What changed in this filing

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Item 1. Financial Statements

2022-05-11 compared with 2021-11-10 · 292 added, 309 removed, 602 unchanged (50% of the section changed)

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CONSOLIDATED STATEMENTS OF NET ASSETS

AS OF SEPTEMBER 30, 2021 (UNAUDITED) AND DECEMBER 31, 2020

AS OF MARCH 31, 2022 (UNAUDITED) AND DECEMBER 31, 2021

(Liquidation Basis)

September 30,

Real estate held for sale

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5,670,693  

Restricted cash

169,000  

Rent receivable

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CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS

FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2021

FOR THE THREE-MONTHS ENDED MARCH 31, 2022

(Liquidation Basis)

Net assets in liquidation, as of December 31, 2021

$ 22,487,944  

Changes in assets and liabilities in liquidation:

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Remeasurement of assets and liabilities

25,025  

Net increase in liquidation value

25,025  

Net assets in liquidation, as of September 30, 2021

$ 22,512,969  

Net assets in liquidation, as of March 31, 2022

See notes to consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (LIQUIDATION BASIS) FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2021 (unaudited)

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, and the pursuit of entitlements on, a portfolio of medical office and industrial properties located in Suffolk (“Flowerfield”) and Westchester Counties (“Cortlandt Manor”), New York State.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (LIQUIDATION BASIS) FOR THE THREE-MONTHS ENDED MARCH 31, 2022 (unaudited)

Strategic Overview

Gyrodyne, LLC’s (including its subsidiaries, “Gyrodyne”, the “Company”

or the “Registrant”) corporate strategy is to pursue entitlements to increase the values of Cortlandt Manor and Flowerfield, its two remaining properties, so that they can be sold to one or more developers at higher prices and maximize value and distributions.

Gyrodyne intends to dissolve after we complete the disposition of our assets, apply the proceeds to settle debts and claims, and then pay liquidating distributions to its shareholders.

Gyrodyne filed subdivision applications in March 2017 with respect to Cortlandt Manor and Flowerfield. 

The COVID- 19 pandemic caused significant delays in the regulatory approval process, as state, county and local staff charged with processing our subdivision applications all postponed activity due to work-from-home transitions.

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 under Article 78 of New York’s Civil Practice Law & Rules (“Article 78”

) against the Town of Smithtown and certain other parties, including Gyrodyne, LLC, seeking to annul the Planning Board’s determinations relating to the Flowerfield Subdivision Application.

Specifically, the Petition seeks to annul the Planning Board’s (i) approval of a findings statement pursuant to the State Environmental Quality Review Act (“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.

Gyrodyne and the Town of Smithtown will vigorously defend 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, Gyrodyne 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 Gyrodyne 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.

Various other factors will continue to impact the timeline to achieve approvals, including the backlog of land use applications, labor shortages and climate change concerns.

Nevertheless, although there can be no assurances, we anticipate receiving final approval of our subdivision applications for Flowerfield and Cortlandt Manor sometime in 2022.

Although Gyrodyne believes that selling individual lots will maximize value, it is also pursuing prospective purchasers who may be willing to pay purchase prices for the entire undivided Flowerfield or Cortlandt Manor property, or for the entire company itself, that Gyrodyne finds more attractive from a timing and value perspective.

Gyrodyne is a limited liability company formed under the laws of the State of New York whose primary business is the management of, and the pursuit of entitlements on, a portfolio of medical office and industrial properties located in Suffolk (“Flowerfield”) and Westchester Counties (“Cortlandt Manor”), New York State.

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 Company believes the aforementioned strategy will increase the values for such properties.

The value of the real estate reported in the consolidated statements of net assets as of September 30, 2021 and December 31, 2020 ( predicated on current asset values) 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 enhance the net value of Flowerfield and Cortlandt Manor to maximize the returns for our shareholders.

Gyrodyne intends to dissolve after it completes the disposition of all of its real property assets, applies the proceeds of such dispositions first to settle any debts and claims, pending or otherwise, against Gyrodyne, and then makes distributions to holders of Gyrodyne common shares.

Our efforts to generate the highest values for Flowerfield and Cortlandt Manor may involve in limited circumstances other strategies to 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 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.

As such, it is impossible at this time to determine with certainty 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.

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James, New York, including a 14 -acre multi-tenanted industrial park comprising 135,000 rentable square feet.

There were an additional 5 acres comprising of two parcels that were zoned residential and non-contiguous to the Flowerfield property which the Company sold in April 2021 ( See Note 6 – Disposition Activities).

Basis of Quarterly Presentations

The accompanying interim quarterly financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).

The consolidated financial statements of the Company included herein have been prepared by the Company pursuant to the rules and regulations of the SEC and, in the opinion of management, reflect all adjustments which are necessary to present fairly the results for the nine -months ended September 30, 2021.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations;

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Summary of Significant Accounting Policies

Therefore, effective September 1, 2015 Gyrodyne adopted the liquidation basis of accounting.

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The consolidated statements of net assets and the consolidated statements of changes in net assets are the principal financial statements presented under the liquidation basis of accounting.

All liabilities of the Company, including those estimated costs associated with implementing the plan of liquidation, have been stated at their estimated settlement amounts.

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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 internally 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 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.

The Company expects the process of pursuing entitlements, density approvals, sales, liquidation and dissolution could extend through December 31, 2022 with the ultimate timing dependent upon and under the control of the applicable municipality’s planning board or other governmental authority and or purchasers.

Accordingly, it is not possible to predict with certainty the timing or aggregate amount which may ultimately be distributed to common shareholders and no assurance can be given that the distributions will equal or exceed the estimate presented in the accompanying consolidated statements of net assets.

The Company’s assumptions and estimates (including the sales proceeds of all its real estate holdings, selling costs, retention bonus payments, rental revenues, rental expenses, capital expenditures, land entitlement costs, 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, 2022.

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.

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 determination relating to the Company’s application for the preliminary subdivision approval with respect to our Flowerfield property. 

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 State Environmental Quality Review Act (“SEQRA”), dated September 16, 2021, and adopted by the Planning Board on March 30, 2022, concerning the Company’s 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 will vigorously defend 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 climate change concerns. 

Nevertheless, although there can be no assurances, we anticipate receiving final approval of our subdivision applications for Flowerfield and Cortlandt Manor sometime in 2022 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 both final subdivision approval and final unappealable site plan approval 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.

Management Estimates –

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Estimated Distributions per Share –

Under the liquidation basis of accounting, the Company reports estimated distributions per share data by dividing net assets in liquidation 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, 2021, 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.

Under the liquidation basis of accounting, the Company reports estimated distributions per share data by dividing net assets in liquidation 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 March 31, 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.

Statements of Net Assets in Liquidation

Net assets in liquidation on September 30, 2021 and December 31, 2020 would result in estimated liquidating distributions of $ 22,512,969 and $ 22,487,944 , or approximately $ 15.18 and $ 15.17 per common share, respectively, based on 1,482,680 shares outstanding.

The increase of $ 25,025 or $ 0.01 per share is attributable to the change in the estimated liquidation and operating costs net of receipts, mainly due to additional rental revenue, savings in general and administrative expenses and an increase in miscellaneous other income of approximately $ 362,000 , $ 153,000 and $ 6,000 , respectively, offset by additional interest expense and closing/prepayment fees on the loan that the Company secured in September 2021 ( see Note 7 ) of approximately $ 117,000 and $ 266,000 , respectively, and additional property operating expenses and selling costs of $ 91,745 and $ 20,737 , respectively.

Net assets as of March 31, 2022 and December 31, 2021 would result in estimated liquidating distributions of $ 23,060,929 and $ 23,027,770 , or approximately $ 15.55 and $ 15.53 per common share, respectively, based on 1,482,680 shares outstanding.

The increase of $ 33,159 or $ 0.02 per share is attributable to the change in the estimated liquidation and operating costs net of estimated receipts, mainly due to additional revenue of approximately $ 66,000 , offset by additional property operating expenses of approximately $ 33,000 .

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 adjustments for the following items which are estimated through December 31, 2024:

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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.

Costs for the pursuit of entitlements on the Flowerfield and Cortlandt Manor properties.

Costs for the pursuit of entitlements on the Flowerfield and Cortlandt Manor properties and associated litigation.

Retention bonus amounts (See Note 11 ).

Costs, including principal payments, net of drawdowns on the Company’s credit facilities to fund tenant improvements and working capital and related fees.

Principal payments on the Company’s credit facilities.

The Company estimates the net realizable value of its real estate assets by using income and market valuation techniques.

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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 $ 998,000 (included in the consolidated statement of net assets as part of the estimated liquidation and operating costs net of receipts, See Note 5 ) in land entitlement costs from October 2021 through the end of the liquidation period, currently estimated to conclude on or about December 31, 2022, in an effort to obtain entitlements, including special permits.

The Company estimates that it will incur approximately $ 1.25 million (included in the consolidated statement of net assets as part of the estimated liquidation and operating costs net of estimated receipts, See Note 5 ) in land entitlement costs from April 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 and resulting distributions. 

During the nine months ended September 30, 2021, the Company incurred approximately $ 493,000 of land entitlement costs (of which certain of the Company’s service vendors agreed to defer approximately $ 166,000 until the first post subdivision property lot is sold), consisting predominantly of engineering fees, legal fees and real estate taxes. 

The Company believes the remaining balance of $998,000 (approximately $170,000 of which certain of the Company service vendors have agreed to defer until the first post subdivision property lot is sold) will be incurred from October 2021 through the end of the liquidation period.

During the three months ended March 31, 2022, the Company incurred approximately $ 113,000 of land entitlement costs (approximately $ 46,000 of which certain of the Company’s service vendors agreed to defer until the first post subdivision property lot is sold), consisting predominantly of engineering fees, legal fees and real estate taxes. 

The Company believes the remaining balance of $ 1.25 million (approximately $ 240,000 of which certain of the Company service vendors have agreed to defer until the first post subdivision property lot is sold) will be incurred from April 2022 through the end of the liquidation period.

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. 

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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 processes itself. 

The value of the real estate reported in the statement of net assets as of September 30, 2021 ( predicated on current asset values) includes some but not all of the potential value impact that may result from the land entitlement efforts.

The value of the real estate reported in the statement of net assets as of March 31, 2022 ( predicated on current asset values) 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.

The net assets as of September 30, 2021 ( $ 22,512,969 ) and December 31, 2020 ( $ 22,487,944 ) results in estimated distributions of approximately $ 15.18 and $ 15.17 , respectively, per common share (based on 1,482,680 shares outstanding), based on estimates and other indications of sales value (predicated on current asset values) which includes some but not all of the 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 distributions as of September 30, 2021 because the amount of such additional value that may result from such efforts are too difficult to predict with sufficient certainty.

The Company believes the land entitlement efforts will enhance estimated distributions per share through the improved values (a large amount 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.

The net assets as of March 31, 2022 ( $ 23,060,929 ) and December 31, 2021 ( $ 23,027,770 ) results in estimated distributions of approximately $ 15.55 and $ 15.53 , respectively, per common share (based on 1,482,680 shares outstanding), based on estimates and other indications of sales value (predicated on current asset values) which includes some but not all of the 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 distributions as of March 31, 2022 and December 31, 2021 because the amount of such additional value that may result from such efforts are 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 distributions includes projections of costs and expenses to be incurred during the period required to complete the plan of liquidation.

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These costs are estimated and are anticipated to be paid during the liquidation period.

The change in the liability for estimated operating costs in excess of estimated receipts during liquidation from January 1, 2021 through September 30, 2021 has been calculated as follows:

The change in the liability for estimated operating costs in excess of estimated receipts during liquidation from January 1, 2022 through March 31, 2022 has been calculated as follows:

Expenditures/ (Receipts)

Remeasurement of

Assets and Liabilities

September 30,

Remeasurement of Assets and Liabilities

March 31, 2022

Estimated rents and reimbursements

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$ 7,825,397  

Prepaid expenses and other assets  

946,772  

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113,167  

( 1,254,512 )

Corporate expenditures

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602,522  

( 224,685 )  

( 8,269,978 )

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( 3,215,311 )  

69,298  

( 20,737 )  

( 3,215,311 )

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** The amounts reported are based on the provisions of the retention bonus plan and the reported amount of the real estate assets estimated net realizable value.

Based on the estimated real estate value of the Cortlandt property, aggregate proceeds from the sale of the two Cortlandt lots would not exceed the adjusted floor under the retention bonus plan and therefore the above table only reflects the projected bonus from the sale of the Flowerfield property.

Disposition Activities

On April 26, 2021, the Company closed on the sale of its 5.0 -acre parcel of vacant land that is non-contiguous to and not part of the Flowerfield complex in Smithtown, New York for a purchase price of $ 500,000 as per the purchase and sale agreement signed on May 11, 2020.

Terminated Contracts

Flowerfield -

On March 16, 2021, the Company received a notice (the “BSL Termination Notice”) from BSL ST.

James, LLC, a Delaware limited liability company (“BSL”), that it is terminating the Purchase and Sale Agreement (originally dated August 27, 2019, the “BSL Agreement”) for the sale of a 9.0 -acre parcel of vacant land in the Flowerfield complex in Smithtown, New York for $ 16,800,000 . 

The BSL Termination Notice referenced the termination right and requested the return of the earnest money deposit to BSL in accordance with the provisions of the BSL Agreement.

Such earnest money deposit has been returned to BSL.

Cortlandt Manor -

On February 1, 2021, the Company received a notice (the “SC Termination Notice”) from Sound Cortlandt, LLC, a Delaware limited liability company (“SC LLC”)  that it is terminating the Purchase and Sale Agreement (the “SC Agreement”) (originally dated December 7, 2019) for the sale of approximately 4.5 acres of its real property located in Cortlandt Manor, New York, together with improvements thereon (the “SC Agreement Property”) for a purchase price of $ 5,720,000 . 

The SC Termination Notice referenced the termination right and called for the Escrow Agent (as defined in the SC Agreement) to return the earnest money deposit immediately to SC LLC in accordance with the provisions of the SC Agreement.

Such earnest money deposit has been returned to SC LLC.

Loans Payable

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 (as amended the “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”). 

On April 30, 2021, the loan converted to the Permanent Phase with an outstanding principal balance of $ 2,200,000 . 

During the Permanent Phase, the Company is paying 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 is 3.85 %. 

The first advance of $ 1.1 million was used to finance the tenant improvements pursuant to the amended and expanded signed lease with Stony Brook University Hospital (“SBU Hospital”).

An additional advance of $ 1.1 million was drawn on March 29, 2019 to finance the buildouts on leases signed through December 31, 2018.

The remaining $ 800,000 went unused and the Company no longer has access to that amount.

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 May 20, 2021 after which it automatically converts to a permanent loan maturing on May 20, 2028 ( 84 months after conversion to a permanent loan). 

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 (as amended the “Interest-Only Phase”).

On April 30, 2021, the loan converted to the Permanent Phase with an outstanding principal balance of $ 2,200,000 .

During the Permanent Phase, the Company is paying interest at a fixed rate of 3.85 %, plus principal based on a 20 -year amortization period.

On May 20, 2021, the loan converted to the Permanent Phase with an outstanding principal balance of $ 3,000,000 .

During the Permanent Phase, the Company pays 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 is 3.85 %. 

During the Permanent Phase, the Company pays interest of 3.85 %, plus principal based on a 20 -year amortization period.

Both lines are secured by approximately 31.8 acres of the Flowerfield Industrial Park including the related buildings and leases.

As of December 31, 2020, the Company is in compliance with the loan covenants.

As of March 31, 2022, the Company is in compliance with the loan covenants.

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

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The loan was paid in full and closed on September 15, 2021.

On September 15, 2021, the Company, through its subsidiary GSD Cortlandt, LLC (“GSD Cortlandt”), secured a $ 4.95 million term loan (the “Mortgage Loan”), the proceeds of which was used to pay off the previous GSD Cortlandt debt facility of which $ 1,050,000 was outstanding. 

The term of the Mortgage Loan is five years with an option to extend for an additional five years (the “Extension Period”). 

Until the initial maturity date, the Mortgage Loan bears interest at an annual rate equal to 3.75 %.

If the maturity date is extended for the Extension Period, the rate of interest on the Mortgage Loan will adjust and be fixed for the Extension Period to the greater of (i) 3.75% or (ii) 275 basis points in excess of the weekly average yield on United States Treasury Securities adjusted to a constant maturity of five years as most recently made available by the Federal Reserve Board as of thirty days prior to the first day of the Extension Period. 

The Mortgage Loan will be paid in monthly installments of principal and interest calculated on the basis of a thirty -year amortization schedule.

The lender has the right, but not the obligation, to decline to extend the term of the Mortgage Loan if the loan to value ratio of the property is greater than seventy ( 70 %) percent on the date the extension is exercised, or the property does not support a debt service coverage ratio (as calculated by the lender) of at least 1.3 to 1 on the date the extension is exercised.

The borrower shall also be responsible for all fees and expenses associated with the extension including, but not limited to, the lender’s reasonable legal fees, an inspection fee in the amount of $ 150.00 , and a tax service fee.

The Mortgage Loan is paid in monthly installments of principal and interest calculated on the basis of a thirty -year amortization schedule.

The lender has the right, but not the obligation, to decline to extend the term of the Mortgage Loan if the loan to value ratio of the property is greater than seventy percent ( 70 %) or the property does not support a debt service coverage ratio (as calculated by the lender) of at least 1.3 to 1, in each case on the date the extension is exercised.

GSD Cortlandt is also responsible for all fees and expenses associated with the extension including, but not limited to, the lender’s reasonable legal fees, an inspection fee in the amount of $ 150 , and a tax service fee.

The Mortgage Loan may be prepaid in whole or in part, at any time, provided the borrower (GSD Cortlandt) pays the bank with each prepayment a prepayment fee equal to (i) during the first loan year and, if applicable, the first loan year of the Extension Period, five percent of the amount of such prepayment;

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If the Cortlandt property is sold to a bona fide third -party purchaser within the initial two years of the term of the Mortgage Loan, the prepayment fee to be paid upon repayment of the Mortgage Loan in full will be reduced by fifty percent.

The Mortgage Loan is secured by the Cortlandt property located at 1985 Crompond Road ( 5.01 acres).

The Mortgage Loan is secured by 5.01 (The Cortlandt Manor Medical Center - 1985 Crompond Road) of the 13.8 acres of the Cortlandt property.

The total debt payable mature as follows:

Years Ending September 30,

Twelve Months Ending March 31,  

$ 276,233  

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Accrued Liabilities

September 30,

March 31, 2022

Current accounts payable

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In accordance with generally accepted accounting principles, the Company identifies high risk collectibles, records them on a cash basis and does not include them in revenue or accounts receivable.

As of each March 31, 2022 and December 31, 2021, the Company had a zero balance in its allowance for doubtful accounts.

Concentration of Credit Risk

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The Company has not experienced any losses in such accounts and believes that it is not exposed to any significant credit risk on cash.

Management does not believe significant credit risk existed on September 30, 2021 and December 31, 2020.

As the Company executes on the sale of its assets, its regional concentration in tenants will lessen thereby resulting in the increased credit risk from exposure of the local economies.

For the nine months ended September 30, 2021 rental income from the Company’s three largest tenants represented approximately 23 %, 22 % and 10 % of total rental income.

The three largest tenants by revenue as of September 30, 2021 consist of Stony Brook University Hospital located in the industrial park, the Westchester Medical Practice in the Cortlandt Manor Medical Center and Apex Gymnastics Athletics Inc.

in the industrial park.

The current economic challenges facing state and local budgets impacted most of the Company’s largest tenants. 

In addition, the current economic challenges stemming from the coronavirus are disproportionately impacting tenants that are not part of or affiliated with a major hospital which together comprise 39 % of our expected 2021 rental revenue. 

Management does not believe significant credit risk existed on March 31, 2022 and December 31, 2021. 

As the Company executes on the sale of its assets, its regional concentration in tenants will increase thereby resulting in the increased credit risk from exposure of the local economies.

For the three months ended March 31, 2022 rental income from the Company’s three largest tenants represented approximately 22 %, 22 % and 9 % of total rental income.

The three largest tenants by revenue as of March 31, 2022 consist of Stony Brook University Hospital located in the industrial park, New York Presbyterian Medical Group located in the Cortlandt Manor Medical Center and an athletic facility in the industrial park.

The current economic challenges facing state and local budgets impacted most of the Company’s largest tenants.

There can be no assurance that the Company’s leases will renew for the same square footage, at favorable rates net of tenant improvements, if at all.

As of September 30, 2021, other commitments and contingencies are summarized in the below table:

As of March 31, 2022, other commitments and contingencies are summarized in the below table:

Management employment agreements with bonus* and severance commitment contingencies

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Board Members(a)

65.000 %  

Discretionary Amount (b)

Chief Executive Officer

15.474 %  

Chief Operations Officer

13.926 %  

Officer Discretionary Amount (b)

1.750 %  

Officer Discretionary Amount (c)

Other Employees

3.850 %  

100.000 %  

15 % for the Chairman and 10 % for each of the other five directors.

15 % for the Chairman and 10 % for each of the other four directors.

Under the Plan, the Board has the right to allocate this portion amongst the Board, employees or both.

The officer discretionary amount of 1.75 % will be allocated to the officers within the discretion of the Board.

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It also provides for entitlement to a future benefit in the event of death, voluntary termination following substantial reduction in compensation or board fees, mutually agreed separation to right-size the board or involuntary termination without cause, except that a participant will only be eligible to receive a benefit to the extent that a property is sold within three years following the separation event and the sale produces an internal rate of return equal to at least four percent of the property’s value as of December 31 immediately preceding such event and that the sale exceeded the Adjusted Appraised Value.

Under the Plan, there were no payments made during the nine months ended September 30, 2021.

Under the Plan, there were no payments made during the three months ended March 31, 2022.

On May 6, 2022, the Board unanimously approved an amendment to the Plan (“Amendment No.

See Note 16, Subsequent Events –

Retention bonus Plan Amendment.

Deferred Compensation Plan - 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.

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Contingencies

Putative Class Action Lawsuit - 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.

Putative Class Action Lawsuit –

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.

General - In the normal course of business, the Company is a party to various legal proceedings.

As of March 31, 2022 and December 31, 2021, the value of the remaining unsold properties exceeded the respective 2014 appraised values.

Article 78 Proceeding –

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 Town of Smithtown Planning Board’s (the “Planning Board”) determination relating to the Company’s application for the preliminary subdivision approval with respect to our Flowerfield property. 

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 the N.Y.

Civil Practice Law and Rules. 

Specifically, the Petition seeks to annul the Planning Board’s (i) approval of a findings statement, pursuant to the State Environmental Quality Review Act (“SEQRA”), dated September 16, 2021, and adopted by the Planning Board on March 30, 2022, concerning the Company’s application for preliminary approval to divide the Flowerfield property into eight lots (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 will vigorously defend the Planning Board’s determinations against the Petition.

General –

In the normal course of business, the Company is a party to various legal proceedings.

After reviewing all actions and proceedings pending against or involving the Company, management considers that any loss resulting from such proceedings individually or in the aggregate will not be material to the Company’s financial statements.

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To date, the COVID- 19 pandemic has impacted operations of our existing properties, and we believe it has had an impact on our strategic plan to enhance the value of our properties and sell them at higher prices.

In particular, the pandemic has reduced the gross profit from operations and has been a significant factor in prolonging the entitlement process.

We believe it was also a major factor leading to the termination in the first quarter by the purchasers in two purchase agreements for the sale of portions of our Cortlandt Manor and Flowerfield Properties.

In particular, the pandemic has adversely impacted the gross profit from operations and has been a significant factor in prolonging the entitlement process.

We believe it was also a major factor leading to the termination in 2021 by the purchasers in two purchase agreements for the sale of portions of our Cortlandt Manor and Flowerfield Properties.

The U.S economy has been growing as COVID- 19 vaccinations are increasingly administered, commercial activities increasingly return to pre-pandemic practices and operations, and as a result of recent and expected future government spending on COVID- 19 pandemic relief, infrastructure and other matters.

However, this favorable outlook could be affected materially by adverse developments, if any, related to the COVID- 19 pandemic, including resurgence of COVID- 19 cases due to more contagious variants, such as the Delta variant, or new or more restrictive public health requirements recommended or imposed by federal, state and local authorities.

However, this favorable outlook could be affected materially by adverse developments, if any, related to the COVID- 19 pandemic, including resurgence of COVID- 19 cases due to more contagious variants or new or more restrictive public health requirements recommended or imposed by federal, state and local authorities.

There remains uncertainty as to the ultimate duration and severity of the pandemic on commercial activities, including risks that may arise from mutations or related strains of the virus, and the ability to successfully administer vaccinations to a sufficient number of persons or attain immunity to the virus by natural or other means to achieve herd immunity.

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In terms of its own tenants, the Company deems as small businesses those that are not part of or affiliated with a major hospital, which in the aggregate account for approximately 41 % ($ 1,018,000 ) of the Company’s projected annual rental revenues for 2022.

Although it is difficult to estimate the duration and full extent of the COVID- 19 pandemic, its impact 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 novel coronavirus, risks that may arise from mutations or related strains of the virus, the success of actions taken to contain or treat COVID- 19 and reactions by real estate developers and investors, consumers, companies, governmental entities and capital markets. 

We are actively working with our tenants to manage and mitigate the impact of COVID- 19 on the Company’s operations, liquidity and resulting Net Asset Value.

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 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. 

In addition, 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.

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, 2020 and as amended in this Quarterly Report on Form 10 -Q.

Related Party Transactions

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A summary of the leasing arrangements is as follows:

Total Commitment (net of abatement,

excluding renewal options)

Total Commitment (net of abatement, excluding renewal options)

Jan 2021-Dec 2022

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Any space not subleased may be used by the tenant rent-free for certain stated art uses, although the tenant is responsible for certain passthrough expenses such as electric and heat.

Since rent is only due if the space is sublet, the Company believes the fair value of the space to the extent not sublet reflects a below market lease over the nine months ending September 30, 2021 of $ 13,627 and total commitments of up to $ 36,340 .

During the nine -months ended September 30, 2021, the Company received rental revenue of $ 26,705 related to these lease agreements.

Since rent is only due if the space is sublet, the Company believes the fair value of the space to the extent not sublet reflects a below market lease over the three months ending March 31, 2022 of $ 4,542 and total commitments of up to $ 36,340 .

In March 2022, a Consolidated Lease Agreement was signed between the Company and the not -for-profit organization that extended the lease to December 2027.

It also changed some terms of the original leases including rent on the master lease suite, 3 % escalators and agreements on work to be performed by the Company and by the tenant, respectively.

The signed Consolidated Lease Agreement reflects a below market lease of $ 8,829 annually and $ 44,144 during the extended period.

A summary of the additional rent under the new arrangement is as follows:

Total Additional Commitment

April 2022- Dec 2022

$ 11,583  

Jan 2023 –

December 2027

279,169  

$ 290,752  

During the three -months ended March 31, 2022, the Company received rental revenue of $ 8,902 related to these lease agreements. 

The independent members of the Board of the Company approved all of the leasing transactions described above.

The Chairman is also a partner of the firm Lamb & Barnosky, LLP that provided pro bono legal representation to the aforementioned not -for-profit corporation on the lease.

Subsequent Events

Article 78 –

On April 26, 2022, the Incorporated Village of Head of the Harbor and certain other parties commenced a special proceeding (the “Article 78 Proceeding”), pursuant against the Town of Smithtown and certain other parties, including the Company, seeking to annul the Town of Smithtown Planning Board’s (the “Planning Board”) determination relating to the Company’s application for the preliminary subdivision approval with respect to our Flowerfield property. 

Specifically, the Petition seeks to annul the Planning Board’s (i) approval of a findings statement, pursuant to the State Environmental Quality Review Act (“SEQRA”), dated September 16, 2021, and adopted by the Planning Board on March 30, 2022, concerning the Company’s application for preliminary approval to divide the Flowerfield property into eight lots (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 will vigorously defend 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.

Retention Bonus Plan Amendment –

On May 6, 2022, the Board unanimously approved an amendment to the Plan (“Amendment No.

4 ) to the Company’s Retention Bonus Plan (as amended, the “Plan”).

Amendment No.

4 provides that on or after May 6, 2022, the Plan may not be (A) suspended or terminated, or (B) amended in a manner that would reduce, eliminate or otherwise materially impair the manner in which (i) the bonus pool is to be determined, calculated or funded, or (ii) bonus payments are to be made to participants in the Plan. 

The objective of this change is to enhance the retention value of the Plan by limiting the circumstances under which the Plan may be amended or terminated, e.g., following a change in control of the board or otherwise, in a manner that would deprive participants of the opportunity to earn benefits under the Plan.

Amendment No.

4 also provides that once a contract for sale of a property is executed, the Plan’s requirement to continue earning growth at a 4 % internal rate of return, applicable to participants who have separated due to death, disability, substantial reduction in compensation or board fees, mutual agreement to “right size”

the board or involuntary termination without Cause, will no longer apply. 

The rationale for the elimination of the 4% internal rate of return requirement for the aforementioned categories of separated participants is that a property’s value cannot increase between signing and closing but could decrease as a result of corporate due diligence (such as identifying environmental or other issues), which might decrease the purchase price.

Amendment No.

4 also clarifies that a director nominated for reelection but failing to get reelected would be treated as if he or she was terminated without cause (and thus eligible for modified benefits post-termination).

Management ’

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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, 2021.

References herein to our Quarterly Report are to this Quarterly Report on Form 10-Q for the three-months ended March 31, 2022.

Cautionary Statements Concerning Forward –

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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, the effect of economic and business conditions, 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 on our business, operations and timelines for seeking entitlements and pursuing the sale of our properties and distributions to our shareholders, risks and uncertainties associated with community activism, regulatory enforcement and any litigation that may develop in connection with our efforts to sell our properties strategically, including related enhancement efforts, and other risks detailed from time to time in the Company’s SEC reports.

These and other matters the Company discusses 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.

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.

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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, 2021 (predicated on current asset values) includes some, but not all of the potential value impact that may result from such value enhancement efforts.

The value of the real estate reported in the consolidated statement of net assets as of March 31, 2022 (predicated on current asset values) 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.

Gyrodyne intends to dissolve after it completes the disposition of all of its real property assets, applies the proceeds of such dispositions first to settle any debts and claims, pending or otherwise, against Gyrodyne, and then makes liquidating distributions to holders of Gyrodyne common shares.

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.

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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, 2021, the Company owns the following properties:

After giving effect to the Company’s dispositions of real property through March 31, 2022, the Company owns the following properties:

Cortlandt Manor:

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James, New York, including a 14-acre multi-tenanted industrial park comprising 135,000 rentable square feet.

There were an additional 5 acres comprising of two parcels that were zoned residential and non-contiguous to the Flowerfield property which the Company sold in April 2021.

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.

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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 it completes the disposition of all of its real property assets, applies the proceeds of such dispositions first to settle any debts and claims, pending or otherwise, against Gyrodyne, and then makes liquidating distributions to holders of Gyrodyne common shares.

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.

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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, 2021 (predicated on current asset values) includes some but not all of the potential value impact that may result from such value enhancement efforts.

The value of the real estate reported in the consolidated statement of net assets as of March 31, 2022 (predicated on current asset values) 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.

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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.

We cannot give any assurance on the timing of the ultimate sale of all of the Company’s properties.

Assuming the process of seeking entitlements and selling the assets is completed by December 31, 2022 and giving effect to the estimated cash flows from the operation of our existing properties, we expect that Gyrodyne will have a cash balance at December 31, 2022 of approximately $22.51 million, prior to any future special distributions based on the estimate of net assets in liquidation presented in our Consolidated Statement of Net Assets.

Such cash would equate to future liquidating distributions of $15.18 per share based on Gyrodyne having 1,482,680 common shares outstanding.

These estimated distributions are based on values on September 30, 2021 and include some but not all the potential value that may be derived from the entitlement efforts to maximize the value of Flowerfield and Cortlandt Manor.

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 determination relating to the Company’s application for the preliminary subdivision approval with respect to our Flowerfield property.  

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 will vigorously defend 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.

Various other factors will continue to impact the timeline to achieve final approvals, including the backlog of land use applications, labor shortages and climate change concerns. 

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 $23.06 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 $15.55 per share based on Gyrodyne having 1,482,680 common shares outstanding.

These estimated distributions are based on values on March 31, 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.

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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.

Excluding the value that may be achieved from the entitlement efforts, expenses incurred in pursuing the Company’s business plan 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 amounts available 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) and to make cash distributions to shareholders.

However, no assurances can be given that available cash (including amounts available under our credit facilities) 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.

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.

Properties Transactions

Flowerfield -

On March 16, 2021, the Company received a notice (the “BSL Termination Notice”) from BSL ST.

James, LLC, a Delaware limited liability company (“BSL”), that it is terminating the Purchase and Sale Agreement (originally dated August 27, 2019, the “BSL Agreement”) for the sale of a 9.0-acre parcel of vacant land in the Flowerfield complex in Smithtown, New York for $16,800,000. 

The BSL Termination Notice referenced the termination right and requested the return of the earnest money deposit to BSL in accordance with the provisions of the BSL Agreement.

Such earnest money deposit has been returned to BSL.

Cortlandt Manor -

On February 1, 2021, the Company received a notice (the “SC Termination Notice”) from Sound Cortlandt, LLC, a Delaware limited liability company (“SC LLC”) that it is terminating the Purchase and Sale Agreement (the “SC Agreement”) (originally dated December 7, 2019) for the sale of approximately 4.5 acres of its real property located in Cortlandt Manor, New York, together with improvements thereon (the “SC Agreement Property”) for a purchase price of $5,720,000.

Such earnest money deposit has been returned to SC LLC.

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, 2021, the Company incurred approximately $493,000 of land entitlement costs (of which certain of the Company’s service vendors agreed to defer approximately $166,000 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 $998,000 in additional land entitlement costs through December 31, 2022 in pursuit of entitlements (approximately $358,000 in Cortlandt Manor and $640,000 in Flowerfield).

During the three-months ended March 31, 2022, the Company incurred approximately $113,000 of land entitlement costs (approximately $46,000 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 $1.25 million in additional land entitlement costs (approximately $240,000 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 $405,000 in Cortlandt Manor and $850,000 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.

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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 four years 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.

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.

On March 31, 2017, The Company filed an application with the Town to develop the Cortlandt Manor property, as follows:

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Medical Office Lot #2

The entitlement costs for the nine-months ended September 30, 2021 associated with the ownership and development of this property were approximately $162,000.

The entitlement costs for the three-months ended March 31, 2022 associated with the ownership and development of this property were approximately $26,000.

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.

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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.

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under the State Environmental Quality Review Act (“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 SEQRA 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 the New York State’s stay-at-home-order, the April 14, 2020 public hearing was postponed to June 2020.

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 is in the process of reviewing the public comments and preparing the Final Generic Environmental Impact Statement (“GEIS”).

The Company anticipates the Final GEIS will reflect the Company’s Cortlandt Manor property proposed uses comprising 184,600 square feet of medical office space and 4,000 square feet of retail space.

It is anticipated that the Final GEIS will be accepted by the Town Board with SEQR completed in late 2021. The Town Board is anticipated to adopt a MOD designation for the property in early 2022 with subdivision approval granted by the Town Planning Board occurring in the first quarter of 2022.

The Town closed the public comment period on June 30, 2020 and proceeded to review the public comments and prepare the Final GEIS.

The Final GEIS 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 Monday March 7, 2022 for the primary purpose of the stakeholders describing their current development programs for the benefit of the new Town Board members voted in this past November.

Although not required by SEQR, the Town Board conducted a FEIS public hearing on Monday May 2, 2022 and closed the hearing that evening while leaving the public comment period open for twenty days. 

As of May 2022, additional public comments are being entered and require formal written responses by stakeholder representatives.

The Town Board will be scheduling a Public Work Session before scheduling a vote to accept the Final GEIS (in addition to assembling and preparing formal responses to public comments from the May 2, 2022 public hearing).

Given the additional round of FEIS comments and responses and the forthcoming Public Work Session, it is anticipated that the Final GEIS will be accepted by the Town Board with the SEQR process completed in the Fall of 2022.

The Town Board is anticipated to adopt a MOD designation for the property at the same time, with subdivision approval granted by the Town Planning Board occurring in the third quarter of 2022.

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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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).

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.

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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 where the Company presented its subdivision plan of 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 re-issued by Planning Board Resolution dated May 9, 2018 to include a public scoping process.

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 EIS to the Town of Smithtown Planning Department prior to the public hearing.

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.

In May 2019, the Company received additional comments on its EIS and submitted its responses to the Town on June 4, 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 September 25, 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, accordingly.

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 in June 2020, the Company filed its FEIS in September 2020 and received final comments on October 16 th , 2020. 

The Company filed its Final FEIS in November 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. 

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).

The Town of Smithtown will review the County determination and the Town Planning Board will issue a Findings Statement. 

Preliminary Approval of the subdivision may occur simultaneously or shortly after the Findings Statement. 

Following Preliminary Approval, the Company will pursue Final Subdivision approval.

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 the third or fourth quarter of 2022.

The entitlement costs for the nine-months ended September 30, 2021 associated with the ownership and development of this property consisted of architectural and engineering costs, legal expenses, economic analysis, soil management and surveys were approximately $331,000.

The entitlement costs for the three-months ended March 31, 2022 associated with the ownership and development of this property consisted of architectural and engineering costs, legal expenses, economic analysis, soil management and surveys were approximately $87,000.

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.

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

Furthermore, the Company has expanded its leasing relationship with Stony Brook University (“SBU”), SBU Hospital and affiliates of SBU Hospital at our Flowerfield property which increased its exposure to the healthcare industry.

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.

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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 2021 and future periods.

The spread of COVID-19 is having a significant impact on the global economy, the U.S.

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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.

To enhance our liquidity position and maintain financial flexibility, the Company secured a loan for up to $2,500,000, evidenced by a non-revolving business line of credit agreement and promissory note, which closed on July 16, 2020.

On February 22, 2021, the working capital GSD Cortlandt loan was amended to remove the contingency of purchase agreements to be able to draw on the line.

Consequently, the Company was not required to make a principal reduction under the credit facility and the remaining undrawn balance was available at the lender’s discretion.

This loan was paid in full and closed on September 15, 2021.

On September 15, 2021, the Company secured a loan for $4.95 million.

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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%.

As of March 31, 2022, directors have deferred $814,609 (inclusive of interest) and have committed to an additional $216,000, plus interest through 2022.

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 current and future developments, including the duration and spread of the outbreak and related governmental or other regulatory actions.

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Impact of COVID-19”

and Part I, Item 1A, “Risk Factors”, of our Annual Report for the year ended December 31, 2020 and as amended in this Report on Form 10-Q.

Transaction Summary for the Nine-Months Ended September 30, 2021

The following summarizes our significant transactions and other activity during the nine-months ended September 30, 2021.

Debt Facility.

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 (as amended the “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”).

On April 30, 2021, the loan converted to the Permanent Phase with an outstanding principal balance of $2,200,000.

During the Permanent Phase, the Company is paying 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 is 3.85%.

The Working Capital Line 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 Working Capital Line which included extending the conversion date of the Interest-Only Phase to May 20, 2021 after which it automatically converted to a permanent loan maturing on May 20, 2028 (84 months after conversion to a permanent loan). 

During the Permanent Phase, the Company pays 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. 

Permanent Phase interest rate currently is 3.85%. 

The Original and Working Capital Lines are secured by 31.8 acres of the Flowerfield Industrial Park including the related buildings and leases.

The only significant financial covenant associated with the loan is a debt service ratio on GSD Flowerfield, LLC of 1.25 to 1, per latest modification.

The Company is in compliance with the loan covenants.

The Company anticipates modifying the terms of the loan following the completion of its subdivision so that the loans are secured by the subdivided industrial park lot only.

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 (the “Cortlandt Line”) which closed on July 16, 2020.

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

The interest rate was 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 terms of the Cortlandt Line originally limited access to certain amounts, contingent upon GSD Cortlandt securing purchase and sale agreements for one or both Cortlandt Property lots. 

On February 22, 2021, the Cortlandt line was amended to remove such limitation on draws.

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

The Cortlandt Line was paid on full and closed on September 15, 2021.

The Cortlandt Line was secured by the Cortlandt property (13.8 acres) and cross collateralized by 31.8 acres of the Flowerfield Industrial Park including the related buildings and leases.

On September 15, 2021, the Company, through its subsidiary GSD Cortlandt, LLC (“GSD Cortlandt”), secured a $4.95 million term loan (the “Mortgage Loan”), the proceeds of which was used to pay off the Cortlandt Line of which $1,050,000 was outstanding. 

The term of the Mortgage Loan is five years with an option to extend for an additional five years (the “Extension Period”). 

Until the initial maturity date, the Mortgage Loan bears interest at an annual rate equal to 3.75%.

The Mortgage Loan will be paid in monthly installments of principal and interest calculated on the basis of a thirty-year amortization schedule.

The lender has the right, but not the obligation, to decline to extend the term of the Mortgage Loan if the loan to value ratio of the property is greater than seventy (70%) percent on the date the extension is exercised, or the property does not support a debt service coverage ratio (as calculated by the lender) of at least 1.3 to 1 on the date the extension is exercised.

(ii) during the second loan year and, if applicable, during the second loan year of the Extension Period, four percent of the amount of such prepayment;

(iii) during the third loan year and, if applicable, during the third loan year of the Extension Period, three percent of the amount of such prepayment;

(iv) during the fourth loan year and, if applicable, during the fourth loan year of the Extension Period, two percent of the amount of such prepayment;

and (v) during the fifth loan year and, if applicable, during the fifth loan year of the Extension Period, one percent of the amount of such prepayment.

There will be no prepayment fee for any prepayment made during the sixty-day period immediately preceding the initial maturity date or the last sixty days of the Extension Period.

All prepayments must include accrued and unpaid interest through the date of prepayment.

If the Cortlandt property is sold to a bona fide third-party purchaser within the initial two years of the term of the Mortgage Loan, the prepayment fee to be paid upon repayment of the Mortgage Loan in full will be reduced by fifty percent.

The Mortgage Loan is secured by the Cortlandt property located at 1985 Crompond Road (5.01 acres).

and Part I, Item 1A, “Risk Factors”, of our Annual Report for the year ended December 31, 2021.

Transaction Summary for the Three-Months Ended March 31, 2022

The following summarizes our significant transactions and other activity during the three-months ended March 31, 2022.

Small businesses are expected to be adversely affected disproportionately by the economic ramifications of COVID-19.

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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.

Levine’s decision to resign from the Board was not the result of any disagreement with the Company.

Leasing Activity.

During the nine-months ended September 30, 2021, the Company executed seven new leases and eighteen renewals comprising approximately 6,900 and 33,000 square feet and annual revenue of approximately $83,000 and $821,000, respectively.

There were also two expansions during the nine months ended September 30, 2021 comprising approximately 4,100 square feet and approximately $112,000 in annual revenue.

There was one termination during the nine-months ended September 30, 2021 comprising approximately 2,800 square feet and approximately $70,600 in annual revenue.

During the three-months ended March 31, 2022, the Company executed one new lease and six renewals comprising approximately 3,100 and 8,100 square feet and annual revenue of approximately $48,000 and $87,000, respectively.

The Company incurred commission fees of approximately $26,000 relating to total rental revenue of approximately $516,000.

Disposition Activities.

On April 26, 2021, the Company closed on the sale of its approximate 5.0 acres comprising of two parcels of vacant land that is non-contiguous to and not part of the Flowerfield complex in Smithtown, New York for a purchase price of $500,000 as per the purchase and sale agreement signed on May 11, 2020.

Termination of Purchase Agreements.

Flowerfield -

On March 16, 2021, the Company received a notice (the “BSL Termination Notice”) from BSL that it is terminating the BSL Agreement (originally dated August 27, 2019) for the sale of a 9.0-acre parcel of vacant land (the “BSL Agreement Property”) in the Flowerfield complex in Smithtown, New York for $16,800,000 to BSL St.

James LLC, a Delaware limited liability company (“BSL”). 

The BSL Termination Notice referenced the termination right and requested the return of the earnest money deposit to BSL in accordance with the provisions of the BSL Agreement. 

Such earnest money deposit has been returned to BSL.

Cortlandt Manor -

On February 1, 2021, the Company received a notice (the “SC Termination Notice”) from SC, LLC that it is terminating the SC Agreement (originally dated December 7, 2019) for the sale of approximately 4.5 acres of its real property located in Cortlandt Manor, New York, together with improvements thereon (the “SC Agreement Property”) to Sound Cortlandt, LLC, a Delaware limited liability company (“SC LLC”) for a purchase price of $5,720,000. 

Such earnest money deposit has been returned to SC LLC.

Critical Accounting Policies

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 s distributions to holders of Gyrodyne common shares.

Therefore, effective September 1, 2015 Gyrodyne adopted the liquidation basis of accounting.

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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 current contracts, estimates and other indications of sales value (predicated on current values). 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 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, 2022. 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 (Purchase and Sale Agreement entered but not yet closed/prospective purchasers).

The process will involve extensive analysis internally 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.

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.

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.

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 will vigorously defend 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.

Various other factors will continue to impact the timeline to achieve final approvals, including the backlog of land use applications, labor shortages and climate change concerns. 

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 relevant 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.

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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, 2021, 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.

New accounting pronouncements - Management has evaluated the impact of newly issued accounting pronouncements, whether effective or not as of March 31, 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, 2021 and December 31, 2020 would result in estimated liquidating distributions of $22,512,969 and $22,487,944, or approximately $15.18 and $15.17 per common share, respectively, based on 1,482,680 shares outstanding.

The increase of $25,025 or $0.01 per share is attributable to the change in the estimated liquidation and operating costs net of receipts, mainly due to additional rental revenue, savings in general and administrative expenses and an increase in miscellaneous other income of approximately $362,000, $153,000 and $6,000, respectively, offset by additional interest expense and closing/prepayment fees on the loan that the Company secured in September 2021 (see Note 7) of approximately $117,000 and $266,000, respectively, and additional property operating expenses and selling costs of $92,000 and $21,000, respectively.

The cash balance at the end of the liquidation period (currently estimated to be December 31, 2022, although the estimated completion of the liquidation period may change), excluding any interim distributions, is estimated based on the September 30, 2021 cash balance of $6.02 million (includes net proceeds from the new mortgage loan) plus adjustments for the following items which are estimated through December 31, 2022:

Net assets in liquidation on March 31, 2022 and December 31, 2021 would result in estimated liquidating distributions of $23,060,929 and $23,027,770, or approximately $15.55 and $15.53 per common share, respectively, based on 1,482,680 shares outstanding.

The increase of $33,159 or $0.02 per share is attributable to the change in the estimated liquidation and operating costs net of estimated receipts, mainly due to additional revenue of approximately $66,000, offset by additional property operating expenses of $33,000.

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 March 31, 2022 cash balance of $5.3 million plus adjustments for the following items which are estimated through December 31, 2024:

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.

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Retention bonus amounts.

Costs, including principal payments, net of drawdowns on the credit facilities to fund tenant improvements and working capital and related fees.

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.

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The Company estimates that it will incur approximately $998,000 (included in the statements of net assets as part of the estimated liquidation and operating costs net of receipts) in land entitlement costs from October 2021 through the end of the liquidation period, currently estimated to conclude on or about December 31, 2022, in an effort to obtain entitlements, including special permits.

The Company estimates that it will incur approximately $1.25 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 April 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.

During the nine-months ended September 30, 2021, the Company incurred approximately $493,000 of land entitlement  costs (of which certain of the Company’s service vendors agreed to defer approximately $166,000 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 $998,000 (approximately $170,000 of which the Company’s service vendors have agreed to defer until the first post subdivision property lot is sold) will be incurred from October 2021 through the end of the liquidation period.

The Company believes the remaining balance of $1.25 million (approximately $240,000 of which the Company’s service vendors have agreed to defer until the first post subdivision property lot is sold) will be incurred from April 2022 through the end of the liquidation period.

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The value of the real estate reported in the statement of net assets as of September 30, 2021 (predicated on current asset values) includes some but not all of the potential value impact that may result from the land entitlement efforts.

The value of the real estate reported in the statement of net assets as of March 31, 2022 (predicated on current asset values) 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.

The net assets in liquidation at September 30, 2021 ($22,512,969) results in estimated liquidating distributions of approximately $15.18 per common share (based on 1,482,680 shares outstanding), based on estimates and other indications of sales value (predicated on current asset values) 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, 2021 because the amount of such additional value is too difficult to predict with sufficient certainty.

The net assets in liquidation on March 31, 2022 ($23,060,929) results in estimated liquidating distributions of approximately $15.55 per common share (based on 1,482,680 shares outstanding), based on estimates and other indications of sales value (predicated on current asset values) 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 March 31, 2022 because the amount of such additional value is too difficult to predict with sufficient certainty.

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, 2021 (dollars are in millions).

September 30, 2021 cash and cash equivalents balance

The following table summarizes the estimates to arrive at the Net Assets in Liquidation as of March 31, 2022 (dollars are in millions).

March 31, 2022 cash and cash equivalents balance

Principal payments on loan

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Final liquidation and dissolution costs

Net Assets in Liquidation

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 $2.81.

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The pursuit of the highest and best use of Flowerfield and Cortlandt Manor may involve other strategies to maximize the returns for our shareholders.

Gyrodyne intends to dissolve after it completes the disposition of all of its real property assets, applies the proceeds of such dispositions first to settle any debts and claims, pending or otherwise, against Gyrodyne, and then makes 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, 2021, which is discussed below:

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 three-months ended March 31, 2022, which is discussed below:

Net assets in liquidation on January 1, 2022

Changes in net assets in liquidation from January 1 through September 30, 2021:

Changes in net assets in liquidation from January 1 through March 31, 2022:

Change in liquidation value of real estate

Remeasurement of assets and liabilities in liquidation

Total change in net assets in liquidation

Net assets in liquidation on September 30, 2021

Total increase in net assets in liquidation

Net assets in liquidation on March 31, 2022

Liquidity and Capital Resources

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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, supplemented by cash available under the Company’s credit facilities.

We finance our operations through cash on hand.

Certain of the Company’s major vendors (including land development vendors) have agreed to defer payment on 50% of their fees until the subdivided lot is sold.

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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) .

We entered into a credit facility on March 21, 2018 which was amended and extended that provided up to $3.0 million in financing for tenant improvements (the “Original Line”).

The Company has drawn down approximately $2.2 million for tenant and associated common area improvements.

Pursuant to the terms of the loan, on April 30, 2021, the loan converted to the Permanent Phase with an outstanding principal balance of $2,200,000.

The Company no longer has access to the $800,000 unused balance.

On January 24, 2019, the Company secured a loan evidenced by a secured non-revolving business line of credit and promissory note with the Original Line bank for up to $3,000,000 to provide access to additional working capital to fund entitlements and operations through final liquidation.

As of January 28, 2021, the line is fully drawn.

Pursuant to the terms of the loan, on May 20, 2021, the loan converted to the Permanent Phase with an outstanding principal balance of $3,000,000.

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

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 loan was amended to remove such limitation on draws.

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

The line was paid in full and closed on September 15, 2021.

On September 15, 2021, the Company, through its subsidiary GSD Cortlandt, LLC (“GSD Cortlandt”), secured a $4.95 million term loan (the “Mortgage Loan”), the proceeds of which was used to pay off the existing GSD Cortlandt debt facility of which $1,050,000 was outstanding. 

The term of the Mortgage Loan is five years with an option to extend for an additional five years (the “Extension Period”). 

Until the initial maturity date, the Mortgage Loan bears interest at an annual rate equal to 3.75%.

If the maturity date is extended for the Extension Period, the rate of interest on the Mortgage Loan will to the greater of (i) 3.75% or (ii) 275 basis points in excess of the weekly average yield on United States Treasury Securities adjusted to a constant maturity of five years as most recently made available by the Federal Reserve Board as of thirty days prior to the first day of the Extension Period. 

The Mortgage Loan will be paid in monthly installments of principal and interest calculated on the basis of a thirty-year amortization schedule.

If the maturity date is extended for the Extension Period, the amount of each monthly installment will be recalculated for the Extension Period based on the adjusted interest rate on the Mortgage Loan and an amortization schedule of twenty-five years The lender has the right, but not the obligation, to decline to extend the term of the Mortgage Loan if the loan to value ratio of the property is greater than seventy (70%) percent on the date the extension is exercised, or the property does not support a debt service coverage ratio (as calculated by the lender) of at least 1.3 to 1 on the date the extension is exercised.