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Item 1A. Risk Factors

2023-05-12 compared with 2022-11-08 · 33 added, 48 removed, 49 unchanged (62% of the section changed)

For information regarding factors that could affect our business, results of operations, financial condition and liquidity, see the risk factors discussed under Part I, Item 1A of our 2021 Form 10-K filed with the Securities and Exchange Commission on March 30, 2022.

The following risk factors which appear in our 2021 Form 10-K are updated as follows:

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

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

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

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

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 will necessitate an extension of the timeline generally.

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 recent months, the consumer price index has increased substantially.

Federal policies and recent global events, such as the rising price of oil and the conflict between Russia and Ukraine, may have exacerbated, and may continue to exacerbate, increases in the consumer price index.

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.

Items 2 through 5 are not applicable to the Company in the nine-months ended September 30, 2022.

The following risk factor disclosure supplements the discussion of our risk factors previously disclosed in our last Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

The risk factors disclosed in our last Annual Report on Form 10-K and the risk factors below could materially and adversely affect our business, financial condition and results of operations, and our business also could be impacted by other risk factors that are not presently known to us or that we currently consider to be immaterial.

Further, our disclosure of a risk should not be interpreted to imply that the risk has not already developed or materialized.

We are subject to risks associated with proxy contests and other actions of activist shareholders.

Publicly traded companies have increasingly become subject to campaigns by activist investors advocating corporate actions such as governance changes, financial restructurings, sales of assets and changes to executive and director compensation.

We have received a notice dated April 25, 2023 from Star Equity Fund, LP (“Star Equity”), which allegedly owned approximately 5.4% of the Company’s outstanding shares at the time of submission, purporting to nominate a slate of two candidates for election as directors at our 2023 Annual Meeting of Shareholders.

The Company values input from all shareholders, including Star Equity, and remains open to ongoing engagement with Star Equity.

However, if the Company and Star Equity cannot reach an agreement in connection with its nomination, there will be a contested election at the Company’s 2023 Annual Meeting of Shareholders.

A proxy contest or related activities on the part of activist shareholders, including, among others, Star Equity, could adversely affect our business for a number of reasons, including, without limitation, the following:

Responding to proxy contests and other actions by activist shareholders can be costly and time-consuming, disrupting our operations and diverting the attention of our Board of Directors (the “Board”), management and employees, and could adversely impact the Company’s ability to achieve timely or at all our strategic objective of positioning our properties so they can be sold at higher values resulting in maximum distributions to all of our shareholders;

Perceived uncertainties as to our future direction may result in the loss or compromise of potential opportunities to liquidate our properties for maximum value;

A successful proxy contest could result in a change of control of our Board, and such an event could subject us to certain contractual obligations under certain material agreements;

If nominees advanced by activist shareholders are elected or appointed to our Board with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plan to position our properties for sale at values that will maximize distributions to all of our shareholders;

Proxy contests may cause our stock price to experience periods of volatility.

Items 2 through 5 are not applicable to the Company in the three-months ended March 31, 2023.

Articles of Organization of Gyrodyne, LLC, dated as of October 3, 2013 (1)

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Inline XBRL Instance (7)

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Inline XBRL Taxonomy Extension Definition (7)

Inline XBRL Taxonomy Extension Labels (7)

Inline XBRL Taxonomy Extension Presentation (7)

Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

101.INS Inline XBRL Instance (7)

101.SCH Inline XBRL Taxonomy Extension Schema (7)

101.CAL Inline XBRL Taxonomy Extension Calculation (7)

101.DE Inline FXBRL Taxonomy Extension Definition (7)

101.LAB Inline XBRL Taxonomy Extension Labels (7)

101.PRE Inline XBRL Taxonomy Extension Presentation (7)

104  

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 filed with the Securities and Exchange Commission on October 21, 2013.

3 unchanged sentences

Incorporated herein by reference to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 2, 2018.

Incorporated herein by reference to the Company’s Current Report on Form 10-Q, filed with the Securities and Exchange Commission on May 11, 2022.

Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 11, 2022.

Filed as part of this Report.

4 unchanged sentences

GYRODYNE, LLC

November 8, 2022

/s/ Gary Fitlin

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Inline XBRL Instance (7)

Inline XBRL Taxonomy Extension Schema (7)

Inline XBRL Taxonomy Extension Calculation (7)

Inline XBRL Taxonomy Extension Definition (7)

Inline XBRL Taxonomy Extension Labels (7)

Inline XBRL Taxonomy Extension Presentation (7)

Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

101.INS Inline XBRL Instance (7)

101.SCH Inline XBRL Taxonomy Extension Schema (7)

101.CAL Inline XBRL Taxonomy Extension Calculation (7)

101.DEF Inline XBRL Taxonomy Extension Definition (7)

101.LAB Inline XBRL Taxonomy Extension Labels (7)

101.PRE Inline XBRL Taxonomy Extension Presentation (7)

104     

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 filed with the Securities and Exchange Commission on October 21, 2013.

3 unchanged sentences

Incorporated herein by reference to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 2, 2018.

Incorporated herein by reference to the Company’s Current Report on Form 10-Q, filed with the Securities and Exchange Commission on May 11, 2022.

Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 11, 2022.

Filed as part of this Report.

3 unchanged sentences

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-Q

Item 1A. Risk Factors