of our assets, (3) making timely distributions to our shareholders,
(4) managing capital and liquidity, (5) mitigating risks relating to interest
rates and real estate cycles and (6) completing the liquidation of the Company.
After giving effect to the Company's dispositions of real property through
September 30, 2022, the Company owns the following properties:
? Cortlandt Manor: 13.8 acres in Cortlandt Manor, New York, including the 31,000
square foot Cortlandt Medical Center; and
? Flowerfield: 63 acres in St. James, New York, including a 14-acre
multi-tenanted industrial park comprising 135,000 rentable square feet.
Each of the medical office park in Cortlandt Manor and the Flowerfield
Industrial Park (including its undeveloped portion) is individually owned in a
single asset limited liability company wholly owned by the Company.
Strategic Plan to Enhance Property Values, Liquidate, Distribute Proceeds and
Dissolve
Our corporate strategy is to pursue entitlement opportunities intended to
increase the values of our two remaining properties so that they can be sold to
one or more developers at higher prices (than those achievable under their
current entitlements) that will maximize value and distributions. Gyrodyne
intends to dissolve after we complete the disposition of all of our real
property assets, applies the proceeds of such dispositions first to settle any
debts and claims, pending or otherwise, against Gyrodyne, and then pays
liquidating distributions to holders of Gyrodyne common shares. We are unable to
predict the precise nature, amount or timing of such distributions. To
accomplish this, the Company's plan consists of:
? managing the real estate portfolio to improve operating cash flow while
simultaneously increasing the market values of the underlying properties;
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? managing the strategic sale of real estate assets;
? pursuing the entitlement efforts of the Flowerfield and Cortlandt Manor
properties, to maximize value;
? focusing use of capital by the Company to preserve or improve the market value
of the real estate portfolio; and
? balancing working capital and funds available for the entitlement process.
Gyrodyne's dual strategy is to enhance the value of Flowerfield and Cortlandt
Manor by pursuing entitlement opportunities while simultaneously enhancing the
value of its leases. The Company believes the aforementioned dual strategy will
increase the values for such properties. The value of the real estate reported
in the consolidated statement of net assets as of September 30, 2022 includes
some but not all of the potential value impact that may result from such value
enhancement efforts. There can be no assurance that our value enhancement
efforts will result in property value increases that exceed the costs we incur
in such efforts, or even any increase at all. Our efforts to generate the
highest values for Flowerfield and Cortlandt Manor may involve, in limited
circumstances, strategies to manage risk and or enhance the net value of
Flowerfield and Cortlandt Manor to maximize the returns for our shareholders.
Sales of properties by Gyrodyne could take the form of individual sales of
assets, sales of groups of assets, a single sale of all or substantially all of
the assets or some other form of sale. The assets may be sold to one or more
purchasers in one or more transactions over a period of time.
A sale of substantially all of the assets of the Company would require
shareholder approval under New York law. However, in the event of the sale of
individual properties, that do not constitute substantially all of the Company's
assets, it is not required or anticipated that any shareholder votes will be
solicited. The prices at which the various assets may be sold depend largely on
factors beyond our control, including, without limitation, the condition of
financial and real estate markets, the availability of financing to prospective
purchasers of the assets, regulatory approvals, public market perceptions, and
limitations on transferability of certain assets.
On March 30, 2022, the Town of Smithtown Planning Board (the "Planning Board")
unanimously granted Gyrodyne's application for preliminary approval to divide
the Flowerfield property into eight lots, subject to certain conditions (the
"Flowerfield Subdivision Application").
On April 26, 2022, the Incorporated Village of Head of the Harbor and certain
other parties commenced a special proceeding (the "Article 78 Proceeding"),
against the Town of Smithtown and certain other parties, including the Company,
seeking to annul the Planning Board's determinations relating to the Flowerfield
Subdivision Application. The Article 78 Proceeding was commenced by the filing
of a petition (the "Petition") in the Supreme Court of the State of New York,
Suffolk County, pursuant to Article 78 of New York's Civil Practice Law and
Rules ("Article 78"). Specifically, the Petition seeks to annul the Planning
Board's (i) approval of a findings statement, pursuant to the SEQRA, dated
September 16, 2021, and adopted by the Planning Board on March 30, 2022,
concerning the Flowerfield Subdivision Application, and (ii) preliminary
approval on March 30, 2022, of the Flowerfield Subdivision Application. The
arguments made in the Petition are substantially similar to those made by
opponents of the Flowerfield Subdivision Application during the SEQRA and
subdivision process. The Company and the Town of Smithtown are vigorously
defending the Planning Board's determinations against the Petition.
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 Town of Smithtown will be successful in the defense of the Planning
Board's determinations against the Petition or that other factors beyond our
control will necessitate an extension of the timeline generally.
The Flowerfield subdivision will remain subject to the Article 78 Proceeding
unless Gyrodyne and the Town of Smithtown prevail in their defense of the
Planning Board's determinations against the Petition. Nevertheless, the Company
will continue its efforts to identify one or more purchasers for Flowerfield and
execute purchase agreements, and it is unclear at this time what impact, if any,
the Article 78 Proceeding will have on such efforts.
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, we
anticipate receiving final approval of our subdivision applications for
Flowerfield and Cortlandt Manor in 2023 and that we will generally be able to
seek to identify purchasers for such properties after subdivision approval is
received. The Company believes that standard market terms for real property
transactions in both Cortlandt Manor and the Town of Smithtown would include
final subdivision approval, final unappealable site plan approval and the
resolution of the Article 78 Proceeding as conditions to closing.
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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, perhaps even earlier than 2024,
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
December 2024.
Assuming the process of seeking entitlements and selling assets is completed by
December 31, 2024 and giving effect to the estimated cash flows from the
operation of our existing properties, we expect that Gyrodyne will have a cash
balance on December 31, 2024 of approximately $22.87 million, prior to any
future special distributions based on the estimate of net assets in liquidation
presented in our Consolidated Statements of Net Assets. Such cash would equate
to future distributions of $15.42 per share based on Gyrodyne having 1,482,680
common shares outstanding. These estimated distributions are based on values on
September 30, 2022 and include some but not all of the potential value that may
be derived from the entitlement efforts to maximize the value of Flowerfield and
Cortlandt Manor.
The Consolidated Statements of Net Assets are based on certain estimates.
Uncertainties as to the precise value of our non-cash assets, which include some
but not all of the estimated potential additional value from the costs incurred
to pursue the maximum value on Flowerfield and Cortlandt Manor through the
entitlement efforts (including the pursuit of special permits) and the ultimate
amount of our liabilities make it impracticable to predict the aggregate net
value ultimately distributable to shareholders in a liquidation. Land
entitlement costs, claims, liabilities and expenses from operations, including
operating costs, salaries, real estate taxes, payroll and local taxes, legal,
accounting and consulting fees and miscellaneous office expenses, will continue
to be incurred during our process of seeking entitlements and selling assets,
which includes certain enhancement efforts. Such expenses will reduce the amount
of assets available for ultimate distribution to shareholders, and, while a
precise estimate of those expenses cannot currently be made, management and our
Board believe that available cash (including proceeds received under our credit
facilities) and amounts received on the sale of assets will be adequate to
provide for our obligations, liabilities, expenses and claims (including
contingent liabilities). However, no assurances can be given that available cash
and amounts received on the sale of assets will be adequate to provide for our
obligations, liabilities, expenses and claims and to make cash distributions to
shareholders. If such available cash and amounts received on the sale of assets
are not adequate to provide for our obligations, liabilities, expenses and
claims, distributions of cash and other assets to our shareholders would be
eliminated. In the event our shareholders receive distributions from Gyrodyne
and there are insufficient funds to pay any creditors who seek payment of claims
against Gyrodyne, shareholders could be held liable for payments made to them
and could be required to return all or a part of the distributions made to them.
Property Value Enhancement
The Company is pursuing entitlements to maximize the value of the Flowerfield
and Cortlandt Manor properties. During the nine-months ended September 30, 2022,
the Company incurred approximately $282,000 of land entitlement costs
(approximately $87,000 of which certain of the Company's service vendors agreed
to defer until the first post subdivision property lot is sold), consisting
primarily of engineering costs, legal fees and real estate taxes to support the
Company's respective entitlement efforts. We estimate that the Company may incur
approximately $1.09 million in additional land entitlement costs (approximately
$198,600 of which Company vendors have agreed to defer until the first post
subdivision property lot is sold) through December 31, 2024 in pursuit of
entitlements (approximately $354,000 in Cortlandt Manor and $732,000 in
Flowerfield).
The Company is focusing its resources on positioning the properties to be sold
with all entitlements necessary to achieve maximum pre-construction values in
the shortest period of time with the least amount of risk to the Company. During
the process of pursuing such entitlements, the Company may entertain offers from
potential buyers who may be willing to pay prices for the properties that the
Company finds more attractive from a timing or value perspective than values we
believe may be reasonably achievable through completing the entitlement process
ourselves.
Cortlandt Manor. On March 15, 2016, the Town of Cortlandt Manor (the "Town")
adopted a 2016 Sustainable Comprehensive Plan (the "Plan") of which one key
strategy was the simultaneous creation of a Medical Oriented District ("MOD").
The purpose of the proposed MOD is to expand the Town's existing medical
infrastructure and encourage economic development, including capital investment,
job creation and housing options. The MOD would allow for a continuum of care,
i.e., independent living, assisted living and nursing/hospital care, within or
in neighboring facilities by centralizing medical services and related
activities. As a designated zoning district, the MOD could include hospital,
ambulatory surgery, primary and urgent care, hospice, laboratories, social
services, boutique hotels, retail and a wide range of housing.
The Company's existing 31,421 square foot Cortlandt Medical Center, inclusive of
13.8 acres, is located directly opposite New York Presbyterian's Hudson Valley
Hospital Center and within the boundaries of the MOD. The Company has committed
resources toward both market research and feasibility studies in support of
achieving entitlements to maximize the value of the property. For approximately
seven years (including assistance developing the MOD) the Company along with its
planner and engineers have been working closely with the Town to identify issues
and solutions involved in creating the Plan and more specifically, the MOD.
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On March 31, 2017, The Company filed an application with the Town to develop the
Cortlandt Manor property, as follows:
SUBDIVISION LOT # BUILDING SIZE/YIELD
Medical office 100,000 sft
Multi-family apartments 200 units
Retail 4,000 sft
In response to the extensive public comments and Town Board input received
during the State Environmental Quality Review "(SEQR") Draft Generic
Environmental Impact Statement ("DGEIS") public hearing process, the Company
amended the site plan and subdivision application with the Town to develop the
Cortlandt property as follows:
SUBDIVISION LOT # BUILDING SIZE/YIELD
Medical office Lot #1 100,000 sft
Retail (Lot #1) 4,000 sft
Medical Office Lot #2 84,600 sft
The entitlement costs for the nine-months ended September 30, 2022 associated
with the ownership and development of this property were approximately $76,000.
As a property owner with eligible parcels in this district, Gyrodyne submitted
an Environmental Assessment Form to the Town of Cortlandt Planning Department in
December 2017 to support its application to receive a MOD campus designation.
Once designated, the parcels would be governed by the use, dimensional and other
provisions of the MOD zoning regulations and MOD zoning would replace the
existing zoning. While the MOD zoning has not been formally adopted, Gyrodyne is
currently proposing a two-phase medical office campus with limited retail and
has designed the site to function as part of a future "hamlet center" with
streetscape improvements. The existing medical office will remain operational
until phase 2 is implemented.
In addition to the primary proposal noted above, an alternate mixed-use plan was
submitted as part of the SEQRA process. The alternate mixed-use plan includes
the following:
SUBDIVISION LOT # BUILDING SIZE/YIELD
Medical office Lot #1 83,500 sft
Retail (Lot #1) 1,500 sft
Multi-Family Residential Lot #2 160 Units
The alternate is being reviewed for all categories of impacts in the SEQRA
documentation similar to the primary proposal, and if approved as anticipated,
will allow Gyrodyne the option to proceed with either program following MOD
designation and subdivision. The alternate is not anticipated to impact the
estimated timeline of approvals.
The Town of Cortlandt Planning Department hosted two public community outreach
meetings in June and August 2018 where the Company presented its development
plan for the Cortlandt Manor property. As anticipated, on August 7, 2018, the
Town Board formally issued a "positive declaration" under the SEQRA, i.e., a
declaration that the project may result in one or more significant environmental
impacts and will require the preparation of an Environmental Impact Statement
("EIS"), the scope of which was also adopted. On August 28, 2018, the Town filed
the Scope for a DGEIS with input from Gyrodyne for both the MOD zoning and the
proposed uses so that upon adoption, minimal further review (other than site
plan review) should be required to develop the property. On September 17, 2019,
the Town of Cortlandt Town Board as Lead Agency under SEQR adopted a resolution
accepting the DGEIS as complete for public review. The Town of Cortlandt Town
Board hosted two public hearings on the DGEIS on November 19, 2019 and January
14, 2020. The Town of Cortlandt Planning Board extended the public comment
period 90 days with the next public hearing scheduled for April 14, 2020. As a
result of New York State's stay-at-home-order issued in March 2020, the April
14, 2020 public hearing was postponed to June 2020. The public hearing was then
held on June 16, 2020 on a virtual platform. The Town closed the public comment
period on June 30, 2020 and proceeded to review the public comments and prepare
the Final GEIS ("FGEIS"). The FGEIS reflects the Cortlandt Manor property's
proposed uses comprising 184,600 square feet of medical office space and 4,000
square feet of retail space (together with an Alternate Mixed-Use Plan). A Town
Board work session was conducted March 7, 2022 for the primary purpose of the
stakeholders describing their current development programs for the benefit of
the new Town Board members elected this past November. Although not required by
SEQRA, the Town Board conducted another public hearing on May 2, 2022 and closed
the hearing that evening while leaving the public comment period open for twenty
days. The additional public comments are being reviewed and will require formal
written responses by stakeholders including Gyrodyne. The Cortlandt Manor Town
Board held a public work session on October 24, 2022. We anticipate that the
final FGEIS will be accepted by the Town Board with SEQRA completed in the
fourth quarter of 2022. The Town Board is anticipated to adopt a MOD designation
for the property in the first quarter of 2023. We also anticipate subdivision
and conceptual site plan approvals in 2023. The Company does not plan on
developing the property but rather positioning the property to be sold with all
entitlements necessary to achieve maximum pre-construction value for the Company
in the shortest period of time with the least amount of risk to the Company.
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Flowerfield. Following market research and related feasibility studies, we
identified the entitlements that we believe will maximize the value of
Flowerfield in the shortest amount of time with the lowest amount of risk. The
Company has been in discussions with the Town of Smithtown on the potential real
estate development projects identified by the market research and feasibility
studies, all of which currently fall within our "as of right to build" zoning.
We are also exploring with the Town of Smithtown whether it would be amenable to
certain entitlements, special permits, or other concessions that would allow for
the identified development projects.
In March 2017, the Company filed a pre-subdivision application with the Town of
Smithtown (the "Pre-application") for the Flowerfield property along with the
previously sold (2002) catering hall facility for an eight-lot subdivision which
the Town of Smithtown has determined must be processed as a nine-lot subdivision
in response to certain comments received from the planning department. The final
approved (in 2021) FEIS included an eight-lot subdivision). In June 2017, the
Company filed a subdivision application with the Town of Smithtown based on
feedback provided by the Town of Smithtown staff in the pre-application process.
Because of the property's location within 500 feet of a municipal boundary and a
state road, the Town of Smithtown referred the Company's subdivision application
to the Suffolk County Planning Commission as required by the Suffolk County
Administrative Code and the New York State General Municipal Law.
On August 2, 2017, the Suffolk County Planning Commission voted 11-0 to approve
Gyrodyne's subdivision application without conditions. Although the approval by
the Suffolk County Planning Commission is not binding on the Town of Smithtown,
the approval without conditions means that the requisite vote threshold for the
application at the Town of Smithtown's Planning Board is a simple majority.
On November 15, 2017, the Town of Smithtown Planning Board conducted a public
hearing in which the Company presented its subdivision plan for the Flowerfield
property. On April 11, 2018, the Planning Board determined that the subdivision
plan may result in one or more significant environmental impacts which will
require the preparation of an EIS. As a result, at the April 11, 2018 Planning
Board meeting, the Planning Board issued a SEQRA Positive Declaration, which was
rescinded and reissued by Planning Board Resolution dated May 9, 2018 that
included a Draft Scope and a request for public comments on the scope (i.e., a
public scoping process). The then current Town Planning Board Chairman
communicated that a Positive Declaration would require up to one year to
complete the SEQRA process. The Town issued the Final Scope on July 7, 2018. On
August 15, 2018, the Company submitted the Draft EIS to the Town of Smithtown
Planning Department prior to the public hearing. The Company received comments
on its EIS at the end of the third quarter of 2018 and submitted its response to
the Town of Smithtown Planning Department on February 25, 2019. On May 24, 2019,
the Company received additional comments on its EIS and submitted its responses
to the Town on June 4, 2019. On July 3, 2019, the Company received additional
comments on its EIS and submitted its response to the Town of Smithtown Planning
Department on August 28, 2019. On September 24, 2019, the Company received
additional comments on its EIS and submitted its response to the Town of
Smithtown Planning Department on October 25, 2019. The Town of Smithtown
Planning Board as Lead Agency under SEQRA adopted a resolution accepting the
DEIS as complete for public review on December 11, 2019 and announced a public
comment period that closed on January 24, 2020. Furthermore, the Town Planning
Board held and closed the public hearing for the DEIS on January 8, 2020.
Following the closing of the public comment period, the Company received a copy
of the public comments in February 2020. The Company reviewed the public
comments and responded by submitting a Final EIS ("FEIS") on April 20, 2020.
Following the receipt of additional comments on May 29 and June 9, 2020, the
Company filed its FEIS on July 24, 2020. Following State DOT comments received
July 31, 2020 and Town comments dated August 21, 2020, the Company filed a
revised FEIS on September 16, 2020 and received new comments on October 16,
2020. The Company filed a revised FEIS on October 29, 2020. Upon addressing
final Town comments received December 4, 2020, the Company filed its Final FEIS
on December 9, 2020 reflecting an eight-lot subdivision. The FEIS was accepted
by the Town Planning Board on March 10, 2021. Following a public comment period
that closed on March 31, 2021, the Town of Smithtown forwarded the public
comments and the FEIS to the Suffolk County Planning Commission. On May 5, 2021,
the Suffolk County Planning Commission voted 5 to 4 to approve the application
as a matter for local determination. Based on the fact that less than a majority
of the 18 total members (10 members needed) voted to either approve or deny the
application, the application is deemed approved as a matter for local
determination. Thus, the Smithtown Planning Board may act and approve the matter
with a simple majority vote. On September 20, 2021, the Town of Smithtown
Conservation Board voted unanimously to recommend the Town of Smithtown Planning
Board issue a SEQRA Negative Declaration, Determination of Non -Significance (an
environmental Impact Statement is not necessary based on certain stated reasons
and approve the Subdivision Application (eight lots inclusive of the lot for the
proposed sewage treatment plant). On March 30, 2022, the Smithtown Planning
Board voted unanimously to adopt the Findings Statement by resolution, closing
SEQR and held a public hearing for the approval of the Preliminary Subdivision
at the same meeting. Approval of the Preliminary Subdivision was granted at that
meeting. Final Subdivision approval is expected in 2023.
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The entitlement costs for the nine-months ended September 30, 2022 associated
with the ownership and development of this property were approximately $206,000,
consisting of architectural and engineering costs, legal expenses, economic
analysis, soil management and surveys.
While we cannot predict the outcome of the subdivision application, we have
undertaken to subdivide the Flowerfield property in a manner that we believe
will result in maximum pre-construction values in the shortest amount of time
and limited risk. The pandemic has negatively impacted demand for office
(including medical office) and hotel development "on spec". The Company's
subdivision plan at Flowerfield will allow for any combination of the
aforementioned uses and is marketing the undeveloped lots to reflect such
flexibility.
Healthcare Industry
Our tenants in our Cortlandt Manor property are healthcare service providers.
Furthermore, the Company's previous expansion of its leasing relationship with
Stony Brook University ("SBU"), SBU Hospital and affiliates of SBU Hospital at
our Flowerfield property increased its exposure to the healthcare industry. The
healthcare industry is subject to substantial regulation and faces increased
regulation particularly relating to fraud, waste and abuse, cost control and
healthcare management. The healthcare industry may experience a significant
expansion of applicable federal, state or local laws and regulations, previously
enacted or future healthcare reform, new interpretations of existing laws and
regulations or changes in enforcement priorities, all of which could materially
impact the business and operations of our tenants and therefore the
marketability of our properties.
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.
Impact of 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 to the
Company. As a result of the rapid development, fluidity and uncertainty
surrounding this situation, the Company expects that such statistical and other
information will 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 first three
quarters of 2022 and future periods.
The spread of COVID-19 has had a significant impact on the global economy, the
U.S. economy, the economies of the local markets in which the Company's
properties are located and the broader financial markets. Nearly every industry
has been impacted directly or indirectly, and has come under severe pressure due
to numerous factors, including preventative measures taken by local, state and
federal authorities to alleviate the public health crisis such as mandatory
business closures, quarantines, restrictions on travel and "shelter-in-place" or
"stay-at-home" orders. These containment measures, which generally do not apply
to businesses designated as "essential," have affected the operations of our
tenants, and non-essential businesses generally forced to close. There is
uncertainty as to the time, date and extent to which these restrictions will be
relaxed or lifted, businesses of tenants that have closed, either voluntarily or
by mandate, will reopen or when customers will re-engage with tenants as they
have in the past. The Company's properties and tenants have been impacted by
these and other factors as follows:
? As of the date of this Quarterly Report on Form 10-Q, 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 41% of the Company's 2022 projected annual rental revenues are
from tenants that are not part of or affiliated with a major hospital.
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The COVID-19 pandemic may adversely impact the timeliness of local government in
granting required approvals. Accordingly, COVID-19 may cause the completion of
important stages in our efforts to secure entitlements to be delayed.
Until recently, the U.S economy had been growing as COVID-19 vaccinations were
increasingly administered and many commercial activities returned to
pre-pandemic practices and operations. However, this favorable outlook could be
affected materially by adverse developments related to the COVID-19 pandemic and
the extent to which U.S Federal Reserve interest rate hikes in reaction to
persistent inflationary pressures have led or could lead to a recession in the
U.S.
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 $1,114,000 of land development fees and other professional fees
incurred to date plus approximately $199,000 of forecasted land development
fees and $123,000 in other professional 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.
? The Company 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 September 30, 2022, directors have
deferred $981,070 (inclusive of interest) and have committed to an additional
$72,000, plus interest through 2022.
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 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 2, Management's Discussion and Analysis of Financial
Condition and Results of Operations - Impact of COVID-19" and Part I, Item 1A,
"Risk Factors", of our Annual Report for the year ended December 31, 2021.
Transaction Summary for the Nine-Months Ended September 30, 2022The following summarizes our significant transactions and other activity during
the nine-months ended September 30, 2022.
COVID-19. Small businesses are expected to be adversely affected
disproportionately by the economic ramifications of COVID-19. In terms of its
own tenants, the Company has deferred approximately $118,000 of rental revenue
due to tenants who were closed due to the Executive Order entitled "New York
State on PAUSE". All deferred rent is expected to be collected under alternate
arrangements made with tenants.
Board of Directors. On March 26, 2022, Elliot Levine notified the Company that
in connection with the combination of Levine & Seltzer LLP, of which Mr. Levine
is a partner, and Weaver and Tidwell, LLP, Mr. Levine agreed to resign from the
board of directors of any U.S. public company on which he serves, and that
accordingly he intended to resign from the Board of Directors of Gyrodyne. On
March 27, 2022, the Board of Directors agreed to reduce the number of seats on
the Board from six to five, subject to and effective upon receiving formal
confirmation from Mr. Levine of his resignation from the Board. On March 29,
2022, Mr. Levine delivered written confirmation to the Company that he has
resigned from the Board, effective March 28, 2022. Mr. Levine's decision to
resign from the Board was not the result of any disagreement with the Company.
23
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Leasing Activity. During the nine-months ended September 30, 2022, the Company
executed two new leases and 15 renewals comprising approximately 4,200 and
24,500 square feet, annual revenue of approximately $61,600 and $410,400 and
total commitments of approximately $281,000 and $1,032,000 respectively. The
Company incurred commission fees of approximately $27,300 relating to the new
and extended leases.
There were also two terminations and two expansions resulting in a net increase
of approximately 2,600 square feet, $73,800 in annual revenue and approximately
$486,500 in total commitment. The Company incurred commission fees of
approximately $11,200 on the expansion.
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
September 1, 2015 Gyrodyne adopted the liquidation basis of accounting. This
basis of accounting is considered appropriate when, among other things,
liquidation of the entity is "imminent", as defined in ASC 205-30, Presentation
of Financial Statements Liquidation Basis of Accounting. Under the LLC
Agreement, the Board may elect, in its sole discretion and without any separate
approval by shareholders, to dissolve the Company at any time the value of the
Company's assets, as determined by the Board in good faith, is less than $1
million. The LLC Agreement also provides that the Company will dissolve, and its
affairs wound up upon the sale, exchange or other disposition of all the real
properties of the Company. As a result, liquidation is deemed to be
"imminent" in accordance with the guidance provided in ASC 205-30.
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 December 31,
2024.
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 will involve 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 at higher prices than those achievable under their current
entitlements and then proceed with the liquidation and dissolution of the
Company. 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 March 30, 2022, the Town of Smithtown Planning Board (the "Planning Board")
unanimously granted Gyrodyne's application for preliminary approval to divide
the Flowerfield property into eight lots, subject to certain conditions (the
"Flowerfield Subdivision Application"). On April 26, 2022, the Incorporated
Village of Head of the Harbor and certain other parties commenced a special
proceeding (the "Article 78 Proceeding") against the Town of Smithtown and
certain other parties, including the Company, seeking to annul the Planning
Board's determinations relating to the Flowerfield Subdivision Application. The
Article 78 Proceeding was commenced by the filing of a petition (the "Petition")
in the Supreme Court of the State of New York, Suffolk County, pursuant to
Article 78 of New York's Civil Practice Law and Rules ("Article 78").
Specifically, the Petition seeks to annul the Planning Board's (i) approval of a
findings statement, pursuant to the SEQRA, dated September 16, 2021, and adopted
by the Planning Board on March 30, 2022, concerning the Flowerfield Subdivision
Application, and (ii) preliminary approval on March 30, 2022, of the Flowerfield
Subdivision Application. The arguments made in the Petition are substantially
similar to those made by opponents of the Flowerfield Subdivision Application
during the SEQRA and subdivision process. The Company and the Town of Smithtown
are vigorously defending the Planning Board's determinations against the
Petition.
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 Town of Smithtown will be successful in the defense of the Planning
Board's determinations against the Petition or that other factors beyond our
control will necessitate an extension of the timeline generally.
The Flowerfield subdivision will remain subject to the Article 78 Proceeding
unless Gyrodyne and the Town of Smithtown prevail in their defense of the
Planning Board's determinations against the Petition. Nevertheless, the Company
will continue its efforts to identify one or more purchasers for Flowerfield and
execute purchase agreements, and it is unclear at this time what impact, if any,
the Article 78 Proceeding will have on such efforts.
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, we
anticipate receiving final approval of our subdivision applications for
Flowerfield and Cortlandt Manor in 2023 and that we will generally be able to
seek to identify purchasers for such properties after subdivision approval is
received. The Company believes that standard market terms for real property
transactions in both Cortlandt Manor and the Town of Smithtown would include
final subdivision approval, final unappealable site plan approval and the
resolution of the Article 78 Proceeding as conditions to closing.
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, perhaps even earlier than 2024,
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
December 2024.
The Company's assumptions and estimates (including the sales proceeds of all our
real estate holdings, selling costs, retention bonus payments, rental revenues,
rental expenses, capital expenditures, land entitlement costs, 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 December 31, 2024. As previously stated,
on an ongoing basis, Gyrodyne evaluates the estimates and assumptions that can
have a significant impact on the reported net assets in liquidation and will
update respective information accordingly for any costs and value associated
with a change in the duration of the liquidation, as we cannot give any
assurance on the timing of the ultimate sale of all the Company's properties.
Management Estimates - In preparing the consolidated financial statements in
conformity with U.S. Generally Accepted Accounting Principles ("GAAP") and the
liquidation basis of accounting, management is required to make estimates and
assumptions that affect the reported amounts of assets, including net assets in
liquidation, and liabilities and disclosure of contingent assets and liabilities
as of the date of the consolidated financial statements and the reported amounts
of receipts and expenditures for the reporting period. Actual results could
differ from those estimates.
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 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' businesses, and changes in tenant payment patterns when evaluating the
adequacy of the allowance for doubtful accounts.
25
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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 September 30,
2022, and has concluded that they will not have a material impact on the
Company's consolidated financial statements since the Company reports on a
liquidation basis.
Discussion of the Statements of Net Assets
Net assets in liquidation on September 30, 2022 and December 31, 2021 would
result in estimated liquidating distributions of $22,869,716 and $23,027,770, or
approximately $15.42 and $15.53 per common share, respectively, based on
1,482,680 shares outstanding. The decrease of $158,054 or $0.11 per share is
attributable to the change in the estimated liquidation and operating costs net
of estimated receipts, mainly due to estimated legal fees the Company will incur
to defend the Article 78 Proceeding of approximately $500,000 and other
additional costs net of savings of approximately $146,000 (of which
approximately $63,000 relates to lease commissions), offset by additional
revenue of approximately $488,000.
The cash balance at the end of the liquidation period (currently estimated to be
December 31, 2024, although the estimated completion of the liquidation period
may change), excluding any interim distributions, is estimated based on the
September 30, 2022 cash balance of $4.4 million plus adjustments for the
following items which are estimated through December 31, 2024:
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 properties 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 Cortlandt
Manor properties.
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 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. To the extent the Company underestimates or overestimates
forecasted cash outflows (capital improvements, 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.
The Company estimates that it will incur approximately $1.09 million (included
in the statements of net assets as part of the estimated liquidation and
operating costs net of estimated receipts) in land entitlement costs from
October 2022 through the end of the liquidation period, currently estimated to
conclude on or about December 31, 2024, in an effort to obtain entitlements,
including special permits. The Company believes the commitment of these
resources will enable the Company to position the properties for sale with all
entitlements necessary to maximize the Flowerfield and Cortlandt Manor property
values. During the nine-months ended September 30, 2022, the Company incurred
approximately $282,000 of land entitlement costs (approximately $87,000 of which
certain of the Company's service vendors agreed to defer until the first post
subdivision property lot is sold), consisting primarily of engineering fees,
legal fees and real estate taxes. The Company believes the remaining balance of
$1.09 million (inclusive of real estate taxes of $309K and regulatory fees of
$376K) will be incurred from October 2022 through the end of the liquidation
period. Certain of the Company's service vendors have agreed to defer
approximately $198,600 of the remaining $1.09 million until the first post
subdivision property lot is sold. The Company does not intend to develop the
properties but rather to commit resources to position the properties for sale in
a timely manner with all entitlements necessary to achieve maximum
pre-construction values. The costs and time frame to achieve the entitlements
could change due to a range of factors including a shift in the value of certain
entitlements making it more profitable to pursue a different mix of entitlements
and the dynamics of the real estate market. As a result, the Company has focused
and will continue to focus its land entitlement efforts on achieving the highest
and best use while considering the time necessary to achieve such entitlements.
During the process of pursuing such entitlements, the Company may entertain
offers from potential buyers who may be willing to pay premiums for the
properties that the Company finds more acceptable from a timing or value
perspective than completing the entitlement process itself. The value of the
real estate reported in the statement of net assets as of September 30, 2022
includes some but not all of the potential value impact that may result from the
land entitlement efforts. There can be no assurance that our value enhancement
efforts will result in property value increases that exceed the costs we incur
in such efforts, or even any increase at all.
26
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The net assets in liquidation on September 30, 2022 ($22,869,716) results in
estimated liquidating distributions of approximately $15.42 per common share
(based on 1,482,680 shares outstanding), based on estimates and other
indications of sales value which includes some but not all of the actual
potential sales proceeds that may result directly or indirectly from our land
entitlement efforts. Some of the additional value that may be derived from the
land entitlement efforts is not included in the estimated liquidating
distributions as of September 30, 2022 because the amount of such additional
value is too difficult to predict with sufficient certainty. The Company
believes the land entitlement efforts will enhance estimated distributions per
share through the improved values (some but not all of which has already been
included in the reported value for real estate held for sale) from the sales of
the Flowerfield and Cortlandt Manor properties net of the costs to achieve the
improved values and other expenses. This estimate of liquidating distributions
includes projections of costs and expenses to be incurred during the period
required to complete the plan of liquidation. There is inherent uncertainty with
these projections, and they could change materially based on the timing of the
sales, changes in values of the Cortlandt Manor and/or Flowerfield properties
(whether market driven or resulting from the land entitlement efforts) net of
any bonuses (if such values exceed the minimum values required to pay bonuses
under the retention bonus plan), favorable or unfavorable changes in the land
entitlement costs, the performance of the underlying assets, the market for
commercial real estate properties generally and any changes in the underlying
assumptions of the projected cash flows.
The following table summarizes the estimates to arrive at the Net Assets in
Liquidation as of September 30, 2022 (dollars are in millions).
September 30, 2022 cash and cash equivalents balance $ 4.38
Principal payments on loan (9.83 )
Free cash flow from rental operations 2.47 (i)
General and administrative expenses (4.99 ) (ii)
Land entitlement costs in pursuit of the highest and best use (1.09 )
Gross real estate proceeds
42.55
Selling costs on real estate (3.22 )
Retention bonus plan for directors, officers and employees (3.28 )
Final liquidation and dissolution costs
(1.53 ) (iii)
Other (2.59 ) (iv)
Net Assets $ 22.87(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
$2.47.
(ii) The general and administrative expenses, excluding final liquidation costs,
is estimated to be ($4.99).
(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
$(2.59).
Discussion of Changes in Net Assets
Gyrodyne's strategy is to enhance the value of Flowerfield and Cortlandt Manor,
by pursuing various entitlement opportunities, which the Gyrodyne Board believes
will improve the potential of obtaining better values for such properties. The
pursuit of the highest and best use of Flowerfield and Cortlandt Manor may
involve other strategies to manage risk and or enhance the net value of
Flowerfield and Cortlandt Manor to maximize the returns for our shareholders.
Gyrodyne intends to dissolve after we complete the disposition of all of our
real property assets, applies the proceeds of such dispositions first to settle
any debts and claims, pending or otherwise, against Gyrodyne, and then pays
liquidating distributions to holders of Gyrodyne common shares. Therefore, the
Company includes in its financial statements the Consolidated Statement of
Changes in Net Assets for the nine-months ended September 30, 2022, which is
discussed below:
Net assets in liquidation on January 1, 2022 $ 23,027,770
Changes in net assets in liquidation from January 1 through
September 30, 2022:
Change in liquidation value of real estate
-
Remeasurement of assets and liabilities in liquidation (158,054 )
Total decrease in net assets in liquidation (158,054 )
Net assets in liquidation on September 30, 2022 $ 22,869,716
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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 enhancing the value of the
Flowerfield and Cortlandt Manor properties via the pursuit of the associated
change in entitlements.
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 finance our operations through cash on hand. Certain of the Company's major
vendors have agreed to defer payment on 50% of their fees until the subdivided
lot is sold. Additionally, on December 6, 2019, the Company's Board of Directors
approved the Gyrodyne, LLC Nonqualified Deferred Compensation Plan for Employees
and Directors (the "DCP") effective as of January 1, 2020. The plan is a
nonqualified deferred compensation plan maintained for officers and directors of
the Company. Under the DCP, officers and directors may elect to defer a portion
of their compensation to the DCP and receive interest on such deferred payments
at a fixed rate of 5% (per annum). All DCP benefits will be paid in a single
lump sum cash payment on December 15, 2026, unless a Plan of Liquidation is
established for Gyrodyne before the distribution date in which case all benefits
will be paid in a single lump sum cash payment after execution of an amendment
to terminate the DCP (See Deferred Compensation Plan above).
As of September 30, 2022, the Company had cash and cash equivalents totaling
approximately $4.4 million. The Company anticipates that its current cash and
cash equivalent balance will be adequate to fund its process of seeking
entitlements and selling assets and subsequent dissolution. The $4.4 million of
cash will be partially used to fund our efforts to generate the highest values
for the Flowerfield and Cortlandt Manor properties while simultaneously pursuing
the strategic sale of these properties. The pursuit of the highest values of
Flowerfield and Cortlandt Manor may involve the other investments and or other
strategies to manage risk and or enhance the net value of Flowerfield and
Cortlandt Manor to maximize the returns for our shareholders. The Company is
estimating and reporting in the consolidated statements of net assets total
gross cash proceeds from the sale of its assets of approximately $42.5 million.
Based on the Company's current cash balance and the above forecast, the Company
estimates distributable cash stemming from the liquidation of the Company of
approximately $22.87 million.
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; and
? sale of assets.
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 throughout the
liquidation process.
Major elements of the Company's cashflows for the nine-months ended September
30, 2022 were as follows:
Operating cashflows
? $2,251,369 in rent and reimbursements.
? ($1,337,090) in operating costs.
? $914,279 in net operating income
Non-operating cashflows
? ($1,601,227) in corporate expenditures.
? ($318,105) in interest expense.
? ($106,679) of capital expenditures on the real estate portfolio excluding
those costs incurred for land entitlement.
? ($194,804) of land entitlement costs net of service vendor deferrals of
$86,962.
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