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Item 1A. Risk Factors

2021-04-13 compared with 2020-03-26 · 91 added, 97 removed, 189 unchanged (50% of the section changed)

Risk Factors.

Gyrodyne’s business, financial condition, results of operations and liquidating distribution potential are subject to risks customary for real property owners, as well as additional risks associated with Gyrodyne’s strategic plan of positioning our remaining properties for sale at enhanced values and making liquidating distributions to our shareholders.

Gyrodyne’s business, financial condition, results of operations and distribution potential are subject to risks customary for real property owners, as well as additional risks associated with Gyrodyne’s strategic plan of positioning our remaining properties for sale at enhanced values and making distributions to our shareholders.

In addition to the factors discussed elsewhere in this Report, the following risks and uncertainties could materially harm the value of our properties and the magnitude of distributions to our shareholders, including causing Gyrodyne’s actual results to differ materially from those projected in any forward-looking statements.

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For more information about forward-looking statements, see the section of this report entitled “Cautionary Statement Concerning Forward-Looking Information” below.

I lliquidity of real estate and l ack of diversification may make it difficult for us to sell properties or achieve satisfactory returns in one or more properties within projected timelines.

There are risks associated with seeking to enhance the value of certain properties.

Gyrodyne has been exploring enhancements of the value of our Flowerfield and Cortlandt Manor properties by pursuing various entitlement opportunities.

The Company believes that the cost of doing so will be exceeded by the resulting increase in value in such properties.

Our efforts to seek enhancements of such properties are subject to various risks, including the following:

any delay or denial of a required entitlement or permit, including zoning, land use, environmental, emissions or other related permits, would adversely impact our property enhancement plans;

our analysis of site context, of demographic trends, of decisions of anchor institutions and of growth opportunities generally may not result in identifying the correct high value land uses and programmatic synergies;

capital improvement costs and other expenses of such enhancements may be higher than projected, potentially making the project unfeasible or unprofitable;

we may not have funds available or be able to obtain financing for these value-enhancement projects on favorable terms, if at all;

we may experience delays in the repositioning or improvement process.

For these and other reasons, we cannot assure you that we will realize growth in the value of our Flowerfield and Cortlandt Manor properties that exceeds our land entitlement costs or any at all, and as a result our ability to make distributions to our shareholders could be adversely affected.

Community opposition could adversely impact our efforts to obtain entitlements and enhance the value of our properties.

The process of seeking required entitlements, permits and approvals is sometimes delayed or prevented due to community opposition and adverse publicity from neighboring property owners, members of the general public or non-governmental organizations, or other third parties and other factors beyond our control.

The Company’s efforts to seek entitlements, permits or other approvals have been the subject of protests by civic groups asserting environmental, traffic and congestion issues as well as adverse impact to the historic nature of the area.

Such community opposition could lead to the denial of entitlements, permits or other approvals essential to our efforts to increase the value of our properties or to the imposition of restrictive conditions with which it is not practicable or feasible to comply and could impact our ability to enhance the value of our properties.

We cannot assure you of the exact timing and amount of any further distributions to our shareholders.

Our estimate of net assets on December 31, 2020 is $22.49 million or $15.17 per common share.

These estimated amounts are based on a number of assumptions and factors outside of our control.

The process of disposing of our real property assets in an orderly manner designed to obtain the best value reasonably available for such assets may fail to create value or may result in lower than expected value and may result in lower than expected proceeds, or in no proceeds, for distribution to our shareholders.

The actual nature, amount and timing of all distributions will be determined by Gyrodyne in our sole discretion, and will depend on, and could be delayed by, among other things, sales of our real estate assets, claim settlements with creditors, resolution of outstanding litigation matters, payment of incentive bonuses to those employees and directors who are vested under the Retention Bonus Plan and unanticipated or greater-than-expected expenses.

Examples of uncertainties that could reduce the value of or eliminate distributions to our shareholders include unanticipated costs relating to:

failure to achieve favorable values for our properties in their disposition;

the defense, satisfaction or settlement of lawsuits or other claims that may be made or threatened against us in the future;

delay or failure to settle claims;

administration and settlement of federal and state tax audits, if any.

As a result, we cannot determine with certainty the amount or timing of distributions to our shareholders.

If we are unable to find buyers for our properties at our expected sales prices, distributions may be delayed or reduced.

In calculating our estimated net assets, we assume that we will be able to find buyers for all our properties at our estimated amounts.

However, we may have overestimated the sales prices that we will be able to obtain for these properties or underestimated the costs associated with such sales.

If we are not able to find buyers for these properties in a reasonably timely manner or if we have overestimated the sales prices we will receive, distributions payable to holders of our common shares would be delayed or reduced.

Furthermore, our estimated net assets are based on current market conditions, but real estate market values are constantly changing and tend to fluctuate with changes in interest rates, supply and demand dynamics, occupancy percentages, lease rates, the availability of suitable buyers, the perceived quality and dependability of income flows from tenancies and a number of other factors, both local and national.

In addition, transactional fees and expenses, environmental contamination at our properties or unknown liabilities, if any, may adversely impact the net proceeds from those properties.

Distributions to shareholders may be delayed or reduced as a result of sale agreement provisions that allow purchasers to terminate agreements and/or result in purchaser defaults.

Purchase and sale agreements that we have entered into with respect to properties we previously sold contained provisions that gave the purchaser the right to terminate the agreement, for any reason or no reason, prior to the expiration of an evaluation period, and receive a refund of earnest money deposits, and it can be anticipated that agreements for future property sales will have similar provisions.

The consummation of property sales for which we will enter into sale agreements in the future will also be subject to satisfaction of standard closing conditions.

If any property sale contemplated by future sale agreements does not close because a purchaser exercises its termination right or defaults, or because of a failure of a closing condition or for any other reason, we will need to locate a new buyer for the property, which we may be unable to do promptly or at a price or on terms that are as favorable as contained in the original sale agreement.

Many of the costs incurred due to a sale that fails to close are sunk costs with no future value and we will also incur additional costs involved in negotiating a new sale agreement for such property.

These additional costs are not included in our projections.

In the event that we incur these additional costs, distributions to our shareholders would be delayed or reduced.

Illiquidity of real estate and lack of diversification may make it difficult for us to sell properties or achieve satisfactory returns in one or more properties within projected timelines.

Our assets consist substantially of real properties which are relatively illiquid assets.

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As a result, we may be unable to sell our properties for an extended period of time at the values disclosed in our Consolidated Statement of Net Assets, which would adversely affect our results of operations, liquidity and financial condition.

We expect to complete our process of pre-development enhancement and liquidation of all our properties by December 31, 2021.

However, the illiquid nature of real estate and the short timeframe that we have chosen to complete the pre-development value enhancement and liquidation process could adversely impact the prospects for achieving our value enhancement and sale objectives and may ultimately result in an extension of the timeline and or additional costs for achieving our pre-development property value enhancement and liquidation objectives.

If our land entitlement and liquidation costs or unpaid liabilities are greater than we expect, our liquidating distributions to our shareholders may be delayed or reduced.

We expect to complete our process of pre-development enhancement and subsequent sale of all our properties by December 31, 2022.

However, the illiquid nature of real estate and the short timeframe that we have chosen to complete pre-development value enhancement and subsequent sale of assets could adversely impact the prospects for achieving our value enhancement and sale objectives and may ultimately result in an extension of the timeline and or additional costs for achieving our pre-development property value enhancement and asset sale objectives.

If our land entitlement and liquidation costs or unpaid liabilities are greater than we expect, our distributions to our shareholders may be delayed or reduced.

In order to obtain certain entitlements, permits and approvals, we may be required to prepare and present additional data to governmental authorities pertaining to the potential adverse impact that any proposed activities may have on the environment, individually or in the aggregate.

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Total liability for estimated costs in excess of estimated receipts during liquidation, inclusive of the costs listed above plus costs associated with the sale of real estate, payments made under the retention bonus plan and liquidating costs, total $11,552,940.

The total amount of land entitlement costs, transaction fees and all operating and administrative costs in the liquidation is not yet known and, therefore, we have used estimates of these costs in calculating the amounts of our projected liquidating distributions to our shareholders.

To the extent that we have underestimated these costs in calculating our projections or we incur unforeseen additional costs, our actual liquidating distributions may be lower than our estimated net assets in liquidation.

In addition, if the claims of our creditors are greater than we have anticipated, or we decide to acquire one or more insurance policies covering unknown or contingent claims against us, our liquidating distributions may be delayed or reduced.

Further, if a reserve fund is established, payment of liquidating distributions to our holders of common shares may be delayed or reduced.

To the extent that we have underestimated these costs in calculating our projections or we incur unforeseen additional costs, our actual distributions may be lower than our estimated net assets.

Further, if a reserve fund is established, payment of distributions to our holders of common shares may be delayed or reduced.

Stipulation of Settlement prohibits us from selling our remaining properties at prices below December 2014 appraised values.

On July 3, 2014, a purported shareholder of the Company filed a putative class action lawsuit against the Company, Gyrodyne Company of America, Inc.

(the “Corporation”), Gyrodyne Special Distribution, LLC (“GSD”) and members of our Board of Directors (the "Action").

The complaint alleged, among other things, that (i) our directors breached their fiduciary duties or aided and abetted the breach of those duties in connection with the merger of the Corporation, and GSD into the Company (the “Merger”) and (ii) the Corporation and the directors breached their fiduciary duties by failing to disclose material information in the proxy statement/prospectus relating to the Merger.

On August 14, 2015, the parties to the Action entered a Stipulation of Settlement (the "Settlement") providing for the settlement of the Action, subject to the court's approval.

Under the Settlement, Gyrodyne amended its proxy statement relating to the Merger with certain supplemental disclosures and agreed that any sales of its properties would be effected only in arm's-length transactions at prices at or above their appraised values as of 2014.

On August 14, 2015, the Company entered a Stipulation of Settlement (the "Settlement") providing for the settlement of a putative class action lawsuit against the Company and certain related parties.

Under the Settlement, Gyrodyne agreed that any sales of its properties would be effected only in arm's-length transactions at prices at or above their appraised values as of 2014.

The 2014 aggregate appraised value for our properties was approximately $100,000 higher than the 2013 aggregate appraised value for such properties.

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In addition, a severe downturn in the general economy or in the real estate market, or other negative factors beyond our control, may drive down the values of commercial real estate properties, or otherwise result in the values of our remaining properties being reduced to levels below the 2014 appraised values, in which case we may be prohibited under the Settlement from selling such properties.

Such limitation on the options available to the Company may make it more difficult to accomplish our stated objective of completing the liquidation process by December 31, 2021.

Such limitation on the options available to the Company may make it more difficult to accomplish our stated objective of completing the process of seeking entitlements and selling assets by December 31, 2022.

Furthermore, the Stipulation’s price floor provision does not factor in land entitlement costs that may be incurred in enhancing the value of any particular property.

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increases in maintenance, insurance and operating costs.

There are risks associated with seeking to enhance the value of certain properties .

Gyrodyne is currently exploring enhancements of the value of our Flowerfield and Cortlandt Manor properties by pursuing various entitlement opportunities.

The Board believes that the cost of doing so will be exceeded by the resulting increase in value in such properties.

Our efforts to seek enhancements of such properties are subject to various risks, including the following:

any delay or denial of a required entitlement or permit, including zoning, land use, environmental, emissions or other related permits, would adversely impact our property enhancement plans;

capital improvement costs and other expenses of such enhancements may be higher than projected, potentially making the project unfeasible or unprofitable;

we may not have funds available or be able to obtain financing for these value-enhancement projects on favorable terms, if at all;

we may experience delays in the repositioning or improvement process.

Community opposition could adversely impact our efforts to obtain entitlements and enhance the value of our properties.

The Company’s efforts to seek entitlements, permits or other approvals has been the subject of recent protests by civic groups asserting environmental, traffic and congestion issues as well as adverse impact to the historic nature of the area.

Such community opposition could lead to the denial of entitlements, permits or other approvals essential to our efforts to increase the value of our properties or the imposition of restrictive conditions with which it is not practicable or feasible to comply could impact our ability to enhance the value of our properties.

We cannot assure you of the exact timing and amount of any further distributions to our shareholders .

Our estimate of net assets in liquidation at December 31, 2019 is $31.4 million or $21.16 per common share.

These estimated amounts are based on a number of assumptions and factors outside of our control.

Examples of uncertainties that could reduce the value of or eliminate distributions to our shareholders include unanticipated costs relating to:

failure to achieve favorable values for our properties in their disposition;

the defense, satisfaction or settlement of lawsuits or other claims that may be made or threatened against us in the future;

delay or failure to settle claims;

administration and settlement of federal and state tax audits, if any.

As a result, we cannot determine with certainty the amount or timing of distributions to our shareholders.

If we are unable to find buyers for our properties at our expected sales prices, distributions may be delayed or reduced.

In calculating our estimated net assets in liquidation, we assume that we will be able to find buyers for all our properties at our estimated amounts.

However, we may have overestimated the sales prices that we will be able to obtain for these properties or underestimated the costs associated with such sales.

Furthermore, our estimated net assets in liquidation are based on current market conditions, but real estate market values are constantly changing and tend to fluctuate with changes in interest rates, supply and demand dynamics, occupancy percentages, lease rates, the availability of suitable buyers, the perceived quality and dependability of income flows from tenancies and a number of other factors, both local and national.

In addition, transactional fees and expenses, environmental contamination at our properties or unknown liabilities, if any, may adversely impact the net liquidation proceeds from those properties.

Distributions to shareholders may be delayed or reduced as a result of sale agreement provisions that allow purchasers to terminate agreements and /or result in purchaser defaults .

The consummation of property sales for which we will enter into sale agreements in the future will also be subject to satisfaction of standard closing conditions.

These additional costs are not included in our projections.

In the event that we incur these additional costs, distributions to our shareholders would be delayed or reduced.

Our shareholders may be liable to our creditors for an amount up to the amount distributed by us if our reserves for payments to creditors are inadequate

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 under New York State’s fraudulent conveyance laws for payments made to them and could be required to return all or a part of distributions made to them.

In the event our shareholders receive distributions from Gyrodyne at a time when the Company is insolvent or is rendered insolvent thereby and there are insufficient funds to pay any creditors who seek payment of claims against Gyrodyne, shareholders could be held liable under New York State’s fraudulent conveyance laws for payments made to them and could be required to return all or a part of distributions made to them.

Under the New York Uniform Voidable Transactions Act signed into law on December 6, 2019, the reach-back period for voidable transaction claims other than claims based on fraud is reduced from six years to four years with respect to distributions made on or after April 4, 2020.

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The sales proceeds that could be generated from opportunistic dispositions of our real properties depend in large part on occupancy and rental rates, our success in renting currently available space and the existence of any significant tenant defaults that were not subsequently cured.

In calculating the estimated liquidating distributions, it was assumed that we would maintain the occupancy rates of currently leased space, that we would be able to rent currently available space in the ordinary course and that we would not experience any significant tenant defaults during the liquidation process that were not subsequently cured.

In calculating the estimated distributions, it was assumed that we would maintain the occupancy rates of currently leased space, that we would be able to rent currently available space in the ordinary course and that we would not experience any significant tenant defaults during the process of seeking entitlements and selling assets that were not subsequently cured.

Negative trends in one or more of these factors may adversely affect the resale value of the properties, which would reduce our distributions.

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The Coronavirus pandemic has affected and will likely for the foreseeable future affect the markets in which our tenants operate and otherwise impact our facilities, which will adversely impact the businesses of our tenants and, in turn, our business, financial condition, results of operations and our ability to pay distributions.

Small businesses and not-for-profit corporations, which account for approximately 39% ($834,000) of the Company’s projected annual rental revenues for 2020, are expected to be adversely affected disproportionately by the economic ramifications of COVID-19.

Furthermore, New York Governor Andrew Cuomo’s Executive Order mandating that all non-essential employees stay at home starting March 22, 2020 through April 19, 2020 also includes a 90-day moratorium on any residential or commercial evictions.

Not-for-profit corporations and tenants that are neither medical offices nor part of or affiliated with SBU or SBU Hospital, which together account for approximately 37% ($776,000) of the Company’s projected annual rental revenues for 2021, are expected to be adversely affected disproportionately by the economic ramifications of COVID-19.

The loss of a major tenant could adversely affect our financial condition.

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The annual rent from such tenant is expected to represent approximately 24% of our annual rental revenue for 2021.

We may experience increased operating costs, which might reduce our estimated net assets in liquidation and the sales prices received for our properties.

We may experience increased operating costs, which might reduce our estimated net assets and the sales prices received for our properties.

Our properties are subject to increases in operating expenses such as for cleaning, electricity, heating, ventilation and air conditioning, administrative costs and other costs associated with security, landscaping and repairs and maintenance of our properties.

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The Coronavirus pandemic has affected and will likely for the foreseeable future affect the markets in which our tenants operate and otherwise impact our facilities, which in turn will adversely impact the businesses of our tenants and, in turn, our business, financial condition, results of operations and our ability to pay distributions.

Although, the duration and full extent of this disruption, the impact of COVID-19 on our future results could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus, the success of actions taken to contain or treat the coronavirus and reactions by consumers, companies, governmental entities and capital markets.

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The COVID-19 public health crisis may also adversely impact our efforts to secure entitlements and the sale of our real estate.

State and local government is prioritizing COVID-19 crisis management and, to the extent possible, re-allocating resources accordingly which may adversely impact the timeline of our entitlements and technical approvals.

Furthermore, the real estate market is expected also to be adversely affected which could further negatively impact the timing of sales and the resulting value of our real estate.

The extent of the impact of COVID-19 on the Company's operational and financial performance and ultimately its Net Asset Value, will depend on future developments, including the duration and spread of the outbreak and related governmental or other regulatory actions.

The Company has four employees.

As a result, 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 are infected by the Coronavirus and become ill from COVID-19.

The extent of the impact of COVID-19 on the Company's operational and financial performance and ultimately its Net Asset Value, will depend in part on the duration and spread of the outbreak and related governmental or other regulatory actions.

The Company’s ability to operate seamlessly and limit any adverse impact on its forecasted Net Asset Value will depend in part on whether any of its key employees is infected by the Coronavirus and becomes ill from COVID-19.

Our common shares are thinly traded and there may not be an active, liquid trading market for our common shares.

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Therefore, our shareholders may not be able to sell their shares at the volume, prices or times that they desire.

If our common share s are delisted from N asdaq , shareholders may find it difficult to dispose of their shares .

If our common shares are delisted from Nasdaq, shareholders may find it difficult to dispose of their shares.

We believe we are currently in compliance with all of our Nasdaq listing requirements.

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Our tenants in our Cortlandt Manor property are healthcare service providers.

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 medical office properties.

The recent U.S.

presidential election, coupled with a Republican-controlled Congress, makes the repeal and replacement of the Patient Protection and Affordable Care Act (the “Affordable Care Act”) a possibility.

In 2017, Congress unsuccessfully sought to replace substantial parts of the Affordable Care Act with different mechanisms for facilitating insurance coverage in the commercial and Medicaid markets, but was able to enact legislation eliminating the tax penalty for individuals who do not purchase insurance.

A shift toward less comprehensive health insurance coverage and increased consumer cost-sharing on health expenditures could have a material adverse effect on our tenants’ financial conditions and results of operations and, in turn, their ability to satisfy their contractual obligations.

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.

The healthcare industry is currently experiencing rapid regulatory changes and uncertainty; changes in the demand for and methods of delivering healthcare services; changes in third-party reimbursement policies; expansion of insurance providers into patient care; continuing pressure by private and governmental payors to reduce payments to providers of services; and increased scrutiny of billing, referral and other practices by governmental authorities.

These factors may adversely affect the economic performance of some or all of our medical office tenants and, in turn, our performance.

Our tenants are also 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.

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We are subject to risks stemming from the New York State budgets.

Our industrial park borders Stony Brook University and the University’s leases, including leases with the University’s affiliates, with us represent over 21% of our overall rentable space.

Our industrial park borders Stony Brook University and our leases with the University, including leases with the University’s affiliates, represent over 21% of our overall rentable space.

The New York State budget puts additional pressure on Stony Brook University, part of the State University of New York system, to cut costs.

Many of our tenants service the local area and may be adversely affected by a reduction in business from Stony Brook University.

Stony Brook University and its affiliates currently have three leases with Gyrodyne.

Stony Brook University and its affiliates currently have three leases with Gyrodyne comprising approximately 34,000 square feet and $648,000 in annual revenue.

Geographic concentration of our properties will make our business vulnerable to economic downturns in the New York metropolitan area.

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Tenants often require us to make periodic capital improvements as a condition of renewing leases.

For the year ended December 31, 2019 we spent approximately $616,000 on capital improvements to our real estate portfolio (of which approximately $500,000 were tenant improvements for long term tenants).

On average, we spend approximately $225,000 on capital improvements to our real estate portfolio (excluding tenant improvements for long term tenants who expand their suites).

Capital improvements and renovation projects may give rise to the following risks:

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There is no guarantee that any processes, procedures and internal controls we have implemented or will implement will prevent cyber intrusions, which could have a negative impact on our financial condition, operations, tenant and other business relationships or confidential information.

Our mortgage indebtedness could adversely impact the value of our s hare holders’ investment if the value of the property securing the debt falls or if we are forced to refinance the debt during adverse economic conditions.

On March 21, 2018, our wholly owned subsidiary, GSD Flowerfield, LLC, closed on a non-revolving credit line with a bank for up to $3,000,000 (the “Original Line”), secured by approximately 31.8 acres of the Flowerfield Industrial Park including the respective buildings and related leases and guaranteed by the Company.

On January 24, 2019, the Company amended and extended the Original Line which included extending the maturity date of the interest only phase to the earlier of January 20, 2020 or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing on the earlier of January 20, 2027 or 84 months after conversion to a permanent loan (the “Permanent Phase”).

The Company amended and extended the Original Line which included extending the maturity date of the Interest-Only Phase to the earlier of April 30, 2020 or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing on the earlier of April 30, 2027 or 84 months after conversion to a permanent loan (the “Permanent Phase”).

The Permanent Phase interest rate currently would be 3.25%.

On January 24, 2019, the wholly owned subsidiary, GSD Flowerfield LLC closed on a working capital non-revolving line of credit of $3,000,000 secured by approximately 31.8 acres of the Flowerfield Industrial Park including the related buildings and leases and guaranteed by the Company.

There is an interest only phase for the first twenty-four months of the loan (“Interest-Only Phase”) after which it automatically converts to a permanent loan maturing on January 20, 2028 (84 months after conversion to a permanent loan) (the “Permanent Phase”).

Our mortgage indebtedness could adversely impact the value of our shareholders ’ investment if the value of the property securing the debt falls or if we are forced to refinance the debt during adverse economic conditions.

The Company secured a non-revolving credit line for up to $3,000,000 (the “Original Line”) with a bank, which closed on March 21, 2018.

The Original Line included an interest only phase for the first eight months of the loan (“Interest-Only Phase”).

The Company amended and extended the Original Line which included extending the conversion date of the Interest-Only Phase to the earlier of April 30, 2021 or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing on the earlier of April 30, 2028 or 84 months after conversion to a permanent loan (the “Permanent Phase”).

The interest rate, per the latest modification, during the Interest-Only Phase is a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 150 basis points (1.5% rounded up to the nearest 1/8 percent), adjusted daily, but shall not be less than 4.75%.

During the Permanent Phase, the Company will pay interest at a fixed rate based on the Federal Home Loan Bank rate for a 7-year maturity as made available by the Federal Home Loan Bank of New York plus a margin of 200 basis points (2%) rounded up to the nearest 1/8 percent, but shall not be less than 3.85%, plus principal based on a 20-year amortization period.

The Permanent Phase interest rate currently would be 3.85%.

To secure access to additional working capital through the final sale date of the Cortlandt Property lots (“Lots”), the Company, through its subsidiary GSD Cortlandt, LLC (“GSD Cortlandt”) signed a commitment letter for a third loan evidenced by a non-revolving business line of credit agreement and promissory note with the Original Line bank for up to $2,500,000, which is scheduled to close in the second quarter of 2020.

To secure access to additional working capital through the final sale date of the Flowerfield industrial buildings, the Company secured a second loan evidenced by a non-revolving business line of credit agreement and promissory note with the Original Line bank for up to $3,000,000, which closed on January 24, 2019.

This loan included an interest only phase for the first twenty-four months of the loan (“Interest-Only Phase”) after which it automatically converts to a permanent loan maturing on January 20, 2028 (84 months after conversion to a permanent loan) (the “Permanent Phase”).

The Company amended and extended the line which included extending the conversion date of the Interest-Only Phase to the earlier of May 20, 2021 or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing on the earlier of May 20, 2028 or 84 months after conversion to a permanent loan.

The interest rate during the Interest-Only Phase shall be a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 100 basis points (1% rounded up to the nearest 1/8 percent), but in no event less than 4.75%.

Permanent Phase interest rate currently would be 3.85%.

To secure access to additional working capital, the Company, through its subsidiary GSD Cortlandt, LLC (“GSD Cortlandt”) secured a loan evidenced by a non-revolving business line of credit agreement and promissory note with the Original Line bank for up to $2,500,000 which closed on July 16, 2020.

The term is 24 months, with an option to extend for an additional 12 months.

The interest rate is a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 100 basis points (1%), rounded up to the nearest 1/8 percent, but in no event less than four and three quarters percent (4.75%).

The ability to draw upon the line is limited to certain amounts, contingent upon whether GSD Cortlandt delivered signed contracts for one or both Lots.

The line is secured by the Cortlandt property (approximately 14 acres) and cross collateralized by approximately 31.8 acres of the Flowerfield Industrial Park including the related buildings and leases.

The Company anticipates modifying the terms of the loans following the completion of the subdivision so that the loans remain cross collateralized by the subdivided industrial park lot only.

Effective February 27, 2020, the Company entered into an engagement letter with a national real estate finance firm (the “Firm”) pursuant to which the Firm agreed to assist the Company secure financing with prospective lenders, and the Company agreed to pay the Firm an origination fee equal to one percent (1%) of any loan secured by the Company with any lender introduced to the Company by the Firm other than designated excluded lenders with whom the Company has a preexisting relationship.

The intended use of this facility is to finance tenant improvements on new leases, if any, and a reserve for additional working capital.

If there is a shortfall between the cash flow from the mortgaged property and the cash flow needed to service mortgage debt on that property, then the amount available for distributions to shareholders may be reduced.

In addition, incurring mortgage debt generally increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions.

In that case, we could lose the property securing the loan that is in default and our ability to pay cash distributions to our shareholders will be adversely affected.

Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to pay distributio ns to our share holders.

The terms of the loan originally limited access to certain amounts, contingent upon GSD Cortlandt securing purchase agreements for one or both Cortlandt Property lots.

On February 22, 2021, the Company amended this line to remove the contingency of contracts in order to draw.

Advances of $379,765 and $670,235, were drawn at closing and on January 28, 2021, respectively.

The balance of $1,450,000 is available to be drawn upon the Lender’s discretion.

Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to pay distributions to our shareholders.

As of March 21, 2018, we had a non-revolving credit line for up to $3,000,000 (the “Original Line”) with a bank.

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Increases in interest rates during the Interest-Only Phase would increase our interest costs, which could reduce our cash flows and our ability to pay distributions to shareholders.

On January 24, 2019, the Company amended and extended the Original Line which included extending the maturity date of the interest only phase to the earlier of January 20, 2020 (which has since been extended to April 30, 2020) or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing the earlier of January 20, 2027 or 84 months after conversion to a permanent loan (the “Permanent Phase”).

On January 24, 2019, the Company amended and extended the Original Line which included extending the conversion date of the interest only phase to the earlier of January 20, 2020 (which has since been extended to April 30, 2021) or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing the earlier of January 20, 2027 or 84 months after conversion to a permanent loan (the “Permanent Phase”).

The Company amended and extended the Original Line which included extending the maturity date of the Interest-Only Phase to the earlier of April 30, 2021 or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing on the earlier of April 30, 2028 or 84 months after conversion to a permanent loan.

The term is 24 months, with an option to extend for an additional 12 months.

See “ Business — Financing Strategy ”, above, for more detailed disclosure.

The intended use of this facility is to finance tenant improvements on new leases, if any, and a reserve for additional working capital.

Changes in federal tax law could adversely af fect the tax treatment of distributions to our s hareholders .

Changes in federal tax law could adversely affect the tax treatment of distributions to our shareholders.

Legislative, regulatory or administrative changes could be enacted or promulgated at any time, either prospectively or with retroactive effect, and may adversely affect the Company and our shareholders.

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In addition to modifying income tax rates for individuals and corporations, the 2017 Tax Cuts and Jobs Act made certain changes to the tax treatment for pass-through entities, such as Gyrodyne.

Shareholders are urged to consult a tax advisor regarding the implications of the 2017 Tax Cuts and Jobs Act on their shares in Gyrodyne.

Loss of key management personnel.

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We have programs in place that have been designed to motivate, reward and retain such executive officers, including employment agreements and our Retention Bonus Plan.

Nevertheless, the loss or unavailability of either of our executive officers due to retirement, resignation or otherwise could have a material adverse effect on our business, financial condition and results of operations in general, and our efforts to position our properties to maximize values and distributions to shareholders in particular, if we are unable to retain our executive officers.

Nevertheless, the loss or unavailability of either of our executive officers due to retirement, resignation, COVID-19 or otherwise could have a material adverse effect on our business, financial condition and results of operations in general, and our efforts to position our properties to maximize values and distributions to shareholders in particular, if we are unable to retain our executive officers.

Unresolved Staff Comments.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors