What changed in this filing

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Item 1A. Risk Factors

2023-03-30 compared with 2022-03-30 · 80 added, 34 removed, 227 unchanged (33% of the section changed)

6 unchanged sentences

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

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

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

Gyrodyne has been pursuing various entitlement opportunities to increase the development flexibility of our Flowerfield and Cortlandt Manor properties in order to enhance the resulting aggregate value for such properties as a whole.

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

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

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

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

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

Even if the Company is successful in securing approval of its subdivision application, there is a substantial risk that opponents of our subdivision plan, and other aspect of our entitlement efforts may challenge the approval through a lawsuit under Article 78 of New York’s Civil Practice Law and Rules. 

Challenging a government decision in an Article 78 proceeding can lead to delay in enforcement of the government action, whether or not the suit is successful. 

Petitioners often seek a temporary restraining order, preliminary injunction or other form of stay of some or all of the challenged action, and the government sometimes agrees to delay implementation until legal challenges are resolved. 

Although Article 78 proceedings take place on an expediated timeline and generally without discovery, 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. 

Consequently, the commencement of an Article 78 proceeding with respect to an approval of our subdivision application and other aspect of our entitlement efforts could result in a further extension of the Company’s timeline for completing the process of ensuring entitlements, selling our properties and distributing net proceeds.

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

On March 30, 2022, the Town of Smithtown Planning Board (the “Planning Board”) unanimously granted Gyrodyne’s application for preliminary approval to divide the Flowerfield property into eight lots, subject to certain conditions (the “Flowerfield Subdivision Application”).

On April 26, 2022, the Incorporated Village of Head of the Harbor and certain other parties commenced a special proceeding (the “Article 78 Proceeding”) against the Town of Smithtown and certain other parties, including the Company, seeking to annul the Planning Board’s determinations relating to the Flowerfield Subdivision Application.

The Article 78 Proceeding was commenced by the filing of a petition (the “Petition”) in the Supreme Court of the State of New York, Suffolk County, pursuant to Article 78 of New York’s Civil Practice Law and Rules (“Article 78”).

Specifically, the Petition seeks to annul the Planning Board’s (i) approval of a findings statement, pursuant to the SEQRA, dated September 16, 2021, and adopted by the Planning Board on March 30, 2022, concerning the Flowerfield Subdivision Application, and (ii) preliminary approval on March 30, 2022 of the Flowerfield Subdivision Application.

The arguments made in the Petition are substantially similar to those made by opponents of the Flowerfield Subdivision Application during the SEQRA and subdivision process.

The Company and the Town of Smithtown are vigorously defending the Planning Board’s determinations against the Petition.

Challenging a government decision in an Article 78 proceeding can lead to delay in enforcement of the government action, whether or not the suit is successful, and the government sometimes agrees to delay implementation until legal challenges are resolved.

Although Article 78 proceedings take place on an expedited timeline and generally without discovery, 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.

Consequently, the commencement of the Article 78 Proceeding could result in a further extension of the Company’s timeline for completing the process of securing entitlements, selling our properties and distributing net proceeds.

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 the Company believes that standard market contract terms would include resolution to the Article 78 proceeding as condition to closing and 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 (i.e., potential contract contingencies including site plan approval (excluding the existing industrial buildings situated on two separate lots which can be sold together or separately upon the resolution of the Article 78 Proceeding and the conclusion of the subdivision, without any site plan approvals)) will necessitate an extension of the timeline.

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

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

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

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

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

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Compliance with these regulatory requirements is expensive and significantly lengthens the time needed to develop a site.

The liquidation basis of accounting requires us to accrue all costs associated with implementing and completing our plan of liquidation. 

Total liability for estimated costs in excess of estimated receipts during liquidation, inclusive of the costs listed above plus costs associated with the sale of real estate, payments made under the retention bonus plan and liquidating costs, total $12,845,239.

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

The liquidation basis of accounting requires us to accrue all costs associated with implementing and completing our plan of liquidation.

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

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The requirement in the Settlement that the Company sell its remaining properties at prices above the December 2014 appraised values could limit the options available to the Company.

The Company believes that it is in the best interests of the shareholders to pursue certain pre-development enhancements to its remaining properties prior to seeking their ultimate disposition to a developer or other purchaser because doing so will result in higher estimated distributions as compared with selling the properties with their current zoning and entitlements.

The Company believes that it is in the best interests of the shareholders to pursue certain pre-development enhancements to our remaining properties prior to seeking their ultimate disposition to a developer or other purchaser because doing so will result in higher aggregate values for such properties as a whole and thus higher estimated distributions as compared with selling the properties with their current zoning and entitlements.

The Company may also entertain offers from potential buyers who may be willing to pay prices for the properties in their current entitlement and zoning status that the Company finds more attractive from a timing or value perspective than might be achievable through completing an entitlement process.

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

Although the Company intends only to engage in value enhancement efforts and incur land entitlement costs if it reasonably believes that property values will increase more than the amount of such costs, and the Retention Bonus Plan as amended properly incentivizes the Company to do so by calculating the bonus pool as a percentage of the excess of gross sales proceeds from the sale of each property over the designated appraised value as adjusted by land entitlement costs, the price floor provision may nevertheless create a perverse incentive for the Company to incur certain land entitlement costs to increase the value of a property beyond its stipulated price floor even if the land entitlement costs incurred exceed the amount of the increase.

Although the Retention Bonus Plan as amended properly incentivizes the Company only to engage in value enhancement efforts and incur land entitlement costs if it reasonably believes that property values will increase more than the amount of such costs by calculating the bonus pool as a percentage of the excess of gross sales proceeds from the sale of each property over the designated appraised value as adjusted by land entitlement costs, the price floor provision may nevertheless create a perverse incentive for the Company to incur certain land entitlement costs to increase the value of a property beyond its stipulated price floor even if the land entitlement costs incurred exceed the amount of the increase.

Risks incidental to real estate ownership and management.

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liabilities incurred in the ordinary course of business.

Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our business operations, strategic goals and our financial condition and results of operations.

The Company believes we are currently capitalized with adequate cash levels, including proceeds from our credit facilities, to operate our business and complete our strategic plan of positioning our remaining properties for sale at enhanced values and making distributions to our shareholders. 

Nevertheless, the Company is considering seeking supplemental funding in the form of a new credit facility, a pro-rata rights offering or other appropriate funding mechanism to fortify our cash position to ensure we are operating through a position of strength through the duration of the liquidation to negotiate and enforce purchase agreements and defend our property rights in the Article 78 proceeding and in any other such proceeding that may arise.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems.

For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (the “FDIC”), as receiver.

Similarly, on March 12, 2023, Signature Bank, with whom our subsidiary GSD Cortlandt, LLC has a mortgage loan, was closed by the New York State Department of Financial Services, which appointed the FDIC as receiver.

Although a joint statement by the Department of the Treasury, the Federal Reserve and the FDIC announced that all depositors of SVB and Signature Bank would have access to all of their money, including funds held in uninsured deposit accounts, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder.

As of March 12, 2023, there were no undrawn amounts under GSD Cortlandt, LLC’s mortgage loan with Signature Bank.

As of such date, the Company had approximately $61,000 on deposit and approximately $97,000 in a real estate tax escrow account (escrow balance will not exceed approximately $109,000) at Signature Bank.

Although we assess our banking relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our business operations and strategic plans to position our properties and sell them for maximum value could be significantly impaired by factors that affect us, the financial institutions with which we have arrangements directly, or the financial services industry or economy in general.

These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry.

These factors could involve financial institutions or financial services industry companies with which we have financial or business relationships, but could also include factors involving financial markets or the financial services industry generally.

The results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations.

These could include, but may not be limited to, delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets, and/or the inability to refund, roll over or extend the maturity of, or enter into new credit facilities or other working capital resources.

In addition, investor concerns regarding the U.S.

or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all.

Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to achieve our strategic goals or cover our operating expenses, financial obligations or fulfill our other obligations, result in breaches of our financial and/or contractual obligations or result in violations of federal or state wage and hour laws.

Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our current and/or projected business operations and financial condition and results of operations.

If we are unable to maintain the occupancy rates of currently leased space and/or to lease currently available space, if tenants default under their leases or other obligations to us or if our cash flow is otherwise less than we expect, distributions to our shareholders may be delayed or reduced.

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

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

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

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

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The global health crisis caused by the novel coronavirus (“COVID-19”) pandemic and its resurgences has and may continue to negatively impact economic activity, which, despite progress in vaccination efforts, remains uncertain and cannot be predicted with confidence.

In addition, the new Omicron variant of COVID-19, which appears to be the most transmissible variant to date, continues to spread domestically.

The long-term impact of the pandemic on our liquidation plan cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, effectiveness of COVID-19 vaccines and responses by governmental bodies and regulators, including in particular those local authorities that preside over our entitlement process.

The long-term impact of the pandemic on our liquidation plan cannot be predicted at this time, and could depend on numerous factors, including the impact of work-from-home and telemedicine on real property utilization trends, vaccination rates among the population, effectiveness of COVID-19 vaccines and responses by governmental bodies and regulators, including in particular those local authorities that preside over our entitlement process.

Although the Company’s ongoing operations have appeared to recover generally from the effects of the COVID-19 pandemic, the pandemic has resulted and may continue to result in delays in necessary interactions with local authorities and ultimately delays in receiving approvals from such authorities due to limitations in employee resources or forced furlough of government employees.

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At this time, however, it is difficult to predict to what degree further disruption might impact the Company’s operations and financial results or how the potential strategic impacts of COVID-19 will affect our entitlement process.

A sustained or further increase in inflation could have an adverse impact on our operating expenses, and higher interest rates could result in lower sales proceeds from future dispositions .

In an effort to control inflation, the Federal Reserve in March 2022 began, has continued, and is expected to continue, to raise interest rates.

During periods of increasing interest rates, real estate valuations have generally decreased as a result of rising capitalization rates, which tend to be positively correlated with interest rates.

Consequently, prolonged periods of higher interest rates may negatively impact the valuation of our properties and result in lower sales proceeds from future dispositions.

A sustained or further increase in inflation could have an adverse impact on our operating expenses incurred in connection with, among other things, repairs and maintenance, janitorial, utilities, security and insurance.

Some of our operating expenses may be recoverable through our lease arrangements.

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.

There can be no assurance that our tenants would be able to absorb these expense increases and be able to continue to pay us their portion of operating expenses, capital expenditures and rent.

Also, due to rising costs, our tenants may be unable to continue operating their businesses altogether.

Alternatively, our tenants may decide to relocate to areas with lower rent and operating expenses.

Such adverse impacts on our tenants may cause increased vacancies, which may add pressure to lower rents and increase our expenditures for re-leasing resulting in reduced sale proceeds.

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

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investment if the value of the property securing the debt falls or if we are forced to refinance the debt during adverse economic conditions.

The Company secured a non-revolving credit line for up to $3,000,000 (the “Original Line”) with a bank, which closed on March 21, 2018 and which loan matures on April 30, 2028.

The Company is paying interest at a fixed rate of 3.85% plus principal based on a 20-year amortization period.

To secure access to additional working capital through the final sale date of the Flowerfield industrial buildings, the Company secured a second loan with the Original Line bank for up to $3,000,000 (“Working Capital Line”), which closed on January 24, 2019.

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).

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.

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.

The loan will mature on April 30, 2028.

The outstanding balance as of December 31, 2022 was $2,075,005.

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.

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

The loan matures on May 20, 2028.

The Company is paying interest at a fixed rate of 3.85% plus principal based on a 20-year amortization period.

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

The loan contains a financial covenant which requires the Company to maintain 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.

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

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

The loan will mature on May 20, 2028.

The outstanding balance as of December 31, 2022 was $2,838,477.

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

As of December 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.

On September 15, 2021, the Company, through its subsidiary GSD Cortlandt, LLC (“GSD Cortlandt”), secured a $4.95 million term loan (the “Mortgage Loan”) from Signature Bank, the proceeds of which were 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 percent (70%) 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.

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 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 also is 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 Manor 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 outstanding balance as of December 31, 2022 was $4,846,601.

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

On March 12, 2023, Signature Bank was closed by the New York State Department of Financial Services, which appointed the Federal Deposit Insurance Corporation (the “FDIC”) as receiver.

To protect depositors, the FDIC transferred all the deposits and substantially all of the assets of Signature Bank to Signature Bridge Bank, N.A., a full-service bank that will be operated by the FDIC as it markets the institution to potential bidders.

On March 12, 2023, the Company had approximately $61,000 on deposit and approximately $97,000 in a real estate tax escrow account (escrow balance will not exceed approximately $109,000) at Signature Bank.

Based upon the announcement on March 12, 2023, from the U.S.

Department of the Treasury, the U.S.

Federal Reserve and the FDIC that all depositors of Signature Bank would have access to all of their deposits and the fact that the amount on deposit is below the $250,000 cap on FDIC deposit insurance, the Company expects to have access to all of its cash on deposit at Signature Bank.

As of March 12, 2023, there were no undrawn amounts under the Mortgage Loan.

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

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

What changed 10-K

Item 1A. Risk Factors